CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

8.1 INTRODUCTION.................................................................................................................8-1

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis..............................8-1

8.1.2 Overview of Life-Cycle Cost and Payback Period Analysis Inputs..................................8-2

8.1.3 Use of Per Unit Annual Energy Consumption Data ...........................................................8-5

8.2 LIFE-CYCLE COST ANALYSIS INPUTS .......................................................................8-6

8.2.1 Total Installed Cost Inputs....................................................................................................8-6

8.2.1.1 Manufacturer Costs........................................................................................... 8-7

8.2.1.2 Markups.............................................................................................................. 8-7

8.2.1.3 Total Customer Price......................................................................................... 8-8

8.2.1.4 Future Equipment Prices................................................................................... 8-9

8.2.1.5 Installation Cost............................................................................................... 8-11

8.2.1.6 Total Installed Cost ......................................................................................... 8-13

8.2.2 Operating Cost Inputs........................................................................................................ 8-14

8.2.2.1 Annual Energy Use Savings........................................................................... 8-14

8.2.2.2 Energy Prices................................................................................................... 8-14

8.2.2.3 Energy Price Trends........................................................................................ 8-15

8.2.2.4 Repair Cost....................................................................................................... 8-17

8.2.2.5 Maintenance Cost ............................................................................................ 8-17

8.2.2.6 Lifetime............................................................................................................ 8-17

8.2.2.7 Discount Rates................................................................................................. 8-18

8.2.2.8 Compliance Year of Standard......................................................................... 8-20

8.2.2.9 Base Case Distribution of Efficiency Levels................................................. 8-21

8.3 PAYBACK PERIOD INPUTS ......................................................................................... 8-22

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS ....................................... 8-23

8.4.1 Packaged Terminal Air Conditioners – 9,000 Btu/h........................................................ 8-23

8.4.2 Packaged Terminal Air Conditioners – 15,000 Btu/h Cooling Capacity ....................... 8-26

8.4.3 Packaged Terminal Heat Pumps – 9,000 Btu/h Cooling Capacity ................................. 8-28

8.4.4 Packaged Terminal Heat Pumps – 15,000 Btu/h Cooling Capacity ............................... 8-30

8.4.5 Alternative Base Case Analysis ........................................................................................ 8-32

8.4.6 Rebuttable Payback Period................................................................................................ 8-33

8.4.6.1 Inputs 8-34

8.4.6.2 Results 8-34

LIST OF TABLES

Table 8.1.1 Summary of Inputs and Key Assumptions Used in the LCC and PBP 

Analysis.....................................................................................................................8-5

Table 8.2.1 Manufacturer Production Cost for PTACs by Efficiency Level (2013$)............8-7

Table 8.2.2 Manufacturer Production Cost for PTHPs by Efficiency Level (2013$).............8-7

Table 8.2.3 Summary of Average Markups................................................................................8-8

Table 8.2.4 Summary of National Accounts Markups...............................................................8-8

8-i 
Table 8.2.5 Overall Markup for Packaged Terminal Air Conditioners and Heat Pumps........8-8

Table 8.2.6 Average Customer Price for Packaged Terminal Air Conditioners and 

Heat Pumps (2013$).................................................................................................8-9

Table 8.2.7 Installation Costs for Baseline Packaged Terminal Air Conditioners and 

Heat Pumps............................................................................................................ 8-12

Table 8.2.8 National Average Installation Cost for Packaged Terminal Air 

Conditioners and Heat Pumps............................................................................... 8-12

Table 8.2.9 Installation Cost Indices by State (National Value = 100.0)............................... 8-13

Table 8.2.10 Average Total Installed Cost for Packaged Terminal Air Conditioners and 

Heat Pumps (2013$).............................................................................................. 8-13

Table 8.2.11 Average and Marginal Tariff-Based Prices by Region (2013 Dollars or 

Cents)...................................................................................................................... 8-15

Table 8.2.12 Commercial Electricity Prices (2013 cents/kWh) ............................................... 8-16

Table 8.2.13 Risk-free rate and equity risk premium, 2011-2013............................................ 8-19

Table 8.2.14 Weighted-Average Cost of Capital for Analyzed Sectors .................................. 8-20

Table 8.2.15 Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air 

Conditioners and Heat Pumps............................................................................... 8-22

Table 8.4.1 Packaged Terminal Air Conditioners – 9,000 Btu/h Cooling Capacity: 

Life-Cycle Cost and Payback Period Results ...................................................... 8-24

Table 8.4.2 Packaged Terminal Air Conditioners – 15,000 Btu/h Cooling Capacity: 

Life-Cycle Cost and Payback Period Results ...................................................... 8-26

Table 8.4.3 Packaged Terminal Heat Pumps – 9,000 Btu/h Cooling Capacity..................... 8-28

Table 8.4.4 Packaged Terminal Heat Pumps – 15,000 Btu/h Cooling Capacity................... 8-30

Table 8.4.5 Alternative Base Case Efficiency Market Shares in 2019 for Packaged 

Terminal Air Conditioners and Heat Pumps........................................................ 8-32

Table 8.4.6 Alternative Base Case Analysis Results............................................................... 8-33

Table 8.4.7 Rebuttable-Presumption Payback Periods (years) for Packaged Terminal

Air Conditioners .................................................................................................... 8-34

Table 8.4.8 Rebuttable-Presumption Payback Periods (years) for Packaged Terminal 

Heat Pumps............................................................................................................ 8-35

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP .........................8-4

Figure 8.2.1 AEO 2013 electricity price projections by region (2013$) ................................. 8-16

Figure 8.4.1 Range of Life-Cycle Cost Savings for Packaged Terminal Air 

Conditioners – 9,000 Btu/h Cooling Capacity..................................................... 8-25

Figure 8.4.2 Range of Payback Periods for Packaged Terminal Air Conditioners – 

9,000 Btu/h Cooling Capacity............................................................................... 8-26

Figure 8.4.3 Range of Life-Cycle Cost Savings for Packaged Terminal Air 

Conditioners – 15,000 Btu/h Cooling Capacity................................................... 8-27

Figure 8.4.4 Range of Payback Periods for Packaged Terminal Air Conditioners – 

15,000 Btu/h Cooling Capacity ............................................................................ 8-28

Figure 8.4.5 Range of Life-Cycle Cost Savings for Packaged Terminal Heat Pumps – 

9,000 Btu/h Cooling Capacity............................................................................... 8-29

8-ii
Figure 8.4.6 Range of Payback Periods for Packaged Terminal Heat Pumps – 9,000 

Btu/h Cooling Capacity......................................................................................... 8-30

Figure 8.4.7 Range of Life-Cycle Cost Savings for Packaged Terminal Heat Pumps – 

15,000 Btu/h Cooling Capacity ............................................................................ 8-31

Figure 8.4.8 Range of Payback Periods for Packaged Terminal Heat Pumps – 15,000 

Btu/h Cooling Capacity......................................................................................... 8-32

8-iii
CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 INTRODUCTION

The effect of amended standards on individual customers usually includes a reduction in

operating cost and an increase in purchase cost. This chapter describes two metrics used in the 

analysis to determine the economic impact of standards on individual commercial customers. 

• Life-cycle cost (LCC) is the total customer cost over the life of an appliance or product, 

including purchase costs and operating costs (which in turn include maintenance, repair, 

and energy costs). Future operating costs are discounted to the time of purchase and 

summed over the lifetime of the appliance or product.

• Payback period (PBP) measures the amount of time it takes customers to recover the 

assumed higher purchase price of more energy-efficient products through reduced 

operating costs.

The U.S. Department of Energy (DOE) conducted the LCC and PBP analysis using a 

spreadsheet model developed in Microsoft Excel. When combined with Crystal Ball (a 

commercially available software program), the LCC and PBP model generates a Monte Carlo 

simulation to perform the analysis by incorporating uncertainty and variability considerations in 

certain of the key parameters as discussed further in section 8.1.1. 

Inputs to the LCC and PBP analysis of packaged terminal air conditioner s (PTACs) and 

packaged terminal heat pumps (PTHPs) are discussed in sections 8.2 and 8.3, respectively. 

Results for each metric are presented in section 8.4. Key variables and calculations are presented 

for each metric. The calculations discussed here were performed with a series of Microsoft Excel

spreadsheets that are accessible over the Internet 

(http://www1.eere.energy.gov/buildings/appliance_standards/buildings/appliance_standards/prod

uct.aspx/productid/77). 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analysis 

PTAC and PTHP equipment usage patterns and purchase costs are unique, so variability 

and uncertainty are analyzed by performing the LCC and PBP calculations detailed here for 

prototypical commercial buildings across various U.S. locations. The results are expressed as the 

number of PTAC and PTHP equipment customers experiencing economic impacts of different 

magnitudes. The LCC and PBP model was developed using Microsoft Excel spreadsheets 

combined with Crystal Ball. The LCC and PBP analysis explicitly models both the uncertainty 

and the variability in the model’s inputs using Monte Carlo simulation and probability 

distributions.

These inputs include estimated energy use for each PTAC and PTHP unit, as described in 

the energy use analysis in Chapter 7. Energy use is sensitive to climate and therefore varies by 

location within the United States. Aside from energy use, other important inputs influencing the 

8-1 
LCC and PBP analysis include energy prices, installation costs, equipment distribution markups, 

and sales taxes. 

As mentioned previously, DOE generated LCC and PBP results as probability 

distributions using a simulation based on Monte Carlo analysis methods, in which certain key 

inputs to the analysis consist of probability distributions rather than single-point values. 

Therefore, the outcomes of the Monte Carlo analysis can also be expressed as probability 

distributions. As a result, the Monte Carlo analysis produces a range of LCC and PBP results. A 

distinct advantage of this type of approach is that DOE can identify the percentage of customers 

achieving LCC savings or attaining certain PBP values due to an increased efficiency level, in 

addition to the average LCC savings or average PBP for that efficiency level.

The LCC and PBP results are displayed as distributions of impacts compared to a base

case. The base case efficiency distribution is for 2019 and is defined as a mix of PTAC and 

PTHP efficiency levels reflecting the expected distribution of efficiency levels by equipment 

class. 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analysis Inputs

The LCC is the total customer cost over the life of the equipment, including purchase 

price (including retail markups, sales taxes, and installation costs) and operating cost (including 

repair costs, maintenance costs, and energy cost). Future operating costs are discounted to the 

time of purchase and summed over the lifetime of the equipment. The PBP is the increase in 

purchase cost of a higher efficiency unit divided by the change in annual operating cost of the 

unit. It represents the number of years that it will take the customer to recover the increased 

purchase cost through decreased operating costs. In the calculation of PBP, future costs are not 

discounted.

Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing the 

purchase cost, otherwise known as the total installed cost; and (2) inputs for calculating the 

operating cost (i.e., energy, maintenance, and repair costs).

The primary inputs for establishing the total installed cost are:

• Baseline manufacturer selling price: The baseline manufacturer selling price (MSP) is 

the price charged by the manufacturer to a wholesaler for equipment meeting existing 

minimum efficiency (or baseline) standards. The MSP includes a markup that converts 

the cost of production (i.e., the manufacturer cost) to a MSP.

• Standard-level manufacturer selling price increase: The standard-level MSP is the 

incremental change in MSP associated with producing equipment at each of the higher 

standard levels. 

• Markups and sales tax: Markups and sales tax are the wholesaler and contractor margins 

and state and local retail sales taxes associated with converting the MSP to a customer 

price. 

8-2 
• Installation cost: Installation cost is the cost to the customer of installing the equipment. 

The installation cost represents all costs required to install the equipment but does not 

include the marked-up customer equipment price. The installation cost includes labor, 

overhead, and any miscellaneous materials and parts. 

The primary inputs for calculating the operating cost are:

• Equipment energy consumption and power demand: The equipment energy consumption 

is the site energy use associated with providing space conditioning to the building. The 

power demand is the maximum power requirement of the equipment (more commonly 

known as the peak demand) for a specific period of time. Typically, electric utilities 

measure the peak demand for each month. DOE calculated both the energy consumption 

and peak demand based on hourly whole-building simulations.

• Electricity Prices: Average and marginal electricity prices for commercial buildings are 

determined using a tariff-based analysis. Marginal prices are used to estimate operating 

costs for the baseline and value the operating cost savings at higher efficiency levels. 

• Electricity price trends: The Energy Information Administration’s (EIA’s) Annual 

Energy Outlook 2013 (AEO 2013)

1 is used to project electricity prices into the future. 

• Maintenance costs: The labor and material costs associated with maintaining the 

operation of the equipment. 

• Repair costs: The labor and material costs associated with repairing or replacing 

components that have failed.

• Lifetime: The age at which PTAC and PTHP equipment are retired from service.

• Discount rate: The rate at which future costs and savings are discounted to establish their 

present value.

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating 

cost inputs for the calculation of the LCC and PBP.

8-3 
Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP

Table 8.1.1 provides descriptions of the various inputs to the calculation of the LCC and 

PBP. As noted earlier, most of the inputs are characterized by probability distributions that 

capture variability in the input variables. 

Manufacturer Selling 

Price (Base)

Manufacturer Selling 

Price (Standard i=1...n)

Wholesaler/Distributor 

Markup

Contractor Markups

Sales Tax

Installation Costs

Equipment Prices

Total Installed 

Cost (Std i – Base)

Electricity Consumption

Electricity Prices

Annual Energy Costs

Annual Maintenance 

Costs

Repair Costs

Annual Operating 

Cost (Std i –-Base)

Discount Rate

Lifetimes

Payback 

Period

Lifecycle 

Cost

Lifetime 

Operating Cost 

(Std I – Base)

8-4 
Table 8.1.1 Summary of Inputs and Key Assumptions Used in the LCC and PBP 

Analysis

Inputs Description

Affecting Installed Costs

Equipment Price

Derived MSP for PTAC and PTHP equipment at different input capacities 

(from the engineering analysis) and multiplied by wholesaler markups and 

contractor markups plus sales tax (from markups analysis). Used the probability 

distribution for the different markups to describe their variability. 

Installation Cost

Includes installation labor derived from RS Means.

2 Overhead and materials 

costs and profits are assumed to be included in the contractor’s markup. Thus, 

the total installed cost equals the customer equipment price (manufacturer cost 

multiplied by the various markups plus sales tax) plus the installation cost. 

Affecting Operating Costs

Annual Energy Use See Chapter 7. 

Energy Efficiency

The energy efficiency ratio (EER) is the efficiency descriptor for PTAC and 

PTHP equipment. Whole-building simulations were used to determine the 

annual energy consumption associated with a particular standard level.

Electricity Prices

Costs were calculated for generalized buildings from summer and winter 

marginal and average electricity prices using tariff data and CBECS 1992 and 

1995 monthly electricity consumption and demand. Prices were escalated by the 

AEO 2013 forecasts to update tariff prices to 2013 and to estimate future 

electricity prices. Escalation was performed at the census division level.

Maintenance Cost

The cost associated with maintaining the operation of the equipment (e.g., 

cleaning heat exchanger coils) was also obtained from RS Means.

3 Annual 

maintenance cost does not change as a function of MSP.

Repair Cost

The cost associated with repairing the equipment (e.g., malfunction of 

components that would typically be covered under warranty) was also obtained 

from RS Means.

Affecting Present Value of Annual Operating Cost Savings

Equipment Lifetime Adjusted the probability distributions developed for the 2008 final rule but 

keeping the same mean and maximum lifetimes.

Discount Rate

Mean real discount rates ranging from 4.14 percent to 7.83 percent for various 

classes of commercial customers, calculated using financial data from 

Damodaran Online. Probability distributions are used for the discount rates.

Compliance Date 2019, or 4 years after expected publication of the final rule, as standards more 

stringent than ANSI/ASHRAE/IES Standard 90.1-2013 are being proposed.

All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.1 are discussed in 

sections 8.2 and 8.3. 

8.1.3 Use of Per Unit Annual Energy Consumption Data 

As detailed in Chapter 7, DOE used unit energy consumption (UEC) data obtained from 

the 2008 Energy Conservation Standards Rulemaking for PTAC and PTHP equipment. To 

account for differences in cooling capacity and/or EER from the previous rulemaking, the UEC 

(cooling) for each equipment class and each efficiency level were linearly scaled from existing to 

the considered cooling capacity and/or EER.

8-5 
8.2 LIFE-CYCLE COST ANALYSIS INPUTS

Life-cycle cost is the total customer cost over the life of a piece of equipment, including 

purchase cost and operating costs (which are composed of energy costs, maintenance costs, and 

repair costs). Future operating costs are discounted to the time of purchase and summed over the 

lifetime of the equipment. Life-cycle cost is defined by the following equation:

Eq. 8.2.1 

Where:

 LCC = life-cycle cost ($),

 IC = total installed cost ($),

∑ = sum over the lifetime, from year 1 to year N, 

where N = lifetime of equipment (years),

 OC = operating cost ($),

r = discount rate, and

t = year for which operating cost is being determined.

DOE expresses all the costs in 2013$. Total installed cost, operating cost, lifetime, and 

discount rate are discussed in the following sections. In the LCC analysis, the year of equipment

purchase is assumed to be 2019, the effective date of the energy conservation standards for 

PTAC and PTHP equipment. 

8.2.1 Total Installed Cost Inputs

The total installed cost to the customer is defined by the following equation:

 Eq. 8.2.2 

Where:

IC = installed cost,

EQP = equipment price ($) (i.e., customer price for the equipment only), and

 INST = installation cost ($) (i.e., the cost for labor and materials).

The equipment price is based on the distribution channel through which the customer 

purchases the equipment. As discussed in Chapter 6, DOE defined distribution channels for new 

and replacement units to describe how the equipment passes from the manufacturer to the 

customer. 

The remainder of this section provides information about the variables DOE used to 

calculate the total installed cost for PTACs and PTHPs. 

∑=

+= +

N

t

t

t ICLCC OC r

1

/( )1

IC EQP += INST

8-6 
8.2.1.1 Manufacturer Costs

DOE developed the manufacturer costs for PTACs and PTHPs as described in the 

engineering analysis (Chapter 5). The manufacturer costs at each efficiency level for the 

representative units in each equipment class are shown in Table 8.2.1 and Table 8.2.2. DOE 

determined that the shipping costs from the manufacturer is $19.52 per unit and will not vary by 

equipment class or efficiency level. 

 

Table 8.2.1 Manufacturer Production Cost for PTACs by Efficiency Level (2013$) 

Efficiency Level

Standard Size PTAC 9,000 Btu/h Standard Size PTAC (15,000 Btu/h)

Total Cost Incremental Cost* Total Cost Incremental Cost*

0 $359.62 ($3.49) $391.78 ($4.04)

1 $363.11 $0.00 $395.82 $0.00 

2 $367.55 $4.44 $400.08 $4.26 

3 $376.19 $13.08 $411.75 $15.93 

4 $385.52 $22.41 $426.79 $30.97 

5 $395.56 $32.45 $445.20 $49.38 

6 $400.84 $37.73 $455.68 $59.86 

* Parentheses indicate negative values

Table 8.2.2 Manufacturer Production Cost for PTHPs by Efficiency Level (2013$) 

Efficiency Level

Standard Size PTHP (9,000 Btu/h) Standard Size PTHP (15,000 Btu/h)

Total Cost Incremental Cost Total Cost Incremental Cost

0 $398.09 $0.00 $428.99 $0.00 

1 $402.53 $4.44 $433.25 $4.26

2 $411.17 $13.08 $444.92 $15.93

3 $420.50 $22.41 $459.96 $30.97

4 $430.54 $32.45 $478.37 $49.38

5 $435.82 $37.73 $488.85 $59.86

8.2.1.2 Markups 

For a given distribution channel, the overall markup is the value determined by 

multiplying all the associated markups and the applicable sales tax together to arrive at a single 

overall distribution chain markup value. The overall markup is multiplied by the baseline or 

standard-compliant manufacturer cost to arrive at the price paid by the customer. Because there 

are baseline and incremental markups associated with the wholesaler and mechanical and general

contractors, the overall markup is also divided into a baseline markup (i.e., a markup used to 

convert the baseline manufacturer price into a customer price) and an incremental markup (i.e., a 

markup used to convert a standard-compliant manufacturer cost increase due to an efficiency 

increase into an incremental customer price). Markups can differ depending on whether the 

equipment is being purchased for a new construction installation or is being purchased to replace 

existing equipment. DOE developed the overall baseline markups and incremental markups for 

both new construction and replacement applications as a part of the markups analysis (see 

Chapter 6 of the technical support document (TSD)). 

8-7 
Table 8.2.3 and Table 8.2.4display baseline and incremental markups used to calculate 

customer price from manufacturer cost; Table 8.2.3 presents the values used for the distribution 

channels involving wholesalers and contractors, while Table 8.2.4 presents the values used for 

the national accounts distribution channels. Table 8.2.5 presents the resulting overall baseline 

and incremental markups.

Table 8.2.3 Summary of Average Markups 

Baseline Markup Incremental Markup

Manufacturer 1.27

Wholesaler 1.36 1.10

Mechanical Contractor 

(new construction/replacement) 1.43/1.52 1.15/1.22

General Contractor 

(new construction only) 1.34 1.22

Sales Tax (replacement only) 1.07 1.07

 

Table 8.2.4 Summary of National Accounts Markups

Market Baseline Markup Incremental Markup

New Construction 1.49 1.16

Table 8.2.5 Overall Markup for Packaged Terminal Air Conditioners and Heat Pumps 

Equipment Class Baseline Markup Incremental Markup

All Standard Size PTAC and PHTP 

Equipment and Capacities 2.48 1.56

8.2.1.3 Total Customer Price

DOE derived the customer equipment price for the efficiency levels above the baseline 

by taking the product of the baseline manufacturer cost and the baseline overall markup 

(including the sales tax for replacement equipment) and adding to it the product of the 

incremental manufacturer cost and the incremental overall markup (including the sales tax for 

replacement equipment). DOE followed the same process for shipping costs, but in this case the 

manufacturer markup was not included in the overall markup. DOE then added the marked-up 

shipping cost to the customer equipment price. Markups and the sales tax all can take on a 

variety of values, depending on location, so the resulting total installed cost for a particular 

efficiency level is represented by a distribution of values.

Table 8.2.6 presents the average customer equipment price for each PTAC and PTHP

equipment class at each efficiency level examined. The EERs and COPs associated with each 

efficiency level is found in Chapter 5.

8-8 
Table 8.2.6 Average Customer Price for Packaged Terminal Air Conditioners and 

Heat Pumps (2013$) 

Equipment Class

Efficiency Level

Baseline 1 2 3 4 5 6

PTAC Standard Size (9,000 

Btu/h) $1,193 $1,200 $1,213 $1,230 $1,249 $1,269 $1,279

PTAC Standard Size (15,000 

Btu/h) $1,294 $1,302 $1,316 $1,339 $1,369 $1,405 $1,426

PTHP Standard Size (9,000 

Btu/h) $1,314 $1,323 $1,340 $1,359 $1,379 $1,389

PTHP Standard Size (15,000 

Btu/h) $1,411 $1,420 $1,443 $1,473 $1,509 $1,530

8.2.1.4 Future Equipment Prices

To derive a price trend for PTACs and PTHPs, DOE obtained historical Producer Price 

Index (PPI) data for “all other miscellaneous refrigeration and air-conditioning equipment” 

spanning the time period 1990-2013 from the Bureau of Labor Statistics (BLS). a DOE used PPI 

data for “all other miscellaneous refrigeration and air-conditioning equipment” as representative 

of PTAC and PTHP equipment because PPI data specific to PTAC and PTHP equipment are not 

available and this PPI is the closest match. The PPI data reflect nominal prices, adjusted for 

product quality changes. An inflation-adjusted (deflated) price index for all other miscellaneous 

refrigeration and air-conditioning equipment was calculated by dividing the PPI series by the 

Gross Domestic Product Chained Price Index (see Figure 8.2-1). 

a

 Series ID PCU3334153334159; http://www.bls.gov/ppi/ 

8-9 

 
Figure 8.2-1 Historical Nominal and Deflated Producer Price Indexes for Miscellaneous 

Refrigeration and Air-Conditioning Equipment

From 1990 to 2004, the deflated price index for all other miscellaneous refrigeration and 

air-conditioning equipment showed a slightly downward trend. Since then, the index has risen 

sharply, which is highly correlated with the rising prices of copper and steel products that go into 

PTAC and PTHP equipment (see Figure 8.2-2). The rising prices for copper and steel products 

were primarily a result of strong demand from China and other emerging economies. Given the 

slowdown in global economic activity starting in 2008, DOE believes that the extent to which the 

trends of the past couple of years will continue is very uncertain. 

Given these considerations, DOE decided to use a constant price assumption as the 

default price factor index to project future PTAC and PTHP equipment prices in 2019. Thus, 

prices forecast for the LCC and PBP analysis are equal to the 2013 values for each efficiency 

level in each equipment class.

8-10
Figure 8.2-2 Historical Deflated Producer Price Indexes for Copper Smelting, Steel Mills 

Manufacturing and All Other Miscellaneous Refrigeration and AirConditioning Equipment

8.2.1.5 Installation Cost

The installation cost is the price to the customer of labor and materials (other than the 

actual equipment) needed to install the PTAC and PTHP equipment. DOE derived installation 

costs from current RS Means data. RS Means provides estimates on the person-hours required to 

install PTAC and PTHP equipment and the labor rates associated with the type of crew required 

to install the equipment. DOE calculated the installation cost by multiplying the number of 

person-hours by the corresponding labor rate. RS Means provides specific person-hour and labor 

rate data for the installation of packaged cabinet type air conditioners of 9,000 Btu/h and 15,000 

Btu/h cooling capacity. DOE decided that these data are also representative of installation costs 

for equipment of 9,000 Btu/h and 15,000 Btu/h cooling capacity that provides heating in addition 

to just cooling. 

Labor rates vary significantly among regions, and the RS Means data provide the 

necessary information to capture this regional variability. RS Means provides cost indices that 

reflect the labor rates for 656 cities in the United States. Several cities in all 50 states of the 

United States and the District of Columbia are identified in the RS Means data. DOE 

incorporated these cost indices into the analysis to vary the installation cost depending on the 

location of the PTAC or PTHP customer.

8-11
Table 8.2.7 summarizes the nationally representative person-hours and labor rates 

associated with the installation of 9,000 Btu/h and 15,000 Btu/h cooling capacity PTAC and 

PTHP equipment as presented in RS Means. Table 8.2.7 provides both bare installation costs 

(i.e., costs before overhead and profit (O&P)) and installation costs including O&P. DOE 

decided that the 9,000 Btu/h and 15,000 Btu/h cooling capacity installation costs that include 

O&P represent the installation costs for baseline efficient systems (i.e., 11.3 EER for 9,000 Btu/h

equipment and 9.5 EER for 15,000 Btu/h equipment). 

Table 8.2.7 Installation Costs for Baseline Packaged Terminal Air Conditioners and 

Heat Pumps

System Type*

Person

-hours

2013 Bare Costs Labor w/ O&P

Cost per 

Personhour

(2013$)

Total 

Labor 

Cost

(2013$)

Cost per 

Personhour

(2013$)

Total 

Labor 

Cost

(2013$)

PTAC Standard Size (9,000 Btu/h) 3.2 $50.93 $163 $76.75 $225.22

PTAC Standard Size (15,000 Btu/h) 5.3 $51.00 $272 $76.75 $375.34

PTHP Standard Size (9,000 Btu/h) 3.2 $50.93 $163 $76.75 $225.22

PTHP Standard Size (15,000 Btu/h) 5.3 $51.00 $272 $76.75 $375.34

*Description differs in RS Means for Packaged Cabinet Type Air-Conditioners (“9000 BTUH cooling, 13900 BTU heat”; and 

“15000 BTUH cooling, 13900 BTU heat”).

Table 8.2.8 shows the national average total installation costs by equipment class for 

PTACs and PTHPs. The average installation costs are constant across all efficiency levels within 

each equipment class. The total includes O&P, which is calculated using labor markups from RS 

Means. For efficiency levels above the baseline, the installation costs do not vary with equipment 

weight.

Table 8.2.8 National Average Installation Cost for Packaged Terminal Air 

Conditioners and Heat Pumps

Equipment Class Installation Cost (2013$)

PTAC Standard Size (9,000 Btu/h) $229

PTAC Standard Size (15,000 Btu/h) $381

PTHP Standard Size (9,000 Btu/h) $229

PTHP Standard Size (15,000 Btu/h) $381

Table 8.2.9 summarizes the cost indices for installations in each of the 50 States of the 

U.S., plus the District of Columbia, used to vary the nationally representative installation costs in 

Table 8.2.8. To arrive at an average index for each state, DOE weighted the city indices in each 

state by their population. It used population estimates for the year 2010 from the U.S. Census 

Bureau to calculate a weighted-average index for each state. DOE then assigned each state to a 

Census division (with Pacific divided into north and south) and calculated a weighted-average 

index for each region in the same manner. 

8-12
Table 8.2.9 Installation Cost Indices by State (National Value = 100.0)

State Index State Index State Index

Alabama 50.8 Kentucky 80.9 North Dakota 58.4

Alaska 104.8 Louisiana 59.7 Ohio 91.9

Arizona 79.7 Maine 62.7 Oklahoma 55.6

Arkansas 55.5 Maryland 83.3 Oregon 99.5

California 121.0 Massachusetts 119.0 Pennsylvania 113.9

Colorado 79.0 Michigan 100.7 Rhode Island 108.3

Connecticut 114.7 Minnesota 113.5 South Carolina 37.5

D.C 113.4 Mississippi 51.9 South Dakota 42.0

Delaware 94.2 Missouri 95.8 Tennessee 71.3

Florida 68.7 Montana 70.3 Texas 56.3

Georgia 66.1 Nebraska 77.3 Utah 71.3

Hawaii 109.7 Nevada 100.3 Vermont 70.5

Idaho 68.8 New Hampshire 77.8 Virginia 65.7

Illinois 127.5 New Jersey 125.5 Washington 104.2

Indiana 81.5 New Mexico 68.2 West Virginia 84.8

Iowa 78.8 New York 161.2 Wisconsin 95.2

Kansas 69.8 North Carolina 36.3 Wyoming 54.3

8.2.1.6 Total Installed Cost

The total installed cost is the sum of the equipment price and the installation cost. MSPs, 

markups, and sales taxes all can take on a variety of values, depending on location, so the 

resulting total installed cost for a particular efficiency level will not be a single-point value, but 

rather a distribution of values. Table 8.2.10 presents the average total installed cost for each 

equipment class at each efficiency level examined. 

Table 8.2.10 Average Total Installed Cost for Packaged Terminal Air Conditioners 

and Heat Pumps (2013$) 

Equipment Class

Efficiency Level

Baseline 1* 2 3 4 5 6

PTAC Standard Size (9,000 

Btu/h) $1,422 $1,433 $1,441 $1,459 $1,477 $1,497 $1,508

PTAC Standard Size (15,000 

Btu/h) $1,675 $1,688 $1,696 $1,720 $1,749 $1,786 $1,807

PTHP Standard Size (9,000 

Btu/h) $1,543 $1,552 $1,569 $1,587 $1,607 $1,618

PTHP Standard Size (15,000 

Btu/h) $1,792 $1,801 $1,824 $1,854 $1,890 $1,911

*Since higher efficiency levels are calculated against efficiency level 1 as the baseline, only the baseline 

markup is applied to efficiency level 1. 

8-13
8.2.2 Operating Cost Inputs

DOE defined the operating cost by the following equation:

OC = EC+ MC Eq. 8.2.3

Where:

OC = operating cost ($), 

EC = energy cost associated with operating the equipment ($), and

MC = annual maintenance cost for maintaining equipment operation ($).

The remainder of this section provides information about the variables that DOE used to 

calculate the operating cost for PTACs and PTHPs. The annual energy costs of the equipment are 

computed from energy consumption per unit for the baseline and standard-compliant cases 

(efficiency level 2, 3, and so forth), combined with the energy prices. Equipment lifetime, 

discount rate, and compliance date of the standard are required for determining the operating cost 

and for establishing the operating cost present value. 

8.2.2.1 Annual Energy Use Savings

For each equipment class, DOE calculated the annual energy use savings for each PTAC 

and PTHP at each efficiency level by taking the difference between a considered efficiency level 

and the baseline efficiency level. 

8.2.2.2 Energy Prices

Tariff data were used to develop marginal and average prices for each member of the 

generalized building sample. The approach uses tariff data that have been processed into 

commercial building marginal and average electricity prices. Tariff data provide a means to 

calculate the monthly customer bill given the monthly electricity consumption (kWh) and peak 

demand (kW). The CBECS 1992 and CBECS 1995 commercial building surveys provide 

monthly baseline electricity consumption and demand for a large sample of buildings, 

approximately 5300 in total.4,5 These monthly values were used to (1) calculate monthly bills 

and (2) calculate monthly marginal consumption and demand prices. The average electricity 

price is defined as the total electricity bill divided by total electricity consumption. Two marginal 

prices are defined, one for electricity demand (in $/kW) and one for electricity consumption (in 

$/kWh). These marginal prices are calculated by applying a 5% decrement to the baseline 

demand or consumption and recalculating the electricity bill. 

This procedure provides an average electricity price, and marginal consumption and 

demand prices, for each building and for each month. The monthly variation was reduced to 

seasonal variation by taking a simple average of the monthly data for the summer months 

(defined as May through September) and for the winter months. The average and marginal prices 

for each building were converted to average prices for the entire building sample using a

weighted average across region, vintage, building activity and building size for each of the 

8-14
buildings. The prices defined in this way were converted to 2013 prices and 2013 dollars using 

scaling factors taken from the AEO. 

The marginal consumption and demand prices are shown in Table 8.2.11. The prices in 

Table 8.2.11 are somewhat higher than the EIA published national average prices. This is 

because the tariff-based prices are weighted according to the CBECS building sample weights, 

which tends to give relatively higher weight to smaller buildings, which have higher prices. The 

EIA data cover all commercial establishments.

Table 8.2.11 Average and Marginal Tariff-Based Prices by Region (2013 Dollars or 

Cents) 

Region

Average Electricity

Price (¢/kWh)

Marginal Demand

Price ($/kW)

Marginal Consumption

Price (¢/kWh)

Annual Summer Winter Annual Summer Winter Annual Summer Winter

New England 15.63 16.32 14.91 12.73 14.63 11.38 10.11 10.22 9.93

Mid-Atlantic 16.01 16.69 15.30 13.30 14.43 12.44 9.71 10.04 9.43

ESC 12.95 13.19 12.58 13.15 13.89 12.58 6.58 6.67 6.48

WSC 8.18 8.71 7.77 5.82 6.64 5.22 5.80 6.14 5.54

South Atlantic 10.65 10.58 10.61 8.32 8.56 8.17 7.37 7.34 7.36

ESC 8.86 8.51 9.16 7.23 7.60 6.99 6.00 5.85 6.08

WSC 8.02 8.65 7.31 4.11 4.59 3.74 6.15 6.75 5.45

Mountain 10.85 10.85 10.75 8.25 8.42 8.09 7.46 7.46 7.45

Pacific – WA,OR 7.27 7.35 7.17 2.72 2.72 2.71 5.77 5.76 5.78

Pacific – CA 17.20 18.34 16.02 7.13 9.81 4.71 12.74 12.95 12.34

US Average 11.78 12.12 11.37 8.93 9.74 8.28 7.69 7.86 7.48

PTACs and PTHPs are commercial air conditioners and typically consume peak 

electricity; therefore, electricity costs were calculated using the annual marginal price per kWh, 

as shown in Table 8.2.11. For each efficiency level, the operating cost savings are calculated by 

multiplying the electricity consumption savings (relative to the baseline) times the annual 

marginal consumption price.

8.2.2.3 Energy Price Trends

The tariff-based prices were updated to 2013 using the commercial electricity price series 

published in the AEO as an index. AEO prices for commercial electricity are presented by region 

in Table 8.2.12. The table also shows the scaling factor used to convert the tariff data year 

(2004) to current prices. The national average price increase in constant dollars since the tariff 

data year is 3.3%.

8-15
Table 8.2.12 Commercial Electricity Prices (2013 cents/kWh)

Year

Region 2009 2010 2011 2012 Scaling Factor

New England 16.50 15.86 15.12 14.50 1.033

Middle Atlantic 14.50 15.01 14.43 14.08 0.964

East North Central 9.97 10.06 10.01 10.16 1.086

West North Central 8.05 8.47 8.70 8.20 1.101

South Atlantic 10.41 10.01 10.01 9.57 1.105

East South Central 10.04 10.06 10.35 8.85 1.046

West South Central 9.68 9.46 9.04 7.66 0.772

Mountain 9.25 9.43 9.37 8.85 1.029

Pacific (North) 12.68 12.48 12.28 12.04 0.957

U.S. 10.99 10.93 10.75 10.21 1.033

Source: AEO 2009 - 2012 

DOE projected future electricity prices using trends in average commercial electricity 

price from EIA's AEO 2013, as shown in Figure 8.2.2. The chart shows constant dollar prices by 

region for the AEO forecast period, 2011 to 2040. The U.S. average trend is shown as a heavy 

dashed line. DOE used AEO 2013 Reference Case scenariosb for the nine Census divisions. 

DOE applied the projected energy price for each of the nine Census divisions to each building in 

the sample based on the building’s location.

Figure 8.2.1 AEO 2013 electricity price projections by region (2013$)

b The reference case is a business-as-usual estimate, given known market, demographic, and technological trends. 

8-16

 
 

8.2.2.4 Repair Cost

Repair costs are associated with repairing or replacing components that have failed. DOE 

assumed that any routine or minor repairs are included in the annualized maintenance costs. As a 

result, repair costs are not explicitly modeled in the LCC and PBP analysis. Instead, DOE 

incorporated a cost for a major repair (typically covered by equipment warranty) based on the 

annualized value of an equipment warranty contract as a dollar value to the repair cost input.

Because the component costs are typically higher in higher efficiency equipment, repair costs by 

efficiency level were scaled by the percentage increase in MSP for higher efficiency equipment. 

8.2.2.5 Maintenance Cost

The maintenance cost is the routine cost to the customer of maintaining equipment operation. 

DOE took annualized maintenance costs for PTACs and PTHPs from data in RS Means Online, 

which provides estimates on the person-hours, labor rates, and materials required to maintain 

packaged terminal equipment. 

DOE calculated the annualized maintenance costs for PTACs based off the figure of $50 

that was used in the 2008 PTAC and PTHP rulemaking.6 The figure was adjusted for inflation to 

arrive at $55.66 in annual maintenance costs at the baseline efficiency level. The annualized 

maintenance costs for PTHP were derived from the annualized maintenance costs for PTACs 

based on RS Means data for both PTACs and PTHPs. The percentage difference in maintenance 

costs was applied to the PTAC maintenance costs to arrive at the maintenance cost of $62.62 for 

PTHPs. 

8.2.2.6 Lifetime 

DOE defines lifetime as the age when equipment is retired from service. DOE created a 

survival function for PTACs and PTHPs based on lifetime data from the previous rulemaking, 

input from individuals with experience in manufacturing, and comment from the ASHRAE 

Standard 90.1-2013 Notice of Data Availability.7

 

The Weibull distribution is a probability distribution function commonly used to measure 

failure rates.8 Its form is similar to an exponential distribution, which would model a fixed 

failure rate, except that it allows for a failure rate that changes over time in a particular fashion. 

The cumulative distribution takes the form:

for x > θ and P(x) = 1 for x ≤ θ, Eq. 8.2.4

Where:

P(x) = probability that the equipment is still in use at age x, 

e x

xP

β

α

θ 



 



 − −

)( =

8-17
x = equipment age,

α = the scale parameter, which is the decay length in an exponential distribution,

β = the shape parameter, which determines the way in which the failure rate changes 

over time, and

θ = the delay parameter, which allows for a delay before any failures occur.

For the present analysis, DOE developed a Weibull distribution with an alpha of 11.2 and 

a beta of 3.2, resulting in a mean lifetime of 10 and a maximum lifetime of 20 years. DOE

assumed that the lifetime is the same at different efficiency levels and therefore used the same 

lifetime distribution for each PTAC and PTHP equipment class. 

8.2.2.7 Discount Rates 

The commercial discount rate is the rate at which future operating costs are discounted to 

establish their present value in the LCC analysis. The discount rate value is applied in the LCC 

to future year energy costs and non-energy operations and maintenance costs to calculate the 

estimated net life-cycle cost of products of various efficiency levels and life-cycle cost savings as 

compared to the baseline for a representative sample of commercial end users.

DOE’s method views the purchase of higher efficiency equipment as an investment that 

yields a stream of energy cost savings. DOE derived the discount rates for the LCC analysis by 

estimating the cost of capital for companies that purchase PTACs and PTHPs. The weightedaverage cost of capital (WACC) is commonly used to estimate the present value of cash flows to 

be derived from a typical company project or investment. Most companies use both debt and 

equity capital to fund investments, so their cost of capital is the weighted average of the cost to 

the firm of equity and debt financing, as estimated from financial data for publicly traded firms 

in the sectors that purchase PTACs and PTHPs.9

 

Damodaran Online is a widely used source of information about company debt and 

equity financing for most types of firms, and was the primary source of data for this analysis.10

Companies included in the Damodaran Online database were assigned to the aggregate 

categories listed below:

• Office, 

• Hotel, and

• Medical Services. 

DOE estimated the cost of equity using the capital asset pricing model (CAPM).11 The 

CAPM assumes that the cost of equity (ke) for a particular company is proportional to the 

systematic risk faced by that company, where high risk is associated with a high cost of equity 

and low risk is associated with a low cost of equity. The systematic risk facing a firm is 

determined by several variables: the risk coefficient of the firm (β), the expected return on riskfree assets (Rf), and the equity risk premium (ERP). The risk coefficient of the firm indicates the 

risk associated with that firm relative to the price variability in the stock market. The expected 

return on risk-free assets is defined by the yield on long-term government bonds. The ERP

8-18
represents the difference between the expected stock market return and the risk-free rate. The 

cost of equity financing is estimated using the following equation:

e Rk f ( ) β ×+= ERP Eq. 8.2.5

Where:

 

ke = cost of equity,

Rf = expected return on risk-free assets,

β = risk coefficient of the firm, and

ERP = equity risk premium.

Several parameters of the cost of capital equations can vary substantially over time, and 

therefore the estimates can vary with the time period over which data is selected and the 

technical details of the data-averaging method. For guidance on the time period for selecting and 

averaging data for key parameters and the averaging method, DOE used Federal Reserve 

methodologies for calculating these parameters. In its use of the CAPM, the Federal Reserve 

uses a forty-year period for calculating discount rate averages, utilizes the gross domestic 

product price deflator for estimating inflation, and considers the best method for determining the 

risk-free rate as one where “the time horizon of the investor is matched with the term of the riskfree security.”

12 

By taking a 40-year geometric average of Federal Reserve data on annual nominal returns 

for 10-year Treasury bills, DOE found for this analysis the following risk-free rates for 2011-

2013 (Table 8.2.13).13 DOE also estimated the ERP by calculating the difference between the 

risk-free rate and stock market return for the same time period.14 

Table 8.2.13 Risk-free rate and equity risk premium, 2011-2013

Year Risk free rate (%) ERP (%)

2011 6.61% 2.94%

2012 6.41% 3.99%

2013 6.24% 5.30%

The cost of debt financing (kd) is the interest rate paid on money borrowed by a company. 

The cost of debt is estimated by adding a risk adjustment factor (Ra) to the risk-free rate. This 

risk adjustment factor depends on the variability of stock returns represented by standard 

deviations in stock prices. So for firm i, the cost of debt financing is:

8-19
+= RRk aifdi Eq. 8.2.6

Where:

kdi = cost of debt financing for firm, i, 

Rf = expected return on risk-free assets, and

Rai = risk adjustment factor to risk-free rate for firm, i. 

DOE estimates the WACC using the following equation:

dee ×+×= wkwkWACC d

 Eq. 8.2.7

Where:

WACC = weighted-average cost of capital,

ke = cost of equity,

we = proportion of equity financing, 

kd = cost of debt financing for firm, and

wd = proportion of debt financing.

By adjusting for the influence of inflation, DOE estimates the real weighted-average cost 

of capital, or discount rate, for each company. DOE then aggregates the company real 

weighted-average costs of capital to estimate the discount rate for each of the eight broader

ownership types in the PTAC-PTHP analysis. An overall average is estimated by weighting 

each ownership type’s discount rate by its estimated share of the PTAC and PTHP markets. 

These values are presented in Table 8.2.14. While WACC values for any category may trend 

higher or lower over substantial periods of time, these values represent a private sector cost of 

capital that is averaged over major business cycles. 

Table 8.2.14 Weighted-Average Cost of Capital for Analyzed Sectors

Sector Discount Rate Standard Deviation Market Share

Office 4.57% 1.98% 5%

Large Hotel / Motel Chain 6.31% 2.03% 70%

Independent Hotel / Motel 7.83% 3.12% 10%

Medical Services 4.14% 1.66% 15%

Average Discount Rate: 6.05%

Source: Damodaran Online Data Page: Costs of Capital by Industry Sector, 2011, 2011, 2013. 

8.2.2.8 Compliance Year of Standard

DOE calculated the LCC and PBP for all customers as if each would purchase a new 

piece of equipment in the year that compliance with amended standards is required. The Energy 

8-20
Policy and Conservation Act (EPCA) directs DOE to publish a final rule amending the standard 

for the equipment covered by this NOPR not later than 2 years after a notice of proposed 

rulemaking is issued. (42 U.S.C. 6313(a)(6)(C) (iii)) At the time of preparation of the NOPR 

analysis, the expected issuance year was 2013, leading to a final rule publication in 2015. EPCA

also states that amended standards prescribed under this subsection shall apply to products 

manufactured after a date that is the latter of—(I) the date that is 3 years after publication of the 

final rule establishing a new standard; or (II) the date that is 6 years after the effective date of the 

current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under clause (I), 

estimated to be 2018, is later than the date under clause (II). 

While it is reasonable to consider 2018 as the first year of compliance for both PTAC and 

PTHP equipment with amended standards, a simultaneously ongoing Federal rulemaking 

revising the ANSI/ASHRAE/IES (American National Standards Institute/ American Society of 

Heating, Refrigerating and Air-Conditioning Engineers/Illuminating Engineering Society)

standard creates an exception to the compliance year regulation for PTAC equipment. Since it 

was proposed in the present rulemaking that a uniform national standard more stringent than the 

amended ANSI/ASHRAE/IES Standard 90.1 be adopted, ANSI/ASHRAE/IES Standard 90.1 

requires that products follow the national standard if they are manufactured on or after a date 

which is four years after the date such rule is published in the Federal Register. (42 U.S.C 

6313(a)(6)(D)) Therefore, PTAC equipment manufactured on or after 2019 would be required to 

meet the more stringent Federal standard.

Because PTHPs are defined as a subset of PTACs, DOE was also triggered to consider 

whether clear and convincing evidence supports a more stringent standard than the ASHRAE 

levels for PTHPs, though the ASHRAE levels for PTHPs were not explicitly revised. As such, 

PTHP equipment manufactured on or after 2019 also would be required to meet the more 

stringent Federal standard.

8.2.2.9 Base Case Distribution of Efficiency Levels

Market share and efficiency level data for PTACs and PTHPs were obtained from a 2013 

dataset from the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) Directory of 

Certified Product Performance. DOE used an efficiency trend to establish the efficiency 

distribution for 2019. DOE applied the trend from 2012 to 2035 that was used in the commercial 

unitary air conditioner Advance Notice of Proposed Rulemaking (ANOPR), which estimated an 

increase of approximately 1 EER every 35 years. c

 Table 8.2.15 presents the estimated base case 

efficiency market shares for each PTAC and PTHP equipment class.

c

 See DOE’s technical support document underlying DOE’s July 29, 2004 ANOPR. 69 FR 45460 (Available at: 

http://www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0103-0078). 

8-21

 
Table 8.2.15 Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air 

Conditioners and Heat Pumps

PTAC – 9,000 Btu/h PTAC – 15,000 Btu/h PTHP – 9,000 Btu/h PTHP – 15,000 Btu/h

IEER Market Share IEER Market Share IEER Market Share IEER Market Share

11.1 0.0% 9.3 0.0%

11.3 43.6% 9.5 25.8% 11.3 48.5% 9.5 58.2%

11.5 24.3% 9.7 34.8% 11.5 8.9% 9.7 0.0%

12.0 29.5% 10.0 34.7% 12.0 30.2% 10.0 32.5%

12.4 2.1% 10.4 2.7% 12.4 12.4% 10.4 7.9%

12.9 0.5% 10.8 1.4% 12.9 0.0% 10.8 1.4%

13.1 0.0% 11.0 0.7% 13.1 0.0% 11.0 0.0%

8.3 PAYBACK PERIOD INPUTS 

The PBP is the amount of time it takes the customer to recover the assumed higher 

purchase cost of more energy-efficient equipment as a result of lower operating costs. 

Numerically, the PBP is the ratio of the increase in purchase cost (i.e., from a less efficient 

design to a more efficient design) to the decrease in first year annual operating expenditures. 

The equation for PBP is:

PBP =∆IC/∆OC Eq. 8.3.1

Where:

PBP = payback period in years,

∆IC = difference in the total installed cost between the more efficient standard-level 

equipment (efficiency levels 2, 3, and so on) and the baseline efficiency 

equipment, and

∆OC = difference in first year annual operating costs.

Payback periods are expressed in years. Payback periods can be greater than the life of 

the equipment if the increased total installed cost of the more efficient equipment is not 

recovered fast enough in reduced operating costs.

DOE also calculates a rebuttable PBP, which is the time it takes the customer to recover 

the assumed higher purchase cost of more energy-efficient equipment as a result of lower energy 

costs. Numerically, the rebuttable PBP is the ratio of the increase in purchase cost (i.e., from a 

less efficient design to a more efficient design) to the decrease in annual energy expenditures—

that is, the difference in first year annual energy cost as calculated based on the DOE test 

procedure. The calculation excludes maintenance costs. 

The data inputs to PBP are the total installed cost of the equipment to the customer for 

each efficiency level and the annual (first year) operating costs for each efficiency level. The 

inputs to the total installed cost are the equipment price and the installation cost. The inputs to 

the operating costs are the annual energy cost and the annual maintenance cost (or, in the case of 

8-22
rebuttable PBP, only the annual energy cost). The PBP uses the same inputs as the LCC analysis, 

except that electricity price trends and discount rates are not required. Since the PBP is a 

“simple” payback, the required electricity cost is only for the year in which a new efficient 

standard is to take effect—in this case, 2019. 

8.4 LIFE-CYCLE COST AND PAYBACK PERIOD RESULTS 

This section presents the results of the LCC and PBP analysis for PTACs and PTHPs. As 

discussed previously, DOE’s approach to the LCC analysis relied on 1,224 unit energy 

consumption values from the previous rulemaking. DOE also used probability distributions to 

characterize the uncertainty in many of the inputs to the analysis. DOE used Monte Carlo 

simulation to perform the LCC calculations for the customers in the sample. 

LCC and PBP calculations were performed 10,000 times on the sample of customers 

established for each equipment class. Each LCC and PBP calculation was performed on a single 

customer selected from the sample. A customer was selected based on its weight (i.e., how 

representative that particular customer was of other customers in the distribution). Each LCC and 

PBP calculation also sampled from the probability distributions that DOE developed to 

characterize many of the inputs to the analysis. 

For each set of sample customers using the equipment in each equipment class, DOE 

calculated the average LCC and LCC savings and the median PBP for each trial standard level 

(TSL). DOE calculated LCC savings and PBPs relative to the base-case products that it assigned 

to the sample customers. For some customers, DOE assigned a base-case product that is more 

efficient than the baseline. For that reason, the average LCC impacts are not equal to the 

difference between the LCC of a specific standard level and the LCC of the baseline product. 

The calculation of average LCC savings includes customers with zero LCC savings (no impact 

from a standard). DOE considered a customer to receive no effect at a given standard level if 

DOE assigned it base-case equipment having the same or higher efficiency than the standard 

level. DOE calculated the median PBP values by excluding the customers that are not impacted 

by a standard at a given efficiency level.

For each TSL, DOE also calculated the share of customers experiencing a net LCC 

benefit, a net LCC cost, and no effect. DOE considered a customer to receive no effect at a given 

standard level if DOE assigned it base-case equipment having the same or higher efficiency than 

the standard level. 

For this NOPR, DOE also repeated the LCC and PBP calculations for an alternative base 

case where the mandatory efficiency level is the Federal minimum, for informational purposes. 

8.4.1 Packaged Terminal Air Conditioners – 9,000 Btu/h

Table 8.4.1 summarizes the LCC and PBP results for PTACs of 9,000 Btu/h cooling 

capacity. 

8-23
Table 8.4.1 Packaged Terminal Air Conditioners – 9,000 Btu/h Cooling Capacity: 

Life-Cycle Cost and Payback Period Results

Trial 

Standard 

Level

Average Life-Cycle Costs 

(2013$)* Life-Cycle Cost Savings**

Median 

Payback 

Period 

(years)†

Installed 

Cost

Operating 

Cost LCC

Customers Showing (%) Avg. 

Savings

Net No 

Impact

Net 

Benefit

(2013$)

Cost

1 $1,441 $1,152 $2,593 32% 57% 11% -$0.60 9.4

2 $1,459 $1,138 $2,597 54% 32% 14% -$3.21 9.9

3 $1,477 $1,125 $2,602 82% 2% 16% -$8.53 10.6

4 $1,497 $1,112 $2,609 86% 0% 13% -$15.57 11.2

5 $1,508 $1,106 $2,614 88% 0% 12% -$19.72 11.5

*The average discounted LCC for each TSL is calculated assuming that all purchases are for products only with that 

TSL. This allows the LCCs for each TSL to be compared under the same conditions. 

** The LCC savings for each TSL are calculated relative to the base case efficiency distribution. The calculation 

includes establishments with zero LCC savings (no impact). 

†The median payback period is calculated only for affected establishments. Establishments with no impact have an

undefined payback period, and are therefore not included in calculating the median PBP. 

Figure 8.4.1 and Figure 8.4.2 show the range of LCC savings and PBPs for all of the 

efficiency levels considered for PTACs with outputs of 9,000 Btu/h cooling capacity. For each 

standard level, the top and the bottom of the box indicate the 75th and 25th percentiles, 

respectively. The bar at the middle of the box indicates the median; 50 percent of the customers 

have LCC savings or PBP above this value. The horizontal lines above and below each box 

indicate the 95th and 5th percentiles, respectively. The small box shows the average LCC savings 

or PBP for each standard level.

8-24
Figure 8.4.1 Range of Life-Cycle Cost Savings for Packaged Terminal Air 

Conditioners – 9,000 Btu/h Cooling Capacity

 

 

-50

-40

-30

-20

-10

0

10

20

Level 1 Level 2 Level 3 Level 4 Level 5

Average LCC Savings (2011$)

Efficiency Level

PTAC - 9,000 Btu/h Range of LCC Savings

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-25
Figure 8.4.2 Range of Payback Periods for Packaged Terminal Air Conditioners – 

9,000 Btu/h Cooling Capacity

8.4.2 Packaged Terminal Air Conditioners – 15,000 Btu/h Cooling Capacity

Table 8.4.2 summarizes the LCC and PBP results for PTACs of 15,000 Btu/h cooling 

capacity.

Table 8.4.2 Packaged Terminal Air Conditioners – 15,000 Btu/h Cooling Capacity: 

Life-Cycle Cost and Payback Period Results

Trial 

Standard 

Level

Average Life-Cycle Costs 

(2013$)* Life-Cycle Cost Savings**

Median 

Payback 

Period 

(years)†

Installed 

Cost

Operating 

Cost LCC

Customers Showing (%) Avg. 

Savings

Net No 

Impact

Net 

Benefit

(2013$)

Cost 

1 $1,696 $1,502 $3,198 19% 75% 7% -$0.33 9.4

2 $1,720 $1,487 $3,207 55% 39% 6% -$5.55 12.3

3 $1,749 $1,474 $3,223 92% 5% 3% -$21.19 15.7

4 $1,786 $1,462 $3,247 96% 2% 1% -$44.86 18.7

5 $1,807 $1,456 $3,262 99% 1% 1% -$59.77 20.3

0

2

4

6

8

10

12

14

16

18

Level 1 Level 2 Level 3 Level 4 Level 5

Average PBB (years)

Efficiency Level

PTAC - 9,000 Btu/h Average Payback Period

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-26
*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with 

that CSL. This allows the LCCs for each CSL to be compared under the same conditions. 

** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation 

includes customers with zero LCC savings (no impact). 

†The median payback period is calculated only for affected customers. Customers with no impact have an undefined 

payback period and are therefore not included in calculating the median PBP. 

Figure 8.4.3 and Figure 8.4.4 show the range of LCC savings and PBPs for all of the 

efficiency levels considered for PTACs with output of 15,000 Btu/h cooling capacity. For each 

standard level, the top and the bottom of the box indicate the 75th and 25th percentiles, 

respectively. The bar at the middle of the box indicates the median; 50 percent of the customers 

have LCC savings or PBP above this value. The horizontal lines above and below each box 

indicate the 95th and 5th percentiles, respectively. The small box shows the average LCC savings 

or PBP for each standard level.

Figure 8.4.3 Range of Life-Cycle Cost Savings for Packaged Terminal Air 

Conditioners – 15,000 Btu/h Cooling Capacity

 

 

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

10

Level 1 Level 2 Level 3 Level 4 Level 5

Average LCC Savings (2011$)

Efficiency Level

PTAC - 15,000 Btu/h Range of LCC Savings

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-27
Figure 8.4.4 Range of Payback Periods for Packaged Terminal Air Conditioners – 

15,000 Btu/h Cooling Capacity

8.4.3 Packaged Terminal Heat Pumps – 9,000 Btu/h Cooling Capacity

Table 8.4.3 summarizes the LCC and PBP results for PTHPs of 9,000 Btu/h cooling 

capacity.

Table 8.4.3 Packaged Terminal Heat Pumps – 9,000 Btu/h Cooling Capacity

Trial 

Standard 

Level

Average Life-Cycle Costs 

(2013$)* Life-Cycle Cost Savings**

Median 

Payback 

Period 

(years)†

Installed 

Cost

Operating 

Cost LCC

Customers Showing (%) Avg. 

Savings

Net No 

Impact

Net 

Benefit

(2013$)

Cost

1 $1,552 $1,725 $3,277 5% 51% 45% $3.46 4.4

2 $1,569 $1,706 $3,275 17% 42% 42% $4.77 5.8

3 $1,587 $1,687 $3,274 39% 12% 50% $5.23 6.9

4 $1,607 $1,668 $3,275 52% 0% 48% $4.16 7.5

5 $1,618 $1,659 $3,276 54% 0% 46% $3.01 7.7

0

5

10

15

20

25

30

35

Level 1 Level 2 Level 3 Level 4 Level 5

Average PBB (years)

Efficiency Level

PTAC - 15,000 Btu/h Average Payback Period

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-28
*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with 

that CSL. This allows the LCCs for each CSL to be compared under the same conditions. 

** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation 

includes customers with zero LCC savings (no impact). 

†The median payback period is calculated only for affected customers. Customers with no impact have an undefined 

payback period and are therefore not included in calculating the median PBP. 

Figure 8.4.5 and Figure 8.4.6 show the range of LCC savings and PBPs for all of the 

efficiency levels considered for PTHPs with outputs of 9,000 Btu/h cooling capacity. For each 

standard level, the top and the bottom of the box indicate the 75th and 25th percentiles, 

respectively. The bar at the middle of the box indicates the median; 50 percent of the customers 

have LCC savings or PBP above this value. The horizontal lines above and below each box 

indicate the 95th and 5th percentiles, respectively. The small box shows the average LCC savings 

or PBP for each standard level.

Figure 8.4.5 Range of Life-Cycle Cost Savings for Packaged Terminal Heat Pumps – 

9,000 Btu/h Cooling Capacity

 

-40

-30

-20

-10

0

10

20

30

40

50

60

Level 1 Level 2 Level 3 Level 4 Level 5

Average LCC Savings (2011$)

Efficiency Level

PTHP 9,000 Btu/h Range of LCC Savings

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-29
Figure 8.4.6 Range of Payback Periods for Packaged Terminal Heat Pumps – 9,000 

Btu/h Cooling Capacity

8.4.4 Packaged Terminal Heat Pumps – 15,000 Btu/h Cooling Capacity

Table 8.4.5 summarizes the LCC and PBP results for PTHPs of 15,000 Btu/h cooling 

capacity.

Table 8.4.4 Packaged Terminal Heat Pumps – 15,000 Btu/h Cooling Capacity

Trial 

Standard 

Level

Average Life-Cycle Costs 

(2013$)* Life-Cycle Cost Savings**

Median 

Payback 

Period 

(years)†

Installed 

Cost

Operating 

Cost LCC

Customers Showing (%) Avg. 

Savings

Net No 

Impact

Net 

Benefit

(2013$)

Cost

1 $1,801 $2,232 $4,032 27% 43% 30% $0.42 7.2

2 $1,824 $2,206 $4,030 26% 43% 31% $2.06 7.0

3 $1,854 $2,181 $4,034 59% 10% 31% -$2.27 8.5

4 $1,890 $2,157 $4,047 77% 2% 22% -$14.57 10.0

5 $1,911 $2,145 $4,056 82% 0% 18% -$23.72 10.6

*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with 

that CSL. This allows the LCCs for each CSL to be compared under the same conditions. 

** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation 

includes customers with zero LCC savings (no impact). 

0

2

4

6

8

10

12

Level 1 Level 2 Level 3 Level 4 Level 5

Average PBB (years)

Efficiency Level

PTHP - 9,000 Btu/h Average Payback Period

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-30
†The median payback period is calculated only for affected customers. Customers with no impact have an undefined 

payback period and are therefore not included in calculating the median PBP. 

Figure 8.4.7 and Figure 8.4.8 show the range of LCC savings and PBPs for all of the 

efficiency levels considered for PTHPs with output of 15,000 Btu/h cooling capacity. For each 

standard level, the top and the bottom of the box indicate the 75th and 25th percentiles, 

respectively. The bar at the middle of the box indicates the median; 50 percent of the customers 

have LCC savings or PBP above this value. The horizontal lines above and below each box 

indicate the 95th and 5th percentiles, respectively. The small box shows the average LCC savings 

or PBP for each standard level. 

Figure 8.4.7 Range of Life-Cycle Cost Savings for Packaged Terminal Heat Pumps – 

15,000 Btu/h Cooling Capacity

Figure 8.4.8 shows the range of PBPs for all efficiency levels for PTHPs – 15,000 Btu/h. 

-80

-60

-40

-20

0

20

40

60

Level 1 Level 2 Level 3 Level 4 Level 5

Average LCC Savings (2011$)

Efficiency Level

PTHP 15,000 Btu/h Range of LCC Savings

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-31
Figure 8.4.8 Range of Payback Periods for Packaged Terminal Heat Pumps – 15,000 

Btu/h Cooling Capacity

8.4.5 Alternative Base Case Analysis

The alternative base case analysis was based off a scenario where the mandatory 

efficiency level is the Federal minimum. Table 8.4.5 shows the efficiency distribution against 

which LCC and PBP results were calculated. The results of these calculations are shown in Table 

8.4.6. 

Table 8.4.5 Alternative Base Case Efficiency Market Shares in 2019 for Packaged 

Terminal Air Conditioners and Heat Pumps

PTAC – 9,000 Btu/h PTAC – 15,000 Btu/h PTHP – 9,000 Btu/h PTHP – 15,000 Btu/h

IEER Market Share IEER Market Share IEER Market Share IEER Market Share

11.1 3.4% 9.3 10.9%

11.3 40.3% 9.5 14.9% 11.3 48.5% 9.5 58.2%

11.5 24.3% 9.7 34.8% 11.5 8.9% 9.7 0.0%

12.0 29.5% 10.0 34.7% 12.0 30.2% 10.0 32.5%

12.4 2.1% 10.4 2.7% 12.4 12.4% 10.4 7.9%

12.9 0.5% 10.8 1.4% 12.9 0.0% 10.8 1.4%

13.1 0.0% 11.0 0.7% 13.1 0.0% 11.0 0.0%

0

2

4

6

8

10

12

14

16

Level 1 Level 2 Level 3 Level 4 Level 5

Average PBB (years)

Efficiency Level

PTHP - 15,000 Btu/h Average Payback Period

Average; Median; Box 25%-75%; Whisker 5%-95%

median

average

8-32
Table 8.4.6 Alternative Base Case Analysis Results

 

Trial 

Standard 

Level

Average Life-Cycle Costs (2013$)* Life-Cycle Cost Savings**

Median 

Payback 

Period 

(years)†

Installed 

Cost

Operating 

Cost LCC

Customers Showing (%) Avg. 

Savings

Net No 

Impact

Net 

Benefit

(2013$)

Cost

PTAC 

<12,000 

Btu/h

1 $1,437 $1,152 $2,589 28% 57% 16% ($0.47) 8.3

2 $1,455 $1,138 $2,593 52% 32% 17% ($3.08) 9.6

3 $1,473 $1,125 $2,598 80% 2% 17% ($8.39) 10.5

4 $1,493 $1,112 $2,605 85% 0% 15% ($15.43) 11.0

5 $1,503 $1,106 $2,610 87% 0% 13% ($19.58) 11.4

PTAC 

≥12,000 

Btu/h

1 $1,692 $1,502 $3,194 13% 75% 12% ($0.17) 6.9

2 $1,715 $1,487 $3,202 53% 39% 8% ($5.39) 11.7

3 $1,745 $1,474 $3,219 91% 5% 4% ($21.03) 15.1

4 $1,781 $1,462 $3,243 96% 2% 2% ($44.69) 17.7

5 $1,802 $1,456 $3,258 98% 1% 1% ($59.61) 19.4

PTHP 

<12,000 

Btu/h

1 $1,552 $1,725 $3,277 5% 51% 45% $3.46 4.4

2 $1,569 $1,706 $3,275 17% 42% 42% $4.77 5.8

3 $1,587 $1,687 $3,274 39% 12% 50% $5.23 6.9

4 $1,607 $1,668 $3,275 52% 0% 48% $4.16 7.5

5 $1,618 $1,659 $3,276 54% 0% 46% $3.01 7.7

PTHP 

≥12,000 

Btu/h

1 $1,801 $2,232 $4,032 27% 43% 30% $0.42 7.2

2 $1,824 $2,206 $4,030 26% 43% 31% $2.06 7.0

3 $1,854 $2,181 $4,034 59% 10% 31% ($2.27) 8.5

4 $1,890 $2,157 $4,047 77% 2% 22% ($14.57) 10.0

5 $1,911 $2,145 $4,056 82% 0% 18% ($23.72) 10.6

*The average discounted LCC for each CSL is calculated assuming that all purchases are for equipment only with 

that CSL. This allows the LCCs for each CSL to be compared under the same conditions. 

** The LCC savings for each CSL are calculated relative to the base case efficiency distribution. The calculation 

includes customers with zero LCC savings (no impact). 

†The median payback period is calculated only for affected customers. Customers with no impact have an undefined 

payback period and are therefore not included in calculating the median PBP.

8.4.6 Rebuttable Payback Period

DOE presents rebuttable PBPs to provide the legally established rebuttable presumption 

that an energy efficiency standard is economically justified if the additional equipment costs 

attributed to the standard are less than three times the value of the first-year energy cost savings. 

(42 U.S.C. §6295(o)(2)(B)(iii)) 

The basic equation for rebuttable PBP is the same as that shown for the PBP in section 

8.3. Unlike the analyses described in section 8.3, however, the rebuttable PBP is not based on the 

use of probability distributions, but on discrete single-point values. For example, whereas DOE 

uses a probability distribution of energy prices in the distributional PBP analysis, it uses only the

national average energy price to determine the rebuttable PBP.

8-33
8.4.6.1 Inputs

Inputs for the rebuttable PBP differ from the distribution PBP in that the calculation uses 

discrete values, rather than distributions. Note that for the calculation of distribution PBP, 

because inputs for the determination of total installed cost were based on single-point values, 

only the variability and/or uncertainty in the inputs for determining operating cost contributed to 

variability in the distribution PBPs. The following summarizes the single-point values that DOE 

used in determining the rebuttable PBP: 

• Manufacturing costs, markups, sales taxes, and installation costs were all based on the 

single-point values used in the distributional LCC and PBP analysis.

• Energy prices were based on national average values for the year that new standards 

will take effect.

• An average discount rate or lifetime is not required in the rebuttable PBP calculation.

• The effective date of the standard is assumed to be 2019. 

• The annual energy consumption uses the single-point per unit values, determined 

from the whole-building simulations as discussed in Chapter 7.

8.4.6.2 Results

DOE calculated rebuttable PBPs for each standard level relative to the distribution of 

equipment energy efficiencies estimated for the base case. Table 8.4.4 and Table 8.4.5 present 

the rebuttable PBPs for PTACs and PTHPs. 

Table 8.4.7 Rebuttable-Presumption Payback Periods (years) for Packaged Terminal 

Air Conditioners 

PTACs - 9,000 Btu/h PTACs - 15,000 Btu/h

TSL Efficiency Level PBP (years) TSL Efficiency Level PBP (years)

ASHRAE 0 8.1 ASHRAE 0 7.0

1 1 8.4 1 1 8.6

2 2 8.7 2 2 10.1

3 3 9.1 3 3 11.7

4 4 9.5 4 4 13.3

5 5 9.7 5 5 14.0

8-34
Table 8.4.8 Rebuttable-Presumption Payback Periods (years) for Packaged Terminal 

Heat Pumps 

PTHPs - 9,000 Btu/h PTHPs - 15,000 Btu/h

TSL Efficiency Level PBP (years) TSL Efficiency Level PBP (years)

1 1 4.4 1 1 6.9

2 2 5.6 2 2 6.7

3 3 6.2 3 3 7.5

4 4 6.6 4 4 8.4

5 5 6.8 5 5 8.9

8-35
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8-37