### '--RR/STZD- c-/r- 

### / /O 30.3 EE-RM/STD-98.440-483 

### EXECUTIVE ORDER 12866 SUBMISSION' Important Please read the instructions on the reverse side before completing thisform. For additional forms or assistance in completing this form, contact the OIRA Docket Library, (202) 395-6880, oryour OIRA Desk Officer. Send three copies of both thisform and supporting material (four copies if Economically Significant or an Unfunded Mandate) to: Office of Information and Regulatory Affairs Office of Management and Budget Attention: Docket Library, Room 10102 725 17th Street, N.W. Washington, D. C. 20503 1.Agency/Subagency originating request 2. Regulation Identifier Number (RIN) Department of Energy 1904-AA77 3. Title Energy Efficiency Standards for Central Air Conditioners and Heat Pumps 4. Stage of Development 5.Legal Deadline for this submission Prerule a) EN Yes ' D No Proposed Rule Interim Final Rule b) Date ol / ol / 1994 XX Final Rule DD MM YYYY Final Rule - No material change c) a[ Statutory 

### E Judicial Notice Other 6. Designations a) Economically Significant (E.O. 12866) F Yes E No Description of Other b) Unfunded Mandate (2 U.S.C. 1532) 7. Agency Contact (person who can best answer questions RJYes aI No

regarding the content of this submission) If eitherofthe above is"Yes,"submit four (4)complete Michael Raymond packages to OIRA Phone (202) 586-0854 

### Certification for Executive Order 12866 Submissions The authorized regulatory contact and the program official certifythatthe agency has compliedwith the requirements of E.0. 12866 and any applicable policy directives. Signature of Program Official Date Signature ofAuthorized Regulatoy Contact Date

OMB 83-R \ .l Revision: 12197 (Previous versions obsolete) 15e-RA\/S7l>- 

### '1 g-l/'/C 

### ::If

## 30.3 EE-RM/STD-98 

# -3>83 EXECUTIVE ORDER 12866 SUBMISSION' -440 Important Please read the instructions on the reverse side before completing this form. For additional forms or assistance in completing this form. contactthe OIRA Docket Ubrary. (202) 395-6880. oryour OIRA Desk Officer. Send three copies of both this form and supporting material (four copies if Economically Significant oran Unfunded Mandate) to: Office of Information and RegulatoryAffairs Office of Management and Budget Attention: Docket Ubrary. Room 10102 72517th Street. N.W. Washington. D. C. 20503
1. Agency/Subagency originating request 2. Regulation Identifier Number (RIN) 

### Department of Energy 1904-AA77 3. Title

### Energy Efficiency Standards for Central Air Conditioners and Heat Pumps 4. Stage of Development

__ Prerule

__ Proposed Rule Interim Final Rule XX Final Rule

__ Final Rule - No material change Notice Other

Description ofOther
7. Agency Contact (person who can best answerquestions

regarding the content ofthis submission) 

### Michael Raymond Phone <202) 586-0854 5. Legal Deadline forthis submission a) 

### 1m Yes 

### 0 No b) Date 

### 01 I 

### 01 I 1994 DO MM yyyy c) [Xl Statutory 

# o Judicial
6. Designations

a) Economically Significant (E.O. 12866)**~** Yes 

### 0 No b) Unfunded Mandate (2 U.S.C. 1532) 

### iOiI Yes 

### 0 No Ifeither ofthe above is "Yes." submit four (4) complete packages to OIRA Certification for Executive Order 12866 Submissions The. autl:1orized regulatory contact and the program official certify that the agency has complied with the requirements of E. O. 12866 and any applicable policy directives.

......

## EE.RM/STD-98-440 

# i3 03

[6450-01-P] 

### DEPARTMENT OFENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFR Part430 [Docket Number EE-RM-98-440] RIN:1904-AA77 Energy Conservation Programfor Consumer Products; CentralAir Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy. ACTION: Final rule. SUMMARY: The Department ofEnergy (DOE) today amends the existing energy conservation standards for central air conditioners and heat pumps by raising the minimum energy efficiency levels by 20 percent for mostcentral airconditioners and heat pumps, with somewhat lower levels for certain space-constrained products. DOE also today withdraws a final rule, published
on January 22, 2001, that would have established even higher standards. DOE has determined that the standards inthe January 22 final rule, which never became effective, are not economicallyjustified under the Energy Policy and Conservation Act (EPCA). Finally, DOE adopts provisions that clarify the point in time atwhich DOE's discretion to amend standards 1 

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

# :iF 

# 3

# OJ

[6450-01-P) DEPARTMENT OFENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFRPart430 [Docket NumberEE-RM-98-440] ruN:1904-AA77 Energy Conservation Program for Consumer Products; CentralAir Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: OfficeofEnergy Efficiency and Renewable Energy, Department ofEnergy.


### ACTION: Final rule.


### SUMMARY: The Department ofEnergy (DOE) today amends the existing energy conservation standards for central air conditioners and heat pumps by raising the minimum energy efficiency levels by 20 percent for most central air conditioners and heat pumps, with somewhat lower levels for certain space-constrained products. DOE also today withdraws a final rule, published
on January 22, 2001, that would have established even higher standards. DOE has determined that the standards inthe January 22 final rule, which neverbecame effective, are not economicallyjustifiedunderthe Energy Policy and Conservation Act (EPCA). Finally, DOE adopts provisions that clarify the point in time at which DOE's discretion to amend standards 

### 1

### becomes limited under EPCA. EE-RM/STD-98-440 

# -303 EFFECTIVE DATE: The effective date ofthis rule is [INSERT DATE 75 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER]. ADDRESSES: Youmay read copies ofthe public comments, the Technical Support Document for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps (TSD), the transcript ofthe public hearing, workshop transcripts inthis proceeding, the petition for reconsideration submitted by the Air-Conditioning and Refrigeration Institute, and other postpromulgation submissions at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586-3142, between the hours of9:00 a.m. and4:00 p.m., Monday through Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office ofEnergy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/centralairconditioner.html.

FOR FURTHER INFORMATION CONTACT: Michael Raymond, U.S. Department of Energy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586- 0854, e-mail: michael.raymond@ee.doe.gov, or Michael Bowers, Esq., U.S. Department ofEnergy, Office of General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-9507, e-mail: mike.bowers@hq.doe.gov.

2 becomes limited underEPCA. EE-RM/STD-98-440 

# ·-303 EFFECTIVE DATE: The effective date ofthis rule is [INSERT DATE 75 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER]. ADDRESSES: You may read copies ofthepublic comments, the Technical Support Document for Energy Efficiency Standards for ConsumerProducts: Central Air Conditioners and Heat Pumps (TSD), thetranscript ofthe public hearing, workshop transcripts in this proceeding, the petition for reconsideration submitted by the Air-Conditioning and Refrigeration Institute, and otherpostpromulgation submissions at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586-3142, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office ofEnergy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner.htmI.

FORFURTHERINFORMATION CONTACT: Michael Raymond, U.S. Department of Energy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41 , 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586- 0854, e-mail: michael.raymond@ee.doe.gov, orMichael Bowers, Esq., U.S. Department ofEnergy, Office of General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-9507, e-mail: mike.bowers@hq.doe.gov.

2

### SUPPLEMENTARY INFORMATION: Table of Contents 

### EE-RM/STD-98-440 - 303 Table of Contents I. Introduction II. Rulemaking History III. Authority ofDOE to Reconsider and Withdraw the January 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners A. DOE's Analysis ofEPCA's Anti-Backsliding Provision B. Discussion ofPublic Comments onthe Anti-Backsliding Provision 1. Environmental Advocates' Views 2. ARI's Views IV. Basis for DOE's Decision to Withdraw the January 22, 2001 Final Rule A. Legal Issues B. Policy Issues V. Amended Energy Conservation Standards A. Overview 1. Central Air Conditioner and Heat Pump Features 2. Consumer Benefits 3. National Benefits B. Statutory Framework C. Methodology Used in DOE Analyses D. General Discussion ofDOE's Consideration ofStatutory Criteria 1. Technological Feasibility 2. Economic Justification Factors a. Economic Impact on Manufacturers and Consumers b. Life-cycle Costs and Rebuttable Presumption c. Energy Savings d. Lessening ofUtility orPerformance ofProducts e. Impact ofLessening ofCompetition f. Need ofthe Nation to Conserve Energy g. Other Factors VI. Discussion ofComments A. Impact on Consumers 1. Low-Income Consumers 2. Electricity Prices 3. Installation Costs 4. Manufactured Housing Owners B. Life-Cycle Cost and Payback Period 1. Product Lifetime 2. Warranty, Maintenance, and Service Costs 3. Markups 4. Energy Use 5. Rebuttable Payback Period 3 SUPPLEMENTARYINFORMATION: Table ofContents l. Introduction II. Rulemaking History EE-RM/STD-98-440 - 

# 303

III. Authority ofDOE to Reconsider and Withdrawthe January 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners A. DOE'sAnalysis ofEPCA'sAnti-Backsliding Provision B. DiscussionofPublic Comments onthe Anti-Backsliding Provision 1. Environmental Advocates' Views 2. ARI'sViews IV. Basis for DOE's Decisionto Withdraw the January 22,2001 Final Rule A. Legal Issues 

### B. Policy Issues V. AmendedEnergy Conservation Standards A. Overview
. 1. Central Air Conditioner and Heat PumpFeatures 2. Consumer Benefits 3. National Benefits B. Statutory Framework 

## c. Methodology Used inDOE Analyses D. General Discussion ofDOE's Consideration ofStatutory Criteria 1. Technological Feasibility 2. Economic Justification Factors a. Economic Impact onManufacturers and Consumers b. Life-cycle Costs and Rebuttable Presumption c. Energy Savings d. Lessening ofUtility orPerformance ofProducts e. ImpactofLessening ofCompetition f. Need ofthe Nationto Conserve Energy g. OtherFactors VI. Discussion ofComments A. Impact on Consumers 1. Low-Income Consumers 2. Electricity Prices 3. Installation Costs 4. Manufactured Housing Owners B. Life-Cycle Cost and Payback Period 

### 1. Product Lifetime 2. Warranty, Maintenance, and Service Costs 3. Markups 4. Energy Use 5. Rebuttable PaybackPeriod 

### 3

### C. Shipments/National Energy Savings 1. Shipments Forecasts EE-RM/STD-98-440 3D 2. Heat Rates 3. Fuel Switching D. Impact on Manufacturers 1. Cumulative Regulatory Burden 2. Financial Burdens Associated with New Standards 3. Small Manufacturers 4. Manufacturer Cost Estimates E. Effect on Competition F. Effect on Utility or Performance 1. Dehumidification G. Electric System Reliability/Peak Power 1. Peak Power 2. Reliability H. Other Issues 1. Minimum EER Requirement 2. TXV Requirement 3. State Exemption From DOE Standards 4. Effective Date 5. Environmental Impacts 6. Employment Impacts 7. Space-Constrained Products a. Through-the-Wall Products b. Small Duct, High Velocity Systems 8. Basis for HSPF Level 9. Non-Regulatory Approaches 10. Energy Policy VII. Analytical Results and Conclusions A. Overview ofAnalytical Results 1. General 2. Through-the-Wall Products 3. Small Duct, High Velocity Systems B. Conclusions Regarding Conventional Products C. Conclusions Regarding Space-Constrained Products 1. Through-the-Wall Products 2. Small Duct, High Velocity Systems VIII. Procedural Issues and Regulatory Review A. Review Under theNational Environmental Policy Act B. Review Under Executive Order 12866 C. Review Under the Regulatory Flexibility Act D. Review Under the Paperwork Reduction Act E. Review Under Executive Order 12988 4 C. Shipments/National Energy Savings 

### 1. Shipments Forecasts 2. Heat Rates 3. Fuel Switching D. Impact on Manufacturers 1. Cumulative Regulatory Burden 2. Financial Burdens Associated with New Standards 3. Small Manufacturers 4. Manufacturer Cost Estimates E. Effect on Competition F. Effect on Utility orPerfonnance 1. Dehumidification G. Electric System ReliabilityfPeak Power 1. Peak Power 2. Reliability H. Other Issues 1. Minimum EERRequirement 2. TXV Requirement 3. State Exemption From DOE Standards 4. Effective Date 5. Environmental Impacts 6. Employment Impacts 7. Space-Constrained Products a. Through-the-Wall Products

.b. Small Duct, High Velocity Systems 8. Basis for HSPF Level 9. Non-Regulatory Approaches 10. Energy Policy VII. Analytical Results and Conclusions A. Overview ofAnalytical Results 1. General 2. Through-the-Wall Products 3. Small Duct, High Velocity Systems B. Conclusions Regarding Conventional Products CConclusionsRegarding Space-Constrained Products 1. Through-the-Wall Products 2. Small Duct, High Velocity Systems VIII. Procedural Issues and Regulatory Review A. Review Underthe National Environmental Policy Act B. Review Under Executive Order 12866 

### C. Review Under the Regulatory Flexibility Act D. Review Underthe Paperwork Reduction Act E. Review Under Executive Order 12988
4**EE~RM/STD-98a440** ....

# 303

### F. Review Under Executive Order 12630 EE-RM/STD-98-440 -3 

## 3 G. Review Under Executive Order 13132 H. Review Under the Unfunded Mandates Reform Act of 1995 I. Review Under the Treasury and General Government Appropriations Act, 1999 J. Review Under Executive Order 13211 K. Congressional Notification

I. Introduction DOE today publishes three final rulemaking determinations with respect to amended central air conditioner and heat pump energy conservation standards under section 325 ofthe Energy Policy and Conservation Act (42 U.S.C. 6295). First, for reasons described in detail in Section IV ofthis Supplementary Information, DOE hereby withdraws the January 22, 2001 final rule that would have established 13 asthe mandatory Seasonal Energy Efficiency Rating (SEER)' for most central air conditioners and central air conditioning heat pumps (heat pumps). DOE withdraws the final rule because it: (1) was promulgated without consulting with the Attorney General on potential anti-competitive effects, (2) contained a material defect in the statement of basis and purpose required by the Administrative Procedure Act (APA), (3) contained an effective date in conflict with the Congressional Review Act's lie-before-the-Congress requirement for major rules, and (4) was based on an assessment ofbenefits andburdens that resulted in an erroneous conclusion that a 13 SEER standard for both central air conditioners and central air conditioning heat pumps would be economically justified under title III, part B ofthe Energy Policy and Conservation Act (EPCA)(42 U.S.C. 6291 et seq.). Second, DOE adopts regulatory provisions that implement section 325(o)(1) ofEPCA, including definitions ofthe

'The Seasonal Energy Efficiency Ratio or SEER is DOE's measure of energy efficiency for the seasonal cooling performance ofcentral air conditioners and central air conditioning heat pumps. 

### 5 F. Review UnderExecutive Order 12630 EE-RM/STD-98-440- 

# 3 

# D 3 G. Review Under Executive Order 13132 H. Review Under the Unfunded Mandates Reform Act of 1995 I. Review Underthe Treasury and General Government Appropriations Act, 1999 

### 1. ReviewUnderExecutive Order 13211 K. Congressional Notification



### I. Introduction DOE today publishes three final rulemaking determinations with respect to amended central air conditioner and heat pump energy conservation standards under section 325 ofthe Energy Policy and ConservationAct (42 U.S.C. 6295). First, for reasons described in detail in Section IV ofthis Supplementary Information, DOE hereby withdraws the January 22, 2001 final rule that would have established 13 as the mandatory Seasonal Energy Efficiency Rating (SEER)I for most central air conditioners and central-air conditioning heat pumps (heat pumps). DOE withdraws the final rule because it: (1) was promulgated without consulting with the Attorney General on potential anti-competitive effects, (2) contained a material defect in the statement of basis and purpose requited by the Administrative Procedure Act (APA), (3) contained an effective date in conflict with the Congressional ReviewAct's lie-before-the-Congress requirement for major rules, and (4) was basedon an assessmentofbenefits and burdens that resulted in an erroneous conclusion that a 13 SEER standard for both central air conditioners and central air conditioning heat pumps would be economicallyjustifiedundertitle III, part B ofthe Energy Policy and Conservation Act (EPCA)(42 U.S.C.6291 et seq.). Second, DOE adopts regulatory provisions that implement section 325(0)(1) ofEPCA, including definitions ofthe

IThe Seasonal Energy Efficiency Ratio or SEER is DOE's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and central air conditioning heat pumps. 5

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

- 3 O3 statutory terms "maximum allowable energy use" and "minimum required energy efficiency," andthereby pinpoints the point in time at which DOE's discretion to alter an amended standard becomes limited. The basis for this determination is discussed in Section III ofthis Supplementary Information. Third, DOE finalizes 12 SEER and 7.4 Heating System Performance Factor (HSPF)2 

### as the amended energy conservation standard for most central air conditioner and central air conditioning heat pumps and adopts lower standards for certain spaceconstrained products. The basis for these determinations is discussed in Sections V through VII ofthis Supplementary Information II. Rulemaking History The existing standards for residential central air conditioners and heatpumps were prescribed by the National Appliance Energy Conservation Act of 1987 (NAECA) (Pub. L. 100- 12) and have been in effect since 1992. The current central air conditioner and heat pump efficiency standards are as follows:

- Split system air conditioners and heat pumps - 10 SEER/6.8 HSPF

- Single package air conditioners and heat pumps - 9.7 SEER/6.6 HSPF On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing DOE's intention to revise the existing central air conditioner and heat pump efficiency standard pursuant to section 325(d) ofEPCA, as amended by NAECA. 58 FR 47326. The fiscal year (FY) 1996 appropriations legislation for DOE imposed a moratorium on proposed and final energy conservation standards. Pub. L. 104-134. During the moratorium,

2The Heating Seasonal Performance Factor is DOE's measure ofenergy efficiency for the seasonal heating performance ofheat pumps. 

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

### 303 statutory tenns "maximum allowable energy use" and "minimumrequired energy efficiency," andthereby pinpoints the point in time at which DOE's discretion to alter an amended standard becomes limited. The basis for this detennination is discussed in Section III ofthis Supplementary Infonnation. Third, DOE finalizes 12 SEER and 7.4 Heating System Perfonnance Factor (HSPFf as the amended energy conservation standard for most central air conditioner and central air conditioning heat pumps and adopts lower standards for certain spaceconstrainedproducts. The basis for these detenninations is discussed in Sections V through VII ofthis Supplementary Infonnation 

### II. Rulemaking History The existing standards for residential central air conditioners and heat pumps were prescribed by the National Appliance Energy ConservationAct of 1987 (NAECA) (Pub. L. 100- 12) and have been in effect since 1992. The current central air conditioner and heat pump efficiency standards are as follows:

- Split system air conditioners and heat pumps - 10 SEER/6.8 HSPF

- Singlepackage air conditioners and heat pumps - 9.7 SEER/6.6 HSPF On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing DOE's intention to revise the existing central air conditioner and heat pump efficiency standard pursuantto section 325(d) ofEPCA, as amended by NAECA. 58 FR 47326. The fiscal year (FY) 1996 appropriations legislation for DOE imposed a moratorium on proposed and final energy conservation standards. Pub. L. 104-134. During the moratorium,

2The Heating Seasonal Perfonnance Factor is DOE's measure ofenergy efficiency for the seasonal heating perfonnance ofheat pumps. 6

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

## 33 DOE responded to congressional concern about how the appliance standards program was working by consulting with abroad spectrum ofinterested persons on possible improvements. As a result, on July 15, 1996, DOE published a new policy on how it would conduct appliance standards rulemaking (61 FR 36974). The new policy, "Procedures for Consideration ofNew or Revised Energy Conservation Standards for Consumer Products," is commonly referred to as the Process Improvement Rule and is codified at 10 CFR part430, subpart C, Appendix A. Under this new policy, DOE presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking during a workshop on June 30, 1998. The analytical framework described the different analyses that DOE would conduct, the methods for conducting them, the use ofnew spreadsheets, and the relationship ofthe various analyses. On November 24, 1999, DOE published a Supplemental ANOPR for central air conditioners and heat pumps and invited additional comment on issues raised following publication ofthe original ANOPR. 64 FR 66306. DOE published a notice ofproposed rulemaking on October 5, 2000 (October 5, 2000 NOPR). 65 FR 59590. The energy efficiency standards that DOE proposed for residential central air conditioners and heat pumps were as follows:

- Split-system and single-package air conditioners -12 SEER

- Split-system and single package heat pumps - 13 SEER/7.7 HSPF

- Through-the-wall air conditioners and heat pumps - 11 SEER/7.1 HSPF. In addition to the increase proposed in SEER and HSPF, DOE requested comments on a proposal to adopt a standard for steady-state cooling efficiency, denominated EER (or Energy Efficiency Ratio). The proposal ofan EER was designed to ensure more efficient operation at 7 EE-RM/STD-98-440-

### 303 DOE respondedto congressional concern about howthe appliance standards program was working by consulting with a broad spectrum ofinterested persons onpossible improvements. As aresult, on July 15, 1996, DOEpublished a new policy on howit would conduct appliance standards rulemaking (61 FR 36974). The new policy, "Procedures for Consideration ofNew or Revised Energy Conservation Standards for Consumer Products," is commonly referred to as the Process ImprovementRule and is codified at 10 CFRpart430, subpart C, Appendix A. Under this newpolicy; DOE presented for comment an analytical framework for the central air conditioner and heatpump st(ll1dards rulemaking during a workshop on June 30, 1998. The analytical framework described the different analyses that DOE would conduct, the methods for conductingthem, the use ofnew spreadsheets, and the relationship ofthe various analyses. On November24, 1999, DOE publisheda Supplemental ANOPRfor central air conditioners and heat pumps and invited additional commenton issues raised following publication ofthe original ANOPR. 64 FR66306. DOE published a notice ofproposedrulemaking on October 5, 2000 (October 5, 2000 NOPR). 65 FR59590. The energy efficiency standards that DOE proposed for residential central air conditioners and heatpumps were as follows:

- Split-system and single-package air conditioners -12 SEER

- Split-system and single package heat pumps - 13 SEERl7.7 HSPF

- Through-the-wall air conditioners and heatpumps - 11 SEERl7.I HSPF. In additionto the increase proposed in. SEER and HSPF, DOE requested comments on a proposal to adopt a standard for steady-state cooling efficiency, denominated EER(or Energy Efficiency Ratio). The proposal ofan EERwas designed to ensure more efficient operation at 7

### EE-RM/STD-98-440 -303 high outdoor temperatures, during periods when electricity use by air conditioners isat its peak. A public hearing was held in Washington, D.C. on November 16, 2000, to hear oral views, data and arguments on the proposed rule. On January 22, 2001, atthe close ofthe Clinton Administration, DOE published afinal rule that would have required a SEER of 13 for all classes ofcentral air conditioners, exceptfor "niche" products which were omitted from the rule, and acorresponding HSPF of7.7 for central airconditioning heat pumps (Final Rule, "Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pump Energy Conservation Standards," 61 FR 7170). Pursuant to President Bush's Regulatory Review Plan, 3 

### DOE conducted an internal review ofthe final, not-yet-effective rules issued under section 325 ofEPCA that DOE published atthe end ofthe Clinton Administration, including final rules concerning energy conservation standards for clothes washers, water heaters, and central airconditioners and central air conditioning heat pumps. Consistent with the EPCA criteria for determining whether a standard level is economicallyjustified under section 325 (42 U.S.C. 6295(o)(2)(B)), DOE examined each ofthese three rules to determine, among other things, whether the rulemaking record was complete and whether the affirmative determination ofeconomicjustification was based on adequate findings withregard to the statutorily required considerations that make up the test of economicjustification. While DOE examined the three appliance energy conservation standards rulemakings under the President's Regulatory Review Plan, DOE received petitions for reconsideration for

3 This Plan was set forth in a memorandum from Assistant to the President and Chiefof StaffAndrew H. Card, dated January 20, 2001, and published in the Federal Register on January 24, 2001 (66 FR7702). 

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

## 303 high outdoortemperatures, during periods when electricity use by air conditioners is at its peak. A public hearing was held in Washington, D.C. on November 16,2000, to hearoral views, data and arguments onthe proposed rule. On January 22, 2001, atthe close ofthe Clinton Administration, DOE published a final rule that wouldhave required a SEERof 13 for all classes ofcentral air conditioners, except for "niche"products which were omitted from the rule, and a corresponding HSPF of7.7 for central air conditioningheatpumps (Final Rule, "Energy Conservation Program for ConsumerProducts; Central AirConditioners and Heat Pump Energy Conservation Standards," 61 FR7170). Pursuantto President Bush's Regulatory Review Plan,3 DOE conducted an internal review ofthe final, not-yet-effective rules issued under section 325 ofEPCAthat DOE published at the end ofthe Clinton Administration, including final rules concerning energy conservation standards for clothes washers, waterheaters, and central air conditioners and central air conditioning heat pumps. Consistent with the EPCA criteriafor determining whether a standard level is economicallyjustifiedunder section 325 (42 U.S.C. 6295(0)(2)(B», DOE examined each ofthese three rules to determine, among otherthings, whetherthe rulemaking record was complete and whether the affirmative determination ofeconomicjustification was based on adequate findings withregard to the statutorily required considerations that make up the test of economicjustification. While DOE examined the three appliance energy conservation standards rulemakings under the President's Regulatory Review Plan, DOE received petitions for reconsideration for

3This Plan was set forth in a memorandum from Assistant to the President and ChiefofStaffAndrew H. Card, dated January 20, 2001, and published in the Federal Register on January 24, 2001 (66 FR7702). 8

### EE-RM/STD-98-440- 303 each final rule. In addition, DOE received notice that the Gas Appliance Manufacturers Association (with regard to the water heater rule) and the Air-Conditioning and Refrigeration Institute (ARI) and certain manufacturers (with regard to the central air conditioner rule) had filed petitions for review in the United States Court ofAppeals for the Fourth Circuit. Ultimately, DOE decided that neither the clothes washer rule nor the water heater rule warranted further rulemaking action and denied the related petitions forreconsideration. See 66 FR 19714 (April 17, 2001). With regard to central air conditioners and central air conditioning heat pumps, DOE concluded that ARI had raised substantial questions as to the legal sufficiency ofand basis for the January 22, 2001 final rule and that the interests of justice therefore dictated that DOE further postpone the rule's effective date in light ofthe pendency ofARI's petition for judicial review in the Fourth Circuit and its related petition for reconsideration. 66 FR 20191 (April 20, 2001). At that time DOE indicated that it would likely resolve these issues through supplemental rulemaking that would be forthcoming shortly. On June 19, 2001, the State ofNew York, several other states, the Natural Resources Defense Council, Consumer Federation ofAmerica, and the Public Utility Law Project sued DOE in the Federal court challenging its actions delaying the effective date ofthe January 22 final rule. The cases have been consolidated, with the states ofCalifornia, Connecticut, Vermont, Maine, New Jersey and Nevadajoining the lawsuit (State ofNew York et al. v. Abraham, 01 Civ. 5499 (LTS) and 01 Civ. 5500(LTS)(SDNY)). On July 25, 2001, DOE granted ARI's petition and published a three part supplemental proposal with regard to energy conservation standards for central air conditioners and central air conditioning heat pumps. 66 FR 38822. First, DOE proposed regulatory provisions to clarify 9 EE-RM/STD-98-440-

### 303 eachfinal rule. In addition, DOE received notice thatthe Gas Appliance Manufacturers Association (withregard to the waterheaterrule) and the Air-Conditioning and Refrigeration Institute (ARI) and certain manufacturers (with regard to the central air conditionerrule) had filed petitions for review in the United States Court ofAppeals for the Fourth Circuit. Ultimately, DOE decided that neitherthe clothes washer rule northewaterheaterrule warranted further rulemaking action and deniedthe related petitions for reconsideration. See 66 FR 19714 (April 17, 2001). With regard to central air conditioners and central air conditioning heat pumps, DOE concluded that ARI had raised substantial questions as to the legal sufficiency ofand basis for the January 22, 2001 final rule and that the interests of justicetherefore dictated that DOE further postpone the rule's effective date in light ofthependency ofARI'spetition for judicialreview inthe Fourth Circuit and its related petition for reconsideration. 66 FR20191 (April 20, 2001). Atthat time DOE indicated that it would likely resolve these issues through supplemental rulemaking that would be forthcoming shortly. OnJune 19,2001,the State ofNewYork, several other states, the Natural Resources DefenseCouncil, ConsumerFederation ofAmerica, and the Public Utility Law Project sued DOEin the Federal court challenging its actions delaying the effective date ofthe January 22 final rule. The cases have been consolidated, with the states ofCalifornia, Connecticut, Vermont, Maine, NewJersey andNevadajoiningthe lawsuit (State ofNew York et al. v. Abraham, 01 Civ. 5499(LTS) and 01 Civ; 5500(LTS)(SDNY». OnJuly 25, 2001, DOE granted ARI'spetition and published a three part supplemental proposal with regard to energy conservation standards for central air conditioners and central air conditioning heatpumps. 66 FR 38822. First, DOE proposed regulatory provisions to clarify
9

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

- 

### 30O that section 325(o)(1), which qualifies DOE's rulemaking authority to prescribe amended energy conservation standards, applies as ofan effective date for modifying the Code ofFederal Regulations (CFR) set forth in the notice offinal rulemaking and established consistent with the Congressional Review Act (5U.S.C. 801-804). Second, in order to correct arguable legal errors and policy shortcomings, DOEproposed to withdraw the January 22 final rule. Third, based on a re-assessment offactual information and analyses already inthe record, DOE proposed to determine that elevation ofthe currently enforceable central air conditioner and central air conditioning heat pump energy conservation standards by 20 percent isthe maximum increase that is economicallyjustified. Forproduct classes other than through-the-wall products, DOE proposed a SEER of 12 with a corresponding HSPF of7.4 which would apply to products manufactured in 2006. With respect tothrough-the-wall product classes, DOE proposed somewhat lower standards. DOE conducted apublic hearing in Washington, D.C. on October 2, 2001, to hear oral views, data and arguments on the proposed rule.

III. Authority ofDOE to Reconsider and Withdraw the January 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners The issue ofDOE's authority to withdraw the January 22 final rule and propose a 12 SEER standard was first raised in ARI's March 23, 2001 petition for reconsideration (ARI, No. 138) and in a responding letter submitted to Secretary Abraham by various environmental organizations on April 6, 2001 (Alliance to Save Energy, etal., ASE, No. 183). ARI contended that section 325(o)(1) ofEPCA, which prohibits DOE from decreasing the maximum allowable energy use or minimum required energy efficiency ofcovered products, did not apply to 10 

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

### 30~ that section 325(0)(1), which qualifies DOE'srulemaking authority to prescribe amended energy conservation standards, applies as ofan effective date for modifying the Code ofFederal Regulations (CFR) set forth in the notice offinal rulemaking and established consistent with the Congressional ReviewAct (5 U.S.c. 801-804). Second, in orderto correct arguable legal errors and policy shortcomings, DOEproposed to withdrawthe January 22 final rule. Third, based ona re-assessment offactual information and analyses already in therecord, DOE proposed to determine that elevation ofthe currently enforceable central air conditioner and central air conditioning heat pump energy conservation standards by 20 percent is the maximum increase that is economicallyjustified. Forproduct classes otherthan through-the-wall products, DOE proposed a SEERof 12 with a corresponding HSPF of7.4 which would apply to products manufactured in 2006. With respect to through-the-wall product classes, DOE proposed somewhat lower standards. DOE conducted a public hearing in Washington, D.C. on October2, 2001, to hear oral views, data and arguments onthe proposedrule
.

.III. Authority ofDOE to Reconsider and Withdraw the January 22, 2001 Final Rule and Adopt a

12·SEER Standard for Central Air Conditioners The issue ofDOE's authority to withdraw the January 22 final rule and propose a 12 SEER standardwas first raised in ARI's March 23, 2001 petition for reconsideration (ARI, No. 138) and in a responding letter submitted to Secretary Abraham by various environmental organizations onApril 6, 2001 (Alliance to Save Energy, et aI., ASE, No. 183). ARI contended that section 325(0)(1) ofEPCA, which prohibits DOE from decreasing the maximum allowable energy use orminimum required energy efficiency ofcoveredproducts, did not apply to 10

### EE-RM/STD-98-440- 303 

### reconsideration ofthe January 22 final rule because DOE had suspended the effective date ofthe rule (ARI, No. 138 atp. 3,n. 2). This provision has been referred to in the rulemaking as EPCA's "anti-backsliding provision." The environmental advocates took a contrary position, arguing that the anti-backsliding provision did apply and, thus, that DOE was precluded from reconsidering the rule and proposing a less stringent standard (ASE et al., No. 183 at p. 5). In the April 20, 2001, notice postponing the effective date ofthe January 22 final rule, DOE stated its intention to issue afurther notice ofproposed rulemaking that would propose a 12 SEER/7.4 HSPF standard for central air conditioners and heat pumps, and stated that it would invite public comment on its explanation ofthe statutory authority to make such aproposal upon reconsideration ofthe January 22 final rule (66 FR 20101). Subsequently inthe notice of supplemental proposed rule published on July 25, 2001 (July 25 SNOPR), DOE included a detailed explanation ofits interpretation of section 325(o)(1) ofEPCA. We repeat much ofthe July 25 SNOPR explanation here as apreface to a discussion ofpublic comments received on thisissue. (Repeating DOE's analysis ofsection 325(o)(1) here also will assist readers who otherwise would have to look back ata copy ofthe July 25 SNOPR.) A. DOE's Analysis ofEPCA 'sAnti-BackslidingProvision The starting point for the analysis ofDOE's authority to reconsider the January 22 final rule and propose 12 SEER standards is thetext ofthe statute. Section 325(o)(1) ofEPCA provides as follows: The Secretary may not prescribe any amended standard which increases the maximum allowable energy use, or, in the case ofshowerheads, faucets, water closets, or urinals, water use, or decreases the minimum required energy efficiency, ofa covered product.

11 EE-RM/STD-98-440-

### ~3 reconsideration ofthe January 22 final rule because DOE had suspended the effective date ofthe rule (ARI, No. 138 at p. 3, n. 2). This provision has been referred to in the rulemaking as EPCA's "anti-backsliding provision." The environmental advocates took a contrary position, arguing thatthe anti-backsliding provision did apply and, thus, that DOE was precluded from reconsidering the rule and proposing a less stringent standard (ASE etaI., No. 183 atp. 5). In the April 20, 2001, notice postponingthe effective date ofthe January 22 final rule, DOE stated its intention to issue a further notice ofproposed rulemaking that would propose a 12 SEERJ7.4 HSPF standard forcentraI airconditioners and heatpumps, and stated that it would invite public comment on its explanation ofthe statutory authority to make such a proposal upon reconsideration ofthe January 22 final rule (66 FR20101). Subsequently inthe notice of supplemental proposedrule published onJuly 25, 2001 (July 25 SNOPR), DOE included a detailed explanation ofits interpretation ofsection 325(0)(1) ofEPCA. We repeat much ofthe July 25 SNOPRexplanation here as a preface to a discussion ofpublic comments received on this issue. (Repeating DOE's analysis ofsection 325(0)(1) here also will assist readers who otherwise would have to look back at a copy ofthe July 25 SNOPR.) A. DOE'sAnalysis of EPCA 'sAnti-BackslidingProvision The starting point for the analysis ofDOE's authority to reconsiderthe January 22 final rule and propose 12 SEER standards is the text ofthe statute. Section 325(0)(1) ofEPCA provides as follows: The Secretary may not prescribe any amended standard which increases the maximum allowable energy use, or, in the case ofshowerheads, faucets, water closets,**o~** urinals, wateruse, ordecreases the minimum required energy . efficiency, ofa covered product.

11

### 42 U.S.C. 6295(o)(1). EE-RM/STD-98-440 -3 The critical term in section 325(o)(1), as it relates to the rulemaking on central air conditioners and heat pumps, is "minimum required energy efficiency." EPCA does not define this term. However, in context, itis clear that a SEER and an HSPF are benchmarks of "minimum required energy efficiency" for central air conditioners and heat pumps. See 42 U.S.C. 6295(d)(1) and (d)(2). The key question, however, is which SEER and HSPF represent the "minimum required energy efficiency" for central air conditioners and heat pumps that may .not be decreased by an amended standard. Had the new SEER and HSPF set out in the January 22, 2001, final rule been allowed to take effect, but (as the rule set forth) been made applicable only to appliances manufactured on or after January 23, 2006, we think this would be a close question. A reasonable argument could be made that the new SEER and HSPF became "required" immediately as to such appliances provided they were manufactured on or after January 23, 2006. A reasonable argument could also be made that the new SEER and HSPF would not be "required" until January 23, 2006, when appliances manufactured after that date would have had to comply with them. We address this question, and other considerations bearing onthe answer to it, at greater length below. In fact, however, the January 22, 2001 final rule expressly stated that the amendments it set out to existing standards in the Code ofFederal Regulations would not take effect until 30 days after publication in the Federal Register. Well before that date arrived, on February 2, 2001, DOE postponed that effective date for an additional 60 days. Before that 60-day period had passed, on April 18, 2001, DOE further postponed the amendments' effective date pending the outcome ofpetitions by ARI for reconsideration and forjudicial review. 12 42 U.S.C. 6295(0)(1). EE-RM/STD-98-440

...

## .303 The critical term in section 325(0)(1), as it relates to the rulemaking on central air conditioners and heat pumps, is "minimumrequired energy efficiency." EPCA does not define this term. However, in context, it is clearthat a SEERand an HSPF are benchmarks of "minimumrequired energy efficiency" for central airconditioners and heat pumps. See 42 U.S.C.6295(d)(1) and (d)(2). The key question, however, is which SEERand HSPF represent the "minimumrequired energy efficiency" for central air conditioners and heat pumps that may .not be decreased by an amended standard. Had the new SEER and HSPF set out in the January 22, 2001, final rule been allowed to take effect, but (as the rule set forth) been made applicable only to appliances manufactured on or afterJanuary 23, 2006, we think this wouldbe a close question. A reasonable argument could be made thatthe new SEER andHSPF became "required" immediately as to such appliances providedthey were manufactured on orafter January 23, 2006. A reasonable argument could also be made that the new SEERand HSPF would not be "required" until January 23, 2006, when appliances manufactured afterthat date would have had to comply with them. We address this question, and other considerations bearing onthe answer to it, at greater length below. Infact, however, the January22,2001 final rule expressly stated that the amendments it set out to existing standards in the Code ofFederal Regulations would not take effect until 30 days afterpublication inthe Federal Register. Well before that date arrived, onFebruary 2, 2001, DOEpostponed that effective date for an additional 60 days. Before that 60-day period had passed, on April 18,2001, DOE further postponed the amendments' effective date pending the outcome ofpetitions by ARI for reconsideration and forjudicial review.
12

### EE-RM/STD-98-440- 363. As a result, the new SEER and HSPF, though set out in a final rule, never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. There has never been a single moment under any understanding ofthe word "required" at which any central air conditioner or heat pump, including one manufactured after January 23, 2006, could even arguably have been legally required to be manufactured in conformity with them. Hence, whatever might have been the case had the January 22 final rule been allowed to take effect, we do not see how the publication ofa final rule that would have changed those standards, but was prevented by later agency action from doing so, could possibly establish "minimum required energy efficiency" benchmarks. This interpretation of"minimum required energy efficiency" is reinforced by the rest of the sentence in section 325(o)(1) ofwhich the phrase is apart. That sentence establishes a limitation on the "amended standards" the Secretary may prescribe. That wording strongly suggests that the "minimum required energy efficiency" levels below which the Secretary may not go are the ones established by the standards being amended. Because ofthe various actions postponing the effective date ofthe amendments to the standards it proposed, the January 22, 2001 rule never actually effectuated any amendment to the prior standards. Therefore, the standards that DOE proposed to amend are not the ones that would have been in place had the amendments set out in the January 22 rule actually been made. Rather, they are the standards prescribed by NAECA (SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured after January 1, 1993), unamended until now by anything, including the never-made-effective amendments set out in the January 22, 2001 rule. 13 EE-RM/STD-98-44()"

### 303. As aresult, the new SEER and HSPF, though set out in a final rule, never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. There has
neverbeen a single moment under any understanding ofthe word "required" at which any central airconditionerorheat pump, including one manufactured after January 23, 2006, could even arguably have been legally required to be manufactured in conformity with them. Hence, whatevermight have been the case had the January 22 final rule been allowed to take effect, we do not see howthe publication ofa final rule that would have changed those standards, but was prevented by later agency action from doing so, could possibly establish "minimumrequired energy efficiency" benchmarks. This interpretation of"minimumrequired energy efficiency" is reinforced by the rest of the sentence in section 325(0)(1) ofwhich the phrase is a part. That sentence establishes a limitation on the "amended standards"the Secretary may prescribe. That wording strongly suggests that the "minimumrequired energy efficiency" levels below which the Secretary may not go are the ones established by the standards being amended. Because ofthe various actions postponing the effective date ofthe amendments to the standards it proposed, the January 22, 2001 rule never actually effectuated any amendment to the prior standards. Therefore, the standardsthat DOE proposed tq amend are not the ones that would have been in place had the amendments set out in the January 22 rule actually been made. Rather, they are the standards prescribed by NAECA (SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured after January 1, 1993), unamended until nowby anything, including the never-made-effective amendments set out in the January 22, 2001 rule. 13

### EE-RM/STD-98-440- 33 Notwithstanding public comments (discussed below), DOE continues to believe the foregoing analysis establishes that EPCA is unambiguous on the question ofwhether standards that are published in the Federal Register, but not yet effective, represent the "minimum required energy efficiency" benchmarks for central air conditioners and heat pumps forpurposes of section 325(o)(1). We think it is clear from the statutory text that such standards do not represent the benchmarks for "minimum required energy efficiency." We also believe that even ifthe statute were found to be ambiguous, for the reasons set out in the discussion that follows, that would not be the interpretation that we should select as a matter ofpolicy. Ifpublished but not yet effective standards are not the benchmarks for "minimum required energy efficiency" in section 325(o)(1), the question remains whether DOE should construe the term "minimum required energy efficiency" to mean (A) energy efficiency standards that are not yet enforceable against the manufacturers, but that have been prescribed in a final rule amending prior standards, which amendments have been made to the CFRpursuant to an effective date that has passed; or (B) energy efficiency standards that are currently enforceable against the manufacturers ifthey manufacture and sell a non-compliant product. DOE believes that alternative (A) is the preferable construction ofthe term, but only if the effective date selected for the final rule is consistent with other applicable laws and regulations and allows the Secretary an opportunity promptly to correct legal and policy errors that may have been contained in the final rule. Ifthat precondition is satisfied, DOE believes alternative (A) will better advance the relevant statutory and policy considerations underlying section 325(o)(1): to promote greater energy efficiency while providing greater certainty to manufacturers who must plan and make the expenditures necessary to comply with an amended 14 EE-RM/STD-98-440-363 Notwithstanding public comments (discussed below), DOE continues to believe the foregoing analysis establishesthat EPCA isunambiguous onthe question ofwhether standards that are published in the Federal Register, butnot yet effective, represent the "minimumrequired energy efficiency" benchmarks for central air conditioners and heatpumps for purposes of section 325(0)(1). Wethinkit is clear from the statutory text that such standards do not represent thebenchmarks for "minimumrequired energy efficiency." We also believethat even ifthe statute were found to be ambiguous, for the reasons set out in the discussion that follows, that would 110t be the interpretation that we should select as a matter ofpolicy. Ifpublished butnot yet effective standards are not the benchmarks for "minimum requiredenergy efficiency" in section 325(0)(1), the question remains whether DOE should construe the term "minimumrequired energy efficiency" to mean (A) energy efficiency standards that are not yet enforceable against themanufacturers, but that have been prescribed in a final rule amending prior standards, which amendments have been made to the CFRpursuantto an effective date thathas passed; or (B) energy efficiency standards that are currently enforceable against the manufacturers ifthey manufacture and sell a non-compliant product. DOE believes that alternative (A)is the preferable construction ofthe term, but only if the effective date selected for the final rule is consistent with other applicable laws and regulations and allows the Secretary an opportunity promptly to correctlegal andpolicy errors that may have been contained in the final rule. Ifthat precondition is satisfied, DOE believes alternative (A) will better advance the relevant statutory andpolicy considerations underlying section 325(0)(1): to promote greater energy efficiency while providing greater certainty to manufacturers who mustplan and make the expenditures necessary to comply with an amended
14

### EE-RM/STD-98-440- 303 energy conservation standard -- which is often a multi-year endeavor with substantial costs. We note that the relative certainty the interpretation set out in alternative (A) produces for manufacturers, which is a key comparative advantage ofthis interpretation over the competing one, is intimately tied to aproper effective date choice that facilitates prompt error correction, thereby potentially avoiding litigation that would seriously undermine the certainty sought to be achieved. DOE believes that this resolution ofthe ambiguities in the statute is consistent with the statute's text, structure, legislative history, and the fundamental policy choices it makes. We believe that on balance this approach better accomplishes the statute's objectives than either adopting alternative (A) without the qualification set out above, thereby establishing a set of procedures that could have the effect ofpreventing the Secretary, within a short period after publication ofa final rule that would modify such standards, from correcting defects in them that subsequently come to his attention; or adopting alternative (B), thereby reading the phrase "minimum required energy efficiency" to encompass only energy efficiency standards as ofthe date upon which manufacturers have to comply with those standards. Although at least the latter approach may well be a permissible interpretation ofsection 325(o)(1), DOE believes that the view set out in our proposed rule isthe better one. The latter view

- that a standard is only covered by section 325(o)(1) after manufacturers are required to comply with it

- does at first blush appear to be the most natural reading ofthe phrase. This view, however, is in tension with the rest ofthe sentence, which, as explained above, suggests that the relevant point ofcomparison is the standard being amended, regardless ofwhether manufacturers actually have to comply with it. Moreover, ifadopted, this 15 EE-RM/STD-98-440- 

### 303 energy conservation standard

-- which is often a multi-year endeavor with substantial costs. We note that the relative certainty the interpretation set out in alternative (A) produces for manufacturers, which is a key comparative advantage ofthis interpretation over the competing one, is intimately tiedto a proper .effective date choice that facilitates prompt error correction, thereby potentially avoiding litigationthat would seriously undermine the certainty sought to be achieved. DOE believes that this resolution ofthe ambiguities in the statute is consistent with the statute'stext, structure, legislative history, and the fundamental policy choices it makes. We believe that on balance this approach better accomplishes the statute's objectives than either adopting alternative (A) without the qualification set outabove, thereby establishing a set of procedures that could have the effect ofpreventing the Secretary, within a short period after publication ofa final rule that would modify such standards, from correcting defects in themthat subsequently come to his attention; oradopting alternative (B), thereby reading the phrase "minimum required energy efficiency" to encompass only energy efficiency standards as ofthe date upon which manufacturers have to comply with those standards. Although at least the latter approach may well be a permissible interpretation ofsection 325(0)(1), DOE believes that the view set out in ourproposed rule is the better one. The latter view

- that astandard is only covered by section 325(0)(1) after manufacturers are required to comply with it

- does at first blush appearto be the mostnatural reading ofthe phrase. This view, however, is in tension with the rest ofthe sentence, which, as explained above, suggests that the relevant point ofcomparison is the Standard being amended,

.regardless ofwhether manufacturers actually have to comply with it. Moreover, ifadopted, this
15

### EE-RM/STD-98-440- 303 view would allow the Secretary to change the energy efficiency standards right up to the minute before the compliance date. This seems to slight important reliance interests given significant weight in other respects by EPCA's provisions on central air conditioner standards. For example, section 325(d) provides that with respect to central air conditioners, any amended standard contained in a final rule published on January 1, 1994, can apply only to products manufactured on or after January 1, 1999. It similarly provides that any amended standard contained in a final rule published between January 1, 1994, and January 1,2001, can apply only toproducts manufactured on or after January 1,2006. The purpose ofthese delays is plainly to give manufacturers a significant amount oftime to develop and manufacture new products after a
new standard is adopted but before itbecomes enforceable. These delays also suggest that a change ofstandard on the eve ofthe manufacture ofaproduct would be quite disruptive

- which stands to reason given the lead-time necessary to be in a position to manufacture a compliant product. Thus, to allow a standard to be blocked at the last minute before the compliance deadline would potentially leave a rather large residual uncertainty difficult to reconcile with the central purpose ofestablishing a climate ofregulatory stability served by these closely related portions ofEPCA. The legislative history ofsection 325(o)(1), although sparse, also suggests that this interpretation may notbe the one best suited to accomplish the statute's objectives. In discussing this provision in the House bill, the House report states: DOE may not prescribe an amended standard that increases the maximum allowable energy use or decreases the minimum required energy efficiency ofa covered product. The purpose ofthis requirement is to prevent the Secretary from weakening any energy conservation standard for a covered product, whether established in this Act or subsequently adopted. This 16 EE-RM/STD-98-440-

### 303. view would allow the Secretary tochange the energy efficiency standardsright up to the minute before the compliance date. This seems to slight importantreliance interests given significant weight in otherrespects by EPCA'sprovisions on central air conditioner standards. For example, section 325(d)provides that withrespectto central air conditioners, any amended standard contained in a final rule published onJanuary 1, 1994, can apply only to products manufactured on or afterJanuary 1, 1999. It similarly provides that any amended standard contained ina final rule published betweenJanuary 1, 1994, and January 1, 2001, can apply only to products manufactured on or after January 1, 2006. The purpose ofthese delays is plainly to give manufacturers a significant amount oftime to develop and manufacture newproducts after a
new standard is adopted butbefore it becomes enforceable. These delays also suggest that a change ofstandard onthe eve ofthe manufacture ofa product would be quite disruptive

- which stands to reason given the lead-time necessary to be in a position to manufacture a compliantproduct. Thus, to allow a standard to be blocked atthe last minute before the compliance deadline would potentially leave a rather large residual uncertainty difficult to reconcile with the central purpose ofestablishing a climate ofregulatory stability served by these closely related portions ofEPCA. The legislative history ofsection 325(0)(1), although sparse, also suggests thatthis interpretation may not be the one best suited to accomplishthe statute's objectives. In discussing this provision in the House bill, the House report states: DOE may notprescribe an amended standard that increases the maximum allowable energy use ordecreases the minimum required energy efficiency ofa covered product. The purpose ofthis requirement is to prevent the Secretary from weakening any energy conservation standard for a covered product, whether established in this Act or subsequently adopted. This 16

### EE.RM/STD-98-440 - 303 servesto maintainaclimateof relativestabilitywith respectto future planningby allinterested parties.
.. House Report No. 100-11 atp. 22 (emphasis added). This language suggest that section 325(o)(1) was specifically expected, at least in the view ofthe House Committee, to act harmoniously withthe other provisions ofEPCA discussed above in facilitating regulatory certainty. The latterpurpose is better accomplished by construing the provision to become applicable at apoint wellbefore the compliance date. On the other hand, the reliance interests at stake also are notbest served in the long run by takingthe opposite course and adopting the viewthat section 325(o)(1) becomes applicable at the earliest possible moment. Let us imagine, for example, that DOE were routinely to make final rules containing standards potentially subject to section 325(o)(1) effective as soon as possible under the Administrative Procedure Act (APA). This would likelyresult in its making such rules effective 30 days afterpublication. DOE also could refuse toreconsider any aspect ofsuch arule relevant to the standard (unless it could complete its consideration and correct any errors within that 30-day time period), no matter how serious or legitimate a question might be raised, since to do so effectively, it would have toprevent the standard from going into effect. This approach, however, would not be thebest way for DOE to promote regulatory certainty either. It is common for agencies to entertain petitions for reconsideration atleast for a short period after issuance ofafinal rule as well as to correct errors on their own motion during thattime. Moreover, there is good reason why agencies follow this course, since otherwise such
errors would have to await the completion of judicial review before they could be corrected, thereby creating substantial delay and uncertainty. Accordingly, this approach too, in addition to 17 EE-RM/STD-98-440 - 

### 303 serves to maintain a climate of relative stability with respect tofuture planningbyall interestedparties
. .. House ReportNo. 100-11 atp. 22 (emphasis added). This language suggestthat section 325(0)(1) was specifically expected, at least in the view ofthe House Committee, to actharmoniously withthe otherprovisions ofEPCA discussed above in facilitating regulatory certainty. The latterpurpose is better accomplished by construing the provisionto become applicable at a pointwell before the compliance date.
. On the otherhand, the reliance interests at stake also are notbest served in the long run by takingthe opposite course and adopting the viewthat section 325(0)(1)becomes applicable atthe earliestpossible moment. Letus imagine, for example, that DOE were routinely to make final rules containing standards potentially subjectto section 325(0)(1) effective as soon as possible underthe Administrative ProcedureAct (APA). This would likely resultin its making suchrules effective 30days afterpublication. DOE also couldrefuse to reconsider any aspect ofsuch a rule relevant to the standard (unless it could complete its consideration and correct any errors within that**3~-day** time period), no matterhow serious or legitimate a question might be raised, sinceto do so effectively, it would have to prevent the standard from going into effect. This approach, however, would not bethe best way for DOEto promote regulatory certainty either. Itis common for agencies to entertainpetitions for reconsideration at least for a shortperiod after issuance ofa final rule as well as to correct errors ontheir own motion during thattime. Moreover, there is good reason why agencies follow this course, since otherwise such
errors would have 10 awaitthe completion of judicialreviewbefore they could be corrected, thereby creating substantial delay and uncertainty. Accordingly, this approachtoo, in addition to 17

### EE-RM/STD-98- 44 

### 0 - 33 running counter to ordinary administrative practices that there is no reason to believe section 325(o)(1) was intended to abrogate, is not the best way to advance the regulatory stability sought by section 325(o)(1) and the other related EPCA provisions discussed above. With respect to major rules, this approach also would create unnecessary conflict between section 325(o)(1) and the Congressional Review Act (CRA) (5 U.S.C. 801-804) enacted in 1996. Under the CRA, before a final rule can become "effective," DOE must send a report to Congress (5 U.S.C. 801(a)(l)(A) and (B)). With respect to a "major rule" within the meaning of5 U.S.C. .804(2), the CRA provides for the passing ofa 60-calendar-day-lie-before-the-Congress period, after submission ofthe agency report, at the end ofwhich a final rule could become effective in the absence ofa Congressional resolution ofdisapproval (5 U.S.C. 801(a)(3)). CRA allows for an exception to the 60-day-lie-before requirement only ifthe President determines that a major rule should take effect before the end ofthat period because ofan imminent health or safety threat or other emergency; because itis necessary to the enforcement ofcriminal laws or national security;

or ifit is issued pursuant to a statute implementing an international trade agreement (5 U.S.C. 80 1(c)).In DOE's view, this last set ofconsiderations also points the way to the answer to the question ofat what time amendments to an energy-efficiency-setting-standard should best be viewed as having set "minimum required energy efficiency" benchmarks. Forthe reasons explained at the beginning ofthis section, that time must be after the final rule making the amendments tothe standard is in effect. But, consistent with the objective ofsection 325(o)(1) and the other closely related EPCA provisions ofpromoting regulatory certainty, and to harmonize section 325(o)(1) with common administrative practice and the CRA, such final rules 18 EE-RM/STO-9S-440.- 

## 3613 running counter to ordinary.administrative practices that there is no reason to believe section 325(0)(1) was intended to abrogate, is notthe best way to advance the regulatory stability sought by section 325(0)(1) and the otherrelated EPCA provisions discussed above. With respectto majorrules, this approach also would create unnecessary conflictbetween section 325(0)(1) and the Congressional Review Act (CRA) (5 U.S.c. 801-804) enacted in 1996. Under the CRA,before a final rule canbecome "effective," DOE must send areport to Congress (5 U.S.C. 801(a)(l)(A) and (B)). With respect to a "majorrule" withinthe meaning of5U.S.C
.

.804(2), the CRA provides for the passing ofa 60-calendar-day-lie-before-the-Congress period, after submission ofthe agency report, atthe end ofwhich a final rule could become effective in the absence ofaCongressional resolution ofdisapproval (5 U.S.c. 801(a)(3)). CRA allows for an exception tothe 60-day-lie-before requirement only ifthe President determines that a majorrule should take effect before the end ofthat periodbecause ofan imminent health or safety threat or other emergency; because itis necessary to the enforcement ofcriminal laws ornational security;

or ifit is issued pursuant to a statute implementing an international trade agreement (5 U.S.C. 801 (c)). In DOE's view, this last set ofconsiderations also points the way to the answer to the question ofat what time amendments to an energy-efficiency-setting-standard should best be viewed as having set "minimum required energy efficiency"benchmarks. Forthe reasons explained at the beginning ofthis section, that time must be afterthe final rule making the amendments tothe standard is in effect. But, consistent with the objective ofsection 325(0)(1) and the other closely related EPCAprovisions ofpromoting regulatory certainty, and to harmonize section 325(0)(1) with common administrative practice and the CRA, such final rules 18

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

## 3 D3 should ordinarily be made effective only after a reasonable hiatus after the date ofpublication has elapsed, allowing for prompt use ofordinary administrative error correction procedures and completion ofcongressional review under CRA. This isthe earliest that manufacturer planning in reliance on a final major rule to amend appliance energy conservation standards can realistically be expected to begin. The certainty ofthe regulatory regime sought to be achieved therefore cannot occur until that time. Accordingly, DOE believes it should construe section 325(o)(1) as applying to standards designed to set "minimum required energy efficiency" benchmarks at thepoint in time afinal rule containing such a standard becomes effective. It also believes, however, that it should take care to select effective dates for final rules containing such standards that are consistent withthe CRA and any other applicable law. This approach will bestpromote the regulatory certainty sought by section 325(o)(1) and its companion provisions and also comports well with the ordinary understanding ofwhen a rule containing such standards has established "require[ments]." Based on this consideration ofthe meaning ofsection 325(o)(1), DOE proposed to adopt a series ofamendments tothe EPCA rules intended to address these general issues. First, it proposed definitions ofthe terms "maximum allowable energy use" and "minimum required energy efficiency" as energy conservation standards established by afinal rule that has become effective inthe sense that it has modified the Code ofFederal Regulations. It further proposed to include in its definition that to qualify, the final rule has to have made that modification on a date selected consistent withthe CRA and other applicable law. Finally, in order to avoid confusion, it proposed atechnical amendment adding a definition ofthe EPCA term "effective date," which EPCA, inconsistently with the Office ofFederal Register guidance, treats as synonymous with 19 EE-RM/STD-98-440- 

## 3D3 should ordinarily be made effective only after a reasonable hiatus afterthe date ofpublication has elapsed, allowing for prompt use ofordinary administrative error correctionprocedures and completion ofcongressional review under CRA. This is the earliest that manufacturer planning in reliance on a final majorrule to amend appliance energy conservation standards can realistically be expected to begin. The certainty ofthe regulatory regime sought to be achieved therefore cannot occuruntil that time. Accordingly, DOE believes it should construe section 325(0)(1) as applying to standards designed to set "minimumrequired energy efficiency" benchmarks at the point in time a final rule containing such a standard becomes effective. It also believes, however, that it should take care to select effective.dates for final rules containing such standards that are consistent withtheCRA and any other applicable law. This approach will bestpromote the regulatory certainty soughtby section 325(0)(1) and its companionprovisions and also comports well with the ordinary understanding ofwhen a rule containing such standards has established "require[ments]." Based on this consideration ofthe meaning ofsection 325(0)(1), DOE proposed to adopt a series ofamendments to the EPCA rules intended to address these general issues. First, it proposed definitions ofthe tenns "maximum allowable energy use" and "minimumrequired energy efficiency" as energy conservation standards established by a final rule that has become effective in the sense that it has modified the Code ofFederal Regulations. Itfurther proposed to include in its definition that to qualify, the final rule has to have made that modification on a date selected consistentwith the CRA and other applicable law. Finally, in orderto avoid confusion, it proposed a technical amendment adding a definition ofthe EPCAtenn "effective date," which EPCA, inconsistently with the Office ofFederal Register guidance, treats as synonymous with 

### 19

### "compliance date." EE-RM/STD-98-440

- 

### 3 3 B. Discussionof PublicComments on theAnti-BackslidingProvision DOE's analysis ofsection 325(o)(1) and related proposals were the subject ofcomment by the environmental advocates and by ARI. Their comments elaborated upon the basic positions each had taken in connection with ARI's petition for reconsideration. The environmental advocates prefaced their comments with the observation that ultimately the question whether the anti-backsliding provision prevents DOE from withdrawing the January 22 final rule and proposing a 12 SEER standard would likely be resolved in the Federal litigation previously mentioned (see "Rulemaking History."). 1. Environmental Advocates' Views The environmental advocates, led by the Natural Resources Defense Council (NRDC, No. 250) and several states, argue that EPCA's anti-backsliding provision applies upon publication of final standards in the Federal Register, and that DOE is powerless thereafter to entertain and grant
apetition for reconsideration that requests lower amended standards. The NRDC commented that the APA contains no provision for "withdrawing" a final rule, and that ifDOE wishes to change the rule, it may propose to "amend, revise or revoke" the rule consistent with the APA. NRDC also states there is no statutory or regulatory provision allowing interested persons to "petition for reconsideration" ofa final rule. DOE does not believe these arguments have merit. DOE chose to use the word "withdraw" atthe suggestion ofstaffin the Office ofthe Federal Register. "Withdraw" is the term that Office uses to describe the action of
an agency in pulling back a rule document before it is officially filed and published in the Federal Register. The Office ofthe Federal Register decided that the word "withdraw" also is apt when 20 "compliance date." EE-RM/STD-98-440- 

## 3D

## 3 B. Discussion of Public Comments on theAnti-BackslidingProvision DOE's analysis ofsection 325(0)(1) and relatedproposals were the subject ofcommentby the environmental advocates and by ARI. Theircomments elaborated upon the basic positions each had taken in connection withARI'spetition for reconsideration. The environmental advocates prefacedtheir comments with the observationthat ultimately the question whetherthe anti-backsliding provisionprevents DOE from withdrawing the January 22 final rule and proposing a 12 SEER standard would likely beresolved inthe Federal litigationpreviously mentioned (see "Rulemaking History."). 1. Environmental Advocates' Views The environmental advocates, led by the Natural Resources Defense Council (NRDC, No. 250) and several states, argue that EPCA's anti-backsliding provision applies upon publication of final standards inthe Federal Register, and that DOE is powerless thereafter to entertain and grant
a petition for reconsideration that requests lower amended standards. TheNRDC commentedthat the APA contains no·provision for "withdrawing" a final rule, and that ifDOE wishes to change the rule, it may propose to "amend,revise orrevoke" the rule consistent withthe APA. NRDC also states there is no statutory orregulatory provision allowing interested personsto "petition for reconsideration" ofa final rule. DOE does not believe these arguments have merit. DOE chose to use the word "withdraw" at the suggestion ofstaffinthe Office ofthe Federal Register. "Withdraw" is the term that Office uses to describe the action of
an agency inpulling back a rule document before it is officially filed and published in the Federal Register. The Office ofthe Federal Register decided that the word "withdraw" also is apt when 20

### EE-RM/STD-98-440- 363 an agency proposes to rescind a published final rule before itbecomes effective, thus pulling it back before it modifies the Code ofFederal Regulations. By proposing to withdraw the January 22 final rule and proposing a 12 SEER standard, DOE was proposing actions that, ifadopted and implemented in a future final rule, would rescind or repeal the January 22 final rule. This course ofaction is entirely consistent with the APA. While an agency generally has inherent authority to reconsider its decisions, as the comments ofARI state (ARI, No. 259, at p. 6), the APA specifically gives interested persons the right to petition forrulemaking (5 U.S.C. 553(e)). NRDC further believes DOE has misconstrued section 325(o)(1) by placing undue weight on the word "required" in the term "minimum required energy efficiency." (Several state officials submitted comments similar in most respects to the NRDC views summarized here and in the discussion that follows.) NRDC faults DOE for ignoring the terms "maximum allowable energy use" and "maximum water use" in the same provision. All ofthese terms, NRDC argues, are simply measurements ofenergy conservation and do not refer in any way to compliance dates or requirements for manufacturers. NRDC, therefore, concludes that the word "require" is ambiguous and that one needs to look to the entire statutory scheme to determine when the antibacksliding provision applies. NRDC argues that the key word in section 325(o)(1) is "prescribe," which it states occurs when a final rule is published in the Federal Register, and that it is the act of"prescribing" a final rule that triggers application ofthe anti-backsliding provision. NRDC finds supports for this interpretation of"prescribe" in section 325(p), which includes publication ofa final rule as the last step in the procedure for prescribing a new or amended standard, and in the deadlines for various amendments ofproduct standards that are determined by reference to the date ofpublication ofthe 21 EE-RM/STD-98-440- 

### 303 an agency proposes to rescind a published final rule before itbecomes effective, thuspulling it backbefore it modifies the Code ofFederal Regulations. Byproposing to withdrawtheJanuary 22 final rule and proposing a 12 SEER standard, DOE wasproposing actions that, ifadopted and implemented in a future final rule, would rescind orrepeal theJanuary 22 final rule. This course ofactionis entirely consistent with the APA. While an agency generally has inherent authority to reconsider its decisions, as the comments ofARl state (ARl,No. 259, at p. 6), the APA specifically gives interested persons the right to petition for rulemaking (5 U.S.C. 553(e». NRDC further believes DOE has misconstrued section 32S(0)(1}by placing undue weight

onthe word "required" inthe term "minimum required energy efficiency." (Several state officials submitted comments similar in mostrespects tothe NRDC views summarized here and inthe discussion that follows.) NRDC faults DOE for ignoring the terms "maximum allowable energy use" and "maximumwateruse" inthe same provision. All ofthese terms, NRDC argues, are simply measurements ofenergy conservation and do not refer in any way to compliance dates or requirements for manufacturers
..NRDC, therefore, concludes that the word "require" is ambiguous and that one needs to look to the entire statutory scheme to determine when the antibacksliding provision applies. NRDC argues that the key word in section 325(0)(1) is "prescribe," which it states occurs when a final rule is published in the Federal Register, and that it is the act of"prescribing" a final rule that triggers application ofthe anti-backslidingprovision. NRDC finds supports for this interpretation of"prescribe" in section 32S(p), which includes publication ofa final rule as the last step inthe procedure for prescribing a new or amended standard, and in the deadlines for various amendments ofproduct standards that are determined by reference to the date ofpublication ofthe
21

### EE-RM/STD-98-440- -303 previous standard. NRDC also points to House Report language stating that section 325(o)(1) prevents DOE from weakening any energy conservation standard for aproduct "whether established in this Act or subsequently adopted," and states that use ofthe word "adopted" confirms its view that the anti-backsliding provision applies when arule is published in the Federal Register. Thus, underNRDC's interpretation, once DOE published the January 22 final rule, itwas powerless to reconsider it and propose a lower energy conservation standard. DOE agrees that the term "minimum required energy efficiency" is not the only descriptor ofenergy or water efficiency used in section 325(o)(1), but it is the only descriptor that applies to standards forcentral air conditioners and heat pumps. That is why DOE's analysis focuses on the word "required." For other covered products, the applicable descriptor would be "maximum allowable energy use" or "maximum allowable water use," and today's rule contains definitions of those terms. For those products, the key word would be "allowable." In any event, as explained in DOE's analysis above, the SEER and HSPF levels set out in theJanuary 22 final rule never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. DOE also thinks NRDC's view ofthe importance ofthe word "prescribe" in section 325(o)(1) is wrong. The word "prescribe" is nowhere defined in EPCA, but it does not necessarily mean "publication." For example, section 325(p), concerning the procedure for prescribing any new or amended standard, provides that "[a] final rule prescribing an amended or new energy conservation standard or prescribing no amended or new standard for atype (orclass) ofcovered products shall be published as soon as practicable. . " 42 U.S.C. 6295(p)(4). The use ofthe word "prescribe" inthe same provision in which the word "publish" is used is aclear indication that Congress considered the two words to have different meanings. It is not necessary 22 EE-RM/STD-98-440- 

## 303 previous standard. NRDC also points to House Report language stating that section 325(0)(1) prevents DOE from weakening any energy conservation standard for a product "whether estabHshed in 

### this Act orsubsequently adopted," and states that use ofthe word "adopted" confinns its viewthat the anti-backslidingprovision applies when a 

### rule is published in the Federal Register. Thus, underNRDC'sinterpretation, once DOE published the January 22 final

-rule, 

### itwaspowerlesstoreconsider it and propose a lowerenergy conservation standard. DOE agrees thatthe tenn "minimum required energy efficiency" is not the only descriptor ofenergy orwater efficiency used in section 325(0)(1), but it isthe only descriptor that appliesto standards for central airconditioners and heat pumps. That is why DOE's analysis focuses onthe word "required." For other coveredproducts, the applicable descriptor would be "maximum allowable energy use" or"maximum allowable wateruse," and today'srule contains definitions of those tenns. Forthose products, the key word would be "allowable."In any event, as explained in DOE's analysis above, the SEERand HSPF levels set out in the January 22 final rule never inany
sense achievedthe status ofbeing the "required" "minimum energy efficiency" benchmarks. DOE also thinksNRDC's view ofthe importance ofthe word "prescribe" in section 325(0)(1) is wrong. The word "prescribe" is nowhere defined in EPCA, but it does not necessarily mean "publication." For example, section 325(P), concerningthe procedure for prescribing any newor amended standard, provides that "[a] final rule prescribing an amended or
new energy conservation standard orprescribing no amended or new standard for a type (or class) ofcoveredproducts shall bepublished as soon as practicable
... "42U.S.C. 6295(p)(4). The use ofthe word "prescribe"in the same provision in which the word "publish" is used is a clear indication that Congress considered the two words to have different meanings. It is not necessary 22

### EE-RM/STD-98-440- 303 to resolve the question ofthe meaning to the word "prescribe" because it begs the critical question ofwhat DOE may not prescribe under section 325(o)(1). With respect to central air conditioners and heat pumps, the what that DOE may not prescribe under section 325(o)(1) is any amended standard "which increases the
... minimum required energy efficiency" ofa central air conditioner or heat pump. We continue to believe that standards in apublished rule thathave never become effective are in no sense "required" energy efficiency levels, and therefore cannot be the baseline for determining whether the amended standards increase the minimum required energy efficiency. Finally, DOE disagrees with NRDC's conclusion that the structure and language ofEPCA point to the date ofpublication ofamended standards as the time at which section 325(o)(1) applies. More specifically, DOE does not think the statutory intervals for issuance ofamended standards, which reference to the date the previous amendment is published, are relevant to the question ofwhen the anti-backsliding provision applies. The fact that Congress required DOE to periodically review and publish amendments to standards does not seem to have any bearing on the question ofwhat point in time standards are required for purposes ofsection 325(o)(1). The Attorneys General ofthe States ofNew York and Massachusetts attacked the legality ofDOE's February 2, 2001, and April 20, 2001, notices delaying the effective date ofthe January 22 final rule (Attorneys General, No. 277). In their view, DOE lacked good cause for not proposing the delays forpublic comment. They dismiss DOE's analysis of,and provisions for, implementing the anti-backsliding provision as apost hoc attempt tojustify its illegal delays of the January 22 final rule. Implicit in their comment is the view that the January 22 final rule actually became effective and, thus, became the required standards for purposes ofsection 23 EE-RM/STD-98-440- 

### 303 to resolve the question ofthe meaning to the word "prescribe"because it begs the critical question ofwhat DOEmay not prescribe under section 325(0)(1). Withrespect to central airconditioners and heat pumps, the whatthat DOE may not prescribe under section 325(0)(1) is any amended standard "which increases the
...minimum required energy efficiency" ofa central air conditionerorheatpump. We continueto believe that standards in a publishedrule thathave
neverbecome effective are in no sense "required" energy efficiency levels, and therefore cannot be the baseline for detenniningwhetherthe amended standards increase the minimum required energy efficiency. Finally, DOE disagrees withNRDC's conclusionthatthe structure and language ofEPCA pointto the date ofpublication ofamended standards as the time at which section 325(0)(1) applies. More specifically, DOE does not think the statutory intervals for issuance ofamended standards, which reference to the date the previous amendment is published, are relevant to the question ofwhenthe anti-backsliding provision applies. Thefact that Congress required DOE to

- periodically review and publish amendments to standards does not seem to have any bearing on

the question ofwhatpoint in time standards are required for purposes ofsection 325(0)(1). The Attorneys General ofthe States ofNew York and Massachusetts attacked the legality ofDOE's February 2, 2001, and April 20, 2001, notices delaying the effective date ofthe January 22 final rule (Attorneys General, No. 277). Intheir view, DOE lacked good cause for not proposing the delays for public comment. They dismiss DOE's analysis of, and provisions for, implementingthe anti-backsliding provision as a post hoc attempttojustify its illegal delays of the January 22 final rule. Implicit in their comment is the viewthat the January 22 final rule actually became effective and, thus, became the required standards for purposes ofsection 23

### EE-RM/STD-98-440- 30 3 

### 325(o)(1). Based on this understanding ofthe anti-backsliding provision, the States ofNew York and Massachusetts consider DOE's action to withdraw the January 22 final rule and adopt 12 SEER standards tobe a "rollback" ofestablished standards. As explained in the February 2, 2001, notice, DOE temporarily delayed the effective date ofthe January 22 final rule pursuant to Executive branch wide direction from the Assistant tothe President and ChiefofStaff. DOE explained that seeking public comment would be impracticable and contrary to the public interest, and further that the imminence ofthe effective date in the rule constituted good cause formaking the temporary delay effective upon publication. 66 FR 8745-46. The further postponement ofthe effective date on April 20, 2001, was based in part on several reasons why seeking public comment and delaying the effective date ofthe action
were impracticable, unnecessary, and contrary tothe public interest. 66 FR 20191. These reasons are not repeated in full here, but DOE explained why in light ofARI's petition forreconsideration and its lawsuit in the Court ofAppeals for the Fourth Circuit, DOE concluded there was good
cause for further delaying the January 22 final rule's effective date pending consideration ofARI's petition andjudicial review. The legality ofDOE's actions to institute short-term delays ofthe January 22 final rule's effective date to deal with substantial legal questions will be resolved in the Federal litigation. DOE, however, rests on itsprior decisions and rejects the characterization ofDOE's proposals as a "rollback" ofthe energy conservation standards. The Attorneys General ofthe States ofNew York and Massachusetts (Attorneys General, No. 277 atp. 9) and the American Council for an Energy-Efficient Economy (ACEEE, No. 284 at p. 3) argued that choosing an effective date for purposes ofsection 325(o)(1) otherthan the date ofpublication ofamended standards would lead to delay and cause uncertainty with respect to 24 EE-RM/STO-98-440.. 

## 36'

## 3 325(0)(1). Based onthis understanding ofthe anti-backsliding provision, the States ofNew York and Massachusetts considerDOE's action to withdraw theJanuary 22 final rule and adopt 12 SEER standards to be a "rollback" ofestablished standards. As expJained in the February 2,2001,notice, DOEtemporarily delayed the effective date ofthe January 22 final rule pursuantto Executivebranchwide direction from the Assistant to the President and ChiefofStaff. DOE explained that seeking public comment wouldbe impracticable and contrary to the public interest, and further that the imminence ofthe effective date in the rule constituted good cause for' making the temporary delay effective uponpublication. 66 FR 8745-46. The furtherpostponement ofthe effective date on April 20, 2001, was based in part on several reasons why seeking public comment and delaying the effective date ofthe action
were impracticable, unnecessary, and contrary to the public interest. 66 FR20191. These reasons
are not repeated in full here, but DOEexplained why in light ofARI'spetition for reconsideration and**i~s** lawsuit in the Court ofAppeals for the Fourth Circuit, DOE concluded there was good

cause for further delaying the January 22 final rule's effective date pending consideration ofARI's petition andjudicial review. The legality ofDOE's actions to institute short-term delays ofthe January 22 final rule'seffective date to deal with substantial legal questions will be resolved in the Federal litigation. DOE, however, rests on its priordecisions and rejects the characterization ofDOE'sproposals as a "rollback" ofthe energy conservation standards. The Attorneys General ofthe States ofNew York and Massachusetts (Attorneys General, No. 277 at p. 9) and the American Council for an Energy-Efficient Economy (ACEEE, No. 284 at p. 3) argued that choosing an effective date for purposes ofsection 325(0)(1) otherthan the date ofpublication ofamended standards would lead to delay and cause uncertainty with respect to 24

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

## 303 when manufacturers must make investments needed to comply with amended standards. The Northeast Energy Efficiency Partnerships, Inc., (NEEP,No. 273 at p. 3) argued DOE's proposed approach would give stakeholders another opportunity to try to influence decision makers and would "politicize" the standard setting process. As explained above, DOE does notbelieve section 325(o)(1) can bereasonably interpreted to apply upon the publication offinal standards in theFederal Register. However, assuming DOE had the discretion to adopt such an interpretation, DOE would not choose the date ofpublication as the date forpurposes ofsection 325(o)(1). As explained previously, apractice ofroutinely making published standards effective inthe shortest time after publication (normally 30 days after publication under the APA) is not likely to provide greater certainty about the point in time when standards would take effect. IfDOE were unable to respond to legitimate requests forreconsideration and correction oferrors, then the only avenue available to aggrieved stakeholders would be lawsuitsin Federal courts orefforts to obtain a legislative reversal under the CRA. This would not lead to expeditious correction oferrors or resolution ofissues and would not advance thegoal ofregulatory certainty. Such a practice also would create needless conflict withthe CRA's 60-day lie-before-the-Congress provision for major rules. 2. ARI's Views ARI agrees with DOE that the existing "minimum required energy efficiency" levels for central airconditioners and heat pumps, which DOE may not lower, are the standards established by NAECA, effective on January 1, 1992 (i.e., 10 SEER/6.8 HSPF for split systems and 9.7 SEER/6.6 HSPF for single package systems). However, ARI believes the term "minimum required energy efficiency" should be understood to mean the existing efficiency standard as of 25 EE_RM/STO-98-440

__ 

### 3D

## 3
whenmanufacturers must make investmentsneededto comply with amended standards. The NortheastEnergy Efficiency Partnerships, Inc., (NEEP,No. 273 atp. 3)argued DOE'sproposed approach would give stakeholders anotheropportunity to try to influence decision makers and would "politicize"the standard settingprocess. As explained above, DOE does notbelieve section 325(0)(1)canbereasonably interpreted to apply uponthepublication offinal standards in the FederalRegister. However, assuming DOEhadthe discretionto adopt such an interpretation, DOE would notchoosethe date ofpublication as the date for purposes ofsection 325(0)(1). As explainedpreviously, a practice ofroutinely making published standards effective inthe shortest time afterpublication (normally 

### 30 days afterpublication underthe APA) is not likely toprovide greatercertainty aboutthepointintime when standards would take effect. IfDOEwere unableto respond to legitimaterequests forreconsideration and correction oferrors, then the only avenue availableto aggrieved stakeholders would be lawsuitsin Federal courts oreffortsto obtain a**legisl~tive** reversal underthe CRA. This would not lead to expeditious correction oferrors or resolution ofissues andwould not advance the goal ofregulatory certainty. Such a practice also would create needless conflict withthe CRA's 60-day lie-before-the-Congressprovision for major rules. 2. ARI'sViews ARI agrees withDOEthatthe existing "minimumrequired energy efficiency" levels for central air conditioners and heatpumps, whichDOE may not lower, are the standards established byNAECA, effective onJanuary 1, 1992 

### Ci.&., 10 SEER/6.8 HSPF for split systems and 9.7 SEERl6.6 HSPF for singlepackage systems). However, ARI believestheterm "minimum required energy efficiency" should be understood to meanthe existing efficiency standard as of
25

### EE-RM/STD-98-440- 303 the effective date under EPCA, i.e., the date on which the standard is required to be complied with (ARI, No. 259 at p. 19). ARI believes its interpretation would avoid the risk ofhaving the antibacksliding provision apply unreasonably early, which could prevent DOE from taking appropriate administrative action to correct a promulgated standard or to respond to extraordinarily changed circumstances. DOE acknowledged in its analysis ofsection 325(o)(1) that the view that a standard is only covered by anti-backsliding provision after manufacturers are required to comply with it is an arguable one. This view, however, is in tension with the rest ofthe sentence, which suggests that the relevant point ofcomparison is the standard being amended, regardless ofwhether manufacturers actually have to comply with it. Moreover, by allowing the Secretary to change the energy efficiency standards at any point in time before the compliance date, this view would slight important reliance interests that, as DOE explained in its analysis, are given significant weight by other provisions and the legislative history ofEPCA. For these reasons, DOE continues to believe that section 325(o)(1) should be construed as applying to standards designed to set "minimum required energy efficiency" benchmarks at the point in time a final rule containing such a standard becomes effective for purposes ofrevising the Code ofFederal Regulations, as long as the effective date that is selected is consistent with the CRA and any other applicable law. In today's rule, DOE adopts provisions that implement this approach. ARI stated that ifDOE adopted the approach itproposed in the July 25 SNOPR, then it would like the definitions of "minimum required energy efficiency" and "maximum allowable energy use" revised to ensure that DOE has sufficient time to complete any administrative action it takes in response to a petition for reconsideration. ARI recommended adding to each definition 26 

### EE-RM/STD-98-440--- :,303 the effective date underEPCA, i.e., the date on which the standard is required to be complied with (ARl, No. 259 at p. 19). ARl believes its interpretation would avoidthe risk ofhaving the antibacksliding provision apply unreasonably early, which could preventDOE from taking appropriate administrative action to correct apromu1gated standard orto respond to extraordinarily changed circumstances. DOE acknowledged in its analysis ofsection325(0)(1)that the viewthat'a standard is only covered by anti-backsliding provision after manufacturers are required to comply with it is an arguable one. This view, however, is in tension with the rest ofthe sentence, which suggests that the relevantpoint ofcomparison is the standard being amended, regardless ofwhether manufacturers actually have to comply with it. Moreover, by allowing the Secretary to change the energy efficiency standards atany point in time before the compliance date, this view would slight importantreliance interests that, as DOE explained in its analysis, are given significant weight by otherprovisions and the 1egislative history ofEPCA. Forthese reasons, DOE continuesto believe that section 325(0)(1) shouldbe construed as applying to standards designed to set "minimum required energy efficiency" benchmarks at the point in timea final rule containing such a standard becomes effective for purposes ofrevising the Code ofFederal Regulations, as long as the effective date that is selected is consistent with the CRA and any other applicable law. Intoday's rule, DOE adopts provisions that implement this approach. ARl statedthatifDOE adopted the approach it proposed in the July 25 SNOPR, then it would like the definitions of"minimumrequired energy efficiency" and "maximum allowable energy use"revised to ensure that DOE has sufficienttimeto complete any administrative action it takes in response to a petition for reconsideration. ARl recommended adding to each definition 26

### EE-RM/STD-98-440- 3D3 the words "or the date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later." (ARI, No. 259 at pp. 20-21.) We think ARI's suggested language is a useful addition to the definitions. Therefore, we have revised the proposed definitions of "maximum allowable energy use" and "minimum required energy efficiency," to be added to section 430.2, accordingly. In addition, DOE adds a similar definition of"maximum allowable wateruse," which was inadvertently omitted in the July 25 SNOPR. Under the provisions adopted in today's final rule, IOE will select a date for the "Effective Date" line ofthe notice offinal rulemaking that in most instances will be 60 to 80 days after the date ofpublication. (DOE has chosen 75 days after the date ofpublication for the effective date oftoday's rule.) DOE would expect that any petition for reconsideration, to be considered timely, ordinarily would be submitted to DOE before the effective date specified in the notice offinal rulemaking. DOE did not receive any public comments on the proposed definition ofthe term "effective date" as used in EPCA and 10 CFR 430.32. This definition clarifies that forpurposes ofconstruing the term under EPCA (but not for purposes ofdetermining the point at which amendments to a standard qualify for protection under section 325(o)(1)), the "effective date" is the date on which an amended energy conservation standard becomes enforceable. DOE also did not receive comments on proposed section 430.34, which tracks the language ofsection 325(o)(1). Therefore, DOE today adopts these provisions without substantive change. IV. Basis for DOE's Decision to Withdraw the January22, 2001, Final Rule In the July 25 SNOPR, DOE discussed possible legal errors in the promulgation ofthe January 22 final rule and economic issues that DOE believed had notbeen adequately considered 27 EE

..RM/STD-98-440- 

### 3 0 

## 3 the words "orthe date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later." (ARl,No. 259 atpp. 20-21.) We think ARl's suggested language is a useful addition to the definitions. Therefore, we have revised the proposed definitions of "maximum allowable energy use" and "minimumrequired energy efficiency," to be addedto section430.2, accordingly. In addition, DOE adds a similar definition of"maximum allowable wateruse," which was inadvertently omitted inthe July 25 SNOPR. Under the provisionsadopted intoday's final rule, Ij>OE will select a date for the "Effective Date" line ofthe notice offinal rulemaking that in most instances will be 60 to 80 days afterthe date ofpublication. (DOE has chosen 75 days afterthe date ofpublication for the effective date oftoday's rule.) DOE would expect that any petition for reconsideration, to be consideredtimely, ordinarily would be submitted to DOE beforethe effective date specified in the notice offinal rulemaking. DOEdid not receive any public comments onthe proposed definition ofthe term "effective date" as used in EPCA and 10 CFR430.32. This definition clarifies that for purposes ofconstruing the term under EPCA (but not for purposes ofdetermining the point at which amendments to a standard qualify for protectionunder section 325(0)(1», the "effective date" is the date onwhich an amended energy conservation standard becomes enforceable. DOE also did not receive comments on proposed section 430.34, which tracks the language ofsection 325(0)(1). Therefore, DOE today adopts these provisions without substantive change. 

### IV. Basis for DOE'sDecision to Withdraw theJanuary22, 2001, FinalRule Inthe July 25 SNOPR, DOE discussed possible legal errors in the promulgation ofthe January 22 final rule and economic issues that DOE believed had not been adequately considered 27

### EE-RM/STD-98-440 - 303 in determining the energy efficiency levels that are the maximum technologically feasible and economicallyjustified (66 FR 38827-29). Onthe basis ofthese possible legal and policy errors, DOE proposed to withdraw the January 22 final rule and proposed to adopt a 12 SEER standard for most central air conditioners and heat pumps, rather than the 13 SEER standard in the January 22 final rule (66 FR 38842). DOE today finally withdraws the January 22 final rule and amends the energy conservation standards forcentral airconditioners andheat pumps atthe 12 SEER level except for two types ofspace-constrained products (through-the-wall products and small duct, high velocity systems) that are subject to lower standards. In taking this action, DOE corrects the legal and policy errors that were the basis for DOE's decision to withdraw the January 22, final rule. A. LegalIssues Inthe July 25 SNOPR, DOE acknowledged that to comply with section 325(o)(2)(B)(i) of EPCA, DOE arguably should have invited the Department ofJustice to submit a supplemental statement ofits views onthe potential anti-competitive impact ofa 13 SEER standard forboth central air conditioners and heat pumps which was included inthe January 22 final rule (66 FR 38827-28). Section 325(o)(2)(B)(i) requires DOE to determine whether the benefits ofa new or amended energy conservation standard exceed its burdens by considering "to the greatest extent practicable" seven factors, including: "(V) the impact ofany lessening ofcompetition, as determined in writing by the Attorney General, that is likely to result from the imposition ofthe standard" (42 U.S.C. 6295(o)(2)(B)(i)). Section 325(o) also provides that: For purposes ofclause (i)(V), the Attorney General shall make a determination 28 EE-RM/STD-98-440 - 

# 303 in determining the energy efficiency levels that are the maximum technologically feasible and economicallyjustified (66 FR 38827-29). Onthe basis ofthese possible legal and policy errors, DOEproposedto withdrawthe January 22 final rule and proposed to adopt a 12 SEER standard for most central air conditioners and heat pumps, ratherthan the 13 SEER standard in the January 22 final rule (66 FR 38842). DOEtoday finally withdraws the January 22 final rule and amends the energyconservation standards for central airconditioners andheatpumps at the 12 SEER level exceptfor two types ofspace-constrained products (through-the-wall products and small duct, high velocity systems) that are subject to lower standards. Intaking this action, DOE corrects the legal and policy errors that were the basis for DOE's decisionto withdrawthe January 22, final rule. A. J-egallssues IntheJuly 25 SNOPR, DOE acknowledged that to comply with section 325(0)(2)(B)(i) of EPCA, DOE arguably should have invited the Department ofJustice to submit a supplemental statement ofits views on the potential anti-competitive impact ofa 13 SEER standard for both central air conditioners and heat pumps which was included in the January 22 final rule (66 FR 38827-28). Section 325(0)(2)(B)(i) requires DOEto determine whetherthe benefits ofa new or amended energy conservation standard exceed its burdens by considering "to the greatest extent practicable" seven factors, including:. "(V) the impact ofany lessening ofcompetition, as determined inwriting by the Attorney General, that is likely to result from the imposition ofthe standard" (42 U.S.C. 6295(0)(2)(B)(i)). Section 325(0) also providesthat: Forpurposes ofclause (i)(V), the Attorney General shall make a determination 28

### EE-RM/STD-98-440- 3 0 3 

### ofthe impact, ifany, ofany lessening ofcompetition likely to result from such standard and shall transmit such determination, not later than 60 days after the publication ofaproposed rule prescribing or amending an energy conservation standard, in writing tothe Secretary, together with an analysis ofthe nature and extent ofsuch impact. Any such determination and analysis shall be published by the Secretary in the Federal Register.
42 U.S.C. 6295(o)(2)(B)(ii). In context, it is clear that the term "the standard" in section 325(o)(2)(B)(i) refers to any new or amended energy conservation standard finally prescribed by DOE under section 325(o) of EPCA. Because the Department ofJustice must transmit its determination to DOE within 60 days afterthe publication ofaproposed rule, EPCA contemplates that the Department ofJustice's determination on the anti-competitive effects ofa proposed rule usually will enable DOE to fulfill its substantive obligation to considerthe Department's expert opinion on the anti-competitive impact ofa final standard. However, as the following discussion shows, this will not always be the case. DOE submitted the October 5, 2000, NOPR to the Attorney General for review pursuant to the foregoing provisions. The NOPR described the range ofpotential trial standards considered by DOE, andproposed adoption ofTrial Standard Level 3,i.e., aminimum SEER of 12 for central air conditioner product classes and a SEER of 13, with acorresponding HSPF of7.7, for central air conditioning heat pumps. The Department ofJustice, consistent with its pastpractice, confined its response to the proposed standards, corresponding to Trial Standard Level 3. The Department ofJustice had several concerns about the proposed rule'spotential impact
on competition (see December 4, 2000, letter inthe Appendix tothis notice). First, the Department ofJustice was concerned the proposed rule would have a disproportionate impact on 29 EE-RM/STD-98-440-

# 303 ofthe impact, ifany, ofany lessening ofcompetition likely to result from such standard and shall transmit such determination, hot later than 60 days afterthe publication ofa proposed rule prescribing or amending an energy conservation standard, inwriting tothe Secretary,togetherwith an analysis ofthe nature and extent ofsuch impact.. Any such determination and analysis shall bepublished by the Secretary in the Federal Register.
42 U.S.C. 6295(0)(2)(B)(ii). In context, it is clearthat the term ''the standard" in section 325(0)(2)(B)(i) refers to any
newor amended energy conservation standard finally prescribed by DOEunder section 325(0) of EPCA. Becausethe DepartmentofJustice must transmit its determination to DOE within 60 days afterthe publication ofa proposed rule, EPCA contemplates that the Department ofJustice's determination onthe anti-competitive effects ofa proposed rule usually will enable DOEto fulfill its substantive obligationto considerthe Department's expert opinion onthe anti-competitive impact ofa final standard. However, as the following discussion shows, this will not always be the case. DOE submitted the October 

### 5, 2000, NOPRto the Attorney General for reviewpursuantto the foregoing provisions. The NOPRdescribed the range ofpotential trial standards considered by DOE, and proposed adoption ofTrial Standard Level 3, i.e., a minimum SEER of 12 for central air conditionerproductclasses and a SEERof 13, with a corresponding HSPF of7.7, for central air conditioning heatpumps. The Department ofJustice, consistent with its pastpractice, confined its response·to the proposed standards, corresponding to Trial Standard Level 3. The Department ofJustice had several concerns about the proposed rule'spotential impact

on competition (see December4,2000, letterinthe Appendix to this notice). First, the Department ofJustice was concerned the proposed rule would have a disproportionate impact on 29

### EE-RM/STD-98-440- 3 ' 

### small manufacturers. Second, it was concerned that the proposed standard for heat pumps, and in
some instances the standard for air conditioners, would have an adverse impact on some manufacturers ofequipment to be used to retrofit existing housing and used in manufactured housing. Third, it was concerned that theproposed 13 SEER for central air conditioning heat pumps could cause consumers to shift from heat pumps to other systems that include resistance heat systems, reducing the competition that presently exists between manufacturers ofheat pumps and manufacturers ofthose other heating systems. The Department ofJustice urged DOE to take these concerns into account and consider "setting a lower SEER standard for heat pumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints and for manufactured housing." 66 FR 7200. DOE published a final rule on January 22, 2001, that adopted standards that corresponded to Trial Standard Level 4 (the next higher level) and prescribed a minimum SEER of 13 for all the product classes, except for niche products, with a corresponding 7.7 HSPF. While the preamble to the final rule addressed the Department ofJustice's specific concerns about the proposed 12 SEER standards for central air conditioners/13 SEER/7.7 HSPF standard for central air conditioning heat pump systems (66 FR 7192-93), DOE did not have the benefit ofthe Department ofJustice's views on the potential anti-competitive impact ofthe final 13 SEER standards for both air conditioners and heat pumps. This is particularly ofconcern in light of information in the TSD indicating that standards at Trial Standard Level 4 (uniform 13 SEER standards) could cause several major manufacturers to consider selling their production assets rather than make the investment required to meet the new standard or face the loss ofprofits 30 EE-RM/STD-98-440-

## 30:3 small manufacturers. Second, it was concernedthat the proposed standard for heat pumps, and in
some instances the standard for air conditioners, would have an adverse impact on some manufacturers ofequipmentto be used to retrofit existing housing and used in manufactured housing. Third, it was concerned that theproposed 13 SEERfor central air conditioning heat pumps could cause consumersto shift from heat pumps to other systems that include resistance heat systems, reducing the competitionthat presently exists between manufacturers ofheat pumps and manufacturers ofthose otherheating systems. The Department ofJustice urged DOE to take these concerns into account and consider "setting a lower SEER standard for heatpumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints and for manufactured housing." 66 FR 7200. DOE published a final rule on January 22, 2001, that adopted standards that corresponded to Trial Standard Level 

### 4 (the next higher level) and prescribed a minimum SEER of 13 for all the product classes, except for niche products, with a corresponding 7.7 HSPF. While the preamble to the final rule addressed the Department ofJustice's specific concerns about the proposed 12 SEER standards for central air conditioners/I3 SEERl7.7 HSPF standard for central air conditioning heat pump systems (66 FR7192-93), DOE did not have the benefit ofthe Department ofJustice'sviews on the potential anti-competitive impact ofthe final 13 SEER standards for both air conditioners and heat pumps. This is particularly ofconcern in light of information in the TSD indicating that standards at Trial Standard Level 4 (uniform 13 SEER standards) could cause several majormanufacturers to consider selling theirproduction assets rather than make the investmentrequired to meetthe new standard or face the loss ofprofits 30

### EE-RM/STD-98-440 -303 caused by the absence ofpremium products in the marketplace (see July 25 SNOPR at 38827). Therefore, DOE believes the Department ofJustice's views onthe potential ofthe standards in the January 22 final rule to accelerate consolidation in the industry should have been obtained. Aspart ofits review ofthe January 22 final rule pursuant to the President's Regulatory Review Plan, DOE on March 20, 2001, requested the views ofthe Department ofJustice on the 13 standards for central air conditioners and heat pumps. The Department ofJustice's letter responding to our request is published in the Appendix to this notice. While some commenters
were critical ofthe substance ofthe Department ofJustice's determinations about the anticompetitive impact of 13 SEER standards (see Section VI below), none ofthe comments disputed DOE's view that it should have obtained the Department ofJustice's views on 13 SEER standards for both central air conditioners and heat pumps. A second legal error that DOE considered in deciding to propose withdrawal ofthe January 22 final rule was the absence ofany discussion ofcumulative regulatory burden in the statement ofbasis and purpose for the January 22 final rule. One aspect ofthe assessment of manufacturer burden required by EPCA (42 U.S.C. 6295(o)(2)(B)(i)(I)) is the cumulative impact ofmultiple DOE standards and the regulatory actions ofother Federal agencies and States that affect the manufacture ofa covered product. The preamble to the January 22 final rule contained
an assertion that DOE considered cumulative burdens, but it did not discuss the magnitude ofthe burden or how DOE took it into account in evaluating manufacturer impact (see 66 FR 7174). In light ofthe evidence ofcumulative regulatory burdens on manufacturers documented in the TSD, DOE thinks the mere assertion that DOE considered the cumulative burdens on manufacturers was not an adequate statement ofbasis and purpose for DOE's determination on manufacturer 31 EE-RM/STD-98-440 

## -3:?3 caused by the absence ofpremiumproducts in the marketplace (see July 25 SNOPR at 38827). Therefore, DOE believes the Department ofJustice's views onthe potential ofthe standards in the January 22 final rule to accelerate consolidation in the industry should have been obtained. Aspart ofits review oftheJanuary 22 final rule pursuantto the President's Regulatory Review Plan, DOE onMarch 20, 2001, requested the views ofthe Department ofJustice onthe 13 standardsfor centralair conditioners and heatpumps. The Department ofJustice's letter responding to our request is publishedinthe Appendix to this notice. While some commenters
were critical ofthe substance ofthe Department ofJustice's determinations about the anticompetitive impact of 13 SEER standards (see Section VI below), none ofthe comments disputed DOE'sviewthat itshould have obtainedthe Department ofJustice's views on 13 SEER standards for both central air conditioners and heatpumps. A second legal errorthat DOE considered in deciding to propose withdrawal ofthe January 22 final rule was the absence ofany discussion ofcumulativeregulatory burden inthe statement ofbasis and purpose for the January 22 final rule. One aspect ofthe assessment of manufacturerburdenrequired by EPCA (42 U.S.C. 6295(0)(2)(B)(i)(I» is the cumulative impact ofmultiple DOE standards and the regulatory actions ofother Federal agencies and States that affect the manufacture ofa covered product. The preambleto the January 22 final rule contained
an assertion that DOE considered cumulative burdens, but it did not discuss the magnitude ofthe burden orhowDOEtook it into account in evaluating manufacturer impact (see 66 FR 7174). In light ofthe evidence ofcumulative regulatory burdens on manufacturers documented in the TSD, DOE thinks the mere assertion that DOE consideredthe cumulative burdens onmanufacturers
was not an adequate statement ofbasis and purpose for DOE'sdetermination on manufacturer
31

### EE-RM/STD-98-440- 323 impact resulting from a 13 SEER standard. See July 25 SNOPR at 38828. Finally, as explained in DOE's analysis ofEPCA's anti-backsliding provision, the effective date included in the January 22 final rule (i.e, the date 30 days after the date of publication ofthe notice) was in direct conflict with the CRA requirement that a major rule may not take effect until the later ofthe date occurring 60 days after the date Congress receives the agency's report under 5 U.S.C. 801 or the date the rule is published in the Federal Register. 5 U.S.C. 801(a)(3)(A)). B. PolicyIssues DOE also based its decision to propose withdrawal ofthe January 22 final rule and to propose 12 SEER standards on its review ofthe analysis ofbenefits and burdens that underpinned the January 22 determination that 13 SEER is the maximum efficiency level that is technologically feasible and economically justified. As a result ofits review ofthe January 22 rule, DOE tentatively concluded that a 13 SEER standard was not economically justified, and therefore DOE proposed to withdraw the January 22 final rule and proposed to adopt a 12 SEER standard (66 FR 38828-29). As explained in the July 25 SNOPR (66 FR 38828) DOE believed that in issuing the January 22 final rule, the previous Administration had given inadequate consideration to the fraction ofconsumers, and especially low income consumers, who would incur negative life-cycle cost impacts as aresult ofthe 13 SEER standard. DOE decided to propose a 12 SEER standard, instead of 13 SEER, because the analysis showed itwould result in a lower fraction ofconsumers who would be negatively impacted (25 percent and 34 percent ofaverage and low income consumers, respectively, at 12 SEER versus 39 percent and 50 percent, respectively, at 13 SEER). 32 EE-RM/STD-98-440...

# 3if3 impactresulting from a 13 SEER standard. See July 25 SNOPR at 38828. Finally, as explained in DOE'sanalysis ofEPCA's anti-backsliding provision, the effective date included in the January 22 final rule (i.e., the date 30 days afterthe date of publication ofthe notice) was in direct conflict with the CRA requirement that a majorrule may nottake effect until the later ofthe date occurring 60 days after the date Congress receives the agency's report under 5 U.S.C. 801 orthe date the rule is published in the Fedenil Register. 5 U.S.c. 80l(a)(3)(A». B. 

### PolicyIssues DOE also based its decision to propose withdrawal ofthe January 22 final rule and to propose 12 SEER standards on its review ofthe analysis ofbenefits and burdens that underpinned the January 22 determination that 13 SEERis the maximum efficiency level that is technologically feasible and economicallyjustified. As a result ofits review ofthe January 22 rule, DOE tentatively concludedthat a 13 SEER standard was not economicallyjustified, and therefore DOEproposedto withdraw the January 22 final rule and proposed to adopt a 12 SEER standard (66 FR 38828-29). As explained in the July 25 SNOPR (66 FR 38828) DOE believed that in issuing the January 22 final rule, the previous Administration had given inadequate considerationto the fraction ofconsumers, and especially low income consumers, who would incur negative life-cycle cost impacts as a result ofthe 13 SEER standard. DOE decided to propose a 12 SEER standard, instead of 13 SEER, becausethe analysis showed it would result in a lower fraction ofconsumers who would be negatively impacted (25 percent and 34 percent ofaverage and low income consumers, respectively, at 12 SEERversus 39 percent and 50 percent, respectively, at 13 SEER). 32

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

### 3D3 DOE also based its decision to propose the withdrawal ofthe January 22 final rule on its conclusion that DOE, in determining whether 13 SEER was economically justified, had not adequately assessed the potential regulatory burden and financial impacts on manufacturers of central air conditioners and heat pumps. See July 25 SNOPR at 38828-29. First, DOE concluded that the cumulative regulatory burden on manufacturers was not given sufficient weight in the determination ofeconomic justification. As discussed previously, the statement ofbasis and purpose for the final rule did notexplain how DOE considered the cumulative impact on manufacturers ofthe costs ofcomplying with various new regulatory actions. DOE also concluded that inadequate consideration was given in the January 22 determination to the effect of 13 SEER standards on industry net cash flow and the maldistribution ofregulatory burden onthe two major types ofmanufacturers (66 FR 38829). DOE's tentative conclusions in the July 25 SNOPR about the appropriate weight to give to the benefits and burdens of 13 SEER versus 12 SEER standards, and the resulting conclusion about which level is economically justified, were the subject ofextensive public comment. These comments are discussed in Section VI ofthis Supplementary Information, and the analysis that supports DOE's determination that 12 SEER is the maximum efficiency level that is technologically feasible and economically justified is set forth in Section VII. V. Amended Energy Conservation Standards A. Overview The amended standards in today's rule take into account a decade oftechnological advancements and will save consumers and the nation money, significant amounts ofenergy, and have substantial environmental and economic benefits. When they go into effect, the amended 33 EE.RM/STD-98-440·- 

### 303 DOE also based its decisionto propose the withdrawal ofthe January 22 final rule on its conclusionthat DOE, in determining whether 13 SEERwas economicallyjustified, had not adequately assessed the potential regulatory burden and financial impacts on manufacturers of central air conditioners and heatpumps. See July 25 SNOPR at 38828-29. First, DOE concluded thatthe cumulativeregulatory burden on manufacturers was not given sufficientweight inthe determination ofeconomicjustification. As discussed previously, the statement ofbasis and purpose for the final rule did notexplainhowDOE consideredthe cumulative impact on manufacturers ofthe costs ofcomplyingwith various new regulatory actions. DOE also concluded that inadequate consideration was given inthe January 22 determination to the effect of 13 SEER standards on industry net cash flow and the maldistribution ofregulatory burden onthe two majortypes ofmanufacturers (66 FR 38829). DOE'stentative conclusions inthe July 25 SNOPRabout the appropriate weightto give to the benefits andburdens of 13 SEERversus 12 SEERstandards, and the resulting conclusion about which level is economicallyjustified, vyere the subject ofextensive public comment. These comments are discussed in Section VI ofthis Supplementary Information, and the analysis that supports DOE'sdetermination that 12 SEERis the maximum efficiency level that is technologically feasible and economicallyjustified is set forth in Section VII. 

### V. Amended Energy Conservation Standards A. Overview The amended standards intoday'srule take into account a decade oftechnological advancements and will save consumers and the nation money, significant amounts ofenergy, and have substantial environmental and economic benefits. Whenthey go into effect, the amended 

### 33

### EE-RM/STD-98-440-303 standards will raise the energy efficiency standards to 12 SEER for new central air conditioners and to12 SEER/ 7.4 HSPF for new central air conditioning heat pumps. The standards will apply to products manufactured for sale in the United States, as ofJanuary 23, 2006. The standard for split-system air conditioners, the most common type ofresidential air conditioning equipment, represents a 20 percent improvement in energy efficiency. For split-system heat pumps, the new standard represents a 20 percent improvement in cooling efficiency and a 9 percent improvement in heating efficiency. The standard will increase the cooling efficiency ofsingle-package air conditioners and single-package heat pumps by 24 percent and the heating efficiency ofsinglepackage heat pumps by 12 percent. DOE has determined that the new standards are the highest efficiency levels that are technologically feasible and economically justified as required by law. DOE adopts somewhat lower amended standards forthrough-the-wall central air conditioner and heat pump products to ensure that more efficient versions remain available for this application. DOE establishes 10.9 SEER and 7.1 HSPF as the standard for through-the-wall split systems, and 10.6 SEER and 7.0 HSPF for through-the-wall single package systems. Finally, DOE creates a new class for small duct, high velocity central air conditioners and heat pumps. These products are designed for retrofit applications and have special requirements that make itunlikely they can meet the efficiency standards that DOE today establishes for conventional equipment. As discussed in Section VI, DOE received public comments that supported creation ofa separate class for these products. While DOE includes a definition of "small duct, high velocity system" in the final rule and creates a separate class for them, DOE retains the NAECA prescribed standard levels for small duct, high velocity products in today's final rule because DOE has not yet conducted the analysis required to determine whether higher 34 EE-RM/STD-98-440

### -303 standards will raise the energy efficiency standards to 12 SEERfor new central air conditioners and to12 SEERl7.4 HSPF for new central air conditioning heat pumps. The standards will apply to products manufactured for sale in the United States, as ofJanuary 23, 2006. The standard for split-system air conditioners, the most commontype ofresidential air conditioning equipment, represents a 20 percent improvement in energy efficiency. For split-system heat pumps, the new standard represents a 20 percent improvement in cooling efficiency and a 9 percent improvement inheating efficiency. The standard will increase the cooling efficiency ofsingle-package air conditioners and single-package heat pumps by 24 percent and the heating efficiency ofsinglepackage heat pumps by 12 percent. DOEhas determined that the new standards are the highest efficiency levels that are technologically feasible and economicallyjustified as required by law. DOEadopts somewhatlower amended standards for through-the-wall central air conditioner and heat pump products to ensure that more efficient versions remain available for this application. DOE establishes 10.9 SEERand 7.1 HSPF as the standard for through-the-wall split systems, and 10.6SEERand 7.0 HSPF for through-the-wall single package systems. Finally, DOE creates a new class for small duct, high velocity central air conditioners and heatpumps. These products are designed for retrofit applications and have special requirements thatmake it unlikely they can meetthe efficiency standards that DOE today establishes for conventional equipment. As discussed in SectionVI, DOE received public comments that supported creation ofa separate class for these products. While DOE includes a definition of "small duct, high velocity system" inthe final rule and creates a separate class for them, DOE retains the NAECA prescribed standard levels for small duct, high velocity products in today's final rule because DOE has not yet conductedthe analysis required to determine whetherhigher
34

### EE-RM/STD-98-440- 303 levels are technologically feasible and economicallyjustified. DOE in the near future intends to begin a rulemaking to determine ifa higher standard is warranted. Several aspects oftoday's standards warrant highlighting, as follows. 1. Central Air Conditioner and Heat Pump Features The efficiency levels in today's final rule can be met by central air conditioner and heat pump designs that are already available in the market. DOE fully expects variations ofthese models to exist under the new standards, offering all the features and utility that are found in currently available products. 2. Consumer Benefits Table 1summarizes the "characteristics" oftoday's typical central air conditioners and heatpumps. Table 2 presents the implications forthe average consumer ofthe standards becoming effective in 2006.

Table 1: Characteristics ofToday's Typical CentralAir Conditioners and Heat Pumps' Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Average Installed Price $2,236 $3,668 $2,607 $3,599 Annual Utility Bill2 $189 $453 $189 $453 Life Expectancy 18.4 years 18.4 years 18.4 years 18.4 years Energy Consumption per year 2,305 kWh 6,549 kWh 2,305 kWh 6,549 kWh "Typical" equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively.

2 Utility bill pertains to the energy cost ofoperating the air conditioner or heat pump.

35 EE-RM/STD-98-440- 

### 303 levels are technologically feasible and economicallyjustified. DOE inthe near future intends to begin a rulemaking to determine ifa higher standard is warranted. Several aspects oftoday's standards warrant highlighting, as follows. 1. Central Air Conditioner and Heat Pump Features The efficiency levels in today's final rule can be met by central air conditioner and heat pump designs thatare already available in the market. DOE fully expects variations ofthese modelstoexist underthe new standards, offering all the features and utility that are found in currently available products. 2. ConsumerBenefits Table 1 summarizes the "characteristics" oftoday'stypicalcentral air conditioners and heatpumps. Table 2 presents the implications for the average consumer ofthe standards becoming effective in 2006.



### Table 1: Characteristics ofToday'sTypical CentralAirConditioners and HeatPumps' Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Average Installed Price $2,236 $3,668 $2,607 $3,599 Annual Utility BilF $189 $453 $189 $453 Life Expectancy 18.4 years 18.4 years 18.4 years 18.4 years Energy Consumption peryear 2,305 kWh 6,549 kWh 2,305 kWh 6,549 kWh I "TYPIcal" equIpmenthave coohngand heatmg effiCIenCies of 10 SEER and 6.8 HSPF, respectIVely.

2 Utility bill pertains to the energy cost ofoperatingthe air conditioner or heat pump.

35

### EE-RM/STD-98-440-30-3 Table2: Implications ofNew Standards for the Average Consumer Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Year Standard Comes into Effect 2006 2006 2006 2006 New Average Installed Price $2,449 $3,812 $2,765 $3,748 Estimated Price Increase $213 $144 $158 $149 Annual Utility Bill Savings $31 $50 $31 $50 Average Net Saving over Equipment $113 $365 $163 $421 Life Energy Savings per Year 384 kWh 768 kWh 384 kWh 768 kWh 

### The most typical air conditioner (i.e., split system air conditioner which comprises approximately 65 percent oftoday's central air conditioning and heat pump market) has an installed price of$2,236 and an annual utility costs of$189. In order to meet the 2006 standard, DOE estimates that the installed price ofa typical air conditioner would be $2,449, an increase of $213.4 

### This price increase would be offset by an annual energy savings ofabout $31 on the utility bills. The most typical heat pump (i.e., split system heat pump) currently has an installed price of $3,668 and annual utility costs of$453. In order to meet the 2006 standard, DOE estimates that the installed price ofa typical heat pump would be $3,812, an increase of$144. 5 

### This price increase would be offsetby an annual energy savings ofabout $50 on the utility bills. DOE recognizes that most consumers pay energy prices that are higher or lower than the "typical" consumer and operate their equipment more or less often. Consequently, DOE has investigated the effects ofthe different energy prices across the nation and different air4 Based on estimates supplied by the industry trade association, the Air-Conditioning and Refrigeration Institute (ARI), the installed price is estimated to be $2,510, an increase of$274. 5 Based on estimates supplied by ARI, the installed price is estimated to be $3,933, an increase of$265. 

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

### .303 Table2: Implications ofNew Standardsfor the Average Consumer SplitSystem Split**Syst~ni** SinglePackage Single Package Air Conditioner .,eatPump Air Conditioner Heat Pump Year Standard Comes into Effect 2006 2006 2006 2006 New Average Installed Price $2,449 $3,812 $2,765 $3,748 Estimated Price Increase $213 $144 $158 $149 Annual Utility Bill Savings $31 $50 $31 $50 AverageNet Saving overEquipment $113 $365 $163 $421 Life Energy Savings perYear 384 kWh 768 kWh 384 kWh 768 kWh The mosttypical air conditioner (i.e., split system airconditionerwhich comprises approximately 65 percent oftoday'scentral airconditioning andheatpumpmarket)has an installed price of$2,236 and an annual utility costs of$189. In orderto meet the 2006 standard, DOE estimatesthattheinstalledprice ofa typical air conditionerwouldbe $2,449, anincrease of $213.4 This price increase wouldbeoffsetby an annual energy savings ofabout $31 onthe utility bills. Themosttypical heatpump (i.e., split systemheatpump) currently has an installedprice of $3,668 and annual utility costs of$453. In orderto meetthe 2006 standard, DOE estimatesthat the installedpriceofatypical heatpumpwould be $3,812, an increase of$144.s Thisprice increase wouldbe offsetby an annual energy savings ofabout $50 onthe utility bills. DOErecognizes that mostconsumerspay energyprices that arehigher orlowerthanthe ''typical'' consumerand operate their equipmentmore or less often. Consequently, DOEhas investigatedthe effects ofthe different energy prices across the nation and different air4 Based on estimates supplied by the industry trade association, the Air-Conditioning and Refrigeration Institute (ARl), the installedprice is estimated to· be $2,510, an increase of$274.

S Basedon estimates supplied by ARl, the installed price is estimated tobe $3,933, an increase of$265. 36

### EE RM/STD-98-440- 3 3 conditioning usage patterns. DOE estimates that 75 percent ofall consumers purchasing a new typical air conditioner would either save money or would be negligibly impacted as a result ofthe 2006 standard.6 

### In the case ofa new typical heat pump, all consumers either would save money or be negligibly impacted.7 

### DOE also investigated how these standards might affect low income consumers. On average, DOE estimates that it is likely that low income air conditioner and heat pump consumers would also save money over the life ofthe equipment as a result ofthe standard. 3. National Benefits The standards in today's rule will provide benefits to the nation. DOE estimates the standards will save approximately 3 quads ofenergy over 25 years (2006 through 2030). This is equivalent to all the energy consumed by nearly 17 million American households in a single year. In 2020, the standards will avoid the construction ofthree 400 megawatt coal-fired plants and nineteen 400 megawatt gas-fired plants. These energy savings would result in cumulative greenhouse gas emission reductions ofapproximately 24 million metric tons (Mt) ofcarbon, or an amount equal to that produced by approximately 2 million cars every year. Additionally, air pollution would be reduced by the elimination ofapproximately 80 metric tons ofnitrous oxides (NOx) from 2006 through 2020. In total, DOE estimates this standard will have a net benefit to the nation's consumers of$2 billion over the period 2006 through 2030.8

6Based on estimates supplied by ARI, 61 percent ofall consumers purchasing a new typical air conditioner will either save money or will be negligibly impacted as a result ofthe 2006 standard. 7 Based on estimates supplied by ARI, 97 percent ofall consumers purchasing a new typical heat pump will either save money or will be negligibly impacted as a result ofthe 2006 standard. 8 Net benefit assumes NAECA efficiency scenario. Net benefit would be $3 billion for Roll-up efficiency scenario. 

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

### 303 conditioning usage patterns. DOE estimates that 75 percent ofall consumers purchasing a new typical air conditioner would either save money orwould be negligibly impacted as a result ofthe 2006 standard.6 Inthe case ofa newtypical heatpump, all consumers either would save money or be negligibly impacted.7 DOE also investigatedhowthese standards might affect low income consumers. On average, DOE estimatesthat it is likely that lowincome air conditioner and heat pump consumers wouldalso save money overthe life ofthe equipment as a result ofthe standard. 3. National Benefits

.The standards in today's rule will provide benefits to the nation. DOE estimates the standards will save approximately 3 quads ofenergy over25 years (2006 through 2030). This is equivalentto all the energy consumed by nearly 17 millionAmerican households in a single year. In 2020, the standards will avoid the construction ofthree 400 megawatt coal-fired plants and nineteen400 megawatt gas-fired plants. These energy savings would result in cumulative greenhouse gas emission reductions ofapproximately 24 million metric tons (Mt) ofcarbon, oran amount equal to that produced by approximately 2 million cars every year. Additionally, air pollution would be reduced by the elimination ofapproximately 80 metric tons ofnitrous oxides (NOx) from 2006 through 2020. Intotal, DOE estimates this standard will have a net benefit to the nation's consumers of$2billion overthe period 2006 through 2030. 8

6Based on estimates supplied by ARl, 61 percent ofall consumers purchasing a new typical air conditioner will either save money otwill be negligibly impacted as a result ofthe 2006 standard.

7 Based on estimates supplied by ARl,. 97 percent ofall consumers purchasing a new typical heat pump will either save money orwill be negligibly impacted as a result ofthe 2006 standard. 8Net benefit assumes NAECAefficiency scenario. Net benefit would be $3 billion for Roll-up efficiency scenario. 37

### B. Statutory Framework EE-RM/STD-98-440 - 

### 3 3 Part B ofTitle III ofEPCA provides for the Energy Conservation Program for Consumer Products otherthan Automobiles (42 U.S.C. 6291 et seq.). The consumer products subject to this program include central air conditioners and heat pumps. Under the Act, the program consists essentially ofthree parts: testing, labeling, and Federal energy conservation standards. As previously stated, NAECA prescribed initial Federal energy conservation standards for central airconditioners and heat pumps (42 U.S.C. 6295(d)). NAECA further specified that DOE isto review and publish amended standards by January 1, 1994 (42 U.S.C. 6295(d)(3)(A)). Under EPCA, any new or amended standard must be designed so asto achieve the maximum improvement in energy efficiency that is technologically feasible and economicallyjustified (42 U.S.C. 6295(o)(2)(A)). Section 325(o)(2)(B)(i) provides that before DOE determines whether a standard is economically justified, it must first solicit comments on a proposed standard (42 U.S.C. 6295(o)(2)(B)(i)). That section further provides that, afterreviewing the comments, DOE must determine whether the benefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors: (i) The economic impact ofthe standard on the manufacturers and on the consumers of the products subject to such standard; (ii) The savings in operating costs throughout the estimated average life ofthe covered product in the type (or class) compared to any increase in the price of,or in the initial charges for, or maintenance expenses of,the covered products which are likely to result from the imposition of the standard; 38 B. Statutory Framework EE-RM/STD-98-440- 

## 3D3 PartB ofTitle 

### III ofEPCAprovides for the Energy Conservation Program for Consumer Products otherthan Automobiles (42 U.S.C. 6291 et seq.). The consumerproducts subject to this program include central airconditioners and heat pumps. Under theAct, the program consists essentially ofthree parts: te,sting, labeling, and Federal energy conservation standards. Aspreviously stated, NAECAprescribed initial Federal energy conservation standards for central airconditioners and heat pumps (42 U.S.c. 6295(d)). NAECA further specified that DOE is to review and publish amended standards by January 1, 1994 (42 U.S;C. 6295(d)(3)(A)). Under EPCA, any new or amended standard must be designed so as to achieve the maximum improvement in energy efficiency that is technologically feasible and economicallyjustified (42 U.S.C.6295(0)(2)(A)). Section 325(0)(2)(B)(i)provides that before DOE determines whether a standard is economicallyjustified, it must first solicit comments on a proposed standard (42 U.S.C. 6295(0)(2)(B)(i)). That section further provides that, afterreviewing the comments, DOE must' determine whetherthe benefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors:
. (i) The economic impact ofthe standard onthe manufacturers and on the consumers of the products subject to such standard; (ii) The savings in operating coststhroughout the estimated average life ofthe covered product in the type (or class) compared to any increase in the price of, or in the initial charges for,
ormaintenance expenses of, the coveredproducts which are likely to result from the imposition of the standard; 38

### EE.RM/STD-98-440 -303 (iii) The total projected amount ofenergy savings likely toresult directly from the imposition ofthe standard; (iv) Any lessening ofthe utility or the performance ofthe covered products likely to result from the imposition ofthe standard; (v) The impact ofany lessening ofcompetition, as determined in writing bythe Attorney General, that is likely to result from the imposition ofthe standard; (vi) The need for national energy conservation; and (vii) Other factors the Secretary considers relevant. In addition, section 325(o)(2)(B)(iii) establishes arebuttable presumption ofeconomic justification in instances where the Secretary determines that "the additional cost to the consumer ofpurchasing aproduct complying with an energy conservation standard level will be less than three times the value ofthe energy ... savings during the first year that the consumer will receive
as aresult ofthe standard, as calculated under the applicable test procedure
.... " (42 U.S.C. 6295(o)(2)(B)(iii)). The rebuttable presumption test is an alternative pathto establishing economicjustification. C. Methodology UsedinDOE Analyses Forthis final rule, the methodologies used to evaluate the seven factors described above
are unchanged from those used in the analyses that DOE relied on for the October 5proposed rule and the January 22 final rule. DOE's methodology is discussed in the October 5,2000 NOPR (65 FR 59594-97) and the January 22 final rule (66 FR 7173-74). Additionally, the TSD that accompanies this rulemaking provides a detailed description ofevery aspect ofthe various analytical methodologies used. 39 EE.RM/STD-98-440 

### -303 (iii) The total projected amount ofenergy savings likely to result directly from the imposition ofthe standard; (iv) Any lessening ofthe utility orthe performance ofthe coveredproducts likely to result from the imposition ofthe standard; (v) The impact ofany lessening ofcompetition, as determined in writingby the Attorney General, that is likely to result from the imposition ofthe standard; (vi) The need for national energy conservation; and (vii) Otherfactors the Secretary considers relevant. In addition, section 325(0)(2)(B)(iii) establishes a rebuttable presumption ofeconomic justification in instances where the Secretary determines that "the additional cost to the consumer ofpurchasing a product complyingwith an energy conservation standard level will be less than three times the value ofthe energy ... savings during the first yearthat the consumer will receive

as a result ofthe standard, as calculated underthe applicable test procedure
...." (42 U.S.C. 6295(o)(2)(B)(iii)). The rebuttable presumptiontest is an alternative path to establishing economicjustification. C. Methodology Used in DOEAnalyses Forthis final rule, the methodologies used to evaluate the seven factors described above

are unchanged from those used inthe analyses that DOE relied onfor the October 5 proposed rule and the January 22 final rule. DOE's methodology is discussed in the October 5, 2000 NOPR (65 FR59594-97) and theJanuary 22 final rule (66FR7173-74). Additionally, the TSDthat accompanies this rulemaking provides a detailed description ofevery aspect ofthe various analytical methodologies used.
39

### EE-RM/STD-98-440-3 03 D. General Discussionof DOE'sConsideration of StatutoryCriteria 1. Technological Feasibility Pursuant to section 325(p)(2) ofEPCA, and as discussed inthe October 5,2000 NOPR (65 FR 59593, 59612) and January 22 finalrule (66 FR 7172), DOE determined that 18 SEER is themaximum technologically feasible level (Max Tech Level) for cooling efficiency for all product classes and capacities covered bythis rulemaking. The Max Tech Level for heating efficiency is 9.4 HSPF, which is thehighest HSPF rating currently available in residential heat pumps. DOE's determinations oftechnological feasibility for central airconditioners and heat pumps have notbeen disputed inthe written and oral comments ofinterested persons inthe rulemaking. 2. Economic Justification Factors DOE has considered the seven statutory factors for determining whether aconservation standard is economically justified. This section briefly summarizes DOE's consideration ofthese factors. More detailed consideration ofthese factors isprovided inthe discussion ofcomments in Section VI andthe discussion ofanalytical results in Section VII ofthis Supplementary Information.
a. EconomicImpactonManufacturers andConsumers The record for this rulemaking contains several discussions ofthe economic impact on manufacturers and consumers See 66 FR 7174-78, 7185-7191, and 66 FR 38828-29, 38834-35. In the July 25 SNOPR, DOE identified deficiencies inthe assessment ofmanufacturer and consumer impacts thatwere the basis for adoption ofthe January 22 final rule. Later sections ofthis Supplementary Information address the public comments received and DOE's conclusions on 40 EE-RM/STD-98-440-

## 303 D. GeneralDiscussion of DOE's Consideration o/Statutory Criteria 1. Technological Feasibility Pursuantto section 325(P)(2) ofEPCA, and as discussed in the October 5, 2000 NOPR (65 FR**59593~** 59612) and January 22final rule (66 FR7172),DOE determined that 18 SEERis the maximumtechnologically feasible level (Max TechLevel) for cooling efficiency for all productclasses and capacitiescoveredbythisrulemaking. The MaxTechLevel for heating efficiency is 9.4 HSPF,whichisthehighest HSPF rating currently available in residential heat**pumps~** DOE'sdeterminations oftechnological feasibility for central airconditioners and heat pumpshave notbeen disputed inthe written and oral comments ofinterestedpersons inthe rulemaking. 2. Economic Justification Factors DOEhas considered the seven statutory factors for determining whether a conservation standard is economicallyjustified. This sectionbriefly summarizes DOE'sconsideration ofthese factors. More detailed consideration ofthese factors isprovided inthe discussion ofcomments in SectionVI andthe discussion ofanalytical results in Section VII ofthis Supplementary Information.


### a. EconomicImpact onManufacturers andConsumers

.The·record for thisrulemaking contains several discussions ofthe economic impact on manufacturers and consUlliers See 66 FR7174-78, 7185-7191, and 66 FR 38828-29,38834-35. In the July 25 SNOPR, DOEidentified deficiencies in the assessment ofmanufacturer and consumer impactsthat werethe basis for adoption oftheJanuary 22 final rule. Later sections ofthis Supplementary Information addressthepublic comments received and DOE'sconclusions on 40

### these subjects. EE-RM/STD-98-440- 3

### 3 b. Life-Cycle CostsandRebuttablePresumption DOE considered life-cycle costs, as discussed in the January 22 final rule. 66 FR 7173, 7175, 7187-90. DOE calculated the installed price and operation and maintenance costs for a range ofconsumers around the nation to estimate the range in life-cycle cost benefits that

consumers would expect to receive due to new standards. DOE has made no change in its assumptions and analysis oflife-cycle costs in making the determinations in today's notice offinal rulemaking. Section 325(o)(2)(B)(iii) ofEPCA provides that if, according to the applicable test procedure, the increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumer in energy savings in less than three years, then DOE is to presume that such standard is economically justified. This presumption ofeconomic justification can be rebutted upon aproper showing. Using the reverse engineering manufacturing costs, the standards DOE adopts today for split heat pumps and packaged heat pumps canbe shown to have satisfied the rebuttable presumption requirements in section 325(o)(2)(B)(iii). 9 

### Therefore, DOE presumes that the standards adopted for split system and single package heat pumps are economically justified. The analysis, however, shows that split system air conditioners and single package airconditioners do

9 To avoid confusion, DOE points out that the statute requires DOE to use "the applicable test procedure" to calculate the payback periods for purposes ofthe rebuttable presumption. As explained in the October 5, 2000 NOPR (65 FR 59596), the annual cooling and heating energy consumption calculations based on DOE's test procedure are significantly greater than the weighted-average values from DOE's life-cycle cost analyses based on the 1997 Residential Energy Consumption Survey, used in other DOE analyses. For this reason, the payback periods presented in Section VII ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longer than those calculated to determine whether the rebuttable presumption applies to these products. 

### 41 these subjects. EE-RM/STD-98-440-

### 3 03 b. Life-Cycle Costs andRebuttable Presumption DOE considered life-cycle costs, as discussed inthe January 22 final rule. 66 FR7173, 7175, 7187-90. DOE calculatedthe installedprice and operation and maintenance costs for a range ofconsumers around the nation to estimate the range in life-cycle costbenefits that

consumers would expectto receive due to new standards. DOE has made no change in its assumptions and analysis oflife-cycle costs inmakingthe determinations in today's notice offinal rulemaking. Section 325(o)(2)(B)(iii) ofEPCAprovides that if, according to the applicable test procedure, the increase in initial price ofan appliance due to a conservation standard wouldrepay itselfto the consumer in energy savings in less than three years, then DOE is to presumethat such standard is economicallyjustified. Thispresumption ofeconomicjustification can be rebutted upon a proper showing. Usingthe reverse engineeringmanufacturing costs, the standards DOE adopts today for split heat pumps and packagedheat pumps canbe shownto have satisfied the rebuttable presumptionrequirements in section 32S(o)(2)(B)(iii).9 Therefore, DOE presumes that the standards adopted for split system and single package heat pumps are economicallyjustified. The analysis, however, shows that split system air conditioners and single package air conditioners do

9To avoid confusion, DOE points outthatthe statute requires DOEto use "the applicable testprocedure" to calculate the payback periods for purposes ofthe rebuttable presumption. As explained in the October 5, 2000 NOPR (65 FR 59596), theannualcooling and heating energy consumption calculations based on DOE'stest procedure are significantly greaterthanthe weighted-average values from DOE's life-cycle cost analyses based on the 1997 Residential Energy Consumption Survey, used in other DOE analyses. Forthis reason, the payback periods presented in Section VII ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longer than those calculatedto determine whetherthe rebuttable presumption applies to these products. 41

### EE-RM/STD-98-440 -3 03 not meet the standard for use ofthe rebuttable presumption ofeconomicjustification. Therefore, DOE does not presume them tobe economicallyjustified. Ifthe rebuttable presumption does not apply, DOE must perform additional analysis to determine economicjustification. As discussed in Section VII, DOE has performed an analysis for all classes ofcentral air conditioner and heat pump products that shows the standards in today's rule are indeed economicallyjustified.
c. EnergySavings EPCA requires DOE, in determining the economicjustification ofa standard, to consider .thetotal projected energy savings that are expected to result directly from revised standards. DOE forecasted energy savings through the use ofa national energy savings (NES) spreadsheet, as discussed in the October 5,2000 NOPR (65 FR 59590, 59593). DOE relies on the same spreadsheets and assumptions for its estimate oftheNES that would result from implementation oftoday's standards. As discussed in the October 5, 2000 NOPR, section 325(o)(3)(B) ofEPCA prohibits DOE from adopting a standard for aproduct ifthat standard would not result in "significant" energy savings. The energy savings for the standard levels DOE is adopting today are non-trivial

- indeed they are substantial

- and therefore we consider them "significant" within the meaning of section 325 ofthe Act as construed by the court in Natural Resources Defense Council v. Herrington, 768 F.2d 1355 (D.C. Cir. 1985).

d. LesseningofUtilityorPerformanceof Products This factor cannot be quantified. In establishing classes ofproducts, DOE has attempted to eliminate any degradation ofutility orperformance in theproducts covered by today's rule. 42 EE·RM/STD·98·440

### ·~3

## 03
not meet the standard for use ofthe rebuttable presumption ofeconomicjustification. Therefore, DOE does not presumethem to be economicallyjustified. Ifthe rebuttable presumption does not apply, DOE must perform additional analysis to determine economicjustification. As discussed in Section VII, DOE has performed an analysis for all classes ofcentral air conditioner and heat pumpproductsthat shows the standards in today'srule are indeed economicallyjustified.


### c. EnergySavings EPCArequires DOE, in determining the economicjustification ofastandard, to consider .thetotal projected energy savingsthat are expected to result directly from revised standards. DOE forecasted energy savings through the use ofa national energy savings (NES) spreadsheet, as discussed in the October 5, 2000 NOPR (65 FR59590, 59593). DOE relies onthe same spreadsheets and assumptions for its estimate oftheNES that wouldresult from implementation oftoday's standards. As discussed in the October 5, 2000 NOPR, section 325(0)(3)(B) ofEPCAprohibits DOE from adopting a standardfor a product ifthat standard would not result in "significant" energy savings. The energy savings for the standard levels DOE is adopting today are non-trivialindeedthey are substantial

- and therefore we considerthem "significant" within the meaning of section 325 ofthe Act as construed by the court in Natural Resources Defense Council v. Herrington, 768 F.2d 1355 (D.C. Cir. 1985).

d. LesseningofUtility orPerformance of Products This factor cannot be quantified. In establishing classes ofproducts, DOE has attempted to eliminate any degradation ofutility orperformance inthe products coveredby today'srule.
42

### EE-RM/STD-98-440-3 

### 03 Attributes that affect utility include the product's ability to cool and dehumidify. In some applications, noise levels may also be an aspect ofutility. Product size or configuration can also be considered utility ifa change in size would cause the consumer to install the product in a location or in a manner inconsistent withthe consumer's preferences. The separate treatment of through-the-wall products and small duct, high velocity systems in today's rule is based in part on utility and performance considerations.
e. Impactof LesseningofCompetition This economicjustification factor has two aspects: on the one hand, it assumes that there could be some lessening ofcompetition as aresult ofstandards; on the other hand, itdirects the Attorney General to gauge the impact, ifany, ofthat effect and DOE mustconsider the Attorney General's views in determining whether an efficiency level is economicallyjustified.. Inorder to assist the Attorney General in making such a determination, DOE provided the Attorney General with copies ofthe October 5, 2000, NOPR and the TSD for review. The Attorney General's determination, in a letter dated December 4, 2000, was discussed in the preamble to the January 22 final rule. 66 FR 7176, 7199-200. The Attorney General's December 4, 2000, determination is included inthe Appendix to this notice offinal rulemaking. During the review conducted pursuant to the President's Regulatory Review Plan, DOE invited the Attorney General to submit supplemental views on the January 22 final rule. The Department ofJustice, in aletter dated April 5,2001, provided comments on whether the final rule effectively removed its concerns regarding possible lessening ofcompetition that could result from the October 5proposed standards. The Department ofJustice's April 5,2001, letter is also included in the Appendix to this notice. The Department ofJustice concluded that the 13 SEER 43 EE-RM/STD-9S-44o--303 Attributesthat affect utility include the product's ability to cool and dehumidify. In some applications, noise levels may also be an aspect ofutility. Product size orconfiguration can also be consideredutility ifa change in size would cause the consumerto install the productin a location orina mannerinconsistent withthe consumer's preferences. The separate treatment of through-the-wall products and small duct, highvelocity systems intoday'srule is based in part on utility and performance considerations.


### e. Impact of Lesseningof Competition This economicjustification factor has two aspects: onthe one hand, it assumesthat there couldbe some lessening ofcompetition as a result ofstandards; onthe otherhand, it directs the Attorney General to gauge the impact, ifany, ofthat effect and DOEmust considerthe Attorney General'sviews in determining whether an efficiency level is economicallyjustified
.. Inorderto assist the Attorney General in making such a determination, DOE provided the Attorney General with copies ofthe October 5, 2000, NOPRand the TSDfor review. The Attorney General's determination, in a letter dated December4,2000, was discussed in the preambleto the January 22 final rule. 66 FR7176, 7199-200. The Attorney General's December 4,2000, determination is included inthe Appendix to this notice offinal rulemaking. During the review conducted pursuantto the President's Regulatory Review Plan, DOE invitedthe Attorney General to submit supplemental views onthe January 22 final rule. The Department ofJustice, in a letter dated April 5,2001,provided comments on whetherthe final rule effectively removed its concerns regarding possible lessening ofcompetitionthat could result from the October 5 proposed standards. The Department ofJustice's April 5,2001, letter is also included in the Appendixto this notice. The Department ofJustice concluded that the 13 SEER
43

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

-- 03 standards for heat pumps and air conditioners in the January 22 final rule still presented anticompetitive concerns. More specifically, the Department ofJustice concluded that while the final rule's exclusion ofniche products might alleviate competitive problems formanufacturers of those products, the Department ofJustice remained concerned about the impact ofthe final rule
on manufacturers ofstandard equipment who could not make 13 SEER equipment that would fit into space-constrained sites. The Department ofJustice also concluded the January 22 final rule would have a disproportionate impact on smaller manufacturers ofheat pumps. Finally, the Department ofJustice was ofthe view that the 13 SEER standard for air conditioners presents the
same kinds ofanti-competitive problems as the 13 SEER standard for heat pumps, and urged DOE to adopt a 12 SEER standard for all products covered by the rule. DOE submitted the July 25, 2001, supplemental proposed rule to the Department of Justice for comment. The Assistant Attorney General, Antitrust Division, responded in a letter dated October 19, 2001, (see Appendix to this notice) that the Department ofJustice had concluded that the proposed 12 SEER standards would not adversely affect competition. This factor is discussed further in Section VI.E ofthis Supplementary Information. f. NeedofThe Nationto ConserveEnergy DOE recognizes that energy conservation benefits the nation in several important ways. Enhanced energy efficiency improves the nation's energy security, strengthens the economy, and reduces the environmental impacts ofenergy production. As part ofthe analysis supporting today's rule, DOE estimated energy savings and the national consumer benefits and estimated reduction in emissions ofpollutants and greenhouse gases resulting from those energy savings. See the October 5, 2000 NOPR for a qualitative discussion ofhow these standards affect energy 44 EE-RM/STD-98-440-303 standards for heat pumps and airconditioners in the January 22 final rule still presented anticompetitive concerns. More specifically, the Department ofJustice concluded that while the final rule's exclusion ofniche productsmight alleviate competitive problems for manufacturers of those products, the Department ofJustice remained concerned about the impact ofthe final rule
onmanufacturers ofstandard equipment who could not make 13 SEER equipment that would fit into space-constrained sites. The Department ofJustice also concluded the January 22 final rule wouldhave a disproportionate impact on smallermanufacturers ofheat pumps. Finally, the Department ofJustice was ofthe viewthat the 13 SEER standard for air conditionerspresents the
samekinds ofanti-competitiveproblems as the 13 SEER standard for heat pumps, and urged DOEto adopt a 12 SEER standard for all products covered by the rule. DOE submitted the July 25, 2001, supplemental proposed rule to the Department of Justice for comment. The Assistant Attorney General, Antitrust Division, responded in a letter dated October 19, 2001, (see Appendix to this notice) that the Department ofJustice had concluded that the proposed 12 SEER standards would not adversely affect competition. This factor is discussed further in Section VI.E ofthis Supplementary Information. 

### f. Needof The Nation to Conserve Energy DOE recognizes that energy conservationbenefits the nation in several important ways. Enhanced energy efficiency improves the nation's energy security, strengthens the economy, and reduces the environmental impacts ofenergy production. As part ofthe analysis supporting today's rule, DOE estimated energy savings and the national consumerbenefits and estimated reduction in emissions ofpollutants and greenhouse gases resulting from those energy savings. Seethe October 5, 2000 NOPR for a qualitative discussion ofhowthese standards affect energy 

### 44

### EE-RM/STD-98-440- 303 savings and those benefits. 65 FR 59622-3. The amount ofenergy savings ultimately associated with a particular standard level is also affected by the effect ofa given standard on competition and consumer cost. Selecting a standard level should take into account manufacturer

- and therefore inevitably consumer - costs, in order to encourage robust competition and heightened introduction ofnewer, more efficientunits into the inventory ofunits available for purchase and
use by consumers. g. OtherFactors Section 325(o) ofEPCA allows the Secretary ofEnergy, in determining whether a standard iseconomicallyjustified, to consider any other factors that the Secretary deems to be relevant (42 U.S.C. 6295(o)(2)(B)(i)(VI)). Under this provision, DOE considered thepotential improvement tothe reliability ofthe electrical system and health effects caused by foregone air conditioner purchases. These issues are discussed in the October 5,2000 NOPR (65 FR 59605); the January 22 final rule (66 FR 7195); and inthe Discussion ofComments that follows. The Utility Impacts Analysis in Chapter 11 ofthe TSD describes the technical analysis used in estimating the effects ofadopting new efficiency standards on installed generation capacity. As will be described inthe Discussion ofComments, the Utility Impacts Analysis has been revised. Updated results are provided in Appendix M ofthe TSD. VI. Discussion of Comments A. Impacton Consumers The record for this rulemaking includes numerous discussions ofthe distributions, extent, and type ofburdens on the typical consumer as well as on low-income consumers. See 65 FR 59623-59624, 66 FR 7189-7190, and 66 FR 38834. In the January 22 notice offinal rulemaking, 45 EE-RM/STD-98-440- 

## 303
. savings and those benefits. 65 FR 59622-3. The amount ofenergy savings ultimately associated with a particular standard level is also affected by the effect ofa given standard on competition and consumer cost. . Selecting a standard level should take into account manufacturer

- and therefore inevitably consumer- costs, in orderto encourage robust competition and heightened introduction ofnewer, more efficientunits into the inventory ofunits available for purchase and

use by consumers. g. Other Factors Section 325(0) ofEPCA allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, to consider any otherfactors that the Secretary deems to be relevant (42 U$.C. 6295(0)(2)(B)(i)(VI)). Underthis provision, DOE considered the potential improvementtothereliability ofthe electrical system and health effects caused by foregone air conditionerpurchases. These issues are discussed in the October 5, 2000 NOPR (65 FR 59605); the January 22 final rule (66 FR 7195); and inthe Discussion ofComments that follows. The Utility Impacts Analysis in Chapter 11 ofthe TSD describes the technical analysis used in estimating theeffects ofadopting newefficiency standards on installed generation capacity. As will be described inthe Discussion ofComments, the Utility Impacts Analysis has been revised. Updated results are provided in Appendix M ofthe TSD. 

### VI. Discussion ofComments A. Impact on Consumers Therecord for this rulemaking includes numerous discussions ofthe distributions, extent, and type ofburdens onthe typical consumer as well as onlow-income consumers. See 65 FR 59623-59624,66FR7189-7190, and 66 FR 38834. Inthe January 22 notice offinal rulemaking,
45

### EE-RM/STD-98-440 -3a3 DOE determined that most consumers, including low-income consumers, would likely benefit financially over the life ofthe equipment, but that all consumers would bearhigher initial costs, and many consumers, though notthe majority, would never recover the higher first costs in the form ofsavings intheir utility bills. However, the previous Administration concluded that the national energy savings and the slight financial benefit tothe typical consumer overrode any negative and maldistributed consumer impacts. Upon review pursuant to President Bush's Regulatory Review Plan, DOE focused on analytical results showing that the benefits ofthe standards adopted inthe January 22 final rule would accrue to amuch smaller fraction of
consumers than isthe case for recent standards for other products, particularly low income consumers. Therefore, DOE soughtto mitigate those burdens by proposing on July 25 a 12 SEER standard, which would reduce the increase inequipment cost compared to the 13 SEER requirements issued on January 22. See July 25 SNOPR, 66 FR 38828, 38834. DOEreceived extensive public comments on this subject in response to the July 25 SNOPR. 1. Low-Income Consumers As noted intheJuly 25 SNOPR, DOE is particularly concerned that new standards be designed to distribute their burdens and benefits as fairly as practical. Although some disparity is expected in any national standard, the disparity in impacts between low-income and typical consumers is ofmore concern at more stringent efficiency standards because increases in first cost and increases in life cycle costs are felt more sharply by lower income consumers. Many advocates ofa 13 SEER standard argued thatbecause a majority oflow-income central air conditioner and heat pump consumers are renters, most would notbear the first cost increases associated withmore efficient equipment. These comments asserted that landlords 46 EE-RM/STD-98-440

### -303 DOE determined that most consumers, including low-income consumers, would likely benefit financially overthe life ofthe equipment, butthat all consumers wouldbearhigherinitial costs, and many consumers, thoughnotthe majority, would neverrecoverthe higher first costs in the form ofsavings intheirutility bills. However, theprevious Administration concludedthat the national energy savings andthe slightfinancial benefitto the typical consumeroverrode any negative and maldistributed consumerimpacts. Uponreviewpursuantto PresidentBush's Regulatory ReviewPlan, DOE focused onanalytical results showing thatthe benefits ofthe standards adopted inthe January 22 final rule would accrue to a much smallerfraction of
consumersthanis the case for recent standards for otherproducts, particularly lowincome



### • consumers. Therefore, DOE soughtto mitigate those burdensby proposing onJuly 25 a 12 SEER standard, which would reducethe increase inequipment costcomparedto the 13 SEER requirements issued onJanuary 22. See July 25 SNOPR, 66 FR 38828, 38834. DOEreceived extensivepublic coinments on this subject inresponse to the July 25 SNOPR. 1. Low-Income Consumers Asnoted intheJuly 25 SNOPR, DOEisparticularly concerned that new standardsbe designed to distribute their burdens and benefits as fairly as practical. Although some disparity is expected in any national standard, the disparity in impacts between low-income and typical

consumers is ofmore concern at more stringent efficiency standards because increases in first cost and increases in life cycle costs are felt more sharply by lowerincome consumers. Many advocates ofa 13 SEER standard arguedthatbecause a majority oflow-income central air conditionerand heat pump consumers are renters, most would notbearthe first cost increases associated with more efficient equipment. These comments assertedthat landlords
46

### EE.RM/STD-98-440 -303 would have to absorb any first cost increase because rental prices are dictated by housing availability, real estate prices, and anumber ofother market forces as opposed to first cost increases in any single appliance. The comments also asserted that because landlords typically purchase the least expensive, and inturn, the least efficient equipment, stringent efficiency standards are one ofthe few options provided torenters toprotect them from unduly high energy bills. (American Council for an Energy-Efficiency Economy (ACEEE), No. 284 atp. 3; Appliance Standards Awareness Project (ASAP),No. 244 at pp. 1-2; Austin Energy, No. 243 atp. 2; Consumer Federation ofAmerica (CFA), No. 246 atp. 2;Northeast Energy Efficiency Partnerships (NEEP), No. 273 atp. 3; State ofVermont, No. 268 at p. 3; Goodman Global Holdings (Goodman), No. 269 atp. 4; Allianceto Save Energy (ASE),No. 282 at p. 4; California Energy Commission (CEC), No. 263 at p.2; NRDC, No. 250 at pp. 17-18; Environmental Ministries ofSouthern California, No. 263 atp. 4; Texas Ratepayers' Organization to Save Energy (Texas ROSE), No. 241-SS atpp. 15-16; National Consumer Law Center (NCLC), No. 241-NN atp. 1; Texas Natural Resource Conservation Commission (TNRCC), No. 286 atpp. 1-2; American Geothermal DX, No. 241-HH at p. 1; EPA, No. 276 at p. 5). Goodman, Oregon Office ofEnergy (OOE), National Grid, and Texas ROSE stated thatlow-income consumers ingeneral would benefit from stringent efficiency standards. Goodman argued that any first cost increase would be made up through lower energy bills, while Texas ROSE asserted that the stringency of the efficiency standard is immaterial asmost low-income households would find buying a new central air conditioning unit aprohibitive expense at any efficiency level. (OOE, No. 275 atpp. 4- 5; Goodman, No. 269 at p.4; National Grid,No. 241-00 atp. 2; Texas ROSE, No. 241-SS atpp. 12-16). 47 EE-RM/STD-98-440

## -30.3 wouldhave to absorb any first cost increase because rental prices are dictated by housing availability, real estateprices, and·anumberofothermarketforces as opposed to first cost increases inany single appliance. The comments also asserted thatbecause landlords typically purchasethe leastexpensive, and in turn, the least efficientequipment, stringent efficiency standards are one ofthe few optionsprovidedtorenters to protectthem from unduly high energy bills. (American Council for aliEnergy-Efficiency Economy (ACEEE),No. 284 atp. 3; Appliance Standards Awareness Project (ASAP), No. 244 atpp. 1-2; Austin Energy, No. 243 atp. 2; ConsumerFederation ofAmerica (CFA), No. 246 atp. 2;NortheastEnergy Efficiency Partnerships (NEEP), No. 273 atp. 3; State ofVermont, No. 268 atp.3; Goodman Global lipldings (Goodman), No. 269 atp. 4; Allianceto SaveEnergy (ASE), No. 282 atp. 4; California Energy Commission (CEC),No. 263 at p. 2; NRDC,No. 250 atpp. 17-18; Environmental Ministries ofSouthern California, No. 263 at p. 4; Texas Ratepayers' Organizationto Save Energy (Texas ROSE), No. 241-SS atpp. 15-16; National ConsumerLaw Center (NCLC), No. 241-NN at p. 1; TexasNatural Resource Conservation Commission (TNRCC), No. 286 atpp. 1-2; American Geothermal 

### DX, No. 241-HH atp. 1; EPA, No. 276 atp. 5). Goodman, Oregon Office ofEnergy (OOE),National Grid, and Texas ROSE statedthatlow-income consumers in general would benefit from stringent efficiency standards. Goodman argued that any first cost increase wouldbe madeup through lower energy bills, while Texas ROSE asserted that the stringency of the efficiency standard is immaterial as most low-income households would find buying a new central air conditioning unit a prohibitive expense at any efficiency level. (OOE, No. 275 atpp. 4- 5; Goodman, No.**~69** at-po 4; National Grid, No. 241-00 atp. 2; Texas ROSE, No. 241-SS atpp. 12-16).
47

### EE-RM/STD-98-440 - 3 

## 3 Countering the above comments, York International (York), Trane Company and American Standard Heating and Air Conditioning (Trane), Southern Company, ARI, Edison Electric Institute (EEI), Rheem Manufacturing (Rheem), Carrier Corporation (Carrier), and George Mason University Mercatus Center (Mercatus Center) all argued that the increased cost of
more efficient air-conditioning equipment cannot be afforded by those consumers living on fixed
or low incomes. For those low-income consumers that are elderly or ofill-health, Carrier and Mercatus Center stated that the increased first cost associated with more efficient equipment could
cause these consumers to forego the purchase ofnew equipment leading topotential adverse health effects for this sub-population. With regard to low-income renters, both Trane and Southern Company maintained that landlords will pass on the higher first costs associated with
more efficient equipment to renters. Southern Company elaborated by stating the "renters get it free" argument only has validity in the very short-term. In the long term, higher costs experienced by landlords will inevitably result in higher costs totheir tenants. Southern Company asserts that DOE would bebetter served looking at cost-effectiveness from adirect-cost, societal viewpoint, and avoid speculating on changes in landlord profitmargins decades from now. (York, No. 270 at pp. 2-3; Trane, No. 262 atpp. 4-5; Southern Company, No. 257 at p. 2; ARI, No. 259 at p. 2; EEI, No. 253 atp. 4; Rheem, No. 248 at p. 2; Carrier,No. 280 atp. 2; Mercatus Center, No. 242 at p. 11). 

### DOE believes roughly halfoflow income households are renters. The 1997 Residential Energy Consumption Survey (RECS) that was used as the basis for determining the impacts of increased efficiency standards on households estimates that 49.8 percent oflow-income households with central air-conditioners or heat pumps are renters. What is atissue isthe extent 48 EE-RM/STD-98-440 - 

## 3D 

# 3 Counteringthe above comments, York International (York), Trane Company and American Standard Heating and Air Conditioning (Trane), Southern Company, ARI, Edison Electric Institute (EEl), Rheem Manufacturing (Rheem), Carrier Corporation (Carrier), and George MasonUniversity Mercatus Center (Mercatus Center) all argued that the increased cost of

more efficient air-conditioningequipment cannot be afforded by those consumers living on fixed
or low incomes. Forthose low-income consumers that are elderly or ofill-health, Carrier and Mercatus Center stated that the increased first cost associated with more efficient equipment could
cause these consumers to forego thepurchase ofnew equipmentleading to potential adverse health effects for this sub-population. With regard to low-income renters, both Trane and Southern Company maintained that landlords will pass onthehigher first costs associated with
more efficient equipmentto renters. Southern Company elaborated by stating the "renters getit free" argument only has validity in the very short-term. Inthe long term, higher costs experienced by landlords will inevitably result in higher costs to their tenants. Southern Company asserts that DOE wouldbe better served looking at cost-effectiveness from a direct-cost, societal viewpoint, and avoid speculating on changes in landlord profit margins decades from now. (York, No. 270 at pp. 2-3; Trane,No. 262 at pp. 4-5; Southern Company, No. 257 at p. 2; ARI, No. 259 at p. 2; EEl, No. 253 at p. 4; Rheem; No. 248 atp. 2; Carrier, No. 280 at p. 2; Mercatus Center, No. 242 atp. 11). DOE believes roughly halfoflow income households are renters. The 1997 Residential Energy Consumption Survey (RECS) that was used as the basis for determining the impacts of increased efficiency standards onhouseholds estimates that 49.8 percent oflow-income households with central air-conditioners or heat pumps are renters. What is at issue is the extent 48

### EE-RM/STD-98-440- 303 to which increased equipment costs will be borne by occupants ofthese households or by the building owners. DOE examined existing literature onthe economics ofrental markets to determine whether any previous analyses might help resolve the disagreements on this issue'0



### . The existing literature appears to support abroad conclusion that most or all ofthe higher costs ofmore energy efficient equipment will, eventually, be passed onto renters. However, this literature suggests that itis possible that some landlords will notbe able topass on all such costs, while other landlords may actually pass on more than 100percent ofthese costs. Those landlords who are unable topass on all ofthese added costs will, ofcourse, be adversely affected by thisrulemaking (unless they are directly responsible for the utility bills associated with air conditioning use), although their renters are much more likely to benefit. Landlords that would be adversely affected may be more likely to seek alternatives, such as small capacity units or even delayed replacement offailed units. Those landlords that pass on more than 100 percent ofthe costs ofnew equipment could benefit from efficiency standards, buttheir renters are much more likely to be adversely affected. Since no study could be found that addressed the specific population ofrenters likely to be affected by this rulemaking. DOE believes there is insufficient basis to change its analysis methods or conclusions regarding the likely effects ofcentral air conditioner and heat pump standards on low-income renters.
'OPindykck, R. and D. Rubinfeld, MicroeconomicTheory, 2001, provides equations for renter and landlord pass-through fractions as a function ofelasticities for long-run housing supply and demand. The renter passthrough fraction is that fraction ofa landlord's investment cost that gets passed through to therenter. The landlord pass-through fraction is that fraction ofa renter's benefit due to a landlord's investment that gets passed back through to the landlord. Typical supply elasticities can be found in Pindykck, R. and D. Rubinfeld, Microeconomics,2001, Prentice Hall (citing de Leeuw, F. and N. Ekanem, "The Supply ofRental Housing", AER, Vol. 61, 1971, pp. 806-817). Typical demand elasticities can be found in Hanushek, E.A. and J. M. Quigley, "The Determinants ofHousing Demand", Researchin UrbanEconomics,Vol. 2, 1982, pp. 221-242. 

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

## -3CJ3 to which increased equipment costs will be borne by occupants ofthese households or by the building owners. DOE examined existing literature onthe economics ofrental marketsto determine whether any previous analyses mighthelp resolve the disagreements onthis issue 10• The existing literature appears to support a broad conclusionthat most orall ofthe'higher costs ofmore energy efficient equipment will, eventually, be passed onto renters. However, this literature suggests that itis possible that some landlords will not be able to pass onall such costs, while other landlords may actually pass onmore than 1 00 percent ofthese**costs~** Those landlords who are unable to pass on all ofthese added costs will, ofcourse, be adversely affected by this rulemaking (unless they are directly responsible for the utility bills associatedwith air conditioning use), although their renters are much more likely to benefit. Landlords thatwould be adversely affected may be more likely to seek alternatives, such as small capacity units oreven delayed replacement offailed units. Those landlords that pass on more than 100percent ofthe costs ofnew equipment could benefitfrom efficiencystandards, buttheir renters are much more likely to be adversely affected. Since no study could be found that addressed the specific population ofrenters likely to

.be affected by this rulemaking. DOE believes there is insufficientbasis to change its analysis methods or conclusions regarding the likely effects ofcentral air conditioner and heat pump standards on low-income renters.
IOPindykck, R. and D. Rubinfeld, Microeconomic Theory, 2001, provides equations for renter and landlord

. pass-through fractions as a function ofelasticities for long-run housing supply and demand. The renter passthrough fraction is that fraction ofa hindlord's investment cost that gets passed through to the renter. The landlord pass-through fraction is that fraction ofa renter's benefit due to a landlord's investment that gets passed back through to the landlord. Typicalsupply elasticities can be found in Pindykck, R. and D. Rubinfeld, Microeconomics, 2001, Prentice Hall (citing de Leeuw, F. and N. Ekanem, "The Supply ofRental Housing",AER, Vol. 61,1971, pp. 806-817). Typical demand elasticities can be found in Hanushek, E.A. and J. M. Quigley, "The Determinants ofHousing Demand", Research in Urban Economics, Vol. 2, 1982, pp. 221-242. 

### 49

### 2. Electricity Prices EE-RM/STD-98-440 -303 In proposing a 12 SEER standard in the July 25 SNOPR, DOE stated that a lower fraction ofconsumers would be negatively impacted interms oflife-cycle cost than under a 13 SEER standard. See 66FR 28828. Several comments disagreed with DOE's life-cycle cost conclusions, claiming that DOE's analysis ofthe benefits ofthe 13 SEER rule are significantly underestimated due to their failure to account for recent increases in electricity prices. The comments note that DOE based its seasonal price forecasts on electricity price data from 1996-97 that were adjusted downward using Energy Information Administration (EIA) projections offuture annual electricity prices. Citing recent residential rate data from areas ofthe country that have undergone some form ofelectricity deregulation (e.g., Massachusetts, California, and the Northwest), the comments assert that DOE's electricity cost projections fail to recognize the significant summertime consumer price increases that are accompanying restructuring ofthe electric utility industry. For additional support, some comments refer to an analysis conducted by Synapse Energy Economics that demonstrated that
summer daytime wholesale electric prices across the country averaged approximately 2/2 0/kWh (kilowatt-hour) morethan annual average wholesale prices. These comments conclude that if DOE's analysis were revised to include more recent electricity prices, the results would indicate that a 13 SEER standard represents a better choice for consumers and the Nation. (ACEEE, No. 284 at pp. 8-1 1;CFA, No. 246 at p. 2; Offices ofthe New York State and Massachusetts Attorney Generals, No. 277 atpp. 15-16; OOE, No. 275 atp. 3; Pacific Gas & Electric Company (PG&E), No. 274 at pp. 1-2; ASE, No. 282 at p. 4; Goodman, No. 269 at p. 2; National Rural Electric Cooperative Association (NRECA), No. 278 atpp. 1-2; Environmental Ministries ofSouthern 50 2. Electricity Prices 

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

### '3D3 Inproposing a 12 SEER standard in the July 25 SNOPR, DOE stated that a lower fraction ofconsumers would be negatively impacted interms oflife-cycle costthan under a 13 SEER standard. See 66 FR28828. Several comments disagreed with DOE's life-cycle cost conclusions, claiming that DOE's analysis ofthe benefits of the 13 SEERrule are significantly underestimated due to their failure to account for recent increases in electricity prices. The comments note that DOE based its seasonal price forecasts on electricity pricedatafrom 1996-97 that were adjusted downward using Energy Information Administration (EIA) projections offuture annual electricity prices. Citing recentresidential rate data from areas ofthe country that have undergone some form ofelectricity deregulation (e.g., Massachusetts, California, and the Northwest), the comments assert that DOE's electricity cost projections fail to recognize the significant summertime consumerprice increases that are accompanying restructuring ofthe electric utility industry. For additional support, some comments referto an analysis conducted by Synapse Energy Economics that demonstrated that

summerdaytime wholesale electric prices across the country averaged approximately 2Y2 ¢/kWh (kilowatt-hour) more than annual average wholesale prices. These comments conclude that if DOE's analysis were revised to include more recent electricity prices, the results would indicate that a 13 SEER standard represents a better choice for consumers and the Nation. (ACEEE, No. 284 atpp. 8-11 ;CFA, No. 246 at p. 2; Offices ofthe New York State and Massachusetts Attorney Generals, No. 277 at pp. 15-16; OOE, No. 275 at p. 3; Pacific Gas & Electric Company (PG&E), No. 274 atpp. 1-2; ASE, No. 282 at p. 4; Goodman, No. 269 at p. 2; National Rural Electric Cooperative Association (NRECA), No. 278 at pp. 1-2; Environmental Ministries ofSouthern
50

### EE-RM/STD-98-440-303 California, No. 236 at pp. 2-3; Texas ROSE, No. 241-SS at pp. 7-8; NCLC, No. 255 atpp. 2-4; Northwest Power Planning Council (NWPPC), No. 287 atpp. 1-3; Environmental Protection Agency (EPA), No. 276 atp. 4). Some comments further argue that the costs ofelectricity price increases due to air-conditioning are passed, inthe form ofhigher rates, onto all consumers for all end uses, regardless ofthe importance oftheirrole in creating the price increase. Thus, DOE's analysis should account for how lower air-conditioning consumption lowers electricity bills for all
consumers and not only those that utilize air conditioners. (NEEP, No. 273 atpp. 2-3; NRDC, No. 250 at pp. 14-17). Trane, ARI, and EEI all disagree that recent price increases due to electricity deregulation will lead to higher electricity rates inthe long-term. For example, Trane asserts that competition will cause energy prices to consumers to remain stable. EEI adds that price collapses have recently occurred in some ofthe same regional markets which experienced rate increases. EEI also states that retail price caps have been instituted in many areas ofthe country that have been deregulated in order to shield residential consumers from the price fluctuations in the wholesale market. (Trane, No. 262 atpp. 14-16; ARI, No. 259 atpp. 33-34; EEI, No. 253 atp. 3). Rather than speculate onhow current volatility in energy markets will impact future electricity prices, DOE has consistently relied onEIA energy price forecasts and has used other forecasts, including the various EIA scenarios, to bound the energy prices used in the standards analysis. EIA's most recent Annual Energy Outlook (AEO) for the year 2002 recognizes that over the past year energy markets have been extremely volatile". Recent energy market volatility as

"U.S. Department ofEnergy-Energy Information Administration (EIA), Early Release ofthe Annual Energy Outlook 2002. EIA website: <http://www.eia.doe.gov/oiaf/aeo/> 

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

## "303 California, No. 236 at pp. 2-3; Texas ROSE, No. 241-SS at pp. 7-8; NCLC, No. 255 at pp. 2-4; Northwest PowerPlanning Council (NWPPC),No. 287 at pp. 1-3; Environmental Protection Agency (EPA), No. 276 at p. 4). Some comments further argue that the costs ofelectricity price increases dueto air-conditioning are passed, inthe form ofhigherrates, onto all consumers for all end uses, regardless ofthe importance oftheirrole in creating theprice increase. Thus, DOE's analysis should accountfor how lower air-conditioning consumption lowers electricity bills for all

consumers andnot only those thatutilize air conditioners. (NEEP, No. 273 at pp. 2-3;NRDC, No. 250 atpp. 14-17). Trane, ARI, and EEl all disagree that recent price increases due to electricity deregulation will lead to higher electricity rates inthe long-term. Forexample, Trane asserts that competition will cause energy prices to consumersto remain stable. EEl adds that price collapses have recently occurred in some ofthe sameregional markets which experiencedrate increases. EEl also states that retail price caps have beeninstituted in many areas ofthe country that have been deregulated in orderto shield residential consumers from theprice fluctuations in the wholesale market. (Trane, No. 262 at pp. 14-16; ARI, No. 259 at pp. 33-34; EEl,No. 253 at p. 3). Ratherthan speculate onhowcurrent volatility in energy markets will impactfuture electricity prices, DOE has consistently relied onEIA energy price forecasts and has used other forecasts, including the various EIA scenarios, to bound the energy prices used in the standards analysis. EIA's most recent Annual Energy Outlook (AEO) for the year 2002 recognizes that over the pastyear energy markets have been extremely volatile)). Recent energy market volatility as

IIU;S. Department ofEnergy-Energy Information Administration (EIA) , Early Release ofthe Annual Energy Outlook 2002. EIA website: <hnp:llwww.eia.doe.gov/oiaf/aeo/> 51

### EE-RM/STD-98-440- 30-3 well as the economic slowdown and lower prices following the September terrorists' attacks in the United States have been incorporated in the short-term projections ofthe AEO2002. To be more specific regarding the AEO2002 assumptions, its projections assume a transition to full competitive pricing ofelectricity in States with specific deregulation plans. Other States are assumed to continue cost-of-service pricing. Priceprojections include the contracts entered into by California to guarantee electricity supplies in the State. Increased competition in electricity markets is also represented through changes inthe financial structure ofthe industry and efficiency and operating improvement. The impact ofEIA's assumptions are evidenced from the average residential electricity price estimated by AE02002 for the year 2001. The average rate estimated by AE02002 for 2001 is 4.2 percent greater (or 0.3 ¢/kWh) thanthat estimated by the AEO2000. Although the AEO2002 short-term projections have taken into account recent events, EIA estimates that long-term volatility in energy markets will not occur from recent events or from the impacts ofsuch future events as supply disruptions or severe weather. Again, this is evidenced from the average residential electricity price forecasts from theAEO2002. Starting in the year2003 average rates are projected to drop below those forecasted by the AEO2000 and remain that way until 2010. After 2010 the rates forecasted by both the AEO2002 and AEO2000
are essentially the same. In terms ofthe consumer analysis, this means that the life-cycle results based on the AEO2000 price projections would remain virtually unchanged ifthe AE02002 projections were to be substituted in their place. With regard to Synapse Energy Economics' wholesale electricity price analysis, DOE does recognize that wholesale summertime electricity prices are on average 21⁄2L ¢/kWh greater than average wholesale rates. But as was stated in the January 22 final rule, DOE cannot speculate as 52 EE.RM/STD-98-440- 

### 30-3 well as the economic slowdown and lowerprices following the Septemberterrorists' attacks in the United Stateshave been incorporated in the short-term projections ofthe AE02002. To be more specific regarding the AE02002 assumptions, its projections assume a transitionto full competitive pricing ofelectricity in States with specific deregulation plans. Other States are assumed to continue cost-of-service pricing. Priceprojections include the contracts entered into by Californiato guarantee electricity supplies in the State. Increased competition in electricity markets is also represented through changes inthe financial structure ofthe industry and efficiency and operating improvement. The impact ofEIA's assumptions are evidenced from the average residential electricity price estimated by AE02002 for the year 2001. The average rate estimated by AE02002 for 2001 is 4.2 percent greater (or 0.3 ¢/kWh) than that estimatedby the AE02000. Although the AE02002 short-termprojections have taken into account recent events, EIA estimates that long-term volatility in energy markets will not occur from recent events or from the impacts ofsuch future events as supply disruptions or severe weather. Again, this is evidencedfrom the average residential electricity price forecasts from the AE02002. Starting in the year 2003 average rates are projected to drop belowthose forecasted by the AE02000 and remain that way until 2010. After 2010 the rates forecasted by both the AE02002 and AE02000
are essentially the same. Interms ofthe consumer analysis, this means that the life-cycle results based on the AE02000price projections wouldremain virtually unchanged ifthe AE02002 projections were to be substituted in theirplace. Withregard to Synapse Energy Economics' wholesale electricity price analysis, DOE does recognize that wholesale summertime electricity prices are on average 2**~** ¢/kWh greaterthan average wholesale rates. But as was stated in the January 22 final rule, DOE cannot speculate as 52

### EE-RM/STD-98-440- 303 to how wholesale prices will be translated into retail prices to residential consumers. It is possible that this difference in wholesale rates will ultimately result in higher marginal energy prices for the operation ofcentral air conditioners. However, several other assumptions about future electricity prices are equally reasonable. It ispossible that increased competition will result in higher fixed charges for utility service and higher fixed charges would lower marginal rates. It is also possible that higher peak load prices for electricity would cause consumers to significantly alter the times at which they use air conditioning, thus reducing projected electricity costs (and cost savings). Finally, it is possible that the recent trend for increased retail level competition will slow or even stop. Given the many possible scenarios affecting the costs ofoperating central air conditioners, DOE will retain the existing method, which is based upon actual consumer bill and EIA price forecasts, to evaluate consumer benefits and costs. 3. Installation Costs The potential increase in installation costs associated with 13 SEER equipment was cited by DOE as one ofthe reasons for not proposing a 13 SEER standard in its July 25 SNOPR. See 66 FR 38836. Several comments disagreed with DOE's conclusion that installation costs could be significantly different between 12 and 13 SEER equipment. Goodman claims that because their 12 and 13 SEER equipment are similar in size, there is almost no difference in the installation costs associated with their 12 and 13 SEER systems. (Goodman, No. 269 at p. 3). American Geothermal DX, an HVAC contractor, asserts that, based on their experience, any cost difference between installing a 13 SEER unit over a 12 SEER unit would be minimal. (American Geothermal DX, No. 241-HH at pp. 1-2). Several other comments, in particular those from ACEEE, assert that DOE's treatment ofthe "footprint" issue is speculative, i.e., DOE provides no 53 EE-RM/STD-98-440-

## 303 to how wholesale prices will be translated into retail pricesto residential consumers. Itis possible thatthis difference inwholesale rates will·ultimately result in higher marginal energy prices for the operation ofcentral air conditioners. However, several other assumptions about future electricity prices are equally reasonable. 

### It is possible that increased competition will result in higher fixed charges for utility service and higher fixed charges would lower marginal rates. Itis also possible thathigherpeak load prices for electricity would cause consumers to significantly alterthe times at which they use air conditioning, thusreducing projected electricity costs (and cost savings). Finally, it is possible that the recent trend for increased retail level competition will slow or even stop. Giventhe many possible scenarios affecting the costs ofoperating central

.air conditioners, DOE will retainthe existing method,whichis based upon actual consumerbill and EIAprice forecasts, to evaluate consumerbenefits and costs. 3. Installation Costs Thepotential increase in installation costs associated with 13 SEER equipment was cited by DOE as one ofthe reasons for not proposing a 13 SEER standard in its July 25 SNOPR. See 66 FR38836. Several comments disagreed with DOE's conclusionthat installation costs could be significantly different between 12 and 13 SEER equipment. Goodman claims that because their 12 and 13 SEERequipment are similar in size, there is almost no difference in the installation costs associated with their 12 and 13 SEER systems. (Goodman, No. 269 at p. 3). American Geothermal DX, an HVAC contractor, asserts that, based ontheir experience, any cost difference between installing a 13 SEERunit over

### a 12 SEERunit would be minimal. (American Geothermal DX,No. 241-HH at pp. 1-2). Several other comments, in particularthose from ACEEE, assert that DOE'streatment ofthe "footprint" issue is speculative, i.e., DOE provides no 53

### EE-RM/STD-98-440- 303 evidence that installation costs will actually increase for 13 SEER equipment. Withregard to space-constrained equipment, ACEEE adds that because DOEhas already moved to isolate this type ofequipment as separate product classes, it effectively dismisses any arguments asserting that the impact ofspace constraints would result in higher installation costs for "mainstream" 13 SEER equipment. (ACEEE, No. 284 atpp. 13-14; ASE, No. 282 atp. 5; NRDC, No. 250 atp. 23; National Grid, No. 241-00 atp. 2). Trane, ARI, and Rheem all argue that 13 SEER equipment is significantly larger than 12 SEER systems. As aresult, installation costs are significantly greater for 13 SEER units than for 12 SEER units. In particular, they statethere will be many instances where it will be very difficult to physically fit larger indoor coils, needed tomatch outdoor 13 SEER condensing units, without retrofitting the airhandler originally designed for a smaller, lower SEER indoor coil. (ARI, No. 259 atpp. 25-26; Trane, No. 262 at pp. 5-9; Rheem, No. 248 at p. 3). Throughout the analysis DOE has assumed that installation costs would remain constant as efficiency increased. As stated in the January 22 final rule, DOE believes that even ifinstallation costs do generally rise as the size and weight ofequipment increases, manufacturers willhave the incentive under new standards toreduce the size of 13 SEER equipment using various approaches, such as adopting variable speed and modulating capacity technologies, converting to microchannel heat exchangers, increasing the size ofthe unconstrained outdoor unit orindoor unit only, or changing the footprint or elevation ofthe unit. See January 22 final rule, 66 FR 7180. Although DOE stillmaintains that installation costs generally are unlikely to increase due to the above reason, as stated in the July 25 SNOPR, there is the possibility that substantial increases in installation costs due to larger and heavier 13 SEER systems may materialize for some consumers, 54 EE.RM/STD-98-440-

## 303 evidence that installation costs will actually increase for 13 SEERequipment. With regard to space-constrained equipment, ACEEE adds that because DOE has already moved to isolate this type ofequipment as separate product classes, it effectively dismisses any arguments asserting that the impact ofspace constraints wouldresult inhigher installation costs for "mainstream" 13 SEER equipment. (ACEEE, No. 284 at pp. 13-14; ASE, No. 282 at p. 5; NRDC, No. 250 atp. 23; National Grid, No. 241-00 at p. 2). Trane, ARI, and Rheem all argue that 13 SEER equipment is significantly larger than 12

.SEER systems. As a result, installation costs are significantly greater for 13 SEER units than for 12 SEERunits. Inparticular, they state there will be many instances where it will be very difficult to physically fit larger indoor coils, needed to match outdoor 13 SEER condensing units, without retrofitting the airhandleroriginally designed for a smaller, lower SEERindoor coil. (ARI,No. 259 at pp. 25-26; Trane, No. 262 at pp. 5-9; Rheem, No. 248 at p. 3). Throughout the analysis DOEhas assumed that installation costs wouldremain constant as efficiency increased. As stated in the January 22 final rule, DOE believes that even ifinstallation costs do generally rise as the size and weight ofequipment increases, manufacturers will have the incentive undernew standards to reduce the size of 13 SEER equipmentusing various approaches, such as adopting variable speed and modulating capacity technologies, converting to microchannel heat exchangers, increasing the size ofthe unconstrained outdoorunit orindoor unit only, orchanging the footprint or elevation ofthe unit. See January 22 final rule, 66 FR7180. Although DOE still maintains that installation costs generally are unlikely to increase due to the above reason, as stated in the July 25 SNOPR, there is the possibility that substantial increases in installation costs due to larger and heavier 13 SEER systems may materialize for some consumers, 54

### EE-RM/STD-98-440- 303 especially forthose replacing 10 SEER systems. See July 25 SNOPR, 66 FR 38836. As a result, DOE continues tobelieve the possibility ofincreased installation costs is a factor that supports adopting the less costly 12 SEER standard. 4. Manufactured Housing Owners York, ARI, and Nordyne Inc. (Nordyne) stated that consumers living in manufactured homes are especially vulnerable to the increased first costs associated with more efficient equipment. They asserted that manufactured homes are typically "starter" homes for low-tomiddle income families where any increases in household expenses, including those associated with more efficient space-conditioning equipment, are difficult to afford. Because the life-cycle cost analysis made no explicit mention ofthis sub-population, they are concerned that DOE did not consider manufactured-home owners in its analysis. (York, No. 270 at pp. 2-3; ARI, No. 259 atp. 9; Nordyne, No. 264 atpp. 1-2). DOE considered all household types utilizing central air conditioners or heat pumps in its

consumer life-cycle cost analysis, including manufactured homes. Ofthe households with central air conditioners analyzed in the consumer life-cycle analysis, 4.5 percent were manufactured homes. For households with heat pumps, 6.1 percent were manufactured homes. In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the first cost impacts ofhigher efficiency standards to manufactured home owners. In particular, DOE was concerned that the 13 SEER standards issued in the January 22 final rule could cause manufactured home consumers to shift from heat pumps to other systems that include resistance heat systems. See July 25 SNOPR, 66 FR 38836. B. Life-Cycle CostandPaybackPeriod 55 EE-RM/STD-98-440'"

## 303 especially for those replacing 10 SEERsystems. See July 25 SNOPR, 66 FR 38836. As a result, DOEcontinues tobelieve the possibility ofincreased installation costs is a factor that supports adopting the less costly 12 SEERstandard. 4. Manufactured Housing Owners York, ARI, and Nordyne Inc. (Nordyne) stated that consumers living in manufactured homes are especially vulnerable to the increased first costs associated with more efficient equipment. They asserted that manufactured homes are typically "starter"homes for low-tomiddle income families where any increases in household expenses, including those associated withmore efficient space-conditioning equipment, are difficult to afford. Because the life-cycle cost analysis made no explicit mention ofthis sub-population, they are concerned that DOE did not consider manufactured-home owners in its analysis. (York, No. 270 at pp. 2-3; ARI, No. 259 atp. 9; Nordyne,No. 264 at pp. 1-2). DOE considered all household types utilizing central air conditioners orheat pumps in its
consumerlife-cycle cost analysis, including manufactured homes. Ofthe households with central airconditioners analyzed in the consumer life-cycle analysis, 4.5 percent were manufactured homes. For households withheat pumps, 6.1**pe~cent** were manufactured homes. 

### In its decision to propose 12 SEER standards for conventional products, DOEtook into considerationthe first cost impacts ofhigher efficiency standards to manufactured home owners. 

### In particular, DOE was concernedthat the 13 SEER standards issued in the January 22 final rule could cause manufactured home consumersto shift from heat pumps to other systems that include resistance heat systems. See July 25 SNOPR, 66 FR 38836. B. Life-Cycle CostandPaybackPeriod
55

### EE-RM/STD-98-440 303 Although amajority ofthe comments concerning consumer impacts addressed either lowincome impacts orthe effect that electricity prices had onthe number ofconsumers either benefitting orbeing burdened by increased standards, several comments expressed concerns over other elements ofthe consumer life-cycle costanalysis. 1. ProductLifetime Energy Market & Policy Analysis, Inc. (EMPA) stated that DOE incorrectly used estimates ofthe full lifetime ofthe equipment rather than the time that the equipment may remain inthe ownership and use ofthe initial owner. (EMPA, No. 241-LL atpp. 5-6). In analyzing increases in efficiency standards, DOE is required by section 325(o)(2)(B)(i) ofEPCA touse thefull lifetime ofthe equipment for establishing the operating cost savings resulting from higher efficiency standards. The second factor in section 325 to be considered for determining whether the benefits ofthe standard exceed its burdens is "the savings in operating costs throughout the estimated average life ofthe covered product inthe type (or class) compared to any increase inthe price of, or inthe initial charges for, or maintenance expenses of, the covered products which are likely to result from the imposition ofthe standard." 42 U.S.C, 6295(o)(2)(B)(i)(II). A retirement function with an average 18.4-year equipment lifetime was used in thelifecycle cost analysis for central air conditioners and heat pumps. As stated in the January 22 final rule,the basis ofthe 18.4-year equipment lifetime was a survey conducted on more than 2,100 heat pumps in a seven state region oftheU.S 12



### . See 66 FR 7179-7180.

12 "Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and Compressor Longevity in Diverse Climates." ASHRAE Transactions, 1990. 96(1): pp. 1567-1571. 

### 56 EE-RM/STD-98-440'"

### <3?3

. Although a majority ofthe comments concerning consumerimpacts addressed either lowincome impacts orthe effectthatelectricitypriceshad onthe number ofconsumers either benefitting orbeingburdened by increased standards, several comments expressed concerns over otherelements ofthe consumerlife-cyclecostanalysis. 1. ProductLifetime Energy Market & Policy Analysis, Inc. (EMPA) stated that DOE incorrectly used estimates ofthe full lifetime ofthe equipment ratherthanthe time that the equipment mayremain inthe ownership and use ofthe initial owner. (EMPA, No. 241
..LL atpp. 5-6). In analyzing increases inefficiency standards, DOE is required by section 325(0)(2)(B)(i) ofEPCA to usethe full lifetime ofthe equipment for establishing the operating cost savings resulting from higher efficiency standards. The second factor in section 325 to be considered for detennining whetherthe benefits ofthe standard exceed its burdens is "the savings in operating C?sts throughout the estimated average life ofthe covered product inthe type (or class) compared to any increase inthe price of, orinthe initial charges for, or maintenance expenses of, the coveredproducts which are likely to result from the imposition ofthe standard." 42 U.S.C, 6295(0)(2)(B)(i)(U). A retirementfunction with an average 18.4-year equipment lifetime was used inthe lifecycle cost analysis for central airconditioners and heat pumps. As stated in the January 22 final rule, the basis ofthe 18.4-yearequipment lifetime was a survey conducted on more than 2,100 heat pumps in a seven state region ofthe U.SJ2. See 66 FR7179-7180.

12 "Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and CompressorLongevity in Diverse Climates." ASHRAE Transactions, 1990. 96(1): pp. 1567-1571. 56

### EE-RM/STD-98-4400 0 

### ' The survey determined not only the lifetime ofa complete heat pump system, but the life ofthe original compressor as well. Although the system lifetime is on average over 18 years, the survey also showed that the original compressor lifetime was, on average, 14 years. Thus, the survey indicated that essentially all heat pump owners replaced their original compressor once in the lifetime ofsystem. Since the heat pump survey clearly indicates that the original compressor is replaced once in a system's life, DOE's analysis was based on the inclusion ofarepair cost for the compressor. Conducting the analysis in this manner retains the average system lifetime of 18.4 years but explicitly addresses the replacement cost ofthe compressor, which isthe most expensive component ofa system. As indicated by the survey data, the compressor was assumed to be replaced in the 14 th 

### year ofthe system's life. Although a shorter equipment lifetime is possible, DOE has not been provided with more substantive data to support discontinuing its use ofthe above mentioned survey data. DOE believes that the survey data provides an accurate representation ofcentral air conditioner and heat pump life. Although the survey was conducted only on heat pumps, the retirement function was also used as the basis for estimating central air conditioner product lifetime. Because heat pumps are used during both the cooling and heating seasons, they generally incur more operating hours and more wear during the course ofayear than air conditioners. Thus, the use ofa heat pump retirement function for air conditioners likely underestimates their lifetime. Although heat pump and air conditioner lifetimes likely differ, DOE was unable to obtain any well substantiated data to determine whether air conditioner lifetimes are longer than those forheat pumps. Without such data, the heat pump retirement function was assumed valid for air conditioners.57 

### EE-RM/STD-98-44o-

### 30'~ The survey determined not only the lifetime ofa complete heat pump system, butthe life ofthe original compressor as well. Although the system lifetime is on average over 18 years, the survey also showed thatthe original compressor lifetime was, on average, 14 years. Thus, the survey indicated that essentially all heat pump ownersreplaced their original compressor once in the lifetime ofsystem. Since the heatpump survey clearly indicates thatthe original compressoris replaced once in a system'slife, DOE'sanalysis was based onthe inclusion ofa repair cost for the compressor. Conductingthe analysis in this manner retains the average system lifetime of 18.4 years but explicitly addresses the replacement cost ofthe compressor, which is the most expensive component ofa system. As indicated by the survey data, the compressor was assumed to be replaced in the 14th yearofthe system's life. Although a shorter equipment lifetime ispossible, DOE has not been provided with more substantive data to support discontinuing its use ofthe above mentioned survey data. DOEbelieves thatthe survey dataprovides an accurate representation ofcentral air conditioner and heatpump life. Although the survey was conducted only onheatpumps, the retirement function was also used as the basis for estimating central air conditionerproduct lifetime. Because heatpumps are used during boththe cooling and heating**seasons~** they generally incurmore operating hours and more wear during the course ofayearthan air conditioners. Thus, the use ofa heatpumpretirement function for air conditioners likely underestimates theirlifetime. Although heat pump and air conditionerlifetimes likely differ, DOE was unable to obtain any well substantiated data to determine whether air conditioner lifetimes are longerthan those for heat pumps. Without such data, the heatpump retirement function was assumed valid for air conditioners. 57

### 2. Warranty, Maintenance, and Service Costs EE.RM/STD-98-440-303 EMPA stated that DOE made no attempt to collect or include warranty, maintenance, and service costs in the consumer analysis. (EMPA, No. 241-LL atpp. 5-6). On the issue ofwarranty costs, Mercatus Center adds that the reliability patterns ofnew components that are part ofhigh efficiency products are less known, so warranty accruals may be significantly higher for these products (ie., 12 to 13 SEER equipment). (Mercatus Center, No. 242 at p. 8). With regard to maintenance and service (or repair) costs, DOE did collect data or make reasonable assumptions to establish both types ofcosts. Maintenance costs are costs to the consumer ofmaintaining equipment operation such as checking and maintaining refrigerant charge levels and cleaning heat exchanger coils. Forthe life-cycle cost analysis, maintenance costs were based on data from Service Experts, an HVAC service company. See TSD, Chapter 5. Maintenance costs were assumed not to change with increased efficiency, the rationale being that the general maintenance ofmore efficient products would not be impacted by the more sophisticated components that they contain. Service or repair costs are costs to the consumer for replacing or repairing components which have failed. Forbaseline equipment (ie., 10 SEER) and equipment with efficiencies greater than 13 SEER, annualized repair costs were assumed to equal one-halfthe equipment price divided by the average lifetime (18.4 years). Equipment with efficiencies of 11 through 13 SEER were assumed to incur a one percent increase in repair cost over the baseline level. Because systems with efficiencies up to and including 13 SEER generally do not include sophisticated electronic components, repair costs were assumed to remain essentially flat from 10 to 13 SEER. As noted above in the discussion ofequipment lifetime, compressor replacement 58**2~** Warranty, Maintenance, and Service Costs EE-RM/STD-98-440- 

### 003 EMPA stated that DOE made no attempt to collect orinclude warranty, maintenance, and service costs inthe consumer analysis. (EMPA, No. 241-LL at pp. 5-6). Onthe issue ofwarranty costs, Mercatus Center adds that the reliability patterns ofnew componentsthat are part ofhigh efficiency products are less known, so warranty accrualsmay be significantly higher for these products (i.e., 12 to 13**SEERequipment)~** (Mercatus Center, No. 242 at p. 8)
.. Withregardto maintenance and service (orrepair) costs, DOE did collect data ormake reasonable assumptions to establishbothtypes ofcosts. Maintenance costs are coststo the consumerofmaintaining equipment operation such as checking and maintaining refrigerant charge levels and cleaning heat exchanger coils. Forthe life-cycle cost analysis, maintenance costs were based on data from Service Experts, an HV AC service company. See TSD, Chapter 5. Maintenance costs were assumed not to change with increased efficiency, the rationale beingthat the general maintenance ofmore efficientproducts would not be impacted by the more sophisticated componentsthat they contain. Service orrepair costs are costs to the consumerfor replacing orrepairing components . whichhave failed. For baseline equipment (i.e., 10 SEER) and equipment with efficiencies greater than 13 SEER, annualizedrepair costs were assumed to equal one-halfthe equipment price divided by the average lifetime (18.4 years). Equipment with efficiencies of 11 through 13 SEERwere assumed to incur a one percent increase inrepair cost overthe baseline level. Because systems with efficiencies upto and including 13 SEERgenerally do not include sophisticated electronic components, repair costs were assumed to remain essentially flat from 10 to 13 SEER. As noted above in the discussion ofequipment lifetime, compressorreplacement
58

### costs were also included inthe analysis. EE-RM/STD-98-440 - 3°3 With regard towarranty costs, these costs were essentially considered by incorporating repair costs into the analysis. Asnoted above, aproduct that is less reliable or contains more expensive components was assumed to have a higher cost ofrepair over its lifetime. As stated in the October 5, 2000 NOPR, either the consumer orthe warranty provider will bear that added cost directly through more frequent service calls or higher repair costs. See 65 FR 59599-59600. If the cost is covered by warranty, however, the warranty provider passes it back to future warranty holders in the form ofslightly higher warranty prices. DOE believes the incremental increase in theprice ofthe warranty is equal to, orjust slightly higher, than the discounted present value of the incremental repair costs over the life ofthe warranty. Over the long term then, the average
consumer always incurs higher repair costs, either directly or through higher warranty prices. Since the life-cycle cost analysis considers the present value ofconsumer life cycle costs on the average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable. 3. Markups ARI, Trane, and Yorkall believe that DOE greatly underestimated the manufacturer, distributor, and contractor markups used to derive consumer purchase prices. ARI maintains that the manufacturer markup should be approximately 1.35, as verified by a survey ARI conducted in the fall of2000. Furthermore, ARI continues tobelieve that the distributor and contractor markups should be approximately 1.37, as determined by DOE in the 1999 Supplemental Advance Notice ofProposed Rulemaking (SANOPR). (ARI, No. 259 at pp. 23-25; Trane, No. 262 at pp. 10-11; York, No. 270 atp. 3). 59 costs were also included in the analysis. EE-RM/STD-98-440 - 

## 30 

# 3 With regard to warranty costs, these costs were essentially considered by incorporating repair costs into the analysis. As noted above, a product that is less reliable orcontains more expensive components was assumed to have a higher cost ofrepair over its lifetime. As stated in the October 5, 2000 NOPR, eitherthe consumer orthe warranty provider will bearthat added cost directly through more frequent service calls orhigherrepair costs. See 65 FR 59599-59600. If the cost is covered by warranty, however, the warranty providerpasses it back to future warranty holders in the form ofslightly higher warranty prices. DOE believes the incremental increase in the price ofthe warranty is equalto, orjust slightly higher, than the discounted present value of the incremental repair costs overthe life ofthe warranty. Overthe long term then, the average
consumer always incurs higherrepair costs, either directly orthrough higher warranty prices. Since the life-cycle cost analysis considers the present value ofconsumerlife cycle costs onthe average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable. 3. Markups ARI, Trane, and York all believe that DOE greatly underestimated the manufacturer, distributor, and contractormarkups used to derive consumerpurchase prices. ARI maintains that the manufacturermarkup should be approximately 1.35, as verified by a survey ARI conducted in the fall of2000. Furthermore, ARI continues to believethat the distributor and contractor markups should be approximately 1.37, as determined by DOE in the 1999 Supplemental Advance Notice ofProposed Rulemaking (SANOPR). (ARI, No. 259 at pp. 23-25; Trane, No. 262 at pp. 10-11; York, No. 270 at p. 3). 59

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

# 503 As stated in the January 22 final rule, DOE did assume for the Manufacturer Impact Analysis that markups increase with increasing efficiency under a given standard level. However, for the consumer economic analyses, as the minimum standard level increases, DOE determined that the distributor and contractor markups on more efficient products do decrease. See January 22 final rule, 66 FR 7180. DOE's analysis ofdistributor cost data revealed a measurable difference between the averageaggregate markup on the entire set ofdirect business costs and the incrementalmarkup

on only direct equipment costs. In other words, for an incremental increase in the cost ofthe equipment, the markup required to cover the incremental cost increase is distinctly different than the average markup required to cover allbusiness costs. The averageaggregate distributor markup was determined tobe 1.36 and is assumed to cover the direct business coststhat are present at the current baseline (i.e., 10 SEER) level. Note that the averageaggregate distributor markup of 1.36 is approximately equal to the value used in DOE's analysis for the SANOPR. The incrementaldistributor markup was determined to be 1.11 and is assumed to cover incremental equipment cost increases, such as those associated with increases in equipment efficiency. DOE's analysis ofcontractor cost data revealed a significant difference between the markup required for covering labor and equipment expenses and the markup required for covering only equipment expenses. The markup covering all business expenses was determined to be 1.53 while the markup for only equipment expenses was determined to have a mean value of 1.27. The 1.53 markup value covering all business expenses is approximately equal to the value used in DOE's analysis forthe SANOPR. Because the life-cycle cost analysis breaks out the contractor's installation cost (i.e., the cost to install the equipment) from the cost which is charged for the 60 EE-RM/STD-98-440 .., 

## '303 Asstated in the January 22 final rule, DOE did assume for the Manufacturer Impact Analysis that markups increase with increasing efficiency under a given standard level. However, for the consumereconomic analyses, as the minimum standard level increases, DOE determined thatthe distributor andcontractor markups onmoreefficientproducts do decrease. See January 22 final rule, 66 FR7180. DOE's analysis ofdistributor cost data revealed a measurable difference betweenthe average aggregate markup onthe entire set ofdirectbusiness costs and the incremental markUp

.ononly direct equipment costs. Inother words, for an incremental increase inthe cost ofthe equipment,the markup required to cover the incremental cost increase is distinctly differentthan the average markup requiredto cover all business costs. The average aggregate distributor markup was determined to be 1.36 and is assumed to coverthe direct business costs that are present at the currentbaseline (i.e., 10 SEER) level. Note that the average aggregate distributor

.markup of 1.36 is approximately equal to the value used inDOE's analysis for the SANOPR. The

incremental distributor markup was determined to be 1.11 and is assumed to cover incremental equipment cost increases, such as those associated with increases in equipment efficiency. DOE's analysis ofcontractor costdatarevealed a significant difference betweenthe markuprequired for covering labor and equipmentexpenses and the markup required for covering only equipment expenses. The markupcovering all business expenses was determined to be 1.53 while the markup for only equipment expenses was determined to have a mean value of 1.27. The 1.53 markup value covering allbusiness expenses is approximately equal to the value used in DOE's analysis for the SANOPR. Because the life-cycle cost analysis breaks out the contractor's installation cost (i.e., the costto install the equipment) from the cost which is charged for the 

### 60

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

### 303 equipment, only the markup value of 1.27 is applicable for marking up the equipment. As with the distributor markup, a contractor markup associated only with an incrementalincrease in equipment cost was also determined. Since the incrementalmarkup was shown to be close to the averagevalue of 1.27, only the averagemarkup value was used in the analysis. As aresult ofdetermining lower distributor and contractor markups on incremental equipment cost increases, such as those associated with more efficient equipment, the overall markups decrease as efficiency increases. Although comments argued that overall distributor and contractor markups should not decrease, no data was offered to counter DOE's approach. Thus, DOE hasretained its methodology for estimating both distributor and contractor markups. Appendix D ofthe TSD provides more detailed information on this issue. 4. Energy Use EMPA asserted that DOE violated well-established statistical principles by basing the proposed standards on small subsets ofdata from EIA's Residential Energy Consumption Survey (RECS). As a result, EMPA concludes that DOE simply has no reasonable claim ofvalidity for either the calculations or its analytical conclusions. (EMPA, No. 241-LL atpp. 2-4). As stated in the January 22 final rule, as part ofthe process to improve the energy efficiency standards analysis, DOE is committed to use ofsensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. DOE believes that RECS provides a nationally representative household data set which is suited forconducting the type ofsensitivity analyses suggested by the Process Improvement Rule. Limiting the RECS households to those equipped with either central air conditioners or heat pumps, the life-cycle cost analysis performs a household-by-household analysis that predicts the percentage ofhouseholds 61 EE..RM/STD-98-440... 

## 30.3 equipment, only the markup value of 1.27 is applicable for marking up the equipment. As with the distributor markup, a contractormarkup associated only with an incremental increase in equipment costwas also determined. Sincethe incremental markup was shown to be close to the average value of 1.27, only the average markup value was used inthe analysis. As aresult ofdetermining lower distributor and contractormarkups on incremental equipment cost increases, such as those associated with more efficient equipment, the overall markUps decrease as efficiency increases. Although comments argued that overall distributor and contractor markups should not decrease, no datawas offered to counterDOE's approach. Thus, DOE has retained its methodology for estimating both distributorand contractormarkups. Appendix D ofthe TSD provides more detailed information onthis issue. 4. Energy Use EMPA asserted that DOE violated well-established statistical principles by basing the proposed standards on small subsets ofdata from EIA's Residential Energy Consumption Survey (RECS). As aresult, EMPA concludes that DOE simply has no reasonable claim ofvalidity for either the calculations or its analytical conclusions. (EMPA, No. 241-LL atpp. 2-4). As stated in the January 22 final rule, as part ofthe process to improve the energy efficiency standards analysis, DOE is committedto use ofsensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. DOE believes that RECSprovides a nationally representative household data set which is suited for conductingthe type ofsensitivity analyses suggestedby the Process Improvement Rule. Limiting the RECS households to those equipped witheithercentral air conditioners orheat pumps, the life-cycle cost analysis performs a household-by-household analysis that predicts the percentage ofhouseholds
61

### EE-RM/STD-98-440 - 30'3 that will incur net life-cycle cost savings or costs from an increased efficiency standard. See January 22 final rule, 66 FR 7178-7179. 5. Rebuttable Payback Period NWPPC asserts that 13 SEER, at least for split system heat pumps, is economically justified. NWPPC states the DOE has notjustified why it should not adopt the HSPF 7.7 and SEER 13 standards for split system heat pumps since this level ofefficiency satisfies the "rebuttable presumption" requirements ofthe law. (NWPPC, No. 287 atp. 3). As noted in the July 25 SNOPR, DOE recognizes some standard levels for some product classes satisfy the rebuttable presumption requirements in section 325(o)(2)(B)(iii). But DOE points out that the statute requires DOE to use "the applicable test procedure" to calculate the payback periods for purposes ofthe rebuttable presumption. As explained in the October 5, 2000 NOPR, the annual cooling and heating energy consumption calculations based on DOE's test procedure are significantly greater than the weighted-average values from DOE's life-cycle cost analyses based on the 1997 Residential Energy Consumption Survey, used in other DOE analyses, including evaluation ofconsumer impacts. 65 FR 59596. For this reason, the payback periods presented in Section VII ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longer than those calculated to determine whether the rebuttable presumption applies to these products. More importantly, DOE's economic justification analysis for aparticular class ofcovered product involves consideration offactors other than the payback period. For example, as discussed in the July 25 SNOPR (66 FR 38837), one reason DOE did not propose Trial Standard Level 3 (12 SEER for air conditioners and 13 SEER for heat pumps) was the potential ofthose standards to cause heat pump owners to switch to resistance heating, and 62 EE.RM/STD-98-440- 

### 30;:; that will incurnet life-cycle cost savings orcosts from an increased efficiency standard. See January 22 final rule, 66 FR7178-7179. 5. Rebuttable Payback Period NWPPC asserts that 13 SEER, at least for split system heat pumps, is economically justified. NWPPC states

### the DOEhas notjustifiedwhy it should not adopt the HSPF 7.7 and SEER 13 standards for split systemheatpumps sincethis level ofefficiency satisfies the "rebuttable presumption" requirements ofthe law. (NWPPC,No. 287 atp.3). As noted inthe July 25 SNOPR, DOErecognizes some standard levels for some product classes satisfY the rebuttable presumption requirements in section 325(0)(2)(8)(iii). ButDOE points outthatthe statute requires DOEto use "the applicable testprocedure"to calculate the paybackperiods for purposes ofthe rebuttable presumption. As explained in the October 5,2000 NOPR, the annual cooling and heating energy consumption calculations based on DOE'stest procedure are significantly greaterthanthe weighted-average values from DOE's life-cycle cost analyses based onthe 1997 Residential Energy Consumption Survey, used in other DOE analyses, including evaluation ofconsumer impacts. 65 FR 59596. Forthis reason, the paybackperiods presented in Section

### VII ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longerthan those calculatedto determine whether the rebuttable presumption applies to these products. More importantly, DOE's economicjustificationanalysis for a particularclass ofcoveredproduct involves consideration offactors otherthan the payback period. Forexample, as discussed inthe July 25 SNOPR (66 FR 38837); one reason DOE did not propose Trial StandardLevel 3 (12 SEERfor air conditioners and 13 SEERfor heatpumps) was the potential ofthose standardsto causeheatpump owners to switch to resistance heating, and
62

### possibly adversely affect competition. C. Shipments/NationalEnergySavingsM/STD 440 1. Shipments Forecasts Mercatus Center asserts that DOE's shipment model does not account forthe reduced equipment sales that occur when consumers forego purchases due to the increased equipment prices resulting from higher efficiency standards. As aresult ofdelayed consumer purchases, the energy savings to the nation would build up more slowly than forecasted by DOE. (Mercatus Center,No. 245 at p. 5). This is effectively an argument thatthe price elasticity for the air conditioner and heat pump market should be higher than what was assumed. DOE has used historical saturation trends to establish price elasticities forthe overall air conditioner and heat pump market. Higher saturation levels are assumed to decrease price elasticity, which makes sales volume less sensitive to price increases. Over the past twenty years household saturation levels ofcentral air-conditioning have increased, primarily due to the steady increase in real household incomes. In order to capture the effect that increased equipment price and household income have on equipment sales, the shipments model breaks the air conditioner market into the following segments: new construction, early (discretionary) replacements, regular replacements, extra repairs, and remodels. In the new construction market, the price ofair conditioning has dropped over timerelative to household income resulting in a corresponding increase in saturation to its current value ofapproximately 80 percent. Because ofthe high saturation in the new construction market, the purchase price elasticity forthe new housing market is small relative to the early replacement market. But although the price elasticity is small, a decrease in shipments to the new construction market will still be likely when equipment prices 63 possibly adversely affect competition. C. Shipments/NationaiEnergySavings 1. Shipments Forecasts EE-RM/STD-98-440 oJ' 

### 30-3

Mercatus Centerasserts that DOE's shipment model does not account for the reduced equipment salesthatoccurwhen consumers forego purchases due to the increased equipment pricesresulting from higher efficiency standards. As a result ofdelayed consumerpurchases, the energy savings to the nation would build up more slowly than forecasted by DOE. (Mercatus Center,No. 245 atp. 5). This is effectively an argumentthatthe price elasticity for the air conditioner and heat pump market should be higherthan whatwas assumed. DOE has used historical saturation trends to establish price elasticities for the overall air conditioner and heatpump market. Higher saturation levels are assumed to decrease price elasticity, which makes sales volume less sensitive to price increases. Over the pasttwenty years household saturation levels ofcentral air-conditioning have increased, primarily due to the steady increase inreal household incomes. In orderto capture the effectthat increased equipmentprice and household income have on equipment sales, the shipments model breaks the air conditioner market into the following segments: newconstruction, early (discretionary) replacements, regular replacements, extrarepairs, and remodels. In the new construction market, the price ofair conditioning has dropped over timerelative to household income resulting in a corresponding increasein saturationto its current value ofapproximately 80 percent. Because ofthe high saturation in the new construction market, the purchaseprice elasticity for the newhousing market is small relative to the early replacement market. But althoughthe price elasticity is small, a decrease in shipments to the newconstruction market will still be likely when equipmentprices 63

### EE-RM/STD-98-440- 303 increase (as we expect to occur under a new efficiency standard). As aresult, for the case ofa 13 SEER standard for split system air conditioners for example, shipments to the new construction market drop by approximately 3percent. For comparison purposes, shipments to the early replacement market drop much more significantly (approximately 15 percent) as this market is far less saturated and the resulting purchase price is much more elastic. With regard to the other market segments, the regular replacement and extra repair market price elasticities are dependent
on the age ofthe equipment in addition to price. Thus, the price elasticity for a relatively new air conditioner is much more elastic than that for a relatively old air conditioner. With regard to the remodel market (otherwise known as the market ofstock homes without air-conditioning), historical data reveals that a relatively low number ofnon-air conditioned households purchase new air-conditioning equipment. Thus, like the early replacement market, the remodel market's price elasticity is relatively sensitive to first cost increases. Because the price elasticities in the shipments model are based on actual historical data, DOE has retained the price elasticities developed for the central air conditioner and heat pump standards analysis. 2. Heat Rates ACEEE asserts that DOE has severely underestimated the national energy savings resulting from more efficient standards due to the marginal heat rates which were used to convert electrical energy savings atthe site (i.e., at the household or commercial building) into fuel savings at the source (ie., atthe power plant). ACEEE contends that the value assumed by DOE in 2018 and beyond (5519 Btu/kWh) is well below the heat rate estimates provided by EIA (e.g., 9617 Btu/kWh in 2020). Using the EIA heat rate estimate would lead to about a 2-fold increase in 64 EE-RM/STD.98-440- 

## .3D3 increase (as we expect to occurunder a new efficiency standard). As a result, for the case ofa 13 SEER standard for split system air conditioners for example, shipments to the new construction marketdropby approximately 3percent. Forcomparisonpurposes, shipmentsto the early replacement market drop much more significantly (approximately 15 percent) as this market is far less saturated and the resulting purchase price is muchmore elastic. With regard to the other market segments, the regular replacement and extrarepair market price elasticities are dependent
on the age ofthe equipment in addition to price. Thus, theprice elasticity for a relatively new air conditioner is much more elastic than that for a relatively old airconditioner. With regard to the remodel market (otherwise known as the market ofstock homes without air-conditioning), historical data reveals that a relatively low number ofnon-air conditioned households purchase
new air-conditioning equipment. Thus, like the early replacement market, the remodel market's price elasticity is relatively sensitive to first cost increases. Becausethe price elasticities in the shipments model are based on actual historical data, DOE has retained the price elasticities developed for the central air conditioner and heat pump standards analysis. 2. Heat Rates ACEEE asserts that DOE has severely underestimated the national energy savings resulting from more efficient standards due to the marginal heat rates which were used to convert electrical energysavings atthe site (i.e., at the household orcommercial building) into fuel savings at the source (i.e., at the powerplant). ACEEE contends that the value assumed by DOE in 2018 and beyond (5519 BtulkWh) is well belowthe heat rate estimates provided by EIA (e.g., 9617 BtulkWhin 2020). Using the EIA heat rate estimate would lead to about a 2-fold increase in 

### 64

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

## 30 energy savings and reduction in pollution for 2020, withprogressively smaller differences earlier. (ACEEE, No. 284 at pp. 9-10). The standards analysis has used marginal heat rates calculated by using a version ofEIA's National Energy Modeling System (NEMS-BRS"3

### ) to translate end use electricity savings to primary energy savings. The marginal heat rate is calculated by imposing a load reduction to the appliance end-use being analyzed in NEMS-BRS and observing the change inprimary energy use. As noted by ACEEE, the marginal heat rates used in the central air-conditioning analysis are lower than expected. One would expect the central air-conditioning marginal heat rate to be higher than those ofmore baseload appliances (like clothes washers or electric water heaters) because this peak-use appliance displaces more expensive, less efficient generation. Further, this marginal displaced plant should be not unlike the inefficient plant in place today because most rapid technological change occurs in the base load. The key to understanding this apparent paradox is that this conversion rate does not represent a specific marginal generator or combination ofgenerators, but is actually a conversion factor that incorporates several simulated effects resulting from the standard. The primary reason as to why the marginal heat rate is lower than expected is that the overall rate ofefficiency improvement ofthe power system with the standard in place is slower than estimated by EIA in the AEO Reference Case. While there are many effects ofthe standard, DOE's analysis shows the two major components ofthe standard's impact on the power sector

3EIA approves use ofthe name NEMS to describe only an AEO version ofthe model without any modification to code or data. Because our analysis entails some minor code modifications and the model is run under various policy scenarios that deviate from AEO assumptions, thename NEMS-BRS refers to the model as used here. For more information on NEMS, please refer to the National Energy Modelling System: An Overview 1998. DOE/EIA-0581 (98), February, 1998. BRS is DOE's Office ofBuilding Research and Standards. 

### 65 EE-RM/STD-98-440 - :;,

### D

## 3> energy savings and reductionin pollution for 2020, withprogressively smallerdifferences earlier. (ACEEE, No. 284 at pp. 9-10). The standards analysis has used marginal heat rates calculated by using a version ofEIA's National Energy Modeling System (NEMS-BRS13) to translate end use electricity savings to primary energy savings. The marginal heatrate is calculated by imposing a load reduction to the appliance end-use being analyzed in NEMS-BRS and observing the change inprimary energy use. As noted by ACEEE, the marginal heat rates used in the central air-conditioning analysis are lower thanexpected. One would expectthe central air-conditioning marginal heatrate to be higherthanthose ofmore baseload appliances (like clothes washers orelectric waterheaters) because this peak-use appliance displaces more expensive, less efficient generation. Further, this margirial displaced plant should be not unlike the inefficient plant in place today because most rapid technological change occurs in the base load. The key to understanding this apparent paradox isthat this conversion rate does not represent a specific marginal generator or combination ofgenerators, but is actually a conversion factor that incorporates several simulated effects resulting from the standard. Theprimary reason as to why the marginal heat rate is lower than expected is that the overall rate ofefficiency improvement ofthe power system with the standard in place is slower than estimated by EIA in the AEO Reference Case. While there are many effects ofthe standard, DOE's analysis shows the two major components ofthe standard's impact onthe power sector

l3 EIA approves use ofthe name NEMS to describe only an AEO version ofthe model without any modification to code ordata. Because our analysis entails some minor code modifications and the model is run under various po/.icy scenarios that deviate from AEO assumptions, the nameNEMS-BRS refers tothe model as used here. Formore information on NEMS, please refer to theNational Energy Modelling System: An Overview 1998. DOEIEIA-0581 (98), February, 1998. BRS is DOE's Office ofBuildingResearch and Standards. 65

### EE-RM/STD-98-440- 3- 3
are: (1)the direct reduction in fuel burned in powerplants and (2)the indirect effect whereby the slowing ofelectricity demand growth slows new investment, thereby impeding the rate ofoverall improvement in power sector efficiency. While this latter effect would seem to be trivial relative to the first, it grows significantly over time because fewer and fewer ofmore efficient generating plants are added tothe power system. By the end ofthe forecast period, this effect becomes a significant drag on the primary energy savings ofthe standard, which explains why the marginal heat rate is less than that attributed to new technology. Further, it is a bigger drag on the benefits ofI eaking end-use efficiency improvements. These reduce peak demand more and slow investment more because the rate ofnew construction is heavily dependent on growth in peak demand. A more detailed discussion ofthis effect can be found in Appendix M ofthe TSD. 3. Fuel Switching As discussed in theJuly 25 SNOPR, potential equipment switching from heat pumps to electric resistance heating due to high heat pump prices was cited as one the reasons for not proposing a 13 SEER standard. The energy savings resulting from 13 SEER heat pumps would be eliminated ifonly a small fraction ofheat pump owners (4 percent) switched to electric resistance heating. See July 25 SNOPR, 66 FR 38836. ACEEE, NRDC, and NWPPC all disagreed that more efficient heat pump standards would
cause consumers to switchto electric resistance heating. Both ACEEE and NRDC stated that if equipment switching was truly a concern, DOE should prevent such action not by lowering heat pump efficiency standards, but by promoting revisions to building energy codes to minimize the
use ofresistive heat. (ACEEE, No. 284 atp. 14; NRDC, No. 250 at pp. 18-20). ACEEE adds that DOE failed to account for the impact that electric resistance heating has on consumer energy bills 66 EE-RM/STD-98-440

### ~ 

# 3 b

# .3

.are: (1) the directreduction in fuel burned inpowerplants and (2) the indirect effect whereby the slowing ofelectricity demand growth slows new investment, thereby impeding the rate ofoverall improvement in power sectorefficiency. While this latter effect would seem to be trivial relative to the first, it grows significantly overtime because fewer and fewer ofmore efficient generating plants are added to thepower system. By the end ofthe forecast period, this effect becomes a :,ignificant drag on the primary energy savings ofthe standard, which explains why the marginal hlatrate is less than that attributed to new technology. Further, it is a bigger drag on the benefits

.ofIeaking end-use efficiency improvements. These reduce peak demand more and slow investment more because the rate ofnew construction is heavily dependent on growth in peak demand. A more detailed discussion ofthis effect can be found in Appendix M ofthe TSD. 3. Fuel Switching As discussed in the July 25 SNOPR, potential equipment switching from heat pumps to electric resistance heating due to high heat pump prices was cited as one the reasons for not proposing a 13 SEER standard. The energy savings resulting from 13 SEERheat pumps would be eliminated ifonly a small fraction ofheat pump owners (4 percent) switched to electric resistance heating. See July 25 SNOPR, 66 FR 38836. ACEEE,NRDC, and NWPPC all disagreed that more efficientheat pump standards would
cause consumers to switchto electric resistance heating. BothACEEE and NRDC stated that if equipment switching was truly a concern, DOE should prevent such action not by lowering heat pump efficiency standards, but by promoting revisions to building energy codes to minimize the
use ofresistive heat. (ACEEE, No. 284 atp. 14; NRDC, No. 250 atpp. 18·20). ACEEE adds that DOE failed to account for the impactthat electric-resistance heating has on consumerenergy bills 

### 66

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

### . (nearly doubling average annual heating bills) in their assessment ofthe potential ofequipment switching. NWPPC claims that DOE overstated the potential ofequipment switching ifsplit system heat pump SEER standards were set higher than those for split system air conditioners. NWPPC states that the price difference between a heat pump and an air conditioner atthe same SEER level is already very high (approximately $1400). The extra price associated with a more efficient heat pump (approximately $150 between 13 and 12 SEER) is not enough to alter
consun er purchase decisions. (NWPPC, No. 287 atp. 3). York agrees with DOE that there is potential for equipment switching ifthe standards for heat punmps are settoo high. York states that the higherprice associated with more efficient heat pumps would force consumers to choose either resistance heat and the resulting higher utility bills, or fossil fuel furnaces that may have to operate on higher cost fuels with more volatile prices such as oil or propane. (York, No. 270 at pp. 3-4). As stated in the January 22 final rule, a significant number ofhouseholds use electric resistance heat, indicating the potential for equipment switching from heat pumps to resistance heat. See 66 FR 7180. Based on data from the 1997 RECS, a little over 14 percent ofhouseholds with room or central air conditioning have either baseboard or forced air electric resistance heating compared to almost 10 percent ofhouseholds which have heat pumps. Because there are already such a large percentage ofhouseholds that utilize a combination ofcentral or room airconditioning with resistance heat to meet their space-conditioning needs, this supports the possibility that some purchasers would choose to switch to resistance heat from heat pumps. DOE believes that consumer prices associated with 13 SEER heat pumps are great enough to cause some consumers to make such a switch. DOE has not attempted to estimate the number 

### 67 EE-RM/STD-98-440'" 

### 303 (nearly doubling average annual heating bills) in their assessment ofthe potential ofequipment switching. NWPPC claims that DOE overstated the potential ofequipment switching ifsplit system heat pump SEER standards were set higher than those for split system air conditioners. NWPPC statesthat the price difference between a heat pump and an air conditioner at the same SEERlevel is already very high (approximately $1400). The extraprice associated with a more efficient heatpump (approximately $150 between 13 and 12 SEER) is not enoughto alter

consun er**pu~chase** decisions. (NWPPC,No. 287 atp. 3). York agrees with DOEthat there is potential for equipment switching ifthe standards for heatpumps**ar,~** set too high. York states that the higher price associated with more efficient heat pumps wouM force consumers to choose eitherresistance heat and the resulting higher utility bills, orfossH fuel furnaces that may have to operate onhigher cost fuels with more volatile prices such as oil orpropane. (York, No. 270 at pp. 3-4). As stated in the January 22 final rule, a significant number ofhouseholds use electric resistance heat, indicating the potential for equipment switching from heat pumps to resistance heat. See 66 FR 7180. Based on data from the 1997 RECS, a little over 14 percent ofhouseholds with room orcentral air conditioning have eitherbaseboard orforced air electric resistance heating compared to almost 10 percent ofhouseholds which have heat pumps. Because there are already such a large percentage ofhouseholds that utilize a combination ofcentral orroom airconditioning with resistance heat tomeet their space-conditioning needs, this supports the possibility that some purchasers would choose to switchto resistance heat from heat pumps. DOE believes that consumerprices associated with 13 SEERheatpumps are great enough to cause some consumers to make such a switch. DOE has not attempted to estimate the number
67

### EE-RM/STD-98-440- 303 ofconsumers that might actually switch from heat pumps to resistance heating. Rather, DOE has determined that a mere 4 percent ofheat pump households would need to switch to central air conditioners and electric resistance heating to negate the energy savings achieved from increasing the heat pump standard from 12 SEER/7.4 HSPF to 13 SEER/7.7 HSPF. Because such a small fraction ofheat pump owners would need to switch to electric resistance heating to negate the energy savings realized from 13 SEER heat pumps, DOE believes the possibility ofequipment switching is serious ,nough to warrant its inclusion as a factor supporting a 12 SEER/7.4 HSPF standard. D. ImpactonManufatIurers 1. Cumulative Regulatory Burden DOE considers that a standard level is not economicallyjustified ifit contributes to an unacceptable cumulative regulatory burden. The TSD contains information on cumulative regulatory burden (section 8.6 ofthe TSD), although as previously discussed, DOE did not explain how it considered this information in promulgating the 13 SEER standard on January 22, 2001. The TSD shows that the burden on manufacturers due to all other recent or imminent Federal regulations exceeds $479 million. DOE estimates the 13 SEER amendments to the standards for central air conditioners and heat pumps would contribute up to an additional $303 million in manufacturer costs, bringing the total cumulative regulatory burden to as high as $782 million. In light ofthat heavy burden, the July 25 SNOPR proposed 12 SEER standards that DOE estimates will reduce the expected financial burden on manufacturers from all new Federal and State regulations by $144 million compared to the 13 SEER final rule ofJanuary 22. ACEEE, NRDC, and EPA all argued that DOE overestimated the impacts to the industry 68 EE-RM/STD-98-440" 

## 3D3 ofconsumers that might actually switch from heat pumps to resistance heating. Rather, DOE has determined that a mere 4 percent ofheat pumphouseholds would need to switch to central air conclitioners and electric resistance heating to negate the energy savings achieved from increasing the heatpump standard from 12 SEERl7.4 HSPF to 13 SEERf7.7 HSPF. Because such a small fraction ofheat pump owners would need to switchto electric resistance heating to negate the energy savings realized from 13 SEER heat pumps, DOE believes the possibility ofequipment switching is serious '!nough to warrantits inclusion as a factor supporting a 12 SEERf7.4 HSPF standard. D. 

### Impact on Manu!a,-::t,Urers 1. Cumulative Regulatory Burden DOE considers that a standard level is not economicallyjustified ifit contributes to an unacceptable cumulative regulatory burden. The TSD contains information on cumulative regulatory burden (section 8.6 ofthe TSD), although as previously discussed, DOE did not explainhow it considered this information in promulgating the 13 SEER standard on January 22, 2001. The TSD shows that the burden on manufacturers due to all other recent or imminent Federal regulations exceeds $479 million. DOE estimates the 13 SEER amendments to the standards for central air conditioners and heat pumps would contribute up to an additional $303 million in manufacturer costs, bringing the total cumulativeregulatory burden to as high as $782 million. In light ofthat heavy burden, the July 25 SNOPRproposed 12 SEER standards that DOE estimates will reduce the expected financial burden on manufacturers from all newFederal and State regulations by $144 million compared to the 13 SEER final rule ofJanuary 22. ACEEE, NRDC, and EPA all argued that DOE overestimated the impacts to the industry 68

### EE-RM/STD-98-440- 303 due to cumulative regulatory burden. EPA focused on the impacts due to the phase out ofHCFC22 (the hydrochlorofluorocarbon used as a refrigerant) and cited its own analysis as well as an estimate from Goodman Manufacturing to claim that DOE's estimate of$50 millionper company is at least twice as high as warranted based onprior industry transitions and more recent trends. Referring to the costs incurred by the refrigerator industry in the mid-1980's to convert from CFCs to HCFCs, EPA suggests that a more reasonable estimate to phase out HCFC-22 is $20 to $30 million per company. EPA also cites Goodman's estimate that the combined cost ofmeeting a 13 SEER standard and transitioning from HmCFC-22 is approximately $25 million per company, half ofDOE's $50 million estimate forjust converting to a new refrigerant. (EPA, No. 276 at pp. 2-4). Because the industry has known foi well over a decade ofthe impending phase out of HCFC-22, both ACEEE and NRDC claim that the costs for converting to a newrefrigerant should be lower than DOE's estimate. ACEEE states that DOE seems to treat the costs ofredesign for efficiency and redesign for refrigerants as additive, as though manufacturers would first redesign for efficiency (2006) and then for replacement refrigerants (2010). ACEEE believes this assumption would be demonstrably false as there is every reason to accomplish the two goals with

a single re-engineering effort, both saving capital and improving time-to-market. ACEEE adds that since there is already fairly widespread use ofan alternative refrigerant, R-410A, this strongly suggests that component manufacturers ofcompressors, coils, valves, lubricants, and all other critical components are already geared up and supplying the manufacturers with the necessary pieces to assemble non-HCFC-based heat pumps and air conditioners. With regard to the costs to be incurred by the industry to comply with Clean Air Act amendments for coating large appliances, ACEEE asserts that much more data are needed before any definitive estimates can be 69 EE-RM/STD-98-440-

### 303 due to cumulative regulatory burden. EPA focused on the impacts due to the phase out ofHCFC22 (the hydrochlorofluorocarbon used as a refrigerant) and cited its own analysis as well as an estimate from Goodman Manufacturing to claim that DOE's estimate of$50million percompany is at least twice as high as warrantedbased onpriorindustry transitions and more recent trends. Referring to the costs incurred by the refrigerator industry in the mid-1980's to convert from CFCs to HCFCs, EPA suggests that a more**rea~,mable** estimate to phase out HCFC-22 is $20 to $30 millionpercompany. EPA also cites C'roodman's estimate that the combined cost ofmeeting a 13 SEER standard and transitioning**f~om** BCFC-22 is approximately $25 million per company, half ofDOE's $50 million estimate forjustcO.1Verting to a new refrigerant. (EPA, No. 276 atpp. 2-4). Because the industry has known fOl well over a decade ofthe impending phase out of HCFC-22, both ACEEE and NRDC claimthat the costs for converting to a new refrigerant should be lower than DOE's estimate. ACEEE states that DOE seems to treat the costs ofredesign for efficiency and redesign for refrigerants as additive, as though manufacturers would first redesign for efficiency (2006) and then for replacement refrigerants (2010). ACEEE believes this assumption would be demonstrably false as there is every reason to accomplish the two goals with

a single re-engineering effort, both saving capital and improving time-to-market. ACEEE adds that since there is already fairly widespread use ofan alternative refrigerant, R-41OA, this strongly suggeststhat component manufacturers ofcompressors, coils, valves, lubricants, and all other critical components are already geared up and supplying the manufacturers with the necessary pieces to assemble non-HCFC-based heat pumps and air conditioners. With regard to the costs to be incurred by the industry to comply with Clean Air Act amendments for coating large appliances, ACEEE asserts that much more data are needed before any definitive estimates can be 69

### EE-RM/STD-98-440- 5 

### 03 made. (ACEEE, No. 284 at pp. 11-13;NRDC, No. 250 at pp. 13-14). Counter to the above arguments, ARI states that DOE is correct toprovide greater weight to cumulative burden. ARI asserts that the cost impacts due to cumulative regulatory burdens will exceed DOE's estimate of$479 million. ARI notes that various additional burdens tothe industry
were notquantified by DOE including: (1)recently revised DOE efficiency standards for room air conditioners; (2) on-going DOE review ofpossible new minimum efficiency standards for residential furnaces; (3) DOE's adoption ofstandard levels related to ASHRAE 90.1-1999 (American Society ofHeating, Refrigerating and Air-Conditioning Engineers, Inc. Standard 90.1
as revised in October 1999); (4) EPA's Metal Products andMachinery (MP&M) effluent guidelines and standards; and (5) EPA's allowance system for controlling production, import, and export ofHCFCs. ARI statesthat DOE's own estimate that a 12 SEER standard would have $144 million less cumulative burden than a 13 SEER standard warrants adoption ofa 12 SEER standard. (ARI, No. 259 at pp. 10-13). In reaching its conclusion on manufacturer impacts, DOE considered the cumulative regulatory cost imposed on air conditioner manufacturers under thevarious standards scenarios, including manufacturers' investment to meet the new standard. As noted above, DOE estimated the cumulative regulatory impacts on manufacturers to likely exceed $782 million ifa 13 SEER standard were adopted. This includes the $303 million reduction in industry value due to a 13 SEER standard and $479 million in otherregulatory burdens, including costs associated withthe HCFC phase out. Itdoes not include other major Federal and State regulations that we listed but did not quantify. The comments submitted by ACEEE, NRDC, and, inparticular, EPA do not address the 70 EE·RM/STD-98-440'"

## .:3()..3
. made. (ACEEE,No. 284 atpp. 11-13;NRDC,No. 250 atpp. 13-14). Counterto the above arguments, ARI statesthat DOE is correctto provide greaterweight to cumulativeburden. ARI asserts that the cost impacts due to cumulative regulatory burdens will exceed DOE'sestimate of$479 million. ARI notesthat various additional burdensto the industry
were·not quantified by DOEincluding: 

### (1) recently revised DOEefficiency standards for room air. conditioners; (2) on-going DOEreview ofpossible ne':1 minimum efficiency standards for residential furnaces; (3) DOE's adoption ofst31darri levelsrelated to ASHRAE 90.1-1999 (American Society ofHeating, Refrigerating and Air-Conditioning Engineers, Inc. Standard 90.1
as revised in October 1999); (4) EPA's Metal Products and Machinery (MP&M) effluent guidelines and standards; and (5) EPA'sallowance systtm for controllingproduction, import, and export ofHCFCs. ARI states that DOE'sown estimate filat a 12 SEER standard would have $144 million less cumulative burden than a 13 SEER standard warrants adoption ofa 12 SEER standard. (ARI, No. 259 at pp. 10-13). Inreaching its conclusion on manufacturerimpacts, DOEconsideredthe cumulative regulatory cost imposed on airconditionermanufacturers under the various standards scenarios, including manufacturers' investmentto meet the new standard. As noted above, DOE estimated the cumulative regulatory impacts on manufacturers to likely exceed $782 million ifa 13 SEER standard were adopted. This includes the $303 millionreduction in industry value due to a 13 SEER standard and $479 million inotherregulatory burdens, including costs associated withthe HCFC phase out. Itdoesnotinclude othermajorFederal and State regulations that we listedbut did not quantify. The comments submitted by ACEEE, NRDC, and, inparticular, EPA do not address the
70

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

## 3 cumulative manufacturer impacts. Rather, the comments were limited to manufacturer's investment required totransition away from HCFC refrigerant. DOE's estimated $50 million per company investment to comply with the HCFC phaseout was based on interviews with all seven major air conditioner manufacturers during 1998 and 1999 when the firms were asked specific questions regarding the costs ofreplacing HCFCs intheir equipment. Incontrast, ICF Consulting, inits analysis for the EPA, refers to mid-1980's estimated costs associated with phasing CFCsout ofthe refrigerator industry, without explaining the link bet'veen .hose costs estimates and ICF's estimated $20 to $30 million per company tophase HCFCs )ut ofthe airconditionerindustry. DOE believes that the cost to convert from CFC refrigerants used in residential refrigerators is substantially less than the costto convert from HCFC.22 refrigerant used in central air conditioners and heat pumps. For example, compressor capacity and power input for central air conditioners and heat pumps is an order ofmagnitude larger than compressor capacity and power input needed for home refrigerators (2to 5horsepower for central air conditioners versus one-quarter horsepower for home refrigerators). For thisreason alone, significantly higher conversion costs would be expected. Further, central air conditioner or heat pump components (compressors, coils and air handlers) comprise almost the entire product cost. In contrast, over 50 percent ofthe cost ofa home refrigerator is embodied in such non-refrigerant components as the insulated cabinet, shelves and other storage components, and other accessories such as icemakers and through the door ice and drink dispensers. Refrigerant related design changes are alsobelieved toresult in greater impact on the overall product cost and competitive position for airconditioner manufacturers than will be the
case for refrigerator manufacturers. Since HFC-410A refrigerant operates at substantially higher 71 EE-RM/STD-98-440- 

## "308 cumulative manufacturerimpacts. Rather, the comments were limited to manufacturer's investment requiTed totransition away from HCFC refrigerant. DOE's estimated $50 million per company investment to comply withthe HCFC phaseout was based on interviews with all seven majorairconditionermanufacturers during 1998 and 1999 when the firms were asked specific questions regarding the costs ofreplacing HCFCs intheir equipment. In contrast, ICF Consulting, inits analysis for the EPA, refers to mid-1980's estimated costs associated with phasing CFCs out ofthe refrigerator industry, without explaining the link bet'veen :hose costs estimates and ICF's estimated $20to $30 million percompany to phaseHCFCs mt ofthe air conditioner industry. DOEbelievesthat the costto convert from CFC refrigfTants used in residential refrigerators is substantially less than the costto convert from HCFC22 refrigerant used in central air conditioners and heat pumps. For example, compressorcapacity :md power input for central air conditioners and heatpumps is an order ofmagnitude largerthan compressor capacity and powerinput needed for home refrigerators (2 to 5 horsepower for central air conditioners versus one-quarterhorsepower for home refrigerators). Forthis reason alone, significantly higher conversion costs would be expected. Further, central air conditioner orheat pump components (compressors, coils and airhandlers) comprise almost the entire product cost. In contrast, over 50 percent ofthe cost ofa home refrigerator is embodied in such non-refrigerant components as the insulated cabinet, shelves and other storage components, and other accessories such as icemakers and through the doorice and drink dispensers. Refrigerant related design changes are also believedto result in greater impact onthe overall product cost and competitive position for airconditionermanufacturers than will be the

case for refrigeratormanufacturers. Since HFC-41OA refrigerant operates at substantially higher
71

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

### 3 35 operating pressures than HCFC-22 refrigerant, a major system redesign is necessary with HFC410A refrigerant totake advantage ofthe beneficial aspects ofthe 40 to 50 percent higher pressure and tominimize any deleterious effects. With the alternative replacement refrigerant HFC-407C, system efficiency isreduced by 5to 10 percent compared touse ofHCFC-22 refrigerant inthe
same system. Significant resizing and reconfiguring ofcomponents is required to restore efficiency levels. Replacing CFC-12 refrigerant in refrigerators with HFC-134a ref igerart reduced system efficiency by only 1to 2percent, which was easily offset by higher the higher efficiency compressors available at the time ofCFC to HFC conversion. In contrast, replacing air conditioner compressors, whose efficiencies are already close tothermodynamic limits, with higher efficiency unitsto offset the impact ofrefrigerant related efficiency loss is not a viable option. Finally, there are fewer models ofrefrigeration systems in a typical appliance manufacturer's refrigerator product line than the number ofresidential central air conditioner and heat pump models (multiple efficiency level products) produced by a typical unitary air conditioner manufacturer. As aresult, significantly more redesign and product validation is necessary for the unitary air conditioner manufacturers toconvert their product lines and production from R-22 to either ofthe HFC blends. ACEEE states that the rational approach to meeting the two regulatory requirements

- new efficiency levels in 2006 and the phase out ofHCFCs in 2010

- is to do so simultaneously, rather than sequentially, 3to 4 years apart. Ifboth changes could be accomplished simultaneously, the investment would indeed be less than the cost ofmaking the two changes separately. Adjusting to the characteristics ofthe new refrigerant, with significantly higher operating pressures, will add to 72 EE-RM/STD-98-440-.

### ~

## O,,?; operating pressures than HCFC-22 refrigerant, a major system redesign is necessary with HFC410A refrigerantto take advantage ofthe beneficial aspects ofthe 40 to 50 percent higherpressure andtominimize any deleterious effects. With the alternativereplacement refrigerant HFC-407C, system efficiency is reducedby 

### 5to 10 percent compared to use ofHCFC-22 refrigerant in the
same system. Significantresizing and reconfiguring ofcomponents is required to restore efficiency levels.

, Replacing CFC-12 refrigerant in refrigerators with HFC-134arefigerartt reduced system efficiency by only 1to 2 percent, which was easily offset by higherthe**hi\~her** efficiency compressors available at the time ofCFC to HFC conversion. In contrast, replacing air conditioner compressors, whose efficiencies are already close to thermodynamic limits, with higher efficiency units to offset the impact ofrefrigerant related efficiency loss is n'.)t a viable option. Finally, there are fewer models ofrefrigeration systems in a typical appliance manufacturer'srefrigerator product line than the number ofresidential central air conditioner and heat pump models (multiple efficiency level products) produced by a typical unitary air conditioner manufacturer. As a result, significantly more redesign and product validation is necessary for the unitary air conditioner manufacturers to convert their product lines and production from R-22 to either ofthe HFC blends. ACEEE states that the rational approach to meeting the two regulatory requirements

- new efficiency levels in 2006 and the phase out ofHCFCs in 2010

- is to do so simultaneously, rather than sequentially, 3 to 4 years apart. Jfboth changes could be accomplished simultaneously, the investment would indeed be less than the cost ofmaking the two changes separately. Adjusting to the characteristics of the newrefrigerant, with significantly higher operating pressures, will add to 72

### EE-RM/STD-98-440- 303, the scope and cost ofthe development effort forthe increased efficiency product families, but in principle product validation testing and retooling would occur only once, saving substantial

resources. The difficulty with this scenario is the competitive reality ofthe industry. Competition in the US air conditioning industry is especially vigorous, with 7 major manufacturers competing for business. Consumers have benefited significantly from this, with real (inflation adjusted) prices having fallen steadily over the past 20 years, even during periods ofrapid market gro rth. In addition, this level ofcompetition in the domestic industry has provided no opportunity for foreign competition to displace main line HVAC products, preserving traditional manufacturirig jobs in the US. In 2006, in this environment ofvigorous competition, each manufacturer will be faced with the choice ofproducing a cost optimized product line using HCFC-22 refrigerant or ofalso making the additional investment to convert to an HFC refrigerant, combined with meeting the increased efficiency standard level. It is clear that either HFC blend (R-407C or R-410A) will result in increased product cost (at comparable efficiency and performance level). Ifit would result in lower cost compared to R-22, manufacturers would already have voluntarily converted. In fact, hardware cost increases are readily identifiable and the higher cost HFC refrigerant alone will add $20 to $30 to the direct manufacturing cost ofeach unit. Therefore, it is highly likely that

one or more manufacturers will opt to use HCFC-22 in the majority oftheir product line between 2006 and 2009. The resulting cost advantage will force the other manufacturers to follow suit to remain competitive and avoid market share loss. While most manufacturers produce 12 and 13 SEER HFC air conditioners, they are low volume products and the tooling for full scale mass 73 EE-RM/STD-98-440-

## 309, the scope and costofthe developmenteffort for the increased efficiency productfamilies, but in principle product validation testing and retooling would occuronly once, saving substantial

resources. The difficulty withthis scenario is the competitive reality ofthe industry. Competition in the US airconditioning industry is especially vigorous, with 7 majormanufacturers competing for business. Consumers havebenefited significantly from this, with real (inflation adjusted) prices having fallen steadily over the past 20years, even during periods ofrapid market grovrth. b addition, this level ofcompetition in the domestic industry has provided no opportunity for foreign competitionto displace main line HVAC products, preserving traditional manufacturirig jobs in the US. In 2006, inthis environment ofvigorous competition, each manufacturerwill be faced with the choice ofproducing a cost optimized product line using HCFC-22 refrigerant or ofalso making the additional investment to convertto an HFC refrigerant, combined with meeting the increased efficiency standard level. Itis clearthat eitherHFC blend (R-407C orR-41OA) will result in increased product cost (at comparable efficiency and performance level). Ifit would result in lower cost compared to R-22, manufacturers would already have voluntarily converted. In fact, hardware cost increases are readily identifiable and the higher cost HFC refrigerant alone willadd $20 to $30 to the direct manufacturing cost ofeach unit. Therefore, it is highly likely that

one ormore manufacturers will opt to use HCFC-22 inthe majority oftheir product line between 2006 and 2009. Theresulting cost advantage will force the other manufacturers to follow suitto remain competitive and avoid market share loss. While most manufacturersproduce 12 and 13 SEERHFC air conditioners, they are low volume products and the tooling for full scale mass 73

### EE-RM/STD-98-440 -303 production does not exist. Moreover, manufacturers have cost optimized product platforms for
mass production around the 10 SEER models that currently satisfy 80percent ofmarket demand. Higher efficiency models areproduced in lower volumes and generally are not cost effective platforms for mass production. To increase production of 12 SEER or 13 SEER units, manufacturers will need expanded tooling to produce those models. To obtain the least cost, manufacturers will need to use designs that are better optimized for mass production. Consequently, much ofthe redesign, validation, and retooling effort faced by the industry is likely to happen once for efficiency standards in 2006 and a second time for the HCFC phaseout in 2010. 2. Financial Burdens Associated with New Efficiency Standards. As explained in the July 25 SNOPR (66 FR 38829), the 13 SEER standards in the January 22 final rule were projected by the TSD to result in a negative cash flow for the industry in the year preceding the new standards' enforcement. Moreover, DOE's analysis shows that 13 SEER standards would impose far greater financial burdens on manufacturers whose operating costs exceed the industry average. Those manufacturers typically engage in more research and development orprovide additional sales or service support than do their lower operating cost competitors. Consequently, DOE proposed the 12 SEER standard to reduce the maldistribution of financial impacts on manufacturers and would allow manufacturers to maintain a positive cash flow. Trane concurred with DOE's action to reduce the maldistribution offinancial impacts on manufacturers. Trane asserted that as efficiency is increased, a larger commodity market is created. This in turn reduces the market opportunities for companies that focus on value-added 74 EE-RM/STD-98-440- 

## 303 production does not exist. Moreover, manufacturers have cost optimizedproduct platforms for
mass production around the 10 SEERmodels that currently satisfy 80 percent ofmarket demand. Higherefficiency models areproduced in lowervolumes and generally are not cost effective platforms for massproduction. To increase production of 12 SEER or 13 SEER units, manufacturers will need expanded tooling to produce those models. To obtain the least cost, manufacturers will need to use designs that are better optimized for mass production. Consequently, muchofthe redesign, validation, and retooling effort faced by the industry is likely to harpen once for efficiency standards in 2006 and a second time for the HCFC phaseout in 2010. 2. Financial Burdens Associated with NewEfficiency Standards. As explained inthe July 25 SNOPR (66 FR 38829), the 13 SEER standards in the January 22 final rule were projected by the TSD to result in a negative cash flow for the industry in the yearpreceding the new standards' enforcement. Moreover, DOE's analysis shows that 13 SEER standards would impose far greater financial burdens on manufacturers whose operating costs exceed the industry average. Those manufacturers typically engage in more research and development orprovide additional sales or service support than do their lower operating cost competitors. Consequently, DOE proposed the 12 SEER standard to reduce the maldistribution of financial impacts on manufacturers and would allow manufacturers to maintaina positive cash flow. Trane concurred with DOE's actionto reduce the maldistribution offinancial impacts on manufacturers. Trane asserted that as efficiency is increased, a larger commodity market is created. This in tum reduces the market opportunities for companies that focus on value-added
74

### EE-RM/STD-98-440- 03 systems and services. Thus, the "volume" manufacturers (i.e., lower operating cost manufacturers) benefit disproportionately. Trane also noted that under a 13 SEER standard, manufacturers who investheavily inresearch and development (R&D) would dedicate less funding to innovative programs resulting inthe entire industry focusing on the development of designs that address the absolute lowest commodity product. Trane's opinion was shared by Equipment Distributors. (Trane, No. 262 at pp. 2-4, 13-14: Equipment Distributors, Inc., No. 266 atp. 1).NRDC disputed DOE's interpretation ofthe financial impacts to manufacturers by pointing out that DOE's own analysis undercuts the contention that the industry is impacted more severely under a 13 SEER standard. Referring tothe TSD, NRDC notes that under two different scenarios (NAECA and Roll-up) lowering the standard from 13 to 12 SEER actually increases the burden tothe industry (as measured by the industry netpresent value). (NRDC, No. 250 atpp. 20-22). DOE notes that in its interpretation ofmanufacturer impacts, NRDC overlooks the important role that the efficiency mix assumptions play inthe financial projections. In Section 8.4.8 ofthe TSD we described the dynamics by which theprofits ofmanufacturers withhigher operating costs depend on the sale ofpremium products, and how those products are differentiable only at efficiency levels higher than the baseline. The closerthe baseline unit is to the technological limit,the fewer consumers will "buy up" to a higher efficiency. For more and more consumers, the baseline will be the cost-effective option, and those consumers who wish to "buy up" will have fewer options and less financial incentive to do so. For these reasons, DOE assumed the Roll-up efficiency scenario to bethe mostprobable for 13 SEER standard levels and 75 EE-RM/STD-98-440'" 

## B0

## :3 systems and services. Thus, the "volume"manufacturers (Le., loweroperating cost manufacturers}benefit disproportionately. Trane also noted that undera 13 SEER standard, manufacturerswho invest heavily inresearch and development (R&D) would dedicate less funding toinnovativeprograms resulting inthe entire industry focusing onthe development of designs that address the absolute lowest commodity product. Trane's opinionwas shared by Equipment Distributors. (Trane,No. 262 atpp. 2-4, 13-14: EquipmentDistributors, Inc.,No. 266 atp. 1).NRDC disputed DOE'sinterpretationofthe financial impacts to manufacturersby pointing outthat DOE's own analysis undercutsthe contentionthat the industry is impacted more severely under a 13 SEER standard. Referring to the TSD,NRDC notes that undertwo different scenarios (NAECA and Roll-up) lowering the standard from 13 to 12 SEER actually increases the burden to the industry (as measured by the industry netpresent value). (NRDC, No. 250 at pp. 20-22).DOEnotes that in its interpretation ofmanufacturer impacts, NRDC overlooksthe important role that the efficiency mix assumptions play inthe financial projections. In Section 8.4.8 ofthe TSD we described the dynamicsby which the profits ofmanufacturers with higher operating costs depend onthe sale ofpremium products, and howthose products are differentiable only at efficiency levels higherthanthe baseline. Thecloserthe baseline unit is tothe technological limit, the fewer consumerswill "buyup"to a higher efficiency. Formore and more

. consumers,thebaseline will 

### bethe cost-effective option, andthose consumers who wish to "buy

up"will have fewer options and less financial incentiveto do so. Forthese reasons, DOE assumedthe Roll-up efficiency'scenario to bethe mostprobable for 13 SEERstandard levels and 75

### EE-RM/STD-98-440- 0 3 the NAECA efficiency scenario mostprobable at 12 SEER standard levels. The resulting cumulative change in industry net present value (NPV) is negative $300 million at 13 SEER levels compared tonegative $199 million at 12 SEER levels. NRDC's interpretation ofmanufacturer impacts also overlooks short-run cash flow impacts ofthe standards. While NPV is useful for evaluating the long-term effects'of new standards, short-term changes incash flow are also important indicators ofthe industry's financial situation. The annual cash flow impacts at 13 SEER are $31 million more than at 12 SEER and turnthe absolute cash flow negative. Depressed cash flow can strainthe industry's access to capital orcause investors to flee. OOE, Goodman, and ACEEE all claim that the industry impacts due to 13 SEER standards cannot be too severe as the technologies required to comply with the standard are conventional and well known. (OOE, No. 275 atp. 3; Goodman, No. 269 atp. 3; ACEEE, No. 284 at p. 7). Goodman specifically states thatthe only difference between a 10 SEER, 12 SEER, and 13 SEER units is a littlemore copper and aluminum used in manufacturing different sized coils. DOE believes it is erroneous to conclude from the fact that technologies required to comply with standards are conventional and well known that it is atrivial exercise to increase production volumes to alevel capable ofsatisfying the entire U.S. demand for air conditioners. Sales of13 SEER equipment and higher are only 3percent ofall equipment sold and large investments wouldbe required to convert all productionto these levels. Furthermore, as previously described, much ofthe industry's financial healthtoday depends on sales of 12 SEER equipment. 76 EE-RM/STD-98-440- 

## .8D

## .3 theNAECA efficiency scenario mostprobable at 12 SEER standard levels. The resulting cumulative change in industry netpresentvalue (NPV) is negative $300 million at 13 SEER levels comparedto negative $199 million at 12 SEERlevels. NRDC's interpretation ofmanufacturerimpacts also overlooks short-run cash flow impacts ofthe standards. WhileNPV isuseful for evaluatingthe long-term'effects'ofnew standards, short-term changes incashflow are also important indicators oftheindustry'sfinancial situation. The annual cashflow impacts at 13 SEERare$31 million morethan at 12 SEERand tumthe absolute cash flow negative. Depressed cash flow can strain the industry'S accessto capital orcause investors to flee. OOE, Goodman, and ACEEE all claimthat the industry impacts due to 13 SEER standards cannotbe too severe as the technologies required to comply withthe standard are conventional and well known. (OOE, No. 275 atp. 3; Goodman, No. 269 at p. 3; ACEEE, No. 284 atp. 7). Goodman specifically states thatthe only difference between a 10 SEER, 12 SEER, and13 SEERunits is a little more copper and aluminum used in manufacturing different sized coils. DOE believes 

### itis erroneous to conclude from the fact that technologies required to comply with standards are conventional and well known that 

### itis a trivial exercise to increase productionvolumes to a level capable ofsatisfying the entire U.S. demand for air conditioners. Sales of 13 SEERequipment andhigher are only 3 percent ofall equipment sold and large

. investments wouldbe requiredto convert all productiontothese levels. Furthermore, as

previously described, much ofthe industry's financial healthtoday depends on sales of 12 SEER equipment.
76

### 3. Small Manufacturers EE-RM/STD-98-440- 3 3 The issue ofhow higher efficiency standards impact small manufacturers also drew several comments. The Department ofJustice's April 5, 2001, letter to DOE regarding the potential effect on competition ofnew central air conditioner and heat pump efficiency standards stated that

some small manufacturers would be disproportionately impacted under a 13 SEER standard, and noted that 100 percent oftheir current product line would fail to comply with the new efficiency requirement. The Department ofJustice also stated that manufacturers ofequipn ent for spaceconstrained installation sites (such as manufactured housing) would also be dispr(portionately impacted by a 13 SEER standard (DOJ No. 285 printed in Appendix ofthis notice). Goodman asserted that moving to a 13 SEER would not be a hardship to small manufacturers. Goodman claims that 13 SEER technology has been available to both large and small manufacturers for approximately 15 years. Goodman also points to the fact that Goettl Air Conditioning, a small manufacturer based in Arizona, supports the 13 SEER standard. (Goodman, No. 269 at p. 3). PG&E concurs with Goodman's statements. (PG&E, No. 274 at p. 4). NRDC asserts that higher efficiency standards encourage competition by shaking up the cozy arrangements that the bigger companies have drifted into, requiring manufacturers either to invest in building new components or to purchase new components from other suppliers. They claim that this provides smaller, nimble manufacturers an opportunity to unseat large but slow-adapting competitors. (NRDC, No. 250 atp. 31). Both ARI and Rheem agree with the Department ofJustice's statements regarding small manufacturers. Rheem states that small manufacturers will most likely not be able to afford the redesign and retooling oftheir equipment and manufacturing facilities to meet the 13 SEER
77 3. Small Manufacturers EE-RM/STD-98-440.., 

## 302 The issue ofhow higher efficiency standards impact small manufacturers also drew several comments. The Department ofJustice's April 5,2001, letter to DOE regarding the potential effect on competition ofnew central air conditioner and heat pump efficiency standards stated that

some small manufacturers would be disproportionately impactedunder a 13 SEER standard, and noted that]00percent oftheir current product line would fail to comply with the new efficiency requirement. The Department ofJustice also stated that manufacturers ofequipn ent fl'r spaceconstrained installation sites (such as manufactured housing) would also be dispn'portlOnately impacted by a 13 SEER standard (DO] No. 285 printed in Appendix ofthis nofict). Goodman asserted that moving to a 13 SEERwould not be a hardship to small manufacturers. Goodman claims that 13 SEERtechnology has been available to both**1c!T'e~** and small manufacturers for approximately 15 years. Goodman also points to the fact that Goettl Air Conditioning, a small manufacturerbased in Arizona, supports the 13 SEER standard. (Goodman, No. 269 at p. 3). PG&E concurs with Goodman's statements. (PG&E, No. 274 at p. 4). NRDC asserts that higher efficiency standards encourage competition by shaking up the cozy arrangements that the bigger companies have drifted into, requiring manufacturers either to invest in building new components orto purchase newcomponents from other suppliers. They claim that this provides smaller, nimble manufacturers an opportunity to unseat large but slow-adapting competitors. (NRDC, No. 250 at p. 31). Both ARl and Rheem agree with the Department ofJustice's statements regarding small manufacturers. Rheem states that small manufacturers will most likely not be able to afford the redesign and retooling oftheir equipment and manufacturing facilities to meet the 13 SEER
77

### EE-RM/STD-98-440- 3 3 standard. ARI quotes DOE's TSD in stating that "small manufacturers engaged in the production ofconventional equipment would find it difficult to overcome the financial and technical burdens associated with the transition, and could decide to exit the market." (ARI, No. 259 at pp. 10-11; Rheem, No. 248 at p. 3). With regard to the manufacturers ofequipment for the manufactured housing industry, bothARI and Goodman agree that products for markets like manufactured housing, where space constraints limit efficiency gains achieved with conventional technology, should be granted an exemption from higher efficiency standards. (ARI, No. 259 at p. 8; Goodman, No. 269 at p. 3) The Department ofJustice's concerns relate to disproportionate impacts on small manufacturers. Most small manufacturers produce only indoor coils or niche product lines. For small manufacturers who produce coils only, there are no intensive incremental technological or capital requirements for them to increase the efficiency oftheirproducts and DOE does not expect them to face any incremental burden as a result ofthe new standards. However, DOE has documented that manufacturers ofniche air conditioning products, such as through-the-wall equipment and small duct, high velocity systems, face special technological and financial considerations compared to those faced by the major air conditioner producers. Consequently,

new efficiency standards could be more detrimental to the financial situation ofniche product manufacturers than ofmajor manufacturers. Technical considerations are typically more important for certain niche manufacturers than for major manufacturers and have more severe consequences related to increased production costs or loss ofsales volume due to increased price. Overall, ifprovisions were not made in the standard for niche products that face severe technological constraints, we would expect their impacts to be disproportionate to those on the 78 EE-RM/STD-98-440 - 

## .30:3 standard. ARl quotes DOE'sTSD in stating that "small manufacturers engaged in the production ofconventional equipmentwould find itdifficult to overcome the financial and technical burdens associated with the transition, and could decide to exitthe market." (ARl, No. 259 at pp. 10-11; Rheem, No. 248 atp. 3). With regard tothe manufacturers ofequipment for the manufactured housing industry, bothARl and Goodman agree that products for markets like manufactured housing, where space constraints limit efficiency gains achieved with conventional technology, should be granted an exemrtion from higher efficiency standards. (ARl,No. 259 at p. 8; Goodman, No. 269 at p. 3). The Department ofJustice's concernsrelate to disproportionate impacts on small manufacturers. Most small manufacturers produce only indoorcoils or niche product lines. For ., small manufacturers who produce coils only, there are no intensive incremental technological or capital requirements for them to increase the efficiency oftheirproducts and DOE does not expect them to face any incremental burden as a result ofthe new standards. However, DOE has documented that manufacturers ofniche air conditioning products, such as through-the-wall equipment and small duct, high velocity systems, face special technological and financial considerations compared to those faced by the major air conditionerproducers. Consequently,
new efficiency standards could be more detrimental to the financial situation ofniche product manufacturers than ofmajormanufacturers. Technical considerations are typically more important for certain niche manufacturers than for majormanufacturers and have more severe consequences related to increased production costs orloss ofsales volume due to increased price. Overall, ifprovisions were not made in the standard for niche products that face severe technological constraints, we would expect their impacts to be disproportionate to those onthe 78

### EE-RM/STD-98-440 -- 3 

### 3 industry as a whole. In today's rule, DOE is establishing separate product classes for throughthe-wall equipment and small duct, high velocity systems, which will be required to meet a lower SEER. DOE believes this meets the Department ofJustice's concern regarding the impact of
more stringent standards on small manufacturers. DOE recognizes that products used for manufactured housing and modular housing also face space constraints. In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the impacts ofhigher efficiency standards on the manufacturers of manufactured housing and modular housing products. For these applications, products at the 12 SEER level are currently on the market. DOE has concluded that, at the 12 SEER level, there is
no need for a separate product class.

4. Manufacturer Cost Estimates Several comments asserted that DOE's manufacturing cost estimates derived from the
reverse engineering analysis were too high. The comments stated that economies ofscale in production and competitive forces will result in lower costs for the more efficient equipment as compared to pre-implementation estimates. (ACEEE, No. 284 at p. 2; CFA, No. 246 atp. 1; NCLC, No. 241-NN at p. 1). OOE specifically states that the cost ofthe commodity product at a minimum standard level cannot be appropriately characterized by looking at the mean or median manufacturer cost estimates from the reverse engineering analysis. (OOE, No. 275 at p. 3), Goodman states that their incremental cost for producing a 13 SEER unit is $100 and is comparable to DOE's estimate. (Goodman, No. 269 at pp. 3-4). The reverse engineering analysis does in fact take into account economies ofscale by 79 EE-RM/STD-98-440 - 

### :::>03 industry as a whole. In today'srule, DOE is establishing separateproduct classes for throughthe-wall equipment and small duct, high velocity systems, which will be required to meet a lower SEER. DOE believes this meets the Department ofJustice's concern regarding the impact of

more stringent standards on small manufacturers. DOE recognizes that products used for manufactured housing and modular housing also face space constraints. In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the impacts ofhigher efficiency standards on the manufacturers of manufactured housing and modular housing products. Forthese applications, products at the 12 SEER level are currently on the market. DOE has concluded that, at the 12 SEER level, there is
no need for a separate product class.

4. Manufacturer Cost Estimates Several comments asserted that DOE'smanufacturing cost estimates derived from the
reverse engineering analysis were too high. The comments stated that economies ofscale in production and competitive forces will result in lower costs for the more efficient equipment as compared to pre-implementation estimates. (ACEEE, No. 284 at p. 2; CFA, No. 246 at p. 1; NCLC, No. 241-NN at p. 1). OOE specifically states that the cost ofthe commodity product at a minimum standard level cannotbe appropriately characterized by looking at the mean ormedian manufacturer cost estimates from the reverse engineering analysis. (ODE, No. 275 at p. 3), Goodman states that their incremental cost for producing a 13 SEER unit is $100 and is comparable to DOE'sestimate. (Goodman, No. 269 at pp. 3-4). The reverse engineering analysis does in fact take into account economies ofscale by
79

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

### 03 considering larger production volumes for more efficient products after implementation ofthe new standards. In its production modeling, DOE also considered that manufacturers would costoptimize their production atthe new level because ofmore intense competition at that level. We expect this competitive pressure to drive manufacturing costs and this is illustrated by the results ofthe reverse engineering analysis which fall within the ARI range and nearer to the ARI minimum. ARI, Trane, York, and EEI disagree with the above comments and assert that DOE's manufacturing cost estimates are too low. Trane states that the reverse engineering analysis was based on too small ofa sample ofunits and eliminated units which fell out ofthe range ofcosts bounded by the manufacturers submission. Trane nevertheless thinks that, despite its shortcomings, the reverse engineering analysis essentially confirmed cost levels submitted by ARI. However, Trane recommends that DOE utilize the cost data submitted by ARI. EEI concurs with this conclusion. (Trane, No. 262 at 9-10; EEI, No. 253 at p. 2). ARI states that it surveyed its manufacturer members after DOE issued its January 22 final rule. The results ofthe survey indicate that: (1) DOE has underestimated the baseline manufacturer costs by approximately 30 percent and (2) the additional cost ofa 13 SEER split air conditioner over a 12 SEER is not $122
as estimated by DOE, but is at least approximately $305. ARI also refutes Goodman's claim that the amount ofcopper and aluminum needed for a 13 SEER unit is insignificant. In reviewing Goodman's current technical literature, ARI states that on average a Goodman 13 SEER split air conditioner weighs 44 pounds (18 percent) more than a 12 SEER system. More specifically, Goodman's 13 SEER condenser and evaporator coils are on average 20.2 percent and 11.5 percent heavier than the condenser and evaporator coils from their 12 SEER unit, respectively. (ARI, No. 80 EE-RM/STD-98-440'"

## 30-3 considering larger production volumes for more efficient products after implementation ofthe
new standards. In its production modeling, DOE also considered that manufacturers would costoptimize their production at the new level because ofmore intense competition at that level. We expect this competitivepressure to drive manufacturing costs and this is illustrated by the results ofthereverse engineering analysis which fall within the ARI range and nearer to the ARI mInImum. ARI, Trane, York, and EEl disagree with the above comments and assert that DOE's manufacturing cost estimates are too low. Trane states that the reverse engineering analysis was based on too small ofa sample ofunits and eliminated units which fell out ofthe range ofcosts bounded by the manufacturers submission. Trane nevertheless thinks that, despite its shortcomings, the reverse engineering analysis essentially confirmed cost levels submitted by ARI. However, Trane recommends that DOE utilize the cost data submitted by ARI. EEl concurs with this conclusion. (Trane, No. 262 at 9-10; EEl,No. 253 at p. 2). ARI states that it surveyed its manufacturer members after DOE issued its January 22 final rule. The results ofthe survey indicate that: (1) DOE has underestimated the baseline manufacturer costs by approximately 30 percent and (2) the additional cost ofa 13 SEER split air conditioner over a 12 SEER is not $122

as estimated by DOE, but is at least approximately $305. ARI also refutes Goodman's claim that the amount ofcopper and aluminum needed for a 13 SEER unit is insignificant. In reviewing Goodman's current technical literature, ARI states that on average a Goodman 13 SEER split air conditioner weighs 44 pounds (18 percent) more than a 12 SEER system. More specifically, Goodman's 13 SEER condenser and evaporator coils are on average 20.2 percent and 11.5 percent heavier than the condenser and evaporator coils from their 12 SEER unit, respectively. (ARI, No. 80

### EE-RM/STD-98-440 -"303 259 at pp. 23-25). York states that the reverse engineering analysis is flawed because it focused
on one size ofequipment, a 3-ton unit. They feel the whole range ofequipment should have been analyzed, as size becomes much more problematic and costly at higher capacities. (York, No. 270 atp. 3).DOE believes that the reverse engineering analysis is based on a sufficient equipment sample size to capture variability in design, manufacturing practices and costs across the range products subject to new standards. The equipment models were selected to be representative of the costs to manufacture existing baseline models and to capture the costs to manufacture products at potential new standards levels. To select representative equipment samples for the
reverse engineering analysis, DOE requested that manufacturers identify equipment in their product lines most appropriate for this purpose. Four major manufacturers submitted design data for split cooling-only equipment, and three ofthose submitted design data for the other classes as well. This submission process yielded information on 62 models. DOE selected an additional nine models from catalogs ofthose and other manufacturers and also used the ARI Product Attribute Database and technical literature to describe the efficiency-related attributes inthose products. Additionally, from the group ofmanufacturer submittals, three units were purchased for extensive disassembly and inspection. In their comment ARI does not explain how they derived their baseline costs (estimation method, models included, product features, etc.), making an assessment or comparison to DOE's costs impossible. In contrast, the reverse engineering derivation method and resulting dis-aggregated baseline data are transparent and have been reviewed extensively by stakeholders. Several comments also focused on the issue ofproductivity gains and asserted that these 81 EE-RM/STD-98-440-

## 3D'3 259 atpp. 23-25). York states that the reverse engineering analysis is flawed because it focused

on one size ofequipment, a 3-ton unit. They feel the whole range ofequipment should have been analyzed, as size becomes much more problematic and costly at higher capacities. (York, No. 270 at p. 3). DOE believesthat the reverse engineering analysis is based on a sufficient equipment sample size to capture variability in design, manufacturing practices and costs across the range products subjectto new standards. The equipmentmodels were selectedto be representative of

.the costs to manufacture existing baseline models and to capture the costs to manufacture products at potential new standards levels. To select representative equipment samples for the
reverse engineering analysis, DOErequested that manufacturers identify equipment in their product lines most appropriate for this purpose. Fourmajor**manufac~urers** submitted design data for split cooling-only equipment, and three ofthose submitted design data for the other classes as well. This submission process yielded infonnation on 62 models. DOE selected an additional nine models from catalogs ofthose and othermanufacturers and also used the ARI Product Attribute Database and technical literature to describe the efficiency-related attributes in those products. Additionally, from the group ofmanufacturer submittals, three units were purchased for extensive disassembly and inspection. In their commentARI does not explain how they derived theirbaseline costs (estimation method, models included, product features, etc.), making an assessment orcomparisonto DOE's costs impossible. In contrast, the reverse engineering derivation method and resulting dis-aggregated baseline data are transparent and have been reviewed extensively by stakeholders. Several comments also focused on the issue ofproductivity gains and asserted that these
81

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

- 

## 3b3 gains would lower manufacturing costs below the levels estimated by DOE. ACEEE, ASE, and OOE all refer to historic changes as shown by the U.S. Census Bureau's Current Industrial Reports series in stating that these trends demonstrate that air conditioner costs to the manufacturer have declined at a rate of 1.7 percent annually over the 1994-1998 period. They assert that DOE should include this rate ofcost reductions in its analysis. They add that the Census figures are probably conservative as they ignore the fact that manufacturers tend to find ways to substantially increase productivity when standards take effect in order to reduce the impact ofstandards-induced cost increases. In making this claim, the comments cite DOE's cost estimates from the 1980's for meeting the 10 SEER standards that took effect in 1992. Rather than having any cost impacts, they assert that the 1992 standards resulted in essentially no change in product costs. (ACEEE, No. 284 atpp. 4-8; OOE, No. 275 atp. 3; ASE, No. 282 at 3-4). Although NRDC recognizes that the reverse engineering model accounts for economies of scale, it states that it does not account for any "learing-curve" effect. Thus, as cumulative production ofhigh efficiency units increase, the reverse engineering model merely scales up the costs rather than factoring the downward effect that "learning" has on production costs. (NRDC, No. 250 at pp. 31-32). Goodman also alludes to the "learning-curve" when it states that when a unit meeting a new standard is produced in volume, it allows the manufacturer to run its plant
more efficiently and pass the resulting cost savings on to the consumer. (Goodman, No. 269 at pp. 4-5). Trane, Rheem, and Lennox International, Inc. (Lennox)) all refute the contention that productivity gains will materialize. Trane asserts that earlier hard won productivity gains were produced by the industry through untold millions spent on R&D. These expenditures reduced the cost to produce the entire product line, but did little to reduce the material-driven incremental 82 EE-RM/STD-98-440'"

# 3D

# 3 gains would lower manufacturing costs belowthe levels estimated by DOE. ACEEE, ASE, and OOE all refer to historic changes as shown by the U.S. Census Bureau's Current Industrial Reports series in stating that these trends demonstrate that air conditioner costs to the manufacturer have declined at a rate of 1.7 percent annually over the 1994-1998 period. They assertthat DOE should include this rate ofcost reductions in its analysis. They add that the Census figures are probably conservative as they ignore the fact that manufacturers tend to find ways to substantially increase productivity when standards take effect in orderto reduce the impact ofstandards-induced cost increases. In making this claim, the comments cite DOE's cost estimates from the 1980's for meeting the 10 SEER standards that took effect in 1992. Rather than having any cost impacts, they assert that the 1992 standards resulted in essentially no change in product costs. (ACEEE, No. 284 at pp. 4-8; OOE, No. 275 at p. 3; ASE, No. 282 at 3-4). AlthoughNRDC recognizes that the reverse engineering model accounts for economies of scale,it states that it does not account for any "learning-curve" effect. Thus, as cumulative production ofhigh efficiency units increase, the reverse engineering model merely scales up the costs rather than factoring the downward effect that "learning" has on production costs. (NRDC, No. 250 at pp. 31-32). Goodman also alludes to the "learning-curve" when it states that when a unit meeting a new standard is produced in volume, 

### it allows the manufacturer to run its plant
more efficiently and pass the resulting cost savings on to the consumer. (Goodman, No. 269 at pp.4-5). Trane, Rheem, and Lennox International, Inc. (Lennox» all refute the contention that productivity gains will materialize. Trane asserts that earlier hard won productivity gains were produced by the industry through untold millions spent on R&D. These expenditures reduced the cost to produce the entire product line, but did little to reduce the material-driven incremental 82

### EE-RM/STD-98-440- 503 costs ofefficiency upgrades. Likewise, any cost reductions likely to occur in the next decade will have significantly greater impact on the overall consumer cost structure than on the cost and price increment between successively higherefficiency levels. Rheem states that under a 13 SEER standard only industry profits will be reduced, lessening the money available for research and design ofnew products to meet other upcoming standards, i.e., HCFC phase-out, new commercial standards, new gas and oil furnace standards. (Trane, No. 262 at pp. 10-11; Rheem, No. 248 at p. .; Lennox, No. 272 at p. 2). DOE has not included unspecified productivity improvements or "learning-curve" cost
re luctior.s in its analysis. DOE does notbelieve historical price trends for unitary air conditioners, or other products, can be applied to forecast equipment costs where there are no data to indicate what factors resulted in the observed trends or that the trends will continue. Furthermore, without specific cost information, it is impossible to tell ifproductivity improvements would apply equally to baseline costs and standards induced incremental costs. Therefore, without specific data on the nature and magnitude ofcost impacts, DOE will not apply
aproductivity improvement factor in this rulemaking or other rulemakings. E. Effect on Competition Several comments argued that DOE was unduly concerned that 13 SEER standards would lead to industry consolidation. NRDC claimed that the 13 SEER standards would actually enhance competition relative tothe existing 10 SEER standards because economic losses imposed
onhigher-cost producers would force them to be more competitive. (NRDC, No. 250 at pp. 20- 22). OOE adds that industry consolidation occurs regularly in all sectors ofthe economy. In the context ofthe various factors that influence industry consolidation, OOE asserts that it is 83 EE-RM/STD-98-440....

### ~O,3 costs ofefficiency upgrades. Likewise, any cost reductions likely to occur in the next decade will have significantly greater impact onthe overall consumercost structure than onthe cost and price increment between successively higher efficiency levels. Rheem states that under a 13 SEER standard only industry profits will be reduced, lessening the money available for research and design ofnew products to meet other upcoming standards, i.e., HCFC phase-out, new commercial standards, newgas and oil furnace standards. (Trane, No. 262 at pp. 10-11; Rheem, No. 248 at p. : ; Lennox, No. 272 atp. 2). DOE has not included unspecified productivity improvements or "learning-curve" cost
reiuctior..s in its analysis. DOE does not believe historical price trends for unitary air conditionus, or otherproducts, can be applied to forecast equipment costs where there are no data to indicate what factors resulted in the observedtrends orthat the trends will continue. Furthermore, without specific cost information, it is impossible to tell ifproductivity improvements would apply equally to baseline costs and standards induced incremental costs. Therefore, without specific data on the nature and magnitude ofcost impacts, DOE will not apply

a productivity improvement factor in this rulemaking or other rulemakings. E. Effect on Competition Several comments argued that DOE was unduly concernedthat 13 SEER standards would lead to industry consolidation. NRDC claimed that the 13 SEER standards would actually enhance competition relative to the existing 10 SEER standards because economic losses imposed

onhigher-cost producers would force them to be more competitive. (NRDC, No. 250 at pp. 20- 22). OOE adds that industry consolidation occurs regularly in all sectors ofthe economy. In the context ofthe various factors that influence industry consolidation, OOE asserts that it is
83

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

### unreasonable for DOE to claim that the incremental effects ofefficiency standards can have any measurable effect on the industry. (OOE, No. 275 at pp. 3-4). PG&E cites third party coil manufacturers' response to PG&E's high efficiency rebate programs as support for the view that these small coil manufacturers can supply the efficiency combinations needed to meet new standards. By extension, PG&E asserts that 13 SEER standards would foster manufacturing diversity by providing the coil manufacturers more business. (PG&E, No. 274 atp. 3). Counte ring the above claims, ARI, Trane, and the U.S. Small Business Administration asserted that a i2 SEER standard would have less ofan anti-competitive impact than the 13 SEER standard. (ARI, No. 259 at pp. 3-4, 25; Trane, No. 262 at pp. 2-4, 13-14; U.S. SBA, No. 234 at p. 1.) Both ARI and Trane cited the Department ofJustice's April 5, 2001 letter to DOE regarding the anti-competitive impacts of 13 SEER standards in claiming that the industry impacts due to 13 SEER standards are too severe. ARI additionally stated that DOE's failure to obtain a determination by the Attorney General ofthe anti-competitive impact ofthe 13 SEER standard prior to issuing the January 22 final rule is an appropriate basis to withdraw the 13 SEER decision. The Department ofJustice submitted comments on DOE's July 25, 2001 SNOPR which concluded that the 12 SEER proposal would not adversely affect competition; DOJ, No. 285 printed in the Appendix to this notice. In establishing the new standards, DOE considered several factors which have a potential bearing on industry competition and consolidation. For each trial standard level DOE considered: changes in manufacturer net present value; cumulative regulatory burden; and changes in annual cash flow. To further capture competitive effects, DOE considered differential impacts on three sub-groups ofmanufacturers, since higher efficiency standards will affect each group of 84 EE-RM/STD-98-440

## -803 unreasonable for DOE to claim that the incremental effects ofefficiency standards can have any measurable effect onthe industry. (OOE, No. 275 at pp. 3-4). PG&E cites third party coil manufacturers' response to PG&E'shigh efficiency rebate programs as support for the view that these small coil manufacturers can supply the efficiency combinations needed to meet new standards. By extension, PG&E asserts that 13 SEER standards would foster manufacturing diversity by providing the coil manufacturers more business. (PG&E, No. 274 at p. 3). Countt:ring the above claims, ARI, Trane, and the U.S. Small Business Administration asserted that a 12 SEER standard would have less ofan anti·competitive impact than the 13 SEER standard. (ARl,**~o.** 2S9 at pp. 3-4,25; Trane, No. 262 at pp. 2-4, 13-14; U.S. SBA, No. 234 at p. 1.) Both ARI and**Tral1(~** cited the Department ofJustice's April 5,2001 letterto DOE regarding the anti-competitive imp;icts of 13 SEER standards in claiming that the industry impacts due to 13 SEER standards are too severe. ARI additionally stated that DOE's failure to obtain a determination by the Attorney General ofthe anti-competitive impact ofthe 13 SEER standard prior to issuing the January 22 final rule is an appropriate basis to withdraw the 13 SEER decision. The Department ofJustice submitted comments on DOE's July 25, 2001 SNOPRwhich concluded that the 12 SEERproposal would not adversely affect competition; DOJ, No. 285 printed in the Appendix to this notice. In establishing the new standards, DOE considered several factors which have a potential bearing on industry competition and consolidation. For each trial standard level DOE considered: changes in manufacturer net present value; cumulative regulatory burden; and changes in annual cash flow. To further capture competitive effects, DOE considered differential impacts on three sub-groups ofmanufacturers, since higher efficiency standards will affect each group of 84

### EE-RM/STD-98-440- 303 manufacturers differently. "Low Operating Cost Manufacturers" observe a low cost, commodityproduct strategy and achieve a higher operating profit margin on their baseline equipment. DOE's analysis indicates that this group ofmanufacturers will likely benefit from higher standards. "High Operating Cost" manufacturers typically place more ofan emphasis on product differentiation than cost leadership. For this group ofmanufacturers, higher standards reduce opportunities forproduct differentiation and lower profitability. Finally "Small Manufacturers" fall into two groups; manul acturcrs ofequipment for niche markets and manufactures ofindoor coils and fancoil units. As previously stated in Section VI (D) (3), we do not expect coil manufacturers to face any in remental burden as a result ofnew standards. Also we stated that impacts on niche manufacturers have been largely addressed through the creation ofseparate product classes forproducts used in space contained applications. In arriving at today's decision to adopt a 12 SEER standard DOE factored into consideration its serious concerns regarding potential anti-competitive effects at higher trial standard levels. DOE's analysis demonstrates that both High and Low Operating Cost Manufacturer groups would experience negative cash flows in the years leading up to the new standard under TSL3 and TSL4, but only the higher operating cost group is expected to suffer a long term decline in value, cash flow, and return on invested capital. Since Low Operating Cost Manufacturers would likely benefit from 13 SEER standards, most ofthe total financial burden due to the standards would need to be borne by High Operating Cost Manufacturers. The differential impact between the subgroups is $238 million at 12 SEER and rises to $429 million at 13 SEER. Due to this probable maldistribution ofindustry impacts at 13 SEER, DOE was particularly concerned that either accelerated industry consolidation (i.e., less competitive market) 85 EE-RM/STD-98-440- 

## '2P8 manufacturers differently. "LowOperating Cost Manufacturers" observe a low cost, commodityproduct strategy and achieve a higher operating profit margin on their baseline equipment. DOE's analysis indicates that this group ofmanufacturers will likely benefit from higher standards. "High Operating Cost"manufacturers typically place more ofan emphasis on product differentiation than cost leadership. Forthis group ofmanufacturers, higher standards reduce opportunities for product differentbtion and lower profitability. Finally "Small Manufacturers" fall into two groups; manul**actun~rs** ofequipment for niche markets and manufactures ofindoor coils and fancoil units. As previol\sly stated in Section VI (D) (3), we do not expect coil manufacturers to face any**in~Iemf'fltal** burden as a result ofnew standards. Also we stated that impacts on niche manufacturers have been largely addressed through the creation ofseparate product classes for products used in**~pace** contained applications. In arriving at today's decision to adopt a 12 SEER standard DOE factored into consideration its serious concerns regarding potential anti-competitive effects at higher trial standard levels. DOE's analysis demonstrates that both High and Low Operating Cost Manufacturer groups would experience negative cash flows in the years leading up to the new standard under TSL3 and TSL4, but only the higher operating cost group is expected to suffer a long term decline in value, cash flow, and return on invested capital. Since Low Operating Cost Manufacturers would likely benefit from 13 SEER standards, most ofthe total financial burden due to the standards would need to be borne by High Operating Cost Manufacturers. The differential impact between the subgroups is $238 million at 12 SEER and rises to $429 million at 13 SEER. Dueto this probable maldistribution ofindustry impacts at 13 SEER, DOE was particularly concerned that either accelerated industry consolidation (i.e., less competitive market)
85

### or the stifling ofinnovation could occur. F. Effect on UtilityorPerformance EE-RM/STD-98-440- 

# 303 1. Dehumidification The only comments regarding product utility pertained to the impacts that more stringent standards may have on the ability ofair-conditioning equipment to properly dehumidify. Both Southern Company and Mercatus Center claim that the lower latent cooling capacity inherent in larger, more efficient single speed equip nent would result in dehumidification problems in humid climates. (Southern Company, No. 257 I.t pp. 3-4; Mercatus Center, No. 242 at p. 8). As stated in the October 5, 2000 Y'OPR, ARI research has demonstrated for hundreds of systems that latent heat removal is not obvioujsly impacted by increases in equipment efficiency at rated conditions (i.e., 95°F outdoor temperature) 4



### . See 65 FR 59611-59612. Nonetheless, DOE recognizes the humidity control problems that exist in the southern region ofthe U.S. For the excessive humidity conditions commonly experienced in the South, the equipment may very likely not provide adequate dehumidification. Equipment efficiency should not be viewed as the sole

source ofthe problem, however. Proper installation and maintenance practices also likely play a large role in the equipment's performance, as well as other factors, such as the duct system and the building shell characteristics. All these factors play a role in how a system dehumidifies. For these reasons, DOE does not believe the 12 SEER standard adopted today will have an appreciable effect on the performance ofcentral air conditioners, and any problem with dehumidification can be dealt with in a variety ofways other than lowering the energy efficiency standard.

4D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2). 

### 86 orthe stifling ofinnovation could occur. 

### F. Effect on Utility orPerformance 

### 1. Dehumidification EE-RM/STD-9S-440- 

## 303
The only comments regarding productutility pertained to the impacts that more stringent standards may have onthe ability ofair-conditioning equipment to properly dehumidify. Both Southern Company and Mercatus Center claim tnat the lower latent cooling capacity inherent in larger, more efficient single speed equipnent would result in dehumidificationproblems in humid climates. (Southern Company,No. 257 <.'t pp. :-4; Mercatus Center, No. 242 at p. 8). As stated in the October 5, 2000 l':OPR, ARI research has demonstrated for hundreds of systems that latent heatremoval is not obvio'Jsly impacted by increases in equipment efficiency at rated conditions (i.e., 95OF outdoortemperature)14. See 65 FR 59611-59612. Nonetheless, DOE recognizes the humidity control problems that exist in the southern region ofthe U.S. For the excessive humidity conditions commonly experienced in the South, the equipment may very likely notprovide adequate dehumidification. Equipment efficiency should not be viewed as the sole
source ofthe problem, however. Proper installation and maintenance practices also likely playa large role in the equipment'sperformance, as well as other factors, such as the duct system and the building shell characteristics. All these factors playarole inhow a system dehumidifies. For these reasons, DOE does not believe the 12 SEER standard adopted today will have an appreciable effect on the performance ofcentral air conditioners, and any problem with dehumidification can be dealt with in a variety ofways otherthan lowering the energy efficiency standard.

14 D. Godwin. 1998. "LatentCapacity ofUnitary Equipment." ASHRAE Transactions 98(2). 86

### G. ElectricSystem Reliability/Peak Power 1. Peak Power EE-RM/STD-98-440- 3p3 As part ofits analysis to determine the impacts ofamended efficiency standards, DOE quantified how increased standards affected installed generation capacity, i.e., reduction in electrical power demand. Due to DOE's decision to withdraw the January 22 final rule, several comments expressed concern that the 12 SEER standard would have less ofan impact on peak power demand than the 13 SEER standard. (Austin Lnergy, No. 243 atp. 1; State ofConnecticut, No. 279 at p. 1; Offices ofthe New York and Massachusetts Attorney Generals, No. 277 at pp. 15-16; New York State Energy Research and Development Authority (NYSERDA), No. 252 at p. 1; State ofVermont, No. 268 at p. 3; PG&E, No. 274 at p. 3; State ofNevada, No. 271 at p. 2; National Grid, No. 241-00 p. at 3). Regardless ofSEER level, ACEEE asserted that DOE significantly underestimated the peak demand impacts ofmore efficient air conditioners. Specifically, ACEEE states that DOE's model to estimate peak power impacts, NEMS-BRS, uses load shapes that underestimate the effect that residential central air conditioners have on peak power by a factor ofmore than two. To correct this problem, ACEEE recommends correcting NEMS-BRS with load shape data that is

more nationally representative ofcentral air conditioner power consumption. ACEEE specifically recommends load shape data that has a Conservation Load Factor (CLF) of0.104. (ACEEE, No. 284 at pp. 8-11). Both EEI and Southern Company assert that a 13 SEER standard could actually increase peak power demand. EEI states that for units rated at 13 SEER and higher, there is no correlation

87 G. Electric System Reliability/PeakPower 1. PeakPower EE-RM/STD-98-440- 

## 303 As part ofits analysis to detennine the impacts ofamended efficiency standards, DOE quantified how increased standards affected installed generation capacity, i.e., reduction in electrical power demand. Due to DOE's decision to withdrawthe January 22 final rule, several comments expressed concernthat the 12 SEER standard wOll!d have less ofan impact onpeak powerdemand thanthe 13 SEER standard. (Austin**l~nerg:"** No. 243 at p. 1; State ofConnecticut, No. 279 at p. 

### 1; Offices ofthe New York and**MassaC;lUsett~** Attorney Generals, No. 277 atpp. 15-16;New York State Energy Research and Develop.'11ent .Authority (NYSERDA),No. 252 at p. 1; State ofVennont,No. 268 atp. 

### 3; PG&E,No. 274 at p. 

### 3; State ofNevada, No. 271 at p. 

### 2; National Grid, No. 241-00 p. at 3). Regardless ofSEER level, ACEEE asserted that DOE significantly underestimated the peak demand impacts ofmore efficient air conditioners. Specifically, ACEEE states that DOE's model to estimate peak power impacts, NEMS-BRS, uses load shapesthat underestimate the effect that residential central air conditioners have on peak powerby a factor ofmorethan two. To correctthis problem, ACEEE recommends correctingNEMS-BRS with load shape datathat is

more nationally representative ofcentral air conditionerpower consumption. ACEEE specifically recommends load shape data that has a Conservation Load Factor (CLF) of0.104. (ACEEE, No. 284 atpp. 8-11). Both EEl and Southern Company assert that a 13 SEER standard could actually increase peak power demand. EEl states that for units rated at 13 SEER and higher, there is no correlation

87

### EE-RM/STD-98-440, 35 between SEER and EER' 5



### . So ifthe standard was raised to 13 SEER, EEI believes it is likely that the manufacturers would use technologies to raise SEER values and lower EER values, assuming it would lower their production costs. Thus, the higher SEER values could very easily lead to lower EER values, resulting in reduced energy savings in warmer climates, increased peak demands associated with residential systems in all climates, and increased need for peaking power plants. (EEI, No. 253 atpp. 2-3). Southern Company adds that the reduction in peak demand from higher efficiency standards is so long-term asto have no bear ng or; current problems. Thus, it is entirely possible that the higher efficiency levels could exacerbate a supply glut in the regions
now experiencing shortages ten to fifteen years from now. (Southern Company, No. 257 at p. 3). Mercatus Center believes that higher SEER standards would cause mor., people to purchase air conditioners due to their lower operating costs. The result during a heat wave could increase overall air conditioning usage, increasing peak demand and the risk ofablackout, and leaving everyone without air conditioning. (Mercatus Center, No. 242 at pp. 9-10). First, in response to the comments submitted by EEI and Southern Company, DOE has demonstrated in its technical analysis (See TSD, Chapter 4) that in the efficiency range of 10 to 13 SEER, the EER, on average, increases proportionally to the SEER. Thus, DOE maintains that higher standards ofup through 13 SEER will yield progressively greater peak demand reductions. Mercatus Center's claims regarding increased equipment sales leading to higher overall air conditioner use are not substantiated. As presented earlier in the shipments forecasts discussion,

15 EER, Energy Efficiency Ratio, is a steady-state measure ofenergy efficiency which determines efficiency at a prescribed outdoor temperature (95°F), and is one ofthe test conditions in the DOE test procedure used to develop the SEER. EER is generally thought ofas an efficiency descriptor that indicates the level of performance during periods when electricity use by airconditioners isat its peak. 

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

## 3J43 between SEER and EERIS. SO ifthe standard was raised to 13 SEER, EEl believes it is likely that the manufacturers would use technologies to raise SEER values and lower EERvalues, assuming it would lowertheirproduction costs. Thus, the higher SEERvalues could very easily lead to lower EERvalues, resulting in reduced energy savings in warmer climates, increased peak demands associated with residential systems in all climates, and increased need for peaking power plants. (EEl, No. 253 atpp. 2-3). Southern Company adds that the reduction in peak demand from higher efficiency standards is so long-term as to have no bearng Of; current problems. Thus, it is entirely possible that the higher efficiency levels could**exacerbil~e** a supply glut in the regions
now experiencing shortages ten to fifteen years from now. (Southern Company, No. 257 at p. 3). Mercatus Centerbelieves that higher SEER standards would cause mor.! peoole to purchase air conditioners due to their lower operating costs. The result during a heat \\-Cive could increase overall air conditioning usage, increasing peak demand and the risk ofa blackout, and leaving everyone without air conditioning. (Mercatus Center, No. 242 at pp. 9-10). First, in response to the comments submitted by EEl and Southern Company, DOE has demonstrated in its technical analysis (See TSD, Chapter4) that in the efficiency range of 10 to 13 SEER, the EER, on average, increases proportionally to the SEER. Thus, DOE maintains that higher standards ofup through 13 SEERwill yield progressively greater peak demand reductions. Mercatus Center's claims regarding increased equipment sales leading to higher overall air conditioneruse are not substantiated. Aspresented earlier in the shipment!> forecasts discussion,

IS EER, Energy Efficiency Ratio, is a steady-state measure ofenergy efficiency which detennines efficiency at a prescribed outdoor temperature (95°F), and is one ofthe test conditions in the DOE test procedure used to develop the SEER. EER is generally thought ofas an efficiency descriptorthat indicates the level of perfonnance during periods when electricity use by air conditioners is at its peak. 88

### EE-RM/STD-98-440 - 3. 3 due to higher consumer purchase prices, DOE's shipments model forecasts declining rather than increasing sales due to more efficient standards. Thus, DOE concludes that there is a very low probability that increased standards could actually lead to an increase in peak demand. As stated in the January 22 final rule regarding peak demand impacts, DOE recognized that more research was needed to resolve the issue ofwhether NEMS-BRS accurately estimates the peak demand reductions resulting from air conditioner efficiency standards. See 65 FR 7182. To resolve this outstanding issue as well as address those comments submitted )y ACEEE in response to the July 25 SNOPR, DOE conducted a comprehensive review ofthe end-use load shapes used by NEMS-BRS, not only forthe residential sector, but for the comrrercial, industrial, and transportation sectors as well.'6 

### DOE discovered a number ofproblems associated with the specific load shapes. In the case ofthe residential air-conditioning end-use, DOE determined that

a non-representative load shape was assigned to it. This non-representative load shape peaks in October and has a correspondingly high CLF. As discussed in the January 22 final rule, the CLF

was first introduced by researchers atLawrence Berkeley National Laboratory to allow for the straightforward calculation ofthe peak demand avoided from a given amount ofenergy savings.'7 

### The CLF is defined as: 

### AnnualSiteEnergySavings(kWh) CLF ==PeakLoadSavings(kW)

. 

### 8760hours

1 6AlternativeSectoralLoadShapes forNEMS, Department of Energy-Energy Information Administration, Washington, D.C., August 2001. 17 ConservationScreeningCurves to CompareEfficiency Investments toPowerPlants:Applicationsto CommercialSectorConservation Programs,Lawrence Berkeley National Laboratory, Berkeley, CA, August 1990, published in the Proceedings ofthe 1990 ACEEE Summer Study on Energy Efficiency in Buildings, Authors: J. Koomey, A. Rosenfeld, and A. Gadgil. 

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

## 3IJ3 due to higher consumerpurchase prices, DOE's shipments model forecasts declining ratherthan increasing sales due to more efficient standards. Thus, DOE concludes that there is a very low probability that increased standards could actually lead to an increase in peak demand. As stated in the January 22 final rule regarding peak demand impacts, DOErecognized that more research was needed to resolve the issue ofwhetherNEMS-BRS accurately estimates the peak demand reductions resulting from air conditioner efficiency standards. See 66 FR 7182. To resolve this outstanding issue as well as address those comments submitted )y ACEEE in response to the July 25 SNOPR, DOE conducted a comprehensive review ofthe end··use load shapes used by NEMS-BRS, not only for the residential sector, but for the comrr.ercial, industrial, and transportation sectors as well. 16 DOE discovered a number ofproblems associated with the



### ... specific load shapes. In the case ofthe residential air-conditioning end-use, DOE determined that
a non-representative load shape was assigned to it. This non-representative load shape peaks in October and has a correspondingly high eLF. As discussed in the January 22 final rule, the eLF
was first introduced by researchers at Lawrence Berkeley National Laboratory to allowfor the straightforward calculation ofthe peak demand avoided from a given amount ofenergy savings.17 The eLF is defined as: 

### AnnualSiteEnergySavings(kWh) eLF=**------~----­** 

### PeakLoadSavings(kW)·8760

### hours

16AlternativeSectoralLoadShapes forNEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001.
17 Conservation Screening Curves to Compare Efficiency Investments to Power Plants: Applications to CommercialSector Consef1lation Programs, Lawrence Berkeley National Laboratory, Berkeley, CA, August 1990, published in the Proceedings ofthe 1990 ACEEE Summer Study on Energy Efficiency in Buildings, Authors: J. Koomey, A. Rosenfeld, andA. Gadgil. 89

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

- 3.'3 Thus, a conservation technology that saves a constant amount ofpower on a continuous basis has a CLF of 1.0. Because air conditioning use occurs most often during times ofpeak demand, the CLF is significantly lower. The lower the CLF, the greater the amount ofpeak load savings achieved for a given amount ofannual energy savings. See 66 FR 7181. As aresult ofdiscovering several problems with the load shapes within NEMS-BRS, an alternative set ofsectoral end-use load shapes were assigned to the 2002 version ofNEMS-BRS that were distinctly different than the load shapes used in prior versions ofthe model (includ ng the 2000 and 2001 versions). For example, in the case ofthe residential air-conditioning end-use, the alternative version consists ofthirteen regional load shapes based on regions defined by the North American Electric Reliability Council (NERC) as compared to the single national load shape used in prior versions. Depending on the region ofthe country, the thirteen air-conditioning load shapes have CLFs ranging from 0.063 to 0.183 and generally peak in either July or August. Although the alternative load shapes specific to the residential air-conditioning end-use are more representative (e.g., the loads peak during the summer months), switching to the entire set of alternative sectoral end-use load shapes results in smaller peak-to-average system loads. As a consequence, the overall built-up system load shapes using the alternative sectoral end-use load shapes have less pronounced peaks than those that are used in prior versions ofNEMS-BRS. Because the built-up system loads within the 2002 version ofNEMS-BRS have less pronounced peaks, the impact ofreducing the energy use on a relatively peaky end-use like residential airconditioning (such as through increased efficiency standards) will have less ofan affect on overall system capacity. New NEMS-BRS standard case runs were conducted with the entire set ofalternative 90 EE-RMjSTD-98-440.".30.3 Thus, a conservationtechnology that saves a constant amount ofpower on a continuous basis has a CLF of 1.0. Because air conditioning use occurs most often during times ofpeak demand, the CLF is significantly lower. The lower the CLF, the greater the amount ofpeak load savings achieved for a given amount ofannual energy savings. See 66 FR 7181. As a result ofdiscovering several problems with the load shapes withinNEMS-BRS, an alternative set ofsectoral end-use load shapes were assigned to the 2002 version ofNEMS-BRS that were distinctly different than the load shapes used in prior versions ofthe model (includ.ng the 2000 and 2001 versions). Forexample, in the case ofthe residential air-conditioning end-lise, the alternative version consists ofthirteen regional load shapes based on regions defined by**th~** North American Electric Reliability Council (NERC) as compared to the single national load shape used in prior versions. Depending on the region ofthe country, the thirteen air-conditioning load shapes have CLFs ranging from 0.063 to 0.183 and generally peak in eitherJuly or August. Although the alternative load shapes specific to the residential air-conditioning end-use are more representative (e.g., the loads peak during the summer months), switching to the entire set of alternative sectoral end-use load shapes results in smaller peak-to-average system loads. As a consequence, the overall built-up system load shapes using the alternative sectoral end-use load shapes have less pronounced peaks than those that are used in prior versions ofNEMS-BRS. Because the built-up system loads within the 2002 version ofNEMS-BRS have less pronounced peaks, the impact ofreducing the energy use on a relatively peaky end-use like residential airconditioning (such as through increased efficiency standards) will have less ofan affect on overall system capacity. NewNEMS-BRS standard case runs were conducted with the entire set ofalternative 90

### EE-RM/STD-9440- 30 3 sectoral end-use load shapes, including the updated residential air-conditioning load shapes, to determine their impact on system capacity. These new runs were conducted with the 2000 version ofNEMS-BRS by replacing the existing set ofsectoral load shapes withthe alternative versions. As expected, the installed generation capacity reductions based on the newNEMS-BRS runs are lower than those produced for the January 22 final rule. In the case oftoday's final rule, the installed generation capacity reduction is now estimated to be 8.7 GW as opposed to the 10.6 GW provided in the January 22 final rule. A complete set ofupdated installed generation capacity reduction impacts can be found in Appendix M ofthe TSD. 2. Reliability As stated in the July 25 SNOPR, DOE has considered as a benefit the potential ofthe proposed standards to improve the reliability ofthe electric generation and distribution system by reducing the need for installed generation capacity. See July 25 SNOPR, 66 FR 38841. Several comments, while not disputing DOE's conclusion that air conditioner standards would improve electric system reliability, argued that the potential for improving reliability would be reduced by going forward with the proposed standards (12 SEER) instead ofthose standards issued inthe January 22 final rule (13 SEER). (ACEEE, No. 284 at p. 2; NRDC, No. 250 at p. 23; NEEP, No. 273 atp. 1; ASE, No. 282 atp. 2; CEC, No. 263 atp. 1; National Association of Regulatory Utility Commissioners (NARUC), No. 260 at p. 2). Southern Company, which states that raising the standard from 12 to 13 SEER will have minimal effect on peak demand growth, believes this efficiency increase will have even less effect
on reliability, because there is not a direct relationship between peak demand growth and reduced electric system reliability. The Southern Company claims that the reduction in peak demand from
91 \.**~**

# EE.R~-3D3 sectoral end-use load shapes, including the updated residentral air-'Conditioning load shapts, to determine their impact on system capacity. These newruns were conducted with the 2000 version ofNEMS-BRS by replacing the existing set ofsectoral load shapes with the alternative versions. As expected, the installed generation capacity reductions based onthe newNEMS-BRS runs are lowerthan thoseproduced for the January 22 final rule. In the case oftoday's final rule, the installed generation capacity reduction is now estimated to be 8.7 GW as opposed to the 10.6 GW provided in the January 22 final rule. A complete set ofupdated installed generation capacity reduction impacts can be found in Appendix M ofthe TSD. 2. Reliability As stated inthe July 25 SNOPR, DOE has considered as a benefitthe potential ofthe proposed standards to improve the reliability ofthe electric generation and distribution system by reducing the need for installed generation capacity. See July 25 SNOPR, 66 FR 38841. Several comments, while not disputing DOE's conclusion that air conditioner standards would improve electric system reliability, argued that the potential for improving reliability would be reduced by going forward with the proposed standards (12 SEER) instead ofthose standards issued inthe January 22 final rule (13 SEER). (ACEEE, No. 284 at p. 2; NRDC, No. 250 at p. 23; NEEP, No. 273 at p. 1; ASE, No. 282 at p. 2; CEC,No. 263 at p. 1; National Association of Regulatory Utility Commissioners (NARUC), No. 260 at p. 2). Southern Company, which states thatraising the standard from 12 to 13 SEERwill have minimal effect onpeak demand growth, believes this efficiency increase will have even less effect

on reliability, because thereis nota direct relationship betweenpeak demand growth and reduced electric system reliability. The Southern Company claims that the reduction in peak demand from 91

### EE-RM/STD-98-440- 3 63 higher efficiency standards is so long-term asto have nobearing on 'currenltproblems. It is entirely possible that the higher efficiency levels could exacerbate a supply glut in the regions now experiencing shortages ten to fifteen years from now. (Southern Company, No. 257 at p. 3). For different reasons, Mercatus Center also argues that higher efficiency standards would not improve and could possiblyreduce electric system reliability. As stated in their arguments pertaining to peak demand impacts, they believe higher standards could lead to increased purchases ofairconditioning products due their lower operating costs. During periods ofpeak demand thiscould lead to an overall increase in air-conditioning. The resulting increase in peak demand heightens the risk ofblackouts. (Mercatus Center, No. 242 at pp. 9-10). DOE agrees withthe assertion ofthe Southern Company that the primary effects ofthe proposed efficiency standards are so long term (more than 10 years in the future) that they are very unlikely to have any significant effect on electric system reliability. While DOE still believes that near term improvements in energy efficiency can help improve the reliability ofsystems that now have inadequate generating or transmission capacity (e.g., California), the primary effect ofenergy efficiency standards is well beyond the 3-10 year planning horizon ofmost electric systems. This
means that long term electric system reliability is determined primarily by how well system planners (generators, utilities, regulators) anticipate future loads, notby how large those loads will be. DOE knows ofno analysis which has found a correlation between system load factor and system reliability over the long term. Nor is DOE aware ofany analysis that found a correlation between the long term rate ofgrowth ofelectricity demand and system reliability. Higher efficiency standards for central air conditioners and heat pumps are expected to reduce significantly the peak loads ofelectric systems in the future, thus enabling a reduction in 92 "1 EE-RM/STD-98-440- 

## 36'3 If higher efficiency standards is so long-tenn as to have no'bearing on'currerttproblems. It is entirely possible that the higher efficiency levels could exacerbate a supply glut in the regions now experiencing shortages ten to fifteen years from now. (Southern Company, No. 257 at p. 3). For different reasons, Mercatus Center also argues that higher efficiency standards would not improve and could possibly reduce electric system reliability. As stated in their arguments pertainingto peak demand impacts, they believe higher standards could lead to increased purchases ofairconditioning products due their lower operating costs. During periods ofpeak demand this could lead to an overall increase in air-conditioning. The resulting increase in peak demand heightens the risk ofblackouts. (Mercatus Center, No. 242 at pp. 9-10). DOE agrees with the assertion ofthe Southern Company that the primary effects ofthe proposed efficiency standards are so long tenn (more than 10 years in the future) that they are very unlikely to have any significant effect on electric system reliability. While DOE still believes that
near tenn improvements in energy efficiency can help improve the reliability ofsystems that now have inadequate generating ortransmission capacity (e.g., California), the primary effect ofenergy efficiency standards is well beyond the 3-10 year planning horizon ofmost electric systems. This
means that long tenn electric system reliability is detennined primarily by how well system planners (generators, utilities, regulators) anticipate future loads, not by how large those loads will be. DOE knows ofno analysis which has found a correlationbetween system load factor and system reliability overthe long tenn. Noris DOE aware ofany analysis that found a correlation between the long tenn rate ofgrowth ofelectricity demand and system reliability. Higher efficiency standards for central air conditioners and heat pumps are expectedto reduce significantly the peak loads ofelectric systems in the future, thus enabling a reduction in 92

### EE-RM/STD-98-440- 3-3 the number ofnew power plants and transmission lines required to meet future demand. Electric system planners will take these efficiency improvements and other factors affecting future electricity demand into account when estimating how many new plants and transmission lines will be required to meet future demand, while maintaining or improving system reliability. Long term system reliability will be determined by how accurately system planners anticipate electricity demand and whether they take steps to ensure the addition ofsufficient electricity generating, transmission and distribution capacity to meet this expected demand, while maintaining adequate
reserve margins. For example, EIA's Annual Energy Outlook 2001 forecast that the cumulative requirements for additional electricity generating capacity by 2020 might range from roughly 350 gigawatts, assuming a low rate ofeconomic growth, to nearly 500 gigawatts, assuming a comparatively high rate ofeconomic growth. This compares to a difference ofapproximately 4 gigawatts between the estimated effects on capacity requirements ofa SEER 12 standard and those ofa SEER 13 standard. The range ofestimated requirements for additional electricity generating capacity that result from varying assumptions about the rate ofchange in end-use technology (in all sectors) and the rate ofeconomic growth is even greater. While these differences in future capacity requirements will have cost and environmental implications, there is
no indication that higher rates ofgrowth in electricity demand would cause a deterioration in system reliability, nor is there any indication that lower rates ofgrowth would somehow ensure better planning by electric system generators, utilities and regulators. H. OtherIssues 1. Minimum EER Requirement Several comments were in support ofa minimum EER requirement to ensure more 93 .; ." 

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

# 303 • the number ofnewpowerplants and transmission'lines required to meet future demand. Electric system planners will take these efficiency improvements and other factors affecting future electricity demand into account when estimating how many newplants and transmission lines will be requiredto meet future demand, while maintaining orimproving system reliability. Long term system reliability will be determined by how accurately system planners anticipate electricity demand and whetherthey take stepsto ensure the addition ofsufficient electricity generating, transmission and distribution capacity to meet this expected demand, while maintaining adequate

.reserve margins. For example, EIA'sAnnual Energy Outlook 2001 forecast that the cumulative requirements for additional electricity generating capacity by 2020 might range from roughly 350 gigawatts, assuming a lowrate ofeconomic growth, to nearly 500 gigawatts, assuming a comparatively highrate ofeconomic growth. This comparesto a difference ofapproximately 4 gigawatts between the estimated effects on capacity requirements ofa SEER 12 standard and those ofa SEER 13 standard. The range ofestimated requirements for additional electricity generating capacity that result from varying assumptions about the rate ofchange in end-use technology (in all sectors) and the rate ofeconomic growth is even greater. 'While these differences in future capacity requirements will have cost and environmental implications, there is
no indication that higher rates ofgrowth in electricity demand would cause a deterioration in system reliability, nor is there any indication that lowerrates ofgrowth would somehowensure betterplanning by electric system generators, utilities and regulators. 

### H. OtherIssues 1. Minimum EER Requirement Several comments were in support ofa minimum EER requirement to ensure more 

### 93

### EE-RM/STD-98-440- 03 efficient operation at high outdoor temperatures during periods when electricity use by air conditioners is at its peak. (ACEEE, No. 284 at p.3; Austin Energy, No. 243 at p. 1; PG&E, No.. 274 at p. 1). NARUC passed a resolution in July, 2000, urging DOE to'raise the standard by 30 percent (i.e., to 13 SEER) with a minimum peak efficiency performance requirement. (NARUC, No. 260 at p. 2). NEEP also supports a standard ofat least 13 SEER with a corresponding minimum EER of 11.6. (NEEP, No. 273 at p. 2). NRDC believes that DOE cannot set a standard at the highest level that is technologically feasible and economically justified ifit does not include in that standard a minimum EER requirement. NRDC adds that this recommendation does not
mean that EER would drop as SEER increases; it simply reflects NRDC's concern that EER might not rise as quickly without a separate regulation than it would with one. (NRDC, No. 250 at p.32). York and Southern Company are both opposed to a minimum EER requirement. York asserts that an EER standard could be counter-productive by discouraging variable speed and modulating equipment, which could save consumers substantial amounts ofmoney over the cooling season. (York, No. 270 at p. 4). Southern Company believes that, regardless ofcosteffectiveness, DOE does not possess regulatory authority to specify performance measures necessary to insure cost savings to consumers (SEER) and peak demand benefits to electricity suppliers (EER). (Southern Company, No. 257 at p. 4). As stated in the January 22 final rule, DOE is still convinced that the stringent physical relationship between EER and SEER in equipment rated through the adopted standard of 12 SEER, which is comprised exclusively ofnon-modulating equipment, will remain intact for the foreseeable future. Thus, there isno strong need for a minimum EER requirement in addition to a 94 

### EE-RM/STD-9S-440"

### 3 0

### .3 efficient operation at high outdoortemperatures during periods when·electricity use by air conditioners is at its peak. (ACEEE, No. 284 at p.3; Austin Energy, No. 243 at p. 1; PG&E, No
.. 274 at p. 1). NARUC passed a resolution in July, 2000, urging DOE to·raise the standard by 30 percent (i.e., to 13 SEER) with a minimum peak efficiency performance requirement. (NARUC, No. 260 at p. 2). NEEP also supports a standard ofat least 13 SEERwith a corresponding minimum EER of 11.6. (NEEP, No. 273 at p. 2). NRDC believes that DOE cannot set a standard at the highest level that is technologically feasible and economicallyjustifiedifit does not include in that standard a minimum EER requirement. NRDC adds that this recommendation does not
mean that EER would drop as SEER increases; it simply reflects NRDC's concern that EER might not rise as quickly without a separate regulation than it would with one. (NRDC, No. 250 at p.32). York and Southern Company are both opposedto a minimum EER requirement. York asserts that an EER standard could be counter-productive by discouraging variable speed and modulating equipment, which could save consumers substantial amounts ofmoney over the cooling season. (York, No. 270 at p. 4). Southern Company believes that, regardless ofcosteffectiveness, DOE does not possess regulatory authority to specify performance measures necessary to insure cost savings to consumers (SEER) and peak demand benefits to electricity suppliers (EER). (Southern Company, No. 257 at p. 4). As stated in the January 22 final rule, DOE is still convinced that the stringent physical relationship between EER and SEERin equipment rated through the adopted standard of 12 SEER, which is comprised exclusively ofnon-modulating equipment, will remain intact for the foreseeable future. Thus, thereis no strong need for a minimum EER requirement in addition to a 94

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

# 303 minimum SEER standard. See January 22 final rule, 66 FR 7183. With regard tothe use ofvariable speed or modulating technologies, even ifthese technologies eventually predominate, and thereby reduce EERs intypical equipment, they would still reduce peak demand compared to today's 10 SEER baseline equipment. Furthermore, because variable speed and modulating equipment mitigate the cyclic losses that are due to widespread over sizing, the aggregated peak demand ofa group ofmodulating air conditioners with 'ower EERs will likely be lower than that ofa similar group ofnon-modulating air :onditioners withhigher EERs at the same SEER level. Also, utilities have the opportunity with modulating equipment to offer customers the option to allow the utility to "lock" the equipment into low-:apacity operation in return for a lower electricity price. Although DOE is interested in reducing peak demand, the primary purpose ofappliance efficiency standards is to save energy. An EER standard could be counterproductive by discouraging variable speed and modulation, which can save substantial amounts ofenergy over the cooling season while providing consumers with additional benefits not found in single speed and non-modulating equipment. Finally, although DOE believes that EPCA permits adoption ofan EER standard, for the foregoing reasons, we do not believe that the Act requires or suggests that we establish such a standard under the circumstances here. Given the adopted standard levels, a national EER standard is both unnecessary and undesirable. Most benefits accruing from an EER standard will likely accrue from the SEER standards alone, without the associated burdens on manufacturers and the disincentives to apply energy-saving modulating technologies. Therefore, we have not adopted an EER standard inthis rule. 95

## EE.RM/STD.98-4~O_j 

# 03 minimum SEER standard. See January 22 final rule, 66 FR 7183. With regard tothe use ofvariable speed ormodulating technologies, even ifthese technologies eventually predominate, and thereby reduce EERs intypical equipment, they would still reduce peak demand compared to today's 10 SEERbaseline equipment. Furthermore, becausevariable speed and modulating equipmentmitigate the cyclic losses that are due to widespread over sizing, the aggregated peak demand ofa group ofmodulating airconditioners with 'owerEERs will likely be lowerthan that ofa similar group ofnon-modulating air**,~onditioners** with higher EERs at the same SEER level. Also, utilities have the opportunity with modula1ing equipmentto offer customers the optionto allowthe utility to "lock"the equipment into low--:apacity operation inreturn for a lower electricity price. Although DOE is interested in reducing peak demand, the primary purpose ofappliance efficiency standards is to save energy. AnEER standard could be counterproductive by discouraging variable speed and modulation, which can save substantial amounts ofenergy over the cooling season while providing consumers with additional benefits not found in single speed and non-modulating equipment. Finally, although DOEbelieves that EPCA permits adoption ofan EER standard, for the foregoing reasons, we do not believe that the Act requires or suggests that we establish such a standard underthe circumstances here. Given the adopted standard levels, a national EER standard is both unnecessary and undesirable. Most benefits accruing from an EER standard will likely accrue from the SEER standards alone, without the associated burdens on manufacturers and the disincentives to apply energy-saving modulating technologies. Therefore, we have not adopted an EER standard in this rule. 95

### 2. TXV Requirement EE"RM/STD-98-440-30 3 ACEEE and PG&E were both in support ofa prescriptive requirement for adaptive expansion devices such as thermostatic expansion valves (TXV). (ACEEE, No. 284 atp. 3; PG&E, No. 274 atp. 1). NEEP was more expansive on the topic by stating that the evidence in the record supports a TXV requirement. NEEP claims that TXVs provide additional efficiency benefits, over and above the benefits captured in the SEER rating procedure. They assert that central air conditioners with TXVs suffer lower efficiency degradation when a unit is improperly installed. The result is that TXVs canprovide 12percent energy savings over and above the energy savings associated with increasing SEERs. (NEEP, No. 273 at pp. 2,4). York agrees with DOE's decision in the both the January 22 final rule and the July 25 SNOPR not to impose a TXV requirement. York claims that imposing a TXV requirement in this rule would circumvent the test procedure. Also, it asserts that key data for evaluating the impacts ofTXVs on system performance have not been thoroughly reviewed by all interested parties. (York, No. 270 at p. 4). As stated in the January 22 final rule, a performance-based approach is also our preference and is certainly in the spirit ofEPCA. See 66 FR 7183-7184. As such, the SEER test procedure, not a TXV requirement, appears to be the most appropriate vehicle for assuring that an equipment's efficiency rating is based on its performance characteristics. In fact, TXVs already receive credit in the test procedure because oftheir superior cyclic performance. DOE isnot eager to circumvent the test procedure, particularly when the key data either are not available or have not been thoroughly reviewed by all interested parties. That said, DOE favors a SEER test procedure that fairly evaluates equipment performance under conditions that represent those 96 2. TXV Requirement 

### EE-RM/STD-98-440-3D

# 3 ACEEE and PG&E were both in support-ofa prescriptive requirement for adaptive expansion devices such asthermostatic expansion valves (TXV). (ACEEE, No. 284 atp. 3; PG&E, No. 274 atp. 1). NEEP was more expansive on the topic by stating that the evidence in the record supports a TXV requirement. NEEP claims thatTXVs provide additional efficiency benefits, over and above the benefits captured in the SEERrating procedure. They assert that central air c(Jnditioners with TXVs suffer lower efficiency degradation when a unit is improperly installed. TI,e result is that TXVs canprovide 12 percent energy savings over and above the energy savinf"s associated with increasing SEERs. (NEEP,No. 273 at pp. 2,4). York agrees with DOE'sdecision in the both the January 22 final rule and the July 25 SNOPRnot to im
.. 10se a TXV requirement. York claims that imposing a TXV requirement in this rule would circumvent the test procedure. Also, it asserts that key data for evaluating the impacts

.ofTXVs on system performance have not been thoroughly reviewed by all interested parties.

(York, No. 270 at p. 4). As stated in the January 22 final rule, aperformance-based approach is also ourpreference and is certainly in the spirit ofEPCA. See 66 FR7183-7184. As such, the SEERtest procedure, not a TXV requirement, appears to be the most appropriate vehicle for assuring that an equipment's efficiency rating is based on its performance characteristics. In fact, TXVs already receive credit in the test procedure because oftheir superior cyclic performance. DOE is not eager to circumvent the test procedure, particularly when the key data either are not available orhave not beenthoroughly reviewed by all interested parties. That said, DOE favors a SEERtest procedure that fairly evaluates equipmentperformance under conditionsthat represent those
96

### EE-RM/STD-98-440-3 

## 03 encountered inthe field. DOE prefers to encourage correct charging or proper airflowbut recognizes that practical barriers exist. Although no immediate action will be taken to address field equipment performance in the test procedure currently under revision, attempts may be made in future test procedure revisions to evaluate whether the SEER test procedure can and shouldbe amended to better reflect equipment performance under improper charge or airflow. In sum, this rulemaking does not adopt a TXV requirement. Any alterations in the SEER test procedure further to encoulage the use ofTXVs may be undertaken in a separate rulemaking process afterproposed revisions to the testprocedure have been finalized. We also encourage parties interested in encouraging the broader application ofTXVs to pursue other avenues. These include voluntary programs like Erergy Star, tax incentives, and other state and local initiatives, which can all be tied to the presence ofa device like a TXV. States also have the opportunity to apply to us for an exemption from preemption that would allow them to implement their own requirements based on their own unique circumstances. 3. State Exemption from Final Rule The Council ofState Governments, Eastern Regional Conference (ERC) states that ifDOE fails to implement a 13 SEER standard, then ERC member States will seek a waiver from the federal standard and implement the higher standard atthe state level, as the States ofCalifornia and Oregon are currently doing. ERC goes on to quote 42 U.S. Code Section 6297(d) "Waiver of Federal Preemption" where it states that "Any state...which provides for any energy conservation standard for any type ofcovered product for which there is a Federal energy conservation standard...may file apetition with the Secretary (ofEnergy) requesting that such State regulation become effective with respect to such covered product." (ERC, No. 241-JJ at p. 1). 97 EE-RM/STD-98-440-

# 3 

# 03 encountered 

### in the field. DOEprefers to encourage correct charging orproper airflow but recognizes thatpractical barriers exist. Although no immediate action will be taken to address field equipmentperformance in thetest procedure currently underrevision, attempts may be made in future testprocedure revisions to evaluate whether the SEER test procedure can and should be amended to betterreflect equipment performance under improper charge or airflow. In sum, this rulemaking dves not adopt a TXV requirement. Any alterations in the SEER test procedure further to encoulage the use ofTXVs may be undertaken in a separate rulemaking process afterproposed rev.isions to the test procedure have been finalized. We also encourage parties interested in encour.aging the broader application ofTXVs to pursue other avenues.. These include voluntary programs like Er;ergy Star, tax incentives, and other state and local initiatives, which can all be tied to the presenc(! ofa device like a TXV. States also have the opportunity to apply to us for an exemption from preemptionthat would allow them to implementtheir own

.requirements based ontheir own unique circumstances. 

### 3. State Exemption from Final Rule The Council ofState Governments, Eastern Regional Conference (ERC) states that ifDOE fails to implement a 13 SEER standard, then ERC member States will seek a waiver from the federal standard and implement the higher standard at the state level, 

### as the States ofCalifornia and Oregon are currently doing. ERC goes on to quote 42 U.S. Code Section 6297(d) "Waiver of Federal Preemption" where it states that "Any state...whichprovides for any energy conservation standard for any type ofcovered product for which there is a Federal energy conservation standard
...may file a petition with the Secretary (ofEnergy) requesting that such State regulation become effective withrespect to such covered product." (ERC, No. 241-JJ at p. 1).
97

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

## 30 DOE will promptly act upon any petition for waiver that may be submitted by a State pursuant to section 327(d) ofEPCA (42 U.S.C. 6297(d)). Section 327(d) provides that DOE must prescribe a rule granting a waiver from Federal preemption ifthe State establishes by a preponderance ofthe evidence that a State regulation is needed to meet "unusual and compelling State or local energy or water interests," as that phrase is defined by the statute (42 U.S.C. 6297(d)(1)(B)). Section 327(d) further provides that DOE may not grant a waiver ifinterested persons establish by a preponderance (f the evidence that the State regulation would significantly burden manufacturing, marketing, distlibuti on, sale, or servicing ofthe covered product on a national basis (42 U.S.C. 6297(d)(3)). Finally. section 327(d) establishes the timetable and procedure that mustbe followed for acting upo: petitions for waiver from Federal preemption. 4. Effective Date DOE received written and oral comments with regard to DOE's proposed effective date (i.e., the date when the covered products must comply with the new standards for the proposed amended standards contained in the July 25 SNOPR). In written comments, NRDC notes that the proposed effective date in the July 25 SNOPR is approximately six months later than that in the January 22 final rule, and claims that any delay in the effective date ofnew standards would reduce their benefits. NRDC adds that section 325(d) ofEPCA (42 U.S.C. 6295(d)) does not require DOE to provide a five-year lead time for compliance by manufacturers after publication of
a final rule. (NRDC, No. 250 at p. 34). TNRCC recommends that rather than making the proposed standards effective in 2006, DOE should accelerate the effective date ofthe standards from the year 2006 to 2004, thereby providing improved energy efficiency and resultant air quality benefits as soon as reasonably practicable. (TNRCC, No. 286 at p. 2). Atthe public hearing on 98 EE-RM/STD-98-440 - 

# -303 DOE will promptly act upon any petition for waiverthat may be submitted by a State pursuant to section 327(d) ofEPCA (42 U.S.c. 6297(d». Section 327(d) provides that DOE must prescribe a rule granting a waiver from Federal preemption ifthe State establishes by a preponderance ofthe evidence that a State regulation is needed to meet "unusual and compelling State orlocal energy orwater interests," as that phrase is defined by the statute (42 U.S.C. 6297(d)(l)(B». Section 327(d) further providesthat DOE may not grant a waiver ifinterested persons establish by a preponderance 

### (fthe evidence that the State regulation would significantly

. burden manufacturing, marketing, dishibuti').1, sale, or servicing ofthe covered product on a national basis (42 U.S.C. 6297(d)(3». finally, section 327(d) establishes the timetable and procedure that must be followed for acting UpOl petitions for waiver from Federal preemption. 4. Effective Date DOEreceived written and oral comments with regard to DOE's proposed effective date (i.e., the date when the coveredproducts must comply with the new standards for the proposed amended standards contained in the July 25 SNOPR). In written comments, NRDC notes that the proposed effective date inthe July 25 SNOPRis approximately six months later than that in the January 22 final rule, and claims that any delay in the effective date ofnew standards would reduce theirbenefits. NRDC adds that section 325(d) ofEPCA (42 U.S.C. 6295(d» does not require DOE to provide a five-year lead time for compliance by manufacturers after publication of
a final rule. (NRDC, No. 250 at p. 34). TNRCC recommends that rather than making the proposed standards effective in 2006, DOE should accelerate the effective date ofthe standards from the year**200~** to 2004, thereby providing improved energy efficiency and resultant air quality benefits as soon as reasonably practicable. (TNRCC,No. 286 at p. 2). At the public hearing on 98

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

# 3

# 03 the July 25 SNOPR, representatives ofthe California Energy Commission, PG&E, and Goodman also urged DOE to establish an earlier effective date ifa 12 SEER standard was adopted. (Hearing Transcript, atpp. 142-144 and 164-165). In initial written comments, ARI stated a willingness to consent to the proposed 5-years-from-date-of-publication effective date for the proposed 12 SEER standard. (ARI, No. 259 at p. 36). In supplemental comments submitted afterthe close ofthe comment period, ARI responded tothe comments that requested an earlier effective date by stating that ARI would accept acompliance date ofJanuary 23, 2006, the same effective date as provided in the January 22 final rule (ARI, No. 289). ARI stated that any agreement on its part to
an earlier effective date should not be deemed as aprecedent by DOE or concession by ARI with respect to future rulemaking proceedings. Although section 325(d) ofEPCA does not specitically state that initial amended standards become applicable to the manufacture ofcovered products after acertain number ofyears elapse following publication ofa notice offinal rulemaking, itprovides a schedule ofspecific dates for the promulgation ofa final rule and ofspecific dates on which an initial amended SEER and an initial HSPF established by a final rule would apply to the manufacture ofnew central air conditioners and new central air conditioning heat pumps. In the past, in circumstances where DOE was unable to publish a final rule by a deadline date established by a statute with scheduled compliance dates, DOE has had apractice ofadjusting the statutorily scheduled date such a rule becomes enforceable to allow for the same amount oflead time as provided in the original statutory schedule. However, the application ofthis practice in any particular rulemaking is subject to public comment and to exceptions in special circumstances. See, e.g., 61 FR 10622, 10625 (March 14, 1996) (final rule establishing the Alternative Fuel Vehicle Acquisition Program 99 EE-RM/STD-98-440-

# -303 the July 25 SNOPR, representatives ofthe CaliforniaEnergy Commission, PG&E, and Goodman also urged DOE to establish an earlier effective date ifa 12 SEER standard was adopted. (Hearing Transcript, at pp. 142-144 and 164-165). In initial written comments, ARI stated a willingness to consent to theproposed 5-years-from-date-of-publication effective date for the proposed 12 SEER standard. (ARl, No. 259 atp. 36). In supplemental comments submitted afterthe close ofthe comment period, ARI responded to the comments that requ-;sted an earlier effective date by stating that ARl would accept a compliance date ofJanuc.TY 23, 2006, the same effective date as

.provided in the January 22 final rule (ARl, No. 289). ARl stated that any agreement on its partto
an earlier effective date should notbe deemed as a**pre,~edfr:t** by DOE orconcession by ARl with respect to future rulemaking proceedings. Although section 325(d) ofEPCA does not specitkalJy state that initial amended standards become applicable to the manufacture ofcovered products after a certain number ofyears elapse following publication ofa notice offinal rulemaking, it provides a schedule ofspecific dates for the promulgation ofa final rule and ofspecific dates on which an initial amended SEER and an initial HSPF established by a final rule would apply to the manufacture ofnew central air conditioners and new central air conditioningheatpumps. In the past, in circumstances where DOE was unable to publish a final rule by a deadline date established by a statute with scheduled compliance dates, DOE has had a practice ofadjusting the statutorily scheduled date such a rule becomes enforceable to allow for the same amount oflead time as provided in the original statutory schedule. However, the application ofthispractice in any particularrulemaking is subject to public comment and to exceptions in special circumstances. See, e.g., 61 FR 10622, 10625 (March 14, 1996) (final rule establishing the Alternative Fuel Vehicle Acquisition Program 99

### EE-RM/STD-98-440 -303 with a compliance schedule that varied from the statutory schedule established by the Energy Policy Act of 1992 and that was subject to case-by-case exceptions). In this rulemaking, all interested persons who have an interest in the date that the final rule becomes enforceable

- including representatives ofall ofthe manufacturers who would have to comply with that rule

- agree that the full amount oftime between date ofpublication and the dates on which the rule applies in the statutory schedule is not needed for central air conditioner and central air conditioning heat pump manufacturers to come into compliance vith a.

### 12 SEER standard and that four years would suffice. Moreover, if, as a result ofunforeseen circumstances, a particular manufacturer can show hardship, inequity, or unfair distributions ofburdens, the standard would be subject to case-by-case exception pursuant to the authority ofthe DOE Office ofHearing and Appeals under section 504 ofthe DOE Organization Act (42 U.S.C. 7194), as implemented at subpart B of 10 CFR part 1003. Finally, as other commenters have pointed out in arguments supporting retention ofJanuary 23, 2006, as the compliance date, the shortened lead time will provide approximately one year ofadditional energy and energy cost savings. On the basis ofthe foregoing, DOE has decided to fix January 23, 2006, as the date on which the amended standards set forth in today's final rule apply to the manufacture ofcentral air conditioners and central air conditioning heat pumps. 5. Environmental Impacts Several comments stated that there would be greater environmental benefits under a 13 SEER standard. (Goodman, No. 269 atp. 2; Austin Energy, No. 243 at p. 1; State ofConnecticut, No. 279 at p. 2; State ofMaine, 254 at pp.l-2). The Attorneys General from the States ofNew York and Massachusetts asserted that DOE's assessment ofenvironmental impact used the wrong100 EE-RM/STD-98-440 .-

# JD 

# 3 with a compliance schedule that varied from the statutory schedule established by the Energy Policy Act of 1992 and that was subject to case-by-case exceptions). In this rulemaking, all interestedpersons who have an interest in the date that the final rule becomes enforceable

- including representatives ofall ofthe manufacturers who would have to comply with that rule

- agree that the full amount oftime between date ofpublication and the dates on which the rule applies in the statutory schedule is not needed for central air conditioner and central air conditioning heatpump manufacturers to come into compliance Nith t. 12 SEER standard and that four years would suffice. Moreover, if, as a result ofunforeseen circumstances, aparticular manufacturer can show hardship, inequity, orunfair distributions ofburdens, the standard would be subject to case-by-case exception pursuant to the authority ofthe DOE Office ofHearing and Appeals under section 504 ofthe DOE Organization Act (42 U.S.C. 7194), as implemented at subpart B of 10 CFRpart 1003. Finally, as other commenters have pointed out in arguments supporting retention ofJanuary 23, 2006, as the compliance date, the shortened lead time will provide approximately oneyear ofadditional energy and energy cost savings. On the basis ofthe foregoing, DOE has decided to fix January 23, 2006, as the date on which the amended standards set forth in today's final rule apply to the manufacture ofcentral air conditioners and central air conditioning heat pumps. 5. Environmental Impacts Several comments stated that there would be greater environmental benefits under a 13 SEER standard. (Goodman, No. 269 at p. 2; Austin Energy, No. 243 at p. 1; State ofConnecticut, No. 279 at p. 2; State ofMaine, 254 at pp.1-2). The Attorneys General from the States ofNew York and Massachusetts assertedthat DOE's assessment ofenvironmental impact used the wrong' 100

### EE-RM/STD-98-440 - 303 "no action" scenario; in their view, the correct "no action" scenario or baseline for measuring impacts is the SEER 13 standard inthe January 22 rule (Attorneys General, No. 277 at p. 11). In addition to the carbon and NOx emissions, the Attorneys General statethat power plants, particularly coal-fired power plants, are also dominant sources ofmercury and particulate pollution nationwide. By ignoring these impacts ofits SNOPR, DOE, in their view, violated the National Environmental Policy Act (NEPA). (Attorneys General, No. 277 atpp. 14-15). DOE disagrees withthe comment that DOE failed to comply withNEI'A in proposing 12 SEER standards in the July 25 SNOPR. As previously discussed, DOE does not believe the standards inthe January 22 final rule constitute the baseline for assessing the impact oftoday's final rule because those standards never became effective. The correct baseline, and the one used for the "no action" alternative in the EA, are the currently effective NAECA standards. DOE's environmental assessment (EA) examined the environmental impacts ofall trial standard levels being considered. See Section VIII.A. ofthis Supplementary Information. All of the alternatives considered in DOE's analysis were found to have beneficial environmental impacts compared to the "no action" alternative. Under the "no-action" or base case alternative, the minimum efficiency requirements would remain at their current levels: acooling efficiency of 10 SEER for split system air conditioners and heat pumps, a cooling efficiency of9.7 SEER for single package system air conditioners and heat pumps, a heating efficiency of6.8 HSPF for split system heat pumps, and a heating efficiency of6.6 HSPF for single package system heat pumps. The primary focus ofthe EA is the effect ofalternative efficiency standards on air resources resulting from decreased emissions from fossil-fueled electricity generation. For each ofthe trial standard levels, DOE used the NEMS-BRS model to calculate total power sector emissions of 101 EE-RM/STD-98-440 - 

# 303 "no action" scenario; in theirview, the correct "no action" scenario orbaseline for measuring impacts is the SEER 13 standard inthe January 22 rule (Attorneys General, No. 277 atp. 11). In additiontothe carbon andNOx emissions,the Attorneys General statethatpowerplants, particularly coal-fired powerplants, are also dominant sources ofmercury andparticulate pollution nationwide. By ignoring these impacts ofits SNOPR, DOE, intheir view, violated the National Environmental Policy Act (NEPA). (Attorneys General, No. 277 at pp. 14-15). DOE disagrees withthe commentthat DOE failed to comply withNEl' A in proposing 12 SEERstandards in the July 25 SNOPR. As previously discussed, DOE does not**beli~ve** the standards inthe January 22 final rule constitute the baseline for assessing the impact oftoday's final rule because those standards never became effective. The correct baseline, and tht, one used for the "no action" alternative in the EA, are the currently effective NAECA standards. DOE's environmental assessment (EA) examined the environmental impacts ofall trial standard levels being considered. See Section VIlLA. ofthis Supplementary Information. All of the alternatives considered in DOE's analysis were found to have beneficial environmental impacts compared to the "no action" alternative. Underthe "no-action" or base case alternative, the minimum efficiency requirements would remain at their current levels: a cooling efficiency of 10 SEER for split system air conditioners and heat pumps, a cooling efficiency of9.7 SEER for single package system air conditioners and heatpumps, a heating efficiency of6.8 HSPF for split system heat pumps, and a heating efficiency of6.6 HSPF for single package system heat pumps. The primary focus ofthe EA is the effect ofalternative efficiency**st~dards** on air resources resulting from decreased emissions from fossil-fueled electricity generation. For each ofthe trial standard levels, DOE used the NEMS-BRS model to calculate total power sector emissions of
101

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

## 3J3 nitrogen oxide, sulfur dioxide, and carbon. As explained in Section VIII ofthis Supplementary Information, on the basis ofthe EA, DOE determined that the environmental effects associated with the standard levels in today's final rule are not significant. DOE has corrected an error that DOE discovered in the NEMS-BRS, the model used by DOE to estimate both peak power and power plant emission impacts due to appliance standards. As discussed earlier (see Peak Power), DOE conducted a comprehensive review ofthe end-use load shapes used by NEMS-BRS, not only for the residential sector and, specifically, the airconditioning end-use, but forthe commercial, industrial, and transportation sectors as well. Several problems were discovered with the load shapes and, as a result, an alternative set of sectoral end-use load shapes were assigned to NEMS-BRS. By implementing a new set of sectoral load shapes, NEMS-BRS estimates greater power plant emission impacts (in the form of reduced CO2 

### and NO, emissions) from increased central air conditioner and heat pump standards. Appendix M ofthe TSD includes an updated set ofpower plant emission impacts. The changes resulting from thisNEMS-BRS error correction do not affect DOE's finding ofno significant impact. 6. Employment Impacts With regard to the impact that amended central air conditioner and heat pump standards have on national employment, both ARI and Rheem are concerned that high efficiency standards

can lead tojob losses in the air-conditioning industry's manufacturing sector. Rheem states that fewer units will be sold due to the higher purchase prices associated with more efficient equipment. Fewer equipment sales will in turn reduce the need for personnel in manufacturing facilities and design groups. (Rheem, No. 248 at p. 3). ARI states that DOE's decision to issue 102 EE-RM/STD-98-440-

# J

# 03 nitrogen oxide, sulfur dioxide, and carbon. As explained in Section VIII ofthis Supplementary Information, onthe basis ofthe EA, DOE determined that the environmental effects associated with the standard levels in today's final rule are not significant. DOE hascorrected an error that DOE discovered in the NEMS-BRS, the model used by DOE to estimate both peak powerand powerplantemission impacts due to appliance standards. As discussed earlier (see Peak Power), DOE conducted a comprehensive review ofthe end-use load shapes used by NEMS-BRS, not only for the residential sector and, specifically, the aitconditioning end-use, but for the commercial, industrial, and tgmsportation sectors as well. Several problems were discovered withthe load shapes and, as a result, an alternative set of sectoral end-use load shapes were assigned to NEMS-BRS. By implementing a new set of sectoral load shapes, NEMS-BRS estimates greater powerplant emission impacts (in the form of reduced CO2 and NOxemissions) from increased central air conditioner and heat pump standards. Appendix M ofthe TSD includes an updated set ofpowerplant emission impacts. The changes resulting from this NEMS-BRS error correction do not affect DOE's finding ofno significant impact. 6. Employment Impacts With regard to the impact that amended central air conditioner and heat pump standards have on national employment, both ARI and Rheem are concerned that high efficiency standards

can lead tojob losses 

### in the air-conditioning industry'smanufacturing sector. Rheem states that fewer units will be sold due to the higherpurchase prices associated with more efficient equipment. Fewerequipment sales will in tumreduce the need for personnel in manufacturing facilities and design groups. (Rheem, No. 248 at p. 3). ARI states that DOE's decision to issue 102

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

# 3 5 13 SEER standards in its January 22 final rule was in part based on the fact that unemployment
was then at the lowest rate in 30years. Because the current state ofthe national economy is certainly worse than when DOE issued its January 22 final rule, ARI claims that 13 SEER standards would have a much worse impact on the air-conditioning industry than initially forecasted by DOE. In any case, ARI points out that DOE's analysis demonstrates that 12 SEER standards would have approximately 50 percent fewerjob losses compared to 13 SEER standards. ARI asserts that this difference injob losses is significant and demonstrates that the proposed 12 SEER standards are a much better choice. (ARI, No. 259 at pp. 11-12, 31-32). OOE has a much different perspective on DOE's employment impact analysis. OOE states that it is purely speculative to claim that there is a distinguishable difference between the impacts that 12 SEER and 13 SEER standards have on the national economy. The accuracy ofthe macroeconomic model used by DOE to estimate employment impacts does not allow for such a distinction. (OOE, No. 275 at pp. 3-4). As stated in the January 22 final rule, DOE estimated the impacts ofthe new standards on national labor demand using an input/output model ofthe U.S. economy. See 66 FR 7192. The model characterizes the interconnections between 35 economic sectors using data from the Bureau ofLabor Statistics. For some years after the new standards go into effect, new consumer expenditure on air conditioners and heat pumps each year outpaces their annual energy savings. This activity redirects expenditures into the manufacturing sector, which is less labor intensive than other sectors ofthe economy,'8 

### producing a gain of jobs in the manufacturing sector that is

'8 Bureau ofEconomic Analysis, RegionalMultipliers: A UserHandbookforthe RegionalInput-Output ModelingSystem (RIMS II) 

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

# 303 13 SEER standards in its January 22 final rule was in part based onthe fact that unemployment
was then at the lowest rate in 30years. Because the current state ofthe national economy is certainly worse than when DOE issued its January 22 final rule, ARI claims that 13 SEER standards would have a much worse impact on the air-conditioning industry than initially forecasted by DOE. In any case, ARI points out that DOE's analysis demonstrates that 12 SEER standards would have approximately 50 percent fewerjoblosses compared to 13 SEER standards. ARI asserts that this difference injob losses is significant and demonstrates that the proposed 12 SEER standards are a much better choice. (ARI, No. 259 at pp. 11-12,31-32). ODE has a much different perspective on DOE's employment impact analysis. ODE states that it is purely speculative to claim that there is a distinguishable difference between the impacts that 12 SEER and 13 SEER standards have on the national economy. The accuracy ofthe macroeconomic model used by DOE to estimate employment impacts does not allow for such a distinction. (ODE, No. 275 at pp. 3-4). As stated in the January 22 final rule, DOE estimated the impacts ofthe new standards on national labor demand using an input/output model ofthe U.S. economy. See 66 FR 7192. The model characterizes the interconnections between 35 economic sectors using data from the Bureau ofLabor Statistics. For some years afterthe new standards go into effect, new consumer expenditure on air conditioners and heat pumps each year outpaces their annual energy savings. This activity redirects expenditures into the manufacturing sector, which is less labor intensive than other sectors ofthe economy,J8 producing a gain of jobs inthe manufacturing sector that is

18 Bureau ofEconomic Analysis, RegionalMultipliers: A User Handbookfor the RegionalInput-Output Modeling System (RIMS 1/) 103

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

- 

### 303 less than the loss of jobs in other sectors ofthe economy. Also, a loss of jobs results in the utility sector due to its loss ofrevenues. As annual consumer energy savings begin to exceed annual new expenditures on air conditioners, eventually the new standards will produce a net gain in national employment. The increases or decreases in the net demand for labor in the economy estimated by the input/output model due to air conditioner and heat pumps standards are likely to be very small relative to total national employment. The following reasons were given in the January 22 final rule for the conclusion that any modest changes in employment were in doubt (66 FR 7192): * Unemployment is now at the lowest rate in 30 years. Ifunemployment remains very low during the period when the standards are put into effect, it is unlikely that the standards alone could result in any change in national employment levels; * Neither the BLS data nor the input-output model used by DOE include the quality or wage level ofthejobs. The losses or gains from any potential employment change may be offset if

job quality and pay also change; and * The net benefits or losses from potential employment changes are a result ofthe estimated net present value ofbenefits or losses likely to result from air conditioner and heat pump standards. It may not be appropriate to identify and consider separately any employment impacts beyond the calculation ofnet present value. Although, as noted by ARI, unemployment is no longer as low as it was at the time the January 22 final rule was issued, the average unemployment rate through October, 2001, (4.6 percent) is only slightly higher than the annual rates for 1998, 1999, and 2000 and still less than

104 EE-RM/STD-98-440 - 

# 3()

# 3 less than the loss of jobsin other sectors ofthe economy. Also, a loss of jobsresults in the utility sectordue to its loss ofrevenues. As annual consumerenergy savings begin to exceed annual new expenditures on air conditioners, eventually the new standards will produce a net gain in national employment. The increases or decreases in the net demand for labor in the economy estimated by the input/output model due to air conditioner and heat pumps standards are likely to be very small relative to total national employment. The following reasons were given in the January 22 final rule for the conclusion that any modest changes in employment were in doubt (66 FR 7192):
• Unemployment is now at the lowest rate in 30 years. Ifunemployment remains very low during the period when the standards are put into effect, it is unlikely that the standards alone could result in any change in national employment levels;
• . Neitherthe BLS data nor the input-output model used by DOE include the quality or wage level ofthejobs. The losses or gains from any potential employment change may be offset if

job quality and pay also change; and
• The net benefits or losses from potential employment changes are a result ofthe estimated net present value ofbenefits or losses likely to result from air conditioner and heat pump standards. Itmay not be appropriate to identify and consider separately any emp'Ioyment impacts beyond the calculation ofnet present value. Although, as noted by ARI, unemployment is no longer as low as it was at the time the January 22 final rule was issued, the average unemployment rate through October, 2001, (4.6 percent) is only slightly higher than the annual rates for 1998, 1999, and 2000 and still less than

104

### EE-RM/STD-98-440 - 03 the annual rates for all other years in the 1990's'9



### . Thus, after discounting the first concern cited above, and considering the other two legitimate concerns regarding the interpretation and use of the employment impacts analysis, DOE cannot conclude that the central air conditioner and heat pump standards issued in today's final rule are likely to result in appreciablejob losses to the nation. 7. Space-Constrained Products
a. Through-the-WallProducts All parties commenting on DOE's proposed standards for through-the-wall products supported theproposed standards

- 10.9 SEER and 7.1 HSPF for split system air conditioners and heat pumps and 10.6 SEER and 7.0 HSPF for single package air conditioners and heat pumps. (Austin Energy, No. 243 at p. 3; OOE, No. 275 at p. 4; Lennox, No. 272 atp. 3; ASE, No. 282 at p. 4; ACEEE, No. 284 at pp. 13-14). Thus, DOE is adopting as minimum efficiency standards forthe through-the-wall products the standards proposed in the July 25 SNOPR. b. SmallDuct,High VelocitySystems DOE received information inthe rulemaking that indicated that the special characteristics ofsmall duct, high velocity (SDHV) air conditioner and heat pump systems make it unlikely such systems could meet the 12 SEER/7.4 HSPF standard established for conventional products. Spacepak, Unico, and ARI all support the creation ofa separate product class for SDHV systems and the development oftechnologically feasible and economicallyjustified

19 U.S. Department ofLabor-Bureau ofLabor Statistics (BLS), LaborForceStatistics from the Current Population Survey. BLS website <http://stats.bls.gov:80/cps/home.htm> 

### 105 

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

### j 

# 03 the annual rates for all otheryears inthe 1990'SI9. Thus, after discounting the first concern cited above, and considering the other two legitimate concerns regarding the interpretation and use of the employmentimpacts analysis, DOE cannot conclude that the central air conditioner and heat pump standards issued in today's final rule are likely to result in appreciablejob losses to the nation. 7. Space-Constrained Products


### a. Through-the-Wall Products AU parties commenting on DOE'sproposed standards for through-the-wal1 products supported the proposed standards -10.9 SEER and 7.1 HSPF for split system air conditioners and heat pumps and 10.6 SEER and 7.0 HSPF for single package air conditioners and heat pumps. (Austin Energy, No. 243 at p. 3; OOE, No. 275 at p. 4; Lennox,**N~.** 272 at p. 3; ASE, No. 282 at p. 4; ACEEE, No. 284 at pp. 13-14). Thus, DOE is adopting as minimum efficiency standards for the through-the-wall products the standards proposed in the July 25 SNOPR. b. Small Duct, High Velocity Systems DOEreceived information in the rulemaking that indicated that the special characteristics ofsmall duct, high velocity (SDHV) air conditioner and heat pump systems make it unlikely such systems could meet the 12 SEERJ7.4 HSPF standard established for conventional products. Spacepak, Unico, and ARI all supportthe creation ofa separate product class for SDHV systems and the development oftechnologically feasible and economicallyjustified

19 U.S. Department ofLabor-Bureau ofLabor Statistics (BLS), LaborForce Statistics/rom the Current Population Survey. BLS website <http://stats.bls.gov:80/cps/home.htm> 105

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

## 3 

## 5 standards for thisproduct. Although all three comments are in agreement with regard to the establishment ofa new product class for SDHV systems, Unico and ARI are in disagreement over how these systems should be tested. While ARI recommends that no special consideration be given for SDHV systems and, therefore, no changes be made to the test procedures for central air conditioners and heat pumps, Unico proposes three options for amending the test procedure to rate SDHV systems. The three options include: (1) a coil-only test with a higher allowable coil pressure drop and use ofa default fan power; (2) coil and blower tested with a 1.2 inch minimum external static pressure; and (3) coil-only testing with existing coil pressure drop allowance and default fan power without mention ofthe blower. (Spacepak, No. 267 at p. 1; Unico, No. 251 at pp. 3-4; ARI, No. 259 atp. 35). While DOE agrees with public comments stating that these systems should not be subject to the standards set for conventional products, DOE does not currently have an analytical basis for setting a new standard for SDHV systems. DOE is currently in the process ofamending the test procedure for rating the performance ofcentral air conditioners and heat pumps and will take the above comments into consideration when determining the appropriate testing requirements for SDHV systems. DOE has started the research needed to propose amended standards for SDHV systems and it intends to initiate a rulemaking shortly for this product class. 8. Basis for HSPF Level ARI stated in its comments that ifa 12 SEER standard is adopted for central air conditioning heat pumps, the HSPF should be no higher than 7.3. ARI believes the HSPF should be based on an analysis ofthe SEER-HSPF relationships across equipment ofvarying capacity ratings. It faults DOE's analysis for relying on an analysis ofonly 3-ton equipment to determine 106 EE-RM/STD-98-440 - 

# 303 standards for this product. Although all three comments are in agreement with regard to the establishment ofa newproduct class for SDHV systems, Unico and ARI are in disagreement over how these systems should be tested. While ARI recommends that no special consideration be given for SDHV systems and, therefore, no changesbe made to the test procedures for central air conditioners and heat pumps, Unicoproposes three options for amending the test procedure to rate SDHV systems. The three options include: (1) a coil-only test with a higher allowable coil pressure drop and use ofa default fan power; (2) coil and blowertested with a 1.2 inch minimum external static pressure; and (3) coil-only testing with existing coil pressure drop allowance and default fan powerwithout mention ofthe blower. (Spacepak, No. 267 at p. 1; Unico, No. 251 at pp. 3-4; ARI, No. 259 at p. 35). While DOE agrees with public comments stating that these systems should not be subject to the standards set for conventional products, DOE does not currently have an analytical basis for setting a new standard for SDHV systems. DOE is currently in the process ofamending the test procedure for rating the performance ofcentral air conditioners and heat pumps and will take the above comments into consideration when determining the appropriate testing requirements for SDHV systems. DOE hasstarted the research needed to propose amended standards for SDHV systems and it intends to initiate a rulemaking shortly for this product class. 8. Basis for HSPF Level ARI stated in its comments that ifa 12 SEER standard is adopted for central air conditioning heatpumps, the HSPF should be nohigher than 7.3. ARI believes the HSPF should be based on an analysis ofthe SEER-HSPF relationships across equipment ofvarying capacity ratings. Itfaults DOE's analysis for relying on an analysis ofonly 3-ton equipmentto determine
106

### the HSPF. (ARI, No. 259 at p. 4). EE-RM/STD-98-440- 3-3 

### As DOE explained in the preamble to the January 22 final rule, DOE established the SEER-HSPF pairings in order to maintain the offset between the minimum SEER and the minimum HSPF in the current standards. Because heating energy is a large fraction oftotal heat pump energy consumption, DOE stated it would not relax the HSPF level in the absence ofsound evidence regarding the burdens that would be mitigated (66 FR 7184). DOE continues to think an HSPF of7.4 is the appropriate level for 12 SEER, and today adopts that level. DOE's decision is supported by data discussed in the TSD (Section 4.6.2.1) which shows that most models of equipment below 3-tons meet or exceed an HSPF of7.4, and almost a third ofmodels available below 20,000 BTU/hr meet or exceed an HSPF of7.4. 9. Non-Regulatory Approaches ARI, Carrier, and Mercatus Center contended that DOE did not adequately evaluate the national impacts ofnon-regulatory programs for improving the efficiency ofcentral air conditioners and heat pumps. ARI claimed that by combining several non-regulatory alternatives, such as consumer tax credits, consumer rebates and low-income subsidies, the amount ofenergy saved could increase to 3.5 quads while the net present value would remain relatively unchanged. (ARI, No. 259 at pp. 15-16). Carrier points out that DOE overlooked the energy saving benefits due to the proper installation and maintenance ofair-conditioning equipment. Carrier claims that the total energy savings from these actions far exceed those limited to increasing the SEER ofthe equipment. In stating the proposed 12 SEER standards represent an appropriate level for the entire nation, Carrier recognizes that there are some regions ofthe country that could benefit from higher efficiency for unique climate or electrical supply reasons. In these instances, government 107 the HSPF. (ARl, No. 259 at p. 4). EE-RM/STD-98-440 - 

## .303 As DOE explained in the preamble to the January 22 final rule, DOE established the SEER-HSPF pairings in orderto maintain the offset betweenthe minimum SEER and the minimum HSPF in the current standards. Because heating energy is a large fraction oftotal heat pump energy consumption, DOE stated it would not relax the HSPF level in the absence ofsound evidence regarding the burdens that would be mitigated (66 FR 7184). DOE continues to think an HSPF of7.4 is the appropriate level for 12 SEER, and today adopts that level. DOE's decision is supported by data discussed in the TSD (Section 4.6.2.1) which shows that most models of equipnentbelow 3-tons meet orexceed an HSPF of7.4, and almost a third ofmodels available below ::'0,000 BTU/hr meet or exceed an HSPF of7.4. 9. Non-Regulatory Approaches ARl, Carrier, and Mercatus Center contended that DOE did not adequately evaluate the national impacts ofnon-regulatory programs for improving the efficiency ofcentral air conditioners and heat pumps. ARl claimed thatby combining several non-regulatory alternatives, such as consumertax credits, consumer rebates and low-income subsidies, the amount ofenergy saved could increase to 3.5 quads while the net present value would remain relatively unchanged. (ARl, No. 259 at pp. 15-16). Carrierpoints out that DOE overlooked the energy saving benefits due to the proper installation and maintenance ofair-conditioning equipment. Carrier claims that the total energy savings from these actions far exceed those limited to increasing the SEER ofthe equipment. In stating the proposed 12 SEER standards represent an appropriate level for the entire nation, Carrier recognizes that there are some regions ofthe country that could benefit from higher efficiency for unique climate orelectrical supply reasons. In these instances, government 107

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

## 3 · agencies and utilities should provide incentives to encourage the use ofhigher efficiency equipment. (Carrier, No. 280 atp. 3). Mercatus Center states that DOE does not evaluate nonregulatory programs adequately because it assumes their effects rather than estimating them based
on any credible data or evidence. (Mercatus Center, No. 242 atp. 13). DOE disagrees with this comment. In determining the base case for the analysis ofthe highest efficiency standards that are technologically feasible and economicallyjustified (i.e., the energy cor sump'ion likely to occur in the absence ofstandards), DOE gave adequate consideration to all non-regulatory market forces likely to occur in the absence ofstandards. Additionally, the Regulatory Impact Analysis estimated thenational energy savings and net present value that w,)uld result from non-regulatory approaches including: (1)consumer product labeling, (2) public education, (3)prescriptive standards, (4) consumer tax credits, (5) manufacturer tax credits, (6) consumer rebates, (7)low income subsidies, (8)voluntary efficiency targets, and (9) mass government purchases. The analysis found that none ofthem would save an equivalent amount ofenergy as energy conservation standards. 10. Energy Policy Onthe issue ofenergy policy, several comments claimed that DOE's action of withdrawing the 13 SEER standards issued in the January 22 final rule is not consistent with the current Administration's own National Energy Policy. ASAP, ASE, CEC, and NRDC all note thatthe Administration calls for appliance standards as way to moderate growth in electricity demand and limitconsumer energy bills. (ASAP, No. 244 at p. 1; ASE, No. 282 at p. 2; CEC, No. 263 at p.2; NRDC, No. 250 atp. 28). NRDC also states that the relaxation ofthe 13 SEER standard is inconsistent with the obligations ofthe United States under the United Nations 108 EE·RM/STD-98-440- 

# 3 (J

# 3 . agencies and utilities shouldprovide incentives to encourage the use ofhigher efficiency equipment. (Carrier, No. 280 atp. 3). Mercatus Center states that DOE does not evaluate nonregulatory programs adequately because it assumes their effects rather than estimating them based

on any credible data orevidence. (Mercatus Center, No. 242 at p. 13). DOE disagrees with this comment. In detenniningthe base case for the analysis ofthe highest efficiency standards that are technologically feasible and economicallyjustified (i.e., the energy cor sump.'ion likely to occur in the absence ofstandards), DOE gave adequate consiaeration to a.'1 non-regulatory market forces likely to occur in the absence ofstandards. Additionally, the Regulatory Impact Analysis estimated the national energy savings and net present value that w,mld result from non-regulatory approaches including: (1) consumerproduct labeling, (2) public education, (3) prescriptive standards, (4) consumertax credits, (5) manufacturertax credits, (6) consumerrebates, (7) low income subsidies, (8) voluntary efficiency targets, and (9) mass government purchases. The analysis found that none ofthem would save an equivalent amount ofenergy as energy conservation standards. 10. Energy Policy On the issue ofenergy policy, several comments claimedthat DOE's action of withdrawing the 1 J SEER standards issued in the January 22 final rule is not consistent with the current Administration's ownNational Energy Policy. ASAP, ASE, CEC, and NRDC all note thatthe Administration calls for appliance standards as way to moderate growth in electricity demand and limit consumer energybills. (ASAP, No. 244 at p. 1; ASE, No. 282 at p. 2; CEC, No. 263 at p. 2; NRDC, No. 250 at p. 28). NRDC also states that the relaxation ofthe 13 SEER standard is inconsistent with the obligations ofthe United States under the UnitedNations 108

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

## 33. Framework Convention on Climate Change (UNFCCC), to which our country became a Party with the advice and consent ofthe Senate in 1992. (NRDC, No. 250 at pp. 29-30). DOE disagrees that its action to finalize 12 SEER standards for central air conditioners and heat pumps is inconsistent with either the Administration's National Energy Policy or with the United States' obligations under the UNFCCC. The 12 SEER standards being finalized today significantly increase the minimum efficiency requirements for central air conditioners and heat pumps. Thus, the policy to amend the standards is consistent with the Administration's call to use appliance standards as a methcd to moderate growth in electricity demand and limit consumer energy bills.

VII. Analytical Results and Conclusions A. Overview ofAnalyticalResults 1. General Although DOE reassessed the benefits and burdens ofthe trial standard levels in arriving at the determinations in today's rule, the underlying analyses are unchanged from those presented in the January 22 final rule except for additional analysis ofthrough-the-wall product classes included as Appendix L to the TSD. Briefly, DOE examined five standard levels. Table 3 presents the trial standards levels analyzed and the corresponding efficiency level for each class of product. Trial Standard Level 5 is the Max Tech Level for each class ofproduct. Trial Standard Level 4 was the one DOE adopted forthe standards set forth in the January 22 final rule. Trial Standard Level 2 is the one DOE today determines to be the maximum efficiency that is technologically feasible and economically justified. 109 EE-RM/STD-98-440_

# oD3 Framework Convention on Climate Change (UNFCCC), to which ourcountry became a Party with the advice and consent ofthe Senate in 1992. (NRDC, No. 250 at pp. 29-30). DOE disagrees that its action to fmalize 12 SEER standards for central air conditioners and heat pumps is inconsistent with eitherthe Administration'sNational Energy Policy or with the United States' obligations underthe UNFCCC. The 12 SEER standardsbeing finalized today significantly increase the minimum efficiency requirements for central air conditioners and heat pumps. Thus, the polic:.r to amend the standards is consistent with the Administration's call to use appliance standards as a methcd to moderate growth in electricity demand and limit consumer energy bills.



### VII. Analytical Results ami: Conclusions A. Overview of AnalyticalResults 1. General Although DOE reassessed the benefits and burdens ofthe trial standard levels in arriving at the detenninations in today'srule, the underlying analyses are unchanged from those presented in the January 22 final rule except for additional analysis ofthrough-the-wall product classes included as Appendix L to the TSD. Briefly, DOE examined five standard levels. Table 3 presents the trial standards levels analyzed and the corresponding efficiency level for each class of product. Trial Standard Level 5 is the Max Tech Level for each class ofproduct. Trial Standard Level 4 was the one DOE adopted for the standards set forth in the January 22 final rule. Trial Standard Level 2 is the one DOE today detennines to be the maximum efficiency that is technologically feasible and economicallyjustified. 109

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

# 3J3 Table 3: TrialStandards Levels for CentralAir Conditioners and Heat Pumps (SEER)
Trial Standard Split Air Packaged Air Split Heat Packaged Level Conditioners Conditioners Pumps Heat Pumps 1 11 11 11 11 2 12 12 12 12 3 12 12 13 13 4 13 13 13 13 5 18 18 18 18


### For each trial standard examined, several different scenarios were analyzed consisting of variations on: (1) electricity price and housing projections; (2) equipment efficiency distributions; (3) marmlfacturer cost estimates; and (4) socieial discount rate. Electricity price and housing projections were based on three different fcrecasts from the Energy Information Agency's 2000 Annual Energy Outlook (AEO): (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. DOE analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. See October 5, 2000 NOPR for an explanation ofthe three scenarios (65 FR 59596, notes 10 through 12 and accompanying text). Under the standard levels in today's rule, DOE believes that the NAECA scenario most closely represents the likeliest impact ofthe

new standards, as explained in Chapter 8 ofthe TSD. DOE analyzed two manufacturer cost scenarios: (1) based on reverse engineering estimates, and (2) based on ARI-provided mean cost estimates. For the reasons given in the preamble to the January 22 final rule (66 FR 7177-78), DOE expects manufacturer costs under the amended standards will lie closer to the estimates produced through DOE's reverse engineering analysis, which lie between ARI's minimum and 110 EE-RM/STD-98-440 - 

# J 

# 03 Table3: Trial StandardsLevels for CentralAirConditioners and Heat Pumps (SEER)
Trial Standard Split Air Packaged Air Split Heat Packaged Level Conditioners Conditioners Pumps
.Heat Pumps 1 11 11 11 11 2 12 12 12 12 3 12 12 13 13 4 13 13 13 13 5 18 18 18 18

For each trial standard examined, several different scenarios were analyzed consisting of variations on: (1) electricity price an6 housiug projections; (2) equipment efficiency distributions; (3) mar'ufacturer cost estimates; and (4) £Ocielal discount rate. Electricity price a..'1d housing projections were based on three different forpcasts from the Energy Information Agency's 2000 Annual Energy Outlook (AEO): (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. DOE analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. See October 5, 2000 NOPR for an explanation ofthe three scenari<;ls (65 FR 59596, notes 10 through 12 and accompanying text). Underthe standard levels in today's rule, DOE believesthat the NAECA scenario most closely represents the likeliest impact ofthe
new standards, as explained in Chapter 8 ofthe TSD. DOE analyzed two manufacturer cost
scenanos: (1) based onreverse engineering estimates, and (2) based on ARl-provided mean cost estimates. Forthe reasons given inthe preamble to the January 22 final rule (66 FR 7177-78), DOE expects manufacturer costs under the amended standards will lie closerto the estimates produced through DOE'sreverse engineering analysis, which lie between ARl's minimum and 110

### EE-RM/STD-98-440 - ARI's mean cost values. DOE assumed a societal discount rate of7 percent for calculating net present value (NPV). However, a 3 percent value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures ofCosts and Benefits and the Format ofAccounting Statements. 2. Through-the-Wall Products In response to comments on the October 5, 2000 NOPR, DOE conducted additional analysis on the cost and technical issues related to through-the-wall air conditioner and heat pump products. The analysis is described in detail in Appendix L ofthe TSD and is summarized here. DOE performed a design assessment on two split tirough-the-wall systems and one packaged through-the-wall system. All systems are designed primarily for the replacement market and fitthe physical definition ofthrough-the-wall equipment proposed in the October 5, 2000 NOPR and July 25 SNOPR. The design assessment sought to identify the cost and efficiency impacts ofemploying commonly applied techniques to improve efficiency including reduction of air leakage and improvement in airflow, utilizing more efficient compression and fan motors, and increasing heat exchanger surface area. Emerging technologies and modulating technologies were not considered since they are not likely to be applied in conventional baseline equipment. The cost estimation for the analysis was based on a modified version ofthe reverse engineering cost models developed as part ofthis rulemaking for conventional products. The perfonnance impacts ofemploying various design options were estimated utilizing a spreadsheet model populated with actual performance data and engineering guidelines. The analysis concluded that utilizing commonly applied technologies and designs, the most constrained through-the-wall split-system analysis could increase its SEER rating from 10.0
111 EE-RM/STD-98-440 - 

# 303 ARI'smean cost values. DOE assumed a societal discount rate of7percent for calculating net present value (NPV). However, a 3 percent value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures ofCosts and Benefits and the Format ofAccounting Statements. 2. Through-the-Wall Products In response to comments onthe October 5,2000l'!OPR, DOE conducted additional analysis on the cost and technical issues related to**throu~h-the-wall** air conditioner and heatpump products. The analysis is described in detail in Appendix L ofthe TSD and is summarized here. DOE performed a design assessment ontwo split tirrough-the-wall systems and one packaged through-the-wall system. All systems are designe.d primarily for the replacement market and fit the physical definition ofthrough-the-wall equipmem proposed in the October 5, 2000 NOPR and July 25 SNOPR. The design assessment sought to identify the cost and efficiency impacts ofemploying commonly applied techniques to improve efficiency including reduction of air leakage and improvement in airflow, utilizing more efficient compression and fan motors, and increasing heat exchanger surface area. Emerging technologies and modulating technologies were not considered since they are not likely to be applied in conventional baseline equipment. The cost estimation for the analysis was based on a modified version ofthe reverse engineering cost models developed as part ofthis rulemaking for conventional products. The perfonnance impacts ofemploying various design options were estimated utilizing a spreadsheet model populated with actual performance data and engineering guidelines. The analysis concluded that utilizing commonly applied technologies and designs, the most constrained through-the-wall split-system analysis could increase its SEER rating from 10.0 

### 111

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

# 303 SEER to as high as 11.4 SEER, and the packaged system analysis could increase its SEER rating from 9.7 SEER to 10.6 SEER. Employing all improvements would add $106 and $129 to the retail price ofthe equipment, respectively, comparable to the increases expected in conventional equipment moving to a 12 SEER standard. To explore the effects that more stringent standards for through-the-wall products would have on consumers, DOE performed a life-cycle cost analysis. The life-cycle cost analysis for through-the-wall consumers used a subset ofconsumers identified as living in multi-family dwellings, which are the predominate application forthrough-the.-wall products. In the July 25 SNOPR, DOE proposed, based on its analysis, a 10.9 SEER/7.1 HSPF standard for through-the-wall split systems and a 10.6 SEER/7.0 HSPF standard for through-thewall single package system products. After considering public comments, DOE today adopts those levels as final standards for through-the-wall products. 3. Small Duct, High Velocity Systems In response to comments on the July 25, 2001 SNOPR, DOE has determined that additional analysis on the cost and technical issues related to small duct, high velocity (SDHV) air conditioner and heat pump products are needed to determine appropriate minimum efficiency standards forthis class ofproduct. The analysis plan for establishing the manufacturing cost and efficiency relationship for SDHV systems has yet tobe developed. But the intention is to involve those manufacturers that produce these products (Spacepak and Unico) in the process to develop the cost and efficiency relationship. To explore the effects that more stringent standards for SDHV systems have on consumers, DOE intends to perform a life-cycle cost analysis. The life-cycle cost analysis for 

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

# 303. SEERto as high as 11.4 SEER, and the packaged system analysis could increase its SEERrating from 9.7 SEERto 10.6 SEER. Employing all improvements would add $106 and $129 to the retail price ofthe equipment, respectively, comparable to the increases expected in conventional equipment moving to a 12 SEER standard. To explore the effects that more stringent standards for through-the-wall products would have on consumers, DOE performed a life-cycle cost analysis. The life-cycle cost analysis for through-the-wall consumers used a subset ofconsumers identifled as ;iving in multi-family dwellings, which are the predominate application for**through-th\.~·**wall products. In the July 25 SNOPR, DOE proposed, based on its**analy.5L~,** a 1'1.9 SEERl7.l HSPF standard for through-the-wall split systems and a 10.6 SEERl7.0 HSPF standard for through-thewall single package system products. After considering public comments, DOE today adopts those levels as final standards for through-the-wall products. 3. Small Duct, High Velocity Systems Inresponse to comments onthe July 25, 2001 SNOPR, DOE has determined that additional analysis on the cost and technical issues related to small duct, high velocity (SDHV) air conditioner and heat pump products are needed to determine appropriate minimum efficiency standards for this class ofproduct. The analysis plan for establishing the manufacturing cost and efficiency relationship for SDHV systems has yetto be developed. But the intention is to involve those manufacturers that produce these products (Spacepak and Unico) in the process to develop the cost and efficiency relationship. To explore the effects that more stringent standards for SDHV systems have on consumers, DOE intends to perform a life-cycle cost analysis. The life-cycle cost analysis for
112

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

## J03 SDHV consumers will use a subset ofconsumers identified as probable candidates for the application ofSDHV products. Although DOE has concluded that SDHV systems warrant their own product class, it has yet to determine an appropriate minimum efficiency standard for them. Therefore, thisfinal rule provides that the NAECA-prescribed minimum efficiency standards covering all producttypes (e.g., 10 SEER for split system air conditioners) will remain applicable to SDHV systems. A separate rulemaking process will be conducted for SDHV systems inthe ne.r futule to establish appropriate minimum efficiency standards for this class ofproduct.

B. ConclusionsRegardingConventionalProducts EPCA specifies that any new or amended energy conservation standard for any type (or class) ofcovered product shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economically justified (42 U.S.C. 6295(o)(2)(A)). In determining whether a standard is economically justified, the Secretary must determine whether the benefits ofthe standard exceed itsburdens (42 U.S.C. 6295(o)(2)(B)(i)). The amended standard must "result in significant conservation ofenergy" (42 U.S.C. 6295(o)(3)(B)). In conducting its analysis, DOE considers the impacts ofstandards beginning with the Max Tech Level, i.e., Trial Standard Level 5inthis rulemaking. DOE then considers less efficient levels until itreaches the level whichis bothtechnologically feasible and economically justified. To aid the reader inthe discussion ofthe benefits and burdens ofthe trial standard levels, 113 EE-RM/STD-98-440 - 

## j 

# 03 SDHVconsumers will use a subset ofconsumers identified as probable candidates for the application ofSDHVproducts. AlthoughDOEhas concluded that SDHV systems warrant theirown product class, it has yetto determine an appropriate minimum efficiency standard for them. Therefore, this final rule provides that theNAECA-prescribed minimum efficiency standards covering all producttypes (e.g., 10 SEERfor split system airconditioners) will remain applicable to SDHV systems. A separate rulemaking process will be conducted for SDHV systems inthe netrfuture to establish appropriate minimum efficiency standards for this class ofproduct.



### B. Conclusions Regarding ConventionalProducts EPCA specifiesthat any newor amended energy conservation standard for any type (or class) ofcoveredproduct shall be designed to achieve the maximum improvement in energy efficiency whichthe Secretary determines istechnologically feasible and economicallyjustified (42 U.S.C. 6295(0)(2)(A)). In determining whethera standard is economicallyjustified, the Secretary must determine whetherthe benefits ofthe standard exceed its burdens (42 U.S.C. 6295(0)(2)(B)(i)). The amended standard must "resultin significant conservation ofenergy" (42 U.S.C. 6295(0)(3)(B)). In conducting its analysis, DOE considersthe impacts ofstandards beginning with the Max Tech Level, i.e., Trial StandardLevel 5 in this rulemaking. DOEthen considers less efficient levels until it reaches the level whichis both technologically feasible and economically justified. To aid the reader inthe discussion ofthe benefits and burdens ofthe trial standard levels, 

### 113

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

## -03 DOE includes a summary ofthe analysis results for all ofthe levels in Table 4.20 

### Table 4 presents
a summary ofquantitative analysis results for each trial standard level based on the assumptions DOE considers mostplausible. These include manufacturing cost estimates from the reverse engineering, an 18.4-year equipment lifetime with one compressor replacement at 14 years, and electricity prices based on the AEO2000 Reference Case.

2All cumulative effects that are not monetary are not discounted. Monetary effects are discounted to 1998 dollars. 

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

# 303 DOE includes a summary ofthe analysis results for all ofthe levels in Table 4.20 Table 4 presents
a summary ofquantitative analysis results for each trial standard level based on the assumptions DOE considers most plausible. These include manufacturing cost estimates from the reverse engineering, an 18.4-year equipment lifetime with one compressor replacement at 14 years, and electricity prices based onthe AE02000Reference Case.

20 All cumulative effects that are not monetary are not discounted. Monetary effects are discounted to 1998 dollars. 114

### EE-RM/STD-98-440- 303 Table 4: Summary of QuantitativeResults'

_ Trial Std I TrialStd 2 TrialStd 3 TrialStd 4 Trial Std 5 SEER levels for most products 11 12 1for CAC/ 3 13 for HP Primary Energy Saved (quads) 1.7 3.0 3.5 4.2 8.8 Generation Capacity Offset (GW) 4.4 8.7 10.1 12.6 21.9 NPV ($billion) 2 7% Discount Rate 2 2 | 1 (10) Industry Impacts (million $)2

Cumulative Change in Industry NPV (30) (159) (171) (303)

Differential impact between 75 238 261 429 Industry Sub-groups 3 75 2 38 1 429

Cumulative Regulatory Burden on IndCumulative Relry n (>509) (>638) (>650) (>782) Minimum net cash flow 62 31 18 (3) Life-Cycle Cost Savings ()4

Split AC 75 113 113 113 (137) Packaged AC 78 163 163 29 (276) Split HP 209 365 372 372 (41) Packaged HP 207 421 353 353 166 Equipment Price Increase ($)

Split AC 91 213 213 335 754 Packaged AC 89 158 158 425 859 Split HP 55 144 332 332 1039 Packaged Heat Pump 92 149 435 435 985 Fraction ofall Consumers with Net LCC Losses >2% (%)

Split AC 2 25 25 39 68 Packaged AC 1 99 52 73 Split HP 0 0 6 6 57 Packaged Heat Pump 0 0 12 12 48 Fraction ofLow Income Consumers with Net LCC Losses >2% (%)

Split AC 5 34 34 50 77 Packaged AC 2 14 14 61 80 Split HP 0 0 12 12 75 Packaged Heat Pump 0 0 20 20 66 'Parentheses indicate negative (-)values. Unless otherwise noted, Trial Standard Levels 1- 3refer tothe NAECA efficiency scenario, and Trial Standard Levels 4 and 5refer tothe Roll-up efficiency scenario. 2Not calculated at Trial Standard Level 5. 3The benefit accruing to the Higher Operating Cost subgroup compared to the LowerOperating Cost subgroup 4Negative values indicate LCC increases.



### In addition to the quantitative results, DOE also considers otherburdens and benefits that 115 EE-RM/STD-98-440- 

## 303 Table4: Summary ofQuantitativeResults I Trial Std 1 Trial Std 2 Trial Std 3 Trial Std 4 Trial Std 5 SEER levels for most products 11 12 12 forCACI 13 18 13 forHP Primary Energy Saved (quads) 1.7 3.0 3.5 4.2 S.8 Generation Capacity Offset (GW) 4.4 8.7 10.1 12.6 21.9 NPV ($billion) 7% Discount Rate 2 2 1 1 (10) Industry Impacts (million $)2

Cumulative Change in Industry (30) (159) (171) (303) 

# - NPV

Differential impact between 75 238 261 429 

# - Industry Sub-groups]

Cumulative Regulatory Burden on (>509) (>638) (>650) ·(>782) 

# - Industry

Minimum net cash flow 62 31 18 (3) 

## - Life-Cycle Cost Savings ($t

Split AC 75 II3 113 113 (137) Packaged AC 78 163 163 29 (276) Split HP 209 365 372 372 (41) Packaged HP 207 421 353 353 166 Equipment Price Increase ($)

Split AC 91 213 213 335 754 Packaged AC 89 158 ISS 425 859 SpJit HP 55 144 332 332 1039 Packaged Heat Pump 92 149 435 435 985 fraction ofall Consumers with Net LCC Losses >2% (%)

Split AC 2 25 25 39 68 Packaged AC I 9 9 52 73 Split HP 0 0 6 6 57 Packaged Heat Pump 0 0 12 12 48 Fraction ofLow Income Consumers with Net LCC Losses >2% (%)

Split AC 5 34 34 50 77 Packaged AC 2 14 14 61 80 Split HP 0 0 12 12 75 Packaged Heat Pump 0 0 20 20 66 I Parentheses mdlcate negative (-) values. Unless otherwise noted, Trial Standard Levels 1 - 3referto the NAECA effiCiency scenario, and Trial Standard Levels 4 and 5referto the Roll-up efficiency scenario. 2Not calculated at Trial Standard Level 5. 3The benefit accruing to the Higher Operating Cost subgroup compared to the Lower Operating Cost subgroup •Negative values indicate LeCincreases.

In addition tothe quantitativeresults, DOE also considers otherburdens and benefitsthat 

### 115

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

## 3 

## )3 might affect the economicjustification. The potential to improve the reliability ofthe electricity system is considered by some to be the major benefit that DOE had not quantified explicitly. In areas where the occurrence of blackouts (and brownouts) can be reduced through expansion ofsystem capacity, the economic value ofavoided blackouts associated with reductions in peak load cannot exceed the value ofthe avoided capacity expansion. That value is already captured in DOE's analysis as savings in
consumer utility bills. However, in areas that are unable to maintain adequate capacity reserves, the value ofavoided blackouts associated with reductions in peak demand often far exceed the normal costs ofcapacity expansion.2 

### DOE has reexamined claims that the energy efficiency standards under consideration could improve significantly electric system reliability over the long term. DOE also recognizes that the adopted standards could result in additional unquantifiable benefits and burdens. These include the avoidance ofenvironmental impacts associated with the siting ofsome powerplants, a possible increase in health problems caused by consumers foregoing air conditioner purchases, a possible reduction in the ability ofthe product to dehumidify, a possible lessening ofcompetition, and possible difficulty in installing the new baseline products into replacement applications. First DOE considered Trial Standard Level 5, the Max Tech Level for each offour classes ofproducts, representing uniform 18 SEER requirements. The manufacturing cost DOE assumes

21 For instance, ifcapacity-related blackouts cost a region $1billion, society would be willing to pay up to $1billion to prevent them. Ifthose blackouts can be prevented through either a capacity expansion or areduction in peak demand, and the new capacity would cost $100 million, the value ofthe reduction in peak demand can be no more than $100 million. Ifthe region is short on capacity and cannot add new capacity quickly, however, the same reduction in peak demand then can equal the value ofthe avoided blackout ($1 billion) since there is no feasible alternative. 

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

### ~ 

# 3D3 might affect the economicjustification. The potential to improve the reliability ofthe electricity system is considered by some to 'bethe majorbenefit that DOEhad not quantified explicitly. In areas where the occurrence of

blackouts (and brownouts) canbe reduced through expansion ofsystem capacity, the economic value ofavoided blackouts associated with reductions in peak load cannot exceed the value ofthe avoided capacity expansion. That value is already captured in DOE's analysis as savings in
consumerutility bills. However, in areas that are unable to maintain adequate capacity reserves, the value ofavoided blackouts associated with reductions in peak demand often far exceed the normal costs ofcapacity expansion.21 DOE has reexamined claimsthat the energy efficiency standards under consideration could improve significantly electric system reliability overthe long term. DOE also recognizes that the adopted standards could result in additional unquantifiable benefits and burdens. These include the avoidance ofenvirorunental impacts associated with the siting ofsome powerplants, a possible increase in health problems caused by consumers foregoing air conditionerpurchases, a possible reduction in the ability ofthe product to dehumidify, a possible lessening ofcompetition, and possible difficulty in installing the new baseline products into replacement applications. First DOE considered Trial Standard Level 5, the Max Tech Level for each offour classes ofproducts, representing uniform 18 SEER requirements. The manufacturing cost DOE assumes

21 For instance, ifcapacity-related blackouts cost a region $ I billion, society would be wiIIing to pay up to $1 billion to prevent them. Ifthose blackouts can be preventedthrough either a capacity expansion or a reduction in peak demand, and the 'new capacity would cost $JOOmillion, the value ofthe reduction in peak demand can be no more than $100 million. Ifthe region is short on capacity and cannot add new capacity quickly, however, the same reduction in peak demand then can equal the value ofthe avoided blackout ($1 billion) since there is no feasible alternative. 

### 116

### EE-RM/STD-98-440 - 30) for Trial Standard Level 5 is equal to the cost of 15 SEER equipment, rather than the cost of 18 SEER equipment, since manufacturer cost data were not available for the 18 SEER efficiency levels. Because ofthat assumption, DOE expects that its estimate ofthe cost and price ofthe product at Trial Standard Level 5 are understated. Trial Standard Level 5 would likely save 8.8 quads ofenergy between 2006 and 2030 which DOE considers significant. The energy savings through 2020 would result in the avoidance ofapproximately 22 gigawatts (GW) ofinstalled generation capacity in 2020. For comparison, the generating capacity is equivalent to roughly 55 large, 400 megawatt, power plants, and reduced emissions would range up to 73 Mt ofcarbon equivalent and up to 279 thousand metric tons (kt) ofNO,. 22 

### Furthermore, for the nation as a whole, Trial Standard Level 5 is estimated to result in a net cost in excess of $10 billion. DOE did not calculate manufacturer impacts atthis trial standard level, determining based on preliminary evaluation that they would be severe and unacceptable. At Trial Standard Level 5, the average consumer would experience an increase in lifecycle cost. Compared to today's standards, purchasers ofsplit central air-conditioners, the predominate class ofcentral air conditioner with 65 percent ofthe sales ofcentral air conditioners and heat pumps, would most likely lose in excess of $137 over the life ofthe appliance. Purchasers ofsplit heat pumps, the predominant class ofheat pump, would most likely lose in
excess of $41. These life-cycle cost estimates represent lower bounds to the actual costs because they do not include the additional price the consumer would pay over the price ofa 15 SEER product, which would increase the life-cycle cost considerably. DOE concludes that at Trial Standard Level 5, the benefits ofenergy and energy cost

2Generating capacity, carbon, and NOx reductions are based on Roll-up efficiency scenario. 

### 117 

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

# 303 for Trial Standard Level 5 is equal to the cost of 15 SEER equipment, ratherthan the cost of 18 SEERequipment, since manufacturer cost data were not available for the 18 SEER efficiency levels. Because ofthat assumption, DOE expects that its estimate ofthe cost and price ofthe product at Trial Standard LevelS are understated. Trial Standard LevelS would likely save 8.8 quads ofenergy between 2006 and 2030 which DOE considers significant. The energy savings through 2020 would result in the avoidance ofapproximately 22 gigawatts (GW) ofinstalled generation capacity in 2020. For comparison, the generating capacity is equivalent to roughly 55 large, 400 megawatt, powerplants, and reduced emissions would range up to 73 Mt ofcarbon equivalent and upto 279 thousand metric tons (kt) ofNO/2 Furthermore, for the nation as a whole, Trial Standard LevelS is estimated to result in a net cost in excess of $10 billion. DOE did not calculate manufacturer impacts at this trial standard level, determining based on preliminary evaluation that they would be severe and unacceptable. At Trial Standard LevelS,the average consumer would experience an increase in lifecycle cost. Compared to today's standards, purchasers ofsplit central air-conditioners, the predominate class ofcentral air conditioner with 65 percent ofthe sales ofcentral air conditioners and heat pumps, would most likely lose in excess of $137 overthe life ofthe appliance. Purchasers ofsplitheatpumps, the predominant class ofheat pump, would most likely lose in
excess of $41. These life-cycle cost estimates represent lower bounds to the actual costs because they do not include the additional price the consumer would pay over the price ofa 15 SEER product, which would increase the life-cycle cost considerably. DOE concludesthat at Trial Standard Level 5, the benefits ofenergy and energy cost

22 Generating capacity, carbon, and NOxreductions are based on Roll-up efficiency scenario. 

### 117

### EE-RM/STD-98-440- 303 savings, and emission reductions would be outweighed by the negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, DOE has determined that Trial Standard Level 5, the Max Tech Level, is not economically justified. Next, DOE considered Trial Standard Level 4, the level that the previous Administration determined to be economically justified in the January 22 final rule. This level specifies 13 SEER equipment for all product classes. In considering Trial Standard Level 4, DOE assumed the Rollup efficiency scenario and reverse engineering cost estimates to be the most probable. Under the Roll-up scenario, equipment that in the base case was forecast to be less efficient than the trial standard level is assumed to move up to the standard level, and equipment forecasted to be at or above the trial standard level is assumed not to increase in efficiency. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable above Trial Standard Level 3 and the NAECA efficiency scenario most probable at Trial Standard Levels 1,2, and 3; see Section 7.2.2.5 ofthe TSD for the current efficiency distribution for eachproduct class and for the assumed efficiency distributions after new standards.) Primary energy savings between 2006 and 2030 is estimated to be 4.2 quads, which DOE considers significant. The estimated energy savings through 2020 would result in avoidance of approximately 12.6 GW in installed generating capacity in 2020. For comparison, the generating capacity is equivalent to avoiding the need for 32 large 400 megawatt power plants, and reduced emissions would range up to 33 Mt ofcarbon equivalent and up to I 1 1 kt ofN0,. 23 

### Trial Standard Level 4 would lower peak electricity demand compared to the base case. That would allow utility service areas to build less new capacity, with attendant environmental benefits.

23 Generating capacity, carbon, and NO, reductions arebased on Roll-up efficiency scenario. 

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

# 303 savings, and emission reductions would be outweighed by the negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, DOE has determined that Trial Standard Level 5, the Max Tech Level, is not economicallyjustified. Next, DOE considered Trial Standard Level 4, the level that the previous Administration determined to be economicallyjustifiedin the January 22 final rule. This level specifies 13 SEER equipment for all product classes. In consideringTrial Standard Level 4, DOE assumed the Rollup efficiency scenario and reverse engineering cost estimatesto be the mostprobable. Underthe Roll-up scenario, equipment that in the base case was forecast to be less efficient than the trial standard level is assumed to move up to the standard level, and equipment forecasted to be at or above the trial standard level is assumed not to increase in efficiency. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable above Trial Standard Level 3 and the NAECA efficiency scenario most probable at Trial Standard Levels 1, 2,**an~** 3; see Section 7.2.2.5 ofthe TSD for the current efficiency distribution for eachproduct class and for the assumed efficiency distributions after new standards.) Primary energy savings between 2006 and 2030 is estimatedto be 4.2 quads, which DOE considers significant. The estimated energy savings through 2020 would result in avoidance of approximately 12.6 GW in installed generating capacity in 2020. For comparison, the generating capacity is equivalent to avoiding the need for 32 large 400 megawatt powerplants, and reduced emissions would range up to 33 Mt ofcarbon equivalent and up to 111 kt ofNOx• 23 Triiil Standard Level 4 would lowerpeak electricity demand compared to the base case. That would allow utility service areas to build less new capacity, with attendant environmental benefits.

23 Generating capacity, carbon, and NO. reductions are based on Roll-up efficiency scenario. 118

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

### - 

# 03 A measure ofan efficiency standard's economic benefit to the nation is the increase in net present value, which is the difference intotal cost,both initial cost and discounted operating cost, between the base case (without a new standard ) and the case with anew standard. For Trial Standard Level 4, the increase in national net present value is estimated to be $1billion.24 

### Since DOE expects ihe Roll-up efficiency scenario to result from standards adopted at Trial Standard Level 4, the burdens ofTrial Standard Level 4 on manufacturers are likely tobe
severe. Not only does DOE expect the average loss in industry NPV to be around 20 percent, but 

## '.7impacts on most manufacturers would reach almost 30 percent. Their long term drop inreturn on

investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level K 

### could accelerate the consolidation trend, possibly resulting infewer choices for consumers and in a slowing ofthe pace ofinnovation well into the future. Furthermore, the cumulative impact on the industry ofall new Federal and State regulations is estimated to exceed $782 million. For Trial Standard level 4, the average purchaser ofa split system air conditioner, the predominant class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2571, an increase of$335. Lower utility bills from the energy savings would repay this increase in 11.3 years andproduce atotal saving with anet present value of$113 over the 18.4 year life of the product. The average purchaser ofa single package air conditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607rise to $3032, an increase of$425. Lower utility bills from the energy savings would repay this increase in 14.5 years and produce a total saving with anet present value of$29 over the 18.4 year life ofthe product.

24 Under the NAECA efficiency scenario, the increase in national net present value would be zero. 

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

# SO3 A measure ofanefficiency standard'seconomic benefitto the nation is the increase in net present value, which isthe difference intotal cost, both initial cost and discounted operating cost, between thebase case (without a new standard)and the case with a new standard. ForTrial Standard Level4,the increase in national netpresent value is estimatedto be $1 billion.24 Since DOEexpects the Roll-up efficiency scenario to result from standards adopted at Trial Standard Level 4, the burdens ofTrial Standard Level 4 onmanufacturers are likely to be
severe. Not only does DOE expectthe average loss in industry NPV to be around 20 percent, but 

# 'r

impacts on mostmanufacturers wouldreach almost 30percent. Theirlong term drop inreturn on ;nvestment and short term drop in cash flow suggest that standards adopted atTrial Standard



### .. 1 Level**~** could accelerate the consolidationtrend, possibly resulting in fewer choices for consumers and in a slowingofthe pace ofinnovation well into the future. Furthermore, the cumulative impact onthe industry ofall newFederal and State regulations is estimated to exceed $782 million. ForTrial Standard level 4, the average purchaser ofa split system air conditioner, the predominant class with 65 percent ofall shipments, would see the installedprice of$2236 rise to $2571, an increase of$335. Lowerutility bills from the energy savings would repay this increase in 11.3 years and produce a total saving with a netpresent value of$113 overthe 18.4 yearlife of the product. The average purchaser ofa singlepackage airconditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607 rise to $3032, an increase of$425. Lowerutility bills from the energy savings would repay this increase in 14.5 years and produce a total saving with a netpresent value of$29 overthe 18.4 year life ofthe product.

24 Underthe NAECA efficiency scenario, the increase in national net present value would be zero. 119

### EE-RM/STD-98-440- 3 3 The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from the energy savings would repay this increase in 6.4 years and produce a total saving with a netpresent value of$372 over the 18.4 year life ofthe product. The average purchaser ofa single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years andproduce a total saving with anet present value of$353 over the 18.4 year life ofthe product. While the average consumer purchasing a i3 SEER air conditioner or heat pump would experience a net saving over the lifetime ofthe product, a substantial fraction ofall households would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units. Thirty-nine percent ofthe households with split system air conditioners, 52 percent with single package air conditioners, 6 percent with split system heat pumps and 12 percent with single package heat pumps would experience a net cost. The percentage oflow-income consumers whowould experience net costs exceeding 2percent ofthe total life-cycle cost oftoday's baseline units is greater than that ofthe average household; 50 percent oflow-income households with split system air conditioners, 61 percent with single package air conditioners, 12 percent with split system heat pumps and 20 percent with single package heat pumps. Also, thepossibility that many consumers would incur substantial installation costs is great because 13 SEER equipment often will not fit inthe same space as current 10 SEER equipment. In light ofthe higher purchase cost increase experienced by all consumers and the percentage ofhouseholds that experience life-cycle cost increases, in particular low-income households, which experience life-cycle cost increases, consumer burdens 120 EE-RM/STD-98-440 - 

# 3

# 0.3 The average purchaser ofa split system heatpump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from the energy savings would repay this increase in 6.4 years and produce a total saving with a netpresentvalue of$372 over the 18.4 year life ofthe product. The average purchaser ofa singlepackage heat pump, which represents 4 percent ofall shipments, would see the average installedprice of$3599 rise to $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years and produce a total saving with a net present**valut~** of$353 overthe 18.4 year life ofthe product. While the average consumer purchasing a 13 SEBR air conditioner orheat pump would experience a net saving overthe lifetime ofthe produl-;t, a substantial fraction ofall households would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday'sbaseline units. Thirty-nine percent ofthe households with split system air conditioners, 52 percent with single package air conditioners, 6 percent with split system heat pumps and 12 percent with single package heat pumps would experience a net cost. The percentage oflow-income consumers who would experience net costs exceeding 2 percent ofthetotal life-cycle cost oftoday'sbaseline units is greater than that ofthe average household; 50 percent oflow-income households with split system air conditioners, 61 percent with single package air conditioners, 12 percent with split system heat pumps and 20 percent with single package heat pumps. Also, the possibility that many consumers would incur substantial installationcostsis greatbecause 13 SEERequipment often will not fit inthe same space as current 10 SEER equipment. In light ofthe higher purchase cost increase experienced by all consumers and the percentage ofhouseholds that experience life-cycle cost increases, in particular low-income households, which experience life-cycle cost increases, consumerburdens 120

### EE-RM/STD-98-440 - .0 3

are particularly acute under Trial Standard Level 4. DOE concludes that at Trial Standard Level 4, the benefits ofenergy savings, generating capacity and emission avoidance, and net benefit to the nation's consumers would be outweighed by the maldistribution ofconsumer benefits, the potential increase in installation costs for some
consumers related to installing potentially larger equipment, and the cost to manufacturers taking into account the cumulative regulatory burden. Trial Standard Level 4 introduces the serious
concern that prospective owners ofair conditioning heat pump systems would instead purchase less costly air conditioner resistance heater combinations because ofthe substantial purchase price differential between heat pump n md air conditioners. As discussed in the January 22 notice of final rulemaking (66 FR 7196), the energy savings from the more efficient heat pumps would be eliminated ifonly a small fraction ofheat pump owners (4 percent) switched to resistance heating. Those households residing in manufactured housing, which is often shipped from the factory without an air conditioning system but with a resistance furnace, might be inclined to simply add a lower cost air conditioner and retain the resistance furnace instead ofreplacing the resistance furnace with a heat pump. In short, the large financial burdens ofTrial Standard Level 4 are not outweighed by the expected financial benefits. Other potential burdens include possible health effects caused indirectly by foregone air conditioning purchases and possible lessening of competition. Consequently, DOE determines that Trial Standard Level 4 is not economically justified. Next, DOE considered Trial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEER equipment for heat pumps. In considering Trial Standard Level 3, DOE assumed the NAECA efficiency scenario and reverse engineering cost estimates tobe the 121 EE-RM/STD-98-440 - 

## jo

# 3

are particularly acute underTrial Standard Level 4. DOE concludes that atTrial Standard Level 4, the benefits ofenergy savings, generating capacity and emission avoidance, and net benefitto the nation's consumers would be outweighed by the maldistribution ofconsumerbenefits, thepotential increase in installation costs for some
consumersrelated to installing potentially larger equipment, and the cost to manufacturers taking into account the cumulative regulatory burden. Trial Standard Level 4 introduces the serious
concern that prospectiv(**own~'rs** ofairconditioning heat pump systems would instead purchase less costly air**conditionc.~r** resi!,1ilnce heater combinations because ofthe substantial purchase price differential between heat pump\! 'md air conditioners. As discussed in the January 22 notice of

;. final rulemaking (66 FR7196), the energy savings from the more efficient heat pumps would be eliminated ifonly a small fraction ofheat pump owners (4 percent) switched to resistance heating. Those households residing in manufactured housing, which is often shipped from the factory without an air conditioning system but with a resistance furnace, mightbe inclined to simply add a lower cost air conditioner and retain the resistance furnace instead ofreplacing the resistance furnace with a heatpump. In short, the large financial burdens ofTrial Standard Level 4 are not outweighed by the expected financial benefits. Otherpotential burdens include possible health effects caused indirectly by foregone air conditioning purchases and possible lessening of competition. Consequently, DOE determines that Trial Standard Level 4 is not economically justified. Next, DOEconsideredTrial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEERequipment for heatpumps. In considering Trial Standard Level 3, DOE assumed the NAECA efficiency scenario and reverse engineering cost estimatesto be the
121

### EE-RM/STD-98-440 -303 most probable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable at Trial Standard Levels 4 and 5 and the NAECA efficiency scenario mostprobable atTrial Standard Levels 1,2, and 3.) For Trial Standard Level 3, primary energy savings between 2006 and 2030 are estimated to be 3.5 quads, which DOE considers significant. The energy savings through 2020 would result in avoidance ofapproximately 10.1 GW in installed generating capacity in 2020. For comparison, the generating capacity isequivalent .o avoiding the need for 25 large 400 megawatt power plants, and reduced emissions would range u1

### , to 28 Mt ofcarbon equivalent and up to 97 kt ofNOx. 2 

### Trial Standard Level 3 would lower peak ele:tricity demand compared to the base case. That would allow utility service areas to buildless new capacity, with attendant environmental benefits. For Trial Standard Level 3, the increase in national net present value is estimated to be $1 billion 26



### . Since DOE expects the NAECA efficiency scenario to result from standards adopted at Trial Standard Level 3, the burdens ofTrial Standard Level 3 on manufacturers are likely to be less severe than at Trial Standard Level 4. DOE expects the average loss in industry NPV to be around 11 percent, but impacts on most manufacturers would be around 17 percent. Their long term drop in return on investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level 3 could accelerate the consolidation trend, possibly resulting in fewer choices for consumers and in a slowing ofthepace ofinnovation well into the future. Furthermore, the cumulative impact ofall new Federal and State regulations would exceed $650 million.

25 Generating capacity, carbon, and NO, reductions are based on NAECA efficiency scenario.

26 Under the Roll-up efficiency scenario, the increase in national net present value would be $2 billion. 

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

# 30.3 most probable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable atTrial Standard Levels 4 and 5 and theNAECA efficiency scenario most probable at Trial Standard Levels 1, 2, and 3.) ForTrial Standard Level 3, primary energy savings between 2006 and 2030 are estimated tobe 3.5 quads, which DOE considers significant. The energy savings through 2020 would result in avoidance ofapproximately 10.1 GWin installed generating capacity in 2020. For comparison, the generating capacity is equivalent '.0 qvo\ding the need for 25 large 400 megawatt powerplants, and reduced emissions would range Ui)to 28 Mt ofcarbon equivalent and up to 97 kt ofNO/5 Trial Standard Level 3 would lowerpeak ele-:i1icity demand comparedto the base case. That would allow utility service areas to build1ess new capacity, with attendant environmental benefits. For Trial Standard Level 3, the increase in national net present value is estimated to be $1 billion26• Since DOE expectstheNAECA efficiency scenario to result from standards adopted at Trial Standard Level 3, the burdens ofTrial Standard Level 3 on manufacturers are likely to be less severe than at Trial Standard Level 4. DOE expects the average loss in industry NPV to be around 11 percent, but impacts on most manufacturers would be around 17 percent. Their long term drop in return on investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level 3 could accelerate the consolidationtrend, possibly resulting in fewer choices for consumers and in a slowing ofthe pace ofinnovation well into the future. Furthermore, the cumulative impact ofall newFederal and Stateregulations would exceed $650 million.**2~** Generating capacity, carbon, and NO"reductions are based on NAECA efficiency scenario:

26 Under the Roll-up efficiency scenario,the increase in national net present value would be $2 billion. 122

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

## 303 AtTrial Standard Level 3, the average purchaser ofa split system airconditioner, the predominant class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lower utility bills fromthe energy savings would repay this increase in 9.8 years andproduce a total saving with anet present value of$113 overthe 18.4year life of the product. The average purchaser ofa singlepackage airconditioner, which represents 10 percent ofall shipments, would seethe average installed price of$2607 rise to $2765, anincrease of$158. Lower utility billsfrom theenergy savings would repay this increase in7.5 years and produce atotal saving with a netpresent value of$163 over the 18.4 year life ofthe product. The average purchaser ofasplit system heatpump, which represents 22 percent ofall shipments. would see the average installed price of$3668 riseto $4000, anincrease of$332. Lower utility bills from the energy savings would repay this increase in 6.4 years and produce a total saving with a netpresent value of$372 over the 18.4 year life ofthe product. The average purchaser ofasingle package heatpump, which represents 4 percent ofall shipments, would see the average installed price of$3599 riseto $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years andproduce atotal saving with anet present value of$353 over the 18.4 year life ofthe product. Like Trial Standard Level 4, Trial Standard Level 3raisesthe serious concern that prospective owners ofair conditioningheat pump systems would purchase less costly air conditioner resistance heater combinations. Inthis case there is apotential loss ofenergy savings because ofthe lower standards for airconditioners compared to heatpumps. which could eliminate all energy savings fromthe more efficient heat pumps ifonly asmall fraction ofheat pump owners (4percent) switched toresistance heating. Trial Standard Level 3 poses aserious 123 EE-RM/STD-98-440 - 

# 30,3. AtTrial StandardLevel 3,the average purchaser ofa split system air conditioner, the predominant class with 65 percent ofall shipments, would seethe installedprice 0[$2236rise to $2449, an increase of$213. Lowerutility bills from the energy savings would repay this increase in 9.8 years andproduce a total saving with a netpresent value of$113 overthe 18.4 year life of the product. The average purchaserofa single package air conditioner, whichrepresents 10 percent ofall shipments, would see the average installedprice of$2607 rise to $2765, anincrease of$158. Lowerutility bills from the energy savingswouldrepay this increase in 7.5 years and

.produce a total saving with a netpresent value of$163 overthe 18.4year life ofthe product. The average purchaser ofa split systemheatpump, whichrepresents 22 percent ofall shipments. would see the average installedprice of$3668 rise to $4000, an increase: of$332. Lowerutility bills from the energy savingswould repay this increase in 6.4 years and produce a total saving with a netpresent value of$372 overthe 18.4 year life ofthe product. The average purchaserofa single packageheatpump, which represents 4 percent ofall shipments, would see the average installedprice of$3599rise to $4034, an increase of$435. Lowerutility bills from the energy savings would repay this increase in 8.4 years and produce a total saving with a net present value of$353 overthe 18.4year life ofthe product. Like Trial StandardLevel 4,Trial Standard Level 3 raises the serious concern that prospective owners ofair conditioningheat pump systems would purchase less costly air conditionerresistance heater combinations. Inthis case there is a potential loss ofenergy savings because ofthe lower standardsfor air conditioners comparedto heat pumps. which could eliminate all energy savings from the more efficientheatpumps ifonly a small fraction ofheat pump owners (4 percent) switchedto resistance heating. Trial StandardLevel 3 poses a serious 123

### EE-RM/STD-98-440 3- 3 concern regarding potential anti-competitive effects because the size and cost ofthe higher efficiency heatpumps could reduce competition between manufacturers ofheat pumps and manufacturers ofresistance heating and other lower cost heating systems. DOE concludes that, atTrial Standard Level 3, the benefits ofenergy savings, generating capacity and emission avoidance, and netbenefit to thenation's consumers would be outweighed by the maldistribution ofconsumer benefits and manufacturer costs, the likelihood ofhigher installation costs resulting from potentially larger equipment, and the net impact on the industry in lightofthe cumulative regulatory burden. The most serious concern is the possibility of equipment switching thatwould likely substantially reduce the calculated energy savings, drastically reducing the potential benefits. Other possible burdens include lessening of competition and health effects caused by forgone airconditioner purchases. Consequently, DOE determines that Trial Standard Level 3is not economicallyjustified. Next, DOE considered Trial Standard Level 2. This level specifies 12 SEER equipment for all product classes, and this is the level that DOE has determined is the maximum efficiency level that is economicallyjustified. In considering Trial Standard Level 2, DOE assumed the NAECA efficiency scenario andreverse engineering cost estimates to bethe most probable. Primary energy savings between 2006 and 2030 is estimated to be 3quads, which DOE considers significant. The energy savings through 2020 would result in avoidance ofapproximately 8.7 GW ininstalled generating capacity in 2020. For comparison, the generating capacity is equivalent to avoiding the need for 22 large 400 megawatt powerplants, and reduced emissions would range up to24 Mt ofcarbon equivalent andup to 83 kt ofNO. 27 

### Trial Standard Level 2 would lower peak

2 7Generating capacity, carbon, and NOx reductions are based on NAECA efficiency scenario. 

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

_ 

## 3 D 

# 3
concernregarding potential anti-competitive effectsbecause the size and cost ofthe higher efficiencyheatpumps could reduce competitionbetweenmanufacturers ofheat pumps and manufacturers ofresistance heating and other lowercostheating systems. DOE concludes that, at Trial Standard Level 3, the benefits ofenergy savings, generating capacity and emission avoidance, and netbenefittothenation's consumers would be outweighed by themaldistribution ofconsumer·benefits and manufacturer costs, the likelihood ofhigher inst.,llation costsresulting from potentially larger equipment, and the net impact on the industry in lightl)fthecumulativeregulatory burden. Themost serious concern is the possibility of equipment switching thatwould likely substantially reduce the calculated energy savings, drastically reducingthe potentialbenefits. Otherpossibleburdens include lessening of competition and health effects caused by forgone air conditionerpurchases. Consequently, DOE determines that Trial Standard Level 3 isnoteconomicallyjustified. Next, DOE considered Trial Standard Level 2. This level specifies 12 SEER equipment for all product classes, andthis isthe level thatDOEhas determined is the maximum efficiency level that is economicallyjustified. In considering Trial Standard Level 2,DOE assumed the NAECA efficiency scenario and reverse engineering cost estimates to bethe most probable. Primary energy savings between2006 and 2030 is estimatedto be 3 quads, which DOE considers significant. The energy savings through 2020 wouldresult in avoidance ofapproximately 8.7 GW ininstalled generating capacity in2020. For comparison, the generating capacity is equivalentto avoiding the need for 22 large 400 megawattpowerplants, and reduced emissions would range up to 24 Mtofcarbon equivalent andupto 83 kt ofNO/' Trial Standard Level 2 would lowerpeak

27 Generating capacity. carbon; andNO" reductions are based on NAECA efficiency scenario. 124

### EE-RM/STD-98-440 - 303 electricity demand compared to thebase case. That would allow utility service areas to either avoid build lessnew capacity, with attendant environmental benefits. For Trial Standard level 2, the increase innational net present value is estimated to be $2 billion, which represents the highest level for all the standard levels considered2s



### . Since DOE expects the NAECA efficiency scenario toresult from standards adopted at Trial Standard Level 2, the burdens ofTrial Standard Level 2on manufacturers are likely to be moderate. I)OE expects the average loss in industry NPV to be around 10 percent, withimpacts
on most marnufaciurers around 16 percent. Their long term drop inreturn on investment and short term drop in cash fluw are moderate; suggesting that standards adopted at Trial Standard Level 2 would not accelerate the consolidation trend, and could result in more choices forconsumers and raise the pace ofinnovation. Furthermore, the cumulative impact ofall new Federal and State regulations is estimated to exceed $638 million. For Trial Standard Level 2, the average purchaser ofa split system air conditioner, the piedominant class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lower utility bills fromthe energy savings would repay this increase in 9.8 years and produce a total saving with anet present value of$113 over the 18.4 year life of the product. The average purchaser ofa single package air conditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607 rise to $2765, an increase of$158. Lower utility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with anet present value of$163 overthe 18.4year life ofthe product. The average purchaser ofa split system heat pump, which represents 22 percent ofall

28 Under the Roll-up efficiency scenario, the increase in national net present value would be $3 billion. 

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

### ~03 electricity demand comparedto the base case. That would allowutility service areas to either avoid build lessnewcapacity, with attendant environmental benefits. ForTrial Standard level 2, the increase innational netpresentvalue is estimatedto be $2 billion, which representsthe highest level for all the standard levels considered28•

. SinceDOEexpects theNAECAefficiency scenario toresult from standards adopted at Trial StandardLevc12, the burdens'ofTrial Standard Level 2 onmanufacturers are likely tobe moderate. I)OE t:xpects the average loss inindustry NPV to bearound 10percent, withimpacts

onmost mar,ufacrurers around 16 percent. Theirlong term drop in return on investment and short term drop incash Huw are moderate; suggestingthat standards adopted at Trial Standard Level 2 would not**accelt~rate** the consolidationtrend, and could result in more choices for consumers and raise the pace ofil1n(lvation. Furthermore, the cumulative impact ofall newFederal and State regulations is estimatedto exceed $638 million. ForTrial StandardLevel 2, the average purchaser ofa split system airconditioner, the predominant class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lowerutilitybills from the energy savings would repay this increase in 9.8 years and produce a total saving with a netpresent value of$l13 overthe 18.4 year life of the product. The average purchaser ofa singlepackage air conditioner, whichrepresents 10 percent ofall shipments, would seethe average installed price of$2607 rise to $2765, anincrease of$158. Lowerutility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with a netpresentvalue of$163 overthe 18.4yearlife ofthe product. The average purchaser ofa split system heatpump, which represents 22 percent ofall

28 Underthe Roll-up efficiency scenario, the increase in national net present value would be $3 billion. 125

### EE-RM/STD-98-440. 303 shipments, would see the average installed price of$3668 rise to $3812, an increase of$144. Lower utility bills fromthe energy savings would repay this increase in 3.9 years and produce a total saving with a net present value of$365 overthe 18.4 year life ofthe product. The average purchaser ofa single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $3748, an increase of$149. Lowerutility bills from the energy savings wouldrepay this increase in4 years and produce a total saving with anet present value of$421 ov :rthe 18.4year life ofthe product. While the average consumer purchasing a 12 SEER airconditioner or heat pump would experience anet saving overthe lifetime ofthe product, some households would experience net costs exceeding 2 percent ofthe tctal life-cycle cost oftoday's baseline units. Thus, 25 percent of the households with split system airconditioners and 9percent with single package air conditioners would experience a net cost. No households withheat pumps would experience a net cost. The percentage oflow-income consumers who would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units is greater than that for an average household. Thus, 34 percent oflow-income households with split system air conditioners and 14 percent with single package air conditioners would experience anet cost. No low-income households with heat pumps would experience a net cost. Also,the possibility that consumers would incur substantial installation costs is less thanthat with a 13 SEER standard because 12 SEER equipment is more likely to fitin the same space as current 10 SEER equipment. In light ofthe moderate purchase cost increase experienced by all consumers, the percentage of households, in particular low-income households, which experience life-cycle cost increases,
consumer burdens are less severe under Trial Standard Level 2. 126 EE-RM/STD-98-440.. 

# 303 shipments, would see the average installed price of$3668riseto $3812, an increase of$144. Lower utility bills from the energy savings would repay this increase in 3.9 years and produce a total saving with a netpresent value of$365 overthe 18.4 yearlife ofthe product. The average purchaser ofa singlepackageheat pump, whichrepresents 4 percent ofall shipments, would see the average installedprice of$3599riseto $3748, anincrease of$149. Lowerutility bills from the energy savings would repay this increase in4 years and produce a total saving with a net present value of$421 ov:rthe 18.4year life ofthe product. While the average**con~umer**purchasing a 12 SEERairconditioner orheat pump would experience a net saving ove.':'**thf~** 

### 1 ifetime ofthe product, some households would experience net costs exceeding 2 percent ofthe tctallife-cycle cost oftoday'sbaselineunits. Thus, 25 percent of the households with split system ajrconditioners and 9 percent with single package air conditioners would experience a net cost. Nohouseholds with heatpumpswould experience a net cost. Thepercentage oflow-income consumers who would experience net costs exceeding 2 percentofthe total life-cycle costoftoday'sbaseline units is greaterthan that for an average household. Thus, 34percent oflow-income households with split system air conditioners and 14 percent with single package airconditioners would experience a net cost. Nolow-income households withheatpumpswould experience a netcost. Also,the possibility that consumers would incur substantial installation costs is less thanthat with a 13 SEER standardbecause 12 SEERequipment is more likely to fit inthe same space as current 10 SEERequipment. In light ofthe moderatepurchase cost increase experiencedby all consumers, the percentage of households, inparticular low-income households, whichexperience life-cycle cost increases,
consumerburdens are less severe under Trial Standard Level 2. 126

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

- 303 After carefully reconsidering the analyses and comments, and giving appropriate weight given to consumer impacts and cumulative regulatory burden in the assessment ofthe benefits and burdens, DOE today amends the energy conservation standards for central air conditioners and central air conditioning heat pumps at Trial Standard Level 2. DOE concludes this standard saves
a significant amount ofenergy and istechnologically feasible and economically justified. In determining economic justification, DOE concludes thatthe benefits ofenergy savings, the projected amount ofavoided power pl nt capacity, consumer life-cycle cost savings, national net present value increase, and emission reductions resulting from the standards outweigh the burdens. The burdens include the loss of manufacturer net present value, taking into account the cumulative regulatory burden and annual cash f'ow, increases in life-cycle cost for some users of products covered by today's rule, any possible increase in health problems caused by consumers foregoing air conditioner purchases, any possible reduction in the ability ofthe product to dehumidify, any possible lessening ofcompetition, and any possible difficulty in installing the

new baseline products into replacement applications. C. ConclusionsRegardingSpace-Constrained Products Ifa 12 SEER minimum requirement for air conditioners and heat pumps is implemented, DOE's analysis suggests that ofall potential space-constrained products, only those with throughthe-wall condensers and small duct, high velocity systems need special consideration. 1. Through-the-Wall Products The TSD contains a new appendix Appendix L describing the results ofour recent reevaluation ofthose products. They demonstrate that split through-the-wall equipment can attain 10.9 SEER using designs and technologies that are commonly applied or available, with price
127 EE·RM/STD-98-440 ... 

## 303 After carefully reconsidering the analyses and comments, and giving appropriate weight given to consumer impacts and cumulative regulatory burden inthe assessment ofthe benefits and burdens, DOEtoday amends the energy conservation standards for central air conditioners and central air conditioningheatpumps at Trial Standard Level 2. DOE concludes this standard saves
a significant amount ofenergy and is technologically feasible and economicallyjustified. In determining economicjustification, DOE concludesthatthe benefits ofenergysavings, the projected amount ofavoided powerpImtcapacity, consumer life-cycle cost savings, national net present value increase, and emissionrfductlOns resulting from the standards outweigh the burdens. The burdens include the loss ofmanufacturer net present value, taking into account the cumulative regulatory burden and annual 

### cash flow, increases in life-cycle cost for some users of products covered by today'srule, any**possib!~** increase in health problems caused by consumers foregoing air conditionerpurchases, any possible reduction in the ability ofthe product to dehumidify, any possible lessening ofcompetition, and any possible difficulty in installing the n"ew baseline products into replacement applications. 

## c. Conclusions RegardingSpace-ConstrainedProducts Ifa 12 SEERminimum requirement for air conditioners and heat pumps is implemented, DOE's analysis suggests that ofall potential space-constrained products, only those with throughthe-wall condensers and small duct, high velocity systems need special consideration. 1. Through-the-Wall Products The TSD contains a new appendix Appendix L describing the results ofourrecent reevaluation ofthose products. They demonstrate that splitthrough-the-wall equipment can attain 10.9 SEERusing designs and technologies that are commonly applied or available, withprice
127

### EE-RM/STD-98-440 - 3 

### 03 impacts similar to those that conventional equipment would experience in meeting the proposed 12 SEER standard. The packaged equipment analyzed was demonstrated to be capable of attaining only a 10.6 SEER rating, although comments received indicate that one manufacturer of packaged through-the-wall equipment, Armstrong, expects their equipment to be capable of attaining 11 SEER. Based on this evaluation, DOE adopts new product classes for products that have throughthe-wall condensers and are intended forreplacemt nt applications. The new classes are required to meet minimum efficiencies lower than those oftlieother classes: 10.9 SEER and 7.1 HSPF for through-the-wall air conditioner and heat pump split-systems, and 10.6 SEER and 7.0 HSPF for through-the-wall air conditioner single-package systems. DOE's analysis suggests those products

can attain these levels without substantial redesign or price increases that would result in a loss of market share to conventional products. Also, the life-cycle cost analysis confirms that, on average, consumers ofsplit through-the-wall equipment would not incur an increase in life-cycle cost, and that consumers ofpackaged through-the-wall equipment would incur an increase of$52

over the life ofthe equipment. In no case would any consumer ofsplit through-the-wall products be expected to incur life-cycle costs greater than 2 percent ofthe total life-cycle cost, and only 17 percent ofconsumers ofpackaged through-the-wall equipment would be expected to incur cost increases greater than 2 percent ofthe total life-cycle cost. DOE concludes that standard levels higher than 10.9 SEER (split through-the-wall) and 10.6 SEER (packaged through-the-wall) are technologically feasible. DOE's analysis on three through-the-wall models suggests that those products could attain efficiencies as high as 11.4 SEER using design options that would likely be economically justified. However, the results are 128 EE-RM/STD-98-440 - 

# 303 impacts similarto those that conventional equipment would experience in meeting the proposed 12 SEER standard. The packaged equipment analyzed was demonstrated to be capable of attaining only a 10.6 SEERrating, although commentsreceived indicate that one manufacturer of packagedthrough-the-wall equipment, Armstrong, expects their equipment to be capable of attaining 11 SEER. Based on this evaluation, DOE adopts newproduct classes for products that have throughthe-wall condensers and are intended for replacemt nt applications. The new classes are required to meetminimum efficiencies lowerthan those oftlle oth(;r classes: 10.9 SEER and 7.1 HSPF for through-the-wall air conditioner and heat pump split-systems, and 10.6 SEER and 7.0 HSPF for through-the-wall air conditioner single-package**system.~.** DOE's analysis suggests those products
can attain these levels without substantial redesign orprke increases that would result in a loss of market share to conventional products. Also, the life-cycle cost analysis confirms that, on average, consumers ofsplit through-the-wall equipment would not incur an increase in life-cycle cost, and that consumers ofpackagedthrough-the-wall equipment would incur an increase of$52
overthe life ofthe equipment. In no case would any consumer ofsplit through-the-wall products be expected to incur life-cycle costs greaterthan 2 percent ofthe total life-cycle cost, and only 17 percent ofconsumers ofpackaged through-the-wall equipment would be expected to incur cost increases greaterthan 2 percent ofthe total life-cycle cost. DOE concludes that standard levels higher than 10.9 SEER (split through-the-wall) and 10.6 SEER (packaged through-the-wall) are technologically feasible. DOE's analysis on three through-the-wall**~odels** suggests that those products could attain efficiencies as high as 11.4 SEERusing design options that would likely be economicallyjustified. However, the results are 128

### EE-RM/STD-98-440 - 30-. not conclusive and cannot be confidently applied to all through-the-wall products. DOE's analysis does notprovide enough evidence to convince us that levels higher than 10.9 SEER (10.6 SEER forpackaged through-the-wall) will be technologically feasible during the five year period during which manufacturers would prepare to meet the new requirements. DOE's analysis does indicate that opportunities for efficiency improvement do exist, and that manufacturers ofthose products should continue to investigate those opportunities. A serious concern that DOE has considered is that the lo ver through-the-wall standards could encourage purchasers ofconventional equipment to shift to through-the-wall products, undermining the benefits ofthe 12 SEER standard for conventional products. DOE istherefore limiting the newthrough-the-wall classes toproducts manufactured before January 23, 2010. See definition of "through-the-wall air conditioner and heat pump." Thus, these classes will exist only for aperiod offour years following the compliance date established for the new standards for conventional products. During that time, the availability ofsuitable high-efficiency components will likely increase and the manufacturers ofthrough-the-wall products will be able to investigate options for meeting the more stringent 12 SEER level. Both will make it easier for through-thewall products to attain the 12 SEER minimum efficiency required ofother products, thereby making 12 SEER a technologically feasible and economicallyjustified level. The sunset provision will help to ensure that other manufacturers will not make the investment required to market through-the-wall products heavily for conventional applications during the four year period. Itwill also limit the time during which lower efficiency through-the-wall equipment is installed, ensuring that additional energy savings associated with the 12 SEER level are realized in
a certain time period. 129 EE-RM/STD-98-440 ... 

# 3D3

. not conclusive and cannot beconfidently applied to all through-the-wall products. DOE's analysis does not provide enough evidence to convince us that levels higher than 10.9 SEER (10.6 SEER for packaged through-the-wall) will be technologically feasible during the five year period

.during which manufacturers would prepare to meetthe newrequirements. DOE's analysis does indicate that opportunities for efficiency improvement do exist, and that manufacturers ofthose products should continue to investigate those opportunities. A serious concern that DOE has considered is that the 

### 10oVer through-the-wall standards

.could encouragepurchasers ofconventional equipmentto shift to**throu~h-the-wall** products, undermining the benefits ofthe 12 SEER standard for conventional products. DOE is therefore limiting the newthrough-the-wall classes to products manufactured before January 23, 2010. See definition of"through-the-wall air conditioner and heat pump." Thus, these classes will exist only for aperiod offour years following the compliance date established for the new standards for**~onventional** products. During that time, the availability ofsuitable high-efficiency components will likely increase and the manufacturers ofthrough-the-wall products will be able to investigate options for meeting the more stringent 12 SEER level. Both will make it easier for through-thewall products to attain the 12 SEER minimum efficiency required ofotherproducts, thereby making 12 SEER a technologically feasible and economicallyjustified level. The sunset provision will help to ensure that othermanufacturers will not make the investment required to market through-the-wall productsheavily for conventional applications during the four year period. Itwill also limit the time during which lowerefficiency through-the-wall equipment is installed, ensuring that additional energy savings associated with the 12 SEERlevel are realized in
a certain time period. 129

### EE-RM/STD-98-440 - .03 To further limitthe application ofthe through-the-wall class, products in these classes may not exceed 30,000 BTU/hr in cooling capacity, may not contain special weatherization features that would allow them to be installed totally outdoors, and mustbe marked for installation only through an exterior wall. DOE also limits the size ofthe area used for condenser air exchange in order to limitthese classes to those products intended primarily for replacement applications. 2. Small Duct, High Velocity Systems In today's final rule, DOE establishes a separate product class for sma 1duct, high velocity (SDHV) systems and retains theNAECA standards for these products pending .furtherstudy to establish appropriate higher standard levels. DOE intends to publish a final rule for thetest procedure in the near future. Any future workto establish appropriate minimum efficiency standards for SDHV systems will be based on the testing requirements developed for SDHV systems in the test procedure revision currently being finalized, or in a future revision specifically aimed at SDHV products.

VIII. Procedural Issues and Regulatory Review A. Review Under theNationalEnvironmentalPolicyAct DOE prepared an Environmental Assessment (EA) (DOE/EA-1352) available from: U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 Independence Avenue, SW, Washington, DC 20585-0121, (202) 586- 0854. DOE found the environmental effects associated with various standard efficiency levels for central air conditioners and heat pumps to be not significant. Therefore DOE is publishing, elsewhere in this issue of the Federal Register a Finding ofNo Significant Impact (FONSI) 130 EE-RM/STD-98-440 - 

# .30-' To further limitthe application ofthe through-the-wall class. products in these classes may not exceed 30,000 BTUIhr in cooling capacity. may not contain special weatherization features thatwould allow them to be installed totally outdoors. and mustbe marked for installation only through an exterior wall. DOE also limits the size ofthe area used for condenser air exchange in orderto limitthese classes to those products intended primarily for replacement applications. 2. Small Duct, High Velocity Systems Intoday's final rule. DOEestablishes a separate product class for sma 

### I ducL, high velocity (SDHV) syStems and retainstheNAECA standards for these products pendinE**.~rther** study to establish appropriate higher standard levels. DOE intendsto publish a final rul.! for**th~** test procedure inthe near future. Any future work to establish appropriate minimum efficiency standards for SDHV systems will be based onthe testing requirements developed for SDHV systems in the test procedure revision currently being finalized. orin a future revision specifically aimed at SDHV products.



### VIII. Procedural Issues and Regulatory Review A. Review Under the National Environmental PolicyAct DOE prepared an Environmental Assessment (EA) (DOEIEA-1352) available from: U.S. DepartmentofEnergy. Office ofEnergy Efficiency andRenewable Energy. Forrestal Building. Mail Station EE-41. 1000 Independence Avenue. SW, Washington. DC 20585-0121. (202) 586- 0854. DOE found the environmental effects associated with various standard efficiency levels for central air conditioners and heat pumpsto be not significant. Therefore DOE is publishing. elsewhere inthis issue of the Federal Register a Finding ofNo Significant Impact (FONSI) 130

### EE-RM/STD-98-440 - 303 pursuant to the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations ofthe Council ofEnvironmental Quality (40 CFR Parts 1500-1508), and DOE's regulations for compliance with NEPA (10 CFR Part 1021). As previously discussed (Section VI.G. 1,"Peak Power"), the model used by DOE to estimate both peak power and power plant emission impacts due to appliance standards was updated to include a more representative set ofend-use load shapes for the residential, commercial, industrial, and transportation sectors. As aresult ofthis update, NEMS-BRS estimates somewhat greater power plant emission impacts (in the form ofreduced CO2 

### and NO, emissions) from increased central air conditioner and heat pump standards. Appendix M oft.e TSD includes an updated set ofpower plant emission impacts. These changes, which are discussed in the FONSI, do not affect DOE's finding ofno significant impact. The comments ofsome environmental advocates argue that DOE is required to prepare an environmental impact statement for today's final rule because, in their view, DOE is "rolling back" 13 SEER standards, and that constitutes a major agency action significantly affecting the quality ofthe environment. As explained in Section III ofthis Supplementary Information, DOE believes these comments are based on an erroneous premise, namely, that the January 22 final rule attained permanent status even though the rule never became effective. The correct baseline for assessing the impacts oftoday's rule, in DOE's view, are the existing energy conservation standards established by NAECA (i.e, SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured after January 1, 1993). The 12 SEER standard in today's rule will increase the energy efficiency ofthe most common type ofcentral air conditioners by approximately 20 131 EE-RM/STD-98-440 - 

## 303 pursuant to the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations ofthe Council ofEnvironmental Quality (40CFRParts 1500-1508), and DOE's regulations for compliance withNEPA (10 CFR Part 1021). As previously discussed (Section VI.G.l, "Peak Power"), the model used by DOE to estimate bothpeakpowerandpowerplant emission impacts due to appliance standards was updated to include a more representative set ofend-use load shapes for the residential, commercial, industrial, and transportation sectors. As a result ofthis update, NEMS-BRS

.estimates somewhat greaterpowerplant emission impacts (in the form ofreduced CO2 and NO" emissions) from increased central air conditioner and heat pump standards. Appendix M ofd.e TSD includes an updated set ofpowerplant emission impacts. These changes, which are discussed in the FONSI, do not affect DOE's finding ofno significant impact. The comments ofsome environmental advocates argue that DOE is required to prepare an environmental impact statement for today's final rule because, in their view, DOE is "rolling back" 13 SEER standards, and that constitutes a major agency action significantly affecting the quality ofthe environment. As explained in Section III ofthis Supplementary Information, DOE believes these comments are based on an erroneous premise, namely, that the January 22 final rule attained permanent status eventhough the rule never became effective. The correctbaseline for assessing the impacts oftoday'srule, in DOE'sview, are the existing energy conservation standards established by NAECA

### eg, SEERof 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured afterJanuary 1, 1993). The 12 SEER standard in today's rule will increase the energy efficiency ofthe most common type ofcentral air conditioners by approximately 20 131

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

- 03 percent. B. Review UnderExecutive Order12866 Today's regulatory action has been determined to be an "economically significant regulatory action" under Executive Order 12866, "Regulatory Planning and Review." 58 FR 51735 (October 4, 1993). Accordingly, today's action was subject to review under the Executive Order by the Office ofInformation and Regulatory Affairs (OIRA) ofthe Office ofManagement and Budget. The draft submitted to OIRA and other documents submitted to OIRA for review have been made a part ofthe rulemaking record and are available for public review in DOE's Freedom ofInformation Reading Room, 1000 Independence Avenue, SW, Washington, DC 20585, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, telephone (202) 586-3142.

The October 5, 2000 NOPR contained a summary ofthe Regulatory Analysis which focused on the major alternatives considered in arriving at the approach to improving the energy efficiency ofconsumer products. 65 FR 59627-29. The alternatives considered in DOE's analysis

are consumer product labeling, consumer education, prescriptive standards, consumer tax credits,

consumer rebates, manufacturer tax credits, voluntary efficiency targets, low income subsidy, mass government purchases, and performance standards. The reader is referred to the complete draft "Regulatory Impact Analysis," which is contained in the TSD, available as indicated at the beginning ofthis notice or from the contact person named at the beginning ofthisnotice. The TSD provides: (1) a statement ofthe problem addressed by this regulation, and the mandate for government action; (2) a description and analysis ofthe feasible policy alternatives to this 132 percent. EE-RM/STD-98-440

... 

# 303

B. Review Under Executive Order 12866 Today's regulatory actionhasbeen detenninedto be an "economically significant regulatory action" underExecutive Order 12866, "Regulatory Planning and Review." 58 FR 51735 (October4, 1993). Accordingly, today'saction was subjectto review under the Executive Orderby the Office ofInfonnation and Regulatory Affairs (OIRA) ofthe Office ofManagement and Budget. The draft submitted to OIRA and other documents submitted to OIRA for reviewhave been made a part ofthe rulemaking record and are available for public review in DOE'sFreedom ofInfonnationReading Room, 1000 Independence Avenue, SW, Washington, DC 20585, betweenthe hours of9:00 a.m. and 4:00 p.m., Monday through Friday, telephone (202) 586-3142.

The October 5, 2000NOPRcontained a summary ofthe Regulatory Analysis which focused onthe major alternatives considered in arriving at the approach to improvingthe energy efficiency ofconsumerproducts. 65 FR 59627-29. The alternatives considered in DOE's analysis

are consumerproduct labeling, consumer education, prescriptive standards, consumertax credits,

consumerrebates, manufacturertax credits, voluntary efficiency targets, low income subsidy,

mass governmentpurchases, and perfonnance standards. The readeris referred to the complete draft "Regulatory Impact Analysis," which is contained in the TSD, available as indicated at the beginning ofthis notice or from the contactperson named atthe beginning ofthis notice. The TSD provides: (1) a statement ofthe problem addressed by this regulation, and the mandate for government action; (2) a description and analysis ofthe feasible policy alternatives to this
132

### EE-RM/STD-98-440- 30 3 regulation; (3) aquantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts oftheproposed standard. C. Review undertheRegulatoryFlexibility Act The Regulatory Flexibility Act, 5U.S.C. 601 et se.,requires that a Federal agency prepare aregulatory flexibility analysis forany rule for which the agency is required to publish a general notice ofproposed rulemaking. Such an assessment ofthe impact ofregulations on small businesses is not required ifthe agency certifies that the rule would not, ifpromulgated, have a significant economic impact on a substantial number ofsmall entities (5U.S.C. 605(b)). To be categorized as a "small" air conditioning and warm air heating equipment manufacturer, a firm must employ no more than 750 employees. In the October 5,2000 NOPR, DOE discussed the potential impacts on small businesses of the October 5proposed rule (corresponding to Trial Standard Level 3), and certified that the proposed standard levels would not have a significant economic impact on a substantial number ofsmall entities. 65 FR 59629-30. DOE reported that nearly all small businesses engaged inthe manufacture ofcentral air conditioners and heat pumps produce products that DOE has called "niche" products. To avoid adversely impacting manufacturers ofniche products, DOE proposed
a separate product classfor through-the-wall equipment, much ofwhich is manufactured by small manufacturers. See 65 FR 59609-11. In the preamble to the January 22 final rule, DOE addressed comments regarding the impacts more stringent standards might have on the availability ofniche products, and although the final rule adopted the higher Trial Standard Level 4 standards, DOE deferred setting an amended standard for niche products. 66 FR 7175, 7196-97. The omission of niche products from the January 22 final rule also addressed the concern expressed by the 133 EE-RM/STD-98-440- 

## 30.3 regulation; (3) a quantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts ofthe proposed standard. 

## c. Review under the RegulatoryFlexibilityAct The Regulatory Flexibility Act, 5 U.S.C. 601 etgg., requires that a Federal agency prepare a regulatory flexibility analysis for any rule for which the agency is required to publish a general notice ofproposed rulemaking. Such an assessment ofthe impact ofregulations on small businesses is not required ifthe agency certifies that the rule would not, ifpromulgated, have a significant economic impact on a substantial number ofsmall entities (5 U.S.C. 605(b)). To be categorized as a "small" air conditioning and warm airheating equipment manufacturer, a firm must employ no more than 750 employees. In the October 5,2000NOPR, DOE discussed the potential impacts on small businesses of the October 5 proposed rule (corresponding to Trial Standard Level 3), and certified that the proposed standard levels would not have a significant economic impact on a substantial number ofsmall entities. 65 FR59629-30. DOE reported that nearly all small businesses engaged in the manufacture ofcentral air conditioners and heat pumps produceproducts that DOE has called "niche" products. To avoid adversely impacting manufacturers ofniche products, DOE proposed
a separate productclass for through-the-wall equipment, much ofwhich is manufactured by small manufacturers. See 65 FR59609-11. In the preambleto the January 22 final rule, DOE addressed comments regarding the impacts more stringent standards might have on the availability ofniche products, and although the final rule adopted the higher Trial Standard Level 4 standards, DOE deferred setting an amended standard for niche products. 66 FR7175, 7196-97. The omission of niche products from the January 22 final rule also addressed the concern expressed by the 133

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

- 303 Department ofJustice about the impact ofthe October 5, 2000, proposed rule on small manufacturers (see preamble toJanuary 22 final rule at 66 FR 7192). Because the final rule excluded most products made by small manufacturers, DOE affirmed its certification. Today DOE publishes energy conservation standards for central air conditioners and heat pumps that correspond to Trial Standard Level 2. Because ofsevere size constraints, DOE is establishing separate product classes for through-the-wall equipment and small duct, high velocity systems, which will be required to meet a lower SEER. In light ofthese product class exceptions and after considering the information in the TSD and public comments, including the views ofthe Department ofJustice (see October 19, 2001, letter in the Appendix to this notice), DOE has concluded that the 12 SEER standards in today's final rule will not have a disproportionate adverse impact on a substantial number ofsmall entities. In its comments, the Office of Advocacy ofthe U.S. Small Business Administration stated that the proposed 12 SEER standard would substantially improve energy efficiency while preserving competition, innovation andjobs, and, therefore, it strongly supports the 12 SEER standard. On this basis, DOE certifies that today's rule will not have a significant impact on a substantial number ofsmall entities. Accordingly, DOE has not prepared a regulatory flexibility analysis. DOE's certification is based on an assessment ofthe impact the standards will have on small entities that would be directly affected by their implementation, which is all the Regulatory Flexibility Act requires. The assertion by ARI, in its petition for consideration, that DOE is required to assess the indirect effects ofproposed standards is contrary to established case law interpreting the Act. D. Review Underthe Paperwork ReductionAct 134 EE-RM/STD-98-440 - 

## 303 Department ofJustice about the impact ofthe October 5, 2000, proposed rule on small manufacturers (see preamble to January 22 final.rule at 66 FR7192). Because the final rule excluded mostproducts made.by small manufacturers, DOE affirmed its certification. Today DOEpublishes energy conservation standards for central air conditioners and heat pumpsthat correspond to Trial Standard Level 2. Because ofsevere size constraints, DOE is establishing separate product classes for through-the-wall equipment and small duct, high velocity systems, which will be required to meet a lower SEER. In light ofthese product class exceptions and after consideringthe information inthe TSD and public comments, includingthe views ofthe Department ofJustice (see October 19,2001, letter inthe Appendixto this notice), DOEhas concluded thatthe 12 SEER standards intoday's final rule will not have a disproportionate adverse impactona substantial numberofsmall entities. In its comments, the Office of Advocacy ofthe U.S. Small Business Administration stated that the proposed 12 SEER standard would substantially improve energy efficiency while preserving competition, innovation andjobs, and, therefore, it strongly supports the 12 SEER standard. Onthisbasis, DOE certifies that today'srule will not have a significant impact on a substantial number ofsmall entities. Accordingly, DOEhas not prepared a regulatory flexibility analysis. DOE's certification is based on an assessment ofthe impactthe standards will have on small entitiesthat would be directly affectedby their implementation, which is all the Regulatory Flexibility Actrequires. The assertionby ARl, in its petition for consideration, that DOE is required to assess the indirect effects ofproposed standards is contrary to established case law interpreting the A<;t. 

### D. Review Under the PaperworkReductionAct
134

### EE-RM/STD-98-440 - 303 No new information or record keeping requirements are imposed by this rulemaking. Accordingly, no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq. E. Review UnderExecutive Order12988 With respect to the review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) ofExecutive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effecton existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, ifany; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations in light ofapplicable standards in section 3(a) and section 3(b) to determine whether they are met or it isunreasonable to meet one or more ofthem. DOE reviewed today's rule under the standards of section 3 ofthe Executive Order and determined that, to the extent permitted by law, thisproposed rule meets the relevant standards. F. Review UnderExecutive Order12630 135 EE-RM/STD-98-440 - 

## .3

# 03 No new information orrecord keeping requirements are imposed bythisrulemaking. Accordingly, no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq. 

### E. Review Under Executive Order 12988 With respect to the review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conductrather than a general standard and promote simplification and burden reduction. With regard to the reviewrequired by section 3(a), section 3(b) ofExecutive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (l) clearly specifies the preemptive effect, if any; (2) clearly specifies any effecton existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, ifany; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations in light ofapplicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more ofthem. DOE reviewed today's rule under the standards ofsection 3 ofthe Executive Order and determined that, to the extent permittedby law, this proposed rule meets the relevant standards. F. Review Under Executive Order 12630 135

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

## 3 3 DOE has determined pursuant to Executive Order 12630, "Governmental Actions and Interference with Constitutionally Protected Property Rights," 52 FR 8859 (March 18, 1988), that this rule will not result in any takings that might require compensation under the Fifth Amendment to the United States Constitution. G. Review underExecutive Order13132 Executive Order 13132, "Federalism," 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law orthat have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe States ind carefully assess the necessity for such actions. Agencies also must have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies thathave federalism implications. DOE published its intergovernmental consultation policy on March 14,2000. 65 FR 13735. DOE has examined today's rule andhas determined that it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution ofpower and responsibilities among the various levels ofgovernment. State regulations that may have existed on the products that are the subject oftoday's rule were preempted by the Federal standards established inNAECA. As discussed in Section VI ("Discussion ofPublic Comments"), States
can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in section 327 ofEPCA (42 U.S.C. 6297). H. Review Underthe UnfundedMandatesReform Act of1995 With respect to aproposed regulatory action that may result in the expenditure by State, 136 EE·RM/STD·98-440 - 

## 3/)

# 3 DOE has detennined pursuant to Executive Order 12630, "Governmental Actions and Interference with Constitutionally Protected Property Rights," 52 FR 8859 (March 18, 1988), that this rule will not result in any takings that might require compensation under the Fifth Amendmenttothe United States Constitution. G. Review underExecutive Order 13132 Executive Order 13132, "Federalism," 64 FR43255 (August4, 1999) imposes certain re'tuirements on agencies fonnulating and implementing policies orregulations that preempt State law I)rthathave federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe**S,~ates,md** carefully assess the necessity for such actions. Agencies also must have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policiesthathave federalism implications. DOE published its intergovernmental consultationpolicy onMarch 14,2000. 65 FR 13735. DOEhas examined today's rule and has detennined that it would not have a substantial direct effect onthe States, on the relationship between the national government and the States, or on the distribution ofpower and responsibilities among the various levelsofgovernment. State regulations that may have existed
onthe products that are the subject oftoday'srulewerepreemptedby the Federal standards established inNAECA. As discussed in Section VI ("Discussion ofPublic Comments"), States
can petition DOE for exemption from suchpreemptionto the extent, and based on criteria, set forth in section 327 ofEPCA (42 U.S.C. 6297). 

### H. Review Under the UnfundedMandates ReformAct of 1995 With respect to a proposeqregulatory actionthat may result in the expenditure by State, 136

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

## 303 local and tribal governments, in the aggregate, or by the private sector of $100 million or more, section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency to publish estimates ofthe resulting costs, benefits and other effects on the national economy. 2 U.S.C. 1532(a), (b). UMRA also requires each Federal agency to develop an effective process to permit timely input by state, local, and tribal governments on a proposed significant intergovernmental mandate. DOE's consultation process is described in a notice published in the Federal Rcgistei on March 18, 1997. 62 FR 12820. Today's rule may impose expenditures of $100 million or more on the private sector. It does not contain a Federal intergovernmental mandate. Section 202 ofUMRA authorizes an agency to respond to the content requirements of UMRA in any other statement or analysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The content requirements ofsection 202(b) ofUMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(o) ofEPCA and Executive Order 12866. The "Regulatory Impact Analysis" section ofthe TSD for this rule responds to those requirements. Under section 205 ofUMRA, DOE is obligated to identify and consider a reasonable number ofregulatory alternatives before promulgating arule for which a written statement under section 202 is required. DOE is required to select from those alternatives the most cost-effective and least burdensome alternative that achieves the objectives ofthe rule unless DOE publishes an explanation fordoing otherwise or the selection ofsuch an alternative is inconsistent with law. As required by section 325(o) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(o)), today's rule would establish energy conservation standards for central air conditioners and heat 137 EE-RM/STD-98-440 - 

## 303 local and tribal governments, in the aggregate, or by the private sector of$100 million ormore, section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency to publish estimates ofthe resulting costs, benefits and othereffects on the national economy. 2 U.S.C.1532(a), (b). UMRA also requires each Federal agency to develop an effective process to permittimely inputby state, local, and tribal governments ona proposed significant intergovernmental mandate. DOE's consultationprocess is described in a notice published in the Federal R,:.gistg onMarch 18, 1997. 62 FR 12820. Today'srule may impose expenditures of $100 million or more onthe private sector. It does not contain a Federal intergovernmental mandate. Section 202 ofUMRA authorizes an agency to respond to the content requirements of UMRA in any other statement oranalysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The content requirements ofsection 202(b) ofUMRA relevant to a private sector mandate**~ubstantially** overlap the economic analysis requirements that apply under section 325(0) ofEPCA and Executive Order 12866. The "Regulatory Impact Analysis" section ofthe TSD for this rule responds to those requirements. Under section 205 ofUMRA, DOE is obligated to identify and consider areasonable number ofregulatory alternatives before promulgating a rule for which a written statement under section 202 is required. DOE is required to select from those alternatives the most cost-effective and least burdensome alternative that achieves the objectives ofthe rule unless DOE publishes an explanation for doing otherwise orthe selection ofsuch an alternative is inconsistent with law. As required by section 325(0) ofthe Energy Policy and ConservationAct (42 U.S.C. 6295(0», today'srule would establish energy conservation standards for central air conditioners and heat 

### 137

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

## 3 3. pumps that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economicallyjustified. A full discussion ofthe alternatives considered by DOE is presented in the "Regulatory Impact Analysis" section ofthe TSD for today's rule. I. Review Underthe TreasuryandGeneralGovernmentAppropriations Act, 1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. L. No. 105-277) requires iederdz agencies to issue a Family Policymaking Assessment forany proposed rule orpolicy hatmay affect family well-being. Today's rule would nothave any impact on the autonomy or integrity ofthe family as an institution. Accordingly, DOE did not prepare a Family Policymaking Assessment. J. Revfe UnderExecutive Order13211 Executive Order 13211, "Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use," (66 FR 28355, May 22, 2001) requires Federal agencies to prepare and submit to the Office ofInformation and Regulatory Affairs (OIRA), Office ofManagement and Budget, a Statement ofEnergy Effects for any significant energy action. A "significant energy action" is defined as any action by an agency that promulgates or is expected to lead to the promulgation ofa finalrule, and that: (1)is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use ofenergy; or (3)is designated by the Administrator ofOIRA as a significant energy action. For any proposed significant energy action, the agency must give adetailed statement ofany adverse effects on energy supply, distribution, or use should theproposed action be implemented, and ofreasonable alternatives to the action and their expected benefits on energy 138 EE-RM/STD-98-440 - 

# 0C)3. pumps that are designed to achieve the maximum improvement in energy efficiency that DOE has detennined to be both technologically feasible and economicallyjustified. A full discussion ofthe alternatives considered by DOE is presented in the "Regulatory Impact Analysis" section ofthe TSD for today's rule. 

### 1. Review Under the Treasury andGeneral GovernmentAppropriationsAct, 1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. 

### L. No
...105-277)requires r'ederc.l agencies to issue a Family Policymaking Assessment for any proposed rule orpolicy ,hat may affect family well-being. Today'srule would not have any impact onthe autonomy orintegrity ofthe family as an institution. Accordingly, DOE did not prepare a Family Policymaking Assessment. J.**R~** Under Executive Order 13211 Executive Order 13211, "Actions Concerning Regulations ThatSignificantly Affect Energy Supply, Distribution, orUse," (66 FR28355, May 22, 2001) requires Federal agencies to prepare and submit to the Office ofInfonnation and Regulatory Affairs (OIRA), Office ofManagement andBudget, a Statement ofEnergy Effects for any significant energy action. A "significant energy action" is defined as any actionby an agency that promulgates oris expected to lead to the promulgation ofa final rule, and that: (1) is a significantregulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, oruse ofenergy; or(3) is designated by the Administrator ofOIRA as a significant energy action. Forany proposed significantenergy action, the agency must give a detailed statement ofany adverse effects on**~nergy** supply, distribution, oruse should the proposed action be implemented, and ofreasonable alternatives to the action and their expected benefits on energy 138

### EE-RM/STD-98-440- 0o3 supply, distribution, and use. Today's rule would not have any adverse effects on the supply, distribution, or use of energy in the near term because it would not have any effect on the manufacture ofcentral air conditioners and heat pumps until 2006. In the longer term, beginning in 2006, the standards in this rule would have a positive impact on the reliability ofelectricity supply in the United States. The standards that DOE is adopting would represent a 20 percent improvement in the energy efficiency ofsplit-t ysten, central air conditioners, and a 9percent improvement in heating efficiency for heat Iumps. The standards would improve the cooling efficiency ofsingle-package heat pumps by 24 percent and the heating efficiency ofsingle-package heat pumps by 12 percent. As explained in Sect on VII ofthis Supplementary Information, DOE estimates the standards would save approximately 3quads ofenergy over 25 years (2006 through 2030). Also, in determining whether these standards are economically justified, DOE considered as a benefit the potential ofthe standards to improve the reliability ofthe electric generation and distribution system or to reduce the environmental impacts associated with new power plants and transmission lines. See Section V.D.g. ("Other Factors"). DOE's analysis shows today's standards would result in an estimated reduction in installed generation capacity in the year 2020 ofapproximately 8.7 gigawatts. This would be the equivalent ofthree 400 megawatt coal-fired plants and nineteen 400 megawatt gas-fired plants. While these reduced capacity requirements will have environmental (and cost) benefits, they are not expected to result in improved electric system reliability. DOE disagrees with theNRDC's view that the levels in the January 22 final rule are the appropriate baseline for determining whether today's rule is likely to have a significant adverse 139 EE-RM/STD-98-440-**~o3** supply, distribution, and use. Today'srule would not have any adverse effects on the supply, distribution, oruse of energy in the nearterm because it would nothave any effect on the manufacture ofcentral air conditioners and heat pumps until 2006. Inthe longer term, beginning in 2006, the standards in this rule would have a positive impacton the reliability ofelectricity supply in the United States. The standards that DOE is adopting would represent a 20 percent improvement in the energy efficiency of**split-~**ysten' central air conditioners, and a 9 percent improvement in heating efficiency for heat lumps. The standards would improve the cooling efficiency ofsingle-package heatpumps by 24**pen~ent** and the heating efficiency ofsingle-package heat pumps by 12 percent. As explained in Sect on VII ofthis Supplementary Information, DOE estimates the standards would save approximately 3quads ofenergy over 25 years (2006 through 2030). Also, in determining whether these standards are economicallyjustified,DOE considered as a benefit the potential ofthe standards to improve the reliability ofthe electric generation and distribution system orto reduce the environmental impacts associated with newpowerplants and transmission lines. See Section V.D.g. ("Other Factors"). DOE's analysis shows today's standards would res:ult in an estimated reduction in installed generation capacity in the year 2020 ofapproximately 8.7 gigawatts. This would be the equivalent ofthree 400 megawatt coal-fired plants and nineteen 400 megawatt gas-fired plants. While these reduced capacity requirements will have environmental (and cost) benefits, they are not expected to result in improved electric system reliability
. DOE disagrees with theNRDC'sviewthat the levels in the January 22 final rule are the appropriate baseline for determining whethertoday's rule is likely to have a significant adverse 139

### EE-RM/STD-98-440 - 303 effect on the supply, distribution, or use ofenergy and, thus, subject to the Executive Order's analysis requirement. For reasons stated in Section III, we think the proper baseline isthe currently effective standards (ie., the standards prescribed by NAECA). In any case, section 325 ofEPCA requires DOE to weigh all ofthe significant costs and benefits associated with standard levels that are being considered and notjust avoided electricity costs. DOE has set forth its evaluation ofcosts and benefits elsewhere in this notice (see Section VII). DOE has also considered various regulatory aid non-regulatory alternatives to today's proposed standard (see Section VIII.B., "Review Under Executive Order 12866," and the Regulatory Impact Analysis portion ofthe TSD). DOE has corncluded that the costs associated with elevating the current standard to the standard level set forth in the January 22, 2001, final rule exceed the associated benefits, including the benefit ofavoided electricity consumption. K. Congressional Notification As required by 5U.S.C. § 801, DOE will submit to Congress a report regarding the issuance oftoday's final rule prior to the effective date set forth at the outset ofthis notice. DOE also will submit the supporting analyses to the Comptroller General (GAO) and make them available to each House ofCongress. The report will state that it has been determined that the rule is a "major rule" as defined by 5 U.S.C. § 804(2).

140 EE-RM/STD-98-440 - 

# 003 effect on the supply, distribution, oruse ofenergy and, thus, subjectto the Executive Order's analysis requirement. Forreasons stated in Section III, we thinkthe properbaseline is the currently effective standards (i.e., the standards prescribed by NAECA); In any case, section 325 ofEPCArequires DOEto weigh all ofthe significant costs and benefits associated with standard levels that are being considered and notjust avoided electricity costs. DOE has set forth its evaluation ofcosts and benefits elsewhere inthis notice (see SectionVII). DOE has also considered various regulatory and nOll-regulatory alternatives to today's proposed standard (see Section VIII.B., "Review**UnderExe(~Ltive** Order 12866," and the Regulatory Impact Analysis portion ofthe TSD). DOE has cor;cludf'd that the costs associated with elevating the current standard to the standard level set fOIth in the January 22, 2001, final rule exceed the associated benefits, including the benefit ofavoided electricity consumption. K. CongressionalNotification As required by5 U.S.C. § 801,DOE will submitto Congress a report regarding the issuance oftoday's final rule priorto the effective date set forth at the outset ofthis notice. DOE also will submit the supporting analyses to the Comptroller General (GAO) and make them available to each House ofCongress. The report will state that it has been determined that the rule is a "majorrule" as defined by 5 U.S.C. 

### § 804(2).

140

### EE-RM/STD-98-440 - 06)3 

### List ofSubjects in 10 CFRPart430 Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C., on

D.avid K. Garman Assistaat Secretary Energy Efficiency and Renewable Energy

141 

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

## \3 03 List ofSubjects in 10 CFRPart430 Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C., on

;::;'avid K. Gannan**A~lsista.1t** Secretary Energy :Sfficiency and Renewable Energy

141

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

## -3 03 For the reasons set forth in the preamble, Part 430 ofChapter II ofTitle 10, Code of Federal Regulations is amended, as set forth below.

PART 430

- ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS 1. The authority citation for Part 430 continues to read as follows: Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

2. Section 430.2 is amended by adding definitions for "elfective date," "maximum allowable energy use," "minimum required energy efficiency," "small duct, hiigh velocity system," and "through-the-wall air conditioner and heat pump" in alphabetical older to read as follows:
§430.2 Definitions.

Effective date means the date on and after which a manufacturer must comply with an energy conservation standard in the manufacture ofa covered product.

Maximum allowable energy use means an energy conservation standard for a covered product, expressed interms ofa maximum amount ofenergy that may be consumed, which is established by statute orby a final rule that has modified this partpursuant to a date DOE has selected consistent with the Congressional Review Act (5 U.S.C. 801-804) and any other applicable law,
or the date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later. 142 EE-RM/STD-98-440 - 

## 303 Forthe reasons set forth in the preamble, Part 430 ofChapterII ofTitle 10, Code of Federal Regulations is amended, as set forth below.

PART 430 - ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS 1. The authority citation for Part430 continues to read as follows: Authority: 42 U.S.c. 6291-6309; 28 U.S.C. 2461 note.

2. Section 430.2 is amended by adding definitions for**"eH,~ctive** date," "maximum allowable energy use," "minimumrequired energy efficiency," "small duct,,:ligh velocity system," and "through-the-wall air conditioner and heatpump" in alphabetkal Olderto read as follows:


### §430.2 Definitions. 

## * * 

## * * * Effective date means the date on and after which a manufacturer must comply with an energy conservation standard in the manufacture ofa coveredproduct. 

## * * * * * Maximum allowable energy use means an energy conservation standard for a covered product, expressed interms ofa maximum amount ofenergy that may be consumed, which is established by statute orby a final rule thathas modified this part pursuantto a date DOE has selected consistent with the Congressional ReviewAct (5 U.S.C. 801-804) and any other applicable law,
orthe date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later.
142

### EE-RM/STD-98-440 - 3,3
* * * * * 

### Maximum allowable water use means an energy conservation standard for a covered product, expressed interms ofamaximum amount ofwater that may be consumed, which is established by statute or by a final rule that has modified this part pursuant to a date DOE has selected consistent with the Congressional Review Act (5U.S.C. 801-804) and any other applicable law, or the date
on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later.
* * * * * 

### Minimum required energy efficiency means an energy conservation standard for a covered product, expressed in terms ofa minimum efficiency quotient, which is established by statute or by a final rule that has modified this part pursuant to a date DOE has selected consistent with the Congressional Review Act (5U.S.C. 801-804) and any other applicable law, or the date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later.

Small duct, high velocity system means a heating and cooling product that contains ablower and indoor coil combination that: (1) Is designed for, and produces, at least 1.2 inches ofexternal static pressure when operated at the certified airvolume rate of220-350 CFM per rated ton ofcooling; and (2) When applied in the field, uses high velocity room outlets generally greater than 1000 fpm which have less than 6.0 square inches offree area. Through-the-wall air conditioner and heat pump means a central air conditioner or heat pump that
143 EE-RM/STD-98-440 - 

# 303 '" '" '" '" '" Maximum allowable water use means an energy conservation standard for a covered product, expressed in terms ofamaximum amount ofwater that may be consumed, which is established by statute orby a final rule that has modified this partpursuantto a date DOE has selected consistent with the Congressional Review Act (5 U.S.C. 801-804) and any other applicable law, or the date

on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later.

# '" '" 

# '" * 

## '" Minimum required energy efficiency means an energy conservation standard f('lr a covered product, expressed in terms ofa minimum efficiency quotient, which is est.lblisiledby statute or by a final rule that has modified this part pursuantto a date DOE has selected consistent with the Congressional Review Act (5 U.S.c. 801-804) and any other applicable law, orthe date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later. 

## * 

## '" 

# '" * 

## '" Small duct. high velocity system means a heating and cooling product that contains a blower and indoor coil combinationthat: (1) Is designed for, and produces, at least 1.2 inches ofexternal static pressure when operated at the certified air volume rate of220-350 CFM per ratedton ofcooling; and (2) When applied in the field, uses high velocity room outlets generally greater than 1000 fpm which have less than 6.0 square inches offree area. 

## '" 

# '" 

# '" '" '" Through-the-wall airconditioner and heat pump means a central air conditioner or heat pumpthat
143

### EE-RM/STD-98-440 - 303 is designed to be installed totally or partially within a fixed-size opening in an exterior wall, and: (1) Is manufactured priorto January 23, 2010; (2) Isnot weatherized; (3) Is clearly and permanently marked for installation only through an exterior wall; (4) Has arated cooling capacity no greater than 30,000 Btu/hr; (5) Exchanges all ofits outdoor air across a single surface ofthe equipment cabinet; and (6) Has a combined outdoor air exchange area ofless than 800 square int.les (split systems) or less than 1,210 square inches (single packaged systems) as measured
on the surface described in (5).

3. Section 430.32 ofSubpart C is amended by revising paragraph (c)toread as follows:
§430.32 Energy and water conservation standards and effective dates.

(c) Central air conditioners and central air conditioning heat pumps. (1)Split system central air conditioners and central air conditioning heat pumps manufactured after January 1, 1992, and before January 23, 2006 , and single package central airconditioners and central air conditioning heat pumps manufactured after January 1, 1993, and before January 23, 2006 , shall have Seasonal Energy Efficiency Ratio andHeating Seasonal Performance Factor no lessthan:
144 EE-RM/STD-98-440 - 

# 303 is designed to be installed totally or partially within a fixed-size opening in an exterior wall, and: (1) Is manufactured priorto January 23, 2010; (2) Is not weatherized; (3) Is clearly and permanently marked for installation only through an exteriorwall; (4) Has a rated cooling capacity no greater than 30,000 Btulhr; (5) Exchanges aU ofits outdoor air across a single surface ofthe equipment cabinet; and (6) Has a combined outdoor air exchange area oflessthan 800 square ind.les (split systems) orless than 1,210 square inches (single packaged systems) as measlTed
onthe surface described in (5). 

## * * 

## * * *

3. Section430.32 ofSubpartC is amended by revising paragraph (c) to read as follows:

§430.32 Energy and water conservation standards and effective dates.


## * * * * * (c) Central air conditioners and central air conditioning heat pumps. (1) Split system central air conditioners and central air conditioning heatpumps manufactured after January 1, 1992, and before January 23, 2006 , and single package central air conditioners and central air conditioning heatpumps manufactured after January 1, 1993, and before January 23, 2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:
144

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

### - 

# 303 Product class Seasonal Energy Heating Seasonal Efficiency Ratio Performance Factor 1. Split systems................................. 10.0 6.8 2. Single package systems ...................... 9.7 6.6 (2) Central air conditioners and central air conditioning heat pumps manufactured on or after January 23, 2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than: Seasonal Energy Heating Seasonal Product class Efficiency Ratio Performance Factor (SEER) (HSPF) 1.Split system air conditioners............................. 12 2. Split system heat pumps........................................................ 12 7.4 3. Single package air conditioners............................. 12 4. Single package heat pumps................................... 12 7.4 5.A. Through-the-wall air conditioners and heatpumps - split system.................................. ........ .............................. 10.9 7.1 5.B. Through-the-wall air conditioners and heat pumps - single package..................................................................................... 10.6 7.0 6. Small duct, high velocity systems ....................................... 10.0 6.8



### 4. Section 430.34 is added to Subpart C to read as follows:

145 EE-RM/STD-98-440 - 

# 303 Product class Seasonal Energy Heating Seasonal Efficiency Ratio Perfonnance Factor 1. Split systems....................................... 10.0 6.8 

### 2. Single package systems...................... 

### 9.7 6.6 (2) Centra] air conditioners and central air conditioning heat pumps manufactured on or after January 23, 2006, shall have SeasonalEnergyEfficiency Ratio and Heating Seasonal Perfonnance Factorno less than:
Seasonal Energy Heating Seasonal 

# 1 Product class Efficiency Ratio Perfonnance Factor (SEER) (HSPF) 1. Split system air conditioners
................................................. 12 

## - 2. Split system heat pumps........................................................ 12 7.4 3. Single package air conditioners
............................................. 12 

# - 4. Single package heat pumps................................................... 12 7.4 5.A. Through-the-wall air conditioners and heat pumps - split system....................................................................................... 10.9 7.1 S.B. Through-the-wall air conditioners and heat pumps - single package
..................................................................................... 10.6 7.0 6. Small duct, high velocity systems ....................................... 10.0 6.8

*. 

### * * * *

4. Section 430.34 is added to Subpart C to read as follows:

145

### EE-RM/STD-98-440- ,3 

## 3 §430.34 Energy and water conservation standards amendments The Department ofEnergy may not prescribe any amended standard which increases the maximum allowable energy use or, in the case ofshowerheads, faucets, water closets or urinals, the maximum allowable water use, or which decreases the minimum required energy efficiency of
a covered product.

146 EE-RM/STD-98-440 - 

# 303 §430.34 Energy and water conservation standards amendments TheDepartment ofEnergy may not prescribe any amended standard which increases the maximum allowable energy use or, in the case ofshowerheads, faucets,.water closets or urinals, the maximum allowable wateruse, or which decreases the minimum required energy efficiency of

a covered product.

146

### EE-RM/STD-98-440 - 3C)3 

### Appendix [The following letters from Department ofJustice will not appear in the Code ofFederal Regulations.]



### DEPARTMENT OF JUSTICE Antitrust Division 

### A. DOUGLAS MELAMED Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N. W. Washington, D.C. 20530-0001 (202) 514-2401/ (202) 616-2645 (f) antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web)
December 4, 2000
Mary Anne Sullivan, General Counsel Department ofEnergy Washington, D.C. 20585
Dear General Counsel Sullivan: I am responding to your October 16, 2000 letter seeking the views ofthe Attorney General about the potential impact on competition oftwo proposed energy efficiency standards: one for clothes washers and the other for residential central air conditioners and heat pumps. Your request was submitted pursuant to Section 325(o)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which requires the Attorney General to make a determination of the impact ofany lessening ofcompetition that is likely to result from the imposition ofproposed energy efficiency standards. The Attorney General's responsibility for responding to requests from other departments about the effect ofaprogram on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR §0.40(g).

147 EE-RM/STD-98-440 - 

# 303 Appendix [The following letters from Department ofJustice will not appear in the Code ofFederal Regulations.]

Mary Anne Sullivan, General Counsel Department ofEnergy Washington, D.C. 20585
Dear General Counsel Sullivan: 

### DEPARTMENT OF JUSTICE Antitrust Division 

### A. DOUGLAS MELAMED Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N. W. Washington, D.C. 20530-0001 (202) 514-24011 (202) 616-2645 (f) antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web)
December 4, 2000



### I am responding to your October 16, 2000 letter seekingthe views ofthe Attorney General about the potential impact on competition oftwo proposed energy efficiency standards: one for clothes washers and the otherfor residential central air conditioners and heat pumps. Your request was submitted pursuantto Section 325(0)(2)(B)(i)ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which requires the Attorney General to make a determination of the impactofany lessening ofcompetition that is likely to result from the imposition ofproposed energy efficiency standards. The Attorney General'sresponsibility for responding to requests from other departments aboutthe effect ofa program on competitionhas been delegated to the AssistantAttorney General for the Antitrust Division in 28 CFR § OAO(g).

147

### EE-RM/STD-98-440 - 303 We have reviewed the proposed standards and the supplementary information published in the Federal Register notices and submitted to the Attorney General, which include information provided to DOE ofEnergy by manufacturers. We have additionally conducted interviews with members ofthe industries. We have concluded that the proposed clothes washer standard would not adversely affect competition. In reaching this conclusion, we note that the proposed standard is based on ajoint recommendation submitted to DOE ofEnergy by manufacturers and energy conservation advocates. That recommendation states that virtually all manufacturers ofclothes washers who sell in the United States participated in arriving at the recommendation through their trade association, thatthe recommendation was developed in consultation with small manufacturers, and that the manufacturers believe the new standard would not likely reduce competition. We note further that, as the industry recommended, the proposed standard will be phased in over six years, which will allow companies that do not already have products that meet the proposed standard sufficient time to redesign their product lines. With respect to the proposed residential central air conditioner and heat pump standard, we have concluded that there could be an adverse impact on competition. The proposed standard, Trial Standard Level 3, is expressed-in terms oftwo industry measurements: SEER (Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal Performance Factor).' These standards would change from the current central air conditioner and heat pump efficiency standards of 10 SEER/6.8 HSPF for split system air conditioners and heat pumps and 9.7 SEER/6.6 HPSF for single package air conditioners and heat pumps to 12 SEER for air conditioners and 13 SEER/7.7 HPSF for heat pumps. We have identified three possible competitive problems presented by the proposed standards. First, the proposed 13 SEER heat pump standard would have a disproportionate impact on smaller manufacturers. Currently less than 20 percent ofthe total current product lines meet the proposed standards, but for some small manufacturers, 100 percent oftheir product lines fail to satisfy the proposed standard. Second, the proposed standard for heat pumps, and in some instances for air conditioners, would have an adverse impact on some manufacturers ofthese products (including those products referred to in the Federal Register notice as "niche products") used to retrofit existing housing and

'The Federal Register notice also requested comments on a proposal to adopt a standard for steady-state cooling efficiency (EER) and discussed several options DOE ofEnergy is considering. The proposed rule set forth in the notice does not, however, include a provision regarding an EER standard, and the views ofDepartment ofJustice expressed in this letter are limited to the impact of'any lessening ofcompetition
... that is likely to result from the imposition ofthe [proposed] standard," as required by EPCA. IfDOE ofEnergy proposes a rule in the future incorporating an EER standard, DOE will then evaluate that proposed rule and express its views about the competitive impact ofthat standard. 148 EE-RM/STD-98-440 - 

# 303 We have reviewed the proposed standards and the supplementary information published in the Federal Register notices and submitted to the Attorney General, which include information provided to DOE ofEnergy by manufacturers. We have additionally conducted interviews with members ofthe industries. We have concluded thatthe proposed clothes washer standard would not adversely affect competition. In.reaching this conclusion, we note that the proposed standard is basedon ajoint recommendatipn submitted to DOE ofEnergy by

### m~ufacturers and energy conservation**advocates~** Thatrecommendation statesthat virtually all manufacturers ofclothes washers who sell in the United States participated in arriving atthe recommendation through their trade association, thatthe recommendation was developed 

### in consultation with small manufacturers, and that the manufacturersbeUeve the new standard would not likely reduce competition. We note further that;

# as the industry recommended, the proposed standard will be phased in over six years, whichwill all()w companiesthat do not already have productsthat meetthe proposed standard sufficienttimeto redesign theirproduct lines. Withrespect to the proposed residential central airconditioner and heat pump standard, wehave concluded thatthere could be an adverse impact on cOrripetition. The proposed standard, Trial Standard Level 3, is expressed-interms oftwo industry measurements: SEER (Seasonal Energy Efficiency-Ratio) and HSPF (Heating Seasonal Performance Factor).1 These standards would change fromthe current.central air conditioner and heat pump efficiency standards of 10 SEERl6.S HSPF for split system air conditioners and heatpumps and 9.7 SEERl6.6 HPSF for singlepackage air conditioners and heat pumps to 12 SEERfor air conditioners and 13 SEERl7.7 HPSF for heat pumps.

. Wehave identified three possible competitive problems presented by the proposed standards.**First~** the proposed 13 SEERheat pump standardwouldhave. a disproportionate impact on smaller manufacturers. Currently less than 20 percent ofthe total current product lines meet the proposed standards, butfor some small manufacturers, 100 percent oftheirproduct lines fail to satisfy the proposed standard. Second, the proposed standard for heatpumps, and in some instances for air conditioners, would havean adverseimpact on some manufacturers ofthese products (including those products referred to inthe Federal Register notice as "nicheproducts") used to retrofit existing housing and (The Federal Register notice also requested comments on a proposal to adopt a standard for steady-state cooling efficiency (EER) and discussed several options DOE ofEnergy is considering. The proposed rule set forth in the·notice doesnot, however, include a provision regarding an EER standard, and the views ofDepartment ofJustice expressed in this letter are limited to the impact ofany lessening ofcompetition
...that is likely to result from the imposition ofthe [proposed]**standard~"** as required by EPCA. IfDOE ofEnergy proposes a rule in the future incorporating an EER standard, DOE will then evaluate that proposed rule and express its views about the competitive impact ofthat standard. 

### 148

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

- 

# 3, 3 used in manufactured housing. These manufacturers could not make units that comply with the rule and fit into the available space. Third, the proposed heat pump standard of 13 SEER could make heat pumps less competitive with alternative heating and cooling systems. Because the standard will result in increases in the size and cost ofheat pumps, it is possible that purchasers will shift away from heat pumps to other systems that include electric resistance heat, reducing the competition that presently exists between heatpumps and those other systems. Department ofJustice urges DOE ofEnergy to take into account these possible impacts on competition in determining its final energy efficiency standard for air conditioners and heat pumps. DOE ofEnergy should consider setting a lower SEER standard for heatpumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints (such as markets served by niche products) and for manufactured housing.
Sincerely A. Doug as Melamed

149 EE-RM/STD-98-440- 

# 3D3 used in manufactured housing. These manufacturers could not make units that comply with the nile and fit into the available space. Third, the proposed heat pump standard of 13 SEERcould make heat pumps less competitive with alternative heating and cooling systems. Because the standard will result in increases in the size and cost ofheat pumps, it is possible that purchasers will shift away from heatpumps to other systems that inc1 ude electric resistance heat, reducing the competitionthat presently exists between heatpumps and those other systems.

.Department oflusth;:e urges DOE of Energy to take into account these possible impacts on competition indetermining its final energy efficiency standard for air conditioners and heat pumps. DOE ofEilergy should consider setting·a lower SEER standard for heat pumps, such as the standard included in Trial StandardLevel 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints (such as markets served by niche products) and for manufactured housing.
Sincerely A. Doug1 as Melamed

149

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

### 303 DEPARTMENT OF JUSTICE Antitrust Division
JOHN M. NANNES Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N.W. Washington, D.C. 20530-0001 (202) 514-2401/ (202) 616-2645 (f)
. antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web) 

### April 5, 2001 Eric J. Fygi, Acting General Counsel Department ofEnergy Washington, D.C. 20585 Dear Acting General Counsel Fygi: I am responding to your letter dated March 20, 2001, seeking the views ofthe Attorney General about the potential effect on competition ofthe final rule published on January 22, 2001, setting forth new energy efficiency standards for central air conditioners and heat pumps. You specifically asked for our views about the impact on competition ofthe rule's prescription ofa 13 SEER (Seasonal Energy Efficiency Rating) standard for all product classes, except for niche products, and the desirability ofreducing the standard to a 12 SEER level for all subcategories. Your letter requested our views by March 30, but your staffagreed to extend the response date to April 6. As you noted in your letter to the Attorney General, the Antitrust Division had earlier expressed its views on the proposed rule, which provided for a 12 SEER standard for air conditioners and a 13 SEER standard for heat pumps. The Division had concluded that the 13 SEER standard for heat pumps could have an adverse effect on competition and urged the Department ofEnergy to adopt a 12 SEER standard for heat pumps. We noted only minor concerns about theproposed 12 SEER standard for air conditioners. We have reviewed the final rule and determined that the 13 SEER heat pump standard still raises competitive problems. We have further determined that the 13 SEER standard for airconditioners also raises competitive concerns. 150 Eric 1. Fygi, Acting General Counsel DepartmeDt ofEnergy Washington, D.C. 20585 DearActing General Counsel Fygi: EE-RM/STD-98-440 - 

## 303 DEPARTMENT OFJUSTICE Antitrust Division
JOHN M. NANNES Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N.W. Washington, D.C. 20530-0001 (202) 514-24011 (202) 616-2645 

### (f)
. antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web) April 5, 2001

. I am responding to your letter dated March 20, 2001, seeking the views ofthe Attorney General aboutthe potential effectoncompetition ofthe final rule published on January 22, 2001, setting forth newenergy efficiency standards for central air conditioners and heat pumps. You specifically asked.for ourviews about the impact on competition ofthe rule's prescription ofa 13 SEER (SeasonalEnergy Efficiency Rating) standard for all product classes, except for niche products, and the desirability ofreducing the standard to a 12 SEER level for all subcategories. Your letterrequested ourviews by March 30, but your staffagreed to extend the response date to April 6. As you noted inyour letterto the Attorney General, the Antitrust Division had earlier expressed its views onthe proposed rule,whichprovided for a 12 SEER standard for air conditioners and a 13 SEER standard for_heatpumps. The Division had concluded that the 13 SEER standard for heat pumps could have an adverse effect on competition and urged the Department ofEnergy to adopt a 12 SEER standardfotheatpUinpS. We noted only minor concerns about the proposed 12 SEER standard for air conditioners. We have reviewed the final·rule and determined that the 13 SEERheat pump standard still raises competitive problems. We have further determined that the 13 SEER standard for air conditioners also raises competitive concerns. 150

### EE-RM/STD-98-440 -3 03 In our earlier letter, we identified and described three competitive problems resulting from the proposed 13 SEER standard for heat pumps, including a disproportionate impact on smaller manufacturers2 

### and an adverse effect on manufacturers of specialized equipment (the niche product manufacturers) and manufacturers ofequipment for space-constrained installation sites (such as manufactured housing, which accounts for a significant percentage ofthe country's housing starts). The exception made in the final rule for niche product manufacturers may alleviate competitive problems for their products, but the exception does not eliminate the difficulties formanufacturers ofstandard equipment who could not make equipment that complied with the 13 SEER standard and still fit into space-constrained sites. The final rule also continues to have a disproportionate impact on smaller manufacturers of heat pumps. The 13 SEER standard for air conditioners raises the same kinds ofcompetitive problems as the 13 SEER standard does for heat pumps. We urge the Depariiment ofEnergy to consider the impact on competition and to adopt a 12 SEER standard for all products covered by the rule. Sincerely, John M. Nannes

2 We noted in our previous letter that less than 20 percent ofthe total current heat pump product lines meet the new standard, but for some small manufacturers, 100 percent oftheir product lines failed to satisfy the standard. The same is true for air conditioner manufacturers when the standard is 13 SEER. 

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

# 303 In ourearlier letter, we identifiedand described three competitive problems resulting from the proposed 13 SEER standard for heat pumps, including a disproportionate impact on smallermanufacturers2 and an adverse effect on manufacturers ofspecialized equipment (the niche product manufacturers) and manufacturers ofequipmentfor space-constrained installation sites (such as manufactured housing, which accounts for a significant percentage ofthe,country's housing starts). The exception made in the final rule for niche product manufacturers may alleviate competitive problems for theirproducts, butthe exception does not eliminate the difficulties for manufacturers ofstandard equipmentwho could notmake equipment that compliedwiththe 13 SEER standard and still fit into space-constrained sites. The final rule also continues to have

## adisproportionate impact on smallermanufacturers of heatpumps. The 13 SEER standard for air conditioners raises the samekinds ofcompetitive problems as the 13 SEER standard does for heatpumps. We urge the DepelimentofEnergy to considerthe impact on competition and to adopt a 12 SEER standardfor all p.roducts covered by the rule. Sincerely, John M. Nannes

2We noted in ourprevious letterthat less than 20 percent ofthe total current heat pump product lines meet the new standard, but for some small manufacturers, 100 percent oftheir product lines failed to satisfy the standard.

, The same is true for air conditioner manufacturers when the standard is 13 SEER. 151

### EE-RM/STD-98-440- 3- 3 DEPARTMENT OFJUSTICE Antitrust Division CHARTIES A JAMES Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001 (202) 514-2401 / (202) 616-2645 (f) antitrust@justice.usdoj.gov (interet) 

### http://www.usdoj.gov (World Wide Web)

October 19, 2001

Lee Liberman Otis, General Counsel Department ofEnergy Washington, D.C. 20585 Dear General Counsel Otis: I am responding to your August 15, 2001 letter seeking the views ofthe Attorney General about the potential impact on competition ofproposed energy efficiency standards for residential central air conditioners and central air conditioning heat pumps. Your request was submitted pursuant to Section 325(o)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which requires the Attorney General to make a determination ofthe impact of any lessening ofcompetition that is likely to result from the imposition ofproposed energy efficiency standards. The Attorney General's responsibility for responding to requests from other departments about the effect ofa program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR §0.40(g). The proposal provides for 12 SEER standards for all types ofresidential central air conditioners and central air conditioning heat pumps, except those that are installed through an exterior wall. We have reviewed the materials that accompanied your August 15 letter, the materials that you previously provided, and the comments submitted to DOE, as well as the results ofour industry interviews. Based on thatreview, we have concluded that the proposal would not adversely affect competition. Sincerely,

152 EE-RM/STD-98-440- 

## .303 DEPARTMENT OFJUSTICE Antitrust Division CHARI,ES A JAMES, Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001 (202)·514-2401/ (202) 616-2645 (f) antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web)

October 19,2001

Lee Libennan Otis, General Coun5el Department ofEnergy Washington, D.C. 20585 Dear General Counsel Otis: I am responding to your August 15,2001 letter seeking the views ofthe Attorney General about the potential impacton competition ofproposed energy efficiency standards for residential central air conditioners and centralairconditioningheat pumps. Yourrequest was submitted pursuantto Section 325(o)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), whichrequires the Attorney General to make a detennination ofthe impact of any lessening ofcompetitionthat is likely to result from the imposition ofproposed energy efficiency standards
..The Attorney General'sresponsibility for responding to requests from other departments aboutthe effect ofa·program on competitionhas been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR § 0.40(g). The proposal provides for 12 SEER standards for all types ofresidential central air conditioners and central air conditioning heatpumps, except those that are installed through an exteriorwall. We have reviewed the materials that accompanied your August 15 letter, the materials that you previously provided, and the comments submitted to DOE, as well as the results ofourindustry interviews. Based onthatreview, we have concluded that the proposal would not adversely affect competition. Sincerely,

152

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

## -,33 Charles A. James

153 153 EE.RM/STD·98·440 

# -3a.3 Charles A. James

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

- 3 03 APPENDIX M: REVISED UTILITY IMPACTS ANALYSIS AND ENVIRONMENTAL ASSESSMENT
M.1 INTRODUCTION As described in the Utility Impacts Analysis chapter (Chapter 11) ofthe Technical Support Document (TSD) andthe Environmental Assessment (EA), avariant ofthe Department ofEnergy, EnergyInformation Administration's (DOE/EIA)National EnergyModeling System (NEMS), called NEMS-BRSa (BRS is DOE's Building Research and Standards office) is used to conduct both the utility impacts analysis and environmental assessment. NEMS was used by DOE/EIA to produce the 2000 Annual Energy Outlook (AEO200)',and NEMS-BPS is used to provide some key equivalent inputs to the standards analysis. The purpose of the utility impacts analysis is to assess the impact of each central air conditioner andheat pumptrial standard levelonelectric utilities. The impact ofefficiency standards onutilities isassessed byreporting several keyindustryparameters, notably energy sales, generation, and capacity. The primary focus oftheEA is the effect ofefficiency standaids on air resources. For each ofthetrial standard levels, total powersector emissions are calculated based onoutput from NEMSBRS. The EA considers onlytwo pollutants, nitrogen oxides (NO,)and sulfur dioxide (SO 2

### ), and one emission, carbon (C). Because emissions of SO2 from power plants are capped by clean air legislation, physical emissions ofthis pollutant from electricity generation will be only minimally affected by possible air conditioner and heat pump standards. The maximum SO2 allowed by law will most likely still be produced, but because SO 2 

### emissions are traded, and ifSO 2 

### emissions are lowered due to less power generation, then the cost ofSO 2 

### emission credits may decrease slightly. Therefore, the EA does notconsider changes inpower sector SO2 emissions, although itdoes report household-emissions savings. The only form ofcarbon tracked by NEMS-BRS is carbon dioxide (CO2), sothe carbon discussed in this analysis is only in the form ofCO2, butis reported as mass of elemental carbon, in keeping with standard practice. For details on how the Utility Impacts Analysis was conducted refer to Chapter 11 and Appendix H ofthe TSD. Details on how the Environmental Assessment was conducted can be found in a separate document.2

' For more information on NEMS, please refer to the U.S. Department ofEnergy, Energy Information Administration documentation. A useful summary isNationalEnergyModelingSystem: An Overview 2000, DOE/EIA-0581 (2000), March 2000. DOE/EIA approves useofthe name NEMS to describe onlyan official version ofthe modelwithout any modification tocode or data. Because our analysis entails some minor code modifications and the model is run under policy scenarios that are variations on DOE/EIA assumptions, the name NEMS-BRS refers to the model as used here (BRS is DOE's Building Research and Standards office, under whose aegis thiswork has been performed). 

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

## 3 

## 03 APPENDIX 

### 1\1: REVISED UTILITY IMPACTS ANALYSIS AND ENVIRONMENTALASSESSMENT
M.l INTRODUCTION As described in the UtilityImpacts Analysis**c~apter** (Chapter II) ofthe Technical Support Document (TSD) andthe Environmental Assessment (EA), a variant oftheDepartment ofEnergy, EnergyInfonnationAdministration's(DOEIEIA)NationalEnergyModelingSystem(NEMS),called

- NEMS-BRsa (BRS is DOE's BuildingResearch andStandards**offi~e)** is used to conductboth the

utilityimpacts analysis and environmental assessment. NEMS was used by DOEIEIA to produce the 2000 Annual Energy Outlook (AE0200) I,and NErv'3-BRS is used to provide some key equivalent inputs to the standards analysis. The purpose of the utility impacts analysis is to asses:, the impact of each central air conditionerandheatpumptrial standardlevelonelectricutilities. Theimpactofefficiencystandards onutilitiesisassessedbyreportingseveralkeyindustryparameters,notablyenergysales,generation, and capacity. Theprimary focus ofthe EA is the effect ofefficiency stmdards on airresources. Foreach ofthetrial standardlevels, totalpowersectoremissionsare calculated. 'oasedon outputfrom NEMSBRS. The EA considers only two pollutants, nitrogen oxides (NOx) and sulfur dioxide (S02)' and one emission, carbon (C). Because emissions ofS02 from power plants are capped by clean air legislation, physical emissions ofthis pollutant from electricity generation will be only minimally affected by possible air conditioner andheat pump standards. The maximum S02 allowed by law

. will most likely still be produced, butbecause S02 emissions are traded, and ifS02 emissions are

lowered due to less powergeneration, then the cost ofS02 emission credits may decrease slightly. Therefore,theEA does notconsiderchangesin powersector S02emissions, although it doesreport household-emissions savings. The only fonn ofcarbon tracked byNEMS-BRS is carbon dioxide (C02), so the carbon discussed in this analysis is only in the fonn ofCO2 ,but is reported as mass of elemental carbon, in keeping with standard practice. For details on how the Utility Impacts Analysis was conducted refer to Chapter 11 and Appendix H ofthe TSD. Details on how the Environmental Assessment was conducted can be found in a separate document.2

a For more information on NEMS, please refer to the U.S. Department ofEnergy, Energy Information Administration documentation. A useful summary is NationalEnergyModeling System: An Overview 2000, DOEIEIA-058I(2000), March 2000. DOE/EIA approves use ofthenameNEMS todescribeonlyan official version ofthemodelwithout anymodificationtocodeordata. Because our analysis entails some minor code modifications and the model is run under-policy scenarios that are variations on DOE/EIA assumptions, the name NEMS-BRS refers to the model as used here (BRS is DOE's Building Research and Standards office, under whose aegis this work has been performed). M-I

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

## 303 M.2 REASON FOR REVISING ANALYSES Afterthe completion ofthe priorutility impacts analysis and environmental assessment for central air conditioner and heat pump standards, DOE determined that there were a number of apparent problems associated with the specific load shapes used in NEMSb. As a result, DOE conducted a comprehensive review of the end-use load shapes used by NEMS for all sectors, includingtheresidential, commercial, industrial, andtransportation sectors. The apparent problems associated with the load shapes were confirmed by the review and an alternative set ofend-use load shapes were constructed for all ofthe sectors. 3 

### Inthecase oftheresidential air-conditioning (i.e. space-cooling) end-use, thealternative load shapes are distinctly different than the load shapes used in the 2000 versi m ofNEMS. Figure M.l shows the monthly loadshapes usedin the2000 version ofNEMS.4 

### Notetle non-representativeness ofthe load shapes as the peakday occurs in Octoberand the loads intypical wirter months (such as January and February) are greater than those in typical summer months (such as June and July). In addition,there is noattemptto capture the impactofregional variations. The alternative load shapes for residential air-conditioning depicted in Figures M.2a and M.2b are much more representative than those used in the 2000 version ofNEMS.5 

### Regional variations are explicitly addressed as a different set ofload shapes areprovided for each ofthethirteen regions represented ii iNEMS. (Only two ofthe thirteen loadshapes, one for anorthern region(Figure M.2a) andone fora southern region (Figure M.2b) are shown.) Notethatthepeakdays nowoccurin what aretypicallyilie hottestmonths ofthe year (July and August) with very little load allocated to the winter months. Also note that although the alternative load shapes shift the load to amore appropriate time ofthe year (i.e., the summermonths), the overall magnitude ofthe alternative loads is less than thatofthe loadsused in the 2000 version ofNEMS. The use ofthe alternative residential air-conditioning load shape along with the entire set of new alternative load shapes for all the other sectoral end-uses results in smaller peak-to-average system loads. Table M.I shows thepeak-to-average load ratios forthe new alternative sectoral load shapes versus the sectoral load shapes that are used in the 2000 version ofNEMS.6 

### Note thatfor all sectors and for all regions (as defined bythe North American Electric Reliability Council (NERC)) thepeak-to-average loadsare less thanthose fromthe 2000version ofNEMS. Thisresults in overall built-up system load shapes that are less peaky. By incorporating the new alternative load shapes in NEMS, less peaking capacity and less total capacity are projected. This in turn implies that reducing the energy use on arelatively peaky end-use likeresidential air-conditioning willhave less ofan impact on overall system capacity.

bEnd-uses in NEMS are characterized with 24-hour weekday, weekend, and peakday load shapes per month. In other words, each end-use ischaracterized by aminimum ofthirty-six 24-hour load shapes (three day types permonth for twelve months). Those end-uses that are impacted by regional variations and building application, such as space-conditioning appliances, are characterized with additional load shapes. Regional load shapes inNEMS are based on the thirteen regions defined by the North American Electric Reliability Council (NERC). 

### M-2 EE-RM/STD-98-440 - 

# 303 M.2 REASON FORREVISING ANALYSES Afterthe completion ofthe priorutility impacts analysis and environmental assessment for central air conditioner and heat pump standards, DOE determined that there were a number of apparent problems associated with the specific load shapes used in NEMS b• As a result, DOE conducted a comprehensive review ofthe end-use load shapes used by NEMS for all sectors, includingtheresidential, commercial,industrial, andtransportation sectors. Theapparentproblems associated with the load shapes wereconfirmedbythe review and an alternative set of end-useload shapes were constructed for all ofthe sectors.3 Inthecaseoftheresidential air-conditioning(Le. space-cooling)end-use,thealternativeload shapes are distinctly different than the load shapesused in the 2000 versi m ofNEMS. Figure M.I showsthemonthlyload shapesusedinthe 2000versionofNEMS.4 Notetbenon-representativeness ofthe load shapes as the peakday occurs in Octoberand the loads in typic"l wirott:'r months (such as January and February) are greaterthan those in typical summermonths**(sll,~h** as June and July). In addition,thereis noattempttocapturethe impactofregional variations. The altemativeload shapes for residential air-conditioning depicted in Figures M.2a and M.2b are much more representative than those used in the 2000 version ofNEMS.s Regional variations are explicitly addressed as a different setofloadshapesareprovided foreach ofthethirteenregionsrepresentediJ INEMS. (Only two ofthe thirteen loadshapes,one for anorthernregion (FigureM.2a)andone f'Jr a southernregion (FigureM.2b)are shown.}Notethatthepeakdaysnowoccurin whataretypicallyiilehottestmonths ofthe year (July and August) with very little load allocated to the winter months. Also note that although the alternative load shapes shift the load to a more appropriate time ofthe year (i.e., the summermonths), the overallmagnitude ofthe alternative loads is less than that ofthe loads used in the 2000 version ofNEMS. Theuseofthe alternative residential air-conditioning load shape along with the entire setof new alternative load shapes for aU the other sectoral end-uses results in smaller peak-to-average system loads. TableM.l shows thepeak-to-average load ratios for the new alternative sectoral load shapes versusthe sectora-lload shapesthatare usedin the 2000versionofNEMS.6 Notethat for all sectors and for all regions (as definedbytheNorth American Electric Reliability Council (NERC)) thepeak-to-averageloadsarelessthanthosefrom the 2000versionofNEMS. This results in overall built-up system load shapes that are less peaky. By incorporating the new alternative load shapes

..in NEMS, less peaking capacity and less total capacity are projected. This in turn implies that

reducingtheenergyuseonarelativelypeakyend-uselikeresidential air-conditioningwillhaveless ofan impact on overall system capacity.

bEnd-uses in NEMS are characterized with 24-hour weekday, weekend, and peakday load shapes per month. In other words, each end-useis characterized bya minimumofthirty-six 24-hourload shapes (three daytypespermonth for twelvemonths). Those end-uses that are impacted by regional variations and building application, such as space-conditioning appliances, are characterized with additional load shapes. Regional load shapes in NEMS are based on the thirteen regions defined by the North American Electric Reliability Council (NERC). M-2EE-RM/STD-98-440 - 

# 303

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

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### Figure M.2a Alternative Residential Space-Cooling Load Shapes for the North Region M-4 EE-RM/STD-98-440 - 

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

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

## 303 Table M.1 Peak-to-Average Load Ratios by Sector and Region: Current(NEMS 2000) Load Shapes versus New (Alternative) Load Shapes NERC Residential Commercial Industrial Transportation All Sectors Actual Region Current New Current New Current New Current New Current New System ECAR 3.96 2.37 2.29 2.66 1.50 1.36 4.44 2.24 2.11 1.86 1.49 ERCOT 4.67 2.97 2.23 2.71 1.52 1.36 4.44 2.25 2.49 2.20 1.71 MAAC 4.08 2.27 3.21 2.68 1.52 1.37 4.44 2.24 2.21 2.04 1.62 MAIN 3.67 2.32 2.25 2.62 1.49 1.36 4.44 2.25 2.02 1.90 1.66 MAPP 3.89 2.49 2.12 2.58 1.49 1.36 4.44 2.25 2.20 1.89 1.62 NY 3.80 2.07 2.85 2.63 1.53 1.38 4.44 2.25 2.14 2.00 1.56 NE 3.74 2.13 2.55 2.55 1.53 1.38 4.44 2.24 2.15 1.79 1.51 FL 5.00 2.39 3.75 2.57 1.49 1.36 4.44 2.24 3.09 2.21 1.63 STV 5.06 2.52 2.44 2.64 1.51 1.36 4.44 2.24 2.66 1.99 1.59 SPP 4.31 2.90 2.31 2.73 1.51 1.36 4.44 2.25 2.29 2.20 1.78 NWP 4.75 2.03 2.16 2.56 1.54 1.38 4.44 2.25 2.44 1.67 1.44 RA 3.96 2.25 2.27 2.71 1.54 1.38 4.44 2.25 2.25 2.03 1.61 CNV 5.16 2.07 2.16 2.48 1.54 1.38 4.44 2.25 2.47 1.72 1.59 

### M.3 REVISED RESULTS New NEMS-BRS standards case runs were conducted with the entire set of alternative sectoral end-use load shapes (which includedthe alternative residential air-conditioning load shapes) to demonstrate their impact on system capacity. These new runs were conducted with the 2000 version ofNEMS-BRS but with its existing setofsectoral load shapes replaced with the alternative versions. Forreasons stated inChapter 8oftheTSD (See Section 8.4.8), itis assumed thattheNAECA efficiency scenariois the most probable for Trial Standard Levels 1,2, and 3 while the Roll-up efficiency scenariois the most probable for Trial Standards Levels 4 and 5. (Refer to Chapter 7, Section 7.2.2.5 ofthe TSD forthe current efficiency distribution for each product class and for the assumed efficiency distributions after new standards under the NAECA and Roll-up efficiency scenarios.)As aresult,revised utility and environmental impacts were generated onlyforthe above most probable Trial Standard Level and efficiency scenariocombinations. Also, all results were generated compared tothe published AE02000Reference Case.
M.3.1 Revised Utility Impact Results Table M.2 shows the results from theNEMS-BRS Reference Case run withthe alternative M-6 NERC Region ECAR ERCOT MAAC MAIN MAPP NY NE FL STY SPP NWP RA CNY EE-RM/STD-98-440- 

## .3

# 03 Table M.I Peak-to-Average Load Ratios by Sector and Region: Current (NEMS 2000)Load Shapes versus New (Alternative) Load Shapes Residential Commercial Industrial Transportation All Sectors Actual Current New Current New Current New Current New Current New System

3.96 2.37 2.29 2.66 1.50 1.36 4.44 2.24 2.11 1.86 1.49 4.67 2.97 2.23 2.71 1.52 1.36 4.44 2.25 2.49 2.20 1.71 4.08 2.27 3.21 2.68 1.52 1.37 4.44 2.24 2.21 2.04 1.62 3.67 2.32 2.25 2.62 1.49 1.36 4.44 2.25 2.02 1.90 1.66 3.89 2.49 2.12 2.58 1.49 1.36 4.44 2.25 2.20 1.89 1.62 3.80 2.07 2.85 2.63 1.53 1.38 4.44 2.25 2.14 2.00 1.56 3.74 2.13 2.55 2.55 1.53 1.38 4.44 2.24 2.15 1.79 1.51 5.00 2.39 3.75 2.57 1.49 1.36 4.44 2.24 3.09 2.21 1.63 5.06 2.52 2.44 2.64 1.51 1.36 4.44 2.24 2.66 1.99 1.59 4.31 2.90 2.31 2.73 1.51 1.36 4.44 2.25 2.29 2.20 1.78 4.75 2.03 2.16 2.56 1.54 1.38 4.44 2.25 2.44 1.67 1.44 3.96 2.25 2.27 2.71 1.54 1.38 4.44 2.25 2.25 2.03 1.61 5.16 2.07 2.16 2.48 1.54 1.38 4.44 2.25 2.47 1.72 1.59
M.3 REVISED RESULTS New NEMS-BRS standards case runs were conducted with the entire set of alternative

. sectoralend-useload shapes(whichincludedthealternativeresidential air-conditioningloadshapes)

. to demonstrate their impact on system capacity. These new runs were conducted with the 2000

. version ofNEMS-BRSbutwith its existing set ofsectoral load shapesreplaced with the alternative

versions. Forreasons statedin Chapter8oftheTSD(See Section8.4.8), itis assumedthattheNAECA efficiency scenario is the most probable for Trial Standard Levels 1, 2, and 3 while the Roll-up efficiency scenario is the most probable for Trial Standards Levels 4 and 5. (Refer to Chapter 7, Section 7.2.2.5 ofthe TSD for the current efficiency distribution for each product class and for the assumed efficiency distributions after new standards under the NAECA and Roll-up efficiency scenarios.) As aresult,revisedutilityand environmental impactsweregeneratedonlyforthe above most probable Trial Standard Level and efficiency scenario combinations. Also, all results were generated compared to the published AE02000Reference Case.
M.3.1 Revised Utility Impact Results Table M.2 shows the results from the NEMS-BRS Reference Case run with the alternative
M-6

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

## J30 sectoral load shapes. Table M.2 alsoprovides the differences between the new run and the existing NEMS-BRS Reference Case run (i.e., without the alternative load shapes). (Refer to Chapter 11, Table 11.1 for the NEMS-BRS results that are comparable to the published AE02000 Reference Case.) The effect ofchanging to the new alternative sectoral load shapes leads to lower overall projected peak demands in years after 2010. By the year 2020, a total of 15 GW less installed capacity is required. Also ofnote is the effect ofthe new alternative load shapes on the mix of generating capacity. Although nine additional GW ofcoal capacity are required, 24 GW less of fossil-fuel capacity are needed. This change in the mix ofgeneration is intuitively consistent with the effect that thenew alternative load shapes should have on the overall systemload. Since the new alternative loadshapes reduce thepeak-to-average load ratios (i.e., flattenout the system load),more base load capacity should be needed (as confirmed by the increase in coal capacity o f9 GW) and less peak load capacity shouldbe required (as confirmed bythe decrease in fossil-fuel capacity of 24 GW). M.3.1.1 Central Air Conditioner and Heat Pump StandardLevel Results Trial standard level results are presented in Tables M.3 through M.7. Each table shows forecasts using interpolated results as described in Chapter 11, Section 11.4 of the TSD for residential energy sales and total U.S. electric generation and installed capacity. Most standards result in similar effects on electric and gas utilities, although the magnitude ofthe effects varies according to the level of forecast energy savings. When electricity savings dominate, gas-fired generation is somewhat more affected than coal-fired generation, especially early in the forecast. This effect reflects themore load-following role ofgas generation overall. For each ofthe five standard levels, residential energy sales fall compared to theAE02000 Reference Case with the alternative load shapes. The decrease in sales isproportional tothe amount ofenergy that the NES model predicts will be saved by each standard level, ranging fromjust over 0.9% (Standard Level 1)to 4.9% (Standard Level 5)oftotal residential electricity sales in the peak savings yearreported. Foreach standard level, total U.S. electric generation decreases relative to the AE02000 baseline, byjust under 1.6% in the peak year ofthe maximum savings case (Standard Level 5) to 0.3% in Standard Level 1.Total installed capacity is alsoreduced in each standard level scenario, bya maximum of just under 2.3% (Standard Level 5)in 2020. About 84% ofthe capacity reduction isin natural gas fired capacity, in thiscase, reflecting thepeakingnature ofair conditioning use.



### M-7 EE-RM/STD-98-440- 

# 303 sectoral load shapes. Table M.2 also provides the differences between the new run and the existing

, NEMS-BRS Reference Case run (i.e., without the alternative load shapes). (Refer to Chapter II,

Table 11.1 for the NEMS-BRS results that are comparable to the publishedAE02000 Reference Case.) The effect ofchanging to the new alternative sectoral load shapes leads to lower overall projected peak demands in years after 2010. By the year 2020, a total of 15 GW less installed capacity is required. Also ofnote is the effect ofthe new alternative load shapes on the mix of generating capacity. Although nine additional GW ofcoal capacity are required, 24 GW less of fossil-fuel capacity are needed. This change in the mix ofgeneration is intuitively consistent with the effectthatthenew alternativeload shapes shouldhave onthe overall systemload. Sincethe new alternativeload shapesreducethepeak-lo-averageloadratios (i.e.,flatten outthe systemload),more baseload capacity should be needed (as confirmed by the increase in coal capacity 0 f9 GW) and less peak load capacity should be required (as confirmed bythe decrease in fossil-fuel capacity of 24 GW).
M.3.1.l Central Air Conditioner and Heat Pump Standard Level Results Trial standard level results are presented in Tables M.3 through M.7. Each table shows forecasts using interpolated results as described in Chapter II, Section 11.4 of the TSD for residential energy sales and total U.S. electric generation and installed capacity. Most standards result in similar effects on electric and gas utilities,although the magnitude ofthe effects varies according to the level offorecast energy savings. When electricity savings dominate, gas-fired generation is somewhat more affected than coal-fired generation, especially early in the forecast. This effect reflects the more load-following role ofgas generation overall. For each ofthe five standard levels, residential energy sales fall compared to theAE02000 Reference Casewith the alternative load shapes. The decrease in sales is proportional to the amount ofenergy that the NES model predictswillbe savedbyeach standard level, ranging fromjustover 0.9% (Standard Level 1) to 4.9% (Standard Level 5) oftotal residential electricity sales in the peak savingsyear reported. Foreach standard level,total U.S. electric generationdecreasesrelativeto the AE02000 baseline, byjust under 1.6% in the peak year ofthe maximum savings case (Standard Level 5) to 0.3% in StandardLevell.Total installed capacity is also reduced in each standard level scenario, by amaximum of justunder2.3% (Standard Level 5) in 2020. About 84% ofthe capacity reductionis innatural gas firedcapacity,inthiscase,reflectingthepeakingnatureofairconditioning use.

M-7Table M.2 NEMS-BRS Results with Alternative Load Shapes 

### INEMS-BRS Results withAlternative Load Shapes: AEO 2000 Difference fromAEO2000 Reference Case vithout Reference Case Alternative LoadShapes 2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 ResidentialSectorEnergyConsumption ResidentialSectorEnergyConsumption Electricity Sales (TWh) 1,186 1,284 1,384 1,472 1,562 Electricity Sales (TWh) 1 3 5 8 Natural Gas (El) 5.32 5.50 5.75 5.96 6.19 Natural Gas (EJ) 0 0 0 0

- Other(EJ) 1.96 1.91 1.84 1.78 1.74 Other(EJ) 0 0 0 0 Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0 0 0 0 Other (Quads) 1.86 1.81 1.74 1.69 1.65 Other(Quads) 0 0 0 0 0 Total US. ElectricGeneration Total US.ElectricGeneration Coal(TWh) 1,912 2,120 2,173 2,280 2,405 Coal(TWh) -18 -7 1 29 58 Gas (TWh) 616 726 999 1,264 1,419 Gas (TWh) 15 9 -2 -33 -57 Petroleum(TWh) 86 58 51 49 45 Petroleum(TWh) -4 -10 -3 2 1 Nuclear(TWh) 688 674 627 511 427 Nuclear (TWh) 0 0 0 0 Renewables (TWh) 389 410 427 438 448 Renewables (TWh) 0 -1 -2 1 1 Total (TWh) 3,691 3,988 4,277 4,542 4,744 Total (TWh) -7 -9 -6 -1 3 r InstalledGeneratingCapacity InstalledGeneratingCapacity Coal(GW) 315.3 311.2 310.8 320.5 335.1 Coal(GW) 0 1 0 5 9 OtherFossil (GW) 292.4 346.4 403.1 444.6 483.4 OtherFossil (GW) 18 12 -2 -17 -24 

### rn Nuclear (GW) 97.5 93.4 84.1 67.4 57.0 Nuclear(GW) 0 0 0 0 0 D Renewables (GW) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0 0 0 0 0 Total(GW) 799.9 849.5 899.7 936.3 981.2 Total (GW) | 18 13 -2 -13 -15 . o0

M-8

, t-, Table M.2 NEMS-BRS Results with Alternative Load Shapes 

### rNEMS=-SRSRestdtS

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### I" 

# I I 2000 2000 2005 2010 2015 2020 2005 2010 2015 2020 ResidentialSectorEnergy Consumption ResidentialSectorEnergy Consumption Electricity Sales (IWh) 1,186 1,284 1,384 1,472 1,562 Electricity Sales (IWh) 1 3 5 8 9 ,Natural Gis (FJ) 5.32 5.50 5.75 5.96 6.19 NaturalGis (EJ) 0 0 0 0 0 Other(FJ) 1.96 1.9i 1.84 1.78 1.74 Other(FJ) 0 0 0 0 0 Natural Gis (Quads) 5.04 5.21 5.45 5.65 5.87 NaturalGis (Quads) 0 0 0 0 0 Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other(Quads) 0 0 0 0 0 Total US. Electric Generation Total Us. Electric Generation Coal(IWh) 1,912 2,120 2,173 2,280 2,405 Coal(IWh) -18 -7 29 58 Gis (IWh) 616 726 999 1,264 1,419 Gis (IWh) 15 9 -2 -33 -57 Petroleum(IWh) 86 58 51 49 45 Petroleum(IWh) -4 -10 -3 2 Nuclear(IWh) 688 674 627 511 427 Nuclear(IWh) 0 0 0 0 0 Renewables (IWh) 389 410 427 438 448 Renewables (1Wh) 0 -1 -2 Total(TWh) 3,691 3,988 4;177 4,542 ·4,744 Total(IWh) -7 -9 -6 -1 3**~** 'i\ Installed Generating Capacity Installed Generating Capacity Coal(GW) 315.3 311.2 310.8 320.5 335.1 Coal(GW) 0 0 5 9 ,OtherFossil (ON) 292.4 346.4 403.1 444.6 483.4 OtherFossil(GW) 18 12 -2 -17 -24 

## rn '11 Nuclear(GW) en.5 93.4 84.1 67.4 57.0 Nuclear(GW) 0 0 0 0 0 :II Renewables (ON) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0 0 0 '0 0

### ~ Total (ON) 799.9 849.5 899.7 936.3 981.2 Total(GW) 18 13 -2 -13 -15 til -t t:J 

### • CD 00 

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## W 0**~u.> ~** Table M.3 Standard Level 1 Forecast, NAECA Efficiency Scenario 

### INEMS-BRS Results:

__ _Difference fromAEO2k Reflusing AE02002 Loads 

### I

. Extrapolation

2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 2025 2030 Residentia Energy Cn ResidentialSectorEnergyonsumption ResidentialSectorEnergy Consu ion Electricity Sales (TWh) 1,186 1,284 1,380 1,462 1,548 Electricity Sales (TWh) 0.0 0.0 -4.3 -9.8 -14.4 -17.5 -19.5 Natural Gas (El) 5.32 5.50 5.75 5.96 6.19 Natural Gas (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.0 !Other(EI) 1.96 1.91 1.84 1.78 1.74 Other(EI) 0.00 0.00 0.00 0.00 0.00 0.00 00 Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0. Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0. Total US.ElectricGeneration Total US. ElectricGeneration Coal (TWh) 1,912 2,120 2,172 2,277 2,399 Coal (Wh) 0.1 0.0 -0.8 -2.5 -5.8 -5.8 -5. Gas (TWh) 616 726 996 1,257 1,410 Gas (TWh) -0.1 0.0 -2.9 -6.9 -9.5 -9.5 -9. Petroleum(TWh) 86 58 50 48 45 Petroleum(TWh) 0.0 0.0 -0.5 -0.5 -0.3 -03 -0. Nuclear(TWh) 688 674 627 511 427 Nuclear (TWh) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (TWh) 389 410 427 438 448 Renewables (TWh) 0.0 0.0 0.0 0.0 -0.1 -0.1 -0.1 Total (TWh) 3,691 3,988 4,273 4,532 4,728 Total(TWh) 0.0 0.0 -4.1 -9.9 -15.6 -15.6 -15.6 InstalledGeneratingCapacity InstalledGeneratingCapacity Coal(GW) 315.3 311.2 310.8 320.3 334.4 Coal(GW) 0.0 0.0 0.0 -0.2 -0.7 -0.7 -0.7 Other Fossil (GW) 292.3 346.4 403.0 442.5 479.7 OtherFossil (GW) -0.1 0.0 -0.1 -2.1 -3.7 -3.7 -3. Nuclear (GW) 97.5 93.4 84.1 67.4 57.0 Nuclear(GW) 0.0 0.0 0.0 0.0 0.0 0.0 0 

### m Renewables (GW) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0. m Total (GW) 799.8 849.4 899.6 933.9 976.8 Total (GW) -0.I .1 -0.1 -2.4 -4.4 -4.4 -4.4 CO

0 M-9 q ) TableM.3 Standard Levell Forecast, NAECA Effirie:1c:i 3cenario 

# i"NEMS-BRS**R~s~I~:** 

### I

## --~1~2-0-0-0-2-0-0-5-2-0-10------ 

## I ResidentialSectorEnergy Consumption 

### I Electricity Sales (IWh) 1,186 1,284 1,380 -"'--.--'
-- ....__.._--- 

### DifTereocc fromAE02k**Re~]Tsi~ AEO~002** **Loa~** T--- Extrapolation \2000 2015 2020 2005 2010 2015 2020 2025 2030 ResidentialSectorEnergy Consumption 1,462 1,548 Electricity Sales (fWh) 0.0 0.0 4.3 -9.8 -14.4 -17.5 -19.5 

### I Natural

### cas (FJ) 5.32 5.50 5.75

1\Other(FJ) 1.96 1.91 1.84 Natural Gis (Quads) 5.04 5.21 5.45 Other(Quads) 1.86 1.81 1.74 5.96 6.19 NaturalGis (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00, 1.78 1.74 Other(FJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 5.65 5.87 Natural

### cas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00, 1.69 1.65 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total US. Electric Generation Total US. Electric Generation Coal(fWh) 1,912 2,120 2,172 2,277 2,399 Coal(fWh) 0.1 0.0 -0.8 -2.5 -5.8 -5.8 -5.8 :Gis(IWh) 616 726 996 1,257 1,410 Gas (fWh) -0.1 0.0 -2.9 -6.9 -9.5 -9.5 -9.5 Petroleum(fWh) 86 58 50 48 45 Petroleum(fWh) 0.0 0.0 -0.5 -0.5 -0.3 -03 -03 Nuclear(fWh) 688 674 627 511 427 Nuclear(fWh) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (lWh) 389 410 427 438 448 Renewables (IWh) 0.0 0.0 0.0 0.0 -0.1 -0.1 -0.1 Total(IWh) 3,691 3,988 4,273 4,532 4,728 Total(IWh) 0.0 0.0 4.1 -9.9 -15.6 -15.6 -15.6 Installed Generating Capacity Installed Generating Capacity Coal (ON) 315.3 311.2 310.8 320.3 334.4 Coal (ON) 0.0 0.0 0.0 -0.2 -0.7 -0.7 -0.7 OtherFossil (ON) 292.3 346.4 403.0 442.5 479.7 OtherFossil (ON) -0.1 0.0 -0.1 -2.1 -3.7 -3.7 -3.71 Nuclear (ON) 97.5 93.4 84.1 67.4 57.0 Nuclcar(ON) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 

### m Renewables (ON) 94.7 98.5 1Ol.7 103.8 105.7 Renewables (ON) 0.0 0.0 0.0 0.0 0.0 '0.0 0.0 

### m 

### • Total (ON) 799.8 849.4 899.6 933.9 976.8 Total (ON) -0.1 -0.1 -0.1 -2.4 4.4 4.4 4.4 

### :u 

# s: 

# - til -I t:J 

### • U) CD 

### •**~ ~**  0 M-9 

## GJ

# ~Table M.4 StandardLevel 2 Forecast, NAECA Efficiency Scenario NEMS-BRS Results:

_____ Difference from AE02k Ref Using AE02002 Loads Extrapolation 2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 2025 2030 ResidentialSectorEnergyConsumption ResidentialSectorFncrsy Consumption Electricity Sales (TWh) 1,186 1,284 1,376 1,455 1,536 Electricity Sales (TWh) 0.C 0.0 -7.6 -17.3 -25.6 -31.0 -34.6 Natural Cas (E) 5.32 5.50 5.75 5.96 6.19 Natural ias (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (EJ) 1.96 1.91 1.84 1.78 1.74 Other (E 0.00 0.00 000 0.00 0.00 0.00 0.0 Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (Quads) 1.86 1.81 1.74 1.69 1.65 Other (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0. Total US. ElectricGeneration Total US. ElectricGeneration Coal(TWh) 1,912 2,120 2,172 2,277 2,396 Coal(TWh) 0.0 0.0 -1.0 -3.3 -8.6 -8.6 -8.6 Gas (TWh) 616 726 994 1,252 1,402 Gas (TWh) 0.0 0.0 -5.0 -124 -17.4 -17.4 -17. Petroleum(TWh) 86 58 50 48 45 Petroleum(TWh) 0.0 0.0 -0.8 -0.6 0.1 0.1 0.1 Nuclear(TWh) 688 674 627 511 427 Nuclear (TWh) 0.0 0.0 0.0 0.0 0.0 0.0 0. Renewables (TWh) 389 410 427 438 448 Renewables (TWh) 0.0 0.0 0.1 -0.1 -0.2 -02 -0.2 Total(TWh) 3,691 3,988 4,270 4,526 4,718 Total(TWh) 0.0 0.0 -6.7 -16.4 -26.1 -26.1 -26.1 InstalledGeneratingCapacity InstalledGeneratingCapacity Coal(GW) 315.3 311.2 310.8 320.1 333.9 Coal(GW) 0.0 0.0 0.0 -0.4 -1.2 -12 -1. Other Fossil (GW) 292.4 346.4 402.9 440.3 476.0 Other Fossil (GW) 0.0 0.0 -0.2 -4.3 -7.4 -7.4 -7. Nuclear (GW) 97.5 93.4 84.1 67.4 57.0 Nuclear (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (GW) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 m Total(GW) 799.9 849.5 899.5 931.6 972.5 Total(GW) 0.0 0.0 -0.2 -4.7 -8.7 -8.7 -8.7 j

M-10 M-10 TableM.4 Standard Level 2 Forecast, NAECA Efficiency Scenario**~** .... -- . _. --- .....-- _. - ..------. - 

### NEMS-BRS Results: Difference fromAE02kRefUsing AE02002 Loads



# · 12000 12:0: 20"5 2010 2015 Extrapolation 2005 2010 2015 2020 2020 2025 2030 iResidentiaJSectorEnergy Consumption ResidentialSectorFn::ri,Y Consumption iElectricity Sales (TWh) 1,186 1,284 1,376 1,455 1,536 Electricity**Salc~** {Twh) 

# I 0.0 0.0 -7.6 -17.3 -25.6 -31.0 -34.61 INaturalGas (EJ) 5.32 5.50 5.75 5.96 6.19 NaturalUts (EJ) I).CO 0.00 0.00 0.00 0.00 0.00 O.OOj Other(EJ) 1.96 1.91 1.84 1.78 1.74 Other{E.T) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 NaturalGas (Quads) 5.04 5.21 5.45 5.65 5.87 NaturalGas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00, Other(Quads) 1.86 l.81 l.74 1.69 1.65 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total US. Electric Generation Total US. Electric Generation Coal(TWh) 1,912 2,120 2,172 2,277 2,396 Coal(TWh) 0.0 0.0 -1.0 -3.3 -8.6 -8.6 -8.61 Gas (TWh) 616 726 994 1,252 1,402 Gas (TWh) 0.0 0.0 -5.0 -124 -17.4 -17.4 -17.41 Petroleum(TWh) 86 58 50 48 45 Petroleum(TWh) 0.0 0.0 -0.8 -0.6 0.1 0.1 0.1 Nuclear(TWh) 688 674 627 511 427 Nuclear(TWh) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (IWh) 389 410 427 438 448 Renewables (TWh) 0.0 0.0 0.1 -0.1 -0.2 -02 -0.2 Total(TWh) 3,691 3,988 4,270 4,526 4,718 Total(TWh) 0.0 0.0 -6.7 -16.4 -26.1 -26.1 -26.1 Installed Generating Capacity Installed Generating Capacity !Coal(GN) 315.3 311.2 310.8 320.1 333.9 Coal(GN) 0.0 0.0 0.0 -0.4 -1.2 -12 -1.2 OtherFossil (GN) 292.4 346.4 402.9 440.3 476.0 OtherFossil (GN) 0.0 0.0 -0.2 -4.3 -7.4 -7.4 -7.41 Nuclear (GN) 97.5 93.4 84.1 67.4 57.0 Nuclear (GN) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (GN) 94.7 98.5 1Ol.7 103.8 105.7 Renewables (GN) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 m 

### m Total(GN) 799.9 849.5 899.5 931.6 972.5 Total(GN) 0.0 0.0 -0.2 -4.7 -8.7 -8.7 -8.7 

### • :0 

## s: 

# - rn -f C 

### • CD CO**~ ~**  0 I M-1O 

## lv

# ~Table M.5 Standard Level 3 Forecast, NAECA Efficiency Scenario NEMS-BRS Results:

___ _Difference fromAE02k RefUsing AE02002 Loads )i|- 

### f Extrapolation 2000 2005 2010 2015 2020 12000 2005 2010 2015 2020 2025 2030 ' Residential SectorEnergyConsumption ResidentialSector EnergyConsumption Electricity Sales (TWh) 1,186 1,284 1,375 1,452 1,532 Electricity Sales (TWh) 0.0 0.0 -8.8 -20.1 -29.7 -36.1 40.3 Natural Gas (EJ) 5.32 5.50 5.75 5.96 6.19 Natural Gas (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0. Other (EI) 1.96 1.91 1.84 1.78 1.74 Other (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 000 Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0.00 '00 0.00 0.00 0.00 0.00 0. Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other (Quads) 00C 0.00 0.00 0.00 0.00 0.00 Total US.ElectricGeneration Total U.S.ElectricGr,'ation Coal(TWh) 1,912 2,120 2,172 2,276 2,395 Coal (TWh) 0.0 0.0 -1.2 -3.9 -10.0 -10.0 -10. CGs (TWh) 616 726 993 1,250 1,399 Gas (TWh) 0.0 0.0 -5.8 -14.4 -20.2 -20.2 -20.2 Petroleum(TWh) 86 58 50 48 45 Petroleum (TWh) 0.0 0.0 -0.9 -0.7 0.1 0.1 0.1 Nuclear (TWh) 688 674 627 511 427 Nuclear (TWh) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (TWh) 389 410 427 438 448 Renewables (TWh) 0.0 0.0 0.1 -0.1 -0.2 -0.2 -0.2 Total (TWh) 3,691 3,988 4,269 4,523 4,714 Total (TWh) 0.0 0.0 -7.8 -19.1 -30.4 -30.4 -30.4 InstalledGenerating Capacity InstalledGenerating Capacity Coal(GW) 315.3 311.2 310.8 320.0 333.7 Coal(GW) 0.0 0.0 0.0 -0.5 -1.4 -1.4 -1.4 Other Fossil (GW) 292.4 346.4 402.9 439.6 474.8 Other Fossil(GW) 0.0 0.0 -0.2 -5.0 -8.6 -8.6 -8. m INuclear(GW) 97.5 93.4 84.1 67.4 57.0 Nuclear (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0. 0 Renewables (GW) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0. 3 Total(GW) 799.9 849.5 899.5 930.8 971.1 Total(GW) 0.0 0.0 -0.2 -5.5 -10.1 -10.1 -10.1 

### <b C) 0 M-ll Table M.S Standard Level 3 Forecast, NAECA Efficiency Scenario iNEMS-BRS**Resul~:oo-_-_o** -0_00 0_00_0

# --J i 

# r-- I i 

# I 2000 2005 2010 2015 2020 !ResidentialSectorEnergy Consumption 'Electricity Sales (fWh) 1,186 1,284 1,375 1,452 1,532 NaturalGis (EJ) 5.32 5.50 5.75 5.% 6.19 Other(EJ) 1.% 1.91 1.84 1.78 1.74 Natural Gis (QIads) 5.04 5.21 5.45 5.65 5.87 Other(QIads) 1.86 1.81 1.74 1.69 1.65 

# I Total US. Electric Generaiion iCoal(IWh) 1,912 2,120 2,172 2,276 2,395 Gis (IWh) 616 726 993 1,250 1,399 Petroleum(IWh) 86 58 50 48 45 Nuc\ear(IWh) 688 674 627 511 427 Renewables (lWh) 389 410 427 438 448 Total (IWh) 3,691 3,988 4,269 4,523 4,714 Installed Generating Capacity Coal(GW) 315.3 311.2 310.8 320.0 333.7 OtherFossil (GW) 292.4 346.4 402.9 439.6 474.8 INuciear(GW) 97.5 93.4 84.1 67.4 57.0 

### I Renewables (GW) 94.7 98.5 101.7 103.8 \05.7 Total (GW) 799.9 849.5 899.5 930.8 971.1 - Difference fromAE02k RefUsingAE02002 Loads 

# ! - .
__0
_____ -&traPolation \2000 2005 2010 2015 2020 2025 2030 ResidentialSectorEnergy Consumption Electricity Sales (IWh) 0.0 0.0 -8.8 -20.1 -29.7 -36.1 -40.3 Natural Gis (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 Other(EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 Natural Gis (Quads) 0.00 r 00 0.00 0.00 0.00 0.00 0.001 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total '.Js. Electric (k-:,,-,'ation Coal (TW-h) Gis (TWh) Petroleum(lWh) Nuclear(IWh) Renewables (fWh) Total(fWh) 0.0 0.0 0.0 0.0 0.0 0.0 Installed Generating Capacity Coal (GW) 0.0 OtherFossil(GW) 0.0 Nuclear(GW) 0.0 Renewables (GW) 0.0 Total (GW) 0.0 0.0 -1.2 -3.9 -10.0 -10.0 -10.0 0.0 -5.8 -14.4 -20.2 -20.2 -20.2 0.0 -0.9 -0.7 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.01 0.0 0.1 -0.1 '{).2 '{).2 -0.21 0.0 -7.8 -19.1 -30.4 -30.4 -30.4
0.0 0.0 -0.5 -1.4 0.0 -0.2 -5.0 -8.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.4 -8.6 -1.4, .-8.61 0.0 0.01 0.0 0.0 0.0 -0.2 -5.5 -10.1 -10.\ -10.1

M-ll m 1]'1 :II 

## s: 

# - en -t C 

### cD CD

# ~Table M.6 Standard Level 4 Forecast, Roll-up Efficiency Scenario NEMS-BRS Results:

___ _ Difference fromAEO2k RefUsing AE02002 oads I _ Extrapolation

2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 2025 2030 ResidentialSectorEnergyConsumption ResidentialSectorEnergyConsumption Electricity Sales (TWh) 1,186 1,284 1,373 1,448 1,526 Electricity Sales (TWh) 0.0 0.0 -10.6 -24.2 -35.8 -43.6 -48.7 Natural Gas (El) 5.32 5.50 5.75 5.96 6.19 Natural Gas (El) 0.00 0.00 0.00 0.00 0.00 0.00 0.0 Other(EJ) 1.96 1.91 1.84 1.78 1.74 Other (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0. Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0. Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0. Total US.ElectricGeneration Total US. ElectricGeneration Coal(TWh) 1,912 2,120 2,171 2,275 2,394 Coal(TWh) 0.0 0.0 -2.0 -4.6 -11.3 -11.3 -11. Gas (TWh) 616 726 993 1,247 1,394 Gas (TWh) h.C 0.0 -6.4 -17.3 -25.1 -25.1 -25.1 Petroleum(TWh) 86 58 50 48 45 Petroleum(TWh) 0.0 0.0 -1.2 -0.7 0.4 0.4 0. Nuclear (TWh) 688 674 627 511 427 Nuclear (TWh) 0.0 0.0 0.0 0.0 0.0 0.0 0 Renewables (TWh) 389 410 427 438 448 Renevables )0.0 0.0 0.2 -0.3 -0.3 -03 -0.3 Total (TWh) 3,691 3,988 4,268 4,519 4,708 Total (TWh) 0.0 0.0 -9.4 -22.8 -36.4 -36.4 -36.4 InstalledGenerating Capacity InstalledGeneratingCapacity Coal(GW) 315.3 311.2 310.8 319.9 333.4 Coal(GW) 0.0 0.0 0.0 -0.6 -1.7 -1.7 -1.7 Other Fossil (GW) 292.4 346.4 402.8 438.2 472.5 Other Fossil (GW) 0.0 0.0 -0.3 -6.4 -10.9 -10.9 109 Nuclear (GW) 97.5 93.4 84.1 67.4 57.0 Nuclear (GW) 0.0 0.0 00 0.0 0.0 0.0 0.0 Renewables (GW) 94.7 98.5 101.7 103.8 105.7 Renewables (GW) 0.0 0.0 0.0 0.0 0.0 0.0 00 Total (GW) 799.9 849.5 899.4 929.4 968.6 Total (GW) 0.0 0.0 -0.3 -6.9 -12.6 -12.6 -126|

M-12
. C, Table M.6 Standard Level 4 Forecast, Roll-up Efficiency Scenario

-- - - ------- 

### NEMS-BRS Results: Difference fromAE02kRefUsing AE02002 

### Loam 

# ----,----- 0l:: 2005 2010 2015 Extrapolation 

## I 2000 2005 2010 2015 2020 2020 2025 2030 ResidentialSectorEnergyConsumption ResidentialSectorEnergy Consumption 8ectricitySales (IWh) 1,186 1,284 1,373 1,448 1,526 8ectricitySales (TWh) 0.0 0.0 -10.6 -24.2 -35.8 -43.6 -48.7 NaturalGis (EJ) 5.32 5.50 5.75 5.96 6.19 NaturalGis (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 Other(EJ) 1.96 1.91 1.84 1.78 1.74 Other(EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 NaturalGis (Quads) 5.04 5.21 5.45 5.65 5.87 NaturalGis (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.001 Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Us. Electric Generation Total US. Electric Generation Coal(TWh) 1,912 2,120 2,171 2,275 2,394 Coal(TWh) 

# I 0.0 0.0 -2.0 -4.6 -11.3 -11.3 -11.31 ;Gis (TWh) 616 726 993 1,247 1,394 Gis (TWh)**I).~** J.O**~.4** -17.3 -25.1 -25.1 -25.1 I IPetroleum(fWh) 86 58 50 48 45 Pctrolcum(TWh) 

# I 0.0 0.0 -1.2 ..().7 0.4 0.4 0.41 Nuclear(TWh) 688 674 627 511 427 Nuclear0Wh) I (J.O 

## v.O 0.0 0.0 0.0 0.0 

# 0001 Renewables (TWh) 389 410 427 438 448 Renev.'llbles ([WI-:) 0.0 0.0 0.2 ..().3 "().3 -03 -03 Total(TWh) 3,691 3,988 4,268 4,519 4,708 Total(TWh) 0.0 0.0 -9.4 -22.8 -36.4 -36.4 -36.4 Installed Generating Capacity Installed Generating Capacity Coal (GIN) 315.3 311.2 310.8 319.9 333.4 Coal (GIN) 0.0 0.0 0.0 -0.6 -1.7 -1.7 -1.7 OtherFossil (GN) 292.4 346.4 402.8 438.2 472.5 OtherFossil (GIN) 0.0 0.0 -0.3 -6.4 -10.9 -10.9 -10.91 Nuclear (GN) 97.5 93.4 84.1 67.4 57.0 Nuclear(GN) 0.0 0.0 0.0 0.0 0.0 0.0 0.01 

### m m Renewables (GN) 94.7 98.5 101.7 103.8 105.7 Renewables (GIN) 0.0 0.0 0.0 0.0 0.0
. 0.0 

### •

## O'~I ::u Total (GIN) 799.9 849.5 899.4 929.4 968.6 Total (GIN) 0.0 0.0 "().3 -6.9 -12.6**~12.6** -126 

## s: 

# - en -t C 

### • CD Q) I**~ ~**  0\ M-12 

## 0J C) 

## 0JTable M.7 Standard Level 5 Forecast, Roll-up Efficiency Scenario iNEMS-BRS Results: ___Difference from AE2k RefUsing AE02002 Loads 

### i ------~ ------- ~~ ~j

- 

### Extrapolation 2000 2005 2010 2015 2020 12000 2005 2010 2015 2020 2025 2030 i ResidentialSectorEnergyConsumption ResidentialSectorEnergy Consumption Electricity Sales (TWh) 1,186 1,284 1,363 1,424 1,489 Electricity Sales (TWh) 0.0 0.0 -20.6 -48.0 -72.7 -89.7 -100.8 Natural Gas (EJ) 5.32 5.50 5.75 5.96 6.19 Natural Gas (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other(EJ) 1.96 1.91 1.84 1.78 1.74 Other(EJ) 0.00 0.00 0.00 0.00 0.0 0 0.00w Natural Gas (Quads) 5.04 5.21 5.45 5.65 5.87 Natural Gas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other(Quads) 1.86 1.81 1.74 1.69 1.65 Other (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total US.ElectricGeneration Total US. ElectricGeneration Coal (TWh) 1,912 2,120 2,170 2,270 2,379 Coal (TWh) 0.0 0.0 -2.7 -10.4 -25.7 -25.7 -25.7 as (TWh) 616 726 985 1,230 1,370 Gas (TWh) 0.0 0.0 -14.2 -34.1 -49.3 -49.3 -49.3 Petroleum(TWh) 86 58 49 46 44 Petroleum(TWh) 0.0 0.0 -2.3 -2.8 -1.1 -1.1 1.1 Nuclear (TWh) 688 674 627 511 427 Nuclear (TWh) 0.0 0.0 0.0 0.0 0.0 00 0.0 Renewables (TWh) 389 410 427 438 448 Renewables (TWh) 0.0 0.0 0.3 -0.4 -0.4 -0.4 -0. Total(TWh) 3,691 3,988 4,258 4,494 4,668 Total (TWh) 0.0 0.0 -18.9 -47.7 -76.5 -76.5 -76.5 InstalledGeneratingCapacity InstalledGenern!tiigCapacity Coal(GW) 315.3 311.2 310.8 319.5 331.7 Coal(GW) no 0.0 0.0 1.0 -3.4 -3.4 -3.4 OtherFossil(GW) 292.4 346.4 402.5 434.1 464.9 Other Fossil (T 7 .' 0.0 0.0 -0.6 -10.5 -18.5 -18.5 -18.5 Nuclear (GW) 97.5 93.4 84.1 67.4 57.0 Nuclear (GW) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Renewables (GW) 94.7 98.5 101.7 103.8 105.6 Renewables (GW) 0.0 0.0 0.0 0.0 -0.1 -0.1 -0.1 m Total(GW) 799.9 849.5 899.1 924.8 959.3 Total (GW) 0.0 0.0 -0.6 -11.5 -21.9 -21.9 -21.9



### co -I oC
M-13 

### 00) (J> Table M.7 Standard LevelS Forecast, Roll-up Efficiency Scenario iNEMS-BRS 

### Results: 

# I " 12000 2005

# 201~20:"

# ~020 iResidentialSectorEnergy Consumption !Sectricity Sales (fWh) 1,186 1,284 'NaturalGis (EJ) 5.32 5.50 Other(EJ) 1.96 1.91 NaturalGis (Quads) 5.04 5.21 1,363 1,424 1,489 5.75 5.96 6.19 1.84 1.78 1.74 5.45 5.65 5.87 Other(Quads) 1.86 1.81 1.74 1.69 1.65 Total US. Electric Generation Coal(TWh) 1,912 2,120 2,170 2,270 2,379 cas (IWh) 616 726 985 1,230 1.370 Petroleum(fWh) 86 58 49 46 44 Nuclear(TWh) 688 674 627 511 427 Renewables (1Wh) 389 410 427 438 448 Total (IWh) 3,691 3,988 4,258 4,494 4,668 Installed Generating Capacity Coal(GW) 315.3 311.2 310.8 319.5 331.7 OtherFossil(GVV) 292.4 346.4 402.5 434.1 464.9 Nuclear(GW) 97.5 93.4 84.1 67.4 57.0 Renewables (GW) 94.7 98.5 101.7 103.8 105.6 Total(GW) m.9 849.5 899.1 924.8 959.3 

# I**DitTe~nce f~m-AE02k**  RefUsingAEo2002 Loads -I ,--- .---[

-- ---.---- ---- - '-EJdrapolation

# I 12000 2005 2010 2015 2020 2025 2030'1 ResidentialSectorEnergy Consumption Scctricity Sales (TWh) 0.0 0,0 -20.6 -48.0 -727 -89,7 -100.81 Natural Gis (EJ) 0.00 0.00 0.00 0.00 0.00 0.00 O.OOj Other(EJ) 0.00 0.00 0.00 0.00 0.00 0.00 0.00\ Natural cas (Quads) 0.00 0.00 0.00 0.00 0.00 0.00 O.OOj Other(Quads) 0.00 0.00 0.00 0.00 0.00 0.00 0.00' Total Us. Electric Generation Coal (fWh) 0.0 cas (TWh) 0.0 Petroleum(TWh) 0.0 Nuclear(TWh) 0.0 Renewables (fWh) 0.0 Total(fWh) 0.0

I Installed Genem!f;;g Capacity Coal (Gw) I 

### no I OtherFossil ((?J.'j 0.0 Nuclear(GW) 0.0 Rcnewables (GW) 0.0 Total(GW) 0.0

M-13 0.0 -27 -10.4 -25.7 -25.7 -25.7 0.0 -14.2 -34.1 -49.3 -49.3 -49.3 0.0 -2.3 -28 -1.1 -1.1 -1.1 0.0 0.0 0.0 0.0 0.0 O.Oj 0.0 0.3 -0.4 -0.4 -0.4 -0.41 0.0 -18.9 -47.7 -76.5 -76.5 -76.5

0.0 0.0 -1.0 -3.4 -3.4 -3.4j 0.0 -0.6 -10.5 -18.5 -18.5 -18.5! 0.0 0.0 0.0 0.0 0.0 

## 0.01 0.0 0.0 0.0 -0.1 -0.1 -0.1 0.0 -0.6 -11.5 -21.9 -21.9 -21.9 rn rn I 

### :u 3: 

# - en -i C I CO 0) I**~ ~**  c 

## GJ 

# &

### EE-RM/STD-98-440- 303 M.3.2 Revised Environmental Impact Results Table M.8 shows total power sector carbon and NO, emissions for each ofthe five central air conditioner andheat pump standard trial standard levels. The annual carbon emissions reductions range up to 9.1 Mt/a in 2020. NO, emissions reductions reach up to 24.7 kt/a by 2015. Table M.9 lists the cumulative emissions savings for the power sector overthe 15-year period modeled forthe central air conditioner andheatpump analyses. Table M. 10 shows the results forthe cumulative emissions reductions through 2030 forcarbon and NO,. All ofthe trial standard levels (TSL) considered by DOE are si, wni.l Tables M.8 through M.10. In this analysis, the reference case refers to cases with respect o the .4E02000 Reference Casewiththe alternative load shapes.All TSLs are compared tothe reference case which represents the no action alternative. This is also referred to as the baseline case, acooling efficiency of 10 SEER for split system air conditioners and heatpumps, acooling efficiency of'9 7SEER for single package system air conditioners and heat pumps, aheating efficiency of6.8 HSPF for split system heat pumps, and aheating efficiency of6.6 HSPF for single package systein heat pumps.

M-14 EE-RM/STD-98-440- 

# 303 M.3.2 Revised Environmental ImpactResults Table M.8 shows total power sector carbon and NOx emissions for each ofthe five central air conditioner and heat pump standard trial standard levels. The annual carbon emissions reductions range up to 9.1 MtJa in 2020. NOx emissions reductions reach up to 24.7 ktJa by 2015._Table M.9lists the cumulative emissions savings for the powersectoroverthe 15-yearperiodmodeledforthe central airconditionerandheatpump analyses. Table M.I0 shows the results for the cumulative emissions reductions through 2030 for carbon and NOx• All ofthe trial standard levels (TSL) considered by DOE are st.)wn i:l Tables M.8 through M.IO. In this analysis, the reference case refers to cases with respect 0 the A£02000 Reference Casewiththe alternative load shapes. All TSLs are comparedto the reference case whichrepresents theno action alternative. This is also referred to as the baseline case, a cooling efficiency of 10 SEERfor split system air conditioners and heatpumps, acoolingefficiellc.y 0±,9 7 SEERfor single package system air conditioners and heatpumps, aheating efficiency of'5.**~** HSPF for split system heatpumps, and aheating efficiency of6.6 HSPF for single package system hea;; pumps.

M-14

### EE-RM/STD-98-440 _303 Table M.8 Power Sector Emissions for all StandardLevels NENS-BRS Results Difference fromAE02000 RefCase with2002 Loads 2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 2025 2030 AEO2000 Reference Case Using 2002 Loadshapes Extrapolation Carbon(M&l/a)- 3j 584.7 638.9 676.6 724.8 760.2 NOx(kt/a)3 4,454.3 4,907.9 5,062.1 5,243.5 5,307.0 Standard Lewl I NAECA Carbon (Mt/a) 584.7 638.9 676.0 723.7 758.3 Carbon (Mt/a) 0.0 0.0 -0.6 -1.1 -1.9 -1.9 -1.9 NOx(kt/a) 14,454.3 4,907.9 5,060.2 5,241.9 5,306.0 NOx(kt/a) 0.0 0.0 -1.9 -1.6 -1.0 -1.0 -1.0 Standard Leel 2 NAECA Carbon (Mt/a) i 584.7 638.9 675.4 722.8 757.2 Carbon (Mt/a) 0.0 0.0 -1.2 -2.0 -33 -3.,) -3.0 NOx(kt/a) [4,454.3 4,907.9 5,054.9 5,236.5 5,303.4 NOx(kt/a) 0.0 0.0 -7.2 -7.0 -3. i -3.6 -3.6 StandardLevel 3 NAECA Carbon(Mt/a) 584.7 638.9 675.2 722.5 756.8 Carbon(Mt/a) 0.0 0.0 -1.4 -2.3 -3.4 -3.4 -3.4 NOx(kt/a) 14,454.3 4,907.9 5,053.7 5,235.4 5,302.8 NOx(kt/a) 0.0 0.0 -8.3 -8.1 -4.2 -4.2 -4.2 Standard Lerel 4 RolI-Up Carbon (Mt/a) i 584.7 638.9 674.8 722.0 756.2 Carbon (Mt/a) 0.0 0.0 -1.8 -2.8 -4.0 -k.0 -'. NOx(kt/a) i4,454.3 4,907.9 5,051.0 5,233.5 5,303.0 NOx(kt/a) 0.0 0.0 -11.1 -10.0 -4.0 -4.0 4.0 StandardLeIel 5 Roll-Up Carbon(Mt/a) i 584.7 638.9 673.2 718.6 751.1 Carbon(Mt/a) 0.0 0.0 -3.4 -6.2 -9.1 -9.1 -9.1 NOx(kt/a) ,4,454.3 4,907.9 5,042.3 5,218.8 5,291.4 NOx(kt/a) 0.0 0.0 -19.8 -24.7 -15.7 -15.7 -15.7 'Crnparable to Table A 17ofAE02000: Eectric Generators 2Corparable to Table A8 ofAE2000: Enissions All results in netric tons (t),equivalent to 1.I short tons 

### Table M.9 Cumulative Emission Reductions through 2020: Power Sector Standard Leel_ 

### Enisson I (NABCA) 2(NAECA) 3 (NACA) 4 (Roll-I) 5(Roll-4) CQrbon (Mt) -129 -242 -28.1 -328 -726 NOx(k0) -15.5 -832 -967 -111.4 -2789 Figure M.10 Cumulative Emission Reductions through 2030: Power Sector StandardLevel 

### Enisson 1(NAE Z)2(NACA) 3 (NACA) 4 (Rll-4p) 5 (Roll-4) Carbon (Mt) -31.6 -53.8 -625 -728 -163.2 NOxd) -25.4 -119.3 -138.6 -151.9 -435.6

M-15 EE-RM/STD-98-440 

## -003 Table M.8 Power Sector Emissions for all Standard Levels

--- --- ---- ..-- ..---. - -- ----_. - - - -- _.-**-.---.-.-.---------~---**

. NEMS-BRS Results Difference fromAE02000 RefCase "ith2002 Loads

Table M.9 Cumulative Emission Reductions through 2020: Power Sector Standlrdl..e'\el Enisson
. 1(NAED\). 

## i (NAEt:A) 3(NAErA) 

### 4(RolI-!p) 5(RolI-Q» Oubon(Mt) 

### -129 -242 -28.1 -328 -726 IDx(kt) 

### -15.5 -832 

### -96.7 -111.4 

### -278.9 Figure M.10 CumulativeEmission Reductions through 2030: Power Sector

- Standlrdl..e'\el [rrisson 1(NAELA) 2(NAECA) 3(NAED\) 4 (Rlil-tp) 5(Rlil-tp) Oubon(Mt) -31.6 

### -53.8 -62.5 -728 -163.2 l'Ox(kt) -25.4 -119.3 -138.6 -151.9 -435.6

M-15

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

## 303 M.4 MARGINAL HEAT RATES Marginal heat rates (MHR) are calculated by NEMS-BRS to translate end-use electricity savings toprimary energy savings. The MHR iscalculated by imposing a loadreduction to the enduse slot ofthe appliance beinganalyzed in NEMS-BRS andobserving the change inprimary energy use. For central air conditioners and heat pumps (CAC-HP), the MHR ends up being relatively small. For example, the CAC-HP MHR was calculated to be only 5519 Btu/kWh in 2020, low compared to other appliance end-uses analyzed for other rulemakings (e.g., the value for clothes washers was 7225 Btu/kWh). Such a low CAC-HP MHR seems counter intuitive to the idea that improvements in end-use efficiency typically displace a marginal, and therefore inefficient, generator. One would expect the CAC-HP MHR to be higher than those of more baseload appliances (like clothes washers or electric water heaters) because this peakier appliance displaces more expensive, less efficient generation. Further,this marginal displaced plant shouldbe notunlike the inefficient plant inplace todaybecause most rapid technological change occurs in the base load.
M.4.1 Higher OrderEffects On first inspection, the CAC-HP MHR seems suspicious because the conversion efficiency (5519 Btu/kWh in 2020) seems better than any power plant likely to be in existence by 2020 and nothing like the expected plant similar to today's leastefficient. In other words, even ifa CAC-HP standard were displacing the verybestplant in existence in 2020,the heatrate should notbe thislow. The key to understanding this apparent paradox is that this conversion rate does not represent a specific marginal generator or combination ofgenerators, but is actually a conversion factor that incorporates several simulated effects resulting from the standard. A keyreason why theCAC-HP MHR islowerthan expected is becausethe overall efficiency improvement ofthe power system with the standard in place is slower than in theAEO Reference Case. All the NEMS-BRS runs are routinely done with multiples of actual expected proposed standard energy savings to ensure stable results (referto Appendix H ofthe TSD formore details). In ahigher decrement SEER12 standard run (4xSEER12), the conversion efficiency improvement lags the AE02000 improvement. While there are many effects of the standard, the following equation summarizes the two major components ofthe standard's impact on the power sector: APE = AF +AS+ AT+... (M.1) Where,APE= the overall change in primary energy due to the CAC-HP standard, AF= first-order effect from displace generation, AS= second-order effect from slowed investment in power system, and its consequent reduced rate ofefficiency improvement, and AT= third-order effects.

M-16 EE-RMiSTD-98-440 - 

## -303 MA MARGINAL HEAT RATES Marginal heat rates (MHR) are calculated by NEMS-BRS to translate end-use electricity savings to primaryenergysavings. TheMHRis calculatedby imposinga load reduction to the enduse slotofthe appliancebeinganalyzed in NEMS-BRSand observingthe change in primaryenergy use. For central air conditioners and heat pumps (CAC-HP), the MHR ends up being relatively small. For example, the CAC-HP MHR Was calculated to be only 5519 BtulkWh in 2020, low compared to other appliance end-uses analyzed for other rulemakings (e.g., the value for clothes washers was 7225 BtulkWh). Such a low CAC-HP MHR seems counter intuitive to the idea that

. improvements in end-use. efficiency typically displace a marginal, and therefore inefficient,

generator. One would expect the CAC-HP MHR to be higher than those of more baseload appliances (like clothes washers orelectric waterheaters) because this peakier appliance displaces moreexpensive,lessefficientgeneration. Further,thismarginal displacedplantshouldbenotunlike the inefficientplant in placetodaybecausemostrapidtechnological change occursin thebaseload.
MA.I Higher OrderEffects Onfirst inspection, the CAC-HP MHR seems suspicious because the conversion efficiency (5519 BtulkWh in 2020) seems better than any powerplantlikely to be in existence by 2020 and nothing like the expectedplant similarto today's least efficient. In otherwords, even ifa CAC-HP standardweredisplacingtheverybestplantin existencein2020,theheatrate shouldnotbethislow. The key to understanding this apparent paradox is that this conversion rate does not represent a specific marginal generator or combination ofgenerators, but is actually a conversion factor that incorporates several simulated effects resulting from the standard. AkeyreasonwhytheCAG·HPMHRis lowerthan expectedisbecausetheoverall efficiency improvement ofthe power system with the standard in place is slower than in the AEO Reference Case. All the NEMS-BRS runs are routinely done with mUltiples of actual expected proposed standard energy savings to ensure stable results (refer to Appendix H ofthe TSD for more details). In a higher decrement SEER12 standard run (4xSEER12), the conversion efficiency improvement lags the AE02000 improvement. While there are many effects of the standard, the following equation summarizes the two major components ofthe standard's impact on the power sector:

Where,llPE= llF= IlS= llT= 

### tlPE

# =tlF

### +tlS

### +tl 

### T+
... the overall change in primary energy due to the CAC-HP standard, first-order effect from displace generation, (M.I)

second-order effect from slowed investment in power system, and its consequent reduced rate ofefficiency improvement, and third-order effects.

M-16

### EE-RM/STD-98-440 - 303 The firstterm, AF, represents the direct reduction in fuel burned in power plants and is the direct result ofthe imposed standard (i.e., whatone would expect to see as reductions in generation with CAC-HP site energy savings imposed). The second term, AS, denotes the indirect effect whereby the slowing ofelectricity demand growth slows new investment thereby impeding therate ofoverall improvement in power sector efficiency. While this latereffect would seem tobe trivial relative to the first, it grows significantly over time because less and less ofbetter and better generating plants are added. Bythe end ofthe forecast period, this effect becomes a significantdrag on the primary energy savings ofthe standard, and why the MHR conversions appear tofall more than could reasonably be explained by improving technology. Further, it's a bigger drag on the benefits ofpeaking end-use efficiency improvements. These reduce peak demand more and slow investment more because the rate of new construction is heavily dependent on growth in peak demand. ATrepresents otherthird order effects, such asthe effect on regional distribution ofpower generation there. ATis ignored and all effects are assumed to be AS.
M.4.2 CAC-HP Example Consider an example that shows the importance ofthis second order effect,AS, and that the MHR for CAC-HP would be higher than two other appliance MHR's (clothes washers and water heaters) in agreement with intuition. In NEMS-BRS output, APE and AS can be observed, and, therefore, AF can be calculated. The 4xSEER12 standard run results in an average U.S. heat rate (AHR) 46.6 Btu/kWh lower in 2020 than theAE02000reference case. Thismeans that the overall efficiency ofthe thermal power system is significantly impeded with the 4xSEER12 standard in place. The equivalent forgone primary energy savings resulting from this difference can be calculated as: (46.6 Btu/kWh)*(3785 TWh)*(109 

### kWh/TWh)*(Quad/10`5 

### Btu) = 0.18 Quads Where 3785 TWh is the net end-use savings of the standard. Changing the sign, -0.18 Quads represents how much more 2020 primary energy would have been estimated as saved without considering the second-order effects. Now, considerthatthe4xSEER 12 run saves atotal of0.47Quads in 2020. This isequivalent to 0.12 Quads forthe actual SEER12 standard (i.e. 0.47 Quads divided by4 which is approximately 0.12 Quads). This value is the total effect from displaced generation, orAPE. So without the presence ofthe secondary effect, thetotal primary energy saved is: APE- A5 =AF 0.12 Quads + 0.18 Quads = 0.30 Quads An MHR in 2020 that reflects the first order effect only can now be estimated as follows: M-17 EE-RM/STD-98-440 - 

# 303 The first tenn, M,represents the direct reduction in fuel burned in powerplants and is the direct result ofthe imposed standard (i.e., whatone would expectto see as reductions in generation with CAC-HP site energy savings imposed). The second tenn, M, denotes the indirect effect wherebythe slowingofelectricitydemand growth slows new investmentthereby impedingthe rate ofoverall improvement in power sectorefficiency. While this later effect would seem to betrivial relative to the first, it grows significantly over time because less and less of better and better generatingplants are added. Bythe end oftheforecastperiod,this effectbecomes a significantdrag on the primary energy savings ofthe standard, and whythe MHR conversions appear to fall more than could reasonably be explained by improving technology. Further, it's a bigger drag on the benefits ofpeaking end-use efficiency improvements. These reduce peak demand more and slow investment more because the rate ofnew construction is heavily dependent on growth in peak demand
. .1Trepresentsotherthird ordereffects, such as the effect on regional distribution ofpower generation there
..1Tis ignored and all effects are assumed to be 

### M.
M.4.2 CAC-HP Example Consideran examplethat showsthe importance ofthis second ordereffect, M, and that the MHR for CAC-HP would be higher than two other appliance MHR's (clothes washers and water heaters) in agreement with intuition. In NEMS-BRS output, 

### ME and !lS can be observed, and, therefore, M can becalculated. The 4xSEERI2 standard run results in an average U.S. heat rate (AHR)46.6 BtulkWhlowerin 2020than theAE02000reference case. This means that the overall efficiency ofthe thennal power system is significantly impeded with the 4xSEERI2 standard in place. The equivalent forgone primary energy savings resulting from this difference can be calculated as: (46.6 BtulkWh)*(3785 TWh)*(109 kWhfTWh)*(QuadiIOls Btu)

### =0.18 Quads Where 3785 TWh is the net end-use savings ofthe standard. Changing the sign, -0.18 Quads represents how much more 2020 primary energy would have been estimated as saved without considering the second-order effects. Now,considerthatthe4xSEERI2run savesatotal of0.47 Quadsin 2020. Thisis equivalent to 0.12 Quads for the actual SEERI2 standard (i.e. 0.47 Quadsdividedby4 which is approximately .0.12Quads). This value is the total effectfrom displaced generation, or

### ME. So without the presence ofthe secondaryeffect, the total primary energy saved is:

0.12 Quads 

### +0.18 Qua<;ls 

### =0.30 Quads An MHR in 2020 that reflects the first order effect only can now be estimated as follows: M-17

### EE-RM/STD-98-440- -,03 (0.30 Quads/(86 TWh/4))*(10l5 Btu/Quad)*(TWh/10 kWh) = 13,950 Btu/kWh Note that AF is high, almost 14,000 Btu/kWh andprobably higher than most guesstimates withthe overall effect APEmuch lower than typical guesstimates. In otherwords, the effect ofAS is powerful. Similar calculations for clothes washers result in a heat rate of 7185 Btu/kWh. So as expected, the MHR, when ignoring the secondary effect ofslowed investment in the power system, is higher for CAC-HP than other appliances. To summarize, with the secondary effects considered, the MHR for CAC-HP is only 5519 Btu/kWh in2020 because the power system has an overall efficiency in the 4xSEER12 run (7824 Btu/kWh) compared toAE02000(7777 Btu/kWh) by46.6Btu/kWh. A slowing trend ininvestment makes thepower sector less efficient and dirtier,and becausethis broad effect applies to all thermal generation, the net effect on standards benefits is significant, cutting them by over 60%. M.4.3 Interpolation M.4.3.1 AHR and AS The astute observer may havenoticed an addedpotential complication to the above; namely the assumed linearity ofthe second-order effects. Most results reported in the TSD from NEMSBRS are estimated using multiples oftrial standard levels, such as the 4x case reported above. The multiple results are then interpolated back to the level ofthe actual standard. This adjustment has never beenmade toASso we test its effect here. Figure M.3 illustrates an annual comparison ofthe AHR for various higher decrement runs of a SEER13 case. The values on the x-axis are the multipliers ofactual standard decrements. Plotted as the difference from theAE02000 reference case, this graph shows the high level ofvariability in the AHR. Priorto 2010, the AHR is generally lower than the AE02000 reference case, and vice-versa for years later than 2010. In other words, until 2010, thebenefit on overall efficiency ofremoving marginal generation exceeds the ASeffect, but not afterwards. Also, after 2015 theASeffect isclearly increasing over time. Looking from left to right, increasing decrements to the standard generally result in greater positive and negative differences inthe AHR. Again, earlier-in the forecast period, theAHR is more efficient (lower) than the reference case, andbeyond 2015 the AHR is worse than theAE02000reference case. In 2020, the AHR differences range from 56-89 Btu/kWh for the various decrement cases. Thus, the further the CAC-HP end-use isreduced and the laterinthe forecast it is, thegreaterthe impactonthe overall efficiency ofthe power system, or ASbecomes absolutely larger.

M-18 EE-RM/STD-98-440 - 

# 303 (0.30 Quads/(86 TWhl4»*(10 1s Btu/Quad)*(TWhil09kWh) 

### = 13,950 BtulkWh Notethat t:J'is high, almost 14,000 BtulkWh and probablyhigher than most guesstimates with the overall effect l1PEmuch lower than typical guesstimates
..In other'words, the effect of!!.S is powerful. Similar calculations for clothes washers result in a heat rate of 7185 BtulkWh. So as expected, the MHR, when ignoringthe secondary effect ofslowed investment in the power system, is higher for CAC-HP than other appliances. To summarize, with the secondary effects considered, the MHR for CAC-HP is only 5519 BtU/kWh in 2020 because the power system has an overall efficiency in the 4xSEER12 run (7824 BtulkWh)comparedtoAE02000(7777BtU/kWh)by46.6BtulkWh. A slowingtrendin investment makesthepowersectorless efficient and dirtier, andbecausethis broad effect applies to all thennal generation, the net effect on standards benefits is significant, cutting them by over 60%.
M.4.3 Interpolation M.4.3.t AHR and AS The astute observermayhavenoticed an addedpotential complication to the above; namely the assumed linearity ofthe second-order effects. Most results reported in the TSD from NEMSBRS are estimatedusing multiples oftrial standard levels, such as the 4x case reported above. The multiple results are then interpolated back to the level ofthe actual standard. This adjustment has

. neverbeen madeto !!.Sso wetest its effecthere. Figure M.3 illustrates an annual comparisonofthe

AHR for various higher decrement runs of a SEERl3 case. The values on the x-axis are the multipliers ofactual standard decrements. Plotted as the difference from theAE02000 reference case, this graph shows the high level ofvariability in the AHR. Priorto 2010,the AHRis generally lower than theAE02000 reference case, and vice-versa for years later than 2010. In other words, until 2010, thebenefiton overall efficiencyofremovingmarginal generation exceedsthe !!.Seffect, butnot afterwards. Also, after2015 thet:.Seffect is clearly increasingovertime. Lookingfrom left to right, increasing decrements to the standard generally result in greater positive and negative differences intheAHR Again,earlierinthe forecast period,theAHRis moreefficient (lower)than the reference case, and beyond 2015 the AHR is worse than theAE02000reference case. In 2020, theAHRdifferences range from 56-89BtulkWh for the various decrement cases. Thus, the further the CAC-HPend..:use isreducedandthe laterin the forecast itis, thegreaterthe impactontheoverall efficiency ofthe power system, or !!.Sbecomes absolutely larger.

M-18

### ftiM/jSTD-98-440 

# 303 Comparison ofChange inAHR forDifferent Cases ofSEER13 Only 100.0
-- 2006 o 80.0

-- 2007

-- 2008 60.0

- - 2009 o x2010 40.0

- 2011 -20.0 2012

_ | -- 2013

_ 2014 r 0.0 CO 2015 2.0 9 8.0 -20.0 2016 2017

--- >e.a----- __e>Em 2019 -40.0 2018 -60.0 - o 2020 -80.0 nultplier 

### Figure M.3 Comparison ofSEER 13 Average Heat Rate as Difference fromAE02000

M.4.3.2 MHR Linearity Additionally, some further investigation was done to determine the linearity ofthe MHR under varying higher decrement runs. It was uncertain whether the marginal plant would exhibit a linear trend depending on the degree ofsavings from each proposed appliance standard, but as it turns out, itis quite linear, as illustrated by Figure M.4. In this figure, the 6x, 8x, and 10x the Trial Standard Level 3 MHR are plotted for selected years to see how the MHR varies from different decrement cases withineach year. The x=I value denotesthe regressed MHR based onthe estimates from the higher decrements runs. From this plot, the variation in MHR within years is seen to be fairly flat.

M-19 

### EB4tM/STD-98-440- 

# .303 ComparisonofCbange inAHR for DiiTerentCases ofSEER13 Only 100.0 -+-2006 0 0 ro.O -.- 'lfXJ7

__ 2008 0 0 0 (i).0 --'00- 2009 -- 0**~201O** - 40.0 -2011 -2012**~** 20.0 

### --
- ..:.: -2013

# .~ :; 2014 iii 0.0 ( 0 2015 -=:-- ==-4.0

## -~**2.0~** SO 8.0 9 2016 .I --....... -20.0

### ",~**~~** 2017 "",(", --)i-

________**~ ~**  _ -40.0 2018

# ~ 2019 -60.0 0 2020 -80.0 JTllltiplier Figure M.3 Comparison ofSEER 13 Average Heat Rate as Difference fromAE02000

M.4.3.2 MHR Linearity Additionally, some further investigation was done to detennine the linearity ofthe MHR undervarying higher decrement**~ns.** Itwas uncertain whether the marginal plantwould exhibit a linear trend depending on the degree ofsavings from each proposed appliance standard, but as it turns out, it is quite linear, as illustrated by Figure M.4. In this figure, the 6x, 8x, and lOx the Trial Standard Level 3 MHR are plotted for selected years to see how the MHR varies from different decrementcaseswithin eachyear. Thex=1valuedenotestheregressedMHRbasedonthe estimates from the higher decrements runs. From this plot, the variation in MHR within years is seen to be fairly flat.

M-19

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

### 303 

## MarginalHeat Rate for CAC Standard3 11000 10000-____________________

_ -4-- 2010 ---- 2012 

### 90000 At-

- 2012

- - Linear(2015 9000 )l- 2017 

# Bs8000t 2020

. I I I--Linear (20 10) Linear (2012) 7000

- f 

### ~ ~ linear (2015)

- --- Linear(2017)

- - Linear (2020) 5000 - 

### 0 1 2 3 4 5 6 7 8 9 10 11 mult 

### Figure M.4 Comparison of Higher Decrement Marginal Heat Rates for CAC-HP Trial StandardLevel 3 for Selected Years All years were regressed in the above fashion and the newly derived MHRwas compared to the original calculation to seehow differentthey were. Figure M.5below plotsthe MHRtime series, comparing the reference case MHR that was used for the CAC-HP analysis, the various higher decrement MHR estimates and the regressed MHR. This regressed time series in essence better represents the marginal behavior ofan appliance standard by not over- or under-estimating the forecasted marginalpowerplant. Comparingwhatwas used in the analysis (dashed line with square symbols) with the regressed MHR based on various higher decrements ofthe proposed standard (dashed line with triangle symbols), theytrack eachotherpretty well. Especially in the last 5-7 years ofthe forecast horizon, thetwoMHR calculations exhibit comparable MHR's. This means thatthe estimate derived forthe analysis based ononehigherdecrement run doesn'tvarytoo much from the regressed MHR that is based on the estimated MHR for the actual proposed standard.

M-20 EE-RM/STD-98-440 - 

## 303 Marginal HeatRate for CAC Standanl3 11000 

# ...-----. • 2010 10000 

# • 

# ..------- * 2012 

# • 2015 9000

# ~ )K 2017

# ~8000 * 2020 

## :s

# ---------------~ - .. - . Linear (2010) 

# as Linear (2012)

7000 

# .==-

# .=I~ Linear (2015)

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- 5000 

# l 0 1 2 3 4 5 6 7 8 9 10 1 1 mult HgureM.4 Comparison of Higher Decrement Marginal Heat Rates for CAC-HP Trial Standard Level 3 for Selected Years
All yearswere regressed in the above fashion and the newlyderived MHRwas comparedto the original calculationto seehowdifferenttheywere. FigureM.5 belowplotstheMHRtime series, comparing the reference case MHR that was used for the CAC-HP analysis, the various higher decrement MHR estimates and the regressed MHR. This regressed time series in essence better represents the marginal behavior of an appliance standard by not over- or under-estimating the forecasted marginalpowerplant. Comparingwhatwasused in the analysis (dashedlinewith square symbols) with the regressed MHRbased on various higher decrements ofthe proposed standard (dashedlinewithtriangle symbols),theytrackeachotherprettywell. Especiallyin thelast5-7years of the forecast horizon, thetwo MHRcalculations exhibitcomparableMHR's. Thismeans thatthe estimatederived for the analysisbasedononehigherdecrementrun doesn'tvarytoo much from the regressed MHR that is based on the estimated MHR for the actual proposed standard.

M-20EE-RM/STD-98-440- 303 Marginal Heat Rates for CAC SEER Levels 14000 13000- A 12000 -- . 

## -__ , 1 1000 . -A.., 10000

- 9000 A

- U- 4xSEER12 · 8000 - 0 8x SEER 12 7000 6x Std3 - 

### ~~~~~~M 6000 ' - '-"- -SxStd3 60 0

- 10St 5000 - ,- ' Regressed Std3 ____,_ 4000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 year Figure M.5 Comparison of Higher Decrement Marginal Heat Rates for CAC-HP Trial 

### Standard Level 3 over Time

M-21

### EE·RM/STD~98-440- 

# 503 Marginal Heat Rates for CAC SEERLevels**14oo0.---------------------------------------------------------~** 13000 --.---------.--------------------------------------------4 A 12000 +------------.**-~---..** '.-----------------------------1 

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### .. .'

# .- 4xSEER12



## - 8x SEER 12
>-- 6x Std3 8x Std3 r-- lOx SId3 r-- • ,.. .Regressed Std3

2000 2001 200220032004 2005 2006 2007 2008 2009 2010 201 I 2012201320142015 20162017201820192020 year figure M.S Comparison of Higher Decrement Marginal Heat Rates for CAC-HP Trial Standard Level 3 over Time

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

# 303 REFERENCES 1. U.S. Department ofEnergy-Energy Information Administration, Annual Energy Outlook 2000, December, 1999. Washington, DC. Report No. DOE/EIA-0383(2000). 2. U.S.Department ofEnergy,Environmental AssessmentforProposed EnergyConservation Standards for Residential Central Air Conditionersand Heat Pumps, January, 2001. Washington, DC. Report No. DOE/EIA-1352. 3. AlternativeSectoralLoadShapes forNEMS, Department of Energy-Energy Information Administration, Washington, D.C., August 2001. 4. Alterrative SectoralLoadShapes for NEMS, Department of Energy-Energy Information Administration, Washington, D.C., August 2001. 5. Alternative3ectoralLoadShapes forNEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001. 6. Alternative SectoralLoad Shapes forNEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001.

M-22 EE-RM/STD-98-440 - 

# 303 REFERENCES 1. U.S. Department ofEnergy-Energy Information Administration, Annual Energy Outlook 2000, December, 1999. Washington, DC. Report No. DOE/EIA-0383(2000). 2. U.S. DepartmentofEnergy,EnvironmentalAssessment forProposedEnergy Conservation Standardsfor Residential Central Air Conditioners and Heat Pumps, January, 2001. Washington, DC. Report No. DOE/EIA-1352. 3. Alternative Sectoral Load Shapesfor NEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001. 4. Alterr.ative Sectoral Load Shapesfor NEMS, Department ofEnergy-Energy Information. Administration, Washington, D.C., August 2001. 5. Alternative Se--:toral Load Shapesfor NEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001. 6. Alternative Sec/oral Load Shapesfor NEMS, Department ofEnergy-Energy Information Administration, Washington, D.C., August 2001
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