CHAPTER 1

. INTRODUCTION

TABLE OF CONTENTS

1.1 PURPOSE OF THE DOCUM ENT

................................ ......................................................... 1

1.2 SUMMARY OF THE NATIO NAL BENEFITS

................................ ................................... 1

1.3 OVERVIEW OF STANDARD S FOR PTACS AND PTHP S

.............................................. 5

1.4 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

........................ 6

1.5 STRUCTURE OF THE DOC UMENT

................................ ................................................... 8

LIST OF TABLES

Table 1.2.1 Summary of National Economic Benefits and Costs of Proposed Energy

Conservation Standards for PTACs and PTHPs*

................................ ............................................... 2 Table 1.2.2. Annualized Benefits and Costs of Proposed Energy Conservation Standards for

PTACs and PTHPs

................................ ................................ ............................................................... 4 Table 1.4.1. Analyses Under the Process Rule*

................................ ................................................. 8

1-iCHAPTER 1. INTRODUCTION

1.1 PURPOSE OF THE DOCUM ENT

This technical support document (TSD) is a stand

- alone report that provides the technical analyses and results supporting the information presented in the notice of proposed rulem aking (NOPR) for packaged terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs). This TSD reports on the activities and analyses conducted in support of the NOPR.

1.2 SUMMARY OF THE NATIO NAL BENEFITS

DOE’s analyses indicate that the propos ed standards would save a significant amount of

energy. The lifetime savings for PTACs and PTHPs purchased in the 30

- year period that begins in the year of compliance w ith amended standards (2019

– 2048 ) amount to 0.06 quadrillion British thermal units (quad s). The annual energy savings in 2030 (1.49 thousandths of a quad) are equivalent to 0.08 thousandths of a percent of total U.S. commercial primary energy consumption in 2013. a

The cumulative net present value (NPV) of total customer costs and savings of the proposed standards for PTACs and PTHPs ranges from $ 10.7 million (at a 7

- percent discount rate) to $ 69.0 million (at a 3

- percent discount rate). This NPV expresses the estimated total value

of future operating

- cost savings minus the estimated increase in equipment costs for equipment purchased in 201 9– 204 8.

In addition, the proposed standards would have significant environmental benefits. The energy savings would result in cumulative emission reductions of 4.3 million metric tons (Mt) b

of carbon di oxide (CO 2 ), 16 thousand tons of methane, 9.7 thousand tons of sulfur dioxide (SO 2 ),

and 4.4 thousand tons of nitrogen oxides (NO x). c The cumulative reduction in CO 2 emissions through 2030 amounts to 0.73 Mt.

The value of the CO 2 reductions is calculated using a range of values per metric ton of

CO 2 (otherwise known as the Social Cost of Carbon, or SCC) developed by a recent Federal interagency process. d The derivation of the SCC values is discussed in Chapter 14. Using

discount r ates appropriate for each set of SCC values, DOE estimates the present monetary value

of the CO 2 emissions reduction is between $28.1 million and $412.1 million. DOE also estimates

a Based on U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2013.

b A metric ton is equivalent to 1.1 short tons. Results fo r NO X and Hg are presented in short tons.

c DOE calculated emissions reductions relative to the Annual Energy Outlook 2013 (AEO 2013 ) Reference case, which generally represents current legislation and environmental regulations for which implementing regulations were available as of December 31, 2012. The reduction in mercury (Hg) emissions is very small.

d Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866

. Interagency Working Group on Social Cost of Carbon, United States Government. May 2013; revised November

2013. http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical -update- social

- cost -of-carbon- for

regulator

- impact -analysis.pdf

.

1-1the p resent monetary value of the NOx emissions reduction is $2.20 million at a 7

- percent discount rate and $5.43 million at a 3

- percent discount rate.

Table 1.2 .1 summarizes the national economic costs and benefits expected to result from the proposed standards for PTACs and PTHPs.

Table 1.2 .1 Summary of National Economic Benefits and Costs of Proposed Energy

Conservation Standards for PTACs and PTHPs*

Category Present Value million 2013$ Discount Rate

Benefits

Operating Cost Savings 101.5 7%

241.9 3%

CO 2 Reduction Monetized Value ($12.0/t case)** 28.1 5%

CO 2 Reduction Monetized Value ($40.5/t case)** 133.0 3%

CO 2 Reduction Monetized Value ($62.4/t case)** 212.3 2.5%

CO 2 Reduction Monetized Value ($119/t case)** 412.1 3%

NO X Reduction Monetized Value (at $2,684/ton)** 2.20 7%

5.43 3%

Total Benefits† 236.6 7%

380.2 3%

Costs

Incremental Installed Costs 90.8 7%

172.9 3%

Total Net Benefits

Including Emissions Reduction Monetized Value† 145.9 7%

207.3 3%

* This table presents the costs and benefits associated with PTACs and PTHPs shipped in 2019−2048 . These results

include benefits to customers which accrue after 2048 from the equipment purchased in 2019−2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule.

** The CO 2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95 th percentile of the SCC distribution calc ulated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor † Total Benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC with 3- percent discount rate ($40.5/t case).

The bene fits and costs of today’s proposed standards, for equipment sold in 201 9- 204 8

, can also be expressed in terms of annualized values. The annualized monetary values are the sum of (1) the annualized national economic value of the benefits from customer opera tion of equipment that meet s the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase and installation costs, which is another

1-2way of representing customer NPV), and (2) the annual ized monetary value of the benefits of emission reductions, including CO 2 emission reductions. e

Although combining the values of operating savings and CO 2 emission reductions provides a useful perspective, two issues should be considered. First, the national operating savings are domestic U.S. customer monetary savings that occur as a result of market

transactions while the value of CO 2 reductions is based on a global value. Second, the assessments of operating cost savings and CO 2 savings are performed with different methods that use different time frames for analysis. The national operating cost savings is measured for the lifetime of PTACs and PTHPs shipp ed in 2019

– 2048. The SCC values, on the other hand, reflect the present value of some future climate

- related impacts resulting from the emission of one ton of carbon dioxide in each year. These impacts continue well beyond 2100.

Estimates of annualized be nefits and costs of the proposed standards are shown in Table

1.2 .2 . The results under the primary estimate are as follows. Using a 7

- percent discount rate for

benefit s and costs other than CO 2 reduction, for which DOE used a 3

- percent discount rate along with the average SCC series that uses a 3

- percent discount rate, the cost of the standards proposed in today’s rule is $8.38 million per year in increased equipment co sts, while the benefits are $9.4 million per year in reduced equipment operating costs, $7.2 million in CO 2 reductions, and $0.20 million in reduced NO x emissions. In this case, the net benefit amounts to $8.4 million per year. Using a 3

- percent discount r ate for all benefits and costs and the average SCC series, the estimated cost of the standards proposed in today’s rule is $9.36 million per year in increased equipment costs, while the benefits are $13.1 million per year in reduced operating costs, $7.2 m illion in CO 2 reductions, and $0.29 million in reduced NO x emissions. In this case, the net benefit amounts to $11.2 million per year.

e DOE used a two

- step calculation process to convert the time -series of costs and benefits into annualized values. First, DOE calculated a present value in 2013, the year used for discounting the NPV of total customer costs and savings, for the time

- series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO 2 reductions. For the latter, DOE used a range of discount rates, as shown in

Table 1.2.1 . From the present value, DOE then calculated the fixed annual payment over a 30- year period (2019 through 2048) that yields the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time-series of cost and benefits from which the annualized

values were determined is a stea dy stream of payments.

1-3Table 1.2 .2

. Annualized Benefits and Costs of Proposed Energy Conservation Standards

for PTACs and PTHPs

TSL 3 Discount Rate Primary

Estimate* Low Net

Benefits

Estimate* High Net

Benefits

Estimate*

million 2013$/year

Benefits

Operating Cost Savings 7% 9.4 9.0 9.9

3% 13.1 12.5 13.9

CO 2 Reduction Monetized Value ($12.0/t case)** 5% 2.0 2.0 2.0

CO 2 Reduction Monetized Value ($40.5/t case)** 3% 7.2 7.2 7.2

CO 2 Reduction Monetized Value ($62.4/t case)** 2.5% 10.7 10.7 10.7

CO 2 Reduction Monetized Value ($119/t case)** 3% 22.3 22.3 22.3

NO X Reduction Monetized Value (at $2,684/ton)** 7% 0.20 0.20 0.20

3% 0.29 0.29 0.29

Total Benefits† 7% plus CO 2 range 11.6 to 31.9 11.2 to 31.5 12.1 to 32.4

7% 16.8 16.4 17.3

3% plus CO 2 range 15.4 to 35.7 14.8 to 35.0 16.2 to 36.5

3% 20.6 19.9 21.4

Costs

Incremental Equipment Costs 7% 8.38 8.18 10.61

3% 9.36 9.06 12.29

Net Benefits

Total† 7% plus CO 2 range 3.2 to 23.5 3.0 to 23.3 1.5 to 21.8

7% 8.4 8.2 6.7

3% plus CO 2 range 6.0 to 26.3 5.7 to 26.0 3.9 to 24.2

3% 11.2 10.9 9.1

* This table presents the annualized costs and benefits associated with PTACs and PTHPs shipped in 2019−2048.
These results include benefits to customers which accrue after 2048 from the equipment purchased in 2019−2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energ y prices from the AEO2013 Reference case, Low Estimate, and High Estimate, respectively. All three estimates use a constant rate for projected equipment price trends

.

** The CO 2 values represent global monetized values of the SCC, in 2013$, in 2015 under s everal scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95 th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor.

1-4† Total Benefits for both the 3- percent and 7

- percent cases are derived using the series corresponding to average

SCC with 3 -percent discount rate ($40.5/t case). In the rows labeled “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

1.3 OVERVIEW OF STANDARDS FOR PTACS AND PTHPS

Title III, Part C f of the Energy Policy and Conservation Act of 1975 (“EPCA” or “the Act”), Pub. L. 94

- 163 (42 U.S.C. 6311

- 6317, as codified), added by Pub. L. 95

- 619, Title IV, §441(a), established the Energy Conservation Program for Certain Industrial Equipment, wh ich includes the PTAC and PTHP equipment that are the subject of this notice. g In general, this program addresses the energy efficiency of certain types of commercial and industrial equipment. Relevant provisions of the Act include definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 6313), test procedures (42 U.S.C. 6314), labelling provisions (42 U.S.C. 6315), and the authority to require information and reports from manufacturers (42 U.S.C. 6316).

EPCA contains mandatory energy conservation standards for commercial heating, air

conditioning, and water

- heating equipment. (42 U.S.C. 6313(a)) Specifically, the statute sets standards for small, large, and very large commercial package air

- conditioning and heating equipment, package d terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs), warm

- air furnaces, packaged boilers, storage water heaters, instantaneous water heaters, and unfired hot water storage tanks. Id. Section 340 of EPCA defines a “packaged

termina l air conditioner” as “a wall sleeve and a separate unencased combination of heating and cooling assemblies specified by the builder and intended for mounting through the wall. It includes a prime source of refrigeration, separable outdoor louvers, forced ventilation, and heating availability by builder's choice of hot water, steam, or electricity.” (42 U.S.C. 6311(10)(A)) EPCA defines a “packaged terminal heat pump” as “a packaged terminal air conditioner that utilizes reverse cycle refrigeration as its prime heat source and should have supplementary heat source available to builders with the choice of hot water, steam, or electric resistant heat.” (42 U.S.C. 6311(10)(B))

Section 5(b) of the American Energy Manufacturing Technical Corrections Act of 2012 (Pub. L. No. 112

- 210 (Dec. 18, 2012) (AEMTCA) amended Section 342(a)(6) of EPCA. Among other things, AEMTCA modified the manner in which DOE must amend the energy efficiency standards for certain types of commercial and industrial equipment. DOE is t ypically obligated either to adopt those standards developed by the American Society of Heating, Refrigerating, and

Air

- Conditioning Engineers (ASHRAE)

– or to adopt levels more stringent than the ASHRAE levels if there is clear and convincing evidence in support of doing so (42 U.S.C. 6313(a)(6)(A)). AEMTCA added to this process a requirement that DOE initiate a rulemaking to consider amending the standards for any covered equipment as to which more than 6 years has elapsed

since the issuance of the most recent final rule establishing or amending a standard for the

f For editorial reasons, upon codification in the U.S. Code, Part C was re- designated Part A -1.

g All references to EPCA in this document refer to the statute as amended through the American Energy Manufacturing Technical Correction s Act of 2012, Pub. L. 112-210 (Dec. 18, 2012).

1-5equipment as of the date of AEMTCA’s enactment, December 18, 2012. (42 U.S.C. 6313(a)(6)(C)(vi))

DOE most recently issued amended standards for PTACs and PTHPs on October 7, 2008,

which codifi ed amended standards for PTACs and PTHPs and divided PTACs and PTHPs into two equipment classes

– standard size and non

- standard size. 73 FR 58772 (Oct. 7, 2008) On October 29, 2010, ASHRAE released ASHRAE Standard 90.1

- 2010 (formally the American

Nationa l Standards Institute (ANSI)/ASHRAE/Illuminating Engineering Society of North America (IES) Standard 90.1

- 2010), which increased the efficiency levels for standard size PTACs and PTHPs to be equal to DOE standards, effective as of October 8, 2012. Hence, D OE

did not consider revision of PTAC and PTHP standards at that time.

Because ASHRAE did not update its efficiency levels for PTACs and PTHPs in

ANSI/ASHRAE/IES Standard 90.1

- 2010, DOE began this rulemaking by analyzing amended

standards consistent with th e procedures defined under 42 U.S.C. 6313(a)(6)(C). However, before DOE could finalize this NOPR, ASHRAE acted on October 9, 2013 to adopt

ANSI/ASHRAE/IES Standard 90.1

- 2013, and this revision did contain amended standard levels for PTACs, thereby triggeri ng DOE’s statutory obligation under 42 U.S.C. 6313(a)(6)(A) to promulgate an amended uniform national standard at those levels unless DOE determines that there is clear and convincing evidence supporting the adoption of energy conservation standards

more s tringent than the ASHRAE levels. Consequently, DOE prepared an analysis of the energy savings potential of amended standards at the ANSI/ASHRAE/IES Standard 90.1

- 2013 levels (as required by 42 U.S.C. 6313(a)(6)(A)(i)) and updated this NOPR and accompanyin g analyses to reflect appropriate statutory provision, timelines, and compliance dates. Because PTHPs are defined as a subset of PTACs, the publication of ANSI/ASHRAE/IES Standard 90.1

- 2013 also triggered DOE to consider whether clear and convincing eviden ce supports a more

- stringent standard than the ASHRAE levels for PTHPs, though the ASHRAE levels for PTHPs were not explicitly revised.

Under this new framework, DOE must now either adopt the amended ASHRAE levels within 18 months after publication of the ASHRAE amendments ( by April 9, 2015, with a compliance date of two years after the effective date of the applicable efficiency requirements in amended Standard 90.1) or promulgate more

- stringent standards not later than 30 months after publication of the ASHRAE amendments ( by April 9, 2016, with a compliance date four years after publication of a final rule). 42 U.S.C. 6313(a)(6)(A)(ii)

1.4 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

Under EPCA, when DOE is studying new or amended standards, it must co nsider, to the greatest extent practicable, the following seven factors:

1) the economic impact of the standard on the manufacturers and consumers of the equipment subject to the standard ;

2) the savings in operating costs throughout the estimated average life of the equipment compared to any increases in the initial cost or maintenance expense;

1-63) the total projected amount of energy savings likely to result directly from the imposition

of the standard;

4) any lessening of the utility or the performance of the covered equipment likely to result from the imposition of the standard;

5) the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to res ult from the imposition of the standard;

6) the need for national energy conservation; and

7) other factors the Secretary considers relevant. (42 U.S.C. 6313(a)(6)(B))

Other statutory requirements are set forth in 42 U.S.C. 6313(a)(6)(A) –(C).

DOE considers interested party participation to be a very important part of the process for setting energy conservation standards. Through formal public notifications ( i.e.

, Federal Register notices) , DOE actively encourages the participation and interacti on of all interested partie s during the comment period in each stage of the rulemaking. Beginning with the framework

d ocument and during subsequent comment periods, interactions among interested partie s provide

a balanced discussion of the information that is required for the standards rulemaking.

B efore DOE determines whether or not to adopt a proposed energy conservation standard, it must first solicit comments on the proposed standard. Any new or amended standard must be designed to achieve significant additional conservation of energy and be technologically feasible and economically justified. To determine whether economic justification exists, DOE must review comments on the proposal and determine that the benefits of the proposed standard

exceed its burdens to the greatest extent practicable, weighing the seven factors listed above.

T he energy conservation standards rulemaking process involves two formal public notices, which DOE publishes in the Federal Register . The first notice is the NOPR, whic h
presents the analyses of the impacts of potential amended energy conservation standards on

customers , manufacturers, and the Nation; DOE’s weighting of these impacts of amended energy conservation standards; and the proposed energy conservation standards for the equipment . The

second notice is the final rule, which presents a discussion of the comments received in response to the NOPR; the revised analyses; DOE’s weighting of these impacts; the amended energy conservation standards DOE is adopting for each equipment class ; and the eff ective dates of the amended energy conservation standards.

Table 1.4 .1 lists the analyses conducted throughout the rulemaking process.

1-7Table 1.4 .1

. Analyses Under the Process Rule *

Preliminary Analyses NOPR Final Rule

Market and technology

assessment Life

- cycle cost sub

- group analysis Revised NOPR analyses

Screening analysis Manufacturer impact analysis

Engineering analysis Utility impact analysis
Energy use determination Emissions analysis

Markups for equipment price

determination Employment impact analysis

Life

- cycle cost and payback period analysis Regulatory impact analysis

Shipments analysis

National impact analysis

* In the current rulemaking, DOE conducted the analyses listed under Preliminary Analyses as part of the NOPR analysis.

On February 22, 2013, DOE published a notice of public meeting and availability of the framework document regarding energy conservation standards for packaged terminal air conditioners and heat pumps standards. 78 FR 12252. This notice is available at: http://www.regulations.gov/#!documentDetail;D=EERE

- 2012 -BT- STD

- 0029

- 0001

. The public meeting sought input on DOE’s planned analytical approach and identified severa l issues of particular interest to DOE for this rulemaking proceeding.

As part of the information gathering and sharing process, DOE organized and held interviews with manufacturers of the equipment considered in this rulemaking as part of the engineerin g analysis. DOE had four objectives for these interviews: (1) solicit manufacturer feedback on the draft inputs to the engineering analysis; (2) solicit feedback on topics related to the manufacturer impact analysis; (3) provide an opportunity to express m anufacturers’ concerns to DOE; and (4) foster cooperation between manufacturers and DOE. DOE incorporated the information gathered during the engineering interviews with manufacturers into its engineering analysis ( Chapter 5 of the NOPR TSD) and the manufa cturer impact analysis ( Chapter 12 of the NOPR TSD).

1.5 STRUCTURE OF THE DOC UMENT

This NOPR TSD outlines the analytical approaches used in this rulemaking. The TSD

consists of seventeen chapters and appendices.

Chapter 1 Introduction: provides an overview of the appliance standards program and how it applies to the PTAC and PTHP rulemaking, and outlines the

structure of the document.

Chapter 2 Analytical Framework : describes the rulemaking process.

1-8Chapter 3 Market and Technology Assessment: characterizes the PTAC and PTHP
market and the technologies available for increasing equipment efficiency.

Chapter 4 Screening Analysis: identifies design options that improve efficiency of

the covered equipment and determines which technology options are viable for consideration in the engineering analysis.

Chapter 5 Engineering Analysis: discusses the methods used for developing the relationship between increased manufacturer price and increased efficiency.

C hapter 6 Markups Analysis: discusses the methods used for establishing markups for converting manufacturer prices to customer equipment costs.

Chapter 7 Energy Use Analysis : discusses the process used for generating energy

use estimates for the covered equipment as a function of standard levels.

Chapter 8 Life

- Cycle Cost and Payback Period Analysi s: discusses the methods used to analyze effects of standards on individual customers and users of

the equipment and compares the LCC and PBP of equipment wit h and without higher efficiency standards.

Chapter 9 Shipments Analysis: estimates shipments of the equipment over the 30

- year analysis period that is used in performing the national impact analysis (NIA), including how shipments may vary under alternativ e standard

levels.

Chapter 1 0 National Impact Analysis: assesses the national energy savings, and the national net present value of total customer costs and savings, expected to result from specific, potential energy conservation standards.

Chapter 1 1 Li fe- Cycle Cost Subgroup Analysis: discusses the effects of potential standards on different subgroups of customers

.

Chapter 1 2 Manufacturer Impact Analysis: discusses the effects of amended energy conservation standards on the finances and profitability of equipment

manufacturers.

Chapter 1 3 Emissions Impact Analysis: discusses the effects of standards on three pollutants

— sulfur dioxide (SO 2 ), nitrogen oxides (NOx ), and mercury

— as well as CO 2 emissions.

Chapter 1 4 Monetization of Emissions Reductions Be nefits : discusses the basis for estimated monetary values used for the reduced emissions of CO 2 and NOx that are expected to result from each of the TSLs considered.

Chapter 15 Utility Impact Analysis: discusses selected effects of potential standards

on electric utilities.

1-9Chapter 1 6 Employment Impact Analysis: discusses the effects of amended energy

conservation standards on n ational employment.

Chapter 1 7 Regulatory Impact Analysis: discusses the impact of non

- regulatory alternatives to efficiency standards.

Appendix 6 A Detailed Data f or Equipment Price Markups

Appendix 7A Detailed Unit Energy Consumption Data

Appendix 10A Full

- Fuel

- Cycle Multipliers

Appendix 10B NIA Sensitivity Analysis for Alternative Product Price Trend

Scenarios

Appendix 1 2A Government Regulatory Impact Model (GRIM) Overview

Appendix 14A Social Cost of Carbon f or Regulatory Impact Analysis Under

Executive Order 12866

Appendix 14B Technical Update of Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866

Appendix 17A Regulatory Impact Analysis: Supporting Materials

1-10