CHAPTER 13. MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

**13.1 INTRODUCTION** 

**......................................................................................................... 13­1** 

**13.2 METHODOLOGY** 

**........................................................................................................ 13­1** 

**13.2.1 Phase**  **I: Industry**  **Profile.................................................................................... 13­2** 

**13.2.2 Phase**  **II: Industry**  **Cash­Flow Analysis**  **and Interview**  **Guide........................... 13­2** 

**13.2.2.1 Industry**  **Cash­Flow Analysis...............................................................**  **13­2**

**13.2.2.2 Interview**  **Guide**

**................................................................................... 13­3** 

**13.2.3 Phase**  **III: Sub­Group**  **Analysis**

**......................................................................... 13­3** 

**13.2.3.1 Manufacturer**  **Interviews...................................................................... 13­3**

**13.2.3.2 Revised**  **Industry Cash­Flow**  **Analysis................................................. 13­4** 

**13.2.3.3 Manufacturer**  **Sub­Group Analysis...................................................... 13­4** 

**13.2.3.4 Small­Business**  **Manufacturer Subgroup** 

**............................................. 13­4** 

**13.2.3.5 Competitive**  **Impact Assessment..........................................................**  **13­5**

**13.2.3.6 Manufacturing**  **Capacity Impact** 

**.......................................................... 13­5** 

**13.2.3.7 Employment**  **Impact............................................................................. 13­5** 

**13.2.3.8 Cumulative**  **Regulatory Burden** 

**........................................................... 13­6** 

**13.3 MANUFACTURER**  **IMPACT ANALYSIS**  **KEY ISSUES.......................................... 13­6** 

**13.3.1 R­410A...............................................................................................................**  **13­6**

**13.3.2 Equipment**  **Classes Definitions.......................................................................... 13­7** 

**13.3.3 ENERGY**  **STAR Program** 

**................................................................................. 13­8** 

**13.3.4 Timing................................................................................................................**  **13­9**

**13.4 GRIM**  **INPUTS AND**  **ASSUMPTIONS...................................................................... 13­10** 

**13.4.1 Overview**  **of the**  **GRIM**

**.................................................................................... 13­10** 

**13.4.2 Sources**  **GRIM Inputs** 

**...................................................................................... 13­11** 

**13.4.2.1 Corporate**  **Annual Reports** 

**................................................................. 13­11** 

**13.4.2.2 Standard**  **and Poor**  **Credit Ratings......................................................**  **13­11**

**13.4.2.3 Shipment**  **Model................................................................................. 13­11** 

**13.4.2.4 Engineering Analysis......................................................................... 13­12** 

**13.4.2.5 Manufacturer**  **Interviews.................................................................... 13­12**

**13.4.3 Financial**  **Parameters........................................................................................ 13­12**

**13.4.4 Corporate**  **Discount Rate.................................................................................. 13­13** 

**13.4.5 Trial**  **Standard Levels....................................................................................... 13­15** 

**13.4.6 NES­Shipments**  **Forecast**

**................................................................................. 13­16** 

**13.4.7 R­410A­Shipments**  **Forecast............................................................................ 13­18**

**13.4.7.1 R­410A**  **Base Case** 

**............................................................................. 13­18** 

**13.4.7.2 Standards**  **Case................................................................................... 13­20**

**13.4.8 Production**  **Costs**

**.............................................................................................. 13­23** 

**13.4.9 Conversion**  **Costs**

**............................................................................................. 13­27** 

**13.4.9.1 Conversion**  **Capital Expenditures** 

**...................................................... 13­28** 

**13.4.9.2 R­410A**  **Conversion**

**........................................................................... 13­28** 

**13.4.9.3 Energy Conservation**  **Standards......................................................... 13­29**

**13.4.9.4 Equipment**  **Conversion Expenses** 

**...................................................... 13­30** 

**13­i 13.4.9.5**  **R­410A Conversion** 

**........................................................................... 13­30** 

**13.4.9.6 Energy Conservation**  **Standards......................................................... 13­31**

**13.4.10 Markups** 

**................................................................................................... 13­32** 

**13.4.10.1 Full**  **Cost Recovery Markup............................................................. 13­33** 

**13.4.10.2 Partial**  **Cost Recovery**  **Markup......................................................... 13­33** 

**13.5 MANUFACTURING**  **IMPACTS TO**  **THE BASE**  **CASE AS**  **A RESULT**  **OF THE** 

**REFRIGERANT PHASEOUT** 

**................................................................................................ 13­34** 

**13.5.1 PTAC**  **and PTHP**  **Industry Financial**  **Impacts as**  **a result**  **of the**  **Refrigerant**

**Phaseout on**  **the Base**  **Case........................................................................................... 13­37** 

**13.6 ENERGY**  **CONSERVATION STANDARD**  **IMPACT SCENARIOS** 

**....................... 13­38** 

**13.6.1 Markup**  **Scenarios**

**............................................................................................ 13­38** 

**13.6.1.1 R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and Amended**  **Energy**

**Conservation Standards**  **With Full**  **Cost Recovery** 

**.......................................... 13­39** 

**13.6.1.2 R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and Amended** 

**Energy Conservation**  **Standards With**  **Full Cost**  **Recovery.............................. 13­39** 

**13.6.1.3 R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and Amended**  **Energy**

**Conservation Standards**  **With 50­Percent**  **Cost Recovery** 

**............................... 13­42** 

**13.6.1.4 R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and Amended** 

**Energy Conservation Standards**  **With 50­Percent**  **Cost Recovery................... 13­44** 

**13.7 STANDARD**  **SIZE PTAC**  **AND PTHP**  **INDUSTRY FINANCIAL**  **IMPACTS**

**........ 13­47** 

**13.7.1 Impacts**  **on Industry**  **Net Present**  **Value**

**........................................................... 13­47** 

**13.7.2 Impacts**  **on Annual**  **Cash Flow......................................................................... 13­50** 

**13.8 NON­STANDARD**  **SIZE PTAC**  **AND PTHP**  **INDUSTRY FINANCIAL**  **IMPACTS... 13­** 

**52**

**13.8.1 Impacts**  **on Industry**  **Net Present**  **Value**

**........................................................... 13­53** 

**13.8.2 Impacts**  **on Annual**  **Cash Flow......................................................................... 13­55** 

**13.9 OTHER**  **IMPACTS...................................................................................................... 13­58**

**13.9.1 Employment..................................................................................................... 13­58** 

**13.9.2 Manufacturing**  **Capacity................................................................................... 13­59** 

**13.9.3 Cumulative**  **Regulatory Burden** 

**....................................................................... 13­59** 

**13.9.3.1 Federal**  **Regulations on**  **PTACs and**  **PTHPs and**  **Other Equipment** 

**Produced by**  **the Same**  **Manufacturers**

**............................................................. 13­60** 

**13.9.3.2 Restriction**  **of Hazardous**  **Substances Directive................................. 13­60** 

**13.10 CONCLUSIONS..........................................................................................................**  **13­61**

**13.10.1.1 Standard**  **Size PTAC**  **and PTHP**  **Industry**

**........................................ 13­61** 

**13.10.1.2 Non­Standard**  **Size PTAC**  **and PTHP**  **Industry**

**................................ 13­64** 

LIST OF TABLES

**Table 13.4.1**  **GRIM Financial**  **Parameters Based**  **on 2002­2006**  **Weighted Company**  **Financial**

**Data.......................................................................................................................................... 13­13** 

**Table 13.4.2**  **Cost of**  **Equity Calculation.................................................................................**  **13­14**

**Table 13.4.3**  **Cost of**  **Debt Calculation....................................................................................**  **13­15**

**Table 13.4.4**  **Standard Size**  **and Non­Standard**  **Size PTACs**  **and PTHPs**  **Baseline Efficiency** 

**Levels and**  **TSLs**

**...................................................................................................................... 13­16** 

**13­ii Table**  **13.4.5 Total**  **NES­Shipments Forecast**  **in 2012.............................................................**  **13­16**

**Table 13.4.6**  **Base Case**  **Distribution of**  **Efficiencies for**  **Standard Size**  **PTAC Shipments**  **with a** 

**Cooling Capacity**  **of 9,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES............................................. 13­17** 

**Table 13.4.7**  **Base Case**  **Distribution of**  **Efficiencies for**  **Standard Size**  **PTHP Shipments**  **with a** 

**Cooling Capacity**  **of 9,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES............................................. 13­17** 

**Table 13.4.8**  **Base Case**  **Distribution of**  **Efficiencies for**  **Standard Size**  **PTAC Shipments**  **with a** 

**Cooling Capacity**  **of 12,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES........................................... 13­17** 

**Table 13.4.9**  **Base Case**  **Distribution of**  **Efficiencies for**  **Standard Size**  **PTHP Shipments**  **with a** 

**Cooling Capacity**  **of 12,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES........................................... 13­17** 

**Table 13.4.10**  **Base Case**  **Distribution of**  **Efficiencies for**  **Non­Standard Size**  **PTAC Shipments** 

**with a**  **Cooling Capacity**  **of 11,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES................................ 13­17** 

**Table 13.4.11**  **Base Case**  **Distribution of**  **Efficiencies for**  **Non­Standard Size**  **PTHP Shipments** 

**with a**  **Cooling Capacity**  **of 11,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES................................ 13­17** 

**Table 13.4.12**  **Estimated System**  **Performance Degradation**  **by Equipment**  **Class**

**................. 13­19** 

**Table 13.4.13**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Standard**  **Size PTAC** 

**Shipments with**  **a Cooling**  **Capacity of**  **9,000 Btu/h**  **in 2010** 

**................................................... 13­19** 

**Table 13.4.14**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Standard**  **Size PTHP** 

**Shipments with**  **a Cooling**  **Capacity of**  **9,000 Btu/h**  **in 2010** 

**................................................... 13­19** 

**Table 13.4.15**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Standard**  **Size PTAC** 

**Shipments with**  **a Cooling**  **Capacity of**  **12,000 Btu/h**  **in 2010** 

**................................................. 13­19** 

**Table 13.4.16**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Standard**  **Size PTHP** 

**Shipments with**  **a Cooling**  **Capacity of**  **12,000 Btu/h**  **in 2010** 

**................................................. 13­20** 

**Table 13.4.17**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Non­Standard**  **Size PTAC** 

**Shipments with**  **a 11,000**  **Btu/h Cooling**  **Capacity in**  **2010...................................................... 13­20** 

**Table 13.4.18**  **R­410A Base**  **Case Distribution**  **of Efficiencies**  **for Non­Standard**  **Size PTHP** 

**Shipments with**  **a 11,000**  **Btu/h Cooling**  **Capacity in**  **2010...................................................... 13­20** 

**Table 13.4.19**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Standard Size**  **PTACs with**  **a Cooling**  **Capacity of**  **9,000 Btu/h**  **in 2012** 

**– Rollup** 

**Scenario.................................................................................................................................... 13­21** 

**Table 13.4.20**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Standard Size**  **PTHPs with**  **a Cooling**  **Capacity of**  **9,000 Btu/h**  **in 2012** 

**– Rollup** 

**Scenario.................................................................................................................................... 13­21** 

**Table 13.4.21**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Standard Size**  **PTACs with**  **a Cooling**  **Capacity of**  **12,000 Btu/h**  **in 2012** 

**– Rollup** 

**Scenario.................................................................................................................................... 13­21** 

**Table 13.4.22**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Standard Size**  **PTHPs with**  **a Cooling**  **Capacity of**  **12,000 Btu/h**  **in 2012** 

**– Rollup** 

**Scenario.................................................................................................................................... 13­22** 

**Table 13.4.23**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Non­Standard Size**  **PTACs with**  **a 11,000**  **Btu/h Cooling**  **Capacity in**  **2012**

**– Rollup**  **Scenario........................................................................................................................ 13­22** 

**Table 13.4.24**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

**Distribution for**  **Non­Standard Size**  **PTHPs with**  **a 11,000**  **Btu/h Cooling**  **Capacity in**  **2012**

**– Rollup**  **Scenario........................................................................................................................ 13­23** 

**Table 13.4.25**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

**PTAC 9,000**  **Btu/h Cooling**  **Capacity**

**...................................................................................... 13­24** 

**13­iii Table**  **13.4.26 Base**  **Case Production**  **Costs (2006$)**  **used in**  **the GRIM**  **for R­22**  **Standard Size** 

**PTHP 9,000**  **Btu/h Cooling**  **Capacity....................................................................................... 13­24** 

**Table 13.4.27**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

**PTAC 12,000**  **Btu/h Cooling**  **Capacity**

**.................................................................................... 13­24** 

**Table 13.4.28**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

**PTHP 12,000**  **Btu/h Cooling**  **Capacity..................................................................................... 13­25** 

**Table 13.4.29**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­22 Non­Standard** 

**Size PTAC**  **11,000 Btu/h**  **Cooling Capacity** 

**............................................................................ 13­25** 

**Table 13.4.30**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­22 Non­Standard** 

**Size PTHP**  **11,000 Btu/h Cooling Capacity............................................................................. 13­25** 

**Table 13.4.31**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

**PTAC 9,000**  **Btu/h Cooling**  **Capacity**

**...................................................................................... 13­26** 

**Table 13.4.32**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

**PTHP 9,000**  **Btu/h Cooling**  **Capacity....................................................................................... 13­26** 

**Table 13.4.33**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

**PTAC 12,000**  **Btu/h Cooling**  **Capacity**

**.................................................................................... 13­26** 

**Table 13.4.34**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

**PTHP 12,000**  **Btu/h Cooling**  **Capacity..................................................................................... 13­27** 

**Table 13.4.35**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Non­Standard** 

**Size PTAC**  **11,000 Btu/h**  **Cooling Capacity** 

**............................................................................ 13­27** 

**Table 13.4.36**  **Base Case**  **Production Costs**  **(2006$) used**  **in the**  **GRIM for**  **R­410A Non­Standard** 

**Size PTHP**  **11,000 Btu/h Cooling Capacity............................................................................. 13­27** 

**Table 13.4.37**  **Conversion Capital**  **Expenditure for**  **Standard Size**  **PTACs and**  **PTHPs by**  **TSL 13­** 

**30**

**Table 13.4.38**  **Conversion Capital**  **Expenditure for**  **Non­Standard PTACs**  **and PTHPs**  **by TSL**  **13­**

**30**

**Table 13.4.39**  **Equipment Conversion**  **Expenses for**  **Standard Size**  **PTACs and**  **PTHPs by**  **TSL**

**............................................................................................................................... ...................**  **13­32**

**Table 13.4.40**  **Equipment Conversion**  **Expenses for**  **Non­Standard PTACs**  **and PTHPs**  **by TSL** 

**............................................................................................................................... ...................**  **13­32**

**Table 13.5.1**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Standard** 

**Size PTAC**  **with a**  **9,000 Btu/h**  **Cooling Capacity....................................................................**  **13­35**

**Table 13.5.2**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Standard** 

**Size PTHP**  **with a**  **9,000 Btu/h Cooling Capacity.................................................................... 13­35** 

**Table 13.5.3**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Standard** 

**Size PTAC**  **with a**  **12,000 Btu/h**  **Cooling Capacity..................................................................**  **13­36**

**Table 13.5.4**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Standard** 

**Size PTHP**  **with a**  **12,000 Btu/h Cooling Capacity.................................................................. 13­36** 

**Table 13.5.5**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Non** 

**Standard Size**  **PTAC with**  **a 11,000**  **Btu/h Cooling**  **Capacity**

**.................................................. 13­36** 

**Table 13.5.6**  **Markups Reflecting**  **R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **for Non** 

**Standard Size**  **PTHP with**  **a 11,000**  **Btu/h Cooling**  **Capacity................................................... 13­37** 

**Table 13.5.7**  **Changes in**  **Base Case**  **Industry Net**  **Present Value**  **from R­410A**  **Conversion for** 

**Standard Size**  **PTACs and**  **PTHPs............................................................................................ 13­37** 

**Table 13.5.8**  **Changes in**  **Base Case**  **Industry Net**  **Present Value**  **from R­410A**  **Conversion for** 

**Non­Standard Size**  **PTACs and**  **PTHPs**

**................................................................................... 13­38** 

**13­iv Table**  **13.6.1 Markups**  **Reflecting the**  **R­410A Base**  **Case With**  **50­Percent Cost**  **Recovery and** 

**Amended Energy**  **Conservation Standards**  **With Full**  **Cost Recovery**  **for Standard**  **Size PTAC** 

**with a**  **9,000 Btu/h**  **Cooling Capacity.......................................................................................**  **13­39**

**Table 13.6.2**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With Full**  **Cost Recovery**  **for Standard**  **Size PTHP**  **with**

**a 9,000**  **Btu/h Cooling**  **Capacity............................................................................................... 13­40** 

**Table 13.6.3**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With Full**  **Cost Recovery**  **for Standard**  **Size PTAC** 

**with a**  **12,000 Btu/h**  **Cooling Capacity.....................................................................................**  **13­40**

**Table 13.6.4**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With Full**  **Cost Recovery**  **for Standard**  **Size PTHP**  **with**

**a 12,000**  **Btu/h Cooling**  **Capacity............................................................................................. 13­41** 

**Table 13.6.5**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With Full**  **Cost Recovery**  **for Non­Standard**  **Size**

**PTAC with**  **a 11,000**  **Btu/h Cooling**  **Capacity**

**......................................................................... 13­41** 

**Table 13.6.6**  **13.6.7 Markups**  **Reflecting the**  **R­410A Base**  **Case With**  **50­Percent Cost**  **Recovery**

**and Amended**  **Energy Conservation**  **Standards With**  **Full Cost**  **Recovery for**  **Non­Standard Size** 

**PTHP with**  **a 11,000**  **Btu/h Cooling Capacity.......................................................................... 13­41** 

**Table 13.6.8**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and Amended** 

**Energy Conservation**  **Standards With**  **50­Percent Cost**  **Recovery for**  **Standard Size**  **PTAC with**  **a**

**9,000 Btu/h**  **Cooling Capacity..................................................................................................**  **13­42**

**Table 13.6.9**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and Amended** 

**Energy Conservation**  **Standards With**  **50­Percent Cost**  **Recovery for**  **Standard Size**  **PTHP with**  **a**

**9,000 Btu/h**  **Cooling Capacity..................................................................................................**  **13­43**

**Table 13.6.10**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTAC with**  **a 12,000**  **Btu/h Cooling**  **Capacity**

**......................................................................... 13­43** 

**Table 13.6.11**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTHP with**  **a 12,000**  **Btu/h Cooling Capacity.......................................................................... 13­43** 

**Table 13.6.12**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Non­Standard** 

**Size PTAC**  **with a**  **11,000 Btu/h**  **Cooling Capacity..................................................................**  **13­44**

**Table 13.6.13**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With Full**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Non­Standard** 

**Size PTHP**  **with a**  **11,000 Btu/h Cooling Capacity.................................................................. 13­44** 

**Table 13.6.14**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTAC with**  **a 9,000**  **Btu/h Cooling**  **Capacity**

**........................................................................... 13­45** 

**Table 13.6.15**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTHP with**  **a 9,000**  **Btu/h Cooling Capacity............................................................................ 13­45** 

**Table 13.6.16**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTAC with**  **a 12,000**  **Btu/h Cooling**  **Capacity**

**......................................................................... 13­46** 

**13­v Table**  **13.6.17 Markups**  **Reflecting the**  **R­410A Base**  **Case With**  **50­Percent Cost**  **Recovery and** 

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTHP with**  **a 12,000**  **Btu/h Cooling Capacity.......................................................................... 13­46** 

**Table 13.6.18**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTAC with**  **a 11,000**  **Btu/h Cooling**  **Capacity**

**......................................................................... 13­46** 

**Table 13.6.19**  **Markups Reflecting**  **the R­410A**  **Base Case**  **With 50­Percent**  **Cost Recovery**  **and**

**Amended Energy**  **Conservation Standards**  **With 50­Percent**  **Cost Recovery**  **for Standard**  **Size**

**PTHP with**  **a 11,000**  **Btu/h Cooling Capacity.......................................................................... 13­47** 

**Table 13.7.1**  **Changes in**  **Industry Net**  **Present Value**  **for Standard**  **Size PTACs**  **and PTHPs**  **(R**

**410A Base**  **Case Full**  **Cost Recovery**  **With Amended**  **Energy Conservation**  **Standards Full**  **Cost**

**Recovery)................................................................................................................................. 13­48** 

**Table 13.7.2**  **Changes in**  **Industry Net**  **Present Value**  **for Standard**  **Size PTACs**  **and PTHPs**  **(R**

**410A Base**  **Case Full**  **Cost Recovery**  **With Ameneded**  **Energy Conservation**  **Standards 50­Percent** 

**Cost Recovery).........................................................................................................................**  **13­48**

**Table 13.7.3**  **Changes in**  **Industry Net**  **Present Value**  **for Standard**  **Size PTACs**  **and PTHPs**  **(R**

**410A Base**  **Case 50­Percent**  **Cost Recovery**  **With Ameneded**  **Energy Conservation**  **Standards Full** 

**Cost Recovery).........................................................................................................................**  **13­49**

**Table 13.7.4**  **Changes in**  **Industry Net**  **Present Value**  **for Standard**  **Size PTACs**  **and PTHPs**  **(R**

**410A Base**  **Case 50­Percent**  **Cost Recovery**  **With Ameneded**  **Energy Conservation**  **Standards 50­** 

**Percent Cost**  **Recovery)............................................................................................................ 13­49** 

**Table 13.8.1**  **Changes in**  **Industry Net**  **Present Value**  **for Non­Standard**  **Size PTACs**  **and PTHPs** 

**(R­410A Base**  **Case Full**  **Cost Recovery**  **With Amended**  **Energy Conservation**  **Standard Full**  **Cost**

**Recovery)................................................................................................................................. 13­53** 

**Table 13.8.2**  **Changes in**  **Industry Net**  **Present Value**  **for Non­Standard**  **Size PTACs**  **and PTHPs** 

**(R­410A Base**  **Case Full**  **Cost Recovery**  **With Amended**  **Energy Conservation**  **Standard 50­** 

**Percent Cost**  **Recovery)............................................................................................................ 13­54** 

**Table 13.8.3**  **Changes in**  **Industry Net**  **Present Value**  **for Non­Standard**  **Size PTACs**  **and PTHPs** 

**(R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **With Amended**  **Energy Conservation**  **Standard**

**Full Cost**  **Recovery)**

**................................................................................................................. 13­54** 

**Table 13.8.4**  **Changes in**  **Industry Net**  **Present Value**  **for Non­Standard**  **Size PTACs**  **and PTHPs** 

**(R­410A Base**  **Case 50­Percent**  **Cost Recovery**  **With Amended**  **Energy Conservation**  **Standard**

**50­Percent Cost**  **Recovery)**

**...................................................................................................... 13­55** 

**Table 13.9.1**  **Projected Change**  **in Labor**  **Expenditures, Standard**  **Size PTAC**  **and PTHP**  **(2012)**

**............................................................................................................................... ...................**  **13­58**

**Table 13.9.2**  **Projected Change**  **in Labor**  **Expenditures, Non­Standard**  **Size PTAC**  **and PTHP** 

**(2012)....................................................................................................................................... 13­58** 

**Table 13.9.3**  **Federal Regulation**  **Timetables**

**........................................................................... 13­60** 

LIST OF FIGURES

**Figure 13.4.1**  **Using the**  **GRIM to**  **Calculate Cash**  **Flow.......................................................... 13­10** 

**Figure 13.7.1**  **Annual Net**  **Cash Flows**  **for Standard**  **Size PTAC**  **and PTHP**  **Industry (R­410A** 

**Base Case**  **With Full**  **Cost Recovery**  **and Amended**  **Energy Conservation**  **Standards With**  **Full**

**Cost Recovery).........................................................................................................................**  **13­50**

**13­vi Figure**  **13.7.2 Annual**  **Net Cash**  **Flows for**  **Standard Size**  **PTAC and**  **PTHP Industry**  **(R­410A**

**Base Case**  **With Full**  **Cost Recovery**  **and Amended**  **Energy Conservation**  **Standards With**  **50­**

**Percent Cost**  **Recovery)............................................................................................................ 13­51** 

**Figure 13.7.3**  **Annual Net**  **Cash Flows**  **for Standard**  **Size PTAC**  **and PTHP**  **Industry (R­410A** 

**Base Case**  **With 50­Percent**  **Cost Recovery**  **and Amended**  **Energy Conservation**  **Standards With** 

**Full Cost**  **Recovery)**

**................................................................................................................. 13­51** 

**Figure 13.7.4**  **Annual Net**  **Cash Flows**  **for Standard**  **Size PTAC**  **and PTHP**  **Industry (R­410A** 

**Base Case**  **With 50­Percent**  **Cost Recovery**  **and Amended**  **Energy Conservation**  **Standards With** 

**50­Percent Cost**  **Recovery)**

**...................................................................................................... 13­52** 

**Figure 13.8.1**  **Annual Net**  **Cash Flows**  **for Non­Standard**  **Size PTAC**  **and PTHP**  **Industry (R** 

**410A Base**  **Case With**  **Full Cost**  **Recovery and**  **Amended Energy**  **Conservation Standards**  **With**

**Full Cost**  **Recovery)**

**................................................................................................................. 13­56** 

**Figure 13.8.2**  **Annual Net**  **Cash Flows**  **for Non­Standard**  **Size PTAC**  **and PTHP**  **Industry (R** 

**410A Base**  **Case With**  **Full Cost**  **Recovery and**  **Amended Energy**  **Conservation Standards**  **With**

**50­Percent Cost**  **Recovery)**

**...................................................................................................... 13­56** 

**Figure 13.8.3**  **Annual Net**  **Cash Flows**  **for Non­Standard**  **Size PTAC**  **and PTHP**  **Industry (R** 

**410A Base**  **Case With**  **50­Percent Cost**  **Recovery and**  **Amended Energy**  **Conservation Standards** 

**With Full**  **Cost Recovery)** 

**........................................................................................................ 13­57** 

**Figure 13.8.4**  **Annual Net**  **Cash Flows**  **for Non­Standard**  **Size PTAC**  **and PTHP**  **Industry (R** 

**410A Base**  **Case With**  **50­Percent Cost**  **Recovery and**  **Amended Energy**  **Conservation Standards** 

**With 50­Percent**  **Cost Recovery)** 

**............................................................................................. 13­57** 

**13­vii 13­viii** CHAPTER 13. MANUFACTURER IMPACT ANALYSIS

13.1 INTRODUCTION

**In determining**  **whether a**  **standard is**  **economically justified,**  **the U.S**  **Department of** 

**Energy (DOE)**  **is required**  **to consider**  **“the economic**  **impact of**  **the standard**  **on the**  **manufacturers**

**and on**  **the consumers**  **of the**  **products subject**  **to such**  **a standard.”**  **(42 U.S.C.**  **6313(a)(6)(B)(i))**

**The law**  **also calls**  **for an**  **assessment of**  **the impact**  **of any**  **lessening of**  **competition as**  **determined**

**in writing**  **by the**  **Attorney General.**  **Id**

**. DOE**  **conducted a**  **manufacturer impact**  **analysis (MIA)** 

**to estimate**  **the financial**  **impact of**  **higher energy**  **conservation standards**  **on manufacturers**  **of**

**packaged terminal**  **air conditioners**  **(PTACs) and**  **packaged terminal**  **heat pumps**  **(PTHPs), and**  **to**

**assess the**  **impact of**  **such standards**  **on employment**  **and manufacturing**  **capacity. The**  **MIA has** 

**both quantitative**  **and qualitative**  **aspects.**

**The quantitative**  **part of**  **the MIA**  **primarily relies**  **on the**  **Government Regulatory**  **Impact**

**Model (GRIM),**  **an industry­cash­flow**  **model adapted**  **for this**  **rulemaking. The**  **GRIM inputs** 

**include information**  **on industry**  **cost structure,**  **shipments, and**  **pricing strategies.**  **The GRIM’s** 

**key output**  **is the**  **industry net**  **present value**  **(INPV). The**  **model estimates**  **the financial**  **impact of** 

**higher energy**  **conservation standards**  **by comparing**  **changes in**  **INPV between**  **a base**  **case and** 

**the various**  **trial standard**  **levels (TSLs).** 

**The qualitative**  **part of**  **the MIA**  **addresses factors**  **such as**  **equipment characteristics,** 

**characteristics of**  **particular manufacturers,**  **and market**  **and equipment**  **trends. It**  **also assesses**  **the**

**impact of**  **standards on**  **subgroups of**  **manufacturers.**

13.2 METHODOLOGY

**DOE conducted**  **the MIA**  **in three**  **phases. Phase**  **I, “Industry**  **Profile,” consisted**  **of the** 

**preparation of**  **an industry**  **characterization, including**  **data on**  **market share,**  **sales volumes**  **and**

**trends, pricing,**  **employment and**  **financial structure.**  **Phase II,**  **“Industry Cash**  **Flow,” focused**  **on**

**the industry**  **as a**  **whole. In**  **this phase,**  **DOE used**  **the GRIM**  **to prepare**  **an industry**  **cash flow** 

**analysis. Using**  **publicly available**  **information developed**  **in Phase**  **1, DOE**  **adapted the**  **GRIM’s**

**generic structure**  **to facilitate**  **analysis of**  **amended PTAC**  **and PTHP**  **standards. In**  **Phase III,** 

**“Sub­Group Impact**  **Analysis,” DOE**  **interviewed manufacturers**  **representing over**  **90 percent**  **of**

**domestic PTAC**  **and PTHP**  **sales. This**  **group included**  **both large**  **and small**  **manufacturers,**

**providing a**  **representative cross­section**  **of the**  **industry. During**  **these interviews,**  **DOE discussed** 

**financial topics**  **specific to**  **each manufacturer**  **and obtained**  **each manufacturer’s**  **view of**  **the**

**industry as**  **a whole.**  **The interviews**  **provided valuable**  **information that**  **DOE used**  **to evaluate** 

**the impacts**  **of a**  **new standard**  **on manufacturers’**  **cash flows,**  **manufacturing capacities,**  **and**

**employment levels.** 

**In addition**  **to characterizing**  **the impact**  **of amended**  **energy conservation**  **standards on** 

**manufacturers’ cash**  **flows, DOE**  **also considered**  **the impacts**  **of the**  **Environmental Protection** 

**Agency (EPA)**  **mandated R­22**  **refrigerant phaseout.**  **As part**  **of the**  **MIA, DOE**  **estimated inputs** 

**for the**  **GRIM characterizing**  **the impact**  **of the**  **refrigerant phaseout**  **on manufacturer’s**  **shipments,**

**conversion costs,**  **profitability, and**  **ultimately, cash**  **flows. Between**  **2006 and**  **2009, the**  **GRIM**

**uses inputs**  **from the**  **engineering and**  **shipments analysis**  **for R­22**  **refrigerant equipment.** 

**13­1 Beginning**  **with 2010,**  **the GRIM**  **uses inputs**  **developed in**  **the engineering**  **analysis and**  **in the** 

**MIA for**  **R­410A equipment.**  **For further**  **details about**  **the refrigerant**  **phaseout and**  **alternative**

**refrigerant analysis,**  **see Chapter**  **5 of**  **this technical**  **support document**  **(TSD). The**  **following**

**subsections describe**  **more specifically**  **the steps**  **DOE took**  **in developing**  **the information**  **on**

**which it**  **based the**  **MIA.**

13.2.1 Phase I: Industry Profile

**In Phase**  **I of**  **the MIA,**  **DOE prepared**  **a profile**  **of the**  **PTAC and**  **PTHP industry**  **that built** 

**upon the**  **market and**  **technology assessment**  **prepared for**  **this rulemaking**  **(see Chapter**  **3 of**  **this**

**TSD). Before**  **initiating the**  **detailed impact**  **studies, DOE**  **collected qualitative**  **and quantitative** 

**financial information**  **and past**  **and present**  **market data.**  **This included**  **estimated market**  **shares of** 

**both standard**  **and non­standard**  **size PTAC**  **and PTHP**  **manufacturers, corporate**  **operating ratios,** 

**wages, employment,**  **and production**  **cost ratios.**  **The industry**  **profile included**  **a topdown**  **cost**

**analysis of**  **PTAC and**  **PTHP manufacturers**  **that DOE**  **used to**  **derive cost**  **and preliminary** 

**financial inputs**  **for the**  **GRIM (e.g.,**  **revenues; material;**  **labor; overhead;**  **depreciation; selling,** 

**general and**  **administrative expenses**  **(SG&A); and**  **research and**  **development (R&D)**  **expenses).**

**DOE also**  **used public**  **information to**  **further calibrate**  **its initial**  **characterization of**  **the industry,** 

**including Securities**  **and Exchange**  **Commission (SEC)**  **10–K reports,**  **Standard &**  **Poor’s (S&P)** 

**stock reports,**  **and corporate**  **annual reports.**  **In addition,**  **DOE relied**  **on information**  **from its** 

**engineering analysis,**  **life­cycle cost**  **analysis, and**  **analysis of**  **markups to**  **determine equipment** 

**price to**  **characterize both**  **standard and**  **non­standard size**  **PTAC and**  **PTHP manufacturing** 

**industries.**

13.2.2 Phase II: Industry Cash­Flow Analysis and Interview Guide

**In Phase**  **II, DOE**  **performed an**  **industry cash­flow**  **analysis and**  **prepared written** 

**guidelines for**  **interviewing manufacturers.**  **Phase II**  **focused on**  **the financial**  **impacts of**  **new**

**standards on**  **the industry**  **as a**  **whole. Amended**  **energy conservation**  **standards can**  **affect PTAC** 

**and PTHP**  **manufacturers in**  **three distinct**  **ways: (1)**  **require additional**  **investment, (2)**  **raise**

**production costs,**  **and (3)**  **impact revenues**  **through higher**  **prices and,**  **possibly, lower**  **shipments.**

**The analytical**  **tool DOE**  **uses for**  **calculating the**  **financial impacts**  **of amended**  **energy**

**conservation standards**  **on manufacturers**  **is the**  **GRIM. DOE**  **performed a**  **cash flow**  **analysis**

**using the**  **GRIM on**  **the PTAC**  **and PTHP**  **industry to**  **quantify these**  **impacts.**

13.2.2.1 Industry Cash­Flow Analysis

**The GRIM**  **uses several**  **factors to**  **determine a**  **series of**  **annual cash**  **flows for**  **the year** 

**standards become**  **effective and**  **several years**  **after implementation.**  **These factors**  **include annual** 

**expected revenues;**  **costs of**  **sales; SG&A**  **costs; taxes;**  **and capital**  **expenditures related**  **to**

**depreciation, new**  **standards, and**  **maintenance. Inputs**  **to the**  **GRIM included**  **manufacturing**

**costs, shipments**  **forecasts, and**  **price forecasts**  **developed in**  **other analyses.**  **DOE derived**  **the**

**manufacturing costs**  **from the**  **engineering analysis**  **cost­efficiency curves**  **and estimated**  **typical**

**manufacturer markups**  **from public**  **financial reports**  **and interviews**  **with manufacturers.**  **DOE**

**developed alternative**  **markup scenarios**  **based on**  **discussions with**  **manufacturers during**  **the**

**rulemaking. DOE’s**  **shipments analysis,**  **presented in**  **Chapter 10**  **of this**  **TSD, provided**  **the basis** 

**for the**  **shipments projection**  **under each**  **TSLs in**  **the GRIM.**  **Another input,**  **financial**

**13­2 information,**  **was developed**  **based on**  **publicly available**  **data and**  **confidentially submitted** 

**manufacturer information.**  **The results**  **of the**  **GRIM are**  **compared against**  **base case**  **projections**

**assuming the**  **American Society**  **of Heating,**  **Refrigerating, and**  **Air­Conditioning Engineers,**  **Inc.**

**(ASHRAE) and**  **the Illuminating**  **Engineering Society**  **of North**  **America (IESNA)**  **Standard 90.1­** 

**1999 (ASHRAE/IESNA**  **Standard 90.1­1999)**  **efficiency levels**  **are adopted**  **by DOE.**  **The**

**financial impact**  **of amended**  **energy conservation**  **standards is**  **the difference**  **between the**  **two**

**sets of**  **discounted annual**  **cash flows.** 

13.2.2.2 Interview Guide

**During Phase**  **III of**  **the MIA,**  **DOE conducted**  **interviews with**  **manufacturers to**  **gather**

**information on**  **the effects**  **of amended**  **energy conservation**  **standards on**  **revenues and**  **finances,**

**direct employment,**  **capital assets,**  **and on**  **industry competitiveness.**  **Prior to**  **the interviews,**  **DOE**

**distributed an**  **interview guide**  **that provided**  **a starting**  **point to**  **identify relevant**  **issues and**  **help**

**identify the**  **impacts of**  **amended energy**  **conservation standards**  **on individual**  **manufacturers or** 

**sub­groups of**  **manufacturers. The**  **interview guide**  **covered current**  **organizational characteristics,** 

**industry infrastructure,**  **manufacturer cash­flow**  **analysis, a**  **competitive impacts**  **assessment, an** 

**employment impacts**  **assessment, and**  **a manufacturing**  **capacity impacts**  **assessment.**

13.2.3 Phase III: Sub­Group Analysis

**During the**  **course of**  **the MIA,**  **DOE interviewed**  **manufacturers representing**  **close to**  **90**

**percent of**  **domestic PTAC**  **and PTHP**  **sales. Many**  **of these**  **same companies**  **also participated**  **in**

**interviews for**  **the engineering**  **analysis. However,**  **the MIA**  **interviews broadened**  **the discussion** 

**from primarily**  **technology­related issues**  **to include**  **business related**  **topics. One**  **objective was**  **to**

**obtain feedback**  **from industry**  **on the**  **assumptions used**  **in the**  **GRIM and**  **to isolate**  **key issues** 

**and concerns.**  **DOE defined**  **three distinctive**  **subgroups that**  **could be**  **impacted by**  **the amended** 

**energy conservation**  **standards: major**  **manufacturers, small**  **businesses, and**  **manufacturers of** 

**niche equipment.**  **The following**  **sections summarize**  **the methodology**  **and findings**  **of this** 

**assessment.**

13.2.3.1 Manufacturer Interviews

**The information**  **gathered in**  **Phase I**  **and the**  **cash­flow analysis**  **performed in**  **Phase II**  **are**

**supplemented with**  **information gathered**  **during interviews**  **with manufacturers**  **during Phase**  **III.**

**The interview**  **process has**  **a key**  **role in**  **the manufacturer**  **impact analyses,**  **since it**  **provides an** 

**opportunity for**  **interested parties**  **to express**  **their views**  **privately on**  **important issues,**  **allowing**

**confidential or**  **sensitive information**  **to be**  **considered in**  **the rulemaking**  **process.**

**DOE established**  **two subgroups**  **for the**  **MIA corresponding**  **to the**  **two types**  **of PTAC** 

**and PTHP**  **equipment and**  **manufacturers found**  **within the**  **industry including,**  **standard and**  **non**

**standard size**  **equipment. Based**  **on this**  **decision, DOE**  **prepared two**  **different interview**  **guides**

**–**

**one for**  **standard size**  **PTACs and**  **PTHPs and**  **one for**  **non­standard size**  **PTACs and**  **PTHPs.**

**These interview**  **guides were**  **used to**  **tailor the**  **GRIM to**  **incorporate unique**  **financial**

**characteristics from**  **each equipment**  **size. Within**  **each of**  **these subgroups,**  **DOE contacted** 

**companies from**  **its database**  **of manufacturers,**  **which provided**  **a representation**  **of each** 

**subgroup. Small**  **and large**  **companies, subsidiaries**  **and independent**  **firms, and**  **public and** 

**13­3 private**  **corporations were**  **interviewed. Interviews**  **were scheduled**  **well in**  **advance in**  **order to** 

**provide every**  **opportunity for**  **key individuals**  **to be**  **available for**  **comment. Although**  **a written** 

**response to**  **the questionnaire**  **was acceptable,**  **DOE preferred**  **an interactive**  **interview process** 

**because it**  **helped clarify**  **responses and**  **provide the**  **opportunity to**  **identify additional**  **issues.**

**DOE conducted**  **detailed interviews**  **with all**  **manufacturers, which**  **agreed to**  **participate to** 

**gain insight**  **into the**  **range of**  **potential impacts**  **and how**  **this range**  **varies with**  **each TSL.**  **During**

**the interviews,**  **DOE solicited**  **information on**  **the possible**  **impacts of**  **energy conservation** 

**standards on**  **sales, direct**  **employment, capital**  **assets, and**  **industry competitiveness.**  **Both**

**qualitative and**  **quantitative information**  **are valuable**  **to the**  **interview process.**  **Finally, a**  **GRIM**

**was developed**  **for both**  **of the**  **subgroups. The**  **industry­wide cash**  **flow analysis**  **is an** 

**aggregation of**  **these two**  **subgroups.**

13.2.3.2 Revised Industry Cash­Flow Analysis

**In Phase**  **II of**  **the MIA,**  **DOE provided**  **manufacturers with**  **preliminary GRIM**  **input**

**financial figures**  **for review**  **and evaluation.**  **During the**  **interviews, DOE**  **requested comment**  **and**

**suggestions regarding**  **the values**  **selected for**  **the parameters.**  **Upon completion**  **of the**  **interviews,**

**DOE revised**  **its industry**  **cash flow**  **model based**  **on the**  **feedback provided**  **through the** 

**interviews.**

13.2.3.3 Manufacturer Sub­Group Analysis

**Using average**  **cost assumptions**  **to develop**  **an industry**  **cash flow**  **estimate is**  **not adequate** 

**for assessing**  **differential impacts**  **among sub­groups**  **of manufacturers.**  **Smaller manufacturers,** 

**niche players,**  **or manufacturers**  **exhibiting a**  **cost structure**  **that differs**  **significantly from**  **the**

**industry average**  **could be**  **more negatively**  **affected. Ideally,**  **DOE would**  **consider the**  **impact on** 

**every manufacturer**  **individually; however,**  **it typically**  **uses the**  **results of**  **the industry** 

**characterization to**  **group manufacturers**  **exhibiting similar**  **characteristics. During**  **the interview** 

**process, DOE**  **discussed the**  **potential sub­groups**  **and sub­group**  **members that**  **have been** 

**identified for**  **the analysis.**  **DOE looked**  **to the**  **manufacturers and**  **other stakeholders**  **to suggest** 

**what sub­groups**  **or characteristics**  **are the**  **most appropriate**  **for the**  **analysis.**

13.2.3.4 Small­Business Manufacturer Subgroup

**DOE used**  **the small**  **business size**  **standards published**  **on January**  **31, 1996,**  **as amended,** 

**by the**  **Small Business**  **Administration (SBA)**  **to determine**  **whether any**  **small entities**  **would be** 

**required to**  **comply with**  **the rule.**  **61 FR**  **3286 and**  **codified at**  **13 CFR**  **Part 121.**  **The size** 

**standards are**  **listed by**  **North American**  **Industry Classification**  **System (NAICS)**  **code and** 

**industry description.**  **PTAC and**  **PTHP manufacturing**  **is classified**  **under NAICS**  **333415. To**  **be**

**categorized as**  **a small**  **business, a**  **manufacturer of**  **PTACs and**  **PTHPs and**  **its affiliates**  **may**

**employ a**  **maximum of**  **750 employees.**  **The PTAC**  **and PTHP**  **industry is**  **characterized by**  **a**

**small number**  **of domestic**  **manufacturers. However,**  **consolidation within**  **the industry**  **has**

**reduced the**  **number of**  **parent companies**  **that manufacture**  **similar equipment**  **under different** 

**affiliates and**  **labels.**

**DOE surveyed**  **the American**  **Refrigeration Institute’s**  **(ARI)** Applied Directory of

Certified Product Performance **(2006) and**  **created a**  **list of**  **every manufacturer**  **that had**  **certified**

**13­4 equipment**  **ratings in**  **the directory.**  **DOE also**  **asked stakeholders**  **and ARI**  **representatives within** 

**the PTAC**  **and PTHP**  **industry if**  **they were**  **aware of**  **any other**  **small business**  **manufacturers.**

**DOE then**  **looked at**  **publicly available**  **data and**  **contacted manufacturers,**  **where needed,**  **to**

**determine if**  **they meet**  **the SBA’s**  **definition of**  **a small**  **business manufacturing**  **facility and**  **have**

**their manufacturing**  **facilities located**  **within the**  **U.S. Based**  **on this**  **analysis, DOE**  **estimates that** 

**there are**  **two small**  **business manufacturers**  **of PTACs**  **and PTHPs,**  **which DOE**  **subsequently**

**contacted to**  **request an**  **interview. Both**  **manufacturers agreed**  **to on­site**  **interviews to**  **determine**

**if there**  **are differential**  **impacts on**  **these companies**  **that may**  **result from**  **the standard.** 

**DOE found**  **that, in**  **general, small**  **business manufacturers**  **have the**  **same concerns**  **as**

**large manufacturers**  **regarding energy**  **conservation standards.**  **In addition,**  **DOE found**  **no**

**significant differences**  **in the**  **R&D emphasis**  **or marketing**  **strategies between**  **small business** 

**manufacturers and**  **large manufacturers.**  **Therefore, for**  **the equipment**  **classes comprised** 

**primarily of**  **small business**  **manufacturers, DOE**  **believes the**  **GRIM analysis,**  **which models**  **each**

**equipment class**  **separately, is**  **representative of**  **the small**  **business manufacturers**  **affected by** 

**standards.**

13.2.3.5 Competitive Impact Assessment

**Section 342**  **(6)(B)(i)(V) of**  **the Energy**  **Policy Act**  **of 1992**  **(EPCA) directs**  **DOE to** 

**consider any**  **lessening of**  **competition that**  **is likely**  **to result**  **from imposition**  **of standards.**  **It**

**further directs**  **the U.**  **S. Attorney**  **General to**  **determine the**  **impacts, if**  **any, of**  **any decrease**  **in**

**competition. DOE**  **will make**  **a determined**  **effort to**  **gather and**  **report firm­specific**  **financial**

**information and**  **impacts. The**  **competitive analysis**  **will focus**  **on assessing**  **the impacts**  **on**

**smaller, yet**  **significant, manufacturers.**  **The assessment**  **will be**  **based on**  **manufacturing cost**  **data**

**and on**  **information collected**  **from interviews**  **with manufacturers.**  **The manufacturer**  **interviews**

**will focus**  **on gathering**  **information that**  **would help**  **in assessing**  **asymmetrical cost**  **increases to** 

**some manufacturers,**  **the potential**  **increase in**  **business risks**  **from an**  **increased proportion**  **of**

**fixed costs,**  **and potential**  **barriers to**  **market entry**  **(e.g., proprietary**  **technologies).**

13.2.3.6 Manufacturing Capacity Impact

**One of**  **the significant**  **outcomes of**  **amended energy**  **conservation standards**  **could be**  **the**

**consequential obsolescence**  **of existing**  **manufacturing assets,**  **including tooling**  **and investment.** 

**The manufacturer**  **interview guide**  **has a**  **series of**  **questions to**  **help identify**  **impacts on** 

**manufacturing capacity,**  **specifically capacity**  **utilization and**  **plant location**  **decisions in**  **the**

**United States**  **and North**  **America with**  **and without**  **an energy**  **conservation standard;**  **the ability** 

**of manufacturers**  **to upgrade**  **or remodel**  **existing facilities**  **to accommodate**  **the new**  **requirements**

**due to**  **amended energy**  **conservation standards;**  **the nature**  **and value**  **of stranded**  **assets, if**  **any;**

**and estimates**  **for any**  **one­time restructuring**  **and other**  **charges, where**  **applicable.**

13.2.3.7 Employment Impact

**The impact**  **of amended**  **energy conservation**  **standards on**  **employment is**  **an important** 

**consideration in**  **the rulemaking**  **process. To**  **assess how**  **domestic employment**  **patterns might**  **be**

**affected, the**  **interview explored**  **current employment**  **trends in**  **the air­conditioning**  **industry. In** 

**addition, the**  **interview solicited**  **manufacture views**  **on changes**  **in employment**  **patterns that**  **may**

**13­5 result**  **from more**  **stringent standard**  **levels. The**  **employment impacts**  **section of**  **the interview** 

**guide focused**  **on current**  **employment levels**  **associated with**  **manufacturers at**  **each of**  **their**

**production facilities,**  **expected future**  **employment levels**  **with and**  **without an**  **amended energy** 

**conservation standard,**  **and differences**  **in workforce**  **skills and**  **issues related**  **to the**  **retraining of** 

**employees.**

13.2.3.8 Cumulative Regulatory Burden

**DOE recognizes**  **and seeks**  **to mitigate**  **the overlapping**  **effects on**  **manufacturers of** 

**amended energy**  **conservation standards**  **and other**  **regulatory actions**  **affecting the**  **same**

**equipment. DOE**  **analyzed and**  **considered the**  **impact on**  **manufacturers of**  **multiple, equipment** 

**specific regulatory**  **actions.**

**Based on**  **its own**  **research and**  **discussions with**  **manufacturers, DOE**  **identified several** 

**regulations relevant**  **to PTACs**  **and PTHPs,**  **including: hydrochlorofluorocarbon**  **(HCFC)**

**phaseout, Federal**  **energy conservation**  **standards for**  **other equipment**  **manufactured by**  **PTAC**

**and PTHP**  **manufacturers, and**  **other environmental**  **regulations.**

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

**The first**  **question of**  **each of**  **the MIA**  **interview guides**  **asks: “What**  **are the**  **key issues**  **for**

**your company**  **regarding the**  **PTAC and**  **PTHP energy**  **conservation standard**  **rulemaking?” This** 

**open question**  **initiated dialogue**  **with the**  **manufacturers, enabling**  **them to**  **identify key**  **points that** 

**DOE would**  **explore and**  **discuss during**  **the interview.**  **This section**  **describes the**  **key issues** 

**manufacturers felt**  **were of**  **the highest**  **importance in**  **relation to**  **the PTAC**  **and PTHP**  **energy**

**conservation standards**  **rulemaking and**  **that would**  **have the**  **most significant**  **impact on**  **the**

**industry. Manufacturers**  **indicated that,**  **for the**  **most part,**  **the risks**  **associated with**  **these issues** 

**increase with**  **more stringent**  **TSLs. The**  **issues are**  **overall concerns**  **that many**  **manufacturers**

**expressed and**  **in some**  **cases, are**  **dependent upon**  **standard and**  **non­standard size**  **equipment.**

13.3.1 R­410A

**According to**  **all manufacturers**  **interviewed, the**  **most concerning**  **issue in**  **relation to**  **the**

**PTAC and**  **PTHP energy**  **conservation standards**  **rulemaking is**  **the EPA**  **mandated phaseout**  **of**

**HCFC­based refrigerants**  **that are**  **used in**  **current PTACs**  **and PTHPs**  **equipment. Every** 

**manufacturer interviewed**  **stated that**  **it intends**  **to switch**  **from the**  **current R­22**  **refrigerant to**  **R**

**410A refrigerant**  **in the**  **PTAC and**  **PTHP equipment,**  **regardless of**  **equipment class.**  **All**

**manufacturers interviewed**  **expect to**  **be affected**  **by the**  **refrigerant phaseout**  **for the**  **further**

**discussed reasons:** 

• Availability of R­410A rotary compressors

**– All**  **of the**  **manufacturers interviewed**  **stated**

**their concern**  **that only**  **a small**  **number of**  **compressors utilizing**  **R­410A refrigerant**  **are or** 

**will be**  **available before**  **the R­22**  **refrigerant must**  **be replaced**  **in 2010.**  **Furthermore, not** 

**all current**  **cooling capacities**  **available in**  **R­22 refrigerant**  **compressors are**  **or will**  **be**

**available in**  **R­410A refrigerant**  **versions. In**  **addition, not**  **all voltages**  **currently offered** 

**by some**  **manufacturers of**  **PTAC and**  **PTHP equipment**  **are or**  **will be**  **available in**  **an R** 

**410A refrigerant**  **version. All**  **manufacturers noted**  **that the**  **small size**  **of their**  **industry**

**13­6 gives**  **them little**  **to no**  **leverage to**  **encourage compressor**  **manufacturers to**  **develop R** 

**410A refrigerant**  **compressors for**  **them.**

• Compressor performance degradation **­ According to**  **all manufacturers**  **of PTAC**  **and**

**PTHP equipment,**  **R­410A refrigerant**  **compressors currently**  **on the**  **market have**  **at least**  **a**

**0.8 to**  **1.0 EER**  **compressor performance**  **degradation relative**  **to the**  **R­22 refrigerant** 

**compressors that**  **they are**  **intended to**  **replace. The**  **degradation in**  **compressor**

**performance can**  **be attributed**  **to several**  **factors including**  **a reduction**  **in displacement,** 

**increase in**  **complexity, necessity**  **of increase**  **in strength**  **of the**  **compressor shell,**  **and use** 

**of non­mineral**  **oils. As**  **a result,**  **some manufacturers**  **anticipate difficulty**  **initially**

**meeting even**  **the ASHRAE/IESNA**  **Standard 90.1­1999**  **efficiency levels**  **with R­410A** 

**based units.** 

• Increase in manufacturing costs **­ All manufacturers**  **expect their**  **PTAC and**  **PTHP**

**equipment manufacturing**  **costs to**  **increase as**  **the sealed­system**  **portions of**  **the**

**equipment are**  **upgraded to**  **handle the**  **higher system**  **pressures associated**  **with R­410A** 

**refrigerant. In**  **addition to**  **an increase**  **in manufacturing**  **cost to**  **accommodate higher** 

**working pressures**  **associated with**  **R­410A refrigerant**  **and increased**  **refrigerant and** 

**compressor costs,**  **manufacturers are**  **concerned about**  **the anticipated**  **drop in**  **compressor**

**efficiency, which**  **would cause**  **them to**  **incorporate some**  **level of**  **redesign into**  **their R** 

**410A refrigerant**  **equipment to**  **help offset**  **this degradation**  **and would**  **further increase** 

**manufacturing cost.**  **All manufacturers**  **noted that**  **cost­recovery is**  **very difficult**  **in this** 

**industry due**  **to intense**  **price competition.**  **Multiple United**  **States­based manufacturers** 

**noted the**  **entry of**  **foreign­based competitors**  **as a**  **source for**  **the intense**  **price competition.** 

• Combination of regulations **­ All manufacturers**  **anticipate that**  **the combination**  **of the**  **R**

**22 refrigerant**  **phaseout and**  **possible amendment**  **of Federal**  **energy conservation** 

**standards will**  **lead the**  **industry to**  **reduce the**  **scope of**  **equipment offered.**  **In addition,** 

**several manufacturers**  **anticipate as**  **a result**  **of the**  **three factors**  **just discussed,**  **shifts in** 

**market share,**  **consolidation within**  **the industry,**  **and/or the**  **departure of**  **marginal**

**manufacturers from**  **the business.** 

13.3.2 Equipment Classes Definitions

**Under the**  **existing Federal**  **energy conservation**  **standards as**  **shown in**  **Table 1**  **and Table** 

**2 of**  **10 CFR**  **Part 431.97,**  **PTACs and**  **PTHPs are**  **divided into**  **two equipment**  **classes. Current** 

**equipment classes**  **include PTACs**  **and PTHPs**  **at various**  **cooling capacities.**  **When ASHRAE** 

**amended the**  **efficiency levels**  **for PTACs**  **and PTHPs,**  **it acknowledges**  **the physical**  **size**

**constraints between**  **the varying**  **sleeve sizes**  **on the**  **market. Consequently,**  **ASHRAE/IESNA**

**Standard 90.1­1999**  **used the**  **existing equipment**  **classes, which**  **are distinguished**  **by equipment** 

**type (i.e.,**  **air conditioner**  **or heat**  **pump) and**  **cooling capacity,**  **and further**  **separated these** 

**equipment classes**  **by wall**  **sleeve dimensions.** 

**ASHRAE/IESNA Standard**  **90.1­1999 refers**  **to wall**  **sleeve dimensions**  **in two**  **categories:**

**“New Construction”**  **and “Replacement.”**  **ASHRAE/IESNA Standard**  **90.1­1999 does**  **not**

**describes “New**  **Construction,” but**  **Table 6.21D,**  **footnote b**  **of ASHRAE/IESNA**  **Standard 90.1­** 

**1999 states**  **that replacement**  **efficiencies apply**  **only to**  **units: (1)**  **“factory labeled**  **as follows:** 

**13­7 Manufactured**  **for Replacement**  **Applications Only;**  **Not to**  **be Installed**  **in New**  **Construction**

**Projects”; and**  **(2) “with**  **existing wall**  **sleeves less**  **than 16**  **in. high**  **and less**  **than 42**  **in. wide.”** 

**DOE understands**  **that the**  **“New Construction”**  **category under**  **ASHRAE/IESNA Standard**  **90.1­**

**1999 is**  **residual, and**  **covers all**  **other PTAC**  **and PTHPs.**  **Hence, this**  **category consists**  **of**

**equipment with**  **wall sleeve**  **dimensions greater**  **than or**  **equal to**  **16 inches**  **high and**  **greater than** 

**or equal**  **to 42**  **inches wide,**  **or lacking**  **the requisite**  **label.**

**Manufacturers of**  **non­standard size**  **PTACs and**  **PTHPs anticipate**  **that, if**  **the**

**ASHRAE/IESNA Standard**  **90.1­1999 equipment**  **class definition**  **(i.e., equipment**  **with wall** 

**sleeve dimensions**  **less than**  **16 inches**  **high and**  **less than**  **42 inches**  **wide) is**  **adopted by**  **DOE, a** 

**significant portion**  **of the**  **equipment they**  **currently offer**  **will be**  **misclassified. For**  **example, a** 

**PTAC or**  **PTHP unit**  **with wall**  **sleeve dimensions**  **of 16.5**  **inches high**  **and 27**  **inches wide**  **would**

**be classified**  **as standard**  **size equipment**  **under ASHRAE’s**  **classification and**  **DOE’s proposed** 

**equipment classes.**  **Non­standard size**  **manufacturers stated**  **that they**  **manufacture these**  **units on** 

**demand in**  **lower volumes**  **and sell**  **them to**  **replace existing**  **equipment with**  **the same**  **wall sleeve** 

**dimensions. They**  **assert that**  **DOE establishment**  **of equipment**  **classes that**  **correspond to** 

**ASHRAE’s classifications**  **will force**  **a small**  **volume of**  **non­standard sleeve**  **size equipment**  **to**

**meet higher**  **efficiency levels**  **intended for**  **standard size**  **equipment. As**  **a result,**  **manufacturers**

**believe this**  **could impact**  **the availability**  **of these**  **non­standard equipment**  **on the**  **market because** 

**non­standard equipment**  **is physically**  **constrained leaving**  **manufacturers with**  **limited options**  **for**

**increasing the**  **efficiency of**  **this type**  **of equipment.**  **Further, some**  **manufacturers estimated**  **that**

**up to**  **half of**  **their equipment**  **lines could**  **be eliminated**  **if DOE**  **chooses to**  **adopt ASHRAE’s** 

**delineations of**  **equipment classes.** 

13.3.3 ENERGY STAR Program

**Many manufacturers**  **of standard**  **size PTACs**  **and PTHPs**  **pointed out**  **that the**  **ENERGY**

**STAR program**  **for PTACs**  **and PTHPs**  **is currently**  **under developed**  **by DOE.**  **According to** 

**manufacturers, key**  **to maintaining**  **ENERGY STAR**  **levels is**  **setting minimum**  **energy**

**conservation standards**  **for PTACs**  **and PTHPs**  **that are**  **similar and**  **low enough**  **to allow**  **cost**

**effective premium­efficiency**  **PTHPs to**  **be developed.**  **To that**  **end, all**  **manufacturers with** 

**knowledge of**  **the ENERGY**  **STAR development**  **program expressed**  **support for**  **the ENERGY** 

**STAR and**  **minimum energy**  **conservation standards**  **programs to**  **collaborate in**  **setting standards** 

**as a**  **means of**  **reducing manufacturer**  **uncertainty and**  **development expenses.** 

**All manufacturers**  **advocated a**  **greater use**  **of heat**  **pumps as**  **a means**  **to increasing**  **energy**

**efficiency, stating**  **that their**  **internal life­cycle**  **cost calculations**  **justify a**  **market mix**  **of about**  **20**

**percent PTACs**  **and 80**  **percent PTHPs.**  **According to**  **manufacturers, the**  **higher initial**  **cost of** 

**PTHPs discourages**  **higher PTHP**  **adoption since**  **many buyers**  **have fixed**  **capital budgets**  **and buy** 

**on the**  **basis of**  **initial cost.**  **Key to**  **adopting a**  **greater proportion**  **of PTHPs**  **would be**  **an**

**ENERGY STAR**  **program in**  **conjunction with**  **utility rebates,**  **so the**  **initial purchase**  **cost of**  **a**

**PTHP can**  **be more**  **competitive with**  **that of**  **a PTAC.**  **State energy**  **efficiency mandates**  **such as** 

**the possible**  **ban on**  **the use**  **of PTACs**  **in new**  **construction in**  **California can**  **also boost**  **PTHP**

**adoption rates.** 

**13­8**13.3.4 Timing

**The anticipated**  **timing of**  **the unveiling**  **of a**  **new ENERGY**  **STAR program**  **for PTACs** 

**and PTHPs**  **(2008), the**  **EPA mandated**  **R­22 refrigerant**  **phaseout (2010),**  **and the**  **effective date** 

**of the**  **DOE amended**  **energy conservation**  **standards rulemaking**  **(2012) are**  **a concern**  **for all** 

**manufacturers. All**  **manufacturers stated**  **that each**  **of the**  **programs would**  **require a**  **separate**

**development effort**  **(though efforts**  **related to**  **ENERGY STAR**  **are voluntary).** 

**Most manufacturers**  **stated they**  **could see**  **some potential**  **gains from**  **being able**  **to**

**combine the**  **redesign and**  **testing efforts**  **(i.e. the**  **conversion to**  **R­410A and**  **an amended**  **energy**

**conservation standard).**  **For example,**  **the sealed**  **system portion**  **could require**  **upgrades to**  **handle**

**the higher**  **system pressures**  **of R­410A.**  **This transition**  **could present**  **a good**  **opportunity for**  **a**

**manufacturer to**  **redesign a**  **heat exchanger**  **or make**  **other modifications**  **that would**  **ultimately**

**require less**  **testing when**  **efforts are**  **combined than**  **if they**  **were run**  **serially. However,**  **most**

**manufacturers were**  **uncertain of**  **the magnitude**  **of the**  **benefit that**  **combining multiple**  **research**

**and development**  **tasks would**  **entail.**

**Available budgets**  **for research**  **and development**  **vary by**  **manufacturer and**  **some do**  **not**

**have the**  **shipment volumes**  **to justify**  **very large**  **development programs.**  **Consequently, one** 

**redesign effort**  **for any**  **of the**  **three new**  **regulations facing**  **the PTAC**  **and PTHP**  **industry could** 

**consume some**  **manufacturers’ entire**  **research and**  **development effort**  **for several**  **years.**

**All manufacturers**  **noted the**  **intense price**  **competition in**  **the PTAC**  **and PTHP**  **industry.**

**Most manufacturers**  **doubted the**  **efficiency levels**  **they would**  **be able**  **to obtain**  **with the**  **available**

**R­410A rotary**  **compressors. If**  **manufacturers were**  **able to**  **manufacturer high**  **efficiency R­410A** 

**PTACs and**  **PTHPs, manufacturers**  **doubted they**  **would be**  **able to**  **command a**  **price premium** 

**unless rebates**  **usually associated**  **with ENERGY**  **STAR programs**  **lowered acquisition**  **costs for** 

**customers. Many**  **of their**  **customers purchase**  **PTACs and**  **PTHPs for**  **their respective**  **buildings**

**on fixed**  **budgets, which**  **will remain**  **unchanged regardless**  **of the**  **increasing manufacturing**  **costs**

**to accommodate**  **R­410A and**  **amended energy**  **conservation standards.**  **In the**  **absence of**  **rebates,**

**the majority**  **of manufacturers**  **do not**  **anticipate making**  **high efficiency**  **R­410A units.** 

**All manufacturers**  **requested greater**  **transparency and**  **shorter lead**  **times regarding** 

**amended energy**  **conservation standards.**  **All manufacturers**  **also stated**  **that they**  **anticipate three** 

**major transitions**  **in the**  **coming years**  **(R­22 refrigerant**  **phaseout, energy**  **conservation standards,** 

**ENERGY STAR**  **voluntary standards).**  **All of**  **these programs**  **currently have**  **significant**

**uncertainty associated**  **with them,**  **making an**  **orderly transition**  **more difficult.**  **All manufacturers** 

**noted that**  **they cannot**  **plan and**  **execute their**  **respective strategies**  **with a**  **high degree**  **of**

**confidence as**  **long as**  **some component**  **equipment is**  **not available**  **and amended**  **energy**

**conservation standards**  **remain unknown.**  **By the**  **time energy**  **conservation standards**  **become**

**known, most**  **manufacturers are**  **unlikely to**  **have enough**  **time to**  **start and**  **finish their**  **research**

**and development**  **before the**  **refrigerant phaseout**  **becomes effective**  **causing manufacturers**  **to**

**undertake two**  **separate design**  **efforts.**

**With longer**  **lead times,**  **planning, research,**  **and development**  **could occur**  **more easily**  **and**

**reduce the**  **business risk**  **for industry**  **participants. Some**  **manufacturers noted**  **that similar** 

**transition points**  **have caused**  **participants in**  **related heating,**  **ventilating, and**  **air­conditioning**

**13­9 (HVAC)**  **industries to**  **go out**  **of business.**  **The failed**  **companies had**  **allegedly made**  **the wrong** 

**assumptions about**  **amended energy**  **conservation standards.**  **Once higher­than­anticipated** 

**energy conservation**  **standards became**  **public knowledge,**  **these companies**  **had to**  **restart their** 

**development programs,**  **at significant**  **cost and**  **under intense**  **time pressure.**  **Hence, all**  **PTAC and** 

**PTHP manufacturers**  **repeatedly asked**  **for greater**  **clarity and**  **extended lead**  **times regarding** 

**amended energy**  **conservation standards**  **and ENERGY**  **STAR specifications.** 

13.4 GRIM INPUTS AND ASSUMPTIONS

**The GRIM**  **serves as**  **the main**  **tool for**  **assessing the**  **impact on**  **industry due**  **to the** 

**imposition of**  **amended energy**  **conservation standards.**  **DOE relied**  **on several**  **sources to**  **obtain**

**inputs for**  **the GRIM**  **in the**  **form of**  **data and**  **assumptions. The**  **GRIM’s accounting**  **methods then** 

**produced the**  **results used**  **to describe**  **impacts on**  **manufacturers.**

13.4.1 Overview of the GRIM

**The basic**  **structure of**  **the GRIM,**  **illustrated in**  **Figure 13.4.1,**  **is a**  **standard annual**  **cash**

**flow analysis**  **that uses**  **manufacturer prices,**  **manufacturing costs,**  **shipments, and**  **industry**

**financial information**  **as inputs,**  **and accepts**  **a set**  **of regulatory**  **conditions as**  **changes in**  **costs,**

**investments, and**  **associated margins.**  **The GRIM**  **spreadsheet uses**  **a number**  **of inputs**  **to arrive**  **at**

**a series**  **of annual**  **cash flows,**  **beginning with**  **the base**  **year of**  **the analysis,**  **2006, and**  **continuing**

**explicitly to**  **2042. The**  **model calculates**  **the INPV**  **by summing**  **the stream**  **of annual**  **discounted**

**cash flows**  **during this**  **period. 1** 

Figure 13.4.1 Using the GRIM to Calculate Cash Flow

**The GRIM**  **projected cash**  **flows using**  **standard accounting**  **principles and**  **compared**

**changes in**  **INPV between**  **the adoption**  **of ASHRAE/IESNA**  **Standard 90.1­1999**  **(the base**  **case**

**scenario) and**  **different TSLs**  **for the**  **amended energy**  **conservation standard**  **(the standard**  **case**

**scenario). The**  **difference in**  **INPV between**  **the base**  **case and**  **the standard**  **case(s) represents**  **the**

**estimated financial**  **impact of**  **the amended**  **energy conservation**  **standard on**  **manufacturers.**

**Appendix I**  **provides more**  **technical details**  **and user**  **information for**  **the GRIM.** 

**13­10**13.4.2 Sources GRIM Inputs

**The GRIM**  **uses several**  **different sources**  **for data**  **inputs in**  **determining the**  **cash flows**  **for**

**the industry,**  **including corporate**  **annual reports,**  **credit ratings,**  **the shipments**  **model, the** 

**engineering analysis,**  **and the**  **manufacturer interviews.** 

13.4.2.1 Corporate Annual Reports

**Corporate annual**  **reports to**  **the Securities**  **and Exchange**  **Commission (SEC**  **10­Ks)**

**provided many**  **of the**  **financial inputs**  **to the**  **GRIM. 2**  **These reports**  **exist for**  **publicly held** 

**companies and**  **are freely**  **available to**  **the general**  **public. The**  **SEC 10­Ks**  **provide consistent** 

**financial data**  **for the**  **consolidated corporation**  **but do**  **not provide**  **detailed financial**  **information**

**for the**  **company’s PTACs**  **or PTHPs**  **lines. Some**  **SEC 10­Ks**  **are therefore**  **more relevant**  **than**

**others are**  **to the**  **analysis of**  **the PTAC**  **and PTHP**  **industry, depending**  **on the**  **prominence that** 

**business has**  **in the**  **company’s overall**  **operations. In**  **determining financial**  **parameters for**  **the**

**industry, DOE**  **weighted corporate**  **financial information**  **contained in**  **the SEC**  **10­Ks by**  **each**

**company’s market**  **share in**  **PTAC and**  **PTHP industry**  **to arrive**  **at industry­weighted**  **averages.**

**DOE used**  **corporate annual**  **reports to**  **derive the**  **following GRIM**  **inputs:**

**• Tax**  **rate,**

**• Working**  **capital,**

**• Sales,**  **general, and**  **administration expenses**  **(SG&A),**

**• Research**  **and development**  **(R&D) expenses,** 

**• Depreciation,** 

**• Capital**  **expenditures, and** 

**• Net**  **property, plant,**  **and equipment**  **(PPE).**

**DOE also**  **used information**  **from company**  **SEC 10­K**  **reports to**  **calibrate the**  **GRIM’s**

**operating profit**  **margin against**  **the industry**  **weighted average.** 

13.4.2.2 Standard and Poor Credit Ratings

**Standard and**  **Poor (S&P)**  **provides independent**  **credit ratings,**  **research, and**  **financial**

**information. S&P**  **reports are**  **available for**  **a nominal**  **fee. DOE**  **relied on**  **S&P reports**  **to**

**determine the**  **industry’s average**  **cost of**  **debt for**  **the cost**  **of capital**  **calculation.**

13.4.2.3 Shipment Model

**The GRIM**  **used shipment**  **projections derived**  **from DOE’s**  **shipments model**  **in the** 

**national impact**  **analysis. The**  **model relied**  **on historical**  **shipments data**  **for PTAC**  **and PTHP** 

**from AHRI**  **for the**  **NOPR analysis.**  **Chapter 10**  **of the**  **TSD describes**  **the methodology**  **and**

**analytical model**  **DOE used**  **to forecast**  **shipments. Additional**  **shipment projections**  **not included** 

**in the**  **shipments model,**  **were developed**  **for the**  **MIA based**  **upon manufacturer**  **information**

**obtained during**  **the interviews.** 

**13­11**13.4.2.4 Engineering Analysis

**During the**  **engineering analysis,**  **DOE used**  **a reverse­engineering**  **methodology**

**supplemented by**  **a design**  **option approach**  **to develop**  **manufacturing cost**  **estimates for**  **standard**

**size PTACs**  **and PTHPs**  **with 9,000**  **Btu/h and**  **12,000 Btu/h**  **cooling capacity,**  **and non­standard** 

**size PTACs**  **and PTHPs**  **with 11,000**  **Btu/h cooling**  **capacity. The**  **analysis provided**  **labor,**

**materials, and**  **overhead production**  **costs, which**  **are representative**  **of PTAC**  **and PTHP**  **industry.**

**DOE calibrated**  **the reverse­engineering**  **cost model**  **with individual**  **manufacturers’ cost**  **data, and** 

**aggregated the**  **costs for**  **individual manufacturers**  **to create**  **cost­efficiency curves**  **for the** 

**industry. DOE**  **then used**  **the cost­efficiency**  **relationship developed**  **in the**  **Engineering Analysis** 

**for R­22**  **and R­410A**  **as the**  **production costs**  **inputs to**  **the GRIM.** 

13.4.2.5 Manufacturer Interviews

**During the**  **course of**  **the MIA,**  **DOE conducted**  **interviews with**  **manufacturers**

**representing over**  **90 percent**  **of the**  **industry. During**  **these discussions,**  **DOE obtained** 

**information, which**  **it used**  **to determine**  **and verify**  **GRIM input**  **assumptions. Key**  **topics**

**discussed during**  **the interviews**  **and reflected**  **in the**  **GRIM include:** 

**• Conversion**  **capital expenditures**  **(one­time investments**  **in property,**  **plant, and** 

**equipment.)**

**• Equipment**  **conversion expenses**  **(one­time investments**  **in research,**  **equipment**

**development, testing,**  **and marketing).** 

**• The**  **portion of**  **the conversion**  **capital expenditures**  **that companies**  **use to**  **replace**

**stranded assets.** 

**• R­410A**  **conversion.**

**• Equipment**  **cost structure:** 

**• The**  **portion of**  **the manufacturer**  **production costs**  **related to**  **materials,**

**labor, overhead,**  **and depreciation**  **costs.**

**• Projected**  **total shipment**  **and shipment**  **distribution mix**  **(both R­22**  **and R­410A** 

**equipment).**

**• Engineering**  **analysis estimated**  **manufacturer production**  **costs for**  **PTACs and** 

**PTHPs.**

13.4.3 Financial Parameters

**Table 13.4.1**  **provides financial**  **parameters for**  **five public**  **companies engaged**  **in**

**manufacturing and**  **selling standard**  **and non­standard**  **size PTACs**  **and PTHPs.**  **The values**  **listed**

**are averages**  **over a**  **five­year period**  **(2002­2006).**

**13­12**Table 13.4.1 GRIM Financial Parameters Based on 2002­2006 Weighted Company

Financial Data

Parameter IndustryWeighted

Average Manufacturer

A B C D E

Tax Rate

(% of Taxable Income) **35.5 26.9**  **36.8 32.9**  **47.7 44.6** 

Working Capital

(% of Revenue) **3.5 7.6**  **1.0 6.5**  **N/A*** **4.4**

SG&A

(% of Revenue) **14.1 11.9**  **12.2 17.5**  **18.5 21.4** 

R&D

(% of Revenues) **1.6 3.4**  **0.6 1.8**  **2.1 1.1** 

Depreciation

(% of Revenues) **1.7 1.6**  **1.3 1.6**  **3.1 3.3** 

Capital Expenditures

(% of Revenues) **1.8 1.4**  **1.8 2.3**  **1.9 1.7** 

Net Property, Plant,

and Equipment

(% of Revenues) **12.8 14.0**  **10.2 16.7**  **15.0 14.5** 

***** **Data was**  **not available**  **from the**  **SEC 10K**  **reports**

**These companies**  **constitute approximately**  **75 percent**  **of the**  **PTAC and**  **PTHP industry.** 

**For other**  **companies in**  **the industry,**  **the public**  **data is**  **not available**  **or the**  **HVAC business** 

**figures could**  **not be**  **adequately disaggregated**  **from other**  **businesses segments**  **and were**  **not used** 

**for the**  **analysis. The**  **values used**  **in the**  **GRIM, therefore,**  **represent the**  **industry’s weighted** 

**average estimated**  **with financial**  **data from**  **five publicly**  **traded manufacturers**  **weighted by**  **their**

**respective market**  **shares. During**  **manufacturer interviews,**  **manufacturers stated**  **that the** 

**financial parameters**  **listed in**  **Table 13.4.1**  **would not**  **be significantly**  **different between**  **standard**

**and non­standard**  **size PTAC**  **and PTHP**  **industries. Therefore,**  **for the**  **GRIM, DOE**  **assumed all** 

**the financial**  **parameters would**  **be the**  **same for**  **both standard**  **and non­standard**  **size PTAC**  **and**

**PTHP industries.** 

13.4.4 Corporate Discount Rate

**DOE used**  **the weighted­average**  **cost of**  **capital (WACC)**  **for the**  **industry as**  **the discount** 

**rate to**  **calculate the**  **INPV. A**  **company’s assets**  **are financed**  **by a**  **combination of**  **debt and** 

**equity. The**  **WACC is**  **the total**  **cost of**  **debt and**  **equity weighted**  **by their**  **respective proportions** 

**in the**  **capital structure**  **of the**  **industry. 1**  **DOE estimated**  **the WACC**  **for the**  **standard and**  **non**

**standard PTACs**  **and PTHPs**  **industries based**  **on several**  **representative companies,**  **using the** 

**following formula:** 

WACC

= After­Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio)

**The cost**  **of equity**  **is the**  **rate of**  **return that**  **equity investors**  **(including, potentially,**  **the**

**company) expect**  **to earn**  **on a**  **company’s stock.**  **These expectations**  **are reflected**  **in the**  **market**

**price of**  **the company’s**  **stock. The**  **capital asset**  **pricing model**  **(CAPM) provides**  **one widely**  **used**

**13­13 means**  **to estimate**  **the cost**  **of equity.**  **According to**  **the CAPM,**  **the cost**  **of equity**  **(expected**

**return) is:** 

Cost of Equity

= Riskless Rate of Return + β x Risk Premium

**where:**

Riskless rate of return **is the**  **rate of**  **return on**  **a “safe”**  **benchmark investment,**  **typically**

**considered the**  **short­term Treasury**  **Bill (T­Bill)**  **yield.**

Risk premium **is the**  **difference between**  **the expected**  **return on**  **stocks and**  **the riskless** 

**rate.**

Beta **(β) is**  **the correlation**  **between the**  **movement in**  **the price**  **of the**  **stock and**  **that of**  **the**

**broader market.**  **In this**  **case, Beta**  **equals one**  **if the**  **stock is**  **perfectly correlated**  **with the** 

**S&P 500**  **market index.**  **A Beta**  **lower than**  **one means**  **the stock**  **is less**  **volatile than**  **the**

**market index.** 

**DOE determined**  **that the**  **industry average**  **cost of**  **equity for**  **both standard**  **and non** 

**standard size**  **PTAC and**  **PTHP industries**  **is 12.7**  **percent as**  **calculated in**  **Table 13.4.2.** 

Table 13.4.2 Cost of Equity Calculation

Parameter IndustryWeighted

Average

(%) Manufacturer

A B C D E

(1) Average Beta

(2002

– 2006 year) **0.74 0.65**  **0.80 0.84**  **0.51 0.80** 

(2) Yield on 10 Year TBill (1990­2006) **5.9**

**­ ­**  **­ ­**  **­**

(3) Market Risk

Premium (1926­1999) **9.2**

**­ ­**  **­ ­**  **­**

Cost of Equity

(2)+((1)*(3)) **12.7**

**­ ­**  **­ ­**  **­**

Equity/Total Capital **24.4 71.1**  **33.6 36.6**  **­207.1 95.2** 

**Bond ratings**  **are a**  **tool to**  **measure default**  **risk and**  **arrive at**  **a cost**  **of debt.**  **Each bond** 

**rating is**  **associated with**  **a particular**  **spread. One**  **way of**  **estimating a**  **company’s cost**  **of debt**  **is**

**to treat**  **it as**  **a spread**  **(usually expressed**  **in basis**  **points) over**  **the risk­free**  **rate. DOE**  **used this** 

**method to**  **calculate the**  **cost of**  **debt for**  **all five**  **manufacturers. S&P**  **had bond**  **ratings for**  **most**

**manufacturers, so**  **DOE used**  **these ratings**  **to estimate**  **the manufacturers’**  **cost of**  **debt by**  **adding**

**the relevant**  **spread to**  **the risk­free**  **rate. There**  **was one**  **manufacturer with**  **no S&P**  **bond rating** 

**available. In**  **this case,**  **DOE used**  **the company’s**  **size and**  **interest coverage**  **ratio to**  **arrive at**  **the**

**spread of**  **corporate debt**  **over risk­free**  **securities. The**  **interest coverage**  **ratio measures**  **a**

**company’s ability**  **to service**  **its debt­financing**  **obligation through**  **its earnings.**  **2**

**13­14 In**  **practice, investors**  **use a**  **variety of**  **different maturity**  **Treasury bonds**  **to estimate**  **the**

**risk­free rate.**  **DOE used**  **a long­term**  **Treasury bond**  **return (10­year**  **bond return)**  **because it** 

**captures long­term**  **inflation expectations**  **and is**  **less volatile**  **than short­term**  **rates in**  **the GRIM.** 

**The risk**  **free rate**  **is estimated**  **as approximately**  **six percent,**  **which is**  **the average**  **10­year**

**Treasury bond**  **return over**  **the period**  **of 1990**  **to 2006.** 

**For the**  **cost of**  **debt, S&P’s**  **Credit Services**  **provided the**  **average spread**  **of corporate** 

**bonds for**  **four of**  **the five**  **public manufacturers**  **over the**  **period 2002­2006.**  **To this,**  **DOE added** 

**the industry­weighted**  **average spread**  **to the**  **average T­Bill**  **yield over**  **the same**  **period. Since** 

**proceeds from**  **debt issuance**  **are tax**  **deductible, DOE**  **adjusted the**  **gross cost**  **of debt**  **by the** 

**industry average**  **tax rate**  **to determine**  **the net**  **cost of**  **debt for**  **the industry.**  **Table 13.4.3**  **presents**

**the derivation**  **of the**  **cost of**  **debt. Also**  **shown is**  **the capital**  **structure of**  **the industry,**  **i.e. the**  **debt**

**ratio (debt/total**  **capital).**

Table 13.4.3 Cost of Debt Calculation

Parameter IndustryWeighted

Average

(%) Manufacturer

A B C D E

S&P Bond Rating

**­­ A**  **B+ BBB**  **CC A­** *

(1) Yield on 10 year TBill (1990­2002) **5.9**

**­ ­**  **­ ­**  **­**

(2) Gross Cost of Debt **10 7.7**  **10.6 8.1**  **17.4 7.9** 

(3) Tax Rate **35.5 26.9**  **36.8 32.9**  **47.7 44.6** 

Net Cost of Debt

(2)x((1)­(3)) **6.5**

**­ ­**  **­ ­**  **­**

Debt/Total Capital **75.6 28.9**  **66.4 63.4**  **307.1 4.8** 

***** **Bond Rating**  **was calculated** 

**DOE estimated**  **the standard**  **and non­standard**  **size PTAC**  **and PTHP**  **industries’ WACC** 

**to be**  **approximately 8.0**  **percent. Subtracting**  **an inflation**  **rate of**  **2.9 percent**  **between 1990**  **and**

**2006, the**  **inflation adjusted**  **WACC, and**  **the corporate**  **discount rate**  **used in**  **the GRIM,**  **is 5.0** 

**percent.**

13.4.5 Trial Standard Levels

**DOE developed**  **seven TSLs**  **that include**  **combinations of**  **energy efficiency**  **levels**

**representing comparable**  **stringency for**  **standard and**  **non­standard size**  **PTACs and**  **PTHPs**

**equipment classes.**  **Chapter 9**  **of the**  **TSD describes**  **the methodology**  **DOE used**  **to determine** 

**each TSL.**  **The EER**  **levels used**  **in the**  **GRIM are**  **presented in**  **Table 13.4.4.**  **The reference**  **case**

**or baseline**  **is the**  **ASHRAE/IESNA Standard**  **90.1­1999 efficiency**  **levels for**  **each equipment** 

**class.**

**13­15**Table 13.4.4 Standard Size and Non­Standard Size PTACs and PTHPs Baseline Efficiency

Levels and TSLs

Equipment

Class

(cooling

capacity) Efficiency

Metric Baseline

(ASHRAE/IESNA

Standard 90.1­1999) TSL

1 TSL

2 TSL

3 TSL

4 TSL

5 TSL

6 TSL

7

MaxTech

**Standard Size** 

**PTAC EER**  **10.6 10.9**  **10.9 11.1**  **10.9 11.3**  **11.5 12.0** 

**9,000 Btu/h** 

**Standard Size** 

**PTAC EER**  **9.9 10.2**  **10.2 10.4**  **10.2 10.6**  **10.8 11.5** 

**12,000 Btu/h** 

**Non­Standard**

**Size PTAC**  **EER 8.6**  **9.4 9.4**  **9.7 9.4**  **10.0 10.7**  **11.2**

**11,000 Btu/h** 

**Standard Size** 

**PTHP**

**9,000 Btu/h**  **EER**

**COP 10.4** 

**3.0 10.9** 

**3.1 11.1** 

**3.2 11.1** 

**3.2 11.3** 

**3.3 11.3** 

**3.3 11.5** 

**3.3 12.0** 

**3.5**

**Standard Size** 

**PTHP**

**12,000 Btu/h**  **EER**

**COP 9.7** 

**2.9 10.2** 

**3.0 10.4** 

**3.1 10.4** 

**3.1 10.6** 

**3.1 10.6** 

**3.1 10.8** 

**3.1 11.7** 

**3.3**

**Non­Standard**

**PTHP**

**11,000 Btu/h**  **EER**

**COP 8.5** 

**2.6 9.4** 

**2.8 9.7** 

**2.8 9.7** 

**2.8 10.0** 

**2.9 10.0** 

**2.9 10.7** 

**2.9 11.4** 

**2.9**

13.4.6 NES­Shipments Forecast

**The GRIM**  **estimates manufacturer**  **revenues based**  **on total­unit­shipment**  **forecasts and** 

**the distribution**  **of these**  **values by**  **EER. Changes**  **in the**  **efficiency mix**  **at each**  **standard level**  **are**

**a key**  **driver of**  **manufacturer finances.**  **For this**  **analysis, the**  **GRIM used**  **both the**  **national energy** 

**savings (NES)**  **shipments forecasts**  **and a**  **modified version**  **referred to**  **as the**  **R­410A shipments** 

**forecasts for**  **both standard**  **size and**  **non­standard size**  **PTACs and**  **PTHPs from**  **2007 to**  **2042.**

**The total**  **shipments forecasted**  **by the**  **NES in**  **the base**  **case for**  **each equipment**  **class were** 

**distributed to**  **the closest**  **representative cooling**  **capacity. For**  **example, the**  **total PTAC**  **or PTHP** 

**shipments with**  **a cooling**  **capacity less**  **than 10,000**  **Btu/h for**  **standard size**  **equipment are** 

**represented by**  **the 9,000**  **Btu/h representative**  **cooling capacity.**  **Further explanation**  **of**

**assumptions and**  **calculations of**  **total shipments**  **can be**  **found in**  **the shipment**  **analysis section**  **of**

**this TSD**  **(Chapter 9).**  **Total shipments**  **forecasted in**  **the shipment**  **analysis for**  **all efficiency** 

**levels in**  **2012 are**  **shown in**  **Table 13.4.5**  **and are**  **further detailed**  **below.**

Table 13.4.5 Total NES­Shipments Forecast in 2012

Equipment Class (cooling capacities) Total Industry Shipments*

**Standard Size**  **PTACs (9,000**  **Btu/h) 97,900** 

**Standard Size**  **PTHPs (9,000**  **Btu/h) 76,500** 

**Standard Size**  **PTACs (12,000**  **Btu/h) 144,000** 

**Standard Size**  **PTHPs (12,000**  **Btu/h) 104,400** 

**Non­Standard Size**  **PTACs (11,000**  **Btu/h) 17,100** 

**Non­Standard Size**  **PTHPs (11,000**  **Btu/h) 12,900** 

***** **Estimates rounded**  **to the**  **nearest hundred** 

**13­16 As**  **part of**  **the shipment**  **analysis, DOE**  **estimated the**  **shipment distribution**  **for PTACs** 

**and PTHPs**  **by efficiency.**  **Table 13.4.6**  **through Table**  **13.4.11 show**  **the distributions**  **of**

**shipments by**  **TSL estimated**  **in the**  **NES for**  **various equipment**  **classes for**  **2012.**

Table 13.4.6 Base Case Distribution of Efficiencies for Standard Size PTAC Shipments

with a Cooling Capacity of 9,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

10.6 TSL 1, 2, 4

10.9 TSL 3

11.1 TSL 5

11.3 TSL 6

11.5 TSL 7

12.0

Baseline

10.6 **19.2% 18.0%**  **17.2% 16.4%**  **15.6% 13.5%** 

Table 13.4.7 Base Case Distribution of Efficiencies for Standard Size PTHP Shipments

with a Cooling Capacity of 9,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

10.4 TSL 1

10.9 TSL 2, 3

11.1 TSL 4, 5

11.3 TSL 6

11.5 TSL 7

12.0

Baseline

10.4 **18.8% 17.5%**  **17.0% 16.5%**  **15.8% 14.4%** 

Table 13.4.8 Base Case Distribution of Efficiencies for Standard Size PTAC Shipments

with a Cooling Capacity of 12,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

9.9 TSL 1, 2, 4

10.2 TSL 3

10.4 TSL 5

10.6 TSL 6

10.8 TSL 7

11.5

Baseline

9.9 **19.9% 18.5%**  **17.5% 16.5%**  **15.5% 12.1%** 

Table 13.4.9 Base Case Distribution of Efficiencies for Standard Size PTHP Shipments

with a Cooling Capacity of 12,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

9.7 TSL 1

10.2 TSL 2, 3

10.4 TSL 4, 5

10.6 TSL 6

10.8 TSL 7

11.7

Baseline

9.7 **19.8% 18.1%**  **17.5% 16.7%**  **15.8% 12.1%** 

Table 13.4.10 Base Case Distribution of Efficiencies for Non­Standard Size PTAC

Shipments with a Cooling Capacity of 11,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

8.6 TSL 1, 2, 4

9.4 TSL 3

9.7 TSL 5

10.0 TSL 6

10.7 TSL 7

11.2

Baseline

8.6 **19.8% 18.6%**  **17.8% 16.9%**  **14.4% 12.5%** 

Table 13.4.11 Base Case Distribution of Efficiencies for Non­Standard Size PTHP

Shipments with a Cooling Capacity of 11,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

10.4 TSL 1

9.4 TSL 2, 3

9.7 TSL 4, 5

10.0 TSL 6

10.7 TSL 7

11.4

Baseline

8.5 **19.1% 18.5%**  **17.8% 17.2%**  **14.9% 12.4%** 

**13­17**13.4.7 R­410A­Shipments Forecast

**The NES­shipments**  **forecast estimates**  **the total**  **number of**  **PTACs and**  **PTHPs sold**  **and**

**the efficiency**  **distribution of**  **this equipment**  **for the**  **base case**  **and each**  **standards case.**  **During**

**the course**  **of the**  **MIA interviews,**  **manufacturers were**  **asked to**  **comment on**  **the NES­shipment** 

**forecasts. For**  **all equipment**  **classes, manufacturers**  **were in**  **general agreement**  **with the**  **NES**

**total shipment**  **results. However,**  **there were**  **different views**  **concerning the**  **impacts of**  **the**

**refrigerant phaseout**  **on the**  **distribution mix**  **of efficiencies**  **in the**  **base case.** 

**In general,**  **the majority**  **of manufacturers**  **agreed that**  **total shipments**  **of PTACs**  **and**

**PTHPs would**  **not be**  **affected by**  **the refrigerant**  **phaseout. Therefore,**  **DOE assumed**  **that total** 

**shipments for**  **R­410A equipment**  **are equivalent**  **to the**  **total shipments**  **of R­22**  **regardless of**  **the**

**refrigerant phaseout.**  **However, manufacturers**  **stated during**  **interviews that**  **the NES­shipments** 

**forecast underestimate**  **the shift**  **in the**  **distribution mix**  **of efficiencies**  **as a**  **result of**  **the refrigerant** 

**phaseout. Manufacturers**  **commented there**  **will be**  **an inherent**  **system performance**  **degradation**

**expected due**  **to the**  **use of**  **R­410A. In**  **particular, most**  **manufacturers commented**  **that they**  **were**

**planning to**  **comply with**  **the refrigerant**  **phaseout using**  **a “drop­in”**  **to meet**  **the initial**  **2010**

**deadline. In**  **a drop­in**  **redesign, manufacturers**  **continue to**  **use the**  **current basic**  **R­22 design**  **for**

**the PTAC**  **or PTHP**  **equipment, and**  **only switch**  **compressors, refrigerant**  **and make**  **other minor** 

**adjustments.**

**DOE took**  **into consideration**  **all of**  **the manufacturers’**  **concerns with**  **the NES­shipments** 

**forecast and**  **derived an**  **alternative shipments**  **forecast (referred**  **to as**  **“R­410A­shipments**

**forecast”) for**  **the base**  **case, based**  **on information**  **received during**  **the manufacturer**  **interviews.**

**For the**  **R­410A­shipments forecast,**  **DOE made**  **several assumptions**  **to capture**  **the potential** 

**effects the**  **refrigerant phaseout**  **will have**  **on both**  **standard and**  **non­standard size**  **PTAC and** 

**PTHP industries.** 

**Several manufacturers**  **interviewed stated**  **that total**  **shipments for**  **both standard**  **and non** 

**standard size**  **equipment industry**  **would not**  **be affected**  **by the**  **refrigerant phaseout.**  **Therefore,**

**DOE assumed**  **that the**  **total industry**  **shipments forecasted**  **in the**  **shipment analysis**  **would not** 

**change due**  **to the**  **refrigerant phaseout**  **(i.e., DOE**  **assumed the**  **R­410A equipment**  **total industry** 

**shipments to**  **be equal**  **to the**  **R­22 equipment**  **total industry**  **shipments).**

13.4.7.1 R­410A Base Case

**Based on**  **its analysis**  **of the**  **PTAC and**  **PTHP industry,**  **interviews with**  **manufacturers,**

**and data**  **provided by**  **ARI, DOE**  **assumed that**  **standard and**  **non­standard size**  **PTAC and**  **PTHP**

**equipment distribution**  **by efficiency**  **would shift**  **according to**  **the degradation**  **in system** 

**performance estimated**  **in the**  **engineering analysis**  **in 2010**  **(i.e., effective**  **date for**  **the refrigerant** 

**phaseout). Each**  **percentage of**  **the distribution**  **is shifted**  **by the**  **system performance**  **degradation**

**percentage estimated**  **in the**  **engineering analysis**  **for each**  **equipment class.**  **For the**  **R­410A base** 

**case, DOE**  **assumed that**  **manufactures would**  **“drop­in” R­410A**  **compressors into**  **existing**

**equipment platforms**  **based on**  **R­22 systems.**  **Table 13.4.12**  **shows the**  **estimated system** 

**13­18 performance**  **degradation percentage**  **discussed in**  **the engineering**  **analysis for**  **each equipment** 

**class (see**  **Chapter 5**  **of the**  **TSD).**

Table 13.4.12 Estimated System Performance Degradation by Equipment Class

Equipment Class (cooling capacity) System EER Degradation

**Standard Size**  **PTAC and**  **PTHP 9,000**  **Btu/h 6.32**  **%**

**Standard Size**  **PTAC and**  **PTHP 12,000**  **Btu/h 7.55**  **%**

**Non­Standard Size**  **PTAC and**  **PTHP 11,000**  **Btu/h 6.81**  **%**

**DOE assumed**  **that manufacturers**  **incorporating a**  **“drop­in” to**  **their original**  **R­22 designs** 

**resulting in**  **efficiency levels**  **below ASHRAE/IESNA**  **Standard 90.1­1999**  **levels would** 

**incorporate some**  **level of**  **redesign into**  **their equipment**  **to achieve**  **at least**  **the baseline** 

**efficiency. Therefore,**  **DOE assumed**  **the distribution**  **of shipments**  **in the**  **R­410A base**  **case that** 

**fall below**  **ASHRAE/IESNA Standard**  **90.1­1999 levels**  **with the**  **drop­in redesign**  **would roll**  **up**

**to baseline**  **levels. Under**  **the R­410A**  **base case,**  **the maximum**  **efficiency available,**  **i.e., max** 

**tech, for**  **standard size**  **PTACs with**  **a cooling**  **capacity of**  **9,000 Btu/h**  **is 12**  **EER for**  **R­22 and** 

**becomes 11.3**  **EER with**  **R­410A degradation.**  **Table 13.4.13**  **through Table**  **13.4.18 illustrated** 

**the shift**  **in the**  **equipment distribution**  **by the**  **system performance**  **degradation for**  **each**

**equipment class**  **from 2009**  **to 2010.** 

Table 13.4.13 R­410A Base Case Distribution of Efficiencies for Standard Size PTAC

Shipments with a Cooling Capacity of 9,000 Btu/h in 2010

R­410A Equipment Distribution by TSL (EER)

Shipment

Forecast

Year Baseline

10.6 TSL 1, 2, 4

10.9 TSL 3

11.1 TSL 5

11.3 TSL 6

11.5 TSL 7

12.0

2009 **19.2% 18.0%**  **17.2% 16.4%**  **15.6% 13.5%** 

2010 **70.9% 15.6%** 

**­ 13.5%** 

**­ ­** 

Table 13.4.14 R­410A Base Case Distribution of Efficiencies for Standard Size PTHP

Shipments with a Cooling Capacity of 9,000 Btu/h in 2010

R­410A Equipment Distribution by TSL (EER)

Shipment

Forecast

Year Baseline

10.4 TSL 1

10.9 TSL 2, 3

11.1 TSL 4, 5

11.3 TSL 6

11.5 TSL 7

12.0

2009 **18.8% 17.5%**  **17.0% 16.5%**  **15.8% 14.4%** 

2010 **69.8% 15.8%** 

**­ 14.4%** 

**­ ­** 

Table 13.4.15 R­410A Base Case Distribution of Efficiencies for Standard Size PTAC

Shipments with a Cooling Capacity of 12,000 Btu/h in 2010

R­410A Equipment Distribution by TSL (EER)

Shipment

Forecast

Year Baseline

9.9 TSL 1, 2, 4

10.2 TSL 3

10.4 TSL 5

10.6 TSL 6

10.8 TSL 7

11.5

2009 **19.9% 18.5%**  **17.5% 16.5%**  **15.5% 12.1%** 

2010 **87.9%**

**­ ­**  **12.1%**

**­ ­** 

**13­19**Table 13.4.16 R­410A Base Case Distribution of Efficiencies for Standard Size PTHP

Shipments with a Cooling Capacity of 12,000 Btu/h in 2010

R­410A Equipment Distribution by TSL (EER))

Shipment

Forecast

Year Baseline

9.7 TSL 1

10.2 TSL 2, 3

10.4 TSL 4, 5

10.6 TSL 6

10.8 TSL 7

11.7

2009 **19.8% 18.1%**  **17.5% 16.7%**  **15.8% 12.1%** 

2010 **87.9%**

**­ ­**  **­ 12.1%** 

**­**

Table 13.4.17 R­410A Base Case Distribution of Efficiencies for Non­Standard Size PTAC

Shipments with a 11,000 Btu/h Cooling Capacity in 2010

R­410A Equipment Distribution by TSL (EER))

Shipment

Forecast

Year Baseline

8.6 TSL 1, 2, 4

9.4 TSL 3

9.7 TSL 5

10.0 TSL 6

10.7 TSL 7

11.2

2009 **19.8% 18.6%**  **17.8% 16.9%**  **14.4% 12.5%** 

2010 **73.1%**

**­ ­**  **14.4% 12.5%** 

**­**

Table 13.4.18 R­410A Base Case Distribution of Efficiencies for Non­Standard Size PTHP

Shipments with a 11,000 Btu/h Cooling Capacity in 2010

R­410A Equipment Distribution by TSL (EER)

Shipment

Forecast

Year Baseline

8.5 TSL 1

9.4 TSL 3

9.7 TSL 4, 5

10.0 TSL 6

10.7 TSL 7

11.4

2009 **19.1% 18.5%**  **17.8% 17.2%**  **14.9% 12.4%** 

2010 **72.6%**

**­ ­**  **14.9% 12.4%** 

**­**

13.4.7.2 Standards Case

**As previously**  **mentioned, DOE**  **assumed that**  **the shipment**  **distributions for**  **PTACs and** 

**PTHPs would**  **shift according**  **to the**  **different system**  **degradations calculated**  **in the**  **engineering**

**analysis. To**  **exam the**  **effects of**  **amended energy**  **conservation standards**  **on shipments,**  **which**

**affects the**  **INPV, DOE**  **utilized the**  **R­410A base**  **case shipments**  **described in**  **section 13.4.7.1**  **as**

**the base**  **case shipments.**  **In other**  **words, regardless**  **of any**  **proposed standards,**  **the base**  **case**

**shipments are**  **assumed to**  **be the**  **R­410A base**  **case shipments.** 

**For the**  **standards case**  **utilizing the**  **R­410A base**  **case shipments,**  **DOE assumed** 

**shipments at**  **lower efficiencies**  **were most**  **likely to**  **roll up**  **into higher**  **efficiency levels**  **in**

**response to**  **an increase**  **in energy**  **conservation standards.**  **This is**  **a pessimistic**  **scenario that** 

**assumes that**  **demand for**  **high efficiency**  **equipment is**  **a function**  **of its**  **price without**  **regards for** 

**the standard**  **level. Table**  **13.4.19 through**  **Table 13.4.24**  **show the**  **distributions of**  **efficiencies for** 

**the various**  **equipment classes**  **in 2012**  **using an**  **R­410A base**  **case under**  **the roll­up**  **scenario.**

**13­20**Table 13.4.19 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Standard Size PTACs with a Cooling Capacity of 9,000 Btu/h in 2012

– Rollup Scenario

TSL

(EER) Baseline

10.6 TSL 1, 2, 4

10.9 TSL 3

11.1 TSL 5

11.3 TSL 6

11.5 TSL 7

12.0

Baseline

10.6 **70.9% 15.6%** 

**­ 13.5%** 

**­ ­** 

TSL 1

10.9 **­ 86.5%** 

**­ 13.5%** 

**­ ­** 

TSL 2

11.1 **­ ­**  **86.5% 13.5%** 

**­ ­** 

TSL 3

11.3 **­ ­**  **­ 100%** 

**­ ­** 

TSL 4

11.5 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

12.0 **­ ­**  **­ ­**  **­ 100%** 

Table 13.4.20 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Standard Size PTHPs with a Cooling Capacity of 9,000 Btu/h in 2012

– Rollup Scenario

TSL

(EER) Baseline

10.4 TSL 1

10.9 TSL 2, 3

11.1 TSL 4, 5

11.3 TSL 6

11.5 TSL 7

12.0

Baseline

10.4 **69.8% 15.8%** 

**­ 14.4%** 

**­ ­** 

TSL 1

10.9 **­ 85.6%** 

**­ 14.4%** 

**­ ­** 

TSL 2

11.1 **­ ­**  **85.6% 14.4%** 

**­ ­** 

TSL 3

11.3 **­ ­**  **­ 100%** 

**­ ­** 

TSL 4

11.5 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

12.0 **­ ­**  **­ ­**  **­ 100%** 

Table 13.4.21 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Standard Size PTACs with a Cooling Capacity of 12,000 Btu/h in 2012

– Rollup Scenario

TSL

(EER) Baseline

9.9 TSL 1, 2, 4

10.2 TSL 3

10.4 TSL 5

10.6 TSL 6

10.8 TSL 7

11.5

Baseline

9.9 **87.9%**

**­ ­**  **12.1%**

**­ ­** 

TSL 1

10.2 **­ 87.9%** 

**­ 12.1%** 

**­ ­** 

TSL 2

10.4 **­ ­**  **87.9% 12.1%** 

**­ ­** 

TSL 3

10.6 **­ ­**  **­ 100%** 

**­ ­** 

TSL 4

10.8 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

11.5 **­ ­**  **­ ­**  **­ 100%** 

**13­21**Table 13.4.22 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Standard Size PTHPs with a Cooling Capacity of 12,000 Btu/h in 2012

– Rollup Scenario

TSL

(EER) Baseline

9.7 TSL 1

10.2 TSL 2, 3

10.4 TSL 4, 5

10.6 TSL 6

10.8 TSL 7

11.7

Baseline

9.7 **87.9%**

**­ ­**  **­ 12.1%** 

**­**

TSL 1

10.2 **­ 87.9%** 

**­ ­**  **12.1%**

**­**

TSL 2

10.4 **­ ­**  **87.9%**

**­ 12.1%** 

**­**

TSL 3

10.6 **­ ­**  **­ 87.9%**  **12.1%**

**­**

TSL 4

10.8 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

11.7 **­ ­**  **­ ­**  **­ 100%** 

Table 13.4.23 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Non­Standard Size PTACs with a 11,000 Btu/h Cooling Capacity in 2012

– Rollup Scenario

TSL

(EER) Baseline

8.6 TSL 1, 2, 4

9.4 TSL 3

9.7 TSL 5

10.0 TSL 6

10.7 TSL 7

11.2

Baseline

8.6 **73.1%**

**­ ­**  **14.4% 12.5%** 

**­**

TSL 1

9.4 **­ 73.1%** 

**­ 14.4%**  **12.5%**

**­**

TSL 2

9.7 **­ ­**  **73.1% 14.4%**  **12.5%**

**­**

TSL 3

10.0 **­ ­**  **­ 87.5%**  **12.5%**

**­**

TSL 4

10.7 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

11.2 **­ ­**  **­ ­**  **­ 100%** 

**13­22**Table 13.4.24 Distribution of Shipments in the Standards Case using an R­410A Base Case

Distribution for Non­Standard Size PTHPs with a 11,000 Btu/h Cooling Capacity in 2012

– Rollup Scenario

TSL

(EER) Baseline

10.4 TSL 1

9.4 TSL 2, 3

9.7 TSL 4, 5

10.0 TSL 6

10.7 TSL 7

11.4

Baseline

8.5 **72.6%**

**­ ­**  **14.9% 12.4%** 

**­**

TSL 1

9.4 **­ 72.6%** 

**­ 14.9%**  **12.4%**

**­**

TSL 2

9.7 **­ ­**  **72.6% 14.9%**  **12.4%**

**­**

TSL 3

10.0 **­ ­**  **­ 87.6%**  **12.4%**

**­**

TSL 4

10.7 **­ ­**  **­ ­**  **100%**

**­**

TSL 5

11.4 **­ ­**  **­ ­**  **­ 100%** 

13.4.8 Production Costs

**Changes in**  **equipment costs**  **impact revenues**  **and gross**  **profits. As**  **shown in**  **the**

**engineering analysis**  **(Chapter 5),**  **equipment that**  **is more**  **efficient costs**  **more to**  **produce than** 

**baseline equipment**  **for a**  **given capacity.**  **For the**  **MIA, DOE**  **used the**  **production costs**  **derived in** 

**the engineering**  **analysis, with**  **appropriate production**  **volume assumptions.**  **For instance,**  **more**

**efficient equipment**  **sold under**  **existing energy**  **conservation standards**  **are manufactured**  **at lower** 

**production volumes**  **than standard**  **efficiency equipment.**  **Enacting more**  **stringent energy** 

**conservation standards**  **will increase**  **production volumes**  **for more**  **efficient units.** 

**The GRIM**  **included the**  **proportion of**  **costs devoted**  **to labor,**  **materials, freight,** 

**depreciation, and**  **non­depreciation overhead**  **that make**  **up the**  **full cost**  **of the**  **equipment. Using** 

**the same**  **industry calibrated**  **reverse engineering**  **methodology as**  **in the**  **engineering analysis,** 

**DOE estimated**  **the proportion**  **of costs**  **associated with**  **each cost**  **category. Table**  **13.4.25**

**through Table**  **13.4.30 provide**  **the production**  **cost assumptions**  **used in**  **the GRIM**  **for R­22** 

**standard and**  **non­standard size**  **PTAC and**  **PTHP equipment**  **as detailed**  **in the**  **engineering**

**analysis.**

**13­23 1** 

**2**

**3**

**4**

**5**

**6**

**7** Table 13.4.25 Base Case Production Costs (2006$) used in the GRIM for R­22 Standard

Size PTAC 9,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (10.6)**  **$278.87 $13.60**  **$36.89 $329.36** 

**TSL (10.9)**  **$283.36 $13.82**  **$37.48 $334.66** 

**TSL (10.9)**  **$283.36 $13.82**  **$37.48 $334.66** 

**TSL (11.1)**  **$286.61 $13.98**  **$37.91 $338.50** 

**TSL (10.9)**  **$283.36 $13.82**  **$37.48 $334.66** 

**TSL (11.3)**  **$290.06 $14.15**  **$38.37 $342.58** 

**TSL (11.5)**  **$293.73 $14.33**  **$38.85 $346.91** 

**TSL (12.0)**  **$303.80 $14.82**  **$40.19 $358.80** 

***Includes Shipping**  **and Depreciation** 

Table 13.4.26 Base Case Production Costs (2006$) used in the GRIM for R­22 Standard

Size PTHP 9,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (10.4)**  **$318.48 $15.53**  **$42.13 $376.14** 

**TSL 1**  **(10.9) $325.69**  **$15.89 $43.08**  **$384.66**

**TSL 2**  **(11.1) $328.94**  **$16.05 $43.51**  **$388.50**

**TSL 3**  **(11.1) $328.94**  **$16.05 $43.51**  **$388.50**

**TSL 4**  **(11.3) $332.40**  **$16.21 $43.97**  **$392.58**

**TSL 5**  **(11.3) $332.40**  **$16.21 $43.97**  **$392.58**

**TSL 6**  **(11.5) $336.06**  **$16.39 $44.45**  **$396.91**

**TSL 7**  **(12.0) $346.13**  **$16.88 $45.79**  **$408.80**

***Includes Shipping**  **and Depreciation** 

Table 13.4.27 Base Case Production Costs (2006$) used in the GRIM for R­22 Standard

Size PTAC 12,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (9.9)**  **$317.98 $15.51**  **$42.06 $375.55** 

**TSL 1**  **(10.2) $323.34**  **$15.77 $42.77**  **$381.88**

**TSL 2**  **(10.2) $323.34**  **$15.77 $42.77**  **$381.88**

**TSL 3**  **(10.4) $327.37**  **$15.97 $43.30**  **$386.65**

**TSL 4**  **(10.2) $323.34**  **$15.77 $42.77**  **$381.88**

**TSL 5**  **(10.6) $331.77**  **$16.18 $43.89**  **$391.84**

**TSL 6**  **(10.8) $336.54**  **$16.42 $44.52**  **$397.47**

**TSL 7**  **(11.5) $356.12**  **$17.37 $47.11**  **$420.59**

***Includes Shipping**  **and Depreciation** 

**13­24**Table 13.4.28 Base Case Production Costs (2006$) used in the GRIM for R­22 Standard

Size PTHP 12,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (9.7)**  **$357.19 $17.42**  **$47.25 $421.87** 

**TSL 1**  **(10.2) $365.67**  **$17.84 $48.37**  **$431.88**

**TSL 2**  **(10.4) $369.71**  **$18.03 $48.90**  **$436.65**

**TSL 3**  **(10.4) $369.71**  **$18.03 $48.90**  **$436.65**

**TSL 4**  **(10.6) $374.11**  **$18.25 $49.49**  **$441.84**

**TSL 5**  **(10.6) $374.11**  **$18.25 $49.49**  **$441.84**

**TSL 6**  **(10.8) $378.88**  **$18.48 $50.12**  **$447.47**

**TSL 7**  **(11.7) $404.87**  **$19.75 $53.56**  **$478.18**

***Includes Shipping**  **and Depreciation** 

Table 13.4.29 Base Case Production Costs (2006$) used in the GRIM for R­22 NonStandard Size PTAC 11,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (8.6)**  **$292.57 $53.10**  **$102.44 $448.10** 

**TSL 1**  **(9.4) $296.88**  **$53.88 $103.95**  **$454.70**

**TSL 2**  **(9.4) $296.88**  **$53.88 $103.95**  **$454.70**

**TSL 3**  **(9.7) $299.69**  **$54.39 $104.93**  **$459.02**

**TSL 4**  **(9.4) $296.88**  **$53.88 $103.95**  **$454.70**

**TSL 5**  **(10.0) $303.16**  **$55.02 $106.15**  **$464.33**

**TSL 6**  **(10.7) $313.80**  **$56.95 $109.87**  **$480.63**

**TSL 7**  **(11.2) $323.58**  **$58.73 $113.30**  **$495.61**

***Includes Shipping**  **and Depreciation** 

Table 13.4.30 Base Case Production Costs (2006$) used in the GRIM for R­22 NonStandard Size PTHP 11,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (8.5)**  **$325.00 $58.99**  **$113.79 $497.78** 

**TSL 1**  **(9.4) $329.52**  **$59.81 $115.38**  **$504.70**

**TSL 2**  **(9.7) $332.34**  **$60.32 $116.36**  **$509.02**

**TSL 3**  **(9.7) $332.34**  **$60.32 $116.36**  **$509.02**

**TSL 4**  **(10.0) $335.81**  **$60.95 $117.58**  **$514.33**

**TSL 5**  **(10.0) $335.81**  **$60.95 $117.58**  **$514.33**

**TSL 6**  **(10.7) $346.45**  **$62.88 $121.30**  **$530.63**

**TSL 7**  **(11.4) $360.65**  **$65.46 $126.28**  **$552.38**

***Includes Shipping**  **and Depreciation** 

**DOE assumed**  **that in**  **2010, manufacturers**  **would sell**  **PTACs and**  **PTHPs priced**  **as R** 

**410A equipment.**  **Therefore, for**  **2010 and**  **beyond, DOE**  **used the**  **production costs**  **derived in**  **the**

**engineering analysis**  **for R­410A**  **equipment.**

**Table 13.4.31**  **through Table**  **13.4.36 provide**  **the production**  **cost assumptions**  **used in**  **the**

**GRIM for**  **R­410A standard**  **and non­standard**  **size PTAC**  **and PTHP**  **equipment as**  **detailed in**  **the**

**engineering analysis**  **(Chapter 5**  **of the**  **TSD).**

**13­25**Table 13.4.31 Base Case Production Costs (2006$) used in the GRIM for R­410A Standard

Size PTAC 9,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (10.6)**  **$308.31 $15.04**  **$40.78 $364.13** 

**TSL 1**  **(10.9) $313.74**  **$15.30 $41.50**  **$370.55**

**TSL 2**  **(10.9) $313.74**  **$15.30 $41.50**  **$370.55**

**TSL 3**  **(11.1) $317.62**  **$15.49 $42.01**  **$375.13**

**TSL 4**  **(10.9) $313.74**  **$15.30 $41.50**  **$370.55**

**TSL 5**  **(11.3) $321.71**  **$15.69 $42.56**  **$379.96**

**TSL 6**  **(11.5) $326.00**  **$15.90 $43.12**  **$385.03**

**TSL 7**  **(12.0) $337.65**  **$16.47 $44.66**  **$398.78**

***Includes Shipping**  **and Depreciation** 

Table 13.4.32 Base Case Production Costs (2006$) used in the GRIM for R­410A Standard

Size PTHP 9,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (10.4)**  **$347.29 $16.94**  **$45.94 $410.17** 

**TSL 1**  **(10.9) $356.08**  **$17.37 $47.10**  **$420.56**

**TSL 2**  **(11.1) $359.97**  **$17.56 $47.62**  **$425.14**

**TSL 3**  **(11.1) $359.97**  **$17.56 $47.62**  **$425.14**

**TSL 4**  **(11.3) $364.05**  **$17.76 $48.16**  **$429.97**

**TSL 5**  **(11.3) $364.05**  **$17.76 $48.16**  **$429.97**

**TSL 6**  **(11.5) $368.35**  **$17.97 $48.72**  **$435.04**

**TSL 7**  **(12.0) $379.99**  **$18.54 $50.26**  **$448.79**

***Includes Shipping**  **and Depreciation** 

Table 13.4.33 Base Case Production Costs (2006$) used in the GRIM for R­410A Standard

Size PTAC 12,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (9.9)**  **$361.62 $17.64**  **$47.83 $427.09** 

**TSL 1**  **(10.2) $368.90**  **$17.99 $48.80**  **$435.69**

**TSL 2**  **(10.2) $368.90**  **$17.99 $48.80**  **$435.69**

**TSL 3**  **(10.4) $374.20**  **$18.25 $49.50**  **$441.96**

**TSL 4**  **(10.2) $368.90**  **$17.99 $48.80**  **$435.69**

**TSL 5**  **(10.6) $379.88**  **$18.53 $50.25**  **$448.66**

**TSL 6**  **(10.8) $385.92**  **$18.82 $51.05**  **$455.79**

**TSL 7**  **(11.5) $409.96**  **$20.00 $54.23**  **$484.18**

***Includes Shipping**  **and Depreciation** 

**13­26**Table 13.4.34 Base Case Production Costs (2006$) used in the GRIM for R­410A Standard

Size PTHP 12,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (9.7)**  **$399.57 $19.49**  **$52.85 $471.91** 

**TSL 1**  **(10.2) $411.23**  **$20.06 $54.40**  **$485.69**

**TSL 2**  **(10.4) $416.54**  **$20.32 $55.10**  **$491.96**

**TSL 3**  **(10.4) $416.54**  **$20.32 $55.10**  **$491.96**

**TSL 4**  **(10.6) $422.21**  **$20.59 $55.85**  **$498.66**

**TSL 5**  **(10.6) $422.21**  **$20.59 $55.85**  **$498.66**

**TSL 6**  **(10.8) $428.26**  **$20.89 $56.65**  **$505.79**

**TSL 7**  **(11.7) $459.99**  **$22.44 $60.85**  **$543.27**

***Includes Shipping**  **and Depreciation** 

Table 13.4.35 Base Case Production Costs (2006$) used in the GRIM for R­410A NonStandard Size PTAC 11,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (8.6)**  **$313.55 $56.91**  **$109.78 $480.25** 

**TSL 1**  **(9.4) $321.39**  **$58.33 $112.53**  **$492.25**

**TSL 2**  **(9.4) $321.39**  **$58.33 $112.53**  **$492.25**

**TSL 3**  **(9.7) $325.52**  **$59.08 $113.98**  **$498.58**

**TSL 4**  **(9.4) $321.39**  **$58.33 $112.53**  **$492.25**

**TSL 5**  **(10.0) $330.32**  **$59.95 $115.65**  **$505.92**

**TSL 6**  **(10.7) $344.04**  **$62.44 $120.46**  **$526.94**

**TSL 7**  **(11.2) $356.02**  **$64.62 $124.65**  **$545.29**

***Includes Shipping**  **and Depreciation** 

Table 13.4.36 Base Case Production Costs (2006$) used in the GRIM for R­410A NonStandard Size PTHP 11,000 Btu/h Cooling Capacity

TSL

(EER) Material Labor Overhead* Total

**Baseline (8.5)**  **$345.55 $62.72**  **$120.99 $529.25** 

**TSL 1**  **(9.4) $354.03**  **$64.26 $123.96**  **$542.25**

**TSL 2**  **(9.7) $358.17**  **$65.01 $125.41**  **$548.58**

**TSL 3**  **(9.7) $358.17**  **$65.01 $125.41**  **$548.58**

**TSL 4**  **(10.0) $362.96**  **$65.88 $127.08**  **$555.92**

**TSL 5**  **(10.0) $362.96**  **$65.88 $127.08**  **$555.92**

**TSL 6**  **(10.7) $376.68**  **$68.37 $131.89**  **$576.94**

**TSL 7**  **(11.4) $393.97**  **$71.50 $137.94**  **$603.41**

***Includes Shipping**  **and Depreciation** 

13.4.9 Conversion Costs

**Amended energy**  **conservation standards**  **typically cause**  **manufacturers to**  **incur one­time** 

**conversion costs**  **to bring**  **their production**  **facilities and**  **equipment designs**  **in compliance**  **with**

**the new**  **regulation. For**  **the purpose**  **of the**  **MIA, DOE**  **classified these**  **one­time conversion**  **costs**

**into two**  **major groups,**  **conversion capital**  **expenditures and**  **equipment conversion**  **expenses.**

**Conversion capital**  **expenditures are**  **one­time investments**  **in property,**  **plant, and**  **equipment to** 

**adapt or**  **change existing**  **production facilities**  **so that**  **new equipment**  **designs can**  **be fabricated** 

**and assembled**  **under the**  **new regulation.**  **Equipment conversion**  **expenses are**  **one­time**

**13­27 investments**  **in research,**  **development, testing,**  **and marketing**  **focused on**  **making equipment** 

**designs comply**  **with amended**  **energy conservation**  **standards. As**  **part of**  **the analysis,**  **DOE also** 

**assumed manufacturers**  **will have**  **additional conversion**  **costs to**  **manufacture R­410A**  **equipment.**

**The following**  **sections describe**  **in more**  **detail DOE’s**  **assumptions and**  **inputs to**  **the GRIM** 

**related to**  **amended energy**  **conservation standards**  **and refrigerant**  **phaseout conversion**  **costs.**

13.4.9.1 Conversion Capital Expenditures

**DOE evaluated**  **the level**  **of capital**  **investment needed**  **to comply**  **with both**  **the impending** 

**refrigerant phaseout**  **and the**  **amended conservation**  **standards at**  **each TSL.**  **The time**  **required to** 

**fabricate and**  **assemble the**  **equipment can**  **potentially increase**  **as efficiency**  **increases.**

13.4.9.2 R­410A Conversion

**Currently, the**  **PTAC and**  **PTHP industry**  **is standardized**  **around the**  **use of**  **R­22**

**refrigerant in**  **all its**  **equipment. All**  **manufacturers expressed**  **the intent**  **to transition**  **to R­410A** 

**once the**  **use of**  **R­22 is**  **prohibited in**  **2010. The**  **total investment**  **required for**  **this PTAC**  **and**

**PTHP rulemaking**  **include components**  **that are**  **difficult to**  **disaggregate. This**  **is the**  **biggest**

**external burden**  **on manufacturers**  **of PTAC**  **and PTHP**  **equipment since**  **conversion to**  **R­410A**

**refrigerant would**  **impact all**  **PTACs and**  **PTHPs. To**  **quantify the**  **magnitude of**  **investments**

**needed to**  **comply with**  **the refrigerant**  **phaseout, DOE**  **first examined**  **what would**  **be required**  **to**

**convert equipment**  **from R­22**  **refrigerant to**  **R­410A refrigerant.**  **The level**  **of investment**  **needed**

**is a**  **trade off**  **between higher**  **fixed costs**  **(investments) and**  **higher variable**  **(equipment) costs.** 

**It is**  **possible to**  **convert an**  **existing R­22**  **unit to**  **R­410A by**  **performing a**  **“drop­in”**

**conversion. At**  **the very**  **least, manufacturers**  **would have**  **to replace**  **the R­22**  **compressor with**  **a**

**comparable R­410A**  **compressor, change**  **the refrigerant,**  **and change**  **some other**  **sealed system** 

**components such**  **as expansion**  **valves and**  **lubricating oils.**  **An alternate**  **solution would**  **entail a** 

**complete equipment**  **redesign that**  **takes advantage**  **of R­410A**  **properties and**  **the available**  **R**

**410A components.**  **Complete redesigns**  **would allow**  **manufacturers to**  **optimize their**  **units for** 

**alternative refrigerant**  **operation. In**  **order for**  **PTAC and**  **PTHP manufacturers**  **to convert**  **all of** 

**the existing**  **equipment to**  **R­410A, manufacturers**  **would redesign,**  **re­certify, and**  **test their** 

**existing equipment,**  **alter the**  **production process,**  **and conduct**  **some level**  **of re­tooling.**  **Several**

**manufacturers stated**  **during the**  **manufacturer interviews**  **that they**  **would need**  **to extend**  **their**

**knowledge base**  **of R­410A**  **commercial systems**  **and utilize**  **engineering resources**  **from other** 

**areas within**  **their company**  **before carrying**  **out complete**  **redesigns. In**  **addition, manufacturing** 

**facilities will**  **need to**  **expand to**  **include the**  **necessary infrastructure.** 

**All manufacturers**  **anticipate testing**  **their existing**  **equipment with**  **R­410A refrigerants** 

**and compressors.**  **Should their**  **equipment still**  **meet baseline**  **minimum energy**  **conservation**

**standards, capital**  **expenditures will**  **be largely**  **limited to**  **evacuation and**  **refrigerant­filling**

**machines, which**  **may require**  **modification or**  **replacement in**  **order to**  **accommodate R­410A.** 

**Manufacturers may**  **recircuit their**  **coils to**  **optimize the**  **units for**  **R­410A, but**  **this will**  **not result** 

**in a**  **significant capital**  **expense.**

**Equipment that**  **does not**  **meet baseline**  **energy conservation**  **standards with**  **a simple** 

**compressor “drop­in,”**  **will require**  **redesigns that**  **are more**  **extensive. Such**  **redesigns may**  **result**

**13­28 in**  **coil changes**  **that require**  **a manufacturer**  **to invest**  **in new**  **heat exchanger**  **tooling, heat** 

**exchanger line**  **expansions (to**  **accommodate larger**  **heat exchangers),**  **and/or fixed**  **tooling**

**investments (to**  **accommodate bulkhead**  **redesigns, for**  **example). Few**  **manufacturers have**  **even**

**started their**  **R­410A conversion**  **efforts, making**  **capital expenditure**  **estimates (and**  **their timing)** 

**quite difficult**  **to predict.** 

**Presently, DOE**  **anticipates a**  **minimum system**  **performance degradation**  **of 6**  **percent to**  **8**

**percent due**  **to R­410A**  **conversion, and**  **industry capital**  **expenditures are**  **being estimated**  **on the** 

**basis of**  **market share**  **and current**  **equipment EER**  **ratings. That**  **is, manufacturers**  **whose**

**equipment is**  **not expected**  **to meet**  **minimum energy**  **conservation standards**  **due to**  **the R­410A** 

**conversion are**  **expected to**  **incur capital**  **expenditures in**  **excess of**  **the simple**  **line modifications** 

**outlined above**  **before the**  **R­22 refrigerant**  **phaseout in**  **2010.**

**For the**  **GRIM, DOE**  **estimated the**  **capital expenditures**  **on the**  **basis of**  **statements made** 

**by manufacturers**  **during interviews.**  **Based on**  **these interviews,**  **the entire**  **standard size**  **PTAC**

**and PTHP**  **industry is**  **estimated to**  **incur a**  **one­time capital**  **expenditure of**  **$7.0 million**  **for the** 

**conversion of**  **its units**  **from R­22**  **to R­410A.**  **For the**  **non­standard size**  **PTAC and**  **PTHP**

**industry, DOE**  **estimated that**  **the entire**  **industry would**  **incur a**  **one­time conversion**  **capital**

**expenditure of**  **$0.6 million**  **for the**  **conversion of**  **its units**  **from R­22**  **to R­410A.** 

13.4.9.3 Energy Conservation Standards

**For each**  **TSL, DOE**  **is making**  **an estimate**  **similar to**  **the R­410A**  **conversion capital** 

**expenditures outlined**  **above. That**  **is, for**  **each TSL,**  **a proportion**  **of the**  **equipment on**  **the market** 

**will have**  **to be**  **redesigned. The**  **higher the**  **TSL, the**  **greater the**  **proportion of**  **the equipment**  **on**

**the market**  **that will**  **require a**  **redesign and**  **possible capital**  **expenditures.**

**Multiple manufacturers**  **noted fierce**  **price competition**  **in the**  **industry, which**  **encourages**

**them to**  **only introduce**  **more efficient**  **units as**  **higher energy**  **conservation standards**  **become**

**effective. Thus,**  **DOE projects**  **that the**  **capital expenditures**  **required to**  **meet amended**  **energy**

**conservation standards**  **will occur**  **principally in**  **the year**  **before the**  **amended energy**  **conservation**

**standards become**  **effective.**

**Based on**  **manufacturer interviews,**  **DOE assumed**  **that the**  **entire standard**  **size PTAC**  **and**

**PTHP industry**  **will incur**  **a conversion**  **capital expenditure**  **of $13.6**  **million to**  **increase efficiency** 

**from baseline**  **to efficiency**  **level 7**  **(TSL 7).**  **For the**  **non­standard size**  **PTAC and**  **PTHP industry,** 

**DOE assumed**  **the entire**  **industry will**  **incur a**  **conversion capital**  **expenditure of**  **$3.8 million**  **to**

**increase efficiency**  **from baseline**  **to efficiency**  **level 7**  **(TSL 7).**  **Table 13.4.37**  **and Table**  **13.4.38**

**summarizes the**  **breakdown of**  **conversion capital**  **expenditure by**  **TSL for**  **the standard**  **and non** 

**standard size**  **PTAC and**  **PTHP industries.** 

**13­29**1

2

3

4

5

6

7 Table 13.4.37 Conversion Capital Expenditure for Standard Size PTACs and PTHPs by

TSL

TSL Standard Size Equipment Industry

Conversion Capital Expenditure (2006$ million)

PTAC PTHP Industry Total

Baseline **0.0 0.0**  **0.0**

TSL **1.7 1.7**  **3.4**

TSL **0.8 4.7**  **5.6**

TSL **2.4 2.4**  **4.7**

TSL **2.5 5.4**  **7.9**

TSL **2.7 2.7**  **5.4**

TSL **5.1 5.1**  **10.1**

TSL **6.8 6.8**  **13.5**

Table 13.4.38 Conversion Capital Expenditure for Non­Standard PTACs and PTHPs by

TSL

TSL Non­Standard Size Equipment Industry

Conversion Capital Expenditure (2006$ million)

PTAC PTHP Industry Total

Baseline **0.0 0.0**  **0.0**

TSL 1 **0.6 0.6**  **1.3**

TSL 2 **0.3 1.9**  **2.2**

TSL 3 **1.0 1.0**  **1.9**

TSL 4 **0.9 2.6**  **3.5**

TSL 5 **1.3 1.3**  **2.6**

TSL 6 **1.6 1.6**  **3.2**

TSL 7 **1.9 1.9**  **3.9**

13.4.9.4 Equipment Conversion Expenses

**DOE conducted**  **interviews with**  **manufacturers to**  **better understand**  **the many**  **steps that** 

**manufacturers have**  **to take**  **before they**  **can release**  **new or**  **improved equipment.**  **All**

**manufacturers expect**  **significant equipment**  **conversion expenses**  **as a**  **result of**  **the refrigerant** 

**transition to**  **R­410A as**  **well as**  **any TSLs**  **beyond baseline.**  **The magnitude**  **of the**  **required**

**investments varies**  **by manufacturer**  **and the**  **analyzed TSL.** 

13.4.9.5 R­410A Conversion

**All manufacturers**  **who wish**  **to compete**  **in the**  **industry beyond**  **the 2010**  **R­22 refrigerant** 

**phaseout will**  **incur a**  **R­410A equipment**  **conversion expense**  **since none**  **of them**  **currently**

**manufacture R­410A­based**  **PTACs or**  **PTHPs. The**  **cost of**  **converting equipment**  **from R­22**  **to**

**R­410A refrigerants**  **depends on**  **many factors,**  **such as**  **the current**  **heat exchanger**  **configuration,**

**the burst**  **strength of**  **the sealed**  **system, etc.** 

**13­30 Some**  **manufacturers have**  **already started**  **preliminary unit**  **testing based**  **on existing**  **R­22**

**units whose**  **sole change**  **is a**  **R­410A­capable compressor.**  **If such**  **units can**  **reach baseline** 

**energy conservation**  **standards, the**  **necessary equipment**  **modification can**  **be limited**  **to**

**qualifying more**  **R­410A compressors,**  **updated equipment**  **literature, updated**  **training for** 

**technicians, some**  **testing, and**  **minor modifications**  **to take**  **advantage of**  **higher system**  **pressures.**

**Manufacturers whose**  **units do**  **not manage**  **to exceed**  **the baseline**  **energy conservation** 

**standard using**  **R­410A are**  **likely to**  **require much**  **more substantial**  **investments to**  **make their** 

**units legal**  **for sale.**  **Manufacturers also**  **have the**  **option to**  **increase the**  **energy efficiency**  **of their** 

**units beyond**  **baseline (to**  **hit ENERGY**  **STAR, for**  **example), which**  **could also**  **result in** 

**substantial investment**  **requirements.**

**Due to**  **the inherently**  **higher costs**  **of R­410A­based**  **units and**  **intense market**  **competition,**

**DOE does**  **not expect**  **manufacturers to**  **release R­410A­based**  **units until**  **R­22­based unit**  **stocks**

**have been**  **depleted. Based**  **on the**  **observed compressor**  **degradation, market**  **shares, and**  **the**

**energy efficiencies**  **of current**  **R­22 units,**  **DOE estimates**  **that the**  **entire standard**  **size PTAC**  **and**

**PTHP industry**  **would spend**  **approximately $14.0**  **million in**  **equipment conversion**  **costs to** 

**convert all**  **its equipment**  **to R­410A.**  **For non­standard**  **size PTAC**  **and PTHP**  **industry, DOE** 

**estimates that**  **the entire**  **industry would**  **spend approximately**  **$7.5 million**  **in equipment** 

**conversion costs**  **to make**  **the switch**  **to R­410A.** 

**Among other**  **things, any**  **new components**  **scheduled for**  **use require**  **lengthy testing**  **and**

**qualification trials**  **to ensure**  **that the**  **manufacturer will**  **not incur**  **higher than**  **expected warranty** 

**expenses. Despite**  **such testing,**  **multiple manufacturers**  **noted that**  **they expected**  **higher­than**

**normal initial**  **failure rates**  **for R­410A­based**  **equipment due**  **to higher**  **system pressures**  **and the** 

**hydroscopic nature**  **of the**  **polyolester oil**  **(POE) that**  **lubricate R­410A­based**  **systems.**

13.4.9.6 Energy Conservation Standards

**All manufacturers**  **interviewed by**  **DOE expect**  **to start**  **focusing on**  **energy conservation** 

**standards once**  **their units**  **have made**  **the R­410A**  **transition in**  **2010. Multiple**  **manufacturers**

**expressed an**  **interest in**  **developing equipment**  **platforms by**  **2010, which**  **would only**  **require**

**minor additional**  **changes in**  **order to**  **accommodate higher**  **energy conservation**  **standards.**

**Multiple manufacturers**  **also stated**  **that they**  **expected the**  **currently wide**  **distribution of** 

**energy efficiencies**  **to be**  **reduced to**  **clusters that**  **just meet**  **the minimum**  **energy conservation** 

**standards or**  **any new**  **ENERGY STAR**  **standards. Thus,**  **more manufacturers**  **may start**  **offering**

**two­tiered efficiency**  **equipment in**  **the marketplace,**  **particularly if**  **they expect**  **rebates to** 

**subsidize (and**  **hence stimulate**  **demand for)**  **high­efficiency units.** 

**DOE assumed**  **that the**  **entire standard**  **size PTAC**  **and PTHP**  **industry will**  **incur a** 

**equipment conversion**  **expense of**  **$17.6 million**  **to increase**  **efficiency from**  **baseline to**  **efficiency**

**level 7**  **(TSL 7).**  **For the**  **non­standard size**  **PTAC and**  **PTHP industry,**  **DOE assumed**  **the entire** 

**industry will**  **incur a**  **equipment conversion**  **expense of**  **$15 million**  **to increase**  **efficiency from** 

**baseline to**  **efficiency level**  **7 (TSL**  **7). Table**  **13.4.39 and**  **Table 13.4.40**  **summarizes the** 

**breakdown of**  **equipment conversion**  **by efficiency**  **level for**  **the standard**  **and non­standard**  **size**

**PTAC and**  **PTHP industries.** 

**13­31**1

2

3

4

5

6

7 Table 13.4.39 Equipment Conversion Expenses for Standard Size PTACs and PTHPs by

TSL

TSL Standard Size Equipment Industry

Equipment Conversion Expense (2006$ million)

PTAC PTHP Industry Total

Baseline **0 0**  **0**

TSL **2.2 2.2**  **4.4**

TSL **1.1 6.1**  **7.2**

TSL **3.1 3.1**  **6.1**

TSL **3.3 7.0**  **10.3**

TSL **3.5 3.5**  **7.0**

TSL **6.6 6.6**  **13.1**

TSL **8.8 8.8**  **17.5**

Table 13.4.40 Equipment Conversion Expenses for Non­Standard PTACs and PTHPs by

TSL

TSL Non­Standard Size Equipment Industry

Equipment Conversion Expense (2006$ million)

PTAC PTHP Industry Total

Baseline **0.0 0.0**  **0.0**

TSL 1 **1.3 1.3**  **2.5**

TSL 2 **0.6 5.6**  **6.3**

TSL 3 **2.8 2.8**  **5.6**

TSL 4 **1.9 8.8**  **10.6**

TSL 5 **4.4 4.4**  **8.8**

TSL 6 **5.9 5.9**  **11.9**

TSL 7 **7.5 7.5**  **15.0**

13.4.10 Markups

**To understand**  **how baseline**  **and more**  **efficient equipment**  **are differentiated,**  **DOE**

**reviewed manufacturer**  **catalogs and**  **utilized information**  **gathered by**  **manufacturers. To** 

**estimate the**  **manufacturer price**  **of the**  **equipment sold,**  **DOE applied**  **markups to**  **the production** 

**costs. For**  **the analysis,**  **DOE considered**  **different markup**  **scenarios based**  **on manufacturer**  **input**

**for both**  **standard and**  **non­standard size**  **PTACs and**  **PTHPs. Scenarios**  **were used**  **to bound**  **the**

**range of**  **expected equipment**  **prices following**  **amended energy**  **conservation standards.**  **For each** 

**equipment class,**  **DOE used**  **the markup**  **scenarios that**  **best characterized**  **the prevailing**  **markup**

**conditions and**  **described the**  **range of**  **market responses**  **manufacturers expect**  **as a**  **result of** 

**amended energy**  **conservation standards.** 

**DOE learned**  **from interviews**  **with manufacturers**  **that the**  **majority of**  **manufactures only** 

**offer one**  **product line.**  **A single**  **product line**  **means that**  **there is**  **no markup**  **used to**  **differentiate**

**a baseline**  **piece of**  **equipment from**  **a premium**  **piece of**  **equipment. Through**  **its analysis**  **of the** 

**13­32 PTAC**  **and PTHP**  **industry, DOE**  **also learned**  **that profit**  **margins associated**  **with a**  **PTAC and**  **a**

**PTHP of**  **the same**  **manufacturer at**  **the same**  **cooling capacity**  **do not**  **vary significantly.** 

**Therefore, DOE**  **assumed the**  **same markup**  **for both**  **PTACs and**  **PTHPs.**

**After discussions**  **with manufacturers,**  **DOE believes**  **there are**  **two distinct**  **markup**

**scenarios including**  **flat markup**  **and a**  **markup where**  **only part**  **of the**  **increased production**  **costs**

**are able**  **to be**  **recovered, i.e.,**  **partial cost**  **recovery.**

13.4.10.1 Full Cost Recovery Markup

**Under a**  **full cost**  **recovery markup**  **strategy a**  **single uniform**  **“flat markup”**  **is applied** 

**across all**  **equipment classes**  **and for**  **equipment at**  **all TSLs.**  **To derive**  **these values,**  **DOE**

**evaluated publicly**  **available financial**  **information on**  **manufacturers of**  **PTACs and**  **PTHPs.**

**Individual markups**  **for each**  **company were**  **calculated using**  **the following**  **formula:**

**Markup**

**= 1**  **/ (1­Gross**  **Margin)**

**Where:**

**Gross Margin** 

**= (Revenues** 

**– Costs**  **of Goods**  **Sold) /**  **Revenues**

**DOE arrived**  **at an**  **industry average**  **markup of**  **1.29, where**  **each company’s**  **markup was** 

**weighted by**  **its market**  **share. Further**  **explanation and**  **specific calculations**  **for the**  **full cost** 

**recovery markup**  **can be**  **found in**  **the engineering**  **analysis (Chapter**  **5 of**  **the TSD).** 

13.4.10.2 Partial Cost Recovery Markup

**During interviews,**  **several manufacturers**  **stated that**  **most customers**  **buying PTACs**  **and**

**PTHPs are**  **on a**  **fixed budget**  **and therefore,**  **any significant**  **price increase**  **would be**  **detrimental**

**to the**  **manufacturer’s unit**  **sales and**  **profits. In**  **its GRIM**  **analysis, DOE**  **put together**  **several**

**scenarios regarding**  **how well**  **manufacturers could**  **recover the**  **increased unit**  **costs stemming** 

**from R­410A**  **conversion costs**  **and costs**  **associated with**  **amended energy**  **conservation**

**standards, which**  **it called**  **the 50­percent**  **cost recovery**  **markup.**

**Several manufacturers**  **stated that**  **they would**  **not be**  **able to**  **transfer the**  **entire increase**  **in**

**manufacturing cost**  **to customers**  **as a**  **result of**  **the refrigerant**  **phaseout or**  **amended energy** 

**conservation standards.**  **Manufacturers have**  **experienced similar**  **trends in**  **conforming to**  **the**

**ground fault**  **circuit interrupter**  **(GFCI) cord**  **requirements, where**  **they experienced**  **an increase**  **in**

**manufacturing cost**  **per unit**  **due to**  **the addition**  **of the**  **cord, but**  **were not**  **able to**  **fully recoup**  **the**

**costs of**  **these cords**  **from the**  **customer. In**  **addition, manufacturers**  **also stated**  **as an**  **example the** 

**increases in**  **material prices**  **the industry**  **has experienced**  **over the**  **past several**  **years.**

**Manufacturers stated**  **that even**  **though prices**  **of raw**  **materials, such**  **as copper,**  **have significantly** 

**increased over**  **the past**  **several years,**  **many of**  **them have**  **not been**  **able to**  **increase the**  **price of** 

**the PTAC**  **and PTHP**  **equipment accordingly.**  **One manufacturer**  **stated they**  **were not**  **able to** 

**transfer any**  **of the**  **increases in**  **costs associated**  **with the**  **material price**  **increases experienced**  **by**

**the industry,**  **while the**  **majority of**  **the manufacturers**  **stated they**  **were able**  **to recover** 

**approximately 50­percent**  **of the**  **increases in**  **manufacturing production**  **costs.**

**13­33 According**  **to these**  **manufacturers, transferring**  **all the**  **costs to**  **the customers**  **will increase** 

**the unit’s**  **price enough**  **that customers**  **might opt**  **for other**  **types of**  **equipment. Therefore,**  **for**

**both the**  **refrigerant phaseout**  **and the**  **standards case,**  **DOE modeled**  **a 50­percent**  **cost recovery** 

**markup strategy.**  **Under this**  **markup, DOE**  **assumed that**  **manufacturers would**  **only be**  **able to** 

**recover half**  **the manufacturing**  **costs they**  **incur as**  **a result**  **of changing**  **the equipment**  **to comply** 

**with either**  **the refrigerant**  **phaseout or**  **the amended**  **energy conservation**  **standards. More**  **details**

**of the**  **markup scenarios**  **used to**  **bound the**  **range of**  **impacts from**  **the refrigerant**  **phaseout can**  **be**

**found in**  **section 13.5.**  **More details**  **of the**  **markup scenarios**  **used to**  **bound the**  **range of**  **impacts**

**from the**  **amended energy**  **conservation standards**  **can be**  **found in**  **section 13.6.** 

13.5 MANUFACTURING IMPACTS TO THE BASE CASE AS A RESULT OF THE

REFRIGERANT PHASEOUT

**In 1987,**  **the United**  **Nations Environment**  **Programme (UNEP)**  **adopted the**  **Montreal**

**Protocol on**  **Substances that**  **Deplete the**  **Ozone Layer**  **(Montreal Protocol).**  **The Montreal** 

**Protocol was**  **designed to**  **regulate and**  **phase out**  **ozone­depleting substances**  **through a** 

**collaborative and**  **international effort.**  **In 1988,**  **the United**  **States ratified**  **the Montreal**  **Protocol**

**and thus**  **committed to**  **the phaseout.** 

**In 1990,**  **the Clean**  **Air Act**  **was amended**  **to include**  **Title VI,**  **"Stratospheric Ozone** 

**Protection," to**  **implement the**  **Montreal Protocol.**  **(42 U.S.C.**  **7671, et**  **seq.) Title**  **VI mandated** 

**the phaseout**  **by 2020**  **of hydrochlorofluorocarbon**  **(HCFC) refrigerants**  **for use**  **in new**  **air**

**conditioning systems.**  **(42 U.S.C.**  **7671d) Title**  **VI, however,**  **also authorized**  **the EPA**  **to**

**accelerate this**  **date if**  **certain criteria**  **were met,**  **(42 U.S.C.**  **7671e) and**  **EPA subsequently**  **adopted**

**a rule**  **on December**  **10, 1993**  **to require**  **the phaseout**  **of HCFC**  **refrigerants for**  **use in**  **new**

**equipment by**  **2010. 58**  **FR 65018.**  **R­22, the**  **only refrigerant**  **currently used**  **by PTACs**  **and**

**PTHPs, is**  **an HCFC**  **refrigerant and**  **subject to**  **the phaseout**  **requirement. Phaseout**  **of this** 

**refrigerant could**  **have a**  **significant impact**  **on the**  **manufacturing, performance,**  **and cost**  **of**

**PTAC and**  **PTHP equipment.** 

**As part**  **of the**  **engineering analysis,**  **DOE performed**  **an alternative**  **refrigerant analysis**  **to**

**characterize the**  **performance and**  **cost implications**  **of using**  **an alternative**  **refrigerant in**  **PTACs**

**and PTHPs.**  **To characterize**  **the impacts**  **of conversion**  **from R­22**  **refrigerant to**  **R­410A**

**refrigerant on**  **manufacturers’ cash**  **flows, DOE**  **used the**  **production costs**  **as described**  **in Chapter** 

**5 of**  **the engineering**  **analysis, the**  **shipments distribution**  **for the**  **R­410A base**  **case as**  **described in** 

**section 13.4.7**  **and the**  **markup assumptions**  **described in**  **section 13.6.1.** 

**As previously**  **stated, all**  **manufacturers voiced**  **their concerns**  **about the**  **refrigerant**

**phaseout and**  **possible impacts**  **during manufacturer**  **interviews. Several**  **manufacturers stated** 

**that they**  **would not**  **be able**  **to fully**  **recover the**  **increase in**  **manufacturing costs**  **of PTACs**  **and**

**PTHPs due**  **to the**  **conversion to**  **R­410A refrigerant.**  **Recent mandates**  **for safer**  **electrical**

**connections that**  **caused unit**  **cost increases**  **did not**  **result in**  **higher prices,**  **causing per­unit**  **profits**

**to drop.**  **From a**  **customer utility**  **viewpoint, the**  **R­22 refrigerant**  **phaseout will**  **only result**  **in**

**lower energy**  **efficiency, so**  **manufacturers will**  **likely have**  **great difficulty**  **selling these**  **units at** 

**higher prices.** 

**13­34 To**  **take manufacturers**  **concerns into**  **consideration, DOE**  **examined a**  **markup that**  **would**

**translate to**  **manufacturers recuperating**  **half of**  **the increased**  **production costs**  **associated with**  **R**

**410A equipment.**  **Therefore, DOE**  **modeled a**  **50­percent cost**  **recovery markup**  **scenario, which** 

**assumes manufacturers**  **would only**  **be able**  **to recover**  **half the**  **manufacturing costs**  **they incur**  **to**

**convert their**  **equipment from**  **R­22 into**  **R­410A. Table**  **13.5.1 through**  **Table 13.5.6**  **demonstrate**

**the 50­percent**  **cost recovery**  **mark­up scenarios**  **of R­410A**  **costs for**  **the R­410A**  **base case.** 

Table 13.5.1 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.23**

**TSL 1**  **(10.9) 1.23** 

**TSL 2**  **(10.9) 1.23** 

**TSL 3**  **(11.1) 1.23** 

**TSL 4**  **(10.9) 1.23** 

**TSL 5**  **(11.3) 1.23** 

**TSL 6**  **(11.5) 1.23** 

**TSL 7**  **(12.0) 1.23** 

Table 13.5.2 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.24**

**TSL 1**  **(10.9) 1.23** 

**TSL 2**  **(11.1) 1.23** 

**TSL 3**  **(11.1) 1.23** 

**TSL 4**  **(11.3) 1.23** 

**TSL 5**  **(11.3) 1.23** 

**TSL 6**  **(11.5) 1.23** 

**TSL 7**  **(12.0) 1.23** 

**13­35**Table 13.5.3 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.21**

**TSL 1**  **(10.2) 1.21** 

**TSL 2**  **(10.2) 1.21** 

**TSL 3**  **(10.4) 1.21** 

**TSL 4**  **(10.2) 1.21** 

**TSL 5**  **(10.6) 1.21** 

**TSL 6**  **(10.8) 1.21** 

**TSL 7**  **(11.5) 1.21** 

Table 13.5.4 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.22**

**TSL 1**  **(10.2) 1.22** 

**TSL 2**  **(10.4) 1.22** 

**TSL 3**  **(10.4) 1.22** 

**TSL 4**  **(10.6) 1.22** 

**TSL 5**  **(10.6) 1.22** 

**TSL 6**  **(10.8) 1.22** 

**TSL 7**  **(11.7) 1.21** 

Table 13.5.5 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for NonStandard Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.6)**  **1.25**

**TSL 1**  **(9.4) 1.24** 

**TSL 2**  **(9.4) 1.24** 

**TSL 3**  **(9.7) 1.24** 

**TSL 4**  **(9.4) 1.23** 

**TSL 5**  **(10.0) 1.23** 

**TSL 6**  **(10.7) 1.23** 

**TSL 7**  **(11.2) 1.23** 

**13­36**Table 13.5.6 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.25**

**TSL 1**  **(9.4) 1.25** 

**TSL 2**  **(9.7) 1.24** 

**TSL 3**  **(9.7) 1.24** 

**TSL 4**  **(10.0) 1.24** 

**TSL 5**  **(10.0) 1.24** 

**TSL 6**  **(10.7) 1.24** 

**TSL 7**  **(11.4) 1.24** 

13.5.1 PTAC and PTHP Industry Financial Impacts as a result of the Refrigerant

Phaseout on the Base Case

**Using the**  **inputs and**  **assumptions described**  **in the**  **previous section,**  **the GRIM**  **produced**

**indicators of**  **financial impacts**  **on the**  **PTAC and**  **PTHP industry**  **as a**  **result of**  **the refrigerant** 

**phaseout in**  **2010. The**  **results are**  **bound between**  **the two**  **mark­up scenarios**  **and are**  **solely**

**dependent upon**  **manufacturers’ ability**  **to pass**  **on increased**  **equipment costs**  **resulting from**  **the**

**refrigerant phaseout**  **to the**  **customer. The**  **results are**  **presented as**  **impacts on**  **INPV.**

**The INPV**  **measures the**  **industry value**  **and is**  **used in**  **the MIA**  **to compare**  **the economic** 

**impacts of**  **the refrigerant**  **phaseout on**  **the base**  **case. For**  **the refrigerant**  **phaseout, DOE**  **is**

**interested in**  **characterizing the**  **impact on**  **INPV in**  **2010. Using**  **the GRIM,**  **DOE compared**  **the**

**base case**  **INPV first**  **if there**  **was no**  **conversion to**  **R­410A refrigerant**  **and then**  **if the**  **conversion**

**took place.**  **DOE also**  **examined the**  **impacts on**  **the base**  **case INPV**  **if manufacturers**  **were not** 

**able to**  **fully recuperate**  **all of**  **the costs**  **associated with**  **R­410A conversion.**  **Table 13.5.7**  **and**

**Table 13.5.8**  **provide the**  **INPV estimates**  **for the**  **standard and**  **non­standard size**  **PTAC and** 

**PTHP industries,**  **respectively, under**  **the different**  **cost recovery**  **scenarios.**

Table 13.5.7 Changes in Base Case Industry Net Present Value from R­410A Conversion

for Standard Size PTACs and PTHPs

TSL R­410A Base Case With

Full Cost Recovery

TSL R­410A Base Case With

50­Percent Cost Recovery

INPV Change in INPV INPV Change in INPV

2006$

million 2006$

million % Change 2006$

million 2006$

million* % Change

R­22

Base Case **298**

**­ ­**  R­22

Base Case **298**

**­ ­** 

R­410A

Base Case **305 7**  **2.34%** R­410

Base Case **152 (146)**  **­49.00%**

***** **Values in**  **parenthesis are**  **negative.**

**13­37**Table 13.5.8 Changes in Base Case Industry Net Present Value from R­410A Conversion

for Non­Standard Size PTACs and PTHPs

TSL R­410A Base Case With

Full Cost Recovery

TSL R­410A Base Case With

50­Percent Cost Recovery

INPV Change in INPV INPV Change in INPV

2006$

million 2006$

Million* % Change 2006$

million 2006$

Million* % Change

R­22

Base Case **32**

**­ ­**  R­22

Base Case **32**

**­ ­** 

R­410A

Base Case **28 (4)**  **­12.5%** R­410

Base Case **22 (10)**  **­31.25%**

***** **Values in**  **parenthesis are**  **negative.**

**The results**  **from the**  **GRIM show**  **that if**  **DOE assumes**  **standard size**  **PTAC and**  **PTHP**

**manufacturers will**  **fully recover**  **all costs**  **associated with**  **the R­410A**  **refrigerant conversion,**  **the**

**INPV would**  **increase by**  **approximately 2**  **percent. In**  **this optimistic**  **scenario, manufacturers** 

**receive the**  **benefits from**  **equipment price**  **increase by**  **transferring costs**  **to the**  **customers.**

**Assuming that**  **the standards**  **size PTAC**  **and PTHP**  **manufacturers can**  **only recover**  **half of**  **the R** 

**410A conversion**  **expenses, the**  **base case**  **INPV will**  **decrease approximately**  **49 percent.**  **In this** 

**pessimistic scenario,**  **the INPV**  **of the**  **industry already**  **decreases by**  **half even**  **before amended** 

**energy conservation**  **standards are**  **taken into**  **account.**

**For non­standard**  **size PTAC**  **and PTHP**  **industry, the**  **R­410A conversion**  **expenses**

**decrease the**  **INPV by**  **approximately 13**  **percent if**  **manufacturers fully**  **recover increases**  **in**

**manufacturing production**  **costs. In**  **this optimistic**  **scenario, the**  **industry experiences**  **a decrease** 

**in INPV**  **even before**  **amended energy**  **conservation standards**  **are taken**  **into account.**  **Assuming**

**that the**  **non­standards size**  **PTAC and**  **PTHP industry**  **can only**  **recover half**  **of the**  **increases in** 

**manufacturing production**  **costs associated**  **with the**  **R­410A conversion,**  **the INPV**  **decreases by** 

**approximately 31**  **percent. In**  **this pessimistic**  **scenario, the**  **industry experiences**  **a decrease**  **in**

**INPV prior**  **to amended**  **energy conservation**  **standards. It**  **is important**  **to note,**  **irrespective of** 

**mark­up scenario,**  **the non­standard**  **size PTAC**  **and PTHP**  **industry will**  **experience a**  **decline in** 

**INPV in**  **the base**  **case as**  **a result**  **of the**  **refrigerant phaseout**  **due to**  **the lower**  **volumes in**  **the**

**industry.**

13.6 ENERGY CONSERVATION STANDARD IMPACT SCENARIOS

13.6.1 Markup Scenarios

**DOE used**  **the markup**  **strategies described**  **previously to**  **create markup**  **scenarios at**  **each**

**TSL. DOE**  **applied the**  **flat markup**  **and the**  **partial cost**  **recovery markup**  **to both**  **R­410A base** 

**case scenarios**  **to bound**  **the range**  **of impacts**  **the PTAC**  **and PTHP**  **industry could**  **experience**

**over the**  **years as**  **a result**  **of amended**  **energy conservation**  **standards. Four**  **distinct scenarios** 

**emerge: (1)**  **full cost**  **recovery for**  **the R­410A**  **base case**  **with a**  **full cost**  **recovery for**  **amended**

**energy conservation**  **standards; (2)**  **50­percent cost**  **recovery for**  **the R­410A**  **base case**  **with full** 

**cost recovery**  **for amended**  **energy conservation**  **standards; (3)**  **full cost**  **recovery for**  **the R­410A** 

**base case**  **with a**  **50­percent cost**  **recovery for**  **the amended**  **energy conservation**  **standards; and** 

**13­38 (4)**  **50­percent cost**  **recovery for**  **the R­410A**  **base case**  **with a**  **50­percent cost**  **recovery for** 

**amended energy**  **conservation standards.** 

13.6.1.1 R­410A Base Case With Full Cost Recovery and Amended Energy

Conservation Standards With Full Cost Recovery

**DOE modeled**  **an optimistic**  **scenario by**  **assuming that**  **manufacturing would**  **be able**  **to**

**fully recover**  **increases in**  **manufacturing production**  **costs as**  **a result**  **of the**  **refrigerant phaseout** 

**and any**  **amended energy**  **conservation standards.**  **In this**  **optimistic scenario,**  **DOE multiplied**  **the**

**flat markup**  **of 1.29**  **to all**  **engineering analysis**  **derived manufacturer**  **production costs**  **(MPCs) of** 

**R­22 and**  **R­410A equipment**  **to calculate**  **the manufacturer**  **selling price**  **(MSPs) necessary**  **for**

**the GRIM.** 

13.6.1.2 R­410A Base Case With 50­Percent Cost Recovery and Amended Energy

Conservation Standards With Full Cost Recovery

**DOE modeled**  **a scenario**  **in which**  **manufacturers would**  **only be**  **able to**  **recover half**  **of**

**the increased**  **manufacturing production**  **costs from**  **PTAC and**  **PTHP customers**  **as a**  **result of**  **the**

**refrigerant phaseout.**  **Consequently, the**  **base case**  **INPV will**  **be negatively**  **impacted prior**  **to the** 

**effective date**  **of the**  **amended energy**  **conservation standards**  **in 2012.**  **This scenario**  **assumes that** 

**increases in**  **manufacturer production**  **costs relating**  **to changes**  **to the**  **equipment, which**  **increase**

**the energy**  **efficiency of**  **the PTAC**  **or PTHP**  **and for**  **which the**  **customer will**  **see a**  **benefit, will** 

**be able**  **to be**  **recovered fully**  **by the**  **manufacturers. DOE**  **scaled the**  **energy conservation** 

**standards flat**  **markup by**  **factors that**  **would account**  **for a**  **50­percent cost**  **recovery of**  **the R** 

**410A conversion.**  **Table 13.6.1**  **through Table**  **13.6.6 summarizes**  **the energy**  **conservation**

**standards full**  **cost recovery**  **markup with**  **R­410A conversion**  **50­percent cost**  **recovery markups** 

**for both**  **standard and**  **non­standard size**  **equipment analyzed.** 

Table 13.6.1 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.23**

**TSL 1**  **(10.9) 1.23** 

**TSL 2**  **(10.9) 1.23** 

**TSL 3**  **(11.1) 1.23** 

**TSL 4**  **(10.9) 1.23** 

**TSL 5**  **(11.3) 1.23** 

**TSL 6**  **(11.5) 1.23** 

**TSL 7**  **(12.0) 1.23** 

**13­39**Table 13.6.2 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.24**

**TSL 1**  **(10.9) 1.23** 

**TSL 2**  **(11.1) 1.23** 

**TSL 3**  **(11.1) 1.23** 

**TSL 4**  **(11.3) 1.23** 

**TSL 5**  **(11.3) 1.23** 

**TSL 6**  **(11.5) 1.23** 

**TSL 7**  **(12.0) 1.23** 

Table 13.6.3 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.21**

**TSL 1**  **(10.2) 1.21** 

**TSL 2**  **(10.2) 1.21** 

**TSL 3**  **(10.4) 1.21** 

**TSL 4**  **(10.2) 1.21** 

**TSL 5**  **(10.6) 1.21** 

**TSL 6**  **(10.8) 1.21** 

**TSL 7**  **(11.5) 1.21** 

**13­40**Table 13.6.4 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.22**

**TSL 1**  **(10.2) 1.22** 

**TSL 2**  **(10.4) 1.22** 

**TSL 3**  **(10.4) 1.22** 

**TSL 4**  **(10.6) 1.22** 

**TSL 5**  **(10.6) 1.22** 

**TSL 6**  **(10.8) 1.22** 

**TSL 7**  **(11.7) 1.21** 

Table 13.6.5 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Non­Standard

Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.6)**  **1.25**

**TSL 1**  **(9.4) 1.24** 

**TSL 2**  **(9.4) 1.24** 

**TSL 3**  **(9.7) 1.24** 

**TSL 4**  **(9.4) 1.24** 

**TSL 5**  **(10.0) 1.24** 

**TSL 6**  **(10.7) 1.23** 

**TSL 7**  **(11.2) 1.23** 

Table 13.6.6 13.6.7 Markups Reflecting the R­410A Base Case With 50­Percent Cost

Recovery and Amended Energy Conservation Standards With Full Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.25**

**TSL 1**  **(9.4) 1.25** 

**TSL 2**  **(9.7) 1.24** 

**TSL 3**  **(9.7) 1.24** 

**TSL 4**  **(10.0) 1.24** 

**TSL 5**  **(10.0) 1.24** 

**TSL 6**  **(10.7) 1.24** 

**TSL 7**  **(11.4) 1.24** 

**13­41**13.6.1.3 R­410A Base Case With Full Cost Recovery and Amended Energy

Conservation Standards With 50­Percent Cost Recovery

**This scenario**  **models the**  **expectations of**  **a few**  **manufacturers who**  **believe they**  **will be** 

**able to**  **fully pass**  **on any**  **associated increases**  **in manufacturer**  **production costs**  **to the**  **customer as** 

**a result**  **of the**  **refrigerant phaseout.**  **Consequently, the**  **base case**  **will not**  **change when**  **R­410A**

**equipment comes**  **into the**  **market in**  **2010. However,**  **these manufacturers**  **also believe**  **the**

**increases in**  **manufacturer production**  **costs will**  **be too**  **much for**  **the customers**  **to further** 

**encompass, thus**  **their profit**  **margins will**  **begin to**  **be pinched.**  **The implementation**  **of the** 

**refrigerant phaseout**  **and the**  **amended energy**  **conservation standards**  **are within**  **three years**  **of**

**one another.**  **Consequently, some**  **manufacturers do**  **not believe**  **they will**  **be able**  **to fully**  **pass on** 

**two increases**  **in manufacturer**  **production costs**  **on to**  **the customer.**  **Instead, they**  **believe it**  **is**

**likely that**  **only half**  **of the**  **costs associated**  **with the**  **increases in**  **production costs**  **for conforming** 

**to the**  **amended energy**  **conservation standards**  **will be**  **recovered. This**  **scenario is**  **modeled using** 

**a flat**  **markup in**  **the base**  **case and**  **a variable**  **markup in**  **the standards**  **case. Table**  **13.6.8 through** 

**Table 13.6.13**  **show the**  **associated markups**  **under a**  **scenario where**  **manufactures experience**  **a**

**full cost**  **recovery for**  **the refrigerant**  **phaseout and**  **only a**  **50­percent cost**  **recovery for**  **the**

**amended energy**  **conservation standards.** 

Table 13.6.8 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.29**

**TSL 1**  **(10.9) 1.28** 

**TSL 2**  **(10.9) 1.28** 

**TSL 3**  **(11.1) 1.27** 

**TSL 4**  **(10.9) 1.28** 

**TSL 5**  **(11.3) 1.26** 

**TSL 6**  **(11.5) 1.25** 

**TSL 7**  **(12.0) 1.23** 

**13­42**Table 13.6.9 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.29**

**TSL 1**  **(10.9) 1.27** 

**TSL 2**  **(11.1) 1.26** 

**TSL 3**  **(11.1) 1.26** 

**TSL 4**  **(11.3) 1.26** 

**TSL 5**  **(11.3) 1.26** 

**TSL 6**  **(11.5) 1.25** 

**TSL 7**  **(12.0) 1.23** 

Table 13.6.10 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.29**

**TSL 1**  **(10.2) 1.28** 

**TSL 2**  **(10.2) 1.28** 

**TSL 3**  **(10.4) 1.27** 

**TSL 4**  **(10.2) 1.28** 

**TSL 5**  **(10.6) 1.26** 

**TSL 6**  **(10.8) 1.25** 

**TSL 7**  **(11.5) 1.21** 

Table 13.6.11 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.29**

**TSL 1**  **(10.2) 1.27** 

**TSL 2**  **(10.4) 1.26** 

**TSL 3**  **(10.4) 1.26** 

**TSL 4**  **(10.6) 1.25** 

**TSL 5**  **(10.6) 1.25** 

**TSL 6**  **(10.8) 1.24** 

**TSL 7**  **(11.7) 1.20** 

**13­43**Table 13.6.12 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for NonStandard Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.6)**  **1.29**

**TSL 1**  **(9.4) 1.28** 

**TSL 2**  **(9.4) 1.28** 

**TSL 3**  **(9.7) 1.27** 

**TSL 4**  **(9.4) 1.28** 

**TSL 5**  **(10.0) 1.26** 

**TSL 6**  **(10.7) 1.24** 

**TSL 7**  **(11.2) 1.21** 

Table 13.6.13 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.29**

**TSL 1**  **(9.4) 1.28** 

**TSL 2**  **(9.7) 1.27** 

**TSL 3**  **(9.7) 1.27** 

**TSL 4**  **(10.0) 1.26** 

**TSL 5**  **(10.0) 1.26** 

**TSL 6**  **(10.7) 1.24** 

**TSL 7**  **(11.4) 1.21** 

13.6.1.4 R­410A Base Case With 50­Percent Cost Recovery and Amended Energy

Conservation Standards With 50­Percent Cost Recovery

**This scenario**  **models the**  **expectations of**  **the majority**  **of manufacturers**  **who believe**  **they**

**will never**  **be able**  **to fully**  **pass on**  **increases in**  **manufacturer production**  **costs to**  **customers in**  **a**

**price driven**  **market. Their**  **previous experiences**  **with the**  **increases in**  **material costs**  **over the**  **past**

**several years**  **and the**  **implementation of**  **GFCI cords**  **have led**  **them to**  **the conclusion**  **they were** 

**never fully**  **able to**  **pass on**  **these increased**  **production costs**  **to the**  **customer. On**  **average,**

**manufacturers believe**  **they have**  **been able**  **to recover**  **approximately 50**  **percent of**  **the increased** 

**in manufacturer**  **production costs**  **from customers.** 

**As a**  **result, DOE**  **estimated the**  **impacts on**  **the industry**  **by modeling**  **a scenario**  **where**

**manufacturers cannot**  **fully recover**  **costs from**  **the refrigerant**  **phaseout or**  **the amended**  **energy**

**conservation standards.**  **In this**  **pessimistic scenario,**  **DOE applied**  **a reduction**  **in the**  **markup to** 

**the R­410A**  **base case**  **in 2010.**  **Then, DOE**  **further reduced**  **the markup**  **to reflect**  **a 50­percent** 

**cost recovery**  **scenario as**  **a result**  **of energy**  **conservation standards**  **for each**  **equipment class.** 

**13­44 Table**  **13.6.14 through**  **Table 13.6.19**  **summarizes the**  **energy conservation**  **standards 50­percent** 

**cost recovery**  **with R­410A**  **conversion 50­percent**  **cost recovery**  **markups for**  **both standard**  **and**

**non­standard size**  **equipment analyzed.** 

Table 13.6.14 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.23**

**TSL 1**  **(10.9) 1.22** 

**TSL 2**  **(10.9) 1.22** 

**TSL 3**  **(11.1) 1.21** 

**TSL 4**  **(10.9) 1.22** 

**TSL 5**  **(11.3) 1.20** 

**TSL 6**  **(11.5) 1.19** 

**TSL 7**  **(12.0) 1.17** 

Table 13.6.15 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.24**

**TSL 1**  **(10.9) 1.22** 

**TSL 2**  **(11.1) 1.21** 

**TSL 3**  **(11.1) 1.21** 

**TSL 4**  **(11.3) 1.21** 

**TSL 5**  **(11.3) 1.21** 

**TSL 6**  **(11.5) 1.20** 

**TSL 7**  **(12.0) 1.18** 

**13­45**Table 13.6.16 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.21**

**TSL 1**  **(10.2) 1.20** 

**TSL 2**  **(10.2) 1.20** 

**TSL 3**  **(10.4) 1.19** 

**TSL 4**  **(10.2) 1.20** 

**TSL 5**  **(10.6) 1.18** 

**TSL 6**  **(10.8) 1.17** 

**TSL 7**  **(11.5) 1.13** 

Table 13.6.17 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.22**

**TSL 1**  **(10.2) 1.20** 

**TSL 2**  **(10.4) 1.19** 

**TSL 3**  **(10.4) 1.19** 

**TSL 4**  **(10.6) 1.18** 

**TSL 5**  **(10.6) 1.18** 

**TSL 6**  **(10.8) 1.17** 

**TSL 7**  **(11.7) 1.13** 

Table 13.6.18 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.6)**  **1.25**

**TSL 1**  **(9.4) 1.23** 

**TSL 2**  **(9.4) 1.23** 

**TSL 3**  **(9.7) 1.22** 

**TSL 4**  **(9.4) 1.23** 

**TSL 5**  **(10.0) 1.21** 

**TSL 6**  **(10.7) 1.19** 

**TSL 7**  **(11.2) 1.15** 

**13­46**Table 13.6.19 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.25**

**TSL 1**  **(9.4) 1.24** 

**TSL 2**  **(9.7) 1.24** 

**TSL 3**  **(9.7) 1.22** 

**TSL 4**  **(10.0) 1.24** 

**TSL 5**  **(10.0) 1.21** 

**TSL 6**  **(10.7) 1.19** 

**TSL 7**  **(11.4) 1.16** 

13.7 STANDARD SIZE PTAC AND PTHP INDUSTRY FINANCIAL IMPACTS

**Using the**  **inputs and**  **scenarios described**  **in the**  **previous sections,**  **the GRIM**  **estimated**

**indicators of**  **financial impacts**  **on the**  **standard size**  **PTAC and**  **PTHP industry.**  **The following** 

**sections detail**  **additional inputs**  **and assumptions**  **related only**  **to standard**  **size PTACs**  **and**

**PTHPs. The**  **main results**  **of the**  **MIA also**  **reported in**  **this section**  **are for**  **two key**  **financial**

**metrics: INPV**  **and annual**  **cash flows.** 

13.7.1 Impacts on Industry Net Present Value

**The INPV**  **measures the**  **industry value**  **and is**  **used in**  **the MIA**  **to compare**  **the economic** 

**impacts of**  **different TSLs.**  **The INPV**  **is different**  **from the**  **DOE’s NPV**  **applied to**  **the whole** 

**U.S. economy.**  **The INPV**  **is the**  **sum of**  **all net**  **cash flows**  **discounted at**  **the industry’s**  **cost of** 

**capital or**  **discount rate.**  **The GRIM**  **estimated cash**  **flows between**  **2007 and**  **2042, consistent** 

**with the**  **forecast period**  **used in**  **the national**  **impact analysis**  **(Chapter 10).** 

**In the**  **MIA, DOE**  **compares the**  **INPV of**  **the R­410A**  **base case**  **(no amended**  **energy**

**conservation standards)**  **to that**  **of each**  **TSL. The**  **difference in**  **INPV is**  **an estimate**  **of the** 

**economic impacts**  **that implementing**  **that particular**  **TSL would**  **have on**  **the entire**  **industry. For** 

**the standard**  **size PTAC**  **and PTHP**  **industry, DOE**  **examined four**  **markup scenarios**  **as described** 

**in the**  **mark­up section**  **above. Table**  **13.7.1 through**  **Table 13.7.4**  **provide the**  **INPV estimates**  **for**

**the standard**  **size PTAC**  **and PTHP**  **industry under**  **the different**  **scenarios.**

**13­47**Table 13.7.1 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards

Full Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards Full Cost Recovery

**Units** Base

Case Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 305**  **305 303**  **306 300**  **308 304**  **314**

Change in INPV **(2006 $**  **millions)**

**­ (0)**  **(2) 1**  **(5) 3**  **(1) 9** 

**(%)**

**­ ­0.1**  **­0.8 0.2**  **­1.5 0.9**  **­0.2 3.1** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 14.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2006 $**  **millions)**

**­ 4.4**  **7.2 6.1**  **10.3 7.0**  **13.1 17.5** 

Amended Energy

Conservation Standards

Capital Investments **(2006 $**  **millions)**

**­ 3.4**  **5.6 4.7**  **7.9 5.4**  **10.1 13.5** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 28.8**  **33.8 31.9**  **39.2 33.4**  **44.3 52.0** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments** 

Table 13.7.2 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case Full Cost Recovery With Ameneded Energy Conservation Standards

50­Percent Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 305**  **268 257**  **250 249**  **236 210**  **139**

Change in INPV **(2006 $**  **millions)**

**­ (37)**  **(48) (55)**  **(56) (69)**  **(95) (166)** 

**(%)**

**­ ­12.1**  **­15.7 ­18.1**  **­18.3 ­22.7**  **­31.2 ­54.5** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 14.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2006 $**  **millions)**

**­ 4.4**  **7.2 6.1**  **10.3 7.0**  **13.1 17.5** 

Amended Energy

Conservation Standards

Capital Investments **(2006 $**  **millions)**

**­ 3.4**  **5.6 4.7**  **7.9 5.4**  **10.1 13.5** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 28.8**  **33.8 31.9**  **39.2 33.4**  **44.3 52.0** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments** 

**13­48**Table 13.7.3 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case 50­Percent Cost Recovery With Ameneded Energy Conservation

Standards Full Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards Full Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 152**  **146 142**  **143 138**  **142 135**  **131**

Change in INPV **(2006 $**  **millions)**

**­ (6)**  **(10) (9)**  **(14) (10)**  **(17) (20)** 

**(%)**

**­ ­4.2**  **­6.5 ­5.8**  **­8.9 ­6.5**  **­11.2 ­13.4** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 14.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2006 $**  **millions)**

**­ 4.4**  **7.2 6.1**  **10.3 7.0**  **13.1 17.5** 

Amended Energy

Conservation Standards

Capital Investments **(2006 $**  **millions)**

**­ 3.4**  **5.6 4.7**  **7.9 5.4**  **10.1 13.5** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 28.8**  **33.8 31.9**  **39.2 33.4**  **44.3 52.0** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments** 

Table 13.7.4 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case 50­Percent Cost Recovery With Ameneded Energy Conservation

Standards 50­Percent Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 152**  **111 99**  **90 90**  **74 46**  **­51**

Change in INPV **(2006 $**  **millions)**

**­ (41)**  **(53) (61)**  **(62) (78)**  **(106) (203)** 

**(%)**

**­ ­27.1**  **­34.8 ­40.5**  **­40.7 ­51.3**  **­69.8 ­133.3** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 14.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2006 $**  **millions)**

**­ 4.4**  **7.2 6.1**  **10.3 7.0**  **13.1 17.5** 

Amended Energy

Conservation Standards

Capital Investments **(2006 $**  **millions)**

**­ 3.4**  **5.6 4.7**  **7.9 5.4**  **10.1 13.5** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 28.8**  **33.8 31.9**  **39.2 33.4**  **44.3 52.0** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments** 

**13­49**13.7.2 Impacts on Annual Cash Flow

**While NPV**  **is useful**  **for evaluating**  **the long­term**  **effects of**  **amended energy**  **conservation**

**standards, short­term**  **changes in**  **cash flow**  **are also**  **important indicators**  **of the**  **industry’s**

**financial situation.**  **For example,**  **a large**  **investment over**  **a period**  **of one**  **or two**  **years could** 

**strain the**  **industry’s access**  **to capital.**  **Consequently, the**  **sharp drop**  **in financial**  **performance**

**could cause**  **investors to**  **flee, even**  **though recovery**  **may be**  **near. Thus,**  **a short­term**  **disturbance**

**can have**  **long­term effects**  **that the**  **INPV cannot**  **capture. To**  **get an**  **idea of**  **the behavior**  **of**

**annual net**  **cash flows,**  **DOE reports**  **the annual**  **net or**  **free cash**  **flows from**  **2007 through**  **2042 for** 

**the different**  **TSL levels.**  **Figure 13.7.1**  **through Figure**  **13.7.4 present**  **the annual**  **net cash**  **flows**

**for the**  **base case**  **and each**  **of the**  **seven TSLs**  **for the**  **standard size**  **PTAC and**  **PTHP industry** 

**assuming the**  **different markups**  **and cost**  **recovery scenarios.** 

Figure 13.7.1 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case With Full Cost Recovery and Amended Energy Conservation Standards

With Full Cost Recovery) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

**13­50**$(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.2 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case With Full Cost Recovery and Amended Energy Conservation Standards

With 50­Percent Cost Recovery)

$(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.3 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case With 50­Percent Cost Recovery and Amended Energy Conservation

Standards With Full Cost Recovery)

**13­51**$(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020FreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

Year

Figure 13.7.4 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case With 50­Percent Cost Recovery and Amended Energy Conservation

Standards With 50­Percent Cost Recovery)

**Prior to**  **the effective**  **date of**  **the amended**  **energy conservation**  **standard, the**  **cash flows** 

**are nearly**  **identical for**  **all scenarios.**  **Cash flows**  **are driven**  **by the**  **level of**  **capital investments** 

**and equipment**  **conversion expenses**  **and the**  **proportion of**  **these investments**  **spent every**  **year.**

**With the**  **implementation of**  **R­410A conversion**  **related investments,**  **the cash**  **flows show**  **a sharp** 

**decline in**  **2010 as**  **companies use**  **their financial**  **resources to**  **convert to**  **the new**  **refrigerant. In** 

**the year**  **the standard**  **becomes effective,**  **new capital**  **investments begin**  **production and**  **a one** 

**time write­down**  **on stranded**  **assets yields**  **a positive**  **increase in**  **cash flows**  **due to**  **lower taxes** 

**paid that**  **year. After**  **the standard**  **announcement date,**  **industry cash**  **flows begin**  **to decline**  **as**

**companies use**  **their financial**  **resources to**  **prepare for**  **the new**  **standard. As**  **expected, the**  **more**

**stringent the**  **energy conservation**  **standard, the**  **greater the**  **impact on**  **industry cash**  **flows.**

13.8 NON­STANDARD SIZE PTAC AND PTHP INDUSTRY FINANCIAL IMPACTS

**Using the**  **inputs and**  **assumptions described**  **in the**  **previous sections,**  **the GRIM**  **produced**

**indicators of**  **financial impacts**  **on the**  **non­standard size**  **PTAC and**  **PTHP industry.**  **The**

**following sections**  **detail additional**  **inputs and**  **assumptions related**  **only to**  **non­standard size** 

**PTACs and**  **PTHPs including**  **the main**  **results of**  **the MIA**  **for two**  **key financial**  **metrics: INPV,** 

**and annual**  **cash flows.** 

**13­52**13.8.1 Impacts on Industry Net Present Value

**As previously**  **stated, the**  **INPV measures**  **the industry**  **value and**  **is used**  **in the**  **MIA to** 

**compare the**  **economic impacts**  **of different**  **TSLs. For**  **the non­standard**  **size PTAC**  **and PTHP** 

**industry, the**  **GRIM estimated**  **cash flows**  **between 2007**  **and 2042,**  **consistent with**  **the forecast** 

**period used**  **in the**  **national impact**  **analysis (Chapter**  **10).**

**In the**  **MIA, DOE**  **compares the**  **INPV of**  **the base**  **case (non**  **new energy**  **conservation**

**standards) to**  **that of**  **each TSL.**  **The difference**  **in INPV**  **is an**  **estimate of**  **the economic**  **impacts**

**that implementing**  **that particular**  **TSL would**  **have on**  **the entire**  **industry. For**  **the non­standard** 

**size PTAC**  **and PTHP**  **industry, DOE**  **examined all**  **the markup**  **scenarios in**  **addition to**  **the NES** 

**shipment and**  **R­410A­shipment forecasts.**  **Table 13.8.1**  **through Table**  **13.8.4 provide**  **the NPV** 

**estimates for**  **the non­standard**  **size PTAC**  **and PTHP**  **industry under**  **the different**  **cost recovery** 

**scenarios.**

Table 13.8.1 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case Full Cost Recovery With Amended Energy Conservation

Standard Full Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards Full Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 28**  **25 22**  **23 18**  **21 18**  **16**

Change in INPV **(2006 $**  **millions)**

**­ (2)**  **(5) (4)**  **(9) (7)**  **(9) (11)** 

**(%)**

**­ ­7.7**  **­18.5 ­15.7**  **­34.17 ­24.6**  **­32.9 ­40.6** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 0.6** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2006 $**  **millions)**

**­ 2.5**  **6.3 5.6**  **10.6 8.8**  **11.9 15.0** 

Amended Energy

Conservation

Standards Capital

Investments **(2006 $**  **millions)**

**­ 1.3**  **2.2 1.9**  **3.5 2.6**  **3.2 3.9** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 11.4**  **16.1 15.1**  **21.7 18.9**  **22.7 26.5** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments.** 

**13­53**Table 13.8.2 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case Full Cost Recovery With Amended Energy Conservation

Standard 50­Percent Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 28**  **23 20**  **20 15**  **17 13**  **7**

Change in INPV **(2006 $**  **millions)**

**­ (4)**  **(7) (7)**  **(12) (10)**  **(15) (21)** 

**(%)**

**­ ­14.8**  **­26.9 ­25.7**  **­43.9 ­37.5**  **­53.4 ­74.7** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 0.6** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2006 $**  **millions)**

**­ 2.5**  **6.3 5.6**  **10.6 8.8**  **11.9 15.0** 

Amended Energy

Conservation

Standards Capital

Investments **(2006 $**  **millions)**

**­ 1.3**  **2.2 1.9**  **3.5 2.6**  **3.2 3.9** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 11.4**  **16.1 15.1**  **21.7 18.9**  **22.7 26.5** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments.** 

Table 13.8.3 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation

Standard Full Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards Full Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 22**  **20 16**  **17 12**  **14 11**  **9**

Change in INPV **(2006 $**  **millions)**

**­ (3)**  **(6) (5)**  **(10) (8)**  **(11) (14)** 

**(%)**

**­ ­12.0**  **­26.1 ­22.8**  **­47.0 ­36.2**  **­48.9 ­60.8** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 0.6** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2006 $**  **millions)**

**­ 2.5**  **6.3 5.6**  **10.6 8.8**  **11.9 15.0** 

Amended Energy

Conservation

Standards Capital

Investments **(2006 $**  **millions)**

**­ 1.3**  **2.2 1.9**  **3.5 2.6**  **3.2 3.9** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 11.4**  **16.1 15.1**  **21.7 18.9**  **22.7 26.5** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments.** 

**13­54**Table 13.8.4 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation

Standard 50­Percent Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost

Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5 6 7

INPV **(2006 $**  **millions) 22**  **18 14**  **15 9**  **11 6**  **0**

Change in INPV **(2006 $**  **millions)**

**­ (5)**  **(8) (8)**  **(13) (11)**  **(16) (23)** 

**(%)**

**­ ­20.4**  **­36.1 ­34.7**  **­58.5 ­51.5**  **­73.2 ­101.1** 

R­410A Equipment

Conversion Expenses* **(2006 $**  **millions) 0.6** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2006 $**  **millions) 7.0** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2006 $**  **millions)**

**­ 2.5**  **6.3 5.6**  **10.6 8.8**  **11.9 15.0** 

Amended Energy

Conservation

Standards Capital

Investments **(2006 $**  **millions)**

**­ 1.3**  **2.2 1.9**  **3.5 2.6**  **3.2 3.9** 

Total Investment

Required** **(2006 $**  **millions)**

**­ 11.4**  **16.1 15.1**  **21.7 18.9**  **22.7 26.5** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

****** **Total investment**  **required includes**  **both R­410A**  **conversion investments**  **and amended**  **energy conservation** 

**related investments.** 

13.8.2 Impacts on Annual Cash Flow

**While NPV**  **is useful**  **for evaluating**  **the long­term**  **effects of**  **amended energy**  **conservation**

**standards, short­term**  **changes in**  **cash flow**  **are also**  **important indicators**  **of the**  **industry’s**

**financial situation.**  **To get**  **an idea**  **of the**  **behavior of**  **annual net**  **cash flows,**  **DOE reports**  **the**

**annual net**  **or free**  **cash flows**  **from 2007**  **through 2042**  **for the**  **different TSL**  **levels. Figure**  **13.8.1**

**through Figure**  **13.8.4 present**  **the annual**  **net cash**  **flows for**  **the base**  **case and**  **each of**  **the seven** 

**TSLs for**  **the non­standard**  **size PTAC**  **and PTHP**  **industry assuming**  **the different**  **cost recovery** 

**scenarios.**

**13­55**FreeCashFlows(millions) $4

R­22 Refrigerant Energy Conservation

Phaseout Date Standards Effective Date

January 2010 September 2012

$2

$­

2006 2008 2010 2012 2014 2016 2018 2020

$(2)

$(4)

$(6)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 $(8)

$(10)

Year

Figure 13.8.1 Annual Net Cash Flows for Non­Standard Size PTAC and PTHP Industry

(R­410A Base Case With Full Cost Recovery and Amended Energy Conservation

Standards With Full Cost Recovery)

$4

R­22 Refrigerant

Phaseout Date

January 2010 Energy Conservation

Standards Effective Date

September 2012

$2FreeCashFlows(millions) $­

2006 2008 2010 2012 2014 2016 2018 2020

$(2)

$(4)

$(6)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 $(8)

$(10)

Year

Figure 13.8.2 Annual Net Cash Flows for Non­Standard Size PTAC and PTHP Industry

(R­410A Base Case With Full Cost Recovery and Amended Energy Conservation

Standards With 50­Percent Cost Recovery)

**13­56**$(10) $(8) $(6) $(4) $(2) $­ $2

$4

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.8.3 Annual Net Cash Flows for Non­Standard Size PTAC and PTHP Industry

(R­410A Base Case With 50­Percent Cost Recovery and Amended Energy Conservation

Standards With Full Cost Recovery)

$(10)

$(8) $(6) $(4) $(2) $­ $2

$4

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows(millions)

Base Case

TSL 1

TSL 2

TSL 3

TSL 4

TSL 5

TSL 6

TSL 7 Energy Conservation

Standards Effective Date

September 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.8.4 Annual Net Cash Flows for Non­Standard Size PTAC and PTHP Industry

(R­410A Base Case With 50­Percent Cost Recovery and Amended Energy Conservation

Standards With 50­Percent Cost Recovery)

**13­57 Prior**  **to the**  **effective date**  **of the**  **amended energy**  **conservation standard,**  **the cash**  **flows**

**are nearly**  **identical for**  **all scenarios.**  **Cash flows**  **are driven**  **by the**  **level of**  **capital investments** 

**and equipment**  **conversion expenses**  **and the**  **proportion of**  **these investments**  **spent every**  **year.**

**As expected,**  **the cash**  **flows have**  **a sharp**  **decline in**  **2009 when**  **the industries**  **incur the**  **costs**

**necessary to**  **convert to**  **R­410A refrigerant.**  **In the**  **year the**  **standard becomes**  **effective, new** 

**capital investments**  **begin production**  **and a**  **one time**  **write­down on**  **stranded assets**  **yields a** 

**positive increase**  **in cash**  **flows due**  **to lower**  **taxes paid**  **that year.**  **After the**  **standard**

**announcement date,**  **industry cash**  **flows begin**  **to decline**  **as companies**  **use their**  **financial**

**resources to**  **prepare for**  **the new**  **standard. As**  **expected, the**  **more stringent**  **the energy** 

**conservation standard,**  **the bigger**  **the impact**  **on industry**  **cash flows.** 

13.9 OTHER IMPACTS

13.9.1 Employment

**DOE estimated**  **industry­wide labor**  **expenditures based**  **on the**  **engineering analysis.**  **Coil**

**fabrication; tube**  **cutting and**  **soldering; electronic**  **connection assembly;**  **package assembly;** 

**testing; and**  **packing of**  **the completed**  **PTAC or**  **PTHP represent**  **the bulk**  **of the**  **labor. DOE** 

**incorporated these**  **assumptions into**  **the GRIM,**  **which projects**  **labor expenditures**  **annually.**

**Labor expenditures**  **are a**  **function of**  **the labor**  **intensity of**  **the equipment,**  **the sales**  **volume, and** 

**an implicit**  **wage assumption**  **that remains**  **fixed in**  **real terms**  **over time.**  **Table 13.9.1**  **and Table** 

**13.9.2 provides**  **the changes**  **in labor**  **measured as**  **the change**  **in labor**  **expenditures for**  **standard**

**and non­standard**  **size PTACs**  **and PTHPs**  **in 2012,**  **the date**  **DOE expects**  **the amended**  **energy**

**conservation become**  **effective, compared**  **to the**  **base case.** 

Table 13.9.1 Projected Change in Labor Expenditures, Standard Size PTAC and PTHP

(2012)

Trial Standard Levels

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

**+1.9% +2.4%**  **+3.0% +2.9%**  **+4.3% +5.7%**  **+11.5%**

Table 13.9.2 Projected Change in Labor Expenditures, Non­Standard Size PTAC and

PTHP (2012)

Trial Standard Levels

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

**+1.8% +2.2%**  **+2.7% +2.6%**  **+3.7% +7.3%**  **+11.6%**

**Based on**  **the GRIM**  **and the**  **assumption that**  **the majority**  **of standard**  **size PTACs**  **and**

**PTHPs sold**  **in the**  **U.S. are**  **manufactured outside**  **the U.S.,**  **DOE estimated**  **that there**  **are**

**currently 450**  **production employees**  **in the**  **U.S. standard**  **size PTAC**  **and PTHP**  **industry. For**  **the**

**non­standard size**  **PTAC and**  **PTHP industry,**  **DOE assumed**  **that all**  **non­standard size**  **PTACs**

**and PTHPs**  **sold in**  **the U.S.**  **are manufactured**  **in the**  **U.S. DOE**  **estimated that**  **there are**  **currently**

**550 production**  **employees in**  **the U.S.**  **non­standard size**  **PTAC and**  **PTHP industry.**  **These**

**estimates excludes**  **non­production workers**  **and assumes**  **a level**  **annual production**  **rate. In** 

**practice, including**  **non­production workers**  **and seasonal**  **effects, the**  **actual number**  **of employees** 

**in the**  **standard size**  **PTAC and**  **PTHP manufacturing**  **industry would**  **be higher.**  **Based on**  **these**

**13­58 results,**  **DOE expects**  **no significant**  **discernable direct**  **employment impacts**  **among standard**  **and**

**non­standard size**  **PTACs and**  **PTHPs manufacturers**  **for TSL1**  **through TSL7.**  **This conclusion**  **is**

**independent of**  **any conclusions**  **regarding employment**  **impacts in**  **the broader**  **United States** 

**economy, which**  **are documented**  **in Chapter**  **15 of**  **this TSD.**  **This conclusion**  **also ignores**  **the**

**possible relocation**  **of domestic**  **employment to**  **lower­labor­cost countries,**  **such as**  **Mexico.**

**Manufacturers stated**  **their concerns,**  **throughout the**  **interviews, about**  **increasing offshore** 

**competition entering**  **the market**  **over the**  **past five**  **years.**

13.9.2 Manufacturing Capacity

**According to**  **the majority**  **of standard**  **and non­standard**  **size PTAC**  **and PTHP** 

**manufacturers, amended**  **energy conservation**  **standards will**  **not significantly**  **impact the** 

**manufacturer’s production**  **capacity. Any**  **necessary redesign**  **of PTACs**  **and PTHPs**  **will not** 

**change the**  **fundamental assembly**  **of the**  **equipment. However,**  **manufacturers anticipate** 

**minimum changes**  **to the**  **assembly line**  **due to**  **the conversion**  **to R­410A**  **refrigerant. Because**  **of**

**the properties**  **of R­410A**  **refrigerant, the**  **assembly line**  **will need**  **to give**  **special attention**  **to**

**creating vacuums**  **within each**  **unit’s chambers,**  **additional assembly**  **will be**  **needed if**  **the number** 

**of fan**  **motors increases.**  **Thus, DOE**  **believes manufacturers**  **will be**  **able to**  **maintain production** 

**capacity levels**  **and continue**  **to meet**  **market demand**  **under amended**  **energy conservation** 

**standards.**

13.9.3 Cumulative Regulatory Burden

**While any**  **one regulation**  **may not**  **impose a**  **significant burden**  **on manufacturers,**  **the**

**combined effects**  **of several**  **impending regulations**  **may have**  **serious consequences**  **for some** 

**manufacturers, groups**  **of manufacturers,**  **or an**  **entire industry.**  **Assessing the**  **impact of**  **a single** 

**regulation may**  **overlook this**  **cumulative regulatory**  **burden.**

**Companies that**  **produce a**  **wider range**  **of regulated**  **equipment may**  **be faced**  **with more** 

**capital and**  **equipment development**  **expenditures than**  **their competitors.**  **This can**  **prompt those** 

**companies to**  **exit the**  **market or**  **reduce their**  **equipment offerings,**  **potentially reducing** 

**competition. Smaller**  **companies can**  **be especially**  **impacted since**  **they have**  **lower sales**  **volumes**

**over which**  **to amortize**  **the costs**  **of meeting**  **new regulations.**  **DOE considers**  **that a**  **proposed**

**standard is**  **not economically**  **justified if**  **it contributes**  **to an**  **unacceptable level**  **of cumulative** 

**regulatory burden.** 

**As previously**  **mentioned, all**  **PTAC and**  **PTHP manufacturers**  **believe that**  **the refrigerant** 

**phaseout will**  **be the**  **biggest external**  **burden on**  **manufacturers. DOE**  **took all**  **comments and** 

**concerns into**  **consideration and**  **examined different**  **impacts the**  **refrigerant phaseout**  **would have** 

**on standard**  **and non­standard**  **size PTAC**  **and PTHP**  **industries. DOE**  **first examined**  **the possible** 

**impacts on**  **INPV from**  **converting current**  **production of**  **R­22 equipment**  **into R­410A**  **equipment**

**(see section**  **13.5.1). DOE**  **then examined**  **the possible**  **impacts of**  **amended energy**  **conservation**

**standards on**  **the R­410A**  **base case.**  **In other**  **words, DOE**  **examined the**  **cumulative impacts**  **of**

**both R­410A**  **conversion and**  **conformation to**  **amended energy**  **conservation standards**  **(see**

**sections 13.7**  **and13.8).**

**13­59**13.9.3.1 Federal Regulations on PTACs and PTHPs and Other Equipment

Produced by the Same Manufacturers

**In addition**  **to the**  **energy conservation**  **regulations on**  **PTACs and**  **PTHPs, several**  **other**

**Federal regulations**  **and pending**  **regulations apply**  **to PTACs**  **and PTHPs**  **and other**  **equipment**

**produced by**  **the same**  **manufacturers. DOE**  **recognize that**  **each regulation**  **can significantly** 

**impact manufacturers’**  **financial operations.**  **Multiple regulations**  **affecting the**  **same**

**manufacturer can**  **quickly strain**  **manufacturers’ profits**  **and possibly**  **cause an**  **exit from**  **the**

**market. The**  **most significant**  **of these**  **additional regulations**  **are the**  **EPA­mandated phaseout**  **of**

**HCFCs and**  **the potential**  **residential central**  **air conditioners**  **and heat**  **pumps Federal**  **energy**

**conservation standard.**  **Table 13.9.3**  **provides the**  **timetables for**  **these mandatory**  **or potential** 

**regulations.**

Table 13.9.3 Federal Regulation Timetables

Regulation Key Affected Appliance Effective Date

**Potential DOE**  **energy**

**conservation standards**  **Central air**  **conditioners and** 

**heat pumps**  **(residential) 06/2011** 

**Potential DOE**  **energy**

**conservation standards**  **Room air**  **conditioners 06/2011** 

**EPA phaseout**  **of HCFC** 

**refrigerant on**  **new**

**equipment Room**  **and residential** 

**central air**  **conditioners, and** 

**commercial air**  **conditioners 01/2010** 

**DOE recognizes**  **that manufacturers**  **of PTACs**  **and PTHPs**  **could also**  **be affected**  **by the** 

**potential energy**  **conservation standards**  **for central**  **air conditioner**  **and heat**  **pumps as**  **well as**  **for**

**room air**  **conditioners. Additional**  **investments necessary**  **to meet**  **these potential**  **standards could** 

**have significant**  **impacts on**  **manufacturers of**  **PTACs and**  **PTHPs. However,**  **the magnitude**  **of**

**the impacts**  **can not**  **be assessed**  **at this**  **time because**  **DOE is**  **currently undertaking**  **a rulemaking** 

**to potentially**  **amend the**  **energy conservation**  **standard for**  **these products.**  **Details of**  **these**

**rulemakings and**  **the potential**  **effective date**  **of any**  **potential amended**  **energy conservation** 

**standards for**  **central air**  **conditioners and**  **heat pumps,**  **and room**  **air conditioners**  **are unknown** 

13.9.3.2 Restriction of Hazardous Substances Directive

**According to**  **manufacturers, the**  **Restriction of**  **Hazardous Substance**  **Directive a**  **(RoHS)**

**will have**  **some global**  **impact on**  **manufacturing of**  **electrical and**  **electronic equipment.**  **Under**

**the directive,**  **all manufacturers**  **are banned**  **from placing**  **on the**  **European Union**  **market new** 

**electrical and**  **electronic equipment**  **containing more**  **than agreed**  **levels of**  **lead, cadmium,** 

**mercury, hexavalent**  **chromium, polybrominated**  **biphenyl and**  **polybrominated diphenyl**  **ether**

**flame retardants.**  **Although there**  **is no**  **Federal regulation**  **on RoHS,**  **California has**  **passed SB**  **20:**

**Electronic Waste**  **Recycling Act**  **of 2003.**  **Under this**  **law, California**  **limits the**  **amount of** 

**a Further**  **information about**  **RoHS can**  **be found**  **at**

**http://eur­lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf**

**13­60 hazards**  **substances included**  **in the**  **RoHS directive**  **that can**  **be sold**  **in California.**  **Manufacturers**

**of PTACs**  **and PTHPs**  **have said**  **that RoHS**  **will have**  **some impacts**  **in the**  **way the**  **electronic**

**components in**  **the PTACs**  **and PTHPs**  **are incorporated**  **into the**  **design. Currently,**  **PTAC and** 

**PTHP manufacturers**  **have electronic**  **components in**  **the PTAC**  **and PTHP**  **design that**  **contains**

**substances banned**  **by the**  **RoHS. However,**  **manufacturers do**  **not anticipate**  **RoHS will** 

**significantly impact**  **the PTAC**  **and PTHP**  **industry as**  **a whole.** 

13.10 CONCLUSIONS

**The following**  **sections summarize**  **the different**  **impacts for**  **the two**  **scenarios DOE** 

**believes are**  **most likely**  **to capture**  **the range**  **of impacts**  **on standard­size**  **and non­standard**  **size**

**manufacturers as**  **a result**  **of both**  **amended energy**  **conservation standards**  **and refrigerant** 

**phaseout. DOE**  **also notes**  **that while**  **these two**  **scenarios bound**  **the range**  **of most**  **plausible**

**impacts on**  **manufacturers, there**  **potentially could**  **be circumstances**  **which cause**  **manufacturers**

**to experience**  **impacts outside**  **of this**  **range and**  **more closely**  **inline with**  **the two**  **other scenarios** 

**analyzed.**

**To assess**  **the higher**  **end of**  **the range**  **of potential**  **impacts for**  **both standard**  **and non** 

**standard size**  **PTAC and**  **PTHP industries,**  **DOE considered**  **the scenario**  **reflecting R­410A**  **base**

**case with**  **full cost**  **recovery and**  **amended energy**  **conservation standards**  **with full**  **cost recovery.** 

**This scenario**  **assumes that**  **manufactures will**  **fully recover**  **costs associated**  **with both**  **conversion**

**of equipment**  **to R­410A**  **refrigerant and**  **to conform**  **to new**  **amended energy**  **conservation**

**standards.**

**To assess**  **the lower**  **end of**  **the range**  **of potential**  **impacts for**  **both standard**  **and non** 

**standard size**  **PTAC and**  **PTHP manufacturers,**  **DOE considered**  **the scenario**  **reflecting R­410A** 

**base case**  **with full**  **cost recovery**  **and amended**  **energy conservation**  **standards with**  **50­percent**

**cost recovery.**  **This scenario**  **assumes that**  **manufacturers would**  **fully recover**  **costs associated** 

**with conversion**  **of the**  **equipment to**  **R­410A refrigerant,**  **but only**  **recover half**  **of the**  **costs**

**necessary for**  **equipment to**  **conform to**  **new amended**  **energy conservation**  **standards.**

13.10.1.1 Standard Size PTAC and PTHP Industry

**At TSL**  **1, the**  **impact on**  **INPV and**  **cash flow**  **varies greatly**  **depending on**  **the**

**manufacturers and**  **their ability**  **to pass**  **on increases**  **in MPCs**  **to the**  **customer. DOE**  **estimated**

**the impacts**  **in INPV**  **at TSL**  **1 to**  **range from**  **less than**  **­$1 million**  **up to**  **­$37 million,**  **or a**  **change**

**in INPV**  **of negative**  **0.1 percent**  **up to**  **negative 12.1**  **percent. At**  **this level,**  **the industry**  **cash flow** 

**decreases by**  **approximately 25**  **percent, to**  **$9 million,**  **compared to**  **the base**  **case value**  **of $12** 

**million in**  **the year**  **leading up**  **to the**  **standards. Since**  **more than**  **75 percent**  **of the**  **equipment**

**being sold**  **is already**  **at or**  **above this**  **level using**  **R­22 refrigerant,**  **those manufacturers**  **that do** 

**not fall**  **below the**  **efficiency levels**  **specified by**  **TSL 1**  **after the**  **refrigerant phaseout**  **will not** 

**have to**  **make additional**  **modifications to**  **their product**  **lines to**  **conform to**  **the amended**  **energy**

**conservation standards.**  **DOE expects**  **the lower**  **end of**  **the impacts**  **to be**  **reached, which** 

**indicates that**  **industry revenues**  **and costs**  **are not**  **significantly negatively**  **impacted as**  **long as** 

**manufacturers are**  **able to**  **fully recover**  **the increase**  **in manufacturer**  **production cost**  **from the** 

**customer.**

**13­61 TSL**  **2 is**  **a combination**  **TSL, which**  **requires PTACs**  **to be**  **manufactured at**  **TSL 1** 

**efficiency levels**  **and PTHPs**  **to be**  **manufacturers at**  **TSL 3**  **efficiency levels.**  **At TSL**  **2, the** 

**impact on**  **INPV and**  **cash flow**  **would be**  **similar to**  **TSL 1**  **and dependent**  **on whether** 

**manufacturers are**  **able to**  **fully recover**  **the increases**  **in MPCs**  **from the**  **customer. DOE** 

**estimated the**  **impacts in**  **INPV at**  **TSL 2**  **to range**  **from ­$2**  **million up**  **to ­$48**  **million, or**  **a**

**change in**  **INPV of**  **­0.8 percent**  **up to**  **­15.7 percent.**  **At this**  **level, the**  **industry cash**  **flow**

**decreases by**  **approximately 33**  **percent, to**  **$8 million,**  **compared to**  **the base**  **case value**  **of $12** 

**million in**  **the year**  **leading up**  **to the**  **standards. Up**  **to 75**  **percent of**  **PTACs and**  **up to**  **50 percent** 

**of PTHPs**  **being sold**  **are already**  **at or**  **above this**  **level using**  **R­22 refrigerant.**  **Similar to**  **TSL 1** 

**for PTACs,**  **manufacturers that**  **do not**  **fall below**  **TSL 1**  **after the**  **refrigerant phaseout**  **will not** 

**have to**  **make additional**  **modifications to**  **their product**  **lines to**  **conform to**  **TSL 2.**  **For PTHPs,** 

**the required**  **higher level**  **of efficiency**  **will cause**  **some manufactures**  **to make**  **additional**

**modifications to**  **their product**  **lines to**  **conform to**  **the amended**  **energy conservation**  **standards.**

**Even though**  **TSL 2**  **requires efficiency**  **levels that**  **are different**  **for PTACs**  **and PTHPs,**  **there are** 

**small differences**  **between the**  **EER values**  **for a**  **given capacity**  **in sleeve**  **size, which**  **will**

**minimize the**  **amount of**  **redesign manufacturers**  **will have**  **to undertake**  **to modify**  **their product** 

**lines. DOE**  **expects the**  **impacts of**  **TSL 2**  **on manufacturers**  **of standard**  **size PTACs**  **will be** 

**greater than**  **TSL 1,**  **but the**  **magnitude of**  **impacts largely**  **depends on**  **the ability**  **of manufacturers** 

**to fully**  **recover the**  **increase in**  **MPC from**  **the customer**  **and minimize**  **the level**  **of redesign** 

**between the**  **two efficiency**  **levels.**

**At TSL**  **3, the**  **impact on**  **INPV and**  **cash flow**  **continues to**  **vary depending**  **on the** 

**manufacturers and**  **their ability**  **to pass**  **on increases**  **in MPCs**  **to the**  **customer. DOE**  **estimated**

**the impacts**  **in INPV**  **at TSL**  **3 to**  **range from**  **approximately positive**  **$1 million**  **to ­$55**  **million,**

**or a**  **change in**  **INPV of**  **0.2 percent**  **to ­18.1**  **percent. At**  **this level,**  **the industry**  **cash flow** 

**decreases by**  **approximately 33**  **percent, to**  **$8 million,**  **compared to**  **the base**  **case value**  **of $12** 

**million in**  **the year**  **leading up**  **to the**  **standards. Currently**  **the bulk**  **of the**  **equipment being**  **sold is** 

**already at**  **or above**  **this level**  **using R­22**  **refrigerant. DOE**  **does not**  **expect industry**  **revenues and** 

**costs to**  **be impacted**  **significantly as**  **long as**  **standard size**  **PTAC and**  **PTHP manufacturers**  **are**

**able to**  **fully recover**  **the increase**  **in manufacturer**  **production cost**  **from the**  **customer. The** 

**positive INPV**  **value is**  **explained by**  **increases in**  **MSP due**  **to higher**  **costs of**  **R­410A equipment,** 

**which DOE**  **assumed under**  **this scenario**  **that manufacturers**  **would be**  **able to**  **fully recover**  **the**

**investments needed**  **for conversion**  **to R­410A.** 

**TSL 4**  **is a**  **combination TSL,**  **which requires**  **PTACs to**  **be manufactured**  **at TSL**  **1**

**efficiency levels**  **and PTHPs**  **to be**  **manufactured at**  **TSL 5**  **efficiency levels.**  **There is**  **a 0.4**  **EER**

**difference between**  **the efficiency**  **levels for**  **PTHPs as**  **compared to**  **PTACs. At**  **TSL 4,**  **DOE**

**estimated the**  **impacts in**  **INPV to**  **range from**  **approximately ­$5**  **million to**  **­$56 million,**  **or a** 

**change in**  **INPV of**  **­1.5 percent**  **up to**  **­18.3 percent.**  **At this**  **level, the**  **industry cash**  **flow**

**decreases by**  **approximately 50**  **percent, to**  **$6 million,**  **compared to**  **the base**  **case value**  **of $12** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **higher TSLs,**  **manufacturers have**  **a harder** 

**time fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer. At**  **to TSL**  **4, manufacturers**  **are**

**concerned about**  **whether they**  **will be**  **able to**  **produce PTHPs,**  **by the**  **effective date**  **of the** 

**standard, that**  **use R­410A**  **refrigerant. Using**  **the performance**  **degradations from**  **the engineering** 

**analysis, TSL**  **4 for**  **PTHPs using**  **R­410A would**  **correspond to**  **the “max­tech”**  **efficiency levels** 

**for PTHPs**  **unless higher**  **efficiency compressors**  **enter the**  **market prior**  **to the**  **effective date**  **of an** 

**amended energy**  **conservation standard.**  **Based on**  **information submitted**  **by industry,** 

**13­62 manufacturers**  **would be**  **required to**  **completely redesign**  **their PTHP**  **equipment lines.**  **Since**

**most manufacturers**  **only manufacturer**  **one product**  **line, and**  **combine their**  **R&D efforts**  **for**

**PTACs and**  **PTHPs into**  **one design,**  **manufacturers would**  **likely choose**  **to redesign**  **their entire** 

**equipment offering.**  **Similar to**  **TSL 1,**  **for PTACs,**  **manufacturers that**  **do not**  **fall below**  **TSL 1** 

**after the**  **refrigerant phaseout**  **will not**  **have to**  **make additional**  **modifications to**  **their PTAC** 

**equipment lines**  **to conform**  **to TSL**  **4. Due**  **to the**  **disparity between**  **efficiency levels**  **of standard** 

**size PTACs**  **and PTHPs**  **specified by**  **TSL 4,**  **DOE initially**  **believes it**  **is more**  **likely that**  **the**

**higher end**  **of the**  **range of**  **impacts could**  **be reached**  **(i.e., a**  **drop of**  **18.3 percent**  **in INPV).** 

**At TSL**  **5, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **approximately $3**  **million**

**up to**  **­$69 million,**  **or a**  **change in**  **INPV of**  **approximately 1**  **percent up**  **to ­22.7**  **percent. At**  **this**

**level, the**  **industry cash**  **flow decreases**  **by approximately**  **33 percent,**  **to $8**  **million, compared**  **to**

**the base**  **case value**  **of $12**  **million in**  **the year**  **leading up**  **to the**  **standards. As**  **with TSL**  **4,**

**standard size**  **PTAC and**  **PTHP manufacturers**  **continue to**  **have a**  **hard time**  **fully passing**  **on**

**larger increases**  **in MPCs**  **to the**  **customer. At**  **TSL 5,**  **manufacturers stated**  **their concerns**  **over**

**the ability**  **to be**  **able to**  **produce both**  **PTACs and**  **PTHPs by**  **the effective**  **date of**  **the standard** 

**utilizing R­410A**  **refrigerant. Using**  **the performance**  **degradations from**  **the engineering**  **analysis,**

**TSL 5**  **would correspond**  **to the**  **“max­tech” efficiency**  **levels for**  **both PTACs**  **and PTHPs**  **using**

**R­410A unless**  **higher efficiency**  **compressors enter**  **the market**  **prior to**  **the effective**  **date of**  **an**

**amended energy**  **conservation standard.**  **Based on**  **information submitted**  **by industry,**  **the**

**majority of**  **manufacturers would**  **require a**  **complete redesign**  **of their**  **equipment. Thus,**  **DOE**

**believes it**  **is likely**  **that the**  **higher range**  **of the**  **impacts could**  **be reached.** 

**At TSL**  **6, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$1 million**  **up to**  **­$95**

**million, or**  **a change**  **in INPV**  **of approximately**  **­0.2 percent**  **up to**  **­31.2 percent.**  **At this**  **level, the** 

**industry cash**  **flow decreases**  **by approximately**  **66 percent,**  **to $4**  **million, compared**  **to the**  **base**

**case value**  **of $12**  **million in**  **the year**  **leading up**  **to the**  **standards. At**  **higher TSLs,**  **manufacturers**

**have a**  **harder time**  **fully passing**  **on larger**  **increases in**  **MPCs to**  **the customer,**  **and therefore** 

**manufacturers expect**  **the higher**  **end of**  **the range**  **of impacts**  **to be**  **reached (i.e.,**  **a drop**  **of 31.2** 

**percent in**  **INPV). TSL**  **6 requires**  **the production**  **of standard**  **size PTACs**  **and PTHPs**  **using R** 

**410A that**  **are not**  **currently available**  **on the**  **market today**  **assuming the**  **system performance** 

**degradations estimated**  **in the**  **engineering analysis.**  **If manufacturers**  **do not**  **have the**  **ability to** 

**integrate a**  **high efficiency**  **R­410A compressor**  **into the**  **PTACs and**  **PTHPs, the**  **impacts could**  **be**

**greater than**  **characterized by**  **DOE’s MIA**  **analysis.**

**At TSL**  **7 (max**  **tech), DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **$9 million**  **up to** 

**­$166 million,**  **or a**  **change in**  **INPV of**  **approximately 3**  **percent up**  **to ­54.5**  **percent. At**  **this level,** 

**the industry**  **cash flow**  **decreases by**  **approximately 92**  **percent, to**  **$1 million,**  **compared to**  **the**

**base case**  **value of**  **$12 million**  **in the**  **year leading**  **up to**  **the standards.**  **At higher**  **TSLs,**

**manufacturers have**  **a harder**  **time fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer, and** 

**therefore manufacturers**  **expect the**  **higher end**  **of the**  **range of**  **impacts to**  **be reached**  **(i.e., a**  **drop**

**of 31.2**  **percent in**  **INPV). Currently,**  **there is**  **only one**  **model being**  **manufactured at**  **these**

**efficiency levels,**  **which uses**  **R­22 refrigerant.**  **Most manufacturers**  **did not**  **provide DOE**  **with**

**projected equipment**  **conversion costs**  **or capital**  **conversion costs**  **at this**  **level, since**  **they could** 

**not conceive**  **of what**  **designs using**  **R­410A might**  **achieve this**  **efficiency level.**  **The industry** 

**would experience**  **an increase**  **in net**  **present value**  **if it**  **were able**  **to fully**  **pass through**  **to**

**customers the**  **increase in**  **production costs**  **associated with**  **meeting new**  **amended energy** 

**13­63 conservation**  **standards. However,**  **there is**  **a risk**  **of very**  **large negative**  **impacts if**  **manufacturers’**

**expectations are**  **realized about**  **reducing profit**  **margins. During**  **the interviews,**  **manufacturers**

**expressed disbelief**  **at the**  **possibility of**  **manufacturing an**  **entire equipment**  **line at**  **the max­tech** 

**levels using**  **R­410A refrigerant.** 

13.10.1.2 Non­Standard Size PTAC and PTHP Industry

**At TSL**  **1, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **less than**  **­$2 million**  **up to** 

**­ $4**  **million, or**  **a change**  **in INPV**  **of ­7.7**  **percent up**  **to ­14.8**  **percent. At**  **this level,**  **the industry** 

**cash flow**  **decreases by**  **approximately 50**  **percent, $1**  **million, compared**  **to the**  **base case**  **value of** 

**$2 million**  **in the**  **year leading**  **up to**  **the standards.**  **Since more**  **than half**  **of the**  **equipment being** 

**sold is**  **already at**  **or above**  **this level**  **using R­22**  **refrigerant, those**  **manufacturers that**  **do not**  **fall**

**below TSL**  **1 using**  **R­410A refrigerant**  **will not**  **have to**  **make additional**  **modifications to**  **their**

**product lines**  **to conform**  **to the**  **amended energy**  **conservation standards.**  **At TSL**  **1, the**  **results of** 

**the analysis**  **show the**  **least impact**  **on manufacturers.** 

**At TSL**  **2, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$5 million**  **up to**  **­$7**

**million, or**  **a change**  **in INPV**  **of ­18.5**  **percent up**  **to ­26.9**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **150 percent,**  **­$1 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **this level,**  **the majority**  **of the**  **industry is** 

**impacted. At**  **higher TSLs,**  **manufacturers have**  **a harder**  **time fully**  **passing on**  **larger increases**  **in**

**MPCs to**  **the customer,**  **thus manufacturers**  **expect the**  **higher end**  **of the**  **range of**  **impacts to**  **be**

**reached (i.e.,**  **a drop**  **of 26.9**  **percent in**  **INPV).**

**At TSL**  **3, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$4 million**  **up to**  **­$7**

**million, or**  **a change**  **in INPV**  **of ­15.7**  **percent up**  **to ­25.7**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **150 percent,**  **­$1 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **higher TSLs,**  **manufacturers continue**  **to have** 

**a hard**  **time fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer, thus**  **manufacturers expect** 

**the higher**  **end of**  **the range**  **of impacts**  **to be**  **reached (i.e.,**  **a drop**  **of 25.7**  **percent in**  **INPV).**

**Manufacturers stated**  **the level**  **of re­design**  **required to**  **manufacturer all**  **the equipment**  **lines and** 

**cooling capacity**  **ranges would**  **be so**  **extensive that**  **they would**  **consider not**  **investing the**  **time,**

**research, or**  **development efforts**  **necessary to**  **make equipment**  **utilizing R­410A**  **at TSL**  **3.**

**At TSL**  **4, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$9 million**  **up to**  **­$12**

**million, or**  **a change**  **in INPV**  **of ­34.2**  **percent up**  **to ­43.9**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **250 percent,**  **­$3 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **TSL 4,**  **manufacturers stated**  **their concerns** 

**over the**  **ability to**  **be able**  **to produce**  **PTHPs by**  **the effective**  **date of**  **the standard**  **utilizing R** 

**410A refrigerant.**  **Using the**  **performance degradations**  **from the**  **engineering analysis,**  **TSL 4**  **for**

**PTHPs would**  **correspond to**  **the “max­tech”**  **efficiency levels**  **for PTHPs**  **unless higher**  **efficiency**

**compressors enter**  **the market**  **prior to**  **the effective**  **date of**  **an amended**  **energy conservation** 

**standard. Based**  **on information**  **submitted by**  **industry, manufacturers**  **would be**  **required to** 

**completely redesign**  **their PTHP**  **equipment lines.** 

**At TSL**  **5, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$7 million**  **up to**  **­$10**

**million, or**  **a change**  **in INPV**  **of ­24.6**  **percent up**  **to ­37.5**  **percent. At**  **this level,**  **the industry**  **cash**

**13­64 flow**  **decreases by**  **approximately 200**  **percent, ­$2**  **million, compared**  **to the**  **base case**  **value of**  **$2**

**million in**  **the year**  **leading up**  **to the**  **standards. Using**  **the performance**  **degradations from**  **the**

**engineering analysis,**  **TSL 5**  **for PTACs**  **and PTHPs**  **would correspond**  **to the**  **“max­tech”**

**efficiency levels**  **for PTHPs**  **unless higher**  **efficiency compressors**  **enter the**  **market prior**  **to the** 

**effective date**  **of an**  **amended energy**  **conservation standard.** 

**At TSL**  **6, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$9 million**  **up to**  **­$15**

**million, or**  **a change**  **in INPV**  **of ­32.9**  **percent up**  **to ­53.4**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **300 percent,**  **­$4 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards.**

**At TSL**  **5 and**  **6, manufacturers**  **stated their**  **concerns over**  **the ability**  **to be**  **able to**  **produce**

**this equipment**  **by the**  **effective date**  **of the**  **standard utilizing**  **R­410A. Based**  **on information** 

**submitted by**  **industry, manufacturers**  **would require**  **a complete**  **redesign of**  **their non­standard** 

**PTAC and**  **PTHP platforms.**  **Many manufacturers**  **stated they**  **would be**  **unwilling to**  **completely**

**redesign non­standard**  **size equipment**  **because of**  **the small**  **size of**  **the market**  **and the**  **declining**

**sales. Manufacturers**  **also commented**  **non­standard size**  **PTACs and**  **PTHPs are**  **manufactured to** 

**order based**  **on unique**  **building designs**  **for replacement**  **applications. Therefore,**  **manufacturers**

**did not**  **see the**  **advantage to**  **completely redesigning**  **non­standard size**  **PTACs and**  **PTHPs in** 

**small and**  **declining market.** 

**At TSL**  **7, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$11 million**  **up to**  **­$21**

**million, or**  **a change**  **in INPV**  **of ­40.6**  **percent up**  **to ­74.7**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **350 percent,**  **­$5 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. During**  **their MIA**  **interviews, all**  **manufacturers**

**stated that**  **this level**  **is simply**  **not achievable**  **with current**  **technologies after**  **the refrigerant** 

**phaseout. In**  **addition, some**  **manufacturers would**  **not provide**  **equipment conversion**  **cost or** 

**capital conversion**  **costs at**  **this level,**  **since they**  **could not**  **conceive what**  **designs might**  **reach this** 

**efficiency level.** 

**Lastly, non­standard**  **size manufacturers**  **stated great**  **concern over**  **the amplification**  **of**

**impacts if**  **ASHRAE/IESNA Standard**  **90.1­1999 definitions**  **are adopted**  **by DOE**  **and their** 

**equipment lines**  **are reduced.**  **Several manufacturers**  **believe the**  **ASHRAE/IESNA Standard** 

**90.1­1999 definitions**  **would cause**  **up to**  **50 percent**  **of their**  **equipment lines**  **to be**  **misclassified.**

**Consequently, this**  **equipment would**  **be required**  **to meet**  **the higher**  **energy conservation** 

**standards for**  **standard size**  **equipment, which**  **manufacturers do**  **not believe**  **is attainable**  **with**

**non­standard size**  **equipment. If**  **manufacturers’ expectations**  **were reached**  **with a**  **declining**

**equipment offering,**  **the INPV**  **and cash**  **flow impacts**  **of the**  **declining industry**  **as estimated**  **by**

**the MIA**  **would be**  **further negatively**  **affected.**

**13­65**REFERENCES

**1 McKinsey**  **& Company,**  **Inc.** Valuation: Measuring and Managing the Value of

Companies, 3 rd Edition, Copeland, Koller, Murrin. **New York:**  **John Wiley**  **& Sons,**  **2000.**

**2 Securities**  **and Exchange**  **Commission,** Annual 10­K Reports

**, Various**  **Years,**

**Washington D.C.,**  **< www.sec.gov**  **>.**

**13­66**