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Office of Energy Efficiency and Renewable Energy

10 CFR Part 430 

## Energy Conservation Program for Consumer Products: Central Air 

## Conditioners and Heat Pumps Energy Conservation Standards; Proposed Rule

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59590 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

DEPARTMENT OF ENERGY participation in this rulemaking A. Life-Cycle-Cost and Payback Period proceeding in Section VIII, "Public Analysis Office of Energy Efficiency and Comment Procedures," of this notice of B.National Energy Savings and Net Present Renewable Energy proposed rulemaking. Value Analysis You mayread copies ofthe public 1. anufacturer Iact nalysis 1.Phase l,IndustryProfile 10 CFR Part430 comments, the Technical Support 2.Phase 2,Industry Cash FlowAnalysis [Docket Number -RM97-00] ) Document for Energy Efficiency 3.Phase 3,Sub-Group Impact Analysis Standards for Consumer Products: 4.GRIM Analysis RIN: 1904-AA77 ~ Central Air Conditioners and Heat D. NEMS Environmental Analysis Pumps (TSD), the transcript ofthe V.Discussion ofComments Energy Conservation Program for public hearing, and previous workshop A.Engineering Cost Data Consumer Products: Central Air transcripts in this proceeding at the 1.Reverse Engineering Cost Estimates Conditioners and Heat Pumps Energy DOE Freedom of Information (FOI) 2.Productivity Efficiency Improvements Conservation StandardsReading Room U.S Dpartment of3. Emerging Technologies ConservatonSt ReadingRoom, U.S. Department of 4.HFC-Based Engineering Analysis AGENCY: Office ofEnergy Efficiency and Energy, Forrestal Building, Room 1E- B.Life-Cycle-Cost Parameters Renewable Energy, Department of 190, 1000 Independence Avenue, SW., 1.Extended Warranty and Service Costs Energy. Washington, DC 20585, (202-586-3142, 2.Residential Energy Consumption Survey ACTION: Notice ofproposed rulemaking between the hours of9 a.m. and 4 p.m., (RECS) and public hearing. Monday through Friday, except Federal 3.Equipment Lifetime holidays. You may obtain copies ofthe 4.Commercial Applications SUMMARY: Pursuant to the Energy Policy TSD and analysis spreadsheets from the 5.Marginal Electricity Prices and Conservation Act, as amended, the Office ofEnergy Efficiency and 6. Forecast ofFuture Electricity Prices 7.Discount Rates Department ofEnergy (DOE, Renewable Energy's (EERE) web site at: 8.Percentage of Households with LCC Department, or we) is proposing to http://www.eren.doe.gov/buildings/ Savings amend the energy conservation codes_standards/applbrf/ 9. Regional Analysis standards for residential central air centralairconditioner.html. 10. Rebuttable Payback conditioners and heat pumps to require FOR FURTHER INFORMATION CONTACT: Dr. Sensitivity Analyses them tobe more energy efficient, and is ichael E. McCabe, U.S. Department of C.Shipments Analysis announcing a public hearing on the Energy, Office ofEnergy Efficiency and 2.Elasticities proposal. Renewable Energy, Forrestal Building, 3.Equipment Efficiency DATES: Comments mustbe received on EE-41, 1000 Independence Avenue, 4. Fuel Switching

or before December 4, 2000. DOE is SW., Washington, DC 20585-0121, (202) D.National Energy SavingsAnalysis requesting a signed original, a computer 586-0854, e-mail: 1. Uncertainty in NES Results diskette (WordPerfect 8) and 10 copies michael.e.mccabe@ee.doe.gov, or 2. Site-to-Source Conversion ofthe written comments. The Edward Levy, Esq., U.S. Department of E.Consumer Sub-Group Analysis, Low Department will also accept e-mailed Energy, Office ofGeneral Counsel, Income Renters comments, but you must send a signed Forrestal Building, GC-72, 1000 Utility ad Environmental Analysis comment,. Peak PowerImpacts, Reliability original. Oral views, data, and Independence Avenue, SW. 2. Quantitative Assessment ofImpacts on arguments maybe presented at the Washington, DC 20585, (202) 586-9507, Peak Demand public hearing (workshop) in e-mail: edward.levy@hq.doe.gov. 3.Qualitative Assessment ofAir Washington, DC beginning at 9 a.m. on SUPPLEMENTARY INFORMATION: Conditioning Standards Impact on Power November 16, 2000. System Reliability

The Department must receive requests Table of Contents 4.Competitive Residential Market to speak at the public hearing and a I.Summary ofProposed Rule G.Manufacturer Impact Analysis-Low copy ofyour statements no later than 4 II.Introduction Volume Manufacturers p.m., November 1, 2000, and we request A. Authority H. Markups that you provide a computer diskette B.Background I EER-Based Efficiency Standard (WordPerfect 8) ofeach statement atthat 1.Cuent Standards

. Current Relationship between SEER and ti(Wme.n a 2.History ofPrevious Rulemakings EER time. 3.Process Improvement 2.Options for Possible EER Standards ADDRESSES: Please submit written III. General Discussion I. Niche Products comments, oral statements, and requests A. TestProcedures 1.Ductless Split Air Conditioners and Heat
to speak at the public hearing to: Brenda B.Technological Feasibility Pumps Edwards-Jones, U.S. Department of 1.General 2.Small DuctHigh Velocity Air Energy, Office ofEnergy Efficiency and 2.Maximum Technologically Feasible Conditioners IRenewable Energy, Energy Conservation Levels 3.Vertical Packaged, Wall Mounted

nProgramfr ConsumerProdcts: Central C.Energy Savings 4. Through-the-Wall Condensers Program fo

Consumer Products: Central Determination ofSavings 5.Non-Weatherized Single-Package Unit, Air Conditioners and Heat Pumps, 2. Significance of Savings Mounted Entirely within the Structure Docket No. EE-RM/STD-97-500, 1000 D. Rebuttable Presumption 6. Request forComments RegardingNiche Independence Avenue, SW., E.Economic Justification Product Standards Washington, DC 20585-0121. You may 1.Economic Impact on Manufacturers and K.Thermostatic Expansion Valves send emails to: brenda.edwards- Consumers L.Other Comments jones@ee.doe.gov. 2.Life-Cycle Costs 1.Latent Heat Removal

The hearing will begin at 9 a.m., in 3.Energy Savings 2.3-Phase Equipment Room 1E-245 at the U.S. Department of 4. Lessening, IfAny, ofUtility or 3.SEER-HSPF Relationship Performance ofProducts 4.Max Tech Energy, Forrestal Building, 1000 5.Impact ofAny Lessening ofCompetition VI. Analytical Results Independence Avenue, SW., 6. Need ofThe Nation toConserve Energy A. Trial Standard Levels Washington DC. You can find more 7.Other Factors B.Significance ofEnergy Savings information concerning public IV.Methodology C.Payback Period 

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59590 Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430
[Docket Number

# E97~ RIN: 1904-AAn Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: 

### Office ofEnergy Efficiency and RenewableEnergy, Departmentof Energy.
ACTION: 

### Notice ofproposed rulemaking and publichearing.

SUMMARY: 

### Pursuantto theEnergy Policy and Conservation Act, as amended, the Department ofEnergy (DOE, Department, orwe) is proposing to amendthe energy conservation standards for residential central air conditioners and heatpumpstorequire them to bemore energy efficient, and is announcinga publichearing onthe proposal.

DATES: 

### Comments mustbe received on
or before December4,2000. DOE is requesting a signed original, a computer diskette (WordPerfect 8) and 10 copies ofthe written comments. The Department will also accept e-mailed comments,butyou must send a signed original. Oral views, data, and arguments maybe presented at the publichearing (workshop) in Washington, DC beginning at 9 a.m. on November 16, 2000.

The Department mustreceiverequests to speak atthepublichearing and a copy ofyour statements no laterthan 4 p.m., November 1, 2000, and we request that you provide a computer diskette (WordPerfect 8) ofeach statement atthat time.

ADDRESSES: 

### Please submit written comments, oral statements, and requests to speak at the publichearing to: Brenda Edwards-Jones, U.S. Department of Energy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps, Docket No. EE-RM/STD-97-500, 1000 IndependenceAvenue, SW., Washington, DC 20585-0121. You may send emails to: brenda.edwardsjones@ee.doe.gov.

Thehearingwill begin at 9 a.m., in Room 1E-245 at the U.S. Department of Energy, Forrestal Building, 1000 IndependenceAvenue, SW., Washington DC. You can find more information concerning public participation inthis rulemaking proceeding in Section VIII, "Public CommentProcedures," ofthis notice of proposedrulemaking.

You mayread copies ofthe public comments, the Technical Support Document for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps (TSD), the transcript ofthe publichearing, and previous workshop transcripts inthis proceeding at the DOE Freedom ofInformation (FO!) Reading Room, U.S. Department of Energy, Forrestal Building, Room IE

### 190,1000IndependenceAvenue, SW., Washington, DC 20585, (202-586-3142, between thehours of9 a.m. and 4 p.m., Mondaythrough Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheetsfrom the Office ofEnergy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov!buildings/ codes_standards/applbrf/ central air conditioner.html.

FOR FURTHER INFORMATION CONTACT: 

### Dr. Michael E. 

### McCabe, U.S. Department of Energy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-0854, e-mail: michael.e.mccabe@ee.doe.gov, or Edward Levy, Esq., U.S. Department of Energy, Office ofGeneral Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-9507, e-mail: edward.levY@hq.doe.gov.

SUPPLEMENTARY INFORMATION: 

### Table ofContents

1. Summary ofProposed Rule II. Introduction

A. Authority B. Background 1. Current Standards 2. History ofPrevious Rulemakings 3. Process Improvement III. General Discussion

A. TestProcedures B. Technological Feasibility 1. General 2. Maximum Technologically Feasible

Levels C. Energy Savings 1. Determination ofSavings 2. Significance ofSavings D. RebuttablePresumption E. EconomicJustification 1. Economic Impact on Manufacturers and

Consumers 2. Life-Cycle Costs 3. Energy Savings 4. Lessening, IfAny, ofUtility or

Performance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofThe Nation to ConserveEnergy 7. Other Factors IV. Methodology A. Life-Cycle-Cost andPaybackPeriod Analysis B. National Energy Savings and Net Present

Value Analysis C. ManufacturerImpact Analysis 1. Phase 1. Industry Profile 2. Phase 2, Industry Cash FlowAnalysis 3. Phase 3, Sub-Group Impact Analysis 4. GRIM Analysis D. NEMS Environmental Analysis V. Discussion ofComments

A. EngineeringCost Data 1. Reverse EngineeringCostEstimates 2. ProductivityEfficiencyImprovements 3. Emerging Technologies 4. HFC-Based EngineeringAnalysis B. Life-Cycle-Cost Parameters

. 1. Extended Warranty and ServiceCosts 2. Residential Energy Consumption Survey

(RECS) 3. Equipment Lifetime 4. Commercial Applications 5. Marginal Electricity Prices 6. Forecast ofFutureElectricity Prices 7. DiscountRates 8. Percentage ofHouseholds with LCC

Savings 9. Regional AnalysiS 10.RebuttablePayback 11. Sensitivity Analyses C. Shipments Analysis 1. Forecasted Housing Shifts 2. Elasticities 3. EquipmentEfficiency 4. Fuel Switching D. National Energy Savings Analysis 1. Uncertainty in NES Results 2. Site-to-Source Conversion E. Consumer Sub-Group AnalYSiS, Low

Income Renters F. Utility and Environmental Analysis 1. PeakPowerImpacts, Reliability 2. QuantitativeAssessment ofImpacts on

PeakDemand 3. QualitativeAssessmentofAir

ConditioningStandards Impact on Power System Reliability 4. Competitive Residential Market G. ManufacturerImpact Analysis-Low

Volume Manufacturers H. Markups I. EER-Based Efficiency Standard 1. CurrentRelationship between SEER and

EER 2. Options for Possible EER Standards J. NicheProducts

. 1. Ductless Split Air Conditioners and Heat

Pumps 2. Small DuctHigh Velocity Air

Conditioners 3. VerticalPackaged, Wall Mounted 4. Through-the-Wall Condensers 5. Non-Weatherized Single-Package Unit,

Mounted Entirelywithin the Structure 6. Request for CommentsRegardingNiche

Product Standards K. Thermostatic Expansion Valves L. OtherComments 1. Latent HeatRemoval 2. 3-Phase Equipment 3. SEER-HSPF Relationship 4. Max Tech VI. Analytical Results

A. Trial StandardLevels B. Significance ofEnergy Savings C. PaybackPeriod

## EE-RM/STD-98-444-4O(

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59591

D.Economic Justification versions remain available for niche their products to respond to the phase1.Economic Impact on Manufacturers applications. outhydrochloroflourocarbons (HCFC's) 2.Life-Cycle Cost The proposed standards would save a refrigerants required by EPA. By making 3.Net Present Value and Net National significant amount of energy and, as a both changes at once, i.e., efficiency and

Employment result of less electricity being produced, HCFC refrigerants, manufacturers will 4.Impact on Utility or Performance of result in a cleaner environment. In the be able to plan and apply their resources

Products o Af C pio 25-year period after the new standards in a cost-effective manner, resulting in 6. Need ofthe Nation to Save Energy become effective, the nation would save lower burdens and costs. 7.Other Factors over 3.4 Quads 3ofprimary energy, . Introduction E.Conclusion equivalent to all the energy consumed VII. Procedural Issues and Regulatory Review by nearly 18 million American A. Authoirity

A.Review Under the National households in a single year. These Part B ofTitle III ofthe Energy Policy

Environmental Policy Act energy savings would also significantly and Conservation Act (EPCA), Pub. L. B.Review Under Executive Order 12866, reduce the emissions ofair pollutants 94-163, as amended by the National

"Regulatory Planning and Review' and greenhouse gases associated with Energy Conservation Policy Act of 1978, C. Review Under the Regulatory Flexibility electricity production, by avoiding the Pub L. 95-619, the National Appliance

Act emission of 56 million tons (Mt) of Energy Conservation Act, Pub. L. 100- D.Review Under the Paperwork Reduction Carbon and 52 thousand tons (kt) 12, the Nationalppl ce Energy

Act 12, the National Appliance Energy E.Review UnderExecutive Order 12988,Also, the Conservation Amendments of 1988,

"Civil Justice Reform" standards are expected to eliminate the Pub. L. 100-357, and the Energy Policy F. "Takings" Assessment Review need for the construction of Act of 1992, Pub. L. 102-486 s created G.Review Under Executive Order 13132 approximately 31 (4 coal-fired and 27 the Energy Conservation Program for H. Review Under the Unfunded Mandates natural gas-fired) new large, 400 Consumer Products other than

Reform Act megaWatt (MW), power plants in 2020. Automobiles. The consumer products I.Review Under the Treasury and General In addition to the increase proposed subject to this program (often referred to

Government Appropriations Act of 1999 in SEER and HSPF, we are proposing hereafter as "covered products") J.Review Underthe Plain Language and requesting public comments on a include central airconditioners and

Directives proposal to adopt a standard for steady- heat pumps. EPCA section 322(a)(4), 42 VIII. Public Comment state cooling efficiency, EER.4 A U.S.C. 6292(4

A. Written Comment Procedures requirement on EER would ensure more Under the Act, the program consists B.Public Workshop/Hearing efficient operation at high outdoor essentially offour parts: testing, 1.Procedure for Submitting Requests to temperature, during periods when labeling, Federal energy conservation

Speak electricity use by air conditioners is at standards, and certification and 2.Conduct ofHearing its peak. This wouldhelp tofurther enforcement procedures. The Federal C.Issues for Which DOE SeeksComment lt the ould hep to frther enforcement procedures. The Federal alleviate theneed for new electric Trade Commission is responsible for I. Summary ofProposed Rule power plants and reduce the demands labeling, and DOE implements the ^The Department is proposing to raise placed on the electric transmission and remainder ofthe program. Section 323 The Department is proposing to raise distribution systems during periods of of the Act authorizes theDepartment, the energy efficiency standards for high usage, thereby, improving system with asstace from e Nat residential air conditioners and central wit assistance from me National residential air conditioners and central reliability. Institute of Standards and Technology air conditioning heat pumps (heat Finally, consumers would see benefits (NIST) and subject to certain criteria pumps) to 12 SEER for air conditioners from the proposed standards. For and conditions, to develop test and to 13 SEER/7.7 HSPF 2for heat example, while the initial cost ofaconditions, to develop test pumps. The proposed standards would typical central air conditioner would efficiency, energy use, or estimated apply to all covered products offered for increase by $122 to $153 or about 10-or estimated sale in the United States, effective on ehheefficienc e ment annual operating cost of each covered narle e 2nnR th nsp staar 1z%, the high"er efficiency equipment product. 42 U.S.C. 6293. The central air January 1, 2006. The proposed standard would save enough over its life to pay conditioners and heat pump test for split system air conditioners, the for the increase in the price ofthe procedures appear at title 10 Code of most common type ofresidential air equipment plus an extra $45. Many Federal Regulations (CFR) part 430, conditioning equipment represents a consumers, especially air conditioner subpart B, Appendix M. 20% improvement in energy efficiency. owners in warmer parts ofthe country The Act prescribes initial Federal For split system heat pumps, the new and heat pump owners, would save energy conservation standards for each standards would represent a 30% even more. ofthe listed covered products, except improvement in cooling efficiency and While the higher efficiency units are television sets. EPCA section 325 (b)-

a 13% improvement in heating widely available today and promoted (k) 42 U.S.C. 6295 (b)-(k). For central efficiency. The proposed standards through the Department ofEnergy and air conditioners and heat pumps, EPCA would also increase the efficiency of the Environmental Protection Agency section 325(d)(3)(A) specifies that the packaged air conditioners and packaged (EPA) Energy Stare program, as well as heat pumps by 24% and 17%, utility rebate programs, manufacturers Part BofTitle IUof the Energy Policy and respectively. Finally, the Department is would be redesigning their product line conservation Act. as amended by the National proposing provisions for some special to meet the efficiency standards. At the Energy Conservation PolicyAct, theNational products to ensure that more efficient same time they would be redesigning Appliance Energy Conservation Act, theNational Appliance Energy Conservation Amendments of 1988, and theEnergy Policy Act of1992, is referred SEER, Seasonal Energy Efficiency Ratio, is the Quad, means quadrillion (10 s' Btus). toin this notice as the "Act," or "EPCA." Part B Department's measure of energy efficiency for the 4EER, Energy Efficiency Ratio, is a steady-state ofTitle IIff iscodified at 42 U.S.C. 6291 etseq. Part seasonal cooling performance of central air measure of energy efficiency which measures B of Title III ofthe Energy Policy andConservation conditioners and heat pumps. efficiency at a prescribed outdoor temperature Act, as amended by the National Energy

2HSPF, Heating Seasonal Performance Factor, is (95'F), and is one of the test conditions in the Conservation Policy Act only, is referred to in this the Department's measure of energy efficiency for Department's test procedure used to develop the notice as the National Energy Conservation Policy the seasonal heating performance ofheat pumps. SEER. Act. 

### Federal Register/ Vol. 65, No. 194/Th;rsday, October 5, 2000/Propos"ed Rules 

### 59591

D. EconomicJustification 1. Economic Impact on Manufacturers 2. Life-Cycle Cost 3. Net PresentValue and NetNational

Employment 4. Impacton Utility orPerformance of

Products 5. Impact ofAny Lessening ofCompetition 6. Need ofthe Nation to SaveEnergy
7. OtherFactors E. Conclusion VII. Procedural Issues and Regulatory Review

A. Review Underthe National

EnvironmentalPolicy Act B. Review UnderExecutive Order 12866.

"RegulatoryPlanning and Review' C. ReviewUnder the Regulatory Flexibility

Act D. Review UnderthePaperworkReduction

Act E. Review UnderExecutive Order 12988.

"CivilJusticeReform" F. "Takings" Assessment Review G. Review UnderExecutive Order 13132 H. Review Underthe Unfunded Mandates

Reform Act 1. Review Underthe Treasury and General

GovernmentAppropriations Act of 1999 J. Review Underthe Plain Language

Directives VIII. Public Comment

A. Written CommentProcedures B. Public Workshop/Hearing 1. Procedure for Submitting Requests to

Speak 2. Conduct ofHearing C. Issues for WhichDOE Seeks Comment


### I. Summary ofProposed Rule

The Department is proposing to raise the energy efficiency standards for residential air conditioners and central air conditioning heat pumps (heat pumps) to 12 SEER 1 

### for air conditioners and to 13 SEERl7.7 HSPF 2 

### for heat pumps. The proposed standards would applyto all covered products offered for sale inthe United States. effective on January 1. 2006. The proposed standard for split system airconditioners. the
most common type ofresidential air conditioning equipmentrepresents a 20% improvement inenergy efficiency. For split system heatpumps.the new standards wouldrepresent a 30% improvementin coolingefficiency and

a 13% improvement inheating efficiency. The proposed standards would also increase the efficiency of packaged air conditioners andpackaged heat pumpsby 24% and 17%. respectively. Finally. the Department is proposing provisions for some special products to ensure thatmore efficient

1 SEER. Seasonal Energy Efficiency Ratio. is the Department's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and heat pumps.

2 HSPF. Heating Seasonal Performance Factor. is the Department's measure ofenergy efficiency for the seasonalheating performance ofheat pumps. 

### versions remain available for niche applications.

The proposed standards would save a significant amount ofenergy and. as a result ofless electricitybeing produced, result in a cleaner environment. In the 25-year period after the new standards become effective. the nation would save
over 3.4 Quads3 

### ofprimary energy. equivalentto all the energy consumed by nearly 18 million American households in a single year. These energy savings would also significantly reduce the emissions ofairpollutants andgreenhousegases associated with electricity production.by avoiding the emission of56 milliontons (Mt) of Carbon and 52 thousand tons (kt) nitrogen oxides (NOx). Also. the standards are expected to eliminate the need for the construction of approximately 31 (4 coal-fired and 27 natural gas-fired) new large. 400 megaWatt (MW). powerplants in 2020.

In addition to the increase proposed in SEER and HSPF. we are proposing and requesting public comments on a proposal to adopt a standard for steadystate cooling efficiency. EER.4 A requirement onEER would ensure more efficient operation at high outdoor temperature. during periodswhen electricity use by air conditioners is at its peak. This would help to further alleviate the need for new electric powerplants andreduce the demands placed on the electric transmission and distribution systems duringperiods of high usage. thereby. improving system reliability

.

Finally. consumers would seebenefits from the proposed standards. For example. while theinitial cost ofa typical central air conditionerwould increase by $122 to $153 or about 10- 12%,

### thehigherefficiency equipment would save enough over its life to pay for the increase inthe price ofthe equipmentplus an extra $45. Many consumers, especially air conditioner

owners in warmerparts ofthe country and heatpump owners, would save
even more.

While thehigherefficiency units are widely available today andpromoted through theDepartment ofEnergy and theEnvironmental ProtectionAgency (EPA) Energy Star® program, as well as utility rebate programs, manufacturers wouldbe redesigning theirproductline to meet the efficiency standards. At the

same time they wouldbe redesigning

3 Quad. means quadrillion (10 " Btus).

• EER. Energy Efficiency Ratio. is a steady-state

measure ofenergy efficiency whichmeasures efficiency at a prescribed outdoortemperature (95°F). and is oneofthetost conditions intho Department's test procedureused to develop the SEER. 

### their products to respond to the phaseouthydrochloroflourocarbons (HCFC:s) refrigerants requiredbyEPA. By makmg both changes at once, 

### i.e., efficiency and HCFC refrigerants. manufacturers will be able to plan and apply theirresources in a cost-effective manner, resultingin lowerburdens and costs.
II.

### Introduction
A.

### Authority

Part B ofTitle III oftheEnergy Policy and Conservation Act (EPCA). Pub. L. 94-163. as amendedbytheNational Energy ConservationPolicy Act of 1978. Pub. L. 

### 95-619, the National Appliance Energy Conservation Act. Pub. L. 100- 12, the National ApplianceEnergy Conservation Amendments of 1988, Pub. L. 100-357. and theEnergy Policy Act of 1992, Pub. L. 

### 102-486 5 

### created the Energy Conservation Program for ConsumerProducts otherthan Automobiles. The consumerproducts subject to this program (often referred to hereafter as "covered products") include central air conditioners and heatpumps. EPCA section 322(a)(4), 42 U.S.C. 6292(a)(4). "

Underthe Act. theprogram consists essentially offour parts: testing. labeling, Federal energy conservation standards, and certification and enforcementprocedures. TheFederal Trade Commission is responsible for labeling, and DOE implements the remainder ofthe program. Section 323 ofthe Act authorizes theDepartment. with assistance from the National Institute ofStandards and Technology (NIST) and subjectto certain criteria and conditions. to develop test procedures to measure the**e~ergy** 

### efficiency, energy use. orestImated annual operating cost ofeach covered product. 42 

### U.S.c. 6293. 

### The central air conditioners and heatpumptest procedures appear at title 10 Code of Federal Regulations (CFR) part430, subpartB. AppendixM.

TheAct prescribes initial Federal energy conservation standards for each ofthe listed covered products, except television sets. EPCA section 325 (b)- 

### (k), 42 U.S.C. 6295 (b)-(k). For central air conditioners and heatpumps, EPCA section 325(d)(3)(A) specifies thatthe

5 Part BofTitleIII oftheEnergy Policy and Conservation Act. as amended bythe National Energy Conservation Policy Act. the National ApplianceEnergy Conservation Act. theNational ApplianceEnergy Conservation Amendments of 1988. and the Energy Policy Act of 1992. is referred to in this notice as the "Act." or "EPCA." Part B ofTitleIII is codified at 42 U.S.c. 6291 et seq. Part BofTitle III ofthe Energy Policy andConservation Act, as amended by the National Energy Conservation Policy Act only. is referred to in this notice as the National Energy Conservation Policy Act.

## ~* ep-Rrsl0 

# ; EEM/STD-98-440

59592 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

standards are to be reviewed by the test is an alternative path to establishing (3) The results ofpreliminary analyses Department no later than January 1, economic justification. for the engineering, LCC, payback and 1994. 42 U.S.C. 6295(d)(3)(A). Section 327 ofthe Act, 42 U.S.C. NES; and

Any new or amended standard must 6297, provides that generally the (4) The candidate energy conservation be designed so as to achieve the Federal energy efficiency requirements standard levels that the Department had maximum improvement in energy supersede State laws or regulations developed from these analyses. efficiency that is technologically concerning energy conservation testing, 3. Process Improvement feasible and economically justified. labeling, and standards, and specifies EPCA section 325(o)(2)(A), 42 U.S.C. limited exceptions to this general rule. The fiscal year (FY) 1996 6295(o)(2)(A). Moreover, the EPCA Section 327(a) through (c), 42 appropriations legislation imposed a Department may not prescribe a U.S.C. 6297 (a)through (c). The moratorium on proposed or final rules standard for: (1) Certain products, Department can grant a waiver of for appliance efficiency standards for including central air conditioners and preemption in accordance with the FY 1996. Pub. L. 104-134. During the heat pumps, ifno test procedure has procedures and other provisions of moratorium, the Department examined been established forthe product, or (2) Section 327(d) ofthe Act. 42 U.S.C. the appliance standards program and any product, ifDOE determines by rule 6297(d). how itwas working. Congress advised that a standard for the product either DOE to correct the standards-setting would not result in significant B. Background process and tobring together conservation ofenergy, or is not 1. Current Standards stakeholders (such as manufacturers and technologically feasible or economically environmentalists) for assistance. justified. EPCA section 325(o)(3), 42 The existing standards for residential Therefore, we consulted with energy U.S.C. 6295(o)(3). central air conditioners and heat pumps efficiency groups, manufacturers, trade

Section 325(o)(2)(B)(i), 42 U.S.C. have been in effect since 1992. Energy associations, state agencies, utilities and 6295(o)(2)(B)(i) provides that DOE must efficiency for air conditioner and heat other interested parties to provide input determine whether a standard is pump cooling has been defined by the to the process used to develop appliance economically justified, after receiving descriptor SEER. Energy efficiency for efficiency standards. As a result, onJuly comments on the proposed standard, heat pumps has been defined by the 15, 1996, the Department published a and whether the benefits ofthe standard descriptor, Heating Seasonal final rule: Procedures for Consideration exceed its burdens, based, to the greatest Performance Factor (HSPF) while ofNew or Revised Energy Conservation extent practicable, on a weighing ofthe operating during the heating season and Standards for Consumer Products following seven factors: by SEER while operating during the (referred to as the Process Rule) (61 FR

"(1) The economic impact ofthe standard cooling season. The current central air 36974), codified at 10 CFR part 430,

on the manufacturers and the consumers of conditioners and heat pumps efficiency subpart C, Appendix A. the products subject to such standard; standards are as follows: The Process Rule states that for

(2)The savings in operating costs Split system air conditioners and heat Pduts s u c h as central air throughout the estimated average life ofthe ums D

. conditioners and heat pumps, for which covered product in the type (or class) pumps-10 SEER/6.8 HSPF DOE issued a proposed rule prior to compared to any increase in the price of, or -Single package air conditioners and August 14,1996, DOE would conduct a in the initial charges for, or maintenance heat pumps-9.7 SEER/6.6 HSPF review to decide whether any ofthe expenses of, the covered products which are likely to result from the imposition ofthe 2. History ofPrevious Rulemakings analytical or procedural steps already

standard; completed should be repeated. (61 FR (3)The total projected amount ofenergy On September 8,1993, DOE 36982). DOE completed this review and * * *savings likely toresult directly from published an Advance Notice of decided to use the Process Rule, to the the imposition ofthe standard; Proposed Rulemaking (ANOPR) extent possible, in the development of

(4) Any lessening of the utility or the announcing the Department's intention the revised central air conditioners and performance of the covered products likely to to revise the existing central air heat pumps standards. result from the imposition ofthe standard; conditioner and heat pump efficiency We developed an analytical

(5)The impact ofany lessening of standard. (58 FR 47326). On November framework for the central air competition, as determined in writing by the 24,1999, DOE published a conditioners and heat pumps standards Attorney General, thatis likely to result from Supplemental ANOPR (hereinafter rulemaking for our stakeholders, which theimposition ofthe standard; referred to as the Supplemental we presented during a workshop on conservation; and ANOPR). 64 FR 66306. In the June 30,1998. The analytical framework

(7)Other factors the Secretary considers Supplemental ANOPR and during the described the different analyses (e.g., relevant." December 9,1999, public workshop, we LCC, payback and manufacturing

In addition, Section 325(o)(2)(B)(iii) of provided interested persons an impact analyses (MIA)) to be conducted, the Act, 42 U.S.C. 6295(o)(2)(B)(iii) opportunity to comment on several the method for conducting them, the use establishes a rebuttable presumption issues, including: ofnew LCC and NES spreadsheets, and that a standard is economically justified (1)The product classes that the the relationship ofthe various analyses. ifthe Secretary finds that "the Department planned to analyze; HI. GeneralDiscussion additional cost to the consumer of (2)The analytical framework, models purchasing a product complying with (e.g., the Government Regulatory Impact A. TestProcedures

an energy conservation standard level Model (GRIM)), and tools (e.g., a Monte Section 7(b) ofthe Process Rule states will be less than three times the value Carlo sampling methodology, and the that necessary modifications to test of the energy * * *savings during the life-cycle cost (LCC) and national energy procedures concerning efficiency first yearthat the consumer will receive savings (NES) spreadsheets) that the standards will be proposed before

as a result ofthe standard, as calculated Department was using in performing issuance of a proposed rule. Section 7(c) under the applicable test procedure analyses ofthe impacts of energy ofthe Process Rule states that a final * * * " The rebuttable presumption conservation standards; modified test procedure will be issued ' 

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standards are tobe reviewed by the Department no later thanJanuary 1, 1994.42 U.S.C. 6295(d)(3)(A).

Any new or amended standard must be designed so as to achieve the maximum improvement in energy efficiency that is technologically feasible and economicallyjustified. EPCA section 325(0)(2)(A), 42 U.S.c. 6295(0)(2)(A). Moreover, the Department may not prescribe a standard for: (1) Certain products, including central air conditioners and heatpumps, ifno test procedurehas been established for theproduct, or (2) any product, 

### ifDOE determinesbyrule that a standardfor the producteither would notresult in significant conservation ofenergy, oris not technologicallyfeasible or economically justified. EPCA section 325(0)(3), 42 U.S.c. 6295(0)(3).

Section 325(0)(2)(B)(i), 42 U.S.C. 6295(0)(2)(B)(i) provides thatDOE must determine whether a standard is economicallyjustified, after receiving comments onthe proposed standard, andwhetherthebenefits ofthe standard exceed its burdens,based, to thegreatest extent practicable, on a weighing ofthe following seven factors:

"(1)

### The economic impact ofthe standard

on the manufacturers and the consumers of the products subject to such standard;

(2) 

### The savings in operating costs throughout the estimated average life ofthe covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, ormaintenance expenses of, the covered products which are likely to result from the imposition ofthe standard;

(3) 

### The total projected amount ofenergy * * * 

### savings likely to result directly from the imposition ofthe standard;

(4) 

### Any lessening ofthe utility or the performance ofthe covered products likely to result from the imposition ofthe standard;

(5) 

### The impact ofany lessening of competition, as determined in writing by the Attorney General. thatis likely to result from the imposition ofthe standard;

(6) 

### The need for national energy conservation; and

(7) 

### Other factors the Secretary considers relevant."

In addition, Section 325(0)(2)(B)(iii) of theAct. 42 U.S.C. 6295(0)(2)(B)(iii), establishes a rebuttable presumption that a standardis economicallyjustified ifthe Secretary finds that "the additional cost to the consumer of purchasing a product complying with

an energy conservation standard level will be less than three times the value ofthe energy 

### * * * savings duringthe first yearthat the consumerwill receive

as a result ofthe standard, as calculated underthe applicabletest procedure * * 

### * "Therebuttable presumption test is an alternative path to establishing economicjustification.

Section 327 ofthe Act, 42 U.S.C. 6297, provides thatgenerallythe Federal energy efficiencyrequirements supersede State laws orregulations concerning energy conservation testing, labeling, and standards, and specifies limited exceptions to this general rule. EPCA Section 327(a) through (c), 42 U.S.C. 6297 (a) through (c). The Department can grant a waiverof preemption in accordance with the procedures and otherprovisions of Section 327(d) ofthe Act. 42 U.S.C. 6297(d).



### B. Background
1. Current Standards

The existing standards for residential central air conditioners and heatpumps havebeen in effect since 1992. Energy efficiency for air conditioner and heat pump cooling has been defined by the descriptor SEER. Energy efficiency for heatpumps has been definedbythe descriptor, Heating Seasonal Performance Factor (HSPF) while operating duringtheheating season and by SEER while operating duringthe cooling season. The currentcentralair conditioners and heat pumpsefficiency standards are as follows: -Split system air conditioners and heat

pumps-l0 SEER/6.8 HSPF -Single package air conditioners and

heat pumps-9.7 SEER/6.6 HSPF
2. History ofPrevious Rulemakings

On September 8,1993.DOE published an Advance Notice of Proposed Rulemaking (ANOPR) announcing the Department's intention torevise the existing central air conditioner and heat pump efficiency standard. (58 FR 47326). OnNovember 24,1999, DOE published a SupplementalANOPR (hereinafter referred to as the Supplemental ANOPR). 64 FR 66306. Inthe Supplemental ANOPR and duringthe December 9,1999,public workshop, we provided interested persons an opportunityto comment on several issues, including:

(1) Theproduct classes that the Departmentplanned to analyze;

(2) The analytical framework. models (e.g., 

### the GovernmentRegulatory Impact Model (GRIM)). and tools (e.g., 

### a Monte Carlo sampling methodology, and the life-cycle cost (LCC) and national energy savings (NES) spreadsheets) that the Department was using inperforming analyses ofthe impacts ofenergy conservation standards; (3) Theresults ofpreliminary analyses for the engineering, LCC, payback and NES; and

(4) The candidateenergyconservation standard levels that the Department had developed from these analyses.
3. Process Improvement

The fiscal year (FY) 1996 appropriations legislation imposed a moratorium onproposed orfinal rules for appliance efficiency standardsfor FY 1996. Pub. L. 104-134. During the moratorium, the Department examined the appliance standards program and how itwas working. Congress advised DOE to correctthe standards-setting process and to bringtogether stakeholders (such as manufacturers and environmentalists) for assistance. Therefore, we consulted with energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other interested parties to provide input to the process used to develop appliance efficiency standards. As a result, onJuly 15,1996,the Departmentpublished a final rule: Procedures for Consideration ofNew orRevised Energy Conservation Standards for ConsumerProducts (referred to as the Process Rule) (61 FR 36974), codified at 10 CFR part430, subpartC, Appendix A.



### TheProcess Rule statesthat for products, such as central air conditioners and heatpumps, for which DOE issued a proposedrule priorto August 14, 1996, DOE would conduct a reviewto decide whetherany ofthe analytical or procedural steps already completed shouldberepeated. (61 FR 36982). DOE completed this review and decidedto use the Process Rule, to the extent possible, in the development of the revised central air conditioners and heat pumps standards.

We developed an analytical framework for the central air conditioners and heatpumps standards rulemaking for our stakeholders, which

we presented during a workshop on June 30, 1998. The analytical framework described the different analyses (e.g., 

### LCC, payback and manufacturing impact analyses (MIA)) to be conducted. the method for conductingthem, the use ofnew LCC and NES spreadsheets, and therelationship ofthevarious analyses.
ITI. General Discussion

A. 

### Test Procedures

Section 7(b) ofthe Process Rule states that necessary modifications to test procedures concerningefficiency standards will be proposed before issuance ofa proposedrule. Section 7(c) ofthe Process Rule states that a final modified testprocedure will be issued

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prior to issuing a proposed rule savings over the period ofanalysis for standard level is economicallyjustified. A regarding energy conservation candidate standards relative to the base determination bythe Secretary that such standards. The residential central air case. The Department quantified the criterion isnot met shall notbe taken into conditioner and heat pump test energy savings that would be consideration in theSecretary's determination ofwhether a standard is procedure isbeing revised to improve attributable to a standard as the determiatio f ete a staa i economically justified." its organization and ease of use, with a difference in energy consumption proposed rule to bepublished. This between the candidate standards case Ifthe increase in initial price ofan revision ofthe test procedure is not and thebase case. The base case appliance due to a conservation expected to alter the measured represents the forecast of energy standard would repay itself to the efficiencies as determined under the consumption in the absence of amended consumer in energy savings in less than existing test procedure. Therefore, the mandatory efficiency standards. three years, thenwe presume that such revised test procedure would not affect The NES spreadsheet model is standard is economically justified. 8 This development ofrevised efficiency described in Section IV.B ofthis notice, presumption of economicjustification standards. For these reasons, revisions Appendix ofthe Technical Support can be rebutted upon a proper showing.
to the test procedure arenot a Document and also in the Supplemental E. Economic ustiication "necessary modification" as that term is ANOPR. (64 FR 66306). The NES used in the Process Rule, but rather a spreadsheet model calculates the energy As noted earlier, section routine update, and hence need not be savings in site energy or kilowatt-hours 325(o)(2)(B)(i) ofthe Act provides seven finalized before issuance ofthe (kWh). Site energy is the energy directly factors tobe evaluated in determining proposed rule for these standards. consumed at building sites by thewhether a conservation standard is B. TechnologicalFeasibility central air conditioner or heat pump. economically justified. National energy savings are expressed in 1. Economic Impact on Manufacturers 1. General terms ofthe source energy savings and Consumers

There are central air conditioners and which isthe savings in energy used to The Process Rule established heat pumps in the market at all ofthe generate and transmit the electricityures, in tais d efficiency levels analyzed in today's consumed at the site. Chapter 7 ofthe procedures, interpretations and policies notice. The Department, therefore, TSD contains a table offactors used to toguide theDepartment in the believes all ofthe efficiency levels convert kWh to Btu. These conversion consideration of new or revised discussed in today's notice are factors, which change with time, are appliance efficiency standards. The technologically feasible. derived from DOE's Energy Information povisions ofthe rule have direct Administration's (EIA) Annual Energy bearing on the implementation of 2. Maximum Technologically Feasible Outlook 2000 (AE02000). manufacturer impact analyses. First, the Levels Department will use an annual cash The Act r s te Dt in a 2. Significance of Savings flow approach in determining the The Act requires theDepartment, in a g g 11 g proposed rule that sets forth new or The Act prohibits the Department quantitative impacts on manufacturers. amended standards, to "determine the from adopting a standard for a product This includes a short-term assessment maximum improvement in energy ifthat standard would notresult in based on the cost and capital efficiency * * * that is technologically "significant" energy savings. EPCA requirements during the period between feasible for each type (or class) of section 325(o)(3)(B), 42 U.S.C. the announcement ofa regulation and covered products." EPCA section 325 6295(o)(3)(B). While the termthe time when the regulation comes into (p)(2), 42 U.S.C. 6295(p)(2). "significant" is not defined in the Act, effect, and a long-term assessment. Accordingly, for each class ofproduct the U.S. Court ofAppeals, in Natur Impacts analyzed include industry net under consideration in this rulemaking, ResourcesDefense Councilv. present value, cash flows by year,

a maximum technologically feasible Herrington,768 F.2d 1355, 1373 (D.C. changes in revenue and income, and (Max Tech) level was identified. Cir. 1985), indicated that Congress other measures ofimpact, as

As previously stated in Section I.B, intended "significant" energy savings in appropriate. Second, the Department residential central air conditioner and this context to be savings that were not will analyze and report the impacts on heat pump cooling efficiency is "genuinely trivial." The energy savings different types ofmanufacturers, with expressed as a SEER. Heating efficiency for all of the trial standard levels particular attention to impacts on small is expressed as a HSPF. The most considered in this rulemaking are non- manufacturers. Third, the Department efficient technology presently available trivial and therefore we consider them will consider the impact of standards on is a 3-ton 18 SEER central air "significant" within the meaning of domestic manufacturer employment, conditioner. The Department has section 325 ofthe Act. manufacturing capacity, plant closures determined that at this time 18 SEER is and loss ofcapital investment. Finally, the Max Tech level for cooling D. R ebuttablePresumption the Department will take into account efficiency for all product classes and The National Appliance Energy cumulative impacts ofdifferent DOE capacities in this analysis. The Max Conservation Act established new regulations on manufacturers. Tech level for heating efficiency, criteria for determining whether a For consumers, measures ofeconomic corresponding tothe 18 SEER level, is standard level is economically justified. impact are the changes in installed cost 9.4 HSPF which is the highest HSPF EPCA section 325(o)(2)(B)(iii) states: and annual operating costs, i.e., LCC. rating currently available in residential "Ifthe Secretary finds that the additional The life-cycle cost ofthe product at each heat pumps. cost to the consumer ofpurchasing a productstandard level are presented in Chapter 

## ~C.~ EnergySavings complying with an energy conservation C. EnergySavingsstandard level willbe less than three times For this calculation, the Department calculated 1. Determination of Savings the value ofthe energy * * *savings during cost-of-operation based onthe DOEtest procedure. 

### the first year that the consumer will rceive with thetest procedure assumed annual hoursof theThe Denartment estimad erfirst year that e r e operation. Consumers that use the central air The Department estimated energy as a result ofthe standard, as calculated conditioner or heat pump fewerhours will savings through the use of the NES under the applicable test procedure, there experience a longer payback while those that use spreadsheet, which forecasted energy shall be a rebuttable presumption that such them more will haveashorter payback.

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priorto issuing a proposed rule regarding energy conservation standards. Theresidential central air conditioner and heat pump test procedure is being revised to improve its organization and ease ofuse, with a proposedrule tobepublished. This revision ofthe testprocedure is not expected to alterthemeasured efficiencies as determined underthe existing test procedure. Therefore, the revised testprocedurewould not affect development ofrevised efficiency standards. Forthese reasons, revisions tothe testprocedure arenot a "necessarymodification" as thatterm is used intheProcess Rule, butrather a routine update, and hence need notbe finalized before issuance ofthe proposedrule for these standards.

B. 

### Technological Feasibility
1. General

There are central airconditioners and heatpumps inthe market at all ofthe efficiency levels analyzed intoday's notice. The Department, therefore, believes all ofthe efficiency levels discussed in today's notice are technologicallyfeasible.
2. Maximum TechnologicallyFeasible Levels

TheAct requires theDepartment, in a proposedrule that sets forth new or amended standards, to "determinethe maximum improvement**i~**

### energy efficiency 

### * * * that is technologically feasible for eachtype (or class) of covered products."EPCA section 325 (p)(2), 42 U.S.C. 6295(p)(2). Accordingly, for each class ofproduct underconsideration inthis rulemaking,

a maximumtechnologically feasible (Max Tech) level was identified.

As previously stated in Section 11.B, residential central airconditionerand heatpump cooling efficiency is expressed as a SEER. Heating efficiency is expressed as a HSPF. The most efficienttechnologypresentlyavailable is a 3-ton 18 SEER central air conditioner. TheDepartmenthas determined that atthis time 18 SEER is the Max Tech level for cooling efficiency for all product classes and capacities inthis analysis. The Max Tech level for heating efficiency, corresponding to the 18 SEER level, is 9.4 HSPF which is the highest HSPF rating currently available inresidential heat pumps. C. 

### EnergySavings
1. Determination ofSavings

TheDepartment estimated energy savings through the use ofthe NES spreadsheet, whichforecasted energy savings overthe period ofanalysiS for candidate standardsrelative to the base

case. TheDepartment quantified the energy savings that wouldbe attributable to a standard as the difference in energy consumption between the candidate standards case and thebase case. The base case represents the forecast ofenergy consumption inthe absence ofamended mandatory efficiency standards.

The NES spreadsheet model is described in Section IV.B ofthis notice, Appendix ofthe Technical Support Document and also inthe Supplemental ANOPR. (64 FR 66306). The NES spreadsheet model calculates the energy savings in site energy or kilowatt-hours (kWh). Site energy is the energy directly consumed atbuilding sites by the central airconditioner orheat pump. National energy savings are expressed in terms ofthe source**e~ergy** 

### savings whichis the savings inenergy used to generate and transmit the electricity consumed at the site. Chapter 7 ofthe TSD contains a table offactors usedto convert kWh to Btu. These conversion factors, which change with time, are derived from DOE's Energy Information Administration's (ElA) Annual Energy Outlook 2000 (AE02000).
2. Significance ofSavings

The Actprohibits the Department from adopting a standard for a product ifthat standard would not result in "significant" energy savings. EPCA section 325(0)(3)(B), 42 U.S.C. 6295(0)(3)(B). While the term "significant" is not defined in the Act, the U.S. Court ofAppeals, in

### Natural ResourcesDefense Council v. 

### Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended "significant" energy savings in tllis contexttobe savings thatwere not "genuinelytrivial." The energy savings for all ofthe trial standard levels considered inthis rulemaking are nontrivial and therefore we consider them "Significant" within the meaning of section 325 ofthe Act.


### D. RebuttablePresumption

The National Appliance Energy Conservation Act established new criteria for determining whethera standard level is economicallyjustified. EPCA section 325(0)(2)(B)(iii) states:

"Ifthe Secretaryfinds that the additional cost to the consumerofpurchasing a product complying with an energy conservation standard level will be less than three times the value ofthe energy * * * savings during the first yearthat the consumer will receive

as a result ofthe standard, as calculated lmder the applicable test procedure, there shall be arebuttable presumptionthat such standardlevel is economicallyjustified. A determination by the Secretary that such criterion is notmet shall notbe taken into considerationinthe Secretary's determination ofwhether a standard is economicallyjustified."

If

### theincrease in initial price ofan appliance due to a conservation standard would repay itselfto the

consumerin energy savings inlessthan three years, thenwepresumethat such standard is economicallyjustified. 6 

### This presumption ofeconomicjustification

canbe rebutted upon a proper showing.


### E. EconomicJustification

As noted earlier, section 325(0)(2)(B)(i) ofthe Act provides seven factors tobe evaluated in determining whether a conservation standard is economicallyjustified.
1. Economic Impact onManufacturers and Consumers

The ProcessRule established procedures, interpretations andpolicies to guide the Department inthe consideration ofnew orrevised appliance efficiency standards. The provisions ofthe rulehave direct bearing onthe implementation of manufacturer impact analyses. First, the Departmentwill use an annual cash flow approach indeterminingthe quantitative impacts on manufacturers. This includes a short-term assessment based on the cost and capital requirements duringtheperiodbetween theannouncElment ofa regulation and the time whentheregulation comes into eUect, and a long-term assessment. Impacts analyzed includeindustry net presentvalue, cash flows byyear, changes inrevenue and income, and other measures ofimpact, as appropriate. Second, theDepartment will analyze andreportthe impacts on different types ofmanufacturers, with particularattention to impacts on small manufacturers. Third, the Department will considerthe impact ofstandards on domestic manufacturer employment, manufacturing capacity, plantclosures and loss ofcapital investment. Finally, theDepartment will take into account cumulative impacts ofdifferent DOE regulations on manufacturers.

For consumers, measures ofeconomic impact are the changes in installed cost and annual operating costs, 

### i.e., LCC. The life-cycle cost ofthe productat each standard level are presented in Chapter

• For this calculation. the Department calculated cost-of-operation based onthe DOE test procodure. withthetest procedure assumed annual hours of operation. Consumers that use the central air conditioner orheat pump fewer hours will experience a longer payback whilethose that use them more will havo a shorter payback-as 

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5 ofthe TSD. Under section 325 ofthe the total projected energy savings that accelerate the rulemaking process and Act, the life-cycle cost analysis is a are expected toresult directly from advance the publication of a final rule separate factor to be considered in revised standards. The Department used for central air conditioners by six determining economic justification. the NES spreadsheet results, discussed months. 2.

Life-Ccle Costs earlier, in its consideration oftotal The Final Report 7by the team of 2.Life-Cycle Cosprojected savings. The savings are experts, issued in March, 2000, The life-cycle cost is the sum ofthe provided in section V ofthis notice. included the recommendation to purchase price, including the increase the energy efficiency ofcentral installation, and the operating expense, 4. Lessening, ifAny, ofUtility or air conditioners as one means for including operating energy, Performance ofProducts enhancing reliability. The report stated, maintenance, and repair expenditures, This factor cannot be quantified. In "Technologies and practices that reduce discounted over the lifetime ofthe establishing classes ofproducts, and in loads during times ofpeak demand, appliance. evaluating design options and the such as high-efficiency air conditioning

For each central air conditioner and impact ofpotential standard levels, the and lighting equipment, are especially heat pump product class, we calculated Department tried to eliminate any valuable." This was based on the both life-cycle costs and life cycle cost degradation ofutility or performance in finding that in several ofthe affected savings for the following space-cooling the products under consideration in this regions "Retail customers have limited efficiency levels: 11, 12, 13, and 18 rulemaking. None ofthe proposed trial mechanisms and incentives to conserve SEER. For heat pumps, the following standard levels reduces the performance energy or resort to alternatives during space-heating efficiency levels ofcentral air conditioners and heat electricity shortages." Included in the correspond to the above SEER values: pumps. federal activities that promote energy 7.1, 7.4, 7.7, and 8.8 HSPF, respectively. efficiency recommended to the The calculated life-cycle cost savings is 5. Impact of Any Lessening ofefcey ecommenet given as a distribution, with a mean Competition Secretary was to promulgate standards given d a range. We

sed

a dirbuio, Aa ea 

## ~ opeitofor more efficient technologies. value and a range. We used a The Act directs the Department to s an additional element to consider distribution ofreal discount rates consider any lessening ofcompetition under this factor, the Secretary has ranging from 0.1 to 18% for the that is likely to result from standards. It decided to evaluate the life-cycle cost calculations. The assumption is that the further directs the Attorney General to impacts on those subgroups of
consumer purchases the central air determine the impact, ifany, ofany consumers who are at or below the conditioner and/or heat pump in 2006. lessening ofcompetition likely to result povert line (eg., for a family offour For the probability-based LCC analysis, from a proposed standard and transmit this constitutes a household income of
a building-by-building analysis is such determination to the Secretary, not less than $16 036). performed for purposes of generating a later than 60 days after the publication distribution oflife-cycle costs for each of a proposed rule, together with an IV. Methodology efficiency level analyzed. The building analysis ofthe nature and extent of such The Process Rule outlines the stock is composed ofboth residential impact. Section 325(o)(2)(B)(i)(V) and procedural improvements identified by and commercial buildings under the (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V) and the interested parties. 61 FR 36974. The assumption that 90% of single-phase (B)(ii). process improvement effort also central air conditioners and heat pumps In order to assist the Attorney General included a review ofthe: (1) Economic

are utilized in residential buildings with in making such a determination, the models; (2) analytical tools; (3) theremaining 10% in commercial Department has provided the Attorney methodologies; (4) non-regulatory buildings. The 1997 Residential Energy General with copies ofthis notice and approaches; and (5) prioritization of Consumption Survey (RECS) is used to the Technical Support Document for future rules. represent the residential building stock review. The Department continues to use two while 77 commercial buildings are used to represent the commercial building 6. Need ofthe Nation To Conserve spreadsheet tools to meet the objectives stock based on assumptions consistent E gy ofthe Process Rule. The first with those used in the process to update We report the environmental effects spreadsheet calculates life-cycle-costs ASHRAE Standard 90.1-1999. Annual from each standard level for each and payback periods ofpotential new energy costs are based on marginal product under this factor in Section VI energy conservation standards. The electricity prices which are developed ofthis notice. second conducts shipments forecasts for each residential and commercial and then calculates national energy building. Electricity price forecasts are 7. Other Factors savings and net present value impacts of building.Electricity price forecasts are taken from the AEO2000 (DOE/EIA- During the extreme periods ofheat potential new energy conservation 0383). The LCC calculations include and humidity that took place in the standards. The Department also markup structures developed forboth summer of 1999, electric power outages completely revised the methodology the new construction and replacement/ and other system disturbances disrupted used in assessing manufacturer impacts retrofit markets. Chapter 5 ofthe TSD the lives ofmillions ofpeople and including the adoption ofthe GRIM. contains the details ofthe LCC thousands ofbusinesses in various Additionally, DOE has estimated the calculations including those considered regions ofour country. In response to impacts of central air conditioner and under factor seven below. public concerns about this problem, the heat pump energy efficiency standards Secretary ofEnergy formed a team of on electric utilities and the 3. Energy Savings experts to investigate the problem and environment. The Department used a

While significant conservation of torecommend actions that the Federal version ofEIA's National Energy
energy is a separate statutory government can take to help avoid Modeling System (NEMS) for theutility requirement for imposing an energy future power outages by improving the conservation standard, the Act requires reliability ofthe U.S. electric power ort of the U.S. Department ofEnergy's Power Outage Study Team: Findings and DOE, in determining the economic system. One ofthe actions proposed by Recommendations toEnhance Reliability from the justification ofa standard, to consider the Secretary at that time was to Summer of 1999", March 2000.

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5 ofthe TSD. Under section 325 ofthe Act, the life-cycle cost analysis is a separate factor to be considered in determining economicjustification.
2. Life-Cycle Costs

The life-cycle cost is the sum ofthe purchase price, including the installation, and the operating expense, including operating energy, maintenance, andrepair expenditures, discounted overthe lifetime ofthe appliance.

For each central air conditionerand heatpumpproductclass, we calculated both life-cycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 

### 12, 13, and 18 SEER. Forheatpumps, the following space-heating efficiency levels correspondtothe above SEER values: 7.1,7.4,7.7, and 8.8 HSPF, respectively. The calculated life-cycle cost savings is given as a distribution, with a mean value and a range. We used a distribution ofreal discountrates ranging from 0.1 to 18% for the calculations. The assumption is thatthe

consumerpurchases the central air conditionerand/orheatpump in 2006. For theprobability-based LCC analysis,

a building-by-buildinganalysis is performed for purposes ofgenerating a distribution oflife-cycle costs for each efficiency level analyzed. Thebuilding stock is composed ofbothresidential and commercialbuildings underthe assumption that 90% ofsingle-phase central airconditioners and heat pumps
are utilized inresIdential buildings with theremaining 10% in commercial buildings. The 1997 Residential Energy Consumption Survey (RECS) isusedto representtheresidential building stock while 77 commercial buildings are used torepresent the commercial building stockbased on assumptions consistent with those used intheprocess toupdate ASHRAE Standard 90.1-1999. Annual energy costs are based onmarginal electricity prices which are developed for each residential and commercial building. Electricity price forecasts are taken from the AE02000 (DOE/EIA

### 0383). TheLCC calculations include markup structures developed for both the new construction andreplacement/ retrofit markets. Chapter 5 oftheTSD contains the details ofthe LCC calculations includingthose considered underfactor seven below.
3. Energy Savings

While significant conservation of energy is a separate statutory requirement for imposing an energy conservation standard, the Act requires DOE, in determiningthe economic justification ofa standard, to consider the total projected energy savings that

are expected to result directly from revised standards. The Department used the NES spreadsheetresults, discussed earlier, in its consideration oftotal projected savings. The savings are provided in sectionVofthis notice.
4. Lessening, ifAny, ofUtility or Performance ofProducts

This factor cannotbe quantified. In establishing classes ofproducts, and in evaluating design options and the impact ofpotential standard levels, the Departmenttried to eliminate any degradation ofutility orperformance in the productsunderconsideration inthis rulemaking. None ofthe proposed trial standard levels reduces the performance ofcentral airconditioners and heat pumps. 5. Impact ofAny Lessening of Competition

The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. It 

### further directs the Attorney General to determine the impact, ifany, ofany lessening ofcompetition likely to result from a proposed standard and transmit such determinationtothe Secretary, not laterthan 60 days afterthepublication ofa proposedrule, together with an analysis ofthe nature and extent ofsuch impact. Section 325(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii).

In orderto assistthe Attorney General inmaking such a determination, the Departmenthas provided the Attorney General with copies ofthis notice and theTechnical SupportDocument for review.

6. 

### Need ofthe Nation To Conserve Energy

We reportthe environmental effects from each standard level for each productunderthis factor in Section VI ofthis notice.

7. OtherFactors

During the extreme periods ofheat and humiditythattookplace inthe

summer of 1999, electric power outages and other system disturbances disrupted the lives ofmillions ofpeople and thousands ofbusinesses in various regions ofour country. In

### responseto public concerns aboutthis problem, the Secretary ofEnergy formed a team of experts to investigate the problem and torecommend actions thattheFederal governmentcantaketo help avoid future power outages by improving the reliability ofthe U.S. electric power system. One ofthe actions proposed by the Secretary at thattime was to accelerate the rulemaking process and advance the publication ofa final rule for central air conditioners by six months.

TheFinal Report 7 

### by the team of experts, issued inMarch, 2000, includedthe recommendation to increase the energy efficiency ofcentral air conditioners as one means for enhancingreliability. Thereport stated, "Technologies and practices that reduce loads duringtimes ofpeak demand, such as high-efficiency air conditioning and lighting equipment, are especially valuable." This was based on the finding that in several ofthe affected regions "Retail customershavelimited mechanisms and incentives to conserve energy orresort to alternatives during electricity shortages." Includedinthe federal activities that promote energy efficiency recommendedto the Secretary was to promulgate standards for more efficienttechnologies.

As an additional element to consider underthis factor, the Secretaryhas decided to evaluate the life-cycle cost impacts on those subgroups of

consumers who are at orbelow the poverty line (e.g., for a family offour, this constitutes a household income of less than$16,036).

IV. 

### Methodology

The Process Rule outlines the procedural improvements identifiedby the interested parties. 61 FR 36974. The process improvementeffort also included a review ofthe: (1) Economic models; (2) analytical tools; (3) methodologies; (4) non-regulatory approaches; and (5) prioritization of future rules.

TheDepartment continues to use two spreadsheettools to meetthe objectives ofthe Process Rule. The first spreadsheet calculates life-cycle-costs and paybackperiods ofpotential new energy conservation standards. The second conducts shipments forecasts and then calculates national energy savings and netpresentvalue impacts of potential new energy conservation standards. TheDepartment also completelyrevised the methodology used in assessing manufacturerimpacts includingthe adoption ofthe GRIM.

Additionally, DOE has estimated the impacts ofcentral airconditionerand heat pump energy efficiency standards

onelectricutilities andthe environment. The Departmentused a version ofEIA's National Energy Modeling System (NEMS) for theutility

7 "Report ofthe U.S. Department ofEnergy's Power Outage Study Team: Findings and Recommendations to Enhance Reliability from the Summerof 1999".March 2000.

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and environmental analyses. NEMS conditioner or heat pump. Ofthe 5,900 eachbuilding's annual space-cooling simulates the energy economy ofthe households surveyed in the 1997 RECS, and space-heating energy consumption. U.S. and hasbeen developed over 2,003 households representing 37.6% of Similarto the analysis for residential several years by the EIA primarily for the housing population have a central buildings, the energy use associated the purpose ofpreparing the AEO. air conditioner while 579 households with equipment at higher efficiency NEMS produces a widely-known representing 11.1% ofthe housing levels is simply determined by baseline forecast for the U.S. through population have heat pumps.' RECS multiplying the building's simulated 2020 that isavailable in thepublic specifies the annual space-cooling annual energy use by the ratio ofthe domain. The version ofNEMS used for energy consumption and, in thecase of building's assumed equipment appliance standards analysis is called heat pumps, the annual space-heating efficiency (i.e., 10 SEER) divided by the NEMS-BRS,8 

### and is based on the energy consumption associated with the efficiency ofthe more efficient AEO2000 version with minor space-conditioning equipment. Also equipment. Average and marginal modifications. NEMS offers a provided isthe age ofthe space- electricity prices foreach commercial sophisticated picture ofthe effect of conditioning equipment which, when building are determined by applying a standards since its scope allows it to coupled with historical equipment national sample ofelectric utility tariffs

measure the interactions between the efficiency data provided by theAir- to the simulated load and demand. The various energy supply and demand Conditioning andRefrigeration Institute electricity price data along with the sectors and the economy as a whole. (ARI), allows for the imputation ofthe annual energy use data allows forthe A. Life-Cycle CostandPaybackPeriod household's space-conditioning determination ofannual electricity cost Analysis equipment efficiency (i.e., the SEER savings for any efficiency level for each and, in the case ofheat pumps, the commercial building. This section describes the LCC and HSPF). With both the annual energy use The probability-based LCC and paybackperiod analysis and the and the efficiency ofthe central air payback period analysis samples spreadsheet model used for analyzing conditioner or heat pump specified, the buildings from the residential and the economic impacts ofpossible annual energy use associated with commercial building data set in order to standards on individual residential and equipment at higher efficiency levels is produce a distribution ofLCC results for commercial consumers. Details ofthe simply determined by multiplying the a given standard level. The LCC and spreadsheet model can be found in household's existing annual energy use payback period analysis takes 10,000 Chapters 5in the TSD. We conduct the bythe ratio ofthe existing equipment samples to create a distribution of LCC and payback period analysis with efficiency divided by the efficiency of results based on the assumption that
a spreadsheet model developed in the more efficient equipment. 90% ofthe single-phase central air Microsoft Excel for Windows 95 or Household utilitybilling data in RECS conditioning and heat pump equipment above. When combined with Crystal allows for the determination ofaverage stock are in residential buildings with Ball (a commercially available software and marginal electricity prices. The the remaining 10% in commercial program), the LCC and payback period electricity price data along with the buildings. generates a Monte Carlo simulation to ual energy use data allows for the The spreadsheet model is organized perform the analysis by incorporating determination ofannual electricity cost so that ranges or distributions can be uncertainty and variability savings for any efficiency level, entered for each input variable needed savings for any efficiency level. considerations.The set ofcommercial buildins are to perform the calculations. The LCC

The LCC is the total consumer based on assumptions consistent with and paybackperiod output can be either expense over the life ofthe appliance, those used to develop the American apoint value when weuse the average including purchase expense andSociety ofHeating Refrigerating and value ofthe inputs or a distribution operating costs (including energy A-C dtio Engineers' (ASHRAE) when we use distributions for some or expenditures). Future operating costs tandard 90.1-1999. The commercial all ofthe inputs. Inputs for determining
are discounted to the time ofpurchase the total installed cost include: Baseline and summed over the lifetime ofthe building data set consists of sevenmanufacturer costs, manufacturer cost appliance. The payback period is the building types located in eleventipliers for each efficienc level change in purchase expense due to an different geographic regions yielding a multipliers for each efficiency level, change in purchase expense due to an to n n h manufacturer markups, distributor or 

### increased efficiency standard divided by simulation program is used to calculate wholesaler markups, dealer or the change in annual operating cost thatt m ul at 

### l ful-a used to cal cul ate 

### contractor markupsbuilder markups, results from the standard. Fortoday's te annual fullload equivalentsales taxes, and installation costs. Ofthe proposed rule, both theLCC and operating hours (FLEOH) ofthe space- above total installed cost inputs, the payback period are based on a building- cooling and space-heating equipment in manufacturer, dealer, distributor, and by-building analysis ofa nationally eachbuiheDepa FLEOH are used builder markups, as well as the sales tax representative set ofresidential and with the Department ofEnergy's test and installation price are described with commercial buildings. procedure equations forcentral air distributions. Inputs for determining

The set ofresidential buildings are conditioners andheat pumps to obtain operating expenses include: Annual taken from those households in the 1997 energy consumption, average electricity RECS equipped with either a central air The number ofhouseholds actually used in ee csm pal electricity pricesi cRECS 

### equipped with either a cecntral air conditioner and heat pump LCC and 

### prices, marginal electricity prices, Payback period analyses were 1218 and 308, electricity price projections, repair 8EIA approves use of the name NEMS to describe respectively. Some central air-conditioned costs, maintenance costs, equipment only an AEO version ofthe model without any households wore dropped from the analysis for one lifetime, discount rates, and the year modification to code or data. Because ouranalysis or more ofthe following reasons: (1) The central air entails some minor code modifications and the conditioner was not used, (2)a room air conditioner standards take effect. Of the above model is run under various policy scenarios that was present and used, or (3) marginal energy prices operating expense inputs, the discount deviate from AEO assumptions, the name NEMS- could not bedetermined for the household. With rate and equipment lifetime are BRS refers to the model as used hero. Formore regard to households withheat pumps, they were described with distributions (note that information on NEMS, please refer to the National dropped from the analysis for one or more ofthe neither the discount rate nor lifetime are Energy Modeling System: An Overview 1998. DOE/ following reasons: (1) The heat pump was not used EIA-0581 (98), February, 1998. BRS is DOE's Office or (2) marginal energy prices could not be needed to determine the payback ofBuilding Research and Standards. determined for thehousehold. period). Operating expense, annual 

### Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59595

and environmental analyses. NEMS simulates theenergy economy ofthe U.S. and has been developed over several years by the ElA primarily for the purpose ofpreparing the AEO. NEMS produces a widely-known baseline forecast for the U.S. through 2020

### that is available inthe public domain. The version ofNEMS used for appliance standards analysis is called NEMS-BRS,8 and is based onthe AE02000 

### version with minor modifications. NEMS offers a sophisticated picture ofthe effect of standards since its scope allows itto

measure theinteractionsbetween the various energy supply and demand sectors and the economy as a whole.

A. 

### Life-Cycle Cost andPaybackPeriod Analysis

This section describes the LCC and paybackperiod analysis and the spreadsheet model used for analyzing the economic impacts ofpossible standards on individualresidential and commercial consumers. Details ofthe spreadsheet model canbe found in Chapters 5 

### inthe TSD. We conductthe LCC and payback period analysis with

a spreadsheetmodel developed in Microsoft Excel for Windows 95 

### or above. When combined with Crystal Ball (a commercially available software program), theLCC and paybackperiod generates a Monte Carlo simulation to perform the analysisbyincorporating uncertainty and variability considerations.

The LCC is the total consumer expense overthe life ofthe appliance, includingpurchaseexpense and operatingcosts (including energy expenditures). Future operating costs

are discounted to the time ofpurchase and summed over the lifetime ofthe appliance. The paybackperiod is the change inpurchase expense due to an increased efficiency standard dividedby the change in annual operating cost that results from the standard. Fortoday's proposed rule, boththe LCC and paybackperiod arebased on a buildingby-building analysis ofa nationally representative set ofresidential and commercialbuildings.

The set ofresidentialbuildings are taken from those households inthe 1997 

### RECS equipped with either a central air

•ElA approves use ofthename NEMS to describe only an AEO version ofthemodel without any modification to codeordata. Because our analysis entails some minorcode modifications andthe model is run under various policy scenarios that deviate from AEO assumptions, thename NEM8- BRS refers tothe model as used here. For more information onNEMS, please refer to the National Energy Modeling System: An Overview 1998. DOEI ElA"'()581 (98), February, 1998. BRS is DOE's Office ofBuildingResearch and Standards. 

### conditioner orheat pump. Ofthe 5,900 

### households surveyed inthe 1997 

### RECS, 2,003 

### households representing 37.6% 

### of the housingpopulationhave a central air conditionerwhile 579

### households representing 11.1

### % ofthehousing populationhaveheatpumps.9 RECS specifies the annual space-cooling energy consumption and, inthe case of heatpumps, the annual space-heating energy consumption associated with the space-conditioning equipment. Also provided is the age ofthe spaceconditioning equipment which, when coupled with historical equipment efficiency data provided by the AirConditioning and Refrigeration Institute (ARI), allows for theimputation ofthe household's space-conditioning equipment efficiency (i.e., the SEER and, inthe case ofheatpumps, the HSPF). With both the annual energyuse and the efficiency ofthe central air conditioner orheatpump specified, the annual energy use associated with equipment at higherefficiency levels is simply determinedby multiplyingthe household's existing annual energyuse by the ratio ofthe existing equipment efficiency dividedbythe efficiency of the more efficient equipment. Household utilitybilling data inRECS allows for the determination ofaverage and marginal electricityprices. The electricity price data along with the annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level.

The set ofcommercial buildings are based on assumptions consistent with those used to develop the American Society ofHeating, Refrigerating, and Air-ConditioningEngineers' (ASHRAE) Standard 90.1-1999. 

### The commercial building data set consists ofseven building types located ineleven different geographic regions yielding a total of77 buildings. Anhourly simulationprogram is used to calculate the annual full-load equivalent operatinghours (FLEOH) ofthe spacecooling and space-heating equipmentin each building. The FLEOHs are used with the Department ofEnergy's test procedure equations for central air conditioners andheatpumpsto obtain

•The number ofhouseholds actually used in the contral air conditioner andheat pump LCC and Payback period analyses were 1218 and 308, rospectively. Some central air-conditioned housoholds wore dropped from tho analysis for one
ormore ofthe following roasons: (1) Tho central air conditioner was not used, (2) a room air conditioner

was present andused, or (3) marginal energy prices could not be determined for thehousehold. With regard to households withheat pumps, they wore dropped from the analysis for oneor more ofthe following reasons: (1) Thehoat pump was not usod

or (2) marginal energy prices could not be dotormined for thehousohold. 

### eachbuilding'S annual space-cooling and space-heatingenergy consumption. Similarto the analysis for residential buildings, the energy use associated with equipment at higher efficiency levels is simply determinedby multiplying the building'S simulated annual energy use by the ratio ofthe building'S assumed equipment efficiency (i.e., 10 

### SEER) divided bythe efficiency ofthe more efficient equipment. Average and marginal electricityprices for each commercial building are determinedby applying a national sample ofelectricutility tariffs tothe simulated load and demand. The electricity price data along withthe annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level for each commercial building.

The probability-based LCC and payback period analysis samples buildings from theresidential and commercial building data setin orderto produce a distribution ofLCC results for

a given standard level. The LCC and payback period analysis takes 10,000 

### samples to create a distribution of results based on the assumption that 90% 

### ofthe single-phase central air conditioning and heatpump equipment stock are inresidential buildings with the remaining 10% 

### in commercial buildings.

The spreadsheet model is organized

so that ranges or distributions can be entered for each inputvariable needed to perform the calculations. The LCC and paybackperiod outputcanbe either

a point value when weuse the average value ofthe inputs ora distribution when we use distributions for some or all ofthe inputs. Inputs for determining the total installed cost include: Baseline manufacturer costs, manufacturercost multipliers for each efficiency level, manufacturer markups, distributor or wholesalermarkups, dealer or contractor markups, buildermarkups, sales taxes, and installation costs. Ofthe above total installed cost inputs, the manufacturer, dealer, distributor, and buildermarkups, as well as the sales tax and installation price are described with distributions. Inputs for determining operating expenses include: Annual energy consumption, average electricity prices, marginal electricityprices, electricity price projections, repair costs, maintenance costs, equipment lifetime, discount rates, and the year standards take effect. Ofthe above operating expense inputs, the discount rate and equipment lifetime are described with distributions (note that neitherthe discountrate norlifetime are needed to determine the payback period). Operating expense, annual

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59596 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

energy use and electricity prices, is replaced by a more efficient piece of central air conditioner and heat pump although represented by point-values for equipment. Unit energy savings for each shipments from 2000 to 2030. each residential and commercial product class are the same weighted- Shipments forecasts are developed by building, are highly variable when average values as calculated in the LCC accounting for: (1) The combined effects looking at the entire building data set. and Payback period spreadsheet. ofequipment price, operating cost, and Chapter 5 of the TSD contains the Additional information about the NES household income; (2) different market details ofall the inputs to the LCC and spreadsheet can be found in Chapter 7 segments (e.g., new housing, payback period analysis. of the TSD. replacement decisions, and non-owners

In addition to determining payback User inputs include: (1)A choice from adding a central air conditioner orheat periods with the spreadsheet model, the among several electricity price pump); (3) decisions to repair rather Act requires us to determine a projections: (2) effective date ofthe than replace; and (4) different rebuttable payback period. The Act central air conditioners and heat pumps equipment age categories. Additional requires the Department to examine standard; (3) discount rate and discount details on the various shipments payback periods to determine ifthe year; (4) a standards case efficiency forecasts are provided in Chapter 6 of three year rebuttable presumption of level; (5)an equipment price; (6) an the TSD. economic justification applies. As equipment price and housing prescribed by the Act, therebuttable projection; and (7) an efficiency C.Manufacturer ImpactAnalysis payback period is "calculated under the scenario. Additionally, we use a time The MIA estimates the financial applicable test procedure, * * * ." series of conversion factors to change impact ofstandards on manufacturers

The annual space-cooling and space- from site to source energy. and calculates impacts on employment heating energy consumption calculated The efficiency scenario specifies the and manufacturing capacity. based on theDepartment's test equipment efficiency distribution after he Department published the procedure are on the order of50% new standards would take effect. Three roe Nepad ment pulas eat the greater than the weighted-average values efficiency scenarios were used to propos Registerpublication ofthe from the LCC analysis (i.e., analyses forecast the impact new standards Supplemental ANOPR, and received no based on the 1997 RECS for residential would have after they take effect: (1) Supmental

, and reive buildings and hourly simulations for National Appliance Energycomments suggesting substantive commercial buildings). As will be Conservation Act (NAECA) scenario," changes in the methodology As shown in Section VI (Analytical (2)Roll-up scenario," and (3)Shift proposed, the MIA was conducted in Results), the payback value calculated scenario.12 As opposed to the three phases. Phase 1, "Industry from the Department's test procedure Supplemental ANOPR where weighted- Profile," consisted ofthe preparation of equations will be significantly lower average equipment efficiencies were an industry characterization. Phase 2, than the average payback value forecasted, an actual distribution of "Industry Cash Flow," focused on the calculated from the LCC analysis, for efficiencies (i.e., the percentage of industry as a whole, including both any standard level. shipments which occur in incremental major and niche-product manufacturers. SEER bins over therange from the The GRIM was used to prepare an B.NationalEnergySavingsandNet minimum andard to 18 SEER) were industry cash flow analysis. The PresentValueAnalysis used in the analysis for the proposed Department used publicly available

In order to make the analysis more nrle. information developed in Phase 1 to accessible and transparent to all One of the more important adapt the GRIM structure to facilitate stakeholders, we continue to use an components ofany estimate offuture the analysis ofnew central air Excel spreadsheet model to calculate the impact is shipments. Forecasts of conditioner and central air conditioning energy savings and the national shipments for the base case and heat pump standards. economic costs and savings from new standards case are determined within In Phase 3, "Sub-Group Impact standards. Various input quantities the NES spreadsheet. The shipments Analysis," the Department conducted within the spreadsheet can be changed. portion of the spreadsheet forecasts interviews with several niche-product Unlike the LCC analysis, the NES manufacturers to determine the spreadsheet does not use distributions ' 1 Under theNAECA scenario, equipment financial impacts ofrevised standards. for inputs or outputs. We conduct efficiencies after the adoption ofnow standards are Phase 3 also entailed documenting sensitivities by running different forecasted tochange in the same pattern as the additional impacts on employment and efficiency changes that occurred in 1992 when scenarios. minimum efficiency standards first took effect. This manufacturing capacity through a

DOE uses the NES spreadsheet to resultsin weighted average equipment efficiencies, structured interview process. perform calculations of energy savings based on minimum efficiency standards of11, 12, and net present value (NPV) bas^Sed on '1.uand 13 SEER, of 11.6 SEER, 12.4 SEER, and 13.4 1. Phase 1, Industry Profile

user inputs similar tothose for the LCC 

### I Under the Roll-up scenario, equipment thatin 

### Phase 1 ofthe MIA consisted of spreadsheet. The energy savings, energy the basecase were forecast to be less efficient than preparing an Industry Profile. Prior to cost savings, equipment costs, and NPV the trial standard level areassumed to moveupto initiating the detailed impact studies, of benefits for several product classes the standard level, and equipment forecasted in the DOE collected information on the base case to be at or above the trial standard level are forecast from the chosen start year are assumed notto increase inefficiency. This present and past structure and market through 2030. The forecasts provide results in weighted-average equipment efficiencies, characteristics ofthe central air annual and cumulative values for all based on minimum efficiency standards of 11,12, conditioning industry. This activity four outputparameters. and 13 SEER, of 11.5 SEER, 12.3 SEER, and 13.3 involved both quantitative and

The Department calculates the SEER, respectively qualitative efforts to assess the industry 11

Under the Shift scenario. equipment national energy savings by subtracting efficiencies after the adoption ofnew standards are and products to be analyzed. The energy use under a standards scenario forecast to have the same pattern, at and above the information collected included from energy use in a base case (no new standard levels, as the current distribution of manufacturer market shares and standards scenario). Energy use is equi efficiencies. T weighed -average characteristics and financial equipment oefficiencies, based on minimum reduced when the baseline central air efficiency standards of11,12, and 13 SEER, of11.7 information, market trends, and product conditioner or heat pump (i.e, 10 SEER) SEER, 12.7 SEER, and 13.7 SEER, respectively. characteristics.

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energy use and electricity prices, althoughrepresented by pOint-values for each residential and commercial building. are highlyvariable when looking at the entirebuilding data set. Chapter 5 oftheTSD containsthe details ofall the inputsto the LCC and paybackperiod analysis.

In addition to determining payback periods with the spreadsheet model, the Act requires us to determine a rebuttable payback period. The Act requires theDepartmentto examine paybackperiods to determine ifthe three yearrebuttablepresumption of economicjustification applies. As prescribed bythe Act. therebuttable paybackperiod is "calculatedunderthe applicable test procedure, 

### * * * ."

The annual space-cooling and spaceheating energy consumptioncalculated based ontheDepartment'stest procedure are on the order of50% greaterthanthe weighted-average values from the LCC analysis (i.e.• 

### analyses based onthe 1997 RECS for residential buildings and hourly simulations for commercial buildings). As will be shownin Section VI (Analytical Results), the payback value calculated from the Department's testprocedure equations will be significantly lower than the average paybackvalue calculated from theLCC analysis. for any standardlevel.


### B. National Energy Savings andNet Present ValueAnalysis

In orderto make the analysis more accessible and transparent to all stakeholders, we continueto use an Excel spreadsheetmodel to calculate the energy savings and the national economic costs and savings from new standards. Various inputquantities within the spreadsheet canbe changed. Unlike the Lee analysis. theNES spreadsheet does notuse distributions for inputs or outputs. We conduct sensitivitiesbyrunning different scenarios.

DOE uses the NES spreadsheet to perform calculations ofenergy savings and net present value (NPV) based on
user inputs similarto those for the LCe spreadsheet. The energy savings. energy cost savings, equipment costs. and NPV ofbenefits for several productclasses

are forecast from the chosen startyear through 2030. The forecasts provide annual and cumulative values for all four outputparameters.

The Department calculates the national energy savingsby subtracting energy useunder a standards scenario from energy use in a base case (no new standards scenario). Energy use is reduced when the baseline central air conditioner orheatpump (i.e. 

### 10 SEER) is replaced by a more efficientpiece of. equipment. Unit energy savings for each product class are the same weightedaverage values as calculated inthe LCC and Payback period spreadsheet. Additional information aboutthe NES spreadsheet can be found in Chapter 7 ofthe TSD.

User inputs include: (1) A choice from among several electricity price projections: (2) effective date ofthe central air conditioners and heat pumps standard; (3) discountrate and discount year; (4) 

### a standards case efficiency level; (5) an equipmentprice; (6) an equipmentpriceand housing projection; and (7) 

### an efficiency scenario. Additionally. weuse a time series ofconversion factors to change from site to source energy.

The efficiency scenario specifies the equipmentefficiency distribution after

new standards would take effect. Three efficiency scenarios wereused to forecast the impact new standards would have after theytake effect: (1) National Appliance Energy Conservation Act (NAECA) scenario,lO (2) Roll-up scenario. ll 

### and (3) Shift scenario. 12 

### As opposed to the Supplemental ANOPR where weightedaverage equipment efficiencies were forecasted. an actual distribution of efficiencies (i.e.• 

### thepercentage of shipmentswhich occur inincremental SEER bins overtherange from the minimum standard to 18 SEER) were used inthe analysis for the proposed rule.

One ofthe more important components ofany estimate offuture impact is shipments. Forecasts of shipmentsfor thebase case and standards case are determined within the NES spreadsheet. The shipments portion ofthe spreadsheet forecasts

10Under the NAECA scenario. equipment efficiencies after the adoption ofnow standards are forecasted to change inthe samepattern as the efficiency changes that occurred in 1992 when minimum efficiency standards first took effect. This tosults in weighted average equipment efficiencies. based onminimum efficiency standards of 11.12. and 13 SEER. of 11.6SEER. 12.4 SEER. and 13.4 SEER. respectively.

11 Undor theRoll-up scenario. equipment that in thebase case were forecast to be less efficient than the trial standardlevel areassumedto moveupto thestandard level. and equipment forecasted in the base case to be at or above the trial standard level

are assumed not to increase inefficiency. This rosults in weighted-average equipment efficiencies. based onminimum efficiency standards of 11. 12, and 13 SEER. of 11.5 SEER. 12.3 SEER. and 13.3 SEER. respectively.

12Under the Shift scenario. equipment efficiencies after the adoption ofnew standards are forecast to have the same pattern. at and above the standard levels. as the current distribution of efficiencies. This results in weighted-average equipment efficiencies. based on minimum efficiency standards of11.12. and 13 SEER. of11.7 SEER. 12.7 SEER. and 13.7 SEER. respectively. 

### central air conditionerand heatpump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (1) 

### The combined effects ofequipmentprice. operating cost. and household income; (2) 

### different market segments 

### (e.g.• newhousing, replacement decisions. and non-owners adding a central airconditioner orheat pump); (3) decisions to repair rather thanreplace; and (4) different equipment age categories. Additional details onthe various shipments forecasts are provided in Chapter 6 of the TSD.
C. 

### ManufacturerImpactAnalysis

The MIA estimates the financial impact ofstandards onmanufacturers and calculates impacts on employment and manufacturing capacity.

The Department publishedthe proposed MIA approach as part ofthe Federal Registerpublication ofthe Supplemental ANOPR. andreceived no comments suggesting substantive changes inthe methodology. As proposed. the MIA was conducted in three phases. Phase 1, 

### "Industry Profile." consisted ofthepreparationof

an industry characterization. Phase 2. "IndustryCash Flow." focused onthe industry as a whole. includingboth major and niche-product manufacturers. The GRIM was used to prepare an industry cash flow analysis. The Department usedpublicly available information developed inPhase 1 

### to adaptthe GRIM structure to facilitate the analysis ofnew central air conditioner and central air conditioning heatpump standards.

InPhase 3. "Sub-Group Impact Analysis," the Department conducted interviews with several niche-product manufacturers to determine the financial impacts ofrevised standards. Phase 3 also entailed documenting additional impacts onemployment and manufacturing capacity through a structured interview process.
1. 

### Phase 1. IndustryProfile

Phase 1 ofthe MIA consisted of preparing an Industry Profile. Priorto initiatingthe detailed impact studies. DOE collected information onthe presentandpast structure and market characteristics ofthe central air conditioningindustry. This activity involvedboth quantitative and qualitative efforts to assess the industry and productstobe analyzed. The information collected included manufacturer market shares and characteristics and financial information. market trends, and product characteristics.

### t 

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The industry profile included a top- independent of final production reported by NEMS-BRS. NOx results are down cost analysis ofthe central air volumes. based on forecasts ofcompliance with conditioner manufacturing industry that GRIM An s existing legislation. In the case ofSO2,

was used to derive cost and financialnays the Clean Air Act Amendments of 1990 inputs for the GRIM, e.g., revenues, and An increase in standards affects a set an emissions cap on all power material, labor, overhead, depreciation, manufacturer's cash flow in three generation. The attainment ofthis target, Sales General &Administration (SG&A), distinctways: (1) Increased investment; however, is flexible among generators and Research &Development (R&D) (2) higher production costs per unit; and and is enforced by applying market expenses. The Department also utilized (3) altered revenue by virtue ofhigher forces, through the use ofemissions additional sources ofinformation to per unit prices and changes in sales allowances and tradable permits. As a further characterize the industry. These volumes. As mentioned, the Department result, accurate simulation ofSO2 included company Securities and uses the GRIM to quantify the changes trading tends to imply that physical Exchange Commission (SEC) 10-K in cash flow that result in a higher or emissions effects will be zero because reports, Moody's company data reports, lower industry value. emissions will always be at, or near, the Standard &Poor's (S&P) stock reports, The GRIM analysis uses a number of ceiling. This fact has caused Value Line industry composites, and inputs-annual shipments; prices; considerable confusion in the past. Dow Jones Financial Services. manufacturer costs such as materials There is virtually no real possible SO2 and labor, selling and general environmental benefit from electricity 2. Phase 2, Industry Cash Flow Analysis administration costs, taxes, and capital savings as long as there is enforcement

Phase 2 ofthe MIA focused on the expenditures-to arrive at a series of of the emission ceilings. See theTSD, financial impacts ofnew standards on annual net cash flows beginning today Environmental Assessment, for a the industry as a whole. The analytical and continuing ten years past the discussion ofthis issue. tool used for calculating the financial implementation of new standards. This Alternative price forecasts impacts of standards on manufacturers information was collected from a corresponding to the high and low isthe GRIM. Aspart ofthe analysis, number of sources, including publically economic growth side cases found in DOE interviewed several ofthe major available data, as well as interviews AEO 2000 have alsobeen generated for manufacturers. For the Industry Cash with ofthe major manufacturers and use by NEMS-BRS, and were used as Flow Analysis, DOE used the financial two specialty manufacturers. Industry alternative scenarios, and are presented values determined during Phase 1 and net present values are calculated by in the TSD. (See TSD, Environmental the shipment scenarios used in the LCC discounting and summing the annual Assessment.) and NES analyses. net cash flows. Additional information V. Discussion of Comments about the GRIM spreadsheet can be 3. Phase 3, Sub-Group Impact Analysis about the GRIM spreadsheet can beAs noted above, DOE published the found in Chapter 8 ofthe TSD. As noted above, DOE published the The Department has received many Supplemental ANOPR regarding central comments during workshops and D. NEMS EnvironmentalAnalysis airconditioners and heat pumps on interviews, and in writing, suggesting The environmental analysis provides November 24, 1999, and conducted a that manufacturers ofniche products, estimates of changes in emissions of public workshop to present the analyses representing less than 3% of industry nitrogen oxides (NOx) and carbon from and to solicit comments on December 9, shipments, could be more negatively carbon dioxide (CO2).The Department 1999. The Department requested impacted by new standards than major used NEMS-BRS for central air comments on the following twelve manufacturers. To assess the differential conditioner and heat pump analyses (as issues: impacts, the Department interviewed well as the utility analyses). NEMS-BRS 1. Differences between the industry two manufacturers ofniche products, in is run similar to the AEO2000 NEMS and the reverse engineering cost data: addition to those conducted during the except that central air conditioner and 2. The incorporation ofemerging Engineering Analysis. The focus ofthe heat pump energy usages are reduced by technologies into the Engineering interviews was to determine which the amount ofenergy (electricity) saved Analysis; GRIM parameters differed for niche due to the proposed trial standard 3. The assessment ofthe impacts on manufacturers by virtue oftheir smaller levels. The input ofenergy savings are steady-state efficiency, i.e. EER, due to

revenue base and more limited markets. obtained from the NES spreadsheet. For increases in the SEER;

From a financial standpoint, the the environmental analysis, the output 4. Forheat pump systems, the

common distinguishing characteristic of isthe forecasted physical emissions. relationship between SEER and HSPF; niche product manufacturers was their The net benefits ofthe standard is the 5. Additional product classes based need to spread the costs ofconverting to difference between emissions estimated on system capacity; new standards over smaller production by NEM-BRS and the AEO2000 (a)Ductles p claes volumes, as well as the product size Reference Case. (b) High-velocit, smallduct constraints identified during the The environmental analysis is () Vertical-package, wall-mounted Engineering Analysis which make their relatively straightforward from NEMS- (d) Split, through-the-wall-condenser; shipments more sensitive to increases in BRS. Carbon emissions are tracked in 7.The impact ofalternative product size. During the interviews, NEMS-BRS using a detailed carbon refrigerants for HCFC-22; small manufacturers demonstrated that module that provides robust results 8. Data on retail mark-up several ofthe costs necessary tomeet because of its broad coverage ofall assumptions; any new regulation are largely sectors and inclusion of interactive 9. Information relating to the independent of the product volume effects. The only form ofcarbon tracked determination ofprice and operating produced. The most apparent are the by NEMS-BRS is CO2 . However, in this cost elasticities in conducting shipment costs necessary to design a new product report the carbon savings are reported as forecasts; meeting the proposed energy standards. elemental carbon. 10. Data on the possible adverse Other costs, such as plant engineering, The two airborne pollutant emissions affects of standards on identifiable

some tooling, and other capital costs, that have been reported in past analyses, groups of consumers that experience have significant portions that are sulfur dioxide (SO2)and NOx, are below-average utility or usage rates;

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### IVol. 65, N.o. 194 

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### 59597

The industryprofile included a topdown cost analysis ofthe central air conditioner manufacturing industrythat

was used to derive cost and financial inputs for the GRIM, 

### e.g., revenues, and material, labor, overhead, depreciation, Sales General &Administration (SG&A), and Research &Development (R&D) expenses. TheDepartment also utilized additional sources ofinformation to further characterizethe industry. These included company Securities and Exchange Commission (SEC) 10-K reports, Moody's company data reports, Standard &Poor's (S&P) stockreports, ValueLine industry composites, and DowJonesFinancial Services.
2. Phase 2, Industry Cash FlowAnalysis

Phase 2 oftheMIA focused onthe financial impacts ofnew standards on the industry as a whole. The analytical tool used for calculatingthe financial impacts ofstandards onmanufacturers is the GRIM. As part ofthe analysis, DOE interviewed several ofthe major manufacturers. Forthe IndustryCash FlowAnalysis, DOE used the financial values determined duringPhase 1 and the shipment scenarios used in the LCC and NES analyses.
3. Phase 3, Sub-Group ImpactAnalysis

The Departmenthas received many comments during workshops and interviews, and in writing, suggesting that manufacturers ofnicheproducts, representing less than 3

### % ofindustry shipments, couldbe more negatively impactedby new standards than major manufacturers. To assess the differential impacts, theDepartment interviewed two manufacturers ofniche products, in addition to those conducted during the EngineeringAnalysis. Thefocus ofthe interviews wasto determine which GRIM parameters differed for niche manufacturersby virtue oftheir smaller

revenuebase and more limitedmarkets.

From a financial standpoint, the

common distinguishing characteristic of niche productmanufacturers was their needto spreadthecosts ofconvertingto

new standards over smaller production volumes, as well as the product size constraints identified during the EngineeringAnalysis whichmake their shipments more sensitive to increases in product size. During the interviews, small manufacturers demonstrated that several ofthe costs necessary to meet any newregulation are largely independent ofthe product volume produced. The most apparent are the
costs necessaryto design a new product meeting theproposed energy standards. Othercosts, such as plantengineering,

some tooling, and other capital costs, have significantportions that are independent offinal production volumes.
4. GRIM Analysis

An increase in standards affects a manufacturer's cash flow in three distinctways: (1) Increased investment; (2) higher production costs perunit; and (3) altered revenueby virtue ofhigher perunit prices and changes in sales volumes. As mentioned, the Department

usesthe GRIM to quantifythe changes in cash flow that result in a higher or lower industryvalue.

The GRIM analysis uses a number of inputs-annual shipments; prices; manufacturer costs such as materials and labor, selling andgeneral administration costs, taxes, and capital expenditures-to arrive ata series of annual net cash flows beginning today and continuing ten years pastthe implementation ofnew standards. This informationwas collected from a number ofsources, includingpublically available data, as well as interviews with ofthe major manufacturers and two specialtymanufacturers. Industry net presentvalues are calculatedby discounting and summing the annual net cash flows. Additional information aboutthe GRIM spreadsheet canbe found in Chapter 8 ofthe TSD.


### D. NE.MS EnvironmentalAnalysis

The environmental analysis provides estimates ofchanges in emissions of nitrogen oxides (NOx) and carbon from carbon dioxide (C02), 

### The Department used NEMS-BRS for central air conditioner and heat pump analyses (as well as the utility analyses). NEMS-BRS is run similarto theAE02000 NEMS except that central air conditioner and heatpumpenergyusages are reduced by the amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from theNES spreadsheet. For the environmental analysis, the output is the forecasted physical emissions. The netbenefits ofthe standard is the differencebetween emissions estimated by NEM-BRS and the AE02000 Reference Case.

The environmental analysis is relatively straightforward from NEMSBRS. Carbon emissions are tracked in NEMS-BRS using a detailed carbon module that provides robust results because ofitsbroad coverage ofall sectors and inclusion ofinteractive effects. The only form ofcarbon tracked byNEMS-BRS is COz. However, inthis reportthe carbon savings arereported as elemental carbon.

Thetwo airborne pollutantemissions that have beenreported inpast analyses, sulfur dioxide (S02) and NOx,are reported by NEMS-BRS. NOx results are based on forecasts ofcompliance with existing legislation. In the case ofS02, the Clean AirAct Amendments of 1990 setan emissions cap on all power generation. The attainment ofthis target, however, is flexible among generators and is enforcedby applying market forces, through the use ofemissions allowances and tradable permits. As a result, accurate simulation of

### SOz tradingtendsto imply thatphysical emissions effects will be zero because emissions will always be at, ornear, the ceiling. This fact has caused considerable confusion inthe past. There is virtually noreal possible S02 environmentalbenefit from electricity savings as long as there is enforcement ofthe emission ceilings. SeetheTSD, Environmental Assessment, for a discussion ofthis issue.

Alternative price forecasts correspondingto thehigh and low economicgrowth side cases found in AEO 2000 have alsobeengenerated for

use byNEMS-BRS, andwereused as alternative scenarios, and are presented inthe TSD. (See TSD, Environmental Assessment.)
V. Discussion ofComments

As noted above, DOE published the SupplementalANOPR regarding central airconditioners and heatpumps on November 24, 1999, and conducted a public workshop to presentthe analyses and to solicit comments onDecember 9, 1999. The Departmentrequested comments onthe following twelve issues:

1. Differences betweenthe industry and the reverse engineering cost data:

2. The incorporation ofemerging technologies intotheEngineering Analysis;

3. The assessment ofthe impacts on steady-state efficiency, 

### i.e. EER, due to increases inthe SEER;

4. Forheatpump systems, the relationship between SEER and HSPF;

5. Additional product classesbased

on system capacity;

6. Niche product classes (a) Ductless split (b) 

### High-velocity, small-duct (c) Vertical-package, wall-mounted (d) Split, thiough-the-wall-condenser; 7. 

### The impact ofalternative refrigerants for HCFC-22;

8. Data onretail mark-up assumptions;

9. Information relating to the determination ofprice and operating cost elasticities in conducting shipment forecasts;

10. Data onthe possible adverse affects ofstandards on identifiable groups ofconsumers that experience below-averageutility orusage rates;

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59598 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

11. Information on what non- Transcript p. 96 and California Energy be used for split air conditioners regulatory alternatives to standards need Commission (CEC) No. 47 at 7). The (fancoil) and split air conditioners tobe reviewed; and comments observed that the relative (cased coil);

12. Comments on the candidate cost results for split heat pumps and

· At each cooling capacity and SEER standard levels and the alternative packaged equipment differed level, the same fancoil will likely be standard scenarios. significantly from those of split air used for split air conditioners (fancoil)

Based on responses and comments conditioners, and that those analyses and split heat pumps; received since that workshop, we were less rigorous than the split air

· At each cooling capacity and SEER provide the following discussion. conditioner analysis. They also noted level, the same cabinet will likely be that the splitheat pump and packaged used for packaged air conditioners and A. EngineeringCostData equipment analysis was based on fewer packaged heatpumps; 1. Reverse Engineering Cost Estimates equipment samples; did not include a * There should be some degree of

The Department's reverse engineering detailed tear-down ofa 10 SEER split consistency in the cost to "convert" an analysis preparednt s a basis fengneering heat pump or packaged air conditioner; air conditioner into a heat pump; and analysis prepared asa basisforthe and was based on questionable Supplemental ANOPR received a broad production volume assumptions. * Split systems with fan coils and range of comments, both supportive and The Department agreed that those single package units at the same cooling critical. ARI and theNatural Resources deficiencies were likely tocause some capacity and SEER level should have Defense Council (NRDC) commented on ofthe differences between the ARI cost nearly identical costs forthe major the apparent accuracy of the split air and the reverse engineering cost functional components. conditioner cost estimates and the ease estimates, and revised its analysis of Based on the above guidelines, DOE with which the results are able to be split heat pumps and packaged revised the analysis of split heat pumps scrutinized by outside parties. (Wethje, equipment. and packaged equipment. Table V.1 ARI, Transcript, p.42; ARI, No. 11 at 1; In responding tothe comment on provides the original and the revised Goldstein, NRDC, Transcript, p. 94). sample size for split heat pumps and production dollar cost estimates

The Department also received packaged equipment, the Department resulting from this new approach. Table comments criticizing the reverse took guidance from a review ofthe V.2 provides the same information, but engineering results for split heat pumps engineering analysis performed by DOE in terms ofrelative costs. Revised and for packaged air conditioners and consultant, Joseph Pietsch. Mr. Pietsch production costs are generally lower heat pumps, noting the lack of design presented five guidelines for comparing than the original costs, particularly at detail andthe aggregation of the results the production cost ofequipment for the baseline 10 SEER level. The most into an efficiency level-based analysis. different product classes. (Pietsch, No significant change is that the new (Hodges, ARI, Transcript, p. 85; Madera, 36 at 2-5). analysis includes nine additional York International (York), Transcript, o At each cooling capacity and SEER estimates that were not presented pp. 90, 91, 93; Goldstein, NRDC, level, the same outside unit will likely originally.

TABLE V.1.-ENGINEERING PRODUCTION COST ESTIMATES FOR 3-TON UNITARY EQUIPMENT
Split air conditioner Split air conditioner Split heat pump Packaged air Packaged heat pump Efficiency level (cased coil) (fancoil) conditioner (SEER) Original Original Revised Original Revised

10

............................. $367 $367 $456 $449 $622 $572 $552 $511 $643 $593 11

............................. 412 412 550 519

................ 602 ................ 555

................ 638 12

............................. 468 468

................ 563 690 648 627 595 708 668 13

............................. 529 529 756 637 840 743 809 730

................ 820 14

............................. 588 588 802 815 1,011 1,023

................ 889

................ 1,029 15

............................. ................ ................ 893 893 1,147 1,107

................ 955

................ 1,100

The only significant departures are found in split air conditioners with fancoils, where the new estimates are lower, and in 14 SEER and 15 SEER equipment where the new results are higher.

TABLE V.2.--REVISED REVERSE ENGINEERING PRODUCTION
Split air conditioner Split air conditioner Split heat pump Packaged air Packaged heat pump Efficiency leval (cased coil) (fancoil) conditioner (S EER) Original Revised Original Revised Original Revised Origina Revised Original Revised

10

............................. 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 11

............................. 1.12 1.12 1.21 1.16

................ 1.05

................ 1.09

................ 1.08 12

............................. 1.28 1.28

................ 1.25 1.11 1.13 1.14 1.16 1.10 1.13 13

............................. 1.44 1.44 1.66 1.42 1.35 1.30 1.47 1.43

................ 1.38 14

............................. 1.60 1.60 1.76 1.82 1.63 1.79

................ 1.74

................ 1.74 15

............................. ................ ................ 1.96 1.99 1.84 1.94

................ 1.87

................ 1.86

In response to comments on its ANOPR, the Department had reduced its per year. However, since heat pumps production volume assumptions prior to heat pump production volume from and air conditioners are typically the publication ofthe Supplemental 125,000 units per year to 25,000 units produced with the same plant ..i'6:


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59598 Federal Register 

### IVol. 65, No. 194 

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11. 

### Information on what nonregulatory alternatives to standards need tobe reviewed; and

12. Comments on the candidate standard levels and the alternative standard scenarios.

Based onresponses and comments received sincethat workshop, we providethe following discussion.
A. Engineering CostData


### 1. Reverse EngineeringCostEstimates

TheDepartment'sreverse engineering analysis prepared as a basis for the SupplementalANOPRreceived a broad range ofcomments, both supportive and critical. ARI 

### and theNatural Resources Defense Council (NRDC) commented on theapparent accuracy ofthe split air conditioner cost estimates and the ease with whichtheresults are able to be scrutinizedby outsideparties. (Wethje, ARI, Transcript, p. 42; ARI, No. 11 

### at 1; Goldstein, NRDC, Transcript, p. 94).

The Department also received comments criticizingthereverse engineering results for splitheat pumps and for packaged air conditioners and heatpumps, notingthe lack ofdesign detail andthe aggregation oftheresults into an efficiency level-based analysis. (Hodges, ARI, Transcript, p. 85; Madera, York International (York), Transcript, pp. 90, 91, 93; Goldstein, NRDC, Transcriptp. 96 and California Energy Commission (CEC) No. 47 

### at 7). 

### The comments observed that the relative cost results for splitheat pumps and packaged equipment differed significantly from those ofsplit air conditioners, and thatthose analyses

were less rigorous thanthe split air conditioner analysis. They also noted that the splitheatpump and packaged equipment analysis was based onfewer equipment samples; did not include a detailed tear-down ofa 10 SEER split heatpump orpackaged airconditioner; and was based on questionable productionvolume assumptions.

TheDepartment agreed thatthose deficiencies were likely to cause some ofthe differencesbetween the ARI cost and thereverse engineering cost estimates, andrevised its analysis of splitheatpumps and packaged equipment.

Inresponding to the comment on sample size for splitheat pumps and packaged equipment, the Department took guidance from a review ofthe engineering analysis performed byDOE consultant,JosephPietsch. Mr. Pietsch presentedfive guidelines for comparing the production cost ofequipment for different product classes. (Pietsch, No 36 at 2-5).

o 

### At each cooling capacity and SEER level, the same outsideunit will likely be used for split airconditioners (fancoil) and split air conditioners (cased coil);

• At each cooling capacity and SEER level, the same fancoil will likelybe used for split air conditioners (fancoil) and splitheatpumps;

• At each cooling capacity and SEER level, the same cabinetwill likelybe used for packaged air conditioners and packaged heatpumps;

• There shouldbe some degree of consistency in the cost to "convert" an air conditionerinto a heat pump; and

• Split systemswith fan coils and singlepackage units at the same cooling capacity and SEER level should have nearly identical costs for the major functional components.

Based onthe above guidelines, DOE revised the analysis ofsplitheatpumps and packaged equipment. Table V.l provides the original and the revised production dollar cost estimates resulting from this new approach. Table V.2 provides the same information,but interms ofrelative costs. Revised production costs are generally lower thanthe original costs, particularly at the baseline 10 SEER level. The most significant change is that the new analysis includes nine additional estimates that were not presented originally.

TABLE V.1.-ENGINEERING PRODUCTION COST ESTIMATES FOR 3-TON UNITARY EQUIPMENT


### Split air conditioner Split air conditioner Split heat pump Packaged air Packaged heat pump Efficiency level (cased coil) (Iancoil) conditioner (SEER) Original Revised Original Revised Original Revised Original Revised Original Revised

10



## ............................. $367 $367 $456 $449 $622 $572 $552 $511 $643 $593 11



## ............................. 412 412 550 519

................ 

### 602



## ................ 555



## . ............... 638 12



## ............................. 468 468



### ................ 563 690 648 627 595 708 668 13



### ............................. 529 529 756 637 840 743 809 730



### ................ 

### 820 14



## ............................. 588 588 802 815 1,011 1,023

..

### ............... 889



### ................ 1,029 15



## ............................. ................ 

## ................ 893 893 1,147 1,107

..

## ............... 955



## . ............... 1,100

The only significant departures are found in split air conditioners with fancoils, where the new estimates are lower, and in 14 SEER and 15 SEER equipment where the new results are higher.

TABLE V.2.-HEVISED REVERSE ENGINEERING PRODUCTION



### Efficiency leval (SEER) Split air conditioner (cased coil) Original Revised

10



## ............................. 1.00 1.00 11



### ............................. 1.12 1.12 12



### ............................. 1.28 1.28 13



### ............................. 1.44 1.44 14



### ............................. 1.60 1.60 15



## ............................. ................ 

## . ...............

In response to comments on its production volume assumptions priorto the publication ofthe Supplemental Split air conditioner (Iancoil) Split heat pump Packaged air conditioner Packaged heat pump

Original Revised Original Revised Original Revised Original Revised

1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.21 1.16



### ................ 1.05



## ................ 1.09



## . ............... 1.08



## . ............... 1.25 1.11 1.13 1.14 1.16 1.10 1.13 1.66 1.42 1.35 1.30 1.47 1.43



## . ............... 1.38 1.76 1.82 1.63 1.79



## ................ 1.74



## . ............... 1.74 1.96 1.99 1.84 1.94



## . ............... 1.87



## . ............... 1.86

ANOPR, theDepartment hadreduced its peryear. However, sinceheatpumps heatpumpproduction volume from and airconditioners are typically 12!i,000 units peryear to 25,000 units produced withthe same plant

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equipment, reducing the production equipment at a lower costthan currently and combining the potential effects of volume significantly increases the established methods. emerging technologies on system costs overhead allocated to each heat pump Bard Manufacturing (Bard), Unico, is carried forward into today's rule. produced. The higher overhead Inc. (Unico) and NRDC disagreed with Chapter 2 ofthe TSD provides the allocation raises the cost ofthe baseline this approach, questioning whether details ofthe revised emerging heat pump, lowering the relative cost of some of thetechnologies considered technologies analysis. producing equipment at higher were commercially and technically efficiency levels. To compensate for this viable, but proposed no other 4. HFC-Based Engieerig Analysis overestimate of overhead allocation, we technologies for consideration. (Bard ARI and Trane supported the set the split heat pump overhead Manufacturing, No. 28 at 4; Unico, No. Department's decision not to explicitly allocation equal to that ofthe split air 34 at 1; NRDC No. 35 at 11-12). ARI examine the effects ofthe HCFC conditioner at each efficiency level. stated that they considered some phaseout on equipment cost and

The Department believes that the compressor and motor advances but not efficiency. (Wethje, ARI, Transcript p. revisions to the split heat pump and microchannel heat exchangers in their 145; Crawford, Trane, Transcriptp. packaged equipment production costs relative production cost data. (ARI No. 143). The Oregon Energy Office (OEO) have improved the cost estimates for 48 at 3). The Trane Company (Trane) and NRDC urged the Department to those product classes and that no and Edison Electric Institute (EEI) also reconsider, given that a large fraction of additional equipment samples need to expressed concern over some apparent the equipment sold under the new be subjected to tear-down or reverse inconsistencies in the emerging efficiency standard will likely use a engineering analysis. The revised technologies analysis presented in Table refrigerant other than HCFC-22, even
reverse engineering cost estimates were 4.16 and theuse and calculation ofthe prior to the 2010 phaseout date. used in the analysis for today's Carnot efficiency on page 4-27 ofthe (Stevens, OEO, Transcript, p. 144; proposed rule. Supplemental ANOPR TSD. (Trane, No. NRDC, No. 35 at 11-12). 2. Productivity Efficiency Improvements 23 at 2; and EEI No. 20 at 3). To date, no data presented tothe 2. Productivity Efficiency Improvements Pacific Gas and Electric (PG&E) Department indicate that the

According to the American Council voiced concern that new technologies, incremental cost for increasing the for an Energy Efficient Economy such as the Bristol modulating efficiency ofequipment using either (ACEEE), Census Bureau Current compressor, could reduce costs tothe HFC-407c or HFC-410a refrigerants will Industrial Report (CIR) data suggest that point that manufacturers may use them differ significantly from the incremental the unitprice of equipment shipments at lower SEER levels resulting in a cost ofincreasing efficiency using below 65,000 Btu/hr fell in real terms negative impact on peak loads and HCFC-22 equipment. Although the base between 1992 and 1997. (ACEEE, No.43 electrical system reliability. (PG&E, No. cost may differ somewhat, the at 4). ACEEE suggested that the 31 at 3). incremental cost determines the lifeDepartment apply an annual deflator of The emerging technology analysis cycle-cost savings. Furthermore, the 1.7% to projected prices to account for based on reverse engineering Department continues to receive this apparent productivity information seems to confirm that, of information that much ofthe market is improvement. the technologies considered, only changing to HFC-410a and that HFCFor other rulemakings, the variable capacity compressors and 410a offers little, if any, efficiency Department has used production input variable speed fan motors have the benefit over HCFC22 atthe same costs and production technologies based potential to be cost options for equipment cost.

on the best information available at the providing additional efficiency For these reasons, the Department time. DOE has not made any compared to today's established will not perform additional engineering assumptions about productivity technologies. This provides evidence analysis related to alternate refrigerants improvements and material cost that ARI is justified in not considering The costs to manufacturers related to changes over time. The Department does the potential benefits ofmicrochannel their conversion to the new refrigerant notbelieve historical price trends for heat exchangers as part of its relative l 

### e con t re f r a t 

### will be considered in theManufacturer unitary air conditioners, or other cost data submission. Therefore, we will te products, can be applied to forecast apply emerging technologies only to the mpact Anaysis. equipment costs where there are no data reverse engineering results and consider B. Life-Cycle-CostParameters to indicate the trends will continue. the ARI relative cost multipliers to 1. E W a S Therefore, without specific data on the already include the effects ofemerging Eended Warranty and Service Costs likely costs to manufacture a product, technologies. Energy Market and Policy Analysis, the Department will not apply a We do notbelieve our original Inc. (EMPA) noted that the Life Cycle productivity improvement factor in this emerging technology analysis was Cost analysis did not explicitly address rulemaking or other rulemakings. inconsistent, as expressed by Trane and extended warranty and service costs and EEI above, although we do recognize asserted that they shouldbe taken into 3. Emerging Technologies that combining the effects ofcomponent account. (Schleede, EMPA, Transcript,

Emerging technologies that are not efficiency improvements does not p. 221). The Alliance to Save Energy established in the residential central air necessarily lead to a cumulative (ASE) stated that the inclusion of conditioning market have the potential improvement in the system. The intent extended warranty and service costs to lower the cost of achieving higher ofthe analysis is not to provide a would have the impact ofreducing efficiency. In the Supplemental ANOPR, definitive estimate ofthe impact ofany repair and maintenance costs. (Prindle,

we considered advances in variable or all emerging technologies on system ASE, Transcript, p. 222). Industry speed and variable capacity cost. It is toprovide evidence as to the consultant Joseph Pietsch stated that compressors, and reductions in the cost extent to which reverse engineering manufacturers may provide longer-term ofvariable speed fan motors and overestimates the cost ofhigher warranties for high efficiency systems parallel-flow, microchannel heat efficiency equipment by neglecting that cover a wider range ofcomponents, exchangers to be potentially viable emerging technologies. Therefore, the to alleviate customer concerns regarding methods for increasing the efficiency of method used previously for portraying possible future repair cost of the more :( 

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### Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59599

equipment,reducing the production volume significantly increases the overhead allocated to each heat pump produced. The higher overhead allocation raises the cost ofthe baseline heat pump, loweringthe relative cost of producing equipment at higher efficiency levels. To compensate for this overestimate ofoverhead allocation, we set the splitheatpump overhead allocation equal to that ofthe split air conditioner at each efficiency level.

The Departmentbelieves that the revisions to the splitheat pump and packaged equipmentproduction costs have improved the cost estimates for those product classes andthatno additional equipment samples need to be subjected to tear-down orreverse engineering analysis. The revised

reverse engineering cost estimateswere used inthe analysis for today's proposed rule.
2. Productivity Efficiency Improvements

Accordingto the American Council for anEnergy Efficient Economy (ACEEE), Census Bureau Current Industrial Report (CIR) data suggest that the unitprice ofequipment shipments below 65,000 Btu/hrfell inreal terms between 1992 and 1997. (ACEEE, No. 43 at4). ACEEE suggested that the Department apply an annual deflator of 1.7% to projected prices to account for this apparent productivity improvement.

For otherrulemakings, the Departmenthas used productioninput costs and productiontechnologiesbased

onthe best information available at the time. DOE has not made any assumptions about productivity improvements and material cost changes overtime. The Department does notbelieve historical price trends for unitary air conditioners, or other products, canbe applied to forecast equipment costs where there are no data to indicate thetrends will continue. Therefore, without specific data on the likely costs to manufacture a product, theDepartment will not apply a productivity improvement factor inthis rulemaking or otherrulemakings.
3. Emerging Technologies

Emergingtechnologiesthat are not established in theresidential central air conditioning market have the potential to lowerthe cost ofachievinghigher efficiency. In

### the Supplemental ANOPR,

we considered advances in variable speed and variable capacity compressors, and reductions inthe cost ofvariable speed fan motors and parallel-flow, microchannel heat exchangers tobe potentiallyviable methods for increasingthe efficiency of equipment at a lower costthan currently established methods.

Bard Manufacturing (Bard), Dnico, Inc. (Dnico) and NRDC disagreed with this approach, questioning whether

some ofthetechnologies considered

were commercially and technically viable, butproposed no other technologies for consideration. (Bard Manufacturing, No. 28 at4; Dnico, No. 34 at 1; NRDC No. 35 at 11-12). ARI stated that they considered some compressor and motor advancesbutnot microchannel heat exchangers intheir relative production cost data. (ARI No. 48 at 3). The Trane Company (Trane) andEdisonElectricInstitute (EEl) also expressed concern over some apparent inconsistencies inthe emerging technologies analysis presented inTable 4.16 andtheuse and calculation ofthe Carnot efficiency onpage 4-27 ofthe SupplementalANOPR TSD. (Trane, No. 23 at 2; and EEl No. 20 at 3).

Pacific Gas and Electric (PG&E) voiced concern that new technologies, such as the Bristol modulating compressor, could reduce costs to the point that manufacturers may use them at lower SEER levels resulting in a negative impact on peak loads and electrical systemreliability. (PG&E, No. 31 at 3).

The emerging technology analysis based onreverse engineering information seems to confirm that, of the technologies considered, only variable capacity compressors and variable speed fan motorshave the potentialto be cost options for providing additional efficiency compared to today's established technologies. This provides evidence thatARI isjustified innot considering the potentialbenefits ofmicrochannel heat exchangers as part ofits relative cost data submission. Therefore, we will apply emerging technologies only to the

reverse engineeringresults and consider theARI relative cost multipliers to already include the effects ofemerging technologies.

We do notbelieve our original emerging technology analysis was inconsistent, as expressed byTrane and EEl above, although we dorecognize that combining the effects ofcomponent efficiency improvements does not necessarily lead to a cumulative improvement inthe system. The intent ofthe analysis is not to provide a definitive estimate oftheimpact ofany
or all emerging technologies on system cost. It

### is to provide evidence as to the extent to whichreverse engineering overestimates the cost ofhigher efficiency equipmentby neglecting emerging technologies. Therefore, the methodused previously for portraying and combining the potential effects of emerging technologies on system costs is carried forward into today's rule. Chapter 2 ofthe TSD provides the details ofthe revised emerging technologies analysis.
4. HFC-Based Engineering Analysis

ARI and Trane supported the Department's decisionnotto explicitly examine the effects ofthe HCFC phaseout onequipment cost and efficiency. (Wethje, ARI, Transcriptp. 145; Crawford, Trane, Transcriptp. 143). The Oregon Energy Office (OED) and NRDC urged theDepartmentto reconsider, given that a large fraction of the equipment sold underthe new efficiency standard will likelyuse a refrigerant otherthan HCFC-22, even priorto the 2010 phaseout date. (Stevens, OED, Transcript, p. 144; NRDC, No. 35 at 11-12).

To date, no data presented to the Department indicate that the incremental cost for increasing the efficiency ofequipmentusing either HFC-407c or HFC-410a refrigerants will differ significantly from theincremental cost ofincreasing efficiencyusing HCFC-22 equipment. Althoughthe base cost may differ somewhat, the incremental cost determines the lifecycle-cost savings. Furthermore, the Department continues to receive information that much ofthe market is changingto HFC-410a and that HFC410a offers little, ifany, efficiency benefit over HCFC-22 atthe same equipment cost.

For these reasons, theDepartment will not perform additional engineering analysis related to alternate refrigerants. The costs to manufacturers related to their conversionto the new refrigerant will be considered inthe Manufacturer Impact Analysis.


### B. Life-Cycle-CostParameters
1. ExtendedWarranty and ServiceCosts

Energy Market and PolicyAnalysis, Inc. (EMPA) noted thatthe Life Cycle Cost analysis did not explicitly address extended warranty and service costs and asserted that they shouldbe taken into account. (Schleede, EMPA, Transcript, p. 221). TheAllianceto SaveEnergy (ASE) stated that the inclusion of extended warranty and service costs would have the impact ofreducing repair and maintenance costs. (Prindle, ASE, Transcript, p. 222). Industry consultantJoseph Pietsch stated that manufacturers may provide longer-term warranties for high efficiency systems that cover a widerrange ofcomponents, to alleviate customer concerns regarding possible future repair cost ofthe more

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59600 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

complex systems. (Pietsch, No. 36 at associated with more efficient reasonable estimates ofend-use energy 22). equipment, as part ofthe lifecycle cost consumption, we will continue to rely

Air conditioner manufacturers analysis. on RECS for providing the annual warranty their equipment against 2. E energy consumption data necessary for defects, and contractors typically Residential Energy Consumption conducting the life-cycle cost analysis. guarantee performance and installation. uvey ( ) The analysis conducted in support of Manufacturer warranties typically cover Both NRDC and EMPA asserted that this proposed rule has been revised parts and labor for one year, with longer RECS" method for estimating end-use based on data from the 1997 RECS warranties applying to the compressor. energy consumption (i.e., conditional rather than the 1993 RECS. Mr. Pietsch noted that compared to low- demand analysis) yields unreliable and SEER products, high-SEER products flawed results. NRDC added that 3. Equipment Lifetime have more components, many ofwhich conditional demand analysis methods Virginia Power, EEI, ARI, Unico, have a relatively short history. inherently underestimate central air Rheem Co., and Trane commented that Reliability patterns ofthese new conditioner energy use due to its the average equipment lifetime of 18.4 components are less known, so warranty treatment of internal loads. EMPA stated years assumed in the Supplemental accruals may be significantly higher for that the RECS household sample size is ANOPR was incorrect, and suggested an these products. (Pietsch, No. 36 at 22). too small to be used in the manner in actual lifetime between 12 and 15 years. Dealers also may offer extended which it is being treated in the life-cycle (VirginiaPower, No. 27 at 2; EEI, No. 20 warranties which are usually cost analysis. (NRDC, No. 35 at 6-7; at 10; ARI, No. 48 at 3; Unico, No. 34 underwritten by the manufacturer or a EMPA, No. 33 at 4-6; Schleede, EMPA, at 3; Lux, Rheem Co., Transcript, p. 165; third party. Transcript, pp. 160-161). Virginia Foster, EEI, Transcript, p. 170;

A product that is lessreliable or Power, EEI, and EMPA all requested Crawford, Trane, Transcript, p. 191; contains more expensive components that the analysis be updated to use Wethje, ARI, Transcript, p. 193). EMPA will have a higher cost ofrepair over its RECS 1997 data rather than RECS 1993 asserted that the length offirst lifetime. Either the consumer or the data.EEI added that actual submetered ownership should be used as the basis warranty provider will bear that added end-use data should be used ifpossible for equipment lifetime. (EMPA, No. 33 cost directly through more frequent rather than the end-use data in RECS. at 3 Schleede, EMPA, Transcript p. service calls or higher repair costs. Ifthe (Virgina Power, No. 27 at 2; EEI, No. 20 162). cost is covered by warranty, however, at 5, Schleede, EMPA, Transcript, pp. NRDC, ACEEE, and the Vermont the warranty provider passes it back to 160-161). Energy Investment Corporation (VEIC) future warranty holders in the form of As part ofthe process to improve the all believed that the 18.4 year slightly higher warranty prices. DOE new energy efficiency standardsequipment lifetime was reasonable believes the incremental increase in the analysis, we are committed to useThey reasoned that a shorter or longer price ofthe warranty is equal to, orjust sensitivity analysis tools to evaluate the Tey rea e duiment lifetime would result slightly higher, than the discounted potential distribution ofimp in less accurate estimates ofhistorical present value ofthe incremental repair different subgroups of consumers. The hinments ACEEE added that unless costs over the life ofthe warranty. Over Department believes that RECS provides manufacturers can provide new data the long term then, the average a nationally representative household e a if e
consumer always incurs the cost of data set which is suited for conducting the yer average l me should be higher repair costs, either directly or the type of sensitivity analyses retaine. (NRDC, No 35 at 7-8; AC 

### No. 43 at 6-7; VEIC, No. 32 at 7). through higher warranty prices. Since suggested bythe Process Rule. Limiting No at -; V
, No. 32at 7). our analysis considers the present value theRECS households to those equipped T h e Department n o t e s t a t t e b a sisof ofconsumer life cycle costs on the with either central air conditioners or the 18.4 year equipment lifetime was a average consumer, incremental repair heat pumps, the LCC analysis performs survey conducted on more than 2,100
costs and incremental warranty costs are ahousehold-by-household analysis that heat pumps in a seven state region of the same, and interchangeable. predicts the percentage ofhouseholds the U.S.13 The survey determined not

Since consideration ofrepair costs is that will incur net life-cycle cost savings only the lifetime ofa complete heat satisfied by considering either repair or costs from an increased efficiency pump system, but the life ofthe original
costs or extended warranties, we limited standard compressor as well. Although the

our consideration to repair costs, which End-use energy consumption data system lifetime is on average over 18

are slightly easier to estimate, from past RECS surveys have been years, the survey also showed that the communicate, and incorporate into the compared to submetered end-use data original compressor lifetime was, on analysis. Considering them both would for purposes ofvalidating their average, 14 years. Thus, the survey require a much more rigorous analysis conditional demand analysis estimates. indicated that essentially all heat pump of service costs since we would have to Central air conditioning and space- owners replaced their original estimate the service cost incurred on a heating energy data from the 1990 RECS compressor once in the lifetime of year-by-year basis. That additional were shown to differ by 5% to 22% system. analysis would likely not produce compared to submetered end-use data In the LCC analysis conducted for the significantly different results. from five utility service areas. The Supplemental ANOPR, we did not Comments are welcome as towhether Department believes that this range of include any repair costs associated with explicit consideration ofextended difference is acceptable considering that replacing the compressor. But since the warranties would produce significantly the conditional demand analysis heat pump survey clearly indicates that different results from those based on utilized by RECS is fully capable of the original compressor is replaced once service costs alone which we have estimating the energy consumption of in a system's life, the analysis was assumed rise in proportion to the price equipment throughout the nation. revised to include a repair cost for the ofthe equipment. Since more efficient Because RECS is a very well suited equipment is also more expensive, we source ofdata for performing the 3 "Bucher, M.E., Grstataro, C.M., and Coleman, equipment,~~~~~~~~~~~~~~~~~~~~ '. " pW.R., "Heat Pump Life and Compressor Longevity have included the higher cost ofrepair, analyses suggested by the Process Rule in Diverse Climates." ASHRAE Transactions, 1990.
or equivalently, the higher warranty cost and RECS has been shown to provide 96(1): p. 1567-1571. 

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59600 Federal Register/ Vol. 65, No. 194/

### Thursday, October 5, 2000/

### Proposed Rules

complex systems. (Pietsch, No. 36 

### at 22).

Air conditioner manufacturers warranty their equipment against defects, and contractors typically guarantee performance and installation. Manufacturerwarranties typically cover parts and labor for one year, withlonger warranties applying to the compressor. Mr. 

### Pietsch notedthat compared to lowSEER products, high-SEER products have more components, many ofwhich have a relatively shorthistory. Reliabilitypatterns ofthese new components are less known, so warranty accruals may be significantly higher for these products. (Pietsch. No. 36 

### at 22). Dealers also may offer extended warranties which are usually underwritten bythe manufacturerora thirdparty.

A productthatis lessreliable or contains more expensive components will have a higher cost ofrepair over its lifetime. Eitherthe consumer orthe warrantyproviderwillbearthatadded cost directlythrough more frequent service calls orhigherrepair costs. If

### the cost is coveredby warranty, however. the warranty providerpasses it backto future warranty holders inthe form of slightlyhigherwarranty prices. DOE believes the incremental increase inthe price ofthe warranty is equal to, orjust slightlyhigher, than the discounted presentvalue ofthe incremental repair costs over the life ofthe warranty. Over the long term then, the average
consumer always incurs the cost of higherrepair costs, eitherdirectly or through higherwarranty prices. Since

ouranalysis considers the present value ofconsumer life cycle costs on the average consumer, incremental repair costs and incrementalwarranty costs are the same, and interchangeable.

Since consideration ofrepair costs is satisfied by considering eitherrepair costs or extended warranties, we limited

our consideration to repair costs, which

are slightly easierto estimate, communicate, and incorporate into the analysis. Consideringthemboth would require a much more rigorous analysis ofservice costs since we would have to estimate the service cost incurred on a year-by-year basis. That additional analysis would likely not produce significantly differentresults. Comments are welcome as to whether explicit consideration ofextended warranties wouldproduce significantly different results from those based on service costs alone which we have assumed rise inproportion to the price

.ofthe equipment. Sincemore efficient equipment is also more expensive, we have included thehigher cost ofrepair,

or equivalently, thehigherwarranty cost associated with more efficient equipment, as part ofthe lifecycle cost analysis.
2. Residential Energy Consumption Survey (RECS)

Both NRDC and EMPA asserted that RECS" method for estimatingend-use energy consumption (j.e., 

### conditional demand analysis) yields unreliable and flawed results. NRDC addedthat conditional demand analysis methods inherently underestimate central air conditionerenergy use due to its treatment ofinternal loads. EMPA stated thattheRECS household sample size is too small to beused inthe mannerin whichitis beingtreated inthe life-cycle cost analysis. (NRDC, No. 35 

### at 6-7; 

### EMPA. No. 33 

### at 4-6; 

### Schleede, EMPA, Transcript. pp. 160-161). 

### Virginia Power, EEl, and EMPA all requested thatthe analysis be updated to use RECS 1997 

### data ratherthan RECS 1993 

### data. EEl addedthat actual submetered end-use data shouldbe used ifpossible ratherthan the end-use data in RECS. (Virgina Power. No. 27 at 2; EEl. No. 20 

### at 5, 

### Schleede, EMPA, Transcript, pp. 160-161).



### As part oftheprocess to improve the

new energy efficiency standards analysis, we are committedto use sensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. The Departmentbelieves thatRECS provides

a nationallyrepresentative household data set which is suited for conducting the type ofsensitivity analyses suggested bythe Process Rule. Limiting theRECS households to those equipped with either central air conditioners or heat pumps, the LCC analysis performs

a household-by-household analysis that predicts thepercentage ofhouseholds that will incur net life-cycle cost savings

or costs from anincreased efficiency standard.

End-use energy consumption data from pastRECS surveys havebeen compared to submetered end-use data for purposes ofvalidating their conditional demand analysis estimates. Central air conditioningand spaceheating energy data from the 1990

### RECS

were shownto differby 5% to 22% compared to submetered end-use data from five utility service areas. The Departmentbelieves thatthisrange of difference is acceptable considering that the conditional demand analysis utilized byRECS is fully capable of estimatingthe energy consumption of equipmentthroughout the nation

. Because RECS is a very well suited

source ofdata for performingthe analyses suggested by the Process Rule and RECS has been shownto provide reasonable estimates ofend-use energy consumption, we will continue to rely

on RECS for providing the annual energy consumption data necessary for conducting the life-cycle cost analysis.

The analysis conducted in support of this proposed rule has beenrevised based on data from the 1997 

### RECS ratherthan the 1993 

### RECS.

3. 

### EquipmentLifetime

Virginia Power, EEl. ARI, Unico, Rheem Co., and Trane commented that the average equipment lifetime of 18.4 

### years assumed inthe Supplemental ANOPR was incorrect. and suggested an actual lifetime between 12 

### and 15 

### years. (VirginiaPower, No. 27 

### at 2;

### EEl, No. 20 

### at 10; 

### ARI. No. 48 

### at 3; 

### Unico. No. 34 

### at 3; 

### Lux. Rheem Co., Transcript. p. 165; 

### Foster, EEl, Transcript.

## p. 170; 

### Crawford, Trane. Transcript, p. 191; 

### Wethje, ARI, Transcript, p. 193). 

### EMPA asserted that the length offirst ownership shouldbeused as thebasis for equipment lifetime. (EMPA. No. 33 

### at 3, 

### Schleede. EMPA. Transcript. p. 162).



### NRDC. ACEEE. and the Vermont Energy Investment Corporation (VEIC) all believed thatthe 18.4 

### year equipment lifetime was reasonable. Theyreasoned that a shorter or longer average equipment lifetime wouldresult inless accurate estimates ofhistorical shipments. ACEEE added thatunless manufacturers canprovidenew data, the 18.4

### year average lifetime shouldbe retained. (NRDC, No. 35 

### at 7-8; 

### ACEEE, No. 43 

### at 6-7; 

### VEIC, No. 32 

### at 7).



### The Department notesthat thebasis of the 18.4 

### year equipment lifetime was a survey conducted onmore than 2,100 

### heat pumps in a seven state region of the U.S.13 The survey determined not onlythe lifetime ofa complete heat pump system, butthe life ofthe original compressor as well. Althoughthe system lifetime is on average over 18 

### years, the survey also showed that the original compressor lifetime was, on average, 14 

### years. Thus, the survey indicatedthat essentially all heatpump
owners replaced their original compressor once inthe lifetime of system.

In the LCC analysis conducted for the Supplemental ANOPR, we did not include anyrepaircosts associated with replacingthe compressor. But since the heatpump survey clearly indicates that the original compressoris replaced once in a system's life, the analysis was revised to include a repair cost for the

13 "Bucher. M.E.• Grnstataro, C.M., and Coleman. W.R.. "Heat Pump Lifo and Compressor Longevity inDiverseClimates." ASHRAE Transactions. 1990. 96(1): p. 1567-1571.

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59601

compressor. Conducting the analysis in commercial buildings. The annual On average, residential marginal prices this manner retains the average system energy consumption ofcommercially for households with central air lifetime of 18.4 years but explicitly applied air-conditioning and heat pump conditioners are 3% lower than average addresses the replacement cost ofthe equipment was based on the simulation rates while for households with heat compressor, which is the most of 77 nationally representative pumps marginal prices are 7% lower; expensive component ofa system. As commercial buildings consistent with Space-cooling marginal prices in indicated by the survey data, the the approach and assumptions utilized commercial buildings are on average 2% compressor was assumed to be replaced to develop the American Society of greater than average commercial rates. in the 14th year ofthe system's life. In Heating, Refrigerating and Air- Future marginal prices were in turn addition, because more efficient systems Conditioning Engineers' (ASHRAE) based upon the Reference Case tend to use more efficient and, thus, Standard 90.1-1999. Both average and electricity price forecast from the

more expensive compressors, the marginal electricity rates were AEO2000. The Reference Case forecasts compressor replacement cost was developed by matching a set of declining electricity rates through the assumed to vary with system efficiency. commercial electric utility tariffs to the year 2020. Although it is certainly

Although the revised LCC analysis above simulated building loads and possible that future electricity rates may assumed an 18.4 year average demands. increase in a deregulated climate, the equipment life and one compressor The LCC spreadsheet models were evidence to date (i.e., residential replacement, a shorter equipment modified so that commercial buildings marginal prices are actually lower than lifetime was investigated as an with their corresponding annual energy average rates and AEO 2000 forecasts alternative scenario. In this alternative consumption and marginal and average project declining electricity rates) scenario, a retirement function yielding electricity costs represent 10% ofthe convinces us that our current methods

an average lifetime of 14 years was used entire residential and commercial r estaishin marina ris and compressor replacement costs were building population. Complete details resoablstate that futur prices not considered. The shorter equipment on the procedure to incorporate reasonable. To state that future prices lifetime is plausible assuming thatmost, commercial applications are included inm decrease increase is speculative. ifnot all, consumers when faced with Chapter 5 ofthe TSD.Even in the case ofcommercial replacing a failed compressor would 5. Marginal Electricy P s buildings where demand pricing already choose toreplace the entire system exists, marginal rices are only 2% rather than replace the compressor in a NRDC, ACEEE, CEC, PG&E, NPCC, greater than average electricity rates. relatively old system. LCC results based and ASE commented that the This reenforces our conviction to keep

on both the 18.4 year and 14 year Supplemental ANOPR analysis our current methodology for average equipment lifetimes are underestimated future marginal establishing marginal prices. However, provided in Section VI as well as electricity prices. Several ofthe the Department seeks comments on its Chapter 5 ofthe TSD. comments stated the beliefthat methodology and data for determining deregulation of the electric utility the appropriate marginal energy costs to 4. Commercial Applications industry would result in greater use in future analysis.

NRDC, ACEEE, VEIC, CEC, and the volatility ofelectricity pricing that 6 Forecast ofFuture Electricity Prices Northwest Power Planning Council eventually would translate into higher (NPPC) commented that DOE should electricity prices during peak power EMPA asserted that the EIA's forecast analyze the application ofresidential periods. (Goldstein, NRDC, Transcript, ofelectricity prices as found in the central air conditioners and heat pumps p. 175; ACEEE, No. 43 at 6; CEC, No. 47 Annual Energy Outlook underestimates (i.e., single-phase equipment) in at 8; PG&E, No. 31 at 6-7; Eckman, the future drop in electricity rates. commercial buildings. All stated that NPPC, Transcript, pp. 167-168; Prindle, (EMPA, No. 33 at 2-3; Schleede, EMPA, there is a significant portion ofthis type ASE, Transcript, p. 168). Transcript, p. 185). DonDasher stated equipment being used in small ARI and EEI were not convinced that that any forecast ofelectricity prices commercial buildings. They argued that a deregulated electric utility industry should capture the future use of since the energy use patterns in would result in higher electricity prices renewable energy and emerging commercial buildings are distinctly in the future. ARI noted that under a technologies for generating power. different than those in households, the peak pricing scenario consumers may (Dasher, Transcript, pp. 192-193). analysis should include residential decline to operate their air-conditioning equipment use in commercial equipment to avoid incurring high F u t e re m a

c a l eecric ebased upon applications. (NRDC, No. 35 at 12-13; electricity bills. EEI added that t h e Reference Caseelectricity ce ACEEE, No. 43 at 2; VEIC, No. 32 at 6- currently, there is no mechanism to forecast from the AEO 2000. The 7; CEC, No. 47 at 8; Tom Eckman, NPPC, capture utility capital costs forReference Case forecasts declining Transcript, p. 166). providing peak power in residential electricity rates through the year 2020.

EEI requested clarification as to how pricing. (Wethje, ARI, Transcript, pp. Although it is certainly possible that the commercial application analysis was 168-169; Foster, EEI, Transcript, pp. future electricity rates may increase in conducted for the Department's January 169,175-176). a deregulated climate, the evidence to 14, 2000, LCC Sensitivity Analysis. (EEI, The current method for establishing date (i.e., residential marginal prices are No. 20 at 10). marginal electricity prices only allows actually lower than average rates and

For today's proposed rule, the use of for defining marginal prices forthose current AEO forecasts project declining residential equipment in commercial years in which data are available. In the electricity rates) leads us tobelieve that buildings was analyzed assuming that case ofresidential pricing, the data for our current methods for establishing 10% ofall central air conditioners and establishing marginal prices (the 1997 future marginal prices are reasonable. heat pumps are used in commercial RECS) was taken from the year 1997. In addition to the Reference Case, applications. This figure isbased on The same can be said for commercial DOE analyzed the effects oftwo other ARI's estimate that approximately 10% buildings. The utility tariffs used to energy price forecasts, the AEO 2000 of single-phase air conditioning and establish marginal prices (as described High Growth and Low Growth cases. heat pump shipments are used in earlier) were collected in theyear 1997. (See TSD, Chapter 5.) 

### Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59601

compressor. Conducting the analysis in this mannerretains the average system lifetime of 18.4 years but explicitly addressesthereplacement cost ofthe compressor, which is themost expensive component ofa system. As indicatedbythe survey data, the compressorwas assumedto bereplaced in the 14thyear ofthe system's life. In addition, because more efficient systems tend tousemore efficient and, thus,

more expensive compressors, the compressorreplacement costwas assumed tovary with system efficiency.

Although therevised LCC analysis assumed an 18.4 year average equipmentlife and one compressor replacement, a shorterequipment lifetime was investigated as an alternative scenario. In this alternative scenario, aretirementfunction yielding

an average lifetime of 14 years was used and compressorreplacement costs were not considered. The shorter equipment lifetime isplausible assumingthatmost, ifnot all, consumers when faced with replacing a failed compressorwould choose to replace the entire system ratherthanreplace the compressor in a relatively old system. LCC resultsbased

onboththe 18.4 year and 14 year average equipmentlifetimes are providedin Section VI as well as Chapter 5 ofthe TSD.
4. CommercialApplications

NRDC, ACEEE, VEIC, CEC, and the NorthwestPowerPlanningCouncil (NPPC) commented thatDOE should analyze the application ofresidential central air conditioners and heatpumps (i.e., 

### single-phase equipment) in commercial buildings. All stated that there is a significantportion ofthis type equipmentbeingused in small commercialbuildings. They argued that since the energy use patterns in commercial buildings are distinctly different than those inhouseholds, the analysis should includeresidential equipmentuse in commercial applications. (NRDC, No. 35 at 12-13; ACEEE, No. 43 at 2; VEIC, No. 32 at 6- 7; CEC, No. 47 at 8; Tom Eckman, NPPC, Transcript, p. 166).

EEl requested clarification as to how the commercial application analysis was conducted for the Department'sJanuary 14, 2000, LCC Sensitivity Analysis. (EEl, No. 20 at 10).

Fortoday's proposed rule, the use of residential equipmentin commercial buildings was analyzed assumingthat 10% ofall central airconditioners and heat pumps are used in commercial applications. This figure is based on ARl's estimate thatapproximately 10% ofsingle-phase airconditioning and heatpump shipments are used in commercial buildings. The annual energy consumption ofcommercially applied air-conditioning and heat pump equipmentwasbased onthe simulation of77 nationally representative commercial buildings consistentwith the approach and assumptions utilized to develop the American Society of Heating, Refrigerating and AirConditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal electricityrates were developed by matching a set of commercial electric utilitytariffs to the above simulatedbuildingloads and demands.

TheLCC spreadsheet models were modified sothatcommercialbuildings with their corresponding annual energy consumption and marginal and average electricity costs represent 10% ofthe entire residential and commercial buildingpopulation. Complete details

on the procedure to incorporate commercial applications areincluded in Chapter 5 ofthe TSD.
5. Marginal ElectricityPrices

NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commentedthatthe Supplemental ANOPR analysis underestimated future marginal electricity prices. Several ofthe comments stated thebeliefthat deregulation ofthe electric utility industry wouldresult in greater volatility ofelectricity pricing that eventually would translate intohigher electricity prices during peakpower periods. (Goldstein, NRDC, Transcript, p. 175; ACEEE, No. 43 at 6; CEC, No. 47 at 8; PG&E, No. 31 at 6-7;Eckman, NPPC, Transcript, pp. 167-168; Prindle, ASE, Transcript, p. 168).

ARl and EEl were not convinced that

a deregulated electric utility industry wouldresult inhigher electricityprices in the future. ARl noted thatundera peak'pricing scenario consumers may decline to operatetheirair-conditioning equipmentto avoid incurringhigh electricitybills. EEl added that cUlTently, there is no mechanism to captureutility capital costs for providing peakpowerinresidential pricing. (Wethje, ARl, Transcript, pp. 168-169; Foster, EEl, Transcript, pp. 16B,175-176).

The currentmethod for establishing marginal electricity prices only allows for defining marginal prices for those years in which data are available. Inthe

case ofresidential pricing,the data for establishing marginal prices (the 1997 RECS) was taken from the year 1997. The same canbe said for commercial buildings. The utilitytariffs used to establish marginal prices (as described earlier) were collected inthe year 1997. On average, residential marginal prices for households with central air conditioners are 3% lower than average rates while for households withheat pumps marginal prices are 7% lower: Space-coolingmarginal prices in commercial buildings are on average 2% greater than average commercial rates. Future marginal prices were in turn based upon the Reference Case electricity price forecast from the AE02000. The Reference Case forecasts declining electricity rates through the year 2020. Although it is certainly possible that future electricityrates may .increase in a deregulated climate, the evidenceto date (Le., residential marginal prices are actually lower than average rates and AEO 2000 forecasts project declining electricityrates) convinces us that our current methods for establishing marginal prices are reasonable. To state that future prices may decrease orincrease is speculative. Even inthe case ofcommercial buildings where demand pricing already exists, marginal prices are only 2% greater than average electricityrates. This reenforces our convictionto keep

our currentmethodology for establishing marginal prices. However, theDepartment seeks comments onits methodology and datafor determining the appropriate marginal energy costs to

use infuture analysiS.

6. Forecast ofFutureElectricity Prices

EMPA asserted that theEIA's forecast ofelectricityprices as found in the Annual Energy Outlookunderestimates thefuture drop in electricity rates. (EMPA, No. 33 at 2-3; Schleede,EMPA, Transcript, p. 185). DonDasher stated that any forecast ofelectricityprices should capturethe future lise of renewable energy and emerging technologies for generating power. (Dasher, Transcript, pp. 192-193).

Future marginal prices are based upon theReference Case electricityprice forecast from the AEO 2000. The Reference Case forecasts declining electricityrates throughthe year 2020. Although it is certainly possible that future electriCity rates may increase in

a deregulated climate, the evidence to date (i.e., 

### residential marginal prices are actually lowerthan average rates and currentAEO forecasts project declining electricity rates) leads us to believe that

our current methods for establishing future marginal prices are reasonable.

Inaddition to the Reference Case, DOE analyzed the effects oftwo other energy price forecasts, the AEO 2000 High Growth and Low Growth cases. (See TSD, Chapter 5.)

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59602 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

7. Discount Rates some type of savings-related asset. Cash overstates the significance ofthe

NRDC, ACEEE, VEIC, PG&E, and CEC that was once available to either pay for negative LCC impacts. Most consumers believe that the discountrate used in household necessities or to invest in an experience LCC increases ofonly a few the Supplemental ANOPR analysis was asset like the stock market or a simple dollars over the life ofthe equipment.
toohigh. Their primary criticism savings account now must be earmarked (PG&E, No. 31 at 8). pertained to the breakdown of finance to pay offthe equipment purchase loan, The Department agrees with PG&E's methods which were assumed for thus, either causing the consumer to comment and in formulating today's establishing the discount rate. The incur additional credit card debt or to proposed rule, DOE has redefined the Supplemental ANOPR analysis assumed lose the opportunity to earn income criteria for determining negative that 35% ofconsumers purchasing a from their assets. For today's proposed impacts. Noting that thebaseline LCC is central air conditioner or heat pump rule, we have decided to use the above approximately $5,000 for central air used a credit card to finance their methodology for defining the discount conditioners and $10,000 for heat purchase. The comments argued for a rate for central air conditioner and heat pumps, previously all consumers much lower percentage and cited a pump purchases. The 1998 Survey of incurring an LCC increase as small as recent PG&E survey that demonstrated Consumer Finances (SCF) was used to $10 were considered to be adversely that only 5% ofconsumers used credit estimate the percentage ofhouseholds impacted by an increase in the standard. cards. VElC also cited a survey by that used second mortgages to finance In the revised LCC analysis, the Potomac Electric Power Company their equipment purchase as well as Department defines consumers impacts (PEPC) that reported lower purchases those households that either would as follows: consumers who achieve (PEPCO) that c rards. (NR
, No. 35 at incur more credit card debt or be forced significant net LCC savings (i.e., LCC 11; ACEEE, No 43 at 3; VEIC, No. 32 at to forgo their normal course of savings greater than 2% ofthe baseline

a 3-4; Neme, VEI, Transcript, p. 16 investing. Data from the Air LCC), consumers who are impacted in 187; PG&E, No. 31 at 7; CEC, No. 47 at Conditioning, Heating, and Refrigeration an insignificant manner by having either 187 PG&Ct, No. 31 abt 7 CErNo. 47 at News (December 12, 1998) established a small reduction or small increase in 7). Counter to the above assertion, Trane the percentage of shipment going to new LCC (i.e., within ±2% ofthe baseline maintained that the Supplemental homes. LCC), or consumers who achieve a ANOPR's assumption regarding the After establishing the share captured significant net LCC increase (i.e., an LCC percentage ofconsumers using credit by each finance method, the rangeof increase exceeding 2% ofthe baseline cards to purchase equipment was interest rates due to each method were LCC). Consequently, only consumers correct, based on the number of developed. The 1998 SCF established (both residential and commercial)

consumers in the U.S. that carry credit the range of interest rates for new home having an LCC increase greater than 2% card debt. (Crawford, Trane, Transcript, mortgages, second mortgages, and credit of the baseline are considered to be p. 191-192). EEI commented that the cards. Rates ofreturn on certificates of negatively impacted. interest rates associated with credit card deposit, savings bonds, and bonds were and cash purchases needed to be based on historical interest rates. A 9. Regional Analysis revisited. (EEI, No. 20 at 6). EMPA weighted-average discount rate of5.6% At the December 9,1999, public asserted that with higher cost air is calculated from the mean interest workshop, NRDC and CEC requested conditioners, consumers' after tax rates for each finance method. A more further information on regional income would be reduced, requiring detailed discussion ofthe data sources distributions ofhouseholds with net them to forego the purchase ofvarious and how the interest rates were derived LCC savings or costs relative to the household necessities such as food, is found in Chapter 5 ofthe TSD. regional baseline level. (Goldstein, clothing, and shelter. (EMPA, No. 33 at NRDC, Transcript, pp. 188-189; Martin, 3). 8. Percentage of Households With LCC CEC, Transcript, p. 274). The

The Department performed an Savings Department responded by conducting extensive review and revision tothe For the Supplemental ANOPR, all additional analysis, which was posted methodology that determines consumer consumers having an LCC increase to our web site on January 14, 2000, and discount rate. The Supplemental resulting from the standard were included LCC analysis disaggregated by ANOPR established the share ofvarious considered to be adversely impacted. region into census divisions. From this finance methods used for purchasing Several comments expressed concern on regional analysis it could be determined air-conditioning equipment and how we would use this information on how different parts ofthe country determined the associated interest rates adverse consumer impacts in selecting would be impacted by an increase in the for each of the finance methods. For minimum efficiency standards. ARI, minimum efficiency standard. equipment obtained through the Unico and EMPA asserted that a purchase ofa new home, second majority ofhouseholds would need to 10. Rebuttable Payback mortgage, or home equity lines ofcredit, benefit from the standard in order to EEI asked why the rebuttable payback this approach isreasonable. But for justify its selection. (ARI, No. 48 at 5; period is not determined with annual purchases made to replace old or failed Unico, No. 34 at 3; EMPA, No. 33 at 2). energy use data from RECS. They also equipment where cash or some form of NRDC stated that the percentage of requested clarification as to how credit is used to finance the acquisition, households with LCC savings or costs rebuttable payback periods will factor

we determined itmore appropriate to relative to the baseline level should not into the decision to select a new establish how thepurchase affects a be a criterion in basing a-standard's minimum efficiency standard. (EEI, No. consumer's overall household financial economic justification. NRDC stated that 20 at 7-8). situation. For example, even though the variations in electricity pricing make it As prescribed by section purchase might be financed through a nearly impossible to determine 325(o)(2)(B)(iii) ofEPCA, the rebuttable dealer loan or some other low interest consumer costs on a disaggregated level. payback period is calculated under the financing vehicle, the more probable (NRDC, No. 35 at 12-15). PG&E applicable test procedure. Thus, all effect ofthe purchase is to either cause commented that the percentage of rebuttable payback periods are based on the consumer to incur additional credit households at any particular standard an annual energy consumption that is card debt or forego their investment in level with net LCC costs actually determined through the current

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7. Discount Rates

NRDC, ACEEE, VEIC, PG&E, and CEC believe thatthe discountrateused in the SupplementalANOPR analysis was too high. Theirprimary criticism pertained to thebreakdown offinance methods which were assumed for establishingthe discount rate. The SupplementalANOPR analysis assumed that 35% ofconsumerspurchasing a central airconditioner orheat pump used a creditcardto finance their purchase. The comments argued for a much lowerpercentage and cited a recentPG&E survey that demonstrated that only 5% ofconsumersused credit cards. VEIC also cited a surveyby PotomacElectricPowerCompany (PEPCO) thatreported lowerpurchases withcredit cards. (NRDC, No. 35 at lOll; ACEEE, No. 43 at 3; VEIC, No. 32 at 3-4; Neme, VEIC, Transcript, pp. 186- 187; PG&E, No. 31 at 7; CEC, No. 47 at 7). Counterto the aboye assertion, Trane maintained that the Supplemental ANOPR's assumption regarding the percentage ofconsumersusing credit cards to purchase equipment was correct, based on the number of

consumers inthe U.S. that carry credit card debt. (Crawford, Trane, Transcript, p. 191-192). EEl commentedthat the interestrates associated with credit card and cashpurchases needed to be revisited. (EEl, No. 20 at 6). EMPA asserted thatwithhigher cost air conditioners, consumers' aftertax income wouldbereduced, requiring them to forego the purchase ofvarious household necessities such as food, clothing, and shelter. (EMPA, No. 33 at 3).

The Departmentperformed an extensivereview and revision to the methodology that determines consumer discount rate. The Supplemental ANOPRestablishedthe share ofvarious finance methods used for purchasing air-conditioning equipment and determined the associated interest rates for each ofthe finance methods. For equipment obtainedthroughthe purchase ofa newhome, second mortgage, orhome equity lines ofcredit, this approach is reasonable. Butfor purchases made to replace old or failed equipment where cash or some form of credit is used to finance the acquisition,

we determined it more appropriate to establishhowthepurchase affects a consumer's overallhousehold financial situation. For example, eventhough the purchase might be financed through a dealerloan or some other low interest financing vehicle, the more probable effect ofthe purchase is to eithercause the consumerto incuradditional credit card debt orforego their investment in some type ofsavings-related asset. Cash that was once availableto eitherpay for household necessities or to invest in an asset like the stock market or a siniple savings account nowmust be earmarked to payoffthe equipmentpurchase loan, thus, eithercausingthe consumerto incur additional credit card debt orto losethe opportunityto earnincome from their assets. Fortoday's proposed rule, we have decided to use the above methodology for definingthe discount rate for central airconditioner and heat pumppurchases. The 1998 Survey of ConsumerFinances (SCF) was used to estimatethe percentage ofhouseholds that used second mortgages to finance their equipmentpurchase as well as those households that eitherwould incurmore credit card debt orbeforced to forgo theirnormal course of investing. Data from the Air Conditioning, Heating, andRefrigeration NBws (December 12,1998) established the percentage ofshipmentgoing to new homes.

After establishingthe share captured by each finance method, the range.of interestrates dueto each method were developed. The 1998 SCF established the range ofinterestrates for newhome mortgages, second mortgages, and credit cards. Rates ofreturn on certificates of deposit, savings bonds, and bonds were based onhistorical interest rates. A weighted-average discount rate of5.6% iscalculatedfrom themean interest rates for each finance method. A more detailed discussion ofthe data sources and howthe interest rates were derived is found in Chapter 5 ofthe TSD.
8. Percentage ofHouseholds With LCC Savings

Forthe SupplementalANOPR, all

consumershavingan LCe increase resulting from the standard were consideredtobe adversely impacted. Several comments expressed concern on how we would use this information on adverse consumerimpacts in selecting minimum efficiency standards. ARl, Vnico and EMPA asserted that a majority ofhouseholds would need to benefitfrom the standard in orderto justifyits selection. (ARl, No. 48 at 5; Vnico, No. 34 at 3; EMPA, No. 33 at 2). NRDC stated thatthe percentage of households with LCC savings orcosts rlllative to the baseline level should not be a criterion inbasing a·standard's economicjustification. NRDC stated that variations in electricity pricing make it nearly impossible to determine

consumer costs on a disaggregated level. (NRDC, No. 35 at 12-15). PG&E commented that the percentage of households at any particular. standard level with net LCC costs actually overstates the significance ofthe negative LCC impacts. Most consumers experience LCC increases ofonly a few dollars overthe life ofthe equipment. (PG&E, No. 31 at 8).

The Department agrees with PG&E's comment and in formulating today's proposedrule, DOE has redefined the criteria for determining negative impacts. Noting thatthebaseline LCC is approximately $5,000 for central air conditioners and $10,000 for heat pumps,previously all consumers incurringanLCC increase as small as $10 were considered to be adversely impactedby an increase inthe standard. In therevised LCC analysis, the Department defines consumers impacts

as follows: consumerswho achieve significant netLCC savings (j.e., LCC savings greaterthan 2% ofthebaseline LCC), consumers who are impacted in

an insignificantmannerbyhaving either

a smallreduction or small increase in LCC (j.e., within ±2% ofthe baseline LCC), or consumers who achieve a significant net LCC increase (j.e., an LCC increase exceeding 2% ofthebaseline LCC). Consequently, only consumers (both residential and commercial) having an LCC increasegreaterthan 2% ofthebaseline are considered tobe negatively impacted.
9. Regional Analysis

At the December 9,1999, public workshop, NRDC and CEC requested further information onregional distributions ofhouseholds with net LCC savings or costs relative to the regionalbaseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p. 274). The Departmentrespondedby conducting additional analysis, which was posted to our web site onJanuary 14, 2000, and included LCC analysis disaggregated by .region into census divisions. Fromthis regional analysis it couldbe determined how different parts ofthe country wouldbe impactedby an increase inthe minimum efficiency standard.
10. Rebuttable Payback

EEl asked whythe rebuttablepayback period is not determined with annual energy use data from RECS. They also requested clarificationas to how rebuttable payback periods will factor into the decision to select a new minimum efficiency standard. (EEl, No. 20 at 7-8).

As prescribed by section 325(0)(2)(B)(iii) ofEPCA, the rebuttable paybackperiodis calculatedunderthe applicable test procedure. Thus, all rebuttable payback periods arebased on
an annual energy consumptionthat is determined through the current

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59603

Department ofEnergy test procedure for C. ShipmentsAnalysis the dollar value of the energy savings. central air conditioners and heat pumps. 1 Forecasted Housing Shifts For these reasons, the Department has The resulting annual energy use as not revised its Shipments Analysis to determined by the test procedure is Both the OEO and NPPC stated that account for shifts in regional housing significantly greater than what is there will likely be significant shifts in populations. indicated by RECS. Thus, the rebuttable regional housing populations. For paybackperiods are significantly shorter example, future housing shifts may 2. Elasticities than those based on the RECS annual result in more housing in warmer Both ACEEE and NRDC note that the than those based on the RECS annual weather climates where central air purchase price elasticities are based on energy consumption data. conditioning is more prevalent and used data from the 1970s and are likely no

The rebuttable presumption test does more often, thus, impacting the nation's longer applicable to current market not consider the full range ofimpacts of future space-conditioning energy use. conditions. Both stated that price standards, including manufacturer Since the Shipment Analysis does not elasticities should be developed from impacts and energy savings. Therefore, account for regional housing shifts, OEO more recent data. (ACEEE, No. 43 at 10; the Department bases its decision and NPPC request that itbe accounted Nadel, ACEEE, Transcript, p. 211; primarily on the seven factors specified for in the analysis. (Stephens, OEO, Goldstein, NRDC, Transcript, pp.211- in section 325(o) ofthe Act. Transcript, pp. 171-172; and Eckman, 212). NPPC, Transcript, pp. 216-217). This has been corrected for in the 11. Sensitivity Analyses Preliminary analysis ofregional analysis underlying today's proposed housing shifts has been examined and rule. We have calibrated elasticity for ACEEE recommended that several determined to have a relatively small price relative to household income, with sensitivity analyses be conducted to effect (i.e., a maximum change of2% in historical data from 1970 to 1996. It is determine how the LCC varies with the cumulative amount ofmonetary worth noting that for forecasting future changes in certain input variables. energy savings). This is primarily due to shipments, consumer purchase (Nadel, ACEEE, Transcript, pp. 233- the large size ofthe housing stock and decisions are based upon sensitivities to 236; ACEEE, No. 43 at 10). NRDC also the fact that changes in the housing changes in product life-cycle cost requested some of the sensitivity stock occur over a long time scale relative to income. Life-cycle cost analyses described by ACEEE. (NRDC, resulting in slow changes in regional changes are dependent on the purchase No. 35 at 12-13). Trane went on the housing shifts. A preliminary analysis of price and the present worth ofoperating record as not endorsing all ofACEEE's historical housing data coupled with cost savings. Operating cost savings are requested sensitivities. (Crawford, worst case forecasts of regional housing in turn dependent on electricity prices. Trane, Transcript, p. 237). and air-conditioning market share shifts As electricity prices are forecasted to

We conducted several ofthe demonstrated the small impact on decrease over time (based on the Annual cn c set

ivt a a national NPV due to changes in regional Energy Outlook 2000), operating cost requested LCC sensitivity analyses, as housing. savings due to a particular increase in well as the previously described New housing starts are only about 2% equipment efficiency will in turn regional analyses, and posted the results ofexisting housing stock and this is decrease over time and have less of an to our web site on January 14, 2000. The forecast to decrease to about 1% of impact on consumer purchase sensitivities examined how the LCCs for housing stockby 2030. Historical data decisions. central air conditioners and heat pumps over the period from 1980 to 1990 Usage elasticity expresses how

were impacted by changes in the showed the shift in regional shares of changes in equipment efficiency following: dealer markups, builder housing stock changed by less than 2% resulting from higher standards changes markups, repair costs, lifetime, (decreased by 1.2% and 1.7% in the consumer behavior regarding air emerging technologies, and the use of Northeast and Midwest, respectively, conditioners and heat pumps usage. single-phase central air conditioning and increased by 1.7% and 1.2% in the Because oflower operating costs, and heat pump equipment in South and West, respectively). Ifthese consumers may change thermostat commercial applications. Of the changes continue at a steady rate, the settings and/or operate the systems for sensitivities examined, the assumption housing share ofthe Northeast will longer hours to achieve greater comfort. of fixed margins (i.e., no variation in the decrease another 3.6% over three Direct evidence ofthe magnitude ofthis difference between the equipment price decades. This translates to a relative effect is limited and the Department is to the consumer and the cost to decrease of 17% in theNortheast's air- interested in receiving comments. One manufacture with increased efficiency) conditioning market share. Ifthe entire study14 indicated that in summer had the largest impact on the LCC loss in the Northeast's market share goes months consumers may take 1-2% of

. C s in t , m h a tothat portion ofthe South with the the cooling energy savings back in notceable afect but nt he saime rdr a highest annual energy use (Census increased usage, and 9-13% in winter noticeable affect t the se Region 7), the absolute market share of months. Usage elasticity has not been ofmagnitude as the fixed margin this region would increase from 15.7% considered in the current analysis but assumption. All other sensitivities had to 17.7%. The result ofthis change is will be considered in the Final Rule. only minor impacts on the LCC results. that the dollar value ofenergy savings

In preparing the sensitivity analyses, at a 12 SEER standard level would 3. Equipment Efficiency

we found reason to revise our increase from $5.73 billion to $5.85 Several comments received assumptions regarding markups, billion, or about a 2% increase in the questioned the use of a weightedcompressor replacement, and dollar energy savings. The actual impact average equipment efficiency equaling commercial applications. Those on dollar savings would likely be less the SEER ofthe standard level for revisions are incorporated into the than half ofthisbecause the above analysis that supports today's proposed housing shift was assumed to be"Jeffrey A.Dubin. Ailen K. Miodema, and Ram v.Chandran. 1986. "Price effects ofenorgy-efficient rule and are discussed elsewhere in this immediate and tothe highest energy use technologies a study ofresidential demand for technologies: astudy ofresidential demand for Section. area ofthe South. As a result, the actual heating and cooling." Rand Journal of Economics. impact would likely be less than 1% on Vol 17, No. 3. Autumn, pp 310-324.

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### 59603

Department ofEnergy test procedure for central airconditioners and heat pumps. Theresulting annual energy use as determinedbythe test procedure is significantlygreater than whatis indicatedby RECS. Thus, the rebuttable paybackperiods are significantly shorter than thosebased onthe RECS annual energy consumption data.

Therebuttable presumption test does notconsiderthe full range ofimpacts of standards, including manufacturer impacts and energy savings. Therefore, theDepartmentbases its decision primarily onthe seven factors specified in section 325(0) ofthe Act.
11. SensitivityAnalyses

ACEEE recommended that several sensitivity analysesbe conductedto determine how the LCC varies with changes in certain input variables. (Nadel, ACEEE, Transcript, pp. 233- 236; ACEEE, No. 43 at 10). NRDC also requested some ofthe sensitivity analyses described by ACEEE. (NRDC, No. 35 at 12-13). Trane went onthe record as not endorsing all ofACEEE's requested sensitivities. (Crawford, Trane, Transcript, p. 237).

We conducted several ofthe requested LCC sensitivity analyses, as well as the previously described regional analyses, andpostedtheresults to ourweb site on January 14, 2000. The sensitivities examined howthe LCCs for central air conditioners and heat pumps
were impactedbychanges inthe following: dealer markups, builder markups, repair costs, lifetime, emerging technologies, and the use of single-phase central air conditioning and heatpump equipment in commercial applications. Ofthe sensitivities examined, the assumption offixed margins (j.e., 

### no variation inthe difference between the equipmentprice to the consumerand the cost to manufacture withincreased efficiency) had thelargest impact on theLCC results. Changes inthe lifetimehad a noticeable affectbutnotthe same order ofmagnitude as the fixed margin assumption. All other sensitivitieshad only minorimpacts on the LCC results.

In preparingthe sensitivity analyses,

we found reason torevise our assumptions regarding markups, compressorreplacement, and commercial applications. Those revisions are incorporated into the analysis that supports today's proposed rule and are discussed elsewhere inthis Section. C. 

### ShipmentsAnalysis
1. Forecasted Housing Shifts

Both the OED and NPPC stated that there will likelybe significant shifts in regional housing populations. For example, future housing shifts may result inmorehousing in warmer weatherclimates where central air conditioning is more prevalentand used

more often, thus, impactingthe nation's future space-conditioningenergy use. Since the ShipmentAnalysis does not account for regional housing shifts, OED and NPPC requestthatitbe accounted for inthe analysis. (Stephens, OED, Transcript, pp. 171-172; and Eckman, NPPC, Transcript, pp. 216-217).

Preliminary analysis ofregional housing shifts has been examined and determined to have a relatively small effect (j.e., 

### a maximum change of2% in the cumulative amount ofmonetary energy savings). This is primarily due to the large size ofthe housing stock and the fact that changes inthe housing stock occur over a long time scale resulting in slowchanges in regional housing shifts. A preliminary analysis of historical housing data coupled with worst case forecasts ofregional housing and air-conditioning market share shifts demonstrated the small impact on national NPV due to changes inregional housing.

New housing starts are only about 2% ofexistinghousing stock and this is forecast to decrease to about 1 % of housing stockby 2030. Historical data

overthe period from 1980 to 1990 showed the shift inregional shares of housing stock changedby less than 2% (decreased by 1.2% and 1.7% inthe Northeast and Midwest, respectively, and increased by 1.7% and 1.2% inthe South andWest, respectively). If

### these changes continue at a steady rate, the housing share ofthe Northeast will decrease another 3.6% overthree decades. This translates to a relative decrease of 17% in theNortheast's airconditioning market share. 

### Ifthe entire loss inthe Northeast's market share goes tothatportion ofthe South with the highest annual energyuse (Census Region 7), the absolute market share of this region would increase from 15.7% to 17.7%. The result ofthis change is that the dollarvalue ofenergy savings at a 12 SEER standard level would increase from $5.73 billion to $5.85 billion, or about a 2% increase inthe dollar energy savings. The actual impact

OIl 

### dollar savings would likelybe less thanhalfofthis because the above housing shiftwas assumed to be immediate and to the highest energy use
area ofthe South. As a result, the actual impact would likelybe less than 1 % on the dollarvalue ofthe energy savings. For these reasons, theDepartment has not revised its Shipments Analysis to account for shifts inregional housing populations.
2. Elasticities

Both ACEEE andNRDC notethatthe purchaseprice elasticities are based on data from the 1970s and are likely no longer applicableto current market conditions. Both statedthatprice elasticities shouldbe developed from

more recent data. (ACEEE, No. 43 at 10; Nadel, ACEEE, Transcript, p. 211; Goldstein, NRDC, Transcript, pp.211- 212).

This hasbeen corrected for inthe analysis underlying today's proposed rule. We have calibrated elasticity for pricerelative to household income, with historical data from 1970 to 1996. It

### is worth noting that for forecasting future shipments, consumerpurchase decisions arebased upon sensitivities to changes in product life-cycle cost relativeto income. Life-cycle cost changes are dependent on the purchase price and thepresent worth ofoperating cost savings. Operating cost savings are intum dependent on electricityprices. As electricityprices are forecasted to decrease overtime (based on the Annual Energy Outlook 2000), operating cost savings due to a particularincrease in equipmentefficiency will in turn decrease overtime andhave less ofan impact on consumerpurchase decisions.

Usage elasticity expresses how changes inequipmentefficiency resulting from higher standards changes

consumerbehaviorregarding air conditioners and heatpumpsusage. Because oflower operating costs,
consumers may change thermostat settings and/or operate the systems for longer hours to achieve greater comfort. Directevidence ofthe magnitude ofthis effect is limited and theDepartment is interested inreceiving comments. One study 14 

### indicated that in summer months consumers may take 1-2% of the cooling energy savingsback in increased usage, and 9-13% in winter months. Usage elasticity has not been considered inthe currentanalysis but will be considered inthe Final Rule.
3. EquipmentEfficiency

Several comments received questioned the use ofa weightedaverage equipment efficiency equaling the SEER ofthe standard level for

14Jeffrey A. Dubin. Allen K. Miedema. and Ram V. Chandran. 1986. "Price effects ofonorgy-officient technologies: a study ofresidential demand for heating and cooling." Rand Journal ofEconomics. Vol 17. No.3. Autumn. pp 310-324.

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forecasting shipments and national furnace purchase decisions. The more the same options for forecasting future energy savings. All asserted that in the important factor in these decisions electricity prices with the exception that event ofan increase in the minimum seems tobe the availability of gas AEO 1999 forecasts have been replaced efficiency standard, the actual weighted- service. In the middle 1980's, there was with those from theAEO 2000 as well average efficiency of equipment in the a large peak in gasprices relative to as the five options for energy prices as marketplace would be greater than the electricity, but only a small, delayed described above. minimum efficiency standard. For increase in the relative market share of example, ifa 12 SEER standard was set heat pumps. Besides this one historical 2. Site-to-Source Conversion

as the new minimum, the weighted- event, the relative market share ofheat Both the Southern Company and EEI average efficiency would be equal to a pumps has been relatively constant from questioned the validity ofthe site-tovalue which was greater than 12 SEER. 1977 tothe present. conversions used in the NES



### .Neme, VEIC, Transcript, pp. 214 226- source conversions used in the NES (Neme, VEIC, Transcript, pp. 214, 226 D,NationalEnergySavingsAnalysis spreadsheet model. The Southern 227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35 at 8-9; PG&E, No. 31 at Changes to the LCC assumptions Company and EEI asserted that 6-7). impact the NES and the National Net hydroelectric power and renewable

The Department has modified several Present Value (NPV) analyses directly as forms ofelectric energy are assigned assumptions with regard to future the NES analysis uses the same basic fossil fuel-fired power plant heat rates. equipment efficiencies. The Shipments data as the LCC analysis for the energy Southern Company, No. 29 at 4-5; EEI, Model no longer simply forecasts a use and cost of the central air- No. 20 at 7). weighted-average equipment efficiency, conditioning and heat pump equipment. We estimated the effects ofproposed but rather, an actual distribution of As previously mentioned, estimates of central air conditioner and heat pump efficiencies i.e., the percentage of NES and NPV also depend on the standard levels on both the gas and shipments which occur in incremental distribution ofproduct efficiencies electric utility industries using a variant SEER bins over the range ofthe among units sold after a standard takes of DOE/EIA's NEMS-BRS, together with minimum standard 10 to 18 SEER). effect in the marketplace. For the some exogenous calculations. s NEMSAlso, as discussed in Section IV, three Supplemental ANOPR, the assumed BRS is used to determine site-to-source efficiency scenarios are provided to product efficiency distribution was conversion factors and does not assign model future equipment efficiencies. based on a weighted-average equipment fossil-fuel-fired power plantheat rates The impact ofthe three different efficiency equal to the SEER ofthe new to hydroelectric or renewable power scenarios on national energy savings standard level. plants. The site-to-source conversion and national net present values are 1.Uncertainty in NES Results factors used in the Supplemental discussed in Section VI. ANOPR are average annual values for

EEI asked the reason for assuming the EEI believes that due to the the residential sector. The average weighted-average efficiency remains uncertainty in the electricutility conversion factors are based on all fixed at the same SEER level from the industry and its impact on future forms ofelectricity generation with their year 1997 to the assumed effective date electricity prices it is more appropriate corresponding heat rates (e.g., heat rates ofstandard (2006). (EEI, No. 20 at 7-8). to represent the NES results with some are assigned to fossil-fuel fired power Historical data from the years 1994 degree ofuncertainty. (EEI, No. 20 at 8). plants which are much different than through 1997 indicate that shipment- Although NES results presented in the thse assind t tr t s f weighted efficiencies have remained Supplemental ANOPR were based only plants) As a result, the site-to-source essentially flat. As a result, weighted- on electricity price estimates from the conversion factors are significantlysource average efficiencies were assumed to Reference Case forecast from the 1999 cower sin factors are sgnifants w remain constant from 1997 through Annual Energy Outlook, our NES assigned the heat rate s associated with 2006. spreadsheets have provided users with ssi a

. five different options for estimating fossil fuel-fired power plants. For 4. Fuel Switching fture electricity prices 1999 AEO today's proposed rule, site-to-source conversion factors are based on EEI, York, Virginia Power and Reference Case forecast, 1999 AEO High conversion f sofe based on Southern Company stated that shipment Growth Case forecast, 1999 AEO Low ecommendations oftheAdvisory forecasts must account for any fuel Growth Case forecast, 1998 Gas o m mit te e o n pliance Enegy switching that might occur as a result of Research Institute (GRI) forecasts, and Efficency Standards. In this analysis, increased heat pump prices to the constant electricity prices. Providing a heat ra tes are based on determining how

consumer. The concern is that an number ofoptions for forecasting future a deviation in national energy increase in the total installed price ofa prices recognizes the uncertainty in the c mpion deto standars imact heat pump would cause some electric utility industry and how that the type ofelectricity generation. In

consumers to choose a gas-space heating uncertainty can impact theNES results. ohe word hat rates areaed on appliance rather than an electric heat The NES uses single point values ratherthose power plants which are avoided pump. (Foster, EEI, Transcript, p.263; than ranges as used in LCC;as a result ofthe stanard. Madera, York, Transcript, p.264; consequently, NES provided single Virginia Power, No.27 at 2-3; Southern point results rather than a range. t5 For more information onNEMS, please refer to the U.S. Department of Energy, Energy Information Company, No. 29 at 1-2). ACEEE stated However, in order to account for the Administration documentation. A useful summary that any incorporation of fuel switching uncertainty in electricity price forecasts, is National Energy Modeling System: An Overview into the Shipments Model must account DOE evaluated three energy price 1998. DOE/EIA-0581(98). February 1998. DOE/EIA for future changes in gas-fired space- scenarios in the NES. The NES approves use of th name NEMS to describe only
an official version of the model withoutany heating minimum efficiency standards. Spreadsheets have been made available modification to code or data. Because ouranalysis (Nadel, ACEEE, Transcript, p.266). to all interested parties via our web site entails some minor code modifications and the

Our examination ofthe historical data to facilitate analysis of sensitivities for model is run under various policy scenarios that are tends to indicate that the relative assumptions different than those for the variation o n D O E/EIA assumptions, the name NEMS-BRS refers tothe model as used here (BRS installed price ofheat pumps is not the Supplemental ANOPR. For today's is DOE's Building Research and Standards office. primary driver in heat pump vs. gas proposed rule, we continue toprovide under whose aegis this work has been performed).

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forecasting shipments and national energy savings. All asserted that inthe event ofan increase in the minimum efficiency standard, the actual weightedaverage efficiency ofequipment in the marketplace wouldbe greaterthan the minimum efficiency standard. For example, ifa 12 SEER standard was set

as the newminimum, the weightedaverage efficiency wouldbeequal to a value whichwas greater than 12 SEER. (Neme, VEIC, Transcript, pp. 214, 226- 227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35 at 8-9; PG&E, No. 31 at 6-7).

The Departmenthas modified several assumptions withregard to future equipmentefficiencies. The Shipments Model no longer simply forecasts a weighted-average equipmentefficiency, butrather, an actual distribution of efficiencies 

### i.e., thepercentage of shipments which occur in incremental SEER bins overtherange ofthe minimum standard 10to 18SEER). Also, as discussed in Section IV, three efficiency scenarios are providedto model future equipmentefficiencies. The impact ofthe three different scenarios onnational energy savings and national netpresent values are discussed in Section VI.

EEl asked the reason for assumingthe weighted-average efficiency remains fixed at the same SEER level from the year 1997 to the assumed effective date ofstandard (2006). (EEl, No. 20 at 7-8). Historical data from theyears 1994 through 1997 indicate that shipmentweighted efficiencies have remained essentially flat. As a result, weightedaverage efficiencieswere assumedto remain constant from 1997 through 2006.
4. Fuel Switching

EEL York, Virginia Power and Southern Company stated that shipment forecasts must account for anyfuel switching that might occur as a result of increasedheatpump prices to the

consumer. The concern is that an increase inthe total installed price ofa heat pump would cause some
consumersto choose a gas-space heating appliance ratherthan an electric heat pump. (Foster, EEl, Transcript, p.263; Madera, York, Transcript, p.264; Virginia Power, No.27 at 2-3; Southern Company, No. 29 at 1-2). ACEEE stated that any incorporation offuel switching into the ShipmentsModel must account for future changes ingas-fired spaceheating minimum efficiency standards. (Nadel, ACEEE, Transcript, p.266).

Our examination ofthehistorical data tends to indicate that the relative installed price ofheatpumps is not the primary driver in

### heat pump vs. gas furnace purchase decisions. The more important factor inthese decisions

seems to be the availability ofgas service. Inthe middle 1980's,therewas
a large peak ingas pricesrelative to electricity, but only a small, delayed increase intherelative market share of heatpumps. Besides this one historical event, therelative market share ofheat pumpshas beenrelatively constant from 1977 tothe present.
D. 

### National Energy SavingsAnalysis

Changes to the LCC assumptions impactthe NES and the National Net ProsentValue (NPV) analyses directly as theNES analysis usesthe samebasic data as the LCC analysis for the energy
use and cost ofthe central airconditioning and heatpump equipment.

As previously mentioned, estimates of NES and NPV also depend onthe distribution ofproduct efficiencies among units sold after a standardtakes effect inthe marketplace. For the SupplementalANOPR, the assumed product efficiency distribution was based on a weighted-average equipment efficiency equal to the SEER ofthe new standard level.
1. Uncertainty in NES Results

EEl believes that due to the uncertainty inthe electricutility industry and its impacton future electricity prices it is more appropriate to representthe NES results with some degree ofuncertainty. (EEl. No. 20 at 8).

Although NES results presented inthe SupplementalANOPR werebased only

on electricity price estimates from the Reference Case forecast from the 1999 Annual Energy Outlook, ourNES spreadsheets have provided users with five different options for estimating future electricity prices; 1999 AEO Reference Case forecast, 1999 AEO High Growth Case forecast, 1999 AEO Low Growth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and constant electricity prices. Providing a number ofoptions for forecasting future prices recognizes the uncertainty inthe electricutility industry and howthat uncertainty canimpacttheNES results. The NES uses single pointvalues rather thlllranges as used in LCC; consequently, NES provided single pointresultsratherthana range. However, in orderto account for the uncertainty in electricity price forecasts, DOE evaluated three energy price scenarios inthe NES. TheNES Spreadsheets have been made available to all interested parties via our web site to facilitate analysis ofsensitivities for assumptions different than those for the Supplemental ANOPR. For today's proposed rule, we continue to provide the same options for forecasting future electricity prices withthe exception that AEO 1999 forecasts have been replaced withthose from the AEO 2000 as well

as the five options for energy prices as described above.

2. Site-to-Source Conversion

Boththe Southern Company andEEl questioned thevalidity ofthe site-tosource conversions used inthe NES spreadsheetmodel. The Southern Company andEEl asserted that hydroelectric power and renewable forms ofelectric energy are assigned fossil fuel-fired powerplantheatrates. (Southern Company, No. 29 at 4-5; EEl, No. 20 at 7).

We estimated the effects ofproposed central air conditioner andheatpump standard levels onboththe gas and electric utility industries using a variant ofDOE/EIA's 

### NEMS-BRS, together with

some exogenous caIculations. 15 

### NEMSBRS is used to determine site-to-source conversion factors and does not assign fossil-fuel-fired powerplantheatrates to hydroelectric orrenewable power plants. The site-to-source conversion factors used inthe Supplemental ANOPR are average annual values for the residential sector. The average conversion factors are based on all forms ofelectricity generation withtheir corresponding heatrates 

### (e.g., heatrates

are assigned to fossil-fuel fired power plants which are much different than those assigned to othertypes ofpower plants). As a result, the site-to-source conversion factors are significantly lowerthan ifall powerplants were assigned the heatrates associated with fossil fuel-fired powerplants. For today's proposedrule, site-to-source conversion factors arebased on recommendations ofthe Advisory Committee onAppliance Energy Efficiency Standards. In this analysis, heat rates are based on determininghow

a deviation in national energy consumption due to standards impacts the type ofelectricity generation. In 

### other words, heatrates arebased on those powerplants which are avoided

as a result ofthe standard.

15For more information onNEMS. please refer to the u.s. Department ofEnergy. Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 1998. DOElElA-{)S81(98). February. 1998. DOElElA approves usc oftho name NEMS to describe only

an official version ofthemodel without any modification to code or data. Because our analysis ontails some minor code modifications and the model is run under various policy scenarios that are variations on DOElElA assumptions. tho name NEMS-BRS refers to the model as used here IBRS is DOE's BuildingResearch and Standards office. under whose aegis this work has boen performed).

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59605

E. ConsumerSub-Group Analysis-Low shipment-weighted efficiency has improvement in residential air Income Renters continually increased, usage has conditioning efficiency might offer.

NRDC stated that impacts on low- remained relatively constant. Therefore, First, investment in system expansion income renters should be investigated, we see no reason that a significant jump has fallen behind demand growth, and because such renters do not purchase in system usage would occur in future development may be limited by their space-conditioning equipment and conjunction with higher efficiency siting constraints. Second, industry they have no choice as to the efficiency standards. restructuring requires the development ofthe equipment which is used to Regarding EEI's claim that theof new technologies, operating space-condition their home. (NRDC, No. consideration ofpeak power impacts procedures, and regulatory structures to 35 at 9). departs from the Department's statutory meet peak demands. And third, the

We have investigated the economic mandate, section 325(o)(2)(B)(i)(VII) of strong demand expansion ofrecent impact of standards on low-income the Act, 42 U.S.C. 6295(o)(2)(B)(i)(VII), years may well continue into the future. households, and have included such allows the Secretary to consider other Within this environment, the potential impacts in section VI.D.7 oftoday's factors deemed relevant for updating benefits of a central air conditioner and proposed rule and in Chapter 10 ofthe minimum efficiency standards, heat pump standard that could lower TSD. But wehave not investigated the including peak power impacts. growth in peak demand could be impacts on low-income renters 2. Quantitative Assessment ofImpacts desirable. But, due tothe existing separately. Renters at each income level on Peak Demand problems with the electric power system

are considered to have the same choice described above, it is difficult to assess, in efficiency as new home purchasers at For purposes ofestimating peak in quantitative terms, the impact of an the same level. Regardless of whether a demand impacts from an increase in the air conditioner standard on system household is occupied by an of wneer or central air conditioner and heat pump reliability. Thus, in addition to the

a renter, we implicitly assume thatthe energy efficiency standard, we are using planned activities to improve NEMS to occupant incurs all costs ofownership a version ofthe NEMS, called NEMS- forecast more credible peak demand oe ither directly of o rshuh rentBRS. NEMS-BRS is run similar to the impacts, we plan to assess the reliability ayments. Thereore, we believe that AE2000 NEMS except that central air ofthe U.S. electric system to determine

our consideration oflow income conditioner and heat pump energy what connection exists between end-use households generally applies to renters usages are reduced by the amount of peak demand reductions and system

as well as owners. energy (electricity) saved due to the reliability. The assessment will focus on proposed trial standard levels. The three areas: (1)Defining reliability, (2) F. UtilityandEnvironmental Analysis input of energy savings are obtained historic performance ofthe utility
1. Peak Power Impacts-Reliability from the NES spreadsheet. system, and (3)analyzing near- and NEMS estimates peak power impacts long-term utility changes and how they The CECraised concerns over peak by determining the reduction in might impact reliability. In defining power by stating that the western region installed generation capacity due to an reliability, we will use typical threats oftheU.S. will soon face a capacity increase in the minimum efficiency (e.g., weather, tree falls, excess load, and shortfall which will necessitate standard. For central air conditioners inaccurate demand forecasts) to put reductions in peak demand (CEC, No. 47 and heat pumps, NEMS uses a single system reliability into context. In at 2-4). Leon Neal, Advanced Energy nationally representative end-use load addition, industry indices for the Corporation (AEC), stated that because shape to estimate peak power impacts. frequency offailures and the number of ofa relationship between SEER, EER, The overall end-use load shape is customers affected will be used. With and equipment capacity which is not reduced in proportion to the amount of regard to historic performance, we will captured by using only the "nominal 3 energy savings achieved through an attempt to analyze the history of system ton" unit and SEER analyses, there were increase in the standard. The reduction disturbances and estimate their important factors not addressed in the in power demand achieved by shaving economic consequences. Finally, we DOE analysis. They argued that with the end-use load shape is extrapolated will look at the changes occurring in the larger capacity units at higher SEER, it to a national scale to come up with utility industry such as restructuring is economic for manufacturers to use nationally representative peak power and increasing demand growth to multi-compressor units and multi-speed impacts. Thus, NEMS does not use the determine to try and assess how these compressor units, which results in a equipment's EER performance, per se, to future changes might impact reliability. penalty in EER. They noted major estimate peak power impacts. Rather,, national trends, i.e., increasing average because the load shape is shaved in 4. Competitive Residential Market size ofresidential dwellings, the proportion tothe energy savings, the EEI asked whether NEMS, the model tendency to sellbigger systems to EER is implicitly assumed to increase in which is used for forecasting utility and increase profits and compensate for proportion to the SEER. environmental impacts, willbe adapted poor installations, and the distrust of The forecasted peak impacts using tomodel more accurately the contractors for higher efficiency NEMS-BRS are presented in Section VI deregulated electric utility industry. As equipment. (AEC, No. 17 at 1). EEI oftoday's proposed rule. part ofthe deregulated industry, EEI stated that the consideration ofpeak stated that consumers will have choice power impacts in setting new efficiency 3 Qualitative Assessment ofAir ofelectricity providers. In addition, the standards departs from the Department's Conditioning Standards Impact on industry will likely build more statutory mandate. (Foster, EEI, Power System Reliability merchant power plants. (EEI, No. 20 at Transcript, p. 176). We also recognize that reducing 9).

With regard to AEC's concern that an growth in electricity demand during Although we recognize that NEMS increase in the efficiency standard peak periods may improve the may not be entirely accurate in its would be accompanied by an increased reliability ofthe U.S. electric power modeling ofthe changing electric utility air-conditioning power demand, we are system. But there are number of factors industry, we believe it is still the best not convinced that this situation would with the electric power system itself tool for forecasting the impacts due to

occur. Over the last 20 years, while that may overwhelm any effect that an increased central air conditioner and

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Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59605

E. ConsumerSub-GroupAnalysis-Low Income Renters

NRDC stated thatimpacts onlowincome renters shouldbe investigated, because such renters do not purchase their space-conditioning equipment and theyhave no choice as tothe efficiency ofthe equipment which is used to space-condition theirhome. (NRDC, No. 35 at 9).

We have investigatedtheeconomic impact ofstandards on low-income households, and have included such impacts in section VI.D.7 oftoday's proposedrule and in Chapter 10 ofthe TSD. But wehave notinvestigated the impacts on low-income renters separately. Renters at eachincome level

are consideredtohavethe same choice in efficiency as newhomepurchasers at the same level. Regardless ofwhether a household is occupiedby an owner or
a renter, weimplicitly assumethatthe occupantincurs all costs ofownership, either directly orthroughrent payments. Therefore, webelieve that

our consideration oflow income households generally applies to renters

as well as owners. F. Utility andEnvironmentalAnalysis
1. PeakPowerImpacts-Reliability

The CEC raised concerns over peak powerbystating thatthe western region ofthe U.S. will soon face a capacity shortfall which will necessitate reductions inpeak demand (CEC, No. 47 at 2-4). LeonNeal, Advanced Energy Corporation (AEC), statedthatbecause ofa relationship between SEER, EER, and equipment capacitywhichis not capturedbyusing onlythe "nominal 3 ton" unit and SEER analyses, there were important factors not addressed in the DOE analysis. They argued thatwith larger capacity units athigher SEER, it 

### is economic for manufacturers to use multi-compressorunits and multi-speed compressor units, whichresults in a penalty inEER. They noted major national trends, i.e., increasing average size ofresidential dwellings, the tendency to sellbigger systems to increase profits and compensate for poor installations, and the distrust of contractors for higher efficiency equipment. (AEC, No. 17 at 1). 

### EEl stated that the consideration ofpeak power impacts in setting new efficiency standards departs from the Department's statutory mandate. (Foster, EEl, Transcript, p. 176).

With regard toAEC's concernthat an increase inthe efficiency standard would be accompanied by an increased air-conditioningpower demand, we are not convinced that this situation would

occur. Over the last 20 years, while shipment-weighted efficiency has continually increased, usage has remainedrelatively constant. Therefore,

we see no reason that a significantjump in system usage would occurin conjunction with higherefficiency standards.

Regarding EEl's claim thatthe consideration ofpeak power impacts departs from the Department's statutory mandate, section 325(0)(2)(B)(i)(VII) of the Act, 42 U.S.C. 6295(o)(2)(B)(i)(VII), allows the Secretaryto considerother factors deemed relevant for updating minimum efficiency standards. including peakpowerimpacts.
2. QuantitativeAssessment ofImpacts

on Peak Demand

Forpurposes ofestimating peak demand impacts from anincrease inthe central airconditioner and heatpump energy efficiency standard. we are using

a version ofthe NEMS. called NEMSBRS. NEMS-BRS is run similarto the AE02000NEMS except that central air conditioner and heatpump energy usages are reducedby the amount of energy (electricity) saved due tothe proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet.

NEMS estimates peakpowerimpacts by determiningthereduction in installed generation capacity due to an increase inthe minimum efficiency standard. For central air conditioners and heatpumps. NEMS uses a single nationally representative end-use load shapeto estimate peak powerimpacts. The overall end-use load shape is reduced inproportion to the amount of energy savings achievedthrough an increase inthe standard. Thereduction in power demand achieved by shaving the end-use load shapeis extrapolated to a national scale to come up with nationally representative peak power impacts. Thus. NEMS does not use the equipment'sEER performance. per se. to estimate peakpowerimpacts. Rather. because the load shape is shaved in proportion to the energy savings, the EER is implicitly assumed to increase in proportionto the SEER.

The forecasted peak impacts using NEMS-BRS are presented in Section VI oftoday's proposed rule.
3. Qualitative Assessment ofAir Conditioning Standards Impact on Power System Reliability

We also recognize thatreducing growth in electricity demand during peak periods may improvethe reliability ofthe U.S. electric power system. Butthere are number offactors with the electric power system itself that may overwhelm any effect that an improvement inresidential air conditioning efficiency might offer. First. investment in system expansion has fallen behind demand growth, and future development may be limited by siting constraints. Second, industry restructuringrequires the development ofnew technologies, operating procedures. andregulatory structures to meet peak demands. And third. the strongdemand expansionofrecent years may well continue into the future. Within this environment, thepotential benefits ofa central air conditionerand heatpump standard thatcouldlower growth inpeak demand could be desirable. But. due to the existing problems with the electric power system described above, itis difficultto assess, in quantitative terms. the impact ofan air conditioner standard on system reliability. Thus, in addition to the planned activities to improve NEMS to forecast more credible peak demand impacts, we planto assess the reliability ofthe U.S. electric system to determine whatconnection exists betweenend-use peak demandreductions and system reliability. The assessment will focus on three areas: (1) Defining reliability, (2) historic performance ofthe utility system, and (3) analyzing near- and long-term utility changes and how they might impactreliability. In defining reliability, we will use typicalthreats (e.g., 

### weather, tree falls, excess load, and inaccurate demand forecasts) to put system reliability into context. In 

### addition, industry indices for the frequency offailures and the number of customers affected will be used. With regard to historic performance, we will attemptto analyze the history ofsystem disturbances and estimate their economic consequences. Finally, we will look at the changes occurring in the utility industry suchas restructuring and increasing demand growth to determine to try and assess howthese future changes might impactreliability.
4. Competitive Residential Market

EEl asked whetherNEMS. the model whichis used for forecasting utility and environmental impacts, will beadapted to model more accurately the deregulated electric utility industry. As part ofthe deregulated industry, EEl stated thatconsumers will have choice ofelectricity providers. In addition, the industry will likely build more merchant powerplants. (EEl, No. 20 at 9).



### Although we recognize that NEMS may notbe entirely accurate in its modeling ofthe changing electric utility industry, webelieve it is still thebest tool for forecasting the impacts due to increased central air conditioner and

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59606 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

heat pump standards. We also recognize ' based on financial reports for each to 1.24) partially to reflect new financial the difficulty for any model or tool to group on a national basis, data for a manufacturer who recently forecast changes in the utility industry. NRDC, ACEEE and VEIC commented completed an initial public offering, and Thus, the results from NEMS are used that instead ofapplying average partially to incorporate results from the to provide a gross picture ofthe impacts markups to the incremental increase in MIA. The MIA suggests that firms that can be expected from the costs resulting from new standards, it accrue a higher profit margin on imposition ofnew efficiency standards was more reasonable to apply a lower baseline equipment than the for central air conditioners and heat markup to those incremental costs. conservative 1% assumed for the pumps. Sensitivities are conducted with Otherwise, companies would receive a Supplemental ANOPR's Engineering the AEO High Growth and Low Growth windfall from the new standard, which Analysis.

cases to capture the variability that would surely not be the case in a Second, at the distributor and dealer could arise from changes in the electric competitive industry such as heating, levels, analysis ofU.S. Census Bureau utility industry. ventilation, and air conditioning. data and recent industry financial G. Manuf r I t A sis w (NRDC, No. 35 at 6, ACEEE, No. 43 at reports suggest that markups on changes Manufacturermpact Analyss-Lo 2, VEIC, No. 32 at 2). NRDC also in the unitprice ofequipment are less Volume Manufacturers advocated the use of a fixed gross than the average markups forthose First Company (First Co.) and margin in dollars rather than a fixed industries. In light ofthese new National Comfort Products commented percentage (NRDC, No. 35 at 6), while findings, the markups for the that the assumptions used in the EEI stated that the fixed percentage distributors and dealers on the engineering analysis were not assumption is unreasonable. (EEI, No. incremental increase in equipment cost applicable for low volume 20 at 10). ARI supported the markups were lowered from 1.37 to 1.09 and 1.54 manufacturers and urged the the Department used. (ARI, No. 48 at 4). to 1.27, respectively. For the distributor, Department to consider the situations of Department consultant Joseph Pietsch the markup on the portion ofequipment all firms in the industry. (First Co., No. stated that at the distributor level, since cost equal to the cost ofthe baseline 40 at 10; National Comfort Products, No. no labor is involved to modify the equipment remains at 1.37. For the 30 at 1). product, the markup is applied to a dealer, the 1.27 markup is applied tothe

Since the engineering analysis isused well-documented material cost. total cost. The original 1.54 assumption to assess the impacts on consumers and However, the distributor's markup included the markup on the labor the nation, it is more appropriate to rely percentage may vary by product type. If portion ofinstallation, which is not

on assumptions reflective of larger the distributor's mark-up prices to the appropriately applied to equipment. We manufacturers who control more than installing trade are not competitive in increased our estimate of the markup on 95% ofthe market. However, we did the market served, the distributor might installation labor slightly to compensate consider the special circumstances of have to seek price adjustments from the for the lower markup on equipment lower volume manufacturers as part of manufacturer. Further, installing price, keeping the overall installed price the manufacturer impact analysis. We contractors typically use a markup the same. The Department's pricing interviewed the major manufacturers as procedure for labor that is most likely be information indicates that the total well as two smaller manufacturers, and at a different percentage than a markup installed price ofbaseline equipment is based onthis information, estimated the for materials. (Pietsch, No. 36 at 23). accurate as published in the impact of standards on both large and Finally, prompted by comments we Supplemental ANOPR. The overall small manufacturers separately. received, we now distinguish markups effect ofthese changes is to slightly H.Ad„ Makups,based on whether products are sold into decrease distributor and dealer H.

Markups new homes or as replacements or equipment markups as the standard The Supplemental ANOPR's retrofits. (Nadel, ACEEE, Transcript pp. level rises. engineering analysis estimated the cost 122-123; and Eckman, NPPC, Transcript We introduced a new builder markup ofproducing baseline air conditioners p. 152-153; CEC, No. 47 at 7). of 1.27 for new construction markets and heatpumps and also estimated the After reviewing the comments and only and applied the sales tax rate of series ofmarkups onthat product cost publishing an interim analysis with 1.07 in onlyreplacement/retrofit that yield the price of the equipment to fixed dollar margin, the Department markets. the consumer. Four markups were undertook a thorough review of its Table V.3 summarizes the changes in applied: Manufacturer markup (1.18), markup assumptions and made one markups. The Technical Support distributor/wholesaler markup (1.37), minor and one major revision. Document (Chapter 5) provides more dealer/contractor markup (1.54), and First, at the manufacturer level, the details on the derivation ofthese new sales tax (1.07). In general, these were markups were raised slightly (from 1.18 estimates.

TABLE V.3.-COMPARISON OF REVISED MARKUPS AND SUPPLEMENTAL ANOPR MARKUPS 

## ~~~~~~~~Type ~Revised analysis Supplemental



## ~T~~ y p 

## ~~e ~markup ANOPR markup

M

anufacturer M arkup

..................................................................................................................................... 1.23

................... 1.18 Wholesaler/Distributor Markups: 10 SEER

.............................................................................................................................. 1.37

.. . ................ 1.37 11 SEER

..................................................................................... ................................................. 1.33

................... ........................... 12 SEER

................................................................................... .................................................. 1.30

................... .............................. 13 SEER

........................................................................................ ............................................... 1.26

................... .............................. Dealer/Contractor: Equipment Markup

....................................................................................................... . . . . . .. 1.27

................... 1.55 Installation Labor:a Air Conditioner

.............................................. . .. $1,279/$1,367

... $1,190 Heat Pump

....................................................................................................................................... $2,280/$2,160

... $2,035 

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59606 Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

heat pump standards. We also recognize· the difficulty for any model ortool to forecast changes inthe utility industry. Thus, the results from NEMS are used to provide a gross picture ofthe impacts that canbe expected from the impositionofnew efficiency standards for central airconditioners and heat pumps. Sensitivities are conducted with the AEO High Growth and Low Growth

casesto capturethevariabilitythat could arise from changes inthe electric utility industry.
G. 

### ManufacturerImpactAnalysis-Low VolumeManufacturers

First Company (First Co.) and National ComfortProducts commented thatthe assumptionsusedinthe engineering analysis were not applicable for lowvolume manufacturers and urged the Departmentto considerthe situations of all firms in the industry. (First Co., No. 40 

### at 10;

### National Comfort Products, No. 30 

### at 1).



### Sincethe engineering analysis isused to assess the impacts on consumers and the nation, it is more appropriate to rely

on assumptions reflective oflarger manufacturers who control morethan 95% 

### ofthe market. However, we did consider the special circumstances of lowervolume manufacturers as part of the manufacturerimpact analysis. We interviewedthe major manufacturers as well as two smaller manufacturers, and based onthis information, estimated the impact ofstandards onbothlarge and small manufacturers separately.
H.

### Markups

The SupplementalANOPR's engineering analysis estimated the cost ofproducingbaseline air conditioners and heatpumps and also estimated the series ofmarkups onthatproduct cost that yield theprice ofthe equipmentto the consumer. Four markups were applied: Manufacturermarkup (1.18), 

### distributor/wholesaler markup (1.37), 

### dealer/contractor markUp (1.54), 

### and sales tax (1.07). 

### In general, these were based on financial reports for each group on a national basis.

NRDC, ACEEE and VEIC commented that instead ofapplying average markups to the incremental increase in costs resulting from new standards, it

was more reasonable to apply a lower markup to those incremental costs. Otherwise, companies wouldreceive a windfall from the new standard, which would surely notbethe caseina competitive industry such as heating, ventilation, and airconditioning. (NRDC, No. 35 

### at 6, 

### ACEEE, No. 43 

### at 2, 

### VEIC, No. 32 

### at 2). 

### NRDC also advocated the use ofa fixed gross margin in dollars ratherthan a fixed percentage (NRDC, No. 35 

### at 6), 

### while EEl statedthatthe fixed percentage assumption is unreasonable. (EEl, No. 20 

### at 10). 

### ARI supportedthe markups the Department used. (ARI, No. 48 

### at 4).•



### Department consultantJoseph Pietsch stated that at the distributor level, since

no labor is involved to modify the product, the markup is applied to a well-documented material cost. However, the distributor's markup percentage may varyby producttype. If 

### the distributor's mark-up prices to the installingtrade are not competitive in the market served, the distributor might have to seek price adjustments from the manufacturer. Further, installing contractors typicallyuse a markup procedure for laborthat is most likelybe at a different percentagethan a markup for materials. (Pietsch, No. 36 

### at 23). 

### Finally, promptedby comments we received, we now distinguish markups based on whetherproducts are sold into

new homes or as replacements or retrofits. (Nadel, ACEEE, Transcriptpp. 122-123; 

### and Eckman, NPPC, Transcript p. 152-153; 

### CEC, No. 47 

### at 7).



### After reviewingthe comments and publishing an interim analysis with fixed dollarmargin, the Department undertook a thorough review ofits markup assumptions and made one minor and one majorrevision.

First, at the manufacturer Ie.vel, the markups were raised slightly (from 1.18 

### to 1.24) 

### partially toreflect new financial data for a manufacturerwhorecently completed an initial public offering, and partially to incorporate results from the MIA. The MIA suggests that firms

accrue a higher profitmargin on baseline equipmentthanthe conservative 1% 

### assumed for the SupplementalANOPR's Engineering Analysis.

Second, atthe distributor and dealer levels, analysis ofU.S. Census Bureau data andrecent industry financial reports suggest that markups on changes intheunitprice ofequipment are less thanthe average markups for those industries. Inlight ofthese new findings, the markups for the distributors and dealers onthe incremental increase in equipmentcost

were lowered from 1.37

### to 1.09 

### and 1.54 

### to 1.27,

### respectively. Forthe distributor, the markup onthe portionofequipment cost equal to the cost ofthe baseline equipmentremains at 1.37. 

### For the dealer, the 1.27 

### markup is applied to the total cost. The original 1.54 

### assumption includedthe markup on the labor portion ofinstallation, whichis not appropriately applied to equipment. We increased our estimate ofthemarkup on installation labor slightlyto compensate for the lowermarkup on equipment price, keeping the overall installed price the same. The Department'spricing information indicates that the total installed price ofbaseline equipment is accurate as published in the SupplementalANOPR. The overall effect ofthese changes is to slightly decrease distributor and dealer equipmentmarkups as the standard level rises.

We introduced a newbuildermarkup of 1.27 

### for new construction markets only and applied the sales tax rate of 1.07 

### in onlyreplacement/retrofit markets.

Table V.3 

### summarizes the changes in markups. The Technical Support Document (Chapter 5) provides more details onthe derivation ofthese new estimates.

TABLE V.3.-COMPARISON OF REVISED MARKUPS AND SUPPLEMENTAL ANOPR MARKUPS



### Type

Manufacturer Markup

..................................................................................................................................... Wholesaler/Distributor Markups: 10 

### SEER

................................................................................................................................................. 11 

### SEER

................................................................................................................................................. 12 

### SEER

................................................................................................................................................. 13 SEER

................................................................................................................................................. 

### Dealer/Contractor: Equipment Markup

.................................................................................................................................. Installation Labor:· 

### Air Conditioner

................................................................................................................................. Heat Pump

....................................................................................................................................... Revised analYSis markup

1.23

...................
1.37

................... 1.33

................... 1.30

................... 1.26

...................
1.27

................... $1,279/$1,367

... $2,280/$2,160

... 

### Supplemental ANOPR markup

1.18

1.37



### 1.55

$1,190 $2,035

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59607

TABLE V.3.-COMPARISON OF REVISED MARKUPS AND SUPPLEMENTAL ANOPR MARKUPS-Continued

Revised analysis Supplemental Type markup ANOPR markup

Builder Markup

............................................................................................................................................... b 1.09

................. .00 Sales Tax

......... .............................................................................................................................................. b1.04

................. d1.07 Overall Markup: 10 SEER

.............................................................................................................................. 2.42

.. ................. 2.68 11 SE ER

................................................................................................................................................. 2.35

................... 2.68 12 SEER

.............................................................................................................................. 2.30

.. ................. 2.68 13 SEER

................................................................ ............. ................................................ 2.23

................... 2.68

aFor revised analysis, firstvalue pertains to split systems and second value pertains to single package systems. bWeighted-average markups representing both the new construction and replacement markets. cFor the SANOPR, builder markups were not considered.

dForthe Supplemental ANOPR, sales taxes representing only the replacement market were used.

I.EER-BasedEfficiency Standard thebest indicator ofthe seasonal incremental reduction inthe need for

The Department received numerous efficiency for equipment operating in new capacity. Maintaining higher
comments on the relationship of steady the warmest regions ofthe country. EER(95°F) would also benefit
state efficiency (EER) to increases in However, the relationship between consumers. Since the cost ofelectricity SEER. NRDC, ACEEE, VEIC, PG&E, CEC efficiency at 82°F and at 95°F is fairly is highest during periods ofpeak OEO, Unico and Southern Company close for single-speed, single-capacity demand, any decrease in electricity support the establishment ofminimum equipment, which represents the vast consumption during peak-periods, efficiency standards based on EER at an majority ofunitary equipment in the could reduce the user's annual outdoor temperature of95°F, marketplace. For other equipment, electricity bill, particularly if the user (EER(95°F)) in lieu of, or in addition to, including variable or multi-speed pays time-of-day or seasonal rates. SEER, which isbased largely on an equipment or equipment with outdoor temperature of 82'F. (NRDC, modulating capacity, the 82°F test point 2. Options for Possible EER Standards No. 35 at 15-16; ACEEE, No. 43 at 8- isgiven a great deal ofweight in The Department has at least four 9; VEIC, No. 32 at 5; PG&E, No. 31 at determining the SEER rating. In these options for ensuring that EER(95°F) 1-4; CEC, No. 47 at 5; OEO, No. 46 at cases, the relationship between SEER performance is maintained under new 10-12; Unico, No. 34 at 2; Southern and EER(95°F) is less certain, and SEER standards. First,the Department Company, No. 29 at 3). manufacturers have some flexibility and could rely on the physical relationship

Their concern is that an increase in incentive to improve SEER without between EER(95°F) and SEER to ensure SEER does not necessarily correspond to improving EER(95°F). that an increase in SEER would result in

an increase in EER, and that a 95°F The SEER test, representing a corresponding increase in EER. The rating condition better represents the equipment performance over the entire Department is not aware ofany performance ofan air conditioner on hot cooling season, encourages modulating, multi-speed, or variable days when electricity demand is at its manufacturers to design equipment that speed air conditioners (hereafter highest. They believe that residential air consumes less energy throughout the referred to collectively as modulating conditioners contribute significantly to cooling season for the average user. The equipment) being offered below 13 this peak demand, particularly in EER(95°F) test, which is a measure of SEER, and very few ofthe available 13

warmer regions ofthe country. Since steady-state performance under only SEER products are modulating electricity generation, transmission, and one set ofclimatic conditions, cannot equipment. Therefore, SEER and EER distribution capacity is determined by provide insight into cyclical are closely related in equipment the electrical load served during these performance or cooling efficiency at currently available at the efficiency peak demand times, products that cooler temperatures which represent the levels that, as discussed below, the demonstrate improved efficiency under bulk ofthe cooling season nationwide. Department isproposing today to adopt peak conditions can reduce the need for The Department, therefore, maintains as minimum levels-12 SEER for air added electrical system capacity. They that a SEER-based standard is essential conditioners and 13 SEER for heat also believe that reducing peak demand to its effort to reduce national energy pumps. Assuming that relationship is an important component of any consumption. Further, we assume that holds under such new standards, EER integrated plan to improve the peak demand savings would accompany would increase as SEER increases. reliability ofthe nation's electrical any seasonal energy savings resulting The second option would be to system. Recently there havebeen from an increase in the required SEER establish an EER(95°F) floor that must several well-publicized blackouts and level, because ofthe relationship be met by modulating equipment only brownouts following, or inthe midst of, between SEER and EER(95°F), and the or, alternately, all equipment. hot periods. Advocates of an EER-based costs ofincreasing EER(95°F) are The third option would be to establish standard believe that a SEER-only already incorporated into the analysis. a minimum EER requirement at each standard does not guarantee the desired However, the Department is SEER level, even forproducts exceeding improvement in peak-period particularly interested in ensuring that the minimum SEER level. Again, this performance. the current relationship between could be established for modulating EER(95°F) and SEER will remain intact equipment only or for all equipment. 1. Current Relationship Between SEER under new efficiency standards, The fourth option wouldbe to alter and EER resulting in reduction in growth ofpeak the SEER test procedure to rely more on

It is certainly true that SEER is not an demand. This additional reduction in 95°F performance and less on ideal indicator of system efficiency in peak demand growth would benefit performance at cooler temperatures. very hot weather, and SEER may not be utilities through an eventual and This would provide incentive for 

### Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59607

TABLE V.3.-COMPARISON OF REVISED MARKUPS AND SUPPLEMENTAL ANOPR MARKUPS-Continued



### Type Revised analysis markup Supplemental ANOPR markup

Builder Markup

............................................................................................................................................... b1.09

................. c1.00 d1.07 

### SalesTax

....................................................................................................................................................... b1.04

................. 

### Overall Markup:

. 10 

### SEER

................................................................................................................................................. 2.42

................... 2.68 2.68 2.68 2.68 11 

### SEER

................................................................................................................................................. 2.35

................... 

### 12 SEER

................................................................................................................................................. 2.30

................... 

### 13 SEER

................................................................................................................................................. 2.23

...................



### •For revised analysis, lirst value pertains to split systems and second value pertains to single package systems.

b

### Weighted-average markups representing both the new construction and replacement markets.

c

### For the SANOPR, builder markups were not considered.

d 

### For the Supplemental ANOPR, sales taxes representing only the replacement market were used.

I. EER-BasedEfficiencyStandard

TheDepartmentreceived numerous comments onthe relationship ofsteady state efficiency (EER) to increases in SEER. 

### NRDC, ACEEE, VEIC, PG&E, CEC, OED, Unico and Southern Company supportthe establishment ofminimum efficiency standardsbased onEER atan outdoortemperature of95°F, (EER(95°F)) in lieu of, or in addition to, SEER, which is based largely on an outdoortemperature of82°F. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8- 9; VEIC, No. 32 at 5; PG&E, No. 31 at 1-4;CEC, No. 47 at 5; OED, No. 46 at 10-12;Unico, No. 34 at 2; Southern Company, No. 29 at 3).

Their concernis that an increase in SEER does not necessarilycorrespond to
an increase inEER, and that a 95°F rating conditionbetterrepresents the performance ofan air conditioner onhot days when electricity demand is at its highest. Theybelieve thatresidential air conditioners contribute significantly to this peak demand, particularly in

warmerregions ofthe country. Since electricitygeneration, transmission, and distribution capacity is determinedby the electrical load served duringthese peakdemandtimes, productsthat demonstrate improved efficiencyunder peak conditions canreduce the need for added electrical system capacity. They alsobelievethatreducing peak demand is an important component ofany integrated planto improve the reliability ofthe nation's electrical system. Recently therehavebeen several well-publicized blackouts and brownouts follOWing, or inthe midst of, hot periods. Advocates ofanEER-based standard believethat a SEER-only standard does not guaranteethe desired improvement inpeak-period performance.
1. CurrentRelationship Between SEER and EER

It

### is certainlytrue that SEER is not an ideal indicator ofsystem efficiency in very hot weather, and SEER may not be thebestindicator ofthe seasonal efficiency for equipment operating in thewarmest regions ofthe country. However, therelationship between efficiency at 82°F and at 95°F is fairly close for single-speed, single-capacity equipment, whichrepresents the vast majority ofunitary equipment in the marketplace. For other equipment, including variable ormulti-speed equipment orequipmentwith modulating capacity, the 82°F test point is given a great deal ofweight in determining the SEER rating. In these
cases, the relationship between SEER andEER(95°F) is less certain, and manufacturers have some flexibility and incentive to improve SEER without improving EER(95°F).

The SEERtest, representing equipmentperformance over the entire cooling season, encourages manufacturers to design equipmentthat

consumes less energy throughoutthe cooling season for the average user. The EER(95°F) test, which is a measure of steady-state performance under only

one set ofclimatic conditions, cannot provide insight into cyclical performance orcooling efficiency at coolertemperatures whichrepresent the bulk ofthe cooling season nationwide. The Department, therefore, maintains that a SEER-based standard is essential to its effort toreduce national energy consumption. Further, we assume that peak demand savings would accompany any seasonal energy savings resulting from anincrease intherequired SEER level, because oftherelationship between SEER and EER(95°F), and the costs ofincreasing EER(95°F) are already incorporated intothe analysis.

However, theDepartment is particularlyinterested inensuring that the currentrelationship between EER(95°F) and SEER will remain intact under new efficiency standards, resulting inreduction in growth ofpeak demand. This additionalreduction in peak demand growth would benefit utilities through an eventual and incrementalreduction inthe need for

new capacity. Maintaininghigher EER(95°F) would alsobenefit

consumers. Since the cost ofelectricity is highest during periods ofpeak demand, any decrease in electricity consumption during peak-periods, could reduce the user's annual electricitybill, particularly ifthe user pays time-of-day or seasonal rates.
2. Options for Possible EER Standards

The Department has at least four options for ensuring thatEER(95°F) performance is maintained under new SEER standards. First, the Department couldrely onthe physical relationship betweenEER(95°F) and SEER to ensure that an increase in SEER would result in

a corresponding increase inEER. The Department is not aware ofany modulating, multi-speed, or variable speed air conditioners (hereafter referred to collectively as modulating equipment)being offered below 13 SEER, and very few ofthe available 13 SEER products are modulating equipment. Therefore, SEER andEER

are closelyrelated in equipment currently available at the efficiency levels that, as discussed below, the Departmentis proposing todayto adopt

as minimum levels-12 SEER for air conditioners and 13 SEER for heat pumps. Assumingthatrelationship holds under such new standards, EER would increase as SEER increases.

The second option would be to establish anEER(95°F) floor that must be metby modulating equipment only or, alternately, all equipment.

The third option would be to establish

a minimum EERrequirement at each SEER level, even for products exceeding the minimum SEER level. Again, this couldbe established for modulating equipment only or for all equipment.

The fourth optionwouldbe to alter the SEER test procedure to rely more on 95°F performance and less on performance at coolertemperatures. This would provide incentive for

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manufacturers to optimize their designs We prefer the second option, than does any reduction in EER to favorthe warmer part of the cooling establishing an EER floor equal to the associated with modulating equipment.

season and warmer regions of the median EER ratings ofequipment For DOE to require products to meet country. currently available at each standard median EER values rather than less

We consider the second and third level. That would result in a substantial stringent EER values would also raise options to be the most attractive. While improvement in the EER ratings ofthe some concerns. First,the cost-efficiency

we believe that the first option, relying typical product sold while still relationships used in our analysis may
on the current relationship between EER providing manufacturers with the underestimate costs ofmanufacturing and SEER, would satisfy our concerns in flexibility to raise SEER ratings through such products, since we did not include the foreseeable future, this option modulation rather than EER the costs of a minimum EER. Second, if provides no assurance that improvements in higher efficiency an EER standard increases product cost, manufacturers would not develop and products. it would discourage the development promote equipment in the long term The concern that prevents us from t w d dise fmo duti e pment that would seriously reduce EER ratings. fully endorsing the third option is that and sale ofmodul eipet any t the The fourth option, altering the SEER test itwould discourage the development baseline levels. We expect anycost procedure to favor higher temperatures, and sale ofmodulating capacity and increases required to meet median EER would require us to embark on a new variable speed equipment. Modulating levels, however, would be slight and rulemaking to establish those new equipment realizes abenefit in the SEER would not significantly alter our procedures and then to redo this rule to test, allowing manufacturers to reduce analysis. incorporate the new SEER values. We the cost ofthe core components To determine what the appropriate would prefer to avoid those delays and compared tonon-modulating EER(95°F) requirement might be, the the design uncertainty associated with equipment. This cost reduction partially Department assessed ARI performance altering the procedures. offsetsthe cost ofthe modulation, data on residential unitary equipment

Both the second and third options, making modulating equipment more certified as ofFebruary 1998. The mandating minimum EER ratings, affordable for consumers. Being median EERs available for each product would guarantee that products under required to meet the sameEER class at the minimum SEER levels DOE

new standards would achieve the same standards as non-modulating equipment proposes today, are identified in Table EER ratings as they do today without would negate this cost benefit. V.4 as the "Median Available EER at altering the test procedures. The third The Department wishes to encourage, Proposed Minimum SEER." In addition option is more aggressive since it would not discourage, the development and tothe minimum SEER proposal require that products ofhigher SEER sale ofmodulating equipment. contained in this notice, the Department ratings must also meet increasingly Consumers value the added benefits of is inclined to adopt in the Final Rule stringent EER ratings. modulation, and manufacturers realize minimum EER(95°F) requirements equal

Within the second and third options, this value in the form ofhigher tothese values. However, since there are
we could establish EER requirements of revenues. For consumers and the nation, very few packaged heat pumps available varying degrees of stringency. For modulation mitigates the inefficiencies from which to draw a conclusion example, we could select EER levels caused by oversizing the system during concerning EER, DOE believes the equivalent to the ratings ofthe installation. Oversizing is a widespread minimum EER requirement for minimum EER rating of available problem that causes frequent equipment packaged heat pumps should be the equipment today at theproposed cycling, increasing energy consumption. same as split heat pumps less the 0.3 standard level, the median EER rating, Furthermore, oversizing arguably EER offset seen between packaged and anywhere in between, or even higher. contributes more to peak power demand split air conditioners.

TABLE V.4.-MEDIAN AVAILABLE ENERGY EFFICIENCY RATINGS (EER) AND PROPOSED MINIMUM EERS IN RESIDENTIAL UNITARY EQUIPMENT (1998)

Lowest 10th Median available percentile available Proposed available available Proposed Product class minimum EER at ER at miimum SEER proposed osed proposed EER
SEER minimum prop minimum

SEER SEER SEER
Split Air Conditioners

........... ................................................................ 12.0 10.1 10.5 10.8 10.8 Packaged Air Conditioners ...............

.................................................... 12.0 10.1 10.3 10.5 10.5 Split Heat Pumps

......... ........................................................................ 13.0 10.8 11.1 11.9 11.9 Packaged Heat Pumps

............ ............................................................. 13.0 11.0 11.0 11.0 11.6

We encourage comments regarding equipment, and on electrical system and have features that differ from those the burdens and benefits that would reliability. In addition, comments are ofthe vast majority ofproducts result from including an EER welcome to discuss the pros and cons of available in the marketplace. We refer to requirement in the final rule. Of any ofthe other options described these as "niche products." Included are particular interest are comments above. single package units that are designed to regarding burdens on manufacturers and

. NicheProducts be mounted within or immediately benefits regarding reduction in peak adjacent to a fixed-size opening in an electricity demand, including the effect Several types of central air outside wall ofthe structure and split ofan EER minimum on costs, on conditioners and heat pumps are used systems where the outdoor unit is availability and sales of modulating in particular or unusual applications designed tobe mounted in the same

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### manufacturers to optimize their designs to favor thewarmerpart ofthe cooling

season and warmer regions ofthe country.

We consider the second and third options to be the most attractive. While

webelieve that the first option. relying

on the currentrelationship between EER and SEER. would satisfy our concerns in the foreseeable future. this option provides no assurancethat manufacturers would not develop and promote equipment inthe long term that would seriouslyreduce EERratings. The fourth option. alteringthe SEER test procedure to favor highertemperatures. wouldrequire us to embark on a new rulemaking to establish those new procedures and then to redo this ruleto incorporate the new SEER values. We wouldprefer to avoid those delays and the design uncertainty associated with alteringtheprocedures.

Boththe second and third options. mandatingminimumEER ratings. wouldguarantee thatproducts under

new standards would achieve the same EER ratings as they do todaywithout altering the test procedures. The third optionis more aggressive since itwould require thatproducts ofhigher SEER ratings must also meet increasingly stringentEERratings.

Within the second and third options.

we could establish EER requirements of varying degrees ofstringency. For example. we could selectEER levels equivalentto the ratings ofthe minimumEER rating ofavailable equipmenttoday at theproposed standard level. the medianEER rating. anywhere inbetween. or even higher. We preferthe second option. establishing anEER floor equaltothe medianEER ratings ofequipment currently available at each standard level. That wouldresult in a substantial improvement inthe EER ratings ofthe typical product sold while still providing manufacturers with the flexibility toraise SEERratings through modulation ratherthanEER improvements inhigher efficiency products.

The concernthatprevents us from fully endorsing the third optionis that itwould discourage the development and sale ofmodulating capacity and variable speed equipment. Modulating equipmentrealizes a benefit inthe SEER test. allowing manufacturers to reduce thl3 cost ofthe core components compared to non-modulating equipment. This costreduction partially offsets the cost ofthemodulation. making modulating equipment more affordable for consumers. Being required to meet the sameEER standards as non-modulating equipment would negate this costbenefit.

The Departmentwishes to encourage. not discourage. the development and sale ofmodulating equipment. Consumers value the added benefits of modulation. and manufacturers realize this value inthe form ofhigher

revenues. Forconsumers and the nation. modulation mitigates theinefficiencies causedby oversizingthe system during installation. Oversizing is a widespread problem that causes frequent equipment cycling. increasing energy consumption. Furthermore. oversizing arguably contributes more to peakpower demand than does any reduction inEER associated with modulating equipment.

ForDOE to require products to meet median EER values ratherthan less stringentEER valueswould alsoraise

some concerns. First. the cost-efficiency relationships used in our analysis may underestimate costs ofmanufacturing suchproducts. sincewe did not include the costs ofa minimumEER. Second. if

anEER standard increases product cost. itwould discourage the development and sale ofmodulating equipment at the baseline levels. We expectany cost increases required to meetmedian EER levels. however. wouldbe slight and would not significantly alter our analysis.

To determine whatthe appropriate EER(95°F) requirement mightbe. the Department assessed ARl performance data onresidential unitary equipment certified as ofFebruary 1998. The median EERs available for each product class at the minimum SEER levels DOE proposes today. are identified inTable V.4 as the "MedianAvailable EER at Proposed Minimum SEER." In

### addition tothe minimum SEER proposal contained inthis notice. the Department is inclined to adopt inthe Final Rule minimumEER(95°F) requirements equal to these values. However. since there are very few packaged heatpumps available from which to draw a conclusion concerningEER. DOE believes the minimumEER requirement for packaged heatpumps shouldbe the

same as splitheatpumps less the 0.3 

### EER offset seen between packaged and split airconditioners.

TABLE V.4.-MEDIAN AVAILABLE ENERGY EFFICIENCY RATINGS (EER) AND PROPOSED MINIMUM EERS IN RESIDENTIAL

. UNITARY EaUIPMENT (1998)



### Lowest 10th 

### Median available percentile available Proposed EERat available EERat Proposed Product class minimum proposed EERat proposed minimum SEER minimum proposed minimum EER SEER minimum SEER SEER Split Air Conditioners



## ............................................................................... 12.0 10.1 10.5 10.8 10.6 

### Packaged Air Conditioners



## ...................................................................... 12.0 

### Split Heat Pumps

..................................................................................... 13.0 

### Packaged Heat Pumps

............................................................................ 13.0



### We encourage commentsregarding the burdens andbenefits thatwould result from including anEER requirement inthe final rule. Of particular interest are comments regarding burdens on manufacturers and benefits regarding reduction inpeak electricity demand. includingthe effect ofan EER minimum on costs. on availability and sales ofmodulating equipment. and on electrical system reliability. In addition. comments are welcometo discuss thepros and cons of any ofthe other options described above. 

## J. Niche Products

Several types ofcentral air conditioners and heatpumps are used inparticular orunusual applications 10.1 10.3 10.5 10.5 10.8 11.1 11.9 11.9 11.0 11.0 11.0 11.6



### and have features that differ from those ofthevast majority ofproducts available inthe marketplace. We refer to these as "niche products." Included are single package units that are designed to be mounted within orimmediately adjacent to a fixed-size opening in an outside wall ofthe structure and split systems where the outdoor unitis designed tobe mounted inthe same

## EE-RM/STD-98-440- -- (A

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59609

manner. This would be comparable to virtually equivalent or even higher in conditioned pressurized air through the classes that have been established efficiency than a 12 SEER ducted unit'; round ducts small enough to fit inside for room air conditioners that are * The overwhelming portion ofthe stud walls. Compared with conventional defined as "without louvered sides." market ofductless mini-splits is in air conditioners and heat pumps that Also included are non-ducted mini-split capacities of 18,000 Btu/hr and less. use large ducts, the indoor coil section air conditioners and heat pumps, and Making significant increases in the ofan SDHV system is compactly high-velocity, small-duct systems. efficiency ofmotors and compressors designed to facilitate retrofit installation Typical applications for ofniche used in these small units is difficult; in tight spaces, resulting in smaller face products may include: existing single ODuctless air conditioners frequently area and more rows oftubing than family buildings without air ducts and employ variable speed control ofthe conventional systems. The compact fan multi-family buildings with fixed-area compressor motors. Mitsubishi claims: coil design and small ducts contribute wall openings and both new and "Controlling the speed ofthe tohigh static pressure loss that must be existing manufactured homes. compressor by inverter will not benefit overcome bythe blower, requiring

Several manufacturers have claimed the 100% capacity rating but it has a greater fan power. Manufacturers claim that certain niche products would not tremendous benefit when the the greater energy consumption ofthese be viable ifrequired to meet higher compressor begins slowing down. blower motors and the limited space for efficiency standards, and have asked the During 50% capacity operation the installing the fan coils makes it more Department to establish new classes for SEER level would be several points difficult for SDHV systems to increase these products, with efficiency above the 100% capacity SEER. This energy efficiency. To mitigate the standards maintained at current levels. results in more energy savings, quieter burden on the blowers, designers reduce All these products serve relatively small operation, less peak load demands." the required air volume by cooling it niche markets and as such, the Mitsubishi also argued that an EER more than a conventional air efficiency standards established for rating, like a room air conditioner, conditioner, which offers an associated these products will have little effect on would be more appropriate because of benefit ofenhanced humidity removal national energy savings. Further, each is the inverter driven system's low cyclic but increases cost. In order to meet the

a product with some unique utility. losses; and current 10 SEER standard, a product with some unique utility. e Per ton, (of cooling capacity) a manufacturers ofSDHV systems Earlier in this rulemaking the ductless air conditioning system is one typically pair the fan coil withhigh Department sought information on ofthe most expensive HVAC systems in efficiency condensing units (typically whether higher standards would the U.S. today. Some ofthe reasons for 13-14 SEER). eliminate these products from the high production costs are: low volumes Unico described a number of marketplace because ofthe severity of in the United States, the indoor unit is alternatives to increase system their constraints. a "finished" product fully visible to the efficiency for their product, including a 1. Ductless Split Air Conditioners and customer so it requires additional larger heat exchanger, an improved Heat Pumps cosmetic expenses, and the unitmust be blower design and a more efficient Ductless

split systems, or mini-splits small, so complex design ofcoils is blower motor, and concluded that the Ductless split systems, or mini-splits necessary burden ofincreased initial cost would as they are cmmony known, consist of After review ofthe available outweigh the benefits ofincreased
a single outdoor unit and one or more information, the Department does not system efficiency. (Unico, No.60 at 5). indoor fan coil units, each located in the believe a separate class is warranted for Unico asked the Department to either: conditioned space. Since consumers these products. The evidence presented (1)Exempt them from any increase in may consider the interior units to be in the comments does not convince us standards; (2) allow a 15% SEER credit
more intrusive than a ducted system, that these products would not be able to for reduced duct losses associated with manufacturers strive to make them as meet the proposed standard level. The their type of system; or (3) allow their compact as possible. This cabinet size constraints on increasing the size ofthe system to be tested as a coil only constraint combined with efficiency indoor fan coil units are primarily (without a blower) at a conventional losses due to heat transfer between esthetic, and the Department is unaware airflow, using the test procedure's refrigerant lines puts pressure on oftechnological limitations to default fan power to establish a SEER equipment efficiency. increasing minimum efficiency rating but allow them to install systems

Mitsubishi and EnviroMaster standards for these products. The with a high pressure blower. (Unico, No. International (EMI), manufacturers of esthetic disadvantage of larger cabinet 61 at 3). ductless split systems, commented that size would be compensated by higher SpacePak, another major ductless products should be assigned a efficiency and lower cost ofoperation. manufacturer ofthis type ofproduct, separate product class with a lower While the claim that the small commented that they have made the standard. (Mitsubishi, No. 18 at 1 and capacities make increased efficiencies investment to produce more efficient EMI, No. 26 at 1). Their arguments for difficult is a reasonable one, the systems. (SpacePak, No. 39 at 1).
a separate class are: Department is aware that systems with SpacePak also provided ARI directory

* Ductless units are operated like capacities ofup to 44,000 Btu/h are data indicating the higher efficiency of
room air conditioners, because the available andbelieves that providing an their designs. SpacePak claimed to offer "compressor delivering air conditioning exemption for all systems because of many equipment combinations in the 11 to a particular room operates only when difficulty with smaller systems is not to 12 SEER range, with only 17% of necessary rather than when a central justified. their ARI listings at the 10 SEER thermostat calls for cooling in another minimum. (Space Pak, No. 52 at 1). area;' 2. Small Duct High Velocity Air After review ofthe available

* Ductless units do not have the duct Conditioners information, the Department does not losses ofa central air conditioning Small-duct, high-velocity (SDHV) believe a separate class with an system, and so have greater installed systems target primarily the retrofit efficiency standard below 12 SEER or a system efficiency. Mitsubishi claims market, where they are installed in attic 15% SEER credit, is warranted for these that: "a 10 SEER ductless unit may be or closet spaces and distribute products. Regarding Unico's third 

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### 59609

manner. This would be comparable to the classes that have been established for room air conditioners that are defined as "withoutlouvered sides." Also included are non-ducted mini-split air conditioners and heatpumps, and high-velocity, small-duct systems. Typical applications for ofniche products may include: existing single family buildings withoutair ducts and multi-familybuildings with fixed-area wall openings andboth new and existing manufactured homes.

Several manufacturers have claimed that certain nicheproducts would not be viable ifrequired to meet higher efficiency standards, and have asked the Departmentto establishnew classes for these products, with efficiency standards maintained at current levels. All these products serve relatively small niche markets and as such, the efficiency standards established for these products will have little effect on national energy savings. Further, each is

a productwith some unique utility. Earlier inthis rulemaking the Department sought information on whetherhigher standards would eliminate these products from the marketplacebecause ofthe severity of their constraints.
1. Ductless SplitAir Conditioners and HeatPumps

Ductless split systems, or mini-splits

as they are commonlyknown, consist of

a single outdoorunit and one ormore indoor fan coil units, each located inthe conditioned space. Sinceconsumers may considerthe interior units to be

more intrusive than a ducted system, manufacturers strive to make them as compact as possible. This cabinet size constraint combined with efficiency losses due to heat transferbetween refrigerant lines puts pressure on equipment efficiency.

Mitsubishi andEnviroMaster International (EMI), manufacturers of ductless split systems, commented that ductless products shouldbe assigned a separate product class with a'lower standard. (Mitsubishi, No. 18 at 1 and EM!, No. 26 at 1). Theirarguments for

a separate class are:

• Ductless units are operated like

room air conditioners,because the "compressor delivering airconditioning to a particularroom operates only when necessary ratherthanwhen a central thermostat calls for cooling in another area;'

• Ductless units do nothave the duct losses ofa central air conditioning system, and so have greater installed system efficiency. Mitsubishi claims that: "a 10 SEER ductless unit may be viltually equivalent or even higher in efficiency than a 12 SEER ducted unit';

II 

### The overwhelming portion ofthe market ofductless mini-splits is in capacities of 18,000 Btu/hr and less. Making significant increases inthe efficiency ofmotors and compressors used inthese small units is difficult;

.. Ductless airconditioners frequently employ variable speed control ofthe compressormotors. Mitsubishi claims: "Controllingthe speed ofthe compressorby inverterwill notbenefit the 100% capacity ratingbutithas a . tremendousbenefitwhenthe compressorbegins slowing down. During 50% capacityoperationthe SEER level wouldbe several points above the 100% capacity SEER. This results in more energy savings, quieter operation, less peak load demands." Mitsubishi also argued that an EER rating, like a room air conditioner, would be more appropriatebecause of theinverter driven system's low cyclic losses; and

.. Perton, (ofcooling capacity) a ductless airconditioning system is one ofthe most expensive HVAC systems in the U.S. today. Some ofthe reasons for high production costs are: lowvolumes intheUnited States, the indoorunit is

a "finished" productfully visibleto the customer so itrequires additional cosmetic expenses, andtheunitmustbe small, so complex design ofcoils is necessary.

After review ofthe available information, the Department does not believe a separate class is warranted for these products. The evidence presented inthe comments does not convince us thatthese products would notbe able to meettheproposed standard level. The constraints onincreasingthe size ofthe indoor fan coil units are primarily esthetic, and the Department is unaware oftechnological limitations to increasing minimum efficiency standards for theseproducts. The esthetic disadvantage oflarger cabinet sizH wouldbe compensatedby higher efficiency and lowercost ofoperation. While the claim that the small capacities make increased efficiencies difficult is a reasonable one, the Department is aware that systems with capacities ofup to 44,000 Btuth are available andbelieves that providing an exemption for all systems because of difficulty with smaller systems is not justified.
2. Small Duct High Velocity Air Conditioners

Small-duct, high-velOcity (SDHV) systems target primarily the retrofit market, where they are installed in attic

or closet spaces and distribute conditioned pressurized airthrough round ducts small enough to fit inside stud walls. Compared with conventional air conditioners and heatpumps that

use large ducts, the indoor coil section ofan SDHV system is compactly designed to facilitate retrofit installation intight spaces, resulting in smaller face

area and morerows oftubing than conventional systems. The compact fan coil design and small ducts contribute tohigh static pressure loss that mustbe

overcome bythe blower, requiring greater fan power. Manufacturers claim thegreaterenergy consumption ofthese blower motors and the limited space for installing the fan coils makes it more difficult for SDHV systems to increase energy efficiency. To mitigate the burden on the blowers, designers reduce therequired airvolume by cooling it

more than a conventional air conditioner,'which offers an associated benefit ofenhanced humidityremoval butincreases cost. In 

### orderto meetthe current 10 SEER standard, manufacturers ofSDHV systems typically pairthe fan coilwithhigh efficiency condensing units (typically 13-14 SEER).

Unico described a number of alternatives to increase system efficiency for their product, including a larger heat exchanger, an improved blower design and a more efficient blower motor, and concludedthatthe burden ofincreased initial cost would outweighthebenefits ofincreased system efficiency. (Unico, No.60 at 5). Unico asked the Department to either: (1) Exempt them from any increase in standards; (2) allow a 15% SEER credit for reduced duct losses associated with theirtype ofsystem; or (3) allow their system to be tested as a coil only (without a blower) at a conventional airflow, using the test procedure's default fan powerto establish a SEER ratingbut allow them to install systems with a high pressureblower. (Unico, No. 61 at 3).

SpacePak, another major manufacturer ofthis type ofproduct, commented that they have made the investment to producemore efficient systems. (SpacePak, No. 39 at 1). SpacePakalso providedARI directory data indicating thehigher efficiency of their designs. SpacePakclaimed to offer many equipment combinations inthe 11 to 12 SEER range, with only 17% of theirARI listings at the 10 SEER minimum. (Space Pak, No. 52 at 1).

After review ofthe available information.the Departmentdoes not believe a separate class with an efficiency standard below 12 SEER ora 15% SEER credit, is warranted for these products. Regarding Unico's third

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59610 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

alternative, i.e., revise the DOE test efficient as the new units. Residents or will not offer 3-ton equipment that fits procedure to allow SDHV systems tobe building owners are particularly the definition but is intended for use in tested as coil-only products, the sensitive to any increase in price or to conventional applications. To maintain Department believes that such a change the cost of enlarging the wall opening to the price differential between this new would recognize the improvements in accommodate a larger condenser. Since class and conventional equipment; we delivered efficiency ofthe SDHV system repair is the only other cost effective propose a standard of 11 SEER. Because because ofreduced duct losses. We are alternative to replacement, a new electric strip heat is popular in TTW therefore proposing to modify theDOE standard that increases cabinet size or equipment, the 11 SEER standard would test procedure to allow small-duct high results in a significant price increase also apply to TTW heat pumps. velocity system manufacturers to test could be counterproductive, preventing Non-Weatherized Single-Package their products as coil only products. We the turnover ofold, inefficient Unit unted ti estimate that the impact ofthis equipment. ue t allowance willbe 1 to 2.5 SEER points; According to submitted data, 10 SEER Structure i.e., a 10 SEER system would become an TTW splitcondensing air-conditioners Another niche product, which was 11 to 12.5 SEER system. The with fan coils (when scaled up to 3- not discussed in the Supplemental Department seeks comments on whether tons) are $206 more expensive ANOPR, is a non-weatherized singlethe test procedure revision or other (manufacturer price) than 10 SEER pad- package unit, mounted entirely within proposed changes are needed to mounted split systems. Under a 12 the structure (in an attic, basement, or maintain the viability ofthe small-duct, SEER standard for pad-mounted split air closet), with outdoor air ducted to and high-velocity systems in the market conditioners, the $206 differential from the unit. This unit is used in highplace. would be maintained ifTTW Condenser rise and garden apartments, 3. Vertical Paa

, Wl M d systems had to meet an 11 SEER rating manufactured homes, and other 3. Vercal Packaged, Wall Mounted (also based on submitted data). This residential applications where locations These products are factory-assembled differential increases when wall for placement of outdoor units may be single packaged vertical air-conditioners modifications are necessary. DOE unavailable or too remote, where and heat pumps using single phase believes 11 SEER is technologically architectural aesthetics may be power but intended for use in feasible at this time for most compromised by visible outdoor units, commercial and industrial heating and configurations ofTTW split equipment. where vandalism or theft ofoutdoor cooling applications. The difficult air TTW condensers come in three sizes units is a potential problem, or where flow configuration (each ofthe (height xweight exterior to the compliance with local sound ordinances condenser and evaporator building): 32" x 24" (768 sq. in.); 28" x restricts the placement ofoutdoor air compartments takes air in and exhausts 26" (721 sq. in.); and 23" x 30" (679 sq. conditioning equipment. itthrough the same face) combined with in.). First Co. commented that imposing Consolidated Technologies, Inc., the attempt tominimize size constrains higher efficiency standards would manufacturer ofthe INSIDER, the ability ofthese units to attain higher eliminate through-the-wall products commented, "For the INSIDER to be SEERs. from the marketplace because ofthe used in Manufactured Housing and

The Department understands that significant increase in the price with a Modular housing it is important to have single-package vertical air-conditioners correspondingly small operating cost the smallest footprint possible." and heat pumps are not distributed for savings. (First Co., No. 40 at 1). (Consolidated Technologies, Inc., No. 42 personal use or consumption by TTW packaged systems are intended at 2). individuals, and therefore believes that for both new construction and retrofit. The Department recognizes that this at present they are commercial products First Co's dimensions (new product has space constraints, albeit not covered by EPACT and not by construction) are 43" x 28" (1,204 sq. as severe as products that must fita wall residential energy efficiency standards. in.). Skymark's retrofit unit is 15" x 55" opening. Products at the 12 SEER level Accordingly, vertical packaged, wall (825 sq. in.). TTW packaged equipment (the proposed air conditioning standard mounted equipment would not be for new construction, which is not level) are currently on the market. A covered by today's proposed rule for severely size-constrained, should be very difficult obstacle to establishing a residential products. able to reach 12 SEER in its current separate class for this product is a 4. Through-t l Condenss configuration with component definition that could not be used as a 4. Trough-the-a ondensersupgrades. The current manufacturer loophole to use its lower standard for Through-the-wall (TTW) condensers price differential (First Co.) between conventional products. Its salient

were popular in new multistory TTW packaged and conventional feature is its indoor location; product residential construction in the 1960s packaged equipment (scaled to 3-tons) is class definitions should be based on and 1970s. Major manufacturers have $430. According to First Co. data, that physical characteristics, and it is nearly since abandoned thereplacement differential would be maintained under impossible to define physical market, providing an opportunity for an 11 SEER standard for TTW packaged characteristics that would ensure lower volume manufacturers. Most with a 12 SEER for conventional products be installed in a particular equipment is in the 1'/2 to 2'/2 ton packaged. location. No separate class is proposed capacity range. These systems take in air The Department proposes to establish for this product. through only one face and exhaust air a separate class for TTW equipment through the same face resulting in (including packaged and split, cooling 6. Request for Comments Regarding reduced efficiency because ofincreased only and heat pump) based on a Niche Product Standards fan power consumption. Some short- maximum combined surface area ofthe The Department encourages circuiting of exhaust air into the intake air inlet and outlet ofthe condenser of comments regarding whether the may also occur. 830 square inches, and a maximum proposed standards concerning highReplacements for through-the-wall capacity of 30,000 Btu/hr. The purpose velocity, vertically-packaged wallcondensers must fit within the same ofthe maximum capacity requirement is mounted equipment, and through-thewall opening as the original units, even to ensure that if new technology reduces wall equipment provide a significant though original units maybe half as the size ofthe condenser, manufacturers advantage to those products versus 

### .---

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59610 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

alternative, i.e., revise the DOE test procedure to allow SDHV systems to be tested as coil-only products, the Departmentbelieves that such a change would recognize the improvements in delivered efficiency ofthe SDHV system because ofreduced duct losses. We are therefore proposingto modifythe DOE test procedure to allow small-ducthigh velocity system manufacturers to test theirproducts as coil only products. We estimate thatthe impact ofthis

. allowance willbe 1 to 2.5 SEER points; 

### i.e., a 10 SEER systemwouldbecome an 11 

### to 12.5 SEER system. The Department seeks comments on whether thetest procedurerevision or other proposed changes are needed to maintainthe viability ofthe small-duct, high-velocity systems inthe market place.
3. Vertical Packaged, Wall Mounted

These products are factory-assembled single packaged vertical air-conditioners and heatpumpsusing single phase powerbutintended for use in commercial and industrial heating and cooling applications. The difficult air flow configuration (each ofthe condenser and evaporator compartments takes air in and exhausts itthrough the same face) combined with the attempt to minimize size constrains the ability ofthese unitsto attainhigher SEERs.

The Department understands that single-package vertical air-conditioners and heatpumps are not distributed for personal use or consumptionby individuals, and thereforebelieves that at presentthey are commercial products coveredbyEPACT and notby residential energy efficiency standards. Accordingly, vertical packaged, wall mounted equipmentwouldnotbe coveredbytoday's proposed rule for residential products.
4. Through-the-Wall Condensers

Through-the-wall (TTW) condensers

were popularinnew multistory residential construction inthe 1960s and 1970s. Major manufacturers have since abandonedthereplacement market, providing an opportunity for lowervolume manufacturers. Most equipmentis inthe 1'12 

### to 2'/2 ton capacity range. These systems take in air through only one face and exhaust air throughthe same face resulting in reduced efficiency because ofincreased fan power consumption. Some shortcircuiting ofexhaust air into the intake may also occur.

Replacements for through-the-wall condensers must fit within the same wall opening as the original units, even though original units maybe halfas efficient as the new units. Residents or building owners are particularly sensitiveto any increase in price orto the cost ofenlargingthe wall openingto accommodate a larger condenser. Since repair is the only othercost effective alternativeto replacement, a new standard that increases cabinet size or results in a significant price increase couldbe counterproductive, preventing the turnover ofold, inefficient equipment.

According to submitted data, 10 SEER TTW splitcondensingair-conditioners withfan coils (when scaled up to 3- tons) are $206 more expensive (manufacturer price) than 10 SEER padmounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners, the $206 differential wouldbemaintained ifTTW 

### Condenser systems had to meet an 11 SEER rating (also based on submitted data). This differential increases when wall modifications are necessary. DOE believes 11 SEER is technologically feasible at this time for most configurations ofTTW 

### split equipment. TTW condensers come inthree sizes (height x 

### weight exterior to the building): 32" x 

### 24" (768 sq. in.); 28" x 

### 26" (721 sq. in.); and 23" x 

### 30" (679 sq. in.). First Co. commentedthat imposing higher efficiency standards would eliminate through-the-wall products from the marketplace because ofthe significant increase inthe price with a correspondingly small operating cost savings. (First Co., No. 40 at 1).

TTW packaged systems are intended for both new construction andretrofit. FirstCo's dimensions (new construction) are 43"x 28" (1,204 sq. in.). Skymark's retrofit unit is 15"x 55" (825 sq. in.). TTW 

### packaged equipment for new construction, whichis not severely size-constrained, shouldbe able to reach 12 SEER inits current configuration with component upgrades. The current manufacturer price differential (First Co.) between TTW packaged and conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that differential wouldbemaintained under

an 11 SEER standard for TTW

### packaged with a 12 SEER for conventional packaged.

The Departmentproposestoestablish

a separate class for TTW equipment (including packaged and split, cooling only and heat pump)based on a maximum combined surface area ofthe air inlet and outlet ofthe condenser of 830 square inches, and a maximum capacity of30,000 Btu/hr. The purpose ofthe maximum capacity requirement is to ensure that ifnew technology reduces the size ofthe condenser, manufacturers will not offer 3-ton equipmentthat fits the definitionbut is intended for use in conventional applications. To maintain the price differentialbetweenthi.s new class and conventional equipment;we propose a standard of 11 

### SEER. Because electric strip heat is popular in TTW 

### equipment,the 11 SEER standard would also apply toTTW heat pumps. 5. Non-Weatherized Single-Package Unit, Mounted EntirelyWithin the Structure

Anotherniche product, which was not discussed inthe Supplemental ANOPR, is a non-weatherized singlepackage unit, mounted entirelywithin the structure (in an attic, basement, or closet), with outdoor air ducted to and from the unit. This unitis used inhighrise and garden apartments, manufactured homes, and other residential applications where locations for placement ofoutdoorunits may be unavailable ortoo remote, where architectural aesthetics maybe compromisedbyvisible outdoor units, where vandalism ortheft ofoutdoor units is a potential problem, or where compliance with local sound ordinances restricts theplacement ofoutdoor air conditioning eguipment.

Consolidated Technologies, Inc., manufacturer ofthe INSIDER, commented, "Forthe INSIDER to be used inManufactured Housing and Modular housing it is important to have the smallest footprint possible." (Consolidated Technologies, Inc., No. 42 at 2).

The Departmentrecognizes that this producthas space constraints, albeit not

as severe as products that mustfit a wall opening. Products atthe 12 SEER level (the proposed air conditioning standard level) are currently onthe market. A 

### very difficult obstacle to establishing a separate class for this product is a definition that could notbe used as a loophole to use its lower standard for conventional products. Its salient feature is its indoor location; product class definitions shouldbe based on physical characteristics, and it is nearly impossible to define physical characteristics thatwould ensure products be installed in a particular location. No separate class is proposed for this product.
6. Request for Comments Regarding NicheProduct Standards

The Departmentencourages comments regarding whetherthe proposed standards concerning highvelOcity, vertically-packaged wallmounted equipment, and through-thewall equipmentprovide a significant advantage to those products versus

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59611

competing products, whether they are products. Evidence indicates that TXVs their products, and that neither a TXV sufficient topreserve the unique maintain system efficiency better than requirement nor a lower standard for features ofthose products, and whether do fixed orifices or capillary tube TXV-bearing products are justified at improvements in the definitions are expansion devices in cases where split this time. We welcome additional needed to prevent loopholes. For system equipment is over- or under- comments onthis issue, particularly ductless split equipment and non- charged with refrigerant. This regarding whether our concerns weatherized vertical packaged apparently includes most installations. regarding the perceived reliability equipment, additional comment is To encourage the use ofTXVs we could problems and potential misuses welcome on the impacts that meeting consider establishing lower SEER associated with widespread use of TXVs the new standards would have on the standards for products containing TXVs. are valid. availability ofthose products. While the evidence ofthepotential energy-saving benefits ofTXVs is L. O t h e r Comments K. Thermostatic ExpansionValves certainly persuasive, the current SEER 1. Latent Heat Removal VEIC, NRDC, ACEEE, and CEC test procedures already encourage their requested that a design standard use. For rating a manufacturer's T h e S o u t h e rn C om pa ny, V lrgiia requiring the use ofthermostatic condenser with the evaporator ofa Power, and RB. Stotz insisted that expansion valves (TXVs) be adopted to different manufacturer, the SEERincreased equipment efficiency impacts

ensure that energy savings expected determination procedures provide a the equipment's ability to properly from an increase in the minimum credit for systems that incorporate dehumidify (i.e., remove latent heat). efficiency standard are realized in the TXVs. For matched systems, the use of Virginia Power specifically wants field. Several ofthe comments cited TXVs typically lowers the degradation assurances that any increase in the studies which demonstrate that TXVs coefficient, resulting in higher SEER standard will maintain current humidity

can mitigate adverse effects on results. control capabilities. In addition, it efficiency due to field installation We hesitate to provide stronger asserts that the costs of maintaining problems such as inadequate evaporator support for TXV-bearing equipment humidity control should be included in airflow and improper refrigerant charge. than that which is already granted the analysis. (VirginiaPower, No. 27 at CEC suggested that separate classes be through the test procedures. Unlike 2). The Southern Company claims that established for systems with and fixed orifices, TXVs are mechanical higher SEER values will lead to larger without TXVs and that more stringent components. Some manufacturers avoid indoor coils which in turn will result in minimum efficiency standards be theirusage because ofreliability higher air temperatures leaving the established for classes not utilizing concerns, and the additional repair costs indoor coil. The higher the air TXVs, and VEIC suggested mandating incurred by consumers could outweigh temperature, the less dehumidification the use ofTXVs in all new equipment. their energy-saving benefits. occurs. They also claim that while more (VEIC, No. 32 at 4-5; Neme, VEIC, Furthermore, contractors are able to efficient systems may dehumidify Transcript, pp. 187-189; NRDC, No. 35 adjust the factory-set TXV in the field, properly at rated test conditions, their at 11-12; ACEEE, No. 43 at 5-6; CEC, and it ispossible that alleviating ability to dehumidify under high indoor No. 47 at 5-6). problems due to over- or under-charging humidity conditions are worse than less

At least two regulatory options exist by encouraging the use of TXVs could efficient equipment. (Southern for encouraging the use ofTXVs. The create another problem-improperly set Company, No. 29 at 3-4; R.B. Stotz, No. first is to require that all equipment TXVs. Also, it is not clear that TXVs are 24 at 1). Trane counters the claims made contain TXVs, hereafter called TXV the only, or even the best, option for by the Southern Company and Virginia requirement. The second is to establish maintaining equipment efficiency in the Power by stating that there is absolutely

a separate product class for TXV-bearing field. For example, technologies that no evidence to support the claim that equipment and toreduce the minimum could mitigate dirty coils or prevent more efficient equipment has less latent SEER requirements for those classes improper charging and airflow may be heat removal capability. (Crawford, from the levels in today's proposed rule. more attractive options, and we would Trane, Transcript, pp. 272-273).

The EPCA allows the Department to not want to discourage their Trane's claim that there is no issue a requirement such as mandating development or use by mandating the relationship between equipment the use ofTXVs ifthe Secretary use ofTXVs. efficiency and its ability to dehumidify determines that such a requirement is In any case, manufacturers may well is substantiated by research conducted necessary to ensure that the product find that the SEER benefits offered by by ARI. From this research, ARI meets its performance-based standard. TXVs are compelling enough under the demonstrated for hundreds of systems In the case of TXVs, the Department's new efficiency standards that they that latent heat removal is not obviously current opinion is that products can would offer TXVs in a substantial impacted by increases in equipment meet the proposed SEER requirements amount ofbaseline equipment without efficiency at rated conditions (i.e., 95°F without TXVs. This iscertainly true in further encouragement by the outdoor temperature). 6 Not to dismiss the laboratory. In the field, although Department. The Engineering Analysis the concerns of Virginia Power and the many installations could undoubtedly suggests that manufacturers are Southern Company, we recognize the benefit from TXVs, it isunclear whether currently more likely to incorporate humidity control problems that exist in

we could find that TXVs are needed for TXVs into their 12 SEER and 13 SEER the southern region ofthe U.S. For the those systems to perform at theirrated products than in their 10 SEER excessive humidity conditions efficiencies. products. We would expect, therefore, commonly experienced in the South,

Regarding the second option, EPCA that TXV use would be much more the equipment may very likely not requires the Department toestablish prevalent under higher efficiency provide adequate dehumidification. But separate product classes for products standards. rather than focusing on the equipment based on a performance related feature For these reasons, the Department efficiency as the source ofthe problem, (such as a TXV) ifthe Secretary feels thatthe current test procedure determines that a higher or lower provides the proper encouragement for "D. Godwin. 1998. "Latent Capacity ofUnitary efficiency standard isjustified for those manufacturers to incorporate TXVs into Equipment." ASHRAE Transactions 98(2).

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59611

competingproducts, whetherthey are sufficient to preserve the unique features ofthose products, and whether improvements inthe definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional comment is welcome on the impacts that meeting the new standards would have on the availability ofthose products.


### K. ThermostaticExpansion Valves

VEIC, NRDC. ACEEE. and CEC requested thata design standard requiringthe use ofthermostatic expansion valves (TXVs) be adopted to

ensurethatenergy savingsexpected from anincrease inthe minimum efficiency standard are realized inthe field. Several ofthe comments cited studies which demonstratethatTXVs

can mitigate adverse effects on efficiency due to field installation problems such as inadequate evaporator airflow and improperrefrigerant charge. CEC suggested that separate classes be established for systems with and withoutTXVs and that more stringent minimum efficiency standards be established for classes notutilizing TXVs, and VEIC suggested mandating the use ofTXVs in all newequipment. (VEIC, No. 32 at 4-5;Neme, VEIC. Transcript, pp. 187-189;NRDC, No. 35 at 11-12; ACEEE, No. 43 at 5-6; CEC, No. 47 at 5-6).

At leasttwo regulatory options exist for encouraging the use ofTXVs. The first is to require that all equipment containTXVs, hereaftercalled TXV requirement. The second is to establish

a separate productclass for TXV-bearing equipment and toreduce the minimum SEER requirements for those classes from the levels intoday's proposed rule.

TheEPCA allows the Departmentto issue a requirement such as mandating the use ofTXVs ifthe Secretary determines that such a requirement is necessary to ensure thatthe product meets its performance-based standard. In the case ofTXVs, theDepartment's current opinion is that products can meettheproposed SEERrequirements withoutTXVs. Thisis certainly true in the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it is unclearwhether

we could find thatTXVs are needed for those systems to perform at theirrated efficiencies.

Regarding the second option, EPCA requires the Department to establish separate product classes for products based on a performance related feature (such as a TXV) ifthe Secretary determines that a higher or lower efficiency standard is justified for those products. Evidence indicates that TXVs maintain system efficiencybetter than do fixed orifices orcapillary tube expansion devices in cases where split system equipment is over- orundercharged withrefrigerant. This apparently includes most installations. To encourage the use ofTXVs we could consider establishing lower SEER standards for products containingTXVs.

Whilethe evidence ofthepotential energy-savingbenefits ofTXVs is ceI1ainly persuasive, the currentSEER testprocedures already encouragetheir

use. Forrating a manufacturer's condenserwith the evaporator ofa different manufacturer, the SEER determinationproceduresprovide a credit for systems that incorporate TXVs. For matched systems, theuse of TXVs typically lowers the degradation coefficient, resulting inhigher SEER results.

We hesitate to provide stronger support for TXV-bearing equipment than that whichis already granted through the testprocedures. Unlike fixed orifices, TXVs are mechanical components. Some manufacturers avoid theirusage because ofreliability concerns, and the additional repaircosts incurred by consumers could outweigh their energy-savingbenefits. Furthermore, contractors are able to adjustthe factory-set TXV inthe field, and it is possible that alleviating problems dueto over- orunder-charging by encouragingthe use ofTXVs could create anotherproblem-improperly set TXVs. Also, it is not clearthat TXVs are the only, oreventhebest, option for maintaining equipment efficiency in the field. For example, technologies that could mitigate dirty coils or prevent impropercharging and airflow maybe

more attractive options, and we would notwantto discourage their development or use by mandating the

use ofTXVs.

In any case, manufacturers may well find thatthe SEER benefits offered by TXVs are compelling enough under the

new efficiency standards that they would offerTXVs in a substantial amount ofbaseline equipment without further encouragementby the Department. The Engineering Analysis suggests that manufacturers are currently more likely to incorporate TXVs into their 12 SEER and 13 SEER products than intheir 10 SEER products. We would expect, therefore, that TXV use wouldbe much more prevalent underhigher efficiency standards.

For these reasons, the Department feels thatthe currenttest procedure provides the proper encouragement for manufacturers to incorporate TXVs into theirproducts, and that neither a TXV requirementnor a lower standard for TXV-bearing products arejustified at this time. We welcome additional comments onthis issue, particularly regarding whether our concerns regarding the perceived reliability problems and potential misuses associated withwidespread use ofTXVs

are valid.


### L. Other Comments
1. Latent Heat Removal

The SouthernCompany, Virginia Power, and R.B. Stotz insisted that increased equipmentefficiency impacts the equipment's ability to properly dehumidify (Le., remove latentheat). Virginia Power specifically wants

assurancesthat any increase in the standard will maintaincurrenthumidity control capabilities. In addition, it asserts that the costs ofmaintaining humidity control shouldbe included in the analysis. (Virginia Power, No. 27 at 2). The Southern Company claims that higher SEER values will lead to larger indoor coils whichinturn will result in higher airtemperatures leaving the indoor coil. The higherthe air temperature, the less dehumidification

occurs. They also claim that while more efficient systems may dehumidify properly atrated test conditions, their abilityto dehumidify underhigh indoor humidity conditions are worsethan less efficient equipment. (Southern Company, No. 29 at 3-4; R.B. Stotz, No. 24 at 1). Trane counters the claims made bythe SouthernCompany and Virginia Powerby stating that there is absolutely

no evidence to support the claim that

more efficient equipmenthas less latent heatremoval capability. (Crawford, Trane, Transcript, pp. 272-273).



### Trane's claim that there is no relationship between equipment efficiency and its abilityto dehumidify is substantiated byresearch conducted by ARI. From this research, ARI demonstrated for hundreds ofsystems that latentheat removal is not obviously impactedby increases inequipment efficiency at rated conditions (j.e., 

### 95°F outdoortemperature). 16

### Not to dismiss the concerns ofVirginia Power and the Southern Company, we recognize the humidity control problems that exist in the southernregion ofthe U.S. Forthe excessivehumidity conditions commonly experienced in the South, the equipment may very likely not provide adequate dehumidification. But ratherthan focusing on the equipment efficiency as the source oftheproblem,

16D. Godwin. 1998. "Latent Capacity ofUnitary Equipmont." ASHRAE Transactions 98(2).

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59612 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

proper installation and maintenance EPACT provides for DOE to amend minimum HSPFs makes it more difficult practices also likely play a large role in the standards for these products when for heat pumps to compete against the the equipment's performance. Other ASHRAE amends the standards found much lower first-cost ofelectric factors to consider are the duct system in ASHRAE Standard 90.1. When resistance heating systems. (Pietsch No.

as well as the building shell ASHRAE has completed its 36 at 41). ACEEE, VEIC, and PG&E characteristics. All these factors play a consideration ofstandards for these noted that the Department's definition role in how a system dehumidifies. To products, DOE will analyze 3-phase ofHSPF-SEER pairing for the standard lay blame only on the efficiency of the equipment under a separate rulemaking levels it analyzed seemed arbitrary or equipment ignores how other factors pertaining to commercial air- too lenient and preferred that the contribute to the system's ability to conditioning and heat pump equipment. Department establish higher HSPF properly dehumidify. 3. SEER-HSPF Relationship levels. (ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4). 2. 3-Phase Equipment ARI supported the Department's The Department plotted the HSPF-SEER standard pairings proposed relationship between HSPF and SEER ACEEE asserted that if an identical in the Supplemental ANOPR. (ARI No. for all 3-ton splitheat pumps listed in standard is to be set for both single- 48 at 4). Pietsch proposed maintaining the Spring 1998 ARI Directory of phase and 3-phase central air the current minimum requirements for Certified Unitary Equipment. At 10 conditioners and heat pumps under HSPF at 6.8 for future levels of SEER, the difference between the 65,000 Btu/hr, then 3-phase equipment minimum SEER, which would allow minimum HSPF (6.8) and the median should be incorporated into the manufacturers to continue to place more (7.1) was 0.3 HSPF. The Department rulemaking analysis. Alternatively, if3- emphasis on improving SEER. He based then determined the equation ofthe line phase equipment is excluded from the this recommendation on the strong that ran generally parallel with the analysis, it should be made clear that a competition that heat pumps face in the median HSPF at each SEER level, while

new standard on 3-phase equipment market place with electric resistance passing through the 10 SEER, 6.8 HSPF will be set based on a new analysis heat, noting that the increased first-cost point. Table V.5 reviews the derivation covering 3-phase equipment. ofheat pumps that have higher ofthe SEER-HSPF pairings.

TABLE V.5.-COMPARISON OF PROPOSED HSPF STANDARD LEVELS WITH MEDIAN HSPFS OF EQUIPMENT LISTED INTHE ARI UNITARY DIRECTORY
Cooling efficiency (SEER) 10 11 12 13 14 15 16 17

Median Heating Efficiency

(HSPF)

.......................... 7.1 7.4 7.9 7.9 7.9 8.9 8.2 8.4 Recommended Heating

Efficiency Standard (HSPF)

.......................... 6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.6 Offsetfrom Median

(HSPF) .......................... -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2

Even though the Department does not has no basis for modifying its current prototype central air conditioners or have information on the distribution of HSPF-SEER standard combinations, heat pumps that exceed 18 SEER or 9.4 heat pump sales by HSPF at each SEER 4 Max Tech HSPF levels are encourage to provide level, it is apparent that the market such information in comment on today's currently favors products that exceed The Supplemental ANOPR analysis proposed rule. the minimum allowable HSPF level. proposed a Max Tech level of20 SEER. This is due both to the natural ARI, Trane, and York commented that a DOE does not have relative costdata elationship both to the natSural prototype hasn't been built that has for 18 SEERunits as ARI did not relationship between HSPF and SEER exceeded 18 SEER. (Wethe, ARI, provide the Department data for and the preference in the market for Transcript p. 66; Crawford, Trane, equipment exceeding 15 SEER. In lieu high HSPF heat pumps in cooler Transcript p. 69; and Madera, York, ofperforming a reverse engineering climates. The Department believes that Transcript p. 71). The Department also analysis on an 18 SEER design, the establishing an HSPF standard equal to understands that 18 SEER is the highest Department isproceeding as ifthe 18 the current median at a given SEER efficiency level currently available for SEER equipment cost and price were level would impose an undue design sale. equal to those of the 15 SEER constraint on manufacturers, adding to While the Department believes equipment. DOE believes the 18 SEER the cost and burden of designing, improvements to the 18 SEER design are costwould be higher because the producing, testing, and qualifying the certainly possible, it agrees with the product is more complex. product without resulting in a industry that any analysis based on a significant increase in the average HSPF design higher than 18 SEER would be VI. Analytical Results of equipment sold. Also, the Department pure speculation. Therefore, the A. TrialStandard Levels does not want to encourage substitution Department considers 18 SEER to be the ofelectric resistance heating systems for Max Tech at this time for cooling Table VI.1 presents the trial standards heat pumps. Without further performance. The Max Tech level for levels analyzed for today's proposed information on the cost ofattaining heating efficiency is 9.4 HSPF, which is rule and the corresponding efficiency higher HSPFs or the shipments ofheat the highest HSPF rating currently level for each class ofproduct. Trial pumps by HSPF level the Department available in residential heatpumps. Any standard level 5 is the max tech level for pumps

by HSPF level, the Depa t parties possessing knowledge of each class ofproduct. ....'. 

### 59612 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

properinstallation and maintenance practices also likely playalarge role in the equipment's performance. Other factors to consider are the duct system

as well as the building shell characteristics. All these factors playa role inhow a system dehumidifies. To layblame only onthe efficiency ofthe equipment ignores how otherfactors contribute to the system's ability to properly dehumidify.

2. 3-PhaseEquipment

ACEEE asserted that ifan identical standard is to be set for both singlephase and 3-phase central air conditioners and heatpumpsunder 65,000 Btulhr, then 3-phase equipment shouldbe incorporated into the rulemaking analysis. Alternatively, if3- phase equipment is excluded from the analysis, it 

### shouldbe made clearthat a
new standard on 3-phase equipment will be setbased on a new analysis covering 3-phase equipment. EPACT provides for DOE to amend the standards for these products when ASHRAE amends the standards found inASHRAE Standard 90.1. When ASHRAE has completed its consideration ofstandards for these products, DOE will analyze 3-phase equipmentunder a separaterulemaking pertainingto commercial airconditioning and heatpump equipment.
3. SEER-HSPF Relationship

ARl supportedtheDepartment's HSPF-SEER standard pairings proposed inthe SupplementalANOPR. (ARl No. 48 at 4). Pietschproposed maintaining the current minimumrequirements for HSPF at 6.8 for future levels of minimum SEER, which would allow manufacturers to continueto place more emphasis on improving SEER. He based this recommendationonthe strong competition thatheatpumps face inthe market place with electric resistance heat, noting thatthe increased first-cost ofheatpumpsthathave higher minimum HSPFs makes itmore difficult for heat pumps to compete against the much lower first-cost ofelectric resistance heating systems. (Pietsch No. 36 at 41). ACEEE, VEIC, and PG&E noted thatthe Department's definition ofHSPF-SEER pairing for the standard levels it analyzed seemed arbitrary or too lenient andpreferred that the Department establishhigherHSPF levels. (ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4).

The Department plotted the relationship between HSPF and SEER for all 3-ton splitheatpumps listed in the Spring 1998 ARl Directory of Certified Unitary Equipment. At 10 SEER, the differencebetweenthe minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The Department then determined the equation ofthe line thatrangenerallyparallelwiththe median HSPF at each SEER level, while passing through the 10 SEER, 6.8 HSPF point. Table V.5 reviews the derivation ofthe SEER-HSPF pairings.

TABLE V.5.-COMPARISON OF PROPOSED HSPF STANDARD LEVELS WITH MEDIAN HSPFs OF EQUIPMENT LISTED IN THE 

### ARI UNITARY DIRECTORY

Cooling efficiency (SEER) 10

Median Heating Efficiency

(HSPF)

.......................... 7.1 Recommended Heating

Efficiency Standard (HSPF)

.......................... 6.8 Offset from Median

(HSPF)

.......................... -0.3



### Eventhough the Department does not have information onthe distribution of heat pump sales by HSPF at each SEER level, itis apparent that the market currently favors productsthat exceed the minimum allowable HSPF level. This is duebothto the natural relationshipbetween HSPF and SEER and the preference in the market for high HSPF heatpumps in cooler climates. TheDepartmentbelieves that establishing an HSPF standard equal to the current median at a given SEER level would impose an undue design constraint on manufacturers, addingto the cost andburden ofdesigning, producing, testing, and qualifying the product withoutresulting in a significant increase inthe average HSPF ofequipment sold. Also, theDepartment does notwantto encourage substitution ofelectric resistanceheating systems for heat pumps. Without further information on the cost ofattaining higher HSPFs or the shipments ofheat pumps by HSPF level, theDepartment 11 12 13

7.4 7.9 7.9

7.1 7.4 7.7

-0.3 -0.5 -0.2



### has nobasis for modifying its current HSPF-SEER standard combinations.
4. Max Tech 14



### The SupplementalANOPR analysis proposed a Max Tech level of20 SEER. ARl, Trane, and York commented that a prototypehasn'tbeenbuiltthathas exceeded 18 SEER. (Wethje, ARl, Transcript p. 66; Crawford, Trane, Transcript p. 69; and Madera, York, Transcript p. 71). TheDepartment also understandsthat 18 SEER isthe highest efficiency level currently available for sale.

While the Department believes improvementsto the 18 SEER design are certainly possible, it

### agrees withthe industry that any analysis based on a designhigher than 18 SEER wouldbe pure speculation. Therefore, the Department considers 18 SEER to bethe Max Tech at this time for cooling performance. The Max Tech level for heating efficiency is 9.4 HSPF, which is the highest HSPF rating currently available in residential heatpumps. Any parties possessing knowledge of 15 16 17

7.9 8.9 8.2 8.4

8.0 8.2 8.4 8.6

+0.1 -0.7 +0.2 +0.2



### prototype central air conditioners or heatpumpsthat exceed 18 SEER or 9.4 HSPF levels are encourage to provide such information in comment ontoday's proposedrule.

DOE does nothave relative costdata for 18 SEER units as ARl did not provide the Department data for equipment exceeding 15 SEER. In lieu ofperforming a reverse engineering analysiS on an 18 SEER design, the Departmentis proceeding as ifthe 18 SEER equipment cost andprice were equal to those ofthe 15 SEER equipment. DOE believesthe 18 SEER costwouldbe higherbecausethe product is more complex.

VI. Analytical Results

A. 

### Trial StandardLevels

Table VI.I presents the trial standards levels analyzed for today'sproposed rule and the corresponding efficiency level for each class ofproduct. Trial standard levelS is the max tech level for each class ofproduct.

## EE-RM/STD-98-440 -At 

# '

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59613

TABLE VI.1.-TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)
Split air Packaged split heat Packaged Trial standard level conditioner s pumpskaed condit m conditioners heat pumps conditioners

1

....................................................................................................................................... 11 11 11 111111111 2

....................................................................................................................................... 12 12 12 12 3

......... ............................................................................................ 12 12 13 13 4

....................................................................................................................................... 13 13 13 13 5

....................................................................................................................................... 18 18 18 18

B. SignificanceofEnergy Savings We analyzed three efficiency scenarios, replacement costs was analyzed as an each ofwhich assumed a different alternative scenario. To estimate the energy savings efficiency distribution after new For calculating NPV, a societal through 2030 due to revised standards, standards would take effect: (1) NAECA discount rate of7% was assumed.

we compared the energy consumption scenario, (2)Roll-up scenario, and (3) However, a 3% value was investigated ofcentral air conditioners and heat Shift scenario. Manufacturer costs were as an alternative scenario in accordance pumps under the base case to energy based onARI-provided mean cost data. with the Office of Management and consumption of central air conditioners Since several comments suggested that Budget's (OMB) Guidelines to and heat pumps under therevised the industry-provided cost estimates Standardize Measures ofCosts and standard. We examined fivetadard stant codast data from the Benefits and the Format ofAccounting levels. For each trial standard examined, reverse engineering analysis were Statements. several different scenarios were Table VI.2 shows the range ofenergy analyzed consisting ofvariations on: (1) analyzed as an alternative scenario. savings f or each of thethree shipments Electricity price and housing Equipment lifetime was based on a scenarios for each trial standard level projections; (2) equipment efficiency retirement function with an 18.4 year based on varying electricity and housing distributions; (3) manufacturer cost average lifetime coupled with the projections. The energy savings assume estimates; (4) equipment lifetime; and inclusion ofcompressor replacement the ARI mean manufacturer cost (5)societal discount rate. Electricity costs. However, since several comments estimate, an 18.4-year average lifetime price and housing projections were suggested that the equipment life is with compressor replacement and a 7% based on three different AEO 2000 actually shorter, a retirement function societal discount rate. The electricity forecasts: (1) Reference Case, (2) High yielding an average lifetime of 14 years scenarios are the AEO 2000 Reference, Growth Case, and (3) Low Growth Case. without the inclusion ofcompressor High Growth, and Low Growth cases.

TABLE V1.2.-ENERGY SAVINGS BASED ON ARI MEAN MANUFACTURER COSTS, 18.4 YEAR RETIREMENT FUNCTION WITH COMPRESSOR REPLACEMENT, AND A7% DISCOUNT RATE [Energy savings for units sold from 2006 to 2030]
Energy savings (quads) Trial standard level NAECA Roll-up Shift

1

................................................................ 1.7 to 1.8

................................................... 1.5 to 1.6

................................................... 1.9 to 2.0 2

................................................................ 2.9 to 3.2

................................................... 2.8 to 3.0

................................................... 3.4 to 3.6 3

............................................................... 3.4 to 3.6

................................................... 3.3 to 3.5

................................................... 3.8 to 4.1 4

................................................................ 4.2 to 4.5

................................................... 4.1 to 4.4

................................................... 4.6 to 4.9 5

................................................................ 8.1 to 8.7

................................................... 8.1 to 8.7

................................................... 8.1 to 8.7

Table VI.3 shows how each of the three scenarios described above (reverse engineering costs, 14 year average life, and 3% discount rate) impact the energy savings. The three scenarios were investigated only for the NAECA efficiency scenario and the AEO 2000 Reference Case electricity price and housing projection.

TABLE V1.3.-ENERGY SAVINGS BASED ON THE NAECA EFFICIENCY SCENARIO AND AEO REFERENCE CASE [Energy savings for units sold from 2006 to 2030]
Energy savings (quads)

Trial standard level Reverse engineering 14 year 3% discount

manufac- lifetime rate turing cost

1

............................................................................................................................................................... 1.7 1.7 1.7 2

............................................................................................................................................................... 3.0 2.9 3.0 3

............................................................................................................................................................... 3 .5 3.4 3.5 4

............................................................................................................................................................... 4 .3 4 .2 4.3 5

.............................................................................................................................................................. 8.7 8.2 8.3

# EE-RM/STD-9~-440

# -1F!Aob

Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59613

TABLE VI.1.-TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)



### Split air Packaged Split heat Packaged Trial standard level air conditioners conditioners pumps heat pumps

1

....................................................................................................................................... 2

....................................................................................................................................... 3

....................................................................................................................................... 4

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

.......................................................................................................................................



### B. Significance of EnergySavings

To estimate the energy savings through 2030 duetorevised standards,

we comparedthe energy consumption ofcentral air conditioners and heat pumpsunderthebase case to energy consumption ofcentral air conditioners and heat pumpsunderthe revised standard. We examined five standard levels. Foreachtrial standardexamined, several different scenarios were analyzed consisting ofvariations on: (1) Electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturercost estimates; (4) equipmentlifetime; and (5) societal discountrate. Electricity price and housing projections were based onthree different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. We analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturercosts were based onARI-provided mean cost data. Since several comments suggested that the industry-provided costestimates

were overstated, cost data from the

reverse engineering analysis were analyzed as an alternative scenario. Equipment lifetime was based on a retirement function with an 18.4 year average lifetime coupled with the inclusion ofcompressorreplacement costs. However, since several comments suggested thatthe equipmentlife is actually shorter, a retirement function yielding an average lifetime of 14 years withoutthe inclusion ofcompressor 11 11 11 12 12 12 12 12 13 13 13 13 18 18 18



### replacement costswas analyzed as an alternative scenario. 11 12 13 13 18



### For calculatingNPV, a societal discountrate of7% was assumed. However, a 3% value was investigated

as an alternative scenario inaccordance with the Office ofManagement and Budget's (OMB) Guidelines to StandardizeMeasures ofCosts and Benefits and the Format ofAccounting Statements.

Table VI.2 shows the range ofenergy savings for each ofthethree shipments scenarios for eachtrial standardlevel based on varying electricity and housing projections. The energy savings assume theARI mean manufacturer cost estimate, an 18.4-yearaverage lifetime with compressorreplacementand a 7% societal discountrate. The electricity scenarios are the AEO 2000 Reference, High Growth, and Low Growthcases.

TABLE VI.2.-ENERGY SAVINGS BASED ON ARI MEAN MANUFACTURER COSTS, 18.4 YEAR RETIREMENT FUNCTION WITH COMPRESSOR REPLACEMENT, AND A 7% DISCOUNT RATE 

### [Energy savings for units sold from 2006 

### to 2030)



### Trial standard level Energy savings (quads)

NAECA 

### Roll-up Shift

1

................................................................ 1.7

### to 1.8

................................................... 1.5

### to 1.6

................................................... 1.9 

### to 2.0 2

................................................................ 2.9 

### to 3.2

................................................... 2.8 

### to 3.0

................................................... 3.4

### to 3.6 3

................................................................ 3.4 

### to 3.6

................................................... 3.3

### to 3.5

................................................... 3.8

### to 4.1 4

................................................................ 4.2 

### to 4.5................................................... 4.1 

### to 4.4

................................................... 4.6 

### to 4.9 

### 5

................................................................ 8.1 

### to 8.7

................................................... 8.1 

### to 8.7

................................................... 8.1 

### to 8.7



### Table VI.3 shows how each of the three scenarios described above (reverse engineering costs, 14 year average life, and 3% discount rate) impact the energy savings. The three scenarios were investigated only for the NAECA efficiency scenario and the AEO 2000 Reference Case electricity price and housing projection.

TABLE VI.3.-ENERGY SAVINGS BASED ON THE NAECA EFFICIENCY SCENARIO AND AEO REFERENCE CASE 

### [Energy savings for units sold from 2006 

### to 2030)



### Trial standard level

1

............................................................................................................................................................... 2

............................................................................................................................................................... 3

............................................................................................................................................................... 4

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

............................................................................................................................................................... 

### Energy savings (quads)

Reverse engineering

manufacturing cost

1.7 3.0 3.5 4.3 8.7 14

### year 3% 

### discount lifetime rate

1.7 1.7 2.9 3.0 3.4 3.5 4.2 4.3 8.2 8.3

## EE-RM/STD-98-440- a< :

59614 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

C. PaybackPeriod based on the hours ofuse in the test calculated from the LCC analysis which

As discussed above, the Act requires procedure are on the order of 50% was based on the 1997 RECS data. the Department to examine payback greater than the weighted-average values In Table VI.4a, we list the median periods to determine ifthe three year from the LCC analysis (i.e., analyses payback periods for product classes and rebuttable presumption ofeconomic based onthe 1997 RECS for residential efficiency levels according to the justification applies. As prescribed by buildings and hourly simulations for methods employed by the LCC analysis. the Act, the rebuttable payback period is commercial buildings). This means that, Table VI.4b isthe rebuttable "calculated under the applicable test for any given standard level, the presumption payback period based on procedure, ** *" payback period calculated from thetest the Department ofEnergy's test

The annual space-cooling and space- procedure will be significantly shorter procedure heating energy consumption calculated than the average payback value

TABLE VI.4A.-SUMMARY OF LCC PAYBACK MEDIAN PERIOD

Reverse engi- 14-year lifetime Product class Efficiency level ARI mean man- neering manu- scenario/ARI Product cass Eficiency level ufacturing cost' facturing cost mean manufacscenario turing cost Split System Central Air Conditioner 11 10.6 7.8 10.5 12 12.6 9.8 12.8 13 16.0 11.3 16.2 18 36.0 19.6 50.4 Split System Heat Pump 11 5.5 2.7 5.5 12 7.2 3.9 7.3 13 9.3 6.4 9.5 18 17.3 14.0 19.9 Single Package Air Conditioner 11 6.1 7.7 16.6 12 14.0 7.5 14.2 13 21.8 14.5 21.8 18 48.8 25.1 88.1 Single Package Heat Pump 11 8.1 4.6 8.1 12 8.7 4.0 8.7 13 13.2 8.4 13.4 18 19.4 12.8 23.1
'Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

TABLE Vl.4B.-SUMMARY OF REBUTTABLE PAYBACK PERIOD

ARI mean Product class Efficiency level manufacturing cost Split System Central Air Conditioner....................................................................................................................... 11 4.7 12 5.8 13 7.6 18 11.3 Split System Heat Pump

......................................................................................................................................... 11 2.5 12 3.3 13 4.5 18 6.8 Single Package Air Conditioner

............................................................................................................................... 11 7.3 12 6.2 13 9.8 18 13.3 Single Package H eat Pump

.................................................................................................................................... 11 3.7 12 4.0 13 6.5 18 7.2
Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

D.EconomicJustification with six major manufacturers valuable information used to evaluate i Manufact s responsible for approximately 90% of the impacts ofa new standard on 1. Economic Impact on Manufacturers the residential air conditioner and heat manufacturers' cash flows,

a. Background.We performed a pump sales. We also interviewed two manufacturing capacities and Manufacturer Impact Analysis (MIA) to niche manufacturers to understand how employment levels. estimate the impact ofhigher efficiency their financial situation differs from that The MIA has both quantitative and standards on air conditioner oftheir larger counterparts. These qualitative aspects. Quantitative manufacturers. The TSDexplains the interviews are in addition tothose we analysis primarily relies on the GRIM, analysis in further detail. As part ofthe conducted as part ofthe Supplemental an industry cash flow model customized MIA, we discussed potential impacts ANOPR. The interviews provided for this rulemaking. The GRIM inputs 

### 59614 Federal Register/ Vol. 65, 

### No. 194/

### Thursday, October 5, 2000 

### IProposed Rules

C. 

### PaybackPeriod

As discussed above, the Act requires the Department to examine payback periodsto determine ifthe three year rebuttable presumption ofeconomic justification applies. As prescribed by theAct, the rebuttable payback period is "<;:alculated underthe applicable test procedure, 

### * * *".

The annual space-cooling and spaceheating energy consumptioncalculated based onthe hours ofuse in the test procedure are on the order of50% 

### greaterthan the weighted-average values from the LCC analysis 

### (i.e., analyses based onthe 1997 RECS 

### for residential buildings andhourly simulations for commercial buildings). This means that, for any given standardlevel, the paybackperiod calculated from thetest procedure willbe significantly shorter than the average paybackvalue calculated from the LCC analysis which

wasbased onthe 1997 RECS 

### data.

In Table VI.4a, we list the median payback periods for product classes and efficiency levels according to the methods employed bythe LCC analysis. Table VI.4b is the rebuttable presumptionpaybackperiodbased on the Department ofEnergy's test procedure.

TABLE VI.4A.-SUMMARY OF 

### LCC PAYBACK MEDIAN PERIOD


### 14-year lifetime**Rev~rse** 

### engi- Product class Efficiency level ARI mean man- neenng manu- scenario/ ARI ufacturing cost I 

### facturing cost mean manufacscenario I 

### turing cost Split System Central Air Conditioner 11 10.6 7.8 10.5 12 12.6 9.8 12.8 13 16.0 11.3 16.2 18 36.0 19.6 50.4 Split System Heat Pump 11 5.5 2.7 5.5 12 7.2 3.9 7.3 13 9.3 6.4 9.5 18 17.3 14.0 19.9 Single Package Air Conditioner 11 6.1 7.7 16.6 12 14.0 7.5 14.2 13 21.8 14.5 21.8 18 48.8 25.1 88.1 Single Package Heat Pump 11 8.1 4.6 8.1 12 8.7 4.0 8.7 13 13.2 8.4 13.4 18 19.4 12.8 23.1

I

### Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

TABLE VI.4B.-SUMMARY OF REBUTTABLE PAYBACK PERIOD



### Product class Efficiency level ARI mean manufacturing cost I 

### Split System Central Air Conditioner

....................................................................................................................... 11 12 13 18 11 12 13 18 11 12 13 18 11 12 13 18 4.7 5.8 7.6 Split System Heat Pump

Single Package Air Conditioner

............................................................................................................................... 11.3 2.5 3.3 

### 4.5 6.8 7.3 6.2 9.8 Single Package Heat Pump

I 

### Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

D. 

### EconomicJustification

1. Economic Impact onManufacturers

a. 

### Background. We performed a ManufacturerImpactAnalysis (MIA) to estimate the impact ofhigherefficiency standards on air conditioner manufacturers. TheTSD explains the analysis in further detail. As part ofthe MIA, we discussed potential impacts with six major manufacturers responsible for approximately 90% 

### of the residential air conditionerand heat pump sales. We also interviewed two niche manufacturers to understand how their financial situation differs from that oftheir larger counterparts. These interviews are in additiontothosewe conducted as part ofthe Supplemental ANOPR. The interviews provided 13.3 3.7 4.0 6.5 7.2

valuable information used to evaluate the impacts ofa new standard on manufacturers' cash flows, manufacturing capacities and employmentlevels.

TheMIA hasboth quantitative and qualitative aspects. Quantitative analysis primarilyrelies onthe GRIM,

an industry cash flow model customized for this rulemaking. The GRIM inputs

## EE-RM/STD-98-440- ~F (

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59615

are assumptions regarding the industry and targets such price-sensitive industry average. We then assumed that
cost structure, shipments, and revenues. consumers as new home builders. This markups increase roughly linearly as the The key output is the industry net focus on lowprice limits the ability and efficiency level increases. This present value (INPV). Different sets of desire ofthese manufacturers to sell represents two effects: selling a greater assumptions (scenarios) produce premium equipment. Because they have fraction ofhigher margin premium different results as described below. a cost advantage over their competitors, product as efficiency level rises, and

In the GRIM we evaluated each ofthe the lower cost manufacturers can being able to secure a higher profit shipment scenarios, i.e., "NAECA", achieve a higher operating profit margin margin on products by virtue ofthe "Rollup", and "Shift". Changes in on their baseline equipment and still higher efficiency. efficiency mix by efficiency standard maintain a price advantage. They then To represent the industry in aggregate, level are a key driver ofmanufacturer apply a fairly consistent markup across we combined theresults ofthe two finances since costs and revenues are efficiency levels. both tied to shipments. The higher cost manufacturers GRIM versions, giving 25% weight to

Two cost scenarios, "Industry typically place more ofanemphasis on the results of the lower-operating-cost Relative Cost" and "Reverse- marketing, service, and research than do group and 75% weight to the results of Engineering Relative Cost", were also their lower cost competitors. Faced with the higher-operating-cost group. This examined. These relative costs are also stiffprice competition from the lower ratio reflects the prevalence ofeach used as the basis for deriving the cost manufacturers in price-sensitive strategy in the marketplace. Many production costs of equipment above markets, the higher cost manufacturers companies may pursue both strategies the minimum efficiency level. The are forced toreduce their price (and simultaneously through different brands "Reverse-Engineering Relative Cost" markup) on their baseline equipment to and divisions. scenario was applied only to the the minimum level sustainable. They b. IndustryCashFlowAnalysis "NAECA" product mix scenario in then target less price sensitive Results.Tables VI.5 through VI.7 order to determine the effects oflower customers by offering products with present the GRIM results for the unitary production costs on the MIA results. premium features and higher efficiency. air conditioning industry for the three

The equipment lifetime scenarios These products carry higher markups. shipment scenarios based on the assumptions, "18-year life" and "14- Since higher efficiency standards will industry provided mean cost multipliers year life", were considered. The "14- affect each group ofmanufacturers and an 18-year product life. The year life" assumption applied only to differently, we set up two versions of corporate discount rate used inthe the "NAECA" and "Industry Relative the GRIM to model each group analysis is 6.2% based on an estimate of Cost" scenarios to isolate the effects of independently. Torepresent the lower the weighted average cost ofcapital for

a shorter product life on the results. cost manufacturers, we reduced the the industry over a five-year period.

The interviews revealed that operating expense ratio and research Results assume that manufacturers with manufacturers use different pricing and development expense ratio to below lower operating costs control 25% ofthe strategies and place different levels of the industry averages. We also assumed market and those with higher operating emphasis on the sale ofhigher that a single markup applies to products costs control 75%. Since we did not efficiency products. Manufacturers fall across all efficiency levels. To model collect information regarding the cost or into two basic groups in this regard. The higher cost manufacturers, we raised the investments involved in manufacturing firstgroup has lower operating and operating expense ratio and research product at 18 SEER, we did not assess production costs than its competitors and development ratios to above the impacts under Max Tech.

TABLE VI.5.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR LIFE, NAECA EFFICIENCY MIX

Industry net Change in INPV from base Standard level present value case ($million) $million Percent

B

aseBase

............................................................................................................................................. 1,603

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

................................................................................................................................................... 1,566 (37) - 2 2

................................................................................................................................................... 1,417 (186)

- 12 3

................................................................................................................................................... 1,406 (197)

- 12 4

................................................................................................................................................... 1,420 (183)

- 11

TABLE VI.6.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR LIFE, ROLL-UP EFFICIENCY MIX

Industry net Change inINPV from base Standard level present value case ($million) million Percent

BaseBase

............................................................................................................................................. 1,603

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

................................................................................................................................................... 1,422 (181) -11 2

................................................................................................................................................... 1,241 (362)

- 23 3

................................................................................................................................................... 1,236 (367)

- 23 4

................................................................................................................................................... 1,268 (335) -2 1 -------**--------~---------** ---

# EE.RM/STD-9~.440 -

# #=~/)

# 0

Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59615

are assumptions regarding the industry cost structure, shipments, and revenues. Thekey outputis the industry net presentvalue (INPV). Different sets of assumptions (scenarios) produce differentresults as described below.

In the GRIM we evaluated each ofthe shipment scenarios, 

### i.e., "NAECA", "Rollup", and "Shift". Changes in efficiency mixby efficiency standard level are a key driver ofmanufacturer finances since costs and revenues are both tied to shipments.

Twocost scenarios, "Industry Relative Cost" and "ReverseEngineeringRelative Cost", were also examined. These relative costs are also used as thebasis for derivingthe production costs ofequipment above the minimumefficiency level. The "Reverse-EngineeringRelative Cost" scenario was applied onlyto the "NAECA" product mix scenario in orderto determine the effects oflower production costs onthe MIA results.

The equipmentlifetime scenarios assumptions, "18-year life" and "14- year life", were considered. The "14- year life" assumption applied only to the "NAECA" and "IndustryRelative Cost" scenarios to isolate the effects of

a shorterproduct life onthe results.

Theinterviewsrevealed that manufacturers use different pricing strategies and place different levels of emphasis on the sale ofhigher efficiency products. Manufacturers fall into two basicgroups in this regard. The first group has lower operating and production costs than its competitors and targets such price-sensitive

consumers as new home builders. This focus on low price limits the ability and desire ofthese manufacturers to sell premium equipment. Because they have

a cost advantage over their competitors, the lower cost manufacturers can achieve a higher operating profit margin

on theirbaseline equipment and still maintaina price advantage. They then apply a fairly consistent markup across efficiency levels.

Thehigher cost manufacturers typically place more ofanemphasis on marketing, service, and researchthan do their lower cost competitors. Faced with stiffprice competition from the lower costmanufacturers inprice-sensitive markets, the higher cost manufacturers

are forced to reduce their price (and markup) ontheirbaseline equipmentto the minimum level sustainable. They then target less price sensitive customers by offering products with premium features and higher efficiency. These products carry higher markups.

Since higher efficiency standards will affect each group ofmanufacturers differently, we setup two versions of the GRIM to model each group independently. To representthe lower cost manufacturers, wereduced the operating expenseratio andresearch and development expense ratio to below the industry averages. We also assumed that a single markup applies to products

across all efficiency levels. To model higher costmanufacturers, weraised the operating expense ratio andresearch and development ratios to above the industry average. We then assumed that markups increase roughly linearly as the efficiency level increases. This represents two effects: selling a greater fraction ofhigher margin premium product as efficiency level rises, and being able to secure a higher profit margin onproductsby virtue ofthe higher efficiency.

To represent the industryin aggregate,
we combinedtheresults ofthe two GRIM versions, giving 25% weight to theresults ofthe lower-operating-cost group and 75% weight to theresults of thehigher-operating-cost group. This ratioreflects the prevalence ofeach strategy inthe marketplace. Many companies may pursueboth strategies simultaneouslythrough different brands and divisions.



### b. Industry Cash FlowAnalysis Results. Tables VI.5 through VI.7 presentthe GRIM results for the unitary air conditioning industryfor the three shipment scenariosbased on the industryprovided mean cost multipliers and an 18-yearproductlife. The corporate discountrate used inthe analysis is 6.2% based on an estimate of the weighted average cost ofcapital for the industry over a five-year period. Results assumethatmanufacturers with lower operating costs control 25% ofthe market and those with higher operating costs control 75%. Since we did not collect information regarding the cost or investments involved inmanufacturing product at 18 

### SEER, we did notassess impacts underMax Tech.

TABLE VI.5.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR liFE, NAECA EFFICIENCY MIX

Standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

................................................................................................................................................... Industry net present value

($ million)

1,603 1,566 1,417 1,406 1,420 Change in INPV from base
case $ million

(37) (186) (197) (183) Percent

-2 -12 -12 -11

TABLE VI.6.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR liFE, ROLL-UP EFFICIENCY MIX

Standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

................................................................................................................................................... Industry net present value

($ million)

1,603 1,422 1,241 1,236 1,268 Change in INPV from base
case
$ million

(1B1) (362) (367) (335) Percent

-11 -23 -23 -21

## EE-RM/STD-98-440-or »

59616 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE V1.7.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR LIFE, SHIFT EFFICIENCY MIX

ndustry net Change inINPV from base Standard level present value ($million) $million Percent

B

ase

............................................................................................................................................. $ 1,603

........................ ........................ Base

....................................................................................... ...................... . .................................... 1,740 $137 1 .1 t,740 $137 9 2

................................................................................................................................................... 1,825 222 14 3

.................................... ..................................................................................................... 1,854 251 16 4 311 19................................................................................................................................................... 1,914 19

The NAECA and Roll-up scenarios increases, they earn lower profit high-efficiency equipment sales than do reduce INPV while the Shift scenario margins on that equipment. The loss in the NAECA and Rollup scenarios. increases INPV. This result occurs profits can be offset by the combination Tables VI.8 and VI.9 present the because we assume the higher-operating of more sales and more expensive results forthe 14-year life assumption cost manufacturers accrue much oftheir equipment. The Shift scenario provides and the Reverse Engineering Relative profits from the sale ofhigher efficiency a much more favorable projection of Cost scenario with the NAECA equipment. As the standard level Efficiency Mix scenario.

TABLE VI.8.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 14 YEAR LIFE, NAECA EFFICIENCY MIX
Industry net Change in INPV from base Standard level present value case ($million) million Percent

Base

............................................................................................................................................ $1,726 ........................

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

................................................................................................................................................... 1,701 $ (25) -1 2

................................................................................................................................................... 1,558 (168)

- 10 3

.................................................................................................................................................. 1,555 (171)

- 1 0 4

.................................................................................................................................................. 1,598 (128) - 7

TABLE VI.9.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, 18 YEAR LIFE, NAECA EFFICIENCY MIX

Industry net Change inINPV from base Standard level present value case ($million) $million Percent

Base

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

................................................................................................................................................... 1,509 $ (30) - 2 2

............................................................................................................................................ 1,380 (159) -10 3

................................................................................................................................................... 1,368 (171)

- 11 4

................................................................................................................................................... 1,370 (169)

- 11

Table VI.10 presents the differential the higher operating cost manufacturers the product increases, profits also impacts between the groups of benefit only under the Shift scenario, increase. The higher operating cost manufacturers with lower and higher The reason, again, is that we assume manufacturers, on the other hand, lose operating costs. The lower operating that lower operating cost manufacturers profits as the standard level rises and cost manufacturers benefit under all accrue the same profit margin regardless theproducts face pricing pressure from scenarios and trial standard levels, and ofthe efficiency level, so as the cost of the lower cost manufacturers.

TABLE VI.10.-CHANGE ININDUSTRY NET PRESENT VALUE (%) RELATIVE TO BASE-COMPARISON BETWEEN LOWER AND HIGHER COST MANUFACTURERS
Industry relative cost' Reverse engineering relative cost Standard level NAECA lifAECA Roll-up Shift NAECA

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher

cost cost cost cost cost cost cost cost cost cost

1

................................................... 5 -5 6 -4 3 -16 7 9 5 -4 2

................................................... 7 -17 9 -16 5 -31 12 14 7 -16

# EE-RM/STD-9~-440-#"~D 

# fa

59616 Federal Register/ Vol. 65
, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE VI.7.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 18 YEAR liFE, SHIFT EFFICIENCY MIX

Standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

...................................................................................................................................................

The NAECA and Roll-up scenarios reduce INPV whilethe Shift scenario increases INPV. This result occurs because we assume thehigher-operating
cost manufacturers accrue much oftheir profits from the sale ofhigher efficiency equipment. As the standard level increases, they earn lowerprofit margins on that equipment. The loss in profits canbe offsetby the combination ofmore sales and more expensive equipment. The Shift scenario provides

a much more favorable projection of Industry net present value

($ million)

$1,603

1,740 1,825 1,854 1,914 Change in INPV from base

case $ million

$137

222 251 311 Percent

9 14 16 19

high-efficiencyequipment sales than do the NAECA and Rollup scenarios.

Tables VI.S and VI.9 presentthe results for the 14-yearlife assumption and theReverse EngineeringRelative Cost scenario with the NAECA Efficiency Mix scenario.

TABLE VI.8.-CHANGES IN INDUSTRY NET PRESENT VALUE-INDUSTRY RELATIVE COST, 14 YEAR liFE, NAECA EFFICIENCY MIX

Standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

....................................................................................................................................;

.............. Industry net present value

($ million)

$1,726

1,701 1,558 1,555 1,598 Change in INPV from base

case $ million

$ (25)

(168) (171) (128) Percent

-1 -10 -10

-7

TABLE VI.9.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, 18 YEAR liFE, NAECA EFFICIENCY MIX

Standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

...................................................................................................................................................

Table VI.I0 presents the differential impacts between the groups of manufacturers with lower and higher operating costs. The lower operating cost manufacturers benefitunder all scenarios and trial standard levels, and the higher operating cost manufacturers benefit only underthe Shift scenario. The reason, again, is that we assume that lower operating cost manufacturers

accrue the same profit margin regardless ofthe efficiency level, so as the cost of Industry net present value

($ million)

$1,539

1,509 1,380 1,368 1,370 Change in INPV from base

case $ million

$ (30)

(159) (171) (169) Percent



### -2 -10 -11 -11

the product increases, profits also increase. Thehigher operating cost manufacturers, onthe otherhand, lose profits as the standard level rises and the products face pricingpressure from the lower cost manufacturers.

TABLE VI.10.-CHANGE IN INDUSTRY NET PRESENT VALUE (%) RELATIVE TO BASE-COMPARISON BETWEEN LOWER AND HIGHER COST MANUFACTURERS

Industry relative cost I Reverse engineerNAECA-14 year ing relative cost
Standard level NAECA life Roll-up Shift NAECA

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher cost cost cost cost cost cost cost cost cost cost

1



## ................................................... 5 -5 6 -4 3 -16 7 9 5 -4 2



## ................................................... 7 -17 9 -16 5 -31 12 14 7 -16

## EE-RM/STD-98-440-.Au 

# 4

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59617

TABLE VI.10.-CHANGE ININDUSTRY NET PRESENT VALUE (%) RELATIVE TO BASE-COMPARISON BETWEEN LOWER AND HIGHER COST MANUFACTURERS-Continued
Industry relative cost ' Reverse engineer- ing relative cost NAECA NAECA--14 year Roll-up Shift Standard level life NAECA

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher cost cost cost cost cost cost cost cost cost cost

3

................................................... 9 -19 11 -16 6 -32 14 16 8 -17 4

.................................................. 15 -19 19 -16 13 -31 21 19 12 -18

118-year lifetime unless otherwise noted.

For the group most negatively standard level for the NAECA and Roll- to exit the market or sell its assets rather impacted, i.e., thehigher cost group, up efficiency mix scenarios, for industry than to make the investments required' Table VI.11 presents the Return on relative costs and an 18-year lifetime. A to move to the new efficiency level. Invested Capital (ROIC) associated with reduction in ROIC increases the the base case, and with each new likelihood that the company will choose

TABLE VI.11.-RETURN ON INVESTED CAPITAL (ROIC) IN2011 FOR HIGHER COST MANUFACTURERS 

## ~Standard level NAECA Roll-up 

## ~~~~~Standard level (inpercent) (inpercent)

Base

......................................................................................................................................................................... 13.3 13.3 1

..................................................................................................................................................................... 12.3 10.7 2

............................................................................................................................................................................... 10 .2 8.4 3

.............................................................................................................................................................................. 10.0 8.3 4

.............................................................................................................................................................................. 9.6 8.3

Table VI.12 provides a summary of development and testing costs. Capital up to the effective date ofthe new the total investment required for each investments include new equipment, standard, larger investments equate to a trial standard level. Product conversion tooling, and floor space. Since these more serious strain on cash flows in the expenses include mostly product investments occur in the years leading near-term.

TABLE VI.12.-MANUFACTURER EXPENDITURES RELATED TO NEW EFFICIENCY STANDARDS (MILLION 1999 $)

Product con- con- Capital Total Trial standard level version ex- Capital Total investments investment penses
B

ase

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

................................................................................................................................................... $ 31 $ 54 $ 85. 1

............................... 31 54 85 2

....................................................................................................................................... . 93 109 202 3

................................................................................................................................ .... 110 138 248 4

................................................................................................................................................... 15 7 167 324

The TSD which accompanies today's production capacity constraints. Since the United States. Since more efficient proposed rule provides more details on new efficiency standards will increase conventional heat exchangers are also the MIA assumptions, methodology, the product's size and complexity, many larger, plants that now face capacity results, and conclusions, including the manufacturers will need to add constraints will be unable toproduce as assessments ofimpacts on lower volume additional capacity to accommodate the many heat exchangers as they can under equipment manufacturers and new products and retain their sales existing standards. Five of the six compressor manufacturers, which we volumes. It is possible that those manufacturers we interviewed estimate to be similar in proportion to companies will choose to add the new identified capacity constraints during the impacts described above. capacity outside ofthe United States. peak production periods.

c. Impactson Employment. This effect could keep domestic e. Impacton Lower Volume Manufacturers stated uniformly that employment levels flat or result in Manufacturers.Converting from a labor requirements track materials costs. employment loss ifcompanies choose to company's current basic product line Since a new standard will increase the shift current production to new facilities involves creating, testing, and moving a amount and cost ofmaterial in each in other countries. new design into production. These tasks product, labor requirements are d. ImpactsonManufacturing have associated capital investments. expected to rise proportionally. Capacity.It is likely that a central air Manufacturers of niche products and However, the industry has recently been conditioner and heat pump standard those who produce only coils and experiencing rapid growth in sales would increase central air conditioner fancoils, because oftheir need to spread volume and is now faced with and heat pump production capacity in these investments over smaller

# EE-RMISTD-9'~-4404cAD

# ~

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59617

TABLE VI.10.-CHANGE IN INDUSTRY NET PRESENT VALUE (%) RElATIVE TO BASE-COMPARISON BETWEEN LOWER AND HIGHER COST MANUFACTURERS-Continued


### Industry relative cost I 

### Reverse engineer- ing relative cost NAECA NAECA-14 year Roll-up Shift NAECA Standard level life

Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher cost cost cost cost cost cost cost cost cost cost

3

................................................... 

### 9 4

................................................... 15

1 

### 18-year lifetime unless otherwise noted.

For thegroup most negatively impacted, 

### i.e., thehighercost group, Table VI.11 

### presents the Return on Invested Capital (ROlC) associated with thebase case, and with each new -19 11 -16 6 -19 19 -16 13

standard level for the NAECA and Rollup efficiency mix scenarios, for industry relative costs and an la-yearlifetime. A reduction inROIC increases the likelihood thatthe company will choose -32 14 16 8 -17 

### -31 21 19 12 -18

to exitthe market or sell its assets rather thanto make the investments required' to move to the new efficiency level.

TABLE VI.11.-RETURN ON INVESTED CAPITAL (ROIC) IN 2011 FOR HIGHER COST MANUFACTURERS



### Standard level NAECA Roll-up (in percent) (in percent)

Base

......................................................................................................................................................................... 13.3 13.3 1

............................................................................................................................................................................... 

### 12.3 10.7 2

............................................................................................................................................................................... 

### 10.2 8.4 3

............................................................................................................................................................................... 

### 10.0 8.3 4

............................................................................................................................................................................... 

### 9.6 8.3

Table VI.12 

### provides a summary of the total investmentrequired for each trial standard level. Product conversion expenses include mostly product development and testing costs. Capital investments include new equipment, tooling, and floor space. Sincethese investments occur intheyears leading up to the effective date ofthe new standard, largerinvestments equate to a
more serious strain oncash flows inthe near-term.

TABLE VI.12.-MANUFACTURER EXPENDITURES RELATED TO NEW EFFICIENCY STANDARDS (MILLION 1999 $)



### Trial standard level

Base

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

................................................................................................................................................... 2

................................................................................................................................................... 3

................................................................................................................................................... 4

...................................................................................................................................................



### The TSD which accompanies today's proposedrule provides more details on the MIA assumptions, methodology, results, and conclusions, includingthe assessments ofimpacts onlower volume equipment manufacturers and compressormanufacturers, which we estimate to be similarinproportion to the impacts described above.



### c. Impacts on Employment. Manufacturers stated uniformly that laborrequirements track materials costs. Since a new standard will increase the amount and cost ofmaterial in each product, laborrequirements are expected to rise proportionally. However, the industryhas recentlybeen experiencing rapid growth in sales volume and is now faced with production capacity constraints. Since

new efficiency standardswill increase theproduct's size and complexity, many manufacturers will needto add additional capacity to accommodate the

newproducts andretain their sales volumes. It

### is possible thatthose companies will choose to add the new capacity outside ofthe United States. This effect could keep domestic employment levels flat orresult in employment loss ifcompanies choose to shift currentproductionto new facilities in other countries.



### d. Impacts on Manufacturing Capacity. It

### is likely that a central air conditioner andheatpump standard would increase central air conditioner and heat pump production capacity in Product con- version ex-

penses

$ 

### 31

93 110 

### 157 Capital investments

$ 

### 54

109 138 167 Total investment

$ 

### 85

202 248 

### 324

the United States. Since more efficient conventional heat exchangers are also larger, plants that now face capacity constraints will be unable to produce as many heat exchangers as they canunder existing standards. Five ofthe six manufacturers we interviewed identified capacity constraints during peakproductionperiods.



### e. Impact on Lower Volume Manufacturers. Converting from a company's currentbasic product line involves creating, testing, and moving a
new design into production. These tasks have associated capital investments. Manufacturers ofniche products and those who produce only coils and fancoils, because oftheirneed to spread these investments over smaller

### EE-RM/STD-98-440

- 

## : -- b

59618 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

production volumes, maybe affected 2. Life-Cycle Cost consumers that would incur an LCC

more negatively than major More efficient central air conditioners increase were considered to be manufacturers by an increase in M o re e n t c e n tr a l a lr adversely impacted by an increase in efficiency standards. This is particularly and heatpumps would affect consumers the standard. This included even true for those manufacturers that in two ways: Annual operating expense consumers that would incur a relatively compete head-to-head with major would decrease and purchase price small LCCincrease e.g., as small as $10, manufacturers in some product lines, would increase. We analyzed the net a compared to a relatively large and less true for coil-only effect by calculating the LCC. Inputs aseline level total LCC. Note that the manufacturers. These results occur required for calculating LCC include baseline LCC is approximately $5,000 separately from any technical total installed costs (i.e., equipment basfor central air conditioners andly $510,000 considerations related to the price plus installation costs), annual fo central air conditioners and $0,000 manufacturer's ability to modify its energy savings, average and marginal for heat pumps.) products to bring them into compliance electricity rates, electricity price trends, The revised analysis defines negative with a new standard. Technical repair costs, maintenance costs, impacts by including in this category considerations are typically more equipment lifetime, and discount rates. only those consumers which incur LCC important for niche manufacturers than The output ofthe LCC model is a increases greater than 2% ofthe for major manufacturers and have more mean LCC savings for each product baseline LCC. For central air

severe consequences related to class as well as a probability conditioners, this translates to an LCC increased production costs or loss of distribution or likelihood ofLCC increase ofapproximately $100 or an sales volume due to increased price. reduction or increase. The LCC analysis annual expense ofapproximately $5 Overall, if provisions are made in the for today's proposed rule introduces a over the lifetime ofthe system. Table standard for niche products that face new concept with regard to the VI.13 summarizes the baseline LCCs for

severe technological constraints, we percentage ofconsumers (both split system and single package central would not expect the impacts on lower- residential and commercial) that are air conditioners and heat pumps and volume manufacturers as a group to be negatively impacted by an increase in also provides the 2% threshold at which disproportionate with those ofthe the minimum efficiency standard. (For consumers are considered to be industry as a whole, the Supplemental ANOPR, all adversely impacted.

TABLE VI.13.-BASELINE LIFE-CYCLE COSTS AND THRESHOLD FOR ADVERSE IMPACTS

Threshold for Product class Baseline life- adverse im- cycle cost pacts: 2% of Baseline LCC Split Air Conditioners ............................................................................................................................................... $5,170 $103 Split Heat Pum ps

.................................................................................................................................................... 9,679 194 Single Package Air Conditioners

............................................................................................................................. 5,629 113 Single Package Heat Pumps

....................................................... ............................. 9,626 193

Table VI.14 depicts the LCC results Table VI.14 also provides for each savings greater than 2% ofthe baseline for split system and single package product class the difference in LCC at LCC), consumers who are impacted in central air conditioners and heat pumps. each efficiency level relative to the an insignificant manner by having either The table shows the average LCC values baseline. The differences represent a small reduction or small increase in for the baseline and each Trial Standard either an LCC savings or an LCC cost LCC (i.e., within ±2% ofthe baseline Level. Since manufacturer cost data increase. In addition, the table shows LCC), or consumers who achieve a
were not available for the 18 SEER the subset ofconsumers (both significant net LCC increase (i.e., an LCC efficiency levels, 15 SEER cost data residential and commercial) at each increase exceeding 2% of the baseline

were used for all 18 SEER calculations efficiency level who are impacted in one LCC). resulting in 18 SEER LCC results which of three ways: Consumers who achieve underestimate their true cost level. significant net LCC savings (i.e., LCC

TABLE VI.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COSTS AND A 18.4 YEAR AVERAGE LIFETIME
PfAverage ILCC Percent of consumers with Product class Efficiency Average (sns) level ALCC (ag) Net savings No signifi- Net costs costs (>2%) cant impact (>2%)
Split System Central Air Conditioner

............................. 10 $5,170 ......................

.................... .................... .................... 11 5,126 ($44) 23 68 9 12 5,125 (45) 27 34 39 13 5,199 29 25 17 58 18 5,725 555 15 4 81 Split System Heat Pump

................................................ 10 9,679

...................... .................... .................... ................... 11 9,529 (150) 30 70 0 12 9,437 (242) 42 55 3 13 9,464 (215) 39 39 22 18 9,955 276 23 11 66 

### 59618 Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

production volumes, maybe affected

more negatively than major manufacturersby an increase in efficiency standards. This is particularly true for those manufacturers that compete head-to-head with major manufacturers in someproductlines, and less true for coil-only manufacturers. Theseresults occur separately from anytechnical considerationsrelated to the manufacturer's ability to modify its products to bring them into compliance with a new standard. Technical considerations are typically more important for niche manufacturers than for major manufacturers and have more
severe consequences related to increased productioncosts orloss of sales volume due to increased price. Overall, ifprovisions are made inthe standard for niche productsthat face

severe technological constraints, we would not expect the impacts on lowervolume manufacturers as a group to be disproportionate with those ofthe industry as a whole. 2. Life-Cycle Cost

More efficient central air conditioners and heatpumps would affect consumers in two ways: Annual operating expense would decrease and purchaseprice would increase. We analyzed the net effect by calculating the LCC. Inputs required for calculatingLCC include total installed costs (j.e., equipment priceplusinstallationcosts), annual energy savings, average and marginal electricity rates, electricity price trends, repaircosts, maintenance costs, equipmentlifetime, and discountrates.

The output ofthe LCC model is a
mean LCC savings for eachproduct class as well as a probability distribution orlikelihood ofLCC reduction or increase. TheLCC analysis for today's proposed rule introduces a
new conceptwithregard to the percentage ofconsumers (both residential and commercial) that are negatively impactedby an increase in the minimum efficiency standard. (For the SupplementalANOPR, all consumers that would incur an LCC increase were considered tobe adversely impactedby an increase in the standard. This included even
consumers that would incur a relatively small LCC increase 

### e.g., as small as $10,

as compared to a relatively large baseline level total LCC. Note that the baseline LCC is approximately $5,000 for central air conditioners and $10,000 for heatpumps.)

Therevised analysis defines negative impacts by including in this category onlythose consumerswhichincurLCe increases greater than 2% ofthe baseline LCC. Forcentral air conditioners, this translates to an LCC increase ofapproximately $100 or an annual expense ofapproximately $5

overthe lifetime ofthe system. Table VI.13 

### summarizes thebaseline LCCs for split system and single package central air conditioners and heatpumps and also provides the 2% threshold at which

consumers are consideredtobe adversely impacted.

TABLE VI.13.-BASELINE liFE-CYCLE COSTS AND THRESHOLD FOR ADVERSE IMPACTS



### Product class Baseline lifecycle cost Threshold for adverse impacts: 2% 

### of Baseline LCC Split Air Conditioners

............................................................................................................................................... $5,170 9,679 5,629 9,626 $103 194 113 193 

### Split Heat Pumps

..................................................................................................................................................... Single Package Air Conditioners

............................................................................................................................, Single Package Heat Pumps

...................................................................................................................................

Table VI.14 

### depictsthe LCC results for split system and single package central airconditioners and heat pumps. The table shows the average LCC values for the baseline and each Trial Standard Level. Since manufacturer cost data

were not available for the 18 SEER efficiency levels, 15 SEER cost data

wereused for all 18 SEER calculations resulting in 18 SEER LCC results which underestimate theirtrue cost level. Table VI.14 

### also provides for each product classthe difference inLCC at each efficiency level relative to the baseline. The differences represent either an LCC savings or an LCC cost increase. In addition, the table shows the subset ofconsumers (both residential and commercial) at each efficiency level who are impacted in one ofthree ways: Consumers who achieve significant netLCC savings (j.e., 

### LCC savings greaterthan 2% ofthebaseline LCC), consumers who are impacted in

an insignificant mannerby having either

a smallreduction or small increase in LCC (i.e., 

### within

### ±2% 

### ofthe baseline LeC), or consumers who achieve a significant net Leeincrease (i.e., 

### an Lee increase exceeding 2% ofthe baseline LCC).

TABLE VI.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COSTS AND A 18.4 YEAR AVERAGE liFETIME



### Average LCe Percent of consumers with Efficiency Average Product class level Lee (savings) Net savings No signili- Net costs costs (>2%) 

### cant impact (>2%) 

### Split System Central Air Conditioner

............................. 10 $5,170



## ...................... .................... .................... . ................... 11 5,126 ($44) 23 68 9 12 5,125 (45) 27 34 39 13 5,199 29 25 17 58 18 5,725 555 15 4 81 

### Split System Heat Pump

................................................ 10 9,679



## ...................... .................... .................... . ................... 11 9,529 (150) 30 70 0 12 9,437 (242) 42 55 3 13 9,464 (215) 39 39 22 18 9,955 276 23 11 66

## -,,.··~~~ ~EE-RM/STD-98-440-. 

## 7 0

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59619

TABLE VI.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COSTS AND A 18.4 YEAR AVERAGE LIFETIME--Continued

Avera Average LCC Percent of consumers with ProductclsEfficiency AAverage LCC Product class Eliienc LCC (savigs) Net savings No signifi- Net costs (>2%) cant impact (>2°/0)
Single Package Air Conditioner

..................................... 10 5,629 .....................

.................... .................... .................... 11 5,649 20 16 47 37 12 5,600 (29) 26 30 44 13 5,804 175 18 11 71 18 6,370 741 12 4 84 Single Package Heat Pump

........................................ 10 9,626

...................... .................... .................... .................... 11 9,492 (134) 28 72 0 12 9,372 (254) 44 49 7 13 9,514 (112) 33 31 36 18 9,922 296 24 10 66

As discussed previously for the (reverse engineering) and system results for the manufacturer cost presentation of energy savings and lifetime (retirement function with 14 scenario while Table VI.16 presents the payback period results, we have year average lifetime without results for the lifetime scenario. investigated two scenarios where lower compressor replacement costs) were estimates ofthe manufacturer costs analyzed. Table VI.15 presents the

TABLE VI.15.-SUMMARY OF LCC RESULTS BASED ON REVERSE ENGINEERING MANUFACTURER COSTS

Average LC Percent of consumers with Product class level LCC (savings) Net savings No signifi- Net costs costs (>2%) cant impact (>2%)
Split System Central Air Conditioner

............................. 10 $5,170

..................... ................. .................... .................... 11 5,095 ($75) 28 70 2 12 5,057 (113) 35 40 25 13 5,057 (113) 34 27 39 18 5,307 137 25 7 68 Split System Heat Pump

................................................ 10 9,679

...................... .................. .................... .................... 11 9,470 (209) 40 60 0 12 9,314 (365) 58 42 0 13 9,307 (372) 52 42 6 18 9,720 41 28 15 57 Single Package Air Conditioner

..................................... 10 5,629

...................... ................... .................... .................... 11 5,551 (78) 27 72 1 12 5,466 (163) 40 51 9 13 5,600 (29) 28 20 52 18 5,905 276 21 6 73 Single Package Heat Pump

........................................... 10 9,626

................... .................... ................... .................... 11 9,419 (207) 39 61 0 12 9,205 (421) 66 34 0 13 9,273 (353) 50 38 12 18 9,460 (166) 37 15 48

TABLE VI.16.--SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COST AND 14-YEAR AVERAGE LIFETIME

Average Percent of consumers with Product class Efficiency Average LCC (sav- level LCC ings) costs Net savings No signifi- Net costs (in dollars) (>2%) cant impact (>2/%)
Split System Central Air Conditioner

............................... 10 $4,682

.................... .................... .................... ................... 11 4,650 $(32) 22 69 9 12 4,672 (10) 24 31 45 13 4,769 87 21 15 64 18 5,336 654 12 3 85 Split System Heat Pump

.................................................. 10 8,747

.................... .................... .................... ................... 11 8,623 (124) 27 73 0 12 8,587 (160) 35 58 7 13 8,630 (117) 33 37 30 18 9,184 437 18 9 73 Single Package Air Conditioner

....................................... 10 5,150

.................... .................... .................... ................... 11 5,182 32 14 46 40

# EE.RM/STD-9~-440-1F0\0 

# b

Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59619

TABLE VI.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COSTS AND A 18.4 YEAR AVERAGE LlFETIM E-Continued

Average LCC Percent of consumers with Efficiency Average Product class level LCC (savings) Net savings No signifi- Net costs costs (>2%) cant impact (>2%)
Single Package Air Conditioner

..................................... 10 5,629



## ...................... .................... .................... .................... 11 5,649 20 16 47 37 12 5,600 (29) 26 30 44 13 5,804 175 18 11 71 18 6,370 741 12 4 84 Single Package Heat Pump

........................................... 10 9,626



## ...................... .................... . ................... .................... 11 9,492 (134) 28 72 0 12 9,372 (254) 44 49 7 13 9,514 (112) 33 31 36 18 9,922 296 24 10 66



### As discussed previously for the presentation ofenergy savings and paybackperiod results, wehave investigated two scenarios where lower estimates ofthe manufacturercosts (reverse engineering) and system lifetime (retirementfunction with 14 year average lifetimewithout compressorreplacement costs) were analyzed. Table VI.1S presents the results for the manufacturer cost scenariowhileTable VI.16 presentsthe results for the lifetime scenario.

TABLE VI.15.-SUMMARY OF LCC RESULTS BASED ON REVERSE ENGINEERING MANUFACTURER COSTS

Average LCC Percent of consumers with Efficiency Average Product class level LCC (savings) Net savings No signili- Net costs costs (>2%) cant impact (>2%)
Split System Central Air Conditioner

............................. 10 $5,170



## ...................... .................... .................... .

### ................... 11 5,095 ($75) 2B 70 2 12 5,057 (113) 35 40 25 13 5,057 (113) 34 27 39 18 5,307 137 25 7 68 Split System Heat Pump

................................................ 10 9,679



## ...................... .................... .................... .................... 11 9,470 (209) 40 60 0 12 9,314 (365) 58 42 0 13 9,307 (372) 52 42 6 18 9,720 41 28 15 57 Single Package Air Conditioner

..................................... 10 5,629



## ...................... .................... .................... ..

### .................. 11 5,551 (78) 27 72 1 12 5,466 (163) 40 51 9 13 5,600 (29) 28 20 52 18 5,905 276 21 6 73 Single Package Heat Pump

........................................... 10 9,626



## ...................... .................... 

### .................... 

## . ................... 11 9,419 (207) 39 61 0 12 9,205 (421) 66 34 0 13 9,273 (353) 50 38 12 1B 9,460 (166) 37 15 48

TABLE VI.16.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COST AND 14-YEAR AVERAGE
LIFETIME

Average Percent of consumers with Product class Efficiency Average LCC (savlevel LCC ings) costs Net savings No signifi- Net costs (in dollars) (>2%) cant impact (>2%)
Split System Central Air Conditioner

............................... 10 $4,682



### .................... .................... .................... 

## . ................... 11 4,650 $(32) 22 69 9 12 4,672 (10) 24 31 45 13 4,769 87 21 15 64 18 5,336 654 12 3 85 Split System Heat Pump

.................................................. 10 8,747



### .................... .................... .................... 

## . ................... 11 B,623 (124) 27 73 0 12 8,5B7 (160) 35 58 7 13 8,630 (117) 33 37 30 18 9,184 437 18 9 73 Single Package Air Conditioner

....................................... 10 5,150



## .................... .................... . ................... 

# . ................... 11 5,182 32 14 46 40

## EE-RM/STD-98-440-'# O &A

59620 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE VI.16.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COST AND 14-YEAR AVERAGE LIFETIME
Average Percent of consumers with Product class Efficiency Average LCC (sav- level LCC ings) costs Net savings No signifi- Net costs (indollars) (>2%) cant impact (>2%)

12 5,157 7 22 29 49 13 5,378 228 14 10 76 18 6,011 861 9 3 88 Single Package Heat Pump

............................................. 10 8,747

.................... .................... .................... .................... 11 8,623 (124) 27 73 0 12 8,587 (160) 35 58 7 13 8,630 (117) 33 37 30 18 9,184 437 18 9 73

3. Net Present Value and Net National projections; (2) equipment efficiency standards were assumed to take effect: Employment distributions; (3) manufacturer cost (1)NAECA scenario, (2) Roll-up estimates; (4) equipment lifetime; and scenario, and (3) Shift scenario. The net present value analysis is a (5) societal discount rate. Electricity Manufacturer costs were based on ARI

measure of the cumulative benefit or price and housing projections were mean cost estimates. Equipment lifetime cost to the Nation of standards. As with based on three different AEO 2000 was assumed to be 18.4 years, coupled the determination ofnational energy forecasts: (1)Reference Case, (2) High with the inclusion ofcompressor savings, five different scenarios were Growth Case, and (3)Low Growth Case. replacement costs. A societal discount analyzed for each trial standard level Three efficiency scenarios were rate of7was assumed. The range of consisting ofvariations on: (1) analyzed which forecast the equipment NPVs are reported in Table VI.17. Electricity price and housing efficiency distribution after new

TABLE VI.17.-NET PRESENT VALUE VARIATION WITH ELECTRICITY PRICE AND HOUSING PROJECTIONS

Net present value for units sold from 2006 to 2030 Trial standard level (billion 98$)' NAECA Roll-up Shift

1

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

......................................... to-1. 2 ....................................................................- 1

....................................... 0to

................................. -3 to -4

. 3

....................................................................................... -1 to-2 ............................. to

- 1

............................... -5. 4 ..........................................................................- 5 to -6

............................. -4

....................................... -10. 5

...................................................................................... -22

..................................... -22

..................................... -22.
Based on ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7% discount rate.

In order to show the significance of central air-conditioning and heat pump for the base case and each Trial the NPVs in Table V.17 to the various equipment under the base case (i.e., in Standard Level. In addition, the NPV input assumptions, Tables VI.18 the absence of new efficiency (the difference in total costs between the through VI.21 report the range ofNPV standards). The results in Table VI.18 base case and trial standard level), as results for a range of assumptions and are based on the AEO 2000 Reference well as the NPV as a percentage ofthe scenarios relative tothe total national Case forecast ofelectricity prices and "Base Case Total Costs," are calculated equipment and operating costs for all housing. The total costs are presented for each trial standard level.

TABLE VI.18.-NET PRESENT VALUES RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS

Efficiency scenario

Base case NAECA Roll-up Shift TSL itotal coNPV NPV NPV (billn Total costs Total costs Total costs -98) (billion (billion as percent (billion as percent (billion as percent 98$)

. .... 98) of base 98$) 9 (b of ofbase 98$) (bl of.base casetotal case total 98$) case total

1

............................................ 381 381 0 0.0 381 1 0.2 385 0 -0.1 2

............................................ 381 382 -1 -0.3 381 0 0.0 388 -3 -0.9 3

............................................ 381 383 -2 -0.5 382 -1 -0.2 390 -5 -1.4 4

............................................ 381 387 -5 -1.4 386 -4 -1.1 395 -10 -2.5 5

............................................ 381 403 -22 -5.8 403 -22 -5.8 407 -22 -5.8 Based on AEO 2000 Reference Case, ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7%discount rate. Values rounded to the nearest $1billion.

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59620 Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE VI.16.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURER COST AND 14-YEAR AVERAGE LIFETIME
Average Percent of consumers with Product class Efficiency Average LCC (savNo signifi- level LCC ings) costs Net savings Net costs (in dollars) (>2%) cant impact (>2%)

12 5,157 7 22 29 49 13 5,378 228 14 10 76 18 6,011 861 9 3 88 Single Package Heat Pump

............................................. 10 8,747



## .................... .................... . ................... ....................

3. NetPresentValue andNetNational Employment

The net present value analysis is a
measure ofthe cumulativebenefit or costto the Nation ofstandards. As with the determination ofnational energy savings, five different scenarios were analyzed for each trial standard level consisting ofvariations on: (1) Electricity price andhousing 11 8,623 12 8,587 13 8,630 18 9,184

projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipmentlifetime; and (5) societal discount rate. Electricity price and housing projections were based on three different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency distribution after new (124) 27 73 0 (160) 35 58 7 (117) 33 37 30

437 18 9 73

standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturer costs were based on ARI

mean cost estimates. Equipmentlifetime

was assumed tobe 18.4 years, coupled with the inclusion ofcompressor replacementcosts. A societal discount rate of7 was assumed. The range of NPVs are reported in Table V1.17.

TABLE VI.17.-NET PRESENT VALUE VARIATION WITH ELECTRICITY PRICE AND HOUSING PROJECTIONS

Trial standard level NAECANet present value for units sold from 2006 to 2030 (billion 98$) 1 Roll-up

1

....................................................................................... 0

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

......................................... 0 to -1. 2

....................................................................................... -1

....................................... 0 to 1

................................. -3to 

### -4. 3

....................................................................................... -1 to -2

............................. 0 to -1

............................... -5. 4

....................................................................................... -5 to -6

............................. 

### -4....................................... -10. 5

........................ ............................................................... -22

..................................... -22..

................................... -22.

I Based on ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a 7% discount rate. Shift

In orderto showthe significance of the NPVs in Table V.17 tothe various input assumptions, Tables VI.18 throughVI.21 reportthe range ofNPV results for a range ofassumptions and scenarios relative to the total national equipment and operating costs for all central air-conditioning and heat pump equipmentunderthe base case (Le., in the absence ofnew efficiency standards). The results inTable VI.18

arebased onthe AEO 2000 Reference Case forecast ofelectricity prices and housing. The total costs are presented for the base case and each Trial Standard Level. In addition, the NPV (the difference in total costs betweenthe base case and trial standard level), as well as the NPV as a percentage ofthe "Base Case Total Costs," are calculated for eachtrial standard level.

TABLE VI.18.-NET PRESENT VALUES RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS 1

Efficiency scenario

Base case NAECA Roll-up Shift

TSL total costs NPV NPV NPV (billion Total costs Total costs Total costs 98$) (billion as percent (billion as**~ercent** (billion as percent 98$) (billion of base 98$) (billion o base 98$) (billion of base 98$) case total 98$) case total 98$) case total

1

............................................ 381 381 0 0.0 381 1 0.2 385 0 -0.1 2

............................................ 381 382 -1 -0.3 381 0 0.0 388 -3 -0.9 3

............................................ 381 383 -2 -0.5 382 -1 -0.2 390 -5 -1.4 4

............................................ 381 387 -5 -1.4 386 -4 -1.1 395 -10 -2.5 5

............................................ 381 403 -22 -5.8 403 -22 -5.8 407 -22 -5.8

I Based on AEO 2000 Reference Case. ARI mean manufacturer costs. 18.4-year retirement function with compressor replacement. and a 7% discount rate. Values rounded to the nearest $1 billion.

## EE-RM/STD-98-440 l :: 

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59621

Tables VI.19 through VI.21 show how and 3% discount rate, 7 impact the net efficiency scenario and the AEO the three scenarios, i.e., reverse present value. The three scenarios were Reference Case electricity price and engineering costs, 14-year average life, investigated only for theNAECA housing projection.

TABLE V.19.-NET PRESENT VALUES RESULTS BASED ON REVERSE ENGINEERING MANUFACTURER COSTS

Trial standard level Base case Trial standard level total costs Total cost Net present As percent of (billion 985$) /hnTal value base case (billion

98 (billion 98$) (billion 98$) total costs

1

........ ............................................................................ 379 378 2 0.4 2

........ ............................................................................ 379 377 2 0.5 3

........ ............................................................................ 379 378 1 0.4 4

...................................................................... 379 379 0 0.0 5

....................................................... .................................................... 379 390 -10 -2.7

IBased on AEO 2000 Reference Case, NAECA efficiency scenario, 18.4-year retirement function with compressor replacement, and a 7% discount rate. Values rounded to the nearest $1billion.

TABLE V1.20.-NET PRESENT VALUES RESULTS BASED ON 14-YEAR AVERAGE LIFETIME'

Trial standard level Base case Trial standard level total costs Tt Net present As percent of Total cost (billion 98$) b value base case (i $ (billion 98$) oac(billion 98$) total costs

1

....................................................................................................................... 363 364 0 0.0 2

........ ............................................................................ 363 365 -2 -0.5 3

........ ............................................................................ 363 366 -3 -0.8 4

...................................................................... 363 370 -7 -1.9 5

........................................ I

.......................... 363 389 -25 -6.9
IBased on AEO 2000 Reference Case, NAECA efficiency scenrio, ARI mean manufacturer costs, and a 7% discount rate. Values rounded to the nearest $1billion.

TABLE VI.21.-NET PRESENT VALUES RESULTS BASED ON 3% DISCOUNT RATE

Trial standard level Base case Trial standard level total costs Total ct Net present As percent of (billion 98$) a value base case (" billion 98$) (billion 98$) totalcosts

1

....................................................................................................................... 712 708 3 0.5 2

........ ............................................................................ 712 708 4 0.5 3

........ ............................................................................ 712 708 3 0.4 4

........ ............................................................................ 712 714 -3 -0.4 5

........................................................... 712 746 -35 -4.9

IBased on AEO 2000 Reference Case, NAECA efficiency scenario, ARI mean manufacturer costs, and 18.4-year retirement function with compressor replacement. Values rounded to the nearest $1 billion.

The Department committed in its One method to assess the possible economy. There are many reasons for 1996 Process Improvement Rule to effects on the demand for labor of such these differences, including the capitaldevelop estimates ofthe employment shifts in economic activity is to compare intensity ofthe utility sector and wage impacts ofproposed standards in the sectoral employment statistics differences. economy in general. 61 FR 36983. developed by the Labor Department's In developing this proposed rule, the

As discussed above, energy efficiency Bureau of Labor Statistics (BLS). The Department attempted a more precise standards for central air conditioners BLS regularly publishes its estimates of analysis ofthe impacts on national labor andheat pumps are expected to reduce the number ofjobs per million dollars demand using an input/output model of electricity bills for residential and of economic activity in different sectors theU.S. economy. The model commercial consumers. The resulting of economic a y different sectors characterizes the interconnections net savings are expected to be redirected of the economy, as well as thejobs among 35 economic sectors using the to other forms of economic activity. created elsewhere in the economy by data from the Bureau ofLabor Statistics. These shifts in spending and economic this same economic activity. BLS data Since the electric utility sector is more activity are expected to affect the indicate that expenditures in the electric capital-intensive and less labordemand for labor, but there is no sector generally are associated with intensive than other sectors (see Bureau generally accepted method for fewer jobs (both directly and indirectly) of Economic Analysis, Regional estimating these effects, than expenditures in other sectors ofthe Multipliers: A User Handbook for the

'7 A societal discount rate of3% value was Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures of Costs and investigated as a scenario in accordance with the Benefits and the Format ofAccounting Statements.



### .-'

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59621

Tables VU9 through V1.21 

### showhow the three scenarios, i.e., 

### reverse engineering costs, 14-year average life, and 3% discount rate,17 impact the net present value. The three scenarios were investigated only for the NAECA efficiency scenario and the AEO Reference Case electricity price and housing projection.

TABLE V.19.-NET PRESENT VALUES RESULTS BASED ON REVERSE ENGINEERING MANUFACTURER COSTS 1

Trial standard level Base case Trial standard level total costs Total cost Net present As percent of (billion 98$) (billion 98$) value base case (billion 98$) total costs

1

....................................................................................................................... 379 378 2 0.4 2

....................................................................................................................... 379 3n 2 0.5 3

....................................................................................................................... 379 378 1 0.4 4

....................................................................................................................... 379 379 0 0.0 5

....................................................................................................................... 379 390 -10 -2.7

I Based on AEO 2000 Reference Case, NAECA efficiency scenario, 18.4-year retirement function with compressor replacement, and a 7% discount rate. Values rounded to the nearest $1 billion.

TABLE V1.20.-NET PRESENT VALUES RESULTS BASED ON 14-YEAR AVERAGE LIFETIME 1

Trial standard level Base case Trial standard level total costs Total cost Net present As percent of (billion 98$) (billion 98$) value base case (billion 98$) total costs

1

....................................................................................................................... 363 364 0 0.0 2

....................................................................................................................... 363 365 -2 -0.5 3

....................................................................................................................... 363 366 -3 -0.8 4

....................................................................................................................... 363 370 -7 -1.9 5

....................................................................................................................... 363 389 -25 -6.9

I Based on AEO 2000 Reference Case, NAECA efficiency scenrio, ARI mean manufacturer costs, and a 7% discount rate. Values rounded to the nearest $1 billion.

TABLE VI.21.-NET PRESENT VALUES RESULTS BASED ON 3% DISCOUNT RATE 1

Trial standard level Base case Trial standard level total costs Total cost Net present As percent of (billion 98$) (billion 98$) value base case (billion 98$) total costs

1

....................................................................................................................... 712 708 3 0.5 2

....................................................................................................................... 712 708 4 0.5 3

....................................................................................................................... 712 708 3 0.4 4

....................................................................................................................... 712 714 -3 -0.4 5

....................................................................................................................... 712 746 -35 -4.9

I Based on AEO 2000 Reference Case, NAECA efficiency scenario, ARI mean manufacturer costs, and 18.4-year retirement function with compressor replacement. Values rounded to the nearest $1 billion.



### The Department committed in its 1996 Process Improvement Rule to develop estimates ofthe employment impacts ofproposed standards inthe economy in general. 61 FR 36983.

As discussed above, energy efficiency standards for central air conditioners and heat pumps are expectedtoreduce electricitybills for residential and commercial consumers. The resulting net savings are expected to be redirected to other forms ofeconomic activity. These shifts in spendingand economic activity are expected to affect the demand for labor. butthere is no generally accepted method for estimatingthese effects.

17A societal discount rate of3% value was investigated as a scenario in accordance with the 

### One method to assess the possible effllcts on the demand for labor ofsuch shifts in economic activity is to compare sectoral employment statistics developedbythe LaborDepartment's Bureau ofLabor Statistics (BLS). The BLS regularlypublishes its estimates of the number ofjobs permillion dollars ofIlconomic activity in different sectors ofthe economy, as well as thejobs created elsewhere inthe economyby this same economic activity. BLS data indicate thatexpenditures inthe electric sector generally are associated with fewerjobs (both directly and indirectly) than expenditures in other sectors ofthe

Office ofManagement and Budget's (OMB) 

### economy. There are many reasons for these differences, including the capitalintensity ofthe utility sector and wage differences.

In developing this proposed rule, the Department attempted a more precise analysis oftheimpacts onnational labor demand using an input/outputmodel of the U.S. economy. The model characterizes the interconnections among 35 economic sectors using the data from the Bureau ofLabor Statistics. Since the electric utility sectoris more capital-intensive and less laborintensivethan other sectors (see Bureau ofEconomic Analysis. Regional Multipliers: A User Handbook for the

Guidelines to Standardize Measures ofCosts and Benefits and the Format ofAccounting Statements.

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59622 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

Regional Input-Output Modeling System * The net benefits from potential later than 60 days after the publication (RIMS II), Washington, D.C., U.S. employment changes are a result ofthe ofa proposed rule, together with an Department of Commerce, 1992), a shift estimated net present value ofbenefits analysis ofthe nature and extent of such in spending away from energy bills into or losses likely to result from the impact. EPCA section 325(o)(2)(B)(i)(V) other sectors would be expected to proposed standards. It may not be and (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V) increase overall employment. But for appropriate to separately identify and and (B)(ii). this analysis, since the increased consider any employment impacts In order to assist the Attorney General manufacturing costs to the nation of beyond the calculation ofnet present in making such a determination, the meeting a new efficiency standard are value. Department has provided the relatively large, there is an overall Taking into consideration these Department ofJustice (DOJ) with copies decrease in national employment. The concerns regarding the interpretation ofthis notice and the TSD for review. results of the Department's analysis are and use of the employment impacts At DOE's request, the DO) reviewed the shown in Chapter 12 ofthe TSD. analysis, the Department concludes only manufacturer impact analysis interview

While this input/output model that the proposed central air conditioner questionnaire to ensure that it would suggests the proposed central air and heat pump standards are likely to provide insight concerning any conditioner and heat pump standards result in no appreciablejob losses to the lessening ofcompetition due to any

are likely to decrease the net demand for nation. proposed trial standard levels. labor in the economy, the losses would Public comments are solicited on the 6. Need ofthe Nation to Save Energy most likely be very small relative to validity ofthe analytical methods used total national employment. For several and the appropriate interpretation and Enhanced energy efficiency improves
reasons, however, even these modest use of the results ofthis analysis. the nation's energy security, and losses are in doubt: 4 Ipact on Utility or Performance of reduces the environmental impacts of losses are in

doubt 4. Impact on Utility or Performance of energy production. Improved efficiency * Unemployment is now at the lowest Products of central air conditioners and heat rate in 30 years. Ifunemployment As detailed in Section V, in pumps is also likely to improve the remains very low during the period establishing classes ofproducts we have reliability ofthe nation's electric when the proposed standards are put tried to eliminate any degradation of system. The energy savings from central into effect, it is unlikely that the utility or performance in the products air conditioner and heat pump standards alone could result in any net under consideration in this rulemaking. standards result in reduced emissions of decrease in national employment levels. carbon and NOx. Cumulative emissions

* Neither the BLS data nor the input- 5. Impact of Any Lessening of savings over the 16-year period modeled output model used by DOE include the Competition are shown in Table VI.22. Emission quality or wage level ofthejobs. One The Act directs the Department to savings are based on the use of: (1)The

reason that the demand for labor consider any lessening ofcompetition ARI mean manufacturer cost data and decreases in the model maybe that the that is likely to result from standards. It (2) an 18.4-year average lifetime. The jobs expected tobe created pay more further directs the Attorney General to results presented in Table VI.22 are than thejobs being lost. The losses from determine the impact, ifany, ofany based only on theAEO 2000 Reference any potential employment reduction lessening ofcompetition likely to result Case for electricity price and housing would be offset ifjob quality and pay from a proposed standard and transmit projections and theNAECA efficiency

are increased. such determination to the Secretary, not scenario.

TABLE VI.22.-CUMULATIVE EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)

Emissions reductions Trial standard level Carbon (Mt) NOx (kt)

1

............................................................................................................................................................................... 13.4 37.2 2

............................................................................................................................................................................... 23.7 67.9 3

............................................................................................................................................................................... 27.4 78.8 4

........................................ 6 2.5....................................................................................................................................... 33.6 102.5 5

........................................ 193....................................................................................................................................... 63.7 193.7

The impact of vaiying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency scenarios were considered only for the Trial Standard Level 3. Table VI.23 shows how carbon and NOx emissions

are impacted by the different projections and scenarios.

TABLE VI.23.-CUMULATIVE EMISSIONS REDUCTIONS FOR PROPOSED STANDARD (2006-2020) AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Emission Electricity price and housing projection Efficiency scenario Carbon (Mt) NOx (kt)

AEO Reference Case

...................................... NAECA 27.4 78.8 AEO Reference Case

...................................... Roll-up 26.2 77.8 AEO Reference Case

...................................... Shift 30.2 89.3 AEO Low Growth Case

................................... NAECA 23.4 80.8 AEO High Growth Case

.................................. NAECA 34.1 75.8

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59622 Federal Register I

### Vol. 65, No. 194 I

### Thursday, October 5, 2000 I

### Proposed Rules

Regional Input-OutputModeling System (RIMS II), 

### Washington, D.C., U.S. Department ofCommerce, 1992), a shift in spending away from energy bills into other sectors wouldbe expected to increase overall employment. But for this analysis, since the increased manufacturing costs to the nation of meeting a new efficiency standard are relatively large, there is an overall decrease innational employment. The results oftheDepartment's analysis are shown in Chapter 12 oftheTSD.

While this input/output model suggests theproposed central air conditioner and heatpump standards

are likelyto decrease the net demand for labor inthe economy, the losses would most likely be very small relative to total national employment. For several reasons, however, even these modest losses are in**d~ubt:**



### • Unemployment is now at the lowest rate in 30 years. If

### unemployment remains very low during the period when the proposed standards are put into effect, it is unlikely that the standards alone couldresult in any net decrease innational employment levels.

• Neitherthe BLS data northe inputoutputmodel usedbyDOE include the quality or wage level ofthejobs. One

reason that the demand for labor decreases inthe model maybe that the jobs expected to be created pay more than thejobsbeing lost. The losses from any potential employmentreduction wouldbe offset ifjob quality andpay
are increased. • The net benefits from potential employment changes are a result ofthe estimated net present value ofbenefits

or losses likelytoresult from the proposed standards. It

### may notbe appropriate to separately identify and considerany employmentimpacts beyond the calculation ofnet present value.

Taking into considerationthese

concerns regarding the interpretation and use ofthe employment impacts analysis, the Department concludes only thatthe proposed central air conditioner andheatpump standards are likely to result in no appreciablejob losses to the nation.

Public comments are solicited onthe validity ofthe analytical methods used and the appropriate interpretation and

use ofthe results ofthis analysis.
4. Impact on Utility orPerformance of Products

As detailed in Section V, in establishing classes ofproducts wehave tried to eliminate any degradation of utility or performance inthe products underconsideration inthis rulemaking.
5. Impact ofAny Lessening of Competition

The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. It 

### further directs the Attorney General to determine the impact, ifany, ofany lessening ofcompetition likelyto result from a proposed standard andtransmit such determination to the Secretary, not later than 60 days after the publication ofa proposed rule, together with an analysis ofthe nature and extent ofsuch impact. EPCA section 325(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii).

In orderto assist the Attorney General inmaking such a determination, the Department has provided the Department ofJustice (DOn with copies ofthis notice and the TSD for review. At DOE's request, theDOl reviewed the manufacturer impact analysis interview questionnaireto ensure that itwould provide insightconcerningany lessening ofcompetition due to any proposed trial standard levels.
6. Needofthe Nationto SaveEnergy

Enhanced energy efficiency improves the nation's energy security, and reducesthe environmentalimpacts of energy production. Improved efficiency ofcentral air conditioners and heat pumps is also likelyto improve the reliability ofthe nation's electric system. The energy savings from central air conditioner and heatpump standardsresultinreduced emissions of carbon and NOx
. Cumulative.emissions savings over the 16-yearperiod modeled

are shown inTable VI.22. Emission savings are based onthe use of: (1) The ARI mean manufacturer cost data and (2) an 18.4-yearaverage lifetime. The results presented inTableVI.22 are based only ontheAEO 2000 Reference Case for electricity price and housing projections and theNAECA efficiency scenario.

TABLE VI.22.-CUMULATIVE EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)

Trial standard level

1

.............................................................................................................................................................................. . 2

............................................................................................................................................................................... 3

............................................................................................................................................................................... 4

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

............................................................................................................................................................................... Emissions reductions

Carbon (Mt)

13.4 23.7 27.4 33.6 63.7 NOx (Id)

37.2 67.9 78.8 102.5 193.7



### The impact of varying electricity price and housing projections (j.e., 

### different AEO cases) as well as different efficiency scenarios were considered only for the Trial Standard Level 3. Table VI.23 shows how carbon and NOx emissions

are impacted by the different projections and scenarios.

TABLE VI.23.-CUMULATIVE EMISSIONS REDUCTIONS FOR PROPOSED STANDARD (2006-2020) AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Emission Electricity price and housing prOjection Efficiency scenario Carbon (Mt) NOx (kt)

AEO Reference Case

...................................... NAECA 27.4 7B.B AEO Reference Case

...................................... Roll-up 26.2 77.B AEO Reference Case

...................................... Shift 30.2 B9.3 AEO Low Growth Case

................................... NAECA 23.4 BO.B AEO High Growth Case

.................................. NAECA 34.1 75.B

## EE-R M/STD-98-440 -. ° 

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59623

The annual carbon emission heat pump equipment, are relevant to TABLE VI.24.-INSTALLED GENERATION reductions range up to 6.6 Mt in 2020 the economic justification ofthe CAPACITY REDUCTIONS INTHE YEAR and the NOx emissions reductions up to standards, and has decided to consider 2020 BASED ON AEO 2000 REF24.5 kt in 2015.;18 19 Total carbon and such impacts in this rulemaking. ERENCE CASE AND NAECA EFFINOx emissions for each trial standard Peak power impacts are determined as Y ENAR level are reported in the Environmental part ofthe analysis to estimate impacts ENCY SC Assessment, in the TSD. on electric utilities from increases in the 7. Other Factos central air conditioner and heat pump Installed gen- 7. Other Factors standard. NEMS-BRS is used to Trial standard level i reduction

This provision allows the Secretary of estimate peak power impacts by (GW) Energy, in determining whether a calculating the reduction in installed standard is economicallyjustified, to generation capacity due to an increase 1

............................................ 6.4 consider any other factors thatthe in the minimum efficiency standard. 2

................................ 10.6 Secretary deems to be relevant. EPCA Table VI.24 shows the estimated 3

............................................ 12.3 Section 325(o)(2)(B)(i)(VI), 42 U.S.C. reductions in installed generation 4

............................................ 15.4 6295(o)(2)(B)(i)(VI). The Secretary has capacity, in giga-watts (GW), in the year 5

..................................... . 28.6 decided that the impacts ofthe 2020 due to each ofthe trial standard proposed standards on peak power levels. Ofthe installed generating The impact ofvarying electricity price requirements and electric utility system capacity avoided, 13% would havebeen and housing projections (i.e., different reliability, the impacts ofproposed provided by coal power plants. The AEO cases) as well as different standards on those subgroups of remaining percentage (87%) would have efficiency scenarios were considered consumers who are at or below the been supplied by either gas-fired, oil- only for the proposed standard (trial poverty line, and the impacts of fired, or dual-fired power plants. The standard level 3). Table VI.25 shows proposed standards on consumers and results presented in Table VI.24 are how installed generation capacity is manufacturers which might be required based only on the AEO 2000 Reference impacted by the different projections by proposed environmental regulations Case for electricity price and housing and scenarios. to incorporate ozone reduction projections and the NAECA efficiency technologies in air conditioning and scenario.

TABLE VI.25.-INSTALLED GENERATION CAPACITY REDUCTIONS INTHE YEAR 2020 FOR TRIAL STANDARD LEVEL 3 AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Electricity price and housing projection Efficiency Installed generating ca- scenario pacity reduction (GW)

AEO Reference Case

.............................................................. NAECA

........ ..................................... 12.3 AEO Reference Case

.............................................................. Roll-up

........ ..................................... 11.9 AEO Reference Case

.............................................................. Shift

....... ...................................... 13.6 AEO Low Growth Case

........................................................... NAECA

........................................ 11.4 AEO High Growth Case

.......................................................... NAECA

........ ..................................... 12.5

As discussed above, the impact ofthe make it available for public review perform this calculation, we used the peak power requirements ofany single during the comment period on today's subset ofRECS 97 data for households end-use on electric utility system proposed rule. that are considered low-income.2 0 Table reliability is highly uncertain. Thus, we Consumer subgroup impacts have VI.26 summarizes the LCC impacts on plan on conducting further research to been estimated by determining the LCC those low-income consumers who determine what connection, ifany, impacts of the trial standard levels on utilize central air conditioners and heat exists between end-use peak demand those consumers who are at or below pumps. The results in Table VI.26 are reductions and system reliability. If the poverty line (e.g., for a family of based on ARI mean manufacturer costs such research is completed and four, this constitutes a household and an 18.4-year average lifetime. applicable to thisrulemaking, we will income of less than $16,036). To

TABLE VI.26.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURER COSTS AND AN 18.4-YEAR AVERAGE LIFETIME

Efcnyvr Average Percent of consumers with Productclass

ee LC vesa v

- Net savings No signifi- Net costs Product class l tti tenmAv~ela C~tt LCC ( rayrrc ings) costs (>2 %) cant impact (>2 %) Split System Central Air Conditioner

............................... 10 $4,906 11 4,887 (19) 17 66 17 12 4,903 (3) 20 29 51 13 5,007 101 17 14 69 18 5,598 692 10 2 88 Split System Heat Pump

.................................................. 10 8,965

Million metric tons (Mt). 20 Approximately 7% of the RECS 97households

9Thousand metric tons (kt). with central air conditioners and 9% of the households with heat pumps met this criteria. .'



### Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59623

The annual carbon emission reductionsrange up to 6.6

### Mtin 2020 and the NOx 

### emissions reductions up to 24.5 kt in 2015.; 18 19 

### Total carbon and NOx 

### emissions for each trial standard level arereported in theEnvironmental Assessment, intheTSD.
7. OtherFactors

This provision allows the Secretary of Energy, in determining whether a standardis economicallyjustified, to consider any otherfactors thatthe Secretary deems to be relevant. EPCA Section 325(0)(2)(B)(i)(VI), 42 U.S.C. 6295(0)(2)(B)(i)(VI). The Secretaryhas decided that the impacts ofthe proposed standards onpeakpower requirements and electric utility system reliability,the impacts ofproposed standards onthose subgroups of

consumers who are at orbelowthe poverty line, and the impacts of proposed standards on consumers and manufacturers which mightberequired by proposed environmental regulations to incorporate ozone reduction technologies in air conditioning and heatpump equipment, arerelevantto the economicjustification ofthe standards, and has decided to consider such impacts inthis rulemaking.

Peakpowerimpacts are determined as part ofthe analysisto estimate impacts

on electricutilities from increases in the central air conditioner and heatpump standard. NEMS-BRS is used to estimate peakpowerimpactsby calculating the reduction ininstalled generation capacity dueto an increase intheminimum efficiency standard. Table VI.24 shows the estimated reductions ininstalled generation capacity, ingiga-watts (GW), 

### in the year 2020 due to each ofthe trial standard levels. Ofthe installed generating capacity avoided, 13% wouldhavebeen providedbycoal powerplants. The remainingpercentage (87%) would have been suppliedby eithergas-fired, oilfired, or dual-fired powerplants. The results presented inTableVI.24 are based only onthe AEO 2000 Reference Case for electricity price and housing projections and the NAECA efficiency scenario. TABLE VI.24.-INSTALLED GENERATION CAPACITY REDUCTIONS IN THE YEAR 2020 BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO



### Trial standard level

1

............................................ 2

............................................ 3

............................................ 4

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

............................................ 

### Installed gen- erating capac- ity reduction (GW)

6.4 10.6 12.3 

### 15.4 28.6



### The impact ofvarying electricity price and housing projections (i.e., 

### different AEO cases) as well as different efficiency scenarios were considered only for the proposed standard (trial standard level 3). Table VI.25 shows how installed generation capacity is impactedby the different projections and scenarios.

TABLE VI.25.-INSTALLED GENERATION CAPACITY REDUCTIONS IN THE YEAR 2020 FOR TRIAL STANDARD LEVEL 3 AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HoUSING PROJECTIONS AND EFFICIENCY SCENARIOS



### Electricity price and housing projection Efficiency scenario Installed generating ca- pacity reduction (GW)

AEO Reference Case

.............................................................. NAECA

.......................................................................... 12.3 11.9 

### 13.6 11.4 12.5 

### AEO Reference Case

.............................................................. Roll-up

........................................................................... AEO Reference Case

.............................................................. Shift

................................................................................ AEO Low Growth Case

........................................................... NAECA

.......................................................................... AEO High Growth Case

.......................................................... NAECA

..........................................................................

As discussed above, the impact ofthe peakpowerrequirements ofany single end-use on electricutility system reliability ishighly uncertain. Thus, we plan on conducting further research to determine what connection, ifany, exists between end-use peak demand reductions and systemreliability. If 

### suchresearch is completed and applicable to this rulemaking, wewill make it available for publicreview during the commentperiod ontoday's proposed rule.

Consumer subgroup impactshave been estimated by determiningthe Lee impacts ofthe trial standard levels on those consumers who are at orbelow the poverty line 

### (e.g., for a family of four, this constitutes a household income ofless than $16,036). To perform this calculation, we used the subset ofRECS 97 data for households that are considered low-income. 2o 

### Table VI.26 summarizes theLCe impacts on those low-income consumers who utilize central air conditioners and heat pumps. Theresults inTable VI.26 are based on ARl mean manufacturer costs and an 18.4-yearaverage lifetime.

TABLE VI.26.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURER COSTS AND AN 18.4-YEAR AVERAGE LIFETIME



### Average Product class Efficiency Average LCC (sav- level LCC ings) costs
Split System Central Air Conditioner

............................... 10 $4,906 11 4,887 12 4,903 13 5,007 18 5,598 

### Split System Heat Pump

.................................................. 10 8,965

1.Million motric tons (MtJ.

,.Thousand metric tons (ktJ. 20Approximatoly 7% oftho REGS 97 housoholds with central air conditionors and 9% ofthe households with heat pumps met this criteria. (19) (3) 101 692 

### Percent of consumers with

Net savings No signifi- Net costs

(>2 %) 

### cant impact (>2 %)

17 66 17 20 29 51 17 14 69 10 2 88

## EE-RM/STD-98-440--A' e,

59624 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE VI.26.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURER COSTS AND AN 18.4-YEAR AVERAGE LIFETIME-Continued 

## ~Average Percent of consumers with Efficiency Average Product class LCC (sav- level LCC ii Avg ings) costs Net savings No signifi- Net costs Prc closts (>2 %) cant impact (>2 %)

11 8,890 (75) 16 84 0 12 8,862 (103) 27 64 9 13 8,948 (17) 25 40 35 18 9,610 645 11 8 81 Single Package Air Conditioner

....................................... 10 5,327 11 5,283 (44) 11 42 47 12 5,313 (14) 20 27 53 13 5,568 241 12 9 79 18 6,158 831 10 2 88 Single Package Heat Pump

............................................. 10 9,149 11 9,057 (92) 21 78 1 12 8,973 (176) 35 53 12 13 9,145 (4) 25 27 48 18 9,619 470 18 8 74

In comparing the LCC results on the low-income consumers have lower compares the LCC impacts ofthe subgroup ofconsumers who are low- savings at the different trial standard proposed standard on low-income and income (Table V.26) versus all central levels than the general population of all consumers. air conditioner and heat pump central air conditioner and heat pump
consumers (Table V.14), it appears that consumers. Table V.27 directly

TABLE VI.27.-COMPARISON OF LCC IMPACTS OF THE PROPOSED STANDARD ON ALL CONSUMERS VS. LOW-INCOME CONSUMERS
Average LCC (savings) costs Percent of consumers with net Product class Efficiency level costs (>2 %of baseline LCG) All consumers Low-income All consumers Low-income

Split System Central Air Conditioner

................................... 12 ($45) ($3) 39 51 Split System Heat Pump

........................................ 13 (215) (17) 22 35 Single Package Air Conditioner

......................................... 12 (29) (14) 44 53 Single Package Heat Pump

................................................. 13 (112) (4) 36 48

The U.S. Environmental Protection will reduce ozone from ambient air that introduction ofthis technology in Agency (EPA) requires states to develop is drawn across the external heat Texas, and possibly other jurisdictions,

a state implementation plan (SIP) for exchanger units of air-cooled air would create new consumer subgroups most areas that are not in compliance conditioning units, including heat or would significantly change the ability with the National Ambient Air Quality pumps. The proposed rule would of equipment manufacturers to meet the Standards (NAAQS), or classified as require, after January 1, 2002, that all new efficiency standard or the cost nonattainment. In Texas, four areas are central air conditioners sold in the required to do so, the Department would in nonattainment ofthe EPA's one-hour specified areas ofTexas have ozone factor that information into its decision NAAQS for ozone: Beaumont-Port reduction technology installed, making for this rule. Arthur, El Paso, Dallas-Fort Worth, and The ozone reduction technology is a This technology has the potential for Houston-Galveston. On August 9, 2000, proprietary catalyst called PremAir, te c h n o l o y h a s th e poten l fo The Texas Natural Resource manufactured by the Engelhard affecting the price and efficiency of Conservation Commission (TNRCC), the Corporation. The catalyst is central air conditioners. For example, lead environmental agency for the state incorporated in air conditioners in two DOE is aware ofa range ofestimates of ofTexas, approved for publication and ways: by coating the condenser coils, or what this technology would add to the public hearing proposed revisions to the by installing an insert next to the cost ofcentral air conditioners. The state implementation plan (SIP), in condenser coil. The Department is costs ofthis technology are estimated to order to reduce ground-level ozone in required, by the Process Rule, to range between $42 and $446 per 12,000 the Houston/Galveston (HGA), Dallas/ understand the costs andbenefits of Btu/hr of air conditioner capacity. As to Fort Worth (DFW), and Beaumont/Port standards, and the distribution ofthose possible effects ofthe technology on the Arthur (BPA) ozone nonattainment costs among consumers, manufacturers efficiency ofcentral air conditioners,
areas, as well as in the 95-county central and others, and the uncertainty DOE understands several designs of and eastern Texas. The proposed rules associated with these costs andbenefits. catalyst-treated air conditioners have consist of23 separate requirements Any adverse impacts on significant been tested by Intertek Testing Services applying to various regions ofthe state. subgroups and uncertainty concerning (ITS). DOE understands the test results One ofthe proposals mandates the use adverse impacts must be fully show no impact on efficiency for coated ofa technology in the affected areas that considered in selecting a standard. Ifthe condenser coils, and a roughly 2% .'

# EE.RM/STD.9~.440-F**~O ~** 

59624 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE VI.26.-SUMMARY OF LCC RESULTS ON Low-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURER COSTS AND AN 18.4-YEAR AVERAGE liFETlME-Continued



### Average Percent of consumers with Efficiency Average Product class level LCC LCC (sav- Net savings No signifi- Net costs ings) costs (>2 %) 

### cant impact (>2%)

11 8,890 12 8,862 13 8,948 18 9,610 

### Single Package Air Conditioner

....................................... 10 5,327 11 5,283 12 5,313 13 5,568 18 6,158 

### Single Package Heat Pump

............................................. 10 9,149



### In comparingthe LCC results on the subgroup ofconsumers who are lowincome (Table V.26) versus all central airconditionerandheatpump
consumers (Table V.14), 

### it appears that 11 9,057 12 8,973 13 9,145 18 9,619



### low-income consumers have lower savings at the different trial standard levels than thegeneral population of central air conditionerand heatpump
consumers. Table V.27 directly (75) 16 84 0 (103) 27 64 9

(17) 25 40 35 645 11 8 81

(44) 11 42 47 (14) 20 27 53 241 12 9 79 831 10 2 88

(92) 21 78 1 (176) 35 53 12

(4) 25 27 48 470 18 8 74



### compares the LCC impacts ofthe proposed standard on low-income and all consumers.

TABLE VI.27.-COMPARISON OF LCC IMPACTS OF THE PROPOSED STANDARD ON ALL CONSUMERS VS. Low-INCOME CONSUMERS


### Average LCC (savings) costs Percent ofconsumers with net Product class Efficiency level All consumers
Split System Central Air Conditioner

................................... 12 ($45) 

### Split System Heat Pump

...................................................... 13 (215) 

### Single Package Air Conditioner

........................................... 12 (29) 

### Single Package Heat Pump

................................................. 13 (112)



### The U.S. Environmental Protection Agency (EPA) requires states to develop

a state implementationplan (SIP) for most areas thatare not in compliance with the National AmbientAir Quality Standards (NAAQS), or classified as
nonattainment. In Texas, four areas are innonattainment ofthe EPA's one-hour NAAQS for ozone: Beaumont-Port Arthur, EI Paso, Dallas-Fort Worth, and Houston-Galveston. OnAugust 9, 2000, 

### TheTexas Natural Resource Conservation Commission (TNRCC), the lead environmental agency for the state ofTexas, approved for publication and publichearing proposed revisions tothe state implementationplan (SIP), in order to reduce ground-level ozone in the Houston/Galveston (HGA), Dallas! Fo.rt Worth (DFW), and Beaumont/Port Arthur (BPA) ozone nonattainment
areas, as well as inthe 95-county central and eastern Texas. The proposed rules consist of23 separate requirements applyingto various regions ofthe state. One ofthe proposals mandates the use ofa technology inthe affected areas that will reduce ozone from ambient airthat is drawn across the external heat exchanger units ofair-cooled air conditioningunits. includingheat pumps. The proposed rule would require, after January 1, 

### 2002, that all central airconditioners sold inthe specified areas ofTexashave ozone reduction technology installed.

The ozone reduction technology is a proprietary catalyst called PremAir, manufacturedby theEngelhard Corporation. The catalyst is incorporated in air conditioners intwo ways: by coatingthe condenser coils, or by installing an insert next to the condenser coil. The Department is required, bythe Process Rule, to understand the costs andbenefits of standards, and the distribution ofthose costs among consumers, manufacturers and others, and the uncertainty associated with these costs andbenefits. Any adverse impacts on significant subgroups and uncertainty concerning adverse impacts mustbe fully consideredin selecting a standard. 

### Ifthe costs (>2 % 

### of baseline LCC) Low-income All consumers Low-income
($3) 39 51 (17) 22 35 (14) 44 53

(4) 36 48



### introduction ofthis technology in Texas, and possibly otherjurisdictions, would create new consumer subgroups

or would significantly change the ability ofequipment manufacturers to meet the

new efficiency standard orthe cost required to do so, the Department would factor thatinformation into its decision making for this rule.

Thistechnologyhas thepotential for affecting the price and efficiency of central airconditioners. For example, DOE is aware ofa range ofestimates of whatthis technology would add tothe cost ofcentral air conditioners. The costs ofthis technology are estimated to range between $42 

### and $446 

### per 12,000 

### Btuthrofairconditionercapacity. As to possible effects ofthe technology on the efficiency ofcentral air conditioners, DOE understands several designs of catalyst-treated air conditioners have been tested by IntertekTesting Services (ITS). DOE understands the test results show no impact on efficiency for coated condenser coils, and a roughly 2%

## EE-RM/STD-98-440 -- AO ()

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59625

reduction in efficiency for the catalyst included in today's proposed rule different classes. It combines the SEER insert. because ofuncertainty about whether values for air conditioners from Trial

Manufacturers could also be affected theTNRCC will include the catalyst Standard Level 2 (12 SEER) with the by the ozone reduction requirement. requirement in their SIP. DOE invites SEER values for heat pumps from Trial The higher purchase costs ofnew air comments on the status ofthe TNRCC Standard Level 4 (13 SEER). By conditioners could alter consumers' deliberations and whether this potential combining efficiency levels in this way, decisions on repairing or replacing requirement should be considered. the Department is able toevaluate the equipment, which would affect air E. Conclusion impacts ofdifferent combinations of conditioner sales and impact standard levels to make an informed manufacturers. Ifthe effect applies to a Section 325(o)(2)(A) of the Act, 42 decision on the merits of different significant fraction ofunits sold each U.S.C. 6295(o)(2)(A), specifies that any efficiency combinations. year, the Department's current new or amended energy conservation To aid the reader as we discuss the manufacturer impact analysis may standard for-any type (or class) of benefits or burdens ofthe trial levels, underestimate the impact on covered product shall be designed to we have included a summary ofthe manufacturers. achieve the maximum improvement in analysis results in Tables VI.28 and

After reviewing the available energy efficiency which the Secretary VI.29.21 Table VI.28 presents a summary information, DOE is not certain as tothe determines is technologically feasible ofanalysis results based on ARI mean impacts ofany ozone reduction and economically justified. In manufacturing costs, NAECA and Rollrequirements that the TNRCC may determining whether a standard is up efficiency scenarios and 7% and 3% adopt. The proposal is one of 23 economically justified, the Secretary societal discount rate scenarios. Table requirements TNRCC may adopt and it must determine whether the benefits of VI.29 presents a summary ofanalysis is uncertain whether this requirement the standard exceed its burdens. EPCA results based on manufacturing costs will be included in their final rule. Even section 325(o)(2)(B)(i), 42 U.S.C. obtained from the reverse engineering if the requirement is adopted, it is 6295(o)(2)(B)(i). The amended standard analysis for the NAECA efficiency unclear what, if any, effect the must "result in significant conservation scenario and 7% and 3% societal requirement would have on efficiency. of energy." EPCA section 325(o)(3)(B), discount rate scenario. Both tables Finally, DOE believes such a 42 U.S.C. 6295(o)(3)(B). assume an 18.4-year equipment lifetime, requirement may have an impact on We consider the impacts ofstandards including one compressor replacement. manufacturers. DOE estimates a at each offive trial standards levels, The reverse engineering scenario results potential impact on 800,000 central air beginning with the Max Tech Level, i.e., in Table VI.29 are limited to single conditioner shipments per year covered Trial Standard Level 5. We then scenarios which highlightthe impact of by the TNRCC proposal, or consider less efficient levels. Trial manufacturing costs on the consumer, approximately 13% oftotal shipments. Standard Level 3 is a combination of manufacturers, national energy savings, This potential requirement was not different efficiency levels for the and NPV.

TABLE VI.28.-SUMMARY OF ANALYSIS RESULTS BASED ON ARI MEAN MANUFACTURER COSTS 1

Trial std 1 Trial std 2 Trial std 3 Trial std 4 Trial std 5

Total Quads Saved 2

............................................. 1.7-1.8 2.9-3.2 3.4-3.6 4.2-4.5 8.1-8.7 Generation Capacity Offset (GW)3

...................................... 6.4 10.6 12.3 15.4 28.6 NPV ($billion): 4 7%Discount Rate

......................................................... 0 -1 -1 to -2 -5 to -6 -22 3%Discount Rate

....................................... 3 4 3 -3 -35 Emissions: 5 Carbon Equivalent (Mt)

........................................ 13.4 23.7 27.4 33.6 63.7 NOx (kt)

......................................... . 37.2 67.9 78.8 102.5 193.7 Cumulative Change in INPV ($million):6 NAECA

........................................ ... (37) (186) (197) (183) Roll-up

......................................................................... (181) (362) (367) (335) Life Cycle Cost ($): Split AC

........................................ ... ($44) ($45) ($45) $29 $555 Packaged AC

........................................ ... $20 ($29) ($29) $175 $741 Split HP

........................................ ... ($150) ($242) ($215) ($215) $276 Packaged HP

........................................ ... ($134) ($254) ($112) ($112) $296 Payback (years): Split AC

........................................ ... 10.6 12.6 12.6 16 36 Packaged AC

........................................ ... 16.1 14 14 21.8 48.8 Split HP

........................................ ... 5.5 7.2 9.3 9.3 17.3 Packaged Heat Pump

................................................... 8.1 8.7 13.2 13.2 19.4

1Estimates are based on 18.4-year lifetime. 2Based onAEO 2000 reference, high and low growth cases, and NAECA efficiency distributions. 3Reductions in installed generation capacity inthe year 2020, based on AEO 2000 reference case, NAECA efficiency scenario. 4Based on NAECA efficiency distribution and 7 %discount rate. Range reflects AEO 2000 reference, high and low growth cases. 5Based on AEO 2000 reference case, NAECA efficiency scenario, and ARI mean manufacturing costs. 6Not calculated at Trial Standard Level 5.

2A

All cumulative offects that are not monetary are not discounted. Monetary effects are discounted to 1998 dollars. 

## EE-RM/STD-98-440

# ~**~**0

# fp

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59625

reduction in efficiency for the catalyst insert.

Manufacturers could alsobe affected by the ozone reduction requirement. Thehigherpurchase costs ofnew air conditioners could alter consumers' decisions onrepairing orreplacing equipment. which would affect air conditioner sales and impact manufacturers. Ifthe effect applies to a significant fraction ofunits sold each year. the Department's current manufacturer impact analysis may underestimate the impact on manufacturers.

Afterreviewing the available information. DOE is not certain as tothe impacts ofany ozone reduction requirements thatthe TNRCC may adopt. The proposal is one of23 requirements TNRCC may adopt and it is uncertain whetherthis requirement will beincluded in their final rule. Even ifthe requirement is adopted. it is unclearwhat. ifany. effect the requirementwould have on efficiency. Finally. DOE believes such a requirementmay have an impact on manufacturers. DOE estimates a potential impact on 800.000 central air conditioner shipments peryearcovered bythe TNRCC proposal. or approximately 13% oftotal shipments. Thispotentialrequirementwas not included in today's proposed rule because ofuncertainty about whether the TNRCC will includethe catalyst requirement in their SIP. DOE invites comments onthe status oftheTNRCC deliberations and whetherthis potential requirement shouldbe considered.


### E. Conclusion

Section 325(0)(2)(A) ofthe Act. 42 U.S.C. 6295(0)(2)(A). specifies that any
new or amended energy conservation standard for·anytype (or class) of covered product shall be designed to achieve the maXimum improvement in energy efficiency whichthe Secretary determines istechnologically feasible and economicallyjustified. In determining whethera standard is economicallyjustified. the Secretary must determine whetherthebenefits of the standard exceed itsburdens. EPCA section 325(0)(2)(B)(i). 42 U.S.C. 6295(0)(2)(B)(i). The amended standard must "result in significant conservation ofenergy." EPCA section 325(0)(3)(B). 42 U.S.C. 6295(o)(3)(B).

We considerthe impacts ofstandards at each offive trial standards levels. beginning withthe Max TechLevel, 

### i.e.• Trial StandardLevel 5. We then considerless efficientlevels. Trial StandardLevel 3 is a combination of different efficiency levels for the different classes. Itcombines the SEER values for air conditioners from Trial Standard Level 2 (12 SEER) with the SEER values for heat pumps from Trial Standard Level 4 (13 SEER). By combiningefficiency levels inthis way. the Departmentis able to evaluate the impacts ofdifferent combinations of standard levels to make an informed decision on the merits ofdifferent efficiency combinations.

To aid the reader as we discuss the benefits orburdens ofthe trial levels.

wehave included a summary ofthe analysis results in Tables VI.28 and VI.29. 2I Table VI.28 presents a summary ofanalysis resultsbased onARI mean manufacturing costs. NAECA and Rollup efficiency scenarios and 7% and 3% societal discount rate scenarios. Table VI.29 presents a summary ofanalysis results based on manufacturing costs obtained from thereverse engineering analysis for the NAECA efficiency scenario and 7% and 3% societal discount rate scenario. Both tables

assume an 18.4-yearequipmentlifetime, including one compressorreplacement. Thereverse engineering scenario results in Table VI.29 are limited to single scenarios whichhighlightthe impact of manufacturing costs on the consumer. manufacturers, national energy savings, andNPV.

TABLE VI.28.-SUMMARY OF ANALYSIS RESULTS BASED ON ARI MEAN MANUFACTURER COSTS 1

Trial std 1 Trial std 2 Trial std 3 Trial std 4

Total Quads Saved 2

............................................................ 1.7-1.8 2.9-3.2 3.4-3.6 4.2-4.5 Generation Capacity Offset (GW)3

...................................... 6.4 10.6 12.3 15.4 NPV ($billion): 4 7% Discount Rate

......................................................... 0 -1 -1 to -2 -5to -6 3% Discount Rate

......................................................... 3 4 3 -3 Emissions: 5 Carbon Equivalent (M!)

................................................. 13.4 23.7 27.4 33.6 NOx (kt)

........................................................................ 37.2 67.9 78.8 102.5 Cumulative Change in INPV ($ million): 6 NAECA

.......................................................................... (37) (186) (197) (183) Roll-up

........................................................................... (181) (362) (367) (335) Ufe Cycle Cost ($): SplitAC

......................................................................... ($44) ($45) ($45) $29 Packaged AC

................................................................ $20 ($29) ($29) $175 Split HP

......................................................................... ($150) ($242) ($215) ($215) Packaged HP

................................................................ ($134) ($254) ($112) ($112) Payback (years): Split AC

......................................................................... 10.6 12.6 12.6 16 Packaged AC

................................................................ 16.1 14 14 21.8 SpiitHP

......................................................................... 5.5 7.2 9.3 9.3 Packaged Heat Pump

................................................... 8.1 8.7 13.2 13.2

1 Estimates are based on 18.4-year lifetime.

2 Based on AEO 2000 reference. high and low growth cases, and NAECA efficiency distributions.

3Reductions in installed generation capacity in the year 2020, based on AEO 2000 reference case, NAECA efficiency scenario.

4 Based on NAECA efficiency distribution and 7 %discount rate. Range reflects AEO 2000 reference, high and low growth cases. 5 Based on AEO 2000 reference case. NAECA efficiency scenario. and ARI mean manufacturing costs.

6Not calculated at Trial Standard Level 5.

11 All cumulative effects that nrc not monetary are not discounted. Monetary offccts arc discounted to 1998 dollars. Trial std 5

8.1-8.7 28.6

-22 -35

63.7 193.7

$555 $741 $276 $296

36 48.8 17.3 19.4

## EE-RM/STD-98-440-

# -tA '

59626 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

TABLE V1.29.-SUMMARY OF ANALYSIS RESULTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS)1

Trial std 1 Trial std 2 Trial std 3 Trial std 4 Trial std 5

Total Quads Saved2

............................................................ 1.7-1.8 2.9-3.2 3.4-3.7 4.3-4.6 8.4-9.0 Generation Capacity Offset (GW)3

..................................... 6.4 10.6 12.3 15.4 28.6 NPV ($billion): 7% Discount Rate2

....................................................... 1 to 2 2 1 to 2 0 to 1 -10 to -11 3% Discount Rate

........................................ 6 10 10 9 -8 Emissions: 3 Carbon Equivalent (Mt)

...................................... . 13.4 23.7 27.4 33.6 63.7 NOx (kt)

........................................ 37.2 67.9 78.8 102.5 193.7 Cumulative Change in INPV ($million): NAECA

........................................ (30) (159) (171) (169) Roll-up 3

........................................ (181) (362) (367) (335) Life Cycle Cost ($): Split AC

........................................ ($75) ($113) ($113) ($113) $137 Packaged AC

................................................................ ($78) ($163) ($163) ($29) $276 Split HP

........................................ ($209) ($365) ($372) ($372) $41 Packaged HP

............................................. .. ($207) ($421) ($353) ($353) ($166) Payback (years): Split AC

......................................... 7.8 9.8 11.3 11.3 19.6 Packaged AC

............................................. .. 7.7 7.5 7.5 14.5 25.1 Split HP

........................................ 2.7 3.9 6.4 6.4 14.0 Packaged Heat Pump

........................................ 4.6 4.0 8.4 8.4 12.81
1Based on 18 year lifetime, NAECA efficiency scenario and AEO 2000 reference case. 2 Variation based on AEO 2000 reference, low and high growth case. 3Based on ARI mean manufacturer costs as reported inTable VI.28.

First we considered Trial Standard we used instead the costs of 15 SEER 2% ofcurrent installed generating Level 5, the most efficient level for each equipment. DOE believes the costs of 18 capacity and more than 7% ofthe of four classes, representing uniform 18 SEER equipment would be higher than anticipated growth in capacity needed SEER requirements. Trial Standard the 15 SEER costs and that, as a result, in 2020. The emissions reductions Level 5 saves between 8.1 and 8.7 the increase in life-cycle-costs would would also be significant: 33.6 Mt of Quads of energy, a significant amount. actually be greater than our LCC carbon equivalent and 102.5 kt ofNOx. The estimated reduction in installed analysis indicates. For the nation as a The NPV of Trial Standard Level 4 generating capacity is 28.6 GW, or whole Trial Standard Level 5 would would have a net cost ofbetween 5 and roughly 73 large, 400 megawatt, power have a net cost 22 billion dollars in 6 billion dollars.27 The average LCC plants. 22 The forecasted reduction in NPV. 25 The Department did not savings for consumers with splitheat generating capacity is approximately calculate manufacturer impacts at this pumps would be $215, based on ARI 3.7% ofcurrent installed generating trial standard level. The Department equipment costs. 28 Owners ofsplit air capacity and more than 13% ofthe concludes that at this trial standard conditioners could see their LCC anticipated growth in capacity needed level, the benefits of energy savings, increase by $29, based on ARI costs.29 by 2020. The emissions reductions of generating capacity reductions and Under Trial Standard Level 4, the air 63.7 Mt of carbon equivalent and 193.7 emission reductions would be conditioning industry would experience kt ofNOx are also significant. However, outweighed bythe negative economic a NPV loss ofbetween 169 and 335 at this level, the vast majority of impacts to the nation, to the vast million dollars. The range of impacts is

consumers would experience an majority ofconsumers and to the driven primarily by the assumption increase in LCC costs. Purchasers of manufacturers. Consequently, the regarding the distribution of air split central air-conditioners, the Department concludes Trial Standard conditioner and heat pump efficiencies predominate class of central air Level 5, the Max Tech Level, is not in the market after implementation of conditioner with 65% ofthe sales of economically justified. the standard (NAECA or Roll-up). The central air conditioners and heat pumps, Next, we considered Trial Standard Department recognizes that the ability to would lose $555 over the life oftheir Level 4. This level specifies 13 SEER maintain a full product line is more appliance.23 Purchasers of split heat equipment for all product classes and difficult at higher standard levels and pumps, the predominate class ofheat would save between 4.2 and 4.5 Quads therefore places more weight on the pump, would lose $276.24 Moreover, the of energy, a significant amount. The Roll-up scenario at Trial Standard Level Department believes these LCCresults estimated reduction in installed 4. The Department concludes that at overstate the benefits of this trial generating capacity is 15.4 GW, or Trial Standard Level 4 the benefits of standard level. Because we did not have roughly 39 large, 400 megawatt, power energy savings, generating capacity equipment cost estimates at this level, plants.2 ? The forecasted reduction in At generating capacity is approximately 27At the 3%societal discount rate scenario, the

--- generating capacity is approximately nationwould have anet cost of3billion dollars. 22DOE estimates 9 coal-fired power plants and 64 With the reverse engineering equipment cost, the gas-fired power plants can be avoided. See TSD. 25At the 3% societal discount rate scenario, the NPV has a no net cost at the 7% discount rate and Chapter 11 and Appendix H. nation would have a not cost of 35 billion dollars. a savings of9 billion dollars at 3%.

23Consumers would experience a $137 increase With the reverse engineering equipment cost, the 28 Consumers would experience a $372 savings in in life-cycle-costs based on the Department's NPV is a net cost of 10 to 11 billion dollars at the life-cycle-costs based on the Department's reverse reverse engineering manufacturing costs. 7% discount rate and 8 billion dollars at 3%. engineering costs.

2 4 Consumers would experience a $41 increase in 20 DOE estimates 5 coal-fired power plants and 34 z Consumers would experience a $133 savings in life-cycle-costs based on the Department's reverse gas-fired power plants can be avoided. See TSD, life-cycle-costs based on the Department's reverse engineering manufacturing costs. Chapter 11 and Appendix H. engineering manufacturing costs.

# EE.RM/STD.9~.44o-tp--d-...()**~**

59626 Federal Register/ Vol. 65, 

### No. 194/

### Thursday, October 5, 2000/

### Proposed Rules

TABLE VI.29.-SUMMARY OF ANALYSIS RESULTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS) 1

Trial std 1 Trial std 2

Total Quads Saved 2

............................................................ 1.7-1.8 2.9-3.2 Generation Capacity Offset (GW) 3

..................................... 6.4 10.6 NPV ($billion): 7% Discount Rate 2

....................................................... 1 to 2 2 3% Discount Rate

......................................................... 6 10 Emissions: 3 Carbon Equivalent (Mt)

................................................. 13.4 23.7 NOx (kt)

........................................................................ 37.2 67.9 Cumulative Change in INPV ($ million): NAECA

.......................................................................... (30) (159) ROIl-up3

........................................................................ (181) (362) Life Cycle Cost ($): SplitAC

......................................................................... ($75) ($113) Packaged AC

................................................................ ($78) ($163) Split HP

......................................................................... ($209) ($365) Packaged HP

................................................................ ($207) ($421) Payback (years): SpiitAC

......................................................................... 7.8 9.8 Packaged AC

................................................................ 7.7 7.5 SplitHP

......................................................................... 2.7 3.9 Packaged Heat Pump

................................................... 4.6 4.0

1 Based on 18 year lifetime, NAECA efficiency scenario and AEO 2000 reference case.
2 Variation based on AEO 2000 reference, low and high grow1h case.
3 Based on ARI mean manufacturer costs as reported in Table V1.28.



### First we consideredTrial Standard Level 5, 

### the most efficient level for each offour classes, representinguniform 18 

### SEER requirements. Trial Standard Level 5 

### saves between 8.1 

### and 8.7 

### Quads ofenergy, a significant amount. The estimated reduction ininstalled generating capacity is 28.6 CW, 

### or roughly 73 

### large, 400 

### megawatt, power plants.zz Theforecasted reduction in generating capacity is approximately 3.7% 

### ofcurrent installed generating capacity and more than 13% 

### ofthe anticipated growth in capacity needed by 2020. 

### The emissionsreductions of 63.7 

### Mt ofcarbon equivalent and 193.7 

### kt ofNOx are also significant. However, at this level. the vast majority of

consumers would experience an increase inLCC costs. Purchasers of split central air-conditioners. the predominate class ofcentral air conditionerwith 65% 

### ofthe sales of central air conditioners and heatpumps, would lose $555 

### over the life oftheir appliance.23 Purchasers ofsplitheat pumps, the predominate class ofheat pump, would lose $276.

### 24 Moreover, the Departmentbelieves these LCC results overstate thebenefits ofthis trial standardlevel. Because we did nothave equipment cost estimates atthis level,

22DOE estimates 9coal-fired powerplants and 64 gas-fired power plants canbe avoided. See TSD. Chapter 11 and Appendix H.

23 Consumers would experience a $137 increase in life-cycle-costs based on the Department's

reverse engineering manufacturing costs.

2. Consumers wouldexperience a $41 increase in lifo-cyclo-costs based on the Department's reverse engineering manufacturing costs. 

### we used instead the costs of 15 

### SEER equipment. DOE believes the costs of 18 

### SEER equipment wouldbe higherthan the 15 

### SEER costs and that, as a result, the increase in life-cycle-costs would actuallybe greaterthan ourLCC analysis indicates. Forthe nation as a whole Trial Standard Level 5 

### would have a net cost 22 

### billion dollars in NPV.25 TheDepartment did not calculate manufacturer impacts at this trial standardlevel. The Department concludes that at thistrial standard level,thebenefits ofenergy savings, generating capacityreductions and emission reductions wouldbe outweighed bythe negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, the Department concludes Trial Standard Level 5,

### the Max Tech Level, is not economicallyjustified.

Next, we consideredTrial Standard Level 4. 

### This level specifies 13 

### SEER equipmentfor all product classes and would savebetween 4.2 

### and 4.5 

### Quads ofenergy, a significant amount. The estimated reduction in installed generating capacity is 15.4 CW, 

### or roughly 39

### large, 400 

### megawatt, power plants.26 The forecasted reduction in generating capacity is approximately

25At tho 3% societal discount rate scenario, the nation would have a net cost of35 billion dollars. With the reverse engineering equipment cost, tho NPV is a net cost of 10 to 11 billiondollars at the 7% discount rate and 8 billion dollars at 3%.

26DOE estimates 5coal-fired power plants and 34 gas-fired power plants can be avoided. Soc TSD, Chapter 11 and Appendix H. Trial std 3

3.4-3.7 12.3

1 to 2 10

27.4 78.8

(171) (367)
($113) ($163) ($372) ($353)

11.3 7.5 6.4 8.4 Trial std 4

4.3-4.6 15.4



## oto 1 9

33.6 102.5

(169) (335)
($113)

($29) ($372) ($353)

11.3 14.5 6.4 8.4 Trial std 5

8.4-9.0 28.6

-10 to -11 -8

63.7 193.7

$137 $276

$41 ($166)

19.6 25.1 14.0 12.81

2% 

### ofcurrent installed generating capacity and more than 7% 

### ofthe anticipated growth in capacity needed in 2020. 

### The emissions reductions would also be significant: 33.6 

### Mt of carbon equivalent and 102.5

### kt ofNOx. The NPV ofTrial Standard Level 4 

### would have a net cost ofbetween 5 

### and 6 

### billion dollars.27 The average LCe savings for consumerswith splitheat pumps would be $215, 

### based on ARI equipmentcostS.28 Owners ofsplit air conditioners could see theirLCC increase by $29,

### based onARI costS.29

UnderTrial Standard Level 4, 

### the air conditioning industry would experience

a NPV loss ofbetween 169 

### and 335 

### million dollars. The range ofimpacts is driven primarilybythe assumption regarding the distribution ofair conditioner and heatpump efficiencies in the market after implementation of the standard (NAECA orRoll-up). The Departmentrecognizes that the abilityto maintain a full product line is more difficult at higher standard levels and therefore places moreweight on the Roll-up scenario atTrial StandardLevel 4. 

### The Department concludes that at Trial Standard Level 4 

### thebenefits of energy savings, generatingcapacity



## 2' At the 3% sociotal discount rate scenario, the nation would have a net cost of3 billion dollars. With thereverse enginocring equipment cost, the NPV has 8 no net cost at tho 7% discount tate and

a savings of9 billion dollars at 3%.

2.Consumers would experience a $372 savings in life-cycle-costs based on theDepartment's reverse engineering costs.

··Consumerswould experience a $133 savings in lifo-cycle-costs based on the Department's reverse engineering manufacturing costs.

## EE-RM/STD-98-440O--A' (

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reductions and emission reductions and this trial standard level, the air included in the national NPV thereduction in LCC for some conditioning industry would experience calculations. For example, the national

consumers are outweighed by the a NPV loss ofbetween 171 and 367 NPV calculation does not include negative economic impacts on the million dollars depending on whether quantitative estimates for the value of nation, increase in LCC for most the Roll-up or NAECA efficiency emission reductions. 39 Furthermore, as
consumers and manufacturer loss in distribution scenario is considered. an added benefit, the standard may NPV. Consequently, the Department Given the benefits and burdens of improve the reliability ofthe electric concludes Trial Standard Level 4 is not Trial Standard Level 3 as discussed distribution system. The Department economically justified. above, and observing the reduction in finds that, compared with Trial

Next, we considered Trial Standard NPV compared to Trial Standard Level Standard Level 2, the incremental Level 3. This level specifies 12 SEER for 2, the Department compared the benefits benefits of generating capacity air conditioners and 13 SEER for heat and burdens of the two trial standard reductions and emission reductions of pumps. The energy savings are levels. Adopting Trial Standard Level 3, Trial Standard Level 3 to be greater than estimated to be between 3.4 and 3.6 instead of Trial Level 2, would save the the potential loss in national NPV and quads, a significant amount. The nation an additional 0.5 Quads of increase in life-cycle-costs to some estimated reduction in installed energy, and further reduce installed consumers, including a relatively small generating capacity is 12.3 GW, or generating capacity by 1.7 GW, or number oflow-income consumers. roughly 31 large, 400 megawatt, power roughly 5 large, 400 megawatt, power After considering thebenefits and plants. 3 0The forecasted reduction in plants.3 5 The incremental emission burdens of Trial Standard Level 3 and generating capacity is approximately reductions of carbon equivalent and comparing the impacts of Trial Standard 1.6% of current installed generating NOx are 3.7 Mt and 10.9 kt, Levels 2 and 3, the Department finds capacity and more than 5% ofthe respectively. Trial Standard Level 3 Trial Standard Level 3 to be maximum anticipated growth in capacity needed would, however, reduce the national improvement in efficiency that is in 2020. The emissions reductions NPV by up to 1billion dollars, technologically feasible and would also be significant: 27.4 Mt of depending on the cost estimates economically justified. Therefore, the carbon equivalent and 78.8 kt ofNOx. used.36 37 The consumer LCC savings Department today proposes to adopt the The national NPV ofthis trial standard are not changed for central air energy conservation standards for air level has a range ofnet costs from 1.to conditioners, but are reduced by $27 for conditioners and heat pumps at Trial 2 billion dollars, using ARI costs. 31 ' 32 split heat pumps usingARI costs. 38 Standard Level 3. All classes ofproduct would have mean In determining the economic LCC savings. The average LCC savings justification of Trial Standard Level 3, Prcedra ssues and Regulatory for consumers with split air the Department has weighed the Review conditioners would be $45, using ARI benefits ofenergy savings, generating A. Review Underthe National costs. 33 The average LCC savings for capacity reductions, reduced average Environmental PolicyAct

consumers with split heat pumps would consumer LCC, and emissions The Department is preparing an be $215, using ARI costs. 34 As an reductions against the burdens of a loss 

### Environmental Assessment of the additional LCC analysis, DOE in manufacturer netpresent value, impacts ofthe proposed rule and DOE considered the effect ofstandards on consumer LCC increases for some low-income consumers. DOE expects households and the potential loss in Significipates completing a Finding ofNo low-income consumers will experience national NPV. We find the benefits to be Signifi mpact (FONS before publishing the final rule on Energy less savings than the population as a substantial. Although the loss in Conservation Standards for central air whole. (See TSD, Chapter 10). Under manufacturer net present value is also substantial, the projected LCC increases conditioners and heat pumps, pursuant 30

DOE estimates 4coal-fired power plants and 27 and loss in national NPV are relatively Act of 1969 (NEPA (42 U.S.C. 4321 et gas-fired power plants can be avoided. SeeTSD, small, and these burdens of Trial Chapter 11 and Appendix H. Standard Level 3 would be outweighed seq.), the regulations ofthe Council on

31 Atthe 3% societal discount rate scenario, the by its benefits. Moreover, in light ofthe Environmental Quality (40 CFR Parts nation would have a net savings of 3 billion dollars. revere engineering analysis we believe 1500-1508), and the Department's With the reverse engineering equipment cost. the reverse engineering analysisregulations fo compliance with NEPA NPV has a net savings of 1billion dollars at the 7% the equipment costs will be lower thancompliance 

### with NEPA Part1021 discount rate and 10billion dollars at 3%. the ARI estimates on which we have

32DOE observes that the average LCC savings for relied and that the loss in national NPV B. Review underExecutive Order12866, all classes at this trial standard level are positive would be less than estimated. "Regulatory Planning andReview" and at the same time the NPV is negative. This is Comparing Trial Standard Level 3 to The Departent has deterined
acounterintuitive result since theNPV can be The Department has determined described as asum ofindividual consumer LCCs. Trial Standard Level 2, DOE found the today's regulatory action is a significant The negative NPV is caused by anumber of factors, potential decrease in national NPV is regulatory action within the scope of including the assumption in the NES that some outweighed by other factors not section 3(f( of Executive Order 12866,

consumers will purchase more efficient products section 3(f)() of Executive Order 12866, than is required bythe standard, e.g., 14 SEER. "Regulatory Planning and Review." (58 Since the NES uses average usage rates and average " DOE estimates one coal-fired power plants and FR1735, October 4 1993). Therefore, marginal energy prices for these consumers, it may four gas-fired power plants can be avoided.R 51735, October 4, 1993

overstate the life-cycle-costs for consumers that 36At the 3% societal discount rate, the national this proposal requires a regulatory voluntarily purchase products which, based on NFPV is reduced by I billion dollars. With the analysis. Such an analysis presents average values, would seem not to be cost-effective, reverse engineering equipment cost, the NPV is not major alternatives to the proposed Furthermore, the NES does not consider factors changed. regulation that could achieve such as utility rebate programs which would have 3"The total national discounted cost of owning substantially the same goal, as well as

a effect on total discounted costs, and operating central air conditioners and eat s

33 Consumers would experience a $113 savings in pumps at this Trial Standard Level 3 is 382 billion a 

### description ofthe cost and benefits life-cycle-costs based on the Department's reverse dollars. engineering costs. "8 Using the reverse engineering costs the savings 6At the 3% societal discount rate, the national 34Consumers would experience a $372 increase areincreased by $7. NPV is reduced by 1billion dollars. With the in life-cycle-costs based on the Department's :1It is possible the NPV does not include the reverse engineering equipment cost, the NPV is not

reverse engineering costs, value of avoided power plants. It should be changed.

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59627

reductions and emission reductions and thereduction inLCC for some
consumers are outweighedbythe negative economic impacts onthe nation, increase in LCC for most

consumers and manufacturer loss in NPV. Consequently, the Department concludes Trial Standard Level 4 is not economicallyjustified.

Next. we consideredTrial Standard Level 3. This level specifies 12 SEER for air conditioners and 13 SEER for heat pumps. The energy savings are estimatedtobebetween 3.4 and 3.6 quads, a significant amount. The estimated reduction in installed generating capacity is 12.3 GW. or roughly 31 large, 400 megawatt, power plants. 3o 

### Theforecasted reduction in generating capacity is approximately 1.6% ofcurrentinstalled generating capacity and more than 5% ofthe anticipated growth in capacity needed in 2020. The emissions reductions would also be significant: 27.4 Mt of carbon equivalent and 78.8 kt ofNOx. The national NPV ofthis trial standard level has a range of

### netcosts from 1.to 2billion dollars. using ARI costS. 31 32 

### All classes ofproduct would have 

### mean LCC savings. The average LCC savings for consumers with split air conditioners wouldbe $45. using ARI costs. 33 

### The average LCC savings for

consumers with splitheatpumps would be $215. usingARI costS. 34 

### As an additional LCC analysis. DOE considered the effect ofstandards on low-income consumers. DOE expects low-income consumers will experience less savings than the population as a whole. (See TSD, Chapter 10). Under

30DOE estimates 4 coal-firedpower plants and 27 gas-fired poworplants can be avoided. See TSD. Chapter 11 and Appendix H.

31 At the 3% societal discount rate scenario. tho nation wouldhavo a net savings of3 billion dollars. With tho reverse ongineering equipment cost. the NPV has a net savings of 1 billion dollars at the 7% discount rate and 10 billion dollars at 3%.

32DOE observes that the averago LCC savings for all classes at this trial standard level aro positive and at the same lime tho NPV is negativo. This is

a counterintuitive result sincetheNPV can be described as a sum ofindividual consumer LCCs. The negative NPV is caused by a number offactors. includingthe assumptionintho NES that somo
consumors will purchase more efficient products than is roquired by the standard. e.g.• 14SEER. Since the NES uses average usage rates and average marginal energy prices for these consumers. it may overstate the lifo-cycle-costs for consumers that voluntarily purchase products which. based on average values. would seem not to be cost-effective. Furthermore. tho NES does not consider factors such as utility robate programs which wouldhavo

a effect on total discounted costs.

33Consumers would experience a $113 savings in lifo-cycle·costs based onthe Department's reverse enginoering costs.

3.Consumers would experience a $372 increase in lifo-cycle-costs based on the Department's

reverse ongineering costs. 

### this trial standard level. the air conditioning industry would experience

a NPV loss ofbetween 171 and 367 million dollars depending onwhether theRoll-up orNAECA efficiency distribution scenario is considered.

Given thebenefits andburdens of Trial Standard Level 3 as discussed above. and observingthereduction in NPV compared toTrial Standard Level 2. theDepartment comparedthebenefits andburdens ofthetwo trial standard levels. AdoptingTrial Standard Level 3. instead ofTrial Level 2, would savethe nation an additional 0.5 Quads of energy. and further reduce installed generating capacity by 1.7 GW, or roughly 5large. 400 megawatt, power plants.3s 

### The incremental emission reductions ofcarbon equivalent and NOx are 3.7 Mt and 10.9 kt, respectively. Trial Standard Level 3 would, however, reduce the national NPV byup to 1 billion dollars. depending on the cost estimates used. 36 37 

### The consumerLCC savings arEl not changed for central air conditioners. but arereducedby$27 for splitheat pumps usingARI costs. 3S



### In determining the economic justification ofTrial Standard Level 3. the Departmenthas weighed the benefits ofenergy savings. generating capacity reductions. reduced average
consumerLCC, and emissions reductions against theburdens ofa loss inmanufacturernetpresentvalue,

consumerLCC increases for some households and the potential loss in national NPV. We find thebenefits tobe substantial. Although the loss in manufacturer net presentvalue is also substantial, the projected LCC increases and loss in national NPV are relatively small, and theseburdens ofTrial Standard Level 3 wouldbe outweighed byits benefits. Moreover. inlight ofthe

reverse engineeringanalysis. webelieve the equipment costs will belowerthan the ARI estimates on whichwehave relied and thatthe loss in national NPV wouldbe lessthanestimated.

ComparingTrial Standard Level 3 to Trial Standard Level 2, DOE found the potential decrease in national NPV is outweighedby otherfactors not

35DOE estimatos onecoal-fired powerplants and four gas-fired powerplants can beavoided.

,.At the 3% societal discount rate. the national NPV is reduced by 1 billion dollars. With tho

reverse engineering equipment cost. the NPV is not changed.

:17The total national discounted cost ofowning and operating central airconditioners and heat pumps at this Trial StandardLovel 3is 382 billion dollars.



# :I. Using the reverse engineering costs the savings

aro increasedby $7.



# :I. It is pOSSible the NPV does not include the value ofavoided power plants. It should be 

### included in the national NPV calculations. For example. the national NPV calculation does not indude quantitative estimates for the value of emission reductions. 39 

### Furthermore. as
an addedbenefit, the standard may improve thereliability ofthe electric distribution system. The Department finds that. compared with Trial StandardLevel 2. the incremental benefits of generating capacity reductions and emissionreductions of Trial Standard Level 3 tobe greaterthan the potential loss in nationalNPV and increase in life-cyde-costs to some consumers, including a relatively small numberoflow-income consumers.

After consideringthebenefits and burdens ofTrial Standard Level 3 and comparing the impacts ofTrial Standard Levels 2 and 3. the Departmentfinds Trial Standard Level 3 to bemaximum improvement in efficiency that is technologically feasible and economicallyjustified. Therefore, the Department todayproposes to adopt the energy conservation standards for air conditioners and heatpumps atTrial StandardLevel 3.
VII. ProceduralIssues and Regulatory Review
A. 

### Review Under theNational EnvironmentalPolicyAct

The Department is preparing an Environmental Assessment ofthe impacts ofthe proposed rule and DOE anticipates completing a Finding ofNo Significant Impact (FONSI) before publishingthe final rule onEnergy Conservation Standards for central air conditioners and heatpumps, pursuant to theNational Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 

### et seq.). 

### theregulations ofthe Council on Environmental Quality (40 CFR Parts 1500-1508). and the Department's regulations for compliance withNEPA (10 CFR Part 1021).


### B. Review underExecutive Order 12866. 

### "RegulatoryPlanningandReview"

The Departmenthas determined today's regulatory action is a significant regulatory actionwithin the scope of section 3(0(1) ofExecutive Order 12866, "Regulatory Planning and Review." (58 FR 51735, October 4.1993). Therefore, this proposal requires a regulatory analysis. Such an analysis presents major alternatives to the proposed regulation that could achieve substantiallythe same goal. as well as
a description ofthe cost andbenefits

3.At the 3% societal discount rate. thenational NPV is reduced by 1 billion dollars. With the

reverse engineering cquipment cost. the NPV is not changod.

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59628 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

(including potential net benefits) ofthe proposed rule. The RIA consists of: (1) DOE identified the following seven proposed rule. Accordingly, the Office A statement of the problem addressed major policy alternatives for achieving ofInformation and Regulatory Affairs by this regulation, and the mandate for consumer product energy efficiency. (OIRA) reviewed today's action under government action; (2)a description and These alternatives include: the Executive Order. analysis ofthe feasible policy * No New Regulatory Action

There were no substantive changes alternatives to this regulation; (3)a * Informational Action between the draft we submitted to OIRA quantitative comparison ofthe impacts -Product Labeling and today's action. The draft and other ofthe alternatives; and (4) the economic -Consumer Education documents we submitted to OIRA for impact ofthe proposed standard. * Prescriptive Standards review are a part ofthe rulemaking The RIA calculates the effects of * Financial Incentives record and are available for public feasible policy alternatives to central air -Tax credits review in the Department's Freedom of conditioner and heat pump energy -Rebates Information Reading Room, 1000 efficiency standards, and provides a -Low income and seniors subsidy Independence Avenue, SW., quantitative comparison ofthe impacts * Voluntary Energy Efficiency Targets Washington, DC 20585, between the ofthe alternatives. We evaluate each (5 Years, 10 Years) hours of 9:00 a.m. and 4:00 p.m., alternative in terms of its ability to * Mass Government Purchases Monday through Friday, except Federal achieve significant energy savings at * The Proposed Approach (Performance holidays, telephone (202) 586-3142. reasonable costs, and we compare it to Standards)

The following summary ofthe the effectiveness ofthe proposed rule. We have evaluated each alternative in Regulatory Impact Analysis (RIA) We created the RIA using a series of terms of its ability to achieve significant focuses on themajor alternatives regulatory scenarios (with various energy savings at reasonable costs considered in arriving at the proposed assumptions), which we used as input (Table VII.1), and have compared it to approach to improving the energy to the shipments model for central air the effectiveness of the proposed rule. efficiency of consumer products. The conditioners and heat pumps. We used All ofthe results below have been reader is referred to the complete RIA, the results from the shipments model as determined with the AEO Reference which is contained in the TSD, available inputs to the NES spreadsheet Case and the NAECA efficiency

as indicated at the beginning oftoday's calculations. scenario.

TABLE VII.1.-ALTERNATIVES CONSIDERED

NPV Energy Policy alternatives (bilions 98$) Savings (billions 98$) Savs (Quads)

Consum er Product Labeling

.................................................................................................................................... 0 0.1 Consumer Education

............................................................................................................................... 0 0.1 Prescriptive Standards

. ............................................................................................................... 0 1.1 Consumer Tax Credits

. ............................................................................................................... 0 0.1 Consum er Rebates

.................................................................................................................................................. 0 0.2 Manufacturer Tax Credits

........................................................................................................................................ 0 0.0 Voluntary Efficiency Target (5 year delay)

........................................................................ -1 3.1 Voluntary Efficiency Target (10 year delay)

........................................ .................. -1 1.9 Low Income Subsidy

............................................................................................................................................... 0 0.1 Mass Government Purchases

................................................................................................................................. 0 0 Performance Standards

. .............................................................................................................. -2 4.4

NPV = Net Present Value (2006-2030, inbillion 1998$) (does not include government expenses). Savings = Energy Savings (Source Quads).

Ifwe imposed no newregulatory To model this possibility, the both 12 SEER and 13 SEER systems. As action, then we would implement no Department estimated that 5% ofthe with the consumer product labeling new standards forthis product. This is consumers purchasing 10 SEER program, it is assumed that the essentially the "base case" for central equipment and 5% ofthe consumers education program would last six years air conditioners and heat pumps. In this purchasing 12 SEER equipment would and upon its expiration sales would
case,between the years 2006 and 2030, change their decisions and purchase 12 drop back to their market share levels there would be an expected energy use SEER and 13 SEER systems, prior to the program's implementation. of 39 Quads ofprimary energy, with no respectively. It is assumed that the This consumer education program energy savings and a zero NPV. program would last six years and upon results in energy savings equal to 0.1

We grouped several alternatives to the its expiration consumers would revert Quad with no impact on the NPV. base case under the heading of back to their prior purchase decisions. Another method of setting standards informational action. They include The consumer product labeling would entail requiring that certain

consumer product labeling and DOE alternative resulted in 0.1 Quad of design options be used on each product, public education and information energy savings with no impact on the i.e., for DOE to impose prescriptive programs. Both of these alternatives are NPV. standards. For this approach, we assume already mandated by, and are being Another approach, called consumer that a prescriptive standard is implemented under EPCA sections 324 education, is to consider an Energy implemented to ensure that all central and 337, 42 U.S.C. 6294, 6297. One base Stare program for 12 SEER and 13 SEER air conditioners and heat pumps are
case alternative would be to estimate the central air conditioners and heat pumps. equipped with thermostatic expansion energy conservation potential of We assume, under this program, there valves (TXVs). The resulting efficiency enhancing consumer product labeling, would be a 20% increase in the sales of increase is 0.5 SEER. That is, the

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59628 Federal Register/ Vol. 65, No. 194/J'hursday, October 5, 2000/Proposed Rules

(including potential netbenefits) ofthe proposed rule. Accordingly, the Office ofInformation and Regulatory Affairs (OlRA) reviewed today's action under the Executive Order.

There were no substlfntive changes between the draft we submitted to OlRA and today's action. The draft and other documents we submitted to OlRA for review are a part ofthe rulemaking record and are available for public review intheDepartment's Freedom of Information Reading Room, 1000 

### IndependenceAvenue, SW.• Washington, DC 20585,

### betweenthe hours of9:00 

### a.m. and 4:00 

### p.m., Monday throughFriday, except Federal holidays, telephone (202) 586-3142.



### The following summary ofthe Regulatory ImpactAnalysis (RIA) focuses on themajor alternatives considered in arriving atthe proposed approach to improvingthe energy efficiency ofconsumer products. The reader is referred to the complete RIA, which is contained in the TSD, available

as indicated at the beginning oftoday's proposed rule. The RIA 

### consists of: (1) 

### A statement ofthe problem addressed by this regulation, and the mandate for government action; (2) 

### a description and analysis ofthe feasible policy alternatives to this regulation; (3) 

### a quantitative comparison ofthe impacts ofthe alternatives; and (4) 

### the economic impact ofthe proposed standard.

The RIA 

### calculatesthe effects of feasible policy alternatives to central air conditionerand heat pump energy efficiency standards, and provides a quantitative comparison ofthe impacts ofthe alternatives. We evaluate each alternative interms ofits abilityto achieve significant energy savings at reasonable costs. andwe compare it

### to the effectiveness ofthe proposed rule.

We created the RIA 

### using a series of regulatory scenarios (with various assumptions), which we used as input to the shipments model for central air conditioners and heatpumps. We used the results from the shipments model as inputs to the NES spreadsheet calculations.

TABLE VII.1.-ALTERNATIVES CONSIDERED



### Policy altematives DOE identified the following seven major policy alternatives for achieving

consumer productenergy efficiency. These alternatives include:

• No New Regulatory Action

• InformationalAction

-ProductLabeling --ConsumerEducation

• Prescriptive Standards

• Financial Incentives

-Taxcredits -Rebates -Lowincome and seniors subsidy

• Voluntary Energy EfficiencyTargets (5 

### Years, 10

### Years)

• Mass GovernmentPurchases

• TheProposed Approach (Performance Standards) We have evaluated each alternative in terms ofits ability to achieve significant energy savings at reasonable costs (Table Vll.1), 

### andhave compared itto the effectiveness ofthe proposedrule. All ofthe results below havebeen determined with theAEO Reference Case and the NAECA efficiency scenario.

NPV (billions 98$) 

### Energy Savings (Quads)

Consumer Product Labeling

.................................................................................................................................... 

## o o o o 

## o o 0.1 0.1 1.1 0.1 0.2 0.0 3.1 1.9 0.1 

### Consumer Education

............................................................................................................................................... Prescriptive Standards

............................................................................................................................................. Consumer Tax Credits

............................................................................................................................................. Consumer Rebates

.................................................................................................................................................. Manufacturer Tax Credits

........................................................................................................................................ Voluntary Efficiency Target (5 

### year delay)

.............................................................................................................. -1 

### Voluntary Efficiency Target (10 

### year delay)

..............................................**~**

### ............................................................. -1 

### low Income SubSidy

............................................................................................................................................... 

## o o -2 

### Mass Govemment Purchases

................................................................................................................................. 

### o 4.4 

### Performance Standards

...........................................................................................................................................

NPV 

## =Net Present Value (2006-2030, 

### in billion 1998$) 

### (does not include govemment expenses). Savings 

### =Energy Savings (Source Quads).

If

### we imposed no newregulatory action, then we would implementno
new standards for this product. This is essentiallythe "base case" for central air conditioners and heat pumps. In this case, betweentheyears 2006 

### and 2030, 

### there wouldbe an expected energy use of 39 

### Quads ofprimary energy, with no energy savings and a zero NPV.

We grouped several alternatives to the base case underthe heading of informational action. Theyinclude

consumerproduct labeling and DOE public education and information programs. Both ofthese alternatives are already mandated by, and arebeing implemented under EPCA sections 324 

### and 337,42 

### U.S.C. 6294, 6297. 

### Onebase

case alternative wouldbe to estimate the energy conservationpotential of enhancing consumerproductlabeling. To model this possibility, the Department estimated that 5% 

### ofthe

consumers purchasing 10 

### SEER equipment and 5% 

### ofthe consumers purchasing 12 

### SEER equipment would change their decisions andpurchase 12 

### SEER and 13 

### SEER systems, respectively. It

### is assumed thatthe program would last sixyears and upon its expiration consumers wouldrevert backto theirpriorpurchase decisions. The consumerproductlabeling alternativeresulted in 0.1 

### Quad of energy savings with no impact onthe NPV.

Another approach, called consumer education, is to consideranEnergy Star® program for 12 

### SEER and 13 

### SEER central airconditioners and heatpumps. We assume, underthis program, there wouldbe a 20% 

### increase inthe sales of both 12 

### SEER and 13 

### SEER systems. As withthe consumerproductlabeling program, it is assumed that the education program would last six years and upon its expiration sales would dropbackto their market share levels priortothe program's implementation. This consumer educationprogram results inenergy savings equal to 0.1 

### Quad with no impact onthe NPV.

Anothermethod ofsetting standards would entail requiring that certain design options be used on each product, 

### i.e., for DOE to impose prescriptive standards. For this approach, we assume that a prescriptive standard is implementedto ensure thatall central air conditioners and heatpumps are equipped with thermostatic expansion valves (TXVs). Theresulting efficiency increase is 0.5 SEER. Thatis, the

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Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59629

baseline efficiency of 10 SEER is would save no energy and have no Lastly, all of these alternatives must assumed to increase to 10.5 SEER as a impact on the NPV. The impact ofthis be gauged against the performance result of the prescriptive standard. scenario would be negligible because standards we are proposing in today's Manufacturer costs associated with this the investment tax credit was applicable proposed rule. Such performance standard were arrived by linearly only to the tooling and machinery costs standards would result in energy interpolating between those costs ofthe firms. The firms' fixed costs and savings under the AEO Reference Case associated with the baseline (i.e., 10 some ofthe design improvements that and NAECA efficiency scenario of3.5 SEER) and 11 SEER efficiency levels. would likely be adopted to manufacture Quads, and the NPV estimates range This resulted in energy savings of 1.1 more efficient versions ofthis product from an increase of $3billion to a cost Quad and no impact on the NPV. would involve purchased parts. of $2 billion.

We tested various financial incentive Expenses for purchased parts would not As indicated in the paragraphs above, alternatives. These included tax credits be eligible for an investment tax credit. none ofthe alternatives we examined and rebates to consumers, as well as tax We examined two scenarios of for these products would save as much credits to manufacturers. We assumed voluntary energy efficiency targets. In energy as today's proposed rule. Also, the tax credits to consumers were 50% the first one, we assumed all the several ofthe alternatives would require ofthe incremental purchase price for relevant manufacturers voluntarily new enabling legislation, since authority higher energy-efficiency equipment. The adopted the proposed energy to carry out those alternatives does not incremental price is based on the conservation standards in five years. In presently exist. difference between the 2006 baseline the second scenario, we assumed the C.Review UndertheRegulatory epricmndte esprice of 12 SEER f proposed standards were adopted in 10 Flexibility Act equipment. We estimate theimpact of years. In these scenarios, voluntary The Regulatory Flexibility Act of 1980 this policy would be to move 5% ofthe TheRegulatory Flexibility Act of1980 market share from the 2006 baseline to mprovements having a five-year delay, (Pub. L. 96-354) requires an assessment 12 SEER models. These tax credits ma ryofthe impact of regulations on small would start in 2006 and run for six mandry standards, would rsut in 1 businesses. For air conditioning and energy savings of 3.1 Quads and -$1 years. We assume people stop buying billion NPV voluntary improvements warm air heating equipment these more efficient and more expensive having a 10-year delay would result in manufacturing, a "firm" is defined by central air conditioners and heat pumps 19 Quads being saved and -$1 billion the Sma Business Administration as a when the tax credits stop. The tax NV. These scenarios assume tat there small business ifit (including affliates) credits to consumers showed a change

. scenaosassume tht has 750 or fewer employees. from the base case, saving 0.1 Quad would be uversal vountary opton The residential air-conditioner with no impact to the NPV. ofthe energy conservation standards by industry is characterized by seven firms

To estimate the impact ofconsumer these appliance manufacturers, an accounting for nearly 95% of sales. DOE rebates, we assumed rebates of35% of assumption for which there is no understands that each ofthese firms, the incremental retail prices for higher assurance. including its affiliates, has more than energy-efficiency equipment. The One ofthe market barriers tohigher 750 employees. Smaller businesses and incremental cost is based on the efficiency central air conditioners and firms, which make specialty airdifference between the 2006 baseline heat pumps is the expense to upgrading conditioning products and supply niche cost and the cost of 12 SEER equipment. to a more efficient system. Since these markets, share 5% of the market. We estimate the impact of this policy expenses can be a particular burden on In this industry, average production would be to move 10% ofmarket share low income households, we considered cost is inversely related to firm size. The from the 2006 baseline tothe 12 SEER a low income subsidy of $500 to make industry displays economies of scale, models. These rebates would start in higher efficiency central air- and large firms (to the extent that their 2006 and run for six years. We assume conditioning and heat pump equipment facilities are modernized) have lower people stop buying these more efficient available and cost effective for these average production costs than small and more expensive central air households. We determined the number firms. This fact, coupled with increasing conditioners and heatpumps when the oflow income households with central competitiveness ofthe national market, rebates stop. The rebates to consumers air-conditioning from the RECS public probably accounts for the consolidation showed a change from the base case, use data. We assumed that half ofthese that has occurred for several decades. would save 0.2 Quad with no impact to households would take advantage of the The fact that the consolidation has been the NPV. program. The program would start in producing larger firms strongly

Another financial incentive we 2006 and run for six years. This subsidy corroborates the finding that large firms considered was a tax credit to would save 0.1 Quad with no impact to have a cost advantage. manufacturers for the production of theNPV. Aprincipal implication of energy-efficient models of central air Another policy alternative we consolidation is that the smaller ofthe conditioners and heat pumps. We reviewed was that oflarge purchases of firms willbe, on average, more assumed an investment tax credit of high efficiency central air conditioners vulnerable to the financial impacts of 20%, applicable to the tooling and and heat pumps by Federal, State, and higher efficiency standards. Any machinery costs ofthe manufacturers. local governments. We modeled this decrease in average profitability is more These are tooling costs as they relate to policy by assuming these governmental likely to mean the difference between producing 12 SEER central air entities (e.g., U.S. Department of success and failure for a smaller firm. conditioners and heat pumps. We Housing and Urban Development at the The impact ofhigher efficiency estimate the impact ofthis policy would Federal level) purchased 12 SEER standards on small firms is likely to be be to move 1% ofthe market share from equipment for 5% ofthe low income, mixed. Those firms that face a large the 2006 baseline to the 12 SEER rented housing stock utilizing central technological challenge in meeting the models. These tax credits would start in air-conditioning and heat pump new standards may face a 2006 and run for six years. We assume equipment. This policy alternative disproportionate burden, because no persistence in the market once they resulted in no energy savings with no smaller firms have more limited stop. Tax credits to manufacturers impact to theNPV. research and development capabilities

# EE.RM/STD.9~.440.-.:fI==-

# C:Z()**~**

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59629

baseline efficiency of 10 SEER is assumed to increase to 10.5 SEER as a result ofthe prescriptive standard. Manufacturer costs associated with this standard were arrived by linearly interpolating between those costs associated with the baseline (i.e., 10 

### SEER) and 11 SEER efficiency levels. Thisresulted in energy savings of 1.1 Quad and no impact onthe NPV.

We tested various financial incentive alternatives. These included tax credits and rebates to consumers, as well as tax credits to manufacturers. We assumed the tax credits to consumers were 50% ofthe incremental purchaseprice for higher energy-efficiency equipment. The incrementalprice is based onthe differencebetweenthe 2006 baseline price and the price of 12 SEER equipment. We estimate the impact of this policywouldbe to move 5% ofthe market sharefrom the 2006 baseline to 12 SEER models. Thesetax credits would start in 2006 andrun for six years. We assume people stop buying these more efficient and more expensive central airconditioners and heat pumps when the tax credits stop. The tax credits to consumers showed a change from the base case, saving 0.1 Quad with no impact to the NPV.

To estimatethe impact ofconsumer rebates, we assumed rebates of35% of the incremental retail prices for higher energy-efficiencyequipment. The incremental cost isbased on the difference between the 2006 baseline cost and the cost of 12 SEER equipment. We estimatethe impact ofthis policy wouldbe to move 10% ofmarket share from the 2006 baseline to the 12 SEER models. These rebates would start in 2006 andrun for six years. We assume people stopbuying these more efficient and more expensive central air conditioners andheat pumps when the rebates stop. Therebates to consumers showed a change from thebase case, would save 0.2 Quad with no impact to theNPV.

Anotherfinancial incentive we considered was a tax credit to manufacturers for the production of energy-efficient models ofcentral air conditioners and heat pumps. We assumed an investmenttax credit of 20%, applicable to the tooling and machinery costs ofthe manufacturers. These are tooling costs as theyrelate to producing 12 SEER central air conditioners and heat pumps. We estimate the impact ofthis policywould be to move 1 % ofthe market share from the 2006 baseline to the 12 SEER models. These tax credits would start in 2006 and run for six years. We assume
no persistence in the market once they stop. Tax credits to manufacturers would save no energy and have no impact onthe NPV. The impact ofthis scenario wouldbe negligible because the investmenttax credit was applicable only to the tooling and machinery costs ofthe firms. The firms' fixed costs and

some ofthe design improvements that would likely be adopted to manufacture

more efficient versions ofthis product would involve purchased parts. Expenses for purchased parts would not be eligible for an investmenttax credit.

We examined two scenarios of voluntary energy efficiency targets. In the first one, we assumed all the relevant manufacturers voluntarily adopted the proposed energy conservation standards in five years. In the second scenario, we assumed the proposed standards were adopted in 10 years. In these scenarios, voluntary improvements having a five-year delay, compared to implementation of mandatory standards, wouldresult in energy savings of3.1 Quads and

- $1 billionNPV; voluntary improvements having a 10-year delay would result in 1.9 Quadsbeing saved and -$1 billion NPV. These scenarios assume that there wouldbe universal voluntary adoption ofthe energy conservation standardsby these appliance manufacturers, an assumption for which there is no
assurance.

One ofthe marketbarriers tohigher efficiency central airconditioners and heat pumps is the expense to upgrading to a more efficient system. Since these expenses canbe a particularburden on low income households, we considered

a low income subsidy of$500 to make higher efficiency central airconditioning and heat pump equipment available and cost effective for these households. We determined the number oflow income households with central air-conditioning from theRECS public

use data. We assumed thathalfofthese households would take advantage ofthe program. The program would start in 2006 and run for six years. This subsidy would save 0.1 Quad withno impactto theNPV.

Another policy alternative we reviewed was that oflarge purchases of high efficiency central air conditioners and heatpumpsby Federal, State, and local governments. We modeled this policyby assumingthese governmental entities 

### (e.g., U.S. Department of Housing and Urban Development at the Federal level) purchased 12 SEER equipment for 5% ofthe low income, rented housing stock utilizing central air-conditioning and heat pump equipment. This policy alternative resulted in no energy savings with no impact to theNPV. Lastly, all ofthese alternatives must be gauged against the performance standards we are proposing intoday's proposedrule. Suchperformance standards wouldresult in energy savings undertheAEO Reference Case and NAECA efficiency scenario of3.5 Quads, and the NPV estimates range from an increase of$3 billion to a cost of$2 billion.

As indicated in the paragraphs above,

none ofthe alternatives we examined for these products would save as much energy as today's proposed rule. Also, several ofthe alternatives wouldrequire

new enabling legislation, since authority to carry outthose alternatives does not presently exist.

C. 

### Review Under theRegulatory FlexibilityAct

The Regulatory FlexibilityAct of 1980 (Pub. L. 96-354)requires an assessment ofthe impact ofregulations on small businesses. For air conditioning and

warm airheating equipment manufacturing, a "firm" is defined by the Small Business Administration as a smallbusiness ifit (including affliates) has 750 or fewer employees.

Theresidential air-conditioner industry is characterized by sevenfirms accounting for nearly 95% ofsales. DOE understands that each ofthese firms, includingits affiliates, has more than 750 employees. Smallerbusinesses and firms, which make specialtyairconditioningproducts and supplyniche markets, share 5% ofthe market.

Inthis industry, average production cost is inverselyrelated to firm size. The industry displays economies ofscale, and large firms (to the extentthat their facilities are modernized) have lower average production costs than small firms. This fact, coupled with increasing competitiveness ofthe national market, probably accounts for the consolidation thathas occurred for several decades. The fact thatthe consolidationhasbeen producing larger firms strongly corroboratesthe finding that large firms have a cost advantage.

A principal implication of consolidation is that the smaller ofthe firms will be, on average, more vulnerable to the financial impacts of higher efficiency standards. Any decrease in average profitability is more likely to mean the differencebetween

success and failure for a smallerfirm.

The impact ofhigher efficiency standards on small firms is likelyto be mixed. Those firms that face a large technological challenge in meeting the

new standards may face a disproportionate burden,because smaller firms have more limited research and development capabilities

## EE.RM/STD-98-440_-=:<

-

59630 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

than their larger competitors. Some general duty to adhere tothe following responsibilities among the various smaller manufacturers indicated the requirements: (1)Eliminate drafting levels ofgovernment. State regulations potential for a negative economic errors and ambiguity; (2) write that may have existed on the products impact of any higher standard level on regulations to minimize litigation; and that are the subject oftoday's proposed their firms. However, since these (3) provide a clear legal standard for rule were preempted by the Federal

concerns apply primarily to small affected conduct rather than a general standards established in NAECA 1987. manufacturers ofniche products, they standard and promote simplification States can petition the Department for benefit from the provisions proposed by and burden reduction. With regard to exemption from such preemption based the Department to somewhat protect thereview required by Section 3(a), on criteria set forth in EPCA. No further those products fromthe new standards. Section 3(b) ofExecutive Order 12988 action is required by Executive Order For example, a separate product class is specifically requires that Executive 13132. being proposed for through-the-wall agencies make every reasonable effort to

. Review Underthe Unfunded equipment, many ofwhich are ensure that the regulation: (1)Clearly MandatesReformAct manufactured by small manufacturers. specifies the preemptive effect, ifany; Also, the Department has acknowledged (2) clearly specifies any effect on With respect to a proposed regulatory that small manufacturers ofhigh existing Federal law or regulation; (3) action that may result in the velocity distribution systems may provides a clear legal standard for expenditure by State, local, and tribal potentially be adversely affected by the affected conduct while promoting governments, in the aggregate, or by the proposed standard level. The simplification and burden reduction; (4) private sector, of $100 million or more Department is considering specifies the retroactive effect, if any; (5) (adjusted annually for inflation) in any modifications to the SEER test adequately defines key terms; and (6) one year, section 202(a) of the Unfunded procedure, which would grant these addresses other important issues Mandates Reform Action of 1995 manufacturers some relief. Vertical- affecting clarity and general (UMRA), 2 U.S.C. 1531 etseq.requires packaged, wall-mounted equipment is draftsmanship under any guidelines a Federal agency to publish a written another product manufactured by small issued by theAttorney General. Section statement concerning estimates ofthe firms, and, as stated in Section V.J.3 of 3(c) ofExecutive Order 12988 requires resulting costs, benefits and other effects this notice, the Department intends to Executive agencies to review regulations on the national economy. 2 U.S.C. consider those to be commercial in light ofapplicable standards in 1532(a),(b). DOE estimates that the products under EPACT. These Section 3(a) and Section 3(b) to proposed standards, ifadopted, would provisions should eliminate any determine whether they are met or it is not result in the expenditure by the potential for significant economic unreasonable to meet one or more of private sector of $100 million or more impact on small manufacturers related them. DOE reviewed today's proposed in a year, with the possible exception of
to the proposed standard level. rule under the standards of Section 3 of one year in which industry

Many small manufacturers produce the Executive Order and determined expenditures could total approximately coils only. Since there are no intensive that, to the extent permitted by law, the $110 million. incremental technological or capital regulations meet the relevant standards. Section 202 ofUMRA authorizes an requirements for these companies to " " agency to respond to thecontent increase the efficiency oftheir products, F. Takings"AssessmentReview requirements ofUMRA in any other

we do not expect them to face any The Department has determined statement or analysis that accompanies incremental burden as a result ofthe pursuant to Executive Order 12630, the proposed rule. 2U.S.C. 1532(c). The

new standards. "Governmental Actions and Interference content requirements of section 202(b)

In view ofthese conclusions, the with Constitutionally Protected Property ofUMRA relevant to a private sector Department has determined and hereby Rights," 53 FR 8859 (March 18, 1988), mandate substantially overlap the certifies pursuant to section 605(b) of that this regulation would not result in economic analysis requirements that the Regulatory Flexibility Act that, for any takings that might require apply under section 325(o) ofEPCA and this particular industry, the proposed compensation under the Fifth Executive Order 12866. The standard levels in today's proposed rule Amendment to the United States Supplementary Information section of will not "have a significant economic Constitution. the Notice ofProposed Rulemaking and impact on a substantial number of small G Review UnderExecutive Order 1332 "Regulatory Impact Analysis" section of entities," and it is not necessary to the TSD for today's proposed rule prepare a regulatory flexibility analysis. Executive Order 13132 (64 FR 43255, responds tothose requirements. August 4, 1999) requires agencies to DOE is obligated by Section 205 of D.Review UnderthePaperwork develop an accountable process to UMRA, 2U.S.C. 1535, to identify and ReductionAct ensure meaningful and timely input by consider a reasonable number of

No new information or record keeping State and local officials in the regulatory alternatives before requirements are proposed in this development ofregulatory policies that promulgating a rule for which a written rulemaking. Accordingly, no Office of have "federalism implications." statement under section 202 isrequired. Management and Budget clearance is Agencies are required to examine the From those alternatives, DOE must required under the Paperwork constitutional and statutory authority select the least costly, more costReduction Act. 44 U.S.C. 3501 etseq. supporting any action that would limit effective or least burdensome alternative the policymaking discretion ofthe that achieves the objectives ofthe rule, E.Review UnderExecutive Order12988, States and carefully assess the necessity unless DOE publishes anexplanation of "CivilJustice Reform" for such actions. DOE has examined why a different alternative is selected. With respect to the review ofexisting today's proposed rule and has As required by section 325(o) ofthe regulations and the promulgation of determined that it would not have a Energy Policy and Conservation Act (42

new regulations, Section 3(a) of substantial direct effect on the States, on U.S.C. 6295(o)), this proposed rule Executive Order 12988, "Civil Justice therelationship between the national would establish energy conservation Reform," 61 FR 4729 (February 7, 1996), government and the States, or on the standards for central air conditioners imposes on Executive agencies the distribution ofpower and and heat pumps that are designed to 

### 59630 Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

than their larger competitors. Some smallermanufacturers indicated the potential for a negative economic impact ofany higher standard level on their firms. However, since these

concerns apply primarily to small manufacturers ofniche products, they benefit from the provisions proposed by the Department to somewhatprotect those productsfrom the new standards. For example, a separate productclass is being proposed for through-the-wall equipment, many ofwhich are manufacturedby small manufacturers. Also, theDepartmenthas acknowledged that small manufacturers ofhigh velocity distribution systems may potentiallybe adversely affectedbythe proposed standard level. The Department is considering modifications to the SEERtest procedure, which would grant these manufacturers some relief. Verticalpackaged, wall-mounted equipmentis another productmanufactured by small firms, and, as stated in SectionV.J.3 of this notice, the Department intends to consider those to be commercial productsunder EPACT. These provisions should eliminate any potential for significant economic impact on small manufacturers related totheproposed standardlevel.

Many small manufacturers produce coils only. Sincethere are no intensive incrementaltechnological or capital requirements for these companies to increase the efficiency oftheirproducts,

we do not expectthem to face any incrementalburden as a result ofthe

new standards.

In view ofthese conclusions, the Departmenthas determined and hereby certifies pursuantto section 605(b) of the Regulatory FlexibilityActthat, for this particularindustry, the proposed standard levels intoday's proposedrule will not "have a significanteconomic impact on a substantial number ofsmall entities," and it is not necessary to prepare a regulatory flexibility analysis.


### D. Review Under the Paperwork ReductionAct

No new information orrecord keeping requirements are proposed inthis rulemaking. Accordingly, no Office of Management and Budget clearance is required underthe Paperwork ReductionAct. 44 U.S.C. 3501 

### etseq. E. Review UnderExecutive Order 12988, "CivilJustice Reform"

With respectto the review ofexisting regulations and the promulgation of

newregulations, Section 3(a) of Executive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7,1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting

errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conductrather than a general standard and promote simplification andburdenreduction. Withregard to thereview required by Section 3(a), Section 3(b) ofExecutive Order 12988 specifically requires that Executive agencies make every reasonable effort to

ensure that the regulation: (1) Clearly specifies the preemptive effect, ifany; (2) clearly specifies any effect on existingFederal law orregulation; (3) provides a clear legal standard for affected conduct whilepromoting simplification andburdenreduction; (4) specifies theretroactive effect, 

### ifany; (5) adequately defines key terms; and (6) addresses otherimportant issues affecting clarity and general draftsmanship underanyguidelines issued by theAttorney General. Section 3(c) ofExecutive Order 12988requires Executive agencies to review regulations inlight ofapplicable standards in Section 3(a) andSection 3(b) to determine whetherthey are met or it is unreasonable to meet one or more of them. DOE reviewed today's proposed ruleunderthe standards ofSection 3 of the Executive Order and determined that, to the extentpermittedby law, the regulations meet the relevant standards.


### F. "Takings"AssessmentReview

The Departmenthas determined pursuantto Executive Order 12630, "GovernmentalActions and Interference with Constitutionally Protected Property Rights," 53 FR 8859 (March 18, 1988), that this regulation would not result in any takings thatmight require compensationunder the Fifth Amendmentto the United States Constitution.


### C. Review UnderExecutive Order 13132

Executive Order 13132 (64 FR 43255, August 4, 1999) requires agencies to develop an accountable process to

ensure meaningful and timely inputby State and local officials in the development ofregulatory policiesthat have "federalism implications." Agencies are required to examine the constitutional and statutory authority supportingany actionthat would limit the policymaking discretion ofthe States and carefully assess the necessity for such actions. DOE has examined today's proposed rule and has determined that it would nothave a substantial direct effect onthe States, on therelationshipbetweenthe national government and the States, or onthe distribution ofpower and responsibilities among the various levels ofgovernment. State regulations that mayhave existed onthe products that are the subject oftoday's proposed rule were preemptedby the Federal standards established in NAECA 1987. States canpetition the Department for exemption from suchpreemptionbased

on criteria set forth inEPCA. No further action is requiredbyExecutive Order 13132.


### H. Review Under the Unfunded Mandates ReformAct

Withrespectto a proposed regulatory action that mayresult in the expenditureby State, local, and tribal governments, inthe aggregate, orbythe private sector, of$100million ormore (adjusted annually for inflation) in any
one year, section 202(a) ofthe Unfunded Mandates Reform Action of 1995 (UMRA), 2 U.S.C. 1531 

### etseq. requires

a Federal agency topublish a written statement concerning estimates ofthe resulting costs, benefits and other effects

on the national economy. 2 U.S.C. 1532(a),(b). DOE estimates that the proposed standards, if

### adopted, would not result in the expenditurebythe private sector of$100 million ormore in a year, with thepossible exception of

one year inwhich industry expenditures could total approximately $110 million.

Section 202 ofUMRA authorizes an agency torespondtothecontent requirements ofUMRA in any other statement or analysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The contentrequirements ofsection 202(b) ofUMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(0) ofEPCA and Executive Order 12866. The SupplementaryInformation section of the Notice ofProposed Rulemaking and "Regulatory ImpactAnalysis" section of the TSD for today's proposedrule responds to those requirements.

DOE is obligated by Section 205 of UMRA, 2 U.S.C. 1535, to identify and consider a reasonable number of regulatory alternativesbefore promulgating a rule for which a written statementunder section 202 is required. From those alternatives, DOE must selectthe least costly, more costeffective orleastburdensome alternative that achieves the objectives ofthe rule, unless DOE publishes anexplanation of why a different alternative is selected. As required by section 325(0) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(0)), this proposed rule would establish energy conservation standards for central air conditioners and heatpumpsthat are designed to*.;· " r 

## -~~~EE-RM/STD-98-440 -6'~

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59631

achieve the maximum improvement in at the beginning ofthis notice. We will and provide a telephone number for energy efficiency that DOE has consider all submittals received by the contact. We request each person determined tobe both technologically date specified at the beginning ofthis selected to be heard to submit an feasible and economically justified. A notice in developing the final rule. advance copy ofhis or her statement at full discussion ofthe alternatives According to 10 CFR 1004.11, any least two weeks prior to the date ofthis considered by DOE is presented in the person submitting information that he hearing as indicated at the beginning of "Regulatory Impact Analysis" section of or she believes to be confidential and this notice. At our discretion, we may the TSD for this notice. exempt by law from public disclosure permit any person who cannot do this should submit one complete copy ofthe to participate ifthat person has made I Review Underthe Treasuryand document and ten (10) copies, if alternative arrangements with the Office GeneralGovernmentAppropriations possible, from which the information ofBuilding Research and Standards in Act of1999 believed tobe confidential hasbeen advance. The request to give an oral

Section 654 of the Treasury and deleted. The Department ofEnergy will presentation should ask for such General Government Appropriations make its own determination with regard alternative arrangements. Act, 1999 (Pub. L. No. 105-277) requires to the confidential status of the Federal agencies to issue a Family information and treat it according to its 2Conduct ofHearing Policymaking Assessment for any determination. The Department will designate a proposed rule or policy that may affect Factors ofinterest to the Department Department official to preside at the family well-being. Today's proposal when evaluating requests to treat as workshop and we may also use a would not have any impact on the confidential information that has been professional facilitator to facilitate autonomy or integrity ofthe family as submitted include: (1)A description of discussion. The workshop will not be a
an institution. Accordingly, DOE has the items; (2) an indication as to judicial or evidentiary-type hearing, but concluded that it is not necessary to whether and why such items are the Department will conduct it in prepare a Family Policymaking customarily treated as confidential accordance with 5 U.S.C. 553 and Assessment. within the industry; (3) whether the Section 336 ofthe Act and a court 

### I.Review UnderthePlainLanguage information is generally known by or reporter will be present to record the DiRevew UnderthePlanLanguage available from other sources; (4) transcript of the workshop. We reserve D~irec t~ives~ whether the information has previously the right to schedule the presentations Section 1(b)(12) ofExecutive Order been made available to others without by workshop participants, and to 12866 requires that each agency draft its obligation concerning its establish the procedures governing the regulations to be simple and easy to confidentiality; (5) an explanation ofthe conduct ofthe workshop. understand, with the goal ofminimizing competitive injury to the submitting The Department will permit each the potential for uncertainty and person which would result from public participant to make a prepared general litigation arising from such uncertainty. disclosure; (6) an indication as to when statement, limited to five (5) minutes, Similarly, the Presidential such information might lose its prior to the discussion ofspecific topics. memorandum ofJune 1, 1998 (63 FR confidential character due to the The general statement should not 31883) directs the heads ofexecutive passage oftime; and (7) whether address these specific topics, but may departments and agencies to use, by disclosure ofthe information would be cover any other issues pertinent to this January 1, 1999, plain language in all contrary to the public interest. rulemaking. The Department will permit proposed and final rulemaking other participants tobriefly comment on documents published in the Federal B. Public Workshop/Hearing any general statements. We will divide Register, unless the rule was proposed 1. Procedure for Submitting Requests To the remainder of thehearing into before that date. Speak segments, with each segment consisting

Today's proposed rule uses the

. . of one or more ofthe following specific following general techniques to abide by You will find the me and place of topics covered by this notice: section (b)(12) ofExecutive Order the public hearing lsted at the Engineering analysis, including 12866 and the Presidential beginning of this notice. We invite any mrk memorandum ofJune 1, 1998 (63 FR person who has an interest in today's Li-Cycle-Cost and payback 31883): notice, or who is a representative ofa analysis;

* Organization ofthe material to group or class ofpersons that has an. National Energy Savings and Net

serve the needs of the readers interest in these issues, to request an Present Value; (stakeholders). opportunity to make an oral

· Manufacturer impacts;

* Use ofcommon, everyday words in presentation. If you would like to attend

. Utility impacts; short sentences. the public hearing, please notify Ms. * Proposed standards, including an

* Shorter sentences and sections. Brenda Edwards-Jones at (202) 586- EER-based standard and TXV We invite your comments on how to 2945. You may hand deliver requests to considerations; and Wme invit e your comments onho to speak to the address indicated at the * Other issues. unke proposedstd rule easier tobeginning of this notice between the The Department will introduce each hours of 8 a.m. and 4 p.m., Monday topic with a brief summary ofthe VIII. Public Comment through Friday, except Federal holidays. relevant parts ofour analysis and ofthe You may also send them by mail or E- proposed rule, and the significant issues A. Written CommentProcedures mail to brenda.edwards- involved. We will then permit

The Department invites interested jones@ee.doe.gov. participants in the hearing to make a persons toparticipate in the proposed The person making the request should prepared statement limited to five (5) rulemaking by submitting data, state why he or she, either individually minutes on that topic. Atthe end of all comments, or information with respect or as a representative ofa group or class prepared statements on a topic, the to the proposed issues set forth in ofpersons, is an appropriate Department will permit each participant today's proposed rule to Ms. Brenda spokesperson, briefly describe the to briefly clarify his or her statement Edwards-Jones, at the address indicated nature of the interest in the rulemaking, and comment on statements made by 

### Federal Register/ Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

### 59631

achieve the maximum improvement in energy efficiency that DOE has determined to bebothtechnologically feasible and economicallyjustified. A full discussion ofthe alternatives consideredbyDOE is presented inthe "Regulatory ImpactAnalysis" section of theTSD for this notice.
/. Review Under the Treasury and General GovernmentAppropriations Actof1999



### Section 654 

### ofthe Treasury and General Government Appropriations Act, 1999 

### (Pub. L. 

### No. 105-277)

### requires Federal agencies to issue a Family PolicymaldngAssessment for any proposed rule or policythat may affect family well-being. Today's proposal would nothave any impact onthe autonomy orintegrity ofthe family as
an institution. Accordingly, DOE has concludedthat it is not necessaryto prepare a Family Policymaking Assessment. 

## J. Review Under thePlain Language Directives

Section 1(b)(12) 

### ofExecutive Order 12866

### requires that each agency draft its regulations to be simple and easy to understand,withthe goal ofminimizing the potential for uncertainty and litigation arising from suchuncertainty. Similarly, the Presidential memorandum ofJune I, 1998 (63 

### FR 31883) 

### directstheheads ofexecutive departments and agencies to use, by January I, 1999,

### plain language inall proposed and final rulemaking documents published inthe Federal Register, unless therule was proposed before that date.

Today's proposedrule uses the following general techniques to abide by section 1(b)(12) 

### ofExecutive Order 12866 

### and the Presidential memorandum oOtme 1, 1998 (63 

### FR 31883):



### • Organization ofthe material to
serve the needs ofthe readers (stakeholders).

• Use ofcommon, everyday words in short sentences.

• Shorter sentences and sections. We invite yourcomments onhowto make this proposedrule easierto understand.
VIII. Public Comment
A. 

### Written CommentProcedures

TheDepartmentinvites interested persons to participate inthe proposed rulemaking by submitting data, comments, orinformation withrespect to the proposed issues set forth in today's proposed rule to Ms. Brenda Edwards-Jones, at the address indicated at thebeginning ofthis notice. We will consider all submittalsreceived by the date specified at thebeginning ofthis notice in developing the final rule.

According to 10

### CFR 1004.11, 

### any person submitting information that he

or shebelieves tobe confidential and exempt by law from public disclosure should submit one complete copy ofthe document and ten (10) 

### copies, if possible, from whichthe information believed to beconfidentialhasbeen deleted. TheDepartment ofEnergy will make its own determination withregard tothe confidential status ofthe information and treat it accordingto its determination.

Factors ofinterest to the Department when evaluatingrequests to treat as confidential information thathas been submitted include: (1) A description of the items; (2) anindication as to whetherand why such items are customarily treated as confidential within the industry; (3) whether the information is generally knownby or available from other sources; (4) 

### whetherthe information has previously been made available to others without obligation concerning its conlldentiality; (5) an explanation ofthe competitive injurytothe submitting person which wouldresult from public disclosure; (6) 

### an indication as to when suchinformation might lose its confidential character due to the passage oftime; and (7) 

### whether disclosure ofthe information would be contraryto the public interest.
B. Public Workshop/Hearing
1. Procedure for SubmittingRequests To Speak

You will find the time andplace of the publichearing listed at the beginning ofthis notice. We invite any person whohas aninterest intoday's notice, or who is a representative ofa group or class ofpersons thathas an interest inthese issues, to request an opportunity to make an oral presentation. 

### Ifyou would like to attend the publichearing, please notify Ms. Brenda Edwards-Jones at (202) 586- 2945. 

### You may hand deliverrequests to speakto the address indicated at the beginning ofthis noticebetweenthe hours of8 a.m. and 4 

### p.m., Monday through Friday, except Federalholidays. You may also sendthemby mail orEmail tobrenda.edwardsjones@ee.doe.gov.

The person makingthe request should state whyhe or she, eitherindividually

or as a representative ofa group or class ofpersons, is an appropriate spokesperson,briefly describe the natufll ofthe interest inthe rulemaking, and provide a telephone number for contact. We request eachperson selected to be heard to submit an advance copy ofhis or her statement at leasttwo weeks prior to the date ofthis hearing as indicated at the beginning of this notice. At our discretion, wemay permit any person who cannot dothis to participate ifthatpersonhas made alternative arrangements with the Office ofBuilding Research and Standards in advance. Therequest to give an oral presentation should ask for such alternative arrangements.
2. Conduct ofHearing

TheDepartment will designate a Department official to preside at the workshop and we may also use a professional facilitator to facilitate discussion. The workshop will not be a judicial orevidentiary-typehearing,but theDepartment will conduct it in accordance with 5 

### U.S.C. 553 

### and Section 336 

### ofthe Act and a court reporter will be present torecord the transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establishtheprocedures governing the conduct ofthe workshop.

TheDepartmentwill permiteach participant to make a preparedgeneral statement, limited to five (5) minutes, prior to the discuss.ion ofspecific topics. Thegeneral statement should not addressthese specifictopics,butmay
cover any other issues pertinentto this rulemaking. The Department will permit other participants to briefly comment on any general statements. We will divide the remainder ofthehearing into segments, with each segment consisting ofone or more ofthe following specific topics covered by this notice:

• Engineering analysis, including mark-up;

• Life-CyeIe-Cost and payback analysis;

• National Energy Savings and Net Present Value;

• Manufacturer impacts;

• Utility impacts;

• Proposed standards, including an EER-based standard and TXV considerations; and

• Other issues. The Department will introduce each topic with a briefsummary ofthe relevant parts ofour analysis and ofthe proposed rule, and the significant issues involved. We will then permit participants inthehearing to make a prepared statement limited to five (5) minutes on that topic. At the end ofall prepared statements on a topic, the Department will permit each participant tobriefly clarifyhis orher statement and comment on statements made by

## ;~,! («,. .o.EE-RM/STD-98-440-^-# O

59632 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

others. Participants should be prepared weatherized vertical packaged (2) Designed so that air for the to answer questions by us and by other equipment, additional comment is outdoor coil is taken in and discharged participants concerning these issues. welcome on the impacts that meeting at the same surface. Our representatives may also ask the new standards would have on the * * * * * questions ofparticipants concerning availability ofthose products; 3. Section 430.32 of Subpart C is other matters relevant to the hearing. (5) The issue ofthermal expansion amended by revising paragraph (c) to The total cumulative amount of time valves (TXV), particularly whether our read as follows: allowed for each participant to make concerns regarding the perceived prepared statements will be 20 minutes. reliability problems and potential §430.32 Energy and waterconservation

The official conducting the hearing misuses associated with widespread use standardsand effective dates. will accept additional comments or ofTXVs are valid; * * * * * questions from those attending, as time (6) The validity ofthe analytical (c) Centralairconditionersand permits. The presiding official will methods used and the appropriate centralairconditioning heat pumps. (1)

announce any further procedural rules, interpretation and use ofthe results of Split system central air conditioners and

or modification ofthe above procedures, this analysis; central air conditioning heat pumps needed for the proper conduct ofthe (7) The Draft Environmental fac d f 1 hearing. Assessment, which isprinted within the

We will make the entire record ofthis TSD prepared for today's proposed rule; before January 1, 2006, and single rulemaking, including the transcript, ad package central air conditioners and available for inspection in the (8) The impacts on manufacturers andcentral air conditioning heat pumps availDepartment's Freedom ofInforma inspection theconsumers ifthe levels in today's manufactured after January 1, 1993, and Department's Freedom ofInformatio n b e for e January 1, 2006, shall have Reading Room. Any person may proposed rule were applied to before January 1, 2006, shall have purchase a copy ofthe transcript from commercial three-phase unitary air Seasonal Energy Efficiency Ratio and purchase a copy ofthe transcript from conditioners less than 65K Btu/hr as Heating Seasonal Performance Factor no the transcribing reporter. well. less than:
C. Issues forWhich DOESeeks Comments for Which DOESeeks List of Subjects in 10 CFR Part430 s Heating Cm e b s ad b t tt , Administrative practice and Product clseasonal The Department isparticularlyprocedure Energy conservation, ciencratio peformance interested in receiving comments and rocedure ery conservat, cey rato factor views of interested parties concerning: Household appliances.i

(1)Whether explicit consideration of Issued in Washington, DC, on September 1.Split systems 100 6.8

significantly different results from those Dan W. eicher,a se s

.. 1 based on service costs alone; "Assistant Secretary,EnergyEfficiencyand 

### enal (2) The Department's methodology Rewble Energy.entral air condition and data for determining the Forthe reasons set forth in thecentral air conditioning heat pumps appropriate marginal energy costs; preamble Part 430 ofChapter II ofTitle manufactured on or after January 1,

(3)The burdens and benefits that 10, Code ofFederal Regulations, is 2006, shall have Seasonal Energy would result from including an EER proposed to be amended as set forth Effciency Ratio and Heating Seasonal requirement in the final rule. Of below. Performance Factor no less than: particular interest are comments PART 430-ENERGY CONSERVATION Seasonal Heating regarding burdens on manufacturers, PROGRAM FOR CONSUMER energy eri- seasonal benefits regarding reduction in peak PRODUCTS ciency ratio performance electricity demand, the effect ofmore (SR) factor stringent standards on the cost and 1. The authority citation for Part 430 (HSPF) availability of modulating equipment, continues to read as follows: 1. Split system and the effect that an EER floor would Authority: 42 U.S.C. 6291-6309; 28 U.S.C. air condihave on electrical system reliability. In 2461 note. tioners

........... 12

.................... addition, comments are welcome to 2. Split system discuss the pros and cons ofany ofthe adding a definition for "through-the- pumps

... 13 7.7 options described in Section V.a.2 wall air conditioner and heat pump" in age air condiabove, as well as other approaches; alphabetical order toread as follows: tioners

........... 12

.................... (4) Whether theproposed standards 4. Single packconcerning high-velocity, vertically- §430.2 Definitions. age heat packaged wall-mounted equipment, and * * * * * pumps

........... 13 7.7 through-the-wall equipment provide a Through-the-wallairconditioner and 5. Through the significant advantage tothose products heat pumpmeans a central air wall air condiversus competing products and are conditioner or heat pump, having a tioners and sufficient topreserve the unique rated capacity between 18,000 Btu/hr heat pumps

... 11 7.1 features ofthose products, and whether and 30,000 Btu/hrthat is: improvements in the definitions are (1)Designed tobe installed partially needed to prevent loopholes. For within, or mounted against, a fixed-size [FR Doc. 00-25336 Filed 9-29-00; 9:42 am] ductless split equipment and non- opening in an exterior wall; and BILLING CODE 6450-01-P

# EE.RM/STD.9~.440-#=-~()

# t;

59632 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

others. Participants shouldbeprepared to answer questions by us and by other participants concerningthese issues. Ourrepresentatives may also ask questions ofparticipants concerning othermatters relevant to the hearing. The total cumulative amount oftime allowed for eachparticipantto make prepared statements willbe 20 minutes.

The official conducting the hearing will accept additional comments or questions from those attending, as time permits. The presiding official will

announce any further procedural rules,

or modification ofthe above procedures, needed for theproperconduct ofthe hearing.

We will make the entirerecord ofthis rulemaking, includingthe transcript, available for inspectioninthe Department'sFreedom ofInformation Reading Room. Any person may purchase a copy ofthe transcript from thetranscribingreporter.


### C. 

### Issuesfor Which DOESeeks Comment

The Departmentis particularly interested inreceiving comments and views ofinterested parties concerning:

(1) Whether explicit consideration of extendedwarranties would produce significantly different results from those based on service costs alone;

(2) The Department's methodology and data for determiningthe appropriate marginal energy costs;

(3) Theburdens and benefits that would result from including an EER requirement in the final rule. Of particularinterest are comments regardingburdens onmanufacturers, benefits regardingreduction inpeak electricity demand, the effect ofmore stringent standards onthe cost and availability ofmodulating equipment, and the effect that an EER floor would have on electrical systemreliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe options described in Section V.I.2 above, as well as other approaches;

(4) Whetherthe proposed standards concerning high-velocity, verticallypackaged wall-mounted equipment, and through-the-wall equipmentprovide a significant advantage to those products

versus competing products and are sufficientto preserve theunique features ofthose products, and whether improvements in the definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional commentis welcome onthe impacts that mee,ting the new standards wouldhave on the availability ofthose products;

(5) The issue ofthermal expansion valves (TXV), particularly whether our
concerns regarding the perceived reliabilityproblems and potential misuses associated with widespread use ofTXVs are valid;

(6) Thevalidity ofthe analytical methods used and the appropriate interpretation and use ofthe results of this analysis;

(7) The DraftEnvironmental Assessment, which is printed withinthe TSD prepared for today's proposed rule; and

(8) Theimpacts on manufacturers and

consumers ifthe levels intoday's proposedrulewere applied to commercial three-phaseunitary air conditioners less than 65K Btu/hr as well.
List ofSubjects in 10 CFR Part430

Administrative practice and procedure, Energy conservation, Household appliances.

Issued inWashington, DC, on September 27,2000. Dan W. Reicher, AssistantSecretary, EnergyEfficiencyand RenllwabJeEnergy.

For the reasons set forth in the preamble Part 430 ofChapter II ofTitle 10, Code ofFederal Regulations, is proposed tobe amended as set forth below.

PART 43D-ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

1. The authority citation for Part430 continues to read as follows:

Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

2. Section 430.2 is amendedby adding a definition for "through-thewall airconditionerand heatpump" in alphabetical order to read as follows:

§430.2 Definitions. 

### * 

### * * * 

### *



### Through-the-wall airconditionerand heatpumpmeans a central air conditioner orheatpump,having a rated capacitybetween 18,000 Btulhr and 30,000 Btu/hrthat is:

(1) Designed to be installed partially within, or mounted against, a fixed-size opening in an exteriorwall; and (2) Designed so that air for the outdoorcoil is taken in and discharged at the same surface. 

### * 

### * * * *

3. Section430.32 ofSubpart C is amended byrevising paragraph (c) to read as follows:

§430.32 Energy and water conservation standards and effective dates. 

### * * 

### * * 

### *

(c) 

### Centrol airconditioners and central airconditioningheatpumps. (1) Split system central airconditioners and central air conditioningheatpumps manufactured afterJanuary 1, 1992, and beforeJanuary 1, 2006, and single package central air conditioners and central airconditioningheat pumps manufactured afterJanuary 1, 1993, and beforeJanuary 1, 2006, shall have Seasonal Energy EfficiencyRatio and Heating Seasonal Performance Factorno less than:

Product class

1. Split systems 2. Single package systems

.. Seasonal energy efficiency ratio

10.0

9.7 Heating seasonal performance factor

6.8

6.6

(2) Central air conditioners and central airconditioningheat pumps manufactured on or after January 1, 2006, shallhave Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factorno less than:

Product class

1. Split system

air conditioners



## . .......... 2. Split system

heat pumps

... 3. Single package air conditioners



## ........... 4. Single package heat pumps



## ........... 5. Through the

wall air conditioners and heat pumps

...


### * 

### * * * Seasonal energy efficiency ratiO

(SEER)

12

13

12

13

11



### * Heating seasonal performance factor (HSPF)



# . ...................

7.7



## . ...................

7.7

7.1

[FRDoc. 00-25336 Filed 9-2!Hl0; 9:42 am]

BILLING CODE 6450-{)1-P