## REGULATORY IMPACT ANALYSIS

FOR PROPOSED ENERGY CONSERVATION STANDARDS

FOR PACKAGED TERMINAL AIR CONDITIONERS AND

PACKAGED TERMINAL HEAT PUMPS

September 2008

U.S. Department of Energy

Assistant Secretary

Office of Energy Efficiency & Renewable Energy

Building Technologies Program

Appliances and Commercial Equipment Standards

Washington, DC 20585REGULATORY IMPACT ANALYSIS

FOR PROPOSED ENERGY CONSERVATION STANDARDS FOR PACKAGED

TERMINAL AIR CONDITIONERS AND PACKAGED TERMINAL HEAT PUMPS

TABLE OF CONTENTS

1.0 INTRODUCTION

.............................................................................................................. 1

2.0 Non­Regulatory Policies

..................................................................................................... 2

2.1 Methodology

........................................................................................................... 2

2.1.1 Modeling Method

........................................................................................ 2

2.1.2 Policy Alternatives

...................................................................................... 3

2.1.3 Policy Interactions

...................................................................................... 4

2.2 Non­Regulatory Policy Alternatives

....................................................................... 4

2.2.1 No New Regulatory Action

........................................................................ 4

2.2.2 Financial Incentives Policies

....................................................................... 4

2.2.3 Voluntary Energy Efficiency Targets

– ENERGY STAR

.......................... 7

2.2.4 Early Replacement Incentives

..................................................................... 9

2.2.5 Bulk Government Purchases

....................................................................... 9

2.3 REGIONAL ENERGY CONSERVATION STANDARDS

................................ 10

2.4 RESULTS SUMMARY

........................................................................................ 10

LIST OF TABLES

Table RIA.1 Policy Alternatives to National Standards

............................................................... 1

Table RIA.2 PTACs and PTHPs Baseline Efficiency Level and TSLs

........................................ 3

Table RIA.3 Shipment­Weighted Average Annual Energy Consumption per Unit for

Customer Rebate Policy Option

............................................................................... 6

Table RIA.4 Shipment­Weighted Average Annual Energy Consumption per Unit for

Customer Tax Credit Policy Option

........................................................................ 7

Table RIA.5 Shipment­Weighted Average Annual Energy Consumption per Unit for

Voluntary Energy Efficiency Policy Option

............................................................ 9

Table RIA.6 Non­Regulatory Alternatives, Standard Size PTACs

............................................ 10

Table RIA.7 Non­Regulatory Alternatives, Non­Standard Size PTACs

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

Table RIA.8 Non­Regulatory Alternatives, Standard Size PTHPs

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

Table RIA.9 Non­Regulatory Alternatives, Non­Standard Size PTHPs

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

RIA­iiiREGULATORY IMPACT ANALYSIS

1.0 INTRODUCTION

The U.S. Department of Energy (DOE) has tentatively determined that the proposed

packaged terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs) energy

conservation standards is a significant action under Executive Order (E.O.) 12866, “Regulatory

Planning and Review” (58 FR 51735, October 4,1993). The Executive Order requires that each

agency identify in writing the specific market failure or other specific problems that it intends to

address that warrant new agency action, as well as assess the significance of that problem, to

enable assessment of whether any new regulation is warranted. Executive Order 12866,

§1(b)(1).

DOE is committed to continually explore non­regulatory alternatives to setting energy

conservation standards. Therefore, DOE conducted a regulatory impact analysis (RIA) and

under the Executive Order, was subject to review by the Office of Information and Regulatory

Affairs (OIRA) in the OMB. DOE presented to OIRA for review the draft proposed rule and

other documents prepared for this rulemaking, including the RIA, and has included these

documents in the rulemaking record.

The RIA calculates the effects of feasible policy alternatives to PTAC and PTHP

amended energy conservation standards, and provides a quantitative comparison of the impacts

of the alternatives. DOE evaluated each alternative in terms of its ability to achieve significant

energy savings at reasonable costs, and compared it to the effectiveness of the proposed rule.

DOE analyzed these alternatives using a series of regulatory scenarios as input to the NES

Shipments Model for PTACs and PTHPs, which it modified to allow inputs for these measures.

DOE identified the following major policy alternatives for achieving increased PTAC

and PTHP energy efficiency, as shown in Table RIA.1. The following sections discuss the

methodology and results of this analysis.

Table RIA.1 Policy Alternatives to National Standards

No New Regulatory Action

Commercial Customer Rebates

Commercial Customer Tax Credits

Voluntary Energy Conservation Targets

– ENERGY STAR

Early Replacement Incentives

Bulk Government Purchases

Regional Energy Conservation Standards

RIA­12.0 NON-REGULATORY POLICIES

2.1 Methodology

2.1.1 Modeling Method

Each of the policy alternatives considered improves the efficiency of the stock of new

PTAC and PTHP equipment. In each case, the analysis develops a revised set of market shares

of equipment—with increased shares for higher efficiency equipment—that results from the

particular policy alternative. The equipment efficiencies under the base case (no standards)

projection are described in detail in the national impact analysis (Chapter 11 of the PTAC and

PTHP technical support document (TSD)). The shipments for any given year are comprised of a

distribution of efficiency levels. Non­regulatory alternatives generally cause a small share of the

market to shift toward more­efficient equipment, creating an overall (i.e., shipment­weighted)

increase in average efficiency. To facilitate the modeling methods, the market characterizations

of more energy efficient equipment are made in terms of the trial standard levels (TSLs) for each

equipment class, as defined in Chapter 9 of the TSD.

A shift in market share to higher efficiency equipment will increase the average installed

cost of PTAC and PTHP equipment. Operating costs will generally decrease due to a decline in

energy consumption. Therefore, a NPV can be calculated for non­regulatory alternatives in the

same way as for the proposed standard. In some scenarios, total installed cost increases are

partially mitigated by government rebates or credits. DOE assumed that credits and rebates

would be paid for by customers in another form (such as additional taxes), and therefore, DOE

did not include them as a benefit for the purposes of calculating NPV.

DOE used the NES Spreadsheet Model to calculate the NES and the NPV corresponding

to each alternative to the amended energy conservation standards. To compare each alternative

quantitatively to the proposed standards, DOE quantified the effect of each alternative on the

purchase and use of more efficient PTAC and PTHP equipment. Once DOE estimated the

quantitative assumptions for each alternative, DOE made the appropriate revisions to the inputs

to the NES Spreadsheet Model. The revisions included installed costs affected by rebates or tax

credits and parameters that influence sensitivity of market shares to installed equipment as well

as the operating costs. The non­regulatory policy alternatives are discussed in section 2.2.

The key measures of the impact of each alternative are:

• National energy savings

, trillion British thermal units (Btus) (10 15 ): Cumulative national

energy savings of equipment bought in the period from the effective date of the policy

alternative (2012) to the year 2042. DOE reports electricity consumption as primary

energy.

• Net present value : The value of future operating cost savings from equipment bought in

the period from the effective date of the policy alternative (2012) to the year 2062. DOE

calculated the NPV as the difference between the present value of equipment and

operating expenditures (including energy) in the base case, and the present value of

expenditures in each of the policy alternatives. DOE discounted future operating and

RIA­2equipment expenditures to 2008 using a 7­percent and a 3­percent real discount rate. It

calculated operating expenses (including energy) for the life of the equipment.

2.1.2 Policy Alternatives

The impacts of non­regulatory programs are by nature uncertain, since they depend on

program implementation and marketing efforts and the subsequent customer behavior response.

The projected impacts depend on the assumptions for the customer participation rate, and are

therefore, subject to more uncertainties than the impacts of mandatory standards, which DOE

assumed would have full compliance.

DOE assumed that each policy alternative would induce commercial customers to

purchase at least some additional units that meet the proposed energy conservation standards.

Table RIA.2 shows the baseline efficiency and efficiencies associated with each of the TSLs. In

contrast to a standard at one of the TSLs, however, the adoption rate of the alternative nonregulatory policy alternatives may not be 100 percent.

Table RIA.2 PTACs and PTHPs Baseline Efficiency Level and TSLs

Equipment Class

(cooling capacity) Efficiency

Metric Baseline

(ASHRAE/IESNA

Standard 90.1

- 1999) TSL 1 TSL 2 TSL 3 TSL A TSL 4 TSL 5 TSL 6

(MaxTech)

Standard Size

PTAC EER 10.6 10.9 10.9 11.1 11.1 10.9 11.3 11.5

(9,000 Btu/h)

Standard Size

PTAC EER 9.9 10.2 10.2 10.4 10.2 10.2 10.6 10.8

(12,000 Btu/h)

Non­Standard Size

PTAC EER 8.6 9.4 9.4 9.7 NA 9.4 10.0 NA

(11,000 Btu/h)

Standard Size PTHP EER 10.4 10.9 11.1 11.1 11.3 11.3 11.3 11.5

(9,000 Btu/h) COP 3.0 3.1 3.2 3.2 3.3 3.3 3.3 3.3

Standard Size

PTHP

(12,000 Btu/h) EER

COP 9.7

2.9 10.2

3.0 10.4

3.1 10.4

3.1 104

3.1 10.6

3.1 10.6

3.1 10.8

3.3

Non­Standard

PTHP

(11,000 Btu/h) EER

COP 8.5

2.6 9.4

2.8 9.7

2.8 9.7

2.8 NA 10.0

2.9 10.0

2.9 NA

Note: TSL A and TSL 6 are not defined for non­standard size equipment, denoted by “NA” in

appropriate columns.

A simplifying assumption was to model the policy alternative as affecting the market for

the entire analysis period, whether or not the incentives actually continue. DOE did not consider

administrative costs for any of the non­regulatory policies in its analysis. Inclusion of such costs

would decrease the NPV by a small amount.

RIA­32.1.3 Policy Interactions

DOE calculated the impacts of each regulatory policy separately from those of the other

policies. In actual practice, certain policies are often most effective when implemented in

combination to provide incentives, such as early replacement and customer rebates, or early

replacement and bulk government purchases. DOE attempted to make conservative assumptions

to avoid double­counting policy impacts. Therefore, the policy impacts reported below are not

additive; the combined impact of several or all of the policies may not be inferred from adding

the results together.

2.2 Non-Regulatory Policy Alternatives

2.2.1 No New Regulatory Action

The case in which no regulatory action is taken constitutes the base case scenario

described in Chapter 11 of the PTAC and PTHP TSD. From its assessment of current market

shares and equipment and operating costs, DOE estimated forecasted shipments and the

distribution of efficiencies of the stock, from 2012 through 2062. This defines the basis of

comparison for all other scenarios, including the policy alternatives and the standard cases. By

definition, no new regulatory action yields zero energy savings and a net present value of zero

dollars.

2.2.2 Financial Incentives Policies

DOE considered several scenarios in which the Federal government would provide some

form of financial incentive. It studied two types of incentives: tax credits and rebates. Tax

credits could be granted to customers who purchase high efficiency PTAC and PTHP equipment.

Alternatively, the government could issue tax credits to manufacturers or customers to offset

costs associated with producing or purchasing high efficiency designs. For this analysis, only a

customer tax credit, motivated by a provision in the Energy Policy Act of 2005 (EPACT 2005),

Public Law 109­58, was considered. The second incentive program involved a rebate program

that was nominally patterned after an existing rebate programs currently offered by several

utilities.

2.2.2.1 Commercial Customer Rebates

DOE modeled the impact of the customer rebate policy option by determining the

increased customer participation rate due to the rebates (i.e., the percent increase in customers

purchasing high efficiency equipment). It then applied the resulting increase in market share of

efficient units to the NES Spreadsheet Model to estimate the resulting NES and NPV with

respect to the base case.

After reviewing several utility rebate programs currently in place (see Chapter 3 of PTAC

and PTHP TSD), DOE decided to pattern a potential national rebate program after a program

now undertaken by Xcel Energy, which had a rebate program where the rebates varied with

efficiency levels. Xcel Energy is a large utility that provides service to eight Western and

Midwestern States. A small public utility in Minnesota, Shakopee Public Utilities, offers a

similar rebate program.

RIA­4Under these programs, commercial and industrial businesses buying PTACs can receive a

base payment of $7.50 per ton for units rated at 9.20 EER and $1.25 per ton for every

incremental increase of 0.1 EER above base requirements. a When compared against the

incremental total installed costs of higher efficiency PTAC equipment shown in Chapter 5 of the

PTAC and PTHP TSD, the rebates generally range between 17 and 23 percent of the incremental

cost beyond TSL 1. Because the baseline efficiency level specified by American Society of

Heating, Refrigerating and Air Conditioning Engineers / Illuminating Engineering Society of

North America Standard 90.1­1999 (ASHRAE/IESNA Standard 90.1­1999) are above 9.2 EER

for most of PTAC and PTHP equipment classes as shown in Table RIA.2, it is more difficult to

assess an appropriate level of the rebate for the products just above the baseline (specifically, at

TSL 1) used in this final rule. For purposes of this analysis, it was assumed that the same

incremental fraction of the cost between the baseline unit and TSL 1 would be rebated as for

higher incremental efficiency levels. A base payment for any unit exceeding a minimum

efficiency was also assumed to be paid to commercial or industrial customers applying for the

rebate. The specific provisions of the rebate assumed for PTAC equipment were:

a) $10.00 per ton for PTAC equipment rated above the ASHRAE/IESNA Standard 90.1­

1999 efficiency levels

b) A rebate paying 25 percent of the incremental customer selling price difference between

the baseline efficiency level and the particular TSL

For PTHP equipment, the rebate programs offered by Xcel and Shakopee public utilities

double the payment for incremental efficiency above the baseline (from $1.25 to $2.50 per ton of

cooling capacity for every 0.1 increment in the EER). Following that pattern, the provisions

assumed for the PTHP equipment were:

a) $10.00 per ton for PTHP equipment rated above the ASHRAE/IESNA Standard 90.1­

1999 efficiency levels

b) A rebate paying 50 percent of the incremental price difference between the baseline

efficiency level and the particular TSL

As an example comparison, the rebate application form for Xcel Energy shows the

calculation for a PTAC with a 9,000 British thermal units/hour (Btu/h) cooling capacity and EER

of 11.0. This unit would receive a rebate of $39.37 under Xcel’s program. Under the provisions

of the national rebate program constructed for this analysis, a PTHP with a 9,000 Btu/h cooling

capacity at TSL 3 (EER

= 11.1) would receive a rebate of $38.97.

Using method described in Chapter 11 of PTAC and PTHP TSD to estimate market

shares, DOE computed a new distribution of sales by efficiency level corresponding to the TSLs

for each equipment class and capacity. The rebates elicit greater purchases of more efficient

equipment that lower the overall average annual energy consumption per unit. The changes in

shipment­weighted annual energy consumption are shown in Table RIA.3.

a One ton of cooling capacity is equivalent to the 12,000 Btu/h. Thus, the representative capacities of the standard

size PTACs and PTHPs (9,000 Btu/h and 12,000 Btu/h) translate to 0.75 and 1.0 ton units.

RIA­5Table RIA.3 Shipment-Weighted Average Annual Energy Consumption per Unit for

Customer Rebate Policy Option

Equipment Classes Representative

Cooling

Capacity Base Case

(ASHRAE/IESNA

Standard 90.1-1999

(kWh) Customer

Rebate

(kWh) Percent

Change*

Standard Size PTAC 9,000 Btu/h 1,017 1,016 ­0.08%

12,000 Btu/h 1,283 1,282 ­0.08%

Standard Size PTHP 9,000 Btu/h 1,996 1,993 ­0.14%

12,000 Btu/h 2,392 2,389 ­0.14%

Non­Standard PTAC 11,000 Btu/h 1,587 1,585 ­0.12%

Non­Standard PTHP 11,000 Btu/h 2,547 2,543 ­0.12%

* Based on exact savings. Rounded values are shown in the table.

The rebate program lowers the retail cost to the customer, but must be financed by tax

revenues. From a societal point of view, the installed cost at any efficiency level does not

change with the rebate policy option; it simply transfers part of the cost from the customers to

tax payers as a whole. Thus, for calculation of total cost of equipment, the revised estimates of

sales by TSL are multiplied by the pre­rebate costs (i.e., identical to those in the base case).

2.2.2.2 Commercial Customer Tax Credits

DOE assumed a (commercial or industrial) customer tax credit that is patterned after the

tax credits that were created in EPACT 2005. EPACT 2005 provided tax credits to customers

who purchase and install specific products such energy­efficient windows, insulation, doors,

roofs, and heating and cooling equipment. For many of these types of equipment, the tax credit

is equal to the 10 percent of the retail cost, up to specific dollar limits. For example, to receive

the tax credit for energy­efficient windows, the windows need to meet the requirements of the

2000 International Energy Conservation Code (IECC) and subsequent amendments.

The 10­percent customer tax credits were assumed to apply to all PTAC and PTAC

equipment above the baseline efficiency levels (i.e., the efficiency levels specified by

ASHRAE/IESNA Standard 90.1­1999). The credits were assumed to apply only to the retail cost

of the equipment and not to any additional costs related to installation.

The 10­percent cost tax credit leads to increased shares of sales of equipment with

efficiencies above the baseline. In Chapter 11 of PTAC and PTHP TSD, a market allocation

algorithm is used to estimate market shares of current sales of PTAC and PTHP equipment. This

same algorithm was used to estimate the impact of the tax credit upon the shares of equipment by

efficiency (as before, the discrete efficiency levels correspond to the TSLs).

As for the rebate policy option, the method described in Chapter 11 of PTAC and PTHP

TSD was used to estimate the change in market shares that may result from a 10 percent tax

credit. A new distribution of sales by efficiency level (corresponding to the various TSLs) was

computed. The tax credits elicit greater purchases of higher efficiency equipment that lower the

RIA­6overall average annual energy consumption per unit. The changes in shipment­weighted annual

energy consumption are shown in Table RIA.4.

Table RIA.4 Shipment-Weighted Average Annual Energy Consumption per Unit for

Customer Tax Credit Policy Option

Equipment Classes Representative

Cooling Capacity Base Case

(ASHRAE/IESNA

Standard 90.1-1999

(kWh) Customer

Tax Credit

(10%)

(kWh) Percent

Change*

Standard Size PTAC 9,000 Btu/h 1,017 1,013 ­0.36%

12,000 Btu/h 1,283 1,279 ­0.34%

Standard Size PTHP 9,000 Btu/h 1,996 1,987 ­0.42%

12,000 Btu/h 2,392 2,383 ­0.39%

Non­Standard PTAC 11,000 Btu/h 1,587 1,576 ­0.71%

Non­Standard PTHP 11,000 Btu/h 2,547 2,528 ­0.72%

* Based on exact savings. Rounded values are shown in the table.

2.2.3 Voluntary Energy Efficiency Targets

– ENERGY STAR

DOE assumed that a policy option for national voluntary energy efficiency targets would

be administered through the Federal government's ENERGY STAR program conducted by the

Environmental Protection Agency (EPA) under DOE. DOE would qualify energy­efficient

equipment as those exceeding Federal energy conservation standards by a specified amount.

Alternatively, in the case where no Federal energy conservation standard exists, DOE would

qualify energy­efficiency equipment as those exhibiting selected energy saving features.

Generally, the ENERGY STAR program works to recognize the top quartile of equipment on the

market, meaning that approximately 25 percent of equipment on the market meets or exceeds the

ENERGY STAR levels.

Although an ENERGY STAR program for PTACs and PTHPs does not exist, DOE is

considering developing such a program in the future. In general, ENERGY STAR is designed to

encourage manufacturers to promote compliant (labeled) equipment and for customers to

purchase ENERGY STAR labeled equipment, knowing that they will achieve energy savings.

Currently, there are not specific ENERGY STAR criteria for PTAC or PTHP equipment. Most

types of appliances and equipment in the ENERGY STAR program must have an energy

efficiency that is at least 10 percent better than the prevailing national mandatory efficiency

standard. For modeling PTAC and PTHP equipment, DOE assumed that TSL 6 for standard size

equipment (TSL 5 for non­standard size equipment) is a reasonable estimate of where a

qualifying energy efficiency level may be established. TSL 6 for PTACs and PTHPs represent

improvements in energy efficiency of 6 to 15 percent compared to the efficiency levels specified

by ASHRAE/IESNA Standard 90.1­1999, depending on the equipment class and cooling

capacity. TSL 6 for standard size equipment requires the production of PTACs and PTHPs using

R­410A that would be at the “max tech” efficiency levels with R­410A applying the

degradations estimated in the engineering analysis (Chapter 5 of the PTAC and PTHP TSD).

RIA­7The promotional activities of a voluntary energy efficiency program such as ENERGY

STAR are aimed toward increasing the sales of qualifying equipment over time. For purposes of

this analysis, DOE assumed a shift in the distribution of efficiencies toward the ENERGY STAR

compliant equipment to be in the range of 10 percent to 30 percent as compared to the base case.

The revised distribution of efficiencies translates into percentage increases (above the base case)

in the average EER for future shipments.

Because ENERGY STAR is a voluntary program without specific financial incentives,

DOE needs to develop the market distribution of equipment with various efficiencies that would

result from such a program. As for the financial incentive programs, the market shares algorithm

described in the Chapter 11 of PTAC and PTHP TSD was employed. Two key inputs were

changed to employ this algorithm for this analysis. The first input to be changed is termed as

“market heterogeneity” factor. This factor essentially adjusts the importance that equipment

buyers place on economic costs, as compared to other factors, in making their purchase

decisions. The second (set of) inputs related to the “risk premiums” that go into the discount

rates used by buyers to trade­off higher first costs against lower future energy costs. b The market

forces represented by both of these factors can be influenced by a voluntary energy efficiency

program that provides information about the benefits of more efficient equipment.

For standard size PTHP equipment, the results of increasing the market heterogeneity

factor and eliminating the risk premium yielded a significant change in the distribution of

equipment toward more efficient models. c These input changes yielded an approximately 30

percent increase in the market share of (targeted) equipment meeting the assumed criteria for the

voluntary energy efficiency policy option (TSL 6). For standard size PTAC equipment, similar

parameter changes yielded a somewhat lower response (about a 10 percent increase), owing to

the smaller relative economic benefits in going to higher efficiency equipment. d For nonstandard size equipment, the increase in the market share of the highest efficiency units of both

PTACs and PTHPs was about 30 percent. For each equipment class, the overall increase in the

sales­weighted efficiency achieved in this manner is shown in Table RIA.5.

b A discrete distribution of “risk premiums” is used in this algorithm which varies from 1 percent to 1,000 percent

across different market segments. The “risk premium” is added to the “risk­free” rate of 4.5 percent to make up the

discount rate employed by the algorithm. The highest risk premium (1,000 percent) reflects buyers for whom only

the first cost of the equipment enters into the purchase decision. The distribution of risk premiums is derived from

the commercial sector energy module of the Energy Information Administration’s National Energy Modeling

System (NEMS). The documentation for the commercial sector module can be obtained from the EIA website:

http://tonto.eia.doe.gov/FTPROOT/modeldoc/m066(2007).pdf.

c The specific changes were to increase the heterogeneity factor from a value of 10 to 50. For both PTACs and

PTHPs, the risk premiums were set equal to zero; thus making the discount rate equal to the “risk free” rate.

d While the change in the market share of between 10 and 30 percent is a typical target outcome for most Energy

Star labeled appliances and equipment, it should be noted that the total elimination of any risk premium is a severe

assumption. Thus, the savings attributed to this policy should be viewed as an upper limit.

RIA­8Table RIA.5 Shipment-Weighted Average Annual Energy Consumption per Unit for

Voluntary Energy Efficiency Policy Option

Equipment Classes Representative

Capacity ASHRAE/IESNA

Standard 90.1

-

1999 (Base Case)

(kWh) Voluntary

Energy

Efficiency

Policy

Option

(kWh) Percent

Change*

Standard Size PTAC 9,000 Btu/h 1,017 1,011 ­0.54%

12,000 Btu/h 1,283 1,277 ­0.50%

Standard Size PTHP 9,000 Btu/h 1,996 1,977 ­0.92%

12,000 Btu/h 2,392 2,373 ­0.80%

Non­Standard PTAC 11,000 Btu/h 1,587 1,562 ­1.56%

Non­Standard PTHP 11,000 Btu/h 2,547 2,505 ­1.62%

* Based on exact savings. Rounded values are shown in the table.

2.2.4 Early Replacement Incentives

Early replacement refers to the replacement of PTAC and PTHP units before the end of

their useful lives. The purpose of this policy option is to retrofit or replace old, inefficient

equipment with more efficient units. DOE studied the feasibility of a Federal program to

promote early replacement of appliances under the Energy Policy Act of 1992, Public Law 102­

486. In this study, DOE identified Federal policy options for early replacement that include a

direct national program, replacement of Federally owned appliances, promotion through

equipment manufacturers, customer incentives, incentives to utilities, market behavior research,

and building regulations.

While cost­effective opportunities to install more efficient units exist on a limited basis,

DOE determined that a Federal early replacement program is not economically justified because

the PTAC and PTHP market is relatively small and narrow. Moreover, the savings are not likely

to be significantly higher than those achieved by the voluntary ENERGY STAR approach

described in section 2.2.3. A temporary surge in PTAC and PTHP sales in the early 2000s

further reduces the potential for an effective early replacement program.

2.2.5 Bulk Government Purchases

In this policy alternative, bulk government purchases made by Federal, State, and local

governments are encouraged to be of equipment meeting the energy conservation standards. The

motivations for this policy are that 1) aggregating public sector demand could provide a market

signal to manufacturers and vendors that some of their largest customers seek suppliers with

products that meet an efficiency target at good prices, and 2) this could induce “market pull”

impacts through the effects of manufacturers and vendors achieving economies of scale for more

efficiency products. As with the early retirement policy, bulk government purchases may

provide cost­effective opportunities to install more efficient units on a limited basis, it was

concluded that a widespread bulk purchase program was not economically justified. This is

because the share of the market that would be affected by a bulk government purchase program

RIA­9is a small portion of an already relatively small market, as most of the sales are to nongovernmental customers.

2.3 REGIONAL ENERGY CONSERVATION STANDARDS

DOE lacks authority to adopt regional standards for PTAC and PTHP equipment, so it

must reject this alternative. However, DOE does have authority to grant State petitions for an

exemption from Federal preemption of higher standards, if the State filing the petition

demonstrates unusual and compelling State or local energy interests. (42 U.S.C. 6297(d) and

6316(b)(2)(D)) The State has a heavy burden in making such a showing, and DOE must reject

the petition if “interested persons” establish that the State regulation would “significantly burden

manufacturing, marketing, distribution, sale or servicing” of the covered equipment on a national

basis. (42 U.S.C. 6297(d))

Because of the potential variability of standards by State and the widely differing

economic and climate situations, DOE did not undertake a quantitative analysis of regional

standards.

2.4 RESULTS SUMMARY

Table RIA.6 through Table RIA.9 show the NES and NPV of each of the non­regulatory

alternatives. The case in which no regulatory action is taken with regard to PTAC and PTHP

equipment constitutes the base case (or "No Action") scenario. Since this is the base case,

energy savings and NPV are zero by definition. For comparison, the tables include the results of

the various TSLs associated with an energy conservation standard. Energy savings expressed in

Trillion Btu (TBtu), and term of primary or source energy (primary or source energy includes

generation and transmission losses from electricity utility sector ­ refer to Chapter 11 of the

PTAC and PTHP TSD for an explanation of how source energy was estimated). The NPV

amounts shown in the tables refer to the NPV for commercial (and industrial) customers based

on two discount rates (7 percent and 3 percent real).

Table RIA.6 Non-Regulatory Alternatives, Standard Size PTACs

Policy Alternative Primary Energy

Savings

(TBtu) Net Present Value (million 2007$)

7% Discount Rate 3% Discount Rate

No New Regulatory Action 0.0 0.0 0.0

Customer Rebates 1.2 ­0.07 0.3

Customer Tax Credits 5.3 0.1 2.2

Voluntary

– Energy Star 2.2 ­0.2 0.5

Energy Conservation Standard:

TSL 1, 2, 4 5.4 ­3.2 ­1.2

TSL 3 12.1 ­9.3 ­6.5

TSL A 7.9 ­5.2 ­2.7

TSL 5 21.4 ­20.5 ­19.6

TSL 6 32.9 ­38.2 ­43.3

*NPV is the value discounted to 2008 of the future annual estimates of costs and savings. DOE determined the NPV

in 2006 dollars over the period from 2012 through 2062.

RIA­10Table RIA.7 Non-Regulatory Alternatives, Non-Standard Size PTACs

Policy Alternative Primary Energy Savings

(TBtu) Net Present Value (Million 2006$)

7% Discount Rate 3% Discount Rate

No New Regulatory Action 0.0 0.0 0.0

Customer Rebates 0.3 0.7 1.2

Customer Tax Credits 1.6 3.8 7.0

Voluntary

– Energy Star 1.9 4.4 8.0

Energy Conservation Standard:

TSL 1, 2, 4 1.7 2.0 5.5

TSL 3 2.8 2.8 8.3

TSL 5 4.2 3.6 11.5

Table RIA.8 Non-Regulatory Alternatives, Standard Size PTHPs

Policy Alternative Primary Energy Savings

(TBtu) Net Present Value (Million 2006$)

7% Discount Rate 3% Discount Rate

No New Regulatory Action 0.0 0.0 0.0

Customer Rebates 2.6 3.0 6.9

Customer Tax Credits 7.5 9.3 213

Voluntary

– Energy Star 9.0 10.9 25.0

Energy Conservation Standard:

TSL 1 9.1 3.8 17.7

TSL 2, 3 19.0 11.7 44.4

TSL A 24.1 15.1 56.7

TSL 4, 5 27.8 9.7 50.4

TSL 6 35.2 ­3.1 33.7

Table RIA.9 Non-Regulatory Alternatives, Non-Standard Size PTHPs

Policy Alternative Primary Energy Savings

(TBtu) Net Present Value (Million 2006$)

7% Discount Rate 3% Discount Rate

No New Regulatory Action 0.0 0.0 0.0

Customer Rebates 0.3 0.9 1.6

Customer Tax Credits 1.7 5.1 9.3

Voluntary

– Energy Star 2.0 5.7 10.5

Energy Conservation Standard:

TSL 1 1.9 3.1 8.2

TSL 2, 3 2.6 3.7 10.4

TSL 4, 5 4.4 6.1 17.1

As indicated in the tables above, none of the policy alternatives DOE examined would

save energy in comparison to several of the TSLs for energy conservation standards. Also,

several of the alternatives would require new enabling legislation, such as commercial customer

or Federal tax credits, because executive authority to carry out those alternatives does not

presently exist.

RIA­11REFERENCES

1. U.S. Department of Energy. Energy Information Administration. Commercial Sector

Demand Model of the National Energy Modeling System: Model Documentation 2007

. DOE/EIA­M066(2007)

RIA­12