CHAPTER 13. MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

**13.1 INTRODUCTION** 

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

**13.2 METHODOLOGY** 

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

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

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

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

**13.2.2.2 Interview**  **Guide**

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

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

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

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

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

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

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

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

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

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

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

**13.2.3.7 Employment**  **Impact............................................................................. 13­6** 

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

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

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

**13.3.1 R­410A...............................................................................................................**  **13­7**

**13.3.2 Equipment**  **Classes Definitions.......................................................................... 13­8** 

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

**................................................................................. 13­9** 

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

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

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

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

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

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

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

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

**13.4.2.2 Standard**  **and Poor**  **Credit Ratings......................................................**  **13­12**

**13.4.2.3 Dun**  **and Bradstreet**  **Reports............................................................... 13­12**

**13.4.2.4 Shipment**  **Model................................................................................. 13­12** 

**13.4.2.5 Engineering Analysis......................................................................... 13­12** 

**13.4.2.6 Manufacturer**  **Interviews.................................................................... 13­12**

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

**13.4.4 Corporate**  **Discount Rate.................................................................................. 13­14** 

**13.4.5 Trial**  **Standard Levels....................................................................................... 13­16** 

**13.4.6 NES­Shipments**  **Forecast**

**................................................................................. 13­17** 

**13.4.7 Standards**  **Case................................................................................................. 13­18**

**13.4.8 Production**  **Costs**

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

**13.4.9 Conversion**  **Costs**

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

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

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

**13.4.9.2 R­410A**  **Conversion**

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

**13.4.9.3 Energy Conservation**  **Standards......................................................... 13­27**

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

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

**13.4.9.5 R­410A**  **Conversion**

**........................................................................... 13­29** 

**13­i 13.4.9.6**  **Energy Conservation Standards......................................................... 13­29** 

**13.4.10 Markups** 

**................................................................................................... 13­31** 

**13.4.10.1 Full**  **Cost Recovery Markup............................................................. 13­31** 

**13.4.10.2 Partial**  **Cost Recovery**  **Markup......................................................... 13­32** 

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

**REFRIGERANT PHASEOUT** 

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

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

**Phaseout on**  **the Base**  **Case............................................................................... 13­35** 

**13.6 ENERGY**  **CONSERVATION STANDARDS**  **IMPACT SCENARIOS..................... 13­37** 

**13.6.1 Markup**  **Scenarios**

**............................................................................................ 13­37** 

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

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

**.......................................... 13­37** 

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

**Energy Conservation**  **Standards With**  **Full Cost**  **Recovery.............................. 13­37** 

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

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

**............................... 13­40** 

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

**Energy Conservation Standards**  **With 50­Percent**  **Cost Recovery................... 13­42** 

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

**........ 13­44** 

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

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

**13.7.2 Impacts**  **on Annual**  **Cash Flow......................................................................... 13­47** 

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

**............................................................................................................................... .......**  **13­50**

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

**........................................................... 13­50** 

**13.8.2 Impacts**  **on Annual**  **Cash Flow......................................................................... 13­52** 

**13.9 SMALL**  **BUSINESS IMPACTS..................................................................................**  **13­56**

**13.9.1 Introduction......................................................................................................**  **13­56**

**13.9.2 Equipment**  **Development Requirements**  **for Small**  **Manufacturers of**  **PTAC and** 

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

**13.9.3 Equipment**  **Development Impacts**  **on Small**  **Manufacturers**

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

**13.9.4 Volume**  **Impacts on**  **Small Manufacturers** 

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

**13.9.5 Additional**  **Impacts on**  **Small Manufacturers** 

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

**13.9.6 Conclusions......................................................................................................**  **13­62**

**13.9.7 Direct**  **Employment.......................................................................................... 13­62**

**13.9.7.1 Methodology...................................................................................... 13­62** 

**13.9.7.2 Standard**  **Size PTAC**  **and PTHP**  **Industry Results..............................**  **13­64**

**13.9.7.3 Non­Standard**  **Size PTAC**  **and PTHP**  **Industry Results** 

**..................... 13­66** 

**13.9.8 Manufacturing**  **Capacity................................................................................... 13­68** 

**13.9.9 Cumulative**  **Regulatory Burden** 

**....................................................................... 13­68** 

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

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

**............................................................. 13­69** 

**13.9.9.2 Restriction**  **of Hazardous**  **Substances Directive................................. 13­71** 

**13.10 CONCLUSIONS..........................................................................................................**  **13­72**

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

**........................................ 13­72** 

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

**................................ 13­75** 

**13­ii**LIST OF TABLES

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

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

**Table 13.4.2**  **Cost of**  **Equity Calculation.................................................................................**  **13­15**

**Table 13.4.3**  **Cost of**  **Debt Calculation....................................................................................**  **13­16**

**Table 13.4.4 Standard Size PTACs and PTHPs Baseline Efficiency Levels and TSLs......... 13­16** 

**Table 13.4.5**  **Non­Standard Size**  **PTACs and**  **PTHPs Baseline**  **Efficiency Levels**  **and TSLs.**  **13­17**

**Table 13.4.6**  **Total NES­Shipments**  **Forecast in**  **2012............................................................. 13­17** 

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

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

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

**Cooling Capacity**  **of 9,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES............................................. 13­18** 

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

**Cooling Capacity**  **of 12,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES........................................... 13­18** 

**Table 13.4.10**  **Base Case**  **Distribution of**  **Efficiencies for**  **Standard Size**  **PTHP Shipments**  **with a** 

**Cooling Capacity**  **of 12,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES........................................... 13­18** 

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

**with a**  **Cooling Capacity**  **of 11,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES................................ 13­18** 

**Table 13.4.12**  **Base Case**  **Distribution of**  **Efficiencies for**  **Non­Standard Size**  **PTHP Shipments** 

**with a**  **Cooling Capacity**  **of 11,000**  **Btu/h in**  **2012 Estimated**  **in the**  **NES................................ 13­18** 

**Table 13.4.13**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup** 

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

**Table 13.4.14**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup** 

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

**Table 13.4.15**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup** 

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

**Table 13.4.16**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup** 

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

**Table 13.4.17**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup**  **Scenario........................................................................................................................ 13­20** 

**Table 13.4.18**  **Distribution of**  **Shipments in**  **the Standards**  **Case using**  **an R­410A**  **Base Case** 

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

**– Rollup**  **Scenario........................................................................................................................ 13­21** 

**Table 13.4.19**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

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

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

**Table 13.4.20**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

**PTHP 9,000**  **Btu/h Cooling**  **Capacity....................................................................................... 13­22** 

**Table 13.4.21**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­22 Standard**  **Size**

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

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

**13­iii Table**  **13.4.22 Base**  **Case Production**  **Costs (2007$)**  **used in**  **the GRIM**  **for R­22**  **Standard Size** 

**PTHP 12,000**  **Btu/h Cooling**  **Capacity..................................................................................... 13­22** 

**Table 13.4.23**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­22 Non­Standard** 

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

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

**Table 13.4.24**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­22 Non­Standard** 

**Size PTHP**  **11,000 Btu/h Cooling Capacity............................................................................. 13­23** 

**Table 13.4.25**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

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

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

**Table 13.4.26**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

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

**Table 13.4.27**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

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

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

**Table 13.4.28**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Standard**  **Size**

**PTHP 12,000**  **Btu/h Cooling**  **Capacity..................................................................................... 13­24** 

**Table 13.4.29**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Non­Standard** 

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

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

**Table 13.4.30**  **Base Case**  **Production Costs**  **(2007$) used**  **in the**  **GRIM for**  **R­410A Non­Standard** 

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

**Table 13.4.31**  **Conversion Capital**  **Expenditure for**  **Standard Size**  **PTACs and**  **PTHPs by**  **TSL**

**.....**

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

**Table 13.4.32**  **Conversion Capital**  **Expenditure for**  **Non­Standard PTACs**  **and PTHPs**  **by TSL.....** 

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

**Table 13.4.33**  **Equipment Conversion**  **Expenses for**  **Standard Size**  **PTACs and**  **PTHPs by**  **TSL**

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

**Table 13.4.34**  **Equipment Conversion**  **Expenses for**  **Non­Standard PTACs**  **and PTHPs**  **by TSL** 

**............................................................................................................................... ...................**  **13­31**

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

**Size PTAC**  **with a**  **9,000 Btu/h**  **Cooling Capacity....................................................................**  **13­34**

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

**Size PTHP**  **with a**  **9,000 Btu/h Cooling Capacity.................................................................... 13­34** 

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

**Size PTAC**  **with a**  **12,000 Btu/h**  **Cooling Capacity..................................................................**  **13­34**

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

**Size PTHP**  **with a**  **12,000 Btu/h Cooling Capacity.................................................................. 13­35** 

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

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

**.................................................. 13­35** 

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

**Standard Size**  **PTHP with**  **a 11,000**  **Btu/h Cooling**  **Capacity................................................... 13­35** 

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

**Standard Size**  **PTACs and**  **PTHPs............................................................................................ 13­36** 

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

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

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

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

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

**with a**  **9,000 Btu/h**  **Cooling Capacity.......................................................................................**  **13­38**

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

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

**a 9,000**  **Btu/h Cooling**  **Capacity............................................................................................... 13­38** 

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

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

**with a**  **12,000 Btu/h**  **Cooling Capacity.....................................................................................**  **13­39**

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

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

**a 12,000**  **Btu/h Cooling**  **Capacity............................................................................................. 13­39** 

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

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

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

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

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

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

**PTHP with**  **a 11,000**  **Btu/h Cooling Capacity.......................................................................... 13­40** 

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

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

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

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

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

**9,000 Btu/h**  **Cooling Capacity..................................................................................................**  **13­41**

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

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

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

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

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

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

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

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

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

**Size PTAC**  **with a**  **11,000 Btu/h**  **Cooling Capacity..................................................................**  **13­42**

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

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

**Size PTHP**  **with a**  **11,000 Btu/h Cooling Capacity.................................................................. 13­42** 

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

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

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

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

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

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

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

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

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

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

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

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

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

**PTHP with**  **a 12,000**  **Btu/h Cooling Capacity.......................................................................... 13­44** 

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

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

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

**......................................................................... 13­44** 

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

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

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

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

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

**Recovery)................................................................................................................................. 13­45** 

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

**410A Base**  **Case Full**  **Cost Recovery**  **with Amended**  **Energy Conservation**  **Standards 50­Percent** 

**Cost Recovery).........................................................................................................................**  **13­46**

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

**410A Base**  **Case 50­Percent**  **Cost Recovery**  **with Amended**  **Energy Conservation**  **Standards Full** 

**Cost Recovery).........................................................................................................................**  **13­46**

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

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

**Percent Cost**  **Recovery)............................................................................................................ 13­47** 

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

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

**Recovery)................................................................................................................................. 13­51** 

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

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

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

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

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

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

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

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

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

**Percent Cost**  **Recovery)............................................................................................................ 13­52** 

**Table 13.9.1**  **Cumulative Equipment**  **Development Cost**  **Estimates for**  **non­standard PTAC**  **and**

**PTHP Industry** 

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

**Table 13.9.2**  **Impact of**  **Manufacturing Scale**  **on Per**  **Unit Equipment**  **Development Cost.....**  **13­60**

**Table 13.9.3**  **LCC Savings**  **After Per**  **Unit R&D**  **costs for**  **Non­Standard Size**  **PTACs with**  **a**

**Cooling Capacity**  **of 11,000**  **Btu/h**

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

**Table 13.9.4**  **LCC Savings**  **After Per**  **Unit R&D**  **costs for**  **Non­Standard Size**  **PTHPs with**  **a**

**Cooling Capacity**  **of 11,000**  **Btu/h**

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

**Table 13.9.5**  **Estimates from**  **the Engineering**  **Analysis Used**  **to Calculate**  **the Change**  **in Direct** 

**Employment, Standard**  **Size PTAC and**  **PTHP........................................................................ 13­63**

**Table 13.9.6**  **Estimates from**  **the Engineering**  **Analysis Used**  **to Calculate**  **the Change**  **in Direct** 

**Employment, Non­Standard**  **Size PTAC**  **and PTHP................................................................**  **13­64**

**Table 13.9.7**  **Direct Employment**  **Summary for**  **Standard Size**  **PTAC and**  **PTHP Industry** 

**... 13­64** 

**Table 13.9.8**  **Direct Employment**  **Summary Results**  **for Non­Standard**  **Size PTAC**  **and PTHP** 

**Industry**

**............................................................................................................................... .....**  **13­67**

**Table 13.9.9**  **Other DOE**  **and Federal**  **Actions Affecting**  **the Standard**  **Size PTAC**  **and PTHP** 

**Industry**

**............................................................................................................................... .....**  **13­70**

**13­vi Table**  **13.9.10 Other**  **DOE and**  **Federal Actions**  **Affecting the**  **Non­Standard Size**  **PTAC and** 

**PTHP Industry** 

**......................................................................................................................... 13­71** 

LIST OF FIGURES

**Figure 13.4.1**  **Using the**  **GRIM to**  **Calculate Cash**  **Flow.......................................................... 13­11** 

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

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

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

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

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

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

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

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

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

**................................................................................................................. 13­49** 

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

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

**50­Percent Cost**  **Recovery)**

**...................................................................................................... 13­49** 

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

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

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

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

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

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

**50­Percent Cost**  **Recovery)**

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

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

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

**with Full**  **Cost Recovery).........................................................................................................**  **13­54**

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

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

**with 50­Percent**  **Cost Recovery)** 

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

**Figure 13.9.1**  **Total Standard**  **Size PTAC**  **and PTHP**  **Industry Domestic**  **Employment by**  **Year.....**

**............................................................................................................................... ...................**  **13­65**

**Figure 13.9.2**  **Total Non­Standard**  **Size PTAC**  **and PTHP**  **Industry Domestic**  **Employment by** 

**Year.......................................................................................................................................... 13­67** 

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

13.1 INTRODUCTION

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

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

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

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

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

**. DOE**  **conducted a**  **manufacturer impact** 

**analysis (MIA)**  **to estimate**  **the financial**  **impact of**  **amended energy**  **conservation standards**  **on**

**manufacturers of**  **packaged terminal**  **air conditioners**  **(PTACs) and**  **packaged terminal**  **heat pumps** 

**(PTHPs), and**  **to assess**  **the impact**  **of such**  **standards on**  **employment and**  **manufacturing capacity.** 

**The MIA**  **has both**  **quantitative and**  **qualitative aspects.** 

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

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

**include information**  **on the**  **standard and**  **non­standard PTAC**  **and PTHP**  **industries’ cost**  **structure,**

**shipments, and**  **pricing strategies.**  **The GRIM’s**  **key output**  **is the**  **industry net**  **present value** 

**(INPV) for**  **the standard**  **and non­standard**  **PTAC and**  **PTHP industries.**  **The model**  **estimates the** 

**financial impact**  **of amended**  **energy conservation**  **standards by**  **comparing changes**  **in INPV** 

**between a**  **base case**  **and the**  **various trial**  **standard levels**  **(TSLs) (standards**  **cases).**

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

**manufacturing statistics,**  **and market**  **and equipment**  **trends. It**  **also assesses**  **the impact**  **of**

**amended energy**  **conservation standards**  **on subgroups**  **of manufacturers.** 

13.2 METHODOLOGY

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

**preparation of**  **characterizations of**  **the standard**  **and non­standard**  **size PTAC**  **and PTHP** 

**industries, including**  **data on**  **market share,**  **sales volumes**  **and trends,**  **pricing, employment,**  **and**

**financial structure.**  **Phase II,**  **“Industry Cash**  **Flow,” focused**  **on the**  **standard and**  **non­standard**

**size industries.**  **In this**  **phase, DOE**  **used the**  **GRIM to**  **prepare an**  **industry cash**  **flow analysis**  **for**

**both industries.**  **Using publicly**  **available information**  **developed in**  **Phase 1,**  **DOE adapted**  **the**

**GRIM’s generic**  **structure to**  **facilitate analysis**  **of amended**  **PTAC and**  **PTHP standards.**  **In Phase** 

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

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

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

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

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

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

**and employment**  **levels.**

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

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

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

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

**13­1 conversion**  **costs, profitability,**  **and ultimately,**  **cash flows.**  **Between 2006**  **and 2009,**  **the GRIM** 

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

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

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

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

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

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

13.2.1 Phase I: Industry Profile

**In Phase**  **I of**  **the MIA,**  **DOE prepared**  **a profile**  **of the**  **standard and**  **non­standard size** 

**PTAC and**  **PTHP industries**  **that build**  **upon the**  **market and**  **technology assessment**  **prepared for** 

**this rulemaking**  **(see Chapter**  **3 of**  **this TSD).**  **Before initiating**  **the detailed**  **impact studies,**  **DOE**

**collected qualitative**  **and quantitative**  **financial information**  **and past**  **and present**  **market data.** 

**This included**  **estimated market**  **shares of**  **both standard**  **and non­standard**  **size PTAC**  **and PTHP** 

**manufacturers, corporate**  **operating ratios,**  **wages, employment,**  **and production**  **cost ratios.**  **The**

**industry profile**  **included a**  **topdown cost**  **analysis of**  **PTAC and**  **PTHP manufacturers**  **that DOE** 

**used to**  **derive cost**  **and preliminary**  **financial inputs**  **for the**  **GRIM (e.g.,**  **revenues; material;** 

**labor; overhead;**  **depreciation; selling,**  **general and**  **administrative expenses**  **(SG&A); and** 

**research and**  **development (R&D)**  **expenses). DOE**  **also used**  **public information**  **to further** 

**calibrate its**  **initial characterization**  **of the**  **industries, including**  **Securities and**  **Exchange**

**Commission (SEC)**  **10–K reports,**  **Dun and**  **Bradstreet (D&B),**  **Standard &**  **Poor’s (S&P)**  **stock**

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

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

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

**industries.**

13.2.2 Phase II: Industry Cash­Flow Analysis and Interview Guide

**In Phase**  **II, DOE**  **performed an**  **industry cash­flow**  **analysis for**  **both standard**  **and non** 

**standard industries**  **and prepared**  **written guidelines**  **for interviewing**  **manufacturers. Phase**  **II**

**focused on**  **the financial**  **impacts of**  **amended standards**  **on the**  **standard and**  **non­standard PTAC** 

**and PTHP**  **industries. Amended**  **energy conservation**  **standards can**  **affect PTAC**  **and PTHP** 

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

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

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

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

**on the**  **PTAC and**  **PTHP industries**  **to quantify**  **these impacts.** 

13.2.2.1 Industry Cash­Flow Analysis

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

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

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

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

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

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

**13­2 manufacturer**  **markups from**  **public financial**  **reports and**  **interviews with**  **manufacturers. DOE** 

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

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

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

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

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

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

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

**1999 (ASHRAE**  **Standard 90.1­1999)**  **1 efficiency**  **levels are**  **adopted by**  **DOE. The**  **financial**

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

**discounted annual**  **cash flows.** 

13.2.2.2 Interview Guide

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

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

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

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

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

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

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

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

**interview guides**  **used to**  **conduct the**  **manufacturer interviews**  **are found**  **in Appendix**  **K of**  **this**

**TSD.**

13.2.3 Phase III: Sub­Group Analysis

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

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

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

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

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

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

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

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

**assessment.**

13.2.3.1 Manufacturer Interviews

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

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

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

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

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

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

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

**13­3 standard**  **size equipment.**  **Based on**  **this decision,**  **DOE prepared**  **two different**  **interview guides** 

**–**

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13.2.3.2 Revised Industry Cash­Flow Analysis

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

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

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

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

**interviews.**

13.2.3.3 Manufacturer Sub­Group Analysis

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

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

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

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

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

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

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

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

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

13.2.3.4 Small­Business Manufacturer Subgroup

**DOE used**  **the small**  **business size**  **standards published**  **on March**  **11, 2008,**  **as amended,** 

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

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

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

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

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

**13­4 employ**  **a maximum**  **of 750**  **employees. Both**  **the standard**  **and non­standard**  **size PTAC**  **and**

**PTHP industries**  **are characterized**  **by a**  **small number**  **of domestic**  **manufacturers. However,** 

**consolidation has**  **reduced the**  **number of**  **parent companies**  **that manufacture**  **similar equipment** 

**under different**  **affiliates and**  **labels.**

**DOE surveyed**  **the Air­Conditioning,**  **Heating, and**  **Refrigeration Institute’s**  **(AHRI)**

Applied Directory of Certified Product Performance **(2008) and**  **created a**  **list of**  **every**

**manufacturer that**  **had certified**  **equipment ratings**  **in the**  **directory. DOE**  **also asked**  **stakeholders,**

**AHRI representatives,**  **and manufacturers**  **within the**  **standard and**  **non­standard PTAC**  **and PTHP** 

**industries if**  **they were**  **aware of**  **any other**  **small business**  **manufacturers. DOE**  **then looked**  **at**

**publicly available**  **data and**  **contacted manufacturers,**  **where needed,**  **to determine**  **if they**  **meet the** 

**SBA’s definition**  **of a**  **small business**  **manufacturing facility**  **and have**  **their manufacturing** 

**facilities located**  **within the**  **U.S.**

**DOE estimated**  **that there**  **are six**  **small business**  **manufacturers of**  **PTACs and**  **PTHPs.**

**These small**  **business manufacturers**  **can further**  **sub­categorized by**  **their manufacturing**  **scale: 1)** 

**one small**  **business competes**  **successfully making**  **standard size**  **PTACs and**  **PTHPs in**  **high**

**volumes; and**  **2) the**  **remaining five**  **small businesses**  **make PTACs**  **and PTHPs**  **at much**  **lower**

**volumes. While**  **three of**  **these five**  **low­volume small**  **businesses make**  **PTACs and**  **PTHPs that** 

**fit into**  **standard­size sleeves,**  **the customization**  **options offered**  **by these**  **manufacturers suggests** 

**that these**  **units have**  **more in**  **common with**  **the non­standard**  **equipment that**  **these manufacturers** 

**also offer**  **than with**  **high­volume standardized**  **PTACs and**  **PTHPs on**  **the market.**  **Of the**  **six**

**small business**  **identified, DOE**  **interviewed two**  **during the**  **NOPR MIA.**  **Both manufacturers** 

**agreed to**  **on­site interviews**  **to determine**  **if there**  **are differential**  **impacts on**  **these companies**  **that**

**may result**  **from the**  **standard.**

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

**large manufacturers**  **regarding energy**  **conservation standards.**  **However, through**  **its review**  **DOE**

**found that**  **there are**  **significant differences**  **in the**  **R&D emphasis**  **or marketing**  **strategies between** 

**small business**  **manufacturers and**  **large manufacturers.**  **Therefore, for**  **the equipment**  **classes**

**comprised primarily**  **of small**  **business manufacturers,**  **DOE further**  **investigated possible**  **impacts**

**to small**  **business using**  **the GRIM**  **analysis and**  **publicly available**  **market information.**  **Further**

**details of**  **the small**  **business analysis**  **can be**  **found in**  **section 13.9**  **of this**  **Chapter.**

13.2.3.5 Competitive Impact Assessment

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

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

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

**competition. To**  **assist the**  **Attorney General**  **in making**  **such a**  **determination, DOE**  **provided the** 

**U.S. Department**  **of Justice**  **(DOJ) with**  **copies of**  **the notice**  **of proposed**  **rule (NOPR)**  **and the** 

**accompanied TSD**  **for review.**  **In the**  **NOPR, DOE**  **made a**  **determined effort**  **to gather**  **and report** 

**firm­specific financial**  **information and**  **impacts. DOJ’s**  **competitive analysis**  **focused on** 

**assessing the**  **impacts on**  **smaller, yet**  **significant, manufacturers.**  **The assessment**  **was based**  **on**

**manufacturing cost**  **data and**  **on information**  **collected from**  **interviews with**  **manufacturers.**

**DOE’s manufacturer**  **interviews also**  **focused on**  **gathering information**  **that would**  **help in** 

**assessing asymmetrical**  **cost increases**  **to some**  **manufacturers, the**  **potential increase**  **in business** 

**13­5 risks**  **from an**  **increased proportion**  **of fixed**  **costs, and**  **potential barriers**  **to market**  **entry (e.g.,** 

**proprietary technologies).**  **DOJ’s comments**  **on the**  **NOPR and**  **DOE’s responses**  **are summarized** 

**in the**  **final rule**  **notice.**

13.2.3.6 Manufacturing Capacity Impact

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

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

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

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

**United States**  **and North**  **America with**  **and without**  **energy conservation**  **standards; the**  **ability of** 

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

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

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

13.2.3.7 Employment Impact

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

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

**affected, the**  **interview explored**  **current employment**  **trends in**  **the standard**  **and non­standard**  **size**

**PTAC and**  **PTHP industries.**  **In addition,**  **the interview**  **solicited manufacture**  **views on**  **changes**

**in employment**  **patterns that**  **may result**  **from amended**  **energy conservation**  **standards. The** 

**employment impacts**  **section of**  **the interview**  **guide focused**  **on current**  **employment levels** 

**associated with**  **manufacturers at**  **each of**  **their production**  **facilities, expected**  **future employment** 

**levels with**  **and without**  **amended energy**  **conservation standards,**  **and differences**  **in workforce** 

**skills and**  **issues related**  **to the**  **retraining of**  **employees.**

13.2.3.8 Cumulative Regulatory Burden

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

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

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

**specific regulatory**  **actions that**  **take effect**  **within three**  **years of**  **the effective**  **dates of**  **this**

**rulemaking.**

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

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

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

**and PTHP**  **manufacturers, and**  **other environmental**  **regulations. For**  **further discussion**  **on**

**cumulative regulatory**  **burden, see**  **section 13.9.9**  **of this**  **Chapter.**

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

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

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

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

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

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

**13­6 conservation**  **standards rulemaking**  **and that**  **would have**  **the most**  **significant impact**  **on the** 

**standard and**  **non­standard industries.**  **Manufacturers indicated**  **that, for**  **the most**  **part, the**  **risks**

**associated with**  **these issues**  **increase with**  **more stringent**  **TSLs. The**  **issues are**  **overall concerns** 

**that many**  **manufacturers expressed**  **and in**  **some cases,**  **are dependent**  **upon standard**  **and non** 

**standard size**  **equipment.**

13.3.1 R­410A

**According to**  **all manufacturers**  **interviewed, the**  **most concerning**  **issue facing**  **the PTAC** 

**and PTHP**  **industries is**  **the EPA**  **mandated phaseout**  **of HCFC­based**  **refrigerants that**  **are used**  **in**

**current PTAC**  **and PTHP**  **equipment. Every**  **manufacturer interviewed**  **stated that**  **it intends**  **to**

**switch from**  **the current**  **R­22 refrigerant**  **to R­410A**  **refrigerant in**  **the PTAC**  **and PTHP** 

**equipment, regardless**  **of equipment**  **class. All**  **manufacturers interviewed**  **expect to**  **be affected** 

**by the**  **refrigerant phaseout**  **for the**  **further discussed**  **reasons:**

• Availability of R­410A rotary compressors

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

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

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

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

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

**by some**  **manufacturers of**  **PTAC and**  **PTHP equipment**  **are or**  **will be**  **available in**  **R­410A**

**refrigerant compressor**  **versions. All**  **manufacturers noted**  **that the**  **small size**  **of the** 

**industries gives**  **them little**  **to no**  **leverage to**  **encourage compressor**  **manufacturers to** 

**develop R­410A**  **refrigerant compressors**  **for them.** 

• Compressor performance degradation **­ According to**  **all manufacturers**  **of both**  **standard**

**and non­standard**  **size PTAC**  **and PTHP**  **equipment, R­410A**  **refrigerant compressors** 

**currently on**  **the market**  **have at**  **least a**  **0.8 to**  **1.0 EER**  **compressor performance** 

**degradation relative**  **to the**  **R­22 refrigerant**  **compressors that**  **they are**  **intended to**  **replace.**

**The degradation**  **in compressor**  **performance can**  **be attributed**  **to several**  **factors including** 

**higher system**  **pressures, a**  **reduction in**  **displacement, increase**  **in complexity,**  **and use**  **of**

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

**even the**  **ASHRAE Standard**  **90.1­1999 efficiency**  **levels with**  **R­410A­based units.** 

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

**equipment manufacturing**  **costs to**  **increase with**  **the refrigerant**  **phaseout. According**  **to**

**manufacturers, compressors,**  **heat exchangers,**  **oils, and**  **other components**  **necessary for** 

**handling the**  **higher pressures**  **associated with**  **R­410A refrigeration**  **systems have**  **higher**

**costs than**  **comparable components**  **used in**  **R­22 refrigeration**  **systems. In**  **addition,**

**manufacturers are**  **concerned about**  **the anticipated**  **drop in**  **compressor efficiency,**  **which**

**would cause**  **them to**  **incorporate some**  **level of**  **redesign into**  **their R­410A**  **refrigerant**

**equipment to**  **help offset**  **this degradation**  **and would**  **further increase**  **manufacturing cost.** 

**All manufacturers**  **noted that**  **cost­recovery is**  **very difficult**  **in the**  **PTAC and**  **PTHP**

**industries due**  **to intense**  **price competition,**  **due to,**  **among other**  **factors, the**  **entry of** 

**foreign­based competitors.** 

**13­7**• Combination of regulations **­ All manufacturers**  **anticipate that**  **the combination**  **of the**  **R**

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

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

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

**market share,**  **consolidation, and/or**  **the departure**  **of marginal**  **manufacturers from**  **the**

**business.**

13.3.2 Equipment Classes Definitions

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

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

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

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

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

**90.1­1999 used**  **the existing**  **equipment classes,**  **which are**  **distinguished by**  **equipment type**  **(i.e.,**

**air conditioner**  **or heat**  **pump) and**  **cooling capacity,**  **and further**  **separated these**  **equipment classes** 

**by wall**  **sleeve dimensions.** 

**ASHRAE Standard**  **90.1­1999 refers**  **to wall**  **sleeve dimensions**  **in two**  **categories: “New** 

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

**Construction,” but**  **Table 6.21D,**  **footnote b**  **of ASHRAE**  **Standard 90.1­1999**  **states that** 

**replacement efficiencies**  **apply only**  **to units:**  **(1) “factory**  **labeled as**  **follows: Manufactured**  **for**

**Replacement Applications**  **Only; Not**  **to be**  **Installed in**  **New Construction**  **Projects”; and**  **(2)**

**“with existing**  **wall sleeves**  **less than**  **16 in.**  **high and**  **less than**  **42 in.**  **wide.” DOE**  **understands**

**that the**  **“New Construction”**  **category under**  **ASHRAE Standard**  **90.1­1999 is**  **residual, and** 

**covers all**  **other PTAC**  **and PTHPs.**  **Hence, this**  **category consists**  **of equipment**  **with wall**  **sleeve**

**dimensions greater**  **than or**  **equal to**  **16 inches**  **high and**  **greater than**  **or equal**  **to 42**  **inches wide,**  **or**

**lacking the**  **requisite label.** 

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

**Standard 90.1­1999**  **equipment class**  **definition (i.e.,**  **equipment with**  **wall sleeve**  **dimensions less** 

**than 16**  **inches high**  **and less**  **than 42**  **inches wide)**  **is adopted**  **by DOE,**  **a significant**  **portion of**  **the**

**equipment they**  **currently offer**  **will be**  **misclassified as**  **standard size**  **equipment. For**  **example, a** 

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

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

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

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

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

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

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

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

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

**increasing the**  **efficiency of**  **this type**  **of equipment.**  **Multiple manufacturers**  **estimated that**  **up to** 

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

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

**13­8**13.3.3 ENERGY STAR Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

**adoption rates.** 

13.3.4 Timing

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

**and PTHPs**  **(late 2008),**  **the EPA**  **mandated R­22**  **refrigerant phaseout**  **(Jan. 2010),**  **and the** 

**effective date**  **of the**  **DOE amended**  **energy conservation**  **standards rulemaking**  **(late 2012)**  **are a** 

**concern for**  **all manufacturers.**  **All manufacturers**  **stated that**  **each of**  **the programs**  **would require** 

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

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

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

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

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

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

**ultimately require**  **less testing**  **when efforts**  **are combined**  **than if**  **they were**  **run serially.** 

**However, most**  **manufacturers were**  **uncertain of**  **the magnitude**  **of the**  **benefit that**  **combining**

**multiple research**  **and development**  **tasks would**  **entail.**

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

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

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

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

**All manufacturers**  **noted the**  **intense price**  **competition in**  **the standard**  **and non­standard** 

**size PTAC**  **and PTHP**  **industries. Most**  **manufacturers worried**  **about the**  **efficiency levels**  **they**

**would be**  **able to**  **obtain with**  **available R­410A**  **rotary compressors.**  **Even if**  **PTAC and**  **PTHP**

**manufacturers were**  **able to**  **make high**  **efficiency R­410A**  **PTACs and**  **PTHPs, multiple** 

**13­9 manufacturers**  **doubted they**  **would be**  **able to**  **command a**  **price premium**  **unless rebates**  **usually**

**associated with**  **ENERGY STAR**  **programs lowered**  **acquisition costs**  **for customers.**  **Many of** 

**their customers**  **purchase PTACs**  **and PTHPs**  **for their**  **respective buildings**  **on fixed**  **budgets,**

**which will**  **remain unchanged**  **regardless of**  **the increasing**  **manufacturing costs**  **to accommodate** 

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

**manufacturers do**  **not anticipate**  **making high**  **efficiency R­410A**  **units.**

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

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

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

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

**uncertainty associated**  **with them,**  **making an**  **orderly industry**  **transition to**  **new PTACs/PTHPs** 

**more difficult.**  **All manufacturers**  **noted that**  **they cannot**  **plan and**  **execute their**  **respective**

**strategies with**  **a high**  **degree of**  **confidence as**  **long as**  **some component**  **equipment is**  **not**

**available and**  **amended energy**  **conservation standards**  **remain unknown.**  **By the**  **time energy** 

**conservation standards**  **become known**  **most manufacturers**  **are unlikely**  **to have**  **enough time**  **to**

**start and**  **finish their**  **research and**  **development before**  **the refrigerant**  **phaseout becomes**  **effective**

**causing manufacturers**  **to undertake**  **two separate**  **design efforts.** 

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

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

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

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

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

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

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

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

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

13.4 GRIM INPUTS AND ASSUMPTIONS

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

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

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

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

13.4.1 Overview of the GRIM

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

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

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

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

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

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

**cash flows**  **during this**  **period. 2** 

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

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

**changes in**  **INPV between**  **the adoption**  **of ASHRAE**  **Standard 90.1­1999**  **(the base**  **case scenario)** 

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

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

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

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

13.4.2 Sources GRIM Inputs

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

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

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

13.4.2.1 Corporate Annual Reports

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

**provided many**  **of the**  **financial inputs**  **to the**  **GRIM. 3**  **These reports**  **exist for**  **publicly held** 

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

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

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

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

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

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

**company’s market**  **share of**  **PTAC and**  **PTHP sales**  **to arrive**  **at industry­weighted**  **averages.**

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

**• Tax**  **rate,**

**• Working**  **capital,**

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

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

**• Depreciation,** 

**• Capital**  **expenditures, and** 

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

**13­11 DOE**  **also used**  **information from**  **company SEC**  **10­K reports**  **to calibrate**  **the GRIM’s** 

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

13.4.2.2 Standard and Poor Credit Ratings

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

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

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

13.4.2.3 Dun and Bradstreet Reports

**Dun and**  **Bradstreet (D&B)**  **provides independent**  **research regarding**  **company cash** 

**flows, revenues,**  **employees, and**  **credit­worthiness. Besides**  **conducting manufacturer**  **interviews,**

**DOE used**  **D&B reports**  **to profile**  **several manufacturers,**  **which had**  **the potential**  **to be**  **small**

**businesses.**

13.4.2.4 Shipment Model

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

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

**from AHRI.**  **Chapter 10**  **of the**  **TSD describes**  **the methodology**  **and analytical**  **model DOE**  **used**

**to forecast**  **shipments.**

13.4.2.5 Engineering Analysis

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

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

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

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

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

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

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

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

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

13.4.2.6 Manufacturer Interviews

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

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

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

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

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

**equipment.)**

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

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

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

**stranded assets.** 

**13­12 •**  **R­410A conversion.** 

**• Equipment**  **cost structure:** 

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

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

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

**equipment).**

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

**PTHPs.**

13.4.3 Financial Parameters

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

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

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

Table 13.4.1 GRIM Financial Parameters Based on 2002­2006 Weighted Company

Financial Data

Parameter IndustryWeighted

Average Manufacturer

A B C D E

Tax Rate

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

Working Capital

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

SG&A

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

R&D

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

Depreciation

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

Capital Expenditures

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

Net Property, Plant,

and Equipment

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

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

**These five**  **companies constitute**  **approximately 75**  **percent of**  **domestic PTAC**  **and PTHP** 

**sales. For**  **other companies**  **in the**  **industries, the**  **public data**  **is not**  **available or**  **the HVAC** 

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

**not used**  **for the**  **analysis. The**  **values used**  **in the**  **GRIM, therefore,**  **represent the**  **combined**

**standard and**  **non­standard industry**  **weighted average**  **estimated with**  **financial data**  **from five** 

**publicly traded**  **manufacturers weighted**  **by their**  **respective market**  **shares. During**  **manufacturer**

**interviews, manufacturers**  **stated that**  **the financial**  **parameters listed**  **in Table**  **13.4.1 would**  **not be** 

**significantly different**  **between standard**  **and non­standard**  **size PTAC**  **and PTHP**  **industries.**

**Therefore, for**  **the GRIM,**  **DOE assumed**  **all the**  **financial parameters**  **would be**  **the same**  **for both** 

**standard and**  **non­standard size**  **PTAC and**  **PTHP industries.** 

**13­13**13.4.4 Corporate Discount Rate

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

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

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

**in the**  **capital structure**  **of the**  **industry. 4**  **DOE estimated**  **the WACC**  **for the**  **standard and**  **non**

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

**following formula:** 

WACC

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

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

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

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

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

**return) is:** 

Cost of Equity

= Riskless Rate of Return + β x Risk Premium

**where:**

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

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

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

**rate.**

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

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

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

**market index.** 

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

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

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

Parameter IndustryWeighted

Average

(%) Manufacturer

A B C D E

(1) Average Beta

(2002

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

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

**­ ­**  **­ ­**  **­**

(3) Market Risk

Premium (1926­1999) **9.2**

**­ ­**  **­ ­**  **­**

Cost of Equity

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

**­ ­**  **­ ­**  **­**

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

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

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

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

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

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

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

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

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

**company’s ability**  **to service**  **its debt­financing**  **obligation through**  **its earnings.**  **5**

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

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

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

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

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

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

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

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

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

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

**presents the**  **derivation of**  **the cost**  **of debt.**  **Also shown**  **is the**  **capital structure**  **of the**  **industries,**

**i.e. the**  **debt ratio**  **(debt/total capital).** 

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

Parameter IndustryWeighted

Average

(%) Manufacturer

A B C D E

S&P Bond Rating

**­­ A**  **B+ BBB**  **CC A­** *

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

**­ ­**  **­ ­**  **­**

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

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

Net Cost of Debt

(2)x((1)­(3)) **6.5**

**­ ­**  **­ ­**  **­**

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

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

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

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

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

**percent.**

13.4.5 Trial Standard Levels

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

**representing comparable**  **stringency for**  **standard and**  **non­standard size**  **PTACs and**  **PTHPs**

**equipment classes.**  **Chapter 9**  **of the**  **TSD describes**  **the methodology**  **DOE used**  **to determine** 

**each TSL.**  **The EER**  **levels used**  **in the**  **GRIM are**  **presented in**  **Table 13.4.4.**  **The reference**  **case**

**or baseline**  **is the**  **ASHRAE Standard**  **90.1­1999 efficiency**  **levels for**  **each equipment**  **class.**

Table 13.4.4 Standard Size PTACs and PTHPs Baseline Efficiency Levels and TSLs

Equipment TSL

Class Efficiency Baseline (ASHRAE TSL TSL TSL TSL TSL TSL 6

(cooling Metric Standard 90.1­1999) 1 2 3 A 4 5 Maxcapacity) Tech

**Standard Size** 

**PTAC EER**  **10.6 10.9**  **10.9 11.1**  **11.1 10.9**  **11.3 11.5** 

**9,000 Btu/h** 

**Standard Size** 

**PTAC EER**  **9.9 10.2**  **10.2 10.4**  **10.2 10.2**  **10.6 10.8** 

**12,000 Btu/h** 

**Standard Size** 

**PTHP**

**9,000 Btu/h**  **EER**

**COP 10.4** 

**3.0 10.9** 

**3.1 11.1** 

**3.2 11.1** 

**3.2 11.3** 

**3.3 11.3** 

**3.3 11.3** 

**3.3 11.5** 

**3.3**

**Standard Size** 

**PTHP**

**12,000 Btu/h**  **EER**

**COP 9.7** 

**2.9 10.2** 

**3.0 10.4** 

**3.1 10.4** 

**3.1 10.4** 

**3.1 10.6** 

**3.1 10.6** 

**3.1 10.8** 

**3.1**

**13­16**Table 13.4.5 Non­Standard Size PTACs and PTHPs Baseline Efficiency Levels and TSLs

Equipment Class Efficiency Baseline (ASHRAE TSL TSL TSL TSL TSL

(cooling capacity) Metric Standard 90.1­1999) 1 2 3 4 5

**Non­Standard Size**  **PTAC**

**11,000 Btu/h**  **EER 8.6**  **9.4 9.4**  **9.7 9.4**  **10.0**

**Non­Standard PTHP**  **EER 8.5**  **9.4 9.7**  **9.7 10.0**  **10.0**

**11,000 Btu/h**  **COP 2.6**  **2.8 2.8**  **2.8 2.9**  **2.9**

13.4.6 NES­Shipments Forecast

**The GRIM**  **estimates manufacturer**  **revenues based**  **on total­unit­shipment**  **forecasts and** 

**the distribution**  **of these**  **values by**  **EER. Changes**  **in the**  **efficiency mix**  **at each**  **standard level**  **are**

**a key**  **driver of**  **manufacturer finances.**  **For this**  **analysis, the**  **GRIM used**  **the national**  **energy**

**savings (NES)**  **shipments forecasts**  **for both**  **standard size**  **and non­standard**  **size PTACs**  **and**

**PTHPs from**  **2007 to**  **2042. The**  **total shipments**  **forecasted by**  **the NES**  **in the**  **base case**  **for each** 

**equipment class**  **were distributed**  **to the**  **closest representative**  **cooling capacity.**  **For example,**  **the**

**total PTAC**  **or PTHP**  **shipments with**  **a cooling**  **capacity less**  **than 10,000**  **Btu/h for**  **standard size** 

**equipment are**  **represented by**  **the 9,000**  **Btu/h representative**  **cooling capacity.**  **Further**

**explanation of**  **assumptions and**  **calculations of**  **total shipments**  **can be**  **found in**  **the shipment** 

**analysis section**  **of this**  **TSD (Chapter**  **9). Total**  **shipments forecasted**  **in the**  **shipment analysis**  **for**

**all efficiency**  **levels in**  **2012 are**  **shown in**  **Table 13.4.6**  **and are**  **further detailed**  **below.**

Table 13.4.6 Total NES­Shipments Forecast in 2012

Equipment Class (cooling capacities) Total Industry Shipments*

**Standard Size**  **PTACs (9,000**  **Btu/h) 109,600** 

**Standard Size**  **PTHPs (9,000**  **Btu/h) 85,700** 

**Standard Size**  **PTACs (12,000**  **Btu/h) 161,300** 

**Standard Size**  **PTHPs (12,000**  **Btu/h) 116,800** 

**Non­Standard Size**  **PTACs (11,000**  **Btu/h) 17,100** 

**Non­Standard Size**  **PTHPs (11,000**  **Btu/h) 12,900** 

***** **Estimates rounded**  **to the**  **nearest hundred** 

**As part**  **of the**  **shipment analysis,**  **DOE estimated**  **the shipment**  **distribution for**  **PTACs**

**and PTHPs**  **by efficiency.**  **Table 13.4.7**  **through Table**  **13.4.12 show**  **the distributions**  **of**

**shipments by**  **TSL estimated**  **in the**  **NES for**  **various equipment**  **classes for**  **2012.**

Table 13.4.7 Base Case Distribution of Efficiencies for Standard Size PTAC Shipments

with a Cooling Capacity of 9,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

10.6 TSL 1, 2, 4

10.9 TSL 3, A

11.1 TSL 5

11.3 TSL 6

11.5

Baseline

10.6 **22.6% 21.0%**  **19.9% 18.8%**  **17.7%**

**13­17**Table 13.4.8 Base Case Distribution of Efficiencies for Standard Size PTHP Shipments

with a Cooling Capacity of 9,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

10.4 TSL 1

10.9 TSL 2, 3

11.1 TSL A, 4, 5

11.3 TSL 6

11.5

Baseline

10.4 **22.5% 20.5%**  **19.8% 19.1%**  **18.1%**

Table 13.4.9 Base Case Distribution of Efficiencies for Standard Size PTAC Shipments

with a Cooling Capacity of 12,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

9.9 TSL 1, 2,

A, 4

10.2 TSL 3

10.4 TSL 5

10.6 TSL 6

10.8

Baseline

9.9 **22.8% 21.1%**  **19.9% 18.7%**  **17.5%**

Table 13.4.10 Base Case Distribution of Efficiencies for Standard Size PTHP Shipments

with a Cooling Capacity of 12,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

9.7 TSL 1

10.2 TSL 2, 3, A

10.4 TSL 4, 5

10.6 TSL 6

10.8

Baseline

9.7 **22.8% 20.7%**  **19.9% 18.8%**  **17.8%**

Table 13.4.11 Base Case Distribution of Efficiencies for Non­Standard Size PTAC

Shipments with a Cooling Capacity of 11,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

8.6 TSL 1, 2, 4

9.4 TSL 3

9.7 TSL 5

10.0

Baseline

8.6 **27.4% 25.4%**  **24.3% 22.9%** 

Table 13.4.12 Base Case Distribution of Efficiencies for Non­Standard Size PTHP

Shipments with a Cooling Capacity of 11,000 Btu/h in 2012 Estimated in the NES

Shipments

Efficiency

Level (EER) Baseline

8.5 TSL 1

9.4 TSL 2, 3

9.7 TSL 4, 5

10.0

Baseline

8.5 **27.4% 25.4%**  **24.3% 22.9%** 

13.4.7 Standards Case

**To exam**  **the effects**  **of amended**  **energy conservation**  **standards on**  **shipments, which** 

**affects the**  **INPV, DOE**  **utilized the**  **NES­shipment forecast**  **base case**  **shipments described**  **in**

**section 13.4.6**  **as the**  **base case**  **shipments. In**  **other words,**  **in the**  **absence of**  **amended energy** 

**conservation standards,**  **the base**  **case shipments**  **are assumed**  **to be**  **the NES­shipment**  **forecast**

**base case**  **shipments.**

**13­18 For**  **the standards**  **case utilizing**  **the NES­shipment**  **forecast base**  **case shipments,**  **DOE**

**assumed shipments**  **at lower**  **efficiencies were**  **most likely**  **to roll**  **up into**  **higher efficiency**  **levels**

**in response**  **to an**  **increase in**  **energy conservation**  **standards. This**  **is a**  **pessimistic scenario**  **that**

**assumes that**  **demand for**  **high efficiency**  **equipment is**  **a function**  **of its**  **price without**  **regards for** 

**the standard**  **level. Table**  **13.4.13 through**  **Table 13.4.18**  **show the**  **distributions of**  **efficiencies for** 

**the various**  **equipment classes**  **in 2012**  **using an**  **NES­shipment forecast**  **base case**  **under the**  **roll**

**up scenario.** 

Table 13.4.13 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

10.6 TSL 1, 2, 4

10.9 TSL 3, A

11.1 TSL 5

11.3 TSL 6

11.5

Baseline

10.6 **22.6% 21.0%**  **19.9% 18.8%**  **17.7%**

TSL 1, 2, 4

10.9 **­ 43.6%**  **19.9% 18.8%**  **17.7%**

TSL 3, A

11.1 **­ ­**  **63.5% 18.8%**  **17.7%**

TSL 5

11.3 **­ ­**  **­ 82.3%**  **17.7%**

TSL 6

11.5 **­ ­**  **­ ­**  **100%**

Table 13.4.14 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

10.4 TSL 1

10.9 TSL 2, 3

11.1 TSL A, 4, 5

11.3 TSL 6

11.5

Baseline

10.4 **22.5% 20.5%**  **19.8% 19.1%**  **18.1%**

TSL 1

10.9 **­ 43.0%**  **19.8% 19.1%**  **18.1%**

TSL 2, 3

11.1 **­ ­**  **62.8% 19.1%**  **18.1%**

TSL A, 4, 5

11.3 **­ ­**  **­ 81.9%**  **18.1%**

TSL 6

11.5 **­ ­**  **­ ­**  **100%**

**13­19**Table 13.4.15 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

9.9 TSL 1, 2, 4,

A

10.2 TSL 3

10.4 TSL 5

10.6 TSL 6

10.8

Baseline

9.9 **22.8% 21.1%**  **19.9% 18.7%**  **17.5%**

TSL 1, 2, 4, A

10.2 **­ 43.9%**  **19.9% 18.7%**  **17.5%**

TSL 3

10.4 **­ ­**  **63.8% 18.7%**  **17.5%**

TSL 5

10.6 **­ ­**  **­ 82.5.5%**  **17.5%**

TSL 6

10.8 **­ ­**  **­ ­**  **100%**

Table 13.4.16 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

9.7 TSL 1

10.2 TSL 2, 3, A

10.4 TSL 4, 5

10.6 TSL 6

10.8

Baseline

9.7 **22.8% 20.7%**  **19.9% 18.8%**  **17.8%**

TSL 1

10.2 **­ 43.5%**  **19.9% 18.8%**  **17.8%**

TSL 2, 3, A

10.4 **­ ­**  **63.4% 18.8%**  **17.8%**

TSL 4, 5

10.6 **­ ­**  **­ 82.2%**  **17.8%**

TSL 6

10.8 **­ ­**  **­ ­**  **100%**

Table 13.4.17 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

8.6 TSL 1, 2, 4

9.4 TSL 3

9.7 TSL 5

10.0

Baseline

8.6 **27.4% 25.4%**  **24.3% 22.9%** 

TSL 1, 2, 4

9.4 **­ 52.9%**  **24.3% 22.9%** 

TSL 3

9.7 **­ ­**  **77.1% 22.9%** 

TSL 5

10.0 **­ ­**  **­ 100%** 

**13­20**Table 13.4.18 Distribution of Shipments in the Standards Case using an R­410A Base Case

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

– Rollup Scenario

TSL

(EER) Baseline

8.5 TSL 1

9.4 TSL 2, 3

9.7 TSL 4, 5

10.0

Baseline

8.5 **27.4% 25.4%**  **24.3% 22.9%** 

TSL 1

9.4 **­ 52.9%**  **24.3% 22.9%** 

TSL 2, 3

9.7 **­ ­**  **77.1% 22.9%** 

TSL 4, 5

10.0 **­ ­**  **­ 100%** 

13.4.8 Production Costs

**Changes in**  **equipment costs**  **impact revenues**  **and gross**  **profits. As**  **shown in**  **the**

**engineering analysis**  **(Chapter 5),**  **equipment that**  **is more**  **efficient costs**  **more to**  **produce than** 

**baseline equipment**  **for a**  **given capacity.**  **For the**  **MIA, DOE**  **used the**  **production costs**  **derived in** 

**the engineering**  **analysis, with**  **appropriate production**  **volume assumptions.**  **For instance,**  **more**

**efficient equipment**  **sold under**  **existing energy**  **conservation standards**  **are manufactured**  **at lower** 

**production volumes**  **than standard**  **efficiency equipment.**  **Enacting more**  **stringent energy** 

**conservation standards**  **will increase**  **production volumes**  **for more**  **efficient units.** 

**The GRIM**  **included the**  **proportion of**  **costs devoted**  **to labor,**  **materials, freight,** 

**depreciation, and**  **non­depreciation overhead**  **that make**  **up the**  **full cost**  **of the**  **equipment. Using** 

**the same**  **industry calibrated**  **reverse engineering**  **methodology as**  **in the**  **engineering analysis,** 

**DOE estimated**  **the proportion**  **of costs**  **associated with**  **each cost**  **category. Table**  **13.4.19**

**through Table**  **13.4.24 provide**  **the production**  **cost assumptions**  **used in**  **the GRIM**  **for R­22** 

**standard and**  **non­standard size**  **PTAC and**  **PTHP equipment**  **as detailed**  **in the**  **engineering**

**analysis.**

Table 13.4.19 Base Case Production Costs (2007$) used in the GRIM for R­22 Standard

Size PTAC 9,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (10.6)**  **$13.94 $285.69**  **$37.79 $337.42** 

**TSL 1**  **(10.9) $14.16**  **$290.29 $38.40**  **$342.84**

**TSL 2**  **(10.9) $14.16**  **$290.29 $38.40**  **$342.84**

**TSL 3**  **(11.1) $14.32**  **$293.61 $38.84**  **$346.77**

**TSL A**  **(11.1) $14.32**  **$293.61 $38.84**  **$346.77**

**TSL 4**  **(10.9) $14.16**  **$290.29 $38.40**  **$342.84**

**TSL 5**  **(11.3) $14.49**  **$297.15 $39.31**  **$350.95**

**TSL 6**  **(11.5) $14.68**  **$300.90 $39.80**  **$355.38**

***Includes Shipping**  **and Depreciation** 

**13­21**Table 13.4.20 Base Case Production Costs (2007$) used in the GRIM for R­22 Standard

Size PTHP 9,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (10.4)**  **$15.86 $325.23**  **$43.02 $384.12** 

**TSL 1**  **(10.9) $16.22**  **$332.62 $44.00**  **$392.84**

**TSL 2**  **(11.1) $16.39**  **$335.95 $44.44**  **$396.77**

**TSL 3**  **(11.1) $16.39**  **$335.95 $44.44**  **$396.77**

**TSL A**  **(11.3) $16.56**  **$339.48 $44.91**  **$400.95**

**TSL 4**  **(11.3) $16.56**  **$339.48 $44.91**  **$400.95**

**TSL 5**  **(11.3) $16.56**  **$339.48 $44.91**  **$400.95**

**TSL 6**  **(11.5) $16.74**  **$343.23 $45.40**  **$405.38**

***Includes Shipping**  **and Depreciation** 

Table 13.4.21 Base Case Production Costs (2007$) used in the GRIM for R­22 Standard

Size PTAC 12,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (9.9)**  **$15.89 $325.86**  **$43.10 $384.86** 

**TSL 1**  **(10.2) $16.16**  **$331.35 $43.83**  **$391.35**

**TSL 2**  **(10.2) $16.16**  **$331.35 $43.83**  **$391.35**

**TSL 3**  **(10.4) $16.36**  **$335.49 $44.38**  **$396.23**

**TSL A**  **(10.2) $16.16**  **$331.35 $43.83**  **$391.35**

**TSL 4**  **(10.2) $16.16**  **$331.35 $43.83**  **$391.35**

**TSL 5**  **(10.6) $16.58**  **$340.00 $44.97**  **$401.56**

**TSL 6**  **(10.8) $16.82**  **$344.88 $45.62**  **$407.33**

***Includes Shipping**  **and Depreciation** 

Table 13.4.22 Base Case Production Costs (2007$) used in the GRIM for R­22 Standard

Size PTHP 12,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (9.7)**  **$17.80 $365.00**  **$48.28 $431.09** 

**TSL 1**  **(10.2) $18.23**  **$373.69 $49.43**  **$441.35**

**TSL 2**  **(10.4) $18.43**  **$377.82 $49.98**  **$446.23**

**TSL 3**  **(10.4) $18.43**  **$377.82 $49.98**  **$446.23**

**TSL A**  **(10.4) $18.43**  **$377.82 $49.98**  **$446.23**

**TSL 4**  **(10.6) $18.65**  **$382.33 $50.57**  **$451.56**

**TSL 5**  **(10.6) $18.65**  **$382.33 $50.57**  **$451.56**

**TSL 6**  **(10.8) $18.89**  **$387.22 $51.22**  **$457.33**

***Includes Shipping**  **and Depreciation** 

**13­22**Table 13.4.23 Base Case Production Costs (2007$) used in the GRIM for R­22 NonStandard Size PTAC 11,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (8.6)**  **$54.42 $299.82**  **$104.98 $459.21** 

**TSL 1**  **(9.4) $55.22**  **$304.23 $106.52**  **$465.97**

**TSL 2**  **(9.4) $55.22**  **$304.23 $106.52**  **$465.97**

**TSL 3**  **(9.7) $55.74**  **$307.12 $107.53**  **$470.39**

**TSL 4**  **(9.4) $55.22**  **$304.23 $106.52**  **$465.97**

**TSL 5**  **(10.0) $56.39**  **$310.68 $108.78**  **$475.84**

***Includes Shipping**  **and Depreciation** 

Table 13.4.24 Base Case Production Costs (2007$) used in the GRIM for R­22 NonStandard Size PTHP 11,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (8.5)**  **$60.30 $332.25**  **$116.33 $508.88** 

**TSL 1**  **(9.4) $61.14**  **$336.88 $117.95**  **$515.97**

**TSL 2**  **(9.7) $61.67**  **$339.77 $118.96**  **$520.39**

**TSL 3**  **(9.7) $61.67**  **$339.77 $118.96**  **$520.39**

**TSL 4**  **(10.0) $62.31**  **$343.32 $120.21**  **$525.84**

**TSL 5**  **(10.0) $62.31**  **$343.32 $120.21**  **$525.84**

***Includes Shipping**  **and Depreciation** 

**DOE assumed**  **that in**  **2010, manufacturers**  **would sell**  **PTACs and**  **PTHPs priced**  **as R** 

**410A equipment.**  **Therefore, for**  **2010 and**  **beyond, DOE**  **used the**  **production costs**  **derived in**  **the**

**engineering analysis**  **for R­410A**  **equipment.**

**Table 13.4.25**  **through Table**  **13.4.30 provide**  **the production**  **cost assumptions**  **used in**  **the**

**GRIM for**  **R­410A standard**  **and non­standard**  **size PTAC**  **and PTHP**  **equipment as**  **detailed in**  **the**

**engineering analysis**  **(Chapter 5**  **of the**  **TSD).**

Table 13.4.25 Base Case Production Costs (2007$) used in the GRIM for R­410A Standard

Size PTAC 9,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (10.6)**  **$16.32 $334.59**  **$44.26 $395.17** 

**TSL 1**  **(10.9) $16.64**  **$341.21 $45.14**  **$402.99**

**TSL 2**  **(10.9) $16.64**  **$341.21 $45.14**  **$402.99**

**TSL 3**  **(11.1) $16.87**  **$345.94 $45.76**  **$408.57**

**TSL A**  **(11.1) $16.87**  **$345.94 $45.76**  **$408.57**

**TSL 4**  **(10.9) $16.64**  **$341.21 $45.14**  **$402.99**

**TSL 5**  **(11.3) $17.12**  **$350.90 $46.42**  **$414.43**

**TSL 6**  **(11.5) $17.37**  **$356.11 $47.11**  **$420.59**

***Includes Shipping**  **and Depreciation** 

**13­23**Table 13.4.26 Base Case Production Costs (2007$) used in the GRIM for R­410A Standard

Size PTHP 9,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (10.4)**  **$18.18 $372.81**  **$49.31 $440.31** 

**TSL 1**  **(10.9) $18.71**  **$383.55 $50.74**  **$452.99**

**TSL 2**  **(11.1) $18.94**  **$388.27 $51.36**  **$458.57**

**TSL 3**  **(11.1) $18.94**  **$388.27 $51.36**  **$458.57**

**TSL A**  **(11.3) $19.18**  **$393.24 $52.02**  **$464.43**

**TSL 4**  **(11.3) $19.18**  **$393.24 $52.02**  **$464.43**

**TSL 5**  **(11.3) $19.18**  **$393.24 $52.02**  **$464.43**

**TSL 6**  **(11.5) $19.44**  **$398.45 $52.71**  **$470.59**

***Includes Shipping**  **and Depreciation** 

Table 13.4.27 Base Case Production Costs (2007$) used in the GRIM for R­410A Standard

Size PTAC 12,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (9.9)**  **$19.50 $399.72**  **$52.87 $472.09** 

**TSL 1**  **(10.2) $19.90**  **$408.05 $53.98**  **$481.93**

**TSL 2**  **(10.2) $19.90**  **$408.05 $53.98**  **$481.93**

**TSL 3**  **(10.4) $20.20**  **$414.12 $54.78**  **$489.10**

**TSL A**  **(10.2) $19.90**  **$408.05 $53.98**  **$481.93**

**TSL 4**  **(10.2) $19.90**  **$408.05 $53.98**  **$481.93**

**TSL 5**  **(10.6) $20.52**  **$420.60 $55.64**  **$496.75**

**TSL 6**  **(10.8) $20.85**  **$427.48 $56.55**  **$504.87**

***Includes Shipping**  **and Depreciation** 

Table 13.4.28 Base Case Production Costs (2007$) used in the GRIM for R­410A Standard

Size PTHP 12,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (9.7)**  **$21.32 $437.00**  **$57.81 $516.13** 

**TSL 1**  **(10.2) $21.97**  **$450.39 $59.58**  **$531.93**

**TSL 2**  **(10.4) $22.26**  **$456.46 $60.38**  **$539.10**

**TSL 3**  **(10.4) $22.26**  **$456.46 $60.38**  **$539.10**

**TSL A**  **(10.4) $22.26**  **$456.46 $60.38**  **$539.10**

**TSL 4**  **(10.6) $22.58**  **$462.93 $61.24**  **$546.75**

**TSL 5**  **(10.6) $22.58**  **$462.93 $61.24**  **$546.75**

**TSL 6**  **(10.8) $22.92**  **$469.81 $62.15**  **$554.87**

***Includes Shipping**  **and Depreciation** 

**13­24**Table 13.4.29 Base Case Production Costs (2007$) used in the GRIM for R­410A NonStandard Size PTAC 11,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (8.6)**  **$62.38 $343.69**  **$120.34 $526.40** 

**TSL 1**  **(9.4) $64.04**  **$352.81 $123.53**  **$540.38**

**TSL 2**  **(9.4) $64.04**  **$352.81 $123.53**  **$540.38**

**TSL 3**  **(9.7) $64.91**  **$357.63 $125.22**  **$547.75**

**TSL 4**  **(9.4) $64.04**  **$352.81 $123.53**  **$540.38**

**TSL 5**  **(10.0) $65.92**  **$363.20 $127.17**  **$556.29**

***Includes Shipping**  **and Depreciation** 

Table 13.4.30 Base Case Production Costs (2007$) used in the GRIM for R­410A NonStandard Size PTHP 11,000 Btu/h Cooling Capacity

TSL

(EER) Labor Material Overhead* MPC

**Baseline (8.5)**  **$68.17 $375.57**  **$131.50 $575.24** 

**TSL 1**  **(9.4) $69.96**  **$385.46 $134.96**  **$590.38**

**TSL 2**  **(9.7) $70.83**  **$390.27 $136.65**  **$597.75**

**TSL 3**  **(9.7) $70.83**  **$390.27 $136.65**  **$597.75**

**TSL 4**  **(10.0) $71.85**  **$395.85 $138.60**  **$606.29**

**TSL 5**  **(10.0) $71.85**  **$395.85 $138.60**  **$606.29**

***Includes Shipping**  **and Depreciation** 

13.4.9 Conversion Costs

**Amended energy**  **conservation standards**  **typically cause**  **manufacturers to**  **incur one­time** 

**conversion costs**  **to bring**  **their production**  **facilities and**  **equipment designs**  **into compliance**  **with**

**the new**  **regulation. For**  **the purpose**  **of the**  **MIA, DOE**  **classified these**  **one­time conversion**  **costs**

**into two**  **major groups:**  **conversion capital**  **expenditures and**  **equipment conversion**  **expenses.**

**Conversion capital**  **expenditures are**  **one­time investments**  **in property,**  **plant, and**  **equipment to** 

**adapt or**  **change existing**  **production facilities**  **so that**  **new equipment**  **designs can**  **be fabricated** 

**and assembled**  **under the**  **new regulation.**  **Equipment conversion**  **expenses are**  **one­time**

**investments in**  **research, development,**  **testing, and**  **marketing focused**  **on making**  **equipment**

**designs comply**  **with amended**  **energy conservation**  **standards. As**  **part of**  **the analysis,**  **DOE also** 

**assumed manufacturers**  **will have**  **additional conversion**  **costs to**  **manufacture R­410A**  **equipment.**

**The following**  **sections describe**  **in more**  **detail DOE’s**  **assumptions and**  **inputs to**  **the GRIM** 

**related to**  **amended energy**  **conservation standards**  **and refrigerant**  **phaseout conversion**  **costs.**

13.4.9.1 Conversion Capital Expenditures

**DOE evaluated**  **the level**  **of capital**  **investment needed**  **to comply**  **with both**  **the impending** 

**refrigerant phaseout**  **and the**  **amended conservation**  **standards at**  **each TSL.**  **The time**  **required to** 

**fabricate and**  **assemble the**  **equipment can**  **potentially increase**  **as efficiency**  **increases.**

13.4.9.2 R­410A Conversion

**Currently, the**  **PTAC and**  **PTHP industries**  **are standardized**  **around the**  **use of**  **R­22**

**refrigerant in**  **all its**  **equipment. All**  **manufacturers expressed**  **the intent**  **to transition**  **to R­410A** 

**once the**  **use of**  **R­22 is**  **prohibited in**  **2010. The**  **total investments**  **required for**  **this PTAC**  **and**

**13­25 PTHP**  **rulemaking include**  **components that**  **are difficult**  **to disaggregate.**  **These required** 

**investments are**  **the biggest**  **external burden**  **on manufacturers**  **of PTAC**  **and PTHP**  **equipment**

**since the**  **conversion to**  **R­410A refrigerants**  **will impact**  **every PTAC**  **and PTHP**  **manufacturers**

**produce. To**  **quantify the**  **magnitude of**  **investments needed**  **to comply**  **with the**  **refrigerant**

**phaseout, DOE**  **first examined**  **what would**  **be required**  **to convert**  **equipment from**  **R­22**

**refrigerant to**  **R­410A refrigerant.**  **The level**  **of investment**  **needed is**  **a trade**  **off between**  **higher**

**fixed costs**  **(investments) and**  **higher variable**  **(equipment) costs.** 

**For most**  **units using**  **R­22 refrigerants**  **it is**  **possible to**  **convert to**  **R­410A refrigerants**  **by**

**performing a**  **“drop­in” conversion.**  **At minimum,**  **manufacturers would**  **have to**  **replace the**  **R­22**

**compressor with**  **a comparable**  **R­410A compressor,**  **change the**  **refrigerant, ensure**  **that the**  **sealed**

**system can**  **withstand the**  **higher system**  **pressures, and**  **change some**  **other sealed**  **system**

**components such**  **as expansion**  **valves and**  **lubricating oils.**  **Alternatively, manufacturers**  **could**

**elect to**  **perform a**  **complete equipment**  **redesign that**  **takes advantage**  **of R­410A**  **properties and** 

**available R­410A**  **components to**  **optimize their**  **units for**  **alternative refrigerant**  **operation. In** 

**order for**  **PTAC and**  **PTHP manufacturers**  **to convert**  **all of**  **the existing**  **equipment to**  **R­410A,**

**manufacturers would**  **redesign, re­certify,**  **and test**  **their existing**  **equipment, alter**  **the production** 

**process, and**  **conduct some**  **level of**  **re­tooling. Several**  **manufacturers stated**  **during the** 

**manufacturer interviews**  **that they**  **would need**  **to extend**  **their knowledge**  **base of**  **R­410A**

**commercial systems**  **and utilize**  **engineering resources**  **from other**  **areas within**  **their company** 

**before carrying**  **out complete**  **redesigns. In**  **addition, manufacturing**  **facilities will**  **need to**  **be**

**retooled and/or**  **expanded to**  **include the**  **necessary infrastructure.** 

**All manufacturers**  **anticipate testing**  **their existing**  **equipment with**  **R­410A refrigerants** 

**and compressors.**  **Should their**  **equipment still**  **meet baseline**  **minimum energy**  **conservation**

**standards, capital**  **expenditures at**  **minimum will**  **be largely**  **limited to**  **evacuation and**  **refrigerant**

**filling machines,**  **which may**  **require modification**  **or replacement**  **in order**  **to accommodate**  **R**

**410A refrigerant**  **adoption. Manufacturers**  **may also**  **recircuit their**  **coils to**  **optimize the**  **units for** 

**R­410A, but**  **this will**  **not result**  **in a**  **significant capital**  **expense.**

**Equipment that**  **does not**  **meet baseline**  **energy conservation**  **standards with**  **a simple** 

**compressor “drop­in,”**  **will require**  **redesigns that**  **are more**  **extensive. Such**  **redesigns could** 

**result in**  **coil changes**  **that may**  **require a**  **manufacturer to**  **invest in**  **new heat**  **exchanger tooling,** 

**heat exchanger**  **line expansions**  **(to accommodate**  **larger heat**  **exchangers), and/or**  **fixed tooling** 

**investments (to**  **accommodate bulkhead**  **redesigns, for**  **example). Few**  **manufacturers have**  **even**

**started their**  **R­410A conversion**  **efforts, making**  **capital expenditure**  **estimates (and**  **their timing)** 

**difficult to**  **predict.**

**Presently, DOE**  **anticipates a**  **minimum system**  **performance degradation**  **of six**  **to eight** 

**percent due**  **to R­410A**  **conversion, and**  **industry capital**  **expenditures are**  **being estimated**  **on the** 

**basis of**  **market share**  **and current**  **equipment EER**  **ratings. That**  **is, manufacturers**  **whose**

**equipment is**  **not expected**  **to meet**  **minimum energy**  **conservation standards**  **due to**  **the R­410A** 

**conversion are**  **expected to**  **incur capital**  **expenditures in**  **excess of**  **the simple**  **line modifications** 

**outlined above**  **before the**  **R­22 refrigerant**  **phaseout in**  **2010.**

**For the**  **GRIM, DOE**  **estimated the**  **capital expenditures**  **on the**  **basis of**  **statements made** 

**by manufacturers**  **during interviews.**  **Based on**  **these interviews,**  **the entire**  **standard size**  **PTAC**

**13­26 and**  **PTHP industry**  **is estimated**  **to incur**  **a one­time**  **capital expenditure**  **of $7.2**  **million for**  **the**

**conversion of**  **its units**  **from R­22**  **to R­410A.**  **For the**  **non­standard size**  **PTAC and**  **PTHP**

**industry, DOE**  **estimated that**  **the entire**  **industry would**  **incur a**  **one­time conversion**  **capital**

**expenditure of**  **$0.6 million**  **for the**  **conversion of**  **its units**  **from R­22**  **to R­410A.** 

13.4.9.3 Energy Conservation Standards

**For each**  **TSL, DOE**  **estimated the**  **conversion capital**  **expenditures necessary**  **to redesign** 

**equipment to**  **meet the**  **amended energy**  **conservation standards.**  **DOE assumed**  **for each**  **TSL that** 

**a proportion**  **of the**  **equipment on**  **the market**  **will have**  **to be**  **redesigned. The**  **higher the** 

**efficiency of**  **the equipment**  **at each**  **TSL, the**  **greater the**  **proportion of**  **the equipment**  **on the** 

**market that**  **will require**  **a redesign**  **and possible**  **capital expenditures.**  **DOE first**  **estimated capital** 

**conversion expenditures**  **for manufacturers**  **to redesign**  **and retool**  **to meet**  **the highest**  **efficiency**

**level on**  **the market.**  **DOE then**  **lowered the**  **capital conversion**  **expenditures at**  **each TSL**  **by the** 

**proportion of**  **the industry**  **that did**  **not meet**  **that TSL**  **because it**  **assumed the**  **equipment would** 

**not be**  **as greatly**  **redesigned and**  **would not**  **require as**  **substantial changes**  **to its**  **existing**

**manufacturing equipment.** 

**Multiple manufacturers**  **noted fierce**  **price competition**  **in the**  **both industries,**  **which**

**encourages them**  **to only**  **introduce more**  **efficient units**  **as higher**  **energy conservation**  **standards**

**become effective.**  **Thus, DOE**  **projects that**  **the capital**  **expenditures required**  **to meet**  **amended**

**energy conservation**  **standards will**  **occur principally**  **in the**  **year before**  **the amended**  **energy**

**conservation standards**  **become effective.** 

**Table 13.4.31**  **and Table**  **13.4.32 summarizes**  **the breakdown**  **of conversion**  **capital**

**expenditure by**  **TSL for**  **the standard**  **and non­standard**  **size PTAC**  **and PTHP**  **industries. The** 

**expenditures listed**  **in these**  **two tables**  **do not**  **track the**  **TSLs linearly,**  **since some**  **TSLs represent** 

**combinations of**  **different efficiency**  **levels for**  **PTACs and**  **PTHPs.**

**13­27**Table 13.4.31 Conversion Capital Expenditure for Standard Size PTACs and PTHPs by

TSL

Trial

Standard

Level Efficiency Level at

9kBTU/h Efficiency Level at

12kBTU/h Standard Size Equipment

Industry

Conversion Capital

Expenditure (2007$ million)

(TSL) PTAC

(EER) PTHP

(EER) PTAC

(EER) PTHP

(EER) PTAC PTHP Industry

Total

Baseline **10.6 10.4**  **9.9 9.7**  **0.0 0.0**  **0.0**

TSL 1 **10.9 10.9**  **10.2 10.2**  **1.7 1.7**  **3.5**

TSL 2 **10.9 11.1**  **10.2 10.4**  **0.9 4.9**  **5.7**

TSL 3 **11.1 11.1**  **10.4 10.4**  **2.4 2.4**  **4.9**

TSL A **11.1 11.3**  **10.2 10.4**  **2.6 5.6**  **8.2**

TSL 4 **10.9 11.3**  **10.2 10.6**  **2.6 5.6**  **8.2**

TSL 5 **11.3 11.3**  **10.6 10.6**  **2.8 2.8**  **5.6**

TSL 6 **11.5 11.5**  **10.8 10.8**  **5.2 5.2**  **10.4**

Table 13.4.32 Conversion Capital Expenditure for Non­Standard PTACs and PTHPs by

TSL

Trial Standard

Level (TSL) Efficiency Level at

11kBTU/h Non­Standard Size Equipment Industry

Conversion Capital Expenditure

(2007$ million)

PTAC

(EER) PTHP

(EER) PTAC PTHP Industry Total

Baseline **8.6 8.5**  **0.0 0.0**  **0.0**

TSL 1 **9.4 9.4**  **0.6 0.6**  **1.3**

TSL 2 **9.4 9.7**  **0.3 2.0**  **2.3**

TSL 3 **9.7 9.7**  **1.0 1.0**  **2.0**

TSL 4 **9.4 10**  **1.0 2.6**  **3.6**

TSL 5 **10 10**  **1.3 1.3**  **2.6**

13.4.9.4 Equipment Conversion Expenses

**DOE conducted**  **interviews with**  **manufacturers to**  **better understand**  **the many**  **steps that** 

**manufacturers have**  **to take**  **before they**  **can release**  **new or**  **improved equipment.**  **All**

**manufacturers expect**  **significant equipment**  **conversion expenses**  **as a**  **result of**  **the refrigerant** 

**transition to**  **R­410A as**  **well as**  **any TSLs**  **beyond baseline.**  **The magnitude**  **of the**  **required**

**investments varies**  **by manufacturer**  **and the**  **analyzed TSL.** 

**13­28**13.4.9.5 R­410A Conversion

**All manufacturers**  **who wish**  **to compete**  **in the**  **standard and**  **non­standard size**  **PTAC and** 

**PTHP industries**  **beyond the**  **2010 R­22**  **refrigerant phaseout**  **will incur**  **a R­410A**  **equipment**

**conversion expense**  **since none**  **of them**  **currently manufacture**  **R­410A­based PTACs**  **or PTHPs.** 

**The cost**  **of converting**  **equipment from**  **R­22 to**  **R­410A refrigerants**  **depends on**  **many factors,** 

**such as**  **the current**  **heat exchanger**  **configuration, the**  **burst strength**  **of the**  **sealed system,**  **etc.**

**Some manufacturers**  **have already**  **started preliminary**  **unit testing**  **with R­410A** 

**refrigerants based**  **on existing**  **R­22 units**  **whose sole**  **changes were**  **the refrigerant,**  **compressor,**

**and lubricating**  **oils used**  **in them.**  **If such**  **units can**  **reach the**  **efficiency levels**  **in ASHRAE** 

**Standard 90.1­1999**  **(i.e., the**  **baseline efficiency**  **levels), the**  **necessary equipment**  **modification**

**can be**  **limited to**  **qualifying more**  **R­410A compressors,**  **updated equipment**  **literature, updated** 

**training for**  **technicians, some**  **testing, and**  **minor modifications**  **to take**  **advantage of**  **higher**

**system pressures.** 

**Manufacturers whose**  **units do**  **not manage**  **to exceed**  **the baseline**  **energy conservation** 

**standards using**  **R­410A are**  **likely to**  **require much**  **more substantial**  **investments to**  **make their** 

**units legal**  **for sale.**  **Manufacturers also**  **have the**  **option to**  **increase the**  **energy efficiency**  **of their** 

**units beyond**  **baseline (to**  **hit an**  **ENERGY STAR**  **target, for**  **example), which**  **could also**  **result in** 

**substantial investment**  **requirements.**

**Due to**  **the inherently**  **higher costs**  **of R­410A­based**  **units and**  **intense market**  **competition,**

**DOE does**  **not expect**  **most manufacturers**  **to release**  **R­410A­based units**  **until R­22­based**  **unit**

**stocks have**  **been depleted.**  **Based on**  **the observed**  **compressor degradation,**  **market shares,**  **and**

**the energy**  **efficiencies of**  **current R­22**  **units, DOE**  **estimates that**  **the entire**  **standard size**  **PTAC**

**and PTHP**  **industry would**  **spend approximately**  **$14.4 million**  **in equipment**  **conversion costs**  **to**

**convert all**  **its equipment**  **to R­410A.**  **For non­standard**  **size PTAC**  **and PTHP**  **industry, DOE** 

**estimates that**  **the entire**  **industry would**  **spend approximately**  **$7.2 million**  **in equipment** 

**conversion costs**  **to make**  **the switch**  **to R­410A.** 

**Among other**  **things, any**  **new components**  **scheduled for**  **use require**  **lengthy testing**  **and**

**qualification trials**  **to ensure**  **that the**  **manufacturer will**  **not incur**  **higher than**  **expected warranty** 

**expenses. Despite**  **such testing,**  **multiple manufacturers**  **noted that**  **they expected**  **higher­than**

**normal initial**  **failure rates**  **for R­410A­based**  **equipment due**  **to higher**  **system pressures**  **and the** 

**hydroscopic nature**  **of the**  **polyolester oil**  **(POE) that**  **lubricate R­410A­based**  **systems.**

13.4.9.6 Energy Conservation Standards

**All manufacturers**  **interviewed by**  **DOE expect**  **to start**  **focusing on**  **energy conservation** 

**standards once**  **their units**  **have made**  **the R­410A**  **transition in**  **2010. Multiple**  **manufacturers**

**expressed an**  **interest in**  **developing equipment**  **platforms by**  **2010, which**  **would only**  **require**

**minor additional**  **changes in**  **order to**  **accommodate amended**  **energy conservation**  **standards.**

**Multiple manufacturers**  **also stated**  **that they**  **expected the**  **currently wide**  **distribution of** 

**energy efficiencies**  **to be**  **reduced to**  **clusters that**  **just meet**  **the minimum**  **energy conservation** 

**standards or**  **any new**  **ENERGY STAR**  **standards. Thus,**  **more manufacturers**  **may start**  **offering**

**13­29 two­tiered**  **efficiency equipment**  **in the**  **marketplace, particularly**  **if they**  **expect rebates**  **to**

**subsidize (and**  **hence stimulate**  **demand for)**  **high­efficiency units.** 

**For the**  **standard size**  **PTAC and**  **PTHP industry**  **equipment conversion**  **expenses, DOE** 

**combined figures**  **provided by**  **each manufacturer**  **using a**  **corresponding market**  **share at**  **each**

**TSL. For**  **the non­standard**  **size PTAC**  **and PTHP**  **industry equipment**  **conversion expenses,**  **DOE**

**first reviewed**  **manufacturers’ catalogs**  **to determine**  **the number**  **of equipment**  **families a**  **that**

**would need**  **redesigning at**  **each TSL**  **due to**  **amended standards.**  **Using equipment**  **conversion**

**expenses provided**  **by manufacturer**  **for equipment**  **family redesign,**  **DOE calculated**  **the industry** 

**average cost**  **for a**  **given equipment**  **family redesign.**  **By multiplying**  **total number**  **of equipment** 

**family redesigns**  **at each**  **TSL and**  **the calculated**  **average equipment**  **conversion expenses,**  **total**

**equipment conversion**  **expenses at**  **each TSL**  **was calculated.**  **Table 13.4.33**  **and Table**  **13.4.34**

**summarizes the**  **breakdown of**  **equipment conversion**  **by efficiency**  **level for**  **the standard**  **and**

**non­standard size**  **PTAC and**  **PTHP industries.** 

Table 13.4.33 Equipment Conversion Expenses for Standard Size PTACs and PTHPs by

TSL

TSL Standard Size Equipment Industry

Equipment Conversion Expense (2007$ million)

PTAC PTHP Industry Total

Baseline **0 0**  **0**

TSL 1 **2.2 2.2**  **4.5**

TSL 2 **1.1 6.3**  **7.4**

TSL 3 **3.1 3.1**  **6.3**

TSL A **3.4 5.8**  **9.1**

TSL 4 **3.4 7.2**  **10.6**

TSL 5 **3.6 3.6**  **7.2**

TSL 6 **6.7 6.7**  **13.5**

**a An**  **equipment family**  **is a**  **set of**  **equipment characterized**  **by a**  **specific wall**  **sleeve size**  **and efficiency** 

**characteristics (e.g.,**  **premium equipment**  **with higher**  **efficiency and**  **baseline equipment**  **with lower**  **efficiency).**

**Equipment within**  **a equipment**  **family includes**  **PTACs and**  **PTHPs, the**  **different cooling**  **capacities, and**  **any other** 

**optional models**  **within.**

**13­30**Table 13.4.34 Equipment Conversion Expenses for Non­Standard PTACs and PTHPs by

TSL

TSL Non­Standard Size Equipment Industry

Equipment Conversion Expense (2007$ million)

PTAC PTHP Industry Total

Baseline **0.0 0.0**  **0.0**

TSL 1 **10.3 10.3**  **20.5**

TSL 2 **10.5 10.5**  **21.0**

TSL 3 **10.5 10.5**  **21.0**

TSL 4 **11.9 11.9**  **23.8**

TSL 5 **11.9 11.9**  **23.8**

13.4.10 Markups

**To estimate**  **the manufacturer**  **price of**  **the equipment**  **sold, DOE**  **applied markups**  **to the** 

**production costs.**  **For the**  **analysis, DOE**  **considered different**  **markup scenarios**  **based on** 

**manufacturer input**  **for both**  **standard and**  **non­standard size**  **PTACs and**  **PTHPs. Scenarios**  **were**

**used to**  **bound the**  **range of**  **expected equipment**  **prices following**  **amended energy**  **conservation**

**standards. For**  **each equipment**  **class, DOE**  **used the**  **markup scenarios**  **that best**  **characterized the** 

**prevailing markup**  **conditions and**  **described the**  **range of**  **market responses**  **manufacturers expect** 

**as a**  **result of**  **amended energy**  **conservation standards.** 

**DOE learned**  **from interviews**  **with manufacturers**  **that the**  **majority of**  **manufactures only** 

**offer one**  **product line.**  **A single**  **product line**  **means that**  **there is**  **no markup**  **used to**  **differentiate**

**a baseline**  **piece of**  **equipment from**  **a premium**  **piece of**  **equipment. Through**  **its analysis**  **of the** 

**PTAC and**  **PTHP industries,**  **DOE also**  **learned that**  **profit margins**  **associated with**  **a PTAC**  **and a** 

**PTHP of**  **the same**  **manufacturer at**  **the same**  **cooling capacity**  **do not**  **vary significantly.** 

**Therefore, DOE**  **used the**  **same markup**  **for both**  **PTACs and**  **PTHPs.**

**After discussions**  **with manufacturers,**  **DOE believes**  **there are**  **two distinct**  **markup**

**scenarios including**  **flat markup**  **and a**  **markup where**  **only part**  **of the**  **increased production**  **costs**

**are able**  **to be**  **recovered, i.e.,**  **partial cost**  **recovery.**

13.4.10.1 Full Cost Recovery Markup

**Under a**  **full cost**  **recovery markup**  **strategy a**  **single uniform**  **“flat markup”**  **is applied** 

**across all**  **equipment classes**  **and for**  **equipment at**  **all TSLs.**  **To derive**  **these values,**  **DOE**

**evaluated publicly**  **available financial**  **information on**  **manufacturers of**  **PTACs and**  **PTHPs.**

**Individual markups**  **for each**  **company were**  **calculated using**  **the following**  **formula:**

**Markup**

**= 1**  **/ (1­Gross**  **Margin)**

**Where:**

**Gross Margin** 

**= (Revenues** 

**– Costs**  **of Goods**  **Sold) /**  **Revenues**

**13­31 DOE**  **arrived at**  **an industry**  **average markup**  **of 1.29,**  **where each**  **company’s markup**  **was**

**weighted by**  **its market**  **share. Further**  **explanation and**  **specific calculations**  **for the**  **full cost** 

**recovery markup**  **can be**  **found in**  **the engineering**  **analysis (Chapter**  **5 of**  **the TSD).** 

13.4.10.2 Partial Cost Recovery Markup

**During interviews,**  **several manufacturers**  **stated that**  **most customers**  **buying PTACs**  **and**

**PTHPs are**  **on a**  **fixed budget**  **and therefore**  **any significant**  **price increase**  **would be**  **detrimental to** 

**the manufacturer’s**  **unit sales**  **and profits.**  **In its**  **GRIM analysis,**  **DOE put**  **together several** 

**scenarios regarding**  **how well**  **manufacturers could**  **recover the**  **increased unit**  **costs stemming** 

**from R­410A**  **conversion costs**  **and costs**  **associated with**  **amended energy**  **conservation**

**standards, which**  **it called**  **the 50­percent**  **cost recovery**  **markup.**

**Several manufacturers**  **stated that**  **they would**  **not be**  **able to**  **transfer the**  **entire increase**  **in**

**manufacturing cost**  **to customers**  **as a**  **result of**  **the refrigerant**  **phaseout or**  **amended energy** 

**conservation standards.**  **During interviews,**  **some manufacturers**  **stated that**  **they have** 

**experienced similar**  **trends in**  **conforming to**  **the ground**  **fault circuit**  **interrupter (GFCI)**  **power**

**cord requirements**  **in 1997,**  **where they**  **experienced an**  **increase in**  **manufacturing cost**  **per unit** 

**due to**  **the addition**  **of a**  **GFCI power**  **cord, but**  **were not**  **able to**  **fully recoup**  **the costs**  **of these** 

**cords from**  **the customer.**  **Similarly, manufacturers**  **state that**  **they have**  **struggled to**  **pass on**  **any**

**incremental manufacturing**  **costs due**  **to the**  **rapid increase**  **in raw**  **material prices**  **for their** 

**equipment, such**  **as copper,**  **aluminum, and**  **steel. One**  **manufacturer stated**  **they were**  **not able**  **to**

**transfer any**  **of the**  **increases in**  **costs associated**  **with the**  **material price**  **increases, while**  **the**

**majority of**  **the manufacturers**  **stated they**  **were able**  **to recover**  **approximately 50­percent**  **of the** 

**increases in**  **manufacturing production**  **costs. According**  **to multiple**  **manufacturers, transferring** 

**all the**  **incremental costs**  **to the**  **customers due**  **to efficiency**  **improvement requirements**  **will**

**increase the**  **unit’s price**  **such that**  **customers might**  **opt for**  **other types**  **of equipment.** 

**Therefore, for**  **both the**  **refrigerant phaseout**  **and the**  **standards case,**  **DOE modeled**  **a 50­** 

**percent cost**  **recovery markup**  **strategy. Under**  **this markup,**  **DOE assumed**  **that manufacturers** 

**would only**  **be able**  **to recover**  **half the**  **manufacturing costs**  **they incur**  **as a**  **result of**  **changing the** 

**equipment to**  **comply with**  **either the**  **refrigerant phaseout**  **or the**  **amended energy**  **conservation**

**standards. More**  **details of**  **the markup**  **scenarios used**  **to bound**  **the range**  **of impacts**  **from the** 

**refrigerant phaseout**  **can be**  **found in**  **section 13.5.**  **More details**  **of the**  **markup scenarios**  **used to** 

**bound the**  **range of**  **impacts from**  **the amended**  **energy conservation**  **standards can**  **be found**  **in**

**section 13.6.** 

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

REFRIGERANT PHASEOUT

**In 1987,**  **the United**  **Nations Environment**  **Programme (UNEP)**  **adopted the**  **Montreal**

**Protocol on**  **Substances that**  **Deplete the**  **Ozone Layer**  **(Montreal Protocol).**  **The Montreal** 

**Protocol was**  **designed to**  **regulate and**  **phase out**  **ozone­depleting substances**  **through a** 

**collaborative and**  **international effort.**  **In 1988,**  **the United**  **States ratified**  **the Montreal**  **Protocol**

**and thus**  **committed to**  **the phaseout.** 

**13­32 In**  **1990, the**  **Clean Air**  **Act was**  **amended to**  **include Title**  **VI, "Stratospheric**  **Ozone**

**Protection," to**  **implement the**  **Montreal Protocol.**  **(42 U.S.C.**  **7671, et**  **seq.) Title**  **VI mandated** 

**the phaseout**  **by 2020**  **of hydrochlorofluorocarbon**  **(HCFC) refrigerants**  **for use**  **in new**  **air**

**conditioning systems.**  **(42 U.S.C.**  **7671d) Title**  **VI, however,**  **also authorized**  **the EPA**  **to**

**accelerate this**  **date if**  **certain criteria**  **were met,**  **(42 U.S.C.**  **7671e) and**  **EPA subsequently**  **adopted**

**a rule**  **on December**  **10, 1993**  **to require**  **the phaseout**  **of HCFC**  **refrigerants for**  **use in**  **new**

**equipment by**  **2010. 58**  **FR 65018.**  **R­22, the**  **only refrigerant**  **currently used**  **by PTACs**  **and**

**PTHPs, is**  **an HCFC**  **refrigerant and**  **subject to**  **the phaseout**  **requirement. Phaseout**  **of this** 

**refrigerant could**  **have a**  **significant impact**  **on the**  **manufacturing, performance,**  **and cost**  **of**

**PTAC and**  **PTHP equipment.** 

**As part**  **of the**  **engineering analysis,**  **DOE performed**  **an alternative**  **refrigerant analysis**  **to**

**characterize the**  **performance and**  **cost implications**  **of using**  **an alternative**  **refrigerant in**  **PTACs**

**and PTHPs.**  **To characterize**  **the impacts**  **of conversion**  **from R­22**  **refrigerant to**  **R­410A**

**refrigerant on**  **manufacturers’ cash**  **flows, DOE**  **used the**  **production costs**  **as described**  **in Chapter** 

**5 of**  **the engineering**  **analysis, the**  **NES shipments**  **distribution for**  **the base**  **case as**  **described in** 

**section 13.4.6**  **and the**  **markup assumptions**  **described in**  **section 13.6.1.** 

**As previously**  **stated, all**  **manufacturers voiced**  **their concerns**  **about the**  **refrigerant**

**phaseout and**  **possible impacts**  **during manufacturer**  **interviews. Several**  **manufacturers stated** 

**that they**  **would not**  **be able**  **to fully**  **recover the**  **increase in**  **manufacturing costs**  **of PTACs**  **and**

**PTHPs due**  **to the**  **conversion to**  **R­410A refrigerant.**  **From a**  **customer utility**  **viewpoint, the**  **R**

**22 refrigerant**  **phaseout will**  **only result**  **in lower**  **energy efficiency,**  **so manufacturers**  **will likely** 

**have great**  **difficulty selling**  **these units**  **at higher**  **prices.**

**To take**  **manufacturers concerns**  **into consideration,**  **DOE examined**  **a markup**  **that would** 

**translate to**  **manufacturers recuperating**  **half of**  **the increased**  **production costs**  **associated with**  **R**

**410A equipment.**  **Therefore, DOE**  **modeled a**  **50­percent cost**  **recovery markup**  **scenario, which** 

**assumes manufacturers**  **would only**  **be able**  **to recover**  **half the**  **manufacturing costs**  **they incur**  **to**

**convert their**  **equipment from**  **R­22 into**  **R­410A. Table**  **13.5.1 through**  **Table 13.5.6**  **demonstrate**

**the 50­percent**  **cost recovery**  **mark­up scenarios**  **of R­410A**  **costs for**  **the R­410A**  **base case.** 

**13­33**Table 13.5.1 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.20**

**TSL 1**  **(10.9) 1.19** 

**TSL 2**  **(10.9) 1.19** 

**TSL 3**  **(11.1) 1.19** 

**TSL A**  **(11.1) 1.19** 

**TSL 4**  **(10.9) 1.19** 

**TSL 5**  **(11.3) 1.19** 

**TSL 6**  **(11.5) 1.19** 

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

Standard Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.21**

**TSL 1**  **(10.9) 1.20** 

**TSL 2**  **(11.1) 1.20** 

**TSL 3**  **(11.1) 1.20** 

**TSL A**  **(11.3) 1.20** 

**TSL 4**  **(11.3) 1.20** 

**TSL 5**  **(11.3) 1.20** 

**TSL 6**  **(11.5) 1.20** 

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

Standard Size PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.17**

**TSL 1**  **(10.2) 1.17** 

**TSL 2**  **(10.2) 1.17** 

**TSL 3**  **(10.4) 1.17** 

**TSL A**  **(10.2) 1.17** 

**TSL 4**  **(10.2) 1.17** 

**TSL 5**  **(10.6) 1.17** 

**TSL 6**  **(10.8) 1.17** 

**13­34**Table 13.5.4 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for

Standard Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.18**

**TSL 1**  **(10.2) 1.18** 

**TSL 2**  **(10.4) 1.18** 

**TSL 3**  **(10.4) 1.18** 

**TSL A**  **(10.4) 1.18** 

**TSL 4**  **(10.6) 1.18** 

**TSL 5**  **(10.6) 1.18** 

**TSL 6**  **(10.8) 1.18** 

Table 13.5.5 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for NonStandard Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.6)**  **1.21**

**TSL 1**  **(9.4) 1.20** 

**TSL 2**  **(9.4) 1.20** 

**TSL 3**  **(9.7) 1.20** 

**TSL 4**  **(9.4) 1.20** 

**TSL 5**  **(10.0) 1.20** 

Table 13.5.6 Markups Reflecting R­410A Base Case 50­Percent Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.22**

**TSL 1**  **(9.4) 1.21** 

**TSL 2**  **(9.7) 1.21** 

**TSL 3**  **(9.7) 1.21** 

**TSL 4**  **(10.0) 1.20** 

**TSL 5**  **(10.0) 1.20** 

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

Phaseout on the Base Case

**Using the**  **inputs and**  **assumptions described**  **in the**  **previous section,**  **the GRIM**  **produced**

**indicators of**  **financial impacts**  **on the**  **standard and**  **non­standard size**  **PTAC and**  **PTHP industries** 

**as a**  **result of**  **the refrigerant**  **phaseout in**  **2010. The**  **results are**  **bound between**  **the two**  **mark­up**

**scenarios and**  **are solely**  **dependent upon**  **manufacturers’ ability**  **to pass**  **on increased**  **equipment**

**costs resulting**  **from the**  **refrigerant phaseout**  **to the**  **customer. The**  **results are**  **presented as** 

**impacts on**  **INPV.**

**13­35 The**  **INPV measures**  **industry value**  **and is**  **used in**  **the MIA**  **to compare**  **the economic** 

**impacts of**  **the refrigerant**  **phaseout on**  **the base**  **case. For**  **the refrigerant**  **phaseout, DOE**  **is**

**interested in**  **characterizing the**  **impact on**  **INPV in**  **2010. Using**  **the GRIM,**  **DOE compared**  **the**

**base case**  **INPV first**  **if there**  **was no**  **conversion to**  **R­410A refrigerant**  **and then**  **if the**  **conversion**

**took place.**  **DOE also**  **examined the**  **impacts on**  **the base**  **case INPV**  **if manufacturers**  **were not** 

**able to**  **fully recuperate**  **all of**  **the costs**  **associated with**  **R­410A conversion.**  **Table 13.5.7**  **and**

**Table 13.5.8**  **provide the**  **INPV estimates**  **for the**  **standard and**  **non­standard size**  **PTAC and** 

**PTHP industries,**  **respectively, under**  **the different**  **cost recovery**  **scenarios.**

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

for Standard Size PTACs and PTHPs

TSL R­410A Base Case With

Full Cost Recovery

TSL R­410A Base Case With

50­Percent Cost Recovery

INPV Change in INPV INPV Change in INPV

2007$

million 2007$

million % Change 2007$

million 2007$

million* % Change

R­22

Base Case **375**

**­ ­**  R­22

Base Case **375**

**­ ­** 

R­410A

Base Case **427 52**  **14%** R­410

Base Case **83 (292)**  **­78%**

***** **Values in**  **parenthesis are**  **negative.**

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

for Non­Standard Size PTACs and PTHPs

TSL R­410A Base Case With

Full Cost Recovery

TSL R­410A Base Case With

50­Percent Cost Recovery

INPV Change in INPV INPV Change in INPV

2007$

million 2007$

Million* % Change 2007$

million 2007$

Million* % Change

R­22

Base Case **32**

**­ ­**  R­22

Base Case **32**

**­ ­** 

R­410A

Base Case **30 (2)**  **­6%** R­410

Base Case **19 (13)**  **­41%**

***** **Values in**  **parenthesis are**  **negative.**

**The results**  **from the**  **GRIM show**  **that if**  **DOE assumes**  **standard size**  **PTAC and**  **PTHP**

**manufacturers will**  **fully recover**  **all costs**  **associated with**  **the R­410A**  **refrigerant conversion,**  **the**

**INPV would**  **increase by**  **approximately 14**  **percent. In**  **this optimistic**  **scenario, manufacturers** 

**receive the**  **benefits from**  **equipment price**  **increase by**  **transferring costs**  **to the**  **customers.**

**Assuming that**  **the standards**  **size PTAC**  **and PTHP**  **manufacturers can**  **only recover**  **half of**  **the R** 

**410A conversion**  **expenses, the**  **base case**  **INPV will**  **decrease approximately**  **78 percent.**  **In this** 

**pessimistic scenario,**  **the INPV**  **of the**  **industry already**  **decreases significantly**  **even before** 

**amended energy**  **conservation standards**  **are taken**  **into account.** 

**For non­standard**  **size PTAC**  **and PTHP**  **industry, the**  **R­410A conversion**  **expenses**

**decrease the**  **INPV by**  **approximately six**  **percent if**  **manufacturers fully**  **recover increases**  **in**

**manufacturing production**  **costs. In**  **this optimistic**  **scenario, the**  **industry experiences**  **a decrease** 

**13­36 in**  **INPV even**  **before amended**  **energy conservation**  **standards are**  **taken into**  **account. Assuming** 

**that the**  **non­standards size**  **PTAC and**  **PTHP industry**  **can only**  **recover half**  **of the**  **increases in** 

**manufacturing production**  **costs associated**  **with the**  **R­410A conversion,**  **the INPV**  **decreases by** 

**approximately 41**  **percent. In**  **this pessimistic**  **scenario, the**  **industry experiences**  **a decrease**  **in**

**INPV prior**  **to amended**  **energy conservation**  **standards. It**  **is important**  **to note,**  **irrespective of** 

**mark­up scenario,**  **the non­standard**  **size PTAC**  **and PTHP**  **industry will**  **experience a**  **decline in** 

**INPV in**  **the base**  **case as**  **a result**  **of the**  **refrigerant phaseout.**  **Because of**  **the lower**  **volumes**

**associated with**  **non­standard size**  **equipment, manufacturers**  **of non­standard**  **size equipment**  **can**

**not spread**  **the R­410A**  **conversion costs**  **over the**  **same scale**  **as the**  **larger manufacturers**  **of**

**standard size**  **equipment causing**  **a decrease**  **in base**  **case INPV**  **even under**  **the full**  **cost recovery** 

**scenario..**

13.6 ENERGY CONSERVATION STANDARDS IMPACT SCENARIOS

13.6.1 Markup Scenarios

**DOE used**  **the markup**  **strategies described**  **previously to**  **create markup**  **scenarios at**  **each**

**TSL. DOE**  **applied a**  **flat markup**  **and a**  **partial cost**  **recovery markup**  **to both**  **R­410A base**  **case**

**scenarios to**  **bound the**  **range of**  **impacts the**  **standard and**  **non­standard size**  **PTAC and**  **PTHP**

**industries could**  **experience over**  **the years**  **as a**  **result of**  **amended energy**  **conservation standards.** 

**Four distinct**  **scenarios emerge:**  **(1) full**  **cost recovery**  **for the**  **R­410A base**  **case with**  **a full**  **cost**

**recovery for**  **amended energy**  **conservation standards;**  **(2) 50­percent**  **cost recovery**  **for the**  **R**

**410A base**  **case with**  **full cost**  **recovery for**  **amended energy**  **conservation standards;**  **(3) full**  **cost**

**recovery for**  **the R­410A**  **base case**  **with a**  **50­percent cost**  **recovery for**  **the amended**  **energy**

**conservation standards;**  **and (4)**  **50­percent cost**  **recovery for**  **the R­410A**  **base case**  **with a**  **50­**

**percent cost**  **recovery for**  **amended energy**  **conservation standards.** 

13.6.1.1 R­410A Base Case With Full Cost Recovery and Amended Energy

Conservation Standards With Full Cost Recovery

**DOE modeled**  **an optimistic**  **scenario by**  **assuming that**  **manufacturing would**  **be able**  **to**

**fully recover**  **increases in**  **manufacturing production**  **costs as**  **a result**  **of the**  **refrigerant phaseout** 

**and amended**  **energy conservation**  **standards. In**  **this optimistic**  **scenario, DOE**  **multiplied the**  **flat**

**markup of**  **1.29 to**  **all engineering**  **analysis derived**  **manufacturer production**  **costs (MPCs)**  **of R** 

**22 and**  **R­410A equipment**  **to calculate**  **the manufacturer**  **selling price**  **(MSPs) necessary**  **for the** 

**GRIM.**

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

Conservation Standards With Full Cost Recovery

**DOE modeled**  **a scenario**  **in which**  **manufacturers would**  **only be**  **able to**  **recover half**  **of**

**the increased**  **manufacturing production**  **costs from**  **PTAC and**  **PTHP customers**  **as a**  **result of**  **the**

**refrigerant phaseout.**  **Consequently, the**  **base case**  **INPV will**  **be negatively**  **impacted prior**  **to the** 

**effective date**  **of the**  **amended energy**  **conservation standards**  **in 2012.**  **This scenario**  **assumes that** 

**increases in**  **manufacturer production**  **costs relating**  **to changes**  **to the**  **equipment, which**  **increase**

**the energy**  **efficiency of**  **the PTAC**  **or PTHP**  **and for**  **which the**  **customer will**  **see a**  **benefit, will** 

**be able**  **to be**  **recovered fully**  **by the**  **manufacturers. DOE**  **scaled the**  **energy conservation** 

**13­37 standards**  **flat markup**  **by factors**  **that would**  **account for**  **a 50­percent**  **cost recovery**  **of the**  **R**

**410A conversion.**  **Table 13.6.1**  **through Table**  **13.6.6 summarizes**  **the energy**  **conservation**

**standards full**  **cost recovery**  **markup with**  **R­410A conversion**  **50­percent cost**  **recovery markups** 

**for both**  **standard and**  **non­standard size**  **equipment analyzed.** 

Table 13.6.1 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.6)**  **1.20**

**TSL 1**  **(10.9) 1.19** 

**TSL 2**  **(10.9) 1.19** 

**TSL 3**  **(11.1) 1.19** 

**TSL A**  **(11.1) 1.19** 

**TSL 4**  **(10.9) 1.19** 

**TSL 5**  **(11.3) 1.19** 

**TSL 6**  **(11.5) 1.19** 

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

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (10.4)**  **1.21**

**TSL 1**  **(10.9) 1.20** 

**TSL 2**  **(11.1) 1.20** 

**TSL 3**  **(11.1) 1.20** 

**TSL A**  **(11.3) 1.20** 

**TSL 4**  **(11.3) 1.20** 

**TSL 5**  **(11.3) 1.20** 

**TSL 6**  **(11.5) 1.20** 

**13­38**Table 13.6.3 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.9)**  **1.17**

**TSL 1**  **(10.2) 1.17** 

**TSL 2**  **(10.2) 1.17** 

**TSL 3**  **(10.4) 1.17** 

**TSL A**  **(10.2) 1.17** 

**TSL 4**  **(10.2) 1.17** 

**TSL 5**  **(10.6) 1.17** 

**TSL 6**  **(10.8) 1.17** 

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

and Amended Energy Conservation Standards With Full Cost Recovery for Standard Size

PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (9.7)**  **1.18**

**TSL 1**  **(10.2) 1.18** 

**TSL 2**  **(10.4) 1.18** 

**TSL 3**  **(10.4) 1.18** 

**TSL A**  **(10.4) 1.18** 

**TSL 4**  **(10.6) 1.18** 

**TSL 5**  **(10.6) 1.18** 

**TSL 6**  **(10.8) 1.18** 

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

and Amended Energy Conservation Standards With Full Cost Recovery for Non­Standard

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

TSL Markup

(EER)

**Baseline (8.6)**  **1.21**

**TSL 1**  **(9.4) 1.20** 

**TSL 2**  **(9.4) 1.20** 

**TSL 3**  **(9.7) 1.20** 

**TSL 4**  **(9.4) 1.20** 

**TSL 5**  **(10.0) 1.20** 

**13­39**Table 13.6.6 13.6.7 Markups Reflecting the R­410A Base Case With 50­Percent Cost

Recovery and Amended Energy Conservation Standards With Full Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markup

(EER)

**Baseline (8.5)**  **1.22**

**TSL 1**  **(9.4) 1.21** 

**TSL 2**  **(9.7) 1.21** 

**TSL 3**  **(9.7) 1.21** 

**TSL 4**  **(10.0) 1.20** 

**TSL 5**  **(10.0) 1.20** 

13.6.1.3 R­410A Base Case With Full Cost Recovery and Amended Energy

Conservation Standards With 50­Percent Cost Recovery

**This scenario**  **models the**  **expectations of**  **a few**  **manufacturers who**  **believe they**  **will be** 

**able to**  **fully pass**  **on any**  **associated increases**  **in manufacturer**  **production costs**  **to the**  **customer as** 

**a result**  **of the**  **refrigerant phaseout.**  **Consequently, the**  **base case**  **will not**  **change when**  **R­410A**

**equipment comes**  **into the**  **market in**  **2010. However,**  **these manufacturers**  **also believe**  **the**

**increases in**  **manufacturer production**  **costs will**  **be too**  **much for**  **the customers**  **to further** 

**encompass, thus**  **their profit**  **margins will**  **begin to**  **be pinched.**  **The implementation**  **of the** 

**refrigerant phaseout**  **and the**  **amended energy**  **conservation standards**  **are within**  **three years**  **of**

**one another.**  **Consequently, some**  **manufacturers do**  **not believe**  **they will**  **be able**  **to fully**  **pass on** 

**two increases**  **in manufacturer**  **production costs**  **on to**  **the customer.**  **Instead, they**  **believe it**  **is**

**likely that**  **only half**  **of the**  **costs associated**  **with the**  **increases in**  **production costs**  **for conforming** 

**to the**  **amended energy**  **conservation standards**  **will be**  **recovered. This**  **scenario is**  **modeled using** 

**a flat**  **markup in**  **the base**  **case and**  **a variable**  **markup in**  **the standards**  **case. Table**  **13.6.8 through** 

**Table 13.6.13**  **show the**  **associated markups**  **under a**  **scenario where**  **manufactures experience**  **a**

**full cost**  **recovery for**  **the refrigerant**  **phaseout and**  **only a**  **50­percent cost**  **recovery for**  **the**

**amended energy**  **conservation standards.** 

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

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

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

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(10.6) 1.29** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1,2,**  **4**

**(10.9) 1.29**  **1.27 1.27** 

**­ ­**  **1.27**

**­ ­** 

**TSL 3,**  **A**

**(11.1) 1.29**  **1.29 1.29**  **1.26 1.26**  **1.29**

**­ ­** 

**TSL 5** 

**(11.3) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.25** 

**­**

**TSL 6** 

**(11.5) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.29**  **1.24**

**13­40**Table 13.6.9 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(10.4) 1.29** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1** 

**(10.9) 1.29**  **1.27**

**­ ­**  **­ ­**  **­ ­** 

**TSL 2,**  **3**

**(11.1) 1.29**  **1.29 1.26**  **1.26**

**­ ­**  **­ ­** 

**TSL A,**  **4, 5** 

**(11.3) 1.29**  **1.29 1.29**  **1.29 1.25**  **1.25 1.25** 

**­**

**TSL 6** 

**(11.5) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.29**  **1.24**

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

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

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

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(9.9) 1.29** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1,**  **2, A,**  **4**

**(10.2) 1.29**  **1.27 1.27** 

**­ 1.27**  **1.27**

**­ ­** 

**TSL 3** 

**(10.4) 1.29**  **1.29 1.29**  **1.26 1.29**  **1.29**

**­ ­** 

**TSL 5** 

**(10.6) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.25** 

**­**

**TSL 6** 

**(10.8) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.29**  **1.24**

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

Amended Energy Conservation Standards With 50­Percent Cost Recovery for Standard

Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(9.7) 1.29** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1** 

**(10.2) 1.29**  **1.27**

**­ ­**  **­ ­**  **­ ­** 

**TSL 2,**  **3, A** 

**(10.4) 1.29**  **1.29 1.26**  **1.26 1.26** 

**­ ­**  **­**

**TSL 4,**  **5**

**(10.6) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.25 1.25** 

**­**

**TSL 6** 

**(10.8) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.29 1.29**  **1.23**

**13­41**Table 13.6.12 Markups Reflecting the R­410A Base Case With Full Cost Recovery and

Amended Energy Conservation Standards With 50­Percent Cost Recovery for NonStandard Size PTAC with a 11,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

**Baseline**

**(8.6) 1.29** 

**­ ­**  **­ ­**  **­**

**TSL 1,**  **2, 4** 

**(9.4) 1.29**  **1.27 1.27** 

**­ 1.27** 

**­**

**TSL 3** 

**(9.7) 1.29**  **1.29 1.29**  **1.26 1.29** 

**­**

**TSL 5** 

**(10.0) 1.29**  **1.29 1.29**  **1.29 1.29**  **1.25**

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

Amended Energy Conservation Standards With 50­Percent Cost Recovery for NonStandard Size PTHP with a 11,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

**Baseline**

**(8.5) 1.29** 

**­ ­**  **­ ­**  **­**

**TSL 1** 

**(9.4) 1.29**  **1.27**

**­ ­**  **­ ­** 

**TSL 2,**  **3**

**(9.7) 1.29**  **1.29 1.26**  **1.26**

**­ ­** 

**TSL 4,**  **5**

**(10.0) 1.29**  **1.29 1.29**  **1.29 1.25**  **1.25**

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

Conservation Standards With 50­Percent Cost Recovery

**This scenario**  **models the**  **expectations of**  **the majority**  **of manufacturers**  **who believe**  **they**

**will never**  **be able**  **to fully**  **pass on**  **increases in**  **manufacturer production**  **costs to**  **customers in**  **a**

**price driven**  **market. Their**  **previous experiences**  **with the**  **increases in**  **material costs**  **over the**  **past**

**several years**  **and the**  **implementation of**  **GFCI power**  **cords have**  **led them**  **to the**  **conclusion they** 

**were never**  **fully able**  **to pass**  **on these**  **increased production**  **costs to**  **the customer.**  **On average,** 

**manufacturers believe**  **they have**  **been able**  **to recover**  **approximately 50**  **percent of**  **the increased** 

**in manufacturer**  **production costs**  **from customers.** 

**As a**  **result, DOE**  **estimated the**  **impacts on**  **the standard**  **and non­standard**  **size PTAC**  **and**

**PTHP industries**  **by modeling**  **a scenario**  **where manufacturers**  **cannot fully**  **recover costs**  **from**

**the refrigerant**  **phaseout or**  **the amended**  **energy conservation**  **standards. In**  **this pessimistic** 

**scenario, DOE**  **applied a**  **reduction in**  **the markup**  **to the**  **R­410A base**  **case in**  **2010. Then,**  **DOE**

**further reduced**  **the markup**  **to reflect**  **a 50­percent**  **cost recovery**  **scenario as**  **a result**  **of energy** 

**conservation standards**  **for each**  **equipment class.**  **Table 13.6.14**  **through Table**  **13.6.19**

**summarizes the**  **energy conservation**  **standards 50­percent**  **cost recovery**  **with R­410A**  **conversion**

**50­percent cost**  **recovery markups**  **for both**  **standard and**  **non­standard size**  **equipment analyzed.** 

**13­42**Table 13.6.14 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTAC with a 9,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(10.6) 1.20** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1,2,**  **4**

**(10.9) 1.19**  **1.18 1.18** 

**­ ­**  **1.18**

**­ ­** 

**TSL 3,**  **A**

**(11.1) 1.19**  **1.19 1.19**  **1.17 1.17**  **1.19**

**­ ­** 

**TSL 5** 

**(11.3) 1.19**  **1.19 1.19**  **1.19 1.19**  **1.19 1.16** 

**­**

**TSL 6** 

**(11.5) 1.19**  **1.19 1.19**  **1.19 1.19**  **1.19 1.19**  **1.15**

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

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTHP with a 9,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(10.4) 1.21** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1** 

**(10.9) 1.20**  **1.18**

**­ ­**  **­ ­**  **­ ­** 

**TSL 2,**  **3**

**(11.1) 1.20**  **1.20 1.17**  **1.17**

**­ ­**  **­ ­** 

**TSL A,**  **4, 5** 

**(11.3) 1.20**  **1.20 1.20**  **1.20 1.16**  **1.16 1.16** 

**­**

**TSL 6** 

**(11.5) 1.20**  **1.20 1.20**  **1.20 1.20**  **1.20 1.20**  **1.15**

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

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTAC with a 12,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(9.9) 1.17** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1,**  **2, A,**  **4**

**(10.2) 1.17**  **1.15 1.15** 

**­ 1.15**  **1.15**

**­ ­** 

**TSL 3** 

**(10.4) 1.17**  **1.17 1.17**  **1.14 1.17**  **1.17**

**­ ­** 

**TSL 5** 

**(10.6) 1.17**  **1.17 1.17**  **1.17 1.17**  **1.17 1.13** 

**­**

**TSL 6** 

**(10.8) 1.17**  **1.17 1.17**  **1.17 1.17**  **1.17 1.17**  **1.12**

**13­43**Table 13.6.17 Markups Reflecting the R­410A Base Case With 50­Percent Cost Recovery

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

Standard Size PTHP with a 12,000 Btu/h Cooling Capacity

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

**Baseline**

**(9.7) 1.18** 

**­ ­**  **­ ­**  **­ ­**  **­**

**TSL 1** 

**(10.2) 1.18**  **1.16**

**­ ­**  **­ ­**  **­ ­** 

**TSL 2,**  **3, A** 

**(10.4) 1.18**  **1.18 1.15**  **1.15 1.15** 

**­ ­**  **­**

**TSL 4,**  **5**

**(10.6) 1.18**  **1.18 1.18**  **1.18 1.18**  **1.14 1.14** 

**­**

**TSL 6** 

**(10.8) 1.18**  **1.18 1.18**  **1.18 1.18**  **1.18 1.18**  **1.13**

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

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

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

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

**Baseline**

**(8.6) 1.21** 

**­ ­**  **­ ­**  **­**

**TSL 1,**  **2, 4** 

**(9.4) 1.20**  **1.18 1.18** 

**­ 1.18** 

**­**

**TSL 3** 

**(9.7) 1.20**  **1.20 1.20**  **1.17 1.20** 

**­**

**TSL 5** 

**(10.0) 1.20**  **1.20 1.20**  **1.20 1.20**  **1.16**

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

and Amended Energy Conservation Standards With 50­Percent Cost Recovery for

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

TSL Markups by TSL Analyzed

(EER) Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

**Baseline**

**(8.5) 1.22** 

**­ ­**  **­ ­**  **­**

**TSL 1** 

**(9.4) 1.21**  **1.19**

**­ ­**  **­ ­** 

**TSL 2,**  **3**

**(9.7) 1.21**  **1.21 1.18**  **1.18**

**­ ­** 

**TSL 4,**  **5**

**(10.0) 1.20**  **1.20 1.20**  **1.20 1.17**  **1.17**

13.7 STANDARD SIZE PTAC AND PTHP INDUSTRY FINANCIAL IMPACTS

**Using the**  **inputs and**  **scenarios described**  **in the**  **previous sections,**  **the GRIM**  **estimated**

**indicators of**  **financial impacts**  **on the**  **standard size**  **PTAC and**  **PTHP industry.**  **The following** 

**sections detail**  **additional inputs**  **and assumptions**  **related only**  **to standard**  **size PTACs**  **and**

**13­44 PTHPs.**  **The main**  **results of**  **the MIA**  **also reported**  **in this**  **section are**  **for two**  **key financial** 

**metrics: INPV**  **and annual**  **cash flows.** 

13.7.1 Impacts on Industry Net Present Value

**The INPV**  **measures the**  **industry value**  **and is**  **used in**  **the MIA**  **to compare**  **the economic** 

**impacts of**  **different TSLs.**  **The INPV**  **is different**  **from the**  **DOE’s NPV**  **applied to**  **the whole** 

**U.S. economy.**  **The INPV**  **is the**  **sum of**  **all net**  **cash flows**  **discounted at**  **the industry’s**  **cost of** 

**capital or**  **discount rate.**  **The GRIM**  **estimated cash**  **flows between**  **2007 and**  **2042, consistent** 

**with the**  **forecast period**  **used in**  **the national**  **impact analysis**  **(Chapter 10).** 

**In the**  **MIA, DOE**  **compares the**  **INPV of**  **the R­410A**  **base case**  **(no amended**  **energy**

**conservation standards)**  **to that**  **of each**  **TSL. The**  **difference in**  **INPV is**  **an estimate**  **of the** 

**economic impacts**  **that implementing**  **that particular**  **TSL would**  **have on**  **the entire**  **industry. For** 

**the standard**  **size PTAC**  **and PTHP**  **industry, DOE**  **examined four**  **markup scenarios**  **as described** 

**in the**  **mark­up section**  **above. Table**  **13.7.1 through**  **Table 13.7.4**  **provide the**  **INPV estimates**  **for**

**the standard**  **size PTAC**  **and PTHP**  **industry under**  **the different**  **scenarios.**

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

(R­410A Base Case Full Cost Recovery with Amended Energy Conservation Standards

Full Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards Full Cost Recovery

**Units** Base

Case Trial Standard Level

1 2 3 A 4 5 6

INPV **(2007$ millions)**  **427 424**  **421 424**  **419 419**  **426 423** 

Change in INPV **(2007$ millions)** 

**­ ­3**  **­6 ­3**  **­8 ­8**  **­1 ­4** 

**(%)**

**­ ­0.8**  **­1.4 ­0.8**  **­1.9 ­1.9**  **­0.2 ­0.9** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **14.4**

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2007$ millions)** 

**­ 4.5**  **7.4 6.3**  **9.1 10.6**  **7.2 13.5** 

Amended Energy

Conservation Standards

Capital Investments **(2007$ millions)** 

**­ 3.5**  **5.7 4.9**  **8.2 8.2**  **5.6 10.4** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

**13­45**Table 13.7.2 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case Full Cost Recovery with Amended Energy Conservation Standards 50­

Percent Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 A 4 5 6

INPV **(2007$ millions)**  **427 399**  **382 367**  **366 359**  **325 263** 

Change in INPV **(2007$ millions)** 

**­ ­28**  **­45 ­60**  **­61 ­68**  **­103 ­164** 

**(%)**

**­ ­6.6**  **­10.7 ­14.0**  **­14.3 ­16.0**  **­24.0 ­38.3** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **14.4**

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2007$ millions)** 

**­ 4.5**  **7.4 6.3**  **9.1 10.6**  **7.2 13.5** 

Amended Energy

Conservation Standards

Capital Investments **(2007$ millions)** 

**­ 3.5**  **5.7 4.9**  **8.2 8.2**  **5.6 10.4** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

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

(R­410A Base Case 50­Percent Cost Recovery with Amended Energy Conservation

Standards Full Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards Full Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 A 4 5 6

INPV **(2007$ millions)**  **83 76**  **72 72**  **68 67**  **69 59** 

Change in INPV **(2007$ millions)** 

**­ ­7**  **­11 ­10**  **­14 ­16**  **­13 ­24** 

**(%)**

**­ ­8.3**  **­13.3 ­12.6**  **­17.5 ­18.9**  **­16.1 ­28.7** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **14.4**

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2007$ millions)** 

**­ 4.5**  **7.4 6.3**  **9.1 10.6**  **7.2 13.5** 

Amended Energy

Conservation Standards

Capital Investments **(2007$ millions)** 

**­ 3.5**  **5.7 4.9**  **8.2 8.2**  **5.6 10.4** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

**13­46**Table 13.7.4 Changes in Industry Net Present Value for Standard Size PTACs and PTHPs

(R­410A Base Case 50­Percent Cost Recovery with Amended Energy Conservation

Standards 50­Percent Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards 50­Percent Cost

Recovery

**Units Base** 

**Case** Trial Standard Level

1 2 3 A 4 5 6

INPV **(2007$**

**millions) 83**  **53 36**  **21 20**  **12 ­37**  **­131**

Change in INPV **(2007$**

**millions) ­**  **­30 ­47**  **­62 ­63**  **­71 ­120**  **­214**

**(%)**

**­ ­35.6**  **­57.1 ­75.1**  **­76.3 ­85.5**  **­144.6 ­258.2** 

R­410A Equipment

Conversion Expenses* **(2007$**

**millions) 14.4** 

**­ ­**  **­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$**

**millions) 7.2** 

**­ ­**  **­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2007$**

**millions) ­**  **4.5 7.4**  **6.3 9.1**  **10.6 7.2**  **13.5**

Amended Energy

Conservation

Standards Capital

Investments **(2007$**

**millions) ­**  **3.5 5.7**  **4.9 8.2**  **8.2 5.6**  **10.4**

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

13.7.2 Impacts on Annual Cash Flow

**While NPV**  **is useful**  **for evaluating**  **the long­term**  **effects of**  **amended energy**  **conservation**

**standards, short­term**  **changes in**  **cash flow**  **are also**  **important indicators**  **of the**  **industry’s**

**financial situation.**  **For example,**  **a large**  **investment over**  **a period**  **of one**  **to two**  **years could** 

**strain the**  **industry’s access**  **to capital.**  **Consequently, the**  **sharp drop**  **in financial**  **performance**

**could cause**  **investors to**  **flee, even**  **though recovery**  **may be**  **near. Thus,**  **a short­term**  **disturbance**

**can have**  **long­term effects**  **that the**  **INPV cannot**  **capture. To**  **get an**  **idea of**  **the behavior**  **of**

**annual net**  **cash flows,**  **DOE reports**  **the annual**  **net or**  **free cash**  **flows from**  **2007 through**  **2042 for** 

**the different**  **TSL levels.**  **Figure 13.7.1**  **through Figure**  **13.7.4 present**  **the annual**  **net cash**  **flows**

**for the**  **base case**  **and each**  **of the**  **seven TSLs**  **for the**  **standard size**  **PTAC and**  **PTHP industry** 

**assuming the**  **different markups**  **and cost**  **recovery scenarios.** 

**13­47**$(20) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows($Millions)

Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.1 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case with Full Cost Recovery and Amended Energy Conservation Standards

with Full Cost Recovery)

$25FreeCashFlows($Millions) $20

$15

$10

$5

$­

$(5)

$(10)

$(15)

$(20) 2006 2008 2010 2012 2014 2016 2018 2020

Year Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.2 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case with Full Cost Recovery and Amended Energy Conservation Standards

with 50­Percent Cost Recovery)

**13­48**$(20) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows($Millions)

Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.3 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case with 50­Percent Cost Recovery and Amended Energy Conservation

Standards with Full Cost Recovery)

$25FreeCashFlows($Millions) $20

$15

$10

$5

$­

$(5)

$(10)

$(15)

$(20) 2006 2008 2010 2012 2014 2016 2018 2020

Year Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.7.4 Annual Net Cash Flows for Standard Size PTAC and PTHP Industry (R410A Base Case with 50­Percent Cost Recovery and Amended Energy Conservation

Standards with 50­Percent Cost Recovery)

**13­49 Prior**  **to the**  **effective date**  **of the**  **amended energy**  **conservation standards,**  **cash flows**  **are**

**driven by**  **the level**  **of capital**  **investments and**  **equipment conversion**  **expenses and**  **the proportion** 

**of these**  **investments spent**  **every year.**  **With the**  **implementation of**  **R­410A conversion**  **related**

**investments, the**  **cash flows**  **show a**  **sharp decline**  **in 2009**  **as companies**  **use their**  **financial**

**resources to**  **convert their**  **equipment to**  **use R­410A**  **refrigerant. After**  **the conversion,**  **as higher** 

**equipment prices**  **become effective**  **by 2010,**  **the industry**  **cash flows**  **begin to**  **increase. The** 

**magnitude of**  **the increase**  **will depend**  **on the**  **ability of**  **the industry**  **to recover**  **the additional** 

**costs due**  **to the**  **refrigerant phaseout.**  **After the**  **amended standards**  **announcement date,**  **industry**

**cash flows**  **begin to**  **decline as**  **companies use**  **their financial**  **resources to**  **prepare for**  **the amended** 

**standards. The**  **more stringent**  **the energy**  **conservation standards,**  **the greater**  **the impact**  **on net** 

**industry cash**  **flows in**  **the years**  **running up**  **to the**  **effective date,**  **as capital**  **expenditures and** 

**equipment development**  **costs use**  **up cash**  **flows from**  **operations.**

**For standard**  **size PTACs**  **and PTHPs,**  **impacts on**  **net cash**  **flow will**  **vary significantly** 

**depending on**  **the ability**  **of manufacturers**  **to recover**  **any cost**  **increase. In**  **the years**  **following**

**the effective**  **date of**  **the amended**  **standards, the**  **impact on**  **cash flow**  **depends on**  **the operating** 

**revenue. Higher**  **TSLs have**  **a positive**  **impact on**  **cash flows**  **relative to**  **the base**  **case if** 

**manufacturers are**  **able to**  **fully pass**  **along costs**  **to consumers**  **(full cost**  **recovery markup** 

**scenarios) and**  **lower cash**  **flow relative**  **to the**  **base case**  **if manufacturers**  **can only**  **recover a** 

**portion of**  **their increased**  **costs (the**  **50­percent cost**  **recovery markup**  **scenarios). The**  **magnitude**

**of the**  **positive cash**  **flow impact**  **under the**  **full cost**  **recovery scenarios**  **and the**  **negative cash**  **flow**

**impact under**  **the 50­percent**  **cost recovery**  **scenario depends**  **on the**  **incremental cost**  **of standards** 

**compliant equipment.**  **The higher**  **the incremental**  **cost, the**  **larger the**  **impact on**  **operating**

**revenue and**  **cash flow**  **in the**  **years following**  **the effective**  **date of**  **the standards.** 

13.8 NON­STANDARD SIZE PTAC AND PTHP INDUSTRY FINANCIAL IMPACTS

**Using the**  **inputs and**  **assumptions described**  **in the**  **previous sections,**  **the GRIM**  **produced**

**indicators of**  **financial impacts**  **on the**  **non­standard size**  **PTAC and**  **PTHP industry.**  **The**

**following sections**  **detail additional**  **inputs and**  **assumptions related**  **only to**  **non­standard size** 

**PTACs and**  **PTHPs including**  **the main**  **results of**  **the MIA**  **for two**  **key financial**  **metrics: INPV** 

**and annual**  **cash flows.** 

13.8.1 Impacts on Industry Net Present Value

**As previously**  **stated, the**  **INPV measures**  **the industry**  **value and**  **is used**  **in the**  **MIA to** 

**compare the**  **economic impacts**  **of different**  **TSLs. For**  **the non­standard**  **size PTAC**  **and PTHP** 

**industry, the**  **GRIM estimated**  **cash flows**  **between 2007**  **and 2042,**  **consistent with**  **the forecast** 

**period used**  **in the**  **national impact**  **analysis (Chapter**  **10).**

**In the**  **MIA, DOE**  **compares the**  **INPV of**  **the base**  **case (no**  **new energy**  **conservation**

**standards) to**  **that of**  **each TSL.**  **The difference**  **in INPV**  **is an**  **estimate of**  **the economic**  **impacts**

**that implementing**  **that particular**  **TSL would**  **have on**  **the entire**  **industry. For**  **the non­standard** 

**size PTAC**  **and PTHP**  **industry, DOE**  **examined all**  **previously discussed**  **markup scenarios.** 

**Table 13.8.1**  **through Table**  **13.8.4 provide**  **the NPV**  **estimates for**  **the non­standard**  **size PTAC** 

**and PTHP**  **industry under**  **the different**  **cost recovery**  **scenarios.**

**13­50**Table 13.8.1 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case Full Cost Recovery with Amended Energy Conservation

Standard Full Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards Full Cost

Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5

INPV **(2007$ millions)**  **30 14**  **13 13**  **9 11** 

Change in INPV **(2007$ millions)** 

**­ ­16**  **­17 ­17**  **­21 ­20** 

**(%)**

**­ ­53.6**  **­57.6 ­56.3**  **­68.5 ­64.8** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **0.6**

**­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2007$ millions)** 

**­ 20.5**  **21.0 21.0**  **23.8 23.8** 

Amended Energy

Conservation Standards

Capital Investments **(2007$ millions)** 

**­ 1.3**  **2.3 2.0**  **3.6 2.6** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

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

PTHPs (R­410A Base Case Full Cost Recovery with Amended Energy Conservation

Standard 50­Percent Cost Recovery)

R­410A Base Case Full Cost Recovery With Amended Energy Conservation Standards 50­Percent

Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5

INPV **(2007$ millions)**  **30 13**  **11 10**  **7 6** 

Change in INPV **(2007$ millions)** 

**­ ­17**  **­19 ­20**  **­23 ­24** 

**(%)**

**­ ­57.8**  **­63.8 ­65.4**  **­78.0 ­81.2** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **0.6**

**­ ­**  **­ ­**  **­**

Amended Energy

Conservation Standards

Equipment Conversion

Expenses **(2007$ millions)** 

**­ 20.5**  **21.0 21.0**  **23.8 23.8** 

Amended Energy

Conservation Standards

Capital Investments **(2007$ millions)** 

**­ 1.3**  **2.3 2.0**  **3.6 2.6** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

**13­51**Table 13.8.3 Changes in Industry Net Present Value for Non­Standard Size PTACs and

PTHPs (R­410A Base Case 50­Percent Cost Recovery with Amended Energy Conservation

Standard Full Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards Full

Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5

INPV **(2007$ millions)**  **19 2**  **1 1**  **­3 ­2** 

Change in INPV **(2007$ millions)** 

**­ ­17**  **­18 ­18**  **­22 ­21** 

**(%)**

**­ ­90.2**  **­97.0 ­95.6**  **­115.0 ­110.7** 

R­410A Equipment

Conversion Expenses* **(2007$ millions)**  **7.2**

**­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$ millions)**  **0.6**

**­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2007$ millions)** 

**­ 20.5**  **21.0 21.0**  **23.8 23.8** 

Amended Energy

Conservation

Standards Capital

Investments **(2007$ millions)** 

**­ 1.3**  **2.3 2.0**  **3.6 2.6** 

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

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

PTHPs (R­410A Base Case 50­Percent Cost Recovery with Amended Energy Conservation

Standard 50­Percent Cost Recovery)

R­410A Base Case 50­Percent Cost Recovery With Amended Energy Conservation Standards 50­Percent

Cost Recovery

Units Base

Case Trial Standard Level

1 2 3 4 5

INPV **(2007$**

**millions) 19**  **1 ­1**  **­2 ­6**  **­7**

Change in INPV **(2007$**

**millions) ­**  **­18 ­20**  **­21 ­25**  **­26**

**(%)**

**­ ­96.3**  **­106.2 ­109.0**  **­129.0 ­134.8** 

R­410A Equipment

Conversion Expenses* **(2007$**

**millions) 7.2** 

**­ ­**  **­ ­**  **­**

R­410A Capital

Investments* **(2007$**

**millions) 0.6** 

**­ ­**  **­ ­**  **­**

Amended Energy

Conservation

Standards Equipment

Conversion Expenses **(2007$**

**millions) ­**  **20.5 21.0**  **21.0 23.8**  **23.8**

Amended Energy

Conservation

Standards Capital

Investments **(2007$**

**millions) ­**  **1.3 2.3**  **2.0 3.6**  **2.6**

***** **R­410A conversion**  **investments are**  **made in**  **2009 and**  **accounted in**  **the base**  **case.**

13.8.2 Impacts on Annual Cash Flow

**13­52 While**  **NPV is**  **useful for**  **evaluating the**  **long­term effects**  **of amended**  **energy conservation** 

**standards, short­term**  **changes in**  **cash flow**  **are also**  **important indicators**  **of the**  **industry’s**

**financial situation.**  **To get**  **an idea**  **of the**  **behavior of**  **annual net**  **cash flows,**  **DOE reports**  **the**

**annual net**  **or free**  **cash flows**  **from 2007**  **through 2042**  **for the**  **different TSL**  **levels. Figure**  **13.8.1**

**through Figure**  **13.8.4 present**  **the annual**  **net cash**  **flows for**  **the base**  **case and**  **each of**  **the five** 

**TSLs for**  **the non­standard**  **size PTAC**  **and PTHP**  **industry assuming**  **the different**  **cost recovery** 

**scenarios.**

Year

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

(R­410A Base Case with Full Cost Recovery and Amended Energy Conservation Standards

with Full Cost Recovery) $(20) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020FreeCashFlows($Millions)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

**13­53**$(20) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020

YearFreeCashFlows($Millions)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

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

(R­410A Base Case with Full Cost Recovery and Amended Energy Conservation Standards

with 50­Percent Cost Recovery)

$25FreeCashFlows($Millions) $20

$15

$10

$5

$­

$(5)

$(10)

$(15)

$(20) 2006 2008 2010 2012 2014 2016 2018 2020

Year Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

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

(R­410A Base Case with 50­Percent Cost Recovery and Amended Energy Conservation

Standards with Full Cost Recovery)

**13­54**$(20) $(15) $(10)

$(5) $­ $5 $10 $15 $20 $25

2006 2008 2010 2012 2014 2016 2018 2020FreeCashFlows($Millions)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Year

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

(R­410A Base Case with 50­Percent Cost Recovery and Amended Energy Conservation

Standards with 50­Percent Cost Recovery)

**Prior to**  **the effective**  **date of**  **the amended**  **energy conservation**  **standards, cash**  **flows are** 

**driven by**  **the level**  **of capital**  **investments and**  **equipment conversion**  **expenses and**  **the proportion** 

**of these**  **investments spent**  **every year.**  **With the**  **implementation of**  **R­410A conversion**  **related**

**investments, the**  **cash flows**  **show a**  **sharp decline**  **in 2009**  **as companies**  **use their**  **financial**

**resources to**  **convert to**  **the new**  **refrigerant. As**  **new increased**  **equipment prices**  **become effective** 

**by 2010,**  **the industry**  **cash flows**  **begin to**  **increase. The**  **magnitude of**  **the increase**  **will depend** 

**on the**  **ability of**  **the industry**  **to recover**  **the additional**  **equipment costs**  **due to**  **the refrigerant** 

**phaseout. After**  **the standards**  **announcement date,**  **industry cash**  **flows begin**  **to decline**  **as**

**companies use**  **their financial**  **resources to**  **prepare for**  **the amended**  **energy conservation** 

**standards. The**  **more stringent**  **the energy**  **conservation standards,**  **the greater**  **the impact**  **on**

**industry cash**  **flows in**  **the years**  **running up**  **to the**  **effective date,**  **as capital**  **expenditures and** 

**equipment development**  **costs depress**  **cash flows**  **from operations.** 

**For non­standard**  **size PTACs**  **and PTHPs,**  **impacts on**  **cash flow**  **will vary**  **depending on** 

**the ability**  **of manufacturers**  **to recover**  **any equipment**  **cost increase.**  **In the**  **years following**  **the**

**effective date**  **of the**  **standards, the**  **impacts on**  **net cash**  **flows depend**  **on the**  **operating revenue.** 

**Higher TSLs**  **have a**  **positive impact**  **on cash**  **flows relative**  **to the**  **base case**  **if manufacturers**  **are**

**able to**  **fully pass**  **along costs**  **to consumers**  **(full cost**  **recovery markup**  **scenarios) and**  **lower cash** 

**flow relative**  **to the**  **base case**  **if manufacturers**  **can only**  **recover a**  **portion of**  **their increased**  **costs**

**(the 50­percent**  **cost recovery**  **markup scenarios).**  **The magnitude**  **of the**  **positive cash**  **flow**

**impact under**  **the full**  **cost recovery**  **scenarios and**  **the negative**  **cash flow**  **impact under**  **the 50­** 

**percent cost**  **recovery scenario**  **depends on**  **the incremental**  **cost of**  **standards compliant** 

**13­55 equipment.**  **The higher**  **the relative**  **cost, the**  **larger the**  **impact on**  **operating revenue**  **and cash** 

**flow in**  **the years**  **following the**  **effective date**  **of the**  **standards.**

13.9 SMALL BUSINESS IMPACTS

13.9.1 Introduction

**As established**  **in the**  **market and**  **technology assessment,**  **PTACs and**  **PTHPs are** 

**manufactured and**  **sold to**  **two separate**  **markets, standard**  **size and**  **non­standard size**  **PTAC and** 

**PTHP. The**  **U.S. standard**  **size PTAC**  **and PTHP**  **industry is**  **characterized by**  **both domestic**  **and**

**international manufacturers**  **of equipment**  **with a**  **single wall**  **sleeve dimension**  **that is** 

**manufactured in**  **high volume.**  **Most standard**  **PTACs and**  **PTHPs are**  **manufactured abroad,**  **with**

**only one**  **sizeable domestic**  **manufacturing facility**  **remaining. Typically,**  **standard sized**  **PTAC**

**and PTHP**  **imports are**  **sourced either**  **from wholly­owned**  **foreign subsidiaries,**  **or contracted**  **out**

**for the**  **benefit of**  **traditional U.S.**  **manufacturers. Out**  **of the**  **manufacturers that**  **solely**

**manufacture standard**  **size PTACs**  **and PTHPs,**  **DOE has**  **identified one**  **manufacturer as**  **a small** 

**business under**  **the SBA**  **definition.**

**The U.S.**  **non­standard PTAC**  **and PTHP**  **industry is**  **characterized by**  **a wide**  **scope of** 

**equipment manufactured**  **at low**  **production rates**  **for a**  **variety of**  **wall sleeve**  **dimensions. Most** 

**non­standard units**  **are built­to­order**  **and are**  **commonly customized**  **by the**  **manufacturer to** 

**accommodate specific**  **building requirements.**  **DOE’s review**  **of the**  **non­standard size**  **PTAC and** 

**PTHP market**  **suggests that**  **the non­standard**  **size PTAC**  **and PTHP**  **industry supports**  **nearly one** 

**hundred different**  **legacy models**  **that were**  **formerly made**  **under at**  **least thirty**  **brand names.**  **In**

**total, the**  **six remaining**  **manufacturers of**  **non­standard size**  **PTACs and**  **PTHPs manufacture**  **units**

**fitting into**  **approximately 40**  **different sleeve**  **sizes. The**  **number of**  **equipment families**  **offered**

**by a**  **particular company**  **ranges from**  **7 to**  **40 units,**  **though customization**  **subsequently leads**  **to**

**thousands of**  **stock­keeping­units (SKUs).**  **Out of**  **the manufacturers**  **that solely**  **manufacture**

**non­standard size**  **PTACs and**  **PTHPs, DOE**  **has identified**  **two manufacturers**  **as small**  **businesses**

**under the**  **March 11,**  **2008 SBA**  **definition.**

**Besides the**  **small business**  **that manufacture**  **exclusively standard**  **or non­standard**  **size**

**PTAC and**  **PTHP, DOE**  **has also**  **identified three**  **manufactures of**  **both standard**  **and non­standard** 

**size PTACs**  **and PTHPs**  **that are**  **small businesses**  **under the**  **SBA definition.**  **DOE found**  **that all** 

**the small**  **businesses in**  **the PTAC**  **and PTHP**  **industries (except**  **the small**  **business that**  **only**

**manufactures standard**  **size PTAC**  **and PTHP)**  **focus primarily**  **on manufacturing**  **customized**

**and/or non­standard**  **size PTACs**  **and PTHPs.**  **For example,**  **even the**  **standard size**  **PTAC and** 

**PTHP units**  **offered by**  **three manufacturers**  **of both**  **standard and**  **non­standard size**  **equipment**

**can contain**  **customized features,**  **such as**  **hydronic coil**  **heating which**  **differentiate them**  **from the** 

**units made**  **by higher­volume**  **competitors. The**  **higher value**  **that customers**  **associate with** 

**customized standard**  **size and**  **non­standard­sized equipment**  **allow small**  **businesses to**  **charge**

**higher prices,**  **making their**  **(higher cost)**  **low­volume operations**  **viable. Thus,**  **the impacts**  **on all** 

**five small**  **business that**  **manufacture non­standard**  **size PTAC**  **and PTHP**  **will be**  **similar,**

**regardless if**  **they also**  **manufacture some**  **standard size**  **units.**

**13­56**13.9.2 Equipment Development Requirements for Small Manufacturers of PTAC and

PTHP

**The phaseout**  **of R­22**  **refrigerant use**  **in 2010**  **adds a**  **two­fold fixed­cost**  **burden on**  **all**

**manufacturers: 1)**  **equipment, manufacturing**  **lines, and**  **fabrication centers**  **have to**  **be converted** 

**to R­410A**  **refrigerant use;**  **and 2)**  **all equipment**  **platforms will**  **have to**  **undergo equipment** 

**development, testing,**  **and certification.**  **These steps**  **will be**  **necessary for**  **manufacturers**

**regardless of**  **equipment scope**  **or manufacturing**  **scale. Achieving**  **even baseline**  **ASHRAE**

**Standard 90.1­1999**  **efficiency levels**  **for all**  **extant equipment**  **is likely**  **to be**  **beyond the**  **reach of** 

**some manufacturers**  **since they**  **lack the**  **manufacturing scale**  **to justify**  **maintaining engineering** 

**departments with**  **the time,**  **equipment, and**  **budget to**  **tackle multiple**  **equipment platform** 

**conversions.**

**Since the**  **small businesses**  **that manufacture**  **non­standard PTAC**  **and PTHP**  **have lower** 

**production volumes**  **and higher**  **numbers of**  **equipment families,**  **this issue**  **is a**  **great risk**  **for them.** 

**These five**  **companies must**  **first convert**  **all platforms**  **they intend**  **to sell**  **after the**  **R­22**

**refrigerant phaseout**  **and then**  **covert these**  **platforms again**  **before the**  **energy conservation** 

**standards come**  **into effect.**  **The small**  **business that**  **solely manufactures**  **standard size**  **PTAC and** 

**PTHP will**  **also be**  **concurrently burdened**  **by the**  **R­22 refrigerant**  **and conversion**  **costs to** 

**conform to**  **energy conversation**  **standards, but**  **it will**  **only have**  **to complete**  **the transition**  **on one** 

**equipment platform**  **(like its**  **larger competitors).**  **Thus, whereas**  **standard size**  **PTACs and** 

**PTHPs manufacturers**  **only have**  **to modify**  **one equipment**  **platform to**  **meet regulatory**  **standards,**

**the small**  **businesses that**  **manufacture non­standard**  **size PTACs**  **and PTHPs**  **have up**  **to 40** 

**different equipment**  **platforms in**  **their portfolio.** 

**Many equipment**  **development costs**  **(such as**  **testing, certification,**  **etc.) are**  **somewhat**

**fixed, making**  **manufacturing scale**  **an important**  **consideration to**  **determine whether**  **the**

**equipment development**  **investments are**  **economically justified.**  **Similarly, any**  **capital**

**expenditures, such**  **as upgrading**  **manufacturing and**  **fabrication lines**  **can be**  **spread across**  **much**

**higher unit**  **volumes by**  **high­volume manufacturers.**  **Lower production**  **volume is**  **an important** 

**differentiating characteristic**  **for the**  **one small**  **manufacturer of**  **standard PTACs**  **and PTHPs.** 

**However, unlike**  **the small**  **businesses that**  **manufacturer non­standard**  **equipment, this** 

**manufacturer only**  **has one**  **platform that**  **will have**  **to be**  **redeveloped in**  **response to**  **standards.**

**In order**  **to assess**  **the probable**  **impacts due**  **to PTAC**  **and PTHP**  **equipment family** 

**redesigns, DOE**  **reviewed current**  **efficiency ratings**  **of all**  **non­standard and**  **standard equipment** 

**on the**  **market combined**  **with expected**  **efficiency reductions**  **as a**  **result of**  **the refrigerant** 

**conversion to**  **identify which**  **TSLs each**  **equipment could**  **be expected**  **to attain.**  **Equipment that** 

**would have**  **to be**  **redesigned to**  **meet higher**  **standards were**  **identified and**  **the conversion**  **costs**

**were assigned**  **to each**  **manufacturer by**  **TSL. As**  **expected, manufacturers**  **with a**  **wide scope**  **of**

**low­efficiency equipment**  **were estimated**  **to be**  **impacted more**  **and at**  **lower TSLs**  **than**

**manufacturers with**  **a narrow**  **scope of**  **high­efficiency equipment.** 

13.9.3 Equipment Development Impacts on Small Manufacturers

**In order**  **to quantify**  **the redesign**  **costs for**  **the small**  **businesses that**  **manufacture non** 

**standard equipment,**  **DOE estimated**  **the number**  **of platforms**  **that will**  **need significant** 

**13­57 equipment**  **redevelopment. DOE**  **used published**  **EERs, equipment**  **capacities, and**  **an anticipated** 

**de­rating factor**  **of approximately**  **7 percent**  **from adopting**  **R­410A refrigerants**  **to determine**  **if an** 

**equipment family**  **needed to**  **be redesigned**  **to meet**  **a specific**  **energy efficiency**  **level (Please**  **see**

**Chapter 5**  **of the**  **TSD for**  **an explanation**  **of R­410A**  **de­rating factors).**  **If one**  **or more**  **capacities**

**within an**  **equipment platform**  **fell below**  **the EER**  **levels prescribed**  **by a**  **TSL (either**  **for PTACs** 

**or PTHPs),**  **then the**  **equipment platform**  **was marked**  **for redesign.**  **Non­standard platforms**  **that**

**currently claim**  **very high**  **EERs thus**  **only require**  **extensive redesign**  **at very**  **high TSLs.** 

**DOE estimated**  **the investment**  **requirements to**  **upgrade an**  **existing equipment**  **platform**

**for optimal**  **R­410A operation**  **using the**  **responses of**  **standard­size manufacturers**  **and its**  **own**

**estimates. Based**  **on manufacturer**  **interviews and**  **discussion with**  **experts, DOE**  **estimated that** 

**one non­standard**  **equipment family**  **redesign would**  **optimistically require**  **approximately**

**$250,000 of**  **equipment conversion**  **and development**  **costs. To**  **estimate total**  **equipment**

**development costs**  **for the**  **non­standard size**  **PTAC and**  **PTHP industry,**  **DOE multiplied**  **the total** 

**number of**  **equipment families**  **that would**  **require redesign**  **at each**  **TSL by**  **the estimated** 

**equipment development**  **cost for**  **one equipment**  **family.**

**Table 13.9.1**  **shows the**  **total necessary**  **investment for**  **the non­standard**  **size PTAC**  **and**

**PTHP industry**  **at each**  **TSL. Figures**  **in the**  **table also**  **include equipment**  **conversion expenses**  **for**

**standard size**  **PTAC and**  **PTHP units**  **made by**  **small manufacturers**  **that primarily**  **focus on** 

**building non­standard**  **size equipment.**  **These units**  **are included**  **because they**  **share more** 

**characteristics with**  **non­standard equipment**  **(such as**  **very low**  **production volumes,**  **extensive**

**customization, etc.)**  **than with**  **the mass­market**  **standard size**  **PTACs and**  **PTHPs manufactured** 

**by high­volume**  **manufacturers. Table**  **13.9.1 also**  **illustrates the**  **various nominal**  **EERs that**  **non**

**standard size**  **PTACs and**  **PTHPs have**  **to achieve**  **and the**  **percentage of**  **the current**  **models that** 

**DOE estimates**  **achieve that**  **level after**  **efficiency losses**  **due to**  **R­410A conversion.** 

Table 13.9.1 Cumulative Equipment Development Cost Estimates for non­standard PTAC

and PTHP Industry

**Equipment Class**  **Baseline TSL** 

**1 TSL** 

**2 TSL** 

**3 TSL** 

**4 TSL** 

**5**

**Minimum EER**  **for Non­Standard**  **Size PTACs**  **8.6 9.4**  **9.4 9.7**  **9.4 10.0** 

**Minimum EER**  **for Non­Standard**  **Size PTHPs**  **8.5 9.4**  **9.7 9.7**  **10.0 10.0** 

**Percentage of**  **Equipment Families**  **to at**  **or**

**above TSL**  **Efficiency Levels**  **73% 25%**  **23% 23%**  **13% 13%** 

**Number of**  **equipment families**  **requiring**

**significant equipment**  **development to**  **meet**

**standards 29**  **82 84**  **84 95**  **95**

**Optimistic Aggregated**  **Industry Burden**  **($**

**millions) 7.25**  **20.50 21.00**  **21.00 23.75**  **23.75**

**Even on**  **a best­case**  **scenario basis**  **($250,000 per**  **equipment platform,**  **regardless of** 

**efficiency level),**  **the non­standard**  **PTAC and**  **PTHP industry**  **would have**  **great difficulty** 

**meeting any**  **standards level**  **above baseline.**  **As Table**  **13.9.1 illustrates,**  **the industry**  **burden to** 

**upgrade its**  **equipment families**  **to meet**  **TSL 1**  **would exceed**  **$20 million**  **or approximately**  **40**

**percent of**  **total industry**  **revenue. Higher**  **TSL levels**  **would impose**  **even greater**  **economic**

**burdens.**

**13­58 However**  **unsustainable this**  **impact is**  **in aggregate,**  **the impact**  **on individual**  **small**

**businesses can**  **be even**  **greater. For**  **example, one**  **small business**  **that manufacturers**  **non**

**standard PTACs**  **and PTHPs**  **is estimated**  **to have**  **sales of**  **less than**  **$5 million**  **per year**  **and**

**currently ships**  **approximately 12**  **different non­standard**  **equipment platforms.**  **Based on**  **the**

**above projections,**  **DOE estimates**  **that the**  **company would**  **have to**  **spend approximately**  **$3**

**million to**  **meet any**  **efficiency level**  **(including baseline)**  **with R­410A**  **refrigerants. A**  **$3 million** 

**equipment development**  **expense translates**  **into more**  **than 60**  **percent of**  **annual revenues**  **or**

**about 35**  **years worth**  **of the**  **manufacturer’s equipment**  **development budget,**  **assuming it**  **spends**

**the industry**  **average of**  **1.6 percent**  **of revenues**  **on research**  **and development.** 

**On average,**  **small businesses**  **that manufacturer**  **non­standard PTAC**  **and PTHPs**  **are**

**estimated to**  **require 25**  **years worth**  **of equipment**  **development budget**  **to reach**  **any efficiency** 

**level above**  **baseline (which**  **in itself**  **will require**  **about 14**  **years worth**  **of equipment**  **development**

**budget). Any**  **energy conservation**  **standards above**  **baseline is**  **hence likely**  **to cause**  **some small** 

**businesses to**  **exit the**  **market since**  **they lack**  **the manufacturing**  **scale to**  **afford investments**  **for R** 

**410A conversion,**  **certification requirements,**  **and the**  **equipment development**  **required for**  **energy**

**conservation standards**  **simultaneously. This**  **suggests that**  **the non­standard**  **industry would** 

**reduce the**  **number of**  **equipment families**  **and capacities**  **even at**  **baseline efficiency**  **levels to**  **keep**

**equipment development**  **expenses within**  **manageable limits.** 

13.9.4 Volume Impacts on Small Manufacturers

**To estimate**  **total PTAC**  **and PTHP**  **shipments for**  **each manufacturer,**  **DOE divided**  **the**

**manufacturer’s total**  **PTAC and**  **PTHP sales**  **revenues for**  **by an**  **average equipment**  **price. For** 

**standard size**  **equipment manufacturers,**  **DOE used**  **a $500**  **average price**  **for a**  **PTAC and**  **PTHP.**

**For non­standard**  **size equipment**  **manufacturers, DOE**  **used an**  **average price**  **of $1,200**  **for PTAC** 

**and PTHP.**  **Total PTAC**  **and PTHP**  **revenues per**  **year for**  **each manufacturer**  **were estimated** 

**based on**  **publicly available**  **information such**  **as annual**  **reports and**  **D&B reports.**  **By dividing** 

**the estimated**  **total revenues**  **by the**  **average prices,**  **DOE estimated**  **total equipment**  **shipments for** 

**each manufacturer.**  **DOE calculated**  **the per**  **unit equipment**  **development cost**  **for each** 

**manufacturer by**  **dividing the**  **calculated total**  **equipment conversion**  **expense by**  **the estimated** 

**total equipment**  **shipments. Each**  **per unit**  **equipment development**  **cost for**  **each manufacturer** 

**was divided**  **by a**  **set of**  **examined lifetimes.**  **DOE then**  **averaged each**  **set of**  **results for** 

**manufacturers based**  **on equipment**  **type (standard**  **versus non­standard).**  **Manufacturing scale** 

**was roughly**  **defined as**  **small versus**  **large businesses**  **whereas equipment**  **lifetime defines**  **the**

**number of**  **years that**  **a specific**  **equipment platform**  **will stay**  **in production**  **without major** 

**changes or**  **revisions.**

**Table 13.9.2**  **shows the**  **estimates DOE**  **calculated for**  **the average**  **equipment**

**development cost**  **per unit**  **by manufacturing**  **scale and**  **equipment lifetime.** 

**13­59**Table 13.9.2 Impact of Manufacturing Scale on Per Unit Equipment Development Cost

Per Unit Equipment Development Cost by

Industry Segment versus Equipment Lifetime (years) 5 7 10 20

**Standard PTAC**  **and PTHP**  Small Business

Large Business Average **$6**

**$7 $4** 

**$5 $3** 

**$3 $1** 

**$2**

**Non­Standard PTAC**  **and PTHP**  Small Business Average

Large Business **$136**

**$45 $97** 

**$32 $68** 

**$22 $34** 

**$11**

**In the**  **standard PTAC**  **and PTHP**  **industry, the**  **per­unit impact**  **of development**  **costs on** 

**the major**  **manufacturers is**  **relatively minor,**  **regardless of**  **whether they**  **are small**  **businesses or** 

**not, due**  **to the**  **scale at**  **which they**  **manufacture and**  **because they**  **only have**  **one equipment** 

**platform to**  **upgrade. However,**  **in the**  **non­standard industry**  **the impact**  **of scale**  **and the**  **number**

**of equipment**  **platforms is**  **quite evident:**  **The one**  **large business**  **operating in**  **the non­standard** 

**industry segment**  **features fewer**  **equipment platforms**  **than any**  **of its**  **small business**  **competitors,**

**yet operates**  **at a**  **higher overall**  **production volume**  **than most**  **of them.**  **As a**  **result, the**  **per­unit**

**conversion costs**  **for the**  **large business**  **are estimated**  **to be**  **five times**  **lower than**  **those of**  **the**

**smaller businesses**  **it competes**  **against.**

13.9.5 Additional Impacts on Small Manufacturers

Markup Impacts

**In the**  **engineering analysis,**  **DOE derived**  **cost efficiency**  **curves to**  **determine costs**  **of**

**goods sold**  **(COGS) of**  **equipment at**  **each TSL.**  **DOE applied**  **markups to**  **COGS to**  **derive the** 

**manufacturing selling**  **prices. These**  **markups were**  **derived from**  **publicly available**  **information**

**for companies**  **that are**  **primarily large**  **manufacturers. As**  **described in**  **the engineering**  **analysis**

**(See Chapter**  **5 of**  **this TSD.),**  **manufacturing markups**  **are applied**  **to MPCs**  **(i.e., COGS)**  **to cover** 

**additional costs**  **such as**  **typical R&D**  **and SG&A.** 

**In the**  **MIA, DOE**  **applied the**  **same manufacturing**  **markup to**  **both the**  **standard and**  **non**

**standard size**  **PTAC and**  **PTHP industries.**  **If manufacturers**  **are required**  **to convert**  **existing**

**equipment in**  **addition to**  **normal R&D**  **expenses, a**  **similar markup**  **for both**  **large and**  **small**

**manufacturers would**  **imply a**  **greater impact**  **on profitability**  **and a**  **greater difficulty**  **in**

**recuperating costs**  **for small**  **businesses that**  **manufacturer non­standard**  **equipment. As**  **seen in** 

**Table 13.9.2,**  **equipment conversion**  **expenses add**  **only $7**  **per unit**  **for a**  **large manufacturer**  **of**

**standard size**  **PTAC and**  **PTHP while**  **adding $136**  **per unit**  **for a**  **small businesses**  **that**

**manufactures non­standard**  **equipment at**  **a 5**  **year equipment**  **lifetime. Due**  **to the**  **large cost** 

**difference, it**  **is unlikely**  **that all**  **additional costs**  **for a**  **small manufacturer**  **of non­standard** 

**equipment could**  **be covered**  **by the**  **estimated manufacturing**  **markup or**  **be completely**  **passed on** 

**to customers.** 

**As shown**  **in Table**  **13.9.2, manufacturing**  **scale, not**  **the size**  **of a**  **business, is**  **the**

**determining factor**  **for per­unit**  **development cost**  **impacts. Consequently,**  **the small**  **manufacturer**

**that solely**  **makes standard**  **PTAC and**  **PTHP should**  **face the**  **same impacts**  **on profitability**  **as the** 

**large manufacturers.**  **In the**  **non­standard industry,**  **small businesses**  **generally have**  **much lower** 

**volumes than**  **their one**  **large competitor**  **and hence**  **can be**  **expected to**  **have higher**  **per­unit**

**13­60 conversion**  **expenses. Assuming**  **a 5**  **year equipment**  **lifetime, the**  **small businesses**  **that**

**manufacture non­standard**  **equipment face**  **a $91**  **disadvantage per**  **unit compared**  **to their**  **large**

**competitor. Thus,**  **due to**  **manufacturing scale**  **and the**  **wider scope**  **of equipment**  **offered, small** 

**businesses that**  **manufacture non­standard**  **PTAC and**  **PTHP can**  **be expected**  **to be** 

**disproportionately impacted**  **by any**  **energy conservation**  **standards relative**  **to their**  **higher**

**volume competitor.** 

Comparison with LCC Results

**DOE reviewed**  **the LCC**  **analysis results**  **to compare**  **it with**  **the per**  **unit R&D**  **expenses.**

**As detailed**  **in the**  **LCC analysis,**  **the LCC**  **savings for**  **all non­standard**  **size PTACs**  **and PTHPs** 

**are positive,**  **based on**  **equipment costs**  **calculated in**  **the engineering**  **analysis (See**  **Chapter 8**  **of**

**this TSD).**  **Table 13.9.3**  **shows the**  **LCC savings**  **after the**  **per unit**  **R&D expenses**  **for non** 

**standard manufacturers.** 

Table 13.9.3 LCC Savings After Per Unit R&D costs for Non­Standard Size PTACs with a

Cooling Capacity of 11,000 Btu/h

TSL

(EER) **TSL 1,**  **2, 4** 

**(9.4) TSL**  **3**

**(9.7) TSL**  **5**

**(10)**

Mean LCC Savings (2007$) **$26 $30**  **$31**

LCC Savings after R&D per unit

Cost (5 year equipment lifecycle) **­$110 ­$106**  **­$105**

LCC Savings after R&D per unit

Cost (10 year equipment lifecycle) **­$42 ­$38**  **­$37**

Table 13.9.4 LCC Savings After Per Unit R&D costs for Non­Standard Size PTHPs with a

Cooling Capacity of 11,000 Btu/h

EER **TSL 1** 

**(9.4) TSL**  **2, 3** 

**(9.7) TSL**  **4, 5** 

**(10)**

Mean LCC Savings (2007$) **$62 $66**  **$80**

LCC Savings after R&D per unit

Cost (5 year equipment lifecycle) **­$74 ­$70**  **­$56**

LCC Savings after R&D per unit

Cost (10 year equipment lifecycle) **­$6 ­$2**  **$12**

**DOE estimates**  **that if**  **manufacturers of**  **non­standard PTAC**  **and PTHP**  **bear all**  **of the**  **cost**

**of the**  **equipment development,**  **manufacturers’ profits**  **will be**  **significantly eroded.**  **If**

**manufacturers can**  **pass all**  **increase in**  **costs due**  **to the**  **R&D to**  **the consumers,**  **the LCC**  **savings**

**will be**  **eliminated or**  **greatly impacted.**  **Comparing the**  **per unit**  **R&D expense**  **disadvantage of** 

**small manufacturers**  **with the**  **results from**  **the LCC**  **analysis shows**  **that energy**  **conservation**

**standards for**  **non­standard size**  **equipment completely**  **eliminates the**  **LCC savings**  **for PTACs** 

**and PTHPs**  **with a**  **5 year**  **lifecycle. In**  **comparison, if**  **a large**  **manufacturer passes**  **on all** 

**additional equipment**  **development expenses**  **to the**  **customer, the**  **LCC savings**  **would remain** 

**positive and**  **could at**  **most be**  **impacted by**  **$7.**

**13­61**13.9.6 Conclusions

**The substantial**  **equipment development**  **costs differentially**  **harm the**  **small manufacturers** 

**of non­standard**  **PTAC and**  **PTHP. On**  **a relative**  **basis, these**  **manufactures face**  **substantially**

**greater conversion**  **costs than**  **large manufacturers**  **of standard**  **size equipment**  **and the**  **one large** 

**manufacturer of**  **non­standard size**  **equipment. In**  **addition, only**  **the small**  **manufacturers of**  **non**

**standard size**  **equipment face**  **an equipment**  **development disadvantage**  **on a**  **per unit**  **basis. Due** 

**to the**  **large equipment**  **conversion costs,**  **the current**  **wide scope**  **of equipment**  **families offered**  **by**

**small businesses**  **in the**  **non­standard industry**  **is likely**  **to shrink**  **dramatically in**  **response to** 

**amended energy**  **conservation standards**  **by DOE.**  **In particular,**  **higher capacity**  **units will**  **be**

**vulnerable for**  **elimination since**  **cabinet constraints**  **may make**  **required improvements**  **to units** 

**that already**  **operate at**  **the margin**  **uneconomical to**  **implement.**

**DOE estimates**  **that equipment**  **manufacturers will**  **cut their**  **least popular**  **equipment**

**classes first,**  **potentially eliminating**  **multiple extant**  **equipment platforms**  **that fit**  **specific sleeve** 

**sizes from**  **the market**  **altogether. However,**  **cutting equipment**  **classes by**  **itself is**  **difficult, since** 

**every equipment**  **class (and**  **its resultant**  **enhancement and**  **diversification of**  **the revenue**  **stream)**

**adds some**  **necessary manufacturing**  **scale to**  **the manufacturer.**  **Once enough**  **equipment classes** 

**are removed**  **from its**  **equipment offering,**  **the manufacturer**  **may lack**  **the scale**  **to operate**  **at all.** 

**A likely**  **result of**  **these market**  **dynamics is**  **that some**  **manufacturers of**  **non­standard**

**PTACs and**  **PTHPs will**  **exit the**  **market or**  **consolidate with**  **other small**  **business manufacturers** 

**to make**  **equipment that**  **meets even**  **baseline efficiency**  **requirements. At**  **least for**  **several years** 

**following the**  **effective date,**  **DOE estimates**  **that most**  **small, non­standard**  **PTAC and**  **PTHP**

**manufacturers will**  **reduce their**  **scope of**  **equipment platforms**  **by 50**  **percent or**  **more in**  **order**

**bring the**  **required equipment**  **development expenses**  **down to**  **more sustainable**  **levels. Consumer** 

**choice is**  **likely to**  **be impacted**  **in the**  **interim.**

13.9.7 Direct Employment

13.9.7.1 Methodology

**In order**  **to determine**  **possible impacts**  **on the**  **direct employment**  **of standard**  **and non** 

**standard size**  **PTAC and**  **PTHP industries,**  **DOE converted**  **annual labor**  **expenditures calculated** 

**in the**  **GRIM into**  **employment levels**  **using estimates**  **from the**  **engineering analysis.**  **In the** 

**engineering analysis,**  **DOE developed**  **cost­efficiency curves**  **that incorporate**  **the production** 

**labor for**  **manufacturing each**  **type of**  **equipment (standard**  **or non­standard,**  **and PTAC**  **or PTHP).** 

**The engineering**  **analysis also**  **provided labor**  **content as**  **a percentage**  **of the**  **MPCs. First,**  **the**

**labor expenditure**  **per unit**  **shipped was**  **calculated in**  **the GRIM**  **by multiplying**  **the labor** 

**percentage estimated**  **in the**  **engineering analysis**  **by the**  **MPCs calculated**  **from the**  **cost­efficiency**

**curves To**  **convert to**  **total industry**  **labor expenditures,**  **the per**  **unit labor**  **expenditures were** 

**multiplied by**  **the equipment**  **annual shipments**  **at each**  **TSL. The**  **annual labor**  **expenditures are**  **a**

**function of**  **the labor**  **intensity of**  **the equipment,**  **the sales**  **volume, and**  **an implicit**  **wage**

**assumption that**  **remains fixed**  **in real**  **terms over**  **time. By**  **dividing total**  **annual labor** 

**expenditures by**  **labor rates**  **and annual**  **production worker**  **hours for**  **each industry**  **(standard and** 

**non­standard size),**  **DOE translated**  **the total**  **labor expenditures**  **for the**  **industry to**  **the total** 

**number of**  **production jobs.**  **Finally, DOE**  **multiplied the**  **total number**  **of jobs**  **by the**  **domestic**

**13­62 market**  **share to**  **calculate the**  **domestic production**  **employment b**  **levels for**  **the base**  **case and**  **each**

**TSL. For**  **standard size**  **industry, DOE**  **estimated that**  **35 percent**  **of the**  **market is**  **domestically**

**manufactured. For**  **non­standard size**  **industry, DOE**  **assumed that**  **all of**  **the market**  **is**

**domestically manufactured.** 

**In addition**  **to calculating**  **total domestic**  **production workers**  **at each**  **TSL for**  **each**

**industry, DOE**  **also calculated**  **the total**  **number of**  **domestic non­production**  **workers c** 

**. The**  **total**

**domestic employment**  **for each**  **industry was**  **calculated by**  **multiplying the**  **total number**  **of**

**production jobs**  **calculated in**  **the GRIM**  **by a**  **non­production workers­to­production**  **workers**

**ratio for**  **each industry**  **and summing**  **the results**  **with total**  **production jobs.** 

**Table 13.9.5**  **and Table**  **13.9.6 provides**  **a summary**  **of estimates**  **from the**  **engineering cost** 

**model used**  **to calculate**  **direct employment**  **for the**  **standard and**  **non­standard size**  **PTACs and** 

**PTHPs industries.** 

Table 13.9.5 Estimates from the Engineering Analysis Used to Calculate the Change in

Direct Employment, Standard Size PTAC and PTHP

**Production Worker**  **Hourly Wage** 

**($/hr) $7.00** 

**Production Worker**  **Hours Per**  **Year 1,688** 

**Estimated Percentage**  **of Industry** 

**Domestically Manufactured**  **35%**

**Non­Production Worker**  **to**

**Production Worker**  **Ratio 0.30** 

**b As**  **defined in**  **the Census**  **Bureau’s 2006**  **Annual Survey**  **of Manufacturers**  **(2006 ASM),**  **production workers** 

**number include**  **“workers (up**  **through the**  **line­supervisor level)**  **engaged in**  **fabricating, processing,**  **assembling,**

**inspecting, receiving,**  **storing, handling,**  **packing, warehousing,**  **shipping (but**  **not delivering),**  **maintenance, repair,** 

**janitorial and**  **guard services,**  **product development,**  **auxiliary production**  **for plant's**  **own use**  **(e.g., power**  **plant),**

**recordkeeping, and**  **other services**  **closely associated**  **with these**  **production operations**  **at the**  **establishment covered** 

**by the**  **report. Employees**  **above the**  **working­supervisor level**  **are excluded**  **from this**  **item.” This**  **data can**  **be found** 

**at http://www.census.gov/mcd/asmhome.html** 

**.**

**c Non­production**  **workers are**  **defined in**  **the 2006**  **ASM as**  **“employees of**  **the manufacturing**  **establishment including** 

**those engaged**  **in factory**  **supervision above**  **the line­supervisor**  **level. It**  **includes sales**  **(including driver** 

**salespersons), sales**  **delivery (highway**  **truck drivers**  **and their**  **helpers), advertising,**  **credit, collection,**  **installation and** 

**servicing of**  **own products,**  **clerical and**  **routine office**  **functions, executive,**  **purchasing, financing,**  **legal, personnel** 

**(including cafeteria,**  **medical, etc.),**  **professional, and**  **technical employees.**  **Also included**  **are employees**  **on the** 

**payroll of**  **the manufacturing**  **establishment engaged**  **in the**  **construction of**  **major additions**  **or alterations**  **utilized as**  **a**

**separate work**  **force.” This**  **data can**  **be found**  **at http://www.census.gov/mcd/asmhome.html** 

**.**

**13­63**Table 13.9.6 Estimates from the Engineering Analysis Used to Calculate the Change in

Direct Employment, Non­Standard Size PTAC and PTHP

**Production Worker**  **Hourly Wage** 

**($/hr) $14.64** 

**Production Worker**  **Hours Per**  **Year 1,688** 

**Estimated Percentage**  **of Industry** 

**Domestically Manufactured**  **100%**

**Non­Production Worker**  **to**

**Production Worker**  **Ratio 0.30** 

**The domestic**  **annual labor**  **expenditures and**  **employment levels**  **were calculated**  **for the** 

**base case**  **and at**  **each TSL.**  **The impacts**  **on domestic**  **employment due**  **to standards**  **can be** 

**assessed by**  **comparing the**  **domestic employment**  **results in**  **the base**  **case to**  **the results**  **at each** 

**TSL. In**  **the GRIM,**  **the employment**  **results represent**  **U.S. production**  **workers that**  **are impacted** 

**by this**  **rulemaking. U.S.**  **workers involved**  **in manufacturing**  **or supporting**  **products for**  **exports**

**would not**  **be impacted**  **and are**  **not included**  **as part**  **of the**  **labor impacts.** 

13.9.7.2 Standard Size PTAC and PTHP Industry Results

**The GRIM**  **calculates that**  **the standard**  **size PTAC**  **and PTHP**  **industry labor**  **expenditure**

**for production**  **labor in**  **2012 is**  **approximately $9**  **million. Using**  **the $7**  **wage rate**  **and 1,688** 

**production hours**  **per year**  **per employee**  **found in**  **the engineering**  **analysis and**  **the 35**  **percent**

**domestic production**  **market share,**  **the GRIM**  **estimates there**  **are approximately**  **276 U.S.** 

**production employees**  **involved in**  **manufacturing standard**  **size PTACs**  **and PTHPs**  **covered by** 

**this rulemaking.**  **In addition,**  **DOE estimates**  **that there**  **are 83**  **non­production employees**  **in the** 

**U.S. The**  **employment spreadsheet**  **of the**  **GRIM shows**  **the annual**  **domestic employment** 

**impacts in**  **further detail.**  **Table 13.9.7**  **shows a**  **summary of**  **the possible**  **impacts on**  **direct**

**employment due**  **to standards**  **for the**  **standard size**  **PTAC and**  **PTHP industry**  **in 2012,**  **the date** 

**the amended**  **energy conservation**  **become effective,**  **compared to**  **the base**  **case.**

Table 13.9.7 Direct Employment Summary for Standard Size PTAC and PTHP Industry

Units Base

Case Trial Standard Level

1 2 3 A 4 5 6

Production Labor

Expenditures (PLE) in 2012 **2007$ Millions**  **9 9**  **9 9**  **9 9**  **9 10** 

Change in PLE from Base

Case **2007$ Millions** 

**­ 0.1**  **0.1 0.1**  **0.1 0.1**  **0.2 0.3** 

Conversion of change in

PLE to Number of Domestic

Production Employees **# of**  **workers**

**­ 1**  **2 3**  **3 3**  **6 9** 

Domestic Production

Employment in 2012 **# of**  **workers 276**  **277 278**  **279 278**  **279 281**  **285**

Non­production

employment in 2012 **# of**  **workers 83**  **83 83**  **83 83**  **84 84**  **85**

Total Employment **# of**  **workers 358**  **360 361**  **362 362**  **362 365**  **370**

Change in Domestic

Employment in 2012 **%**

**­ 0.5**  **0.8 1.1**  **1.1 1.2**  **2.1 3.3** 

**13­64 Figure**  **13.9.1 shows**  **the standard**  **size PTAC**  **and PTHP**  **industry total**  **annual domestic** 

**employment levels**  **for each**  **TSL calculated**  **by the**  **GRIM.**

0 100 200 300 400 500 600 700 800

2006 20 08 2010 20 1 2 2014 2016 2018 2020 2022 2024

2 0 26 2028 20 3 0 2032

2 0 34 2036 20 3 8 2040 2042

YearTotalDomesticEmployment(#ofJobs)

Baseline TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.9.1 Total Standard Size PTAC and PTHP Industry Domestic Employment by

Year

**Currently, DOE**  **estimates approximately**  **35 percent**  **of the**  **standard size**  **PTACs and** 

**PTHPs sold**  **in the**  **U.S. are**  **manufactured in**  **the U.S.**  **Because most**  **standard size**  **PTACs and** 

**PTHPs are**  **produced abroad,**  **any amended**  **standards have**  **a larger**  **impact on**  **labor in**  **other**

**countries. U.S.**  **companies are**  **all still**  **impacted by**  **the equipment**  **conversion and**  **capital**

**conversion expenses,**  **and higher**  **MPCs. However,**  **the impacts**  **of standards**  **on domestic** 

**employment would**  **be small.**  **DOE expects**  **that there**  **would be**  **positive employment**  **impacts**

**among domestic**  **standard size**  **PTAC and**  **PTHP manufacturers**  **for TSL**  **1 through**  **TSL 6.** 

**Because production**  **employment expenditures**  **are assumed**  **to be**  **a fixed**  **percentage of**  **cost of** 

**goods sold**  **and the**  **MPCs increase**  **with more**  **efficient equipment,**  **labor tracks**  **the increased** 

**prices in**  **the GRIM.**  **The incremental**  **costs for**  **more efficient**  **components or**  **redesigned heat** 

**exchangers at**  **all TSLs**  **are relatively**  **small. In**  **response to**  **standards, domestic**  **manufacturers**

**would most**  **likely not**  **alter employment**  **levels much**  **because inserting**  **a more**  **efficient**

**component or**  **fabrication of**  **redesigned coils**  **does not**  **necessarily require**  **more labor.**  **The minor** 

**increases in**  **employment are**  **thus reasonable.** 

**The employment**  **conclusions for**  **the standard**  **size PTAC**  **and PTHP**  **ignore the**  **possible**

**relocation of**  **domestic jobs**  **to lower­labor­cost**  **countries, which**  **may occur**  **independently of**  **new**

**standards or**  **which may**  **be influenced**  **by the**  **level of**  **investments required**  **by amended** 

**standards. Since**  **most standard**  **size PTACs**  **and PTHPs**  **are imported**  **and the**  **employment**

**impacts in**  **the GRIM**  **are small,**  **the actual**  **impacts on**  **domestic employment**  **would be**  **mostly**

**impacted if**  **any domestic**  **manufacturer decided**  **to shift**  **remaining domestic**  **production to**  **lower**

**13­65 cost­countries.**  **Any standard**  **that requires**  **a substantial**  **investment or**  **adds a**  **per unit**  **cost could** 

**force domestic**  **manufacturers to**  **consider relocation.**  **Because the**  **incremental cost**  **increases and** 

**necessary conversion**  **investments are**  **relatively low,**  **it is**  **less likely**  **that the**  **remaining domestic** 

**manufacturing jobs**  **will be**  **eliminated in**  **response to**  **amended energy**  **conservation standards**  **for**

**standard size**  **PTACs and**  **PTHPs.**

13.9.7.3 Non­Standard Size PTAC and PTHP Industry Results

**The GRIM**  **calculates that**  **the non­standard**  **size PTAC**  **and PTHP**  **industry labor** 

**expenditure for**  **production labor**  **in 2012**  **is approximately**  **$2 million.**  **Using the**  **$14.64 wage** 

**rate and**  **1,688 production**  **hours per**  **year per**  **employee found**  **in the**  **engineering analysis**  **and the** 

**100 percent**  **domestic production**  **market share,**  **the GRIM**  **estimates there**  **are approximately**  **81**

**U.S. production**  **employees involved**  **in manufacturing**  **non­standard size**  **PTACs and**  **PTHPs**

**covered by**  **this rulemaking.**  **In addition,**  **DOE estimates**  **that there**  **are 24**  **non­production**

**employees in**  **the U.S.**  **The employment**  **spreadsheet of**  **the GRIM**  **shows the**  **annual domestic** 

**employment impacts**  **in further**  **detail.**

**Due to**  **a possible**  **drop in**  **shipments in**  **response to**  **standards and**  **the uncertainties**  **of**

**manufacturers’ business**  **decisions in**  **response to**  **standards, DOE**  **bounded the**  **range of**  **potential**

**impacts of**  **amended energy**  **conservation standards**  **on domestic**  **production employment**  **for the** 

**non­standard size**  **PTAC and**  **PTHP industry.**  **For the**  **upper bound,**  **the direct**  **employment**

**impact analysis**  **estimates the**  **U.S. production**  **workers that**  **are impacted**  **by this**  **rulemaking**

**assuming shipment**  **levels and**  **equipment availability**  **remains at**  **the levels**  **experienced in**  **the**

**current market**  **(i.e., base**  **case). To**  **calculate the**  **lower bound**  **of the**  **range of**  **potential impacts,** 

**DOE developed**  **a scenario**  **where either**  **shipments drop**  **in response**  **to standards**  **or**

**manufacturers respond**  **to higher**  **labor requirements**  **by shifting**  **production to**  **lower­labor­cost**

**countries.**

**Table 13.9.7**  **shows the**  **possible impacts**  **on direct**  **employment due**  **to standards**  **for the** 

**non­standard size**  **PTAC and**  **PTHP industry.** 

**13­66**Table 13.9.8 Direct Employment Summary Results for Non­Standard Size PTAC and

PTHP Industry

Units Base

Case Trial Standard Level

1 2 3 4 5

Production Labor

Expenditures (PLE) in

2012 **2007$ Millions**  **2 2**  **2 2**  **2 2** 

Change in PLE from

Base Case **2007$ Millions** 

**­ 0.01**  **0.02 0.03**  **0.03 0.05** 

Conversion of change in

PLE to Number of

Domestic Production

Employees **# of**  **workers**

**­ 1**  **1 1**  **1 2** 

Domestic Production

Employment in 2012 **# of**  **workers 81**  **82 82**  **82 82**  **83**

Non production

employment in 2012 **# of**  **workers 24**  **24 25**  **25 25**  **25**

Total Employment **# of**  **workers 105**  **106 106**  **107 107**  **108**

Range of Total

Employment **# of**  **workers**

**­ (106)**  **­ 1 (106)**  **­ 1 (107)**  **­ 1 (107)**  **­ 1 (108)**  **­ 2**

Change in Domestic

Employment in 2012 **%**

**­ 0.7**  **1.0 1.4**  **1.5 2.6** 

**Figure 13.9.2**  **shows the**  **non­standard size**  **PTAC and**  **PTHP industry**  **total annual** 

**domestic employment**  **levels for**  **each TSL**  **calculated by**  **the GRIM.** 

0 20 40 60 80 100 120

2006

2 0 0 8

2 0 1 0 2012

2 0 14

2 0 1 6 20 1 8

2 0 20

2 0 2 2 20 2 4 2026

2 0 28

2 0 3 0 20 3 2

2 0 34

2 0 36 20 3 8 20 4 0

2 0 42

YearTotalDomesticEmployment(#ofJobs)

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation

Standards Effective Date

January 2012 R­22 Refrigerant

Phaseout Date

January 2010

Figure 13.9.2 Total Non­Standard Size PTAC and PTHP Industry Domestic Employment

by Year

**13­67 According**  **to DOE**  **research, all**  **of the**  **non­standard size**  **PTACs and**  **PTHPs sold**  **in the** 

**U.S. are**  **manufactured domestically.**  **Thus, the**  **equipment conversion**  **costs, conversion**  **capital**

**expenses, and**  **likely higher**  **MPCs for**  **non­standard size**  **PTACs and**  **PTHPs have**  **direct impacts** 

**on domestic**  **manufacturing labor.**  **Assuming shipments**  **and equipment**  **availability do**  **not**

**change from**  **current levels**  **(i.e., do**  **not vary**  **from the**  **base case**  **scenario), the**  **impacts of** 

**standards on**  **domestic employment**  **would be**  **small. DOE**  **expects that**  **there would**  **be positive** 

**employment impacts**  **among domestic**  **non­standard size**  **PTAC and**  **PTHP manufacturers**  **for**

**TSL 1**  **through TSL**  **5 even**  **with the**  **base case**  **projected shipment**  **decreases. Because**  **production**

**employment expenditures**  **are assumed**  **to be**  **a fixed**  **percentage of**  **COGS and**  **the MPCs**  **increase**

**with more**  **efficient equipment,**  **higher efficiency**  **levels result**  **in higher**  **labor requirements.**  **The**

**base case**  **estimates that**  **domestic employment**  **levels will**  **continues to**  **track the**  **decreasing**

**revenue trend**  **in this**  **industry. In**  **response to**  **standards, domestic**  **manufacturers would**  **most**

**likely not**  **alter employment**  **levels much**  **as the**  **adoption of**  **more efficient**  **components or** 

**fabrication of**  **redesigned coils**  **does not**  **necessarily require**  **more labor.**  **The minor**  **increases in** 

**employment are**  **reasonable.**

**In the**  **pessimistic scenario**  **or lower**  **bound, DOE**  **estimated that**  **the greater**  **labor**

**requirements could**  **displace all**  **U.S. production**  **workers in**  **the non­standard**  **industry due**  **to**

**plant relocations**  **or their**  **employers’ exiting**  **the market.**  **The wide**  **scope of**  **non­standard**

**equipment platforms**  **(about 40)**  **and low**  **production volumes**  **combined result**  **in high**  **per­unit**

**fixed conversion­costs**  **impacts. The**  **many small**  **businesses operating**  **in the**  **non­standard size** 

**PTAC and**  **PTHP industry**  **would be**  **hit especially**  **hard due**  **to their**  **focus on**  **just this**  **industry**

**and low**  **capitalization. As**  **a result,**  **such small**  **businesses may**  **not be**  **capable or**  **willing to**  **make**

**the necessary**  **investments to**  **remain in**  **the industry**  **on their**  **own after**  **the energy**  **conservation**

**standards rulemaking**  **takes effect.**  **Manufacturers could**  **also choose**  **to merge**  **and consolidate** 

**multiple operations,**  **relocate plants**  **abroad, or**  **exit the**  **business altogether.**  **Thus, the**  **likely**

**impacts on**  **domestic employment**  **range from**  **employment reductions**  **to a**  **net total**  **loss of** 

**domestic jobs**  **in this**  **pessimistic scenario.** 

13.9.8 Manufacturing Capacity

**According to**  **the majority**  **of standard**  **and non­standard**  **size PTAC**  **and PTHP** 

**manufacturers, amended**  **energy conservation**  **standards will**  **not significantly**  **impact the** 

**manufacturer’s production**  **capacity, as**  **any necessary**  **redesign of**  **PTACs and**  **PTHPs will**  **not**

**change the**  **fundamental assembly**  **of the**  **equipment. However,**  **manufacturers anticipate**  **some**

**changes to**  **the way**  **they assemble**  **PTACs and**  **PTHPs as**  **they convert**  **to R­410A**  **refrigerant and** 

**different lubricating**  **oils inside**  **the refrigerant.**  **Additional assembly**  **may also**  **be needed**  **if the** 

**number of**  **fan motors**  **increases. Thus,**  **DOE believes**  **manufacturers will**  **be able**  **to maintain** 

**production capacity**  **levels and**  **continue to**  **meet market**  **demand under**  **amended energy** 

**conservation standards.** 

13.9.9 Cumulative Regulatory Burden

**While any**  **one regulation**  **may not**  **impose a**  **significant burden**  **on manufacturers,**  **the**

**combined effects**  **of several**  **impending regulations**  **may have**  **serious consequences**  **for some** 

**manufacturers, groups**  **of manufacturers,**  **or an**  **entire industry.**  **Assessing the**  **impact of**  **a single** 

**regulation may**  **overlook this**  **cumulative regulatory**  **burden. For**  **the cumulative**  **regulatory**

**13­68 burden**  **analysis, DOE**  **describes other**  **product­specific regulations**  **that could**  **affect PTAC**  **and**

**PTHP manufactures**  **that will**  **take effect**  **three years**  **before or**  **three years**  **after the**  **effective date** 

**of the**  **amended energy**  **conservation standards**  **for PTACs**  **and PTHPs.**  **d**

**Companies that**  **produce a**  **wider range**  **of regulated**  **equipment may**  **be faced**  **with more** 

**capital and**  **equipment development**  **expenditures than**  **their competitors.**  **This can**  **prompt those** 

**companies to**  **exit the**  **market or**  **reduce their**  **equipment offerings,**  **potentially reducing** 

**competition. Smaller**  **companies can**  **be especially**  **impacted since**  **they have**  **lower sales**  **volumes**

**over which**  **to amortize**  **the costs**  **of meeting**  **new regulations.**  **DOE considers**  **that a**  **proposed**

**standard is**  **not economically**  **justified if**  **it contributes**  **to an**  **unacceptable level**  **of cumulative** 

**regulatory burden.** 

**As previously**  **mentioned, all**  **PTAC and**  **PTHP manufacturers**  **believe that**  **the refrigerant** 

**phaseout will**  **be the**  **biggest external**  **burden on**  **manufacturers. DOE**  **took all**  **comments and** 

**concerns into**  **consideration and**  **examined different**  **impacts the**  **refrigerant phaseout**  **would have** 

**on standard**  **and non­standard**  **size PTAC**  **and PTHP**  **industries. DOE**  **first examined**  **the possible** 

**impacts on**  **INPV from**  **converting current**  **production of**  **R­22 equipment**  **into R­410A**  **equipment**

**(see section**  **13.5.1). DOE**  **then examined**  **the possible**  **impacts of**  **amended energy**  **conservation**

**standards on**  **the R­410A**  **base case.**  **In other**  **words, DOE**  **examined the**  **cumulative impacts**  **of**

**both R­410A**  **conversion and**  **conformation to**  **amended energy**  **conservation standards**  **(see**

**sections 13.5.10).** 

13.9.9.1 Federal Regulations on PTACs and PTHPs and Other Equipment

Produced by the Same Manufacturers

**Besides the**  **conversion to**  **R­410A and**  **the energy**  **conservation regulations**  **on PTACs** 

**and PTHPs,**  **several other**  **Federal regulations**  **and pending**  **regulations apply**  **to other**  **equipment**

**produced by**  **the same**  **manufacturers. DOE**  **recognizes that**  **each regulation**  **can significantly** 

**impact manufacturers’**  **financial operations.**  **Multiple regulations**  **affecting the**  **same**

**manufacturer can**  **quickly strain**  **manufacturers’ profits**  **and possibly**  **cause an**  **exit from**  **the**

**market. The**  **most significant**  **of these**  **additional regulations**  **are the**  **EPA­mandated phaseout**  **of**

**HCFCs. Table**  **13.9.9 and**  **Table 13.9.10**  **lists the**  **Federal regulations**  **that could**  **also affect** 

**manufacturers of**  **the standard**  **size industry**  **and the**  **non­standard size**  **industry in**  **the three**  **years**

**leading up**  **to and**  **the three**  **years preceding**  **the effective**  **date of**  **the amended**  **energy**

**conservation standards**  **for this**  **equipment. It**  **must be**  **noted that**  **while the**  **list of**  **products is** 

**long, the**  **amount of**  **cumulative burden**  **on any**  **particular firm**  **is extremely**  **variable since**  **the**

**product scope**  **of each**  **company is**  **different.**

**d The**  **effective date**  **for non­standard**  **size PTAC**  **and PTHP**  **is two**  **years from**  **the date**  **of publication**  **of this**  **final rule** 

**(approximately September**  **2010). The**  **effective date**  **for standard**  **size PTAC**  **and PTHP**  **is four**  **years from**  **the date** 

**of publication**  **of this**  **final rule**  **(approximately September**  **2012).**

**13­69**Table 13.9.9 Other DOE and Federal Actions Affecting the Standard Size PTAC and

PTHP Industry

Regulation Approximate

Effective Date* Number of

Impacted

Companies

from the

MTA Estimated

Industry Total

Conversion

Expenses**

(millions)

**EPA Phaseout**  **of HCFC**  **refrigerant**

**on new**  **equipment Regulation**  **Effective**

**Date of**  **January 2010**  **10 $22**  **(2007$) e** 

**Room Air**  **Conditioners 2014** * **6 N/A**  **†**

**Residential Furnaces**  **2015*** **5 $97**  **(2006$) f** 

**Battery Chargers**  **2014*** **3 N/A**  **†**

**External Power**  **Supplies 2014** * **3 N/A**  **†**

**Residential Clothes**  **Washers 2014** * **3 N/A**  **†**

**Residential Refrigerators**  **and**

**Freezers 2010** * **3 N/A**  **†**

**Commercial Unitary**  **Air**

**Conditioners and**  **Heat Pumps**  **2010 3**  **N/A †** 

**Cooking Products**  **2012*** **3 N/A**  **†**

**Dehumidifiers 2012**  **3 N/A**  **†**

**Dishwashers 2012**  **3 N/A**  **†**

**Ceiling Fans**  **and Ceiling**  **Fan Light** 

**Kits 2010**  **2 N/A**  **†**

**Residential Water**  **Heaters 2015** * **1 N/A**  **†**

**Residential Fluorescent**  **and**

**Incandescent Lamps**  **2012*** **1 N/A**  **†**

**Commercial Clothes**  **Washers 2012** * **1 N/A**  **†**

**Commercial Refrigeration** 

**Equipment 2012** * **1 $112**  **(2007$) g** 

***The dates**  **listed are**  **an approximation.**  **The exact**  **dates are**  **pending final**  **DOE action.** 

****** **Total conversion**  **expenses include**  **both capital**  **and equipment**  **conversion expenses**  **for the**  **rulemaking specific** 

**industries.**

**† For**  **energy conservation**  **standards for**  **ongoing rulemakings**  **that are**  **awaiting DOE**  **final action,**  **DOE does**  **not**

**have finalized**  **estimated total**  **industry conversion**  **expense. For**  **minimum performance**  **requirements prescribed**  **by**

**EPACT 2005,**  **DOE did**  **not estimate**  **total industry**  **conversion expenses**  **because a**  **MIA was**  **not completed**  **as part**  **of**

**a rulemaking.**  **Pub. L.**  **109­58. For**  **minimum performance**  **requirements prescribed**  **by EISA**  **2007, DOE**  **did not** 

**estimate total**  **industry conversion**  **expenses because**  **a MIA**  **was not**  **completed as**  **part of**  **a rulemaking.**  **Pub. L.**  **110­**

**140.**

**e For**  **further explanation**  **of estimated**  **R­410A conversion**  **expenses for**  **the standard**  **size PTAC**  **and PTHP**  **industry**

**see sections**  **13.4.9.2 and**  **13.4.9.5 of**  **this TSD.** 

**f Estimated**  **industry conversion**  **expenses were**  **published in**  **the TSD**  **for the**  **November 2007**  **residential furnace** 

**final rule.**  **72 FR**  **65136. The**  **TSD for**  **the 2007**  **residential furnace**  **final rule**  **can be**  **found at:** 

**http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_fr.html.**

**g Estimated**  **industry conversion**  **expenses were**  **published in**  **the TSD**  **for the**  **August 2008**  **commercial refrigeration** 

**equipment NOPR.**  **73 FR**  **50119. The**  **TSD for**  **the 2008**  **commercial refrigeration**  **equipment NOPR**  **can be**  **found at:** 

**http://www1.eere.energy.gov/buildings/appliance_standards/commercial/refrig_equip_nopr.html.**

**13­70**Table 13.9.10 Other DOE and Federal Actions Affecting the Non­Standard Size PTAC and

PTHP Industry

Regulation Approximate Effective

Date* Number of Impacted

Companies from the

MTA Estimated Total

Conversion

Expenses**

**EPA phaseout**  **of HCFC** 

**refrigerant on**  **new**

**equipment Regulation**  **Effective Date**  **of**

**January 2010**  **7 $7.8**  **(2007$) h** 

**Room Air**  **Conditioners 2014** * **1 N/A**  **†**

**Residential Boilers**  **2012 1**  **$16 (2006$)**  **i**

**Commercial Unitary**  **Air**

**Conditioners and**  **Heat**

**Pumps 2010** * **1 N/A**  **†**

***The dates**  **listed are**  **an approximation.**  **The exact**  **dates are**  **pending final**  **DOE action** 

****** **Total conversion**  **expenses include**  **both capital**  **and equipment**  **conversion expenses.** 

**† For**  **energy conservation**  **standards for**  **ongoing rulemakings**  **that are**  **awaiting DOE**  **final action,**  **DOE does**  **not**

**have finalized**  **estimated total**  **industry conversion**  **expense. For**  **minimum performance**  **requirements prescribed**  **by**

**EPACT 2005,**  **DOE did**  **not estimate**  **total industry**  **conversion expenses**  **because a**  **MIA was**  **not completed**  **as part**  **of**

**a rulemaking.**  **Pub. L.**  **109­58. For**  **minimum performance**  **requirements prescribed**  **by EISA**  **2007, DOE**  **did not** 

**estimate total**  **industry conversion**  **expenses because**  **a MIA**  **was not**  **completed as**  **part of**  **a rulemaking.**  **Pub. L.**  **110­**

**140.**

**Additional investments**  **necessary to**  **meet these**  **potential standards**  **could have**  **significant**

**impacts on**  **manufacturers of**  **standard size**  **and non­standard**  **size PTACs**  **and PTHPs.**  **However,**

**DOE has**  **limited data**  **on the**  **importance of**  **these other**  **regulated products**  **for manufacturers**  **of**

**PTAC and**  **PTHP. Differences**  **in market**  **shares and**  **manufacturing processes**  **of other**  **regulated**

**products for**  **each manufacture**  **could cause**  **varying degrees**  **of burdens**  **on these**  **manufactures.**

**Therefore, DOE**  **did not**  **estimate the**  **cost of**  **compliance for**  **other regulations**  **other than**  **the**

**refrigerant phaseout**  **on the**  **PTAC and**  **PTHP manufacturer**  **industries.**

13.9.9.2 Restriction of Hazardous Substances Directive

**According to**  **manufacturers, the**  **Restriction of**  **Hazardous Substance**  **Directive j**  **(RoHS)**

**will have**  **some global**  **impact on**  **electrical and**  **electronic equipment**  **manufacturing. Under**  **the**

**directive, all**  **manufacturers are**  **banned from**  **placing on**  **the European**  **Union market**  **new**

**electrical and**  **electronic equipment**  **containing more**  **than agreed­to**  **levels of**  **lead, cadmium,** 

**mercury, hexavalent**  **chromium, polybrominated**  **biphenyl and**  **polybrominated diphenyl**  **ether**

**flame retardants.**  **Although there**  **is no**  **Federal regulation**  **on RoHS,**  **California has**  **passed SB**  **20:**

**Electronic Waste**  **Recycling Act**  **of 2003.**  **Under this**  **law, California**  **limits the**  **amount of** 

**hazards substances**  **included in**  **the RoHS**  **directive that**  **can be**  **sold in**  **California. Manufacturers** 

**of PTACs**  **and PTHPs**  **have said**  **that RoHS**  **will have**  **some impacts**  **in the**  **way the**  **electronic**

**h For**  **further explanation**  **of estimated**  **R­410A conversion**  **expenses for**  **the non­standard**  **size PTAC**  **and PTHP** 

**industry see**  **sections 13.4.9.2**  **and 13.4.9.5**  **of this**  **TSD.**

**i Estimated**  **industry conversion**  **expenses were**  **published in**  **the TSD**  **for the**  **November 2007**  **residential boilers**  **final**

**rule. 72**  **FR 65136.**  **The TSD**  **for the**  **2007 residential**  **boilers final**  **rule can**  **be found**  **at:**

**http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_fr.html.**

**j Further**  **information about**  **RoHS can**  **be found**  **at**

**http://eur­lex.europa.eu/LexUriServ/site/en/oj/2003/l_037/l_03720030213en00190023.pdf.**

**13­71 components**  **in the**  **PTACs and**  **PTHPs are**  **incorporated into**  **the design.**  **Currently, PTAC**  **and**

**PTHP manufacturers**  **have electronic**  **components in**  **the PTAC**  **and PTHP**  **design that**  **contains**

**substances banned**  **by the**  **RoHS. However,**  **manufacturers do**  **not anticipate**  **RoHS will** 

**significantly impact**  **the PTAC**  **and PTHP**  **industries.**

13.10 CONCLUSIONS

**The following**  **sections summarize**  **the different**  **impacts for**  **the two**  **scenarios DOE** 

**believes are**  **most likely**  **to capture**  **the range**  **of impacts**  **on standard­size**  **and non­standard**  **size**

**manufacturers as**  **a result**  **of both**  **amended energy**  **conservation standards**  **and refrigerant** 

**phaseout. DOE**  **also notes**  **that while**  **these two**  **scenarios bound**  **the range**  **of most**  **plausible**

**impacts on**  **manufacturers, there**  **potentially could**  **be circumstances,**  **which would**  **cause**

**manufacturers to**  **experience impacts**  **outside of**  **this range**  **and more**  **closely inline**  **with the**  **two**

**other scenarios**  **analyzed.**

**To assess**  **the higher**  **end of**  **the range**  **of potential**  **impacts for**  **both standard**  **and non** 

**standard size**  **PTAC and**  **PTHP industries,**  **DOE considered**  **the scenario**  **reflecting R­410A**  **base**

**case with**  **full cost**  **recovery and**  **amended energy**  **conservation standards**  **with full**  **cost recovery.** 

**This scenario**  **assumes that**  **manufactures will**  **fully recover**  **costs associated**  **with both**  **conversion**

**of equipment**  **to R­410A**  **refrigerant and**  **to conform**  **to new**  **amended energy**  **conservation**

**standards.**

**To assess**  **the lower**  **end of**  **the range**  **of potential**  **impacts for**  **both standard**  **and non** 

**standard size**  **PTAC and**  **PTHP manufacturers,**  **DOE considered**  **the scenario**  **reflecting R­410A** 

**base case**  **with full**  **cost recovery**  **and amended**  **energy conservation**  **standards with**  **50­percent**

**cost recovery.**  **This scenario**  **assumes that**  **manufacturers would**  **fully recover**  **costs associated** 

**with conversion**  **of the**  **equipment to**  **R­410A refrigerant,**  **but only**  **recover half**  **of the**  **costs**

**necessary for**  **equipment to**  **conform to**  **new amended**  **energy conservation**  **standards.**

13.10.1.1 Standard Size PTAC and PTHP Industry

**At TSL**  **1, the**  **impact on**  **INPV and**  **cash flow**  **varies greatly**  **depending on**  **the**

**manufacturers and**  **their ability**  **to pass**  **on increases**  **in MPCs**  **to the**  **customer. DOE**  **estimated**

**the impacts**  **in INPV**  **at TSL**  **1 to**  **range from**  **less than**  **­$3 million**  **up to**  **­$28 million,**  **or a**  **change**

**in INPV**  **of negative**  **0.8 percent**  **up to**  **negative 6.6**  **percent. At**  **this level,**  **the industry**  **cash flow** 

**decreases by**  **approximately 18.9**  **percent, to**  **$12 million,**  **compared to**  **the base**  **case value**  **of $15** 

**million in**  **the year**  **leading up**  **to the**  **standards. Since**  **more than**  **75 percent**  **of the**  **equipment**

**being sold**  **is already**  **at or**  **above this**  **level using**  **R­22 refrigerant,**  **those manufacturers**  **that do** 

**not fall**  **below the**  **efficiency levels**  **specified by**  **TSL 1**  **after the**  **refrigerant phaseout**  **will not** 

**have to**  **make additional**  **modifications to**  **their product**  **lines to**  **conform to**  **the amended**  **energy**

**conservation standards.**  **DOE expects**  **the lower**  **end of**  **the impacts**  **to be**  **reached, which** 

**indicates that**  **industry revenues**  **and costs**  **are not**  **significantly negatively**  **impacted as**  **long as** 

**manufacturers are**  **able to**  **fully recover**  **the increase**  **in manufacturer**  **production cost**  **from the** 

**customer.**

**TSL 2**  **is a**  **combination TSL,**  **which requires**  **PTACs to**  **be manufactured**  **at TSL**  **1**

**efficiency levels**  **and PTHPs**  **to be**  **manufacturers at**  **TSL 3**  **efficiency levels.**  **At TSL**  **2, the** 

**13­72 impact**  **on INPV**  **and cash**  **flow would**  **be similar**  **to TSL**  **1 and**  **dependent on**  **whether**

**manufacturers are**  **able to**  **fully recover**  **the increases**  **in MPCs**  **from the**  **customer. DOE** 

**estimated the**  **impacts in**  **INPV at**  **TSL 2**  **to range**  **from ­$6**  **million up**  **to ­$45**  **million, or**  **a**

**change in**  **INPV of**  **­1.4 percent**  **up to**  **­10.7 percent.**  **At this**  **level, the**  **industry cash**  **flow**

**decreases by**  **approximately 31.2**  **percent, to**  **$10 million,**  **compared to**  **the base**  **case value**  **of $15** 

**million in**  **the year**  **leading up**  **to the**  **standards. Up**  **to 75**  **percent of**  **PTACs and**  **up to**  **50 percent** 

**of PTHPs**  **being sold**  **are already**  **at or**  **above this**  **level using**  **R­22 refrigerant.**  **Similar to**  **TSL 1** 

**for PTACs,**  **manufacturers that**  **do not**  **fall below**  **TSL 1**  **after the**  **refrigerant phaseout**  **will not** 

**have to**  **make additional**  **modifications to**  **their product**  **lines to**  **conform to**  **TSL 2.**  **For PTHPs,** 

**the required**  **higher level**  **of efficiency**  **will cause**  **some manufactures**  **to make**  **additional**

**modifications to**  **their product**  **lines to**  **conform to**  **the amended**  **energy conservation**  **standards.**

**Even though**  **TSL 2**  **requires efficiency**  **levels that**  **are different**  **for PTACs**  **and PTHPs,**  **there are** 

**small differences**  **between the**  **EER values**  **for a**  **given capacity**  **in sleeve**  **size, which**  **will**

**minimize the**  **amount of**  **redesign manufacturers**  **will have**  **to undertake**  **to modify**  **their product** 

**lines. DOE**  **expects the**  **impacts of**  **TSL 2**  **on manufacturers**  **of standard**  **size PTACs**  **will be** 

**greater than**  **TSL 1,**  **but the**  **magnitude of**  **impacts largely**  **depends on**  **the ability**  **of manufacturers** 

**to fully**  **recover the**  **increase in**  **MPC from**  **the customer**  **and minimize**  **the level**  **of redesign** 

**between the**  **two efficiency**  **levels.**

**At TSL**  **3, the**  **impact on**  **INPV and**  **cash flow**  **continues to**  **vary depending**  **on the** 

**manufacturers and**  **their ability**  **to pass**  **on increases**  **in MPCs**  **to the**  **customer. DOE**  **estimated**

**the impacts**  **in INPV**  **at TSL**  **3 to**  **range from**  **approximately ­$3**  **million up**  **to ­$60**  **million, or**  **a**

**change in**  **INPV of**  **­0.8 percent**  **up to**  **­14.0 percent.**  **At this**  **level, the**  **industry cash**  **flow**

**decreases by**  **approximately 26.4**  **percent, to**  **$11 million,**  **compared to**  **the base**  **case value**  **of $15** 

**million in**  **the year**  **leading up**  **to the**  **standards. Currently**  **the bulk**  **of the**  **equipment being**  **sold is** 

**already at**  **or above**  **this level**  **using R­22**  **refrigerant. DOE**  **does not**  **expect industry**  **revenues and** 

**costs to**  **be impacted**  **significantly as**  **long as**  **standard size**  **PTAC and**  **PTHP manufacturers**  **are**

**able to**  **fully recover**  **the increase**  **in manufacturer**  **production cost**  **from the**  **customer.**

**TSL A**  **is a**  **modified version**  **of TSL**  **3 and**  **TSL 4,**  **which requires**  **lower cooling** 

**capacities to**  **meet more**  **stringent efficiency**  **levels and**  **higher cooling**  **capacities to**  **meet less** 

**stringent efficiency**  **levels. There**  **is a**  **0.2 EER**  **difference between**  **the efficiency**  **levels for** 

**PTHPs as**  **compared to**  **PTACs. At**  **TSL A,**  **DOE estimated**  **the impacts**  **in INPV**  **to range**  **from**

**approximately ­$8**  **million to**  **­$61 million,**  **or a**  **change in**  **INPV of**  **­1.9 percent**  **up to**  **­14.3**

**percent. At**  **this level,**  **the industry**  **cash flow**  **decreases by**  **approximately 41.6**  **percent, to**  **$9**

**million, compared**  **to the**  **base case**  **value of**  **$15 million**  **in the**  **year leading**  **up to**  **the standards.** 

**At higher**  **TSLs, manufacturers**  **have a**  **harder time**  **fully passing**  **on larger**  **increases in**  **MPCs to** 

**the customer.**  **At TSL**  **A, manufacturers**  **are concerned**  **about whether**  **they will**  **be able**  **to**

**produce PTHPs,**  **by the**  **effective date**  **of the**  **standards that**  **use R­410A**  **refrigerant. Based**  **on**

**information submitted**  **by industry,**  **manufacturers would**  **be required**  **to completely**  **redesign their** 

**PTHP equipment**  **lines. Most**  **equipment on**  **the market**  **is based**  **on an**  **equipment platform**  **that is** 

**shared between**  **the air**  **conditioning and**  **heat pump**  **models. Thus,**  **any requirement**  **to redesign** 

**either air**  **conditioning or**  **heat pump**  **models would**  **likely result**  **in manufacturers**  **electing to** 

**redesign their**  **entire equipment**  **line. Similar**  **to TSL**  **1, for**  **PTACs with**  **higher cooling** 

**capacities, manufacturers**  **that do**  **not fall**  **below TSL**  **1 after**  **the refrigerant**  **phaseout will**  **not**

**have to**  **make additional**  **modifications to**  **their PTAC**  **equipment lines**  **to conform**  **to TSL**  **A. Due** 

**to the**  **disparity between**  **efficiency levels**  **of standard**  **size PTACs**  **and PTHPs**  **specified by**  **TSL**

**13­73 A,**  **DOE initially**  **believes it**  **is more**  **likely that**  **the higher**  **end of**  **the range**  **of impacts**  **could be** 

**reached (i.e.,**  **a drop**  **of 14.3**  **percent in**  **INPV).**

**TSL 4**  **is a**  **combination TSL,**  **which requires**  **PTACs to**  **be manufactured**  **at TSL**  **1**

**efficiency levels**  **and PTHPs**  **to be**  **manufactured at**  **TSL 5**  **efficiency levels.**  **There is**  **a 0.4**  **EER**

**difference between**  **the efficiency**  **levels for**  **PTHPs as**  **compared to**  **PTACs. At**  **TSL 4,**  **DOE**

**estimated the**  **impacts in**  **INPV to**  **range from**  **approximately ­$8**  **million to**  **­$68 million,**  **or a** 

**change in**  **INPV of**  **­1.9 percent**  **up to**  **­16.0 percent.**  **At this**  **level, the**  **industry cash**  **flow**

**decreases by**  **approximately 44.4**  **percent, to**  **$8 million,**  **compared to**  **the base**  **case value**  **of $15** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **higher TSLs,**  **manufacturers have**  **a harder** 

**time fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer. At**  **TSL 4,**  **manufacturers**

**expressed concern**  **whether they**  **would be**  **able to**  **produce PTHPs,**  **by the**  **effective date**  **of the** 

**standards, that**  **use R­410A**  **refrigerant. Based**  **on information**  **submitted by**  **industry,**

**manufacturers would**  **be required**  **to completely**  **redesign their**  **PTHP equipment**  **lines. Most** 

**equipment on**  **the market**  **is based**  **on an**  **equipment platform**  **that is**  **shared between**  **the air** 

**conditioning and**  **heat pump**  **models. Thus,**  **any requirement**  **to redesign**  **either air**  **conditioning or** 

**heat pump**  **models would**  **likely result**  **in manufacturers**  **electing to**  **redesign their**  **entire**

**equipment line.**  **Similar to**  **TSL 1,**  **for PTACs**  **of all**  **cooling capacities,**  **manufacturers that**  **do not** 

**fall below**  **TSL 1**  **after the**  **refrigerant phaseout**  **will not**  **have to**  **make additional**  **modifications to** 

**their PTAC**  **equipment lines**  **to conform**  **to TSL**  **4. Due**  **to the**  **disparity between**  **efficiency levels** 

**of standard**  **size PTACs**  **and PTHPs**  **specified by**  **TSL 4,**  **DOE initially**  **believes it**  **is more**  **likely**

**that the**  **higher end**  **of the**  **range of**  **impacts could**  **be reached**  **(i.e., a**  **drop of**  **16.0 percent**  **in**

**INPV).**

**At TSL**  **5, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **approximately ­$1**  **million**

**up to**  **­$103 million,**  **or a**  **change in**  **INPV of**  **approximately ­0.2**  **percent up**  **to ­24.0**  **percent. At** 

**this level,**  **the industry**  **cash flow**  **decreases by**  **approximately 30.2**  **percent, to**  **$11 million,** 

**compared to**  **the base**  **case value**  **of $15**  **million in**  **the year**  **leading up**  **to the**  **standards. As**  **with**

**TSL 4,**  **standard size**  **PTAC and**  **PTHP manufacturers**  **continue to**  **have a**  **hard time**  **fully passing** 

**on larger**  **increases in**  **MPCs to**  **the customer.**  **At TSL**  **5, manufacturers**  **stated their**  **concerns over** 

**the ability**  **to be**  **able to**  **produce both**  **PTACs and**  **PTHPs by**  **the effective**  **date of**  **the standard** 

**utilizing R­410A**  **refrigerant. Using**  **the performance**  **degradations from**  **the engineering**  **analysis,**

**TSL 5**  **would correspond**  **to much**  **higher efficiencies**  **for both**  **PTACs and**  **PTHPs using**  **R­410A,**

**unless higher**  **efficiency compressors**  **enter the**  **market prior**  **to the**  **effective date**  **of amended** 

**energy conservation**  **standards. Based**  **on information**  **submitted by**  **industry, the**  **majority of** 

**manufacturers would**  **require a**  **complete redesign**  **of their**  **equipment. Thus,**  **DOE believes**  **it is** 

**likely impacts**  **on manufacturers**  **would trend**  **towards the**  **pessimistic scenario**  **at this**  **TSL.**

**At TSL**  **6 (max**  **tech), DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$4 million**  **up**

**to ­$164**  **million, or**  **a change**  **in INPV**  **of approximately**  **­0.9 percent**  **up to**  **­38.3 percent.**  **At this** 

**level, the**  **industry cash**  **flow decreases**  **by approximately**  **56.6 percent,**  **to $7**  **million, compared**  **to**

**the base**  **case value**  **of $15**  **million in**  **the year**  **leading up**  **to the**  **standards. At**  **this TSL,** 

**manufacturers have**  **a harder**  **time fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer, and** 

**therefore manufacturers**  **expect the**  **higher end**  **of the**  **range of**  **impacts to**  **be reached**  **(i.e., a**  **drop**

**of 38.3**  **percent in**  **INPV). Currently,**  **there are**  **only a**  **few models**  **being manufactured**  **at these** 

**efficiency levels,**  **which use**  **R­22 refrigerant.**  **Most manufacturers**  **did not**  **provide DOE**  **with**

**projected equipment**  **conversion costs**  **or capital**  **conversion costs**  **at this**  **level, since**  **they could** 

**13­74 not**  **conceive of**  **what designs**  **using R­410A**  **might achieve**  **this efficiency**  **level. The**  **industry**

**would experience**  **a slight**  **decrease in**  **net present**  **value if**  **it were**  **able to**  **fully pass**  **through to** 

**customers the**  **increase in**  **production costs**  **associated with**  **meeting new**  **amended energy** 

**conservation standards.**  **However, there**  **is a**  **risk of**  **very large**  **negative impacts**  **if manufacturers’** 

**expectations are**  **realized about**  **reducing profit**  **margins. During**  **the interviews,**  **manufacturers**

**expressed disbelief**  **at the**  **possibility of**  **manufacturing an**  **entire equipment**  **line at**  **the max­tech** 

**levels using**  **R­410A refrigerant.** 

13.10.1.2 Non­Standard Size PTAC and PTHP Industry

**At TSL**  **1, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$16 million**  **up to**  **­$17**

**million, or**  **a change**  **in INPV**  **of ­53.6**  **percent up**  **to ­57.8**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **397 percent,**  **­$6 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. Since**  **more than**  **half of**  **the equipment**  **being sold** 

**is already**  **at or**  **above this**  **level using**  **R­22 refrigerant,**  **those manufacturers**  **that do**  **not fall**  **below**

**TSL 1**  **using R­410A**  **refrigerant will**  **not have**  **to make**  **additional modifications**  **to their**  **product**

**lines to**  **conform to**  **the amended**  **energy conservation**  **standards. However,**  **equipment**

**conversion expenses**  **for non­standard**  **size manufacturers**  **are significantly**  **higher than**  **those of** 

**standard size**  **manufacturers. At**  **any efficiency**  **level above**  **baseline, the**  **industry incurs**  **total**

**equipment expenditures**  **of more**  **than $20**  **million, or**  **the equivalent**  **to more**  **than half**  **the**

**baseline INPV.**  **Manufacturers in**  **general need**  **to convert**  **multiple equipment**  **families without** 

**the same**  **access to**  **capital or**  **engineering resources**  **as larger**  **and more**  **established standard**  **size**

**equipment manufacturers.**  **If some**  **small, non­standard**  **manufactures cannot**  **invest the** 

**equipment and**  **capital conversion**  **costs necessary**  **to comply**  **with TSL**  **1 they**  **would be**  **forced to** 

**abandon their**  **equipment lines**  **and exit**  **the business.**  **Others could**  **be forced**  **to reduce**  **their**

**equipment offering**  **in order**  **to reduce**  **the magnitude**  **of the**  **investments required**  **to meet**  **TSL 1** 

**efficiency levels**  **for non­standard**  **levels. In**  **addition, the**  **lower volume**  **shipments of**  **non**

**standard manufacturers**  **prohibit spreading**  **costs into**  **higher number**  **of units.**  **The necessary** 

**equipment conversion**  **expenses significantly**  **impacts non­standard**  **size equipment** 

**manufacturer’s profits**  **and cash**  **flow, causing**  **the INPV**  **to decrease**  **by more**  **than half.** 

**At any**  **TSL above**  **1, manufacturers**  **stated their**  **concerns about**  **their ability**  **to produce** 

**this equipment**  **by the**  **effective date**  **of the**  **standard utilizing**  **R­410A. Based**  **on information** 

**submitted by**  **industry, manufacturers**  **would require**  **a complete**  **redesign of**  **their non­standard** 

**PTAC and**  **PTHP platforms.**  **Many manufacturers**  **stated they**  **would be**  **unwilling to**  **completely**

**redesign non­standard**  **size equipment**  **because of**  **the small**  **size of**  **the market**  **and the**  **declining**

**sales. Manufacturers**  **also commented**  **non­standard size**  **PTACs and**  **PTHPs are**  **manufactured to** 

**order based**  **on unique**  **building designs**  **for replacement**  **applications. Therefore,**  **manufacturers**

**did not**  **see the**  **advantage to**  **completely redesigning**  **non­standard size**  **PTACs and**  **PTHPs for**  **a**

**small and**  **declining market.** 

**At TSL**  **2, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$17 million**  **up to**  **­$19**

**million, or**  **a change**  **in INPV**  **of ­57.6**  **percent up**  **to ­63.8**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **429 percent,**  **­$7 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **this level,**  **the majority**  **of the**  **industry is** 

**impacted. At**  **higher TSLs,**  **manufacturers expect**  **greater difficulty**  **fully passing**  **on larger** 

**increases in**  **MPCs to**  **the customer,**  **thus manufacturers**  **expect the**  **higher end**  **of the**  **range of** 

**13­75 impacts**  **to be**  **reached (i.e.,**  **a drop**  **of 63.8**  **percent in**  **INPV). As**  **with any**  **level above**  **baseline,**

**manufacturers are**  **further significantly**  **impacted by**  **the equipment**  **conversion expenditures.**  **At**

**TSL 2,**  **the industry**  **incurs total**  **equipment expenditures**  **of approximately**  **$21 million.**  **With low** 

**volumes and**  **less access**  **to capital,**  **the non­standard**  **size PTAC**  **and PTHP**  **INPV decreases**  **by**

**more than**  **half.**

**At TSL**  **3, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$17 million**  **up to**  **­$20**

**million, or**  **a change**  **in INPV**  **of ­56.3**  **percent up**  **to ­65.4**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **421 percent,**  **­$7 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **higher TSLs,**  **manufacturers expect**  **greater**

**difficulty fully**  **passing on**  **larger increases**  **in MPCs**  **to the**  **customer, thus**  **manufacturers expect** 

**the higher**  **end of**  **the range**  **of impacts**  **to be**  **reached (i.e.,**  **a drop**  **of 65.4**  **percent in**  **INPV).**

**Manufacturers stated**  **the level**  **of re­design**  **required to**  **manufacturer all**  **the equipment**  **lines and** 

**cooling capacity**  **ranges would**  **be so**  **extensive that**  **they would**  **consider not**  **investing the**  **time,**

**research, or**  **development efforts**  **necessary to**  **make equipment**  **utilizing R­410A**  **at TSL**  **3.**

**At TSL**  **4, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$21 million**  **up to**  **­$23**

**million, or**  **a change**  **in INPV**  **of ­68.5**  **percent up**  **to ­78.0**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **513 percent,**  **­$9 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. At**  **TSL 4,**  **manufacturers stated**  **their concerns** 

**over the**  **ability to**  **be able**  **to produce**  **PTHPs by**  **the effective**  **date of**  **the standards**  **utilizing R** 

**410A refrigerant.**  **Using the**  **performance degradations**  **from the**  **engineering analysis,**  **TSL 4** 

**would correspond**  **to significantly**  **higher efficiency**  **levels for**  **the equipment**  **unless higher** 

**efficiency compressors**  **enter the**  **market prior**  **to the**  **effective date**  **of amended**  **energy**

**conservation standards.**  **Based on**  **information submitted**  **by industry,**  **manufacturers would**  **be**

**required to**  **completely redesign**  **their PTHP**  **equipment lines.** 

**At TSL**  **5, DOE**  **estimated the**  **impacts in**  **INPV to**  **range from**  **­$20 million**  **up to**  **­$24**

**million, or**  **a change**  **in INPV**  **of ­64.8**  **percent up**  **to ­81.2**  **percent. At**  **this level,**  **the industry**  **cash**

**flow decreases**  **by approximately**  **493 percent,**  **­$8 million,**  **compared to**  **the base**  **case value**  **of $2** 

**million in**  **the year**  **leading up**  **to the**  **standards. Currently,**  **there are**  **very few**  **equipment lines** 

**being manufactured**  **that have**  **efficiency level**  **at or**  **above TSL**  **5 utilizing**  **R­22 refrigerant.**  **All**

**manufacturers stated**  **that this**  **level could**  **not be**  **achieved with**  **current technologies**  **after the** 

**refrigerant phaseout.** 

**13­76 REFERENCES** 

**1 The**  **American Society**  **of Heating,**  **Refrigerating, and**  **Air­Conditioning Engineers** 

**(ASHRAE). ANSI/ASHRAE/IESNA**  **Standard 90.1**  **1999,** “Energy Standard for

Buildings Except Low­Rise Residential Buildings.” **1999. See**  **www.ashrae.org for**  **more**

**information.**

**2 McKinsey**  **& Company,**  **Inc.** Valuation: Measuring and Managing the Value of

Companies, 3 rd Edition, Copeland, Koller, Murrin. **New York:**  **John Wiley**  **& Sons,**  **2000.**

**3 Securities**  **and Exchange**  **Commission (SEC),**  Annual 10­K Reports

**, Various**  **Years,**

**Washington D.C.,**  **< www.sec.gov**  **>.**

**4 McKinsey**  **& Company,**  **Inc. 2000.**  Op. cit.

**5 SEC.**  Op. cit.

**13­77**