Thursday,

July 29, 2004

Part IV

Department of 

Energy

Office of Energy Efficiency and 

Renewable Energy 

10 CFR Part 431

Energy Conservation Program for 

Commercial and Industrial Equipment: 

Energy Conservation Standards for 

Commercial Unitary Air Conditioners and 

Heat Pumps; Proposed Rule


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DEPARTMENT OF ENERGY

Office of Energy Efficiency and 

Renewable Energy 

10 CFR Part 431

[Docket No. EE–RM/STD–01–375] 

RIN 1904–AB09

Energy Conservation Program for 

Commercial and Industrial Equipment: 

Energy Conservation Standards for 

Commercial Unitary Air Conditioners 

and Heat Pumps

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy.

ACTION: Advance notice of proposed 

rulemaking and notice of public 

meeting. 

SUMMARY: The Energy Policy and 

Conservation Act (EPCA) directs the 

Department of Energy (DOE or the 

Department) to consider whether to 

adopt the amended energy efficiency 

levels in the American Society of 

Heating, Refrigerating and AirConditioning Engineers, Inc. (ASHRAE)/

Illuminating Engineering Society of 

North America (IESNA) Standard 90.1–

1999, or more stringent levels, for 

certain commercial unitary air 

conditioners and heat pumps with rated 

cooling capacities of 65,000 British 

thermal units per hour (Btu/h) and 

greater, but less than 240,000 Btu/h. The 

Department publishes this Advance 

Notice of Proposed Rulemaking 

(ANOPR) to solicit public comments on 

its preliminary analyses for this 

equipment.

DATES: The Department will hold a 

webcast on Thursday, August 12, 2004, 

from 1 p.m. to 4 p.m. If you are 

interested in participating in this event, 

please inform James Raba at (202) 586–

8654. 

The Department will hold a public 

meeting on Thursday, September 30, 

2004, from 9 a.m. to 5 p.m., in 

Washington, DC. The Department must 

receive requests to speak at the meeting 

before 4 p.m., Thursday, September 16, 

2004. The Department must receive a 

signed original and an electronic copy 

of statements to be given at the public 

meeting before 4 p.m., Thursday, 

September 23, 2004. 

The Department will accept 

comments, data, and information 

regarding the ANOPR before or after the 

public meeting, but no later than Friday, 

November 12, 2004. See section IV, 

‘‘Public Participation,’’ of this ANOPR 

for details.

ADDRESSES: You may submit comments, 

identified by docket number EE–RM/

STD–01–375 and/or RIN number 1904–

AB09, by any of the following methods: 

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: commercial 

airconditioner.anopr@ee.doe.gov. 

Include EE–RM/STD–01–375 and/or 

RIN 1904–AB09 in the subject line of 

the message.

• Mail: Ms. Brenda Edwards-Jones, 

U.S. Department of Energy, Building 

Technologies Program, Mailstop EE–2J, 

ANOPR for Commercial Unitary Air 

Conditioners and Heat Pumps, EE–RM/

STD–01–375 and/or RIN 1904–AB09, 

1000 Independence Avenue, SW., 

Washington, DC, 20585–0121. 

Telephone: (202) 586–2945. Please 

submit one signed paper original. 

• Hand Delivery/Courier: Ms. Brenda 

Edwards-Jones, U.S. Department of 

Energy, Building Technologies Program, 

Room 1J–018, 1000 Independence 

Avenue, SW., Washington, DC, 20585. 

Instructions: All submissions received 

must include the agency name and 

docket number or Regulatory 

Information Number (RIN) for this 

rulemaking. For detailed instructions on 

submitting comments and additional 

information on the rulemaking process, 

see section IV of this document (Public 

Participation). 

Docket: For access to the docket to 

read background documents or 

comments received, go to the U.S. 

Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

Please call Ms. Brenda Edwards-Jones at 

the above telephone number for 

additional information regarding 

visiting the Resource Room. Please note: 

The Department’s Freedom of 

Information Reading Room (formerly 

Room 1E–190 at the Forrestal Building) 

is no longer housing rulemaking 

materials.

FOR FURTHER INFORMATION CONTACT:

James Raba, U.S. Department of Energy, 

Office of Energy Efficiency and 

Renewable Energy, Building 

Technologies, EE–2J, 1000 

Independence Avenue, SW., 

Washington, D.C. 20585–0121, (202) 

586–8654. E-mail: jim.raba@ee.doe.gov.

Francine Pinto, U.S. Department of 

Energy, Office of General Counsel, GC–

72, 1000 Independence Avenue, SW., 

Washington, DC 20585, (202) 586–9507. 

E-mail: Francine.Pinto@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction 

A. Summary of the Analysis 

1. Engineering Analysis 

2. Building Energy Use and End-Use Load 

Characterization 

3. Markups to Determine Equipment Prices 

4. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

5. National Impact Analysis 

B. Authority 

C. Background 

1. History 

2. Rulemaking Process 

3. Equipment Definitions 

4. Efficiency Levels 

5. Test Procedure 

II. Commercial Unitary Air Conditioner and 

Heat Pump Analyses 

A. Market and Technology Assessment 

1. Manufacturers 

2. Equipment Efficiency 

3. Equipment Shipments 

B. Screening Analysis 

C. Engineering Analysis 

1. Baseline Equipment 

a. Efficiency Level 

b. Maximum Technologically Feasible 

Design 

c. Representative Capacities 

2. Methodology 

3. Cost Assessment Approach 

a. Teardown Analysis 

b. Cost Model 

c. Cost/Efficiency Curves 

4. Supplemental Design Option Analysis 

5. Alternative Refrigerant Analysis 

D. Building Energy Use and End-Use Load 

Characterization 

1. Approach 

2. Preliminary Results 

E. Markups to Determine Equipment Price 

1. Approach 

2. Estimated Markups 

F. Life-Cycle Cost and Payback Period 

Analysis 

1. Inputs to LCC Analysis 

a. Total Installed Cost Inputs 

b. Operating Cost Inputs 

(1) Use of Whole-Building Simulations 

(2) Electricity Price Analysis 

(a) Tariff-Based Approach 

(b) Hourly Based Approach 

(c) Comparison of Tariff-Based and Hourly 

Based Prices 

(3) Electricity Price Trend 

(4) Repair Cost 

(5) Maintenance Cost 

(6) Lifetime 

(7) Discount Rate 

(8) Effective Date 

2. Inputs to the Payback Period Analysis 

3. Preliminary Results 

a. Life-Cycle Cost Results 

b. Payback Period Results 

G. National Impact Analysis 

1. National Energy Savings (NES) 

a. National Energy Savings Inputs 

(1) Annual Energy Consumption Per Unit 

(2) Shipments 

(3) Equipment Stock 

(4) National Annual Energy Consumption 

(5) Electricity Site-to-Source Conversion 

Factor 

2. National Net Present Value 

a. National Net Present Value Calculations 


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b. Net Present Value Inputs 

(1) Total Annual Installed Cost 

(2) Total Annual Operating Cost Savings 

(3) Discount Factor 

(4) Present Value of Costs 

(5) Present Value of Savings 

3. Shipments Model 

a. Ownership Categories 

b. Market Segments 

c. Logit Probability Model

4. Preliminary Results 

H. LCC Sub-Group Analysis 

I. Manufacturer Impact Analysis 

1. Sources of Information for the 

Manufacturer Impact Analysis 

2. Industry Cash Flow Analysis 

3. Manufacturer Sub-Group Analysis 

4. Competitive Impacts Assessment 

5. Cumulative Regulatory Burden 

J. Utility Impact Analysis 

K. Environmental Assessment 

L. Employment Impact Analysis 

M. Regulatory Impact Analysis 

III. Candidate Energy Conservation Standards 

Levels 

IV. Public Participation 

A. Attendance at Public Meeting 

B. Procedure for Submitting Requests to 

Speak 

C. Conduct of Public Meeting 

D. Submission of Comments 

E. Issues on Which DOE Seeks Comment 

1. Approaches to Analyses for Split 

Systems, Heat Pumps, and Niche 

Equipment 

2. Alternative Refrigerant Analysis 

3. Candidate Standards Levels 

4. Design-Option Analysis and Maximum 

Energy Efficiency Levels 

5. Industrial Buildings 

6. Economizer Performance 

7. Fan Energy Consumption 

8. Equipment Markups 

9. Hourly Based Electricity Prices 

10. Forecasts of Electricity Prices 

11. Equipment Lifetime 

12. Maximum Market Share of Commercial 

Unitary Air Conditioning Equipment 

13. Future Building Types Using 

Commercial Unitary Equipment 

14. Customer Sub-Groups 

15. Effective Date of New Standards and 

Phaseout Date of R–22 Refrigerant 

16. Independent Expert Third-Party 

Reviews 

a. Sample of Buildings 

b. Building Loads and System 

Thermodynamics Simulation and 

Commercial Buildings Energy 

Consumption Survey Estimates of Energy 

Use 

c. Supply Fan Energy Use While 

Ventilating 

d. Incremental Markups 

17. Effect of Income Taxes on Life-Cycle 

Cost 

18. Technologies that Affect Full-or PartLoad Performance 

19. Environmental Assessment 

20. Rebound Effect 

V. Regulatory Review and Procedural 

Requirements 

VI. Approval of the Office of the Secretary

I. Introduction 

A. Summary of the Analysis 

The Energy Policy and Conservation 

Act (42 U.S.C. 6311 et seq.) establishes 

minimum energy conservation 

standards for certain industrial and 

commercial equipment, including the 

commercial unitary air conditioners and 

heat pumps under consideration in this 

rulemaking. The EPCA further requires 

that, if certain industry standards are 

amended after the date of enactment of 

the Energy Policy Act of 1992, DOE 

must establish a new energy efficiency 

standard at that amended level, or at a 

more stringent level if DOE determines, 

‘‘by rule published in the Federal 

Register and supported by clear and 

convincing evidence, that adoption of a 

uniform national standard more 

stringent than such amended ASHRAE/

IESNA Standard 90.1 for such product 

would result in significant additional 

conservation of energy and is 

technologically feasible and 

economically justified.’’ (42 U.S.C. 

6313(a)(6)(A)) 

The Department conducted in-depth 

technical analyses for this ANOPR in 

the following areas: (1) Engineering, (2) 

building energy use and end-use load 

characterization, (3) markups to 

determine equipment prices, (4) lifecycle cost (LCC) and payback periods 

(PBP), and (5) national impacts.

1. Engineering Analysis 

The engineering analysis establishes 

the relationship between the cost and 

efficiency of commercial unitary air 

conditioners and heat pumps. This 

relationship serves as the basis for cost/

benefit calculations in terms of 

individual consumers, manufacturers, 

and the Nation. The engineering 

analysis identifies the representative 

baseline equipment (using R–22 as the 

refrigerant), develops the bill of 

materials and determines the costs, 

constructs the industry cost/efficiency 

curves, and evaluates the impact of 

using an alternative to R–22 refrigerant 

on the cost/efficiency relationship of 

certain commercial unitary air 

conditioners and heat pumps. (See 

section II.C. of this ANOPR for further 

details.) 

2. Building Energy Use and End-Use 

Load Characterization 

The building energy use and end-use 

load characterization analysis uses 

building simulations to estimate the 

energy consumption of commercial 

unitary air conditioning equipment at 

specified candidate standards levels. 

The 1995 Commercial Buildings Energy 

Consumption Survey (CBECS 95) data 

set was the primary source of the data 

used to develop the building set and its 

associated characteristics. The 

Department modeled each building in 

the set using the Building Loads and 

System Thermodynamics (BLAST) 

software. (See section II.D of this 

ANOPR for further details.) 

3. Markups To Determine Equipment 

Prices 

The equipment price analysis derives 

end-user or customer prices for more 

energy efficient commercial unitary airconditioning equipment. To derive 

those prices, the Department 

differentiates between a baseline 

(manufacturer’s) markup and an 

incremental (wholesaler’s, general 

contractor’s, and mechanical 

contractor’s) markup, based on the 

distribution channel that the customer 

uses to purchase such equipment. (See 

section II.E of this ANOPR for further 

details.) 

4. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

When the Department is determining 

whether an energy efficiency standard 

for commercial unitary air-conditioning 

equipment is economically justified, 

EPCA directs DOE to consider, in part, 

the economic impact of potential 

standards on consumers. (42 U.S.C. 

6313(a)(6)(B)(i)(I)) To assess that impact, 

the Department calculated the changes 

in LCCs which are likely to result from 

a candidate standard, as well as a 

distribution of PBPs. The foundation of 

the LCC and PBP analyses is the 

building set defined by the building 

energy use and end-use load 

characterization analysis. The 

Department created a representative 

sample from the building set, and 

determined the LCC and PBP for a given 

energy efficiency standard level for each 

building in the sample. Probability 

distributions characterize most other 

inputs to the LCC and PBP analysis. The 

input probability distributions 

combined with the building sample 

enabled the Department to generate LCC 

and PBP results as probability 

distributions using a simulation based 

on Monte Carlo statistical analysis 

methods. One of the most critical inputs 

to the LCC and PBP analysis is 

electricity price. The Department 

derived two sets of electricity prices to 

estimate annual energy expenses: A 

tariff-based estimate and an hourly 

based estimate. Although the 

Department used these two sets of 

electricity prices, it designated the tariffbased prices as the primary approach. In 

combination with the hourly electrical 

loads from the building simulations, the 


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tariff-based approach estimates the 

annual energy expense using electricity 

prices determined from electric utility 

tariffs collected in the year 2002. (See 

section II.F of this ANOPR for further 

details.) 

5. National Impact Analysis 

The national impact analysis assesses 

the national energy savings (NES) and 

the net present value (NPV) of total 

customer LCC and NES. The 

Department calculated both NES and 

NPV for a given energy efficiency 

standard level as the difference between 

a base case (without new standards, i.e., 

EPCA levels) and the standards case 

(with new standards). The Department 

determined national annual energy 

consumption by multiplying the 

number of units or stock of commercial 

unitary air conditioners (by vintage) by 

the unit energy consumption (also by 

vintage). Cumulative energy cost savings 

is the sum of the annual NES 

determined over specified time periods. 

The national NPV is the sum over time 

of discounted net cost savings due to the 

energy savings. The Department 

calculated net savings each year as the 

difference between total operating cost 

savings (including electricity, repair, 

and maintenance cost savings) and 

increases in total installed costs 

(including equipment price and 

installation cost). As with the NES, 

cumulative cost savings is the sum of 

the annual NPV determined over 

specified time periods. One of the most 

critical inputs to this analysis is 

shipments data. The Department 

developed shipments projections under 

a base case and certain candidate 

standards cases. It determined that 

shipment projections under the 

standards cases were lower than those 

from the base case projection, due to the 

higher installed cost of the more energyefficient unitary air conditioning 

equipment. Higher installed costs 

caused some customers to forego 

equipment purchases. As a result, the 

Department used the standards case 

shipments projection and, in turn, the 

standards case stock of commercial 

unitary air conditioners to determine 

the NES and NPV to avoid the inclusion 

of savings due to displaced shipments. 

Table I.1 summarizes the key inputs, 

assumptions, and methodologies for 

each analysis area, and provides general 

references for finding the corresponding 

analyses in the Technical Support 

Document (TSD), a ‘‘stand-alone’’ report 

that provides the technical analyses and 

results in support of the information 

presented in this ANOPR. The ANOPR 

and TSD are available to interested 

parties on the Department’s website at 

http://www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. Also, 

Table I.1 provides references for finding 

the results of each analysis in this 

ANOPR.

TABLE I.1.—IN-DEPTH TECHNICAL ANALYSES CONDUCTED FOR THE ANOPR 

Analysis area Methodology Key inputs Key assumptions ANOPR section 

for results 

Engineering (TSD Chapter 5) Tear Down Analysis supplemented with Design Option 

Analysis.

Component cost data ........... Maximum Technologically 

Feasible efficiency equals 

12 EER.

Section II.C.3.c. 

Building Energy Use and EndUse Load Characterization 

(TSD Chapter 6).

Whole-Building simulations 

using Building Loads and 

System Thermodynamics 

(BLAST) software.

1997 Commercial Building 

Energy Consumption Survey (CBECS) to identify 

and characterize the type 

of building using unitary air 

conditioners.

(1) BLAST characterization of 

part-load equipment performance; 

(2) Ventilation rates set equal 

to ASHRAE 62 requirements; and 

(3) Fan power consumption 

included during times of 

ventilation and heating.

Section II.D.2. 

Markups to Determine Equipment Price (TSD chapter 7).Assessment of financial reports to develop markups 

to transform manufacturer 

prices into customer prices.

(1) Characterization of distribution channels and markets; and (2) Financial reports characterizing firm 

costs, expenses, and profits.

Differentiation between a 

baseline markup and an incremental markup to relate 

manufacturer price to customer price.

Section II.E.2. 

LCC and Payback Period 

(TSD Chapter 8).

Building-by-building analysis 

of a representative sample 

of commercial building customers (customers are appropriately weighted).

(1) Output from the Engineering, Building Simulation, 

and Equipment Price analyses; and 

(2) Electricity prices based 

on current electric utility 

tariffs.

Sample of commercial buildings representative of all 

unitary air conditioner 

users (industrial users 

have been excluded).

Section II.F.3. 

National Impact (TSD Chapter 

10).

Forecasts of unitary air conditioner costs and energy 

consumption to the year 

2035.

(1) Average values from the 

LCC analysis; 

(2) Historical shipment data; 

and 

(3) Commercial building 

stock and forecasts of 

commercial building starts.

Responsiveness of shipments forecasts to total installed cost, operating 

costs, and business income.

Section II.G.4. 

The Department consulted with 

interested parties while developing the 

above analyses to make clear the sources 

of data and analytical processes it used. 

The Department continues to seek input 

from all interested parties on the 

methodologies, inputs, and assumptions 

used to develop the analyses. In 

addition, certain analyses were very 

complex and questions raised by 

stakeholders led the Department to 

engage independent, third-party experts 

to review the Department’s 

assumptions, approaches, data, and 

analytical methods used in particular 

for: (1) The sample of buildings used to 

represent commercial unitary air 

conditioning equipment; (2) the BLAST 

and CBECS estimates of energy use in 

these buildings; (3) supply fan energy 

use while ventilating; and (4) 


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incremental markup of commercial 

unitary air conditioning equipment 

prices. The third-party reviews are 

available to interested parties on the 

Department’s website at http://

www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. The 

Department is requesting stakeholder 

comments about the third-party reviews 

concerning the subjects described in 

Issue 16, found in section IV.E., ‘‘Issues 

on Which DOE Seeks Comment,’’ of this 

ANOPR. 

B. Authority 

Title III of EPCA sets forth a variety 

of provisions designed to improve 

energy efficiency. Part C of title III (42 

U.S.C. 6311–6317) establishes an energy 

conservation program for ‘‘Certain 

Industrial Equipment’’ and includes 

commercial air conditioning equipment, 

the subject of this proceeding. Part C 

provides definitions, test procedures, 

labeling provisions, energy efficiency 

standards, and authority to require 

information and reports from 

manufacturers. 

EPCA established efficiency 

requirements that correspond to the 

levels in ASHRAE/IESNA Standard 

90.1–1989, that went into effect on 

October 24, 1992. EPCA further 

provides that if the efficiency levels in 

ASHRAE/IESNA Standard 90.1 are 

amended after that date for certain 

covered commercial equipment, 

including commercial unitary air 

conditioners and heat pumps, the 

Department must establish an amended 

uniform national standard for such 

equipment at the new minimum level 

for each effective date specified in the 

amended ASHRAE/IESNA Standard 

90.1, unless the Department determines, 

through a rulemaking supported by 

clear and convincing evidence, that a 

more stringent standard is 

technologically feasible and 

economically justified and would result 

in significant additional energy 

conservation. (42 U.S.C. 6313(a)(6)(A)) 

Under EPCA, if DOE adopts a more 

stringent standard, DOE must determine 

whether the benefits of the standard 

exceed its burdens to the greatest extent 

practicable, by considering the 

following seven factors (42 U.S.C. 

6313(a)(6)(B)(i)): 

(1) The economic impact of the 

standard on the manufacturers and 

consumers of the affected products; 

(2) The savings in operating costs 

throughout the estimated average life of 

the product compared to any increases 

in the initial cost, or maintenance 

expense; 

(3) The total projected amount of 

energy savings likely to result directly 

from the imposition of the standard; 

(4) Any lessening of the utility or the 

performance of the products likely to 

result from the imposition of the 

standard; 

(5) The impact of any lessening of 

competition, as determined in writing 

by the Attorney General, that is likely to 

result from the imposition of the 

standard; 

(6) The need for national energy 

conservation; and 

(7) Other factors the Secretary 

considers relevant. 

Other statutory requirements are set 

forth in 42 U.S.C. 6313(a)(6)(B)(ii). 

C. Background 

1. History 

On October 29, 1999, ASHRAE/

IESNA adopted the energy efficiency 

standards for certain commercial 

heating and air conditioning equipment, 

including commercial unitary air 

conditioners and heat pumps, in 

ASHRAE/IESNA Standard 90.1–1999. 

On March 1, 2000, the Department 

published a notice of preliminary 

screening analysis to decide which of 

the ASHRAE/IESNA Standard 90.1–

1999 standards to adopt immediately 

and which to analyze further. 65 FR 

10984 (March 1, 2000). On January 12, 

2001, the Department published a final 

rule adopting the energy efficiency 

levels in ASHRAE/IESNA Standard 

90.1–1999 for 18 product categories and 

made a decision to further evaluate 

other products. 66 FR 3336 (January 12, 

2001). In the final rule, DOE determined 

that further analysis was warranted for 

commercial unitary air conditioners and 

heat pumps with rated cooling 

capacities of 65,000 Btu/h and greater, 

but less than 240,000 Btu/h. This 

conclusion was based on DOE’s 

screening analysis. As a result, the 

Department has conducted further 

analysis and is considering more 

stringent standards than those in 

ASHRAE/IESNA Standard 90.1–1999 

for this equipment. 

2. Rulemaking Process 

The Procedures, Interpretations and 

Policies for Consideration of New or 

Revised Energy Conservation Standards 

for Consumer Products (the ‘‘Process 

Rule’’), 10 CFR Part 430, Subpart C, 

Appendix A, applies to the 

development of energy efficiency 

standards for consumer products. DOE 

has decided, however, to apply its 

procedures to the development of 

energy conservation standards for 

industrial equipment as well, including 

commercial unitary air conditioners and 

heat pumps standards, as appropriate. 

62 FR 54817. 

On June 13, 2001, the Department 

published a Framework Document for 

Commercial Air Conditioner and Heat 

Pump Standards Rulemaking

(Framework Document) that describes 

the procedural and analytical 

approaches available to evaluate energy 

conservation standards for commercial 

unitary air conditioners and heat 

pumps. This document is available at 

http://www.eere.energy.gov/buildings/

appliance_standards/commercial/

ac_hp.html. The Department held a 

Framework Workshop on October 1, 

2001, to discuss the procedural and 

analytical approaches for use in the 

rulemaking, and to inform and facilitate 

stakeholders’ involvement in the 

rulemaking process. The analytical 

framework presented at the workshop 

described different analyses, such as 

LCC and PBP, the methods proposed for 

conducting them, and the relationships 

among the various analyses (see Table 

I.2). The ANOPR TSD describes the 

analytical framework in detail. 

Statements received after publication 

of the Framework Document and at the 

October 1, 2001, Framework Workshop 

helped identify issues involved in this 

rulemaking, and provided information 

that has contributed to DOE’s proposed 

resolution of these issues. Many of the 

statements are quoted and summarized 

in this ANOPR. A parenthetical 

reference at the end of a quotation or 

passage provides the location index in 

the public record.

TABLE I.2.—COMMERCIAL UNITARY AIR CONDITIONERS AND HEAT PUMPS RULEMAKING ANALYSES PURSUANT TO THE

PROCESS RULE

ANOPR NOPR Final rule 

Market and technology assessment ....................................... Revised ANOPR analyses ..................................................... Revised analyses. 

Screening analysis .................................................................. Life-cycle cost sub-group analysis.

Engineering analysis ............................................................... Manufacturer impact analysis.

Building energy use and end-use load characterization ........ Utility impact analysis.


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1Example: ‘‘(ARI, No. 11 at pp. 2–4)’’ refers to a 

written statement that was submitted by the AirConditioning & Refrigeration Institute and is 

recorded in the Resource Room of the Building 

Technologies Program in the Docket under 

‘‘Commercial Central Air Conditioners and Heat 

Pumps’’ as comment number 11, and the passage 

appears on pages 2 through 4 of that statement. 

Likewise, ‘‘(Public Workshop Tr., No. 2EE at p. 46)’’

refers to the page number of the transcript of the 

‘‘Framework Workshop’’ held in Washington, DC, 

October 1, 2001.

TABLE I.2.—COMMERCIAL UNITARY AIR CONDITIONERS AND HEAT PUMPS RULEMAKING ANALYSES PURSUANT TO THE

PROCESS RULE—Continued

ANOPR NOPR Final rule 

Markups to determine equipment price .................................. Environmental assessment.

Life-cycle cost and payback period analyses ......................... Employment impact analysis.

Shipments analysis ................................................................. Regulatory impact analysis.

National impact analysis. 

On one hand, many stakeholders 

commented that DOE should 

immediately adopt the minimum 

efficiency requirements in ASHRAE/

IESNA Standard 90.1–1999 for 

commercial unitary air conditioners and 

heat pumps, rather than pursue a formal 

rulemaking, on grounds that ASHRAE’s 

‘‘continuous maintenance’’ process for 

Standard 90.1–1999 allows for faster 

adoption of any necessary revisions to 

the commercial unitary equipment 

standards than does a formal DOE 

rulemaking process. ‘‘Continuous 

maintenance’’ is an industry term for 

ASHRAE’s current process for 

maintaining standards. Under this 

process, ASHRAE accepts a continual 

flow of proposals from the public for 

changes to its standards, which in turn 

can result in multiple proposed 

addenda to an ASHRAE standard on a 

regular basis. The ASHRAE continuous 

maintenance process contrasts with the 

previous periodic maintenance process 

that updated a standard at fixed, 

predetermined intervals. These same 

stakeholders commented that DOE’s 

preliminary screening analysis did not 

demonstrate that more-cost-effective 

efficiency standards were feasible for 

commercial unitary equipment. In 

addition, by not immediately adopting 

the efficiency requirements in ASHRAE/

IESNA Standard 90.1–1999, the 

Department would forego the national 

energy savings that would otherwise be 

realized in the next six to ten years 

before a DOE final rule becomes 

effective. Finally, many of these 

stakeholders commented that market 

confusion would ensue over which 

standards requirements are applicable if 

DOE adopts ASHRAE/IESNA Standard 

90.1–1999 for some equipment and not 

for other equipment. (Air-Conditioning 

and Refrigeration Institute (ARI), No. 11 

at pp. 2–4; Edison Electric Institute 

(EEI), No. 4 at pp. 1–2; Lennox 

International Inc. (Lennox), No. 7 at pp. 

1 and 4; Public Workshop Tr., No. 2EE 

at p. 46; National Rural Electric 

Cooperative Association (NRECA), No. 3 

at pp. 1–2; Southern Company Services 

(Southern Company), No. 5 at p. 1).1

In contrast to the above comments, 

many other stakeholders commented 

that DOE should abandon the ASHRAE/

IESNA Standard 90.1–1999 continuous 

maintenance process and pursue a 

formal rulemaking. Many of them 

participated in the ASHRAE/IESNA 

Standard 90.1–1999 process and 

asserted that it was fundamentally 

flawed. These stakeholders also 

challenged the technical merits of the 

analysis used to update ASHRAE/

IESNA Standard 90.1–1999, stating that: 

(1) Manufacturing cost estimates for 

more efficient equipment were not 

representative, i.e., too high; (2) 

electricity prices did not capture the 

variability associated with an industry 

moving toward economic deregulation; 

and (3) the ASHRAE process used high 

discount rates and short payback 

periods to evaluate energy efficiency 

measures instead of a carefully 

constructed life-cycle cost analysis. 

(Alliance to Save Energy (ASE), No. 9 at 

pp. 1–2; American Council for an 

Energy-Efficient Economy (ACEEE), No. 

10 at pp. 3, 6–7, and 10; Natural 

Resources Defense Council (NRDC), No. 

6 at pp. 2–6; Public Workshop Tr., No. 

2EE at p. 77). 

The Department intends to make its 

findings available to the ASHRAE/

IESNA Standard 90.1–1999 committee 

and other stakeholders to inform 

ASHRAE’s ‘‘continuous maintenance’’

process. Furthermore, consistent with 

the approach outlined in the 

Department’s January 12, 2001, final 

rule (66 FR 3348), DOE may engage in 

the ASHRAE continuous maintenance 

process by proposing an addendum to 

the commercial unitary air conditioner 

efficiency levels in ASHRAE/IESNA 

Standard 90.1–1999 based on its 

analysis as part of this rulemaking. 

Also, if during the rulemaking process 

the Department concludes that the 

EPCA criteria for a more stringent 

energy conservation standard are not 

likely to be satisfied, then the 

Department may either adopt the energy 

efficiency levels in ASHRAE/IESNA 

Standard 90.1–1999 or any new 

addendum to ASHRAE/IESNA Standard 

90.1 that establishes higher levels. 

3. Equipment Definitions 

Unitary package air conditioning 

units represent the heating, ventilating, 

and air conditioning (HVAC) equipment 

class with the greatest energy use in the 

commercial building sector in the 

United States. Equipment covered under 

this rulemaking—air-cooled package air 

conditioning and heating equipment 

with rated cooling capacities of 65,000 

British thermal units per hour (Btu/h) 

and greater, but less than 240,000

Btu/h—accounts for the majority of the 

total shipped tonnage of unitary HVAC 

equipment for commercial building 

applications. 

Under EPCA, the term ‘‘small 

commercial package air conditioning 

and heating equipment’’ means ‘‘aircooled, water-cooled, evaporativelycooled, or water source (not including 

ground water source) electrically 

operated, unitary central air 

conditioners and central air 

conditioning heat pumps for 

commercial application which are rated 

below 135,000 Btu per hour (cooling 

capacity).’’ (42 U.S.C. 6311(8)) The term 

‘‘large commercial package air 

conditioning and heating equipment’’

means ‘‘air-cooled, water-cooled, 

evaporatively-cooled, or water source 

(not including ground water source) 

electrically operated, unitary central air 

conditioners and central air 

conditioning heat pumps for 

commercial application which are rated 

at or above 135,000 Btu per hour and 

below 240,000 Btu per hour (cooling 

capacity).’’ (42 U.S.C. 6311(9)) These 

definitions parallel the categories of 

equipment outlined in ASHRAE/IESNA 

Standard 90.1–1999. The standards for 

the product subcategories of watercooled unitary central air conditioners 

rated ≤240,000 Btu/h, evaporatively 

cooled unitary central air conditioners, 

and water-source unitary central heat 

pumps rated ≤240,000 Btu/h were 

covered under a separate standards 


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rulemaking (66 FR 3336 (January 12, 

2001)) and currently appear under 10 

CFR Part 431 Subpart Q. In this 

rulemaking, the Department will limit 

its analysis to air-cooled equipment, 

which is the largest subset of the small 

and large unitary air conditioners and 

heat pumps covered by EPCA.

Based on data from EIA’s 1995 

Commercial Buildings Energy 

Consumption Survey (CBECS 95), the 

Department estimates that a significant 

part of the unitary package air 

conditioning market has gas heating 

rather than either air conditioning only 

or electric resistance heating. Hence, the 

Department has elected to base the 

engineering analysis on equipment with 

a gas heating section. 

Several comments questioned 

whether the Department planned to 

consider engine-driven units, units 

operating with 100 percent outside air, 

and split systems as unique categories. 

(Public Workshop Tr., No. 2EE at p. 82; 

Public Workshop Tr., No. 2EE at p. 148) 

The Department has decided not to 

analyze engine-driven units or units 

operating with 100 percent outside air 

because they represent very specialized 

or niche applications, but may analyze 

them if necessary for the Notice of 

Proposed Rulemaking (NOPR) in this 

rulemaking proceeding. The Department 

did not analyze split systems explicitly 

because they are similar in technology 

and application to packaged units, 

which represent 77 percent of the 

combined sales of the commercial 

unitary air-conditioning market. (See 

Market Assessment section (Chapter 3) 

of the ANOPR TSD.) While the size 

constraints (i.e., cabinet requirements) 

may be different for the two types of 

systems, the technologies and design 

choices required to increase the 

efficiency are similar. The Department 

intends to apply the results of the single 

package air-conditioning equipment 

analysis, and the resulting efficiency 

levels, to both single package and split 

system equipment. This method is 

consistent with the residential central 

air-conditioner rulemaking where DOE 

applied the analysis results from split 

system air conditioners (the most 

common residential central air 

conditioner configuration) to packaged 

air conditioners. This method is also 

consistent with the current efficiency 

levels in EPCA and ASHRAE/IESNA 

Standard 90.1–1999, which are the same 

for single package and split system 

equipment. This is identified as Issue 1 

under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

4. Efficiency Levels 

The language of 42 U.S.C. 

6313(a)(6)(A) requires DOE to establish 

an amended uniform national standard 

for commercial unitary air conditioners 

and heat pumps at the minimum levels 

for each date specified in the amended 

ASHRAE/IESNA Standard 90.1–1999, 

unless DOE determines, by rule and 

supported by clear and convincing 

evidence, that a more stringent standard 

is technologically feasible and 

economically justified and would result 

in significant additional energy 

conservation. Because the Department 

cannot consider levels lower than that 

of the most recent ASHRAE/IESNA 

Standard 90.1, the Department will 

consider the baseline efficiency to be 

the minimum level specified in 

ASHRAE/IESNA Standard 90.1–1999, 

which is the most recent amendment to 

ASHRAE/IESNA 90.1 that changed 

efficiency levels. Table I.3 presents the 

ASHRAE/IESNA Standard 90.1–1999 

minimum efficiency levels.

TABLE I.3.—ASHRAE/IESNA STANDARD 90.1–1999 MINIMUM EER REQUIREMENTS* FOR UNITARY EQUIPMENT

Equipment type Size category Heating section type Sub-category Minimum efficiency 

Air Conditioners, Air Cooled .... ≥65,000 Btu/h and <135,000 

Btu/h.

Electric Resistance (or None)

All Other ..................................

Split System and Single Package.

Split System and Single Package.

10.3 EER 

10.1 EER 

≥135,000 Btu/h and <240,000 

Btu/h.

Electric Resistance (or None)

All Other ..................................

Split System and Single Package.

Split System and Single Package.

9.7 EER 

9.5 EER 

Heat Pumps, Air Cooled (Cooling Mode).≥65,000 Btu/h and <135,000 

Btu/h.

Electric Resistance (or None)

All Other ..................................

Split System and Single Package.

Split System and Single Package.

10.1 EER 

9.9 EER 

≥135,000 Btu/h and <240,000 

Btu/h.

Electric Resistance (or None)

All Other ..................................

Split System and Single Package.

Split System and Single Package.

9.3 EER 

9.1 EER 

Heat Pumps, Air Cooled (Cooling Mode).≥65,000 Btu/h and <135,000 

Btu/h.

(Cooling Capacity) ..................

47°F db/43°F wb Outdoor Air

17°F db/15°F wb Outdoor Air

3.2 COP 

2.2 COP 

≥135,000 Btu/h .......................

(Cooling Capacity) ..................

47°F db/43°F wb Outdoor Air

17°F db/15°F wb Outdoor Air

3.1 COP 

2.0 COP 

* The current version of ASHRAE/IESNA Standard 90.1 is the 2001 version, which contains identical minimum efficiency levels to the 1999 

version of the standard. 

The ASHRAE/IESNA Standard 90.1–

1999 rates the cooling performance of 

commercial unitary air conditioners and 

heat pumps using the energy efficiency 

ratio (EER) and heating coefficient of 

performance (COP). (These are the same 

energy efficiency descriptors used in 

EPCA for this type of equipment.) The 

Department received comments that it 

should consider part-load performance 

as part of the screening process and a 

part-load descriptor in addition to EER 

in the present rulemaking. (ACEEE, No. 

10 at p. 3; Lennox, No. 7 at p. 3; NRDC, 

No. 6 at p. 7) The ACEEE provided 

several comments about the efficiency 

level used in the performance standards. 

Specifically, it advocates that the 

performance standard include efficiency 

ratings for both full-load and part-load 

conditions, reflecting that equipment 

operates for many more hours at partload conditions than at full-load 

conditions. Further, ACEEE suggests 


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that the performance standard 

incorporate integrated part-load value 

(IPLV) levels for commercial unitary air 

conditioning equipment. (ACEEE, No. 

10 at pp. 3–4, and 7) 

The Department understands that 

there are potential energy savings 

associated with technologies and 

techniques that operate under full- or 

part-load conditions and that can 

improve the net annual energy 

performance of a system, but which 

generally reduce the EER of commercial 

unitary air-conditioning equipment, or 

have no effect on EER. However, 

because the EPCA energy descriptor for 

commercial unitary air conditioners and 

air source heat pumps is an EER, and 

the test procedure does not account for 

part-load operation, DOE will not 

include a part-load performance 

descriptor. 

Although this rulemaking covers both 

commercial unitary air conditioners and 

heat pumps, this ANOPR and the 

detailed analyses in the accompanying 

TSD cover only unitary air conditioners. 

The Department did not collect the 

necessary data for conducting the 

detailed technical analyses for unitary 

heat pumps for this ANOPR because 

unitary heat pumps represent only 9 

percent of the total market for 

commercial unitary air conditioning and 

heat pump equipment above 65,000 

Btu/h. Instead, the Department proposes 

to streamline the analysis for 

commercial unitary heat pumps and use 

a method similar to the ASHRAE 

committee’s method to establish the 

minimum EER and COP levels for heat 

pumps. The Department understands 

that ASHRAE determined the minimum 

efficiency level for air conditioners and 

then agreed to a minimum heat pump 

EER after reviewing ARI’s industry data. 

The minimum heat efficiency of the 

heat pump, defined by the heat pump 

COP, was set to correspond to the 

minimum EER using ARI data that 

correlated the heat pump COP to the 

heat pump EER. In section IV.E, ‘‘Issues 

on Which DOE Seeks Comment,’’ the 

Department requests input from 

interested parties on the need for 

conducting analyses specific to 

commercial unitary heat pumps. 

5. Test Procedure 

The Department began development 

of test procedures for commercial 

unitary air conditioners and heat pumps 

on April 14 and 15, 1998, when it held 

a public workshop to solicit views and 

information from interested parties. The 

Department held a second public 

workshop on October 18, 1998. The 

Department published a NOPR on 

August 9, 2000, and held a public 

workshop on September 21, 2000. 65 FR 

48828. The Department intends to 

publish the test procedure final rule as 

soon as possible. 

On June 12, 2001, the Department 

published a Framework Document that 

described procedural and analytical 

approaches to evaluate energy 

conservation standards for commercial 

unitary air conditioners and heat 

pumps, and presented this analytical 

framework to stakeholders during the 

workshop held on October 1, 2001. In 

response to DOE’s Framework 

Document and within the context of this 

standards rulemaking proceeding, 

ACEEE filed comments on the test 

procedure used to assess equipment 

EER levels. The ACEEE believes that the 

temperature used for testing current EER 

levels represents the lowest outside 

temperature possible for properly 

evaluating peak performance, and that a 

higher temperature would more 

accurately represent peak conditions 

encountered in many parts of the United 

States. It also commented that the test 

procedure should include a maximum 

sensible heat ratio (SHR) to ensure that 

all equipment provides sufficient 

dehumidification capacity and prevents 

manufacturers from sacrificing 

dehumidification performance to satisfy 

minimum EER levels. (ACEEE, No. 10 at 

pp. 3–4, and 7) 

The Department acknowledges that 

the test procedure for EER reflects 

equipment performance under a single 

condition and that this condition does 

not represent actual equipment 

performance under part-load conditions 

nor necessarily at the peak design 

condition, nor does it specify a 

maximum SHR. Furthermore, the 

Department understands that there are 

potential energy savings associated with 

technologies and techniques that 

improve the part-load performance of 

the equipment. However, because the 

Department believes that the test 

procedure referenced by the ASHRAE/

IESNA Standard 90.1–1999 is widely 

accepted and well established, the 

Department has elected to follow the 

conventions of the ASHRAE/IESNA 

Standard 90.1–1999 and use the EER as 

the only descriptor for efficiency.

II. Commercial Unitary Air Conditioner 

and Heat Pump Analyses 

This section includes a general 

introduction to each analysis section 

and a discussion of relevant issues 

addressed in comments received from 

interested parties. 

A. Market and Technology Assessment 

The Department reviewed existing 

marketing materials and literature, and 

interviewed manufacturers to get an 

overall picture of the market in the 

United States for commercial unitary air 

conditioners and heat pumps. Industry 

publications and trade journals, 

government agencies, and trade 

organizations provided most of the 

information, including: (1) 

Manufacturer market share, (2) 

equipment efficiency, and (3) shipments 

by capacity and efficiency level. This 

ANOPR discusses the information in the 

appropriate sections. 

The Department has used the most 

reliable and accurate data available at 

the time of the analysis. All data are 

available for public review in the TSD 

that accompanies this ANOPR. The TSD 

is available to interested parties on the 

Department’s Web site at http://

www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. The 

Department welcomes and will consider 

any recommendations of additional 

data. 

1. Manufacturers 

There are six major domestic 

manufacturers of the equipment covered 

under this rulemaking. Four companies, 

Carrier Corporation (Carrier), The Trane 

Company (Trane), Lennox International, 

Inc. (Lennox), and York International 

Corporation (York) each hold a major 

share of the market for commercial 

unitary air conditioners and heat 

pumps. Two other manufacturers, 

AAON, Inc. (AAON) and Rheem 

Manufacturing Company (Rheem), hold 

significant niche market shares. The 

AAON corporation manufactures and 

sells high efficiency, air-cooled 

equipment almost exclusively to large 

corporate accounts. Rheem produces 

mostly smaller-capacity models in all 

the categories. Among the six major 

manufacturers, Carrier and Trane 

command a majority of the market for 

commercial unitary air conditioning 

equipment, followed by Lennox, York, 

AAON, and Rheem. For more detail on 

major manufacturers and market share, 

refer to the market assessment section 

(Chapter 3) of the ANOPR TSD. 

2. Equipment Efficiency 

In its analysis of the equipment 

efficiency data from ARI’s Unitary Large 

Equipment Directory, January 2002, the 

Department found that most models of 

equipment manufactured by the six 

major domestic manufacturers met or 

exceeded the ASHRAE/IESNA Standard 

90.1–1999 energy efficiency levels. 

Also, in its analysis of the ARI 

Unitary Large Equipment Directory, 

January 2002, the Department found it 

could be easy to misinterpret the 

number of base models for each parent 


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company because each parent company 

manufactures similar models under 

different ‘‘brands’’ or manufactures base 

models with relatively superficial 

design changes around a base model. 

Consequently, the Department estimated 

the number of actual base models listed 

for each parent company in the ARI 

Directory. (See Market and Technology 

Assessment (Chapter 3, section 3.7.3) of 

the ANOPR TSD.) 

3. Equipment Shipments 

The Department extracted and 

documented information related to 

equipment shipments by domestic 

manufacturers from U.S. Census Bureau 

Current Industrial Reports. The United 

States (U.S.) Census Bureau data 

expresses cooling capacity ranges in a 

slightly different way from the DOE 

rulemaking equipment classifications. 

The major classifications presented in 

the U.S. Census Bureau data for single 

and split system air conditioners are for 

cooling capacity ratings 65,000 Btu/h to 

134,999 Btu/h and 135,000 Btu/h to 

249,999 Btu/h. (See U.S. Census Bureau 

Current Industrial Report for 

‘‘Refrigeration, Air Conditioning, and 

Warm Air Heating Equipment: 2001,’’

(MA333M(01)–1), at http://

www.census.gov/industry/1/

ma333m01.pdf.) For heat pumps, the 

U.S. Census Bureau data list shipments 

for capacities rated greater than 65,000 

Btu/h. In section II.G below, ‘‘National 

Impact Analysis,’’ the Department used 

the shipments data in its development 

of a Shipments Model for forecasting 

future equipment shipments. 

B. Screening Analysis 

This section describes the technology/

design options and a process for 

screening these options as part of the 

DOE rulemaking. Screening eliminates 

certain design options from further 

consideration in the engineering 

analysis phase of the rule development. 

The Process Rule established four 

factors DOE uses for screening design 

options: (1) Technological feasibility; (2) 

practicability to manufacture, install, 

and service; (3) adverse impacts on 

equipment utility or equipment 

availability; and (4) adverse impacts on 

health and/or safety. 10 CFR Part 430, 

subpart C, Appendix A, under 

paragraph 5(b). In view of these factors, 

the technology/design options DOE 

considered as part of this rulemaking 

fall into two categories based on their 

development status and on their 

impacts on EER: emerging technologies 

that can enhance EER and commercial 

technologies that can enhance EER. For 

more detail on how the Department 

developed the technology options and 

the process for screening these options, 

refer to the technology and screening 

section (Chapter 4) of the ANOPR TSD. 

First, the Department considered 

emerging technologies that encompass 

design options currently not available 

on the commercial market but that are 

being examined in the laboratory as 

possible means to enhance efficiency. 

These are: 

• Electro-hydrodynamic enhanced 

heat transfer; 

• Copper rotor motor with improved 

efficiency; and 

• Non-hydrofluorocarbon/

hydrochlorofluorocarbon (HFC/HCFC) 

refrigerants (e.g., ammonia, 

hydrocarbons, carbon dioxide). 

Second, the Department considered 

commercial technologies that are 

currently available for unitary air 

conditioners or similar equipment, and 

which have an impact on the EER 

(nominal full-load) rating under DOE’s 

test conditions. These are: 

• Evaporator coil area (keeping the 

number of coil rows the same); 

• Condenser coil area (keeping the 

number of coil rows the same);

• Coil rows (keeping face area the 

same); 

• Condenser fan diameters; 

• Evaporator fan diameters; 

• Air leakage paths within unit; 

• Coil rows (keeping coil heat transfer 

performance the same); 

• Microchannel heat exchangers; 

• Deep coil heat exchangers; 

• Low-pressure-loss filters; 

• High efficiency fan motors; 

• High efficiency compressors; 

• Air foil centrifugal fans; 

• Backward-curved centrifugal fans; 

• Synchronous (toothed) belts; 

• Direct-drive fans; and 

• High efficiency propeller condenser 

fans. 

Several of these technologies have 

penetrated the commercial equipment 

market and raised the available EER 

range. Because the EPCA energy 

descriptor for commercial unitary air 

conditioners and air source heat pumps 

is an EER, only those design options 

that improve the EER (nominal fullload) rating under DOE’s test procedures 

were viable for consideration in the 

engineering analysis. DOE addresses 

matters with respect to other 

technologies that can improve the net 

annual energy performance of a system, 

but which generally reduce or have no 

effect on EER, as Issue 18 under ‘‘Issues 

on Which DOE Seeks Comment’’ in 

section IV.E of this ANOPR. 

C. Engineering Analysis 

The engineering analysis establishes 

the relationship between the cost and 

efficiency of commercial unitary air 

conditioners and heat pumps. This 

relationship serves as the basis for cost/

benefit calculations in terms of 

individual consumers, manufacturers, 

and the Nation. The engineering 

analysis identifies the representative 

baseline equipment (using R–22 as the 

refrigerant), develops the bill of 

materials and determines the costs, 

constructs the industry cost/efficiency 

curves, and evaluates the impact of 

using an alternative to R–22 refrigerant 

on the cost/efficiency relationship of 

certain commercial air conditioners and 

heat pumps. The R–22 refrigerant is in 

current use and will phase out of new 

equipment in 2010 in compliance with 

the Environmental Protection Agency’s 

(EPA’s) requirements under the Clean 

Air Act of 1990, as amended (42 U.S.C. 

7401 et seq.). 

1. Baseline Equipment 

As discussed above, the engineering 

analysis considered only single package 

commercial unitary air conditioning 

equipment with gas heat in the estimate 

of the cost/efficiency relationship for 

the equipment classes under 

consideration. The Department analyzed 

single package commercial unitary air 

conditioning equipment with gas heat 

rather than single package units with 

electric heat or no heating section, 

because the gas heat units represent 

about 77 percent of the air conditioners 

covered in this rulemaking. (See the 

Market and Technology Assessment, 

section 3.6.1 of the ANOPR TSD, that 

provides information on historical 

shipments and efficiencies.) Although 

the Department did not explicitly 

analyze split air conditioning systems in 

the engineering analysis, the 

Department believes that the results of 

the unitary air conditioning equipment 

analysis apply to the split systems and 

that both unitary and split systems have 

equivalent cost/efficiency relationships. 

(See the engineering analysis, section 

5.2 of the ANOPR TSD.) The 

Department discussed this approach 

during the initial interviews with 

manufacturers, and it is consistent with 

the ASHRAE methodology used to set 

the ASHRAE/IESNA Standard 90.1–

1999. 

The Department proposes to address 

the energy efficiency of commercial 

unitary heat pump equipment in a way 

that is consistent with the ASHRAE 

methodology used to set the ASHRAE/

IESNA Standard 90.1–1999 levels for 

unitary air conditioning systems with 

heat pump heating, rather than conduct 

an explicit analysis of the unitary and 

split heat pump systems. According to 

Census Bureau data, commercial unitary 


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heat pumps with a capacity greater than 

65,000 Btu/h represent about 10 percent 

of products covered under this 

rulemaking. Although the census data 

do not specify the quantity, the 

Department believes that most of these 

units have less cooling capacity and are 

within the 65,000 Btu/h to 135,000

Btu/h size range. (See the Market and 

Technology Assessment, section 3.6.1 of 

the ANOPR TSD, that provides 

information on historical shipments and 

efficiencies.) Under the ASHRAE 

process, the ASHRAE 90.1 committee 

worked with ARI to develop new 

efficiency levels for inclusion in 

ASHRAE/IESNA Standard 90.1–1999. 

For heat pumps in these capacity 

ranges, ARI supplied the ASHRAE 90.1 

committee with curves relating the COP 

as a function of EER. The committee 

then set the minimum COP levels based 

on EER. The Department used a similar 

process in the residential central air 

conditioner and heat pump rulemaking, 

where it established minimum Heating 

Seasonal Performance Factors (HSPF) 

for heat pumps using functions relating 

the HSPF to the Seasonal Energy 

Efficiency Ratio (SEER). The 

Department intends to do the same for 

the NOPR analysis for commercial 

unitary air conditioning and heat pump 

equipment. 

For more detail on baseline 

equipment, refer to the engineering 

analysis, section 5.3 of the ANOPR TSD. 

The Department requests comments 

from interested parties about this 

proposed approach to the engineering 

analysis, and has identified it as Issue 

1 under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E. of this 

ANOPR. 

Identification of the baseline for 

commercial unitary air conditioning 

equipment requires both establishing a 

baseline efficiency level and selecting a 

size typical of that equipment to 

represent the different capacity ranges 

of commercial, unitary, air conditioning 

equipment classes: ≥65,000 Btu/h to 

<135,000 Btu/h; and ≥135,000 Btu/h to 

<240,000 Btu/h. 

a. Efficiency Level 

As described above, the Department 

selected ASHRAE/IESNA Standard 

90.1–1999 for the baseline efficiency 

levels both for ≥65,000 Btu/h to 

<135,000 Btu/h and ≥135,000 Btu/h to 

<240,000 Btu/h classes of commercial 

unitary air conditioning equipment. To 

aid in analyzing the economic impact of 

increasing standard levels, DOE 

examined the costs associated with 

moving from EPCA levels to the 

ASHRAE Standard 90.1–1999 levels. 

Additionally, to provide a reasonable 

span of efficiency levels to evaluate, 

DOE limited the efficiency levels under 

consideration to those that are 

commercially available. 

In some cases, manufacturers’ product 

lines span efficiency ranges from levels 

below the baseline to levels above the 

baseline. To properly assess the 

incremental cost of increasing the 

efficiency level beyond the baseline 

level, DOE evaluated the manufacturing 

costs of the equipment with efficiency 

levels below the baseline and included 

these data in the industry cost/

efficiency curves. The Department 

determined the manufacturing costs of 

this lower efficiency equipment in the 

same way as it did for the equipment 

above the baseline efficiency level. For 

more detail on efficiency levels, refer to 

the discussion of efficiency levels in 

section 5.3.1 of the ANOPR TSD. 

b. Maximum Technologically Feasible 

Design 

In previous rulemakings, the 

Department relied on the maximum 

technologically feasible design to define 

the highest level of energy efficiency it 

would evaluate. The maximum energy 

efficiency level that is technologically 

feasible is often referred to as ‘‘max 

tech.’’ Technological feasibility requires 

that a system be not only theoretically 

possible, but also capable of being 

designed, constructed, and operated. At 

the time the engineering analysis was 

conducted, the highest efficiency level 

for commercial unitary air conditioners 

in the ≥65,000 Btu/h to <240,000

Btu/h range available on the market was 

11.5 EER. The engineering analysis used 

reverse engineering on this existing 

equipment to develop a cost-efficiency 

curve up to 11.5 EER. Extending the 

curve beyond 11.5 EER required 

extrapolation and then verification 

using design-option analysis modeling. 

The Department’s modeling indicated 

that with some additional conventionaltype design modifications, such as 

increases to the size of heat exchangers 

and modification of the airflow paths 

(both of which may need new and larger 

cabinets), the highest practical 

efficiency level was about 12.0 EER. To 

limit uncertainty associated with the 

extrapolated curve beyond 11.5 EER, the 

maximum efficiency level that DOE 

evaluated in the engineering analysis 

was 12.0 EER. The Department verified 

the extrapolated cost-efficiency curve 

using design-option modeling between 

11.5 and 12.0 EER. Beyond the 12.0 EER 

level, the Department would need to 

consider technologies that are not 

currently available or non-conventional 

technologies that are not typically in use 

by the industry. 

The Department seeks comments on 

commercial unitary air-conditioning 

equipment designs that are currently 

used in the engineering analysis. The 

Department will review public 

comments after the ANOPR meeting and 

during the NOPR phase of the 

rulemaking to further evaluate design 

options, including the following, which 

could achieve higher technologically 

feasible efficiency levels. 

• Larger heat transfer surface area for 

the tube and fin condensers 

accomplished by increasing the number 

of rows or by increasing the face area of 

the condenser (or some combination of 

both), while limiting the minimum 

condensing temperature to 110 °F with 

10 °F of subcooling capability.

• Larger heat transfer surface area for 

the tube and fin evaporators 

accomplished by increasing the number 

of rows or by increasing the face area of 

the evaporator (or some combination of 

both), but limiting the maximum 

evaporating temperature to 52 °F and the 

sensible heat ratio to 0.75. 

• Use of premium efficiency motors 

with compressors, condenser fans, and 

evaporator blowers. 

• Use of larger diameter airfoil or 

backward-curved blade blowers for 

evaporators. 

• Use of larger diameter airfoil fans 

for condensers. 

Since the time the engineering 

analysis was completed in late 2002, 

several new commercial unitary air 

conditioners, with rated efficiency 

levels greater that 12.0 EER, have 

become available on the market. The 

Department requests comments from 

stakeholders on any commercial unitary 

air conditioners with rated efficiency 

levels above 12.0 EER. This is identified 

as Issue 4 under ‘‘Issues on Which DOE 

Seeks Comment’’ in section IV.E of this 

ANOPR. 

c. Representative Capacities 

After reviewing the available single 

package equipment and interviewing 

four major commercial air-conditioning 

equipment manufacturers and two niche 

manufacturers, the Department set the 

representative capacity (i.e., the 

equipment capacity to be analyzed in 

detail for this capacity range) for the 

≥65,000 to <135,000 Btu/h capacity 

range at 7.5 tons and the representative 

capacity of the ≥135,000 to <240,000 

Btu/h capacity range at 15 tons. An air 

conditioning ton is equivalent to 12,000 

Btu/h of cooling capacity. Also, for 

consistency with the ASHRAE 

standards development process, DOE 

chose the same equipment capacities of 

7.5 tons and 15 tons to represent these 

commercial unitary air conditioning 


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equipment classes. These nominal 

capacities represent units which, 

according to the industry, are volume 

shipment points in the capacity range. 

Because manufacturers do not 

necessarily manufacture commercial 

unitary air conditioning equipment with 

the exact capacity of these units (90,000 

Btu/h and 180,000 Btu/h), the 

Department uses the industry standard 

terminology of nominal ‘‘tons’’ for 

consistency with the current equipment 

catalogs. 

Similarly, during the development of 

the ASHRAE 90.1–1999 standard, 

ASHRAE chose the 7.5- and 15-ton 

capacities as representative capacities 

for its analysis. In addition, these 

capacities fall close to the middle of the 

capacity range. For some manufacturers, 

these sizes represent their optimum 

design, i.e., where they have optimized 

the ratio of cooling capacity to 

manufacturing cost. Increasing the 

efficiency of these models would 

generally be very difficult and 

expensive because the manufacturers 

have packed as much component 

equipment as possible into the smallest 

possible cabinet size. On the other hand, 

some manufacturers may have 

optimized their equipment at a higher 

capacity and, therefore, may initially 

use a larger cabinet for the evaluated 

equipment. Increasing the efficiency of 

this equipment would be less expensive 

because there intrinsically is more room 

in the cabinet to increase coil size and 

add other types of energy-saving devices 

without moving to the next larger 

cabinet. 

After DOE reviewed available 

products in each equipment class and 

interviewed several manufacturers, it 

found that a majority of the 

manufacturers who were interviewed 

agreed that the 7.5-ton and 15-ton 

capacities adequately represent the 

≥65,000 to <135,000 Btu/h and ≥135,000 

to <240,000 Btu/h equipment classes, 

respectively, and the wide array of 

design constraints. Lennox, however, 

suggested that 10-ton and 20-ton units 

would provide a better representation of 

the baseline, because larger capacity 

units are generally the hardest to 

upgrade and are, therefore, the units 

that would force design changes in a 

specific line of commercial unitary airconditioning equipment. Also, Lennox 

stated that 7.5-ton units are generally 

built off of 10-ton cabinets and 15-ton 

units are generally built off of 20-ton 

cabinets. (Public Workshop Tr., No. 2EE 

at pp. 87 and 88) 

The Department believes that the 7.5-

ton and 15-ton capacities are 

appropriate for the following reasons: 

(1) They are near the middle of the 

capacity range; (2) a majority of the 

manufacturers interviewed agreed that 

these capacities adequately represented 

the equipment classes; (3) they are 

consistent with the capacities chosen for 

the ASHRAE standards development 

process; and (4) these capacities 

represent both equipment that was costoptimized (cabinet-size constrained), as 

well as equipment that was not 

constrained within the cabinet, to 

account for variations among 

manufacturers. In addition, data 

regarding commercial unitary airconditioning system shipments by 

capacity, while not precise, suggest that 

shipments of 7.5-ton and 15-ton units 

are significantly higher than those of 10- 

and 20-ton systems, respectively. 

Therefore, it is more appropriate to 

select 7.5- and 15-ton units as 

representative capacities for their 

respective capacity ranges. Finally, the 

Department reviewed cabinet sizes and 

capacities for commercial unitary air 

conditioners and found a wide variation 

of cabinet sizes, and an equally wide 

variation of corresponding capacities 

within each cabinet size. Many 7.5-ton 

units are built off of 7.5-, 8.5-, 10-,

12-, and 12.5-ton cabinet sizes; and 

many 15-ton units are built off of 15-, 

20-, and 25-ton cabinet sizes. Therefore, 

using 7.5- and 15-ton capacity sizes for 

several different manufacturers and 

aggregating the results will capture the 

diversity of cabinet sizes and space 

constraints for the industry. The 

Department will consider manufacturerspecific cabinet sizes and conversion 

costs when it conducts the MIA. For 

more detail on representative capacities, 

refer to the Engineering Analysis, 

section 5.3.2 of the ANOPR TSD. 

2. Methodology 

At the October 1, 2001, Framework 

Workshop, the Department solicited 

stakeholder comments on the most 

appropriate approach for the 

engineering analysis. However, there 

was no clear consensus among the 

respondents for a particular approach. 

The Northwest Power Planning Council 

(NWPPC) expressed the view that 

transparency should be the primary 

criterion for selecting one approach or 

another. (Public Workshop Tr., No. 2EE 

at p. 132) The Natural Resources 

Defense Council also commented on the 

need for a transparent approach. (NRDC, 

No. 6 at p. 6)

The ACEEE and NRDC commented 

that DOE should not use the efficiencylevel approach because of concerns 

about the lack of transparency of data 

and the accuracy of cost estimates that 

could result from this approach. 

(ACEEE, No. 10 at p. 4; NRDC, No. 6 at 

p. 4) The ACEEE commented that 

developing estimates of uncertainty, i.e., 

confidence intervals, for manufacturing 

cost estimates is irrelevant in the case of 

an efficiency-level analysis, due to the 

inability to validate the accuracy of 

those costs. It also noted that the 

incremental values ARI provided in the 

past were much greater than those the 

Northeast Energy Efficiency 

Partnerships (NEEP) and the 

Consortium for Energy Efficiency (CEE) 

found empirically. (ACEEE, No. 10 at 

pp. 8–10) 

On a related issue, ACEEE, ASE, and 

NRDC argued that the Department 

should not use cost data that represent 

the 90th percentile of equipment cost 

used during the development of the 

ASHRAE/IESNA Standard 90.1–1999, 

because these costs are not 

representative of most equipment and 

would bias any life-cycle cost analysis 

away from higher standards. (ACEEE, 

No. 10 at p. 6; ASE, No. 9 at p. 2; NRDC, 

No. 6 at pp. 4–7) The NRDC further 

criticized the 90th percentile approach 

because it used the costs of the most 

expensive manufacturer, those costs 

could not be verified independently, 

and one erroneous data point could 

skew the cost data. Instead, NRDC 

recommended using third-party cost 

estimates and presenting them to the 

public for evaluation, even though 

NRDC believed that third-party 

estimates tended to be high because of 

the difficulty associated with 

anticipating innovation. (NRDC, No. 6 at 

p. 7) The ACEEE also noted that 

‘‘revealed costs,’’ i.e., the cost 

differential between high and low 

efficiency equipment in regions where 

high efficiency units have appreciable 

sales volumes, can provide insight into 

cost differentials. (Public Workshop Tr., 

No. 2EE at p. 65) Along these lines, 

NEEP submitted equipment incremental 

cost data related to the CEE efficiency 

levels. (NEEP, No. 8 at p. 3) The 

Alliance to Save Energy recommended 

applying reverse engineering analysis, 

particularly teardowns, to estimate 

future costs of different efficiency levels 

and supplementing this information 

with cost data obtained from market 

surveys performed in regions where 

products at higher efficiency levels have 

higher market shares. (ASE, No. 9 at p. 

3) 

As a result of the above comments 

from stakeholders, the Department used 

a cost assessment approach and 

supplemented the data with a design 

option analysis to develop incremental 

cost/efficiency curves for the two 

representative capacities described 

above. The reverse engineering analysis 

relied on creating bills of materials


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45470 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

(BOMs) for a sample of existing 

equipment that uses R–22 refrigerant. 

The Department developed the BOMs 

through the reverse engineering of either 

physical teardowns or catalog 

teardowns. The Department then 

entered the BOMs into a cost model and 

used that model to estimate the 

manufactured cost for each piece of 

equipment. The Department then 

aggregated the costs of the equipment 

and their associated efficiencies and fit 

them to a curve to represent the cost/

efficiency behavior of the industry. In 

addition, the Department derived 

confidence intervals that described the 

accuracy of the curve, based on the 

variability of the estimated 

manufacturer costs. The Department 

then used the design option analysis to 

validate the accuracy of the curve 

between 11.5 and 12.0 EER, where there 

are no existing equipment data points, 

by using the cost model and a 

performance model to simulate 

equipment at higher efficiency levels. 

The last step in the process—the 

alternative refrigerant analysis—

compared the cost/efficiency behavior 

of R–410a products to the R–22 cost/

efficiency curve by using the cost model 

and the performance model to simulate 

R–410a products. For more detail on the 

Department’s methodology, refer to the 

Engineering Analysis, section 5.4 of the 

ANOPR TSD. 

3. Cost Assessment Approach 

The use of the cost assessment 

(reverse engineering) approach provides 

useful information, including the 

identification of potential technology 

paths manufacturers use to increase 

efficiency. Under this type of analysis, 

the Department physically analyzes 

actual equipment on the market (i.e., 

dismantles them component-bycomponent) or generates BOMs from 

publicly available manufacturer catalogs 

and specifications. This enables the 

Department to determine what 

technologies and designs manufacturers 

employ to increase efficiency. The 

Department then uses independent 

costing methods or manufacturer and 

component supplier data to estimate the 

costs of the components. This approach 

has the distinct advantage of using 

‘‘real’’ market equipment to ascertain 

the technologies that manufacturers use 

as the bases for estimating the costs of 

reaching higher efficiencies. 

The primary disadvantage of reverse 

engineering is the time and effort 

required to analyze the existing 

equipment. The Department needs 

several models of commercial unitary 

air conditioning equipment from 

various manufacturers to ensure that it 

identifies a broad representation of 

technological paths for increasing 

efficiency. In addition, because the 

Department only analyzes equipment in 

the market, the analysis might not 

capture prototypical designs, thus 

making it difficult to establish the 

maximum technologically feasible 

designs. Therefore, the Department has 

supplemented the reverse engineering 

process with a design option analysis 

that considers the technologies required 

to increase efficiency beyond what is 

currently available. 

a. Teardown Analysis 

The Department used a teardown 

analysis (or physical teardown) to 

determine the production cost of a piece 

of equipment by disassembling the 

equipment ‘‘piece-by-piece’’ and 

estimating the material and labor cost of 

each component. A supplementary 

method called a catalog teardown uses 

published manufacturer catalogs and 

supplementary component data to 

estimate the major physical differences 

between a piece of equipment that has 

been physically disassembled and 

another piece of similar equipment. The 

teardown analysis that DOE performed 

for the engineering analysis includes 

four physical teardowns and 14 catalog 

teardowns, for a total of 18 equipment 

teardowns. Tables II.1 and II.2 show the 

distribution of equipment teardown 

analyses that DOE performed for the 7.5-

ton and 15-ton commercial unitary air 

conditioning equipment. The 

Department selected the equipment to 

provide a full range of efficiency levels 

and included equipment from similar 

product lines that had both higher and 

lower energy efficiency ratings. For 

more detail on the teardown analysis, 

refer to the Engineering Analysis, 

section 5.5 of the ANOPR TSD.

TABLE II.1.—NUMBER OF COMMERCIAL UNITARY AIR CONDITIONERS SELECTED FOR TEARDOWN ANALYSIS IN THE

≥65,000 BTU/H TO <135,000 BTU/H EQUIPMENT CLASS

EER Range 8.6–9.0 9.1–9.5 9.6–10.0 10.1–10.5 10.6–11.0 11.1–11.5 

Equipment, Physical Teardown ............... 0 0 0 1 1 0 

Equipment, Catalog Teardown ................ 2 0 0 2 0 3 

TABLE II.2.—NUMBER OF COMMERCIAL UNITARY AIR CONDITIONERS SELECTED FOR TEARDOWN ANALYSIS IN THE

≥135,000 BTU/H TO <240,000 BTU/H EQUIPMENT CLASS

EER Range 8.6–9.0 9.1–9.5 9.6–10.0 10.1–10.5 10.6–11.0 11.1–11.5 

Equipment, Physical Teardown ............... 0 0 1 0 0 1 

Equipment, Catalog Teardown ................ 1 3 0 1 0 2 

b. Cost Model 

The cost model analysis created cost 

estimates for each of the 18 commercial 

unitary air conditioners, including all 

direct manufacturing costs and a 

manufacturer’s markup, which covers 

corporate overhead expenses. This is the 

price at which DOE estimates a 

manufacturer sells the equipment to 

distributors, resellers, and similar 

parties; it is not the final cost to the enduser because it does not include the 

distribution markups and contractor 

installation costs. 

In converting physical information 

about the equipment into cost 

information, the Department 

reconstructed manufacturing processes 

for each component, using internal 

expertise and knowledge of the methods 

used by the industry. The Department 

used assumptions regarding the 

manufacturing process parameters, e.g., 

equipment use, labor rates, tooling 

depreciation, and cost of purchased raw 

materials, to determine the value of each 

component. It then summed the values 

of the components into assembly costs 

and, finally, the total equipment cost. 

The equipment cost includes the 


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material, labor, and overhead costs 

associated with the manufacturing 

facility. The material costs include both 

direct and indirect materials. The labor 

rates include fabrication, assembly, and 

indirect and overhead (burdened) labor 

rates. The overhead costs include 

equipment depreciation, tooling 

depreciation, building depreciation, 

utilities, equipment maintenance, and 

rework. The Department also applied a 

manufacturer markup of 1.23 to the 

equipment cost to arrive at a final 

manufacturer cost. The markup 

accounts for the corporate overhead that 

DOE believes to include sales and 

general administration, research and 

development, and profit. 

Both ACEEE and NRDC commented 

that the actual, retrospective cost of 

compliance with appliance energy 

efficiency standards has been 

substantially less than forecast by 

industry, and suggested analyzing 

earlier cost-impact data to derive an 

appropriate discount for current cost 

projections. (ACEEE, No. 10 at p. 9; 

Public Workshop Tr., No. 2EE at p. 65; 

NRDC, No. 6 at p. 7) In response, Trane 

commented that although actual future 

equipment costs may or may not have 

approached predicted future equipment 

costs, these changes in costs reflect 

improvements in manufacturing 

efficiency and, because they apply to all 

equipment, do not necessarily result in 

a change in the marginal cost between 

equipment. (Public Workshop Tr., No. 

2EE at pp. 65–66) Lennox commented 

on the importance of understanding 

costs for both standard equipment and 

custom-built equipment because they 

have different cost structures. (Lennox, 

No. 7 at p. 7) Lastly, NWPPC 

commented that the cost basis for 

equipment meeting the ASHRAE 

Standard 90.1–1999 levels should not 

include retooling costs because 

manufacturers already have had to 

retool to manufacture equipment 

satisfying this level. (Public Workshop 

Tr., No. 2EE at p. 132) 

The Department acknowledges that 

manufacturing efficiency evolves over 

time, but notes that earlier trends do not 

necessarily reflect future trends and that 

the incremental cost impact is the cost 

metric for evaluating appliance energy 

efficiency standards via LCC analysis. 

Thus, the Department believes that 

thorough and rigorous manufacturing 

cost analysis based on actual equipment 

at all efficiency levels represents the 

most effective and appropriate way to 

estimate current and near term 

incremental manufacturing costs. 

After deriving production cost 

estimates from the reverse engineering 

analysis, the Department solicited 

detailed feedback on the cost estimates 

from specific manufacturers of 

individual products. The industry 

feedback resulted in revisions to the 

reverse engineering production costs of 

specific components including: Controls 

equipment, materials (sheet metal, 

refrigerant), labor, and buildings/capital. 

For more detail on how the Department 

developed the manufacturing costs, 

refer to the engineering analysis section 

(Chapter 5) of the ANOPR TSD. 

Regarding the manufacturer markup, 

ARI believes that a value of 1.23 is not 

representative of what industry uses. 

Specifically, a value of 1.23 does not 

produce an acceptable financial return 

on investment, i.e., it underestimates 

manufacturers’ operating expenses and 

profitability. (ARI, No. 14 at p. 1) 

The Department included the 

following expenses in the determination 

of the manufacturer markup: Research 

and development, net profit, general 

and administrative expenses, warranty 

expenses, taxes, and sales and 

marketing. The Department based the 

value of 1.23 on its analysis of industry 

corporate financial records and 

excluded shipping expenses (outbound) because these expenses were 

included in the equipment cost. The 

Department determined research and 

development expenses by assuming 

reallocation of engineering budgets from 

value-engineering and new-feature 

development to product development 

and redesign. The incremental cost of 

the equipment captures additional 

capital outlays and re-tooling 

investments. For more detail on how the 

Department developed the cost model, 

refer to the Engineering Analysis, 

section 5.6 of the ANOPR TSD. 

c. Cost/Efficiency Curves 

Creating the cost/efficiency curves 

involved a three-step process: Plotting 

raw data points as cost versus 

efficiency, normalizing the cost data to 

go from absolute costs to incremental 

costs, and using a linear regression 

analysis using the least-squares fitting 

technique to determine the empirical 

equation and corresponding 95 percent 

confidence interval that best defines the 

normalized data. This process gives 

industry average cost/efficiency curves 

with a predicted range of accuracy. 

The Department refers to the 

manufacturer cost—what the cost model 

directly provides as output—as the 

‘‘absolute cost’’ in this section. The 

Department correlated the absolute costs 

from the model as a function of each 

commercial unitary air conditioner’s 

rated EER. Each manufacturer publishes 

the rated EER of its air conditioners 

according to ARI specifications. The 

resulting two curves of absolute cost 

versus efficiency—one for the ≥65,000 

Btu/h to <135,000 Btu/h equipment 

class and one for the ≥135,000 Btu/h to 

<240,000 Btu/h equipment class—each 

has nine data points. 

The absolute costs, represented as 

output by the cost model, are not central 

to the rulemaking process and DOE does 

not present them in this document (nor 

in the TSD) to avoid the possibility of 

exposing sensitive information about 

individual manufacturers’ equipment. 

Different manufacturers might have 

substantially different costs for their 

equipment at the same efficiency level, 

but this fact on its own does not provide 

the required insight. To determine the 

relationship of incremental cost versus 

EER for each of the 18 teardown 

commercial unitary air conditioners, 

DOE normalized the absolute cost data 

for every manufacturer. That is, DOE 

adjusted the costs of every 

manufacturer’s equipment so that the 

cost of its equipment was zero at the 

baseline ASHRAE/IESNA Standard 

90.1–1999 EER levels (10.1 EER for the 

≥65,000 Btu/h to <135,000 Btu/h 

equipment class and 9.5 EER for the 

≥135,000 Btu/h to <240,000 Btu/h 

equipment class). To do this, DOE first 

fit an exponential curve to each 

manufacturer’s data points separately. 

Then, DOE shifted each curve until the 

incremental cost equaled zero at the 

baseline efficiency. The Department 

shifted all data points for a given 

manufacturer by the same amount as the 

entire curve, so that the resulting data 

points represent incremental cost versus 

EER. The Department then discarded 

individual manufacturer curve-fits and 

continued the analysis with the 

normalized cost data points. The 

engineering analysis section (Chapter 5) 

of the ANOPR TSD provides more 

explanation and details of the 

normalization process.

After establishing the normalized data 

points, the Department used a leastsquares regression analysis to fit curves 

to the data and established two cost/

efficiency curves—one for each 

equipment class—that represent the 

average incremental cost of increasing 

efficiency above the ASHRAE/IESNA 

Standard 90.1–1999 levels. The curves 

do not represent any single 

manufacturer, nor do they describe any 

variance among manufacturers. The 

curves simply represent the industry’s 

cost to increase the efficiency of the 

equipment. 

The Department also produced 

confidence intervals from the regression 

analysis which describe the accuracy of 

the cost/efficiency curves representing 

the mean value of the industry. The 


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45472 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

Department selected a confidence 

interval of 95 percent to define the 

probability that the actual industry 

average is within these bounds. The 

LCC analysis (see section II.F of this 

ANOPR) uses the cost/efficiency curves 

and confidence intervals to compute the 

mean, minimum, and maximum cost 

cases. 

At the time the engineering analysis 

was conducted, the highest efficiency 

level available in the equipment’s 

representative capacities was 11.5 EER. 

Because the engineering analysis relies 

on reverse engineering of existing 

equipment, extending the curve beyond 

11.5 EER required extrapolation and 

then verification using design/option 

analysis. To limit the uncertainty 

associated with the part of the curve 

that was extrapolated, the maximum 

efficiency level that DOE evaluated was 

12.0 EER. 

Tables II.3 and II.4 show the 

incremental manufacturer costs and 

confidence intervals for the systems 

with cooling capacities of about 7.5 and 

15 tons.

TABLE II.3.—THE ≥65,000 BTU/H TO

<135,000 BTU/H (7.5-TON) EQUIPMENT CLASS INCREMENTAL COST/

EFFICIENCY RELATIONSHIP AND 95 

PERCENT CONFIDENCE INTERVAL

EER Incremental 

cost 

95%

Confidence interval [±] 

10.1 ........... $0 $0 

10.5 ........... 47 14 

11.0 ........... 139 41 

11.5 ........... 292 85 

12.0 ........... 543 159 

TABLE II.4—THE ≥135,000 BTU/H TO

<240,000 BTU/H (15-TON) EQUIPMENT CLASS INCREMENTAL COST/

EFFICIENCY RELATIONSHIP AND 95 

PERCENT CONFIDENCE INTERVAL

EER Incremental 

cost 

95%

Confidence interval [±] 

9.5 ............. $0 $0 

10.0 ........... 62 35 

10.5 ........... 165 94 

11.0 ........... 334 191 

11.5 ........... 613 351 

12.0 ........... 1,072 615 

For more detail on how the 

Department developed the industry cost 

efficiency curves, refer to the 

engineering analysis, section 5.7 of the 

ANOPR TSD. 

4. Supplemental Design Option 

Analysis 

The Department used the design 

option approach to validate the 

accuracy of the cost efficiency curves at 

efficiency levels between 11.5 and 12.0 

EER. As noted earlier, DOE did not 

evaluate any existing equipment in that 

EER range during the teardown analysis, 

so there were no data points available 

for the curve-fit. Therefore, DOE did not 

know the level of accuracy of the cost/

efficiency curves in this range. The 

design option analysis simulates 

equipment with efficiency levels above 

11.5 EER to compare their costs with the 

costs that the extrapolated curve 

predicts. 

The Department received comments 

from ACEEE and Trane about using the 

design option approach. The ACEEE 

recommended using the design option 

approach because it can consider 

technologies with limited market share 

and take into account their cost impact 

at higher production volumes. (ACEEE, 

No. 10 at p. 4; Public Workshop Tr., No. 

2EE at p. 136) At the Framework 

Workshop, Trane commented that all 

design options the Department 

considered were mature technologies’at 

least 20 years old’and that the pricing 

for the options also is mature. 

Consequently, development of costs for 

mature technologies should be 

straightforward. (Public Workshop Tr., 

No. 2EE at pp. 133–34) 

For the equipment simulation, DOE 

used a combination of modeling tools 

and techniques. For more detail on the 

Department’s approach to the design 

option analysis and equipment 

simulation, refer to the engineering 

analysis, section 5.8 of the ANOPR TSD. 

The Department performed the 

refrigerant-side heat-transfer and 

balance calculations with a simulation 

model called the Oak Ridge National 

Laboratory (ORNL) Heat Pump Design 

Model using compressor map data from 

commercially available compressors. A 

custom heat-exchanger software 

program provided estimates of the airside heat transfer and pressure-drops 

associated with the equipment 

variations. The Department used a 

combination of manufacturer data, test 

data, fan curves, and motor curves to 

determine fan power and airflow. 

To validate the accuracy of the 

simulations, the Department simulated 

the performance of the four existing, 

physically torn down, unitary air 

conditioners. In addition, DOE had a 

third-party testing laboratory test and 

measure the specific performance limits 

of one of the air conditioners. The 

Department then used the test data 

generated from the tests to calibrate the 

performance model. 

After constructing and calibrating the 

performance model, DOE analyzed 

various combinations of design options 

to simulate equipment with increased 

efficiencies. Then, through discussions 

with manufacturers and reliance on 

sound engineering judgment, the 

Department established guidelines to 

limit the design option simulations. 

The Department requests stakeholder 

comments regarding its design option 

analysis. This concern is identified as 

Issue 4 under ‘‘Issues on Which DOE 

Seeks Comment’’ in section IV.E. of this 

ANOPR.

5. Alternative Refrigerant Analysis 

The ACEEE, ARI, and Lennox noted 

that the engineering analysis should 

consider alternative refrigerants because 

R–22 refrigerant will phaseout in 2010 

in compliance with EPA requirements 

and this will affect equipment 

component costs. (ACEEE, No. 10 at pp. 

9–10; ARI, No. 11 at p. 4; Lennox, No. 

7 at p. 1) Both ARI and Lennox stated 

that significant uncertainty exists 

concerning what refrigerant will be the 

likely replacement for R–22 in 

commercial unitary air conditioner and 

heat pump equipment, thereby 

complicating analyses. (ARI, No. 11 at p. 

4; Lennox, No. 7 at p. 1) During the 

October 1, 2001, Framework Workshop, 

Trane commented that alternative 

refrigerants can behave differently than 

R–22 at higher temperatures. (Public 

Workshop Tr., No. 2EE at p. 160) The 

ACEEE commented that DOE should 

base the cost impact of alternative 

refrigerants on a least-cost strategy 

incorporating efficiency and refrigerant 

re-designs in a single design cycle, along 

with changes in assembly processes. 

(ACEEE, No. 10 at p. 9) 

The Department acknowledges that 

the phaseout of R–22 will occur shortly 

after the effective date of any new 

standards and therefore it is important 

to consider the impact of new 

refrigerants on incremental cost/

efficiency relationships. In addition, the 

Department recognizes that it is not 

certain that R–410a will be the ultimate 

replacement for R–22 in future unitary 

air conditioner and heat pump 

equipment. Two refrigerants, R–410a 

and R–407c, are currently under serious 

consideration as substitutes for R–22. 

While R–407c has similar pressure/

temperature characteristics as R–22 and 

thus easily adapts to existing R–22 

designs, it is less efficient. By contrast, 

R–410a operates at higher pressures 

than R–22, thus requiring redesign of R–

22 equipment. However, R–410a offers 

efficiency benefits relative to R–407c. 


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During the rulemaking process, the 

Department contacted manufacturers 

and the consensus was that R–410a 

would be the most likely replacement 

for R–22 in new commercial unitary 

equipment as the phaseout of R–22 

approaches. 

Although some unitary air 

conditioners using R–410a are 

commercially available, none were 

available in the ≥65,000 Btu/h to 

<240,000 Btu/h range when the 

engineering analysis was conducted. 

However, since the analysis was 

conducted, the Department has learned 

that there is one R–410a commercial 

unitary air conditioner now available on 

the market in the 15-ton representative 

capacity. Most air conditioners that use 

R–410a are sold primarily for residential 

applications. Consequently, the 

Department’s analysis compared the 

design differences between R–22 and R–

410a equipment in smaller packaged 

units (i.e., <65,000 Btu/h units) to gain 

general engineering insight. In addition, 

the Department used performance 

information from manufacturers of R–

410a compressors to develop 

engineering models of the larger R–410a 

systems. 

The Department carried out 

preliminary performance analyses to 

simulate R–410a equipment using the 

same performance models applied to the 

R–22 equipment, and calculated the R–

410a equipment costs using the same 

cost model applied to the R–22 

equipment. The engineering analysis 

section (Chapter 5) of the ANOPR TSD 

presents additional details of the R–

410a analyses. The Department 

generated cost/efficiency curves that 

represented the R–410a equipment 

using the performance analysis and 

estimated equipment costs. 

The Department realizes that the 

absolute costs of R–410a equipment 

differ from those of the R–22 equipment. 

However, the analysis focuses on the 

difference in the incremental costs 

between the two curves. The 

Department intends to consider the 

absolute costs of the R–22 phaseout in 

the manufacturer impact analysis. The 

alternative refrigerant analysis provided 

no evidence to suggest that the 

incremental cost/efficiency behavior of 

R–410a equipment in the ≥65,000 Btu/

h to <135,000 Btu/h and ≥135,000 Btu/

h to <240,000 Btu/h equipment classes 

differs substantially from the R–22 cost/

efficiency behavior. For more detail on 

the alternative refrigerant analysis, refer 

to the engineering analysis, section 5.9 

of the ANOPR TSD. 

The Department requests comments 

from interested parties about its 

proposed approach to the alternative 

refrigerant analysis, and has identified it 

as Issue 2 under ‘‘Issues on Which DOE 

Seeks Comment’’ in section IV.E. of this 

ANOPR. 

D. Building Energy Use and End-Use 

Load Characterization 

Energy savings from commercial 

unitary air conditioning equipment vary 

according to the rated efficiency level of 

the equipment and a number of other 

factors, including: Climate, buildingtype, and building occupation schedule 

and use. Operating cost savings are a 

result of reduced electricity 

consumption and a decrease in the peak 

electric demand charge. The Department 

conducted building simulations to 

estimate the energy use of the 

commercial unitary air conditioning 

equipment at candidate standard levels 

for various combinations of the abovementioned factors. The simulations 

yielded hourly estimates of the 

buildings’ electric loads that included 

lighting, plug, and air conditioning 

equipment. The Department uses these 

estimates in the life-cycle cost analysis 

to assess the cost savings that the air 

conditioning equipment provides at 

each of the efficiency levels analyzed. 

For more detail on the building energy 

use and end-use load characterization 

analysis, refer to Chapter 6 of the 

ANOPR TSD. 

1. Approach 

The 1995 CBECS (CBECS 95) data set 

was the primary source of the data used 

to develop the building characteristics. 

The Department considered the use of 

the 1999 CBECS (CBECS 99), but the 

entire microdata set was not available in 

time for this analysis. In addition, the 

sampling procedure for CBECS 99 

specifically excluded new buildings of 

less than 10,000 square feet, which is 

the type of building that uses 

commercial unitary air conditioners. 

Using the CBECS 99 data would have 

resulted in a biased data set. The 

Department used a subset of the CBECS 

95 representative building types to 

characterize the energy use and loads 

for this analysis. It selected six building 

types that included most of the top 

eight, energy-using building types in the 

commercial sector based on CBECS 

data. 

The Department did not explicitly 

include health care buildings. Instead, 

because of similarities in modeling the 

outpatient segment of a health care 

building and an office building, the 

Department added the outpatient 

segment of a health care building into 

the office-building category. However, 

the Department did not include the 

inpatient segment of the health care 

building type, because there are 

insufficient data to characterize the 

buildings for the purpose of energy 

simulations. The Department did not 

consider the lodging building type 

because the number of observations 

nationwide in the CBECS data set was 

small and because these buildings do 

not typically use unitary packaged air 

conditioning equipment for most of 

their conditioned spaces. For more 

details on the engineering approach to 

building energy use, representative 

building types, modeling methodology, 

climate and building locations, and 

annual building energy use, refer to 

Chapter 6 of the ANOPR TSD. 

Lennox provided comments 

indicating that industrial and light 

manufacturing applications use a large 

fraction of unitary equipment, which 

the DOE omitted from the building 

sample. (Lennox, No. 15 at p. 1) The 

CBECS data set excludes manufacturing 

facilities from its sample. The 

Manufacturing Energy Consumption 

Survey (MECS) includes manufacturing 

facilities, but the detailed data on 

building characteristics and operation 

are not available in the MECS data set. 

The lack of such data, including the 

square footage cooled by commercial 

unitary air conditioning equipment, 

makes it difficult to establish how 

significant this building category would 

be in the analysis. The Department 

believes that, in the case of office space 

attached to industrial or light 

manufacturing buildings, its analytical 

approach provides a reasonable 

representation of the cooling loads 

experienced by these building spaces. 

This issue is also discussed later with 

regard to the development of electricity 

prices from utility tariffs for the LCC 

analysis (see section II.F.1.b.(2)(a) of this 

ANOPR). This concern is identified as 

Issue 5 under ‘‘Issues on Which DOE 

Seeks Comment’’ in section IV.E of this 

ANOPR.

The Department further screened the 

individual CBECS buildings within the 

six building types to include only 

buildings with at least 70 percent of 

their total floor space cooled by unitary 

packaged equipment. The Department 

based the 70 percent value on the need 

to keep the sample size reasonable, yet 

still representative of the building stock 

that uses packaged cooling equipment. 

Using an 80 percent value would be too 

restrictive and using a 60 percent value 

would be too extensive and make the 

sample size too large. The total number 

of observations in the six building types 

meeting the 70 percent threshold was 

1033. These buildings accounted for 

over 73 percent of the annual cooling 

energy use and 67 percent of the square 


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footage of commercial buildings with at 

least part of their floor space being 

cooled with packaged equipment. 

The Department modeled each CBECS 

sample building using the BLAST 

software. The Department computed the 

building loads by simulating a 

prototypical three-story, 48,000-squarefoot building with five thermal zones 

per floor with schedule and envelope 

characteristics chosen to represent each 

building sampled. The Department used 

the ventilation requirements of 

ASHRAE Standard 62.1–1999 as the 

basis for the ventilation rates in the 

building simulations. The Department 

scaled the results of that prototype’s 

simulation to match the specific 

geometry of the CBECS building being 

represented, e.g., conditioned floor area, 

aspect ratio (defined as the ratio of the 

length to the width of a building), 

number of floors, and number of 

thermal zones per floor. The Department 

simulated the buildings with equipment 

at ten different EER levels to determine 

the annual energy impacts of changes in 

EER. 

Lennox commented that the default 

part-load performance curve in the 

BLAST simulation tool appears to be 

representative of equipment that uses 

cylinder unloading at part-load, instead 

of multi-compressor staging that is 

common in commercial unitary air 

conditioners. The impact of using the 

BLAST default part-load performance 

curve is some overestimation of the 

energy use of the compressors when 

lightly loaded. (Lennox, No. 15 at p. 1) 

Due to the lack of available published 

data on part-load performance of 

commercial unitary air conditioners, the 

Department requests data on the partload operating characteristics to adjust 

the BLAST part-load performance curve. 

Also, in view of the complexity of the 

BLAST analysis, and Lennox’s 

comments concerning the selection, 

characterization, and simulation of the 

building set used for the building energy 

use and end-use load characterization 

analysis (Lennox, No. 15 at p. 1), the 

Department had an independent thirdparty expert review its analysis. The 

results of the third-party review are 

available to interested parties on the 

Department’s website at http://

www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. This 

third-party review is addressed as issue 

16 under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E, of this 

ANOPR. 

Also, Lennox provided comments on 

the ventilation rates used in the DOE 

building simulation analysis. (Lennox, 

No. 15 at p. 1) Lennox and ARI asserted 

that the DOE analysis overstates the 

ventilation load for most buildings by 

assuming all commercial buildings 

typically operate at ASHRAE Standard 

62–1989 ventilation levels (15 cfm/

person typical). Lennox wrote that most 

existing building applications as well as 

half of the new building applications of 

unitary air conditioning equipment 

operate at pre-ASHRAE Standard 62–

1989 ventilation levels (5 to 7.5 cfm/

person typical), which accounts for 

nearly 85 percent of the total shipments 

of commercial unitary air conditioning 

equipment. (Lennox, No. 15 at p. 1; ARI, 

No. 18 at pp. 1–8) Consultation between 

the Department and designers suggests 

that designers use ASHRAE Standard 

62.1–1999 for establishing design 

ventilation rates, particularly since 

many designers wish to avoid potential 

litigation arising from adverse health 

effects attributable to low ventilation 

rates. (See the discussion of building 

energy use and end-use load 

characterization that addresses 

ventilation rates in section 6.2.5.5, 

‘‘Ventilation and Infiltration,’’ of the 

ANOPR TSD.) For commercial unitary 

air-conditioning equipment, the 

ventilation rate is typically established 

by an outside air damper setting on the 

installed equipment. It is not a function 

of the age of the building, but rather is 

set at the time of installation. Concern 

over the health effects of low ventilation 

rates are the same regardless of the age 

of the building or the minimum 

ventilation rates in effect at the time the 

building was constructed. 

Consequently, the Department 

believes that the use of ASHRAE 

Standard 62.1–1999 for setting 

ventilation requirements is the approach 

most representative of that used in the 

construction industry today. The 

Department is unaware of any field 

studies that would support use of a 

different ventilation rate than that 

required by ASHRAE Standard 62.1–

1999, and thus is inclined to use this as 

the basis for the analysis for the 

ANOPR. However, in view of the 

complexity of the analysis and issues 

concerning ventilation rates that Lennox 

addresses, the Department had an 

independent third-party expert review 

its analysis. The results of the third 

party review are available to interested 

parties on the Department’s website at 

http://www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. This 

concern is addressed as Issue 16 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E. of this ANOPR. 

The Department received several 

comments that expressed concern about 

whether the higher efficiency 

equipment provided adequate humidity 

control while meeting ASHRAE 

Standard 62.1–1999 ventilation 

requirements. (ACEEE, No. 10 at p. 5; 

Public Workshop Tr., No. 2EE at p. 72; 

Lennox, No. 7 at p. 3; Public Workshop 

Tr., No. 2EE at p. 71) The Department 

established maximum sensible heat 

ratios for equipment analyzed via the 

design option process in the engineering 

analysis, indicating that there could be 

high EER equipment designs that 

provide acceptable humidity control (or 

adequate sensible heat ratio 

performance) under ARI Standard 

Rating Conditions for cooling. 

In addition, DOE received several 

comments concerning the simulation of 

economizers. Lennox and the Oregon 

Office of Energy (OOE) commented that 

economizer operation or failure to 

operate is difficult to capture in a 

building simulation analysis. (Lennox, 

No. 7 at p. 4; Public Workshop Tr., No. 

2EE at p. 163) The Department agrees 

with Lennox and OOE. However, for 

this ANOPR analysis, DOE assumed that 

if CBECS data indicated the use of an 

economizer then it was a fully 

functioning economizer. This might 

result in some underestimation of the 

actual cooling loads in the buildings.

The Department requests comments 

from interested parties regarding its 

proposed approach to economizers. This 

matter is identified as Issue 6 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E. of this ANOPR. 

Fan power in the energy analysis was 

raised as one of the issues in the 

Framework Workshop. A written 

comment from ACEEE proposed (in 

addition to the EER requirement) 

establishing a second requirement for 

fan power as a function of flow rate in 

Watts per cubic feet per minute (Watts/

cfm) using the existing fan static 

pressures. (ACEEE, No. 10 at p. 9) The 

Department notes that the current EER 

performance metric includes fan power 

and has incorporated annual fan energy 

use in its estimate of total system energy 

use for the simulations. Because DOE is 

not planning to amend the test 

procedure at this time to extract the fan 

power measurement, it does not 

anticipate adding a requirement for fan 

efficiency (Watts/cfm). 

In a related comment on the fan 

power issue, Lennox raised the issue of 

the inclusion of supply fan energy 

during all operational modes of the air 

conditioner (cooling, heating, and 

ventilating) in the energy analysis. 

(Lennox, No. 15 at p. 1) The Department 

understands that the supply fan is an 

integral part of a unitary air conditioner 

and its operation contributes to the 

energy use of the equipment. Including 

supply fan energy during hours when a 

commercial unitary air conditioner is 


EE-RM-STD-01-375 COMMENT 22A
Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45475

operating in the heating or ventilating 

mode will increase the energy use of 

that equipment, in comparison to 

including supply fan energy only when 

the equipment is providing cooling. For 

the purposes of the ANOPR analysis, the 

Department has included all energy 

from the supply fan and welcomes 

public comments on this approach. This 

concern is addressed in Issue 7 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E of this ANOPR. 

Furthermore, in view of the 

complexity of the analysis concerning 

fan energy and the issues addressed by 

Lennox, the Department had an 

independent third party review its 

analysis. The results of the third-party 

review are available to interested parties 

on the Department’s Web site at http:/

/www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. Also, 

this concern is addressed as Issue 16 

under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

The end result of the simulation 

analysis was an hourly end-use energy 

stream of data for the following end-use 

categories:

• Cooling package equipment; 

• Heating (gas); 

• Lights; 

• Plug and miscellaneous loads; 

• Package-equipment fan; 

• Nnon-package cooling; and 

• Non-package fan. 

2. Preliminary Results 

The distribution of cooling energy use 

intensity (EUI) for all buildings 

simulated at the 8.9 EER efficiency level 

shows that EUI varies widely, from 0.33 

kBtu/square-foot/year to a maximum of 

63.3 kBtu/square-foot/year. However, 

the vast majority of the buildings fall 

into the 5 to 20 kBtu/square-foot/year 

range. Chapter 6 of the ANOPR TSD 

provides a comparison of the simulated 

cooling EUI for each building with the 

calculated cooling EUI using the CBECS 

estimated cooling energy use. On a 

square-footage-weighted basis, the 

BLAST simulation cooling EUIs agree 

reasonably well with the CBECS 

estimated EUIs. The CBECS estimated 

EUIs are higher for two of the building 

types (Office and Food Service), while 

the BLAST simulation cooling EUIs are 

higher for the four remaining building 

types (Retail, Education, Assembly, 

Warehouse). The square-footageweighted cooling EUI for this set of 

buildings was 10.5 kBtu/square-foot/

year for the BLAST simulations 

compared to 9.6 kBtu/square-foot/year 

for the CBECS estimates. 

The hourly cooling energy use is only 

one of the energy inputs to the LCC 

analysis. All the electric energy enduses play some part in determining 

which rate structure applies and where 

end-users are in the rate structure for 

any given hour. The electric energy use 

of the cooling equipment relative to the 

other electric energy use within a 

building is a strong function of the 

building type, climate, and time of use 

(seasonal as well as hourly). The peak 

hourly energy use becomes particularly 

important when analyzing the marginal 

cost of energy saved by higher EER 

levels.

In the progression to higher EER 

levels, the simulation runs indicated 

reduced cooling and fan energy 

consumption. The Department made a 

comparison of the change in cooling EUI 

(not including the fan energy) for two 

buildings from the representative 

building set as the equipment efficiency 

progressed from an EER of 8.5 to 12.0. 

As expected, the cooling EUI decreases 

with each incremental EER increase, but 

with a declining EUI benefit at higher 

EERs. This trend is the same for all 

buildings, even though the base EUI is 

different for each of them. The change 

in total fan energy use from the 

simulation as a function of EER is less 

pronounced. This is because, while the 

simulation model assumes that fan 

energy during the EER rating test is 

reduced, a substantial fraction of the fan 

energy consumption is a function of the 

external fan static pressure, which is 

assumed not to change between 

efficiency levels. The Department used 

the hourly simulated building electricenergy loads directly as inputs to the 

detailed LCC analysis discussed in the 

next section of this ANOPR. See Chapter 

6 of the TSD for more details on this 

building load simulation analysis. 

In determining the reduction in 

cooling and fan energy consumption 

due to higher EER levels, the 

Department did not take into account a 

rebound effect. The rebound effect 

occurs when a piece of equipment that 

is made more efficient is used more 

intensively, so that the expected energy 

savings from the efficiency 

improvement do not fully materialize. 

Because unitary air conditioners are a 

commercial appliance, the person 

owning the equipment (i.e., the building 

owner) is often not the person operating 

the equipment (i.e., the renter). Because 

the operator does not own the 

equipment, they will not have the 

information necessary to influence their 

operation of the equipment. In other 

words, a rebound effect would appear to 

be unlikely. The Department seeks 

comments on whether a rebound effect 

should be included in the determination 

of annual energy savings. If a rebound 

effect should be included, the 

Department seeks data for basing the 

calculation of the rebound effect. This 

matter is identified as Issue 20 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E. of this ANOPR. 

E. Markups To Determine Equipment 

Price 

The Department understands that the 

price of a commercial unitary air 

conditioner depends on how the 

customer purchases such equipment. 

Because the customer price of such 

equipment is not generally known, the 

Department used the manufacturers’

costs developed from the engineering 

analysis and applied multipliers called 

‘‘markups’’ to arrive at the final 

equipment price. The derivation of the 

equipment price depends on the 

distribution channel the customer uses 

to purchase the equipment. Typical 

distribution channels consist of 

wholesalers, mechanical contractors, 

and general contractors. The 

Department based the wholesale and 

contractor markups on a combination of 

firm balance sheet data and U.S. Census 

Bureau data. For each of the markups, 

DOE further differentiated between a 

baseline markup and an incremental 

markup. The Department defines 

baseline markups as coefficients that 

relate the manufacturer’s price of 

baseline equipment to the wholesaler’s 

or contractor’s sales price of such 

equipment. Incremental markups are 

coefficients that relate changes in the 

manufacturer’s price of baseline 

equipment to changes in the 

wholesaler’s or contractor’s sales price. 

For more detail on equipment prices 

and markups, refer to Chapter 7 of the 

ANOPR TSD. 

1. Approach 

To carry out the LCC calculations, 

DOE needed to determine the cost to the 

customer of a baseline commercial 

unitary air conditioning unit and the 

cost of more efficient units. The 

customer price of such units is not 

generally known. However, by applying 

a multiplier called a ‘‘markup’’ to the 

manufacturer’s prices that DOE derived, 

DOE could estimate customer prices 

both for baseline and more-efficient 

equipment. 

Both Lennox and Trane noted the 

importance of the methodology used to 

determine markups and equipment 

prices. Lennox stated that markups are 

dependent on how commercial 

equipment is sold and involve complex 

distribution channels that include 

distributors (also known as 

wholesalers), installing contractors, and 

business or building owners. (Lennox, 


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No. 2 at p. 3; Public Workshop Tr., No. 

2EE at p. 142) Trane also noted that any 

publicly available price lists are not 

useful for estimating equipment prices. 

(Public Workshop Tr., No. 2EE at p. 125) 

In response to Trane, OOE commented 

that invoices are available for estimating 

the installed cost of commercial unitary 

air conditioners. (Public Workshop Tr., 

No. 2EE at p. 126) 

The Department understands that the 

equipment price to the customer 

depends on how the customer 

purchases the equipment. Based on 

manufacturer input, DOE defined two 

types of distribution channels to 

describe how the equipment passes 

from manufacturer to customer. In the 

first distribution channel, the 

manufacturer sells the equipment to a 

wholesaler, who in turn sells it to a 

mechanical contractor, who in turn sells 

it (and its installation) to a general 

contractor, who in turn sells it to the 

customer. In the second distribution 

channel, the manufacturer sells the 

equipment directly to the customer 

through a national account. The 

Department further subdivided the first 

distribution channel by mechanical 

contractor size (as measured in annual 

revenues). In its methodology for 

estimating equipment prices, the 

Department relied solely on the above 

approach, i.e., defining distribution 

channels and determining markups at 

each point in the distribution channel. 

The Department could not collect any 

price lists or invoices to assist in its 

determination of equipment prices. For 

more detail on the distribution channels 

for commercial air conditioners, refer to 

the introduction to Chapter 7, figure 

7.1.1, and section 7.7 of the ANOPR 

TSD. 

Based on information provided by 

equipment manufacturers through 

informal interviews, as well as the 

judgment of individuals familiar with 

how commercial unitary air 

conditioning equipment is distributed to 

commercial customers, the Department 

assumes that end use customers 

purchase 50 percent of equipment 

through small mechanical contractors, 

32.5 percent through large mechanical 

contractors, and the remaining 17.5 

percent through national accounts. In 

addition, the Department understands 

that 30 percent of commercial unitary 

air conditioning equipment is 

purchased for the new construction 

market, while the remaining 70 percent 

serves the replacement market. In the 

case of the replacement market, where 

equipment is purchased through a 

mechanical contractor, the mechanical 

contractor generally purchases 

equipment directly from the wholesaler 

(i.e., a general contractor is not involved 

in the distribution of equipment). The 

mechanical contractor markup is a 

function of contractor size and whether 

the contractor serves primarily the new 

construction or the replacement market. 

For more detail on the new construction 

and replacement markets and their 

effects on the mechanical contractor 

markups, refer to section 7.4.1 of the 

ANOPR TSD. 

For each of the markups, DOE further 

differentiated between a baseline 

markup and an incremental markup. 

The Department defines baseline 

markups as coefficients that relate the 

manufacturer price of baseline 

equipment to the wholesale or 

contractor sales price of such 

equipment. Incremental markups are 

coefficients that relate changes in the 

manufacturer price of baseline 

equipment to changes in the wholesale 

or contractor sales price. For more detail 

on the methodology the Department 

used to determine baseline, incremental, 

and overall markups, refer to sections 

7.1.1 through 7.1.3 of the ANOPR TSD. 

The Department based the wholesale 

and mechanical contractor markups on 

firm balance sheet data, while it based 

the general contractor markups on U.S. 

Census Bureau data for the commercial 

and institutional building construction 

industry. The Department obtained 

balance sheets from the trade 

associations representing wholesalers 

and mechanical contractors. The 

Department put the building 

construction industry data into the same 

format as the balance sheet data for 

wholesalers and mechanical contractors 

to derive the markups for general 

contractors. The key assumptions used 

to estimate markups using this financial 

data are: 

• The firm balance sheets faithfully 

represent the various average costs 

incurred by firms distributing and 

installing commercial air conditioning.

• There are two categories of costs: (1) 

Costs that vary in proportion to the 

manufacturer price of commercial air 

conditioners (variable costs); and (2) 

costs that do not vary with the 

manufacturer price of commercial air 

conditioners (fixed costs). 

• Commercial air conditioner 

wholesale and contractor prices across 

different efficiency levels vary in 

proportion to commercial air 

conditioner wholesaler and contractor 

costs included in the balance sheets. 

For more detail on the basic 

assumptions the Department used to 

estimate markups, wholesale markups, 

and mechanical contractor markups, 

refer to sections 7.2 through 7.5 of the 

ANOPR TSD. 

Commercial unitary air conditioning 

equipment purchased through national 

accounts is an exception to the usual 

distribution of HVAC equipment to end 

users. Large customers of HVAC 

equipment, such as national retail 

chains, use national accounts to 

circumvent the typical chain of 

distribution. Due to the large volume of 

equipment purchased, large customers 

can purchase equipment directly from 

the manufacturer at significantly lower 

prices than could be obtained through 

the typical distribution chain. 

To derive a national account markup, 

the Department considered costs that 

are added to the manufacturer price as 

additional markups and costs that are 

subtracted from the customer price as 

markups that are avoided in a more 

typical manufacturer-to-wholesaler-tomechanical-contractor-to-generalcontractor-to-customer distribution 

system. Costs that are added include: 

• Freight charges (less-than-a-truckload rates are higher than trailer-load 

rates); 

• Account management and 

administration expenses (billing, 

collections and warranty issues); and 

• Cost-of-sale increases (technical 

support and personalized service).

Costs that are deducted include: 

• Wholesaler account management 

and administration expenses; 

• Wholesaler warehousing and 

handling expenses; 

• Mechanical contractor markup on 

equipment sale (profit, labor warranty, 

and service reserve); 

• Mechanical contractor account 

management and administration 

expenses; 

• Mechanical contractor warehousing 

and handling expenses; 

• General contractor account 

management and administration 

expenses; and 

• General contractor project oversight 

markup. 

In view of these additions and 

deductions, the Department derived a 

national account markup assuming that 

the resulting equipment price increase 

was one-half of that realized from a 

typical chain of distribution. In other 

words, if the price increase resulting 

from the multiplicative product of the 

wholesale, mechanical contractor, and 

general contractor markups is $100, the 

national account markup is such that 

the price increase is one-half of that, or 

$50. The Department assumed that the 

resulting national account markup must 

fall somewhere between the 

manufacturer price (i.e., a markup of 

1.0) and the customer price under a 

typical chain of distribution. Because 


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DOE did not know precise values 

(between zero and one for the markups) 

for the actual national account 

equipment price, DOE used 0.5 to 

represent a mid-point value between 

manufacturer price and customer price. 

For more detail on national account 

markups, refer to section 7.7 of the 

ANOPR TSD. 

As a final step, DOE applied a sales 

tax, which represents state and local 

sales taxes that are applied to the 

customer price of the equipment. The 

Department derived sales taxes 

representative of both state and local 

sales taxes from 1997 state sales tax data 

and 1997 local sales tax data. Using 

state unitary air conditioner shipment 

data from 1994, DOE weighted the state 

and local sales tax data by the 

percentage of unitary air conditioners 

shipped to each state. The sales tax has 

a mean value of 6.7 percent. The 

Department updated its calculation of 

sales taxes based on 2003 state and local 

sales tax data from the Sales Tax 

Clearinghouse (http://thestc.com/

STrates.stm). Although the updated 

mean sales tax value is 6.6 percent, 

virtually unchanged from the value 

based on 1997 data, the Department 

intends to update the sales tax data in 

its analysis for the NOPR. The 

Department applied sales taxes to the 

customer equipment price irrespective 

of the distribution channel and the 

market in which the customer is 

located. The Department assumes the 

state and local sales tax rate is the same 

for residential products and 

commercial/industrial equipment. 

For more detail on the Department’s 

approach to state and local sales taxes, 

refer to section 7.6 of the ANOPR TSD. 

The Department invites comments and 

data from interested parties on its 

assumption. Also, the Department was 

not able to gather more recent state-bystate shipments of >65,000 Btu/h to 

<240,000 Btu/h commercial unitary air 

conditioners. The Department requests 

more recent data from interested parties. 

2. Estimated Markups 

The Department multiplied the 

wholesale and contractor markups 

described above by the sales tax to get 

the overall baseline and incremental 

markups shown in Tables II.5 and II.6, 

respectively. Overall markups are based 

on one of three assumed distribution 

channels as well as whether the 

commercial unitary air conditioning 

equipment is purchased for the new 

construction or the replacement market. 

The Department based the distribution 

channel on whether such equipment is 

purchased through small mechanical 

contractors, large mechanical 

contractors, or national accounts. The 

tables show a weighted-average overall 

markup, assuming that: (1) The new 

construction and replacement markets 

represent 30 percent and 70 percent of 

the market, respectively; and (2) end-use 

customers purchase 50 percent of 

equipment through small mechanical 

contractors, 32.5 percent through large 

mechanical contractors, and the 

remaining 17.5 percent through national 

accounts. The weighted-average overall 

baseline markup equals 2.31, while the 

weighted-average overall incremental 

markup equals 1.56. For more details on 

how the Department derived overall 

markups, refer to section 7.8 of the 

ANOPR TSD.

The Department used the overall 

markup to estimate the customer price 

of baseline equipment, using the 

manufacturer price of baseline 

equipment. For example, if the 

manufacturer price of a baseline 

commercial air conditioner is $100, 

DOE multiplied this by the weightedaverage overall baseline markup to 

estimate the baseline customer price of 

the equipment as $231. Similarly, DOE 

used the overall incremental markup to 

estimate changes in the customer price, 

in view of changes in the manufacturer 

price above the baseline price resulting 

from a standard to raise equipment 

efficiency. For example, if a standard 

increases the commercial air 

conditioner manufacturer price by $25, 

DOE multiplied this by the weightedaverage overall incremental markup to 

estimate that the customer price will 

increase by $39.

TABLE II.5.—OVERALL BASELINE MARKUPS

Market sector 

New construction Replacement 

WeightedSmall average 

mech. 

Large

mech. 

National

account 

Small

mech. 

Large

mech. 

National

account 

Wholesale .............................................................. 1.36 1.36 .................. 1.36 1.36 

Mechanical Contractor ........................................... 1.48 1.35 1.69 1.70 1.55 1.60 

General Contractor ................................................ 1.24 1.24 .................. NA NA 

Sales Tax ............................................................... 1.07 1.07 1.07 1.07 1.07 1.07 

Overall .................................................................... 2.66 2.42 1.80 2.47 2.24 1.71 2.31 

TABLE II.6.—OVERALL INCREMENTAL MARKUPS

Market sector 

New construction Replacement 

WeightedSmall average 

mech. 

Large

mech. 

National

account 

Small

mech. 

Large

mech. 

National

account 

Wholesale .............................................................. 1.11 1.11 .................. 1.11 1.11 

Mechanical Contractor ........................................... 1.26 1.18 1.27 1.37 1.29 1.24 

General Contractor ................................................ 1.13 1.13 .................. NA NA 

Sales Tax ............................................................... 1.07 1.07 1.07 1.07 1.07 1.07 

Overall .................................................................... 1.68 1.59 1.35 1.63 1.53 1.32 1.56 

Referring specifically to the above 

wholesaler baseline and incremental 

markups of 1.36 and 1.11, respectively, 

ARI’s comments reject the assumption 

that incremental markups should be less 

than baseline markups. ARI states that 

these correspond to margins of 27 

percent and 9 percent respectively, and 

that the underlying assumption is that 

‘‘the wholesaler will accept one-third 

the margin on the incremental cost that 

he receives on the baseline.’’ (ARI, No. 

14 at pp. 1 and 2) According to ARI, this 

is saying that the wholesaler is expected 

to sell premium goods for a lower 


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markup than commodity goods, which 

is counter to the trends in all industries. 

Also, ARI states that ‘‘premium goods 

demand premium markups.’’ By using 

incremental markups, the effect of any 

increase in the standard would be to 

decrease the profit margins of the 

wholesalers and all others in the 

distribution chain. Further, ARI states 

that, over a period of time, ‘‘this is a 

sure formula for bankruptcy and 

collapse of an industry.’’ (ARI, No. 14 at 

p. 1) 

As ARI notes, the wholesale 

incremental markups are one-third of 

the wholesale baseline markups. (ARI, 

No. 14 at p. 1) However, the Department 

does not agree with ARI’s 

characterization of these estimates as 

counter to industry trends and ‘‘a 

formula for bankruptcy.’’ Rather, the 

Department believes that the above 

incremental markups are consistent 

with industry trends and sufficient to 

maintain industry profits. There appears 

to be some fundamental disagreement 

between ARI and the Department on 

whether growth in cost of goods sold 

(CGS) must always be matched by a 

proportionate growth in sales revenue. 

While this may be true within the 

context of a general business expansion, 

the Department believes that it is not an 

appropriate assumption within the 

context of an increase in equipment 

price due to an increase in the 

minimum efficiency standard. To 

develop markups, energy efficiency 

standards involve little or no change in 

the number of units sold or in the labor 

needed to handle those units. This 

situation is quite different from a market 

trend where both the number of units 

sold and CGS increase. The following 

example illustrates this case. 

The Department uses a simple 

hypothetical example of a firm setting 

prices before and after implementation 

of an efficiency standard (see Table II.7). 

For illustration, the hypothetical 

standard is assumed to raise equipment 

cost by 25 percent, from $5 million CGS 

in the Baseline to $6.25 million CGS 

with the New Standard. For simplicity, 

the number of units sold in this example 

is assumed to remain constant. The DOE 

analyses of national energy savings and 

manufacturer impact takes into account 

changes in sales as a result of energy 

efficiency standards. Consequently, 

with the New Standards, labor and 

occupancy costs remain constant and 

other overhead costs and profit are 

assumed to rise in proportion to changes 

in CGS.

TABLE II.7.—EXAMPLE ILLUSTRATING IMPACT OF PROFIT ON MARKUP

Baseline New standard (proportional profit) New standard (fixed markup) 

Total CGS ($thousand) ................. $5,000 Total CGS ($thousand) ................ $6,250 Total CGS ($thousand) ................ $6,250 

Labor and Occupancy ($thousand) $659 Labor and Occupancy 

($thousand).

$659 Labor and Occupancy 

($thousand).

$659 

Other Overhead ($thousand) ........ $659 Other Overhead ($thousand) ....... $824 Other Overhead ($thousand) ....... $824 

Profit ($thousand) .......................... $333 Profit ($thousand) ......................... $416 Profit ($thousand) ......................... $580 

Total Revenue ($thousand) ... $6,650 Total Revenue ($thousand) .......... $8,150 Total Revenue ($thousand) .......... $8,313 

Markup .......................................... 1.33 Markup .......................................... 1.30 Markup .......................................... 1.33 

The New Standard (proportional 

profit) shown in the middle column of 

Table II.7 illustrates what would happen 

if the Department assumes profits are 

proportional to CGS. Even though 

baseline profit rises from $333,000 to 

$416,000, the apparent markup 

declines, compared to Baseline. The 

apparent decline is the result of an 

arithmetic change in the ratio of Total 

Revenue to Total CGS. In other words, 

if profitability increases proportionally 

with CGS from $333,000 to $416,000, 

then the markup declines from 1.33 to 

1.30. 

The New Standards (fixed markup) 

case illustrates the implications if 

instead the Department were to assume 

a fixed markup. The results (right 

column in Table II.7) show that if the 

markup is fixed at the pre-standard level 

of 1.33, then firm profits will rise after 

the standard becomes effective. In other 

words, with a fixed markup, revenue 

after the standard becomes effective 

would be 1.33 multiplied by the CGS, or 

$8,313,000. The profit that is consistent 

with this amount is the revenue minus 

the sum of CGS, labor and occupancy, 

and other overhead. This provides a 

profit of $580,000 after the standard, or 

a 74 percent increase in profit. 

The Department does not believe that 

it is possible for firms to increase profits 

in this manner simply as a result of an 

increase in equipment efficiency. In a 

competitive market, DOE believes 

increases in profits do not persist 

because high profits attract competing 

firms which results in an increase in 

equipment supply and lower prices. The 

Department believes that a firm that 

used an efficiency standard as an 

opportunity to increase profits would 

eventually lose market share to firms 

that maintain profitability nearer to the 

pre-standard levels. 

All this indicates that markups on 

goods sold after an energy efficiency 

standard becomes effective would be 

lower than the baseline markups. Thus, 

the Department believes that, due to 

implementation of an energy efficiency 

standard, CGS would increase but the 

number of units sold and associated 

labor costs would not increase.

Two sources of industry data support 

the Department’s finding concerning 

incremental markups. First, the 

incremental markup the Department 

calculated is consistent with 

incremental markups calculated from a 

statistical analysis of U.S. Census 

Bureau data covering the HVAC sector. 

(See Wholesalers: U.S. Census Bureau, 

Gross Profit, Employment and Gross 

Margin for Merchant Wholesalers for 

NAICS 42173. By State: 1997. Refer to 

section 7.3 of the ANOPR TSD for 

details on the derivation of incremental 

markups based on the use of U.S. 

Census Bureau data.) Second, there are 

empirical observations of instances 

where industry growth in revenue 

exceeds growth in profits. For example, 

net sales of firms in the refrigeration and 

service industry grew at 18.6 percent 

over a period of five years while 

operating income grew by 12.6 percent. 

(See Ibbotson: 2001 Cost of Capital 

Yearbook. Statistics for SIC Code 358. 

Medium firm growth rates.) The 

Department concludes that many factors 

influence the relationship between CGS 

and operating profits. 

The Department believes that the use 

of incremental markups is the most 

appropriate methodology for developing 

equipment prices for more energy 

efficient equipment. Because fewer 


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expenses need to be covered by an 

incremental markup, it has a lower 

value than its corresponding baseline 

markup. Nevertheless, the Department 

understands that identifying expenses 

that need to be covered by the 

incremental markup is essential to 

deriving its value. Therefore, the 

Department seeks comments on whether 

the wholesale, general contractor, and 

mechanical contractor incremental 

markups should cover more or fewer 

expenses. This is addressed as Issue 8 

under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

In addition, in view of the complexity 

of the analysis and issues addressed by 

ARI concerning markups (ARI, No. 14 at 

pp. 1 and 2), the Department had an 

independent third-party expert review 

and comment on its analysis. The 

results of the third-party review are 

available to interested parties on the 

Department’s Web site at http://

www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. This 

subject is addressed as Issue 16 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E of this ANOPR. 

Concerning the Department’s 

characterization of distribution 

channels, ARI states that replacement 

installations often need a general 

contractor. (ARI, No. 14 at pp. 1 and 2) 

Specifically, ARI states that 

replacements are divided between those 

due to equipment failures and those 

required as part of a major building 

renovation. In the latter case, ARI states 

that a general contractor is almost 

always involved and estimates that 50 

percent of the replacement market 

includes a general contractor markup. 

(ARI, No. 14 at pp. 1 and 2) 

As noted earlier, the Department 

developed the distribution channels 

based on data collected from 

manufacturers as well as the judgment 

of individuals familiar with how air 

conditioning equipment is distributed to 

commercial customers. Based on ARI’s 

input, and any future comments from 

other interested parties in response to 

this ANOPR, the Department may 

change the distribution channels for the 

NOPR to be more reflective of how 

equipment is actually distributed. 

For equipment purchased through 

national accounts, ARI states that 

general and mechanical contractors 

remain involved in the distribution and 

installation of the equipment. However, 

it adds that the contractors may use a 

slightly lower effective markup if they 

do not have to cover expenses 

associated with the cost of the 

equipment. Thus, national accounts are 

more similar to a typical distribution 

channel than not. ARI comments that 

the principal advantage of a national 

account to a manufacturer is volume 

reduction of incremental selling cost. 

The result is that some savings are 

shared with the customer in the form of 

reduced cost for the installed 

equipment. Although there are customer 

savings, ARI states that the large 

difference between baseline and 

incremental markups is not 

representative of actual market 

dynamics, and that national account 

markups should be 0.2 to 0.25 greater 

than the values shown in chart 13. (ARI, 

No. 14 at pp. 1 and 2) The Department 

understands that ARI is referring to 

chart 13 (Image 14) in the ‘‘Life Cycle 

Cost Analysis Presentation: Inputs and 

Results,’’ on the DOE Web site at

http://www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. In 

this case, chart 13 (Image 14) presents 

the same information as Tables II.5 and 

II.6 in this ANOPR. 

As noted earlier, the Department 

derived a national account markup 

under the assumption that the resulting 

equipment price increase was one-half 

of that realized from a typical chain of 

distribution. In view of ARI’s comments, 

and any future comments received from 

other interested parties in response to 

this ANOPR, the Department may 

change the national account markups 

for the NOPR to better reflect the actual 

distribution of commercial unitary air 

conditioning equipment. 

The ACEEE and ASE commented that 

DOE should extrapolate future 

equipment prices from historical 

producer price trends for commercial 

unitary air conditioners published by 

the U.S. Census Bureau. (ACEEE, No. 10 

at pp. 9 and 10; ASE, No. 9 at p. 4) 

For other rulemakings, the 

Department used production input costs 

and production technologies based on 

the best information available at the 

time. The Department has not made any 

assumptions about productivity 

improvements and material cost 

changes over time. The Department 

believes historical price trends for 

commercial unitary air conditioners (or 

other related equipment) do not apply to 

forecast equipment prices where there 

are no data to show that the trends will 

continue. Therefore, without specific 

data on the likely costs to manufacture 

a piece of equipment, the Department 

does not plan to apply a productivity 

improvement factor in this rulemaking. 

F. Life-Cycle Cost and Payback Period 

Analysis 

The LCC and PBP analysis determines 

the impact of potential standards on 

consumers. The effects of standards on 

individual commercial consumers 

include changes in operating expenses 

(usually lower) and changes in total 

installed cost (usually higher). The 

Department analyzed the net effect of 

these changes by calculating the 

changes in LCCs compared to a base 

case. The LCC calculation considers 

total installed cost (equipment purchase 

price plus installation cost), operating 

expenses (energy, repair, and 

maintenance costs), equipment lifetime, 

and discount rate. The Department 

performed the LCC analysis from the 

perspective of the user of commercial 

unitary air conditioning equipment. 

The Department also determined the 

economic impact of potential standards 

on consumers by calculating the PBP of 

potential standards relative to a base 

case. The PBP measures the amount of 

time it takes the commercial consumer 

to recover the assumed higher purchase 

expense of more-energy-efficient 

equipment through lowering operating 

costs. Similar to the LCC, the PBP is 

based on the total installed cost and the 

operating expenses. But unlike the LCC, 

only the first year’s operating expenses 

are considered in the calculation of the 

PBP. Because the PBP does not take into 

account changes in operating expense 

over time or the time value of money, 

it is also referred to as a ‘‘simple’’

payback period. For more detail on the 

life-cycle cost and payback period 

analysis, refer to Chapter 8 of the 

ANOPR TSD. 

The Department generated LCC and 

PBP results as probability distributions 

using a simulation based on Monte 

Carlo statistical analysis methods, in 

which inputs to the analysis consist of 

probability distributions rather than 

single-point values. As a result, the 

Monte Carlo analysis produces a range 

of LCC and PBP results. A distinct 

advantage of this type of approach is 

that the Department can identify the 

percentage of users achieving LCC 

savings or attaining certain PBP values 

due to an increased efficiency standard, 

in addition to the average LCC savings 

or average PBP for that standard. 

Because DOE conducted the analysis in 

this way, it can express the 

uncertainties associated with the 

various input variables as probability 

distributions. During the post-ANOPR 

consumer analysis, the Department may 

evaluate additional parameters and 

prepare a comprehensive assessment of 

the impacts on sub-groups of users.

Lennox and NRDC had some general 

concerns regarding the LCC analysis. 

Lennox commented that the technical 

analysis of the commercial air 

conditioner market, building loads, and 

equipment operation are much more 


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45480 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

complex than past analyses conducted 

for residential central air conditioners. 

(Lennox, No. 7 at p. 1) The NRDC stated 

that the analysis must be credible and 

transparent. (NRDC, No. 6 at p. 3) 

To make the analysis transparent, the 

Department developed a spreadsheet 

model in Microsoft Excel. An add-on to 

Microsoft Excel called Crystal Ball (a 

commercially available software 

program) allows a user to characterize 

input variables with probability 

distributions. Past LCC analyses 

conducted for residential central air 

conditioners also used Microsoft Excel 

spreadsheets with Crystal Ball. 

Although the residential and 

commercial air conditioner analyses are 

similar in this respect, the commercial 

analysis is more complicated in that it 

requires conducting whole-building 

simulations to derive equipment energy 

use and demand. 

In addition, the Department derived 

two sets of electricity prices to estimate 

annual energy expenses: A tariff-based 

estimate and an hourly based estimate. 

The tariff-based approach estimates an 

annual energy expense using electricity 

prices determined from electric utility 

tariffs collected in the year 2002. The 

hourly based approach estimates annual 

energy expense using electricity prices 

that may exist, assuming all electricity 

markets are deregulated. Under this 

approach, the Department collected 

electricity production prices that vary 

on an hourly basis and used them to 

model a scenario in which customers 

are directly charged for the costs 

incurred by an electricity provider to 

supply energy for air conditioning. For 

electricity markets that are already 

deregulated, the Department collected 

actual wholesale hourly electricity 

prices. For markets that are still 

regulated, it collected hourly system 

load and generation cost data and used 

them as a proxy for wholesale prices 

that might exist if those markets were 

deregulated. 

1. Inputs to LCC Analysis 

For each efficiency level analyzed, the 

LCC analysis requires input data for the 

total installed cost of the equipment and 

the operating cost. Table II.8 

summarizes the inputs used to calculate 

the customer economic impacts of 

various energy efficiency levels. A more 

detailed discussion of the inputs 

follows.

TABLE II.8. SUMMARY OF INPUTS USED IN THE LCC ANALYSIS

Input Description 

Equipment Price .................................................. Derived by multiplying manufacturer cost by manufacturer, distributor, mechanical contractor, 

and general contractor markups and sales tax. Manufacturer costs and markup discussed in 

section II.C. and summarized in Tables II.3 and II.4. Other markups and sales tax discussed 

in section II.E and summarized in Tables II.5 and II.6. 

Installation Cost ................................................... ≥65,000 Btu/h to <135,000 Btu/h—$1585; ≥135,000 Btu/h to <240,000 Btu/h—$2142. Installation costs vary as a function of equipment weight. 

Annual Energy Use and Demand ....................... Derived through whole-building energy use simulations. Discussed in section II.D. 

Annual Energy Expenses .................................... Derived from tariff-based and hourly based electricity prices. Average marginal tariff-based 

electricity price—10.0¢ per kilowatt/hour (kWh). Average marginal hourly based electricity 

price—9.9¢/kWh. 

Repair Costs ........................................................ ≥65,000 Btu/h to <135,000 Btu/h annual repair cost—$151; ≥135,000 Btu/h and <240,000 Btu/

h annual repair cost—$279. Annual repair costs vary as a function of manufacturer price. 

Maintenance Costs .............................................. Annual maintenance cost equals $200; does not vary as a function of cooling capacity or efficiency. 

Lifetime ................................................................ Mean lifetime equals 15.4 years. 

Discount Rate ...................................................... Mean discount rate equals 6.1 percent. 

Effective Date* .................................................... 2008. 

* Refer to section II.F.1.b.(8). 

As noted by its absence in Table II.8, 

the Department chose not to include the 

impact of income taxes in the LCC 

analysis for this ANOPR. The 

Department understands that there are 

two ways in which taxes affect the net 

impacts attributed to purchasing more 

energy efficient equipment compared to 

baseline equipment: (1) Energy efficient 

equipment typically costs more to 

purchase than baseline equipment, 

which in turn lowers net income and 

may lower company taxes; and (2) 

efficient equipment typically costs less 

to operate than baseline equipment, 

which in turn increases net income and 

may increase company taxes. In general, 

the Department believes that the net 

impact of taxes on the LCC analysis 

depends on firm profitability and 

expense practices (how firms expense 

the purchase cost of equipment). For 

more detail on the inputs to the lifecycle cost analysis, refer to section 8.2 

of the ANOPR TSD. The Department 

seeks input on whether income tax 

effects are significant enough to warrant 

inclusion in the LCC analysis for the 

NOPR. The Department specifically 

requests information on how many 

firms that purchase commercial unitary 

air conditioners actually pay taxes and, 

if they do, what expense-accounting 

practices they use to depreciate the 

purchase costs. This is addressed as 

Issue 17 under ‘‘Issues on Which DOE 

Seeks Comment’’ in section IV.E of this 

ANOPR. 

a. Total Installed Cost Inputs 

The total installed cost is the sum of 

the equipment price and the installation 

cost. The equipment price includes the 

distribution markups (as determined in 

section II.E) that are applied to the 

manufacturer costs estimated in the 

engineering analysis (section II.C). 

The Department derived installation 

costs for commercial air conditioners 

from data in RS Means Mechanical Cost 

Data, 2002. The Department decided 

that data for 7.5-ton and 15-ton rooftop 

air conditioners are representative of 

installation costs for the ≥65,000 Btu/h 

to <135,000 Btu/h and ≥135,000 Btu/h 

to <240,000 Btu/h air conditioning 

equipment classes, respectively. The 

Department derived nationally 

representative installation costs of 

$1,585 and $2,142 for 7.5-ton and 15-ton 

commercial unitary air conditioners, 

respectively. Because labor rates vary 

significantly in each region of the 

country, DOE used data from RS Means 

Mechanical Cost Data, 2002 to identify 

how installation costs vary from state to 

state and incorporated these costs into 

the analysis.

Lennox, Trane, and ARI stated that 

installation costs will increase with 

efficiency because of the increased 


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weight and size of more efficient 

equipment. (Lennox, No. 7 at p. 3; 

Public Workshop Tr., No. 2EE at p. 146–

148; ARI, No. 14 at p. 2 and No. 17 at 

p. 2) Lennox added that installation 

costs for the replacement market would 

increase substantially if larger and 

heavier equipment requires new roof 

mounting frames or structural 

modifications. (Lennox, No. 7 at p. 3) 

Regarding replacements, ARI stated that 

most of the equipment being replaced is 

likely to be older and rated 8.0 EER or 

lower. The ARI stated that the more 

efficient equipment will be larger and 

heavier, and is likely to need an adapter 

curb or rebooting and perhaps structural 

modifications to carry the weight. 

Retrofit installations use adapter curbs. 

An adapter curb consists of structural 

members that provide a transition or 

alignment between existing roof curbs 

and new equipment with a different size 

or configuration. Also, ARI stated that 

the cost of adaptation may be 

significantly greater if parapets must be 

increased (to meet building codes) to 

hide a unit sitting on a tall adapter. The 

ARI provided rough estimates of $2500 

for a 7.5-ton adapter curb and $3500 for 

a 15-ton adapter curb (parts and labor 

included). (ARI, No. 14 at p. 2) 

The Department could not find data 

that explicitly showed how installation 

costs vary with equipment efficiency. 

As a result, the Department considered 

varying installation costs in direct 

proportion to the weight of the 

equipment. The Department developed 

linear relationships of operating weight 

as a function of equipment efficiency for 

7.5-ton and 15-ton commercial unitary 

air conditioners and assumed the 

installation cost increased in the same 

proportion. The Department does not 

believe the weight increases are great 

enough to warrant structural 

modifications and so it has excluded the 

cost of adaptor curbs and increased 

parapets. Therefore, DOE did not 

develop a separate set of installation 

costs for the replacement market. 

Spreadsheets used in evaluating the 

LCC and PBP can also be used to 

evaluate LCC and PBP based on a 

constant installation cost. 

The Department will review the 

engineering analysis data for the NOPR 

to determine when manufacturers 

increase box size and in what direction 

(height, footprint, or both). Based on 

that review, the Department will 

determine whether the current 

installation cost analysis captures all the 

associated costs of installing more 

efficient equipment. The Department 

did not include in the analysis the 

incremental cost of replacing older 

equipment (i.e., equipment rated 8.0 

EER or lower). This is because the 

analysis establishes the incremental cost 

of installations exceeding the baseline 

efficiency levels (i.e., the ASHRAE/

IESNA 90.1–1999 efficiency levels of 

10.1 EER for the ≥65,000 Btu/h to 

<135,000 Btu/h equipment class, and 

9.5 EER for the ≥135,000 Btu/h to 

<240,000 Btu/h class), not the cost of 

upgrading older equipment to baseline 

EER levels. Therefore, if baseline 

equipment requires adaptor curbs or 

increased parapets to replace older 

equipment, but upgrading baseline 

equipment to more efficient equipment 

does not need further curb adaption or 

parapet increases, then the analysis 

would not include the costs of adaptor 

curbs or increased parapets. For more 

detail on the total installed cost inputs, 

refer to section 8.2.2 of the ANOPR TSD. 

b. Operating Cost Inputs 

The operating costs consist of a series 

of discounted cash flows that capture 

the cost of the electricity needed to 

operate the equipment, the repair costs, 

and the maintenance costs over the 

lifetime of the equipment beginning at 

the effective date of the standard. The 

Department calculated the annual 

electricity expense from the energy use 

data supplied by the whole-building 

simulations and electricity prices. As 

discussed above, the Department used 

two approaches to estimate electricity 

prices: A tariff-based approach and an 

hourly based approach. Because data 

were not available to indicate how 

repair costs (i.e., those costs associated 

with the repair or replacement of failed 

components) vary with equipment 

efficiency, the Department assumed that 

repair costs vary directly with the cost 

of the equipment. Because equipment 

costs increase with efficiency and, to a 

large extent, equipment replacement 

costs drive repair costs, the Department 

reasonably assumes that repair costs 

will vary directly with the cost of the 

equipment. On the other hand, the 

Department assumed that maintenance 

costs remain constant regardless of 

equipment cost. Because maintenance 

costs correspond to the upkeep of 

equipment operation (e.g., cleaning 

heat-exchanger coils and recharging 

refrigerant) and are not associated with 

repair or replacement of system 

components, the Department reasonably 

assumed that maintenance costs are not 

part of the cost of the equipment and, 

therefore, will not vary with the 

equipment cost. Also, the Department 

used a survival function to define the 

probable lifetime of the equipment with 

the mean being 15.4 years. For the 

analyses conducted for this ANOPR, the 

Department assumed that an energy 

efficiency standard for commercial 

unitary air conditioning equipment 

would become effective in 2008. (42 

U.S.C. 6313(a)(6)(C)) For more detail on 

operating cost inputs to the life-cycle 

cost analysis, refer to section 8.2.3 of the 

ANOPR TSD.

(1) Use of Whole-Building Simulations 

As discussed in the building energy 

use and end-use load characterization 

analysis (section II.C of this ANOPR), 

the whole-building simulation analysis 

generates building energy consumption 

data for each hour of a typical 

meteorological year. For each of the 

1,033 records in the building sample, 

DOE disaggregated the hourly wholebuilding energy consumption into the 

air conditioning energy consumption 

(i.e., the consumption due to the 

compressor and condenser fan), the 

supply or ventilation fan energy 

consumption, and the energy 

consumption due to all other electric 

end-uses in the building. Since the 

supply fan is integral to commercial 

unitary air conditioning equipment, 

DOE included energy consumption for 

ventilation even during periods where 

mechanical cooling is not required for 

space-conditioning (i.e., when the 

compressor is not operating). 

(2) Electricity Price Analysis 

The electric power industry is 

currently in a state of transition between 

two different business models, from 

regulated monopoly utilities providing 

bundled service to all customers in their 

service area, to a system of deregulated 

independent suppliers who compete for 

customers. While it is unclear when this 

transition will be finished, it is possible 

that in the future customers will see a 

very different pricing structure for 

electricity. To account for the impacts of 

this change on the LCC, DOE used two 

different electricity price models in this 

analysis. The first analysis uses 

information on utility tariffs for 

commercial customers collected in 

2002. The Department based the second 

analysis on electricity production prices 

that vary on an hourly basis and used 

them to model a scenario in which 

customers are directly charged for the 

costs incurred by an electricity provider 

to supply energy for air conditioning. 

The Department refers to the two 

analyses as tariff-based and hourly 

based, respectively. 

To account for the wide regional 

variation in electricity usage patterns, 

wholesale costs, and retail rates across 

the country, the Department divided the 

continental U.S. into 17 subdivisions. 

The breakdown started with the nine 

census divisions, which were further 


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subdivided to take into account 

significant climate variation and the 

existence of different electricity market 

or grid structures. The Department 

based climate divisions on the nine 

climate regions defined for the 

continental U.S. by the National 

Climatic Data Center. It separated out 

Texas, Florida, New York, and 

California because their electric grids 

operate independently. Finally, it 

assigned each record from the 1,033 

building sample to one of the 17 

subdivisions. Both the tariff-based and 

hourly based approaches used the 

complete set of 1033 buildings to 

develop electricity prices. 

(a) Tariff-Based Approach 

The tariff-based analysis uses tariffs 

for commercial customers collected for 

a sample of 90 utilities across the 

country. The Department used three 

main criteria in developing the utility 

sample: (1) The sample of utilities 

should reflect the distribution of 

population across the country, with 

more utilities drawn from more 

populated areas; (2) the sample should 

reflect the proportion of customers 

served by privately owned utilities 

(investor-owned utilities (IOUs) and 

power marketers) versus publicly 

owned utilities (municipals, 

cooperatives, State, and Federal); and 

(3) the sample should cover as many 

customers as possible. The Department 

used data from DOE’s Energy 

Information Administration (EIA) Form 

861 filings for the year 2000 to 

determine the number of customers 

served by utilities of different types. The 

Department determined the 

representativeness of the sample by the 

percentage of the total number of 

commercial and industrial (C&I) 

customers who were covered. The 

sampled utilities serve 60 percent of the 

C&I customers of private utilities, and 

14.4 percent of C&I customers for public 

utilities. The combined total for the U.S. 

is 48.5 percent of all C&I customers. For 

more detail on the tariff-based approach, 

refer to subsection 8.2.3.1 of the ANOPR 

TSD. 

Pacific Gas and Electric (PG&E), 

ACEEE, NRDC, OOE, and NWPPC stated 

that electricity prices should reflect 

actual rates faced by customers. (Public 

Workshop Tr., No. 2EE at p. 202; 

ACEEE, No. 10 at p. 4; NRDC, No. 6 at 

pp. 4–5; Public Workshop Tr., No. 2EE 

at pp. 197 and 210; Public Workshop 

Tr., No. 2EE at p. 195) All but PG&E 

commented that electricity rates used in 

the LCC analysis must reflect demand or 

peak load pricing as well as time-of-use 

(TOU) or time-of-day (TOD) pricing. 

(ACEEE, No. 10 at p. 4; NRDC, No. 6 at 

pp. 4–5; Public Workshop Tr., No. 2EE 

at pp. 197 and 210; Public Workshop 

Tr., No. 2EE at p. 195) The OOE also 

stated that electricity prices should be 

based on marginal rates. (Public 

Workshop Tr., No. 2EE at pp. 194 and 

195) Counter to the above comments, 

Southern Company stated that pricing 

strategies will be much more simple in 

a deregulated electricity market, so 

[DOE] should not consider real-time or 

TOU pricing in the analysis. (Public 

Workshop Tr., No. 2EE at p. 194)

The Department collected tariff 

documents for the 90 utilities in the 

sample to establish the actual electricity 

prices paid by commercial air 

conditioner customers. The tariff 

documents encompassed a variety of 

pricing strategies, including TOU rates. 

Because the Department did not want to 

speculate whether TOU rates would 

exist in a partially or fully deregulated 

market, DOE kept TOU rates in the 

tariff-based analysis. As will be 

described below, based on the 

electricity prices described in the tariffs, 

marginal pricing is the basis for 

establishing electricity expenses in the 

LCC analysis. For most of the utilities in 

the sample, the Department collected 

tariff documents directly from their web 

sites. When web documents were not 

available, the Department contacted the 

utilities directly. An archive of the tariff 

documents is available at: http://

eetd.lbl.gov/ea/ees/tariffs/index.php. 

The tariff documents reflect actual rates 

that customers pay for electricity. 

Utility companies have many tariffs 

separated into residential, nonresidential, and special-use, such as 

public street-lighting or agricultural 

uses. Typically, a specific tariff is 

assigned to a particular customer based 

on that customer’s annual peak demand. 

Following common utility practice, in 

the tariff analysis the Department 

combined commercial and industrial 

customers into one category. The 

Department’s sampling strategy was to 

take the default tariff for each customer 

type, including TOU tariffs where 

appropriate. The Department assigned 

every building in the 1033 building 

simulation sample to one of the 17 

subdivisions, and treated each building 

as a single customer. To increase the 

sample size and avoid bias in the 

electricity bill calculations, the 

Department assigned each customer to 

each utility in its subdivision. In other 

words, if the Department assigns six 

utilities to a particular subdivision, it 

then assigns the default tariff from each 

of the six utilities to each customer 

residing in that subdivision. Then the 

Department calculates an electric utility 

bill from each tariff assigned to the 

customer (the calculation of customer 

bills is explained below). Because the 

Department assigned, on average, almost 

six utilities to each of the 17 

subdivisions, the above customer 

assignment method enabled the 

Department to effectively expand its 

building sample from 1033 to 6178 

buildings. The particular tariff assigned 

to each customer was based on the 

annual peak demand for the base case 

EER level. The Department kept the 

customer on the same tariff for all 

standard levels. 

For each of the 1033 buildings 

simulated, the Department processed 

the hourly simulation data for each 

standard level to compute the peak 

demand and total energy consumption 

for the 12 calendar months. For 

buildings assigned to TOU tariffs, DOE 

re-processed the hourly data to compute 

the peak demand and total energy 

consumption for the 12 calendar months 

during the peak, off-peak, and shoulder 

hours as defined by the utility. The 

Department entered into a billcalculating spreadsheet tool that 

estimated the total customer bill in each 

month. The Department repeated the 

calculation for each standard level and 

then totaled the monthly bills to arrive 

at an annual electricity bill. The 

difference between the annual bills for 

each standard level gave the associated 

operating cost savings. To compute the 

base case air conditioning expense, DOE 

took the annual bill and multiplied it by 

the ratio of the total air conditioning 

energy use to the total building 

electricity use. It calculated customer 

marginal prices as the net change in the 

total bill divided by the net change in 

energy consumption between two 

standard levels. The Department 

implemented a version of the ‘‘Bill 

Calculator’’ in a spreadsheet that 

includes customer data for a set of 

representative buildings. Interested 

parties can get the Bill Calculator 

spreadsheet at http://eetd.lbl.gov/ea/

ees/tariffs/index.php. 

Lennox commented that the energy 

analysis does not include the effect of 

units operating on industrial tariffs. In 

particular, Lennox stated that: (1) The 

building set analyzed is a subset of the 

CBECS data set for commercial 

buildings; (2) the exclusion of 

manufacturing sites excludes 30 percent 

of the electricity used for cooling; and 

(3) the average rate for electricity in 

buildings specified in the MECS is 40 

percent less than in CBECS buildings. 

As a result, Lennox commented that the 

energy analysis overstates the cost of 

energy consumption by 10 to 15 percent 

and has the effect of biasing the lifecycle cost and payback period analyses 


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so that higher efficiency levels would 

look more favorable to customers. 

(Lennox, No. 15 at p. 1) 

Overall, while the Department agrees 

that the analysis would be improved by 

explicitly considering industrial 

buildings, it does not believe that this 

will result in a meaningful change to the 

LCC results. 

First, the tariff data collection and 

analysis do, in fact, include the effect of 

units operating on industrial tariffs. 

Through its research, DOE found that 

utilities typically do not distinguish 

between commercial and industrial 

customers in their tariffs. Instead, 

utilities assign customers General 

Service tariffs where customer classes 

are based on annual peak load. The 

Department’s analysis for this ANOPR 

included only tariffs for customers 

taking electrical service at secondary 

voltage, which represents the largest 

non-residential customer sub-class. The 

Department understands that utilities 

could charge different rates to customers 

taking service at primary voltage and 

plans to expand its database to include 

them, although only about 10 percent of 

utility customers are on primary voltage 

tariffs. 

Concerning the issue of industrial 

electricity rates, Lennox cited EIA data 

on estimates of U.S. electric utility 

average revenue per kWh as the basis for 

its statement that the average electricity 

rate for industrial/manufacturing 

buildings is 40 percent less than that for 

commercial buildings. (Lennox, No. 15 

at p. 1) The Department’s analysis for 

this ANOPR confirms the Lennox 

observations and shows that the average 

revenues per kWh for the commercial 

and industrial categories are 7.4 cents/

kWh and 4.6 cents/kWh, respectively. 

However, because of ambiguities in the 

definition of customer type and the 

weighting of customer electricity bills, 

the Department believes that 4.6 cents/

kWh cannot be a proxy for the marginal 

price charged to customers in industrial 

buildings. For example, EIA calculates 

average electricity rates by dividing total 

electricity revenues by total sales, which 

is equivalent to assigning equal weight 

to each kWh sold and giving much 

greater weight to large consumers. Since 

most consumers in the Department’s 

analysis are relatively small, DOE 

believes that EIA’s weighting greatly 

exaggerates the effect of any difference 

in the per-kWh average price paid by 

industrial and commercial customers. 

Also, the Department believes that the 

average electricity rate is not 

appropriate for an LCC analysis because 

energy savings are priced at marginal 

rates that are heavily dependent on both 

the building load and the marginal load 

for a particular end use. The 

Department’s analysis, as detailed in the 

LCC section (Chapter 8) of the ANOPR 

TSD, found no clear dependence of the 

marginal price on the size of the 

customer. As a result, the Department 

sees no reason that customers with large 

peak loads will automatically see 

significantly lower marginal prices. 

Lennox commented that excluding 

manufacturing sites from the DOE 

analysis excludes 30 percent of the 

energy used for cooling. (Lennox, No. 15 

at p. 1) According to Manufacturing 

Energy Consumption Survey (MECS) of 

1998, the industrial contribution to the 

total of commercial and industrial 

buildings facility heating, ventilating, 

and air conditioning energy use is about 

30 percent. It is likely that 

manufacturers ship a much smaller 

percentage of the commercial unitary air 

conditioning equipment within the 

scope of this rulemaking to industrial 

buildings because, on average, 

industrial buildings are larger than 

commercial buildings and there is some 

correlation between building size and 

equipment size. Therefore, it is not 

expected that industrial buildings will 

use a large fraction of unitary air 

conditioners in the >65,000 Btu/h to 

<240,000 Btu/h range for their air 

conditioning needs. 

Section II.D.1 addresses the impact of 

industrial/manufacturing facilities on 

the Department’s analysis and is 

addressed as Issue 5 under the list of 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E of this ANOPR. Also, in 

view of the above issues concerning 

industrial tariffs and their impact on 

electricity prices, the Department had 

an independent third-party expert 

review its analysis for this ANOPR. The 

results of the third-party review are 

available to interested parties on the 

Department’s website at http://

www.eere.doe.gov/buildings/

appliance_standards/ac_hp.html. The 

Department intends to make the results 

of that review available for public 

comments concurrently with this 

ANOPR.

In summary, the Department made 

approximations that led both to overand under-estimations of electricity 

prices. Moreover, the Department 

believes that the results are uncertain 

but not biased. In making further 

refinements to the LCC and PBP 

analyses, the Department believes that it 

is important not to introduce bias by 

including only refinements that lower 

the electricity price. Issues such as 

primary voltage tariffs, de-correlation 

between the hour of building peak load 

and air conditioning peak load, putting 

small buildings on large-building tariffs, 

using a distribution of fan power ratio, 

and so forth are second-order effects 

that tend to lower the energy cost 

savings. There are other second-order 

effects, such as sales taxes, seasonal 

ratchets, and additional riders 

(particularly fuel cost adjustments) that, 

when included, tend to raise the energy 

cost savings. The Department believes 

that all these effects have roughly the 

same order of magnitude and the net 

effect of their inclusion in the 

calculation of the LCC will be to reduce 

uncertainty but leave the results 

essentially unchanged. 

(b) Hourly Based Approach 

The goal of the hourly based 

electricity price analysis was to estimate 

the real cost of meeting air conditioning 

loads for each building in each 

subdivision, and to translate these to 

cost savings that result from a given 

standard level. In this analysis, the 

Department treated each subdivision as 

if it were a single electricity system or 

control area, with a single hourly 

varying marginal generation price. The 

dependence of system load on weather, 

and system price on load, creates a 

correlation between the weathersensitive air conditioning load in each 

building and the time-varying 

generation marginal price. This 

substantially increases the cost of 

meeting air conditioning loads relative 

to base loads. Because DOE carried out 

the building simulations using Typical 

Meteorological Year (TMY) weather data 

to represent the correlations correctly, 

the Department had to produce a set of 

corresponding TMY system loads and 

prices for each subdivision. This was 

done by constructing a model for the 

load/temperature relationship, and a 

model for the price/load relationship, 

from historical data. 

The analysis required hourly data for 

customer loads, local temperatures, 

system loads, and system prices. The 

Department took customer loads from 

the building simulations described 

above. Historical data on hourly loads 

are available to the public from the 

Federal Energy Regulatory Commission 

(FERC) website through Form 714 

filings. See http://www.ferc.gov/docsfiling/eforms-elec.asp#714. Historical 

data on hourly prices come from two 

sources: Annual data submitted to FERC 

from regulated utilities and data 

developed from independent system 

operator websites. The FERC requires 

that each year a regulated utility submit 

FERC Form 714, which includes the 

‘‘control area hourly system lambda’’ for 

each hour of the year in dollars per 

megawatt. A system lambda is the price 

of generating one additional unit of 


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45484 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

electricity. In the FERC Form 714, the 

system lambda represents the cost to 

meet the next kilowatt of load, as 

computed for the local control area of a 

particular utility using FERC’s 

automatic dispatch methodology. For 

areas in which there is substantial 

wholesale electricity market 

competition, e.g., New England, New 

York, California, and Pennsylvania-New 

Jersey-Maryland (PJM), DOE collected 

load data and day-ahead market clearing 

prices directly from the independent 

system operator (ISO) websites. The 

analysis used data from 2000 for New 

York, PJM, and New England, and from 

1999 for all other areas. The analysis 

required two types of weather data: 

Historical and year-typical data. The 

Department purchased historical data 

used to construct the models for the 

years 1999 and 2000 from the National 

Climatic Data Center. Refer to ANOPR 

TSD section 8.2.3.1.3 for more 

information. 

The Department computed the 

energy-cost savings due to a given 

standard level, assuming that the 

electricity provider passed all savings 

on to the customer. The savings have 

two components: Avoided generation 

costs and avoided capacity costs. The 

Department computed avoided 

generation costs as the sum over each 

hour of the customer’s marginal energy 

savings times the hourly marginal price, 

multiplied by factors accounting for 

additional costs that scale with 

generation (such as ancillary services) 

and energy losses. The Department 

computed the total avoided capacity 

costs as a total cost per kilowatt of 

capacity times the customer’s load 

reduction during the hour of the system 

peak. The total cost per kilowatt for 

capacity included generation, 

transmission, and distribution capacity, 

and factors that account for losses and 

reserve margins. The Department 

converted the electricity provider’s 

avoided capacity costs to annual 

customer savings by applying a fixed 

charge rate (FCR). The FCR is a factor 

that converts a given capacity 

investment to the annual revenue 

requirement needed to cover all costs 

associated with the investment. In 

deregulated wholesale markets, hourly 

prices are assumed to include a margin 

to cover generation capacity 

investments, so DOE did not include 

these costs in the model. Instead, the 

Department computed reductions to the 

electricity provider’s annual installed 

capacity payments that result from the 

standard. For more detail on the hourly 

based approach, refer to subsection 

8.2.3.1.3 of the ANOPR TSD. The 

computation of the hourly price is Issue 

9 under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

(c) Comparison of Tariff-Based and 

Hourly Based Prices 

Table II.9 summarizes the results for 

the Department’s electricity price 

analysis for both the tariff-based and 

hourly based methodologies. The 

Department computed the marginal 

price associated with air conditioning 

loads in each subdivision by taking the 

ratio for each building of the total cost 

savings to the total energy-savings 

between standard levels 9.5 EER and 

11.0 EER. The Department then 

computed the weighted-average value 

for each subdivision. The table also 

includes the percentage of the marginal 

price attributable to demand charges for 

the tariff-based analysis and to capacity 

charges for the hourly based analysis.

TABLE II.9.—MARGINAL PRICES COMPUTED FROM AIR CONDITIONING LOAD REDUCTIONS USING THE TARIFF-BASED AND

HOURLY BASED ELECTRICITY PRICE MODELS

Subdivision Weight Census division Region 

Tariff-based Hourly based 

Marginal

¢/kWh 

%

Demand 

Marginal

¢/kWh 

%

Capacity 

1 .................................... 4.7 New England ................ New England ................ 9.5 53 10.7 43

2.1 ................................. 7.4 Middle Atlantic .............. New York ..................... 14.6 53 10.5 35

2.2 ................................. 5.6 Middle Atlantic .............. PA, NJ .......................... 10.5 27 8.7 48

3 .................................... 13.7 East North Central ....... WI, IL, IN, OH, MI ........ 10.8 46 11.0 65

4.1 ................................. 0.8 West North Central ...... MN, IA, MO .................. 6.2 44 8.4 60

4.2 ................................. 4.7 West North Central ...... ND, SD, NE, KS ........... 7.1 30 9.8 60

5.1 ................................. 5.6 South Atlantic ............... DE, MD, VA, WV ......... 7.9 41 9.9 63

5.2 ................................. 7.9 South Atlantic ............... NC, SC, GA ................. 7.3 22 7.4 68

5.3 ................................. 6.6 South Atlantic ............... Florida .......................... 8.0 36 11.0 66

6.1 ................................. 5.1 East South Central ....... KY, TN ......................... 6.5 38 8.0 68

6.2 ................................. 5.4 East South Central ....... MS, AL ......................... 6.1 39 12.8 70

7.1 ................................. 5.3 West South Central ...... OK, AR, LA .................. 5.8 26 11.6 76

7.2 ................................. 9.5 West South Central ...... Texas ........................... 10.0 23 10.8 75

8.1 ................................. 0.6 Mountain ...................... MT, ID, WY .................. 6.1 20 4.5 43

8.2 ................................. 4.2 Mountain ...................... NV, UT, CO, AZ, NM ... 8.8 35 9.5 69

9.1 ................................. 1.7 Pacific ........................... WA, OR ........................ 4.5 33 5.4 24

9.2 ................................. 11.2 Pacific ........................... California ...................... 18.5 21 8.5 46

USA .............................. 100.0 ...................................... USA .............................. 10.0 35 9.9 60

As Table II.9 shows, the national 

average effective marginal prices 

computed from the two approaches are 

relatively close (within one percent). 

Thus, on a national basis, the estimated 

marginal electricity price a provider 

would charge customers to supply 

electricity for an air conditioning end 

use is not substantially different from 

the price a customer currently pays 

under today’s tariffs. As a result, the 

LCC results from the two different 

approaches are not significantly 

different. The LCC results are discussed 

later in this section. Also, for more 

detail on the results of the tariff-based 

and hourly based electricity price 

analysis, refer to subsection 8.2.3.1.4 of 

the ANOPR TSD. 

(3) Electricity Price Trend 

The electricity price trend in this 

ANOPR provides the relative change in 

electricity prices for future years out to 

the year 2035. The ACEEE and ASE 

commented that future electricity prices 

will be difficult to forecast during a 

period of electricity price restructuring 

and early indications show that there 

will be greater price volatility under 


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2 In the AEO 2003, EIA reports 2001 electricity 

prices from their ‘‘Annual Energy Review 2001.’’

deregulated markets. To substantiate its 

assertion of higher electricity rates in 

deregulated electricity markets, ACEEE 

referred to a report by Synapse Energy 

Economics, ‘‘Marginal Price 

Assumptions for Estimating Customer 

Benefits of Air Conditioner Efficiency 

Standards,’’ December 4, 2000, which 

demonstrates that summer, daytime, 

wholesale electric prices exceeded 

average prices by 2.5 ¢/kWh more than 

annual average wholesale prices and, as 

markets restructure, suppliers will 

increasingly pass these higher summer 

prices on to consumers as higher rates. 

Refer to http://www.synapseenergy.com/publications.htm#repo. The 

ACEEE also commented that price 

projections from EIA would not, at this 

time, be a good indicator of future 

electricity prices. (ACEEE, No. 10 at pp. 

4 and 10; ASE, No. 9 at p. 2) 

Rather than speculate on how current 

volatility in energy markets will affect 

future electricity prices, DOE has 

consistently relied on EIA energy price 

forecasts and has used other forecasts, 

including the various EIA scenarios, to 

delimit the energy prices used in 

standards analyses. For this commercial 

unitary air conditioner analysis, DOE 

applied a projected trend in national 

average electricity prices to each 

customer’s marginal energy expenses. 

The default electricity price trend 

scenario used in the LCC analysis is the 

trend from EIA’s Annual Energy 

Outlook (AEO) 2003 Reference Case, 

which presents forecasts or energy 

supply, demand, and prices through 

2005. Spreadsheets used in determining 

the LCC can be useful tools in 

evaluating other electricity price trend 

scenarios, namely, the AEO 2003 High 

and Low Growth price trends and 

constant energy prices. The high 

economic growth case incorporates 

higher population, labor force, and 

productivity growth rates than the 

reference case. Due to the higher 

productivity gains, inflation and interest 

rates are lower compared to the 

reference case. Investment, disposable 

income, and industrial production are 

increased. Projections indicate that 

economic output will increase by 3.5 

percent per year. The low economic 

growth case assumes lower population, 

labor force, and productivity gains, with 

resulting higher prices and interest rates 

and lower industrial output growth. In 

the low economic growth case, 

projections indicate that economic 

output will increase by 2.4 percent per 

year over the forecast horizon. The 

Department will update the analyses 

conducted for the NOPR to reflect the 

most recently available AEO. 

The AEO 2003 recognizes that, over 

the past few years, energy markets have 

been extremely volatile. (See U.S. 

Department of Energy-Energy 

Information Administration (EIA), 

Annual Energy Outlook 2003 with 

Projections to 2025, DOE–EIA–

0383(2003), January 2003. EIA website: 

http://www.eia.doe.gov/oiaf/aeo/pdf/

0383(2003).pdf.) As a result, AEO 2003

incorporates recent energy market 

volatility in its short-term projections. 

The impact of recent energy market 

volatility is evidenced from the average 

commercial electricity price estimated 

by AEO 2003 for the year 2001. The 

average rate estimated by AEO 2003 for 

2001 is 5.7 percent greater (or 0.4 ¢/

kWh) than that estimated by the AEO 

2000.2 Although the AEO 2003 shortterm projections took into account 

recent events, EIA expects that long 

term volatility in energy markets will 

not occur from such future events as 

supply disruptions or political actions. 

In other words, EIA estimates that 

recent electricity market volatility will 

not impact long term electricity price 

trends.

Concerning Synapse Energy 

Economics’ wholesale electricity price 

analysis, DOE does recognize that 

wholesale summertime electricity costs 

are on average 21⁄2 ¢/kWh greater than 

average wholesale costs. The 

Department’s own analysis of hourly 

based electricity prices showed that 

marginal generation costs for 

commercial air conditioning ranged 

from 0.4 to 3.2¢/kWh greater than 

average generation costs, depending on 

regional location. Although generation 

costs associated with supplying 

electricity to commercial air 

conditioning are higher than average 

generation costs, the national average of 

resulting customer marginal electricity 

rates (based on the Department’s 

methodology for converting generation 

costs into customer rates) is no greater 

than the national average of those 

marginal rates derived from current 

electric utility tariffs. Although the 

marginal electricity rates can be higher 

than average rates, the Department sees 

no reason to adjust EIA’s projections of 

future electricity prices. For more detail 

on electricity price trend, refer to 

subsection 8.2.3.2 of the ANOPR TSD. 

The Department’s reliance on EIA’s 

electricity price projections is addressed 

as Issue 10 under ‘‘Issues on Which 

DOE Seeks Comment’’ in section IV.E of 

this ANOPR.

(4) Repair Cost 

The repair cost is the cost to the 

consumer for replacing or repairing 

components in the air conditioning 

equipment that have failed. The 

Department estimated the annualized 

repair cost for baseline efficiency 

commercial unitary central air 

conditioning equipment (i.e., the cost 

the customer pays annually for repairing 

the equipment) as half of the equipment 

price divided by the average lifetime of 

the equipment. Because data were not 

available to show how repair costs vary 

with equipment efficiency, the 

Department considered two scenarios: 

repair costs that varied in direct 

proportion with the manufacturer price 

of the equipment, and repair costs that 

remained flat (i.e., did not increase with 

efficiency). 

The Department used repair costs that 

vary with manufacturer price as the 

default annualized repair cost scenario 

in the LCC and PBP analysis. The 

resulting weighted-average annualized 

repair cost is $151 and $279 for 7.5-ton 

and 15-ton commercial unitary central 

air conditioners, respectively. The 

repair cost increases with weight and 

efficiency. Because equipment prices 

are a function of distribution variables 

rather than single point-values (i.e., 

manufacturer price, markups, and sales 

tax), repair costs reflect a distribution of 

values. For more detail on repair cost, 

refer to subsection 8.2.3.3 of the ANOPR 

TSD. 

(5) Maintenance Cost 

Maintenance cost is the cost to the 

commercial consumer of maintaining 

equipment operation. It is not the cost 

associated with the replacement or 

repair of components that have failed 

(this is covered by the repair cost 

discussed above). Rather, the 

maintenance cost is associated with 

general maintenance (e.g., checking and 

maintaining refrigerant charge levels 

and cleaning heat-exchanger coils). 

The Department took annualized 

maintenance costs for commercial air 

conditioners from data in RS Means 

Facilities Maintenance & Repair Cost 

Data, 1995 (RS Means ’95). These data 

provide estimates of person-hours, labor 

rates, and materials required to maintain 

commercial air conditioning equipment. 

Because data were not available to show 

how maintenance costs vary with 

equipment efficiency, the Department 

decided to use costs that stayed constant 

as equipment efficiency increased. The 

estimated, nationally representative, 

annualized maintenance cost for a 

commercial unitary air conditioner 

rated between 36,000 Btu/h and 288,000 


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45486 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

Btu/h is $200. For more detail on 

maintenance cost, refer to subsection 

8.2.3.4 of the ANOPR TSD. 

ARI believes that the annual 

maintenance cost that the Department 

developed is too low. ARI states that 

commercial air conditioning units need 

servicing not less than four times per 

year for filter check/replacement and 

general cleanliness. As a result, the 

annual cost is closer to $800 per unit 

rather than $200. (ARI, No. 14 at p. 3) 

As noted above, the Department based 

the annualized maintenance costs for 

commercial air conditioners on RS 

Means ’95 data. In addition to providing 

estimates of person-hours, labor rates, 

and materials required to maintain 

commercial air conditioning equipment, 

RS Means ’95 specifies eleven actions 

that constitute required annual 

maintenance, including a thorough 

check of all components in the unit. 

Because RS Means ’95 provides an 

explicit accounting of the actions and 

costs of maintaining commercial unitary 

central air conditioning equipment, and 

no commenter has done so, the 

Department will retain its use of $200 

annual maintenance cost in its analysis. 

(6) Lifetime 

The Department defines lifetime as 

the age at which a commercial unitary 

air conditioner is retired from service. It 

based the median lifetime of 

commercial unitary air conditioners on 

data from the 1999 ASHRAE HVAC 

Applications Handbook, which 

estimates a median lifetime of 15 years 

for commercial unitary air conditioners. 

The Department found no other data to 

show a different median lifetime for 

commercial unitary air conditioning 

equipment. Because a range of values 

rather than a single-point value more 

accurately represents the lifetime of 

such equipment, DOE created a survival 

function for commercial unitary air 

conditioners based on data for 

residential heat pump systems. 

Although residential heat pump systems 

are smaller in cooling capacity than 

commercial air conditioners, they are 

vapor compression systems that have 

components and designs that are similar 

to those of commercial systems. Thus, 

DOE believes that residential heat 

pumps provide a valid basis from which 

to construct a survival function for 

commercial unitary air conditioners. 

The Department created a Weibull 

distribution to approximate the actual 

survival function for residential heat 

pumps. The Department then modified 

the approximated residential-heatpump-based survival function to yield a 

median lifetime equal to that for 

commercial air conditioners. The mean 

lifetime from the derived Weibull-based 

commercial air conditioner survival 

function is 15.4 years. For more detail 

on the lifetime analysis, refer to 

subsection 8.2.3.5 of the ANOPR TSD.

ARI provided an analysis of EIA’s 

2001 Residential Energy Consumption 

Survey (RECS) to show that the median 

life of air conditioning equipment is 7 

years, as opposed to 15 years. 

Acknowledging the difficulty in getting 

lifetime data for commercial unitary air 

conditioning equipment, ARI stated 

that, although the RECS data are based 

on residential equipment, they are the 

best available surrogate data for 

commercial air conditioning. (ARI, No. 

14 at p. 2) 

After reviewing ARI’s analysis, the 

Department determined that the data in 

RECS represent the age of the 

equipment, not the age at which the 

equipment was retired from service (i.e., 

the equipment lifetime). In view of this 

important distinction, the equipment 

lifetime required for the commercial 

unitary air conditioner analysis is the 

operational life of the equipment. The 

RECS data do not represent the lifetime, 

rather, they simply represent the age of 

the equipment at the time of the survey. 

Thus, even if DOE assumes that the 

residential equipment data are a 

surrogate for commercial unitary air 

conditioning, the RECS data are not 

useful for establishing equipment 

lifetime. The Department continues to 

seek input from interested parties 

concerning equipment lifetime. This 

concern is addressed in Issue 11 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E of this ANOPR. 

(7) Discount Rate 

The discount rate is the rate at which 

DOE discounted future expenditures to 

establish their present value. Both 

ACEEE and NRDC commented that DOE 

should use the weighted-average cost of 

capital (or the avoided return on capital) 

as the basis for estimating discount 

rates. (ACEEE, No. 10 at p. 6; NRDC, No. 

6 at pp. 8 and 9) In stating that there is 

a wide range of expected payback 

periods for investments made in the 

commercial sector, Southern Company 

also appeared to imply that discount 

rates should be based on the weightedaverage cost of capital. (Public 

Workshop Tr., No. 2EE at p. 119) The 

NRDC added that a valid estimate of 

market rates of return on capital 

investments requires a long-term 

perspective to factor out risk and shortterm market volatility. It also noted that, 

when adjusting for survivorship biases 

and transaction costs, real rates of return 

on investments should range from zero 

to five percent, even for risky corporate 

investments. (NRDC, No. 6 at pp. 8–9) 

Advocating an approach based on the 

cost of capital, ACEEE also stated that 

discount rates used in the process of 

setting equipment standards for the 

ASHRAE/IESNA Standard 90.1–1999 

were too high. (ACEEE, No. 10 at pp. 6 

and 11) The Alliance to Save Energy 

concurred with ACEEE about the 

discount rates used in the process to 

update the ASHRAE/IESNA Standard 

90.1–1999 equipment standards. (ASE, 

No. 9 at p. 2) Although not advocating 

a specific approach for developing 

discount rates, Trane stated that 

discount rates in the range of 12–15 

percent are appropriate for users of 

commercial unitary air conditioning. 

Trane also noted that the Department 

should consider income tax effects if it 

intends to include them in the 

development of discount rates. (Public 

Workshop Tr., No. 2EE at pp. 189–190) 

The Department believes the most 

accurate method for estimating the 

discount rate is by evaluating the cost of 

capital of companies that purchase 

commercial unitary air conditioning 

equipment. Most companies use both 

debt and equity capital to fund 

investments. Therefore, for most 

companies, the discount rate is the 

weighted average cost of debt and equity 

financing, or the weighted-average cost 

of capital (WACC), less the expected 

inflation. The Department calculated the 

expected inflation (2.3 percent) from the 

average of the last five quarters’ change 

in gross domestic product (GDP) prices. 

Because the WACC method is specific 

to commercial firms, the technique is 

specific to commercial equipment and, 

therefore, was not applied in past 

rulemakings covering residential 

products. However, recent residential 

product rulemakings, specifically 

central air conditioners and heat pumps, 

use a discount rate technique that is 

conceptually similar to the WACC 

methodology. The technique for 

residential products determines how an 

air conditioner or heat pump purchase 

would affect a household’s financial 

situation, which is similar to what the 

WACC method attempts to do for 

commercial firms. (See U.S. Department 

of Energy, Energy Efficiency and 

Renewable Energy: Technical Support 

Document: Energy Efficiency Standards 

for Consumer Products: Residential 

Central Air Conditioners and Heat 

Pumps (Including: Regulatory Impact 

Analysis), May, 2002, Washington, DC, 

Chapter 5, p. 5–71, at http://

www.eere.energy.gov/buildings/

appliance_standards/residential/

ac_central.html.) For more detail on the 

discount rate for future expenditures, 


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refer to subsection 8.2.3.6 of the ANOPR 

TSD. 

Lennox questioned who the consumer 

is and who would benefit from a lifecycle cost analysis: The person that 

owns the commercial unitary air 

conditioner, the person that owns the 

building, or the person that leases the 

building? Lennox then stated that 

consumers more often lease this 

equipment, which needs to be factored 

into the analysis. (Public Workshop Tr., 

No. 2EE at pp. 118 and 199) Trane and 

NRDC also addressed the issue of the 

user’s identity. Trane noted that the 

analysis should encompass all users, 

whether they are building owners or 

occupants. The NRDC stated that a split 

incentive exists between building 

lessees and owners, i.e., there is no 

incentive for building owners to 

purchase more efficient equipment 

because the lessee is paying the 

electricity bill. As a result, the market 

fails to encourage the use of more 

efficient air conditioning equipment, 

and standards are a way to correct this 

market failure. (Public Workshop Tr., 

No. 2EE at p. 215; NRDC, No. 6 at p. 5) 

In addressing the user’s identity, the 

Department included both building 

owners and lessors in its development 

of discount rates, established a sample 

of companies that use commercial air 

conditioning according to ownership 

categories, and collected pertinent 

financial data from those companies to 

derive an appropriate set of discount 

rates. Ownership here is defined by the 

building occupant. Included in these 

ownership categories are the owners of 

commercial buildings (property 

owners), retail firms, medical service 

and hospital companies, industrial 

firms, hotels, and food service 

companies (restaurants and grocery 

stores). The Department determined 

ownership shares by building square 

footage from the 1999 CBECS data. 

According to CBECS, about 60 percent 

of buildings are owner-occupied and the 

remaining 40 percent either are nonowner-occupied or leased by property 

owners. Of the 40 percent of buildings 

that are leased, half realized a WACC 

based on the building’s occupancy, and 

the other half realized discount rates 

based on the WACC of the property 

owner. Pertinent financial data from 

companies using commercial air 

conditioning equipment were taken 

from Damodaran Online. (See 

Damodaran Online at http://

pages.stern.nyu.edu/∼adamodar/

New_Home_Page/data.html and the 

‘‘compfirm.xls’’ spreadsheet.) 

The NRDC commented that values of 

0 to 5 percent were appropriate, while 

Trane maintained that DOE should use 

values ranging from 12 to 15 percent. 

(NRDC, No. 6 at pp. 8 and 9; Public 

Workshop Tr., No. 2EE at pp. 189 and 

190) Deducting expected inflation from 

the cost of capital provides estimates of 

the real discount rate by ownership 

category, shown in Table II.10. The 

mean real discount rate for these 

companies varies between 3.0 percent 

(public for-profit) and 7.3 percent 

(public not-for-profit). The weightedaverage or mean discount rate across all 

companies is 6.1 percent. The 

Department’s approach for estimating 

the cost of capital provides a measure of 

the discount rate spread as well as the 

average discount rate. The discount rate 

spread by ownership category 

represented by the standard deviation 

ranges between 0.7 percent and 3.2 

percent. Thus, the variability in the 

discount rate is as low as less than 1 

percent and as high as 14 percent. By 

characterizing the discount rates with 

probability distributions based on a 

standard deviation, the range of 

discount rates used in the analysis 

captures almost the full breadth of 

values suggested by the interested 

parties.

TABLE II.10.—REAL DISCOUNT RATES BY OWNERSHIP CATEGORY* 

Ownership category 

Standard industrial classification

(SIC) code 

Ownership 

shares

(percent) 

Mean real 

discount 

rate

(WACC)

(percent) 

Standard

deviation

(percent) 

Number

observations 

Retail stores .................................................................. 53, 54, 56 .......................... 16.5 7.1 2.1 218 

Property owners and managers ................................... 6720 .................................. 21.2 5.2 0.7 11 

Medical services ........................................................... 8000 .................................. 6.7 7.0 1.7 115 

Industrial companies ..................................................... 1000–4000 ........................ 4.9 6.9 3.2 253 

Hotels ............................................................................ 7000 .................................. 4.0 5.6 1.5 51 

Food service companies .............................................. 5400, 5812 ........................ 5.3 6.1 1.4 88 

Office/Service sector .................................................... 5910–9913 ........................ 19.4 6.9 2.1 128 

Public for profit ............................................................. N.A .................................... 11.0 3.0 0.7 41 

Public not for profit ....................................................... 7950, 8299 ........................ 11.0 7.3 1.8 68 

Weighted Average ........................................................ ........................................... N.A 6.1 1.6 N.A. 

*Sources: CBECS (1999), Damodaran Online (2002) and LBNL calculations. 

(8) Effective Date 

The effective date is the date on and 

after which a manufacturer must 

comply with an energy conservation 

standard in the manufacture of covered 

equipment. (See 10 CFR 430.2.) In 

accordance with 42 U.S.C. 6313(a)(6)(C), 

the effective date of any new energy 

efficiency standard for commercial 

unitary air conditioners and heat pumps 

that is established by rule and that is 

more stringent than the amended 

ASHRAE/IESNA Standard 90.1, is four 

years after the final rule is published in 

the Federal Register. Consistent with its 

published regulatory agenda, the 

Department assumed that the final rule 

would be issued in 2004 and that, 

therefore, the new standards would take 

effect in 2008 and used these dates in 

the ANOPR analyses. For the NOPR 

analyses, the Department will adjust 

these dates to accurately reflect thencurrent expectations for the timing of 

the issuance of a final rule. The 

Department calculated the LCC for 

customers as if each new commercial 

unitary air conditioner or heat pump 

purchase occurs in the year the standard 

takes effect. For purposes of conducting 

the analyses for this ANOPR, it based 

the cost of the equipment on year 2008; 

however, because the Department 

collected manufacturing cost data for 

the ANOPR engineering analysis in 

2001, it expresses all dollar values as 

year 2001 dollars. Also, the effective 

date of a standard is addressed in 

subsection 8.2.3.7 of the ANOPR TSD. 

2. Inputs to the Payback Period Analysis 

The data inputs to the PBP analysis 

are the total installed cost of the 

equipment to the customer for each 

efficiency level and the annual (first 


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year) operating expenditures for each 

efficiency level. The PBP analysis uses 

the same inputs as the LCC analysis, 

except that the PBP analysis does not 

need electricity price trends and 

discount rates. Because the PBP is a 

‘‘simple’’ payback, the required 

electricity rate is only for the year in 

which a new standard is to take effect, 

in the case of this ANOPR the year 2008. 

The electricity rate that DOE used in the 

PBP calculation was the price projected 

for that year. For more detail on payback 

period inputs, refer to section 8.3 of the 

ANOPR TSD. 

3. Preliminary Results 

The preliminary results of the LCC 

and PBP analyses are based on: (1) A 

sample of commercial buildings that 

represent all unitary air conditioner 

users; (2) output from the engineering, 

building simulation, and equipment 

price analyses; and (3) on current 

electric utility tariffs. 

a. Life-Cycle Cost Results 

This section presents LCC results for 

the efficiency-improvement levels 

specified in the engineering analysis. It 

provides only the LCC results from the 

tariff-based approach because the 

national average tariff-based and hourly 

based marginal electricity prices are so 

similar (refer to Table II.9). The hourly 

based approach provides important 

information because today’s electric 

utility tariffs reflect, to some extent, the 

prices an electricity provider might 

charge a commercial customer for 

supplying electricity to operate a 

unitary air conditioner under an hourly 

based pricing structure. However, the 

hourly based prices are still an estimate 

and are not the actual electricity prices 

that commercial customers pay. As a 

result, the Department is designating the 

tariff-based approach as the primary 

analysis approach because it is based on 

electricity prices that commercial 

customers must actually pay for 

operating air conditioning equipment. 

The Department will use the hourly 

based approach as supplemental 

information that indicates what 

electricity pricing might be like under 

an hourly regime. The hourly based LCC 

results are very similar to the results 

from the tariff-based LCC analysis. For 

more detail on the results of the tariffbased and hourly based approaches to 

electricity prices, refer to sections 8.4 

and 8.5 of the ANOPR TSD. 

Most of the inputs to the LCC analysis 

are uncertain and are therefore 

represented by a distribution of values 

rather than a single-point value. As a 

result, the LCC analysis generates a 

distribution of results to represent the 

LCC for any given efficiency level.

The Department’s first step in 

developing LCC results was to establish 

the baseline LCC for each of the two 

commercial air conditioner equipment 

classes. As noted earlier, DOE selected 

the ASHRAE/IESNA Standard 90.1–

1999 levels as the baseline efficiency 

levels for the present rulemaking. Table 

II.11 summarizes the baseline 

distributions by showing the mean, 

median, minimum, and maximum 

LCCs.

TABLE II.11.—BASELINE LCC 

Equipment class Minimum Median Mean Maximum 

≥65,000 to <135,000 Btu/h .............................................................................................. $6,667 $18,605 $20,514 $93,747 

≥135,000 to <240,000 Btu/h ............................................................................................ 11,395 34,876 39,044 197,535 

The Department presents the 

differences in the LCC of standard-level 

equipment relative to the baseline 

commercial unitary air conditioner 

design. The LCC differences are 

depicted as a distribution of values. 

Tables II.12 and II.13 show the mean 

and the percent of units with LCC 

savings for each standard level.

TABLE II.12.—SUMMARY OF LCC RESULTS FOR ≥65,000 TO <135,000 

BTU/H COMMERCIAL UNITARY AIR

CONDITIONERS

EER 

Mean decrease 

in LCC from

baseline

(10.1 EER)

(2001$) 

Percent of

units with

LCC savings 

10.5 ....... $290 98 

11.0 ....... 533 93 

11.5 ....... 598 81 

12.0 ....... 399 59 

TABLE II.13.—SUMMARY OF LCC RESULTS FOR ≥135,000 TO <240,000 

BTU/H COMMERCIAL UNITARY AIR

CONDITIONERS

EER 

Mean decrease

in LCC from

baseline

(9.5 EER)

(2001$) 

Percent of

units with

LCC savings 

10.0 ....... $959 100 

10.5 ....... 1,704 99 

11.0 ....... 2,199 97 

11.5 ....... 2,359 91 

12.0 ....... 2,027 77 

b. Payback Period Results 

This section presents PBP results 

based on annual operating costs 

calculated from tariff-based electricity 

prices. Similar to the LCC differences, 

the Department depicts PBP results as a 

distribution of values. Tables II.14 and 

II.15 summarize the PBP results for each 

of the two commercial unitary air 

conditioner equipment classes.

TABLE II.14.—SUMMARY OF PBP RESULTS IN YEARS FOR ≥65,000 TO

<135,000 BTU/H COMMERCIAL UNITARY AIR CONDITIONERS

EER Median Mean 

10.5 ....... 2.3 2.6 

11.0 ....... 3.1 3.5 

11.5 ....... 4.3 5.1 

12.0 ....... 6.4 8.1 

TABLE II.15.—SUMMARY OF PBP RESULTS IN YEARS FOR ≥135,000 TO

<240,000 BTU/H COMMERCIAL UNITARY AIR CONDITIONERS

EER Median Mean 

10.0 ....... 1.5 1.6 

10.5 ....... 1.8 2.0 

11.0 ....... 2.4 2.7 

11.5 ....... 3.2 3.7 

12.0 ....... 4.5 5.5 

G. National Impact Analysis 

The national impacts analysis 

assesses the NPV of total customer LCC 

and NES. Assuming an effective date of 

2008, the Department determined both 

the NPV and NES for all of the energy 


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efficiency levels considered for the two 

equipment classes of commercial 

unitary air conditioners. ARI requested 

a quick adoption of the ASHRAE/IESNA 

Standard 90.1–1999 energy efficiency 

levels. (ARI, No. 14 at p. 3). The 

Department defined quick adoption to 

mean an effective date of 2004, instead 

of 2008. In this way, the Department can 

evaluate the national benefits of 

adopting more stringent standards at a 

later effective date compared to 

adopting the ASHRAE/IESNA 90.1–

1999 standard levels almost 

immediately. 

To make the analysis more accessible 

and transparent to all stakeholders, the 

Department prepared a user-friendly 

NES Spreadsheet Model in Microsoft 

Excel to forecast energy savings and the 

national economic costs and savings 

resulting from new standards. 

Consequently, a stakeholder can change 

certain input quantities to assess any 

impacts of possible new standards on 

the NES and NPV. Unlike the LCC 

Analysis, the NES Spreadsheet Model 

does not use probability distributions 

for inputs or outputs. To assess the 

impact of input uncertainty on the NES 

and NPV results, the DOE can conduct 

sensitivity analyses as needed for future 

analyses by running scenarios on input 

variables that are of interest to 

stakeholders. The Department 

conducted a preliminary assessment of 

the aggregate impacts at the national 

level for this ANOPR. For more detail 

on the NES and NPV, refer to Chapter 

10 of the ANOPR TSD. 

Table II.16 summarizes the inputs 

used to calculate the NES and NPV of 

the various energy efficiency levels. 

Chapter 10 of the ANOPR TSD provides 

a more detailed discussion of these 

inputs.

TABLE II.16.—SUMMARY OF NES AND NPV INPUTS

Parameter Data description 

Annual Energy Consumption per Unit ................ Annual weighted-average values are a function of efficiency level (established from the Building Simulation Analysis, section II.C) and efficiency trend (base case and standards case efficiencies as noted below). 

Base Case Efficiencies ....................................... Annual shipment-weighted efficiencies are based on historical residential central air conditioner shipment-weighted efficiency trends and limited commercial air conditioner shipmentweighted efficiencies. Before 1993: Efficiency trend growth rate equivalent to 1982–1991 

residential equipment efficiency trend. 1993–1994: Efficiency jump equivalent to 1991 to 

1992 residential equipment efficiency jump. 1994–1998: Efficiency trend growth rate equivalent to 1992–1999 residential equipment efficiency trend. 1999–2001: Actual shipmentweighted efficiencies from ARI. 2002–2035: Efficiency trend growth rate equivalent to 1⁄2 of 

1992–1999 residential equipment efficiency trend. 

Standards Case Efficiencies (2008–2035) .......... Annual shipment-weighted efficiencies are based on a roll-up efficiency scenario and parallel 

growth trend. 

Shipments ........................................................... Annual shipments from shipments model (see details in section II.G.3). 

Equipment Stock ................................................. Number of air conditioning units of each vintage (age). Based on annual shipments and the 

age of the equipment. The age of the equipment is characterized with a retirement function 

with an average lifetime of 15.4 years. 

National Energy Consumption ............................ Product of the annual energy consumption per unit and the stock (i.e., the number of air conditioning units of each vintage. 

Electricity Site-to-Source Conversion Factors .... Conversion varies yearly and is generated by DOE/EIA’s National Energy Modeling System 

(NEMS) program (a time series conversion factor; includes electric generation, transmission, 

and distribution losses). 

Total Annual Installed Cost ................................. Annual per unit weighted-average values are a function of efficiency level (established from 

the Life-Cycle Cost Analysis, section II.F). Total annual costs are the per unit cost multiplied 

by the shipments forecasted. 

Total Annual Operating Cost Savings ................. Annual per unit savings consist of the per unit electricity cost savings, the per unit repair 

costs, and the per unit maintenance costs (as noted below). Total annual costs are the per 

unit cost multiplied by the shipments forecasted. 

Annual Electricity Cost Savings .......................... Annual per unit weighted-average values are a function of the annual energy consumption, 

electricity prices (established from the Life-Cycle Cost Analysis, section II.F), and electricity 

price trends. Only expenses based on tariff-based electricity prices are used in the NES 

spreadsheet model. 

Electricity Price Trends ....................................... 2003 EIA Annual Energy Outlook forecasts (to 2025) and extrapolation for 2025 and beyond 

(see the Life-Cycle Cost Analysis, section II.F). 

Annual Repair Costs ........................................... Annual per unit weighted-average values are a function of efficiency level (established from 

the Life-Cycle Cost Analysis, section II.F). 

Annual Maintenance Costs ................................. Annual per unit weighted-average value equals $200 (established from the Life-Cycle Cost 

Analysis, section II.F). 

Discount Factor ................................................... Based on both a 3 percent and 7 percent real discount rate and the year in which the present 

value of costs and savings are being determined. 

Present Value of Costs ....................................... Annual total installed cost in each year discounted to the present using the discount rate. 

Present Value of Savings .................................... Annual operating cost savings in each year discounted to the present using the discount rate. 

Present Year ....................................................... Future expenses are discounted to year 2001. 

Effective Date of Standard .................................. 2008 (2004 for ASHRAE/IESNA 90.1–1999 efficiency levels). 

1. National Energy Savings (NES) 

The Department calculated the 

national energy consumption by 

multiplying the number or stock of 

commercial unitary air conditioners (by 

vintage) by the unit energy consumption 

(also by vintage). Vintage is the age of 

the equipment (varying from one to 

about 30 years). The Department 

calculated annual NES from the 

difference between national energy 

consumption in the base case (without 

new standards) and each standards case 

(with standards). Cumulative energy 

savings are the undiscounted sum of the 


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annual NES that DOE determined over 

specified time periods. The NES 

analysis which will accompany the 

NOPR will include both discounted and 

undiscounted values for future energy 

savings to account for their timing. For 

more detail on NES and consumer 

impacts, refer to Chapter 10 of the 

ANOPR TSD. 

The stock of commercial unitary air 

conditioning equipment is dependent 

on annual shipments and the lifetime of 

the equipment. The Department 

developed shipments projections under 

a base case and standards cases for a 

variety of possible equipment efficiency 

scenarios and equipment efficiency 

trends. It determined that shipment 

projections under the standards cases 

were lower than those from the base 

case projection, due to the higher 

installed cost of the more efficient 

equipment. Higher installed costs 

caused some customers to forego 

equipment purchases. As a result, the 

Department used the standards case 

shipments projection and, in turn, the 

standards case stock to determine the 

NES and to avoid the inclusion of 

savings due to displaced shipments. 

a. National Energy Savings Inputs 

As summarized in Table II.16 above, 

the inputs for the determination of NES 

are: (1) Annual energy consumption per 

unit, (2) shipments, (3) equipment stock, 

(4) national energy consumption, and 

(5) electricity site-to-source conversion 

factors. 

(1) Annual Energy Consumption per 

Unit 

The annual energy consumption per 

unit is the energy consumed by a 

commercial unitary air conditioning 

unit per year. The annual energy 

consumption is directly tied to the 

efficiency of the unit. Thus, knowing 

the efficiency of a commercial unitary 

air conditioning unit allows for the 

determination of the corresponding 

annual energy consumption. As 

described below, the Department 

determined annual historical and 

forecasted shipment-weighted average 

equipment efficiencies which, in turn, 

allowed for the determination of 

shipment-weighted, annual, energyconsumption values. 

The Department based historical, 

shipment-weighted, average efficiency 

trends for commercial air conditioners 

on a combination of commercial air 

conditioner efficiency data from 1999 

through 2001 and residential central air 

conditioner efficiency trends. Once DOE 

established historical efficiency trends, 

it established future trends of 

equipment efficiency and, in turn, 

annual energy consumption by 

extrapolating it from the historical 

trend. The Department forecasted future 

trends of equipment efficiency for a base 

case and for standards cases. The 

difference in equipment efficiency 

between the base and standards cases 

was the basis for determining the 

reduction in per-unit annual energy 

consumption due to new standards. For 

more detail on annual energy 

consumption per unit, refer to 

subsection 10.2.2.1 of the ANOPR TSD. 

The Department chose a growth rate 

for its forecasted, base-case efficiency 

trends of one-half the observed growth 

rate of the historical residential air 

conditioner efficiency trend during the 

1990s. The Department made this 

decision based on observed trends in 

the historical commercial air 

conditioner efficiency data. The three 

years of commercial air conditioner 

efficiency data revealed a significant 

shift to higher equipment efficiencies 

from the year 2000 to 2001. Although 

the ASHRAE/IESNA 90.1–1999 

standards are not mandatory, it appears 

that their effect has been to move the 

commercial air conditioner market to 

higher equipment efficiencies. 

Historical efficiency trends for 

residential central air conditioners 

indicate that the most significant effect 

of ASHRAE/IESNA 90.1–1999 standards 

on transforming the market is in the 

short term. In the case of residential 

central air conditioners, for years 

immediately after a new minimum 

standard became effective the shipmentweighted efficiencies grew at an annual 

rate of less than one percent. Therefore, 

if historical efficiency trends for related 

products and equipment are any 

indication, the growth rate of the 

commercial unitary air conditioner 

efficiency trend in the long term (i.e., for 

years after 2001) should be much lower 

than the shift in equipment efficiencies 

observed between 2000 and 2001.

The Department based its standards 

case forecasts (i.e., forecasts of 

efficiency trends after standards take 

effect) on a roll-up efficiency scenario 

and parallel growth trend. The roll-up 

scenario moves or rolls-up all 

equipment efficiency levels from below 

a prospective standard to the minimum 

efficiency level allowed under the new 

standard. The distribution of equipment 

at efficiency levels above the 

prospective standards is unaffected (i.e., 

this equipment remains at its prestandard efficiency levels). The roll-up 

efficiency scenario dictates how DOE 

determined efficiency distributions in 

the first year a new standard takes 

effect, but does not define future 

distribution of equipment efficiencies. 

Under the parallel growth trend, the 

Department assumes that the standards 

case efficiency trend parallels the base 

case efficiency trend. In other words, 

the initial jump in shipment-weighted 

efficiency that occurs when the standard 

first becomes effective carries on 

throughout the forecast. 

The 11.5 EER and 12.0 EER standardscase efficiency trends are notable 

exceptions to the use of the parallel 

growth trend for the entire time span of 

the forecast (i.e., through 2035). Because 

the maximum technologically feasible 

design is 12.0 EER, the maximum 

shipment-weighted efficiency for any 

given year is 12.0 EER. As a result, 

because the efficiency trend for the 11.5 

EER standards case achieves a 

shipment-weighted efficiency of 12.0 

EER in the year 2023, the forecasted 

efficiency trend remains flat from the 

year 2023 through 2035. In the case of 

the 12.0 EER standards case, there is a 

shipment-weighted efficiency of 12.0 

EER immediately after the standard 

becomes effective. Thus, the efficiency 

trend is flat (i.e., stays fixed at 12.0 EER) 

throughout the entire forecast. 

(2) Shipments 

The Department forecasted shipments 

for the base case and all standards cases. 

Forecasted shipments are addressed in 

subsection 10.2.2.2 of the TSD ANOPR. 

The Shipments Model is discussed in 

more detail in section II.G.3 of this 

ANOPR. 

(3) Equipment Stock 

The commercial unitary air 

conditioner stock is the number of 

unitary air conditioners purchased or 

shipped in a particular year that survive 

in a later year. The NES Spreadsheet 

Model keeps track of the number of 

commercial unitary air conditioners 

shipped each year. The Department 

assumes that commercial unitary air 

conditioners have an increasing 

probability of retiring as they age. The 

probability of survival, as a function of 

years after purchase, is the survival 

function. Commercial unitary air 

conditioner lifetimes, otherwise called 

the vintage, range from one to about 30 

years, with an average value of 15.4 

years. Note that the resulting stock of 

commercial unitary air conditioners 

under all standards cases is less than 

that under the base case due to the 

smaller number of shipments forecasted 

for the standards cases. For more detail 

on equipment stock, refer to subsection 

10.2.2.3 of the ANOPR TSD. 


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(4) National Annual Energy 

Consumption 

The national annual energy 

consumption is the annual energy 

consumption per commercial unitary air 

conditioner multiplied by the number of 

commercial unitary air conditioners of 

each vintage. This approach accounts 

for differences in unit energy 

consumption from year to year. 

In determining national annual energy 

consumption, DOE initially calculated 

the annual energy consumption at the 

site (i.e., electricity in kWh consumed 

by the commercial unitary air 

conditioning unit inside the building it 

is serving). The Department then 

calculated primary energy consumption 

from site energy consumption by 

applying a conversion factor to account 

for losses, such as those losses 

associated with the generation, 

transmission, and distribution of 

electricity. For more detail on national 

annual energy consumption, refer to 

subsection 10.2.2.4 of the ANOPR TSD. 

(5) Electricity Site-to-Source Conversion 

Factors 

To transform site energy savings into 

source energy savings, DOE uses 

electricity site-to-source energy 

conversion factors that vary from year to 

year. The Department based the annual 

source conversion factors used for the 

analysis conducted for this ANOPR on 

U.S. average values from the 

commercial sector, calculated from the 

AEO 2003. For analyses conducted in 

the future, the Department plans to use 

marginal conversion factors specific to 

the type of generation sources (i.e., 

power plants) displaced from decreases 

in national energy consumption 

resulting from the use of more efficient 

commercial unitary air conditioners. 

The resulting conversion factors will 

change over time. For more information 

on electricity site-to-source conversion 

factors, refer to subsection 10.2.2.5 of 

the ANOPR TSD. 

2. National Net Present Value 

The NPV is the sum over time of 

discounted net savings. The national 

NPV of each candidate standards level 

is the difference between the base case 

national average LCC and the national 

average LCC in the standards case. For 

more detail on national net present 

value, refer to section 10.3 of the 

ANOPR TSD. 

a. National Net Present Value 

Calculations 

The Department calculated net 

savings each year as the difference 

between total operating cost savings 

(including electricity, repair, and 

maintenance cost savings) and increases 

in total installed costs (including 

equipment price and installation cost). 

The Department calculated savings over 

the life of the equipment, which 

accounts for the differences in yearly 

energy rates. The Department calculated 

the NPV as the difference between the 

present value of operating cost savings 

and the present value of increased total 

installed costs. It discounted future 

costs and savings to the present with a 

discount factor. The Department 

calculated the discount factor from the 

discount rate and the number of years 

between 2001 (the year to which DOE 

discounted the sum) and the year in 

which the costs and savings occur. An 

NPV greater than zero shows net savings 

(i.e., the energy efficiency standard 

reduces customer expenditures in the 

standards case relative to the base case). 

An NPV that is less than zero indicates 

that the energy efficiency standard 

incurs net costs. 

The elements of the NPV can be 

expressed in another form, as the 

benefit/cost ratio. The benefit is the 

savings in decreased operating cost 

(including electricity, repair, and 

maintenance), while the cost is the 

increase in the total installed cost 

(including equipment price and 

installation cost) due to standards, 

relative to the base case. When the NPV 

is greater than zero, the benefit/cost 

ratio is greater than one.

In the determination of the NPV, the 

Department calculated costs as the 

product of the difference in the total 

installed cost between the base case and 

standards case, and the annual sales 

volume or number of shipments in the 

standards case. Because costs of the 

more efficient equipment purchased in 

the standards case are higher than those 

of equipment purchased in the base 

case, price increases appear as negative 

values in the NPV. 

The Department depicted monetary 

savings as decreases in operating costs 

associated with the higher energy 

efficiency of equipment purchased in 

the standards case compared to the base 

case. Total operating cost savings are the 

product of savings per unit and the 

number of units of each vintage 

surviving in a particular year. Savings 

appear as positive values in the NPV. 

As noted earlier, the Department 

determined that shipment projections 

under the standards cases were lower 

than those from the base case projection, 

due to the higher installed cost of the 

more efficient equipment. As a result, 

DOE used the standards case shipments 

projection and, in turn, the standards 

case stock, to determine the NPV, to 

avoid the inclusion of operating cost 

savings and increased total installed 

costs due to displaced shipments. 

b. Net Present Value Inputs 

The inputs for the determination of 

NPV are: (1) Total annual installed cost, 

(2) total annual operating cost savings, 

(3) discount factor, (4) present value of 

costs, and (5) present value of savings. 

Net present value inputs are discussed 

below. Also, for more detail on net 

present value inputs, refer to subsection 

10.3.2 of the ANOPR TSD. 

(1) Total Annual Installed Cost 

An increase in the total annual 

installed cost to the Nation is the annual 

change in the per-unit total installed 

cost (the difference between the base 

case and the standards case) multiplied 

by the shipments forecasted in the 

standards case. As noted earlier 

concerning the national energy savings, 

DOE used the standards case shipments 

forecast to avoid miscounting the 

reduction in shipments as a reduction in 

total installed costs. 

The total installed cost includes both 

the equipment cost and the installation 

price, and is a function of equipment 

efficiency. The equipment cost includes 

the distribution markups (as determined 

in section II.E of this ANOPR) that are 

applied to the manufacturer costs 

estimated in the engineering analysis 

(section II.C of this ANOPR). The 

resultant equipment prices increase 

with equipment efficiency. The 

Department based average per-unit 

equipment costs on average 

manufacturer prices, multiplied by 

average overall markup values. With 

regard to installation prices, the 

Department varies installation prices in 

direct proportion to the weight of the 

equipment (section II.F.1.a of this 

ANOPR). The Department developed 

linear relationships of operating weight 

as a function of equipment efficiency for 

7.5-ton and 15-ton commercial unitary 

air conditioners and assumed the 

installation price increased in the same 

proportion. It based average per-unit 

installation prices on nationally 

representative values for each of the two 

commercial unitary air conditioner 

equipment classes. Because DOE 

calculated the total installed cost as a 

function of equipment efficiency, it 

could determine historical and 

forecasted total installed costs based on 

the annual shipment-weighted 

efficiency levels specified in the base 

case and standards case efficiency 

trends. 

(2) Total Annual Operating Cost Savings 

The annual operating cost savings to 

the Nation is the annual change in the 


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45492 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

per-unit annual operating costs (the 

difference between base case and 

standards case) multiplied by the 

shipments forecasted in the standards 

case. As just noted earlier concerning 

the total annual installed cost, DOE 

used the standards case forecast to avoid 

miscounting the reduction in shipments 

as an operating cost savings. The annual 

operating cost includes the electricity, 

repair, and maintenance costs. 

As described in the discussion of the 

LCC Analysis, the Department 

calculated annual electricity expenses 

based on two approaches: A tariff-based 

approach and an hourly based 

approach. The hourly based approach 

resulted in annual energy expenses 

which were, on average, less than one 

percent different from those in the tariffbased analysis. As discussed in section 

II.F.3.b. (LCC results), because the 

resulting national customer economic 

impacts from the two approaches would 

not be significantly different, the 

Department designated the tariff-based 

analysis as the primary analysis 

approach. Thus, the NPV calculations 

are based only on the results from the 

tariff-based approach.

The Department determined 

weighted-average per-unit annual 

energy expenses as a function of 

equipment efficiency. As discussed in 

the Building Simulation Analysis, 

Chapter 6 of the ANOPR TSD, DOE 

conducted whole-building simulations 

on a representative sample of 

commercial buildings that use 

commercial unitary air conditioning 

equipment. The Department assigned 

tariff-based electricity rates to each 

building to determine the annual energy 

expense for air conditioning in that 

building. Using the representative set of 

buildings, DOE performed a weightedaverage calculation to arrive at the net 

present values as a function of 

equipment efficiency. The Department 

based the weighting not only on the 

representativeness of the building, but 

also on the representativeness of the 

electric utility to which the building 

was assigned, as well as the number of 

air conditioning units that were 

required to meet the simulated cooling 

load. 

As discussed in the LCC Analysis, 

Chapter 8 of the ANOPR TSD, the 

Department based the average annual 

repair costs on the weight of the 

equipment, and in turn, the equipment 

efficiency, while it determined average 

annual maintenance costs to be $200 

regardless of cooling capacity or 

efficiency level. Thus, annual 

maintenance costs did not factor into 

the determination of the total operating 

cost savings. 

Because the Department calculated 

the annual energy expense and repair 

costs as a function of equipment 

efficiency, it could determine historical 

and forecasted annual energy expenses 

and repair costs based on the annual 

shipment-weighted efficiency levels 

specified in the base case and standards 

case efficiency trends. Further, the 

Department characterized each 

standards case with three efficiency 

scenarios and three growth trends, and 

from them it developed annual energy 

expense and repair cost trends for a total 

of nine standards cases for each possible 

new standard. 

(3) Discount Factor 

The discount factor is the factor by 

which DOE multiplied monetary values 

in one year to determine the present 

value in a different year. The discount 

factor is a function of the discount rate, 

the year of the monetary value, and the 

year in which the present value is being 

determined. For example, assuming a 

discount rate of seven percent, to 

discount monetary values in the year 

2010 to values in the year 2001, DOE 

would use a discount factor of 1/(1.07)9

or 0.544. 

The ACEEE commented that longterm social discount rates are 

appropriate for assessing the national 

impacts of standards. (Public Workshop 

Tr., No. 2EE at p. 201) Consistent with 

the Process Rule, the Department 

estimated national impacts with both a 

three-percent and a seven-percent real 

discount rate as the average real rate of 

return on private investment in the U.S. 

economy. These discount rates are used 

in accordance with the Office of 

Management and Budget’s (OMB) 

guidelines on Regulatory Analysis. 

(OMB Circular A–4, section E, 

September 17, 2003) See Chapter 10 of 

the TSD for more details on national 

impacts based on three-percent and 

seven-percent discount rates. The 

Department defines the present year as 

2001 for consistency with the year in 

which the Department collected 

manufacturer cost data. 

(4) Present Value of Costs 

The present value of increased total 

installed costs is the total installed cost 

increase (i.e., the difference between the 

standards case and base case) 

discounted to the present, and summed 

over the time period for which DOE 

evaluated the impact of standards (i.e., 

from the effective date of standards for 

this ANOPR in year 2008 to the year 

2035). 

Costs are increases in total installed 

cost (including both equipment cost and 

installation price) associated with the 

higher energy efficiency of commercial 

unitary air conditioners purchased in 

the standards case compared to the base 

case. The Department calculated total 

equipment costs as the difference in 

total installed cost for new equipment 

purchased each year, multiplied by the 

shipments in the standards case. 

(5) Present Value of Savings 

The present value of operating cost 

savings is the annual operating cost 

savings (i.e., the difference between the 

base case and standards case) 

discounted to the present, and summed. 

Savings are decreases in operating 

costs (including electricity, repair, and 

maintenance) associated with the higher 

energy efficiency of commercial unitary 

air conditioners purchased in the 

standards case compared to the base 

case. Total operating cost savings are the 

savings per unit multiplied by the 

number of units of each vintage 

surviving in a particular year. 

Equipment consumes energy over its 

entire lifetime, and for units purchased 

in 2035 the present value of savings 

includes energy expenses incurred until 

the unit is retired from service. 

3. Shipments Model 

The Department chose an accounting 

model to prepare shipment scenarios for 

the baseline and the various standard 

levels considered for commercial 

unitary air conditioners. The model 

tracks the stocks (inventory of installed 

equipment) and purchases of equipment 

in the two equipment classes of 

commercial unitary air conditioners. 

Events and customer decisions 

influence how the stock and supply of 

commercial air conditioners flow from 

one category to another. The 

Department modeled decisions that are 

influenced by economic parameters (i.e.,

total installed cost, operating cost, and 

income) with a logit probability model. 

The logit probability model is described 

later in this section. 

The Department organized the model 

into three classes of elements: Stocks, 

events, and decisions. It divided stocks 

of commercial unitary air conditioners 

into ownership categories, and units are 

assigned to age categories. Events are 

things that happen to stocks 

independent of economic conditions, 

i.e., breakdowns requiring repair or 

replacement. Decisions are customer 

reactions to market conditions, e.g., 

whether to repair or replace equipment, 

or purchase an air conditioner for a 

building which does not have one. The 

model characterizes customer purchase 

decisions by market segments. The 

model uses decision trees to describe 

customer choices for purchases and 


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repairs. A logit probability model 

simulates customer purchase decisions 

that are based on equipment price, 

operating costs, and business income 

level. A logit model allows a person to 

pinpoint variables that affect the 

probability of purchase. For more detail 

on the shipments model, refer to 

Chapter 9 of the ANOPR TSD.

a. Ownership Categories 

The Department first divided 

buildings into commercial air 

conditioner markets, then further 

divided the two markets into four 

different ownership categories, 

including: (1) New buildings; (2) 

existing buildings with a commercial 

unitary air conditioner; (3) buildings 

without a commercial unitary air 

conditioner; and (4) buildings with an 

extended-life commercial unitary air 

conditioner (i.e., equipment repaired to 

extend its life). The Department refers to 

the population of commercial unitary 

air conditioner units in each ownership 

category as the stock of commercial 

unitary air conditioner units of that 

category. Accounting equations relate 

annual changes in stocks to activities in 

the various market segments. 

b. Market Segments 

The Department divided commercial 

unitary air conditioner purchases into 

four market segments: 

• Net New Building Market: Net 

increases in the building stock that force 

the purchase of new commercial unitary 

air conditioners. 

• Regular Replacement Market: Most 

commercial unitary air conditioner 

purchases are to replace an existing 

system that has broken down after 

completion of its useful life. 

• Extra Repair Market: Because 

replacement of commercial unitary air 

conditioners is costly, a few customers 

will rebuild or repair a malfunctioning 

system (thus extending its lifetime), 

rather than purchasing a new system. 

Eventually, even extended-life 

commercial unitary air conditioners are 

replaced. 

• Buildings Without a Commercial 

Air Conditioner: Owners of some 

buildings without a commercial air 

conditioner will purchase and become 

new users of commercial unitary air 

conditioners. 

The Department modeled events and 

decisions (e.g., the probability that an 

existing commercial unitary air 

conditioner has a problem and the 

customer’s course of action) separately 

for each market segment. 

Trane stated that large increases in 

energy efficiency standards levels for 

commercial unitary air conditioners will 

cause users to repair their equipment 

rather than replace it, thereby 

decreasing shipments. (Public 

Workshop Tr., No. 2EE at p. 226) As 

noted above, the Department explicitly 

accounts for those customers that 

choose to repair their equipment rather 

than purchase a new system. Due to the 

increased equipment purchase price 

from higher efficiency standards, the 

shipments model estimates that some 

existing commercial unitary air 

conditioner customers, when faced with 

a replacement decision, will forego the 

purchase of a new piece of equipment 

and, instead, extend its normal life by 

repairing it. As a result, DOE estimated 

shipment projections under any 

standards case to be lower than those 

from the base case projection. Also, the 

shipments model forecasted that a 

greater number of existing customers 

would defer the purchase of a new 

system and extend the life of their 

equipment as the purchase price 

increased due to higher minimum 

efficiency standards. 

c. Logit Probability Model 

The Department used the logit 

probability-of-purchase model to 

estimate the impact of standardsinduced price and features changes on 

customer decisions. The model accounts 

for customer responsiveness to total 

installed cost, operating costs, and 

business income to capture the effect of 

these three variables on future 

shipments. The Department developed a 

coefficient of elasticity for the 

responsiveness to these three factors for 

each of the market segments. The 

elasticity was established by calibrating 

equipment forecasts to historical 

shipments. This ensured that estimates 

were consistent with the recent history 

of commercial unitary air conditioner 

shipments, market structure, and 

customer preferences. 

However, the Department 

understands that there are certain 

drawbacks to this method which 

include: (1) The need to forecast 

saturation of units in new and stock 

buildings; (2) the need to forecast 

building starts (although the AEO does 

provide readily available forecasts); and 

(3) the need to make assumptions 

concerning the lifetime of a unit to 

determine its retirement date. 

Concerning equipment saturation, the 

Department estimates that a maximum 

of ten percent of the total commercial 

floor space is eligible to receive 

equipment of the type covered by this 

rulemaking. Concerning building starts, 

the Department believes that unitary air 

conditioners would continue to be 

installed in the same types of buildings 

in which they are currently being used, 

and future equipment installations of 

commercial unitary air conditioners 

would not be preferentially installed in 

particular building types (e.g., retail or 

office). Although the Department 

believes its estimates for equipment 

saturations and building starts are 

reasonable, the Department invites 

comments from interested parties on the 

reasonableness of these estimates. The 

equipment saturation and building start 

issues are addressed as Issues 12 and 13 

under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

Table II.17 summarizes the various 

inputs and sources of the commercial 

unitary air conditioner shipments 

model.

TABLE II.17.—SUMMARY OF SHIPMENTS MODEL INPUTS

Parameter Data description 

New Commercial Building Starts .............................................................. DOE-Energy Information Administration, Annual Energy Outlook 2003. 

Historical Commercial Building Starts ...................................................... U.S. Census Bureau, Statistical Abstract of the United States: 2002. 

Regular Replacement Market ................................................................... Based on a survival function constructed from a Weibull distribution 

function normalized to produce a 15-year median lifetime. DOE 

based the 15-year median lifetime on data from the 1999 ASHRAE 

HVAC Applications Handbook. 

Extra Repair Market ................................................................................. Same survival function as used for regular replacement market but with 

a six-year extended life. 

Buildings Without an Air Conditioner ....................................................... This is a function of shipments going to new commercial buildings and 

existing floor space. 

Business Income ...................................................................................... Building Owners and Managers Association (BOMA) International, Historical Experience Exchange Reports. 


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45494 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.17.—SUMMARY OF SHIPMENTS MODEL INPUTS—Continued

Parameter Data description 

Total Installed Cost ................................................................................... Average values from LCC and PBP Analysis. 

Operating Cost ......................................................................................... Average values from LCC and PBP Analysis. 

Elasticities ................................................................................................. Developed by calibrating logit probability model to historical shipments. 

Historical Shipments ................................................................................. U.S. Census Bureau, Current Industrial Reports, Refrigeration, Air Conditioning and Warm Air Heating Equipment (MA333M series 1970 

through 2000). 

Unlike the LCC Analysis, the 

shipments model does not use 

probability distributions of values for 

inputs. As noted in the above discussion 

of the NES spreadsheet model, the 

shipments model uses the same basic 

input data as the LCC model for energy 

use and cost of equipment, but uses 

shipment-weighted average values 

instead of probability distributions. 

4. Preliminary Results 

Tables II.18 and II.19 show the 

forecasted NES for the two primary 

equipment classes at each of the 

candidate standard levels. Note that in 

the case of both equipment classes, 

although the ASHRAE/IESNA Standard 

90.1–1999 energy efficiency levels allow 

for four additional years of energy 

savings over the other standards cases, 

the amount is not great enough to offset 

the additional energy savings realized 

from adopting more stringent standards.

TABLE II.18.—SUMMARY OF CUMULATIVE NES IMPACTS (QUADS) 

THROUGH THE YEAR 2035 FOR

≥65,000 TO <135,000 BTU/H COMMERCIAL AIR CONDITIONERS

Candidate standard level 

Effective

date of

standard 

NES

(quads) 

ASHRAE 90.1—

1999 .............. 2004 0.31 

10.5 EER .......... 2008 0.39 

11.0 EER .......... 2008 0.70 

11.5 EER .......... 2008 0.98 

12.0 EER .......... 2008 1.08 

TABLE II.19.—SUMMARY OF CUMULATIVE NES IMPACTS (QUADS) 

THROUGH THE YEAR 2035 FOR

≥135,000 TO <240,000 BTU/H COMMERCIAL AIR CONDITIONERS

Candidate standard level 

Effective

date of

standard 

NES

(quads) 

ASHRAE 90.1—

1999 .............. 2004 0.20 

10.0 EER .......... 2008 0.31 

10.5 EER .......... 2008 0.53 

11.0 EER .......... 2008 0.79 

11.5 EER .......... 2008 1.02 

12.0 EER .......... 2008 1.09 

Tables II.20 and II.21 show the 

national NPVs for the two primary 

equipment classes for each of the 

candidate standard levels evaluated at 

discount rates of three-percent and 

seven-percent real per OMB’s guidelines 

contained in Circular A–4, Regulatory 

Analysis, September 17, 2003. Based on 

the use of a seven-percent real discount 

rate, note that the NPV increases with 

the stringency of the standard level until 

the 12.0 EER standards case. Although 

the 12.0 EER standards case provides 

additional operating cost savings, the 

higher equipment purchase costs 

incurred under the standard result in an 

NPV that is lower than that realized 

under the 11.5 EER standards case. Use 

of a three-percent discount rate, as 

called for by OMB guidelines, increases 

both future equipment purchase costs 

and operating cost savings. But because 

future annual operating cost savings in 

latter years grow at a faster rate than 

annual equipment purchase costs, use of 

a three-percent discount rate 

dramatically increases the NPV at all 

standard levels for both equipment 

classes. For example, in the 11.5 EER 

standard level scenario for the ≥65,000 

Btu/h to <135,000 Btu/h commercial 

unitary air conditioning equipment 

class, the $1.08 billion NPV based on a 

seven-percent discount rate becomes 

$3.06 billion under a three-percent 

discount rate. Chapter 10 of the ANOPR 

TSD also provides the full set of NPV 

results.

TABLE II.20.—SUMMARY OF CUMULATIVE NET PRESENT VALUE IMPACTS (IN BILLION 2001 DOLLARS) FOR ≥65,000 TO

<135,000 BTU/H COMMERCIAL AIR CONDITIONERS CALCULATED WITH A SEVEN-PERCENT AND THREE-PERCENT REAL

DISCOUNT RATE

Candidate standard level 

Effective

date of

standard 

NPV (billion 2001$) 

7%

discount

rate 

3%

discount

rate 

ASHRAE 90.1–1999 .................................................................................................................... 2004 0.52 1.25 

10.5 EER ..................................................................................................................................... 2008 0.57 1.52 

11.0 EER ..................................................................................................................................... 2008 0.93 2.53 

11.5 EER ..................................................................................................................................... 2008 1.08 3.06 

12.0 EER ..................................................................................................................................... 2008 1.02 3.05 


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TABLE II.21.—SUMMARY OF CUMULATIVE NET PRESENT VALUE IMPACTS (IN BILLION 2001 DOLLARS) FOR ≥135,000 TO

<240,000 BTU/H COMMERCIAL AIR CONDITIONERS CALCULATED WITH A SEVEN-PERCENT AND THREE-PERCENT REAL

DISCOUNT RATE

Candidate standard level 

Effective

date of

standard 

NPV (billion 2001$) 

7%

discount

rate 

3%

discount

rate 

ASHRAE 90.1–1999 .................................................................................................................... 2004 0.38 0.90 

10.0 EER ..................................................................................................................................... 2008 0.51 1.33 

10.5 EER ..................................................................................................................................... 2008 0.83 2.19 

11.0 EER ..................................................................................................................................... 2008 1.12 3.02 

11.5 EER ..................................................................................................................................... 2008 1.24 3.44 

12.0 EER ..................................................................................................................................... 2008 1.20 3.44 

The engineering analysis, section II.C 

of the ANOPR, established a maximum 

technologically feasible (i.e., ‘‘max 

tech’’) efficiency level of 12.0 EER. 

However, the engineering analysis also 

described a process (to be used for the 

NOPR) to ascertain whether the max 

tech level is actually greater than 12 

EER. In anticipation that a greater max 

tech level could exist beyond 12.0 EER, 

the Department ran a sensitivity 

analysis to determine the effect on NES 

and NPV of a max tech efficiency level 

greater than 12.0 EER. For purposes of 

conducting the sensitivity analysis, the 

Department assumed that the max tech 

efficiency level would be 2 EER rating 

points beyond a given candidate 

standard level. This means that under 

the ASHRAE/IESNA Standard 90.1–

1999 and 10.0 EER standards cases, the 

max tech level remains unchanged at 

12.0 EER. But for all other standards 

cases, the max tech level is greater than 

12.0 EER (i.e., 12.5 EER for the 10.5 EER 

standards case, 13.0 EER for the 11.0 

EER standards case, 13.5 EER for the 

11.5 EER standards case, and 14.0 EER 

for the 12.0 EER standards case). 

Although under these standards cases 

the max tech level is allowed to go 

beyond 12.0 EER, equipment with 

efficiencies equal to the max tech level 

are assumed to be gradually phased in 

over time. As a result, the forecasted 

efficiency trends for these candidate 

standards are not very different from 

those developed with a max tech level 

of 12.0 EER. As a result, only the NES 

and NPV results for the 11.5 EER and 

12.0 EER standards cases are 

significantly different from those results 

based on a max tech level of 12.0 EER. 

For more details on the NES and NPV 

results for the max tech sensitivity 

analysis, refer to subsection 10.4.5 of the 

ANOPR TSD. 

H. LCC Sub-Group Analysis 

The LCC sub-group analysis evaluates 

impacts on identifiable groups of 

customers, such as customers of 

different business types, who may be 

disproportionately affected by any 

national energy efficiency standard 

level. The Department will accomplish 

this, in part, by analyzing the LCC and 

PBPs for those customers that fall into 

those identifiable groups. 

Also, the Department plans to 

evaluate variations in energy prices and 

variations in energy use that might 

affect the NPV of a standard to customer 

sub-populations. To the extent possible, 

the Department will get estimates of the 

variability of each input parameter and 

consider this variability in its 

calculation of customer impacts. 

Variations in energy use for a particular 

equipment type depend on factors such 

as climate, building type, and type of 

business. The Department plans to 

perform sensitivity analyses to consider 

how differences in energy use will affect 

sub-groups of customers. 

The Department will then determine 

the effect on customer sub-groups using 

the LCC spreadsheet model. The 

standard LCC analysis includes various 

commercial building types that use 

unitary air conditioners. Where different 

data points are input to the spreadsheet 

model, the Department can analyze the 

LCC for any sub-group, such as office 

buildings in the U.S., by sampling only 

that sub-group. For more detail on the 

LCC sub-group analysis, refer to Chapter 

11 of the ANOPR TSD. 

The Department will be especially 

sensitive to purchase price increases 

(‘‘first cost’’ increases) to avoid negative 

impacts on identifiable population 

groups such as small businesses (i.e., 

those with low annual revenues) which 

may not be able to afford a significant 

increase in the price of commercial 

unitary air conditioning equipment. 

Increased first costs to commercial 

customers which result from standards 

are especially important to smaller 

businesses because this group is most 

sensitive to price increases. For these 

types of customers, an increase in first 

cost for a piece of unitary air 

conditioning equipment might preclude 

the purchase of a new model of that 

equipment. As a result, some 

commercial customers may keep a 

unitary air conditioner past its 

anticipated useful life. An older unitary 

air conditioner is generally less efficient 

than a new one and its efficiency may 

further deteriorate if it keeps operating 

beyond that useful life. Further, an 

increase in first cost might altogether 

preclude the purchase and use of new 

equipment and potentially result in a 

great loss of utility. 

Although the Department does not 

know the actual business income and 

annual revenues for the buildings 

analyzed in the LCC analysis, the 

Department will attempt to identify a 

building characteristic that correlates to 

annual income (e.g., floor space). If a 

characteristic can be found, the 

Department will be able to perform subgroup analyses on smaller businesses. If 

the Department cannot identify a 

building characteristic that correlates 

with income, then the Department may 

not be able to perform sub-group 

analyses on smaller businesses. The 

issue of business income and how it 

might relate to a particular building 

characteristic is addressed as Issue 14 

under ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR. 

The ACEEE stated that a sub-group 

analysis is unnecessary, stating that 

analyzing customer sub-groups will lead 

to an analytical quagmire. (ACEEE, No. 

10 at p. 11) The Department 

understands ACEEE’s concerns because 

the LCC analysis of numerous subgroups could require an inordinate 

amount of time and resources. However, 

as long as there are valid reasons for 

analyzing certain sub-groups, such as 

those businesses that may be affected 

more severely than the general 

population by increases in purchase 


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price, the Department will analyze the 

LCC impacts on those sub-groups.

I. Manufacturer Impact Analysis 

The purpose of the manufacturer 

analysis is to identify the likely impacts 

of efficiency standards on 

manufacturers. Consistent with the 

policies outlined in the Department’s 

Process Rule, 10 CFR Part 430, Subpart 

C, Appendix A, the Department will 

analyze the impact of standards on 

manufacturers with substantial input 

from manufacturers and other interested 

parties. The use of quantitative models 

will be supplemented by qualitative 

assessments by industry experts. 

The Department intends to conduct 

the manufacturer impact analysis in 

three phases, and further tailor the 

analytical framework based on 

stakeholder comments. In Phase I, an 

industry profile is created to 

characterize the industry, and identify 

important issues that require 

consideration. In Phase II, an industry 

cash flow model and an interview 

questionnaire are prepared to guide 

subsequent discussions. In Phase III, 

manufacturers are interviewed, and the 

impacts of standards are assessed both 

quantitatively and qualitatively. First, 

industry and sub-group cash flow and 

net present value are assessed through 

use of the government regulatory impact 

model (GRIM). Second, impacts on 

competition, manufacturing capacity, 

employment, and regulatory burden are 

assessed based on manufacturer 

interview feedback and discussions. For 

more detail on the manufacturer impact 

analysis, refer to Chapter 12 of the 

ANOPR TSD. 

1. Sources of Information for the 

Manufacturer Impact Analysis 

Many of the analyses described above 

provide important information 

concerning the manufacturer impact 

analysis. Such information includes 

manufacturing costs (section II.C), 

shipments forecasts (section II.G.3), and 

price forecasts (section II.E). The 

Department supplemented this 

information with information gathered 

during interviews with manufacturers. 

The interview process has a key role in 

the manufacturer impact analysis 

because it allows interested parties to 

privately express their views on 

important issues, and allows DOE to 

consider confidential or sensitive 

information in the rulemaking decision. 

The Department intends to conduct 

detailed interviews with as many 

manufacturers as necessary to gain 

insight into the range of potential 

impacts of standards. Typically during 

the interviews, DOE solicits information 

on the possible impacts of potential 

efficiency levels on sales, direct 

employment, capital assets, and 

industry competitiveness. Both 

qualitative and quantitative information 

is valuable. The Department intends to 

schedule interviews well in advance to 

provide every opportunity for key 

individuals to be available for comment. 

Although a written response to a 

questionnaire would otherwise be 

acceptable, DOE prefers an interactive 

interview process because it helps 

clarify responses and identify additional 

issues. 

Before the interviews, the Department 

will prepare and distribute to the 

manufacturers estimates of the financial 

parameters that it plans to use in the 

manufacturer impact analysis. During 

the interviews, the Department will seek 

comment and suggestions regarding the 

values selected for those parameters. 

The Department will ask interview 

participants to give, either in writing or 

orally, notice of any confidential 

information that is being provided. The 

Department will consider all relevant 

information in its decision-making 

process. However, DOE will not make 

confidential information available in the 

public record. The Department also will 

ask participants to identify all 

information that they wish to have 

included in the public record and 

whether they want it to be presented 

with, or without, attribution. 

The Department will review the 

results of the interviews and prepare a 

summary of the major issues and 

outcomes. For more detail on the 

methodology used in the manufacturer 

impact analysis, refer to section 12.2 of 

the ANOPR TSD. 

2. Industry Cash Flow Analysis 

The industry cash flow analysis relies 

primarily on the Government Regulatory 

Impact Model (GRIM). The Department 

uses the GRIM to analyze the financial 

impacts of more-stringent energy 

efficiency standards on the industry. 

The GRIM analysis uses several 

factors to determine annual cash flows 

beginning with the first public 

announcement of a new standard and 

for the several years after its 

implementation: Annual expected 

revenues; manufacturer costs such as 

costs of sales, selling, and general 

administration costs; taxes; and capital 

expenditures related to depreciation, 

new standards, and maintenance. The 

Department compares the results against 

baseline projections that involve no new 

standards. The financial impact of new 

standards is the difference between the 

two sets of discounted annual cash 

flows. Other performance metrics, such 

as return on invested capital, also are 

available from the GRIM. For more 

information on the industry cash flow 

analysis, refer to subsection 12.2.2.1 of 

the ANOPR TSD.

3. Manufacturer Sub-Group Analysis 

Industry cost estimates are not 

adequate to assess differential effects 

among sub-groups of manufacturers. For 

example, there could be greater negative 

effects on smaller manufacturers, niche 

players, or manufacturers exhibiting a 

cost structure that differs largely from 

the industry average. Ideally, the 

Department would consider the impact 

on every firm individually; however, it 

typically uses the results of the industry 

characterization to group manufacturers 

exhibiting similar characteristics. 

During the interview process, DOE 

will discuss the potential sub-groups 

and sub-group members that it has 

identified for the analysis. The 

Department will encourage the 

manufacturers to suggest what subgroups or characteristics are most 

appropriate for the analysis. For more 

detail on the manufacturer sub-group 

analysis, refer to subsection 12.2.3 the 

ANOPR TSD. 

4. Competitive Impacts Assessment 

The Department must examine 

whether any lessening of competition is 

likely to result if a standard is set above 

the levels established in the ASHRAE/

IESNA Standard 90.1–1999 and the 

Attorney General must determine the 

impacts, if any, of any lessening of 

competition. (42 U.S.C. 6313(6)(B)(i)(V)) 

The Department will make a determined 

effort to gather and report firm-specific 

financial information and impacts. The 

competitive analysis will focus on 

assessing the impacts to smaller 

manufacturers. The Department will 

base the assessment on manufacturing 

cost data and on information collected 

from interviews with manufacturers. 

The manufacturer interviews will focus 

on gathering information that will help 

in assessing asymmetrical cost increases 

to some manufacturers, increased 

proportions of fixed costs that could 

potentially increase business risks, and 

potential barriers to market entry (e.g., 

proprietary technologies). 

5. Cumulative Regulatory Burden 

The Department recognizes and seeks 

to mitigate the overlapping effects on 

manufacturers of amended DOE 

standards and other regulatory actions 

affecting the same equipment or 

companies. See the Department’s 

Process Rule, 10 CFR Part 430, Subpart 

C, Appendix A, sections 4(d)(7)(ii) and 

(vi), and 5(e)(3)(i)(B). 


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3For more information on NEMS, refer to the U.S. 

Department of Energy, Energy Information 

Administration documentation. A useful summary 

is National Energy Modeling System: An Overview 

2000, DOE/EIA–0581(2000), March, 2000. DOE/EIA 

approves use of the name NEMS to describe only 

an official version of the model without any 

modification to code or data. Because this analysis 

entails some minor code modifications and the 

model is run under various policy scenarios that are 

variations on DOE/EIA assumptions, DOE refers to 

it by the name NEMS–BT (BT is DOE’s Building 

Technologies program that performs this work).

4Memorandum from the Office of Integrated 

Analysis and Forecasting, Energy Information 

Administration, to the Federal Energy Management 

Program Office, dated January 23, 2003, ‘‘Energy 

Price Projections for Federal Life Cycle Cost 

Analysis.’’

The Department understands that the 

phaseout in 2010 of R–22 refrigerant 

may occur shortly after the effective 

date of any new standards for 

commercial unitary air-conditioning 

equipment. Two refrigerants, R–410a 

and R–407c, are currently under 

consideration as substitutes for R–22. In 

either case, the Department understands 

that there may be additional capital 

conversion and production conversion 

costs associated with the phaseout. The 

firms that manufacture the commercial 

equipment, for the most part, also 

manufacture residential central air 

conditioners and will face that 

conversion expense in 2010. 

J. Utility Impact Analysis 

To estimate the effects of candidate 

commercial unitary air conditioner 

standard levels on the electric utility 

industry, the Department intends to use 

a variant of DOE/EIA’s National Energy 

Modeling System (NEMS).3 The DOE/

EIA used this model to produce the 

Annual Energy Outlook. The 

Department will use a variant known as 

NEMS-Building Technologies (BT) to 

provide key inputs to the analysis. The 

utility impact analysis is a comparison 

between model results for the base case 

and candidate standards cases. The 

analysis will consist of forecasted 

differences between the base and 

standards cases for electricity 

generation, installed capacity, sales, and 

prices. Because the Department attempts 

to use a variant of the latest version of 

NEMS, the NOPR analyses will use the 

most recently available version of 

NEMS, which in all likelihood will be 

the version used to generate the AEO 

2004.

The use of NEMS for the utility 

analysis offers several advantages. As 

the official DOE energy forecasting 

model, it relies on a set of assumptions 

that are transparent and have received 

wide exposure and commentary. This 

model allows an estimate of the 

interactions between the various energy 

supply and demand sectors and the 

economy as a whole. The utility 

analysis will report the changes in 

installed capacity and generation by fuel 

type for each trial standard level, as well 

as changes in electricity sales to the 

commercial sector. 

The Department conducts the utility 

analysis as a policy deviation from the 

AEO, applying the same basic set of 

assumptions. For example, the utility 

analysis uses the operating 

characteristics (e.g., energy conversion 

efficiency, emissions rates) of future 

electricity generating plants and the 

prospects for natural gas supply as 

specified in the AEO reference case. 

The Department also will explore 

deviations from some of the reference 

case assumptions to represent 

alternative futures. Two alternative 

scenarios use the high and low 

economic growth cases of the AEO. The 

AEO reference case projects that the 

U.S. economy, as measured by gross 

domestic product (GDP), will grow at an 

average rate of three percent from 2001 

to 2025. The high economic growth case 

assumes higher projected growth rates 

for population, labor force, and labor 

productivity, resulting in lower 

predicted inflation and interest rates 

relative to the reference case and higher 

overall aggregate economic growth. The 

opposite is true for the low-growth case. 

While supply-side growth determinants 

are varied in these cases, AEO assumes 

the same reference case energy prices 

for all three economic growth cases. 

Different economic growth scenarios 

will affect the rate of growth of 

electricity demand. 

This model provides reference case 

load shapes for several end uses by 

census division, including commercial 

space cooling. The Department uses 

predicted growth in demand for each 

end use to project the total electric 

system load growth for each region, 

which in turn DOE uses to predict the 

necessary additions to capacity. The 

NEMS–BT model accounts for the 

implementation of efficiency standards 

by decreasing the value of certain 

variables in the appropriate reference 

case load shape. The Department 

determines the amount of decrease in a 

variable by using data for the per-unit 

energy savings developed in the LCC 

and PBP analyses and the shipments 

forecast developed for the NES analysis. 

For more detail on the utility impact 

analysis, refer to Chapter 13 of the 

ANOPR TSD.

The Southern Company stated that in 

conducting the utility analysis, it is 

important to consider the effect on 

utilities from changes that affect load 

factor and peak demand. (Public 

Workshop Tr., No. 2EE at p. 246) The 

Department recognizes the Southern 

Company’s concerns, and because the 

predicted reduction in capacity 

additions is very sensitive to the peak 

load impacts of the standard, the 

Department will also use the hourly 

load data from the building simulations 

to provide an independent estimate of 

the total system load reduction that 

results from a given trial standard level. 

Because the current AEO (AEO 2003) 

version of NEMS forecasts only to the 

year 2025, DOE must extrapolate results 

to 2035. The Department will use the 

approach which the EIA uses to forecast 

fuel prices for the Federal Energy 

Management Program (FEMP).4 The 

Federal Energy Management Program 

uses these prices to estimate LCC of 

federal equipment procurements. For 

petroleum products, FEMP uses the 

average growth rate for the world oil 

price over the years 2010 to 2025, in 

combination with the refinery and 

distribution markups from the year 

2025, to determine the regional price 

forecasts. Similarly, FEMP derives 

natural gas prices from an average 

growth rate figure in combination with 

regional price margins from the year 

2025.

Results of the analysis will include 

changes in commercial electricity sales, 

and installed capacity and generation by 

fuel type, for each trial standard level, 

in five-year forecasted increments 

extrapolated to the year 2035. The 

Natural Resources Defense Council 

stated that increases in the commercial 

unitary air conditioner standards will 

protect lives by reducing electricity 

blackouts. (NRDC, No. 6 at p. 5) 

Although the Department recognizes the 

possibility that a reduction in installed 

capacity could reduce the likelihood of 

blackouts, the Department does not 

intend to correlate reductions in 

installed capacity to possible reductions 

in electricity outages. 

K. Environmental Assessment 

The Department will conduct an 

assessment of the impacts of candidate 

commercial unitary air conditioner 

standard levels on certain 

environmental indicators using NEMS–

BT to provide key inputs to the analysis. 

Results of the environmental assessment 

are similar to those provided in the 

AEO. Because the Department attempts 

to use a variant of the latest version of 

NEMS, the analyses conducted for the 

NOPR will use the most recently 

available version of NEMS, which in all 

likelihood will be the version used to 

generate the AEO 2004. 


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The Department intends the 

environmental assessment to provide 

emissions results to policymakers and 

stakeholders, and to fulfill relevant legal 

requirements concerning the evaluation 

of environmental effects of new rules. 

The environmental assessment 

considers only two pollutants, sulfur 

dioxide (SO2) and nitrogen oxides 

(NOX), and one emission, carbon. The 

only form of carbon NEMS–BT tracks is 

carbon dioxide (CO2), so the carbon 

discussed in this report is only in the 

form of CO2. For each of the standard 

levels, DOE will calculate total 

undiscounted and discounted emissions 

using NEMS–BT and will use external 

analysis as needed. 

The Department will conduct the 

environmental assessment as a policy 

deviation from the AEO applying the 

same basic set of assumptions. For 

example, the emissions characteristics 

of an electricity generating plant will be 

exactly those used in AEO. The 

Southern Company stated that the 

environmental impacts calculated from 

a standards increase must consider 

other factors that may also be affecting 

power plant emissions. (Public 

Workshop Tr., No. 2EE at p. 254) 

Forecasts conducted with NEMS–BT 

also take into consideration the supplyside and demand-side effects on the 

electric utility industry. Thus, the 

Department’s analysis takes into 

account any factors affecting the type of 

electricity generation and, in turn, the 

type and amount of airborne emissions 

the utility industry generates. 

The NEMS–BT model tracks carbon 

emissions using a detailed carbon 

module. This gives good results because 

of its broad coverage of all sectors and 

inclusion of interactive effects. Past 

experience with carbon results from 

NEMS suggests that emissions estimates 

are somewhat lower than emissions 

estimates based on simple average 

factors. One of the reasons for this 

divergence is that NEMS tends to 

predict that conservation displaces 

renewable generating capacity in the out 

years. On the whole, NEMS–BT 

provides carbon emissions results of 

reasonable accuracy, at a level 

consistent with other Federal published 

results. 

The NEMS–BT model reports the two 

airborne pollutant emissions that DOE 

has reported in past analyses, SO2 and 

NOX. The Clean Air Act Amendments of 

1990 set an SO2 emissions cap on all 

power generation. The attainment of 

this target, however, is flexible among 

generators through the use of emissions 

allowances and tradable permits. The 

NEMS–BT model includes a module for 

SO2 allowance trading and delivers a 

forecast of SO2 allowance prices. 

Accurate simulation of SO2 trading 

tends to imply that physical emissions 

effects will be zero, as long as emissions 

are at the ceiling. This fact has caused 

considerable confusion in the past. 

However, there is an SO2 benefit from 

conservation in the form of a lower 

allowance price as a result of additional 

allowances from this rule, and, if it is 

big enough to be calculable by NEMS–

BT, DOE will report this value. The 

NEMS–BT model also has an algorithm 

for estimating NOX emissions from 

power generation. Two recent regulatory 

actions proposed by the EPA regarding 

regulations and guidelines for best 

available retrofit technology 

determinations and the reduction of 

interstate transport of fine particulate 

matter and ozone are tending towards 

further NOX reductions and likely to an 

eventual emissions cap on nation-wide 

NOX. 69 FR 25184 (May 5, 2004) and 69 

FR 32684 (June 10, 2004). As with SO2

emissions, a cap on NOX emissions will 

likely result in no physical emissions 

effects from equipment efficiency 

standards. 

The results for the environmental 

assessment are similar to a complete 

NEMS run as published in the AEO. 

These include power sector emissions 

for SO2, NOX, and carbon, and SO2

prices, in five-year forecasted 

increments extrapolated to the year 

2035. The Department reports the 

outcome of the analysis for each trial 

standard level as a deviation from the 

AEO reference cases. The Natural 

Resources Defense Council stated that 

increases in the commercial unitary air 

conditioner standards will protect lives 

by reducing airborne emissions. (NRDC, 

No. 6 at p. 5) Although the Department 

recognizes the possibility that a 

reduction in airborne emissions could 

result in improved health benefits, the 

Department has not correlated 

reductions in installed capacity to 

possible improvements in public health 

for appliance standards rulemakings. 

The Department requests data from 

stakeholders that identify specific 

health benefits from reductions in 

installed generation capacity. For more 

detail on the environmental assessment, 

refer to the environmental assessment 

report in Chapter 14 of the ANOPR TSD. 

Also, see ‘‘Issues on Which DOE Seeks 

Comment’’ in section IV.E of this 

ANOPR.’’

L. Employment Impact Analysis 

The Process Rule includes 

employment impacts among the factors 

to be considered in selecting a proposed 

standard. The Department usually 

would not issue any proposed standard 

level that would cause significant plant 

closures or losses of domestic 

employment. See the Department’s 

Process Rule, 10 CFR Part 430, Subpart 

C, Appendix A, sections 4.(d)(7)(ii) and 

(vi), and 10. 

The Department estimates the impacts 

of standards on employment for 

equipment manufacturers, relevant 

service industries, energy suppliers, and 

the economy in general. The estimates 

cover both the indirect and direct effects 

on employment. Direct employment 

impacts would result if standards led to 

a change in the number of employees at 

manufacturing plants and related 

supply and service firms. The 

discussion of the manufacturer subgroup analysis in section II.I.3 of this 

ANOPR covers estimates of the direct 

effects on employment.

Indirect impacts are impacts on the 

national economy other than in the 

manufacturing sector being regulated. 

Indirect impacts may result both from 

expenditures shifting among goods 

(substitution effect) and changes in 

income which lead to a change in 

overall expenditure levels (income 

effect). The Department defines indirect 

employment impacts from standards as 

net jobs eliminated or created in the 

general economy as a result of increased 

spending on the purchase price of 

equipment and reduced customer 

spending on energy. 

The Department expects new 

commercial unitary air conditioner 

standards to increase the total installed 

cost of equipment (customer purchase 

price plus sales tax, and installation). It 

expects the new standards to decrease 

energy consumption, and therefore to 

reduce customer expenditures for 

energy. Over time, the energy savings 

will pay back the increased total 

installed cost. Customers that benefit 

from the savings in energy expenditures 

may spend those savings on new 

commercial investments and other 

items. Using an input/output model of 

the U.S. economy, this analysis seeks to 

estimate the effects on different sectors 

and the net impact on jobs. The 

Department will estimate national 

impacts for major sectors of the U.S. 

economy in the NOPR. Public and 

commercially available data sources and 

software will be used to estimate 

employment impacts. The Department 

will make all methods and 

documentation available for review. 

In recent energy efficiency standards 

rulemakings, the Department has used 

the Impact of Building Energy Efficiency 

Programs (IMBUILD) spreadsheet model 

to analyze indirect employment 

impacts. The Department’s Building 

Technologies program office developed 


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IMBUILD, which is a special-purpose 

version of the Impact Analysis for 

Planning (IMPLAN) national input/

output model. IMPLAN specifically 

estimates the employment and income 

effects of building energy technologies. 

The IMBUILD model is an economic 

analysis system that focuses on those 

sectors most relevant to buildings, and 

characterizes the interconnections 

among 35 sectors as national input/

output matrices using data from the 

Bureau of Labor Statistics (BLS). The 

IMBUILD model estimates changes in 

employment, industry output, and wage 

income in the overall U.S. economy 

resulting from changes in expenditures 

in the various sectors of the economy. 

Changes in expenditures due to 

commercial air conditioning standards 

are modeled by IMBUILD as changes to 

economic flows (e.g., increased 

equipment prices and increased 

commercial sector investment). The 

economic flow changes provide 

IMBUILD with the means to estimate 

the net national effect on employment 

by sector. 

While ACEEE generally supports the 

inclusion of a net national employment 

impacts analysis, it stated that any 

model or tool used to estimate 

employment impacts must be robust 

and sensitive enough to reveal effects as 

small as those that can be foreseen. 

ACEEE commented that DOE must show 

that any direct employment impacts 

differ significantly from productivityrelated employment changes. (ACEEE, 

No. 10 at p. 15) The IMBUILD model 

estimates standards-induced impacts on 

the economy while holding constant all 

other economic factors that can affect 

national employment (such as 

recessions, government stimulus 

packages, and government budget 

deficits). While this approach to 

estimating employment impacts cannot 

determine the impacts due to small 

changes (such as productivity gains) on 

any particular industry, it does provide 

an approximation of the impact that 

equipment standards have on 

employment, barring any significant 

changes to the U.S. economy. 

Nevertheless, increases or decreases in 

the net demand for labor in the 

economy estimated by the input/output 

model due to commercial unitary air 

conditioners and heat pump standards 

are likely to be very small relative to 

total national employment. For the 

following reasons, it is doubtful that 

even modest changes in employment 

will be predicted in the NOPR. 

• Although unemployment has 

increased over the past few years, it is 

still at a relatively low rate. If 

unemployment remains low during the 

period when amended energy efficiency 

standards go into effect, it is unlikely 

that the efficiency standards alone 

would cause any change in national 

employment levels; 

• Neither the BLS data nor the input/

output model used by DOE include the 

quality or wage level of the jobs. The 

losses or gains from any potential 

employment change might be offset if 

job quality and pay also change; and 

• The net benefits or losses from 

potential employment changes are a 

result of the estimated net present value 

of benefits or losses that are likely to 

result from amended commercial 

unitary air conditioner and heat pump 

energy efficiency standards. It may not 

be appropriate to separately identify and 

consider any employment impacts 

beyond the calculation of NPV. 

Taking into consideration these 

legitimate concerns regarding the 

interpretation and use of the 

employment impact analysis, the 

Department expects that any energy 

efficiency standards for commercial 

unitary air conditioners and heat pumps 

are likely to produce employment 

benefits that are sufficient to offset fully 

any adverse impacts on employment in 

the commercial air conditioning 

equipment or energy industries. 

Employment impact analyses for 

products that have recently gone 

through a standards rulemaking for 

energy efficiency, such as residential 

water heaters and clothes washers, have 

demonstrated that losses in the 

appliance and energy industries have 

been offset by gains in other sectors of 

the economy. 

Although the Department intends on 

using IMBUILD for its analysis of 

employment impacts, the Department 

welcomes any input on tools that might 

be better than IMBUILD. For more 

information on the net national 

employment impacts analysis, refer to 

Chapter 14 of the ANOPR TSD. 

M. Regulatory Impact Analysis 

The Department will prepare a draft 

regulatory impact analysis under 

Executive Order 12866, ‘‘Regulatory 

Planning and Review,’’ (58 FR 51735 

(October 4, 1993)) which will be subject 

to review under the Executive Order by 

the Office of Information and Regulatory 

Affairs (OIRA). 

As part of the regulatory analysis, the 

Department will identify and seek to 

mitigate the overlapping effects on 

manufacturers of revised DOE standards 

and other regulatory actions affecting 

the same equipment. Through 

manufacturer interviews and literature 

searches, the Department will compile 

information on burdens from existing 

and impending regulations affecting 

commercial unitary air conditioners 

(e.g., HCFC refrigerant phaseout) and 

other equipment (e.g., non-unitary 

commercial air conditioners). Northeast 

Energy Efficiency Partnerships (NEEP) 

stated that existing incentive programs 

have demonstrated that commercial 

consumers need modest incentives to 

select equipment with efficiencies that 

are greater than the minimum standard 

requirements in ASHRAE Standard 

90.1–1999. (NEEP, No. 8 at p. 3) The 

Department takes note of NEEP’s 

comment and intends to address its 

concerns in the regulatory impact 

analysis discussion. The Department 

also seeks input from other stakeholders 

regarding other regulations that it 

should consider. 

The NOPR will include a complete 

quantitative analysis of alternatives to 

the proposed energy conservation 

standards. The Department plans to use 

the NES spreadsheet model (as 

discussed earlier in the section on the 

national impact analysis) to calculate 

the NES and the NPV corresponding to 

specified alternatives to the proposed 

conservation standards. For more 

information on the regulatory impact 

analysis, refer to the regulatory impact 

analysis report in Chapter 16 of the 

ANOPR TSD. 

III. Candidate Energy Conservation 

Standards Levels 

The Process Rule requires the 

Department to specify candidate 

standards levels in the ANOPR, but not 

to propose a particular standard. 10 CFR 

Part 430, Subpart C, Appendix A, 

4(c)(1). These candidate levels appear in 

Tables II.18 through II.21 of today’s 

ANOPR. The Department intends to 

review the public comments received 

during the public comment period 

following the ANOPR public meeting 

and to update the analyses 

appropriately for each equipment class, 

before issuing the NOPR.

Also, the Department requests 

comments from interested parties about 

the phaseout of R–22 refrigerant, and 

has identified it as Issue 15 under 

‘‘Issues on Which DOE Seeks Comment’’

in section IV.E. of this ANOPR. 

IV. Public Participation 

A. Attendance at Public Meeting 

The time and date of the public 

meeting are listed in the DATES section 

at the beginning of this notice of 

proposed rulemaking. The public 

meeting will be held at the U.S. 

Department of Energy, Forrestal 

Building, Room 1E–245, 1000 

Independence Avenue, SW., 


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Washington, DC, 20585. Those 

stakeholders who want to attend the 

public meeting should notify Ms. 

Brenda Edwards-Jones at (202) 586–

2945. Foreign nationals visiting DOE 

Headquarters are subject to advance 

security screening procedures, requiring 

a 30-day advance notice. A foreign 

national who wishes to participate in 

the meeting, must tell DOE of this fact 

as soon as possible by contacting Ms. 

Brenda Edwards-Jones to initiate the 

necessary procedures. 

B. Procedure for Submitting Requests To 

Speak 

Any person who has an interest in 

today’s notice, or who is a 

representative of a group or class of 

persons that has an interest in these 

issues, may request an opportunity to 

make an oral presentation. Hand-deliver 

requests to speak, along with a 

computer diskette or CD in WordPerfect, 

Microsoft Word, PDF, or text (ASCII) file 

format, to the address shown at the 

beginning of this advance notice of 

proposed rulemaking between the hours 

of 9 a.m. and 4 p.m., Monday through 

Friday, except Federal holidays. They 

may be submitted by mail or e-mail to: 

Brenda.Edwards-Jones@ee.doe.gov.

Persons requesting to speak should 

briefly describe the nature of their 

interest in this rulemaking and provide 

a telephone number for contact. The 

Department requests persons selected to 

be heard to submit an advance copy of 

their statements at least two weeks 

before the public meeting. At its 

discretion, DOE may permit persons 

who cannot supply an advance copy of 

their statement to participate, if that 

person has made advance alternative 

arrangements with the Building 

Technologies Program. The request to 

give an oral presentation should ask for 

such alternative arrangements. 

C. Conduct of Public Meeting 

The Department will designate a DOE 

official to preside at the public meeting 

and may also use a professional 

facilitator to aid discussion. The 

meeting will not be a judicial or 

evidentiary-type public hearing, but 

DOE will conduct it in accordance with 

5 U.S.C. 553 and section 336 of EPCA. 

(42 U.S.C. 6306) A court reporter will be 

present to record the transcript of the 

proceedings. The Department reserves 

the right to schedule the order of 

presentations and to establish the 

procedures governing the conduct of the 

public meeting. After the public 

meeting, interested parties may submit 

further comments on the proceedings as 

well as on any aspect of the rulemaking 

until the end of the comment period. 

The public meeting will be conducted 

in an informal, conference style. The 

Department will present summaries of 

comments received before the public 

meeting, allow time for presentations by 

participants, and encourage all 

interested parties to share their views on 

issues affecting this rulemaking. Each 

participant will be allowed to make a 

prepared general statement (within time 

limits determined by DOE), before the 

discussion of specific topics. The 

Department will permit other 

participants to comment briefly on any 

general statements. 

At the end of all prepared statements 

on a topic, DOE will permit participants 

to clarify their statements briefly and 

comment on statements made by others. 

Participants should be prepared to 

answer questions by DOE and by other 

participants concerning these issues. 

Department representatives may also 

ask questions of participants concerning 

other matters relevant to the public 

meeting. The official conducting the 

public meeting will accept additional 

comments or questions from those 

attending, as time permits. The 

presiding official will announce any 

further procedural rules or modification 

of the above procedures that may be 

needed for the proper conduct of the 

public meeting. 

The Department will make the entire 

record of this rulemaking, including the 

transcript from the public meeting, 

available for inspection at the U.S. 

Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

Any person may buy a copy of the 

transcript from the transcribing reporter.

D. Submission of Comments 

The Department will accept 

comments, data, and information 

regarding the ANOPR before or after the 

public meeting, but no later than the 

date provided at the beginning of this 

advance notice of proposed rulemaking. 

Please submit comments, data, and 

information electronically. Send them to 

the following e-mail address: 

commercialaircon 

ditioner.anopr@ee.doe.gov. Submit 

electronic comments in WordPerfect, 

Microsoft Word, PDF, or text (ASCII) file 

format and avoid the use of special 

characters or any form of encryption. 

Comments in electronic format should 

be identified by the docket number EERM/STD–01–375, and wherever 

possible carry the electronic signature of 

the author. Absent an electronic 

signature, comments submitted 

electronically must be followed and 

authenticated by submitting the signed 

original paper document. No 

telefacsimiles (faxes) will be accepted. 

Pursuant to 10 CFR 1004.11, any 

person submitting information that he 

or she believes to be confidential and 

exempt by law from public disclosure 

should submit two copies: One copy of 

the document including all the 

information believed to be confidential, 

and one copy of the document with the 

information believed to be confidential 

deleted. The Department of Energy will 

make its own determination about the 

confidential status of the information 

and treat it according to its 

determination. 

Factors of interest to the Department 

when evaluating requests to treat 

submitted information as confidential 

include: (1) A description of the items, 

(2) whether and why such items are 

customarily treated as confidential 

within the industry, (3) whether the 

information is generally known by or 

available from other sources, (4) 

whether the information has previously 

been made available to others without 

obligation concerning its 

confidentiality, (5) an explanation of the 

competitive injury to the submitting 

person which would result from public 

disclosure, (6) when such information 

might lose its confidential character due 

to the passage of time, and (7) why 

disclosure of the information would be 

contrary to the public interest. 

E. Issues on Which DOE Seeks Comment 

The Department is particularly 

interested in receiving comments 

(including data) concerning: 

1. Approaches to Analyses for Split 

Systems, Heat Pumps, and Niche 

Equipment 

The Department assumes that the 

cost/efficiency relationship for 

commercial single-package unitary airconditioning equipment in the ANOPR 

is similar to that of commercial split airconditioning systems. Is this a 

reasonable assumption for the DOE to 

make in its approach to developing the 

cost/efficiency curves? (See section 

II.C.1 of this ANOPR for details.) 

This ANOPR and the analyses 

detailed in the accompanying TSD 

address only commercial unitary air 

conditioning equipment. The 

Department proposes to address energy 

efficiency standards for commercial 

unitary heat pump equipment in a way 

that is consistent with the ASHRAE 

methodology used to set the ASHRAE/

IESNA Standard 90.1–1999 levels for 

unitary air conditioning systems with 


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heat pump heating. The Department 

requests comments on this proposed 

approach. (See section II.C.1 of this 

ANOPR for details.) 

The Department did not consider any 

niche equipment classes in the 

engineering analysis. Should the 

Department consider any niche classes 

of commercial unitary air conditioning 

equipment (e.g., portable units and 

explosion-proof/hazardous-duty units) 

that would fall under the definitions of 

either small unitary air conditioner, 

large unitary air conditioner, small 

unitary heat pump, or large unitary heat 

pump, in section I.C.3. of this ANOPR, 

apart from these general classes of 

commercial unitary air-conditioning 

equipment? 

2. Alternative Refrigerant Analysis 

The Department based its alternative 

refrigerant analysis on the use of R–410a 

refrigerant. The Department concluded 

that the incremental manufacturing cost 

and efficiency relationship derived for 

equipment using R–22 refrigerant would 

not be substantially different for 

equipment using R–410a. The 

Department requests data concerning 

the incremental cost/efficiency 

relationship associated with the use of 

R–410a in commercial unitary air 

conditioners. Also, the Department 

requests stakeholders to identify and 

provide similar information for any 

other alternative refrigerants DOE 

should consider. (See section II.C.5 of 

this ANOPR for details.) 

3. Candidate Standards Levels 

The Department has identified 

candidate energy efficiency standards 

levels ranging from 10.0 to 12.0 EER. 

The Department seeks comments on 

these efficiency standards levels and 

any other alternatives it should 

consider. (See sections III. and II.G.4 of 

this ANOPR for details.)

4. Design-Option Analysis and 

Maximum Energy Efficiency Levels 

Because there were no commercial 

unitary air conditioners that had 

efficiencies beyond 11.5 EER when the 

Department conducted its engineering 

analysis for commercial unitary air 

conditioners rated ≥65,000 Btu/h 

through <240,000 Btu/h, the Department 

had to rely on its design-option analysis 

modeling to estimate the manufacturing 

cost and efficiency relationship beyond 

11.5 EER. The Department requests 

comments from stakeholders on: (1) 

Whether the design options presented in 

the engineering analysis accurately 

estimate cost and efficiency trends 

beyond 11.5 EER, (2) whether the 

Department’s assumptions for 

evaluating a maximum technologically 

feasible design were appropriate, and (3) 

what other design options should the 

Department consider in its analysis. 

Since the Department completed its 

engineering analysis in late 2002, 

several new commercial unitary air 

conditioners, with rated efficiency 

levels greater than 12.0 EER, have 

become available on the market. The 

Department requests comments from 

stakeholders on any commercial unitary 

air-conditioning equipment with rated 

efficiency levels above 12.0 EER. (See 

sections II.C.1.a and II.C.4 of this 

ANOPR for details.) 

5. Industrial Buildings 

The Department’s analysis relies on 

simulations of electric loads in 

commercial buildings to determine the 

relative impact of the standard. The 

analysis is also intended to cover 

equipment installed in lightmanufacturing buildings. Lightmanufacturing buildings are those 

engaged in the process of making, 

assembling, altering, converting, 

fabricating, finishing, processing or 

treatment of a manufactured product 

utilizing a relatively clean and quiet 

process which does not include or 

generate significant objectionable or 

hazardous elements such as smoke, 

odor, vibration, water pollution or dust. 

As such, commercial unitary airconditioning equipment covered under 

this rulemaking could serve to provide 

space conditioning to lightmanufacturing buildings. If the electric 

load shapes and magnitudes, and in 

particular the degree of correlation 

between the hour of the peak air 

conditioning load and the hour of the 

peak building load, are substantially 

different for light-manufacturing 

buildings, a separate analysis for these 

buildings might be necessary. The 

Department seeks comments about 

whether adding light-manufacturing 

buildings to its analysis is necessary and 

what, if any, impact it would have on 

the results. (See sections II.D.1 and 

II.F.1.b.(2)(a) of this ANOPR for details.) 

6. Economizer Performance 

In its building simulation analysis, 

the Department assumed that the 

economizers operated flawlessly where 

economizer presence was indicated by 

CBECS data. This might result in some 

underestimation of the actual cooling 

loads in the buildings. Should the 

Department revise this assumption, and 

if so, what assumptions are appropriate? 

(See section II.D.1 of this ANOPR for 

details.) 

7. Fan Energy Consumption 

The Department included fan energy 

consumption as part of the total energy 

consumption of the commercial unitary 

air-conditioning equipment in the 

ANOPR analysis. This analysis includes 

fan energy consumption that occurs 

whenever the fan is in operation (i.e., 

during cooling, heating, and 

ventilation). Should the Department 

revise this approach in the NOPR 

analysis, and if so, what approach is 

appropriate? (See section II.D.1 of this 

ANOPR for details.) 

8. Equipment Markups 

For purposes of deriving customer 

prices for more efficient equipment, the 

Department differentiated between a 

baseline markup and an incremental 

markup for wholesalers, general 

contractors, and mechanical contractors. 

The incremental markup covers only 

those expenses associated with a change 

in the manufacturer price and is used to 

derive the incremental change in 

customer equipment price due to higher 

EER levels. Because the incremental 

markup covers fewer expenses, it has a 

lower value than its corresponding 

baseline markup. Nevertheless, it is 

essential to identify all expenses the 

incremental markup should cover. 

Therefore, the Department seeks 

comments on whether more or fewer 

expenses should be covered by the 

wholesale, general contractor, and 

mechanical contractor incremental 

markups. (See section II.E.2 of this 

ANOPR for details.) 

9. Hourly Based Electricity Prices 

The Department’s hourly based 

electricity price analysis uses extensive 

data to develop estimates of generation 

and coincident peak load savings due to 

the standard for each building in the 

sample. The Department enters these 

savings estimates into a customer price 

model to compute annual energy bill 

savings as an input to the LCC. The 

Department’s price model is based on 

the avoided-cost methodologies 

traditionally used to value demand 

reduction programs. Should the 

Department consider price models other 

than those based on avoided-cost 

methodologies? (See section 

II.F.1.b.(2)(b) of this ANOPR for details.)

10. Forecasts of Electricity Prices 

The Department has relied on EIA 

energy price forecasts, including the 

various EIA scenarios, to bound 

projected energy prices used in the 

standards analyses. The Department 

applied EIA’s projected trend in 

national average electricity prices to 

each customer’s marginal energy 


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expenses. Although the Department 

believes the EIA forecasts are the most 

credible projections available, the 

Department is open to using other 

sources of credible information. Are 

there alternative electricity price 

forecasts that are credible and warrant 

consideration by the Department? (See 

section II.F.1.b.(3) of this ANOPR for 

details.) 

11. Equipment Lifetime 

The Department based its equipment 

lifetime assumption on data from the 

1999 ASHRAE HVAC Applications 

Handbook, which gives a median 

lifetime of 15 years for commercial 

unitary air conditioners. The 

Department found no other data to 

indicate a different median or mean 

lifetime for commercial unitary air 

conditioning equipment. The 

Department seeks data concerning 

whether a 15-year median lifetime is 

appropriate for commercial unitary air 

conditioners and heat pumps. (See 

section II.F.1.b.(6) of this ANOPR for 

details.) 

12. Maximum Market Share of 

Commercial Unitary Air Conditioning 

Equipment 

The shipments model uses a logit 

decision model to represent the 

probability that a new building will 

have unitary air conditioning equipment 

installed. Even if all eligible commercial 

customers decided to acquire a unitary 

air conditioner, there is still only a finite 

fraction of floor space that would 

contain the particular equipment 

covered by the standard (due, for 

example, to the climate, the building 

size or type, etc.). The Department 

estimates that the maximum fraction of 

floor space that is eligible to receive the 

unitary air conditioning equipment 

covered by the standard is about 10 

percent for each equipment category. 

The Department seeks data to determine 

whether it should revise its estimate. 

(See section II.G.3.c of this ANOPR for 

details.) 

13. Future Building Types Using 

Commercial Unitary Equipment 

Future shipments of unitary air 

conditioning equipment depend in part 

on the rate of growth of commercial 

floor space. The Department uses the 

average growth rate for all commercial 

buildings as provided by AEO. The 

shipments model should cover the 

effects of any commercial unitary air 

conditioning equipment that is 

preferentially installed in particular 

types of buildings (e.g., retail or office) 

and any growth rate of floor space for 

these building types that is substantially 

different from the average. The 

Department seeks comments concerning 

whether to base floor space growth rate 

on specific building types rather than 

the average growth rate. (See section 

II.G.3.c. of this ANOPR for details.) 

14. Customer Sub-Groups 

The Department has identified 

smaller businesses, as measured by 

annual revenue, as a possible sub-group 

in which to conduct a separate LCC 

analysis. Although the Department does 

not know the annual revenues for the 

businesses in the buildings analyzed in 

the LCC analysis, the Department hopes 

to identify a building characteristic that 

is an indicator of annual revenues. The 

Department seeks comments from 

interested parties on whether there is 

any building characteristic that 

correlates to business income. (See 

section II.H. of this ANOPR for details.) 

15. Effective Date of New Standards and 

Phaseout Date of R–22 Refrigerant 

For purposes of conducting the 

shipments and manufacturer impact 

analyses, should the Department assume 

that manufacturers will change over to 

a new refrigerant (R–410a) at the same 

time new standards levels become 

effective? (See section III. of this 

ANOPR for details.) 

16. Independent Expert Third-Party 

Reviews 

ARI and Lennox raised the following 

issues: (a) Sample of buildings, (b) 

BLAST simulation and CBECS data, (c) 

supply fan energy use while ventilating, 

and (d) incremental markups. (ARI, Nos. 

14, 17, 18, and 19; Lennox, No. 15; and 

Memo to the File: Meeting with ARI/

Lennox, March 12, 2003, No. 16) The 

Department engaged independent thirdparty experts to review the approaches, 

assumptions, data, and analytical 

methods used for the ANOPR analyses 

for these four issues. The results of these 

third-party reviews are available to 

interested parties on the Department’s 

website at http://www.eere.doe.gov/

buildings/appliance_standards/

ac_hp.html. The Department seeks 

comments about each of these issues 

and the third-party review of these 

issues. (See sections I.A.5, II.D.1 and 

II.E.2 of this ANOPR and below 

discussion for more details.) 

a. Sample of Buildings 

The Department’s economic analysis 

examined energy-use estimates in a 

sample of buildings from the EIA’s 

CBECS database. The sample represents 

a diversity of cooling loads where 

commercial unitary air conditioning 

equipment is installed in six building 

types: assembly, education, food 

services, office, retail, and warehouse 

(non-refrigerated). Because of the 

complexity of this analysis, the 

Department also obtained an 

independent third-party expert review 

to ensure that the sample of buildings 

represented the operating conditions 

associated with the population of 

commercial unitary air conditioning 

equipment with rated cooling capacities 

of ≥65,000 Btu/h to <240,000 Btu/h. The 

Department seeks comments from 

interested parties about this third-party 

review. 

b. Building Loads and System 

Thermodynamics Simulation and 

Commercial Buildings Energy 

Consumption Survey Estimates of 

Energy Use 

The Department simulated load 

shapes for each of the above-sampled 

buildings at various efficiency levels by 

using the Building Loads and System 

Thermodynamics (BLAST) software. In 

doing so, the Department found that 

cooling energy use intensity (EUI) 

predicted by BLAST is higher than the 

cooling EUI estimated by CBECS for 

buildings with commercial unitary air 

conditioning equipment, although both 

the BLAST and CBECS calculations of 

energy end uses for cooling and 

ventilation are derived from modeled 

data. In view of these findings, the 

Department used a third party to 

examine the differences between the 

BLAST simulation EUI and the CBECS 

estimated EUI. The Department seeks 

comments from interested parties about 

the third-party review of the BLAST 

simulation and CBECS estimates of 

energy use. (See section II.D.1 of this 

ANOPR for details.)

c. Supply Fan Energy Use While 

Ventilating 

The Department’s analysis examines 

the total energy impact of commercial 

unitary air conditioning equipment on 

building energy consumption and 

therefore includes both the energy use 

and savings associated with the supply 

fan during non-cooling hours. The 

Department presumes that the fan is an 

integral component of a commercial 

unitary air conditioner and operates 

continuously to provide fresh air and air 

circulation at established ASHRAE 

Standard 62–1989 air quality levels 

when the building is occupied. The 

Department seeks comments from 

interested parties about the third-party 

review of fan energy use in the 

Department’s ANOPR analysis. (See 

section II.D.1 of this ANOPR for details.) 


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d. Incremental Markups 

To determine customer prices for 

more efficient commercial unitary air 

conditioning equipment, the ANOPR 

analysis addresses both the 

manufacturer’s baseline markup and 

incremental markups for wholesalers, 

general contractors, and mechanical 

contractors. It addresses those overhead 

expenses that may vary with an increase 

in equipment efficiency for each step of 

the distribution channel, and in 

particular those overhead expenses that 

can be attributed to higher EER levels. 

The Department seeks comments from 

interested parties about the third-party 

review of incremental markups in the 

ANOPR analysis. (See section II.E.2 of 

this ANOPR for details.) 

17. Effect of Income Taxes on Life-Cycle 

Cost 

The Department did not include the 

effect of income taxes in the LCC 

analysis for this ANOPR because it 

believes the net impact of taxes on the 

LCC analysis depends upon how a 

firm’s accounting procedures expense 

the purchase cost of commercial 

equipment and measure profitability. 

The Department requests comments as 

to whether DOE should perform such an 

analysis. The Department also requests 

information from interested parties on 

the number of firms that purchase 

commercial unitary air conditioning 

equipment and actually pay taxes, and 

for those that pay taxes, how the 

purchase of such equipment is expensed 

and subsequently depreciated over time. 

(See section II.F.1 of this ANOPR for 

details.) 

18. Technologies That Affect Full- or 

Part-Load Performance 

The Department understands that 

there are other technologies that operate 

under full- or part-load conditions and 

that can improve the net annual energy 

performance of a system, but which 

generally reduce the EER of commercial 

unitary air-conditioning equipment, or, 

at best, have no effect on EER. Such 

technologies include, for example, 

multiple compressors, economizers, 

inverter-driven variable-speed fans, and 

exhaust air enthalpy recovery devices. 

The Department did not examine such 

technologies because EPCA requires the 

commercial unitary air conditioners that 

are under consideration in this 

rulemaking meet certain energy levels 

measured in terms of EER. Moreover, 

EPCA establishes minimum EER levels 

for these air-cooled commercial unitary 

air conditioners and any amended 

national standard for that equipment 

must be more stringent—in other words, 

have an increased EER. Nevertheless, 

the Department understands that partload and seasonal performance of a 

commercial unitary air conditioner is 

important because of the impact on 

national energy consumption. 

Therefore, the Department seeks 

comments and recommendations from 

interested stakeholders on how best to 

analyze the effects of those technologies 

that can reduce EER or are EER-neutral, 

and the implications both on national 

energy savings and consumer life cycle 

costs. (See section II.B of this ANOPR 

for details.) 

19. Environmental Assessment 

The Department recognizes the 

possibility that a reduction in airborne 

emissions may result from energy 

efficient commercial unitary air 

conditioners and heat pumps which, in 

turn, could result in improved health 

benefits. The Department has not 

correlated reductions in installed 

generation capacity to possible 

improvements in public health for this 

ANOPR. Nevertheless, the Department 

requests data from stakeholders which 

identify specific health benefits from 

reductions airborne emissions. (See 

section II.K of this ANOPR for details.) 

20. Rebound Effect 

As part of the building energy use and 

end-use load characterization, the 

Department did not take into account a 

rebound effect in determining the 

reduction in cooling and fan energy 

consumption due to higher EER levels. 

The rebound effect occurs when a piece 

of equipment that is made more efficient 

is used more intensively, so that the 

expected energy savings from the 

efficiency improvement do not fully 

materialize. The Department seeks 

comments on whether a rebound effect 

should be included in the determination 

of annual energy savings. If a rebound 

effect should be included, the 

Department seeks data on which to base 

the calculation of the rebound effect. 

(See section II.D.2 of this ANOPR for 

details.) 

V. Regulatory Review and Procedural 

Requirements 

This advance notice of proposed 

rulemaking was submitted for review to 

the Office of Information and Regulatory 

Affairs (OIRA) in the Office of 

Management and Budget under 

Executive Order 12866, ‘‘Regulatory 

Planning and Review,’’ 58 FR 51735 

(October 4, 1993). If DOE later proposes 

amended energy conservation standards 

for certain air-cooled, electrically 

operated, unitary central air 

conditioners and heat pumps for 

commercial applications, the 

rulemaking would likely constitute a 

significant regulatory action, and DOE 

would prepare and submit to OIRA for 

review the assessment of costs and 

benefits required by section 6(a)(3) of 

the Executive Order. In addition, 

various other analyses and procedures 

may apply to such future rulemaking 

action, including those required by the 

National Environmental Policy Act, 42 

U.S.C. 4321 et seq.; the Unfunded 

Mandates Act of 1995, Public Law 104–

4; the Paperwork Reduction Act, 44 

U.S.C. 3501 et seq.; the Regulatory 

Flexibility Act, 5 U.S.C. 601 et seq.; and 

certain other Executive Orders. 

VI. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of today’s Advance Notice 

of Proposed Rulemaking.

Issued in Washington, DC, on July 13, 

2004. 

David K. Garman, 

Assistant Secretary, Energy Efficiency and 

Renewable Energy.

[FR Doc. 04–16575 Filed 7–28–04; 8:45 am] 

BILLING CODE 6450–01–U


EE-RM-STD-01-375 COMMENT 22A