& E -lU/S T1O -9 X '4 at

[6450-01-P]

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430

[Docket Number EE-RM-9-]5W]

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, Department of Energy.

ACTION: Notice of Proposed Rulemaking and Public Hearing.

SUMMARY: Pursuant to the Energy Policy and Conservation Act, as amended, the Department

of Energy (DOE, Department, or we) is proposing to amend the energy conservation standards

for residential central air conditioners and heat pumps to require them to be more energy

efficient, and is announcing a public hearing on the proposal.

DATES: Comments must be received on or before [insert date 60 days from date of

publication]. DOE is requesting a signed original, a computer diskette (WordPerfect 8) and 10

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd ~~~~~~~~~1 ~~October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

[6450-01-P] 

DEPARTMENT OF ENERGY 

Office of Energy Efficiency and Renewable Energy 

10 CFR Part 430 

'I~-LJLIO [Docket Number EE-RM-9Y egQ] 

R1N: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, Department of Energy. 

ACTION: Notice of Proposed Rulemaking and Public Hearing. 

SUMMARY: Pursuant to the Energy Policy and Conservation Act, as amended, the Department 

of Energy (DOE, Department, or we) is proposing to amend the energy conservation standards 

for residential central air conditioners and heat pumps to require them to be more energy 

efficient, and is announcing a public hearing on the proposal. 

DATES: Comments must be received on or before [insert date 60 days from date of 

publication]. DOE is requesting a signed original, a computer diskette (WordPerfect 8) and 10 

1 Q:\EE-41 IEE-431 ICACIStandRuI\NOPRIDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 '-)

copies of the written comments. The Department will also accept e-mailed comments, but you

must send a signed original. Oral views, data, and arguments may be presented at the public

hearing (workshop) in Washington, D.C. beginning at 9:00 a.m. on November 16, 2000.

The Department must receive requests to speak at the public hearing and a copy of your

statements no later than 4:00 p.m., November 1, 2000, and we request that you provide a

computer diskette (WordPerfect 8) of each statement at that time.

ADDRESSES: Please submit written comments, oral statements, and requests to speak at the

public hearing to: Brenda Edwards-Jones, U.S. Department of Energy, Office of Energy

Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products:

Central Air Conditioners and Heat Pumps, Docket No. EE-RM/STD-97-500, 1000 Independence

Avenue, S.W., Washington, D.C. 20585-0121. You may send emails to: brenda.edwardsjones).ee.doe.gov.

The hearing will begin at 9:00 a.m., in Room 1E-245 at the U.S. Department of Energy,

Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more

information concerning public participation in this rulemaking proceeding in Section VIII,

"Public Comment Procedures," of this notice of proposed rulemaking.

You may read copies of the public comments, the Technical Support Document for

Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps

Q:\EE-4 I \EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 2 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

-" 

EE-RM/STD-88-440 - 3 0 '1-08 ,,. 

copies of the written comments. The Department will also accept e-mailed comments, but you ( 

must send a signed original. Oral views, data, and arguments may be presented at the public 

hearing (workshop) in Washington, D.C. beginning at 9:00 a.m. on November 16,2000. 

The Department must receive requests to speak at the public hearing and a copy of your 

statements no later than 4:00 p.m., November 1, 2000, and we request that you provide a 

computer diskette (WordPerfect 8) of each statement at that time. 

ADDRESSES: Please submit written comments, oral statements, and requests to speak at the 

public hearing to: Brenda Edwards-lones, U.S. Department of Energy, Office of Energy 

Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: 

Central Air Conditioners and Heat Pumps, Docket No. EE-RMlSTD-97-500, 1000 Independence 

Avenue, S.W., Washington, D.C. 20585-0121. You may send emails to: brenda. edwardsjones@ee.doe.gov. 

The hearing will begin at 9:00 a.m., in Room lE-245 at the u.S. Department of Energy, 

Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more 

information concerning public participation in this rulemaking proceeding in Section VIII, 

"Public Comment Procedures," of this notice of proposed rulemaking. 

You may read copies of the public comments, the Technical Support Document for 

Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps 

2 Q:IEE-41 IEE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440. 30 -O

(TSD), the transcript of the public hearing, and previous workshop transcripts in this proceeding

at the DOE Freedom of Information (FOI) Reading Room, U.S. Department of Energy, Forrestal

Building, Room 1E-190, 1000 Independence Avenue, S.W., 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. You may obtain copies of the TSD and analysis spreadsheets from the Office of

Energy Efficiency and Renewable Energy's (EERE) web site at:

http://www.eren.doe.gov/buildings/codes_standards/applbrf/centralairconditioner.html.

FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department of

Energy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000

Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586-0854, e-mail:

michael.e.mccabe@ee.doe.gov, or Edward Levy, Esq., U.S. Department of Energy, Office of

General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington,

D.C. 20585, (202) 586-9507, e-mail: edward.levy@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of Proposed Rule

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Previous Rulemakings

3. Process Improvement

III. General Discussion

A. Test Procedures

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

3 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307 .".-

EE-RM/STD-98-440_ 301-oB 

(TSD), the transcript of the public hearing, and previous workshop transcripts in this proceeding 

at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department of Energy, Forrestal 

Building, Room lE-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586-

3142, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal 

holidays. You may obtain copies of the TSD and analysis spreadsheets from the Office of 

Energy Efficiency and Renewable Energy's (EERE) web site at: 

http://www.eren.doe.gov/buildings/codes _ standards/applhrf/central_ air _ conditioner.html. 

FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department of 

Energy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 

Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586-0854, e-mail: 

michael.e.mccabe@ee.doe.gov, or Edward Levy, Esq., U.S. Department of Energy, Office of 

General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington, 

D.C. 20585, (202) 586-9507, e-mail: edward.levy@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of Proposed Rule 

II. Introduction 

A. Authority 

B. Background 

1. Current Standards 

2. History of Previous Rulemakings 

3. Process Improvement 

III. General Discussion 

A. Test Procedures 

3 Q:IEE-41IEE-43I ICACIStandRul\NOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3 ) '7-

B. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

C. Energy Savings

1. Determination of Savings

2. Significance of Savings

D. Rebuttable Presumption

E. Economic Justification

1. Economic Impact on Manufacturers and Consumers

2. Life-Cycle Costs

3. Energy Savings

4. Lessening, If Any, of Utility or Performance of Products

5. Impact of Any Lessening of Competition

6. Need of The Nation to Conserve Energy

7. Other Factors

IV. Methodology

A. Life-Cycle-Cost and Payback Period Analysis

B. National Energy Savings and Net Present Value Analysis

C. Manufacturer Impact Analysis

1. Phase 1, Industry Profile

2. Phase 2, Industry Cash Flow Analysis

3. Phase 3, Sub-Group Impact Analysis

4. GRIM Analysis

D. NEMS Environmental Analysis

V. Discussion of Comments

A. Engineering Cost Data

1. Reverse Engineering Cost Estimates

2. Productivity Efficiency Improvements

3. Emerging Technologies

4. HFC-Based Engineering Analysis

B. Life-Cycle-Cost Parameters

1. Extended Warranty and Service Costs

2. Residential Energy Consumption Survey (RECS)

3. Equipment Lifetime

4. Commercial Applications

5. Marginal Electricity Prices

6. Forecast of Future Electricity Prices

7. Discount Rates

8. Percentage of Households with LCC Savings

9. Regional Analysis

10. Rebuttable Payback

11. Sensitivity Analyses

C. Shipments Analysis

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

4 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307 , ... 

B. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible Levels 

C. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

D. Rebuttable Presumption 

E. Economic Justification 

EE-RM/STD-98-440 . 3 0 7-08 

1. Economic Impact on Manufacturers and Consumers 

2. Life-Cycle Costs 

3. Energy Savings 

4. Lessening, If Any, of Utility or Performance of Products 

5. Impact of Any Lessening of Competition 

6. Need of The Nation to Conserve Energy 

7. Other Factors 

IV. Methodology 

A. Life-Cycle-Cost and Payback Period Analysis 

B. National Energy Savings and Net Present Value Analysis 

C. Manufacturer Impact Analysis 

1. Phase 1, Industry Profile 

2. Phase 2, Industry Cash Flow Analysis 

3. Phase 3, Sub-Group Impact Analysis 

4. GRIM Analysis 

D. NEMS Environmental Analysis 

V. Discussion of Comments 

A. Engineering Cost Data 

1. Reverse Engineering Cost Estimates 

2. Productivity Efficiency Improvements 

3. Emerging Technologies 

4. HFC-Based Engineering Analysis 

B. Life-Cycle-Cost Parameters 

1. Extended Warranty and Service Costs 

2. Residential Energy Consumption Survey (RECS) 

3. Equipment Lifetime 

4. Commercial Applications 

5. Marginal Electricity Prices 

6. Forecast of Future Electricity Prices 

7. Discount Rates 

8. Percentage of Households with LCC Savings 

9. Regional Analysis 

10. Rebuttable Payback 

11. Sensitivity Analyses 

C. Shipments Analysis 

4 Q:IEE-41 IEE-431 \CAC\StandRul\NOPRIDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30-0

1. Forecasted Housing Shifts

2. Elasticities

3. Equipment Efficiency

4. Fuel Switching

D. National Energy Savings Analysis

1. Uncertainty in NES Results

2. Site-to-Source Conversion

E. Consumer Sub-Group Analysis, Low Income Renters

F. Utility and Environmental Analysis

1. Peak Power Impacts, Reliability

2. Quantitative Assessment of Impacts on Peak Demand

3. Qualitative Assessment of Air Conditioning Standards Impact on

Power System Reliability

4. Competitive Residential Market

G. Manufacturer Impact Analysis - Low Volume Manufacturers

H. Markups

I. EER-Based Efficiency Standard

1. Current Relationship between SEER and EER

2. Options for Possible EER Standards

J. Niche Products

1. Ductless Split Air Conditioners and Heat Pumps

2. Small Duct High Velocity Air Conditioners

3. Vertical Packaged, Wall Mounted

4. Through-the-Wall Condensers

5. Non-Weatherized Single-Package Unit, Mounted Entirely within the

Structure

6. Request for Comments Regarding Niche Product Standards

K. Thermostatic Expansion Valves

L. Other Comments

1. Latent Heat Removal

2. 3-Phase Equipment

3. SEER-HSPF Relationship

4. Max Tech

VI. Analytical Results

A. Trial Standard Levels

B. Significance of Energy Savings

C. Payback Period

D. Economic Justification

1. Economic Impact on Manufacturers

2. Life-Cycle Cost

3. Net Present Value and Net National Employment

4. Impact on Utility or Performance of Products

5. Impact of Any Lessening of Competition

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

5 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307 ., 

EE-RM/STD-98-440-301-08 

1. Forecasted Housing Shifts 

2. Elasticities 

3. Equipment Efficiency 

4. Fuel Switching 

D. National Energy Savings Analysis 

1. Uncertainty in NES Results 

2. Site-to-Source Conversion 

E. Consumer Sub-Group Analysis, Low Income Renters 

F. Utility and Environmental Analysis 

1. Peak Power Impacts, Reliability 

2. Quantitative Assessment of Impacts on Peak Demand 

3. Qualitative Assessment of Air Conditioning Standards Impact 9n 

Power System Reliability 

4. Competitive Residential Market 

G. Manufacturer Impact Analysis - Low Volume Manufacturers 

H. Markups 

I. EER-Based Efficiency Standard 

1. Current Relationship between SEER and EER 

2. Options for Possible EER Standards 

J. Niche Products 

1. Ductless Split Air Conditioners and Heat Pumps 

2. Small Duct High Velocity Air Conditioners 

3. Vertical Packaged, Wall Mounted 

4. Through-the-Wall Condensers 

5. Non-Weatherized Single-Package Unit, Mounted Entirely within the 

Structure 

6. Request for Comments Regarding Niche Product Standards 

K. Thermostatic Expansion Valves 

L. Other Comments 

1. Latent Heat Removal 

2. 3-Phase Equipment 

3. SEER-HSPF Relationship 

4. Max Tech 

VI. Analytical Results 

A. Trial Standard Levels 

B. Significance of Energy Savings 

C. Payback Period 

D. Economic Justification 

1. Economic Impact on Manufacturers 

2. Life-Cycle Cost 

3. Net Present Value and Net National Employment 

4. Impact on Utility or Performance of Products 

5. Impact of Any Lessening of Competition 

5 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3£ ¢ 0

6. Need of the Nation to Save Energy

7. Other Factors

E. Conclusion

VII. 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

VIII. Public Comment

A. Written Comment Procedures

B. Public Workshop/Hearing

1. Procedure for Submitting Requests to Speak

2. Conduct of Hearing

C. Issues for Which DOE Seeks Comment

I. Summary of Proposed Rule

The Department is proposing to raise the energy efficiency standards for residential air

conditioners and central air conditioning heat pumps (heat pumps) to 12 SEER' for air

conditioners and to 13 SEER/7.7 HSPF 2 for heat pumps. The proposed standards

would apply to all covered products offered for sale in the United States, effective on

January 1, 2006. The proposed standard for split system air conditioners, the most common type

of residential air conditioning equipment represents a 20 % improvement in energy efficiency.

'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.

2HSPF, Heating Seasonal Performance Factor, is the Department's measure of energy efficiency for the

seasonal heating performance of heat pumps.

Q:\EE-41 \EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 6 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

6. Need of the Nation to Save Energy 

7. Other Factors 

E. Conclusion 

VII. Procedural Issues and Regulatory Review 

A. Review Under the National Environmental Policy Act 

EE-RM/STD-98-440· 3(J108 

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 

VIII. Public Comment 

A. Written Comment Procedures 

B. Public WorkshoplHearing 

1. Procedure for Submitting Requests to Speak 

2. Conduct of Hearing 

C. Issues for Which DOE Seeks Comment 

I. Summary of Proposed Rule 

The Department is proposing to raise the energy efficiency standards for residential air 

conditioners and central air conditioning heat pumps (heat pumps) to 12 SEER I for air 

conditioners and to 13 SEERl7. 7 HSPF2 for heat pumps. The proposed standards 

would apply to all covered products offered for sale in the United States, effective on 

January 1,2006. The proposed standard for split system air conditioners, the most common type 

of residential air conditioning equipment represents a 20 % improvement in energy efficiency. 

I SEER, Seasonal Energy Efficiency Ratio, is the Department's measure of energy efficiency for the 

seasonal cooling perfonnance of central air conditioners and heat pumps. 

2HSPF, Heating Seasonal Perfonnance Factor, is the Department's measure of energy efficiency for the 

seasonal heating perfonnance of heat pumps. 

6 Q:\EE-41 \EE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 - 0o

For split system heat pumps, the new standards would represent a 30 % improvement in cooling

efficiency and a 13% improvement in heating efficiency. The proposed standards would also

increase the efficiency of packaged air conditioners and packaged heat pumps by 24% and 17%,

respectively. Finally, the Department is proposing provisions for some special products to ensure

that more efficient versions remain available for niche applications.

The proposed standards would save a significant amount of energy and, as a result of less

electricity being produced, result in a cleaner environment. In the 25-year period after the new

standards become effective, the nation would save over 3.4 Quads3 of primary energy, equivalent

to all the energy consumed by nearly 18 million American households in a single year. These

energy savings would also significantly reduce the emissions of air pollutants and greenhouse

gases associated with electricity production, by avoiding the emission of 56 million tons (Mt) of

Carbon and 52 thousand tons (kt) nitrogen oxides (NOx). Also, the standards are expected to

eliminate the need for the construction of approximately 31 (4 coal-fired and 27 natural gas-fired)

new large, 400 megaWatt (MW), power plants in 2020.

In addition to the increase proposed in SEER and HSPF, we are proposing and requesting

public comments on a proposal to adopt a standard for steady-state cooling efficiency, EER.4 A

requirement on EER would ensure more efficient operation at high outdoor temperature, during

3 Quad, means quadrillion (1015 Btus).

4 EER, Energy Efficiency Ratio, is a steady-state measure of energy efficiency which measures efficiency

at a prescribed outdoor temperature (95F), and is one of the test conditions in the Department's test procedure used

to develop the SEER.

Q:\EE-41\EE-43 I\CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

7 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - JL) 1- 08 

For split system heat pumps, the new standards would represent a 30 % improvement in cooling 

efficiency and a 13% improvement in heating efficiency. The proposed standards would also 

increase the efficiency of packaged air conditioners and packaged heat pumps by 24% and 17%, 

respectively. Finally, the Department is proposing provisions for some special products to ensure 

that more efficient versions remain available for niche applications. 

The proposed standards would save a significant amount of energy and, as a result of less 

electricity being produced, result in a cleaner environment. In the 25-year period after the new 

standards become effective, the nation would save over 3.4 Quads3 of primary energy, equivalent 

to all the energy consumed by nearly 18 million American households in a single year. These 

energy savings would also significantly reduce the emissions of air pollutants and greenhouse 

gases associated with electricity production, by avoiding the emission of 56 million tons (Mt) of 

Carbon and 52 thousand tons (kt) nitrogen oxides (NOx). Also, the standards are expected to 

eliminate the need for the construction of approximately 31 (4 coal-fired and 27 natural gas-fired) 

new large, 400 megaWatt (MW), power plants in 2020. 

In addition to the increase proposed in SEER and HSPF, we are proposing and requesting 

public comments on a proposal to adopt a standard for steady-state cooling efficiency, EER.4 A 

requirement on EER would ensure more efficient operation at high outdoor temperature, during 

3 Quad, means quadrillion (lOIS Btus). 

4 EER, 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. 

7 Q:\EE-41 \EE-43 I \CAC\StandRuI\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-0 -)

periods when electricity use by air conditioners is at its peak. This would help to further alleviate

the need for new electric power plants and reduce the demands placed on the electric

transmission and distribution systems during periods of high usage, thereby, improving system

reliability.

Finally, consumers would see benefits from the proposed standards. For example, while

the initial cost of a typical central air conditioner would increase by $122 to $153 or about 10-

12%, the higher efficiency equipment would save enough over its life to pay for the increase in

the price of the equipment plus an extra $45. Many consumers, especially air conditioner owners

in warmer parts of the country and heat pump owners, would save even more.

While the higher efficiency units are widely available today and promoted through the

Department of Energy and the Environmental Protection Agency (EPA) Energy Stare program,

as well as utility rebate programs, manufacturers would be redesigning their product line to meet

the efficiency standards. At the same time they would be redesigning their products to respond

to the phase-out hydrochloroflourocarbons (HCFC's) refrigerants required by EPA. By making

both changes at once, i.e., efficiency and HCFC refrigerants, manufacturers will be able to plan

and apply their resources in a cost-effective manner, resulting in lower burdens and costs.

II. Introduction

A. Authority

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

8 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE·RM/STD-98-440- 30 7~ 08 

periods when electricity use by air conditioners is at its peak. This would help to further alleviate 

the need for new electric power plants and reduce the demands placed on the electric 

transmission and distribution systems during periods of high usage, thereby, improving system 

reliability. 

Finally, consumers would see benefits from the proposed standards. For example, while 

the initial cost of a typical central air conditioner would increase by $122 to $153 or about 10-

12%, the higher efficiency equipment would save enough over its life to pay for the increase in 

the price of the equipment plus an extra $45. Many consumers, especially air conditioner owners 

in wanner parts of the country and heat pump owners, would save even more. 

While the higher efficiency units are widely available today and promoted through the 

Department of Energy and the Environmental Protection Agency (EPA) Energy Star® program, 

as well as utility rebate programs, manufacturers would be redesigning their product line to meet 

the efficiency standards. At the same time they would be redesigning their products to respond 

to the phase-out hydrochloroflourocarbons (HCFC's) refrigerants required by EPA. By making 

both changes at once, i.e., efficiency and HCFC refrigerants, manufacturers will be able to plan 

and apply their resources in a cost-effective manner, resulting in lower burdens and costs. 

II. Introduction 

A. Authority 

8 Q:IEE-41 IEE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 5 j

Part B of Title III of the Energy Policy and Conservation Act (EPCA), Pub. L. 94-163, as

amended by the National Energy Conservation Policy Act of 1978, Pub. L. 95-619, the National

Appliance Energy Conservation Act, Pub. L. 100-12, the National Appliance Energy

Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub.

L. 102-4865 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. EPCA Section 322(a)(4),

42 U.S.C. 6292(a)(4).

Under the Act, the program consists essentially of four parts: testing, labeling, Federal

energy conservation standards, and certification and enforcement procedures. The Federal Trade

Commission is responsible for labeling, and DOE implements the remainder of the program.

Section 323 of the Act authorizes the Department, with assistance from the National Institute of

Standards and Technology (NIST) and subject to certain criteria and conditions, to develop test

procedures to measure the energy efficiency, energy use, or estimated annual operating cost of

each covered product. 42 U.S.C. 6293. The central air conditioners and heat pump test

procedures appear at Title 10 Code of Federal Regulations (CFR) Part 430, Subpart B,

Appendix M.

5Part 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 the "Act," or "EPCA." 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.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

9 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3 {J 1-06 

Part B of Title III of the Energy Policy and Conservation Act (EPCA), Pub. L. 94-163, as 

amended by the National Energy Conservation Policy Act of 1978, Pub. L. 95-619, the National 

Appliance Energy Conservation Act, Pub. L. 100-12, the National Appliance Energy 

Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub. 

L. 102-4865 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. EPCA Section 322(a)(4), 

42 U.S.C. 6292(a)(4). 

Under the Act, the program consists essentially of four parts: testing, labeling, Federal 

energy conservation standards, and certification and enforcement procedures. The Federal Trade 

Commission is responsible for labeling, and DOE implements the remainder of the program. 

Section 323 of the Act authorizes the Department, with assistance from the National Institute of 

Standards and Technology (NIST) and subject to certain criteria and conditions, to develop test 

procedures to measure the energy efficiency, energy use, or estimated annual operating cost of 

each covered product. 42 U.S.C. 6293. The central air conditioners and heat pump test 

procedures appear at Title 10 Code of Federal Regulations (CFR) Part 430, Subpart B, 

AppendixM. 

5Part 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 the "Act," or "EPCA." 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. 

9 Q:IEE-41 IEE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 -08

The Act prescribes initial Federal energy conservation standards for each of the listed

covered products, except television sets. EPCA Section 325 (b)-(k), 42 U.S.C. 6295 (b)-(k). For

central air conditioners and heat pumps, EPCA Section 325(d)(3)(A) specifies that the standards

are to be reviewed by the Department no later than January 1, 1994. 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). Moreover, the Department may not

prescribe a standard for: (1) certain products, including central air conditioners and heat pumps,

if no test procedure has been established for the product, or (2) any product, if DOE determines

by rule that a standard for the product either would not result in significant conservation of

energy, or is not technologically feasible or economically justified. EPCA Section 325(o)(3), 42

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

Section 325(o)(2)(B)(i), 42 U.S.C. 6295(o)(2)(B)(i) provides that DOE must determine

whether a standard is economically justified, after receiving comments on the proposed standard,

and whether the benefits of the standard exceed its burdens, based, to the greatest extent

practicable, on a weighing of the following seven factors:

"(1) The economic impact of the standard on the manufacturers and the consumers of

the products subject to such standard;

(2) 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

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

10 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3LJ 1-08 

The Act prescribes initial Federal energy conservation standards for each of the listed 

covered products, except television sets. EPCA Section 325 (b)-(k), 42 U.S.C. 6295 (b)-(k). For 

central air conditioners and heat pumps, EPCA Section 325( d)(3)(A) specifies that the standards 

are to be reviewed by the Department no later than January 1, 1994. 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(0)(2)(A), 42 U.S.C. 6295(0)(2)(A). Moreover, the Department may not 

prescribe a standard for: (1) certain products, including central air conditioners and heat pumps, 

ifno test procedure has been established for the product, or (2) any product, if DOE determines 

by rule that a standard for the product either would not result in significant conservation of 

energy, or is not technologically feasible or economically justified. EPCA Section 325(0)(3), 42 

U.S.C.6295(0)(3). 

Section 325(0)(2)(B)(i), 42 U.S.C. 6295(0)(2)(B)(i) provides that DOE must determine 

whether a standard is economically justified, after receiving comments on the proposed standard, 

and whether the benefits of the standard exceed its burdens, based, to the greatest extent 

practicable, on a weighing of the following seven factors: 

"( 1) The economic impact of the standard on the manufacturers and the consumers of 

the products subject to such standard; 

(2) 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 

10 Q:IEE-41 IEE-431\CAC\StandRulINOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 '7'- " O8

charges for, or maintenance expenses of, the covered products which are likely to result

from the imposition of the standard;

(3) The total projected amount of energy ... savings likely to result directly from the

imposition of the standard;

(4) Any lessening of the utility or the performance of the covered products likely to

result from the imposition of the standard;

( 5) The impact of any lessening of competition, as determined in writing by the Attorney

General, that is likely to result from the imposition of the standard;

(6) The need for national energy... conservation; and

(7) Other factors the Secretary considers relevant."

In addition, Section 325(o)(2)(B)(iii) of the Act, 42 U.S.C. 6295(o)(2)(B)(iii), establishes

a rebuttable presumption that a standard is economically justified if the Secretary finds that "the

additional cost to the consumer of purchasing a product complying with an energy conservation

standard level will be less than three times the value of the energy... savings during the first year

that the consumer will receive as a result of the standard, as calculated under the applicable test

procedure ...." The rebuttable presumption test is an alternative path to establishing economic

justification.

Section 327 of the Act, 42 U.S.C. 6297, provides that generally the Federal energy

efficiency requirements supersede State laws or regulations concerning energy conservation

testing, labeling, and standards, and specifies limited exceptions to this general rule. EPCA

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd ~~1 ~~~~~~~1 ~October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 ~3 0 ,( ... 08 

charges for, or maintenance expenses of, the covered products which are likely to result 

from the imposition of the standard; 

(3) The total projected amount of energy ... savings likely to result directly from the 

imposition of the standard; 

(4) Any lessening of the utility or the performance of the covered products likely to 

result from the imposition of the standard; 

(5) The impact of any lessening of competition, as determined in writing by the Attorney 

General, that is likely to result from the imposition of the standard; 

(6) The need for national energy ... conservation; and 

(7) Other factors the Secretary considers relevant." 

In addition, Section 325(0)(2)(B)(iii) of the Act, 42 U.S.C. 6295(0)(2)(B)(iii), establishes 

a rebuttable presumption that a standard is economically justified if the Secretary finds that "the 

additional cost to the consumer of purchasing a product complying with an energy conservation 

standard level will be less than three times the value of the energy ... savings during the first year 

that the consumer will receive as a result of the standard, as calculated under the applicable test 

procedure .... " The rebuttable presumption test is an alternative path to establishing economic 

justification. 

Section 327 ofthe Act, 42 U.S.C. 6297, provides that generally the Federal energy 

. efficiency requirements supersede State laws or regulations concerning energy conservation 

testing, labeling, and standards, and specifies limited exceptions to this general rule. EPCA 

11 Q:IEE-41IEE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30 0°D

Section 327(a) through (c), 42 U.S.C. 6297 (a) through (c). The Department can grant a waiver

of preemption in accordance with the procedures and other provisions of Section 327(d) of the

Act. 42 U.S.C. 6297(d).

B. Background

1. Current Standards

The existing standards for residential central air conditioners and heat pumps have been

in effect since 1992. Energy efficiency for air conditioner and heat pump cooling has been

defined by the descriptor SEER. Energy efficiency for heat pumps has been defined by the

descriptor, Heating Seasonal Performance Factor (HSPF) while operating during the heating

season and by SEER while operating during the cooling season. The current central air

conditioners and heat pumps 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

2. History of Previous Rulemakings

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). On November 24, 1999, DOE published a

Supplemental ANOPR (hereinafter referred to as the Supplemental ANOPR). 64 FR 66306. In

the Supplemental ANOPR and during the December 9, 1999, public workshop, we provided

interested persons an opportunity to comment on several issues, including:

Q:\EE-41\EE-431\CAC\StandRul\NOPRDrafOPR\CACNOPR24.wpd 12 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 ~30 1-08 

Section 327(a) through (c), 42 U.S.C. 6297 (a) through (c). The Department can grant a waiver 

of preemption in accordance with the procedures and other provisions of Section 327(d) of the 

Act. 42 U.S.C. 6297(d). 

B. Background 

1. Current Standards 

The existing standards for residential central air conditioners and heat pumps have been 

in effect since 1992. Energy efficiency for air conditioner and heat pump cooling has been 

defined by the descriptor SEER. Energy efficiency for heat pumps has been defined by the 

descriptor, Heating Seasonal Performance Factor (HSPF) while operating during the heating 

season and by SEER while operating during the cooling season. The current central air 

conditioners and heat pumps 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 

2. History of Previous Rulemakings 

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). On November 24, 1999, DOE published a 

Supplemental ANOPR (hereinafter referred to as the Supplemental ANOPR). 64 FR 66306. In 

the Supplemental ANOPR and during the December 9, 1999, public workshop, we provided 

interested persons an opportunity to comment on several issues, including: 

12 Q:IEE-41 IEE-431 ICACIStandRu)INOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3 5 7- O&

(1) the product classes that the Department planned to analyze;

(2) the analytical framework, models (e.g., the Government Regulatory Impact Model

(GRIM)), and tools (e.g., a Monte Carlo sampling methodology, and the life-cycle cost

(LCC) and national energy savings (NES) spreadsheets) that the Department was using in

performing analyses of the impacts of energy conservation standards;

(3) the results of preliminary analyses for the engineering, LCC, payback and NES; and

(4) the candidate energy conservation standard levels that the Department had developed

from these analyses.

3. Process Improvement

The fiscal year (FY) 1996 appropriations legislation imposed a moratorium on proposed

or final rules for appliance efficiency standards for FY 1996. Pub. L. 104-134. During the

moratorium, the Department examined the appliance standards program and how it was working.

Congress advised DOE to correct the standards-setting process and to bring together stakeholders

(such as manufacturers and environmentalists) for assistance. Therefore, we consulted with

energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other

interested parties to provide input to the process used to develop appliance efficiency standards.

As a result, on July 15, 1996, the Department published a final rule: Procedures for

Consideration of New or Revised Energy Conservation Standards for Consumer Products

(referred to as the Process Rule) (61 FR 36974), codified at 10 CFR Part 430, Subpart C,

Appendix A.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

13 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 ~3 01- oB 

(1) the product classes that the Department planned to analyze; 

(2) the analytical framework, models (e.g., the Government Regulatory Impact Model 

(GRIM)), and tools (e.g., a Monte Carlo sampling methodology, and the life-cycle cost 

(LCC) and national energy savings (NES) spreadsheets) that the Department was using in 

performing analyses of the impacts of energy conservation standards; 

(3) the results of preliminary analyses for the engineering, LCC, payback and NES; and 

(4) the candidate energy conservation standard levels that the Department had developed 

from these analyses. 

3. Process Improvement 

The fiscal year (FY) 1996 appropriations legislation imposed a moratorium on proposed 

or final rules for IilPpliance efficiency standards for FY 1996. Pub. L. 104-134. During the 

moratorium, the Department examined the appliance standards program and how it was working. 

Congress advised DOE to correct the standards-setting process and to bring together stakeholders 

(such as manufacturers and environmentalists) for assistance. Therefore, we consulted with 

energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other 

interested parties to provide input to the process used to develop appliance efficiency standards. 

As a result, on July 15, 1996, the Department published a final rule: Procedures for 

Consideration of New or Revised Energy Conservation Standards for Consumer Products 

(referred to as the Process Rule) (61 FR 36974), codified at 10 CFR Part 430, Subpart C, 

AppendixA. 

13 Q:IEE-41 IEE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- .0'- 08

The Process Rule states that for products, such as central air conditioners and heat pumps,

for which DOE issued a proposed rule prior to August 14, 1996, DOE would conduct a review to

decide whether any of the analytical or procedural steps already completed should be repeated.

(61 FR 36982). DOE completed this review and decided to use the Process Rule, to the extent

possible, in the development of the revised central air conditioners and heat pumps standards.

We developed an analytical framework for the central air conditioners and heat pumps

standards rulemaking for our stakeholders, which we presented during a workshop on June 30,

1998. The analytical framework described the different analyses (e.g., LCC, payback and

manufacturing impact analyses (MIA)) to be conducted, the method for conducting them, the use

of new LCC and NES spreadsheets, and the relationship of the various analyses.

III. General Discussion

A. Test Procedures

Section 7(b) of the Process Rule states that necessary modifications to test procedures

concerning efficiency standards will be proposed before issuance of a proposed rule. Section

7(c) of the Process Rule states that a final modified test procedure will be issued prior to issuing

a proposed rule regarding energy conservation standards. The residential central air conditioner

and heat pump test procedure is being revised to improve its organization and ease of use, with a

proposed rule to be published. This revision of the test procedure is not expected to alter the

measured efficiencies as determined under the existing test procedure. Therefore, the revised test

procedure would not affect development of revised efficiency standards. For these reasons,

Q:\EE-41 EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 14 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -~JO''1- 0 B 

The Process Rule states that for products, such as central air conditioners and heat pumps, 

for which DOE issued a proposed rule prior to August 14, 1996, DOE would conduct a review to 

decide whether any of the analytical or procedural steps already completed should be repeated. 

(61 FR 36982). DOE completed this review and decided to use the Process Rule, to the extent 

possible, in the development of the revised central air conditioners and heat pumps standards. 

We developed an analytical framework for the central air conditioners and heat pumps 

standards rulemaking for our stakeholders, which we presented during a workshop on June 30, 

1998. The analytical framework described the different analyses (e.g., Lee, payback and 

manufacturing impact analyses (MIA)) to be conducted, the method for conducting them, the use 

of new Lee and NES spreadsheets, and the relationship of the various analyses. 

III. General Discussion 

A. Test Procedures 

Section 7(b) of the Process Rule states that necessary modifications to test procedures 

concerning efficiency standards will be proposed before issuance of a proposed rule. Section 

7(c) of the Process Rule states that a final modified test procedure will be issued prior to issuing 

a proposed rule regarding energy conservation standards. The residential central air conditioner 

and heat pump test procedure is being revised to improve its organization and ease of use, with a 

proposed rule to be published. This revision of the test procedure is not expected to alter the 

measured efficiencies as determined under the existing test procedure. Therefore, the revised test 

procedure would not affect development of revised efficiency standards. For these reasons, 

14 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 3 D % 0o

revisions to the test procedure are not a "necessary modification" as that term is used in the

Process Rule, but rather a routine update, and hence need not be finalized before issuance of the

proposed rule for these standards.

B. Technological Feasibility

1. General

There are central air conditioners and heat pumps in the market at all of the efficiency

levels analyzed in today's notice. The Department, therefore, believes all of the efficiency levels

discussed in today's notice are technologically feasible.

2. Maximum Technologically Feasible Levels

The Act requires the Department, in a proposed rule that sets forth new or amended

standards, to "determine the maximum improvement in energy efficiency... that is

technologically feasible for each type (or class) of covered products.." EPCA Section 325 (p)(2),

42 U.S.C. 6295(p)(2). Accordingly, for each class of product under consideration in this

rulemaking, a maximum technologically feasible (Max Tech) level was identified.

As previously stated in Section II.B, residential central air conditioner and heat pump

cooling efficiency is expressed as a SEER. Heating efficiency is expressed as a HSPF. The most

efficient technology presently available is a 3-ton 18 SEER central air conditioner. The

Department has determined that at this time 18 SEER is the Max Tech level for cooling

efficiency for all product classes and capacities in this analysis. The Max Tech level for heating

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

1 5 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-301-08 

revisions to the test procedure are not a "necessary modification" as that term is used in the 

Process Rule, but rather a routine update, and hence need not be finalized before issuance of the 

proposed rule for these standards. 

B. Technological Feasibility 

1. General 

There are central air conditioners and heat pumps in the market at all of the efficiency 

levels analyzed in today's notice. The Department, therefore, believes all of the efficiency levels 

discussed in today's notice are technologically feasible. 

2. Maximum Technologically Feasible Levels 

The Act requires the Department, in a proposed rule that sets forth new or amended 

standards, to "determine the maximum improvement in energy efficiency ... that is 

technologically feasible for each type (or class) of covered products .. " EPCA Section 325 (p)(2), 

42 U.S.c. 6295(P)(2). Accordingly, for each class of product under consideration in this 

rulemaking, a maximum technologically feasible (Max Tech) level was identified. 

As previously stated in Section II.B, residential central air conditioner and heat pump 

cooling efficiency is expressed as a SEER. Heating efficiency is expressed as a HSPF. The most 

efficient technology presently available is a 3-ton 18 SEER central air conditioner. The 

Department has determined that at this time 18 SEER is the Max Tech level for cooling 

efficiency for all product classes and capacities in this analysis. The Max Tech level for heating 

15 Q:\EE-41\EE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 - O

efficiency, corresponding to the 18 SEER level, is 9.4 HSPF which is the highest HSPF rating

currently available in residential heat pumps.

C. Energy Savings

1. Determination of Savings

The Department estimated energy savings through the use of the NES spreadsheet, which

forecasted energy savings over the period of analysis for candidate standards relative to the base

case. The Department quantified the energy savings that would be attributable to a standard as

the difference in energy consumption between the candidate standards case and the base case.

The base case represents the forecast of energy consumption in the absence of amended

mandatory efficiency standards.

The NES spreadsheet model is described in Section IV.B of this notice, Appendix of the

Technical Support Document and also in the Supplemental ANOPR. (64 FR 66306). The NES

spreadsheet model calculates the energy savings in site energy or kilowatt-hours (kWh). Site

energy is the energy directly consumed at building sites by the central air conditioner or heat

pump. National energy savings are expressed in terms of the source energy savings which is the

savings in energy used to generate and transmit the electricity consumed at the site. Chapter 7 of

the TSD contains a table of factors used to convert kWh to Btu. These conversion factors, which

change with time, are derived from DOE's Energy Information Administration's (EIA) Annual

Energy Outlook 2000 (AEO2000).

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 16 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440'-J 0 1-- 06 

efficiency, corresponding to the 18 SEER level, is 9.4 HSPF which is the highest HSPF rating 

currently available in residential heat pumps. 

C. Energy Savings 

1. Determination of Savings 

The Department estimated energy savings through the use of the NES spreadsheet, which 

forecasted energy savings over the period of analysis for candidate standards relative to the base 

case. The Department quantified the energy savings that would be attributable to a standard as 

the difference in energy consumption between the candidate standards case and the base case. 

The base case represents the forecast of energy consumption in the absence of amended 

mandatory efficiency standards. 

The NES spreadsheet model is described in Section IV.B of this notice, Appendix of the 

Technical Support Document and also in the Supplemental ANOPR. (64 FR 66306). The NES 

spreadsheet model calculates the energy savings in site energy or kilowatt-hours (kWh). Site 

energy is the energy directly consumed at building sites by the central air conditioner or heat 

pump. National energy savings are expressed in terms of the source energy savings which is the 

savings in energy used to generate and transmit the electricity consumed at the site. Chapter 7 of 

the TSD contains a table of factors used to convert kWh to Btu. These conversion factors, which 

change with time, are derived from DOE's Energy Information Administration's (EIA) Annual 

Energy Outlook 2000 (AE02000). 

16 Q:\EE-41 \EE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 /--'? UO

2. Significance of Savings

The Act prohibits the Department from adopting a standard for a product if that standard

would not result in "significant" energy savings. EPCA Section 325(o)(3)(B), 42 U.S.C.

6295(o)(3)(B). While the term "significant" is not defined in the Act, the U.S. Court of Appeals,

in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985),

indicated that Congress intended "significant" energy savings in this context to be savings that

were not "genuinely trivial." The energy savings for all of the trial standard levels considered in

this rulemaking are non-trivial and therefore we consider them "significant" within the meaning

of Section 325 of the Act.

D. Rebuttable Presumption

The National Appliance Energy Conservation Act established new criteria for

determining whether a standard level is economically justified. EPCA Section 325(o)(2)(B)(iii)

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."

Q:\EE-4 1\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

17 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-301,08 

2. Significance of Savings 

The Act prohibits the Department from adopting a standard for a product if that standard 

would not result in "significant" energy savings. EPCA Section 325(0)(3)(B), 42 U.S.C. 

6295(0)(3)(B). While the term "significant" is not defined in the Act, the U.S. Court of Appeals, 

in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), 

indicated that Congress intended "significant" energy savings in this context to be savings that 

were not "genuinely trivial." The energy savings for all of the trial standard levels considered in 

this rulemaking are non-trivial and therefore we consider them "significant" within the meaning 

of Section 325 of the Act. 

D. Rebuttable Presumption 

The National Appliance Energy Conservation Act established new criteria for 

determining whether a standard level is economically justified. EPCA Section 325(0 )(2)(B)(iii) 

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. " 

17 Q:\EE-41 \EE·431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE.RM/STD-98-440 - 0 7O0

If 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.6 This presumption of economic justification can be rebutted

upon a proper showing.

E. 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

The Process Rule established procedures, interpretations and policies to guide the

Department in the consideration of new or revised appliance efficiency standards. The

provisions of the rule have direct bearing on the implementation of manufacturer impact

analyses. First, the Department will use an annual cash flow approach in determining the

quantitative impacts on manufacturers. This includes a short-term assessment based on the cost

and capital requirements during the period between the announcement of a regulation and the

time when the regulation comes into effect, and a long-term assessment. Impacts analyzed

include industry net present value, cash flows by year, changes in revenue and income, and other

measures of impact, as appropriate. Second, the Department will analyze and report the impacts

on different types of manufacturers, with particular attention to impacts on small manufacturers.

6For this calculation, the Department calculated cost-of-operation based on the DOE test procedure, with the test procedure

assumed annual hours of operation. Consumers that use the central air conditioner or heat pump fewer hours will experience a

longer payback while those that use them more will have a shorter payback.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

18 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -~o '1.08 

If 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.6 This presumption of economic justification can be rebutted 

upon a proper showing. 

E. Economic Justification 

As noted earlier, Section 325(0)(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 

The Process Rule established procedures, interpretations and policies to guide the 

Department in the consideration of new or revised appliance efficiency standards. The 

provisions of the rule have direct bearing on the implementation of manufacturer impact 

analyses. First, the Department will use an annual cash flow approach in determining the 

quantitative impacts on manufacturers. This includes a short-term assessment based on the cost 

and capital requirements during the period between the announcement of a regulation and the 

time when the regulation comes into effect, and a long-term assessment. Impacts analyzed 

include industry net present value, cash flows by year, changes in revenue and income, and other 

measures of impact, as appropriate. Second, the Department will analyze and report the impacts 

on different types of manufacturers, with particular attention to impacts on small manufacturers. 

6For this calculation, the Department calculated cost-of-operation based on the DOE test procedure, with the test procedure 

assumed annual hours of operation. Consumers that use the central air conditioner or heat pump fewer hours will experience a 

longer payback while those that use them more will have a shorter payback. 

18 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-30 '- O

Third, the Department will consider the impact of standards on domestic manufacturer

employment, manufacturing capacity, plant closures and loss of capital investment. Finally, the

Department will take into account cumulative impacts of different DOE regulations on

manufacturers.

For consumers, measures of economic impact are the changes in installed cost and annual

operating costs, i.e., LCC. The life-cycle cost of the product at each standard level are presented

in Chapter 5 of the TSD. Under Section 325 of the Act, the life-cycle cost analysis is a separate

factor to be considered in determining economic justification.

2. Life-Cycle Costs

The life-cycle cost is the sum of the purchase price, including the installation, and the

operating expense, including operating energy, maintenance, and repair expenditures, discounted

over the lifetime of the appliance.

For each central air conditioner and heat pump product class, we calculated both lifecycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 12,

13, and 18 SEER. For heat pumps, the following space-heating efficiency levels correspond to

the above SEER values: 7.1, 7.4, 7.7, and 8.8 HSPF, respectively. The calculated life-cycle cost

savings is given as a distribution, with a mean value and a range. We used a distribution of real

discount rates ranging from 0.1 to 18% for the calculations. The assumption is that the

consumer purchases the central air conditioner and/or heat pump in 2006. For the probabilityQ:\EE-41\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

19 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98-440 <30:t· 08 

Third, the Department will consider the impact of standards on domestic manufacturer 

employment, manufacturing capacity, plant closures and loss of capital investment. Finally, the 

Department will take into account cumulative impacts of different DOE regulations on 

manufacturers. 

For consumers, measures of economic impact are the changes in installed cost and annual 

operating costs, i.e., LCC. The life-cycle cost of the product at each standard level are presented 

in Chapter 5 of the TSD. Under Section 325 of the Act, the life-cycle cost analysis is a separate 

factor to be considered in determining economic justification. 

2. Life-Cycle Costs 

The life-cycle cost is the sum of the purchase price, including the installation, and the 

operating expense, including operating energy, maintenance, and repair expenditures, discounted 

over the lifetime of the appliance. 

For each central air conditioner and heat pump product class, we calculated both lifecycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 12, 

13, and 18 SEER. For heat pumps, the following space-heating efficiency levels correspond to 

the above SEER values: 7.1, 7.4, 7.7, and 8.8 HSPF, respectively. The calculated life-cycle cost 

savings is given as a distribution, with a mean value and a range. We used a distribution of real 

discount rates ranging from 0.1 to 18% for the calculations. The assumption is that the 

consumer purchases the central air conditioner and/or heat pump in 2006. For the probability19 Q:IEE-41 IEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3 7 - 0O

based LCC analysis, a building-by-building analysis is performed for purposes of generating a

distribution of life-cycle costs for each efficiency level analyzed. The building stock is

composed of both residential and commercial buildings under the assumption that 90% of singlephase central air conditioners and heat pumps are utilized in residential buildings with the

remaining 10% in commercial buildings. The 1997 Residential Energy Consumption Survey

(RECS) is used to represent the residential building stock while 77 commercial buildings are

used to represent the commercial building stock based on assumptions consistent with those used

in the process to update ASHRAE Standard 90.1-1999. Annual energy costs are based on

marginal electricity prices which are developed for each residential and commercial building.

Electricity price forecasts are taken from the AEO2000 (DOE/EIA-0383). The LCC calculations

include markup structures developed for both the new construction and replacement/retrofit

markets. Chapter 5 of the TSD contains the details of the LCC calculations including those

considered under factor seven below.

3. Energy Savings

While significant conservation of energy is a separate statutory requirement for imposing

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. The Department used the NES spreadsheet results, discussed earlier, in

its consideration of total projected savings. The savings are provided in Section V of this notice.

Q:\EE-41 \EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 20 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-301- 00 

based LCC analysis, a building-by-building analysis is performed for purposes of generating a 

distribution of life-cycle costs for each efficiency level analyzed. The building stock is 

composed of both residential and commercial buildings under the assumption that 90% of singlephase central air conditioners and heat pumps are utilized in residential buildings with the 

remaining 10% in commercial buildings. The 1997 Residential Energy Consumption Survey 

(RECS) is used to represent the residential building stock while 77 commercial buildings are 

used to represent the commercial building stock based on assumptions consistent with those used 

in the process to update ASHRAE Standard 90.1-1999. Annual energy costs are based on 

marginal electricity prices which are developed for each residential and commercial building. 

Electricity price forecasts are taken from the AE02000 (DOEIEIA-0383). The LCC calculations 

include markup structures developed for both the new construction and replacement/retrofit 

markets. Chapter 5 of the TSD contains the details of the LCC calculations including those 

considered under factor seven below. 

3. Energy Savings 

While significant conservation of energy is a separate statutory requirement for imposing 

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. The Department used the NES spreadsheet results, discussed earlier, in 

its consideration of total projected savings. The savings are provided in Section V of this notice. 

20 Q:\EE-41 \EE-43I\CACIStandRul\NOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 37-0°

4. Lessening, if Any, of Utility or Performance of Products

This factor cannot be quantified. In establishing classes of products, and in evaluating

design options and the impact of potential standard levels, the Department tried to eliminate any

degradation of utility or performance in the products under consideration in this rulemaking.

None of the proposed trial standard levels reduces the performance of central air conditioners and

heat pumps.

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. 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

has provided the Attorney General with copies of this notice and the Technical Support

Document for review.

6. Need of The Nation to Conserve Energy

We report the environmental effects from each standard level for each product under this

factor in Section VI of this notice.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

21 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D7-09 

4. Lessening, if Any, of Utility or Performance of Products 

This factor cannot be quantified. In establishing classes of products, and in evaluating 

design options and the impact of potential standard levels, the Department tried to eliminate any 

degradation of utility or performance in the products under consideration in this rulemaking. 

None of the proposed trial standard levels reduces the performance of central air conditioners and 

heat pumps. 

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. Section 325(0 )(2)(B)(i)(V) and 

(B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii). 

In order to assist the Attorney General in making such a determination, the Department 

has provided the Attorney General with copies of this notice and the Technical Support 

Document for review. 

6. Need of The Nation to Conserve Energy 

We report the environmental effects from each standard level for each product under this 

factor in Section VI of this notice. 

21 Q:\EE-41 \EE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30- oC

7. Other Factors

During the extreme periods of heat and humidity that took place in the summer of 1999,

electric power outages and other system disturbances disrupted the lives of millions of people

and thousands of businesses in various regions of our country. In response to public concerns

about this problem, the Secretary of Energy formed a team of experts to investigate the problem

and to recommend actions that the Federal government can take to help avoid future power

outages by improving the reliability of the U.S. electric power system. One of the actions

proposed by the Secretary at that time was to accelerate the rulemaking process and advance the

publication of a final rule for central air conditioners by six months.

The Final Report7 by the team of experts, issued in March, 2000, included the

recommendation to increase the energy efficiency of central air conditioners as one means for

enhancing reliability. The report stated, "Technologies and practices that reduce loads during

times of peak demand, such as high-efficiency air conditioning and lighting equipment, are

especially valuable." This was based on the finding that in several of the affected regions "Retail

customers have limited mechanisms and incentives to conserve energy or resort to alternatives

during electricity shortages." Included in the federal activities that promote energy efficiency

recommended to the Secretary was to promulgate standards for more efficient technologies.

7 "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.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 22 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD.98-440 - :301- 08 

7. Other Factors 

During the extreme periods of heat and humidity that took place in the summer of 1999, 

electric power outages and other system disturbances disrupted the lives of millions of people 

and thousands of businesses in various regions of our country. In response to public concerns 

about this problem, the Secretary of Energy formed a team of experts to investigate the problem 

and to recommend actions that the Federal government can take to help avoid future power 

outages by improving the reliability of the U.S. electric power system. One of the actions 

proposed by the Secretary at that time was to accelerate the rulemaking process and advance the 

publication of a final rule for central air conditioners by six months. 

The Final Report7 by the team of experts, issued in March, 2000, included the 

recommendation to increase the energy efficiency of central air conditioners as one means for 

enhancing reliability. The report stated, "Technologies and practices that reduce loads during 

times of peak demand, such as high-efficiency air conditioning and lighting equipment, are 

especially valuable." This was based on the finding that in several of the affected regions "Retail 

customers have limited mechanisms and incentives to conserve energy or resort to alternatives 

during electricity shortages." Included in the federal activities that promote energy efficiency 

recommended to the Secretary was to promulgate standards for more efficient technologies. 

7"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. 

22 Q:IEE-4IIEE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440-,3 07- 08

As an additional element to consider under this factor, the Secretary has decided to

evaluate the life-cycle cost impacts on those subgroups of consumers who are at or below the

poverty line (e.g., for a family of four, this constitutes a household income of less than $16,036).

IV. Methodology

The Process Rule outlines the procedural improvements identified by the interested

parties. 61 FR 36974. The process improvement effort also included a review of the:

1) economic models; 2) analytical tools; 3) methodologies; 4) non-regulatory approaches; and

5) prioritization of future rules.

The Department continues to use two spreadsheet tools to meet the objectives of the

Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods of potential

new energy conservation standards. The second conducts shipments forecasts and then

calculates national energy savings and net present value impacts of potential new energy

conservation standards. The Department also completely revised the methodology used in

assessing manufacturer impacts including the adoption of the GRIM.

Additionally, DOE has estimated the impacts of central air conditioner and heat pump

energy efficiency standards on electric utilities and the environment. The Department used a

version of EIA's National Energy Modeling System (NEMS) for the utility and environmental

analyses. NEMS simulates the energy economy of the U.S. and has been developed over several

years by the EIA primarily for the purpose of preparing the AEO. NEMS produces a widelyQ:\EE-41 EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 23 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-,3 0 7~ 08 

As an additional element to consider under this factor, the Secretary has decided to 

evaluate the life-cycle cost impacts on those subgroups of consumers who are at or below the 

poverty line (e.g., for a family of four, this constitutes a household income ofless than $16,036). 

IV. Methodology 

The Process Rule outlines the procedural improvements identified by the interested 

parties. 61 FR 36974. The process improvement effort also included a review of the: 

1) economic models; 2) analytical tools; 3) methodologies; 4) non-regulatory approaches; and 

5) prioritization of future rules. 

The Department continues to use two spreadsheet tools to meet the objectives of the 

Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods of potential 

new energy conservation standards. The second conducts shipments forecasts and then 

calculates national energy savings and net present value impacts of potential new energy 

conservation standards. The Department also completely revised the methodology used in 

assessing manufacturer impacts including the adoption of the GRIM. 

Additionally, DOE has estimated the impacts of central air conditioner and heat pump 

energy efficiency standards on electric utilities and the environment. The Department used a 

version ofEIA's National Energy Modeling System (NEMS) for the utility and environmental 

analyses. NEMS simulates the energy economy of the U.S. and has been developed over several 

years by the EIA primarily for the purpose of preparing the AEO. NEMS produces a widely23 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30'7- O&

known baseline forecast for the U.S. through 2020 that is available in the public domain. The

version of NEMS used for appliance standards analysis is called NEMS-BRS8 , and 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.

A. Life-Cycle Cost and Payback Period Analysis

This section describes the LCC and payback period analysis and the spreadsheet model

used for analyzing the economic impacts of possible standards on individual residential and

commercial consumers. Details of the spreadsheet model can be found in Chapters 5 in the TSD.

We conduct the LCC and payback period analysis with a spreadsheet model developed in

Microsoft Excel for Windows 95 or above. When combined with Crystal Ball (a commercially

available software program), the LCC and payback period generates a Monte Carlo simulation to

perform the analysis by incorporating uncertainty and variability considerations.

The LCC is the total consumer expense over the life of the appliance, including purchase

expense and operating costs (including energy expenditures). Future operating costs are

discounted to the time of purchase and summed over the lifetime of the appliance. The payback

period is the change in purchase expense due to an increased efficiency standard divided by the

8 EIA 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 Modeling System: An Overview 1998. DOE/EIA-0581 (98), February, 1998. BRS is DOE's Office

of Building Research and Standards.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DrafNOPR\CACNOPR24.wpd 24 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301- 08 

known baseline forecast for the U.S. through 2020 that is available in the public domain. The 

version ofNEMS used for appliance standards analysis is called NEMS-BRS8

, and is based on 

the AE02000 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. 

A. Life-Cycle Cost and Payback Period Analysis 

This section describes the LCC and payback period analysis and the spreadsheet model 

used for analyzing the economic impacts of possible standards on individual residential and 

commercial consumers. Details ofthe spreadsheet model can be found in Chapters 5 in the TSD. 

We conduct the LCC and payback period analysis with a spreadsheet model developed in 

Microsoft Excel for Windows 95 or above. When combined with Crystal Ball (a commercially 

available software program), the LCC and payback period generates a Monte Carlo simulation to 

perform the analysis by incorporating uncertainty and variability considerations. 

The LCC is the total consumer expense over the life of the appliance, including purchase 

expense and operating costs (including energy expenditures). Future operating costs are 

discounted to the time of purchase and summed over the lifetime of the appliance. The payback 

period is the change in purchase expense due to an increased efficiency standard divided by the 

8 EIA 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 infonnation on NEMS, please 

refer to the National Energy Modeling System: An Overview 1998. DOE/EIA-0581 (98), February, 1998. BRS is DOE's Office 

of Building Research and Standards. 

24 Q:\EE-41 \EE-431 ICACIStandRu\INOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 ^ -. 7-0

change in annual operating cost that results from the standard. For today's proposed rule, both

the LCC and payback period are based on a building-by-building analysis of a nationally

representative set of residential and commercial buildings.

The set of residential buildings are taken from those households in the 1997 RECS

equipped with either a central air conditioner or heat pump. Of the 5,900 households surveyed in

the 1997 RECS, 2,003 households representing 37.6% of the housing population have a central

air conditioner while 579 households representing 11.1% of the housing population have a heat

pumps9 . RECS specifies the annual space-cooling energy consumption and, in the case of heat

pumps, the annual space-heating energy consumption associated with the space-conditioning

equipment. Also provided is the age of the space-conditioning equipment which, when coupled

with historical equipment efficiency data provided by the Air-Conditioning and Refrigeration

Institute (ARI), allows for the imputation of the household's space-conditioning equipment

efficiency (i.e., the SEER and, in the case of heat pumps, the HSPF). With both the annual

energy use and the efficiency of the central air conditioner or heat pump specified, the annual

energy use associated with equipment at higher efficiency levels is simply determined by

multiplying the household's existing annual energy use by the ratio of the existing equipment

efficiency divided by the efficiency of the more efficient equipment. Household utility billing

data in RECS allows for the determination of average and marginal electricity prices. The

9 The number of households actually used in the central air conditioner and heat pump LCC and Payback

period analyses were 1218 and 308, respectively. Some central air-conditioned households were dropped from the

analysis for one or more of the following reasons: 1) the central air conditioner was not used, 2) a room air

conditioner was present and used, or 3) marginal energy prices could not be determined for the household. With

regard to households with heat pumps, they were dropped from the analysis for one or more of the following

reasons: 1) the heat pump was not used or 2) marginal energy prices could not be determined for the household.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

25 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98-440· 301- 08 

change in annual operating cost that results from the standard. For today's proposed rule, both 

the LCC and payback period are based on a building-by-building analysis of a nationally 

representative set of residential and commercial buildings. 

The set of residential buildings are taken from those households in the 1997 RECS 

equipped with either a central air conditioner or heat pump. Of the 5,900 households surveyed in 

the 1997 RECS, 2,003 households representing 37.6% of the housing population have a central 

air conditioner while 579 households representing 11.1 % of the housing population have a heat 

pumpS9. RECS specifies the annual space-cooling energy consumption and, in the case of heat 

pumps, the annual space-heating energy consumption associated with the space-conditioning 

equipment. Also provided is the age of the space-conditioning equipment which, when coupled 

with historical equipment efficiency data provided by the Air-Conditioning and Refrigeration 

Institute (ARI), allows for the imputation of the household's space-conditioning equipment 

efficiency (i.e., the SEER and, in the case of heat pumps, the HSPF). With both the annual 

energy use and the efficiency of the central air conditioner or heat pump specified, the annual 

energy use associated with equipment at higher efficiency levels is simply determined by 

multiplying the household's existing annual energy use by the ratio of the existing equipment 

efficiency divided by the efficiency of the more efficient equipment. Household utility billing 

data in RECS allows for the determination of average and marginal electricity prices. The 

9 The number of households actually used in the central air conditioner and heat pump LCC and Payback 

period analyses were 1218 and 308, respectively. Some central air-conditioned households were dropped from the 

analysis for one or more of the following reasons: 1) the central air conditioner was not used, 2) a room air 

conditioner was present and used, or 3) marginal energy prices could not be determined for the household. With 

regard to households with heat pumps, they were dropped from the analysis for one or more ofthe following 

reasons: 1) the heat pump was not used or 2) marginal energy prices could not be determined for the household. 

25 Q:IEE-41 IEE-431\CAC\StandRu]\NOPRlDraftNOPR\CACNOPR24.wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30a- 09

electricity price data along with the annual energy use data allows for the determination of annual

electricity cost savings for any efficiency level.

The set of commercial buildings are based on assumptions consistent with those used to

develop the American Society of Heating, Refrigerating, and Air-Conditioning Engineers'

(ASHRAE) Standard 90.1-1999. The commercial building data set consists of seven building

types located in eleven different geographic regions yielding a total of 77 buildings. An hourly

simulation program is used to calculate the annual full-load equivalent operating hours (FLEOH)

of the space-cooling and space-heating equipment in each building. The FLEOHs are used with

the Department of Energy's test procedure equations for central air conditioners and heat pumps

to obtain each building's annual space-cooling and space-heating energy consumption. Similar

to the analysis for residential buildings, the energy use associated with equipment at higher

efficiency levels is simply determined by multiplying the building's simulated annual energy use

by the ratio of the building's assumed equipment efficiency (i.e., 10 SEER) divided by the

efficiency of the more efficient equipment. Average and marginal electricity prices for each

commercial building are determined by applying a national sample of electric utility tariffs to the

simulated load and demand. The electricity price data along with the annual energy use data

allows for the determination of annual electricity cost savings for any efficiency level for each

commercial building.

The probability-based LCC and payback period analysis samples buildings from the

residential and commercial building data set in order to produce a distribution of LCC results for

Q:\EE-41\EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 26 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -~ 301- 08 

electricity price data along with the annual energy use data allows for the determination of annual 

electricity cost savings for any efficiency level. 

The set of commercial buildings are based on assumptions consistent with those used to 

develop the American Society of Heating, Refrigerating, and Air-Conditioning Engineers' 

(ASHRAE) Standard 90.1-1999. The commercial building data set consists of seven building 

types located in eleven different geographic regions yielding a total of 77 buildings. An hourly 

simulation program is used to calculate the annual full-load equivalent operating hours (FLEOH) 

of the space-cooling and space-heating equipment in each building. The FLEOHs are used with 

the Department of Energy's test procedure equations for central air conditioners and heat pumps 

to obtain each building'S annual space-cooling and space-heating energy consumption. Similar 

to the analysis for residential buildings, the energy use associated with equipment at higher 

efficiency levels is simply determined by multiplying the building'S simulated annual energy use 

by the ratio of the building'S assumed equipment efficiency (i.e., 10 SEER) divided by the 

efficiency of the more efficient equipment. Average and marginal electricity prices for each 

commercial building are determined by applying a national sample of electric utility tariffs to the 

simulated load and demand. The electricity price data along with the annual energy use data 

allows for the determination of annual electricity cost savings for any efficiency level for each 

commercial building. 

The probability-based Lee and payback period analysis samples buildings from the 

residential and commercial building data set in order to produce a distribution of Lce results for 

26 Q:\EE-41 \EE-43 I \CAC\StandRuI\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 7- °'

a given standard level. The LCC and payback period analysis takes 10,000 samples to create a

distribution of results based on the assumption that 90% of the single-phase central air

conditioning and heat pump equipment stock are in residential buildings with the remaining 10%

in commercial buildings.

The spreadsheet model is organized so that ranges or distributions can be entered for each

input variable needed to perform the calculations. The LCC and payback period output can be

either a point value when we use the average value of the inputs or a distribution when we use

distributions for some or all of the inputs. Inputs for determining the total installed cost include:

baseline manufacturer costs, manufacturer cost multipliers for each efficiency level,

manufacturer markups, distributor or wholesaler markups, dealer or contractor markups, builder

markups, sales taxes, and installation costs. Of the above total installed cost inputs, the

manufacturer, dealer, distributor, and builder markups, as well as the sales tax and installation

price are described with distributions. Inputs for determining operating expenses include: annual

energy consumption, average electricity prices, marginal electricity prices, electricity price

projections, repair costs, maintenance costs, equipment lifetime, discount rates, and the year

standards take effect. Of the above operating expense inputs, the discount rate and equipment

lifetime are described with distributions (note that neither the discount rate nor lifetime are

needed to determine the payback period). Operating expense, annual energy use and electricity

prices, although represented by point-values for each residential and commercial building, are

highly variable when looking at the entire building data set. Chapter 5 of the TSD contains the

details of all the inputs to the LCC and payback period analysis.

Q:\EE-41EE431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 27 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -J 0 1--oB 

a given standard level. The Lee and payback period analysis takes 10,000 samples to create a 

distribution of results based on the assumption that 90% of the single-phase central air 

conditioning and heat pump equipment stock are in residential buildings with the remaining 10% 

in commercial buildings. 

The spreadsheet model is organized so that ranges or distributions can be entered for each 

input variable needed to perform the calculations. The Lee and payback period output can be 

either a point value when we use the average value of the inputs or a distribution when we use 

distributions for some or all of the inputs. Inputs for determining the total installed cost include: 

baseline manufacturer costs, manufacturer cost multipliers for each efficiency level, 

manufacturer markups, distributor or wholesaler markups, dealer or contractor markups, builder 

markups, sales taxes, and installation costs. Of the above total installed cost inputs, the 

manufacturer, dealer, distributor, and builder markups, as well as the sales tax and installation 

price are described with distributions. Inputs for determining operating expenses include: annual 

energy consumption, average electricity prices, marginal electricity prices, electricity price 

projections, repair costs, maintenance costs, equipment lifetime, discount rates, and the year 

standards take effect. Of the above operating expense inputs, the discount rate and equipment 

lifetime are described with distributions (note that neither the discount rate nor lifetime are 

needed to determine the payback period). Operating expense, annual energy use and electricity 

prices, although represented by point-values for each residential and commercial building, are 

highly variable when looking at the entire building data set. Chapter 5 of the TSD contains the 

details of all the inputs to the LCC and payback period analysis. 

27 Q:IEE-41IEE-431 \CAC\StandRul\NOPRIDraftNOPR\CACNOPR24.wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30 1-0 S

In addition to determining payback periods with the spreadsheet model, the Act requires

us to determine a rebuttable payback period. 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 space-heating energy consumption calculated based on the

Department's test procedure are on the order of 50% greater than the weighted-average values

from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and

hourly simulations for commercial buildings). As will be shown in Section VI (Analytical

Results), the payback value calculated from the Department's test procedure equations will be

significantly lower than the average payback value calculated from the LCC analysis, for any

standard level.

B. National Energy Savings and Net Present Value Analysis

In order to make the analysis more accessible and transparent to all stakeholders, we

continue to use an Excel spreadsheet model to calculate the energy savings and the national

economic costs and savings from new standards. Various input quantities within the spreadsheet

can be changed. Unlike the LCC analysis, the NES spreadsheet does not use distributions for

inputs or outputs. We conduct sensitivities by running different scenarios.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

28 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1-D B 

In addition to determining payback periods with the spreadsheet model, the Act requires 

us to determine a rebuttable payback period. 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 space-heating energy consumption calculated based on the 

Department's test procedure are on the order of 50% greater than the weighted-average values 

from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and 

hourly simulations for commercial buildings). As will be shown in Section VI (Analytical 

Results), the payback value calculated from the Department's test procedure equations will be 

significantly lower than the average payback value calculated from the LCC analysis, for any 

standard level. 

B. National Energy Savings and Net Present Value Analysis 

In order to make the analysis more accessible and transparent to all stakeholders, we 

continue to use an Excel spreadsheet model to calculate the energy savings and the national 

economic costs and savings from new standards. Various input quantities within the spreadsheet 

can be changed. Unlike the LCC analysis, the NES spreadsheet does not use distributions for 

inputs or outputs. We conduct sensitivities by running different scenarios. 

28 Q:IEE-4\ \EE-43\ \CAC\StandRu\\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -30 7- 0

DOE uses the NES spreadsheet to perform calculations of energy savings and net present

value (NPV) based on user inputs similar to those for the LCC spreadsheet. The energy savings,

energy cost savings, equipment costs, and NPV of benefits for several product classes are

forecast from the chosen start year through 2030. The forecasts provide annual and cumulative

values for all four output parameters.

The Department calculates the national energy savings by subtracting energy use under a

standards scenario from energy use in a base case (no new standards scenario). Energy use is

reduced when the baseline central air conditioner or heat pump (i.e, 10 SEER) is replaced by a

more efficient piece of equipment. Unit energy savings for each product class are the same

weighted-average values as calculated in the LCC and Payback period spreadsheet. Additional

information about the NES spreadsheet can be found in Chapter 7 of the TSD.

User inputs include: (1) a choice from among several electricity price projections:

(2) effective date of the central air conditioners and heat pumps standard; (3) discount rate and

discount year; (4) a standards case efficiency level; (5) an equipment price; (6) an equipment

price and housing projection; and (7) an efficiency scenario. Additionally, we use a time series

of conversion factors to change from site to source energy.

The efficiency scenario specifies the equipment efficiency distribution after new

standards would take effect. Three efficiency scenarios were used to forecast the impact new

standards would have after they take effect: (1) National Appliance Energy Conservation Act

Q:\EE-4 1EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 29 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .., 3D '7~ DB 

DOE uses the NES spreadsheet to perform calculations of energy savings and net present 

value (NPV) based on user inputs similar to those for the LCC spreadsheet. The energy savings, 

energy cost savings, equipment costs, and NPV of benefits for several product classes are 

forecast from the chosen start year through 2030. The forecasts provide annual and cumulative 

values for all four output parameters. 

The Department calculates the national energy savings by subtracting energy use under a 

standards scenario from energy use in a base case (no new standards scenario). Energy use is 

reduced when the baseline central air conditioner or heat pump (i.e, 10 SEER) is replaced by a 

more efficient piece of equipment. Unit energy savings for each product class are the same 

weighted-average values as calculated in the LCC and Payback period spreadsheet. Additional 

information about the NES spreadsheet can be found in Chapter 7 of the TSD. 

User inputs include: (1) a choice from among several electricity price projections: 

(2) effective date of the central air conditioners and heat pumps standard; (3) discount rate and 

discount year; (4) a standards case efficiency level; (5) an equipment price; (6) an equipment 

price and housing projection; and (7) an efficiency scenario. Additionally, we use a time series 

of conversion factors to change from site to source energy. 

The efficiency scenario specifies the equipment efficiency distribution after new 

standards would take effect. Three efficiency scenarios were used to forecast the impact new 

standards would have after they take effect: (1) National Appliance Energy Conservation Act 

29 Q:\EE-41 \EE-431 \CACIStandRu\\NOPRIDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -- 3 0-

(NAECA) scenarios0, (2) Roll-up scenario", and (3) Shift scenario' 2. As opposed to the

Supplemental ANOPR where weighted-average equipment efficiencies were forecasted, an

actual distribution of efficiencies (i.e., the percentage of shipments which occur in incremental

SEER bins over the range from the minimum standard to 18 SEER) were used in the analysis for

the proposed rule.

One of the more important components of any estimate of future impact is shipments.

Forecasts of shipments for the base case and standards case are determined within the NES

spreadsheet. The shipments portion of the spreadsheet forecasts central air conditioner and heat

pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (1)

the combined effects of equipment price, operating cost, and household income; (2) different

market segments (e.g., new housing, replacement decisions, and non-owners adding a central air

conditioner or heat pump); (3) decisions to repair rather than replace; and (4) different equipment

age categories. Additional details on the various shipments forecasts are provided in Chapter 6

of the TSD.

'"Under the NAECA scenario, equipment efficiencies after the adoption of new standards are forecasted to

change in the same pattern as the efficiency changes that occurred in 1992 when minimum efficiency standards first

took effect. This results in weighted average equipment efficiencies, based on minimum efficiency standards of 11,

12, and 13 SEER, of 11.6 SEER, 12.4 SEER, and 13.4 SEER, respectively.

"Under the Roll-up scenario, equipment that in the base case were forecast to be less efficient than the trial

standard level are assumed to move up to the standard level, and equipment forecasted in the base case to be at or

above the trial standard level are assumed not to increase in efficiency. This results in weighted-average equipment

efficiencies, based on minimum efficiency standards of 11, 12, and 13 SEER, of 11.5 SEER, 12.3 SEER, and 13.3

SEER, respectively.

'

2

Under the Shift scenario, equipment efficiencies after the adoption of new standards are forecast to have

the same pattern, at and above the standard levels, as the current distribution of efficiencies. This results in

weighted-average equipment efficiencies, based on minimum efficiency standards of 11, 12, and 13 SEER, of 11.7

SEER, 12.7 SEER, and 13.7 SEER, respectively.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

30 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440- ...3 0 1-oe 

(NAECA) scenarioIO, (2) Roll-up scenarioll , and (3) Shift scenario12• As opposed to the 

Supplemental ANOPR where weighted-average equipment efficiencies were forecasted, an 

actual distribution of efficiencies (Le., the percentage of shipments which occur in incremental 

SEER bins over the range from the minimum standard to 18 SEER) were used in the analysis for 

the proposed rule. 

One of the more important components of any estimate of future impact is shipments. 

Forecasts of shipments for the base case and standards case are determined within the NES 

spreadsheet. The shipments portion of the spreadsheet forecasts central air conditioner and heat 

pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (l) 

the combined effects of equipment price, operating cost, and household income; (2) different 

market segments (e.g., new housing, replacement decisions, and non-owners adding a central air 

conditioner or heat pump); (3) decisions to repair rather than replace; and (4) different equipment 

age categories. Additional details on the various shipments forecasts are provided in Chapter 6 

of the TSD. 

JOUnder the NAECA scenario, equipment efficiencies after the adoption of new standards are forecasted to 

change in the same pattern as the efficiency changes that occurred in 1992 when minimum efficiency standards first 

took effect. This results in weighted average equipment efficiencies, based on minimum efficiency standards of 11, 

12, and 13 SEER, of 11.6 SEER, 12.4 SEER, and 13.4 SEER, respectively. 

llUnder the Roll-up scenario, equipment that in the base case were forecast to be less efficient than the trial 

standard level are assumed to move up to the standard level, and equipment forecasted in the base case to be at or 

above the trial standard level are assumed not to increase in efficiency. This results in weighted-average equipment 

efficiencies, based on minimum efficiency standards of 11, 12, and 13 SEER, of 11.5 SEER, 12.3 SEER, and 13.3 

SEER, respectively. 

12Under the Shift scenario, equipment efficiencies after the adoption of new standards are forecast to have 

the same pattern, at and above the standard levels, as the current distribution of efficiencies. This results in 

weighted-average equipment efficiencies, based on minimum efficiency standards of 11, 12, and 13 SEER, of 11.7 

SEER, 12.7 SEER, and 13.7 SEER, respectively. 

30 Q:\EE-41 \EE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -3 '- 0

C. Manufacturer Impact Analysis

The MIA estimates the financial impact of standards on manufacturers and calculates

impacts on employment and manufacturing capacity.

The Department published the proposed MIA approach as part of the Federal Register

publication of the Supplemental ANOPR, and received no comments suggesting substantive

changes in the methodology. As proposed, the MIA was conducted in three phases. Phase 1,

"Industry Profile," consisted of the preparation of an industry characterization. Phase 2, "Industry

Cash Flow," focused on the industry as a whole, including both major and niche-product

manufacturers. The GRIM was used to prepare an industry cash flow analysis. The Department

used publicly available information developed in Phase 1 to adapt the GRIM structure to

facilitate the analysis of new central air conditioner and central air conditioning heat pump

standards.

In Phase 3, "Sub-Group Impact Analysis," the Department conducted interviews with

several niche-product manufacturers to determine the financial impacts of revised standards.

Phase 3 also entailed documenting additional impacts on employment and manufacturing

capacity through a structured interview process.

1. Phase 1, Industry Profile

Phase 1 of the MIA consisted of preparing an Industry Profile. Prior to initiating the

detailed impact studies, DOE collected information on the present and past structure and market

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

3 1 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3/)1- 0 8 

C. Mamifacturer Impact Analysis 

The MIA estimates the financial impact of standards on manufacturers and calculates 

impacts on employment and manufacturing capacity. 

The Department published the proposed MIA approach as part of the Federal Register 

publication of the Supplemental ANOPR, and received no comments suggesting substantive 

changes in the methodology. As proposed, the MIA was conducted in three phases. Phase 1, 

"Industry Profile," consisted of the preparation of an industry characterization. Phase 2, "Industry 

Cash Flow," focused on the industry as a whole, including both major and niche-product 

manufacturers. The GRIM was used to prepare an industry cash flow analysis. The Department 

used publicly available information developed in Phase 1 to adapt the GRIM structure to 

facilitate the analysis of new central air conditioner and central air conditioning heat pump 

standards. 

In Phase 3, "Sub-Group Impact Analysis," the Department conducted interviews with 

several niche-product manufacturers to determine the financial impacts of revised standards. 

Phase 3 also entailed documenting additional impacts on employment and manufacturing 

capacity through a structured interview process. 

1. Phase 1, Industry Profile 

Phase 1 of the MIA consisted of preparing an Industry Profile. Prior to initiating the 

detailed impact studies, DOE collected information on the present and past structure and market 

31 Q:IEE-41IEE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3(9O- O8

characteristics of the central air conditioning industry. This activity involved both quantitative

and qualitative efforts to assess the industry and products to be analyzed. The information

collected included manufacturer market shares and characteristics and financial information,

market trends, and product characteristics.

The industry profile included a top-down cost analysis of the central air conditioner

manufacturing industry that was used to derive cost and financial inputs for the GRIM, e.g.,

revenues, and material, labor, overhead, depreciation, Sales General & Administration (SG&A),

and Research & Development (R&D) expenses. The Department also utilized additional sources

of information to further characterize the industry. These included company Securities and

Exchange Commission (SEC) 10-K reports, Moody's company data reports, Standard & Poor's

(S&P) stock reports, Value Line industry composites, and Dow Jones Financial Services.

2. Phase 2, Industry Cash Flow Analysis

Phase 2 of the MIA focused on the financial impacts of new standards on the industry as a

whole. The analytical tool used for calculating the financial impacts of standards on

manufacturers is the GRIM. As part of the analysis, DOE interviewed several of the major

manufacturers. For the Industry Cash Flow Analysis, DOE used the financial values determined

during Phase 1 and the shipment scenarios used in the LCC and NES analyses.

3. Phase 3, Sub-Group Impact Analysis

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 32 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1- 08 

characteristics of the central air conditioning industry. This activity involved both quantitative 

and qualitative efforts to assess the industry and products to be analyzed. The information 

collected included manufacturer market shares and characteristics and financial information, 

market trends, and product characteristics. 

The industry profile included a top-down cost analysis of the central air conditioner 

manufacturing industry that was used to derive cost and financial inputs for the GRIM, e.g., 

revenues, and material, labor, overhead, depreciation, Sales General & Administration (SG&A), 

and Research & Development (R&D) expenses. The Department also utilized additional sources 

of information to further characterize the industry. These included company Securities and 

Exchange Commission (SEC) lO-K reports, Moody's company data reports, Standard & Poor's 

(S&P) stock reports, Value Line industry composites, and Dow Jones Financial Services. 

2. Phase 2, Industry Cash Flow Analysis 

Phase 2 of the MIA focused on the financial impacts of new standards on the industry as a 

whole. The analytical tool used for calculating the financial impacts of standards on 

manufacturers is the GRIM. As part of the analysis, DOE interviewed several of the major 

manufacturers. For the Industry Cash Flow Analysis, DOE used the financial values determined 

during Phase 1 and the shipment scenarios used in the LCC and NES analyses. 

3. Phase 3, Sub-Group Impact Analysis 

32 Q:IEE-41 IEE·431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440-307- 0 8

The Department has received many comments during workshops and interviews, and in

writing, suggesting that manufacturers of niche products, representing less than 3% of industry

shipments, could be more negatively impacted by new standards than major manufacturers. To

assess the differential impacts, the Department interviewed two manufacturers of niche products,

in addition to those conducted during the Engineering Analysis. The focus of the interviews was

to determine which GRIM parameters differed for niche manufacturers by virtue of their smaller

revenue base and more limited markets.

From a financial standpoint, the common distinguishing characteristic of niche product

manufacturers was their need to spread the costs of converting to new standards over smaller

production volumes, as well as the product size constraints identified during the Engineering

Analysis which make their shipments more sensitive to increases in product size. During the

interviews, small manufacturers demonstrated that several of the costs necessary to meet any new

regulation are largely independent of the product volume produced. The most apparent are the

costs necessary to design a new product meeting the proposed energy standards. Other costs,

such as plant engineering, some tooling, and other capital costs, have significant portions that are

independent of final production volumes.

4. GRIM Analysis

An increase in standards affects a manufacturer's cash flow in three distinct ways: (1)

increased investment; (2) higher production costs per unit; and (3) altered revenue by virtue of

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

33 3October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440 AjD'l- 0 8 

The Department has received many comments during workshops and interviews, and in 

writing, suggesting that manufacturers of niche products, representing less than 3% of industry 

shipments, could be more negatively impacted by new standards than major manufacturers. To 

assess the differential impacts, the Department interviewed two manufacturers of niche products, 

in addition to those conducted during the Engineering Analysis. The focus of the interviews was 

to determine which GRIM parameters differed for niche manufacturers by virtue of their smaller 

revenue base and more limited markets. 

From a financial standpoint, the common distinguishing characteristic of niche product 

manufacturers was their need to spread the costs of converting to new standards over smaller 

production volumes, as well as the product size constraints identified during the Engineering 

Analysis which make their shipments more sensitive to increases in product size. During the 

interviews, small manufacturers demonstrated that several of the costs necessary to meet any new 

regulation are largely independent of the product volume produced. The most apparent are the 

costs necessary to design a new product meeting the proposed energy standards. Other costs, 

such as plant engineering, some tooling, and other capital costs, have significant portions that are 

independent of final production volumes. 

4. GRIM Analysis 

An increase in standards affects a manufacturer's cash flow in three distinct ways: (I) 

increased investment; (2) higher production costs per unit; and (3) altered revenue by virtue of 

33 Q:\EE-41 \EE-431 \CAc\StandRul\NOPRIDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -30 '7- 0

higher per unit prices and changes in sales volumes. As mentioned, the Department uses the

GRIM to quantify the changes in cash flow that result in a higher or lower industry value.

The GRIM analysis uses a number of inputs -- annual shipments; prices; manufacturer

costs such as materials and labor, selling and general administration costs, taxes, and capital

expenditures -- to arrive at a series of annual net cash flows beginning today and continuing ten

years past the implementation of new standards. This information was collected from a number

of sources, including publically available data, as well as interviews with of the major

manufacturers and two specialty manufacturers. Industry net present values are calculated by

discounting and summing the annual net cash flows. Additional information about the GRIM

spreadsheet can be found in Chapter 8 of the TSD.

D. NEMS Environmental Analysis

The environmental analysis provides estimates of changes in emissions of nitrogen oxides

(NO,) and carbon from carbon dioxide (CO2). The Department used NEMS-BRS for central air

conditioner and heat pump analyses (as well as the utility analyses). NEMS-BRS is run similar

to the AEO2000 NEMS except that central air conditioner and heat pump energy usages are

reduced by the amount of energy (electricity) saved due to the proposed trial standard levels. The

input of energy savings are obtained from the NES spreadsheet. For the environmental analysis,

the output is the forecasted physical emissions. The net benefits of the standard is the difference

between emissions estimated by NEM-BRS and the AEO2000 Reference Case.

Q:\EE-41\EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

34 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -30 7- 02> 

higher per unit prices and changes in sales volumes. As mentioned, the Department uses the 

GRIM to quantify the changes in cash flow that result in a higher or lower industry value. 

The GRIM analysis uses a number of inputs -- annual shipments; prices; manufacturer 

costs such as materials and labor, selling and general administration costs, taxes, and capital 

expenditures -- to arrive at a series of annual net cash flows beginning today and continuing ten 

years past the implementation of new standards. This information was collected from a number 

of sources, including publically available data, as well as interviews with of the major 

manufacturers and two specialty manufacturers. Industry net present values are calculated by 

discounting and summing the annual net cash flows. Additional information about the GRIM 

spreadsheet can be found in Chapter 8 of the TSD. 

D. NEMS Environmental Analysis 

The environmental analysis provides estimates of changes in emissions of nitrogen oxides 

(NOx) and carbon from carbon dioxide (C02), The Department used NEMS-BRS for central air 

conditioner and heat pump analyses (as well as the utility analyses). NEMS-BRS is run similar 

to the AE02000 NEMS except that central air conditioner and heat pump energy usages are 

reduced by the amount of energy (electricity) saved due to the proposed trial standard levels. The 

input of energy savings are obtained from the NES spreadsheet. For the environmental analysis, 

the output is the forecasted physical emissions. The net benefits of the standard is the difference 

between emissions estimated by NEM-BRS and the AE02000 Reference Case. 

34 Q:IEE-41 IEE-431 ICACIStandRul\NOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 3 - 08

The environmental analysis is relatively straightforward from NEMS-BRS. Carbon

emissions are tracked in NEMS-BRS using a detailed carbon module that provides robust results

because of its broad coverage of all sectors and inclusion of interactive effects. The only form of

carbon tracked by NEMS-BRS is CO2. However, in this report the carbon savings are reported

as elemental carbon.

The two airborne pollutant emissions that have been reported in past analyses, sulfur

dioxide (SO 2) and NO, are reported by NEMS-BRS. NO, results are based on forecasts of

compliance with existing legislation. 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. There is virtually no real

possible SO2 environmental benefit from electricity savings as long as there is enforcement of the

emission ceilings. See the TSD, Environmental Assessment, for a discussion of this issue.

Alternative price forecasts corresponding to the high and low economic growth side

cases found in AEO 2000 have also been generated for use by NEMS-BRS, and were used as

alternative scenarios, and are presented in the TSD. (See TSD, Environmental Assessment.)

V. Discussion of Comments

Q:\EE-4 I\EE-43 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

35 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1 ... DB 

The environmental analysis is relatively straightforward from NEMS-BRS. Carbon 

emissions are tracked in NEMS-BRS using a detailed carbon module that provides robust results 

because of its broad coverage of all sectors and inclusion of interactive effects. The only form of 

carbon tracked by NEMS-BRS is CO2, However, in this report the carbon savings are reported 

as elemental carbon. 

The two airborne pollutant emissions that have been reported in past analyses, sulfur 

dioxide (S02) and NOx, are reported by NEMS-BRS. NOx results are based on forecasts of 

compliance with existing legislation. In the case of S02' 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 S02 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. There is virtually no real 

possible S02 environmental benefit from electricity savings as long as there is enforcement of the 

emission ceilings. See the TSD, Environmental Assessment, for a discussion of this issue. 

Alternative price forecasts corresponding to the high and low economic growth side 

cases found in AEO 2000 have also been generated for use by NEMS-BRS, and were used as 

alternative scenarios, and are presented in the TSD. (See TSD, Environmental Assessment.) 

v. Discussion of Comments 

35 Q:IEE-41 IEE-431 \CAC\StandRuIINOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - .301-3

As noted above, DOE published the Supplemental ANOPR regarding central air

conditioners and heat pumps on November 24, 1999, and conducted a public workshop to present

the analyses and to solicit comments on December 9, 1999. The Department requested

comments on the following twelve issues:

1. Differences between the industry and the reverse engineering cost data:

2. The incorporation of emerging technologies into the Engineering Analysis;

3. The assessment of the impacts on steady-state efficiency, i.e. EER, due to increases in

the SEER;

4. For heat pump systems, the relationship between SEER and HSPF;

5. Additional product classes based on system capacity;

6. Niche product classes

a) ductless split

b) high-velocity, small-duct

c) vertical-package, wall-mounted

d) split, through-the-wall-condenser;

7. The impact of alternative refrigerants for HCFC-22;

8. Data on retail mark-up assumptions;

9. Information relating to the determination of price and operating cost elasticities in

conducting shipment forecasts;

10. Data on the possible adverse affects of standards on identifiable groups of consumers

that experience below-average utility or usage rates;

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 3 6 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440.- 301-08 

As noted above, DOE published the Supplemental ANOPR regarding central air 

conditioners and heat pumps on November 24, 1999, and conducted a public workshop to present 

the analyses and to solicit comments on December 9, 1999. The Department requested 

comments on the following twelve issues: 

1. Differences between the industry and the reverse engineering cost data: 

2. The incorporation of emerging technologies into the Engineering Analysis; 

3. The assessment of the impacts on steady-state efficiency, i.e. EER, due to increases in 

the SEER; 

4. For heat pump systems, the relationship between SEER and HSPF; 

5. Additional product classes based on system capacity; 

6. Niche product classes 

a) ductless split 

b) high-velocity, small-duct 

c) vertical-package, wall-mounted 

d) split, through-the-wall-condenser ; 

7. The impact ofaltemative refrigerants for HCFC-22; 

8. Data on retail mark-up assumptions; 

9. Information relating to the determination of price and operating cost elasticities in 

conducting shipment forecasts; 

10. Data on the possible adverse affects of standards on identifiable groups of consumers 

that experience below-average utility or usage rates; 

36 Q:IEE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 301- 08

11. Information on what non-regulatory alternatives to standards need to be reviewed;

and

12. Comments on the candidate standard levels and the alternative standard scenarios.

Based on responses and comments received since that workshop, we provide the

following discussion.

A. Engineering Cost Data

1. Reverse Engineering Cost Estimates

The Department's reverse engineering analysis prepared as a basis for the Supplemental

ANOPR received a broad range of comments, both supportive and critical. ARI and the Natural

Resources Defense Council (NRDC) commented on the apparent accuracy of the split air

conditioner cost estimates and the ease with which the results are able to be scrutinized by

outside parties. (Wethje, ARI, Transcript, p. 42; ARI, No. 11 at 1; Goldstein, NRDC,

Transcript, p. 94).

The Department also received comments criticizing the reverse engineering results for

split heat pumps and for packaged air conditioners and heat pumps, noting the lack of design

detail and the aggregation of the results into an efficiency level-based analysis. (Hodges, ARI,

Transcript, p. 85; Madera, York International (York), Transcript, pp. 90, 91, 93; Goldstein,

NRDC, Transcript p. 96 and California Energy Commission (CEC) No. 47 at 7). The comments

observed that the relative cost results for split heat pumps and packaged equipment differed

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 3 7 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98-440 - 301- 08 

11. Infonnation on what non-regulatory alternatives to standards need to be reviewed; 

and 

12. Comments on the candidate standard levels and the alternative standard scenarios. 

Based on responses and comments received since that workshop, we provide the 

following discussion. 

A. Engineering Cost Data 

1. Reverse Engineering Cost Estimates 

The Department's reverse engineering analysis prepared as a basis for the Supplemental 

ANOPR received a broad range of comments, both supportive and critical. ARl and the Natural 

Resources Defense Council (NRDC) commented on the apparent accuracy of the split air 

conditioner cost estimates and the ease with which the results are able to be scrutinized by 

outside parties. (Wethje, ARl, Transcript, p. 42; ARl, No. 11 at 1; Goldstein, NRDC, 

Transcript, p. 94). 

The Department also received comments criticizing the reverse engineering results for 

split heat pumps and for packaged air conditioners and heat pumps, noting the lack of design 

detail and the aggregation of the results into an efficiency level-based analysis. (Hodges, ARl, 

Transcript, p. 85; Madera, York International (York), Transcript, pp. 90, 91, 93; Goldstein, 

NRDC, Transcript p. 96 and California Energy Commission (CEC) No. 47 at 7). The comments 

observed that the relative cost results for split heat pumps and packaged equipment differed 

37 Q:IEE-41IEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 0 §. 0

significantly from those of split air conditioners, and that those analyses were less rigorous than

the split air conditioner analysis. They also noted that the split heat pump and packaged

equipment analysis was based on fewer equipment samples; did not include a detailed tear-down

of a 10 SEER split heat pump or packaged air conditioner; and was based on questionable

production volume assumptions.

The Department agreed that those deficiencies were likely to cause some of the

differences between the ARI cost and the reverse engineering cost estimates, and revised its

analysis of split heat pumps and packaged equipment.

In responding to the comment on sample size for split heat pumps and packaged

equipment, the Department took guidance from a review of the engineering analysis performed

by DOE consultant, Joseph Pietsch. Mr. Pietsch presented five guidelines for comparing the

production cost of equipment for different product classes. (Pietsch, No 36 at 2-5).

* At each cooling capacity and SEER level, the same outside unit will likely be used

for split air conditioners (fancoil) and split air conditioners (cased coil);

* At each cooling capacity and SEER level, the same fancoil will likely be used for

split air conditioners (fancoil) and split heat pumps;

* At each cooling capacity and SEER level, the same cabinet will likely be used for

packaged air conditioners and packaged heat pumps;

* There should be some degree of consistency in the cost to "convert" an air

conditioner into a heat pump; and

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

3 8 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - j 0 (/- 0 [3 

significantly from those of split air conditioners, and that those analyses were less rigorous than 

the split air conditioner analysis. They also noted that the split heat pump and packaged 

equipment analysis was based on fewer equipment samples; did not include a detailed tear-down 

of a 10 SEER split heat pump or packaged air conditioner; and was based on questionable 

production volume assumptions. 

The Department agreed that those deficiencies were likely to cause some of the 

differences between the ARI cost and the reverse engineering cost estimates, and revised its 

analysis of split heat pumps and packaged equipment. 

In responding to the comment on sample size for split heat pumps and packaged 

equipment, the Department took guidance from a review of the engineering analysis performed 

by DOE consultant, Joseph Pietsch. Mr. Pietsch presented five guidelines for comparing the 

production cost of equipment for different product classes. (Pietsch, No 36 at 2-5). 

• At each cooling capacity and SEER level, the same outside unit will likely be used 

for split air conditioners (fancoil) and split air conditioners (cased coil); 

• At each cooling capacity and SEER level, the same fancoil will likely be used for 

split air conditioners (fancoil) and split heat pumps; 

• At each cooling capacity and SEER level, the same cabinet will likely be used for 

packaged air conditioners and packaged heat pumps; 

• There should be some degree of consistency in the cost to "convert" an air 

conditioner into a heat pump; and 

38 Q:IEE-4\IEE-43\ ICACIStandRu\INOPRIDraftNOPRICACNOPR24.wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 7- 08

Split systems with fan coils and single package units at the same cooling capacity

and SEER level should have nearly identical costs for the major functional

components.

Based on the above guidelines, DOE revised the analysis of split heat pumps and

packaged equipment. Table V.1 provides the original and the revised production dollar cost

estimates resulting from this new approach. Table V.2 provides the same information, but in

terms of relative costs. Revised production costs are generally lower than the original costs,

particularly at the baseline 10 SEER level. The most significant change is that the new analysis

includes nine additional estimates that were not presented originally.

Table V.1: Engineering Production Cost Estimates for 3-ton Unitary Equipment

Efficiency Split Air Conditioner Split Air Conditioner Split Heat Pump Packaged Air Packaged Heat Pump

Level (cased coil) (fancoil) Conditioner

(SEER)

Original Revised Original Revised Original Revised Original Revised Original Revised

10 $367 $367 $456 $449 $622 $572 $552 $511 $643 $593

11 $412 $412 $550 $519 - $602 - $555 - $638

12 $468 $468 - $563 $690 $648 $627 $595 $708 $668

13 $529 $529 $756 $637 $840 $743 $809 $730 - $820

14 $588 $588 $802 $815 $1,011 $1,023 - $889 - $1,029

15 - - $893 $893 $1,147 $1,107 - $955 - $1,100

Q:\EE-41\EE-431\CAC\StandRulNOPROPR\CACNOPR24.wpd 39 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301- 08 

• Split systems with fan coils and single package units at the same cooling capacity 

and SEER level should have nearly identical costs for the major functional 

components. 

Based on the above guidelines, DOE revised the analysis of split heat pumps and 

packaged equipment. Table V.I provides the original and the revised production dollar cost 

estimates resulting from this new approach. Table V.2 provides the same information, but in 

terms of relative costs. Revised production costs are generally lower than the original costs, 

particularly at the baseline 10 SEER level. The most significant change is that the new analysis 

includes nine additional estimates that were not presented originally. 

Table V.l: Engineering Production Cost Estimates for 3-ton Unitary Equipment 

Efficiency Split Air Conditioner Split Air Conditioner 

Level (cased coil) (fancoil) 

(SEER) 

Original Revised Original Revised 

10 $367 $367 $456 $449 

11 $412 $412 $550 $519 

12 $468 $468 - $563 

\3 $529 $529 $756 $637 

14 $588 $588 $802 $815 

15 - - $893 $893 

Split Heat Pump Packaged Air Packaged Heat Pump 

Original 

$622 

-

$690 

$840 

$1,011 

$1,147 

39 

Conditioner 

Revised Original Revised Original Revised 

$572 $552 $511 $643 $593 

$602 -- $555 -- $638 

$648 $627 $595 $708 $668 

$743 $809 $730 -- $820 

$1,023 - $889 -- $1,029 

$1,107 - $955 -- $1,100 

Q:\EE-4\\EE-43\ \CAastandRuI\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -30 1-0"

The only significant departures are found in split air conditioners with fancoils, where

the new estimates are lower, and in 14 SEER and 15 SEER equipment where the new results are

higher.

0 Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

40 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -30/-09 

The only significant departures are found in split air conditioners with fancoils, where 

the new estimates are lower, and in 14 SEER and 15 SEER equipment where the new results are 

higher. 

40 Q:\EE-41 \EE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- .3a- o8

Table V.2: Revised Reverse Engineering Production Cost Multipliers for 3-ton Unitary

Equipment

Efficiency Split Air Conditioner Split Air Conditioner Split Heat Pump Packaged Air Packaged Heat Pump

Level (cased coil) (fancoil) Conditioner

(SEER)

Original Revised Original Revised Original Revised Original Revised Original Revised

10 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

11 1.12 1.12 1.21 1.16 - 1.05 - 1.09 - 1.08

12 1.28 1.28 - 1.25 1.11 1.13 1.14 1.16 1.10 1.13

13 1.44 1.44 1.66 1.42 1.35 1.30 1.47 1.43 - 1.38

14 1.60 1.60 1.76 1.82 1.63 1.79 - 1.74 - 1.74

15 - - 1.96 1.99 1.84 1.94 - 1.87 -1.86

In response to comments on its production volume assumptions prior to the publication

of the Supplemental ANOPR, the Department had reduced its heat pump production volume

from 125,000 units per year to 25,000 units per year. However, since heat pumps and air

conditioners are typically produced with the same plant equipment, reducing the production

volume significantly increases the overhead allocated to each heat pump produced. The higher

overhead allocation raises the cost of the baseline heat pump, lowering the relative cost of

producing equipment at higher efficiency levels. To compensate for this overestimate of

overhead allocation, we set the split heat pump overhead allocation equal to that of the split air

conditioner at each efficiency level.

The Department believes that the revisions to the split heat pump and packaged

equipment production costs have improved the cost estimates for those product classes and that

no additional equipment samples need to be subjected to tear-down or reverse engineering

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

41 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - J01- oB 

Table V.2: Revised Reverse Engineering Production Cost Multipliers for 3-ton Unitary 

Equipment 

Efficiency Split Air Conditioner Split Air Conditioner Split Heat Pump Packaged Air Packaged Heat Pump 

Level (cased coil) (fancoil) Conditioner 

(SEER) 

Original Revised Original Revised Original Revised Original Revised Original Revised 

10 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 

11 1.12 1.12 1.21 1.16 .- 1.05 -- 1.09 -- 1.08 

12 1.28 1.28 -- 1.25 1.11 1.13 1.14 1.16 1.10 1.13 

13 1.44 1.44 1.66 1.42 1.35 1.30 1.47 1.43 -- 1.38 

14 1.60 1.60 1.76 1.82 1.63 1.79 -- 1.74 -- 1.74 

15 -- -- 1.96 1.99 1.84 1.94 -- 1.87 -- 1.86 

In response to comments on its production volume assumptions prior to the publication 

of the Supplemental ANOPR, the Department had reduced its heat pump production volume 

from 125,000 units per year to 25,000 units per year. However, since heat pumps and air 

conditioners are typically produced with the same plant equipment, reducing the production 

volume significantly increases the overhead allocated to each heat pump produced. The higher 

overhead allocation raises the cost of the baseline heat pump, lowering the relative cost of 

producing equipment at higher efficiency levels. To compensate for this overestimate of 

overhead allocation, we set the split heat pump overhead allocation equal to that of the split air 

conditioner at each efficiency level. 

The Department believes that the revisions to the split heat pump and packaged 

equipment production costs have improved the cost estimates for those product classes and that 

no additional equipment samples need to be subjected to tear-down or reverse engineering 

41 Q:IEE-4IIEE-43I ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30 "

u

analysis. The revised reverse engineering cost estimates were used in the analysis for today's

proposed rule.

2. Productivity Efficiency Improvements

According to the American Council for an Energy Efficient Economy (ACEEE), Census

Bureau Current Industrial Report (CIR) data suggest that the unit price of equipment shipments

below 65,000 Btu/hr fell in real terms between 1992 and 1997. (ACEEE, No. 43 at 4). ACEEE

suggested that the Department apply an annual deflator of 1.7% to projected prices to account

for this apparent productivity improvement.

For other rulemakings, the Department has used production input costs and production

technologies based on the best information available at the time. DOE has not made any

assumptions about productivity improvements and material cost changes over time. The

Department does not believe historical price trends for unitary air conditioners, or other products,

can be applied to forecast equipment costs where there are no data to indicate the trends will

continue. Therefore, without specific data on the likely costs to manufacture a product, the

Department will not apply a productivity improvement factor in this rulemaking or other

rulemakings.

3. Emerging Technologies

Emerging technologies that are not established in the residential central air conditioning

market have the potential to lower the cost of achieving higher efficiency. In the Supplemental

Q:\EE-41\EE-431 \CAC\StandRul\NOPRraOPR\CACNOPR24.wpd 42 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D1-0B 

analysis. The revised reverse engineering cost estimates were used in the analysis for today's 

proposed rule. 

2. Productivity Efficiency Improvements 

According to the American Council for an Energy Efficient Economy (ACEEE), Census 

Bureau Current Industrial Report (CIR) data suggest that the unit price of equipment shipments 

below 65,000 BtuIhr fell in real terms between 1992 and 1997. (ACEEE, No. 43 at 4). ACEEE 

suggested that the Department apply an annual deflator of 1.7% to projected prices to account 

for this apparent productivity improvement. 

For other rulemakings, the Department has used production input costs and production 

technologies based on the best information available at the time. DOE has not made any 

assumptions about productivity improvements and material cost changes over time. The 

Department does not believe historical price trends for unitary air conditioners, or other products, 

can be applied to forecast equipment costs where there are no data to indicate the trends will 

continue. Therefore, without specific data on the likely costs to manufacture a product, the 

Department will not apply a productivity improvement factor in this rulemaking or other 

rulemakings. 

3. Emerging Technologies 

Emerging technologies that are not established in the residential central air conditioning 

market have the potential to lower the cost of achieving higher efficiency. In the Supplemental 

42 Q:\EE-41 \EE-431 ICACIStandRul\NOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- '30 D -

ANOPR, we considered advances in variable speed and variable capacity compressors, and

reductions in the cost of variable speed fan motors and parallel-flow, microchannel heat

exchangers to be potentially viable methods for increasing the efficiency of equipment at a lower

cost than currently established methods.

Bard Manufacturing (Bard), Unico, Inc. (Unico) and NRDC disagreed with this approach,

questioning whether some of the technologies considered were commercially and technically

viable, but proposed no other technologies for consideration. (Bard Manufacturing, No. 28 at 4;

Unico, No. 34 at 1; NRDC No. 35 at 11-12). ARI stated that they considered some compressor

and motor advances but not microchannel heat exchangers in their relative production cost data.

(ARI No. 48 at 3). The Trane Company (Trane) and Edison Electric Institute (EEI) also

expressed concern over some apparent inconsistencies in the emerging technologies analysis

presented in Table 4.16 and the use and calculation of the Carnot efficiency on page 4-27 of the

Supplemental ANOPR TSD. (Trane, No. 23 at 2; and EEI No. 20 at 3).

Pacific Gas and Electric (PG&E) voiced concern that new technologies, such as the

Bristol modulating compressor, could reduce costs to the point that manufacturers may use them

at lower SEER levels resulting in a negative impact on peak loads and electrical system

reliability. (PG&E, No. 31 at 3).

The emerging technology analysis based on reverse engineering information seems to

confirm that, of the technologies considered, only variable capacity compressors and variable

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

43 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - ,301- 08 

ANOPR, we considered advances in variable speed and variable capacity compressors, and 

reductions in the cost of variable speed fan motors and parallel-flow, microchannel heat 

exchangers to be potentially viable methods for increasing the efficiency of equipment at a lower 

cost than currently established methods. 

Bard Manufacturing (Bard), Unico, Inc. (Unico) and NRDC disagreed with this approach, 

questioning whether some of the technologies considered were commercially and technically 

viable, but proposed no other technologies for consideration. (Bard Manufacturing, No. 28 at 4; 

Unico, No. 34 at 1; NRDC No. 35 at 11-12). ARI stated that they considered some compressor 

and motor advances but not microchannel heat exchangers in their relative production cost data. 

(ARI No. 48 at 3). The Trane Company (Trane) and Edison Electric Institute (EEl) also 

expressed concern over some apparent inconsistencies in the emerging technologies analysis 

presented in Table 4.16 and the use and calculation of the Camot efficiency on page 4-27 of the 

Supplemental ANOPR TSD. (Trane, No. 23 at 2; and EEl No. 20 at 3). 

Pacific Gas and Electric (PG&E) voiced concern that new technologies, such as the 

Bristol modulating compressor, could reduce costs to the point that manufacturers may use them 

at lower SEER levels resulting in a negative impact on peak loads and electrical system 

reliability. (PG&E, No. 31 at 3). 

The emerging technology analysis based on reverse engineering information seems to 

confirm that, of the technologies considered, only variable capacity compressors and variable 

43 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -,3 '7- 0

speed fan motors have the potential to be cost options for providing additional efficiency

compared to today's established technologies. This provides evidence that ARI is justified in not

considering the potential benefits of microchannel heat exchangers as part of its relative cost data

submission. Therefore, we will apply emerging technologies only to the reverse engineering

results and consider the ARI relative cost multipliers to already include the effects of emerging

technologies.

We do not believe our original emerging technology analysis was inconsistent, as

expressed by Trane and EEI above, although we do recognize that combining the effects of

component efficiency improvements does not necessarily lead to a cumulative improvement in

the system. The intent of the analysis is not to provide a definitive estimate of the impact of any

or all emerging technologies on system cost. It is to provide evidence as to the extent to which

reverse engineering overestimates the cost of higher efficiency equipment by neglecting

emerging technologies. Therefore, the method used previously for portraying and combining the

potential effects of emerging technologies on system costs is carried forward into today's rule.

Chapter 2 of the TSD provides the details of the revised emerging technologies analysis.

4. HFC-Based Engineering Analysis

ARI and Trane supported the Department's decision not to explicitly examine the effects

of the HCFC phaseout on equipment cost and efficiency. (Wethje, ARI, Transcript p. 145;

Crawford, Trane, Transcript p. 143). The Oregon Energy Office (OEO) and NRDC urged the

Department to reconsider, given that a large fraction of the equipment sold under the new

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 44 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -30'1-08 

speed fan motors have the potential to be cost options for providing additional efficiency 

compared to today's established technologies. This provides evidence that ARI is justified in not 

considering the potential benefits of microchannel heat exchangers as part of its relative cost data 

submission. Therefore, we will apply emerging technologies only to the reverse engineering 

results and consider the ARI relative cost multipliers to already include the effects of emerging 

technologies. 

We do not believe our original emerging technology analysis was inconsistent, as 

expressed by Trane and EEl above, although we do recognize that combining the effects of 

component efficiency improvements does not necessarily lead to a cumulative improvement in 

the system. The intent of the analysis is not to provide a definitive estimate of the impact of any 

or all emerging technologies on system cost. It is to provide evidence as to the extent to which 

reverse engineering overestimates the cost of higher efficiency equipment by neglecting 

emerging technologies. Therefore, the method used previously for portraying and combining the 

potential effects of emerging technologies on system costs is carried forward into today's rule. 

Chapter 2 of the TSD provides the details of the revised emerging technologies analysis. 

4. HFC-Based Engineering Analysis 

ARI and Trane supported the Department's decision not to explicitly examine the effects 

of the HCFC phaseout on equipment cost and efficiency. (Wethje, ARI, Transcript p. 145; 

Crawford, Trane, Transcript p. 143). The Oregon Energy Office (OEO) and NRDC urged the 

Department to reconsider, given that a large fraction of the equipment sold under the new 

44 Q:IEE-41 IEE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3) 7- 08

efficiency standard will likely use a refrigerant other than HCFC-22, even prior to the 2010

phaseout date. (Stevens, OEO, Transcript, p. 144; NRDC, No. 35 at 11-12).

To date, no data presented to the Department indicate that the incremental cost for

increasing the efficiency of equipment using either HFC-407c or HFC-410a refrigerants will

differ significantly from the incremental cost of increasing efficiency using HCFC-22 equipment.

Although the base cost may differ somewhat, the incremental cost determines the life-cycle-cost

savings. Furthermore, the Department continues to receive information that much of the market

is changing to HFC-410a and that HFC-410a offers little, if any, efficiency benefit over HCFC22 at the same equipment cost.

For these reasons, the Department will not perform additional engineering analysis related

to alternate refrigerants. The costs to manufacturers related to their conversion to the new

refrigerant will be considered in the Manufacturer Impact Analysis.

B. Life-Cycle-Cost Parameters

1. Extended Warranty and Service Costs

Energy Market and Policy Analysis, Inc. (EMPA) noted that the Life Cycle Cost analysis

did not explicitly address extended warranty and service costs and asserted that they should be

taken into account. (Schleede, EMPA, Transcript, p. 221). The Alliance to Save Energy (ASE)

stated that the inclusion of extended warranty and service costs would have the impact of

reducing repair and maintenance costs. (Prindle, ASE, Transcript, p. 222). Industry consultant

Q:\EE-41 EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

45 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - j 0 '7- 08 

efficiency standard will likely use a refrigerant other than HCFC-22, even prior to the 2010 

phaseout date. (Stevens, OEO, Transcript, p. 144; NRDC, No. 35 at 11-12). 

To date, no data presented to the Department indicate that the incremental cost for 

increasing the efficiency of equipment using either HFC-407 c or HFC-41 Oa refrigerants will 

differ significantly from the incremental cost of increasing efficiency using HCFC-22 equipment. 

Although the base cost may differ somewhat, the incremental cost determines the life-cycle-cost 

savings. Furthermore, the Department continues to receive information that much of the market 

is changing to HFC-41 Oa and that HFC-41 Oa offers little, if any, efficiency benefit over HCFC22 at the same equipment cost. 

For these reasons, the Department will not perform additional engineering analysis related 

to alternate refrigerants. The costs to manufacturers related to their conversion to the new 

refrigerant will be considered in the Manufacturer Impact Analysis. 

B. Life-Cycle-Cost Parameters 

1. Extended Warranty and Service Costs 

Energy Market and Policy Analysis, Inc. (EMPA) noted that the Life Cycle Cost analysis 

did not explicitly address extended warranty and service costs and asserted that they should be 

taken into account. (Schleede, EMPA, Transcript, p. 221). The Alliance to Save Energy (ASE) 

stated that the inclusion of extended warranty and service costs would have the impact of 

reducing repair and maintenance costs. (Prindle, ASE, Transcript, p. 222). Industry consultant 

45 Q:IEE-41IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 03 0-

Joseph Pietsch stated that manufacturers may provide longer-term warranties for high efficiency

systems that cover a wider range of components, to alleviate customer concerns regarding

possible future repair cost of the more complex systems. (Pietsch, No. 36 at 22).

Air conditioner manufacturers warranty their equipment against defects, and contractors

typically guarantee performance and installation. Manufacturer warranties typically cover parts

and labor for one year, with longer warranties applying to the compressor. Mr Pietsch noted that

compared to low-SEER products, high-SEER products have more components, many of which

have a relatively short history. Reliability patterns of these new components are less known, so

warranty accruals may be significantly higher for these products. (Pietsch, No. 36 at 22).

Dealers also may offer extended warranties which are usually underwritten by the manufacturer

or a third party.

A product that is less reliable or contains more expensive components will have a higher

cost of repair over its lifetime. Either the consumer or the warranty provider will bear that added

cost directly through more frequent service calls or higher repair costs. If the cost is covered by

warranty, however, the warranty provider passes it back to future warranty holders in the form of

slightly higher warranty prices. DOE believes the incremental increase in the price of the

warranty is equal to, or just slightly higher, than the discounted present value of the incremental

repair costs over the life of the warranty. Over the long term then, the average consumer always

incurs the cost of higher repair costs, either directly or through higher warranty prices. Since our

Q:EE-4 1E-431 \CAC\StandRul\NOPR\DrafNOPR\CACNOPR24.wpd

46 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - J fJ7- 08 

Joseph Pietsch stated that manufacturers may provide longer-term warranties for high efficiency 

systems that cover a wider range of components, to alleviate customer concerns regarding 

possible future repair cost of the more complex systems. (Pietsch, No. 36 at 22). 

Air conditioner manufacturers warranty their equipment against defects, and contractors 

typically guarantee performance and installation. Manufacturer warranties typically cover parts 

and labor for one year, with longer warranties applying to the compressor. Mr Pietsch noted that 

compared to low-SEER products, high-SEER products have more components, many of which 

have a relatively short history. Reliability patterns of these new components are less known, so 

warranty accruals may be significantly higher for these products. (Pietsch, No. 36 at 22). 

Dealers also may offer extended warranties which are usually underwritten by the manufacturer 

or a third party. 

A product that is less reliable or contains more expensive components will have a higher 

cost of repair over its lifetime. Either the consumer or the warranty provider will bear that added 

cost directly through more frequent service calls or higher repair costs. If the cost is covered by 

warranty, however, the warranty provider passes it back to future warranty holders in the form of 

slightly higher warranty prices. DOE believes the incremental increase in the price of the 

warranty is equal to, or just slightly higher, than the discounted present value of the incremental 

repair costs over the life of the warranty. Over the long term then, the average consumer always 

incurs the cost of higher repair costs, either directly or through higher warranty prices. Since our 

46 Q:IEE·41IEE-431 \CAC\StandRul\NOPRIDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30 7- 0-

analysis considers the present value of consumer life cycle costs on the average consumer,

incremental repair costs and incremental warranty costs are the same, and interchangeable.

Since consideration of repair costs is satisfied by considering either repair costs or

extended warranties, we limited our consideration to repair costs, which are slightly easier to

estimate, communicate, and incorporate into the analysis. Considering them both would require

a much more rigorous analysis of service costs since we would have to estimate the service cost

incurred on a year-by-year basis. That additional analysis would likely not produce significantly

different results. Comments are welcome as to whether explicit consideration of extended

warranties would produce significantly different results from those based on service costs alone

which we have assumed rise in proportion to the price of the equipment. Since more efficient

equipment is also more expensive, we have included the higher cost of repair, or equivalently,

the higher warranty cost associated with more efficient equipment, as part of the lifecycle cost

analysis.

2. Residential Energy Consumption Survey (RECS)

Both NRDC and EMPA asserted that RECS' method for estimating end-use energy

consumption (i.e., conditional demand analysis) yields unreliable and flawed results. NRDC

added that conditional demand analysis methods inherently underestimate central air conditioner

energy use due to its treatment of internal loads. EMPA stated that the RECS household sample

size is too small to be used in the manner in which it is being treated in the life-cycle cost

analysis. (NRDC, No. 35 at 6-7; EMPA, No. 33 at 4-6; Schleede, EMPA, Transcript, pp. 160-

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 47 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -307- oS 

analysis considers the present value of consumer life cycle costs on the average consumer, 

incremental repair costs and incremental warranty costs are the same, and interchangeable. 

Since consideration of repair costs is satisfied by considering either repair costs or 

extended warranties, we limited our consideration to repair costs, which are slightly easier to 

estimate, communicate, and incorporate into the analysis. Considering them both would require 

a much more rigorous analysis of service costs since we would have to estimate the service cost 

incurred on a year-by-year basis. That additional analysis would likely not produce significantly 

different results. Comments are welcome as to whether explicit consideration of extended 

warranties would produce significantly different results from those based on service costs alone 

which we have assumed rise in proportion to the price of the equipment. Since more efficient 

equipment is also more expensive, we have included the higher cost of repair, or equivalently, 

the higher warranty cost associated with more efficient equipment, as part of the lifecycle cost 

analysis. 

2. Residential Energy Consumption Survey (RECS) 

Both NRDC and EMPA asserted that RECS' method for estimating end-use energy 

consumption (i.e., conditional demand analysis) yields unreliable and flawed results. NRDC 

added that conditional demand analysis methods inherently underestimate central air conditioner 

energy use due to its treatment of intemalloads. EMP A stated that the RECS household sample 

size is too small to be used in the manner in which it is being treated in the life-cycle cost 

analysis. (NRDC, No. 35 at 6-7; EMPA, No. 33 at 4-6; Schleede, EMPA, Transcript, pp. 160-

47 Q;\EE-41 \EE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 3070 "

161). Virginia Power, EEI, and EMPA all requested that the analysis be updated to use RECS

1997 data rather than RECS 1993 data. EEI added that actual submetered end-use data should be

used if possible rather than the end-use data in RECS. (Virgina Power, No. 27 at 2; EEI, No. 20

at 5, Schleede, EMPA, Transcript, pp. 160-161).

As part of the process to improve the new energy efficiency standards analysis, we are

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.

End-use energy consumption data from past RECS surveys have been compared to

submetered end-use data for purposes of validating their conditional demand analysis estimates.

Central air conditioning and space-heating energy data from the 1990 RECS were shown to differ

by 5% to 22% compared to submetered end-use data from five utility service areas. The

Department believes that this range of difference is acceptable considering that the conditional

demand analysis utilized by RECS is fully capable of estimating the energy consumption of

equipment throughout the nation. Because RECS is a very well suited source of data for

performing the analyses suggested by the Process Rule and RECS has been shown to provide

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

48 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D1-06 

161). Virginia Power, EEl, and EMPA all requested that the analysis be updated to use RECS 

1997 data rather than RECS 1993 data. EEl added that actual submetered end-use data should be 

used if possible rather than the end-use data in RECS. (Virgina Power, No. 27 at 2; EEl, No. 20 

at 5, Schleede, EMPA, Transcript, pp. 160-161). 

As part of the process to improve the new energy efficiency standards analysis, we are 

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. 

End-use energy consumption data from past RECS surveys have been compared to 

submetered end-use data for purposes of validating their conditional demand analysis estimates. 

Central air conditioning and space-heating energy data from the 1990 RECS were shown to differ 

by 5% to 22% compared to submetered end-use data from five utility service areas. The 

Department believes that this range of difference is acceptable considering that the conditional 

demand analysis utilized by RECS is fully capable of estimating the energy consumption of 

equipment throughout the nation. Because RECS is a very well suited source of data for 

performing the analyses suggested by the Process Rule and RECS has been shown to provide 

48 Q:\EE-4\ \EE-43 \ ICACIStandRu\INOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3-D 8

reasonable estimates of end-use energy consumption, we will continue to rely on RECS for

providing the annual energy consumption data necessary for conducting the life-cycle cost

analysis.

The analysis conducted in support of this proposed rule has been revised based on data

from the 1997 RECS rather than the 1993 RECS.

3. Equipment Lifetime

Virginia Power, EEI, ARI, Unico, Rheem Co., and Trane commented that the average

equipment lifetime of 18.4 years assumed in the Supplemental ANOPR was incorrect, and

suggested an actual lifetime between 12 and 15 years. (Virginia Power, No. 27 at 2; EEI, No. 20

at 10; ARI, No. 48 at 3; Unico, No. 34 at 3; Lux, Rheem Co., Transcript, p. 165; Foster, EEI,

Transcript, p. 170; Crawford, Trane, Transcript, p. 191; Wethje, ARI, Transcript, p. 193). EMPA

asserted that the length of first ownership should be used as the basis for equipment lifetime.

(EMPA, No. 33 at 3, Schleede, EMPA, Transcript, p. 162).

NRDC, ACEEE, and the Vermont Energy Investment Corporation (VEIC) all believed

that the 18.4 year equipment lifetime was reasonable. They reasoned that a shorter or longer

average equipment lifetime would result in less accurate estimates of historical shipments.

ACEEE added that unless manufacturers can provide new data, the 18.4 year average lifetime

should be retained. (NRDC, No. 35 at 7-8; ACEEE, No. 43 at 6-7; VEIC, No. 32 at 7).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 49 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440'- 3D 1- 0 B 

reasonable estimates of end-use energy consumption, we will continue to rely on RECS for 

providing the annual energy consumption data necessary for conducting the life-cycle cost 

analysis. 

The analysis conducted in support of this proposed rule has been revised based on data 

from the 1997 RECS rather than the 1993 RECS. 

3. Equipment Lifetime 

Virginia Power, EEl, ARI, Unico, Rheem Co., and Trane commented that the average 

equipment lifetime of 18.4 years assumed in the Supplemental ANOPR was incorrect, and 

suggested an actual lifetime between 12 and 15 years. (Virginia Power, No. 27 at 2; EEl, No. 20 

at 10; ARI, No. 48 at 3; Unico, No. 34 at 3; Lux, Rheem Co., Transcript, p. 165; Foster, EEl, 

Transcript, p. 170; Crawford, Trane, Transcript, p. 191; Wethje, ARI, Transcript, p. 193). EMP A 

asserted that the length of first ownership should be used as the basis for equipment lifetime. 

(EMPA, No. 33 at 3, Schleede, EMPA, Transcript, p. 162). 

NRDC, ACEEE, and the Vermont Energy Investment Corporation (VEIC) all believed 

that the 18.4 year equipment lifetime was reasonable. They reasoned that a shorter or longer 

average equipment lifetime would result in less accurate estimates of historical shipments. 

ACEEE added that unless manufacturers can provide new data, the 18.4 year average lifetime 

should be retained. (NRDC, No. 35 at 7-8; ACEEE, No. 43 at 6-7; VEIC, No. 32 at 7). 

49 Q:IEE-41IEE-431 ICACIStandRuIINOPRIDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 0 7- 0 8

The Department notes that 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 13 . 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.

In the LCC analysis conducted for the Supplemental ANOPR, we did not include any

repair costs associated with replacing the compressor. But since the heat pump survey clearly

indicates that the original compressor is replaced once in a system's life, the analysis was revised

to include 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. In addition,

because more efficient systems tend to use more efficient and, thus, more expensive

compressors, the compressor replacement cost was assumed to vary with system efficiency.

Although the revised LCC analysis assumed an 18.4 year average equipment life and one

compressor replacement, a shorter equipment lifetime was investigated as an alternative scenario.

'"Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and Compressor Longevity in

Diverse Climates." ASHRAE Transactions, 1990. 96(1): p. 1567-1571.

Q\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

50 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -J a 7- 0 8 

The Department notes that 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\3. 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. 

In the LCC analysis conducted for the Supplemental ANOPR, we did not include any 

repair costs associated with replacing the compressor. But since the heat pump survey clearly 

indicates that the original compressor is replaced once in a system's life, the analysis was revised 

to include 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. In addition, 

because more efficient systems tend to use more efficient and, thus, more expensive 

compressors, the compressor replacement cost was assumed to vary with system efficiency. 

Although the revised LCC analysis assumed an 18.4 year average equipment life and one 

compressor replacement, a shorter equipment lifetime was investigated as an alternative scenario. 

I3"Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and Compressor Longevity in 

Diverse Climates." ASHRAE Transactions, 1990.96(1): p. 1567-1571. 

50 Q:IEE-4IIEE-431 ICACIStandRu)INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -50 f - Oo

In this alternative scenario, a retirement function yielding an average lifetime of 14 years was

used and compressor replacement costs were not considered. The shorter equipment lifetime is

plausible assuming that most, if not all, consumers when faced with replacing a failed

compressor would choose to replace the entire system rather than replace the compressor in a

relatively old system. LCC results based on both the 18.4 year and 14 year average equipment

lifetimes are provided in Section VI as well as Chapter 5 of the TSD.

4. Commercial Applications

NRDC, ACEEE, VEIC, CEC, and the Northwest Power Planning Council (NPPC)

commented that DOE should analyze the application of residential central air conditioners and

heat pumps (i.e., single-phase equipment) in commercial buildings. All stated that there is a

significant portion of this type equipment being used in small commercial buildings. They

argued that since the energy use patterns in commercial buildings are distinctly different than

those in households, the analysis should include residential equipment use in commercial

applications. (NRDC, No. 35 at 12-13; ACEEE, No. 43 at 2; VEIC, No. 32 at 6-7; CEC, No. 47

at 8; Tom Eckman, NPPC, Transcript, p. 166).

EEI requested clarification as to how the commercial application analysis was conducted

for the Department's January 14, 2000, LCC Sensitivity Analysis. (EEI, No. 20 at 10).

For today's proposed rule, the use of residential equipment in commercial buildings was

analyzed assuming that 10% of all central air conditioners and heat pumps are used in

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

5 1 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30 1- DB 

In this alternative scenario, a retirement function yielding an average lifetime of 14 years was 

used and compressor replacement costs were not considered. The shorter equipment lifetime is 

plausible assuming that most, if not all, consumers when faced with replacing a failed 

compressor would choose to replace the entire system rather than replace the compressor in a 

relatively old system. LCC results based on both the 18.4 year and 14 year average equipment 

lifetimes are provided in Section VI as well as Chapter 5 of the TSD. 

4. Commercial Applications 

NRDC, ACEEE, VEIC, CEC, and the Northwest Power Planning Council (NPPC) 

commented that DOE should analyze the application of residential central air conditioners and 

heat pumps (i.e., single-phase equipment) in commercial buildings. All stated that there is a 

significant portion of this type equipment being used in small commercial buildings. They 

argued that since the energy use patterns in commercial buildings are distinctly different than 

those in households, the analysis should include residential equipment use in commercial 

applications. (NRDC, No. 35 at 12-13; ACEEE, No. 43 at 2; VEIC, No. 32 at 6-7; CEC, No. 47 

at 8; Tom Eckman, NPPC, Transcript, p. 166). 

EEl requested clarification as to how the commercial application analysis was conducted 

for the Department's January 14,2000, LCC Sensitivity Analysis. (EEl, No. 20 at 10). 

For today's proposed rule, the use of residential equipment in commercial buildings was 

analyzed assuming that 10% of all central air conditioners and heat pumps are used in 

51 Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3)7- 08

commercial applications. This figure is based on ARI's estimate that approximately 10% of

single-phase air conditioning and heat pump shipments are used in commercial buildings. The

annual energy consumption of commercially applied air-conditioning and heat pump equipment

was based on the simulation of 77 nationally representative commercial buildings consistent with

the approach and assumptions utilized to develop the American Society of Heating, Refrigerating

and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal

electricity rates were developed by matching a set of commercial electric utility tariffs to the

above simulated building loads and demands.

The LCC spreadsheet models were modified so that commercial buildings with their

corresponding annual energy consumption and marginal and average electricity costs represent

10% of the entire residential and commercial building population. Complete details on the

procedure to incorporate commercial applications are included in Chapter 5 of the TSD.

5. Marginal Electricity Prices

NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commented that the Supplemental

ANOPR analysis underestimated future marginal electricity prices. Several of the comments

stated the belief that deregulation of the electric utility industry would result in greater volatility

of electricity pricing that eventually would translate into higher electricity prices during peak

power periods. (Goldstein, NRDC, Transcript, p. 175; ACEEE, No. 43 at 6; CEC, No 47 at 8;

PG&E, No. 31 at 6-7; Eckman, NPPC, Transcript, pp. 167-168; Prindle, ASE, Transcript, p.

168).

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

52 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- ·30'f- 08 

commercial applications. This figure is based on ARI's estimate that approximately 10% of 

single-phase air conditioning and heat pump shipments are used in commercial buildings. The 

annual energy consumption of commercially applied air-conditioning and heat pump equipment 

was based on the simulation of 77 nationally representative commercial buildings consistent with 

the approach and assumptions utilized to develop the American Society of Heating, Refrigerating 

and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal 

electricity rates were developed by matching a set of commercial electric utility tariffs to the 

above simulated building loads and demands. 

The LCC spreadsheet models were modified so that commercial buildings with their 

corresponding annual energy consumption and marginal and average electricity costs represent 

10% of the entire residential and commercial building population. Complete details on the 

procedure to incorporate commercial applications are included in Chapter 5 of the TSD. 

5. Marginal Electricity Prices 

NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commented that the Supplemental 

ANOPR analysis underestimated future marginal electricity prices. Several of the comments 

stated the belief that deregulation of the electric utility industry would result in greater volatility 

of electricity pricing that eventually would translate into higher electricity prices during peak 

power periods. (Goldstein, NRDC, Transcript, p. 175; ACEEE, No. 43 at 6; CEC, No 47 at 8; 

PG&E, No. 31 at 6-7; Eckman, NPPC, Transcript, pp. 167-168; Prindle, ASE, Transcript, p. 

168). 

52 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30 7- 03

ARI and EEI were not convinced that a deregulated electric utility industry would result

in higher electricity prices in the future. ARI noted that under a peak pricing scenario consumers

may decline to operate their air-conditioning equipment to avoid incurring high electricity bills.

EEI added that currently, there is no mechanism to capture utility capital costs for providing peak

power in residential pricing. (Wethje, ARI, Transcript, pp. 168-169; Foster, EEI, Transcript, pp.

169, 175-176).

The current 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) was taken from the year 1997. The same

can be said for commercial buildings. The utility tariffs used to establish marginal prices (as

described earlier) were collected in the year 1997. On average, residential marginal prices for

households with central air conditioners are 3% lower than average rates while for households

with heat pumps marginal prices are 7% lower. Space-cooling marginal prices in commercial

buildings are on average 2% greater than average commercial rates. Future marginal prices were

in turn based upon the Reference Case electricity price forecast from the AEO2000. The

Reference Case forecasts declining electricity rates through the year 2020. Although it is

certainly possible that future electricity rates may increase in a deregulated climate, the evidence

to date (i.e., residential marginal prices are actually lower than average rates and AEO 2000

forecasts project declining electricity rates) convinces us that our current methods for

establishing marginal prices are reasonable. To state that future prices may decrease or increase

is speculative. Even in the case of commercial buildings where demand pricing already exists,

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 5 3 Qctober 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D 1- 08 

ARI and EEl were not convinced that a deregulated electric utility industry would result 

in higher electricity prices in the future. ARI noted that under a peak pricing scenario consumers 

may decline to operate their air-conditioning equipment to avoid incurring high electricity bills. 

EEl added that currently, there is no mechanism to capture utility capital costs for providing peak 

power in residential pricing. (Wethje, ARI, Transcript, pp. 168-169; Foster, EEl, Transcript, pp. 

169, 175-176). 

The current 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) was taken from the year 1997. The same 

can be said for commercial buildings. The utility tariffs used to establish marginal prices (as 

described earlier) were collected in the year 1997. On average, residential marginal prices for 

households with central air conditioners are 3% lower than average rates while for households 

with heat pumps marginal prices are 7% lower. Space-cooling marginal prices in commercial 

buildings are on average 2% greater than average commercial rates. Future marginal prices were 

in turn based upon the Reference Case electricity price forecast from the AE02000. The 

Reference Case forecasts declining electricity rates through the year 2020. Although it is 

certainly possible that future electricity rates may increase in a deregulated climate, the evidence 

to date (i.e., residential marginal prices are actually lower than average rates and AEO 2000 

forecasts project declining electricity rates) convinces us that our current methods for 

establishing marginal prices are reasonable. To state that future prices may decrease or increase 

is speculative. Even in the case of commercial buildings where demand pricing already exists, 

53 Q:IEE-41 IEE-431 \CAClStandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30'7- 0

marginal prices are only 2% greater than average electricity rates. This reenforces our conviction

to keep our current methodology for establishing marginal prices. However, the Department

seeks comments on its methodology and data for determining the appropriate marginal energy

costs to use in future analysis.

6. Forecast of Future Electricity Prices

EMPA asserted that the EIA's forecast of electricity prices as found in the Annual

Energy Outlook underestimates the future drop in electricity rates. (EMPA, No. 33 at 2-3;

Schleede, EMPA, Transcript, p. 185). Don Dasher stated that any forecast of electricity prices

should capture the future use of renewable energy and emerging technologies for generating

power. (Dasher, Transcript, pp. 192-193).

Future marginal prices are based upon the Reference Case electricity price forecast from

the AEO 2000. The Reference Case forecasts declining electricity rates through the year 2020.

Although it is certainly possible that future electricity rates may increase in a deregulated climate,

the evidence to date (i.e., residential marginal prices are actually lower than average rates and

current AEO forecasts project declining electricity rates) leads us to believe that our current

methods for establishing future marginal prices are reasonable.

In addition to the Reference Case, DOE analyzed the effects of two other energy price

forecasts, the AEO 2000 High Growth and Low Growth cases. (See TSD, Chapter 5.)

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

54 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440' 30'1-08 

marginal prices are only 2% greater than average electricity rates. This reenforces our conviction 

to keep our current methodology for establishing marginal prices. However, the Department 

seeks comments on its methodology and data for determining the appropriate marginal energy 

costs to use in future analysis. 

6. Forecast of Future Electricity Prices 

EMPA asserted that the EIA's forecast of electricity prices as found in the Annual 

Energy Outlook underestimates the future drop in electricity rates. (EMPA, No. 33 at 2-3; 

Schleede, EMP A, Transcript, p. 185). Don Dasher stated that any forecast of electricity prices 

should capture the future use of renewable energy and emerging technologies for generating 

power. (Dasher, Transcript, pp. 192-193). 

Future marginal prices are based upon the Reference Case electricity price forecast from 

the AEO 2000. The Reference Case forecasts declining electricity rates through the year 2020. 

Although it is certainly possible that future electricity rates may increase in a deregulated climate, 

the evidence to date (i.e., residential marginal prices are actually lower than average rates and 

current AEO forecasts project declining electricity rates) leads us to believe that our current 

methods for establishing future marginal prices are reasonable. 

In addition to the Reference Case, DOE analyzed the effects of two other energy price 

forecasts, the AEO 2000 High Growth and Low Growth cases. (See TSD, Chapter 5.) 

54 Q:IEE-41 IEE-431 ICACIStandRu1INOPRIDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 301-0-8

7. Discount Rates

NRDC, ACEEE, VEIC, PG&E, and CEC believe that the discount rate used in the

Supplemental ANOPR analysis was too high. Their primary criticism pertained to the

breakdown of finance methods which were assumed for establishing the discount rate. The

Supplemental ANOPR analysis assumed that 35% of consumers purchasing a central air

conditioner or heat pump used a credit card to finance their purchase. The comments argued for

a much lower percentage and cited a recent PG&E survey that demonstrated that only 5% of

consumers used credit cards. VEIC also cited a survey by Potomac Electric Power Company

(PEPCO) that reported lower purchases with credit cards. (NRDC, No. 35 at 10-11; ACEEE,

No. 43 at 3; VEIC, No. 32 at 3-4; Neme, VEIC, Transcript, pp. 186-187; PG&E, No. 31 at 7;

CEC, No. 47 at 7). Counter to the above assertion, Trane maintained that the Supplemental

ANOPR's assumption regarding the percentage of consumers using credit cards to purchase

equipment was correct, based on the number of consumers in the U.S. that carry credit card debt.

(Crawford, Trane, Transcript, p. 191-192). EEI commented that the interest rates associated with

credit card and cash purchases needed to be revisited. (EEI, No. 20 at 6). EMPA asserted that

with higher cost air conditioners, consumers' after tax income would be reduced, requiring them

to forego the purchase of various household necessities such as food, clothing, and shelter.

(EMPA, No. 33 at 3).

The Department performed an extensive review and revision to the methodology that

determines consumer discount rate. The Supplemental ANOPR established the share of various

finance methods used for purchasing air-conditioning equipment and determined the associated

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

55 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 ~ 30'1- 0 S 

7. Discount Rates 

NRDC, ACEEE, VEIC, PG&E, and CEC believe that the discount rate used in the 

Supplemental ANOPR analysis was too high. Their primary criticism pertained to the 

breakdown of finance methods which were assumed for establishing the discount rate. The 

Supplemental ANOPR analysis assumed that 35% of consumers purchasing a central air 

conditioner or heat pump used a credit card to finance their purchase. The comments argued for 

a much lower percentage and cited a recent PG&E survey that demonstrated that only 5% of 

consumers used credit cards. VEIC also cited a survey by Potomac Electric Power Company 

(PEPCO) that reported lower purchases with credit cards. (NRDC, No. 35 at 10-11; ACEEE, 

No. 43 at 3; VEIC, No. 32 at 3-4; Neme, VEIC, Transcript, pp. 186-187; PG&E, No. 31 at 7; 

CEC, No. 47 at 7). Counter to the above assertion, Trane maintained that the Supplemental 

ANOPR's assumption regarding the percentage of consumers using credit cards to purchase 

equipment was correct, based on the number of consumers in the U.S. that carry credit card debt. 

(Crawford, Trane, Transcript, p. 191-192). EEl commented that the interest rates associated with 

credit card and cash purchases needed to be revisited. (EEl, No. 20 at 6). EMP A asserted that 

with higher cost air conditioners, consumers' after tax income would be reduced, requiring them 

to forego the purchase of various household necessities such as food, clothing, and shelter. 

(EMPA, No. 33 at 3). 

The Department performed an extensive review and revision to the methodology that 

determines consumer discount rate. The Supplemental ANOPR established the share of various 

finance methods used for purchasing air-conditioning equipment and determined the associated 

55 Q:\EE-41 \EE-431 ICACIStandRu\INOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30 - 0O

interest rates for each of the finance methods. For equipment obtained through the purchase of a

new home, second mortgage, or home equity lines of credit, this approach is reasonable. But for

purchases made to replace old or failed equipment where cash or some form of credit is used to

finance the acquisition, we determined it more appropriate to establish how the purchase affects

a consumer's overall household financial situation. For example, even though the purchase

might be financed through a dealer loan or some other low interest financing vehicle, the more

probable effect of the purchase is to either cause the consumer to incur additional credit card debt

or forego their investment in some type of savings-related asset. Cash that was once available to

either pay for household necessities or to invest in an asset like the stock market or a simple

savings account now must be earmarked to pay off the equipment purchase loan, thus, either

causing the consumer to incur additional credit card debt or to lose the opportunity to earn

income from their assets. For today's proposed rule, we have decided to use the above

methodology for defining the discount rate for central air conditioner and heat pump purchases.

The 1998 Survey of Consumer Finances (SCF) was used to estimate the percentage of

households that used second mortgages to finance their equipment purchase as well as those

households that either would incur more credit card debt or be forced to forgo their normal

course of investing. Data from the Air Conditioning, Heating, and Refrigeration News

(December 12, 1998) established the percentage of shipment going to new homes.

After establishing the share captured by each finance method, the range of interest rates

due to each method were developed. The 1998 SCF established the range of interest rates for

new home mortgages, second mortgages, and credit cards. Rates of return on certificates of

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

56 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .- 301-08 

interest rates for each of the finance methods. For equipment obtained through the purchase of a 

new home, second mortgage, or home equity lines of credit, this approach is reasonable. But for 

purchases made to replace old or failed equipment where cash or some form of credit is used to 

finance the acquisition, we determined it more appropriate to establish how the purchase affects 

a consumer's overall household financial situation. For example, even though the purchase 

might be financed through a dealer loan or some other low interest financing vehicle, the more 

probable effect of the purchase is to either cause the consumer to incur additional credit card debt 

or forego their investment in some type of savings-related asset. Cash that was once available to 

either pay for household necessities or to invest in an asset like the stock market or a simple 

savings account now must be earmarked to payoff the equipment purchase loan, thus, either 

causing the consumer to incur additional credit card debt or to lose the opportunity to earn 

income from their assets. For today's proposed rule, we have decided to use the above 

methodology for defining the discount rate for central air conditioner and heat pump purchases. 

The 1998 Survey of Consumer Finances (SCF) was used to estimate the percentage of 

households that used second mortgages to finance their equipment purchase as well as those 

households that either would incur more credit card debt or be forced to forgo their normal 

course of investing. Data from the Air Conditioning, Heating, and Refrigeration News 

(December 12, 1998) established the percentage of shipment going to new homes. 

After establishing the share captured by each finance method, the range of interest rates 

due to each method were developed. The 1998 SCF established the range of interest rates for 

new home mortgages, second mortgages, and credit cards. Rates of return on certificates of 

56 Q:\EE-41 \EE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 30 - 08

deposit, savings bonds, and bonds were based on historical interest rates. A weighted-average

discount rate of 5.6% is calculated from the mean interest rates for each finance method. A more

detailed discussion of the data sources and how the interest rates were derived is found in

Chapter 5 of the TSD.

8. Percentage of Households with LCC Savings

For the Supplemental ANOPR, all consumers having an LCC increase resulting from the

standard were considered to be adversely impacted. Several comments expressed concern on

how we would use this information on adverse consumer impacts in selecting minimum

efficiency standards. ARI, Unico and EMPA asserted that a majority of households would need

to benefit from the standard in order to justify its selection. (ARI, No. 48 at 5; Unico, No. 34 at

3; EMPA, No. 33 at 2). NRDC stated that the percentage of households with LCC savings or

costs relative to the baseline level should not be a criterion in basing a standard's economic

justification. NRDC stated that variations in electricity pricing make it nearly impossible to

determine consumer costs on a disaggregated level. (NRDC, No. 35 at 12-15). PG&E

commented that the percentage of households at any particular standard level with net LCC costs

actually overstates the significance of the negative LCC impacts. Most consumers experience

LCC increases of only a few dollars over the life of the equipment. (PG&E, No. 31 at 8).

The Department agrees with PG&E's comment and in formulating today's proposed rule,

DOE has redefined the criteria for determining negative impacts. Noting that the baseline LCC is

approximately $5,000 for central air conditioners and $10,000 for heat pumps, previously all

Q:\EE-4 I\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

57 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .... 301-08 

deposit, savings bonds, and bonds were based on historical interest rates. A weighted-average 

. discount rate of 5.6% is calculated from the mean interest rates for each finance method. A more 

detailed discussion of the data sources and how the interest rates were derived is found in 

Chapter 5 of the TSD .. 

8. Percentage of Households with LCC Savings 

For the Supplemental ANOPR, all consumers having an LCC increase resulting from the 

standard were considered to be adversely impacted. Several comments expressed concern on 

how we would use this information on adverse consumer impacts in selecting minimum 

efficiency standards. ARl, Unico and EMP A asserted that a majority of households would need 

to benefit from the standard in order to justify its selection. (ARl, No. 48 at 5; Unico, No. 34 at 

3; EMPA, No. 33 at 2). NRDC stated that the percentage of households with LCC savings or 

costs relative to the baseline level should not be a criterion in basing a standard's economic 

justification. NRDC stated that variations in electricity pricing make it nearly impossible to 

determine consumer costs on a disaggregated level. (NRDC, No. 35 at 12-15). PG&E 

commented that the percentage of households at any particular standard level with net LCC costs 

actually overstates the significance of the negative LCC impacts. Most consumers experience 

LCC increases of only a few dollars over the life of the equipment. (PG&E, No. 31 at 8). 

The Department agrees with PG&E's comment and in formulating today's proposed rule, 

DOE has redefined the criteria for determining negative impacts. Noting that the baseline LCC is 

approximately $5,000 for central air conditioners and $10,000 for heat pumps, previously all 

57 Q:IEE-41 IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 - 0

consumers incurring an LCC increase as small as $10 were considered to be adversely impacted

by an increase in the standard. In the revised LCC analysis, the Department defines consumers

impacts as follows: consumers who achieve significant net LCC savings (i.e., LCC savings

greater than 2% of the baseline LCC), consumers who are impacted in an insignificant manner by

having either a small reduction or small increase in LCC (i.e., within ±2% of the baseline LCC),

or consumers who achieve a significant net LCC increase (i.e., an LCC increase exceeding 2% of

the baseline LCC). Consequently, only consumers (both residential and commercial) having an

LCC increase greater than 2% of the baseline are considered to be negatively impacted.

9. Regional Analysis

At the December 9, 1999, public workshop, NRDC and CEC requested further

information on regional distributions of households with net LCC savings or costs relative to the

regional baseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p.

274). The Department responded by conducting additional analysis, which was posted to our

web site on January 14, 2000, and included LCC analysis disaggregated by region into census

divisions. From this regional analysis it could be determined how different parts of the country

would be impacted by an increase in the minimum efficiency standard.

10. Rebuttable Payback

EEI asked why the rebuttable payback period is not determined with annual energy use

data from RECS. They also requested clarification as to how rebuttable payback periods will

factor into the decision to select a new minimum efficiency standard. (EEI, No. 20 at 7-8).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

58 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307EE-RM/STD-98-440 ~ 307-08 

consumers incurring an Lee increase as small as $10 were considered to be adversely impacted 

by an increase in the standard. In the revised Lee analysis, the Department defines consumers 

impacts as follows: consumers who achieve significant net Lee savings (i.e., Lee savings 

greater than 2% of the baseline LCC), consumers who are impacted in an insignificant manner by 

having either a small reduction or small increase in LCC (i.e., within ±2% of the baseline LCC), 

or consumers who achieve a significant net Lce increase (i.e., an LCC increase exceeding 2% of 

the baseline Lee). Consequently, only consumers (both residential and commercial) having an 

Lec increase greater than 2% of the baseline are considered to be negatively impacted. 

9. Regional Analysis 

At the December 9, 1999, public workshop, NRDC and CEC requested further 

information on regional distributions of households with net LCC savings or costs relative to the 

regional baseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p. 

274). The Department responded by conducting additional analysis, which was posted to our 

web site on January 14,2000, and included Lce analysis disaggregated by region into census 

divisions. From this regional analysis it could be determined how different parts of the country 

would be impacted by an increase in the minimum efficiency standard. 

10. Rebuttable Payback 

EEl asked why the rebuttable payback period is not determined with annual energy use 

data from RECS. They also requested clarification as to how rebuttable payback periods will 

factor into the decision to select a new minimum efficiency standard. (EEl, No. 20 at 7-8). 

58 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -,) 7- O

As prescribed by Section 325(o)(2)(B)(iii) of EPCA, the rebuttable payback period is

calculated under the applicable test procedure. Thus, all rebuttable payback periods are based on

an annual energy consumption that is determined through the current Department of Energy test

procedure for central air conditioners and heat pumps. The resulting annual energy use as

determined by the test procedure is significantly greater than what is indicated by RECS. Thus,

the rebuttable payback periods are significantly shorter than those based on the RECS annual

energy consumption data.

The rebuttable presumption test does not consider the full range of impacts of standards,

including manufacturer impacts and energy savings. Therefore, the Department bases its

decision primarily on the seven factors specified in Section 325(o) of the Act.

11. Sensitivity Analyses

ACEEE recommended that several sensitivity analyses be conducted to determine how

the LCC varies with changes in certain input variables. (Nadel, ACEEE, Transcript, pp. 233-

236; ACEEE, No. 43 at 10). NRDC also requested some of the sensitivity analyses described by

ACEEE. (NRDC, No. 35 at 12-13). Trane went on the record as not endorsing all of ACEEE's

requested sensitivities. (Crawford, Trane, Transcript, p. 237).

We conducted several of the requested LCC sensitivity analyses, as well as the previously

described regional analyses, and posted the results to our web site on January 14, 2000. The

sensitivities examined how the LCCs for central air conditioners and heat pumps were impacted

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

59 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440 -.30 7- 08 

As prescribed by Section 325(0)(2)(B)(iii) of EPCA, the rebuttable payback period is 

calculated under the applicable test procedure. Thus, all rebuttable payback periods are based on 

an annual energy consumption that is determined through the current Department of Energy test 

procedure for central air conditioners and heat pumps. The resulting annual energy use as 

determined by the test procedure is significantly greater than what is indicated by RECS. Thus, 

the rebuttable payback periods are significantly shorter than those based on the RECS annual 

energy consumption data. 

The rebuttable presumption test does not consider the full range of impacts of standards, 

including manufacturer impacts and energy savings. Therefore, the Department bases its 

decision primarily on the seven factors specified in Section 325(0) of the Act. 

11. Sensitivity Analyses 

ACEEE recommended that several sensitivity analyses be conducted to determine how 

the LCC varies with changes in certain input variables. (Nadel, ACEEE, Transcript, pp. 233-

236; ACEEE, No. 43 at 10). NRDC also requested some of the sensitivity analyses described by 

ACEEE. (NRDC, No. 35 at 12-13). Trane went on the record as not endorsing all of ACEEE's 

requested sensitivities. (Crawford, Trane, Transcript, p. 237). 

We conducted several of the requested LCC sensitivity analyses, as well as the previously 

described regional analyses, and posted the results to our web site on January 14,2000. The 

sensitivities examined how the LCCs for central air conditioners and heat pumps were impacted 

59 Q:IEE-41 IEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - ,0-0 0

by changes in the following: dealer markups, builder markups, repair costs, lifetime, emerging

technologies, and the use of single-phase central air conditioning and heat pump equipment in

commercial applications. Of the sensitivities examined, the assumption of fixed margins (i.e., no

variation in the difference between the equipment price to the consumer and the cost to

manufacture with increased efficiency) had the largest impact on the LCC results. Changes in

the lifetime had a noticeable affect but not the same order of magnitude as the fixed margin

assumption. All other sensitivities had only minor impacts on the LCC results.

In preparing the sensitivity analyses, we found reason to revise our assumptions regarding

markups, compressor replacement, and commercial applications. Those revisions are

incorporated into the analysis that supports today's proposed rule and are discussed elsewhere in

this Section.

C. Shipments Analysis

1. Forecasted Housing Shifts

Both the OEO and NPPC stated that there will likely be significant shifts in regional

housing populations. For example, future housing shifts may result in more housing in warmer

weather climates where central air conditioning is more prevalent and used more often, thus,

impacting the nation's future space-conditioning energy use. Since the Shipment Analysis does

not account for regional housing shifts, OEO and NPPC request that it be accounted for in the

analysis. (Stephens, OEO, Transcript, pp. 171-172; and Eckman, NPPC, Transcript, pp. 216-

217).

Q:\EE-41 EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 60 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1- 0 8 

by changes in the following: dealer markups, builder markups, repair costs, lifetime, emerging 

technologies, and the use of single-phase central air conditioning and heat pump equipment in 

commercial applications. Of the sensitivities examined, the assumption of fixed margins (i.e., no 

variation in the difference between the equipment price to the consumer and the cost to 

manufacture with increased efficiency) had the largest impact on the LCC results. Changes in 

the lifetime had a noticeable affect but not the same order of magnitude as the fixed margin 

assumption. All other sensitivities had only minor impacts on the LCC results. 

In preparing the sensitivity analyses, we found reason to revise our assumptions regarding 

markups, compressor replacement, and commercial applications. Those revisions are 

incorporated into the analysis that supports today's proposed rule and are discussed elsewhere in 

this Section. 

C. Shipments Analysis 

1. Forecasted Housing Shifts 

Both the OEO and NPPC stated that there will likely be significant shifts in regional 

housing populations. For example, future housing shifts may result in more housing in warmer 

weather climates where central air conditioning is more prevalent and used more often, thus, 

impacting the nation's future space-conditioning energy use. Since the Shipment Analysis does 

not account for regional housing shifts, OEO and NPPC request that it be accounted for in the 

analysis. (Stephens, OEO, Transcript, pp. 171-172; and Eckman, NPPC, Transcript, pp. 216-

217). 

60 Q:\EE-41 \EE-431 ICACIStandRu\INOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3 17-08

Preliminary analysis of regional housing shifts has been examined and determined to have

a relatively small effect (i.e., a maximum change of 2% in the cumulative amount of monetary

energy savings). This is primarily due to the large size of the housing stock and the fact that

changes in the housing stock occur over a long time scale resulting in slow changes in regional

housing shifts. A preliminary analysis of historical housing data coupled with worst case

forecasts of regional housing and air-conditioning market share shifts demonstrated the small

impact on national NPV due to changes in regional housing.

New housing starts are only about 2% of existing housing stock and this is forecast to

decrease to about 1% of housing stock by 2030. Historical data over the period from 1980 to

1990 showed the shift in regional shares of housing stock changed by less than 2% (decreased by

1.2% and 1.7% in the Northeast and Midwest, respectively, and increased by 1.7% and 1.2% in

the South and West, respectively). If these changes continue at a steady rate, the housing share of

the Northeast will decrease another 3.6% over three decades. This translates to a relative

decrease of 17% in the Northeast's air-conditioning market share. If the entire loss in the

Northeast's market share goes to that portion of the South with the highest annual energy use

(Census Region 7), the absolute market share of this region would increase from 15.7% to

17.7%. The result of this change is that the dollar value of energy savings at a 12 SEER standard

level would increase from $5.73 billion to $5.85 billion, or about a 2% increase in the dollar

energy savings. The actual impact on dollar savings would likely be less than half of this

because the above housing shift was assumed to be immediate and to the highest energy use area

of the South. As a result, the actual impact would likely be less than 1% on the dollar value of

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

61 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - ,301-0 S 

Preliminary analysis of regional housing shifts has been examined and determined to have 

a relatively small effect (i.e., a maximum change of 2% in the cumulative amount of monetary 

energy savings). This is primarily due to the large size ofthe housing stock and the fact that 

changes in the housing stock occur over a long time scale resulting in slow changes in regional 

housing shifts. A preliminary analysis of historical housing data coupled with worst case 

forecasts of regional housing and air-conditioning market share shifts demonstrated the small 

impact on national NPV due to changes in regional housing. 

New housing starts are only about 2% of existing housing stock and this is forecast to 

decrease to about 1 % of housing stock by 2030. Historical data over the period from 1980 to 

1990 showed the shift in regional shares of housing stock changed by less than 2% (decreased by 

1.2% and 1.7% in the Northeast and Midwest, respectively, and increased by 1.7% and 1.2% in 

the South and West, respectively). If these changes continue at a steady rate, the housing share of 

the Northeast will decrease another 3.6% over three decades. This translates to a relative 

decrease of 17% in the Northeast's air-conditioning market share. If the entire loss in the 

Northeast's market share goes to that portion of the South with the highest annual energy use 

(Census Region 7), the absolute market share of this region would increase from 15.7% to 

17.7%. The result of this change is that the dollar value of energy savings at a 12 SEER standard 

level would increase from $5.73 billion to $5.85 billion, or about a 2% increase in the dollar 

energy savings. The actual impact on dollar savings would likely be less than half of this 

because the above housing shift was assumed to be immediate and to the highest energy use area 

of the South. As a result, the actual impact would likely be less than 1 % on the dollar value of 

61 Q:IEE-41IEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 7- 08

the energy savings. For these reasons, the Department has not revised its Shipments Analysis to

account for shifts in regional housing populations.

2. Elasticities

Both ACEEE and NRDC note that the purchase price elasticities are based on data from

the 1970s and are likely no longer applicable to current market conditions. Both stated that price

elasticities should be developed from more recent data. (ACEEE, No. 43 at 10; Nadel, ACEEE,

Transcript, p. 211; Goldstein, NRDC, Transcript, pp.211-212).

This has been corrected for in the analysis underlying today's proposed rule. We have

calibrated elasticity for price relative to household income, with historical data from 1970 to

1996. It is worth noting that for forecasting future shipments, consumer purchase decisions are

based upon sensitivities to changes in product life-cycle cost relative to income. Life-cycle cost

changes are dependent on the purchase price and the present worth of operating cost savings.

Operating cost savings are in turn dependent on electricity prices. As electricity prices are

forecasted to decrease over time (based on the Annual Energy Outlook 2000), operating cost

savings due to a particular increase in equipment efficiency will in turn decrease over time and

have less of an impact on consumer purchase decisions.

Usage elasticity expresses how changes in equipment efficiency resulting from higher

standards changes consumer behavior regarding air conditioners and heat pumps usage. Because

of lower operating costs, consumers may change thermostat settings and/or operate the systems

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 62 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30 7- 08 

the energy savings. For these reasons, the Department has not revised its Shipments Analysis to 

account for shifts in regional housing populations. 

2. Elasticities 

Both ACEEE and NRDC note that the purchase price elasticities are based on data from 

the 1970s and are likely no longer applicable to current market conditions. Both stated that price 

elasticities should be developed from more recent data. (ACEEE, No. 43 at 10; Nadel, ACEEE, 

Transcript, p. 211; Goldstein, NRDC, Transcript, pp.211-212). 

This has been corrected for in the analysis underlying today's proposed rule. We have 

calibrated elasticity for price relative to household income, with historical data from 1970 to 

1996. It is worth noting that for forecasting future shipments, consumer purchase decisions are 

based upon sensitivities to changes in product life-cycle cost relative to income. Life-cycle cost 

changes are dependent on the purchase price and the present worth of operating cost savings. 

Operating cost savings are in turn dependent on electricity prices. As electricity prices are 

forecasted to decrease over time (based on the Annual Energy Outlook 2000), operating cost 

savings due to a particular increase in equipment efficiency will in turn decrease over time and 

have less of an impact on consumer purchase decisions. 

Usage elasticity expresses how changes in equipment efficiency resulting from higher 

standards changes consumer behavior regarding air conditioners and heat pumps usage. Because 

of lower operating costs, consumers may change thermostat settings and/or operate the systems 

62 Q:IEE-41IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - ' 30 0

for longer hours to achieve greater comfort. Direct evidence of the magnitude of this effect is

limited and the Department is interested in receiving comments. One study14 indicated that in

summer months consumers may take 1-2% of the cooling energy savings back in increased

usage, and 9-13% in winter months. Usage elasticity has not been considered in the current

analysis but will be considered in the Final Rule.

3. Equipment Efficiency

Several comments received questioned the use of a weighted-average equipment

efficiency equaling the SEER of the standard level for forecasting shipments and national energy

savings. All asserted that in the event of an increase in the minimum efficiency standard, the

actual weighted-average efficiency of equipment in the marketplace would be greater than the

minimum efficiency standard. For example, if a 12 SEER standard was set as the new minimum,

the weighted-average efficiency would be equal to a value which was greater than 12 SEER.

(Neme, VEIC, Transcript, pp. 214, 226-227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35

at 8-9; PG&E, No. 31 at 6-7).

The Department has modified several assumptions with regard to future equipment

efficiencies. The Shipments Model no longer simply forecasts a weighted-average equipment

efficiency, but rather, an actual distribution of efficiencies (i.e., the percentage of shipments

14 Jeffrey A. Dubin, Allen K. Miedema, and Ram V. Chandran, 1986. "Price effects of energy-efficient

technologies: a study of residential demand for heating and cooling," Rand Journal of Economics, Vol 17, No. 3,

Autumn, pp 310-324.

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 63 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-HM/STD-98-440 - 30 1~ DB 

for longer hours to achieve greater comfort. Direct evidence of the magnitude of this effect is 

limited and the Department is interested in receiving comments. One study14 indicated that in 

summer months consumers may take 1-2% of the cooling energy savings back in increased 

usage, and 9-13% in winter months. Usage elasticity has not been considered in the current 

analysis but will be considered in the Final Rule. 

3. Equipment Efficiency 

Several comments received questioned the use of a weighted-average equipment 

efficiency equaling the SEER of the standard level for forecasting shipments and national energy 

savings. All asserted that in the event of an increase in the minimum efficiency standard, the 

actual weighted-average efficiency of equipment in the marketplace would be greater than the 

minimum efficiency standard. For example, if a 12 SEER standard was set as the new minimum, 

the weighted-average efficiency would be equal to a value which was greater than 12 SEER. 

(Neme, VEIC, Transcript, pp. 214, 226-227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35 

at 8-9; PG&E, No. 31 at 6-7). 

The Department has modified several assumptions with regard to future equipment 

efficiencies. The Shipments Model no longer simply forecasts a weighted-average equipment 

efficiency, but rather, an actual distribution of efficiencies (i.e., the percentage of shipments 

14 Jeffrey A. Dubin, Allen K. Miedema, and Ram V. Chandran, 1986. "Price effects of energy-efficient 

technologies: a study of residential demand for heating and cooling," Rand Journal of Economics, Vol 17, No.3, 

Autumn, pp 310-324. 

63 Q:IEE-41IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 301-

which occur in incremental SEER bins over the range of the minimum standard 10 to 18 SEER).

Also, as discussed in Section IV, three efficiency scenarios are provided to model future

equipment efficiencies. The impact of the three different scenarios on national energy savings

and national net present values are discussed in Section VI.

EEI asked the reason for assuming the weighted-average efficiency remains fixed at the

same SEER level from the year 1997 to the assumed effective date of standard (2006). (EEI, No.

20 at 7-8). Historical data from the years 1994 through 1997 indicate that shipment-weighted

efficiencies have remained essentially flat. As a result, weighted-average efficiencies were

assumed to remain constant from 1997 through 2006.

4. Fuel Switching

EEI, York, Virginia Power and Southern Company stated that shipment forecasts must

account for any fuel switching that might occur as a result of increased heat pump prices to the

consumer. The concern is that an increase in the total installed price of a heat pump would cause

some consumers to choose a gas-space heating appliance rather than an electric heat pump.

(Foster, EEI, Transcript, p.263; Madera, York, Transcript, p.264; Virginia Power, No.27 at 2-3;

Southern Company, No. 29 at 1-2). ACEEE stated that any incorporation of fuel switching into

the Shipments Model must account for future changes in gas-fired space-heating minimum

efficiency standards. (Nadel, ACEEE, Transcript, p.266).

Q:\EE-41\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 64 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1- 00 

which occur in incremental SEER bins over the range of the minimum standard 10 to 18 SEER). 

Also, as discussed in Section IV, three efficiency scenarios are provided to model future 

equipment efficiencies. The impact of the three different scenarios on national energy savings 

and national net present values are discussed in Section VI. 

EEl asked the reason for assuming the weighted-average efficiency remains fixed at the 

same SEER level from the year 1997 to the assumed effective date of standard (2006). (EEl, No. 

20 at 7-8). Historical data from the years 1994 through 1997 indicate that shipment-weighted 

efficiencies have remained essentially flat. As a result, weighted-average efficiencies were 

assumed to remain constant from 1997 through 2006. 

4. Fuel Switching 

EEl, York, Virginia Power and Southern Company stated that shipment forecasts must 

account for any fuel switching that might occur as a result of increased heat pump prices to the 

consumer. The concern is that an increase in the total installed price of a heat pump would cause 

some consumers to choose a gas-space heating appliance rather than an electric heat pump. 

(Foster, EEl, Transcript, p.263; Madera, York, Transcript, p.264; Virginia Power, No.27 at 2-3; 

Southern Company, No. 29 at 1-2). ACEEE stated that any incorporation of fuel switching into 

the Shipments Model must account for future changes in gas-fired space-heating minimum 

efficiency standards. (Nadel, ACEEE, Transcript, p.266). 

64 Q:\EE·41 \EE·431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4.2000 (6:35PM) 
EE-RM/STD-98-440 -307-08

Our examination of the historical data tends to indicate that the relative installed price of

heat pumps is not the primary driver in heat pump vs. gas furnace purchase decisions. The more

important factor in these decisions seems to be the availability of gas service. In the middle

1980's, there was a large peak in gas prices relative to electricity, but only a small, delayed

increase in the relative market share of heat pumps. Besides this one historical event, the relative

market share of heat pumps has been relatively constant from 1977 to the present.

D. National Energy Savings Analysis

Changes to the LCC assumptions impact the NES and the National Net Present Value

(NPV) analyses directly as the NES analysis uses the same basic data as the LCC analysis for the

energy use and cost of the central air-conditioning and heat pump equipment.

As previously mentioned, estimates of NES and NPV also depend on the distribution of

product efficiencies among units sold after a standard takes effect in the marketplace. For the

Supplemental ANOPR, the assumed product efficiency distribution was based on a weightedaverage equipment efficiency equal to the SEER of the new standard level.

1. Uncertainty in NES Results

EEI believes that due to the uncertainty in the electric utility industry and its impact on

future electricity prices it is more appropriate to represent the NES results with some degree of

uncertainty. (EEI, No. 20 at 8).

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

65 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D'1-06 

Our examination of the historical data tends to indicate that the relative installed price of 

heat pumps is not the primary driver in heat pump vs. gas furnace purchase decisions. The more 

important factor in these decisions seems to be the availability of gas service. In the middle 

1980's, there was a large peak in gas prices relative to electricity, but only a small, delayed 

increase in the relative market share of heat pumps. Besides this one historical event, the relative 

market share of heat pumps has been relatively constant from 1977 to the present. 

D. National Energy Savings Analysis 

Changes to the LCC assumptions impact the NES and the National Net Present Value 

(NPV) analyses directly as the NES analysis uses the same basic data as the LCC analysis for the 

energy use and cost of the central air-conditioning and heat pump equipment. 

As previously mentioned, estimates ofNES and NPV also depend on the distribution of 

product efficiencies among units sold after a standard takes effect in the marketplace. For the 

Supplemental ANOPR, the assumed product efficiency distribution was based on a weightedaverage equipment efficiency equal to the SEER of the new standard level. 

1. Uncertainty in NES Results 

EEl believes that due to the uncertainty in the electric utility industry and its impact on 

future electricity prices it is more appropriate to represent the NES results with some degree of 

uncertainty. (EEl, No. 20 at 8). 

65 Q:IEE-41IEE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3- 7- o

Although NES results presented in the Supplemental ANOPR were based only on

electricity price estimates from the Reference Case forecast from the 1999 Annual Energy

Outlook, our NES spreadsheets have provided users with five different options for estimating

future electricity prices; 1999 AEO Reference Case forecast, 1999 AEO High Growth Case

forecast, 1999 AEO Low Growth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and

constant electricity prices. Providing a number of options for forecasting future prices

recognizes the uncertainty in the electric utility industry and how that uncertainty can impact the

NES results. The NES uses single point values rather than ranges as used in LCC; consequently,

NES provided single point results rather than a range. However, in order to account for the

uncertainty in electricity price forecasts, DOE evaluated three energy price scenarios in the NES.

The NES Spreadsheets have been made available to all interested parties via our web site to

facilitate analysis of sensitivities for assumptions different than those for the Supplemental

ANOPR. For today's proposed rule, we continue to provide the same options for forecasting

future electricity prices with the exception that AEO 1999 forecasts have been replaced with

those from the AEO 2000 as well as the five options for energy prices as described above.

2. Site-to-Source Conversion

Both the Southern Company and EEI questioned the validity of the site-to-source

conversions used in the NES spreadsheet model. The Southern Company and EEI asserted that

hydroelectric power and renewable forms of electric energy are assigned fossil fuel-fired power

plant heat rates. (Southern Company, No. 29 at 4-5; EEI, No. 20 at 7).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 66 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RMjSTD.98-440 - jD 1- 0 B 

Although NES results presented in the Supplemental ANOPR were based only on 

electricity price estimates from the Reference Case forecast from the 1999 Annual Energy 

Outlook, our NES spreadsheets have provided users with five different options for estimating 

future electricity prices; 1999 AEO Reference Case forecast, 1999 AEO High Growth Case 

forecast, 1999 AEO Low Growth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and 

constant electricity prices. Providing a number of options for forecasting future prices 

recognizes the uncertainty in the electric utility industry and how that uncertainty can impact the 

NES results. The NES uses single point values rather than ranges as used in LCC; consequently, 

NES provided single point results rather than a range. However, in order to account for the 

uncertainty in electricity price forecasts, DOE evaluated three energy price scenarios in the NES. 

The NES Spreadsheets have been made available to all interested parties via our web site to 

facilitate analysis of sensitivities for assumptions different than those for the Supplemental 

ANOPR. For today's proposed rule, we continue to provide the same options for forecasting 

future electricity prices with the exception that AEO 1999 forecasts have been replaced with 

those from the AEO 2000 as well as the five options for energy prices as described above. 

2. Site-to-Source Conversion 

Both the Southern Company and EEl questioned the validity of the site-to-source 

conversions used in the NES spreadsheet model. The Southern Company and EEl asserted that 

hydroelectric power and renewable forms of electric energy are assigned fossil fuel-fired power 

plant heat rates. (Southern Company, No. 29 at 4-5; EEl, No. 20 at 7). 

66 Q:\EE-41\EE-431 \CAC\StandRu1INOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 - 08

We estimated the effects of proposed central air conditioner and heat pump standard

levels on both the gas and electric utility industries using a variant of DOE/EIA's NEMS-BRS,

together with some exogenous calculations' 5. NEMS-BRS is used to determine site-to-source

conversion factors and does not assign fossil-fuel-fired power plant heat rates to hydroelectric or

renewable power plants. The site-to-source conversion factors used in the Supplemental

ANOPR are average annual values for the residential sector. The average conversion factors are

based on all forms of electricity generation with their corresponding heat rates (e.g., heat rates are

assigned to fossil-fuel fired power plants which are much different than those assigned to other

types of power plants). As a result, the site-to-source conversion factors are significantly lower

than if all power plants were assigned the heat rates associated with fossil fuel-fired power

plants. For today's proposed rule, site-to-source conversion factors are based on

recommendations of the Advisory Committee on Appliance Energy Efficiency Standards. In this

analysis, heat rates are based on determining how a deviation in national energy consumption due

to standards impacts the type of electricity generation. In other words, heat rates are based on

those power plants which are avoided as a result of the standard.

E. Consumer Sub-Group Analysis- Low Income Renters

15 For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information

Administration documentation. A useful summary is National Energy Modeling System: An Overview 1998,

DOE/EIA-0581(98), February, 1998. DOE/EIA approves use of the name NEMS to describe only an official

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 are variations on DOE/EIA assumptions, the

name NEMS-BRS refers to the model as used here (BRS is DOE's Building Research and Standards office, under

whose aegis this work has been performed).

Q:EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 67 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 301- 0 B 

We estimated the effects of proposed central air conditioner and heat pump standard 

levels on both the gas and electric utility industries using a variant of DOEIEIA's NEMS-BRS, 

together with some exogenous calculations 15 • NEMS-BRS is used to determine site-to-source 

conversion factors and does not assign fossil-fuel-fired power plant heat rates to hydroelectric or 

renewable power plants. The site-to-source conversion factors used in the Supplemental 

ANOPR are average annual values for the residential sector. The average conversion factors are 

based on all forms of electricity generation with their corresponding heat rates (e.g., heat rates are 

assigned to fossil-fuel fired power plants which are much different than those assigned to other 

types of power plants). As a result, the site-to-source conversion factors are significantly lower 

than if all power plants were assigned the heat rates associated with fossil fuel-fired power 

plants. For today's proposed rule, site-to-source conversion factors are based on 

recommendations of the Advisory Committee on Appliance Energy Efficiency Standards. In this 

analysis, heat rates are based on determining how a deviation in national energy consumption due 

to standards impacts the type of electricity generation. In other words, heat rates are based on 

those power plants which are avoided as a result of the standard. 

E. Consumer Sub-Group Analysis- Low Income Renters 

15 For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information 

Administration documentation. A useful summary is National Energy Modeling System: An Overview 1998, 

DOEIEIA-0581(98), February, 1998. DOEIEIA approves use of the name NEMS to describe only an official 

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 are variations on DOE/EfA assumptions, the 

name NEMS-BRS refers to the model as used here (BRS is DOE's Building Research and Standards office, under 

whose aegis this work has been performed). 

67 Q:IEE41 IEE431 ICACIStandRulINOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- J3o ' 0 

NRDC stated that impacts on low-income renters should be investigated, because such

renters do not purchase their space-conditioning equipment and they have no choice as to the

efficiency of the equipment which is used to space-condition their home. (NRDC, No. 35 at 9).

low-income

We have investigated the economic impact of standards on low-income households, and

have included such impacts in section VI.D.7 of today's proposed rule and in Chapter 10 of the

TSD. But we have not investigated the impacts on low-income renters separately. Renters at

each income level are considered to have the same choice in efficiency as new home purchasers

at the same level. Regardless of whether a household is occupied by an owner or a renter, we

implicitly assume that the occupant incurs all costs of ownership, either directly or through rent

payments. Therefore, we believe that our consideration of low income households generally

applies to renters as well as owners.

F. Utility and Environmental Analysis

1. Peak Power Impacts - Reliability

The CEC raised concerns over peak power by stating that the western region of the U.S.

will soon face a capacity shortfall which will necessitate reductions in peak demand (CEC, No.

47 at 2-4). Leon Neal, Advanced Energy Corporation (AEC), stated that because of a

relationship between SEER, EER, and equipment capacity which is not captured by using only

the "nominal 3 ton" unit and SEER analyses, there were important factors not addressed in the

DOE analysis. They argued that with larger capacity units at higher SEER, it is economic for

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 68 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-44Q- 307· 0 8 

NRDC stated that impacts on low-income renters should be investigated, because such 

renters do not purchase their space-conditioning equipment and they have no choice as to the 

efficiency of the equipment which is used to space-condition their home. (NRDC, No. 35 at 9). 

low-income 

We have investigated the economic impact of standards on low-income households, and 

have included such impacts in section VI.D.7 oftoday's proposed rule and in Chapter 10 of the 

TSD. But we have not investigated the impacts on low-income renters separately. Renters at 

each income level are considered to have the same choice in efficiency as new home purchasers 

at the same level. Regardless of whether a household is occupied by an owner or a renter, we 

implicitly assume that the occupant incurs all costs of ownership, either directly or through rent 

payments. Therefore, we believe that our consideration of low income households generally 

applies to renters as well as owners. 

F. Utility and Environmental Analysis 

I. Peak Power Impacts - Reliability 

The CEC raised concerns over peak power by stating that the western region of the U.S. 

will soon face a capacity shortfall which will necessitate reductions in peak demand (CEC, No. 

47 at 2-4). Leon Neal, Advanced Energy Corporation (AEC), stated that because of a 

relationship between SEER, EER, and equipment capacity which is not captured by using only 

the "nominal 3 ton" unit and SEER analyses, there were important factors not addressed in the 

DOE analysis. They argued that with larger capacity units at higher SEER, it is economic for 

68 Q:\EE-41 \EE·431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3D) 0

manufacturers to use multi-compressor units and multi-speed compressor units, which results in

a penalty in EER. They noted major national trends, i.e., increasing average size of residential

dwellings, the tendency to sell bigger systems to increase profits and compensate for poor

installations, and the distrust of contractors for higher efficiency equipment. (AEC, No. 17 at 1).

EEI stated that the consideration of peak power impacts in setting new efficiency standards

departs from the Department's statutory mandate. (Foster, EEI, Transcript, p. 176).

With regard to AEC's concern that an increase in the efficiency standard would be

accompanied by an increased air-conditioning power demand, we are not convinced that this

situation would occur. Over the last 20 years, while shipment-weighted efficiency has

continually increased, usage has remained relatively constant. Therefore, we see no reason that a

significant jump in system usage would occur in conjunction with higher efficiency standards.

Regarding EEI's claim that the consideration of peak power impacts departs from the

Department's statutory mandate, Section 325(o)(2)(B)(i)(VII) of the Act, 42 U.S.C.

6295(o)(2)(B)(i)(VII), allows the Secretary to consider other factors deemed relevant for

updating minimum efficiency standards, including peak power impacts.

2. Quantitative Assessment of Impacts on Peak Demand

For purposes of estimating peak demand impacts from an increase in the central air

conditioner and heat pump energy efficiency standard, we are using a version of the NEMS,

called NEMS-BRS. NEMS-BRS is run similar to the AEO2000 NEMS except that central air

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 69 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 307- 09 

manufacturers to use multi-compressor units and multi-speed compressor units, which results in 

a penalty in EER. They noted major national trends, i.e., increasing average size of residential 

dwellings, the tendency to sell bigger systems to increase profits and compensate for poor 

installations, and the distrust of contractors for higher efficiency equipment. (AEC, No. 17 at 1). 

EEl stated that the consideration of peak power impacts in setting new efficiency standards 

departs from the Department's statutory mandate. (Foster, EEl, Transcript, p. 176). 

With regard to AEC's concern that an increase in the efficiency standard would be 

accompanied by an increased air-conditioning power demand, we are not convinced that this 

situation would occur. Over the last 20 years, while shipment-weighted efficiency has 

continually increased, usage has remained relatively constant. Therefore, we see no reason that a 

significant jump in system usage would occur in conjunction with higher efficiency standards. 

Regarding EEl's claim that the consideration of peak power impacts departs from the 

Department's statutory mandate, Section 325(0)(2)(B)(i)(VII) of the Act, 42 U.S.C. 

6295(0)(2)(B)(i)(VII), allows the Secretary to consider other factors deemed relevant for 

updating minimum efficiency standards, including peak power impacts. 

2. Quantitative Assessment of Impacts on Peak Demand 

F or purposes of estimating peak demand impacts from an increase in the central air 

conditioner and heat pump energy efficiency standard, we are using a version of the NEMS, 

called NEMS-BRS. NEMS-BRS is run similar to the AE02000 NEMS except that central air 

69 Q:IEE·41 IEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - J30- 8O

conditioner and heat pump energy usages are reduced by the amount of energy (electricity) saved

due to the proposed trial standard levels. The input of energy savings are obtained from the NES

spreadsheet.

NEMS estimates peak power impacts by determining the reduction in installed generation

capacity due to an increase in the minimum efficiency standard. For central air conditioners and

heat pumps, NEMS uses a single nationally representative end-use load shape to estimate peak

power impacts. The overall end-use load shape is reduced in proportion to the amount of energy

savings achieved through an increase in the standard. The reduction in power demand achieved

by shaving the end-use load shape is extrapolated to a national scale to come up with nationally

representative peak power impacts. Thus, NEMS does not use the equipment's EER

performance, per se, to estimate peak power impacts. Rather, because the load shape is shaved in

proportion to the energy savings, the EER is implicitly assumed to increase in proportion to the

SEER.

The forecasted peak impacts using NEMS-BRS are presented in Section VI of today's

proposed rule.

3. Qualitative Assessment of Air Conditioning Standards Impact on Power System Reliability

We also recognize that reducing growth in electricity demand during peak periods may

improve the reliability of the U.S. electric power system. But there are number of factors with

the electric power system itself that may overwhelm any effect that an improvement in residential

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

70 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -J 01- OB 

conditioner and heat pump energy usages are reduced by the amount of energy (electricity) saved 

due to the proposed trial standard levels. The input of energy savings are obtained from the NES 

spreadsheet. 

NEMS estimates peak power impacts by determining the reduction in installed generation 

capacity due to an increase in the minimum efficiency standard. For central air conditioners and 

heat pumps, NEMS uses a single nationally representative end-use load shape to estimate peak 

power impacts. The overall end-use load shape is reduced in proportion to the amount of energy 

savings achieved through an increase in the standard. The reduction in power demand achieved 

by shaving the end-use load shape is extrapolated to a national scale to come up with nationally 

representative peak power impacts. Thus, NEMS does not use the equipment's EER 

performance, per se, to estimate peak power impacts. Rather, because the load shape is shaved in 

proportion to the energy savings, the EER is implicitly assumed to increase in proportion to the 

SEER. 

The forecasted peak impacts using NEMS-BRS are presented in Section VI oftoday's 

proposed rule. 

3. Qualitative Assessment of Air Conditioning Standards Impact on Power System Reliability 

We also recognize that reducing growth in electricity demand during peak periods may 

improve the reliability of the u.S. electric power system. But there are number of factors with 

the electric power system itself that may overwhelm any effect that an improvement in residential 

70 Q:IEE-4IIEE-431 ICACIStandRu\INOPRIDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3J ) 0

air conditioning efficiency might offer. First, investment in system expansion has fallen behind

demand growth, and future development may be limited by siting constraints. Second, industry

restructuring requires the development of new technologies, operating procedures, and regulatory

structures to meet peak demands. And third, the strong demand expansion of recent years may

well continue into the future. Within this environment, the potential benefits of a central air

conditioner and heat pump standard that could lower growth in peak demand could be desirable.

But, due to the existing problems with the electric power system described above, it is difficult to

assess, in quantitative terms, the impact of an air conditioner standard on system reliability.

Thus, in addition to the planned activities to improve NEMS to forecast more credible peak

demand impacts, we plan to assess the reliability of the U.S. electric system to determine what

connection exists between end-use peak demand reductions and system reliability. The

assessment will focus on three areas: (1) defining reliability, (2) historic performance of the

utility system, and (3) analyzing near- and long-term utility changes and how they might impact

reliability. In defining reliability, we will use typical threats (e.g., weather, tree falls, excess load,

and inaccurate demand forecasts) to put system reliability into context. In addition, industry

indices for the frequency of failures and the number of customers affected will be used. With

regard to historic performance, we will attempt to analyze the history of system disturbances and

estimate their economic consequences. Finally, we will look at the changes occurring in the

utility industry such as restructuring and increasing demand growth to determine to try and assess

how these future changes might impact reliability.

4. Competitive Residential Market

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 71 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3()1-o8 

air conditioning efficiency might offer. First, investment in system expansion has fallen behind 

demand growth, and future development may be limited by siting constraints. Second, industry 

restructuring requires the development of new technologies, operating procedures, and regulatory 

structures to meet peak demands. And third, the strong demand expansion of recent years may 

well continue into the future. Within this environment, the potential benefits of a central air 

conditioner and heat pump standard that could lower growth in peak demand could be desirable. 

But, due to the existing problems with the electric power system described above, it is difficult to 

assess, in quantitative terms, the impact of an air conditioner standard on system reliability. 

Thus, in addition to the planned activities to improve NEMS to forecast more credible peak 

demand impacts, we plan to assess the reliability of the U.S. electric system to determine what 

connection exists between end-use peak demand reductions and system reliability. The 

assessment will focus on three areas: (1) defining reliability, (2) historic performance of the 

utility system, and (3) analyzing near- and long-term utility changes and how they might impact 

reliability. In defining reliability, we will use typical threats (e.g., weather, tree falls, excess load, 

and inaccurate demand forecasts) to put system reliability into context. In addition, industry 

indices for the frequency of failures and the number of customers affected will be used. With 

regard to historic performance, we will attempt to analyze the history of system disturbances and 

estimate their economic consequences. Finally, we will look at the changes occurring in the 

utility industry such as restructuring and increasing demand growth to determine to try and assess 

how these future changes might impact reliability. 

4. Competitive Residential Market 

71 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 O8 E

EEI asked whether NEMS, the model which is used for forecasting utility and

environmental impacts, will be adapted to model more accurately the deregulated electric utility

industry. As part of the deregulated industry, EEI stated that consumers will have choice of

electricity providers. In addition, the industry will likely build more merchant power plants.

(EEI, No. 20 at 9).

Although we recognize that NEMS may not be entirely accurate in its modeling of the

changing electric utility industry, we believe it is still the best tool for forecasting the impacts due

to increased central air conditioner and heat pump standards. We also recognize the difficulty for

any model or tool to forecast changes in the utility industry. Thus, the results from NEMS are

used to provide a gross picture of the impacts that can be expected from the imposition of new

efficiency standards for central air conditioners and heat pumps. Sensitivities are conducted with

the AEO High Growth and Low Growth cases to capture the variability that could arise from

changes in the electric utility industry.

G. Manufacturer Impact Analysis - Low Volume Manufacturers

First Company (First Co.) and National Comfort Products commented that the

assumptions used in the engineering analysis were not applicable for low volume manufacturers

and urged the Department to consider the situations of all firms in the industry. (First Co.,

No. 40 at 10; National Comfort Products, No. 30 at 1).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 72 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440'- 5D 1 08 

EEl asked whether NEMS, the model which is used for forecasting utility and 

environmental impacts, will be adapted to model more accurately the deregulated electric utility 

industry. As part of the deregulated industry, EEl stated that consumers will have choice of 

electricity providers. In addition, the industry will likely build more merchant power plants. 

(EEl, No. 20 at 9). 

Although we recognize that NEMS may not be entirely accurate in its modeling of the 

changing electric utility industry, we believe it is still the best tool for forecasting the impacts due 

to increased central air conditioner and heat pump standards. We also recognize the difficulty for 

any model or tool to forecast changes in the utility industry. Thus, the results from NEMS are 

used to provide a gross picture of the impacts that can be expected from the imposition of new 

efficiency standards for central air conditioners and heat pumps. Sensitivities are conducted with 

the AEO High Growth and Low Growth cases to capture the variability that could arise from 

changes in the electric utility industry. 

G. Manufacturer Impact Analysis - Low Volume Manufacturers 

First Company (First Co.) and National Comfort Products commented that the 

assumptions used in the engineering analysis were not applicable for low volume manufacturers 

and urged the Department to consider the situations of all firms in the industry. (First Co., 

No. 40 at 10; National Comfort Products, No. 30 at 1). 

72 Q:IEE-41IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -30 ' - O&

Since the engineering analysis is used to assess the impacts on consumers and the nation,

it is more appropriate to rely on assumptions reflective of larger manufacturers who control more

than 95% of the market. However, we did consider the special circumstances of lower volume

manufacturers as part of the manufacturer impact analysis. We interviewed the major

manufacturers as well as two smaller manufacturers, and based on this information, estimated the

impact of standards on both large and small manufacturers separately.

H. Markups

The Supplemental ANOPR's engineering analysis estimated the cost of producing

baseline air conditioners and heat pumps and also estimated the series of markups on that product

cost that yield the price of the equipment to the consumer. Four markups were applied:

manufacturer markup (1.18), distributor/wholesaler markup (1.37), dealer/contractor markup

(1.54), and sales tax (1.07). In general, these were based on financial reports for each group on a

national basis.

NRDC, ACEEE and VEIC commented that instead of applying average markups to the

incremental increase in costs resulting from new standards, it was more reasonable to apply a

lower markup to those incremental costs. Otherwise, companies would receive a windfall from

the new standard, which would surely not be the case in a competitive industry such as heating,

ventilation, and air conditioning. (NRDC, No. 35 at 6, ACEEE, No. 43 at 2, VEIC, No. 32 at 2).

NRDC also advocated the use of a fixed gross margin in dollars rather than a fixed percentage

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 73 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .- 307-08 

Since the engineering analysis is used to assess the impacts on consumers and the nation, 

it is more appropriate to rely on assumptions reflective of larger manufacturers who control more 

than 95% of the market. However, we did consider the special circumstances of lower volume 

manufacturers as part of the manufacturer impact analysis. We interviewed the major 

manufacturers as well as two smaller manufacturers, and based on this infonnation, estimated the 

impact of standards on both large and small manufacturers separately. 

H Markups 

The Supplemental ANOPR's engineering analysis estimated the cost of producing 

baseline air conditioners and heat pumps and also estimated the series of markups on that product 

cost that yield the price of the equipment to the consumer. Four markups were applied: 

manufacturer markup (1.18), distributor/wholesaler markup (1.37), dealer/contractor markup 

(1.54), and sales tax (1.07). In general, these were based on financial reports for each group on a 

national basis. 

NRDC, ACEEE and VEIC commented that instead of applying average markups to the 

incremental increase in costs resulting from new standards, it was more reasonable to apply a 

lower markup to those incremental costs. Otherwise, companies would receive a windfall from 

the new standard, which would surely not be the case in a competitive industry such as heating, 

ventilation, and air conditioning. (NRDC, No. 35 at 6, ACEEE, No. 43 at 2, VEIC, No. 32 at 2). 

NRDC also advocated the use of a fixed gross margin in dollars rather than a fixed percentage 

73 Q:\EE-41 \EE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 1-0

(NRDC, No. 35 at 6), while EEI stated that the fixed percentage assumption is unreasonable.

(EEI, No. 20 at 10). ARI supported the markups the Department used. (ARI, No. 48 at 4).

Department consultant Joseph Pietsch stated that at the distributor level, since no labor is

involved to modify the product, the markup is applied to a well-documented material cost.

However, the distributor's markup percentage may vary by product type. If the distributor's

mark-up prices to the installing trade are not competitive in the market served, the distributor

might have to seek price adjustments from the manufacturer. Further, installing contractors

typically use a markup procedure for labor that is most likely be at a different percentage than a

markup for materials. (Pietsch, No. 36 at 23). Finally, prompted by comments we received,

we now distinguish markups based on whether products are sold into new homes or as

replacements or retrofits. (Nadel, ACEEE, Transcript pp. 122-123; and Eckman, NPPC,

Transcript p. 152-153; CEC, No. 47 at 7).

After reviewing the comments and publishing an interim analysis with fixed dollar

margin, the Department undertook a thorough review of its markup assumptions and made one

minor and one major revision.

First, at the manufacturer level, the markups were raised slightly (from 1.18 to 1.24)

partially to reflect new financial data for a manufacturer who recently completed an initial public

offering, and partially to incorporate results from the MIA. The MIA suggests that firms accrue a

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 74 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30 'J-DB 

(NRDC, No. 35 at 6), while EEl stated that the fixed percentage assumption is unreasonable. 

(EEl, No. 20 at 10). ARl supported the markups the Department used. (ARl, No. 48 at 4). 

Department consultant Joseph Pietsch stated that at the distributor level, since no labor is 

involved to modify the product, the markup is applied to a well-documented material cost. 

However, the distributor's markup percentage may vary by product type. If the distributor's 

mark-up prices to the installing trade are not competitive in the market served, the distributor 

might have to seek price adjustments from the manufacturer. Further, installing contractors 

typically use a markup procedure for labor that is most likely be at a different percentage than a 

markup for materials. (Pietsch, No. 36 at 23). Finally, prompted by comments we received, 

we now distinguish markups based on whether products are sold into new homes or as 

replacements or retrofits. (Nadel, ACEEE, Transcript pp. 122-123; and Eckman, NPPC, 

Transcript p. 152-153; CEC, No. 47 at 7). 

After reviewing the comments and publishing an interim analysis with fixed dollar 

margin, the Department undertook a thorough review of its markup assumptions and made one 

minor and one major revision. 

First, at the manufacturer level, the markups were raised slightly (from 1.18 to 1.24) 

partially to reflect new financial data for a manufacturer who recently completed an initial public 

offering, and partially to incorporate results from the MIA. The MIA suggests that firms accrue a 

74 Q:\EE-41 \EE·431ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 307- '0

higher profit margin on baseline equipment than the conservative 1% assumed for the

Supplemental ANOPR's Engineering Analysis.

Second, at the distributor and dealer levels, analysis of U.S. Census Bureau data and

recent industry financial reports suggest that markups on changes in the unit price of equipment

are less than the average markups for those industries. In light of these new findings, the

markups for the distributors and dealers on the incremental increase in equipment cost were

lowered from 1.37 to 1.09 and 1.54 to 1.27, respectively. For the distributor, the markup on the

portion of equipment cost equal to the cost of the baseline equipment remains at 1.37. For the

dealer, the 1.27 markup is applied to the total cost. The original 1.54 assumption included the

markup on the labor portion of installation, which is not appropriately applied to equipment. We

increased our estimate of the markup on installation labor slightly to compensate for the lower

markup on equipment price, keeping the overall installed price the same. The Department's

pricing information indicates that the total installed price of baseline equipment is accurate as

published in the Supplemental ANOPR. The overall effect of these changes is to slightly

decrease distributor and dealer equipment markups as the standard level rises.

We introduced a new builder markup of 1.27 for new construction markets only and

applied the sales tax rate of 1.07 in only replacement/retrofit markets.

Table V.3 summarizes the changes in markups. The Technical Support Document

(Chapter 5) provides more details on the derivation of these new estimates.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

75 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 307" 0 8 

higher profit margin on baseline equipment than the conservative 1 % assumed for the 

Supplemental ANOPR's Engineering Analysis. 

Second, at the distributor and dealer levels, analysis of U.S. Census Bureau data and 

recent industry financial reports suggest that markups on changes in the unit price of equipment 

are less than the average markups for those industries. In light of these new findings, the 

markups for the distributors and dealers on the incremental increase in equipment cost were 

lowered from 1.37 to 1.09 and 1.54 to 1.27, respectively. For the distributor, the markup on the 

portion of equipment cost equal to the cost of the baseline equipment remains at 1.37. For the 

dealer, the 1.27 markup is applied to the total cost. The original 1.54 assumption included the 

markup on the labor portion of installation, which is not appropriately applied to equipment. We 

increased our estimate of the markup on installation labor slightly to compensate for the lower 

markup on equipment price, keeping the overall installed price the same. The Department's 

pricing information indicates that the total installed price of baseline equipment is accurate as 

published in the Supplemental ANOPR. The overall effect of these changes is to slightly 

decrease distributor and dealer equipment markups as the standard level rises. 

We introduced a new builder markup of 1.27 for new construction markets only and 

applied the sales tax rate of 1.07 in only replacement/retrofit markets. 

Table V.3 summarizes the changes in markUps. The Technical Support Document 

(Chapter 5) provides more details on the derivation of these new estimates. 

75 Q:\EE-41 \EE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30, 7- 08

Table V.3: Comparison of Revised Markups and Supplemental ANOPR Markups

Supplemental ANOPR Type Revised Analysis Markup Marku Markup

Manufacturer Markup 1.23 1.18

Wholesaler/Distributor Markups

10 SEER 1.37

11 SEER 1.33

1.37

12 SEER 1.30

13 SEER 1.26

Dealer/Contractor

Equipment Markup 1.27 1.55

Installation Labor a

Air Conditioner $1,279 / $1,367 $1,190

Heat Pump $2,280 / $2,160 $2,035

Builder Markup 1.09b 1.00c

Sales Tax 1.04b 1.07d

Overall Markup

10 SEER 2.42 2.68

11 SEER 2.35 2.68

12 SEER 2.30 2.68

13 SEER 2.23 2.68

a For revised analysis, first value pertains to split systems and second value pertains to single package systems.

b Weighted-average markups representing both the new construction and replacement markets.

c For the SANOPR, builder markups were not considered.

d For the Supplemental ANOPR, sales taxes representing only the replacement market were used.

I. EER-Based Efficiency Standard

The Department received numerous comments on the relationship of steady state

efficiency (EER) to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Unico and

Southern Company support the establishment of minimum efficiency standards based on EER at

an outdoor temperature of 95 °F, (EER(95 °F)) in lieu of, or in addition to, SEER, which is based

largely on an outdoor temperature of 82°F. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8-9;

Q:\EE-41 \EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 76 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3l) 7- DB 

Table V.3: Comparison of Revised Markups and Supplemental ANOPR Markups 

Type Revised Analysis Markup Supplemental ANOPR 

Markup 

Manufacturer Markup 1.23 1.18 

WholesalerlDistributor Markups 

10 SEER 1.37 

11 SEER 1.33 

1.37 

12 SEER 1.30 

13 SEER 1.26 

Dealer/Contractor 

Equipment Markup 1.27 1.55 

Installation Labor • 

Air Conditioner $1,279/ $1,367 $1,190 

Heat Pump $2,280 / $2,160 $2,035 

Builder Markup 1.09b 1.00c 

Sales Tax 1.04b 1.07d 

Overall Markup 

lO SEER 2.42 2.68 

11 SEER 2.35 2.68 

12 SEER 2.30 2.68 

13 SEER 2.23 2.68 

a For revised analysis, first value pertains to split systems and second value pertains to single package systems. 

b Weighted-average markups representing both the new construction and replacement markets. 

C For the SANOPR, builder markups were not considered. 

d For the Supplemental ANOPR, sales taxes representing only the replacement market were used. 

1 EER-Based Efficiency Standard 

The Department received numerous comments on the relationship of steady state 

efficiency (EER) to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Unico and 

Southern Company support the establishment of minimum efficiency standards based on EER at 

an outdoor temperature of 95 of, (EER(95 OF)) in lieu of, or in addition to, SEER, which is based 

largely on an outdoor temperature of 82°F. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8-9; 

76 Q:IEE-41 IEE-431ICAc\StandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4. 2000 (6:35PM) 
EE-RM/STD-98-440 - 30 AVEIC, No. 32 at 5; PG&E, No. 31 at 1-4; CEC, No. 47 at 5; OEO, No. 46 at 10-12; Unico, No.

34 at 2; Southern Company, No. 29 at 3).

Their concern is that an increase in SEER does not necessarily correspond to an increase

in EER, and that a 95 °F rating condition better represents the performance of an air conditioner

on hot days when electricity demand is at its highest. They believe that residential air

conditioners contribute significantly to this peak demand, particularly in warmer regions of the

country. Since electricity generation, transmission, and distribution capacity is determined by the

electrical load served during these peak demand times, products that demonstrate improved

efficiency under peak conditions can reduce the need for added electrical system capacity. They

also believe that reducing peak demand is an important component of any integrated plan to

improve the reliability of the nation's electrical system. Recently there have been several wellpublicized blackouts and brownouts following, or in the midst of, hot periods. Advocates of an

EER-based standard believe that a SEER-only standard does not guarantee the desired

improvement in peak-period performance.

1. Current Relationship between SEER and EER

It is certainly true that SEER is not an ideal indicator of system efficiency in very hot

weather, and SEER may not be the best indicator of the seasonal efficiency for equipment

operating in the warmest regions of the country. However, the relationship between efficiency at

82 F and at 95°F is fairly close for single-speed, single-capacity equipment, which represents the

vast majority of unitary equipment in the marketplace. For other equipment, including variable

Q:\EE-41\EE-43 1\CAC\StandRulNOPR\DraftNOPR\CACNOPR24.wpd 77 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE·RM/STD·98·440 .. ,,3D 1- 08 

VEIC, No. 32 at 5; PG&E, No. 31 at 1-4; CEC, No. 47 at 5; OEO, No. 46 at 10-12; Unico, No. 

34 at 2; Southern Company, No. 29 at 3). 

Their concern is that an increase in SEER does not necessarily correspond to an increase 

in EER, and that a 95 of rating condition better represents the performance of an air conditioner 

on hot days when electricity demand is at its highest. They believe that residential air 

conditioners contribute significantly to this peak demand, particularly in warmer regions of the 

country. Since electricity generation, transmission, and distribution capacity is determined by the 

electrical load served during these peak demand times, products that demonstrate improved 

efficiency under peak conditions can reduce the need for added electrical system capacity. They 

also believe that reducing peak demand is an important component of any integrated plan to 

improve the reliability of the nation's electrical system. Recently there have been several wellpublicized blackouts and brownouts following, or in the midst of, hot periods. Advocates of an 

EER-based standard believe that a SEER-only standard does not guarantee the desired 

improvement in peak-period performance. 

1. Current Relationship between SEER and EER 

It is certainly true that SEER is not an ideal indicator of system efficiency in very hot 

weather, and SEER may not be the best indicator of the seasonal efficiency for equipment 

operating in the warmest regions ofthe country. However, the relationship between efficiency at 

82 OF and at 95 OF is fairly close for single-speed, single-capacity equipment, which represents the 

vast majority of unitary equipment in the marketplace. For other equipment, including variable 

77 Q:IEE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30'1 - O

or multi-speed equipment or equipment with modulating capacity, the 82 F test point is given a

great deal of weight in determining the SEER rating. In these cases, the relationship between

SEER and EER(95 F) is less certain, and manufacturers have some flexibility and incentive to

improve SEER without improving EER(95 °F).

The SEER test, representing equipment performance over the entire cooling season,

encourages manufacturers to design equipment that consumes less energy throughout the cooling

season for the average user. The EER(95 °F) test, which is a measure of steady-state performance

under only one set of climatic conditions, cannot provide insight into cyclical performance or

cooling efficiency at cooler temperatures which represent the bulk of the cooling season

nationwide. The Department, therefore, maintains that a SEER-based standard is essential to its

effort to reduce national energy consumption. Further, we assume that peak demand savings

would accompany any seasonal energy savings resulting from an increase in the required SEER

level, because of the relationship between SEER and EER(95 °F), and the costs of increasing

EER(95 °F) are already incorporated into the analysis.

However, the Department is particularly interested in ensuring that the current

relationship between EER(95 F) and SEER will remain intact under new efficiency standards,

resulting in reduction in growth of peak demand. This additional reduction in peak demand

growth would benefit utilities through an eventual and incremental reduction in the need for new

capacity. Maintaining higher EER(95 F) would also benefit consumers. Since the cost of

electricity is highest during periods of peak demand, any decrease in electricity consumption

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

78 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D1. 08 

or multi-speed equipment or equipment with modulating capacity, the 82 of test point is given a 

great deal of weight in determining the SEER rating. In these cases, the relationship between 

SEER and EER(95 OF) is less certain, and manufacturers have some flexibility and incentive to 

improve SEER without improving EER(95 OF). 

The SEER test, representing equipment performance over the entire cooling season, 

encourages manufacturers to design equipment that consumes less energy throughout the cooling 

season for the average user. The EER(95 OF) test, which is a measure of steady-state performance 

under only one set of climatic conditions, cannot provide insight into cyclical performance or 

cooling efficiency at cooler temperatures which represent the bulk of the cooling season 

nationwide. The Department, therefore, maintains that a SEER-based standard is essential to its 

effort to reduce national energy consumption. Further, we assume that peak demand savings 

would accompany any seasonal energy savings resulting from an increase in the required SEER 

level, because of the relationship between SEER and EER(95 OF), and the costs of increasing 

EER(95 OF) are already incorporated into the analysis. 

However, the Department is particularly interested in ensuring that the current 

relationship between EER(95 OF) and SEER will remain intact under new efficiency standards, 

resulting in reduction in growth of peak demand. This additional reduction in peak demand 

growth would benefit utilities through an eventual and incremental reduction in the need for new 

capacity. Maintaining higher EER(95 OF) would also benefit consumers. Since the cost of 

electricity is highest during periods of peak demand, any decrease in electricity consumption 

78 Q:\EE-41 \EE-431 ICACIStandRuI\NOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 307- 0

during peak-periods, could reduce the user's annual electricity bill, particularly if the user pays

time-of-day or seasonal rates.

2. Options for Possible EER Standards

The Department has at least four options for ensuring that EER(95 °F) performance is

maintained under new SEER standards. First, the Department could rely on the physical

relationship between EER(95 °F) and SEER to ensure that an increase in SEER would result in a

corresponding increase in EER. The Department is not aware of any modulating, multi-speed, or

variable speed air conditioners (hereafter referred to collectively as modulating equipment) being

offered below 13 SEER, and very few of the available 13 SEER products are modulating

equipment. Therefore, SEER and EER are closely related in equipment currently available at the

efficiency levels that, as discussed below, the Department is proposing today to adopt as

minimum levels-12 SEER for air conditioners and 13 SEER for heat pumps. Assuming that

relationship holds under such new standards, EER would increase as SEER increases.

The second option would be to establish an EER(95 °F) floor that must be met by

modulating equipment only or, alternately, all equipment.

The third option would be to establish a minimum EER requirement at each SEER level,

even for products exceeding the minimum SEER level. Again, this could be established for

modulating equipment only or for all equipment.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

79 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98.440~ 3D7- 08 

during peak-periods, could reduce the user's annual electricity bill, particularly if the user pays 

time-of-day or seasonal rates. 

2. Options for Possible EER Standards 

The Department has at least four options for ensuring that EER(95 OF) performance is 

maintained under new SEER standards. First, the Department could rely on the physical 

relationship between EER(95 OF) and SEER to ensure that an increase in SEER would result in a 

corresponding increase in EER. The Department is not aware of any modulating, multi-speed, or 

variable speed air conditioners (hereafter referred to collectively as modulating equipment) being 

offered below 13 SEER, and very few of the available 13 SEER products are modulating 

equipment. Therefore, SEER and EER are closely related in equipment currently available at the 

efficiency levels that, as discussed below, the Department is proposing today to adopt as 

minimum levels-12 SEER for air conditioners and 13 SEER for heat pumps. Assuming that 

relationship holds under such new standards, EER would increase as SEER increases. 

The second option would be to establish an EER(95 OF) floor that must be met by 

modulating equipment only or, alternately, all equipment. 

The third option would be to establish a minimum EER requirement at each SEER level, 

even for products exceeding the minimum SEER level. Again, this could be established for 

modulating equipment only or for all equipment. 

79 Q:IEE-41 IEE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 730 - Or

The fourth option would be to alter the SEER test procedure to rely more on 95 °F

performance and less on performance at cooler temperatures. This would provide incentive for

manufacturers to optimize their designs to favor the warmer part of the cooling season and

warmer regions of the country.

We consider the second and third options to be the most attractive. While we believe that

the first option, relying on the current relationship between EER and SEER, would satisfy our

concerns in the foreseeable future, this option provides no assurance that manufacturers would

not develop and promote equipment in the long term that would seriously reduce EER ratings.

The fourth option, altering the SEER test procedure to favor higher temperatures, would require

us to embark on a new rulemaking to establish those new procedures and then to redo this rule to

incorporate the new SEER values. We would prefer to avoid those delays and the design

uncertainty associated with altering the procedures.

Both the second and third options, mandating minimum EER ratings, would guarantee

that products under new standards would achieve the same EER ratings as they do today without

altering the test procedures. The third option is more aggressive since it would require that

products of higher SEER ratings must also meet increasingly stringent EER ratings.

Within the second and third options, we could establish EER requirements of varying

degrees of stringency. For example, we could select EER levels equivalent to the ratings of the

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 80 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - oJ '1- oB 

The fourth option would be to alter the SEER test procedure to rely more on 95°F 

performance and less on performance at cooler temperatures. This would provide incentive for 

manufacturers to optimize their designs to favor the warmer part of the cooling season and 

warmer regions of the country. 

We consider the second and third options to be the most attractive. While we believe that 

the first option, relying on the current relationship between EER and SEER, would satisfy our 

concerns in the foreseeable future, this option provides no assurance that manufacturers would 

not develop and promote equipment in the long term that would seriously reduce EER ratings. 

The fourth option, altering the SEER test procedure to favor higher temperatures, would require 

us to embark on a new rulemaking to establish those new procedures and then to redo this rule to 

incorporate the new SEER values. We would prefer to avoid those delays and the design 

uncertainty associated with altering the procedures. 

Both the second and third options, mandating minimum EER ratings, would guarantee 

that products under new standards would achieve the same EER ratings as they do today without 

altering the test procedures. The third option is more aggressive since it would require that 

products of higher SEER ratings must also meet increasingly stringent EER ratings. 

Within the second and third options, we could establish EER requirements of varying 

degrees of stringency. For example, we could select EER levels equivalent to the ratings of the 

80 Q:\EE·41 \EE·431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 3 "0 

minimum EER rating of available equipment today at the proposed standard level, the median

EER rating, anywhere in between, or even higher.

We prefer the second option, establishing an EER floor equal to the median EER ratings

of equipment currently available at each standard level. That would result in a substantial

improvement in the EER ratings of the typical product sold while still providing manufacturers

with the flexibility to raise SEER ratings through modulation rather than EER improvements in

higher efficiency products.

The concern that prevents us from fully endorsing the third option is that it would

discourage the development and sale of modulating capacity and variable speed equipment.

Modulating equipment realizes a benefit in the SEER test, allowing manufacturers to reduce the

cost of the core components compared to non-modulating equipment. This cost reduction

partially offsets the cost of the modulation, making modulating equipment more affordable for

consumers. Being required to meet the same EER standards as non-modulating equipment

would negate this cost benefit.

The Department wishes to encourage, not discourage, the development and sale of

modulating equipment. Consumers value the added benefits of modulation, and manufacturers

realize this value in the form of higher revenues. For consumers and the nation, modulation

mitigates the inefficiencies caused by oversizing the system during installation. Oversizing is a

widespread problem that causes frequent equipment cycling, increasing energy consumption.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

8 1 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -30 '1- () 8 

minimum EER rating of available equipment today at the proposed standard level, the median 

EER rating, anywhere in between, or even higher. 

We prefer the second option, establishing an EER floor equal to the median EER ratings 

of equipment currently available at each standard level. That would result in a substantial 

improvement in the EER ratings of the typical product sold while still providing manufacturers 

with the flexibility to raise SEER ratings through modulation rather than EER improvements in 

higher efficiency products. 

The concern that prevents us from fully endorsing the third option is that it would 

discourage the development and sale of modulating capacity and variable speed equipment. 

Modulating equipment realizes a benefit in the SEER test, allowing manufacturers to reduce the 

cost of the core components compared to non-modulating equipment. This cost reduction 

partially offsets the cost of the modulation, making modulating equipment more affordable for 

consumers. Being required to meet the same EER standards as non-modulating equipment 

would negate this cost benefit. 

The Department wishes to encourage, not discourage, the development and sale of 

modulating equipment. Consumers value the added benefits of modulation, and manufacturers 

realize this value in the form of higher revenues. For consumers and the nation, modulation 

mitigates the inefficiencies caused by oversizing the system during installation. Oversizing is a 

widespread problem that causes frequent equipment cycling, increasing energy consumption. 

81 Q:IEE-41 IEE-431 ICACIStandRu)INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - -5 7- O

Furthermore, oversizing arguably contributes more to peak power demand than does any

reduction in EER associated with modulating equipment.

For DOE to require products to meet median EER values rather than less stringent EER

values would also raise some concerns. First, the cost-efficiency relationships used in our

analysis may underestimate costs of manufacturing such products, since we did not include the

costs of a minimum EER. Second, if an EER standard increases product cost, it would

discourage the development and sale of modulating equipment at the baseline levels. We expect

any cost increases required to meet median EER levels, however, would be slight and would not

significantly alter our analysis.

To determine what the appropriate EER(95 F) requirement might be, the Department

assessed ARI performance data on residential unitary equipment certified as of February 1998.

The median EERs available for each product class at the minimum SEER levels DOE proposes

today, are identified in Table V.4 as the "Median Available EER at Proposed Minimum SEER."

In addition to the minimum SEER proposal contained in this notice, the Department is inclined

to adopt in the Final Rule minimum EER(95 F) requirements equal to these values. However,

since there are very few packaged heat pumps available from which to draw a conclusion

concerning EER, DOE believes the minimum EER requirement for packaged heat pumps should

be the same as split heat pumps less the 0.3 EER offset seen between packaged and split air

conditioners.

Q:EE-4 I\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 82 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -.3 01- 08 

Furthermore, oversizing arguably contributes more to peak power demand than does any 

reduction in EER associated with modulating equipment. 

For DOE to require products to meet median EER values rather than less stringent EER 

values would also raise some concerns. First, the cost-efficiency relationships used in our 

analysis may underestimate costs of manufacturing such products, since we did not include the 

costs of a minimum EER. Second, if an EER standard increases product cost, it would 

discourage the development and sale of modulating equipment at the baseline levels. We expect 

any cost increases required to meet median EER levels, however, would be slight and would not 

significantly alter our analysis. 

To determine what the appropriate EER(95 OF) requirement might be, the Department 

assessed ARI performance data on residential unitary equipment certified as of February 1998. 

The median EERs available for each product class at the minimum SEER levels DOE proposes 

today, are identified in Table VA as the "Median Available EER at Proposed Minimum SEER." 

In addition to the minimum SEER proposal contained in this notice, the Department is inclined 

to adopt in the Final Rule minimum EER(95 OF) requirements equal to these values. However, 

since there are very few packaged heat pumps available from which to draw a conclusion 

concerning EER, DOE believes the minimum EER requirement for packaged heat pumps should 

be the same as split heat pumps less the 0.3 EER offset seen between packaged and split air 

conditioners. 

82 Q:IEE-4IIEE-43I ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-3 D- 08

Table V.4: Median Available Energy Efficiency Ratings (EER) and Proposed Minimum EERs in

Residential Unitary Equipment (1998)

10' Percentile Lowest Available 1' Percenle Median Available Proposed Proposed Product Class Minimum SEER EER at Proposed Available EER at EER at Proposed Minimum EER

umSEER Minimum SEER Proposed Minimum SEER

Minimum SEER

Split Air Conditioners 12.0 10.1 10.5 10.8 10.8

Packaged Air Conditioners 12.0 10.1 10.3 10.5 10.5

Split Heat Pumps 13.0 10.8 11.1 11.9 11.9

Packaged Heat Pumps 13.0 11.0 11.0 11.0 11.6

We encourage comments regarding the burdens and benefits that would result from

including an EER requirement in the final rule. Of particular interest are comments regarding

burdens on manufacturers and benefits regarding reduction in peak electricity demand, including

the effect of an EER minimum on costs, on availability and sales of modulating equipment, and

on electrical system reliability. In addition, comments are welcome to discuss the pros and cons

of any of the other options described above.

J. Niche Products

Several types of central air conditioners and heat pumps are used in particular or unusual

applications and have features that differ from those of the vast majority of products available in

the marketplace. We refer to these as "niche products." Included are single package units that

are designed to be mounted within or immediately adjacent to a fixed-size opening in an outside

wall of the structure and split systems where the outdoor unit is designed to be mounted in the

same manner. This would be comparable to the classes that have been established for room air

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 83 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-9S.440-301- 08 

Table V.4: Median Available Energy Efficiency Ratings (EER) and Proposed Minimum EERs in 

Residential Unitary Equipment (1998) 

Lowest Available 101b Percentile Median Available 

Product Class Proposed EER at Proposed Available EER at EER at Proposed Proposed 

Minimum SEER Minimum SEER Proposed Minimum SEER MinimumEER 

Minimum SEER 

Split Air Conditioners 12.0 10.1 10.5 10.8 10.8 

Packaged Air Conditioners 12.0 10.1 10.3 10.5 10.5 

Split Heat Pumps 13.0 10.8 11.1 11.9 11.9 

Packaged Heat Pumps 13.0 11.0 11.0 11.0 11.6 

We encourage comments regarding the burdens and benefits that would result from 

including an EER requirement in the final rule. Of particular interest are comments regarding 

burdens on manufacturers and benefits regarding reduction in peak electricity demand, including 

the effect of an EER minimum on costs, on availability and sales of modulating equipment, and 

on electrical system reliability. In addition, comments are welcome to discuss the pros and cons 

of any of the other options described above. 

J. Niche Products 

Several types of central air conditioners and heat pumps are used in particular or unusual 

applications and have features that differ from those of the vast majority of products available in 

the marketplace. We refer to these as "niche products." Included are single package units that 

are designed to be mounted within or immediately adjacent to a fixed-size opening in an outside 

wall of the structure and split systems where the outdoor unit is designed to be mounted in the 

same manner. This would be comparable to the classes that have been established for room air 

83 Q:IEE-41 IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 307- 08

conditioners that are defined as "without louvered sides." Also included are non-ducted minisplit air conditioners and heat pumps, and high-velocity, small-duct systems. Typical

applications for of niche products may include: existing single family buildings without air ducts

and multi-family buildings with fixed-area wall openings and both new and existing

manufactured homes.

Several manufacturers have claimed that certain niche products would not be viable if

required to meet higher efficiency standards, and have asked the Department to establish new

classes for these products, with efficiency standards maintained at current levels. All these

products serve relatively small niche markets and as such, the efficiency standards established for

these products will have little effect on national energy savings. Further, each is a product with

some unique utility. Earlier in this rulemaking the Department sought information on whether

higher standards would eliminate these products from the marketplace because of the severity of

their constraints.

1. Ductless Split Air Conditioners and Heat Pumps

Ductless split systems, or mini-splits as they are commonly known, consist of a single

outdoor unit and one or more indoor fan coil units, each located in the conditioned space. Since

consumers may consider the interior units to be more intrusive than a ducted system,

manufacturers strive to make them as compact as possible. This cabinet size constraint

combined with efficiency losses due to heat transfer between refrigerant lines puts pressure on

equipment efficiency.

Q:\EE-41\EE431 \CAC\StandRul\NOPR\DrafiNOPR\CACNOPR24.wpd 84 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 307-08 

conditioners that are defined as "without louvered sides." Also included are non-ducted minisplit air conditioners and heat pumps, and high-velocity, small-duct systems. Typical 

applications for of niche products may include: existing single family buildings without air ducts 

and multi-family buildings with fixed-area wall openings and both new and existing 

manufactured homes. 

Several manufacturers have claimed that certain niche products would not be viable if 

required to meet higher efficiency standards, and have asked the Department to establish new 

classes for these products, with efficiency standards maintained at current levels. All these 

products serve relatively small niche markets and as such, the efficiency standards established for 

these products will have little effect on national energy savings. Further, each is a product with 

some unique utility. Earlier in this rulemaking the Department sought information on whether 

higher standards would eliminate these products from the marketplace because of the severity of 

their constraints. 

1. Ductless Split Air Conditioners and Heat Pumps 

Ductless split systems, or mini-splits as they are commonly known, consist of a single 

outdoor unit and one or more indoor fan coil units, each located in the conditioned space. Since 

consumers may consider the interior units to be more intrusive than a ducted system, 

manufacturers strive to make them as compact as possible. This cabinet size constraint 

combmed with efficiency losses due to heat transfer between refrigerant lines puts pressure on 

equipment efficiency. 

84 Q:\EE-41 \EE-431 \CAastandRulINOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 ' - 0

Mitsubishi and EnviroMaster International (EMI), manufacturers of ductless split

systems, commented that ductless products should be assigned a separate product class with a

lower standard. (Mitsubishi, No. 18 at 1 and EMI, No. 26 at 1). Their arguments for a separate

class are:

* Ductless units are operated like room air conditioners, because the "compressor

delivering air conditioning to a particular room operates only when necessary

rather than when a central thermostat calls for cooling in another area;"

* Ductless units do not have the duct losses of a central air conditioning system, and

so have greater installed system efficiency. Mitsubishi claims that: "a 10 SEER

ductless unit may be virtually equivalent or even higher in efficiency than a 12

SEER ducted unit";

The overwhelming portion of the market of ductless mini-splits is in capacities of

18,000 Btu/hr and less. Making significant increases in the efficiency of motors

and compressors used in these small units is difficult;

* Ductless air conditioners frequently employ variable speed control of the

compressor motors. Mitsubishi claims: "Controlling the speed of the compressor

by inverter will not benefit the 100% capacity rating but it has a tremendous

benefit when the compressor begins slowing down. During 50% capacity

operation the SEER level would be several points above the 100% capacity

SEER. This results in more energy savings, quieter operation, less peak load

demands." Mitsubishi also argued that an EER rating, like a room air conditioner,

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

85 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -301- 08 

Mitsubishi and EnviroMaster International (EMI), manufacturers of ductless split 

systems, commented that ductless products should be assigned a separate product class with a 

lower standard. (Mitsubishi, No. 18 at 1 and EMI, No. 26 at 1). Their arguments for a separate 

class are: 

• Ductless units are operated like room air conditioners, because the "compressor 

delivering air conditioning to a particular room operates only when necessary 

rather than when a central thermostat calls for cooling in another area;" 

• Ductless units do not have the duct losses of a central air conditioning system, and 

so have greater installed system efficiency. Mitsubishi claims that: "a 10 SEER 

ductless unit may be virtually equivalent or even higher in efficiency than a 12 

SEER ducted unit"; 

• The overwhelming portion of the market of ductless mini-splits is in capacities of 

18,000 BtuIhr and less. Making significant increases in the efficiency of motors 

and compressors used in these small units is difficult; 

• Ductless air conditioners frequently employ variable speed control of the 

compressor motors. Mitsubishi claims: "Controlling the speed of the compressor 

by inverter will not benefit the 100% capacity rating but it has a tremendous 

benefit when the compressor begins slowing down. During 50% capacity 

operation the SEER level would be several points above the 100% capacity 

SEER. This results in more energy savings, quieter operation, less peak load 

demands." Mitsubishi also argued that an EER rating, like a room air conditioner, 

85 Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - '01- o0

would be more appropriate because of the inverter driven system's low cyclic

losses; and

Per ton, (of cooling capacity) a ductless air conditioning system is one of the most

expensive HVAC systems in the U.S. today. Some of the reasons for high

production costs are: low volumes in the United States, the indoor unit is a

"finished" product fully visible to the customer so it requires additional cosmetic

expenses, and the unit must be small, so complex design of coils is necessary.

After review of the available information, the Department does not believe a

separate class is warranted for these products. The evidence presented in the comments does not

convince us that these products would not be able to meet the proposed standard level. The

constraints on increasing the size of the indoor fan coil units are primarily esthetic, and the

Department is unaware of technological limitations to increasing minimum efficiency standards

for these products. The esthetic disadvantage of larger cabinet size would be compensated by

higher efficiency and lower cost of operation. While the claim that the small capacities make

increased efficiencies difficult is a reasonable one, the Department is aware that systems with

capacities of up to 44,000 Btu/h are available and believes that providing an exemption for all

systems because of difficulty with smaller systems is not justified.

2. Small Duct High Velocity Air Conditioners

Small-duct, high-velocity (SDHV) systems target primarily the retrofit market,

where they are installed in attic or closet spaces and distribute conditioned pressurized air

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 86 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440· j 0 '1- 08 

would be more appropriate because of the inverter driven system's low cyclic 

losses; and 

• Per ton, (of cooling capacity) a ductless air conditioning system is one of the most 

expensive HVAC systems in the U.S. today. Some of the reasons for high 

production costs are: low volumes in the United States, the indoor unit is a 

"finished" product fully visible to the customer so it requires additional cosmetic 

expenses, and the unit must be small, so complex design of coils is necessary. 

After review of the available information, the Department does not believe a 

separate class is warranted for these products. The evidence presented in the comments does not 

convince us that these products would not be able to meet the proposed standard level. The 

constraints on increasing the size of the indoor fan coil units are primarily esthetic, and the 

Department is unaware of technological limitations to increasing minimum efficiency standards 

for these products. The esthetic disadvantage of larger cabinet size would be compensated by 

higher efficiency and lower cost of operation. While the claim that the small capacities make 

increased efficiencies difficult is a reasonable one, the Department is aware that systems with 

capacities of up to 44,000 Btu/h are available and believes that providing an exemption for all 

systems because of difficulty with smaller systems is not justified. 

2. Small Duct High Velocity Air Conditioners 

Small-duct, high-velocity (SDHV) systems target primarily the retrofit market, 

where they are installed in attic or closet spaces and distribute conditioned pressurized air 

86 Q:IEE-41 IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - U3 '- 00

through round ducts small enough to fit inside stud walls. Compared with conventional air

conditioners and heat pumps that use large ducts, the indoor coil section of an SDHV system is

compactly designed to facilitate retrofit installation in tight spaces, resulting in smaller face area

and more rows of tubing than conventional systems. The compact fan coil design and small

ducts contribute to high static pressure loss that must be overcome by the blower, requiring

greater fan power. Manufacturers claim the greater energy consumption of these blower motors

and the limited space for installing the fan coils makes it more difficult for SDHV systems to

increase energy efficiency. To mitigate the burden on the blowers, designers reduce the required

air volume by cooling it more than a conventional air conditioner, which offers an associated

benefit of enhanced humidity removal but increases cost. In order to meet the current 10 SEER

standard, manufacturers of SDHV systems typically pair the fan coil with high efficiency

condensing units (typically 13 - 14 SEER).

Unico described a number of alternatives to increase system efficiency for their product,

including a larger heat exchanger, an improved blower design and a more efficient blower motor,

and concluded that the burden of increased initial cost would outweigh the benefits of increased

system efficiency. (Unico, No.60 at 5). Unico asked the Department to either: (1) exempt them

from any increase in standards; (2) allow a 15% SEER credit for reduced duct losses associated

with their type of system; or (3) allow their system to be tested as a coil only (without a blower)

at a conventional airflow, using the test procedure's default fan power to establish a SEER rating

but allow them to install systems with a high pressure blower. (Unico, No. 61 at 3).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 87 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - J U 7- 08 

through round ducts small enough to fit inside stud walls. Compared with conventional air 

conditioners and heat pumps that use large ducts, the indoor coil section of an SDHV system is 

compactly designed to facilitate retrofit installation in tight spaces, resulting in smaller face area 

and more rows of tubing than conventional systems. The compact fan coil design and small 

ducts contribute to high static pressure loss that must be overcome by the blower, requiring 

greater fan power. Manufacturers claim the greater energy consumption of these blower motors 

and the limited space for installing the fan coils makes it more difficult for SDHV systems to 

increase energy efficiency. To mitigate the burden on the blowers, designers reduce the required 

air volume by cooling it more than a conventional air conditioner, which offers an associated 

benefit of enhanced humidity removal but increases cost. In order to meet the current 10 SEER 

standard, manufacturers of SDHV systems typically pair the fan coil with high efficiency 

condensing units (typically 13 - 14 SEER). 

Unico described a number of alternatives to increase system efficiency for their product, 

including a larger heat exchanger, an improved blower design and a more efficient blower motor, 

and concluded that the burden of increased initial cost would outweigh the benefits of increased 

system efficiency. (Unico, No.60 at 5). Unico asked the Department to either: (1) exempt them 

from any increase in standards; (2) allow a 15% SEER credit for reduced duct losses associated 

with their type of system; or (3) allow their system to be tested as a coil only (without a blower) 

at a conventional airflow, using the test procedure's default fan power to establish a SEER rating 

but allow them to install systems with a high pressure blower. (Unico, No. 61 at 3). 

87 Q:\EE-41 \EE-431\CAc\StandRu]\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 301- 0 -

SpacePak, another major manufacturer of this type of product, commented that they have

made the investment to produce more efficient systems. (SpacePak, No. 39 at 1). SpacePak also

provided ARI directory data indicating the higher efficiency of their designs. SpacePak claimed

to offer many equipment combinations in the 11 to 12 SEER range, with only 17% of their ARI

listings at the 10 SEER minimum. (Space Pak, No. 52 at 1).

After review of the available information, the Department does not believe a separate

class with an efficiency standard below 12 SEER or a 15% SEER credit, is warranted for these

products. Regarding Unico's third alternative, i.e., revise the DOE test procedure to allow

SDHV systems to be tested as coil-only products, the Department believes that such a change

would recognize the improvements in delivered efficiency of the SDHV system because of

reduced duct losses. We are therefore proposing to modify the DOE test procedure to allow

small-duct high velocity system manufacturers to test their products as coil only products. We

estimate that the impact of this allowance will be 1 to 2.5 SEER points; i.e., a 10 SEER system

would become an 11 to 12.5 SEER system.. The Department seeks comments on whether the

test procedure revision or other proposed changes are needed to maintain the viability of the

small-duct, high-velocity systems in the market place.

3. Vertical Packaged, Wall Mounted

These products are factory-assembled single packaged vertical air-conditioners and heat

pumps using single phase power but intended for use in commercial and industrial heating and

cooling applications. The difficult air flow configuration (each of the condenser and evaporator

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

88 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30t1- 08 

SpacePak, another major manufacturer of this type of product, commented that they have 

made the investment to produce more efficient systems. (SpacePak, No. 39 at 1). SpacePak also 

provided ARI directory data indicating the higher efficiency of their designs. SpacePak claimed 

to offer many equipment combinations in the 11 to 12 SEER range, with only 17% of their ARl 

listings at the 10 SEER minimum. (Space Pak, No. 52 at 1). 

After review of the available information, the Department does not believe a separate 

class with an efficiency standard below 12 SEER or a 15% SEER credit, is warranted for these 

products. Regarding Unico's third alternative, i.e., revise the DOE test procedure to allow 

SDHV systems to be tested as coil-only products, the Department believes that such a change 

would recognize the improvements in delivered efficiency of the SDHV system because of 

reduced duct losses. We are therefore proposing to modify the DOE test procedure to allow 

small-duct high velocity system manufacturers to test their products as coil only products. We 

estimate that the impact of this allowance will be 1 to 2.5 SEER points; i.e., a 10 SEER system 

would become an 11 to 12.5 SEER system .. The Department seeks comments on whether the 

test procedure revision or other proposed changes are needed to maintain the viability of the 

small-duct, high-velocity systems in the market place. 

3. Vertical Packaged, Wall Mounted 

These products are factory-assembled single packaged vertical air-conditioners and heat 

pumps using single phase power but intended for use in commercial and industrial heating and 

cooling applications. The difficult air flow configuration (each of the condenser and evaporator 

88 Q:\EE-41 \EE-431 \CAC\StandRuI\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440--,30. 0-

compartments takes air in and exhausts it through the same face) combined with the attempt to

minimize size constrains the ability of these units to attain higher SEERs.

The Department understands that single-package vertical air-conditioners and heat pumps

are not distributed for personal use or consumption by individuals, and therefore believes that at

present they are commercial products covered by EPACT and not by residential energy efficiency

standards. Accordingly, vertical packaged, wall mounted equipment would not be covered by

today's proposed rule for residential products.

4. Through-the-Wall Condensers

Through-the-wall (TTW) condensers were popular in new multistory residential

construction in the 1960s and 1970s. Major manufacturers have since abandoned the

replacement market, providing an opportunity for lower volume manufacturers. Most equipment

is in the 1-1/2 to 2-1/2 ton capacity range. These systems take in air through only one face and

exhaust air through the same face resulting in reduced efficiency because of increased fan power

consumption. Some short-circuiting of exhaust air into the intake may also occur.

Replacements for through-the-wall condensers must fit within the same wall opening as

the original units, even though original units may be half as efficient as the new units. Residents

or building owners are particularly sensitive to any increase in price or to the cost of enlarging

the wall opening to accommodate a larger condenser. Since repair is the only other cost effective

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

89 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-3D '1- oB 

compartments takes air in and exhausts it through the same face) combined with the attempt to 

minimize size constrains the ability of these units to attain higher SEERs. 

The Department understands that single-package vertical air-conditioners and heat pumps 

are not distributed for personal use or consumption by individuals, and therefore believes that at 

present they are commercial products covered by EP ACT and not by residential energy efficiency 

standards. Accordingly, vertical packaged, wall mounted equipment would not be covered by 

today's proposed rule for residential products. 

4. Through-the-Wall Condensers 

Through-the-wall CTTW) condensers were popular in new multistory residential 

construction in the 1960s and 1970s. Major manufacturers have since abandoned the 

replacement market, providing an opportunity for lower volume manufacturers. Most equipment 

is in the 1-112 to 2-112 ton capacity range. These systems take in air through only one face and 

exhaust air through the same face resulting in reduced efficiency because of increased fan power 

consumption. Some short-circuiting of exhaust air into the intake may also occur. 

Replacements for through-the-wall condensers must fit within the same wall opening as 

the original units, even though original units may be half as efficient as the new units. Residents 

or building owners are particularly sensitive to any increase in price or to the cost of enlarging 

the wall opening to accommodate a larger condenser. Since repair is the only other cost effective 

89 Q:IEE-41 IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30'7- OB

alternative to replacement, a new standard that increases cabinet size or results in a significant

price increase could be counterproductive, preventing the turnover of old, inefficient equipment.

According to submitted data, 10 SEER TTW split condensing air-conditioners with fan

coils (when scaled up to 3-tons) are $206 more expensive (manufacturer price) than 10 SEER

pad-mounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners,

the $206 differential would be maintained if TTW Condenser systems had to meet an 11 SEER

rating (also based on submitted data). This differential increases when wall modifications are

necessary. DOE believes 11 SEER is technologically feasible at this time for most

configurations of TTW split equipment. TTW condensers come in three sizes (height x weight

exterior to the building): 32" x 24" (768 sq. in.); 28" x 26" (721 sq. in.); and 23" x 30" (679 sq.

in.). First Co. commented that imposing higher efficiency standards would eliminate throughthe-wall products from the marketplace because of the significant increase in the price with a

correspondingly small operating cost savings. (First Co., No. 40 at 1).

TTW packaged systems are intended for both new construction and retrofit. First Co's

dimensions (new construction) are 43" x 28" (1,204 sq. in.). Skymark's retrofit unit is 15" x 55"

(825 sq. in.). TTW packaged equipment for new construction, which is not severely sizeconstrained, should be able to reach 12 SEER in its current configuration with component

upgrades. The current manufacturer price differential (First Co.) between TTW packaged and

conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

90 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE·RM/STD-98-440"~ 30'1- 08 

alternative to replacement, a new standard that increases cabinet size or results in a significant 

price increase could be counterproductive, preventing the turnover of old, inefficient equipment. 

According to submitted data, 10 SEER TTW split condensing air-conditioners with fan 

coils (when scaled up to 3-tons) are $206 more expensive (manufacturer price) than 10 SEER 

pad-mounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners, 

the $206 differential would be maintained if TTW Condenser systems had to meet an 11 SEER 

rating (also based on submitted data). This differential increases when wall modifications are 

necessary. DOE believes 11 SEER is technologically feasible at this time for most 

configurations of TTW split equipment. TTW condensers come in three sizes (height x weight 

exterior to the building): 32" x 24" (768 sq. in.); 28" x 26" (721 sq. in.); and 23" x 30" (679 sq. 

in.). First Co. commented that imposing higher efficiency standards would eliminate throughthe-wall products from the marketplace because of the significant increase in the price with a 

correspondingly small operating cost savings. (First Co., No. 40 at 1). 

TTW packaged systems are intended for both new construction and retrofit. First Co's 

dimensions (new construction) are 43" x 28" (1,204 sq. in.). Skymark's retrofit unit is 15" x 55" 

(825 sq. in.). TTW packaged equipment for new construction, which is not severely sizeconstrained, should be able to reach 12 SEER in its current configuration with component 

upgrades. The current manufacturer price differential (First Co.) between TTW packaged and 

conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that 

90 Q:IEE-41IEE·431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30 -O8

differential would be maintained under an 11 SEER standard for TTW packaged with a 12 SEER

for conventional packaged.

The Department proposes to establish a separate class for TTW equipment (including

packaged and split, cooling only and heat pump) based on a maximum combined surface area of

the air inlet and outlet of the condenser of 830 square inches, and a maximum capacity of 30,000

Btu/hr. The purpose of the maximum capacity requirement is to ensure that if new technology

reduces the size of the condenser, manufacturers will not offer 3-ton equipment that fits the

definition but is intended for use in conventional applications. To maintain the price differential

between this new class and conventional equipment, we propose a standard of 11 SEER.

Because electric strip heat is popular in TTW equipment, the 11 SEER standard would also apply

to TTW heat pumps.

5. Non-Weatherized Single-Package Unit, Mounted Entirely within the Structure

Another niche product, which was not discussed in the Supplemental ANOPR, is a

non-weatherized single-package unit, mounted entirely within the structure (in an attic, basement,

or closet), with outdoor air ducted to and from the unit. This unit is used in high-rise and garden

apartments, manufactured homes, and other residential applications where locations for

placement of outdoor units may be unavailable or too remote, where architectural aesthetics may

be compromised by visible outdoor units, where vandalism or theft of outdoor units is a potential

problem, or where compliance with local sound ordinances restricts the placement of outdoor air

conditioning equipment.

Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

91 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301-08 

differential would be maintained under an 11 SEER standard for TTW packaged with a 12 SEER 

for conventional packaged. 

The Department proposes to establish a separate class for TTW equipment (including 

packaged and split, cooling only and heat pump) based on a maximum combined surface area of 

the air inlet and outlet of the condenser of 830 square inches, and a maximum capacity of 30,000 

BtuIhr. The purpose of the maximum capacity requirement is to ensure that if new technology 

reduces the size of the condenser, manufacturers will not offer 3-ton equipment that fits the 

definition but is intended for use in conventional applications. To maintain the price differential 

between this new class and conventional equipment, we propose a standard of 11 SEER. 

Because electric strip heat is popular in TTW equipment, the 11 SEER standard would also apply 

to TTW heat pumps. 

5. Non-Weatherized Single-Package Unit, Mounted Entirely within the Structure 

Another niche product, which was not discussed in the Supplemental ANOPR, is a 

non-weatherized single-package unit, mounted entirely within the structure (in an attic, basement, 

or closet), with outdoor air ducted to and from the unit. This unit is used in high-rise and garden 

apartments, manufactured homes, and other residential applications where locations for 

placement of outdoor units may be unavailable or too remote, where architectural aesthetics may 

be compromised by visible outdoor units, where vandalism or theft of outdoor units is a potential 

problem, or where compliance with local sound ordinances restricts the placement of outdoor air 

conditioning equipment. 

91 Q:\EE-41 \EE-431ICAC\StandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4.2000 (6:35PM) 
EE-RM/STD-98-440 - '3D - 0O

Consolidated Technologies, Inc., manufacturer of the INSIDER, commented, "For the

INSIDER to be used in Manufactured Housing and Modular housing it is important to have the

smallest footprint possible." (Consolidated Technologies, Inc., No. 42 at 2).

The Department recognizes that this product has space constraints, albeit not as severe as

products that must fit a wall opening. Products at the 12 SEER level (the proposed air

conditioning standard level) are currently on the market. A very difficult obstacle to establishing

a separate class for this product is a definition that could not be used as a loophole to use its

lower standard for conventional products. Its salient feature is its indoor location; product class

definitions should be based on physical characteristics, and it is nearly impossible to define

physical characteristics that would ensure products be installed in a particular location. No

separate class is proposed for this product.

6. Request for Comments Regarding Niche Product Standards

The Department encourages comments regarding whether the proposed standards

concerning high-velocity, vertically-packaged wall-mounted equipment, and through-the-wall

equipment provide a significant advantage to those products versus competing products, whether

they are sufficient to preserve the unique features of those products, and whether improvements

in the definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional comment is welcome on the impacts that

meeting the new standards would have on the availability of those products.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 92 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - JD '7- 08 

Consolidated Technologies, Inc., manufacturer of the INSIDER, commented, "For the 

INSIDER to be used in Manufactured Housing and Modular housing it is important to have the 

smallest footprint possible." (Consolidated Technologies, Inc., No. 42 at 2). 

The Department recognizes that this product has space constraints, albeit not as severe as 

products that must fit a wall opening. Products at the 12 SEER level (the proposed air 

conditioning standard level) are currently on the market. A very difficult obstacle to establishing 

a separate class for this product is a definition that could not be used as a loophole to use its 

lower standard for conventional products. Its salient feature is its indoor location; product class 

definitions should be based on physical characteristics, and it is nearly impossible to define 

physical characteristics that would ensure products be installed in a particular location. No 

separate class is proposed for this product. 

6. Request for Comments Regarding Niche Product Standards 

The Department encourages comments regarding whether the proposed standards 

concerning high-velocity, vertically-packaged wall-mounted equipment, and through-the-wall 

equipment provide a significant advantage to those products versus competing products, whether 

they are sufficient to preserve the unique features of those products, and whether improvements 

in the definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional comment is welcome on the impacts that 

meeting the new standards would have on the availability of those products. 

92 Q:IEE·41 IEE·431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3O'7- B0

K. Thermostatic Expansion Valves

VEIC, NRDC, ACEEE, and CEC requested that a design standard requiring the use of

thermostatic expansion valves (TXVs) be adopted to ensure that energy savings expected from an

increase in the minimum efficiency standard are realized in the field. Several of the comments

cited studies which demonstrate that TXVs can mitigate adverse effects on efficiency due to field

installation problems such as inadequate evaporator airflow and improper refrigerant charge.

CEC suggested that separate classes be established for systems with and without TXVs and that

more stringent minimum efficiency standards be established for classes not utilizing TXVs, and

VEIC suggested mandating the use of TXVs in all new equipment. (VEIC, No. 32 at 4-5; Neme,

VEIC, Transcript, pp. 187-189; NRDC, No. 35 at 11-12; ACEEE, No. 43 at 5-6; CEC, No. 47 at

5-6).

At least two regulatory options exist for encouraging the use of TXVs. The first is to

require that all equipment contain TXVs, hereafter called TXV requirement. The second is to

establish a separate product class for TXV-bearing equipment and to reduce the minimum SEER

requirements for those classes from the levels in today's proposed rule.

The EPCA allows the Department to issue a requirement such as mandating the use of

TXVs if the Secretary determines that such a requirement is necessary to ensure that the product

meets its performance-based standard. In the case of TXVs, the Department's current opinion is

that products can meet the proposed SEER requirements without TXVs. This is certainly true in

the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 93 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -30'1- aB 

K. Thermostatic Expansion Valves 

VEIC, NRDC, ACEEE, and CEC requested that a design standard requiring the use of 

thermostatic expansion valves (TXV s) be adopted to ensure that energy savings expected from an 

increase in the minimum efficiency standard are realized in the field. Several of the comments 

cited studies which demonstrate that TXV s can mitigate adverse effects on efficiency due to field 

installation problems such as inadequate evaporator airflow and improper refrigerant charge. 

CEC suggested that separate classes be established for systems with and without TXV s and that 

more stringent minimum efficiency standards be established for classes not utilizing TXV s, and 

VEIC suggested mandating the use of TXVs in all new equipment. (VEIC, No. 32 at 4-5; Neme, 

VEIC, Transcript, pp. 187-189; NRDC, No. 35 at 11-12; ACEEE, No. 43 at 5-6; CEC, No. 47 at 

5-6). 

At least two regulatory options exist for encouraging the use of TXV s. The first is to 

require that all equipment contain TXV s, hereafter called TXV requirement. The second is to 

establish a separate product class for TXV -bearing equipment and to reduce the minimum SEER 

requirements for those classes from the levels in today's proposed rule. 

The EPCA allows the Department to issue a requirement such as mandating the use of 

TXV s if the Secretary determines that such a requirement is necessary to ensure that the product 

meets its performance-based standard. In the case of TXVs, the Department's current opinion is 

that products can meet the proposed SEER requirements without TXV s. This is certainly true in 

the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it 

93 Q:\EE-41 \EE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -,30 ' -0

is unclear whether we could find that TXVs are needed for those systems to perform at their rated

efficiencies.

Regarding the second option, EPCA requires the Department to establish separate product

classes for products based on a performance related feature (such as a TXV) if the Secretary

determines that a higher or lower efficiency standard is justified for those products. Evidence

indicates that TXVs maintain system efficiency better than do fixed orifices or capillary tube

expansion devices in cases where split system equipment is over- or under-charged with

refrigerant. This apparently includes most installations. To encourage the use of TXVs we could

consider establishing lower SEER standards for products containing TXVs.

While the evidence of the potential energy-saving benefits of TXVs is certainly

persuasive, the current SEER test procedures already encourage their use. For rating a

manufacturer's condenser with the evaporator of a different manufacturer, the SEER

determination procedures provide a credit for systems that incorporate TXVs. For matched

systems, the use of TXVs typically lowers the degradation coefficient, resulting in higher SEER

results.

We hesitate to provide stronger support for TXV-bearing equipment than that which is

already granted through the test procedures. Unlike fixed orifices, TXVs are mechanical

components. Some manufacturers avoid their usage because of reliability concerns, and the

additional repair costs incurred by consumers could outweigh their energy-saving benefits.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 94 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 --3D 108 

is unclear whether we could find that TXV s are needed for those systems to perform at their rated 

efficiencies. 

Regarding the second option, EPCA requires the Department to establish separate product 

classes for products based on a performance related feature (such as a TXV) if the Secretary 

determines that a higher or lower efficiency standard is justified for those products. Evidence 

indicates that TXV s maintain system efficiency better than do fixed orifices or capillary tube 

expansion devices in cases where split system equipment is over- or under-charged with 

refrigerant. This apparently includes most installations. To encourage the use of TXV s we could 

consider establishing lower SEER standards for products containing TXV s. 

While the evidence of the potential energy-saving benefits of TXV s is certainly 

persuasive, the current SEER test procedures already encourage their use. For rating a 

manufacturer's condenser with the evaporator of a different manufacturer, the SEER 

determination procedures provide a credit for systems that incorporate TXVs. For matched 

systems, the use of TXV s typically lowers the degradation coefficient, resulting in higher SEER 

results. 

We hesitate to provide stronger support for TXV -bearing equipment than that which is 

already granted through the test procedures. Unlike fixed orifices, TXV s are mechanical 

components. Some manufacturers avoid their usage because of reliability concerns, and the 

additional repair costs incurred by consumers could outweigh their energy-saving benefits. 

94 Q:IEE-4IIEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30 7- 08

Furthermore, contractors are able to adjust the factory-set TXV in the field, and it is possible that

alleviating problems due to over- or under-charging by encouraging the use of TXVs could create

another problem--improperly set TXVs. Also, it is not clear that TXVs are the only, or even the

best, option for maintaining equipment efficiency in the field. For example, technologies that

could mitigate dirty coils or prevent improper charging and airflow may be more attractive

options, and we would not want to discourage their development or use by mandating the use of

TXVs.

In any case, manufacturers may well find that the SEER benefits offered by TXVs are

compelling enough under the new efficiency standards that they would offer TXVs in a

substantial amount of baseline equipment without further encouragement by the Department.

The Engineering Analysis suggests that manufacturers are currently more likely to incorporate

TXVs into their 12 SEER and 13 SEER products than in their 10 SEER products. We would

expect, therefore, that TXV use would be much more prevalent under higher efficiency

standards.

For these reasons, the Department feels that the current test procedure provides the proper

encouragement for manufacturers to incorporate TXVs into their products, and that neither a

TXV requirement nor a lower standard for TXV-bearing products are justified at this time. We

welcome additional comments on this issue, particularly regarding whether our concerns

regarding the perceived reliability problems and potential misuses associated with widespread

use of TXVs are valid.

Q:\EE-41 EE-431 \CAC\StandRul\NOPR\DratNOPR\CACNOPR24.wpd 95 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D 1- 08 

Furthermore, contractors are able to adjust the factory-set TXV in the field, and it is possible that 

alleviating problems due to over- or under-charging by encouraging the use of TXV s could create 

another problem--improperly set TXVs. Also, it is not clear that TXVs are the only, or even the 

best, option for maintaining equipment efficiency in the field. For example, technologies that 

could mitigate dirty coils or prevent improper charging and airflow may be more attractive 

options, and we would not want to discourage their development or use by mandating the use of 

TXVs. 

In any case, manufacturers may well find that the SEER benefits offered by TXV s are 

compelling enough under the new efficiency standards that they would offer TXV s in a 

substantial amount of baseline equipment without further encouragement by the Department. 

The Engineering Analysis suggests that manufacturers are currently more likely to incorporate 

TXVs into their 12 SEER and 13 SEER products than in their 10 SEER products. We would 

expect, therefore, that TXV use would be much more prevalent under higher efficiency 

standards. 

For these reasons, the Department feels that the current test procedure provides the proper 

encouragement for manufacturers to incorporate TXV s into their products, and that neither a 

TXV requirement nor a lower standard for TXV -bearing products are justified at this time. We 

welcome additional comments on this issue, particularly regarding whether our concerns 

regarding the perceived reliability problems and potential misuses associated with widespread 

use of TXV s are valid. 

95 Q:IEE-4I IEE-43I ICACIStandRu]INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 307- o

L. Other Comments

1. Latent Heat Removal

The Southern Company, Virginia Power, and R.B. Stotz insisted that increased

equipment efficiency impacts the equipment's ability to properly dehumidify (i.e., remove latent

heat). Virginia Power specifically wants assurances that any increase in the standard will

maintain current humidity control capabilities. In addition, it asserts that the costs of maintaining

humidity control should be included in the analysis. (Virginia Power, No. 27 at 2). The

Southern Company claims that higher SEER values will lead to larger indoor coils which in turn

will result in higher air temperatures leaving the indoor coil. The higher the air temperature, the

less dehumidification occurs. They also claim that while more efficient systems may dehumidify

properly at rated test conditions, their ability to dehumidify under high indoor humidity

conditions are worse than less efficient equipment. (Southern Company, No. 29 at 3-4; R.B.

Stotz, No. 24 at 1). Trane counters the claims made by the Southern Company and Virginia

Power by stating that there is absolutely no evidence to support the claim that more efficient

equipment has less latent heat removal capability. (Crawford, Trane, Transcript, pp. 272-273).

Trane's claim that there is no relationship between equipment efficiency and its ability to

dehumidify is substantiated by research conducted by ARI. From this research, ARI

demonstrated for hundreds of systems that latent heat removal is not obviously impacted by

increases in equipment efficiency at rated conditions (i.e., 95 °F outdoor temperature)' 6

. Not to

dismiss the concerns of Virginia Power and the Southern Company, we recognize the humidity

16 D. Godwin. 1998. "Latent Capacity of Unitary Equipment." ASHRAE Transactions 98(2).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 96 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 ., 3iJ 7- oB 

L. Other Comments 

1. Latent Heat Removal 

The Southern Company, Virginia Power, and R.B. Stotz insisted that increased 

equipment efficiency impacts the equipment's ability to properly dehumidify (i.e., remove latent 

heat). Virginia Power specifically wants assurances that any increase in the standard will 

maintain current humidity control capabilities. In addition, it asserts that the costs of maintaining 

humidity control should be included in the analysis. (Virginia Power, No. 27 at 2). The 

Southern Company claims that higher SEER values will lead to larger indoor coils which in tum 

will result in higher air temperatures leaving the indoor coil. The higher the air temperature, the 

less dehumidification occurs. They also claim that while more efficient systems may dehumidify 

properly at rated test conditions, their ability to dehumidify under high indoor humidity 

conditions are worse than less efficient equipment. (Southern Company, No. 29 at 3-4; R.B. 

Stotz, No. 24 at 1). Trane counters the claims made by the Southern Company and Virginia 

Power by stating that there is absolutely no evidence to support the claim that more efficient 

equipment has less latent heat removal capability. (Crawford, Trane, Transcript, pp. 272-273). 

Trane's claim that there is no relationship between equipment efficiency and its ability to 

dehumidify is substantiated by research conducted by ARL From this research, ARI 

demonstrated for hundreds of systems that latent heat removal is not obviously impacted by 

increases in equipment efficiency at rated conditions (i.e., 95 OF outdoor temperature)16. Not to 

dismiss the concerns of Virginia Power and the Southern Company, we recognize the humidity 

16 D. Godwin. 1998. "Latent Capacity of Unitary Equipment." ASHRAE Transactions 98(2). 

96 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 30.7- 0

control problems that exist in the southern region of the U.S. For the excessive humidity

conditions commonly experienced in the South, the equipment may very likely not provide

adequate dehumidification. But rather than focusing on the equipment efficiency as the source of

the problem, proper installation and maintenance practices also likely play a large role in the

equipment's performance. Other factors to consider are the duct system as well as the building

shell characteristics. All these factors play a role in how a system dehumidifies. To lay blame

only on the efficiency of the equipment ignores how other factors contribute to the system's

ability to properly dehumidify.

2. 3-Phase Equipment

ACEEE asserted that if an identical standard is to be set for both single-phase and

3-phase central air conditioners and heat pumps under 65,000 Btu/hr, then 3-phase equipment

should be incorporated into the rulemaking analysis. Alternatively, if 3-phase equipment is

excluded from the analysis, it should be made clear that a new standard on 3-phase equipment

will be set based on a new analysis covering 3-phase equipment.

EPACT provides for DOE to amend the standards for these products when ASHRAE

amends the standards found in ASHRAE Standard 90.1. When ASHRAE has completed its

consideration of standards for these products, DOE will analyze 3-phase equipment under a

separate rulemaking pertaining to commercial air-conditioning and heat pump equipment.

3. SEER-HSPF Relationship

Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 97 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-9S-440 - 307-08 

control problems that exist in the southern region of the U.S. For the excessive humidity 

conditions commonly experienced in the South, the equipment may very likely not provide 

adequate dehumidification. But rather than focusing on the equipment efficiency as the source of 

the problem, proper installation and maintenance practices also likely playa large role in the 

equipment's performance. Other factors to consider are the duct system as well as the building 

shell characteristics. All these factors playa role in how a system dehumidifies. To lay blame 

only on the efficiency of the equipment ignores how other factors contribute to the system's 

ability to properly dehumidify. 

2. 3-Phase Equipment 

ACEEE asserted that if an identical standard is to be set for both single-phase and 

3-phase central air conditioners and heat pumps under 65,000 BtuIhr, then 3-phase equipment 

should be incorporated into the rulemaking analysis. Alternatively, if 3-phase equipment is 

excluded from the analysis, it should be made clear that a new standard on 3-phase equipment 

will be set based on a new analysis covering 3-phase equipment. 

EP ACT provides for DOE to amend the standards for these products when ASHRAE 

amends the standards found in ASHRAE Standard 90.1. When ASHRAE has completed its 

consideration of standards for these products, DOE will analyze 3-phase equipment under a 

separate rulemaking pertaining to commercial air-conditioning and heat pump equipment. 

3. SEER-HSPF Relationship 

97 Q:\EE-4I\EE-431\CAastandRuI\NOPR\DraftNOPR\CACNOPR24.wpd 

October 4. 2000 (6:35PM) 
EE-RM/STD-98-440- i'7m - 08

ARI supported the Department's HSPF-SEER standard pairings proposed in the

Supplemental ANOPR. (ARI No. 48 at 4). Pietsch proposed maintaining the current minimum

requirements for HSPF at 6.8 for future levels of minimum SEER, which would allow

manufacturers to continue to place more emphasis on improving SEER. He based this

recommendation on the strong competition that heat pumps face in the market place with electric

resistance heat, noting that the increased first-cost of heat pumps that have higher minimum

HSPFs makes it more difficult for heat pumps to compete against the much lower first-cost of

electric resistance heating systems. (Pietsch No. 36 at 41). ACEEE, VEIC, and PG&E noted

that the Department's definition of HSPF-SEER pairing for the standard levels it analyzed

seemed arbitrary or too lenient and preferred that the Department establish higher HSPF levels.

(ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4).

The Department plotted the relationship between HSPF and SEER for all 3-ton split heat

pumps listed in the Spring 1998 ARI Directory of Certified Unitary Equipment. At 10 SEER, the

difference between the minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The

Department then determined the equation of the line that ran generally parallel with the median

HSPF at each SEER level, while passing through the 10 SEER, 6.8 HSPF point. Table V.5

reviews the derivation of the SEER-HSPF pairings.

Q:\EE-4 I\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 98 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD·98·440·- \5D7~ 08 

ARI supported the Department's HSPF-SEER standard pairings proposed in the 

Supplemental ANOPR. (ARl No. 48 at 4). Pietsch proposed maintaining the current minimum 

requirements for HSPF at 6.8 for future levels of minimum SEER, which would allow 

manufacturers to continue to place more emphasis on improving SEER. He based this 

recommendation on the strong competition that heat pumps face in the market place with electric 

resistance heat, noting that the increased first-cost of heat pumps that have higher minimum 

HSPFs makes it more difficult for heat pumps to compete against the much lower first-cost of 

electric resistance heating systems. (Pietsch No. 36 at 41). ACEEE, VEIC, and PG&E noted 

that the Department's definition of HSPF-SEER pairing for the standard levels it analyzed 

seemed arbitrary or too lenient and preferred that the Department establish higher HSPF levels. 

(ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4). 

The Department plotted the relationship between HSPF and SEER for all 3-ton split heat 

pumps listed in the Spring 1998 ARl Directory of Certified Unitary Equipment. At 10 SEER, the 

difference between the minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The 

Department then determined the equation of the line that ran generally parallel with the median 

HSPF at each SEER level, while passing through the 10 SEER, 6.8 HSPF point. Table V.5 

reviews the derivation of the SEER-HSPF pairings. 

98 Q:IEE-4IIEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30 7-

Table V.5: Comparison of Proposed HSPF Standard Levels with Median HSPFs of

Equipment Listed in the ARI Unitary Directory

Cooling Efficiency (SEER) 10 11 12 13 14 15 16 17

Median Heating Efficiency 7.1 7.4 7.9 7.9 7.9 8.9 8.2 8.4

(HSPF)

Recommended Heating 6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.6

Efficiency Standard (HSPF)

Offset from Median (HSPF) -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2

Even though the Department does not have information on the distribution of heat pump

sales by HSPF at each SEER level, it is apparent that the market currently favors products that

exceed the minimum allowable HSPF level. This is due both to the natural relationship between

HSPF and SEER and the preference in the market for high HSPF heat pumps in cooler climates.

The Department believes that establishing an HSPF standard equal to the current median at a

given SEER level would impose an undue design constraint on manufacturers, adding to the cost

and burden of designing, producing, testing, and qualifying the product without resulting in a

significant increase in the average HSPF of equipment sold. Also, the Department does not want

to encourage substitution of electric resistance heating systems for heat pumps. Without further

information on the cost of attaining higher HSPFs or the shipments of heat pumps by HSPF

level, the Department has no basis for modifying its current HSPF-SEER standard combinations.

Q:\EE-41\EE43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

99 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .- 30 (7- 08 

Table V.5: Comparison of Proposed HSPF Standard Levels with Median HSPFs of 

Equipment Listed in the ARI Unitary Directory 

Cooling Efficiency (SEER) 10 11 12 13 14 15 16 17 

Median Heating Efficiency 7.1 7.4 7.9 7.9 7.9 8.9 8.2 8.4 

(HSPF) 

Recommended Heating 6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.6 

Efficiency Standard (HSPF) 

Offset from Median (HSPF) -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2 

Even though the Department does not have information on the distribution of heat pump 

sales by HSPF at each SEER level, it is apparent that the market currently favors products that 

exceed the minimum allowable HSPF level. This is due both to the natural relationship between 

HSPF and SEER and the preference in the market for high HSPF heat pumps in cooler climates. 

The Department believes that establishing an HSPF standard equal to the current median at a 

given SEER level would impose an undue design constraint on manufacturers, adding to the cost 

and burden of designing, producing, testing, and qualifying the product without resulting in a 

significant increase in the average HSPF of equipment sold. Also, the Department does not want 

to encourage substitution of electric resistance heating systems for heat pumps. Without further 

information on the cost of attaining higher HSPFs or the shipments of heat pumps by HSPF 

level, the Department has no basis for modifying its current HSPF -SEER standard combinations. 

99 Q:IEE-41 IEE-431 \CAC\StandRu\\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3D f- 0

4. Max Tech

The Supplemental ANOPR analysis proposed a Max Tech level of 20 SEER. ARI,

Trane, and York commented that a prototype hasn't been built that has exceeded 18 SEER.

(Wethje, ARI, Transcript p. 66; Crawford, Trane, Transcript p. 69; and Madera, York,

Transcript p. 71). The Department also understands that 18 SEER is the highest efficiency level

currently available for sale.

While the Department believes improvements to the 18 SEER design are certainly

possible, it agrees with the industry that any analysis based on a design higher than 18 SEER

would be pure speculation. Therefore, the Department considers 18 SEER to be the Max Tech at

this time for cooling performance. The Max Tech level for heating efficiency is 9.4 HSPF,

which is the highest HSPF rating currently available in residential heat pumps. Any parties

possessing knowledge of prototype central air conditioners or heat pumps that exceed 18 SEER

or 9.4 HSPF levels are encouraged to provided such information in comment on today's

proposed rule.

DOE does not have relative cost data for 18 SEER units as ARI did not provide the

Department data for equipment exceeding 15 SEER. In lieu of performing a reverse engineering

analysis on an 18 SEER design, the Department is proceeding as if the 18 SEER equipment cost

and price were equal to those of the 15 SEER equipment. DOE believes the 18 SEER cost would

be higher because the product is more complex.

Q:\EE-41\EE431 \CAC\StandRulNOPR\DraftNOPR\CACNOPR24. wpd

100 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3{fJ- 06 

4. Max Tech 

The Supplemental ANOPR analysis proposed a Max Tech level of20 SEER. ARI, 

Trane, and York commented that a prototype hasn't been built that has exceeded 18 SEER. 

(Wethje, ARI, Transcript p. 66; Crawford, Trane, Transcript p. 69; and Madera, York, 

Transcript p. 71). The Department also understands that 18 SEER is the highest efficiency level 

currently available for sale. 

While the Department believes improvements to the 18 SEER design are certainly 

possible, it agrees with the industry that any analysis based on a design higher than 18 SEER 

would be pure speculation. Therefore, the Department considers 18 SEER to be the Max Tech at 

this time for cooling performance. The Max Tech level for heating efficiency is 9.4 HSPF, 

which is the highest HSPF rating currently available in residential heat pumps. Any parties 

possessing knowledge of prototype central air conditioners or heat pumps that exceed 18 SEER 

or 9.4 HSPF levels are encouraged to provided such information in comment on today's 

proposed rule. 

DOE does not have relative cost data for 18 SEER units as ARI did not provide the 

Department data for equipment exceeding 15 SEER. In lieu of performing a reverse engineering 

analysis on an 18 SEER design, the Department is proceeding as if the 18 SEER equipment cost 

and price were equal to those of the 15 SEER equipment. DOE believes the 18 SEER cost would 

be higher because the product is more complex. 

100 Q:\EE-41 \EE-431 \CAC\StandRulINOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3 01- 8

VI. Analytical Results

A. Trial Standard Levels

Table VI.1 presents the trial standards levels analyzed for today's proposed 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 VI. 1: Trial Standards Levels for Central Air Conditioners and Heat Pumps (SEER)

Trial Standard Split Air Packaged Air Split Heat Packaged

Level Conditioners Conditioners Pumps 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

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. We examined

five standard levels. For each trial standard examined, several different scenarios were analyzed

consisting of variations on: (1) electricity price and housing projections; (2) equipment efficiency

distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) 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

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

101 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -" 07-0 8 

VI. Analytical Results 

A. Trial Standard Levels 

Table VI.I presents the trial standards levels analyzed for today's proposed 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 VI. 1 : Trial Standards Levels for Central Air Conditioners and Heat Pumps (SEER) 

Trial Standard Split Air Packaged Air Split Heat Packaged 

Level Conditioners Conditioners Pumps 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 

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. We examined 

five standard levels. For each trial standard examined, several different scenarios were analyzed 

consisting of variations on: (I) electricity price and housing projections; (2) equipment efficiency 

distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) 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 

101 Q:IEE-4IIEE-43I ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 3 01- 0

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.

Manufacturer costs were based on ARI-provided mean cost data. Since several comments

suggested that the industry-provided cost estimates were overstated, cost data from the reverse

engineering analysis were analyzed as an alternative scenario. Equipment lifetime was based on a

retirement function with an 18.4 year average lifetime coupled with the inclusion of compressor

replacement costs. However, since several comments suggested that the equipment life is actually

shorter, a retirement function yielding an average lifetime of 14 years without the inclusion of

compressor replacement costs was analyzed as an alternative scenario.

For calculating NPV, a societal discount rate of 7% was assumed. However, a 3% 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.

Table VI.2 shows the range of energy savings for each the three shipments scenarios for

each trial standard level based on varying electricity and housing projections. The energy savings

assume the ARI mean manufacturer cost estimate, an 18.4-year average lifetime with compressor

replacement and a 7% societal discount rate. The electricity scenarios are the AEO 2000

Reference, High Growth, and Low Growth cases.

Q:\EE-4 1\EE-43 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 102 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301·-0 8 

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. 

Manufacturer costs were based on ARl-provided mean cost data. Since several comments 

suggested that the industry-provided cost estimates were overstated, cost data from the reverse 

engineering analysis were analyzed as an alternative scenario. Equipment lifetime was based on a 

retirement function with an 18.4 year average lifetime coupled with the inclusion of compressor 

replacement costs. However, since several comments suggested that the equipment life is actually 

shorter, a retirement function yielding an average lifetime of 14 years without the inclusion of 

compressor replacement costs was analyzed as an alternative scenario. 

For calculating NPV, a societal discount rate of 7% was assumed. However, a 3% 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. 

Table VI.2 shows the range of energy savings for each the three shipments scenarios for 

each trial standard level based on varying electricity and housing projections. The energy savings 

assume the ARl mean manufacturer cost estimate, an 18.4-year average lifetime with compressor 

replacement and a 7% societal discount rate. The electricity scenarios are the AEO 2000 

Reference, High Growth, and Low Growth cases. 

102 Q:IEE-41 IEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-- '70 -

Table VI.2: Energy Savings based on ARI Mean Manufacturer Costs, 18.4 year Retirement

Function with Compressor Replacement, and a 7% Discount Rate

Energy Savings For Units Sold from 2006 to 2030

Trial Standard ___u Energy Savings (Quads)

Level NAECA Roll-up Shift

1 1.7 to 1.8 1.5 to 1.6 1.9 to 2.0

2 2.9 to 3.2 2.8 to 3.0 3.4 to 3.6

3 3.4 to 3.6 3.3 to 3.5 3.8 to 4.1

4 4.2 to 4.5 4.1 to 4.4 4.6 to 4.9

5 8.1 to 8.7 8.1 to 8.7 8.1 to 8.7

Table VI.3 shows how each of the three scenarios described above (reverse engineering

costs, 14 year average life, and 3% discount rate) impact the energy savings. The three scenarios

were investigated only for the NAECA efficiency scenario and the AEO 2000 Reference Case

electricity price and housing projection.

Table VI.3: Energy Savings based on the NAECA Efficiency Scenario

and AEO Reference Case

Energy Savings For Units Sold from 2006 to 2030

Energy Savings (Quads) Trial Standard

Level Reverse Engineering

Manufacturing Cost 14 year Lifetime 3 % Discount Rate

1 1.7 1.7 1.7

2 3.0 2.9 3.0

3 3.5 3.4 3.5

4 4.3 4.2 4.3

5 8.7 8.2 8.3

C. Payback Period

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

103 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-30'1- 0 B 

Table V1.2: Energy Savings based on ARI Mean Manufacturer Costs, 18.4 year Retirement 

Function with Compressor Replacement, and a 7% Discount Rate 

Energy Savings For Units Sold from 2006 to 2030 

Trial Standard Energy Savings (Quads) 

Level NAECA Roll-up Shift 

1 1.7 to 1.8 1.5 to 1.6 1.9 to 2.0 

2 2.9 to 3.2 2.8 to 3.0 3.4 to 3.6 

3 3.4 to 3.6 3.3 to 3.5 3.8t04.1 

4 4.2 to 4.5 4.1 to 4.4 4.6 to 4.9 

5 8.1 to 8.7 8.1 to 8.7 8.1 to 8.7 

Table VI.3 shows how each of the three scenarios described above (reverse engineering 

costs, 14 year average life, and 3% discount rate) impact the energy savings. The three scenarios 

were investigated only for the NAECA efficiency scenario and the AEO 2000 Reference Case 

electricity price and housing projection. 

Table V1.3: Energy Savings based on the NAECA Efficiency Scenario 

and AEO Reference Case 

Trial Standard 

Level 

1 

2 

3 

4 

5 

C. Payback Period 

Energy Savings For Units Sold from 2006 to 2030 

Energy Savings (Quads) 

Reverse Engineering 

Manufacturing Cost 

1.7 

3.0 

3.5 

4.3 

8.7 

14 year Lifetime 3 % Discount Rate 

103 

1.7 1.7 

2.9 3.0 

3.4 3.5 

4.2 4.3 

8.2 8.3 

Q:\EE-41 \EE·43 1 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30/- UO

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 space-heating energy consumption calculated based on the

hours of use in the test procedure are on the order of 50% greater than the weighted-average

values from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and

hourly simulations for commercial buildings). This means that, for any given standard level, the

payback period calculated from the test procedure will be significantly shorter than the average

payback value calculated from the LCC analysis which was based on the 1997 RECS data.

In Table VI.4a, we list the median payback periods for product classes and efficiency

levels according to the methods employed by the LCC analysis. Table VI.4b is the rebuttable

presumption payback period based on the Department of Energy's test procedure.

Q:\EE-4 1EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 104 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440-JQ'1- 08 

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 space-heating energy consumption calculated based on the 

hours of use in the test procedure are on the order of 50% greater than the weighted-average 

values from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and 

hourly simulations for commercial buildings). This means that, for any given standard level, the 

payback period calculated from the test procedure will be significantly shorter than the average 

payback value calculated from the LCC analysis which was based on the 1997 RECS data. 

In Table VI.4a, we list the median payback periods for product classes and efficiency 

levels according to the methods employed by the LCC analysis. Table VI.4b is the rebuttable 

presumption payback period based on the Department of Energy's test procedure. 

104 Q:\EE-41 \EE·431ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 301

Table VI.4a: Summary of LCC Payback Median Period

ARI Mean Reverse 14-year Lifetime

Efficiency Manufacturing Engineering Scenario/ARI Mean

Level Cost' Manufacturing Manufacturing Cost

Cost Scenario'

Split System Central 11 10.6 7.8 10.5

Air Conditioner 12 12.6 9.8 12.8

13 16.0 11.3 16.2

18 36.0 19.6 50.4

Split System Heat 11 5.5 2.7 5.5

Pump 12 7.2 3.9 7.3

13 9.3 6.4 9.5

18 17.3 14.0 19.9

Single Package Air 11 16.1 7.7 16.6

Conditioner 12 14.0 7.5 14.2

13 21.8 14.5 21.8

18 48.8 25.1 88.1

Single Package Heat 11 8.1 4.6 8.1

Pump 12 8.7 4.0 8.7

13 13.2 8.4 13.4

18 19.4 12.8 23.1

Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 105 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30 .,-0 8 

Table VI.4a: Summary ofLCC Payback Median Period 

ARI Mean Reverse 14-year Lifetime 

Product Class Efficiency Manufacturing Engineering Scenario/ARI Mean 

Level Costl Manufacturing Manufacturing Cost 

Cost Scenariol 

Split System Central II 10.6 7.8 10.5 

Air Conditioner 12 12.6 9.8 12.8 

I3 16.0 11.3 16.2 

18 36.0 19.6 50.4 

Split System Heat II 5.5 2.7 5.5 

Pump 12 7.2 3.9 7.3 

13 9.3 6.4 9.5 

18 17.3 14.0 19.9 

Single Package Air II 16.1 7.7 16.6 

Conditioner 12 14.0 7.5 14.2 

13 21.8 14.5 21.8 

18 48.8 25.1 88.1 

Single Package Heat II 8.1 4.6 8.1 

Pump 12 8.7 4.0 8.7 

13 13.2 8.4 13.4 

18 19.4 12.8 23.1 

I Assumes a 18.4-year lifetime with a compressor replacement at 14 years. 

105 Q:\EE-41 \EE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30 - O

Table VI.4b: Summary of Rebuttable Payback Period

ARI Mean

Product Class Efficiency Level Manufacturing

Cost'

Split System Central 11 4.7

Air Conditioner 12 5.8

13 7.6

1_8 11.3

Split System Heat 11 2.5

Pump 12 3.3

13 4.5

18 6.8

Single Package Air 11 7.3

Conditioner 12 6.2

13 9.8

18 13.3

Single Package Heat 11 3.7

Pump 12 4.0

13 6.5

1 _________ 18 7.2

I Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

D. Economic Justification

1. Economic Impact on Manufacturers

a. Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the

impact of higher efficiency standards on air conditioner manufacturers. The TSD explains the

analysis in further detail. As part of the MIA, we discussed potential impacts with six major

manufacturers responsible for approximately 90% of the residential air conditioner and heat pump

sales. We also interviewed two niche manufacturers to understand how their financial situation

differs from that of their larger counterparts. These interviews are in addition to those we

conducted as part of the Supplemental ANOPR. The interviews provided valuable information

Q:\EE-41XEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

106 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301- Ot 

Table VI.4b: Summary of Rebuttable Payback Period 

ARI Mean 

Product Class Efficiency Level Manufacturing 

Costl 

Split System Central 11 4.7 

Air Conditioner 12 5.8 

13 7.6 

18 11.3 

Split System Heat 11 2.5 

Pump 12 3.3 

13 4.5 

18 6.8 

Single Package Air 11 7.3 

Conditioner 12 6.2 

13 9.8 

18 13.3 

Single Package Heat 11 3.7 

Pump 12 4.0 

13 6.5 

18 7.2 

1 Assumes a 18.4-year lifetime with a compressor replacement at 14 years. 

D. Economic Justification 

1. Economic Impact on Manufacturers 

a. Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the 

impact of higher efficiency standards on air conditioner manufacturers. The TSD explains the 

analysis in further detail. As part of the MIA, we discussed potential impacts with six major 

manufacturers responsible for approximately 90% of the residential air conditioner and heat pump 

sales. We also interviewed two niche manufacturers to understand how their financial situation 

differs from that of their larger counterparts. These interviews are in addition to those we 

conducted as part of the Supplemental ANOPR. The interviews provided valuable information 

106 Q:\EE-41 \EE-431 ICACIStandRuIlNOPR\DraftNOPRICACNOPR24. wpd 

October 4.2000 (6:35PM) 
EE-RM/STD-98-440 -(30'7- 

used to evaluate the impacts of a new standard on manufacturers' cash flows, manufacturing

capacities and employment levels.

The MIA has both quantitative and qualitative aspects. Quantitative analysis primarily

relies on the GRIM, an industry cash flow model customized for this rulemaking. The GRIM

inputs are assumptions regarding the industry cost structure, shipments, and revenues. The key

output is the industry net present value (INPV). Different sets of assumptions (scenarios) produce

different results as described below.

In the GRIM we evaluated each of the shipment scenarios, i.e., "NAECA", "Rollup", and

"Shift". Changes in efficiency mix by efficiency standard level are a key driver of manufacturer

finances since costs and revenues are both tied to shipments.

Two cost scenarios, "Industry Relative Cost" and "Reverse-Engineering Relative Cost",

were also examined. These relative costs are also used as the basis for deriving the production

costs of equipment above the minimum efficiency level. The "Reverse-Engineering Relative

Cost" scenario was applied only to the "NAECA" product mix scenario in order to determine the

effects of lower production costs on the MIA results.

The equipment lifetime scenarios assumptions, "18-year life" and "14-year life", were

considered. The "14-year life" assumption applied only to the "NAECA" and "Industry Relative

Cost" scenarios to isolate the effects of a shorter product life on the results.

Q:\EE-41 \EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 107 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30 '7- 08 

used to evaluate the impacts of a new standard on manufacturers' cash flows, manufacturing 

capacities and employment levels. 

The MIA has both quantitative and qualitative aspects. Quantitative analysis primarily 

relies on the GRIM, an industry cash flow model customized for this rulemaking. The GRIM 

inputs are assumptions regarding the industry cost structure, shipments, and revenues. The key 

output is the industry net present value (INPV). Different sets of assumptions (scenarios) produce 

different results as described below. 

In the GRIM we evaluated each of the shipment scenarios, i.e., "NAECA", "Rollup", and 

"Shift". Changes in efficiency mix by efficiency standard level are a key driver of manufacturer 

finances since costs and revenues are both tied to shipments. 

Two cost scenarios, "Industry Relative Cost" and "Reverse-Engineering Relative Cost", 

were also examined. These relative costs are also used as the basis for deriving the production 

costs of equipment above the minimum efficiency level. The "Reverse-Engineering Relative 

Cost" scenario was applied only to the "NAECA" product mix scenario in order to determine the 

effects of lower production costs on the MIA results. 

The equipment lifetime scenarios assumptions, "I8-year life" and "I4-year life", were 

considered. The "14-year life" assumption applied only to the "NAECA" and "Industry Relative 

Cost" scenarios to isolate the effects of a shorter product life on the results. 

107 Q:IEE-41 IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30_-'- 0

The interviews revealed that manufacturers use different pricing strategies and place

different levels of emphasis on the sale of higher efficiency products. Manufacturers fall into two

basic groups in this regard. The first group has lower operating and production costs than its

competitors and targets such price-sensitive consumers as new home builders. This focus on low

price limits the ability and desire of these manufacturers to sell premium equipment. Because

they have a cost advantage over their competitors, the lower cost manufacturers can achieve a

higher operating profit margin on their baseline equipment and still maintain a price advantage.

They then apply a fairly consistent markup across efficiency levels.

The higher cost manufacturers typically place more of an emphasis on marketing, service,

and research than do their lower cost competitors. Faced with stiff price competition from the

lower cost manufacturers in price-sensitive markets, the higher cost manufacturers are forced to

reduce their price (and markup) on their baseline equipment to the minimum level sustainable.

They then target less price sensitive customers by offering products with premium features and

higher efficiency. These products carry higher markups.

Since higher efficiency standards will affect each group of manufacturers differently, we

set up two versions of the GRIM to model each group independently. To represent the lower cost

manufacturers, we reduced the operating expense ratio and research and development expense

ratio to below the industry averages. We also assumed that a single markup applies to products

across all efficiency levels. To model higher cost manufacturers, we raised the operating expense

ratio and research and development ratios to above the industry average. We then assumed that

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 108 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'1- 0 B 

The interviews revealed that manufacturers use different pricing strategies and place 

different levels of emphasis on the sale of higher efficiency products. Manufacturers fall into two 

basic groups in this regard. The first group has lower operating and production costs than its 

competitors and targets such price-sensitive consumers as new home builders. This focus on low 

price limits the ability and desire of these manufacturers to sell premium equipment. Because 

they have a cost advantage over their competitors, the lower cost manufacturers can achieve a 

higher operating profit margin on their baseline equipment and still maintain a price advantage. 

They then apply a fairly consistent markup across efficiency levels. 

The higher cost manufacturers typically place more of an emphasis on marketing, service, 

and research than do their lower cost competitors. Faced with stiff price competition from the 

lower cost manufacturers in price-sensitive markets, the higher cost manufacturers are forced to 

reduce their price (and markup) on their baseline equipment to the minimum level sustainable. 

They then target less price sensitive customers by offering products with premium features and 

higher efficiency. These products carry higher markups. 

Since higher efficiency standards will affect each group of manufacturers differently, we 

set up two versions of the GRIM to model each group independently. To represent the lower cost 

manufacturers, we reduced the operating expense ratio and research and development expense 

ratio to below the industry averages. We also assumed that a single markup applies to products 

across all efficiency levels. To model higher cost manufacturers, we raised the operating expense 

ratio and research and development ratios to above the industry average. We then assumed that 

108 Q:\EE-4\ \EE-43 \ ICACIStandRu\INOPR IDraftNOPRICACNOPR24 wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 301- 08

markups increase roughly linearly as the efficiency level increases. This represents two effects:

selling a greater fraction of higher margin premium product as efficiency level rises, and being

able to secure a higher profit margin on products by virtue of the higher efficiency.

To represent the industry in aggregate, we combined the results of the two GRIM versions,

giving 25% weight to the results of the lower-operating-cost group and 75% weight to the results

of the higher-operating-cost group. This ratio reflects the prevalence of each strategy in the

marketplace. Many companies may pursue both strategies simultaneously through different

brands and divisions.

b. Industry Cash Flow Analysis Results. Tables VI.5 through VI.7 present the GRIM

results for the unitary air conditioning industry for the three shipment scenarios based on the

industry provided mean cost multipliers and an 18-year product life. The corporate discount rate

used in the analysis is 6.2% based on an estimate of the weighted average cost of capital for the

industry over a five-year period. Results assume that manufacturers with lower operating costs

control 25% of the market and those with higher operating costs control 75%. Since we did not

collect information regarding the cost or investments involved in manufacturing product at 18

SEER, we did not assess impacts under Max Tech.

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

109 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440·- 30'1- 08 

markups increase roughly linearly as the efficiency level increases. This represents two effects: 

selling a greater fraction of higher margin premium product as efficiency level rises, and being 

able to secure a higher profit margin on products by virtue of the higher efficiency. 

To represent the industry in aggregate, we combined the results of the two GRIM versions, 

giving 25% weight to the results of the lower-operating-cost group and 75% weight to the results 

of the higher-operating-cost group. This ratio reflects the prevalence of each strategy in the 

marketplace. Many companies may pursue both strategies simultaneously through different 

brands and divisions. 

b. Industry Cash Flow Analysis Results. Tables VI.5 through VI.7 present the GRIM 

results for the unitary air conditioning industry for the three shipment scenarios based on the 

industry provided mean cost multipliers and an I8-year product life. The corporate discount rate 

used in the analysis is 6.2% based on an estimate of the weighted average cost of capital for the 

industry over a five-year period. Results assume that manufacturers with lower operating costs 

control 25% of the market and those with higher operating costs control 75%. Since we did not 

collect information regarding the cost or investments involved in manufacturing product at 18 

SEER, we did not assess impacts under Max Tech. 

109 Q:\EE·41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3J - 0O

Table VI.5: Changes in Industry Net Present Value - Industry Relative Cost,

18 Year Life, NAECA Efficiency Mix

Change in INPV from Base

Standard Industry Net Case

Level Level Present lili Value 

($ million) $ million %

Base $ 1,603

1 $ 1,566 $ (37) -2%

2 $ 1,417 $ (186) -12%

3 $ 1,406 $ (197) -12%

4 $ 1,420 $ (183) -11%

Table VI.6: Changes in Industry Net Present Value - Industry Relative Cost,

18 Year Life, Roll-up Efficiency Mix

Induy Nt Change in INPV from Base

Standard CPalue ase

Level Present Value Level

($ million %

Base $ 1,603

1 $ 1,422 $ (181) -11%

2 $ 1,241 $ (362) -23%

3 $ 1,236 $ (367) -23%

4 $ 1,268 $ (335) -21%

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

110 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .. J 0108 

Table V1.5: Changes in Industry Net Present Value - Industry Relative Cost, 

18 Year Life, NAECA Efficiency Mix 

Industry Net Change in INPV from Base 

Standard Present Value Case 

Level ($ million) $ million % 

Base $ 1,603 -- --

I $ 1,566 $ (37) -2% 

2 $ 1,417 $ (186) -12% 

3 $ 1,406 $ (197) -12% 

4 $ 1,420 $ (183) -11% 

Table V1.6: Changes in Industry Net Present Value - Industry Relative Cost, 

18 Year Life, Roll-up Efficiency Mix 

Industry Net Standard Present Value Level ($ million) 

Base $ 1,603 

I $ 1,422 

2 $ 1,241 

3 $ 1,236 

4 $ 1,268 

$ 

$ 

$ 

$ 

110 

Change in INPV from Base 

Case 

$ million 0/0 

-- --

(181) -11% 

(362) -23% 

(367) -23% 

(335) -21% 

Q:IEE-4IIEE-43I \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 O-/

Table VI.7: Changes in Industry Net Present Value - Industry Relative Cost,

18 Year Life, Shift Efficiency Mix

Industry Net Change in INPV from Base

Standard Present Value Case Present Value

Level ($ million) $ million

Base $ 1,603

1 $ 1,740 $ 137 9%

2 $ 1,825 $ 222 14%

3 $ 1,854 $ 251 16%

4 $ 1,914 $ 311 19%

The NAECA and Roll-up scenarios reduce INPV while the Shift scenario increases INPV.

This result occurs because we assume the higher-operating cost manufacturers accrue much of

their profits from the sale of higher efficiency equipment. As the standard level increases, they

earn lower profit margins on that equipment. The loss in profits can be offset by the combination

of more sales and more expensive equipment. The Shift scenario provides a much more favorable

projection of high-efficiency equipment sales than do the NAECA and Rollup scenarios.

Tables VI.8 and VI.9 present the results for the 14-year life assumption and the Reverse

Engineering Relative Cost scenario with the NAECA Efficiency Mix scenario.

Q:\EE-41\EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd ~~~~~~~~~111 ~October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - -3 o'1-0~ 

Table VI.7: Changes in Industry Net Present Value - Industry Relative Cost, 

18 Year Life, Shift Efficiency Mix 

Industry Net Change in INPV from Base 

Standard Case 

Level Present Value 

($ million) $ million 0/0 

Base $ 1,603 -- --

I $ 1,740 $ 137 9% 

2 $ 1,825 $ 222 14% 

3 $ 1,854 $ 251 16% 

4 $ 1,914 $ 311 19% 

The NAECA and Roll-up scenarios reduce INPV while the Shift scenario increases INPV. 

This result occurs because we assume the higher-operating cost manufacturers accrue much of 

their profits from the sale of higher efficiency equipment. As the standard level increases, they 

earn lower profit margins on that equipment. The loss in profits can be offset by the combination 

of more sales and more expensive equipment. The Shift scenario provides a much more favorable 

projection of high-efficiency equipment sales than do the NAECA and Rollup scenarios. 

Tables VI.8 and VI.9 present the results for the 14-year life assumption and the Reverse 

Engineering Relative Cost scenario with the NAECA Efficiency Mix scenario. 

111 Q:\EE·41 \EE431\CAC\StandRulINOPRIDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30'7-08

Table VI.8: Changes in Industry Net Present Value - Industry Relative Cost,

14 Year Life, NAECA Efficiency Mix

Change in INPV from Base

Standard nusty et Case LevelPresent Value______ Level ($ million) $ million

Base $ 1,726 --

1 $ 1,701 $ (25) -1%

2 $ 1,558 $ (168) -10%

3 $ 1,555 $ (171) -10%

4 $ 1,598 $ (128) -7%

Table VI.9: Changes in Industry Net Present Value - Reverse Engineering Relative Cost,

18 Year Life, NAECA Efficiency Mix

Indusy NtChange in INPV from Base

Standard reset ue Case LevelPresent Value __________________ Level ($ million) $ million %

Base $ 1,539 -- -

1 $ 1,509 $ (30) -2%

2 $ 1,380 $ (159) -10%

3 $ 1,368 $ (171) -11%

4 $ 1,370 $ (169) -11%

Table VI. 10 presents the differential impacts between the groups of manufacturers with

lower and higher operating costs. The lower operating cost manufacturers benefit under all

scenarios and trial standard levels, and the higher operating cost manufacturers benefit only under

the Shift scenario. The reason, again, is that we assume that lower operating cost manufacturers

accrue the same profit margin regardless of the efficiency level, so as the cost of the product

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 112 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30'7-08 

Table VI.8: Changes in Industry Net Present Value - Industry Relative Cost, 

14 Year Life, NAECA Efficiency Mix 

Industry Net Change in INPV from Base 

Standard Case 

Level Present Value 

($ million) $ million % 

Base $ 1,726 -- --

I $ 1,701 $ (25) -1% 

2 $ 1,558 $ (168) -10% 

3 $ 1,555 $ (171) -10% 

4 $ 1,598 $ (128) -7% 

Table VI.9: Changes in Industry Net Present Value - Reverse Engineering Relative Cost, 

18 Year Life, NAECA Efficiency Mix 

Industry Net Change in INPV from Base 

Standard Case 

Level Present Value 

($ million) $ million % 

Base $ 1,539 -- --

I $ 1,509 $ (30) -2% 

2 $ 1,380 $ (159) -10% 

3 $ 1,368 $ (171) -11% 

4 $ 1,370 $ (169) -11% 

Table VI. 1 0 presents the differential impacts between the groups of manufacturers with 

lower and higher operating costs. The lower operating cost manufacturers benefit under all 

scenarios and trial standard levels, and the higher operating cost manufacturers benefit only under 

the Shift scenario. The reason, again, is that we assume that lower operating cost manufacturers 

accrue the same profit margin regardless of the efficiency level, so as the cost of the product 

112 Q:IEE-41 IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3'- o8

increases, profits also increase. The higher operating cost manufacturers, on the other hand, lose

profits as the standard level rises and the products face pricing pressure from the lower cost

manufacturers.

Table VI.10: Change in Industry Net Present Value ( %) Relative to Base - Comparison Between

Lower and Higher Cost Manufacturers

Reverse

Industry Relative Cost' Engineering

Relative Cost

Standard St andard NAI.CANAECA-14 Year

Level NAECA Roll-up Shift NAECA Life

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher

Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost

1 5% -5% 6% -4% 3% -16% 7% 9% 5% -4%

2 7% -17% 9% -16% 5% -31% 12% 14% 7% -16%

3 9% -19% 11% -16% 6% -32% 14% 16% 8% -17%

4 15% -19% 19% -16% 13% -31% 21% 19% 12% -18%

1 8-year lifetime unless otherwise noted.

For the group most negatively impacted, i.e., the higher cost group, Table VI. 11 presents

the Return on Invested Capital (ROIC) associated with the base case, and with each new standard

level for the NAECA and Roll-up efficiency mix scenarios, for industry relative costs and an 18-

year lifetime. A reduction in ROIC increases the likelihood that the company will choose to exit

the market or sell its assets rather than to make the investments required to move to the new

efficiency level.

Q:\EE-4 \EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

113 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-3a1- oB 

increases, profits also increase. The higher operating cost manufacturers, on the other hand, lose 

profits as the standard level rises and the products face pricing pressure from the lower cost 

manufacturers. 

Table Vl,l 0: Change in Industry Net Present Value ( %) Relative to Base - Comparison Between 

Lower and Higher Cost Manufacturers 

Reverse 

Industry Relative Costl Engineering 

Relative Cost 

Standard NAECA-14 Year Level NAECA Life Roll-up Shift NAECA 

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher 

Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost 

1 5% -5% 6% -4% 3% -16% 7% 9% 5% -4% 

2 7% -17% 9% -16% 5% -31% 12% 14% 7% -16% 

3 9% -19% 11% -16% 6% -32% 14% 16% 8% -17% 

4 15% -19% 19% -16% 13% -31% 21% 19% 12% -18% 

1 IS-year lifetime unless otherwise noted. 

For the group most negatively impacted, i.e., the higher cost group, Table Vl,11 presents 

the Return on Invested Capital (ROIC) associated with the base case, and with each new standard 

level for the NAECA and Roll-up efficiency mix scenarios, for industry relative costs and an 18-

year lifetime. A reduction in ROIC increases the likelihood that the company will choose to exit 

the market or sell its assets rather than to make the investments required to move to the new 

efficiency level. 

113 Q:IEE-4] IEE-43 ] \CAC\StandRu]\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-0 '-

Table VI. 11: Return on Invested Capital (ROIC) in 2011 for Higher Cost Manufacturers

Standard

Level NAECA Roll-up Level

Base 13.3% 13.3%

1 12.3% 10.7%

2 10.2% 8.4%

3 10.0% 8.3%

4 9.6% 8.3%

Table VI. 12 provides a summary of the total investment required for each trial standard

level. Product conversion expenses include mostly product development and testing costs.

Capital investments include new equipment, tooling, and floor space. Since these investments

occur in the years leading up to the effective date of the new standard, larger investments equate

to a more serious strain on cash flows in the near-term.

Table VI.12: Manufacturer Expenditures Related to New Efficiency Standards (million 1999 $)

Trial Standard Product Capital Total

Level Conversion Investments Investment

Expenses

Base - - -

1 $31 $54 $85

2 $93 $109 $202

3 $110 $138 $248

4 $157 $167 $324

The TSD which accompanies today's proposed rule provides more details on the MIA

assumptions, methodology, results, and conclusions, including the assessments of impacts on

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd

114 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 301-06 

Table Vl.ll: Return on Invested Capital (ROIC) in 2011 for Higher Cost Manufacturers 

Standard NAECA Roll-up Level 

Base 13.3% 13.3% 

1 12.3% 10.7% 

2 10.2% 8.4% 

3 10.0% 8.3% 

4 9.6% 8.3% 

Table VI.12 provides a summary of the total investment required for each trial standard 

level. Product conversion expenses include mostly product development and testing costs. 

Capital investments include new equipment, tooling, and floor space. Since these investments 

occur in the years leading up to the effective date of the new standard, larger investments equate 

to a more serious strain on cash flows in the near-term. 

Table V1.12: Manufacturer Expenditures Related to New Efficiency Standards (million 1999 $) 

Trial Standard Product Capital Total 

Level Conversion Investments Investment 

Expenses 

Base -- -- --

I $31 $54 $85 

2 $93 $109 $202 

3 $110 $l38 $248 

4 $157 $167 $324 

The TSD which accompanies today's proposed rule provides more details on the MIA 

assumptions, methodology, results, and conclusions, including the assessments of impacts on 

114 Q:IEE-4! IEE-43! \CAC\StandRu!INOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - ,01- o0

lower volume equipment manufacturers and compressor manufacturers, which we estimate to be

similar in proportion to the impacts described above.

c. Impacts on Employment. Manufacturers stated uniformly that labor requirements

track materials costs. Since a new standard will increase the amount and cost of material in each

product, labor requirements are expected to rise proportionally. However, the industry has

recently been experiencing rapid growth in sales volume and is now faced with production

capacity constraints. Since new efficiency standards will increase the product's size and

complexity, many manufacturers will need to add additional capacity to accommodate the new

products and retain their sales volumes. It is possible that those companies will choose to add the

new capacity outside of the United States. This effect could keep domestic employment levels

flat or result in employment loss if companies choose to shift current production to new facilities

in other countries.

d. Impacts on Manufacturing Capacity. It is likely that a central air conditioner and heat

pump standard would increase central air conditioner and heat pump production capacity in the

United States. Since more efficient conventional heat exchangers are also larger, plants that now

face capacity constraints will be unable to produce as many heat exchangers as they can under

existing standards. Five of the six manufacturers we interviewed identified capacity constraints

during peak production periods.

Q:\EE-41 \EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 115 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -.307- DB 

lower volume equipment manufacturers and compressor manufacturers, which we estimate to be 

similar in proportion to the impacts described above. 

c. Impacts on Employment. Manufacturers stated uniformly that labor requirements 

track materials costs. Since a new standard will increase the amount and cost of material in each 

product, labor requirements are expected to rise proportionally. However, the industry has 

recently been experiencing rapid growth in sales volume and is now faced with production 

capacity constraints. Since new efficiency standards will increase the product's size and 

complexity, many manufacturers will need to add additional capacity to accommodate the new 

products and retain their sales volumes. It is possible that those companies will choose to add the 

new capacity outside of the United States. This effect could keep domestic employment levels 

flat or result in employment loss if companies choose to shift current production to new facilities 

in other countries. 

d. Impacts on Manufacturing Capacity. It is likely that a central air conditioner and heat 

pump standard would increase central air conditioner and heat pump production capacity in the 

United States. Since more efficient conventional heat exchangers are also larger, plants that now 

face capacity constraints will be unable to produce as many heat exchangers as they can under 

existing standards. Five of the six manufacturers we interviewed identified capacity constraints 

during peak production periods. 

115 Q:\EE·41 IEE-431 ICACIStandRuI\NOPRIDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 301- o8

e. Impact on Lower Volume Manufacturers. Converting from a company's current basic

product line involves creating, testing, and moving a new design into production. These tasks

have associated capital investments. Manufacturers of niche products and those who produce

only coils and fancoils, because of their need to spread these investments over smaller production

volumes, may be affected more negatively than major manufacturers by an increase in efficiency

standards. This is particularly true for those manufacturers that compete head-to-head with major

manufacturers in some product lines, and less true for coil-only manufacturers. These results

occur separately from any technical considerations related to the manufacturer's ability to modify

its products to bring them into compliance with a new standard. Technical considerations are

typically more important for niche manufacturers than for major manufacturers and have more

severe consequences related to increased production costs or loss of sales volume due to increased

price. Overall, if provisions are made in the standard for niche products that face severe

technological constraints, we would not expect the impacts on lower-volume manufacturers as a

group to be disproportionate with those of the industry as a whole.

2. Life-Cycle Cost

More efficient central air conditioners and heat pumps would affect consumers in two

ways: annual operating expense would decrease and purchase price would increase. 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 rates, electricity price trends, repair costs, maintenance costs, equipment lifetime, and

discount rates.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 116 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D7- 08 

e. Impact on Lower Volume Manufacturers. Converting from a company's current basic 

product line involves creating, testing, and moving a new design into production. These tasks 

have associated capital investments. Manufacturers of niche products and those who produce 

only coils and fancoils, because of their need to spread these investments over smaller production 

volumes, may be affected more negatively than major manufacturers by an increase in efficiency 

standards. This is particularly true for those manufacturers that compete head-to-head with major 

manufacturers in some product lines, and less true for coil-only manufacturers. These results 

occur separately from any technical considerations related to the manufacturer's ability to modify 

its products to bring them into compliance with a new standard. Technical considerations are 

typically more important for niche manufacturers than for major manufacturers and have more 

severe consequences related to increased production costs or loss of sales volume due to increased 

price. Overall, if provisions are made in the standard for niche products that face severe 

technological constraints, we would not expect the impacts on lower-volume manufacturers as a 

group to be disproportionate with those of the industry as a whole. 

2. Life-Cycle Cost 

More efficient central air conditioners and heat pumps would affect consumers in two 

ways: annual operating expense would decrease and purchase price would increase. 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 rates, electricity price trends, repair costs, maintenance costs, equipment lifetime, and 

discount rates. 

116 Q:\EE-41 \EE-431 \CAC\StandRuI\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3D- OS

The output of the LCC model is a 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

proposed rule introduces a new concept with regard to the percentage of consumers (both

residential and commercial) that are negatively impacted by an increase in the minimum

efficiency standard. (For the Supplemental ANOPR, all consumers that would incur an LCC

increase were considered to be adversely impacted by an increase in the standard. This included

even consumers that would incur a relatively small LCC increase e.g., as small as $10, as

compared to a relatively large baseline level total LCC. Note that the baseline LCC is

approximately $5,000 for central air conditioners and $10,000 for heat pumps.)

The revised analysis defines negative impacts by including in this category only those

consumers which incur LCC increases greater than 2% of the baseline LCC. For central air

conditioners, this translates to an LCC increase of approximately $100 or an annual expense of

approximately $5 over the lifetime of the system. Table VI. 13 summarizes the baseline LCCs for

split system and single package central air conditioners and heat pumps and also provides the 2%

threshold at which consumers are considered to be adversely impacted.

Q:\EE-41 \EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 117 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3/)7- 06 

The output of the Lee model is a mean Lee savings for each product class as well as a 

probability distribution or likelihood of Lee reduction or increase. The Lee analysis for today's 

proposed rule introduces a new concept with regard to the percentage of consumers (both 

residential and commercial) that are negatively impacted by an increase in the minimum 

efficiency standard. (For the Supplemental ANOPR, all consumers that would incur an Lee 

increase were considered to be adversely impacted by an increase in the standard. This included 

even consumers that would incur a relatively small Lee increase e.g., as small as $10, as 

compared to a relatively large baseline level total Lee. Note that the baseline Lee is 

approximately $5,000 for central air conditioners and $10,000 for heat pumps.) 

The revised analysis defines negative impacts by including in this category only those 

consumers which incur Lee increases greater than 2% of the baseline Lee. For central air 

conditioners, this translates to an Lee increase of approximately $100 or an annual expense of 

approximately $5 over the lifetime of the system. Table VI.13 summarizes the baseline Lees for 

split system and single package central air conditioners and heat pumps and also provides the 2% 

threshold at which consumers are considered to be adversely impacted. 

117 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 307- 8

Table VI. 13: Baseline Life-Cycle Costs and Threshold for Adverse Impacts

Baseline Life-Cycle Threshold for Adverse Impacts:

Product Class Cost 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

Table VI. 14 depicts the LCC results for split system and single package central air

conditioners and heat pumps. The table shows 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. Table VI. 14 also provides for each product class

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 table shows the subset of

consumers (both residential and commercial) at each efficiency level who are impacted in one of

three ways: consumers who achieve significant net LCC savings (i.e., LCC savings greater than

2% of the baseline LCC), consumers who are impacted in an insignificant manner by having

either a small reduction or small increase in LCC (i.e., within ±2% of the baseline LCC), or

consumers who achieve a significant net LCC increase (i.e., an LCC increase exceeding 2% of the

baseline LCC).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 118 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440 - 307-08 

Table VI.I3: Baseline Life-Cycle Costs and Threshold for Adverse Impacts 

Product Class Baseline Life-Cycle Threshold for Adverse Impacts: 

Cost 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 

Table VI.14 depicts the LCC results for split system and single package central air 

conditioners and heat pumps. The table shows 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. Table VI.14 also provides for each product class 

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 table shows the subset of 

consumers (both residential and commercial) at each efficiency level who are impacted in one of 

three ways: consumers who achieve significant net LCC savings (i.e., LCC savings greater than 

2% of the baseline LCC), consumers who are impacted in an insignificant manner by having 

either a small reduction or small increase in LCC (i.e., within ±2% of the baseline LCC), or 

consumers who achieve a significant net LCC increase (i.e., an LCC increase exceeding 2% of the 

baseline LCC). 

118 Q:\EE-41 \EE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30'- 0

Table VI.14: Summary of LCC Results based on ARI Mean Manufacturer Costs and a 18.4 year

average Lifetime

Average LCC Percent of Consumers with

Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs

__Level _Costs (>2 %) Impact (>2 %)

10 $5,170 - -

Split System 11 $5,126 ($44) 23% 68% 9%

Central Air 12 $5,125 ($45) 27% 34% 39%

Conditioner 13 $5,199 $29 25% 17% 58%

18 $5,725 $555 15% 4% 81%

10 $9,679 -

11 $9,529 ($150) 30% 70% 0%

Split System 12 $9,437 ($242) 42% 55% 3%

Heat Pump 13 $9,464 ($215) 39% 39% 22%

18 $9,955 $276 23% 11% 66%

10 $5,629 -

Single Package 11 $5,649 $20 16% 47% 37%

Air 12 $5,600 ($29) 26% 30% 44%

Conditioner 13 $5,804 $175 18% 11% 71%

18 $6,370 $741 12% 4% 84%

10 $9,626 - - -

11 $9,492 ($134) 28% 72% 0%

Single Package 12 $9,372 ($254) 44% 49% 7%

Heat Pump 13 $9,514 ($112) 33% 31% 36%

18 $9,922 $296 24% 10% 66%

As discussed previously for the presentation of energy savings and payback period results,

we have investigated two scenarios where lower estimates of the manufacturer costs (reverse

engineering) and system lifetime (retirement function with 14 year average lifetime without

compressor replacement costs) were analyzed. Table VI. 15 presents the results for the

manufacturer cost scenario while Table VI. 16 presents the results for the lifetime scenario.

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

119 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3D'1- 08 

Table VI.I4: Summary ofLCC Results based on ARl Mean Manufacturer Costs and a 18.4 year 

average Lifetime 

Average LCC Percent of Consumers with 

Product Class Efficiency Average LCC (Savings) Level Net Savings No Significant Net Costs 

Costs (>2 %) Impact (>2 %) 

10 $5,170 - - - -

Split System 11 $5,126 ($44) 23% 68% 9% 

Central Air 12 $5,125 ($45) 27% 34% 39% 

Conditioner 13 $5,199 $29 25% 17% 58% 

18 $5,725 $555 15% 4% 81% 

10 $9,679 - - - - 11 $9,529 ($150) 30% 70% 0% 

Split System 12 $9,437 ($242) 42% 55% 3% Heat Pump 

13 $9,464 ($215) 39% 39% 22% 

18 $9,955 $276 23% 11% 66% 

10 $5,629 - - - -

Single Package 11 $5,649 $20 16% 47% 37% 

Air 12 $5,600 ($29) 26% 30% 44% 

Conditioner 13 $5,804 $175 18% 11% 71% 

18 $6,370 $741 12% 4% 84% 

10 $9,626 - - - -

11 $9,492 ($134) 28% 72% 0% 

Single Package 12 $9,372 ($254) 44% 49% 7% Heat Pump 

13 $9,514 ($112) 33% 31% 36% 

18 $9922 $296 24% 10% 66% 

As discussed previously for the presentation of energy savings and payback period results, 

we have investigated two scenarios where lower estimates of the manufacturer costs (reverse 

engineering) and system lifetime (retirement function with 14 year average lifetime without 

compressor replacement costs) were analyzed. Table VI.15 presents the results for the 

manufacturer cost scenario while Table VI.16 presents the results for the lifetime scenario. 

119 Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -30&-08

Table VI. 15: Summary of LCC Results based on Reverse Engineering Manufacturer Costs

Average LCC Percent of Consumers with

Product ClassEfficiency Average LCC (Savings) Class L Average LCC (Savings) Net Savings No Significant Net Costs

LvlCosts (>2 %) Impact (>2 %)

10 $5,170 -

Split System 11 $5,095 ($75) 28% 70% 2%

Central Air 12 $5,057 ($113) 35% 40% 25%

Conditioner 13 $5,057 ($113) 34% 27% 39%

18 $5,307 $137 25% 7% 68%

10 $9,679 - -

11 $9,470 ($209) 40% 60% 0%

Split System 12 $9,314 ($365) 58% 42% 0%

Heat Pump

13 $9,307 ($372) 52% 42% 6%

18 $9,720 $41 28% 15% 57%

10 $5,629

Single Package 11 $5,551 ($78) 27% 72% 1%

Air 12 $5,466 ($163) 40% 51% 9%

Conditioner 13 $5,600 ($29) 28% 20% 52%

18 $5,905 $276 21% 6% 73%

10 $9,626

11 $9,419 ($207) 39% 61% 0%

Single Package 12 $9,205 ($421) 66% 34% 0%

Heat Pump

13 $9,273 ($353) 50% 38% 12%

118 $9,460 ($166) 37% 15% 48%

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

120 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3D1-08 

Table VI.15: Summary of LCC Results based on Reverse Engineering Manufacturer Costs 

Average LCC Efficiency Product Class Level Average LCC (Savings) 

Costs 

10 $5,170 -

Split System 11 $5,095 ($75) 

Central Air 12 $5,057 ($113) 

Conditioner 13 $5,057 ($113) 

18 $5,307 $137 

10 $9,679 - II $9,470 ($209) 

Split System 12 $9,314 ($365) Heat Pump 

13 $9,307 ($372) 

18 $9,720 $41 

10 $5,629 -

Single Package 11 $5,551 ($78) 

Air 12 $5,466 ($163) 

Conditioner 13 $5,600 ($29) 

18 $5,905 $276 

10 $9,626 - II $9,419 ($207) 

Single Package 12 $9,205 ($421) Heat Pump 

13 $9,273 ($353) 

18 $9460 ($166) 

120 

Percent of Consumers with 

Net Savings No Significant Net Costs 

(>2 %) Impact (>2 %) 

- - -

28% 70% 2% 

35% 40% 25% 

34% 27% 39% 

25% 7% 68% 

- - -

40% 60% 0% 

58% 42% 0% 

52% 42% 6% 

28% 15% 57% 

- - -

27% 72% 1% 

40% 51% 9% 

28% 20% 52% 

21% 6% 73% 

- - -

39% 61% 0% 

66% 34% 0% 

50% 38% 12% 

37% 15% 48% 

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -307- ° 0

Table VI.16: Summary of LCC Results Based on ARI Mean Manufacturer Cost and 14-year

Average Lifetime

Average LCC Percent of Consumers with

E~fficiencyAverage LCC ____________

Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs

__Level _Costs (>2 %) Impact (>2 %)

10 $4,682 -

Split System 11 $4,650 ($32) 22% 69% 9%

Central Air 12 $4,672 ($10) 24% 31% 45%

Conditioner 13 $4,769 $87 21% 15% 64%

18 $5,336 $654 12% 3% 85%

10 $8,747 - - -

11 $8,623 ($124) 27% 73% 0%

Split System 12 $8,587 ($160) 35% 58% 7%

Heat Pump

13 $8,630 ($117) 33% 37% 30%

18 $9,184 $437 18% 9% 73%

10 $5,150 - - -

Single Package 11 $5,182 $32 14% 46% 40%

Air 12 $5,157 $7 22% 29% 49%

Conditioner 13 $5,378 $228 14% 10% 76%

18 $6,011 $861 9% 3% 88%

10 $8,747 - -

11 $8,623 ($124) 27% 73% 0%

Single Package 12 $8,587 ($160) 35% 58% 7%

Heat Pump

13 $8,630 ($117) 33% 37% 30%

18 $9,184 $437 18% 9% 73%

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

of standards. As with the determination of national energy savings, five different scenarios were

analyzed for each trial standard level consisting of variations on: (1) electricity price and housing

projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment

lifetime; and (5) 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

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

121 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-9S-440 -·30'7- 08 

Table VI.16: Summary ofLCC Results Based on ARl Mean Manufacturer Cost and 14-year 

Average Lifetime 

Average LCC Percent of Consumers with 

Efficiency Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs 

Costs (>2 %) Impact (>2 %) 

10 $4,682 - - - -

Split System 11 $4,650 ($32) 22% 69% 9% 

Central Air 12 $4,672 ($10) 24% 31% 45% 

Conditioner 13 $4,769 $87 21% 15% 64% 

18 $5,336 $654 12% 3% 85% 

10 $8,747 - - - - 11 $8,623 ($124) 27% 73% 0% 

Split System 12 $8,587 ($160) 35% 58% 7% Heat Pump 

13 $8,630 ($117) 33% 37% 30% 

18 $9,184 $437 18% 9% 73% 

10 $5,150 - - - -

Single Package 11 $5,182 $32 14% 46% 40% 

Air 12 $5,157 $7 22% 29% 49% 

Conditioner 13 $5,378 $228 14% 10% 76% 

18 $6,011 $861 9% 3% 88% 

10 $8,747 - - - - 11 $8,623 ($124) 27% 73% 0% 

Single Package 12 $8,587 ($160) 35% 58% 7% Heat Pump 

13 $8,630 ($117) 33% 37% 30% 

18 $9184 $437 18% 9% 73% 

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 

of standards. As with the determination of national energy savings, five different scenarios were 

analyzed for each trial standard level consisting of variations on: (1) electricity price and housing 

projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment 

lifetime; and (5) 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 

121 Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3(_I- 08

Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency

distribution after new standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up

scenario, and (3) Shift scenario. Manufacturer costs were based on ARI mean cost estimates.

Equipment lifetime was assumed to be 18.4 years, coupled with the inclusion of compressor

replacement costs. A societal discount rate of 7% was assumed. The range of NPVs are reported

in Table VI. 17.

Table VI.17: Net Present Value Variation with Electricity Price and Housing Projections

Net Present Value For Units Sold from 2006 to 2030

Trial Standard (billion 98$)'

Level

NAECA Roll-up Shift

1 0 1 Oto-1

2 -1 0 to 1 -3 to -4

3 -1 to -2 Oto-1I -5

4 -5 to -6 -4 -10

5 -22 -22 -22

Based on ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7 % discount rate.

In order to show the significance of the NPVs in Table V. 17 to the various input

assumptions, Tables VI. 18 through VI.21 report the range of NPV results for a range of

assumptions and scenarios relative to the total national equipment and operating costs for all

central air-conditioning and heat pump equipment under the base case (i.e., in the absence of new

efficiency standards). The results in Table VI. 18 are based on the AEO 2000 Reference Case

forecast of electricity prices and housing. The total costs are presented for the base case and each

Trial Standard Level. In addition, the NPV (the difference in total costs between the base case

Q:\EE-41 \EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 122 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3ul-0 8 

Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency 

distribution after new standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up 

scenario, and (3) Shift scenario. Manufacturer costs were based on ARl mean cost estimates. 

Equipment lifetime was assumed to be 18.4 years, coupled with the inclusion of compressor 

replacement costs. A societal discount rate of 7% was assumed. The range ofNPVs are reported 

in Table VI.17. 

Table VI.17: Net Present Value Variation with Electricity Price and Housing Projections 

Net Present Value For Units Sold from 2006 to 2030 

Trial Standard (billion 98$)1 

Level 

NAECA Roll-up Shift 

1 0 1 o to -1 

2 -1 o to 1 -3 to -4 

3 -1 to -2 o to-1 -5 

4 -5 to-6 -4 -10 

5 -22 -22 -22 

1 Based on ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7 % discount rate. 

In order to show the significance of the NPV s in Table V .17 to the various input 

assumptions, Tables VI.18 through VI.21 report the range ofNPV results for a range of 

assumptions and scenarios relative to the total national equipment and operating costs for all 

central air-conditioning and heat pump equipment under the base case (i.e., in the absence of new 

efficiency standards). The results in Table VI.18 are based on the AEO 2000 Reference Case 

forecast of electricity prices and housing. The total costs are presented for the base case and each 

Trial Standard Level. In addition, the NPV (the difference in total costs between the base case 

122 Q:IEE-41 IEE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 .00-C6 -

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 VI.18: Net Present Values Relative to Base Case Total Equipment and Operating Costs'

Efficiency Scenario

Base Case NAECA |Roll-up Shift

Total NPV NPV NPV

TSL Costs Total Total Total

billion 98$ Costs as percent Costs as percent Costs as percent

billion 98$ billion 98$ of Base billion Base 98$ billion 98$ of Base

Case Total Case Total 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%

Based on AEO 2000 Reference Case, ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7 %

discount rate. Values rounded to the nearest $1 billion.

Tables VI. 19 through VI.21 show how the three scenarios, i.e., reverse engineering costs,

14-year average life, and 3% discount rate17, impact the net present value. The three scenarios

were investigated only for the NAECA efficiency scenario and the AEO Reference Case

electricity price and housing projection.

17 A societal discount rate of 3 % 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.

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

123 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440·307·ci3 

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 VI.18: Net Present Values Relative to Base Case Total Equipment and Operating Costs! 

Efficiency Scenario 

Base Case NAECA Roll-up Shift 

Total NPV NPV NPV 

TSL Costs Total Total Total 

billion 98$ Costs as percent Costs as percent Costs as percent 

billion 98$ billion 98$ o/Base billion 98$ billion 98$ o/Base billion 98$ billion 98$ o/Base 

Case Total Case Total Case Total 

I $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% 

1 Based on AEO 2000 Reference Case, ARI mean manufacturer costs, IS.4-year retirement function with compressor replacement, and a 7 % 

discount rate. Values rounded to the nearest $1 billion. 

Tables VI.19 through VI.21 show how the three scenarios, i.e., reverse engineering costs, 

14-year average life, and 3% discount rate 17, impact the net present value. The three scenarios 

were investigated only for the NAECA efficiency scenario and the AEO Reference Case 

electricity price and housing projection. 

17 A societal discount rate of 3 % 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. 

123 Q:\EE-4! \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 7-0

Table V.19: Net Present Values Results based on Reverse Engineering Manufacturer Costs'

Trl S d Base Case Total Trial Standard Level Trial Standard

Level Costs Total Cost Net Present Value as percent of Base

billion 98$ billion 98$ billion 98$ Case Total Costs

1 $379 $378 $2 0.4%

2 $379 $377 $2 0.5%

3 $379 $378 $1 0.4%

4 $379 $379 $0 0.0%

__ 5 $379 $390 $-10 -2.7%

Based on AEO 2000 Reference Case, NAECA efficiency scenario, 18.4-year retirement function with compressor replacement, and a 7 %

discount rate. Values rounded to the nearest $1 billion.

Table V1.20: Net Present Values Results based on 14-year Average Lifetime'

Trl S d Base Case Total Trial Standard Level Trial Standard

Level Costs Total Cost Net Present Value as percent of Base

billion 98$ billion 98$ billion 98$ Case Total Costs

1 $363 $364 $0 0.0%

2 $363 $365 $-2 -0.5%

3 $363 $366 $-3 -0.8%

4 $363 $370 $-7 -1.9%

5 $363 $389 $-25 -6.9%

Based on AEO 2000 Reference Case, NAECA efficiency scenrio, ARI mean manufacturer costs, and a 7 % discount rate. Values rounded to the

nearest $1 billion.

Table VI.21: Net Present Values Results based on 3% Discount Rate'

Trial Stad Base Case Total ______Trial Standard Level Trial Standard

Level Costs Total Cost Net Present Value as percent of Base

billion 98$ billion 98$ billion 98$ Case Total Costs

_ 1 _$712 $708 $3 0.5%

2 $712 $708 $4 0.5%

3 $712 $708 $3 0.4%

4 $712 $714 $-3 -0.4%

5 $712 $746 $-35 -4.9%

Based on AEO 2000 Reference Case, NAECA efficiency scenario, ARI mean manufacturer costs, and 18.4-year retirement function with

compressor replacement. Values rounded to the nearest $1 billion.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 124 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 301·06 

Table V.19: Net Present Values Results based on Reverse Engineering Manufacturer Costs! 

Base Case Total Trial Standard Level 

Trial Standard Costs Level Total Cost Net Present Value as percent of Base 

billion 98$ billion 98$ billion 98$ Case Total Costs 

1 $379 $378 $2 0.4% 

2 $379 $377 $2 0.5% 

3 $379 $378 $1 0.4% 

4 $379 $379 $0 0.0% 

5 $379 $390 $-10 -2.7% 

I Based on AEO 2000 Reference Case, NAECA efficiency scenario, 18.4-year retirement functIOn with compressor replacement, and a 7 % 

discount rate. Values rounded to the nearest $1 billion. 

Table V1.20: Net Present Values Results based on 14-year Average Lifetime! 

Base Case Total Trial Standard Level 

Trial Standard Costs Level Total Cost Net Present Value as percent of Base 

billion 98$ billion 98$ billion 98$ Case Total Costs 

1 $363 $364 $0 0.0% 

2 $363 $365 $-2 -0.5% 

3 $363 $366 $-3 -0.8% 

4 $363 $370 $-7 -1.9% 

5 $363 $389 $-25 -6.9% 

I Based on AEO 2000 Reference Case, NAECA efficiency scenrio, ARI mean manufacturer costs, and a 7 % discount rate. Values rounded to the 

nearest $1 billion. 

Table V1.21: Net Present Values Results based on 3% Discount Rate! 

Base Case Total Trial Standard Level 

Trial Standard Costs Level Total Cost Net Present Value as percent of Base 

billion 98$ billion 98$ billion 98$ Case Total Costs 

1 $712 $708 $3 0.5% 

2 $712 $708 $4 0.5% 

3 $712 $708 $3 0.4% 

4 $712 $714 $-3 -0.4% 

5 $712 $746 $-35 -4.9% 

I Based on AEO 2000 Reference Case, NAECA effiCiency scenariO, ARI mean manufacturer costs, and 18.4-year retuement function with 

compressor replacement. Values rounded to the nearest $1 billion. 

124 Q:IEE-4! IEE-43J ICACIStandRu!\NOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 - 3J0'7- U

The Department committed in its 1996 Process Improvement Rule to develop estimates of

the employment impacts of proposed standards in the economy in general. 61 FR 36983.

As discussed above, energy efficiency standards for central air conditioners and heat

pumps are expected to reduce electricity bills for residential and commercial consumers. The

resulting net savings are expected to be redirected to other forms of economic activity. These

shifts in spending and economic activity are expected to affect the demand for labor, but there is

no generally accepted method for estimating these effects.

One method to assess the possible effects on the demand for labor of such shifts in

economic activity is to compare sectoral employment statistics developed by the Labor

Department's Bureau of Labor Statistics (BLS). The BLS regularly publishes its estimates of the

number of jobs per million dollars of economic activity in different sectors of the economy, as

well as the jobs created elsewhere in the economy by this same economic activity. BLS data

indicate that expenditures in the electric sector generally are associated with fewer jobs (both

directly and indirectly) than expenditures in other sectors of the economy. There are many

reasons for these differences, including the capital-intensity of the utility sector and wage

differences.

In developing this proposed rule, the Department attempted a more precise analysis of the

impacts on national labor demand using an input/output model of the U.S. economy. The model

characterizes the interconnections among 35 economic sectors using the data from the Bureau of

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 125 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-- 301 08 

The Department committed in its 1996 Process Improvement Rule to develop estimates of 

the employment impacts of proposed standards in the economy in general. 61 FR 36983. 

As discussed above, energy efficiency standards for central air conditioners and heat 

pumps are expected to reduce electricity bills for residential and commercial consumers. The 

resulting net savings are expected to be redirected to other forms of economic activity. These 

shifts in spending and economic activity are expected to affect the demand for labor, but there is 

no generally accepted method for estimating these effects. 

One method to assess the possible effects on the demand for labor of such shifts in 

economic activity is to compare sectoral employment statistics developed by the Labor 

Department's Bureau of Labor Statistics (BLS). The BLS regularly publishes its estimates of the 

number of jobs per million dollars of economic activity in different sectors of the economy, as 

well as the jobs created elsewhere in the economy by this same economic activity. BLS data 

indicate that expenditures in the electric sector generally are associated with fewer jobs (both 

directly and indirectly) than expenditures in other sectors of the economy. There are many 

reasons for these differences, including the capital-intensity of the utility sector and wage 

differences. 

In developing this proposed rule, the Department attempted a more precise analysis of the 

impacts on national labor demand using an input/output model of the u.s. economy. The model 

characterizes the interconnections among 35 economic sectors using the data from the Bureau of 

125 Q:\EE-41 \EE-431 ICACIStandRu\INOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3 0/7- o

Labor Statistics. Since the electric utility sector is more capital-intensive and less labor-intensive

than other sectors (see Bureau of Economic Analysis, Regional Multipliers: A User Handbookfor

the Regional Input-Output Modeling System (RIMS II), Washington, D.C., U.S. Department of

Commerce, 1992), a shift in spending away from energy bills into other sectors would be expected

to increase overall employment. But for this analysis, since the increased manufacturing costs to

the nation of meeting a new efficiency standard are relatively large, there is an overall decrease in

national employment. The results of the Department's analysis are shown in Chapter 12 of the

TSD.

While this input/output model suggests the proposed central air conditioner and heat

pump standards are likely to decrease the net demand for labor in the economy, the losses would

most likely be very small relative to total national employment. For several reasons, however,

even these modest losses are in doubt:

* Unemployment is now at the lowest rate in 30 years. If unemployment remains very low

during the period when the proposed standards are put into effect, it is unlikely that the

standards alone could result in any net decrease in national employment levels.

* Neither the BLS data nor the input-output model used by DOE include the quality or wage

level of the jobs. One reason that the demand for labor decreases in the model may be that

the jobs expected to be created pay more than the jobs being lost. The losses from any

potential employment reduction would be offset if job quality and pay are increased.

The net benefits from potential employment changes are a result of the estimated net

present value of benefits or losses likely to result from the proposed standards. It may not

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 126 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440. 301~ 08 

Labor Statistics. Since the electric utility sector is more capital-intensive and less labor-intensive 

than other sectors (see Bureau of Economic Analysis, Regional Multipliers: A User Handbook/or 

the Regional Input-Output Modeling System (RIMS II), Washington, D.C., U.S. Department of 

Commerce, 1992), a shift in spending away from energy bills into other sectors would be expected 

to increase overall employment. But for this analysis, since the increased manufacturing costs to 

the nation of meeting a new efficiency standard are relatively large, there is an overall decrease in 

national employment. The results of the Department's analysis are shown in Chapter 12 of the 

TSD. 

While this input/output model suggests the proposed central air conditioner and heat 

pump standards are likely to decrease the net demand for labor in the economy, the losses would 

most likely be very small relative to total national employment. For several reasons, however, 

even these modest losses are in doubt: 

• Unemployment is now at the lowest rate in 30 years. If unemployment remains very low 

during the period when the proposed standards are put into effect, it is unlikely that the 

standards alone could result in any net decrease in national employment levels. 

• Neither the BLS data nor the input-output model used by DOE include the quality or wage 

level of the jobs. One reason that the demand for labor decreases in the model may be that 

the jobs expected to be created pay more than the jobs being lost. The losses from any 

potential employment reduction would be offset if job quality and pay are increased. 

• The net benefits from potential employment changes are a result of the estimated net 

present value of benefits or losses likely to result from the proposed standards. It may not 

126 Q:\EE-41 \EE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3O7 C )

be appropriate to separately identify and consider any employment impacts beyond the

calculation of net present value.

Taking into consideration these 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.

Public comments are solicited on the validity of the analytical methods used and the

appropriate interpretation and use of the results of this analysis.

4. Impact on Utility or Performance of Products

As detailed in Section V, in establishing classes of products we have tried to eliminate any

degradation of utility or performance in the products under consideration in this rulemaking.

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).

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 127 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-.307-() B 

be appropriate to separately identify and consider any employment impacts beyond the 

calculation of net present value. 

Taking into consideration these 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. 

Public comments are solicited on the validity of the analytical methods used and the 

appropriate interpretation and use of the results of this analysis. 

4. Impact on Utility or Performance of Products 

As detailed in Section V, in establishing classes of products we have tried to eliminate any 

degradation of utility or performance in the products under consideration in this rulemaking. 

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(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii). 

127 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3D07- 0(

In order to assist the Attorney General in making such a determination, the Department has

provided the Department of Justice (DOJ) with copies of this notice 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.

6. 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 NO,. Cumulative emissions savings over the 16-year period modeled are shown in

Table VI.22. Emission savings are based on the use of: (1) the ARI mean manufacturer cost data

and (2) an 18.4-year average lifetime. The results presented in Table VI.22 are based only on the

AEO 2000 Reference Case for electricity price and housing projections and the NAECA

efficiency scenario.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 128 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE·RM/STD·98·440- 30'1 oB 

In order to assist the Attorney General in making such a determination, the Department has 

provided the Department of lustice (001) with copies of this notice and the TSD for review. At 

DOE's request, the 001 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. 

6. 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 ofthe 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 16-year period modeled are shown in 

Table VI.22. Emission savings are based on the use of: (1) the ARI mean manufacturer cost data 

and (2) an 18.4-year average lifetime. The results presented in Table VI.22 are based only on the 

AEO 2000 Reference Case for electricity price and housing projections and the NAECA 

efficiency scenario. 

128 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-,30/'? 0°

Table VI.22: Cumulative Emissions Reductions based on AEO 2000 Reference Case and

NAECA Efficiency Scenario (2006-2020)

Trial Standard Emissions Reductions

Level Carbon (Mt) NO, (kt)

1 13.4 37.2

2 23.7 67.9

3 27.4 78.8

4 33.6 102.5

5 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 only for the Trial Standard Level 3.

Table VI.23 shows how carbon and NO, emissions are impacted by the different projections and

scenarios.

Table VI.23 Cumulative Emissions Reductions for Proposed Standard (2006-2020) and the

impact of Different Electricity Price/Housing Projections and Efficiency Scenarios

Electricity Price and Efficiency Emission

Housing Projection Scenario Carbon (Mt) NO, (kt)

AEO Reference Case NAECA 27.4 78.8

AEO Reference Case Roll-up 26.2 77.8

AEO Reference Case Shift 30.2 89.3

AEO Low Growth Case NAECA 23.4 80.8

AEO High Growth Case NAECA 34.1 75.8

Q:\EE-4 I\EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 129 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-00'1,08 

Table V1.22: Cumulative Emissions Reductions based on AEO 2000 Reference Case and 

NAECA Efficiency Scenario (2006-2020) 

Trial Standard Emissions Reductions 

Level Carbon (Mt) NO. (kt) 

1 13.4 37.2 

2 23.7 67.9 

3 27.4 78.8 

4 33.6 102.5 

5 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 only for the Trial Standard Level 3. 

Table VI.23 shows how carbon and NOx emissions are impacted by the different projections and 

scenarIOs. 

Table VI.23 Cumulative Emissions Reductions for Proposed Standard (2006-2020) and the 

impact of Different Electricity PricelHousing Projections and Efficiency Scenarios 

Electricity Price and Efficiency 

Housing Projection Scenario 

AEO Reference Case NAECA 

AEO Reference Case Roll-up 

AEO Reference Case Shift 

AEO Low Growth Case NAECA 

AEO High Growth Case NAECA 

129 

Emission 

Carbon (Mt) NO. (kt) 

27.4 78.8 

26.2 77.8 

30.2 89.3 

23.4 80.8 

34.1 75.8 

Q:\EE-41 \EE-43 I ICACIStandRuIINOPRIDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30- o0

The annual carbon emission reductions range up to 6.6 Mt in 2020 and the NO, emissions

reductions up to 24.5 kt in 2015.'8 '

9 Total carbon and NOx emissions for each trial standard level

are reported in the Environmental Assessment, in the TSD.

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

that the impacts of the proposed standards on peak power requirements and electric utility system

reliability, the impacts of proposed standards on those subgroups of consumers who are at or

below the poverty line, and the impacts of proposed standards on consumers and manufacturers

which might be required by proposed environmental regulations to incorporate ozone reduction

technologies in air conditioning and heat pump equipment, are relevant to the economic

justification of the standards, and has decided to consider such impacts in this rulemaking.

Peak power impacts are determined as part of the analysis to estimate impacts on electric

utilities from increases in the central air conditioner and heat pump standard. NEMS-BRS is used

to estimate peak power impacts by calculating the reduction in installed generation capacity due to

an increase in the minimum efficiency standard. Table VI.24 shows the estimated reductions in

installed generation capacity, in giga-watts (GW), in the year 2020 due to each of the trial

'

8 Million metric tons (Mt).

"gThousand metric tons (kt).

Q:\EE-4 1\EE-43 1\CAC\StandRul\NOPR\DrafiNOPR\CACNOPR24.wpd 130 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 301· 08 

The annual carbon emission reductions range up to 6.6 Mt in 2020 and the NOx emissions 

reductions up to 24.5 kt in 2015. 18, 19 Total carbon and NOx emissions for each trial standard level 

are reported in the Environmental Assessment, in the TSD. 

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(0)(2)(B)(i)(VI), 42 U.S.C. 6295(0)(2)(B)(i)(VI). The Secretary has decided 

that the impacts of the proposed standards on peak power requirements and electric utility system 

reliability, the impacts of proposed standards on those subgroups of consumers who are at or 

below the poverty line, and the impacts of proposed standards on consumers and manufacturers 

which might be required by proposed environmental regulations to incorporate ozone reduction 

technologies in air conditioning and heat pump equipment, are relevant to the economic 

justification of the standards, and has decided to consider such impacts in this rulemaking. 

Peak power impacts are determined as part of the analysis to estimate impacts on electric 

utilities from increases in the central air conditioner and heat pump standard. NEMS-BRS is used 

to estimate peak power impacts by calculating the reduction in installed generation capacity due to 

an increase in the minimum efficiency standard. Table VI.24 shows the estimated reductions in 

installed generation capacity, in giga-watts (GW), in the year 2020 due to each of the trial 

18Million metric tons (Mt). 

19Thousand metric tons (kt). 

130 Q:\EE-41 \EE-43 I ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 307-08

standard levels. Of the installed generating capacity avoided, 13% would have been provided by

coal power plants. The remaining percentage (87%) would have been supplied by either gas-fired,

oil-fired, or dual-fired power plants. The results presented in Table VI.24 are based only on the

AEO 2000 Reference Case for electricity price and housing projections and the NAECA

efficiency scenario.

Table VI.24: Installed Generation Capacity Reductions in the year 2020 based on

AEO 2000 Reference Case and NAECA Efficiency Scenario

Trial Standard Installed Generating

Level Capacity Reduction (GW)

1 6.4

2 10.6

3 12.3

4 15.4

5 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 proposed standard (trial

standard level 3). Table VI.25 shows how installed generation capacity is impacted by the

different projections and scenarios.

Table VI.25 Installed Generation Capacity Reductions in the year 2020 for Trial Standard

Level 3 and the Impact of Different Electricity Price/Housing Projections and Efficiency

Scenarios

Electricity Price and Efficiency Scenario Installed Generating

Housing Projection Capacity Reduction (GW)

AEO Reference Case NAECA 12.3

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 131 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 30 '1-08 

standard levels. Of the installed generating capacity avoided, 13% would have been provided by 

coal power plants. The remaining percentage (87%) would have been supplied by either gas-fired, 

oil-fired, or dual-fired power plants. The results presented in Table VI.24 are based only on the 

AEO 2000 Reference Case for electricity price and housing projections and the NAECA 

efficiency scenario. 

Table V1.24: Installed Generation Capacity Reductions in the year 2020 based on 

AEO 2000 Reference Case and NAECA Efficiency Scenario 

Trial Standard Installed Generating 

Level Capacity Reduction (GW) 

1 6.4 

2 10.6 

3 12.3 

4 15.4 

5 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 proposed standard (trial 

standard level 3). Table VI.25 shows how installed generation capacity is impacted by the 

different projections and scenarios. 

Table VI.25 Installed Generation Capacity Reductions in the year 2020 for Trial Standard 

Level 3 and the Impact of Different Electricity PricelHousing Projections and Efficiency 

Scenarios 

Electricity Price and 

Housing Projection 

AEO Reference Case 

Efficiency Scenario Installed Generating 

NAECA 

131 

Capacity Reduction (GW) 

12.3 

Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 307- L

AEO Reference Case Roll-up 11.9

AEO Reference Case Shift 13.6

AEO Low Growth Case NAECA 11.4

AEO High Growth Case NAECA 12.5

As discussed above, the impact of the peak power requirements of any single end-use on

electric utility system reliability is highly uncertain. Thus, we plan on conducting further research

to determine what connection, if any, exists between end-use peak demand reductions and system

reliability. If such research is completed and applicable to this rulemaking, we will make it

available for public review during the comment period on today's proposed rule.

Consumer subgroup impacts have been estimated by determining the LCC impacts of the

trial standard levels on those consumers who are at or 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. 2 0 Table VI.26

summarizes the LCC impacts on those low-income consumers who utilize central air conditioners

and heat pumps. The results in Table VI.26 are based on ARI mean manufacturer costs and an

18.4-year average lifetime.

20 Approximately 7 % of the RECS 97 households with central air conditioners and 9 % of the households with heat pumps met this

criteria.

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 132 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440_ :307 ()8 

AEO Reference Case Roll-up 11.9 

AEO Reference Case Shift 13.6 

AEO Low Growth Case NAECA 11.4 

AEO High Growth Case NAECA 12.5 

As discussed above, the impact of the peak power requirements of any single end-use on 

electric utility system reliability is highly uncertain. Thus, we plan on conducting further research 

to determine what connection, if any, exists between end-use peak demand reductions and system 

reliability. If such research is completed and applicable to this rulemaking, we will make it 

available for public review during the comment period on today's proposed rule. 

Consumer subgroup impacts have been estimated by determining the LCC impacts of the 

trial standard levels on those consumers who are at or below the poverty line (e.g., for a family of 

four, this constitutes a household income ofless than $16,036). To perform this calculation, we 

used the subset ofRECS 97 data for households that are considered 10w-income?0 Table VI.26 

summarizes the LCC impacts on those low-income consumers who utilize central air conditioners 

and heat pumps. The results in Table VI.26 are based on ARI mean manufacturer costs and an 

18.4-year average lifetime. 

20 Approximately 7 % of the RECS 97 households with central air conditioners and 9 % of the households with heat pumps met this 

criteria. 

132 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30'- DE

Table VI.26: Summary of LCC Results on Low-Income Consumers Based on ARI Mean

Manufacturer Costs and an 18.4-year Average Lifetime

Average LCC Percent of Consumers with

Product ClassEfficiency Average L CC (Savings) Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs

LelCosts (>2 %) Impact (>2 %)

10 $4,906 - - -

Split System 11 $4,887 ($19) 17% 66% 17%

Central Air 12 $4,903 ($3) 20% 29% 51%

Conditioner 13 $5,007 $101 17% 14% 69%

18 $5,598 $692 10% 2% 88%

10 $8,965

11 $8,890 ($75) 16% 84% 0%

Split System ^ SpHet Sysump 12 $8,862 ($103) 27% 64% 9% Heat Pump 13 $8,948 ($17) 25% 40% 35%

18 $9,610 $645 11% 8% 81%

10 $5,327 -

Single Package 11 $5,283 ($44) 11% 42% 47%

Air 12 $5,313 ($14) 20% 27% 53%

Conditioner 13 $5,568 $241 12% 9% 79%

18 $6,158 $831 10% 2% 88%

10 $9,149 -

11 $9,057 ($92) 21% 78% 1%

SnglePackage 12 $8,973 ($176) 35% 53% 12% Heat Pump

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 (Table

V.26) versus all central air conditioner and heat pump consumers (Table 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.27 directly compares the

LCC impacts of the proposed standard on low-income and all consumers.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

133 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

. 

EE-RM/STO-9S-440-JO'7- 08 

Table VI.26: Summary of LCC Results on Low-Income Consumers Based on ARI Mean 

Manufacturer Costs and an 18.4-year Average Lifetime 

AverageLCC Percent of Consumers with 

Product Class Efficiency Average LCC (Savings) Level Net Savings No Significant Net Costs 

Costs (>2 %) Impact (>2 %) 

10 $4,906 - - - -

Split System 11 $4,887 ($19) 17% 66% 17% 

Central Air 12 $4,903 ($3) 20% 29% 51% 

Conditioner 13 $5,007 $101 17% 14% 69% 

18 $5,598 $692 10% 2% 88% 

10 $8,965 - - - -

11 $8,890 ($75) 16% 84% 0% 

Split System 12 $8,862 ($103) 27% 64% 9% Heat Pump 

13 $8,948 ($17) 25% 40% 35% 

18 $9,610 $645 11% 8% 81% 

10 $5,327 - - - -

Single Package 11 $5,283 ($44) 11% 42% 47% 

Air 12 $5,313 ($14) 20% 27% 53% 

Conditioner 13 $5,568 $241 12% 9% 79% 

18 $6,158 $831 10% 2% 88% 

10 $9,149 - - - - 11 $9,057 ($92) 21% 78% 1% 

Single Package 12 $8,973 ($176) 35% 53% 12% Heat Pump 

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 (Table 

V.26) versus all central air conditioner and heat pump consumers (Table 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.27 directly compares the 

LCC impacts of the proposed standard on low-income and all consumers. 

133 Q:\EE-41 \EE·431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 307- 0

Table VI.27: Comparison of LCC Impacts of the Proposed Standard on All Consumers vs.

Low-Income Consumers

Average LC ( ) Cs Percent of Consumers with Net Prouc Average LCC (Savings) Costs Bsln - Product Class Efficiency Level Costs (>2 % of Baseline LCC)

All Consumers Low-Income All Consumers Low-Income

Split System Central45) ($3) 39% 51%

Air Conditioner

Split System Heat 13 ($215) ($17) 22% 35%

Pump

Single Package Air 12 ($29) ($14) 44% 53%

Conditioner

Single Package Heat 13 ($112) ($4) 36% 48%

Pump

The U.S. Environmental Protection Agency (EPA) requires states to develop a state

implementation plan (SIP) for most areas that are not in compliance with the National Ambient

Air Quality Standards (NAAQS), or classified as nonattainment. In Texas, four areas are in

nonattainment of the EPA's one-hour NAAQS for ozone: Beaumont-Port Arthur, El Paso, DallasFort Worth, and Houston-Galveston. On August 9, 2000, The Texas Natural Resource

Conservation Commission (TNRCC), the lead environmental agency for the state of Texas,

approved for publication and public hearing proposed revisions to the state implementation plan

(SIP), in order to reduce ground-level ozone in the Houston/Galveston (HGA), Dallas/Fort Worth

(DFW), and Beaumont/Port Arthur (BPA) ozone nonattainment areas, as well as in the 95-county

central and eastern Texas. The proposed rules consist of 23 separate requirements applying to

various regions of the state. One of the proposals mandates the use of a technology in the affected

areas that will reduce ozone from ambient air that is drawn across the external heat exchanger

units of air-cooled air conditioning units, including heat pumps. The proposed rule would require,

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 134 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440·· 307- 08 

Table V1.27: Comparison ofLCC Impacts of the Proposed Standard on All Consumers vs. 

Low-Income Consumers 

Average LCC (Savings) Costs Percent of Consumers with Net 

Product Class Efficiency Level Costs (>2 % of Baseline LCC) 

All Consumers Low-Income All Consumers Low-Income 

Split System Central 12 ($45) ($3) 39% 51% Air Conditioner 

Split System Heat l3 ($215) ($17) 22% 35% Pump 

Single Package Air 12 ($29) ($14) 44% 53% Conditioner 

Single Package Heat 13 ($112) ($4) 36% 48% Pump 

The U.S. Environmental Protection Agency (EPA) requires states to develop a state 

implementation plan (SIP) for most areas that are not in compliance with the National Ambient 

Air Quality Standards (NAAQS), or classified as nonattainment. In Texas, four areas are in 

nonattainment of the EPA's one-hour NAAQS for ozone: Beaumont-Port Arthur, EI Paso, DallasFort Worth, and Houston-Galveston. On August 9,2000, The Texas Natural Resource 

Conservation Commission (TNRCC), the lead environmental agency for the state of Texas, 

approved for publication and public hearing proposed revisions to the state implementation plan 

(SIP), in order to reduce ground-level ozone in the Houston/Galveston (HGA), DallaslFort Worth 

(DFW), and BeaumontIPort Arthur (BPA) ozone nonattainment areas, as well as in the 95-county 

central and eastern Texas. The proposed rules consist of23 separate requirements applying to 

various regions of the state. One of the proposals mandates the use of a technology in the affected 

areas that will reduce ozone from ambient air that is drawn across the external heat exchanger 

units of air-cooled air conditioning units, including heat pumps. The proposed rule would require, 

134 Q:IEE-4IIEE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30"'- 0O

after January 1, 2002, that all central air conditioners sold in the specified areas of Texas have

ozone reduction technology installed.

The ozone reduction technology is a proprietary catalyst called PremAir, manufactured by

the Engelhard Corporation. The catalyst is incorporated in air conditioners in two ways: by

coating the condenser coils, or by installing an insert next to the condenser coil. The Department

is required, by the Process Rule, to understand the costs and benefits of standards, and the

distribution of those costs among consumers, manufacturers and others, and the uncertainty

associated with these costs and benefits. Any adverse impacts on significant subgroups and

uncertainty concerning adverse impacts must be fully considered in selecting a standard. If the

introduction of this technology in Texas, and possibly other jurisdictions, would create new

consumer subgroups or would significantly change the ability of equipment manufacturers to meet

the new efficiency standard or the cost required to do so, the Department would factor that

information into its decision making for this rule.

This technology has the potential for affecting the price and efficiency of central air

conditioners. For example, DOE is aware of a range of estimates of what this technology would

add to the cost of central air conditioners. The costs of this technology are estimated to range

between $42 and $446 per 12,000 Btu/hr of air conditioner capacity. As to possible effects of the

technology on the efficiency of central air conditioners, DOE understands several designs of

catalyst-treated air conditioners have been tested by Intertek Testing Services (ITS). DOE

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 135 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 50'1-08 

after January 1,2002, that all central air conditioners sold in the specified areas of Texas have 

ozone reduction technology installed. 

The ozone reduction technology is a proprietary catalyst called PremAir, manufactured by 

the Engelhard Corporation. The catalyst is incorporated in air conditioners in two ways: by 

coating the condenser coils, or by installing an insert next to the condenser coil. The Department 

is required, by the Process Rule, to understand the costs and benefits of standards, and the 

distribution of those costs among consumers, manufacturers and others, and the uncertainty 

associated with these costs and benefits. Any adverse impacts on significant subgroups and 

uncertainty concerning adverse impacts must be fully considered in selecting a standard. If the 

introduction of this technology in Texas, and possibly other jurisdictions, would create new 

consumer subgroups or would significantly change the ability of equipment manufacturers to meet 

the new efficiency standard or the cost required to do so, the Department would factor that 

information into its decision making for this rule. 

This technology has the potential for affecting the price and efficiency of central air 

conditioners. For example, DOE is aware of a range of estimates of what this technology would 

add to the cost of central air conditioners. The costs of this technology are estimated to range 

between $42 and $446 per 12,000 Btulhr of air conditioner capacity. As to possible effects of the 

technology on the efficiency of central air conditioners, DOE understands several designs of 

catalyst-treated air conditioners have been tested by Intertek Testing Services (ITS). DOE 

135 Q:\EE-41 \EE·431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 307 08

understands the test results show no impact on efficiency for coated condenser coils, and a

roughly 2% reduction in efficiency for the catalyst insert.

Manufacturers could also be affected by the ozone reduction requirement. The higher

purchase costs of new air conditioners could alter consumers' decisions on repairing or replacing

equipment, which would affect air conditioner sales and impact manufacturers. If the effect

applies to a significant fraction of units sold each year, the Department's current manufacturer

impact analysis may underestimate the impact on manufacturers.

After reviewing the available information, DOE is not certain as to the impacts of any

ozone reduction requirements that the TNRCC may adopt. The proposal is one of 23

requirements TNRCC may adopt and it is uncertain whether this requirement will be included in

their final rule. Even if the requirement is adopted, it is unclear what, if any, effect the

requirement would have on efficiency. Finally, DOE believes such a requirement may have an

impact on manufacturers. DOE estimates a potential impact on 800,000 central air conditioner

shipments per year covered by the TNRCC proposal, or approximately 13% of total shipments.

This potential requirement was not included in today's proposed rule because of uncertainty about

whether the TNRCC will include the catalyst requirement in their SIP. DOE invites comments on

the status of the TNRCC deliberations and whether this potential requirement should be

considered.

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 136 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-9S-440- 301- 08 

understands the test results show no impact on efficiency for coated condenser coils, and a 

roughly 2% reduction in efficiency for the catalyst insert. 

Manufacturers could also be affected by the ozone reduction requirement. The higher 

purchase costs of new air conditioners could alter consumers' decisions on repairing or replacing 

equipment, which would affect air conditioner sales and impact manufacturers. If the effect 

applies to a significant fraction of units sold each year, the Department's current manufacturer 

impact analysis may underestimate the impact on manufacturers. 

After reviewing the available information, DOE is not certain as to the impacts of any 

ozone reduction requirements that the TNRCC may adopt. The proposal is one of 23 

requirements TNRCC may adopt and it is uncertain whether this requirement will be included in 

their final rule. Even if the requirement is adopted, it is unclear what, if any, effect the 

requirement would have on efficiency. Finally, DOE believes such a requirement may have an 

impact on manufacturers. DOE estimates a potential impact on 800,000 central air conditioner 

shipments per year covered by the TNRCC proposal, or approximately 13% of total shipments. 

This potential requirement was not included in today's proposed rule because of uncertainty about 

whether the TNRCC will include the catalyst requirement in their SIP. DOE invites comments on 

the status of the TNRCC deliberations and whether this potential requirement should be 

considered. 

136 Q:\EE-41 \EE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 7-08

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 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 at each of five trial standards levels, beginning with

the Max Tech Level, i.e., Trial Standard Level 5. We then consider less efficient levels. Trial

Standard Level 3 is a combination of different efficiency levels for the different classes. It

combines the SEER values for air conditioners from Trial Standard Level 2 (12 SEER) with the

SEER values for heat pumps from Trial Standard Level 4 (13 SEER). By combining efficiency

levels in this way, the Department is able to evaluate the impacts of different combinations of

standard levels to make an informed decision on the merits of different efficiency combinations.

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 Tables VI.28 and VI.29.21 Table VI.28 presents a summary of

analysis results based on ARI mean manufacturing costs, NAECA and Roll-up efficiency

21 All cumulative effects that are not monetary are not discounted. Monetary effects are discounted to 1998 dollars.

Q:\EE-41\EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 137 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 30108 

E. Conclusion 

Section 325(0)(2)(A) of the Act, 42 U.S.C. 6295(0)(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 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(0)(2)(B)(i), 42 U.S.C. 6295(0)(2)(B)(i). The amended standard 

must "result in significant conservation of energy." EPCA Section 325(0 )(3)(B), 42 U.S.C. 

6295(0)(3)(B). 

We consider the impacts of standards at each of five trial standards levels, beginning with 

the Max Tech Level, i.e., Trial Standard Level 5. We then consider less efficient levels. Trial 

Standard Level 3 is a combination of different efficiency levels for the different classes. It 

combines the SEER values for air conditioners from Trial Standard Level 2 (12 SEER) with the 

SEER values for heat pumps from Trial Standard Level 4 (13 SEER). By combining efficiency 

levels in this way, the Department is able to evaluate the impacts of different combinations of 

standard levels to make an informed decision on the merits of different efficiency combinations. 

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 Tables VI.28 and VI.29. 21 Table VI.28 presents a summary of 

analysis results based on ARl mean manufacturing costs, NAECA and Roll-up efficiency 

21 All cumulative effects that are not monetary are not discounted. Monetary effects are discounted to 1998 dollars. 

137 Q:\EE-41 \EE-43! \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 3 0 7- 0

scenarios and 7% and 3% societal discount rate scenarios. Table VI.29 presents a summary of

analysis results based on manufacturing costs obtained from the reverse engineering analysis for

the NAECA efficiency scenario and 7% and 3% societal discount rate scenario. Both tables

assume an 18.4-year equipment lifetime, including one compressor replacement. The reverse

engineering scenario results in Table VI.29 are limited to single scenarios which highlight the

impact of manufacturing costs on the consumer, manufacturers, national energy savings, and

NPV.

Table VI.28. Summary of Analysis Results based on ARI Mean Manufacturer Costs'

Trial Std 1 Trial Std 2 ]Trial Std 3 Trial Std 4 Trial Std 5

Total Quads Saved 2 1.7 - 1.8 2.9 - 3.2 3.4 - 3.6 4.2 - 4.5 8.1 - 8.7

Generation Capacity Offset (GW)3 6.4 10.6 12.3 15.4 28.6

NPV ($billion) 4

7 % Discount Rate 0 -1 -I to -2 -5 to -6 -22

3 % Discount Rate | 3 I 4 3 -3 -35

Emissions 5

Carbon Equivalent (Mt)13.4 23.7 27.4 33.6 63.7

NOx (kt) 37.2 67.9 78.8 102.5 193.7

Cumulative Change in INPV ($ million)6

NAECA (37)_ (186) (197) (183)_

Roll-up I (181) _ (362) (367) (335)_

Life Cycle Cost ($)

Split AC ($44) ($45) ($45) $29 $555

Packaged AC $20 ($29) ($29) $175 $741

Split HP ($150) ($242) ($215) ($215) $276

Packaged HP ($134) ($254) ($112) ($112) $296

Payback (years)

Split AC 10.6 12. 12.6 16 36

Packaged AC 16.1 14 14 21.8 48.8

Split HP 5.5 7.2 9.3 9.3 17.3

Packaged Heat Pump 8.1 8.7 13.2 13.2 19.4

'Estimates are based on 18.4-year lifetime.

2Based on AEO 2000 reference, high and low growth cases, and NAECA efficiency distributions.

Reductions in installed generation capacity in the year 2020, based on AEO 2000 reference case, NAECA efficiency scenario.

4

Based on NAECA efficiency distribution and 7 % discount rate. Range reflects AEO 2000 reference, high and low growth cases.

Based on AEO 2000 reference case, NAECA efficiency scenario, and ARI mean manufacturing costs. 6Not calculated at Trial Standard Level 5.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 138 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3 0 '1~ a B 

scenarios and 7% and 3% societal discount rate scenarios. Table VI.29 presents a summary of 

analysis results based on manufacturing costs obtained from the reverse engineering analysis for 

the NAECA efficiency scenario and 7% and 3% societal discount rate scenario. Both tables 

assume an 18.4-year equipment lifetime, including one compressor replacement. The reverse 

engineering scenario results in Table VI.29 are limited to single scenarios which highlight the 

impact of manufacturing costs on the consumer, manufacturers, national energy savings, and 

NPV. 

Table V1.28. Summary of Analysis Results based on ARl Mean Manufacturer Costs 1 

Trial Std 1 Trial Std 2 Trial Std 3 Trial Std 4 Trial Std 5 

Total Quads Saved 2 1.7-1.8 2.9 - 3.2 3.4 - 3.6 4.2 - 4.5 8.1 - 8.7 

Generation Capacity Offset (GW)3 6.4 10.6 12.3 15.4 28.6 

NPV ($billion) 4 

7 % Discount Rate 0 -I -I to -2 -5 to -6 -22 

3 % Discount Rate 3 4 3 -3 -35 

Emissions 5 

Carbon Equivalent (Mt) 13.4 23.7 27.4 33.6 63.7 

NOx (kt) 37.2 67.9 78.8 102.5 193.7 

Cumulative Change in INPV ($ million)6 

NAECA (37) (186) (197) (183) 

Ron-up (181) (362) (367) (335) 

Life Cycle Cost ($) 

Split AC ($44) ($45) ($45) $29 $555 

PackagedAC $20 ($29) ($29) $175 $741 

Split HP ($150) ($242) ($215) ($215) $276 

Packaged HP ($134) ($254) ($112) ($112) $296 

Payback (years) 

Split AC 10.6 12.6 12.6 16 36 

Packaged AC 16.1 14 14 21.8 48.8 

SplitHP 5.5 7.2 9.3 9.3 17.3 

Pack~ed Heat Pump 8.1 8.7 13.2 13.2 19.4 

1 EstImates are based on 18.4-year lIfetIme. 

2 Based on AEO 2000 reference, high and low growth cases, and NAECA efficiency distributions. 

J Reductions in installed generation capacity in the year 2020, based on AEO 2000 reference case, NAECA efficiency scenario. 

4 Based on NAECA efficiency distribution and 7 % discount rate. Range reflects AEO 2000 reference, high and low growth cases. 

, Based on AEO 2000 reference case, NAECA efficiency scenario, and ARI mean manufacturing costs. 

6 Not calculated at Trial Standard Level 5. 

138 Q:IEE-41 IEE-431 \CACIStandRul\NOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 03 -08

Table VI.29. Summary of Analysis Results based on Reverse Engineering Manufacturing Costs'

I Trial Std 1 Trial Std 2 Trial Std 3 Trial Std 4 Trial Std 5

Total Quads Saved2 _1.7 - 1.8 2.9 - 3.2 3.4 - 3.7 4.3 - 4.6 8.4 - 9.0

Generation Capacity Offset (GW)3 6.4 10.6 12.3 15.4 28.6

NPV ($billion)

7 % Discount Rate2 1 to2 2 1 to 2 0 to 1 -10 to-11

3 % Discount Rate | 6 10 10 9 -8

Emissions 3

Carbon Equivalent (Mt) 13.4 23.7 27.4 33.6 63.7

NOx (kt) 37.2 67.9 78.8 102.5 193.7

Cumulative Change in INPV ($ million)

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

Roll-up3 (181) (362) (367) (335)

Life Cycle Cost ($) (3

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)

Split AC 7.8 9.8 11.3 113 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

'Based on 18 year lifetime, NAECA efficiency scenario and AEO 2000 reference case.

2 Variation based on AEO 2000 reference, low and high growth case.

3 Based on ARI mean manufacturer costs as reported in Table V1.28

First we considered Trial Standard Level 5, the most efficient level for each of four

classes, representing uniform 18 SEER requirements. Trial Standard Level 5 saves between 8.1

and 8.7 Quads of energy, a significant amount. The estimated reduction in installed generating

capacity is 28.6 GW, or roughly 73 large, 400 megawatt, power plants.22 The forecasted reduction

in generating capacity is approximately 3.7% of current installed generating capacity and more

than 13% of the anticipated growth in capacity needed by 2020. The emissions reductions of 63.7

Mt of carbon equivalent and 193.7 kt of NO, are also significant. However, at this level, the vast

majority of consumers would experience an increase in LCC costs. Purchasers of split central air22 DOE estimates 9 coal-fired power plants and 64 gas-fired power plants can be avoided. See TSD, Chapter 11 and Appendix H.

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 139 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 30''1-08 

Table VI.29. Summary of Analysis Results based on Reverse Engineering Manufacturing Costsl 

Trial Std 1 Trial Std 2 Trial Std 3 

Total Quads Saved2 1.7-1.8 2.9 - 3.2 

Generation Capacity Offset (GW)3 6.4 10.6 

NPV ($billion) 

7 % Discount Rate2 1 to 2 2 

3 % Discount Rate 6 10 

Emissions3 

Carbon Equivalent (Mt) 13.4 23.7 

NOx (kt) 37.2 67.9 

Cumulative Change in INPV ($ million) 

NAECA (30) (159) 

Roll-up3 (181) (362) 

Life Cycle Cost ($) 

Split AC ($75) ($113) 

Packaged AC ($78) ($163) 

SpiitHP ($209) ($365) 

Packaged HP ($207) ($421) 

Payback (years) 

Split AC 7.8 9.8 

Packaged AC 7.7 7.5 

Split HP 2.7 3.9 

PackRj:!;ed Heat Pump 4.6 4.0 

1 Based on 18 year hfetlme, NAECA effiCiency scenano and AEO 2000 reference case. 

2 Variation based on AEO 2000 reference, low and high growth case. 

3 Based on ARl mean manufacturer costs as reported in Table V1.28 

3.4 - 3.7 

12.3 

1 to 2 

10 

27.4 

78.8 

(171 ) 

(367) 

($113) 

($163) 

($372) 

($353) 

11.3 

7.5 

6.4 

8.4 

Trial Std 4 Trial Std 5 

4.3 - 4.6 8.4 - 9.0 

15.4 28.6 

o to 1 -10 to-II 

9 -8 

33.6 63.7 

102.5 193.7 

(169) 

(335) 

($113) $137 

($29) $276 

($372) $41 

($353) ($166) 

11.3 19.6 

14.5 25.1 

6.4 14.0 

8.4 12.8 

First we considered Trial Standard Level 5, the most efficient level for each of four 

classes, representing uniform 18 SEER requirements. Trial Standard Level 5 saves between 8.1 

and 8.7 Quads of energy, a significant amount. The estimated reduction in installed generating 

capacity is 28.6 OW, or roughly 73 large, 400 megawatt, power plants.22 The forecasted reduction 

in generating capacity is approximately 3.7% of current installed generating capacity and more 

than 13% of the anticipated growth in capacity needed by 2020. The emissions reductions of63.7 

Mt of carbon equivalent and 193.7 kt of NO x are also significant. However, at this level, the vast 

majority of consumers would experience an increase in LCC costs. Purchasers of split central air22 DOE estimates 9 coal-fired power plants and 64 gas-fired power plants can be avoided. See TSD, Chapter 11 and Appendix H. 

139 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 307- 08

conditioners, the predominate class of central air conditioner with 65% of the sales of central air

conditioners and heat pumps, would lose $555 over the life of their appliance. 2 3 Purchasers of

split heat pumps, the predominate class of heat pump, would lose $276.24 Moreover, the

Department believes these LCC results overstate the benefits of this trial standard level. Because

we did not have equipment cost estimates at this level, we used instead the costs of 15 SEER

equipment. DOE believes the costs of 18 SEER equipment would be higher than the 15 SEER

costs and that, as a result, the increase in life-cycle-costs would actually be greater than our LCC

analysis indicates. For the nation as a whole Trial Standard Level 5 would have a net cost 22

billion dollars in NPV.2 5 The Department did not calculate manufacturer impacts at this trial

standard level. The Department concludes that at this trial standard level, the benefits of energy

savings, generating capacity reductions and emission reductions would be outweighed by the

negative economic impacts to the nation, to the vast majority of consumers and to the

manufacturers. Consequently, the Department concludes 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 and would save between 4.2 and 4.5 Quads of energy, a significant amount.

The estimated reduction in installed generating capacity is 15.4 GW, or roughly 39 large, 400

23 Consumers would experience a $137 increase in life-cycle-costs based on the Department's reverse engineering manufacturing

costs.

24 Consumers would experience a $41 increase in life-cycle-costs based on the Department's reverse engineering manufacturing

costs.

25 At the 3% societal discount rate scenario, the nation would have a net cost of 35 billion dollars. With the reverse engineering

equipment cost, the NPV is a net cost of 10 to 11 billion dollars at the 7% discount rate and 8 billion dollars at 3%.

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 140 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440-30rr oB 

conditioners, the predominate class of central air conditioner with 65% of the sales of central air 

conditioners and heat pumps, would lose $555 over the life of their appliance.23 Purchasers of 

split heat pumps, the predominate class of heat pump, would lose $276. 24 Moreover, the 

Department believes these LCC results overstate the benefits of this trial standard level. Because 

we did not have equipment cost estimates at this level, we used instead the costs of 15 SEER 

equipment. DOE believes the costs of 18 SEER equipment would be higher than the 15 SEER 

costs and that, as a result, the increase in life-cycle-costs would actually be greater than our LCC 

analysis indicates. For the nation as a whole Trial Standard Level 5 would have a net cost 22 

billion dollars in NPV. 25 The Department did not calculate manufacturer impacts at this trial 

standard level. The Department concludes that at this trial standard level, the benefits of energy 

savings, generating capacity reductions and emission reductions would be outweighed by the 

negative economic impacts to the nation, to the vast majority of consumers and to the 

manufacturers. Consequently, the Department concludes 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 and would save between 4.2 and 4.5 Quads of energy, a significant amount. 

The estimated reduction in installed generating capacity is 15.4 GW, or roughly 39 large, 400 

23 Consumers would experience a $137 increase in life-cycle-costs based on the Department's reverse engineering manufacturing 

costs. 

24 Consumers would experience a $41 increase in life-cycle-costs based on the Department's reverse engineering manufacturing 

costs. 

25 At the 3% societal discount rate scenario, the nation would have a net cost of 35 billion dollars. With the reverse engineering 

equipment cost, the NPV is a net cost of 10 to II billion dollars at the 7% discount rate and 8 billion dollars at 3%. 

140 Q:\EE-41 \EE-431 ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30'!- 08

megawatt, power plants.26 The forecasted reduction in generating capacity is approximately 2% of

current installed generating capacity and more than 7% of the anticipated growth in capacity

needed in 2020. The emissions reductions would also be significant: 33.6 Mt of carbon

equivalent and 102.5 kt of NO,. The NPV of Trial Standard Level 4 would have a net cost of

between 5 and 6 billion dollars. 27 The average LCC savings for consumers with split heat pumps

would be $215, based on ARI equipment costs. 28 Owners of split air conditioners could see their

LCC increase by $29, based on ARI costs.2 9

Under Trial Standard Level 4, the air conditioning industry would experience a NPV loss

of between 169 and 335 million dollars. The range of impacts is driven primarily by the

assumption regarding the distribution of air conditioner and heat pump efficiencies in the market

after implementation of the standard (NAECA or Roll-up). The Department recognizes that the

ability to maintain a full product line is more difficult at higher standard levels and therefore

places more weight on the Roll-up scenario at Trial Standard Level 4. The Department concludes

that at Trial Standard Level 4 the benefits of energy savings, generating capacity reductions and

emission reductions and the reduction in LCC for some consumers are outweighed by the negative

economic impacts on the nation, increase in LCC for most consumers and manufacturer loss in

26 DOE estimates 5 coal-fired power plants and 34 gas-fired power plants can be avoided. See TSD, Chapter 11 and Appendix H.

27 At the 3% societal discount rate scenario, the nation would have a net cost of 3 billion dollars. With the reverse engineering

equipment cost, the NPV has a no net cost at the 7% discount rate and a savings of 9 billion dollars at 3%.

28 Consumers would experience a $372 savings in life-cycle-costs based on the Department's reverse engineering costs.

29 Consumers would experience a $133 savings in life-cycle-costs based on the Department's reverse engineering manufacturing

costs.

Q:\EE-4 1\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

141 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440_ aD'/- DB 

megawatt, power plants.26 The forecasted reduction in generating capacity is approximately 2% of 

current installed generating capacity and more than 7% of the anticipated growth in capacity 

needed in 2020. The emissions reductions would also be significant: 33.6 Mt of carbon 

equivalent and 102.5 kt ofNOx' The NPV of Trial Standard Level 4 would have a net cost of 

between 5 and 6 billion dollars.27 The average LCC savings for consumers with split heat pumps 

would be $215, based on ARI equipment costS.28 Owners of split air conditioners could see their 

LCC increase by $29, based on ARI costS.29 

Under Trial Standard Level 4, the air conditioning industry would experience a NPV loss 

of between 169 and 335 million dollars. The range of impacts is driven primarily by the 

assumption regarding the distribution of air conditioner and heat pump efficiencies in the market 

after implementation of the standard (NAECA or Roll-up). The Department recognizes that the 

ability to maintain a full product line is more difficult at higher standard levels and therefore 

places more weight on the Roll-up scenario at Trial Standard Level 4. The Department concludes 

that at Trial Standard Level 4 the benefits of energy savings, generating capacity reductions and 

emission reductions and the reduction in LCC for some consumers are outweighed by the negative 

economic impacts on the nation, increase in LCC for most consumers and manufacturer loss in 

26 DOE estimates 5 coal-fired power plants and 34 gas-fired power plants can be avoided. See TSD, Chapter II and Appendix H. 

27 At the 3% societal discount rate scenario, the nation would have a net cost 00 billion dollars. With the reverse engineering 

equipment cost, the NPV has a no net cost at the 7% discount rate and a savings of9 billion dollars at 3%. 

costs. 

28 Consumers would experience a $372 savings in life-cycle-costs based on the Department's reverse engineering costs. 

29 Consumers would experience a $133 savings in life-cycle-costs based on the Department's reverse engineering manufacturing 

141 Q:IEE-41 IEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30'7-0L)

NPV. Consequently, the Department concludes Trial Standard Level 4 is not economically

justified.

Next, we considered Trial Standard Level 3. This level specifies 12 SEER for air

conditioners and 13 SEER for heat pumps. The energy savings are estimated to be between 3.4

and 3.6 quads, a significant amount. The estimated reduction in installed generating capacity is

12.3 GW, or roughly 31 large, 400 megawatt, power plants.30 The forecasted reduction in

generating capacity is approximately 1.6% of current installed generating capacity and more than

5% of the anticipated growth in capacity needed in 2020. The emissions reductions would also be

significant: 27.4 Mt of carbon equivalent and 78.8 kt of NO, . The national NPV of this trial

standard level has a range of net costs from 1 to 2 billion dollars, using ARI costs.3 1 '

32 All classes

of product would have mean LCC savings. The average LCC savings for consumers with split air

conditioners would be $45, using ARI costs.33 The average LCC savings for consumers with split

heat pumps would be $215, using ARI costs. 34 As an additional LCC analysis, DOE considered

the effect of standards on low-income consumers. DOE expects low-income consumers will

30 DOE estimates 4 coal-fired power plants and 27 gas-fired power plants can be avoided. See TSD, Chapter 11 and Appendix H.

31 At the 3% societal discount rate scenario, the nation would have a net savings of 3 billion dollars. With the reverse engineering

equipment cost, the NPV has a net savings of I billion dollars at the 7% discount rate and 10 billion dollars at 3%.

32 DOE observes that the average LCC savings for all classes at this trial standard level are positive and at the same time the NPV is

negative. This is a counterintuitive result since the NPV can be described as a sum of individual consumer LCCs. The negative NPV is caused

by a number of factors, including the assumption in the NES that some consumers will purchase more efficient products than is required by the

standard, e.g., 14 SEER. Since the NES uses average usage rates and average marginal energy prices for these consumers, it may overstate the

life-cycle-costs for consumers that voluntarily purchase products which, based on average values, would seem not to be cost-effective.

Furthermore, the NES does not consider factors such as utility rebate programs which would have a effect on total discounted costs.

33 Consumers would experience a $113 savings in life-cycle-costs based on the Department's reverse engineering costs.

34 Consumers would experience a $372 increase in life-cycle-costs based on the Department's reverse engineering costs.

Q:\EE-4 1\EE-43 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 142 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- ~3o'7-o8 

NPV. Consequently, the Department concludes Trial Standard Level 4 is not economically 

justified. 

Next, we considered Trial Standard Level 3. This level specifies 12 SEER for air 

conditioners and 13 SEER for heat pumps. The energy savings are estimated to be between 3.4 

and 3.6 quads, a significant amount. The estimated reduction in installed generating capacity is 

12.3 GW, or roughly 31 large, 400 megawatt, power plants.3D The forecasted reduction in 

generating capacity is approximately 1.6% of current installed generating capacity and more than 

5% of the anticipated growth in capacity needed in 2020. The emissions reductions would also be 

significant: 27.4 Mt of carbon equivalent and 78.8 kt ofNOx' The national NPV of this trial 

standard level has a range of net costs from 1 to 2 billion dollars, using ARl costS.31 ,32 All classes 

of product would have mean LCC savings. The average LCC savings for consumers with split air 

conditioners would be $45, using ARl costS.33 The average LCC savings for consumers with split 

heat pumps would be $215, using ARl costS.34 As an additional LCC analysis, DOE considered 

the effect of standards on low-income consumers. DOE expects low-income consumers will 

30 DOE estimates 4 coal-fired power plants and 27 gas-fired power plants can be avoided. See TSD, Chapter II and Appendix H. 

31 At the 3% societal discount rate scenario, the nation would have a net savings of3 billion dollars. With the reverse engineering 

equipment cost, the NPV has a net savings of I billion dollars at the 7% discount rate and 10 billion dollars at 3%. 

32 DOE observes that the average LCC savings for all classes at this trial standard level are positive and at the same time the NPY is 

negative. This is a counterintuitive result since the NPY can be described as a sum of individual consumer LCCs. The negative NPY is caused 

by a number of factors, including the assumption in the NES that some consumers will purchase more efficient products than is required by the 

standard, e.g., 14 SEER. Since the NES uses average usage rates and average marginal energy prices for these consumers, it may overstate the 

Iife-cycle-costs for consumers that voluntarily purchase products which, based on average values, would seem not to be cost-effective. 

Furthermore, the NES does not consider factors such as utility rebate programs which would have a effect on total discounted costs. 

33 Consumers would experience a $113 savings in life-cycle-costs based on the Department's reverse engineering costs. 

34 Consumers would experience a $372 increase in life-cycle-costs based on the Department's reverse engineering costs. 

142 Q:IEE-41 IEE-431 ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd October 4,2000 (6:35PM) 
EE-RM/STD-98-440.- 30,7- 0

experience less savings than the population as a whole. (See TSD, Chapter 10). Under this trial

standard level, the air conditioning industry would experience a NPV loss of between 171 and

367 million dollars depending on whether the Roll-up or NAECA efficiency distribution scenario

is considered.

Given the benefits and burdens of Trial Standard Level 3 as discussed above, and

observing the reduction in NPV compared to Trial Standard Level 2, the Department compared

the benefits and burdens of the two trial standard levels. Adopting Trial Standard Level 3, instead

of Trial Level 2, would save the nation an additional 0.5 Quads of energy, and further reduce

installed generating capacity by 1.7 GW, or roughly 5 large, 400 megawatt, power plants.3 5 The

incremental emission reductions of carbon equivalent and NOx are 3.7 Mt and 10.9 kt,

respectively. Trial Standard Level 3 would, however, reduce the national NPV by up to 1 billion

dollars, depending on the cost estimates used.36 '

37 The consumer LCC savings are not changed for

central air conditioners, but are reduced by $27 for split heat pumps using ARI costs.38

In determining the economic justification of Trial Standard Level 3, the Department has

weighed the benefits of energy savings, generating capacity reductions, reduced average consumer

LCC, and emissions reductions against the burdens of a loss in manufacturer net present value,

35 DOE estimates one coal-fired power plants and four gas-fired power plants can be avoided.

36 At the 3% societal discount rate, the national NPV is reduced by 1 billion dollars. With the reverse engineering equipment cost,

the NPV is not changed.

37 The total national discounted cost of owning and operating central air conditioners and heat pumps at this Trial Standard Level 3

is 382 billion dollars.

38 Using the reverse engineering costs the savings are increased by $7.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

143 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

J 17 ,) (] EE-R M/STD-98-440·- ()' - U 0 

experience less savings than the population as a whole. (See TSD, Chapter 10). Under this trial 

standard level, the air conditioning industry would experience a NPV loss of between 171 and 

367 million dollars depending on whether the Roll-up or NAECA efficiency distribution scenario 

is considered. 

Given the benefits and burdens of Trial Standard Level 3 as discussed above, and 

observing the reduction in NPV compared to Trial Standard Level 2, the Department compared 

the benefits and burdens of the two trial standard levels. Adopting Trial Standard Level 3, instead 

of Trial Level 2, would save the nation an additional 0.5 Quads of energy, and further reduce 

installed generating capacity by 1.7 GW, or roughly 5 large, 400 megawatt, power plants.35 The 

incremental emission reductions of carbon equivalent and NOx are 3.7 Mt and 10.9 kt, 

respectively. Trial Standard Level 3 would, however, reduce the national NPV by up to 1 billion 

dollars, depending on the cost estimates used. 36

,37 The consumer LCC savings are not changed for 

central air conditioners, but are reduced by $27 for split heat pumps using ARl costS.38 

In determining the economic justification of Trial Standard Level 3, the Department has 

weighed the benefits of energy savings, generating capacity reductions, reduced average consumer 

LCC, and emissions reductions against the burdens of a loss in manufacturer net present value, 

35 DOE estimates one coal-fired power plants and four gas-fired power plants can be avoided. 

36 At the 3% societal discount rate, the national NPV is reduced by I billion dollars. With the reverse engineering equipment cost, 

the NPV is not changed. 

37 The total national discounted cost of owning and operating central air conditioners and heat pumps at this Trial Standard Level 3 

is 382 billion dollars. 

38 Using the reverse engineering costs the savings are increased by $7, 

143 Q:\EE-4\ \EE-43 \ ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- )307-08

consumer LCC increases for some households and the potential loss in national NPV. We find

the benefits to be substantial. Although the loss in manufacturer net present value is also

substantial, the projected LCC increases and loss in national NPV are relatively small, and these

burdens of Trial Standard Level 3 would be outweighed by its benefits. Moreover, in light of the

reverse engineering analysis, we believe the equipment costs will be lower than the ARI estimates

on which we have relied and that the loss in national NPV would be less than estimated.

Comparing Trial Standard Level 3 to Trial Standard Level 2, DOE found the potential

decrease in national NPV is outweighed by other factors not included in the national NPV

calculations. For example, the national NPV calculation does not include quantitative estimates

for the value of emission reductions.3 9 Furthermore, as an added benefit, the standard may

improve the reliability of the electric distribution system. The Department finds that, compared

with Trial Standard Level 2, the incremental benefits of generating capacity reductions and

emission reductions of Trial Standard Level 3 to be greater than the potential loss in national NPV

and increase in life-cycle-costs to some consumers, including a relatively small number of lowincome consumers.

After considering the benefits and burdens of Trial Standard Level 3 and comparing the

impacts of Trial Standard Levels 2 and 3, the Department finds Trial Standard Level 3 to be

maximum improvement in efficiency that is technologically feasible and economically justified.

39 It is possible the NPV does not include the value of avoided power plants. It should be captured in the price of electricity,

however, DOE used the same AEO 2000 prices forecasts in the base case projection as well as each trial standard level. It is entirely possible the

average and marginal electricity prices do not change, however, DOE did not undertake an analysis to determine the effect, if any, of standards

on electricity prices.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 144 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 307~ 08 

consumer LCC increases for some households and the potential loss in national NPV. We find 

the benefits to be substantial. Although the loss in manufacturer net present value is also 

substantial, the projected LCC increases and loss in national NPV are relatively small, and these 

burdens of Trial Standard Level 3 would be outweighed by its benefits. Moreover, in light of the 

reverse engineering analysis, we believe the equipment costs will be lower than the ARI estimates 

on which we have relied and that the loss in national NPV would be less than estimated. 

Comparing Trial Standard Level 3 to Trial Standard Level 2, DOE found the potential 

decrease in national NPV is outweighed by other factors not included in the national NPV 

calculations. For example, the national NPV calculation does not include quantitative estimates 

for the value of emission reductions.39 Furthermore, as an added benefit, the standard may 

improve the reliability of the electric distribution system. The Department finds that, compared 

with Trial Standard Level 2, the incremental benefits of generating capacity reductions and 

emission reductions of Trial Standard Level 3 to be greater than the potential loss in national NPV 

and increase in life-cycle-costs to some consumers, including a relatively small number of lowIncome consumers. 

After considering the benefits and burdens of Trial Standard Level 3 and comparing the 

impacts of Trial Standard Levels 2 and 3, the Department finds Trial Standard Level 3 to be 

maximum improvement in efficiency that is technologically feasible and economically justified. 

39 It is possible the NPV does not include the value of avoided power plants. It should be captured in the price of electricity, 

however, DOE used the same AEO 2000 prices forecasts in the base case projection as well as each trial standard level. It is entirely possible the 

average and marginal electricity prices do not change, however, DOE did not undertake an analysis to determine the effect, if any, of standards 

on electricity prices. 

144 Q:IEE-41IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30'7- 0°

Therefore, the Department today proposes to adopt the energy conservation standards for air

conditioners and heat pumps at Trial Standard Level 3.

VII. Procedural Issues and Regulatory Review

A. Review Under the National Environmental Policy Act

The Department is preparing an Environmental Assessment of the impacts of the proposed

rule and DOE anticipates completing a Finding of No Significant Impact (FONSI) before

publishing the final rule on Energy Conservation Standards for central air conditioners and heat

pumps, pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et

seq.), the regulations of the Council on 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"

The Department has determined today's regulatory action is a significant regulatory action

within the scope of Section 3(f)(1) of Executive Order 12866, "Regulatory Planning and Review."

(58 FR 51735, October 4, 1993). Therefore, this proposal requires a regulatory analysis. Such an

analysis presents major alternatives to the proposed regulation that could achieve substantially the

same goal, as well as a description of the cost and benefits (including potential net benefits) of the

proposed rule. Accordingly, the Office of Information and Regulatory Affairs (OIRA) reviewed

today's action under the Executive Order.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 145 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98.440~ jO'1~ oB 

Therefore, the Department today proposes to adopt the energy conservation standards for air 

conditioners and heat pumps at Trial Standard Level 3. 

VII. Procedural Issues and Regulatory Review 

A. Review Under the National Environmental Policy Act 

The Department is preparing an Environmental Assessment of the impacts of the proposed 

rule and DOE anticipates completing a Finding of No Significant Impact (FONSI) before 

publishing the final rule on Energy Conservation Standards for central air conditioners and heat 

pumps, pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et 

seq.), the regulations of the Council on 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" 

The Department has determined today's regulatory action is a significant regulatory action 

within the scope of Section 3(t)(l) of Executive Order 12866, "Regulatory Planning and Review." 

(58 FR 51735, October 4, 1993). Therefore, this proposal requires a regulatory analysis. Such an 

analysis presents major alternatives to the proposed regulation that could achieve substantially the 

same goal, as well as a description of the cost and benefits (including potential net benefits) of the 

proposed rule. Accordingly, the Office of Information and Regulatory Affairs (OIRA) reviewed 

today's action under the Executive Order. 

145 Q:IEE-41 IEE-431 \CAC\StandRulINOPR\DraftNOPR\CACNOPR24. wpd 

October 4. 2000 (6:35PM) 
EE-RM/STD-98-440 -O301-'

There were no substantive changes between the draft we submitted to OIRA and today's

action. The draft and other documents we submitted to OIRA for review are 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, except Federal holidays, telephone

(202) 586-3142.

The following summary of the Regulatory Impact Analysis (RIA) focuses on the major

alternatives considered in arriving at the proposed approach to improving the energy efficiency of

consumer products. The reader is referred to the complete RIA, which is contained in the TSD,

available as indicated at the beginning of today's proposed rule. The RIA 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 economic impact of the proposed

standard.

The RIA calculates the effects of feasible policy alternatives to central air conditioner and

heat pump energy efficiency standards, and provides a quantitative comparison of the impacts of

the alternatives. We evaluate each alternative in terms of its ability to achieve significant energy

savings at reasonable costs, and we compare it to the effectiveness of the proposed rule.

Q:\EE-41 \EE-43 1 \CAC\StandRul\NOPR\DraflNOPR\CACNOPR24.wpd 146 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -,jo 1-08 

There were no substantive changes between the draft we submitted to OIRA and today's 

action. The draft and other documents we submitted to OIRA for review are 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 of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays, telephone 

(202) 586-3142. 

The following summary of the Regulatory Impact Analysis (RIA) focuses on the major 

alternatives considered in arriving at the proposed approach to improving the energy efficiency of 

consumer products. The reader is referred to the complete RIA, which is contained in the TSD, 

available as indicated at the beginning of today' s proposed rule. The RIA 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 economic impact of the proposed 

standard. 

The RIA calculates the effects of feasible policy alternatives to central air conditioner and 

heat pump energy efficiency standards, and provides a quantitative comparison of the impacts of 

the alternatives. We evaluate each alternative in terms of its ability to achieve significant energy 

savings at reasonable costs, and we compare it to the effectiveness of the proposed rule. 

146 Q:IEE-4I IEE-43I ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 - 30 7-0 0

We created the RIA using a series of regulatory scenarios (with various assumptions),

which we used as input to the shipments model for central air conditioners and heat pumps. We

used the results from the shipments model as inputs to the NES spreadsheet calculations.

DOE identified the following seven major policy alternatives for achieving consumer

product energy efficiency. These alternatives include:

* No New Regulatory Action

* Informational Action

- Product Labeling

- Consumer Education

* Prescriptive Standards

* Financial Incentives

- Tax credits

- Rebates

- Low income and seniors subsidy

* Voluntary Energy Efficiency Targets (5 Years, 10 Years)

* Mass Government Purchases

* The Proposed Approach (Performance Standards)

We have evaluated each alternative in terms of its ability to achieve significant energy

savings at reasonable costs (Table VII. 1), and have compared it to the effectiveness of the

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 147 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD.98.440. 30 1- 08 

We created the RIA using a series of regulatory scenarios (with various assumptions), 

which we used as input to the shipments model for central air conditioners and heat pumps. We 

used the results from the shipments model as inputs to the NES spreadsheet calculations. 

DOE identified the following seven major policy alternatives for achieving consumer 

product energy efficiency. These alternatives include: 

• No New Regulatory Action 

• Informational Action 

- Product Labeling 

- Consumer Education 

• Prescriptive Standards 

• Financial Incentives 

- Tax credits 

- Rebates 

- Low income and seniors subsidy 

• Voluntary Energy Efficiency Targets (5 Years, 10 Years) 

• Mass Government Purchases 

• The Proposed Approach (Performance Standards) 

We have evaluated each alternative in terms of its ability to achieve significant energy 

savings at reasonable costs (Table VII. 1 ), and have compared it to the effectiveness of the 

147 Q:IEE·41 IEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 0 /- 0 8

proposed rule. All of the results below have been determined with the AEO Reference Case and

the NAECA efficiency scenario.

Table VII. 1 Alternatives Considered

NPV Energy Savings Policy Alternatives Policy Alternatives NPV Energy Savings (billions 98$) (Quads)

Consumer Product Labeling 0 0.1

Consumer Education 0 0.1

Prescriptive Standards 0 1.1

Consumer Tax Credits 0 0.1

Consumer Rebates 0 0.2

Manufacturer Tax Credits 0 0.0

Voluntary Efficiency Target (5 year delay) -1 3.1

Voluntary Efficiency Target (10 year delay) -1 1.9

Low Income Subsidy 0 0.1

Mass Government Purchases 0 0

Performance Standards -2 4.4

NPV = Net Present Value (2006-2030, in billion 1998$) (does not include government expenses)

Savings = Energy Savings (Source Quads)

If we imposed no new regulatory action, then we would implement no new standards for

this product. This is essentially the "base case" for central air conditioners and heat pumps. In

this case, between the years 2006 and 2030, there would be an expected energy use of 39 Quads of

primary energy, with no energy savings and a zero NPV.

We grouped several alternatives to the base case under the heading of informational

action. They include consumer product labeling and DOE public education and information

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 148 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 30 7- a B 

proposed rule. All of the results below have been determined with the AEO Reference Case and 

the NAECA efficiency scenario. 

Table VILI Alternatives Considered 

Policy Alternatives NPV Energy Savings 

(billions 98$) (Quads) 

Consumer Product Labeling 0 0.1 

Consumer Education 0 0.1 

Prescriptive Standards 0 1.1 

Consumer Tax Credits 0 0.1 

Consumer Rebates 0 0.2 

Manufacturer Tax Credits 0 0.0 

Voluntary Efficiency Target (5 year delay) -I 3.1 

Voluntary Efficiency Target (10 year delay) -1 1.9 

Low Income Subsidy 0 0.1 

Mass Government Purchases 0 0 

Performance Standards -2 4.4 

NPV = Net Present Value (2006-2030, in billion 1998$) (does not include government expenses) 

Savings = Energy Savings (Source Quads) 

If we imposed no new regulatory action, then we would implement no new standards for 

this product. This is essentially the "base case" for central air conditioners and heat pumps. In 

this case, between the years 2006 and 2030, there would be an expected energy use of 39 Quads of 

primary energy, with no energy savings and a zero NPV. 

We grouped several alternatives to the base case under the heading of informational 

action. They include consumer product labeling and DOE public education and information 

148 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4.2000 (6:35PM) 
EE-RM/STD-98-440- 30 7-

programs. Both of these alternatives are already mandated by, and are being implemented under

EPCA Sections 324 and 337, 42 U.S.C. 6294, 6297. One base case alternative would be to

estimate the energy conservation potential of enhancing consumer product labeling. To model

this possibility, the Department estimated that 5% of the consumers purchasing 10 SEER

equipment and 5% of the consumers purchasing 12 SEER equipment would change their

decisions and purchase 12 SEER and 13 SEER systems, respectively. It is assumed that the

program would last six years and upon its expiration consumers would revert back to their prior

purchase decisions. The consumer product labeling alternative resulted in 0.1 Quad of energy

savings with no impact on the NPV.

Another approach, called consumer education, is to consider an Energy Star® program for

12 SEER and 13 SEER central air conditioners and heat pumps. We assume, under this program,

there would be a 20% increase in the sales of both 12 SEER and 13 SEER systems. As with the

consumer product labeling program, it is assumed that the education program would last six years

and upon its expiration sales would drop back to their market share levels prior to the program's

implementation. This consumer education program results in energy savings equal to 0.1 Quad

with no impact on the NPV.

Another method of setting standards would entail requiring that certain design options be

used on each product, i.e., for DOE to impose prescriptive standards. For this approach, we

assume that a prescriptive standard is implemented to ensure that all central air conditioners and

heat pumps are equipped with thermostatic expansion valves (TXVs). The resulting efficiency

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 149 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 -3D 1- 0 £3 

programs. Both of these alternatives are already mandated by, and are being implemented under 

EPCA Sections 324 and 337, 42 U.S.C. 6294, 6297. One base case alternative would be to 

estimate the energy conservation potential of enhancing consumer product labeling. To model 

this possibility, the Department estimated that 5% of the consumers purchasing 10 SEER 

equipment and 5% of the consumers purchasing 12 SEER equipment would change their 

decisions and purchase 12 SEER and 13 SEER systems, respectively. It is assumed that the 

program would last six years and upon its expiration consumers would revert back to their prior 

purchase decisions. The consumer product labeling alternative resulted in 0.1 Quad of energy 

savings with no impact on the NPV. 

Another approach, called consumer education, is to consider an Energy Star® program for 

12 SEER and 13 SEER central air conditioners and heat pumps. We assume, under this program, 

there would be a 20% increase in the sales of both 12 SEER and 13 SEER systems. As with the 

consumer product labeling program, it is assumed that the education program would last six years 

and upon its expiration sales would drop back to their market share levels prior to the program's 

implementation. This consumer education program results in energy savings equal to 0.1 Quad 

with no impact on the NPV. 

Another method of setting standards would entail requiring that certain design options be 

used on each product, i.e., for DOE to impose prescriptive standards. For this approach, we 

assume that a prescriptive standard is implemented to ensure that all central air conditioners and 

heat pumps are equipped with thermostatic expansion valves CTXV s). The resulting efficiency 

149 Q:\EE-41 \EE-431 ICACIStandRuIlNOPRIDraftNOPRICACNOPR24. wpd 

October 4.2000 (6:35PM) 
EE-RM/STD-98-440- 30o 0- 8

increase is 0.5 SEER. That is, the baseline efficiency of 10 SEER is assumed to increase to

10.5 SEER as a result of the prescriptive standard. Manufacturer costs associated with this

standard were arrived by linearly interpolating between those costs associated with the baseline

(i.e., 10 SEER) and 11 SEER efficiency levels. This resulted in energy savings of 1.1 Quad and

no impact on the NPV.

We tested various financial incentive alternatives. These included tax credits and rebates

to consumers, as well as tax credits to manufacturers. We assumed the tax credits to consumers

were 50% of the incremental purchase price for higher energy-efficiency equipment. The

incremental price is based on the difference between the 2006 baseline price and the price of

12 SEER equipment. We estimate the impact of this policy would be to move 5% of the market

share from the 2006 baseline to 12 SEER models. These tax credits would start in 2006 and run

for six years. We assume people stop buying these more efficient and more expensive central air

conditioners and heat pumps when the tax credits stop. The tax credits to consumers showed a

change from the base case, saving 0.1 Quad with no impact to the NPV.

To estimate the impact of consumer rebates, we assumed rebates of 35% of the

incremental retail prices for higher energy-efficiency equipment. The incremental cost is based on

the difference between the 2006 baseline cost and the cost of 12 SEER equipment. We estimate

the impact of this policy would be to move 10% of market share from the 2006 baseline to the 12

SEER models. These rebates would start in 2006 and run for six years. We assume people stop

buying these more efficient and more expensive central air conditioners and heat pumps when the

Q:\EE-4 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

150 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440_ 30'108 

increase is 0.5 SEER. That is, the baseline efficiency of 10 SEER is assumed to increase to 

10.5 SEER as a result of the prescriptive standard. Manufacturer costs associated with this 

standard were arrived by linearly interpolating between those costs associated with the baseline 

(i.e., 10 SEER) and 11 SEER efficiency levels. This resulted in energy savings of 1.1 Quad and 

no impact on the NPV. 

We tested various financial incentive alternatives. These included tax credits and rebates 

to consumers, as well as tax credits to manufacturers. We assumed the tax credits to consumers 

were 50% of the incremental purchase price for higher energy-efficiency equipment. The 

incremental price is based on the difference between the 2006 baseline price and the price of 

12 SEER equipment. We estimate the impact of this policy would be to move 5% of the market 

share from the 2006 baseline to 12 SEER models. These tax credits would start in 2006 and run 

for six years. We assume people stop buying these more efficient and more expensive central air 

conditioners and heat pumps when the tax credits stop. The tax credits to consumers showed a 

change from the base case, saving 0.1 Quad with no impact to the NPV. 

To estimate the impact of consumer rebates, we assumed rebates of 35% of the 

incremental retail prices for higher energy-efficiency equipment. The incremental cost is based on 

the difference between the 2006 baseline cost and the cost of 12 SEER equipment. We estimate 

the impact of this policy would be to move 10% of market share from the 2006 baseline to the 12 

SEER models. These rebates would start in 2006 and run for six years. We assume people stop 

buying these more efficient and more expensive central air conditioners and heat pumps when the 

150 Q:IEE-41 IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30i - 0

rebates stop. The rebates to consumers showed a change from the base case, would save 0.2

Quad with no impact to the NPV.

Another financial incentive we considered was a tax credit to manufacturers for the

production of energy-efficient models of central air conditioners and heat pumps. We assumed an

investment tax credit of 20%, applicable to the tooling and machinery costs of the manufacturers.

These are tooling costs as they relate to producing 12 SEER central air conditioners and heat

pumps. We estimate the impact of this policy would be to move 1% of the market share from the

2006 baseline to the 12 SEER models. These tax credits would start in 2006 and run for six years.

We assume no persistence in the market once they stop. Tax credits to manufacturers would save

no energy and have no impact on the NPV. The impact of this scenario would be negligible

because the investment tax credit was applicable only to the tooling and machinery costs of the

firms. The firms' fixed costs and some of the design improvements that would likely be adopted

to manufacture more efficient versions of this product would involve purchased parts. Expenses

for purchased parts would not be eligible for an investment tax credit.

We examined two scenarios of voluntary energy efficiency targets. In the first one, we

assumed all the relevant manufacturers voluntarily adopted the proposed energy conservation

standards in five years. In the second scenario, we assumed the proposed standards were adopted

in 10 years. In these scenarios, voluntary improvements having a five-year delay, compared to

implementation of mandatory standards, would result in energy savings of 3.1 Quads and -

$1 billion NPV; voluntary improvements having a 10-year delay would result inl.9 Quads being

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 151 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440~ jo~l a 8 

rebates stop. The rebates to consumers showed a change from the base case, would save 0.2 

Quad with no impact to the NPV. 

Another financial incentive we considered was a tax credit to manufacturers for the 

production of energy-efficient models of central air conditioners and heat pumps. We assumed an 

investment tax credit of 20%, applicable to the tooling and machinery costs of the manufacturers. 

These are tooling costs as they relate to producing 12 SEER central air conditioners and heat 

pumps. We estimate the impact of this policy would be to move 1 % of the market share from the 

2006 baseline to the 12 SEER models. These tax credits would start in 2006 and run for six years. 

We assume no persistence in the market once they stop. Tax credits to manufacturers would save 

no energy and have no impact on the NPV. The impact of this scenario would be negligible 

because the investment tax credit was applicable only to the tooling and machinery costs of the 

firms. The firms' fixed costs and some of the design improvements that would likely be adopted 

to manufacture more efficient versions of this product would involve purchased parts. Expenses 

for purchased parts would not be eligible for an investment tax credit. 

We examined two scenarios of voluntary energy efficiency targets. In the first one, we 

assumed all the relevant manufacturers voluntarily adopted the proposed energy conservation 

standards in five years. In the second scenario, we assumed the proposed standards were adopted 

in 10 years. In these scenarios, voluntary improvements having a five-year delay, compared to 

implementation of mandatory standards, would result in energy savings of 3.1 Quads and -

$1 billion NPV; voluntary improvements having a 10-year delay would result inl.9 Quads being 

151 Q:\EE-41 \EE-431\CAc\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- ,30-06

saved and -$1 billion NPV. These scenarios assume that there would be universal voluntary

adoption of the energy conservation standards by these appliance manufacturers, an assumption

for which there is no assurance.

One of the market barriers to higher efficiency central air conditioners and heat pumps is

the expense to upgrading to a more efficient system. Since these expenses can be a particular

burden on low income households, we considered a low income subsidy of $500 to make higher

efficiency central air-conditioning and heat pump equipment available and cost effective for these

households. We determined the number of low income households with central air-conditioning

from the RECS public use data. We assumed that half of these households would take advantage

of the program. The program would start in 2006 and run for six years. This subsidy would save

0.1 Quad with no impact to the NPV.

Another policy alternative we reviewed was that of large purchases of high efficiency

central air conditioners and heat pumps by Federal, State, and local governments. We modeled

this policy by assuming these governmental entities (e.g., U.S. Department of Housing and Urban

Development at the Federal level) purchased 12 SEER equipment for 5% of the low income,

rented housing stock utilizing central air-conditioning and heat pump equipment. This policy

alternative resulted in no energy savings with no impact to the NPV.

Lastly, all of these alternatives must be gauged against the performance standards we are

proposing in today's proposed rule. Such performance standards would result in energy savings

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

152 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-30r;-o8 

saved and -$1 billion NPV. These scenarios assume that there would be universal voluntary 

adoption of the energy conservation standards by these appliance manufacturers, an assumption 

for which there is no assurance. 

One of the market barriers to higher efficiency central air conditioners and heat pumps is 

the expense to upgrading to a more efficient system. Since these expenses can be a particular 

burden on low income households, we considered a low income subsidy of $500 to make higher 

efficiency central air-conditioning and heat pump equipment available and cost effective for these 

households. We determined the number of low income households with central air-conditioning 

from the RECS public use data. We assumed that half of these households would take advantage 

of the program. The program would start in 2006 and run for six years. This subsidy would save 

0.1 Quad with no impact to the NPV. 

Another policy alternative we reviewed was that of large purchases of high efficiency 

central air conditioners and heat pumps by Federal, State, and local governments. We modeled 

this policy by assuming these governmental entities (e.g., u.S. Department of Housing and Urban 

Development at the Federal level) purchased 12 SEER equipment for 5% of the low income, 

rented housing stock utilizing central air-conditioning and heat pump equipment. This policy 

alternative resulted in no energy savings with no impact to the NPV. 

Lastly, all of these alternatives must be gauged against the performance standards we are 

proposing in today's proposed rule. Such performance standards would result in energy savings 

152 Q:IEE-41IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4. 2000 (6:35PM) 
EE-RM/STD-98-440- 30 -08

under the AEO Reference Case and NAECA efficiency scenario of 3.5 Quads, and the NPV

estimates range from an increase of $3 billion to a cost of $2 billion.

As indicated in the paragraphs above, none of the alternatives we examined for these

products would save as much energy as today's proposed rule. Also, several of the alternatives

would require new enabling legislation, since authority to carry out those alternatives does not

presently exist.

C. Review Under the Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment of the

impact of regulations on small businesses. For air conditioning and warm air heating equipment

manufacturing, a "firm" is defined by the Small Business Administration as a small business if it

(including affliates) has 750 or fewer employees.

The residential air-conditioner industry is characterized by seven firms accounting for

nearly 95% of sales. DOE understands that each of these firms, including its affiliates, has more

than 750 employees. Smaller businesses and firms, which make specialty air-conditioning

products and supply niche markets, share 5% of the market.

In this industry, average production cost is inversely related to firm size. The industry

displays economies of scale, and large firms (to the extent that their facilities are modernized)

have lower average production costs than small firms. This fact, coupled with increasing

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 153 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440_ j01-o8 

under the AEO Reference Case and NAECA efficiency scenario of 3.5 Quads, and the NPV 

estimates range from an increase of $3 billion to a cost of $2 billion. 

As indicated in the paragraphs above, none of the alternatives we examined for these 

products would save as much energy as today's proposed rule. Also, several of the alternatives 

would require new enabling legislation, since authority to carry out those alternatives does not 

presently exist. 

C. Review Under the Regulatory Flexibility Act 

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment of the 

impact of regulations on small businesses. For air conditioning and warm air heating equipment 

manufacturing, a "firm" is defined by the Small Business Administration as a small business if it 

(including affliates) has 750 or fewer employees. 

The residential air-conditioner industry is characterized by seven firms accounting for 

nearly 95% of sales. DOE understands that each of these firms, including its affiliates, has more 

than 750 employees. Smaller businesses and firms, which make specialty air-conditioning 

products and supply niche markets, share 5% of the market. 

In this industry, average production cost is inversely related to firm size. The industry 

displays economies of scale, and large firms (to the extent that their facilities are modernized) 

have lower average production costs than small firms. This fact, coupled with increasing 

153 Q:\EE-41 \EE-431 ICACIStandRul\NOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 3 0 7- 08

competitiveness of the national market, probably accounts for the consolidation that has occurred

for several decades. The fact that the consolidation has been producing larger firms strongly

corroborates the finding that large firms have a cost advantage.

A principal implication of consolidation is that the smaller of the firms will be, on average,

more vulnerable to the financial impacts of higher efficiency standards. Any decrease in average

profitability is more likely to mean the difference between success and failure for a smaller firm.

The impact of higher efficiency standards on small firms is likely to be mixed. Those firms

that face a large technological challenge in meeting the new standards may face a disproportionate

burden, because smaller firms have more limited research and development capabilities than their

larger competitors. Some smaller manufacturers indicated the potential for a negative economic

impact of any higher standard level on their firms. However, since these concerns apply primarily

to small manufacturers of niche products, they benefit from the provisions proposed by the

Department to somewhat protect those products from the new standards. For example, a separate

product class is being proposed for through-the-wall equipment, many of which are manufactured

by small manufacturers. Also, the Department has acknowledged that small manufacturers of

high velocity distribution systems may potentially be adversely affected by the proposed standard

level. The Department is considering modifications to the SEER test procedure, which would

grant these manufacturers some relief. Vertical-packaged, wall-mounted equipment is another

product manufactured by small firms, and, as stated in Section V.J.3 of this notice, the

Department intends to consider those to be commercial products under EPACT. These provisions

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 154 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 307- 08 

competitiveness of the national market, probably accounts for the consolidation that has occurred 

for several decades. The fact that the consolidation has been producing larger firms strongly 

corroborates the finding that large firms have a cost advantage. 

A principal implication of consolidation is that the smaller of the firms will be, on average, 

more vulnerable to the financial impacts of higher efficiency standards. Any decrease in average 

profitability is more likely to mean the difference between success and failure for a smaller firm. 

The impact of higher efficiency standards on small firms is likely to be mixed. Those firms 

that face a large technological challenge in meeting the new standards may face a disproportionate 

burden, because smaller firms have more limited research and development capabilities than their 

larger competitors. Some smaller manufacturers indicated the potential for a negative economic 

impact of any higher standard level on their firms. However, since these concerns apply primarily 

to small manufacturers of niche products, they benefit from the provisions proposed by the 

Department to somewhat protect those products from the new standards. For example, a separate 

product class is being proposed for through-the-wall equipment, many of which are manufactured 

by small manufacturers. Also, the Department has acknowledged that small manufacturers of 

high velocity distribution systems may potentially be adversely affected by the proposed standard 

level. The Department is considering modifications to the SEER test procedure, which would 

grant these manufacturers some relief. Vertical-packaged, wall-mounted equipment is another 

product manufactured by small firms, and, as stated in Section V.1.3 of this notice, the 

Department intends to consider those to be commercial products under EPACT. These provisions 

154 Q:IEE-41IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440 -3J1 - 0

should eliminate any potential for significant economic impact on small manufacturers related to

the proposed standard level.

Many small manufacturers produce coils only. Since there are no intensive incremental

technological or capital requirements for these companies to increase the efficiency of their

products, we do not expect them to face any incremental burden as a result of the new standards.

In view of these conclusions, the Department has determined and hereby certifies pursuant

to Section 605(b) of the Regulatory Flexibility Act that, for this particular industry, the proposed

standard levels in today's proposed rule will not "have a significant economic impact on a

substantial number of small entities," and it is not necessary to prepare a regulatory flexibility

analysis.

D. Review Under the Paperwork Reduction Act

No new information or record keeping requirements are proposed in 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

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 155 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440'· jO/1- 08> 

should eliminate any potential for significant economic impact on small manufacturers related to 

the proposed standard level. 

Many small manufacturers produce coils only. Since there are no intensive incremental 

technological or capital requirements for these companies to increase the efficiency of their 

products, we do not expect them to face any incremental burden as a result of the new standards. 

In view of these conclusions, the Department has determined and hereby certifies pursuant 

to Section 605(b) of the Regulatory Flexibility Act that, for this particular industry, the proposed 

standard levels in today's proposed rule will not "have a significant economic impact on a 

substantial number of small entities," and it is not necessary to prepare a regulatory flexibility 

analysis. 

D. Review Under the Paperwork Reduction Act 

No new information or record keeping requirements are proposed in 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 

155 Q:IEE-41IEE-431 \CAC\StandRulINOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 3D- 0 '

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 proposed

rule under the standards of Section 3 of the Executive Order and determined that, to the extent

permitted by law, the regulations meet the relevant standards.

F. "Takings "Assessment Review

The Department has determined pursuant to Executive Order 12630, "Governmental

Actions and Interference with Constitutionally Protected Property Rights," 53 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.

Q:\EE-4 1\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 156 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD~98~440 - 3D 7- Q 8 

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 proposed 

rule under the standards of Section 3 of the Executive Order and determined that, to the extent 

permitted by law, the regulations meet the relevant standards. 

F. "Takings" Assessment Review 

The Department has determined pursuant to Executive Order 12630, "Governmental 

Actions and Interference with Constitutionally Protected Property Rights," 53 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. 

156 Q:\EE-41 \EE-431ICAc\StandRulINOPRlDrafiNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -30 7' Q

G. Review Under Executive Order 13132

Executive Order 13132 (64 FR 43255, August 4, 1999) requires agencies to develop an

accountable process to ensure meaningful and timely input by State and local officials in the

development of regulatory policies 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. DOE has

examined today's proposed 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 proposed rule

were preempted by the Federal standards established in NAECA 1987. States can petition the

Department for exemption from such preemption based on criteria set forth in EPCA. No further

action is required by Executive Order 13132.

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) in any one year, Section 202(a) of the Unfunded Mandates

Reform Action of 1995 (UMRA), 2 U.S.C. 1531 et seq. requires a Federal agency to publish a

written statement concerning estimates of the resulting costs, benefits and other effects on the

national economy. 2 U.S.C. 1532(a),(b). DOE estimates that the proposed standards, if adopted,

would not result in the expenditure by the private sector of $100 million or more in a year, with

Q:\EE-41 \EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

157 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 .. 307- 09 

G. Review Under Executive Order 13132 

Executive Order 13132 (64 FR 43255, August 4, 1999) requires agencies to develop an 

accountable process to ensure meaningful and timely input by State and local officials in the 

development of regulatory policies 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. DOE has 

examined today's proposed rule arid 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 oftoday's proposed rule 

were preempted by the Federal standards established in NAECA 1987. States can petition the 

Department for exemption from such preemption based on criteria set forth in EPCA. No further 

action is required by Executive Order 13132. 

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) in anyone year, Section 202(a) of the Unfunded Mandates 

Reform Action of 1995 (UMRA), 2 U.S.C. 1531 et seq. requires a Federal agency to publish a 

written statement concerning estimates of the resulting costs, benefits and other effects on the 

national economy. 2 U.S.C. 1532(a),(b). DOE estimates that the proposed standards, if adopted, 

would not result in the expenditure by the private sector of $1 00 million or more in a year, with 

157 Q:\EE-41 \EE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-30JO 7- C

the possible exception of one year in which industry expenditures could total approximately $110

million.

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

Proposed Rulemaking and "Regulatory Impact Analysis" section of the TSD for today's proposed

rule responds to those requirements.

DOE is obligated by Section 205 of UMRA, 2 U.S.C. 1535, to identify and consider a

reasonable number of regulatory alternatives before promulgating a rule for which a written

statement under Section 202 is required. From those alternatives, DOE must select the least

costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule,

unless DOE publishes an explanation of why a different alternative is selected. As required by

Section 325(o) of the Energy Policy and Conservation Act (42 U.S.C. 6295(o)), this proposed rule

would establish 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 this

notice.

Q:\EE-4 1\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

158 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440-3D7-08 

the possible exception of one year in which industry expenditures could total approximately $110 

million. 

Section 202 ofUMRA 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(0) of 

EPCA and Executive Order 12866. The Supplementary Information section ofthe Notice of 

Proposed Rulemaking and "Regulatory Impact Analysis" section of the TSD for today's proposed 

rule responds to those requirements. 

DOE is obligated by Section 205 ofUMRA, 2 U.S.C. 1535, to identify and consider a 

reasonable number of regulatory alternatives before promulgating a rule for which a written 

statement under Section 202 is required. From those alternatives, DOE must select the least 

costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule, 

unless DOE publishes an explanation of why a different alternative is selected. As required by 

Section 325(0) of the Energy Policy and Conservation Act (42 U.S.C. 6295(0)), this proposed rule 

would establish 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 this 

notice. 

158 Q:\EE-41 \EE·431\CAC\StandRulINOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30 0C

I. Review Under the Treasury and General Government Appropriations Act of1999

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 proposal 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.

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, by January 1, 1999,

plain language in all proposed and final rulemaking documents published in the Federal Register,

unless the rule was proposed before that date.

Today's proposed 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 (63 FR 31883):

* Organization of the material to serve the needs of the readers (stakeholders).

· Use of common, everyday words in short sentences.

· Shorter sentences and sections.

We invite your comments on how to make this proposed rule easier to understand.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24 .wpd

159 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 301 08 

1 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 proposal 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. 

J. Review Under the Plain Language Directives 

Section I(b)(I2) 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, by January 1,1999, 

plain language in all proposed and final rulemaking documents published in the Federal Register, 

unless the rule was proposed before that date. 

Today's proposed rule uses the following general techniques to abide by Section I(b)(l2) 

of Executive Order 12866 and the Presidential memorandum of June 1, 1998 (63 FR 31883): 

• Organization of the material to serve the needs of the readers (stakeholders). 

• Use of common, everyday words in short sentences. 

• Shorter sentences and sections. 

We invite your comments on how to make this proposed rule easier to understand. 

159 Q:IEE-41IEE-431 ICACIStandRuIINOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440-J3'7- 0

VIII. Public Comment

A. Written Comment Procedures

The Department invites interested persons to participate in the proposed rulemaking by

submitting data, comments, or information with respect to the proposed issues set forth in today's

proposed rule to Ms. Brenda Edwards-Jones, at the address indicated at the beginning of this

notice. We will consider all submittals received by the date specified at the beginning of this

notice in developing the final rule.

According to 10 CFR 1004.11, any person submitting information that he or she believes

to be confidential and exempt by law from public disclosure should submit one complete copy of

the document and ten (10) copies, if possible, from which the information believed to be

confidential has been deleted. The Department of Energy will make its own determination with

regard to the confidential status of the information and treat it according to its determination.

Factors of interest to the Department when evaluating requests to treat as confidential

information that has been submitted include: (1) a description of the items; (2) an indication as to

whether and why such items are customarily treated as confidential within the industry;

(3) whether the information is generally known by or available from other sources; (4) whether the

information has previously been made available to others without obligation concerning its

confidentiality; (5) an explanation of the competitive injury to the submitting person which would

result from public disclosure; (6) an indication as to when such information might lose its

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 160 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STO-9S-440-J0-7-08 

VIII. Public Comment 

A. Written Comment Procedures 

The Department invites interested persons to participate in the proposed rulemaking by 

submitting data, comments, or information with respect to the proposed issues set forth in today's 

proposed rule to Ms. Brenda Edwards-Jones, at the address indicated at the beginning of this 

notice. We will consider all submittals received by the date specified at the beginning of this 

notice in developing the final rule. 

According to 10 CFR 1004.11, any person submitting information that he or she believes 

to be confidential and exempt by law from public disclosure should submit one complete copy of 

the document and ten (10) copies, if possible, from which the information believed to be 

confidential has been deleted. The Department of Energy will make its own determination with 

regard to the confidential status of the information and treat it according to its determination. 

Factors of interest to the Department when evaluating requests to treat as confidential 

information that has been submitted include: (1) a description of the items; (2) an indication as to 

whether and why such items are customarily treated as confidential within the industry; 

(3) whether the information is generally known by or available from other sources; (4) whether the 

information has previously been made available to others without obligation concerning its 

confidentiality; (5) an explanation of the competitive injury to the submitting person which would 

result from public disclosure; (6) an indication as to when such information might lose its 

160 Q:\EE-41 \EE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30"7- 06

confidential character due to the passage of time; and (7) whether disclosure of the information

would be contrary to the public interest.

B. Public Workshop/Hearing

1. Procedure for Submitting Requests to Speak

You will find the time and place of the public hearing listed at the beginning of this notice.

We invite any person who has an interest in today's notice, or who is a representative of a group

or class of persons that has an interest in these issues, to request an opportunity to make an oral

presentation. If you would like to attend the public hearing, please notify Ms. Brenda EdwardsJones at (202) 586-2945. You may hand deliver requests to speak to the address indicated at the

beginning of this notice between the hours of 8:00 a.m. and 4:00 p.m., Monday through Friday,

except Federal holidays. You may also send them by mail or E-mail to brenda.edwardsjones@ee.doe.gov.

The person making the request should state why he or she, either individually or as a

representative of a group or class of persons, is an appropriate spokesperson, briefly describe the

nature of the interest in the rulemaking, and provide a telephone number for contact. We request

each person selected to be heard to submit an advance copy of his or her statement at least two

weeks prior to the date of this hearing as indicated at the beginning of this notice. At our

discretion, we may permit any person who cannot do this to participate if that person has made

alternative arrangements with the Office of Building Research and Standards in advance. The

request to give an oral presentation should ask for such alternative arrangements.

Q:\EE-4 1EE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 161 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440,.. 307- 08 

confidential character due to the passage of time; and (7) whether disclosure of the information 

would be contrary to the public interest. 

B. Public Workshop/Hearing 

1. Procedure for Submitting Requests to Speak 

You will find the time and place of the public hearing listed at the beginning of this notice. 

We invite any person who has an interest in today's notice, or who is a representative of a group 

or class of persons that has an interest in these issues, to request an opportunity to make an oral 

presentation. If you would like to attend the public hearing, please notify Ms. Brenda EdwardsJones at (202) 586-2945. You may hand deliver requests to speak to the address indicated at the 

beginning of this notice between the hours of 8:00 a.m. and 4:00 p.m., Monday through Friday, 

except Federal holidays. You may also send them by mail or E-mail to brenda. edwardsjones@ee.doe.gov. 

The person making the request should state why he or she, either individually or as a 

representative of a group or class of persons, is an appropriate spokesperson, briefly describe the 

nature of the interest in the rulemaking, and provide a telephone number for contact. We request 

each person selected to be heard to submit an advance copy of his or her statement at least two 

weeks prior to the date of this hearing as indicated at the beginning of this notice. At our 

discretion, we may permit any person who cannot do this to participate if that person has made 

alternative arrangements with the Office of Building Research and Standards in advance. The 

request to give an oral presentation should ask for such alternative arrangements. 

161 Q:\EE-41 \EE-431\CAC\StandRu)\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440-30' - 0

2. Conduct of Hearing

The Department will designate a Department official to preside at the workshop and we

may also use a professional facilitator to facilitate discussion. The workshop will not be a judicial

or evidentiary-type hearing, but the Department will conduct it in accordance with 5 U.S.C. 553

and Section 336 of the Act and a court reporter will be present to record the transcript of the

workshop. We reserve the right to schedule the presentations by workshop participants, and to

establish the procedures governing the conduct of the workshop.

The Department will permit each participant to make a prepared general statement, limited

to five (5) minutes, prior to the discussion of specific topics. The general statement should not

address these specific topics, but may cover any other issues pertinent to this rulemaking. The

Department will permit other participants to briefly comment on any general statements. We will

divide the remainder of the hearing into segments, with each segment consisting of one or more of

the following specific topics covered by this notice:

* Engineering analysis, including mark-up;

* Life-Cycle-Cost and payback analysis;

* National Energy Savings and Net Present Value;

* Manufacturer impacts;

* Utility impacts;

* Proposed standards, including an EER-based standard and TXV considerations;

and

Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24. wpd 162 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD-98.440~301- 08 

2. Conduct of Hearing 

The Department will designate a Department official to preside at the workshop and we 

may also use a professional facilitator to facilitate discussion. The workshop will not be a judicial 

or evidentiary-type hearing, but the Department will conduct it in accordance with 5 U.S.C. 553 

and Section 336 of the Act and a court reporter will be present to record the transcript of the 

workshop. We reserve the right to schedule the presentations by workshop participants, and to 

establish the procedures governing the conduct of the workshop. 

The Department will permit each participant to make a prepared general statement, limited 

to five (5) minutes, prior to the discussion of specific topics. The general statement should not 

address these specific topics, but may cover any other issues pertinent to this rulemaking. The 

Department Will permit other participants to briefly comment on any general statements. We will 

divide the remainder of the hearing into segments, with each segment consisting of one or more of 

the following specific topics covered by this notice: 

• Engineering analysis, including mark-up; 

• Life-Cycle-Cost and payback analysis; 

• National Energy Savings and Net Present Value; 

• Manufacturer impacts; 

• Utility impacts; 

• Proposed standards, including an EER-based standard and TXV considerations; 

and 

162 Q:IEE-41 IEE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30 - 0 8

Other issues.

The Department will introduce each topic with a brief summary of the relevant parts of our

analysis and of the proposed rule, and the significant issues involved. We will then permit

participants in the hearing to make a prepared statement limited to five (5) minutes on that topic.

At the end of all prepared statements on a topic, the Department will permit each participant to

briefly clarify his or her statement and comment on statements made by others. Participants

should be prepared to answer questions by us and by other participants concerning these issues.

Our representatives may also ask questions of participants concerning other matters relevant to the

hearing. The total cumulative amount of time allowed for each participant to make prepared

statements will be 20 minutes.

The official conducting the hearing will accept additional comments or questions from

those attending, as time permits. The presiding official will announce any further procedural rules,

or modification of the above procedures, needed for the proper conduct of the hearing.

We will make the entire record of this rulemaking, including the transcript, available for

inspection in the Department's Freedom of Information Reading Room. Any person may

purchase a copy of the transcript from the transcribing reporter.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

163 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440 - 3D 7- 0 8 

• Other issues. 

The Department will introduce each topic with a brief summary of the relevant parts of our 

analysis and of the proposed rule, and the significant issues involved. We will then permit 

participants in the hearing to make a prepared statement limited to five (5) minutes on that topic. 

At the end of all prepared statements on a topic, the Department will permit each participant to 

briefly clarify his or her statement and comment on statements made by others. Participants 

should be prepared to answer questions by us and by other participants concerning these issues. 

Our representatives may also ask questions of participants concerning other matters relevant to the 

hearing. The total cumulative amount of time allowed for each participant to make prepared 

statements will be 20 minutes. 

The official conducting the hearing will accept additional comments or questions from 

those attending, as time permits. The presiding official will announce any further procedural rules, 

or modification of the above procedures, needed for the proper conduct of the hearing. 

We will make the entire record of this rulemaking, including the transcript, available for 

inspection in the Department's Freedom ofInformation Reading Room. Any person may 

purchase a copy of the transcript from the transcribing reporter. 

163 Q:IEE-41 IEE-431 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440- 30 7.. 0

C. Issuesfor Which DOE Seeks Comment.

The Department is particularly interested in receiving comments and views of interested

parties concerning:

(1) whether explicit consideration of extended warranties would produce significantly different

results from those based on service costs alone;

(2) the Department's methodology and data for determining the appropriate marginal energy

costs;

(3) the burdens and benefits that would result from including an EER requirement in the final rule.

Of particular interest are comments regarding burdens on manufacturers, benefits regarding

reduction in peak electricity demand, the effect of more stringent standards on the cost and

availability of modulating equipment, and the effect that an EER floor would have on electrical

system reliability. In addition, comments are welcome to discuss the pros and cons of any of the

options described in Section V.I.2 above, as well as other approaches;

(4) whether the proposed standards concerning high-velocity, vertically-packaged wall-mounted

equipment, and through-the-wall equipment provide a significant advantage to those products

versus competing products and are sufficient to preserve the unique features of those products,

and whether improvements in the definitions are needed to prevent loopholes. For ductless split

equipment and non-weatherized vertical packaged equipment, additional comment is welcome on

the impacts that meeting the new standards would have on the availability of those products;

(5) the issue of thermal expansion valves (TXV), particularly whether our concerns regarding the

perceived reliability problems and potential misuses associated with widespread use of TXVs are

valid;

Q:\EE-41\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

164 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-9S-440- 30'7- 0 8 

C. Issues for Which DOE Seeks Comment. 

The Department is particularly interested in receiving comments and views of interested 

parties concerning: 

(1) whether explicit consideration of extended warranties would produce significantly different 

results from those based on service costs alone; 

(2) the Department's methodology and data for determining the appropriate marginal energy 

costs; 

(3) the burdens and benefits that would result from induding an EER requirement in the final rule. 

Of particular interest are comments regarding burdens on manufacturers, benefits regarding 

reduction in peak electricity demand, the effect of more stringent standards on the cost and 

availability of modulating equipment, and the effect that an EER floor would have on electrical 

system reliability. In addition, comments are welcome to discuss the pros and cons of any of the 

options described in Section V.I.2 above, as well as other approaches; 

(4) whether the proposed standards concerning high-velocity, vertically-packaged wall-mounted 

equipment, and through-the-wall equipment provide a significant advantage to those products 

versus competing products and are sufficient to preserve the unique features of those products, 

and whether improvements in the definitions are needed to prevent loopholes. For ductless split 

equipment and non-weatherized vertical packaged equipment, additional comment is welcome on 

the impacts that meeting the new standards would have on the availability of those products; 

(5) the issue of thermal expansion valves (TXV), particularly whether our concerns regarding the 

perceived reliability problems and potential misuses associated with widespread use of TXV s are 

valid; 

164 Q:\EE-41 \EE-43 1 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -O307- 8

(6) the validity of the analytical methods used and the appropriate interpretation and use of the

results of this analysis;

(7) the Draft Environmental Assessment, which is printed within the TSD prepared for today's

proposed rule; and

(8) the impacts on manufacturers and consumers if the levels in today's proposed rule were

applied to commercial three-phase unitary air conditioners less than 65K Btu/hr as well.

List of Subjects in 10 CFR Part 430

Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C., on September 27, 2000.

Dan W. Reicher

Assistant Secretary

Energy Efficiency and Renewable Energy

Q:\EE-41 \EE-43 1 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 165 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440··307-08 

(6) the validity of the analytical methods used and the appropriate interpretation and use of the 

results of this analysis; 

(7) the Draft Environmental Assessment, which is printed within the TSD prepared for today's 

proposed rule; and 

(8) the impacts on manufacturers and consumers if the levels in today's proposed rule were 

applied to commercial three-phase unitary air conditioners less than 65K Btulhr as well. 

List of Subjects in 10 CFR Part 430 

Administrative practice and procedure, Energy conservation, Household appliances. 

Issued in Washington, D.C., on September 27,2000. 

165 

Dan W. Reicher 

Assistant Secretary 

Energy Efficiency and Renewable Energy 

Q:IEE-41IEE-431 ICACIStandRuIINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 0W ,

For the reasons set forth in the preamble Part 430 of Chapter II of Title 10, Code of

Federal Regulations, is proposed to be 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 "through-the-wall air conditioner and heat

pump" in alphabetical order to read as follows:

§ 430.2 Definitions.

* * * * *

Through-the-wall air conditioner and heat pump means a central air conditioner or heat pump,

having a rated capacity between 18,000 Btu/hr and 30,000 Btu/hr that is:

(1) designed to be installed partially within, or mounted against, a fixed-size opening in an

exterior wall; and

(2) air for the outdoor coil is taken in and discharged at the same surface.

Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 166 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE-RM/STD-98-440- 301-08 

For the reasons set forth in the preamble Part 430 of Chapter II of Title 10, Code of 

Federal Regulations, is proposed to be amended as set forth below. 

Part 430 -- ENERGY CONSERV A nON 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 "through-the-wall air conditioner and heat 

pump" in alphabetical order to read as follows: 

§ 430.2 Definitions. 

• * * * * 

Through-the-wall air conditioner and heat pump means a central air conditioner or heat pump, 

having a rated capacity between 18,000 BtuIhr and 30,000 Btulhr that is: 

(l) designed to be installed partially within, or mounted against, a fixed-size opening in an 

exterior wall; and 

* 

(2) air for the outdoor coil is taken in and discharged at the same surface. 

* * * 

166 

* 

Q:\EE-41 \EE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24. wpd 

October 4, 2000 (6:35PM) 
EE-RM/STD-98-440- 30 '087

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 1, 2006, and single package central air conditioners and central air conditioning

heat pumps manufactured after January 1, 1993, and before January 1, 2006, shall have Seasonal

Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:

Product class Seasonal Energy Heating Seasonal

Efficiency Ratio Performance Factor

1. Split system s...................................... 10.0 6.8

2. Single package systems ...................... 9.7 6.6

2. Central air conditioners and central air conditioning heat pumps manufactured on or after

January 1, 2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance

Factor no less than:

Q:\EE-41 \EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd

167 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

EE.RM/STD·98·440~ 3D108 

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 1,2006, and single package central air conditioners and central air conditioning 

heat pumps manufactured after January 1, 1993, and before January 1,2006, shall have Seasonal 

Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than: 

Product class Seasonal Energy Heating Seasonal 

Efficiency Ratio Performance Factor 

1. Split systems ...................................... 10.0 6.8 

2. Single package systems ...................... 9.7 6.6 

2. Central air conditioners and central air conditioning heat pumps manufactured on or after 

January 1,2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance 

Factor no less than: 

167 Q:IEE·41IEE-431 ICACIStandRu\INOPR\DraftNOPRICACNOPR24. wpd 

October 4,2000 (6:35PM) 
EE-RM/STD-98-440 -3)7-0

Seasonal Energy Heating Seasonal

Product class Efficiency Ratio Performance Factor

(SEER) (HSPF)

1. Split system air conditioners................................................. 12

2. Split system heat pum ps........................................................ 13 7.7

3. Single package air conditioners............................................. 12

4. Single package heat pumps.................................... 13 7.7

5. Through the wall air conditioners and heat pumps......... 11 7.1

* * * * *

Q:\EE-4 IEE-43 I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 168 October 4, 2000 (6:35PM)

EE-RM-STD-98-440 COMMENT 307

Product class 

1. Split system air conditioners ................................................. 

2. Split system heat pumps ........................................................ 

3. Single package air conditioners ............................................. 

4. Single package heat pumps ................................................... 

5. Through the wall air conditioners and heat pumps ......... 

* * * * 

168 

EE-RM/STD-98-440 - 30 7- 08 

Seasonal Energy Heating Seasonal 

Efficiency Ratio Performance Factor 

(SEER) (HSPF) 

12 -

13 7.7 

12 -

13 7.7 

II 7.1 

* 

Q:IEE-41IEE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

October 4, 2000 (6:35PM)