U.S. Department of EnergyEnergy Conservation Program for Consumer Productsand Commercial and Industrial EquipmentFramework Document Public Meeting onEnergy Conservation Standards for Residential Central AirConditioners and Heat PumpsJune 12th, 2008Washington, DChttp://eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.html2Welcome and Introduction•Introductions•Role of the Facilitator•Ground Rules (norms)–Listen as an ally–Use short, succinct statements/keep to the point–Hold sidebar conversations outside the room–Focus on issues, not personalities–One person speaks at a time (raise hand to be recognized; stateyour name for the record)–Set cell phones to silent/vibrate•Housekeeping Items•Agenda Review•Opening Remarks3Stakeholder Opening Statements•Stakeholders who contacted the Department of Energy to request anopportunity to issue an opening statement should speak now4Public Meeting Agenda23NOPR Analyses1ANOPR Analyses4Rulemaking OverviewIntroductionFinal Rule56Closing Remarks23ANOPR AnalysesTest Procedure4Rulemaking OverviewNOPR Analyses5Closing Remarks65IntroductionPurpose of the Framework Document Public Meeting•Present the procedural and analytical approaches to evaluateenergy conservation standardsfor residential central airconditioners and heat pumps•Provide a forum for public discussion of rulemaking issues•Encourage interested parties tosubmit data, information, andwritten comments6Requests for CommentIssue BoxThroughout the Framework document, specific issuesare brought up for discussion and feedback. Throughout thispresentation, these issues arebrought up in comment boxes likethis one. Comments concerning any part of the document orpresentation are welcomed.Introduction7In all correspondence, please refer to this rulemaking by:–Framework Document for ResidentialCentral Air Conditioners and HeatPumps–Docket NumberEERE-2008-BT-STD-0006,and–Regulatory Identification Number(RIN) 1904-AB47Email:Res_Central_AC_HP@ee.doe.govPostal Mail:Ms. Brenda EdwardsU.S. Department of EnergyBuilding Technologies Program,Mailstop EE-2J1000 Independence Avenue, SWWashington, DC 20585-0121Courier:Ms. Brenda EdwardsU.S. Department of Energy,Building Technologies ProgramSixth Floor, 950 L’Enfant Plaza, SWWashington, DC 20024Telephone: (202) 586-2945Feedback Is RequestedIntroduction8Comment period closes at 4:00pmJuly 7, 20089Agenda9:00 – 9:05amWelcome9:05 – 9:15amIntroduction and Agenda Review9:15 – 10:15am Opening Remarks from Interested Parties10:15 – 10:30am Rulemaking Overview10:30 – 10:45am Test Procedures10:45 – 11:00am BREAK11:00 – 12:00pm Market and Technology Assessment, ScreeningAnalysis, Engineering Analysis and PreliminaryManufacturer Impact Analysis12:00 – 1:00pm LUNCH1:00 – 2:00pmEnergy Use Analysis, Markups for Equipment PriceDetermination, and Life-Cycle Cost and PaybackPeriod Analysis2:00 – 2:30pmShipments Analysis and National Impact Analysis2:30 – 2:45pmBREAK2:45 – 3:30pmNotice of Proposed Rulemaking (NOPR) Analyses3:30 – 4:00pmDiscussion of Issues and Closing RemarksIntroduction10BackgroundIntroduction142 U.S.C. 6317(b)(1)•This energy conservation standard is a “backlog” rulemaking•Addresses requirements from 42 USC 6295(d)(3)(A) and (B):Pursuant to 6295(d)(3)(A), the first review was completed in August2004, with the publication of a Technical Amendment that establishedstandards determined in the 2001 “13 SEER” final rulePursuant to 6295(d)(3)(B), this rulemaking constitutes the secondreview of possible amendment to energy conservation standards forcentral air conditioners and heat pumps1123NOPR Analyses1ANOPR Analyses4Rulemaking OverviewIntroduction3ANOPR AnalysesTest Procedure4IntroductionFinal Rule5NOPR Analyses6Closing RemarksPublic Meeting Agenda12Rulemaking Overview42 U.S.C. 6317(c) Directs DOE toTake into Consideration SevenFactors When Setting Energy Conservation StandardsEPCA FactorsDOE Analysis1. Economic impact on consumersand manufacturersLife-Cycle Cost AnalysisManufacturer Impact Analysis2. Lifetime operating cost savingscompared to increased cost forthe productLife-Cycle Cost Analysis3. Total projected energy savingsNational Impact Analysis4. Impact on utility or performanceEngineering AnalysisScreening Analysis5. Impact of any lessening ofcompetitionManufacturer Impact Analysis6. Need for national energyconservationNational Impact Analysis7. Other factors the Secretaryconsiders relevantEnvironmental AssessmentUtility Impact AnalysisEmployment Impact Analysis13Framework DocumentFrameworkDocumentANOPRNOPRFinalRuleToday•Today’s public meeting covers the Framework Document for this rulemaking.•Federal Register Notice of PublicMeeting – (73 FR 32243, June 6, 2008)–Gives notice of the public meeting andavailability of the FrameworkDocument being discussed today–Encourages interested parties to submit comments•Framework Document–Provides an overview of the rulemaking process and encourages earlyparticipation by interested parties–Invites comments on proposed approach and issues–The Framework Document is available online:http://www.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.htmlRulemaking Overview14Milestones for the Rulemaking ProcessMilestoneDateEnd of Framework Comment PeriodJuly 7, 2008ANOPR Published in Federal RegisterFall of 2009NOPR Published in Federal RegisterFall of 2010Final Rule Published in Federal RegisterJune 2011Effective Date of Standard (5 years after FR)June 2016Rulemaking Overview1523NOPR Analyses1Test Procedure4Rulemaking OverviewIntroduction2ANOPR Analyses4IntroductionFinal Rule5NOPR Analyses6Closing RemarksPublic Meeting Agenda16Test ProcedureTest Procedure•DOE published a Final Rule forthe central air conditioners andheat pumps test procedure on October 22, 2007 (72 FR 59906)and it is found in 10 CFR 430, Subpart B, Appendix M•EISA 2007 amended EPCA to direct DOE to consider updatedtest procedures and to includestandby mode and off mode energyconsumption•DOE understands that standby mode and off mode energyconsumption for central air conditioners and heat pumps meansthe energy consumed by the equipment when the equipment isnot providing cooling, heating, or ventilation•DOE expects to propose an amendmentto the test procedure forcentral air conditioners and heat pumps by October 201017Request for FeedbackItem 1-1What are the standby power modes and the magnitudesof the standby power consumption during those modes in theoperation of the central air conditioners and heat pumps that DOEshould consider in this rulemaking? For example, are crank caseheaters still being used in the product designs and if so, what is theirtypical power consumption?Item 1-2DOE invites comments on whether it would be technicallyfeasible to incorporate standby power consumption into the SEERmetric or whether it instead should be considered as a stand-alonemeasure for this rulemaking.Item 1-3DOE also invites comments on the necessary changes tothe existing DOE test procedure for central air conditioners and heatpumps to account for standby power consumption and itsmeasurement.Test Procedure1823ANOPR Analyses1ANOPR Analyses4Rulemaking OverviewIntroduction2Test Procedure3IntroductionFinal Rule5NOPR Analyses6Closing RemarksPublic Meeting Agenda19Market &TechnologyScreeningAnalysisEngineeringAnalysisEnergy UseAnalysisShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisSteps in the Standards Rulemaking: ANOPRPreliminaryManufacturerImpactAnalysisEnergy Conservation StandardsFrameworkDocumentANOPRNOPRFinalRule20Market and Technology Assessment•Purpose:–Characterize the residential central air conditioners and heat pumpmarket, industry, and measures to improve efficiency•Method:–Identify and characterize manufacturers of residential central airconditioners and heat pumps–Estimate shipments and trends in the market–Identify technologies that could improve efficiency–Identify regulatory and non-regulatoryinitiatives intended to improvethe efficiency of products covered under this rulemakingMarket and Technology Assessment21Request for FeedbackItem 3-1DOE seeks information that would contribute to the marketassessment for residential central air conditioners and heat pumps,including information on manufacturers, market shares, trends in themarket, and any other applicable information that is available.Market and Technology Assessment22Current Product Classes & StandardsCurrent Product Classes:•Split System Air Conditioners•Split System Heat Pumps•Single Package Air Conditioners•Single Package Heat Pumps•Small-Duct High-Velocity (SDHV) AirConditioners and Heat Pumps•Space-Constrained Air Conditioners•Space-Constrained Heat Pumps•Through-the-Wall Split Air Conditionersand Heat Pumps**•Through-the-Wall Package AirConditioners and Heat Pumps**Current Standard Levels:13 SEER13 SEER/7.7 HSPF13 SEER13 SEER/7.7 HSPF13 SEER/7.7 HSPF*12 SEER12 SEER/7.4 HSPF10.9 SEER/7.1 HSPF10.6 SEER/7.0 HSPF* Exception relief has been granted for manufacturers of SDHV systems at 11 SEER/6.8 HSPF.** The through-the-wall product class ceasesto exist on 1/23/2010.Market and Technology Assessment23Planned Product Classes•Split System Air Conditioners•Split System Heat Pumps•Single Package Air Conditioners•Single Package Heat Pumps•Small-Duct High-Velocity (SDHV)Air Conditioners and Heat Pumps•Space-Constrained Air Conditioners•Space-Constrained Heat PumpsMarket and Technology AssessmentItem 3-2DOE requests feedback on the planned product classes.Item 3-3Are there other product classes that should be considered?Should all of the identified product classes be considered?24SDHV Air Conditioners and Heat Pumps•Manufacturers of SDHV systemshave filed for, and received,exception relief–11 SEER/6.8 HSPF–Effective January 23, 2006; effective until DOE establishes newstandards•DOE is considering maintaining a separate product class forSDHV systems and conducting a detailed analysis to determineappropriate standardsItem 3-4DOE requests that stakeholders submit any available, applicabledata to DOE concerning SDHV systems, including market shares,shipments, cost and performance data, and design specifications.Market and Technology Assessment25Through-the-Wall (TTW) Air Conditioners and Heat Pumps•Two main types of TTW products–Split systems (condensers using conventional air handlers)–Package systems (similar to packaged terminal air conditioners andheat pumps (PTACs and PTHPs), but ducted to interior space)•Current standards–Split: 10.9 SEER/7.1 HSPF–Package: 10.6 SEER/7.0 HSPF•The TTW product class ceases toexist on January 23, 2010, butthe space constrained product class remains•DOE is assuming a 12 SEER/7.4 HSPF baseline for spaceconstrained products, including TTW split and packageItem 3-45DOE requests submission of any available, applicable dataconcerning TTW systems, including market shares, shipments, cost andperformance data, and design specifications.Market and Technology Assessment26Ductless Split Systems•Ductless split systems (“mini-splits” and “multi-splits”) currentlyrepresent only a small fraction of the domestic market•In the most recent test procedures final rule, DOE stated itbelieves ductless splits compete mainly with conventionalsystems, not room air conditioners•In this rulemaking, DOE is considering maintaining the status ofductless split systems as part ofthe conventional split systemsproduct classItem 3-6DOE requests submission of any available, applicable dataconcerning ductless split systems, including market shares, shipments,cost and performance data, and design specifications.Market and Technology Assessment27Technology Assessment•In the technology assessment, DOEidentifies technologies that canimprove the efficiency of central air conditioners and heat pumpsHigher-efficiency expansion valves (e.g., dual-port TXVs, EEVs)Higher-efficiency evaporator and condenserfan motors (e.g., brushless DC)Increased evaporator and condenser coil surface areaEvaporator and condenser fan motor controllersHigher-efficiency evaporatorand condenser fan bladesHigher-efficiency compressors (e.g., variable-speed compressors)Micro-channel heat exchangersLiquid-to-suction heat exchangersFlat tube heat exchangersHigh-efficiency defrost mechanism (heat pumps only;e.g., “frostless” heat pumps)Improved defrost timer control (heatpumps only; e.g., demand-based defrost)Market and Technology Assessment28Item 3-7What technologies or design options, if any, should DOE add toor remove from the above lists? Please provide rationale for any suchrecommendation.Request for CommentMarket and Technology Assessment29Screening AnalysisScreening AnalysisImpacts on health or safetyImpacts on product utility or availability to consumersPracticability to manufacture, install and serviceTechnological feasibility•Purpose–Screen out technology options that will not be considered in theengineering analysis•Method:–Each technology option will be evaluated based on the following criteria:30Rulemaking Analyses•Life-Cycle Cost andPayback Period Analysis•Manufacturer ImpactAnalysis•Employment ImpactAnalysisManufacturer Selling Price –Efficiency Relationship

Manufacturer Selling PriceSEER/HSPF levelEngineering Analysis•Purpose:–To characterize the relationship between manufacturer selling priceand air conditioner and heat pump efficiencyEngineering Analysis31ÕDetermine baseline efficiency levels for each product class(current standard levels)ÕThrough reverse engineering analysis, estimate the cost ofbaseline units at a representative capacity for each productclassÕEstimate the cost of units at efficiency levels above thebaseline for each product class (efficiency-level approach)ÕDocument the Engineering Analysis, supplementing thereverse engineering data with information from manufacturercatalogs, websites and trade publicationsEstablishBaselineEstablishBaselineDocumentResultsEstimate Costof BaselineUnitsEstimate Costof Units Abovethe BaselineEngineering Analysis MethodologyEngineering Analysis32Item 5-2DOE requests feedback on the use of an efficiency levelapproach to determine the relationship between manufacturer productioncost and energy efficiency levels for central air conditioners and heatpumps.Item 5-3For each product class, DOE seeks feedback on whatrepresentative cooling capacity to use (i.e., what is the most common, ormost appropriate size air conditioner or heat pump to analyze).Item 5-4DOE seeks information on the limitations of products at very smalland very large capacities, and how to consider these limitations in itsanalysis.Request for CommentEngineering Analysis33Efficiency LevelsLevelSplit System AirConditionersPackaged AirConditionersEnergyStar & CEE Tier 114 SEER14 SEERCEE Tier 215 SEER14 SEER or higherCEE Tier 316 SEER or higherN/AMaximum available (3 ton)21 SEER16.6LevelSplit System Heat PumpsPackaged Heat PumpsEnergyStar14 SEER8.2 HSPF14 SEER8 HSPFCEE Tier 114 SEER8.5 HSPF14 SEER8 HSPFCEE Tier 215 SEER orhigher8.5 HSPF orhigher14 SEER orhigher8 HSPF orhigherMaximum Available (3 ton)19.5 SEER10.8 HSPF16.4 SEER9 HSPFEngineering Analysis34Efficiency Levels•DOE will consider the above levels, but may analyze other levelsnot in these lists•DOE will examine the “maximumtechnologically feasible” (maxtech) level, which is not necessarily the maximum availableItem 5-5DOE seeks input from stakeholders concerning the efficiencylevels is plans to use for collecting incremental cost data. DOE also seeksinput from stakeholders on appropriate max-tech levels.Item 5-6DOE seeks input on appropriate levels to analyze for SDHVsystems, and for space constrained products. DOE also seeks input fromstakeholders on appropriate max tech levels for SDHV and spaceconstrained products.Engineering Analysis35Regional Standards•Section 306 of EISA 2007 – Regional Standards–Permits DOE to establish standards for one or two regions on top ofa base national standard if regional standards would save asignificant amount of energy compared to only a base nationalstandard and are economically justified–Standards for the additional region(s) are intended to be morerestrictive than the base national standard–The Secretary may define the boundaries of the regions bycontiguous States only (AK and HI may be included in one of theseregions)Engineering Analysis36Request for FeedbackItem 1-4DOE seeks feedback from interested parties to helpdetermine appropriate regions when considering potential regionalstandards for central air conditioners and heat pumps.Item 1-5For an analysis that uses regional standards, whatregions (e.g., the hot and dry southwest, the hot and wet southeast)would be appropriate for setting standards above the base nationalstandard? Which States would be included in such regions (keepingin mind the statutory directive to include contiguous States only)?Item 1-6How should DOE address impacts to other marketparticipants (distributors, dealers, contractors, installers) of thepotential adoption of regional standards for central air conditionersand heat pumps?Engineering Analysis37Manufacturer Markup•Direct material•Direct labor•Factory overhead•Depreciation•Sales, general & admin.•Research & development•Interest•ProfitEngineering Analysis•Manufacturer Production Cost–Reverse engineering analysis–Interviews with technical experts–Interviews with manufacturers–Manufacturer catalogs and specification sheetsManufacturerMarkup(Non-Production Costs)ManufacturerProductionCost+=ManufacturerSelling Price38Manufacturer Markup•Direct material•Direct labor•Factory overhead•Depreciation•Sales, general & admin.•Research & development•Interest•ProfitEngineering AnalysisManufacturerMarkup(Non-Production Costs)ManufacturerProductionCost+=ManufacturerSelling Price•Manufacturer Markup–SEC 10-K reports–Company annual reports–Dun and Bradstreet reports–Value Line industry statistics–Standard and Poor’s industry statistics–Ibbotson Associates reports39Engineering AnalysisItem 5-7DOE seeks comment on the planned markup approach fordeveloping estimates of manufacturer selling prices.Request for Comment40Engineering AnalysisProprietary Designs•The Department will evaluateall design options that arecommercially available or present in a working prototype,including proprietary designs•Proprietary designs will only beconsidered if they do not presenta unique path to a given efficiency level•The confidentiality of manufacturers will be maintainedItem 5-8Are there proprietary designs or technologies that DOEshould consider for any of the products under consideration by thisrulemaking? If so, how should DOE acquire the cost data necessaryfor evaluating these designs?41Outside Regulatory Changes•DOE will consider the effectsof regulatory changes outsideDOE’s statutory rulemaking process•The Environmental ProtectionAgency has mandated the phaseout of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons(HCFCs)•Notably, R-22 will be phased out, beginning with a ban onproduction and importation on January 1, 2010•This ban fallsbeforethe final rule (2011) and effective date (2016)of this rulemaking•DOE intends to conduct the analysis under the assumption thatR-410A will be the refrigerantof choice to replace R-22•DOE also understands that reduced availability of R-22 wouldlikely result in increased pricesEngineering Analysis42Engineering AnalysisItem 5-9DOE seeks feedback from interested parties on thepotential impacts of reduced availability of R-22.Item 5-10Are there additional outside regulatory issues that DOEshould consider in its analysis ofair conditioners and heat pumps?Request for Comment43Preliminary Manufacturer Impact AnalysisMethodology•The MIA consists of three main phases. In the ANOPR, thepreliminary MIA focuses on Phase 1IndustryprofileDevelopstraw manGRIM*DevelopinterviewguideInterviews& industrywide /subgroupanalysesAssess directemployment,competition,cumulativeburdenPhase 2* Government RegulatoryImpact Model (GRIM)Phase 3PreliminaryMIAinterviewsPhase 1ANOPRNOPRPreliminary Manufacturer Impact Analysis44Methodology: Phase 1•Consists of the industry profile and preliminary manufacturerimpact analysis interviewsIndustry ProfileIndustry Profile»Evaluate current and past industrystructure and marketcharacteristics»Produce an industry profile reportwith aggregated findings andcharacteristics»Identify critical issues that requirespecial consideration in the MIA,for example:»Types or groups ofmanufacturers»Access to technology»Potential regulatory scenarios»Evaluate current and past industrystructure and marketcharacteristics»Produce an industry profile reportwith aggregated findings andcharacteristics»Identify critical issues that requirespecial consideration in the MIA,for example:»Types or groups ofmanufacturers»Access to technology»Potential regulatory scenariosPreliminary MIA InterviewsPreliminary MIA Interviews»Occurs during the engineeringanalysis»Topics include:»Shipment projections»Conversion costs»Product mix and profitability»Market shares and industryconsolidation»Cumulative regulatory burden»Occurs during the engineeringanalysis»Topics include:»Shipment projections»Conversion costs»Product mix and profitability»Market shares and industryconsolidation»Cumulative regulatory burdenPreliminary Manufacturer Impact Analysis45Market &TechnologyScreeningAnalysisEngineeringAnalysisEnergy UseAnalysisShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisSteps in the Standards Rulemaking: ANOPRPreliminaryManufacturerImpactAnalysisEnergy Conservation StandardsFrameworkDocumentANOPRNOPRFinalRule46•Purpose:–Determine annual energy consumption to calculate annual operatingcosts for the life-cycle cost (LCC) and payback period (PBP)analyses–Access the energy-savings potential of increased productefficienciesEnergy Use Analysisfor Residential Buildings•Method:–Develop residential building samples for each product class fromDOE-EIA’s Residential Energy Consumption Survey (RECS)•RECS 2001 data is currently available but RECS 2005 data may not beavailable in time for the ANOPR–Use RECS data along with Engineering Analysis data to developannual energy useEnergy Use Analysis47Energy Use Analysis Approachfor Residential BuildingsAnnual Energy Useper household (kWh/year)(UECres_stock)from RECS+SEER per household(deduced from‘equipment age’)(SEERres_stock)from RECSSEER byEfficiencyLevel(SEERres_effcy)from EngineeringAnalysisAnnualEnergy Use(kWh/year) byEfficiencyLevel(UECres_effcy)Per householdeffcyresstockresstockreseffcyresSEERSEERUECUEC____×=Energy Use Analysis48Request for CommentItem 6-1DOE seeks comments on the accuracy and additionalspecificity of the annual shipped efficiency (SEER) data by vintage aspublished in the HVAC&R News. Also, are there regional distributionsof the SEER data by vintage available? If so, where can these databe found?Item 6-2DOE seeks input on the planned approach of using RECSdata for determining the energy consumption of central airconditioners and heat pumpsin residential buildings.Energy Use Analysis49•Purpose:–DOE will consider the “rebound effect” in its determination of annualenergy consumptionRebound Effect•Assumptions:–Rebound effect occurs when a more efficient appliance or equipmentis used more intensively so the expected savings may not fullymaterialize–Rebound effect for residential space-cooling equipment appears tobe highly variable (0% to 50% according to existing literature)Energy Use Analysis50Request for CommentItem 6-3Because the rebound effect for residential space-coolingequipment appears to be highly variable, DOE seeks comments onthe rebound effect that may be associated with more efficient centralair conditioners and heat pumps.Energy Use Analysis51•Purpose:–Determine annual energy consumption and peak demand impactsassociated with the estimated ten percent of central air conditionersand heat pumps that are installed in commercial buildings. Theannual energy consumption and peakdemand will be used in LCCand PBP analysesEnergy Use Analysisfor Commercial Buildings•Method:–Use a whole-building simulation-based analysis for a representativecommercial building type in different climate regions–Consider the small office as the most representative commercialbuilding type where the covered products are installed–Characterize the small office building prototype model from DOEEIA’s Commercial Building Energy Consumption Survey (CBECS)Energy Use Analysis52Item 6-4DOE specifically requests comment on whether ten percentis an accurate estimate of the fraction of single-phase central airconditioners and heat pumps installed in commercial buildings.Item 6-5DOE requests input on whether, as defined by CBECS, the“small office building” is the appropriate commercial building type touse for this analysis. If so, DOE further requests comment on itsplanned approach to use a small office building prototype to estimatethe annual energy consumption and peak-demand impacts of thecovered equipment installed in commercial buildings.Request for CommentEnergy Use Analysis53Markups for Equipment Price Determination•DOE uses markups to convertmanufacturer costs from theengineering analysis intoconsumer retail prices•DOE needs retail prices for thelife-cycle cost and payback periodanalyses•DOE will characterize distribution channels for both baseline productand product with higher efficiency levels•DOE develops markups for each partyinvolved in product distribution•SEC 10-K reports provide data for calculating manufacturer markups•U.S. Census Bureau provides data for calculating retailer markups•DOE may collect retail price data for validation purposes•DOE will investigate the variability of retail pricesMarkups for Equipment Price Determination54Markups for Equipment Price DeterminationManufacturerConsumerConsumerManufacturerConsumerManufacturerDistributor (Wholesaler)Distribution Channel 1Distribution Channel 3Distribution Channel 2Dealer (Contractor)DOE Proposed Distribution ChannelsBuilderLarge Retailer(e.g., Sears, Home Depot)Distributor (Wholesaler)Markups for Equipment Price Determination55Markups for Equipment Price DeterminationRequest for CommentItem 7-1DOE requests information from stakeholders on whether thedistribution channels for the central air conditioners and heat pumpswould be similar to those described above and, if not, how they mightbe different. Also, what might be the differences in the distributionchannels for the new versus replacement market? And are there anyregional differences in the distribution channels?Item 7-2DOE also requests information on the relative fractions ofshipments expected for each distribution channel for new andreplacement central air conditioners and heat pumps. Are there anyregional differences in the relative fractions of shipments?56Request for CommentItem 7-3DOE requests feedback on its plan to use baseline andincremental distribution channel markups for the LCC and PBPanalysis.Item 7-4DOE seeks comment on other sources of relevant data thatcould be used to characterize markups for the central air conditionersand heat pumps covered under this rulemaking.Markups for Equipment Price Determination57•Method:–LCC equals product installed price plus the sum of annual operating,maintenance and repair costs discounted to a particular base year–Economic evaluation is from the consumer perspective–Analysis implemented using an Excel®spreadsheet–Results are expressed as LCC difference (baseline minus standard level)–Simple payback period (years) is also calculated and reported in thisanalysisLife-Cycle Cost and Payback Period Analysis•Purpose:–Assess the net life-cycle cost (LCC) impacts of differing energyconservation standards for central air conditioners and heat pumps onthe consumerLife-Cycle Cost and Payback Period Analysis58Approach•Monte Carlo analysis will allow DOEto consider end-user variabilityand conduct sensitivity analyses–Consider different end-use sectors by weighting input distributions–Correlate inputs where necessary (e.g., electricity price and sector)•One LCC and PBP analysis result per product classLife-Cycle Cost and Payback Period Analysis59Life-Cycle Cost and Payback Period AnalysisBaselineManufacturerCostStd-LevelManufacturerCostSales TaxInstallationCostTotal InstalledCostElectricityPricesEnergy UseEquipmentPriceLifetimeOperatingExpenseAnnual EnergyExpenseLifetimeRepair CostDiscount RateMaintenanceCostElectricityPrice TrendsAnnualOperatingExpensePaybackPeriodLife-CycleCostManufacturerMarkupFromEngineeringAnalysis(Cost is afunction ofEfficiency)FromMarkups forEquipmentPriceDeterminationFromEnergy UseDetermination(Use is afunction ofEfficiency)DistributorMarkupsContractor/BuilderMarkupsLCC and PBP Analysis Inputs60Electricity Prices•Electricity prices are used to convert energy use to energy costs.•DOE intends to use marginal prices to determine energy cost savings–Marginal price is the charge for the last increment of consumer energy useLife-Cycle Cost and Payback Period Analysis61Residential Electricity Prices•No demand charges means simpler methods are sufficiently accurate•Two possible approaches, based on two data sources–Residential Energy Consumption Survey(RECS) utility bill data by householdwhere marginal prices are estimated by plotting monthly expenditures ($)against monthly consumption (kWh); the slope ($/kWh) is the marginal price•RECS 2001 data is currently available but RECS 2005 data may not be availablein time for the ANOPR–Edison Electric Institute (EEI) data consistsof monthly bills for three levels ofconsumer usage (500, 750 and 1000 kWh) for ~180 utilities, summer andwinter; the marginal price can be estimated from the difference in the bill(published annually, most recently for 2007)•EEI 2007 data could alternatively beused to adjust RECS 2001 dataLife-Cycle Cost and Payback Period Analysis62Commercial Electricity Prices•Commercial electricity prices will need to be developed if commercialbuilding applications are considered•Commercial prices are more complex because of demand ($/kW)charges and so-calledhourscharges (where energy block sizesdepend on demand)•Electric utility tariffs can be usedto accurately calculate these charges–A tariff is the set of rules used by the utility to calculate a consumer’s bill–Marginal cost savings are equal to the marginal energy price times theenergy savings plus the marginal demand price times the demandreduction•This relationship has been summarized in a simple two-parameterformula to estimate a consumer’smarginal price as a function ofmarginal load factor–The marginal load factor is the ratio of the demand savings to the averageenergy savingsLife-Cycle Cost and Payback Period Analysis63Item 8-1DOE seeks comments on which data source (RECS orelectric utility tariffs) should be used to estimate marginal electricityprices.Request for CommentLife-Cycle Cost and Payback Period Analysis64Electricity Price Forecasts•DOE will use the Energy Information Administration (EIA)AnnualEnergy Outlook(AEO) for projections of future marginal electricityprices (reference, high, and low scenarios)Life-Cycle Cost and Payback Period AnalysisItem 8-2DOE seeks comments on its planned use of EIA’s AEO toproject future marginal electricity prices.65Discount Rate•Discount rates are used to convert streams of annual operating expenses topresent value in the LCC analysis•Residential discount rates – DOE will use similar approach as for other residentialproduct standards rulemakings–Derived from estimates of the “finance cost” to purchase residential products–“Finance cost” based on: (1) cost of any debt incurred to purchaseproducts (e.g., creditcards, home equity loans) and (2) opportunitycost of any equity to purchase products(e.g., stocks, bonds, savings accounts)–Federal Reserve Board’sSurvey of Consumer Financesis a source of much of theequity and debt data•Commercial discount rates (if necessary) – DOE will use similar approach as forother commercial product standards rulemakings–Calculated from the weighted-average cost of capital to the firm (WACC) to obtainequity and debt financingLife-Cycle Cost and Payback Period AnalysisItem 8-3DOE seeks comment on the planned approaches forestimating discount rates for residential consumers and commercialcustomers of central air conditioners and heat pumps.66Maintenance, Repair and Installation Costs•DOE believes that routine repairand maintenance costs may increasewith more efficient central air conditioners and heat pumps because oftechnologies that are not currently widely available•DOE expects that installation costswill not change for more and lessefficient central air conditioners and heat pumpsLife-Cycle Cost and Payback Period AnalysisItem 8-4DOE seeks feedback on whether it is correct to assume thatchanges in maintenance, repair, and installation costs will benegligible for more efficient equipment.Item 8-5If it is not appropriate to assume that changes inmaintenance, repair, or installation costs would be negligible for moreefficient equipment, DOE seeks comment on appropriatemethodologies for assessing changes to each of these costs.67Equipment Lifetime•DOE proposes to use an analysis where equipment lifetimes for thebase case and standards case are the same•In the previous rulemaking forthese covered products, DOE used anaverage lifetime of 18.4 yearsLife-Cycle Cost and Payback Period AnalysisItem 8-6DOE seeks comments on appropriate equipment lifetimesfor the central air conditioners and heat pumps.68Market &TechnologyScreeningAnalysisEngineeringAnalysisEnergy UseAnalysisShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisSteps in the Standards Rulemaking: ANOPRPreliminaryManufacturerImpactAnalysisEnergy Conservation StandardsFrameworkDocumentANOPRNOPRFinalRule69Shipments Analysis•Purpose:–Quantify changes in product’s shipments due to potential newenergy efficiency standardsShipments Analysis•Method:–The shipments model will rely on a range of data sources–The model will only consider shipments of covered products70Shipments AnalysisBase-Case Shipments Forecast Approach•Depicts the situation wherenew standards are not adopted•Residential shipments forecast willaccount for: (1) product sales to newconstruction and (2) replacements for failed units•DOE will use approach to determinesplit-system and single-packageannual shipments•New construction shipments estimated with forecasts of new housingand historical rates of product ownership (saturation rates)•Replacement shipments estimated with product retirement functionapplied to existing units in housing stock•Historical forecasts (‘backcasts’) will be calibrated to historical shipments–Calibration performed by accounting for product sales to existing householdsthat do not already own a covered product–DOE will derive a historical rate of adoption for the “existing” market71Shipments AnalysisBase-Case Shipments Forecast Approach (cont.)•Commercial shipments forecast willneed to be developed if commercialbuilding applications are considered•Commercial shipments forecast willaccount for: (1) product sales to newconstruction and (2) replacements for failed units•New construction commercial shipmentsestimated with forecasts of newconstruction and historical rates ofproduct ownership (saturation rates)•Replacement commercial shipments estimated with product retirementfunction applied to existingunits in building stock•Historical commercial forecasts (‘backcasts’) will be calibrated tohistorical shipments. Calibrationperformed by accounting for productsales to existing buildings that do not already own the product72Shipments AnalysisBase-Case Shipments Forecast Approach (cont.)•DOE intends to estimate SDHVand Space-Constrained shipmentsforecasts from extrapolations of historical shipments trends–Simplified approach will require historical shipments from stakeholders73Shipments AnalysisRequest for CommentItem 9-1DOE seeks historical shipments data for each of thefollowing product classes: (1) split-system air conditioners; (2) splitsystem heat pumps; (3) single-package air conditioners; (4) singlepackage heat pumps; (5) SDHV systems; (6) through-the-wall airconditioners; and (7) through-the-wall heat pumps. Within eachproduct class, DOE also requests shipments data disaggregatedregionally by Census Region.74Shipments AnalysisStandards Impacts on Shipments•DOE develops Standards-Case Forecastsfrom the same data it used todevelop the Base-Case Forecast•Standards-Case Forecasts alsouse purchase price increases andoperating cost savings to estimate shipments impacts•It is difficult to obtain data showingsensitivity of shipments to purchaseprice and operating costs–DOE may forecast Standards-Case shipments forecasts with scenarios (i.e.,specific percentage drops in annual shipments for particular efficiency levels)•DOE will consider impacts from market-pull programs (e.g., Energy Star)•For heat pumps, DOE will considerfuel and equipment switching–Any forecasted drop in heat pump shipments will be allocated to increasedsales of gas-fired and electric-resistance forced-air furnaces–Reflects a “maximum” scenario that will indicate the maximum amount of fueland equipment switching75Request for CommentItem 9-2As part of its preliminary manufacturer impact analysis, DOE seeksinput from manufacturers on the potential impact of new energy conservationstandards on central air conditioner and heat pump shipments. DOE alsoseeks input from other stakeholders on the potential impact of standards onproduct shipments.Item 9-3DOE also requests input on any market-pull programs that currentlyexist to promote the purchase or manufacture of more efficient central airconditioner and heat pump equipment.Shipments Analysis76•Method:–Develops annual series of national energy and economic impacts–Utilizes the shipments model to estimate the total stock residentialcentral air conditioners in service each year–Utilizes the LCC to estimate cost and energy use per unit in any givenyear–Aggregates the costs and energy use for all years in the analysisperiod–Reports energy savings in Quads of primary energy consumption(One Quad = 1 quadrillion Btus = 293 terawatt hours)–Reports estimates for economic impact as change in consumerNational Net Present Value (in constant year dollars)–Accounts for the time-value of money though defined discount ratesNational Impact Analysis•Purpose:–Determine the projected national energy savings and consumernational net present valueNational Impact Analysis77Base CaseAnnual EnergyConsumption2046Base CaseAnnual EnergyConsumption2018Base CaseAnnual EnergyConsumption2017Base CaseAnnual EnergyConsumption2016National Energy Savings Flow DiagramNational Impact AnalysisShipmentsAnalysisStandards-Case ProjectionBase-CaseProjectionBase CaseAnnual EnergyConsumption2046Base CaseAnnual EnergyConsumption2018Base CaseAnnual EnergyConsumption2017Standards CaseAnnual EnergyConsumption2016Base-CaseCumulativeEnergy UseStandards-CaseCumulativeEnergy UseSite to SourceEnergyConversionNational EnergySavings78National Consumer Net Present Value Flow DiagramNational Impact AnalysisShipmentsAnalysisStandards-Case ProjectionEnergyCost(2016 –20XX)Base-CaseProjectionCumulativeOperating CostSavingsCumulativeTotal EquipmentCost IncreaseDiscountRateNet PresentValueMainten.Cost(2016 –20XX)EquipmentCost(2016 –2046)EnergyCost(2016 –20XX)Mainten.Cost(2016 –20XX)EquipmentCost(2016 –2046)79National Impact AnalysisShipment-Weighted Efficiency Data•Key components of the national impact analysis are dependent on shipmentweighted efficiencies–Per-unit annual energy consumption—needed to determine NES–Retail equipment price and per-unit annualoperating costs—needed to determineNPV•Historical trends in product efficiency help project future product efficienciesfor the base-case7.58.08.59.09.510.010.511.011.51980 1985 1990 1995 2000 2005Year

Shiipment-Weighted SEERUnitary Air ConditionersHeat Pumps–AHRI’sStatistical Profileprovides historical efficiencytrends but notdisaggregated by productclass–Because DOE is conductingits analysis by product class(and possibly by region),DOE will make a request tostakeholders for shipmentsbroken down by productclass and Census Region.80National Impact AnalysisMarket Share Efficiency Data andStandards Impacts on Product Efficiencies•Historical market share efficiency data helps estimate how standards will impact base-caseefficiencies–Market share data reveals the distribution of product efficiencies for a givenyear by product class–If product efficiency distributions are significantly different by region, DOE could capture regionaleffects if stakeholders provide data•DOE has assumed “roll up” and “shift” scenarios to forecast standards impacts in paststandards rulemakings–“Roll-up”:Products in the base-case that do notmeet the standard “rollup” to meet new standard;products above standard are not affected–“Shift”:Retains the pattern of the base-caseefficiency distribution but re-orients the distribution atand above the new standard13141516171819BaseShift0%10%20%30%40%50%60%70%80%90%100%

Percent of ModelsSEER131415161718BaseRoll-up0%10%20%30%40%50%60%70%80%90%100%

Percent of ModelsSEER81Item 10-1DOE seeks historical shipment-weighted efficiency databy product class and by the four Census Regions. DOE also seekshistorical market share data showing the percentage of productshipments by efficiency level for as many product classes aspossible.Item 10-2DOE seeks comments on the use of the “roll-up” and“shift” efficiency scenarios to characterize the impact that potentialstandards will have on the product distributions.Item 10-3DOE seeks comment on its plan to develop NIAspreadsheet models for estimating national impacts of amendedenergy conservation standards for residential central airconditioners and heat pumps.National Impact AnalysisRequest for Comment8223NOPR Analyses1ANOPR Analyses4Rulemaking OverviewIntroduction2Test Procedure3IntroductionNOPR Analyses5ANOPR Analyses46Closing RemarksPublic Meeting Agenda83Steps in the Standards Rulemaking: NOPRManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisLife-CycleCostSubgroupAnalysisReviseANOPRAnalysesEnvironmentalImpactAnalysisRegulatoryImpactAnalysisEngineeringAnalysisLife-CycleCost &PaybackPeriodAnalysesNationalImpactAnalysisEnergy Conservation StandardsFrameworkDocumentANOPRNOPRFinalRule84Life-Cycle Cost Subgroup Analysis•Purpose:–Analyze the economic impacts of energy conservation standards forcentral air conditioners and heat pumps on consumers, includingsubgroups who may be disproportionately impacted compared withthe general user population•Method:–Extend the LCC analysis to examine the economic impacts fordefined subgroupsLife-Cycle Cost Subgroup AnalysisItem 11-1DOE seeks input on which of the consumer subgroupsDOE should consider in this rulemaking. Examples of possiblesubgroups DOE could consider for this rulemaking include lowincome consumers, senior citizens, or persons living in differentclimate zones that might be subject to the same standards.85Manufacturer Impact AnalysisManufacturer Impact Analysis•Purpose:–Assess the impacts of standards on manufacturers–Identify and estimate impacts on manufacturer subgroups that maybe more severely impacted than the industry as a whole–Examine the impact of cumulative regulatory burden on the industry•Method:–Analyze industry cash flow and net present value through use of theGovernment Regulatory Impact Model (GRIM)–Interview manufacturers to refine inputs to the GRIM, developsubgroup analyses, and address qualitative issues86Manufacturer Impact AnalysisMethodology•In the NOPR phase, the MIA will consist of phase 2 and 3IndustryprofileDevelopstraw manGRIM*DevelopinterviewguideInterviews& industrywide /subgroupanalysesAssess directemployment,competition,cumulativeburdenPhase 2* Government RegulatoryImpact Model (GRIM)Phase 3PreliminaryMIAInterviewsPhase 1ANOPRNOPR87Manufacturer Impact AnalysisMethodology: Phase 2•Consists of the straw man GRIMand interview guide preparationStraw man GRIMStraw man GRIM»Starting point for discussion ofimpacts»Inputs include:»Manufacturer prices»Shipment forecasts»Manufacturing cost estimates»Financial information»Starting point for discussion ofimpacts»Inputs include:»Manufacturer prices»Shipment forecasts»Manufacturing cost estimates»Financial informationInterview Guide PreparationInterview Guide Preparation»Interview topics include:»Engineering analysis»Shipments model»Cost structureand financialparameters»Conversion costs»Cumulative burden»Direct employment impacts»Import / export issues»Consolidation / competitive impacts»Replacement parts or refurbishments»Impact of the standard’s effective date»Interview topics include:»Engineering analysis»Shipments model»Cost structureand financialparameters»Conversion costs»Cumulative burden»Direct employment impacts»Import / export issues»Consolidation / competitive impacts»Replacement parts or refurbishments»Impact of the standard’s effective date88Manufacturer Impact AnalysisMethodology: Phase 3•Consists of the manufacturer interviews, subgroup analyses, andassessment of industry impactsManufacturer InterviewsManufacturer Interviews»Confidential discussion of potentialimpacts resulting from standards,including:»Obsolescence of existingmanufacturing assets»Tooling»Investment»Confidential discussion of potentialimpacts resulting from standards,including:»Obsolescence of existingmanufacturing assets»Tooling»InvestmentAssessment of ImpactsAssessment of Impacts»Assess competitive impacts onsmaller, significant manufacturers»Assess cumulative regulatoryburden on manufacturers fromamended DOE standards and otherregulatory actions»Assess impacts on industryemployment levels»Assess impacts on manufacturersubgroups»Assess competitive impacts onsmaller, significant manufacturers»Assess cumulative regulatoryburden on manufacturers fromamended DOE standards and otherregulatory actions»Assess impacts on industryemployment levels»Assess impacts on manufacturersubgroups89Item 12-1DOE seeks comment on appropriate manufacturersubgroups - if any - that DOE should consider in a manufacturersubgroup analysis.Item 12-2What regulations or pending regulations should DOEconsider in the analysis of cumulative regulatory burdens onmanufacturers of covered equipment for this rulemaking?Request for CommentManufacturer Impact Analysis90Utility Impact Analysis•Purpose:–Assess the overall impacts on domestic energy supplies that wouldresult from the imposition of standards•Method:–The Department proposes to use NEMS-BT, a variant of the NEMS(National Energy Modeling System) developed and used by DOE/EIAfor their Annual Energy Outlook report, as the basis of the UtilityImpact Analysis–Use the energy savings calculated from the NES spreadsheetanalysis to reduce the sector electrical loads from the BuildingDemand Modules in NEMS-BT–Energy savings translated to a reduction in the electrical demandfaced by the utility system over timeItem 13-1DOE seeks input from stakeholders on its plans to useNEMS-BT to conduct the utility impact analysis on the equipmentcovered under this rulemaking.Utility Impact Analysis91Employment Impact Analysis•Purpose:–Assess the overall impact on national employment from theimposition of energy conservation standards•Method:–Include both direct and indirect employment impacts•Direct employment impacts are estimated in the manufacturer impactanalysis•Indirect employment impacts result from shifting consumer expendituresamong goods and services (“substitution effect”) and changingequipment and energy costs (“income effect”)–DOE proposes to use the ImSET(Impact of Sector EnergyTechnologies) model for the evaluation of indirect employmentimpactsItem 14-1DOE requests feedback on this approach to assessingemployment impacts on the equipmentcovered under this rulemaking.Employment Impact Analyses92Environmental Impact Analysis•Purpose:–Estimate national environmental impacts from newenergy efficiency standards for central airconditioners and heat pumps covered under this rule•Method:–DOE intends to use the environmental impacts predicted from the NEMS-BT modeling analysisused for the Utility Impacts Analysis.The following emissions are assessed:•Carbon dioxide (CO2)–NEMS calculates quantitiesof U.S. emissions of CO2from power plants–DOE will consider the use of monetaryvalues to represent the value of CO2emissions•Sulfur dioxide (SO2)–Clean Air Act amendments of 1990 cap SO2emissions–Any measurable impact from NEMS interms of the trading price of SO2in the utility sector•Nitrogen oxides (NOx)–Clean Air Interstate Rule (CAIR) permanently caps NOxemissions in 28 eastern States and DC–NEMS calculates quantitiesof U.S. emissions of NOxfrom power plants in 22 “non-capped” States–For the 28 “capped” States and DC, NEMS will determine any measurable impact in terms of thetrading price of NOxin the utility sector•Mercury (Hg)–Court actions vacated the Clean Air Mercury Rule(CAMR), which would have capped Hg emissions–DOE is considering approaches to address the issue ofHg emissions in light of the court’s decisionEnvironmental Impact Analysis93Item 15-1DOE invites comments on how to estimate such monetaryvalues associated with CO2emissions reductions or on any widely acceptedvalues which might be used in DOE’s analyses.Item 15-2Because court actions have vacated the CAMR, DOE seeksstakeholder input on how it should address Hg emissions in thisrulemaking. In addition, DOE seeks comment on how it might value NOxemissions for the 22 States not covered by the CAIR.Item 15-3DOE seeks input from stakeholders on its plans to use NEMSBT to conduct the environmental impact analysis on the equipment coveredby this rulemaking. Are there any other approaches to the environmentalimpact analysis that DOE should consider?Item 15-4Are there any other environmental factors DOE should considerin this rulemaking?Request for CommentEnvironmental Impact Analysis94Regulatory Impact AnalysisRegulatory Impact Analysis•Purpose:–Explore the potential for non-regulatory alternatives to new energyconservation standards•Method:–Base the assessment on the actual impacts of any such initiatives todate, but consider information presented regarding the impacts that anyexisting initiative might have in the future9523NOPR Analyses1ANOPR Analyses4Rulemaking OverviewIntroduction2Test Procedure3IntroductionFinal Rule5ANOPR Analyses46Closing RemarksNOPR Analyses5Public Meeting Agenda96In all correspondence, please refer to this rulemaking by:–Framework Document for ResidentialCentral Air Conditioners and HeatPumps–Docket NumberEERE-2008-BT-STD-0006,and–Regulatory Identification Number(RIN) 1904-AB47Email:Res_Central_AC_HP@ee.doe.govPostal Mail:Ms. Brenda EdwardsU.S. Department of EnergyBuilding Technologies Program,Mailstop EE-2J1000 Independence Avenue, SWWashington, DC 20585-0121Courier:Ms. Brenda EdwardsU.S. Department of Energy,Building Technologies ProgramSixth Floor, 950 L’Enfant Plaza, SWWashington, DC 20024Telephone: (202) 586-2945How to Submit Written CommentsIntroduction97Comment period closes at 4:00pmJuly 7, 2008