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Department of

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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

EE-RM-STD-98-440 COMMENT 206

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EE-RM/STD ........ . .... 

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Thursday, 

October 5, 2000 

Part IV 

Department of 

Energy 

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 
EE-AtMSTO 44A

%' E'/ H4SE-TeD - 9g- ? v

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 may read copies of the public 1. anufacturer Iact nalysis 1. Phase l, Industry Profile 10 CFR Part 430 comments, the Technical Support 2. Phase 2, Industry Cash Flow Analysis

[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 of the V. Discussion of Comments

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 Reading Room, U.S. Department of 4. HFC-Based Engineering Analysis

AGENCY: Office of Energy 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 of proposed rulemaking between the hours of 9 a.m. and 4 p.m., (RECS)

and public hearing. Monday through Friday, except Federal 3. Equipment Lifetime

holidays. You may obtain copies of the 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 of Energy Efficiency and 6. Forecast of Future Electricity Prices 7. Discount Rates Department of Energy (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 to be more energy efficient, and is ichael E. McCabe, U.S. Department of C. Shipments Analysis

announcing a public hearing on the Energy, Office of Energy Efficiency and 2. Elasticities

proposal. Renewable Energy, Forrestal Building, 3. Equipment Efficiency

DATES: Comments must be 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 Savings Analysis

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

of the written comments. The Edward Levy, Esq., U.S. Department of E. Consumer Sub-Group Analysis, Low

Department will also accept e-mailed Energy, Office of General Counsel, Income Renters

comments, but you must send a signed Forrestal Building, GC-72, 1000 Utility ad Environmental Analysis comment,. Peak Power Impacts, Reliability original. Oral views, data, and Independence Avenue, SW. 2. Quantitative Assessment of Impacts on arguments may be 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 of Air

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 of Proposed Rule G. Manufacturer Impact Analysis-Low

copy of your 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) of each statement at that 1. Cuent Standards . Current Relationship between SEER and

ti(Wme.n a 2. History of Previous 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. Test Procedures 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 Duct High Velocity Air

Energy, Office of Energy Efficiency and 2. Maximum Technologically Feasible Conditioners

IRenewable Energy, Energy Conservation Levels 3. Vertical Packaged, Wall Mounted

nProgram fr Consumer Prodcts: Central C. Energy Savings 4. Through-the-Wall Condensers

Program Consumer foProducts: Central Determination of Savings 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 for Comments Regarding Niche

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, If Any, of Utility or 3. SEER-HSPF Relationship Performance of Products 4. Max Tech Energy, Forrestal Building, 1000 5. Impact of Any Lessening of Competition VI. Analytical Results

Independence Avenue, SW., 6. Need of The Nation to Conserve Energy A. Trial Standard Levels

Washington DC. You can find more 7. Other Factors B. Significance of Energy Savings

information concerning public IV. Methodology C. Payback Period

EE-RM-STD-98-440 COMMENT 206

"- .. ~ .. "'" 

EE-RMlSTD-ISc440 ~ o-c, £~M~.TO - 9 g -;;c.iVo 

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 of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Notice of proposed rulemaking 

and public hearing. 

SUMMARY: Pursuant to the Energy Policy 

and Conservation Act, as amended, the 

Department of Energy (DOE, 

Department, or we) is proposing to 

amend the energy conservation 

standards for residential central air 

conditioners and heat pumps to require 

them to be more energy efficient, and is 

announcing a public hearing on the 

proposal. 

DATES: Comments must be received on 

or before December 4,2000. DOE is 

requesting a signed original, a computer 

diskette (WordPerfect 8) and 10 copies 

of the written comments. The 

Department will also accept e-mailed 

comments, but you must send a signed 

original. Oral views, data, and 

arguments may be presented at the 

public hearing (workshop) in 

Washington, DC beginning at 9 a.m. on 

November 16, 2000. 

The Department must receive requests 

to speak at the public hearing and a copy of your statements no later than 4 

p.m., November 1, 2000, and we request 

that you provide a computer diskette 

(WordPerfect 8) of each statement at that 

time. 

ADDRESSES: Please submit written 

comments, oral statements, and requests 

to speak at the public hearing to: Brenda 

Edwards-Jones, U.S. Department of 

Energy, Office of Energy Efficiency and 

Renewable Energy, Energy Conservation 

Program for Consumer Products: Central 

Air Conditioners and Heat Pumps, 

Docket No. EE-RM/STD-97-500, 1000 

Independence Avenue, SW., 

Washington, DC 20585-0121. You may 

send emails to: brenda. edwardsjones@ee.doe.gov. 

The hearing will begin at 9 a.m., in 

Room 1E-245 at the U.S. Department of 

Energy, Forrestal Building, 1000 

Independence Avenue, SW., 

Washington DC. You can find more 

information concerning public 

participation in this rulemaking 

proceeding in Section VIII, "Public 

Comment Procedures," of this notice of 

proposed rulemaking. 

You may read copies of the public 

comments, the Technical Support 

Document for Energy Efficiency 

Standards for Consumer Products: 

Central Air Conditioners and Heat 

Pumps (TSD), the transcript of the 

public hearing, and previous workshop 

transcripts in this proceeding at the 

DOE Freedom of Information (FO!) 

Reading Room, U.S. Department of 

Energy, Forrestal Building, Room IE190,1000 Independence Avenue, SW., 

Washington, DC 20585, (202-586-3142, 

between the hours of 9 a.m. and 4 p.m., 

Monday through Friday, except Federal 

holidays. You may obtain copies of the 

TSD and analysis spreadsheets from the 

Office of Energy 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 of Energy 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 of General 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 of Contents 

1. Summary of Proposed Rule 

II. Introduction 

A. Authority 

B. Background 

1. Current Standards 

2. History of Previous Rulemakings 

3. Process Improvement 

III. General Discussion 

A. Test Procedures 

B. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

C. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

D. Rebuttable Presumption 

E. Economic Justification 

1. Economic Impact on Manufacturers and 

Consumers 

2. Life-Cycle Costs 

3. Energy Savings 

4. Lessening, If Any, of Utility or 

Performance of Products 

5. Impact of Any Lessening of Competition 

6. Need of The Nation to Conserve Energy 

7. Other Factors 

IV. Methodology 

A. Life-Cycle-Cost and Payback Period 

Analysis 

B. National Energy Savings and Net Present 

Value Analysis 

C. Manufacturer Impact Analysis 

1. Phase 1. Industry Profile 

2. Phase 2, Industry Cash Flow Analysis 

3. Phase 3, Sub-Group Impact Analysis 

4. GRIM Analysis 

D. NEMS Environmental Analysis 

V. Discussion of Comments 

A. Engineering Cost Data 

1. Reverse Engineering Cost Estimates 

2. Productivity Efficiency Improvements 

3. Emerging Technologies 

4. HFC-Based Engineering Analysis 

B. Life-Cycle-Cost Parameters . 

1. Extended Warranty and Service Costs 

2. Residential Energy Consumption Survey 

(RECS) 

3. Equipment Lifetime 

4. Commercial Applications 

5. Marginal Electricity Prices 

6. Forecast of Future Electricity Prices 

7. Discount Rates 

8. Percentage of Households with LCC 

Savings 

9. Regional AnalysiS 

10. Rebuttable Payback 

11. Sensitivity Analyses 

C. Shipments Analysis 

1. Forecasted Housing Shifts 

2. Elasticities 

3. Equipment Efficiency 

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. Peak Power Impacts, Reliability 

2. Quantitative Assessment of Impacts on 

Peak Demand 

3. Qualitative Assessment of Air 

Conditioning Standards Impact on Power 

System Reliability 

4. Competitive Residential Market 

G. Manufacturer Impact Analysis-Low 

Volume Manufacturers 

H. Markups 

I. EER-Based Efficiency Standard 

1. Current Relationship between SEER and 

EER 

2. Options for Possible EER Standards 

J. Niche Products . 

1. Ductless Split Air Conditioners and Heat 

Pumps 

2. Small Duct High Velocity Air 

Conditioners 

3. Vertical Packaged, Wall Mounted 

4. Through-the-Wall Condensers 

5. Non-Weatherized Single-Package Unit, 

Mounted Entirely within the Structure 

6. Request for Comments Regarding Niche 

Product Standards 

K. Thermostatic Expansion Valves 

L. Other Comments 

1. Latent Heat Removal 

2. 3-Phase Equipment 

3. SEER-HSPF Relationship 

4. Max Tech 

VI. Analytical Results 

A. Trial Standard Levels 

B. Significance of Energy Savings 

C. Payback Period 
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. out hydrochloroflourocarbons (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 of the Nation to Save Energy become effective, the nation would save lower burdens and costs.

7. Other Factors over 3.4 Quads 3 of primary 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 of Title III of the 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 of air 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 Under Executive 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 Under the Plain Language and requesting public comments on a include central air conditioners 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 of four 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 of Hearing its peak. This would help to further enforcement procedures. The Federal C. Issues for Which DOE Seeks Comment lt the ould hep to frther enforcement procedures. The Federal

alleviate the need for new electric Trade Commission is responsible for

I. Summary of Proposed 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 of the program. Section 323 The Department is proposing to raise distribution systems during periods of of the Act authorizes the Department, 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 2 for heat example, while the initial cost of aconditions, 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 of the procedures appear at title 10 Code of

most common type of residential 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 of the 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. of the 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 of Energy 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 B of Title IU of 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 Policy Act, the National

products to ensure that more efficient same time they would be redesigning Appliance Energy Conservation Act, the National

Appliance Energy Conservation Amendments of

1988, and the Energy Policy Act of 1992, is referred

SEER, Seasonal Energy Efficiency Ratio, is the Quad, means quadrillion (10 s' Btus). to in this notice as the "Act," or "EPCA." Part B

Department's measure of energy efficiency for the 4 EER, Energy Efficiency Ratio, is a steady-state of Title IIff is codified at 42 U.S.C. 6291 et seq. Part

seasonal cooling performance of central air measure of energy efficiency which measures B of Title III of the Energy Policy and Conservation

conditioners and heat pumps. efficiency at a prescribed outdoor temperature Act, as amended by the National Energy

2 HSPF, 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 of heat pumps. SEER. Act.

EE-RM-STD-98-440 COMMENT 206

Federal Register / Vol. 65, No. 194/ Th;rsday, October 5, 2000/ Propos"ed Rules 59591 

D. Economic Justification 

1. Economic Impact on Manufacturers 

2. Life-Cycle Cost 

3. Net Present Value and Net National 

Employment 

4. Impact on Utility or Performance of 

Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation to Save Energy 

7. Other Factors 

E. Conclusion 

VII. Procedural Issues and Regulatory Review 

A. Review Under the National 

Environmental Policy Act 

B. Review Under Executive Order 12866. 

"Regulatory Planning and Review' 

C. Review Under the Regulatory Flexibility 

Act 

D. Review Under the Paperwork Reduction 

Act 

E. Review Under Executive Order 12988. 

"Civil Justice Reform" 

F. "Takings" Assessment Review 

G. Review Under Executive Order 13132 

H. Review Under the Unfunded Mandates 

Reform Act 

1. Review Under the Treasury and General 

Government Appropriations Act of 1999 

J. Review Under the Plain Language 

Directives 

VIII. Public Comment 

A. Written Comment Procedures 

B. Public Workshop/Hearing 

1. Procedure for Submitting Requests to 

Speak 

2. Conduct of Hearing 

C. Issues for Which DOE Seeks Comment 

I. Summary of Proposed 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 

apply to all covered products offered for 

sale in the United States. effective on January 1. 2006. The proposed standard 

for split system air conditioners. the 

most common type of residential air 

conditioning equipment represents a 

20% improvement in energy efficiency. 

For split system heat pumps. the new 

standards would represent a 30% 

improvement in cooling efficiency and 

a 13% improvement in heating 

efficiency. The proposed standards 

would also increase the efficiency of 

packaged air conditioners and packaged 

heat pumps by 24% and 17%. 

respectively. Finally. the Department is 

proposing provisions for some special 

products to ensure that more efficient 

1 SEER. Seasonal Energy Efficiency Ratio. is the 

Department's measure of energy efficiency for the 

seasonal cooling performance of central air 

conditioners and heat pumps. 

2 HSPF. Heating Seasonal Performance Factor. is 

the Department's measure of energy efficiency for 

the seasonal heating performance of heat pumps. 

versions remain available for niche 

applications. 

The proposed standards would save a 

significant amount of energy and. as a 

result of less electricity being produced, 

result in a cleaner environment. In the 

25-year period after the new standards 

become effective. the nation would save 

over 3.4 Quads 3 of primary energy. 

equivalent to all the energy consumed 

by nearly 18 million American 

households in a single year. These 

energy savings would also significantly 

reduce the emissions of air pollutants 

and greenhouse gases associated with 

electricity production. by avoiding the 

emission of 56 million tons (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). power plants 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 on EER would ensure more 

efficient operation at high outdoor 

temperature. during periods when 

electricity use by air conditioners is at 

its peak. This would help to further 

alleviate the need for new electric 

power plants and reduce the demands 

placed on the electric transmission and 

distribution systems during periods of 

high usage. thereby. improving system 

reliability . Finally. consumers would see benefits 

from the proposed standards. For 

example. while the initial cost of a 

typical central air conditioner would 

increase by $122 to $153 or about 10-

12%, the higher efficiency equipment 

would save enough over its life to pay 

for the increase in the price of the 

equipment plus an extra $45. Many 

consumers, especially air conditioner 

owners in warmer parts of the country 

and heat pump owners, would save 

even more. While the higher efficiency units are 

widely available today and promoted 

through the Department of Energy and 

the Environmental Protection Agency 

(EPA) Energy Star® program, as well as 

utility rebate programs, manufacturers 

would be redesigning their product line 

to meet the efficiency standards. At the 

same time they would be redesigning 

3 Quad. means quadrillion (10 " Btus). 

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

measure of energy efficiency which measures 

efficiency at a prescribed outdoor temperature 

(95°F). and is one of the tost conditions in tho 

Department's test procedure used to develop the 

SEER. 

their products to respond to the phaseout hydrochloroflourocarbons (HCFC:s) 

refrigerants required by EPA. By makmg 

both changes at once, i.e., efficiency and 

HCFC refrigerants. manufacturers will 

be able to plan and apply their resources 

in a cost-effective manner, resulting in 

lower burdens and costs. 

II. Introduction 

A. Authority 

Part B of Title III of the Energy Policy 

and Conservation Act (EPCA). Pub. L. 

94-163. as amended by the National 

Energy Conservation Policy Act of 1978. 

Pub. L. 95-619, the National Appliance 

Energy Conservation Act. Pub. L. 100-

12, the National Appliance Energy 

Conservation Amendments of 1988, 

Pub. L. 100-357. and the Energy Policy 

Act of 1992, Pub. L. 102-486 5 created 

the Energy Conservation Program for 

Consumer Products other than 

Automobiles. The consumer products 

subject to this program (often referred to 

hereafter as "covered products") 

include central air conditioners and 

heat pumps. EPCA section 322(a)(4), 42 

U.S.C. 6292(a)(4). " 

Under the Act. the program consists 

essentially of four parts: testing. 

labeling, Federal energy conservation 

standards, and certification and 

enforcement procedures. The Federal 

Trade Commission is responsible for 

labeling, and DOE implements the 

remainder of the program. Section 323 

of the Act authorizes the Department. 

with assistance from the National 

Institute of Standards and Technology 

(NIST) and subject to certain criteria 

and conditions. to develop test 

procedures to measure the e~ergy 

efficiency, energy use. or estImated 

annual operating cost of each covered 

product. 42 U.S.c. 6293. The central air 

conditioners and heat pump test 

procedures appear at title 10 Code of 

Federal Regulations (CFR) part 430, 

subpart B. Appendix M. 

The Act prescribes initial Federal 

energy conservation standards for each 

of the listed covered products, except 

television sets. EPCA section 325 (b)-

(k), 42 U.S.C. 6295 (b)-(k). For central 

air conditioners and heat pumps, EPCA 

section 325(d)(3)(A) specifies that the 

5 Part B of Title III of the Energy Policy and 

Conservation Act. as amended by the National 

Energy Conservation Policy Act. the National 

Appliance Energy Conservation Act. the National 

Appliance Energy Conservation Amendments of 

1988. and the Energy Policy Act of 1992. is referred 

to in this notice as the "Act." or "EPCA." Part B 

of Title III is codified at 42 U.S.c. 6291 et seq. Part 

B of Title III of the Energy Policy and Conservation 

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 of preliminary 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 of the 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, if no test procedure has procedures and other provisions of moratorium, the Department examined

been established for the product, or (2) Section 327(d) of the Act. 42 U.S.C. the appliance standards program and

any product, if DOE determines by rule 6297(d). how it was 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 to bring together

conservation of energy, 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, on July

comments on the proposed standard, heat pumps has been defined by the 15, 1996, the Department published a

and whether the benefits of the standard descriptor, Heating Seasonal final rule: Procedures for Consideration

exceed its burdens, based, to the greatest Performance Factor (HSPF) while of New or Revised Energy Conservation

extent practicable, on a weighing of the 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 of the 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 of the 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 of the

expenses of, the covered products which are likely to result from the imposition of the 2. History of Previous Rulemakings analytical or procedural steps already standard; completed should be repeated. (61 FR

(3) The total projected amount of energy On September 8,1993, DOE 36982). DOE completed this review and

* * * savings likely to result directly from published an Advance Notice of decided to use the Process Rule, to the

the imposition of the 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 of the standard; conditioner and heat pump efficiency We developed an analytical (5) The impact of any 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, that is likely to result from Supplemental ANOPR (hereinafter rulemaking for our stakeholders, which

the imposition of the 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: of new LCC and NES spreadsheets, and

that a standard is economically justified (1) The product classes that the the relationship of the various analyses.

if the Secretary finds that "the Department planned to analyze; HI. General Discussion

additional cost to the consumer of (2) The analytical framework, models

purchasing a product complying with (e.g., the Government Regulatory Impact A. Test Procedures

an energy conservation standard level Model (GRIM)), and tools (e.g., a Monte Section 7(b) of the 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 year that the consumer will receive savings (NES) spreadsheets) that the standards will be proposed before

as a result of the standard, as calculated Department was using in performing issuance of a proposed rule. Section 7(c)

under the applicable test procedure analyses of the impacts of energy of the Process Rule states that a final

* * * " The rebuttable presumption conservation standards; modified test procedure will be issued

EE-RM-STD-98-440 COMMENT 206 ' .. ,. . . 

. EE-RM/STD .. 98-440 -#~ cJ 6 

t:'i. .~.~. 

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

standards are to be reviewed by the 

Department no later than January 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 economically justified. 

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 

heat pumps, if no test procedure has 

been established for the product, or (2) 

any product, if DOE determines by rule 

that a standard for the product either 

would not result in significant 

conservation of energy, or is not 

technologically feasible 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 that DOE must 

determine whether a standard is 

economically justified, after receiving 

comments on the proposed standard, 

and whether the benefits of the standard 

exceed its burdens, based, to the greatest 

extent practicable, on a weighing of the 

following seven factors: 

"(1) The economic impact of the 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 of the 

covered product in the type (or class) 

compared to any increase in the price of, or in the initial charges for, or maintenance 

expenses of, the covered products which are likely to result from the imposition of the 

standard; 

(3) The total projected amount of energy 

* * * savings likely to result directly from 

the imposition of the standard; 

(4) Any lessening of the utility or the 

performance of the covered products likely to 

result from the imposition of the standard; 

(5) The impact of any lessening of 

competition, as determined in writing by the 

Attorney General. that is likely to result from 

the imposition of the 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 

the Act. 42 U.S.C. 6295(0)(2)(B)(iii), 

establishes a rebuttable presumption 

that a standard is economically justified 

if the 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 

of the energy * * * savings during the 

first year that the consumer will receive 

as a result of the standard, as calculated 

under the applicable test procedure 

* * * "The rebuttable presumption 

test is an alternative path to establishing 

economic justification. 

Section 327 of the Act, 42 U.S.C. 

6297, provides that generally the 

Federal energy efficiency requirements 

supersede State laws or regulations 

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 waiver of 

preemption in accordance with the 

procedures and other provisions of 

Section 327(d) of the Act. 42 U.S.C. 

6297(d). 

B. Background 

1. Current Standards 

The existing standards for residential 

central air conditioners and heat pumps 

have been in effect since 1992. Energy 

efficiency for air conditioner and heat 

pump cooling has been defined by the 

descriptor SEER. Energy efficiency for 

heat pumps has been defined by the 

descriptor, Heating Seasonal 

Performance Factor (HSPF) while 

operating during the heating season and 

by SEER while operating during the 

cooling season. The current central air 

conditioners and heat pumps efficiency 

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 of Previous Rulemakings 

On September 8,1993. DOE 

published an Advance Notice of 

Proposed Rulemaking (ANOPR) 

announcing the Department's intention 

to revise the existing central air 

conditioner and heat pump efficiency 

standard. (58 FR 47326). On November 

24,1999, DOE published a 

Supplemental ANOPR (hereinafter 

referred to as the Supplemental 

ANOPR). 64 FR 66306. In the 

Supplemental ANOPR and during the 

December 9,1999, public workshop, we 

provided interested persons an 

opportunity to comment on several 

issues, including: 

(1) The product classes that the 

Department planned to analyze; 

(2) The analytical framework. models 

(e.g., the Government Regulatory 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 in performing 

analyses of the impacts of energy 

conservation standards; 

(3) The results of preliminary analyses 

for the engineering, LCC, payback and 

NES; and 

(4) The candidate energy conservation 

standard levels that the Department had 

developed from these analyses. 

3. Process Improvement 

The fiscal year (FY) 1996 

appropriations legislation imposed a 

moratorium on proposed or final rules 

for appliance efficiency standards for 

FY 1996. Pub. L. 104-134. During the 

moratorium, the Department examined 

the appliance standards program and 

how it was working. Congress advised 

DOE to correct the standards-setting 

process and to bring together 

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, on July 

15,1996, the Department published a 

final rule: Procedures for Consideration 

of New or Revised Energy Conservation 

Standards for Consumer Products 

(referred to as the Process Rule) (61 FR 

36974), codified at 10 CFR part 430, 

subpart C, Appendix A. 

The Process Rule states that for 

products, such as central air 

conditioners and heat pumps, for which 

DOE issued a proposed rule prior to 

August 14, 1996, DOE would conduct a 

review to decide whether any of the 

analytical or procedural steps already 

completed should be repeated. (61 FR 

36982). DOE completed this review and 

decided to 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 heat pumps 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 conducting them, the use 

of new LCC and NES spreadsheets, and 

the relationship of the various analyses. 

ITI. General Discussion 

A. Test Procedures 

Section 7(b) of the Process Rule states 

that necessary modifications to test 

procedures concerning efficiency 

standards will be proposed before 

issuance of a proposed rule. Section 7(c) 

of the Process Rule states that a final 

modified test procedure will be issued 
EE-RM/STD-98-440 -- 4 L

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59593

prior to issuing a proposed rule savings over the period of analysis for standard level is economically justified. A

regarding energy conservation candidate standards relative to the base determination by the Secretary that such

standards. The residential central air case. The Department quantified the criterion is not met shall not be taken into

conditioner and heat pump test energy savings that would be consideration in the Secretary's determination of whether a standard is procedure is being 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 be published. This between the candidate standards case If the increase in initial price of an

revision of the test procedure is not and the base 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, then we presume that such

revised test procedure would not affect The NES spreadsheet model is standard is economically justified. 8 This

development of revised efficiency described in Section IV.B of this notice, presumption of economic justification

standards. For these reasons, revisions Appendix of the Technical Support can be rebutted upon a proper showing.

to the test procedure are not 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) of the Act provides seven

finalized before issuance of the (kWh). Site energy is the energy directly factors to be evaluated in determining

proposed rule for these standards. consumed at building sites by thewhether a conservation standard is

B. Technological Feasibility central air conditioner or heat pump. economically justified.

National energy savings are expressed in 1. Economic Impact on Manufacturers

1. General terms of the source energy savings and Consumers

There are central air conditioners and which is the savings in energy used to The Process Rule established

heat pumps in the market at all of the generate and transmit the electricityures, in tais d

efficiency levels analyzed in today's consumed at the site. Chapter 7 of the procedures, interpretations and policies

notice. The Department, therefore, TSD contains a table of factors used to to guide the Department in the

believes all of the 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 of the 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 the Department, 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 if that standard would not result 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 of a 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 of product the U.S. Court of Appeals, in Natur Impacts analyzed include industry net

under consideration in this rulemaking, Resources Defense Council v. 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 of impact, 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 of manufacturers, 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 of the Act. manufacturing capacity, plant closures

determined that at this time 18 SEER is and loss of capital investment. Finally,

the Max Tech level for cooling D. R ebuttable Presumption the Department will take into account

efficiency for all product classes and The National Appliance Energy cumulative impacts of different 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 of economic

corresponding to the 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 "If the Secretary finds that the additional The life-cycle cost of the product at each

heat pumps. cost to the consumer of purchasing a productstandard level are presented in Chapter

~C.~ Energy Savings complying with an energy conservation

C. Energy Savingsstandard level will be less than three times For this calculation, the Department calculated

1. Determination of Savings the value of the energy * * * savings during cost-of-operation based on the DOE test procedure. the first year that the consumer will rceive with the test procedure assumed annual hours of

theThe Denartment year that estimad erfirst e r e operation. Consumers that use the central air The Department estimated energy as a result of the standard, as calculated conditioner or heat pump fewer hours 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 have a shorter payback.

7; ,

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD-911-440 ~#~~ fa 

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59593 

prior to issuing a proposed rule 

regarding energy conservation 

standards. The residential central air 

conditioner and heat pump test 

procedure is being revised to improve 

its organization and ease of use, with a 

proposed rule to be published. This 

revision of the test procedure is not 

expected to alter the measured 

efficiencies as determined under the 

existing test procedure. Therefore, the 

revised test procedure would not affect 

development of revised efficiency 

standards. For these reasons, revisions 

to the test procedure are not a 

"necessary modification" as that term is 

used in the Process Rule, but rather a 

routine update, and hence need not be 

finalized before issuance of the 

proposed rule for these standards. 

B. Technological Feasibility 

1. General 

There are central air conditioners and 

heat pumps in the market at all of the 

efficiency levels analyzed in today's 

notice. The Department, therefore, 

believes all of the efficiency levels 

discussed in today's notice are technologically feasible. 

2. Maximum Technologically Feasible 

Levels 

The Act requires the Department, in a 

proposed rule that sets forth new or 

amended standards, to "determine the 

maximum improvement i~ energy 

efficiency * * * that is technologically 

feasible for each type (or class) of 

covered products." EPCA section 325 

(p)(2), 42 U.S.C. 6295(p)(2). 

Accordingly, for each class of product 

under consideration in this rulemaking, 

a maximum technologically feasible 

(Max Tech) level was identified. 

As previously stated in Section 11.B, 

residential central air conditioner and 

heat pump cooling efficiency is 

expressed as a SEER. Heating efficiency 

is expressed as a HSPF. The most 

efficient technology presently available 

is a 3-ton 18 SEER central air 

conditioner. The Department has 

determined that at this time 18 SEER is 

the Max Tech level for cooling 

efficiency for all product classes and 

capacities in this 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 in residential 

heat pumps. 

C. Energy Savings 

1. Determination of Savings 

The Department estimated energy 

savings through the use of the NES 

spreadsheet, which forecasted energy 

savings over the period of analysiS for 

candidate standards relative to the base 

case. The Department quantified the 

energy savings that would be 

attributable to a standard as the 

difference in energy consumption 

between the candidate standards case 

and the base case. The base case represents the forecast of energy 

consumption in the absence of amended 

mandatory efficiency standards. 

The NES spreadsheet model is 

described in Section IV.B of this notice, 

Appendix of the Technical Support 

Document and also in the 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 at building sites by the 

central air conditioner or heat pump. 

National energy savings are expressed in 

terms of the source e~ergy savings 

which is the savings in energy used to 

generate and transmit the electricity 

consumed at the site. Chapter 7 of the 

TSD contains a table of factors used to 

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 of Savings 

The Act prohibits the Department 

from adopting a standard for a product 

if that 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 of Appeals, in Natural 

Resources Defense Council v. 

Herrington, 768 F.2d 1355, 1373 (D.C. 

Cir. 1985), indicated that Congress 

intended "significant" energy savings in 

tllis context to be savings that were not 

"genuinely trivial." The energy savings 

for all of the trial standard levels 

considered in this rulemaking are nontrivial and therefore we consider them 

"Significant" within the meaning of 

section 325 of the Act. 

D. Rebuttable Presumption 

The National Appliance Energy 

Conservation Act established new 

criteria for determining whether a standard level is economically justified. 

EPCA section 325(0)(2)(B)(iii) states: 

"If the 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 of the energy * * * savings during 

the first year that the consumer will receive 

as a result of the standard, as calculated 

lmder the applicable test procedure, there 

shall be a rebuttable presumption that such 

standard level is economically justified. A 

determination by the Secretary that such 

criterion is not met shall not be taken into 

consideration in the Secretary's 

determination of whether a standard is 

economically justified." 

If the increase in initial price of an 

appliance due to a conservation 

standard would repay itself to the 

consumer in energy savings in less than 

three years, then we presume that such 

standard is economically justified.6 This 

presumption of economic justification 

can be rebutted upon a proper showing. 

E. Economic Justification 

As noted earlier, section 

325(0)(2)(B)(i) of the Act provides seven 

factors to be evaluated in determining 

whether a conservation standard is 

economically justified. 

1. Economic Impact on Manufacturers 

and Consumers 

The Process Rule established 

procedures, interpretations and policies 

to guide the Department in the 

consideration of new or revised 

appliance efficiency standards. The 

provisions of the rule have direct 

bearing on the implementation of 

manufacturer impact analyses. First, the 

Department will use an annual cash 

flow approach in determining the 

quantitative impacts on manufacturers. 

This includes a short-term assessment 

based on the cost and capital 

requirements during the period between 

the announcElment of a regulation and 

the time when the regulation comes into 

eUect, and a long-term assessment. 

Impacts analyzed include industry net 

present value, cash flows by year, 

changes in revenue and income, and 

other measures of impact, as appropriate. Second, the Department 

will analyze and report the impacts on different types of manufacturers, with 

particular attention to impacts on small 

manufacturers. Third, the Department 

will consider the impact of standards on 

domestic manufacturer employment, 

manufacturing capacity, plant closures 

and loss of capital investment. Finally, 

the Department will take into account 

cumulative impacts of different DOE 

regulations on manufacturers. 

For consumers, measures of economic 

impact are the changes in installed cost 

and annual operating costs, i.e., LCC. 

The life-cycle cost of the product at each 

standard level are presented in Chapter 

• For this calculation. the Department calculated 

cost-of-operation based on the DOE test procodure. 

with the test procedure assumed annual hours of 

operation. Consumers that use the central air 

conditioner or heat pump fewer hours will 

experience a longer payback while those that use 

them more will havo a shorter payback-
as ^~~~~~EE-RM/STD-98-440

59594 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

5 of the TSD. Under section 325 of the the total projected energy savings that accelerate the rulemaking process and

Act, the life-cycle cost analysis is a are expected to result 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 of total The Final Report 7 by the team of

2.Life-Cycle Cosprojected savings. The savings are experts, issued in March, 2000,

The life-cycle cost is the sum of the provided in section V of this notice. included the recommendation to

purchase price, including the increase the energy efficiency of central

installation, and the operating expense, 4. Lessening, if Any, of Utility or air conditioners as one means for

including operating energy, Performance of Products enhancing reliability. The report stated,

maintenance, and repair expenditures, This factor cannot be quantified. In "Technologies and practices that reduce

discounted over the lifetime of the establishing classes of products, and in loads during times of peak demand,

appliance. evaluating design options and the such as high-efficiency air conditioning For each central air conditioner and impact of potential 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 of utility or performance in finding that in several of the 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 of the 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 of central 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 a sed range. d adirbuio, Aa ea ~ opeitofor We more efficient technologies. value and a range. We used a The Act directs the Department to s an additional element to consider

distribution of real discount rates consider any lessening of competition 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, if any, of any consumers who are at or below the

conditioner and/or heat pump in 2006. lessening of competition likely to result povert line (eg., for a family of four

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 of life-cycle costs for each of a proposed rule, together with an IV. Methodology

efficiency level analyzed. The building analysis of the nature and extent of such The Process Rule outlines the

stock is composed of both 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 of the: (1) Economic are utilized in residential buildings with in making such a determination, the models; (2) analytical tools; (3)

the remaining 10% in commercial Department has provided the Attorney methodologies; (4) non-regulatory

buildings. The 1997 Residential Energy General with copies of this 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 of the Nation To Conserve spreadsheet tools to meet the objectives

stock based on assumptions consistent E gy of the 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 of potential new

energy costs are based on marginal product under this factor in Section VI energy conservation standards. The

electricity prices which are developed of this 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 of heat potential new energy conservation

0383). The LCC calculations include and humidity that took place in the standards. The Department also

markup structures developed for both 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 of the TSD the lives of millions of people and including the adoption of the GRIM.

contains the details of the LCC thousands of businesses in various Additionally, DOE has estimated the

calculations including those considered regions of our 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 of Energy 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 to recommend actions that the Federal version of EIA's National Energy

energy is a separate statutory government can take to help avoid Modeling System (NEMS) for the utility

requirement for imposing an energy future power outages by improving the

conservation standard, the Act requires reliability of the U.S. electric power ort of the U.S. Department of Energy's Power Outage Study Team: Findings and DOE, in determining the economic system. One of the actions proposed by Recommendations to Enhance Reliability from the

justification of a standard, to consider the Secretary at that time was to Summer of 1999", March 2000.

EE-RM-STD-98-440 COMMENT 206

E.£.RM/STD.~-440 -1f-~ D it; 

59594 Federal Register I Vol. 65, No. 194 I Thursday, October 5, 2000 I Proposed Rules 

5 of the TSD. Under section 325 of the 

Act, the life-cycle cost analysis is a separate factor to be considered in 

determining economic justification. 

2. Life-Cycle Costs 

The life-cycle cost is the sum of the 

purchase price, including the 

installation, and the operating expense, 

including operating energy, 

maintenance, and repair expenditures, 

discounted over the lifetime of the 

appliance. 

For each central air conditioner and 

heat pump product class, we calculated 

both life-cycle costs and life cycle cost 

savings for the following space-cooling 

efficiency levels: 11, 12, 13, and 18 

SEER. For heat pumps, the following 

space-heating efficiency levels 

correspond to the 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 of real discount rates 

ranging from 0.1 to 18% for the 

calculations. The assumption is that the consumer purchases the central air 

conditioner and/or heat pump in 2006. 

For the probability-based LCC analysis, 

a building-by-building analysis is 

performed for purposes of generating a distribution of life-cycle costs for each 

efficiency level analyzed. The building 

stock is composed of both residential 

and commercial buildings under the 

assumption that 90% of single-phase 

central air conditioners and heat pumps 

are utilized in resIdential buildings with 

the remaining 10% in commercial 

buildings. The 1997 Residential Energy 

Consumption Survey (RECS) is used to 

represent the residential building stock 

while 77 commercial buildings are used 

to represent the commercial building 

stock based on assumptions consistent 

with those used in the process to update 

ASHRAE Standard 90.1-1999. Annual 

energy costs are based on marginal 

electricity prices which are developed 

for each residential and commercial 

building. Electricity price forecasts are taken from the AE02000 (DOE/EIA0383). The LCC calculations include 

markup structures developed for both 

the new construction and replacement/ 

retrofit markets. Chapter 5 of the TSD 

contains the details of the LCC 

calculations including those considered 

under factor 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 determining the economic 

justification of a standard, to consider 

the total projected energy savings that are expected to result directly from 

revised standards. The Department used 

the NES spreadsheet results, discussed 

earlier, in its consideration of total 

projected savings. The savings are 

provided in section V of this notice. 

4. Lessening, if Any, of Utility or 

Performance of Products 

This factor cannot be quantified. In 

establishing classes of products, and in 

evaluating design options and the 

impact of potential standard levels, the 

Department tried to eliminate any 

degradation of utility or performance in 

the products under consideration in this 

rulemaking. None of the proposed trial 

standard levels reduces the performance 

of central air conditioners and heat 

pumps. 

5. Impact of Any Lessening of 

Competition 

The Act directs the Department to 

consider any lessening of competition 

that is likely to result from standards. It 

further directs the Attorney General to 

determine the impact, if any, of any 

lessening of competition likely to result 

from a proposed standard and transmit 

such determination to the Secretary, not 

later than 60 days after the publication 

of a proposed rule, together with an 

analysis of the nature and extent of such 

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 order to assist the Attorney General 

in making such a determination, the 

Department has provided the Attorney 

General with copies of this notice and 

the Technical Support Document for 

review. 

6. Need of the Nation To Conserve 

Energy 

We report the environmental effects 

from each standard level for each 

product under this factor in Section VI 

of this notice. 

7. Other Factors 

During the extreme periods of heat 

and humidity that took place in the 

summer of 1999, electric power outages 

and other system disturbances disrupted 

the lives of millions of people and 

thousands of businesses in various 

regions of our country. In response to 

public concerns about this problem, the 

Secretary of Energy formed a team of 

experts to investigate the problem and 

to recommend actions that the Federal 

government can take to help avoid 

future power outages by improving the 

reliability of the U.S. electric power 

system. One of the actions proposed by 

the Secretary at that time was to 

accelerate the rulemaking process and 

advance the publication of a final rule 

for central air conditioners by six 

months. 

The Final Report 7 by the team of 

experts, issued in March, 2000, 

included the recommendation to 

increase the energy efficiency of central 

air conditioners as one means for 

enhancing reliability. The report stated, 

"Technologies and practices that reduce 

loads during times of peak demand, 

such as high-efficiency air conditioning 

and lighting equipment, are especially 

valuable." This was based on the 

finding that in several of the affected 

regions "Retail customers have limited 

mechanisms and incentives to conserve 

energy or resort to alternatives during 

electricity shortages." Included in the 

federal activities that promote energy 

efficiency recommended to the 

Secretary was to promulgate standards 

for more efficient technologies. 

As an additional element to consider 

under this factor, the Secretary has 

decided to evaluate the life-cycle cost 

impacts on those subgroups of consumers who are at or below the 

poverty line (e.g., for a family of four, 

this constitutes a household income of 

less than $16,036). 

IV. Methodology 

The Process Rule outlines the 

procedural improvements identified by 

the interested parties. 61 FR 36974. The 

process improvement effort also 

included a review of the: (1) Economic 

models; (2) analytical tools; (3) 

methodologies; (4) non-regulatory 

approaches; and (5) prioritization of 

future rules. 

The Department continues to use two 

spreadsheet tools to meet the objectives 

of the Process Rule. The first 

spreadsheet calculates life-cycle-costs 

and payback periods of potential new 

energy conservation standards. The 

second conducts shipments forecasts 

and then calculates national energy 

savings and net present value impacts of 

potential new energy conservation 

standards. The Department also 

completely revised the methodology 

used in assessing manufacturer impacts 

including the adoption of the GRIM. 

Additionally, DOE has estimated the 

impacts of central air conditioner and 

heat pump energy efficiency standards 

on electric utilities and the 

environment. The Department used a 

version of EIA's National Energy 

Modeling System (NEMS) for the utility 

7 "Report of the U.S. Department of Energy's 

Power Outage Study Team: Findings and 

Recommendations to Enhance Reliability from the 

Summer of 1999". March 2000. 
EE-RM/STD-98-440 -1c 0 6g

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59595

and environmental analyses. NEMS conditioner or heat pump. Of the 5,900 each building's annual space-cooling

simulates the energy economy of the households surveyed in the 1997 RECS, and space-heating energy consumption.

U.S. and has been developed over 2,003 households representing 37.6% of Similar to the analysis for residential

several years by the EIA primarily for the housing population have a central buildings, the energy use associated

the purpose of preparing the AEO. air conditioner while 579 households with equipment at higher efficiency

NEMS produces a widely-known representing 11.1% of the 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 is available in the public specifies the annual space-cooling annual energy use by the ratio of the

domain. The version of NEMS used for energy consumption and, in the case 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 of the more efficient

AEO2000 version with minor space-conditioning equipment. Also equipment. Average and marginal

modifications. NEMS offers a provided is the age of the space- electricity prices for each commercial

sophisticated picture of the 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 of electric utility tariffs

measure the interactions between the efficiency data provided by the Air- to the simulated load and demand. The

various energy supply and demand Conditioning and Refrigeration Institute electricity price data along with the

sectors and the economy as a whole. (ARI), allows for the imputation of the annual energy use data allows for the

A. Life-Cycle Cost and Payback Period household's space-conditioning determination of annual electricity cost

Analysis equipment efficiency (i.e., the SEER savings for any efficiency level for each

and, in the case of heat pumps, the commercial building. This section describes the LCC and HSPF). With both the annual energy use The probability-based LCC and

payback period analysis and the and the efficiency of the 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 of possible 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 of LCC results for

commercial consumers. Details of the 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 5 in the TSD. We conduct the by the ratio of the 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% of the single-phase central air

Microsoft Excel for Windows 95 or Household utility billing data in RECS conditioning and heat pump equipment above. When combined with Crystal allows for the determination of average 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 of annual 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 of commercial buildins are to perform the calculations. The LCC

The LCC is the total consumer based on assumptions consistent with and payback period output can be either

expense over the life of the appliance, those used to develop the American a point value when we use the average including purchase expense andSociety of Heating Refrigerating and value of the 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 of the inputs. Inputs for determining

are discounted to the time of purchase the total installed cost include: Baseline

and summed over the lifetime of the 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. For today's te annual fullload equivalentsales taxes, and installation costs. Of the

proposed rule, both the LCC and operating hours (FLEOH) of the 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 of a nationally each buihe Depa FLEOH are used builder markups, as well as the sales tax

representative set of residential and with the Department of Energy's test and installation price are described with

commercial buildings. procedure equations for central air distributions. Inputs for determining The set of residential buildings are conditioners and heat 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 of households actually used in ee csm pal electricity pricesi with equipped either a cecntral cRECS air conditioner and heat pump LCC and prices, marginal electricity prices,

Payback period analyses were 1218 and 308, electricity price projections, repair

8 EIA approves use of the name NEMS to describe respectively. Some central air-conditioned costs, maintenance costs, equipment

only an AEO version of the model without any households wore dropped from the analysis for one lifetime, discount rates, and the year modification to code or data. Because our analysis or more of the 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 be determined for the household. With rate and equipment lifetime are

BRS refers to the model as used hero. For more regard to households with heat pumps, they were described with distributions (note that information on NEMS, please refer to the National dropped from the analysis for one or more of the 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

of Building Research and Standards. determined for the household. period). Operating expense, annual

EE-RM-STD-98-440 COMMENT 206

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59595 

and environmental analyses. NEMS 

simulates the energy economy of the 

U.S. and has been developed over 

several years by the ElA primarily for 

the purpose of preparing the AEO. 

NEMS produces a widely-known 

baseline forecast for the U.S. through 

2020 that is available in the public 

domain. The version of NEMS used for 

appliance standards analysis is called 

NEMS-BRS,8 and is based on the 

AE02000 version with minor 

modifications. NEMS offers a sophisticated picture of the effect of 

standards since its scope allows it to 

measure the interactions between the 

various energy supply and demand 

sectors and the economy as a whole. 

A. Life-Cycle Cost and Payback Period 

Analysis 

This section describes the LCC and 

payback period analysis and the 

spreadsheet model used for analyzing 

the economic impacts of possible 

standards on individual residential and 

commercial consumers. Details of the 

spreadsheet model can be found in 

Chapters 5 in the TSD. We conduct the 

LCC and payback period analysis with 

a spreadsheet model developed in 

Microsoft Excel for Windows 95 or above. When combined with Crystal 

Ball (a commercially available software 

program), the LCC and payback period 

generates a Monte Carlo simulation to 

perform the analysis by incorporating 

uncertainty and variability 

considerations. 

The LCC is the total consumer 

expense over the life of the appliance, 

including purchase expense and 

operating costs (including energy 

expenditures). Future operating costs 

are discounted to the time of purchase 

and summed over the lifetime of the 

appliance. The payback period is the 

change in purchase expense due to an 

increased efficiency standard divided by 

the change in annual operating cost that 

results from the standard. For today's 

proposed rule, both the LCC and 

payback period are based on a buildingby-building analysis of a nationally 

representative set of residential and 

commercial buildings. 

The set of residential buildings are 

taken from those households in the 1997 

RECS equipped with either a central air 

• ElA approves use of the name NEMS to describe 

only an AEO version of the model without any 

modification to code or data. Because our analysis 

entails some minor code modifications and the 

model is run under various policy scenarios that 

deviate from AEO assumptions, the name NEM8-

BRS refers to the model as used here. For more 

information on NEMS, please refer to the National 

Energy Modeling System: An Overview 1998. DOEI 

ElA"'()581 (98), February, 1998. BRS is DOE's Office 

of Building Research and Standards. 

conditioner or heat pump. Of the 5,900 

households surveyed in the 1997 RECS, 

2,003 households representing 37.6% of 

the housing population have a central 

air conditioner while 579 households 

representing 11.1 % of the housing 

population have heat pumps.9 RECS 

specifies the annual space-cooling 

energy consumption and, in the case of 

heat pumps, the annual space-heating 

energy consumption associated with the 

space-conditioning equipment. Also 

provided is the age of the spaceconditioning equipment which, when 

coupled with historical equipment 

efficiency data provided by the AirConditioning and Refrigeration Institute 

(ARI), allows for the imputation of the 

household's space-conditioning 

equipment efficiency (i.e., the SEER 

and, in the case of heat pumps, the 

HSPF). With both the annual energy use 

and the efficiency of the central air 

conditioner or heat pump specified, the 

annual energy use associated with 

equipment at higher efficiency levels is 

simply determined by multiplying the 

household's existing annual energy use 

by the ratio of the existing equipment 

efficiency divided by the efficiency of 

the more efficient equipment. 

Household utility billing data in RECS 

allows for the determination of average 

and marginal electricity prices. The 

electricity price data along with the 

annual energy use data allows for the 

determination of annual electricity cost 

savings for any efficiency level. 

The set of commercial buildings are 

based on assumptions consistent with 

those used to develop the American 

Society of Heating, Refrigerating, and 

Air-Conditioning Engineers' (ASHRAE) 

Standard 90.1-1999. The commercial 

building data set consists of seven building types located in eleven 

different geographic regions yielding a 

total of 77 buildings. An hourly 

simulation program is used to calculate 

the annual full-load equivalent 

operating hours (FLEOH) of the spacecooling and space-heating equipment in 

each building. The FLEOHs are used 

with the Department of Energy's test 

procedure equations for central air 

conditioners and heat pumps to obtain 

• The number of households actually used in the 

contral air conditioner and heat pump LCC and 

Payback period analyses were 1218 and 308, 

rospectively. Some central air-conditioned 

housoholds wore dropped from tho analysis for one 

or more of the following roasons: (1) Tho central air 

conditioner was not used, (2) a room air conditioner 

was present and used, or (3) marginal energy prices 

could not be determined for the household. With 

regard to households with heat pumps, they wore 

dropped from the analysis for one or more of the 

following reasons: (1) The hoat pump was not usod 

or (2) marginal energy prices could not be 

dotormined for the housohold. 

each building'S annual space-cooling 

and space-heating energy consumption. 

Similar to the analysis for residential 

buildings, the energy use associated 

with equipment at higher efficiency 

levels is simply determined by 

multiplying the building'S simulated 

annual energy use by the ratio of the 

building'S assumed equipment 

efficiency (i.e., 10 SEER) divided by the 

efficiency of the more efficient 

equipment. Average and marginal 

electricity prices for each commercial 

building are determined by applying a 

national sample of electric utility tariffs 

to the simulated load and demand. The 

electricity price data along with the 

annual energy use data allows for the 

determination of annual electricity cost 

savings for any efficiency level for each 

commercial building. 

The probability-based LCC and 

payback period analysis samples 

buildings from the residential and 

commercial building data set in order to 

produce a distribution of LCC 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% of the single-phase central air 

conditioning and heat pump equipment 

stock are in residential buildings with 

the remaining 10% in commercial 

buildings. 

The spreadsheet model is organized so that ranges or distributions can be 

entered for each input variable needed 

to perform the calculations. The LCC 

and payback period output can be either 

a point value when we use the average 

value of the inputs or a distribution 

when we use distributions for some or 

all of the inputs. Inputs for determining 

the total installed cost include: Baseline 

manufacturer costs, manufacturer cost 

multipliers for each efficiency level, 

manufacturer markups, distributor or 

wholesaler markups, dealer or contractor markups, builder markups, 

sales taxes, and installation costs. Of the 

above total installed cost inputs, the 

manufacturer, dealer, distributor, and 

builder markups, 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 electricity prices, 

electricity price projections, repair 

costs, maintenance costs, equipment 

lifetime, discount rates, and the year 

standards take effect. Of the above 

operating expense inputs, the discount 

rate and equipment lifetime are 

described with distributions (note that 

neither the discount rate nor lifetime are 

needed to determine the payback 

period). Operating expense, annual 
?- .EE-RM/STD-98-440--4 " 6

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. of equipment price, operating cost, and

Chapter 5 of the TSD contains the Additional information about the NES household income; (2) different market

details of all 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 or heat

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 of the 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 if the 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, the rebuttable projection; and (7) an efficiency C. Manufacturer Impact Analysis

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 of standards 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 the Department's test equipment efficiency distribution after he Department published the

procedure are on the order of 50% new standards would take effect. Three roe Nepad ment pulas eat the

greater than the weighted-average values efficiency scenarios were used to propos Register publication of the

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 of the 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 the range from the The GRIM was used to prepare an B. National Energy Savings and Net minimum andard to 18 SEER) were industry cash flow analysis. The

Present Value Analysis 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 of any estimate of future the analysis of new 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 the NAECA scenario, equipment financial impacts of revised standards.

for inputs or outputs. We conduct efficiencies after the adoption of now standards are Phase 3 also entailed documenting

sensitivities by running different forecasted to change 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 results in weighted average equipment efficiencies, structured interview process.

perform calculations of energy savings based on minimum efficiency standards of 11, 12,

and net present value (NPV) bas^Sed on 13 SEER, of 11.6 SEER, 12.4 SEER, '1.uand and 13.4 1. Phase 1, Industry Profile

user inputs similar to those for the LCC I Under the Roll-up scenario, equipment that in Phase 1 of the MIA consisted of

spreadsheet. The energy savings, energy the base case were forecast to be less efficient than preparing an Industry Profile. Prior to

cost savings, equipment costs, and NPV the trial standard level are assumed to move up to 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 not to increase in efficiency. This present and past structure and market

through 2030. The forecasts provide results in weighted-average equipment efficiencies, characteristics of the central air

annual and cumulative values for all based on minimum efficiency standards of 11,12, conditioning industry. This activity

four output parameters. 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 of new 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 of 11,12, and 13 SEER, of 11.7 information, market trends, and product

conditioner or heat pump (i.e, 10 SEER) SEER, 12.7 SEER, and 13.7 SEER, respectively. characteristics.

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD-9~-440_#~ 6 b 

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

energy use and electricity prices, 

although represented by pOint-values for 

each residential and commercial 

building. are highly variable when 

looking at the entire building data set. 

Chapter 5 of the TSD contains the 

details of all the inputs to the LCC and 

payback period analysis. 

In addition to determining payback 

periods with the spreadsheet model, the 

Act requires us to determine a 

rebuttable payback period. The Act 

requires the Department to examine 

payback periods to determine if the 

three year rebuttable presumption of 

economic justification applies. As 

prescribed by the Act. the rebuttable 

payback period is "calculated under the 

applicable test procedure, * * * ." 

The annual space-cooling and spaceheating energy consumption calculated 

based on the Department's test 

procedure are on the order of 50% 

greater than the weighted-average values 

from the LCC analysis (i.e .• analyses 

based on the 1997 RECS for residential 

buildings and hourly simulations for 

commercial buildings). As will be 

shown in Section VI (Analytical 

Results), the payback value calculated 

from the Department's test procedure 

equations will be significantly lower 

than the average payback value 

calculated from the LCC analysis. for 

any standard level. 

B. National Energy Savings and Net 

Present Value Analysis 

In order to make the analysis more 

accessible and transparent to all 

stakeholders, we continue to use an 

Excel spreadsheet model to calculate the 

energy savings and the national 

economic costs and savings from new 

standards. Various input quantities 

within the spreadsheet can be changed. 

Unlike the Lee analysis. the NES 

spreadsheet does not use distributions 

for inputs or outputs. We conduct 

sensitivities by running different 

scenarios. 

DOE uses the NES spreadsheet to 

perform calculations of energy savings 

and net present value (NPV) based on 

user inputs similar to those for the LCe 

spreadsheet. The energy savings. energy 

cost savings, equipment costs. and NPV 

of benefits for several product classes 

are forecast from the chosen start year 

through 2030. The forecasts provide 

annual and cumulative values for all 

four output parameters. 

The Department calculates the 

national energy savings by subtracting 

energy use under a standards scenario 

from energy use in a base case (no new 

standards scenario). Energy use is 

reduced when the baseline central air 

conditioner or heat pump (i.e. 10 SEER) 

is replaced by a more efficient piece of. 

equipment. Unit energy savings for each 

product class are the same weightedaverage values as calculated in the LCC 

and Payback period spreadsheet. 

Additional information about the NES 

spreadsheet can be found in Chapter 7 

of the TSD. 

User inputs include: (1) A choice from 

among several electricity price 

projections: (2) effective date of the 

central air conditioners and heat pumps 

standard; (3) discount rate and discount 

year; (4) a standards case efficiency 

level; (5) an equipment price; (6) an 

equipment price and housing 

projection; and (7) an efficiency 

scenario. Additionally. we use a time 

series of conversion factors to change 

from site to source energy. 

The efficiency scenario specifies the 

equipment efficiency distribution after 

new standards would take effect. Three 

efficiency scenarios were used to 

forecast the impact new standards 

would have after they take 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 .• the percentage of 

shipments which occur in incremental 

SEER bins over the range from the 

minimum standard to 18 SEER) were 

used in the analysis for the proposed 

rule. 

One of the more important 

components of any estimate of future 

impact is shipments. Forecasts of 

shipments for the base case and 

standards case are determined within 

the NES spreadsheet. The shipments 

portion of the spreadsheet forecasts 

10 Under the NAECA scenario. equipment 

efficiencies after the adoption of now standards are 

forecasted to change in the same pattern as the 

efficiency changes that occurred in 1992 when 

minimum efficiency standards first took effect. This 

tosults in weighted average equipment efficiencies. 

based on minimum efficiency standards of 11.12. 

and 13 SEER. of 11.6 SEER. 12.4 SEER. and 13.4 

SEER. respectively. 

11 Undor the Roll-up scenario. equipment that in 

the base case were forecast to be less efficient than 

the trial standard level are assumed to move up to 

the standard level. and equipment forecasted in the 

base case to be at or above the trial standard level 

are assumed not to increase in efficiency. This 

rosults in weighted-average equipment efficiencies. 

based on minimum efficiency standards of 11. 12, 

and 13 SEER. of 11.5 SEER. 12.3 SEER. and 13.3 

SEER. respectively. 

12 Under the Shift scenario. equi pment 

efficiencies after the adoption of new 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 conditioner and heat pump 

shipments from 2000 to 2030. 

Shipments forecasts are developed by 

accounting for: (1) The combined effects 

of equipment price. operating cost. and 

household income; (2) different market 

segments (e.g .• new housing, 

replacement decisions. and non-owners 

adding a central air conditioner or heat 

pump); (3) decisions to repair rather 

than replace; and (4) different 

equipment age categories. Additional 

details on the various shipments 

forecasts are provided in Chapter 6 of 

the TSD. 

C. Manufacturer Impact Analysis 

The MIA estimates the financial 

impact of standards on manufacturers 

and calculates impacts on employment 

and manufacturing capacity. 

The Department published the 

proposed MIA approach as part of the 

Federal Register publication of the 

Supplemental ANOPR. and received no 

comments suggesting substantive 

changes in the methodology. As 

proposed. the MIA was conducted in 

three phases. Phase 1, "Industry 

Profile." consisted of the preparation of 

an industry characterization. Phase 2. 

"Industry Cash Flow." focused on the 

industry as a whole. including both 

major and niche-product manufacturers. 

The GRIM was used to prepare an 

industry cash flow analysis. The 

Department used publicly available 

information developed in Phase 1 to 

adapt the GRIM structure to facilitate 

the analysis of new central air 

conditioner and central air conditioning 

heat pump standards. 

In Phase 3. "Sub-Group Impact 

Analysis," the Department conducted 

interviews with several niche-product 

manufacturers to determine the 

financial impacts of revised standards. 

Phase 3 also entailed documenting 

additional impacts on employment and 

manufacturing capacity through a structured interview process. 

1. Phase 1. Industry Profile 

Phase 1 of the MIA consisted of 

preparing an Industry Profile. Prior to 

initiating the detailed impact studies. 

DOE collected information on the 

present and past structure and market 

characteristics of the central air 

conditioning industry. This activity 

involved both quantitative and 

qualitative efforts to assess the industry 

and products to be analyzed. The 

information collected included 

manufacturer market shares and 

characteristics and financial 

information. market trends, and product 

characteristics. 
t

c EE-RM/STD-98-440-,-?6 a

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59597

The industry profile included a top- independent of final production reported by NEMS-BRS. NOx results are

down cost analysis of the central air volumes. based on forecasts of compliance with

conditioner manufacturing industry that GRIM An s existing legislation. In the case of SO2,

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 of this target,

Sales General & Administration (SG&A), distinct ways: (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 of higher forces, through the use of emissions

additional sources of information 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 of SO2

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 of the MIA focused on the expenditures-to arrive at a series of of the emission ceilings. See the TSD,

financial impacts of new 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 of this 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

is the GRIM. As part of the analysis, number of sources, including publically economic growth side cases found in

DOE interviewed several of the major available data, as well as interviews AEO 2000 have also been generated for

manufacturers. For the Industry Cash with of the 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 of the TSD. As noted above, DOE published the

The Department has received many Supplemental ANOPR regarding central

comments during workshops and D. NEMS Environmental Analysis air conditioners and heat pumps on interviews, and in writing, suggesting The environmental analysis provides November 24, 1999, and conducted a that manufacturers of niche 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 of niche 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 of emerging

Engineering Analysis. The focus of the heat pump energy usages are reduced by technologies into the Engineering

interviews was to determine which the amount of energy (electricity) saved Analysis;

GRIM parameters differed for niche due to the proposed trial standard 3. The assessment of the impacts on

manufacturers by virtue of their smaller levels. The input of energy 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. For heat pump systems, the

common distinguishing characteristic of is the forecasted physical emissions. relationship between SEER and HSPF;

niche product manufacturers was their The net benefits of the standard is the 5. Additional product classes based

need to spread the costs of converting 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 of alternative

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 of the costs necessary to meet because of its broad coverage of all 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 of carbon tracked determination of price 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;

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440401 ~ 0 

Federal Register I Vol. 65, N.o. 194 I Thursday, October 5, 2000 I Proposed Rules 59597 

The industry profile included a topdown cost analysis of the central air 

conditioner manufacturing industry that 

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. The Department also utilized 

additional sources of information to 

further characterize the industry. These 

included company Securities and 

Exchange Commission (SEC) 10-K 

reports, Moody's company data reports, 

Standard & Poor's (S&P) stock reports, 

Value Line industry composites, and 

Dow Jones Financial Services. 

2. Phase 2, Industry Cash Flow Analysis 

Phase 2 of the MIA focused on the 

financial impacts of new standards on 

the industry as a whole. The analytical 

tool used for calculating the financial 

impacts of standards on manufacturers 

is the GRIM. As part of the analysis, 

DOE interviewed several of the major 

manufacturers. For the Industry Cash 

Flow Analysis, DOE used the financial 

values determined during Phase 1 and 

the shipment scenarios used in the LCC 

and NES analyses. 

3. Phase 3, Sub-Group Impact Analysis 

The Department has received many 

comments during workshops and 

interviews, and in writing, suggesting 

that manufacturers of niche products, 

representing less than 3 % of industry 

shipments, could be more negatively 

impacted by new standards than major 

manufacturers. To assess the differential 

impacts, the Department interviewed 

two manufacturers of niche products, in 

addition to those conducted during the 

Engineering Analysis. The focus of the 

interviews was to determine which 

GRIM parameters differed for niche 

manufacturers by virtue of their smaller 

revenue base and more limited markets. 

From a financial standpoint, the 

common distinguishing characteristic of 

niche product manufacturers was their 

need to spread the costs of converting to 

new standards over smaller production 

volumes, as well as the product size 

constraints identified during the 

Engineering Analysis which make their 

shipments more sensitive to increases in 

product size. During the interviews, 

small manufacturers demonstrated that 

several of the costs necessary to meet 

any new regulation are largely 

independent of the product volume 

produced. The most apparent are the 

costs necessary to design a new product 

meeting the proposed energy standards. 

Other costs, such as plant engineering, 

some tooling, and other capital costs, 

have significant portions that are 

independent of final production 

volumes. 

4. GRIM Analysis 

An increase in standards affects a 

manufacturer's cash flow in three 

distinct ways: (1) Increased investment; 

(2) higher production costs per unit; and 

(3) altered revenue by virtue of higher 

per unit prices and changes in sales 

volumes. As mentioned, the Department 

uses the GRIM to quantify the changes 

in cash flow that result in a higher or 

lower industry value. 

The GRIM analysis uses a number of 

inputs-annual shipments; prices; 

manufacturer costs such as materials 

and labor, selling and general 

administration costs, taxes, and capital 

expenditures-to arrive at a series of 

annual net cash flows beginning today 

and continuing ten years past the 

implementation of new standards. This 

information was collected from a 

number of sources, including publically 

available data, as well as interviews 

with of the major manufacturers and 

two specialty manufacturers. Industry 

net present values are calculated by 

discounting and summing the annual 

net cash flows. Additional information 

about the GRIM spreadsheet can be 

found in Chapter 8 of the TSD. 

D. NE.MS Environmental Analysis 

The environmental analysis provides 

estimates of changes 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 similar to the AE02000 NEMS 

except that central air conditioner and 

heat pump energy usages are reduced by 

the amount of energy (electricity) saved 

due to the proposed trial standard 

levels. The input of energy savings are 

obtained from the NES spreadsheet. For 

the environmental analysis, the output 

is the forecasted physical emissions. 

The net benefits of the standard is the 

difference between 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 of its broad coverage of all 

sectors and inclusion of interactive 

effects. The only form of carbon tracked 

by NEMS-BRS is COz. However, in this 

report the carbon savings are reported as 

elemental carbon. 

The two airborne pollutant emissions 

that have been reported in past analyses, 

sulfur dioxide (S02) and NOx, are 

reported by NEMS-BRS. NOx results are 

based on forecasts of compliance with 

existing legislation. In the case of S02, 

the Clean Air Act Amendments of 1990 

set an emissions cap on all power 

generation. The attainment of this target, 

however, is flexible among generators 

and is enforced by applying market 

forces, through the use of emissions 

allowances and tradable permits. As a 

result, accurate simulation of SOz 

trading tends to imply that physical 

emissions effects will be zero because 

emissions will always be at, or near, the 

ceiling. This fact has caused 

considerable confusion in the past. 

There is virtually no real possible S02 

environmental benefit from electricity 

savings as long as there is enforcement 

of the emission ceilings. See the TSD, 

Environmental Assessment, for a 

discussion of this issue. 

Alternative price forecasts 

corresponding to the high and low 

economic growth side cases found in 

AEO 2000 have also been generated for 

use by NEMS-BRS, and were used as 

alternative scenarios, and are presented 

in the TSD. (See TSD, Environmental 

Assessment.) 

V. Discussion of Comments 

As noted above, DOE published the 

Supplemental ANOPR regarding central 

air conditioners and heat pumps on 

November 24, 1999, and conducted a 

public workshop to present the analyses 

and to solicit comments on December 9, 

1999. The Department requested 

comments on the following twelve 

issues: 

1. Differences between the industry 

and the reverse engineering cost data: 

2. The incorporation of emerging 

technologies into the Engineering 

Analysis; 

3. The assessment of the impacts on steady-state efficiency, i.e. EER, due to 

increases in the SEER; 

4. For heat pump systems, the 

relationship between SEER and HSPF; 

5. Additional product classes based 

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 of alternative 

refrigerants for HCFC-22; 

8. Data on retail mark-up 

assumptions; 

9. Information relating to the 

determination of price and operating 

cost elasticities in conducting shipment 

forecasts; 

10. Data on the possible adverse 

affects of standards on identifiable 

groups of consumers that experience 

below-average utility or usage rates; 
EERMW1ST048-440 -c

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

to be 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 split heat pump and packaged used for packaged air conditioners and

A. Engineering Cost Data equipment analysis was based on fewer packaged heat pumps;

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 of a 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 as a basis for the 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 the Natural Resources deficiencies were likely to cause some capacity and SEER level should have

Defense Council (NRDC) commented on of the differences between the ARI cost nearly identical costs for the 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 to the 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 of the V.2 provides the same information, but

engineering results for split heat pumps engineering analysis performed by DOE in terms of relative 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 and the aggregation of the results the production cost of equipment 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

(SEER) 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 of the Supplemental 125,000 units per year to 25,000 units produced with the same plant

EE-RM-STD-98-440 COMMENT 206

.. 

. i'6: 

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

11. Information on what nonregulatory alternatives to standards need 

to be reviewed; and 

12. Comments on the candidate 

standard levels and the alternative 

standard scenarios. 

Based on responses and comments 

received since that workshop, we 

provide the following discussion. 

A. Engineering Cost Data 

1. Reverse Engineering Cost Estimates 

The Department's reverse engineering 

analysis prepared as a basis for the 

Supplemental ANOPR received a broad 

range of comments, both supportive and 

critical. ARI and the Natural Resources 

Defense Council (NRDC) commented on 

the apparent accuracy of the split air 

conditioner cost estimates and the ease 

with which the results are able to be 

scrutinized by outside parties. (Wethje, 

ARI, Transcript, p. 42; ARI, No. 11 at 1; 

Goldstein, NRDC, Transcript, p. 94). 

The Department also received 

comments criticizing the reverse 

engineering results for split heat pumps 

and for packaged air conditioners and 

heat pumps, noting the lack of design 

detail and the aggregation of the results 

into an efficiency level-based analysis. 

(Hodges, ARI, Transcript, p. 85; Madera, 

York International (York), Transcript, 

pp. 90, 91, 93; Goldstein, NRDC, 

Transcript p. 96 and California Energy 

Commission (CEC) No. 47 at 7). The 

comments observed that the relative 

cost results for split heat pumps and 

packaged equipment differed 

significantly from those of split air 

conditioners, and that those analyses 

were less rigorous than the split air 

conditioner analysis. They also noted 

that the split heat pump and packaged 

equipment analysis was based on fewer 

equipment samples; did not include a 

detailed tear-down of a 10 SEER split 

heat pump or packaged air conditioner; 

and was based on questionable 

production volume assumptions. 

The Department agreed that those 

deficiencies were likely to cause some 

of the differences between the ARI cost 

and the reverse engineering cost 

estimates, and revised its analysis of 

split heat pumps and packaged 

equipment. 

In responding to the comment on 

sample size for split heat pumps and 

packaged equipment, the Department 

took guidance from a review of the 

engineering analysis performed by DOE 

consultant, Joseph Pietsch. Mr. Pietsch 

presented five guidelines for comparing 

the production cost of equipment for 

different product classes. (Pietsch, No 

36 at 2-5). o At each cooling capacity and SEER 

level, the same outside unit will likely 

be used for split air conditioners 

(fancoil) and split air conditioners 

(cased coil); 

• At each cooling capacity and SEER 

level, the same fancoil will likely be 

used for split air conditioners (fancoil) 

and split heat pumps; 

• At each cooling capacity and SEER 

level, the same cabinet will likely be 

used for packaged air conditioners and 

packaged heat pumps; 

• There should be some degree of 

consistency in the cost to "convert" an 

air conditioner into a heat pump; and 

• Split systems with fan coils and 

single package units at the same cooling 

capacity and SEER level should have 

nearly identical costs for the major 

functional components. 

Based on the above guidelines, DOE 

revised the analysis of split heat pumps 

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 

in terms of relative costs. Revised 

production costs are generally lower 

than the 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 prior to 

the publication of the 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, the Department had reduced its per year. However, since heat pumps 

heat pump production volume from and air conditioners are typically 

12!i,000 units per year to 25,000 units produced with the same plant 
iw^~~~~- ~EE-RM/STD-98-440-: a

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59599

equipment, reducing the production equipment at a lower cost than 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 of the TSD provides the

allocation raises the cost of the baseline this approach, questioning whether details of the revised emerging

heat pump, lowering the relative cost of some of the technologies 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 of the split air 34 at 1; NRDC No. 35 at 11-12). ARI examine the effects of the 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, Transcript p.

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 the use and calculation of the prior to the 2010 phaseout date.

used in the analysis for today's Carnot efficiency on page 4-27 of the (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 to the 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 of equipment using either

(ACEEE), Census Bureau Current compressor, could reduce costs to the 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 unit price of equipment shipments at lower SEER levels resulting in a cost of increasing 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 of the 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 at the 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 of microchannel their conversion to the new refrigerant

not believe historical price trends for heat exchangers as part of its relative l e con t re f r a t

will be considered in the Manufacturer 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-Cost Parameters

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 of emerging 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 not believe 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 should be taken into

3. Emerging Technologies that combining the effects of component 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 of the analysis is not to provide a would have the impact of reducing

efficiency. In the Supplemental ANOPR, definitive estimate of the impact of any 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 to provide 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

of variable speed fan motors and overestimates the cost of higher warranties for high efficiency systems

parallel-flow, microchannel heat efficiency equipment by neglecting that cover a wider range of components,

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

EE-RM-STD-98-440 COMMENT 206

:( .. . 

Federal 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 of the baseline 

heat pump, lowering the relative cost of 

producing equipment at higher 

efficiency levels. To compensate for this 

overestimate of overhead allocation, we 

set the split heat pump overhead 

allocation equal to that of the split air 

conditioner at each efficiency level. 

The Department believes that the 

revisions to the split heat pump and 

packaged equipment production costs 

have improved the cost estimates for 

those product classes and that no additional equipment samples need to 

be subjected to tear-down or reverse 

engineering analysis. The revised 

reverse engineering cost estimates were 

used in the analysis for today's 

proposed rule. 

2. Productivity Efficiency Improvements 

According to the American Council 

for an Energy Efficient Economy 

(ACEEE), Census Bureau Current 

Industrial Report (CIR) data suggest that 

the unit price of equipment shipments 

below 65,000 Btu/hr fell in real terms 

between 1992 and 1997. (ACEEE, No. 43 

at 4). ACEEE suggested that the 

Department apply an annual deflator of 

1.7% to projected prices to account for 

this apparent productivity 

improvement. 

For other rulemakings, the 

Department has used production input 

costs and production technologies based 

on the best information available at the 

time. DOE has not made any 

assumptions about productivity 

improvements and material cost 

changes over time. The Department does 

not believe historical price trends for 

unitary air conditioners, or other 

products, can be applied to forecast 

equipment costs where there are no data 

to indicate the trends will continue. 

Therefore, without specific data on the 

likely costs to manufacture a product, 

the Department will not apply a 

productivity improvement factor in this 

rulemaking or other rulemakings. 

3. Emerging Technologies 

Emerging technologies that are not 

established in the residential central air 

conditioning market have the potential 

to lower the cost of achieving higher 

efficiency. In the Supplemental ANOPR, 

we considered advances in variable 

speed and variable capacity 

compressors, and reductions in the cost 

of variable speed fan motors and 

parallel-flow, microchannel heat 

exchangers to be potentially viable 

methods for increasing the efficiency of 

equipment at a lower cost than currently 

established methods. 

Bard Manufacturing (Bard), Dnico, 

Inc. (Dnico) and NRDC disagreed with 

this approach, questioning whether 

some of the technologies considered 

were commercially and technically 

viable, but proposed no other 

technologies for consideration. (Bard 

Manufacturing, No. 28 at 4; Dnico, No. 

34 at 1; NRDC No. 35 at 11-12). ARI 

stated that they considered some 

compressor and motor advances but not 

microchannel heat exchangers in their 

relative production cost data. (ARI No. 

48 at 3). The Trane Company (Trane) 

and Edison Electric Institute (EEl) also 

expressed concern over some apparent 

inconsistencies in the emerging 

technologies analysis presented in Table 

4.16 and the use and calculation of the 

Carnot efficiency on page 4-27 ofthe 

Supplemental ANOPR 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 system reliability. (PG&E, No. 

31 at 3). 

The emerging technology analysis 

based on reverse engineering 

information seems to confirm that, of 

the technologies considered, only 

variable capacity compressors and 

variable speed fan motors have the 

potential to be cost options for 

providing additional efficiency 

compared to today's established 

technologies. This provides evidence 

that ARI is justified in not considering 

the potential benefits of microchannel 

heat exchangers as part of its relative 

cost data submission. Therefore, we will 

apply emerging technologies only to the 

reverse engineering results and consider 

the ARI relative cost multipliers to 

already include the effects of emerging 

technologies. 

We do not believe our original 

emerging technology analysis was 

inconsistent, as expressed by Trane and 

EEl above, although we do recognize 

that combining the effects of component 

efficiency improvements does not 

necessarily lead to a cumulative 

improvement in the system. The intent 

of the analysis is not to provide a 

definitive estimate of the impact of any 

or all emerging technologies on system 

cost. It is to provide evidence as to the 

extent to which reverse engineering 

overestimates the cost of higher 

efficiency equipment by neglecting 

emerging technologies. Therefore, the 

method used previously for portraying 

and combining the potential effects of 

emerging technologies on system costs 

is carried forward into today's rule. 

Chapter 2 of the TSD provides the 

details of the revised emerging 

technologies analysis. 

4. HFC-Based Engineering Analysis 

ARI and Trane supported the 

Department's decision not to explicitly 

examine the effects of the HCFC 

phaseout on equipment cost and 

efficiency. (Wethje, ARI, Transcript p. 

145; Crawford, Trane, Transcript p. 

143). The Oregon Energy Office (OED) 

and NRDC urged the Department to 

reconsider, given that a large fraction of 

the equipment sold under the new 

efficiency standard will likely use a 

refrigerant other than HCFC-22, even 

prior to 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 of equipment using either 

HFC-407c or HFC-410a refrigerants will 

differ significantly from the incremental 

cost of increasing efficiency using 

HCFC-22 equipment. Although the base 

cost may differ somewhat, the 

incremental cost determines the lifecycle-cost savings. Furthermore, the 

Department continues to receive 

information that much of the market is 

changing to HFC-410a and that HFC410a offers little, if any, efficiency 

benefit over HCFC-22 at the same 

equipment cost. 

For these reasons, the Department 

will not perform additional engineering 

analysis related to alternate refrigerants. 

The costs to manufacturers related to 

their conversion to the new refrigerant 

will be considered in the Manufacturer 

Impact Analysis. 

B. Life-Cycle-Cost Parameters 

1. Extended Warranty and Service Costs 

Energy Market and Policy Analysis, 

Inc. (EMPA) noted that the Life Cycle 

Cost analysis did not explicitly address 

extended warranty and service costs and 

asserted that they should be taken into 

account. (Schleede, EMP A, Transcript, 

p. 221). The Alliance to Save Energy 

(ASE) stated that the inclusion of 

extended warranty and service costs 

would have the impact of reducing 

repair and maintenance costs. (Prindle, 

ASE, Transcript, p. 222). Industry 

consultant Joseph Pietsch stated that 

manufacturers may provide longer-term 

warranties for high efficiency systems 

that cover a wider range of components, 

to alleviate customer concerns regarding 

possible future repair cost of the more 
i.4 EE-RM/STD-98-440 40?

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 of end-use energy

22). equipment, as part of the 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 of which 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 of these 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 (Virginia Power, 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 less reliable 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 of repair over its RECS 1997 data rather than RECS 1993 asserted that the length of first

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 if possible 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. If the (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 of the 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 of the warranty is equal to, or just sensitivity analysis tools to evaluate the Tey rea e duiment lifetime would result

slightly higher, than the discounted potential distribution of imp in less accurate estimates of historical

present value of the incremental repair different subgroups of consumers. The hinments ACEEE added that unless

costs over the life of the 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 by the Process Rule. Limiting No at -; V , No. 32 at 7).

our analysis considers the present value the RECS households to those equipped T h e Department n o t e s t a t t e b a s is of

of consumer 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 a household-by-household analysis that heat pumps in a seven state region of

the same, and interchangeable. predicts the percentage of households the U.S.13 The survey determined not

Since consideration of repair costs is that will incur net life-cycle cost savings only the lifetime of a complete heat

satisfied by considering either repair or costs from an increased efficiency pump system, but the life of the 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 of validating 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 to whether Department believes that this range of include any repair costs associated with

explicit consideration of extended 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

of the equipment. Since more efficient Because RECS is a very well suited

equipment is also more expensive, we source of data 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 of repair, 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.

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD-98-4404c>< tJ b 

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. 

Manufacturer warranties typically cover 

parts and labor for one year, with longer 

warranties applying to the compressor. 

Mr. Pietsch noted that compared to lowSEER products, high-SEER products 

have more components, many of which 

have a relatively short history. 

Reliability patterns of these 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 by the manufacturer or a 

third party. 

A product that is less reliable or contains more expensive components 

will have a higher cost of repair over its 

lifetime. Either the consumer or the 

warranty provider will bear that added 

cost directly through more frequent 

service calls or higher repair costs. If the 

cost is covered by warranty, however. 

the warranty provider passes it back to 

future warranty holders in the form of 

slightly higher warranty prices. DOE 

believes the incremental increase in the 

price of the warranty is equal to, or just 

slightly higher, than the discounted 

present value of the incremental repair 

costs over the life of the warranty. Over 

the long term then, the average 

consumer always incurs the cost of 

higher repair costs, either directly or 

through higher warranty prices. Since 

our analysis considers the present value 

of consumer life cycle costs on the 

average consumer, incremental repair 

costs and incremental warranty costs are the same, and interchangeable. Since consideration of repair costs is 

satisfied by considering either repair 

costs or extended warranties, we limited our consideration to repair costs, which are slightly easier to estimate, 

communicate, and incorporate into the 

analysis. Considering them both would 

require a much more rigorous analysis 

of service 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 different results. 

Comments are welcome as to whether 

explicit consideration of extended 

warranties would produce significantly 

different results from those based on 

service costs alone which we have 

assumed rise in proportion to the price 

. of the equipment. Since more efficient 

equipment is also more expensive, we 

have included the higher cost of repair, 

or equivalently, the higher warranty cost 

associated with more efficient 

equipment, as part of the lifecycle cost 

analysis. 

2. Residential Energy Consumption 

Survey (RECS) 

Both NRDC and EMPA asserted that 

RECS" method for estimating end-use 

energy consumption (j.e., conditional 

demand analysis) yields unreliable and 

flawed results. NRDC added that 

conditional demand analysis methods 

inherently underestimate central air 

conditioner energy use due to its 

treatment of internal loads. EMP A stated 

that the RECS household sample size is 

too small to be used in the manner in 

which it is being treated in the 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 

that the analysis be updated to use 

RECS 1997 data rather than RECS 1993 

data. EEl added that actual submetered 

end-use data should be used if possible 

rather than 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 of the process to improve the 

new energy efficiency standards 

analysis, we are committed to use sensitivity analysis tools to evaluate the 

potential distribution of impacts among 

different subgroups of consumers. The 

Department believes that RECS provides 

a nationally representative household 

data set which is suited for conducting 

the type of sensitivity analyses 

suggested by the Process Rule. Limiting 

the RECS households to those equipped 

with either central air conditioners or 

heat pumps, the LCC analysis performs 

a household-by-household analysis that 

predicts the percentage of households 

that will incur net life-cycle cost savings or costs from an increased efficiency 

standard. 

End-use energy consumption data 

from past RECS surveys have been 

compared to submetered end-use data 

for purposes of validating their 

conditional demand analysis estimates. 

Central air conditioning and spaceheating energy data from the 1990 RECS 

were shown to differ by 5% to 22% 

compared to submetered end-use data 

from five utility service areas. The 

Department believes that this range of 

difference is acceptable considering that 

the conditional demand analysis 

utilized by RECS is fully capable of 

estimating the energy consumption of 

equipment throughout the nation . 

Because RECS is a very well suited 

source of data for performing the 

analyses suggested by the Process Rule 

and RECS has been shown to provide 

reasonable estimates of end-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 been revised 

based on data from the 1997 RECS 

rather than the 1993 RECS. 

3. Equipment Lifetime 

Virginia Power, EEl. ARI, Unico, 

Rheem Co., and Trane commented that 

the average equipment lifetime of 18.4 

years assumed in the Supplemental 

ANOPR was incorrect. and suggested an 

actual lifetime between 12 and 15 years. 

(Virginia Power, 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 of first 

ownership should be used as the basis 

for equipment lifetime. (EMPA. No. 33 

at 3, Schleede. EMPA. Transcript. p. 

162). 

NRDC. ACEEE. and the Vermont 

Energy Investment Corporation (VEIC) 

all believed that the 18.4 year 

equipment lifetime was reasonable. 

They reasoned that a shorter or longer 

average equipment lifetime would result 

in less accurate estimates of historical 

shipments. ACEEE added that unless 

manufacturers can provide new data, 

the 18.4 year average lifetime should be 

retained. (NRDC, No. 35 at 7-8; ACEEE, 

No. 43 at 6-7; VEIC, No. 32 at 7). 

The Department notes that the basis of 

the 18.4 year equipment lifetime was a survey conducted on more than 2,100 

heat pumps in a seven state region of 

the U.S.13 The survey determined not 

only the lifetime of a complete heat 

pump system, but the life of the original 

compressor as well. Although the 

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 

indicated that essentially all heat pump 

owners replaced their original 

compressor once in the lifetime of 

system. 

In the LCC analysis conducted for the 

Supplemental ANOPR, we did not 

include any repair costs associated with 

replacing the compressor. But since the 

heat pump survey clearly indicates that 

the original compressor is 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 

in Diverse Climates." ASHRAE Transactions. 1990. 

96(1): p. 1567-1571. 
* iS~ r mEE-SRM/8TD49844-

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 of commercially 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 of the 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 of a 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 of the 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% of the 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 that most, commercial applications are included inm decrease increase is speculative.

if not all, consumers when faced with Chapter 5 of the TSD.Even in the case of commercial

replacing a failed compressor would 5. Marginal Electricy P s buildings where demand pricing already

choose to replace 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 of the the Department seeks comments on its

Chapter 5 of the TSD. comments stated the belief that 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 of electricity pricing that 6 Forecast of Future 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 of residential periods. (Goldstein, NRDC, Transcript, of electricity 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 of this type ASE, Transcript, p. 168). Transcript, p. 185). Don Dasher stated

equipment being used in small ARI and EEI were not convinced that that any forecast of electricity 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 ac a l eecric e based 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 for those current AEO forecasts project declining

residential equipment in commercial years in which data are available. In the electricity rates) leads us to believe that

buildings was analyzed assuming that case of residential pricing, the data for our current methods for establishing

10% of all 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 is based on The same can be said for commercial DOE analyzed the effects of two 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 the year 1997. (See TSD, Chapter 5.)

EE-RM-STD-98-440 COMMENT 206

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

compressor. Conducting the analysis in 

this manner retains the average system 

lifetime of 18.4 years but explicitly 

addresses the replacement cost of the 

compressor, which is the most 

expensive component of a system. As 

indicated by the survey data, the 

compressor was assumed to be replaced 

in the 14th year of the system's life. In 

addition, because more efficient systems 

tend to use more efficient and, thus, 

more expensive compressors, the 

compressor replacement cost was 

assumed to vary with system efficiency. 

Although the revised LCC analysis 

assumed an 18.4 year average 

equipment life and one compressor 

replacement, a shorter equipment 

lifetime was investigated as an 

alternative scenario. In this alternative 

scenario, a retirement function yielding 

an average lifetime of 14 years was used 

and compressor replacement costs were 

not considered. The shorter equipment 

lifetime is plausible assuming that most, 

if not all, consumers when faced with 

replacing a failed compressor would 

choose to replace the entire system 

rather than replace the compressor in a 

relatively old system. LCC results based 

on both the 18.4 year and 14 year 

average equipment lifetimes are 

provided in Section VI as well as 

Chapter 5 of the TSD. 

4. Commercial Applications 

NRDC, ACEEE, VEIC, CEC, and the 

Northwest Power Planning Council 

(NPPC) commented that DOE should 

analyze the application of residential 

central air conditioners and heat pumps 

(i.e., single-phase equipment) in 

commercial buildings. All stated that 

there is a significant portion of this type 

equipment being used in small 

commercial buildings. They argued that 

since the energy use patterns in 

commercial buildings are distinctly 

different than those in households, the 

analysis should include residential 

equipment use 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's January 

14, 2000, LCC Sensitivity Analysis. (EEl, 

No. 20 at 10). 

For today's proposed rule, the use of 

residential equipment in commercial 

buildings was analyzed assuming that 

10% of all central air conditioners and 

heat pumps are used in commercial 

applications. This figure is based on 

ARl's estimate that approximately 10% 

of single-phase air conditioning and 

heat pump shipments are used in 

commercial buildings. The annual 

energy consumption of commercially 

applied air-conditioning and heat pump 

equipment was based on the simulation 

of 77 nationally representative 

commercial buildings consistent with 

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 electricity rates were 

developed by matching a set of 

commercial electric utility tariffs to the 

above simulated building loads and 

demands. 

The LCC spreadsheet models were 

modified so that commercial buildings 

with their corresponding annual energy 

consumption and marginal and average 

electricity costs represent 10% of the 

entire residential and commercial 

building population. Complete details 

on the procedure to incorporate 

commercial applications are included in 

Chapter 5 of the TSD. 

5. Marginal Electricity Prices 

NRDC, ACEEE, CEC, PG&E, NPCC, 

and ASE commented that the 

Supplemental ANOPR analysis 

underestimated future marginal 

electricity prices. Several of the 

comments stated the belief that 

deregulation of the electric utility 

industry would result in greater 

volatility of electricity pricing that 

eventually would translate into higher 

electricity prices during peak power 

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 

would result in higher electricity prices 

in the future. ARl noted that under a 

peak 'pricing scenario consumers may 

decline to operate their air-conditioning 

equipment to avoid incurring high 

electricity bills. EEl added that 

cUlTently, there is no mechanism to 

capture utility capital costs for 

providing peak power in residential 

pricing. (Wethje, ARl, Transcript, pp. 

168-169; Foster, EEl, Transcript, pp. 

16B,175-176). 

The current method for establishing 

marginal electricity prices only allows 

for defining marginal prices for those 

years in which data are available. In the 

case of residential pricing, the data for 

establishing marginal prices (the 1997 

RECS) was taken from the year 1997. 

The same can be said for commercial 

buildings. The utility tariffs used to 

establish marginal prices (as described 

earlier) were collected in the year 1997. 

On average, residential marginal prices 

for households with central air 

conditioners are 3% lower than average 

rates while for households with heat 

pumps marginal prices are 7% lower: 

Space-cooling marginal 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 electricity rates may 

.increase in a deregulated climate, the 

evidence to date (Le., residential 

marginal prices are actually lower than 

average rates and AEO 2000 forecasts 

project declining electricity rates) 

convinces us that our current methods 

for establishing marginal prices are 

reasonable. To state that future prices 

may decrease or increase is speculative. 

Even in the case of commercial 

buildings where demand pricing already 

exists, marginal prices are only 2% 

greater than average electricity rates. 

This reenforces our conviction to keep 

our current methodology for 

establishing marginal prices. However, 

the Department seeks comments on its 

methodology and data for determining 

the appropriate marginal energy costs to 

use in future analysiS. 

6. Forecast of Future Electricity Prices 

EMPA asserted that the EIA's forecast 

of electricity prices as found in the 

Annual Energy Outlook underestimates 

the future drop in electricity rates. 

(EMPA, No. 33 at 2-3; Schleede, EMPA, 

Transcript, p. 185). Don Dasher stated 

that any forecast of electricity prices 

should capture the future lise of 

renewable energy and emerging 

technologies for generating power. 

(Dasher, Transcript, pp. 192-193). 

Future marginal prices are based upon 

the Reference Case electricity price 

forecast from the AEO 2000. The 

Reference Case forecasts declining 

electricity rates through the 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 lower than average rates and 

current AEO forecasts project declining 

electricity rates) leads us to believe that 

our current methods for establishing 

future marginal prices are reasonable. 

In addition 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.) 
EE-RM/STD-98-440 a 0

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 of the

NRDC, ACEEE, VEIC, PG&E, and CEC that was once available to either pay for negative LCC impacts. Most consumers

believe that the discount rate used in household necessities or to invest in an experience LCC increases of only a few

the Supplemental ANOPR analysis was asset like the stock market or a simple dollars over the life of the equipment.

too high. Their primary criticism savings account now must be earmarked (PG&E, No. 31 at 8).

pertained to the breakdown of finance to pay off the 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% of consumers purchasing a from their assets. For today's proposed impacts. Noting that the baseline 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% of consumers used credit estimate the percentage of households 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 (NR rards. , 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% of the 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 of consumers using credit by each finance method, the rangeof increase exceeding 2% of the 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 of return 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 of 5.6% 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 of the data sources distributions of households with net

them to forego the purchase of various and how the interest rates were derived LCC savings or costs relative to the

household necessities such as food, is found in Chapter 5 of the 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 to the 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 of various 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 of the 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 of a new home, second majority of households would need to 10. Rebuttable Payback

mortgage, or home equity lines of credit, benefit from the standard in order to EEI asked why the rebuttable payback

this approach is reasonable. 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 it more appropriate to relative to the baseline level should not into the decision to select a new establish how the purchase 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) of EPCA, 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 of the 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

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440 -$ ~ 0 It; 

59602 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rul{ls 

7. Discount Rates 

NRDC, ACEEE, VEIC, PG&E, and CEC 

believe that the discount rate used in 

the Supplemental ANOPR analysis was 

too high. Their primary criticism 

pertained to the breakdown of finance 

methods which were assumed for 

establishing the discount rate. The 

Supplemental ANOPR analysis assumed 

that 35% of consumers purchasing a 

central air conditioner or heat pump 

used a credit card to finance their 

purchase. The comments argued for a 

much lower percentage and cited a 

recent PG&E survey that demonstrated 

that only 5% of consumers used credit 

cards. VEIC also cited a survey by 

Potomac Electric Power Company 

(PEPCO) that reported lower purchases 

with credit 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). Counter to the aboye assertion, Trane 

maintained that the Supplemental 

ANOPR's assumption regarding the 

percentage of consumers using credit 

cards to purchase equipment was 

correct, based on the number of 

consumers in the U.S. that carry credit 

card debt. (Crawford, Trane, Transcript, 

p. 191-192). EEl commented that the 

interest rates associated with credit card 

and cash purchases needed to be 

revisited. (EEl, No. 20 at 6). EMPA 

asserted that with higher cost air 

conditioners, consumers' after tax 

income would be reduced, requiring 

them to forego the purchase of various 

household necessities such as food, 

clothing, and shelter. (EMPA, No. 33 at 

3). 

The Department performed an 

extensive review and revision to the 

methodology that determines consumer discount rate. The Supplemental 

ANOPR established the share of various 

finance methods used for purchasing 

air-conditioning equipment and 

determined the associated interest rates 

for each of the finance methods. For 

equipment obtained through the 

purchase of a new home, second 

mortgage, or home equity lines of credit, 

this approach is reasonable. But for 

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 

establish how the purchase affects a 

consumer's overall household financial 

situation. For example, even though the 

purchase might be financed through a 

dealer loan or some other low interest 

financing vehicle, the more probable 

effect of the purchase is to either cause 

the consumer to incur additional credit 

card debt or forego their investment in 

some type of savings-related asset. Cash 

that was once available to either pay for 

household necessities or to invest in an 

asset like the stock market or a siniple 

savings account now must be earmarked 

to payoff the equipment purchase loan, 

thus, either causing the consumer to 

incur additional credit card debt or to 

lose the opportunity to earn income 

from their assets. For today's proposed 

rule, we have decided to use the above 

methodology for defining the discount 

rate for central air conditioner and heat 

pump purchases. The 1998 Survey of 

Consumer Finances (SCF) was used to 

estimate the percentage of households 

that used second mortgages to finance 

their equipment purchase as well as 

those households that either would 

incur more credit card debt or be forced 

to forgo their normal course of 

investing. Data from the Air 

Conditioning, Heating, and Refrigeration 

NBws (December 12,1998) established 

the percentage of shipment going to new 

homes. 

After establishing the share captured 

by each finance method, the range. of 

interest rates due to each method were 

developed. The 1998 SCF established 

the range of interest rates for new home 

mortgages, second mortgages, and credit 

cards. Rates of return on certificates of 

deposit, savings bonds, and bonds were 

based on historical interest rates. A 

weighted-average discount rate of 5.6% 

is calculated from the mean interest 

rates for each finance method. A more 

detailed discussion of the data sources 

and how the interest rates were derived 

is found in Chapter 5 of the TSD. 

8. Percentage of Households With LCC 

Savings 

For the Supplemental ANOPR, all consumers having an LCe increase 

resulting from the standard were 

considered to be adversely impacted. 

Several comments expressed concern on 

how we would use this information on 

adverse consumer impacts in selecting 

minimum efficiency standards. ARl, 

Vnico and EMP A asserted that a 

majority of households would need to 

benefit from the standard in order to 

justify its selection. (ARl, No. 48 at 5; 

Vnico, No. 34 at 3; EMPA, No. 33 at 2). 

NRDC stated that the percentage of 

households with LCC savings or costs 

rlllative to the baseline level should not 

be a criterion in basing a·standard's 

economic justification. 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 of the 

negative LCC impacts. Most consumers experience LCC increases of only a few 

dollars over the life of the equipment. 

(PG&E, No. 31 at 8). 

The Department agrees with PG&E's 

comment and in formulating today's 

proposed rule, DOE has redefined the 

criteria for determining negative 

impacts. Noting that the baseline LCC is 

approximately $5,000 for central air 

conditioners and $10,000 for heat 

pumps, previously all consumers 

incurring an LCC increase as small as 

$10 were considered to be adversely 

impacted by an increase in the standard. 

In the revised LCC analysis, the 

Department defines consumers impacts 

as follows: consumers who achieve 

significant net LCC savings (j.e., LCC 

savings greater than 2% of the baseline 

LCC), consumers who are impacted in 

an insignificant manner by having either 

a small reduction or small increase in 

LCC (j.e., within ±2% of the baseline 

LCC), or consumers who achieve a 

significant net LCC increase (j.e., an LCC 

increase exceeding 2% of the baseline 

LCC). Consequently, only consumers 

(both residential and commercial) 

having an LCC increase greater than 2% 

of the baseline are considered to be 

negatively impacted. 

9. Regional Analysis 

At the December 9,1999, public 

workshop, NRDC and CEC requested 

further information on regional 

distributions of households with net 

LCC savings or costs relative to the 

regional baseline level. (Goldstein, 

NRDC, Transcript, pp. 188-189; Martin, 

CEC, Transcript, p. 274). The 

Department responded by conducting 

additional analysis, which was posted 

to our web site on January 14, 2000, and 

included LCC analysis disaggregated by 

.region into census divisions. From this 

regional analysis it could be determined 

how different parts of the country 

would be impacted by an increase in the 

minimum efficiency standard. 

10. Rebuttable Payback 

EEl asked why the rebuttable payback 

period is not determined with annual 

energy use data from RECS. They also 

requested clarification as 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) of EPCA, the rebuttable 

payback period is calculated under the 

applicable test procedure. Thus, all 

rebuttable payback periods are based on 

an annual energy consumption that is 

determined through the current 
EE-RM/STD-98-440-f C 46

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

Department of Energy test procedure for C. Shipments Analysis 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 payback periods 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 of impacts 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 it be 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) of the 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 of regional 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 of 2% in historical data from 1970 to 1996. It is

determine how the LCC varies with the cumulative amount of monetary 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 of the 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 of operating

record as not endorsing all of ACEEE'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 of the demonstrated the small impact on decrease over time (based on the Annual

cn c set i vt aa 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 of existing 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 stock by 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 of lower operating costs,

and heat pump equipment in South and West, respectively). If these 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 of the 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 of the magnitude of this

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 the Northeast's air- interested in receiving comments. One

manufacture with increased efficiency) conditioning market share. If the 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 int, m h a to that portion of the South with the the cooling energy savings back in

notceable afect but nthe 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 of magnitude 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 of this change is will be considered in the Final Rule.

only minor impacts on the LCC results. that the dollar value of energy 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 of the standard level for

revisions are incorporated into the than half of this because 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 of enorgy-efficient rule and are discussed elsewhere in this immediate and to the highest energy use technologies a study of residential demand for technologies: a study of residential demand for

Section. area of the 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.

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440 4-~ tJ t 

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

Department of Energy test procedure for 

central air conditioners and heat pumps. 

The resulting annual energy use as 

determined by the test procedure is 

significantly greater than what is 

indicated by RECS. Thus, the rebuttable 

payback periods are significantly shorter 

than those based on the RECS annual 

energy consumption data. 

The rebuttable presumption test does 

not consider the full range of impacts of 

standards, including manufacturer 

impacts and energy savings. Therefore, 

the Department bases its decision 

primarily on the seven factors specified 

in section 325(0) of the Act. 

11. Sensitivity Analyses 

ACEEE recommended that several 

sensitivity analyses be conducted to 

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 of the sensitivity 

analyses described by ACEEE. (NRDC, 

No. 35 at 12-13). Trane went on the 

record as not endorsing all of ACEEE's 

requested sensitivities. (Crawford, 

Trane, Transcript, p. 237). 

We conducted several of the 

requested LCC sensitivity analyses, as 

well as the previously described 

regional analyses, and posted the results 

to our web site on January 14, 2000. The 

sensitivities examined how the LCCs for 

central air conditioners and heat pumps 

were impacted by changes in the 

following: dealer markups, builder 

markups, repair costs, lifetime, 

emerging technologies, and the use of 

single-phase central air conditioning 

and heat pump equipment in 

commercial applications. Of the 

sensitivities examined, the assumption 

of fixed margins (j.e., no variation in the 

difference between the equipment price 

to the consumer and the cost to 

manufacture with increased efficiency) 

had the largest impact on the LCC 

results. Changes in the lifetime had a 

noticeable affect but not the same order 

of magnitude as the fixed margin 

assumption. All other sensitivities had 

only minor impacts on the LCC results. 

In preparing the sensitivity analyses, 

we found reason to revise our 

assumptions regarding markups, 

compressor replacement, and 

commercial applications. Those 

revisions are incorporated into the 

analysis that supports today's proposed 

rule and are discussed elsewhere in this 

Section. 

C. Shipments Analysis 

1. Forecasted Housing Shifts 

Both the OED and NPPC stated that 

there will likely be significant shifts in 

regional housing populations. For 

example, future housing shifts may 

result in more housing in warmer 

weather climates where central air 

conditioning is more prevalent and used more often, thus, impacting the nation's 

future space-conditioning energy use. Since the Shipment Analysis does not 

account for regional housing shifts, OED 

and NPPC request that it be accounted 

for in the analysis. (Stephens, OED, 

Transcript, pp. 171-172; and Eckman, 

NPPC, Transcript, pp. 216-217). 

Preliminary analysis of regional 

housing shifts has been examined and 

determined to have a relatively small 

effect (j.e., a maximum change of 2% in 

the cumulative amount of monetary 

energy savings). This is primarily due to 

the large size of the housing stock and 

the fact that changes in the housing 

stock occur over a long time scale 

resulting in slow changes in regional 

housing shifts. A preliminary analysis of 

historical housing data coupled with 

worst case forecasts of regional housing 

and air-conditioning market share shifts 

demonstrated the small impact on 

national NPV due to changes in regional 

housing. 

New housing starts are only about 2% 

of existing housing stock and this is 

forecast to decrease to about 1 % of 

housing stock by 2030. Historical data 

over the period from 1980 to 1990 

showed the shift in regional shares of 

housing stock changed by less than 2% 

(decreased by 1.2% and 1.7% in the 

Northeast and Midwest, respectively, 

and increased by 1.7% and 1.2% in the 

South and West, respectively). If these 

changes continue at a steady rate, the 

housing share of the Northeast will 

decrease another 3.6% over three 

decades. This translates to a relative 

decrease of 17% in the Northeast's airconditioning market share. If the entire 

loss in the Northeast's market share goes 

to that portion of the South with the 

highest annual energy use (Census 

Region 7), the absolute market share of 

this region would increase from 15.7% 

to 17.7%. The result of this change is 

that the dollar value of energy savings 

at a 12 SEER standard level would 

increase from $5.73 billion to $5.85 

billion, or about a 2% increase in the 

dollar energy savings. The actual impact 

OIl dollar savings would likely be less 

than half of this because the above 

housing shift was assumed to be 

immediate and to the highest energy use 

area of the South. As a result, the actual 

impact would likely be less than 1 % on 

the dollar value of the energy savings. 

For these reasons, the Department has 

not revised its Shipments Analysis to 

account for shifts in regional housing 

populations. 

2. Elasticities 

Both ACEEE and NRDC note that the 

purchase price elasticities are based on data from the 1970s and are likely no 

longer applicable to current market 

conditions. Both stated that price 

elasticities should be developed from 

more recent data. (ACEEE, No. 43 at 10; 

Nadel, ACEEE, Transcript, p. 211; 

Goldstein, NRDC, Transcript, pp.211-

212). 

This has been corrected for in the 

analysis underlying today's proposed 

rule. We have calibrated elasticity for 

price relative to household income, with 

historical data from 1970 to 1996. It is 

worth noting that for forecasting future 

shipments, consumer purchase 

decisions are based upon sensitivities to 

changes in product life-cycle cost 

relative to income. Life-cycle cost 

changes are dependent on the purchase 

price and the present worth of operating 

cost savings. Operating cost savings are 

in tum dependent on electricity prices. 

As electricity prices are forecasted to 

decrease over time (based on the Annual 

Energy Outlook 2000), operating cost 

savings due to a particular increase in 

equipment efficiency will in turn 

decrease over time and have less of an 

impact on consumer purchase 

decisions. 

Usage elasticity expresses how 

changes in equipment efficiency 

resulting from higher standards changes 

consumer behavior regarding air 

conditioners and heat pumps usage. 

Because of lower operating costs, consumers may change thermostat 

settings and/or operate the systems for 

longer hours to achieve greater comfort. 

Direct evidence of the magnitude of this 

effect is limited and the Department is 

interested in receiving comments. One 

study 14 indicated that in summer 

months consumers may take 1-2% of 

the cooling energy savings back in 

increased usage, and 9-13% in winter 

months. Usage elasticity has not been 

considered in the current analysis but 

will be considered in the Final Rule. 

3. Equipment Efficiency 

Several comments received 

questioned the use of a weightedaverage equipment efficiency equaling 

the SEER of the standard level for 

14 Jeffrey A. Dubin. Allen K. Miedema. and Ram 

V. Chandran. 1986. "Price effects of onorgy-officient 

technologies: a study of residential demand for 

heating and cooling." Rand Journal of Economics. 

Vol 17. No.3. Autumn. pp 310-324. 
iEE-RM/STD-98-440-_ a ° 

59604 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

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 of an increase in the minimum seems to be 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 the AEO 2000 as well

average efficiency of equipment in the a large peak in gas prices 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, if a 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 of heat Both the Southern Company and EEI

average efficiency would be equal to a pumps has been relatively constant from questioned the validity of the site-tovalue which was greater than 12 SEER. 1977 to the 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, National Energy Savings Analysis 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 of electric 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 of proposed

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 of product efficiencies electric utility industries using a variant

SEER bins over the range of the 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 plant heat rates

The impact of the three different efficiency equal to the SEER of the 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 electric utility conversion factors are based on all

fixed at the same SEER level from the industry and its impact on future forms of electricity generation with their

year 1997 to the assumed effective date electricity prices it is more appropriate corresponding heat rates (e.g., heat rates

of standard (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 of uncertainty. (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 associated s 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 s ofe based on Southern Company stated that shipment Growth Case forecast, 1999 AEO Low ecommendations of the Advisory

forecasts must account for any fuel Growth Case forecast, 1998 Gas o m m i

t 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 t es are based on determining how

consumer. The concern is that an number of options for forecasting future a deviation in national energy

increase in the total installed price of a prices recognizes the uncertainty in the c mpion de to standars imact

heat pump would cause some electric utility industry and how that the type of electricity generation. In consumers to choose a gas-space heating uncertainty can impact the NES results. ohe word hat rates are aed 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 of the 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 on NEMS, 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 without any heating minimum efficiency standards. Spreadsheets have been made available modification to code or data. Because our analysis

(Nadel, ACEEE, Transcript, p.266). to all interested parties via our web site entails some minor code modifications and the

Our examination of the 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 to the model as used here (BRS installed price of heat 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 to provide under whose aegis this work has been performed).

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD-9~-440-4F~ () /;; 

59604 Federal Register / Vol. 65, No. 194/ Thursday, October 5, 2000/ Proposed Rules 

forecasting shipments and national 

energy savings. All asserted that in the 

event of an increase in the minimum 

efficiency standard, the actual weightedaverage efficiency of equipment in the 

marketplace would be greater than the 

minimum efficiency standard. For 

example, if a 12 SEER standard was set 

as the new minimum, the weightedaverage efficiency would be equal to a value which was 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 Department has modified several 

assumptions with regard to future 

equipment efficiencies. The Shipments 

Model no longer simply forecasts a 

weighted-average equipment efficiency, 

but rather, an actual distribution of 

efficiencies i.e., the percentage of 

shipments which occur in incremental 

SEER bins over the range of the 

minimum standard 10 to 18 SEER). 

Also, as discussed in Section IV, three 

efficiency scenarios are provided to 

model future equipment efficiencies. 

The impact of the three different 

scenarios on national energy savings 

and national net present values are discussed in Section VI. 

EEl asked the reason for assuming the 

weighted-average efficiency remains 

fixed at the same SEER level from the 

year 1997 to the assumed effective date 

of standard (2006). (EEl, No. 20 at 7-8). 

Historical data from the years 1994 

through 1997 indicate that shipmentweighted efficiencies have remained 

essentially flat. As a result, weightedaverage efficiencies were assumed to 

remain constant from 1997 through 

2006. 

4. Fuel Switching 

EEL York, Virginia Power and 

Southern Company stated that shipment 

forecasts must account for any fuel 

switching that might occur as a result of 

increased heat pump prices to the consumer. The concern is that an 

increase in the total installed price of a heat pump would cause some 

consumers to choose a gas-space heating 

appliance rather than 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 of fuel switching 

into the Shipments Model must account 

for future changes in gas-fired spaceheating minimum efficiency standards. 

(Nadel, ACEEE, Transcript, p.266). 

Our examination of the historical data 

tends to indicate that the relative 

installed price of heat pumps is not the 

primary driver in heat pump vs. gas 

furnace purchase decisions. The more 

important factor in these decisions 

seems to be the availability of gas 

service. In the middle 1980's, there was 

a large peak in gas prices relative to 

electricity, but only a small, delayed 

increase in the relative market share of 

heat pumps. Besides this one historical 

event, the relative market share of heat 

pumps has been relatively constant from 

1977 to the present. 

D. National Energy Savings Analysis 

Changes to the LCC assumptions 

impact the NES and the National Net 

Prosent Value (NPV) analyses directly as 

the NES analysis uses the same basic 

data as the LCC analysis for the energy 

use and cost of the central airconditioning and heat pump equipment. 

As previously mentioned, estimates of 

NES and NPV also depend on the 

distribution of product efficiencies 

among units sold after a standard takes 

effect in the marketplace. For the 

Supplemental ANOPR, the assumed 

product efficiency distribution was based on a weighted-average equipment 

efficiency equal to the SEER of the new 

standard level. 

1. Uncertainty in NES Results 

EEl believes that due to the 

uncertainty in the electric utility 

industry and its impact on future 

electricity prices it is more appropriate 

to represent the NES results with some 

degree of uncertainty. (EEl. No. 20 at 8). 

Although NES results presented in the 

Supplemental ANOPR were based only 

on electricity price estimates from the 

Reference Case forecast from the 1999 

Annual Energy Outlook, our NES 

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 of options for forecasting future 

prices recognizes the uncertainty in the 

electric utility industry and how that 

uncertainty can impact the NES results. 

The NES uses single point values rather 

thlll ranges as used in LCC; 

consequently, NES provided single 

point results rather than a range. 

However, in order to account for the 

uncertainty in electricity price forecasts, 

DOE evaluated three energy price 

scenarios in the NES. The NES 

Spreadsheets have been made available 

to all interested parties via our web site 

to facilitate analysis of sensitivities 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 with the exception that 

AEO 1999 forecasts have been replaced 

with those from the AEO 2000 as well 

as the five options for energy prices as 

described above. 

2. Site-to-Source Conversion 

Both the Southern Company and EEl 

questioned the validity of the site-tosource conversions used in the NES 

spreadsheet model. The Southern 

Company and EEl asserted that 

hydroelectric power and renewable 

forms of electric energy are assigned 

fossil fuel-fired power plant heat rates. 

(Southern Company, No. 29 at 4-5; EEl, 

No. 20 at 7). 

We estimated the effects of proposed 

central air conditioner and heat pump 

standard levels on both the gas and 

electric utility industries using a variant 

of DOE/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 power plant heat rates 

to hydroelectric or renewable power 

plants. The site-to-source conversion 

factors used in the Supplemental 

ANOPR are average annual values for 

the residential sector. The average 

conversion factors are based on all 

forms of electricity generation with their 

corresponding heat rates (e.g., heat rates 

are assigned to fossil-fuel fired power 

plants which are much different than 

those assigned to other types of power 

plants). As a result, the site-to-source 

conversion factors are significantly 

lower than if all power plants were 

assigned the heat rates associated with 

fossil fuel-fired power plants. For 

today's proposed rule, site-to-source 

conversion factors are based on recommendations of the Advisory 

Committee on Appliance Energy 

Efficiency Standards. In this analysis, 

heat rates are based on determining how a deviation in national energy 

consumption due to standards impacts 

the type of electricity generation. In 

other words, heat rates are based on 

those power plants which are avoided 

as a result of the standard. 

15 For more information on NEMS. please refer to 

the u.s. Department of Energy. Energy Information 

Administration documentation. A useful summary 

is National Energy Modeling System: An Overview 

1998. DOElElA-{)S81(98). February. 1998. DOElElA 

approves usc of tho name NEMS to describe only 

an official version of the model 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 Building Research and Standards office. 

under whose aegis this work has boen performed). 
EE-RM/STD-98-440 -P 0

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

E. Consumer Sub-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

of the equipment which is used to Regarding EEI's claim that theof new technologies, operating

space-condition their home. (NRDC, No. consideration of peak 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 of recent

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 of today's factors deemed relevant for updating benefits of a central air conditioner and

proposed rule and in Chapter 10 of the minimum efficiency standards, heat pump standard that could lower

TSD. But we have not investigated the including peak power impacts. growth in peak demand could be

impacts on low-income renters 2. Quantitative Assessment of Impacts desirable. But, due to the 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 of estimating 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 that the energy efficiency standard, we are using planned activities to improve NEMS to

occupant incurs all costs of ownership a version of the NEMS, called NEMS- forecast more credible peak demand

oe ither directly of rentBRS. o rshuh 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 of the U.S. electric system to determine

our consideration of low 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. Utility and Environmental Analysis input of energy savings are obtained historic performance of the 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 CEC raised 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

of the U.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 of failures and the number of

of a 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 of residential dwellings, the proportion to the energy savings, the EEI asked whether NEMS, the model

tendency to sell bigger 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, will be adapted

poor installations, and the distrust of The forecasted peak impacts using to model 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 of today's proposed rule. part of the deregulated industry, EEI

stated that the consideration of peak stated that consumers will have choice

power impacts in setting new efficiency 3 Qualitative Assessment of Air of electricity 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 of the U.S. electric power modeling of the 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

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~440 f ~ D 10 

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

E. Consumer Sub-Group Analysis-Low 

Income Renters 

NRDC stated that impacts on lowincome renters should be investigated, 

because such renters do not purchase 

their space-conditioning equipment and 

they have no choice as to the efficiency 

of the equipment which is used to 

space-condition their home. (NRDC, No. 

35 at 9). 

We have investigated the economic 

impact of standards on low-income 

households, and have included such 

impacts in section VI.D.7 oftoday's 

proposed rule and in Chapter 10 of the 

TSD. But we have not investigated the 

impacts on low-income renters 

separately. Renters at each income level 

are considered to have the same choice 

in efficiency as new home purchasers at 

the same level. Regardless of whether a 

household is occupied by an owner or 

a renter, we implicitly assume that the 

occupant incurs all costs of ownership, 

either directly or through rent 

payments. Therefore, we believe that 

our consideration of low income 

households generally applies to renters 

as well as owners. 

F. Utility and Environmental Analysis 

1. Peak Power Impacts-Reliability 

The CEC raised concerns over peak 

power by stating that the western region 

of the U.S. will soon face a capacity 

shortfall which will necessitate 

reductions in peak demand (CEC, No. 47 

at 2-4). Leon Neal, Advanced Energy 

Corporation (AEC), stated that because 

of a relationship between SEER, EER, 

and equipment capacity which is not 

captured by using only the "nominal 3 

ton" unit and SEER analyses, there were 

important factors not addressed in the 

DOE analysis. They argued that with 

larger capacity units at higher SEER, it 

is economic for manufacturers to use 

multi-compressor units and multi-speed 

compressor units, which results in a 

penalty in EER. They noted major 

national trends, i.e., increasing average 

size ofresidential dwellings, the 

tendency to sell bigger 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 of peak 

power impacts in setting new efficiency 

standards departs from the Department's 

statutory mandate. (Foster, EEl, 

Transcript, p. 176). 

With regard to AEC's concern that an 

increase in the efficiency standard 

would be accompanied by an increased 

air-conditioning power demand, we are 

not convinced that this situation would 

occur. Over the last 20 years, while 

shipment-weighted efficiency has 

continually increased, usage has 

remained relatively constant. Therefore, 

we see no reason that a significant jump 

in system usage would occur in 

conjunction with higher efficiency 

standards. 

Regarding EEl's claim that the 

consideration of peak 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 Secretary to consider other 

factors deemed relevant for updating 

minimum efficiency standards. 

including peak power impacts. 

2. Quantitative Assessment of Impacts 

on Peak Demand 

For purposes of estimating peak 

demand impacts from an increase in the 

central air conditioner and heat pump 

energy efficiency standard. we are using 

a version of the NEMS. called NEMSBRS. NEMS-BRS is run similar to the 

AE02000 NEMS except that central air 

conditioner and heat pump energy 

usages are reduced by the amount of 

energy (electricity) saved due to the 

proposed trial standard levels. The 

input of energy savings are obtained 

from the NES spreadsheet. 

NEMS estimates peak power impacts 

by determining the reduction in 

installed generation capacity due to an 

increase in the minimum efficiency 

standard. For central air conditioners 

and heat pumps. NEMS uses a single 

nationally representative end-use load 

shape to estimate peak power impacts. 

The overall end-use load shape is 

reduced in proportion to the amount of 

energy savings achieved through an 

increase in the standard. The reduction 

in power demand achieved by shaving 

the end-use load shape is extrapolated 

to a national scale to come up with 

nationally representative peak power 

impacts. Thus. NEMS does not use the 

equipment's EER performance. per se. to 

estimate peak power impacts. Rather. 

because the load shape is shaved in 

proportion to the energy savings, the 

EER is implicitly assumed to increase in 

proportion to the SEER. 

The forecasted peak impacts using 

NEMS-BRS are presented in Section VI 

of today's proposed rule. 

3. Qualitative Assessment of Air 

Conditioning Standards Impact on 

Power System Reliability 

We also recognize that reducing 

growth in electricity demand during 

peak periods may improve the 

reliability of the U.S. electric power 

system. But there are number of factors 

with the electric power system itself 

that may overwhelm any effect that an 

improvement in residential 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 

restructuring requires the development 

of new technologies, operating 

procedures. and regulatory structures to 

meet peak demands. And third. the 

strong demand expansion of recent 

years may well continue into the future. 

Within this environment, the potential 

benefits of a central air conditioner and 

heat pump standard that could lower 

growth in peak demand could be 

desirable. But. due to the existing 

problems with the electric power system 

described above, it is difficult to assess, 

in quantitative terms. the impact of an 

air conditioner standard on system 

reliability. Thus, in addition to the 

planned activities to improve NEMS to 

forecast more credible peak demand 

impacts, we plan to assess the reliability 

of the U.S. electric system to determine 

what connection exists between end-use 

peak demand reductions and system 

reliability. The assessment will focus on three areas: (1) Defining reliability, (2) 

historic performance of the utility 

system, and (3) analyzing near- and 

long-term utility changes and how they 

might impact reliability. In defining 

reliability, we will use typical threats 

(e.g., weather, tree falls, excess load, and 

inaccurate demand forecasts) to put 

system reliability into context. In 

addition, industry indices for the 

frequency of failures and the number of 

customers affected will be used. With 

regard to historic performance, we will 

attempt to analyze the history of system 

disturbances and estimate their 

economic consequences. Finally, we will look at the changes occurring in the 

utility industry such as restructuring 

and increasing demand growth to 

determine to try and assess how these 

future changes might impact reliability. 

4. Competitive Residential Market 

EEl asked whether NEMS. the model 

which is used for forecasting utility and 

environmental impacts, will be adapted 

to model more accurately the 

deregulated electric utility industry. As 

part of the deregulated industry, EEl 

stated that consumers will have choice 

of electricity providers. In addition, the 

industry will likely build more 

merchant power plants. (EEl, No. 20 at 

9). 

Although we recognize that NEMS 

may not be entirely accurate in its 

modeling of the changing electric utility 

industry, we believe it is still the best 

tool for forecasting the impacts due to 

increased central air conditioner and 
EE-RM/STD-98-440 -4- Ac 

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 of applying average partially to incorporate results from the

to provide a gross picture of the 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 of new 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 of U.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 unit price of equipment are less

Volume Manufacturers advocated the use of a fixed gross than the average markups for those

First Company (First Co.) and margin in dollars rather than a fixed industries. In light of these 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 of equipment

all firms in the industry. (First Co., No. stated that at the distributor level, since cost equal to the cost of the 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 to the

Since the engineering analysis is used 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 of installation, 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% of the 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 of baseline equipment is

based on this 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 of these 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

of producing baseline air conditioners p. 152-153; CEC, No. 47 at 7). of 1.27 for new construction markets

and heat pumps and also estimated the After reviewing the comments and only and applied the sales tax rate of

series of markups on that product cost publishing an interim analysis with 1.07 in only replacement/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 of these 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 SE ER ................................................................................... ................................................ .. 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

H eat Pum p ....................................................................................................................................... $2,280/$2,160 ... $2,035

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD-98-440 .-=tt-~ 0 6 

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

heat pump standards. We also recognize· 

the difficulty for any model or tool to 

forecast changes in the utility industry. 

Thus, the results from NEMS are used 

to provide a gross picture of the impacts 

that can be expected from the 

imposition of new efficiency standards 

for central air conditioners and heat 

pumps. Sensitivities are conducted with 

the AEO High Growth and Low Growth 

cases to capture the variability that 

could arise from changes in the electric 

utility industry. 

G. Manufacturer Impact Analysis-Low 

Volume Manufacturers 

First Company (First Co.) and 

National Comfort Products commented 

that the assumptions used in the 

engineering analysis were not 

applicable for low volume 

manufacturers and urged the 

Department to consider the situations of 

all firms in the industry. (First Co., No. 

40 at 10; National Comfort Products, No. 

30 at 1). 

Since the engineering analysis is used 

to assess the impacts on consumers and 

the nation, it is more appropriate to rely 

on assumptions reflective of larger 

manufacturers who control more than 

95% of the market. However, we did 

consider the special circumstances of 

lower volume manufacturers as part of 

the manufacturer impact analysis. We 

interviewed the major manufacturers as 

well as two smaller manufacturers, and 

based on this information, estimated the 

impact of standards on both large and 

small manufacturers separately. 

H. Markups 

The Supplemental ANOPR's 

engineering analysis estimated the cost 

of producing baseline air conditioners 

and heat pumps and also estimated the 

series of markups on that product cost 

that yield the price of the equipment to 

the consumer. Four markups were 

applied: Manufacturer markup (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 of applying 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 would receive a 

windfall from the new standard, which 

would surely not be the case in a 

competitive industry such as heating, 

ventilation, and air conditioning. 

(NRDC, No. 35 at 6, ACEEE, No. 43 at 

2, VEIC, No. 32 at 2). NRDC also 

advocated the use of a fixed gross 

margin in dollars rather than a fixed 

percentage (NRDC, No. 35 at 6), while 

EEl stated that the fixed percentage 

assumption is unreasonable. (EEl, No. 

20 at 10). ARI supported the markups 

the Department used. (ARI, No. 48 at 4) .• 

Department consultant Joseph 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 vary by product type. If 

the distributor's mark-up prices to the 

installing trade are not competitive in 

the market served, the distributor might 

have to seek price adjustments from the 

manufacturer. Further, installing 

contractors typically use a markup 

procedure for labor that is most likely be 

at a different percentage than a markup 

for materials. (Pietsch, No. 36 at 23). 

Finally, prompted by comments we 

received, we now distinguish markups 

based on whether products are sold into 

new homes or as replacements or 

retrofits. (Nadel, ACEEE, Transcript pp. 

122-123; and Eckman, NPPC, Transcript 

p. 152-153; CEC, No. 47 at 7). 

After reviewing the comments and 

publishing an interim analysis with 

fixed dollar margin, the Department 

undertook a thorough review of its 

markup assumptions and made one 

minor and one major revision. 

First, at the manufacturer Ie.vel, the 

markups were raised slightly (from 1.18 

to 1.24) partially to reflect new financial 

data for a manufacturer who recently 

completed an initial public offering, and 

partially to incorporate results from the 

MIA. The MIA suggests that firms 

accrue a higher profit margin on 

baseline equipment than the 

conservative 1 % assumed for the 

Supplemental ANOPR's Engineering 

Analysis. 

Second, at the distributor and dealer 

levels, analysis of U.S. Census Bureau 

data and recent industry financial 

reports suggest that markups on changes 

in the unit price of equipment are less 

than the average markups for those 

industries. In light of these new 

findings, the markups for the 

distributors and dealers on the 

incremental increase in equipment cost 

were lowered from 1.37 to 1.09 and 1.54 

to 1.27, respectively. For the distributor, 

the markup on the portion of equipment 

cost equal to the cost of the baseline 

equipment remains at 1.37. For the 

dealer, the 1.27 markup is applied to the 

total cost. The original 1.54 assumption 

included the markup on the labor 

portion of installation, which is not 

appropriately applied to equipment. We 

increased our estimate of the markup on 

installation labor slightly to compensate 

for the lower markup on equipment 

price, keeping the overall installed price 

the same. The Department's pricing 

information indicates that the total 

installed price of baseline equipment is 

accurate as published in the 

Supplemental ANOPR. The overall 

effect of these changes is to slightly 

decrease distributor and dealer 

equipment markups as the standard 

level rises. 

We introduced a new builder markup 

of 1.27 for new construction markets 

only and applied the sales tax rate of 

1.07 in only replacement/retrofit 

markets. 

Table V.3 summarizes the changes in 

markups. The Technical Support 

Document (Chapter 5) provides more 

details on the derivation of these 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 
EE-RM/STD-98-440-j' a 4

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

B uilder M arkup ............................................................................................................................................... b 1.09 ................. .00

Sales T ax ......... .............................................................................................................................................. b 1.04 ................. d1.07

Overall Markup:

10 SEER .............................................................................................................................. .. 2.42 ................. 2.68

11 SE E R ................................................................................................................................................. 2.35 ................... 2.68

12 SEER .............................................................................................................................. .. 2.30 ................. 2.68

13 SEER ................................................................ ............. ................................................ ................... 2.682.23 

aFor revised analysis, first value 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. d For the Supplemental ANOPR, sales taxes representing only the replacement market were used.

I. EER-Based Efficiency Standard the best indicator of the seasonal incremental reduction in the need for

The Department received numerous efficiency for equipment operating in new capacity. Maintaining higher

comments on the relationship of steady the warmest regions of the country. EER(95°F) would also benefit

state efficiency (EER) to increases in However, the relationship between consumers. Since the cost of electricity

SEER. NRDC, ACEEE, VEIC, PG&E, CEC efficiency at 82°F and at 95°F is fairly is highest during periods of peak

OEO, Unico and Southern Company close for single-speed, single-capacity demand, any decrease in electricity

support the establishment of minimum equipment, which represents the vast consumption during peak-periods,

efficiency standards based on EER at an majority of unitary equipment in the could reduce the user's annual

outdoor temperature of 95°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 is based 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- is given a great deal of weight 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 of any

performance of an 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 of the available 13

warmer regions of the country. Since steady-state performance under only SEER products are modulating

electricity generation, transmission, and one set of climatic 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 of the cooling season nationwide. Department is proposing 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 of the nation's electrical any seasonal energy savings resulting The second option would be to

system. Recently there have been from an increase in the required SEER establish an EER(95°F) floor that must

several well-publicized blackouts and level, because of the relationship be met by modulating equipment only

brownouts following, or in the midst of, between SEER and EER(95°F), and the or, alternately, all equipment.

hot periods. Advocates of an EER-based costs of increasing 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 for products 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 would be to alter

and EER resulting in reduction in growth of peak 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

EE-RM-STD-98-440 COMMENT 206

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 

Sales Tax ...................................................................................................................................................... . b1.04 ............... .. d1.07 

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-Based Efficiency Standard 

The Department received numerous comments on the relationship of steady 

state efficiency (EER) to increases in 

SEER. NRDC, ACEEE, VEIC, PG&E, CEC, 

OED, Unico and Southern Company 

support the establishment of minimum 

efficiency standards based on EER at an 

outdoor temperature of 95°F, 

(EER(95°F)) in lieu of, or in addition to, 

SEER, which is based largely on an outdoor temperature of 82°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 concern is that an increase in 

SEER does not necessarily correspond to an increase in EER, and that a 95°F 

rating condition better represents the 

performance of an air conditioner on hot 

days when electricity demand is at its 

highest. They believe that residential air 

conditioners contribute significantly to 

this peak demand, particularly in 

warmer regions of the country. Since 

electricity generation, transmission, and 

distribution capacity is determined by 

the electrical load served during these 

peak demand times, products that 

demonstrate improved efficiency under 

peak conditions can reduce the need for 

added electrical system capacity. They 

also believe that reducing peak demand 

is an important component of any 

integrated plan to improve the 

reliability of the nation's electrical 

system. Recently there have been 

several well-publicized blackouts and 

brownouts follOWing, or in the midst of, 

hot periods. Advocates of an EER-based 

standard believe that a SEER-only 

standard does not guarantee the desired 

improvement in peak-period 

performance. 

1. Current Relationship Between SEER 

and EER 

It is certainly true that SEER is not an 

ideal indicator of system efficiency in 

very hot weather, and SEER may not be 

the best indicator of the seasonal 

efficiency for equipment operating in 

the warmest regions of the country. 

However, the relationship between 

efficiency at 82°F and at 95°F is fairly 

close for single-speed, single-capacity 

equipment, which represents the vast 

majority of unitary equipment in the 

marketplace. For other equipment, 

including variable or multi-speed 

equipment or equipment with 

modulating capacity, the 82°F test point 

is given a great deal of weight in 

determining the SEER rating. In these 

cases, the relationship between SEER 

and EER(95°F) is less certain, and 

manufacturers have some flexibility and 

incentive to improve SEER without 

improving EER(95°F). 

The SEER test, representing 

equipment performance over the entire 

cooling season, encourages 

manufacturers to design equipment that 

consumes less energy throughout the 

cooling season for the average user. The 

EER(95°F) test, which is a measure of 

steady-state performance under only 

one set of climatic conditions, cannot 

provide insight into cyclical 

performance or cooling efficiency at 

cooler temperatures which represent the 

bulk of the cooling season nationwide. 

The Department, therefore, maintains 

that a SEER-based standard is essential 

to its effort to reduce national energy 

consumption. Further, we assume that 

peak demand savings would accompany 

any seasonal energy savings resulting 

from an increase in the required SEER 

level, because of the relationship 

between SEER and EER(95°F), and the 

costs of increasing EER(95°F) are 

already incorporated into the analysis. 

However, the Department is 

particularly interested in ensuring that 

the current relationship between 

EER(95°F) and SEER will remain intact 

under new efficiency standards, 

resulting in reduction in growth of peak 

demand. This additional reduction in 

peak demand growth would benefit 

utilities through an eventual and 

incremental reduction in the need for 

new capacity. Maintaining higher 

EER(95°F) would also benefit 

consumers. Since the cost of electricity 

is highest during periods of peak 

demand, any decrease in electricity 

consumption during peak-periods, 

could reduce the user's annual 

electricity bill, particularly if the user 

pays time-of-day or seasonal rates. 

2. Options for Possible EER Standards 

The Department has at least four 

options for ensuring that EER(95°F) 

performance is maintained under new 

SEER standards. First, the Department 

could rely on the physical relationship 

between EER(95°F) and SEER to ensure 

that an increase in SEER would result in 

a corresponding increase in EER. The 

Department is not aware of any 

modulating, multi-speed, or variable 

speed air conditioners (hereafter 

referred to collectively as modulating 

equipment) being offered below 13 

SEER, and very few of the available 13 

SEER products are modulating 

equipment. Therefore, SEER and EER are closely related in equipment 

currently available at the efficiency 

levels that, as discussed below, the 

Department is proposing today to adopt as minimum levels-12 SEER for air 

conditioners and 13 SEER for heat 

pumps. Assuming that relationship 

holds under such new standards, EER 

would increase as SEER increases. 

The second option would be to 

establish an EER(95°F) floor that must 

be met by modulating equipment only 

or, alternately, all equipment. 

The third option would be to establish 

a minimum EER requirement at each 

SEER level, even for products exceeding 

the minimum SEER level. Again, this 

could be established for modulating 

equipment only or for all equipment. 

The fourth option would be to alter 

the SEER test procedure to rely more on 

95°F performance and less on 

performance at cooler temperatures. 

This would provide incentive for 
EE-RM/STD-98-440

59608 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

manufacturers to optimize their designs We prefer the second option, than does any reduction in EER

to favor the 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 of equipment 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 of the 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 of manufacturing

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 f mo duti e pment

that would seriously reduce EER ratings. fully endorsing the third option is that and sale of modul eipet any t the

The fourth option, altering the SEER test it would discourage the development baseline levels. We expect any cost

procedure to favor higher temperatures, and sale of modulating 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 a benefit 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 of the core components To determine what the appropriate

would prefer to avoid those delays and compared to non-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. offsets the cost of the modulation, data on residential unitary equipment

Both the second and third options, making modulating equipment more certified as of February 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 same EER 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 to the minimum SEER proposal

require that products of higher SEER sale of modulating 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 of higher to these 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 of the 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 the proposed 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 of the vast majority of products

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 of the 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 . Niche Products 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 of the structure and split

of an 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 to be mounted in the same

EE-RM-STD-98-440 COMMENT 206

EE-RM/STD.9~-440 -fF-~ 0 h 

59608 Federal Register/Vol. 65. No. 194/Thursday. October 5. ZOOO/Proposed Rules 

manufacturers to optimize their designs 

to favor the warmer part of the cooling season and warmer regions of the 

country. 

We consider the second and third 

options to be the most attractive. While 

we believe that the first option. relying 

on the current relationship between EER 

and SEER. would satisfy our concerns in 

the foreseeable future. this option 

provides no assurance that 

manufacturers would not develop and 

promote equipment in the long term 

that would seriously reduce EER ratings. 

The fourth option. altering the SEER test 

procedure to favor higher temperatures. 

would require us to embark on a new 

rulemaking to establish those new 

procedures and then to redo this rule to 

incorporate the new SEER values. We 

would prefer to avoid those delays and 

the design uncertainty associated with 

altering the procedures. 

Both the second and third options. 

mandating minimum EER ratings. 

would guarantee that products under 

new standards would achieve the same 

EER ratings as they do today without 

altering the test procedures. The third 

option is more aggressive since it would 

require that products of higher SEER 

ratings must also meet increasingly 

stringent EER ratings. 

Within the second and third options. 

we could establish EER requirements of 

varying degrees of stringency. For 

example. we could select EER levels 

equivalent to the ratings of the 

minimum EER rating of available 

equipment today at the proposed 

standard level. the median EER rating. 

anywhere in between. or even higher. 

We prefer the second option. 

establishing an EER floor equal to the 

median EER ratings of equipment 

currently available at each standard 

level. That would result in a substantial 

improvement in the EER ratings of the 

typical product sold while still 

providing manufacturers with the 

flexibility to raise SEER ratings through 

modulation rather than EER 

improvements in higher efficiency 

products. 

The concern that prevents us from 

fully endorsing the third option is that 

it would discourage the development 

and sale of modulating capacity and 

variable speed equipment. Modulating 

equipment realizes a benefit in the SEER 

test. allowing manufacturers to reduce 

thl3 cost of the core components 

compared to non-modulating 

equipment. This cost reduction partially 

offsets the cost of the modulation. 

making modulating equipment more 

affordable for consumers. Being 

required to meet the same EER 

standards as non-modulating equipment 

would negate this cost benefit. 

The Department wishes to encourage. 

not discourage. the development and 

sale of modulating equipment. 

Consumers value the added benefits of 

modulation. and manufacturers realize 

this value in the form of higher 

revenues. For consumers and the nation. 

modulation mitigates the inefficiencies 

caused by oversizing the system during 

installation. Oversizing is a widespread 

problem that causes frequent equipment 

cycling. increasing energy consumption. 

Furthermore. oversizing arguably 

contributes more to peak power demand 

than does any reduction in EER 

associated with modulating equipment. 

For DOE to require products to meet 

median EER values rather than less 

stringent EER values would also raise 

some concerns. First. the cost-efficiency 

relationships used in our analysis may 

underestimate costs of manufacturing 

such products. since we did not include 

the costs of a minimum EER. Second. if 

an EER standard increases product cost. 

it would discourage the development 

and sale of modulating equipment at the 

baseline levels. We expect any cost 

increases required to meet median EER 

levels. however. would be slight and 

would not significantly alter our 

analysis. 

To determine what the appropriate 

EER(95°F) requirement might be. the 

Department assessed ARl performance 

data on residential unitary equipment 

certified as of February 1998. The 

median EERs available for each product 

class at the minimum SEER levels DOE 

proposes today. are identified in Table 

V.4 as the "Median Available EER at 

Proposed Minimum SEER." In addition 

to the minimum SEER proposal 

contained in this notice. the Department 

is inclined to adopt in the Final Rule 

minimum EER(95°F) requirements equal 

to these values. However. since there are 

very few packaged heat pumps available 

from which to draw a conclusion 

concerning EER. DOE believes the 

minimum EER requirement for 

packaged heat pumps should be the 

same as split heat pumps less the 0.3 

EER offset seen between packaged and 

split air conditioners. 

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 comments regarding 

the burdens and benefits that would 

result from including an EER 

requirement in the final rule. Of 

particular interest are comments 

regarding burdens on manufacturers and 

benefits regarding reduction in peak 

electricity demand. including the effect 

of an EER minimum on costs. on 

availability and sales of modulating 

equipment. and on electrical system 

reliability. In addition. comments are 

welcome to discuss the pros and cons of 

any of the other options described 

above. 

J. Niche Products 

Several types of central air 

conditioners and heat pumps are used 

in particular or unusual 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 

of the vast majority of products 

available in the marketplace. We refer to 

these as "niche products." Included are 

single package units that are designed to 

be mounted within or immediately 

adjacent to a fixed-size opening in an 

outside wall of the structure and split 

systems where the outdoor unit is 

designed to be mounted in the 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 of the stud walls. Compared with conventional

defined as "without louvered sides." market of ductless 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 of an SDHV system is compactly

high-velocity, small-duct systems. efficiency of motors and compressors designed to facilitate retrofit installation

Typical applications for of niche used in these small units is difficult; in tight spaces, resulting in smaller face

products may include: existing single O Ductless air conditioners frequently area and more rows of tubing than

family buildings without air ducts and employ variable speed control of the 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 of the to high static pressure loss that must be

existing manufactured homes. compressor by inverter will not benefit overcome by the 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 of these

be viable if required 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 of enhanced 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 e utility. Per ton, (of cooling capacity) a manufacturers of SDHV systems

Earlier in this rulemaking the ductless air conditioning system is one typically pair the fan coil with high

Department sought information on of the most expensive HVAC systems in efficiency condensing units (typically

whether higher standards would the U.S. today. Some of the reasons for 13-14 SEER). eliminate these products from the high production costs are: low volumes Unico described a number of

marketplace because of the 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 unit must be blower design and a more efficient

Ductless split systems, or mini-splits small, so complex design of coils is blower motor, and concluded that the

Ductless split systems, or mini-splits necessary burden of increased initial cost would as they are known, cmmony consist of After review of the available outweigh the benefits of increased 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 of the 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 of technological 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 of operation. manufacturer of this type of product,

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 of up to 44,000 Btu/h are data indicating the higher efficiency of room air conditioners, because the available and believes 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 of the available

* Ductless units do not have the duct Conditioners information, the Department does not

losses of a 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

EE-RM-STD-98-440 COMMENT 206

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

manner. This would be comparable to 

the classes that have been established 

for room air conditioners that are 

defined as "without louvered sides." 

Also included are non-ducted mini-split 

air conditioners and heat pumps, and 

high-velocity, small-duct systems. 

Typical applications for of niche 

products may include: existing single 

family buildings without air ducts and 

multi-family buildings with fixed-area 

wall openings and both new and 

existing manufactured homes. 

Several manufacturers have claimed 

that certain niche products would not 

be viable if required to meet higher 

efficiency standards, and have asked the 

Department to establish new 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 product with some unique utility. 

Earlier in this rulemaking the 

Department sought information on 

whether higher standards would 

eliminate these products from the 

marketplace because of the severity of 

their constraints. 

1. Ductless Split Air Conditioners and 

Heat Pumps 

Ductless split systems, or mini-splits 

as they are commonly known, consist of 

a single outdoor unit and one or more 

indoor fan coil units, each located in the 

conditioned space. Since consumers 

may consider the 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 transfer between 

refrigerant lines puts pressure on 

equipment efficiency. 

Mitsubishi and EnviroMaster 

International (EMI), manufacturers of 

ductless split systems, commented that 

ductless products should be assigned a 

separate product class with a'lower 

standard. (Mitsubishi, No. 18 at 1 and 

EM!, No. 26 at 1). Their arguments for 

a separate class are: 

• Ductless units are operated like room air conditioners, because the 

"compressor delivering air conditioning 

to a particular room operates only when 

necessary rather than when a central 

thermostat calls for cooling in another 

area;' 

• Ductless units do not have the duct 

losses of a 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 of the 

market of ductless mini-splits is in 

capacities of 18,000 Btu/hr and less. 

Making significant increases in the 

efficiency of motors and compressors 

used in these small units is difficult; .. Ductless air conditioners frequently 

employ variable speed control of the 

compressor motors. Mitsubishi claims: 

"Controlling the speed of the 

compressor by inverter will not benefit 

the 100% capacity rating but it has a . 

tremendous benefit when the 

compressor begins slowing down. 

During 50% capacity operation the 

SEER level would be 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 appropriate because of 

the inverter driven system's low cyclic 

losses; and .. Per ton, (of cooling capacity) a 

ductless air conditioning system is one of the most expensive HVAC systems in 

the U.S. today. Some of the reasons for 

high production costs are: low volumes 

in the United States, the indoor unit is a "finished" product fully visible to the 

customer so it requires additional 

cosmetic expenses, and the unit must be 

small, so complex design of coils is 

necessary. 

After review of the available 

information, the Department does not 

believe a separate class is warranted for 

these products. The evidence presented 

in the comments does not convince us that these products would not be able to 

meet the proposed standard level. The 

constraints on increasing the size of the 

indoor fan coil units are primarily 

esthetic, and the Department is unaware of technological limitations to 

increasing minimum efficiency 

standards for these products. The 

esthetic disadvantage of larger cabinet 

sizH would be compensated by higher 

efficiency and lower cost of operation. 

While the claim that the small 

capacities make increased efficiencies 

difficult is a reasonable one, the 

Department is aware that systems with 

capacities of up to 44,000 Btuth are 

available and believes 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 air through 

round ducts small enough to fit inside 

stud walls. Compared with conventional 

air conditioners and heat pumps that 

use large ducts, the indoor coil section 

of an SDHV system is compactly 

designed to facilitate retrofit installation 

in tight spaces, resulting in smaller face 

area and more rows of tubing than 

conventional systems. The compact fan 

coil design and small ducts contribute 

to high static pressure loss that must be overcome by the blower, requiring 

greater fan power. Manufacturers claim 

the greater energy consumption of these 

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 

the required air volume by cooling it more than a conventional air 

conditioner,' which offers an associated 

benefit of enhanced humidity removal 

but increases cost. In order to meet the 

current 10 SEER standard, 

manufacturers of SDHV systems 

typically pair the fan coil with high 

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 concluded that the 

burden of increased initial cost would 

outweigh the benefits of increased 

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 

their type of system; 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 power to establish a SEER 

rating but allow them to install systems 

with a high pressure blower. (Unico, No. 

61 at 3). 

SpacePak, another major 

manufacturer of this type of product, 

commented that they have made the 

investment to produce more efficient 

systems. (SpacePak, No. 39 at 1). 

SpacePak also provided ARI directory 

data indicating the higher efficiency of 

their designs. SpacePak claimed to offer 

many equipment combinations in the 11 

to 12 SEER range, with only 17% of 

their ARI listings at the 10 SEER 

minimum. (Space Pak, No. 52 at 1). 

After review of the available 

information. the Department does not 

believe a separate class with an 

efficiency standard below 12 SEER or a 

15% SEER credit, is warranted for these 

products. Regarding Unico's third 
:-"; EE-RM ISTD-98-440-'4c0A 4:

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 to be 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 of the SDHV system repair is the only other cost effective propose a standard of 11 SEER. Because

because of reduced duct losses. We are alternative to replacement, a new electric strip heat is popular in TTW

therefore proposing to modify the DOE 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 of old, inefficient Unit unted ti

estimate that the impact of this equipment. ue t

allowance will be 1 to 2.5 SEER points; According to submitted data, 10 SEER Structure

i.e., a 10 SEER system would become an TTW split condensing 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 of the 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 if TTW 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 of TTW split equipment. where vandalism or theft of outdoor

cooling applications. The difficult air TTW condensers come in three sizes units is a potential problem, or where

flow configuration (each of the (height x weight exterior to the compliance with local sound ordinances

condenser and evaporator building): 32" x 24" (768 sq. in.); 28" x restricts the placement of outdoor air

compartments takes air in and exhausts 26" (721 sq. in.); and 23" x 30" (679 sq. conditioning equipment.

it through the same face) combined with in.). First Co. commented that imposing Consolidated Technologies, Inc.,

the attempt to minimize size constrains higher efficiency standards would manufacturer of the INSIDER,

the ability of these units to attain higher eliminate through-the-wall products commented, "For the INSIDER to be

SEERs. from the marketplace because of the 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 fit a 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 the replacement 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 of increased only and heat pump) based on a Niche Product Standards

fan power consumption. Some short- maximum combined surface area of the The Department encourages

circuiting of exhaust air into the intake air inlet and outlet of the 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 of the 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 may be half as the size of the condenser, manufacturers advantage to those products versus

EE-RM-STD-98-440 COMMENT 206

.--- EE.RM/STD.98-440~~{) ~ 

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 

Department believes that such a change 

would recognize the improvements in 

delivered efficiency of the SDHV system 

because of reduced duct losses. We are 

therefore proposing to modify the DOE 

test procedure to allow small-duct high 

velocity system manufacturers to test 

their products as coil only products. We 

estimate that the impact of this . 

allowance will be 1 to 2.5 SEER points; 

i.e., a 10 SEER system would become an 

11 to 12.5 SEER system. The 

Department seeks comments on whether 

the test procedure revision or other 

proposed changes are needed to 

maintain the viability of the small-duct, 

high-velocity systems in the market 

place. 

3. Vertical Packaged, Wall Mounted 

These products are factory-assembled 

single packaged vertical air-conditioners 

and heat pumps using single phase 

power but intended for use in 

commercial and industrial heating and 

cooling applications. The difficult air 

flow configuration (each of the 

condenser and evaporator 

compartments takes air in and exhausts 

it through the same face) combined with 

the attempt to minimize size constrains 

the ability of these units to attain higher 

SEERs. 

The Department understands that 

single-package vertical air-conditioners 

and heat pumps are not distributed for 

personal use or consumption by 

individuals, and therefore believes that 

at present they are commercial products 

covered by EP ACT and not by 

residential energy efficiency standards. 

Accordingly, vertical packaged, wall 

mounted equipment would not be 

covered by today's proposed rule for 

residential products. 

4. Through-the-Wall Condensers 

Through-the-wall (TTW) condensers were popular in new multistory 

residential construction in the 1960s 

and 1970s. Major manufacturers have 

since abandoned the replacement 

market, providing an opportunity for 

lower volume manufacturers. Most 

equipment is in the 1'12 to 2'/2 ton 

capacity range. These systems take in air 

through only one face and exhaust air 

through the same face resulting in 

reduced efficiency because of increased 

fan power consumption. Some shortcircuiting of exhaust 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 may be half as 

efficient as the new units. Residents or building owners are particularly 

sensitive to any increase in price or to 

the cost of enlarging the wall opening to 

accommodate a larger condenser. Since 

repair is the only other cost effective 

alternative to replacement, a new 

standard that increases cabinet size or 

results in a significant price increase 

could be counterproductive, preventing 

the turnover of old, inefficient 

equipment. 

According to submitted data, 10 SEER 

TTW split condensing air-conditioners 

with fan 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 

would be maintained if TTW 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 of TTW split equipment. 

TTW condensers come in three 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. commented that imposing 

higher efficiency standards would 

eliminate through-the-wall products 

from the marketplace because of the 

significant increase in the price with a 

correspondingly small operating cost 

savings. (First Co., No. 40 at 1). 

TTW packaged systems are intended 

for both new construction and retrofit. 

First Co'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, which is not 

severely size-constrained, should be 

able to reach 12 SEER in its 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 would be maintained under 

an 11 SEER standard for TTW packaged 

with a 12 SEER for conventional 

packaged. 

The Department proposes to establish 

a separate class for TTW equipment 

(including packaged and split, cooling 

only and heat pump) based on a 

maximum combined surface area of the 

air inlet and outlet ofthe condenser of 

830 square inches, and a maximum 

capacity of 30,000 Btu/hr. The purpose 

of the maximum capacity requirement is 

to ensure that if new technology reduces 

the size of the condenser, manufacturers 

will not offer 3-ton equipment that fits 

the definition but is intended for use in 

conventional applications. To maintain 

the price differential between thi.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 to TTW heat pumps. 

5. Non-Weatherized Single-Package 

Unit, Mounted Entirely Within the 

Structure 

Another niche product, which was 

not discussed in the Supplemental 

ANOPR, is a non-weatherized singlepackage unit, mounted entirely within 

the structure (in an attic, basement, or 

closet), with outdoor air ducted to and 

from the unit. This unit is used in highrise and garden apartments, 

manufactured homes, and other 

residential applications where locations 

for placement of outdoor units may be 

unavailable or too remote, where 

architectural aesthetics may be 

compromised by visible outdoor units, 

where vandalism or theft of outdoor 

units is a potential problem, or where 

compliance with local sound ordinances 

restricts the placement of outdoor air 

conditioning eguipment. 

Consolidated Technologies, Inc., 

manufacturer of the INSIDER, 

commented, "For the INSIDER to be 

used in Manufactured Housing and 

Modular housing it is important to have 

the smallest footprint possible." 

(Consolidated Technologies, Inc., No. 42 

at 2). 

The Department recognizes that this 

product has space constraints, albeit not 

as severe as products that must fit a wall 

opening. Products at the 12 SEER level 

(the proposed air conditioning standard 

level) are currently on the market. A 

very difficult obstacle to establishing a separate class for this product is a 

definition that could not be used as a 

loophole to use its lower standard for 

conventional products. Its salient 

feature is its indoor location; product 

class definitions should be based on 

physical characteristics, and it is nearly 

impossible to define physical 

characteristics that would ensure 

products be installed in a particular 

location. No separate class is proposed 

for this product. 

6. Request for Comments Regarding 

Niche Product Standards 

The Department encourages 

comments regarding whether the 

proposed standards concerning highvelOcity, vertically-packaged wallmounted equipment, and through-thewall equipment provide a significant 

advantage to those products versus 
EE-RM/STD-98-440-_"-c A

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 to preserve the unique maintain system efficiency better than requirement nor a lower standard for

features of those 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 on this 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 of TXVs 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 of those products. While the evidence of the potential

energy-saving benefits of TXVs is L. Ot h e r Comments

K. Thermostatic Expansion Valves 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 n y, Vl

rgiia

requiring the use of thermostatic condenser with the evaporator of a 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 of the 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. (Virginia Power, 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 their usage because of reliability 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 of TXVs 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 is possible 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 of TXVs. 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 to reduce 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 of TXVs if the Secretary use of TXVs. 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 of baseline equipment without efficiency at rated conditions (i.e., 95°F

without TXVs. This is certainly 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 is unclear 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 of the U.S. For the

those systems to perform at their rated 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 to establish 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 of the problem,

(such as a TXV) if the Secretary feels that the current test procedure

determines that a higher or lower provides the proper encouragement for " D. Godwin. 1998. "Latent Capacity of Unitary

efficiency standard is justified for those manufacturers to incorporate TXVs into Equipment." ASHRAE Transactions 98(2).

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD-9~-440-1F-~ D ~ 

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59611 

competing products, whether they are 

sufficient to preserve the unique 

features of those products, and whether 

improvements in the 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 of those products. 

K. Thermostatic Expansion Valves 

VEIC, NRDC. ACEEE. and CEC 

requested that a design standard 

requiring the use of thermostatic 

expansion valves (TXVs) be adopted to 

ensure that energy savings expected 

from an increase in the minimum 

efficiency standard are realized in the 

field. Several of the comments cited 

studies which demonstrate that TXVs 

can mitigate adverse effects on efficiency due to field installation 

problems such as inadequate evaporator 

airflow and improper refrigerant charge. 

CEC suggested that separate classes be 

established for systems with and 

without TXVs and that more stringent 

minimum efficiency standards be 

established for classes not utilizing 

TXVs, and VEIC suggested mandating 

the use of TXVs in all new equipment. 

(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 least two regulatory options exist 

for encouraging the use of TXVs. The 

first is to require that all equipment 

contain TXVs, hereafter called TXV 

requirement. The second is to establish 

a separate product class for TXV-bearing 

equipment and to reduce the minimum 

SEER requirements for those classes 

from the levels in today's proposed rule. 

The EPCA allows the Department to 

issue a requirement such as mandating 

the use of TXVs if the Secretary 

determines that such a requirement is 

necessary to ensure that the product 

meets its performance-based standard. 

In the case of TXVs, the Department's 

current opinion is that products can 

meet the proposed SEER requirements 

without TXVs. This is certainly true in 

the laboratory. In the field, although 

many installations could undoubtedly 

benefit from TXVs, it is unclear whether 

we could find that TXVs are needed for 

those systems to perform at their rated 

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) if the Secretary 

determines that a higher or lower 

efficiency standard is justified for those 

products. Evidence indicates that TXVs 

maintain system efficiency better than 

do fixed orifices or capillary tube 

expansion devices in cases where split 

system equipment is over- or undercharged with refrigerant. This 

apparently includes most installations. 

To encourage the use of TXVs we could 

consider establishing lower SEER 

standards for products containing TXVs. 

While the evidence of the potential 

energy-saving benefits ofTXVs is 

ceI1ainly persuasive, the current SEER 

test procedures already encourage their 

use. For rating a manufacturer's 

condenser with the evaporator of a 

different manufacturer, the SEER 

determination procedures provide a 

credit for systems that incorporate 

TXVs. For matched systems, the use of 

TXVs typically lowers the degradation 

coefficient, resulting in higher SEER 

results. 

We hesitate to provide stronger 

support for TXV-bearing equipment 

than that which is already granted 

through the test procedures. Unlike 

fixed orifices, TXVs are mechanical 

components. Some manufacturers avoid 

their usage because of reliability 

concerns, and the additional repair costs 

incurred by consumers could outweigh 

their energy-saving benefits. 

Furthermore, contractors are able to 

adjust the factory-set TXV in the field, 

and it is possible that alleviating 

problems due to over- or under-charging 

by encouraging the use of TXVs could 

create another problem-improperly set 

TXVs. Also, it is not clear that TXVs are 

the only, or even the best, option for 

maintaining equipment efficiency in the 

field. For example, technologies that 

could mitigate dirty coils or prevent 

improper charging and airflow may be more attractive options, and we would 

not want to discourage their 

development or use by mandating the 

use of TXVs. 

In any case, manufacturers may well 

find that the SEER benefits offered by 

TXVs are compelling enough under the 

new efficiency standards that they 

would offer TXVs in a substantial 

amount of baseline equipment without 

further encouragement by the 

Department. The Engineering Analysis 

suggests that manufacturers are 

currently more likely to incorporate 

TXVs into their 12 SEER and 13 SEER 

products than in their 10 SEER 

products. We would expect, therefore, 

that TXV use would be much more 

prevalent under higher efficiency 

standards. 

For these reasons, the Department 

feels that the current test procedure 

provides the proper encouragement for 

manufacturers to incorporate TXVs into 

their products, and that neither a TXV 

requirement nor a lower standard for 

TXV-bearing products are justified at 

this time. We welcome additional 

comments on this issue, particularly 

regarding whether our concerns 

regarding the perceived reliability 

problems and potential misuses 

associated with widespread use of TXVs 

are valid. 

L. Other Comments 

1. Latent Heat Removal 

The Southern Company, Virginia 

Power, and R.B. Stotz insisted that 

increased equipment efficiency impacts 

the equipment's ability to properly 

dehumidify (Le., remove latent heat). 

Virginia Power specifically wants 

assurances that any increase in the 

standard will maintain current humidity 

control capabilities. In addition, it 

asserts that the costs of maintaining 

humidity control should be included in 

the analysis. (Virginia Power, No. 27 at 

2). The Southern Company claims that 

higher SEER values will lead to larger 

indoor coils which in turn will result in 

higher air temperatures leaving the 

indoor coil. The higher the air 

temperature, the less dehumidification 

occurs. They also claim that while more 

efficient systems may dehumidify 

properly at rated test conditions, their 

ability to dehumidify under high indoor 

humidity conditions are worse than less 

efficient equipment. (Southern 

Company, No. 29 at 3-4; R.B. Stotz, No. 

24 at 1). Trane counters the claims made 

by the Southern Company and Virginia 

Power by stating that there is absolutely 

no evidence to support the claim that 

more efficient equipment has less latent 

heat removal capability. (Crawford, 

Trane, Transcript, pp. 272-273). 

Trane's claim that there is no relationship between equipment 

efficiency and its ability to dehumidify 

is substantiated by research conducted 

by ARI. From this research, ARI 

demonstrated for hundreds of systems 

that latent heat removal is not obviously 

impacted by increases in equipment 

efficiency at rated conditions (j.e., 95°F 

outdoor temperature). 16 Not to dismiss 

the concerns of Virginia Power and the 

Southern Company, we recognize the 

humidity control problems that exist in 

the southern region of the U.S. For the 

excessive humidity conditions 

commonly experienced in the South, 

the equipment may very likely not 

provide adequate dehumidification. But 

rather than focusing on the equipment 

efficiency as the source of the problem, 

16 D. Godwin. 1998. "Latent Capacity of Unitary 

Equipmont." ASHRAE Transactions 98(2). 
EE-RM/STD-98-44.- A 6

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 of electric

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 of standards for these noted that the Department's definition

role in how a system dehumidifies. To products, DOE will analyze 3-phase of HSPF-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 split heat 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, if 3- emphasis on improving SEER. He based then determined the equation of the 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. of heat pumps that have higher of the 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 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

Offset from 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 of 20 SEER.

This is due both to the natural ARI, Trane, and York commented that a DOE does not have relative cost data

elationship both to the natSural prototype hasn't been built that has for 18 SEER units 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, of performing 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 is proceeding as if the 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 cost would 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. Trial Standard Levels

does not want to encourage substitution Department considers 18 SEER to be the

of electric 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 of attaining heating efficiency is 9.4 HSPF, which is rule and the corresponding efficiency

higher HSPFs or the shipments of heat the highest HSPF rating currently level for each class of product. Trial

pumps by HSPF level the Department available in residential heat pumps. Any standard level 5 is the max tech level for

pumps by HSPF level, the Depa t parties possessing knowledge of each class of product.

EE-RM-STD-98-440 COMMENT 206

.... '. 

59612 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

proper installation and maintenance 

practices also likely playa large 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 in how a system dehumidifies. To 

lay blame only on the efficiency of the 

equipment ignores how other factors 

contribute to the system's ability to 

properly dehumidify. 

2. 3-Phase Equipment 

ACEEE asserted that if an identical 

standard is to be set for both singlephase and 3-phase central air 

conditioners and heat pumps under 

65,000 Btulhr, then 3-phase equipment 

should be incorporated into the 

rulemaking analysis. Alternatively, if 3-

phase equipment is excluded from the 

analysis, it should be made clear that a 

new standard on 3-phase equipment 

will be set based on a new analysis 

covering 3-phase equipment. 

EP ACT provides for DOE to amend 

the standards for these products when 

ASHRAE amends the standards found 

in ASHRAE Standard 90.1. When 

ASHRAE has completed its 

consideration of standards for these 

products, DOE will analyze 3-phase 

equipment under a separate rulemaking 

pertaining to commercial airconditioning and heat pump equipment. 

3. SEER-HSPF Relationship 

ARl supported the Department's 

HSPF-SEER standard pairings proposed 

in the Supplemental ANOPR. (ARl No. 

48 at 4). Pietsch proposed maintaining 

the current minimum requirements for 

HSPF at 6.8 for future levels of 

minimum SEER, which would allow 

manufacturers to continue to place more 

emphasis on improving SEER. He based 

this recommendation on the strong 

competition that heat pumps face in the 

market place with electric resistance 

heat, noting that the increased first-cost 

of heat pumps that have higher 

minimum HSPFs makes it more difficult 

for heat pumps to compete against the 

much lower first-cost of electric 

resistance heating systems. (Pietsch No. 

36 at 41). ACEEE, VEIC, and PG&E 

noted that the Department's definition 

of HSPF-SEER pairing for the standard 

levels it analyzed seemed arbitrary or 

too lenient and preferred that the 

Department establish higher HSPF 

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 split heat pumps listed in 

the Spring 1998 ARl Directory of 

Certified Unitary Equipment. At 10 

SEER, the difference between the 

minimum HSPF (6.8) and the median 

(7.1) was 0.3 HSPF. The Department 

then determined the equation of the line 

that ran generally parallel with the 

median HSPF at each SEER level, while 

passing through the 10 SEER, 6.8 HSPF 

point. Table V.5 reviews the derivation 

of the 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 

Even though the Department does not 

have information on the distribution of 

heat pump sales by HSPF at each SEER 

level, it is apparent that the market 

currently favors products that exceed 

the minimum allowable HSPF level. 

This is due both to the natural 

relationship between HSPF and SEER 

and the preference in the market for 

high HSPF heat pumps in cooler 

climates. The Department believes that 

establishing an HSPF standard equal to 

the current median at a given SEER 

level would impose an undue design 

constraint on manufacturers, adding to 

the cost and burden of designing, 

producing, testing, and qualifying the 

product without resulting in a 

significant increase in the average HSPF 

of equipment sold. Also, the Department 

does not want to encourage substitution 

of electric resistance heating systems for 

heat pumps. Without further 

information on the cost of attaining 

higher HSPFs or the shipments of heat 

pumps by HSPF level, the Department 

11 12 13 

7.4 7.9 7.9 

7.1 7.4 7.7 

-0.3 -0.5 -0.2 

has no basis for modifying its current 

HSPF-SEER standard combinations. 

4. Max Tech 

14 

The Supplemental ANOPR analysis 

proposed a Max Tech level of 20 SEER. 

ARl, Trane, and York commented that a 

prototype hasn't been built that has 

exceeded 18 SEER. (Wethje, ARl, 

Transcript p. 66; Crawford, Trane, 

Transcript p. 69; and Madera, York, 

Transcript p. 71). The Department also 

understands that 18 SEER is the highest 

efficiency level currently available for 

sale. 

While the Department believes 

improvements to the 18 SEER design are 

certainly possible, it agrees with the 

industry that any analysis based on a 

design higher than 18 SEER would be 

pure speculation. Therefore, the 

Department considers 18 SEER to be the 

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 heat pumps. 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 

heat pumps that exceed 18 SEER or 9.4 

HSPF levels are encourage to provide 

such information in comment on today's 

proposed rule. 

DOE does not have relative cost data 

for 18 SEER units as ARl did not 

provide the Department data for 

equipment exceeding 15 SEER. In lieu 

of performing a reverse engineering 

analysiS on an 18 SEER design, the 

Department is proceeding as if the 18 

SEER equipment cost and price were 

equal to those of the 15 SEER 

equipment. DOE believes the 18 SEER 

cost would be higher because the 

product is more complex. 

VI. Analytical Results 

A. Trial Standard Levels 

Table VI.I presents the trial standards 

levels analyzed for today's proposed 

rule and the corresponding efficiency 

level for each class of product. Trial 

standard levelS is the max tech level for 

each class of product. 
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 conditioners conditioners condit m heat pumps

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. Significance of Energy Savings We analyzed three efficiency scenarios, replacement costs was analyzed as an

each of which 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 of 7% was assumed. we compared the energy consumption scenario, (2) Roll-up scenario, and (3) However, a 3% value was investigated

of central air conditioners and heat Shift scenario. Manufacturer costs were as an alternative scenario in accordance

pumps under the base case to energy based on ARI-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 the revised the industry-provided cost estimates Standardize Measures of Costs and

standard. We examined fivetadard stant codast data from the Benefits and the Format of Accounting

levels. For each trial standard examined, reverse engineering analysis were Statements.

several different scenarios were Table VI.2 shows the range of energy

analyzed consisting of variations on: (1) analyzed as an alternative scenario. savings f each or of the three 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 of compressor 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 of compressor 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 A 7% 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-98-440 COMMENT 206

EE-RM/STD-9~-440 -1F!Ao b 

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 Energy Savings 

To estimate the energy savings 

through 2030 due to revised standards, 

we compared the energy consumption 

of central air conditioners and heat 

pumps under the base case to energy 

consumption of central air conditioners 

and heat pumps under the revised 

standard. We examined five standard 

levels. For each trial standard examined, 

several different scenarios were 

analyzed consisting of variations on: (1) 

Electricity price and housing 

projections; (2) equipment efficiency 

distributions; (3) manufacturer cost 

estimates; (4) equipment lifetime; 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. 

We analyzed three efficiency scenarios, 

each of which assumed a different 

efficiency distribution after new 

standards would take effect: (1) NAECA 

scenario, (2) Roll-up scenario, and (3) 

Shift scenario. Manufacturer costs were 

based on ARI-provided mean cost data. 

Since several comments suggested that 

the industry-provided cost estimates 

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 of compressor replacement 

costs. However, since several comments 

suggested that the equipment life is 

actually shorter, a retirement function 

yielding an average lifetime of 14 years 

without the inclusion of compressor 

11 11 11 

12 12 12 

12 12 13 

13 13 13 

18 18 18 

replacement costs was analyzed as an 

alternative scenario. 

11 

12 

13 

13 

18 

For calculating NPV, a societal 

discount rate of 7% was assumed. 

However, a 3% value was investigated 

as an alternative scenario in accordance 

with the Office of Management and 

Budget's (OMB) Guidelines to 

Standardize Measures of Costs and 

Benefits and the Format of Accounting 

Statements. 

Table VI.2 shows the range of energy 

savings for each ofthe three shipments 

scenarios for each trial standard level 

based on varying electricity and housing 

projections. The energy savings assume 

the ARI mean manufacturer cost 

estimate, an 18.4-year average lifetime 

with compressor replacement and a 7% 

societal discount rate. The electricity 

scenarios are the AEO 2000 Reference, 

High Growth, and Low Growth cases. 

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. Payback Period based on the hours of use 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 if the three year from the LCC analysis (i.e., analyses payback periods for product classes and

rebuttable presumption of economic based on the 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 is the rebuttable

"calculated under the applicable test for any given standard level, the presumption payback period based on procedure, * * *" payback period calculated from the test the Department of Energy'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 H eat Pum p ......................................................................................................................................... 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 Pum p .................................................................................................................................... 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. Economic Justification with six major manufacturers valuable information used to evaluate

i Manufact s responsible for approximately 90% of the impacts of a 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 of higher efficiency their financial situation differs from that The MIA has both quantitative and

standards on air conditioner of their larger counterparts. These qualitative aspects. Quantitative

manufacturers. The TSD explains the interviews are in addition to those we analysis primarily relies on the GRIM,

analysis in further detail. As part of the conducted as part of the Supplemental an industry cash flow model customized

MIA, we discussed potential impacts ANOPR. The interviews provided for this rulemaking. The GRIM inputs

EE-RM-STD-98-440 COMMENT 206

59614 Federal Register / Vol. 65, No. 194/ Thursday, October 5, 2000 I Proposed Rules 

C. Payback Period 

As discussed above, the Act requires 

the Department to examine payback 

periods to determine if the three year 

rebuttable presumption of economic 

justification applies. As prescribed by 

the Act, the rebuttable payback period is 

"<;:alculated under the applicable test 

procedure, * * *". 

The annual space-cooling and spaceheating energy consumption calculated 

based on the hours of use in the test 

procedure are on the order of 50% 

greater than the weighted-average values 

from the LCC analysis (i.e., analyses 

based on the 1997 RECS for residential 

buildings and hourly simulations for 

commercial buildings). This means that, 

for any given standard level, the 

payback period calculated from the test 

procedure will be significantly shorter 

than the average payback value 

calculated from the LCC analysis which 

was based on the 1997 RECS data. 

In Table VI.4a, we list the median 

payback periods for product classes and 

efficiency levels according to the 

methods employed by the LCC analysis. 

Table VI.4b is the rebuttable 

presumption payback period based on 

the Department of Energy's test 

procedure. 

TABLE VI.4A.-SUMMARY OF LCC PAYBACK MEDIAN PERIOD 

Rev~rse engi- 14-year lifetime 

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. Economic Justification 

1. Economic Impact on Manufacturers 

a. Background. We performed a 

Manufacturer Impact Analysis (MIA) to 

estimate the impact of higher efficiency 

standards on air conditioner 

manufacturers. The TSD explains the 

analysis in further detail. As part of the 

MIA, we discussed potential impacts 

with six major manufacturers 

responsible for approximately 90% of 

the residential air conditioner and heat 

pump sales. We also interviewed two 

niche manufacturers to understand how 

their financial situation differs from that 

of their larger counterparts. These 

interviews are in addition to those we 

conducted as part of the Supplemental 

ANOPR. The interviews provided 

13.3 

3.7 

4.0 

6.5 

7.2 

valuable information used to evaluate 

the impacts of a new standard on 

manufacturers' cash flows, 

manufacturing capacities and 

employment levels. 

The MIA has both quantitative and 

qualitative aspects. Quantitative 

analysis primarily relies on the GRIM, 

an industry cash flow model customized 

for this rule making. 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 low price limits the ability and efficiency level increases. This

present value (INPV). Different sets of desire of these manufacturers to sell represents two effects: selling a greater

assumptions (scenarios) produce premium equipment. Because they have fraction of higher 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 of the 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 of the

"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 of manufacturer apply a fairly consistent markup across we combined the results of the 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 of an emphasis 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 stiff price competition from the lower ratio reflects the prevalence of each

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 to reduce 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. Industry Cash Flow Analysis

"NAECA" product mix scenario in then target less price sensitive Results. Tables VI.5 through VI.7

order to determine the effects of lower 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 of manufacturers and an 18-year product life. The

year life" assumption applied only to differently, we set up two versions of corporate discount rate used in the

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. To represent the lower the weighted average cost of capital 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% of the

strategies and place different levels of the industry averages. We also assumed market and those with higher operating

emphasis on the sale of higher 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

first group 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) - 1 2

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 in INPV from base

Standard level present value case

($ million) million Percent

B aseBase ............................................................................................................................................. 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-98-440 COMMENT 206

EE.RM/STD-9~.440 - #=~/) 0 

Federal Register / Vol. 65, No. 194/ Th ursday, October 5, 2000/ Proposed Rules 59615 

are assumptions regarding the industry 

cost structure, shipments, and revenues. 

The key output is the industry net 

present value (INPV). Different sets of 

assumptions (scenarios) produce 

different results as described below. 

In the GRIM we evaluated each of the 

shipment scenarios, i.e., "NAECA", 

"Rollup", and "Shift". Changes in 

efficiency mix by efficiency standard 

level are a key driver of manufacturer 

finances since costs and revenues are 

both tied to shipments. 

Two cost scenarios, "Industry 

Relative Cost" and "ReverseEngineering Relative Cost", were also 

examined. These relative costs are also 

used as the basis for deriving the 

production costs of equipment above 

the minimum efficiency level. The 

"Reverse-Engineering Relative Cost" 

scenario was applied only to the 

"NAECA" product mix scenario in 

order to determine the effects of lower 

production costs on the MIA results. 

The equipment lifetime scenarios 

assumptions, "18-year life" and "14-

year life", were considered. The "14-

year life" assumption applied only to 

the "NAECA" and "Industry Relative 

Cost" scenarios to isolate the effects of 

a shorter product life on the results. 

The interviews revealed that 

manufacturers use different pricing 

strategies and place different levels of 

emphasis on the sale of higher 

efficiency products. Manufacturers fall 

into two basic groups 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 of these 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 their baseline equipment and still 

maintain a price advantage. They then 

apply a fairly consistent markup across 

efficiency levels. 

The higher cost manufacturers 

typically place more of an emphasis on 

marketing, service, and research than do 

their lower cost competitors. Faced with 

stiff price competition from the lower 

cost manufacturers in price-sensitive 

markets, the higher cost manufacturers 

are forced to reduce their price (and 

markup) on their baseline equipment to 

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 of manufacturers 

differently, we set up two versions of 

the GRIM to model each group 

independently. To represent the lower 

cost manufacturers, we reduced the 

operating expense ratio and research 

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 cost manufacturers, we raised the 

operating expense ratio and research 

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 of higher margin premium 

product as efficiency level rises, and 

being able to secure a higher profit 

margin on products by virtue of the 

higher efficiency. 

To represent the industry in aggregate, 

we combined the results of the two 

GRIM versions, giving 25% weight to 

the results of the lower-operating-cost 

group and 75% weight to the results of 

the higher-operating-cost group. This 

ratio reflects the prevalence of each 

strategy in the marketplace. Many 

companies may pursue both strategies 

simultaneously through different brands 

and divisions. 

b. Industry Cash Flow Analysis 

Results. Tables VI.5 through VI. 7 

present the GRIM results for the unitary 

air conditioning industry for the three 

shipment scenarios based on the 

industry provided mean cost multipliers 

and an 18-year product life. The 

corporate discount rate used in the 

analysis is 6.2% based on an estimate of 

the weighted average cost of capital for 

the industry over a five-year period. 

Results assume that manufacturers with 

lower operating costs control 25% of the 

market and those with higher operating 

costs control 75%. Since we did not 

collect information regarding the cost or 

investments involved in manufacturing 

product at 18 SEER, we did not assess 

impacts under Max 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 in INPV 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 1,914 311 19......................

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 for the 14-year life assumption

cost manufacturers accrue much of their equipment. The Shift scenario provides and the Reverse Engineering Relative

profits from the sale of higher 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

B ase ............................................................................................................................................ $1,726 ........................ ........................ 1 ................................................................................................................................................... 1,701 $ (25) -1

2 ................................................................................................................................................... 1,558 (168) - 1 0

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 in INPV 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) - 1 1

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 the products face pricing pressure from

scenarios and trial standard levels, and of the efficiency level, so as the cost of 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' 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-98-440 COMMENT 206

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 while the Shift scenario 

increases INPV. This result occurs 

because we assume the higher-operating 

cost manufacturers accrue much of their 

profits from the sale of higher efficiency 

equipment. As the standard level 

increases, they earn lower profit 

margins on that equipment. The loss in 

profits can be offset by the combination 

of more 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-efficiency equipment sales than do 

the NAECA and Rollup scenarios. 

Tables VI.S and VI.9 present the 

results for the 14-year life assumption 

and the Reverse Engineering Relative 

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 benefit under all 

scenarios and trial standard levels, and 

the higher operating cost manufacturers 

benefit only under the Shift scenario. 

The reason, again, is that we assume 

that lower operating cost manufacturers 

accrue the same profit margin regardless 

of the 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. The higher operating cost 

manufacturers, on the other hand, lose 

profits as the standard level rises and 

the products face pricing pressure 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 IN INDUSTRY 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

1

18-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., the higher 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) IN 2011 FOR HIGHER COST MANUFACTURERS

~Standard level NAECA Roll-up ~~~~~Standard level (in percent) (in percent)

B ase ......................................................................................................................................................................... 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 of the 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 a se ............................................................................................................................................. ........................ ........................ ....................... 1 1 ............................... ................................................................................................................................................... $31 3 1 $54 54 $8585.

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 to produce as

assessments of impacts 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 of the United States. peak production periods.

c. Impacts on Employment. This effect could keep domestic e. Impact on Lower Volume

Manufacturers stated uniformly that employment levels flat or result in Manufacturers. Converting from a labor requirements track materials costs. employment loss if companies 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 of material in each in other countries. new design into production. These tasks

product, labor requirements are d. Impacts on Manufacturing 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 of their need to spread

volume and is now faced with and heat pump production capacity in these investments over smaller

EE-RM-STD-98-440 COMMENT 206

EE-RMISTD-9'~-4404cA D ~ 

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 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 

4 ................................................... 15 

1 18-year lifetime unless otherwise noted. 

For the group most negatively 

impacted, i.e., the higher cost group, 

Table VI.11 presents the Return on Invested Capital (ROlC) associated with 

the base 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-year lifetime. A 

reduction in ROIC increases the 

likelihood that the company will choose 

-32 14 16 8 -17 

-31 21 19 12 -18 

to exit the market or sell its assets rather 

than to 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 investment required for each 

trial standard level. Product conversion 

expenses include mostly product 

development and testing costs. Capital 

investments include new equipment, 

tooling, and floor space. Since these 

investments occur in the years leading 

up to the effective date of the new 

standard, larger investments equate to a 

more serious strain on cash flows in the 

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 

proposed rule provides more details on 

the MIA assumptions, methodology, 

results, and conclusions, including the 

assessments of impacts on lower volume 

equipment manufacturers and 

compressor manufacturers, which we 

estimate to be similar in proportion to 

the impacts described above. 

c. Impacts on Employment. 

Manufacturers stated uniformly that 

labor requirements track materials costs. 

Since a new standard will increase the 

amount and cost of material in each 

product, labor requirements are 

expected to rise proportionally. 

However, the industry has recently been 

experiencing rapid growth in sales 

volume and is now faced with 

production capacity constraints. Since 

new efficiency standards will increase 

the product's size and complexity, many 

manufacturers will need to add 

additional capacity to accommodate the 

new products and retain their sales 

volumes. It is possible that those 

companies will choose to add the new 

capacity outside of the United States. 

This effect could keep domestic 

employment levels flat or result in 

employment loss if companies choose to 

shift current production to new facilities 

in other countries. 

d. Impacts on Manufacturing 

Capacity. It is likely that a central air 

conditioner and heat pump 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 can under 

existing standards. Five of the six 

manufacturers we interviewed 

identified capacity constraints during 

peak production periods. 

e. Impact on Lower Volume 

Manufacturers. Converting from a 

company's current basic product line 

involves creating, testing, and moving a 

new design into production. These tasks 

have associated capital investments. 

Manufacturers of niche products and 

those who produce only coils and 

fancoils, because of their need 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, may be 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 heat pumps 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 LCC increase e.g., as small as $10,

manufacturers in some product lines, would increase. We analyzed the net a compared to relatively a 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 of the LCC model is a increases greater than 2% of the

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 of LCC increase of approximately $100 or an

sales volume due to increased price. reduction or increase. The LCC analysis annual expense of approximately $5

Overall, if provisions are made in the for today's proposed rule introduces a over the lifetime of the 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 of consumers (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 of the 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 H eat 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% of the 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% of the 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 of consumers (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 ALC C (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 Pum p ................................................ 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 COMMENT 206

59618 Federal Register / Vol. 65, No. 194/ Thursday, October 5, 2000/ Proposed Rules 

production volumes, may be affected 

more negatively than major 

manufacturers by an increase in 

efficiency standards. This is particularly 

true for those manufacturers that 

compete head-to-head with major 

manufacturers in some product lines, 

and less true for coil-only 

manufacturers. These results occur 

separately from any technical 

considerations related 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 production costs or loss of 

sales volume due to increased price. 

Overall, if provisions are made in the 

standard for niche products that face 

severe technological constraints, we 

would not expect the impacts on lowervolume manufacturers as a group to be 

disproportionate with those of the 

industry as a whole. 

2. Life-Cycle Cost 

More efficient central air conditioners 

and heat pumps would affect consumers 

in two ways: Annual operating expense 

would decrease and purchase price 

would increase. We analyzed the net 

effect by calculating the LCC. Inputs 

required for calculating LCC include 

total installed costs (j.e., equipment 

price plus installation costs), annual 

energy savings, average and marginal 

electricity rates, electricity price trends, 

repair costs, maintenance costs, 

equipment lifetime, and discount rates. 

The output of the LCC model is a 

mean LCC savings for each product 

class as well as a probability 

distribution or likelihood of LCC 

reduction or increase. The LCC analysis 

for today's proposed rule introduces a 

new concept with regard to the 

percentage of consumers (both 

residential and commercial) that are 

negatively impacted by an increase in 

the minimum efficiency standard. (For 

the Supplemental ANOPR, all 

consumers that would incur an LCC 

increase were considered to be 

adversely impacted by 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 heat pumps.) 

The revised analysis defines negative 

impacts by including in this category 

only those consumers which incur LCe 

increases greater than 2% of the 

baseline LCC. For central air 

conditioners, this translates to an LCC 

increase of approximately $100 or an 

annual expense of approximately $5 

over the lifetime of the system. Table 

VI.13 summarizes the baseline LCCs for 

split system and single package central 

air conditioners and heat pumps and 

also provides the 2% threshold at which 

consumers are considered to be 

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 depicts the LCC results 

for split system and single package 

central air conditioners 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 

were used for all 18 SEER calculations 

resulting in 18 SEER LCC results which 

underestimate their true cost level. 

Table VI.14 also provides for each 

product class the difference in LCC 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 of consumers (both 

residential and commercial) at each 

efficiency level who are impacted in one 

of three ways: Consumers who achieve 

significant net LCC savings (j.e., LCC 

savings greater than 2% of the baseline 

LCC), consumers who are impacted in 

an insignificant manner by having either 

a small reduction or small increase in 

LCC (i.e., within ±2 % of the baseline 

LeC), or consumers who achieve a 

significant net Lee increase (i.e., an Lee 

increase exceeding 2% of the 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 Pum p ........................................ 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 of the 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 Pum p ................................................ 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 Pum p ........................................... 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-98-440 COMMENT 206

EE.RM/STD-9~-440-1F 0\ 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 of energy savings and 

payback period results, we have 

investigated two scenarios where lower 

estimates of the manufacturer costs 

(reverse engineering) and system 

lifetime (retirement function with 14 

year average lifetime without 

compressor replacement costs) were 

analyzed. Table VI.1S presents the 

results for the manufacturer cost 

scenario while Table VI.16 presents the 

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

(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 Pum p ............................................. 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 of national energy forecasts: (1) Reference Case, (2) High with the inclusion of compressor

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 of 7 was assumed. The range of

consisting of variations 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 ....................................... 0 to ................................. -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 of NPV 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 of the

scenarios relative to the total national Case forecast of electricity 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 of base 98$) (bl of. base case total case total 98$) 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 $1 billion.

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440-#" ~ 0 Ia 

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 (savlevel LCC ings) costs Net savings No signifi- 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. Net Present Value and Net National 

Employment 

The net present value analysis is a 

measure of the cumulative benefit or 

cost to the Nation of standards. As with 

the determination of national energy 

savings, five different scenarios were 

analyzed for each trial standard level 

consisting of variations on: (1) 

Electricity price and housing 

11 8,623 

12 8,587 

13 8,630 

18 9,184 

projections; (2) equipment efficiency 

distributions; (3) manufacturer cost 

estimates; (4) equipment lifetime; 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. Equipment lifetime 

was assumed to be 18.4 years, coupled 

with the inclusion of compressor 

replacement costs. A societal discount 

rate of 7 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 

NAECA 

Net 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 ................................. -3 to -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 order to show the significance of 

the NPVs in Table V.17 to the various 

input assumptions, Tables VI.18 

through VI.21 report the range of NPV 

results for a range of assumptions and 

scenarios relative to the total national 

equipment and operating costs for all 

central air-conditioning and heat pump 

equipment under the base case (Le., in 

the absence of new efficiency 

standards). The results in Table VI.18 

are based on the AEO 2000 Reference 

Case forecast of electricity 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 between the 

base case and trial standard level), as 

well as the NPV as a percentage of the 

"Base Case Total Costs," are calculated 

for each trial 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 &

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 the NAECA 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

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'

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

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

Trial standard level

Base case Trial standard level total costs Total ct Net present As percent of

(billion 98$) valuea base case ("billion 98$) (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

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 of the employment shifts in economic activity is to compare intensity of the utility sector and wage

impacts of proposed 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 of the impacts on national labor

and heat pumps are expected to reduce the number of jobs per million dollars demand using an input/output model of

electricity bills for residential and of economic activity in different sectors the U.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 the jobs among 35 economic sectors using the

to other forms of economic activity. created elsewhere in the economy by data from the Bureau of Labor 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 of the Multipliers: A User Handbook for the

'

7 A societal discount rate of 3% value was Office of Management and Budget's (OMB) Guidelines to Standardize Measures of Costs and

investigated as a scenario in accordance with the Benefits and the Format of Accounting Statements.

EE-RM-STD-98-440 COMMENT 206

.-' EE.RM/STD.9~.440 .... '4F ~ It; 

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59621 

Tables VU9 through V1.21 show how 

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 of the employment 

impacts of proposed standards in the 

economy in general. 61 FR 36983. 

As discussed above, energy efficiency 

standards for central air conditioners 

and heat pumps are expected to reduce 

electricity bills for residential and 

commercial consumers. The resulting 

net savings are expected to be redirected 

to other forms of economic activity. 

These shifts in spending and economic 

activity are expected to affect the 

demand for labor. but there is no 

generally accepted method for 

estimating these effects. 

17 A societal discount rate of 3% value was 

investigated as a scenario in accordance with the 

One method to assess the possible 

effllcts on the demand for labor of such 

shifts in economic activity is to compare 

sectoral employment statistics 

developed by the Labor Department's 

Bureau of Labor Statistics (BLS). The 

BLS regularly publishes its estimates of 

the number of jobs per million dollars 

of Ilconomic activity in different sectors 

of the economy, as well as the jobs 

created elsewhere in the economy by 

this same economic activity. BLS data 

indicate that expenditures in the electric 

sector generally are associated with 

fewer jobs (both directly and indirectly) 

than expenditures in other sectors of the 

Office of Management and Budget's (OMB) 

economy. There are many reasons for 

these differences, including the capitalintensity of the utility sector and wage 

differences. 

In developing this proposed rule, the 

Department attempted a more precise 

analysis of the impacts on national labor 

demand using an input/output model of 

the U.S. economy. The model 

characterizes the interconnections 

among 35 economic sectors using the 

data from the Bureau of Labor Statistics. 

Since the electric utility sector is more 

capital-intensive and less laborintensive than other sectors (see Bureau 

of Economic Analysis. Regional 

Multipliers: A User Handbook for the 

Guidelines to Standardize Measures of Costs and 

Benefits and the Format of Accounting Statements. 
EE-RM/STD-98-440-'A 6 7

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 of the of a proposed rule, together with an

Department of Commerce, 1992), a shift estimated net present value of benefits analysis of the 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 of net 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 of Justice (DOJ) with copies

decrease in national employment. The concerns regarding the interpretation of this 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 of the 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 appreciable job losses to the lessening of competition 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 of the Nation to Save Energy

most likely be very small relative to validity of the 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 of this analysis. the nation's energy security, and

losses are in doubt: 4 Ipact on Utility or Performance of reduces the environmental impacts of losses doubt are in 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. If unemployment As detailed in Section V, in pumps is also likely to improve the

remains very low during the period establishing classes of products we have reliability of the 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 of the jobs. 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 of competition ARI mean manufacturer cost data and

decreases in the model may be that the that is likely to result from standards. It (2) an 18.4-year average lifetime. The

jobs expected to be created pay more further directs the Attorney General to results presented in Table VI.22 are

than the jobs being lost. The losses from determine the impact, if any, of any based only on the AEO 2000 Reference

any potential employment reduction lessening of competition likely to result Case for electricity price and housing

would be offset if job quality and pay from a proposed standard and transmit projections and the NAECA 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 ............................................................................................................................................................................... 2 3.7 67.9

3 ............................................................................................................................................................................... 27 .4 78.8

4 ........................................ 33.6 6 102.5 2.5.......................

5 ........................................ 63.7 193.........................

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

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440-#-Al) l 

59622 Federal Register I Vol. 65, No. 194 I Thursday, October 5, 2000 I Proposed Rules 

Regional Input-Output Modeling System 

(RIMS II), Washington, D.C., U.S. 

Department of Commerce, 1992), a shift 

in spending away from energy bills into 

other sectors would be 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 in national employment. The 

results of the Department's analysis are 

shown in Chapter 12 of the TSD. 

While this input/output model 

suggests the proposed central air 

conditioner and heat pump standards 

are likely to decrease the net demand for 

labor in the 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 could result in any net 

decrease in national employment levels. 

• Neither the BLS data nor the inputoutput model used by DOE include the 

quality or wage level of the jobs. One 

reason that the demand for labor 

decreases in the model may be that the 

jobs expected to be created pay more 

than the jobs being lost. The losses from 

any potential employment reduction 

would be offset if job quality and pay 

are increased. 

• The net benefits from potential 

employment changes are a result of the 

estimated net present value of benefits 

or losses likely to result from the 

proposed standards. It may not be 

appropriate to separately identify and 

consider any employment impacts 

beyond the calculation of net present 

value. 

Taking into consideration these 

concerns regarding the interpretation 

and use of the employment impacts 

analysis, the Department concludes only 

that the proposed central air conditioner 

and heat pump standards are likely to 

result in no appreciable job losses to the 

nation. 

Public comments are solicited on the 

validity of the analytical methods used 

and the appropriate interpretation and use of the results of this analysis. 

4. Impact on Utility or Performance of 

Products 

As detailed in Section V, in 

establishing classes of products we have 

tried to eliminate any degradation of 

utility or performance in the products 

under consideration in this rulemaking. 

5. Impact of Any Lessening of 

Competition 

The Act directs the Department to 

consider any lessening of competition 

that is likely to result from standards. It 

further directs the Attorney General to 

determine the impact, if any, of any 

lessening of competition likely to result 

from a proposed standard and transmit 

such determination to the Secretary, not 

later than 60 days after the publication 

of a proposed rule, together with an 

analysis of the nature and extent of such 

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 order to assist the Attorney General 

in making such a determination, the 

Department has provided the 

Department of Justice (DOn with copies 

of this notice and the TSD for review. 

At DOE's request, the DOl reviewed the 

manufacturer impact analysis interview 

questionnaire to ensure that it would 

provide insight concerning any 

lessening of competition due to any 

proposed trial standard levels. 

6. Need of the Nation to Save Energy 

Enhanced energy efficiency improves 

the nation's energy security, and 

reduces the environmental impacts of 

energy production. Improved efficiency 

of central air conditioners and heat 

pumps is also likely to improve the 

reliability of the nation's electric 

system. The energy savings from central 

air conditioner and heat pump 

standards result in reduced emissions of 

carbon and NOx. Cumulative. emissions 

savings over the 16-year period modeled 

are shown in Table VI.22. Emission 

savings are based on the use of: (1) The 

ARI mean manufacturer cost data and 

(2) an 18.4-year average lifetime. The 

results presented in Table VI.22 are 

based only on the AEO 2000 Reference 

Case for electricity price and housing 

projections and the NAECA 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 -. ° 0

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 of the CAPACITY REDUCTIONS IN THE 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 of the 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 economically justified, to generation capacity due to an increase 1 ............................................ 6.4

consider any other factors that the 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 of the 2020 due to each of the trial standard

proposed standards on peak power levels. Of the installed generating The impact of varying electricity price

requirements and electric utility system capacity avoided, 13% would have been and housing projections (i.e., different

reliability, the impacts of proposed 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 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 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 of the make it available for public review perform this calculation, we used the

peak power requirements of any single during the comment period on today's subset of RECS 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, if any, 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 this rulemaking, 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

Efcny vr Average Percent of consumers with

Product ee class LC vesa v

- Net savings No signifi- Net costs Product class l tti tenmAv~ela C~tt LCC ( ings) rayrrc 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 97 households

9 Thousand metric tons (kt). with central air conditioners and 9% of the

households with heat pumps met this criteria.

EE-RM-STD-98-440 COMMENT 206

.' 

Federal Register / Vol. 65, No. 194/ Thursday, October 5, 2000/ Proposed Rules 59623 

The annual carbon emission 

reductions range up to 6.6 Mt in 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 are reported in the Environmental 

Assessment, in the TSD. 

7. Other Factors 

This provision allows the Secretary of 

Energy, in determining whether a 

standard is economically justified, to 

consider any other factors that the 

Secretary deems to be relevant. EPCA 

Section 325(0)(2)(B)(i)(VI), 42 U.S.C. 

6295(0)(2)(B)(i)(VI). The Secretary has 

decided that the impacts of the 

proposed standards on peak power 

requirements and electric utility system 

reliability, the impacts of proposed 

standards on those subgroups of 

consumers who are at or below the 

poverty line, and the impacts of 

proposed standards on consumers and 

manufacturers which might be required 

by proposed environmental regulations 

to incorporate ozone reduction 

technologies in air conditioning and 

heat pump equipment, are relevant to 

the economic justification of the 

standards, and has decided to consider 

such impacts in this rulemaking. 

Peak power impacts are determined as 

part of the analysis to estimate impacts 

on electric utilities from increases in the 

central air conditioner and heat pump 

standard. NEMS-BRS is used to 

estimate peak power impacts by 

calculating the reduction in installed 

generation capacity due to an increase 

in the minimum efficiency standard. 

Table VI.24 shows the estimated 

reductions in installed generation 

capacity, in giga-watts (GW), in the year 

2020 due to each of the trial standard 

levels. Of the installed generating 

capacity avoided, 13% would have been 

provided by coal power plants. The 

remaining percentage (87%) would have 

been supplied by either gas-fired, oilfired, or dual-fired power plants. The 

results presented in Table VI.24 are 

based only on the 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 of varying 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 

impacted by 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 of the 

peak power requirements of any single 

end-use on electric utility system 

reliability is highly uncertain. Thus, we plan on conducting further research to 

determine what connection, if any, 

exists between end-use peak demand 

reductions and system reliability. If 

such research is completed and 

applicable to this rulemaking, we will 

make it available for public review 

during the comment period on today's 

proposed rule. 

Consumer subgroup impacts have 

been estimated by determining the Lee 

impacts of the trial standard levels on 

those consumers who are at or below 

the poverty line (e.g., for a family of 

four, this constitutes a household 

income of less than $16,036). To 

perform this calculation, we used the 

subset of RECS 97 data for households 

that are considered low-income. 2o Table 

VI.26 summarizes the LCe impacts on 

those low-income consumers who 

utilize central air conditioners and heat 

pumps. The results in Table VI.26 are 

based on ARl mean manufacturer costs 

and an 18.4-year average 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. 

20 Approximatoly 7% of tho REGS 97 housoholds 

with central air conditionors and 9% of the 

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

Eff iciency Average Product class LCC (sav- level ii Avg LCC 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 of the

subgroup of consumers 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 of this 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 of the EPA's one-hour specified areas of Texas 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 of a range of estimates of

of Texas, 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 of central air conditioners. The

state implementation plan (SIP), in condenser coil. The Department is costs of this 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 and benefits of Btu/hr of air conditioner capacity. As to

Fort Worth (DFW), and Beaumont/Port standards, and the distribution of those possible effects of the technology on the

Arthur (BPA) ozone nonattainment costs among consumers, manufacturers efficiency of central 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 and benefits. catalyst-treated air conditioners have

consist of 23 separate requirements Any adverse impacts on significant been tested by Intertek Testing Services

applying to various regions of the state. subgroups and uncertainty concerning (ITS). DOE understands the test results

One of the proposals mandates the use adverse impacts must be fully show no impact on efficiency for coated

of a technology in the affected areas that considered in selecting a standard. If the condenser coils, and a roughly 2%

EE-RM-STD-98-440 COMMENT 206

.' 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 comparing the LCC results on the 

subgroup of consumers who are lowincome (Table V.26) versus all central 

air conditioner and heat pump 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 the general population of 

central air conditioner and heat pump 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 of the 

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 of consumers 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 implementation plan (SIP) for 

most areas that are not in compliance 

with the National Ambient Air Quality 

Standards (NAAQS), or classified as 

non attainment. In Texas, four areas are 

in nonattainment of the EPA's one-hour 

NAAQS for ozone: Beaumont-Port 

Arthur, EI Paso, Dallas-Fort Worth, and 

Houston-Galveston. On August 9, 2000, 

The Texas Natural Resource 

Conservation Commission (TNRCC), the 

lead environmental agency for the state 

of Texas, approved for publication and 

public hearing proposed revisions to the 

state implementation plan (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 in the 95-county central 

and eastern Texas. The proposed rules 

consist of 23 separate requirements 

applying to various regions of the state. 

One of the proposals mandates the use 

of a technology in the affected areas that 

will reduce ozone from ambient air that 

is drawn across the external heat 

exchanger units of air-cooled air 

conditioning units. including heat 

pumps. The proposed rule would 

require, after January 1, 2002, that all 

central air conditioners sold in the 

specified areas of Texas have ozone 

reduction technology installed. 

The ozone reduction technology is a 

proprietary catalyst called PremAir, 

manufactured by the Engelhard 

Corporation. The catalyst is 

incorporated in air conditioners in two 

ways: by coating the condenser coils, or 

by installing an insert next to the 

condenser coil. The Department is 

required, by the Process Rule, to 

understand the costs and benefits of 

standards, and the distribution of those 

costs among consumers, manufacturers 

and others, and the uncertainty 

associated with these costs and benefits. 

Any adverse impacts on significant 

subgroups and uncertainty concerning 

adverse impacts must be fully 

considered in selecting a standard. If the 

costs (>2 % of baseline LCC) 

Low-income All consumers Low-income 

($3) 39 51 

(17) 22 35 

(14) 44 53 

(4) 36 48 

introduction of this technology in 

Texas, and possibly other jurisdictions, 

would create new consumer subgroups or would significantly change the ability 

of equipment manufacturers to meet the 

new efficiency standard or the cost 

required to do so, the Department would 

factor that information into its decision 

making for this rule. 

This technology has the potential for 

affecting the price and efficiency of 

central air conditioners. For example, 

DOE is aware of a range of estimates of 

what this technology would add to the 

cost of central air conditioners. The 

costs of this technology are estimated to 

range between $42 and $446 per 12,000 

Btuthr of air conditioner capacity. As to 

possible effects of the technology on the 

efficiency of central air conditioners, 

DOE understands several designs of 

catalyst-treated air conditioners have 

been tested by Intertek Testing 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 of uncertainty about whether values for air conditioners from Trial

Manufacturers could also be affected the TNRCC 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 of new air comments on the status of the 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 to evaluate the

equipment, which would affect air E. Conclusion impacts of different combinations of

conditioner sales and impact standard levels to make an informed

manufacturers. If the effect applies to a Section 325(o)(2)(A) of the Act, 42 decision on the merits of different

significant fraction of units 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 of the trial levels,

underestimate the impact on covered product shall be designed to we have included a summary of the

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 to the determines is technologically feasible of analysis results based on ARI mean

impacts of any 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 of analysis

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 of standards including one compressor replacement.

manufacturers. DOE estimates a at each of five 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 highlight the impact of

by the TNRCC proposal, or consider less efficient levels. Trial manufacturing costs on the consumer,

approximately 13% of total 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

1 Estimates are based on 18.4-year lifetime.

2 Based on AEO 2000 reference, high and low growth cases, and NAECA efficiency distributions.

3 Reductions 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. 5Based on AEO 2000 reference case, NAECA efficiency scenario, and ARI mean manufacturing costs.

6 Not 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 COMMENT 206

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 also be affected 

by the ozone reduction requirement. 

The higher purchase costs of new air 

conditioners could alter consumers' 

decisions on repairing or replacing 

equipment. which would affect air 

conditioner sales and impact 

manufacturers. If the effect applies to a 

significant fraction of units sold each 

year. the Department's current 

manufacturer impact analysis may 

underestimate the impact on 

manufacturers. 

After reviewing the available 

information. DOE is not certain as to the 

impacts of any ozone reduction 

requirements that the TNRCC may 

adopt. The proposal is one of 23 

requirements TNRCC may adopt and it 

is uncertain whether this requirement 

will be included in their final rule. Even 

if the requirement is adopted. it is 

unclear what. if any. effect the 

requirement would have on efficiency. 

Finally. DOE believes such a 

requirement may have an impact on 

manufacturers. DOE estimates a 

potential impact on 800.000 central air 

conditioner shipments per year covered 

by the TNRCC proposal. or 

approximately 13% oftotal shipments. 

This potential requirement was not 

included in today's proposed rule 

because of uncertainty about whether 

the TNRCC will include the catalyst 

requirement in their SIP. DOE invites 

comments on the status of the TNRCC 

deliberations and whether this potential 

requirement should be considered. 

E. Conclusion 

Section 325(0)(2)(A) of the Act. 42 

U.S.C. 6295(0)(2)(A). specifies that any 

new or amended energy conservation 

standard for· any type (or class) of 

covered product shall be designed to 

achieve the maXimum improvement in 

energy efficiency which the Secretary 

determines is technologically feasible 

and economically justified. In 

determining whether a standard is 

economically justified. the Secretary 

must determine whether the benefits of 

the standard exceed its burdens. EPCA 

section 325(0)(2)(B)(i). 42 U.S.C. 

6295(0)(2)(B)(i). The amended standard 

must "result in significant conservation 

of energy." EPCA section 325(0)(3)(B). 

42 U.S.C. 6295(o)(3)(B). 

We consider the impacts of standards 

at each of five trial standards levels. 

beginning with the Max Tech Level, i.e .• Trial Standard Level 5. We then 

consider less efficient levels. Trial 

Standard Level 3 is a combination of 

different efficiency levels for the 

different classes. It combines 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 

combining efficiency levels in this way. 

the Department is able to evaluate the 

impacts of different combinations of 

standard levels to make an informed 

decision on the merits of different 

efficiency combinations. 

To aid the reader as we discuss the 

benefits or burdens of the trial levels. 

we have included a summary of the 

analysis results in Tables VI.28 and 

VI.29.2I Table VI.28 presents a summary 

of analysis results based on ARI mean 

manufacturing costs. NAECA and Rollup efficiency scenarios and 7% and 3% 

societal discount rate scenarios. Table 

VI.29 presents a summary of analysis 

results based on manufacturing costs 

obtained from the reverse engineering 

analysis for the NAECA efficiency 

scenario and 7% and 3% societal 

discount rate scenario. Both tables 

assume an 18.4-year equipment lifetime, 

including one compressor replacement. 

The reverse engineering scenario results 

in Table VI.29 are limited to single 

scenarios which highlight the 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 -5 to -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. 3 Reductions 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. 6 Not 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

1 Based on 18 year lifetime, NAECA efficiency scenario and AEO 2000 reference case. 2 Variation based on AEO 2000 reference, low and high growth case. 3 Based on ARI mean manufacturer costs as reported in Table VI.28.

First we considered Trial Standard we used instead the costs of 15 SEER 2% of current installed generating

Level 5, the most efficient level for each equipment. DOE believes the costs of 18 capacity and more than 7% of the

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 of NOx.

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 of between 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 split heat

generating capacity is approximately calculate manufacturer impacts at this pumps would be $215, based on ARI

3.7% of current installed generating trial standard level. The Department equipment costs. 28 Owners of split air

capacity and more than 13% of the 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 of NOx are also significant. However, outweighed by the negative economic a NPV loss of between 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 of consumers 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% of the 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 of their 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 of heat 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 LCC results 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 nation would have a net cost of 3 billion dollars.

22 DOE estimates 9 coal-fired power plants and 64 With the reverse engineering equipment cost, the

gas-fired power plants can be avoided. See TSD. 25 At 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 of 9 billion dollars at 3%.

23 Consumers 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-98-440 COMMENT 206

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 considered Trial Standard 

Level 5, the most efficient level for each 

of four classes, representing uniform 18 

SEER requirements. Trial Standard 

Level 5 saves between 8.1 and 8.7 

Quads of energy, a significant amount. 

The estimated reduction in installed 

generating capacity is 28.6 CW, or 

roughly 73 large, 400 megawatt, power 

plants.zz The forecasted reduction in 

generating capacity is approximately 

3.7% of current installed generating 

capacity and more than 13% of the 

anticipated growth in capacity needed 

by 2020. The emissions reductions of 

63.7 Mt of carbon equivalent and 193.7 

kt of NOx are also significant. However, 

at this level. the vast majority of consumers would experience an 

increase in LCC costs. Purchasers of 

split central air-conditioners. the 

predominate class of central air 

conditioner with 65 % of the sales of 

central air conditioners and heat pumps, 

would lose $555 over the life of their 

appliance.23 Purchasers of split heat 

pumps, the predominate class of heat 

pump, would lose $276.24 Moreover, the 

Department believes these LCC results 

overstate the benefits of this trial 

standard level. Because we did not have 

equipment cost estimates at this level, 

22 DOE estimates 9 coal-fired power plants and 64 

gas-fired power plants can be 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 would experience 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 would be higher than 

the 15 SEER costs and that, as a result, 

the increase in life-cycle-costs would 

actually be greater than our LCC 

analysis indicates. For the nation as a 

whole Trial Standard Level 5 would 

have a net cost 22 billion dollars in 

NPV.25 The Department did not 

calculate manufacturer impacts at this 

trial standard level. The Department 

concludes that at this trial standard 

level, the benefits of energy savings, 

generating capacity reductions and 

emission reductions would be 

outweighed by the negative economic 

impacts to the nation, to the vast 

majority of consumers and to the 

manufacturers. Consequently, the 

Department concludes Trial Standard 

Level 5, the Max Tech Level, is not 

economically justified. 

Next, we considered Trial Standard 

Level 4. This level specifies 13 SEER 

equipment for all product classes and 

would save between 4.2 and 4.5 Quads 

of energy, 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 

25 At tho 3% societal discount rate scenario, the 

nation would have a net cost of 35 billion dollars. 

With the reverse engineering equipment cost, tho 

NPV is a net cost of 10 to 11 billion dollars at the 

7% discount rate and 8 billion dollars at 3%. 

26 DOE estimates 5 coal-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 

o to 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% of current installed generating 

capacity and more than 7% of the 

anticipated growth in capacity needed 

in 2020. The emissions reductions 

would also be significant: 33.6 Mt of 

carbon equivalent and 102.5 kt of NOx. 

The NPV of Trial Standard Level 4 

would have a net cost of between 5 and 

6 billion dollars.27 The average LCe 

savings for consumers with split heat 

pumps would be $215, based on ARI 

equipment costS.28 Owners of split air 

conditioners could see their LCC 

increase by $29, based on ARI costS.29 

Under Trial Standard Level 4, the air 

conditioning industry would experience 

a NPV loss of between 169 and 335 

million dollars. The range of impacts is 

driven primarily by the assumption 

regarding the distribution of air 

conditioner and heat pump efficiencies 

in the market after implementation of 

the standard (NAECA or Roll-up). The 

Department recognizes that the ability to 

maintain a full product line is more 

difficult at higher standard levels and 

therefore places more weight on the 

Roll-up scenario at Trial Standard Level 

4. The Department concludes that at 

Trial Standard Level 4 the benefits of 

energy savings, generating capacity 

2' At the 3% sociotal discount rate scenario, the 

nation would have a net cost of 3 billion dollars. 

With the reverse enginocring equipment cost, the 

NPV has 8 no net cost at tho 7% discount tate and 

a savings of 9 billion dollars at 3%. 

2. Consumers would experience a $372 savings in 

life-cycle-costs based on the Department's reverse 

engineering costs. 

··Consumers would experience a $133 savings in 

lifo-cycle-costs based on the Department's reverse 

engineering manufacturing costs. 
EE-RM/STD-98-440O--A' (

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59627

reductions and emission reductions and this trial standard level, the air included in the national NPV

the reduction in LCC for some conditioning industry would experience calculations. For example, the national

consumers are outweighed by the a NPV loss of between 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 of the 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 of low-income consumers.

roughly 31 large, 400 megawatt, power roughly 5 large, 400 megawatt, power After considering the benefits and

plants. 3 0 The forecasted reduction in plants.35 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% of the 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 1 billion 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 of NOx. used.36 37 The consumer LCC savings Department today proposes to adopt the

The national NPV of this trial standard are not changed for central air energy conservation standards for air

level has a range of net 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 using ARI costs. 38 Standard Level 3.

All classes of product 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 of energy savings, generating A. Review Under the National

costs. 33 The average LCC savings for capacity reductions, reduced average Environmental Policy Act

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 net present value, impacts of the proposed rule and DOE

considered the effect of standards on consumer LCC increases for some

low-income consumers. DOE expects households and the potential loss in Significipates completing a Finding of No

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 4 coal-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. See TSD, small, and these burdens of Trial

Chapter 11 and Appendix H. Standard Level 3 would be outweighed seq.), the regulations of the Council on 31 At the 3% societal discount rate scenario, the by its benefits. Moreover, in light of the 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 1 billion dollars at the 7% the equipment costs will be lower thancompliance Part 1021 with NEPA 

discount rate and 10 billion 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 under Executive Order 12866,

all classes at this trial standard level are positive would be less than estimated. "Regulatory Planning and Review" and at the same time the NPV is negative. This is Comparing Trial Standard Level 3 to The Departent has deterined a counterintuitive result since the NPV can be The Department has determined

described as a sum of individual consumer LCCs. Trial Standard Level 2, DOE found the today's regulatory action is a significant

The negative NPV is caused by a number 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 by the 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 of the cost and benefits

life-cycle-costs based on the Department's reverse dollars.

engineering costs. "8 Using the reverse engineering costs the savings 6 At the 3% societal discount rate, the national

34 Consumers would experience a $372 increase are increased by $7. NPV is reduced by 1 billion 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.

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~.440~~ lJ 0 

Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 59627 

reductions and emission reductions and 

the reduction in LCC for some 

consumers are outweighed by the 

negative economic impacts on the 

nation, increase in LCC for most 

consumers and manufacturer loss in 

NPV. Consequently, the Department 

concludes Trial Standard Level 4 is not 

economically justified. 

Next. we considered Trial Standard 

Level 3. This level specifies 12 SEER for 

air conditioners and 13 SEER for heat 

pumps. The energy savings are 

estimated to be between 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 The forecasted reduction in 

generating capacity is approximately 

1.6% of current installed generating 

capacity and more than 5% of the 

anticipated growth in capacity needed 

in 2020. The emissions reductions 

would also be significant: 27.4 Mt of 

carbon equivalent and 78.8 kt of NOx. 

The national NPV of this trial standard 

level has a range of net costs from 1.to 

2 billion dollars. using ARI costS. 31 32 

All classes of product would have mean 

LCC savings. The average LCC savings 

for consumers with split air 

conditioners would be $45. using ARI 

costs.33 The average LCC savings for 

consumers with split heat pumps would 

be $215. using ARI costS. 34 As an 

additional LCC analysis. DOE 

considered the effect of standards on 

low-income consumers. DOE expects 

low-income consumers will experience 

less savings than the population as a 

whole. (See TSD, Chapter 10). Under 

30 DOE estimates 4 coal-fired power plants and 27 

gas-fired powor plants can be avoided. See TSD. 

Chapter 11 and Appendix H. 

31 At the 3% societal discount rate scenario. tho 

nation would havo a net savings of 3 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%. 

32 DOE observes that the averago LCC savings for 

all classes at this trial standard level aro positive 

and at the same lime tho NPV is negati vo. This is 

a counterintuitive result since the NPV can be 

described as a sum of individual consumer LCCs. 

The negative NPV is caused by a number of factors. 

including the assumption in tho NES that somo 

consumors will purchase more efficient products 

than is roquired by the standard. e.g .• 14 SEER. 

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 would havo 

a effect on total discounted costs. 

33 Consumers would experience a $113 savings in 

lifo-cycle·costs based on the 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 of between 171 and 367 

million dollars depending on whether 

the Roll-up or NAECA efficiency 

distribution scenario is considered. 

Given the benefits and burdens of 

Trial Standard Level 3 as discussed 

above. and observing the reduction in 

NPV compared to Trial Standard Level 

2. the Department compared the benefits 

and burdens of the two trial standard 

levels. Adopting Trial Standard Level 3. 

instead of Trial Level 2, would save the 

nation an additional 0.5 Quads of 

energy. and further reduce installed 

generating capacity by 1.7 GW, or 

roughly 5 large. 400 megawatt, power 

plants.3s The incremental emission 

reductions of carbon equivalent and 

NOx are 3.7 Mt and 10.9 kt, 

respectively. Trial Standard Level 3 

would, however, reduce the national 

NPV by up to 1 billion dollars. 

depending on the cost estimates 

used. 36 37 The consumer LCC savings 

arEl not changed for central air 

conditioners. but are reduced by $27 for 

split heat pumps using ARI costs. 3S 

In determining the economic 

justification of Trial Standard Level 3. 

the Department has weighed the 

benefits of energy savings. generating 

capacity reductions. reduced average 

consumer LCC, and emissions 

reductions against the burdens of a loss 

in manufacturer net present value, 

consumer LCC increases for some 

households and the potential loss in 

national NPV. We find the benefits to be 

substantial. Although the loss in 

manufacturer net present value is also 

substantial, the projected LCC increases 

and loss in national NPV are relatively 

small, and these burdens of Trial 

Standard Level 3 would be outweighed 

by its benefits. Moreover. in light of the 

reverse engineering analysis. we believe 

the equipment costs will be lower than 

the ARI estimates on which we have 

relied and that the loss in national NPV 

would be less than estimated. 

Comparing Trial Standard Level 3 to 

Trial Standard Level 2, DOE found the 

potential decrease in national NPV is 

outweighed by other factors not 

35 DOE estimatos one coal-fired power plants and 

four gas-fired power plants can be avoided. 

,. At the 3% societal discount rate. the national 

NPV is reduced by 1 billion dollars. With tho 

reverse engineering equi pment cost. the NPV is not 

changed. 

:17 The total national discounted cost of owning 

and operating central air conditioners and heat 

pumps at this Trial Standard Lovel 3 is 382 billion 

dollars. :I. Using the reverse engineering costs the savings 

aro increased by $7. :I. It is pOSSible the NPV does not include the 

value of avoided 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 added benefit, the standard may 

improve the reliability of the electric 

distribution system. The Department 

finds that. compared with Trial 

Standard Level 2. the incremental 

benefits of generating capacity 

reductions and emission reductions of 

Trial Standard Level 3 to be greater than 

the potential loss in national NPV and 

increase in life-cyde-costs to some 

consumers, including a relatively small 

number of low-income consumers. After considering the benefits and 

burdens of Trial Standard Level 3 and 

comparing the impacts of Trial Standard 

Levels 2 and 3. the Department finds 

Trial Standard Level 3 to be maximum 

improvement in efficiency that is 

technologically feasible and 

economically justified. Therefore, the 

Department today proposes to adopt the 

energy conservation standards for air 

conditioners and heat pumps at Trial 

Standard Level 3. 

VII. Procedural Issues and Regulatory 

Review 

A. Review Under the National 

Environmental Policy Act 

The Department is preparing an 

Environmental Assessment of the 

impacts of the proposed rule and DOE 

anticipates completing a Finding of No 

Significant Impact (FONSI) before 

publishing the final rule on Energy 

Conservation Standards for central air 

conditioners and heat pumps, pursuant 

to the National Environmental Policy 

Act of 1969 (NEPA) (42 U.S.C. 4321 et 

seq.). the regulations of the Council on Environmental Quality (40 CFR Parts 

1500-1508). and the Department's 

regulations for compliance with NEPA 

(10 CFR Part 1021). 

B. Review under Executive Order 12866. 

"Regulatory Planning and Review" 

The Department has determined 

today's regulatory action is a significant 

regulatory action within the scope of 

section 3(0(1) of Executive 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 

substantially the same goal. as well as 

a description of the cost and benefits 

3. At the 3% societal discount rate. the national 

NPV is reduced by 1 billion dollars. With the 

reverse engineering cqui pment cost. the NPV is not 

changod. 
EE-RM/STD-98-440#4PO a

59628 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules

(including potential net benefits) of the 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

of Information 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 of the 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 of the impacts -Product Labeling

and today's action. The draft and other of the alternatives; and (4) the economic -Consumer Education

documents we submitted to OIRA for impact of the proposed standard. * Prescriptive Standards

review are a part of the 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 of the impacts * Voluntary Energy Efficiency Targets

Washington, DC 20585, between the of the 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 of the the effectiveness of the 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 the major 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 of the 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 of today'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

C onsum er R ebates .................................................................................................................................................. 0 0.2

M anufacturer Tax Credits ........................................................................................................................................ 0 0.0

Voluntary Efficiency Target (5 year delay) ........................................................................ -1 3.1

Voluntary Efficiency Target (10 year delay) ........................................ .................. -1 1.9

Low Incom e Subsidy ............................................................................................................................................... 0 0.1

M ass G overnm ent Purchases ................................................................................................................................. 0 0

Performance Standards . .............................................................................................................. -2 4.4

NPV = Net Present Value (2006-2030, in billion 1998$) (does not include government expenses). Savings = Energy Savings (Source Quads).

If we imposed no new regulatory To model this possibility, the both 12 SEER and 13 SEER systems. As

action, then we would implement no Department estimated that 5% of the with the consumer product labeling

new standards for this product. This is consumers purchasing 10 SEER program, it is assumed that the

essentially the "base case" for central equipment and 5% of the 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 of primary 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

EE-RM-STD-98-440 COMMENT 206

EE.RM/STD.9~-440~~1J t 

59628 Federal Register / Vol. 65, No. 194 /J'hursday, October 5, 2000/ Proposed Rules 

(including potential net benefits) of the 

proposed rule. Accordingly, the Office 

of Information 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 of the rulemaking 

record and are available for public 

review in the Department's Freedom of 

Information Reading Room, 1000 

Independence Avenue, SW .• 

Washington, DC 20585, between the 

hours of 9:00 a.m. and 4:00 p.m., 

Monday through Friday, except Federal 

holidays, telephone (202) 586-3142. 

The following summary of the 

Regulatory Impact Analysis (RIA) 

focuses on the major alternatives 

considered in arriving at the proposed 

approach to improving the energy 

efficiency of consumer 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 of the problem addressed 

by this regulation, and the mandate for 

government action; (2) a description and 

analysis of the feasible policy 

alternatives to this regulation; (3) a 

quantitative comparison of the impacts 

of the alternatives; and (4) the economic 

impact of the proposed standard. 

The RIA calculates the effects of 

feasible policy alternatives to central air 

conditioner and heat pump energy 

efficiency standards, and provides a 

quantitative comparison of the impacts 

of the alternatives. We evaluate each 

alternative in terms of its ability to 

achieve significant energy savings at 

reasonable costs. and we compare it to 

the effectiveness of the 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 heat pumps. We used 

the results from the shipments model as inputs to the NES spreadsheet 

calculations. 

TABLE VII.1.-AL TERNATIVES CONSIDERED 

Policy altematives 

DOE identified the following seven 

major policy alternatives for achieving 

consumer product energy efficiency. 

These alternatives include: 

• No New Regulatory Action 

• Informational Action 

-Product Labeling 

--Consumer Education 

• Prescriptive Standards 

• Financial Incentives 

-Tax credits 

-Rebates 

-Low income and seniors subsidy 

• Voluntary Energy Efficiency Targets 

(5 Years, 10 Years) 

• Mass Government Purchases 

• The Proposed Approach (Performance 

Standards) 

We have evaluated each alternative in 

terms of its ability to achieve significant 

energy savings at reasonable costs 

(Table Vll.1), and have compared it to 

the effectiveness of the proposed rule. 

All of the results below have been 

determined with the AEO 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 

Performance Standards ......................................................................................................................................... .. 4.4 

NPV = Net Present Value (2006-2030, in billion 1998$) (does not include govemment expenses). Savings = Energy Savings (Source Quads). 

If we imposed no new regulatory 

action, then we would implement no new standards for this product. This is 

essentially the "base case" for central 

air conditioners and heat pumps. In this 

case, between the years 2006 and 2030, 

there would be an expected energy use 

of 39 Quads of primary energy, with no 

energy savings and a zero NPV. 

We grouped several alternatives to the 

base case under the heading of 

informational action. They include 

consumer product labeling and DOE 

public education and information 

programs. Both of these alternatives are 

already mandated by, and are being 

implemented under EPCA sections 324 

and 337,42 U.S.C. 6294, 6297. One base 

case alternative would be to estimate the 

energy conservation potential of 

enhancing consumer product labeling. 

To model this possibility, the 

Department estimated that 5% of the consumers purchasing 10 SEER 

equipment and 5% of the consumers 

purchasing 12 SEER equipment would 

change their decisions and purchase 12 

SEER and 13 SEER systems, 

respectively. It is assumed that the 

program would last six years and upon 

its expiration consumers would revert 

back to their prior purchase decisions. 

The consumer product labeling 

alternative resulted in 0.1 Quad of 

energy savings with no impact on the 

NPV. 

Another approach, called consumer 

education, is to consider an Energy 

Star® program for 12 SEER and 13 SEER 

central air conditioners and heat pumps. 

We assume, under this program, there 

would be a 20% increase in the sales of 

both 12 SEER and 13 SEER systems. As 

with the consumer product labeling 

program, it is assumed that the 

education program would last six years 

and upon its expiration sales would 

drop back to their market share levels 

prior to the program's implementation. 

This consumer education program 

results in energy savings equal to 0.1 

Quad with no impact on the NPV. 

Another method of setting 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 

implemented to ensure that all central 

air conditioners and heat pumps are 

equipped with thermostatic expansion 

valves (TXVs). The resulting efficiency 

increase is 0.5 SEER. That is, the 
EE-RM/STD-98-440 -icSOC M

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 of this 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 of the firms. The firms' fixed costs and savings under the AEO Reference Case

associated with the baseline (i.e., 10 some of the design improvements that and NAECA efficiency scenario of 3.5

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 of this product from an increase of $3 billion 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 of the 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 of the alternatives would require of the 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 Under the Regulatory

epricmndte esprice of 12 SEER f proposed standards were adopted in 10 Flexibility Act

equipment. We estimate the impact of years. In these scenarios, voluntary The Regulatory Flexibility Act of 1980 this policy would be to move 5% of the TheRegulatory Flexibility Act of 1980

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 if it (including affliates) credits to consumers showed a change . scenaos assume 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. of the energy conservation standards by industry is characterized by seven firms

To estimate the impact of consumer these appliance manufacturers, an accounting for nearly 95% of sales. DOE

rebates, we assumed rebates of 35% of assumption for which there is no understands that each of these firms, the incremental retail prices for higher assurance. including its affiliates, has more than

energy-efficiency equipment. The One of the market barriers to higher 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% of market share low income households, we considered cost is inversely related to firm size. The

from the 2006 baseline to the 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 heat pumps when the of low income households with central competitiveness of the 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 of these 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 the NPV. A principal implication of energy-efficient models of central air Another policy alternative we consolidation is that the smaller of the conditioners and heat pumps. We reviewed was that of large purchases of firms will be, 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 of the 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 of higher efficiency estimate the impact of this policy would Federal level) purchased 12 SEER standards on small firms is likely to be be to move 1% of the market share from equipment for 5% of the 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 the NPV. research and development capabilities

EE-RM-STD-98-440 COMMENT 206

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 of the 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. 

This resulted in energy savings of 1.1 

Quad and no impact on the 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% 

of the incremental purchase price for 

higher energy-efficiency equipment. The 

incremental price is based on the 

difference between the 2006 baseline 

price and the price of 12 SEER 

equipment. We estimate the impact of 

this policy would be to move 5% of the 

market share from the 2006 baseline to 

12 SEER models. These tax credits 

would start in 2006 and run for six 

years. We assume people stop buying 

these more efficient and more expensive 

central air conditioners 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 estimate the impact of consumer 

rebates, we assumed rebates of 35% of 

the incremental retail prices for higher 

energy-efficiency equipment. The 

incremental cost is based on the 

difference between the 2006 baseline 

cost and the cost of 12 SEER equipment. 

We estimate the impact of this policy 

would be to move 10% of market share 

from the 2006 baseline to the 12 SEER 

models. These rebates would start in 

2006 and run for six years. We assume 

people stop buying these more efficient 

and more expensive central air 

conditioners and heat pumps when the 

rebates stop. The rebates to consumers 

showed a change from the base case, 

would save 0.2 Quad with no impact to 

theNPV. 

Another financial incentive we 

considered was a tax credit to 

manufacturers for the production of 

energy-efficient models of central air 

conditioners and heat pumps. We 

assumed an investment tax credit of 

20%, applicable to the tooling and 

machinery costs of the manufacturers. 

These are tooling costs as they relate to 

producing 12 SEER central air 

conditioners and heat pumps. We 

estimate the impact of this policy would 

be to move 1 % of the 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 on the NPV. The impact of this 

scenario would be negligible because 

the investment tax credit was applicable 

only to the tooling and machinery costs 

of the firms. The firms' fixed costs and 

some of the design improvements that 

would likely be adopted to manufacture 

more efficient versions of this product 

would involve purchased parts. 

Expenses for purchased parts would not 

be eligible for an investment tax 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, would result in 

energy savings of 3.1 Quads and - $1 

billion NPV; voluntary improvements 

having a 10-year delay would result in 

1.9 Quads being saved and -$1 billion 

NPV. These scenarios assume that there 

would be universal voluntary adoption 

of the energy conservation standards by 

these appliance manufacturers, an 

assumption for which there is no 

assurance. 

One of the market barriers to higher 

efficiency central air conditioners and 

heat pumps is the expense to upgrading 

to a more efficient system. Since these 

expenses can be a particular burden 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 

of low income households with central 

air-conditioning from the RECS public 

use data. We assumed that half of these 

households would take advantage of the 

program. The program would start in 

2006 and run for six years. This subsidy 

would save 0.1 Quad with no impact to 

theNPV. 

Another policy alternative we 

reviewed was that of large purchases of 

high efficiency central air conditioners 

and heat pumps by Federal, State, and 

local governments. We modeled this 

policy by assuming these governmental 

entities (e.g., U.S. Department of 

Housing and Urban Development at the 

Federal level) purchased 12 SEER 

equipment for 5% of the 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 the NPV. 

Lastly, all of these alternatives must 

be gauged against the performance 

standards we are proposing in today's 

proposed rule. Such performance 

standards would result in energy 

savings under the AEO Reference Case 

and NAECA efficiency scenario of 3.5 

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 of the alternatives we examined 

for these products would save as much 

energy as today's proposed rule. Also, 

several of the alternatives would require 

new enabling legislation, since authority 

to carry out those alternatives does not 

presently exist. 

C. Review Under the Regulatory 

Flexibility Act 

The Regulatory Flexibility Act of 1980 

(Pub. L. 96-354) requires an assessment 

of the impact of regulations on small 

businesses. For air conditioning and 

warm air heating equipment 

manufacturing, a "firm" is defined by 

the Small Business Administration as a 

small business if it (including affliates) 

has 750 or fewer employees. 

The residential air-conditioner 

industry is characterized by seven firms 

accounting for nearly 95% of sales. DOE 

understands that each of these firms, 

including its affiliates, has more than 

750 employees. Smaller businesses and 

firms, which make specialty airconditioning products and supply niche 

markets, share 5% of the market. 

In this industry, average production 

cost is inversely related to firm size. The 

industry displays economies of scale, 

and large firms (to the extent that their 

facilities are modernized) have lower 

average production costs than small 

firms. This fact, coupled with increasing 

competitiveness of the national market, 

probably accounts for the consolidation 

that has occurred for several decades. 

The fact that the consolidation has been 

producing larger firms strongly 

corroborates the finding that large firms 

have a cost advantage. 

A principal implication of 

consolidation is that the smaller of the 

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 difference between 

success and failure for a smaller firm. 

The impact of higher efficiency 

standards on small firms is likely to 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 to the following responsibilities among the various

smaller manufacturers indicated the requirements: (1) Eliminate drafting levels of government. 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 of today'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 of niche 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 the review required by Section 3(a), on criteria set forth in EPCA. No further

those products from the new standards. Section 3(b) of Executive 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 Under the Unfunded

equipment, many of which are ensure that the regulation: (1) Clearly Mandates Reform Act

manufactured by small manufacturers. specifies the preemptive effect, if any;

Also, the Department has acknowledged (2) clearly specifies any effect on With respect to a proposed regulatory

that small manufacturers of high 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 et seq. requires

packaged, wall-mounted equipment is draftsmanship under any guidelines a Federal agency to publish a written

another product manufactured by small issued by the Attorney General. Section statement concerning estimates of the

firms, and, as stated in Section V.J.3 of 3(c) of Executive 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 of applicable standards in 1532(a),(b). DOE estimates that the

products under EPACT. These Section 3(a) and Section 3(b) to proposed standards, if adopted, 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 of UMRA authorizes an

requirements for these companies to " " agency to respond to the content

increase the efficiency of their products, F. Takings" Assessment Review requirements of UMRA 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 of the pursuant to Executive Order 12630, the proposed rule. 2 U.S.C. 1532(c). The

new standards. "Governmental Actions and Interference content requirements of section 202(b)

In view of these conclusions, the with Constitutionally Protected Property of UMRA 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) of EPCA 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 of Proposed Rulemaking and

impact on a substantial number of small G Review Under Executive 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 to those requirements. August 4, 1999) requires agencies to DOE is obligated by Section 205 of

D. Review Under the Paperwork develop an accountable process to UMRA, 2 U.S.C. 1535, to identify and

Reduction Act 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 of regulatory policies that promulgating a rule for which a written

rulemaking. Accordingly, no Office of have "federalism implications." statement under section 202 is required.

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 et seq. supporting any action that would limit effective or least burdensome alternative

the policymaking discretion of the that achieves the objectives of the rule, E. Review Under Executive Order 12988, States and carefully assess the necessity unless DOE publishes an explanation of

"Civil Justice Reform" for such actions. DOE has examined why a different alternative is selected.

With respect to the review of existing today's proposed rule and has As required by section 325(o) of the

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 the relationship 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 of power and and heat pumps that are designed to

EE-RM-STD-98-440 COMMENT 206

59630 Federal Register / Vol. 65, No. 194/ Thursday, October 5, 2000/ Proposed Rules 

than their larger competitors. Some 

smaller manufacturers indicated the 

potential for a negative economic 

impact of any higher standard level on 

their firms. However, since these 

concerns apply primarily to small 

manufacturers of niche products, they 

benefit from the provisions proposed by 

the Department to somewhat protect 

those products from the new standards. 

For example, a separate product class is 

being proposed for through-the-wall 

equipment, many of which are 

manufactured by small manufacturers. 

Also, the Department has acknowledged 

that small manufacturers of high 

velocity distribution systems may 

potentially be adversely affected by the 

proposed standard level. The 

Department is considering 

modifications to the SEER test 

procedure, which would grant these 

manufacturers some relief. Verticalpackaged, wall-mounted equipment is 

another product manufactured by small 

firms, and, as stated in Section V.J.3 of 

this notice, the Department intends to 

consider those to be commercial 

products under EPACT. These 

provisions should eliminate any 

potential for significant economic 

impact on small manufacturers related 

to the proposed standard level. 

Many small manufacturers produce 

coils only. Since there are no intensive 

incremental technological or capital 

requirements for these companies to 

increase the efficiency of their products, 

we do not expect them to face any 

incremental burden as a result of the 

new standards. 

In view of these conclusions, the 

Department has determined and hereby 

certifies pursuant to section 605 (b) of 

the Regulatory Flexibility Act that, for 

this particular industry, the proposed 

standard levels in today's proposed rule 

will not "have a significant economic 

impact on a substantial number of small 

entities," and it is not necessary to 

prepare a regulatory flexibility analysis. 

D. Review Under the Paperwork 

Reduction Act 

No new information or record keeping 

requirements are proposed in this 

rulemaking. Accordingly, no Office of 

Management and Budget clearance is 

required under the Paperwork 

Reduction Act. 44 U.S.C. 3501 et seq. 

E. Review Under Executive Order 12988, 

"Civil Justice Reform" 

With respect to the review of existing 

regulations and the promulgation of 

new regulations, 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 conduct rather than a general 

standard and promote simplification 

and burden reduction. With regard to 

the review required by Section 3(a), 

Section 3(b) of Executive Order 12988 

specifically requires that Executive 

agencies make every reasonable effort to 

ensure that the regulation: (1) Clearly 

specifies the preemptive effect, if any; 

(2) clearly specifies any effect on 

existing Federal law or regulation; (3) 

provides a clear legal standard for 

affected conduct while promoting 

simplification and burden reduction; (4) 

specifies the retroactive effect, if any; (5) 

adequately defines key terms; and (6) 

addresses other important issues 

affecting clarity and general 

draftsmanship under any guidelines 

issued by the Attorney General. Section 

3(c) of Executive Order 12988 requires 

Executive agencies to review regulations 

in light of applicable standards in 

Section 3(a) and Section 3(b) to 

determine whether they are met or it is 

unreasonable to meet one or more of 

them. DOE reviewed today's proposed 

rule under the standards of Section 3 of 

the Executive Order and determined 

that, to the extent permitted by law, the 

regulations meet the relevant standards. 

F. "Takings" Assessment Review 

The Department has determined 

pursuant to Executive Order 12630, 

"Governmental Actions and Interference 

with Constitutionally Protected Property 

Rights," 53 FR 8859 (March 18, 1988), 

that this regulation would not result in 

any takings that might require 

compensation under the Fifth 

Amendment to the United States 

Constitution. 

C. Review Under Executive Order 13132 

Executive Order 13132 (64 FR 43255, 

August 4, 1999) requires agencies to 

develop an accountable process to 

ensure meaningful and timely input by 

State and local officials in the 

development of regulatory policies that 

have "federalism implications." 

Agencies are required to examine the 

constitutional and statutory authority 

supporting any action that would limit 

the policymaking discretion of the 

States and carefully assess the necessity 

for such actions. DOE has examined 

today's proposed rule and has 

determined that it would not have a 

substantial direct effect on the States, on 

the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. State regulations 

that may have existed on the products 

that are the subject of today's proposed 

rule were preempted by the Federal 

standards established in NAECA 1987. 

States can petition the Department for 

exemption from such preemption based 

on criteria set forth in EPCA. No further 

action is required by Executive Order 

13132. 

H. Review Under the Unfunded 

Mandates Reform Act 

With respect to a proposed regulatory 

action that may result in the 

expenditure by State, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

(adjusted annually for inflation) in any 

one year, section 202(a) of the Unfunded 

Mandates Reform Action of 1995 

(UMRA), 2 U.S.C. 1531 et seq. requires 

a Federal agency to publish a written 

statement concerning estimates of the 

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 expenditure by the 

private sector of $100 million or more 

in a year, with the possible exception of 

one year in which industry 

expenditures could total approximately 

$110 million. 

Section 202 of UMRA authorizes an 

agency to respond to the content 

requirements of UMRA in any other 

statement or analysis that accompanies 

the proposed rule. 2 U.S.C. 1532(c). The 

content requirements of section 202(b) 

of UMRA relevant to a private sector 

mandate substantially overlap the 

economic analysis requirements that 

apply under section 325(0) of EPCA and 

Executive Order 12866. The 

Supplementary Information section of 

the Notice of Proposed Rulemaking and 

"Regulatory Impact Analysis" section of 

the TSD for today's proposed rule 

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 alternatives before 

promulgating a rule for which a written 

statement under section 202 is required. 

From those alternatives, DOE must 

select the least costly, more costeffective or least burdensome alternative 

that achieves the objectives of the rule, 

unless DOE publishes an explanation of 

why a different alternative is selected. 

As required by section 325(0) of the 

Energy Policy and Conservation Act (42 

U.S.C. 6295(0)), this proposed rule 

would establish energy conservation 

standards for central air conditioners 

and heat pumps that 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 of this 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 to be both technologically date specified at the beginning of this selected to be heard to submit an

feasible and economically justified. A notice in developing the final rule. advance copy of his or her statement at

full discussion of the alternatives According to 10 CFR 1004.11, any least two weeks prior to the date of this

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 of the to participate if that person has made I Review Under the Treasury and document and ten (10) copies, if alternative arrangements with the Office

General Government Appropriations possible, from which the information of Building Research and Standards in

Act of 1999 believed to be confidential has been advance. The request to give an oral

Section 654 of the Treasury and deleted. The Department of Energy 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 of Hearing

Policymaking Assessment for any determination. The Department will designate a

proposed rule or policy that may affect Factors of interest 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 of the 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 of the Act and a court

I. Review Under the Plain Language information is generally known by or reporter will be present to record the

DiRevew Under the Plan Language 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) of Executive 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 of the conduct of the workshop.

understand, with the goal of minimizing 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 of specific topics.

memorandum of June 1, 1998 (63 FR confidential character due to the The general statement should not

31883) directs the heads of executive passage of time; and (7) whether address these specific topics, but may

departments and agencies to use, by disclosure of the 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 to briefly 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 the hearing into

before that date. Speak segments, with each segment consisting

Today's proposed rule uses the . . of one or more of the following specific

following general techniques to abide by You will find the me and place of topics covered by this notice:

section (b)(12) of Executive Order the public hearing lsted at the Engineering analysis, including 12866 and the Presidential beginning of this notice. We invite any mrk

memorandum of June 1, 1998 (63 FR person who has an interest in today's Li-Cycle-Cost and payback

31883): notice, or who is a representative of a analysis;

* Organization of the material to group or class of persons 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 of common, 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 your e comments on ho 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 of the

VIII. Public Comment through Friday, except Federal holidays. relevant parts of our analysis and of the

You may also send them by mail or E- proposed rule, and the significant issues

A. Written Comment Procedures 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 to participate 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. At the end of all

comments, or information with respect or as a representative of a group or class prepared statements on a topic, the

to the proposed issues set forth in of persons, 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

EE-RM-STD-98-440 COMMENT 206

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 be both technologically 

feasible and economically justified. A 

full discussion of the alternatives 

considered by DOE is presented in the 

"Regulatory Impact Analysis" section of 

the TSD for this notice. 

/. Review Under the Treasury and 

General Government Appropriations 

Act of 1999 

Section 654 of the Treasury and 

General Government Appropriations 

Act, 1999 (Pub. L. No. 105-277) requires 

Federal agencies to issue a Family 

Policymaldng Assessment for any 

proposed rule or policy that may affect 

family well-being. Today's proposal 

would not have any impact on the 

autonomy or integrity of the family as 

an institution. Accordingly, DOE has 

concluded that it is not necessary to 

prepare a Family Policymaking 

Assessment. 

J. Review Under the Plain Language 

Directives 

Section 1(b)(12) of Executive Order 

12866 requires that each agency draft its 

regulations to be simple and easy to 

understand, with the goal of minimizing 

the potential for uncertainty and 

litigation arising from such uncertainty. 

Similarly, the Presidential 

memorandum of June I, 1998 (63 FR 

31883) directs the heads of executive 

departments and agencies to use, by 

January I, 1999, plain language in all 

proposed and final rulemaking 

documents published in the Federal 

Register, unless the rule was proposed 

before that date. 

Today's proposed rule uses the 

following general techniques to abide by 

section 1(b)(12) of Executive Order 

12866 and the Presidential 

memorandum oOtme 1, 1998 (63 FR 

31883): 

• Organization of the material to serve the needs of the readers 

(stakeholders). 

• Use of common, everyday words in 

short sentences. 

• Shorter sentences and sections. 

We invite your comments on how to 

make this proposed rule easier to 

understand. 

VIII. Public Comment 

A. Written Comment Procedures 

The Department invites interested 

persons to participate in the proposed 

rulemaking by submitting data, 

comments, or information with respect 

to the proposed issues set forth in 

today's proposed rule to Ms. Brenda 

Edwards-Jones, at the address indicated 

at the beginning of this notice. We will 

consider all submittals received by the 

date specified at the beginning of this 

notice in developing the final rule. 

According to 10 CFR 1004.11, any 

person submitting information that he 

or she believes to be confidential and 

exempt by law from public disclosure 

should submit one complete copy of the 

document and ten (10) copies, if 

possible, from which the information 

believed to be confidential has been 

deleted. The Department of Energy will 

make its own determination with regard 

to the confidential status of the 

information and treat it according to its 

determination. 

Factors of interest to the Department 

when evaluating requests to treat as 

confidential information that has been 

submitted include: (1) A description of 

the items; (2) an indication as to 

whether and why such items are 

customarily treated as confidential 

within the industry; (3) whether the 

information is generally known by or 

available from other sources; (4) 

whether the information has previously 

been made available to others without 

obligation concerning its 

conlldentiality; (5) an explanation of the 

competitive injury to the submitting 

person which would result from public 

disclosure; (6) an indication as to when 

such information might lose its 

confidential character due to the 

passage of time; and (7) whether 

disclosure of the information would be 

contrary to the public interest. 

B. Public Workshop/Hearing 

1. Procedure for Submitting Requests To 

Speak 

You will find the time and place of 

the public hearing listed at the 

beginning of this notice. We invite any 

person who has an interest in today's 

notice, or who is a representative of a 

group or class of persons that has an interest in these issues, to request an 

opportunity to make an oral 

presentation. If you would like to attend 

the public hearing, please notify Ms. 

Brenda Edwards-Jones at (202) 586-

2945. You may hand deliver requests to 

speak to the address indicated at the 

beginning of this notice between the 

hours of 8 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

You may also send them by mail or Email to brenda. edwardsjones@ee.doe.gov. 

The person making the request should 

state why he or she, either individually 

or as a representative of a group or class 

of persons, is an appropriate 

spokesperson, briefly describe the 

natufll of the interest in the rulemaking, 

and provide a telephone number for 

contact. We request each person 

selected to be heard to submit an 

advance copy of his or her statement at 

least two weeks prior to the date of this 

hearing as indicated at the beginning of 

this notice. At our discretion, we may 

permit any person who cannot do this 

to participate if that person has made 

alternative arrangements with the Office 

of Building Research and Standards in 

advance. The request to give an oral 

presentation should ask for such 

alternative arrangements. 

2. Conduct of Hearing 

The Department 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 or evidentiary-type hearing, but 

the Department will conduct it in 

accordance with 5 U.S.C. 553 and 

Section 336 of the Act and a court 

reporter will be present to record the 

transcript of the workshop. We reserve the right to schedule the presentations 

by workshop participants, and to 

establish the procedures governing the 

conduct of the workshop. 

The Department will permit each 

participant to make a prepared general 

statement, limited to five (5) minutes, 

prior to the discuss.ion of specific topics. 

The general statement should not 

address these specific topics, but may 

cover any other issues pertinent to this 

rulemaking. The Department will permit 

other participants to briefly comment on 

any general statements. We will divide 

the remainder of the hearing into 

segments, with each segment consisting 

of one or more of the 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 brief summary of the 

relevant parts of our analysis and of the 

proposed rule, and the significant issues 

involved. We will then permit 

participants in the hearing to make a 

prepared statement limited to five (5) 

minutes on that topic. At the end of all 

prepared statements on a topic, the 

Department will permit each participant 

to briefly clarify his or her 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 of participants concerning availability of those products; 3. Section 430.32 of Subpart C is

other matters relevant to the hearing. (5) The issue of thermal 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 water conservation

The official conducting the hearing misuses associated with widespread use standards and effective dates.

will accept additional comments or of TXVs are valid; * * * * *

questions from those attending, as time (6) The validity of the analytical (c) Central air conditioners and

permits. The presiding official will methods used and the appropriate central air conditioning heat pumps. (1) announce any further procedural rules, interpretation and use of the results of Split system central air conditioners and

or modification of the above procedures, this analysis; central air conditioning heat pumps

needed for the proper conduct of the (7) The Draft Environmental fac d f 1

hearing. Assessment, which is printed within the

We will make the entire record of this 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 inspection Freedom of Informa theconsumers if the levels in today's manufactured after January 1, 1993, and Department's Freedom of Informatio 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 of the transcript from commercial three-phase unitary air Seasonal Energy Efficiency Ratio and purchase a copy of the transcript from conditioners less than 65K Btu/hr as Heating Seasonal Performance Factor no the transcribing reporter. well. less than:

C. Issues for Which DOE Seeks Comments for Which DOE Seeks List of Subjects in 10 CFR Part 430 s Heating

Cm s e ad b b t tt , Administrative practice and Product clseasonal

The Department is particularlyprocedure 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, Energy Efficiency and enal

(2) The Department's methodology Rewble Energy.entral air condition

and data for determining the For the reasons set forth in thecentral air conditioning heat pumps

appropriate marginal energy costs; preamble Part 430 of Chapter II of Title manufactured on or after January 1,

(3) The burdens and benefits that 10, Code of Federal 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 of more (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 of any of the 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 to read as follows: tioners ........... 12 .................... (4) Whether the proposed 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-wall air conditioner and 5. Through the

significant advantage to those products heat pump means a central air wall air condiversus competing products and are conditioner or heat pump, having a tioners and

sufficient to preserve the unique rated capacity between 18,000 Btu/hr heat pumps ... 11 7.1

features of those products, and whether and 30,000 Btu/hr that is:

improvements in the definitions are (1) Designed to be 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-98-440 COMMENT 206

EE.RM/STD.9~.440-#=-~ () t; 

59632 Federal Register/Vol. 65, No. 194/Thursday, October 5, 2000/Proposed Rules 

others. Participants should be prepared 

to answer questions by us and by other 

participants concerning these issues. 

Our representatives may also ask 

questions of participants concerning 

other matters relevant to the hearing. 

The total cumulative amount of time 

allowed for each participant to make 

prepared statements will be 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 of the above procedures, 

needed for the proper conduct of the 

hearing. 

We will make the entire record of this 

rulemaking, including the transcript, 

available for inspection in the 

Department's Freedom of Information 

Reading Room. Any person may 

purchase a copy of the transcript from 

the transcribing reporter. 

C. Issues for Which DOE Seeks 

Comment 

The Department is particularly 

interested in receiving comments and 

views of interested parties concerning: 

(1) Whether explicit consideration of 

extended warranties would produce 

significantly different results from those 

based on service costs alone; 

(2) The Department's methodology 

and data for determining the 

appropriate marginal energy costs; 

(3) The burdens and benefits that 

would result from including an EER 

requirement in the final rule. Of 

particular interest are comments 

regarding burdens on manufacturers, 

benefits regarding reduction in peak 

electricity demand, the effect of more 

stringent standards on the cost and 

availability of modulating equipment, 

and the effect that an EER floor would 

have on electrical system reliability. In 

addition, comments are welcome to 

discuss the pros and cons of any of the 

options described in Section V.I.2 

above, as well as other approaches; 

(4) Whether the proposed standards 

concerning high-velocity, verticallypackaged wall-mounted equipment, and 

through-the-wall equipment provide a 

significant advantage to those products 

versus competing products and are 

sufficient to preserve the unique 

features of those products, and whether 

improvements in the definitions are 

needed to prevent loopholes. For 

ductless split equipment and nonweatherized vertical packaged 

equipment, additional comment is 

welcome on the impacts that mee,ting 

the new standards would have on the 

availability of those products; 

(5) The issue of thermal expansion 

valves (TXV), particularly whether our 

concerns regarding the perceived 

reliability problems and potential 

misuses associated with widespread use 

of TXVs are valid; 

(6) The validity of the analytical 

methods used and the appropriate 

interpretation and use of the results of 

this analysis; 

(7) The Draft Environmental 

Assessment, which is printed within the 

TSD prepared for today's proposed rule; 

and 

(8) The impacts on manufacturers and 

consumers if the levels in today's 

proposed rule were applied to 

commercial three-phase unitary air 

conditioners less than 65K Btu/hr as 

well. 

List of Subjects in 10 CFR Part 430 

Administrative practice and 

procedure, Energy conservation, 

Household appliances. 

Issued in Washington, DC, on September 

27,2000. 

Dan W. Reicher, 

Assistant Secretary, Energy Efficiency and 

RenllwabJe Energy. 

For the reasons set forth in the 

preamble Part 430 of Chapter II of Title 

10, Code of Federal Regulations, is 

proposed to be amended as set forth 

below. 

PART 43D-ENERGY CONSERVATION 

PROGRAM FOR CONSUMER 

PRODUCTS 

1. The authority citation for Part 430 

continues to read as follows: 

Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 

2461 note. 

2. Section 430.2 is amended by 

adding a definition for "through-thewall air conditioner and heat pump" in 

alphabetical order to read as follows: 

§ 430.2 Definitions. 

* * * * * 

Through-the-wall air conditioner and 

heat pump means a central air 

conditioner or heat pump, having a 

rated capacity between 18,000 Btulhr 

and 30,000 Btu/hr that is: 

(1) Designed to be installed partially 

within, or mounted against, a fixed-size 

opening in an exterior wall; and 

(2) Designed so that air for the 

outdoor coil is taken in and discharged 

at the same surface. 

* * * * * 

3. Section 430.32 of Subpart C is 

amended by revising paragraph (c) to 

read as follows: 

§ 430.32 Energy and water conservation 

standards and effective dates. 

* * * * * 

(c) Centrol air conditioners and 

central air conditioning heat pumps. (1) 

Split system central air conditioners and 

central air conditioning heat pumps 

manufactured after January 1, 1992, and 

before January 1, 2006, and single 

package central air conditioners and 

central air conditioning heat pumps 

manufactured after January 1, 1993, and 

before January 1, 2006, shall have 

Seasonal Energy Efficiency Ratio and 

Heating Seasonal Performance Factor no 

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 air conditioning heat pumps 

manufactured on or after January 1, 

2006, shall have Seasonal Energy 

Efficiency Ratio and Heating Seasonal 

Performance Factor no 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 

[FR Doc. 00-25336 Filed 9-2!Hl0; 9:42 am] 

BILLING CODE 6450-{)1-P