CHAPTER 2. ANALYTICAL PLAN

TABLE OF CONTENTS

2.1 INTRODUCTION ........................................................................................................... 2­1

2.2 BACKGROUND ............................................................................................................. 2­4

2.3 MARKET AND TECHNOLOGY ASSESSMENT........................................................ 2­4

2.3.1 Market Assessment .............................................................................................. 2­4

2.3.2 Technology Assessment....................................................................................... 2­5

2.4 SCREENING ANALYSIS .............................................................................................. 2­5

2.4.1 Technology Screening ......................................................................................... 2­5

2.5 ENGINEERING ANALYSIS.......................................................................................... 2­6

2.5.1 Equipment Classes Analyzed............................................................................... 2­6

2.5.2 Manufacturing Cost Assessment.......................................................................... 2­6

2.5.3 Alternative Refrigerant Analysis ......................................................................... 2­6

2.6 MARKUPS FOR EQUIPMENT PRICE DETERMINATION....................................... 2­7

2.7 ENERGY USE CHARACTERIZATION ....................................................................... 2­8

2.7.1 Representative Building Types............................................................................ 2­8

2.7.2 Simulation Approach ........................................................................................... 2­9

2.7.3 Climate Locations and Annual Energy Use......................................................... 2­9

2.8 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSES .................................... 2­9

2.9 TRIAL STANDARD LEVELS ..................................................................................... 2­11

2.10 SHIPMENTS ANALYSIS ............................................................................................ 2­11

2.11 NATIONAL IMPACT ANALYSIS.............................................................................. 2­12

2.11.1 National Energy Savings Analysis..................................................................... 2­12

2.11.2 Net Present Value Analysis ............................................................................... 2­12

2.11.3 Efficiency Scenarios and Trends ....................................................................... 2­13

2.12 LIFE­CYCLE COST SUB­GROUP ANALYSIS......................................................... 2­13

2.13 MANUFACTURER IMPACT ANALYSIS.................................................................. 2­14

2.14 UTILITY IMPACT ANALYSIS................................................................................... 2­14

2.15 EMPLOYMENT IMPACT ANALYSIS....................................................................... 2­15

2.16 ENVIRONMENTAL ASSESSMENT .......................................................................... 2­15

2.17 REGULATORY IMPACT ANALYSIS ....................................................................... 2­16

2.18 DEPARTMENT OF JUSTICE REVIEW ..................................................................... 2­16

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the PTAC and PTHP Rulemaking Process........... 2­2

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CHAPTER 2. ANALYTICAL PLAN

2.1 INTRODUCTION

Section 6295(o)(3)(B) of Title 42 United States Code (42 U.S.C.), as directed by 42

U.S.C. 6316(a) (1)­(3)), requires the U.S. Department of Energy (DOE) to set forth energy

conservation standards that are technologically feasible and economically justified, and would

result in substantial energy conservation. This chapter provides a description of the general

analytical plan that DOE uses in developing such standards, and in particular, standards for

packaged terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs). The

analytical plan is a description of the methodology, analytical tools, and relationships among the

various analyses that are part of this rulemaking. For example, the methodology that addresses

the statutory requirement for economic justification includes analyses of life­cycle cost (LCC)

impacts on customers; economic impact on manufacturers and users; national benefits; impacts,

if any, on utility companies; and impacts, if any, from lessening competition among

manufacturers. DOE will also solicit the views of the Department of Justice (DOJ) on any

lessening of competition that is likely to result from the imposition of a proposed standard.

Figure 2.1.1 summarizes the analytical components of the standards­setting process. The

focus of this figure is the center column, identified as “Analyses.” The columns labeled “Key

Inputs” and “Key Outputs” show how the analyses fit into the rulemaking process and how the

analyses relate to each other. Key inputs are the types of data and information that the analyses

require. Some key inputs exist in public databases; DOE collects other inputs from stakeholders

or persons with special knowledge. Key outputs are analytical results that feed directly into the

standards­setting process. Arrows connecting analyses show types of information that feed from

one analysis to another.

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Figure 2.1.1 Flow Diagram of Analyses for the PTAC and PTHP Rulemaking Process

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The analyses performed in the Notice of Proposed Rulemaking (NOPR) stage and

reported in this technical support document (TSD) are listed below.

• A market and technology assessment that characterizes the relevant equipment markets

and existing technology options, including prototype designs.

• A screening analysis to review each technology option and determine if it is

technologically feasible; is practical to manufacture, install, and service; would adversely

affect equipment utility or equipment availability or would have adverse impacts on

health and safety.

• An engineering analysis to develop the cost­efficiency relationship, which is the

increased manufacturer production cost (material, labor, and factory overhead) of higher

efficiency equipment. The increased cost to the customer is determined through an

analysis of engineering markups, which convert manufacturer production cost to

manufacturer selling price.

• An equipment price markup analysis to convert the manufacturer selling price estimates

from the engineering analysis to customer prices, which is then used in the LCC and

payback period (PBP) analyses and the manufacturer impact analysis.

• An energy­use analysis to determine the annual energy­savings potential at various

equipment efficiency levels for key commercial building types and across the range of

climate zones in which PTAC and PTHP equipment is used.

• LCC and PBP analyses to calculate, at the customer level, the discounted savings in

operating costs (less maintenance and repair costs) throughout the estimated average life

of the PTAC and PTHP equipment, compared to any increase in the installed cost for the

equipment likely to result directly from the setting of energy conservation standard

levels.

• A derivation of the energy­efficiency equations based upon the seven trial standard

levels.

• A shipments analysis that forecasts equipment shipments, which are then used to

calculate the national impacts of standards on energy, net present value (NPV), and future

manufacturer cash flows.

• A national impact analysis (NIA) that assesses the aggregate impacts at the national level

of the NPV of total consumer LCC and national energy savings (NES).

• An LCC sub­group analysis that evaluates impacts on any identifiable groups of

customers of PTAC and PTHP equipment, including various types of business or various

types of PTAC and PTHP equipment customers, who may be disproportionately affected

by any change in the national energy conservation standard levels for PTACs and PTHPs.

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• A manufacturer impact analysis that estimates the financial impact of energy

conservation standard levels on manufacturers and calculates impacts on competition,

employment, and manufacturing capacity.

• A utility impact analysis that estimates the effects of energy conservation standard levels

for PTACs and PTHPs on electric utilities.

• An employment impact analysis to assess the aggregate impacts on national employment

from the energy conservation standard levels.

• An environmental impact analysis to provide estimates of changes in emissions of

pollutants from electricity generation (carbon dioxide (CO2), oxides of nitrogen (NOx),

mercury (Hg), and sulfur dioxide (SO2)) as a result of the energy conservation standard

levels.

• A regulatory impact analysis that presents major alternatives to energy conservation

standard levels that could achieve substantially the same regulatory goal at a lower cost.

2.2 BACKGROUND

As Chapter 1 of this TSD describes, the Process Rule outlined procedural improvements

to the standards rulemaking process which included a review of the following elements used in

the rulemaking process: (1) economic models, (2) analytical tools, (3) methodologies, (4) nonregulatory approaches, and (5) prioritization of future rules. See appendix A to subpart C of

Title 10 Code of Federal Regulations, Part 430 (10 CFR Part 430).

The following sections provide a general description of the different analytical

components of the rulemaking analytical plan. DOE has used the most reliable and accurate data

available at the time of each analysis in this rulemaking. All data will be available for public

review. DOE welcomes and will consider any submissions of additional data during the

rulemaking process.

2.3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment (Chapter 3) characterizes the relevant PTAC and

PTHP markets and existing technology options, including prototype designs.

2.3.1 Market Assessment

When initiating a standards rulemaking, DOE develops information on the present and

past industry structure and market characteristics for the equipment concerned. This activity

assesses the industry and equipment both quantitatively and qualitatively based on publicly

available information and encompasses the following: (1) manufacturer market share and

characteristics, (2) existing regulatory and non­regulatory equipment efficiency improvement

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initiatives, and (3) trends in product characteristics and retail markets. This information serves

as resource material throughout the rulemaking.

DOE reviewed existing literature and interviewed manufacturers to get an overall picture

of the PTAC and PTHP industry in the United States. Industry publications and trade journals,

government agencies, and trade organizations provided the bulk of the information, including:

(1) manufacturers and their market share, (2) shipments by capacity and equipment class (PTAC

and PTHP), (3) equipment information, and (4) industry trends. The appropriate sections of the

NOPR describe the analysis and resulting information leading up to the proposed trial standard

level while the supporting documentation is provided in the different chapters of the TSD.

2.3.2 Technology Assessment

DOE typically uses information about existing and past technology options and prototype

designs to determine what technologies manufacturers use to attain higher energy conservation

levels. In consultation with stakeholders, DOE develops a list of technologies for consideration.

Initially, these technologies encompass all those DOE believes are technologically feasible.

DOE developed its list of technologically feasible design options from consultation with

PTAC and PTHP manufacturers, manufacturers of components and systems, and from trade

publications and technical papers. Since many options for improving product energy efficiency

are available in existing equipment, product literature and direct examination of PTAC and

PTHP equipment provided additional information, as described in Chapter 3 of the TSD.

2.4 SCREENING ANALYSIS

The screening analysis examines whether various technologies: (1) are technologically

feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on

equipment utility or availability; and (4) have adverse impacts on health and safety. As

described above, DOE develops an initial list of technology and/or design options from the

technologies identified in the technology assessment. Then in consultation with interested

parties, DOE reviews the list in a screening process to determine if these technologies or design

options are practicable to manufacture, install, and service; would adversely affect equipment

utility or availability; or would have adverse impacts on health and safety. In the subsequent

step of engineering analysis (see Chapter 5 of the TSD), DOE further considers design options

that remain after this screening process.

2.4.1 Technology Screening

As described in Chapter 4 of this TSD, DOE grouped technologies into the following

categories: (1) emerging technologies that are not currently available on the commercial market

but are being examined in the laboratory as possible means to improve energy efficiency; and (2)

commercially available technologies that are used to improve energy efficiency under DOE’s test

procedure.

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Because the efficiency metrics for PTACs and PTHPs are energy efficiency ratio (EER)

and coefficient of performance (COP) and the test procedure uses a steady­state approach, DOE

did not include technologies or designs that improve energy efficiency under varying ambient

conditions (e.g., variable­speed components). Therefore, only those technologies and design

options that improve the EER or COP were considered viable for review and application in this

rulemaking.

2.5 ENGINEERING ANALYSIS

Chapter 5 of the TSD presents the engineering analysis that establishes the relationship

between the manufacturing cost and the efficiency of PTACs and PTHPs. This relationship

serves as the basis for cost/benefit calculations in terms of individual customers, manufacturers,

and the nation. The engineering analysis also includes an extensive study of the cost­efficiency

relationship for equipment that utilizes an alternative refrigerant. In summary, the engineering

analysis discusses the equipment classes analyzed, the representative baseline equipment, the

methodology used to develop manufacturer costs, the analytically­derived cost­efficiency curves,

the effects of material price fluctuations on the cost­efficiency relation, and the cost­efficiency

relationship for an alternative refrigerant.

2.5.1 Equipment Classes Analyzed

The engineering analysis directly analyzed all equipment classes covered in this

rulemaking. However, due to the wide range of cooling capacities of the covered equipment, not

all cooling capacities were directly analyzed in the engineering analysis and the subsequent

analyses. The shipment data presented in the market and technology assessment (Chapter 3) was

used to prioritize covered equipment cooling capacities to be analyzed. DOE defined four

equipment classes for this rulemaking and identified six representative equipment categories

within the equipment classes. DOE analyzed these six representative cooling capacities and

generated six cost­efficiency curves as part of the PTAC and PTHP engineering analysis.

2.5.2 Manufacturing Cost Assessment

DOE conducted a manufacturing cost assessment to estimate the manufacturing costs

associated with an increase in energy efficiency for PTACs and PTHPs. This approach involved

the disassembling several PTACs and PTHPs, analyzing the materials and manufacturing

processes, and developing a spreadsheet cost model. The manufacturing cost assessment

developed a clear and consistent manufacturing cost assessment methodology, built a detailed

manufacturing cost assessment model that estimated manufacturer production cost, reported the

manufacturer production costs in aggregated form to maintain confidentiality of the data, and

obtained input from stakeholders on the manufacturer production cost estimates and assumptions

to confirm accuracy.

2.5.3 Alternative Refrigerant Analysis

As part of the engineering analysis, DOE analyzed the possible effects of an alternative

refrigerant on the cost­efficiency relationship for PTACs and PTHPs. DOE based the alternative

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refrigerant analysis on the current refrigerant used in PTACs and PTHPs and information

provided by trade associations, technical papers, manufacturers, and suppliers on the alternative

refrigerant. DOE compared the cost­efficiency relationship of R­22, the current refrigerant used

by manufacturers, with R­410A, the alternative refrigerant analyzed, by using the

aforementioned cost model. DOE used the results of this analysis throughout the subsequent

rulemaking analyses.

2.6 MARKUPS FOR EQUIPMENT PRICE DETERMINATION

As presented in Chapter 6 of the TSD, DOE used manufacturer­to­customer markups to

convert the manufacturer selling price (MSP) estimates from the engineering analysis to

customer prices, which were then used in the LCC and PBP analyses. Because retail prices are

required for the baseline standard level and all other energy conservation standard levels under

consideration, DOE obtained these retail prices by applying manufacturer­to­customer markups

to the MSP estimates.

In order to develop the markups, DOE identified the distribution channels (i.e., how

PTAC and PTHP equipment is distributed from the manufacturer to the customer). Once the

proper distribution channels were established for PTACs and PTHPs, DOE relied on economic

data from the U.S. Census Bureau and input from the trade association representing distributors

of PTACs and PTHPs to define how equipment are marked up as they pass from the

manufacturer to the customer.

DOE’s review of information for PTAC and PTHP distribution suggested a set of four

distribution channels, as described below:

1. Manufacturer � National Account � Customer

2. Manufacturer � Wholesaler � Customer

3. Manufacturer � Wholesaler � Mechanical Contractor � Customer

4. Manufacturer � Wholesaler � Mechanical Contractor � General Contractor � Customer

In the first distribution channel, the equipment manufacturer sells the equipment directly

to the customer through a national account. In the second distribution channel, the manufacturer

sells the equipment to a wholesaler, who in turn sells it directly to the customer. In the third

channel, the manufacturer sells the equipment to a wholesaler, who in turn sells it to the

customer through a mechanical contractor. In the fourth channel, the manufacturer sells the

equipment to a wholesaler, who in turn sells it to a mechanical contractor, who in turn sells it to a

general contractor, who in turn sells and installs it for the customer.

For each of the markups, DOE further differentiated between a baseline markup and an

incremental markup. The Department defines baseline markups as cost multipliers that relate the

purchase cost to selling price for each step of the distribution channel. Incremental markups are

cost multipliers that relate incremental changes in the manufacturer selling price of higher energy

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efficiency equipment that result, in this case, from efficiency improvements, to changes in the

wholesaler or contractor(‘s) sales price.

Equipment bought through national accounts is an exception to the usual distribution of

heating, ventilating and air conditioning (HVAC) equipment to end users. Large customers of

PTAC and PTHP equipment, such as national hotel chains, use national accounts to circumvent

the typical distribution chain, thereby allowing them to negotiate significantly lower equipment

prices directly with the manufacturer. The Department derived a “national account” markup by

assuming that the resulting equipment price increase was one half of that realized from a typical

chain of distribution.

2.7 ENERGY USE CHARACTERIZATION

The energy use characterization assesses the energy savings impacts from new energy

conservation standard levels and provides the basis for the energy savings used in the LCC and

subsequent analyses. The energy savings impact was assessed for six representative equipments

of PTACs and PTHPs across a range of U.S. climates. In the energy use characterization, DOE

defined a single building prototype, i.e., a hotel/motel, for modeling energy impacts.

Combinations of six efficiency levels were characterized for each of six representative PTAC

and PTHP equipment, including one baseline energy efficiency level and five trial standard

levels. DOE defined the baseline efficiency level as the minimum level specified in

ASHRAE/IESNA Standard 90.1­1999. The energy savings impact was assessed at the wholebuilding level. As part of the energy use characterization, DOE made certain engineering

assumptions regarding equipment application, including how the equipment is operated and

under what conditions, and documented these assumptions in Chapter 7 of the TSD.

2.7.1 Representative Building Types

A PTAC or PTHP unit is designed to fit through the exterior wall of a building to heat

and cool the interior space where it is located. Individual PTACs or PTHPs are normally limited

to conditioning an area up to 500 ft2. Thus, PTACs and PTHPs are often selected as a low cost

heating and cooling system for hotel/motel rooms, assisted living homes, dormitories or any

application that require individual zone heating and cooling. By far, DOE believed that the

majority of shipments of PTAC and PTHP equipment were placed into transient lodging (both

hotels and motels). Therefore, DOE assessed the electric energy consumptions for PTAC and

PTHP equipment by selecting a single representative building type, i.e., hotel/motel building.

While DOE realized that PTACs and PTHPs are found in other building types, DOE believed

that, based on engineering judgment, the cooling and heating loads of an individual room served

by a single PTAC or PTHP was not expected to be a strong function of the building type. DOE

used the Energy Information Administration’s (EIA) 2003 Commercial Building Energy

Consumption Survey (CBECS 2003) as the primary source of data to develop the representative

building size and other building construction characteristics for this analysis (i.e., aspect ratio,

building construction type, etc.).

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2.7.2 Simulation Approach

DOE used a whole­building energy analysis program, with the capability to model space

cooling and heating, to model the building prototypes in different climate regions to capture the

energy impacts of the PTAC and PTHP equipment. DOE modeled hotel/motel rooms facing in

all orientations by rotating a symmetrical rectangular floor plan prototype building 90 degrees, to

capture the orientation­driven changes in annual energy consumption of the PTAC or PTHP

equipment. DOE also defined various room sizes and then specified the PTAC or PTHP size

that would be used based on “typical sizing approach” from the transient lodging industry. DOE

simulated the buildings with equipment at five different efficiency levels to determine the annual

energy­saving impacts as a result of higher efficiency standards.

The Department estimated that PTHPs represent approximately 45 percent of the total

market for packaged terminal equipment. Therefore, it was necessary to estimate the unit

building energy consumption using PTHP equipment in each climate as well as using PTAC

equipment. For simplicity, DOE assumed that the whole building primarily used PTHP

equipment or PTAC equipment, but not both.

2.7.3 Climate Locations and Annual Energy Use

DOE assessed the energy use of a single hotel/motel type building in multiple climate

locations to capture the diversity in energy use of PTAC and PTHP equipment due to climate

changes. DOE calculated the energy use per unit capacity for all the 239 typical meteorological

year (TMY2) stations in the United State. DOE mapped each TMY2 station to a certain state,

based on its location. Within each state, DOE assigned a relative weight to each TMY2 station,

based on the population of cities that can be shown to be most climatically similar to that TMY2

location. Thus, groups of TMY2 stations were routinely used on a population­weighted basis to

represent weather in each individual state. The average energy use for PTAC/PTHP equipment

class in each state was computed through the population weighting of the representative TMY2

stations within each state. Lastly, the average energy use by state was incorporated into the LCC

and PBP analyses at each trial standard level.

2.8 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSES

The effects of new energy conservation standards on equipment result in changes in

operating expenses—usually a decrease—and changes in customer price—usually an increase.

DOE analyzed the net effect of new energy conservation standards on customers by evaluating

the net LCC using the cost­efficiency relationship derived in the engineering analysis, and the

energy consumption derived from the energy use characterization analysis. Inputs to the LCC

calculation included the installed cost to the customer (customer price plus installation cost),

operating expenses (energy costs and maintenance costs), the lifetime of the equipment and a

discount rate. These inputs are described in detail in Chapter 8 of the TSD.

The installed and operating costs of PTAC and PTHP equipment typically change in

response to new standards (installed cost typically increases while operating cost typically

decreases). Thus, there is a specific time in the life of higher­than­baseline efficiency equipment

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when the net annual operating­cost benefit (in dollars) from the time of purchase is equal to the

incremental first cost of purchasing the higher efficiency equipment. The length of time required

for equipment to reach this cost­equivalence point is known as the payback period.

For the NOPR, DOE conducted the LCC and PBP analyses using typical values to reflect

the conditions in the field for equipment life and energy consumption. Distributions of values

were used to develop equipment retail price, national or regional energy costs. Discount rates

were varied by business type.

For PTACs and PTHPs, it was necessary to determine several of the input values for the

LCC including: retail prices; electricity prices; discount rate; maintenance, service, and

installation costs; and equipment lifetimes. DOE obtained the equipment retail prices by

applying manufacturer­to­customer markups to the manufacturer selling price estimates, as

described in section 2.6 of this chapter.

DOE reviewed the EIA energy price data for PTACs and PTHPs to establish electricity

prices. DOE relied on state average energy price data for the commercial sector scaled to reflect

average prices paid by businesses using PTACs and PTHPs relative to the entire commercial

sector. DOE used projections of these energy prices for commercial customers to estimate future

energy prices in its LCC and PBP analysis. DOE used EIA’s Annual Energy Outlook 2007

(AEO2007)a as the default source of projections for future energy prices.

DOE developed discount rates by estimating the cost of capital to businesses that

purchase PTAC and PTHP equipment covered under this rulemaking. DOE commonly uses the

cost of capital to estimate the present value of cash flows to be derived from a typical company

project or investment. Most companies use both debt and equity capital to fund investments, so

the cost of capital is the weighted­average cost to the firm of equity and debt financing. This

corporate finance approach is referred to as the weighted­average cost of capital (WACC).

DOE considered expected changes to maintenance, repair, and installation costs for

PTAC and PTHP equipment. Typically, small incremental changes in equipment efficiency

incur no, or only very small, changes in repair and maintenance costs over baseline efficiency

equipment. Equipment with efficiencies significantly greater than the baseline can incur

increased repair and maintenance costs, since such equipment are more likely to incorporate

technologies that are new to the industry and not widely available.

DOE relied on facilities planning literature and industry data in developing appropriate

repair and maintenance costs. Because data were not available to indicate how maintenance

costs vary with equipment efficiency, DOE decided to use preventative maintenance costs that

remain constant as equipment efficiency increases. Similarly, as no data were available to

indicate how repair costs vary with equipment efficiency, DOE used repair costs that varied in

proportion to equipment costs. Unless the efficiency increases considered for this rulemaking

a U.S. Department of Energy, Energy Information Administration. Annual Energy Outlook 2007 with Projections

Through 2030. February, 2005. Washington, DC. Report No. DOE/EIA­0383(2007).

<http://www.eia.doe.gov/oiaf/aeo/index.html>

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result in significantly larger or heavier products, DOE determined that more­efficient package

terminal equipment would not incur increased installation costs. DOE used information from

various published literature sources as well as input from manufacturers and other stakeholders

to establish average equipment lifetimes for use in the life­cycle cost and subsequent analyses.

2.9 TRIAL STANDARD LEVELS

Both the Federal energy conservation standards and the efficiency standards in

ASHRAE/­IESNA Standard 90.1­1999 are based on equations to calculate the efficiency levels

for PTACs and PTHPs with a cooling capacity greater than or equal to 7,000 Btu/h and less than

or equal to 15,000 Btu/h for each equipment class. To derive the standards (i.e., efficiency level

as a function of cooling capacity), DOE plotted the representative cooling capacities and the

corresponding efficiency levels for each TSL. DOE then calculated the equation of the line

passing through the EER values for 9,000 Btu/h and 12,000 Btu/h for standard size PTACs and

PTHPs.

2.10 SHIPMENTS ANALYSIS

Shipment forecasts are required to calculate the national impacts of new energy

conservation standards on energy use savings, net present value (NPV), and future manufacturer

cash flows. DOE developed shipment forecasts based on an analysis of key market drivers for

PTACs and PTHPs (see Chapter 10 of the TSD).

For each equipment class, DOE developed a set of shipment forecasts for PTAC and

PTHP equipment at each of the energy conservation standard levels analyzed. These forecasts

for the new standards were used to evaluate the impacts of new standards on equipment

shipments. Shipment forecasts for new standard levels were derived using the same data sets as

those for the baseline levels. However, because the forecasts for the new standards take into

account the increase in customer price and the decrease in operating costs caused by new

standards, forecasted shipments can deviate from the baseline levels. The magnitude of the

difference between the new standards levels and baseline levels shipment forecasts depends on

the estimated customer­price­increase as well as the operating­cost­savings caused by the new

standard. Because the customer price tends to have a larger impact than operating cost on

equipment purchase decisions, forecasts for the new standards typically show a drop in

equipment shipments relative to those for the baseline levels.

The data to develop sensitivities of shipments to customer price and operating­costsavings were limited. Therefore, DOE modeled total standards case shipments forecasts as

identical to base case shipments, but provided the option of defining scenarios (i.e., specified

impacts to product shipments) rather than developing sensitivities to customer price or operatingcost­savings.

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2.11 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the net present value (NPV) of total customer LCC

and national energy savings (NES). DOE determined both the NPV and NES at the new energy

conservation standard levels considered for the equipment classes analyzed. To make the

analysis more accessible and transparent to all stakeholders, DOE prepared an NES Spreadsheet

Model in Microsoft Excel to forecast energy savings and the national economic costs and savings

resulting from new standards. The NES Spreadsheet Model uses typical values for inputs or

outputs (as opposed to probability distributions). To assess the impact of input uncertainty on

the NES and NPV results, DOE can conduct sensitivity analyses for future analyses by running

scenarios on input variables that are of interest to stakeholders. DOE assessed the aggregate

economic impacts at the national level for this NOPR, as described in Chapter 11 of this TSD.

2.11.1 National Energy Savings Analysis

The inputs for the determination of NES are: (1) annual energy consumption per unit, (2)

shipments, (3) equipment stock, (4) national energy consumption, and (5) site­to­source energy

conversion factors. DOE calculated the national energy consumption by multiplying the number

of units, or stock, of PTAC and PTHP equipment (by vintage) by the unit energy consumption

b (also by vintage). Then, DOE calculated national annual energy savings from the difference

between national energy consumption at the baseline efficiency level and new energy

conservation standard levels. DOE estimated energy consumption and savings based on site

energy, and converted the electricity consumption and savings to source energy using the site­tosource energy conversion factors. Cumulative energy savings are the sum of the annual source

energy savings from 2012 to 2042 (typically over a 30­year period), which DOE determined for

each of the standard levels analyzed.

The stock of PTAC and PTHP equipment is dependent on annual shipments and the

lifetime of the equipment. DOE conducted shipments projections under the baseline efficiency

levels and new standard levels and equipment efficiency trends. DOE’s shipments model

presumed that shipments of new PTACs and PTHPs were driven by growth in commercial floor

space for building types using equipment as well as necessary stock replacements.

2.11.2 Net Present Value Analysis

The inputs for the determination of NPV are: (1) total annual installed cost, (2) total

annual operating cost savings, (3) discount factor, (4) present value of costs, and (5) present

value of savings. DOE calculated net savings each year as the difference between total

operating­cost savings (including electricity, repair, and maintenance cost savings) and increases

in total installed costs (including equipment price and installation cost). DOE calculated savings

over the life of the equipment, accounting for differences in yearly electricity rates. DOE

calculated NPV as the difference between the present value of operating cost savings and the

present value of increased total installed costs. DOE discounted future costs and savings to the

present year (2007) with a discount factor.

b Vintage represents the age of the equipment.

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DOE calculated increases in total installed costs as the product of the difference in the

total installed cost between the baseline efficiency level and new standard levels (i.e., once the

new energy conservation standard takes effect) and the annual shipments in the standards case.

Because costs of the more­efficient equipment bought in the standard cases are higher than those

of equipment bought in the base case, price increases appear as negative values in the NPV.

DOE expressed operating cost savings as decreases in operating costs associated with the

lower energy consumption of equipment bought in the new standards compared to the baseline

efficiency level. Total operating­cost savings are the product of savings per unit and the number

of units of each vintage surviving in a particular year.

2.11.3 Efficiency Scenarios and Trends

Several of the inputs for the determination of NES (e.g., the annual energy consumption

per unit) and NPV (e.g., the total annual installed cost and the total annual operating­cost

savings) depend upon the energy efficiency of the equipment. Thus, DOE developed the

efficiency trends for both the baseline efficiency level and the new standard levels. The

efficiency trends specify the annual historical and forecasted shipment­weighted average

equipment efficiencies.

DOE based historical shipment­weighted average efficiency trends for PTAC and PTHP

equipment on limited PTAC and PTHP efficiency data. Once DOE established historical

efficiency trends, it ascertained future trends of equipment efficiency, and in turn, annual energy

consumption by extrapolating from the historical trend.

DOE based its standards case forecasts (i.e., forecasts of efficiency trends after standards

take effect) on the use of a roll­up efficiency scenario and parallel growth trend. Under a roll­up

scenario, all equipment at energy efficiency levels below a prospective standard are moved or

rolled­up to the minimum efficiency level allowed under the new standard. The distribution of

equipment at new standard levels is unaffected (i.e., this equipment remains at its pre­standard

efficiency levels). The roll­up efficiency scenario dictates how DOE determined efficiency

distributions in the first year a new standard takes effect, but does not define how equipment

efficiency will be distributed in the future. Under the parallel growth trend, DOE assumes that

the standards case efficiency trend parallels the base case efficiency trend. In other words, the

initial jump in shipment­weighted efficiency that occurs when the standard first becomes

effective is maintained throughout the forecast.

2.12 LIFE­CYCLE COST SUB­GROUP ANALYSIS

The LCC sub­group analysis evaluates impacts on any identifiable groups of customers

of PTAC and PTHP equipment who may be disproportionately affected by any change in the

energy conservation standard levels for PTACs and PTHPs. DOE accomplished this, in part, by

analyzing the LCC and PBP for those customers that fall into any identifiable sub­groups.

DOE determined the impact on customer sub­groups using the LCC spreadsheet model.

The spreadsheet model used for the LCC analysis can be used with different data inputs. The

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standard LCC and PBP analysis includes various commercial building types that use PTAC and

PTHP equipment. The LCC spreadsheet model allows for the identification of certain subgroups of commercial buildings which can then be analyzed by sampling only that sub­group.

DOE identified small businesses (i.e., those with low annual revenues) as a sub­group

that possibly could be disproportionately affected by new energy conservation standards. DOE

was concerned that increases in the customer price of PTACs and PTHPs could have negative

impacts on small businesses. DOE used LCC analysis methods for the small businesses analysis

by modifying cost assumptions to reflect the situations of such sub­groups. Factors that could

result in differential impacts to subgroups include differences in customer price, energy price,

and discount rate.

2.13 MANUFACTURER IMPACT ANALYSIS

The manufacturer impact analysis focused on manufacturers of PTACs and PTHPs.

Potential impacts included financial effects, both quantitative and qualitative, that might result

from new energy conservation standards, and consequently lead to changes in PTAC and PTHP

manufacturing practices. DOE identified these potential impacts through interviews with

manufacturers and other stakeholders.

During the NOPR stage of the rulemaking, DOE conducted the manufacturer impact

analysis in three phases. Phase one consisted of two activities: preparing an industry

characterization and identifying issues. Phase two addressed the broader industry where DOE

used the Government Regulatory Impact Model (GRIM) to perform an industry cash flow

analysis. Phase three involved interviewing manufacturers. The questionnaire for use in phase

three was developed in phase two. At the beginning of phase three, DOE interviewed

manufacturers and adjusted the industry cash flow analysis as appropriate. Thereafter, phase

three entailed additional cash flow analyses of the different manufacturer sub­groups that could

be affected by the standards rulemaking for PTAC and PTHP equipment. DOE also examined

any additional impacts on competition, manufacturing capacity, direct employment, and the

cumulative burden of other regulations affecting manufacturers.

2.14 UTILITY IMPACT ANALYSIS

The utility impact analysis included an analysis of the impact of new energy conservation

standards on the electric utility industries. DOE adapted the National Energy Modeling System

(NEMS)c for this analysis. NEMS is a large, general­equilibrium energy­economy model of the

United States that EIA has developed over the past decade, primarily for the purpose of

preparing the Annual Energy Outlook (AEO). In prior rulemakings, a variant of NEMS

c For more information on NEMS, refer to the U.S. Department of Energy, Energy Information Administration

documentation. National Energy Modeling System: An Overview 2003. Report No. DOE/EIA­0581(2003).

<http://www.eia.doe.gov/oiaf/aeo/overview/index.html>

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(currently termed NEMS­BT, BT referring to the DOE’s Building Technologies Program) was

developed to better address the specific impacts of an equipment efficiency standard.

The NEMS produces a widely recognized baseline energy forecast for the United States

through the year 2030, and is available in the public domain. The typical NEMS outputs include

forecasts of electricity sales, price, and avoided electric generating capacity. DOE conducted the

utility impact analysis as a scenario departing from the latest AEO (i.e., AEO2007) reference

case. In other words, the energy savings impacts from amended energy conservation standards

was modeled using NEMS­BT to generate forecasts that deviate from the AEO reference case.

2.15 EMPLOYMENT IMPACT ANALYSIS

The Process Rule directs DOE to consider employment impacts in selecting a proposed

standard. The imposition of new energy conservation standards can affect employment both

directly and indirectly. Direct employment impacts are changes in the number of employees at

the plants that produce PTAC and PTHP equipment, and at the affiliated distribution and service

companies, resulting from the imposition of new standards. DOE evaluated direct employment

impacts in the manufacturer impact analysis. Indirect employment impacts may result from

expenditures shifting between goods (the substitution effect) and changes in income and overall

expenditure levels (the income effect) that occur due to the imposition of standards. DOE

investigated the combined direct and indirect employment impacts in the employment impact

analysis (chapter 14) by using the Pacific Northwest National Laboratory’s “Impact of Sector

Energy Technologies” (ImSET) model. The ImSET model was developed for DOE’s Office of

Planning, Budget, and Analysis, and estimates the employment and income effects of energysaving technologies in buildings, industry, and transportation. In comparison with simple

economic multiplier approaches, ImSET allows for more complete and automated analysis of the

economic impacts of energy conservation investments.

2.16 ENVIRONMENTAL ASSESSMENT

DOE conducted the environmental assessment and reported the results in the NOPR

stage. An environmental assessment is required under the National Environmental Policy Act of

1969 (NEPA) (42 U.S.C. 4321 et seq.), regulations of the Council on Environmental Quality (49

CFR parts 1500­1508), the Department regulations for compliance with NEPA (10 CFR part

1021), and the Secretarial Policy on the National Environmental Policy Act (June 1994).

The primary environmental effects of energy conservation standards for PTAC and PTHP

equipment covered under this rulemaking will be reduced environmental emissions resulting

from reduced electric energy consumption. The environmental assessment tracked the impact of

possible standards on four energy­related emissions: carbon dioxide (CO2), nitrogen oxides

(NOx), mercury (Hg), and sulfur dioxide (SO2). DOE based these calculations on the NEMS­BT

model used for the utility impact analysis. This approach has the advantage of examining the

marginal impact of higher energy conservation standards for PTAC and PTHP equipment on the

utility generation mix and the subsequent environmental emissions.

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CO2 emissions are tracked in NEMS­BT by a detailed module that produces robust results

because of its broad coverage of all sectors and inclusion of interactive effects. NEMS­BT also

includes a module for SO2­allowance trading and delivers a forecast of SO2­allowance prices. It

is important to note, however, that simulation of SO2 trading tends to imply that physical

emissions effects will be zero. However, there is an SO2 benefit from conservation in the form

of a lower allowance price and, if big enough to be calculable by NEMS, this value can be

reported. NEMS­BT also has an algorithm for estimating NOx and Hg emissions from power

generation and these are reported in Chapter 16 of the TSD.

2.17 REGULATORY IMPACT ANALYSIS

In the NOPR stage, DOE prepared a regulatory impact analysis (RIA) pursuant to

Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735, October 4, 1993,

which is subject to review under the Executive Order by the Office of Information and

Regulatory Affairs at the Office of Management and Budget. The RIA addressed the potential

for non­regulatory approaches to supplant or augment energy conservation standards to improve

the energy efficiency or reduce the energy consumption of the PTACs and PTHPs covered under

this rulemaking.

DOE recognizes that voluntary and other non­regulatory efforts by manufacturers,

utilities, and other interested parties can result in substantial improvements in energy efficiency

and reductions in energy consumption. DOE assessed the likely effects of non­regulatory

initiatives on product energy use, consumer utility, and LCC. DOE based its assessment on the

actual impacts of any such initiatives to date, but also considered information on the impacts that

any existing initiative might have in the future.

2.18 DEPARTMENT OF JUSTICE REVIEW

Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act (EPCA) states that

before the Secretary of Energy may prescribe a new or amended energy conservation standard,

the Secretary shall ask the U.S. Attorney General to make a determination of “the impact of any

lessening of competition...that is likely to result from the imposition of the standard.” (42

U.S.C. 6295) Pursuant to this requirement, DOE will solicit the views of U.S Department of

Justice (DOJ) on any lessening of competition that is likely to result from the imposition of a

proposed new energy conservation standard. DOE will give the views provided full

consideration in assessing economic justification of a proposed standard.

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