EERI/STD -440 4 - 0

- Wednesday

November 24, 1999

-

=

Part III

Department of

Energy

Office of Energy Efficiency and _ - _ Renewable Energy

10 CFR Part 430

Energy Conservation Program for

Consumer Products: Energy Conservation

--- ---- Standards for Central Air Conditioner and -- __ Heat Pumps; Proposed Rule

M - _

m~~~~Pr 1

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66306 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

DEPARTMENT OF ENERGY Renewable Energy, "Energy Efficiency b. Product Specific

Standards for Consumer Products," 2. Technology Assessment

Office of Energy Efficiency and (Docket No. EE-RM-94-403), EE-431 a. General

Renewable Energy Forrestal Building, 1000 Independence b. Product Specific 3. Preliminary Baseline Shipments 10 CFR Part 430 Avenue, SW, Room IJ-018, Washington, Forecast 10 CFR Part 430DC 20585, (202) 586-2945. a. General

[Docket No. EE-RM/STD-98-440] The public hearing will be held at the b. Product Specific

RIN 1904-AA77 U.S. Department of Energy, Forrestal B. Screening Analysis Building, 1000 Independence Avenue 1. Product Classes

Energy Conservation Program for SW, Room 1E-245, Washington, DC a. General

Consumer Products: Energy 20585. b.ProductSpecific Conservation Standards for Central Air Copies of the Preliminary TSD: 2. Baseline Equipment

Consditioners and Heat Pumps fo et Energy Efficiency Standards for a. General Conditioners and Heat PumpsProducts: Central Air b. Product Specific Consumer Products: Central Air3 Technology Screening 3. AGENCY: Office of Energy Efficiency and Conditioners and Heat Pumps may also a. General

Renewable Energy, Department of be obtained from: U.S. Department of b. Product Specific Energy. Energy, Office of Building Research and C. Engineering Analysis

ACTION: Supplemental Advance Notice Standards, 1000 Independence Avenue, 1. Energy Savings Potential and Production

of Proposed Rulemaking. SW, Rm 1J-018, Washington, D.C. Costs

20585-0121, (202) 586-9127. The a. General

SUMMARY: The Department of Energy Preliminary TSD will also be available b. Product Specific publishes this Supplemental Advance through DOE's web site. The i. Efficiency-Level Approach

Notice Notice of Proposed PreliminaryTDprovii. Rulemaking Reverse Engineering Approach of Proposed Rulemaking Preliminary TSD provides the technical iii. Design Option Approach (ANOPR) to consider amending the details of the analysis that was iv. Outside Regulatory Changes Affecting

energy conservation standards for conducted in support of the the Engineering Analysis central air conditioners and heat pumps. Supplemental ANOPR being issued 2. Manufacturing Costs

The purpose of this Supplemental today. a. General

ANOPR is to provide interested persons Public Information: The public may b. Product Specific

with an opportunity to comment on: visit the Freedom of Information i. Characterizing Uncertainty

First, the product classes that the Reading Room, located at the US ii. Variability in Costs Among

Department is planning to analyze; Department of Energy, Forrestal Manufacturers

Second, the analytical framework, Building, 1000 Independence Avenue, ii. Lifeietry Desin a _models~ „Government~~~~ , , / ., , r -the~ . ° D. Life-Cycle Cost (LCC) and Payback models (e.g., the Government Regulatory SW, Room IE-190, Washington, DC Analysis Impact Model (GRIM)), and tools (e.g., a 20585 between the hours of 9 am and 1. LCC Spreadsheet Model

Monte Carlo sampling methodology, 4 pm, Monday through Friday, (except a. General

and life-cycle cost (LCC) and national Federal holidays). Call (202) 586-3142 b. Product Specific

energy savings (NES) spreadsheets) that for information. i. LCC Analysis

the Department has been using in For more information concerning ii. Equipment Prices

performing analyses of the impacts of public participation in this rulemaking iii. Payback Analysis (Distribution of

energy conservation standards; proceeding, see section IV, "Public Paybacks) Third, the results of preliminary Comment Procedures," of this iv. Rebuttable Payback 2. Preliminary Results analyses for the engineering, LCC, document. 2 a ry Re su lts

payback and NES contained in the FOR FURTHER INFORMATION CONTACT: Dr. b. Product Specific Preliminary Technical Support Michael E. McCabe, U.S. Department of E. Preliminary National Impact Analyses Document (TSD): Energy Efficiency Energy, Office of Energy Efficiency and 1. National Energy Savings (NES) Standards for Consumer Products: Renewable Energy, Forrestal Building, Spreadsheet Model

Central Air Conditioners and Heat Mail Station EE-41, 1000 Independence a. General

Pumps and summarized in this Avenue, SW, Washington, DC 20585- b. Product Specific

Supplemental ANOPR; and 0121, (202) 586-0854, E-mail i. Inputs to NES Analysis

Fourth, ~~~~~~Fourth, energy the Mi candidate .Mcabe ~dii. Shipments Model the candidate energy Michael.E.McCabe@ee.doe.gov. iii. National Net Present Value conservation standard levels that the Edward Levy, Esq., U.S. Department 2. Preliminary Results

Department has developed from these of Energy, Office of General Counsel, a. General

analyses. Forrestal Building, Mail Station GC-72, b. Product Specific

DATES: Written comments must be 1000 Independence Avenue, SW, 3. Indirect Employment Impacts

received by February 7, 2000. The Washington, DC 20585, (202) 586-9507, a. General

Department requests 10 copies of the E-mail: Edward.Levy@hq.doe.gov. b. Product Specific

written comments and, if possible, a SUPPLEMENTARY INFORMATION: F. Consumer Analyses

computer disk. The Office of Building .Introduction . ner b

- A na ly

s

Research and Standards is currently A. Authority b. Product Specific using WordPerfect 8. B. Background 2. Consumer Participation A public hearing will be held on 1. History a. General

December 9, 1999, from 9 am-5 pm. See 2. Process Improvement b. Product Specific

Section IV of the Supplementary 3. Test Procedure G. Manufacturer Impact Analysis Information for further details. II. Central Air Conditioners and Heat Pumps 1. Industry Characterization (Phase 1) Analyses a. General ADDRESSES: Written comments should A. Preliminary Market and Technology b. Product Specific be submitted to: U.S. Department of Assessment 2. Industry Cash Flow (Phase 2) Energy, Attn: Brenda Edwards-Jones, 1. Market Assessment a. General

Office of Energy Efficiency and a. General b. Product Specific

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3. Manufacturer Sub-Group Analysis extent practicable, weighing the and heat pumps. After the ANOPR was (Phase 3) following seven factors: issued, the Department continued its a. General (1) The economic impact of the analysis of LCCs, payback periods, and

4. I Product Speciic standard on the manufacturers and on preliminary NES which were shared

a. General the consumers of the products subject to with representatives from the airb. Product Specific such standard; conditioning industry. H. Competitive Impact Assessment (2) The savings in operating costs In 1995, the Department abandoned a. General throughout the estimated average life of the approach of using computer b. Product Specific the covered product in the type (or simulation models as a result of I. Utility Analysis class) compared to any increase in the concerns expressed by the industry. The

1. Proposed Methodology price, initial charges, or maintenance concerns included: the cost/ a. General Speexpenses for the covered products that performance relations derived from the

. Environmental Analysisare likely to result directly from the computer simulations were not

1. Proposed Methodology imposition of the standard; consistent with the experience of the a. General (3) The total projected amount of industry; the assumptions and

b. Product Specific energy savings likely to result directly procedures were flawed; and the

K. Regulatory Impact Analysis from the imposition of the standard; industry expressed doubts over the

III. Proposed Standards Scenarios (4) Any lessening of the utility or the Department's experience with selection IV. Public Comment Procedures performance of the covered products of appropriate design options. A. Participation in Rulemaking likely to result from the imposition of In October, 1995, a moratorium on B. Written Comment Procedures the standard; proposing, issuing, or prescribing C. Issues for Public Comment (5) The impact of any lessening of energy conservation standards took V. Review Under Executive Order 12866 and

other provisions competition, as determined in writing effect pertaining to standards for central

by the Attorney General, that is likely to air conditioners and heat pumps, and I. Introduction result from the imposition of the the dialogue between the airA. Authority standard; conditioning industry and the (6) The need for national energy Department, on the analysis performed, Part B of Title III of the Energy Policy conservation; and was suspended. and Conservation Act, Pub. L. 94-163, (7) Other factors the Secretary as amended by the National Energy considers relevant. 2. Process Improvement

Conservation Policy Act, Pub. L. Law During consideration of the fiscal year 95-619, the National Appliance Energy EPCA, Section 325(2)(B), 42 U.S.C. 1996 appropriations, there was Conservation Act of 1987, Pub. L. 100- 6295(2)(B) considerable debate about the efficacy of 12, the National Appliance Energy B. Background the standards program. The Department Conservation Amendments of 1988, of the Interior and Related Agencies Pub. L. 100-357, and the Energy Policy 1. History Appropriations Act for Fiscal Year 1996

Act of 1992, Pub. L. 102-486, (EPCA or The Energy Policy and Conservation included the aforementioned

the Act), created the Energy Act, as amended (EPCA or Act), requires moratorium on proposing or issuing Conservation Program for Various the Department of Energy (DOE or energy conservation appliance Consumer Products other than Department) to consider amending the standards for the remainder of Fiscal

Automobiles. 42 U.S.C. 6291-6309. energy conservation standards for Year 1996. See Pub. L. 104-134.

The National Appliance Energy certain major household appliances. In Congress advised DOE to correct the

Conservation Act of 1987 amended 1992, the Department initiated standards-setting process and to bring EPCA to impose performance standards engineering and LCC studies for central together stakeholders (such as for central air conditioners and heat air conditioners and heat pumps based manufacturers and environmentalists)

pumps as part of the energy on use of computer simulation models. for assistance. In September 1995, the

conservation program for consumer An ad hoc working group was formed to Department announced a formal effort products. EPCA, section 325(d), 42 advise the Department and to provide to consider further improvements to the

U.S.C. 6295 (d). EPCA also requires the engineering and test data to use with the process used to develop appliance Department to publish final rules computer models. The working group, efficiency standards, calling on thereafter, to determine if these which included representatives from manufacturers, energy efficiency groups, standards should be amended. central air conditioner and heat pump trade association, state agencies, utilities Before the Department determines manufacturers, the Air Conditioning & and other interested parties to provide whether to adopt a proposed energy Refrigeration Institute (ARI), Lawrence input to guide the Department. On July conservation standard it must first Berkeley National Laboratory (LBNL), 15, 1996, the Department published a solicit comments on the proposed and Oak Ridge National Laboratory Final Rule: Procedures for

standard. EPCA, section 325 (p), 42 (ORNL), also provided production cost Consideration of New or Revised Energy U.S.C. 6295 (p). Any new or amended data for establishing the cost- Conservation Standards for Consumer

standard must be designed so as to effectiveness of the various design Products (hereinafter referred to as the achieve the maximum improvement in options selected for study. Process Rule). 61 FR 36974.

energy efficiency that is technologically On September 8, 1993, the The Process Rule outlines the

feasible and economically justified. Department published an ANOPR (58 procedural improvements identified by EPCA, section 325(o)(2)(A), 42 U.S.C. FR 47326) which discussed the number the interested parties. The process 6295 (o)(2)(A). To determine whether of product classes and design options, improvement effort included a review of

economic justification exists the the computer simulation models, and the: (1) Economic models, such as the

Department must review comments on the methodologies which the Manufacturer Analysis Model and

the proposal and determine that the Department intended to use in its Residential Energy Model; (2) analytical benefits of the proposed standard analysis of increased energy efficiency tools, such as the use of a Monte Carlo

exceed its burdens based to the greatest standards for central air conditioners sampling methodology; and (3)

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prioritization of future rules. The conditioner and heat pump standards. which are discussed in this

Process Rule requires the evaluation of In this Supplemental ANOPR, the Supplemental ANOPR.

uncertainty and variability by doing Department is presenting the framework The Department held a workshop on scenario or probability analysis (as by which it will develop the standards. June 30, 1998 to discuss the analytical detailed in the Process Rule, 10 CFR The framework reflects improvements framework that was being proposed for

part 430, subpart C, appendix A sections and steps detailed in the Process Rule. conducting the central air conditioner

l(f), 4(d)(2), and 10(f)()). In addition, The rulemaking process is dynamic: If and heat pump rulemaking. The an Advisory Committee on Appliance an on Appliance timely new data, models or tools that analytical framework presented at the

Energy Efficiency Standards, consisting enhance the development of standards workshop described the different of a representative group of these

interested interested parties, parties, was was established established to to become available, they will be analyses (e.g., the LCC, payback and

make recommendations to the Secretary incorporated into the rulemaking. For national impact analyses) to be

regarding the implementation of the example the Advisory Committee has conducted (See Table 1), the methods

Process Rule. made several recommendations and the proposed for conducting them, and the

The Process Rule is applicable in this Department has developed new models relationship among the various

rulemaking to develop new central air analyses.

TABLE 1.-CENTRAL AIR CONDITIONER AND HEAT PUMP ANALYSES UNDER PROCESS RULE

ANOPR NOPR Final Rule

Screening Analysis ........................................................... Revised Pre-ANOPR Analyses (LCC and National Im- Revise Analyses (LCC and

pacts Analyses). National Impacts Analyses). Engineering Analysis ....... .............. .................. Consumer Sub-group Analysis. LCC Analysis ............ ............................ ............ . Industry Cash Flow Analysis (GRIM). Preliminary National Impacts Analysis ............................. Manufacturer Impact Analysis. Utility Impact Analysis.

Environmental Analysis.

A number of concerns were raised at manufacturer costs developed through between ARI's minimum and mean the framework workshop relating to the the reverse engineering approach and manufacturer costs completely application of the Process Rule to the demonstrating the LCC spreadsheet encompasses the reverse engineering central air conditioner and heat pump model. During this time period, ARI costs. This agreement is encouraging rulemaking, with particular emphasis submitted relative production cost data given the levels of uncertainty and on (1) the appropriate approaches for for the four different product classes of variability involved in estimating conducting the Engineering Analysis, central air conditioners and heat pumps representative manufacturer costs under

(2) how to validate manufacturer cost (split system and single package for both different efficiency baselines across a figures submitted by ARI, (3) methods air conditioners and heat pumps) for 3- diverse industry. These areas of

for developing consumer equipment ton capacity systems at various convergence provide an excellent

price data, and (4) how non-regulatory efficiency levels. Efficiency levels are indication of the most likely costs of

issues, e.g., the phase-out of hydro- defined differently for air conditioners producing equipment utilizing today's fluoro-chloro-carbon (HCFC) refrigerants and for heat pumps. Air conditioner technology under new standard levels.

might affect the effective date of any efficiency is defined by the descriptor, Although the two sets of manufacturer new standards. Seasonal Energy Efficiency Rating costs do overlap, they disagree in some In response to the concerns and (SEER). Heat pump efficiency is defined respects. In particular, there are comments of interested parties at the by the descriptor, Heating Season significant differences in the breadth of

Framework Workshop, the Department Performance Factor (HSPF) while the manufacturer cost distributions at

decided to perform the Engineering operating during the heating season and each efficiency level. The Department Analysis based on the efficiency-level by SEER while operating during the assumes that vigorous competition in approach rather than the design option cooling season. The cooling season the market for minimum-efficiency approach, using cost data submitted by efficiencies provided by ARI ranged equipment will compel manufacturers

manufacturers in aggregate via their from 11 to 14 SEER. The individual to meet new standards at similar

trade association, ARI. The Department manufacturers provided their costs, incremental manufacturer costs, and

also decided to utilize a reverse which were normalized to 10 SEER that the market cannot sustain as broad

engineering approach as a "stand alone" equipment costs, to ARI. ARI aggregated a range of costs as ARI's results may analysis for developing manufacturer the individual manufacturers' costs and imply. Furthermore, we cannot replicate costs and validating the ARI-provided provided the Department with ARI's maximum manufacturer costs

manufacturer's cost data. Both minimum, maximum and shipment- without altering our underlying approaches are discussed in detail in weighted mean values. assumptions beyond what we currently the discussion of the Engineering As will be discussed in the consider justified. Analysis (II C.). Engineering Analysis, the ARI-provided The Department and ARI have worked

As part of the information gathering and reverse engineering manufacturer diligently to identify possible sources of

and sharing process, the Department costs overlap considerably, especially at those discrepancies. The Department and its contractors met several times the lower efficiency levels in the split sincerely appreciates ARI's and its

with members of the ARI Unitary air conditioning class and in the middle members' dedicated participation in the Equipment Regulatory Committee, efficiency levels of the split heat pump Engineering Analysis. Their relative

presenting the preliminary class. For the most part, the range manufacturer costs provide a solid

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foundation for further analysis, and Framework Workshop are being The Department appreciates the

their frequent review of and input to our addressed in this document. The concerns expressed previously. The

validation effort is a valuable addition commentor's name and organization are methods and approaches used for the

to our understanding of the production shown in parentheses after each analyses conducted for this

and design issues associated with comment. Written comments are further Supplemental ANOPR are well

meeting higher standards. The identified by a number assigned to each described and have been released on the

Department will work with ARI to set of written comments received during Department's web site prior to the

understand the remaining differences the commentary period. Verbal issuance of this notice. Any questions or between our two sets of manufacturer comments are further identified by the comments as to how to clarify the

costs. page number in the workshop methodologies used in this rulemaking With regard to the LCC, payback, and transcript. Written comments and the are always welcome and appreciated. preliminary national impact analyses, Workshop transcript are viewable at the A. Preliminary Market and Technolog three new spreadsheet tools were Department's Freedom of Information Assessment

developed for this rulemaking in an Reading Room described previously. sesme effort to meet the objectives of the The preliminary market and

Process Rule. The first spreadsheet 3. Test Procedure technology assessment characterizes the

calculates LCC and payback. The second Section 7(b) of the Process Rule states relevant product markets and existing one calculates impacts of standards at that necessary modifications to test technology options including prototype various levels on shipments. The third procedures concerning efficiency designs.

calculates the the NES NES and and national national calculates net net standards will be identified and 1. Market Assessment

present values (NPV) at various proposed before issuance of an ANOPR.

standard levels. These spreadsheets and The residential central air conditioner a. General

the results of the preliminary analysis and heat pump test procedure is When initiating a standards were posted on the Department's web currently being revised to improve its rulemaking, the Department develops site on August 24, 1999. The organization and ease of use, with a information on the present and past preliminary results posted on the web proposed rule expected in November industry structure and market

consisted of two sets of data: one set 1999. This revision of the test procedurecharacteristics of the product(s) based on the manufacturer costs is not expected to alter the measured concerned. This activity consists of both

submitted by ARI and the other set efficiencies as determined under the quantitative and qualitative efforts to based on manufacturer costs developed existing test procedure Therefore the assess the industry and products based through reverse engineering. The revised test procedure w ould not affect on publicly available information.

Department suggested that any errors in development of revised efficiency Issues to be addressed include: (1) the web site materials be immediately standards. For these reasons, revisions Manufacturer market share and

brought to our attention for correction, tothetest roceue re not characteristics; (2) trends in the number

and that any and other other that comments commentsto any be "necessary the test procedure modification" are not a as that term is m te financial situation of submitted during the 75 day period necessary modification" as that term is r nancial situation of following publicatring the 75 dayf thperiod used in the Process Rule, but rather a manufacturers; (4) existing nonSufppleental ANOPR routine update, and hence need not be regulatory efficiency improvement Supplemental ANOPR.

The Department has reviewed the proosed before issuance of thinitiatives; and trend in product e proposed eatn the rule for these standardscharacteristics and retail markets. The recommendations made by the Advisory roposed rule for these standards, information collected serves as resource Committee on Appliance Energy II. Central Air Conditioner and Heat material to be used throughout the Efficiency Standards on April 21, 1998. Pump Analyses rulemaking. For instance, historical (Advisory Committee, No. 96) Theseproduct shipments and prices are used

recommendations relate to using the full This section includes a general to help predict future prices and

range of consumer marginal energy rates introduction to each analysis section to help predict structure pices and

(CMER) in the LCC Analysis (replacing and provides a discussion of issues hipm ents. Market structure data are the use of national average energy relevant to energy conservation tiful in conducting the

prices), defining a range of energy price standards for central air conditioners competitive impacts analysis.

futures for each fuel used in the and heat pumps. b. Product Specific

economic analyses and defining a range The Department received a number of The Department reviewed existing of primary energy conversion factors general comments from Energy Market & literature and interviewed

and associated emission reductions, Policy Analysis (EMPA) regarding the manufacturers to get an overall picture based on the generation displaced by analysis conducted for the rulemaking of the residential central airenergy efficiency standards for each (EMPA, # 3). Some of these concern the conditioning market in the United

rulemaking. The Department has rulemaking procedure, while others States. Industry publications and trade

incorporated the use of consumer refer to the analytic methods, and are as journals, government agencies, and

marginal energy rates and a range of follows: the methodology for evaluating trade organizations provided the bulk of

future energy prices for the analysis that standards is extremely complex and the information, including: (1) was conducted for this Supplemental increasingly unrealistic; approaches, Manufacturer market share; (2) ANOPR. The Department plans to models, assumptions, data, and data shipments by capacity and efficiency incorporate the recommendations on sources need to be more detailed and level; (3) price distribution; (4) market

energy conversion factors in future should to be put out for public comment saturation; and (5) distribution trends.

analyses for the Notice of Proposed before issuance of the ANOPR; and The information described is discussed

Rulemaking (NOPR). inadequate consideration is given to the in the sections where it is used in the

Today's Supplemental ANOPR impact of standards on "real analysis. pertains to central air conditioners and consumers" as EMPA believes that Edison Electric Institute (EEI) heat pumps and utilizes the framework groups on the DOE Advisory Committee commented that contractors should be

described in Section II. Both written and do not represent and protect the interviewed when market assessments

verbal comments from the June 30, 1998 interests of "real consumers." are being developed (EEI, # 2) while the

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Oregon Office of Energy (OOE) compressors, and advanced variable pumps, the Department believes this

requested the Department to gather speed motors and controls. concern is addressed. The shipments information on trends in product Electrohydrodynamic enhancement model is further described in the

characteristics and non-regulatory technologies were not considered as Preliminary National Impacts Analysis

efficiency improvement initiatives, and they have yet to be publicly discussion in section E.l.b.ii.

to interview manufacturers of demonstrated in prototypical central air B. Screening Analysis

components (compressors, motor/fan conditioner and heat pump designs.

assemblies, heat exchangers) on . r n p The Screening Analysis reviews

initiatives to improve system efficiency. 3. Pelminary Baseline Shipments various technologies with regard to

(OOE, # 7) The Department relied Forecast whether they: (a) Are technologically

predominantly upon literature searches a. General feasible; (b) are impracticable to

and input from equipmentThe Department develops amanufacture, install and service (c) The Department de velops a manufacturers while devop i pre r basel inhe forecast of product u y on productilii n market assessment, but also interviewed entsha ush attvailabity; assus o i nd (d)

national contracting organizations, his is an ina sthave adverse impacts on health and

indepedncortstandenards. This is an initial step in an safety. The subsequent Engineering independent contracntoers and component iterative process. Subsequently, a moreidenf suppliers. Of course, this market iterative process Subsequently, a more Analysis does not consider or assessment is preliminary, and any c e v l sincorporate technologies that do not

additional commentsiln and e ntoy forecast is prepared using a shipments pass these tests, regardless of whether additional comments will be taken into model, superceding the preliminarythe eie erv s ab s fr

consideration when the assessment is ecas rthe Engineering Analysis takes a Design

revisedfcue. Option approach or an Efficiency-level The baseline shipments forecast is approach. Technologies that pass the

develops a list of technologies that canss the

2. Technology Assessment used as an input to the National Benefits Screening Analysis tests may be a. General Analysis. To perform the National considered further to determine their

coiBenefits Analysis, a forecast ofpotental cost and efficiency imdpac ts.

Information relating to existing and shipment-weighted product efficiencies Th Screening Analysis also identifies

past technology options and prototype is prepared to the year 2030. To assess possible product classes and baseline

designs are typically used as inputs to the average impact on the affected equipment to serve as a basis for further

determine what technologies consumer, a forecast of product clas. In

manufacturers utilize to attain higher shipments by efficiency level was

energy efficiency levels. In consultation prepared for the year a new standard 1. Product Classes

with interested parties, the Department would come into effect. a. General

develops and should a list be conside of technoloies Initially, that can the b. Product red. Specific Product types are divided into classes

technologies encompass all those The Department prepared a baseline using the following criteria: (a) The type

considered to be technologically feasible shipments forecast for central air of energy used; (b) capacity; and (c)

and serve to establish the maximum conditioners and heat pumps. Data on performance-related features that affect

technologically feasible design. historical product shipments guided cosumer utility or efficiency. Different

iterature direct epreparation ad of the preliminary baseline energy efficiency standards are applied b. Product Specific formecast. shipments to different product classes. In general, The Department based its list of The Oregon Office of Energy (OOE) classes are defined using information

technically feasible design options on pointed out that non-regulatory energy btained in discussions with appliance design options included in a previous efficiency programs are on the wane, manufacturers, trade associations, and

ANOPR (58 FR 47326, September 8, and that if these programs are to be o ther interested parties.

1993). The Department then updated the considered in shipment forecasting, it b Product Specific list through consultation with must be quantifiably demonstrated howd

mirochanufacturers of components and appliance for most areasscribed the country, * Verticonal packaged, byof wall mounted.

manufacturers of components and they will transform the market (OOE,

systems, trade publications, and #7). Information from parties involved Appliance Energy Conservation Act

techn papers. ical Since many optionsin rs r (NAECA), central air conditioners aoo ndin

technologies were considered set those used t-bas for forecasting shipments in cooling or heativesng capacity of theor

for improving product efficiency are increas ing the sale of s high-efficiencyacin

available in existing equipment, product models was reviewed, but provided no split a n t that e ad oe systs, literature and direct examination quantifiable measure of how these fou product classes. The analysis provided additional information. programs impact product efficiencies on performed to date includes only

Further descriptions of the most current a national basis. However, because the poducts in these four product classes at

eegitechnologies are provided in the baseline forecast ana assumes 3 nomn on a aay. HFor exa le,

engineering section of the Preliminary distribution of 10.7 SEER, based on eemay ifition ce/ate TSD. ~~~~~~~TSD. ~current establishing additional classes including sales, the impact of marketOOE asserted that all appropriate based initiatives is implicit in the product types such as: component and system technologies baseline forecast. Through-the-wall condensing units, c Ductless split systems, must be considered in the technology OOE also noted that since central air * High-velocity space-conditioning assessment, and that it should include conditioning is not an essential systems. and

microchannel heat exchangers and appliance for most areas of the country, · Vertical packaged, wall mounted.

electrohydrodynamic enhancement central air conditioning purchase price The Department is also considering technologies (OOE, # 7). Additional elasticities will likely be different than establishing new classes defined by the

technologies were considered as set those used for forecasting shipments in cooling or heating capacity of the

forth in the Technology Screening other product rulemakings (OOE, #7). equipment. Analysis (section II.B.3) including such Since the shipments model used in this OOE felt that the addition of more emerging technologies as microchannel rulemaking was prepared specifically classes may be reasonable. For example, heat exchangers, modulating for central air conditioners and heat mini-splits and combined space/water

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heating systems might be considered as the technologies identified in the suggested that all advanced or emerging separate classes based on their technology assessment. Then the technologies be considered (ACEEE, #5; characteristics and configuration Department, in consultation with Steve Nadel, ACEEE, Transcript, pp 80- constraints (OOE, #7). interested parties, reviews the list to 81; OOE, #7) . ACEEE identified EEI commented that the product determine if they are practicable to improved compressors and classes be expanded to include gas-fired manufacture, install and service, would microchannel heat exchangers. ACEEE air-conditioning equipment. Gas-fired adversely affect product utility or also stated that emerging technologies equipment would then not be included product availability, or would have could be analyzed in the context of a as a design option, but as an additional adverse impacts on health and safety. reverse engineering analysis. Modine

product class for which baseline models Efficiency enhancement options not stated that PF (microchannel) heat

must be developed. (EEI, # 2) Although eliminated in the screening process are exchangers are a viable technology for

the Department appreciates EEl's considered further in the Engineering improving equipment efficiency, but

comments, the NAECA definition of Analysis. their acceptance should be driven by central air conditioners subsumes only b. Product Specific market needs rather than through a certain types of electric driven systems. desire to push the technology into the

This rulemaking addresses only Compiling a list of efficiency market (Modine, #1). Bristol

products covered by that definition, and enhancement options provided an Compressors (Bristol) is now bringing to thus, no consideration will be given understanding of the technologies market the Twin-Single (TS) here to developing standards for fuel available to manufacturers to improve compressor, a reciprocating compressor driven technologies. equipment efficiency. This that reduces system capacity by deWith regard to the additional product understanding also helped the activating one or more pistons under

classes listed in this section, the Department estimate maximum part-load operating conditions. Bristol

Department is seeking input on whether technologically feasible efficiency states that this technology can increase

they need to be established. levels. For split air conditioners, the central air conditioner and heat pump Department believes, based on a efficiency from either 10 to 12 SEER or 2. Baseline Equipment preliminary analysis, that 20 SEER is from 12 to 14 SEER. With a variable- a. General the highest efficiency level attainable by speed indoor blower, the TS can

The Department defines baseline 2006 on a commercially practicable increase system efficiency from 10 to 14

equipment for each product class as the basis using design and technology SEER (York, #4). starting point for analyzing energych options that pass the screening criteria. In contrast, an industry representative

efficiency improvements Baseliney These include the following: enhanced contended that emerging technologies

equipcienment are models with e and oversized heat transfer surfaces; would already be in the marketplace if

minimum allowable energy efficiency variable or multispeed or variable they were feasible and that, in the

specified by the NAECA Such baseline capacity compressors; high efficiency context of conducting an Engineering

equipment are typically "low-end" compressors; electrically-commutated, Analysis based on the use of the

units that contain no premium features variable-speed fan or blower motors, efficiency-level approach, emerging

ue.g, noise ruction no premm features, and thermostatic or electronic technologies should not be considered

feeatures expansion valves. We assumed that the until they are shown to radically change efficiency of compressors, motors, and the shape of the industry cost curve. b. Product Specific heat transfer surfaces would improve (Jim Crawford, The Trane Company

Efficiency is the most important slightly prior to the effective date of any (Trane), Transcript, pp 81,87) ARI stated

statistic required to establish the new rule. The 20 SEER level does not that in developing an aggregate industry

baseline model. Current minimum depend on any emerging technologies, cost curve, emerging technologies may efficiency standards for split and single because the Department believes that, or may not be included depending on package system central air conditioners although those technologies could whether manufacturers submitting data

and central air conditioning heat pumps reduce the cost of the equipment in the include them in their cost estimates are 10.0 and 9.7 SEER, respectively. The SEER 13 to SEER 17 range compared to (Ted Leland, ARI, Transcript, pp 85).

current minima for the heating established technologies, the emerging The Department has performed a performance of split and single package technologies will not advance the preliminary assessment of the potential central air conditioning heat pump maximum attainable efficiency level. impact of these technologies on the

systems are 6.8 and 6.6 HSPF, The analysis of manufacturing costs manufacturing costs of air-conditioning respectively. The Department used the and prices was based only on equipment and is seeking comment on

split system minimum efficiency technologies and designs available in the following: Whether these emerging standards as the baseline efficiency for mass produced products as of 1998. The technologies do in fact pass the

each of the above classes. If additional Department considered the potential screening criteria; the potential impact classes are created, the Department will cost impact of emerging technologies in of these technologies on manufacturing apply the appropriate existing standard a separate analysis described in the cost, operating cost, and price; whether as the baseline efficiency for that class Preliminary TSD. The emerging additional emerging technologies

OOE agreed with the Department's technologies that pass the screening should be considered; and whether the

intent to use the efficiency of products criteria include: maximum technologically feasible level

that just meet the current minimum * Microchannel heat exchangers is commercially practical. the Advanced compressors The Department notes that it is not

NAECA requirements as the baseline * Variable speed motor controls considering fuel-driven technologies, efficiency. (OOE, #7) The American Council for an Energy such as gas-fired engine driven heat

3. Technology Screening Efficient Economy (ACEEE), OOE, pumps, absorption heat pumps, and

a. General Modine Manufacturing (Modine), and Stirling refrigeration cycles, as design York International (York) all provided options for central air conditioners and An initial list of efficiency comments pertaining to emerging heat pumps. NAECA defines a central enhancement options is developed from technologies. Both ACEEE and OOE air conditioner and heat pump, in part,

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as being "powered by single phase form to be considered technologically engineering analysis relies upon electric current." This rulemaking feasible. manufacturer costs developed by Arthur concerns only products that meet the Three methodologies can be used to D. Little, Inc. (ADL) for the Department. NAECA definition. Thus, fuel-driven generate the manufacturing costs The design options selected in the

technologies are precluded from needed for the Engineering Analysis. Screening Analysis helped to establish

consideration here. These methods include: (1) The design- potential efficiency improvements. C. Engineering Analysis option approach, reporting the Manufacturing cost estimates under C. s Engine g A incremental costs of adding specific the efficiency-level approach were The purpose of the Engineering design options to a baseline model; (2) submitted by individual manufacturers

Analysis is to estimate the energy the efficiency-level approach, reporting to ARI. For purposes of ensuring savings potential from increased relative costs of achieving energy manufacturer confidentiality, ARI

equipment efficiency levels and the efficiency improvements; and/or (3) the submitted to the Department minimum,

costs of achieving those levels, reverse engineering or cost-assessment maximum, and shipment-weighted compared to the baseline equipment. approach which requires a "bottoms- averages of incremental manufacturer

The increased efficiency levels are up manufacturing cost assessment cost increases associated with various

associated with increased production based on a detailed bill of materials for efficiency levels. In the case of the

costs. The efficiency/cost relations models that operate at particular reverse engineering approach, ADL

developed in the Engineering Analysis efficiency levels. The Department derived manufacturing cost estimates are combined with end-user costs in the considers public comments in from detailed incremental cost data

LCC Analysis. determining the best approach for a enabling them to establish costs for rulemaking. labor, purchased parts and material, 1. Energy Savings Potential and If the efficiency-level approach is shipping/packaging, and investment. Production Costs used, the Department will select Both sets of manufacturer costs were a. General appropriate efficiency levels for data input into the Engineering Analysis and collection on the basis of: (1) Energy cost-efficiency relationships were The Engineering Analysis estimates savings potential identified from developed to show the manufacturing the energy savings potential of the engineering models; (2) observation of costs of achieving various levels of individual or combinations of design existing products on the market; and/or increased efficiency. options not eliminated in the previous (3) information obtained for the As discussed earlier in the section on Screening Analysis. The Department, in technology assessment. Stakeholders Process Improvement, attempts were consultation with stakeholders, uses the will be consulted on the efficiency-level made to reconcile differences between

most appropriate means available to selection. the ARI and the preliminary reverse determine energy consumption, The use of a design-option approach engineering production cost data.

including an overall system approach or provides useful information such as the Feedback from the industry resulted in

engineering modeling. Ranges and identification of potential technological revising the reverse engineering uncertainties in performance are paths manufacturers could use to production costs of such components as established. achieve increased product energy outdoor cabinet (labor and materials),

The Engineering Analysis involves efficiency. It also allows the use of indoor coil (materials) and refrigerant adding individual or combinations of engineering models to simulate the materials. Packaging and shipping costs

design options to the baseline energy consumption of different design were also revised. The Department is

equipment. A cost-efficiency configurations under various user continuing consultations with

relationship is developed to show the profiles and applications. However, the manufacturer representatives regarding manufacturer cost of achieving Department recognizes that the other industry suggested issues, increased efficiency. The efficiency manufacturer cost information derived including manufacturing production levels corresponding to various design in the design-option approach does not volume, copper and aluminum raw option combinations are determined reflect the variability in design strategies material costs, compressor costs, indoor from manufacturer data submittals and and cost structures that can exist among and outdoor coil costs, and freight costs.

from DOE engineering calculations, manufacturers. Therefore, the For more detail on how the ARI and the Department may derive additional reverse engineering costs were EPCA requires that, any new or manufacturing cost estimates from other developed, and our revisions to the amended standard, "shall be designed approaches developed in consultation reverse engineering costs, please refer to

to achieve the maximum improvement with interested parties. the Preliminary TSD. As noted earlier, in energy efficiency that the Secretary The reverse engineering or cost- these revisions helped to reconcile some determines is technologically feasible assessment approach can be used to of the differences between the ARI and economicallyjustified." EPCA, supplement the efficiency-level or production costs and the reverse section 325(1)(2)(A), 42 U.S.C. design option approaches under special engineering production costs, but 6295(1)(2)(A). An essential role of the circumstances when data is not remaining differences between the two Engineering Analysis consists of publically available for proprietary sets of manufacturer cost require further identifying the maximum reasons, the product is a prototype and/ examination. technologically feasible level. The or the data is not provided by the maximum technologically feasible level manufacturers. i. Eficiency-Level Approach is one that can be reached by the The efficiency-level approach addition of efficiency improvements b. Product Specific establishes the relationship between and/or design options, both The Department, in consultation with manufacturer cost and increased commercially feasible or in working stakeholders, has used both overall efficiency at predetermined efficiency prototypes, to the baseline equipment. efficiency level and reverse engineering levels. It has the distinct advantage of The Department believes that the design approaches. The efficiency-level being simple and straight forward. options must have been physically analysis relies upon manufacturer cost Manufacturers typically provide demonstrated in at least a prototype submittals from ARI while the reverse incremental manufacturer cost data for

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incremental increases in efficiency. permitted to inspect raw data in order the above five SEER levels: 7.1, 7.4, 7.7, Cost-efficiency curves can be easily to ascertain its reasonableness. OOE 8.0, and 8.2 HSPF). constructed to clearly identify at what suggested that a reverse engineering or Tables 2 to 5 show the incremental

point manufacturers are incurring design option approach be used to manufacturer costs, also called

significant costs to raise efficiency. verify the cost data, although they prefer manufacturer cost multipliers, which

Additionally, the efficiency-level the design option approach. ACEEE also ARI submitted for the four primary approach allows manufacturers the contended that a design approach could product classes for systems with cooling ability to supply detailed cost data be used to verify cost data. ACEEE capacities of approximately 3 tons

without revealing their unique design stated that it is more important to verify (36,000 Btu/hr). The manufacturer cost

strategies for achieving increased costs submitted for high-efficiency multipliers are used together with the

efficiency levels. equipment (14 to 15 SEER) as current baseline manufacturer cost (which will

But the simplicity of the efficiency- market prices do not reflect mature be presented in Section II.C.2.b.) to

level approach is also its primary market costs. Both the Consortium for determine the manufacturer costs for

drawback. Namely, since technological Energy Efficiency and the Pacific Gas each efficiency level. For example, the

details are not provided, it is extremely and Electric Company (PG&E) supported mean manufacturer cost multiplier for

difficult to verify whether the costs ACEEE's conditions for adopting the an 11 SEER split system air conditioners

provided for each specific efficiency efficiency-level approach (CEE, #6; from Table 2 is 1.16 and the baseline level are truly representative of the costs PG&E, #8). In addition, PG&E believed manufacturer cost for a split system air for that level. In addition, prototypical that the cost of efficiency upgrades for conditioner is $454. Thus, the mean designs become difficult to evaluate and heat pumps will be similar to air manufacturer cost for an 11 SEER split maximum technologically feasible conditioners since their components are system air conditioner is the product of designs are then difficult to ascertain. nearly identical (PG&E, #8). the baseline manufacturing cost ($454) As a result, some other type of analysis On the issue of cost verification, one and the cost multiplier (1.16), or $527. is likely needed in order to verify the industry representative contended that While the manufacturer cost multipliers

accuracy of the costs supplied through if industry provided disaggregated cost in Tables 2 to 5 included low and high the efficiency-level approach. data it would allow for the values as well as mean values, because

In reply to the Department's request to determination of the sources of the data the probability distribution for the cost stakeholders at the 1998 Framework Workshop regarding the most and, thus, result in violation of anti- data at a given standard level are appropriate approach which should be trust laws. Oim Crawford, Trane, unknown, only the mean values were pursued for the Engineering Analysis, Transcript, pp 70-72) In any case, he subsequently used in the LCC Analysis

some industry members stated their stated that if the reverse engineering (section ll.D).

support for the efficiency-level approach were used and it validated the

approach (Ted Leland, ARI; David aggregated industry cost-efficiency TABLE 2.-SPLIT SYSTEM AIR CONDILewis, Lennox International Inc curve the issue of cost verification TIONERS-ARI MANUFACTURER

(Lennox), Transcript, pp 55-56, 61, 76). would be a moot point. COST MULTIPLIERS

More specifically, these industry The Department selected two

members stated their intention to approaches, one of which was the SEER Low Mean High

provide costs under the efficiency-level efficiency-level approach, for 10

approach as one cost-efficiency curve conducting the Engineering Analysis. 101 ...................... 1.03 1.16 1.30 that would represent an aggregate of the Specific efficiency levels were selected 12 .. 1.09 1.36 1.55 entire industry, i.e., a smooth curve by the Department based on 13 ................ 1.30 1.63 1.90 relating the relative manufacturer cost consultations with stakeholders. In the 14...... 1.60 2.03 3.00

increases associated with increased case of central air conditioners, 15 ................. 1.81 2.40 3.50

efficiency. Industry indicated that the efficiency levels were based upon SEER. curve would represent the 90th Efficiency levels for heat pumps were EAT percentile, i.e.. the cost efficiency level based upon both the cooling season TABLE .- SP LIT SYSTEM EAT

at which 90% of manufacturers would SEER and the heating season HSPF PUMPS-ARI MANUFACTURER COST

be able to produce product. efficiencies. MULTIPLIERS

ACEEE and the OOE stated they ARI collected data from individual

would be willing to accept the manufacturers and, rather than SEER/HSPF Low Mean High efficiency-level approach only if certain providing only costs at the 90th 10/6.8 ...................... .. 1.00

conditions were met (ACEEE, #5, OOE, percentile, submitted minimum, 117.1 ...................... . 1.10 1.15

#7; Steven Nadel, ACEEE, Transcript, pp maximum, and shipment-weighted 12/7.4 ................. 1.11 1.24 1.35 65-67; Charlie Stephens, OOE, mean incremental manufacturer costs 13/7.7 ................. 1.17 1.44 1.66 Transcript, pp 65-67). For example, in for five distinct efficiency levels (11, 12, 14/8.0 ................. 1.30 1.64 1.88 addition to providing costs at the 90th 13, 14, and 15 SEER). ARI also provided 15/8.2 ................. 1.75 2.09 2.52

percentile, costs at multiple percentiles incremental manufacturer costs for heat

should be reported. Having the full pumps for the same five SEER levels. T E 4. PACKA AI distribution of costs allows for a more Since heat pumps are also rated for their A BLE SIN G LE PAKAGE AIR C O N

meaningful probability analysis to be heating performance using the HSPFDITIONERS-ARI MANUFACTURER

conducted. With regard to heat pumps, efficiency descriptor, the Department COST MULTIPLIERS

costs should be collected for achieving developed a simple relationship L M

different HSPF levels in addition to between the two efficiency descriptors SEER Low Mean High

providing costs at different SEER levels. for purposes of setting an HSPF 10 ............................... 1.00 ACEEE and OOE stated that verification standard in addition to an SEER 11 ...................... 1.03 1.19 1.27

of the costs submitted is extremely standard. The Department assumed the 12 ................ 1.15 1.30 1.40 important and they suggest that DOE following set of heating seasonal 13 ................ 1.40 1.63 1.75

staff members or consultants be performance factors corresponding to 14 ................... 1.59 1.87 2.00

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TABLE 4.-SINGLE PACKAGE AIR CON- addition, since only equipment in the the 10th and 90th percentiles,

DITIONERS-ARI MANUFACTURER market is analyzed, prototypical designs respectively, of the distributions.

COST MULTIPLIERS-Continued may not be captured by the analysis, thus making it difficult to establish TABLE 6.-SPLIT SYSTEM AIR CONDISEER Low Mean High maximum technologically feasible TIONERS-REVERSE ENGINEERING

designs. MANUFACTURER COST MULTIPLIERS 15 ...................... 1.89 2.23 2.92 The industry contends that a reverse

engineering approach could be used to SEER Low Aver- High TABLE 5.-SINGLE PACKAGE HEAT verify the cost data submitted through age

PUMPS--ARI MANUFACTURER COST the efficiency-level approach but DOE

MULTIPLIERS must first define the acceptable level of 1 ...................... 0.9 1.00 1.05 11 ...................... 1.08 1.13 1.18 variability between the costs that are ...................... 1.20 1.25 1.31

SEER/HSPF Low Mean High developed through each approach. (Jim 13 ...................... 1.35 1.42 1.48 -------------- - - Crawford, Trane; David Lewis, Lennox, 14 .1.65 1.73 1.81

10/6.8 ...................... .......... 1.00 .......... pp 110-113) Industry also m aintained 15 ...................... 1.87 1.95 2.04 11/7.1 ...................... 1.06 1.14 1.25 that there is wide variation in 16 ...................... 1.98 2.07 2.17 12/7.4 ...................... 1.06 1.28 1.50 production costs between manufacturers 17 ...................... 2.13 2.23 2.33

13/7.7 ...................... 1.45 1.60 1.90 due to the levels of services that are 14/8.0 ...................... 1.65 1.75 2.30 provided with the purchase of the 15/8.2 ...................... 1.93 2.13 2.47 provided with the purchaseofthe TABLE 7.-SPLIT SYSTEM HEAT equipment. OOE stated that reverse PUMPS-REVERSE ENGINEERING

In response to EEI's comment that the engineering could be used to validate M UFACTRR COST MU ERS Engineering Analysis should include the efficiency approach (OOE, #7) while MANUFACTURER COST MULTIPLIERS

the impact of any standard on the EER ACEEE stated that reverse engineering rating of the equipment (EEI, #2), the has the benefit of analyzing advanced SEER/HSPF Low Aver High

Department plans on conducting a technologies. (Steven Nadel, ACEEE, pp Utility Impact Analysis for the Notice of 80-81) 10/6.8 ...................... 0.96 1.00 1.05

Proposed Rulemaking (NOPR). The The Department carried out the 11/7.1 ...................... 0.97 1.01 1.06

Utility Impact Analysis will capture the reverse engineering approach to validate 12/7.4 ...................... 1.05 1.10 1.15

peak power impacts of an increased the cost estimates provided by ARI from 13/7.7 ...................... 1.29 1.35 1.41

SEER standard, which EEl is alluding to the efficiency-level approach. The 14/8.0 ...................... 1.57 1.65 1.72

in their comment regarding the EER. manufacturer costs of 71 equipment 1/8.4 ...................... 1.92 1.07 1.96 o ee /.4 ...................... 1.92 2.01 2.10 models at eight efficiency levels were ii. Reverse Engineering Analysis estimated. Three 3-ton models were torn

As mentioned in the previous section, down: (1) A 10 SEER split system TABLE 8.-SINGLE PACKAGE AIR CON- a reverse engineering approach was cooling-only condenser, (2) a 10 SEER DITIONERS-REVERSE ENGINEERING

conducted in parallel with the packaged heat pump, and (3) a 12 SEER MANUFACTURER COST MULTIPLIERS

efficiency-level approach to validate the split system heat pump condenser.

ARI production cost data. The use of a Manufacturer submissions, catalog data, SEER Low Aver- High component-based technology-costing and the ARI Product Attributes Database age (reverse engineering) approach provides provided design information on the

useful information including the other 68 models. For split system air 10 ...................... 0.96 1.00 1.05 11 ...................... identification of potential technological conditioners, cost estimates were 12 ...................... 1.08 1.14 1.19 paths manufacturers could use to developed for whole-number efficiency 1.3 1.40 1.46

achieve increased product energy levels ranging from 10 to 17 SEER. For

efficiency. Under this type of analysis, split system heat pumps, cost estimates

actual equipment on the market is were developed for whole-number TABLE 9.-SINGLE PACKAGE HEAT

physically analyzed, i.e., dismantled, efficiency levels ranging from 10 to 16 PUMPS-REVERSE ENGINEERING

component-by-component to determine SEER. The heating efficiencies MANUFACTURER COST MULTIPLIERS

what technologies and designs corresponding to each of the wholemanufacturers employ to increase number SEER levels were: 6.8 HSPF for SEEHSPF Low Aver- High efficiency. Independent costing methods 10 SEER, 7.1 HSPF for 11 SEER, 7.4 for age or manufacturer and component 12, 7.7 for 13, 8.0 for 14, 8.2 for 15, and 10/6.80.96 1.00 1.05

supplier data are then used to estimate 8.4 for 16. A limited set of models were 11/7.00 .1.05

the costs of the components. This analyzed for single package systems. For 12/7.4 ...................... .11 1.16 1.22

approach has the distinct advantage of single package air conditioners cost

using "real" market equipment to estimates were developed for 10, 12, iii. Design Option Approach establish the technologies which and 13 SEER efficiency levels while for

manufacturers use as the basis for single package heat pumps cost Industry representatives contended

estimating the cost to reach higher estimates were developed for 10 SEER/ that the design option approach can efficiencies. 6.8 HSPF and 12 SEER/7.4 HSPF only be conducted by industry The primary disadvantage of reverse efficiency levels, personnel with years of experience, but

engineering is the time and effort Tables 6 to 9 show the manufacturer the industry is not willing to provide required to analyze "real" equipment. cost multipliers developed by reverse this expertise because of the expense Several models from a diverse range of engineering for the four primary product involved. (im Crawford, Trane; David manufacturers may have to be assessed classes. Probability distributions rather Lewis, Lennox; Ted Leland, ARI, in order to ensure that an accurate than single point-values were used in Transcript, pp105-106) The industry representation of technological paths for the LCC analysis. The low and high also stated that DOE should not provide increasing efficiency are identified. In values shown in the following represent funds for others to carry out this

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approach because they lack the In response to the issue of alternative Other non-regulatory issues of

necessary expertise. refrigerants for HCFC-22, industry concern to the industry include the

In contrast, ACEEE and OOE believe representatives stated that need to make systems increasingly that the design option approach has manufacturing costs that will be tighter to prevent refrigerant leaks due

merits (Steven Nadel, ACEEE, submitted will attempt to factor in the to the use of HCFC-based refrigerants

Transcript, p 108; OOE, #7). ACEEE impact of switching to R-410A. (Ted (David Lewis, Lennox, Transcript, p

stated that it can be useful for evaluating Leland, ARI, Transcript, pp 287-288; 298), and international standardization

new technologies, while OOE believes it Jim Crawford, Trane, p 288; David of test procedures. (Jim Crawford, Trane,

is the approach of choice for conducting Lewis, Lennox, p 290, p 297) In Transcript, pp 298-299). The

the Engineering Analysis, since the response to a schedule presented at the Department has not explicitly addressed

impact of any single technology on cost 1998 Framework Workshop showing these concerns in its current analysis

and efficiency is explicitly stated. that a new minimum standard would but welcomes any comments as to how

The Department used only the become effective in the year 2005, the to address these issues in the course of

efficiency level and reverse engineering industry representatives stated that the the rulemaking.

approaches to establish the effective date of any new efficiency 2. Manufacturin Costs

manufacturer costs of achieving standard should coincide with the

increased efficiency levels for the phase-out date of HCFC-22 (the year a. General

following reasons: (1) Central air 2010) or be in the 2006 to 2010 time In addition to being inputs to the

conditioners and heat pumps are frame. Additionally, they warned that Engineering Analysis, manufacturing complex products; (2) a wide variety of efficiency gains through the use of R- costs are used as the means of

options exist to improve their efficiency; 410A are not as great as first believed. determining retail prices, and are (3) these options interact in complex In response to industry's proposal to needed for the manufacturer impact

ways; and (4) the industry strongly postpone the effective date of the analysis.

opposed use of the design option standard, both ACEEE and OOE stated

approach and was willing to provide that DOE should make new standards b. Product Specific data for the efficiency-level approach. effective in 2005. (ACEEE, #5; OOE, #7; Two sets of manufacturing costs were Steven Nadel, ACEEE, Transcript, p 298; prepared. Using an efficiency-level iv. Outside Regulatory Changes PG&E, #8) In their view, any delay will approach, ARI collected data from

Affecting the Engineering Analysis compromise U.S. commitments to individual manufacturers and submitted

There sometimes occur regulatory reduce global warming gases. OOE incremental manufacturing cost

changes outside of the EPCA efficiency offers two approaches for completing estimates. The Department also

standards process that can affect the the rulemaking on-schedule: (1) Base conducted a reverse engineering

manufacture of a product. In some the rulemaking analysis on replacement analysis to determine manufacturing

cases, such changes affect the energy refrigerants or (2) base the analysis on costs. This analysis included an

efficiency of a product. The Department HCFC-22 and use a correction factor to assessment of uncertainty and

has attempted to identify all regulatory adjust equipment performance based on variability among manufacturers.

issues outside the efficiency standards the use of alternative refrigerants. PG&E Baseline manufacturer costs, i.e., the

process that would influence the adds that an effective date of 2005 will costs associated with producing

Engineering Analysis. allow any new building standards equipment with efficiencies of.10. SEER,

The central air conditioning and heat proposed by the California Energy were also developed through the reverse ntryfaces the impendeing Commission (CEC) to include the engineering analysis. Table 10 shows pump industry faces the impending phase-out of HCFC , the refrigerant beneficial impact of higher-efficiency air the baseline manufacturer costs phase-out of HCFC-22, the refrigerant conditioners. PG&E states that if developed for the four primary product used in almost all the equipment standards are delayed to 2010, then over classes for systems with cooling currently being installed in the U.S. The 500,000 new California dwellings would capacities of approximately 3 tons

phase-out of HCFC-22 begins in the be significantly less efficient. (36,000 Btu/hr). Note that for split year 2010, and the industry has The Department has determined that system air conditioners. two costs were responded by conducting in-depth the phase-out date for HCFC-22 is far developed; one for systems sold without analyses of various HCFC-22enouS ^ £ur? har~t w ~ developed; one for systems sold without analyses of various HCFC-22 enough in the future that it will not indoor blowers and the another for

alternatives. The most notable effort to affect a manufacturer's ability to meet systems sold with indoor blowers. (A date has been the ARs Alternative any new efficiency standards, whether split system air conditioner is usually Refrigeration Evaluation Program using HCFC-22 before the phase-out, or sold without an indoor blower when the

(AREP). Under AREP, several HCFC-22 using alternative refrigerants before and air conditioner's indoor unit is installed

alternatives were identified, and their after the phase-out. The Department in conjunction with a heating furnaces

effects on equipment capacity, does not plan to delay the effective date that is equipped with a blower). The

efficiency, and longevity, and other of any new standards to coincide with etaitahe

variables were established. the phase-out date of HCFC-22. Thein ariability of the

Two baseline costs are noted in the primary candidates have Engineering Analysis has therefore been manfac cost utipies deri e d in

emerged from the field of alternatives: based on the assumption that equipmentmanufacturer cost multipliers derived in

R-410A and R-407C. Although R-410A will use HCFC-22. However, the the reverse engineerng analysis (Tables

shows promise of being able to Department recognize6 that equipmentified to 9) in the rows as 10

significantly raise equipment design changes to accommodate S .8 H . efficiencies, its high volumetric capacity alternate refrigerants may alter the TABLE 10.-BASELINE MANUFACTURER

requires systems to be redesigned to manufacturing cost-efficiency

handle the significantly higher relationship developed for HCFC-22 COSTS

discharge pressures. R-407C is a virtual equipment. The Department welcomes

drop-in replacement, but results in an input regarding the analysis of Product Class blower blower

efficiency degradation of 5-10% relative equipment designed for alternate

to HCFC-22. refrigerants. Split System A/C .......... $367 $454

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TABLE 10.-BASELINE MANUFACTURER only aggregated shipment-weighted from the proposed standard, as well as COSTS-Continued manufacturer costs. Under the two different simple payback periods, efficiency-level approach, this same i.e., distribution of payback periods, and

Product Class Without With disaggregated company-specific cost a payback period calculated for Ps blower blower information developed for the purposes of the rebuttable presumption

Split System Heat Engineering Analysis can be used to clause. The effects of standards on Pump ......................... .. 615 perform Government Regulatory Impact individual consumers include changes Single Package A/C ..... ........... 534 Analysis for each manufacturer or in operating expenses (usually lower)

Single Package Heat manufacturer subgroup. These and changes in total installed cost

Pump ......................... ............. 589 aggregated data, however, were (usually higher). The net effect is insufficient to generate distributions of analyzed by calculating the change in

i. Characterizing Uncertainty costs by manufacturer. Therefore, only LCC as compared to the base case. The mean values were used in the base case manufacturing cost is

DOE Consistent places with the Process Rule, subsequent LCC Analysis. determined in the reverse engineering a range around the average

manufacturing costs of achieving iii. Proprietary Design analysis. The LCC calculation considers

various efficiency levels. The OOE The Department considers in its purchase price plus installation cost), concurs with DOE's plan for dealing analysis all design options that are operating expenses (energy, repair, and with uncertainty and variability in commercially available or present in a maintenance costs), appliance lifetime, manufacturer cost estimates. (OOE, #7) working prototype, including The ranges of costs are used to generate proprietary designs. OOE stated that and discount rateThe LCC Analysis is retail prices for the consumer LCC designs meeting the stated criteria of a performe from the erspective of the Analysis, and are used in the Industry proprietary design should be analyzed Cash Flow Analysis. as a design option, providing the A t t h e A N PR stage, the Department ARI collected data from example of the microchannel heat generates LCC and payback period manufacturers and developed a exchanger (OOE, #7). Proprietary results as probability distributions using shipment-weighted mean, along with designs are considered in the a simulation based on Monte-Carlo

minimum and maximum cost Department's engineering and economic methods, in which inputs to the

multipliers for each efficiency level to analyses. The Department looked at the analysis consist of probability

account for variability and uncertainty, potential impact of proprietary heat distributions rather than single-point Since the actual distribution of exchanger and compressor designs plus values. As a result, the Monte Carlo

manufacturer costs were not provided to any proprietary designs that were part of analysis produces a range of LCC and

the Department, only the shipment- equipment which were analyzed in the payback period results rather than

weighted means were used in the course of the reverse engineering single-point values. A distinct

calculation of retail prices and, in turn, analysis. advantage of this type of approach is

the LCCs. The Department considered the that the percentage of consumers In conducting the reverse engineering potential impact of proprietary designs achieving LCC savings or attaining approach, the Department developed a as part of its preliminary assessment of certain payback values due to an range of cost estimates for each design options. Its initial conclusion is increased efficiency standard can be

efficiency level. For each efficiency that the inclusion of proprietary designs identified in addition to the average level in each product class, the range of will not materially affect the results of LCC savings or average payback for that

cost estimates were approximated by the Engineering Analysis because standard. Because the analysis is being multiplying the mean value by a equipment can achieve the same conducted in this manner, the

uniform distribution (from 95% of the efficiencies competitively using non- uncertainties associated with the mean to 105% of the mean) and a proprietary designs. The Department various input variables (as described in

normal distribution (centered on the intends to continue examining this issue the next paragraph) can be expressed as mean, with a standard deviation of during the Manufacturing Impact probability distributions. During the

1.9%). The resulting cost distributions Analysis and welcomes input on the post-ANOPR consumer analysis, the were then used in the calculation of appropriateness of considering Department will evaluate additional

retail prices and, in turn, the LCCs. proprietary designs. parameters, and prepare a

comprehensive assessment of the ii. Variability in Cost Among D. Life-Cycle Cost (LCC) and Payback impacts on sub-groups of consumers. Manufacturers Analysis The LCC and one of the payback The Department is committed to In determining economic justification, periods (distribution of payback assessing the differential impacts of EPCA directs the Department to periods) are calculated using the LCC standards on different manufacturers. consider a number of different factors, spreadsheet model developed in The results are used as inputs for the including the economic impact of Microsoft Excel for Windows 95, sub-group analysis of manufacturing potential standards on consumers, combined with Crystal Ball (a impacts, which entails calculating cash EPCA also establishes a rebuttable commercially available software flows separately for each class of presumption that a standard is program), based on probability manufacturer. economically justified if the additional distributions of input variables. The In previous analyses for other cost of purchasing a product, attributed second payback, the Rebuttable payback appliances, manufacturing costs to the standard, is less than three times based on DOE test procedure submitted to DOE have demonstrated the value of the first year energy cost assumptions for estimating annual

large variability. In line with the savings. EPCA, section 325(o)(2)(B)(iii), energy consumption, is not calculated Department's preference, ARI therefore 42 U.S.C. 6295 (o)(2)(B)(iii). using Crystal Ball and input probability collected cost data disaggregated by To address these provisions the distributions, but is instead based on the manufacturer, although, as discussed Department calculates changes in LCCs spreadsheet option allowing single- earlier, ARI provided to the Department to the consumers that are likely to result values for the input variables.

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Based on the results of the 1. LCC Spreadsheet Model payback periods will be more difficult

Engineering and LCC Analyses, DOE a General as results for one region may selects candidate standard levels for a demonstrate that a design option is more detailed analysis. The range of This section describes the LCC economically attractive while another

candidate standard levels typically spreadsheet model used for analyzing region does not. DOE must establish

includes: (1) The most energy-efficient the economic impacts of possible some basis for rejecting or retaining

combination of design options or most standards on individual consumers. The design improvements. (OOE, #7)

energy-efficient level; (2) the efficiency LCC spreadsheet model is available on Although the use of distributional LCC

level with the lowest LCC; and (3) an the Department's web site for use by Analysis may be more complex, the

efficiency level with a payback period of interested parties who wish to modify Department has decided it is the best

not more than three years. Additionally, the assumptions in the models and view approach to use to capture the

candidate standard levels that the results of those changes. The LCC uncertainty and variability inherent in

incorporate noteworthy technologies or Analysis is conducted using a input variables. In response to OOE's

fill in large gaps between efficiency spreadsheet model developed in concerns for selecting appropriate

levels of other candidate standards Microsoft Excel for Windows 95, standard levels, the Department will

levels may be selected. combined with Crystal Ball. The Model keep in mind their concerns when

The payback, for purposes of the uses a Monte Carlo simulation to selecting appropriate standard levels for

rebuttable presumption test, attempts to perform the analysis considering the NOPR.

capture the payback to consumers uncertainty and variability. The In order to generate the distributions

affected ifa new standard is spreadsheet is organized so that ranges required for the analysis, the

apromulgated. It compa are s the purc (distributions) can be entered for each Department used the Energy

pcost and energy use of central air input variable needed to perform the Information Administration's (EIA's) conditionerus and henat pumps conseirscalculations. Residential Energy Consumption Survey conditioners and heat pumps consumers The Department wishes to consider (RECS). The 1993 RECS is based on a would buy in the year the standard the impacts of varying regional climate, representative sample of 7,111 becomes effective with what they would energy prices, and consumer behavior households from the population of all buy without a new efficiency standard. on LCCs and payback periods, primary, occupied residential housing In some cases, this means comparing the Calculations were therefore based on a units in the United States. Each

baseline energy efficiency and cost with Monte Carlo uncertainty analysis in household is weighted so that the data

those associated with the standard level which variables are represented by properly represent the 96.6 million In other cases, the standard level would probability distributions of values. With households in the 50 states and the

also be compared to a higher-efficiency this approach, the Department could District of Columbia reported in the appliance purchased without new express LCCs and payback periods as 1993 RECS

standards (but at a lower efficiency than national means, with ranges that fully RECS estimates end-use energy the trial standard level). A weighted account for regional variations in consumption and reports the age of

average of these payback periods, in the climate, electricity cost, and behavior. equipment as well as household energy

year a new standard level would take The spreadsheet has the capability to prices. Of the over 7,000 households

effect, is considered the payback for sample subsets of households for the surveyed in RECS, 2550 households

purposes of the rebuttable presumption analysis of particular sub-populations, representing 35.6% of the housing clause. e.g., low income households, and will population have a central air

In addressing the usefulness of the be used for Consumer Sub-Group conditioner while 651 households LCC Analysis, an industry Impact Analysis prior to issuance of the representing 8.3% of housing representative asserted that LCCs have NOPR. population have an electric heat pump. no relationship to market dynamics, An industry representative The distribution of LCC and payback have no relationship to what the commented that an LCC Analysis based results are generated by performing an customer will buy, and have no upon uncertain or distributional inputs LCC and payback calculation for each

relationship to the cost effectiveness of is suspect and totally unverifiable if the RECS household with a central air

any efficiency standard. Uim Crawford, uncertainty of the inputs cannot be conditioner or heat pump. For example, Trane, Transcript, pp 135) But section clearly defined. Oim Crawford, Trane, in conducting the LCC Analysis for a 12

325(1)(2)(B)(I)(II) of EPCA requires the Transcript, pp 252-254) He suggested SEER standard level for central air

Department to consider the savings and that a simpler approach be used. Others conditioners, all RECS households with

costs of standards, and virtually supported the use of a distributional a central air conditioner have their

mandates performance of an LCC LCC Analysis, commenting that this existing equipment "replaced" first with

Analysis. approach is better than what has been a baseline (i.e., 10 SEER) system. The

One commenter during the used in prior rulemakings. (Charles corresponding LCCs of the baseline

Framework Workshop stated that tax Stephens, OOE; Michael Martin, CEC, systems are then calculated. Then all

credits [incentives] for consumer Transcript, pp 256) EEI stated that the RECS households with a central air

purchases of high efficiency equipment use of ranges of values for appliance conditioner have their existing should be included in the LCC Analysis. price and life, fuel costs, energy usage, equipment "replaced" with a 12 SEER

(Transcript, pp 243) The Department and discount rates follows system and the LCC of these systems are has not considered tax incentives in the recommendations provided by the established. On a household-by- LCC Analysis being presented here, Appliance Standards Advisory household basis, the payback periods because there are no such tax benefits Committee. (EEI, #2) OOE asserts that and the LCC differences of the 12 SEER

available under Federal law. However, use of a distributional analysis creates system are determined relative to the

the Department seeks specific potential pitfalls in accounting for economics of the baseline system. The

information from stakeholders regarding regional climatic and energy price result is a distribution of LCCs and

whether the Department should variations. Use of traditional methods payback periods. Since climatic

consider LCC analyses with alternative for screening out design options based conditions and consumer behavior

tax incentive scenarios. upon increased LCC or excessively long affect the energy consumption of a given

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66318 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

piece of equipment, these data Although the Department understands database is contained in the Preliminary implicitly account for regional the concerns of the EEI and EMPA, the TSD.

variations. Similarly, variations in the 1993 RECS data is the most recent and

RECS energy price data represent the appropriate database available for b. Product Specific

range faced by consumers in the U.S. conducting the desired distributional This section discusses the approaches Both EEI and EMPA warned of LCC Analysis. DOE plans to conduct for analyzing the economic impacts on problems using the RECS data in a LCC updates to the LCC and Payback Period individual consumers from potential and Payback Analysis. (EEI, #2: EMPA, Analysis with the 1997 RECS. Use of new central air conditioner and heat

#3) EEI asserts the following: (1) The age this data will address most of the pump standards An LCC spreadsheet of the RECS data (1993) is too old to be concerns brought up by both EEI and model described previously in Section

used with efficiency and price data from EMPA. m , ried evoul eto

1998, (2) only total annualized average Estimates of the efficiency of ID. a is used to calculate two of the

electricity and fuel rates rather than equipment currently in use are based economic impacts, LCC and payback summer marginal rates are provided, (3) upon the age of the equipment as period, base on input variables that

the stated age of the equipment may be established by RECS and historical he etiability inaccurate if the households surveyed shipment-weighted efficiency values, expressed with probability are not original homeowners, and (4) The age of the equipment establishes the distributions. A third economic impact, there is no accounting of equipment year of manufacture which in turn, Rebuttable Payback Period, is used in small commercial facilities. EEI using the shipment-weighted efficiency determined without the use of the

also claims that RECS may not reflect data, allows for the determination of the spreadsheet model. In future analyses, regional or national equipment equipments most probable efficiency. all three of these economic metrics will

saturations as the 1993 RECS shows that Replacing existing equipment with new be compared to baseline efficiencies of

42% of survey homes have a central air equipment results in reductions in appliances sold n the year the new conditioner while an industry energy consumption These reductions standard would take effect. In this

publication (ACHR News, June 22, were approximated by multiplying peliminary analysis, only the

1998) shows saturations ranging from current energy use by the ratio of the Rebuttable Payback Period is compared 55% in the western U.S. to 99% in the efficiencies of existing and new to a distribution of efficiencies

southern U.S. EMPA questioned equipment. Using an energy price forecasted to the year 2006.

whether the 7,000 to 8,000 households allowed for the calculation of the i. LCC Analysis surveyed households in RECS can be operating costs of existing and new representative of the 90 million replacement equipment, and, in turn, The Department determined values of

households in the U.S. They also the LCCs and payback periods input variables for central air

commented that RECS experts from EIA associated with different efficiency conditioners and heat pumps, including needed to provide a written statement in levels of new equipment. total installed cost (consisting of both

support of the way in which DOE plans The Department developed LCCs and the equipment purchase price and

to use the RECS data in its LCC payback periods based on both sets of installation price), annual energy use, analyses. In contrast to these comments, manufacturer cost estimates developed lifetime, repair costs, and maintenance

OOE states that they are very in the Engineering Analysis: (1) The ARI costs of equipment, as well as average comfortable with the analysis cost data developed through the energy prices, marginal energy prices, methodology as it was applied to other efficiency-level approach, and (2) the and discount rate. Table 11 summarizes

products (clothes washers) where RECS cost data developed through the reverse some of the major assumptions used to data was used to determine annual engineering analysis. calculate the consumer economic

energy use and equipment age. (OOE, A more detailed description of the impacts of various energy-efficiency #7) methodology and contents of the RECS levels.

TABLE 11 .-ASSUMPTIONS USED IN THE LCC ANALYSIS

Total Installed Cost: Equipment Manufacturer cost multiplied by manufacturer markup, distributor markup, dealer markup, and sales tax. Purchase Price.

Installation Price ................... Central air conditioners-$1190; heat pumps-$2035. Existing Equipment Efficiency ..... Distribution imputed from RECS database based on equipment age and historical shipment-weighted effi- ciencies (central air conditioners-5.3 to 15.2 SEER, weighted average of 8.58 SEER; heat pumps-5.3 to 15.2 SEER, weighted average of 8.72 SEER; 4.88 to 9.67 HSPF, weighted average of 6.52 HSPF). Existing Annual Energy Use ....... Distribution from RECS database (central air conditioners-174 to 12,929 kWh/yr, weighted average of 2629 kWh/yr; heat pumps-space-cooling equals 0 to 14,771 kWh/yr, weighted average of 2987 kWh/yr; space- heating equals 162 to 29,839 kWh/yr, weighted average of 4658 kWh/yr). Average Energy Prices ............... Historical-distribution from RECS database (central air conditioners-2.70 to 16.50 ¢/kWh, weighted average 8.49 ¢/kWh; heat pumps-2.60 to 13.00 ¢/kWh, weighted average 7.86 ¢/kWh); projections-AEO- 1999.

Marginal Energy Prices ............... Historical-estimated from RECS database (central air conditioners-0.58 to 19.42 ¢/kWh, weighted average 8.74 ¢/kWh; heat pumps-0.82 to 18.62 0/kWh, weighted average 7.99 ¢/kWh); projections-scaled to

trends in average energy prices. Lifetime ........................................ Distribution based on empirical data (mean life is 18.4 years). Discount Rate .............................. Distribution (0% to 19%, weighted average 6.51%) Repair Costs ................................ For systems with efficiencies of 10 SEER or greater than 12 SEER, one-half equipment price divided by mean lifetime. For systems with efficiencies of 11 or 12 SEER, 1% greater than the 10 SEER repair cost. Maintenance Costs ...................... Distribution ($0 to $135/year, weighted average $36/year).

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Total Installed Cost: The total For the RECS households with central that EER ratings, in addition to SEER

installed cost consists of the equipment air conditioners, the range of annual ratings, ranges of cooling capacity, and

purchase price and the installation space-cooling energy consumption is the climatic impact on hours of

price. Markups are used to convert the 174 to 12,929 kWh/year with a operation, should also have an impact

manufacturer cost to the equipment weighted-average value of 2629 kWh/ on energy use and should also be

purchase price. The determination of year. For the RECS households with considered. With regard to the annual

equipment purchase prices is described heat pumps, the range of annual space- operating hours, EEI stated that a range in the next section. cooling energy consumption is 0 to of values based upon end-use metering

Installation Price: The installation 14,771 kWh/year with a weighted- studies, load management programs,

price represents all costs required to average value of 2987 kWh/year. The and other utility or research

install the equipment other than the annual space-heating energy organization studies should be used.

marked-up equipment cost. The consumption for households with heat They cited state utility commissions,

installation price includes labor, pumps ranges from 162 to 29,839 kWh/ Internet web sites, and software

overhead, and any miscellaneous year with a weighted-average value of providers as possible sources for

materials and parts such as linesets. For 4658 kWh/year. determining variations on energy use. central air conditioners the installation For each RECS household equipped As stated earlier, the Department

price used in the analysis used is $1190, with either a central air conditioner or believes that the 1993 RECS is the most

and for heat pumps it is $2035. The heat pump, the annual energy use recent and appropriate data available. In

installation price was determined by associated with a particular standard addition to the equipment design,

subtracting the derived equipment level is calculated by taking the annual weather, and consumer operation, the

purchase price from the typical total energy use associated with the existing RECS annual end-use estimates also

installed cost. The typical total installed system and multiplying it by the ratio of consider the household's shell

cost values were collected from public the existing system's efficiency to the characteristics including any prominent

sources and phone calls to heating efficiency of the standard level of shading. Past RECS data sets have been

ventilating and air conditioning (HVAC) interest. To illustrate this approach, this validated against end-use metering

contractors. While the data collected calculation procedure is carried out here studies in an attempt to better its were for split systems, the Department based on the weighted-average annual procedures for estimating end-use

has assumed the installation prices energy use and the weighted-average energy consumption. Although the

apply to single package systems, efficiency from all RECS households Department is comfortable with the use although installation price for these equipped with central air conditioners. of RECS as its source for establishing

systems might be somewhat lower than As presented earlier, for all RECS annual energy consumption, interested

for the split systems, since only single households with a central air parties are welcome to present any

packages are involved and no line sets conditioner, the weighted-average metered end-use data that could verify

are required. The Department is annual energy use and the weighted- or substitute for the RECS estimates.

interested in obtaining information on average efficiency are 2629 kWh/year Average Energy Prices: As discussed

the installation prices for all classes of and 8.58 SEER, respectively. Thus, for abo v e , t h e Department e is using RECS

products. the case of a 12 SEER air conditioner, household data to establish energy

Annual Energy Use: Currently, the the weighted-average annual energy use pices Projections of future energy

cooling and heating energy expression: low, and reference case projections of national average electricity prices to consumption based on 1,000 and 2,080 Weighted-average annual energy use of residential customers. The crrent

hours of operation, respectively. 12 SEER A/C = 2629 kWh/yr 4 x edition of EIA's Annual Energy Outlook

Although this procedure seems to be (8.58 SEER + 12 SEER) = 1880 kWh/ (AeO) is used as the source of

widely accepted for comparing the yr projections for uncertainty in the LCC

seasonal performance of different units, Of course, as the efficiency of the analysis. the procedure overstates equipment standard level being analyzed increases, For the RECS households with central

energy use compared to RECS estimates. its corresponding annual energy use air conditioners, the range of average As described above, basing operating decreases proportionally. It should be electricity prices in 1993$ is 2.70 to

and LCC on RECS household data noted that in the case of establishing the 16.50 ¢/kWh with a weighted-average provides a more accurate measure of the annual space-heating energy use of heat value of 8.49 0/kWh. For the RECS

savings possible from more-efficient pumps, the ratio of HSPF values are households with heat pumps, the range equipment, and accounts for variability used rather than the SEER values. It of average electricity prices is 2.60 to in LCCs due to climatic conditions and must also be emphasized that the above 13.00 ¢/kWh with a weighted-average

energy prices. calculation is illustrative only. In order value of 7.86 ¢/kWh. While average Variations in energy use for a to generate the distribution of LCC and energy prices establish the annual

particular appliance can depend on payback results for a particular standard electricity cost of baseline equipment factors such as climate, type of level, each RECS household that is (i.e., split-system air conditioners with

household, people in household, etc. equipped with a central air conditioner efficiencies of 10 SEER and heat pumps For purposes of this analysis, annual or heat pump is analyzed. with efficiencies of 10 SEER and 6.8

energy use was based on the annual Concerning use of RECS data in the HSPF), marginal energy prices establish

end-use energy consumption values in economic analysis, EEI stated that, savings in electricity costs associated

RECS. Climatic and consumer behavior although energy use is dependent on with increased efficiency standards. are inherent to the RECS energy use equipment design, weather, and Both EEI and EMPA stated that the

data. The Department will perform consumer operation, it is also a strong average energy prices in RECS are sensitivity analyses prior to issuance of function of house design, landscape, outdated and that marginal energy the NOPR to consider how differences and thermostatic controls, and their prices should be used in their place in

in energy use will affect sub-groups of impacts should be taken into conducting the LCC and Payback consumers. consideration. (EEI, #2) They also stated Analysis. (EEE, #2; EMPA, #3) Both

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66320 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

pointed to subtracting out the fixed cost Analysis and has estimated marginal average residential electricity prices was portion of the price as an interim step prices for electricity and natural gas. a decline by 20 percent over a given in developing marginal prices. EEI The Department estimated consumer period of time, then we assume the

suggested several data sources for marginal electricity and natural gas marginal price for each household

developing marginal prices including prices directly from household data in would decline from its initial observed

state utility commissions, Internet web the 1993 RECS survey by calculating the value by 20 percent over that same sites such as the PowerRates site, and slopes of the regression lines of period.

software providers such as such as EPS customers' bills vs. energy consumption The Department recognizes that a solutions and Energy Interactive. EMPA for these two fuels. Those slopes are simple scaling of marginal energy prices

stated that any work to identify equal to the change in bill divided by may be incorrect in a restructured

marginal energy costs should include a the change in energy consumption, that electric power market. Therefore, the

detailed description of the methodology is, the marginal prices paid by each Department may develop a different

and that any data collection efforts must household. Since this rulemaking approach to forecast future marginal

comply with Paperwork Reduction Act. concerns only energy efficiency energy prices when restructuring

ACEEE noted how air conditioners are standards that apply to electrically- becomes more widely implemented.

used during peak periods when the cost driven central air conditioners and heat Given the uncertainty of projections,

of supplying electricity is high and that pumps, only marginal electricity prices the Department has made available to

price data should be collected during are of concern here. stakeholders the ability to conduct a these periods for use in the economic For electricity, the Department scenario analysis to examine the

analyses. (ACEEE, #5) calculated separately the slopes of the robustness of different efficiency levels

Regarding future energy prices, regression lines for four summer months under different energy-price conditions.

several participants at the 1998 (June-September) and for the remaining Each scenario provides a self-consistent

Framework Workshop stated that future ("winter") months. The annual marginal projection, integrating energy supply

residential electricity prices will be price was derived by taking the and demand. The scenarios differ from

dependent on the how the electric weighted average of the two seasonal each other in the energy prices that

utility industry is restructured. prices, where the weighting was the result. The Advisory Committee

(Transcript, pp 220-230) EMPA was relative energy consumption of the suggested the use of three scenarios.

critical of EIA's forecasts of future appliance in each season. For air While many scenarios can be

energy prices, stating that the forecasts conditioners/heat pumps, the weighting envisioned, the three scenarios specified

have consistently underestimated rates, was based on the regional location and are sufficient to bound the range of

and that EIA's forecasting models do not age of each of the households in the energy prices.

reflect the factors resulting from the RECS sample. The three scenarios suggested by the

deregulation of the electric utility Given restructuring of parts of the Advisory Committee are based on industry. (EMPA, #3) energy supply sector, customers may projections in the 1999 AEO. The

The Department used the most recent have more than one bill (e.g., one from Department's most recent reference

forecasts from the 1999 AEO to predict the distribution company, and one or case, published in the 1999 AEO.

the trend in both average and marginal more from generators or suppliers). To provides a well-defined middle

electricity prices by multiplying the capture complete information, future scenario. In addition, DOE can use the

average and marginal price for the base surveys would best gather energy scenarios with the highest and lowest

year (1998) by the AEO's forecasted pricing information directly from energy prices in the sector from the

relative electricity price increases and/ customers, rather than from utilities or range of scenarios in the 1999 AEO. The or decreases. In addition, LCC and local distribution companies. Efficient future trend in energy prices assumed in

payback spreadsheets can be run with collection of energy pricing information each of the three scenarios is clearly

price forecasts from the Gas Research in the future will require changing the labeled and accessible in each

Institute (GRI). The Department believes current processing of the billing spreadsheet. Also included as a scenario

these forecasts are the most reliable information so as to gather consumption is the GRI energy price forecast for 1998.

available to predict future energy trends. by month and pricing information for Stakeholders can easily substitute

Marginal Energy Prices: Marginal each customer from the bills. The alternative assumptions in the

energy prices are those prices pricing information would comprise the Department's web site LCC spreadsheets consumers pay for the last units of applicable rate schedule, including to examine additional scenarios.

energy used. Marginal prices reflect a marginal prices, fixed charges, and For the RECS households with central

change in a consumer's bill associated demand charges for commercial and air conditioners, the range of marginal with a change in energy consumed, industrial customers, or time-of-use electricity prices in 1993 dollars is 0.58

consequently, marginal energy prices, rates where applicable. The Office of to 19.42 ¢/kWh with a weighted-average rather than average energy prices, are Energy Efficiency and Renewable value of 8.74 ¢/kWh. For the RECS

appropriate for determining energy cost Energy has expressed the need for these households with heat pumps, the range savings associated with increased data in discussions with EIA concerning of marginal electricity prices is 0.82 to

efficiency standards. For LCC analyses, the design of future surveys. 18.62 ¢/kWh with a weighted-average the Advisory Committee recommended Until a time series of marginal prices value of 7.99 ¢/kWh. that DOE use the full range of consumer is available, the Department will use As discussed previously under the

marginal energy prices instead of projected trends in energy prices to section describing average energy national average energy prices. Absent derive estimates of consumer marginal prices, marginal energy prices are used consumer marginal energy price energy prices for the economic analysis to determine the annual electricity costs

information, the Committee of proposed standards. An index associated with energy savings resulting recommended DOE use a range of net (scaling factor) was created relative to from an increased efficiency standard

energy prices, calculated by removing current prices from the trend in average (i.e., any efficiency above baseline

all fixed charges. The Department agrees prices (by fuel and sector) and was efficiencies).

the use of marginal energy prices applied to the current range of marginal Lifetime: In choosing a value for

improves the accuracy of the LCC prices. For example, if the trend in lifetimes of central air conditioners and

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heat pumps, a variety of sources were indicates that there is a wide range of provided in Table 12, with the mean reviewed. These studies on lifetimes of values for lifetimes. The references are lifetimes given in years. central air conditioners and heat pumps

TABLE 12.-CENTRAL AIR CONDITIONER AND HEAT PUMP MEAN LIFETIMES

In years- Source

Central AC Heat pump

Appliance Magazine. The Life Expectancy/Replacement Picture, Sept. 1998 . ........................................................ 13.0 14

National Association of Home Builders. Housing Facts, Figures, and Trends, 1998h ............................................... 15.0 15

1995 ASHRAE Applications Handbook ............................................................................. ........................................ 15.0 15

M.E. Bucher et al, American Electric Power Service Corp. 1990. "Heat Pump Life and Compressor Longevity in

Diverse Climates", ASHRAE Transactions 96(1):1567-1571 ................................................................................. ...................... d 19

K.A. Pientka, Commonwealth Edison Co. 1987. "Heat Pump Service Life and Compressor Longevity in a Northern Climate", ASHRAE Transactions 93(1):1087-1101 ..................................................................................... ...................... d 15-16

C.C. Hiller, EPRI and N.C. Lovvom, Alabama Power Co. 1987. "Heat Pump Compressor Life in Alabama", A SH RA E Transactions 93(1):1102-1110 ................................................................................................................ ...................... d20

J.E. Lewis, Easton Consultants. 1987. "Survey of Residential Air-to-Air Heat Pump Service Life and Maintenance

Issues", ASHRAE Transactions 93(1):1111-1127 .................................................................................................. 12.1 10.9 MTSC, Inc. Energy Capital in the U.S. Economy, prepared for the Office of Policy, Planning, and Evaluation, U.S. Department of Energy, Nov. 1980 .. .................................................................................. 12.0 12

aBased on first-owner use. Central AC min life = 8, max life = 18. Heat Pump min life = 10, max life = 17.

bSources: Air Conditioning and Refrigeration Institute; Air Conditioning, Heating, and Refrigeration News; Air Movement and Control Associa- tion; American Gas Association; American Society of Gas Engineers; ASHRAE.

cSource for Central A/C: Akalin, M.T. 1978. "Equipment life and maintenance cost survey", ASHRAE Transactions 84(2):94-106. Source for Heat Pump: ASHRAE Technical Committee 1.8,1986. dMedian lifetime. - Based on retirement function.

The available sources report mean equipment lifetime is independent of consumers are paying off credit card

and median lifetimes ranging from 10.9 efficiency. debt at these rates. (im Crawford.

to 20 years. The Department's analysis EMPA claimed that lifetime should be Trane, Transcript, p 237) He also

assumed a mean lifetime of 18.4 years, based on first ownership rather than asserted that practical (i.e., implicit)

based on a 1990 ASHRAE technical actual equipment life. (Glenn Schleede, discount rates (which are derived from

paper that has the most recent and most EMPA, Transcript, pp 232; EMPA, #3) analyzing actual consumer behavior)

detailed information on heat pump life They stated that homeowners usually may be on the order of 30%. EEI also

available, based on a survey of 2,184 change residences every 7 years. In believes that credit card interest rates

heat pump installations in a seven-state response to this assertion, it was stated should be used as a basis for

region of the United States. The sources that although the statute requires that establishing discount rates. (EEI, #2)

that report shorter average lifetimes are LCC be determined it does not specify EMPA believes DOE's discount rates (as

based on data of a lesser quality, and the the exact meaning of lifetime. (Mike presented at the 1998 Framework

Department considers those figures are Rivest, ADL, Transcript, p 236) Counter Workshop) are too high and based on

less reliable. For example, in the case of to EMPA's claims, OOE stated that faulty assumptions. They stated that

Appliance Magazine, the reported energy efficiency benefits are essentially discount rates should reflect the true

lifetime values are based on expert swapped when a homeowner changes cost of money that consumers would

opinion rather than empirical data. residence. (Charlie Stephens, OOE, have to spend to purchase more efficient

Transcript, pp 233; OOE, #7) That is, the appliances. (EMPA, #3) Industry Appliances produced at some future new homeowner will realize the representatives also stated that

date may have different lifetimes than benefits of the first owner's more questions concerning consumer those in the same class produced in the efficient equipment. They also add that discount rates should be included on past. The projections of lifetimes and an equipment lifetime of 15 years seems any market surveys for determining other parameters used in the analysis reasonable for split system air retail prices and that DOE needs to take

should be based on observed empirical conditioners, but that field data into account any information supplied trends, as well as expert knowledge of indicates that heat pumps have a shorter by the industry's trade association, ARI.

likely changes in the industry, since life. (im Crawford, Trane, Transcript, p 243;

future changes are not always straight- The Department believes that David Lewis, Lennox, Transcript, pp line projections of past trends. While equipment life rather than first 243-244)

expert judgement is crucial, however, it ownership is the correct measure of In contrast to these comments, OOE

must have a strong empirical basis. With lifetime. The Department continues to believes that prior discount rates

this in mind, the Department believes seek any additional information that developed by DOE seem reasonable, that the probability distribution of may provide better data on actual air although there are differences in how

equipment lifetime used in the analysis conditioner and heat pump life. consumers purchase air conditioner and

is the most sound, given available Discount Rate: Interested parties heat pump equipment compared to how

evidence of past performance and recent submitted several comments they purchase other appliances. (OOE, trends. Because none of the data on recommending values or procedures for #7) They strongly disagreed that

equipment lifetime indicates a determining discount rates. An industry discount rates in excess of 15% might relationship between efficiency and representative suggested that rates of 18 be appropriate. They claim such high lifetime, the Department assumes that to 20% may be appropriate as rates are based on calculating an

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implicit discount rate or market failure with a new home (first mortgages), 25% establishing a distribution of discount

factor based on past shipments. through loans (second mortgages), 10% rates over the full range of discount

The Department's Process Rule for paid by cash, and 35% by use of credit rates relevant to most purchasers of the

establishing new or revised energy cards. products covered by this rulemaking,

efficiency standards for consumer In order to derive a full distribution but acknowledges that different

products describes how real discount of discount rates, DOE estimated a range assumptions might be made about likely

rates are to be established for residential of interest rates, based on historical data interest, inflation and marginal tax rates,

consumers, as follows: and judgments of future trends, for or about consumer financing methods,

For residential and commercial consumers, different types of consumer savings or and that different approaches to

ranges of three different real discount rates financing identifying valid consumer discount

will be used. For residential consumers, the For new housing, the Department rates might also be valid. For example, mid-range discount rate will represent DOE's based its real mortgage rates on ARI's it is also possible to base consumer approximation of the average financing cost suggested mean value of 3.0% and discount rates on the average real rates

(or opportunity costs of reduced savings) assumed a range of 1.6 to 4.4%. of return on consumer investment or experienced by typical consumers. Applying an assumed marginal tax rate other measures of the opportunity costs

Sensitivity analyses will be performed using of 28% (i.e., the maximum marginal rate incurred by consumers that purchase discount rates reflecting the costs more likely paid by most U.S. taxpayers) and an the covered products. DOE does not

to be experienced by residential consumers assumed inflation rate of 2% results in believe, however, that such alternative with little or no savings and credit card financing and consumers with substantial a mean nominal mortgage rate of 6.94% assumptions or alternative approaches

savings. with a range of 5.0 to 8.89%. would significantly alter the range of

For second mortgages or loans, ARI discount rates used by the Department Based on the Department's guidelines suggested a mean real interest rate of or the conclusions drawn from the life provided in the Process Rule, a 8.0%. This rate is more representative of cycle cost analyses conducted using distribution of discount rates was a nominal rate for second mortgages and these discount rates.

derived to reflect the variability in was used as such. Assuming a tax rate The Department is seeking any financing methods consumers use in of 28%, then subtracting an assumed information that would support purchasing central air conditioners and inflation rate of 2% (the same rates used significant alterations in the range or heat pumps. The real interest rate to derive the new home real interest distribution of the discount rates

associated with financing an appliance rates) we arrive at a mean real interest derived from DOE's analysis. purchase is a good indicator of the rate of 3.76%. Nominal minimum and Alternatively, DOE is soliciting additional costs incurred by consumers maximum interest rates of 6% and 10% comment on the possible use of a who pay a higher first cost, but enjoy were assumed to arrive at the real standardized distribution of discount

future savings, although it is not the interest rate range of 2.32% to 5.20%. rates ranging from approximately 4% to

only indicator of such costs. While the For cash, the minimum rate was 12%, with a mean of 6%. The use of

method used to derive this distribution assumed to equal 0%. This rate applies such a standardized distribution would

relies on a number of uncertain to purchasers making cash purchases explicitly recognize the many assumptions regarding the financing without withdrawing from savings uncertainties associated with DOE's

methods used by consumers, DOE accounts. Based upon ARI's current analysis and, based on believes that the resulting distribution recommendation, the maximum is taken sensitivity analyses already performed of discount rates encompasses the full to be the opportunity cost represented by DOE, such a standardized

range of discount rates that are by the interest that could have been distribution would not significantly appropriate to consider in evaluating earned in a typical mutual fund alter the conclusions of DOE's life cycle the impacts of DOE standards on (assumed to be 6% real). A real mean cost analyses. consumers (i.e., values represented by rate of 3% results. Repair Costs: The annual repair cost

the mid-range financing cost, consumers For credit cards, the Department covers the replacement or repair of

with no savings, and consumers with based its real interest rate on ARI's components which have failed. The

substantial savings), as well as all the suggested mean value of 12.5%. Department assumed repair costs for

discount rates which fall between the Minimum and maximum real rates of minimum efficiency equipment (10 high and low extreme values. 6% and 19% were assumed. It should SEER) and equipment with efficiencies

The method of purchase used by be noted that the use of these credit card greater than 12 SEER were equal one- consumers is assumed to be indicative rates reflects an assumption that all half the equipment price divided by the

of the source of the funds and the type consumers who use credit cards do so mean equipment lifetime. The

of financing used, although DOE is not as a means of long term financing for Department assumed equipment with aware of detailed research into this product purchases, rather than as efficiencies of 11 and 12 SEER incur a relationship. Consumers purchase simply a convenient method of 1% increase in repair cost over the

appliances as parts of new homes purchase or as a means of short term minimum efficiency (10 SEER) level.

(mortgages) and as separate retail financing. The rationale for assuming essentially purchases. Retail purchases are paid by Combining the assumed shares of flat repair costs through efficiencies up cash, credit cards, or loans. In the case each financing method, the above real to and including 12 SEER pertains to the

of space-conditioning equipment, the interest rates result in a weighted- level of technology being used at these

loans are assumed to take the form of average (mean) value of 6.51% and a system efficiency levels. Through 12

second mortgages, as central air distribution that varies from 0 to 19%. SEER, system technology generally does

conditioner and heat pump purchases Sensitivity studies show that while the not incorporate sophisticated electronic

often occur when home upgrades are LCC results are sensitive to the value components which are believed to incur

made. Based upon recommendations chosen for mean discount rate, the LCC higher repair costs. Increases in SEER

provided by the ARI, the shares of the results are not sensitive to the are generally achieved through more different financing mechanisms used for distribution of discount rates. efficient single-speed compressors or purchasing central air conditioners and The Department believes that the more efficient and/or larger heat

heat pumps were assumed to be 30% above method is a valid basis for exchanger coils. Systems with

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efficiencies beyond 12 SEER start to be considered. As noted earlier, should not shift the responsibility of

incorporate modulating blowers or equipment purchase price coupled with collecting and providing data to

compressors which are generally the installation price equals the total interested parties. believed to be more susceptible to installed consumer cost. ACEEE noted two possible data

failure. There was a great deal of discussion sources: a 1996 Xenergy report and

Maintenance Costs: The annual at the 1998 Framework Workshop Chris Neme at the Vermont Energy maintenance cost covers such items as concerning equipment or retail prices, Investment Fund in Burlington, VT. checking and maintaining refrigerant because equipment prices were being (ACEEE, #5) OOE suggested that two

charge levels and cleaning heat viewed as a means to verify industry- methods are needed for deriving prices, exchanger coils. Data from Service supplied manufacturer cost data. Much each as a cross-check on the results of

Experts, an HVAC service company, of the discussion focused on the the other. (OOE, #7) One approach were used to establish maintenance correlation between manufacturer costs should be a "mark-up" of manufacturer

costs. The maintenance cost ranges from and prices. Some claimed that there is costs which yield a range of retail $0 to $135 with a weighted-average practically a random relationship prices. A market survey of equipment value of $36. between manufacturer costs and prices prices should be used as the second

EMPA stated that DOE needs to and that prices are based more upon approach, as opposed to a survey of collect and include extended warranty market dynamics rather than market experts trying to predict and service costs in LCC calculations. improvements in equipment efficiency. consumers' willingness to pay at various (Glenn Schleede, EMPA, Transcript, p (Jim Crawford, Trane, Transcript, pp 90, price levels. With regard to current 231; EMPA, #3) EMPA also requested 139-140) It was also stated that, due to market prices, PG&E believes that split that the assumptions regarding the tremendous variability in city size, system air conditioning equipment that maintenance and repair costs be dealer groups, dealer size, dealer exceeds 10 SEER are available at reevaluated and described in greater proximity to warehouses, bulk competitive prices with 12 SEER detail. An industry representative purchasing, and national account systems being readily available. (PG&E, supported including these costs, and purchasing, the markups involved in #8) also stated that they will be a function converting manufacturer costs to retail For the pre-ANOPR Analysis, the of equipment efficiency. (David Lewis, prices are highly variable. Also, because Department did not attempt to conduct

Lennox, Transcript, p 231) A suggestion some manufacturers use distributors a comprehensive contractor or was made to include questions on while others do not, markups can vary consumer survey of equipment prices. warranty and service costs on any significantly from manufacturer-to- The primary reasons were the market survey for determining retail manufacturer. (David Lewis, Lennox, complexity of and the time needed for prices (Steven Nadel, ACEEE, Transcript, pp 168-170) It was also a comprehensive survey, and the short Transcript, p 232). OOE endorsed the noted that markups are unlikely to be time frame allotted by the Department concept of accounting for differences in constant across all efficiencies. (im for publishing the Supplemental maintenance, service, and installation Crawford, Trane, Transcript, pp 154) ANOPR. The Department will consider

costs, provided these incremental costs In order better to determine conducting a survey for any updates to are attributable only to equipment at equipment prices, participants at the the analyses conducted for the NOPR.

different efficiency levels (OOE, #7). Workshop agreed that it would be On November 30, 1998, however, the Although the Department included appropriate to conduct a market survey. Department issued a Federal Register maintenance costs in its LCC There was discussion as to whether the Notice (63 FR 65767) requesting calculations, no attempt was made to survey should be administered to comments on a proposal to survey retail

account for warranty costs. The contractors or consumers. It was pointed prices for Central Air Conditioners and

Department assumed that warranty costs out that contractors may not provide Heat Pumps. ARI responded to that are constant with increased efficiency true prices as they may not want to request by submitting comments. The

and, thus, there was no need to reveal their profit margins while comments asserted that the proposed explicitly account for warranty costs. consumers may simply not know the survey is woefully inadequate, given the

The Department welcomes any price of only the equipment (i.e., the number of variables involved. (ARI, #9) comments that can provide insight as to price exclusive of the labor, materials ARI suggested that, at a minimum, data

how warranty costs should be and profit for installation). (Transcript, on the following factors should be

accounted for in the LCC Analysis. pp 170-186) With regard to price data considered: (1) Three capacity sizes (1.5, ii. Equipment Prices that may be collected from utilities, 3, and 5 tons), (2) five efficiency levels some of it might be distorted due to (10, 11, 12, 13, 14 SEER), and (3) four

How manufacturing costs and profit demand side management (DSM) classes (split and single package air- margins associated with standards are incentive programs, more specifically conditioner/c and heat pump). The passed through from manufacturers to rebate programs. The price collected survey should be weighted to reflect consumers has an impact on both may not be the actual price of the regional sales markets and a large consumers and manufacturers. equipment, but rather, the price after a number of manufacturers should be Consumer and manufacturer economics rebate has been applied. (Steve represented in the survey. In addition, are linked and inversely related. For this Rosenstock, EEI, Transcript, pp 190) there should be no reason to include

reason, equipment purchase prices used In written comments, EEI stated that questions on the impact of utility for the LCC Analysis need to be there is little correlation between rebates, as they are dwindling rapidly. reconciled with manufacturer costs. manufacturer costs and retail prices, The Department uses various At the pre-ANOPR stage, a consumer and that market surveys of customers, assumptions about cost pass-through LCC curve, based in part on mean utilities, and contractors will likely that are reflected in the price forecast

installed consumer costs, is a significant provide the best information on retail approach. The output of this analysis is factor in the initial selection of potential prices. (EEI, #2) EMPA claimed that a table describing retail prices for each standards levels. Total installed costs price data collected will likely not possible efficiency level, assuming that are needed for a base case, absent new reflect conditions in the current market. each level represents a new minimum

standards, and for all efficiency levels to (EMPA, #3) EMPA also stated that DOE efficiency standard. Consistent with the

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process rule, and building on the America (ACCA) and two contractor energy cost savings, which is equivalent estimates generated by the various consolidators that focus on the to a three year simple payback. The

assumptions, projected retail prices are residential market. Information used calculation of rebuttable payback is

described within a range of uncertainty. from ACCA covered "residential and based on single point-values instead of Purchase prices of baseline equipment light commercial" dealers, and was probability distributions used in the were determined by estimating divided into new and retrofit services, LCC analysis. For example, where a manufacturing costs and applying with markups of 1.41 and 1.63, probability distribution of electricity appropriate markups along the respectively. The weighted average prices are used in the distributional

distribution chain. Markups were markup for ACCA was 1.55 (based on 66 Payback Analysis, only the weighted- determined in two ways: through percent of all sales being retrofit sales), average value from the probability

surveys of distributor (wholesale) and close to the markup of 1.54 for one of distribution of electricity prices is used retail prices, and through publicly the contractor consolidators. The for the determination of the Rebuttable

available financial reports. For about markup for the other consolidator was payback. 90% of residential air conditioning 1.38, but half of its revenues come from Other than the use of single point- equipment, the distribution chain plumbing, electrical, and other services values, the most notable difference

includes manufacturers, distributors that typically have lower margins. A between the two payback analyses is the (wholesalers), and dealers (contractors). central value of 1.55 was chosen for the Rebuttable payback's reliance on the Equipment purchase prices are thus Price Analysis, with a range of 1.37 DOE test procedure to determine a estimated as the product of (based on information from ICF central air conditioner's or heat pump's manufacturing cost, manufacturer Consulting on equipment markups for annual energy consumption. The DOE markup, distributor markup, dealer direct replacement) to 1.63. test procedure for central air markup, and sales tax. Sales Tax: In many cases, local and conditioners and heat pumps in the For the determination of markups via state sales taxes are applied to cooling season uses the following financial reports, it was assumed that equipment purchases. Using 1997 state expression to calculate the annual

product markups equal gross margin and local sales tax data and 1994 state space-cooling energy consumption: less pre-tax profit margin (earnings- unitary shipment data, the Department Space-Cooling Annual Energy Use = before-taxes) and outbound freight of calculated a distribution of combined (Cooling Capacity SEER) x Hours

6%, plus 1%. The baseline central air sales tax rates. Although the distribution whe the Hou ea , conditioner and heat pump units revealed a small percentage ofwhere the Hours equal 100 , t h e

covered by this analysis typically have consumers at tax rates of 0% and 10%, a s s u m e d a n n u a l operational hours of

lower margins than other products the effective distribution was triangular the DOE tesrocedreequipment handled by diversified companies. The with a mean of 6.7% and a range from heating season performance of heat

values for markups given in the next 5% to 8%. This corresponds to a mean pumps uses the following expression to paragraphs may change in future stages markup of 1.07 with a range from 1.05 calculate the annual space-heating of analysis as the underlying data are to 1.08.

improved and cross-checked. Overall Markup: Equipment purchaseenergy consumption: Manufacturer Markup: Financial price is determined by multiplying Space-Heating Annual Energy Use = reports from five publicly traded air manufacturer cost and overall markup. (DHR + HSPF) x 0.77 x Hours

conditioner manufacturers, representing Mean values and ranges for the overall where DHR equals the design heating 75% of the market, were examined for markup are the products of the mean requirement (which for 3-ton cooling a five-year period (1993-1997). Five- values and ranges for manufacturer capacity heat pumps is typically 35,000

year average markups for the two most markup, distributor markup, dealer Btu/hr) and Hours equal 2080, the

dependent on air conditioner sales were markup and sales tax. The mean overall assumed seasonal operational hours of

1.18 and 1.17 respectively. The other markup is thus calculated as 2.68, with the space-heating equipment. three companies are more diversified a range of 2.27 to 3.04. The annual space-cooling and heating and, as expected, exhibited higher energy consumption calculated based

markups--1.25, 1.24, and 1.18 iii. Payback Analysis (Distribution of on the previous equations from the DOE

respectively. A central value of 1.18 was Paybacks) test procedure are on the order of 50%

chosen for the Price Analysis, with a Payback is calculated based on the greater than the weighted-average values

range of 1.15 to 1.26, based on the same inputs used for the LCC Analysis from the 1993 RECS. This means that

lowest and highest markups for the five with the difference that the payback the payback value calculated from the

manufacturers for the five-year period. values are based on first year savings DOE test procedure equations will be

Distributor Markup: Five-year average achieved after the standard takes effect. significantly lower than the average markups for the 500 members of the Air- The output of the analysis is a payback value calculated from the RECS

conditioning and Refrigeration distribution of payback periods. The analysis, for any standard level.

Wholesalers (ARW) were 1.37, the same mean payback period is also reported. Rebuttable payback periods are first as for 1997. This value was used for the Additional information is available in calculated between the new standard

analysis. However, since margins for the LCC spreadsheet which is posted to level being analyzed and each central

after-market parts are substantially the Department's web site. The data air conditioner or heat pump efficiency higher than margins for baseline includes charts of cash flow taking into being sold in the year 2006. The

equipment, the actual markup on account the changing annual fuel prices. paybacks are then weighted and

baseline equipment is likely to be lower averaged according to the percentage of

than the assumed value of 1.37. The v. Rebuttable Payback each equipment efficiency sold before a markup value may be revised As discussed previously, EPCA new standard is enacted. Rather than

downwards based on future established a rebuttable presumption being based on probability distributions, information. that a standard is economically justified single point values are used for the

Dealer Markup: Markups were if the additional product purchase cost input variables. These values (e.g., calculated for contractors represented attributed to the standard is less than operating hours per year) will

by the Air Conditioning Contractors of three times the value of the first year correspond to those defined in the DOE

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test procedure. The result is a single- further details are presented in the efficiency level for each of the four

value of payback and not a probability Preliminary TSD. product classes being analyzed. distribution. The payback is calculated Based on the most recently available

for the expected effective year of the shipments data from ARI (from 1994),

standard (e.g., 2006). Examples and Table 13 shows the markets shares by

TABLE 13.-EFFICIENCY LEVEL MARKET SHARES

[In percent]

SEER Split A/C Split HP packaSingle Singlpac eHP package NC package HP

10 ........ .......................................................... 78.7 59.3 82.3 64.2 11 ..................................................................................................................... 5 .4 15 .0 9 .7 13 .6 12 ........................................ .......................... 12.0 19.7 6.8 22.2 13 .................................................................. 3.6 4.5 1.2 0.0 14 ......................................................................... 0.1 1.0 0.0 0.0 15 .................................................................. 0.2 0.5 0.0 0.0

Because the shipment-weighted presumption clause. The outputs of the levels which were analyzed. In addition.

efficiencies of unitary air conditioners LCC spreadsheet include probability the percent of households with reduced

and heat pumps has remained distributions and single-point average LCCs relative to current minimum

essentially flat over the four year period values of the impacts for each energy efficiency equipment (10 SEER) are from 1994 to 1997, the previous market efficiency level compared to the provided. LCC results are provided shares in Table 13 for 1994 are assumed baseline. A distinct advantage of based upon the manufacturer cost

to be applicable for the year 2006. If modeling based on probability estimates from the efficiency-level available, data on a forecasted distributions is that the percentage of approach (section II C. 1.b.i.) and the

distribution of equipment efficiencies in consumers achieving LCC savings or reverse engineering (section II.C.l.b.ii.).

the year 2006 will be used to refine attaining certain payback periods due to LCC results are prese nted for nominal 3-

these calculations for the NOPR an increased efficiency standard can be L re s u l t s a r e for n o m 3-

Analysis. identified. A variety of graphic displays ton capacities for the four primary

can illustrate the implications of the product classes, i.e., split-type air 2. Preliminary Results analysis results. These include: (1) A conditioners, split-type heat pumps,

a. General cumulative probability distribution single-package air conditioners, and

showing the percentage of U.S. single-package heat pumps (See Tables Calculation of LCC captures the households that would have a net 14 to 17). Since the values of most

tradeoff between the increases in saving by owning a more energy- inputs are uncertain and are represented purchase price and reductions in efficient appliance, and (2) a chart by probability distributions of values

operating expenses for increasing depicting the variation in LCC for each rather than discrete values, the results efficiencies of appliances. In addition, efficiency level considered. presented in the Preliminary TSD

two other measures of economic impact (which describes the analytic results in are calculated: distributions of payback b. Product Specific greater detail) are also described by periods and a payback period calculated The following LCC results show the probability distributions.

for purposes of the rebuttable mean LCCs associated with the standard

TABLE 14.-SPLIT-TYPE AIR CONDITIONERS-LCC RESULTS

Source of manufacturing cost data

SEER Industry Reverse engineering

Mean LCC Percent with Mean LCC Percent with

lower LCC Mean LCC lower LCC

10.$4,837.$4,828

11 ..................................................................................................................... 4,827 39 4,786 4 12.***** ***** *. .................. 4,886 31 4,770 45 13 ..................................................................................................................... 5 ,2 2 9 12 4 ,93 1 2 7 13.5,229 12 4,931 27 4 ................................................................................................................... 5,659 6 5,24 6 15 15 .................................................................................................................. 6 ,0 5 2 4 5 ,4 5 6 11 1 6 ..................................................................................................................... 

............................................................................................................ ................................................ ........................ 5 5,533 ,5 3 3 111 1

17...5,672 10

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TABLE 15.-SPLIT-TYPE HEAT PUMPS-LCC RESULTS

Source of manufacturing cost data

SEER / HSPF Industry Reverse engineering

Mean ILO Percent with Mean LO Percent with

lower LCC lower LLC

10 / 6.8 ............................................................................................................. $10,086 ........................ $10,001 ........................ 11 /7 1 . ........................................................................................................... 9,915 74 9,695 99

12 / 7.4 ............................................................................................................. 9,852 63 9,533 90

13 /7.7 ............................................................................................................ 10,119 36 9,850 49

14 /8.0 ............................................................................................................. 10,311 28 10,246 27

15 /8 .2 ............................................................................................................ 11,079 11 10,534 20

1 6 /8 .2 ............................................................................................................. ........................ ........................ 10 ,6 7 9 18

TABLE 16.-SINGLE PACKAGE AIR CONDITIONERS-LCC RESULTS

Source of manufacturing cost data

SEER Industry Reverse engineering

Mean ILO Percent with Mean LO Percent with

lower LCC lower LCC

10 ..................................................................................................................... $ 5 ,34 1 ........................ $ 5 ,3 2 4 ........................ 115,429 201 ..................................................................................................................... 5,429 20 20 ..................... 12 .5,433 26 5,194 58 ..................................................................................................................... 5,43 3 26 5,194 58

13 ......................................................................................... .......................... 6 ,0 3 1 5 5 ,5 9 8 17

14 14.6,362 ..................................................................................................................... 6 ,3 6 2 4 4 ........................ ........................ ........................ 15 ..................................................................................................................... 6,921 2 ........................ ......................

TABLE 17.-SINGLE PACKAGE HEAT PUMPS-LCC RESULTS

Source of manufacturing cost data

SEER Industry Reverse engineering

Mean LCC Percent with Mean LCC Percent with

lower LCC Mean LCC lower LCC

10 6.8 ........................................................................................................ $9,912 ........................ 11 /7 .1 ............................................................................................................. 9,90 6 6 1 ........................ ........................ 12 /7.4 ................................................................................ 9,835 58 9,551 80

13 7 .7 ............................................................................................................. 10 ,34 2 2 2 ........................ ........................ 1 4 / 8.0 ............................................................................................................. 10 ,42 5 2 1 ........................ ........................ 15 15 / 8 .2 ............................................................................................................. 1 1 ,0 3 1 10 ........................ ........................ / 8.2.1 1 ,0 3 1 10 .............................. ........................

Tables 18 to 21 show the median TABLE 18.-SPLIT-TYPE AIR CONDI- TABLE 19.-SPLIT-TYPE HEAT

payback periods associated with each TIONERS-MEDIAN PAYBACK PERI- PUMPS-MEDIAN PAYBACK PERIODS

standard level. To note, the median ODS [In years]

value of a distribution has an equal [In years]

number of payback periods that are Source of manufacturing

greater than and less than the reported Source of manufacturing cost data

value. As with the LCC results, payback cost data

periods are provided based upon both SEER Industry Reverse enthe manufacturer cost estimates from Industry Reerse en- gineering gineering the industry and from the reverse 11/7.1 ................ 6 1

engineering analysis. Payback period 11 ...................... 13 10 12/7.4 ................ 8 3

results are presented for the four 12 ...................... 15 11 13/7.7 ................ 13 10

primary product classes; split-type air 13 ...................... 41 20 14/8.0 ................ 17 17

conditioners, split-type heat pumps, ...................... 80 35 15/8.2 ................ 31 21

single-package air conditioners, and 16. ..................... 46 16/8.4 .......... ...... 2.............. 22

single-package heat pumps. 17 .................... .......... . 49

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TABLE 20.-SINGLE PACKAGE AIR TABLE 24.-SINGLE PACKAGE AIR The Department calculated national

CONDITIONERS-MEDIAN PAYBACK CONDITIONERS-SIMPLE PAYBACK energy consumption for each year,

PERIODS [In years] beginning with the expected effective

[In years]ars]________ date of the standards, for the base case [In years] Source of manufacturing and for each candidate standards level

Source of manufacturing cost data using two methods, i.e.. simple

cost data SEER spreadsheets, and multiplication of

SEER ------ en- Industry u----Reverse engineering Reverse shipment forecasts by unit energy

Industry Reverse en-g savings. Spreadsheets for shipments

_____e___rin 11 ...................... 9.9 .................. analysis are posted to the Department's

11 ...................... 20 .................... 12 ...................... 8.5 3.8 w eb site. Energy consum ption and

12 ...................... 17 8 13 ...................... 21.2 11.2 savings are estimated based on site

13 ...................... 84 30 14 ...................... 25.2 .................. energy (kW h of electricity), then the

14 ...................... 133 .................... 15 ...................... 35.8 .................... electricity consum ption and savings are

15 ...................... 559 .................... _____________ __________ __________ converted to source energy. The

TABLE 25.-SINGLE PACKAGE HEAT differences in annual energy

TABLE 21.-SINGLE PACKAGE HEAT PUMPS-SIMPLE PAYBACK consumption between the base case and

PUMPS-MEDIAN PAYBACK PERIODS [In years] standards case were aggregated to arrive

[In years] at cumulative energy savings through

Source of manufacturing the year 2030.

Source of manufacturing cost data DOE agrees with the Advisory cost data SEER/HSPF SEER/HSPF dataSReverse Industrycost Committee's recommendation that the

Reverse en-ndustry engineering assumption of a constant site to sourceIndustry gineering energy conversion factor should be

11/7.1 ................ 4.3 ............... dropped in favor of a conversion factor

11/7.1 ................ 8 .................... 12/7.4 ................ 4.6 2.7 at changes from year to year. The 12/7.4 .........__. 9 5 13/7.7 ............... 9.7. . that changes from year to year. The

13/7.7 ................ 20 .................... 14/8.0 ................ 9.2 .................... conversion factor would be calculated 13/7.7 20 9 . . 5^^/8.0 14********** " 9.2..*******************conversion factor would be calculated

14/8.0 ................ 20 .................... 15/8.2 ................ 13.7 .................. for each year of the analysis based on 15/8.2 ................ 31 .................... the generating capacity displaced and

E. Preliminary National Impacts the amount of site energy saved (see the

Tables 22 to 25 show the simple Analyses following detailed procedure). For

paybacks for purposes of the rebuttable The National Impacts Analysis future conversion factors, DOE proposes

presumption clause. This means test as svaue NPV) of to use the following method:

procedure assumptions are followed fh total consumer LCC, average consumer (1) Start with an integrated projection

central air conditioners and heat pumps. payback, NES, and indirect employment of electricity supply and demand (e.g.,

TAB LE 22.-SPLIT-TYPE AIR impacts. Each of the above are the National Energy Modeling System

determined for selected standard levels. (NEMS) AEO reference case), and

CONDITIONERS-SIMPLE PAYBACK These calculations are done by the use extract the source energy consumption.

[In years] of a spreadsheet tool called the NES (2) Estimate projected energy savings

Soe Spreadsheet of mg Model, which has been due to possible standards for each year Source of manufacturing developed for all the standards(e.g.. using the NES spreadsheet).

SEER __ cost aa a __ rulemakings and tailored to each

Reverse specific appliance rulemaking. NES (3) Feed these energy savings back to

Industry engineering spreadsheets for central air conditioners NEMS as a new scenario, specifically a and heat pumps are posted to the deviation from the reference case, to

11 ...................... 6.2 5.0 Department's web site. A preliminary obtain the corresponding source energy 12 ...................... 7.6 5.4 assessment of the aggregate impacts at consumption. 13 ...................... 13.7 7.8 14 ...................... 20.9 12.7 the national level has been conducted (4) Obtain the difference in source

15 ...................... 26.8 14.7 for this Supplemental ANOPR. energy consumption between this

16 ...................... .................... 14.6 Analyzing impacts of Federal energy- standard level scenario and the

17 ...................... .................... 15.4 efficiency standards requires a reference case. comparison of projected U.S. residential (5) Divide the source energy savings

energy consumption without standards

TABLE 23.-SPLIT-TYPE HEAT (baseline case) and with standards. The in Btu, adjusted for class specific

PUMPS-SIMPLE PAYBACK baseline case includes the mix of transmission and distribution losses, by

[In years] efficiencies of appliances being sold at the site energy savings in kilowatt-hours

the time the standard becomes effective. t o Provide the time series of conversion

Source of manufacturing The forecasts contain projections of unit factors in Btu per kilowatt-hour.

DSEER/HSPF ____ cost data energy consumption of new appliances, The resulting conversion factors will

Reverse annual appliance shipments, and prices change over time, and will account for

Industry engineering of purchased appliances. The the displacement of generating sources.

differences between the baseline and Furthermore, the NES spreadsheet

11/7.1 ................ 3.2 0.4 standards cases represent the energy models will include a clearly defined

12/7.4 ................ 4.2 1.8 and cost savings. Depending on the column of conversion factors, one for

13/7.7 ................ 6.8 5.6 method used for sales projections, the each year of the projection. DOE and

15/8 15/8.2 ................ 138.0 8.8 sales under a standards case projection stakeholders can examine the effects of ................ 13.8 10.5

16/8.4 ................ .................... 10.8 may differ from those of a baseline case alternative assumptions by replacing projection. this column of numbers.

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1. National Energy Savings (NES) OOE, #7) In order to address these order to determine whether the existing

Spreadsheet Model concerns, the Department will conduct standards are indeed cost-effective.

a. General sensitivity analyses as needed for the (David Lewis, Lennox International, NOPR Analysis by running scenarios on Transcript, pp 313) The Department has

In order to make the analysis more the input variables of interest, not made any attempt to determine the

accessible and transparent to all accessible and transparent to all One of the more important cost-effectiveness of the existing pstakeholders, the Department haso components of any estimate of the minimum efficiency standards. The

ipreviously prepared spreadsheet m s impact of future standards is shipments. Department believes that such an s n for other applice to forecast energy Forecasts s of shipments for the base case analysis would not materially contribute

v other ap or ances to forecast ener and the standards case need to be to a decision whether to adopt a more

improvements in efficiency can be obtained as an input to the NES. The stringent standard. Rather, the energy

accounted for over time. These models, Department developed a base case savings and NPV are calculated from the

the NES spreadsheets, are specific forecast of product shipments in the expected date any new standard level

applications of a common model absence of new standards. For all would take effect to the year 2030. Both

structure to each appliance, and a model candidate standards levels, shipment individual year and cumulative data are

was tailored to the case of central air forecasts are needed to calculate the generated. Output charts and tables

conditioners and another for the case of national benefits of standards and to provide cumulative energy savings, the

heat pumps. These same NES calculate the future cash flows of cost and savings per year (in a chart),

spreadsheets were also used to forecast manufacturers. There are a variety of and the cost and NPV due to standards.

net present value (NPV). These methods available for projecting

spreadsheets are posted to the shipments. A sophisticated accounting b. Product Specific

Department's web site. model was used by the Department and i. Inputs to NES Analysis

The NES spreadsheets are used to run to determine shipment scenarios for

calculate the NES, and the national each energy efficiency level. Table 26 summarizes the inputs used

economic costs and savings from new Other quantities in the NES in the NES model. The NES model uses

standards. Input quantities can be spreadsheet are: energy price the same basic data as the LCC model

changed within the spreadsheet. Unlike projections, including an analysis of for energy use and cost of equipment,

the LCC Analysis, the NES Spreadsheet consumer marginal electricity rates (See except that shipment weighted-average

does not use probability distributions Section II.D.l.a); effective date of the values (based on the shipment and

for inputs or outputs. Both EEI and OOE standard (start year); discount rate and energy-efficiency distribution forecasts)

stated that the NES Analysis should use the year of the NPV (1999); are used instead of distributions. As

a range of values rather than single manufacturing cost; total installed cost; with the LCC Analysis, two sets of

point-values. Specifically, EEI stated baseline energy use; lifetime; and the results, including forecasts of

that a range of equipment costs should conversion factor from site to source shipments, energy savings, and net

be used to determine NES and net energy. present value (NPV), were calculated

present values while OOE presumes that An industry representative requested based on two different sets of costs

distributional inputs will be used to that the impact of existing minimum (industry data and reverse engineering)

depict regional differences. (EEI, #2; efficiency standards be calculated in associated with increasing efficiency.

TABLE 26.-SUMMARY OF NES MODEL INPUTS

Parameter Data description

Shipments ................................................. Output from Shipment Model.

Total installed Consumer Cost ................. Average value for the baseline and each standard level. From LCC Analysis. Repair and Maintenance Costs ................ Average values for the baseline and each standard level. From LCC Analysis. Historical Efficiencies ............................... Shipment-weighted efficiency data (SEER) from the Air-Conditioning and Refrigeration Institute for

the years 1976-1997.

Future Efficiency Trend ............................. For the years 1998 to the assumed effective date of the new standard (2006), shipment-weighted efficiencies are assumed to remain constant at the shipment-weighed efficiency level in 1997. For

years beyond the assumed effective date of the new standard, shipment-weighted efficiencies are

assumed to equal the new standard level.

Unit Annual Energy Consumption ............ Based on the weighted-average annual energy consumption and efficiency from LCC Analysis. To

estimate the representative annual energy consumption of a central air conditioner or heat pump

for any given year, the ratio of the RECS weighted-average efficiency to the efficiency level in that

year is multiplied by the RECS weighted-average annual energy consumption. Electricity Prices ........................................ Based on the weighted-average marginal electricity price determined from RECS93 in the LCC Analysis.

Escalation of Electricity Prices .................. 1999 EIA AEO forecasts (to 2020) and extrapolation from 2020 to 2030.

Electricity Site-to-Source Conversion ....... Conversion varies yearly and is provided by the 1999 Annual Energy Outlook (a time series conversion factor; includes electric generation transmission and distribution losses). Discount Rate ........................................ 7% real.

Present Year ........................................ Future expenses are discounted to year 1999.

Both EEI and EMPA provided energy prices, and that the 1998 AEO rather than average electricity prices

comments on the type of electricity electricity price forecasts do not decline should be used in all calculations. (EEI,

price that should be used in the rapidly enough, since factors resulting #2; EMPA, #3) As noted in Table 26 and

analysis. EEI warned that energy savings from deregulation are not accounted for. as discussed earlier in the LCC Analysis

will decrease as a result of dropping Both EEI and EMPA stated that marginal (section II D.l.b.i.), the Department used

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the most recent forecasts from the 1999 stocks and purchases of each type of Accounting equations relate annual

AEO to predict the trend in both average central air conditioner and heat pump. changes in stocks to activities in the

and marginal electricity prices. In Events and consumer decisions various market segments.

addition, the NES spreadsheets can be influence how the stock and supply of Market Segments: Central air run with price forecasts from the GRI. central air conditioner and heat pump conditioner and heat pump purchases

The Department believes these forecasts systems flow from one category to are divided into five market segments: are the most reliable available to predict another. Decisions that are economically * Net New Housing Market: Net

future energy trends. With regard to influenced are modeled with increase in the housing stock forces the

marginal energy prices, the Department econometric equations.purchase of new central air conditioner

is using mean marginal prices to OOE supports the use of the an hea pup ss

calculate energy savings. accounting method for forecasting ad heat p p systems. EEI also warned that energy savings shipments, but stated that thorough * Early (Dscretionary) Replacement from higher SEERs could be lower in discussions will be required in order to Market: About 29 of central air

hot and humid climatic regions, where quantify the impacts of non-regulatory conditioner and heat pump owners

EER is a better indicator of equipment programs and market trends. (OOE, #7) replace the existing systems before the

performance. (EEI, #2) Although the The Department reviewed information systems break down because they want

performance of equipment can vary from parties involved in market-based an updated model, because of

depending on climatic conditions, the initiatives for increasing the sales of remodeling, or for other miscellaneous

Department believes that SEER will high-efficiency models but was unable reasons. provide the best indicator of annual to determine any quantifiable measure · Regular Replacement Market: Most

energy use in all climates. The annual of how these programs impact product central air conditioner and heat pump

energy consumption values from the efficiencies on a national basis. Thus, purchases are to replace an existing

1993 RECS, which the NES spreadsheet the impact of market-based initiatives system that has broken down after

uses as the basis for determining the was not incorporated into the baseline completion of its useful life.

energy savings from higher SEER and standard level forecasts. * Extra Repair Market: Since

standards, accounts for regional The model is organized into three replacement of central air conditioner

variations in energy use. classes of elements: Stocks, events, and and heat pump systems is costly, a few

EEI stated that diversity factors must decisions. Stocks of central air consumers will rebuild or repair a be taken into account when calculating conditioners and heat pumps are malfunctioning system (thus extending NES, as not all air conditioners are on divided into ownership categories, and its lifetime) rather than purchasing a at the same time. Utility load factors units are assigned to age categories. new system. Eventually, even extendedshould also be addressed. (Steve Events are things that happen to stocks life central air conditioner and heat

Rosenstock, EEI, Transcript, p 272; EEI, independent of economic conditions, pump systems are replaced. #2). Diversity and utility load factors are i.e., breakdowns requiring repair or * Homes without an air conditioner

not accounted for in the determination replacement. Decisions are consumer heat pump system: A few households

of NES. Rather, the NES are passed reactions to market conditions, e.g., without a central air conditioner or heat

through to the Utility Impact Analysis whether to repair or replace equipment, pump system will purchase them and

which will establish the impacts of the or to buy a house with or without an airbecome new central air conditioner or savings on utility generation and conditioner or heat pump. Consumer heat pump owners. distribution. The model to be used in purchase decisions are categorized by ents an ei s the Utility Analysis (NEMS-BRS) market segments. Decision trees are Eve nt s and dcisions (e.g., the

accounts for diversity and utility load used to describe consumer choices for probability that an existing central air

factors when determining the impacts purchases and repairs. A logit conditioner has a problem and the on the utility industry. NEMS-BRS is a probability model simulates consumer course ofaction taken by the consumer)

variant of U.S. DOE/EIA's NEMS and is purchase decisions that are based on are modeled separately for each market

named as such for two reasons: (1) The equipment price, operating costs, and segment.

Utility Analysis to be performed entails income level. Logit Probability Model: The logit

some minor code modifications and (2) Ownership Categories: Households probability of purchase model is used to

the model will be run under various are first divided into central air estimate the impact of standardspolicy scenarios that will be variations conditioner and heat pump markets, induced price and features changes on

on DOE/EIA assumptions. The name then the two markets are further divided consumer decisions. The model

NEMS-BRS refers to the model to be into four different ownership categories, accounts for consumer responsiveness

used for the Utility Analysis (BRS is including (1) new housing, (2) existing to purchase price, operating costs, and

DOE's Building Research and Standards housing with a regular central air income. Coefficients for the

office). NEMS was used by DOE/EIA to conditioner or heat pump (i.e., responsiveness to these three factors

produce the 1999 AEO, and NEMS-BRS equipment has not been repaired to were developed for each of the market

is used to provide some key equivalent extend its life), (3) housing without a segments, based on the results of

inputs to the standards analysis. central air conditioner or heat pump, empirical research on consumer

,i, Shipments Model and (4) housing with an extended life purchase behavior. The probabilities are ii. Shipments Model central air conditioner or heat pump applied to equations that govern

The Department chose an accounting (i.e., equipment repaired to extend its activities in the various market

model method to prepare shipment life). The population of central air segments.

scenarios for baseline (10 SEER) and conditioner and heat pump units in Table 27 summarizes the various

five standard levels (11 through 15 each ownership category are referred to inputs and sources of the central air

SEER) for central air conditioners and as the stock of central air conditioner conditioner and heat pump shipment

heat pumps. The model tracks the and heat pump units of that category. model.

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TABLE 27.-SUMMARY OF SHIPMENT MODEL INPUTS

Parameter Data description/source

Data for New Housing Starts .................... Census Bureau data on new housing construction.

Data for Early Replacement Market ......... 1990 ASHRAE technical paper entitled "Heat Pump Life and Compressor Longevity in Diverse Climates". In the paper, 29% of consumers in 1987 replaced their equipment for reasons other than

unit failure.

Data for Regular Replacement Market ..... 1990 ASHRAE technical paper entitled "Heat Pump Life and Compressor Longevity in Diverse Climates". Survival functions for total system life and original compressor life are presented. The

compressor survival function was used to establish the probability that a system has problems

while the difference between the two survival functions was used to establish the probability of repair vs. replacement.

Data for Extra Repair Market .................... 1990 ASHRAE technical paper entitled "Heat Pump Life and Compressor Longevity in Diverse Climates". Total system survival function was used establish the probability of extended or extra repair.

Data for Homes without an air conditioner March 29, 1993 issue of the Air-Conditioning, Heating and Refrigeration News. In 1992, 14% of cen- or heat pump. tral air conditioner and heat pump shipments went to non-owner households.

Elasticities ................................................. Purchase Price, Operating cost, and Income elasticities-from The ORNL Engineering-Economic

Model of Residential Energy Use, Oak Ridge National Laboratory, 1978.

Source of Household Income ................... EIA, 1999 AEO.

This shipments model allows standards level is the difference NPV = PVS - PVC

appliance saturations to be expressed as between the base case national average Where PVS equals the present value of a function of consumer price and LCC and the national average LCC in the operating cost savings (including

operating cost in order to capture the standards case. effect of those two variables on future Using the NES model, NPV was electric and C equals the present

shipments. The Department prepared calculated from projections of national savin) increased equipment costs consumer price and operating cost expenditures for central air conditioners (inclu equipment price and

elasticities to calibrate appliance and heat pumps, including total installation price). Another way of

forecasts to historical shipments. These installed consumer cost and operating describing NPV is that it is the

and other features of the model allow it expenses. Future costs and savings were difference between the LCCs (for all

to provide estimates that are consistent discounted to the present with a a ancs d wth and

with the recent history of central air discount factor, which was calculated w

conditioner and heat pump shipments, from the discount rate and the number

market structure, and consumer of years between the present (year to In NPV, costs are calculated as the

preferences. which the sum is being discounted) and product of (1) the difference in the

Drawbacks of this method include: (1) the year in which the costs and savings purchase price between the base case

Saturation of units in new and stock occur. and standards case and (2) the annual

households must be forecasted, (2) The inputs for the determination of sales volume in the standards case.

housing starts must be forecasted national NPV were detailed in the Since costs of the more-efficient

(although the AEO does provide readily discussion of the NES model. Like the equipment purchased in the standards

available forecasts), and (3) retirement NES results, two sets of NPV results case are higher than those of equipment

of units must be based upon were prepared; one based on industry- purchased in the base case, price

assumptions regarding lifetimes. provided manufacturer costs and the increases appear as negative values in

Unlike the LCC model, the shipments other on the reverse engineering data. the NPV.

model does not use probability 2 Preliminary Results Monetary savings are typically

distributions of values for inputs. While exhibited as decreases in operating costs

the shipment models uses the same a. General associated with the higher energy

basic input data as the LCC model for The Department calculated the efficiency of appliances purchased in

energy use and cost of equipment, the national energy consumption by the standards case compared to the base

model uses shipment weighted-average multiplying the number of central air case. Total operating cost savings is the

values instead of probability conditioners and heat pumps (by product of savings per unit and the

distributions. vintage) by the unit energy consumption number of units of each vintage

Because NES are dependent on (also by vintage). Vintage is the age of surviving in a particular year. Savings

shipments (which, in turn, are the equipment (varying from one to appear as positive values in the NPV.

dependent on equipment purchase twenty four-years). National annual Net savings each year are calculated

price), the Department prepared two energy savings is the difference between as the difference between Total

sets of shipments forecasts, one based national energy consumption at the base Operating Cost Savings and Total on manufacturer cost data for increases case (without new standards) and each Equipment Costs. The savings are in efficiency levels and the other based standards case. Cumulative energy calculated over the life of the appliance,

on cost data from the reverse savings are the sum of the annual NES accounting for the differences in yearly

engineering methodology, both of which over several time periods (e.g., 2006- energy rates. Future annual costs and are presented in the Preliminary TSD. 2010, 2006-2020, and 2006-2030). savings are discounted to the present

iii. National Net Present Value National economic impacts are time and summed. NPV greater than

calculated from the energy savings. The zero indicates net savings (i.e., that the

Net present value (NPV) is the sum primary metric for measuring national standard reduces consumer over time of discounted net savings. The economic impact is NPV. The NPV can expenditures in the standards case national NPV of each candidate be expressed by the following equation: relative to the base case). NPV less than

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zero indicates that the standard incurs TABLE 30.-SINGLE PACKAGE AIR TABLE 33.-SPLIT-TYPE HEAT PUMPS:

net costs. CONDITIONERS: CUMULATIVE NES CUMULATIVE NET PRESENT VALUE

The elements of the NPV can be IMPACTS FROM 2006 TO 2030 IMPACTS FROM 2006 TO 2030

expressed in another form, as the [Quads] [In billions of 1998 dollars] benefit/cost ratio. The benefit is the

savings in decreased operating expenses Source of manufacturer Source of manufacturer cost

(including electricity, repair, and cost data SEEdata

maintenance), while the cost is the Reverse en- S HSReverse

increase in the purchase price Industry gineeringIndustry engineering

(including equipment and installation

price) due to standards relative to the Base Case 1 ...... 3.8 3.8 11/7.1 ............ 0.0 0.1

base case. W hen the NPV is greater than 11 ...................... 0.1 .. 12/7 ............ - 0.6 0.5

zero, the benefit/cost ratio is greater 12 ..... 0.4 0.4 1/ .... -1.6 -1.5 1/. ............ -2.8 - 4.3 than one. 13 ............... 0.7 0.7 15/8.2 ............ -8.1 -6.2 14 ...................... 0 .9 ................... b. Product Specific 15 ...................... 1.1

TABLE 34.-SINGLE PACKAGE AIR Tables 28 to 31 show the forecasted 1 Values for Base Case are the cumulative

NES for the four p ^rimary product national energy consumption from 2006 to CONDITIONERS: CUMULATIVE NET

classes at each NESfoteorrmy2030. of the five efficiency PRESENT VALUE IMPACTS FROM 2006 TO 2030

levels analyzed (11 through 15 SEER). TABLE 31.-SINGLE PACKAGE HEAT [In billions of 1998 dollars] The results shown are based on a single PUMPS: CUMULATIVE NES IMPACTS

shipment shipment weighted weighted average average (SWA) cost PUMPS-CUMUATIVE--- IPACT (SWA) cost FROM 2006 TO 2030 Source of manufacturer cost instead of a cost distribution. 6 T 2 data

[Quads] SEER

TABLE 28.-SPLIT-TYPE AIR CONDI- Industry Reverse

TIONERS: CUMULATIVE NES IMPACTS Source of manufacturer usry engineering cost data FROM 2006 TO 2030 SEER/HSPF 11 .................. -0.2

[Quads] Industry Reverse en- 12 .................. -0.3 0.2 gineering 13 .................. -1.9 -1.0

14 .................. -2.8 Source of manufacturer Base Case 1...... 4.7 4.7 15 ....... -4.3 costEE - ...... .................... SEER costdata 11/7.1 ................ 0.0 .................... Reverse En- 12/7.4 ................ 0.2 0.2 Industry gineering 13/7.7 ................ 0.5 TABLE 35.-SINGLE PACKAGE HEAT

14/8.0 ................ 0.7 .................... PUMPS: CUMULATIVE NET PRESENT Base Case ...... 24.3 24.3 15/8.2 ................ 1.0 .................... VALUE IMPACTS FROM 2006 TO 11 ...................... 0.7 0.7 2030

12 ...................... 2.6 2.5 Values for Base Case are the cumulative

13 n13 4 3 ....... 3 4 . 1 national energy consumption from 2006 to [In billions of 1998 dollars] . 4.3 4.1 2030. 4_________________ ______. 

14 14 ...................... 5.8 ...................... 5.6 5.6 , Source of manufacturer cost 15 ...................... 7.0 6.7 Tables 32 to 35 show the national data

Values for Base Case are the cumulative NPVs for the four primary product SEER/HSPF

national energy consumption from 2006 to classes at each of the five efficiency Industry Reverse analyzed 2030. levels analyzed (11 through 15 SEER). engineering

11/7.1 .......... 0.0

TABLE 29.-SPLIT-TYPE HEAT PUMPS: TABLE 32.-SPLIT-TYPE AIR CONDI- 12/7.4 ........ -0.1 0.1

CUMULATIVE NES IMPACTS FROM TIONERS: CUMULATIVE NET PRESENT 13/7.7 ...........- 0.6

2006 TO 2030 VALUE IMPACTS FROM 2006 TO 15/8. ........... -1.

[Quads] 2030

[In billions of 1998 dollars] 3. Indirect Employment Impacts Source of manufacturer

SEER/HSPF cost data Source of manufacturer a . en era l

ir, Reverse en- op cost data The July 1996 Process Rule includes

Industry gineering SEER employment impacts among the factors

Industry Revnersen to be considered in selecting a proposed Base Case ...... 27.8 27.8 standard. The Process Rule states a 11/7.1 ................ 0.1 0.0 11 ...................... -0.3 0.1 presumption against any proposed 12/7.4 .............. 1.3 1.1 12 ...................... -2.8 -0.1 standard level that would cause 13/7.7 ................ 2.9 2.8 13 ...................... -7.5 -1.8 significant plant closures or losses of

14/8.0 ................ 4.3 4.4 14 ......................- 156 -8.4 domestic employment. 15/8.2 ................ 5.8 5.6 15 ...................... -22.0 12.1 The Department estimates the impacts

1 Values for Base Case are the cumulative of standards on employment for

national energy consumption from 2006 to appliance manufacturers, relevant

2030. service industries, energy suppliers, and

the economy in general. Employment

impacts are separated into indirect and

direct impacts. Direct employment

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impacts would result if standards lead among 35 sectors as national input- people in household. Annual energy use to a change in the number'of employees output matrices. The IMBUILD output can be estimated by a calculation based

at manufacturing plants and related includes employment, industry output, on an accepted test procedure or it can supply and service firms. Direct impacts and wage income. Changes in be measured directly in the field. The are estimated in the Manufacturer Sub- expenditures due to appliance standards Department plans to perform sensitivity Group Analysis (section G.2). can be introduced to IMBUILD as analyses to consider how differences in Indirect impacts are impacts on the perturbations to existing economic energy use will affect sub-groups of national economy other than in the flows and the resulting net national consumers. manufacturing sector being regulated. impact on jobs by sector can be The impact on consumer sub-groups Indirect impacts may result from both estimated. Additional detail is provided will be determined using the LCC expenditures shifting among goods in the Preliminary TSD. spreadsheet model. Details of this model (substitution effect), and income OOE stated that they are not familiar are explained in the LCC section of the changing, which will lead to a change with this type of analysis and believe Preliminary TSD. in overall expenditure levels (income that DOE should utilize specialists that

effect). Indirect employment impacts may exist at the Department of 1. Consumer Sub-Group Analysis from standards are defined as net jobs Commerce or the Department of Labor. a. General

eliminated or created in the general (OOE, #7) The Department intends to T

economy as a consequence of increased use IMBUILD in its analysis of indirect i h e epartment will be sensitive to

spending on the purchase price of employment impacts due to itsincreases in the purchase price to avoid

appliances and reduced household relatively long history of being used as negative impacts to identifiable

spending on energy. a tool (in its original form as IMPLAN) population groups, such as consumers New appliance standards are expected for assessing economic impacts. of lower income levels. Additionally,

to increase the purchase price of Although neither the Departments of the Department will assess the likely appliances (retail price plus sales tax, Commerce or Labor were involved in impacts of an increased purchase price and installation). The same standards the development of IMPLAN, the model on product sales and fuel switching. are also expected to decrease energy was based on use of the Commerce b. Product Specific consumption, and therefore reduce Department's make-and-use tables, household expenditures for energy. input-output model of the U.S.consumers, one measure of

Over time, the increased purchase price economy, and price deflators; and use of eco ic impact is the first cost of the

is paid back through energy savings. the Labor Department's schedule of product. The Department will analyze The savings in energy expenditures may wages. Consequently, DOE believes first costs to determine their impacts on be spent on other items. Using an input/ IMBUILD is a sound method for consumer subgroups. The Department output model of the U.S. economy, this analyzing indirect employment impacts. will be especially attentive to the need

analysis seeks to estimate the effects on IMBUILD, in its original form as to a v o id negative impacts on population different sectors, and the net impact on IMPLAN, has been used since 1979 by groups such as low-income households.

jobs. National impacts will be estimated a wide variety of government and Increased first costs to consumers for major sectors of the U.S. economy in private agencies including FEMA and resulting from standards are especially the NOPR. Public and commercially BLM in conducting economic impact impotant for lower-income consumers, available data sources and software will analyses since this group is most sensitive to

be utilized to estimate employment price increases. For lower-income

impacts. At least three scenarios will be F. ConsumerAnalysesconsumers, increases in first costs for a analyzed to bound the range of The Consumer Analysis evaluates product can preclude the purchase of a uncertainty in future energy prices. All impacts on any identifiable groups, such new model of that product. As a result,

methods and documentation will be as consumers of different income levels, some consumers may retain products made available for review. who may be disproportionately affected past their useful life, or purchase older,

b. Product Specific by any national energy efficiency used appliances. These older products

b. Product Specific standard level. are generally less efficient, and their The Department of Energy's Office of The Department plans to evaluate efficiency may deteriorate if they are Building Technologies and State variations in regional energy prices, retained beyond their useful life.

Programs (BTS) has developed a variations in energy use and variations Increases in first cost can also preclude spreadsheet model (IMBUILD) that in installation costs that might affect the the purchase and use of a product could be used to analyze indirect NPV of a standard to consumer sub- altogether resulting in a potentially large employment impacts. IMBUILD is a populations. To the extent possible, the loss of utility. special-purpose version of the Impact Department will obtain estimates of the OOE commented that with regard to Analysis for Planning (IMPLAN) variability of each input parameter and first-cost increases on low-income national input-output model which consider this variability in its households, the number of low-income

specifically estimates the employment calculation of consumer impacts. The households affected by any new and income effects of building energy analysis is structured to answer standards should first be determined technologies. IMPLAN was developed questions such as: How many (OOE, #7). The Department seeks input originally by the U.S. Forest Service in households are better off with standards on identifying the potential impacts of cooperation with the Federal Emergency and by how much? How many a large first-cost increase on consumers Management Agency (FEMA) and the households are not better off and by (affordability, financing, and on other

Bureau of Land Management (BLM) to how much? The variability in each financial issues), and on methods and assist the Forest Service in land and input parameter and likely sources of data the Department could use in resource management planning. information will be discussed with conducting its analysis. The Department IMBUILD is an economic analysis stakeholders. also seeks input on methods the

system that focuses on those sectors Variations in energy use for a Department might use to assess the

most relevant to buildings, and particular appliance depend on factors likely impacts of first-cost increases on characterizes the interconnections such as climate, type of household, and product sales and fuel switching.

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2. Consumer Participation will serve as a guide, the Department accompanies this Supplemental

a. General intends to tailor the methodology for ANOPR.

each rule on the basis of stakeholder The Department seeks to inform and comments. The document will outline 2. Industry Cash Flow (Phase 2)

involve consumers and consumer procedural steps and outline issues for a. General

representatives in the process of consideration. Three important A change in standards affects the

developing standards. This includes elements of the approach consist of the analysis in three distinct ways.

notification of consumer representatives preparation of an industry cash flow, Standards at higher levels will require during the rulemaking process and the development of a process to additional investment, will raise

where appropriate, seeking direct consider sub-group cash flow, and the production costs, and will affect

l input. roucconsumer design of an guide to interviewrevenue through higher prices and,

por ant products, consumer input is manufacturers and others in gathering possibly, lower quantities sold The

separate analytical tasks. First, tasks. First, inormation. Department will quantify these changes consumer preferences should be The policies outlined in the Process by performing an Industry Cash Flow

understood prior to determining Rule required substantial revisions to Analysis using the GRIM. Usually this

product classes in order to preserve the analytical framework to be used in analysis will use manufacturing costs,

product utility. Second, assessing the performing Manufacturer Impact shipments forecasts, and price forecasts

impact of changes in first cost may Analysis for each rulemaking. In the developed for the other analyses.

require direct consumer participation approach document, the Department Financial information, also required as

from affected consumer sub-groups will describe and obtain comments on an input to GRIM, will be developed

(particularly low-income households). the methodology to be used in based on publicly available data and

Finally, consumer input is useful to performing the manufacturer impact confidentially submitted manufacturer

ensure that life-cycle costs are analyses. The manufacturer impact information.

accurately estimated for relevant analyses will be conducted in three The GRIM Analysis uses a number of

subgroups of consumers. To assess phases. Phase 1 consists of two factors: Annual expected revenues;

consumer impacts, the Department activities, namely, preparation of an manufacturer costs such as cost of sales,

usually combines life-cycle cost industry characterization and selling and general administration costs;

modeling and direct consumer input. identification of issues. Phase 2 has as taxes; and capital expenditures related

The advisory committee sub-group on its focus the larger industry, and in this to depreciation, new standards, and

consumer issues has suggested phase, the GRIM will be used to perform maintenance, to arrive at a series of

appropriate means of obtaining an Industry Cash Flow Analysis. Phase annual cash flows beginning from before

consumer input, including: (1) Using 3 involves repeating the process implementation of standards and

focus groups, (2) conducting surveys, (3) described in Phase 2 (the Industry Cash continuing explicitly for several years

conducting demonstration projects, (4) Flow Analysis) but on different sub- after implementation. The measure of

conducting marketing analysis, and, (5) groups of manufacturers. Phase 3 also industry net present values are

researching existing literature from entails determining additional impacts calculated by discounting the annual

voluntary programs. In seeking this on competition, employment, and cash flows from the period before

information, the advisory committee manufacturing capacity. implementation of standards to some

sub-group emphasized the need for the . Industry Characterization (Phase 1) future point in time. The Preliminary

Department to obtain information from TSD describes the GRIM's operating

statistically significant sample sizes of a. General principles.

all relevant consumer categories. Phase I of the Manufacturer Impact b. Product Specific

b. Product Specific Analysis consists of collecting pertinent The Industry Cash Flow Analysis uses

OOE recommended that the financial and market information. This average manufacturing costs (with

Department first investigate the actual activity involves both quantitative and uncertainty) as described in the

level of consumer input or choice qualitative efforts. Data gathered will Engineering Analysis (section II.C.2),

involved in the purchase of these include market share, corporate shipments forecasts as described in the

systems before spending any time operating ratios, wages, employment, Preliminary National Impact Analysis

putting resources into surveying and production cost ratios. These data (section II.E. 1), and price forecasts as consumers about first cost increases. are incorporated into the Engineering described in the LCC and Payback

(OOE, #7) OOE warned that HVAC Analysis in the estimation of equipment Analysis (section II.D. 1.) Financial

contractors, rather than consumers, may production costs and distribution information, also required as an input to

have greater decision-making power markups. Sources of information the GRIM, is based on publicly available

regarding the purchase of systems. include reports published by industry data and confidentially submitted

groups, trade journals, and the U.S. manufacturer information. The cash

C. Manufacturer Impact Analysis Bureau of Census, and copies of SEC flow analysis will be distributed to

The Manufacturer Impact Analysis 10-K filings. interested parties prior to the workshop estimates the financial impact of b. Product Specific to be held after publication of this

standards on manufacturers and Supplemental ANOPR.

calculates impacts on competition, The Department collected central air In Phase 2, the Department intends to

employment, and manufacturing conditioner manufacturer information to expand the Phase 1 analysis to include

capacity. support the Engineering Analysis. This a Cash Flow Analysis covering, in

Prior to initiating the detailed included manufacturer market shares, aggregate, the firms that manufacture

Manufacturing Impact Analysis, the markups along the distribution chain, residential central air conditioning

Department will prepare an approach and typical ratios for labor, materials, equipment. The data gathered in Phase

document and have it available for and overhead. This information appears 1 will be augmented with data from

review. While the general framework throughout the Preliminary TSD that additional public and private sources.

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These include shipment projections evaluate cash flows and to assess manufacturers to privately express their

developed for the NES Analysis and competitive, employment and capacity views on important issues. A key

interviews with individual impacts. Firm-specific cumulative characteristic of the interview process is

manufacturers. The GRIM will estimate burden will also be considered. that it is designed to allow confidential

the potential effects of new standards on b. r t piinformation to be considered in the

industry cash flow, net present value, rulemaking process.

capacity, and employment. Scenarios In order to conduct a Manufacturer The initial industry characterization

will include both HCFC-22 and hydro- Sub-Group Analysis, it will be necessary will collect information from relevant

fluoro-carbon (HFC) refrigerants, HFC- to define representative sub-groups and industry and market publications,

410A. Other considerations include conduct separate Cash Flow Analysis industry trade organizations, company

imports and exports, uncertainty, and for each. For example, one option financial reports, and product literature.

cumulative regulatory burden. consists of conducting separate cash This information will aid in the

An industry representative stated that flows for all manufacturers. Another development of detailed and focused

his company would be very unlikely to option, could entail conducting Cash questionnaires, as needed, to perform all

provide proprietary cost data directly to flow Analysis only for those phases of the manufacturer impact

DOE or its contractors. (im Crawford, manufacturers which believe their analyses. It is the intention of the

Trane, Transcript, p 134). The Oregon impacts are more severe then industry Department that the contents of

Office of Energy (OOE) warned that an average. questionnaires and the list of interview

Industry Cash Flow Analysis should be The Department intends to examine participants be publicly vetted prior to

internally consistent with data used in two sub-groups: high-volume initiating the interview process.

other analyses (OOE, #7). The manufacturers and low-volume The Phase 3 (sub-group analysis)

Department currently is seeking further manufacturers. A "strawman" GRIM questionnaire will solicit information on input from stakeholders on whether Analysis on each subgroup will be the possible impacts of potential

additional scenarios are needed, and on prepared for review prior to the efficiency levels on manufacturing

the general appropriateness of the data interviews. Information from the costs, product prices, and sales.

sources and methods. interviews will be used to develop Evaluation of the possible impacts on

. sis An revised GRIM sub-group analyses for direct employment, capital assets, and 3. Manufacturer Sub-Group Analysis consideration in the NOPR. industry competitiveness will also draw

(Phase 3) OOE recommended that the analysis heavily on the information gathered

a. General use the minimum number of sub-groups during the interviews. The

Assessment of impacts on sub-groups required to fully capture different levels questionnaires will solicit both

of manufacturers is Phase 3 of the of impact on different sizes and type of qualitative and quantitative information.

Manufacturing Impact Analysis. Using manufacturers (OOE, #7). Supporting information will be

industry "average" cost values is not The Department seeks input from requested whenever applicable.

adequate for assessing the variation in stakeholders on whether the defined Interviews will be scheduled well in

impacts among sub-groups of sub-groups are appropriate, or whether advance in order to provide every

manufacturers. Smaller manufacturers, fewer, or additional, subgroups are opportunity for key individuals to be

niche manufacturers or manufacturers needed. Comments are also requested available for comment. Although a

exhibiting a cost structure largely regarding the value in grouping written response to the questionnaire is

different from industry averages could manufacturers into sub-groups,acceptable, an interactive interview

be more negatively affected. Ideally, the compared to conducting individual pces i s preferred because it helps

Department would consider the impact GRIM Analysis for each manufacturer. clarify responses and provides the

on every firm individually. In highly Additional commentary is sought opportunity for additional issues to be

concentrated industries this may be regarding which manufacturers should identified.

possible. In industries having numerous be asked to participate in the interviews, Itervew participants ill be

participants, the Department will use and, more generally, what a well requested to identify al confidential

the results of the industry executed sub-group analysis would information provided in writing or

characterization to group manufacturers entail following orallw Apthinterview, the interview, an an interview interview exhibiting similar characteristics. The 4. Interview Process summary will be provided to give financial analysis of the "prototypical"participants the opportunity to confirm

firm performed in the Phase 2 industry a e n e r a l the accuracy and protect the

analysis can serve as a benchmark The revised rulemaking process confidentiality of collected information

against which manufacturer sub-groups provides for greater public input and for All the information transmitted will be can be analyzed. improved analytical approaches, with considered, when appropriate, in the

The manufacturing cost data collected particular emphasis on earlier and more Department's decision-making process. for the Engineering Analysis will be extensive information gathering from However confidential information will

used to the extent practical in the sub- interested parties. The proposed three- not be made available in the public

group impact analysis. To be useful, phase Manufacturer Impact Analysis record

however, this data should be process will draw on multiple DOE will collate the completed disaggregated to reflect the variability in information sources, including interview questionnaires and prepare a costs between relevant sub-groups of structured interviews with summary of the major issues and

firms. manufacturers and a broad cross-section outcomes. The Department will seek

The Department will conduct detailed of interested parties. Interviews may be comment on the outcome of the

interviews with as many manufacturers conducted in any and all phases of the interview process. as is possible to gain insight into the analyses as determined in Phase 1.

potential impacts of standards. During The interview process has a key role b. Product Specific

these interviews, the Department will in the manufacturer impact analyses, The Department completed a round of

solicit the information necessary to since it provides an opportunity for preliminary interviews at the start of the

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Engineering Analysis that focused on partial-equilibrium model of the U.S. of electricity, which primary fuel is

design and cost issues. A second round energy sector that has been developed used for generation). Other than the

of interviews will be scheduled soon over several years by EIA primarily to difference in energy consumption due to

after publication of the Supplemental prepare the AEO. NEMS produces a central air conditioner and heat pump ANOPR. The intent will be to develop widely recognized baseline forecast for standards, input assumptions into an accurate representation of the the U.S. through 2020, and is available NEMS-BRS will follow those used to

impacts of new standards on each sub- in the public domain. Outputs of the produce the 1999 AEO.

group. As noted previously, the Utility Analysis will parallel results that Since the AEO 1999 version of

Department intends to examine two sub- appear in the latest AEO, with some NEMS-BRS forecasts only to the year

groups: high-volume manufacturers and additions. Typical output includes 2020, a method for extrapolating price low-volume manufacturers. forecasts of sales and price. The entire data to 2030 is required. The method

H. Competitive Imact As ment Utility Analysis will be conducted as a adopted will be the EIA approach to . Competitive Impact Assessment policy deviation from the latest AEO forecasting fuel prices for the Federal a. General using NEMS-BRS, and the assumptions Energy Management Programs (FEMP).

EPCA directs the Department to in place in NEMS will serve as the basic These are the prices used by FEMP to

consider any lessening of competition set of assumptions that will be applied estimate LCCs of Federal equipment

that is likely to result from standards. It to the Utility Analysis. For example, the procurement. For petroleum products,

directs the Attorney General to gauge operating characteristics (energy the average growth rate for the world oil

the impacts, if any, of any lessening of efficiency, emissions rates, etc.) of price over the years 2010 to 2020 is used

competition. The Department will make future electricity generating plants used in combination with the refinery and

a determined effort to gather and report in the Utility Impact Analysis will be distribution markups for the year 2020

firm-specific financial information and those used the latest AEO. As to determine regional price forecasts.

impacts. The competitive analysis will discussed earlier, NEMS-BRS is a Similarly, natural gas prices are derived

focus on assessing the impacts to variant of U.S. DOE/EIA's NEMS and is from an average growth rate along with

smaller, yet significant, manufacturers referred to as such for two reasons: (

1) regional price margins for the year 2020.

The assessment will be based on The Utility Analyss to be performed Electricity prices are held constant at

manufacturing cost data and on enta l

ls some mino code modifications 2020 levels on the assumption that the

information collected from interviews and (2) the model will be run under transition to a restructured utility

with manufacturers, consistent with policy deviations that are variations on industry will have been completed. Phase 3 of the manufacturer impact DOE/EIA assumptions. The name In principle, any of the forecasts that NEMS-BRS refers to the model that will analyses. The Department of Justice NEMS-BRS refe s t t h e m o d e l h a t w ll appear in the 1999 AEO could be

(DOJ) has offered to help in drafting be u s e d fo t h e Utili ty A n a l ys is (BR S s (DOj) has tohelp offered inestimated by NEMS-BRS to take into drafting DOE's Building Research and Standards estimated by NEMS-BRS to take into questions to be used in the f u l n g e s e a rc a n a n a r account the effects of a particular level

manufacturer interviews. These Forecasting for the electric utility of central air conditioner and heat pump

questions will pertain to the assessment industry is seriously complicated by the standards. The Department intends to

of the likelihood of increases in market implications of industry restructuring, report the major results on residential

concentration levels and other market which is only partially reflected in the sales of fuels, prices of fuels, and

conditions that could lead to anti- latest AEO (1999). DOE plans to explore generating sources displaced by energy competitive pricing behavior. The the consequences of a wider savings. As might be expected, as the

manufacturer interviews will focus on restructuring pattern through total energy use of America is much

gathering information that would help appropriate scenario analysis using larger than that possible due to the

in assessing asymmetrical cost increases NEMS-BRS. savings from central air conditioners

to some manufacturers, increased NEMS offers a sophisticated picture of and heat pumps, there is little expected

proportion of fixed costs potentially the effect of appliance standards since difference in the forecasted price of

increasing business risks, and potential its scale allows it to measure the energy.

barriers to market entry (proprietary interactions between the various energy EEI stated that the Utility Analysis technologies, etc.). supply and demand sectors and the should incorporate the impact of any

b. Product Specific economy as a whole. In addition, the new standard on the equipment's scale of NEMS permits analysis of the Energy Efficiency Ratio (EER) rating in The Department will consult with effects of standards on both the electric order to establish the impact on peak DOJ prior to conducting the and gas utility industries. loads and power plant operation. The

manufacturer interviews and will share analysis should also be market based,

the results of those interviews and b. Product Specific and take into account that several

subsequent analyses with DOJs To analyze the effect of standards, merchant plants are coming on-line and

according to the rulemaking schedule, NEMS-BRS will first be run exactly as that customers, rather than utility and as appropriate. it would be to produce an AEO forecast, dispatchers, will dictate how power

1. Utility Analysis then a second run will be conducted plants are utilized to meet air

with residential energy usage reduced conditioning loads. (EEI, #2) Since it The Utility Analysis estimates the by the amount of energy (gas, oil, and incorporates representative load shapes effects of proposed standards on electric electricity) saved due to appliance for central air conditioners and heat

and gas utilities, standards for central air conditioners pumps, NEMS-BRS has the capability

1. Proposed Methodology and heat pumps. The energy savings to determine both the impacts on power

~~a. ~~General input will be obtained from the NES plant operation and peak loads that

spreadsheet (section II.E. 1). Outputs result from central air conditioner and

To estimate the effects of proposed available are the same as those in the heat pump energy savings. Thus, the

standards on electric and gas utilities, original NEMS model, including type of power plant that will go off-line

the Department intends to use EIA's residential energy prices, generation, and the resulting reduction in peak NEMS. NEMS is a large multi-sectoral and installed capacity (and, in the case loads can and will be determined.

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66336 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

J. Environmental Analysis Carbon emissions (which are a to produce AEO 1999. In principle, any

An Environmental Assssmnt is physically equivalent indicator of actual of the forecasts that appear in AEO 1999

required pursua o t Assesent tio emissions of carbon dioxide) are tracked could be estimated by NEMS-BRS to required pursuant to the National in NEMS-BRS by a detailed carbon take into account the effects of a Environmental Policy Act 199 )of module with broad coverage of all particular central air conditioner and (NEPA) (42 U.S.C. 4321 etseq.), sectors and inclusion of interactive heat pump efficiency standard level, regulations of the Council on effects. NEMS-BRS also includes a but, in the standard reporting, the Environmental Quality (49 CFR parts module for S02 allowance trading and Department intends to report emissions

1500-1508), the Department regulations delivers a forecast of SO2 allowance of SO2, NOx and CO2. for compliance with NEPA (10 CFR part prices. Accurate simulation of SO2 The time horizon of NEMS-BRS is 1021), and the Secretarial Policy on the trading, however, tends to imply that 2020. The Department will extrapolate National Environmental Policy Act physical emissions effects will be zero. beyond 2020 using a simple formula (une 1994). The Department will This fact has caused considerable (according to the method set out in the

present a discussion of the Draft confusion in the past, and, in prior Preliminary TSD) to extend the forecast

Environmental Assessment as part of appliance standards analyses, a simple to 2030. The Department will generate the NOPR. The Department will present figure for emission reductions has been alternative price forecasts corresponding the Draft Environmental Assessment in reported, with the caveat that emissions to the side cases found in AEO 1999 for

the Technical Support Document for the trading implies that this reduction will use by NES and will explore alternatives NOPR. The NOPR will provide an unlikely be realized. On the other hand, in a similar fashion with NEMS-BRS

opportunity for comments prior to the there is an SO 2 benefit from runs. final rule. conservation in the form of a lower EEI stated the environmental impact

The Environmental Analysis will allowance price. If the reduction in results generated from NEMS will be

track three types of energy-related allowance price is large enough to be less accurate than they could be, since

airborne emissions: sulfur dioxide calculable by NEMS-BRS, the consumers may switch electricity

(SO 2), nitrogen oxides (NOx) and carbon Department will report this value. suppliers and since the impacts from

dioxide (CO2). The first two have direct The results for the Environmental other emissions, such as carbon

consequences for human health, and are Analysis can be in the form of a monoxide and precursor organic

major causes of acid precipitation, complete NEMS-BRS run. In general, compounds, are not being

which can affect humans by reducing NEMS-BRS outputs become the tables analyzed.(EEI, #2) EMPA also stated that

the productivity of farms, forests and of an AEO, and these should provide a NEMS does not accurately account for

fisheries, decreasing recreational good idea of the range of results recent changes in the electric utility

opportunities and degrading susceptible available. Outputs from a NEMS-BRS industry. (EMPA, #3) Although NEMS

buildings and monuments. NOx is also run include SO2, NOx and CO 2 might have some short comings, the a precursor gas to urban smog and is emissions from the power sector and a Department believes that NEMS-BRS is

particularly detrimental to air quality trading price for SO 2 allowances. The the most appropriate and accurate

during hot, still weather. CO 2 emissions only form of carbon tracked by NEMS- model to estimate environmental are believed to contribute to raising the BRS is CO2, so the carbon discussed in impacts. Although the Department is

average global temperature via the the analysis is only in the form of CO 2 comfortable with the use of NEMS-BRS

"greenhouse effect." The long-term but is reported as elemental carbon to for establishing environmental impacts,

consequences of higher temperatures remain consistent with the 1999 AEO. interested parties are welcome to

may include perturbed air and ocean The conversion factor from carbon to present any other models or data that

currents, perturbed precipitation CO 2 is approximately 3.7. could verify or refute the NEMS

patterns, changes in the gaseous b. Product Secificestimates.

equilibrium between the atmosphere Regulatory Impact Analysis and the biosphere, and the melting of The version of NEMS used for Regulatory Impact Analysis some of the ice now covering polar appliance standards analysis is called DOE will be preparing a draft

lands and oceans, causing a rise in sea NEMS-BRS, and is based on the 1999 Regulatory Analysis pursuant to E.O.

level. The source of emissions covered AEO version with minor modifications. 12866, Regulatory Planning and

in this analysis is fossil fuel-fired NEMS-BRS is run exactly the same as Review," which will be subject to

electricity generation. the original NEMS, except that review under the Executive Order by the

residential energy usage is reduced by Office of Information and Regulatory 1. Proposed Methodology the amount of energy (gas, oil, and Affairs (OIRA) 58 FR 51735 (October 4,

a. General electricity) saved due to central air 1993). conditioner and heat pump standards. As part of the Regulatory Analysis, To perform the Environmental The amount of energy savings is the Department will identify and seek to

Analysis, the Department intends to use obtained from the NES spreadsheet mitigate the overlapping effects on NEMS-BRS, which it also uses for the (Section 8.2). The output of the manufacturers of new or revised DOE

Utility Impact Analysis described in the Environmental Analysis is forecasted standards and other regulatory actions

previous section. Outputs of the physical emissions. The net benefits of affecting the same products. Through Environmental Analysis will parallel a standard will be the difference manufacturer interviews and literature

results that appear in the latest AEO, between emissions estimated by the searches, the Department will compile with some additions. The Department AEO 1999 version of NEMS-BRS and information on burdens from existing will conduct entire Environmental those estimated with a standard in and impending regulations affecting Analysis as a policy deviation from the place. central air conditioners (e.g. HCFC

latest AEO using NEMS-BRS, and the Energy use for central air conditioner phase out) and other products (e.g. room assumptions in place in NEMS will and heat pump efficiency levels will be air conditioners). The Department also serve as the basic set of assumptions the same as those in the NES seeks input from stakeholders regarding that will be applied to the spreadsheet. Other input assumptions other regulations that should be

Environmental Analysis. into NEMS-BRS will follow those used considered.

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Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66337

III. Proposed Standards Scenarios products at the maximum The median payback periods

Upon reviewing the preliminary LCC technologically feasible level will be corresponding to the industry data and

and NES results, the Department analyzed. reverse engineering LCC minimums, 8

observes that the efficiency levels Based on the analyses performed, the and 3 years, respectively, are both less

analyzed; (generally a 10 to 70 percent Department observes that, depending on than the average 18.4 year product improvement over the existing product class, efficiency levels ranging lifetime.

standard), produced a range of impacts from 11 to 13 SEER would appear to Single Package Air Conditioners: The

at the National level. For example, the result in the greatest economic benefit to minimum mean LCC for single package NES impacts show a range from 0.81 to the Nation. The Process Rule requires air conditioners occurs at either 10 or 12

14.11 quads of energy saved over the the Department to specify in the ANOPR SEER, based on the industry cost data or 2006 to 2030 period. As expected, the candidate standards levels, but not to the reverse engineering manufacturing higher the efficiency level, the greater propose a particular standard. Because cost data, respectively. The percent of

the savings. the preliminary LCC and NES results the population at 12 SEER with LCCs

The national Net Present Value (NPV), show economic benefits to both lower than the baseline varies

which is the discounted sum over future consumers and to the Nation in the significantly depending on which cost

years of the operating cost savings in SEER 11 to 13 efficiency range, the data are used: the industry cost data

energy less the increase in first cost of Department intends to further consider results in a percentage of 26% while the more efficient units, also showed a and conduct analyses for the following reverse engineering cost data results in

range of impacts. A positive NPV is a candidate standards levels, for each a percentage of 58%. The median

net benefit to the nation. The NPVs product class, prior to issuance of the payback periods corresponding to the

based on reverse engineering costs show NOPR: industry data at 11 SEER efficiency level

positive benefits to the Nation for all * SEER 11 and the reverse engineering 12 SEER

efficiency levels less than 13 SEER (with * SEER 12 efficiency level are 20 and 8 years,

the exception of the 12 SEER efficiency * SEER 13 respectively.

level for split system air conditioners), In addition, the Department intends to Single Package Heat Pumps: The

while NPVs based on industry-provided conduct Engineering and LCC analyses minimum mean LCC for single package manufacturer costs show negative specifically for the Maximum heat pumps occurs at 12 SEER for both

benefits to the nation for all efficiency Technologically Feasible the industry cost data and the reverse levels. (approximately SEER 20) level for each engineering manufacturing cost data.

At the consumer level, the LCC and product class prior to issuance of the The percent of the single package heat

payback analyses results also depend on NOPR. pump population at 12 SEER with LCCs

manufacturer costs. For example, with Split System Central Air Conditioners: lower than the baseline is above 50% reverse engineering costs, minimum The minimum mean LCC for split (58% and 80%, based on industry data

LCC occurs at 12 SEER for all product system air conditioners occurs at either and reverse engineering data,

classes, and with industry-provided 11 or 12 SEER, based on the industry respectively). The median payback

costs, minimum LCC occurs at 12 SEER cost data or the reverse engineering periods corresponding to the industry for heat pumps (both split system and manufacturing cost data, respectively. data and reverse engineering LCC

packaged), but there is no minimum Although the minimum mean LCC minimums, 9 and 5 years, respectively, LCC for air conditioners. Payback occurs at efficiency levels greater than are less than the mean lifetime of the

analyses for SEER 12 equipment also the baseline (10 SEER) in both of the product.

show a range of payback times varying these cases, the percent of the The above observations are based on from 3 to 15 years, depending on the population with LCCs lower than the preliminary LCC and NES results,

product class and the manufacturer baseline is less than 50% (39% at 11 which will be updated and revised in

costs. SEER, based on industry data, and 45% the NOPR and final rule analyses. The

The maximum technologically at 12 SEER, based on reverse LCC and NES results are considered

feasible efficiency levels for these engineering data). The median payback preliminary because they do not include

products (approximately 20 SEER in periods corresponding to the industry any results from the manufacturer

2006) were not explicitly analyzed in data and reverse engineering LCC impact and consumer subgroup this Supplemental ANOPR because the minimums, 13 and 11 years, analyses, or contain information from a Department assumed that the products respectively, are both less than the 18.4 consumer survey. The Department seeks

could not be economically justified. year average product lifetime. However, comments on whether standards that

While the split-system air conditioner mean payback periods exceed the meet alternative scenarios would

with the highest efficiency in the market average product lifetime. provide energy savings to the Nation

in 1998 was rated at SEER 18, the most Split System Heat Pumps: The comparable to the savings that would be

efficient product analyzed in this minimum mean LCC for split system obtained by the highest standards that

Supplementary ANOPR was SEER 17. heat pumps occurs at 12 SEER for both are technologically feasible and

At this efficiency level, all the products the industry cost data and the reverse economically justified effective in 2006.

had greater LCCs than the baseline and engineering manufacturing cost data, Standards that meet the following had payback periods that exceeded the although based on the reverse alternative scenarios, for example, might mean product lifetime. The Department engineering cost data, the mean LCC be presented to the Department for

assumed that products with efficiencies corresponding to 13 SEER is also less consideration:

greater than SEER 17 would have greater than that for the baseline. The percent * A moderate increase in the

incremental costs than incremental of the split heat pump population at 12 efficiency level at an earlier effective

savings, and that, consequently, SEER with LCCs lower than the baseline date, for example, an effective date three

efficiency levels greater than SEER 17 is well above 50% based on both the years after the publication of the Final

could not be economically justified. industry data and reverse engineering Rule.

This assumption will be reexamined cost data (63% based on industry data * A stringent increase in efficiency prior to issuance of the NOPR, where and 90% based on reverse engineering). level at a later effective date, for

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66338 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

example, an effective date in 2010 "Central Air Conditioners and Heat and/or concerns that were addressed in

coinciding with the HCFC-22 phase out. Pumps Rulemaking (Docket No. EE-RM- this notice.

* A two-phase approach combining 94-403)," and must be received by the 1. Differences between the industry the two scenarios, for example, a lower date specified at the beginning of this and the reverse engineering cost data:

efficiency level for some product classes document. The Department requests * Use of the industry and the reverse effective at an earlier date and a higher that ten copies of your comments be engineering cost data yield significantly efficiency level effective at a later date. submitted. Additionally, the different LCC, payback period, NES, and

The Department seeks comments on Department would appreciate an NPV results. Efforts preceding the

standards under various scenarios, electronic copy of the comments to the publication of this Supplemental

including the candidate standards, for extent possible. The Department is ANOPR between the Department and

consideration in preparing the analysis currently using WordPerfectTM 8. All the industry have yet to reveal why on which the Department will base the comments and other relevant differences still persist between the two

proposed rule. information received by the date sets of cost data. Continued efforts and

IV. Public Comment Procedures specified at the beginning of this notice suggestions are needed to resolve the will be considered by the Department in differences between the two cost data

A. Participation in Rulemaking the proposed rule. sets. These differences are discussed in

The Department encourages the. All written comments received on this the Process Improvement section (I

maximum level of public participation supplemental Advance Notice of B.3.).

possible in this rulemaking lPropossible Individual will be available 2. The incorporation of emerging

consumers, representatives of consumer for public inspection at the Freedom of technologies into the Engineering

groups, manufacturers, associations, Information Reading Room, as provided ThDpartmnt has ndt a States or other governmental entities, at the beginning of this notice. prelinary nal of how emergg preliminary analysis of how emerging utilities, retailers, distributors, Pursuant to the provisions of 10 CFR technologies may impact the

manufacturers, and others are urged to 1004.11, any person submitting manufacturing costs of achieving higher submit written statements on the information or data that is believed to beefficiency levels But due to the

analysis presented here. confidential, and exempt by law from uncertainty associated with the future The Department has established a public disclosure, should submit one development of these technologies, in

period of 75 days following publication complete copy of the document and ten particular, microchannel heat

of this notice for persons to comment. (10) copies, if possible, from which the exchangers, advanced compressors, and

All public comments received will be information believed to be confidential variable speed motor controls the costs

available for review in the Department's has been deleted. The Department will currently projected for their

Freedom of Information Reading Room. make its own determination with regard incorporation into air conditioning and

In addition, the following data is to the confidential status of theheat pump equipmnt may change available in the Department's Freedom information or data and treat it significantly. of Information Reading Room: according to its determination. 3. The assessment of the impacts on * Copies of the Preliminary TSD Factors of interest to the Department, steady-state efficiency, i.e. EER, due to * Transcripts of the Central Air when evaluating requests to treat increases in the SEER:

Conditioning policy Workshop held information as confidential, include: (1) * Comments submitted by the EEI on June 30, 1998 A description of the item; (2) an and the ACEEE call for assessments of * Copies of the public comments indication as to whether and why such how the Energy Efficiency Ratio (EER) received by the Department thus far items of information have been treated of air conditioning and heat pump * Previous Federal Register notices by the submitting party as confidential, equipment may be impacted by an relating to this central air conditioner and whether and why such items are increase in the SEER. In particular, they and heat pump rulemaking customarily treated as confidential, and are concerned that a higher efficiency A public hearing will be held on whether and why such items are standard based on SEER may lead to a December 9, 1999, (9 a.m.-5 p.m.), at customarily treated as confidential decrease in steady-state efficiency the U.S. Department of Energy, Forrestal within the industry; (3) whether the during peak demand because of the

Building, 1000 Independence Avenue information is generally known or prevalence of modulating systems at the

SW, Room 1E-245, Washington, DC available from other sources; (4) higher SEER levels. Up to efficiency 20585. More detailed information about whether the information has previously levels of 12 SEER, the rate of EER

this hearing will be on the Office of been available to others without increase is directly proportional to the

Codes and Standards web site beginning obligation concerning its increase in SEER as manufacturers

in November. The web site address is as confidentiality; (5) an explanation of the typically rely on single-speed follows: http://www.eren.doe.gov/ competitive injury to the submitting technology to attain the SEER increase.

buildings/codes_standards/index.htm. person that would result from public But as efficiency levels move beyond 12

B. Written Comment Procedures disclosure; (6) an indication as to when SEER, manufacturers use an array of such information might lose its technologies that have significantly Interested persons are invited to confidential character due to the different impacts on EER. How should participate in this proceeding by passage of time; and (7) whether the Department quantify the

submitting written data, views, or disclosure of the information would be relationship of EER to the higher SEER

arguments with respect to the subjects in the public interest, values?

set forth in this notice. Comments will C. Issues for Public Commnt 4. For heat pump systems, the

not be accepted by fax or e-mail. relationship between SEER and HSPF:

Instructions for submitting written The Department is interested in * Based on heat pumps in the

comments are set forth at the beginning receiving comments and data to marketplace, a range of HSPF values are of this notice and in this section. improve its preliminary analysis. In possible for any particular SEER. But

Comments should be labeled both on particular, the Department is interested recognizing that the HSPF of heat pump the envelope and on the documents, in responses to the following questions equipment generally increases with

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Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66339

SEER, the current analysis assumes a 7. The impact of alternative conducted over twenty years ago. With

simple relationship between the two refrigerants for HCFC-22: regard to purchase price, in making efficiency descriptors for purposes of * The current analysis assumes that estimates of these effects, the

setting an HSPF standard in addition to the phase-out date for HCFC-22 is far Department needs to estimate how price a SEER standard for heat pumps. Should enough in the future that it will not changes resulting from revised energy the Department continue with this affect a manufacturer's ability to meet efficiency standards for central air

simple approach or should another any new efficiency standards, whether conditioners and heat pumps will affect

procedure be developed to assess the using HCFC-22 before the phase-out, or the behavior of consumers in their

impact of SEER on HSPF? using alternative refrigerants before and purchasing decisions.

5. Additional product classes based after the phase-out. Through 10. Data on the possible adverse on system capacity: manufacturer interviews and literature affects of standards on identifiable * The current analyses are based on searches, the Department plans to groups of consumers that experience manufacturing cost data developed for compile information on burdens from below-average utility or usage rates: nominal 3-ton capacity systems. existing and impending regulations · The consumer analysis can evaluate Although product shipments are affecting central air conditioners (e.g. impacts on any identifiable groups, such

predominantly at nominal capacities of HCFC phase out). But should the as consumers of different income levels, 3-tons, the cost of achieving higher Department more explicitly account for who may be disproportionately affected

efficiency for systems with higher and the impact of the HCFC phase out in the by any national energy efficiency lower capacities may be different. If data Engineering Analysis? Any analysis in standard level.

submitted in response to this this area will require assessment of the

Supplemental ANOPR reveals impact on manufacturer cost due to the 11 Information on what non- significantly different manufacturing use of the alternative refrigerantregulatory alternatives to standards need

cost increases based on system capacity, 8. Data on retail mark-upto ereviewed:

the Department will analyze whether assumptions:* Uder the Process Rule policies, the

this results in justifiably lower or higher * Retail mark-up assumptions are Department is committed to continually efficiency levels for equipment of based upon the following distribution explore non-regulatory alternatives to

differing capacity. chain: manufacturer-to-distributor/ standards. The table following presents 6. Niche product classes: wholesaler-to-contractor/dealer. what is being proposed for

* Several manufacturers have asked Although this is not the only type of consideration in this rulemaking. The

the Department to establish new classes distribution chain currently in existence Department is seeking comments on this

to protect the viability of certain niche for central air conditioning and heat approach. This approach is further

products under higher efficiency pump equipment, it is assumed that the discussed in the Preliminary TSD.

standards. These products (ductless mark-ups reflected by this chain of Alternatives To Be Considered

split systems, high-velocity/small duct distribution will reflect the mark-ups

systems, vertical packaged/wall resulting from other methods of -No new regulatory action

mounted systems, and through-the-wall distribution (e.g., manufacturer directly -Consumer tax credits

condensing units) serve niche markets to dealer). At present the Department -Manufacturer tax credits

and probably account for less than three does not intend to change the retail -Performance standards

percent of the residential unitary mark-up assumptions but will continue -Rebates market. As such, the efficiency standard to research data sources and seek-Voluntary energy efficiency targets established for these products will have comment on this issue.lary ee

little effect on NES and consumer LCC. 9. Information relating to the -Early replacement The Department seeks comments as to determination of price and operating -Mass government purchases whether these products provide a cost elasticities in conducting shipment 12. Comments on the candidate

unique utility that cannot be met by forecasts: standard levels and the alternative

other products. One important question * In order to determine the effect of standard scenarios.

is whether the constraints imposed by an increase in the purchase price and * The Department has identified

higher standards would eliminate these operating cost on shipments, it would candidate standards levels of 11 SEER, products from the marketplace. For this be useful to know the elasticities of 12 SEER and 13 SEER for all product reason the Department is also interested central air conditioner and heat pump classes. The Department has also

in recommendations as to how to define prices and operating costs. Due to the provided examples of several alternative

these new product classes so that these lack of data in this area specific to scenarios which could have different

products would continue to be available central air conditioners and heat pumps, effective dates and different standards

to satisfy the unique needs for which the Department is currently using levels but which could provide they are intended. elasticities developed from analyses comparable energy savings.

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66340 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

V. Review Under Executive Order regulatory action and DOE would review have been made a part of the

12866 and Other Provisions prepare and submit to OIRA for review rulemaking record and are available for

DOE provided to the Office of the assessment of costs and benefits public review in the Department's

Information and Regulatory Affairs required by Section 6(a)(3) of Executive Freedom of Information Reading Room,

(OIRA) in the Office of Management and Order 12866. Other procedural and 1000 Independence Avenue, SW, Room

Budget a copy of this document for analysis requirements in other 1E-190, Washington, DC 20585 between

comment. At the proposal stage for this Executive Orders and statutes also may the hours of 9 and 4, Monday through rulemaking, DOE and OIRA will apply to such future rulemaking action, Friday, telephone (202) 586-3142.

determine whether this rulemaking is a including the requirements of the

significant regulatory action under regulatory Flexibility Act, 5 U.S. C. 601 Issued in Washington, DC. on November 8.

Executive Order 12866, Regulatory etseq.; the Paperwork Reduction Act, 44 1999

Planning and Review. 58 FR 51735 U.S.C. 3501 et seq.; and the Unfunded Dan W. Reicher,

(October 4, 1993). Were DOE to propose Mandates Act of 1995, Pub. L. 104-4; Assistant Secretary, Energy Efficiency and

amendments to the energy conservation and the National Environmental Policy Renewable Energy.

standards for central air conditioners Act of 1969, 42 U.S. C. 4321 et seq. IFR Doc. 99-30480 Filed 11-23-99: 8:45 am]

and heat pumps, the rulemaking could Today's action and any other BILLING CODE 6450-01-P

constitute an economically significant documents submitted to OIRA for

EE-RM-STD-98-440 COMMENT 309