## EERI/STD 

# -440 4 - 0

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## Wednesday November 24, 1999

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# 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

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# EE-RM/STD-984440

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# 50

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

DEPARTMENT OF ENERGY Renewable Energy, "Energy Efficiency b. ProductSpecific 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 Part430 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 ofEnergy, 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 StandardsforCentral Air Copies ofthe 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 ofEnergy Efficiency and Conditioners and Heat Pumps may also a. General Renewable Energy, Department of be obtained from: U.S. Department of b. ProductSpecific Energy. Energy, Officeof 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 ofEnergy Preliminary TSD will also be available b.ProductSpecific publishes this Supplemental Advance through DOE's web site.The i.Efficiency-Level Approach Notice of Proposed Rulemaking PreliminaryTDprovii. Reverse Engineering Approach Notice ofProposed Rulemaking Preliminary TSD provides the technical iii. Design Option Approach (ANOPR) to consider amending the details oftheanalysis that was iv.Outside Regulatory ChangesAffecting energy conservation standards for conducted insupport ofthe the Engineering Analysis central air conditioners and heat pumps. Supplemental ANOPR being issued 2.Manufacturing Costs

The purpose ofthis 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 ofInformation i.Characterizing Uncertainty

First, the product classes that the Reading Room, located atthe US ii. Variability inCostsAmong Department is planning to analyze; Department ofEnergy, Forrestal Manufacturers

Second, the analytical framework, Building, 1000 Independence Avenue, ii. Lifeietry Desin a _models~ , , / ., -the~ „Government~~~~ , r
. ° 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 of9 am and 1.LCC Spreadsheet Model Monte Carlo sampling methodology, 4pm, 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 forinformation. i.LCC Analysis the Department hasbeen using in For more information concerning ii. Equipment Prices performing analyses ofthe impacts of public participation in this rulemaking iii.Payback Analysis (Distributionof energy conservation standards; proceeding, see section IV, "Public Paybacks)

Third,the results ofpreliminary Comment Procedures," ofthis iv. Rebuttable Payback 2.Preliminary Results analyses for the engineering, LCC, document. 2 a ry Resu 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 ofEnergy 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 NESAnalysis 

## ~~~~~~Fourth, the candidate energy Mi .Mcabe 

## ~dii. Shipments Model Fourth, 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 ofEnergy, Office ofGeneral Counsel, a.General analyses. Forrestal Building, Mail Station GC-72, b.ProductSpecific 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 Departmentrequests 10 copies ofthe E-mail: Edward.Levy@hq.doe.gov. b.Product Specific written comments and, ifpossible, a SUPPLEMENTARY INFORMATION: F. ConsumerAnalyses 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 ofthe Supplementary 3.TestProcedure G.Manufacturer Impact Analysis Information for further details. II.Central Air Conditioners andHeat Pumps 1.IndustryCharacterization (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.IndustryCash Flow (Phase 2) Energy, Attn: Brenda Edwards-Jones, 1.MarketAssessment a.General Office ofEnergy Efficiency and a. General b.ProductSpecific

## EE-RM/STD-98-440- _- OC Federal Register/Vol. 64, No. 226/Wednesday'-November 24, 1999/Proposed Rules -'66307
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)Theeconomic impact ofthe analysis ofLCCs, payback periods, and 4.I Product Speciic standard onthe manufacturers and on preliminary NES which were shared a. General the consumers ofthe products subject to with representatives from theairb. Product Specific such standard; conditioning industry. H.Competitive ImpactAssessment (2) The savings in operating costs In 1995, the Department abandoned a. General throughout the estimated average life of the approach ofusing computer b. ProductSpecific 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, ormaintenance 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 ofthe standard; consistent withthe experience ofthe a. General (3) Thetotal 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 ofthe standard; industry expressed doubts overthe III. Proposed Standards Scenarios (4)Any lessening ofthe utility orthe Department's experience with selection IV.Public Comment Procedures performance ofthe covered products ofappropriate design options.

A. Participationin Rulemaking likely to result fromthe imposition of In October, 1995, a moratorium on B.Written Comment Procedures the standard; proposing, issuing, orprescribing C.Issues for Public Comment (5) The impact ofany lessening of energy conservation standards took V.Review UnderExecutive Order 12866 and other provisions competition, as determined in writing effect pertaining to standards for central by theAttorney General, thatis likely to air conditioners and heat pumps, and I. Introduction resultfrom the imposition ofthe the dialogue between the airA. Authority standard; conditioning industry and the (6) The need for national energy Department, onthe analysis performed, Part B ofTitle III ofthe 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 ofthe fiscal year 95-619, the National Appliance Energy EPCA, Section 325(2)(B), 42U.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. TheDepartment Conservation Amendments of 1988, ofthe Interior and Related Agencies Pub. L. 100-357, and the Energy Policy 1.History Appropriations Act forFiscal 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 (EPCAor Act), requires moratorium on proposing or issuing Conservation Program for Various the Department ofEnergy (DOE or energy conservation appliance Consumer Products other than Department) to consider amending the standards forthe remainder ofFiscal 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 DOEto 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 forcentral together stakeholders (such as for central air conditioners and heat air conditioners and heat pumpsbased manufacturers and environmentalists) pumps aspart ofthe energy on use ofcomputer simulation models. for assistance. In September 1995, the conservation program forconsumer An ad hoc working group wasformed to Department announced a formal effort products. EPCA, section 325(d), 42 advisethe Department and to provide to consider further improvements to the U.S.C. 6295 (d). EPCA also requires the engineering and test data touse with the process used to develop appliance Department to publish final rules computer models. The working group, efficiency standards, calling on thereafter, to determine ifthese 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, theAir Conditioning & and other interested parties to provide whether to adopt aproposed energy Refrigeration Institute (ARI), Lawrence input toguide the Department. On July conservation standard it must first Berkeley National Laboratory (LBNL), 15, 1996, the Department published a solicit comments onthe proposed and Oak Ridge National Laboratory FinalRule: Procedures for standard. EPCA, section 325 (p), 42 (ORNL), also provided production cost Consideration ofNew orRevised Energy U.S.C. 6295 (p). Any new oramended data for establishing thecost- Conservation Standards for Consumer standard must be designed so asto effectiveness ofthevarious design Products (hereinafterreferred to asthe achieve the maximum improvement in options selected for study. Process Rule). 61 FR 36974. energy efficiency that istechnologically On September 8, 1993, the The Process Rule outlines the feasible and economicallyjustified. Department published an ANOPR (58 procedural improvements identified by EPCA, section 325(o)(2)(A), 42 U.S.C. FR47326) which discussed the number the interested parties. The process 6295 (o)(2)(A). To determine whether ofproduct classes and design options, improvement effort included a review of economicjustification 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 thatthe Department intended to use in its Residential Energy Model; (2)analytical benefits ofthe proposed standard analysis of increased energy efficiency tools, such as theuse ofa Monte Carlo exceed its burdens based to thegreatest standards for central air conditioners sampling methodology; and (3)

## EE-RM/STD-98-440

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# ,30 66308 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 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 bydoing Department is presenting theframework The Department held a workshop on scenario orprobability analysis (as by which it willdevelop the standards. June 30, 1998 to discuss the analytical detailed in the Process Rule, 10 CFR The framework reflects improvements framework that wasbeing 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 ortools that analytical framework presented at the Energy Efficiency Standards, consisting enhance the development ofstandards workshop described the different ofarepresentative group ofthese interested parties, was established to become available, they will be analyses (e.g., theLCC, payback and interested parties, was established to makerecommendations to theSecretary incorporated into the rulemaking. For national impact analyses) to be regarding the implementation ofthe example theAdvisory Committee has conducted (SeeTable 1), the methods Process Rule. made several recommendations and the proposed for conducting them, and the

The Process Rule isapplicable inthis 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 FlowAnalysis (GRIM). Preliminary National Impacts Analysis

............................. Manufacturer Impact Analysis. Utility Impact Analysis. Environmental Analysis.

A number ofconcerns were raised at manufacturer costs developed through between ARI's minimum and mean the framework workshoprelating to the thereverse engineering approach and manufacturer costs completely application ofthe Process Rule to the demonstrating the LCC spreadsheet encompasses the reverse engineering central air conditioner and heat pump model. Duringthis time period, ARI costs. This agreement isencouraging rulemaking, with particular emphasis submitted relative production cost data given the levels ofuncertainty and on (1)theappropriate approaches for forthe 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 fordeveloping consumer equipment ton capacity systems atvarious convergence provide an excellent price data, and (4) how non-regulatory efficiency levels. Efficiency levelsare indication ofthe most likely costs of issues,e.g., the phase-out ofhydro- defined differently for air conditioners producingequipment utilizing today's fluoro-chloro-carbon (HCFC) refrigerants and forheat pumps. Air conditioner technology under new standard levels. might affect the effective date ofany efficiency is defined by the descriptor, Although thetwo sets ofmanufacturer new standards. Seasonal Energy Efficiency Rating costs do overlap, they disagree in some

In response to the concerns and (SEER). Heat pump efficiency isdefined respects. In particular, there are comments of interested parties atthe bythe descriptor, Heating Season significant differences inthe breadth of Framework Workshop, theDepartment Performance Factor (HSPF) while the manufacturer cost distributions at decided to perform the Engineering operating duringthe heating season and each efficiency level. The Department Analysis based onthe 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 forminimum-efficiency approach, usingcost data submitted by efficiencies provided by ARI ranged equipment will compel manufacturers manufacturers in aggregate viatheir from 11 to 14 SEER. The individual to meet new standards atsimilar 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 themarket cannot sustain as broad engineering approach as a "stand alone" equipment costs, to ARI. ARI aggregated a range ofcosts 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 theDepartment 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 whatwe currently the discussion ofthe Engineering As will be discussed in the considerjustified. Analysis (IIC.). Engineering Analysis,the ARI-provided The Department and ARI have worked

As part ofthe 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 itscontractors met several times the lowerefficiency levelsin the split sincerely appreciates ARI's and its withmembers ofthe ARI Unitary air conditioning class and in the middle members' dedicated participation in the Equipment Regulatory Committee, efficiency levels ofthe split heatpump Engineering Analysis.Their relative presenting the preliminary class. Forthe most part, the range manufacturer costs provide a solid

# EE-RM/STD-98440_ -Jo Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66309
foundation forfurther analysis, and Framework Workshop are being TheDepartment appreciates the their frequent review ofand inputto our addressed in this document. The concerns expressed previously. The validation effort is avaluable addition commentor's name and organization are methods and approaches used forthe to our understanding ofthe production shown inparentheses after each analyses conducted forthis and design issues associated with comment. Written comments are further Supplemental ANOPR are well meeting higher standards. The identified by anumber assigned to each described and havebeen released on the Department will work withARI to set ofwritten comments received during Department's web siteprior tothe understand the remaining differences the commentary period. Verbal issuance ofthis notice. Any questions or between our two sets of manufacturer comments are further identified bythe comments asto how to clarifythe costs. page number in the workshop methodologies used inthis 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 atthe A. Preliminary MarketandTechnolog three new spreadsheet toolswere Department's Freedom ofInformation Assessment developed forthis rulemaking in an Reading Room described previously. sesme effort to meet theobjectives ofthe 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) ofthe Process Rule states relevant product markets and existing one calculates impacts ofstandards at that necessary modifications to test technology options including prototype various levels on shipments. The third procedures concerning efficiency designs. calculates the NES and national net calculates the NES and national net standards will be identified and 1.Market Assessment present values (NPV) at various proposed before issuance ofan ANOPR. standard levels. These spreadsheets and The residential central air conditioner a. General the results ofthe preliminary analysis and heat pumptest procedure is When initiating a standards wereposted on the Department's web currently being revised to improve its rulemaking, the Department develops site on August 24, 1999. The organization and ease ofuse, with a information onthe present and past preliminary results posted onthe web proposed ruleexpected in November industry structure and market consisted oftwo sets ofdata: oneset 1999. This revision ofthe test procedurecharacteristics ofthe product(s) based onthe manufacturer costs is not expected to alter the measured concerned. This activity consists ofboth submitted by ARI and the otherset efficiencies as determined under the quantitative and qualitative efforts to based on manufacturer costs developed existing testprocedure 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 anyerrors in development ofrevised efficiency Issues to be addressed include: (1) the web site materials be immediately standards. Forthese reasons, revisions Manufacturer market share and brought to our attention for correction, tothetest roceue re not characteristics; (2) trends in the number andthat any

othercommentsto the testprocedure are not a and that any other comments be "necessary modification" as thatterm is m te financial situation of submitted during the 75 day period necessary modification" asthatterm is r nancial situation of followingpublicatring the 75 dayf thperiod used in the Process Rule, but rather a manufacturers; (4) existing nonSufppleental ANOPR routineupdate, and hence need not be regulatory efficiency improvement Supplemental ANOPR.

The Department has reviewed the proosed before issuance ofthinitiatives; and trend in product eeatn the proposed rulefor thesestandardscharacteristics and retail markets. The recommendations made bythe Advisory roposed rulefor these standards, information collected serves asresource Committee on Appliance Energy II. CentralAir Conditioner and Heat material to be used throughout the Efficiency Standards onApril 21, 1998. PumpAnalyses 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 ofconsumer marginal energy rates introduction to each analysis section to help predict structure pices and (CMER) in the LCC Analysis (replacing and provides adiscussion ofissues hipm ents. Market structure data are the useofnational average energy relevant to energy conservation tiful in conducting the prices), defining a range ofenergy price standards for central air conditioners competitive impacts analysis. futures foreach fuel used in the and heat pumps. b. Product Specific economic analyses and defining a range The Department received a numberof The Department reviewed existing ofprimary 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 onthe generation displaced by analysis conducted for therulemaking ofthe residential central airenergy efficiency standards for each (EMPA, #3). Some ofthese concern the conditioning market in the United rulemaking. The Department has rulemaking procedure, while others States. Industry publications and trade incorporated the use ofconsumer refer to the analytic methods, and are as journals, government agencies, and marginal energy rates and arange of follows: themethodology for evaluating trade organizations provided the bulk of future energy prices forthe analysis that standards isextremely 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, anddata 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 forthe Notice ofProposed before issuance ofthe 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 ofstandards on "real analysis. pertains to central air conditioners and consumers" asEMPA believes that Edison Electric Institute (EEI) heat pumps and utilizes the framework groups on theDOE Advisory Committee commented that contractors should be described in Section II.Bothwritten and do not represent and protectthe interviewed when market assessments verbal comments from the June 30, 1998 interests of"real consumers." are being developed (EEI, #2) while the

# EE-RM/STD-98-440- ,30O
66310 Federal Register/Vol. 64, No. 226/Wednesday; November 24, 1999/Proposed Rules Oregon Office ofEnergy (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 isfurther described in the characteristics and non-regulatory technologies were not considered as Preliminary National Impacts Analysis efficiency improvement initiatives, and they haveyetto bepublicly discussion in section E.l.b.ii. to interview manufacturers of demonstrated in prototypical central air B. ScreeningAnalysis components (compressors, motor/fan conditioner and heat pump designs. assemblies, heat exchangers) on
. r n p The Screening Analysis reviews initiatives to improve systemefficiency. 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) TheDepartment de velops a manufacturers while devop i pre r baselinhe forecast ofproduct u y onproductilii n market assessment, but also interviewed ush o entsha attvailabity; assus i nd (d) national contracting organizations, his is an ina sthave adverse impacts onhealth and indepedncortstandenards. Thisis an initial step in an safety. The subsequent Engineering independent contracntoers andcomponent iterative process. Subsequently, a moreidenf suppliers. Ofcourse, this market iterative process Subsequently, a more Analysis does not consider or assessment is preliminary, and any c e v l sincorporate technologies thatdo not additional commentsiln e and ntoy forecast is prepared using ashipments pass these tests, regardless ofwhether additional comments will betaken into model, supercedingthe preliminarythe eie erv s ab s fr consideration when the assessment is ecas rthe Engineering Analysis takes aDesign revisedfcue. Option approach oran Efficiency-level The baseline shipments forecast is approach. Technologies that passthe

develops alist oftechnologies that canss the 2. Technology Assessment used as an input to theNational Benefits Screening Analysis tests may be a. General Analysis. To perform the National considered further to determine their coiBenefitsAnalysis, a forecast ofpotental cost and efficiency imdpac ts. Information relating to existing and shipment-weighted product efficiencies Th Screening Analysisalso identifies past technology options and prototype ispreparedto the year2030. Toassess possibleproduct classes and baseline designs are typically used as inputs to theaverage impact on the affected equipment to serve as a basisfor further determine what technologies consumer, aforecast ofproduct clas. In manufacturers utilize to attain higher shipments by efficiency level was energy efficiency levels. In consultation prepared for the year a newstandard 1.Product Classes with interested parties, the Department would come into effect. a. General develops a list oftechnoloies that can b. Product Specific Product types are divided into classes and should be conside red. Initially, the technologies encompass allthose TheDepartment prepared a baseline using the following criteria: (a) The type considered to betechnologically feasible shipments forecast forcentral air of energyused; (b) capacity; and (c) and serve to establish themaximum conditioners and heatpumps. Data on performance-related features that affect technologically feasible design. historical product shipmentsguided cosumer utilityor efficiency. Different iterature ad directepreparation ofthe preliminary baseline energy efficiency standards are applied b. Product Specific shipments formecast. to different product classes. In general, The Department based its list of The Oregon Office ofEnergy (OOE) classes are defined using information technically feasible design options on pointedout thatnon-regulatory energy btained in discussions with appliance design options included in aprevious efficiency programs are on the wane, manufacturers, trade associations, and ANOPR (58 FR 47326, September 8, and that ifthese programs are to be o ther interested parties. 1993). The Department then updated the considered inshipment forecasting, it b Product Specific list through consultation with must be quantifiably demonstrated howd

mirochanufacturersofcomponents and appliance formost areasscribed byof the country, * Verticonal packaged, wall mounted. manufacturers ofcomponents and they will transform the market (OOE, systems, trade publications, and #7). Information from parties involved ApplianceEnergy Conservation Act techn ical papers. Sincemany optionsin rs r (NAECA), central air conditioners aoo ndin

technologies were considered t-bas set those used forforecasting shipments in cooling orheativesng capacity oftheor for improvingproductefficiency are increas ing the sale s ofhigh-efficiencyacin available in existingequipment, product models was reviewed, butprovided no split a t n that e ad oe systs, literature and direct examination quantifiable measure ofhow these fou product classes. The analysis provided additional information. programs impact product efficiencies on performedtodate includesonly 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 assumes ana nomn a 3 on aay. HFor exa le, engineering sectionofthePreliminary distribution of 10.7 SEER, basedon eemay ifition ce/ate TSD. establishing additional classes including 

## ~~~~~~~TSD. ~current sales, the impact ofmarketOOE asserted that all appropriate based initiatives is implicit in the producttypes such as: component and systemtechnologies baseline forecast. Through-the-wall condensing units, c Ductless splitsystems, must be considered in the technology OOE also noted that since central air * High-velocity space-conditioning assessment, and that itshould include conditioning is not an essential systems. and microchannel heat exchangers and appliance formost areas ofthe country, · Vertical packaged, wall mounted. electrohydrodynamic enhancement central airconditioning purchase price The Department is also considering technologies (OOE, #7). Additional elasticities will likelybe different than establishing new classes defined by the technologies were considered as set those used forforecasting shipments in cooling orheating capacity ofthe forth inthe Technology Screening other product rulemakings (OOE, #7). equipment. Analysis (section II.B.3) including such Since the shipments model used in this OOE feltthatthe addition ofmore emerging technologies as microchannel rulemaking was prepared specifically classes may bereasonable. For example, heat exchangers, modulating for central air conditioners and heat mini-splits and combined space/water

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Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66311 heating systems mightbe considered as the technologies identified in the suggested thatall advanced oremerging 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 listto 81; OOE, #7)

. ACEEE identified

EEI commented that the product determine ifthey are practicable to improved compressors and classes beexpanded 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 notbe included product availability, orwould have couldbe analyzed in the context ofa 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 aviable 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 ofelectric driven systems. desire to push the technology into the This rulemaking addresses only Compiling a listofefficiency market (Modine, #1). Bristol products covered bythat definition, and enhancement optionsprovided an Compressors (Bristol) is nowbringing to thus, no consideration will be given understanding ofthetechnologies market the Twin-Single (TS) here to developing standards forfuel available to manufacturers to improve compressor, areciprocating 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 thatthis technology can increase they need to be established. levels.For split air conditioners, the central air conditioner and heatpump Department believes, based on a efficiency from either 10 to 12 SEER or 2. Baseline Equipment preliminary analysis, that 20SEER is from 12 to 14 SEER. With avariable- a. General the highest efficiency level attainable by speed indoor blower, the TScan

TheDepartment 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 industryrepresentative efficiency improvements Baseliney These include the following: enhanced contended thatemerging 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 orvariable they werefeasible and that, in the specified by the NAECA Suchbaseline capacity compressors; high efficiency context of conducting an Engineering equipment are typically "low-end" compressors; electrically-commutated, Analysis based onthe use ofthe unitsthat contain nopremium features variable-speed fan orblower motors, efficiency-level approach, emerging ue.g, noise ruction no premm features, and thermostatic orelectronic technologies should notbe considered feeatures expansion valves. We assumed that the until they are shown to radically change efficiency ofcompressors, motors, and theshape ofthe industry cost curve. b. ProductSpecific heat transfer surfaces would improve (Jim Crawford, TheTrane Company

Efficiency is the most important slightly priorto the effective date ofany (Trane), Transcript, pp 81,87) ARI stated statistic required to establish the new rule. The 20 SEERlevel doesnot that in developing an aggregate industry baseline model. Current minimum depend on anyemerging technologies, cost curve, emerging technologies may efficiency standards for split and single because theDepartment believes that, or maynot 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 ofthe equipment in the include them in their cost estimates are 10.0 and 9.7 SEER,respectively. The SEER 13 to SEER 17range compared to (Ted Leland, ARI, Transcript, pp 85). current minima forthe heating established technologies, theemerging The Department has performed a performance ofsplit and single package technologies will not advance the preliminary assessment ofthe potential central air conditioning heat pump maximum attainable efficiency level. impact ofthese technologies onthe systems are 6.8 and 6.6 HSPF, The analysis ofmanufacturing costs manufacturing costs ofair-conditioning respectively. The Department used the and prices wasbased only on equipment and is seeking comment on split system minimum efficiency technologies and designs available in the following: Whether these emerging standards asthe baseline efficiency for mass produced products as of 1998. The technologies do in factpass the each oftheabove classes. Ifadditional Department considered the potential screening criteria; the potential impact classes are created, theDepartment will cost impact of emerging technologies in ofthese technologies on manufacturing apply the appropriate existing standard a separate analysis described in the cost, operating cost, and price; whether asthe baseline efficiency forthat class Preliminary TSD. The emerging additional emerging technologies

OOE agreed with theDepartment's technologies that pass the screening shouldbe considered; and whether the intent to usethe efficiency ofproducts criteria include: maximum technologically feasible level thatjust meet the current minimum * Microchannel heat exchangers is commercially practical. the

Advanced compressors The Department notes that it isnot NAECA requirements asthe baseline * Variable speed motorcontrols 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 forcentral air conditioners and An initial list ofefficiency 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,

## EE-RM/STD-98-440 

# 3 66312 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

asbeing "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 meetthe Three methodologies can be used to D. Little, Inc. (ADL)for theDepartment. NAECA definition. Thus, fuel-driven generate the manufacturing costs The design options selected in the technologies are precluded from needed forthe 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. Engineg A

s incremental costs ofadding specific the efficiency-level approach were The purpose ofthe Engineering design optionsto a baseline model; (2) submitted by individual manufacturers Analysis is to estimate the energy the efficiency-level approach, reporting to ARI. For purposesof ensuring savings potential from increased relative costs ofachieving energy manufacturer confidentiality, ARI equipment efficiency levels and the efficiency improvements; and/or (3) the submitted to the Department minimum, costs ofachieving thoselevels, reverse engineering or cost-assessment maximum, and shipment-weighted compared to the baseline equipment. approach which requires a "bottoms- averages ofincremental manufacturer The increased efficiency levels are up manufacturing cost assessment cost increases associated withvarious associated with increased production based on a detailed bill ofmaterials for efficiency levels. In the case ofthe costs. The efficiency/cost relations models thatoperate atparticular reverse engineering approach, ADL developed inthe 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 Ifthe efficiency-level approach is shipping/packaging, and investment. Production Costs used, the Department will select Both sets ofmanufacturer costs were a. General appropriate efficiency levels for data input into the Engineering Analysis and collection onthe basisof: (1)Energy cost-efficiency relationships were The Engineering Analysis estimates savingspotential identified from developed to showthe manufacturing the energy savings potential ofthe engineering models; (2) observation of costs ofachieving various levelsof individual or combinations ofdesign existing products on themarket; and/or increased efficiency. options noteliminated 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 ofa 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 ofpotential technological revisingthe reverse engineering uncertainties in performance are paths manufacturers could use to production costs ofsuch 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 ofdifferent 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 ofachieving Department recognizes that the other industry suggested issues, increased efficiency. Theefficiency manufacturer cost information derived including manufacturing production levels corresponding to various design in the design-option approach doesnot 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 referto to achieve the maximum improvement with interested parties. the PreliminaryTSD. As notedearlier, in energy efficiency that the Secretary The reverse engineering orcost- these revisions helped to reconcile some determines is technologically feasible assessment approach can be used to ofthe differences between the ARI and economicallyjustified." EPCA, supplement the efficiency-level or production costs and thereverse section 325(1)(2)(A), 42 U.S.C. design option approaches underspecial engineering production costs,but 6295(1)(2)(A). An essential role ofthe circumstances when data is not remaining differences between thetwo Engineering Analysis consists of publically available for proprietary sets ofmanufacturer cost require further identifying the maximum reasons, the product isa prototype and/ examination. technologically feasible level. The or the data is notprovided by the maximum technologically feasible level manufacturers. i. Eficiency-Level Approach is one that can be reached by the The efficiency-level approach addition ofefficiency improvements b. Product Specific establishes the relationship between and/or design options, both The Department, inconsultation with manufacturer cost and increased commercially feasible or in working stakeholders, hasused both overall efficiency atpredetermined efficiency prototypes, to the baseline equipment. efficiency level and reverse engineering levels. It has the distinct advantage of The Department believes thatthe 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 aprototype submittals from ARI while the reverse incremental manufacturer cost data for

# EE-RM/STD-98-440

- 

# s30O
Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

.. 66313

incremental increases in efficiency. permitted to inspectraw data in order the above five SEER levels: 7.1, 7.4, 7.7, Cost-efficiency curves can be easily to ascertain itsreasonableness. OOE 8.0, and 8.2 HSPF). constructed to clearly identify atwhat suggested that areverse engineering or Tables 2 to 5show the incremental pointmanufacturers are incurring design option approach be used to manufacturer costs, also called significant coststoraise efficiency. verify the cost data, although theyprefer manufacturer cost multipliers, which Additionally, the efficiency-level thedesign option approach. ACEEE also ARI submitted forthe four primary approach allows manufacturers the contended that adesign approach could product classes for systems with cooling ability to supply detailed cost data beused to verify cost data. ACEEE capacities ofapproximately 3 tons withoutrevealing 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

Butthe simplicity ofthe efficiency- market prices do not reflect mature be presented in Section II.C.2.b.) to level approach isalso itsprimary market costs. Both theConsortium for determine the manufacturer costs for drawback. Namely, since technological Energy Efficiency and the Pacific Gas each efficiency level. Forexample, 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 ofthe costs PG&E, #8). In addition, PG&E believed manufacturer cost for asplit system air forthat level. In addition, prototypical thatthe cost ofefficiency 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 typeofanalysis On the issue ofcost 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 ofthe costs supplied through ifindustry provided disaggregated cost in Tables 2to 5included low and high the efficiency-level approach. data itwould allow forthe values as well as mean values, because

In reply to the Department's request to determination ofthe sources ofthe data theprobability distribution forthe cost stakeholders atthe 1998Framework Workshop regarding the most and, thus, result in violation ofanti- data at a givenstandard level are appropriate approach which should be trustlaws. Oim Crawford, Trane, unknown, only the mean values were pursued forthe Engineering Analysis, Transcript, pp 70-72)In any case, he subsequently used in the LCC Analysis
some industry members stated their stated thatifthe reverse engineering (section ll.D). support forthe 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 ofcost verification TIONERS-ARI MANUFACTURER (Lennox), Transcript, pp 55-56, 61, 76). would be a mootpoint. COST MULTIPLIERS More specifically, these industry The Department selected two members stated their intention to approaches, one ofwhich was the SEER Low Mean High provide costsunder 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 ofthe 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 withincreased case ofcentral 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 costefficiency level based upon both the cooling season TABLE .- SP LIT SYSTEM EAT atwhich 90% ofmanufacturers would SEER and the heating season HSPF PUMPS-ARI MANUFACTURER COST be able to produce product. efficiencies. MULTIPLIERS

ACEEE and the OOEstated 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 ifcertain providing only costs atthe 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 forfive distinct efficiency levels (11, 12, 14/8.0

................. 1.30 1.64 1.88 addition to providing costs at the90th 13, 14, and 15 SEER). ARI also provided 15/8.2

................. 1.75 2.09 2.52 percentile, costsat multiple percentiles incremental manufacturer costs for heat should bereported. Having the full pumps forthe same five SEER levels. T E 4. PACKA AI distribution ofcosts allows for a more Since heat pumps are alsorated fortheir ABLE SIN G LE PAKAGE AIR CO 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 atdifferent SEER levels. forpurposes ofsetting anHSPF 10

............................... 1.00 ACEEE and OOE stated that verification standard in addition toan SEER 11

...................... 1.03 1.19 1.27 ofthe costs submitted isextremely standard. TheDepartment assumed the 12

................ 1.15 1.30 1.40 important and they suggest thatDOE following setofheating seasonal 13

................ 1.40 1.63 1.75 staffmembers or consultants be performance factors corresponding to 14

................... 1.59 1.87 2.00

## EE-RM/STD-98-440

- d30 66314 Federal Register/Vol. 64, No. 226/Wednesday, November 24,: 1999/Proposed Rules

TABLE 4.-SINGLE PACKAGE AIR CON- addition, since only equipment in the the 10thand 90th percentiles, DITIONERS-ARI MANUFACTURER market is analyzed, prototypical designs respectively, ofthedistributions. COST MULTIPLIERS-Continued may not be captured by theanalysis, 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 beused to SEER Low Aver- High TABLE 5.-SINGLE PACKAGE HEAT verify the cost data submitted through age PUMPS--ARI MANUFACTURER COST theefficiency-level approach but DOE MULTIPLIERS must firstdefine 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 maintained 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 ofservicesthat are 14/8.0

...................... 1.65 1.75 2.30 provided with the purchase ofthe 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 thatthe engineeringcould be used tovalidate M UFACTRR COST MU ERS Engineering Analysisshould include the efficiency approach (OOE,#7)while MANUFACTURER COST MULTIPLIERS the impact ofany standard on theEER ACEEE stated that reverse engineering rating ofthe equipment (EEI, #2), the hasthe 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 ofan increased the cost estimates providedby 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 of71 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 splitsystem TABLE 8.-SINGLE PACKAGE AIR CON- a reverse engineering approach was cooling-only condenser, (2)a 10SEER DITIONERS-REVERSE ENGINEERING conducted in parallel withthe packaged heat pump, and (3) a 12SEER MANUFACTURER COST MULTIPLIERS efficiency-level approach to validate the split system heatpump condenser. ARI production cost data. The useof a Manufacturer submissions, catalog data, SEER Low Aver- High component-based technology-costing and the ARIProduct Attributes Database age (reverse engineering) approach provides provided design information onthe useful information including the other 68 models. For split system air 10

...................... 0.96 1.00 1.05 11

...................... identification ofpotential technological conditioners, cost estimateswere 12

...................... 1.08 1.14 1.19 paths manufacturers could use to developed forwhole-number efficiency 1.3 1.40 1.46 achieve increased product energy levels ranging from 10to 17 SEER. For efficiency. Under this type ofanalysis, split system heat pumps,cost estimates actual equipment on the market is were developed forwhole-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 ofthewholemanufacturers employ to increase number SEER levels were: 6.8 HSPF for SEEHSPF Low Aver- High efficiency. Independent costingmethods 10 SEER, 7.1 HSPFfor 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 usedto estimate 8.4 for 16. A limited set ofmodels were 11/7.00 .1.05 the costs ofthe components. This analyzed for singlepackage systems. For 12/7.4

...................... .11 1.16 1.22 approach hasthe 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 ofreverse efficiency levels, personnel with years ofexperience, but engineering is thetime and effort Tables 6 to 9 showthe manufacturer the industry isnot willingto provide required to analyze "real" equipment. cost multipliers developed by reverse this expertise because oftheexpense Several models from a diverse rangeof 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 anaccurate than single point-values were used in Transcript, pp105-106) The industry representation oftechnological paths for the LCC analysis. Thelow and high also stated that DOEshould not provide increasing efficiency are identified. In values shown in the followingrepresent funds for othersto carry outthis

## EE-RM/STD-98-440

- 3 9 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66315 approach because they lack the In responseto the issueofalternative 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 thatthe 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 theuse ofHCFC-based refrigerants Transcript, p 108; OOE, #7). ACEEE impact ofswitching toR-410A. (Ted (David Lewis, Lennox, Transcript, p stated that itcan beuseful for evaluating Leland, ARI, Transcript, pp 287-288; 298), and international standardization new technologies, while OOE believes it Jim Crawford, Trane, p288; David of test procedures. (JimCrawford, Trane, isthe approach ofchoice for conducting Lewis, Lennox, p 290, p 297) In Transcript, pp 298-299). The the Engineering Analysis, since the response to aschedule presented atthe Department has not explicitly addressed impact ofany single technology on cost 1998 Framework Workshop showing these concerns in its current analysis and efficiency is explicitly stated. thata new minimum standard would but welcomes anycomments as to how

The Department used only the become effective in theyear 2005, the to address these issues in the course of efficiency level and reverse engineering industry representatives stated thatthe the rulemaking. approaches to establish the effective date ofany new efficiency 2. Manufacturin Costs manufacturer costs ofachieving standard should coincide with the increased efficiency levels forthe phase-out date ofHCFC-22 (theyear a. General following reasons: (1)Central air 2010) orbe in the 2006 to 2010 time In addition to being inputsto the conditioners and heat pumps are frame. Additionally, theywarned that Engineering Analysis, manufacturing complex products; (2)a widevariety of efficiency gains through the use of R- costs are used asthe means of options exist to improve their efficiency; 410A are not as great asfirst 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 theeffective date ofthe analysis. opposed use ofthe design option standard, both ACEEE and OOEstated approach and was willingto 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 ofmanufacturing costs were Steven Nadel, ACEEE, Transcript,p 298; prepared. Using an efficiency-level iv. Outside Regulatory Changes PG&E, #8) In theirview, any delay will approach, ARI collected data from Affecting the Engineering Analysis compromise U.S. commitments to individual manufacturers and submitted

There sometimes occurregulatory reduce global warming gases. OOE incremental manufacturing cost changes outside ofthe EPCA efficiency offers two approaches forcompleting estimates. The Department also standards process thatcan affect the therulemaking on-schedule: (1)Base conducted areverse engineering manufacture ofa product. In some therulemaking 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 ofaproduct. The Department HCFC-22 and use a correction factorto assessment ofuncertainty and has attempted to identify all regulatory adjust equipment performance based on variability among manufacturers. issues outsidethe efficiency standards the use ofalternative refrigerants. PG&E Baseline manufacturer costs, i.e.,the process that would influence the adds thatan effective date of2005 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 ofHCFC , the refrigerant beneficial impact of higher-efficiency air the baseline manufacturer costs phase-out ofHCFC-22, the refrigerant conditioners. PG&Estates that if developed forthe four primary product used in almost allthe equipment standards are delayed to 2010,then over classes for systems withcooling currently being installed in the U.S. The 500,000 new California dwellings would capacities ofapproximately 3 tons phase-out of HCFC-22 begins in the be significantly less efficient. (36,000Btu/hr). Note that for split year 2010, and the industry has The Department has determined that system air conditioners. two costs were responded byconducting in-depth the phase-out date forHCFC-22 is far developed; onefor systems sold without analyses ofvarious 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 mostnotable effortto 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 isusually Refrigeration Evaluation Program using HCFC-22 before the phase-out, or sold without an indoor blower when the (AREP). Under AREP, several HCFC-22 usingalternative refrigerants before and air conditioner's indoor unitis installed alternatives were identified, and their afterthe phase-out. TheDepartment in conjunction with a heating furnaces effects onequipment capacity, does notplan to delay the effective date that is equipped with a blower). The efficiency, and longevity, and other ofany new standards to coincide with etaitahe variables were established. the phase-out date ofHCFC-22. Thein ariability ofthe baseline costs are noted inthe Two primary candidates have Engineering Analysis hastherefore been manfac cost utipies deri e d in emerged from the field ofalternatives: based onthe assumption thatequipmentmanufacturer 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 ofbeing able to Department recognize6 to 9) in the rows that equipmentified as 10 significantly raise equipment design changes to accommodate S .8 H

. efficiencies, its high volumetric capacity alternate refrigerantsmay alter the TABLE 10.-BASELINE MANUFACTURER requires systems to beredesigned to manufacturing cost-efficiency handle thesignificantly higher relationship developed forHCFC-22 COSTS discharge pressures. R-407C is avirtual equipment. TheDepartment welcomes drop-in replacement, butresults in an input regarding the analysis of Product Class blower blower efficiency degradation of5-10% relative equipment designed for alternate to HCFC-22. refrigerants. Split System A/C

.......... $367 $454

## EE-RM/STD-98-4404- 30

# q 66316 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

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 ofpayback periods, and Product Class Without With disaggregated company-specific cost a payback period calculated for Ps blower blower information developed forthe purposes ofthe rebuttable presumption Split System Heat Engineering Analysis can be used to clause. The effects ofstandards 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 changesin total installed cost

Pump

......................... ............. 589 aggregated data, however, were (usually higher). The net effect is insufficient togenerate distributions of analyzed by calculating thechange in i. Characterizing Uncertainty costs by manufacturer. Therefore, only LCC as compared to the base case. The mean valueswere used in the base case manufacturing cost is Consistent with the Process Rule, subsequent LCC Analysis. determined in the reverse engineering DOEplaces a range around the average manufacturing costs ofachieving 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 orpresent in a maintenance costs), appliance lifetime, manufacturer cost estimates. (OOE, #7) working prototype, including The ranges ofcostsare used to generate proprietary designs. OOE statedthat and discountrateThe LCC Analysis is retail pricesfor the consumer LCC designs meeting thestated criteria ofa performe from the erspectiveofthe Analysis,and are used in the Industry proprietarydesign should be analyzed Cash Flow Analysis. asadesign option, providing the A t t h e A N PR stage, the Department

ARI collected data from example ofthe 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 inputsto the multipliers for each efficiency level to analyses. The Department looked at the analysis consist ofprobability account forvariability and uncertainty, potential impact ofproprietary 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 notprovided to anyproprietary designs thatwere part of analysis produces a range ofLCC and the Department, only theshipment- equipment which were analyzed in the payback period results rather than weighted means were used in the course ofthereverse engineering single-point values. A distinct calculation ofretail prices and, in turn, analysis. advantage ofthis type ofapproach is the LCCs. The Department considered the that thepercentage ofconsumers

In conducting the reverse engineering potential impact ofproprietary designs achieving LCC savings or attaining approach, the Department developed a aspart of itspreliminary assessment of certain payback values due to an range ofcost estimates for each design options. Its initial conclusion is increased efficiency standard can be efficiency level. For each efficiency thatthe inclusion ofproprietary 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 forthat cost estimates were approximated by the Engineering Analysis because standard. Because the analysis is being multiplyingthe mean value by a equipment can achieve the same conducted in this manner, the uniform distribution (from95% of the efficiencies competitively using non- uncertainties associated with the mean to 105% of the mean) and a proprietary designs. The Department various inputvariables (asdescribed in normal distribution (centered on the intends to continue examining this issue the nextparagraph) can be expressed as mean, with a standard deviation of duringthe Manufacturing Impact probabilitydistributions. During the 1.9%). The resulting cost distributions Analysis and welcomes inputon the post-ANOPR consumer analysis, the were then used in the calculation of appropriateness ofconsidering Department will evaluate additional retail prices and, in turn, the LCCs. proprietary designs. parameters, and prepare a comprehensive assessment ofthe ii. Variability in CostAmong D.Life-Cycle Cost(LCC) andPayback impacts on sub-groups ofconsumers. Manufacturers Analysis The LCC and one ofthe payback

The Department is committed to In determining economicjustification, periods (distribution ofpayback assessing the differential impacts of EPCA directs the Department to periods) are calculated using theLCC standards on different manufacturers. consider anumber ofdifferent factors, spreadsheet model developed in The resultsare used as inputs for the including the economic impact of Microsoft Excel for Windows 95, sub-group analysis ofmanufacturing potential standards on consumers, combined with Crystal Ball (a impacts, which entails calculating cash EPCA also establishes arebuttable commercially available software flows separately for each class of presumption that astandard is program), based on probability manufacturer. economicallyjustified ifthe additional distributions ofinputvariables. The

In previous analyses forother costofpurchasing a product,attributed second payback, the Rebuttable payback appliances, manufacturing costs to thestandard, is less thanthree times based on DOE test procedure submitted to DOE have demonstrated the valueofthe firstyear energy cost assumptions for estimating annual large variability. In linewith the savings. EPCA, section 325(o)(2)(B)(iii), energyconsumption, is not calculated Department's preference, ARI therefore 42 U.S.C. 6295 (o)(2)(B)(iii). using Crystal Ball and input probability collected costdata disaggregated by To address these provisions the distributions, but isinstead based onthe manufacturer, although, asdiscussed Department calculates changes in LCCs spreadsheet option allowing single- earlier,ARI provided to theDepartment to the consumers that are likelyto result values forthe input variables.

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Based on the results ofthe 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 adesign option is moredetailed analysis. The range of This section describesthe LCC economically attractive while another candidate standard levels typically spreadsheet model usedfor analyzing region doesnot. DOE mustestablish includes: (1)Themost energy-efficient the economic impacts ofpossible some basisfor rejecting or retaining combination ofdesign optionsor most standards on individual consumers. The design improvements. (OOE,#7) energy-efficient level; (2) the efficiency LCC spreadsheet model isavailable on Although the use ofdistributional LCC level with the lowest LCC; and (3) an the Department's web site for useby 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 notmorethan three years. Additionally, the assumptions in the models and view approach to useto capture the candidate standard levels that the results ofthose changes. The LCC uncertainty and variability inherent in incorporate noteworthy technologies or Analysis is conducted usinga inputvariables. 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, theDepartment will levels maybe selected. combined with Crystal Ball. The Model keep in mind their concerns when

The payback, for purposes ofthe usesa Monte Carlo simulation to selecting appropriate standard levels for rebuttable presumption test,attempts to perform theanalysis 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 thatranges required forthe analysis, the apromulgated. It compaares the purc (distributions) can be entered for each Department used the Energy pcost and energy use ofcentral air input variable needed to perform the Information Administration's (EIA's) conditionerus and henat pumps conseirscalculations. ResidentialEnergyConsumptionSurvey conditioners and heat pumps consumers The Department wishes to consider (RECS). The 1993 RECS is based on a would buy in theyear thestandard the impacts of varying regional climate, representative sample of7,111 becomes effective with what they would energyprices, and consumer behavior households from the population ofall buy without anew efficiency standard. onLCCs 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 sothat the data those associated with the standard level which variables are represented by properly represent the 96.6 million In other cases, thestandard level would probability distributions ofvalues. With households in the 50 states and the also becompared to a higher-efficiency this approach, theDepartment could DistrictofColumbia reported in the appliance purchased without new express LCCs and payback periods as 1993 RECS standards (butat a lower efficiency than national means, with ranges thatfully RECS estimates end-use energy the trial standard level). Aweighted account for regional variations in consumption and reports the age of average ofthese payback periods, in the climate, electricity cost, and behavior. equipment as well ashousehold energy year a new standard level would take Thespreadsheet hasthe capability to prices. Ofthe over 7,000 households effect, is considered the payback for sample subsets ofhouseholds forthe surveyed in RECS, 2550 households purposes of the rebuttable presumption analysis ofparticular sub-populations, representing 35.6% ofthe housing clause. e.g., low income households, and will population have a central air

In addressing the usefulness ofthe beused for Consumer Sub-Group conditioner while 651 households LCC Analysis, an industry Impact Analysis prior to issuance ofthe representing 8.3% ofhousing representative asserted thatLCCs have NOPR. population have an electric heat pump. norelationship tomarket dynamics, An industry representative The distribution ofLCC and payback have no relationship towhat the commented that an LCCAnalysis 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 ifthe RECS household with a central air any efficiency standard. Uim Crawford, uncertainty ofthe inputs cannot be conditioner or heatpump. For example, Trane, Transcript, pp 135) But section clearly defined. Oim Crawford, Trane, in conducting the LCC Analysis fora 12 325(1)(2)(B)(I)(II) ofEPCA requires the Transcript, pp 252-254) He suggested SEERstandard level for central air Department to consider the savings and thata simpler approach beused. Others conditioners, all RECS households with costs ofstandards, and virtually supported the use ofadistributional a central air conditioner have their mandates performance ofan LCC LCC Analysis, commenting that this existing equipment "replaced" first with Analysis. approach is betterthan what has been a baseline (i.e., 10 SEER)system. The

Onecommenter during the used in prior rulemakings. (Charles corresponding LCCs ofthe 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 thatthe RECS households with a central air purchases ofhigh efficiency equipment use ofranges ofvalues for appliance conditioner have their existing should be included inthe 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 ofthese systems are has not considered tax incentives in the recommendations provided by the established. On ahousehold-by- LCC Analysis being presented here, Appliance Standards Advisory household basis, thepayback periods because there are no such taxbenefits Committee. (EEI, #2) OOE asserts that and the LCC differences ofthe 12 SEER available under Federal law. However, use ofadistributional analysis creates system are determined relative to the the Department seeks specific potential pitfalls in accounting for economics ofthe baseline system. The information from stakeholders regarding regional climatic and energy price result is a distribution ofLCCs and whether the Department should variations. Use oftraditional 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 LCCor excessively long affect the energy consumption ofa given

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# 3 66318 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules piece ofequipment, these data Although theDepartment understands database is contained in the Preliminary implicitly account forregional the concerns oftheEEI and EMPA, the TSD. variations. Similarly, variations in the 1993 RECS data is the mostrecent and RECS energy price data represent the appropriate database available for b. Product Specific range faced by consumers in theU.S. conducting the desired distributional This section discusses the approaches

Both EEI and EMPA warned of LCC Analysis. DOE plansto conduct for analyzing the economic impacts on problems using the RECS data in aLCC 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 ofthe pump standards An LCC spreadsheet ofthe RECS data (1993) is too old to be concerns broughtup 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 ofthe efficiency of ID. a is used to calculate two ofthe 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 ofthe equipment as period, base on input variables that the stated age ofthe equipment may be established byRECS andhistorical he etiability inaccurate ifthe households surveyed shipment-weighted efficiency values, expressed with probability are not original homeowners, and (4) The age ofthe equipment establishes the distributions. A third economic impact, there is no accounting ofequipment yearofmanufacture which in turn, Rebuttable Payback Period, is used in small commercial facilities. EEI using the shipment-weighted efficiency determined without the useofthe also claims that RECS may not reflect data, allows forthe determination ofthe spreadsheet model. In future analyses, regional or national equipment equipments most probable efficiency. all three ofthese economic metrics will saturations asthe 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 theyear 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 ofthe Rebuttable Payback Period iscompared 55% in the western U.S. to 99% in the efficiencies ofexisting and new to a distribution ofefficiencies southern U.S. EMPA questioned equipment. Using an energy price forecasted to theyear 2006. whether the 7,000 to 8,000 households allowed for the calculation ofthe i. LCC Analysis surveyed households in RECS can be operating costs ofexisting and new representative ofthe 90 million replacement equipment, and, in turn, The Department determined values of households in the U.S. Theyalso 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 toprovide a written statement in levels ofnew equipment. total installed cost (consisting ofboth support ofthe way in which DOE plans The Department developed LCCs and the equipment purchase price and to usethe RECS data in its LCC payback periods based onbothsets 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 costsof equipment, as well as average comfortable with theanalysis cost data developed through the energy prices, marginal energy prices, methodology as itwas applied to other efficiency-level approach, and (2) the and discountrate. Table 11 summarizes products (clothes washers) where RECS cost data developed through the reverse some ofthe major assumptions used to data was used to determine annual engineering analysis. calculate the consumer economic energy useand equipment age. (OOE, A more detailed description ofthe impacts ofvarious energy-efficiency #7) methodology and contents ofthe RECS levels. TABLE 11.- ASSUMPTIONS USED INTHE LCC ANALYSIS Total Installed Cost: Equipment Manufacturer cost multiplied by manufacturer markup, distributor markup, dealer markup, and sales tax.

Purchase Price.

Installation Price

................... Central airconditioners-$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 of6.52 HSPF). Existing Annual Energy Use

....... Distribution from RECS database (central airconditioners-174 to 12,929 kWh/yr, weighted average of2629 kWh/yr; heat pumps-space-cooling equals 0to 14,771 kWh/yr, weighted average of 2987 kWh/yr; space- heating equals 162to 29,839 kWh/yr, weightedaverage 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 18.4years). 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%greaterthan the 10 SEER repaircost. Maintenance Costs

...................... Distribution ($0 to $135/year, weighted average $36/year).

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TotalInstalledCost:The total For the RECS households with central that EER ratings, in addition to SEER installed cost consists ofthe equipment airconditioners, the range ofannual ratings, ranges ofcooling capacity, and purchase price and the installation space-cooling energy consumption is theclimatic impact on hoursof price. Markups are used to convert the 174 to 12,929 kWh/year with a operation, should also have an impact manufacturer costto the equipment weighted-average value of2629 kWh/ on energy use and should alsobe purchase price. The determination of year. Forthe RECS households with considered. With regard to the annual equipment purchase prices is described heatpumps, the range ofannual space- operating hours, EEI stated that arange in the next section. cooling energy consumption is0to ofvalues based upon end-use metering

InstallationPrice: The installation 14,771 kWh/year with a weighted- studies, load management programs, pricerepresents all costs required to average value of2987 kWh/year. The and otherutility 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 aweighted-average value of providers as possible sources for materials and parts such aslinesets. For 4658 kWh/year. determining variations on energy use. central air conditioners the installation For each RECS household equipped Asstated earlier, the Department price used in the analysis used is $1190, with either a central airconditioner 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 takingthe 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 itby the ratio of consider the household's shell costvalues were collected from public theexisting system's efficiency to the characteristics including anyprominent sources and phone callsto heating efficiency ofthe standard level of shading. PastRECS datasets 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 outhere studies in an attempt to better its were for split systems, theDepartment based on theweighted-average annual procedures forestimating end-use has assumed the installation prices energy use and the weighted-average energy consumption. Although the apply to single package systems, efficiency from allRECS households Department is comfortable with the use although installation price forthese equipped with central airconditioners. ofRECS as itssource forestablishing systems mightbe somewhat lower than As presented earlier, for all RECS annualenergy consumption, interested for the split systems, since only single households with acentral air parties are welcome to present any packages are involved and noline sets conditioner, the weighted-average metered end-use data thatcould verify are required. The Department is annual energy use and theweighted- or substitute for theRECS estimates. interested in obtaining information on average efficiency are 2629 kWh/year AverageEnergyPrices:As discussed the installation prices for allclasses of and 8.58 SEER, respectively. Thus, for abo ve, t h e Department e isusing RECS products. thecase ofa 12 SEER airconditioner, household data to establish energy

AnnualEnergy Use:Currently, the the weighted-average annual energy use pices Projections offuture energy cooling and heating energy expression: low, and reference case projections of national average electricity prices to consumption based on 1,000and 2,080 Weighted-average annual energy use of residential customers. The crrent hours ofoperation, respectively. 12 SEER A/C = 2629 kWh/yr 4x edition ofEIA'sAnnualEnergy Outlook Although thisprocedure seemsto be (8.58 SEER + 12 SEER)= 1880 kWh/ (AeO)is usedas the source of widely accepted for comparing the yr projections for uncertainty in the LCC seasonal performance ofdifferent units, Ofcourse, as the efficiency ofthe 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 ofaverage As described above, basing operating decreases proportionally. It should be electricity prices in 1993$ is 2.70 to and LCC on RECS household data notedthat in the case ofestablishing the 16.50 ¢/kWh with aweighted-average provides a more accurate measure ofthe annual space-heating energy useofheat value of8.49 0/kWh. Forthe RECS savings possible from more-efficient pumps, the ratio ofHSPFvalues are households with heat pumps, the range equipment, and accounts forvariability used rather than the SEER values. It ofaverage 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 of7.86 ¢/kWh. While average

Variations in energy use fora to generate the distribution ofLCC and energy prices establish the annual particular appliance can depend on payback results for aparticular standard electricity cost ofbaseline equipment factors such asclimate, typeof level, each RECS household that is (i.e., split-system air conditioners with household, people inhousehold, etc. equipped with a central air conditioner efficiencies of 10 SEERand heat pumps For purposes ofthis analysis, annual orheat pump is analyzed. with efficiencies of 10 SEERand 6.8 energy use wasbased on the annual Concerning use ofRECS 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 BothEEI and EMPA stated thatthe data. The Department will perform consumer operation, it is also a strong average energyprices in RECS are sensitivity analyses prior to issuance of function ofhouse design, landscape, outdated and that marginal energy the NOPR to consider how differences and thermostatic controls, and their prices should beused 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) Theyalso stated Analysis. (EEE, #2; EMPA, #3) Both

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# 3O V 66320 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules pointed to subtracting outthe fixed cost Analysis and hasestimated marginal average residential electricity prices was portion ofthe price as an interim step prices for electricity and natural gas. adecline by 20 percent overa given in developing marginal prices. EEI The Department estimated consumer period oftime, 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 fromhousehold data in would decline from its initial observed stateutility commissions, Internet web the 1993 RECS survey bycalculating the value by 20percent over thatsame sites such as the PowerRates site, and slopes oftheregression lines of period. software providers such as such asEPS customers' bills vs. energy consumption The Department recognizes that a solutions and Energy Interactive. EMPA for these two fuels.Those slopes are simple scaling ofmarginal energy prices stated that anywork 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 ofthemethodology is, the marginal prices paidby each Department may develop a different and that anydata 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 ACEEEnoted how air conditioners are standards thatapply to electrically- becomes more widely implemented. used during peak periods when the cost driven central air conditioners and heat Given theuncertainty ofprojections, ofsupplying electricity is high and that pumps, only marginal electricity prices the Department hasmade available to price data should be collected during are ofconcern 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 ofthe robustness ofdifferent efficiency levels

Regarding future energy prices, regression lines for four summer months underdifferent energy-price conditions. several participants at the 1998 (June-September) and for theremaining Each scenario provides a self-consistent Framework Workshop stated thatfuture ("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 ofthe two seasonal each other in the energy prices that utility industry is restructured. prices,where the weighting wasthe result. The Advisory Committee (Transcript, pp 220-230) EMPA was relative energy consumption ofthe suggested the use ofthree scenarios. critical ofEIA'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, thethree scenarios specified have consistently underestimated rates, wasbased onthe regional location and are sufficient to bound the range of and that EIA's forecasting models do not age ofeach ofthe households in the energy prices. reflect thefactors resulting from the RECS sample. The three scenarios suggested by the deregulation oftheelectric utility Given restructuring ofparts ofthe Advisory Committee are based on industry. (EMPA, #3) energy supply sector, customers may projections in the 1999AEO.The

The Department used the mostrecent have more than onebill (e.g., onefrom Department's most recentreference forecasts from the 1999AEOto predict the distribution company, and one or case, published in the 1999AEO. the trend in both average and marginal more from generators or suppliers). To provides awell-defined middle electricity prices by multiplyingthe capture complete information, future scenario. In addition, DOE can use the average and marginal price for the base surveyswould best gather energy scenarios with thehighest and lowest year (1998) by theAEO'sforecasted pricing information directlyfrom energy prices in the sector from the relative electricity price increases and/ customers, ratherthan fromutilities or range ofscenarios in the 1999AEO.The or decreases. In addition, LCC and local distribution companies. Efficient future trend in energy prices assumed in payback spreadsheets can berun with collection of energy pricing information each ofthe three scenarios is clearly price forecasts from the Gas Research inthe future will require changing the labeled and accessible in each Institute (GRI). The Department believes current processing ofthe billing spreadsheet. Also included as a scenario these forecasts are the mostreliable information so asto gather consumption isthe GRI energy price forecast for 1998. available to predict future energytrends. by month and pricing information for Stakeholders can easily substitute

Marginal EnergyPrices: Marginal each customer from thebills. The alternative assumptions in the energy prices are those prices pricing information would comprise the Department's web site LCC spreadsheets consumers pay for thelast units of applicable rate schedule, including to examine additional scenarios. energy used. Marginal prices reflect a marginal prices, fixed charges, and Forthe RECS households with central change in a consumer's bill associated demand charges for commercial and air conditioners, the range ofmarginal with a change in energy consumed, industrial customers, ortime-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 aweighted-average rather than average energy prices, are Energy Efficiency and Renewable valueof 8.74 ¢/kWh. Forthe RECS appropriate for determining energy cost Energy has expressed theneed forthese households with heat pumps, the range savings associated withincreased data in discussions with EIA concerning ofmarginal electricity prices is0.82 to efficiency standards. For LCC analyses, the design offuture surveys. 18.62 ¢/kWh with a weighted-average the Advisory Committee recommended Until a time series ofmarginal prices value of7.99 ¢/kWh. that DOE use the full range ofconsumer is available, theDepartment 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 ofconsumer marginal prices, marginal energy prices are used consumer marginal energy price energyprices for theeconomic analysis to determine the annual electricity costs information, the Committee ofproposed standards. An index associated with energy savingsresulting recommended DOE usea range ofnet (scaling factor) was created relative to from an increased efficiency standard energy prices, calculated by removing current prices fromthe trend in average (i.e., any efficiency above baseline all fixed charges. The Department agrees prices (byfuel and sector) and was efficiencies). the use ofmarginal energy prices applied to the currentrange ofmarginal Lifetime:In choosing a value for improves the accuracy ofthe LCC prices. For example, ifthetrend in lifetimes ofcentral air conditioners and

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## J Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66321

heatpumps, a variety ofsources were indicates thatthere isa wide range of provided in Table 12, with themean reviewed. These studies on lifetimes of valuesfor lifetimes.The references are lifetimes given inyears. central air conditioners and heat pumps TABLE 12.-CENTRAL AIR CONDITIONER AND HEAT PUMP MEAN LIFETIMES Inyears- Source Central AC Heatpump Appliance Magazine. The Life Expectancy/Replacement Picture, Sept. 1998

. ........................................................ 13.0 14 National Associationof Home Builders. Housing Facts, Figures, and Trends, 1998h

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

............................................................................. ........................................ 15.0 15 M.E. Bucher etal, American Electric Power Service Corp. 1990. "Heat Pump Life and Compressor Longevity in

Diverse Climates", ASHRAE Transactions96(1):1567-1571

................................................................................. ...................... d19 K.A. Pientka, Commonwealth Edison Co. 1987. "Heat Pump Service Life and Compressor Longevity in a Northern Climate", ASHRAE Transactions 93(1):1087-1101

..................................................................................... ...................... d15-16 C.C. Hiller, EPRI and N.C. Lovvom, Alabama Power Co. 1987. "Heat Pump Compressor Life in Alabama",

ASHRAETransactions 93(1):1102-1110

................................................................................................................ ...................... d20 J.E. Lewis, Easton Consultants. 1987. "Survey of Residential Air-to-Air Heat Pump Service Lifeand 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 Societyof 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 offcredit card and median lifetimes ranging from 10.9 efficiency. debt at these rates. (im Crawford. to 20years. TheDepartment's analysis EMPA claimed thatlifetime 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 themost recent and most EMPA, Transcript,pp 232; EMPA, #3) analyzing actual consumer behavior) detailed information onheat pump life They stated that homeowners usually may be onthe order of30%. EEI also available, based on a survey of 2,184 change residences every 7years. In believes thatcredit card interest rates heat pump installations in aseven-state response to this assertion, it was stated should be used asa basis for region ofthe United States. The sources thatalthough 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'sdiscount rates (as based on data ofa lesser quality, and the the exact meaning oflifetime. (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, OOEstated that faulty assumptions. They stated that ApplianceMagazine,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 ofmoney that consumers would opinionrather 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 ofthe first owner's more questions concerning consumer thosein thesame class produced in the efficientequipment. They also add that discount rates should be included on past. Theprojections oflifetimes 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 bebased on observed empirical conditioners, but that field data into account any information supplied trends, aswell asexpert knowledge of indicates thatheat pumps havea shorter by the industry's trade association, ARI. likelychanges in the industry, since life. (im Crawford, Trane, Transcript, p243; future changes are not always straight- TheDepartment believes that David Lewis, Lennox, Transcript, pp lineprojections ofpast trends.While equipment life rather than first 243-244) expertjudgement iscrucial, however, it ownership isthe correct measure of In contrastto these comments, OOE must have astrong empirical basis. With lifetime. The Department continues to believes thatprior discount rates this in mind, the Department believes seek any additional information that developed byDOE seemreasonable, that the probability distribution of may provide better dataon 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 ofpast performance and recent submitted several comments they purchase other appliances. (OOE, trends. Because none ofthe data on recommending values orprocedures 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 ratesof 18 be appropriate. Theyclaim such high lifetime, the Department assumes that to 20% may be appropriate as rates are based on calculating an

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66322 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules implicit discount rate or market failure with a new home (first mortgages), 25% establishing adistribution ofdiscount factor based onpast shipments. through loans (second mortgages), 10% rates overthe full range ofdiscount

The Department's Process Rule for paid bycash, and 35% by use ofcredit rates relevant to most purchasers ofthe establishing new or revised energy cards. products covered by this rulemaking, efficiency standards forconsumer In order to derive afull distribution but acknowledges thatdifferent products describes howreal discount of discount rates, DOE estimated a range assumptions might be made about likely rates are to be established forresidential of interest rates, based on historical data interest, inflation and marginal tax rates, consumers, as follows: andjudgments offuture trends, for orabout consumer financing methods,

Forresidential andcommercial consumers, different types ofconsumer savings or and thatdifferent approaches to rangesofthree different real discount rates financing identifying valid consumer discount will beused. Forresidential consumers, the Fornew housing,the Department rates might alsobe valid. Forexample, 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 theaverage financing cost suggested mean value of3.0% and discount rates on the average real rates (oropportunity costs of reduced savings) assumed arange of 1.6 to 4.4%. ofreturn on consumer investment or experienced bytypical consumers. Applying an assumed marginal taxrate other measures ofthe opportunity costs Sensitivity analyses will beperformed using of 28% (i.e., the maximum marginal rate incurred by consumers that purchase discount rates reflecting thecosts morelikely paid by mostU.S. taxpayers) and an the covered products. DOE does not to be experienced by residential consumers assumed inflation rate of2% results in believe, however, that such alternative with littleor nosavingsand creditcard financing andconsumers with substantial a mean nominal mortgage rate of6.94% assumptions or alternative approaches savings. with arange of5.0 to 8.89%. would significantly alter the rangeof For second mortgages or loans, ARI discount rates used by the Department Based onthe Department's guidelines suggested amean real interest rate of or theconclusions drawn from the life provided in the Process Rule, a 8.0%. This rate ismore representative of cycle cost analyses conducted using distribution ofdiscount rates was a nominal rate for second mortgages and these discount rates. derived to reflect the variability in wasused as such. Assuming atax rate TheDepartment isseeking any financing methods consumers use in of28%, then subtracting an assumed information that would support purchasing central air conditioners and inflation rate of2% (the same ratesused significant alterations inthe range or heat pumps. The real interest rate to derive the new home real interest distribution ofthe discount rates associated with financing anappliance rates) wearrive ata meanreal interest derived from DOE's analysis. purchase isa good indicator ofthe rate of3.76%. Nominal minimum and Alternatively, DOE is soliciting additional costs incurred by consumers maximum interest rates of6% and 10% comment on the possible use ofa whopay ahigher first cost, but enjoy were assumed to arrive atthe real standardized distribution ofdiscount future savings, although it is notthe interest rate rangeof 2.32% to 5.20%. rates ranging from approximately 4% to only indicator ofsuch costs.While the For cash, the minimum rate was 12%, with amean of6%. 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 ofuncertain 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 uponARI's current analysis and, based on believes that the resulting distribution recommendation, themaximum is taken sensitivity analyses already performed ofdiscount rates encompasses the full to bethe opportunity cost represented by DOE, such a standardized range ofdiscount rates that are by the interest thatcould have been distribution would not significantly appropriate to consider in evaluating earned in atypical mutual fund alter the conclusions ofDOE'slife cycle the impacts ofDOE standards on (assumed to be 6% real). A real mean cost analyses. consumers (i.e., values represented by rate of3% results. RepairCosts:Theannual repair cost the mid-range financing cost, consumers Forcredit cards, the Department coversthe replacement orrepair of with no savings, and consumers with based its real interestrate 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 ratesof minimum efficiency equipment (10 high and lowextreme values. 6% and 19% were assumed. Itshould SEER) and equipment with efficiencies

The method ofpurchase used by benoted thatthe use ofthese credit card greater than 12 SEERwere equal one- consumers is assumed to beindicative rates reflects an assumption thatall halfthe equipment price divided by the ofthe source ofthe funds and the type consumers who use credit cards do so mean equipment lifetime. The offinancing used, although DOE is not as a means of long term financing for Department assumed equipment with aware ofdetailed research into this product purchases, ratherthan as efficiencies of 11 and 12 SEER incur a relationship. Consumers purchase simply a convenient method of 1% increase in repair cost overthe appliances as parts ofnew homes purchase or as a means ofshort term minimum efficiency (10 SEER) level. (mortgages) and as separate retail financing. The rationale for assuming essentially purchases. Retail purchases are paid by Combining theassumed shares of flatrepair costs through efficiencies up cash, credit cards, orloans. Inthe case each financing method, theabove real to and including 12 SEER pertains tothe ofspace-conditioning equipment, the interestrates result in a weighted- level oftechnology being usedat these loans are assumed to take the form of average (mean)value of6.51% and a system efficiency levels. Through 12 second mortgages, as central air distribution that varies from 0to 19%. SEER, system technology generally does conditioner and heat pumppurchases Sensitivity studies showthat whilethe not incorporate sophisticated electronic often occurwhen home upgrades are LCC results are sensitive to thevalue components which are believed to incur made. Based uponrecommendations chosen formean discountrate, the LCC higher repair costs. Increases in SEER provided by theARI, theshares ofthe results are not sensitive to the are generally achieved through more different financing mechanisms used for distribution ofdiscountrates. efficient single-speed compressors or purchasingcentral air conditioners and The Department believes thatthe more efficient and/or larger heat heat pumps were assumed tobe 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 theresponsibility 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 tobe more susceptible to installed consumer cost. ACEEE noted two possibledata failure. There was agreat deal ofdiscussion sources: a 1996 Xenergy report and

MaintenanceCosts:The annual atthe 1998 Framework Workshop Chris Neme atthe Vermont Energy maintenance cost covers such items as concerning equipment orretail 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 toverify industry- methods are needed for deriving prices, exchanger coils. Data from Service supplied manufacturer cost data. Much each as a cross-check onthe results of Experts, an HVAC service company, ofthe discussion focused on the the other. (OOE,#7) One approach were used to establish maintenance correlation between manufacturer costs should be a "mark-up" ofmanufacturer costs. The maintenance costrangesfrom and prices. Some claimed that there is costs which yielda range ofretail $0 to $135 with a weighted-average practically arandom relationship prices. A market survey ofequipment value of$36. between manufacturer costs and prices prices should beused as the second

EMPA stated that DOE needs to and thatprices 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 alsorequested 139-140) It was also stated that, due to marketprices, 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 dealergroups, 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 beingreadily 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 Forthe pre-ANOPR Analysis, the ofequipment efficiency. (David Lewis, prices are highly variable. Also,because Department did not attempt to conduct Lennox, Transcript, p231) 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 ofequipment 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 ofand the time needed for prices (Steven Nadel, ACEEE, Transcript, pp 168-170) It was also acomprehensive survey, and theshort Transcript, p232). OOE endorsed the noted that markups are unlikely tobe time frame allotted by the Department concept ofaccounting for differences in constant across all efficiencies. (im forpublishing 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 atthe the analyses conducted for the NOPR. different efficiency levels (OOE,#7). Workshop agreed that itwould be On November 30, 1998, however, the

Although the Department included appropriate to conduct amarket survey. Department issued a Federal Register maintenance costs in its LCC There was discussion asto whether the Notice (63 FR 65767) requesting calculations, no attempt was made to survey shouldbe administered to comments on aproposal to survey retail account for warrantycosts. The contractors or consumers. It was pointed prices for Central AirConditioners and Department assumed that warranty costs out thatcontractors may notprovide Heat Pumps. ARIresponded 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 forwarranty costs. consumers may simplynot know the survey is woefully inadequate, given the TheDepartment welcomes any price ofonly the equipment (i.e., the number ofvariables involved. (ARI,#9) comments that can provide insight asto price exclusive ofthe labor,materials ARI suggested that, ata minimum, data howwarranty costs should be and profit for installation). (Transcript, on the following factors should be accounted for inthe LCC Analysis. pp 170-186) With regard to price data considered: (1)Three capacity sizes (1.5, ii. Equipment Prices that may be collected fromutilities, 3, and 5tons), (2) five efficiency levels some ofit mightbe distorted due to (10, 11, 12, 13, 14 SEER), and (3) four How manufacturing costs and profit demand side management (DSM) classes (split and singlepackage 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 onboth may not be theactual price ofthe regional salesmarkets and a large consumers and manufacturers. equipment, but rather, the price after a number ofmanufacturers should be Consumer and manufacturer economics rebate hasbeen applied. (Steve represented in the survey. In addition, are linked and inversely related. Forthis Rosenstock, EEI,Transcript, pp 190) there should be no reason to include reason, equipment purchase prices used In written comments, EEI stated that questions onthe impact ofutility forthe 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, aconsumer and that market surveys of customers, assumptions about costpass-through LCC curve, based inpart on mean utilities, and contractors will likely that are reflected in the price forecast installed consumer costs, is asignificant provide the best information on retail approach. Theoutput ofthis analysis is factor in the initial selection ofpotential prices. (EEI, #2) EMPA claimed that a table describing retail prices foreach standards levels.Total installed costs price data collected will likely not possible efficiency level, assuming that are needed for a base case, absentnew 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 buildingon the America (ACCA) and two contractor energy cost savings, which isequivalent estimates generated by thevarious consolidators that focus onthe to a three year simple payback. The assumptions, projected retail prices are residential market. Information used calculation ofrebuttable payback is described within a range ofuncertainty. from ACCA covered "residential and based on single point-values instead of

Purchase prices ofbaseline 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 ofelectricity appropriate markups along the respectively. The weighted average prices are used in the distributional distribution chain. Markups were markup forACCA was 1.55 (based on 66 Payback Analysis, only the weighted- determined in two ways: through percent ofall sales being retrofit sales), average value fromthe probability surveys ofdistributor (wholesale) and close to the markup of 1.54 for one of distribution ofelectricity prices is used retail prices, and through publicly the contractor consolidators. The forthe determination ofthe Rebuttable available financial reports. Forabout markup for theother consolidator was payback. 90% ofresidential air conditioning 1.38, but halfofits revenues come from Other than the use ofsingle point- equipment, the distribution chain plumbing, electrical, and other services values, the mostnotable difference includes manufacturers, distributors that typically have lower margins. A between the two payback analyses is the (wholesalers), and dealers (contractors). central valueof 1.55was chosen forthe Rebuttable payback's reliance on the Equipment purchase prices are thus Price Analysis, with a range of 1.37 DOEtest procedure to determine a estimated as the product of (based on information from ICF central air conditioner's orheat pump's manufacturing cost, manufacturer Consulting on equipment markups for annual energy consumption. The DOE markup, distributormarkup, 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 thedetermination ofmarkups 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 grossmargin 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 ofcombined (Cooling Capacity SEER) xHours 6%, plus 1%. The baseline central air sales taxrates. Although thedistribution 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 attax rates of0% and 10%, a s s u m e d an n ua l operational hours of lower margins than other products the effective distribution wastriangular the DOE tesrocedreequipment handled by diversified companies. The with amean of6.7% and a rangefrom heating season performance ofheat 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 ofanalysis as theunderlying data are to 1.08. improved and cross-checked. OverallMarkup:Equipment purchaseenergy consumption:

Manufacturer Markup:Financial price isdetermined by multiplying Space-Heating Annual Energy Use = reports from five publicly traded air manufacturer cost and overall markup. (DHR +HSPF) x 0.77 xHours conditioner manufacturers, representing Mean values and rangesfor the overall where DHR equals the design heating 75% ofthemarket, were examined for markup are theproducts ofthe mean requirement (whichfor 3-ton cooling a five-yearperiod (1993-1997). Five- values and ranges for manufacturer capacity heat pumps is typically 35,000 year average markups forthe two most markup, distributor markup, dealer Btu/hr)and Hours equal 2080, the dependent on air conditioner saleswere markup and sales tax.The mean overall assumed seasonal operational hours of 1.18 and 1.17 respectively. Theother markup is thus calculated as 2.68, with the space-heating equipment. threecompanies are more diversified a range of2.27 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 onthe previous equations from the DOE respectively. A central value of 1.18 was Paybacks) test procedure are onthe order of50% chosen for thePrice Analysis, with a Payback is calculated based on the greater than the weighted-average values range of 1.15 to 1.26, based onthe sameinputs used forthe LCC Analysis fromthe 1993 RECS.This means that lowest and highest markups for the five withthe difference thatthe payback the payback value calculated from the manufacturers forthe five-year period. values are based on firstyear savings DOE test procedure equations will be

Distributor Markup:Five-year average achieved after the standard takes effect. significantly lower than the average markups forthe 500 members ofthe Air- The output ofthe analysis isa payback value calculated from the RECS conditioning and Refrigeration distribution ofpayback periods. The analysis, for any standard level. Wholesalers (ARW) were 1.37, thesame mean payback period is also reported. Rebuttable payback periods are first as for 1997.This value wasused for the Additional information isavailable 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 ofcash flow taking into being sold in the year2006. The equipment, the actual markup on account the changing annual fuel prices. paybacks are then weighted and baseline equipment is likelyto 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 basedon probability distributions, information. that a standard iseconomicallyjustified single pointvalues are used forthe

Dealer Markup:Markups were iftheadditional product purchase cost input variables.These values (e.g., calculated for contractors represented attributed to the standard isless than operating hours per year)will by the AirConditioning Contractors of three timesthe value ofthe firstyear correspond to those defined in the DOE

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testprocedure. Theresult is a single- furtherdetails are presented in the efficiency level for each ofthe four value of payback and not aprobability Preliminary TSD. product classes being analyzed. distribution. The payback is calculated Based onthe mostrecently available forthe expected effective yearofthe shipments data from ARI (from 1994), standard (e.g., 2006). Examples and Table 13 showsthe markets shares by
TABLE 13.-EFFICIENCY LEVEL MARKET SHARES [In percent]
SEER SplitA/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 ofthe levels which were analyzed. In addition. efficiencies ofunitary air conditioners LCC spreadsheet include probability the percent ofhouseholds with reduced and heat pumps hasremained distributions and single-point average LCCs relative to current minimum essentially flat over the fouryear period values oftheimpacts 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 theyear 2006. If modeling based onprobability estimates from the efficiency-level available, data on a forecasted distributions is thatthe percentage of approach (section IIC.1.b.i.) and the distribution ofequipment efficiencies in consumers achieving LCCsavings or reverse engineering (sectionII.C.l.b.ii.). the year 2006 will beused to refine attaining certain payback periods due to LCC results are presented for nominal 3- these calculations forthe NOPR an increased efficiency standard can be L res u l t s ar e for n om 3- Analysis. identified. A variety ofgraphicdisplays ton capacities forthe four primary can illustrate the implications ofthe 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 ofU.S. single-package heat pumps (SeeTables Calculation ofLCC captures the households that would have a net 14 to 17). Since the values ofmost tradeoffbetween the increases in savingby owning a more energy- inputs are uncertain and are represented purchase price and reductions in efficient appliance, and (2) a chart by probability distributions ofvalues operating expenses for increasing depicting the variation in LCCfor each rather than discrete values, the results efficiencies ofappliances. In addition, efficiency level considered. presented in the Preliminary TSD two other measures ofeconomic impact (which describes theanalytic results in are calculated: distributions ofpayback b. Product Specific greater detail) are also described by periods and a payback period calculated Thefollowing LCC results show the probability distributions. for purposes ofthe 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 ,931 2 7 13.5,229 12 4,931 27 4

................................................................................................................... 5,659 6 5,246 15 15

.................................................................................................................. 6,052 4 5,45 6 11 1 6
..................................................................................................................... ........................ 5,5 3 3 1 1

............................................................................................................ ........................ ........................ 5,533 11 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 Percentwith 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

............................................................................................................. ........................ ........................ 10,67 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

..................................................................................................................... $ 5,341

........................ $ 5,324

........................ 115,429 201
..................................................................................................................... 5,429 20

..................... 20 12.5,433 26 5,194 58
..................................................................................................................... 5,433 26 5,194 58 13

......................................................................................... .......................... 6 ,0 31 5 5,598 17 14

..................................................................................................................... 6 ,3 6 2 4

........................ ........................ 14.6,362 4

........................ 15

..................................................................................................................... 6,921 2

........................ ......................
TABLE 17.-SINGLE PACKAGE HEAT PUMPS-LCC RESULTS
Source of manufacturing cost data SEER Industry Reverse engineering Mean LCC Percentwith Mean LCC Percent with lower LCC Mean LCC lower LCC 10 6.8

........................................................................................................ $9,912

........................ 11/7.1

............................................................................................................. 9,906 61

........................ ........................ 12/7.4

................................................................................ 9,835 58 9,551 80 13 7.7

............................................................................................................. 10,342 2 2

........................ ........................ 14/8.0

............................................................................................................. 10,425 21

........................ ........................ 15 /8.2

............................................................................................................. 1 1 ,031 10

........................ ........................ 15/8.2.1 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 ofa distribution has an equal [In years] number ofpayback periods thatare 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 thereverse 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 airconditioners, 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 foreach year, PERIODS [Inyears] beginning with the expected effective [In years]ars]________ date ofthestandards, forthe base case [In years] Source ofmanufacturing and for each candidate standards level

Source of manufacturing costdata usingtwo methods, i.e.. simple cost data SEER spreadsheets, and multiplication of SEER Industry Reverse

------ u----Reverse en- engineering shipmentforecasts 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 web site. Energy consumption and 12

...................... 17 8 13

...................... 21.2 11.2 savings are estimated based on site 13

...................... 84 30 14

...................... 25.2

.................. energy (kWhofelectricity), 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 annualenergy 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 ofmanufacturing the year 2030. Source ofmanufacturing costdata DOE agrees with the Advisory cost data SEER/HSPF SEER/HSPF Industrycost dataSReverse Committee's recommendation that the

Reverse en-ndustry engineering assumption ofaconstant site to sourceIndustry gineering energy conversion factor should be 11/7.1

................ 4.3
............... dropped in favorofa 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 becalculated 13/7.7 20

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

................ 20

.................... 15/8.2

................ 13.7

.................. for each yearofthe analysis based on 15/8.2

................ 31

.................... the generating capacity displaced and E.Preliminary NationalImpacts the amount ofsite energy saved (seethe Tables 22 to 25 show thesimple Analyses following detailed procedure). For paybacks forpurposes ofthe rebuttable The National Impacts Analysis future conversion factors, DOE proposes presumption clause. Thismeans 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 ofelectricity supply and demand (e.g., TABLE 22.-SPLIT-TYPE AIR impacts. Each ofthe 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] ofa spreadsheet tool called theNES (2) Estimate projected energy savings Soe of mg Spreadsheet Model, which has been due to possible standards foreach year Source ofmanufacturing developed for allthe 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 tothe deviation from thereference case, to 11

...................... 6.2 5.0 Department's web site. A preliminary obtain the corresponding source energy 12

...................... 7.6 5.4 assessment ofthe 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 forthis 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 ofprojected 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 themix 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 ofconversion Sourceof manufacturing The forecasts contain projections ofunit factors in Btu per kilowatt-hour. DSEER/HSPF

____ costdata energy consumption ofnew appliances, The resulting conversion factors will Reverse annual appliance shipments, and prices change overtime, and will account for Industry engineering ofpurchased appliances. The thedisplacement ofgenerating 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 onthe column ofconversion factors, onefor 13/7.7
................ 6.8 5.6 method usedfor sales projections, the each year ofthe projection. DOEand 15/8
................ 138.0 8.8 salesunder a standards case projection stakeholders can examine theeffects of 15/8.2
................ 13.8 10.5 16/8.4

................ .................... 10.8 may differ from those ofa baseline case alternative assumptions by replacing projection. this column ofnumbers.

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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 byrunning scenarios on Transcript, pp 313) The Department has In orderto 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 ofthe more important cost-effectiveness ofthe existing pstakeholders, the Department haso components ofanyestimate ofthe 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 s to forecast energy Forecasts ofshipments for thebase case analysis would not materially contribute v or

other ap ances to forecast ener and the standards case need to be to adecision whether to adopt a more improvements in efficiency can be obtained asan input to theNES. The stringent standard. Rather, theenergy accounted for over time. These models, Department developed abase case savings and NPV are calculated from the the NES spreadsheets, are specific forecast ofproduct shipments in the expected date any new standard level applications ofacommon model absence ofnew standards. Forall would take effectto theyear 2030. Both structure to each appliance, and amodel candidate standards levels, shipment individual year and cumulative data are was tailored to the case ofcentral air forecasts are needed to calculate the generated. Output charts and tables conditioners and another for the case of national benefits ofstandards and to provide cumulative energy savings, the heat pumps. These same NES calculate the future cash flows of cost and savingsper year (in a chart), spreadsheets were also used to forecast manufacturers. There are a variety of and thecost and NPVdue to standards. net present value (NPV). These methods available forprojecting spreadsheets are posted to the shipments. Asophisticated accounting b. Product Specific Department's web site. model was used bythe Department and i. Inputsto NESAnalysis

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 NESmodel. The NESmodel uses standards. Inputquantities can be spreadsheet are: energy price the same basic data as the LCC model changed within the spreadsheet. Unlike projections, including ananalysis of for energy use and cost ofequipment, theLCC 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 ofthe values (based onthe shipment and for inputs oroutputs. Both EEI and OOE standard (startyear); discountrate and energy-efficiency distribution forecasts) stated that the NES Analysis should use the year ofthe NPV (1999); are used insteadofdistributions. 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 arange ofequipment costs should conversion factor fromsite 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 ontwo different sets ofcosts distributional inputs will be usedto that the impact ofexisting 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

................................................. Outputfrom ShipmentModel. Total installed Consumer Cost

................. Average value forthe baseline and each standard level. From LCC Analysis. Repair and Maintenance Costs

................ Average values forthe baselineand 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 newstandard (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 newstandard, shipment-weighted efficiencies are assumed to equal the new standard level. UnitAnnual EnergyConsumption

............ Based on the weighted-average annual energy consumption and efficiency from LCC Analysis. To estimate the representative annual energy consumption of acentral air conditioner or heat pump for any given year, the ratio of the RECS weighted-average efficiencyto the efficiency level inthat year ismultiplied bythe RECS weighted-average annual energy consumption. Electricity Prices

........................................ Based on theweighted-average marginal electricity price determined from RECS93 inthe LCC Analysis. Escalation of Electricity Prices .................. 1999 EIAAEO forecasts (to 2020) and extrapolation from 2020to 2030. Electricity Site-to-Source Conversion

....... Conversion varies yearly and isprovided by the 1999 Annual Energy Outlook (atime series conversion factor; includes electric generation transmission and distribution losses). Discount Rate

........................................ 7%real. Present Year

........................................ Future expenses are discountedto year 1999.

Both EEI and EMPA provided energy prices, and that the 1998 AEO ratherthan average electricity prices comments on the typeof electricity electricity price forecasts do not decline should be used in all calculations. (EEI, price that should be used in the rapidly enough, sincefactors 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 ofdropping Both EEI and EMPA stated thatmarginal (section IID.l.b.i.), theDepartment used

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the most recentforecasts from the 1999 stocks and purchases of each type of Accounting equations relate annual AEOto 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 MarketSegments: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 thatare economically * NetNewHousingMarket: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 ofnew central air conditioner is using mean marginal prices to OOE supports theuse ofthe an hea pupss calculate energy savings. accounting methodfor forecasting ad heat p p systems.

EEI also warned thatenergy savings shipments, butstated that thorough * Early(Dscretionary)Replacement from higher SEERs could be lower in discussions will berequired in order to Market:About 29 ofcentral air hot and humid climatic regions, where quantify the impacts ofnon-regulatory conditioner and heat pump owners EER isa better indicator ofequipment programs and market trends. (OOE, #7) replacethe existing systems before the performance. (EEI, #2) Although the The Department reviewed information systems break down because they want performance ofequipment can vary from parties involved in market-based anupdated 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 wasunable reasons. provide the best indicator ofannual to determine anyquantifiable measure · RegularReplacementMarket: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 anational basis. Thus, purchases are to replace an existing 1993 RECS, which the NES spreadsheet the impactof market-based initiatives system that has broken down after usesas the basis fordetermining the was not incorporated into the baseline completion ofits useful life. energy savings from higher SEER and standard level forecasts. * ExtraRepairMarket:Since standards, accounts for regional Themodel isorganized into three replacement ofcentral air conditioner variations in energyuse. classes ofelements: Stocks, events, and and heat pump systems is costly, a few

EEI stated thatdiversity factors must decisions. Stocks ofcentral air consumers will rebuild orrepair 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 ownershipcategories,and itslifetime) rather thanpurchasing a at thesame time. Utility load factors units are assigned to age categories. new system. Eventually, even extendedshould alsobe addressed. (Steve Events are things that happen tostocks life central air conditioner and heat Rosenstock, EEI, Transcript, p 272;EEI, independent ofeconomic conditions, pump systems are replaced. #2). Diversity and utilityload factors are i.e., breakdowns requiring repairor * Homes withoutanairconditioner not accounted forin thedetermination replacement. Decisions are consumer heat pumpsystem:A few households ofNES. Rather, the NES are passed reactions to market conditions, e.g., without acentral air conditioner orheat through to the Utility ImpactAnalysis whetherto repair orreplace equipment, pump systemwill purchase them and which will establish the impacts ofthe orto buy a house with orwithout an airbecome new central air conditioner or savings on utilitygeneration and conditioner orheat pump. Consumer heat pump owners. distribution. The model to beused in purchase decisions are categorized by entsan ei s the Utility Analysis (NEMS-BRS) marketsegments.Decision trees are Eve nt s and dcisions (e.g., the accounts for diversity and utility load used to describe consumerchoices for probability that an existing central air factors when determining the impacts purchases and repairs.A logit conditioner has a problem and the onthe utility industry. NEMS-BRS is a probability modelsimulates consumer course ofaction taken by the consumer) variant ofU.S. DOE/EIA's NEMS and is purchase decisions thatare based on aremodeled separately for each market named as such fortwo reasons: (1)The equipment price, operating costs, and segment. Utility Analysis to be performed entails income level. LogitProbability Model:The logit some minorcode modifications and (2) OwnershipCategories: Households probability ofpurchase model isused to the model will be run under various are first divided into central air estimate the impact ofstandardspolicy 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 (BRSis including (1)new housing, (2)existing to purchase price, operating costs, and DOE's Building Research and Standards housingwith a regular central air income. Coefficients forthe office). NEMS was used by DOE/EIA to conditioner orheat pump (i.e., responsiveness to these three factors produce the 1999 AEO, and NEMS-BRS equipment has notbeen repaired to were developed for each ofthe market is used to provide some key equivalent extend its life), (3) housingwithout a segments, based onthe results of inputsto the standards analysis. central air conditioner orheat pump, empirical research on consumer ,i, Shipments Model and (4)housing with anextended life purchase behavior. The probabilities are ii.Shipments Model central air conditioner orheat pump applied to equations thatgovern

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 ofcentral 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 ofthe central air SEER) for central air conditioners and asthe stockofcentral air conditioner conditioner and heat pump shipment heat pumps. The model tracks the and heat pump units ofthatcategory. 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". Inthe 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 airconditioner 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, 1999AEO.

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 equalsthe presentvalue of a function ofconsumer price and LCC and the national average LCC in the operating cost savings (including operating cost in orderto capturethe standards case. effect ofthose two variables on future Using the NES model, NPV was electric and Cequalsthe present shipments. The Department prepared calculated from projections ofnational savin) increasedequipment 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 wayof forecasts to historical shipments. These installed consumer cost and operating describing NPV isthat it isthe and other features ofthe model allow it expenses. Future costs and savings were difference between the LCCs (for all toprovide estimates thatare consistent discounted to the present with a a ancs d wth and withthe recent history of central air discount factor, which was calculated w conditioner and heat pump shipments, from the discountrate and the number market structure, and consumer of years between the present (yearto In NPV, costs are calculated asthe preferences. which the sum is beingdiscounted) and product of(1)the difference in the

Drawbacks ofthis method include: (1) theyear in which thecosts and savings purchase price between the base case Saturation ofunitsin new and stock occur. and standards case and (2) theannual households must be forecasted, (2) The inputs forthe determination of salesvolume inthe standards case. housing startsmust beforecasted national NPV were detailed in the Since costs ofthe more-efficient (although the AEO does provide readily discussion oftheNES model. Like the equipment purchased in the standards available forecasts), and (3) retirement NES results, two sets ofNPV results case are higherthan those ofequipment ofunits 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 asnegative values in

Unlike the LCC model, the shipments other on the reverse engineering data. the NPV. model does notuse probability 2 Preliminary Results Monetary savings are typically distributions ofvalues forinputs. While exhibited as decreases in operating costs the shipment models uses thesame a. General associated withthe higher energy basic input data asthe LCC model for The Department calculated the efficiency ofappliances purchased in energy use and cost ofequipment, the national energy consumption by the standards case compared to the base model uses shipment weighted-average multiplying the number ofcentral air case. Total operating cost savings is the values instead ofprobability conditioners and heat pumps (by product ofsavingsper unitand the distributions. vintage) bythe unit energy consumption number ofunits of each vintage

Because NES are dependent on (also byvintage). Vintage is the age of surviving in a particular year. Savings shipments (which, in turn, are theequipment (varying from oneto appear as positive values in the NPV. dependent on equipment purchase twentyfour-years). National annual Net savings each year are calculated price), the Department prepared two energy savings isthe difference between asthe difference between Total sets ofshipments forecasts, one based national energy consumption atthe base Operating Cost Savings andTotal on manufacturer cost data for increases case (without newstandards) and each Equipment Costs. The savings are in efficiency levels and the other based standards case. Cumulative energy calculated over the life ofthe appliance, on cost data from the reverse savings are the sum ofthe annual NES accounting forthe differences inyearly engineering methodology, both ofwhich 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 theenergy 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 overtime ofdiscounted netsavings. The economic impact is NPV. The NPV can expenditures in the standards case national NPV ofeach 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 ofthe NPV can be IMPACTS FROM 2006 TO 2030 IMPACTS FROM 2006 TO 2030 expressed in another form, asthe [Quads] [In billions of 1998 dollars] benefit/cost ratio. The benefit isthe savings in decreased operating expenses Source ofmanufacturer Source ofmanufacturer cost (including electricity, repair, and costdata SEEdata maintenance), while the cost is the Reverse en- S HSReverse increase inthe purchase price Industry gineeringIndustry engineering (including equipment and installation price) due to standards relative to the BaseCase 1

...... 3.8 3.8 11/7.1

............ 0.0 0.1 base case. When 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 forthe four p ^rimary product national energy consumption from 2006 to CONDITIONERS: CUMULATIVE NET NESfoteorrmy2030. PRESENT VALUE IMPACTS FROM classes ateach ofthe five efficiency 

### 2006 TO 

### 2030 levels analyzed (11 through 15SEER). TABLE 31.-SINGLE PACKAGE HEAT [In billions of 1998 dollars] The results shown are based on a single PUMPS: CUMULATIVE NES IMPACTS shipment weighted average (SWA)cost PUMPS-CUMUATIVE--- IPACT shipment weighted average (SWA) cost FROM 2006 TO 2030 Source ofmanufacturer cost instead ofa cost distribution. 6 T 2 data [Quads] SEER TABLE 28.-SPLIT-TYPE AIR CONDI- Industry Reverse

TIONERS: CUMULATIVE NES IMPACTS Source ofmanufacturer 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 Case1...... 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 n13 4 3 ....... 3 41

. national energy consumption from 2006 to [In billions of 1998dollars] 

### 13

. 

### 4.3 4.1 2030.
______. 4_________________ 14

...................... 5.8 5.6 14

..................... . 5.6 , Source ofmanufacturer cost 15

...................... 7.0 6.7 Tables 32to 35 showthe national data

Values for Base Case are the cumulative NPVs forthe fourprimary product SEER/HSPF national energy consumption from 2006 to classes ateach ofthe five efficiency Industry Reverse analyzed engineering 2030. levels analyzed (11 through 15 SEER). 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 ofmanufacturer SEER/HSPF cost data Sourceof manufacturer a

. en era l ir, Reverse en- op cost data The July 1996 Process Rule includes Industry gineering SEER employment impacts amongthe factors Industry Revnersen to be considered in selecting a proposed BaseCase

...... 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

1Values for Base Case are the cumulative ofstandards 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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# 30 66332 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules impacts would result ifstandards lead among 35 sectors as national input- people in household. Annual energy use to achange in the number'ofemployees outputmatrices. The IMBUILD output can be estimated by acalculation 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 inthe 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 usewill affect sub-groups of national economy other than in the flows and the resulting netnational consumers. manufacturing sector being regulated. impact onjobs by sectorcan be The impact on consumer sub-groups Indirect impacts may result from both estimated. Additional detail isprovided will be determined using the LCC expenditures shifting among goods in the Preliminary TSD. spreadsheet model. Detailsofthis model (substitution effect), and income OOE stated that they are not familiar are explained in the LCC section ofthe changing, which will lead to achange with this type ofanalysis and believe Preliminary TSD. in overall expenditure levels (income thatDOE should utilize specialists that effect). Indirect employment impacts may exist atthe Department of 1.Consumer Sub-Group Analysis from standards are defined asnetjobs Commerce orthe Department ofLabor. a. General eliminated or created in the general (OOE, #7) TheDepartment intends to T economy as aconsequence ofincreased useIMBUILD in itsanalysis of indirect i he epartment will be sensitive to spending onthe purchase price of employment impacts due to itsincreases in thepurchase price to avoid appliances and reduced household relatively longhistory ofbeing used as negative impacts to identifiable spending on energy. a tool (in its original form as IMPLAN) population groups, such asconsumers

New appliance standards are expected for assessing economic impacts. of lower income levels. Additionally, to increase thepurchase price of Although neither the Departments of the Department will assess the likely appliances (retail price plus sales tax, Commerce or Laborwere involved in impactsof an increased purchase price and installation). The same standards the development ofIMPLAN, the model onproduct sales and fuel switching. are also expected to decrease energy was based on use ofthe Commerce b. Product Specific consumption, and therefore reduce Department's make-and-use tables, household expenditures for energy. input-output model ofthe U.S.consumers, one measure of Overtime, the increased purchase price economy, and price deflators; and use of eco ic impact is the first cost ofthe is paid back through energy savings. the LaborDepartment's schedule of product.The Department will analyze The savings in energy expenditures may wages. Consequently, DOEbelieves first costs to determine their impacts on be spent on other items. Using an input/ IMBUILD isa sound method for consumer subgroups. The Department output model ofthe 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 formas to a v oid negative impacts onpopulation different sectors, and the netimpact on IMPLAN, has been used since 1979 by groups such as low-income households. jobs. National impacts will be estimated a wide variety ofgovernment and Increased first costs to consumers for major sectors ofthe 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 forlower-income consumers, available data sources andsoftware will analyses since this group is most sensitive to beutilized 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 therange of The Consumer Analysis evaluates product can preclude the purchase ofa uncertainty in future energy prices. All impacts on any identifiable groups, such new model ofthat product. As a result, methods and documentation will be as consumers ofdifferent income levels, some consumers may retain products made available for review. who may be disproportionately affected pasttheir useful life, or purchase older, b. ProductSpecific by any national energy efficiency used appliances. These older products b. Product Specific standard level. are generally less efficient, and their The Department ofEnergy's Office of The Department plansto evaluate efficiency may deteriorate ifthey 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 thatmight affect the the purchase and useofa product could beused to analyze indirect NPV ofa standard to consumer sub- altogether resulting in a potentially large employment impacts. IMBUILD is a populations. To the extent possible, the loss ofutility. special-purpose version ofthe Impact Department will obtain estimates ofthe OOE commented that with regard to Analysis for Planning (IMPLAN) variability ofeach inputparameter and first-cost increases on low-income national input-output model which consider this variability in its households, the number oflow-income specifically estimates theemployment calculation ofconsumer impacts. The households affected by any new and income effects ofbuilding energy analysis isstructured to answer standards should firstbe 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 offwith standards on identifying the potential impacts of cooperation withthe Federal Emergency and by how much? Howmany a large first-cost increase on consumers Management Agency (FEMA) and the households are not betteroffand by (affordability, financing, and on other Bureau ofLand Management (BLM) to how much? The variability in each financial issues), and on methods and assist the Forest Service in land and inputparameter and likely sourcesof data theDepartment could use in resource management planning. information will be discussed with conducting itsanalysis. The Department IMBUILD is an economic analysis stakeholders. also seeks input on methods the system that focuses onthose sectors Variations in energy usefor a Department might use to assess the most relevant to buildings, and particular appliance depend on factors likely impacts offirst-cost increases on characterizes the interconnections such as climate, type ofhousehold, and product sales and fuel switching.

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2. Consumer Participation will serve as aguide, the Department accompanies this Supplemental
a. General intendsto tailorthe methodology for ANOPR. each rule on the basis ofstakeholder 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 oftheapproach consist ofthe analysis in three distinct ways. notification ofconsumer representatives preparation ofan industry cash flow, Standards at higher levels will require during the rulemaking process and the development ofaprocess to additional investment, will raise where appropriate, seeking direct consider sub-group cash flow, and the production costs, and will affect l roucconsumer input. design ofan guide to interviewrevenue through higher prices and, porant products, consumer inputis 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 usemanufacturing costs, product utility. Second, assessing the performing Manufacturer Impact shipments forecasts, and price forecasts impact ofchanges infirst cost may Analysis foreach rulemaking. In the developed for the other analyses. require direct consumer participation approach document, the Department Financial information, alsorequired as from affected consumer sub-groups will describe and obtain comments on an input to GRIM, will be developed (particularly low-income households). themethodology to be used in based onpublicly available data and Finally, consumer input isuseful to performing the manufacturer impact confidentially submitted manufacturer ensure that life-cycle costs are analyses. The manufacturer impact information. accurately estimated forrelevant analyses will be conducted inthree The GRIM Analysis uses a number of subgroups of consumers. To assess phases. Phase 1consists oftwo factors: Annual expected revenues; consumer impacts, the Department activities, namely,preparation ofan manufacturer costs such as cost ofsales, usually combines life-cycle cost industry characterization and selling and general administration costs; modeling and directconsumer input. identification ofissues. Phase 2has as taxes; and capital expenditures related

The advisory committee sub-group on itsfocus 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 ofstandards 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 ofmanufacturers. Phase 3 also industry net presentvalues 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 ofstandards 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 ofthe Manufacturer Impact b. Product Specific b. Product Specific Analysis consists of collectingpertinent The Industry Cash FlowAnalysis uses

OOE recommended that the financial and market information. This average manufacturing costs (with Department first investigate the actual activity involves bothquantitative and uncertainty) as described in the level ofconsumer inputor choice qualitative efforts. Datagathered will Engineering Analysis (section II.C.2), involved in the purchase ofthese 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 theEngineering described in the LCC and Payback (OOE,#7) OOE warned that HVAC Analysis in theestimation ofequipment Analysis (section II.D.1.) Financial contractors, rather than consumers, may production costs and distribution information, also required as an inputto have greater decision-making power markups. Sources ofinformation the GRIM, is based onpublicly available regarding thepurchase ofsystems. include reports published by industry data and confidentially submitted groups, tradejournals, and the U.S. manufacturer information. The cash C. Manufacturer ImpactAnalysis Bureau of Census, and copies ofSEC 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 beheld after publication ofthis 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 1analysis to include capacity. support theEngineering Analysis. This aCash 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 1will be augmented with data from review. While thegeneral framework throughout thePreliminary TSDthat additional public and private sources.

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66334 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules

These include shipment projections evaluate cash flows and to assess manufacturers to privately express their developed for theNES Analysis and competitive, employment and capacity views on important issues. A key interviews with individual impacts. Firm-specific cumulative characteristic ofthe interview process is manufacturers. The GRIM will estimate burden will also be considered. that it is designed to allow confidential the potential effects ofnew 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 industrycharacterization 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 CashFlow 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 ofconducting separate cash This information will aid in the

Anindustry representative statedthat flows for all manufacturers. Another development ofdetailed and focused his company would be veryunlikely to option, could entail conducting Cash questionnaires, as needed, to perform all provide proprietary cost data directlyto flow Analysis only forthose phases ofthe manufacturer impact DOE orits contractors. (im Crawford, manufacturers which believe their analyses. It is the intention ofthe Trane, Transcript, p 134). The Oregon impacts are more severe then industry Department that the contents of Office ofEnergy (OOE) warned that an average. questionnaires and the list ofinterview Industry Cash Flow Analysis should be The Department intends to examine participants be publicly vetted prior to internally consistent withdata 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 isseeking further manufacturers. A "strawman" GRIM questionnaire will solicit information on input from stakeholders on whether Analysis on each subgroup will be thepossible impacts ofpotential additional scenarios are needed, and on prepared forreview 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 beused to develop Evaluation ofthe possible impacts on

. An

sis revised GRIM sub-group analyses for direct employment, capital assets, and 3. Manufacturer Sub-Group Analysis consideration in theNOPR. industry competitiveness will also draw (Phase 3) OOE recommended thatthe analysis heavily onthe information gathered
a. General use theminimum number ofsub-groups during the interviews. The

Assessment ofimpacts on sub-groups required tofully capture different levels questionnaires will solicit both ofmanufacturers is Phase 3ofthe ofimpact 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 inputfrom requested whenever applicable. adequate forassessing the variation in stakeholders on whetherthe defined Interviews will be scheduled well in impacts amongsub-groups of sub-groups are appropriate, orwhether advance in order to provide every manufacturers. Smaller manufacturers, fewer, or additional, subgroups are opportunity forkey individuals to be niche manufacturers ormanufacturers needed. Comments are also requested available for comment. Although a exhibiting a cost structure largely regarding the value in grouping written response tothe 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. Inindustries having numerous be asked to participate in the interviews, Itervew participants ill be participants, the Department will use and, more generally, what awell requested to identify al confidential the results ofthe industry executed sub-group analysis would information provided in writing or characterization to group manufacturers entail orallw Apthinterview, an interview following the interview,aninterview exhibiting similar characteristics. The 4. Interview Process summary will be provided to give financial analysis ofthe "prototypical"participants the opportunity to confirm firm performed in the Phase 2 industry a e n e ra l the accuracy and protect the analysis can serve as a benchmark The revised rulemaking process confidentiality ofcollected 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 beuseful, 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 ofthe major issues and firms. manufacturers and a broad cross-section outcomes. The Department will seek

The Department will conduct detailed ofinterested parties. Interviews may be comment onthe outcome ofthe interviews with asmany manufacturers conducted in any and all phases ofthe interview process. as is possible to gain insight into the analyses as determined in Phase 1. potential impacts ofstandards. During The interview processhas a keyrole 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 itprovides an opportunity for preliminary interviews atthe start ofthe

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# 309 Federal Register/Vol. 64, No. 226/Wednesday, November 24, 1999/Proposed Rules 66335 Engineering Analysis that focused on partial-equilibrium model ofthe U.S. ofelectricity, which primary fuel is design and cost issues. A second round energy sector that has been developed used for generation). Otherthan the ofinterviews will be scheduled soon over several years by EIA primarily to difference in energy consumption due to after publication ofthe Supplemental prepare theAEO.NEMS produces a central air conditioner and heat pump ANOPR. The intent will beto develop widelyrecognized baseline forecast for standards, input assumptions into an accurate representation ofthe the U.S. through 2020, and isavailable NEMS-BRS will follow those used to impacts ofnew standards on each sub- in the public domain. Outputs ofthe produce the 1999 AEO. group. As noted previously, the Utility Analysis will parallel results that Since theAEO 1999 version of Department intends to examine two sub- appear in the latestAEO,with some NEMS-BRS forecasts only to theyear groups: high-volume manufacturers and additions. Typical outputincludes 2020, amethod for extrapolating price low-volume manufacturers. forecasts of sales and price. The entire data to 2030 is required. The method H. Competitive ImactAs ment Utility Analysis will be conducted as a adopted will bethe EIA approach to

. Competitive ImpactAssessment policy deviation from thelatest 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 asthe basic These are theprices used by FEMP to consider any lessening ofcompetition set ofassumptions that will be applied estimate LCCs ofFederal equipment that islikely toresult 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 forthe world oil the impacts, ifany, ofany 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 therefinery and a determined effort togather and report in the Utility Impact Analysis will be distribution markups for the year 2020 firm-specific financial information and those used the latestAEO. 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 ofU.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 forthe 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 entalls some mino code modifications 2020 levels onthe assumption that the information collected from interviews and (2) themodel willbe run under transition to a restructured utility with manufacturers, consistent with policy deviations that are variations on industry will have been completed. Phase 3 ofthe manufacturer impact DOE/EIA assumptions. The name In principle, any ofthe forecasts that NEMS-BRS refers to themodel that will analyses. The Department ofJustice NEMS-BRS refe s t t h e m o d el h a t w ll appear in the 1999AEOcould be (DOJ)has offered to help in drafting be u s e d fo t h e Utility A n a l ysis (BRS s estimated by NEMS-BRS to take into (DOj) has offered to help in drafting DOE'sBuilding Research and Standards estimated byNEMS-BRS to take into questions to beused in the f u l n g e se a rc a n a n a r account theeffects ofa particular level manufacturer interviews. These Forecasting for the electric utility ofcentral air conditioner and heat pump questions will pertain to theassessment industry is seriously complicated by the standards. The Department intends to ofthe likelihood of increases in market implications ofindustry restructuring, report the major results onresidential concentration levels and other market which is only partially reflected in the sales offuels, prices of fuels, and conditions that could lead to anti- latest AEO (1999). DOEplans to explore generating sources displaced by energy competitive pricing behavior. The the consequences ofa wider savings. As might be expected, asthe manufacturer interviews will focus on restructuring pattern through total energy use ofAmerica is much gathering information that would help appropriate scenario analysis using largerthan that possible due to the in assessing asymmetrical costincreases NEMS-BRS. savings from central air conditioners to some manufacturers, increased NEMS offers a sophisticated picture of and heat pumps, there is littleexpected proportion offixed costs potentially theeffect ofappliance standards since difference in the forecasted price of increasing business risks, and potential itsscale allows it to measure the energy. barriers to market entry (proprietary interactions between thevarious 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. Inaddition, the new standard onthe equipment's scale ofNEMS permits analysis ofthe Energy Efficiency Ratio (EER) rating in The Department will consultwith effects ofstandards on boththe electric orderto 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 ofthose interviews and b. Product Specific and take into account thatseveral subsequent analyses withDOJs To analyze theeffect ofstandards, merchant plants are coming on-line and according to the rulemaking schedule, NEMS-BRS will first berun exactly as that customers, rather than utility and as appropriate. it would be to produce anAEOforecast, dispatchers, will dictate howpower 1.UtilityAnalysis then asecond run will be conducted plants are utilized to meet air withresidential energy usage reduced conditioning loads. (EEI,#2) Since it The Utility Analysis estimates the bythe amount ofenergy (gas, oil, and incorporates representative load shapes effects ofproposed standards on electric electricity) saved due to appliance for central airconditioners and heat and gas utilities, standards for central air conditioners pumps, NEMS-BRS hasthe capability 1.Proposed Methodology and heat pumps. The energy savings to determine both the impacts on power 

## ~~a.~~General input will be obtained from theNES plant operation and peak loads that spreadsheet (section II.E. 1). Outputs result from central air conditioner and To estimate the effects ofproposed available are thesame asthose in the heat pump energy savings. Thus, the standards on electric and gas utilities, original NEMS model, including type ofpower plant that will gooff-line the Department intends to use EIA's residential energy prices, generation, and the resulting reduction in peak NEMS. NEMS isa large multi-sectoral and installed capacity (and, in the case loads can and will be determined.

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J.Environmental Analysis Carbon emissions (which are a to produce AEO 1999. In principle, any An Environmental Assssmnt is physically equivalent indicator ofactual ofthe forecasts that appear inAEO 1999 required pursua Assesent ot tio emissions of carbon dioxide) are tracked could be estimated by NEMS-BRS to required pursuanttothe National in NEMS-BRS by a detailed carbon take into account the effects ofa Environmental PolicyAct )of 199 module with broad coverage ofall particular central airconditioner and (NEPA) (42 U.S.C. 4321 etseq.), sectors and inclusion ofinteractive heat pump efficiency standard level, regulations ofthe Council on effects. NEMS-BRS also includes a but, in the standardreporting, 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 ofSO2 allowance ofSO2, NOx and CO2. forcompliance with NEPA (10 CFR part prices.Accurate simulation ofSO2 The time horizon ofNEMS-BRS is 1021), and the Secretarial Policy onthe trading, however, tendsto imply that 2020. The Department will extrapolate National Environmental Policy Act physical emissions effects will be zero. beyond 2020 usinga simple formula (une 1994). The Department will This fact has caused considerable (according to the method setout in the present a discussion ofthe 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 willgenerate the NOPR. The Department will present figure for emissionreductions has been alternative price forecasts corresponding the DraftEnvironmental Assessment in reported, with thecaveat that emissions tothe side cases found inAEO 1999 for the Technical Support Document forthe trading implies that thisreduction will useby NES and will explore alternatives NOPR. The NOPR will provide an unlikely be realized. On the otherhand, in a similar fashion with NEMS-BRS opportunity for comments prior to the there is an SO 2benefitfrom runs. final rule. conservation in the form ofa lower EEI statedthe environmental impact

The Environmental Analysis will allowance price. Ifthe reduction in results generated from NEMS will be track three types of energy-related allowance price is large enough to be less accurate than theycould be, since airborne emissions: sulfur dioxide calculable by NEMS-BRS, the consumers may switch electricity (SO2),nitrogen oxides (NOx) and carbon Department will report this value. suppliers and since the impacts from dioxide (CO2). The firsttwo have direct The results for theEnvironmental other emissions, such as carbon consequences for human health, and are Analysis can be in the form ofa monoxide and precursor organic major causes ofacid precipitation, complete NEMS-BRS run. In general, compounds, are notbeing which can affect humans byreducing NEMS-BRS outputs become the tables analyzed.(EEI, #2) EMPA also stated that the productivity offarms, forests and ofanAEO, and these should provide a NEMS doesnot accurately account for fisheries, decreasing recreational good idea ofthe range ofresults recent changes in the electric utility opportunities and degrading susceptible available. Outputs froma NEMS-BRS industry. (EMPA,#3) Although NEMS buildings and monuments.NOx is also run include SO2, NOx and CO 2 mighthave some short comings, the a precursor gas tourban smog and is emissions from thepower sector and a Department believes that NEMS-BRS is particularly detrimental to airquality trading price for SO2 allowances. The themost appropriate and accurate during hot, still weather. CO2 emissions only form ofcarbon tracked by NEMS- model to estimate environmental arebelieved to contribute to raising the BRS is CO2, so the carbon discussed in impacts. Although the Department is average globaltemperature viathe the analysis is only in the form ofCO2 comfortable withthe use ofNEMS-BRS "greenhouse effect." The long-term but is reported as elemental carbon to for establishing environmental impacts, consequences ofhigher temperatures remain consistent with the 1999AEO. 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 orrefute theNEMS patterns, changes inthe gaseous b. Product Secificestimates. equilibrium between the atmosphere RegulatoryImpactAnalysis andthe biosphere, and the melting of The version ofNEMS used for RegulatoryImpactAnalysis some ofthe icenow covering polar appliance standards analysis is called DOEwill be preparing adraft lands and oceans, causing a risein sea NEMS-BRS, and is based on the 1999 Regulatory Analysis pursuant to E.O. level. The source ofemissions covered AEOversion with minor modifications. 12866, Regulatory Planning and in this analysis is fossil fuel-fired NEMS-BRS isrun exactly the same as Review," which will be subject to electricity generation. the original NEMS, except that review under theExecutive Order by the residential energy usage is reduced by Office ofInformation and Regulatory 1.Proposed Methodology the amount ofenergy (gas, oil, and Affairs (OIRA) 58FR 51735 (October 4, a. General electricity) saved due to central air 1993). conditioner and heat pump standards. As part oftheRegulatory Analysis, To perform the Environmental The amount ofenergy 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 forthe (Section 8.2). The output ofthe manufacturers ofnew or revised DOE Utility Impact Analysis described in the Environmental Analysis is forecasted standards and other regulatory actions previous section. Outputs ofthe physical emissions. Thenet benefits of affecting the sameproducts. Through Environmental Analysis will parallel a standard will bethe difference manufacturer interviews and literature resultsthat appear in the latestAEO, between emissions estimated by the searches, theDepartment will compile with some additions. The Department AEO 1999 version ofNEMS-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 latestAEO using NEMS-BRS, and the Energy use for central air conditioner phase out) and other products (e.g. room assumptions in place inNEMS will and heat pump efficiency levels will be air conditioners). The Department also serve asthe basic set ofassumptions the same asthose in the NES seeks inputfrom stakeholders regarding thatwill be applied to the spreadsheet. Other input assumptions other regulations that should be Environmental Analysis. into NEMS-BRS will followthose used considered.

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III.Proposed StandardsScenarios products at themaximum The median payback periods

Upon reviewing the preliminary LCC technologically feasible level will be corresponding to the industry data and and NESresults, the Department analyzed. reverse engineering LCC minimums, 8 observes thatthe efficiency levels Based onthe analyses performed, the and 3 years,respectively, are both less analyzed; (generally a 10 to 70 percent Department observesthat, depending on than the average 18.4 year product improvement over theexisting product class, efficiency levels ranging lifetime. standard), produced arange ofimpacts from 11 to 13 SEER would appearto SinglePackage Air Conditioners: The atthe National level. For example, the result in thegreatest economic benefit to minimum mean LCC for single package NES impacts show arange from 0.81 to theNation. The Process Rule requires air conditioners occurs ateither 10or 12 14.11 quads of energy saved over the the Department to specify in the ANOPR SEER, based onthe industry cost data or 2006 to 2030 period. Asexpected, the candidate standards levels, but not to thereverse engineering manufacturing higherthe efficiency level, the greater propose a particular standard. Because cost data, respectively. The percent of the savings. the preliminary LCC and NES results thepopulation at 12SEER with LCCs

The national Net Present Value (NPV), show economic benefits to both lowerthan the baseline varies which is the discounted sum over future consumers and to the Nation in the significantly depending on which cost years ofthe 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 of26% whilethe more efficient units, also showed a and conduct analyses forthe following reverse engineering cost data results in range ofimpacts. A positive NPV is a candidate standards levels, for each a percentage of 58%. The median net benefit to thenation. The NPVs product class, prior to issuance ofthe payback periods corresponding to the based onreverse 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 ofthe 12 SEER efficiency * SEER 13 respectively. level for split system air conditioners), In addition, the Department intends to SinglePackageHeatPumps:The whileNPVs based onindustry-provided conduct Engineering and LCC analyses minimum mean LCC for single package manufacturer costs shownegative specifically for the Maximum heat pumps occurs at 12 SEER forboth 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 ofthe The percent ofthe single package heat payback analyses results also depend on NOPR. pump population at 12SEER with LCCs manufacturer costs. For example, with SplitSystem 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 12SEER forall product system air conditioners occurs ateither 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 orthe reverse engineering periods corresponding to the industry forheat pumps (both split system and manufacturing cost data, respectively. data and reverse engineering LCC packaged), but there is nominimum Although the minimum mean LCC minimums, 9 and 5 years, respectively, LCC forair conditioners. Payback occurs at efficiency levels greater than are lessthan the mean lifetime ofthe analyses forSEER 12 equipment also the baseline (10 SEER) in bothofthe product. show a range ofpayback times varying these cases, the percent ofthe The above observations are based on from 3 to 15 years, depending on the population withLCCs 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 forthese engineering data). The median payback preliminary because they donot include products (approximately 20 SEER in periods corresponding tothe industry any results from the manufacturer 2006) werenot 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, areboth less than the 18.4 consumer survey. The Department seeks could notbe economicallyjustified. year average product lifetime. However, comments on whether standards that Whilethe split-system air conditioner mean payback periods exceed the meet alternative scenarios would withthe highest efficiency in the market average product lifetime. provide energy savings to the Nation in 1998 was rated at SEER 18, the most SplitSystem HeatPumps:The comparable to thesavings that would be efficient product analyzed inthis minimum mean LCC for split system obtained by the highest standards that Supplementary ANOPR was SEER 17. heat pumps occurs at 12 SEERfor both are technologically feasible and At this efficiency level, all the products the industry cost data and the reverse economicallyjustified effective in 2006. had greater LCCsthan thebaseline and engineering manufacturing cost data, Standards that meetthe following had payback periods that exceeded the although based on thereverse alternative scenarios, forexample, 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 forthe baseline. Thepercent * A moderate increase in the incremental costs than incremental ofthe split heat pump population at 12 efficiency level at an earlier effective savings, and that, consequently, SEER with LCCs lower than thebaseline date, for example, an effective date three efficiency levels greater than SEER 17 is well above 50% based onboth the years after the publication ofthe Final could notbe economicallyjustified. industry dataand reverse engineering Rule. This assumption will bereexamined cost data (63% based on industry data * A stringent increase in efficiency prior to issuance of theNOPR, where and 90% based onreverse 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/orconcerns 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 mustbe received by the 1.Differences between the industry the two scenarios, forexample, a lower date specified at the beginning ofthis and the reverse engineering cost data: efficiency level for some product classes document. The Department requests * Use ofthe industry and thereverse effective atan earlier date and a higher that ten copies ofyourcomments be engineering cost data yield significantly efficiency level effective at a later date. submitted. Additionally, the different LCC, payback period, NES, and

The Department seekscomments on Department would appreciate an NPV results. Efforts preceding the standards under various scenarios, electronic copy ofthecomments to the publication ofthis Supplemental including the candidate standards, for extent possible. TheDepartment is ANOPR between the Department and consideration in preparing the analysis currently usingWordPerfectTM 8. All the industry haveyet to reveal why on which the Department will base the comments and other relevant differences stillpersist between the two proposed rule. information received by the date sets ofcost data. Continued efforts and IV. Public Comment Procedures specified atthe beginning ofthis notice suggestions are needed to resolve the will be considered by theDepartment in differences between the two cost data A. Participation inRulemaking 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 ofpublic participation supplemental Advance Notice of B.3.). possible inthis lPropossible rulemaking Individual will be available 2. The incorporation ofemerging consumers, representatives ofconsumer for public inspection atthe Freedom of technologies into the Engineering groups, manufacturers, associations, Information Reading Room, asprovided ThDpartmnt has ndt a Statesor other governmental entities, at the beginning ofthis notice. prelinary nal ofhow emergg preliminary analysisofhow emerging utilities,retailers, distributors, Pursuantto the provisions of 10 CFR technologies may impact the manufacturers, and others are urged to 1004.11, any person submitting manufacturing costs ofachieving higher submit written statements onthe information or datathat is believed to beefficiency levels But due to the analysis presented here. confidential, and exempt by lawfrom uncertainty associated with the future

The Department has established a public disclosure, should submit one development ofthese technologies, in period of75 daysfollowing publication complete copy ofthedocument and ten particular, microchannel heat ofthis notice forpersons tocomment. (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 beendeleted. The Department will currently projected for their Freedom ofInformation Reading Room. make its own determination with regard incorporation into air conditioning and In addition, the following data is to theconfidential status oftheheat pump equipmnt may change available in the Department's Freedom information or data and treat it significantly. ofInformation Reading Room: according to its determination. 3. The assessment ofthe impacts on * Copies ofthePreliminary TSD Factors ofinterest to the Department, steady-state efficiency, i.e. EER, due to * Transcripts oftheCentral Air when evaluating requests to treat increases in the SEER:

Conditioning policy Workshop held information as confidential, include: (1) * Comments submitted by the EEI onJune 30, 1998 A description ofthe item; (2)an and the ACEEEcall for assessments of * Copies ofthe public comments indication asto whether and why such howthe Energy Efficiency Ratio (EER)

received by the Department thus far items ofinformation have beentreated of airconditioning 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 pumprulemaking customarily treated as confidential, and are concerned that a higherefficiency 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 ofEnergy, Forrestal within the industry; (3) whether the during peak demand because ofthe Building, 1000 Independence Avenue information isgenerally known or prevalence ofmodulating systems atthe SW, Room 1E-245, Washington, DC available from othersources; (4) higherSEER levels.Upto efficiency 20585. More detailed information about whether the information has previously levels of 12 SEER, the rate ofEER this hearing will be on the Office of been available to others without increase isdirectly proportional to the Codes and Standards web site beginning obligation concerning its increase in SEER asmanufacturers inNovember. The web site address isas confidentiality; (5) an explanation ofthe typically rely on single-speed follows: http://www.eren.doe.gov/ competitive injury to thesubmitting technology to attain the SEER increase. buildings/codes_standards/index.htm. person thatwould result frompublic But as efficiency levels move beyond 12 B. Written CommentProcedures 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 impactson EER. How should participate in this proceeding by passage oftime; and (7)whether the Department quantify the submitting written data, views,or disclosure ofthe information would be relationship ofEER to the higherSEER arguments with respect to thesubjects inthe public interest, values? set forth in this notice. Comments will C. IssuesforPublicCommnt 4. Forheat pump systems, the not be accepted by fax or e-mail. relationship between SEER and HSPF: Instructions for submitting written TheDepartment is interested in * Based on heat pumps in the comments are setforth atthe beginning receiving comments and data to marketplace, a range ofHSPF values are ofthis 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 HSPFof heat pump the envelope and onthe documents, in responses to the following questions equipment generally increases with

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SEER, the current analysis assumes a 7.The impact ofalternative conducted over twentyyears ago. With simple relationship between the two refrigerants for HCFC-22: regard to purchase price, in making efficiency descriptors for purposes of * Thecurrent analysis assumes that estimates ofthese effects, the setting an HSPF standard in addition to the phase-out date forHCFC-22 is far Department needs to estimate howprice a SEER standard for heat pumps. Should enough in the future that itwill not changes resulting from revised energy the Department continue withthis affect amanufacturer'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 assessthe using HCFC-22 before the phase-out, or the behavior ofconsumers in their impact ofSEER on HSPF? using alternative refrigerants before and purchasing decisions.

5. Additional product classesbased after the phase-out. Through 10. Data onthe possible adverse on systemcapacity: manufacturer interviews and literature affects ofstandards on identifiable

* The current analyses are based on searches, the Department plansto groups ofconsumers thatexperience manufacturing cost data developed for compile information onburdens from below-average utility or usage rates: nominal 3-ton capacity systems. existing and impending regulations

· Theconsumer 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 ofdifferent income levels, 3-tons, the cost ofachieving higher Department more explicitly account for who may be disproportionately affected efficiency for systems with higher and the impact ofthe HCFC phase out in the byany national energy efficiency lower capacities may be different. Ifdata Engineering Analysis? Any analysis in standard level. submitted in response tothis this area will require assessment ofthe Supplemental ANOPR reveals impact on manufacturer cost due to the 11 Information on what non- significantly different manufacturing use ofthe alternative refrigerantregulatory alternatives to standards need cost increases based on system capacity, 8. Data onretail mark-upto ereviewed: the Department will analyze whether assumptions:* Uder the Process Rule policies, the this results injustifiably lower or higher * Retail mark-up assumptions are Department is committed to continually efficiency levels for equipment of basedupon the following distribution explore non-regulatory alternatives to differing capacity. chain: manufacturer-to-distributor/ standards. The tablefollowing presents

6. Niche product classes: wholesaler-to-contractor/dealer. what is being proposed for * Several manufacturers have asked Although this is notthe only typeof consideration in thisrulemaking. The the Department to establish newclasses distribution chain currently in existence Department isseeking comments onthis to protect the viability ofcertain niche for central air conditioning andheat 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 BeConsidered split systems, high-velocity/small duct distribution will reflect the mark-ups systems, vertical packaged/wall resulting from othermethods 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 theDepartment -Manufacturer tax credits and probably account forless than three does notintend to change the retail -Performance standards percent ofthe residential unitary mark-up assumptions butwill continue -Rebates market. As such,the efficiency standard to research data sources and seek-Voluntary energy efficiency targets established forthese products will have comment onthis issue.lary ee little effect onNES and consumer LCC. 9. Information relating to the -Early replacement The Department seeks comments as to determination ofprice and operating -Mass government purchases whether these products provide a cost elasticities in conducting shipment 12. Comments on the candidate unique utility thatcannot be metby forecasts: standard levels and the alternative otherproducts. One important question * In order to determine theeffect of standard scenarios. is whether the constraints imposed by an increase in thepurchase 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 airconditioner and heat pump classes. TheDepartment has also in recommendations asto howto define prices and operating costs. Due to the provided examples ofseveral alternative these newproduct classes sothat these lack ofdata in this area specificto 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 butwhich could provide they are intended. elasticities developed from analyses comparable energy savings.

## EE-RM/STD-98-440- '30 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 apart ofthe 12866 andOtherProvisions prepare and submit to OIRA for review rulemaking record and are available for

DOE provided tothe Office of the assessment ofcosts and benefits publicreview in the Department's Information and Regulatory Affairs required by Section 6(a)(3) of Executive Freedom ofInformation Reading Room, (OIRA) in the Office ofManagement and Order 12866. Other procedural and 1000 Independence Avenue, SW,Room Budget a copy ofthis document for analysis requirements in other 1E-190, Washington, DC 20585 between comment. Atthe proposal stage forthis Executive Orders and statutes also may the hours of9 and 4, Monday through rulemaking, DOE and OIRA will apply to such future rulemaking action, Friday, telephone (202) 586-3142. determine whether thisrulemaking is a including the requirements ofthe significant regulatory action under regulatory Flexibility Act, 5U.S. C. 601 Issued inWashington, DC. onNovember 8. Executive Order 12866, Regulatory etseq.;the Paperwork Reduction Act,44 1999 Planning and Review. 58 FR 51735 U.S.C. 3501 etseq.; and the Unfunded Dan W.Reicher, (October 4, 1993). Were DOEto propose Mandates Act of 1995, Pub. L. 104-4; AssistantSecretary, EnergyEfficiencyand amendments tothe energy conservation and the National Environmental Policy RenewableEnergy. standards for central airconditioners Act of 1969, 42 U.S. C. 4321 etseq. IFRDoc. 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