### l

## k ' EE-RMSTD-98-440 JO/

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### RM/57 -48-IVt/O



### .^^REC^oki £Monday,
8 v 

### January 22, 2001



# I' -Part XII 

# Department of 

# {I > 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; Final Rule Finding of No Significant Impact Energy Conservation Program for Consumer Products; Notice "

\ ; 

## EE-RM/STD-98-440 

# #c2..()':1--:"

eE- RM;57i) 

## -9S-ll'/o

Monday, January 22, 2001



# Part XII 

# 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; Final Rule Finding of No Significant Impact Energy Conservation Program for Consumer Products; Notice

# EE-RM/STD-98-440-Oi 9 

# Ut

7170 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

DEPARTMENT OF ENERGY SUPPLEMENTARY INFORMATION: 1. Economic Impact on Manufacturers and Consumers I. Introduction Consumers Office of Energy Efficiency and Introduction2. Life-cycle-cost (LCC) ROnfic hofEnergy Efficuen A

.C onsu m er O v ervi ew 3. Net Present Value and Net National Renewable Energy 1. Background Employment 2. Central Air Conditioner and Heat Pump 4. Impact on Utility or Performance of 10 CFR Part430 Features Products 3. Consumer Benefits 5. Impact ofAny Lessening ofCompetition [Docket Number EE-RM-98-40] 4. National Benefits 6.Need ofthe Nation to Save Energy RIN1904AA7 B.Authority 7.Other Factors C.Background E.Conclusion Energy Conservation Program for II.General Discussion VI. Procedural Issues and Regulatory Review Energy Conservatin Program for A. Technological Feasibility A. Review Under the National Consumer Products: Central Air 1.General Environmental Policy Act Conditioners and Heat Pumps Energy 2.Maximum Technologically Feasible B.Review Under Executive Order 12866, Conservation Standards Levels "Regulatory Planning and Review'

AGENCY: ffie ofEnergy Efficiency and B. Energy Savings C. Review under the Regulatory Flexibility AGENCY: ffice ofEnergy Efficiency and 1.Determination ofSavingsAct Renewable Energy, Energy. 2. Significance of Savings D. Review Under the Paperwork Reduction ACTION: Final rule. C. Rebuttable Presumption Act -D.Economic Justification E.Review Under Executive Order 12988, SUMMARY: The Department ofEnergy 1. Economic Impact on Manufacturers and "Civil Justice Reform' (DOE or Department) has determined Consumers F. "Takings" Assessment Review that revised energy conservation 2. Life-cycle-costs G.Review underExecutive Order 13132 standards for central air conditioners 3. Energy Savings H. Review Under the Unfunded Mandates standards or

central air conditioners 4. Lessening ofUtility or Performance of Reform Act and heat pumps will result in Products and heat pumps will result in Products I.Review Under theTreasury andGeneral significant conservation ofenergy, are 5. Impact ofLessening ofCompetition Government Appropriations Act of 1999 technologically feasible, and are 6. Need ofThe Nation to Conserve Energy j. Review Under the Plain Language economically justified. On this basis, 7.Other Factors Directives the Department is today amending the III. Methodology K.Congressional Notification existing energy conservation standards IV.Discussion ofComments for central air conditioners adA. Burdens and Benefits I. Introduction 1.Economic Impacts. 

### C pumps. a. Economic Impacts on Manufacturers A. ConsumerOverview EFFECTIVE DATE: The effective date of b. Economic Impacts onConsumers 1. Background this rule is February 21, 2001. 2.Life-Cycle Costs 3.Energy Savings The Department ofEnergy (DOE or ADDRESSES: A copy of the Technical 4 Lessening ofUtility or Performance of the Department) is directed by the Support Document (TSD) may be read at Products Energy Policy and Conservation Act to the DOE Freedom ofInformation 5.Impact ofLessening ofCompetition consider establishing minimum Reading Room, U.S. Department of 6. Need of the Nation to Conserve Energy efficiency standards for various Energy, Forrestal Building, Room 1E- 7.Other Factors consumer products, including central 190, 1000 Independence Avenue, SW., B.Analysis and Assumptions air conditioners and heat pumps Washington, DC 20585, (202) 586-3142, :. Engineering Analysis between the

hours 0 ) 5 42 a.Reliance on ARI and Reverse Today's final rule adopts standards that between the hours of 9:00 a.m. and 4:00 Engineering CostEstimates are consistent with these requirements p.m., Monday through Friday, except b. Consideration ofEmerging Technologies ofthe law. The Department is amending Federal holidays. Copies ofthe TSD 2.Life Cycle Cost (LCC) analysis the almost ten year old minimum may be obtained from: the Codes and a.Probability-based analysis efficiency standards for new central air Standards Internet site at: http:// b. Energy Use conditioners and heat pumps. These www.eren.doe.gov/buildings/ c.Electricity Prices amended standards take into account a codes standards/applbrf/ d. Product Lifedecade oftechnological advancements central air conditioner.html or from the e Istllation Cost and will save consumers and the nation f. Mark-ups andwill save consumers andthe nation U.S. Department of Energy, Office of 3.Shipments/National Energy Savings money, significant amounts ofenergy, Energy Efficiency and Renewable a.Adjustments to NAECA Shipment andhave substantial environmental and Energy, Forrestal Building, Mail Station Scenario economic benefits. EE-41, 1000 Independence Avenue, b.Fuel Switching When today's adopted standards go SW., Washington, DC 20585-0121. (202) c. Drop in Shipments in New Construction into effect, they will essentially raise the 586-9127. Market energy efficiency standards to 13 SEER FOR FURTHER INFORMATION CONTACT: Dr. 4. Manufacturer Impact Analysis for new central airconditioners and to Michael E. McCabe, U.S. Department of 5 Utility Impacts 13 SEER/7.7 HSPF for new central air Energy, Office of Energy Efficiency and 6.Projection ofTrends conditioning heat pumps (heat pumps). Renewable Energy, EE-41, 1000 C.Other Comments SEER, Seasonal Energy Efficiency Ratio, Independence Avenue, SW., 1. HCFC Phaseout is the Department's measure ofenergy Washington, DC 20585-0121, (202) 586- 2. Ozone Reduction Catalyst Requirement efficiency for the seasonal cooling 0854, e-mail: D.Additional Standard Requirements performance of central air conditioners michael.e.mccabe@ee.doe.gov, or 1. EER Standard and heat pumps. HSPF, Heating Eugene Margolis, Esq., U.S. Depart TXV Reuiment Seasonal Performance Factor, is the 3.HSPF Levels ofEnergy, Office of General Counsel, V.Analytical Results and Conclusions Department's measure of energy

- GC-72, 1000 Independence Avenue, A.Trial Standard Levels efficiency for the seasonal heating SW., Washington, DC 20585, (202) 586- B.Significance ofEnergy Savings performance ofheat pumps. The 9507, e-mail: C.Payback Period standards will apply to products eugene.margolis@hq.doe.gov. D. Economic Justification manufactured for sale in the United t, 

# EEoRM/STOo 

# 98-440--#**~O**

# tt

7170 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy

10 CFR Part 430 [Docket Number EE-RM-98-440]
RIN 1904-AA77 Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy, Energy. ACTION: Final rule.

SUMMARY: The Department ofEnergy (DOE or Department) has determined that revised energy conservation standards for central air conditioners and heat pumps will result in significant conservation ofenergy, are technologically feasible, and are economicallyjustified. Onthisbasis, the Department is today amending the existing energy conservation standards for central air conditioners and heat pumps. EFFECTIVE OATE: The effective date of this rule is February 21,2001. ADDRESSES: A copy ofthe Technical SupportDocument (TSD) may beread at the DOE Freedom ofInformation Reading Room, U.S. Department of Energy,Forrestal Building,Room lE190,1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-3142, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. Copies ofthe TSD maybe obtained from: theCodes and Standards Internet site at: http:// www.eren.doe.govlbuildings! codes_standards!applbrf! central air conditioner.html orfrom the U.S.

### D~artment ofEnergy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-0121. (202) 586-9127. FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department of Energy, Office ofEnergy Efficiency and Renewable Energy, EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586- 0854, e-mail: michael.e.mccabe@ee.doe.gov, or Eugene Margolis, Esq., U.S. Department ofEnergy, Office ofGeneral Counsel, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586- 9507, e-mail: eugene.margolis@hq.doe.gov. SUPPLEMENTARY INFORMATION: I. Introduction

A. Consumer Overview 1.Background 2. Central Air Conditioner and Heat Pump

Features 3. Consumer Benefits 4. National Benefits B. Authority C. Background II. General Discussion

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

Levels B. Energy Savings 1. Determination ofSavings 2. Significance ofSavings C. Rebuttable Presumption D. EconomicJustification 1.Economic Impact on Manufacturers and

Consumers 2. Life-cycle-costs 3. Energy Savings 4. Lessening ofUtility or Performance'of

Products 5. Impact ofLessening ofCompetition 6. Need ofThe Nation to ConserveEnergy 7. Other Factors III.Methodology IV. Discussion ofComments

A. Burdens and Benefits 1.Economic Impacts
a. Economic Impacts on Manufacturers b. Economic Impacts on Consumers**:~.** Life-Cycle Costs :I. Energy Savings <I. Lessening ofUtility or Performance of

Products 5. Impact ofLessening ofCompetition 6. Need ofthe Nation to Conserve Energy 7. OtherFactors B. Analysis and Assumptions 1. Engineering Analysis
a. Reliance on ARI and Reverse

Engineering CostEstimates b. Consideration ofEmerging Technologies 2. Life Cycle Cost (LCC) analysis
a. Probability-based analysis h. Energy Use

. c. Electricity Prices d. Product Life
e. Installation Cost f. Mark-ups 3. ShipmentslNational Energy Savings
a. Adjustments to NAECA Shipment

Scenario b. Fuel Switching
c. Drop in Shipments in New Construction

Market 4. ManufacturerImpact Analysis 5. Utility Impacts
a. Peak Demand Impacts 6. Projection ofTrends C. Other Comments 1. HCFC Phaseout 2. Ozone Reduction Catalyst Requirement D. Additional Standard Requirements 1. EER Standard 2. TXV Requirement 3. HSPF Levels V. Analytical Results and Conclusions

A. Trial Standard Levels B. Significance ofEnergy Savings C. PaybackPeriod D. Economic Justification 1. Economic Impact on Manufacturers and Consumers 2. Life-cycle-cost (LCC) 3. Net Present Value and Net National

Employment 4. Impact on Utility or Performance of

Products 5. Impact ofAny Lessening ofCompetition 6. Need ofthe Nation to Save Energy 7. Other Factors E. Conclusion VI. 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 undertheRegulatoryFlexibility

Act D. Review Under the PaperworkReduction

Act E. Review Under Executive Order 12988,

"Civil Justice Reform' F. "Takings" AssessmentReview G. Review under Executive Order 13132 H. Review Under the Unfun,ded Mandates

Reform Act I. Review Under the Treasury and General

Government Appropriations Act of 1999 J. Review Under the Plain Language

Directives K. Congressional Notification I. Introduction A. 

### Consumer Overview
1. Background

The Department ofEnergy (DOE or theDepartment) is directed by the Energy Policy and Conservation Actto consider establishing minimum efficiency standards for various

consumerproducts, including central air conditioners andheat pumps. Today's final rule adopts standards that

are consistent with these requirements ofthe law. The Department is amending the almost ten year old minimum efficiency standards for newcentral air conditioners and heat pumps. These amended standards take into account a decade oftechnological advancements and will save consumers and the nation money, significant amounts ofenergy, and have substantial environmental and economicbenefits.

When today's adopted standards go into effect, they will essentiallyraise the energy efficiency standards to 13 SEER for new cerltral airconditioners and to 13 SEER/7.7 HSPF for newcentral air conditioningheat pumps (heat pumps). SEER, Seasonal Energy EfficiencyRatio, is the Department's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and heat pumps. HSPF, Heating Seasonal Performance Factor, is the Department's measure ofenergy efficiency for the seasonalheating performance ofheat pumps. The standards 

### will'apply toproducts manufactured for sale inthe United

# EE-RM/STD-98-440- c2

Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7171

States, as ofJanuary 23, 2006. The is not yet adopting new standards for pump designs that are already available standard for split-system air some products to ensure thatmore in the market. We fully expect conditioners, the most common type of efficient versions remain available for variations ofthese models to exist under residential air conditioning equipment, niche applications. The Department has the new standards, offering all the represents a 30 percent improvement in determined that the new standards are features and utility that are found in energy efficiency. For split-system heat the highest efficiency levels that are currently available products. pumps, the new standard would technically feasible and economically represent a 30 percent improvement in justified as required by law. Therefore, 3. Consumer Benefits cooling efficiency and a 13 percent the Department is amending the energy Table 1.1 summarizes the improvement in heating efficiency. The conservation standards for residential "characteristics" oftoday's typical standard will also increase the cooling central air conditioners and heat pumps. characteristics oftoday's typical efficiency of single-package air central air conditioners and heat pumps. conditioners and single-package heat 2. Central Air Conditioner and Heat Table 1.2 presents the implications for pumps by 34 percent and the heating Pump Features the average consumer ofthe standards efficiency of single-package heat pumps The amended efficiency levels can be becoming effective in 2006. by 17 percent. Finally, the Department met by central air conditioner and heat
TABLE 1.1.-CHARACTERISTICS OF TODAY'S TYPICAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS1
Split system Split system Single Single air conditioner heat pump package air package heat conditioner pump Average Installed Price

............ ................................................................. $2,236 $3,668 $2,607 $3,599 Annual Utility Bill2

........................................................................... $189 $453 $189 $453 Life Expectancy (years)

................................................................................... 18.4 18.4 18.4 18.4 Energy Consumption per year (kWh)

.............................................................. 2,305 6,549 2,305 6,549

1"Typical" equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively. 2 Utility bill pertains to the energy cost of operating the air conditioner or heat pump.
TABLE 1.2.-IMPLICATIONS OF NEW STANDARDS FOR THE AVERAGE CONSUMER
Split system Split system Single Single air conditioner heat pump packae air package heat conditioner pump Year Standard Comes into Effect

.................................................. 2006 2006 2006 2006 New Average Installed Price

........................................ .......... $2,571 $4,000 $3,032 $4,034 Estimated Price Increase

................................................................................. $335 $332 $425 $435 Annual Utility Bill Savings

................................................. . $42 $70 $42 $70 Average Net Saving over Equipment Life

....................................................... $113 $372 $29 $353 Energy Savings per Year (kWh)

...................................................................... 532 1081 532 1081

The most typical air conditioner (i.e., consumer and operate their equipment energy over 25 years (2006 through split system air conditioners which more or less often. Consequently, the 2030). This is equivalent to all the comprise approximately 65 percent of Department has investigated the effects energy consumed by nearly 26 million today's central air conditioning and heat ofthe different energy prices across the American households in a single year. pump market) has an installed price of nation and different air-conditioning We also estimate this standard will have $2,236 and an annual utility cost of usage patterns. The Department a net benefit to the nation's consumers $189. In order to meet the 2006 estimates that 61 percent ofall of$1billion over the same period. In standard, the Department estimates that consumers purchasing a new typical air 2020, the standards will avoid the the installed price of a typical air conditioner will either save money or construction offive 400 megawatt coalconditioner will be $2,571, an increase will be negligibly impacted as a result fired plants and thirty-four 400 of $335. This price increase will be ofthe 2006 standard. In the case ofa megawatt gas-fired plants. These energy offset by an annual energy savings of new typical heat pump, 94 percent ofall savings will result in cumulative about $42 on the utility bills. The most consumers either save money or will be greenhouse gas emission reductions of typical heat pump (i.e., split system heat negligibly impacted. approximately 33 million metric tons pump) currently has an installed price The Department also investigated how (Mt) ofcarbon, or an amount equal to of$3,668 and an annual utility cost of these standards might affect low income that produced by approximately 3 $453. In order to meet the 2006 consumers. On average, the Department million cars every year. Additionally, standard, the Department estimates that estimates that it is likely that low air pollution will be reduced by the the installed price ofa typical heat income air conditioner and heat pump elimination ofapproximately 94 pump will be $4,000, an increase of consumers will also save money as a thousand metric tons ofnitrous oxides $332. This price increase will be offset result ofthe standard. (NOx) from 2006 through 2020. by an annual energy savings ofabout $70 on the utility bills. 4. National Benefits B.Authority

The Department recognizes that most The standards will provide benefits to Part B ofTitle III ofthe Energy Policy
consumers pay energy prices that are the nation. DOE estimates the standards and Conservation Act (EPCA), Pub. L. higher or lower than the "typical" will save approximately 4.2 quads of 94-163, as amended by the National

# E~.RM/STD.~-#J{O'-fFederal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 

### 7171

States, as ofJanuary 23, 2006. The is not yet adopting new standards for standard for split-system air some products to ensurethatmore conditioners, the most common type of efficient versions remain available for residential air conditioning equipment, niche applications. TheDepartmenthas represents a 30 percent improvement in determined that the new standards are energy efficiency. For split-system heat the highest efficiency levels that are pumps, the new standard would technically feasible and economically represent a 30 percent improvement in justified as required by law. Therefore, cooling efficiency and a 13 percent theDepartmentis amending the energy improvement in heating efficiency. The conservation standards for residential standard will also increase the cooling central airconditioners andheatpumps. efficiency ofsingle-package air 2. Central Air Conditioner and Heat conditioners and single-package heat pumpsby 34 percent and theheating PumpFeatures efficiency ofsingle-package heat pumps The amended efficiency levels canbe by 17 percent. Finally, the Department metby central air conditioner andheat pump designs that are already available inthe market. We fully expect variations ofthese models to exist under the new standards, offering all the features and utility that are found in currently available products. 3. Consumer Benefits

Table 1.1 summarizes the "characteristics" oftoday's typical central airconditioners andheatpumps. Table 1.2 presents the implications for the average consumer ofthe standards becoming effective in 2006.

TABLE 1.1.-CHARACTERISTICS OF TODAY'S TYPICAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS 1 

### Split system Split system Single Single package air package heat air conditioner heat pump conditioner pump Average Installed Price

.................................................................................... $2,236 $3,668 $2,607 $3,599 

### Annual Utility BiII2

............................................................................................ $189 $453 $189 $453 

### Life Expectancy (years)

................................................................................... 18.4 18.4 18.4 18.4 

### Energy Consumption per year (kWh)

.............................................................. 2,305 6,549 2,305 6,549

1 

### ''Typical'' equipment have cooling and heating efficiencies of 10 

### SEER and 6.8 

### HSPF, respectively.
2 

### Utility bill 

### pertains to the energy cost of operating the air conditioner or heat pump.

TABLE 1.2.-IMPLICATIONS OF NEW STANDARDS FOR THE AVERAGE CONSUMER


### Split system air conditioner

Year Standard Comes into Effect

.................................................................... 2006 

### New Average Installed Price

........................................................................... $2,571 

### Estimated Price Increase

................................................................................. $335 

### Annual Utility Bill 

### Savings

................................................................................ $42 

### Average Net Saving over Equipment Life

....................................................... $113 

### Energy Savings per Year (kWh)

...................................................................... 532



### Themost typical airconditioner (i.e., 

### split system air conditioners which comprise approximately 65 

### percent of today's central air conditioning andheat pump market) has an installed price of $2,236 and an annual utility cost of $189. In orderto meet the 2006 standard, theDepartment estimates that the installedprice ofa typical air conditioner will be $2,571, an increase of$335. Thisprice increase will be offsetby anannual energy savings of about $42 onthe utility bills. The most typical heat pump (i.e., 

### split system heat pump) currentlyhas an installed price of$3,668 and an annual utility cost of $453. In orderto meet the 2006 standard, the Department estimates that the installed price ofa typical heat pump will be $4,000, an increase of $33'2. This price increase will be offset by an annual energy savings ofabout $70 on the utilitybills.

The Departmentrecognizes that most
consumers pay energy prices that are higher or lower thanthe "typical" consumerand operate theirequipment
more or less often. Consequently, the Departmenthas investigated the effects ofthe different energy prices across the nation and different air-conditioning usage patterns. The Department estimates that 61 percent ofall
consumers purchasing a newtypical air conditionerwill either savemoney or will be negligibly impacted as a result ofthe 2006 standard. In the case ofa newtypical heat pump, 94 percentofall
consumers either save money orwillbe negligibly impacted.

.

TheDepartment also investigated how these standards might affect lowincome
consumers. On average, the Department estimates that it is likely thatlow income air conditioner and heatpump consumers will also save money as a result ofthe standard.
4. National Benefits

The standards will providebenefits to the nation. DOE estimates the standards will save approximately 4.2 quads of Split system Single Single heat pump packaQe air package heat conditIoner pump
2006 2006 2006 $4,000 $3,032 $4,034

$332 $425 $435

$70 $42 $70 $372 $29 $353 1081 532 1081



### energy over 25 years (2006 through 2030). This is equivalentto all the energy consumed by nearly 26 million American households in a single year. We also estimate this standard will have
a net benefit to the nation's consumers of$1 billion overthe same period. In 2020, the standards will avoid the construction offive 400 megawatt coalfired plants and thirty-four400 megawattgas-fired plants. Theseenergy savings will result in cumulative greenhouse gas emission reductions of approximately 33 million metric tons (Mt) ofcarbon. or an amount equal to that produced by approximately 3 million cars every year. Additionally, airpollution will be reducedbythe elimination ofapproximately 94 thousand metric tons ofnitrous oxides (NOx) from 2006 through 2020.
B. 

### Authority

Part BofTitle III oftheEnergy Policy and Conservation Act (EPCA), Pub. L. 94-163, as amended by the National

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

## s

7172 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

Energy Conservation Policy Act, Pub. L. (iii) Thetotal projected amount ofenergy -Split system and single-package air 95-619, bythe National Appliance savings likely to result directly from the conditioners-12 SEER Energy Conservation Act, Pub. L. 100- imposition ofthe standard; -Split system and single package heat 12, by the National Appliance Energy iv)Any lessening ofthe utilityor the mps--13 SEER/7.7 HSPF 12, bythe National Appliance Energy performance ofthe covered products likely to pumps-13 SEERJ7.7 HSPF Conservation Amendments of 1988, result from the imposition ofthe standard; -Through-the-Wall air conditioners Pub. L. 100-357, and by the Energy (v)The impact of any lessening of and heat pumps- 1 SEER/7.1 HSPF. Policy Act of 1992, Pub. L. 102-486' competition, as determined in writing bythe In addition to the increase proposed created the Energy Conservation Attorney General, that is likely to result from in SEER and HSPF, the Department Program for Consumer Products other the imposition ofthe standard; requested comments on a proposal to than Automobiles. The consumer (vi) Theneed for national energy adopt a standard for steady-state cooling products subject to this program (oftener faco rs the Secretary conefficiency, EER. The proposal on EER (vii) Other factors the Secretary considers efficiency, EER.2 The proposal on EER referred to hereafter as "covered relevant." was designed to ensure more efficient products") include central air 

### t

- operation at high outdoor temperature, conditioners and heat pumps. In addition, section 325(o)(2)(B)(iii) during periods when electricity use by establishesdairebuttableopresumptionrofsduring periods when electricity use by Under the Act, the program consists establishes a rebuttable presumption of airconditioners is at its peak. essentially ofthree parts: testing, economic justification in instances The proposed rule provided labeling, and Federal energy here the Secretary determines that additional background information on conservation standards. the current standards, the history of

The National Appliance Energy purchasing a product complying withhe Conservation Act of 1987 (NAECA) an energy conservation standard level previolicies will be less than three times the value procedures, interpretations and policies prescribed initial Federal energyheene * * * s du e which guide the Department in conservation standards for central air ofthe energy * * ncy standards, first yearthat the consumer will receive developing new efficiency standards, conditioners and heat pumps. EPCA as a r ltofthest dard l t which are set forth as the Process Section 325(d), 42 U.S.C. 6295(d). The under the a icablt s rocedure Improvement Rule. 61 FR 36974. A Act specifies that the Department isto *." The rebuttable presumption test public hearing was held in Washington, review the standards January 1, 1994. is an alternative path to establishing DC on November 16, 2000, to hear oral EPCA Section 325(d)(3)(A), 42 U.S.C. economic justification views, data and arguments on the 6295(d)(3)(A). proposed rule.

Any new or amended standard must C. Background. General Discussion be designed so as to achieve the The existing standards for residential maximum improvement in energy central airconditioners andheat pumps A. Technological Feasibility efficiency that istechnologically have been in effect since 1992. As 1 General feasible and economically justified. described above, the descriptor for air EPCA Section 325(o)(2)(A), 42 U.S.C. conditioner and heat pump cooling There are central air conditioners and 6295(o)(2)(A). efficiency is SEER and the descriptor for heat pumps in the market at all ofthe

Section 325(o)(2)(B)(i) provides that heat pump heating efficiency is HSPF. efficiency levels prescribed in today's before DOE determines whether a The current central air conditioner and final rule. The Department, therefore, standard is economically justified, it heat pump efficiency standards are as believes all ofthe efficiency levels must first solicit comments on a follows: adopted by today's final rule are proposed standard. After reviewing -Split system air conditioners and heat technologically feasible. comments on the proposal, and before it pumps-10 SEER/6.8 HSPF 2. Maximum Technologically Feasible adopts a standard, DOE must then -Single package air conditioners and Levels determine whether the benefits ofthe heat pumps-9.7 SEER/6.6 HSPF standard exceed its burdens, based, to On September 8,1993, DOE Pursuant to section 325(p)(2) ofthe the greatest extent practicable, on a published an Advance Notice of Act, and as discussed in the proposed weighing ofthe following seven factors: Proposed Rulemaking (ANOPR) ru le, the Department determined that 18

"(i) The economic impact ofthe standard announcing the Department's intention SEER is the maximum technologically on the manufacturers and on the consumers to revise the existing central air feasible (Max Tech) level for cooling ofthe products subject to such standard; conditioner and heat pump efficiency efficiency for all product classes and

(ii) The savings in operating costs standard. 58 FR 47326. During a capacities covered by this rulemaking. throughout the estimated average life ofthe workshop on June 30, 1998, we 65 FR 59593. The Max Tech level for covered product in the type (or class) presented for comment an analytical heating efficiency, is 9.4 HSPF which is compared to anyincrease in the price of, or framework for the central air the highest HSPF rating currently in the initial charges for,or maintenance conditioner and heat pump standards available in residential heat pumps. expenses of,the covered products which are likely to result from the imposition ofthe rulemaking. The analytical framework B.Energy Savings standard; described the different analyses tobe conducted, the method for conducting 1 Determinaton of Savings
'Part BofTitle 111 ofthe Energy Policy and them, the use ofnew spreadsheets, and The Department forecasted energy Conservation Act, as amended by the National the relationship of the various analyses. savings through the use ofa national Energy Conservation Policy Act, the National On November 24, 1999, DOE published energy savings (NES) spreadsheet as ApplianceEnergy Conservation Act, theNational a Supplemental ANOPR. 64 FR 66306. discussed in the proposed rule. 65 FR AppliancdeEnergy olcctit of 1992. is referred On October 5, 2000, DOE published a 59590, 59593 (October 5, 2000). The toin this noticeas EPCA, or the "Act." Part Bof Notice ofProposed Rulemaking (NOPR TitleII iscodified at42 U.S.C. 6291 etseq. Part or proposed rule). 65 FR 59590. The 2 EER, Energy Efficiency Ratio. isasteady-state BofTitleIll oftheEnergy Policy and Conservation energy efficiency standards proposed for measureofenergy efficiencywhich measures Act, as amended by the National Energy rsidential central air conditioners and efficiency at aprescribed outdoor temperature (95 Conservation Policy Act only, isreferred to inthis rsidntial cntral air conditionrs and F), and isoneofthe test conditions in the notice as the National Energy Conservation Policy central air conditioning heat pumps Department's test procedure used to develop the Act. (heat pumps) were as follows: SEER 

### ., 

## , 7172 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

Energy Conservation Policy Act, Pub. L. 95-619,bythe National Appliance Energy Conservation Act, Pub. L. 100- 12, bytheNational Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, andbytheEnergy Policy Act of 1992,Pub. L. 102-486 1 created theEnergy Conservation Program for Consumer Products other thanAutomobiles. The consumer products subject to this program (often referred to hereafter as "covered products") include central air conditioners andheat pumps.

Underthe Act, theprogram consists essentially ofthreeparts: testing, labeling, and Federal energy conservation standards.

The National Appliance Energy ConservationAct of 1987 (NAECA) prescribed**in~tial** Federal energy conservation standards for central air conditioners and heatpumps. EPCA Section 325(d), 42 U.S.c. 6295(d). The Act specifies that the Department is to review the standardsJanuary 1, 1994. EPCA Section 325(d)(3)(A), 42 U.S.C. 6295(d)(3)(A).

Any new or amended standard must be designed so as to achieve the maximum improvementinenergy efficiency that is technologically feasible and economicallyjustified. EPCA Section 325(0)(2)(A), 42 U.S.C. 6295(0)(2)(A).

Section 325(0)(2)(B)(i) providesthat beforeDOE determines whether a standard is economicallyjustified, it mustfirst solicit comments on a proposed standard. Afterreviewing comments onthe proposal, and before it adopts a standard,DOE mustthen determine whetherthe benefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors:

"(i) The economic impact ofthe standard
on the manufacturers and on the consumers ofthe products subject to such standard;

(ii) The savings in operating costs throughout the estinlated average life ofthe covered productin the type (orclass) 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 ofthe standard;

1Part BofTitloIII oftho Energy Policy and Conservation Act. as amended by the National Energy Conservation Policy Act, theNational ApplianceEnergy Conservation Act, theNational ApplianceEnergy Conservation Amendments of 1988, and the Energy Policy Act of 1992, is referred to in this noticeasEPCA, or the "Act." Part Bof TitleIII is codified at 42 U.S.C. 6291 et seq. Part B ofTitle III oftho Energy Policy and Conservation Act, as amendedby theNational Energy Conservation Policy Act only, is referred to in this notice as the National Energy Conservation Policy Act. (iii) The total projected amount ofenergy savings likely to result directly from the imposition ofthe standard;

(iv) Any lessening ofthe utility orthe performance ofthe covered products likely to result from the imposition ofthe standard;

(v) The impact ofany lessening of competition, as determined in writing by the Attorney General. that is likely to result from the imposition ofthe standard;

(vi) The need for national energy conservation; and

(vii) Other factors the Secretary considers relevant."

In addition, section 325(0)(2)(B)(iii) establishes a rebuttable presumption of economicjustification in instances wherethe Secretary determines that "theadditional costto the consumer of purchasing a product complying with
an energy conservation standard level will be less than three times the value ofthe energy"

.. .. savings duringthe first yearthat the consumerwill receive
as a result ofthe standard, as calculated underthe applicable test procedure

.. .. "."The rebuttable presumptiontest is an alternative path to establishing economicjustification. 

### C. 

### Background

Theexisting standards for residential central airconditioners andheatpumps havebeen in effect since 1992. As described above, the descriptor for air conditioner and heat pump cooling efficiency is SEER and the descriptor for heat pumpheating efficiency is HSPF. The currentcentral air conditioner and heatpump efficiency standards are as follows: -Split system airconditioners andheat

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

heatpumps-9.7 SEER/6.6 HSPF On September 8,1993, DOE published an Advance Notice of Proposed Rulemaking (ANOPR) announcing the Department's intention to revisethe existing central air conditioner and heat pump efficiency standard. 58 FR 47326. Duringa workshop onJune 30, 1998, we presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking. The analytical framework described the different analyses to be conducted, the method for conducting them, the use ofnew spreadsheets, and therelationship ofthe various analyses. OnNovember 24, 1999. DOE published
a Supplemental ANOPR. 64 FR 66306. On October 5.2000, DOE published a Notice ofProposed Rulemaking (NOPR
orproposed rule). 65 FR 59590. The energy efficiency standards proposed for rE$idential central air conditioners and central air conditioningheatpumps (heat pumps) were as follows: -Split system and single-package air conditioners-12 SEER -Split system and single package heat

pumps-13 SEERl7.7 HSPF -Through-the-Wall airconditioners

andheatpumps-ll SEERl7.1 HSPF. In addition to the increase proposed in SEER and HSPF, the Department requested comments on a proposal to adopt a standard for steady-state cooling efficiency, EER.2 The proposal onEER
was designed to ensure more efficient operation athigh outdoortemperature, duringperiods when electricity use by air conditioners is at its peak.

The proposed rule provided additional background information on the current standards, thehistory of previous rulemakings and the procedures, interpretations and policies whichguidethe Department in developing new efficiency standards, which are set forth as the Process ImprovementRule. 61 FR 36974. A publichearing was held in Washington, DC onNovember 16. 2000, to hear oral views, data and arguments on the proposedrule. II. GeneralDiscussion 

### A. 

### Technological Feasibility 1. General

There are central air conditioners and heatpumps inthe market at all ofthe efficiency levels prescribed intoday's final rule. TheDepartment,therefore, believes all ofthe efficiency levels adoptedbytoday's final rule are technologically feasible. 2. MaximumTechnologicallyFeasible Levels

Pursuantto section 325(p)(2) ofthe Act, and as discussed inthe proposed rule, the Department determined that 18 SEER is the maximum technologically feasible (Max Tech) level for cooling efficiency for all product classes and capacities covered bythisrulemaking. 65 FR 59593. TheMax Tech level for heating effiCiency, is 9.4 HSPF which is thehighest HSPF rating currently available inresidential heat pumps. 

### B. EnergySavings 1. Determination ofSavings

TheDepartment forecasted energy savings through the use ofa national energy savings (NES) spreadsheet as discussed in the proposed rule. 65 FR 59590,59593 (October 5. 2000). The

.

ZEER, Energy EffiCiency Ratio. is a stendy-state

measureofenergy efficiency which measures efficiency at a prescribed outdoor temperature (95 OF), and is oneofthe test conditions in the Department's tost procedure used to develop the SEER.

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spreadsheets and assumptions upon 2. Life-cycle-costs 7. Other Factors which the results oftoday's final rule is We considered life-cycle-costs as This provision allows the Secretary of based are unchanged. discussed in the proposed rule. 65 FR Energy, in determining whether a 2. Significance of Savings 59590, 59594 (October 5, 2000). The standard is economically justified, to

As discussed in the proposed rule, installed price and operation and consider any other factors that the section 325(o)(3)(B) ofthe Act prohibits maintenance costs were calculated for a Secretary deems to be relevant. EPCA the Department from adopting a range of consumers around the nation to Section 325(o)(2)(B)(i)(VI), 42 U.S.C. standard for a product ifthat standard estimate the range in life cycle cost 6295(o)(2)(B)(i)(VI). would not result in "significant" energy benefits that consumers would expect to Under this factor, we considered the savings. The energy savings forthe achieve due to new standards. potential improvement to the reliability 

## ~~~~~~~~~savings.~~ ~ me energy savings fof theelectrical system. Recent standard levels we are adopting today 3. Energy Savings summertime electric power outages in 

### are non-trivial-indeed they are substantial-and therefore we consider While significant conservation of various regions of our country resulted them "significant" within the meaning energy is a separate statutory in disruption ofmany peoples' lives and of section 325 ofthe Act. requirement for establishing an energy businesses. The schedule contained in conservation standard, the Act requires the Act called for the Department to C. RebuttablePresumption DOE, in determining the economic revise the standards for central air

The National Appliance Energy justification ofa standard, to consider conditioners and heat pumps by 1994, Conservation Act established new the total projected energy savings that to be effective in 1999. For reasons criteria for determining whether a are expected to result directly from explained in the proposed rule and standard level is economically justified. revised standards. ANOPR, promulgation ofmany Section 325(o)(2)(B)(iii) ofthe Act Lessening ofUility or Perfstandards including those for central air 4. Lessening ofUtility or Performance of conditioners and heat pumps was s t a t e s : Products delayed.

"Ifthe Secretary finds thatthe additional This factor cannot be quantified. In While central air conditioning cost to the consumer of purchasing a product complying with an energy conservation establishing classes ofproducts, the accounts for about 10 percent of standard level willbe less thanthree times Department has attempted to eliminate residential electricity consumption, it the value of the energy * * *savings during any degradation ofutility or can account for several times this the first year thatthe consumer willreceive performance in the products covered by amount during peak hours on hot
as a result ofthe standard, as calculated today's final rule. Attributes that affect summer days, when electricity under the applicable test procedure, there utility include the product's ability to reliability is most strained. A 30 percent shall be arebuttable presumption that such cool and dehumidify. In some improvement in air conditioner standard level is economically justified. A standard level is economically ustified A applications, noise levels may also be an efficiency would reduce the nation's determination by the Secretary that such criterion is notmet shall not be taken into aspect ofutility. Product size ortotal annual electricity use by consideration in the Secretary's configuration can also be considered approximately 2 percent after itwas determination ofwhether a standard is utility if a change in size would cause fully phased in. However, the same economically justified." the consumer to install the product in efficiency improvement would provide

If, according to the test procedure, the a location or in a manner inconsistent a greater percentage reduction in peak increase in initial price ofan appliance with the consumer's preferences. loads, reducing the prospect of due to a conservation standard would 5. Impact ofLessening of Competition brownouts and prie spikes. These peak repay itselfto the consumer in energy load reductions are critical given that savings in less than three years, then we It is important to note that thisfactor the conditions leading to grid instability presume that such standard is has two parts; on the one hand, it can occur well before peak demand economically justified. This assumes that there could be some even equals supply. presumption ofeconomic justification lessening ofcompetition as a result of The Final Report 3by the team of
can be rebutted upon a proper showing. standards; and on the other hand, it experts convened by the Secretary to

The standard levels we are adopting directs the Attorney General to gauge investigate the electric power problem today do not satisfy the criteria set forth the impact, ifany, ofthat effect. included the recommendation to above. Therefore, we cannot presume In order to assist the Attorney General increase the energy efficiency ofcentral them to be economicallyjustified and in making such a determination, the air conditioners as one means for have performed additional analysis to Department provided the Attorney enhancing reliability. This support the Secretary's determination General with copies ofthe proposed recommendation led the Secretary to that they are indeed economically rule and the Technical Support put this rulemaking on the fast track and justified. Document for review. The Attorney to advance the publication oftoday's General's response is discussed in final rule for central air conditioners D.EconomicJustification section V.D.5 below, and is reprinted at and heat pumps. Thus, the Department

As noted earlier, Section the end ofthe rule. has considered effects ofthe rule on 325(o)(2)(B)(i) ofthe Act provides seven electric power system reliability. 6. Need oftheNation To Conserve factors to be evaluated in determining Energy III. Methodology whether a conservation standard is economically justified. The Secretary recognizes that energy As discussed in the proposed rule, the conservation benefits the Nation in Department developed new analytical 1. Economic Impact on Manufacturers several important ways. Enhanced tools for this and other recent and Consumers energy efficiency improves the Nation's rulemakings. The first tool was a

We considered the economic impact energy security, strengthens the

on manufacturers and consumers as economy, and reduces the 3 "Rport of the U.S. Department of Energy's discussed i On theproposed rule. 65 FR etn Su o er Power utage tudy Team: Findings and discussed in the proposed rule. 65 FR environmental impacts of energy Recommendations toEnhance Reliability fromthe 59590, 59593 (October 5, 2000). production. Summer of 1999". March 2000. 

### Federal Register/Vol. 66, No. t4/Monday, January 22, 200t/Rules and Regulations 

### 7173

spreadsheets and assumptions upon whichtheresults oftoday's final rule is based are unchanged. 2. Significance ofSavings

As discussed inthe proposedrule, section 325(0)(3)(B) ofthe Act prohibits the Department from adopting a standard for a product ifthat standard would not result in "significant" energy savings. The energy savings for the standard levels we are adoptingtoday
are non-trivial-indeed they are substantial-and therefore we consider them "significant" withinthe meaning ofsection 325 ofthe Act. C. 

### RebuttablePresumption

The National ApplianceEnergy Conservation Act established new criteria for determiningwhether a standard level is economicallyjustified. Section 325(0)(2)(B)(iii) ofthe Act states:

"Ifthe Secretary fmds that the additional cost to the consumerofpurchasing a product complying with an energy conservation standardlevel will be less than three times the value ofthe energy * * * savings during the first year that the consumerwill receive
as a result ofthe standard, as calculated under the applicable test procedure, there shallbe a rebuttable presumption that such standard level is economicallyjustified. A determination by the Secretary that such criterion is notmet shall notbe taken into considerationin the Secretary's determination ofwhethera standardis economicallyjustified."

If, 

### accordingto thetest procedure, the increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumerin energy savings in lessthanthree years, then we presumethat such standard is economicallyjustified. This presumption ofeconomicjustification
canberebutted upon a proper showing.

The standard levels we are adopting today do not satisfy the criteria set forth above. Therefore, we cannot presume themtobe economicallyjustified and haveperformed additional analysis to supportthe Secretary's determination that they are indeed economically justified.
D. 

### EconomicJustification

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

We considered the economic impact
on manufacturers and consumers as discussed in the proposed rule. 65 FR 59590, 59593 (October 5, 2000). 2. Life-cycle-costs We considered life-cycle-costs as discussed in the proposedrule. 65 FR 59590,59594 (October 5, 2000). The installed price and operation and maintenance costs were calculated for a range ofconsumers around the nationto estimate therange in life cycle cost benefits that consumers would expectto achieve due to new standards. 3. Energy Savings

While significant conservation of energy is a separate statutory requirement for establishing an energy conservation standard. the Actrequires DOE, in determining the economic justification ofa standard, to consider thetotal projected energy savings that
are expectedto result directly from revised standards. 4. Lessening ofUtility or Performance of Products

This factor cannotbe quantified. In establishing classes ofproducts, the Dflpartment has attempted to eliminate any degradation ofutility or performance intheproducts covered by today's final rule. Attributes that affect utility includetheproduct's ability to cool and dehumidify. In some applications, noise levels may alsobe an aspect ofutility. Product size or configuration can also be considered utility ifa change in size would cause the consumerto install theproduct in
a location or in a mannerinconsistent withthe consumer's preferences. 5. Impact ofLessening ofCompetition

It

### is importantto note that this factor has two parts; onthe onehand, it


### assumes that there couldbe some lessening ofcompetition as a result of standards; and on the otherhand, it directs the Attorney General to gauge the impact, ifany, ofthat effect.

In orderto assist the Attorney General in making such a determination, the Departmentprovided the Attorney General with copies ofthe proposed rule and theTechnical Support Document for review. The Attorney General's response is discussed in section V.D.5 below, and is reprinted at the end oftherule. 6. Need ofthe Nation To Conserve Energy

The Secretary recognizes that energy conservationbenefits the Nation in several important ways. Enhanced energy efficiency improves the Nation's energy security, strengthens the economy, and reduces the environmental impacts ofenergy production. 7. 

### OtherFactors Thisprovision allows the Secretary of Energy, in determining whethera standard is economicallyjustified, to consider any other factors that the

. Secretary deems toberelevant. EPCA Section 325(0)(2)(B)(i)(VI), 42 U.S.c. 6295(0)(2)(B)(i)(VI).

Underthis factor, we considered the potential improvement to the reliability ofthe electrical system. Recent summertime electric power outages in various regions ofourcountryresulted in disruption ofmanypeoples' lives and businesses. The schedulecontained in theAct called for the Departmentto revise the standards for central air conditioners andheatpumpsby 1994, tobe effective in 1999. For reasons explained inthe proposed rule and ANOPR, promulgation ofmany standards includingthose for central air conditioners andheat pumps was delayed.

While central air conditioning accounts for about 10 percent of residential electricity consumption, it


### can accountfor several times this amount during peakhours onhot
summer days, whenelectricity reliability is most strained. A 30 percent improvement in air conditioner efficiency would reduce the nation's total annual electricity use by approximately 2 percent after it was fully phased in. However, the same efficiency improvement would provide
a greaterpercentage reduction inpeak loads,reducing theprospect of brownouts and price spikes. Thesepeak loadreductions are critical given that the conditions leading to grid instability
can occur well before peak demand
evenequals supply.

The Final Report 3 

### by theteam of experts convenedby the Secretary to investigatethe electric powerproblem includedtherecommendationto increase the energy efficiency ofcentral airconditioners as one means for enhancingreliability. This recommendation led the Secretaryto putthisrulemaking onthe fast track and t? advance thepublicationoftoday's fmal rule for central air conditioners andheatpumps. Thus, the Department has considered effects ofthe rule on electric power system reliability. 1lI. Methodology

As discussed in the proposed rule, the Department developed new analytical tools for this and otherrecent rulemakings. The first tool was a

3 "Report ofthe U.S. Department ofEnergy's Power Outage Study Team: Findings and Recommendations to Enhance Reliability from tho Summer of 1999 ", March 2000.

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spreadsheet that calculates life-cycle- its results were similar tothose derived questions whether we considered that cost (LCC) and payback period. The using our 18.4-year equipment life reverse engineering-based prices reduce second calculates national energy assumption, we are no longer impacts through price elasticity effects, savings and national net present value considering the 14-year equipment but noted that industry impacts did not (NPV). The Department also completely lifetime scenarios in the economic seem to change across trial standard revised the methodology used in analysis. Finally, the emissions levels, and the Oregon Office ofEnergy assessing manufacturer impacts reductions analysis now also estimates (OOE) believes that we have overstated including the adoption ofthe the discounted value ofcumulative manufacturer impacts since they are Government Regulatory Impact Model emission reductions. already making investments in new (GRIM). Additionally, DOE developed a I Discussion ofCommentstechnologies to help them improve
new approach using the National Energy Cproduct efficiency. (NRDC, No. 88 at p. Modeling System (NEMS) to estimate Since we opened the docket for this 15; and OOE, No. 84 at p.5). impacts of air conditioner energy rulemaking, we have received over 800 The reduction in industry net present efficiency standards on electric utilities comments from a diverse set of value does increase with increasing and the environment. interested parties, including standard levels, particularly since we

In order to estimate production costs manufacturers and their representatives, consider it more likely that the Roll-up 4 for this rulemaking, we used an states, energy conservation advocates, scenario will occur under higher efficiency level approach, with cost data heating and air-conditioning standard levels. Individual provided by the Air Conditioning and contractors, consumers, electric utilities manufacturers themselves discussed Refrigeration Institute (ARI) and through and others. The comments addressed their situations with us at length, and
our own reverse engineering methods. the burdens and benefits associated we have incorporated the information The ARI cost data presented the with more stringent standards, aspects they presented to us into our minimum, mean, and maximum cost ofour analysis, the merits ofthe manufacturer impact analysis. In estimates for the sample ofARI different trial standard levels and adopting this rule, we have assumed members who participated. The data standard options we considered, and the that the Roll-up scenario is the most covered each product class at each DOE rulemaking process. Many likely outcome resulting from a new 13 efficiency level through 15 SEER, and comments raised issues that we SEER standard for all product classes.
was expressed relative to the base cost substantially addressed in the proposed We did consider the change in sales for each manufacturer. The reverse rule and Supplementary ANOPR. volumes driven by changes in the engineering methodology, conceived as Comments received during the most underlying cost assumptions.
a way to validate the ARI data, analyzed recent comment period are addressed Many comments described what they seventy-one samples, mostly selected by below, and some previous comments are consider disproportionate impacts on manufacturers, using design data revisited. manufacturers ofniche products. Those provided by manufacturers. Wecomments are discussed in Section IV.4 physically examined three ofthese A. Bu r e n s andBenefits below models. In refining our results, we This section discusses comments we The Department has considered the reviewed our detailed cost estimates for received on the burdens and benefits manufacturer burdens as described in split air conditioners with a major associated with more stringent the manufacturer impact analysis ofthe manufacturer. minimum efficiency standards,TSD in adoptingthe new standard.

The benefits ofreverse engineering organized into the seven factors that the These include cumulative burdens. It include the transparency ofthe Secretary considers as a basis for also considers the extent to which the methods, data, and assumptions used to deciding whether a standard level is differences among efficiency scenarios produce the estimates, and the insights economicallyjustified. change the implications ofmore gained into the design options used to stringent standards. achieve the different efficiency levels. 1. Economic Impacts The ARI data provides none ofthese a. EconomicImpactson b. Economic Impacts on Consumers. benefits, but does draw on the Manufacturers. According to our Man comments mention the economic considerable expertise ofthe manufacturer impact analysis, more budens that more stringent efficiency manufacturers involved in producing stringent efficiency standards burden standards can place on consumers who the underlying estimates describing all most manufacturers by causing them to are sensitive to increases in first cost. ofthe products on the market. One make new investments in capacity, May noted that our decision should benefit ofthe reverse engineering research and development, and testing. consider burdens on consumers caused analysis isthat results are expressed in We also expect most manufacturers to by long median payback periods. Some absolute costs instead ofrelative costs. experience lower profitability and sales omments emphasized that Absolute costs are needed to represent volumes for several years after the disproportionate impacts on low income production costs at the minimum adopted standards become effective consumers due to an expected increase efficiency level and are helpful in Some manufacturers in our analysis nistalled price would reduce the representing the production costs at benefit under more stringent standards. number of consumers who would be higher efficiency levels. ARI characterizes the financialable to afford new air conditioners.

Regarding the analytical methodology, burdens on the industry overall as Some comments suggested that this the Department continues to use the severe. They also assert that the effect could increase health problems spreadsheets and approaches explained hydrochloroflourocarbons (HCFC) and deaths. The Mercatus Center stated in the proposed rule. 65 FR at 59594- phaseout results in cumulative burdens. that the Department believed consumers 59597; We have applied them to (ARI, No. 100 at pp. 6 and 13). Some pass up energy efficient equipment develop the analysis further in this final manufacturers noted that EER and because they are misinformed about rule. We added new analysis based on thermal expansion valve (TXV) the manufacturing cost estimates that requirements would add to the burden. Th Roll-up scenario assumes that the we had derived through reverse (York, No. 90, at pp. 4-5). The Natural proportion of equipment with efficiency ratings we had derived through reverse (York, No. 90, at pp. 4-5). The Natural bove the new standard level will not increase engineering techniques. Also, because Resources Defense Council (NRDC) compared totheir proportion today. 

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spreadsheetthat calculates life-cyclecost (LCC) and paybackperiod. The second calculates national energy savings and national net present value (NPV). TheDepartment also completely revised the methodology used in assessing manufacturerimpacts including the adoption ofthe GovernmentRegulatory Impact Model (GRIM). Additionally. DOE developed a new approach using the National Energy Modeling System (NEMS) to estimate impacts ofair conditionerenergy efficiency standards on electric utilities and the environment.

In orderto estimateproduction costs for this rulemaking, we used an efficiency level approach, with cost data providedby the Air Conditioningand Refrigeration Institute (ARl) andthrough
ourown reverse engineering methods. TheARI cost data presented the minimum, mean, and maximum cost estimates for the sample ofARI members whoparticipated. The data covered each product class at each efficiency level through 15 SEER, and
was expressed relative to thebase cost for each manufacturer. Thereverse engineering methodology, conceived as a wayto validate the ARI data, analyzed seventy-one samples, mostly selectedby manufacturers, using design data providedbymanufacturers. We physically examinedthree ofthese. models. Inrefining ourresults, we reviewed ourdetailed cost estimates for split air conditioners with a major manufacturer.

Thebenefits ofreverse engineering includethetransparency ofthe methods, data. and assumptions usedto producethe estimates, and the insights gained into the design options used to achieve the different efficiency levels. The ARI data provides none ofthese benefits, but does draw on the considerable expertise ofthe manufacturers involved in producing the underlyingestimates describing all oftheproducts on the market. One benefit ofthe reverse engineering analysis is thatresults are expressed in absolute costs instead ofrelative costs. Absolute costs are needed torepresent productioncosts at the minimum efficiency level and arehelpful in representing theproduction costs at higher efficiency levels.

Regarding the analytical methodology, the Department continues to use the spreadsheets and approaches explained in theproposed rule. 65 FR at 59594- 59597: We have applied them to develop the analysis further inthis final rule. We added new analysisbased on the manufacturing cost estimates that
we had derived through reverse engineering techniques. Also. because its results were similarto those derived using our 18.4-yearequipment life assumption, we are no longer considering the 14-yearequipment lifetime scenarios inthe economic analysis. Finally, the emissions reductions analysis now also estimates the discounted value ofcumulative emissionreductions. IV. Discussion ofComments

Since we opened the docket for this rulemaking, wehave received over 800 comments from a diverse set of interested parties, including manufacturers and theirrepresentatives, states, energy conservation advocates, heatingandair-conditioning contractors, consumers, electric utilities and others. The comments addressed theburdens and benefits associated withmore stringent standards. aspects ofour analysis, the merits ofthe differenttrial standard levels and standard options we considered, and the DOE rulemakingprocess. Many comments raised issues that we substantially addressed in the proposed rule and Supplementary ANOPR. Comments received duringthe most recent commentperiod are addressed below, and someprevious comments are revisited. A. 

### Burdens andBenefits

This section discusses comments we received ontheburdens and benefits associated with more stringent minimum efficiency standards, organized intothe seven factors that the Secretary considers as a basis for deciding whether a standard level is economicallyjustified. 1. Economic Impacts

a. 

### EconomicImpacts on Manufacturers. According to our manufacturerimpact analysis, more stringent efficiency standardsburden most manufacturersby causing them to make new investments in capacity, research and development, and testing. We also expectmost manufacturers to experience lowerprofitabilityand sales volumes for several years after the adopted standards become effective. Some manufacturers in our analysis benefit under more stringent standards.

ARl characterizes the financial burdens onthe industry overall as severe. They also assert that the hydrochloroflourocarbons (HCFC) phaseoutresults in cumulativeburdens. (ARI, No. 100 at pp. 6 and 13). Some manufacturers noted thatEER and thermal expansion valve (TXV) requirements would add to the burden. (York, No. 90, at pp. 4-5). The Natural Resources Defense Council (NRDC) questions whether we consideredthat
reverse engineering-based pricesreduce impactsthrough price elasticity effects. butnoted that industry impacts did not
seem to change across trial standard levels, andthe Oregon Office ofEnergy (ODE) believes that wehave overstated manufacturer impacts sincethey are already making investments innew technologies tohelpthem improve productefficiency. (NRDC, No. 88 at p. 15; and ODE, No. 84 at p.5).

Thereduction in industry netpresent value does increase with increasing standard levels, particularly since we considerit more likely thatthe Roll-up4 

### scenario will occur underhigher standard levels. Individual manufacturers themselves discussed their situations with us at length, and
we have incorporatedthe information they presented to us into our manufacturer impactanalysis. In adopting thisrule, we have assumed that the Roll-up scenariois the most likely outcomeresulting from a new 13 SEER standard for all productclasses. We did considerthe change in sales volumes drivenby changes inthe underlying cost assumptions.

Many comments described whatthey considerdisproportionate impacts on manufacturers ofniche products. Those comments are discussed in SectionIVA below.

TheDepartmenthas consideredthe manufacturerburdens as described in the manufacturer impact analysis ofthe TSD in adoptingthe new standard. These include cumulativeburdens. It 

### also considers the extent to whichthe differences among efficiency scenarios change the implications ofmore stringent standards.

b. 

### EconomicImpacts on Consumers. Many commentsmentionthe economic burdens that more stringent efficiency standards canplace onconsumers who
are sensitiveto increases infirst cost. Many noted that ourdecision should considerburdens onconsumers caused by long medianpayback periods. Some comments emphasizedthat disproportionate impacts on lowincome
consumers due to an expected increase ininstalled price would reducethe number ofconsumers who wouldbe able to afford new air conditioners. Some comments suggested that this effect could increase healthproblems and deaths. The Mercatus Center stated that the Departmentbelieved consumers pass up energy efficient equipment because they are misinformed about

4The Roll-up scenario assumes that the proportion ofequipment with efficiency ratings above the new standard level will not increase compared to their proportion today.

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operating costs, therefore the 103 at p. 3 and Transcript No. 73 at pp. basing the savings on source energy Department should construct a program 50-51; and EEI, Transcript No. 73 at pp. consumption at the power plant, rather to correct this deficiency. (ARI, No. 100 176-178). Carrier Corp. asserted that than site energy consumption at the at pp. 2 and 5; American Public Power there were too many consumers household or commercial building. Association (APPA), No. 113 at p. 2; incurring life-cycle-cost increases at 12 (ARI, No. 100 at p. 11). While neither Manufactured Home Institute (MHI), SEER. (Carrier, No. 92 at p. 5). In stating that the energy savings estimated No. 99 at p. 1; Lennox, No. 91 at p. 3; contrast, the American Council for an by the Department were too great or too Consumer Federation ofAmerica (CFA), Energy-Efficient Economy (ACEEE), the low, ASE claims that 70 billion kWh No. 110 at p. 1; Nebraska Public Power Alliance to Save Energy (ASE), the would be saved from a 13 SEER District (NPPD), No. 109 at p. 2; Pacific Gas and Electric Company standard coupled with a minimum EER National Association ofHome Builders (PG&E), and NRDC argued that the requirement of 11.6 and mandatory use (NAHB), No. 94 at p. 1; Nordyne, No. percent ofconsumers realizing life- ofTXVs. (ASE, No. 81 at p. 12). ACEEE 101 at p. 2; Trane, No. 93 at p. 4; York, cycle-cost savings from a particular also claims that significant national No. 90 at pp. 4-5; and Mercatus Center, standard level is not the appropriate energy savings will be realized from a No. 115 at pp. 18-19). measure for establishing an updated 13 SEER standard, an 11.6 minimum

CFA considers lower energy bills a efficiency standard. Because air- EER requirement, mandatory use of benefit and would support regional conditioning use is highly dependent on TXVs, and an HSPF standard of 7.9. standards and public assistance climatic conditions and because these NAECA prescribes that consumer programs to mitigate long payback are national standards, it isto be energy savings be evaluated based on periods and disproportionate impacts expected that some consumers in the site rather than source energy on consumers. (CFA, No. 110 at p. 2). Northern part ofthe U.S. will realize net consumption. However, the Department

Many comments express the belief costs from an increased standard but believes national energy savings that, for various reasons, we either willbe offset by consumers in the evaluated at the source reflects a more underestimated or overestimated Southern part ofthe U.S. who will accurate representation ofthe energy economic impacts on consumers. Those realize life-cycle cost savings from more consumption being avoided from a comments are addressed in Section efficient air-conditioning equipment. standard. Evaluating energy at the IV.B. below. Due to this disparity, they argue it is source takes into account the efficiency

We recognize that increases in first better to base the standard on national ofthe generation source as well as the cost and long payback periods are average life-cycle-cost results. (ACEEE, transmission and distribution ofthe generally considered burdens on No. 104 at p. 13; ASE, No. 81 at p.9; electricity. The Department accounts for consumers. Based on the reverse PG&E, No. 104 at p. 5; and NRDC, No. site energy consumption in its analysis engineering derived manufacturing cost 88 at pp. 19-21). of consumer life-cycle-cost impacts. estimates, however, our analysis shows EPCA requires the Department to With regard to the magnitude ofthe that, at the adopted standard levels, the consider life-cycle-cost as one ofthe energy being saved from a standard, the payback period is shorter than the life seven factors in determining economic Department is confident in its National ofthe equipment. This means that over justification. In determining economic Energy Savings (NES) spreadsheet the life ofthe product, any increase in justification, the Secretary must model to forecast the source energy price will be paid back to the average determine whether the benefits of a savings realized from all standard consumer. Thus, the new efficiency standard exceed the burdens. Life-cycle- levels, including a 13 SEER standard. standards should provide the average cost is just one ofthe factors to be Discussions with regard to minimum consumer with a long term economic considered and there is no mathematical EER standards and TXV requirements benefit. Also, we have examined formula for weighing the benefits and are presented later in this Chapter. impacts on low income consumers, and burdens ofthe various factors. There are

. nn r r n found them tobenefit overall, also no mathematical thresholds for life- e g ofU ty or Performance of Consumers concerned about potential cycle-cost as implied by EEI andProducts health effects should note that ACEEE. (EEI, Transcript No. 73 at p. Comments regarding lessening of assistance programs are already 177; and ACEEE, Transcript No. 73 at p. utility related mainly to the impacts that available to assist them with their air 182). The Department notes that under more stringent standards may have on conditioning purchases, and that room the standards in today's rule, consumers the availability of niche products and air conditioners will continue to be on average will have lower life-cycle some products that are not typically available when cooling in individual costs. Furthermore, it appears that considered "niche". Most comments rooms could mitigate their health EPCA, in requiring DOE to set national statedthat those products face size
concerns. standards that maximize energy savings constraints that they will find difficult, 2. Life-Cycle Costs for appliances where there will ifnot impossible, to conform to under obviously be regional differences in more stringent standards. That result ARI, The Trane Company (Trane), usage and energy costs, contemplated could lead to the removal ofthe American Electric Power (AEP), that the level oflife cycle cost savings products from the market, or to Mercatus Center, Southern Company, would vary among consumers. equipment prices that are higher than Dominion Virginia Power (Dominion), We have quantified the distribution of the market would be able to sustain. and Edison Electric Institute (EEI) life cycle costs among consumers and (Friedrich, No. 116 at p. 1; Unico, No. asserted that the percent of consumers have considered it, along with other 117 at pp. 1-2; Carrier, No. 92 at p. 8; realizing life-cycle-cost savings at the information, in the weighing ofthe Lennox, No. 91 at p. 7; Trane, No. 93 at standard levels issued in the proposed benefits andburdens of each standard p. 18; Mitsubishi, No. 87 at p. 1; rule were too low and did not warrant level we assessed. Armstrong, No. 86 at pp. 1-3; and an increase in the minimum efficiency Fujitsu, No. 85 at p. 1). standard. (ARI, No. 100 at p. 2; Trane, 3. Energy Savings We recognize that contractors and No. 93 at p. 4; AEP, No. 83 at p. 1; ARI states that the Department consumers do take product size into Mercatus Center, No. 115; Southern overestimated the energy savings account when making a purchase, and Company, No. 96 at p. 2; Dominion, No. realized from efficiency standards by that size constraints can make it more 

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operating costs, therefore the Department should construct a program to correct this deficiency. (ARI, No. 100 at pp. 2 and 5; American Public Power Association (APPA). No. 113 at p. 2; Manufactured Home Institute (MHI), No. 99 at p. 1; Lennox. No. 91 at p. 3; ConsumerFederation ofAmerica (CFA), No. 110 at p. 1; Nebraska Public Power District (NPPD), No. 109 at p. 2; National Association ofHome Builders (NAHB), No. 94 atp. 1; Nordyne, No. 101 at p. 2; Trane, No. 93 at p. 4; York. No. 90 at pp. 4-5; and Mercatus Center, No. 115 at pp. 18-19).

CFA considers lower energybills a benefit and would support regional standards and public assistance programs to mitigate long payback periods and disproportionate impacts
onconsumers. (CFA, No. 110 at p. 2).

Many comments express the belief that, for various reasons, we either underestimated or overestimated economic impacts on consumers. Those comments are addressed in Section IV.B. below.

We recognize that increases in first cost and long paybackperiods are generally consideredburdens on consumers. Based onthereverse engineering derived manufacturing cost estimates, however, our analysis shows that, atthe adopted standard levels, the payback period is shorterthanthe life ofthe equipment. This means that over thelife ofthe product, any increase in price will be paidbackto the average consumer. Thus, the new efficiency standards should providethe average consumerwith a longterm economic benefit. Also, we have examined impacts on low income consumers, and found them to benefit overall. Consumers concerned about potential health effects should note that assistance programs are already availableto assist them with their air conditioning purchases, andthatroom air conditioners will continue to be available when cooling in individual
rooms could mitigate their health
concerns. 2. Life-Cycle Costs

ARl, TheTrane Company (Trane), American Electric Power (AEP), Mercatus Center, SouthernCompany, Dominion Virginia Power (Dominion), andEdison Electric Institute (EEl) asserted that the percent ofconsumers realizing life-cycle-cost savings at the standard levels issued in theproposed rule were too low and did not warrant
an increase in the minimum efficiency standard. (ARI, No. 100 at p. 2; Trane, No. 93 at p. 4; AEP, No. 83 at p. 1; Mercatus Center, No. 115; Southern Company, No. 96 at p. 2; Dominion, No. 103 at p. 3 and Transcript No. 73 at pp. 50-51; and EEl, Transcript No. 73 at pp. 176-178). CarrierCorp. asserted that there weretoo many consumers incurring life-cycle-cost increases at 12 SEER. (Carrier, No. 92 atp. 5). In contrast, the American Council for an Energy-Efficient Economy (ACEEE), the Alliance to Save Energy (ASE), the Pacific Gas andElectric Company (PG&E), and NRDC argued that the percent ofconsumers realizing lifecycle-cost savings from a particular standard level is not the appropriate
measure for establishing anupdated efficiency standard. Because airconditioninguse is highly dependent on climatic conditions andbecausethese
are national standards, it is tobe expected that some consumers inthe Northern part ofthe U.S. will realize net costs from anincreased standard but willbe offsetby consumersinthe Southernpartofthe U.S. who will realize life-cycle cost savings from more efficient air-conditioning equipment. Due to this disparity, they argue it is better to basethe standardon national average life-cycle-costresults. (ACEEE, No. 104 atp. 13; ASE, No. 81 at p.9; PG&E, No. 104 at p. 5; and NRDC, No. 88 at pp. 19-21).

EPCA requires the Departmentto consider life-cycle-cost as one ofthe
seven factors in determining economic justification. In determining economic justification, the Secretary must determine whetherthebenefits ofa standard exceed theburdens. Life-cyclecost isjustone ofthe factors to be considered andthere is no mathematical formula for weighing thebenefits and burdens ofthe various factors. There are also no mathematical thresholds for lifecycle-cost as impliedbyEEl and ACEEE. (EEl, Transcript No. 73 at p. 177; and ACEEE, TranscriptNo. 73 at p. 182). The Department notes thatunder the standards intoday's rule, consumers on average will have lower life-cycle costs. Furthermore, it appears that EPCA, inrequiring DOE to set national standardsthat maximize energy savings for appliances wherethere will obviouslyberegional differences in usage and energy costs, contemplated that thelevel oflife cycle cost savings would vary among consumers.

We have quantified the distribution of life cycle costs among consumers and have considered it, along with other information, inthe weighing ofthe benefits andburdens ofeach standard level we assessed. 3. Energy Savings

ARI states thattheDepartment overestimated the energy savings realized from efficiency standardsby basingthe savings on source energy consumption at the powerplant, rather than site energy consumption atthe household or commercial building. (ARl, No. 100 at p. 11). While neither stating that the energy savings estimated by the Department were too great ortoo low, ASE claims that 70 billionkWh wouldbe saved from a 13 SEER standard coupled with a minimumEER requirement of 11.6 and mandatoryuse ofTXVs. (ASE, No. 81 at p. 12). ACEEE also claims that significant national energy savings will be realized from a 13 SEER standard, an 11.6minimum EER requirement, mandatory use of TXVs, and an HSPF standard of7.9.

NAECA prescribes that consumer energy savings be evaluatedbased on site ratherthan source energy consumption. However. the Department believes national energy savings evaluated at the sourcereflects a more accurate representation ofthe energy consumption being avoided from a standard. Evaluating energy atthe
source takes into account the efficiency ofthe generation source as well as the transmission and distribution ofthe electricity. TheDepartment accounts for site energy consumption in its analysis ofconsumer life-cycle-cost impacts. Withregard to the magnitude ofthe energy being saved from a standard,the Department is confident in its National Energy Savings (NES) spreadsheet model to forecast the source energy savings realized from all standard levels, including a 13 SEER standard. Discussions with regard to minimum EER standards and TXV requirements
are presented later inthis Chapter. 4. Lessening ofUtility orPerformance of Products

Comments regarding lessening of utility related mainly to the impacts that
more stringent standards may have on the availability ofniche products and
some productsthat are nottypically considered "niche". Most comments stated that those products face size constraints that they will find difficult, ifnot impossible. to conform tounder
more stringent standards. Thatresult could lead to theremoval ofthe products from the market, or to equipmentprices that arehigher than the market would be able to sustain. (Friedrich, No. 116 at p. 1; Unico, No. 117 at pp. 1-2; Carrier, No. 92 at p. 8; Lennox, No. 91 at p. 7; Trane, No. 93 at p. 18; Mitsubishi. No. 87 at p. 1; Armstrong, No. 86 at pp. 1-3; and Fujitsu, No. 85 at p. 1).

We recognize that contractors and
consumers do take product size into account when making a purchase, and that size constraints can make itmore

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difficult for manufacturers to offer we believe that competition will remain plants rather than the heat rate of equipment meeting performance needs. vigorous under the adopted standard, operating plants displaced by the This is true for niche products, which and any lessening ofcompetition that efficiency standards when determining
we discuss elsewhere, as well as for does occur will not result in price emission reductions. As a result, conventional products. The same was increases or loss ofchoice and utility for NWPPC claims that the emissions the case when the 10 SEER minimum consumers. mitigated by the standards were standards were agreed upon and Other comments note that a large underestimated (NWPPC, No. 76 at p. established in 1987. Manufacturers can fraction oftoday's models would not be 6). attempt to prevent size constraints from able to meet more stringent standards. National energy savings realized from degrading performance or utility by (AEP, No. 83 at p. 1; Dominion, No. 68 central air conditioner and heat pump offering smaller 13 SEER equipment at p. 2; ARI, No. 100 at p. 11; and EEI, efficiency standards are directly than they typically offer today. The No. 80 at p. 8). In the manufacturer translated into reduced air-borne technical options for achieving that impact analysis, we considered that emissions at electric power plants. The objective include existing and emerging manufacturers will have to design new magnitude ofthe emission reductions technologies. Therefore, we do not products to meet any increased standard are determined through the use of consider it likely that products will be level. Furthermore, products are NEMS-BRS 5, a version ofNEMS used unavailable that meet the new 13 SEER technologically feasible through 18 for appliance standards analyses. standard, and have substantially the SEER. So, while many oftoday's models NEMS-BRS is based on the AEO2000
same capacities, performance and range may not be available under more version with minor modifications. of sizes as today's products. stringent standards, we fully expect NEMS offers a sophisticated picture of

Ifthe size of 13 SEER equipment does variations ofthose models tobe the effect of standards since its scope not generally decrease under new available, offering all the features and allows itto measure the interactions standards, some consumers may be utility of currently available products. between the various energy supply and required to incur additional installation 6 Nd ofth Nation T Conserve demand sectors and the economy as a expense to accommodate the larger l o n whole. Thus, although the Department equipment. We discuss this in more agrees with ASE that emissions will be depth in Section IV.B.2.e. The Of the approximately 800 comments avoided from new air conditioner and Department did consider that possibility we have received, the vast majority were heat pump efficiency standards, the when adopting today's standards. from individuals and organizations who Department believes that the magnitude

Along a separate line, Southern made similar claims regarding the ofthose emission reductions are best Company is concerned that higher benefits that would be associated with estimated with NEMS-BRS. In the case efficiency equipment will reduce a 13 SEER standard and anEER ofSO2,the Clean Air Act Amendments dehumidification, which is an standard for air conditioners and heat of 1990 set an emissions cap on all important attribute in moderate, humid, pumps. These benefits included savings power generation. The attainment of climates. (Southern Company, No. 96 at for consumers, avoided emissions and this target, however, is flexible among pp. 4-5). The equipment's ability to electrical capacity, and the reduced generators and is enforced by applying dehumidify is a function ofits design occurrence ofbrownouts and blackouts. market forces, through the use of and not necessarily its efficiency. As we Although our analysis is not able to emissions allowances and tradable stated in the proposed rule, evidence substantiate many ofthese claims, all of permits. As a result, accurate simulation indicates that sensible heat ratios in these issues relate to the need ofour ofSO2 trading tends to imply that high efficiency equipment are similar to nation to conserve energy. We recognize physical emissions effects will be zero those at thebaseline. We trust that that a broad cross-section of citizens and because emissions will always be at, or under a more stringent standard, organizations are concerned about these near, the ceiling. This fact has caused manufacturers will seek to serve the issues and in the potential for more considerable confusion in the past.We needs ofthe market with products that stringent standards to address them. do not believe there is a potential dehumidify properly. We discuss more specific comments benefit in reductions in SO 2 emissions 5 Imact of

Lssenin f related to economic benefits and electric from electricity savings as long as 5.Impact ofLessening of Competition system capacity in other sections ofthis emissions ofSO2 are at or near the

The Department ofJustice (DOJ) and chapter. In this section, we discuss the emission ceilings. With regard to the others commented that the more comments we received regarding issue ofheat rates, contrary to NWPPC's stringent standards contained in the environmental benefits. assertion, the Department did use the proposed rule could lessen competition. ASE claims that a 13 SEER standard heat rates ofdisplaced power plants in (DOJ, No. 112; Trane, No. 93 at p. 12; coupled with an 11.6 EER minimum determining the emission reductions and EEI, No. 80 at p. 8). Aspects ofour standard and a mandatory TXV resulting from efficiency standards. manufacturer impact analysis support requirement would yield environmental that conclusion. We discuss the DOJ benefits in the form ofthe following air- 7 OtherFactors
concerns in more depth in Section borne emission reductions: 15 million With regard to other factors, the issue V.D.5. The letter from the Department of metric tons of carbon, 40,000 tons of ofelectric system reliability attracted Justice is attached in the Appendix of nitrous oxides, and 200,000 tons of numerous comments. EEI, AEP, and this rulemaking. We recognize that the sulfur dioxide in 2020. Northeast Energy standard levels we are adopting could Efficiency Partnership (NEEP) also EIA approves use ofthe name NEMS to describe accelerate the consolidation trend states that significant carbon dioxide only an AEO version ofthe model without any among major manufacturers. However, emission reductions could be achieved modifiction tocode or data. Because our analysis entails some minor code modifications and the as discussed in the manufacturer impact with a 13 SEER standard relative to a 12 model is run under various policyscenarios that analysis, we do not expect that any SEER standard. (ASE, No. 81 at p. 12; deviate from AEOassumptions. the name NEMSmanufacturer or group ofmanufacturers and NEEP, No. 118 at p. 2). The BRSrefers tothemodel as usedhere. For more willbe able touse the standards as an Northwest Power Planning Council information onNEMS. please refer to theNational Energy Modelling System: An Overview 1998. DOE/ opportunity to consolidate their market (NWPPC) states that the Department EIA-058 (98), February. 1998. BRS is DOE' sOffice power. (See TSD, Chapter 8). Therefore, used the average heat rate ofavoided ofBuilding Research and Standards. 

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difficult for manufacturers to offer equipmentmeetingperformance needs. This is true for nicheproducts, which
we discuss elsewhere, as well as for conventionalproducts. The same was the case whenthe 10 SEER minimum standards were agreed upon and established in 1987. Manufacturers can attempt toprevent size constraints from degradingperformance orutilityby offering smaller 13 SEER equipment thanthey typically offer today. The technical options for achieving that objective include existing and emerging technologies. Therefore, we do not considerit likely thatproducts will be unavailable thatmeet the new 13 SEER standard, andhave substantially the
same capacities, performance and range ofsizes as today's products.



### Ifthe size of 13 SEER equipment does notgenerally decrease under new standards, some consumers may be required to incuradditional installation expense to accommodate the larger equipment. We discuss this in more depth in SectionIV.B.2.e. The Departmentdid considerthat possibility when adoptingtoday's standards.

Along a separate line, Southern Companyis concerned thathigher efficiency equipmentwill reduce dehumidification, which is an important attribute inmoderate, humid, climates. (Southern Company, No. 96 at pp. 4-5). Theequipment's ability to dehumidifyis a function ofits design and not necessarily its efficiency. As we stated intheproposed rule, evidence indicatesthat sensibleheat ratios in high efficiency equipment are similarto those at thebaseline. We trust that under a more stringent standard, manufacturers will seek to serve the needs ofthe marketwith productsthat dehumidify properly. 5. Impact ofLessening ofCompetition

TheDepartment ofJustice (DOn and others commentedthatthe more stringent standardscontained in the proposedrule could lessen competition. (DOJ, No. 112; Trane, No. 93 at p. 12; and EEl, No. 80 atp. 8). Aspects ofour manufacturer impactanalysis support that conclusion. We discuss the DO]
concerns inmore.depth in Section V.D.5. Theletter from the Department of Justice is attached inthe Appendix of thisrulemaking. We recognize that the standard levels we are adopting could accelerate the consolidationtrend among majormanufacturers. However,
as discussed inthe manufacturer impact analysis, we do not expect that any manufacturer orgroup ofmanufacturers will be able touse the standards as an opportunityto consolidatetheir market power. (See 

### TSD, Chapter 8). Therefore, we believe that competition will remain vigorous underthe adopted standard, and any lessening ofcompetitionthat does occurwill notresult inprice increases or loss ofchoice and utility for
consumers.

Othercomments note that a large fraction oftoday's models would not be able to meet more stringent standards. (AEP, No. 83 atp. 1; Dominion, No. 68 at p. 2; ARI, No. 100 at p. 11; and EEl, No. 80 at p. 8). In the manufacturer impact analysis, we consideredthat manufacturers will have to design new products to meet any increased standard level. Furthermore, products are technologically feasible through 18 SEER. So, while many oftoday's models may not be availableundermore stringent standards, wefully expect variations ofthose models to be available, offering all the features and utility ofcurrently available products. 6. Need oftheNationTo Conserve Energy

Ofthe approximately 800 comments
wehave received, the vast majority were from individuals and organizations who made similarclaimsregardingthe benefits that wouldbe associated with
a 13 SEER standard and anEER standard for air conditioners and heat pumps. These benefits included savings for consumers, avoided emissions and electrical capacity, and thereduced
occurrence ofbrownouts andblackouts. Although ouranalysis is not able to substantiate'many ofthese claims, all of these issues relate to the need ofour nation to conserve energy. We recognize that a broad cross-section ofcitizens and organizations are concerned aboutthese issues and in the potential for more stringent standardsto address them.

We discuss more specific comments related to economicbenefits and electric system capacity in other sections ofthis chapter. In this section, we discuss the comments we received regarding environmental benefits.

ASE claims that a 13 SEER standard coupled with an 11.6EER minimum standard and a mandatory TXV requirementwould yield environmental benefits inthe form ofthe following airborne emissionreductions: 15 million metric tons ofcarbon, 40,000 tons of nitrous oxides, and 200,000 tons of sulfur dioxide in 2020. Northeast Energy Efficiency Partnership (NEEP) also states that significant carbon dioxide emission reductions couldbe achieved with a 13 SEER standard relative to a 12 SEER standard. (ASE, No. 81 at p. 12; and NEEP, No. 118 at p. 2). 

### The Northwest Power PlanningCouncil (NWPPC) states that the Department used the average heat rate ofavoided plantsrather than the heat rate of operating plants displaced by the efficiency standards when determining emissionreductions. As a result, NWPPC claims that the emissions mitigated by the standards were underestimated (NWPPC, No. 76 at p. 6).



### National energy savings realized from central air conditioner and heatpump efficiency standards are directly translated intoreduced air-borne emissions at electric powerplants. The magnitude ofthe emission reductions
are determined through the use of NEMS-BRS 5, 

### a version ofNEMS used for appliance standards analyses. NEMS-BRS is based on the AE02000 version with minor modifications. NEMS offers a sophisticated picture of the effect ofstandards since its scope allows itto measure the interactions between the various energy supply and demand sectors and the economy as a whole. Thus, although the Department agrees with ASE that emissions willbe avoided from new air conditioner and heatpump efficiency standards, the Departmentbelieves thatthe magnitude ofthose emission reductions are best estimated with NEMS-BRS. In the case ofS02, the Clean AirAct Amendments of 1990 set an emissions cap on all powergeneration. The attainment of this target, however, is flexible among generators and is enforced by applying market forces, through theuse of emissions allowances and tradable permits. As a result, accurate simulation ofS02 trading tends to imply that physical emissions effects will be zero becauseemissions will alwaysbe at, or near, the ceiling. This fact has caused considerable confusion in the past. We do notbelieve there is a potential benefit inreductions in S02 emissions from electricity savings as long as emissions ofS02 are at ornear the emission ceilings. With regard to the issue ofheatrates, contrary toNWPPC's assertion, the Department did use the heatrates ofdisplaced powerplants in determiningthe emission reductions resulting from efficiency standards. 7. OtherFactors

Withregard to other factors, the issue ofelectric system reliability attracted
numerous comments. EEl, AEP, and

5ElA approves uso ofthe name NEMS to describe only an AEO version ofthe model without any modification to code ordata. Because our analysis ontails some minor code modifications and the model is run under various policy scenarios that deviatefrom AEO assumptions. the name NEMSBRS rofers to tho model as used here. For morc information on NEMS. please refer to the National Energy Modelling System: An Overview 1998. DOEI ElA-QS81 (98), February. 1998. BRS is DOE' s Offico ofBuildingResearch and Standards.

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Dominion Virginia Power stated many grid experienced sudden and steep standards: one source provided by the changes are occurring in the electric voltage declines as an all-time-high peak industry through ARI and the other utility industry at the same time electric load was recorded. The integrity ofthe source determined from the load is continuing to grow. As a result, system was maintained by reducing Department's reverse engineering the overall effect of any end-use voltage, curtailing contractually analysis. In the proposed rule, our efficiency measure, such as an air interruptible customers and appealing analyses and conclusions relied heavily conditioner and heat pump standard, is for voluntary load reductions. On that on the ARI manufacturing cost likely small. (EEI, Transcript, No. 73 at same day, Delmarva Power and Light estimates, and less on the reverse p. 224; AEP, No. 83 at p. 4; and had a capacity shortfall that resulted in engineering cost estimates. Dominion, No. 103 at p. 4). Southern rotating outages from 10:30 a.m. until However, several comments Company argued that once a standard is 7:30 p.m. affecting 138,000 customers. questioned the validity ofthe ARI established, new load growth forecasts In the Chicago area on July 30, results and recommended we rely more incorporating its effects will likely be Commonwealth Edison set all-time-peak heavily, if not exclusively, on the made and investment decisions will be demand during a period ofintense heat reverse engineering estimates. They accordingly adjusted. In other words, and humidity. Resulting system failures cited various reasons, including retail since the effects ofthis rule do not caused more than 100,000 customers price information that matched the ARI become noticeable until five or more temporary losses ofpower for up to Mean, the greater transparency ofthe years after its 2006 effective date, several hours. The summer of 2000 has reverse engineering process and results, utilities will have ample time to plan seen similar types ofproblems in the

- and the natural tendencies of and construct capacity in response to state ofCalifornia. manufacturers to overestimate the costs expectations ofload growth, reserve Outages such as these can cost ofcomplying with more stringent margin, and, where competition has millions of dollars per hour depending standards. The same comments even become normal practice, toprices. on which and how many customers are suggest that the reverse engineering cost (Southern Company, Transcript No. 73 affected. Although we recognize that estimates may themselves be at p. 241). Synapse Energy Economics system adequacy may only play a small overestimates. (OOE, No. 84 at p. 3; (Synapse), along with ACEEE, NWPPC, part in ensuring system reliability, the NRDC, No. 88 at pp. 3-15; ASE, No. 81 NRDC, ASE, and PG&E noted that there Department is convinced, especially due at p. 11; and NEEP, No. 188 at p. 3). is a real issue in meeting increased to recent expansion shortfalls in the Other comments supported the use of demand, due in large part to increased Western part ofthe U.S., that system the ARI data, citing the experience of air conditioner usage. Synapse also reliability is an important issue which the manufacturers and apparent flaws in notes that conventional assumptions can be addressed, to some degree, by the assumptions and methodology used about the ability ofthepower system to increased air conditioner and heat in thereverse engineering analysis, meet growing load are increasingly pump standards. The impacts of which was designed as a validation tool. coming into question as the barriers to standards could be potentially These perceived flaws included the system expansion are not inadequate beneficial in lowering overall system small number oftear-downs performed. price incentives or unwillingness to stress and postponing necessary However, ARI and some ofits members invest, but rather siting (ofgeneration, investment. This is especially important recognize that the reverse engineering transmission, and distribution since annual investment in transmission results fall within their range and seem capability), environmental, and other has roughly halved since the levels of to validate their data to some extent. constraints. (Synapse, Transcript No. 73 the 1970's 6. The potential benefit ofair (ARI, Transcript No. 14 at p. 42, No. 48 at p. 243; ACEEE, No. 104 at pp. 13-15; conditioner and heat pump efficiency at p. 2 and No. 100 at p. 9; Carrier, No. NWPPC, Transcript No. 73 at p. 253; improvements is a factor in establishing 92; Trane, No. 93; and Lennox, No. 91 NRDC, No. 88 at pp. 4 and 6; ASE,



## . the standards being issued today. In at p. 4). 81 at pp. 7 and, 10; and PG&E, addition, the Department is continuing While werecognize the expertise of

Transcript No. 73 at ^. 251). to establish national equipment ARI's members related to projecting the ranscrpt

o. 7 at p. 21J.standards in the form ofthe current cost ofproducing central air In a March 2000 final report, the DOE efficiency descriptors (i.e., SEER and conditioning equipment, we have Power Outage Study Team described HSPF), as discussed below, it will several concerns with the ARI data. several power outages that occurred in examine ways toprovide additional First,ARI has not satisfactorily the summer of 1999. During early July, credit in the test procedure for EER explained why their cost data at 12 a heat storm affected much ofthe East rather than using such additional SEER andhigher levels display such a from New England down past the Mid- measures as minimum EER standards large range between the minimum and Atlantic causing many problems. From and mandatory TXV requirements. maximum values. We are convinced July 3 through 8, service was that, in order to remain competitive, interrupted to a total of 110,000 Long B. AnalysisandAssumptions manufacturers will have to adopt Island Power Authority (LIPA) 1. Engineering Analysis relatively similar paths to increase the customers for varying periods. During a. Reliance on ARI and Reverse efficiency oftheir baseline products to thatperiod, two new system peak loads Engineering Cost Estimates. The meet the new minimum standards. This were set and LIPA activated its Department considered primarily two will tend to result in actual costs that Commercial Peak Reduction Program, sets ofdata for relating the are closer tothe ARI Minimum values appealed to its other large customers to manufacturing costs ofcurrent baseline than to the ARI Mean values. voluntarily curtail their use of We are also concerned with how electricity and reduced system-wide manufacturing costs ofhigher efficiencyWisconsin voltage by fivepercent. Many equipment which would become retail prices, submitted by ACEEE, organizations and government offices baseline equipment under ne agrees with the ARI Mean cost responded by closing early or cutting q estimates. Once we adopt a higher back on their electricity use. On July 6, 6"Hirst, E., "Expanding U.S. Transmission minimum efficiency level, we believe the eastern half ofthe Pennsylvania, Capacity." Paper prepared for Edison Electric that the retail prices ofbaseline New Jersey, Maryland Interconnection Institute, Washington D.C. July 2000: p. 8-9. equipment that must meet that level

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Dominion Virginia Power stated many changes are occurring inthe electric utility industry at the sametime electric load is continuingto grow. As a result, the overall effect ofany end-use efficiency measure. such as an air conditioner andheatpump standard, is likely small. (EEl, Transcript, No. 73 at p. 224; AEP, No. 83 at p. 4; 

### and Dominion, No. 103 at p. 4). Southern Company argued that once a standard is established, newload growth forecasts incorporatingits effects will likely be made and investment decisions will be accordingly adjusted. In otherwords, since the effects ofthis rule do not become noticeable until five or more years after its 2006 effective date, utilities will have ampletimeto plan and construct capacity in response to expectations ofload growth, reserve margin, and, where competitionhas become normal practice, to prices. (Southern Company, TranscriptNo. 73 at p. 241). SynapseEnergy Economics (Synapse), along withACEEE, NWPPC, NRDC, ASE, and PG&E noted that there is a real issue inmeeting increased demand, due inlarge part to increased air conditionerusage. Synapse also notes that conventional assumptions aboutthe ability ofthepower system to meetgrowing load are increasingly coming into question as thebarriers to system expansion are not inadequate price incentives or unwillingness to

.invest, butrather siting (ofgeneration, transmission, and distribution capability), environmental, and other constraints. (Synapse, Transcript No. 73 at p. 243; ACEEE, No. 104 at pp. 13-15; NWPPC, TranscriptNo. 73 at p. 253; NRDC, No. 88 at pp. 4 and 6; ASE, No. 81 at pp. 7 and, 10; andPG&E, TranscriptNo. 73 atp. 251).



### In a March 2000 final report, the DOE Power Outage StudyTeam described several poweroutagesthat occurred in the summerof 1999. During earlyJuly,
a heat storm affected much ofthe East from New England downpastthe MidAtlantic causing manyproblems. From July 3through 8, service was interrupted to a total of 110,000Long Island PowerAuthority (LIPA) customers for varying periods. During thatperiod, two new system peak loads
were set and LIPA activated its Commercial PeakReduction Program, appealedto its otherlarge customers to voluntarily curtail their use of electricity and reduced system-wide voltage by five percent. Many organizations and government offices respondedby closing early or cutting back on their electricity use. OnJuly 6, the easternhalfofthe Pennsylvania, New Jersey, Maryland Interconnection grid experienced sudden and steep voltage declines as an all-time-high peak load wasrecorded. The integrity ofthe system was maintained by reducing voltage, curtailing contractually interruptiblecustomers and appealing for voluntary load reductions. On that
same day, Delmarva Power and Light had a capacity shortfall thatresulted in rotating outages from 10:30 a.m. until 7:30 p.m. affecting 138,000 customers. In the Chicago area onJuly 3D, Commonwealth Edison set all-time-peak demand during a period ofintense heat and humidity. Resulting systemfailures causedmore than 100,000 customers temporary losses ofpowerfor up to several hours. The summerof2000 has
seen similartypes of problems inthe

- state ofCalifornia.

Outages such as these cancost millions ofdollars perhour depending
onwhich and how many customers are affected. Although werecognize that system adequacy may only playa small part in ensuring system reliability, the Department is convinced, especially due torecent expansion shortfalls inthe Western part ofthe U.S., that system reliability is an important issue which
canbe addressed. to some degree, by increased air conditionerandheat pump standards. The impacts of standards could be potentially beneficial in lowering overall system stress and postponing necessary investment. This is especially important since annual investment in transmission has roughly halved since the levels of the 1970's 6. 

### The potential benefit ofair conditionerand heat pump efficiency improvements is a factor in establishing the standardsbeing issued today. In addition, the Department is continuing to establish national equipment standards in the form ofthe current efficiency descriptors (i.e., SEER and HSPF), as discussed below, it will examine ways to provide additional credit inthe test procedure for EER ratherthan using such additional
measures as minimum EER standards and mandatoryTXV requirements. 

### B. AnalysisandAssumptions 1. Engineering Analysis

a. Reliance on ARI and Reverse Engineering Cost Estimates. The Department considered primarily two sets ofdata for relating the manufacturing costs ofcurrentbaseline (minimum SEER) equipment to the manufacturing costs ofhigher efficiency equipment which would become baseline equipment under new

• "Hirst. E

.. "Expanding U.S. Transmission Capacity:' Paper propared for Edison Electric Institute. Washington D.C.. July 2000: p. 6-9. 

### standards: one source provided by the industry throughARI and the other
source determined from the Department'sreverse engineering analysis. In the proposed rule, our analyses and conclusions relied heavily
onthe ARl 

### manufacturingcost estimates, and less on the reverse engineering cost estimates.

However, several comments questioned the validity ofthe ARI results and recommended werely more heavily, ifnot exclusively, onthe
reverse engineering estimates. They citedvarious reasons, includingretail price information that matched the ARI Mean, the greatertransparency ofthe
reverse engineering process and results, andthe natural tendencies of manufacturers to overestimate the costs ofcomplyingwith more stringent standards. The same comments even suggest that thereverse engineering cost estimates may themselves be overestimates. (OOE. No. 84 atp. 3; NRDC, No. 88 at pp. 3-15; ASE. No. 81 atp. 11; 

### and NEEP. No. 188 at p. 3).

Othercomments supported the use of the ARl 

### data. citing the experience of the manufacturers and apparent flaws in the assumptions and methodology used inthereverse engineeringanalysis, whichwas designed as a validation tool. Theseperceived flaws included the small number oftear-downs performed. However. ARI and some ofits members recognize thatthereverse engineering results fall within theirrange and seem to validate their data to some extent. (ARl. 

### TranscriptNo. 14 atp. 42. No. 48 at p. 2 and No. 100 atp. 9; Carrier. No. 92; Trane, No. 93; andLennox, No. 91 at p. 4).

While werecognize the expertise of ARI's members related to projecting the cost ofproducingcentral air conditioningequipment. wehave several concerns with the ARI data. First, ARI has not satisfactorily explained whytheircost data at 12 SEER andhigher levels display such a largerange between the minimum and maximum values. We are convinced that, in orderto remain competitive. manufacturers will have to adopt relatively similarpaths to increase the efficiency oftheirbaseline products to meet the new minimum standards. This willtendto result in actual costs that
are closerto the ARI Minimum values thanto the ARI Mean values.

We are also concerned withhow closely the data onrecent Wisconsin retail prices, submitted by ACEEE. agrees withthe ARI Mean cost estimates. Once we adopt a higher minimum efficiency level, webelieve that theretail prices ofbaseline equipmentthat must meet that level

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will decline below the price of bound, which we believe will be quite the market in 13 SEER products under equipment currently at that level. York an unlikely outcome. a 13 SEER standard tobe higher than International Corporation (York) and b. Consideration of

Emerging under lower standard levels. Partially ARI confirmed, for example, that their Technologies.ACEEE and others for that reason, we believe that the markups generally increase on higher commented we should have included burdens that could accrue from efficiency equipment, and Star Supply the savings that could result from the increases in the size ofbaseline Company seemed to imply that use of emerging technologies rather than equipment under a 13 SEER standard distributor markups increase with presenting them separately. The Oregon can be somewhat mitigated by the use increasing efficiency. (Star Supply Co., Energy Office and Thermalex, Inc. also of emerging technologies. No. 95 at p. 2; York, Transcript No. 73 expressed more optimism regarding the Life Cycle Cost (LCC) Analysis at p. 117; and ARI, No. 100 at p. 3). applicability and probability of Those markups are reflected in the adoption for microchannel heat a. Probability-based analysis.Trane current retail prices ofthose products. exchangers than we had expressed in questioned the use ofa Monte Carlo Due to competitive pressures at the the TSD. (ACEEE, Transcript No. 73 at probability-based analysis because they baseline level, today's markups would p. 88; ASE, No. 81 at pp. 8, 9 and 12; claim that several ofthe distributions not be sustainable forbaseline OOE, No. 84 at p. 5; and Thermalex, No. used to characterize the inputs to the equipment that meets, but does not 89 at pp. 1-2). analysis are erroneous. (Trane, No. 93 at exceed, a new standard. In addition, as Trane and York dispute some ofthe pp. 4-5). noted byJohn Compton ofHome claims regarding thepotential of As part ofthe process to improve the Excellence, Inc. (HEI), a heating and air- emerging technologies. (Trane, No. 93 at energy efficiency standards analysis, the conditioning contractor, the new, more p. 7; and York, No. 90 at p.4). Department uses a probability-based efficient, baseline equipment would According to our engineering analysis analysis to determine a distribution of likely possess fewer ofthe premium described in Section 4.5 ofthe TSD, on life-cycle cost impacts for consumers features found in today's high efficiency a system basis, emerging technologies utilizing central air conditioners and equipment. (HE Transcript No. 73 at cannot make a significant cost impact heat pumps. Most ofthe inputs to the 123). For those reasons, current retail below 14 SEER. That explains why they analysis are characterized with price data would overestimate the are not in widespread use today. At 14 distributions. While some ofthe input relative cost ofhigh efficiency products SEER and above, some emerging distributions are based on limited data, under new standards. The agreement technologies could compete quite no other data have been offered to under new standards. The agreement I between ARI's mean cost data and the favorably with the technologies that recharacterize the distributions. consinetaircdata suests tatcurrently dominate in some Therefore, the Department sees no Wisconsin retail price data suggests thatapplications. We did not analyze compelling reason to alter its cthe A cost data correspond to today standard levels at 14 SEER, instead we assumptions regarding the input costs ofproducing high efficiency examined 13 SEER and 18 SEER, the distributions. equipment rather than to the lower Max Tech level. ACEEE contends that, b. Energy Use.Trane claimed that the production costs we would expect had we evaluated life-cycle-costs using 1997 Residential Energy Consumption under new standards.reverse engineering analysis combined Survey (RECS) sample is too small and The reverse engineering analysis, on with emerging technology impacts, a may not accurately represent the the other hand, is transparent and the standard level as high as 14 SEER may population of central air conditioner results fall within the ARI range and have been justified after all, and should and heat pump consumers. In addition, nearer to the ARI Minimum where we have been considered. (ACEEE, they claimed that the Department is not expect competitive pressure to drive Transcript No. 73 at p. 171, and No. 101 accurately representing the saturation of manufacturing costs. Seventy-one at

. 7). air-conditioned households. Trane samples were analyzed using bills-of- From ourANOPR analysis based on stated that the saturation reported by the materials provided manufacturers, ARI mean costs, we concluded that Department (37.6 percent) is supplemented with three physical standard levels between 13 SEER and 18 inconsistent with the saturation teardowns, and detailed estimates for SEER did not warrant further reported by RECS (47 percent). (Trane, split air conditioners were reviewed consideration. York had stated that No. 93 at pp. 4-5). with a major manufacturer. Our reverse ARI's cost data already included the As part ofthe process to improve the engineering methodology, though benefits ofemerging technologies energy efficiency standards analysis, the originally conceived as a validation although we could not verify the Department is committed to use exercise, is itselfa valid method of methods they used to incorporate them. sensitivity analysis tools to evaluate the estimating equipment production costs, (York, Transcript No. 14 at p. 116; and potential distribution ofimpacts among and is well suited for use in this ARI, Transcript No. 14 at p. 115). different subgroups ofconsumers. The rulemaking as an indicator ofthe most Economic impact results based on Department believes that RECS provides likely production costs under new reverse engineering were more a nationally representative household standards. favorable, but still were far from data set which is suited for conducting

Based on a consideration ofthe above, compelling. For example, the impact on the type of sensitivity analyses
we conclude that the reverse national net present value was negative suggested by the Process Rule. Limiting engineering cost estimates are more $8.4 billion for 14 SEER split air the RECS households tothose equipped representative ofwhat actual production conditioners. We believe that with either central air conditioners or costs will be under new standards and incorporating the modest reduction in heat pumps, the LCC analysis performs that the ARI Mean cost data very likely cost due to the most likely impact of a household-by-household analysis that overestimate those costs. For that emerging technologies (about 10 percent predicts the percentage ofhouseholds reason, we are weighing the reverse for split air conditioners) would not that will incur netlife-cycle cost savings engineering cost estimates heavily in have resulted in a 14 SEER level being or costs from an increased efficiency
our decision-making. We continue to economically justified. standard. With regard to apparent provide the results based on the ARI Overall, we considered the potential discrepancies between air-conditioned Mean data cost to illustrate an upper of emerging technologies to penetrate household saturations, the 37.6 percent ,'.

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will decline below the price of equipment currently at that level. York International Corporation (York) and ARI confirmed, for example, thattheir markups generally increase onhigher efficiency equipment, and Star Supply Company seemedto implythat distributor markups increase with increasing efficiency. (Star SupplyCo., No. 95 at p. 2; York, Transcript No. 73 

### at p. 117; and ARI, No. 100 atp. 3). Those markups are reflected inthe currentretail prices ofthose products. Due to competitivepressures atthe baseline level, today's markups would not be sustainable for baseline equipmentthat meets, butdoes not exceed, a new standard. In addition, as noted byJohn Compton ofHome Excellence, Inc. (HE!), a heatingand airconditioning contractor, the new, more efficient, baseline equipmentwould likely possess fewer ofthe premium features found intoday's high efficiency equipment. (HEI, Transcript No. 73 atp. 123). Forthose reasons, currentretail price data would overestimate the relative cost ofhigh efficiency products under new standards. The agreement betweenARI's mean cost data and the Wisconsinretail price data suggests that the ARI cost data correspondto today's costs ofproducinghigh efficiency equipmentrather thanto thelower production costs we would expect under new standards.

The reverse engineering analysis, on the otherhand, is transparent and the results fall withinthe ARI range and
nearerto the ARI Minimum where we expect competitivepressureto drive manufacturing costs. Seventy-one samples were analyzed usingbills-ofmaterials provided manufacturers, supplemented withthree physical teardowns, and detailed estimates for split air conditioners werereviewed" with a major manufacturer. Ourreverse engineering methodology, though originally conceived as a validation exercise, is itselfa valid method of estimating equipmentproductioncosts, and is well suited for use inthis rulemaking as an indicator ofthe most likely production costs under new standards.

Based on a consideration ofthe above,
we concludethatthereverse engineering cost estimates are more representative ofwhat actual production costs will be under new standards and that the ARI Mean cost data very likely overestimate those costs. Forthat reason, we are weighing thereverse engineering costestimatesheavily in
our decision-making. We continueto providetheresultsbased on the ARI Mean data cost to illustrate an upper bound, which webelieve will be quite
an unlikely outcome.



### b. 

### Consideration of Emerging Technologies. ACEEE and others commented we should have included the savings that could result from the
use ofemerging technologies rather than presentingthem separately. The Oregon Energy Office andThermalex, Inc. also expressed more optimism regarding the applicability and probability of adoption for microchannel heat exchangers than we had expressed in theTSD. (ACEEE, Transcript No. 73 at p. 88; ASE, No. 81 at pp. 8, 9 and 12; OOE, No. 84 at p. 5; andThermalex, No. 89 atpp. 1-2).

Trane and York dispute some ofthe claimsregardingthepotential of emerging technologies. (Trane, No. 93 at p. 7; and York, No. 90 at p.4).

According to ourengineering analysis described in Section4.5 ofthe TSD, on a systembasis, emergingtechnologies cannotmake a significant cost impact below 14 SEER. Thatexplains whythey
are not in widespread use today. At 14 SEER and above, some emerging technologies could compete quite favorably with the technologies that currentlydominate in some applications. We did not analyze standard levels at 14 SEER, instead we examined 13 SEER and 18 SEER, the Max Tech level. ACEEE contends that, had we evaluated life-cycle-costs using
reverse engineering analysis combined withemerging technology impacts. a standard level as high as 14 SEER may havebeenjustified after all. and should havebeen considered. (ACEEE, Transcript No. 73 at p. 171. and No. 101 atp. 7).



### From ourANOPR analysis based on ARI mean costs, we concluded that standard levels between 13 

### SEER and 18 

### SEER did not warrant further consideration. York had stated that ARI's cost data already included the benefits ofemergingtechnologies although we could not verify the methods theyused to incorporate them. (York, TranscriptNo. 14 at p. 116; and ARI, TranscriptNo. 14 at p. 115). Economic impactresults based on reverse engineering were more favorable, but still were far from compelling. For example, the impact on national netpresentvalue was negative $8.4 billion for 14 SEER split air conditioners. We believe that incorporatingthe modest reduction in cost due to the most likely impact of emerging technologies (about 10percent for split air conditioners) would not haveresulted in a 14 SEER level being economicallyjustified.

Overall, we considered the potential ofemerging technologies to penetrate the market in 13 SEER products under
a 13 SEER standard to behigherthan underlower standard levels. Partially for thatreason, webelieve that the burdensthat could accrue from increases inthe size ofbaseline equipmentunder a 13 SEER standard
canbe somewhat mitigated by the use ofemergingtechnologies. 2. Life Cycle Cost (LCC) Analysis

a. 

### Probability-basedanalysis. Trane questioned theuse ofa Monte Carlo probability-based analysis because they claimthat several ofthe distributions usedto characterizethe inputs to the analysis are erroneous. (Trane, No. 93 at pp.4-5).

As part ofthe process to improve the energy efficiency standards analysis, the Departmentuses a probability-based analysis to determine a distribution of life-cycle cost.impacts for consumers utilizing central air conditioners and heatpumps. Most oftheinputsto the analysis are characterized with distributions. While some ofthe input distributions arebased on limited data,
no otherdata havebeen offered to recharacterizethe distributions. Therefore, the Department sees no compellingreason to alter its assumptionsregardingthe input distributions.

b. 

### Energy Use. Trane claimed thatthe 1997 Residential Energy Consumption Survey (RECS) sampleis too small and may not accuratelyrepresent the population ofcentral airconditioner and heatpump consumers. In addition, they claimedthat theDepartment is not accurately representing the saturation of air-conditioned households. Trane statedthatthe saturationreported by the Department (37.6 percent) is inconsistentwiththe saturation reportedbyRECS (47 percent). (Trane, No. 93 at pp. 4-5).

As part ofthe process to improve the energy efficiency standards analysis, the Departmentis committedto use sensitivityanalysistools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. The Departmentbelieves thatRECS provides
a nationallyrepresentativehousehold data set whichis suited for conducting the type ofsensitivity analyses suggested by the Process Rule. Limiting theRECS households to those equipped with eithercentral air conditioners or heatpumps, the LCC 

### analysis performs
a household-by-household analysis that predicts the percentage ofhouseholds thatwill incurnetlife-cycle cost savings
or costs from an increased efficiency standard. Withregard to apparent discrepanciesbetween air-conditioned household saturations, the 37.6 percent

## EE-RM/STD-98-440 -· <

Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7179 saturation value cited by Trane an indicator as what will happen to (NPV)) to increases in the marginal represents only those households with retail prices in the future. Southern also electricity price. As will be reported in central air conditioners. When warned that the specific problems facing Chapter V, Analytical Results, the NPV including homes with central airCalifornia with regard to wholesale ofa 13 SEER standard based on Reverse conditioning heat pumps, the household electricity costs are not representative of Engineering manufacturing costs is a saturation used by the Department in its the current situation in the Southeast savings to the nation of $1 billion. An LCC analysis matches the 47 percent where peak prices were considerably increase in the marginal electricity price saturation level reported by RECS. lower in the summer of2000 on pooled of 3 cents/kWh yields a further increase

c. ElectricityPrices. Wholesale prices than they were the previous in the operating cost savings so that the electricity cost data for the period of summer because ofgreater supply NPV equals $5 billion. Although the 1998 through October, 2000, presented availability. EEI argued that flat rate Department will continue torely on its by experts on behalfofthe Appliance retail pricing will likely continue into existing method for establishing Standards Awareness Project (ASAP), the future even under a deregulated marginal electricity prices, we recognize demonstrated dramatic variations in market. Electricity suppliers will hedge that future changes in the electric utility seasonal wholesale electricity costs for against any probable summer price industry due to deregulation could regions ofthe country (i.e., California, spikes by offering high enough flat rates significantly change future electricity New England, New York, and the so that financial losses incurred during prices and, as a result, improve the Pennsylvania-New Jersey-Maryland times ofhigh summer wholesale costs economic benefits ofthe standards region) that have recently deregulated will be more than offset by the profits being issued today. their electric utility industry. In earned during times when wholesale d. Product Life. ARI, Carrier Corp., particular, wholesale costs during costs are low (e.g., offpeak summer and The Trane Company all asserted summer months and especially certain hours or the winter season). (EEI, that the 18.4-year average equipment summer day hours were significantly Transcript No. 73 at pp. 148-150; lifetime assumed by the Department is greater than annual average wholesale Dominion, Transcript No. 73 at pp. 158- notrepresentative ofactual central air costs. Wholesale electricity cost data for 160; and Southern Company, No. 96 at conditioner and heat pump life. Both the period spanning 1998 through 1999 pp. 6-7). Carrier and Trane believed the lifetime for six regulated North American As was stated in the proposed rule, is 15 years while ARI stated that the Electric Reliability Council (NERC) the method for establishing marginal lifetime is even lower at 13 years. (ARI, regions were also presented showing electricity prices only allows for No. 100 at p. 4; Carrier, No.92 atp. 5; that summer costs were also defining marginal prices for those years and Trane No. 93 at p 8). significantly greater than average annual in which data are available. In the case The basis ofthe 18.4-year equipment costs. (Synapse, Transcript, No. 73 at ofresidential pricing, the data for lifetime was a survey conducted on pp.127-137 and No. 108 at p. 5). establishing marginal prices (the 1997 more than 2,100 heat pumps in a seven Asserting that DOE's marginal prices RECS )was taken from the years 1996 state region of the U.S. The survey based on 1996 and 1997 data are and 1997. For commercial buildings, determined not onlythe lifetime ofa regulated and do not reflect the utility tariffs used to establish marginal complete heat pump system, but the life marginal cost ofelectricity under a prices were collected in the year 1997. ofthe original compressor as well deregulated market, ASAP, ACEEE, On average, residential marginal prices Although thesystem lifetime is on NWPPC, and Synapse argued that based for households with central air Although th on recent wholesale electricity cost data, conditioners are 3 percent lower than s ag oe r 1 year the i y al c reso average costs during periods when air heat pumps marginal prices are 7 the survey indicated that essentially all marginal electricity prices are also likely prices in commercial buildings are on original compressor once in the lifetime to increase as electricity markets average 2 percent greater than average of system. Since the heat pump survey through out the U.S. are deregulated. commercial rates. Our method for o S inc c e eat pump survey (ASAP, No. 108 at p. 1; ACEEE, determining marginal prices provides a clearly indicates that the original Transcript No. 73 at pp. 154-158; snapshot ofrecent retail rates and may compressor is replaced once in a NWPPC, No. 76 at pp. 3-4; and or may not accurately reflect what system's life, DOE' analysis was based Synapse, Transcript No. 73 at pp. 152- marginal prices will be like in the on the inclusion ofa repair cost forthe 153). future. Although wholesale electricity compressor. Conducting the analysis in

Dominion Virginia Dominion ), costs for four deregulated electricity this manner retains the average system Dominion Virginia Power lifetime of 18.4 years but explicitly The Southern Company (Southern), and markets demonstrate higher wholesale lfeme of 18.4 years but explicitly EEI all disagree with the assertion that electricity costs during times when air addresses the replacement cost ofthe higher marginal costs will result from conditioners are likely to be used, we compressor, which is the most higher wholesale electricity costs. cannot speculate as to how wholesale expensive component of a system. As Dominion stated thatrecent electricity prices will be translated into indicated by the survey data, the deregulation pilot programs in Virginia retail prices to residential consumers. compressor was assumed to be replaced revealed that residential consumers are Thus, rather than speculating as to how n the 14th year ofthe system's life. not being offered rates that reflect the electricity deregulation may impact Although a shorter equipment lifetime costs ofgeneration (e.g., time ofuse marginal electricity prices, we are is possible, the Department has not been rates). Southern warned that it is retaining our existing method for provided with more substantive data to premature to draw conclusions from establishing marginal prices. support discontinuing its use ofthe wholesale electricity costs this early With the above said, the Department above mentioned survey data. The into the deregulation process. Extremely investigated the sensitivity ofconsumer Department believes that the survey high wholesale prices now may not be life-cycle costs (aggregated to a national level in the form ofa net present value "Bucher.M.E.. Grastataro. C.M.. and Coleman.



## ~

_ 7 Marginal prices exclude fixed charges, average_ _WR.._ "Heat Pump Life and Compressor Longevity Margi in prices exclude fixed charges

, average in 'Diverse Climates." ASHRAE Transacitons. 1990, prices include fixed charges. aResidential Energy Consumption Survey. 96(1): p. 1567-1571.

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saturation value cited byTrane represents only those households with central airconditioners. When including homes with central airconditioning heat pumps, the household saturation used by theDepartment in its LCC analysis matches the47 percent saturation level reported by RECS.

c. ElectricityPrices. Wholesale electricity cost data for the period of 1998 through October, 2000, presented by experts onbehalfofthe Appliance Standards Awareness Project (ASAP), demonstrated dramatic variations in seasonal wholesale electricity costs for regions ofthe country (i.e., California, New England, New York, andthe Pennsylvania-NewJersey-Maryland region) thathaverecently deregulated their electric utility industry. In particular, wholesale costs during
summer months and especially certain
summerdayhours were significantly greaterthan annual average wholesale costs. Wholesale electricity cost data for the period spanning 1998 through 1999 for six regulated North American Electric Reliability Council (NERC) regions were also presented showing that summercosts were also significantlygreater than average annual costs. (Synapse, Transcript, No. 73 at pp.127-137 and No. 108 at p. 5). Assertingthat DOE's marginal prices based on 1996 and 1997 data are regulated and do not reflect the marginal cost ofelectricityundera deregulated market, ASAP, ACEEE, NWPPC, and Synapse argued that based
onrecentwholesale electricity cost data, marginal costs will significantly exceed average costs during periods when air conditioners are operating.7 Future marginal electricityprices are also likely to increase as electricity markets through outthe U.S. are deregulated. (ASAP, No. 108 atp. 1; ACEEE, TranscriptNo. 73 atpp. 154-158; NWPPC, No. 76 at pp. 3-4; and Synapse, Transcript No. 73 at pp. 152- 153).

Dominion Virginia Power (Dominion), The Southern Company (Southern), and EEl all disagree with the assertion that higher marginal costs will result from higher wholesale electricity costs. Dominion stated thatrecent deregulation pilotprograms in Virginia revealed thatresidential consumers are not being offered rates that reflect the costs ofgeneration (e.g., time ofuse rates). Southern warned that it 

### is prematureto draw conclusions from wholesale electricity costs this early into the deregulation process. Extremely high wholesale prices nowmay not be

, Marginal prices exclude fixed charges. average prices include fixed charges. 

### an indicator as whatwiII happen to retail prices in thefuture. Southern also warned thatthe specific problems facing California withregard to wholesale electricitycosts are not representative of the current situation in the Southeast where peakprices were considerably lower in

### the summerof2000 on pooled prices than theywere the previous
summerbecause ofgreater supply availability. EEl argued that flat rate retail pricingwill likely continue into the future even undera deregulated market. Electricity suppliers will hedge against anyprobable summerprice spikes by offeringhigh enough flat rates so that financial losses incurred during times ofhigh summerwholesale costs will be more than offsetbythe profits earned during times when wholesale costs arelow (e.g., 

### offpeak summer hours or the winter season). (EEL Transcript No. 73 atpp. 148-150; Dominion, TranscriptNo. 73 at pp. 158- 160; and Southern Company, No. 96 at pp.6-7).

As was stated inthe proposedrule, themethod for

### establishing marginal electricityprices only allows for defining marginal prices for those years in which data are available. In the case ofresidential pricing, the data for establishing marginal prices (the 1997 RECS 8) 

### was taken from the years 1996 and 1997. For commercial buildings, utilitytariffs used to establish marginal prices were collected inthe year 1997. On average, residential marginal prices for households with central air conditioners are 3 percentlowerthan average rates whilefor households with heatpumpsmarginal prices are 7 percentlower. Space-cooling marginal prices in commercial buildings are on average 2 percentgreaterthan average commercial rates. Ourmethod for determining marginal prices provides a snapshot ofrecent retail rates and may or may not accuratelyreflect what marginal prices willbe like inthe future. Although wholesale electricity costs for four deregulated electricity markets**demonstr~te** 

### higherwholesale electricity costs during times when air conditioners are likely tobe used, we cannot speculate as to how wholesale electricity prices willbe translated into retail prices toresidential consumers. Thus, ratherthan speculating as to how electricity deregulation may impact marginal electricityprices, we are retaining ourexisting method for establishing marginal prices.

With the above said,the Department investigated the sensitivity ofconsumer life-cycle costs (aggregated to a national level in the form 

### ofa netpresentvalue

8 Residential Energy Consumption Survey. 

### (NPV)) to increases inthe marginal electricity price. As will be reported in ChapterV, Analytical Results, the NPV ofa 13 SEER standard based onReverse Engineering manufacturing costs is a savings to the nation of$1 billion. An increase in the marginal electricityprice of3 cents/kWh yields a further increase in the operatingcost savings so that the NPV equals $5 billion. Although the Department will continue to rely on its existingmethod for establishing marginal electricityprices, werecognize that future changes intheelectric utility industry dueto deregulation could significantly change future electricity prices and, as aresult, improvethe economicbenefits ofthe standards being issued today.

d. ProductLife. ARl, CarrierCorp., and TheTrane Companyall asserted that the 18.4-yearaverage equipment lifetime assumed by the Departmentis notrepresentative ofactual central air conditioner and heat pumplife. Both Carrier and Trane believed the lifetime is 15 years while ARl stated that the lifetime is.even lower at 13 years. (ARI. 

### No. 100 at p. 4; Carrier, No. 92 atp. 5; and 

### Trane, No. 93 at p. 8).

.

The basis ofthe 18.4-yearequipment lifetime was a survey conducted on more than 2,100 heatpumps in a seven stateregion ofthe U.S. 9. 

### The survey determined not only the lifetime ofa completeheatpump system, butthe life ofthe original compressoras well. Although thesystem lifetime is on average over 18 years, the survey also showed that the original compressor lifetime was, on average, 14 years. Thus, the surveyindicated that essentiallyall heat pump owners replaced their original compressor once in the lifetime ofsystem. Since the heat pump survey clearly indicatesthat the original compressoris replaced once in a system's life, DOE's analYSis was based
on the inclusion ofa repair costfor the compressor. Conductingthe analysis in this mannerretains the average system lifetime of 18.4 years but explicitly addresses thereplacementcost ofthe compressor, which is the most expensive component ofa system. As indicatedby the survey data, the compressorwas assumed to be replaced in the 14th year ofthe system's life. Although a shorter equipment lifetime is possible, the Departmenthas not been provided with more substantive data to support discontinuing its use ofthe above mentioned survey data. The Departmentbelieves that the survey

9"Bucher. M.E.• Grastataro. G.M

.. and Coleman. W.R.. "Heat PumpLife and Compressor Longevity in 'Diverse Climates." ASHRAE Transacitens. 1990. 96(1): p. 1567-1571.

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data provides an accurate representation p. 4; Carrier, No. 92 at p. 5; and Trane, incremental purchase price ofa 13 SEER of central airconditioner and heat pump No. 93 at p. 12). heat pump relative to a 12 SEER air life. In addition, an average lifetime of In fact, we did assume for the conditioner with either a gas-fired or 14 years was run as a scenario for the Manufacturer Impact Analysis that electric resistance heating system is analyses conducted for the proposed markups increase with increasing great enough to drive heat pump rulemaking showing thatthe resulting. efficiency under a given standard level. consumers to an alternative spaceconsumer economics were very close to This agrees with the comments. conditioning system. (ARI, No. 100 at p. the results generated with the 18.4-year However, for the consumer economic. 10; Southern Company, No. 96 at p. 3; average life coupled with compressor analyses, as the minimum standard AEP, No. 83 at p. 2; Carrier, No. 92 at replacement costs. level increases, we assumed that some p. 4; EEI, No. 80 at p. 8; York, No. 90

e. InstallationCost.International ofthe markups on the baseline product at p. 7; and Lennox, No. 91 at pp. 4-6). Comfort Products (ICP) and HEI stated do decrease. Comments did not address Acknowledging the potential for fuelthat the consumer's installation costs, that issue, and we believe our or equipment-switching, both ASE and e.g, labor and materials costs, exclusive assumption is correct. Appendix D of ACEEE recommended setting both air ofequipment cost, for installing a the TSD provides more information on conditioner and heat pump standards to central airconditioner or heat pump this issue. 13 SEER. (ASE, Transcript No. 73 at p. will increase with product efficiency. 3 Shipments/National Energy Savings 197; and ACEEE, Transcript No. 73 at (ICP, Transcript No. 73 at pp. 126-127; pp. 202-203). and HEI, Transcript No. 73 at pp. 92- a. Adjustments to NAECA Shipment From the perspective ofsaving the 93). ICP specifically voiced concerns Scenario. ACEEE and the NEEP assert maximum amount of energy that is
over the installation cost differences that the NAECA efficiency scenario we economically justifiable, the biggest between baseline (10 SEER) and 14 developed is not at all representative of "fuel" switching concern is from heat SEER equipment stating that the more the effect ofthe NAECA standard as we pumps to a combination ofcentral air efficient equipment, due its increased claim. (ACEEE; Transcript No. 73 at p. conditioners and electric resistance physical size, would incur higher labor 213 and No. 118 at p. 4). They point out heating. This may occur in households expenses as a result ofneeding extra that the distribution ofequipment that have only electric service and personnel to install the equipment. higher than 10 SEER in 1993 was 18 where the incremental purchase price of Other comments claimed that percent, and that our NAECA scenarios heat pumps is too great. Such a price installation costs would be impacted by apply much smaller fractions of increase might occur if the standard on larger and more efficient units for those shipments than 18 percent. heat pumps is significantly higher than installations with size constraints such As we mentioned in the TSD for the the standard for central air conditioners.
as equipment closets in manufactured proposed rule (section 8.3.5), the Based on data from the 1997 RECS, a homes and certain replacement NAECA scenario represents the effect little over 14 percent ofhouseholds installations in single-family homes. that NAECA had on equipment have either baseboard or forced air (MHI, No. 99 at p. 4; York, No. 90 at p. efficiency in the market. A further electric resistance heating with room or 5; and Lennox, No. 91 at p. 7). explanation is warranted. While sales of central air conditioning compared to

Throughout the analysis we have equipment rated higher than 10 SEER almost 10 percent ofhouseholds which assumed that installation costs would was indeed 18 percent in 1993, it was have heat pumps. Because there are remain constant as efficiency increased. 10 percent in 1992, 7 percent in 1991, already such a large percentage of We remain unconvinced based on the 5 percent in 1990 and 3 percent in 1989. households that utilize a combination of comments we have received that our A trend ofimproving efficiency had central or room air-conditioning with assumption is necessarily incorrect. already been in place since the late resistance heat to meet their spaceEven ifinstallation costs do generally 1970's. NAECA, which became effective conditioning needs, this supports the rise as the size and weight ofequipment in 1992, clearly did not cause all the possibility that some purchasers would increases, manufacturers will have the high efficiency shipments that existed choose to switch to resistance heat from incentive under new standards to in 1993. However, NAECA did seem to heat pumps. reduce the size of 13 SEER equipment stimulate morehigh efficiency Compared to heat pumps meeting the using various approaches at their shipments than could have been standards issued in the proposed rule disposal. These include existing design explained by the ongoing trend. It is that (i.e., 13 SEER and 7.7 HSPF), electric options that we have mentioned, such enhancement to the status quo that our resistance heating uses over 225 percent as adopting variable speed and NAECA scenario attempts to reproduce. ofthe energy for the same amount of modulating capacity technologies, Thus, under our NAECA scenario, heating. Therefore, ifa standard of 13 converting to microchannel heat shipments above the 13 SEER level SEER and 7.7 HSPF is issued for heat exchangers, increasing the size ofthe increase from 1 percent under the base pumps while a 12 SEER standard is set unconstrained outdoor unit or indoor case to 7 percent with a 13 SEER for central air conditioners, a mere 4 unit only, or changing the footprint or standard. Expecting them to increase percent ofheat pump households would elevation ofthe unit. These possible from 1percent to 18 percent as ACEEE need to switch to central air solutions are applicable to and NEEP seem to assert is not at all conditioners and electric resistance manufactured homes as well as site- representative oftheNAECA experience heating to negate the energy savings built homes. and is more in line with the Shift achieved from increasing the heat pump

For those reasons, we are retaining scenario that we developed. standard from 12 SEER/7.4 HSPF to 13 our assumption that installation costs b. FuelSwitching.Several comments SEER/7.7 HSPF. remain constant as efficiency levels rise. noted the potential for fuel- or Ifheat pump and air conditioner

f. Markups. ARI, York, Carrier and equipment-switching from heat pumps standards were set at different levels, Trane commented that we had to either gas-fired or electric resistance the price differential between the two apparently assumed that markups heating equipment due to the disparity would increase on the order of$200. decreased as efficiency levels increased, in the standards proposed for central air Under those conditions, we consider it and provided evidence to the contrary. conditioners (12 SEER) and heat pumps likely that at least 4 percent of (ARI, No. 100 at p. 3; York, No. 90 at (13 SEER). The comments stated that the prospective heat pump owners would

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data provides an accurate representation ofcentral airconditioner and heat pump life. In addition. an average lifetime of 14 years was run as a scenario for the analyses conducted for the proposed rulemaking showingthatthe resulting.
consumereconomics were very close to theresults generated withthe 18.4-year average life coupled with compressor replacement costs.

e. 

### Installation Cost. International ComfortProducts (ICP) and HEI stated that the consumer's installation costs. 

### e.g, labor and materials costs. exclusive ofequipmentcost. for installing a central airconditioner orheat pump will increase with productefficiency. (ICP. TranscriptNo. 73 at pp. 126-127; and HEI. Transcript No. 73 at pp. 92- 93). ICP specifically voiced concerns overthe installation cost differences betweenbaseline (10 SEER) and 14 SEER equipment stating that the more efficient equipment. dueits increased physical size, would incurhigher labor expenses as a result ofneeding extra personnelto install the equipment. Othercomments claimed that installation costs wouldbe impactedby larger and more efficientunits for those installations with size constraints such
as equipment closets in manufactured homes and certainreplacement installations in single-family homes. (MH!. No. 99 at p. 4; York. No. 90 at p. 5; andLennox. No. 91 at

### p. 7).



### Throughoutthe analysIs wehave assumedthat installation costs would remain constantas efficiency increased. Weremain unconvincedbased on the comments wehavereceived that our assumption is necessarily incorrect. Even ifinstallation costs do generally rise as the size and weight ofequipment increases. manufacturers will have the incentiveunder new standards to reducethe size of 13 SEER equipment usingvarious approaches at their disposal. These includeexisting design optionsthat we have mentioned. such
as adoptingvariable speed and modulating capacity technologies. convertingto microchannel heat exchangers. increasing the size ofthe unconstrained outdoorunit or indoor unit only. or changingthe footprint or elevation oftheunit. Thesepossible solutions are applicable to manufacturedhomes aswell as sitebuilthomes.

Forthose reasons. we are retaining
our assumption that installation costs remain constant as efficiency levels rise.

f. 

### Markups. ARl. York. Carrier and Tranecommentedthat wehad apparently assumed that markups decreased as efficiency levels increased. and provided evidence to the contrary. (ARI. No. 100 at p. 3; York, No. 90 at p. 4; Carrier. No. 92 at p. 5; andTrane. No. 93 at p. 12).

In fact. we did assume for the ManufacturerImpactAnalysis that markups increase with increasing efficiency under a given standardlevel. This agrees with the comments. However. for the consumereconomic. analyses. as the minimum standard level increases. we assumed that some ofthe markUps onthebaseline product do decrease. Comments did not address that issue. and webelieve our assumption is correct. AppendixD of theTSD provides more information on this issue. 3. Shipments/National Energy Savings

II. 

### Adjustments toNAECA Shipment Scenario. ACEEE and the NEEP assert thattheNAECA efficiency scenario we developed is not at all representative of the effect ofthe NAECA standard as we claim. (ACEEE; TranscriptNo. 73 atp. 213 and No. 118 at p. 4). They point out thatthe distribution ofequipment higherthan 10SEER in 1993 was 18 percent. and that ourNAECA scenarios apply much smallerfractions of shipmentsthan 18 percent.

As we mentioned intheTSD for the proposedrule (section 8.3.5). the NAECA scenariorepresents the effect that NAECA had on equipment efficiency in the market. A further explanationis warranted. While sales of equipmentrated higherthan 10SEER
was indeed 18 percentin 1993. it was 10percent in 1992, 7 percent in 1991, 5 percent in 1990 and 3 percent in 1989. A trend ofimproving efficiencyhad alreadybeen inplace sincethe late 1970·s. NAECA. whichbecame effective in 1992. clearly did not cause all the high efficiency shipmentsthat existed in 1993. 

### However. NAECA did seem to stimulatemorehigh efficiency shipmentsthan could havebeen explainedby the ongoing trend. It

### is that enhancementto the status quo that our NAECA scenario attempts to reproduce. Thus. under ourNAECA scenario. shipments above the 13 SEER level increase from 1 percentunderthebase
case to 7percent with a 13 SEER standard. Expecting themto increase from 1 percentto 18percentas ACEEE and NEEP seem to assert is not at all representative oftheNAECA experience and is more in line withthe Shift scenario that we developed.

b. 

### Fuel Switching. Several comments noted the potential for fuel- or equipment-switchingfrom heatpumps to eithergas-fired or electric resistance heating equipment due to the disparity in the standardsproposed for central air conditioners (12 SEER) and heat pumps (13 SEER). The comments statedthatthe incremental purchase price ofa 13 SEER heat pumprelativeto a 12 SEER air conditionerwith eithera gas-fired or electric resistance heating system is great enough to drive heat pump consumersto an alternative spaceconditioning system. (ARI, No. 100 atp. 10; SouthernCompany, No. 96 at p. 3; AEP. No. 83 at p. 2; Carrier. No. 92 at p. 4; EEl, No. 80 at p. 8; York. No. 90 at p. 7; and Lennox, No. 91 at pp. 4-6).

Acknowledging thepotential for fuelor equipment-switching. bothASE and ACEEE recommended setting both air conditioner and heat pump standardsto 13 SEER. (ASE. Transcript No. 73 at p. 197; and ACEEE. Transcript No. 73 at pp. 202-203).

From theperspective ofsaving the maximum amount ofenergy that is economicallyjustifiable.thebiggest "fuel" switching concern is from heat pumps to a combination ofcentral air conditioners and electricresistance heating. This may occur inhouseholds that have only electric service and wherethe incremental purchaseprice of heatpumps is too great. Such a price increase might occur ifthe standard on heatpumps is significantlyhigherthan the standard for central air conditioners.

Based on data from the 1997 RECS. a little over 14 percent ofhouseholds have eitherbaseboard or forced air electricresistance heating with room or central airconditioningcompared to almost 10 percent ofhouseholds which have heat pumps. Because there are already such a large percentage of households that utilize a combination of central orroom air-conditioning with resistanceheat to meet their spaceconditioning needs. this supports the possibility that some purchasers would choose to switch to resistance heat from heatpumps.

Compared to heat pumps meeting the standards issued intheproposedrule (j.e.• 

### 13 SEER and 7.7 HSPF). electric resistance heating uses over 225 percent ofthe energy for the same amount of heating. Therefore, ifa standard of 13 SEER and 7.7 HSPF is issued for heat pumpswhile a 12 SEER standard is set for central airconditioners. a mere 4 percent ofheat pump households would need to switch to central air conditioners and electricresistance heatingto negate the energy savings achieved from increasing**~he** 

### heat pump standard from 12 SEERl7.4 HSPF to 13 SEERi7.7 

### HSPF.



### Ifheatpump and air conditioner standards were set at different levels. the price differential betweenthetwo would increase on the order of$200. Underthose conditions. we consider it likely that atleast 4 percent of prospective heat pump owners would

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switch to lower-priced resistance heat. price of air conditioners and heat impacts. (Trane, No. 93 at pp. 12 and 22; Therefore, we have weighed this pumps has dropped over time relative to and ARI, No. 100 at p. 3).
concern in adopting today's standard household income, the saturation ofair- Trane also pointed out several levels, which require air conditioners conditioning and heatpump equipment oversights and simplifications relating and heat pumps to meet the same has increased in the new housing to our characterization ofmanufacturers minimum efficiency standard so as to market to its current value of 80 percent. and our apparent failure to present cash reduce the likelihood of switching to Because ofthe high saturation in the flow results and other important resistance heating. new construction market, the purchase indicators of financial strength. (Trane,

A larger price differential between price elasticity for the new housing No. 93 at pp. 6, 11-13 and 23). We heat pumps and air conditioners will market is small relative tothe believe that Chapter 8 ofthe TSD also tend to encourage switching to gas replacement market. But although the addresses most ofTrane's concerns. No
or oil fired furnaces. It is not our price elasticity is small, a decrease in evidence cited in the comments suggest objective toencourage or discourage shipments to the new construction that our assumptions contain errors that that type offuel switching. Therefore, market will still be likely when would warrant significant change in our we also considered this potential effect equipment prices increase (as we expect conclusions regarding manufacturing in our decision to establish air to occur under a new efficiency impacts. conditioner and heat pump efficiency standard). As a result, for the case ofa 5. Utility Impacts standards at the same SEER level. 13 SEER standard for split system air

c.Dropin Shipments inNew conditioners forexample, shipments to a. Peak DemandImpacts.ACEEE ConstructionMarket.ACEEE argued th new construction market drop by asserts that the peak power impacts that DOE's forecasts for more efficient approximately 3 percent based onpresented in the proposed rule air-conditioning equipment estimated rev e engineering manufacturing cost underestimate the true peak generation too large of a drop in shipments to the data. For comparison purposes, impacts due to central airconditioner
new construction market. They state shipments to the early replacement and heat pump standards. ACEEE's that because the new construction market drop much more significantly assertion is based on what they consider market already has an 80 percent arcent nt as more accurate and significantly saturation rate it is unlikely that this (approximately 15 percent) as this greater peak impacts as estimated by the market will forego the installation of market is ar ess saturate an the Appliance Standards Awareness Project
more efficient air-conditioning resulting purchase price elasticity is (ASAP).1' (ACEEE, No. 104 at pp. 5-6). equipment due to its associated much more elastic. Forthose reasons, APPA warned that excessively high increased purchase price. (ACEEE, we retained our assumed price elasticity SEER standards could increase peak Transcript No. 73 at pp. 219-221). This in the analysis. demand. (APPA, No. 113 at p. 1). is effectively an argument that the price 4. Manufacturer Impact Analysis For purposes of comparing the elasticity of air conditioners and heat estimated peak impacts from the pumps in the new construction market A few comments addressed the Department's analysis based on the use should be much lower than we have manufacturer impact analysis. Trane ofNEMS-BRS and those from ASAP, it assumed. disputes our assumed manufacturer is helpful to consider the concept ofa

Historical saturation data, however, markups. ARI commented that a survey conservation load factor (CLF). The CLF
seems to confirm that the price elasticity oftheir members revealed that our was first introduced by researchers at in the new construction market is closer markup assumptions are grossly Lawrence Berkeley National Laboratory to what was derived for the Shipments underestimated, but the TSD (Table 8.7) to allow for the straightforward Analysis, which is already much lower reveals that, in fact, their survey data calculation ofthe peak demand avoided than the elasticity we assumed in the agrees with the markups we used in the from a given amount of energy replacement market, for example. As the GRIM analysis to estimate manufacturer savings.1 The CLF is defined as:

F Annual Site Energy Savings (kWh) CLF= Peak Load Savings (kW) *8760 hours

Thus, a conservation technology that forecasts peak demand savings which suspect air conditioner demand data,
saves a constant amount ofpower on a result in a nationally representative CLF and (2)metered end-use data from aircontinuous basis has a CLF of 1.0. of 0.22. In contrast, for the same 13 conditioned households in California Because air conditioning use occurs SEER standard, ASAP forecasts energy and Florida indicate that the NEMSmost often during times ofpeak and peak demand savings which result BRS-based CLF value of0.22 is demand, the CLF is significantly lower. in CLFs ranging from 0.08 to 0.14. Based reasonable. The lower the CLF, the greater the on the above discrepancy in the CLF, With regard to ASAP's peak demand amount ofpeak load savings achieved ACEEE asserts that the peak demand estimates, regional calculations are for a given amount of annual energy savings forecasted by NEMS-BRS are based on peak demand data from a savings. too low. The Department disagrees with single 1988 study by the Narragansett

For a 13 SEER central air conditioner ACEEE's position for two reasons: (1) Electric Co. (an electric utility in the and heat pump standard, NEMS-BRS ASAP's peak savings estimates rely on Northeast).12 Although ASAP increased

'oStaying cool: How Energy-Efficient Air " Conservation Screening Curves to Compare Proceedings of the 1990 ACEEE Summer Study on Conditioners Can Prevent Blackouts. Cut Pollution Efficiency Investments to Power Plants: Energy Efficiency in Buildings, Authors: J. Koomey. and Save Money, Appliance Standards Awareness Applications to Commercial Sector Conservation A. Rosenfold, and A. Gadgil. Project, July 2000, Authors: J.Thone, T. Kubo. and Programs. Lawrence Berkeley National Laboratory. 12 Personal communication with Steve Nadel, S. Nadel. Berkeley, CA. August 1990, published inthe ACEEE, October, 2000. '. 

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### 7181

switch to lower-priced resistance heat. Therefore, we have weighed this
concern in adopting today's standard levels, whichrequire airconditioners and heat pumpsto meet the same minimum efficiency standard so as to reduce the likelihood ofswitchingto resistance heating.

A larger price differentialbetween heatpumps and airconditioners will also tendto encourage switchingto gas or oil fired furnaces. It

### is not our objective to encourage ordiscourage thattype offuel switching. Therefore,
we also consideredthispotential effect in ourdecision to establish air conditioner andheatpump efficiency standards at the same SEER level.

c. 

### Drop in Shipments in New Construction Market. ACEEE argued that DOE's forecasts for more efficient air-conditioning equipment estimated too large ofa drop in shipments to the
new constructionmarket. They state thatbecause the newconstruction market alreadyhas an 80 percent saturationrate itis unlikely thatthis marketwill forego the installation of
more efficientair-conditioning equipment dueto its associated increased purchaseprice. (ACEEE, TranscriptNo. 73 atpp. 219-221). This is effectively anargument that theprice elasticity ofair conditioners andheat pumps inthe new construction market shouldbe muchlowerthanwe have assumed.

Historical saturation data, however,
seems to confirmthatthe price elasticity inthe new construction market is closer to what was derived for the Shipments Analysis, whichis already much lower than the elasticity we assumed in the replacement market, for example. As the price ofair conditioners and heat pumpshas dropped overtime relative to household income, the saturation ofairconditioning and heatpump equipment has increased inthe newhousing market to its currentvalue of80 percent. Because ofthehigh saturation inthe
new construction market, thepurchase price elasticity for the newhousing market is small relative to the replacement market. But althoughthe price elasticity is small, a decrease in shipmentsto the new construction market will still be likely when equipment prices increase (as we expect to occur under a new efficiency standard). As a result, for the case ofa 13 SEER standard for split system air conditioners for example, shipmentsto the new construction market drop by approximately 3 percentbased on reverse engineering manufacturing cost data. Forcomparisonpurposes, shipments to the early replacement market drop much more significantly (approximately 15 percent) as this market is far less saturated and the resulting purchase price elasticity is much more elastic. Forthose reasons, weretained ourassumed price elasticity inthe analysis.
4. Manufacturer ImpactAnalysis

A few comments addressed the manufacturer impact analysis. Trane disputes our assumed manufacturer markups. ARI 

### commented that a survey oftheir members revealed that our markup assumptions are grossly underestimated,butthe TSD (Table 8.7) reveals that, in fact, their survey data agrees with the markups weused inthe GRIM analysis to estimate manufacturer

eLF= 

### Annual Site Energy Savings (kWh) 

### Peak Load Savings (kW)

. 8760 

### hours

Thus, a conservation technologythat
saves a constant amount ofpower on a continuousbasis has a CLF of 1.0. Because air conditioninguse occurs most often during times ofpeak demand, the CLF is significantly lower. The lowerthe CLF, thegreater the amount ofpeakload savings achieved for a given amount ofannual energy savings.

.

For a 13 SEER central air conditioner andheatpump standard, NEMS-BRS

10Stayingcool: How Energy-Efficient Air Conditioners Can Prevent Blackouts. Cut Pollution and Save Money. Appliance Standards Awareness Project, July 2000, Authors: J. Thone. T. Kubo. and S. Nadel. 

### forecasts peak demand savings which result in a nationallyrepresentative CLF of0.22. In contrast, for the same 13 SEER standard, ASAP forecasts energy and peak demand savings whichresult in CLFs ranging from 0.08 to 0.14. Based
on the above discrepancy in the CLF, ACEEE asserts that the peak demand savings forecasted by NEMS-BRS are too low. The Department disagrees with ACEEE's position for tworeasons: (I) 

### ASAP's peak savings estimatesrely on

IIConservation Scrooning Curves to Compare Efficiency Investments to Power Plants: Applications to Commercial Sector Conservation Programs. Lawrence Berkeley National Laboratory. Berkeley, CA. August 1990, published inthe 

### impacts. (Trane, No. 93 at pp. 12 and 22; and ARI, No. 100 at p. 3).



### Trane also pointed out several oversights and sjmplifications relating to ourcharacterization ofmanufacturers and ourapparent failure to present cash flow results and otherimportant indicators offinancial strength. (Trane, No. 93 at pp. 6, 11-13 and 23). We believe that Chapter 8 oftheTSD addresses most ofTrane's concerns. No evidence cited inthe comments suggest that our assumptions contain errors that would warrant significant change in our conclusionsregarding manufacturing impacts. 5. Utility Impacts

a. 

### PeakDemandImpacts. ACEEE assertsthatthe peakpower impacts presented inthe proposed rule underestimate thetrue peakgeneration impacts due to central airconditioner and heatpump standards. ACEEE's assertion is based on what they consider
as more accurate and significantly greaterpeakimpacts as estimatedby the Appliance StandardsAwareness Project (ASAP).lO (ACEEE, No. 104 at pp. 5-6). APPA warnedthat excessively high SEER standards could increase peak demand. (APPA, No. 113 at p. 1).

Forpurposes ofcomparing the estimated peakimpacts from the Department's analysis based on theuse ofNEMS-BRS and those from ASAP, it is helpful to considerthe concept ofa conservation load factor (CLF). TheCLF
was first introducedbyresearchers at Lawrence Berkeley National Laboratory to allow for the straightforward calculation ofthepeak demand avoided from a given amount ofenergy savings.11 The CLF is defined as:

suspect air conditioner demand data, and (2) metered end-use data from airconditionedhouseholds in California and Florida indicatethat the NEMSBRS-based CLF value of0.22 is reasonable.

Withregard to ASAP's peak demand estimates, regional calculations are based onpeak demand data from a single 1988 studyby the Narragansett Electric Co. (an electric utility in the Northeast}.12 Although ASAP increased

Procoodings ofthe 1990 ACEEE SummerStudy on Energy Efficiency in Buildings, Authors: J. Koomey. A. Rosenfeld, andA. Gadgil.

12Personal communication with Steve Nadel. ACEEE. October. 2000.

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the Northeast peak demand data by 25 issue ofprice reductions or productivity requirement to mandate the application percent for the two Southern divisions improvements, some contend that of ozone reduction technology in its and decreased itby 25 percent for the reductions are due to declining most severe non-attainment areas. (ARI, Pacific division, no basis for these commodity metals prices rather than No. 100 at p. 13; and Carrier, No. 92 at adjustments are provided. Because of any increases in production efficiency. p. 4). ASAP's reliance on peak demand data (Lennox, No. 91 at pp. 4-5). On the We understand that Texas has since from only one region ofthe country, we issue of efficiency trends, EEI claims withdrawn its proposal. However, the do not place much confidence in the that rather than post-standard efficiency TSD does include a preliminary peak generation savings provided by increases, the Department neglected to estimate ofthe burden ofthis ASAP. account for pre-standard efficiency requirement on the industry and, to the

As opposed to the ASAP results, increases. (EEI, Transcript No. 73 at pp. extent that other states may pursue the metered end-use data from Southern 206-208). Counter to claims that same course ofaction, included that in California and Florida indicate that electricity prices will increase in the our consideration ofcumulative burden. climate has a much larger affect on the future due to the deregulation ofthe We consider that widespread CLF than reported by ASAP. In electric utility industry, others state that requirements for this technology will Southern California, a metered end-use the future path of deregulation is so not be likely, due to its apparently high study conducted on 132 air-conditioned uncertain that it isunknown as to cost, questionable efficacy, and possible households in Southern California whether prices will decline or increase. reduction in energy efficiency. Edison's service area revealed that the (EEI, Transcript No. 73 at pp. 148-150; D AdditionalStandard Requirements CLF for this region is likely 0.08.'3 In Dominion, Transcript No. 73 at pp. 158- Homestead, Florida, a metered end-use 160; and Southern Company, No. 96 at 1. EER Standard study conducted on ten air-conditioned pp 6-7) In the proposed rule, we discussed homes indicated that the CLF is likely In these instances where we have including a requirement for a new 0.42.'4 Although strong conclusions conflicting opinions about what is standard based on a system's energy cannot be drawn from only two studies, responsible for creating a trend, we have efficiency ratio (EER) in addition to its the metered end-use results do provide no basis for changing our initial seasonal energy efficiency ratio (SEER). the Department with some confidence assumption. Usually, we rely on the That new standard was to be established that the NEMS-BRS CLF estimate of most recent set ofdata we have at the median ofavailable EER ratings 0.22 is reasonable since it falls between available to us to make projections into at a particular SEER level. Our objective the CLF range provided by the two the future. In the case of efficiency was to ensure that any increase in the metered end-use studies. Therefore, we trends, we rely on existing trends that SEER standard also resulted in an have reason to believe that our seem to indicate that efficiency will increase in equipment efficiency under assumption is more valid than ASAP's. remain static after a new standard the warmer conditions best measured by

Obviously more research needs to be becomes effective. In the case of EER. That resulting drop in peak power conducted in the area of peak demand electricity prices, werely on the mn impacts due to increased air conditioner lectr c l

tny pride we reln thedemand would then help avoid the need efficiency. But until such extensive projections provided in the Annual for new power plants and, in the view research is conducted, theDepartment Energy Outlook, which is publicly and ofmany stakeholders, improve power sees no reason to discontinue its use of readlly available, and which we assume system reliability. We asked whether an NEMS-BRS to estimate peak demand is unbiased with respect to parties EER standard would impose a savi s ings. terested in the outcome ofthis significant burden on manufacturers, rulemaking. Since this is the case for all would significantly affect the cost of 6. Projection ofTrends the supposed trends listed above, we equipment considered in our analysis,

Several comments suggested or have not changed any ofour projections. would negatively impact the sale of asserted that we should project C.OtherComments modulating equipment, or would historical trends that they believe exist. significantly improve power system These include price reductions or 1. HCFC Phaseout reliability. productivity improvements in Comments noted that as efficiency Several comments, including those of manufacturing. (ACEEE, Transcript No. increases, refrigerant charge may environmental advocacy groups and 73 at pp. 64 and 88-90; and NRDC, increase also. This could cause the some utilities, supported adding an EER Transcript No. 73 at pp. 105 and 115), United States to reach its cap on HCFC- standard and urged us to adopt the post-standard product efficiencies 22 use earlier, resulting in higher prices median EER standards we proposed. (ACEEE, Transcript No. 73 at p. 210), for HCFC-22 than we have considered. They cited potential benefits that would and electricity prices. (ASAP,No. 108 at (Carrier, No. 92 at p. 4). We would point accrue from avoidance ofnew power p. 1; ACEEE, Transcript No. 73 at pp. out that occurrence would likely plant capacity and a reduction in the 154-158; NWPPC, No. 76 at pp. 3-4; accelerate the transition to HCFC-free occurrence ofblackouts. NRDC believes and Synapse, Transcript No. 73 at pp. refrigerants. There are also other options that the Act requires us to adopt anEER152-153). available for manufacturers to improve based standard. Underlying these

Other comments responded to some equipment efficiency without increasing comments is a beliefthat SEER ofthese suggestions. With regard to the equipment size or charge. Both ofthese standards alone cannot guarantee those factors will have the effect of benefits. Carrier supports an EER-based '3 Residential Appliance End-Use Survey; Col3lect Residential Applianc e E i-Use Sursuppressing increases in refrigerant standard only in lieu ofa SEER-based Energy Load Profiles; 1991 Results, prepared by prices over the long term. standard because it would harmonize Quantum Consulting Inc., Berkeley, CA for with International Standards Southern California Edison Co.. San Dimas. CA, 2. Ozone Reduction Catalyst Organization testing requirements. November. 1992. Requirement (ACEEE, Transcript No. 73 at p. 62; Monitord Energy Use Patterns inLow-Income ARI and its members remind us to NWPPC, Transcript No. 73 at p. 161; Housing (FSEC-PF-300). Florida Solar Energy Center. Cocoa, FL, 1996, Authors: D. S.

Parker. M. consider the potential impact on the ASE, No. 81 at p. 1; NPPD, No. 109 at D.

Mazzara, and

. R.Sherwin. industry ofTexas' proposed p. 1; OOE, No. 84 at p. 2; NRDC, No. 88 " 

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### Rules and Regulations

the Northeast peakdemand databy 25 percent for thetwo Southern divisions and decreased itby 25 percentfor the Pacific division, no basis for these adjustments are provided. Because of ASAP's reliance onpeak demand data from only oneregion ofthe country, we do not place much confidence inthe peakgeneration savings providedby ASAP.

As opposedtothe ASAP results, metered end-use data from Southern California and Floridaindicatethat climatehas a much larger affect on the CLF thanreportedbyASAP. In Southern California, a metered end-use studyconducted on 132 air-conditioned households in SouthernCalifornia Edison's service area revealed thatthe CLF for this region is likely 0.08.13 In Homestead, Florida, a metered end-use study conducted on ten air-conditioned homes indicated that the CLF is likely 0.42.14 Although strong conclusions cannotbe drawn from only two studies, the metered end-useresults do provide the Department with some confidence that the NEMS-BRS CLF estimate of 0.22 is reasonable since itfalls between the CLF range providedby thetwo metered end-use studies. Therefore, we have reason tobelieve that our assumption is more valid thanASAP's.

Obviously more research needs tobe conducted inthe area ofpeak demand impacts due to increased airconditioner efficiency. But until such extensive research is conducted,theDepartment
sees no reason to discontinue its use of NEMS-BRS to estimate peak demand savings. 6. Projection ofTrends

Several comments suggested or asserted that we should project historical trendsthattheybelieve exist. These include pricereductions or productivity improvementsin manufacturing. (ACEEE, TranscriptNo. 73 at pp. 64 and 88-90; and NRDC, Transcript No. 73 at pp. 105 and 115), post-standardproductefficiencies (ACEEE, TranscriptNo. 73 atp. 210), and electricity prices. (ASAP, No. 108 at p. 1; ACEEE, TranscriptNo. 73 at pp. 154-158; NWPPC, No. 76 atpp. 3-4; and Synapse, TranscriptNo. 73 at pp. 152-153).

Othercommentsresponded to some ofthese suggestions. With regard to the

13Residential ApplianceEnd-Use Survey; Collection ofResidential ApplianceTim(}-of-Use Energy Load Profiles; 1991 Results. prepared by Quantum ConsultingInc

.. Berkeley. CA for Southern California Edison Co

.. San Dimas. CA. November. 1992.

14Monitored Energy Use Patterns in Low-Income Housing (FSEC-PF-300). Florida Solar Energy Center. Cocoa. FL. 1996. Authors: D. S. Parker. M. D. Mazzara. andJ. R. Sherwin. 

### issue ofprice reductions or productivity improvements, some contend that reductions are due to declining commodity metals prices rather than any increases in productionefficiency. (Lennox, No. 91 atpp. 4-5). On the issue ofefficiencytrends, EEl claims thatratherthan post-standard efficiency increases, the Department neglected to account for pre-standard efficiency increases. (EEl, Transcript No. 73 at pp. 206-208). Counterto claims that electricity prices will increase in the future due to the deregulation ofthe electricutility industry, others state that the future path ofderegulation is so uncertain that it is unknown as to whetherprices will decline or increase. (EEl, Transcript No. 73 at pp. 148-150; Dominion,Transcript No. 73 at pp. 158- 160; and Southern Company, No. 96 at pp.6-7).

Inthese instances where we have conflicting opinions aboutwhat is responsible for creating a trend, we have
nobasis for changing ourinitial assumption. Usually, we rely onthe most recent set ofdata wehave available to us to make projections into thefuture. In the case ofefficiency trends, werely on existing trends that
seemto indicatethat efficiency will remain static after a new standard becomes effective. In the case of electricity prices, werely onthe projections provided in the Annual Energy Outlook, which is publicly and readily available. and which we assume is unbiased with respect to parties interested inthe outcome ofthis rulemaking. Sincethis is the case for all the supposed trends listed above, we have not changed any ofourprojections.
C. 

### Other Comments
1. 

### HCFC Phaseout

Comments noted that as efficiency increases, refrigerantcharge may increase also. This could cause the United States to reach its cap on HCFC22 use earlier, resulting in higher prices for HCFC-22 than we have considered. (Carrier, No. 92 at p. 4). We would point outthat occurrence would likely accelerate thetransition to HCFC-free refrigerants. There are also other options available for manufacturers to improve equipment efficiency without increasing equipment size or charge. Both ofthese factors will have the effect of suppressingincreases in refrigerant prices over the long term. 2. OzoneReduction Catalyst Requirement

ARI and its members remind us to considerthe potential impact on the industry ofTexas' proposed requirementto mandatethe application ofozone reduction technology in its most severe non-attainment areas. (ARI, No. 100 at p. 13; and Carrier, No. 92 at p.4).

We understand that Texas has since withdrawn its proposal. However, the TSD does include a preliminary estimate oftheburden ofthis requirement onthe industry and, to the extentthat other states may pursuethe
same course ofaction, included that in
ourconsideration ofcumulativeburden. We consider that widespread requirements for this technology will notbelikely, due to its apparently high cost, questionable efficacy, and possible reductionin energy efficiency.
D. 

### AdditionalStandardRequirements 1. EER Standard

In the proposedrule, we discussed including a requirement for a new standardbased on a system's energy efficiency ratio (EER) in addition to its seasonal energy efficiency ratio (SEER). Thatnew standard wastobe established at the median ofavailable EER ratings at a particular SEER level. Our objective
was to ensurethat anyincrease inthe SEER standard also resulted in an increase inequipmentefficiency under the warmer conditions best measuredby EER. Thatresulting drop in peak power demand wouldthenhelp avoid the need for newpowerplants and, in the view ofmany stakeholders, improve power systemreliability. We asked whetheran EER standardwould impose a significantburdenonmanufacturers, would significantly affect the cost of equipment considered in ouranalysis, would negatively impactthe sale of modulating equipment, orwould significantlyimprove power system reliability.

Several comments, includingthose of environmental advocacygroups and
someutilities, supported adding an EER standard andurged us to adoptthe medianEER standards we proposed. Theycited potentialbenefits that would
accrue from avoidance ofnewpower plantcapacity and a reduction in the
occurrence ofblackouts. NRDC believes thatthe Act requires us to adopt anEERbased standard. Underlying these comments is a beliefthat SEER standards alone cannotguarantee those benefits. Carrier supports anEER-based standard only in lieu ofa SEER-based standardbecause it would harmonize withInternational Standards Organization testingrequirements. (ACEEE, Transcript No. 73 at p. 62; NWPPC, Transcript No. 73 at p. 161; ASE, No. 81 at p. 1; NPPD, No. 109 at p. 1; OOE, No. 84 at p. 2; NRDC, No. 88

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at p. 3; Omaha Public Power District incentive to simplify the design of 2. TXV Requirement (OPPD), No. 111 at p. 2; and Carrier, No. baseline equipment. This suggests they In the proposed rule, we discussed 92 at p. 8). will favor heatexchanger or compressor the issues associated with mandating

Other comments took an opposing improvements that improve EER. thermostatic expansion valves, or TXVs. position on the grounds that including On the other hand, manufacturers will We did not propose such a requirement,
an EER standard would impede the have a strong incentive to reduce the but we recognized that such a application ofmodulating components; ave a strong mcentive toreduce the thaati w are ot pemitted to adopt a size of 13 SEER baseline equipment. requirement may be capable of saving a standtard other than SEER and haveot Although microchannel heat exchangers great deal ofenergy. We discussed our standard other than SEER and have not sufficiently analyzed the validity of an could reduce size and improve EER, options for encouraging their use. EER-based standard; that anEER manufacturers could also choose to Many comments continue to express standard would eliminate products from introduce variable speed or capacity strong support for a TXV requirement. the market; that an EER standard will modulation technologies that can Many cite a report submitted by Proctor not improve electric system reliability, induce them to lower EER at a given Engineering (Proctor) that describes the particularly nationwide; and that there SEER level. As the cost ofpower results of a field study covering 4,000
are burdens associated with testing and electronics and control technologies units in California. The study concluded certifying EER. (National Comfort come down, this possibility becomes that 62 percent of equipment is Products (NCP), No. 77 at p. 3; EEI, more likely. mischarged by more than percent, and Transcript No. 73 at p. 327 and No. 80 However, even ifvariable speed or tht TorXsce, whiunerrbetter at pp. 3and 9; Dominion, Transcript No. modulating technologfixed orifices in undercharged atpp. 3and 9; Dominion, Transcript No. modulating technologies eventually conditions, could save 11 percent ofthe 73 at p. 264 and No. 68 at p. 2; Trane, predominate, and thereby reduce EERs en sed by that equipment. (Proctor No. 93 at p.

14; York, No. 90at pp. 1 in typical equipment, they would still No. 105; OOE, No. 84 at p. 2; NRDC, No. 4; ARI, Transcript No. 73 at p. 320 and reduce peak demand compared to 88; Califoria Eergy Commissio No. 100 at p. 16; Goodman, Transcript today's 10 SEER baseline equipment. (CEC), No. 98 at p. 1; ACEEE, No. 101 No. 73 at p. 302; and Southern, Furthermore, because variable speed at p. 8; PG&E No. 104 at p. 1; and ASAP,

Transcript No. 73 atp. 243). efficienand modulating equipment mitigate the Transcript No. 73 at p. 4). level approach, we assume efficienthat ally cyclic losses that are due to widespread Other comments expressed some equipment at the se e SEER level costs over sizing, the aggregated peak demand resistance to a TXV requirement, the same to produce regardless ofthe ofa group ofmodulating air particularly regarding our authority to combination ofdesign options chosen to conditioners with lower EERs will likely establish one. Some also express achieve that SEER level. These options be lower than that ofa similar group of concerns about problems associated include those thatraise EER, including non-modulating air conditioners with with TXVs. (NCP,No. 77 at p. 4; Trane, compressor and heat exchanger higher EERs at the same SEER level. No. 93 at p. 19; York,No. 90 at pp. 4- upgrades, as well as those that do not Also, utilities have the opportunity with 5; Lennox, No. 91 at p. 3; EEI No. 80 at raise EER, such as thermostatic modulating equipment to offer p. 3; and Carrier, No. 92 at p. 10). expansion valves. For any given SEER customers the option to allow the utility In response to our concern that and HSPF levels, the efficiency level to "lock" the equipment into low- mandating TXVs would stifle the approach cannot differentiate capacity operation in return for a lower development ofother, perhaps equipment costbased on different EER electricity price. preferable, technologies, Proctor and choices. Finally, although the Department is ACEEE suggested performance tests that

Underlying the efficiency level interested in reducing peak demand, the could be applied in lieu ofa TXV approach, however, is the assumption primary purpose ofappliance efficiency requirement. They would reward that manufacturers make cost-optimal standards is to save energy. An EER equipment that possessed a TXV or choices based on their own unique standard could be counterproductive by performed as well while undercharged situations. Therefore, a manufacturer discouraging variable speed and or when airflow is restricted. This who was required to raise the EER ofits modulation, which can save substantial approach is at least partially endorsed equipment from the 10th percentile to amounts ofenergy over the cooling by others. (NRDC No. 88 at p. 17; CEC the 50th percentile (median) would season while providing consumers with N. 199 at p. 1; and OOE, No. 84 at p. indeed incur added costs since its additional benefits not found in single 8). Some ofthe commenters preferred design choices would no longer be cost- speed and non-modulating equipment. that we initially specify TXVs but then optimal for its own circumstances. phase out thatrequirement in favor of Since efficiency levels are expressed in Although the Department believes a performance-based approach. terms of SEER and HSPF only, we that EPCA permits adoption ofan EER As we alluded to in the proposed rule, would have to depart from the standard, for the foregoing reasons, we a performance-based approach is also efficiency level approach in order to do notbelieve that the Act requires or our preference and is certainly in the quantify those costs. suggests that we establish such a spirit ofEPCA. As such, the SEER test

We are still convinced that the standard under the circumstances here. procedure, not a TXV requirement, stringent physical relationship between Given the adopted standard levels, a appears to be the most appropriate EER and SEER in equipment rated national EER standard is both vehicle for assuring that an equipment's through 12 SEER, which is comprised unnecessary and undesirable. Most efficiency rating is based on its exclusively ofnon-modulating benefits accruing from anEER standard performance characteristics. In fact, equipment, would remain intact under will likely accrue from the SEER TXVs already receive credit in the test new standards and for the foreseeable standards alone, without the associated procedure because oftheir superior future. Under the adopted 13 SEER burdens on manufacturers and the cyclic performance. We are not eager to standard, we have less certainty since disincentives to apply energy-saving circumvent the test procedure, there are counteracting incentives. On modulating technologies. Therefore, we particularly when the key data either are the one hand, to reduce warranty have not adopted an EER standard in not available or have not been claims, manufacturers have a strong this rule. thoroughly reviewed by all interested -------- ---



### Federal Register/ Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7183

at p. 3; Omaha PublicPowerDistrict (OPPD), No. 111 at p. 2; and Carrier, No. 92 at p. 8).

Other commentstook an opposing position on the grounds that including
an EER standard would impedethe application ofmodulating components; that we are not permitted to adopt a standard other than SEER andhave not sufficiently analyzed the validity ofan EER-based standard; that anEER standard would eliminate productsfrom the market; that anEER standard will not improve electric systemreliability, particularly nationwide; andthatthere
areburdens associated withtesting and certifying EER. (National Comfort Products (NCP), No. 77 at p. 3; EEl, TranscriptNo. 73 at p. 327 and No. 80 at pp. 3 and 9; Dominion,Transcript No. 73 at p. 264 and No. 68 at p. 2; Trane, No. 93 at p. 14; York, No. 90 at pp. 1- 4; ARtTranscript No. 73 at p. 320 and No. 100 at p. 16; Goodman, Transcript No. 73 at p. 302; and Southern, Transcript No. 73 at p. 243).

It

### is true that underthe efficiency level approach, we assume that all equipment atthe same SEER level costs the same to produceregardless ofthe combination ofdesign options chosento achievethat SEER level. These options includethose thatraise EER, including compressor and heatexchanger upgrades. as well as those that do not raise EER, such as thermostatic expansion valves. Foranygiven SEER and HSPF levels, the efficiency level approach cannot differentiate equipment costbased on different EER choices.

Underlying the efficiency level approach. however, is the assumption that manufacturers make cost-optimal choices based ontheir ownunique situations. Therefore, a manufacturer who was required to raise theEER ofits equipment from the 10thpercentileto the 50th percentile (median) would indeed incuradded costs since its design choices would no longerbe costoptimal for its own circumstances. Since efficiency levels are expressed in terms ofSEER and HSPF only, we would have to depart from the efficiency level approach inorder to quantify those costs.

We are still convinced that the stringentphysical relationshipbetween EER and SEER in equipmentrated through 12 SEER, which is comprised exclusively ofnon-modulating equipment. wouldremain intact under
new standards and for the foreseeable future. Underthe adopted 13 SEER standard, we have less certainty since there are counteractingincentives. On the one hand,to reduce warranty claims. manufacturers have a strong incentive to simplify the design of baseline equipment. This suggests they will favor heat exchanger or compressor improvementsthat improve EER.

Onthe otherhand, manufacturers will have a strong incentiveto reduce the size of 13 SEERbaseline equipment. Although microchannelheat exchangers could reduce size and improve EER. manufacturers could alsochoose to introduce variable speed orcapacity modulationtechnologies that can inducethemto lowerEER at a given SEER level. As the cost ofpower electronics and control technologies
come down. this possibilitybecomes
more likely.

However, even 

### ifvariable speed or modulating technologies eventually predominate. and thereby reduce EERs intypical equipment, they would still reduce peakdemand compared to today's 10 SEERbaselineequipment. Furthermore,because variable speed and modulating equipmentmitigate the cyclic losses that are due to widespread
over sizing. the aggregated peak demand ofa group ofmodulating air conditioners withlowerEERs wIll likely be lowerthanthat ofa similargroup of non-modulating airconditioners with higherEERs at the same SEER level. Also, utilities havethe opportunity with modulating equipmentto offer customers the optionto allowtheutility to "lock"the equipment into lowcapacity operation in return for a lower eloctricity price.

Finally, although the Department is interested inreducing peak demand, the primarypurpose ofappliance efficiency standards is to save energy. AnEER standard couldbe counterproductiveby discouraging variable speed and modulation. whichcan save substantial amounts ofenergy overthe cooling
season whileprovidingconsumerswith additionalbenefits notfound in single speed and non-modulatingequipment.

AlthoughtheDepartmentbelieves thatEPCA permits adoption ofan EER standard, for the foregoing reasons. we do notbelieve thatthe Act requires or suggests that we establish such a standardunderthe circumstances here. Giventhe adopted standard levels. a national EER standard isboth unnecessary andundesirable. Most benefits accruing from anEER standard will likely accrue from the SEER standards alone, withoutthe associated burdens on manufacturers and the disincentives to apply energy-saving modulatingtechnologies. Therefore. we have not adopted anEER standard in this rule. 2. TXV Requirement In theproposedrule, we discussed the issues associated with mandating thermostatic expansionvalves, orTXVs. We did notpropose such a requirement, butwerecognized that such a requirement may be capable ofsaving a great deal ofenergy. We discussed our options for encouragingtheiruse.

Many comments continueto express strong supportfor a TXV requirement. Many cite a report submittedby Proctor Engineering (Proctor) that describes the results ofa field studycovering4,000 units in California. The study concluded that 62 percent ofequipment is mischarged by more than 5 percent, and that TXVs, whichperformbetterthan fixed orifices inundercharged conditions, could save 11 percent ofthe energy usedby that equipment. (proctor No. 105; OOE, No. 84 at p. 2; NRDC, No. 88; California Energy Commission (CEC), No. 98 atp. 1; ACEEE, No. 101 at p. 8; PG&E No. 104 atp. 1; and ASAP. TranscriptNo. 73 at p. 4).

Othercommentsexpressed some resistance to a TXV requirement, particularlyregarding our authorityto establish one. Some also express concerns aboutproblems associated withTXVs. (NCP, No. 77 at p. 4; Trane, No. 93 at p. 19; York. No. 90 at pp. 4- 5; Lennox, No. 91 at p. 3; EEl No. 80 at p. 3; and Carrier, No. 92 atp. 10).

In response to ourconcern that mandatingTXVs would stifle the development ofother, perhaps preferable, technologies, Proctor and ACEEE suggested performancetests that could be applied inlieu ofa TXV requirement. Theywouldreward equipmentthat possessed a TXV or performed as well whileundercharged
or when airflow is restricted. This approach is atleast partiallyendorsed by others. (NRDC No. 88 at p. 17; CEC No. 199 atp. 1; and OOE, No. 84 at p. 8). Some ofthe commenters preferred that we initially specify TXVs butthen phase outthatrequirement in favor of
a performance-based approach.

As we alluded to inthe proposed rule,
a performance-based approach is also
ourpreference and is certainly in the spiritofEPCA. As such, the SEER test procedure, not a TXV requirement. appears to bethe most appropriate vehicle for assuring that an equipment's efficiency rating is based on its performance characteristics. In fact, TXVs alreadyreceive credit in thetest procedure because oftheir superior cyclic performance. We are not eager to circumventthetest procedure, particularly whenthekey data eitherare not available or have notbeen thoroughlyreviewed by all interested

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7184 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

parties. That said, we favor a SEER test would allowthem to implement their consumption, so we prefer not to relax procedure that fairly evaluates own requirements based on their own that relationship without sound equipment performance under unique circumstances. evidence regarding the burdens that conditions that represent those 3. HSPF Levels would be mitigated. We are reluctant to encountered in the field. We would adopt a more stringent level since we prefer toencourage correct charging or Some comments urged us to are aware that heat pump design is proper airflow, but we recognize that reconsider our proposed HSPF levels, difficult and costly, and that practical barriers exist, and we will take particularly to reflect differences among improvements in HSPF typically are steps to evaluate whether the SEER test the HSPF-SEER relationships across associated with a reduction in SEER. procedure can and should be amended capacity ratings. Trane commented that Too stringent a standard would impose to betterreflect equipment performance HSPF-SEER factors for heat pumps are considerable design and testing burdens under improper charge or airflow. lower with 410A refrigerant than with on manufacturers, could result in the

In sum, we are not adopting a TXV HCFC-22, and that the current proposal permanent loss ofheat pump market requirement in this rulemaking. Any for HSPF is too high for 410A by as share to electric resistance heat, and alterations in the SEER test procedure to much as 3to 5 percent. (ARI, No. 100 could encourage fuel switching. further encourage the use ofTXVs will at p. 11; Carrier, No. 92 at p. 7; and For those reasons, we are retaining be undertaken in a separate process. In Trane, No. 93 at p. 8). Others urged us our proposed minimum HSPF levels in addition to pursuing modifications to to adopt HSPF levels at the median for the standards adopted today. the test procedure, we encourage parties each SEER level we considered. (OOE, V. Analytical Results and Conclusions interested in encouraging the broader No. 84 at p. 11; andACEEE, No. 104 at application ofTXVs topursue other p. 12). A. TrialStandard Levels
avenues. These include voluntary As we explained in theproposed rule, We examined five standard levels. programs likeEnergy Star, tax we established the HSPF levels Table V.1 presents the trial standards incentives, and other state and local corresponding to SEER levels in an levels analyzed for today's final rule and initiatives, which can all be tied to the attempt to maintain the existing offset the corresponding efficiency level for presence ofa device like a TXV. States between the minimum HSPF and the each class ofproduct. Trial standard also have the opportunity to apply to us minimum SEER. Heating energy is a level 5 is the max tech level for each for an exemption from preemption that large fraction oftotalheat pump energy class ofproduct.
TABLE V.1.-TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)

Trial standard level Split air condi- Packaged air Split heat Packaged heat tioners conditioners pumps pumps
1

....................................................................................................................... 11 11 11 11 2

....................................................................................................................... 12 12 12 12 3

....................................................................................................................... 12 12 13 13 4

....................................................................................................................... 13 13 13 13 5

....................................................................................................................... 18 18 18 18

For each trial standard level the reverse engineering data most The results presented in this chapter examined, several different scenarios closely represents the costs as they will include only those that are needed to
were analyzed consisting ofvariations actually be under thenew standards. supplement or replace the results we on: (1) Electricity price and housing We assumed a societal discount rate of presented in the proposed rule, which projections; (2) equipment efficiency 7 percent for calculating net present still form a basis for our decision with distributions; (3)manufacturer cost value (NPV). However, a 3 percent value the exception that we are no longer estimates; and (4) societal discount rate. was investigated as an alternative considering the 14-year life scenarios. Electricity price and housing projections scenario in accordance with the Office Webelieve that the 18.4-year life with
were based on three different AEO 2000 of Management and Budget's (OMB) a compressor replacement in the 14th forecasts: (1)Reference Case, (2) High Guidelines to Standardize Measures of year addresses the concerns ofthose Growth Case, and (3) Low Growth Case. Costs and Benefits and the Format of who believe that actual equipment life We analyzed three efficiency scenarios, Accounting Statements. is closer to 14 years and achieves each ofwhich assumed a different Our decision on today's final rule was substantially the same analytical results. efficiency distribution after new arrived at by placing more emphasis on Therefore, all analyses below assume an standards would take effect: (1)NAECA some scenarios rather than others. Our 18.4-year average equipment lifetime scenario, (2)Roll-up scenario, and (3) estimates ofelectricity price and with a compressor replacement in the Shift scenario. Under the standard housing projections relied primarily on 14th year. levels we are adopting, we believe that the AEO2000 reference case. We B. SignificanceofEnergySavings the Roll-up scenario most closely considered primarily the NAECA and represents the most likely impact ofthe Roll-up efficiency scenarios with an To estimate the energy savings new standards, as explained in Chapter increasing expectation ofthe Roll-up through 2030 due to revised standards, 8 ofthe TSD. We analyzed two scenario occurring for more stringent we compared the energy consumption manufacturer cost scenarios: (1) Based trial standard levels. Finally, we expect of central air conditioners and heat
on reverse engineering data, and (2) manufacturer costs to lie closer to the pumps under thebase case to energy based on ARI-provided mean cost data. reverse engineering estimates (which lie consumption of central air conditioners For the reasons expressed in Parts III between the ARI minimum and ARI and heat pumps under the revised and IV ofthis document, we believe that mean values). standard. 7184 

### Federal Register/ Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

parties. That said, we favor a SEER test procedure that fairly evaluates equipment performance under conditionsthat represent those encountered inthefield. We would preferto encourage correct charging or proper airflow, butwe recognize that practical barriers exist, and we will take steps to evaluate whetherthe SEER test procedure can and shouldbe amended to betterreflect equipment performance underimproper charge orairflow.

In sum, we are not adopting a TXV requirement inthis rulemaking. Any alterations inthe SEERtest procedure to further encourage theuse ofTXVs will be undertaken in a separate process. In addition to pursuing modifications to thetest procedure, we encourage parties interested in encouraging thebroader application ofTXVs to pursue other
avenues. These include voluntary programs like Energy Star, tax incentives, and other state and local initiatives, which can all be tied to the presence ofa device like a TXV. States also have the opportunityto apply to us for an exemption from preemption that would allowthem to implementtheir
ownrequirementsbased ontheir own unique circumstances. 3. HSPF Levels

Some commentsurged us to reconsider ourproposed HSPF levels, particularlyto reflect differences among the HSPF-SEER relationships across capacityratings. Trane commented that HSPF-SEER factors for heat pumps are lower with 410A refrigerantthan with HCFC-22, andthat the current proposal for HSPF is too high for 410Aby as much as 3 to 5 

### percent. (ARl, 

### No. 100 at p. 11; 

### Carrier, No. 92 at p. 7; 

### and Trane, No. 93 at p. 8). Others urged us to adopt HSPF levels at the median for each SEER level we considered. (DOE, No. 84 at p. 11; 

### andACEEE, No. 104 at p.12).

As we explained intheproposed rule,
we established the HSPF levels corresponding to SEER levels in an attemptto maintainthe existing offset between the minimumHSPF and the minimum SEER. Heating energy is a large fraction oftotal heatpump energy consumption, so we prefer not to relax that relationship without sound evidence regarding the burdens that wouldbe mitigated. We arereluctant to adopt a more stringent level since we are aware thatheatpump design is difficult and costly, and that improvements inHSPF typically are associated with a reduction in SEER. Too stringent a standard would impose considerable design and testingburdens
on manufacturers, could result inthe permanentloss ofheat pumpmarket share to electric resistance heat, and could encourage fuel switching.

For those reasons, we are retaining
ourproposed minimum HSPF levels in the standards adoptedtoday.
V. 

### Analytical Results and Conclusions
A. 

### Trial StandardLevels

We examined five standard levels. Table V.l presents the trial standards levels analyzed for today's final rule and the corresponding efficiency level for each class ofproduct. Trial standard level 5 is the max tech level for each class ofproduct.

TABLE V.1.-TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)



### Trial standard level Split air conditioners

1

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

### 11 2

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

### 12 3

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

### 12 4

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

### 13 5

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

### 18

For each trial standard level examined, several different scenarios
were analyzed consisting ofvariations
on: (1) 

### Electricity price andhousing projections; (2) equipmentefficiency distributions; (3) manufacturer cost estimates; and (4) societal discount rate. Electricity price and housingprojections
werebased onthree different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. We analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Underthe standard levels we are adopting, webelieve that the Roll-up scenario most closely represents the most likely impact ofthe
new standards, as explained in Chapter 8 oJ the TSD. We analyzed two manufacturer cost scenarios: (1) Based
on reverse engineering data, and (2) based onARI-provided mean cost data. Forthereasons expressed in Parts III and IV ofthis document, webelieve that the reverse engineering data most closely represents the costs as they will actuallybeunderthe new standards. We assumed a societal discountrate of 7 

### percent for calculatingnetpresent value (NPV). However, a 3 percentvalue
was investigated as an alternative scenario in accordance withthe Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures of Costs and Benefits andtheFormat of Accounting Statements.

Ourdecision ontoday's final rule was arrived at by placing more emphasis on some scenarios ratherthan others. Our estimates ofelectricityprice and housing projectionsrelied primarily on theAE02000 reference case. We considered primarilythe NAECA and Roll-up efficiency scenarios with an increasing expectation ofthe Roll-up scenario occurring for more stringent trial standard levels. Finally, we expect manufacturer costs to lie closerto the
reverse engineering estimates (which lie betweenthe ARI minimum and ARl


### mean values). Packaged air conditIoners Split heat Packaged heat pumps pumps 11 11 11 12 12 12 12 13 13 13 13 13 18 18 18

The results presented inthis chapter include only those that are neededto supplementor replace the resultswe presented inthe proposedrule, which still form a basis for ourdecision with the exception that we are no longer considering the 14-yearlife scenarios. We believe that the 18.4-yearlife with
a compressorreplacement in the 14th year addresses the concerns ofthose whobelieve that actual equipment life is closer to 14years and achieves substantiallythe same analytical results. Therefore, all analyses below assume an 18.4-yearaverage equipment lifetime with a compressorreplacement in the 14thyear. 

### B. Significance of Energy Savings
To estimatethe energy savings through 2030 due to revised standards, '
we compared the energy consumption ofcentral airconditioners andheat pumps underthebase case to energy consumption ofcentral air conditioners and heat pumpsunderthe revised standard.

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Table V.2 shows the range of Low Growth cases for each trial three equipment shipment efficiency cumulative energy savings based on the standard level. The parameters shown scenarios. AEO 2000 Reference, High Growth, and are the two manufacturing costs and the
TABLE V.2.-RANGE OF NATIONAL ENERGY SAVINGS WITH AEO PRICE FORECAST Range of national energy savings for units sold from 2006 to 2030 (quads)
Reverse engineering costs ARI mean costs Trial standard level NAECA Roll-up Shift NAECA Roll-up Shift

1

............................................. 1.7 to 1.8

.......... 1.5 to 1.6

.......... 1.9to 2.0

.......... 1.7 to 1.8

.......... 1.5 to 1.6

.......... 1.9to20 2

............................................. 2.9 to 3.2

.......... 2.8 to 3.0

.......... 3.4 to 3.6

.......... 2.9 to 3.2

.......... 2.8 to3.0

.......... 3.4 to3.6 3

............................................. 3.4 to 3.7

.......... 3.3 to 3.5

.......... 3.8 to4.1

.......... 3.4 to 3.6

.......... 3.3 to 3.5

.......... 3.8 to 4.1 4

............................................. 4.3to4.6

.......... 4.1to4.4

.......... 4.7 to 5.0

.......... 4.2 to 4.5

.......... 4.1 to 4.4

.......... 4.6 to4.9 5

............................................. 8.4 to 9.0

.......... 8.4to 9.0

.......... 8.4 to 9.0

.......... 8.1 to 8.7

.......... 8.1 to 8.7

.......... 8.1 to 8.7

C.PaybackPeriod based on the hours ofuse in thetest rebuttable payback periods which are procedure are on the order of50 percent shorter than median payback periods As discussed above, the Act requires greater than the weighted-average calculated from the LCC analysis. the Department to examine payback energy consumption data used in the In Table V.3, we list the rebuttable periods to determine ifthe three-year life-cycle-cost (LCC) analysis. The LCC payback periods versus SEER efficiency rebuttable presumption ofeconomic data are based on the 1997 RECS for level for the four product classes, using justification applies. As prescribed by residential buildings and hourly the 1997 RECS energy consumption the Act, the rebuttable payback period is simulations for commercial buildings. data. This information shows that both "calculated under the applicable test Since the test procedure assumes higher classes ofheat pumps are presumed to procedure * * *". annual operating hours than the RECS be economically justified up to a 12

The annual space-cooling and space- data implied, the use oftest procedure SEER efficiency level, using the reverse heating energy consumption calculated energy consumption results in engineering cost estimates.
TABLE V.3.-SUMMARY OF REBUTTABLE PAYBACK PERIOD (YEARS)

Reverse engi- ARI mean Product class/efficiency level neering costs costs Split System Central Air Conditioner. 11

...................................................................................................................................................................... 3.5 4.7 12

..................................................................................................................................................................... 4 5 5.8 13

...................................................................................................................................................................... 5.2 7.6 18

...................................................................................................................................................................... 7.3 11.3 Split System Heat Pump: 11.3

1

...................................................................................................................................................................... 1.3 2.5 12

...................................................................................................................................................................... 1.8 3.3 13

...................................................................................................................................................................... 3.2 4.5 18

....................... 5.8

............................................................................................................................................... 6.85.8 Single Package Air Conditioner: 11

...................................................................................................................................................................... 3.5 7.3 12

.................. 6.2................................................................................................................................................... 3.3 6.2 13

...................................................................................................................................................................... 6 .8 9.8 18

...................................................................................................................................................................... 8.6 13 .3 Single Package Heat Pump: 11

...................................................................................................................................................................... 2.1 3.7 12

...................................................................................................................................................................... 1.8 4.0 4.3 6.513

...................................................................................................................................................................... 6.5 18

.................................................................................................................................................................... 5.4 7.2

D.EconomicJustification manufacturers are presented in terms of ofcapital. This method ofcalculating 1. Economic Impact on Manufacturers industry net present value (INPV) as INPV provides one measure ofthe fair and Consumers well as change in INPV. INPV is value ofthe industry in today's dollars. calculated by summing the stream of The impact of new standards on INPV Estimated economic impacts of annual discounted cash flows beginning isthen the difference between the INPV standards on manufacturers are based from the base year ofthe analysis (2000) in the base case (no new standards) and
on the methodology described in the and continuing explicitly forten years the INPV is the standards case (with proposed rule; however, in today's final after the implementation ofthe standard new standards). rule the manufacturer impact analysis and adding the discounted value ofthe Data are presented for the base case has been expanded to include impacts industry at the end ofthe ten-year and for trial standard levels 1 through based on reverse engineering cost period (see TSD Section 8.4.4 and 4, in Tables V.4 through V.9. As can be estimates as well as ARI manufacturing Appendix G). The discount rate is based observed, manufacturer impacts are cost data. The economic impacts on on the industry's weighted average cost relatively insensitive between the

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### 7185

Table V.2 shows therange of cumulativeenergy savingsbased on the AEO 2000 Reference, High Growth, and Low Growth cases for each trial three equipment shipment efficiency standard level. Theparameters shown scenarios.
are the two manufacturing costs and the

TABLE V.2.-RANGE OF NATIONAL ENERGY SAVINGS WITH AEO PRICE FORECAST 

### Range of national energy savings for units sold from 2006 to 2030 (quads)
Reverse engineering costs ARI mean costs Trial standard level NAECA Roll-up Shift NAECA Roll-up Shift
1

............................................. 1.7 to 1.8

.......... 1.5 to 1.6

.......... 1.9 to 2.0

.......... 1.7 to 1.8

.......... 1.5 to 1.6

.......... 1.9 to 20 2

............................................. 2.9 to 3.2

.......... 2.8 to 3.0

.......... 3.4 to 3.6

.......... 2.9 to 3.2

.......... 2.8 to 3.0

.......... 3.4 to 3.6 3

............................................. 3.4 to 3.7

.......... 3.3 to 3.5

.......... 3.8 to 4.1

.......... 3.4 to 3.6

.......... 3.3 to 3.5

.......... 3.8 to 4.1 4

............................................. 4.3 to 4.6

.......... 4.1 to 4.4

.......... 4.7 to 5.0

.......... 4.2 to 4.5

.......... 4.1 to 4.4

.......... 4.6 to 4.9 5

............................................. 8.4 to 9.0

.......... 8.4 to 9.0

.......... 8.4 to 9.0

.......... 8.1 to 8.7

.......... 8.1 to 8.7

.......... 8.1 to 8.7

C. 

### PaybackPeriod

As discussed above, the Act requires theDepartmentto examinepayback periodsto determine if

### thethree-year rebuttable presumption ofeconomic justification applies. As prescribed by the Act, therebuttable payback period is "calculated underthe applicable test procedure * * *".

The annual space-cooling and spaceheating energy consumptioncalculated based on the hours ofuse inthetest procedure are onthe order of50 percent greater thanthe weighted-average energy consumption data used inthe life-cycle-cost (LCC) analysis. TheLCC data are based onthe 1997

### RECS for residential buildings andhourly simulations for commercialbuildings. Since the test procedure assumeshigher annual operatinghours than the RECS data implied, theuse oftest procedure energy consumptionresults in rebuttable payback periods which are shorterthan median payback periods calculated from theLCC analysis.

In Table V.3, we list therebuttable paybackperiods versus SEER efficiency level for the four productclasses, using the 1997

### RECS energy consumption data. This information showsthatboth classes ofheatpumps are presumed to be economicallyjustified up to a 12 

### SEER efficiency level, using thereverse engineering cost estimates.

TABLE V.3.-SUMMARY OF REBUTTABLE PAYBACK PERIOD (YEARS)



### Product class/efficiency level Reverse engi- ARI mean neering costs costs Split System Central Air Conditioner. 11

...................................................................................................................................................................... 3.5 4.7 12

.................................................................................................:

.................................................................... 4.5 5.8 13

...................................................................................................................................................................... 5.2 7.6 18

...................................................................................................................................................................... 7.3 11.3 Split System Heat Pump: 11

...................................................................................................................................................................... 1.3 2.5 12

...................................................................................................................................................................... 1.8 3.3 13

...................................................................................................................................................................... 3.2 4.5 18

...................................................................................................................................................................... 5.8 6.8 Single Package Air Conditioner: 11

...................................................................................................................................................................... 3.5 7.3 12

...................................................................................................................................................................... 3.3 6.2 13

...................................................................................................................................................................... 6.8 9.8 18

...................................................................................................................................................................... 8.6 13.3 Single Package Heat Pump: 11

...................................................................................................................................................................... 2.1 3.7 12

...................................................................................................................................................................... 1.8 4.0 13

...................................................................................................................................................................... 4.3 6.5 18

...................................................................................................................................................................... 5.4 7.2

D. EconomicJustification 1. Economic Impact on Manufacturers and Consumers

Estimated economic impacts of standards on manufacturers are based
on the methodology described inthe proposed rule; however, intoday's final rule the manufacturer impactanalysis hasbeen expandedto include impacts based onreverse engineering cost estimates as well as ARI manufacturing cost data. The economic impacts on manufacturers are presented interms of industry net presentvalue (INPV) as well as change inINPV. INPV is calculated by summingthe stream of aIlnual discounted cashflows beginning from thebase year ofthe analysis (2000) and continuingexplicitly for ten years afterthe implementation ofthe standard and addingthe discounted value ofthe industry at the end oftheten-year period (see TSD Section 8.4.4 and Appendix G). The discountrate is based
on the industry's weighted average cost ofcapital. This method ofcalculating INPV provides one measure ofthe fair value ofthe industry in today's dollars. The impact ofnew standards on INPV is then the difference betweenthe INPV inthebase case (no new standards) and the INPV is the standards case (with
new standards).

Data are presented for thebase case and for trial standard levels 1 through 4, inTables V.4 through V.g. As canbe observed, manufacturer impacts are relatively insensitivebetweenthe

## * 

## ? EE-RM/STD-98-440-"-_ 

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7186 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

manufacturing cost estimates, but information on the methodology, sensitive to the shipment scenarios. The assumptions and results. proposed rule provides additional
TABLE V.4.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, NAECA EFFICIENCY MIX

Industry net Change in INPV from base Standard level present value case ($$

million) $million Percent

Base

............................................................................................................................................. 1,539 1

.................................................................................................................................................. 1,509 (30)

- 2 ,38059) -................................................................................................................................................... 1,380 (159) -,38059) -10 ,368 (................................................................................................................................................... 1,368 (171)

- 11 4,370 (69)................................................................................................................................................... 1,370 (169) -,370 (69)11

TABLE V.5.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, ROLL-UP EFFICIENCY MIX

Industry net Change in INPV from base Standard level present value case ($$

million) $million Percent

Base

............................................................................................................................................. 1,539

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

................................................................................................................................................... 1,379 (160)

- 10 2

.......................................................................................................................................... 1,226 (313) -20 3

.................................................................................................................................................. 1,220 (319)

- 21 4

.......................................................................................................................................... 1,236 (303)

- 20

TABLE V.6.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, SHIFT EFFICIENCY MIX

Industry net Change in INPV from base Standard level present value case ($million) $million Percent

Base

............................................................................................................................................. 1,539

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

................................................................................................................................................... 1,658 119 8 2

........................................................................................ ,772 233 15 3

.......................................................................................................................................... 1,776 237 15 4

.......................................................................................................................................... 1,824 285 19

TABLE V.7.-CHANGES IN INDUSTRY NET FRESENT VALUE-ARI MEAN MANUFACTURING COST, NAECA EFFICIENCY MIX
Industry net Change in INPV from base Standard level present value case ($million) $million

. Percent

B ase

............................................................................................................................................. 1,603

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

.......................................................................................................................................... 1,566 (37) -2 2

................................................................................................................................................... 1,417 (186)

- 12 3

.......................................................................................................................................... 1,406 (197) -12 4

.......................................................................................................................................... 1,420 (183) -11

TABLE V.8.-CHANGES IN INDUSTRY NET PRESENT VALUE-ARI MEAN MANUFACTURING COST, ROLL-UP EFFICIENCY MIX

Industry net Change in INPV from base Standard level present value c a se ($million) $million Percent

Base

....................................................................................................................................... ...... 1,603

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

.......................................................................................................................................... 1,422 (181) -11 2

................................................................................................................................................... 1,241 (362)

- 23 3

.......................................................................................................................................... 1,236 (367) -23 4

................................................................................................................................................... 1,268 (335)

- 21 

## EE-RM/STO-9S-44o--tf="

# ~

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7186 Federal Register/Vol. 66, 

### No. l4/Monday, January 22, 200l/Rules and Regulations

manufacturing cost estimates, but sensitive to the shipment scenarios. The proposed rule provides additional information on the methodology, assumptions and results.

TABLE V.4.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, NAECA EFFICIENCY MIX

Standard level

Base

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

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

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

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

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

TABLE V.S.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, ROLL-UP EFFICIENCY MIX

Standard level

Base

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

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

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

..............................................................................................................,.................................... 4

................................................................................................................................................... Industry net present value

($ million)

1,539 1,379 1,226 1,220 1,236 Change in INPV from base case $ million

(160) (313) (319) (303) Percent

-10 -20 -21 -20

TABLE V.6.-CHANGES IN INDUSTRY NET PRESENT VALUE-REVERSE ENGINEERING RELATIVE COST, SHIFT EFFICIENCY

. MIX

.

Standard level

Base

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

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

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

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

................................................................................................................................................... Industry net present value

($ million)

1,539 1,658 1,n2 1,n6 1,824 Change in INPV from base case $ million

119 233 237 285 Percent

8 15 15 19

TABLE V.7.-CHANGES IN INDUSTRY NET PRESENT VALUE-ARI MEAN MANUFACTURING COST, 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 V.B.-CHANGES IN INDUSTRY NET PRESENT VALUE-ARI MEAN MANUFACTURING COST, ROLL-UP EFFICIENCY MIX

Standard level

Base

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

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

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

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

................................................................................................................................................... Industry net Change in INPV from base present value t-

____ c_a,se

____ _ ($ million)

1,603 1,422 1,241 1,236 1,268 $ million

(181) (362) (367) (335) Percent

-11 -23 -23 -21* .** 

## ' EE-RM/STD-98-440-o a^ 

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Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7187

TABLE V.9.-CHANGES IN INDUSTRY NET PRESENT VALUE-ARI MEAN MANUFACTURING COST, SHIFT EFFICIENCY MIX ndustry net hange inINPV from base Standard level present value c ($million) $million Percent

B

ase

............................................................................................................................................. 1,603

........................ ........................ Base

............................................................. ...................................................................................... 1,740 137 1 .................................. 1,740 137 9 2

................................................................................................................................................... 1,825 222 14 3

................................................................................................................................................... 1,854 251 16 4

......................................................................... ................................................ 1,9 4 311 19

Table V.10 provides the change in INPV relative to the base case (with no change in standards) for trial standard levels 1 through 4. Data are presented for two industry segments (lower cost manufacturers and higher cost manufacturers), and for the three shipment efficiency scenarios.

TABLE V.10.-CHANGE IN INDUSTRY NET PRESENT VALUE (PERCENT) RELATIVE TO BASE-COMPARISON BETWEEN LOWER (L) AND HIGHER (H) COST MANUFACTURERS

Reverse engineering relative cost (inpercent) ARI mean manufacturing cost (inpercent)
etandard NAECA Roll-up Shift NAECA Roll-up Shift level L H L H L H L H L H L H

1............... 5 -4 3 -15 6 8 5 -5 3 -16 7 9 2

............... 7 -16 5 -28 13 16 7 -17 5 -31 12 14 3

............... 8 -17 6 -29 14 16 9 -19 6 -32 14 16 4

............... 12 -18 10 -29 19 18 15 -19 13 -31 21 19

For the group most negatively impacted, i.e., the higher cost group, Table V.11 presents the Return on Invested Capital (ROIC) in year 2011 associated with the base case, and with each new standard level for the NAECA and Roll-up shipment efficiency scenarios.

TABLE V.11.-RETURN ON INVESTED CAPITAL (ROIC) IN2011 FOR HIGHER COST MANUFACTURERS

Reverse engineering ARI manufacturing costs Standard level (inpercent) (inpercent) NAECA Roll-up NAECA Roll-up
Base

................................................................................................................. 13.0 13.0 13.3 13.3 1

....................................................................................................................... 12.2 10.7 12.3 10.7 2

........................................ 1...........................2 8.5 0.2 8.4 3

....................................................................................................................... 10.0 8.4 10.0 8.3 4

....................................................................................................................... 9.7 8.4 9.6 8.3

Consumers will also be affected by installation costs), annual energy regard to the percentage ofconsumers increased efficiency standards in that savings, average and marginal electricity (both residential and commercial) that they will experience higher purchase prices, electricity price trends, repair are impacted to a substantial degree by prices and lower operating costs. These costs, maintenance costs, equipment an increase in the minimum efficiency impacts are best captured by changes in lifetime, and discount rates. standard. life cycle costs which are discussed life cycle costs which are discussed The output ofthe LCC model is the Table V.12 summarizes the'LCCs for

mean LCC savings for each product baseline split systems and single 2. Life-Cycle-Cost (LCC) class as well as a probability package central air conditioners and

We analyzed the net effect by distribution or likelihood ofLCC heat pumps and also shows a 2 percent calculating the LCC. Inputs required for reduction or increase. The LCC analysis threshold which helped us identify calculating LCC include total installed for today's final rule employs a concept those consumers who are impacted to a costs (i.e., equipment price plus described in the proposed rule with more substantial degree.
TABLE V.12.-BASELINE LIFE-CYCLE-COSTS

Product Class Baseline LCC 2% of Baseline LCC Split Air C onditioners

................................................................................................................................... $5,170 $103 Split Heat Pumps

......................................................................................................................................... 9,679 194 Single Package Air Conditioners

................................................................................................................. 5,629 113 Single Package Heat Pumps

....................................................................................................................... 9,626 193 '.

# EE.RM/STD.~8-440

# -It6lo

# Cf

Federal Register/ Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 

### 7187

TABLE V.g.-CHANGES IN INDUSTRY NET PRESENT VALUE-ARI MEAN MANUFACTURING COST, SHIFT EFFICIENCY MIX

Standard level

Ba'se

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

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

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

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

................................................................................................................................................... Industry net present value

($ million)

1,603 1,740 1,825 1,854 1,914 Change in INPV from base case $ million Percent

137 9 222 14 251 16 311 19

Table V.10 provides the change in INPV relative to the base case (with no change in standards) for trial standard levels 1 through 4. Data are presented for two industry segments (lower cost manufacturers and higher cost manufacturers), and for the three shipment efficiency scenarios.

TABLE V.10.-CHANGE IN INDUSTRY NET PRESENT VALUE (PERCENT) RELATIVE TO BASE-COMPARISON BETWEEN LOWER (L) AND HIGHER (H) COST MANUFACTURERS

Reverse engineering relative cost (in percent) ARI mean manufacturing cost (in percent) Standard NAECA Roll-up Shift NAECA Roll-up Shift

level L H L 

### H L H L H L H L H

1



### ............... 5 -4 3 -15 6 8 5 -5 3 -16 7 9 2



### ............... 7 -16 5 -28 13 16 7 -17 5 -31 12 14 3



### ............... 8 -17 6 -29 14 16 9 -19 6 -32 14 16 4



### ............... 12 -18 10 -29 19 18 15 -19 13 -31 21 19

For the group most negatively impacted, 

### i.e., the higher cost group, Table V.ll presents the Return on Invested Capital (ROIC) in year 2011 associated with the base case, and with each new standard level for the NAECA and Roll-up shipment efficiency scenarios.

TABLE V.11.-RETURN ON INVESTED CAPITAL (ROIC) IN 2011 FOR HIGHER COST MANUFACTURERS

Standard level Reverse engineering (in percent) ARI manufacturing costs (in percent)
NAECA
Base

................................................................................................................. 13.0 12.2 10.2 10.0 1

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

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

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

....................................................................................................................... 9.7

Consumers will alsobe affected by increased efficiency standards in that they will experiencehigherpurchase prices and lower operating costs. These impacts are best capturedbychanges in life cycle costs which are discussed below.
2. Life-Cycle-Cost (LCC)

We analyzed the net effectby calculating the LCC. Inputs required for calculating LCC includetotal installed costs (j.e., equipmentpriceplus installation costs), annual energy savings, average and marginal electricity prices, electricitypricetrends, repair costs, maintenancecosts, equipment lifetime, and discountrates.

The output ofthe LCC model is the

mean LCC savings for each product class as well as a probability distribution orlikelihood ofLCC reduction or increase. TheLCC analysis for today's final rule employs a concept described in theproposedrule with Roll-up

13.0 10.7 8.5 8.4 8.4 NAECA

13.3 12.3 0.2 10.0 9.6 Roll-up

13.3 10.7 8.4 8.3 8.3

regard tothe percentage ofconsumers (both residential and commercial) that

are impacted to a substantial degreeby
an increase in the minimum efficiency standard.

Table V.12 summarizesthe'LCCs for baseline split systems and single package central air conditioners and heat pumps and also shows a 2 percent threshold whichhelpedus identify those consumers who are impacted to a more substantial degree.

TABLE V.12.-BASELINE LiFE-CYCLE-COSTS

Product Class
Split Air Conditioners

................................................................................................................................... Split Heat Pumps

......................................................................................................................................... Single Package Air Conditioners

................................................................................................................. Single Package Heat Pumps

....................................................................................................................... Baseline LCC

$5,170

9,679 5,629 9,626 2% of Baseline LCC
$103 194 113 193

## EE-RM/STD-98-440

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7188 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

Tables V.13 and V.14 depict the LCC SEER LCC results which underestimate who are impacted in one ofthree ways: results for split system and single their true cost level. The data inTables consumers who achieve netLCC savings package central air conditioners and V.13 and V.14 also present the in excess of 2 percent ofthe baseline heat pumps. The tables show the difference in LCC at each efficiency LCC, consumers whose change in LCC average LCC values for the baseline and level relative to the baseline. The is within ±2 percent ofthe baseline LCC, each trial standard level. Since differences represent either anLCC and consumers who achieve a net LCC manufacturer cost data were not savings or an LCC cost increase. In increase exceeding 2 percent ofthe available for the 18 SEER efficiency addition, the tables show the subset of baseline LCC. levels, 15 SEER cost data were used for consumers (both residential and all 18 SEER calculations resulting in 18 commercial) at each efficiency level
TABLE V.13.-SUMMARY OF LCC RESULTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

Percent of consumers with Average LCC Product Class/Efficiency Level Average LCC Savings Net Savings or Net Costs (P-<-csts * l Net Savings Costs N C osts (Costs) Costs > (>2 %) (>2 %) (> 2 %)
Split System Central Air Conditioner 10

................................................................................. $5 ,170

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

.................................................................................. 5,095 $75 28 70 2% 12

.................................................................................. 5,057 113 35 40 25% 13

.................................................................................. 5,057 113 34 27 39% 18

.................................................................................. 5,307 (137) 25 7 68% Split System Heat Pump: 10

.................................................................................. 9,679

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

.................................................................................. 9,470 209 40 60 0% 12

.................................................................................. 9,314 365 58 42 0% 13

.................................................................................. 9,307 372 52 42 6% 18

.................................................................................. 9,720 (41) 28 15 57% Single Package Air Conditioner: 10

.................................................................................. 5,629 ........................

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

.................................................................................. 5,551 78 27 72 1% 12

.................................................................................. 5,466 163 40 51 9% 13

.................................................................................. 5,600 29 28 20 52% 18

.................................................................................. 5,905 (276) 21 6 73% Single Package Heat Pump: 10

.................................................................................. 9,626

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

.................................................................................. 9,419 207 39 61 0 12

.................................................................................. 9,205 421 66 34 0 13

.................................................................................. 9,273 353 50 38 12 18

.................................................................................. 9,460 166 37 15 48

TABLE V.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COSTS

Percent of consumers with Average LCC Product class/efficiency level Average LCC savings Net savings or Net costs (costs) Net savings Net costs (>2%) costs (>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 Single Package Air Conditioner: 10

.................................................................................. 5,6 2 9

........................ ........................ ........................ ....................... 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 ,6 26

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

.................................................... ..... 9,492 134 28 72 0 12

.................................................... ..... 9,372 254 44 49 7 13

................................................................................. 9,514 112 33 31 36 '

# .

. ' 

## EE-RM/STD-98-440

# --'It**~**

# O'f

7188 Federal Register/ Vol. 66, No. 14/

### Monday, January 22, 2001/Rules and Regulations

Tables V.13 and V.14 depictthe 

## Lee results for split system and single package central airconditioners and heat pumps. Thetables showthe average 

## Lee 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 

## Lee resultswhichunderestimate their true cost level. The data in Tables V.13 and V.14 also presentthe difference in 

## Lee at each efficiency level relative to thebaseline. The differences represent either an

## Lee savings or an

## Lee cost increase. In addition, thetables showthe subset of
consumers (both residential and commercial) at each efficiency level who are impacted in one ofthree ways: consumers who achieve net

## Lee savings in excess of 2 

### percent ofthebaseline 

## Lee, consumers whose changein

## Lee is within±2 percent ofthebaseline

## Lee, and consumers who achieve a net 

## Lee increase exceeding 2 percentofthe baseline 

## Lee.

TABLE V.13.-SUMMARY OF LCC RESULTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

Percent of consumers with Average LCC Product Class/Efficiency Level Average LCC Savings Net Savings Net Savings or Net Costs (Costs) (>2%) Costs (>2%) (±2%) Split System Central Air Conditioner. 10

.................................................................................. $5,170



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

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

### ....................... 11

.................................................................................. 5,095 $75 28 70 2% 12

.................................................................................. 5,057 113 35 40 25% 13

.................................................................................. 5,057 113 34 27 39% 18

.................................................................................. 5,307 (137) 25 7 68% Split System Heat Pump: 10

.................................................................................. 9,679



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

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

## . ....................... 11

.................................................................................. 9,470 209 40 60 0% 12

.................................................................................. 9,314 365 58 42 0% 13

.................................................................................. 9,307 372 52 42 6% 18

.................................................................................. 9,720 (41) 28 15 57% Single Package Air Conditioner: 10

.................................................................................. 5,629



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

## ........................ ........................ 11

.................................................................................. 5,551 78 27 72 1% 12

.................................................................................. 5,466 163 40 51 9% 13

.................................................................................. 5,600 29 28 20 52% 18

.................................................................................. 5,905 (276) 21 6 73% Single Package Heat Pump: 10

.................................................................................. 9,626



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

### ........................ 11

.................................................................................. 9,419 207 39 61 0 12

.................................................................................. 9,205 421 66 34 0 13

.................................................................................. 9,273 353 50 38 12 18

.................................................................................. 9,460 166 37 15 48

TABLE V.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COSTS

Percent of consumers with
Product class/efficiency level Average LCC Average LCC savings Net savings Net**savin~s** or Net costs (costs) (>2%) !costs (> 2%) ±2% Split System Central Air Conditioner. 10

.................................................................................. $5,170



## . ....................... ........................ ........................ ........................ 11

.................................................................................. 5,126 $44 23 68 9 5,125 45 27 34 39 5,199 (29) 25 17 58 12

.................................................................................. 13

.......................................................:

.......................... 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 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 1B

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

## EE.RM/STD-98-440 ° G z

Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7189

TABLE V.14.--SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COSTS-Continued

Percent of consumers with Average LCC Product class/efficiency level Average LCC savings Net savings Net sa or N) (>2st (costs) (>2%) (costs) (± 2%)
18

.................................................................................. 9,922 (296) 24 10 66 Consumer subgroup impacts have been estimated by determining the LCC impacts of the trial standard levels on those consumers who are 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.1s Table V.15 and V.16 summarize the impacts on low-income consumers who utilize central air conditioners and heat pumps.
TABLE V.15.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

Percent of consumers with Average LCC Product class/efficiency level Average LCC savings Net savings Net Savins or Net costs (costs) (>2%) ( costs>2%) (C~'S( 2% (>2%) Split System Central Air Conditioner. 10

.................................................................................. $4,906 ........................ ........................

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

.................................................................................. 4,855 $51 21 74 5 12

.................................................................................. 4,841 65 28 38 34 13

.................................................................................. 4,863 43 26 24 50 18

.................................................................................. 5,176 (270) 17 6 77 Split System Heat Pump: 10

............... ................................................................... 8,965

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

.................................................................................. 8,836 129 26 74 0 12

.................................................................................. 8,742 223 44 56 0 13

.................................................................................. 8,780 185 39 49 12 18

.................................................................................. 9,389 (424) 15 10 75 Single Package Air Conditioner: 10

.................................................................................. 5 ,3 27

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

.................................................................................. 5,272 55 21 77 2 12

.................................................................................. 5,202 125 34 52 14 13

.................................................................................. 5,364 (37) 21 18 61 18

.................................................................................. 5,704 (377) 15 5 80 Single Package Heat Pump: 10

.................................................................................. 9,149

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

.................................................................................. 9,057 118 24 76 0 12

.................................................................................. 8,973 265 53 47 0 13

........................................ ........... 9,145 148 36 44 20 18

.................................................................................. 9,619 (284) 20 14 66

TABLE V.16.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING COSTS
Average LCC

__ Percent of consumers with Product class/efficiency level Average LCC savings N ngs Savings/costs Net costs (COStS) (>2%) (± 2%) (> 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

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

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

1 5 Approximately 7 percent of the RECS 97 households with central air conditioners and 9 percent ofthe households with heat pumps met this criteria. 

# .- EE-RM/STD-98-440

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Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7189

TABLE V.14.-SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COsTS-Continued

Percent of consumers with
Product class/efficiency level Average LCC Avera\le LCC Net savinss or savings Net savings Net costs (costs) (>2%) (costs (>2%) (±2%)

18

.................................................................................. 9,922 (296) 24 10 66

Consumer subgroup impacts have been estimated by determining the LCC impacts of the trial standard levels on those consumers who are below the poverty line (e.g., for a family of four, this constitutes a household income of less than $16,036). To perform this cafculation, we used the subset of RECS 97 data for households that are considered low-income. 15 Table V.15 and V.16 summarize the impacts on low-income consumers who utilize central air conditioners and heat pumps.

TABLE V.1S.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

Percent of consumers with
Product class/efficiency level Average LCC Average LCC savings Net savings Net**savin~s** or Net costs (costs) (>2%) (costs (> 2%) (±2%) Split System Central Air Conditioner. 10

.................................................................................. $4,906



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

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

### ....................... 11

.................................................................................. 4,855 $51 21 74 5 12

.................................................................................. 4,841 65 28 38 34 13

.................................................................................. 4,863 43 26 24 50 18

.................................................................................. 5,176 (270) 17 6 

## n Split System Heat Pump: 10

.................................................................................. 8,965



## . ....................... ........................ ........................ ........................ 11

.................................................................................. B,836 129 26 74 0 12

.................................................................................. 8.742 223 44 56 0 13

.................................................................................. 8,780 185 39 49 12 18

.................................................................................. 9,389 (424) 15 10 75 Single Package Air Conditioner: 10

.................................................................................. 5,327



## . ....................... ........................ ........................ ........................ 11

.................................................................................. 5,272 55 21 77 2 12

.................................................................................. 5.202 125 34 52 14 13

.................................................................................. 5,364 (37) 21 18 61 18

.................................................................................. 5.704 (377) 15 5 80 Single Package Heat Pump: 10

.................................................................................. 9,149



### ........................ ........................ ........................ ........................ 11

.................................................................................. 9,057 118 24 76 0 12

.................................................................................. 8.973 265 53 47 0 13

.................................................................................. 9,145 148 36 44 20 18

.................................................................................. 9,619 (284) 20 14 66

TABLE V.16.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING COSTS

Product class/efficiency level

Split System Central Air Conditioner. 10

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

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

.................................................................................. 13

.................................................................................. 18

.................................................:

................................ Split System Heat Pump: 10

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

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

.................................................................................. 13

.................................................................................. 18

.................................................................................. Single Package Air Conditioner: 10

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

ISApproximately 7 percent ofthe REGS 97 households with central air conditioners and 9 percent ofthe households with heat pumps mot this critoria. Average LCC

$4,906 4,887 4,903 5,007 5,598
8,965 8,890 8,862 8,948 9,610
5,327 Averal:/e LCC savings (costs)



# . ....................... $19

3 (101) (692)



### ........................ 75 103

17 (645)



### ........................ Percent of consumers with
Net savings Savings/costs Net costs

(>2%) (±2%) (> 2%)



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

### ........................ ........................ 17 66 17 20 29 51 17 14 69 10 2 88



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

## . ....................... 16 84 0 27 64 9 25 40 35 11 8 81



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

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

## EE-RM/STD-98-440--7 ' 

# 0^

7190 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

TABLE V.16.-SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING COSTS-Continued
Percent of consumers with Average LCC Product class/efficiency level Average LCC savings Net savings Savings/costs Net costs (costs) (>2%) (±2%) (>2%)
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 subgroup of consumers who are low-income (Tables V.15 and V.16) versus all central air conditioner and heat pump consumers (Tables V.13 and V.14), it appears that 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.17 directly compares the LCC impacts of the final rule on both the low-income subgroup and all consumers.

TABLE V.17.-COMPARISON OF LCC IMPACTS OF THE FINAL RULE ON ALL CONSUMERS VS. LOW-INCOME CONSUMERS
Reverse engineering costs ARI mean costs Percent of consumers Percent ofconAverage LO savings with net costs (>2% of Average LCC savings sumers with net Product class SEER (costs) baseline LCC) (costs) costs (>2% of baseline LCC) All con- Low-in- All con- Low-in- 

### All con- 

### Low-in- All con- 

### Low-insumers come sumers come sumers come sumers come Split System A/C

................................ 13 $113 $43 39 50 ($29) ($101) 58 69 Split System HP

................................. 13 372 185 6 12 215 17 22 35 Single Package A/C

........................... 13 29 (37) 52 61 (175) (241) 71 79 Single Package HP

............................ 13 353 148 12 20 112 4 36 48

3. Net Present Value and Net National Electricity price and housing efficiency distribution after new Employment projections; (2) shipment efficiency standards: (1)NAECA scenario, (2)RollThe net present value analysis is a distributions; (3)manufacturer cost up scenario, and (3) Shift scenario. For
measure ofthe cumulative benefit or estimates; and (4) societal discount rate. these results the equipment lifetime was cost to the Nation that would result Electricity price and housing projections assumed to be 18.4 years, coupled with from more stringent standards. As with were based on three different AEO 2000 the inclusion ofcompressor the determination ofnational energy forecasts: (1) Reference Case, (2) High replacement costs and an assumed savings, four different scenarios were Growth Case, and (3)Low Growth Case. societal discount rate of7 percent. The analyzed for each trial standard level Three efficiency scenarios were range ofNPVs are reported in Table consisting ofvariations on: (1) analyzed which forecast the shipment V.18.
TABLE V.18: RANGE OF NET PRESENT VALUE WITH ELECTRICITY PRICE AND HOUSING PROJECTIONS
Net present value for unites sold from 2006 to2030 (billion 98$) Trial standard level Reverse engineering costs ARI mean costs NAECA Rool-up Shift NAECA Roll-up Shift
1

........................................................................ 1to2

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

................... 1to 2

............ 0

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

................... Oto - 1 2

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

................... 2 to 3

............ Oto -1

........ - 1

............... to

............ -3 to -4 3

........................................................................ 1to 2

............ 2 to3

............ - 1to

- 2

.... - 1to

- 2

.... Oto -1

........ -5 4

........................................................................ to 1

............ 1to 2

............ -3 to -4

.... -5 to -6

.... -4

............... - 10 5

........................................................................ -10 to -11

- 10 to

- 11 -10 to

- 11 -22

............. -22

............. -22

In order to show the sensitivity ofthe range ofassumptions and scenarios equipment. By the "base case" we mean NPVs in Table V.18 to the various input relative to the base case national the case ofno new efficiency standards. assumptions, Tables V.19 through V.22 equipment and operating costs for all The results in Table V.19 and V.20 are report the range ofNPV results for a central air-conditioning andheat pump the AEO 2000 Reference Case forecast of '


## .



# . ' 

## EE-RM/STD-98-440

# -::tt:' t5?()

# f

7190 Federal Register/ Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

TABLE V.16.-SUMMARY OF LCC RESULTS ON LOw-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING COsTs-Continued

Product class/efficiency level Avera!;!e Lee Percent of consumers with Average Lee savings Net savings Savings/costs Net costs (costs) (>2%) (i 2%) (>2%)

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

..................................................................................**9,61~** (470) 18 8 74

In comparing the LCC results on the subgroup of consumers who are low-income (Tables V.15 and V.16) versus all central air conditioner and heat pump consumers (Tables V.13 and V.14), it appears that 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.17 directly compares the LCC impacts of the final rule on both the low-income subgroup and all consumers.

TABLE V.17.-COMPARISo.N OF LCC IMPACTS OF THE FINAL RULE ON ALL CONSUMERS VS. LOW-INCOME CONSUMERS

Product class SEER

Split System Ale

................................ Split System HP

................................. Single Package AlC

........................... Single Package HP

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

3. Net PresentValue andNetNational Employment 13 13 13 13

The netpresentvalue analysiS is a measure ofthe cumulativebenefit or costto theNation thatwouldresult from more stringent standards. As with the determination ofnational energy savings, four different scenarios were analyzed for eachtrial standard level consisting ofvariations on: (1) Reverse engineering costs Average Lee savings Percent of consumers with net costs**~2%** of (costs) baseline L C)

All con- Low-in- All con- Low-in- sumers come sumers come
$113 $43 39 50

372 185 6 12

29 (37) 52 61 353 148 12 20

Electricity price andhousing projections; (2) shipmentefficiency distributions; (3) manufacturer cost estimates; and (4) societal discountrate. Electricity price and housingprojections
werebased 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 shipment ARI mean costs
Percent of con- Average LeC savings sumers with net (costs) costs (>2% of baseline Lee)
All con- Low-in- All con- Low-in- sumers come sumers come ($29) ($101) 58 69

215 17 22 35 (175) (241) 71 79

112 4 36 48

efficiency distribution after new standards: (1) NAECA scenario, (2) Rollup scenario, and (3) Shift scenario. For theseresults the equipment lifetime was assumed to be 18.4 years, coupled with the inclusion ofcompressor replacement costs and an assumed societal discountrate of7percent. The range ofNPVs arereported inTable V.18.

TABLE V.18: RANGE OF 

### NET PRESENT VALUE WITH ELECTRICITY PRICE AND HOUSING PROJECTIONS

Trial standard level

1

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

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

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

........................................................................ 5

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

In orderto showthe sensitivity ofthe NPVs in Table V.18 to the various input assumptions, Tables V.19 through V.22 report the range ofNPV results for a Net present value for unites sold from 2006 to 2030 (billion 98$)
Reverse engineering costs NAECA Rool-up ShiH

1 to 2

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

................... 1 to 2

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

................... 2 to 3

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

### oto -1

........ 1 to 2

............ 2 to 3

............ -1 to -2

.. .. (I to 1

............ 1 to 2

............ -3to -4

.... -10 to -11 -10 to -11 -10to -11

range ofassumptions and scenarios relative to the base case national equipment and operating costs for all central air-conditioning and heatpump ARI mean costs NAECA Roll-up

0

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

................... -1

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

## oto 1

............ -1to-2

.... 

### oto -1

........ -5 to -6

.... -4

............... -22

............. -22

............. ShiH



### oto -1 -3to -4 

### -5 -10 -22

equipment. By the "base case" we mean the case ofno new efficiency standards. The results in Table V.19 and V.20 are the AEO 2000 Reference Case forecast of* 

## EE-RM/STD-98-440

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# O

Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations 7191
electricity prices and housing. The total rate is 7 percent. In addition, the NPV well as the NPV as a percentage ofthe costs are presented for the base case and (the difference in total costs between the "Base Case Total Costs," are calculated each trial standard level. The discount base case and trial standard level), as for each trial standard level.

TABLE V.19.-NET PRESENT VALUES RESULTS RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS
Efficiency scenario

Base NAECA Roll-up Shift

case total case total NPV NPV NPV TSL costs biL coss Total Total Total biion costs As per- costs As per- costs As perbillion Billion cent of billion Billion cent of billion Billion cent of 98$ 98$ base 98$ 98$ base 98$ 98$ base
case total case total case total

1

.............................. 379 378 2 0.4 377 2. 0.5 378 1 0.4 2

............................... 379 377 2 0.5 377 3 0.7 380 (1) 0.2 3

............................... 379 378 1 0.4 377 2 0.6 381 (2) 0.5 4

............................... 379 379 0 0.0 378 1 0.3 383 (4) 0.9 5

............................... 379 390 (10) -2.7 390 (10) -2.7 390 (10) -2.7

TABLE V.20.-NET PRESENT VALUES RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS BASED ON ARI MEAN MANUFACTURING COSTS
Efficiency scenario
Base NAECA Roll-up Shift Base
case total casetotal 

## ~ NPV NPV NPV TSL costs bTL coss Total V Total NVTotal N

on$ costs As per- costs As per- costs as per- billion Billion cent of billion Billion cent of billion billion cent of 98$ 98$ base 98$ 98$ base 98$ 98$ base case total case total 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

Table V.21 shows how a 3percent scenario and the AEO Reference Case were considered in analyzing the discount rate 16 impacts the net present electricity price and housing projection impacts from a 3 percent discount rate. value. Only the Roll-up efficiency
TABLE V.21: NET PRESENT VALUES RESULTS BASED ON 3-PERCENT DISCOUNT RATE

Reverse engineering costs ARI mean costs
Trial standard level Trial standard level TSL Base case Base case total costs Total cost Net p e Net As percent JATotal cost present of base billion 98$ billion 98$ present case total billion 98$ billion 98$ value bil- cast total value 98b value 98$ costs lion 98$ costs
1

....................................................... 708 701 7 0.9 712 707 4 0.6 2

....................................................... 708 697 11 1.6 712 705 6 0.9 3

....................................................... 708 697 11 1.6 712 706 6 0.8 4

....................................................... 708 697 11 1.5 712 711 0 0.0 5

....................................................... 708 716 (8) -1.2 712 746 (35) -4.9

The proposed rule also estimated the energy efficiency standards for central and the resulting net savings are national employment impacts due to airconditioners and heat pumps are expected to be redirected to other forms each ofthe five trial standard levels. As expected to reduce electricity bills for of economic activity. These shifts in discussed in the proposed rule, the residential and commercial consumers

'6 A societal discount rate of 3 percent 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 ofAccounting Statements. 

## ,. EE-RM/STD-98-440 

# -::/Ft?,O

# ct

Federal Register/Vol. 66, No. l4/Monday, January 22, ZOOl/Rules and Regulations 

### 7191

electricity prices and housing. Thetotal costs are presented for the base case and each trial standard level. The discount rate is 7 percent. In addition, theNPV (the difference in total costs between the base case and trial standard level), as well as the NPV as a percentage ofthe "Base Case Total Costs," are calculated for each trial standard level.

TABLE V.19.-NET PRESENT VALUES RESULTS RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS Efficiency scenario

Base NAECA Roll-up ShiH

case total NPV NPV NPV TSL costs Total Total Total billion costs As per- costs As per- costs As per- 98$ billion Billion cent of billion Billion cent of billion Billion cent of 98$ 98$ base 98$ 98$ base 98$ 98$ base case total case total case total

1



## ............................... 379 378 2 0.4 3n 2. 0.5 378 1 0.4 2

............................... 379 377 2 0.5 3n 3 0.7 380 (1) 0.2 3

............................... 379 378 1 0.4 3n 2 0.6 381 (2) 0.5 4

............................... 379 379 0 0.0 378 1 0.3 383 (4) 0.9 5

............................... 379 390 (10) -2.7 390 (10) -2.7 390 (10) -2.7

TABLE V.20.-NET PRESENT VALUES RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS BASED ON ARI MEAN MANUFACTURING COSTS Efficiency scenario

Base NAECA Roll-up ShiH

.,. case total TSL costs NPV NPV NPV billion Total 98$ costs billion 98$

1



### ............................... 381 381 2

............................... 381 382 3

............................... 381 383 4

............................... 381 387 5

............................... 381 403

Table V.2l showshow a 3 percent discount rate 16 impacts thenet present value. Only the RoB-up efficiency Total As per- costs Billion cent of billion Billion 98$ base 98$ 98$ case total

0 0.0 381 1 (1 ) -0.3 381 0 (2) -0.5 382 (1 ) (5) -1.4 386 (4) (22) -5.8 403 (22)

scenario and the AEO Reference Case electricity price and housing projection Total As per- costs as percent of billion billion cent of base 98$ 98$ base case total case total

0.2 385 0 -0.1 0.0 388 (3) -0.9 -0.2 390 (5) -1.4 -1.1 395 (10) -2.5 -5.8 407 (22) -5.8

were consideredin analyzingthe impacts from a 3 percent discount rate.

TABLE V.21: NET PRESENT VALUES RESULTS BASED ON 3-PERCENT DISCOUNT RATE

Reverse engineering costs
Trial standard level TSL Base case As percent total costs Total cost Net of base billion 98$ billion 98$ present case total

1



## ....................................................... 2



## ....................................................... 3



## ....................................................... 4



### ....................................................... 5

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

The proposed rule also estimatedthe national employment impacts due to each ofthe five trial standard levels. As discussed in the proposedrule, the

,.A societal discount rate of3 percent value was investigated as a scenario in accordance with the value 98$ costs

708 701 7 0.9 708 697 11 1.6 708 697 11 1.6 708 697 11 1.5 708 716 (8) -1.2

energy efficiency standards for central airconditioners and heat pumps are expected to reduce electricitybills for residential and commercial consumers

Office ofManagement and Budget's (OMB) ARI mean costs
Trial standard level Base case Net As percent total costs billion 98$ Total cost present of base billion 98$ value bil- cast total lion 98$ costs
712 707 4 0.6 712 705 6 0.9 712 706 6 0.8 712 711 0 0.0 712 746 (35) -4.9

and the resulting net savings are expected to beredirected to other forms ofeconomic activity. These shifts in

Guidelines to StandardizeMeasures ofCosts and Benefits and the Format ofAccounting Statements.

## EE-RM/STD-98-440 

# - 0-T

7192 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

spending and economic activity are in no appreciable job losses to the oftheir product lines fail to satisfy the expected to affect the demand for labor. nation. proposed standard.

As we did for the proposed rule, the Second, DOJ stated that the proposed Department estimated the impacts ofthe4-im ct on Utility or Performance of standard for heat pumps, and in some new standards on national labor roducts instances for air conditioners, would demand using an input/output model of As detailed in Section V ofthe have an adverse impact on some

· the U.S. economy. The model proposed rule, in establishing classes of manufacturers ofproducts (including characterizes the interconnections products we believe the adopted those products referred to in the among 35 economic sectors using data standards will not result in any proposed rule as "niche products") used from the Bureau ofLabor Statistics. For degradation ofutility or performance in to retrofit existing housing and used in
some years after the new standards go the covered products. manufactured housing. These into effect, new consumer expenditure A manufacturers could not, according to on air conditioners andheat pumps 5 Lessenng o DOJ, make units that comply with the each year outpaces their annual energy ompeon rule and fit into the available space. savings. This activity redirects The Act directs the Department to Third, DOJ expressed concern that the expenditures into the manufacturing consider any lessening ofcompetition proposed heat pump standard of 13 sector, which is less labor intensive than that is likely to result from standards. It SEER could make heat pumps less other sectors ofthe economy, 7 further directs the Attorney General to competitive with alternative heating and producing a loss ofjobs in those sectors determine the impact, ifany, ofany cooling systems. Because the standard that is larger than the gain ofjobs in lessening ofcompetition likely to result would result in increases in the size and manufacturing. Also, a loss ofjobs from a proposed standard and transmit cost ofheat pumps, it is possible that results in the utility sector due to its such determination to the Secretary, not purchasers would shift away from heat loss ofrevenues. As annual consumer laterthan 60 days after the publication pumps to other systems that include energy savings begin to exceed annual ofa proposed rule, together with an electric resistance heat, reducing the
new expenditures on air conditioners, analysis ofthe nature and extent ofsuch competition that presently exists eventually the new standards will impact. EPCA Section 325(o)(2)(B)(i)(V) between heat pumps and those other produce a net gain in national and (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V) systems.' 8 employment. and (B)(ii). The Department ofJustice urged the

The increases or decreases in the net In order to assist the Attorney General Department ofEnergy to take into demand for labor in the economy in making such a determination, the account these possible impacts on estimated by the input/output model Department provided the Department of competition in determining its final due to air conditioner and heat pumps Justice (DOJ) with copies ofthe energy efficiency standard for air standards are likely to be very small proposed rule and the TSD for review. conditioners and heat pumps. DOJ relative to total national employment. At DOE's request, the DOJ reviewed the wrote that the Department ofEnergy For the following reasons any modest manufacturer impact analysis interview should consider setting a lower SEER changes in employment are in doubt: questionnaire to ensure that it would standard for heat pumps, such as the *Unemployment is now at the lowest provide insight concerning any standard included in Trial Standard rate in 30 years. Ifunemployment lessening ofcompetition due to any Level 2, and a lower SEER standard for remains very low during the period proposed trial standard levels. air conditioners for retrofit markets when the standards are put into effect, As previously discussed in section where there are space constraints (such it is unlikely that the standards alone II.D.4 above, the Department ofJustice as markets served by niche products) could result in any change in national concluded that the residential central and for manufactured housing. employment levels; air conditioner and heat pump As we noted in the Supplementary

* Neither the BLS data northe input- standards contained in the proposed ANOPR and proposed rule, nearly all output model used by DOE include the rule could have an adverse impact on small manufacturers produce only niche quality or wage level ofthejobs. The competition. The proposed standards products. DOJ's first concern relates to losses or gains from any potential would have changed the current central disproportionate impacts on small employment change may be offset ifjob air conditioner and heat pump manufacturers, which are substantially quality and pay also change; and efficiency standards of 10 SEER/6.8 the same group as the niche product The net benefits or losses from HSPF for split system air conditioners manufacturers. Furthermore, niche potential employment changes are a andheat pumps and 9.7 SEER/6.6 HSPF products almost exclusively serve result ofthe estimated net present value for single package air conditioners and applications with severe space ofbenefits or losses likely to result from heat pumps to 12 SEER for air constraints. Today's final rule prescribes air conditioner and heat pump conditioners and 13 SEER/7.7 HSPF for standards only for those products that standards. It may not be appropriate to heat pumps. Through-the-wall are not severely space-constrained, and separately identify and consider any equipment was the only exception. We therefore substantially eliminates their employment impacts beyond the proposed an 11 SEER standard for that first concern regarding the impact of calculation ofnet present value. class more stringent standards on small

Taking into consideration these class, more stringent standards on small le gitimate con iderns rgardtingthese DOJ identified three possible manufacturers. interetatie onc and use ofthe competitive problems presented by the interpretation 

### i an use of the proposed standards. First, DOJ stated 'BDO also wrote about ourrequest forcomments Departloyment impacncludes onlysis, the that the proposed 13 SEER heat pump on a proposal to adopt astandard for steady-state Department concludes

only that the tat the sproposed 13SEERcooling efficiency (EER). The regulation language in proposed central air conditioner and standard would have a disproportionate the proposed rule did not include aprovision heat pump standards are likely toresult impact on smaller manufacturers. They regarding an EER standard, and DO) limited its stated that currently less than 20 views to the standards set forth in the proposed

7 Bureau of Economic Analysis, Regional percent of the total current product lines regulation language, indicating that if the Department proposes rule language in the future Multipliers: A User Handbook for the Regional meet the proposed standards, but for incorporating an EER standard, DO) would address Input-Output Modeling System (RIMS II) some small manufacturers, 100 percent the competitive impact ofthat standard. 

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spending and economic activity are expected to affect the demand for labor.

As we did for the proposedrule, the Department estimated the impacts ofthe
new standards onnational labor demand using an input/output model of

.the U.S. economy. The model characterizes the interconnections among 35 economic sectors using data from the Bureau ofLabor Statistics. For
some years after the new standards go into effect, new consumerexpenditure
on air conditioners andheatpumps each year outpaces their annual energy savings. This activity redirects expenditures into the manufacturing sector, which is less labor intensivethan other sectors ofthe economy,11 producing a loss ofjobs inthose sectors that is larger than the gain ofjobs in manufacturing. Also, a loss ofjobs results in the utility sector due to its loss ofrevenues. As annual consumer energy savings begin to exceed annual
new expenditures on air conditioners, eventuallythe new standards will produce a net gain in national employment.

The increases ordecreases inthe net demand for labor in the economy estimated by the input/output model due to airconditioner andheatpumps standards are likely to be very small relative to total national employment. Forthefollowing reasons any modest changes in employment are indoubt:

• Unemployment is now atthe lowest rate in 30 years. If

### unemployment remains very low during theperiod when the standards are put into effect, it is unlikely that the standards alone could result in any change innational employment levels;

• Neither the BLS data northeinputoutput model usedbyDOE includethe quality or wage level ofthejobs. The losses orgains from any potential employmentchange maybe offset ifjob quality and pay also change; and

• The net benefits or losses from potential employment changes are a result ofthe estimated netpresent value ofbenefits or losses likely to result from air conditioner and heat pump standards. It may notbe appropriate to separately identify and considerany employment impactsbeyond the calculation ofnet present value.

Taking into considerationthese legitimate concernsregardingthe interpretation and use ofthe employment impacts analysis, the Department concludes onlythat the proposed central air conditionerand heat pump standards are likely to result

17 Bureau ofEconomic Analysis. Regional Multipliers: A User Handbook for tho Rogional Input-Output Modeling Systom (RIMS II) 

### inno appreciablejob lossesto the nation. 4. Impact on Utility orPerformance of Products

As detailed in SectionV ofthe proposed rule, in establishing classes of products webelieve the adopted standards will notresult in any degradation ofutility orperformance in the covered products. 5. Impact ofAny Lessening of Competition

TheAct directs the Departmentto consider any lessening ofcompetition thatis likely to result from standards. It 

### further directs the AttorneyGeneral to determine the impact, if

### any, ofany lessening ofcompetition likelyto result from a proposed standard and transmit such determination to the Secretary, not laterthan 60 days after thepublication ofa proposed rule, togetherwith an analysis ofthe nature and extent ofsuch impact. EPCA Section 325(0)(2HB)(i)(V) and (B)(ii). 42 U.S.C. 6295(0)(2)(B)(i)(V) and (BHii).

In orderto assist the Attorney General inmaking such a determination, the Departmentprovidedthe Department of Justice (DOn with copies ofthe proposed rule andthe TSD for review. At DOE's request, the DO] reviewed the manufacturer impact analysis interview questionnaire to ensurethat itwould provide insight concerning any lessening ofcompetition due to any proposedtrial standard levels.

As previously discussed in section II.D.4 above, theDepartment ofJustice concludedthattheresidential central air conditionerandheat pump standards contained inthe proposed rule couldhave an adverse impact on competition. The proposed standards would have changed the current central air conditioner andheatpump efficiency standards of 10 SEER/6.B HSPF for split system airconditioners andheatpumps and 9.7 SEER/6.6 HSPF for single package airconditioners and heatpumpsto 12 SEER for air conditioners and 13 SEERl7.7 HSPF for heat pumps. Through-the-wall equipment was the onlyexception. We proposed an 11 SEER standard for that class.

DO] identified threepossible competitiveproblems presentedby the proposed standards. First, DO] stated that the proposed 13 SEER heatpump standard would have a disproportionate impact on smallermanufacturers. They stated that currentlyless than 20 percent ofthe total current product lines meet the proposed standards,but for
some small manufacturers, 100 percent oftheir product lines fail to satisfythe proposed standard.

Second, DO] statedthattheproposed standard for heatpumps, and in some instances for air conditioners, would have an adverse impact on some manufacturers ofproducts (including those products referred to inthe proposed rule as "nicheproducts") used to retrofit existing housing and used in manufactured housing. These manufacturers couldnot, accordingto DO], make units that complywiththe rule and fit intothe available space.

Third, DO] expressed concernthatthe proposedheatpump standard of 13 SEER could makeheatpumps less competitive with alternativeheating and cooling systems. Becausethe standard would result in increases inthe size and cost ofheat pumps, itis possible that purchasers would shift away from heat pumps to othersystemsthat include electric resistanceheat, reducing the competitionthatpresentlyexists between heatpumps and those other systems. I8



### The Department ofJustice urged the Department ofEnergy to take into account these possible impacts on competitionindeterminingits final energy efficiency standard for air conditioners andheatpumps. DOJ wrote that the DepartmentofEnergy should consider setting a lower SEER standard for heat pumps, such as the standard included inTrial Standard Level 2, and a lower SEER standardfor air conditioners for retrofit markets where there are spaceconstraints (such
as markets servedby nicheproducts) and for manufacturedhousing.

As we noted inthe Supplementary ANOPR and proposedrule, nearly all small manufacturersproduce only niche products. DOl's first concernrelates to disproportionate impacts on small manufacturers, which are substantially the same group as the nicheproduct manufacturers. Furthermore, niche products almost exclusively serve applications with severe space constraints. Today's final rule prescribes standards onlyfor those productsthat
are not severely space-constrained, and therefore substantially eliminates their first concernregarding the impact of
more stringent standards on small manufacturers.

,.DO) also wrote about our request for co=ents
on a proposal to adopt a standard for steady-state cooling efficioncy (EER). The regulation language in the proposed rule did not includea provision regarding an EER standard. andDO) limited its views to tho standards set forth in the proposed regulation language. indicatingthat iftho Department proposes rulo languago in the future incorporating an EER standard. DO) would address tho competitive impact ofthat standard.

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DOJ's second concern about products to be available to consumers during the 6. Need ofthe Nation To Save Energy intended for space constrained markets time when the standards we are are more difficult to address since the adopting today are in effect. The Secretary recognizes the need of standards apply to products at the point As to DOJ's third concern regarding the Nation to save energy. Enhanced ofmanufacture and not the point of possible shifting in the market from heat energy efficiency improves the nation's installation. We have removed one pumps to resistance heaters, we have energy security, and reduces the element ofthis concern by not adopted the same minimum SEER environmental impacts ofenergy specifying new standards for niche requirement for heat pumps as we have production. Improved efficiency of products, primarily due to our concern for air conditioners. That action central air conditioners and heat pumps over their continued viability in substantially reduces the incentive for is also likely to improve the reliability replacement applications. However, we consumers to switch, thereby addressing ofthe nation's electric system. The recognize that larger conventional that concern, energy savings from central air equipment also poses problems in In summary, the standards we are conditioner and heat pump standards replacement applications and that these adopting should effectively eliminate result in reduced emissions ofcarbon problems may be more complex in most ofDOJ's concerns regarding the and NOx. Cumulative emissions savings manufactured homes. Nevertheless, air lessening ofcompetition, even under over the 15-year period modeled are conditioner and heat pump TSL 4. To the extent that we have not shown in Table V.22. The results manufacturers do have options for fully eliminated all their concerns, increasing the efficiency ofequipment however, we have considered the presented in Table V.22 are based only without increasing the size ofboth the remaining possibility for lessening of on te AEO 2000 Reference Case for indoor and outdoor units, and we competition as we weighed the burdens electricity price and housing projections expect products utilizing those options oftoday's adopted standards. and the NAECA efficiency scenario.

TABLE V.22.-CUMULATIVE EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)

Reverse engineering costs ARI mean costs Trial standard level Carbon (Mt) NOx (kt) Carbon (Mt) NOx (kt) 1

....................................................................................................................... 13.2 36.7 13.4 37.2 2

................................................................................................................ ....... 23.8 72.7 23.7 67.9 3

................................................................................................................ ....... 27.7 84.4 27.4 78.8 4

................................................................................................................ ....... 32.6 85.8 33.6 102.5 5

................................................................................................................ ....... 63.0 184.2 63.7 193.7
The impact ofvarying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency scenarios were considered for the Trial Standard Level 4. Table V.23 shows how carbon and NOx emissions are impacted by the different projections and scenarios.
TABLE V.23.--CUMULATIVE EMISSIONS REDUCTIONS FOR FINAL STANDARD (2006-2020) AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Reverse engineering costs ARI mean costs Electricity price and housing projection Efficiency scenario Carbon (Mt) NOx (kt) Carbon (Mt) NOx (kt) AEO reference case

............................................. NAECA

......................... 32.6 85.8 33.6 102.5 AEO reference case

............................................. Roll-up

.......................... 32.7 93.8 31.3 87.5 AEO reference case

............................................. Shift

.............................. 36.0 107.1 34.9 97.9 AEO low growth case

......................................... NAECA

......................... 28.5 97.2 27.5 95.8 AEO high growth case

......................................... NAECA

......................... 42.2 92.4 42.8 103.1

The annual carbon emission benefits that accumulate over time. slightly higher proportion ofearlier reductions range up to 6.8 Mt in 2020 Emission reductions that occur sooner emission reductions than another trial and the NOx emissions reductions up to are often more desirable than equivalent standard level. To show the possible 27.0 kt in 2015.19 20 Total carbon and reductions that occur later. Like effect ofthe different timing patterns of NOx emissions for each trial standard monetary benefits, the health, the emissions, the Department is also level are reported in the Environmental recreational and ecosystem benefits that presenting discounted emissions. These Assessment, in the TSD. result from emission reductions are calculations were done using the same

The Department makes no effort to often perceived to have a greater value seven percent discount rate as was used monetize the benefits ofthe actual ifthey occur sooner, rather than later. for discounting monetized benefits. We emission reductions, but there may be To the extent that the different trial show discounted cumulative emission time related differences in the perceived standard levels have slightly different savings from 2006 through 2030 in value ofthe emissions depending on shipment distributions over time, some Tabl 2 2 when they occur, as with monetized trial standard levels might have a

19 Million metric tons (MtJ. 20 Thousand metric tons (kt). 

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OO]'s second concern about products intended for space constrained markets
are more difficult to address sincethe standards apply to products at thepoint ofmanufacture and not thepoint of installation. We have removed one element ofthis concernby not specifying new standards for niche products, primarily due to ourconcern over their continued viability in replacement applications. However, we recognize that larger conventional equipment also poses problems in replacement applications andthat these problems may be more complex in manufacturedhomes. Nevertheless, air conditioner and heat pump manufacturers dohave options for increasingthe efficiency ofequipment withoutincreasing the size ofboththe indoor and outdoorunits, and we expectproducts utilizing those options tobe available to consumers during the time whenthe standards we are adopting today are in effect.

As to OO]'s third concernregarding possible shifting inthe market from heat pumpsto resistance heaters, wehave adopted the same minimum SEER requirement for heatpumps as wehave for air conditioners. That action substantially reduces the incentive for
consumersto switch, thereby addressing that concern.

In summary, the standards we are adopting should effectively eliminate most ofOO]'s concernsregardingthe lessening ofcompetition, evenunder TSL 4. To the extent that wehave not fully eliminated all theirconcerns, however, wehave consideredthe remaining possibility for lessening of competition as we weighed theburdens oftoday's adopted standards. 6. Need rifthe Nation To SaveEnergy
The Secretaryrecognizes the need of the Nation to save energy. Enhanced energy efficiency improvesthe nation's energy security, and reduces the environmental impacts ofenergy production. Improved efficiency of central airconditioners andheatpumps is also likely to improve thereliability ofthe nation's electric system. The energy savings from central air conditionerand heat pump standards result in reduced emissions ofcarbon and NOx . 

### Cumulative emissions savings
over the 15-yearperiod modeled are shown in Table V.22. Theresults presented in Table V.22 arebased only
onthe AEO 2000 Reference Case for electricity price andhousingprojections and the NAECA efficiency scenario.

TABLE V.22.-CUMULATIVE EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)


### Reverse engineering costs ARI mean costs Trial standard level Carbon (Mt) NOx (kt) 

### Carbon (Mt) NOx (kt)

1

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

### 13.2 36.7 13.4 37.2 2

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

### 23.8 72.7 23.7 67.9 3

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

### 27.7 84.4 27.4 78.8 4

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

### 32.6 85.8 33.6 102.5 5

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

### 63.0 184.2 63.7 193.7

The impact of varying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency scenarios were considered for the Trial Standard Level 4. Table V.23 shows how carbon and NOx emissions are impacted by the different projections and scenarios.

TABLE V.23.-CUMULATIVE EMISSIONS REDUCTIONS FOR FINAL STANDARD (2006-2020) AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS



### Electricity price and housing projection Reverse engineering costs EHiciency scenario ARI mean costs Carbon (Mt)
AEO reference case

............................................. NAECA

......................... 32.6 32.7 36.0 28.5 42.2 AEO reference case

.......................... ................... Roll-up

.......................... AEO reference case

............................................. Shift

.............................. AEO low growth case

........................................... NAECA

......................... AEO high growth case

.......................................... NAECA

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

The annual carbon emission reductionsrange up to 6.8 Mt in 2020 and the NOx emissions reductions up to 27.0 kt in 2015. 1920

### Total carbon and NOx emissions for each trial standard level are reported intheEnvironmental Assessment, in the TSO.

The Oepartment makes no effort to monetize thebenefits ofthe actual emissionreductions, but there maybe timerelated differences in the perceived value ofthe emissions depending on when they occur, as with monetized

,.Million melric Ions (Mil. 

### benefits that accumulate overtime. Emission reductions that occur sooner are often more desirable than equivalent reductions that occur later. Like monetarybenefits, thehealth, recreational and ecosystembenefits that result from emissionreductions are often perceived to have a greatervalue ifthey occur sooner, ratherthanlater. To the extent that the differenttrial standard levels have slightly different shipment distributions overtime, some trial standard levels mighthave a

20Thousand melric Ions (kll. 

### NOx (kt) 

### 85.8 93.8 107.1 97.2 92.4 Carbon (Mt)
33.6 31.3 34.9 

### 27.5 42.8 NOx (kt)

102.5 

### 87.5 97.9 95.8 103.1



### slightly higher proportion ofearlier emission reductions than anothertrial standard level. To showthe possible effect ofthe different timingpatterns of the emissions, the Departmentis also presenting discounted emissions. These calculations were done using the same seven percent discount rate as was used for discounting monetizedbenefits. We show discounted cumulative emission savings from 2006 through 2030 in Table V.24.."',* 

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TABLE V.24.-CUMULATIVE DISCOUNTED EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)

Reverse engineering costs ARI mean costs Trial standard level Carbon (Mt) NOx (kt) Carbon (Mt) NOx (kt)
1

..................................................................................................................... 4.7 15.7 4.8 15.7 2

....................................................................................................................... 8.5 30.3 8.5 29.2 3

....................................................................................................................... 9.8 35.2 9.8 33.8 4

....................................................................................................................... 11.6 36.7 12.0 43.3 5

....................................................................................................................... 22.3 77.1 22.7 81.1

7. Other Factors Peak power impacts on electric each ofthe trial standard levels. Ofthe utilities from increases in the central air installed generating capacity avoided, This provision allows the Secretary of conditioner and heatpump standard are 13 percent would have been provided Energy, in determining whether a calculated using the NEMS-BRS model. by coal power plants. The remaining standard is economically justified, to NEMS-BRS is used to estimate peak percentage (87 percent) would have consider any other factors that the power impacts by calculating the been supplied by either gas-fired, oilSecretary deems to be relevant. EPCA reduction in planned generation fired, or dual-fired power plants. The Section 325(o)(2)(B)(i)(VI), 42 U.S.C. capacity due to an increase in the results presented in Table V.25 are 6295(o)(2)(B)(i)(VI). The Secretary has minimum efficiency standard. Table based only on the AEO 2000 Reference decided to consider the impact on peak V.25 shows the estimated reductions in Case for electricity price and housing power requirements and electric utility installed generation capacity, in giga- projections and the NAECA efficiency system reliability. watts (GW), in the year 2020, due to scenario.

TABLE V.25.-INSTALLED GENERATION CAPACITY REDUCTIONS INTHE YEAR 2020 BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO

Reverse engi- ARI mean neering costs costs
Trial standard level Installed Installed generating generating capacity capacity reduction reduction

(GW) (GW)
1

............................................................................................................................................................................... 6 .5 6.4 2

..................................................................... ............... 10.6 10.6 3

............................................................................................................................................................................... 12 .4 12.3 4

............................................................................................................................................................................... 15 .5 15 .4 5

............................................................................................................................................................................... 28.8 28.6

The impact ofvarying electricity price efficiency scenarios were considered installed generation capacity is and housing projections (i.e., different only for the final standard (trial impacted by the different projections AEO cases) as well as different standard level 4). Table V.26 shows how and scenarios.
TABLE V.26.-INSTALLED GENERATION CAPACITY REDUCTIONS INTHE YEAR 2020 FOR FINAL STANDARD AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Reverse engi- ARI mean neering costs costs Electricity price and housing projection Efficiency scenario Instaled Installed generating generating capacity capacity reduction reduction

(GW) (GW) AEO reference case

............................................................................................... NAECA

............................... 15.5 15.4 AEO reference case

............................................................................................... Roll-up

................................ 15.5 15.0 AEO reference case

............................................................................................... Shift

.................................... 16.6 16.4 AEO low growth case

............................................................................................. NAECA

............................... 14.5 13.9 AEO high growth case

............................................................................................ NAECA

............................... 16.0 15.6

E. Conclusion new or amended energy conservation achieve the maximum improvement in standard for any type (or class) of energy efficiency which the Secretary Section 325(o)(2)(A) ofthe Act, 42 covered product shall be designed to determines istechnologically feasible U.S.C. 6295(o)(2)(A), specifies that any**------~---** 

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TABLE V.24.-CUMULATIVE DISCOUNTED EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY SCENARIO (2006-2020)

Reverse engineering costs ARI mean costs Trial standard level Carbon (Mt)

1

...........................**~**........................................................................................... 4.7 2

....................................................................................................................... 8.5 3

....................................................................................................................... 9.8 4

....................................................................................................................... 11.6 5

....................................................................................................................... 22.3

7. OtherFactors

Thisprovision allows the Secretary of Energy, in determining whether a standard is economicallyjustified, to consider any otherfactors thatthe Secretary deemstoberelevant. EPCA Section 325(0)(2)(B)(i)(VI), 42 U.S.c. 6295(0)(2)(B)(i)(VI). The Secretaryhas decided to considerthe impact onpeak powerrequirements and electric utility systemreliability. Peakpowerimpacts onelectric utilities from increases inthe central air conditioner and heatpump standard are calculated using the NEMS-BRS model. NEMS-BRS is used to estimatepeak power impactsbycalculatingthe reduction in plannedgeneration capacity due to an increase inthe minimum efficiency standard. Table V.25 shows the estimated reductions in installed generation capacity, ingigawatts (GW). in the year 2020, due to NOx (Id) Carbon (Mt) NOx (Id)
15.7 4.8 15.7 30.3 8.5 29.2 35.2 9.8 33.8 36.7 12.0 43.3 77.1 22.7 81.1

each ofthe trial standard levels. Ofthe installed generating capacity avoided, 13 percent would have been provided bycoal powerplants. Theremaining percentage (87 percent) would have been supplied by eithergas-fired, oilfired, or dual-fired powerplants. The results presented inTable V.25 are based only on the AEO 2000 Reference Case for electricity price and housing projections and the NAECA efficiency scenario.

TABLE V.25.-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

............................................................................................................................................................................... Reverse engi- neering costs

Installed generating

capacity reduction

(GW)
6.5 10.6 12.4 15.5 28.8 ARI mean costs Installed generating

capacity reduction

(GW)
6.4 10.6 12.3 15.4 28.6

The impact ofvaryingelectricityprice and housingprojections (i.e., different AEO cases) as well as different efficiency scenarios were considered only for the final standard (trial standard level 4). Table V.26 showshow installed generation capacity is impactedby the different projections and scenarios.

TABLE V.26.-INSTALLED GENERATION CAPACITY REDUCTIONS IN THE YEAR 

### 2020 FOR FINAL STANDARD AND THE IMPACT OF DIFFERENT ELECTRICITY PRICE/HoUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Electricity price and housing projection Efficiency scenario

AEO reference case

............................................................................................... NAECA

............................... AEO reference case

............................................................................................... Roll-up

................................ AEO reference case

............................................................................................... Shift

.................................... AEO low growth case

............................................................................................. NAECA

............................... AEO high growth case

........................................................................... ................. NAECA

............................... Reverse engi- neering costs

Installed generating capacity reduction

(GW)
15.5 15.5 16.6 14.5 16.0 ARI mean costs Installed generating capacity reduction

(GW)
15.4 15.0 16.4 13.9 15.6



### E. Conclusion

Section 325(0)(2)(A) ofthe Act, 42 U.S.C. 6295(0)(2)(A), specifies that any new or amended energy conservation standard for any type (or class) of covered product shall be designed to achieve the maximum improvement in energy efficiency whichthe Secretary determines is technologically feasible

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and economicallyjustified. In We consider the impacts of standards V.27 presents a summary of quantitative determining whether a standard is beginning with the max tech level, i.e., analysis results for each Trial Standard economicallyjustified, the Secretary Trial Standard Level 5. We then Level based on the assumptions we must determine whether the benefits of consider less efficient levels until we consider most plausible. These include the standard exceed its burdens. EPCA reach the level which istechnologically manufacturing cost estimates from the Section 325(o)(2)(B)(i), 42 U.S.C. feasible and economically justified. reverse engineering, an 18.4-year 6295(o)(2)(B)(i). The amended standard To aid the reader as we discuss the equipment lifetime with one compressor must "result in significant conservation benefits or burdens ofthe trial levels, replacement at 14 years, and electricity ofenergy." EPCA Section 325(o)(3)(B), we have included a summary ofthe prices based on the AEO2000 Reference 42 U.S.C. 6295(o)(3)(B). analysis results in Table V.27.21 Table Case.

TABLE V.27.-SUMMARY OF QUANTITATIVE RESULTS 1

Trial std 1 Trial std 2 Trial std 3 Trial std 4 Trial std 5 Primary energy saved (quads) 2

......................................... 1.5 2.9 3.4 4.2 8.6 Generation capacity offset (GW)3

........................................ 6.5 10.6 12.4 15.5 28.8 NPV ($billion):. 7% Discount rate, roll-up

.............................................. 2 3 2 1 (10) 7% Discount rate, NAECA

............................................ 2 2 1 0 (10) 3% Discount rate, roll-up

.............................................. 7 11 11 11 (8) Cumulative emissions reductions through 2020: Carbon equivalent (Mt) 3

............................................... 13.2 23.8 27.7 32.7 63.0 NOx (kt)3

........................................ 36.7 72.7 84.4 93.8 184.2 Cumulative change in INPV ($million) 4: Roll-up

........................................ (160) (313) (319) (303)

........................ NAECA

........................................ (30) (159) (171) (169)

........................ Life cycle cost savings ($)5: 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)6: Split AC

........................................ 7.8 9.8 9.8 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 12.8 1Parentheses indicate negative (-) values.
2 Energy savings based on Roll-up efficiency scenario. 3Values based on NAECA efficiency scenario with the exception of TSL 4 which is based on the Roll-up scenario. 4 Not calculated at Trial Standard Level 5. 5Negative values indicate LCC increases. 6Payback periods are median values.

In addition to the quantitative results, demand can far exceed the normal costs First we considered Trial Standard we also consider other burdens and ofcapacity expansion. 22 Level 5, the maximum technologically benefits that affect economic We also recognize that the adopted achievable efficiency level for each of justification. The potential to improve standards could result in additional four classes, representing uniform 18 the reliability ofthe electricity system is burdens. These include a possible SEER requirements. The manufacturing the major benefit we have not quantified increase in health problems causedby cost we assume for Trial Standard Level explicitly. In areas where the occurrence consumers forgoing air conditioner 5 is equal to 15 SEER equipment, ofblackouts (andbrownouts) can be purchases, a possible reduction in the although we would expect that reduced through expansion of system ability ofthe product to dehumidify, a assumption to understate the cost and capacity, the economic value ofavoided possible lessening of competition, and price ofthe product. Trial Standard blackouts associated with reductions in possible difficulty in installing the new Level 5 will likely save 8.6 quads of peak load cannot exceed the value ofthe baseline products into replacement energy which the Department considers avoided capacity expansion. That value applications. However, we generally significant. These savings will result in is already captured in our analysis as believe that these burdens are capable of the avoidance ofapproximately 29 GW savings in consumer utility bills. being mitigated at any standard level, ofinstalled generation capacity. For However, in areas that do not expect to except possibly Trial Standard Level 5. comparison, the generating capacity is be able to maintain adequate capacity Section IV discusses our response to equivalent to roughly 75 large, 400 reserves, the value ofavoided blackouts comments regarding benefits and megawatt, powerplants,23 associated with reductions in peak burdens and explains our viewpoints on approximately 3.7percent ofcurrent those issues. installed generating capacity nationwide

21 All cumulative effects that are not monetary are can be prevented through either acapacity same reduction in peak demand then can equal the not discounted. Monetary effects are discounted to expansion or a reduction in peak demand, and the value ofthe avoided blackout ($1 billion) since 1998 dollars. new capacity would cost $100 million,the value of there is no feasible alternative.

22 For instance, ifcapacity-related blackouts cost the reduction in peak demand can be no more than 23DOE estimates 9 coal-fired power plants and 66 aregion $1billion, society wouldbe willing to pay $100 million. Ifthe region is short on capacity and gas-fired power plants can be avoided. See TSD, up to$1billion toprevent them.If those blackouts cannot add new capacity quickly, however, the Chapter 11 and Appendix H. 

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and economicallyjustified. In determining whether a standard is economicallyjustified, the Secretary must determine whetherthebenefits 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 "resultin significant conservation ofenergy."EPCA Section 325(0)(3)(B), 42 U.S.C. 6295(0)(3)(B). We consider the impacts ofstandards beginning with the max tech level, i.e., Trial Standard Level 5. We then considerless efficient levels until we reach the level which is technologically feasible and economicallyjustified.

To aid the reader as we discuss the benefits orburdens ofthe trial levels,
wehave included a summary ofthe analysis results in Table V.27.21 Table V.27 presents a summary ofquantitative analysis results for each Trial Standard Level based on the assumptions we considermost plausible. These include manufacturing cost estimates from the
reverse engineering, an 18.4-year equipmentlifetime with one compressor replacement at 14 years, and electricity pricesbased onthe AE02000 Reference Case.

TABLE V.27.-SUMMARY OF QUANTITATIVE RESULTS 1
Trial std 1 Trial std 2 Trial std 3 Trial std 4 Trial std 5 Primary energy saved (quads)2

........................................... 1.5 2.9 3.4 4.2 8.6 Generation capacity offset (GW)3

.............................,.......... 6.5 10.6 12.4 15.5 28.8 NPV ($billion):. 7% Discount rate, roll-up

.............................................. 2 3 2 1 (10) 7% Discount rate, NAECA

............................................ 2 2 1 0 (10) 3% Discount rate, roll-up

.............................................. 7 11 11 11 (8) Cumulative emissions reductions through 2020: Carbon equivalent (Mt)3

............................................... 13.2 23.8 27.7 32.7 63.0 NOx (kt)3

....................................................................... 36.7 72.7 84.4 93.8 184.2 Cumulative change in INPV ($ million)4: Roll-up

........................................................................... (160) (313) (319) (303)



## ........................ NAECA

.......................................................................... (30) (159) (171) (169)



## ........................ Life cycle cost savings ($)5: SplitAC

......................................................................... Packaged AC

.....................................................,..,....... 75 113 113 78 163 163 113 (137) 29 (276) Split HP

......................................................................... Packaged HP

................................................................ 209 365 372 207 421 353 372 (41) 353 166 Payback (years)8: SplitAC

.............................................................,........... 7.8 9.8 9.8 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 12.8

1 Parentheses indicate negative ( - )values.

2 Energy savings based on Roll-up efficiency scenario.
3 Values based on NAECA efficiency scenario with the exception ofTSL 4 which is based on the Roll-up scenario. 4Not calculated at Trial Standard Level 5.
5 Negative values indicate LCC increases. 8Payback periods are median values.

In addition to the quantitativeresults,
we also consider otherburdens and benefits that affect economic justification. The potential to improve the reliability ofthe electricity system is the majorbenefit wehave not quantified explicitly. In areas where the occurrence ofblackouts (and brownouts) canbe reduced through expansion ofsystem capacity, the economic value ofavoided blackouts associated withreductions in peakload cannotexceed the value ofthe avoided capacity expansion. Thatvalue is already captured in ouranalysis as savings in consumerutility bills. However, in areas that do not expectto be able to maintain adequate capacity reserves, the value ofavoided blackouts associated with reductions in peak

21 All cumulative effects that are not monetary are not discounted. Monetary cffccts are discountedto 1998 dollars.

22For instance. ifcapaCity-related blackouts cost
a region $1 billion. society wouldbe willingto pay up to $1 billion to prevent them. Ifthoso blackouts demand can far exceed the normal costs ofcapacityexpansion. 22

We also recognize that the adopted standards could result in additional burdens. These include a possible increase in health problems causedby
consumers forgoing airconditioner purchases, a possible reduction in the ability oftheproductto dehumidify, a possible lessening ofcompetition, and possible difficulty in installing the new baseline products intoreplacement applications. However, wegenerally believethat theseburdens are capable of being mitigated at any standard level, except possibly Trial Standard Level 5. SectionIV discusses ourresponse to comments regarding benefits and burdens and explains ourviewpoints on those issues.

can be prevented through either a capacity expansion or a reduction in peak demand. andthe

new capacity would cost $100 million. the value of thereduction in peak demand can be no more than $100 million. Ifthe region is short on capacity and cannot add new capacity quickly. however. the First we considered Trial Standard Level 5, the maximum technologically achievable efficiency level for each of four classes, representinguniform 18 SEER requirements. The manufacturing cost we assume for Trial Standard Level 5 is equalto 15 SEER equipment, although we would expectthat assumptionto understatethe cost and price oftheproduct. Trial Standard Level 5 will likely save 8.6 quads of energy whichtheDepartmentconsiders significant. These savings willresult in the avoidance ofapproximately 29 GW ofinstalled generation capacity. For comparison, the generating capacity is equivalenttoroughly 75 large, 400 megawatt, powerplants,23 approximately 3.7 percentofcurrent installed generating capacity nationwide

s8fl1e reduction in peak demand then can equal the value ofthe avoided blackout ($1 billion) since there is no feasible alternativo.

2JDOE estimates 9 coal-fired powerplants and 66 gas-fired power plants canbe avoided. See TSD. Chapter 11 and AppendixH.

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and more than 13 percent ofthe to median payback periods between 6.4 burdens. Second, many comments anticipated growth in capacity needed and 8.4 years, respectively. Trial expressed concern that adopting heat by 2020. The emissions reductions are Standard Level 4 will lower peak pump standards that were more 63.0 Mt of carbon equivalent and 184.2 electricity demand compared to the base stringent than airconditioner standards kt ofNOx. case. That will allow utility service would encourage more consumers to

At Trial Standard Level 5, the average areas to either avoid new capacity or, to purchase electric resistance furnaces
consumer would experience an increase the extent that peak loads contribute to and air conditioners instead ofheat in LCC. Purchasers ofsplit central air- reliability problems, improve system pumps. In response to those comments, conditioners, the predominant class of reliability. The increase in national net we verified that the energy savings from central air conditioner with 65 percent present value is expected tobe $1 the more efficient heat pumps would be ofthe sales ofcentral air conditioners billion. The decrease in the net present eliminated if only a small fraction of and heat pumps, would lose on average value ofthe air conditioning and heat heat pump owners (4 percent) switched $137 over the life ofthe appliance. pump manufacturing industry is to resistance heating.That possibility Purchasers ofsplit heat pumps, the expected to be $300 million. provided added justification for predominant class ofheat pump, would After carefully considering the adopting the same minimum standards lose on average $41. Again, these results analysis, comments, and benefits versus for heat pumps as for air conditioners. do not include the additional price the burdens, the Department is amending Given our decision to adopt a 13
consumer would pay over the price of the energy conservation standards for SEER standard for both central air
a 15 SEER product, which would central air conditioners and central air conditioners and central air increase the life cycle cost considerably. conditioning heat pumps at Trial conditioning heat pumps, we believe Furthermore, for the nation as a whole, Standard Level 4. The Department further evaluation is needed before we Trial Standard Level 5 would result in concludes this standard saves a can issue final standards for air
a net cost of$10 billion in NPV. We did significant amount ofenergy and is conditioners or heat pumps that not calculate manufacturer impacts at technologically feasible and currently are intended to serve this trial standard level, determining economically justified. In determining applications with severe space based on preliminary evaluation that economic justification, the Department constraints, exemplified by what we they would be severe and unacceptable. finds that the benefits ofenergy savings, have referred to as "niche" products.

The Secretary concludes that at Trial the projected amount of avoided power Based on our preliminary assessment of Standard Level 5, the benefits ofenergy plant capacity or improvement in "highest viable efficiency levels" we savings, generating capacity reductions system reliability that accompanies identified for these products in the TSD and emission reductions would be expected reduction in peak demand, (Table 4.23), the comments stating that outweighed by the burdens ofnegative consumer life cycle cost savings, these products would have difficulty in economic impacts to the nation, to the national net present value increase and meeting the standards proposed in the vast majority ofconsumers and tothe emission reductions resulting from the proposed rule, andthe concerns manufacturers. Consequently, the standards outweigh the burdens. The expressed by the Department ofJustice, Secretary has concluded that Trial burdens include the loss of we have serious concerns about whether Standard Level 5, the Max Tech Level, manufacturer net present value, 13 SEER is an appropriate standard for is not economically justified. increases in consumer life cycle cost for most such products. On the other hand,

Next, we considered Trial Standard some users ofproducts covered by we are uncertain whether it would be Level 4. This level specifies 13 SEER today's final rule, any possible increase prudent for us to apply the standards equipment for all product classes. In in health problems caused by contained in the proposed rule to niche considering Trial Standard Level 4 the consumers forgoing air conditioner products in light ofthe 13 SEER Roll-up efficiency scenario and reverse purchases, any possible reduction in the standard we are adopting today for other engineering cost data are the ability ofthe product to dehumidify, products. Doing so may create a strong assumptions we consider to be the most any possible lessening ofcompetition, tendency for niche products, with lower probable as discussed in Part V.A, Trial and any possible difficulty in installing minimum efficiency standards than Standard Levels. Primary energy savings the new baseline products into conventional products, tobe applied in would likely be 4.2 quads which the replacement applications. conventional applications. Department considers significant. The In the proposed rule, we proposed to Therefore, today's final rule provides estimated reduction in installed adopt Trial Standard Level 3. The efficiency standards for all residential generating capacity is approximately 15 Department's decision to instead adopt central air conditioners andheat pumps, GW, and reduced emissions would the more stringent standards except the niche products. We are range upto 32.7 Mt ofcarbon equivalent represented by Trial Standard Level 4 referring to these products more and up to 93.8 kt ofNOx. was influenced by comments we generally as "space-constrained

The average air conditioner owner received during the intervening products", since they are specifically would save $113 over the life ofa split comment period. First, comments we intended for severely space-constrained air conditioner and $29 over the life of received regarding the prices and applications. We define them as having a packaged air conditioner. These markups applied to today's equipment the following characteristics: equate to median payback periods of persuaded us that the reverse (1)Rated cooling capacities no greater 11.3 years and 14.5 years, respectively. engineering cost data are much more than 30,000 BTU/hr Low income consumers of split air likely than the ARI Mean cost data to (2) An outdoor or indoor unithaving conditioners and splitheat pumps also represent the actual costs ofproducing at least two overall exterior dimensions incur LCC savings ($43 for split air equipment under more stringent or an overall displacement that: conditioner owners and $185 savings for standards. Placing more weight on the (a) are (is) substantially smaller than split heat pump owners). In addition, costs represented by the reverse those ofother units that are (i) currently the average heat pump owner would engineering data substantially improved usually installed in site-built single benefit, saving $372 over the life ofa the economic benefits to air conditioner family homes, and (ii) ofa similar split heat pump and $353 over the life owners, demonstrating that the benefits cooling, and, ifa heat pump, heating, ofa packaged heat pump. These equate ofTrial Standard Level 4 outweigh the capacity, and 

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and more than 13 percentofthe anticipated growth in capacity needed by 2020. The emissions reductions are 63.0 Mt ofcarbon equivalent and 184.2 kt ofNOx.

At Trial Standard Level 5, the average consumer would experience an increase in LCC. Purchasers ofsplit central airconditioners, the predominant class of central airconditionerwith 65 percent ofthe sales ofcentral air conditioners and heat pumps, would lose on average $137 over the life ofthe appliance. Purchasers ofsplitheatpumps,the predominant class ofheatpump, would lose on average $41. Again, these results do not includethe additional price the
consumer would pay over theprice of
a 15 SEER product, whichwould increase the life cycle cost considerably. Furthermore, for the nation as a whole, Trial Standard Level 5 wouldresultin
a net cost of$10billion inNPV. We did not calculate manufacturerimpacts at this trial standard level, determining based onpreliminaryevaluationthat theywould be severe and unacceptable.

The Secretary concludes that atTrial Standard Level 5, thebenefits ofenergy savings, generating capacityreductions and emissionreductions wouldbe outweighedby theburdens ofnegative economic impactsto thenation, tothe vast majority ofconsumers andto the manufacturers. Consequently, the Secretaryhas concluded thatTrial Standard Level 5, the Max Tech Level, is not economicallyjustified.

Next, we consideredTrial Standard Level 4. This level specifies 13 SEER equipment for all productclasses. In considering Trial StandardLevel 4 the Roll-up efficiency scenario andreverse engineering cost data are the assumptions we considertobethe most probable as discussed inPart V.A, 

### Trial StandardLevels. Primary energy savings would likely be 4.2 quads whichthe Department considers significant. The estimated reduction in installed generating capacity is approximately 15 GW, and reduced emissions would range upto 32.7 Mt ofcarbon equivalent and up to 93.8 kt ofNOx.

The average air conditionerowner would save $113 overthe life ofa split air conditioner and $29 overthelife of
a packaged air conditioner. These equate to median payback periods of 11.3 years and 14.5 years, respectively. Low income consumers ofsplit air conditioners and splitheatpumps also incurLCC savings ($43 for split air conditionerowners and $185 savings for splitheat pump owners). In addition, the average heat pump ownerwould benefit, saving $372 overthe life ofa splitheat pump and $353 over the life ofa packaged heatpump. These equate to medianpaybackperiodsbetween 6.4 and 8.4 years, respectively. Trial Standard Level 4 will lower peak electricity demand compared to thebase
case. Thatwill allow utility service
areas to eitheravoid new capacity or, to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national net present value is expected to be $1 billion. The decrease inthe netpresent value ofthe air conditioning andheat pumpmanufacturing industry is expected to be $300 million.

After carefully consideringthe analysis, comments, and benefits versus burdens, the Department is amending the energy conservation standards for central air conditioners and central air conditioningheat pumps atTrial Standard Level 4. The Department concludesthis standard saves a significant amount ofenergy and is technologically feasible and economicallyjustified. In determining economicjustification. the Department finds that thebenefits ofenergy savings. theprojected amount ofavoided power plantcapacity or improvement in systemreliability that accompanies expected reduction in peak demand,
consumer life cycle cost savings, national netpresentvalue increase and emissionreductions resulting from the standards outweightheburdens. The burdens includethe loss of manufacturer net presentvalue, increases inconsumer life cycle cost for
some users ofproducts covered by today's final rule, any possible increase inhealthproblems causedby
consumersforgoing air conditioner purchases, any possiblereductionin the ability oftheproductto dehumidify, anypossible lessening ofcompetition. and anypossible difficulty in installing the newbaselineproducts into replacement applications.

In theproposed rule, we proposed to adoptTrial Standard Level 3. The Department's decision to instead adopt the more stringent standards representedby Trial Standard Level 4
was influencedbycomments we received during the intervening comment period. First. commentswe received regarding the prices and markups applied to today's equipment persuaded us that the reverse engineering cost data are much more likely thanthe ARI Mean cost data to represent the actual costs ofproducing equipmentunder more stringent standards. Placing more weight on the costs representedbythereverse engineering data substantially improved the economicbenefits to airconditioner owners, demonstrating that thebenefits ofTrial Standard Level 4 outweigh the burdens. Second, many comments expressed concernthat adoptingheat pump standardsthat were more stringentthan airconditioner standards would encourage more consumers to purchaseelectricresistance furnaces and air conditioners instead ofheat pumps. In response to those comments, we verified that the energy savings from the more efficientheat pumpswouldbe eliminated ifonly a small fraction of heatpump owners (4 percent) switched to resistance heating. Thatpossibility provided addedjustification for adopting the same minimum standards for heatpumps as for air conditioners.

Given our decision to adopta 13 SEER standard for bothcentral air conditioners and central air conditioningheatpumps, webelieve further evaluation is neededbefore we can issue final standards for air conditioners orheatpumpsthat currently are intended to serve applications with severe space constraints, exemplifiedbywhatwe havereferredto as "niche"products. Based onourpreliminary assessmentof. "highestviable efficiency levels" we identified for theseproducts in

### theTSD (Table4.23). the comments stating that these products would have difficulty in meeting the standardsproposed inthe proposed rule, andthe concerns expressed by the DepartmentofJustice,
wehave serious concerns aboutwhether 13 SEER is an appropriate standard for most such products. On the otherhand,
we are uncertain whetherit wouldbe prudent for us to applythe standards contained intheproposedrule to niche products in light ofthe 13 SEER standard we are adoptingtoday for other products. Doing so may create a strong tendencyfor niche products, with lower minimum efficiency standardsthan conventional products. to be applied in conventional aRplications.

Therefore, today's final ruleprovides efficiency standards for all residential central air conditioners andheatpumps, except the niche products. We are referring to these products more generally as "space-constrained products", sincethey are specifically intended for severely space-constrained applications. We definethem as having the following characteristics:

(1) Rated cooling capacities no greater than 30,000 BTUIhr

(2) An outdoor orindoorunithaving at least two overall exterior dimensions
or an overall displacement that:

(a) are (is) substantially smallerthan those ofotherunits thatare (i) 

### currently usually installed in site-built single family homes, and (ii) ofa similar cooling, and, ifa heatpump,heating, capacity, and'1'' 

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(b) ifincreased, would certainly result (b)a description based on physical Environmental Quality (40 CFR Parts in a considerable increase in the cost of characteristics, manufacturing 1500-1508), and the Department's installation or would certainly result in characteristics, capacity, and regulations for compliance with NEPA
a significant loss in the utility ofthe performance attributes that would (10 CFR Part 1021). product to the consumer. distinguish it from other types of B. Review derExecutive Order12866

(3)Of a product type that was products, and which would beRegulatoy PlanningandReview" available for purchase in the United enforceable at the point ofmanufacture States as ofDecember 1, 2000. (c) a list ofmodels produced ofthat Today's regulatory action has been

Based on the information we have product type by the manufacturer, determined to be an "economically gathered thus far in this rulemaking, we containing for each model: Physical significant regulatory action" under believe space-constrained products dimensions, rated capacities, andrange Executive Order 12866, "Regulatory would include equipment described as: ofefficiency ratings available; Planning and Review." 58 FR 51735

* through-the-wall packaged and split (3) a statement of whether the number (October 4, 1993). Accordingly, today's * ductless split ofunits produced by the manufacturer action was subject to review under the * single package and non-weatherized was less than or greater than 100,000 Executive Order bythe Office of Small duct, high velocity equipment units in the year 2000; and Information and Regulatory Affairs is covered by today's standards. As (4) an estimate ofthe percentage of (OIRA) ofthe Office ofManagement and discussed in the proposed rule (65 FR units produced by the manufacturer that Budget. at 59609-10), DOE addressed the the manufacturer estimates are installed The draft submitted to OIRA and

concerns for that equipment by as replacements for similar units. other documents submitted to OIRA for modifying the test procedure to allow The Department encourages review have been made a part ofthe those products to be tested as coil-only companies that believe they rulemaking record and are available for equipment. Also, the standards in manufacture space-constrained products public review in the Department's today's rule will clearly apply to the to immediately submit this information, Freedom ofInformation Reading Room, types ofcentral air conditioners and without awaiting arequest from DOE, to 1000 Independence Avenue, SW, heat pumps normally installed in site- Ms. Geraldine Paige at the address Washington, DC 20585, between the built single family homes. indicated at the beginning ofthis notice. hours of9:00 a.m. and 4:00 p.m.,

The Department will re-open the We will make the information we Monday through Friday, telephone (202) comment period in this rulemaking to obtain publicly available (excluding 586-3142. address standards for space-constrained confidential information) through a The proposed rule contained a products, and plans to publish a final Federal Register notice. A comment summary ofthe Regulatory Analysis rule in the Federal Register no later period will follow during which time which focused on the major alternatives than eighteen (18) months from the date the public will have an opportunity to considered in arriving at the approach ofpublication oftoday's rule. The rule review the published information and to improving the energy efficiency of covering space-constrained products respond to the Department. Following consumer products. The reader is will establish new product classes, to the close ofthe comment period, we referred to the complete draft the extent necessary, and minimum will issue in the Federal Register our "Regulatory Impact Analysis," which is efficiency standards for these products. determination ofwhich ofthe published contained in the TSD, available as It will also contain an assessment of products webelieve are space- indicated at the beginning ofthis notice. technical feasibility and economic constrained products and which we It consists of: (1) A statement ofthe justification in accordance with the believe are not. We expect these steps to problem addressed bythis regulation, requirements ofthe Act. The proceed simultaneously with the other and the mandate for government action; Department intends to make the rule for activities to set standards for such (2) a description and analysis ofthe space-constrained products effective on products. feasible policy alternatives to this Department intends to make the rule for feasible policy alternatives to this regulation; (3) a quantitative comparison January 23, 2006. VI. Procedural Issues and Regulatory ofthe impacts ofthe alternatives; and

Before reopening the comment period, Review(4) the national economic impacts ofthe we will initially identify those product proposed standard. types we believe should be treated as A. Review UndertheNational space-constrained products, and will Environmental Policy Act C.Review Underthe Regulatory begin to assess the impact of a The Department prepared an Flexibility Act rulemaking for these products on small Environmental Assessment (EA) (DOE/ The Regulatory Flexibility Act, 5 businesses. To aid in this process, we EA-1352) available from: U.S. U.S.C. 601 etseq., requires an will seek shortly the following Department ofEnergy, Office ofEnergy assessment ofthe impact ofregulations information from each manufacturer of Efficiency and Renewable Energy, on small businesses. To be categorized those products that we believe may Forrestal Building, Mail Station EE-41, as a "small" air conditioning and warm meet the definition ofspace-constrained 1000 Independence Avenue, SW, air heating equipment manufacturer, a products: Washington, DC 20585-0121, (202) 586- firm must employ no more than 750

(1) the number of employees 0854. We found the environmental employees. employed by the company as of effects associated with various standard The Department prepared a December 31, 2000 (to assist us in efficiency levels for central air manufacturing impact analysis which determining whether we should conditioners and heat pumps tobe not was made public and available to all consider the company to be a small significant, and therefore we are residential central airconditioner and business entity); publishing, elsewhere in this issue of heat pump manufacturers. Other

(2) a list ofproposed space- the Federal Register, a Finding ofNo impacts on small businesses were constrained products, providing for Significant Impact (FONSI) pursuant to previously discussed in the proposed each type ofproduct: the National Environmental Policy Act rule. 65 FR 59590, 59629-30 (October 5,

(a) a description ofits intended of 1969 (NEPA), 42 U.S.C. 4321 et seq., 2000). The Department reaffirms its applications the regulations ofthe Council of certification in the proposed rule. 

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(b) 

### ifincreased, would certainlyresult in a considerable increase inthe cost of installation or would certainly result in
a significant loss in the utility ofthe productto the consumer.

(3) Ofa product type that was available for purchase inthe United States as ofDecember 1, 2000.

Based onthe information wehave gathered thus far in this rulemaking, we believe space-constrained products would include equipment described as:

• through-the-wall packaged and split
• ductless split
• single package and non-weatherized Small duct, high velocity equipment is coveredbytoday's standards. As discussed in the proposed rule (65 FR at 59609-10). DOE addressed the
concerns for that equipmentby modifying the test procedure to allow those products to betested as coil-only equipment. Also, the standards in today's rule will clearly apply to the types ofcentral air conditioners and heatpumps normally installed in sitebuilt single family homes.

TheDepartment will re-open the commentperiod inthis rulemaking to address standards for space-constrained products, andplans to publish a final rule inthe Federal Registerno later than eighteen (18) months from the date ofpublication oftoday's rule. The rule covering space-constrained products will establish new product classes, to the extentnecessary. and minimum efficiency standards for these products. It

### will also contain an assessment of technical feasibility and economic justification in accordance with the requirements ofthe Act. The Department intends to make therule for space-constrained products effective on January 23. 2006.



### Beforereopening the commentperiod,
we will initially identifythose product types we believe should be treated as space-constrained products, and will begin to assess the impact ofa rulemaking for these products on small businesses. To aid in this process, we will seek shortly the following information from each manufacturer of those products that we believe may meetthe definition ofspace-constrained products:

(1) the number ofemployees employed by the company as of December 31, 2000 (to assist us in determining whether we should considerthe companyto be a small business entity);

(2) a list ofproposed spaceconstrained products. providing for eachtype ofproduct:

(a) a description ofits intended applications (b) a descriptionbased onphysical characteristics, manufacturing characteristics, capacity, and performance attributes that would distinguish it from othertypes of products, and which wouldbe enforceable at thepoint ofmanufacture

(c) a list ofmodels produced ofthat producttype by the manufacturer, containingfor each model: Physical dimensions, rated capacities, andrange ofefficiency ratings available;

(3) a statement ofwhetherthe number ofunitsproduced bythe manufacturer
was less than orgreater than 100,000 units inthe year 2000; and

(4) an estimate ofthepercentage of unitsproducedby the manufacturer that the manufacturer estimates are installed
as replacements for similarunits.

The Departmentencourages companiesthatbelieve they manufacture space-constrained products to immediately submitthis information, without awaiting a request from DOE, to Ms. Geraldine Paige at the address indicated at thebeginning ofthis notice.

We will make the information we obtain publicly available (excluding confidential information) through a FederalRegisternotice. A comment period will follow during whichtime thepublicwill have an opportunityto reviewthepublished information and respond to the Department. Following the close ofthe commentperiod, we will issue intheFederalRegister our determination ofwhich ofthepublished products webelieve are spaceconstrained products and which we believe are not. We expectthese steps to proceed simultaneouslywith the other activities to set standards for such products. VI. Procedural Issues andRegulatory Review A.

### Review Under theNational EnvironmentalPolicyAct

The Departmentprepared an Environmental Assessment (EA) (DOE/ EA-1352) available from: U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 IndependenceAvenue, SW, Washington, DC 20585-0121, (202) 586- 0854. We found the environmental effects associated with various standard eftlciency levels for central air conditioners and heatpumpsto benot significant, and therefore we are publishing, elsewhere inthis issue of the Federal Register, a FindingofNo Significant Impact (FONSI) pursuantto the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 

### et seq., theregulations ofthe Council of Environmental Quality (40 CFR Parts 1500--1508). and the Department's regulations for compliance with NEPA (10 CFR Part 1021). 

### B. Review UnderExecutive Order 12866, "RegulatoryPlanning andReview"

Today's regulatory action hasbeen determined to be an "economically significant regulatory action" under Executive Order 12866, "Regulatory Planning and Review." 58 FR 51735 (October 4,1993). Accordingly, today's action was subject to reviewunderthe Executive Orderby the Office of Information and Regulatory Affairs (OIRA) ofthe Office ofManagementand Budget.

The draft submitted to OIRA and other documents submittedto OIRA for review have been made a part ofthe rulemaking record and are available for publicreview in the Department's Freedom ofInformation ReadingRoom, 1000 IndependenceAvenue, SW, Washington, DC 20585, betweenthe hours of9:00 a.m. and 4:00 p.m., Monday through Friday, telephone (202) 586-3142.

Theproposed rule contained a summary ofthe RegulatoryAnalysis which focused onthe major alternatives considered in arriving atthe approach to improvingthe energy efficiency of
consumer products. The reader is referred to the complete draft "Regulatory Impact Analysis," which is contained in the TSD, available as indicated at thebeginning ofthis notice. It

### consists of: (1) A statementofthe problem addressedbythisregulation, and the mandate for government action; (2) a description and analysis ofthe feasible policy alternatives to this regulation; (3) a quantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts ofthe proposed standard. C. 

### Review Under theRegulatory FlexibilityAct

The Regulatory Flexibility Act, 5 U.S.C. 601 

### etseq., requires an assessment ofthe impact ofregulations
on small businesses. Tobe categorized
as a "small" air conditioning and warm air heating equipment manufacturer, a firm must employ no more than 750 employees.

The Departmentprepared a manufacturing impact analysis which
was made public and available to all residential central air conditionerand heat pump manufacturers. Other impacts on small businesses were previously discussed intheproposed rule. 65 FR 59590, 59629-30 (October 5, 2000). The Departmentreaffirms its certification in the proposed rule.

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7198 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

Today's rule will nothave a significant the extent permitted by law, the final proposed significant intergovernmental impact on a substantial number of small regulations meet the relevant standards. mandate. The Department's consultation entities, and preparation of a regulatory

. Takings"AssessmentReview process is described in a notice flexibility analysis is unnecessary. published in the Federal Register on

Most small businesses engaged in the DOE has determined pursuant to March 18, 1997 (62 FR 12820). Today's manufacture of central air conditioners Executive Order 12630, "Governmental final rule may impose expenditures of and heat pumps produce products that Actions and Interference with $100 million or more on the private

we have called "niche" products. To Constitutionally Protected Property sector. It does not contain a Federal address the concerns ofthe Department Rights," 52 FR 8859 (March 18, 1988), intergovernmental mandate. ofJustice and many commenters that this regulation would not result in Section 202 ofUMRA authorizes an regarding the impacts ofmore stringent any takings that mightrequire agency to respond to the content standards on small manufacturers, we compensation under the Fifth requirements ofUMRA in any other
are continuing our evaluation ofw Amendment to the United States statement or analysis that accompanies are continuing our evaluation of Constitution. thate proposed rule. 2 U.S.C. 1532(c). The standards forthose products and have Consttutonthe proposed rule. 2 U.S.C. 1532(c). The not issued new standards for them as G. Review UnderExecutive Order13132 content requirements of section 202(b) part ofthis rule. E t O 13132 (6of UMRA relevant to a private sector Executive Order 13132 (64 FR 43255, mandate substantially overlap the D. Review Under the Paperwork August 4, 1999) imposes certain economic analysis requirements that ReductionAct requirements on agencies formulating apply under section 325(o) ofEPCA and and implementing policies or Executive Order 12866. The No new information or record keeping regulations that preempt State law or Supplementary Information section of requirements are imposed by this that have federalism implications. the Notice of Final Rulemaking and rulemaking. Accordingly, no Office of Agencies are required to examine the "Regulatory Impact Analysis" section of Management and Budget clearance is constitutional and statutory authority the TSD for this Final Rule responds to required under the Paperwork supporting any action that would limit those requirements. Reduction Act. 44 U.S.C. 3501 et seq. the policymaking discretion ofthe Under section 205 ofUMRA, the E.Review UnderExecutive Order12988, States and carefully assess the necessity Department is obligated to identify and "CivilJusticeReform" for such actions. Agencies also must consider a reasonable number of have an accountable process to ensure regulatory alternatives before With respect to the review ofexisting meaningful and timely input by State promulgating a rule for which a written regulations and the promulgation of and local officials in the development of statement under section 202 isrequired. new regulations, Section 3(a) of regulatory policies that have federalism DOE is required to select from those Executive Order 12988, "Civil Justice implications. DOE published its alternatives the most cost-effective and Reform," 61 FR 4729 (February 7, 1996), intergovernmental consultation policy least burdensome alternative that imposes on Executive agencies the on March 14, 2000. 65 FR 13735. DOE achieves the objectives ofthe rule general duty to adhere to the following has examined today's final rule andhas unless DOE publishes an explanation requirements: (1)Eliminate drafting determined that it would nothave a for doing otherwise or the selection of errors and ambiguity; (2)write substantial direct effect on the States, on such an alternative is inconsistent with regulations to minimize litigation; and the relationship between the national law. As required by section 325(o) ofthe (3) provide a clear legal standard for government and the States, or on the Energy Policy and Conservation Act (42 affected conduct rather than a general distribution ofpower and U.S.C. 6295(o)), today's final rule standard and promote simplification responsibilities among thevarious establishes energy conservation and burden reduction. With regard to levels ofgovernment. State regulations standards for central air conditioners thereview required by section 3(a), that mayhave existed on theproducts and heat pumps that are designed to section 3(b) ofExecutive Order 12988 that are the subject oftoday's final rule achieve the maximum improvement in specifically requires that Executive were preempted bythe Federal energy efficiency that DOE has agencies make every reasonable effort to standards established in NAECA. States determined tobe both technologically ensure that the regulation: (1) clearly can petition the Department for feasible and economically justified. A specifies the preemptive effect, ifany; exemption from such preemption to the full discussion ofthe alternatives (2) clearly specifies any effect on extent, andbased on criteria, set forth in considered by DOE ispresented in the existing Federal law or regulation; (3) EPCA. "Regulatory Impact Analysis" section of provides a clear legal standard for the TSD fortoday's final rule. affected conduct while promoting H. Review Underthe Unfunded simplification and burden reduction; (4) Mandates Reform Act I.Review Underthe Treasuryand specifies the retroactive effect, ifany; (5) With respect to a proposed regulatory General GovernmentAppropriations adequately defines key terms; and (6) action that may result in the Act of1999 addresses other important issues expenditure by State, local and tribal Section 654 ofthe Treasury and affecting clarity and general governments, in the aggregate, or by the General Government Appropriations draftsmanship under any guidelines private sector of $100 million or more Act, 1999 (Pub. L. No. 105-277) requires issuedby the Attorney General. Section (adjusted annually for inflation), section Federal agencies to issue a Family 3(c) ofExecutive Order 12988 requires 202 ofthe Unfunded Mandates Reform Policymaking Assessment for any Executive agencies toreview regulations Act of 1995 (UMRA) requires a Federal proposed rule or policy that may affect in light of applicable standards in agency to publish estimates ofthe family well-being. Today's final rule section 3(a) and section 3(b) to resulting costs, benefits and other effects would not have any impact on the determine whether they are met or it is on the national economy. 2 U.S.C. autonomy or integrity ofthe family as unreasonable to meet one or more of 1532(a), (b). UMRA also requires each an institution. Accordingly, DOE has them. DOE reviewed today's final rule Federal agency to develop an effective concluded that it is not necessary to under the standards of section 3 ofthe process to permit timely input by state, prepare a Family Policymaking Executive Order and determined that, to local, and tribal governments on a Assessment. 

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7198 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

Today'srule will not have a significant impact on a substantial number ofsmall entities, and preparation ofa regulatory flexibility analysis is unnecessary.

Most small businesses engaged inthe manufacture ofcentral airconditioners andheatpumpsproduce products that
wehave called "niche"products. To address the concerns oftheDepartment ofJustice and many commenters regardingthe impacts ofmore stringent standards on small manufacturers, we are continuing ourevaluation of standards for those products and have not issued new standards for them as part ofthisrule. 

### D. Review Under the Paperwork ReductionAct

No newinformation or record keeping requirements are imposed by this rulemaking. Accordingly, no Office of Management and Budget clearance is required underthe Paperwork Reduction Act. 44 U.S.c. 3501 et seq. 

### E. Review UnderExecutive Order 12988, "CivilJustice Reform"

Withrespectto thereview ofexisting regulations andthepromulgation of
newregulations, Section 3(a) of Executive Order 12966, "Civil Justice Reform," 61 FR 4729 (February 7, 1996), imposes onExecutive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting
errors and ambiguity; (2) write regulations to minimizelitigation; and (3) provide a clear legal standard for affected conductrather than a general standard and promote simplification andburdenreduction. With regard to thereviewrequired by section 3(a), section 3(b) ofExecutive Order 12966 specificallyrequires thatExecutive agencies make every reasonable effort to ensurethatthe regulation: (1) clearly specifies the preemptive effect, ifany; (2) clearly specifies any effect on existing Federal law orregulation; (3) provides a clearlegal standard for affected conduct while promoting simplification andburden reduction; (4) specifies theretroactive effect, ifany; (5) adequately defines key terms; and (6) addresses otherimportantissues affecting clarity and general draftsmanship under anyguidelines issuedbythe Attorney General. Section 3(c) ofExecutive Order 12966 requires Executive agencies to review regulations inlight ofapplicable standards in section 3(a) and section 3(b) to determine whetherthey are met orit is unreasonable to meet one or more of them. DOE reviewed today's final rule underthe standards ofsection 3 ofthe Executive Order and determined that, to the extent permittedby law, the fimd regulations meet therelevant standards. 

### F. "Takings"AssessmentReview

DOE has determined pursuantto Executive Order 12630, "Governmental Actions and Interference with Constitutionally Protected Property Rights," 52 FR 6659 (March 16, 1966), that thisregulation would notresult in any takings that might require compensationunderthe Fifth Amendmenttothe United States Constitution. G. 

### Review UnderExecutive Order 13132

Executive Order 13132 (64 FR 43255, August 4,1999) imposes certain requirements on agencies formulating and implementingpolicies or regulations that preempt State law or thathave federalism implications. Agencies are required to examinethe constitutional and statutory authority supporting any action that would limit thepolicymaking discretion ofthe States and carefully assess the necessity for such actions. Agencies also must have an accountable process to ensure meaningful and timely inputby State and local officials inthe development of regulatory policies thathave federalism implications. DOE published its intergovernmental consultationpolicy
on March 14, 2000. 65 FR 13735. DOE has examined today's final rule andhas determined that it would nothavea substantial direct effect onthe States, on therelationship betweenthe national government and the States, or onthe distribution ofpower and responsibilities amongthevarious levels ofgovernment. Stateregulations that mayhave existed ontheproducts that are the subject oftoday's final rule
were preempted bytheFederal standards established inNAECA. States
can petitionthe Department for exemption from such preemptiontothe extent, andbased on criteria, setforth in EPCA. 

### H. 

### Review Under the Unfunded Mandates ReformAct

With respect to a proposed regulatory action that may result inthe expenditureby State, local andtribal governments, in the aggregate, orbythe private sector of$100 million ormore (adjusted annuallyfor inflation), section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency to publishestimates ofthe resulting costs, benefits and othereffects
onthe national economy. 2 U.S.C. 1532(a), (b). UMRA also requires each Federal agency to develop an effective process to permit timely inputby state, local, and tribal governments on a proposed significant intergovernmental mandate. The Department's consultation process is described in a notice published in the Federal Register on March 16, 1997 (62 FR 12620). Today's final rule may impose expenditures of $100 million or more onthe private sector. It

### does not contain a Federal intergovernmental mandate.

Section 202 ofUMRA authorizes an agency to respond to the content requirements ofUMRA in any other statementor analysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The contentrequirements ofsection 202(b) ofUMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that applyunder section 325(0) ofEPCA and Executive Order 12666. The Supplementary Information section of the Notice ofFinal Rulemaking and "Regulatory Impact Analysis" section of theTSD for this Final Rule responds to those requirements.

Under section 205 ofUMRA, the Department is obligated to identify and consider a reasonable number of regulatory alternatives before promulgating a rule for which a written statementunder section 202 isrequired. DOE isrequired to select from those alternatives the most cost-effective and leastburdensome alternative that achieves the objectives ofthe rule unless DOE publishes an explanation for doing otherwise or the selection of such an alternative is inconsistent with law. As required by section 325(0) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(0)), today's final rule establishes energy conservation standards for central air conditioners and heatpumpsthat are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economicallyjustified. A full discussion ofthe alternatives consideredby DOE is presented inthe "RegulatoryImpact Analysis" section of theTSD for today's final rule.
l. 

### Review Under the Treasuryand General GovernmentAppropriations Actof1999



### Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. L. 

### No. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule orpolicythat may affect family well-being. Today's final rule would not have any impact onthe autonomy or integrity ofthe family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

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### I.Review Underthe PlainLanguage §430.2 Definitions. Heating Seasonal seasona Directives * * * *seasonal

Section 1(b)(12) of Executive Order Spaceconstrained productmeans a Product class effcency perform12866 requires that each agency draft its central air conditioner or heat pump: ratio tor regulations to be simple and easy to () That has rated cooling capacities (SEER) (HSPF) no greater than 30,000 BTU/hr; understand, with the goal of minimizing (2) That has an outdoor or indoor unit (ii)Split system heat the potential for uncertainty and having at least two overall exterior pumps

................... 13 7.7 litigation arising from such uncertainty, dimensions or an overall displacement (iii) Single package Similarly, the Presidential that: air conditioners

...... 13

................ memorandum ofJune 1, 1998 (63 FR (i) Are (is) substantially smaller than (iv)Single package 31883) directs the heads of executive those of other units that are (i) currently heat pumps

........... 13 7.7 departments and agencies to use plain usually installed in site-built single (v)Space constrained language in all proposed and final family homes, and (ii) of a similar products

................ (reserved] [reserved] rulemaking documents published in the cooling, and, ifa heat pump, heating, * * * * * Federal Register. capacity, and

Today's rule uses the following (ii)Ifincreased, would certainly result Appendix general techniques to abide by Section in a considerable increase in the usual [The following letter from the Department 1(b)(12) ofExecutive Order 12866 and cost ofinstallation or would certainly of ustice will not appear in theCode of the Presidential memorandum ofJune 1, result in a significant loss in the utility Federal Regulations.] 1998: ofthe product to the consumer; and

* Organization ofthe material to (3)Of a product type that wasDEPARTMENT OF JUSTICE,
serve the needs ofthe readers available for purchase in the United Antitrust Division, Main Justice Building, (stakeholders); States as ofDecember 1, 2000. 950 Pennsylvania Avenue NW., 

### *Use of common, everyday words in * * * * *Washington, DC 20530-0001, (202) 514- 2401/(202) 616-2645 (f), short sentences; and 3. Section 430.32 ofSubpart C is antitrust@justice.usdoj.gov (internet),

* Shorter sentences and sections. amended by revising paragraph (c) to http://www.usdoj.gov (World Wide Web). read as follows: December 4, 2000. K. CongressionalNotification Mary Anne Sullivan, General Counsel, As required by 5 U.S.C. 801, DOE will §430.32 Energy andwater conservation Department ofEnergy, Washington, DC submit to Congress a reportregarding standards andeffective dates. 20585. the issuance oftoday's final rule prior Dear General Counsel Sullivan: to the effective date set forth at the (c) Centralairconditionersand Iam responding to your October 16, 2000 outset ofthis notice. DOE also will centralairconditioning heatpumps. (1) letter seeking the views of the Attorney submit the supporting analyses tothe Split system central air conditioners and General about the potential impact on Comptroller General (GAO) and make central airconditioning heat pumps competition oftwo proposed energy efficiency standards: one forclothes washers them available to each House of manufactured after January 1, 1992, and efficiecy standards: one forclothes washers and the other forresidential central air Congress. The report will statethat it before January 23, 2006, and single conditioners and heat pumps. Your request has been determined that the rule is a package central air conditioners and was submitted pursuant to Section "major rule" as defined by 5 U.S.C. central airconditioning heat pumps 325(o)(2)(B)(i) ofthe Energy Policy and 804(2). manufactured after January 1, 1993, and Conservation Act, 42 U.S.C. §6291, 6295 before January 23, 2006, shall have ("EPCA"), which requires the Attorney List ofSubjects in 10 CFRPart430 Seasonal Energy Efficiency Ratio and General to make a determination of the

Adrministrative practice and Heating Seasonal Performance Factor no impact ofany lessening ofcompetition that

eAdministrativenergacn ation less than: is likely to result from the imposition of procedure, Energy conservation,le uidn^_________________

_ _proposed energy efficiency standards. The Household appliances. Attorney General's responsibility for

Issued in Washington, DC, onJanuary 16, 

### Seasonal Heatisonal spodingto requests om other 2001. Product class energy seasonal responding to requests from other 2001. Product class r"e'9f perform- departments about the effect ofa program on Dan W. Reicher ratficiency ance fac- competition has been delegated to the tor Assistant Attorney General for the Antitrust AssistantSecretary,EnergyEfficiencyand Division in 28 CFR §0.40(g). RenewableEnergy. (i)Split systems

........ 10.0 6.8 We havereviewed the proposed standards

For the reasons set forth in the (ii)Single package and the supplementary information preamble, Part 430 of Chapter II ofTitle systems

................. 9.7 6.6 published in the Federal Register notices and preamble, Pat 430dofl Chalpt;eroofs i tlsubmitted tothe Attorney General, which 10, Code ofFederal Regulations is (2) Central air conditioners and include information provided to the amended, as set forth below. central air conditioning heat pumps Department ofEnergy by manufacturers. We PART 430-ENERGY CONSERVATION manufactured on or after January 23, have additionally conducted interviews with PROGRAM FOR CONSUMER 2006, shall have Seasonal Energy members ofthe industries. PUCTS Efficiency Ratio and Heating Seasonal We have concluded thatthe proposed PRODUCTSPerformance Factor no less than:clothes washer standard would not adversely affect competition. In reaching this 1. The authority citation for Part 430 conclusion, we note that the proposed continues to read as follows: Seasonal Heating standard is based on ajoint recommendation

Authority:42 U.S.C. 6291-6309; 28 U.S.C. energy perform- submitted to theDepartment ofEnergy by 2461 note. Product class efficiency per fac- manufacturers and energy conservation ratio a tor advocates. That recommendation states that 2. Section 430.2 is amended by (SEER) (HSPF) virtually all manufacturers ofclothes washers adding a definition for "space- who sell in the United States participated in constrained products" in alphabetical (i)Split system air arriving at the recommendation through their order to read as follows: conditioners

........... 13

................ trade association, that the recommendation i - 

# '.**~** Federal Register/Vol. 66, No. l4/Monday, January 22, 200l/Rules and Regulations 

### 7199

,.Review Under the Plain Language Directives

Section 1(b)(12) ofExecutive Order 12866requires that each agency draft its regulations tobe simple and easy to understand, with the goal ofminimizing the potential for uncertainty and litigation arising from such uncertainty. Similarly, the Presidential memorandum ofJune I, 1998 (63 FR 31883) directs the heads ofexecutive departments and agencies to use plain language in all proposed and final rulemaking documents published in the FederalRegister.

Today'srule uses the following general techniques to abide by Section 1(b)(12) ofExecutive Order 12866 and the Presidential memorandum ofJune I, 1998:

• Organization ofthe material to
servethe needs ofthe readers (stakeholders);

• Use ofcommon, everyday words in short sentences; and

• Shorter sentences and sections. K. 

### CongressionalNotification

As required by 5 U.S.C. 801,DOE will submitto Congress a reportregarding the issuance oftoday's final rule prior to the effective date setforth atthe outset ofthis notice. DOE also will submitthe supportinganalyses to the ComptrollerGeneral (GAO) and make them available to each House of Congress. Thereport will statethat it hasbeen determined that the rule is a "majorrule" as definedby 5 U.S.C. 804(2). List ofSubjects in 10CFRPart430

Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, DC, on January 16, 2001. Dan W. Reicher, AssistantSecretary. EnergyEfficiencyand RenewableEnergy.

Forthereasons set forth in the preamble,Part 430 ofChapterII ofTitle 10, Code ofFederal Regulations is amended, as set forth below.
PART 43O-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 amendedby adding a definition for "spaceconstrained products" in alphabetical orderto read as follows: §430.2 Definitions. 

### * * * 

### Space constrainedproductmeans a central airconditioner orheat pump:

(1) That has rated coolingcapacities
no greaterthan 30,000 BTU/hr;

(2) Thathas an outdoor orindoorunit having at leasttwo overall exterior dimensions or an overall displacement that:

(i) Are (is) substantially smallerthan those ofotherunits that are (i) currently usually installed in site-built single family homes, and (ii) ofa similar cooling, and, ifa heat pump.heating. capacity. and

(ii) lfincreased. would certainlyresult in n considerable increase in the usual cost ofinstallation or would certainly result in a significant loss in theutility ofthe productto the consumer; and

(3) Ofa producttype that

### was available for purchase in the United States as ofDecember 1. 2000. 

### * * * 

### * *

3. Section 430.32 ofSubpartC is amendedbyrevising paragraph (c) to read as follows: §430.32 Energy and water conservation standards and effective dates. 

### * * 

### * *

(e) 

### Central airconditioners and centralair conditioningheatpumps. (1) Split system central air conditioners and central airconditioningheat pumps manufactured afterJanuary 1. 1992. and before January 23, 2006. and single package central airconditioners and central airconditioningheat pumps manufactured after January 1. 1993. and before January 23. 2006, shallhave Seasonal Energy EfficiencyRatio and Heating Seasonal Performance Factorno less than:

Product class

(i) Split systems

........ (ii) Single package

systems

................. Seasonal energy effiCiency

ratio

10.0

9.7 Heating seasonalperformance factor

6.8

6.6 (2) Central air conditioners and central air conditioningheat pumps manufactured on or afterJanuary 23. 2006. shall have Seasonal Energy Efficiency Ratio and Heating Seasonal PerformanceFactor no less than:

Product class

(i) Split system air

conditioners

........... Seasonal energy efficiency

ratio (SEER) Heating seasonalperformance fac-

. tor (HSPF)

13

................ Seasonal Heating seasonal energy perform- Product class efficiency ance lac- ratio tor (SEER) (HSPF)
(ii) Split system heat

pumps

................... 13 7.7 (iii) Single package

air conditioners

...... 13



### ................ (iv) Single package

heat pumps

........... 13 7.7 (v) Space constrained

products



## ................ [reserved) [reserved)


### * * * * * Appendix

[The following letterfrom the Department ofJustice will not appear in the Code of Federal Regulations.)

. DEPARTMENT OF JUSTICE. AntitrustDivision. Main Justice Building.

950 Pennsylvania Avenue NW

.. Washington. DC 20530-0001. (202) 514- 2401/(202) 616-2645 (0. antitrust@justice.usdoj.gov (internet). http;llwww.usdoj.gov (World Wide Web). December 4. 2000. Mary Anne Sullivan. General Counsel.

Department ofEnergy. Washington. DC 20585. Dear General Counsel Sullivan:

I am responding to your October 16, 2000 letter seeking the views ofthe Attorney General about the potential impact on competition oftwo proposed energy efficiency standards; one for clothes washers andthe other for residential central air conditioners and heat pumps. Your request was submitted pursuant to Section 325(0j(2j(Bj(i) ofthe Energy Policy and Conservation Act. 42 U.S.C. §6291.6295 ("EPCA"), which requires the Attorney General to make a determination ofthe impact ofany lessening ofcompetition that is likely to result from the imposition of proposed energy efficiency standards. The Attorney General's responsibility for responding to requests from other departments about the effect ofaprogram on competition hasbeen delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR §0.40(g).

We have reviewed the proposed standards and the supplementary information published in the Federal Register notices and submitted to the Attorney General. which include information provided to the Department ofEnergy by manufacturers. We have additionally conducted interviews with members ofthe industries.

We have concluded that the proposed clothes washer standard would not adversely affect competition. In reaching this conclusion, we note that the proposed standard is based on ajointrecommendation submitted to the Department ofEnergy by manufacturers and energy conservation advocates. That recommendation states that virtually all manufacturers ofclothes washers who sell in the United States partiCipated in arriving at the recommendation through their trade association, that the recommendation

## , by;·~~ i/'

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7200 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

was developed in consultation with small change from the current central air Third, the proposed heat pump standard of manufacturers, and that the manufacturers conditioner and heat pump efficiency 13 SEER could make heat pumps less believe the new standard would not likely standards of 10 SEER/6.8 HSPF for split competitive with alternative heating and reduce competition. We note further that, as system air conditioners and heat pumps and cooling systems. Because the standard will the industry recommended, the proposed 9.7 SEER/6.6 HPSF for single package air result in increases in the size and cost of heat standard will be phased in over six years, conditioners and heat pumps to 12 SEER for which will allow companies that do not air conditioners and 13 SEER/7.7 HPSF for pumps, it is possible that purchasers will already have products that meet the proposed heatpumps. shift away from heat pumps toother systems standard sufficient time to redesign their We have identified three possible that include electric resistance heat, reducing product lines. competitive problems presented by the the competition that presently exists between

With respect to the proposed residential proposed standards. First, the proposed 13 heat pumps and those other systems. central air conditioner and heat pump SEER heat pump standard would have a The Department ofJustice urges the standard, we have concluded that there could disproportionate impact on smaller Department ofEnergy to take into account be an adverse impact on competition. The manufacturers. Currently less than 20% of these possible impacts on competition in proposed standard, Trial Standard Level 3, is the total current product lines meet the determining its final energy efficiency expressed in terms of two industry proposed standards, but for some small standard for air conditioners and heat measurements: SEER (Seasonal Energy manufacturers, 100% oftheir product lines Efficiency Ratio) and HSPF (Heating Seasonal fail to satisfy the proposed standard. pumps. The Department ofEnergy should Performance Factor).' These standards would Second, the proposed standard forheat consider setting a lower SEER standard for pumps, and in some instances for air heat pumps, such as the standard included ' The Federal Register notice alsorequested conditioners, would have an adverse impact in Trial Standard Level 2, and a lower SEER comments on aproposal to adopt astandard for on some manufacturers of these products standard for air conditioners for retrofit steady-state cooling efficiency (EER) and discussed (including those products referred to in the markets where there are space constraints several options the Department ofEnergy is Federal Register notice as "niche products") (such as markets served by niche products) considering. The proposed rule set forth in the used to retrofit existing housing and used in and formanufactured housing. notice does not, however, include a provision manufactured housing. These manufacturers regarding an EER standard, and the viewsofthe could not make units that comply with the Sincerely, Department ofJustice expressed in this letter are uld l A n l ela limited tothe impact ofany lessening of rule and fit into the available space. A. Douglas Melamed, -competition * * *that is likely toresult from the ActingAssistant Attorney General. imposition ofthe Iproposed] standard, "as required the Department will then evaluate that proposed F c 0-1 il

-- by EPCA. Ifthe Department ofEnergy proposes a rule and express its views about the competitive . - le 1-1-1 11: am rule in the future incorporating anEER standard, impact ofthat standard. ILLUNG CODE 6450-01-P ,; 

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7200 Federal Register/Vol. 66, No. 14/Monday, January 22, 2001/Rules and Regulations

was developed in consultation with small manufacturers, and that the manufacturers believe the new standard would not likely reduce competition. We note further that, as the industryrecommended, the proposed standard will bephased in over six years, which will allow companies that do not alreadyhave products that meet the proposed standard sufficient time to redesign their productlines.

With respectto the proposed residential central airconditioner and heat pump standard, we have concludedthat there could be an adverse impact on competition. The proposed standard,Trial Standard Level 3, is expressed in terms oftwo industry measurements: SEER (Seasonal Energy EfficiencyRatio) and HSPF (Heating Seasonal Performance Factor).' These standards would

1The Federal Register notice alsorequested comments on a proposal to adopt a standardfor steady-statecooling efficiency (EER) and discussod soveral options tho Department ofEnergy is considering. Tho proposed rule set forth in the notice does not. however. includo a provision rogarding an EER standard, and the views ofthe Department ofJustice expressed in this letter are limited to the impact ofany lessening of

- competition' • • that is likely to result from the

imposition ofthe [proposed) standard,

.. asrequired by EPCA. Uthe Department ofEnergy proposes a rule in the future incorporatinganEER standard, change from the current central air conditioner and heat pump efficiency standards of 10 SEER/6.8 HSPF for split system air conditioners and heat pumps and 9.7 SEER/6.6 HPSF for single package a!r conditioners and heat pumps to 12 SEER for air conditioners and 13 SEER/7.7 HPSF for heat pumps.

We have identified three possible competitive problems presentedby the proposed standards. First, the proposed 13 SEER heat pump standard would have a disproportionate impact on smaller manufacturers. Currently less than 20% of the total current productlines meet the proposed standards, but for some small manufacturers, 100% oftheir product lines fail to satisfy the proposed standard.

Second, the proposed standard for heat pumps, and in some instances for air conditioners, would have an adverse impact
on some manufacturers ofthese products (including those products referred to in the Federal Register notice as "niche products") usedto retrofit existing housing and used in manufactured housing. These manufacturers could not make units that complywith the rule and fit into the available space.

theDepartment will then evaluatethat proposed rule and express its views about tho competitive impact ofthat standard. Third, the proposed heat pump standard of 13 SEER could make heat pumps less competitive with alternative heating and cooling systems. Because the standard will result in increases in the size and cost ofheat pumps, it is possible that purchasers will shift away from heat pumpsto other systems that include electric resistanceheat, reducing the competition that presently exists between heat pumps and those othersystems.

The Department ofJustice urges the Department ofEnergy to take into account these possible impacts on competition in determining its final energy efficiency standard for airconditioners and heat pumps.TheDepartment ofEnergy should consider setting a lowerSEER standardfor heat pumps, such as the standardincluded in Trial Standard Level 2, and a lower SEER standardfor air conditionersfor retrofit markets where there are space constraints (such as markets servedby niche products) and for manufactured housing.

Sincerely, A. DouglasMelamed, ActingAssistantAttorneyGeneral. [FR Doc. 01-1790 Filed 1-18-01; 11:30 am)
P.ILUNG CODE 645CHlH'