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### E -lU/S T1O -9 X'4 at [6450-01-P] DEPARTMENT OF ENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFR Part430 [Docket Number EE-RM-9-]5W] RIN:1904-AA77 Energy Conservation Program for ConsumerProducts: Central Air Conditioners and Heat Pumps Energy Conservation Standards
AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy.
ACTION: Notice ofProposed Rulemaking and Public Hearing.

SUMMARY: Pursuant to the Energy Policy and Conservation Act, as amended, the Department ofEnergy (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 mustbe received on or before [insertdate 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) 

### [6450-01-P] DEPARTMENT OFENERGY Office ofEnergyEfficiency and Renewable Energy 10 CFRPart430**'I~-LJLIO** 

### [Docket NumberEE-RM-9Y egQ] 

### R1N:1904-AA77 Energy Conservation Programfor ConsumerProducts: CentralAirConditioners and HeatPumps Energy Conservation Standards
AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy.


### ACTION: Notice ofProposed Rulemaking and Public Hearing.



### SUMMARY: Pursuantto the Energy Policy and Conservation Act, 

### as amended, the Department ofEnergy (DOE, Department, orwe) 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 onthe proposal.


### DATES: Comments mustbe received onorbefore 

### [insert date 60 days from date of publication]. DOE is requesting a signed original, a computer diskette (WordPerfect 

### 8) and 10 1 Q:\EE-41IEE-431ICACIStandRuI\NOPRIDraftNOPRICACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 

## 30 

## '-) copies ofthe 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 atthe public hearing and a copy ofyour statements no later than 4:00 p.m., November 1,2000, and we request that you provide a computer diskette (WordPerfect 8) ofeach 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 ofEnergy, Office ofEnergy 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 atthe U.S. Department ofEnergy, 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," ofthis notice ofproposed rulemaking.
You may read copies ofthe public comments, the Technical Support Document for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps Q:\EE-4 I\EE-43I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### 2 October 4, 2000 (6:35PM) -" 

### EE-RM/STD-88-440- 

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,,. copies ofthe 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 Departmentmustreceive requests to speak atthe public hearing and a copy ofyour statements no laterthan 4:00 p.m., November 1, 2000, and we request that you provide a computerdiskette (WordPerfect 8) ofeach statement at that time.
ADDRESSES: Please submit written comments, oral statements, and requests to speak atthe public hearing to: BrendaEdwards-lones, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for ConsumerProducts: 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 ofEnergy, Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more information concerningpublic participation inthis rulemaking proceeding in SectionVIII, "Public CommentProcedures," ofthis notice ofproposed rulemaking.
You mayread copies ofthe public comments, the Technical Support Document for Energy Efficiency Standards for ConsumerProducts: Central Air Conditioners and Heat Pumps 2 Q:IEE-41IEE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440. 30 

## -O (TSD), the transcript ofthe public hearing, and previous workshop transcripts in this proceeding at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room 1E-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 ofthe 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 ofEnergy 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 ofEnergy, 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 ofContents I. Summary ofProposed Rule II. Introduction A. Authority B. Background 1. Current Standards 2. History ofPrevious 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_ 

# 301-oB (TSD), the transcript ofthe public hearing, and previous workshop transcripts in this proceeding atthe DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room lE-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586- 3142, betweenthe hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may obtain copies ofthe 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.

FORFURTHERINFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department of Energy, Office ofEnergy 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, orEdward Levy, Esq., U.S. Department ofEnergy, 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.
SUPPLEMENTARYINFORMATION: Table ofContents I. Summary ofProposed Rule II. Introduction A. Authority B. Background 1. Current Standards 2. History ofPrevious Rulemakings 3. Process Improvement III. General Discussion A. Test Procedures 3 Q:IEE-41IEE-43IICACIStandRul\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 ofSavings 2. Significance ofSavings D. Rebuttable Presumption E. Economic Justification 1. Economic Impact on Manufacturers and Consumers 2. Life-Cycle Costs 3. Energy Savings 4. Lessening, IfAny, ofUtility or Performance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofThe 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 ofComments 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 ofFuture Electricity Prices 7. Discount Rates 8. Percentage ofHouseholds 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) ,

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B. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels C. Energy Savings 1. Determination ofSavings 2. Significance ofSavings D. Rebuttable Presumption E. Economic Justification EE-RM/STD-98-440
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1. Economic Impact onManufacturers and Consumers 2. Life-Cycle Costs 3. Energy Savings 4. Lessening, IfAny, ofUtility orPerformance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofThe 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 ofComments 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 ofFuture Electricity Prices 7. Discount Rates 8. Percentage ofHouseholds with LCC Savings 9. Regional Analysis 10. Rebuttable Payback 11. Sensitivity Analyses C. Shipments Analysis 4 Q:IEE-41IEE-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 ofImpacts on Peak Demand 3. Qualitative Assessment ofAir 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 ofEnergy 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 ofProducts 5. Impact ofAny Lessening ofCompetition
Q:\EE-41\EE-43 1\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 5 October 4, 2000 (6:35PM) ., 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 PowerImpacts, Reliability 2. Quantitative Assessment ofImpacts on Peak Demand 3. Qualitative Assessment ofAir 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 SplitAir 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 ofEnergy Savings C. Payback Period D. Economic Justification 1. Economic Impact on Manufacturers 2. Life-Cycle Cost 3. Net Present Value and NetNational Employment 4. Impact onUtility orPerformance ofProducts 5. Impact ofAny Lessening ofCompetition 5 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 - 3£ ¢ 

# 0 6. Need ofthe Nation to Save Energy 7. Other Factors E. Conclusion VII. Procedural Issues and Regulatory Review A. Review Underthe 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 ofHearing 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 HSPF2 

### forheat 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 ofresidential 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 ofcentral air conditioners and heat pumps. 2HSPF, Heating Seasonal Performance Factor, isthe Department's measure of energy efficiency for the seasonal heating performance ofheat pumps. Q:\EE-41\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### 6 October 4, 2000 (6:35PM) 6. Need ofthe Nationto Save Energy 7. OtherFactors E. Conclusion VII. Procedural Issues and Regulatory Review A. Review Underthe National Environmental Policy Act EE-RM/STD-98-440· 

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B. Review UnderExecutive Order 12866, "Regulatory Planning and Review" C. Review Under the Regulatory Flexibility Act D. ReviewUnderthe Paperwork Reduction Act E. Review UnderExecutive Order 12988, "CivilJustice Reform" F. "Takings" Assessment Review G. Review UnderExecutive Order 13132 H. ReviewUnder the Unfunded Mandates Reform Act I. ReviewUnderthe Treasury and General Government Appropriations Act of 1999 J. Review Underthe Plain Language Directives VIII. Public Comment A. Written Comment Procedures B. Public WorkshoplHearing 1. Procedure for Submitting Requests to Speak 2. Conduct ofHearing C. Issues for Which DOE Seeks Comment 

### I. Summary ofProposed Rule The Department is proposingto raise the energy efficiency standards for residential air conditioners and central air conditioning heat pumps (heat pumps) to 12 SEERI for air conditioners andto 13 SEERl7.7 HSPF2 for heatpumps. The proposed standards would applyto 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 commontype ofresidential air conditioning equipment represents a 20 % improvement in energy efficiency.

ISEER, Seasonal Energy Efficiency Ratio, is the Department's measure ofenergy efficiency for the seasonal coolingperfonnance ofcentral air conditioners and heat pumps. 2HSPF, Heating Seasonal Perfonnance Factor, is the Department's measure ofenergy efficiency for the seasonal heating perfonnance ofheat pumps. 

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### For split system heat pumps, thenew standards would represent a 30 % improvement in cooling efficiency and a 13% improvement in heating efficiency. The proposed standards would also increase the efficiency ofpackaged air conditioners and packaged heat pumps by 24% and 17%, respectively. Finally, the Department is proposing provisions for some special products to ensure thatmore efficient versions remain available for niche applications.
The proposed standards would save a significant amount ofenergy and, as a result ofless electricity being produced, result in a cleaner environment. Inthe 25-year period after the new standards become effective, the nation would save over 3.4 Quads3 

### ofprimary 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 ofairpollutants and greenhouse gases associated with electricity production, by avoiding the emission of56 million tons (Mt) of Carbon and 52 thousandtons (kt) nitrogen oxides (NOx). Also, the standards are expected to eliminate the need for the construction ofapproximately 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, isa steady-state measure ofenergy efficiency which measures efficiency at a prescribed outdoor temperature (95F), and is one ofthe 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 - 

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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 ofpackaged 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 ofenergy and, as a result ofless electricity beingproduced, result in a cleaner environment. In the 25-yearperiod afterthe new standards become effective, the nation would save over 3.4 Quads3 ofprimary energy, equivalent to all the energy consumedby nearly 18 million American households in a single year. These energy savings would also significantlyreduce the emissions ofairpollutants and greenhouse gases associated with electricity production, by avoiding the emission of56 million tons (Mt) of Carbon and 52 thousand tons (kt) nitrogen oxides (NOx). Also, the standards are expected to eliminatethe need for the construction ofapproximately 31 (4 coal-fired and 27 natural gas-fired) new large, 400 megaWatt (MW), powerplants in 2020.
In additionto 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 onEERwould 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 ofenergy efficiency which measures efficiency at a prescribed outdoortemperature (95"F), and is one ofthe test conditions in the Department's test procedure used to develop the SEER. 7 Q:\EE-41\EE-43I\CAC\StandRuI\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440-0 -

## ) periods when electricity use by air conditioners is atits 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 ofhigh usage, thereby, improving system reliability. Finally, consumers would see benefits from the proposed standards. For example, while the initial cost ofa 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 ofthe equipment plus an extra $45. Many consumers, especially air conditioner owners in warmer parts ofthe country and heatpump owners, would save even more.
While the higher efficiency units are widely available today and promoted through the Department ofEnergy 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 atonce, 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

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# 08 periods whenelectricity use by air conditioners is at its peak. This would help to further alleviate the need for new electric powerplants and reduce the demands placed onthe electric transmission and distribution systems during periods ofhigh usage, thereby, improving system reliability. Finally, consumers would see benefits from the proposed standards. For example, while the initial cost ofa typical central air conditionerwould 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 ofthe equipmentplus an extra $45. Many consumers, especially air conditioner owners in wannerparts ofthe country and heat pump owners, would save even more.
While the higher efficiency units are widely available today and promoted through the Department ofEnergy and the Environmental Protection Agency (EPA) Energy Star® program, as well as utility rebate programs, manufacturers would be redesigning theirproduct line to meet the efficiency standards. Atthe same time they would be redesigning theirproducts to respond to thephase-outhydrochloroflourocarbons (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

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### Part B ofTitle III ofthe 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 forConsumer 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 offour 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 ofthe program. Section 323 ofthe 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 ofFederal Regulations (CFR) Part 430, Subpart B, Appendix M.

5Part B ofTitle III ofthe 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 of1992, is referred to in this notice as the "Act," or "EPCA." Part B ofTitle III is codified at 42 U.S.C. 6291 et seq. Part B ofTitle III ofthe Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act only, is referred to in this notice asthe 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 - 

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Part B ofTitle III ofthe Energy Policy and Conservation Act (EPCA), Pub. L. 94-163, as amendedbythe 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 ConservationAmendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub. L. 102-4865 createdthe Energy Conservation Program for ConsumerProducts other than Automobiles. The consumerproducts subject to this program (often referred to hereafter as "coveredproducts") include central air conditioners and heat pumps. EPCA Section 322(a)(4), 42 U.S.C. 6292(a)(4).
Underthe Act, the program consists essentially offour parts: testing, labeling, Federal energy conservation standards, and certification and enforcementprocedures. The Federal Trade Commission is responsible for labeling, and DOE implements the remainder ofthe program. Section 323 ofthe Act authorizes the Department, with assistance from the National Institute of Standards and Technology (NIST) and subject to certain criteriaand conditions, to develop test proceduresto measure the energy efficiency, energy use, orestimated annual operating cost of eachcoveredproduct. 42 U.S.C. 6293. The central air conditioners and heat pump test procedures appearatTitle 10 Code ofFederal Regulations (CFR) Part 430, Subpart B, AppendixM.

5Part B ofTitle III ofthe 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 ofTitle III is codified at 42 U.S.c. 6291 et seq. Part B ofTitle III ofthe Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act only, is referred to in this notice as theNational Energy Conservation Policy Act. 9 Q:IEE-41IEE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 3 -08 The Act prescribes initial Federal energy conservation standards for each ofthe 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 laterthan 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 economicallyjustified. 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 airconditioners and heat pumps, ifno test procedure has been established for theproduct, or (2)anyproduct, ifDOE determines by rule that a standard for theproduct either wouldnot 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 economicallyjustified, after receiving comments on theproposed standard, and whetherthe benefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on aweighing ofthe following seven factors: "(1) The economic impact ofthe 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 ofthe covered product in the type (or class) compared to any increase in the price of, or in the initial
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# 08
The Actprescribes initial Federal energy conservation standards for each ofthe listed coveredproducts, excepttelevision 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 laterthan January 1, 1994. 42 U.S.C. 6295(d)(3)(A). Any new oramended standard must be designed so as to achieve the maximum improvement in energy efficiencythat is technologically feasible and economicallyjustified. EPCA Section 325(0)(2)(A), 42 U.S.C. 6295(0)(2)(A). Moreover, the Department may not prescribe a standard for: (1) certainproducts, including central air conditioners and heat pumps, ifnotest procedure has been established for the product, or (2) any product, ifDOE determines byrule that a standard for the product eitherwould not result in significant conservation of energy, or is nottechnologically feasible oreconomicallyjustified. 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 economicallyjustified, after receiving comments onthe proposed standard, and whetherthe benefits ofthe standard exceed its burdens, based, to the greatest extent practicable, ona weighing ofthe following seven factors: "(1) The economic impact ofthe standard onthe manufacturers and the consumers of theproducts subjectto such standard; (2) The savings in operating costs throughout the estimated average life ofthe covered product in the type (or class) compared to any increase in the price of, or in the initial 10 Q:IEE-41IEE-431\CAC\StandRulINOPR\DraftNOPR\CACNOPR24.wpd October4, 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 ofthe standard; (3) Thetotal projected amount ofenergy ... savings likely to result directly from the imposition ofthe standard; (4) Any lessening ofthe utility orthe performance ofthe covered products likely to result from the imposition ofthe standard; ( 5) The impact ofany lessening ofcompetition, as determined in writing bythe Attorney General, that is likely to result from the imposition ofthe standard; (6) Theneed for national energy... conservation; and (7) Other factors the Secretary considers relevant."
In addition, Section 325(o)(2)(B)(iii) ofthe Act, 42 U.S.C. 6295(o)(2)(B)(iii), establishes arebuttable presumption that a standard is economicallyjustified ifthe Secretary finds that "the additional cost to the consumer ofpurchasing aproduct complying with an energy conservation standard level will be less thanthree times the value ofthe energy... savings during the first year that the consumer will receive as aresult ofthe 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
Q:\EE-4 \EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### ~~1 ~~~~~~~1 ~October 4, 2000 (6:35PM) EE-RM/STD-98-440

## ~3

# 0,( ...

# 08 charges for, ormaintenance expenses of, the covered products which are likely to result from the imposition ofthe standard; (3) Thetotal projected amount ofenergy ... savings likely to result directly from the imposition ofthe standard; (4) Any lessening ofthe utility orthe performance ofthe covered products likely to result from the imposition ofthe standard; (5) The impact ofany lessening ofcompetition, as determined in writing by the Attorney General, that is likelyto result from the imposition ofthe standard; (6) The need for national energy ...conservation; and (7) Other factors the Secretary considers relevant."
In addition, Section 325(0)(2)(B)(iii) ofthe Act, 42 U.S.C. 6295(0)(2)(B)(iii), establishes a rebuttable presumptionthat a standard is economicallyjustifiedifthe Secretary finds that "the additional cost to the consumerofpurchasing a product complying with an energy conservation standard level will be less thanthree times the value ofthe energy... savings during the first year that the consumer will receive as a result ofthe standard, as calculated under the applicable test procedure ...." The rebuttable presumptiontest is an alternative path to establishing economic justification.
Section 327 oftheAct, 42 U.S.C. 6297, provides that generally the Federal energy

. efficiency requirements supersede State laws orregulations concerning energy conservation

testing, labeling, and standards, and specifies limited exceptions to this general rule. EPCA 11 Q:IEE-41IEE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October4, 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 ofpreemption in accordance with the procedures and other provisions ofSection 327(d) ofthe 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 andheat pump cooling has been defined by the descriptor SEER. Energy efficiency forheat pumps has been defined bythe 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 heatpumps - 10 SEER/6.8 HSPF

-- Single package air conditioners and heatpumps - 9.7 SEER/6.6 HSPF
2. History ofPrevious Rulemakings On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing the Department's intention to revise the existing central air conditioner and heat pump efficiency standard. (58 FR47326). 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

# ~301- 

# 08 Section 327(a) through (c), 42 U.S.C. 6297 (a) through (c). The Department can grant a waiver ofpreemption in accordance with the procedures and otherprovisions ofSection 327(d) ofthe 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 SEERwhile 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 heatpumps - 9.7 SEER/6.6 HSPF
2. History ofPrevious Rulemakings On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing the Department's intentionto revise the existing central air conditioner and heat pump efficiency standard. (58 FR47326). OnNovember 24, 1999, DOE published a Supplemental ANOPR (hereinafterreferred to as the Supplemental ANOPR). 64 FR66306. 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-41IEE-431ICACIStandRu)INOPRlDraftNOPRICACNOPR24.wpd October4, 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 ofthe impacts ofenergy conservation standards; (3) the results ofpreliminary 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 forFY 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 ofNew or Revised Energy Conservation Standards for Consumer Products (referred to asthe 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

## ~3

# 01-oB (1) the product classes that the Departmentplannedto analyze; (2) the analytical framework, models (e.g., the Government Regulatory Impact Model (GRIM)), andtools (e.g., a Monte Carlo sampling methodology, and the life-cycle cost (LCC) andnational energy savings (NES) spreadsheets) that the Departmentwas using in performing analyses ofthe impacts ofenergy conservation standards; (3) the results ofpreliminary analyses for the engineering, LCC, payback and NES; and (4) the candidate energy conservation standard levels thatthe Departmenthad developed from these analyses.
3. Process Improvement The fiscal year (FY) 1996 appropriations legislation imposed a moratorium onproposed
orfinal rules for IilPpliance efficiency standards for FY 1996. Pub. L. 104-134. Duringthe moratorium, the Department examinedthe appliance standards program and how it was working. Congress advised DOEto correctthe standards-setting process and to bringtogether stakeholders (such as manufacturers and environmentalists) for assistance. Therefore, we consulted with energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other interestedparties to provide inputto the process used to develop appliance efficiency standards. As a result, onJuly 15, 1996, the Departmentpublished a final rule: Procedures for Consideration ofNeworRevised Energy Conservation Standards for ConsumerProducts (referred to asthe Process Rule) (61 FR 36974), codified at 10 CFRPart 430, Subpart C, AppendixA.

13 Q:IEE-41IEE-431ICACIStandRuIINOPR\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 ofthe 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 ofthe 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 ofnew LCC and NES spreadsheets, and the relationship ofthe various analyses.
III. General Discussion A. TestProcedures Section 7(b) ofthe Process Rule states that necessary modifications to test procedures concerning efficiency standards will be proposed before issuance ofa proposed rule. Section 7(c) ofthe 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 ofuse, with a proposed rule to be published. This revision ofthe testprocedure is not expected to alter the measured efficiencies as determined under the existing test procedure. Therefore, the revised test procedure would not affect development ofrevised efficiency standards. Forthese reasons, Q:\EE-41 EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### 14 October 4, 2000 (6:35PM) 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 priorto August 14, 1996, DOE would conduct a reviewto decide whether any ofthe analytical orprocedural steps already completed shouldbe repeated. (61 FR 36982). DOE completedthis review and decided to use the Process Rule, to the extent possible, in the development ofthe 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 describedthe different analyses (e.g., 

### Lee, payback and manufacturing impact analyses (MIA)) to be conducted, the method for conducting them, the use ofnew

### Lee andNES spreadsheets, and the relationship ofthe various analyses.


### III. General Discussion 

### A. TestProcedures Section 7(b) ofthe Process Rule states that necessary modifications to test procedures concerning efficiency standards will be proposed before issuance ofa proposed rule. Section 7(c) ofthe Process Rule states that a final modifiedtestprocedure will be issued prior to issuing a proposed rule regarding energy conservation standards. The residential central air conditioner and heat pumptestprocedure is being revised to improve its organization and ease ofuse, with a proposedrule to be published. This revision ofthe testprocedure is not expected to alterthe measured efficiencies as determined underthe existing test procedure. Therefore, the revised test procedure would not affect development ofrevised efficiency standards. Forthese reasons, 14 Q:\EE-41\EE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 3

# D% 

## 0o revisions to the testprocedure 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 ofthe proposed rule for these standards.
B. TechnologicalFeasibility 1. General There are central air conditioners and heatpumps in the market at all ofthe efficiency levels analyzed in today's notice. The Department, therefore, believes all ofthe 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) ofcovered products.." EPCA Section 325 (p)(2), 42 U.S.C. 6295(p)(2). Accordingly, for each class ofproduct 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 forheating
Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 15 October 4, 2000 (6:35PM) EE-RM/STD-98-440-

# 301-

# 08 revisions to the test procedure are not a "necessarymodification" as that term is used in the Process Rule, butrather a routine update, and hence need not be finalized before issuance ofthe proposedrule for these standards.


### B. Technological Feasibility 1. General There are central air conditioners and heatpumps inthe market at all ofthe efficiency levels analyzed intoday's notice. The Department, therefore, believes all ofthe efficiency levels discussed intoday's notice are technologically feasible.
2. Maximum Technologically Feasible Levels The Actrequires the Department, in a proposedrule that sets forth new oramended standards, to "determinethe maximum improvement in energy efficiency... that is technologically feasible for each type (or class) ofcoveredproducts.." EPCA Section 325 (p)(2), 42 U.S.c. 6295(P)(2). Accordingly, for eachclass ofproduct under consideration inthis rulemaking, a maximumtechnologically feasible (Max Tech) level was identified.
As previously stated in SectionII.B, residential central air conditioner and heat pump cooling efficiency is expressed as a SEER. Heating efficiency is expressed as a HSPF. The most efficienttechnologypresently available is a 3-ton 18 SEERcentral air conditioner. The Departmenthas determined that at this time 18 SEER is the Max Tech level for cooling efficiency for all productclasses and capacities in this analysis. The Max Tech level for heating 15 Q:\EE-41\EE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 - 

## 30 

## - O efficiency, corresponding to the 18 SEER level, is 9.4 HSPF which is the highest HSPF rating currently available inresidential heat pumps.
C. EnergySavings 1. Determination ofSavings The Department estimated energy savings through the use ofthe NES spreadsheet, which forecasted energy savings over the period ofanalysis 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 ofenergy consumption in the absence ofamended mandatory efficiency standards.
The NES spreadsheet model is described in Section IV.B ofthis notice, Appendix ofthe 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 atbuilding sites bythe central air conditioner orheat pump. National energy savings are expressed in terms ofthe 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 offactors 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'-

# J 0

# 1-- 

# 06 efficiency, correspondingto the 18 SEERlevel, is 9.4 HSPF which is the highest HSPF rating currently available inresidential heat pumps.


### C. EnergySavings 1. Determination ofSavings The Department estimated energy savings through the use ofthe NES spreadsheet, which forecasted energy savings overtheperiod ofanalysis 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 consumptionbetweenthe candidate standards case andthe base case. The base case represents the forecast ofenergy consumption in the absence ofamended mandatory efficiency standards.
TheNES spreadsheetmodel is described in SectionIV.B ofthis notice, Appendix ofthe Technical Support Document and also inthe Supplemental ANOPR. (64 FR 66306). The NES spreadsheetmodel calculates the energy savings in site energy orkilowatt-hours (kWh). Site energy is the energy directly consumed at building sites by the central air conditioner orheat pump. National energy savings are expressed interms ofthe source energy savings which is the savings in energy used to generate and transmitthe electricity consumed atthe site. Chapter 7 of the TSD contains a table offactors used to convertkWhto Btu. These conversion factors, which change withtime, are derived from DOE's Energy Information Administration's (EIA) Annual Energy Outlook 2000 (AE02000).

16 Q:\EE-41\EE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 /--'? UO 

### 2. Significance ofSavings The Act prohibits the Department from adopting a standard for a product ifthat standard would notresult in "significant" energy savings. EPCA Section 325(o)(3)(B), 42 U.S.C. 6295(o)(3)(B). While theterm "significant" is not defined in the Act, the U.S. Court ofAppeals, inNaturalResourcesDefense Councilv. 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 ofthe trial standard levels considered in this rulemaking are non-trivial and therefore we consider them "significant" withinthe meaning ofSection 325 ofthe Act.
D. RebuttablePresumption The National Appliance Energy Conservation Act established new criteria for determining whether a standard level is economicallyjustified. EPCA Section 325(o)(2)(B)(iii) states: "Ifthe Secretary finds that the additional cost to the consumer ofpurchasing a product complying with an energy conservation standard level will be less than three times the value ofthe energy... savings during the first year that the consumer will receive
as a result ofthe standard, as calculated under the applicable test procedure, there shall be
a rebuttable presumption that such standard level iseconomically justified. A determination bythe Secretary that such criterion is not met shall not be taken into consideration in the Secretary's determination ofwhether 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-98-440-301,08 2. Significance ofSavings The Act prohibits the Department from adopting a standard for a product ifthat standard would notresult 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 ofAppeals, inNatural ResourcesDefense 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 "genuinelytrivial." The energy savings for all ofthe trial standard levels considered in this rulemaking are non-trivial and therefore we consider them "significant" withinthe meaning ofSection 325 ofthe Act.
D. Rebuttable Presumption The National Appliance Energy Conservation Act established new criteriafor determining whether a standard level is economicallyjustified. EPCA Section 325(0)(2)(B)(iii) states: "Ifthe Secretary finds that the additional costto the consumer ofpurchasing a product complying with an energy conservation standard level will be less than three times the value ofthe energy... savings during the first year thatthe consumer will receive as a result ofthe standard, as calculated underthe applicable test procedure, there shall be a rebuttable presumptionthat such standard level is economicallyjustified. A determinationby the Secretary that such criterion is not met shall not be taken into consideration in the Secretary's determination ofwhether a standard is economically justified." 17 Q:\EE-41\EE·431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE.RM/STD-98-440 - 0 

## 7O0 Ifthe increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumer in energy savings in less than three years, then wepresume that such standard is economicallyjustified.6 

### This presumption ofeconomicjustification can be rebutted upon a proper showing.
E. EconomicJustification As noted earlier, Section 325(o)(2)(B)(i) ofthe Act provides seven factors to be evaluated in determining whether a conservation standard iseconomically justified.
1. Economic Impact on Manufacturers and Consumers The Process Rule established procedures, interpretations and policies to guide the Department in the consideration ofnew or revised appliance efficiency standards. The provisions ofthe rule have direct bearing on the implementation ofmanufacturer 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 ofa regulation and the time when the regulation comes into effect, and a long-term assessment. Impacts analyzed include industry netpresent value, cash flows by year, changes in revenue and income, and other measures ofimpact, as appropriate. Second, the Department will analyze and report the impacts on different types ofmanufacturers, 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 ofoperation. 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

# -~o '1.08
Ifthe increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumerin energy savings in less than three years, then wepresume that such standard is economicallyjustified.6 This presumption ofeconomicjustification canbe rebutted upon a proper showing.


### E. EconomicJustification As noted earlier, Section 325(0)(2)(B)(i) ofthe Actprovides seven factors to be evaluated in determining whethera conservation standard is economicallyjustified.
1. Economic Impact onManufacturers and Consumers The Process Rule establishedprocedures, interpretations and policies to guide the Department inthe consideration ofnew orrevised appliance efficiency standards. The provisions ofthe rule have direct bearing onthe implementation ofmanufacturer impact analyses. First, the Departmentwill use an annual cash flow approach indetermining the quantitative impacts onmanufacturers. This includes a short-term assessment based onthe cost and capital requirements during the period betweenthe announcement ofa regulation andthe time whenthe regulation comes into effect, and a long-term assessment. Impacts analyzed include industry netpresent value, cashflows by year, changes inrevenue and income, and other measures ofimpact, as appropriate. Second, the Department will analyze andreport the impacts
on differenttypes ofmanufacturers, with particular attentionto impacts on small manufacturers.

6Forthis calculation, the Department calculated cost-of-operation based on the DOE test procedure, with the test procedure assumed annual hours ofoperation. Consumers that use the central air conditioner orheat pump fewer hours will experience a longer payback while those that use them more will have a shorterpayback. 18 Q:\EE-41\EE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440-30 

### '- O Third, the Department will consider the impact ofstandards on domestic manufacturer employment, manufacturing capacity, plant closures and loss ofcapital investment. Finally, the Department will take into account cumulative impacts ofdifferent DOE regulations on manufacturers.
For consumers, measures ofeconomic impact are the changes in installed cost and annual operating costs, i.e., LCC. The life-cycle cost ofthe product at each standard level are presented in Chapter 5 ofthe TSD. Under Section 325 ofthe 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 ofthe purchase price, including the installation, and the operating expense, including operating energy, maintenance, and repair expenditures, discounted over the lifetime ofthe 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 ofreal 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

# <30:t· 08 Third, the Department will consider the impact ofstandards ondomestic manufacturer employment, manufacturing capacity, plant closures and loss ofcapital investment. Finally, the Department will take into account cumulative impacts ofdifferent DOE regulations on manufacturers.
For consumers, measures ofeconomic impact are the changes in installed cost and annual operating costs, i.e., LCC. The life-cycle cost ofthe product at each standard level are presented in Chapter 5 ofthe TSD. Under Section 325 ofthe Act, the life-cycle cost analysis is a separate factor to be considered in determining economicjustification.
2. Life-Cycle Costs The life-cycle cost is the sum ofthe purchase price, including the installation, and the operating expense, including operating energy, maintenance, and repair expenditures, discounted overthe lifetime ofthe appliance.
For eachcentral air conditioner and heat pumpproduct class, we calculated both lifecycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 12, 13, and 18 SEER. Forheat pumps, the following space-heating efficiency levels correspond to the above SEERvalues: 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 ofreal discount rates ranging from 0.1 to 18% for the calculations. The assumption is thatthe consumerpurchasesthe central air conditioner and/or heat pump in 2006. Forthe probability19 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 3 7
- 0O based LCC analysis, a building-by-building analysis isperformed for purposes ofgenerating a distribution oflife-cycle costs for each efficiency level analyzed. The building stock is composed ofboth residential and commercial buildings under the assumption that 90% ofsinglephase central air conditioners and heatpumps are utilized in residential buildings with the remaining 10% in commercial buildings. The 1997 Residential Energy Consumption Survey (RECS) isused 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 ofthe TSD contains the details ofthe LCC calculations including those considered under factor seven below.
3. Energy Savings While significant conservation ofenergy is a separate statutory requirement for imposing an energy conservation standard, the Act requires DOE, in determining the economic justification ofa 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 oftotal projected savings. The savings are provided in Section V ofthis notice.

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

### 20 October 4, 2000 (6:35PM) EE-RM/STD-98-440-301-

# 00
basedLCC analysis, a building-by-building analysis is performed for purposes ofgenerating a distribution oflife-cycle costs for each efficiency level analyzed. The building stock is composed ofbothresidential and commercial buildings underthe assumptionthat 90% ofsinglephase central airconditioners and heat pumps are utilized in residential buildings withthe remaining 10%incommercial buildings. The 1997 Residential Energy Consumption Survey (RECS) is usedto represent the residential building stock while 77 commercial buildings are usedto representthe commercial building stockbased onassumptions consistent withthose used intheprocess to update ASHRAE Standard 90.1-1999. Annual energy costs are based on marginal electricityprices which are developed for eachresidential and commercial building. Electricityprice forecasts are taken from the AE02000 (DOEIEIA-0383). The LCC calculations include markup structures developed for boththe newconstruction andreplacement/retrofit markets. Chapter 5 ofthe TSD contains the details ofthe LCC calculations includingthose consideredunderfactor sevenbelow.
3. Energy Savings While significantconservation ofenergy is a separate statutoryrequirement for imposing
an energyconservation standard, the Actrequires DOE, in determining the economicjustification ofa standard, to considerthe total projected energy savings that are expectedto result directly from revised standards. The Department used the NES spreadsheet results, discussed earlier, in its considerationoftotal projected savings. The savings are provided in SectionV ofthis notice.

20 Q:\EE-41\EE-43I\CACIStandRul\NOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 

## 37-0° 4. Lessening, ifAny, ofUtility or Performance ofProducts This factor cannot be quantified. In establishing classes ofproducts, and in evaluating design options and the impact ofpotential standard levels, the Department tried to eliminate any degradation ofutility or performance in the products under consideration in this rulemaking. None ofthe proposed trial standard levels reduces the performance ofcentral air conditioners and heat pumps.
5. Impact ofAny Lessening ofCompetition The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. It further directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from a proposed standard and transmit such determination to the Secretary, not later than 60 days after the publication ofa proposed rule, together with an analysis ofthe nature and extent ofsuch 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 ofthis notice and the Technical Support Document for review.
6. Need ofThe Nation to Conserve Energy We report the environmental effects from each standard level for each product under this factor in Section VI ofthis notice. Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 21 October 4, 2000 (6:35PM) EE-RM/STD-98-440 - 

# 3D7-09 4. Lessening, ifAny, ofUtility orPerformance ofProducts This factor cannotbe quantified. In establishing classes ofproducts, and inevaluating design options and the impact ofpotential standard levels, the Departmenttried to eliminate any degradation ofutility orperformance inthe products under consideration in this rulemaking. None ofthe proposedtrial standard levels reduces the performance ofcentral air conditioners and heatpumps.
5. ImpactofAny Lessening ofCompetition The Act directs the Departmentto consider any lessening ofcompetitionthat is likely to result from standards. Itfurther directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from a proposed standard and transmit such determinationto the Secretary, not later than 60 days afterthe publication ofa proposedrule, togetherwith an analysis ofthe nature and extent ofsuch impact. Section 325(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii).

Inorderto assist the Attorney General inmaking such a determination, the Department has provided theAttorney General withcopies ofthis notice andthe Technical Support Documentfor review.

6. Need ofTheNationto Conserve Energy We report the environmental effects from each standard level for eachproductunderthis factor in SectionVI ofthis 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 ofheat and humidity thattook place in the summer of 1999, electric power outages and other system disturbances disrupted the lives ofmillions ofpeople and thousands ofbusinesses in various regions ofourcountry. Inresponse to public concerns about thisproblem, the Secretary ofEnergy formed a team ofexperts to investigate the problem and to recommend actions that the Federal government can take to help avoid future power outages by improving the reliability ofthe U.S. electric power system. One ofthe actions proposed by the Secretary at that time was to accelerate the rulemaking process and advance the publication ofa final rule for central air conditioners by sixmonths.
The Final Report 7 

### bythe team ofexperts, issued in March, 2000, included the recommendation to increase the energy efficiency ofcentral air conditioners as one means for enhancing reliability. The report stated, "Technologies and practices that reduce loads during times ofpeak demand, such as high-efficiency air conditioning and lighting equipment, are especially valuable." This was based on the finding that in several ofthe 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 ofthe U.S. Department ofEnergy'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 - 

# :301- 

# 08 7. OtherFactors Duringthe extreme periods ofheat and humidity that tookplace in the summer of 1999, electric poweroutages and other system disturbances disrupted the lives ofmillions ofpeople and thousands ofbusinesses in various regions ofourcountry. In response to public concerns aboutthis problem, the Secretary ofEnergy formed a team ofexperts to investigate the problem and to recommend actions that the Federal government can take to help avoid future power outages by improving the reliability ofthe U.S. electric power system. One ofthe actions proposed by the Secretary atthat time was to accelerate the rulemaking process and advance the publication ofa final rule for central air conditioners by six months.
The Final Report7 bythe team ofexperts, issued in March, 2000, included the recommendationto increase the energy efficiency ofcentral air conditioners as one means for enhancingreliability. The report stated, "Technologies and practices that reduce loads during times ofpeak demand, such as high-efficiency air conditioning and lighting equipment, are especially valuable." This was based onthe finding that in several ofthe 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 oftheU.S. Department ofEnergy's Power Outage Study Team: Findings and Recommendations to Enhance Reliability from the Summer of 1999", March 2000. 22 Q:IEE-4IIEE-431ICACIStandRulINOPR\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 ofconsumers who are at or below the poverty line (e.g., for a family offour, 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 ofthe: 1) economic models; 2) analytical tools; 3) methodologies; 4) non-regulatory approaches; and 5) prioritization offuture rules.
The Department continues to use two spreadsheet tools to meet the objectives ofthe Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods ofpotential new energy conservation standards. The second conducts shipments forecasts and then calculates national energy savings and net present value impacts ofpotential new energy conservation standards. The Department also completely revised the methodology used in assessing manufacturer impacts including the adoption ofthe GRIM. Additionally, DOE has estimated the impacts ofcentral 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) forthe utility and environmental analyses. NEMS simulates the energy economy ofthe U.S. and has been developed over several years bythe EIAprimarily for the purpose ofpreparing 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-,3

## 0

## 7~

# 08
As anadditional elementto consider underthis factor, the Secretaryhas decided to evaluate the life-cycle cost impacts onthose subgroups ofconsumers who are at orbelowthe poverty line (e.g., for a family offour, this constitutes a household income oflessthan $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 ofthe: 1) economic models; 2) analytical tools; 3) methodologies; 4) non-regulatory approaches; and 5) prioritization offuture rules.
The Department continues to use two spreadsheet tools to meetthe objectives ofthe Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods ofpotential newenergy conservation standards. The second conducts shipments forecasts and then calculates national energy savings and net present value impacts ofpotential newenergy conservation standards. The Department also completelyrevised the methodology used in assessing manufacturer impacts including the adoption ofthe GRIM. Additionally, DOE has estimatedthe impacts ofcentral air conditioner and heat pump energy efficiency standards onelectric utilities and the environment. The Departmentused a version ofEIA'sNational Energy Modeling System (NEMS) for the utility and environmental analyses. NEMS simulates the energy economy ofthe U.S. and has been developed over several years bythe EIAprimarily for the purpose ofpreparing the AEO. NEMS produces a widely23 Q:\EE-41\EE-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 30'7- 

## O& known baseline forecast forthe U.S. through 2020 that is available in the public domain. The version ofNEMS used for appliance standards analysis is called NEMS-BRS8

### , and isbased on the AEO2000 version with minor modifications. NEMS offers a sophisticated picture ofthe effect ofstandards 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 CostandPaybackPeriod Analysis This section describes the LCC and payback period analysis and the spreadsheet model used for analyzing the economic impacts ofpossible 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 ofthe appliance, including purchase expense and operating costs (including energy expenditures). Future operating costs are discounted to the time ofpurchase and summed over the lifetime ofthe appliance. The payback period is the change in purchase expense due to an increased efficiency standard divided bythe

8EIA approves use ofthe name NEMS to describe only an AEO version ofthe 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 ofBuilding 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 - 

# 301- 

# 08
knownbaseline 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-BRS 8, and is based on the AE02000 version with minor modifications. NEMS offers a sophisticatedpicture ofthe effect ofstandards 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 CostandPaybackPeriodAnalysis This section describes the LCC and payback period analysis and the spreadsheet model used for analyzing the economic impacts ofpossible standards onindividual residential and commercial consumers. Details ofthe spreadsheet model canbe found in Chapters 5 in the TSD. We conductthe 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 simulationto performthe analysis by incorporating uncertainty and variability considerations.
The LCC is the total consumer expense overthe life ofthe appliance, including purchase expense and operating costs (including energy expenditures). Future operating costs are discountedto the time ofpurchase and summed overthe lifetime ofthe appliance. The payback period is the change inpurchase expense due to an increased efficiency standard divided by the

8 EIA approves use ofthe name NEMS to describe only an AEO version ofthe model without any modification to code ordata. 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. Formore infonnation on NEMS, please referto the National Energy Modeling System: An Overview 1998. DOE/EIA-0581 (98), February, 1998. BRS is DOE's Office ofBuilding Research and Standards. 

### 24 Q:\EE-41\EE-431ICACIStandRu\INOPRlDraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 -. ^ 

## 7-0 change in annual operating cost that results from the standard. Fortoday's proposed rule, both the LCC and payback period are based on abuilding-by-building analysis ofa nationally representative set ofresidential and commercial buildings.
The set ofresidential buildings are taken from those households in the 1997 RECS equipped with either a central air conditioner or heatpump. Ofthe 5,900 households surveyed in the 1997 RECS, 2,003 households representing 37.6% ofthe housing population have a central air conditioner while 579 households representing 11.1% ofthe housing population have a heat pumps9


### . RECS specifies the annual space-cooling energy consumption and, in the case ofheat pumps, the annual space-heating energy consumption associated with the space-conditioning equipment. Also provided is the age ofthe space-conditioning equipment which, when coupled with historical equipment efficiency data provided by the Air-Conditioning and Refrigeration Institute (ARI), allows for the imputation ofthe household's space-conditioning equipment efficiency (i.e., the SEER and, in the case ofheat pumps, the HSPF). With both the annual energy use and the efficiency ofthe 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 ofthe existing equipment efficiency divided bythe efficiency ofthe more efficient equipment. Household utility billing data in RECS allows for the determination ofaverage and marginal electricity prices. The
9 The number ofhouseholds 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 ofthe following reasons: 1)the central air conditioner was not used, 2) aroom 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 notbe determined for the household. Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 25 October4, 2000 (6:35PM) EE.RM/STD-98-440·

# 301- 08 change in annual operating costthat results from the standard. Fortoday's proposed rule, both the LCC and paybackperiod are based on a building-by-building analysis ofa nationally representative set ofresidential and commercial buildings.
The set ofresidential buildings are taken from those households in the 1997 RECS equipped with eithera central air conditioner orheat pump. Ofthe 5,900 households surveyed in the 1997 RECS, 2,003 households representing 37.6% ofthe housing population have a central air conditionerwhile 579 households representing 11.1% ofthe housing population have a heat pumpS9. RECS specifies the annual space-cooling energy consumption and, inthe case ofheat pumps, the annual space-heating energy consumption associated withthe space-conditioning equipment. Also provided is the age ofthe space-conditioning equipment which, when coupled withhistorical equipment efficiency dataprovided bythe Air-Conditioning and Refrigeration Institute (ARI), allows for the imputation ofthe household's space-conditioning equipment efficiency (i.e., the SEERand, in the case ofheat pumps, the HSPF). With boththe annual energyuse and the efficiency ofthe central air conditioner orheat pump specified, the annual energyuse associated with equipment at higher efficiency levels is simply determined by multiplying the household's existing annual energy use by the ratio ofthe existing equipment efficiency divided by the efficiency ofthe more efficient equipment. Household utility billing data inRECS allows for the determination ofaverage and marginal electricityprices. The

9 Thenumber ofhouseholds 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 ormore ofthe 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 regardtohouseholds with heat pumps, they were dropped from the analysis for one or more ofthe following reasons: 1) the heat pump was not used or2) marginal energy prices could notbe determined for the household. 25 Q:IEE-41IEE-431\CAC\StandRu]\NOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 

### 30a- 09 electricity price data along with the annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level.
The set ofcommercial buildings are based on assumptions consistent with those used to develop the American Society ofHeating, Refrigerating, and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. The commercial building data set consists ofseven building types located in eleven different geographic regions yielding a total of77 buildings. An hourly simulation program is used to calculate the annual full-load equivalent operating hours (FLEOH) ofthe space-cooling and space-heating equipment in each building. The FLEOHs are used with the Department ofEnergy'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 athigher efficiency levels is simply determined by multiplying the building's simulated annual energy use by the ratio ofthe building's assumed equipment efficiency (i.e., 10 SEER) divided bythe efficiency ofthe more efficient equipment. Average and marginal electricity prices for each commercial building are determined by applying a national sample ofelectric utility tariffs to the simulated load and demand. The electricity price data along with the annual energy use data allows for the determination ofannual 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 ofLCC 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

# -~ 

# 301-

# 08 electricityprice data along with the annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level.
The set ofcommercial buildings are based on assumptions consistent with those used to develop the American Society ofHeating, Refrigerating, and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. The commercial building data set consists ofseven building types located in eleven different geographic regions yielding a total of77 buildings. Anhourly simulationprogram is used to calculate the annual full-load equivalent operating hours (FLEOH) ofthe space-cooling and space-heating equipment in each building. The FLEOHs are used with the Department ofEnergy's test procedure equations for central air conditioners and heat pumps to obtain eachbuilding'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 bythe ratio ofthe building'S assumed equipment efficiency (i.e., 10 SEER) divided bythe efficiency ofthe more efficient equipment. Average and marginal electricity prices for each commercial building are determined by applying a national sample ofelectric utility tariffs to the simulated load and demand. The electricity price data along withthe annual energy use data allows for the determination ofannual 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 orderto produce a distribution ofLceresults for 

### 26 Q:\EE-41\EE-43I\CAC\StandRuI\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 -

## 3 0 

## 7-°'

agiven standard level. The LCC and paybackperiod analysis takes 10,000 samplesto create a distribution ofresults based on the assumptionthat 90% ofthe single-phase central air conditioning andheat pump equipment stock are inresidential buildings withthe remaining 10% in commercial buildings.
The spreadsheet model is organized so that ranges ordistributions can be entered for each input variable needed toperform the calculations. The LCC and payback period output canbe either apointvalue when we use the average value ofthe inputs or adistribution when we use distributions for some or all ofthe inputs. Inputs for determining thetotal 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. Ofthe above total installed cost inputs, the manufacturer, dealer, distributor, and builder markups, aswell as the sales tax and installation price are described withdistributions. 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. Ofthe above operating expense inputs, the discountrate and equipment lifetime are described withdistributions (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 foreach residential and commercial building, are highly variable when looking at the entire building data set. Chapter 5ofthe TSD contains the details ofall the inputs to the LCC andpayback period analysis. Q:\EE-41EE431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

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

# J 

# 0

# 1--

# oB

a given standardlevel. The Lee andpaybackperiod analysis takes 10,000 samplesto create a distribution ofresults based onthe assumptionthat 90% ofthe single-phase central air conditioning andheatpump equipment stock are inresidential buildings withtheremaining 10% incommercial buildings.
The spreadsheet model is organized so that ranges ordistributions canbe entered for each input variable needed to performthe calculations. The Lee andpaybackperiod output canbe either a pointvalue when we use the average value ofthe inputs ora distribution whenwe use distributions for some orall ofthe inputs. Inputs for determiningthetotal installed cost include: baselinemanufacturer costs, manufacturercost multipliers for each efficiency level, manufacturermarkups, distributor orwholesalermarkups, dealer orcontractormarkups, builder markups, sales taxes, and installation costs. Ofthe above total installed cost inputs, the manufacturer, dealer, distributor, and buildermarkups, as well as the sales tax and installation price are described withdistributions. Inputs for determining operating expenses include: annual energy consumption, average electricityprices, marginal electricityprices, electricityprice projections, repair costs, maintenance costs, equipment lifetime, discountrates, and the year standardstake effect. Ofthe above operating expense inputs, the discountrate and equipment lifetime are described with distributions (note thatneitherthe discount rate norlifetime are neededto determine thepaybackperiod). Operating expense, annual energyuse and electricity prices, althoughrepresentedbypoint-values for each residential and commercial building, are highly variable whenlooking atthe entire building data set. Chapter 5 ofthe TSD containsthe details ofall the inputs to the LCC andpaybackperiod analysis. 

### 27 Q:IEE-41IEE-431\CAC\StandRul\NOPRIDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 - 

# 30 1-0 

# S
In addition to determining payback periods with the spreadsheet model, the Act requires usto determine a rebuttable payback period. The Act requires the Department to examine payback periods to determine ifthe three year rebuttable presumption ofeconomic 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 of50% greater than the weighted-average values from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and hourly simulations forcommercial 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. NationalEnergySavingsandNetPresentValueAnalysis 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 - 

# 30'1-DB
In addition to determining paybackperiods with the spreadsheet model, the Actrequires us to determine a rebuttable payback period. The Act requires the Departmentto examine paybackperiodsto determine ifthe three yearrebuttable presumption ofeconomicjustification applies. Asprescribedbythe Act, the rebuttable payback period is "calculated under the applicable testprocedure, ...."
The annual space-cooling and space-heating energy consumption calculated based onthe Department'stestprocedure are onthe orderof50% greaterthan the weighted-average values from the LCC analysis (i.e., analyses based onthe 1997 RECS for residential buildings and hourly simulations for commercial buildings). As will be shown in SectionVI (Analytical Results), the payback value calculated from the Department'stestprocedure equations will be significantly lowerthan the average payback value calculated from the LCC analysis, for any standard level.
B. National Energy Savings andNetPresent Value Analysis In orderto 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 canbe changed. Unlike the LCC analysis, the NES spreadsheet does not use distributions for inputs oroutputs. 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 ofenergy savings and net present value (NPV) based onuser inputs similar to those for the LCC spreadsheet. The energy savings, energy cost savings, equipment costs, and NPV ofbenefits 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 heatpump (i.e, 10 SEER) is replaced by a more efficient piece ofequipment. 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 ofthe TSD. User inputs include: (1) a choice from among several electricity price projections: (2) effective date ofthe 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 ofconversion 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 afterthey 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 ..,

# 3D**'7~** 

# DB
DOE uses theNES spreadsheet to perform calculations ofenergy savings and net present value (NPV) based onuser inputs similarto those for the LCC spreadsheet. The energy savings, energy cost savings, equipment costs, and NPV ofbenefits for several product classes are forecast from the chosen start year through 2030. The forecasts provide annual and cumulative values for all four outputparameters.
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 orheat pump (i.e, 10 SEER) is replaced by a more efficientpiece ofequipment. Unit energy savings for each product class are the same weighted-average values as calculated in the LCC and Paybackperiod spreadsheet. Additional information about the NES spreadsheet canbe found in Chapter 7 ofthe TSD.
User inputs include: (1) a choice from among several electricityprice projections: (2) effective date ofthe central air conditioners and heatpumps 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 ofconversionfactors 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 afterthey take effect: (1) National Appliance Energy Conservation Act 

### 29 Q:\EE-41\EE-431\CACIStandRu\\NOPRIDraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 -- 

## 3 0- (NAECA) scenarios 0

### , (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 ofefficiencies (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 ofthe more important components ofany estimate offuture impact is shipments. Forecasts ofshipments for the base case and standards case are determined within the NES spreadsheet. The shipments portion ofthe spreadsheet forecasts central air conditioner and heat pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (1) the combined effects ofequipment 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 ofthe TSD.
'"Under the NAECA scenario, equipment efficiencies after the adoption ofnew 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 inthe 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 ofnew standards are forecast to have the same pattern, at and above the standard levels, as the current distribution ofefficiencies. 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/STO-9S-440-

# ...30 

# 1-

# oe (NAECA) scenarioIO, (2) Roll-up scenarioll , and (3) Shift scenario 12• As opposed to the Supplemental ANOPRwhere weighted-average equipment efficiencies were forecasted, an actual distribution ofefficiencies (Le., the percentage ofshipments which occur in incremental SEERbins overthe range from the minimum standard to 18 SEER) were used in the analysis for the proposed rule.
One ofthe more important components ofany estimate offuture impact is shipments. Forecasts ofshipments for the base case and standards case are determined within the NES spreadsheet. The shipments portion ofthe spreadsheet forecasts central air conditioner andheat pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (l) the combined effects ofequipmentprice, operating cost, and household income; (2) different market segments (e.g., newhousing, replacement decisions, and non-owners adding a central air conditionerorheatpump); (3) decisions to repair ratherthan replace; and (4) different equipment age categories. Additional details onthe various shipments forecasts are provided in Chapter 6 ofthe TSD.
JOUnder the NAECA scenario, equipment efficiencies after the adoption ofnew standards are forecasted to change in the samepattern 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. llUnderthe Roll-up scenario, equipment that in the base case were forecast to be less efficientthan the trial standard level are assumed to move up to the standard level, and equipment forecasted in thebase caseto be at or above thetrial standard level are assumed notto increase in efficiency. Thisresults in weighted-average equipment efficiencies, basedon minimum efficiency standards of 11, 12, and 13 SEER, of 11.5 SEER, 12.3 SEER, and 13.3 SEER,respectively. 12Underthe Shift scenario, equipment efficiencies after the adoption ofnew standards are forecast to have the samepattern, at and above the standard levels, as the current distribution ofefficiencies. 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-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 -3 

## '- 0 C. Manufacturer ImpactAnalysis The MIA estimates the financial impact ofstandards on manufacturers and calculates impacts on employment and manufacturing capacity.
The Department published the proposed MIA approach as part ofthe Federal Register publication ofthe 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 ofthe preparation ofan 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 1to adapt the GRIM structure to facilitate the analysis ofnew 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 ofrevised standards. Phase 3 also entailed documenting additional impacts on employment and manufacturing capacity through a structured interview process.
1.Phase 1,Industry Profile Phase 1ofthe MIA consisted ofpreparing an Industry Profile. Prior to initiating the detailed impact studies, DOE collected information on the present and past structure and market
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# 3/)1-0

# 8 C. Mamifacturer ImpactAnalysis The MIA estimates the financial impact ofstandards onmanufacturers and calculates impacts onemployment and manufacturing capacity.
The Departmentpublished the proposed MIA approach as part ofthe Federal Register publication ofthe 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 ofthe preparation ofan industry characterization. Phase 2, "Industry Cash Flow," focused onthe 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 1to adapt the GRIM structure to facilitate the analysis ofnew 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 ofrevised standards. Phase 3 also entailed documenting additional impacts on employment and manufacturing capacitythrough a structured interview process.
1. Phase 1, Industry Profile Phase 1ofthe MIA consisted ofpreparing an Industry Profile. Priorto initiating the detailed impact studies, DOE collected information onthe present and past structure and market 31 Q:IEE-41IEE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 

# 3(9O- O8 characteristics ofthe 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 atop-down cost analysis ofthe 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 ofinformation to further characterize the industry. These included company Securities and Exchange Commission (SEC) 10-K reports, Moody's company datareports, Standard & Poor's (S&P) stock reports, Value Line industry composites, and Dow Jones Financial Services.
2. Phase 2, Industry Cash FlowAnalysis Phase 2 ofthe MIA focused on the financial impacts ofnew standards on the industry as a whole. The analytical tool used for calculating the financial impacts ofstandards on manufacturers is the GRIM. As part ofthe analysis, DOE interviewed several ofthe major manufacturers. Forthe 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

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

## 30'1-

# 08
characteristics ofthe 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 manufacturermarket shares and characteristics and financial information, markettrends, and product characteristics.
The industry profile included a top-down cost analysis ofthe central air conditioner manufacturing industrythat 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 ofinformation 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) stockreports, Value Line industry composites, and DowJones Financial Services.
2. Phase 2, Industry CashFlowAnalysis Phase 2 ofthe MIA focused onthe financial impacts ofnew standards onthe industry as a whole. The analytical tool used for calculatingthe financial impacts ofstandards on manufacturers is the GRIM. As part ofthe analysis, DOE interviewed several ofthe major manufacturers. Forthe Industry Cash FlowAnalysis, DOE usedthe financial values determined during Phase 1 and the shipment scenarios used in the LCC andNES analyses.
3. Phase 3, Sub-Group Impact Analysis

32 Q:IEE-41IEE·431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 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 ofniche products, representing less than 3% ofindustry shipments, could be more negatively impacted bynew standards than major manufacturers. To assess the differential impacts, the Department interviewed two manufacturers ofniche products, in addition to those conducted during the Engineering Analysis. The focus ofthe interviews was to determine which GRIM parameters differed for niche manufacturers by virtue oftheir smaller revenue base and more limited markets.
From a financial standpoint, the common distinguishing characteristic ofniche product manufacturers was their need to spread the costs ofconverting 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 ofthe costs necessary to meet any new regulation are largely independent ofthe 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 offinal 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

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3October 4, 2000 (6:35PM) EE-RM/STO-9S-440 A

# jD'l- 0 

# 8
The Department has received many comments during workshops and interviews, and in writing, suggesting that manufacturers ofniche products, representing less than 3% ofindustry shipments, couldbe more negatively impacted by new standards than major manufacturers. To assess the differential impacts, the Department interviewed two manufacturers ofniche products, in addition to those conducted during the Engineering Analysis. The focus ofthe interviews was to determine which GRIM parameters differed for niche manufacturers by virtue oftheir smaller revenue base and more limited markets.
From a financial standpoint, the common distinguishing characteristic ofniche product manufacturers was theirneed to spread the costs ofconverting 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 ofthe costs necessary to meet any new regulation are largely independent ofthe product volume produced. The most apparent are the costs necessary to design a newproduct meeting the proposed energy standards. Other costs, such as plantengineering, some tooling, and other capital costs, have significant portions that are independent offinal production volumes.
4. GRIM Analysis An increase in standards affects a manufacturer's cash flow in three distinct ways: (I) increased investment; (2) higherproduction costs perunit; and (3) altered revenue by virtue of

33 Q:\EE-41\EE-431\CAc\StandRul\NOPRIDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 

### -30 

## '7- 0 higher per unitprices 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 ofinputs -- annual shipments; prices; manufacturer costs such as materials and labor, selling and general administration costs, taxes, and capital expenditures -- to arrive at a series ofannual net cash flows beginning today and continuing ten years past the implementation ofnew standards. This information was collected from a number ofsources, including publically available data, as well as interviews with ofthe 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 8ofthe TSD.
D. NEMSEnvironmental Analysis The environmental analysis provides estimates ofchanges in emissions ofnitrogen oxides (NO,) and carbon from carbon dioxide (CO2). The Department used NEMS-BRS for central air conditioner and heat pump analyses (as well asthe 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 ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet. For the environmental analysis, the output is the forecasted physical emissions. The net benefits ofthe standard is the difference between emissions estimated by NEM-BRS and the AEO2000 Reference Case.

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# 307- 

# 02> higherperunit prices and changes in sales volumes. As mentioned, the Department uses the GRIM to quantifythe changes in cash flow thatresult in a higher or lower industry value.
The GRIM analysis uses a number ofinputs
-- annual shipments; prices; manufacturer costs such as materials and labor, selling and general administration costs, taxes, and capital expenditures
-- to arrive at a series ofannual net cash flows beginning today and continuing ten years pastthe implementation ofnew standards. This information was collected from a number ofsources, including publically available data, as well as interviews with ofthe major manufacturers and two specialty manufacturers. Industry net present values are calculatedby discounting and summingthe annual net cash flows. Additional information about the GRIM spreadsheet canbe found in Chapter 8 ofthe TSD.


### D. NEMSEnvironmentalAnalysis The environmental analysis provides estimates ofchanges in emissions ofnitrogen 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 AE02000NEMS exceptthat central air conditioner and heat pump energy usages are reduced bythe amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet. Forthe environmental analysis, the outputisthe forecasted physical emissions. The net benefits ofthe standard is the difference betweenemissions estimated by NEM-BRS and the AE02000 Reference Case.

34 Q:IEE-41IEE-431ICACIStandRul\NOPRlDraftNOPRICACNOPR24.wpd October4, 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 ofits broad coverage ofall sectors and inclusion ofinteractive 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 byNEMS-BRS. NO, results are based on forecasts of compliance with existing legislation. Inthe case ofSO2

### , the Clean Air Act Amendments of 1990 set an emissions cap on all power generation. The attainment ofthis target, however, is flexible among generators and is enforced by applying market forces, through the use ofemissions allowances and tradable permits. As a result, accurate simulation ofSO2 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 asthere is enforcement ofthe emission ceilings. See the TSD, Environmental Assessment, for a discussion ofthis issue.
Alternative price forecasts corresponding to the high and low economic growth side cases found in AEO 2000 have also been generated for use byNEMS-BRS, and were used as alternative scenarios, and are presented in the TSD. (See TSD, Environmental Assessment.)
V. Discussion ofComments
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## 30'1 ...

# DB
The environmental analysis is relatively straightforward from NEMS-BRS. Carbon emissions are tracked inNEMS-BRS using a detailed carbon module thatprovides robust results because ofits broad coverage ofall sectors and inclusion ofinteractive effects. The only form of carbontracked by NEMS-BRS is CO2 , However, in this report the carbon savings are reported as elemental carbon.
The two airborne pollutant emissions that have beenreported in past analyses, sulfur dioxide (S02) andNOx, are reported by NEMS-BRS. NOxresults are based on forecasts of compliance 

### with existing legislation. 

### In the case ofS02' the Clean Air Act Amendments of 1990 set anemissions cap on all power generation. The attainment ofthis target, however, is flexible among generators and is enforced by applying market forces, through the use ofemissions allowances and tradable permits. As a result, accurate simulation ofS02 trading tends to imply that physical emissions effects will be zero because emissions will always be at, ornear, 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 ofthe emissionceilings. See the TSD, Environmental Assessment, for a discussion ofthis 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 inthe TSD. (See TSD, Environmental Assessment.)


## v. Discussion ofComments 35 Q:IEE-41IEE-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 apublic 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 ofemerging technologies into the Engineering Analysis; 3. The assessment ofthe impacts on steady-state efficiency, i.e. EER, due to increases in the SEER; 4. For heat pump systems, therelationship 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 ofalternative refrigerants for HCFC-22; 8. Data on retail mark-up assumptions; 9. Information relating to the determination ofprice and operating cost elasticities in conducting shipment forecasts; 10. Data on the possible adverse affects ofstandards on identifiable groups ofconsumers that experience below-average utility or usage rates;

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

# 301-08
As noted above, DOE published the Supplemental ANOPRregarding central air conditioners and heatpumps onNovember 24, 1999, and conducted a public workshop to present the analyses and to solicit comments onDecember 9, 1999. The Department requested comments on the following twelve issues: 1. Differences betweenthe industry and the reverse engineering cost data: 2. The incorporation ofemerging technologies into the Engineering Analysis; 3. The assessment ofthe impacts on steady-state efficiency, i.e. EER, due to increases in the SEER; 4. Forheatpump systems, the relationship between SEER and HSPF; 5. Additional product classes based on system capacity; 6. Nicheproduct classes a) ductless split b) high-velocity, small-duct c) vertical-package, wall-mounted d) split, through-the-wall-condenser ; 7. The impact ofaltemativerefrigerants for HCFC-22; 8. Dataonretail mark-up assumptions; 9. Informationrelating to the determination ofprice and operating cost elasticities in conducting shipment forecasts; 10. Dataonthe possible adverse affects ofstandards on identifiable groups ofconsumers 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. EngineeringCostData 1. Reverse Engineering Cost Estimates The Department's reverse engineering analysis prepared as abasis for the Supplemental ANOPR received abroad range ofcomments, both supportive and critical. ARI and the Natural Resources Defense Council (NRDC) commented on the apparent accuracy ofthe 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 ofdesign detail and the aggregation ofthe 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 splitheat pumps and packaged equipment differed
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### 37 October 4, 2000 (6:35PM) EE.RM/STD-98-440 - 

# 301-

# 08
11. Infonnation on what non-regulatory alternatives to standards need to be reviewed; and 12. Comments onthe candidate standard levels and the alternative standard scenarios.
Based on responses and comments received since that workshop, we provide the following discussion.


### A. Engineering CostData 1. Reverse Engineering Cost Estimates The Department'sreverse engineering analysis prepared as a basis for the Supplemental ANOPRreceived a broadrange ofcomments, both supportive and critical. ARl and the Natural Resources Defense Council (NRDC) commented onthe apparent accuracy ofthe split air conditionercost 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 engineeringresults for splitheat pumps and for packaged air conditioners and heat pumps, noting the lack ofdesign detail and the aggregation ofthe 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 CaliforniaEnergy Commission (CEC) No. 47 at 7). The comments observed that the relative costresults 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 airconditioner analysis. They also noted that the splitheat pump and packaged equipment analysis was based on fewer equipment samples; did not include a detailed tear-down ofa 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 ofthe differences between the ARI cost and the reverse engineering cost estimates, and revised its analysis ofsplit 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 ofthe engineering analysis performed byDOE consultant, Joseph Pietsch. Mr. Pietsch presented five guidelines for comparing the production cost ofequipment 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 heatpumps; * 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 ofconsistency in the cost to "convert" an air conditioner into a heat pump; and
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### j 

## 0(/-

# 0 [3 significantly from those ofsplit 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 ofa 10 SEER splitheatpump orpackaged air conditioner; and was based on questionable production volume assumptions.
The Department agreed that those deficiencies were likelyto cause some ofthe differences betweenthe ARI cost andthe reverse engineering cost estimates, and revised its analysis ofsplitheat pumps and packaged equipment.
In responding to the comment on sample size for split heat pumps and packaged equipment, the Departmenttook guidance from a review ofthe engineering analysis performed by DOE consultant, Joseph Pietsch. Mr. Pietschpresented five guidelines for comparing the production cost ofequipment 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 airconditioners (fancoil) and split air conditioners (cased coil); • Ateachcooling capacity and SEERlevel, 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 airconditioners and packaged heat pumps; • There should be some degree ofconsistency 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- 307- 

## 08 Split systems with fan coils and single package units at the same cooling capacity and SEER level should have nearly identical costs forthe major functional components.
Based onthe above guidelines, DOE revised the analysis ofsplitheat pumps and packaged equipment. Table V.1 provides the original and the revised production dollar cost estimates resulting from thisnew approach. Table V.2 provides the same information, but in terms ofrelative costs. Revised production costsare generally lower than the original costs, particularly at thebaseline 10 SEER level. The most significant change is that the new analysis includes nine additional estimates that were notpresented originally.
Table V.1: Engineering Production Cost Estimates for 3-ton UnitaryEquipment 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

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

# 301-08

• Split systems with fan coils and single package units atthe same cooling capacity and SEERlevel should have nearly identical costs for the major functional components.
Basedonthe above guidelines, DOErevisedthe analysis ofsplitheatpumps and packagedequipment. Table V.I provides the original andthe revisedproduction dollar cost estimates resulting from this newapproach. Table V.2 provides the same information, butin terms ofrelative costs. Revised production costs are generally lowerthan the original costs, particularlyatthe baseline 10 SEERlevel. The most significant change is thatthe newanalysis includes nine additional estimates thatwere notpresented originally.
Table V.l: Engineering Production CostEstimates for 3-tonUnitaryEquipment Efficiency SplitAirConditioner SplitAirConditioner

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 SplitHeat 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

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### EE-RM/STD-98-440 -30 1-0" The only significant departures are found in split air conditioners withfancoils, 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 -

## 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-431ICACIStandRu\INOPR\DraftNOPRICACNOPR24.wpd October4, 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 ofthe 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 heatpumps 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 ofthe baseline heat pump, lowering the relative cost of producing equipment athigher efficiency levels. To compensate forthis overestimate of overhead allocation, we set the split heat pump overhead allocation equal to that ofthe 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 forthose product classes and that no additional equipment samples need to be subjected to tear-down or reverse engineering

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# J01- 

# oB
Table V.2: Revised Reverse Engineering Production Cost Multipliers for 3-tonUnitary Equipment Efficiency Split Air Conditioner Split AirConditioner 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 onits production volume assumptions priorto the publication ofthe Supplemental ANOPR, the Departmenthad reduced its heatpump production volume from 125,000 units peryearto 25,000 units peryear. 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 eachheat pumpproduced. The higher overhead allocationraises the cost ofthe baseline heatpump, lowering the relative cost of producing equipment athigher efficiency levels. To compensate for this overestimate of overhead allocation, we setthe split heatpump overhead allocation equal to that ofthe split air conditioner at each efficiency level.
The Departmentbelieves that the revisions to the split heat pump and packaged equipmentproductioncosts have improved the cost estimates for those product classes and that no additional equipment samples need to be subjected to tear-down orreverse engineering

41 Q:IEE-4IIEE-43IICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October4, 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 thatthe unit price ofequipment shipments below 65,000 Btu/hr fell in real terms between 1992 and 1997. (ACEEE, No. 43 at4). 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 notbelieve historical price trends for unitary air conditioners, or other products, can be applied to forecast equipment costs where there are no datato 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 ofachieving 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 -

# 3D1-0B analysis. The revised reverse engineering cost estimates were used inthe analysis for today's proposedrule.
2. Productivity Efficiency Improvements According to the American Council for an Energy Efficient Economy (ACEEE), Census BureauCurrentIndustrial Report (CIR) data suggest that the unit price ofequipment 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 projectedprices to account for this apparent productivity improvement.
For otherrulemakings, the Departmenthas usedproduction input costs and production technologies based onthe best information available at the time. DOE has not made any assumptions about productivity improvements and material cost changes overtime. The Department does not believe historical price trends for unitary air conditioners, or otherproducts, canbe applied to forecast equipment costs where there are no datato indicate the trends will continue. Therefore, without specific data onthe likely costs to manufacture a product, the Departmentwill not apply a productivityimprovement 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 lowerthe cost ofachieving higher efficiency. In the Supplemental 42 Q:\EE-41\EE-431ICACIStandRul\NOPRlDraftNOPRICACNOPR24.wpd October4, 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 ofvariable speed fan motors and parallel-flow, microchannel heat exchangers to be potentially viable methods for increasing the efficiency ofequipment at a lower cost than currently established methods.
Bard Manufacturing (Bard), Unico, Inc. (Unico) and NRDC disagreed with this approach, questioning whether some ofthe technologies considered were commercially and technically viable, but proposed no other technologies for consideration. (Bard Manufacturing, No. 28 at4; 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 ofthe Carnot efficiency on page 4-27 ofthe 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 pointthat 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, ofthe technologies considered, only variable capacity compressors and variable
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# ,301-08 ANOPR, we considered advances in variable speed and variable capacity compressors, and reductions inthe cost ofvariable speed fan motors and parallel-flow, microchannel heat exchangersto be potentially viable methods for increasing the efficiency ofequipment at a lower costthan currently established methods.
Bard Manufacturing (Bard), Unico, Inc. (Unico) andNRDC disagreed with this approach, questioning whether some ofthe technologies considered were commercially and technically viable, butproposed no othertechnologies 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 butnot microchannel heat exchangers intheirrelative 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 ofthe Camot efficiency onpage 4-27 ofthe Supplemental ANOPRTSD. (Trane, No. 23 at 2; and EEl No. 20 at 3).
Pacific Gas and Electric (PG&E) voiced concern that newtechnologies, such as the Bristol modulating compressor, couldreduce costs to the pointthat manufacturers may use them at lower SEERlevels resulting in a negative impact onpeak loads and electrical system reliability. (PG&E, No. 31 at 3).
The emerging technology analysis based onreverse engineering information seems to confirmthat, ofthe technologies considered, only variable capacity compressors and variable 43 Q:\EE-41\EE-431ICACIStandRul\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 forproviding additional efficiency compared to today's established technologies. This provides evidence that ARI isjustified in not considering thepotential benefits ofmicrochannel heat exchangers as part ofits relative cost data submission. Therefore, we will apply emerging technologies onlyto the reverse engineering results and consider the ARI relative cost multipliers to already include the effects ofemerging 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 ofthe analysis is not to provide a definitive estimate ofthe impact ofany or all emerging technologies on system cost. It is to provide evidence as to the extent to which reverse engineering overestimates the cost ofhigher efficiency equipment by neglecting emerging technologies. Therefore, the method used previously forportraying and combining the potential effects ofemerging technologies on system costs is carried forward into today's rule. Chapter 2 ofthe TSD provides the details ofthe revised emerging technologies analysis.
4. HFC-Based Engineering Analysis ARI and Trane supported the Department's decision not to explicitly examine the effects ofthe 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 ofthe equipment soldunder 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 

## -30'1-08 speed fan motors have the potential to be cost options for providing additional efficiency comparedto today's established technologies. This provides evidence that ARI isjustified in not consideringthe potential benefits ofmicrochannel heat exchangers as part ofits relative cost data submission. Therefore, we will apply emerging technologies only to the reverse engineering results and considerthe ARI relative cost multipliers to already include the effects ofemerging technologies.

We do notbelieve ouroriginal emerging technology analysis was inconsistent, as expressed byTrane 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 ofthe analysis is not to provide a definitive estimate ofthe impact ofany orall emerging technologies on system cost. Itis to provide evidence as to the extentto which reverse engineering overestimates the cost ofhigher efficiency equipment by neglecting emerging technologies. Therefore, the method usedpreviously for portraying and combining the potential effects ofemerging technologies on system costs is carried forward into today's rule. Chapter 2 ofthe TSD provides the details ofthe revised emerging technologies analysis.
4. HFC-Based Engineering Analysis ARI and Trane supported the Department's decision not to explicitly examine the effects ofthe HCFC phaseout onequipment cost and efficiency. (Wethje, ARI, Transcript p. 145; Crawford, Trane, Transcriptp. 143). The Oregon Energy Office (OEO) andNRDC urged the Departmentto reconsider, given that a large fraction ofthe equipment sold under the new 44 Q:IEE-41IEE-431ICACIStandRu\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 ofequipment using either HFC-407c or HFC-410a refrigerants will differ significantly from the incremental cost ofincreasing 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 ofthe market is changing to HFC-410a and that HFC-410a offers little, ifany, efficiency benefit over HCFC22 at the same equipment cost.
Forthese 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-CostParameters 1. Extended Warranty and Service Costs Energy Market and Policy Analysis, Inc. (EMPA) noted that the Life Cycle Cost analysis did notexplicitly 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 ofextended 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 -

## j 

# 0

# '7-

# 08 efficiency standard will likely use a refrigerant otherthan HCFC-22, evenpriorto the 2010 phaseout date. (Stevens, OEO, Transcript, p. 144; NRDC, No. 35 at 11-12).

To date, no datapresented to the Department indicate that the incremental cost for increasingthe efficiency ofequipmentusing either HFC-407c orHFC-41Oa refrigerants will differ significantly from the incremental cost ofincreasing efficiency using HCFC-22 equipment. Althoughthe base costmaydiffer somewhat, the incremental cost determines the life-cycle-cost savings. Furthermore, the Department continues to receive information that much ofthe market is changingto HFC-41Oa and that HFC-41Oa offers little, ifany, efficiencybenefit overHCFC22 atthe same equipmentcost.
Forthese reasons, the Department will not perform additional engineering analysis related to alternate refrigerants. The costs to manufacturers related to their conversionto the new refrigerant will be considered inthe Manufacturer Impact Analysis.


### B. Life-Cycle-CostParameters 1. Extended Warranty and Service Costs Energy Market and Policy Analysis, Inc. (EMPA) notedthat the Life Cycle Cost analysis did notexplicitly 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) statedthat the inclusion ofextended warranty and service costs wouldhave the impact of reducing repair and maintenance costs. (Prindle, ASE, Transcript, p. 222). Industry consultant 45 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October4, 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 ofcomponents, to alleviate customer concerns regarding possible future repair cost ofthe 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 ofwhich have a relatively short history. Reliability patterns ofthese 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 ofrepair 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. Ifthe cost is covered by warranty, however, the warranty provider passes itback to future warranty holders in the form of slightly higher warranty prices. DOE believes the incremental increase in the price ofthe warranty is equal to, orjust slightly higher, than the discounted present value ofthe incremental repair costs over the life ofthe warranty. Over the longterm then, the average consumer always incurs the cost ofhigher 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 - 

# J 

# fJ7-08 Joseph Pietsch statedthat manufacturers may provide longer-term warranties for high efficiency systems that cover a wider range ofcomponents, to alleviate customer concerns regarding possible future repair cost ofthe more complex systems. (Pietsch, No. 36 at 22).
Airconditionermanufacturers warranty their equipment against defects, and contractors typically guarantee performance and installation. Manufacturer warranties typically coverparts and labor for one year, with longer warranties applying to the compressor. MrPietsch noted that compared to low-SEERproducts, high-SEERproducts have more components, many ofwhich have a relatively shorthistory. Reliability patterns ofthese new components are less known, so warranty accruals may be significantlyhigher for these products. (Pietsch, No. 36 at 22). Dealers also may offer extendedwarranties which are usually underwritten by the manufacturer or a third party.
A productthat is less reliable or contains more expensive components will have a higher cost ofrepair over its lifetime. Eitherthe consumer orthe warrantyprovider will bearthat added cost directlythroughmore frequent service calls orhigherrepair costs. Ifthe cost is coveredby warranty, however, the warranty providerpasses it backto future warranty holders in the form of slightlyhigher warranty prices. DOEbelieves the incremental increase inthe price ofthe warranty is equal to, orjust slightly higher, thanthe discounted presentvalue ofthe incremental repair costs overthe life ofthe warranty. Overthe long term then, the average consumer always incurs the cost ofhigherrepair costs, either directly orthrough higher warranty prices. Since our

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### EE-RM/STD-98-440 - 30 

### 7- 0- analysis considers the present value ofconsumer life cycle costs on the average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable.
Since consideration ofrepair 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 ofservice 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 ofextended warranties would produce significantly different results from those based on service costs alone which we have assumed rise in proportion to the price ofthe equipment. Since more efficient equipment is also more expensive, we have included the higher cost ofrepair, or equivalently, the higher warranty cost associated with more efficient equipment, as part ofthe 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 ofinternal 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-
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### 47 October 4, 2000 (6:35PM) EE-RM/STD-98-440 -

# 307-oS analysis considers the present value ofconsumer life cycle costs on the average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable.
Since consideration ofrepair costs is satisfied by considering eitherrepair costs or extended warranties, we limited our considerationto repair costs, which are slightly easier to estimate, communicate, and incorporate into the analysis. Considering them both would require a muchmore rigorous analysis ofservice 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 ofextended warranties wouldproduce significantly different results from those based on service costs alone which we have assumed rise inproportionto the price ofthe equipment. Since more efficient equipment is also more expensive, we have included the higher cost ofrepair, orequivalently, the higher warranty cost associated with more efficient equipment, as part ofthe lifecycle cost analysis.
2. Residential Energy Consumption Survey (RECS) BothNRDC 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 ofintemalloads. EMPA statedthatthe RECS household sample size is too small to be used inthe manner in which it is being treated inthe 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-431ICACIStandRu\INOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440

- 3070 " 161). Virginia Power, EEI, and EMPA allrequested 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 ifpossible 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).
Aspart ofthe process to improve the new energy efficiency standards analysis, we are committed to use sensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. The Department believes that RECS provides a nationally representative household data set which is suited for conducting the type ofsensitivity analyses suggested by the Process Rule. Limiting the RECS households to those equipped with either central air conditioners orheat pumps, the LCC analysis performs a household-by-household analysis that predicts the percentage ofhouseholds 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 ofvalidating 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 thisrange ofdifference is acceptable considering that the conditional demand analysis utilized by RECS is fully capable ofestimating the energy consumption of equipment throughout the nation. Because RECS is avery well suited source ofdata for performing the analyses suggested bythe Process Rule and RECS has been shown to provide
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# 3D1-06 161). VirginiaPower, EEl, and EMPA all requested that the analysis be updated to use RECS 1997 dataratherthan RECS 1993 data. EEl added that actual submetered end-use data should be used ifpossible ratherthan the end-use data in RECS. (Virgina Power, No. 27 at 2; EEl, No. 20 at 5, Schleede, EMPA, Transcript, pp. 160-161).
Aspart ofthe processto improve the newenergy efficiency standards analysis, we are committedto use sensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. The Departmentbelieves that RECS provides a nationally representative household data set which is suited for conducting the type ofsensitivity analyses suggestedbythe Process Rule. Limiting the RECS households to those equipped with either central air conditioners orheatpumps, the LCC analysis performs a household-by-household analysis that predicts the percentage ofhouseholds that will incur net life-cycle cost savings or costs from anincreased efficiency standard.
End-use energy consumptiondata from pastRECS surveys have been comparedto submetered end-use data for purposes ofvalidating their conditional demand analysis estimates. Central air conditioning and space-heating energy data from the 1990 RECS were shownto differ by 5%to 22% comparedto submetered end-use data from five utility service areas. The Departmentbelievesthatthisrange ofdifference is acceptable considering that the conditional demand analysis utilizedbyRECS is fully capable ofestimating the energy consumption of equipmentthroughoutthe nation. Because RECS is a very well suited source ofdatafor performingthe analyses suggested by the Process Rule and RECS has been shownto 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 ofend-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 ofthis 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 offirst 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 ofhistorical 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).

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

## 3D

# 1- 0

# B
reasonable estimates ofend-use energy consumption, we will continue to rely on RECS for providing the annual energy consumption datanecessary for conducting the life-cycle cost analysis.
The analysis conducted in support ofthis proposedrule has beenrevised based on data from the 1997 RECS rather than the 1993 RECS.
3. EquipmentLifetime Virginia Power, EEl, ARI, Unico, Rheem Co., and Trane commented that the average equipment lifetime of 18.4 years assumed inthe 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). EMPA asserted that the length offirst ownership should be used as the basis for equipment lifetime. (EMPA, No. 33 at 3, Schleede, EMPA, Transcript, p. 162).
NRDC, ACEEE, andthe 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 ofhistorical shipments. ACEEE added thatunless 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).

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## 0

# 8
The Department notes that the basis ofthe 18.4 year equipment lifetime was a survey conducted on more than 2,100 heat pumps in a seven state region ofthe U.S 13


### . The survey determined not only the lifetime ofa complete heatpump system, but the life ofthe 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 ofsystem.
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 ofthe compressor, which is the most expensive component ofa system. As indicated bythe survey data, the compressor was assumed to be replaced in the 14th year ofthe 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 -

# J 

# a7- 0 

# 8
The Department notes that the basis ofthe 18.4 year equipment lifetime was a survey conducted onmore than 2,100 heat pumps in a seven state region ofthe U.S\3. The survey determined not only the lifetime ofa complete heatpump system, butthe life ofthe original compressor as well. Although the system lifetime is on average over 18 years, the survey also showedthat the original compressor lifetime was, on average, 14 years. Thus, the survey indicatedthat essentially all heat pump owners replaced their original compressor once inthe lifetime ofsystem.
Inthe LCC analysis conducted for the Supplemental ANOPR, we did not include any repair costs associated withreplacing 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 repaircost for the compressor. Conducting the analysis in this mannerretains the average system lifetime of 18.4 years but explicitly addresses the replacement cost ofthe compressor, which is the most expensive component ofa system. As indicated bythe survey data, the compressorwas assumed to be replaced inthe 14th year ofthe system's life. In addition, because more efficient systems tend to use more efficient and, thus, more expensive compressors, the compressorreplacement cost was assumedto vary with system efficiency. Althoughthe revised LCC analysis assumed an 18.4year average equipment life and one compressorreplacement, a shorter equipment lifetime was investigated as an alternative scenario.
I3"Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "HeatPump Life and Compressor Longevity in Diverse Climates." ASHRAE Transactions, 1990.96(1): p. 1567-1571. 50 Q:IEE-4IIEE-431ICACIStandRu)INOPR\DraftNOPRICACNOPR24.wpd October4, 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, ifnot 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 5ofthe TSD.
4. Commercial Applications NRDC, ACEEE, VEIC, CEC, and the Northwest Power Planning Council (NPPC) commented that DOE should analyze the application ofresidential central air conditioners and heat pumps (i.e., single-phase equipment) in commercial buildings. All stated that there is a significant portion ofthis type equipment being used in small commercial buildings. They argued that since the energy use patterns in commercial buildings are distinctly different than those inhouseholds, 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).
Fortoday's proposed rule, the use ofresidential equipment in commercial buildings was analyzed assuming that 10% ofall central air conditioners and heat pumps are used in
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# 30

# 1- DB
In this alternative scenario, a retirement function yielding an average lifetime of 14 years was used and compressorreplacement costs were not considered. The shorter equipment lifetime is plausible assuming that most, ifnot all, consumers when faced with replacing a failed compressor would choose to replace the entire system ratherthan replace the compressorin a relatively old system. LCC results based onboth the 18.4 year and 14 year average equipment lifetimes are provided in SectionVI as well as Chapter 5 ofthe TSD.
4. Commercial Applications NRDC, ACEEE, VEIC, CEC, and the Northwest Power Planning Council (NPPC) commentedthat DOE should analyze the application ofresidential central air conditioners and heat pumps (i.e., single-phase equipment) in commercial buildings. All stated that there is a significantportion ofthis type equipment being used in small commercial buildings. They argued that since the energy use patterns in commercial buildings are distinctly differentthan those inhouseholds, the analysis should include residential equipmentuse 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; TomEckman, NPPC, Transcript, p. 166).
EElrequested clarification as to howthe commercial application analysis was conducted for the Department'sJanuary 14,2000,LCC Sensitivity Analysis. (EEl, No. 20 at 10).
Fortoday's proposedrule, the use ofresidential equipment in commercial buildings was analyzed assuming that 10% ofall 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 onARI's estimate that approximately 10% of single-phase air conditioning and heat pump shipments are used in commercial buildings. The annual energy consumption ofcommercially applied air-conditioning and heat pump equipment was based on the simulation of77 nationally representative commercial buildings consistent with the approach and assumptions utilized to develop the American Society ofHeating, Refrigerating and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal electricity rates were developed by matching a set ofcommercial 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% ofthe entire residential and commercial building population. Complete details on the procedure to incorporate commercial applications are included in Chapter 5 ofthe 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 ofthe comments stated the beliefthat deregulation ofthe electric utility industry would result in greater volatility ofelectricity 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- 

# ·30'f-

# 08
commercial applications. This figure is based onARI's estimate that approximately 10% of single-phase air conditioning and heat pump shipments are used in commercial buildings. The annual energy consumption ofcommercially applied air-conditioning and heat pump equipment was based onthe simulation of77 nationally representative commercial buildings consistent with the approach and assumptions utilized to develop the American Society ofHeating, Refrigerating and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal electricityrates were developed by matching a set ofcommercial electric utility tariffs to the above simulatedbuilding 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% ofthe entire residential and commercial buildingpopulation. Complete details onthe procedureto incorporate commercial applications are included in Chapter 5 ofthe TSD.
5. Marginal Electricity Prices NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commentedthat the Supplemental ANOPRanalysis underestimated future marginal electricity prices. Several ofthe comments statedthe beliefthat deregulation ofthe electric utility industry wouldresult in greater volatility ofelectricitypricingthat eventually would translate into higher electricity prices during peak powerperiods. (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-431ICACIStandRuIINOPR\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 inhigher electricity prices in the future. ARI noted that under apeak 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 forproviding 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. Inthe case ofresidential 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 utilitytariffs used to establish marginal prices (as described earlier) were collected in the year 1997. On average, residential marginal prices for households with central airconditioners 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 uponthe Reference Caseelectricity price forecast from the AEO2000. The Reference Caseforecasts declining electricity rates through the year 2020. Although itis 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 ofcommercial buildings where demand pricing already exists,
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### 5 3 Qctober 4, 2000 (6:35PM) EE-RM/STD-98-440 - 

# 3D

# 1-08
ARI and EEl were not convinced that a deregulated electric utility industry would result in higher electricityprices in the future. ARI noted that under a peak pricing scenario consumers may decline to operate their air-conditioning equipment to avoid incurring high electricitybills. EEl added that currently, there is no mechanism to capture utility capital costs for providingpeak power inresidential 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 ofresidential pricing, the datafor establishing marginal prices (the 1997 RECS) was taken from the year 1997. The same can be said for commercial buildings. The utilitytariffs 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 withheat pumps marginal prices are 7% lower. Space-cooling marginal prices in commercial buildings are on average 2% greaterthan average commercial rates. Future marginal prices were inturnbaseduponthe

### Reference Case electricity price forecast from the AE02000. The 

### Reference Case forecasts declining electricityrates through the year 2020. Although it is certainlypossible that future electricityrates 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 electricityrates) convinces us that ourcurrent methods for establishing marginal prices are reasonable. To state that future prices may decrease or increase is speculative. Even in the case ofcommercial buildings where demand pricing already exists, 53 Q:IEE-41IEE-431\CAClStandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (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 ofFuture Electricity Prices EMPA asserted that the EIA's forecast ofelectricity 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 ofelectricity prices should capture the future use ofrenewable energy and emerging technologies for generating power. (Dasher, Transcript, pp. 192-193).
Future marginal prices are based upon the Reference Caseelectricity price forecast from the AEO 2000. The Reference Caseforecasts 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 oftwo 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'

# 30'1-

# 08 marginal prices are only 2% greaterthan average electricityrates. This reenforces ourconviction to keep our currentmethodology 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 ofFuture Electricity Prices EMPA assertedthat the EIA's forecast ofelectricityprices as found inthe Annual Energy Outlookunderestimates the future drop inelectricityrates. (EMPA, No. 33 at 2-3; Schleede, EMP A, Transcript, p. 185). Don Dasher stated that any forecast ofelectricityprices should capturethe future use ofrenewable energy and emerging technologies for generating power. (Dasher, Transcript, pp. 192-193).

Future marginal prices are based upon the

### Reference Case electricityprice forecast from the AEO 2000. The

### Reference Case forecasts declining electricityrates through the year 2020. Although it is certainlypossible that future electricity rates may increase in a deregulated climate, the evidenceto date (i.e., residential marginal prices are actually lowerthan average rates and current AEO forecasts project declining electricityrates) leads us to believe that our current methods for establishing future marginal prices are reasonable.

In addition to the Reference Case, DOE analyzedthe effects oftwo other energy price forecasts, the AEO 2000 High Growth and Low Growth cases. (See TSD, Chapter 5.)

54 Q:IEE-41IEE-431ICACIStandRu1INOPRIDraftNOPRICACNOPR24.wpd October4,2000 (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 offinance methods which were assumed for establishing the discount rate. The Supplemental ANOPR analysis assumed that 35% ofconsumers purchasing a central air conditioner or heat pump used a credit card to finance their purchase. The comments argued for amuch lower percentage and cited arecent 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 ofconsumers using credit cards to purchase equipment was correct, based on the number ofconsumers 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 thepurchase ofvarious 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 ofvarious 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

# ~ 

# 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. Theirprimary criticismpertainedto the breakdown offinance methods which were assumed for establishing the discount rate. The Supplemental ANOPR analysis assumed that 35% ofconsumers purchasing a central air conditioner orheatpump used a credit card to finance theirpurchase. The comments argued for a much lowerpercentage 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) thatreported lowerpurchases 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). Counterto the above assertion, Trane maintained that the Supplemental ANOPR's assumptionregarding the percentage ofconsumers using credit cards to purchase equipment was correct, based onthe number ofconsumers 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 cashpurchases needed to be revisited. (EEl, No. 20 at 6). EMPA asserted that withhigher cost air conditioners, consumers' after tax income would be reduced, requiring them to forego the purchase ofvarious household necessities such as food, clothing, and shelter. (EMPA, No. 33 at 3).
The Departmentperformed an extensive review and revision to the methodologythat determines consumer discount rate. The Supplemental ANOPR established the share ofvarious finance methods used for purchasing air-conditioning equipment and determined the associated 55 Q:\EE-41\EE-431ICACIStandRu\INOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 30 - 0O


### interest rates for each ofthe finance methods. For equipment obtained through the purchase ofa new home, second mortgage, or home equity lines ofcredit, this approach is reasonable. But for purchases made to replace old or failed equipment where cash or some form ofcredit is used to finance the acquisition, we determined it more appropriate to establish howthe 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 ofthe 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 mustbe earmarked to pay offthe 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 ofConsumer 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 ofinvesting. Data from the Air Conditioning, Heating, and Refrigeration News (December 12, 1998) established the percentage ofshipment going to new homes.
After establishing the share captured by each finance method, the range ofinterest rates due to each method were developed. The 1998 SCF established the range ofinterest rates for new home mortgages, second mortgages, and credit cards. Rates ofreturn 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 .-

# 301-

# 08

interestrates for each ofthe finance methods. Forequipment obtained through the purchase ofa newhome, secondmortgage, orhome equity lines ofcredit, this approach is reasonable. Butfor purchases madeto replace old or failed equipment where cash or some form ofcredit is used to finance the acquisition, we determined it more appropriate to establishhowthe purchase affects a consumer's overall household financial situation. For example, eventhough the purchase mightbe financed through a dealer loan or some other lowinterest financing vehicle, the more probable effect ofthe purchase is to either cause the consumerto incur additional credit card debt orforego theirinvestment in some type ofsavings-related asset. Cashthat was once available to eitherpay for household necessities orto invest in an asset like the stock market ora simple savings account nowmustbe earmarkedto payoffthe equipmentpurchase loan, thus, either causingthe consumerto incur additional credit card debt orto lose the opportunity to earn income from their assets. For today's proposedrule, we have decided to use the above methodologyfor defining the discount rate for central air conditioner and heat pump purchases. The 1998 Survey ofConsumerFinances (SCF) was used to estimate the percentage of households that used second mortgages to finance their equipmentpurchase as well as those households thateither would incurmore credit card debt orbe forced to forgo their normal course ofinvesting. Data from the Air Conditioning, Heating, and RefrigerationNews (December 12, 1998) establishedthe percentage ofshipment going to newhomes.
After establishingthe share captured by each finance method, the range ofinterestrates due to each method were developed. The 1998 SCF established the range ofinterestrates for newhome mortgages, second mortgages, and credit cards. Rates ofreturn oncertificates of 56 Q:\EE-41\EE-431ICACIStandRulINOPR\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 of5.6% is calculated from the mean interest rates for each finance method. A more detailed discussion ofthe data sources and how the interest rates were derived is found in Chapter 5ofthe TSD.
8. Percentage ofHouseholds 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 ofhouseholds would need to benefit from the standard in order tojustify its selection. (ARI, No. 48 at 5; Unico, No. 34 at 3; EMPA, No. 33 at 2). NRDC stated that the percentage ofhouseholds 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 ofhouseholds at any particular standard level with net LCC costs actually overstates the significance ofthe negative LCC impacts. Most consumers experience LCC increases ofonly a few dollars over the life ofthe 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-4I\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 57 October 4, 2000 (6:35PM) EE-RM/STD-98-440
....

# 301-

# 08 deposit, savings bonds, and bonds were based onhistorical interest rates. A weighted-average

.discount rate of5.6% is calculated from the mean interest rates for each finance method. A more detailed discussion ofthe data sources and howthe interest rates were derived is found in Chapter 5 ofthe TSD..
8. Percentage ofHouseholds with LCC Savings Forthe Supplemental ANOPR, all consumers having an LCC increase resulting from the standard were considered to be adversely impacted. Several comments expressed concern on howwe would use this information on adverse consumer impacts in selecting minimum efficiency standards. ARl, Unico and EMPA asserted that a majority ofhouseholds would need to benefit from the standard in ordertojustifyits selection. (ARl, No. 48 at 5; Unico, No. 34 at 3; EMPA, No. 33 at 2). NRDC stated that the percentage ofhouseholds 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 commentedthatthe percentage ofhouseholds at any particular standard level with net LCC costs actually overstates the significance ofthe negative LCC impacts. Most consumers experience LCC increases ofonly a few dollars overthe life ofthe equipment. (PG&E, No. 31 at 8).
The Department agrees with PG&E'scomment and in formulating today's proposed rule, DOE has redefined the criteriafor 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-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 - 3 

### 0 - 0

consumers incurring an LCC increase as small as $10 were considered tobe adversely impacted by an increase in the standard. Inthe revised LCC analysis, the Department defines consumers impacts as follows: consumers who achieve significantnet LCC savings (i.e., LCC savings 

### greater than 2% ofthe 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% ofthe baseline LCC), or consumers who achieve asignificantnet 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% ofthe 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 ofhouseholds 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 ofthe country would be impacted by an increase in the minimum efficiency standard.
10. Rebuttable Payback EEI asked whythe 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 anew minimum efficiency standard. (EEI, No. 20 at 7-8).
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## ~ 

# 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 significantnet Lee savings (i.e., Lee savings greaterthan 2% ofthe baseline LCC), consumers who are impacted in an insignificant mannerby having either a small reduction or small increase in LCC (i.e., within ±2% ofthe baseline LCC), orconsumers who achieve a significantnet Lce increase (i.e., an LCC increase exceeding 2% of the baseline Lee). Consequently, only consumers (both residential and commercial) having an Lec increase greaterthan 2% ofthe baseline are considered to be negatively impacted.
9. Regional Analysis Atthe December 9, 1999, public workshop, NRDC and CEC requested further information on regional distributions ofhouseholds with net LCC savings orcosts relative to the regional baseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p. 274). The Departmentresponded by conducting additional analysis, which was posted to our web site onJanuary 14,2000, and included Lce analysis disaggregated by region into census divisions. Fromthis regional analysis it could be determined how different parts ofthe country wouldbe impactedby an increase inthe minimum efficiency standard.
10. Rebuttable Payback EEl asked whythe rebuttable payback period is not determined with annual energy use datafrom RECS. They also requested clarification as to howrebuttable 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-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 -,) 7-O As prescribed by Section 325(o)(2)(B)(iii) ofEPCA, 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 ofEnergy 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 ofimpacts of standards, including manufacturer impacts and energy savings. Therefore, the Department bases its decision primarily on the seven factors specified in Section 325(o) ofthe 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 ofthe sensitivity analyses described by ACEEE. (NRDC, No. 35 at 12-13). Trane went on the record as not endorsing all ofACEEE's requested sensitivities. (Crawford, Trane, Transcript, p. 237).
We conducted several ofthe requested LCC sensitivity analyses, as well as the previously described regional analyses, and posted the results to our web site onJanuary 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/STO-9S-440

# -.30

# 7-

# 08
As prescribedby Section 325(0)(2)(B)(iii) ofEPCA, the rebuttable paybackperiod is calculated underthe applicable test procedure. Thus, all rebuttable paybackperiods are based on an annual energy consumptionthat is determined through the current Department ofEnergytest procedure for central air conditioners and heatpumps. The resulting annual energy use as determined by the testprocedure is significantly greaterthan what is indicated by RECS. Thus, the rebuttable paybackperiods are significantly shorter than those based onthe RECS annual energy consumption data.
The rebuttable presumptiontest does not considerthe full range ofimpacts ofstandards, including manufacturerimpacts and energy savings. Therefore, the Department bases its decisionprimarily onthe seven factors specified in Section 325(0) ofthe Act.
11. SensitivityAnalyses ACEEE recommended that several sensitivity analyses be conductedto 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 ofthe sensitivity analyses described by ACEEE. (NRDC, No. 35 at 12-13). Trane went onthe record as not endorsing all ofACEEE's requested sensitivities. (Crawford, Trane, Transcript, p. 237).
We conducted several ofthe requested LCC sensitivity analyses, as well as the previously described regional analyses, and posted the results to ourweb site onJanuary 14,2000. The sensitivities examinedhowthe LCCs for central air conditioners and heat pumps were impacted 59 Q:IEE-41IEE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (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 ofsingle-phase central air conditioning and heat pump equipment in commercial applications. Ofthe sensitivities examined, the assumption offixed 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 ofmagnitude as the fixed margin assumption. All other sensitivities had only minor impacts onthe LCC results.
In preparing the sensitivity analyses, we found reason to revise ourassumptions 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 ismore 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).
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## 30'1-0

# 8 by changes inthe following: dealer markups, builder markups, repair costs, lifetime, emerging technologies, and the use ofsingle-phase central air conditioning and heat pump equipment in commercial applications. Ofthe sensitivities examined, the assumption offixed margins (i.e., no variationinthe difference between the equipmentprice to the consumer and the costto manufacture with increased efficiency) had the largest impact onthe LCC results. Changes in the lifetime had a noticeable affect butnot the same order ofmagnitude as the fixed margin assumption. All other sensitivities had only minor impacts on the LCC results.
In preparingthe sensitivity analyses, we found reasonto revise our assumptions regarding markups, compressorreplacement, and commercial applications. Those revisions are incorporated into the analysis that supports today's proposed rule and are discussed elsewhere in this Section.


### C. ShipmentsAnalysis 1. Forecasted Housing Shifts Boththe OEO andNPPC stated thatthere will likely be significant shifts in regional housing populations. Forexample, future housing shifts may result in more housing in warmer weather climates where central air conditioning is more prevalent and used more often, thus, impactingthe nation's future space-conditioning energy use. Since the ShipmentAnalysis does not account for regional housing shifts, OEO andNPPC 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-431ICACIStandRu\INOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440- 

# 3 17-08 Preliminary analysis ofregional housing shifts has been examined and determined to have a relatively small effect (i.e., a maximum change of2% in the cumulative amount ofmonetary 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 ofhistorical housing data coupled with worst case forecasts ofregional 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% ofexisting housing stock and this is forecast to decrease to about 1% ofhousing stock by 2030. Historical data over the period from 1980 to 1990 showed the shift in regional shares ofhousing stock changed by less than 2% (decreased by 1.2% and 1.7% in theNortheast and Midwest, respectively, and increased by 1.7% and 1.2% in the South and West, respectively). Ifthese changes continue at a steady rate, the housing share of theNortheast will decrease another 3.6% over three decades. This translates to a relative decrease of 17% in the Northeast's air-conditioning market share. Ifthe entire loss in the Northeast's market share goes to that portion ofthe South with the highest annual energy use (Census Region 7), the absolute market share ofthis region would increase from 15.7% to 17.7%. The result ofthis change is that the dollar value ofenergy 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 halfofthis because the above housing shift was assumed to be immediate and to the highest energy use area ofthe South. As a result, the actual impact would likely be less than 1% on the dollar value of
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# ,301-0

# S Preliminary analysis ofregional housing shifts has been examined and determined to have a relatively small effect (i.e., a maximum change of2% in the cumulative amount ofmonetary energy savings). This is primarily due to the large size ofthehousing stock andthe fact that changes in the housing stock occur over a long time scale resulting in slow changes inregional housing shifts. A preliminary analysis ofhistorical housing datacoupled with worst case forecasts ofregional housing and air-conditioning market share shifts demonstrated the small impact onnational NPV due to changes in regional housing.
Newhousing starts are only about 2% ofexisting housing stock and this is forecast to decrease to about 1 % ofhousing stockby 2030. Historical data overthe period from 1980 to 1990 showedthe shift inregional shares ofhousing stock changed by less than 2% (decreased by 1.2% and 1.7% in theNortheast and Midwest, respectively, and increased by 1.7% and 1.2% in the South and West, respectively). Ifthese changes continue at a steady rate, the housing share of theNortheast will decrease another 3.6% overthree decades. This translates to a relative decrease of 17% in the Northeast's air-conditioning market share. Ifthe entire loss in the Northeast's market share goes to that portion ofthe South withthe highest annual energy use (Census Region 7), the absolute market share ofthis region would increase from 15.7% to 17.7%. The result ofthis change is that the dollar value ofenergy 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 halfofthis because the above housing shift was assumed to be immediate and to the highest energy use area ofthe South. As a result, the actual impact would likely be less than 1 % onthe dollar value of 61 Q:IEE-41IEE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 

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the energy savings. Forthese 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 ofoperating cost savings. Operating cost savings are in turn dependent on electricity prices. As electricity prices are forecasted to decrease over time (based ontheAnnual EnergyOutlook2000), operating cost savings due to a particular increase in equipment efficiency will in turn decrease over time and have less ofan 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 oflower operating costs, consumers may change thermostat settings and/or operate the systems Q:\EE-4 1\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

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the energy savings. Forthese reasons, the Departmenthas not revised its Shipments Analysis to account for shifts inregional 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 inthe analysis underlying today's proposed rule. We have calibrated elasticity for price relative to household income, with historical data from 1970 to 1996. Itis worth noting that for forecasting future shipments, consumerpurchase decisions are basedupon sensitivities to changes inproduct life-cycle cost relative to income. Life-cycle cost changes are dependent onthe purchase price and the present worth ofoperating cost savings. Operating cost savings are in turn dependent onelectricity prices. As electricityprices are forecasted to decrease overtime (based on theAnnualEnergy Outlook2000), operating cost savings due to a particular increase in equipment efficiency will in turn decrease over time and have less ofan impact onconsumerpurchase decisions. Usage elasticity expresses how changes in equipment efficiency resulting from higher standards changes consumerbehaviorregarding air conditioners and heatpumps usage. Because oflower operating costs, consumers may change thermostat settings and/or operate the systems 62 Q:IEE-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440
- 30 

## ' 0 for longerhours to achieve greater comfort. Direct evidence ofthe magnitude ofthis effect is limited and the Department is interested in receiving comments. One study14 

### indicated that in summer months consumers may take 1-2% ofthe 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 ofa weighted-average equipment efficiency equaling the SEER ofthe standard level for forecasting shipments and national energy savings. All asserted that in the event ofan increase in the minimum efficiency standard, the actual weighted-average efficiency ofequipment in the marketplace would be greater than the minimum efficiency standard. For example, ifa 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, butrather, an actual distribution ofefficiencies (i.e., the percentage ofshipments

14 Jeffrey A. Dubin, Allen K. Miedema, and Ram V. Chandran, 1986. "Price effects ofenergy-efficient technologies: a study ofresidential demand for heating and cooling," Rand Journal ofEconomics, 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-HM/STD-98-440 - 

# 30

# 1~

# DB
for longerhours to achieve greater comfort. Direct evidence ofthe magnitude ofthis effect is limited and the Department is interested inreceiving comments. One study 14 indicated that in summermonths consumers maytake 1-2% ofthe 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. EquipmentEfficiency Several comments received questioned the use ofa weighted-average equipment efficiency equaling the SEERofthe standard level for forecasting shipments and national energy savings. All asserted that inthe event ofan increase in the minimum efficiency standard, the actual weighted-average efficiency ofequipment in the marketplace would be greaterthan the minimum efficiency standard. Forexample, ifa 12 SEER standard was set as the newminimum, the weighted-average efficiency would be equal to a value which was greaterthan 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 Departmenthas modified several assumptions withregard to future equipment efficiencies. The Shipments Model no longer simply forecasts a weighted-average equipment efficiency, butrather, an actual distribution ofefficiencies (i.e., the percentage ofshipments

14 Jeffrey A. Dubin, Allen K. Miedema, and Ram V. Chandran, 1986. "Price effects ofenergy-efficient technologies: a study ofresidential demand for heating and cooling," Rand Journal ofEconomics, Vol 17, No.3, Autumn, pp 310-324. 63 Q:IEE-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 301- which occur in incremental SEER bins over the range ofthe minimum standard 10 to 18 SEER). Also, as discussed in Section IV, three efficiency scenariosare provided to model future equipment efficiencies. The impact ofthe 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 ofstandard (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 ofincreased heat pump prices to the consumer. The concern is that an increase in the total installed price ofa 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 offuel switching into the Shipments Model must account for future changes in gas-fired space-heating minimum efficiency standards. (Nadel, ACEEE, Transcript, p.266).

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# 30'1-

# 00
which occur in incremental SEERbins over the range ofthe minimum standard 10 to 18 SEER). Also, as discussed in Section IV, three efficiencyscenarios are providedto model future equipment efficiencies. The impact ofthe three different scenarios onnational energy savings and national net present values are discussed in Section VI.
EEl asked the reason for assuming the weighted-average efficiency remains fixed atthe same SEER level from the year 1997 to the assumed effective date ofstandard (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 ofincreased heat pumpprices to the consumer. The concern is that an increase in the total installedprice ofa heatpump would cause some consumersto 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 offuel 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 October4.2000 (6:35PM)

### EE-RM/STD-98-440 -307-08 Our examination ofthe historical data tends to indicate that the relative installed price of heat pumps is notthe primary driver in heat pump vs. gas furnace purchase decisions. The more important factor in these decisions seems to be the availability ofgas 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 ofheat pumps. Besides this one historical event, the relative market share ofheat pumps has been relatively constant from 1977 to the present.
D. NationalEnergySavingsAnalysis Changes to the LCC assumptions impact the NES and theNational Net Present Value (NPV) analyses directly as theNES analysis uses the same basic data asthe LCC analysis for the energy use and cost ofthe central air-conditioning and heat pump equipment.
Aspreviously 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 wasbased on aweightedaverage equipment efficiency equal to the SEER ofthenew standard level.
1. Uncertainty inNES 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 theNES results with some degree of uncertainty. (EEI, No. 20 at 8).

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# 3D'1-06
Ourexamination ofthe historical datatends 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 ofgas 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 ofheat pumps. Besides this one historical event, the relative market share ofheat pumps has beenrelatively constant from 1977 to the present.


### D. National EnergySavingsAnalysis 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 ofthe central air-conditioning and heat pumpequipment.
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. Forthe Supplemental ANOPR, the assumed product efficiency distribution was based on a weightedaverage equipmentefficiency equal to the SEERofthe new standard level.
1. Uncertainty inNES Results EEl believesthat due to the uncertainty in the electric utility industry and its impact on future electricityprices it is more appropriate to represent the NES results with some degree of uncertainty. (EEl, No. 20 at 8).

65 Q:IEE-41IEE-431ICACIStandRulINOPR\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 1999AnnualEnergy Outlook,our NES spreadsheets have provided users with five different options for estimating future electricity prices; 1999AEO Reference Case forecast, 1999AEO High Growth Case forecast, 1999AEO Low Growth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and constant electricity prices. Providing a number ofoptions 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 ofsensitivities for assumptions different than those forthe 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 theAEO 2000as 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 ofthe site-to-source conversions used in the NES spreadsheet model. The Southern Company and EEI asserted that hydroelectric power and renewable forms ofelectric energy are assigned fossil fuel-fired power plant heat rates. (Southern Company, No. 29 at 4-5; EEI, No. 20 at 7).

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## jD

# 1- 0

# B AlthoughNES results presented inthe Supplemental ANOPR were based only on electricityprice estimates from the Reference Case forecast from the 1999AnnualEnergy Outlook, ourNES spreadsheets have provided users with five different options for estimating future electricityprices; 1999AEOReference Case forecast, 1999AEOHigh Growth Case forecast, 1999AEOLowGrowth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and constant electricityprices. Providing a numberofoptions for forecasting future prices recognizes the uncertainty in the electric utility industry and howthat uncertainty can impactthe NES results. The NES uses single point values rather than ranges as used in LCC; consequently, NES provided single pointresults ratherthan a range. However, in orderto account for the uncertainty in electricityprice forecasts, DOE evaluated three energy price scenarios inthe NES. TheNES Spreadsheets have beenmade available to all interested parties via our web site to facilitate analysis ofsensitivities for assumptions different than those for the Supplemental ANOPR. Fortoday'sproposed rule, we continue to provide the same options for forecasting future electricityprices with the exceptionthatAEO 1999forecasts have beenreplaced with those from theAEO2000 as well as the five options for energy prices as described above.
2. Site-to-Source Conversion Boththe Southern Company and EEl questioned the validity ofthe site-to-source conversions used in theNES spreadsheet model. The Southern Company and EEl asserted that hydroelectric power and renewable forms ofelectric energy are assigned fossil fuel-fired power plant heatrates. (Southern Company, No. 29 at 4-5; EEl, No. 20 at 7).

66 Q:\EE-41\EE-431\CAC\StandRu1INOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 30 - 08
We estimated the effects ofproposed central air conditioner and heat pump standard levels on both the gas and electric utility industries using a variant ofDOE/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 ofelectricity generation with theircorresponding heat rates (e.g., heat rates are assigned to fossil-fuel fired power plants which are much different than those assigned to other types ofpower plants). As a result, the site-to-source conversion factors are significantly lower than ifall 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 ofthe 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 ofelectricity generation. In other words, heat rates are based on those power plants which are avoided as a result ofthe standard.
E. Consumer Sub-GroupAnalysis-Low IncomeRenters

15 For more information on NEMS, please refer to the U.S. Department ofEnergy, Energy Information Administration documentation. A useful summary isNationalEnergyModelingSystem: An Overview 1998, DOE/EIA-0581(98), February, 1998. DOE/EIA approves use ofthe name NEMS to describe only an official version ofthe 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- 

# 301- 0

# B
We estimatedthe effects ofproposed central air conditioner and heat pump standard levels onboththe gas and electric utility industries using a variant ofDOEIEIA'sNEMS-BRS, togetherwith some exogenous calculations 15• NEMS-BRS is used to determine site-to-source conversion factors and does not assign fossil-fuel-fired powerplant heat rates to hydroelectric or renewable powerplants. The site-to-source conversion factors used in the Supplemental ANOPRare average annual values for the residential sector. The average conversion factors are based on all forms ofelectricity generation with theircorresponding heat rates (e.g., heat rates are assigned to fossil-fuel fired powerplants which are much different than those assigned to other types ofpowerplants). As a result, the site-to-source conversion factors are significantly lower than ifall powerplants were assigned the heat rates associated with fossil fuel-fired power plants. Fortoday's proposedrule, site-to-source conversion factors are based on recommendations ofthe Advisory Committee on Appliance Energy Efficiency Standards. In this analysis, heatrates are based on determining howa deviation in national energy consumption due to standards impactsthe type ofelectricity generation. In other words, heatrates are based on those powerplants which are avoided as a result ofthe standard.


### E. ConsumerSub-GroupAnalysis- LowIncome Renters

15 Formore information onNEMS, pleaserefer to the U.S. Department ofEnergy, Energy Information Administration documentation. A useful summary isNational Energy Modeling System: An Overview 1998, DOEIEIA-0581(98), February, 1998. DOEIEIA approves use ofthe name NEMS to describe only an official version ofthe 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 nameNEMS-BRS refers to the model as used here (BRS is DOE's Building Research and Standards office, under whose aegis this workhas beenperformed). 67 Q:IEE41IEE431ICACIStandRulINOPR\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 ofthe equipment which is usedto 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 ofthe 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 ofwhether a household is occupied by an owner or a renter, we implicitly assume that the occupant incurs all costs ofownership, either directly or through rent payments. Therefore, we believe that our consideration oflow income households generally applies to renters as well as owners.
F. UtilityandEnvironmental Analysis 1. Peak Power Impacts
- Reliability The CEC raised concerns over peak power by stating that the western region ofthe 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 ofa 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
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## 307·0

# 8
NRDC stated that impacts onlow-income renters should be investigated, because such renters do notpurchase their space-conditioning equipment and they have no choice as to the efficiency ofthe equipment which is used to space-condition their home. (NRDC, No. 35 at 9). low-income
We have investigated the economic impact ofstandards on low-income households, and have included such impacts in section VI.D.7 oftoday'sproposed rule and in Chapter 10 ofthe TSD. Butwe 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 ofwhether a household is occupied by an owner or a renter, we implicitly assume that the occupant incurs all costs ofownership, either directly orthrough rent payments. Therefore, we believe that our consideration oflow income households generally applies to renters as well as owners.
F. Utility andEnvironmentalAnalysis I. PeakPowerImpacts
- Reliability The CEC raised concerns overpeak powerby stating that the western region ofthe U.S. will soonface a capacity shortfall which will necessitate reductions inpeak demand (CEC, No. 47 at 2-4). LeonNeal, Advanced Energy Corporation (AEC), stated that because ofa relationship between SEER, EER, and equipment capacity which is not captured by using only the "nominal 3 ton" unit and SEERanalyses, there were important factors not addressed inthe 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 ofresidential dwellings, the tendency to sell bigger systems to increase profits and compensate for poor installations, and the distrust ofcontractors forhigher efficiency equipment. (AEC, No. 17 at 1). EEI stated that the consideration ofpeak 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 significantjump in system usage would occur in conjunction with higher efficiency standards. Regarding EEI's claim that the consideration ofpeak power impacts departs from the Department's statutory mandate, Section 325(o)(2)(B)(i)(VII) ofthe 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 ofImpacts on Peak Demand For purposes ofestimating peak demand impacts from an increase in the central air conditioner and heat pump energy efficiency standard, we are using a version ofthe NEMS, called NEMS-BRS. NEMS-BRS isrun similar to the AEO2000 NEMS except that central air
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# 307-09
manufacturers to use multi-compressor units and multi-speed compressorunits, which results in a penalty in EER. They noted major national trends, i.e., increasing average size ofresidential dwellings, the tendencyto sell bigger systems to increase profits and compensate for poor installations, and the distrust ofcontractors for higher efficiency equipment. (AEC, No. 17 at 1). EEl statedthat the consideration ofpeakpower impacts in setting new efficiency standards departs from the Department's statutory mandate. (Foster, EEl, Transcript, p. 176).
Withregard to AEC's concern that an increase inthe efficiency standard would be accompanied by an increased air-conditioning power demand, we are not convincedthat this situation would occur. Overthe last 20 years, while shipment-weighted efficiency has continually increased, usage has remained relatively constant. Therefore, we see no reason that a significantjumpin system usage would occurin conjunction with higher efficiency standards. Regarding EEl's claimthat the consideration ofpeakpower impacts departs from the Department's statutory mandate, Section 325(0)(2)(B)(i)(VII) ofthe Act, 42 U.S.C. 6295(0)(2)(B)(i)(VII), allows the Secretaryto consider other factors deemed relevant for updating minimumefficiency standards, including peakpower impacts.
2. Quantitative Assessment ofImpacts onPeak Demand Forpurposes ofestimatingpeak demand impacts from an increase in the central air conditioner andheatpump energy efficiency standard, we are using a version ofthe NEMS, calledNEMS-BRS. NEMS-BRS is run similarto the AE02000NEMS exceptthat central air 69 Q:IEE·41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 - J30- 

## 8O
conditioner and heat pump energy usages are reduced by the amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy 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 isreduced in proportion to the amount ofenergy 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 ofAir Conditioning Standards Impact on Power System Reliability We also recognize that reducing growth in electricity demand during peakperiods may improve the reliability ofthe U.S. electric power system. But there are number offactors with the electric power system itselfthat may overwhelm anyeffect that an improvement in residential
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# J 01- 

# OB
conditioner and heat pump energy usages are reduced by the amount ofenergy (electricity) saved due to the proposedtrial standard levels. The input ofenergy savings are obtained from the NES spreadsheet.
NEMS estimatespeak powerimpacts by determining the reduction in installed generation capacity due to an increase inthe minimum efficiency standard. Forcentral air conditioners and heatpumps, NEMS uses a single nationally representative end-use load shape to estimate peak powerimpacts. The overall end-use load shape is reduced in proportion to the amount ofenergy savings achieved through an increase inthe standard. The reduction inpower demand achieved by shavingthe end-use load shape is extrapolated to a national scale to come up with nationally representative peakpower impacts. Thus, NEMS does notuse the equipment's EER performance, perse, to estimate peakpower impacts. Rather, because the load shape is shaved in proportionto 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 proposedrule.
3. Qualitative Assessment ofAir Conditioning Standards Impact on Power SystemReliability We also recognize thatreducing growth in electricity demand during peakperiods may improve the reliability ofthe u.S. electric power system. Butthere are number offactors with the electric power system itselfthat may overwhelm any effect that an improvement in residential 

### 70 Q:IEE-4IIEE-431ICACIStandRu\INOPRIDraftNOPRICACNOPR24.wpd October4,2000 (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 ofnew technologies, operating procedures, and regulatory structures to meet peak demands. And third, the strong demand expansion ofrecent years may well continue into the future. Within this environment, the potential benefits ofa 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 ofan 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 ofthe 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 ofthe 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 offailures and the number ofcustomers affected will be used. With regard to historic performance, we will attempt to analyze the history ofsystem disturbances and estimate their economic consequences. Finally, we will look atthe 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.
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air conditioning efficiency might offer. First, investment in system expansionhas fallen behind demand growth, and future development maybe limited by siting constraints. Second, industry restructuring requires the development ofnewtechnologies, operatingprocedures, and regulatory structures to meetpeak demands. And third, the strong demand expansion ofrecent years may well continue into the future. Withinthis environment, the potential benefits ofa central air conditioner andheatpump standardthat could lower growth inpeak demand could be desirable. But, due to the existingproblems with the electric power system described above, it is difficult to assess, inquantitativeterms, the impact ofan air conditioner standard on system reliability. Thus, inadditionto the planned activities to improve NEMS to forecast more credible peak demand impacts, we planto assess the reliability ofthe U.S. electric systemto determine what connectionexists between end-use peakdemandreductions and system reliability. The assessment will focus onthree areas: (1) defining reliability, (2) historic performance ofthe utility system, and (3) analyzing near- and long-term utility changes andhowthey 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 offailures and the number ofcustomers affected will be used. With regard to historic performance, we will attempt to analyze the history ofsystem disturbances and estimatetheireconomic consequences. Finally, we will look atthe changes occurring inthe utility industry such as restructuring and increasing demand growth to determine to try and assess howthese future changes might impactreliability.
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# 0O8 E EEI asked whetherNEMS, the model which isused forforecasting utility and environmental impacts, will be adapted to model more accurately the deregulated electric utility industry. As part ofthe 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 ofthe 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 ofthe impacts that can be expected from the imposition ofnew efficiency standards for central air conditioners and heatpumps. 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 ImpactAnalysis
- 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 ofall firms in the industry. (First Co., No. 40 at 10; National Comfort Products, No. 30 at 1).

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EEl asked whetherNEMS, the model which is used for forecasting utility and environmental impacts, will be adapted to model more accuratelythe deregulated electric utility industry. Aspart ofthe deregulated industry, EEl stated that consumers will have choice of electricityproviders. Inaddition, the industry will likely build more merchant powerplants. (EEl, No. 20 at 9). Although we recognize thatNEMS may not be entirely accurate in its modeling ofthe changing electric utility industry, we believe it is still the besttool for forecasting the impacts due to increased central air conditioner and heat pump standards. We also recognize the difficulty for any model ortool to forecast changes inthe utility industry. Thus, the results from NEMS are used toprovide a gross picture ofthe impacts that can be expected from the imposition ofnew efficiency standards for central air conditioners and heatpumps. Sensitivities are conducted with the AEO High Growth and LowGrowth cases to capture the variabilitythat could arise from changes inthe electric utility industry.
G. Manufacturer ImpactAnalysis
- Low Volume Manufacturers First Company (First Co.) andNational Comfort Products commentedthat the assumptions used inthe engineering analysis were not applicable for low volume manufacturers andurged the Departmentto considerthe situations ofall firms in the industry. (First Co., No. 40 at 10; National ComfortProducts, No. 30 at 1).

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## ' - O& Since the engineering analysis is used to assessthe impacts on consumers and the nation, it is more appropriate to rely on assumptions reflective oflarger manufacturers who control more than 95% ofthe market. However, we did consider the special circumstances oflower volume manufacturers aspart ofthe manufacturer impact analysis. We interviewed the major manufacturers aswell as two smaller manufacturers, and based on this information, estimated the impact ofstandards on both large and small manufacturers separately.
H. Markups The Supplemental ANOPR's engineering analysis estimated the cost ofproducing baseline air conditioners and heat pumps and also estimated the series ofmarkups on that product cost that yield the price ofthe 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). Ingeneral, these were based on financial reports for each group on a national basis.
NRDC, ACEEE and VEIC commented that instead ofapplying 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 ofa fixed gross margin in dollars rather than a fixed percentage

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# 08
Since the engineering analysis is used to assess the impacts on consumers and the nation, it is more appropriate to rely onassumptions reflective oflargermanufacturers who control more than 95% ofthe market. However, we did considerthe special circumstances oflowervolume manufacturers as part ofthe manufacturer impact analysis. We interviewed the major manufacturers as well as two smaller manufacturers, and based onthis infonnation, estimatedthe impact ofstandards on both large and small manufacturers separately.


### H Markups The Supplemental ANOPR's engineering analysis estimatedthe cost ofproducing baseline air conditioners and heatpumps and also estimated the series ofmarkups onthatproduct costthatyield the price ofthe equipmentto the consumer. Fourmarkups were applied: manufacturer markup (1.18), distributor/wholesalermarkup (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 commentedthat instead ofapplying 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 ofa fixed gross margin in dollars ratherthan a fixed percentage

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### 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 at4). Department consultant Joseph Pietsch stated that atthe 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. Ifthe 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 ofits 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

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# '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 at4). DepartmentconsultantJoseph Pietsch stated that at the distributor level, since no labor is involved to modifythe product, the markup is applied to a well-documented material cost. However, the distributor's markup percentage may vary by product type. Ifthe distributor's mark-up prices to the installing trade are not competitive in the market served, the distributor mighthave to seekprice adjustments from the manufacturer. Further, installing contractors typicallyuse a markup procedure for laborthat is most likely be at a different percentage than a markup for materials. (Pietsch, No. 36 at 23). Finally, promptedby comments we received, we nowdistinguish markups based on whetherproducts are sold into newhomes or as replacements orretrofits. (Nadel, ACEEE, Transcript pp. 122-123; and Eckman, NPPC, Transcriptp. 152-153; CEC, No. 47 at 7).
After reviewing the comments and publishing an interim analysis with fixed dollar margin, the Departmentundertook a thorough review ofits markup assumptions and made one minor and one majorrevision.
First, atthe manufacturer level, the markups were raised slightly (from 1.18 to 1.24) partially to reflect newfinancial 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

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### 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, atthe distributor and dealer levels, analysis ofU.S. Census Bureau data and recent industry financial reports suggest that markups on changes in the unit price ofequipment are less than the average markups for those industries. In light ofthese 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 ofequipment cost equal to the cost ofthe baseline equipment remains at 1.37. Forthe dealer, the 1.27 markup is applied to the total cost. The original 1.54 assumption included the markup on the laborportion ofinstallation, which isnot appropriately applied to equipment. We increased our estimate ofthe markup on installation labor slightly to compensate forthe lower markup on equipment price, keeping the overall installed price the same. The Department's pricing information indicates that the total installed price ofbaseline equipment is accurate as published in the Supplemental ANOPR. The overall effect ofthese changes is to slightly decrease distributor and dealer equipment markups as the standard level rises.
We introduced a new builder markup of 1.27 fornew 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 ofthese new estimates. Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 75 October 4, 2000 (6:35PM) EE-RM/STD-98-440 - 

# 307"0

# 8 higherprofitmargin on baseline equipmentthan the conservative 1 % assumed for the Supplemental ANOPR'sEngineering Analysis.
Second, at the distributor and dealer levels, analysis ofU.S. Census Bureaudata and recent industry financial reports suggest that markups on changes in the unit price ofequipment are less than the average markups for those industries. 

### In light ofthese new findings, the markups for the distributors and dealers onthe incremental increase in equipment cost were lowered from 1.37 to 1.09 and 1.54 to 1.27, respectively. Forthe distributor, the markup onthe portion ofequipment costequal to the cost ofthe baseline equipmentremains at 1.37. Forthe dealer, the 1.27 markup is applied to the total cost. The original 1.54 assumption included the markup onthe laborportion ofinstallation, which is not appropriately applied to equipment. We increased ourestimate ofthe markup on installation labor slightly to compensate for the lower markup on equipmentprice, keeping the overall installedprice the same. The Department's pricing information indicates that the total installed price ofbaseline equipment is accurate as published in the Supplemental ANOPR. The overall effect ofthese changes is to slightly decrease distributor and dealer equipment markups as the standard level rises.
We introduced a newbuildermarkup 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 summarizesthe changes in markUps. The Technical Support Document (Chapter 5) provides more details onthe derivation ofthese new estimates. 75 Q:\EE-41\EE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

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## 7-

# 08 Table V.3: Comparison ofRevised Markups and Supplemental ANOPR Markups Supplemental ANOPR Type Revised Analysis Markup Marku Markup ManufacturerMarkup 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 1.07 d 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 aFor revised analysis, first value pertains to split systems and second value pertains to single package systems. bWeighted-average markups representing both the new construction and replacement markets. cFor the SANOPR, builder markups were not considered. d For the Supplemental ANOPR, sales taxes representing only the replacement market were used. 

### I. EER-BasedEfficiency Standard The Department received numerous comments on the relationship ofsteady state efficiency (EER)to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Unico and Southern Company support the establishment ofminimum efficiency standards based on EER at an outdoor temperature of95 °F, (EER(95 °F)) in lieu of,or in addition to, SEER, which is based largely on an outdoor temperature of82°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 

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# 7- DB
Table V.3: Comparison ofRevised Markups and Supplemental ANOPRMarkups Type Revised Analysis Markup SupplementalANOPR Markup ManufacturerMarkup 1.23 1.18 WholesalerlDistributorMarkups 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 • AirConditioner $1,279/ $1,367 $1,190 HeatPump $2,280 / $2,160 $2,035 BuilderMarkup 1.09b 1.00c Sales Tax 1.04b 1.07d OverallMarkup 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 Forrevised 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 Forthe SANOPR, builder markups were not considered. d Forthe Supplemental ANOPR, sales taxes representing only the replacement market were used. 

### 1 EER-BasedEfficiencyStandard The Departmentreceived numerous comments onthe relationship ofsteady state efficiency (EER) to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Unico and SouthernCompany supportthe establishment ofminimum efficiency standards based onEERat anoutdoortemperature of95 of, (EER(95OF)) in lieu of, or in addition to, SEER, which is based largely on an outdoortemperature of82°F. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8-9; 76 Q:IEE-41IEE-431ICAc\StandRulINOPRlDraftNOPRICACNOPR24.wpd October4. 2000 (6:35PM)

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# A 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 at2; Southern Company, No. 29 at 3).
Their concern isthat an increase in SEER does not necessarily correspond to an increase in EER, and that a 95 °F rating condition better represents the performance ofan 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 ofthe country. Since electricity generation, transmission, and distribution capacity is determined bythe 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 ofany integrated plan to improve the reliability ofthe nation's electrical system. Recently there have been several wellpublicized blackouts and brownouts following, or in the midst of, hotperiods. Advocates ofan 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 truethat SEER is not an ideal indicator ofsystem efficiency in very hot weather, and SEER may notbe the best indicator ofthe seasonal efficiency for equipment operating in the warmest regions ofthe 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 ofunitary equipment in the marketplace. For other equipment, including variable
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# 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 inEER, and that a 95 ofrating condition betterrepresents the performance ofan air conditioner on hot days when electricity demand is at its highest. They believe that residential air conditioners contribute significantlyto this peak demand, particularlyin warmerregions ofthe country. Since electricity generation, transmission, and distribution capacity is determined by the electrical load served duringthese peak demand times, products that demonstrate improved efficiency underpeak conditions canreduce the need for added electrical system capacity. They also believethatreducing peak demand is an important component ofany integrated planto improve the reliability ofthe nation's electrical system. Recently there have been several wellpublicizedblackouts and brownouts following, or in the midst of, hotperiods. Advocates ofan EER-based standardbelieve that a SEER-only standard does not guarantee the desired improvement inpeak-periodperformance.
1. CurrentRelationship between SEER and EER It is certainlytrue that SEERis not an ideal indicator ofsystem efficiency in very hot weather, and SEERmay not be the best indicator ofthe seasonal efficiency for equipment operating in the warmestregions ofthecountry. However, the relationship between efficiency at 82OF and at 95OF is fairly close for single-speed, single-capacity equipment, which represents the vast majority ofunitary equipment in the marketplace. For other equipment, including variable 77 Q:IEE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

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# - O

or multi-speed equipment or equipment with modulating capacity, the 82 F test point is given a great deal ofweight 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 ofsteady-state performance under only one set ofclimatic conditions, cannot provide insight into cyclical performance or cooling efficiency at cooler temperatures which represent the bulk ofthe 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 ofthe relationship between SEER and EER(95 °F), and the costs ofincreasing 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 ofpeak 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 ofpeak demand, any decrease in electricity consumption
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# 3D1. 08

ormulti-speed equipmentorequipment with modulating capacity, the 82oftestpoint is given a great deal ofweightin determining the SEERrating. In these cases, the relationship between SEERandEER(95OF) is less certain, and manufacturers have some flexibility and incentiveto improve SEERwithout improving EER(95OF).
The SEERtest, representing equipmentperformance overthe entire cooling season, encourages manufacturers to design equipmentthat consumes less energythroughout the cooling seasonfor the average user. The EER(95OF) test, which is a measure ofsteady-state performance under only one set ofclimatic conditions, cannotprovide insight into cyclical performance or cooling efficiency atcoolertemperatures whichrepresentthe bulk ofthe cooling season nationwide. The Department, therefore, maintains that a SEER-based standard is essential to its effortto reduce national energy consumption. Further, we assume that peak demand savings would accompany any seasonal energy savings resulting from an increase inthe required SEER level, because ofthe relationship between SEER and EER(95OF), and the costs ofincreasing EER(95OF) are already incorporated into the analysis.
However, the Department is particularlyinterested in ensuring that the current relationship betweenEER(95OF) and SEERwill remain intact under newefficiency standards, resulting inreduction in growth ofpeak demand. This additional reduction in peakdemand growth wouldbenefit utilities through an eventual and incremental reduction in the need for new capacity. Maintaining higher EER(95OF) would also benefit consumers. Since the costof electricity is highest during periods ofpeak demand, any decrease in electricity consumption 78 Q:\EE-41\EE-431ICACIStandRuI\NOPRlDraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

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## 307-0 during peak-periods, could reduce the user's annual electricity bill, particularly ifthe 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 ofany modulating, multi-speed, or variable speed air conditioners (hereafter referred to collectively as modulating equipment) being offered below 13 SEER, and very few ofthe available 13 SEER products are modulating equipment. Therefore, SEER and EER are closely related in equipment currently available atthe 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.

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# EE.RM/STD-98.440~ 3D7- 08 during peak-periods, couldreduce the user's annual electricitybill, particularly ifthe userpays time-of-day or seasonal rates.
2. Options for Possible EER Standards The Departmenthas at least four options for ensuring that EER(95OF) performance is maintained undernew SEER standards. First, the Department couldrely onthe physical relationship betweenEER(95OF) and SEERto ensure that an increase in SEERwould result in a corresponding increase in EER. The Department is not aware ofany modulating, multi-speed, or variable speed air conditioners (hereafterreferred to collectively as modulating equipment) being offeredbelow 13 SEER, and very few ofthe available 13 SEERproducts are modulating equipment. Therefore, SEERandEERare closelyrelated in equipment currently available atthe efficiency levels that, as discussed below, the Department is proposing todayto adopt as minimum levels-12 SEERfor air conditioners and 13 SEERfor heat pumps. Assuming that relationship holds under suchnew standards, EERwould increase as SEERincreases.
The second option wouldbe to establish an EER(95OF) floor that mustbe met by modulating equipmentonly or, alternately, all equipment.
Thethird optionwouldbeto establish a minimum EERrequirement at each SEERlevel, even for products exceedingthe minimum SEERlevel. Again, this couldbe established for modulating equipment only orfor all equipment.

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### 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 onperformance at cooler temperatures. This would provide incentive for manufacturers to optimize their designs to favor the warmer part ofthe cooling season and warmer regions ofthe 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 usto embark on a new rulemaking to establish those new procedures and then to redo this rule to incorporate the new SEER values. We wouldprefer 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 dotoday without altering the test procedures. The third option is more aggressive since it would require that products ofhigher SEER ratings must also meet increasingly stringent EER ratings.
Within the second and third options, we could establish EER requirements ofvarying degrees ofstringency. For example, we could select EER levels equivalent to the ratings ofthe

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# oB
The fourth option wouldbe to alterthe SEERtestprocedure to rely more on 95°F performance and less onperformance at cooler temperatures. This would provide incentive for manufacturers to optimizetheir designs to favor the warmer part ofthe cooling season and warmerregions ofthe country.
We considerthe second and third options to be the most attractive. While we believe that the first option, relying onthe currentrelationship betweenEERand SEER, would satisfy our concerns inthe foreseeable future, this option provides no assurance that manufacturers would not develop and promote equipment inthe long term that would seriously reduce EERratings. The fourth option, altering the SEERtestprocedure to favor highertemperatures, wouldrequire us to embarkon a newrulemaking to establishthose newprocedures and thento redo this rule to incorporate the new SEERvalues. We would preferto avoidthose delays and the design uncertainty associated with altering the procedures.
Boththe second and third options, mandating minimum EERratings, would guarantee thatproducts under new standards would achieve the same EERratings as they do today without altering the testprocedures. The third optionis more aggressive since it wouldrequire that products ofhigher SEERratings must also meetincreasingly stringentEERratings.
Withinthe second andthird options, we could establishEERrequirements ofvarying degrees ofstringency. Forexample, we could select EERlevels equivalentto the ratings ofthe

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### EE-RM/STD-98-440 - 3 

## 0 " minimum EER rating ofavailable equipment today atthe 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 ofequipment currently available at each standard level. That would result in a substantial improvement in the EERratings ofthe 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 ofmodulating capacity and variable speed equipment. Modulating equipment realizes a benefit in the SEER test, allowing manufacturers to reduce the cost ofthe core components compared to non-modulating equipment. This cost reduction partially offsets the cost ofthe 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 ofmodulation, and manufacturers realize this value in the form ofhigher 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.
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# -30

# '1- ()8
minimum EERrating ofavailable equipmenttoday atthe proposed standard level, the median EERrating, anywhere in between, or even higher.
We preferthe second option, establishing an EER floor equal to the median EERratings ofequipmentcurrently available at each standard level. That would result in a substantial improvement inthe EERratings ofthe typical product sold while still providing manufacturers withthe flexibility to raise SEERratings through modulation ratherthan EER improvements in higher efficiencyproducts.
The concernthat prevents us from fully endorsing the third option is that it would discourage the development and sale ofmodulating capacity and variable speed equipment. Modulating equipmentrealizes a benefit in the SEERtest, allowing manufacturers to reduce the cost ofthe core components comparedto non-modulating equipment. This cost reduction partially offsets the cost ofthe modulation, making modulating equipment more affordable for consumers. Beingrequired to meet the same EER standards as non-modulating equipment would negate this cost benefit.
The Departmentwishes to encourage, not discourage, the development and sale of modulating equipment. Consumers value the added benefits ofmodulation, and manufacturers realize this value inthe form ofhigherrevenues. For consumers and the nation, modulation mitigates the inefficiencies caused by oversizing the system during installation. Oversizing is a widespread problemthat causes frequent equipment cycling, increasing energy consumption. 81 Q:IEE-41IEE-431ICACIStandRu)INOPR\DraftNOPRICACNOPR24.wpd October4, 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 ofmanufacturing such products, since we did not include the costs ofa minimum EER. Second, ifan EER standard increases product cost, it would discourage the development and sale ofmodulating equipment atthe 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 ofFebruary 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 SEERproposal 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 forpackaged heat pumps should be the same as split heat pumps less the 0.3 EER offset seen between packaged and split air conditioners.

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## -.3

# 01- 08 Furthermore, oversizing arguably contributes more to peak power demand than does any reduction in EER associated with modulating equipment.
ForDOEto require products to meet median EERvalues rather than less stringent EER values would also raise some concerns. First, the cost-efficiencyrelationships used in our analysis may underestimate costs ofmanufacturing such products, since we did not include the costs ofa minimum EER. Second, ifan EER standard increases product cost, it would discourage the development and sale ofmodulating 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 whatthe appropriate EER(95OF) requirement might be, the Department assessed ARI performance data onresidential unitary equipment certified as ofFebruary 1998. The median EERs available for eachproduct class atthe minimum SEER levels DOE proposes today, are identified in Table VA as the "MedianAvailable EER at Proposed Minimum SEER." In addition to the minimum SEERproposal contained inthis notice, the Department is inclined to adopt inthe Final Rule minimum EER(95OF) requirements equal to these values. However, since there are very few packagedheat pumps available from which to draw a conclusion concerning EER, DOEbelieves the minimum EERrequirement for packaged heat pumps should be the same as splitheat pumps less the 0.3 EERoffset seen between packaged and split air conditioners.



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### EE-RM/STD-98-440-3D- 

## 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 ProductClass Minimum SEER EER at Proposed Available EER at EERat 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. Ofparticular interest are comments regarding burdens on manufacturers and benefits regarding reduction in peak electricity demand, including the effect ofan EER minimum on costs, on availability and sales ofmodulating equipment, and on electrical system reliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe other options described above.
J. Niche Products Several types ofcentral air conditioners and heat pumps are used in particular or unusual applications and have features that differ from those ofthe vast majority ofproducts 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 ofthe 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
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### 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)
LowestAvailable 101b Percentile Median Available ProductClass Proposed EER atProposed Available EERat EER at Proposed Proposed Minimum SEER Minimum SEER Proposed Minimum SEER MinimumEER Minimum SEER Split AirConditioners 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 EERrequirement in the final rule. Ofparticular interest are comments regarding burdens onmanufacturers and benefits regarding reduction in peak electricity demand, including the effect ofanEERminimum on costs, on availability and sales ofmodulating equipment, and onelectrical systemreliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe other options described above.
J. Niche Products Several types ofcentral air conditioners and heat pumps are used in particular orunusual applications and have features that differ from those ofthe vast majority ofproducts available in the marketplace. We referto these as "niche products." Included are single package units that are designed to be mounted within orimmediately adjacent to a fixed-size opening in an outside wall ofthe 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-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October4,2000 (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 forofniche products may include: existing single familybuildings without air ducts and multi-family buildings with fixed-area wall openings andboth new and existing manufactured homes.
Several manufacturers have claimedthat certain niche products would notbe 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 aproduct with some unique utility. Earlier inthisrulemaking the Department sought information on whether higher standards would eliminate these products from the marketplace because ofthe severity of theirconstraints.
1. Ductless SplitAir Conditioners and Heat Pumps Ductless split systems, or mini-splits asthey are commonly known, consist ofa single outdoorunit and one or more indoor fan coilunits, each located in the conditioned space. Since consumers mayconsider the interior units to be more intrusive than a ducted system, manufacturers striveto 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.
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# 307-08
conditionersthat are defined as "withoutlouvered sides." Also included are non-ducted minisplit

### air conditioners and heatpumps, and high-velocity, small-duct systems. Typical applications for

### ofniche products may include: existing single family buildings without air ducts andmulti-familybuildings with fixed-area wall openings and bothnewand existing manufactured homes.
Several manufacturers have claimedthat certainniche products would not be viable if requiredto meethigher efficiency standards, and have askedthe Departmentto establishnew classes for these products, withefficiency standards maintained atcurrentlevels. All these products serve relatively small niche markets and as such, the efficiency standards established for these products will have little effect onnational energy savings. Further, each is a productwith some unique utility. Earlierinthis rulemakingthe Department sought information on whether higher standards would eliminate these products from the marketplace because ofthe severity of theirconstraints.
1. Ductless SplitAirConditioners and Heat Pumps Ductless split systems, ormini-splits as they are commonlyknown, consistofa single outdoorunit and oneormore indoor fan coil units, each located inthe conditioned space. Since consumersmay considerthe interiorunits to bemore intrusivethan a ducted system, manufacturers striveto make them as compact as possible. This cabinet size constraint combmed withefficiency losses due to heattransferbetweenrefrigerant lines puts pressure on equipmentefficiency. 

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### EE-RM/STD-98-440 - 

## 3 ' - 0
Mitsubishi and EnviroMaster International (EMI), manufacturers ofductless split systems, commented that ductless products shouldbe assigned a separate product class with a lower standard. (Mitsubishi, No. 18 at 1and EMI, No. 26 at 1). Their arguments for a separate class are: * Ductless units are operated likeroom air conditioners, because the "compressor delivering air conditioning to aparticular 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 ofa 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 ofthe market ofductless mini-splits is in capacities of 18,000 Btu/hr and less. Making significant increases in the efficiency ofmotors and compressors used in these small units is difficult; * Ductless airconditioners frequently employ variable speed control ofthe compressor motors. Mitsubishi claims: "Controlling the speed ofthe compressor by inverter will not benefit the 100% capacity rating but ithas atremendous 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 aroom airconditioner,
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# 301- 

# 08

Mitsubishi and EnviroMaster International (EMI), manufacturers ofductless split systems, commented that ductless products should be assigned a separate product class with a lower standard. (Mitsubishi, No. 18 at 1and 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 conditioningto a particularroom operates only when necessary ratherthanwhen a central thermostat calls for cooling in another area;" • Ductless units do not have the duct losses ofa central air conditioning system, and so have greater installed system efficiency. Mitsubishi claims that: "a 10 SEER ductless unit may be virtually equivalent oreven higher in efficiency than a 12 SEERducted unit"; • The overwhelmingportion ofthe market ofductless mini-splits is in capacities of 18,000 BtuIhr and less. Making significant increases in the efficiency ofmotors and compressors used inthese small units is difficult; • Ductless air conditioners frequently employ variable speed control ofthe compressor motors. Mitsubishi claims: "Controlling the speed ofthe compressor by inverter will notbenefitthe 100% capacity rating but ithas a tremendous benefit whenthe compressorbegins slowing down. During 50% capacity operationthe 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 EERrating, like a room air conditioner, 85 Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440 - '01- o0 would be more appropriate because ofthe inverter driven system's low cyclic losses; and Per ton, (ofcooling capacity) a ductless air conditioning system is one ofthe most expensive HVAC systems in the U.S. today. Some ofthe reasons forhigh production costs are: low volumes in the United States, the indoor unit is a "finished" product fully visible to the customer so itrequires additional cosmetic expenses, and the unit must be small, so complex design ofcoils is necessary.
After review ofthe available information, the Department does not believe a separate class is warranted forthese 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 ofthe indoor fan coil units are primarily esthetic, and the Department is unaware oftechnological limitations to increasing minimum efficiency standards for these products. The esthetic disadvantage oflarger cabinet size would be compensated by higher efficiency and lower cost ofoperation. While the claim that the small capacities make increased efficiencies difficult is a reasonable one, the Department is aware that systems with capacities ofup to 44,000 Btu/h are available and believes that providing an exemption for all systems because ofdifficulty with smaller systems is notjustified.
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
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## j 

# 0

# '1- 

# 08
wouldbe more appropriate because ofthe inverter driven system's low cyclic losses; and • Perton, (ofcooling capacity) a ductless air conditioning system is one ofthe most expensive HVAC systems in the U.S. today. Some ofthe reasons for high production costs are: lowvolumes inthe 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 ofcoils is necessary.
Afterreview ofthe 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 thatthese products would not be able to meet the proposed standard level. The constraints onincreasing the size ofthe indoor fan coil units are primarily esthetic, and the Department is unaware oftechnological limitations to increasing minimum efficiency standards for these products. The esthetic disadvantage oflarger cabinet size would be compensatedby higher efficiency and lower cost ofoperation. While the claim that the small capacities make increased efficiencies difficult is a reasonable one, the Department is aware that systems with capacities ofup to 44,000 Btu/h are available and believes thatproviding an exemption for all systems because ofdifficulty with smaller systems is notjustified.
2. Small DuctHigh Velocity Air Conditioners Small-duct, high-velocity (SDHV) systems target primarily the retrofit market, where they are installed in attic orcloset spaces and distribute conditionedpressurized air 

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### 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 ofan SDHV system is compactly designed to facilitate retrofit installation in tight spaces, resulting in smaller face area and more rows oftubing 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 ofthese 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 ofenhanced 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 ofalternatives 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 ofincreased initial cost would outweigh the benefits ofincreased 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 ofsystem; or (3) allow their system to be tested as a coil only (without ablower) at aconventional 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).

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

# J U 

# 7-08 throughround ducts small enough to fit inside stud walls. Compared with conventional air conditioners and heat pumps that use large ducts, the indoorcoil section ofan SDHV system is compactly designed to facilitate retrofit installation in tight spaces, resulting in smallerface area and more rows oftubing than conventional systems. The compact fan coil design and small ducts contributeto high static pressure loss that must be overcome by the blower, requiring greaterfan power. Manufacturers claimthe greaterenergy consumption ofthese blowermotors and the limited space for installing the fan coils makes it more difficult for SDHV systems to increase energy efficiency. To mitigate the burden onthe blowers, designers reduce the required airvolume by cooling it more than a conventional air conditioner, which offers an associated benefit ofenhanced humidity removal but increases cost. In orderto meet the current 10 SEER standard, manufacturers ofSDHV systems typically pairthe fan coil with high efficiency condensingunits (typically 13
- 14 SEER).
Unico described a number ofalternatives to increase system efficiency for theirproduct, including a largerheat exchanger, an improvedblower design and a more efficientblowermotor, and concludedthatthe burden ofincreased initial cost would outweigh the benefits ofincreased system efficiency. (Unico, No.60 at 5). Unico asked the Departmentto either: (1) exemptthem from any increase in standards; (2) allow a 15% SEERcredit for reduced duct losses associated withtheirtype ofsystem; or (3) allow their system to be tested as a coil only (without a blower) at a conventional airflow, using the testprocedure's default fan powerto establish a SEERrating but allowthemto install systems with a high pressure blower. (Unico, No. 61 at 3).


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## 301-0 - 

### SpacePak, another major manufacturer ofthis type ofproduct, 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 oftheir designs. SpacePak claimed to offer many equipment combinations in the 11 to 12 SEER range, with only 17% oftheir ARI listings at the 10 SEER minimum. (Space Pak,No. 52 at 1).
After review ofthe 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 ofthe 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 testtheir products as coil only products. We estimate that the impact ofthis allowance will be 1to 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 ofthe 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 ofthe 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 - 

# 30t

# 1- 08 SpacePak, anothermajor manufacturer ofthis type ofproduct, commented thatthey have made the investmentto produce more efficient systems. (SpacePak, No. 39 at 1). SpacePak also providedARI directory data indicating the higher efficiency oftheir designs. SpacePak claimed to offermany equipmentcombinations in the 11 to 12 SEERrange, with only 17% oftheir ARl listings at the 10 SEERminimum. (Space Pak, No. 52 at 1).
Afterreview ofthe available information, the Department does notbelieve a separate class with an efficiency standardbelow 12 SEERor a 15% SEERcredit, 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 Departmentbelieves that such a change would recognize the improvements in delivered efficiency ofthe SDHV system because of reduced duct losses. We are therefore proposing to modify the DOEtest procedure to allow small-ducthigh velocity system manufacturers to test theirproducts as coil only products. We estimate that the impact ofthis allowance will be 1to 2.5 SEERpoints; i.e., a 10 SEER system wouldbecome an 11 to 12.5 SEER system.. The Department seeks comments on whetherthe testprocedurerevision orotherproposed changes are needed to maintain the viability ofthe small-duct, high-velocity systems inthe market place.
3. Vertical Packaged, Wall Mounted These products are factory-assembled single packaged vertical air-conditioners and heat pumps using single phase powerbut intended for use in commercial and industrial heating and cooling applications. The difficult air flow configuration (each ofthe condenser and evaporator 

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### 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 ofthese 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 newmultistory 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 airthrough only one face and exhaust air through the same face resulting in reduced efficiency because ofincreased fan power consumption. Some short-circuiting ofexhaust 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 halfas efficient as the new units. Residents or building owners are particularly sensitive to any increase in price or to the cost ofenlarging the wall opening to accommodate a larger condenser. Since repair is the only other cost effective

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# 3D

# '1-

# oB
compartments takes air in and exhausts itthroughthe same face) combined with the attempt to minimize size constrains the ability ofthese units to attain higher SEERs.
The Department understands that single-package vertical air-conditioners and heatpumps are not distributed for personal use or consumptionby individuals, and therefore believes that at presentthey are commercial products coveredby 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 CTTW) condensers were popular in newmultistory residential construction in the 1960s and 1970s. Major manufacturers have since abandoned the replacement market, providing an opportunity for lowervolume manufacturers. Most equipment is inthe 1-112 to 2-112 ton capacityrange. These systems take in airthrough only one face and exhaust airthroughthe same face resulting inreduced efficiency because ofincreased fan power consumption. Some short-circuiting ofexhaust air into the intake may also occur. Replacements for through-the-wall condensers must fit within the same wall opening as the original units, eventhough original units may be halfas efficient as the new units. Residents orbuilding owners are particularly sensitive to any increase in price orto the cost ofenlarging the wall openingto accommodate a larger condenser. Since repair is the only other cost effective



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### 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 ofold, 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 ifTTW 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 ofTTW 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 ofthe 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

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## EE·RM/STD-98-440"~ 

# 30'1-

# 08
alternative to replacement, a new standard that increases cabinet size orresults in a significant price increase couldbe counterproductive, preventing the turnover ofold, inefficient equipment. According to submitted data, 10 SEERTTW split condensing air-conditioners with fan coils (when scaled up to 3-tons) are $206 more expensive (manufacturerprice) than 10 SEER pad-mounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners, the $206 differential would be maintained ifTTW 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 atthis time for most configurations ofTTW split equipment. TTW condensers come in three sizes (height x weight exteriorto the building): 32" x 24" (768 sq. in.); 28" x 26" (721 sq. in.); and 23" x 30" (679 sq. in.). First Co. commentedthat imposing higher efficiency standards would eliminate throughthe-wall products from the marketplace because ofthe significant increase in the price with a correspondingly small operating cost savings. (First Co., No. 40 at 1).
TTWpackaged systems are intended for both new construction and retrofit. First Co's dimensions (new construction) are 43" x 28" (1,204 sq. in.). Skymark'sretrofit unit is 15" x 55" (825 sq. in.). TTWpackaged 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.) betweenTTWpackaged and conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that

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### EE-RM/STD-98-440- 30 

## -O8 differential would be maintained under an 11 SEER standard forTTW 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 amaximum combined surface area of the air inlet and outlet ofthe condenser of830 square inches, and amaximum capacity of30,000 Btu/hr. Thepurpose ofthe maximum capacity requirement isto ensure that ifnew technology reduces the size ofthe condenser, manufacturers willnot offer 3-ton equipment that fits the definition but is intended foruse in conventional applications. To maintain the price differential between this new class and conventional equipment, wepropose 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 withinthe Structure Anotherniche product, which was notdiscussed in the Supplemental ANOPR, is a non-weatherized single-package unit, mounted entirely within the structure (in an attic, basement, orcloset), with outdoorair 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 ofoutdoor units maybe unavailable or tooremote, where architectural aesthetics may be compromised by visible outdoor units, where vandalism ortheft ofoutdoor units is a potential problem, orwhere compliance with local sound ordinances restricts the placement ofoutdoor 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- 

# 301-08
differential wouldbe maintained under an 11 SEER standard for TTWpackagedwith a 12 SEER for conventional packaged.
The Departmentproposesto establisha separate class for TTWequipment (including packaged and split, cooling only andheatpump)based on a maximum combined surface area of the airinlet and outlet ofthe condenserof830 square inches, and a maximum capacity of30,000 BtuIhr. Thepurpose ofthe maximum capacityrequirement is to ensure that ifnewtechnology reduces the size ofthe condenser, manufacturers will not offer 3-tonequipmentthat fits the definitionbutis intended for use in conventional applications. To maintainthe price differential betweenthis newclass andconventional equipment, we propose a standard of 11 SEER. Because electric strip heat ispopularin TTWequipment, the 11 SEER standard would also apply to TTWheatpumps.
5. Non-Weatherized Single-PackageUnit, Mounted Entirelywithinthe Structure Anothernicheproduct, whichwas notdiscussed inthe Supplemental ANOPR, is a non-weatherized single-package unit, mountedentirelywithinthe structure (in an attic, basement, orcloset), with outdoor

### air ductedto and from the unit. This unit is used inhigh-rise and garden apartments, manufacturedhomes, and otherresidential applications where locations for placement ofoutdoorunits may be unavailable ortoo remote, where architectural aesthetics may becompromisedby visible outdoorunits, where vandalism ortheft ofoutdoorunits is a potential problem, orwhere compliance with local sound ordinances restricts the placement ofoutdoorair conditioning equipment. 91 Q:\EE-41\EE-431ICAC\StandRulINOPR\DraftNOPRICACNOPR24.wpd October4.2000 (6:35PM)

### EE-RM/STD-98-440 

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# - 0O Consolidated Technologies, Inc., manufacturer ofthe 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. Avery 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 ofthose 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 ofthose products.

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# '7-08
Consolidated Technologies, Inc., manufacturer ofthe INSIDER, commented, "Forthe INSIDERto be used in Manufactured Housing and Modularhousing it is important to have the smallest footprint possible." (Consolidated Technologies, Inc., No. 42 at 2).
The Departmentrecognizes that this product has space constraints, albeit not as severe as products that must fit a wall opening. Products atthe 12 SEERlevel (the proposed air conditioning standard level) are currently onthe 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 onphysical characteristics, and it is nearly impossible to define physical characteristicsthat would ensure products be installed in a particularlocation. No separate class is proposed for this product.
6. Request for Comments Regarding Niche Product Standards The Department encourages comments regarding whetherthe proposed standards concerning high-velocity, vertically-packaged wall-mounted equipment, and through-the-wall equipmentprovide a significant advantage to those products versus competingproducts, whether they are sufficient to preserve the unique features ofthose 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 onthe impacts that meeting the new standards would have onthe availability ofthose products.

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# B0 K. ThermostaticExpansion 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 ofthe 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 ofTXVs 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 ofTXVs. 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 ifthe Secretary determines that such a requirement isnecessary to ensure that the product meets its performance-based standard. In the case ofTXVs, the Department's current opinion is that products can meet the proposed SEER requirements without TXVs. This iscertainly 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 -

# 30'1-aB 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 ofthe comments cited studies which demonstrate that TXVs can mitigate adverse effects onefficiency due to field installationproblems such as inadequate evaporator airflow and improperrefrigerant 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 ofTXVs in all newequipment. (VEIC, No. 32 at4-5; 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 leasttwo regulatory options exist for encouraging the use ofTXVs. 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'sproposed rule.
The EPCA allows the Departmentto issue a requirement such as mandating the use of TXVs ifthe Secretary determines that such a requirement is necessary to ensure that the product meets itsperformance-based standard. In the case ofTXVs, the Department's current opinion is that products can meetthe proposed SEERrequirements without TXVs. This is certainly true in the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it 93 Q:\EE-41\EE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

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## '

# -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 forproducts based on a performance related feature (such as a TXV) ifthe Secretary determines that a higher or lower efficiency standard isjustified forthose 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 ofTXVs we could consider establishing lower SEER standards for products containing TXVs.
While the evidence ofthe potential energy-saving benefits ofTXVs is certainly persuasive, the current SEERtest procedures already encourage their use. For rating a manufacturer's condenser with the evaporator ofa different manufacturer, the SEER determination procedures provide a credit for systems that incorporate TXVs. For matched systems, the use ofTXVs 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.
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is unclearwhetherwe could find that TXVs are needed for those systems to perform at their rated efficiencies. Regarding the second option, EPCArequires the Departmentto establish separate product classes for products based ona performance related feature (such as a TXV) ifthe Secretary determines that a higher orlower efficiency standard isjustified for those products. Evidence indicates that TXVs maintain system efficiency better than do fixed orifices orcapillary tube expansion devices in cases where split system equipment is over- orunder-charged with refrigerant. This apparently includes most installations. To encourage the use ofTXVs we could considerestablishing lower SEER standards for products containing TXVs.
While the evidence ofthe potential energy-saving benefits ofTXVs is certainly persuasive, the current SEERtest procedures already encourage their use. Forrating a manufacturer's condenser withthe evaporator ofa different manufacturer, the SEER determinationproceduresprovide a credit for systems that incorporate TXVs. For matched systems, the use ofTXVs typically lowers the degradation coefficient, resulting inhigher SEER results.
We hesitate to provide stronger support for TXV-bearing equipmentthanthat which is already granted through the test procedures. Unlike fixed orifices, TXVs are mechanical components. Some manufacturers avoidtheirusage because of reliability concerns, and the additional repair costs incurred by consumers could outweightheir energy-saving benefits. 94 Q:IEE-4IIEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

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## 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 ofTXVs 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 bymandating 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 bythe 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 testprocedure 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 arejustified atthis 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 ofTXVs are valid.
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# 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- orunder-charging by encouraging the use ofTXVs could create anotherproblem--improperly set TXVs. Also, 

### itis not clearthat TXVs are the only, oreven the best, option for maintaining equipment efficiency in the field. Forexample, technologies that could mitigate dirty coils orprevent improper charging and airflow may be more attractive options, and we would not want to discourage their development oruse by mandating the use of TXVs.
Inany case, manufacturers may well find that the SEERbenefits offered by TXVs are compelling enoughunderthe newefficiency 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 SEERand 13 SEERproducts than intheir 10 SEERproducts. We would expect, therefore, that TXV use wouldbe much more prevalent under higher efficiency standards.
Forthese reasons, the Department feels that the current testprocedure provides the proper encouragementfor manufacturers to incorporate TXVs into their products, and that neither a TXV requirement nor a lower standard for TXV-bearing products arejustified at this time. We welcome additional comments onthis issue, particularlyregarding whether our concerns regarding the perceived reliability problems and potential misuses associated with widespread use ofTXVs are valid. 95 Q:IEE-4IIEE-43IICACIStandRu]INOPR\DraftNOPRICACNOPR24.wpd October4,2000 (6:35PM)

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L. OtherComments 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 ofmaintaining 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 isno relationship between equipment efficiency and its ability to dehumidify is substantiated byresearch conducted by ARI. From this research, ARI demonstrated for hundreds ofsystems that latent heat removal is not obviously impacted by increases in equipment efficiency atrated conditions (i.e., 95 °F outdoor temperature)' 6


### . Not to dismiss the concerns ofVirginia Power and the Southern Company, we recognize the humidity

16D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2). Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

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# 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 currenthumidity control capabilities. In addition, it asserts that the costs ofmaintaining humidity control shouldbe included inthe analysis. (Virginia Power, No. 27 at 2). The Southern Companyclaims that higher SEERvalues will lead to larger indoor coils which intum will result inhigher airtemperatures leaving the indoor coil. The higher the airtemperature, the less dehumidification occurs. They also claim that while more efficient systems may dehumidify properly at rated test conditions, their abilityto dehumidifyunder 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 bythe Southern Company and Virginia Powerby stating that there is absolutely no evidence to support the claimthat more efficient equipmenthas less latent heatremoval capability. (Crawford, Trane, Transcript, pp. 272-273).
Trane's claimthat there is no relationship between equipment efficiency and its ability to dehumidify is substantiatedbyresearch conducted byARL From this research, ARI demonstrated for hundreds ofsystems that latentheatremoval is not obviously impactedby increases in equipmentefficiency at rated conditions (i.e., 95 OF outdoortemperature)16. Notto dismiss the concerns ofVirginia Power and the Southern Company, we recognize the humidity

16 D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2). 

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### 30.7- 0 

### control problems that exist inthe southern region ofthe U.S. For the excessive humidity conditions commonly experienced inthe South, the equipment may very likely not provide adequate dehumidification. But rather than focusing onthe equipment efficiency as the source of the problem,proper installation and maintenance practices also likely play a largerole inthe equipment's performance. Other factors to consider are the duct system as well as the building shell characteristics. All these factors play arole inhow a system dehumidifies. To layblame only onthe efficiency ofthe equipment ignores how other factors contribute tothe system's ability to properly dehumidify.
2. 3-Phase Equipment ACEEE asserted that ifan identical standard isto 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, if3-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 anew 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 ofstandards for theseproducts, DOE will analyze 3-phase equipment under a separate rulemaking pertaining to commercial air-conditioning and heat pump equipment.
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controlproblemsthat exist inthe southernregion ofthe U.S. Forthe excessivehumidity conditions commonlyexperienced inthe South, the equipmentmay very likelynotprovide adequate dehumidification. Butratherthan focusing onthe equipment efficiency as the source of theproblem, properinstallation and maintenance practices also likelyplayalarge role inthe equipment'sperformance. Otherfactors to consider are the duct system as well as the building shell characteristics. All these factors playarole inhowa system dehumidifies. To layblame only onthe efficiency ofthe equipmentignores how other factors contribute to the system's abilitytoproperly dehumidify.
2. 3-PhaseEquipment ACEEE asserted that ifan identical standard is to be set for both single-phase and 3-phase central air conditioners and heatpumpsunder 65,000 BtuIhr, then 3-phase equipment shouldbe incorporated into the rulemaking analysis. Alternatively, if3-phase equipment is excludedfrom the analysis, it shouldbe made clearthat a new standard on 3-phase equipment willbe setbased ona newanalysis covering 3-phase equipment.
EP ACTprovides for DOEto amend the standards for theseproducts whenASHRAE amends the standards found inASHRAE Standard 90.1. WhenASHRAE has completed its consideration ofstandards for these products, DOE will analyze 3-phase equipmentunder a separaterulemakingpertainingto commercial air-conditioning andheat pump equipment.
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- 08 ARI supported the Department's HSPF-SEER standard pairings proposed in the Supplemental ANOPR. (ARI No. 48 at4). Pietsch proposed maintaining the current minimum requirements for HSPF at 6.8 for future levels ofminimum 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 forheat 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 ofHSPF-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 ofCertified 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 ofthe 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 ofthe SEER-HSPF pairings.

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# 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 ofminimum SEER, which would allow manufacturers to continue to place more emphasis on improving SEER. He based this recommendation onthe strong competitionthat 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. (PietschNo. 36 at 41). ACEEE, VEIC, and PG&E noted that the Department's definition ofHSPF-SEERpairing for the standard levels it analyzed seemed arbitrary ortoo 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 Departmentplotted the relationship between HSPF and SEER for all 3-ton split heat pumps listed in the Spring 1998 ARl Directory ofCertified Unitary Equipment. At 10 SEER, the difference betweenthe minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The Departmentthen determined the equation ofthe 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 ofthe SEER-HSPF pairings.

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# 7
Table V.5: Comparison ofProposed 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 ofheat 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 onmanufacturers, adding to the cost and burden ofdesigning, producing, testing, and qualifying the product without resulting in a significant increase in the average HSPF ofequipment sold. Also, the Department does not want to encourage substitution ofelectric resistance heating systems forheat pumps. Without further information on the cost ofattaining higher HSPFs or the shipments ofheat pumps by HSPF level, the Department has no basis for modifying its current HSPF-SEER standard combinations.

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# 08
Table V.5: Comparison ofProposed 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) Offsetfrom Median (HSPF) -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2

Eventhough the Department does not have information onthe distribution ofheat pump sales by HSPF at each SEERlevel, it is apparent that the market currently favors products that exceedthe minimum allowable HSPF level. This is due both to the natural relationship between HSPF and SEERand the preference in the market for high HSPF heatpumps in cooler climates. The Department believes that establishing an HSPF standard equal to the current median at a given SEERlevel would impose an undue design constraint on manufacturers, adding to the cost andburden ofdesigning, producing, testing, and qualifying the product without resulting ina significantincrease in the average HSPF ofequipment sold. Also, the Department does not want to encourage substitution ofelectric resistance heating systems for heat pumps. Without further information onthe cost ofattaining higher HSPFs orthe shipments ofheat pumps by HSPF level, the Departmenthas no basis for modifying its current HSPF-SEER standard combinations.



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## f-0 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 thistime 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 ofprototype central air conditioners or heatpumps 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 ofperforming a reverse engineering analysis on an 18 SEER design, the Department is proceeding as ifthe 18 SEER equipment cost and price were equal to those ofthe 15 SEER equipment. DOE believes the 18 SEER cost would be higher because the product is more complex.

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# -3{fJ-

# 06
4. Max Tech The Supplemental ANOPR analysis proposed a Max Tech level of20 SEER. ARI, Trane, and York commentedthat a prototype hasn'tbeen built that has exceeded 18 SEER. (Wethje, ARI, Transcriptp. 66; Crawford, Trane, Transcript p. 69; and Madera, York, Transcriptp. 71). The Department also understands that 18 SEER is the highest efficiency level currently available for sale.
While the Departmentbelieves improvements to the 18 SEERdesign are certainly possible, 

### itagrees with the industry that any analysis based on a design higher than 18 SEER wouldbepure speculation. Therefore, the Department considers 18 SEERto 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 ofprototype central air conditioners orheat pumpsthat exceed 18 SEER or9.4 HSPF levels are encouraged to provided such information in comment ontoday's proposed rule.
DOE does not have relative cost data for 18 SEERunits as ARI did not provide the Department data for equipmentexceeding 15 SEER. In lieu ofperforming a reverse engineering analysis on an 18 SEERdesign, the Department is proceeding as ifthe 18 SEERequipment cost andprice were equal to those ofthe 15 SEERequipment. DOE believes the 18 SEER cost would be higherbecause the product is more complex.

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### EE-RM/STD-98-440 -3 

# 01- 8 VI. Analytical Results A. TrialStandard Levels Table VI.1 presents the trial standards levels analyzed fortoday's proposed rule and the corresponding efficiency level for each class ofproduct. Trial standard level 5isthe max tech level for each class ofproduct.
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. Significanceof EnergySavings To estimate the energy savings through 2030 due to revised standards, we compared the energy consumption ofcentral air conditioners and heat pumps under the base case to energy consumption ofcentral 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 ofvariations on: (1)electricity price and housingprojections; (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
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### EE-RM/STD-98-440 -"

# 07-0

# 8 VI. Analytical Results A. Trial StandardLevels Table VI.I presents the trial standards levels analyzed for today's proposed rule and the corresponding efficiency level for each class ofproduct. Trial standard level 5 is the max tech level for eachclass ofproduct.
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 HeatPumps 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 estimatethe energy savings through 2030 due to revised standards, we compared the energy consumption ofcentral air conditioners and heatpumps underthe base case to energy consumption ofcentral air conditioners and heat pumps underthe revised standard. We examined five standard levels. Foreach trial standard examined, several different scenarios were analyzed consisting ofvariations on: (I) electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) societal discount rate. Electricityprice and housing projections were based onthree different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. We analyzed three
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# 301-0 efficiency scenarios, each ofwhich 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 ofcompressor 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 ofManagement and Budget's (OMB) Guidelinesto Standardize MeasuresofCostsandBenefitsandthe Formatof AccountingStatements.
Table VI.2 shows the range ofenergy savings foreach 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.

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# 301·-0

# 8 efficiency scenarios, each ofwhich 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 ofcompressor 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 compressorreplacement costs was analyzed as an alternative scenario.
ForcalculatingNPV, a societal discount rate of 7% was assumed. However, a 3% value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures of Costs andBenefits andthe Format of AccountingStatements.
Table VI.2 shows the range ofenergy 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.

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### 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 ForUnits Sold from 2006 to 2030 TrialStandard ___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 ofthe 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 theNAECA efficiency scenario and the AEO 2000 Reference Case electricity price and housing projection.
Table VI.3: Energy Savings based on theNAECA Efficiency Scenario and AEO Reference Case Energy Savings For Units Sold from 2006 to 2030 Energy Savings (Quads) TrialStandard 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

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# 30'1-0 

# B
Table V1.2: Energy Savings based onARI Mean Manufacturer Costs, 18.4 year Retirement Function with Compressor Replacement, and a 7% Discount Rate Energy Savings ForUnits 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 ofthe three scenarios described above (reverse engineering costs, 14 yearaverage life, and 3% discount rate) impactthe energy savings. The three scenarios were investigated onlyfor the NAECA efficiency scenario and the AEO 2000 Reference Case electricityprice andhousing projection.
Table V1.3: Energy Savings based onthe NAECA Efficiency Scenario and AEO Reference Case

TrialStandard Level 1 2 3 4 5 C. Payback Period Energy Savings ForUnits Sold from 2006 to 2030 Energy Savings (Quads) Reverse Engineering ManufacturingCost 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

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### EE-RM/STD-98-440 - 

## 30/-UO As discussed above, the Act requires the Department to examine payback periods to determine ifthe three year rebuttable presumption ofeconomicjustification 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 onthe hours ofuse in the test procedure are on the order of50% 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 listthe median payback periods forproduct 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 ofEnergy's test procedure.

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### EE-RM/STO-9S-440-JQ'1- 

# 08
As discussed above, the Actrequires the Department to examine payback periods to determine ifthe three year rebuttable presumption ofeconomicjustification 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 onthe hours ofuse inthe test procedure are onthe order of50% greaterthan the weighted-average values from the LCC analysis (i.e., analyses based onthe 1997 RECS for residential buildings and hourly simulations for commercial buildings). This means that, for any given standard level, the paybackperiod calculated from the test procedure will be significantly shorterthan the average payback value calculated from the LCC analysis which was based onthe 1997 RECS data.
In Table VI.4a, we list the medianpaybackperiods for product classes and efficiency levels according to the methods employed by the LCC analysis. Table VI.4b is the rebuttable presumptionpaybackperiodbased on the Department ofEnergy's test procedure.

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### 301 Table VI.4a: Summary ofLCC 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.

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# 30.,-0

# 8
Table VI.4a: Summary ofLCC PaybackMedian Period ARI Mean Reverse 14-year Lifetime ProductClass Efficiency Manufacturing Engineering Scenario/ARI Mean Level Costl Manufacturing Manufacturing Cost Cost Scenariol Split System Central II 10.6 7.8 10.5 AirConditioner 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 PackageAir 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.

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### EE-RM/STD-98-440- 

## 30 - O Table VI.4b: Summary ofRebuttable Payback Period ARI Mean ProductClass 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. EconomicJustification 1. Economic Impact on Manufacturers a.Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the impact ofhigher efficiency standards on air conditioner manufacturers. The TSD explains the analysis in further detail. As part ofthe MIA, we discussed potential impacts with six major manufacturers responsible for approximately 90% ofthe residential air conditioner and heat pump sales. We also interviewed two niche manufacturers to understand how their financial situation differs from that oftheir larger counterparts. These interviews are in addition to those we conducted as part ofthe 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- 

## 301-

# Ot Table VI.4b: Summary ofRebuttable Payback Period ARI Mean ProductClass Efficiency Level Manufacturing Costl Split System Central 11 4.7 AirConditioner 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 acompressorreplacement at 14 years.


### D. EconomicJustification 

### 1. Economic Impacton Manufacturers 

### a. Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the impact ofhigher efficiency standards onair conditionermanufacturers. The TSD explains the analysis in further detail. As part ofthe MIA, we discussed potential impacts with six major manufacturers responsible for approximately 90% ofthe residential air conditioner and heatpump sales. We also interviewed two niche manufacturers to understand howtheir financial situation differs from that oftheir larger counterparts. These interviews are in addition to those we conducted as part ofthe Supplemental ANOPR. The interviews provided valuable information 106 Q:\EE-41\EE-431ICACIStandRuIlNOPR\DraftNOPRICACNOPR24.wpd October 4.2000 (6:35PM)

### EE-RM/STD-98-440 

## 30'7- 

# -( used to evaluate the impacts ofa 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 netpresent value (INPV). Different sets ofassumptions (scenarios) produce different results as described below.
In the GRIM we evaluated each ofthe shipment scenarios, i.e., "NAECA", "Rollup", and "Shift". Changes in efficiency mix by efficiency standard level are a key driver ofmanufacturer 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 ofequipment above the minimum efficiency level. The "Reverse-Engineering Relative Cost" scenario was applied onlyto the "NAECA" product mix scenario in order to determine the effects oflower 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 ofa shorter product life on the results.
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# 30'7-

# 08
used to evaluatethe impacts ofa new standard on manufacturers' cash flows, manufacturing capacities and employment levels.
The MIA has bothquantitative and qualitative aspects. Quantitative analysis primarily relies onthe 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 netpresent value (INPV). Different sets ofassumptions (scenarios) produce different results as described below.

In the GRIM we evaluated each ofthe shipment scenarios, i.e., "NAECA", "Rollup", and "Shift". Changes in efficiency mix by efficiency standard level are a key driver ofmanufacturer finances since costs andrevenues 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 ofequipment 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 oflowerproduction costs onthe MIA results.
The equipment lifetime scenarios assumptions, "I8-yearlife" and "I4-yearlife", were considered. The "14-year life" assumption applied only to the "NAECA" and "Industry Relative Cost" scenarios to isolate the effects ofa shorterproduct life onthe results. 107 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.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 ofemphasis on the sale ofhigher 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 ofthesemanufacturers 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 ofan emphasis on marketing, service, andresearch than do their lower cost competitors. Faced with stiffprice competition from the lower costmanufacturers inprice-sensitive markets, the higher cost manufacturers are forced to reduce their price (and markup) on their baseline equipment to theminimum level sustainable. They then target less price sensitive customers by offering products withpremium features and higher efficiency. These products carry higher markups.
Since higher efficiency standards will affect each group ofmanufacturers differently, we setuptwo versions ofthe GRIM to model each group independently. To represent the lower cost manufacturers, we reduced the operating expense ratio and research and development expense ratio tobelow 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
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# B
The interviews revealed that manufacturers use different pricing strategies and place different levels ofemphasis onthe sale ofhigherefficiency products. Manufacturers fall into two basic groups inthis regard. The first group has lower operating and production costs than its competitors and targets suchprice-sensitive consumers as new home builders. This focus on low price limits the ability and desire ofthese manufacturers to sell premium equipment. Because they have a cost advantage overtheir competitors, the lower cost manufacturers can achieve a higher operatingprofit margin ontheir baseline equipment and still maintain a price advantage. They then apply a fairly consistent markup across efficiency levels.
The higher cost manufacturers typicallyplace more ofan emphasis onmarketing, service, andresearch than do their lowercost competitors. Faced with stiffprice competition from the lowercostmanufacturers inprice-sensitive markets, the higher cost manufacturers are forced to reduce theirprice (and markup) ontheir baseline equipmentto the minimum level sustainable. Theythentarget less price sensitive customersby offering products withpremium features and higher efficiency. These products carry highermarkups.
Since higher efficiency standards will affect each group ofmanufacturers differently, we setuptwo versions ofthe 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 belowthe industry averages. We also assumedthat 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\INOPRIDraftNOPRICACNOPR24 wpd October 4, 2000 (6:35PM)

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## 301-08 markups increase roughly linearly as the efficiency level increases. This represents two effects: selling a greater fraction ofhigher margin premium product as efficiency level rises, and being able to secure a higher profit margin on products byvirtue ofthe higher efficiency.
To represent the industry in aggregate, we combined the results ofthe two GRIM versions, giving 25% weight to the results ofthe lower-operating-cost group and 75% weight to the results ofthe higher-operating-cost group. This ratio reflects the prevalence ofeach strategy in the marketplace. Many companies may pursue both strategies simultaneously through different brands and divisions.
b. Industry Cash FlowAnalysis 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 ofthe weighted average cost ofcapital for the industry over a five-year period. Results assume that manufacturers with lower operating costs control 25% ofthe 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.

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## 30'1-

# 08 markups increase roughly linearly as the efficiency level increases. This represents two effects: selling a greater fraction ofhighermarginpremiumproduct as efficiency level rises, and being able to secure a higherprofit margin onproducts by virtue ofthe higher efficiency.
To representthe industry in aggregate, we combined the results ofthe two GRIM versions, giving 25% weight to the results ofthe lower-operating-cost group and 75% weight to the results ofthe higher-operating-cost group. This ratio reflects the prevalence ofeach strategy in the marketplace. Many companies maypursue both strategies simultaneouslythrough different brands and divisions.
b. Industry Cash 

### FlowAnalysisResults. Tables VI.5 through VI.7 presentthe GRIM results for the unitary air conditioning industry for the three shipment scenarios based onthe industry provided mean cost multipliers and an I8-yearproduct life. The corporate discount rate used inthe analysis is 6.2% based on an estimate ofthe weighted average cost ofcapital for the industry over a five-year period. Results assume that manufacturers with lower operating costs control 25% ofthe market and those with higher operating costs control 75%. Since we did not collect informationregarding the cost orinvestments involved in manufacturing product at 18 SEER, we did not assess impacts under Max Tech.

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### 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 Present Value lili Level ($ 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%

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..

# J

# 0108 Table V1.5: Changes in IndustryNet Present Value
- Industry Relative Cost, 18 YearLife, NAECAEfficiency 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 IndustryNet Present Value
- Industry Relative Cost, 18 YearLife, Roll-up Efficiency Mix Industry Net Standard PresentValue

Level ($ million) Base $ 1,603

I $ 1,422 2 $ 1,241 3 $ 1,236 4 $ 1,268 $ $ $ $

110 Change in INPVfrom Base Case $ million 0/0



## -- -- (181) -11% (362) -23% (367) -23% (335) -21%

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### 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

IndustryNet 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 ofhigher 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 ofmore sales and more expensive equipment. The Shift scenario provides a much more favorable projection ofhigh-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.

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### ~~~~~~~~~111 ~October 4, 2000 (6:35PM) EE-RM/STD-98-440 - 

## -3**o'1-0~** Table VI.7: Changes in Industry Net Present Value
- Industry Relative Cost, 18 Year Life, ShiftEfficiency Mix

Industry Net Change in INPV from Base Standard Case

Level PresentValue ($ 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 scenariosreduce INPV while the Shift scenario increases INPV. This result occurs because we assume the higher-operating cost manufacturers accrue much of theirprofits from the sale ofhigher efficiency equipment. As the standard level increases, they earn lowerprofit margins on that equipment. The loss in profits can be offset by the combination ofmore sales and more expensive equipment. The Shift scenario provides a much more favorable projection ofhigh-efficiency equipment sales than do the NAECA and Rollup scenarios.
Tables VI.8 and VI.9 present the results for the 14-yearlife assumption and the Reverse Engineering Relative Cost scenario with the NAECA Efficiency Mix scenario.

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### 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 Nt Change 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 ofmanufacturers 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 ofthe efficiency level, so as the cost ofthe product
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# 30'7-08
Table VI.8: Changes in Industry NetPresent Value
- Industry Relative Cost, 14 Year Life, NAECA Efficiency Mix Industry Net Change in INPV from Base Standard Case

Level PresentValue ($ 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 PresentValue ($ 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 ofmanufacturers 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 marginregardless ofthe efficiency level, so as the cost ofthe product 112 Q:IEE-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October4,2000 (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 Standard 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.

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# oB increases, profits also increase. The higher operating cost manufacturers, onthe otherhand, lose profits as the standard level rises and the products face pricing pressure from the lower cost manufacturers. Table Vl,l0: Change in Industry Net Present Value ( %) Relative to Base
- Comparison Between Lower and Higher CostManufacturers 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-yearlifetime unless otherwise noted.
Forthe group most negatively impacted, i.e., the higher cost group, Table Vl,11 presents the Return onInvested 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 ratherthanto make the investments required to move to the new efficiency level.

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### EE-RM/STD-98-440-0 '- 

### Table VI. 11: Return on Invested Capital (ROIC) in 2011 forHigher 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 ofthe 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 ofthe new standard, larger investments equate to amore serious strain on cash flows in the near-term.

Table VI.12: Manufacturer Expenditures Related to NewEfficiency 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 ofimpacts on
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# 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 ofthe total investmentrequired for eachtrial standard level. Product conversion expenses include mostly product development and testing costs. Capital investments include newequipment, tooling, and floor space. Since these investments occurinthe years leading up to the effective date ofthe new standard, larger investments equate to a more serious strain on cash flows in the near-term.

Table V1.12: Manufacturer Expenditures Relatedto NewEfficiency Standards (million 1999 $) TrialStandard 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'sproposedrule provides more details onthe MIA assumptions, methodology, results, and conclusions, including the assessments ofimpacts on 114 Q:IEE-4!IEE-43!\CAC\StandRu!INOPRlDraftNOPR\CACNOPR24.wpd October4, 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 ofmaterial 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 ofthe United States. This effect could keep domestic employment levels flat or result in employment loss ifcompanies choose to shift current production to new facilities in other countries. d. Impacts on ManufacturingCapacity. 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 ofthe six manufacturers we interviewed identified capacity constraints during peak production periods.

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# -.307-

# DB lower volume equipment manufacturers and compressormanufacturers, which we estimate to be similar in proportionto 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 ofmaterial in each product, labor requirements are expected to rise proportionally. However, the industry has recently been experiencingrapid 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. Itis possible that those companies will choose to add the new capacity outside ofthe United States. This effect could keep domestic employment levels flat orresult in employment loss ifcompanies choose to shift current production to new facilities inothercountries.


### d. Impacts on Manufacturing Capacity. Itis 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 canunder existing standards. Five ofthe six manufacturers we interviewed identified capacity constraints during peakproductionperiods.

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# 301- o8

e. Impact onLower 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 ofniche products and those who produce only coils and fancoils, because oftheir need to spread these investments over smaller production volumes, may be affected more negatively than major manufacturers by an increase in efficiency standards. This isparticularly true forthose 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 ofsales volume due to increased price. Overall, ifprovisions 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 ofthe 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 

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# 3D7-08

e. Impact onLower VolumeManufacturers. 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 ofniche products and those who produce only coils and fancoils, because oftheir need to spread these investments over smallerproduction 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-onlymanufacturers. 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 majormanufacturers and have more severe consequences related to increasedproduction costs or loss ofsales volume due to increased price. Overall, ifprovisions are made in the standard for niche products that face severe technological constraints, we would not expectthe impacts on lower-volume manufacturers as a group to be disproportionate with those ofthe industry as a whole.
2. Life-Cycle Cost More efficient central air conditioners and heat pumps would affect consumers intwo ways: annual operating expense would decrease and purchase price would increase. We analyzed the net effectby calculatingthe LCC. Inputs required for calculating LCC include total installed costs (i.e., equipmentprice plus installation costs), annual energy savings, average and marginal electricityrates, electricityprice 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 ofthe LCC model is a mean LCC savings for each product class as well as a probability distribution or likelihood ofLCC reduction orincrease. The LCC analysis for today's proposed rule introduces anew concept with regard to the percentage ofconsumers (both residential and commercial) that are negatively impacted by an increase in the minimum efficiency standard. (Forthe 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 arelatively small LCC increase e.g., as small as $10, as compared to arelatively 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% ofthe baseline LCC. For central air conditioners, this translates to an LCC increase ofapproximately $100 or an annual expense of approximately $5over the lifetime ofthe system. Table VI.13 summarizes the baseline LCCs for split system and single package central airconditioners and heat pumps and also provides the 2% threshold at which consumers are considered to be adversely impacted.

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## 3/)7- 06 The output ofthe Lee model is a mean Lee savings for each product class as well as a probability distribution or likelihood ofLeereduction orincrease. The Lee analysis for today's proposed rule introduces a new concept with regard to the percentage ofconsumers (both residential and commercial) that are negatively impacted by an increase in the minimum efficiency standard. (Forthe 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 comparedto 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 greaterthan 2% ofthe baseline Lee. For central air conditioners, this translates to an Lee increase ofapproximately $100 or an annual expense of approximately $5 overthe lifetime ofthe 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.

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### 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 SplitAir 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 foreach 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 (bothresidential and commercial) at each efficiency level who are impacted in one of three ways: consumers who achieve significantnetLCC savings (i.e., LCC savings greater than 2% ofthe 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% ofthe baseline LCC), or consumers who achieve a significantnet LCC increase (i.e., an LCC increase exceeding 2% ofthe baseline LCC).

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# 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 % ofBaseline LCC SplitAirConditioners $5,170 $103 Split Heat Pumps $9,679 $194 Single Package AirConditioners $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 andheatpumps. 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 SEERefficiency levels, 15 SEERcost datawere used for all 18 SEERcalculations resulting in 18 SEERLCC results which underestimate theirtrue cost level. Table VI.14 also provides for eachproduct class the difference in LCC at each efficiency level relative to the baseline. The differences represent either anLCC savings oranLCC cost increase. In addition, the table shows the subset of consumers (bothresidential and commercial) at each efficiency level who are impacted in one of three ways: consumers who achieve significantnet LCC savings (i.e., LCC savings greaterthan 2% ofthe baseline LCC), consumers who are impacted in an insignificant mannerby having either a small reduction or small increase in LCC (i.e., within ±2% ofthe baseline LCC), or consumers who achieve a significantnet LCC increase (i.e., an LCC increase exceeding 2% ofthe baseline LCC).

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### EE-RM/STD-98-440 

## - 30'- 0 Table VI.14: Summary ofLCC Results based on ARI Mean Manufacturer Costs and a 18.4 year average Lifetime Average LCC Percent ofConsumers 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 forthe presentation ofenergy savings and payback period results, we have investigated two scenarios where lower estimates ofthe 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.

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# 3D'1-08 Table VI.I4: Summary ofLCC Results based onARl Mean Manufacturer Costs and a 18.4 year average Lifetime Average LCC Percent ofConsumers 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 $9,464 ($215) 13 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% HeatPump 13 $9,514 ($112) 33% 31% 36% 18 $9922 $296 24% 10% 66% As discussed previously for the presentation ofenergy savings and paybackperiodresults, we have investigatedtwo scenarios where lower estimates ofthe manufacturer costs (reverse engineering) and system lifetime (retirementfunction with 14 year average lifetime without compressorreplacement 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.

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### EE-RM/STD-98-440 -30&-08 Table VI. 15: Summary ofLCC Results based on Reverse Engineering Manufacturer Costs Average LCC Percent ofConsumers 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%

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# 3D1-08
Table VI.15: Summary ofLCC Results based onReverse 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 $9,307 ($372) 13 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) HeatPump $9,273 ($353) 13 18 $9460 ($166)

120 PercentofConsumers with Net Savings No Significant NetCosts (>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%

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### EE-RM/STD-98-440 

## -307- ° 0 Table VI.16: Summary ofLCC Results Based on ARI Mean Manufacturer Cost and 14-year Average Lifetime Average LCC Percent of Consumers with E~fficiencyAverage LCC

____________ ProductClass 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 netpresent value analysis is a measure ofthe cumulative benefit or cost to the Nation of standards. As with the determination ofnational energy savings, five different scenarios were analyzed for each trial standard level consisting ofvariations 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-9S-440

# -·30'7-

# 08 Table VI.16: 

### Summary ofLCC Results Based on ARl Mean Manufacturer Cost and 14-year Average Lifetime Average LCC PercentofConsumers with Efficiency ProductClass 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% HeatPump $8,630 ($117) 13 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% HeatPump $8,630 13 ($117) 33% 37% 30% 18 $9184 $437 18% 9% 73% 3. NetPresentValue and NetNational Employment The net present value analysis is a measure ofthe cumulative benefit or cost to the Nation ofstandards. As with the determination ofnational energy savings, five different scenarios were analyzed for each trial standard level consisting ofvariations on: (1) electricityprice 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 ofcompressor 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 ForUnits Sold from 2006 to 2030 Trial Standard (billion 98$)' Level NAECA Roll-up Shift 1 0 1 Oto-1 2 -1 0 to 1 -3to -4 3 -1to -2 Oto-1I -5 4 -5 to -6 -4 -10 5 -22 -22 -22 Based on ARI mean manufacturer costs, 18.4-yearretirement function with compressorreplacement, and a 7%discount rate.


### In order to show the significance ofthe NPVs 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 ofnew efficiency standards). The results in Table VI. 18 are based onthe AEO 2000 Reference Case forecast ofelectricity 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

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# 3ul-0

# 8
Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency distribution afternew standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturer costs were based onARl mean cost estimates. Equipment lifetime was assumed to be 18.4 years, coupled with the inclusion ofcompressor replacement costs. A societal discount rate of 7% was assumed. The range ofNPVs are reported in Table VI.17.
Table VI.17: NetPresent Value Variation with Electricity Price and Housing Projections NetPresentValue ForUnits Sold from 2006 to 2030 Trial Standard (billion 98$)1 Level NAECA Roll-up Shift 1 0 1 

## oto -1 2 -1 

## oto 1 -3 to -4 3 -1 to -2 

## oto-1 -5 4 -5 to-6 -4 -10 5 -22 -22 -22 1 Based on ARI mean manufacturer costs, 18.4-yearretirement function with compressorreplacement, and a 7% discount rate.
In orderto showthe significance ofthe NPVs in Table V.17 to the various input assumptions, Tables VI.18 through VI.21 report the range ofNPVresults for a range of assumptions and scenarios relative to the total national equipment andoperating costs for all central air-conditioning and heat pump equipment under the base case (i.e., in the absence ofnew efficiency standards). The results in Table VI.18 are based onthe AEO 2000 Reference Case forecast ofelectricityprices and housing. The total costs are presented for the base case and each Trial StandardLevel. In addition, the NPV (the difference intotal costsbetweenthe base case
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### EE-RM/STD-98-440 - .00-C6 and trial standard level), as well as the NPV as a percentage ofthe "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 aspercent billion 98$ billion98$ ofBase billion Base 98$ billion 98$ ofBase 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 AEO2000 Reference Case, ARImean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7% discount rate. Values rounded tothe nearest $1billion. 

### 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 theNAECA efficiency scenario and the AEO Reference Case electricity price and housing projection.

17A societal discount rate of 3%value was investigated as ascenario in accordance with the Office ofManagement and Budget's (OMB) GuidelinestoStandardizeMeasuresofCostsandBenefitsandthe Format of

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### EE-RM/STD-98-440·307·ci3 and trial standard level), as well as the NPV as a percentage ofthe "Base Case Total Costs," are calculated for eachtrial 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 aspercent Costs aspercent Costs aspercent 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% 1Based 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 showhowthe three scenarios, i.e., reverse engineering costs, 14-year average life, and 3%discount rate 17, impact the netpresent value. The three scenarios were investigated only for theNAECA efficiency scenario and the AEO Reference Case electricityprice andhousing projection.

17 A societal discount rate of 3 % value was investigated as a scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures of Costs andBenefits andthe Format of AccountingStatements. 123 Q:\EE-4!\EE-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October4,2000 (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 StandardLevel TrialStandard Level Costs Total Cost Net Present Value as percentof Base billion98$ billion98$ billion98$ 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 aspercentofBase billion98$ billion98$ billion98$ Case TotalCosts 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 tothe 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 percentof Base billion98$ billion98$ billion98$ Case TotalCosts

_ 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.

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# 301·06 Table V.19: Net Present Values Results based on Reverse Engineering Manufacturer Costs! Base Case Total Trial Standard Level TrialStandard Costs Level Total Cost Net Present Value aspercentof 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-yearretirement functIOn with compressor replacement, and a 7 % discount rate. Values rounded to the nearest $1 billion. Table V1.20: Net Present Values Results based on 14-yearAverage Lifetime! Base Case Total Trial Standard Level Trial Standard Costs Level Total Cost Net Present Value aspercentof Base billion 98$ 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 $1 billion. Table V1.21: NetPresent Values Results based on 3% Discount Rate! Base Case Total Trial Standard Level TrialStandard Costs Level TotalCost Net Present Value aspercentof Base billion 98$ 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 compressorreplacement. Values rounded to the nearest $1 billion.

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### EE-RM/STD-98-440 - 3J0'7- U The Department committed in its 1996 Process Improvement Rule to develop estimates of the employment impacts ofproposed standards in the economy in general. 61 FR 36983.
As discussed above, energy efficiency standards forcentral air conditioners and heat pumps are expected to reduce electricity bills forresidential and commercial consumers. The resulting net savings are expected to be redirected to other forms ofeconomic 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 onthe demand for labor ofsuch shifts in economic activity is to compare sectoral employment statistics developed bythe Labor Department's Bureau ofLabor Statistics (BLS). The BLS regularly publishes its estimates ofthe number of jobs permillion dollars ofeconomic activity in different sectors ofthe economy, as well as thejobs created elsewhere in the economy by this same economic activity. BLS data indicate that expenditures in the electric sector generally are associated with fewerjobs (both directly and indirectly) than expenditures in other sectors ofthe economy. There are many reasons for these differences, including the capital-intensity ofthe utility sector and wage differences.
In developing this proposed rule, the Department attempted a more precise analysis ofthe impacts on national labor demand using an input/output model ofthe U.S. economy. The model characterizes the interconnections among 35 economic sectors using the data from the Bureau of
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# 301

# 08 The Department committed in its 1996 Process Improvement Rule to develop estimates of the employment impacts ofproposed 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 electricitybills for residential and commercial consumers. The resulting net savings are expected to be redirected to other forms ofeconomic 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 methodto assess the possible effects onthe demand for labor ofsuch shifts in economic activity is to compare sectoral employment statistics developed by the Labor Department's Bureau ofLabor Statistics (BLS). The BLS regularly publishes its estimates ofthe number of jobspermillion dollars ofeconomic activity in different sectors ofthe economy, as well as thejobscreated elsewhere inthe economy by this same economic activity. BLS data indicate that expenditures in the electric sector generally are associated with fewerjobs (both directly and indirectly) than expenditures in other sectors ofthe economy. There are many reasons for these differences, including the capital-intensity ofthe utility sector and wage differences.
In developing this proposedrule, the Department attempted a more precise analysis ofthe impacts onnational labor demand using an input/output model ofthe

## u.s. economy. The model characterizes the interconnections among 35 economic sectors using the data from the Bureau of 125 Q:\EE-41\EE-431ICACIStandRu\INOPRlDraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 

# 3 0/7-

# o Labor Statistics. Since the electric utility sector ismore capital-intensive and less labor-intensive than other sectors (see Bureau ofEconomic Analysis, RegionalMultipliers: A UserHandbookfor the RegionalInput-Output ModelingSystem (RIMSII), 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 ofmeeting a new efficiency standard are relatively large, there is an overall decrease in national employment. The results ofthe Department's analysis are shown in Chapter 12 ofthe 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 atthe lowest rate in 30 years. Ifunemployment 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 ofthejobs. One reason that the demand for labor decreases in the model may be that thejobs expected to be created pay more than thejobs 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 ofthe estimated net present value ofbenefits or losses likely to result from the proposed standards. It may not Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

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## 301~

# 08 Labor Statistics. Since the electric utility sector is more capital-intensive and less labor-intensive than other sectors (see Bureau ofEconomic Analysis, RegionalMultipliers: A User Handbook/or the RegionalInput-OutputModeling System (RIMSII), 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 ofmeeting a new efficiency standard are relatively large, there is an overall decrease in national employment. The results ofthe Department's analysis are shown in Chapter 12 ofthe 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, eventhese modest losses are in doubt: • Unemployment is now atthe lowest rate in 30 years. Ifunemployment remains very low duringthe period when the proposed standards are put into effect, it is unlikely that the standards alone couldresult in any net decrease in national employment levels. • Neitherthe BLS datanorthe input-output model used by DOE include the quality or wage level ofthejobs. One reason thatthe demand for labor decreases in the model may be that thejobs expected to be created pay more than thejobsbeing lost. The losses from any potential employmentreduction would be offset if jobquality and pay are increased. • The net benefits from potential employment changes are a result ofthe estimated net present value ofbenefits orlosses likely to result from the proposed standards. It may not 126 Q:\EE-41\EE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.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 ofnet present value. Taking into consideration these concerns regarding the interpretation and use ofthe employment impacts analysis, the Department concludes onlythat theproposed central air conditioner and heat pump standards are likely to result in no appreciablejob losses to the nation.
Public comments are solicited on the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis.
4. Impact on Utility or Performance ofProducts As detailed in Section V, in establishing classes ofproducts wehave tried to eliminate any degradation ofutility or performance in the products under consideration in this rulemaking.
5. Impact ofAny Lessening ofCompetition The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. It further directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from aproposed standard and transmit such determination to the Secretary, not laterthan 60 days afterthe publication ofaproposed rule, together with an analysis ofthe nature and extent ofsuch 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).

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# B be appropriate to separately identify and consider any employment impacts beyond the calculation ofnetpresent value. Taking into considerationthese concerns regarding the interpretation and use ofthe employment impacts analysis, the Department concludes onlythat the proposed central air conditioner and heat pump standards are likely to result in no appreciablejoblosses to the nation.
Public comments are solicited onthe validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis.
4. Impact onUtility orPerformance ofProducts As detailed in SectionV, in establishing classes ofproducts we have tried to eliminate any degradation ofutility orperformance in the products under consideration inthis rulemaking.
5. Impact ofAny Lessening ofCompetition The Actdirects the Departmentto consider any lessening ofcompetition that is likelyto result from standards. Itfurther directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from a proposed standard and transmit such determinationto the Secretary, not laterthan 60 days afterthe publication ofa proposed rule, togetherwith an analysis ofthe nature and extent ofsuch 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).

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### 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 ofJustice (DOJ) with copies ofthis 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 ofcompetition due to any proposed trial standard levels.
6. Need ofthe Nation to Save Energy Enhanced energy efficiency improves the nation's energy security, and reduces the environmental impacts ofenergy production. Improved efficiency ofcentral 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 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.

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## 30'

## 1

# oB
In orderto assist the Attorney General in making such a determination, the Departmenthas providedthe Department oflustice (001) with copies ofthis notice and the TSD for review. At DOE's request, the 001reviewed the manufacturer impact analysis interview questionnaire to ensurethat it would provide insight concerning any lessening ofcompetition due to anyproposed trial standard levels.
6. Need oftheNationto Save Energy Enhanced energy efficiency improves the nation's energy security, andreduces the environmental impacts ofenergyproduction. Improved efficiency ofcentral air conditioners and heatpumps is also likely to improve the reliability ofthenation's electric system. The energy savings from central air conditioner and heat pump standards result inreduced emissions of carbon andNOx.• Cumulative emissions savings overthe 16-yearperiod modeled are shown in Table VI.22. Emission savings are based onthe use of: (1) the ARI mean manufacturer costdata and (2) an 18.4-yearaverage lifetime. The results presented in Table VI.22 are based only onthe AEO 2000 Reference Case for electricityprice and housing projections and the NAECA efficiency scenario.

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### 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 ofvarying 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 howcarbon 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 ofDifferent 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

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### EE-RM/STD-98-440-00'1,08 Table V1.22: Cumulative Emissions Reductions based onAEO 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 ofvarying electricityprice 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 howcarbon 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 ofDifferent 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

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### EE-RM/STD-98-440- 

## 30- o 

## 0 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 eachtrial standard level are reported in the Environmental Assessment, in the TSD.
7. Other Factors This provision allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, 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 ofthe proposed standards on peak power requirements and electric utility system reliability, the impacts ofproposed standards onthose subgroups ofconsumers who are at or belowthe poverty line, and the impacts ofproposed 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 ofthe standards, and has decided to consider such impacts in this rulemaking. Peak power impacts are determined as part ofthe 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 ofthe trial

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# 301·08 The annual carbon emissionreductions 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 NOxemissions for each trial standard level are reported in the Environmental Assessment, in the TSD.
7. OtherFactors This provision allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, to consider any otherfactors 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 thatthe impacts ofthe proposed standards onpeakpowerrequirements and electric utility system reliability, the impacts ofproposed standards onthose subgroups ofconsumers who are at or belowthe poverty line, and the impacts ofproposed standards on consumers and manufacturers which might be required by proposed environmental regulations to incorporate ozone reduction technologies in air conditioning and heatpump equipment, are relevant to the economic justification ofthe standards, and has decided to consider such impacts in this rulemaking.
Peakpower impacts are determined as part ofthe analysis to estimate impacts on electric utilities from increases inthe central air conditioner and heat pump standard. NEMS-BRS is used to estimate peak powerimpacts 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 ofthe trial

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### EE-RM/STD-98-440- 

## 307-08 standard levels. Ofthe 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, ordual-fired power plants. The results presented in Table VI.24 are based only on the AEO 2000 Reference Case forelectricity 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 ofvarying 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 ofDifferent 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

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## 30'1-

# 08 standard levels. Ofthe installed generating capacity avoided, 13% would have been providedby coal powerplants. The remaining percentage (87%) would have been supplied by either gas-fired, oil-fired, ordual-fired powerplants. The results presented in Table VI.24 are based only onthe AEO 2000 Reference Case for electricityprice 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 ofvarying electricityprice 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 ofDifferentElectricity PricelHousing Projections and Efficiency Scenarios Electricity Price and Housing Projection AEO Reference Case Efficiency Scenario Installed Generating NAECA 

### 131 Capacity Reduction (GW) 12.3

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### 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 ofthe peak power requirements ofany single end-use on electric utility system reliability is highly uncertain. Thus, we plan on conducting further research to determine what connection, ifany, exists between end-use peak demand reductions and system reliability. Ifsuch 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 ofthe 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 low-income. 20 

### 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 % ofthe RECS 97 households with central air conditioners and 9 %ofthe households with heat pumps met this criteria. Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### 132 October 4, 2000 (6:35PM) 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 ofthe peakpowerrequirements ofany single end-use on electric utility system reliability is highly uncertain. Thus, we plan on conducting further research to determine what connection, ifany, exists between end-use peak demand reductions and system reliability. Ifsuch 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 ofthe trial standard levels on those consumers who are at orbelowthe poverty line (e.g., for a family of four, this constitutes ahousehold income oflessthan $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-yearaverage lifetime.

20 Approximately 7 % ofthe RECS 97 households with central air conditioners and 9 % ofthe households with heat pumps met this criteria. 132 

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### EE-RM/STD-98-440- 

## 30'- DE 

### Table VI.26: Summary ofLCC Results on Low-Income Consumers Based on ARI Mean Manufacturer Costs and an 18.4-year Average Lifetime Average LCC Percent of Consumers with ProductClassEfficiency Average L CC (Savings) ProductClass 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 onthe subgroup ofconsumers 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 ofcentral air conditioner and heat pump consumers. Table V.27 directly compares the LCC impacts ofthe proposed standard on low-income and all consumers.

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### . EE-RM/STO-9S-440-JO'7-

# 08 Table VI.26: Summary ofLCC Results on Low-Income Consumers Based onARI Mean Manufacturer Costs and an 18.4-yearAverage Lifetime AverageLCC Percent ofConsumers with ProductClass 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 $8,948 13 ($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% HeatPump $9,145 13 ($4) 25% 27% 48% 18 $9,619 $470 18% 8% 74% In comparingthe LCC results onthe subgroup ofconsumers 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 differenttrial standard levels than the general population ofcentral air conditioner and heat pump consumers. Table V.27 directly compares the LCC impacts ofthe proposed standard on low-income and all consumers.

133 Q:\EE-41\EE·431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440- 307- 0 Table VI.27: Comparison ofLCC Impacts ofthe Proposed Standard on All Consumers vs. Low-Income Consumers Average LC ( ) Cs Percent ofConsumers with Net Prouc Average LCC (Savings) Costs Bsln - Product Class Efficiency Level Costs (>2 % ofBaseline 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 theNational Ambient Air Quality Standards (NAAQS), or classified as nonattainment. In Texas, four areas are in nonattainment ofthe 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 ofTexas, 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 of23 separate requirements applying to various regions ofthe state. One ofthe proposals mandates the use ofa technology in the affected areas that will reduce ozone from ambient air that isdrawn across the external heat exchanger units ofair-cooled air conditioning units, including heat pumps. The proposed rule would require,
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# 307-

# 08
Table V1.27: Comparison ofLCC Impacts ofthe Proposed Standard onAll Consumers vs. Low-Income Consumers Average LCC (Savings) Costs Percent ofConsumerswith Net ProductClass Efficiency Level Costs (>2 % ofBaseline LCC) All Consumers Low-Income All Consumers Low-Income Split System Central 12 ($45) ($3) 39% 51% AirConditioner 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 implementationplan (SIP) for most areas that are not in compliance withthe National Ambient Air Quality Standards (NAAQS), orclassified as nonattainment. In Texas, four areas are in nonattainment ofthe EPA's one-hourNAAQS for ozone: Beaumont-Port Arthur, EI Paso, DallasFortWorth, and Houston-Galveston. OnAugust 9,2000, The Texas Natural Resource Conservation Commission (TNRCC), the lead environmental agency for the state ofTexas, approved for publication and public hearing proposedrevisions to the state implementationplan (SIP), in orderto reduce ground-level ozone in the Houston/Galveston (HGA), DallaslFort Worth (DFW), and BeaumontIPortArthur (BPA) ozone nonattainment areas, as well as inthe 95-county central and eastern Texas. The proposed rules consist of23 separate requirements applying to various regions ofthe state. One oftheproposals mandates the use ofa technology inthe affected areas that will reduce ozone from ambient airthat is drawn across the external heat exchanger units ofair-cooled air conditioning units, including heatpumps. The proposed rule wouldrequire, 134 Q:IEE-4IIEE-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 

## 30"'- 0O after January 1,2002, that all central air conditioners sold in the specified areas ofTexas 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 ofstandards, and the distribution ofthose 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. Ifthe introduction ofthistechnology in Texas, and possibly otherjurisdictions, would create new consumer subgroups or would significantly change the ability ofequipment manufacturers to meet the new efficiency standard orthe 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 ofcentral air conditioners. For example, DOE is aware ofa range ofestimates ofwhat this technology would add to the cost ofcentral air conditioners. The costs ofthis technology are estimated to range between $42 and $446 per 12,000 Btu/hr ofair conditioner capacity. As to possible effects ofthe technology on the efficiency ofcentral air conditioners, DOE understands several designs of catalyst-treated air conditioners have been tested by Intertek Testing Services (ITS). DOE

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### 135 October 4, 2000 (6:35PM) 

### EE-RM/STD-98-440-

# 50'1-

# 08 after January 

### 1,2002, that all central air conditioners sold inthe specified areas ofTexas 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 condensercoils, orby installing an insert next to the condenser coil. The Department is required, bythe Process Rule, to understand the costs and benefits ofstandards, and the distribution ofthose costs among consumers, manufacturers and others, and the uncertainty associated withthese costs and benefits. Any adverse impacts on significant subgroups and uncertainty concerning adverse impacts mustbe fully considered in selecting a standard. Ifthe introduction ofthis technology in Texas, and possibly otherjurisdictions, would create new consumer subgroups orwould significantly change the ability ofequipment manufacturers to meet the newefficiency standard orthe costrequired 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 ofcentral air conditioners. Forexample, DOE is aware ofa range ofestimates ofwhat this technology would add to the cost ofcentral air conditioners. The costs ofthis technology are estimatedto range between 

### $42 and 

### $446 per 

### 12,000 Btulhrofair conditioner capacity. As to possible effects ofthe technology onthe efficiency ofcentral air conditioners, DOE understands several designs of catalyst-treated airconditioners have been tested by Intertek Testing Services (ITS). DOE

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### 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 bythe ozone reduction requirement. The higher purchase costs ofnew air conditioners could alter consumers' decisions on repairing or replacing equipment, which would affect air conditioner sales and impact manufacturers. Ifthe effect applies to a significant fraction ofunits sold eachyear, theDepartment's current manufacturer impact analysis mayunderestimate the impact on manufacturers.
After reviewing the available information, DOE is not certain as to the impacts ofany ozone reduction requirements that the TNRCC may adopt. The proposal is one of 23 requirements TNRCC may adopt and itis uncertain whether this requirement will be included in their final rule. Even ifthe requirement is adopted, it is unclear what, ifany, effect the requirement would have on efficiency. Finally, DOE believes such arequirement may have an impact on manufacturers. DOE estimates apotential impact on 800,000 central airconditioner shipments per year covered bythe TNRCC proposal, or approximately 13% oftotal shipments. This potential requirement was not included in today's proposed rule because ofuncertainty about whether the TNRCC will include the catalyst requirement in their SIP. DOE invites comments on the status ofthe TNRCC deliberations and whether this potential requirement should be considered.

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# 301-

# 08 understands the testresults showno 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 ofnewair conditioners could alter consumers' decisions onrepairing orreplacing equipment, which would affect air conditioner sales and impact manufacturers. Ifthe effect applies to a significant fraction ofunits sold eachyear, the Department's current manufacturer impact analysis mayunderestimate the impact onmanufacturers.
Afterreviewing the available information, DOE is not certain as to the impacts ofany ozone reductionrequirements that the TNRCC may adopt. The proposal is one of23 requirements TNRCC may adopt and it is uncertain whetherthis requirement will be included in theirfinal rule. Evenifthe requirement is adopted, it is unclear what, ifany, effect the requirement would have on efficiency. Finally, DOE believes such a requirement may have an impact onmanufacturers. DOE estimates a potential impact on 800,000 central air conditioner shipments peryearcovered bythe TNRCC proposal, orapproximately 13% oftotal shipments. Thispotential requirement was not included intoday'sproposed rule because ofuncertainty about whetherthe TNRCC will include the catalystrequirement in their SIP. DOE invites comments on the status ofthe TNRCC deliberations and whetherthis potential requirement should be considered.

136 Q:\EE-41\EE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 307-08 E. Conclusion Section 325(o)(2)(A) oftheAct, 42 U.S.C. 6295(o)(2)(A), specifies that any new or amended energy conservation standard for anytype (or class) ofcovered product shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economicallyjustified. In determining whether a standard is economicallyjustified, the Secretary must determine whether the benefits ofthe 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 ofenergy." EPCA Section 325(o)(3)(B), 42 U.S.C. 6295(o)(3)(B).
We consider the impacts ofstandards at each offive 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 ofdifferent efficiency levels for the different classes. It combines the SEER values for airconditioners 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 inthis way, the Department is able to evaluate the impacts ofdifferent combinations of standard levels to make an informed decision on themerits ofdifferent efficiency combinations.
To aid the reader as we discuss the benefits orburdens ofthe trial levels, we have included a summary ofthe 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- 

# 30108 E. Conclusion Section 325(0)(2)(A) ofthe Act, 42 U.S.C. 6295(0)(2)(A), specifies that any new or amended energy conservation standard for any type (or class) ofcovered product shall be designed to achieve the maximum improvement in energy efficiencywhich the Secretary determines is technologically feasible and economicallyjustified. In determining whether a standard is economicallyjustified, the Secretary must determine whetherthe benefits ofthe standard exceed its burdens. EPCA Section 325(0)(2)(B)(i), 42 U.S.C. 6295(0)(2)(B)(i). The amended standard must "resultin significant conservation ofenergy." EPCA Section 325(0)(3)(B), 42 U.S.C. 6295(0)(3)(B).
We considerthe impacts ofstandards at each offive trial standards levels, beginning with the Max TechLevel, i.e., Trial Standard Level 5. We then consider less efficient levels. Trial Standard Level 3 is a combination ofdifferent efficiency levels for the different classes. It combinesthe SEERvalues for air conditioners from Trial Standard Level 2 (12 SEER) with the SEERvalues for heat pumps from Trial Standard Level 4 (13 SEER). By combining efficiency levels inthis way, the Department is able to evaluate the impacts ofdifferent combinations of standard levels to make an informed decision onthe merits ofdifferent efficiency combinations.
To aidthe reader as we discuss the benefits orburdens ofthe trial levels, we have included a summary ofthe 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 October4,2000 (6:35PM)

### EE-RM/STD-98-440 

### - 

## 30

## 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 theNAECA 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 ofmanufacturing costs on the consumer, manufacturers, national energy savings, and NPV.
Table VI.28. Summary ofAnalysis Results based on ARI Mean Manufacturer Costs' TrialStd 1 TrialStd 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 arebased on 18.4-year lifetime. 2Based on AEO 2000reference, 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 2000reference case, NAECA efficiency scenario, and ARI mean manufacturing costs. 6Not calculated at Trial Standard Level 5.
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### 138 October 4, 2000 (6:35PM) EE-RM/STD-98-440 -

# 3 0

## '1~

# aB
scenarios and 7% and 3% societal discount rate scenarios. Table VI.29 presents a summary of analysis results based onmanufacturing costs obtained from the reverse engineering analysis for theNAECA efficiency scenario and 7% and 3% societal discount rate scenario. Bothtables assume an 18.4-yearequipment lifetime, including one compressorreplacement. The reverse engineering scenario results inTable VI.29 are limited to single scenarios which highlightthe impact ofmanufacturing costs onthe consumer, manufacturers, national energy savings, and NPV.
Table V1.28. Summary ofAnalysis Results based onARl Mean Manufacturer Costs 1 Trial Std 1 Trial Std 2 Trial Std 3 Trial Std4 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 1EstImates are basedon 18.4-year lIfetIme. 2Based onAEO 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.
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### EE-RM/STD-98-440- 03-08 Table VI.29. Summary ofAnalysis 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 1to 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 Variationbased on AEO 2000 reference, low andhigh growth case. 3Based on ARI mean manufacturer costs as reported inTable V1.28 

### First we considered Trial Standard Level 5, the most efficient level for each offour classes, representing uniform 18 SEER requirements. Trial Standard Level 5 saves between 8.1 and 8.7 Quads ofenergy, 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% ofcurrent installed generating capacity and more than 13% ofthe anticipated growth in capacity needed by 2020. The emissions reductions of63.7 Mt ofcarbon equivalent and 193.7 kt ofNO, are also significant. However, at this level, the vast majority ofconsumers would experience an increase in LCC costs. Purchasers ofsplit central air22 DOE estimates 9 coal-fired power plants and 64 gas-fired power plants can be avoided. SeeTSD, 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- 

## 30''1-08 Table VI.29. Summary ofAnalysis Results based on Reverse Engineering Manufacturing Costs l 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 1Based on 18 year hfetlme, NAECA effiCiency scenano and AEO 2000 reference case. 2Variation 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 1to 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 

### oto 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 offour classes, representing uniform 18 SEERrequirements. Trial Standard Level 5 saves between 8.1 and 8.7 Quads ofenergy, a significant amount. The estimatedreduction in installed generating capacity is 28.6 OW, orroughly 73 large, 400 megawatt, powerplants.22 The forecasted reduction ingenerating capacity is approximately 3.7% ofcurrent installed generating capacity and more than 13%ofthe anticipated growth incapacity needed by 2020. The emissionsreductions of63.7 Mtofcarbonequivalent and 193.7 kt ofNO x are also significant. However, at this level, the vast majority ofconsumers would experience an increase in LCC costs. Purchasers ofsplit central air22 DOE estimates 9 coal-fired power plants and 64 gas-fired powerplants can be avoided. See TSD, Chapter 11 and Appendix H. 139 Q:\EE-41\EE-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440- 307-08 conditioners, the predominate class ofcentral air conditioner with 65% ofthe sales ofcentral air conditioners and heat pumps, would lose $555 over the life oftheir appliance. 2 3 

### Purchasers of splitheat pumps, the predominate class ofheat pump, would lose $276.24 Moreover, the Department believes these LCC results overstate the benefits ofthis 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 thenation as a whole Trial Standard Level 5would 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 atthis trial standard level, the benefits ofenergy savings, generating capacity reductions and emission reductions would be outweighed by the negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, the Department concludes Trial Standard Level 5, the Max Tech Level, is not economicallyjustified.
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 ofenergy, 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 theDepartment'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 discountrate scenario, the nation would have a net cost of35 billion dollars. With the reverse engineering equipment cost, the NPV is anet cost of 10 to 11 billion dollars at the 7% discount rate and 8billion dollars at 3%. Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 

### 140 October 4, 2000 (6:35PM) EE-RM/STO-9S-440-30 r

# r oB conditioners, the predominate class ofcentral air conditioner with 65% ofthe sales ofcentral air conditioners and heatpumps, would lose $555 overthe life oftheir appliance.23 Purchasers of splitheatpumps, the predominate class ofheat pump, would lose $276. 24 Moreover, the Departmentbelievesthese LCC results overstate the benefits ofthis trial standard level. Because we did nothave equipment cost estimates atthis level, we used instead the costs of 15 SEER equipment. DOE believes the costs of 18 SEERequipment would be higher than the 15 SEER costs and that, as a result, the increase in life-cycle-costs would actually be greaterthan our LCC analysis indicates. Forthe nation as a whole Trial Standard Level 5 would have a net cost 22 billion dollars inNPV.25 The Department did not calculate manufacturer impacts at this trial standard level. The Department concludes that at this trial standard level, the benefits ofenergy savings, generating capacityreductions and emission reductions would be outweighedbythe negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, the Department concludes Trial Standard Level 5, the Max Tech Level, is not economicallyjustified.
Next, we considered Trial Standard Level 4. This level specifies 13 SEERequipment for all product classes and would save between4.2 and 4.5 Quads ofenergy, a significant amount. The estimated reduction in installed generating capacity is 15.4 GW, orroughly 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 of35 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-431ICACIStandRulINOPR\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% ofthe anticipated growth in capacity needed in 2020. The emissions reductions would also be significant: 33.6 Mt ofcarbon equivalent and 102.5 kt ofNO,. The NPV ofTrial 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 aNPV loss ofbetween 169 and 335 million dollars. The range ofimpacts is driven primarily bythe assumption regarding the distribution ofair conditioner and heat pump efficiencies in the market after implementation ofthe standard (NAECA or Roll-up). The Department recognizes that the ability to maintain afull 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 ofenergy 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 of3 billion dollars. With the reverse engineering equipment cost, the NPV has a no net cost atthe 7% discount rate and a savings of9 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_

# aD'/-

# DB megawatt, powerplants.26 The forecasted reduction in generating capacity is approximately 2% of current installed generating capacity and more than 7% ofthe anticipated growth in capacity needed in2020. The emissions reductions would also be significant: 33.6 Mt ofcarbon equivalent and 102.5 kt ofNOx' TheNPV ofTrial 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 wouldbe $215, based onARI equipment costS. 28 Owners ofsplit air conditioners could see their LCC increase by $29, based onARI costS. 29
Under Trial Standard Level 4, the air conditioning industry would experience aNPV loss ofbetween 169 and 335 million dollars. The range ofimpacts is driven primarilybythe assumptionregarding the distribution ofair conditioner and heatpump efficiencies inthe market after implementation ofthe standard (NAECA orRoll-up). The Departmentrecognizes thatthe ability to maintain a full product line is more difficult at higher standard levels and therefore places more weight onthe Roll-up scenario at Trial Standard Level 4. The Department concludes that atTrial StandardLevel 4 the benefits ofenergy savings, generating capacityreductions and emissionreductions andthe reduction inLCC for some consumers are outweighedby the negative economic impacts onthe nation, increase inLCC 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, theNPV has a no net cost at the 7%discount rate and a savings of9billion 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-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 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% ofcurrent installed generating capacity and more than 5% ofthe anticipated growth in capacity needed in 2020. The emissions reductions would also be significant: 27.4 Mt ofcarbon equivalent and 78.8 kt ofNO,

. 

### The national NPV ofthis trial standard level has a range ofnet costs from 1to 2 billion dollars, using ARI costs.3 1' 32 All classes 

### ofproduct 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 ofstandards 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 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 atthis trial standard level are positive and atthe same time the NPV is negative. This is a counterintuitive result since the NPV can be described as a sum ofindividual consumer LCCs. The negative NPV is caused by a number offactors, 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, theNES 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-

## ~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, orroughly 31 

### large, 400 

### megawatt, power plants.3D The forecasted reduction in generating capacity is approximately 1.6% 

### ofcurrent installed generating capacity and more than 5%

### ofthe anticipated growth in capacity needed in 2020. 

### The emissions reductions would also be significant: 27.4 

### Mt ofcarbon equivalent and 78.8 

### kt ofNOx' 

### The national NPV ofthis trial standard level has arange ofnet costs from 1to 2billion dollars, using ARl costS.31,32 All classes ofproduct 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 ofstandards 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 ofI 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 ofindividual consumer LCCs. The negative NPY is caused by a number offactors, 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, theNES 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-41IEE-431ICACIStandRulINOPRlDraftNOPRICACNOPR24.wpd October4,2000 (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 ofbetween 171 and 367 million dollars depending on whether the Roll-up orNAECA efficiency distribution scenario is considered.
Given the benefits and burdens ofTrial Standard Level 3 as discussed above, and observing the reduction inNPV compared to Trial Standard Level 2, the Department compared the benefits and burdens ofthe two trial standard levels. Adopting Trial Standard Level 3, instead ofTrial Level 2, would save the nation an additional 0.5 Quads ofenergy, and further reduce installed generating capacity by 1.7 GW, or roughly 5 large, 400 megawatt, power plants.3 5 

### The incremental emission reductions ofcarbon 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 1billion 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 ofTrial Standard Level 3, the Department has weighed the benefits ofenergy savings, generating capacity reductions, reduced average consumer LCC, and emissions reductions against the burdens ofa 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 1billion dollars. With the reverse engineering equipment cost, the NPV is not changed. 37 The total national discounted cost ofowning 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) 

## J 

# 17 ,)(] EE-RM/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 ofbetween 171 and 367 million dollars depending on whetherthe Roll-up orNAECA efficiency distribution scenario is considered.
Given the benefits and burdens ofTrial 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 ofthe two trial standard levels. Adopting Trial Standard Level 3, instead ofTrial Level 2, would save the nation an additional 0.5 Quads ofenergy, and further reduce installed generating capacity by 1.7 GW, orroughly 5 large, 400 megawatt, powerplants. 35 The incremental emissionreductions ofcarbon 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 1billion dollars, depending onthe cost estimates used. 36,37 The consumerLCC savings are not changed for central air conditioners, but are reduced by $27 for split heat pumps using ARl costS.38
Indetermining the economicjustificationofTrial Standard Level 3, the Departmenthas weighed the benefits ofenergy savings, generating capacity reductions, reduced average consumer LCC, and emissions reductions againstthe burdens ofa loss in manufacturernet 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 ofowning 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, theprojected LCC increases and loss in national NPV are relatively small, and these burdens ofTrial Standard Level 3 would be outweighed by its benefits. Moreover, in light ofthe 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 ofemission reductions. 3 9 

### Furthermore, as an added benefit, the standard may improve the reliability ofthe electric distribution system. The Department finds that, compared with Trial Standard Level 2, the incremental benefits ofgenerating capacity reductions and emission reductions ofTrial 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 oflowincome consumers.
After considering the benefits and burdens ofTrial Standard Level 3 and comparing the impacts ofTrial Standard Levels 2 and 3, the Department finds Trial Standard Level 3 to be maximum improvement in efficiency that istechnologically feasible and economicallyjustified.

39 It is possible the NPV does not include the value ofavoided power plants. It should be captured in the price ofelectricity, 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, ifany, ofstandards 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-

## 307~

# 08

consumerLCC increases for some households and the potential loss in national NPV. We find the benefits to be substantial. Although the loss in manufacturernet present value is also substantial, the projected LCC increases and loss in national NPV are relatively small, and these burdens ofTrial Standard Level 3 would be outweighed by its benefits. Moreover, in light ofthe reverse engineering analysis, we believe the equipment costs will be lower than the ARI estimates onwhich 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 outweighedby other factors not included in the national NPV calculations. Forexample, the national NPV calculation does not include quantitative estimates for the value ofemissionreductions. 39 Furthermore, as an added benefit, the standard may improve the reliability ofthe electric distribution system. The Department finds that, compared with Trial Standard Level 2, the incremental benefits ofgenerating capacityreductions and emissionreductions ofTrial Standard Level 3 to be greaterthanthe potential loss in national NPV and increase in life-cycle-costs to some consumers, including a relatively small number oflowIncome consumers.
After consideringthe benefits and burdens ofTrial Standard Level 3 and comparing the impacts ofTrial Standard Levels 2 and 3, the Department finds Trial Standard Level 3 to be maximum improvement in efficiency that is technologically feasible and economicallyjustified.

39 It is possible the NPV does not include the value ofavoided power plants. It should be captured in the price ofelectricity, 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 electricityprices do not change, however, DOE did not undertake an analysis to determine the effect, ifany, ofstandards on electricityprices. 144 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.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 Underthe NationalEnvironmental Policy Act The Department is preparing an Environmental Assessment ofthe impacts ofthe proposed rule and DOE anticipates completing a Finding ofNo 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 ofthe Council on Environmental Quality (40 CFR Parts 1500-1508), and the Department's regulations for compliance with NEPA (10 CFR Part 1021).
B. Review underExecutive Order12866, "RegulatoryPlanning andReview" The Department has determined today's regulatory action is a significant regulatory action within the scope ofSection 3(f)(1) ofExecutive 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 ofthe cost and benefits (including potential net benefits) ofthe proposed rule. Accordingly, the Office ofInformation 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~**jO'1~** 

# oB Therefore, the Departmenttoday proposesto adopt the energy conservation standards for air conditioners and heatpumps at Trial Standard Level 3.
VII. Procedural Issues and Regulatory Review A. Review Under the National EnvironmentalPolicyAct The Department is preparing an Environmental Assessment ofthe impacts ofthe proposed rule and DOE anticipates completing a Finding ofNo Significant Impact (FONSI) before publishingthe final rule onEnergy Conservation Standards for central air conditioners andheat pumps, pursuantto theNational Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.), the regulations ofthe Council onEnvironmental Quality (40 CFRParts 1500-1508), and the Department'sregulations for compliance withNEPA (10 CFRPart 1021).
B. Review underExecutive Order 12866, "Regulatory PlanningandReview" The Department has determined today's regulatory action is a significantregulatory action withinthe scope ofSection 3(t)(l) ofExecutive Order 12866, "Regulatory Planning and Review." (58 FR51735, October4, 1993). Therefore, this proposal requires a regulatory analysis. Such an analysis presents major alternatives to the proposedregulationthat could achieve substantiallythe same goal, as well as a description ofthe cost and benefits (including potential net benefits) ofthe proposedrule. Accordingly, the Office ofInformation and Regulatory Affairs (OIRA) reviewed today's action undertheExecutive Order.

145 Q:IEE-41IEE-431\CAC\StandRulINOPR\DraftNOPR\CACNOPR24.wpd October4. 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 apart ofthe 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 ofthe Regulatory Impact Analysis (RIA) focuses on the major alternatives considered in arriving atthe 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 oftoday's proposed rule. The RIA consists of: 1)a statement ofthe problem addressed by thisregulation, and the mandate for government action; 2) a description and analysis ofthe feasible policy alternatives to this regulation; 3) a quantitative comparison ofthe impacts ofthe alternatives; and 4) the economic impact ofthe proposed standard.
The RIA calculates the effects offeasible policy alternatives to central air conditioner and heat pump energy efficiency standards, and provides a quantitative comparison ofthe impacts of the alternatives. We evaluate each alternative in terms ofits ability to achieve significant energy savings at reasonable costs, and we compare it to the effectiveness ofthe 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-

## ,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 ofthe 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 ofthe Regulatory Impact Analysis (RIA) focuses onthe major alternatives considered in arriving atthe proposed approach to improving the energy efficiency of consumerproducts. The reader is referred to the complete RIA, which is contained in the TSD, available as indicated at the beginning oftoday's proposed rule. The RIA consists of: 1) a statement ofthe problem addressed by this regulation, and the mandate for government action; 2) a description and analysis ofthe feasible policy alternatives to this regulation; 3) a quantitative comparison ofthe impacts ofthe alternatives; and 4) the economic impact ofthe proposed standard.
The RIA calculates the effects offeasible policy alternatives to central air conditioner and heat pump energy efficiency standards, and provides a quantitative comparison ofthe impacts of the alternatives. We evaluate each alternative in terms ofits ability to achieve significant energy savings atreasonable costs, and we compare it to the effectiveness ofthe proposed rule.

146 Q:IEE-4IIEE-43IICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440 - 

## 30 

# 7-0 0
We created the RIA using a series ofregulatory 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: * NoNew 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 ofits ability to achieve significant energy savings at reasonable costs (Table VII. 1), and have compared it to the effectiveness ofthe

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

### 147 October 4, 2000 (6:35PM) EE.RM/STD.98.440. 

## 30

# 1-08
We createdthe RIA using a series ofregulatory scenarios (with various assumptions), which we used as inputto 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 majorpolicy alternatives for achieving consumer product energy efficiency. These alternatives include:
• NoNewRegulatory 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 interms ofits ability to achieve significant energy savings at reasonable costs (Table VII. 1 ), and have compared it to the effectiveness ofthe

147 Q:IEE·41IEE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440- 0 /- 0

## 8 proposed rule. All ofthe results below have been determined with the AEO Reference Case and theNAECA efficiency scenario.
Table VII. 1 Alternatives Considered NPV Energy Savings Policy Alternatives NPV Energy Savings Policy Alternatives (billions 98$) (Quads) Consumer Product Labeling 0 0.1 Consumer Education 0 0.1 Prescriptive Standards 0 1.1 Consumer Tax Credits 0 0.1 Consumer Rebates 0 0.2 Manufacturer Tax Credits 0 0.0 Voluntary Efficiency Target (5year delay) -1 3.1 Voluntary Efficiency Target (10 year delay) -1 1.9 Low Income Subsidy 0 0.1 Mass Government Purchases 0 0 Performance Standards -2 4.4 NPV = NetPresent Value (2006-2030, in billion 1998$) (does not include government expenses) Savings = Energy Savings (Source Quads) 

### Ifwe imposed no new regulatory action, then we would implement no new standards for this product. This is essentially the "base case" forcentral air conditioners and heat pumps. In this case, between theyears 2006 and 2030, there would be an expected energy use of39 Quads of primary energy, with no energy savings and a zero NPV.
We grouped several alternatives to the base case under the heading ofinformational 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 October4, 2000 (6:35PM) EE-RM/STD-98-440-

# 30

# 7-

# aB proposedrule. All ofthe results belowhave beendetermined with the AEO Reference Case and theNAECAefficiency scenario.
Table VILI Alternatives Considered Policy Alternatives NPV Energy Savings (billions 98$) (Quads) ConsumerProduct Labeling 0 0.1 ConsumerEducation 0 0.1 Prescriptive Standards 0 1.1 ConsumerTax Credits 0 0.1 ConsumerRebates 0 0.2 ManufacturerTax Credits 0 0.0 Voluntary Efficiency Target (5 yeardelay) 

### -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) Ifwe imposed no newregulatory action, then we would implementno new standards for this product. This is essentiallythe "base case" for central air conditioners and heatpumps. In this case, betweenthe years 2006 and 2030, there wouldbe an expected energy use of39 Quads of primary energy, withno energy savings and a zero NPV.
We grouped several alternatives to the base case underthe heading ofinformational action. They include consumerproduct labeling and DOEpublic education and information 148 Q:IEE-41IEE-431\CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4.2000 (6:35PM)

### EE-RM/STD-98-440- 30 7- programs. Both ofthese 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 ofenhancing consumer product labeling. To model this possibility, the Department estimated that 5% ofthe consumers purchasing 10 SEER equipment and 5% ofthe 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 ofenergy savings with no impact on the NPV.
Another approach, called consumer education, isto 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 ofboth 12 SEER and 13 SEER systems. As with the consumer product labeling program, it is assumed that the education program would last sixyears 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 ofsetting 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
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### 149 October 4, 2000 (6:35PM) EE-RM/STD-98-440-

# 3D

# 1-0

# £3 programs. Both ofthese 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 estimatethe energy conservationpotential ofenhancing consumerproduct labeling. To model this possibility, the Department estimated that 5% ofthe consumers purchasing 10 SEER equipment and 5% ofthe consumers purchasing 12 SEERequipment would change their decisions and purchase 12 SEERand 13 SEER systems, respectively. Itis assumed that the program would last six years and upon its expiration consumers would revert back to their prior purchase decisions. The consumerproduct labeling alternative resulted in 0.1 Quad ofenergy savings with no impact ontheNPV.
Another approach, called consumer education, is to consideranEnergy Star®program for 12 SEER and 13 SEERcentral air conditioners and heat pumps. We assume, under this program, there would be a 20% increase in the sales ofboth 12 SEER and 13 SEER systems. As with the consumerproduct labeling program, it is assumed that the educationprogram would last six years and upon its expiration sales would drop back to their market share levels priorto the program's implementation. This consumer educationprogram results in energy savings equal to 0.1 Quad with no impact onthe NPV.
Another method ofsetting standards would entail requiring that certain design options be used oneachproduct, i.e., for DOE to impose prescriptive standards. Forthis 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 CTXVs). The resulting efficiency 149 Q:\EE-41\EE-431ICACIStandRuIlNOPRIDraftNOPRICACNOPR24.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 ofthe 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% ofthe 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 ofthis policy would be to move 5% ofthe 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 ofconsumer rebates, we assumed rebates of35% ofthe 

### incremental retail prices forhigher 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 ofthis policy would be to move 10% ofmarket 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
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# 30'108 increase is 0.5 SEER. That is, the baseline efficiency of 10 SEERis assumed to increase to 10.5 SEERas a result ofthe prescriptive standard. Manufacturer costs associated with this standard were arrived by linearly interpolatingbetweenthose costs associated with the baseline (i.e., 10 SEER) and 11 SEERefficiency levels. This resulted in energy savings of 1.1 Quad and no impact onthe 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% ofthe incremental purchase price for higherenergy-efficiency equipment. The incremental price is based onthe difference betweenthe 2006 baseline price and the price of 12 SEERequipment. We estimatethe impact ofthispolicy would be to move 5% ofthe market share from the 2006 baselineto 12 SEERmodels. 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 heatpumps 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 estimatethe impact ofconsumerrebates, we assumed rebates of35% ofthe incremental retail prices for higher energy-efficiency equipment. The incremental cost is based on the difference betweenthe 2006 baseline cost and the cost of 12 SEERequipment. We estimate the impact ofthis policy wouldbe to move 10% ofmarket share from the 2006 baselineto the 12 SEERmodels. 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-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October4, 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 forthe production ofenergy-efficient models ofcentral air conditioners and heat pumps. We assumed an investment tax credit of20%, applicable to the tooling and machinery costs ofthe manufacturers. These are tooling costs asthey relate to producing 12 SEER central air conditioners and heat pumps. We estimate the impact ofthis policy would be to move 1% ofthe 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 theNPV. The impact ofthis scenario would be negligible because the investment tax credit was applicable only to the tooling and machinery costs ofthe firms. The firms' fixed costs and some ofthe design improvements that would likely be adopted to manufacture more efficient versions ofthis product would involve purchased parts. Expenses for purchased parts would notbe eligible for an investment tax credit.
We examined two scenarios ofvoluntary energy efficiency targets. In the first one, we assumed allthe 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. Inthese scenarios, voluntary improvements having a five-year delay, compared to implementation ofmandatory standards, would result in energy savings of3.1Quads and
- $1 billionNPV; voluntary improvements having a 10-year delay would result inl.9 Quads being
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### 151 October 4, 2000 (6:35PM)

## EE-RM/STD-98-440~**jo~l**

# a8 rebates stop. The rebates to consumers showed a change from the base case, would save 0.2 Quadwithno impactto theNPV.
Anotherfinancial incentive we considered was a tax credit to manufacturers for the production ofenergy-efficient models ofcentral airconditioners and heat pumps. We assumed an investmenttax credit of20%, applicable to the tooling and machinery costs ofthe manufacturers. These are tooling costs as they relate to producing 12 SEER central air conditioners and heat pumps. We estimatethe impact ofthis policy would be to move 1 % ofthe market share from the 2006 baselineto the 12 SEERmodels. These tax credits would start in 2006 and run for six years. We assume no persistence inthe market once they stop. Tax credits to manufacturers would save no energy andhave no impact ontheNPV. The impact ofthis scenario would be negligible because the investmenttax credit was applicable only to the tooling and machinery costs ofthe firms. The firms' fixed costs and some ofthe design improvements that would likely be adopted to manufacture more efficient versions ofthis product would involve purchasedparts. Expenses for purchasedparts would notbe eligible for an investmenttax credit.
We examinedtwo scenarios ofvoluntary energy efficiencytargets. In the first one, we assumed all the relevant manufacturers voluntarily adoptedthe proposed energy conservation standards in five years. Inthe second scenario, we assumed the proposed standards were adopted in 10 years. Inthese scenarios, voluntary improvements having a five-year delay, compared to implementation ofmandatory standards, wouldresult in energy savings of3.1Quads and
- $1 billionNPV; voluntary improvements having a 10-year delay wouldresult inl.9 Quads being 151 Q:\EE-41\EE-431\CAc\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4, 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 ofthe energy conservation standards bythese appliance manufacturers, an assumption for which there is no assurance.
One ofthe market barriers to higher efficiency central air conditioners and heat pumps is the expense toupgrading 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 oflow income households with central air-conditioning from the RECS public use data. We assumed that halfofthese households would take advantage ofthe 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 oflarge purchases ofhigh efficiency central air conditioners and heat pumps by Federal, State, and local governments. We modeled thispolicy by assuming these governmental entities (e.g., U.S. Department ofHousing and Urban Development at the Federal level) purchased 12 SEER equipment for 5% ofthe 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 ofthese alternatives must be gauged against the performance standards we are proposing in today's proposed rule. Such performance standards would result in energy savings
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# 30r;-o8 saved and -$1 billionNPV. These scenarios assume that there would be universal voluntary adoption ofthe energy conservation standards bythese appliance manufacturers, an assumption for whichthere is no assurance.
One ofthe marketbarriers to higherefficiency central air conditioners and heat pumps is the expenseto upgrading to a more efficient system. Since these expenses can be a particular burden onlow 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 oflow income households with central air-conditioning from the RECS public use data. We assumed that halfofthese households would take advantage ofthe program. Theprogram would start in 2006 and run for six years. This subsidy would save 0.1 Quad with no impactto the NPV.
Anotherpolicy alternative we reviewed was that oflarge purchases ofhigh efficiency central air conditioners and heat pumps by Federal, State, and local governments. We modeled this policyby assuming these governmental entities (e.g., u.S. Department ofHousing and Urban Development atthe Federal level) purchased 12 SEERequipment for 5% ofthe low income, rented housing stockutilizing central air-conditioning and heat pump equipment. This policy alternative resulted in no energy savings with no impact to the NPV. Lastly, all ofthese alternatives mustbe gauged against the performance standards we are proposing intoday's proposed rule. Suchperformance standards would result in energy savings 152 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October4. 2000 (6:35PM)

### EE-RM/STD-98-440- 30 -08 under the AEO Reference Case and NAECA efficiency scenario of3.5 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 ofthe alternatives we examined for these products would save as much energy as today's proposed rule. Also, several ofthe alternatives would require new enabling legislation, since authority to carry out those alternatives does not presently exist.
C. Review UndertheRegulatoryFlexibility Act The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment ofthe impact ofregulations 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 ifit (including affliates) has 750 or fewer employees.
The residential air-conditioner industry is characterized by seven firms accounting for nearly 95% ofsales. DOE understands that each ofthese 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% ofthe market.
Inthis industry, average production cost is inversely related to firm size. The industry displays economies ofscale, and large firms (to the extent that their facilities are modernized) have lower average production costs than small firms. This fact, coupled with increasing
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### 153 October 4, 2000 (6:35PM) EE-RM/STD-98-440_

# j01-o8 underthe AEO Reference Case and NAECA efficiency scenario of3.5 Quads, and the NPV estimates range from an increase of$3 billion to a cost of$2 billion.
As indicated inthe paragraphs above, none ofthe alternatives we examined for these products would save as much energy as today's proposed rule. Also, several ofthe alternatives would require newenabling legislation, since authority to carry outthose alternatives does not presently exist.


### C. Review Under the RegulatoryFlexibilityAct The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment ofthe impact ofregulations on small businesses. For air conditioning and warm air heating equipment manufacturing, a "firm" is defined bythe Small Business Administration as a small business ifit (including affliates) has 750 orfewer employees.
The residential air-conditioner industry is characterized by seven firms accounting for nearly 95% ofsales. DOE understands that each ofthese firms, including its affiliates, has more than 750 employees. Smallerbusinesses and firms, which make specialty air-conditioning products and supply niche markets, share 5% ofthe market.
Inthis industry, average production cost is inversely related to firm size. The industry displays economies ofscale, 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-431ICACIStandRul\NOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 

# 30 

## 7-

## 08 competitiveness ofthe national market, probably accounts forthe 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 ofconsolidation is that the smaller ofthe firms will be, on average, more vulnerable to the financial impacts ofhigher efficiency standards. Any decrease in average profitability is more likely to mean the difference between success and failure for a smaller firm.
The impact ofhigher 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 limitedresearch and development capabilities than their larger competitors. Some smaller manufacturers indicated the potential for a negative economic impact ofany higher standard level on their firms. However, since these concerns apply primarily to small manufacturers ofniche 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 forthrough-the-wall equipment, many ofwhich are manufactured by small manufacturers. Also, the Department has acknowledged that small manufacturers of high velocity distribution systems may potentially be adversely affected bythe 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 ofthis notice, the Department intends to consider those to be commercial products under EPACT. These provisions
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### 154 October 4, 2000 (6:35PM) EE-RM/STD-98-440-

# 307-

# 08 competitiveness ofthe national market, probably accounts for the consolidationthat has occurred for several decades. The fact that the consolidationhas beenproducing larger firms strongly corroborates the finding that large firms have a cost advantage.
A principal implication ofconsolidation is thatthe smaller ofthe firms will be, onaverage, more vulnerable to the financial impacts ofhigherefficiency standards. Any decrease in average profitability is more likely to mean the difference between success and failure for a smallerfirm.
The impact ofhigher 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 limitedresearch and development capabilities than their larger competitors. Some smallermanufacturers indicated the potential for a negative economic impactofanyhigher standard level ontheir firms. However, since these concerns apply primarily to small manufacturers ofniche products, they benefit from the provisions proposed by the Departmentto somewhatprotectthose products from the new standards. For example, a separate productclass is beingproposed for through-the-wall equipment, many ofwhich are manufactured by small manufacturers. Also, the Departmenthas acknowledged that small manufacturers of high velocity distribution systems may potentiallybe adversely affected by the proposed standard level. The Department is considering modifications to the SEERtest procedure, which would grantthese manufacturers some relief. Vertical-packaged, wall-mounted equipment is another product manufactured by small firms, and, as stated in Section V.1.3 ofthis notice, the Department intends to considerthose to be commercial products under EPACT. These provisions 154 Q:IEE-41IEE-431ICACIStandRuIINOPRlDraftNOPRICACNOPR24.wpd October4, 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 forthese companies to increase the efficiency oftheir products, we do not expect them to face any incremental burden as a result ofthe new standards.
In view ofthese conclusions, the Department has determined and hereby certifies pursuant to Section 605(b) ofthe 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 ofsmall entities," and it is not necessary to prepare a regulatory flexibility analysis.
D. Review Underthe Paperwork ReductionAct No new information or record keeping requirements are proposed in this rulemaking. Accordingly, no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq.
E. Review UnderExecutive Order12988, "CivilJusticeReform" With respect to the review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following
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## jO/1-

# 08> should eliminate anypotential for significant economic impact on small manufacturers related to the proposed standard level. Many small manufacturers produce coils only. Sincethere are no intensive incremental technological orcapital requirements for these companies to increase the efficiency oftheir products, we do not expectthem to face any incremental burden as a result ofthe new standards.
Inviewofthese conclusions, the Departmenthas determined and hereby certifies pursuant to Section 605(b) ofthe Regulatory FlexibilityAct that, for this particular industry, the proposed standard levels intoday's proposed rule will not "have a significant economic impact on a substantial number ofsmall entities," and it is not necessary to prepare a regulatory flexibility analysis.
D. Review Under the PaperworkReductionAct No newinformation orrecord keeping requirements are proposed in this rulemaking. Accordingly, no Office ofManagement and Budget clearance is required underthe Paperwork Reduction Act. 44 U.S.C. 3501 et seq.
E. Review Under Executive Order 12988, "CivilJustice Reform" Withrespect to the review ofexistingregulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR4729 (February 7, 1996), imposes onExecutive agencies the general duty to adhere to the following 155 Q:IEE-41IEE-431\CAC\StandRulINOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (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) ofExecutive 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, ifany; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued bythe Attorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations in light ofapplicable standards in Section 3(a) and Section 3(b) to determine whether they are met or itis unreasonable to meet one or more ofthem. DOE reviewed today's proposed rule under the standards ofSection 3 ofthe 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.

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### 156 October 4, 2000 (6:35PM)

## 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 conductratherthan a general standard and promote simplification and burdenreduction. With regard to the reviewrequired by Section 3(a), Section 3(b) ofExecutive Order 12988 specificallyrequires that Executive agencies make everyreasonable effort to ensure thatthe regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect onexisting Federal law orregulation; (3) provides a clearlegal standard for affected conduct while promoting simplification and burdenreduction; (4) specifies theretroactive effect, ifany; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued bythe Attorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations in light ofapplicable standards in Section 3(a) and Section 3(b) to determine whether they are met orit is unreasonable to meet one or more ofthem. DOE reviewed today's proposed rule underthe standards ofSection 3 ofthe Executive Order and determined that, to the extent permitted by law, the regulations meet the relevant standards.
F. "Takings"AssessmentReview The Departmenthas determined pursuant to Executive Order 12630, "Governmental Actions and Interference with ConstitutionallyProtected Property Rights," 53 FR 8859 (March 18, 1988), that this regulation would not result in any takings that might require compensationunderthe Fifth Amendmentto the United States Constitution.

156 Q:\EE-41\EE-431ICAc\StandRulINOPRlDrafiNOPRICACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 -30 7' 

## Q G. Review UnderExecutive Order13132 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 ofregulatory policies that have "federalism implications." Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe 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 ofpower and responsibilities among the various levels ofgovernment. State regulations that may have existed onthe 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 Underthe UnfundedMandatesReform 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) ofthe 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 ofthe resulting costs, benefits and other effects onthe national economy. 2 U.S.C. 1532(a),(b). DOE estimates that the proposed standards, ifadopted, would not result in the expenditure by the private sector of$100 million or more in a year, with
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..

# 307- 

# 09 G. Review Under Executive Order 13132 Executive Order 13132 (64 FR43255, August 4, 1999) requires agencies to develop an accountable process to ensure meaningful and timely input by State and local officials in the development ofregulatory policies that have "federalism implications." Agencies are required to examine the constitutional and statutory authority supporting any action that would limitthe policymaking discretion ofthe States and carefully assess the necessity for such actions. DOE has examinedtoday's proposed rule arid has determined that it would not have a substantial direct effect onthe States, onthe relationship between the national government and the States, or on the distribution ofpowerandresponsibilities among the various levels ofgovernment. State regulations that may have existed onthe products that are the subject oftoday'sproposed rule were preemptedby the Federal standards established in NAECA 1987. States can petitionthe 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 UnfundedMandates ReformAct Withrespect to a proposed regulatory action that may result in the expenditure by State, local, and tribal governments, in the aggregate, orby the private sector, of$100 million ormore (adjusted annually for inflation) in anyone year, Section 202(a) ofthe Unfunded Mandates Reform Action of 1995 (UMRA), 2 U.S.C. 1531 etseq. requires a Federal agency to publish a written statement concerning estimates ofthe resulting costs, benefits and other effects onthe national economy. 2 U.S.C. 1532(a),(b). DOE estimates that the proposed standards, ifadopted, would not result in the expenditure by the private sector of$100 million or more in a year, with 157 Q:\EE-41\EE-431ICACIStandRuIINOPR\DraftNOPRICACNOPR24.wpd October 4,2000 (6:35PM)

### EE-RM/STD-98-440-30JO 

# 7- C the possible exception ofone 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) ofUMRA 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 ofthe Notice of Proposed Rulemaking and "Regulatory Impact Analysis" section ofthe 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 ofregulatory 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 ofthe rule, unless DOE publishes an explanation ofwhy a different alternative is selected. As required by Section 325(o) ofthe 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 economicallyjustified. A full discussion ofthe alternatives considered byDOE ispresented in the "Regulatory Impact Analysis" section ofthe 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-98-440-3D7-

# 08 the possible exception ofone year in which industry expenditures could total approximately $110 million.
Section 202 ofUMRA authorizes an agency to respond to the contentrequirements of UMRA in any other statement or analysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The contentrequirements ofSection 202(b) ofUMRA relevant to a private sectormandate substantially overlap the economic analysis requirements that apply under Section 325(0) of EPCA and Executive Order 12866. The Supplementary Information section oftheNotice of Proposed Rulemaking and "Regulatory Impact Analysis" section ofthe 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 ofregulatory alternatives before promulgating a rule for which a written statementunder Section 202 is required. Fromthose alternatives, DOE must select the least costly, more cost-effective or least burdensome alternative that achieves the objectives ofthe rule, unless DOE publishes an explanation ofwhy a different alternative is selected. As required by Section 325(0) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(0)), this proposedrule would establishenergy 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 bebothtechnologically feasible and economicallyjustified. A full discussion ofthe alternatives considered by DOE is presented inthe "RegulatoryImpact Analysis" section ofthe TSD for this notice. 158 Q:\EE-41\EE·431\CAC\StandRulINOPRlDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 

## 30 0C I. Review Underthe TreasuryandGeneralGovernmentAppropriations Act of1999 Section 654 ofthe 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 ofthe family as an institution. Accordingly, DOE has concluded thatit is not necessary to prepare aFamily Policymaking Assessment.
J Review UnderthePlainLanguageDirectives Section 1 (b)(12) ofExecutive Order 12866 requires that each agency draft its regulations to be simple and easy to understand, withthe goal ofminimizing the potential for uncertainty and litigation arising from such uncertainty. Similarly, the Presidential memorandum ofJune 1, 1998 (63 FR 31883) directs the heads ofexecutive departments and agencies touse, 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 ofJune 1, 1998 (63 FR 31883): * Organization ofthe material to serve the needs ofthe readers (stakeholders).

· Use ofcommon, everyday words in short sentences.

· Shorter sentences and sections. We invite your comments on howto make thisproposed rule easier tounderstand.

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# 301

# 08
1 Review Under the Treasury andGeneral GovernmentAppropriationsActof 1999 Section 654 ofthe 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 orpolicythatmay affect family well-being. Today's proposal would nothave any impact onthe autonomy orintegrity ofthe family as an institution. Accordingly, DOEhas concludedthatit is not necessary to prepare a Family Policymaking Assessment.
J. Review Under the Plain LanguageDirectives Section I(b)(I2) ofExecutive Order 12866 requires that each agency draft its regulations to be simple and easy to understand, withthe goal ofminimizing the potential for uncertainty and litigation arising from suchuncertainty. Similarly, the Presidential memorandum ofJune 1, 1998 (63 FR 31883) directs the heads ofexecutive 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 wasproposed before that date. Today'sproposedrule uses the following general techniques to abide by Section I(b)(l2) of Executive Order 12866 and the Presidential memorandum ofJune 1, 1998 (63 FR 31883): • Organizationofthe material to serve the needs ofthe readers (stakeholders).
• Use ofcommon, everyday words in short sentences. • Shorter sentences and sections. We invite your comments onhowto make this proposedrule easierto understand.

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### EE-RM/STD-98-440-J3'7- 

## 0 VIII. Public Comment A. Written CommentProcedures 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 ofthis notice. We will consider all submittals received by the date specified at the beginning ofthis 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, ifpossible, from which the information believed to be confidential has been deleted. The Department ofEnergy will make its own determination with regard to the confidential status ofthe information and treat it according to its determination.
Factors ofinterest to the Department when evaluating requests to treat as confidential information that has been submitted include: (1) a description ofthe 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 ofthe competitive injury to the submitting person which would result from public disclosure; (6) an indication as to when such information might lose its

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# 08 VIII. Public Comment 

### A. Written CommentProcedures The Department invites interested persons to participate in the proposed rulemaking by submitting data, comments, orinformation with respectto the proposed issues set forth intoday's proposedrule to Ms. Brenda Edwards-Jones, at the address indicated at the beginning ofthis notice. We will consider all submittals received by the date specified at the beginning ofthis notice in developing the final rule. According to 10 CFR 1004.11, anyperson submitting information that he or she believes to be confidential and exemptby law from public disclosure should submit one complete copy of the document and ten (10) copies, ifpossible, from whichthe informationbelieved to be confidential has been deleted. The Department ofEnergy will make its own determination with regardto the confidential status ofthe information andtreat it according to its determination.
Factors ofinterestto the Department when evaluating requests to treat as confidential informationthathas been submitted include: (1) a description ofthe items; (2) an indication as to whether and why such items are customarily treated as confidential within the industry; (3) whetherthe information is generally knownby or available from other sources; (4) whetherthe informationhas previouslybeen made available to others without obligation concerning its confidentiality; (5) an explanation ofthe competitive injury to the submittingperson which would result from public disclosure; (6) an indication as to when such information might lose its

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### EE-RM/STD-98-440- 

# 30"7-06 confidential character due to the passage oftime; and (7) whether disclosure ofthe information would be contrary to the public interest.
B. PublicWorkshop/Hearing 1. Procedure for Submitting Requests to Speak You will find the time and place ofthe public hearing listed at the beginning ofthis notice. We invite any person who has an interest in today's notice, or who is a representative ofa group or class ofpersons that has an interest in these issues, to request an opportunity to make an oral presentation. Ifyou 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 ofthis notice between the hours of8:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may also send them by mail orE-mail to brenda.edwardsjones@ee.doe.gov.
The person making the request should state why he or she, either individually or as a representative ofa group or class ofpersons, is an appropriate spokesperson, briefly describe the nature ofthe interest in the rulemaking, and provide a telephone number for contact. We request each person selected to be heard to submit an advance copy ofhis or her statement at least two weeks prior to the date ofthis hearing as indicated atthe beginning ofthis notice. At our discretion, we may permit any person who cannot do this to participate ifthat person has made alternative arrangements with the Office ofBuilding 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,..

# 307-08 confidential character due to the passage oftime; and (7) whether disclosure ofthe information wouldbe contraryto the public interest.


### B. Public Workshop/Hearing 1. Procedure for Submitting Requests to Speak You will find the time and place ofthe public hearing listed at the beginning ofthis notice. We invite anyperson who has an interest in today's notice, or who is a representative ofa group orclass ofpersons that has an interest in these issues, to request an opportunity to make an oral presentation. Ifyou would like to attend the public hearing, please notify Ms. BrendaEdwardsJones at (202) 586-2945. You may hand deliverrequests to speak to the address indicated atthe beginning ofthis notice betweenthe hours of8:00 a.m. and 4:00 p.m., Mondaythrough Friday, except Federal holidays. You may also send them by mail or E-mail to brenda.edwardsjones@ee.doe.gov.
Thepersonmaking the request should state why he or she, either individually or as a representative ofa group or class ofpersons, is an appropriate spokesperson, briefly describe the nature ofthe interest inthe rulemaking, and provide a telephone number for contact. We request eachperson selected to be heard to submit an advance copy ofhis orher statement at least two weeks prior to the date ofthis hearing as indicated at the beginning ofthis notice. At our discretion, we may permit any personwho cannot do this to participate ifthat person has made alternative arrangements with the Office ofBuilding Research and Standards in advance. The requestto give an oral presentation should ask for such alternative arrangements. 161 Q:\EE-41\EE-431\CAC\StandRu)\NOPRlDraftNOPR\CACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440-30' -

# 0 2. Conduct ofHearing 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 ajudicial or evidentiary-type hearing, but the Department will conduct it in accordance with 5 U.S.C. 553 and Section 336 ofthe Act and a court reporter will be present to record the transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establish theprocedures governing the conduct ofthe workshop.
The Department will permit each participant to make a prepared general statement, limited to five (5) minutes, prior to the discussion ofspecific 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 ofthe hearing into segments, with each segment consisting ofone 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 andNet Present Value; * Manufacturer impacts; * Utility impacts; * Proposed standards, including an EER-based standard and TXV considerations; and
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## EE.RM/STD-98.440~301- 

# 08 2. Conduct ofHearing The Departmentwill 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 ajudicial orevidentiary-type hearing, but the Department will conduct it in accordance with 5 U.S.C. 553 and Section 336 ofthe Act and a courtreporter will be presentto recordthe transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establishthe procedures governing the conduct ofthe workshop.
The Departmentwill permit eachparticipant to make a prepared general statement, limited to five (5) minutes, priorto the discussion ofspecific topics. The general statement should not address these specific topics, butmay cover any otherissues pertinent to this rulemaking. The DepartmentWill permit otherparticipants to briefly comment on any general statements. We will divide the remainder ofthe hearing into segments, with each segment consisting ofone ormore of the following specific topics covered by this notice:

• Engineering analysis, including mark-up; • Life-Cycle-Cost andpayback analysis; • National Energy Savings and Net Present Value; • Manufacturerimpacts; • Utility impacts; • Proposed standards, including an EER-based standard and TXV considerations; and 162 Q:IEE-41IEE-431ICACIStandRulINOPR\DraftNOPRICACNOPR24.wpd October4, 2000 (6:35PM)

### EE-RM/STD-98-440- 30
-

### 0 

## 8 Other issues.
The Department will introduce each topic with abriefsummary ofthe relevant parts ofour analysis and ofthe 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 ofall 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 ofparticipants concerning other matters relevant to the hearing. The total cumulative amount oftime 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 ofthe above procedures, needed for the proper conduct ofthe hearing.
We will make the entire record ofthis rulemaking, including the transcript, available for inspection in the Department's Freedom ofInformation Reading Room. Any person may purchase a copy ofthetranscript from the transcribing reporter.

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# 3D7- 0 

# 8
• Otherissues.
The Department will introduce each topic with a briefsummary ofthe relevant parts ofour analysis and ofthe proposedrule, and the significant issues involved. We will then permit participants inthe hearing to make a prepared statement limited to five (5) minutes on that topic. Atthe end ofall prepared statements on a topic, the Department will permit each participantto briefly clarifyhis orher statement and comment on statements made by others. Participants shouldbepreparedto answer questions by us and by other participants concerning these issues. Ourrepresentatives may also ask questions ofparticipants concerning othermatters relevantto the hearing. Thetotal cumulative amount oftime allowed for each participantto 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, ormodification ofthe above procedures, needed for the proper conduct ofthe hearing.
We will make the entire record ofthis rulemaking, including the transcript, available for inspection inthe Department'sFreedom ofInformation Reading Room. Any person may purchase a copy ofthe transcript from the transcribing reporter.

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### 30 

### 7.. 0 C. Issuesfor WhichDOESeeks Comment. The Department is particularly interested in receiving comments and views ofinterested parties concerning: (1) whether explicit consideration ofextended 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. Ofparticular interest are comments regarding burdens on manufacturers, benefits regarding reduction in peak electricity demand, the effect ofmore stringent standards on the cost and availability ofmodulating 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 ofany ofthe 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 ofthose 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 ofthose products; (5) the issue ofthermal expansion valves (TXV), particularly whether our concerns regarding the perceived reliability problems and potential misuses associated with widespread use ofTXVs are valid; Q:\EE-41\EE-43 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 164 October 4,2000 (6:35PM) EE-RM/STD-9S-440- 

## 30'7-0 

# 8 C. Issuesfor Which DOESeeks Comment. The Department is particularly interested in receiving comments and views ofinterested parties concerning: (1) whether explicit consideration ofextended 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 EERrequirement in the final rule. Ofparticular interest are comments regarding burdens on manufacturers, benefits regarding reduction inpeakelectricity demand, the effect ofmore stringent standards on the cost and availability ofmodulating equipment, andthe effectthat an EER floor would have on electrical systemreliability. Inaddition, comments are welcome to discuss the pros and cons ofany ofthe options described in SectionV.I.2 above, as well as other approaches; (4) whetherthe proposed standards concerning high-velocity, vertically-packaged wall-mounted equipment, and through-the-wall equipmentprovide a significant advantage to those products versus competingproducts and are sufficient to preserve the unique features ofthose 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 onthe availability ofthose products; (5) the issue ofthermal expansion valves (TXV), particularly whether ourconcerns regarding the perceivedreliability problems and potential misuses associated with widespread use ofTXVs are valid; 164 Q:\EE-41\EE-43 1 \CAC\StandRul\NOPRlDraftNOPR\CACNOPR24.wpd October4,2000 (6:35PM)

### EE-RM/STD-98-440 -O307- 

# 8 (6) the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis; (7) the Draft Environmental Assessment, which isprinted within the TSD prepared for today's proposed rule; and (8) the impacts on manufacturers and consumers ifthe 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

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# 08 (6) the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis 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 ifthe levels in today's proposed rule were applied to commercial three-phase unitary air conditioners less than 65K Btulhr as well.
List ofSubjects in 10 CFRPart 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

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### EE-RM/STD-98-440- 0W , For the reasons set forth in the preamble Part 430 ofChapter II ofTitle 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 istaken in and discharged atthe same surface.

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# 301-

# 08 Forthe reasons set forth in the preamble Part 430 ofChapter II ofTitle 10, Code of Federal Regulations, is proposed to be amended as set forth below.
Part430
-- ENERGY CONSERVAnON 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 orderto read as follows:
§ 430.2 Definitions. 

### • 

## * 

## * * * Through-the-wall air conditioner and heat pump means a central air conditioner orheat pump, having a rated capacitybetween 18,000 BtuIhr and 30,000 Btulhrthat is: (l) designed to be installed partially within, ormounted 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 

## *
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## 30

# '087 3. Section 430.32 ofSubpart C is amended byrevising 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:

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## EE.RM/STD·98·440~ 

# 3D108 3. Section 430.32 ofSubpart 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:

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Seasonal Energy Heating Seasonal Product class Efficiency Ratio Performance Factor (SEER) (HSPF) 1. Split system air conditioners................................................. 12 2. Split system heat pumps........................................................ 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-43I\CAC\StandRul\NOPR\DraftNOPR\CACNOPR24.wpd 168 October 4, 2000 (6:35PM) Product class 1. Split system air conditioners................................................. 2. Split system heat pumps........................................................ 3. Singlepackage air conditioners............................................. 4. Single package heat pumps................................................... 5. Through the wall air conditioners and heat pumps......... 

## * * * *

168 EE-RM/STD-98-440 -

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# 7- 08

Seasonal Energy Heating Seasonal Efficiency Ratio Performance Factor (SEER) (HSPF) 12 

## - 13 7.7 12 

### - 13 7.7 II 7.1 

## *

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