### EERM/STD-98-440 - 

# -2 EXECUTIVE ORDER 12866 SUBMISSION EE-/m/ 7p- ,loyo Important Please read the instructions on the reverse side before completing this form. For additional forms or assistance in completing this form, contact the OIRA Docket Library, (202) 395-6880, or your OIRA Desk Officer. Send three copies of both this form and supporting material (four copies if Economically Significant or an Unfunded Mandate) to: Office of Information and RegulatoryAffairs 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) r Yes E No. X Proposed Rule Interim Final Rule b) Date 01 01 / 1994 Final Rule OD MM YYY Final Rule - No material change c) D Statutory I Judicial Notice Other 6. Designations a) Economically Significant (E.O. 12866) ] Yes E No Description ofOther b) Unfunded Mandate (2 U.S.C. 1532) 7. Agency Contact (person who can best answer questions [I Yes FI No

regarding the content of this submission) Michael E. McCabe If either oftheabove is"Yes," submit four (4)complete packages to OIRA Phone( 20~ 586-0854 

### Certification for Executive Order 12866 Submissions The authorized regulatory contact and the program official certify that the agency has complied with the requirements of E. 0. 12866 agd any applicablepolicy directivs. Sign e ro Oi < / c Date Signature dAuthorized) egulatory ontact / .Da/ 0MB83-R / IRevision: 11/97 (Prbvious versions obsolete) EE-RMlSTD-98-440 

# -iI=02.00/
:EXECUTIVE ORDER

### 1~866 SUBMISSION EE.-t<.m/ST()-Cfg"4Yo Important· Please read the instructions on the reverse side before completing this form. For additional forms orassistance in completing this form, contactthe OIRA Docket Library, (202) 395-6880, or your OIRA Desk Officer. Send three copies of both this form and supporting material (four copies if Economically Significant oran Unfunded Mandate) to:

1. Agency/Subagency originating request Department of Energy 3. Title 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 2. Regulation Identifier Number (RIN) 1904-AA77 Energy Efficiency Standards for central Air Conditioners and Heat Pumps

4. Stage of Development Prerule



### -- _X_ Proposed Rule Interim Final Rule Final Rule

__ Final Rule - No material change Notice Other
Description ofOther 7. Agency Contact (person who can best answer questions

regarding the content ofthis submission) Michael E. McCabe Phone ( 202 586-0854 5. Legal Deadline for this submission a) IX] Yes D No, b) Date 01 00 c) 

### D Statutory 6. Designations / 01 / 1994 MM



# o Judicial
a) Economically Significant (E.O. 12866) [X] Yes 

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

### D No Ifeither ofthe above is "Yes," submit four (4) complete packages to OIRA • Certification for Executive Order 12866 Submissions



# au vious versions obsolete)

### [6450-01-P] EE.RM/STD-98-440 

### -4- & 

# 7 DEPARTMENT OF ENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFR Part430 

### iE_-/M_ - _: 4 o [Docket Number RM-7- RIN:1904-AA77 Energy Conservation Program for Consumer Products: CentralAir Conditioners and Heat Pumps Energy Conservation Standards
AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy. ACTION: Notice ofProposed Rulemaking and Public Hearing. SUMMARY:. Pursuant to the Energy Policy and Conservation Act, as amended, theDepartment ofEnergy (DOE, Department, or we) is proposing to amend the energy conservation standards for residential central air conditioners and heat pumps to require them to be more energy efficient, and is announcing a public hearing on its proposals.
DATES: Comments must be received on orbefore [insert date 75 days from date of publication]. DOE is requesting a signed original, a computer diskette (WordPerfect 8)and 10 copies ofthe written comments. TheDepartment will also accept e-mailed comments, but you must send a signed original. Oral views, data, and arguments may be presented at the public

Q:\EE-41\EE431\CAC\SlandRuNOPR\DraftNOPR\CACNOPR16.-pd

~~~~~~~~~~1 ~~August 4, 2000 (1:45PM) --
--------------- r [6450-01-P) DEPARTMENTOFENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFRPart430 [Docket Number

## ~-97-5000 RIN:1904-AA77
Energy Conservation Program for ConsumerProducts: CentralAir Conditioners.and HeatPumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy. ACTION: Notice ofProposed Rulemaking and Public Hearing. SUMMARY:. Pursuant to the Energy Policy and Conservation Act, as amended, the Department ofEnergy (DOE, Department, or we) is proposing to amend the energy conservation standards for residential central air conditioners and heat pumps to require them to be more energy efficient, and is announcing apublic hearing on its proposals.

DATES: Comments must be received on orbefore [insert date 75 days from date of publication]. DOE is requesting a signed original, a computer diskette (WordPerfect 8) and 10 copies ofthe written comments. The Department will also accept e-mailed comments, but you must send a signed original. Oral views, data, and arguments may be presented at the public
1 Q:\EE41IEE431\CAClStandRuJ\NOPR\Draft!>lOPR\CACNOPR16.wpd August4, 2000 (1 :45PM)

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

# 7 hearing (workshop) in Washington, D.C. beginning at 9:00 a.m. on [BTS to insert date approximately 60 days from publication at thetime the package is sent to the Federal Register].
The Department must receive requests to speak at the public hearing and a copy ofyour statements no later than 4:00 p.m., [insert date 45 days from publication], and we request that you provide a computer diskette (WordPerfect 8)ofeach statement at that time.
ADDRESSES: Please submit written comments, oral statements, and requests to speak at the public hearing to: Brenda Edwards-Jones, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps, Docket No. EE-RM/STD-97-500, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121. You may send emailsto: brenda.edwardsiones'Tee.doe.gov.
The hearing will begin at 9:00 a.m., inRoom 1E-245 atthe U.S. Department ofEnergy, Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more information concerning public participation inthis rulemaking proceeding in Section VIII, "Public Comment Procedures," ofthis notice ofproposed rulemaking.
You may 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, and previous workshop transcripts in this proceeding
Q:\EE-41EE431 \CAC\SandRul'NOPR'raNO\CACACNOPR 6.wpd 2 Augst4.2000(1:45PM)**EE·RM/STD·98-440~**

## c:{ /)

# 7 hearing (workshop) in 

### Washington, D.C. beginning at 9:00 a.m. on [BTS to insert date approximately 60 days from publication at the timethe package is sent to the Federal Register].
The Department must receive requests to speak at the public hearing and acopy ofyour statements no laterthan 4:00 p.m., [insert date 45 days from publication], and we request that you provide acomputer diskette (WordPerfect 8) ofeach statement at that time.
ADDRESSES: Please submit written comments, oral statements, and requests to speak at the .' 

### public hearing to: BrendaEdwards-Jones, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for <;onsumerProducts: Central Air Conditioners and Heat Pumps, DocketNo. EE-RMlSTD-97-500, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121. You may send emails to: brenda.edwardsjones(@ee.doe.gov.
The hearing will begin at 9:00 a.m., in

### Room 1E-245 at the U.S. Department ofEnergy, Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more

. information concerning public participation inthis rulemaking proceeding in Section VIII, "Public Comment Procedures," ofthis notice ofproposed rulemaking.
You may read copies ofthe public comments, the Technical Support Document for EnergyEfficiency Standards for ConsumerProducts: Central Air Conditioners and Heat Pumps (TSD), the transcript ofthe public hearing, and previous workshop transcripts in this proceeding 2 Q:\EE41\EE431ICAClStandRuI\NOPR\DraftNOPRICACNOPRI6.wpd August4. 2000 (I :45PM)

### EE-RM/STD-98-440 -- : 0 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 of Energy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner.html.

FORFURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, 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.e.mccabe@ee.doe.gov, orEdward Levy, 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: edward.levy@hq.doe.gov.
SUPPLEMENTARY INFORMATION: Table ofContents I. Summary ofProposed Rule II. Introduction A. Authority B. Background 1. Current Standards 2. History ofPrevious Rulemakings 3. Process Improvement III. General Discussion A. Test Procedures B. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels
Q:\EE-41\EE431\CAC\StandRulWOPR'\DftNOPR'CACNOPR1 6 wpd 3 August 4, 2000 (1:45PM) i» EE-RM/STD-S8-440_

## -1Ft;!, 0

# l' 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., Mondaythrough Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office of EnergyEfficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov!buildingslcodes_standardslapplbrfi'central_air_conditioner.html.

FORFURTHERINFORMATION CONTACT: Dr. Michael E. McCabe, U.S.**Depart~ent** of Energy, Office ofEnergyEfficiency and Renewable Energy, Forrestal Building, EE-41, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586- 0854, e-mail: michael.e.mccabe@ee.doe.gov, orEdward Levy, 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: edwardJevy@hq.doe.gov.

SUPPLEMENTARY INFORMATION: Table ofContents I. Summary ofProposed Rule II. Introduction A. Authority B. Background 1. Current Standards 2. History ofPrevious Rulemakings 3. Process Improvement III. General Discussion A. Test Procedures B. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels 3 Q:\EE-41\EE-43 1**\CAC\StandRul\NOPR\Draft)\OPR\CAC~OPR**16 wpd August4. 2000 (l :45PM)

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

## - A 07 C. Energy Savings 1. Determination ofSavings 2. Significance ofSavings D. Rebuttable Presumption E. Economic Justification 1. Economic Impact on Manufacturers and Consumers 2. Life-Cycle Costs 3. Energy Savings 4. Lessening, IfAny, ofUtility or Performance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofThe Nation to Conserve Energy 7. Other Factors IV. Methodology A. Life-Cycle-Cost and Payback Period Analysis B. National Energy Savings and Net Present Value Analysis C. Manufacturer Impact Analysis 1.Phase 1,Industry Profile 2. Phase 2, Industry Cash Flow Analysis 3. Phase 3, Sub-Group Impact Analysis 4. GRIM Analysis D. NEMS Environmental Analysis V. Discussion ofComments A. Engineering Cost Data 1. Reverse Engineering Cost Estimates 2. Productivity Efficiency Improvements 3. Emerging Technologies 4. HFC-Based Engineering Analysis B. Life-Cycle-Cost Parameters 1. Extended Warranty and Service Costs 2. Residential Energy Consumption Survey (RECS) 3. Equipment Lifetime 4. Commercial Applications 5. Marginal Electricity Prices 6. Forecast ofFuture Electricity Prices 7. Discount Rates 8. Percentage ofHouseholds with LCC Savings 9. Regional Analysis 10. Rebuttable Payback 11. Sensitivity Analyses C. Shipments Analysis 1. Forecasted Housing Shifts 2. Elasticities 3. Equipment Efficiency
Q:\EE41 \EE-431\CAC\StandRul\OPR\DramNOPR\CACNOPRI 6.wpd 4 August 4. 2000 (1:45P\M) C. Energy Savings 1. Determination ofSavings 2. Significance ofSavings D. Rebuttable Presumption E. Economic Justification 1. EconomicImpact onManufacturers and Consumers 2. Life-Cycle Costs 3. Energy Savings 4..Lessening, IfAny, ofUtility orPerformance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofThe Nationto ConserveEnergy 7. OtherFactors IV. Methodology A. Life-Cycle-Cost and Payback Period Analysis B. National Energy Savings and Net Present Value Analysis C. ManufacturerImpact Analysis 1. Phase 1, IndustryProfile 2. Phase 2, Industry Cash Flow Analysis 3. Phase 3, Sub-Group Impact Analysis 4. GRIM Analysis D. NEMS Environmental Analysis V. Discussion ofComments A. Engineering Cost Data

. 1. Reverse Engineering Cost Estimates

2. ProductivityEfficiency Improvements 3. Emerging Technologies 4. HFC-Based Engineering Analysis B. Life-Cycle-Cost Parameters 1. Extended Warranty and Service Costs 2. Residential Energy Consumption Survey (RECS)

. 3. Equipment Lifetime

4. Commercial Applications 5. Marginal Electricity Prices 6. Forecast ofFutureElectricity Prices 7. Discount Rates 8. Percentage ofHouseholds with LCC Savings 9. Regional Analysis 10. Rebuttable Payback 11. Sensitivity Analyses C. Shipments Analysis 1. Forecasted Housing Shifts 2. Elasticities 3. Equipment Efficiency , 

# ..

4 Q:\EE-41\EE-431ICACISLBndRull)\lOPRiDraftNOPRICACNOPR16.wpd August 4.**~ooo** (1**:45P~I)** 

## •EE-RM/STD-98-440

- - / 'c / 4. Fuel Switching D. National Energy Savings Analysis 1. Uncertainty in NES Results 2. Site-to-Source Conversion E. Consumer Sub-Group Analysis, Low Income Renters F. Utility and Environmental Analysis 1. Peak Power Impacts, Reliability 2. Quantitative Assessment ofImpacts on Peak Demand 3. Qualitative Assessment ofAir Conditioning Standards Impact on Reliability 4. Competitive Residential Market G. Manufacturer Impact Analysis
- Low Volume Manufacturers H. Markups I. EER-Based Efficiency Standard 1. Current Relationship between SEER and EER 2. Options for Possible EER Standards J. Niche Products 1. Ductless Split Air Conditioners and Heat Pumps 2. Small Duct High Velocity Air Conditioners 3. Vertical Packaged, Wall Mounted 4. Through-the-Wall Condensers 5. Non-Weatherized Single-Package Unit, Mounted Entirely within the Structure K. Thermostatic Expansion Valves L. Other Comments 1. Latent Heat Removal 2. 3-Phase Equipment 3. SEER-HSPF Relationship 4. Max. Tech VI: Analytical Results A. Trial Standard Levels B. Significance ofEnergy Savings C. Payback Period D. Economic Justification 1. Economic Impact on Manufacturers 2. Life-Cycle Cost 3. Net Present Value and Net National Employment 4. Impact on Utility or Performance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need ofthe Nation to Save Energy 7. Other Factors E. Conclusion VII. Procedural Issues and Regulatory Review
Q:\EE41\EE431\CAC\StaidRulNOPRNODPR;COCACNOPR i6.wpd 5 August 4, 2000 (1:45PM) 4. Fuel Switching EE-RM/STD-98-440- 

## tJ:::**~tJ** 

# 1 D. National Energy Savings Analysis 1. Uncertaintyin NES Results 2. Site-to-Source Conversion E. Consumer Sub-Group Analysis, LowIncome Renters F. Utility and Environmental Analysis 1. PeakPowerImpacts,**~eliability** 2. Quantitative Assessment ofImpacts on Peak Demand 3. Qualitative Assessment ofAir Conditioning Standards Impact on Reliability 4. Competitive Residential Market G. ManufacturerImpact Analysis

- Low Volume Manufacturers H. Markups I. EER-Based Efficiency Standard 1. Current Relationship between SEER and EER 2. Options for Possible EER Standards 1. Niche Products 1. Ductless Split Air Conditioners and Heat Pumps 2. Small DuctHigh Velocity Air Conditioners 3. Vertical Packaged, Wall Mounted 4. Through-the-Wall Condensers , 

# ..

5. Non-Weatherized Single-Package Unit, Mounted Entirely within the Structure K. ThermostaticExpansion Valves L. Other Comments 1. Latent Heat Removal 2. 3-Phase Equipment 3. SEER-HSPF Relationship 4. Max. Tech \T Analytical Results A. Trial Standard Levels B. Significance ofEnergy Savings C. PaybackPeriod D. Economic Justification 1. Economic Impact on Manufacturers. 2. Life-Cycle Cost 3. Net Present Value and Net National Employment 4. Impact on Utility orPerformance ofProducts 5. Impact ofAny Lessening ofCompetition 6. Need oftheNation to Save Energy 7. OtherFactors E. Conclusion VII. Procedural Issues and Regulatory Review 

### 5 Q:1EE41 1EE-431**\CAC\Stal1dRul\'~OPRJ)raftNOPR\CACNOPR**16.wpd August 4, 2000 (1 :4SP}'f)**.~**

### EE-RM/STD-98-440 - , 07 A. Review Under the National Environmental Policy Act B. Review Under Executive Order 12866, "Regulatory Planning and Review" C. Review Under the Regulatory Flexibility Act D. Review Under the Paperwork Reduction Act E. Review Under Executive Order 12988, "Civil Justice Reform" F. "Takings" Assessment Review G. Review Under Executive Order 13132 H. Review Under the Unfunded Mandates Reform Act I. Review Under the Treasury and General Government Appropriations Act of 1999 J. Review Under the Plain Language Directives VIII. Public Comment A. Written Comment Procedures B. Public Workshop/Hearing 1. Procedure for Submitting Requests to Speak 2. Conduct ofWorkshop/Hearing C. Issues for Which DOE Seeks Comment
I. Summary ofProposed Rule The Department is proposing to raise the energy efficiency standards for residential air conditioners and central air conditioning heat pumps (heat pumps) to 12 SEER' for air conditioners and to 13 SEER/7.7 HSPF2 for heat pumps. The proposed standards would apply to all covered products offered for sale in the United States, effective onJanuary 1, 2006. The proposed. standard for split system air conditioners, the most common type ofresidential air conditioning equipment represents a 20% improvement in energy efficiency. For split system heat pumps, the new standards would represent a 30% improvement in cooling efficiency and a 13% improvement in heating efficiency. The proposed standards would also increase the
'SEER, Seasonal EnergyEfficiency Ratio, isthe Department's measure ofenergy efficiency forthe seasonal cooling performance ofcentral air conditioners and heatpumps. 2 HSPF, Heating Seasonal Performance Factor, isthe Department's measure ofenergy efficiency for the seasonal heating performance ofheat pumps. Q:\EE-41 'EE431 \CAC\StandRul\NOPR'DrafNOPR'CACNOPRI 6.wpd 

### 6 August 4, 2000 (1:45PM) EE-RM/STD-98-440

# -# 

# eA.tJ

# 1 A. Review Underthe National Environmental Policy Act B. Review UnderExecutive Order 12866, "Regulatory Planning and Review" C. Review Under the Regulatory Flexibility Act D. Review Under the PaperworkReduction Act E. Review UnderExecutive Order 12988, "Civil Justice Refonn" F. "Takings" Assessment Review G. Review UnderExecutive Order 13132 H. ReviewUnderthe Unfunded Mandates Refonn Act I. Review Under the Treasury and General Government Appropriations Act of 1999 1. Review Under the Plain Language Directives VIII. Public Comment A. Written Comment Procedures B. Public WorkshoplHearing 1. Procedure for Submitting Requests to Speak 2. Conduct ofWorkshoplHearing C. Issues for Which DOE Seeks Comment I. Summary ofProposed Rule , 

# ..

The Department is proposing to raise the energy efficiency standards for residential air conditioners and central air conditioning heat pumps (heat pumps) to 12 SEERl for air . conditioners and to 13 SEERl7.7 HSPF2for heat pumps. The proposed standards would apply to all covered products offered for sale in the United States, effective on January 1, 2006. The proposed.standard for split system air conditioners, the most common type ofresidential air c.onditioning equipment represents a 20% improvement in energy efficiency. For split system**h~at** pumps, the new standards would represent a 30% improvement in cooling efficiency and a 13% improvement in heating efficiency. The proposed standards would also increase the

·SEER, Seasonal EnergyEfficiency Ratio, is the Department's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and heatpumps. 2HSPF, Heating Seasonal Performance Factor, is the Department's measure ofenergy efficiency for the se3sonal heating perfdrmance ofheatpumps. 6 Q:IEE-4JIEE-43JICAC\StandRulINOPR\DraftNOPR'.CACNOPRJ6.wpd August 4. 2000 (J**:45P~**1)

### EE-RM/STD-98-440 -" 7 efficiency ofpackaged air conditioners and packaged heat pumps by 24% and 17%, respectively. Finally, the Department isproposing provisions for some special products to ensure that more efficient versions remain available for niche applications.

The proposed standards would save a significant amount ofenergy and, as a result ofless electricity being produced, result in a cleaner environment. In the 25-year period after the new standards become effective, the nation would save over4 quads3 ofprimary energy, equivalent to all the energy consumed by nearly 12 million Americans in a single year. These energy savings would also significantly reduce the emissions ofair pollutants and greenhouse gases associated with electricity production, by avoiding the emission of60 million tons (Mt) ofCarbon and 150 thousand tons (kt) nitrogen oxide (NOJ. Also, the standards are expected to eliminate the need for the construction ofapproximately 6 new 500 mega Watt (MW) power plants in 2020.

In addition to the increase proposed in SEER and HSPF, we are proposing and requesting requests public comments on a proposal to adopt a standard for steady-state cooling efficiency, EER.4 A requirement on EER would ensure more efficient operation a high outdoor temperature, during periods when electricity use by air conditioners is at its peak. This would help to further alleviate the need for new electric power plants and reduce the demands placed on the electric

3 Quad, means quadrillion (10'5 Btus). 4EER,Energy Efficiency Ratio, isa steady-state measure ofenergy efficiency which measures efficiency at ap-escribed outdoor temperature (95F), and isone ofthe test conditions inthe Department's test procedure used todevelop the SEER. Q:\EE-41\EE431\CAC\StandRul'NOPR'DraftNOPR\CACNOPRI 6. pd 7 August 4; 2000 (1.45PM)

-- -------- ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~. EE·RM/STD-98-440 - 

## p:::.**~**

# 7 efficiency ofpackaged air conditioners and packaged heat pumps by 24% and 17%, respectively. Finally, the Department is proposing provisions for some special products to ensure that more efficient versions remain available for niche applications.

Theproposed standards would save a significant amount ofenergy and, as a result ofless electricity being produced, result in a cleaner environment. In the 25-year period after the new standards become effective, the nation would save over4 quads3 ofprimary energy, equivalent to all the energy consumed by nearly 12 million Americans in a single year. These energy**savi~gs**

.. would also significantly reduce the emissions ofair pollutants and greenhouse gases associated with electricity production, by avoiding the emission of60 million tons (Mt) ofCarbon and 150 thousand tons (lct) nitrogen oxide (NOJ. Also, the standards are expected to eliminate the need for the construction ofapproximately 6 new 500 mega Watt (MW) power plants in 2020.
In addition to the increase proposed in SEER and HSPF, we are proposing and requesting rf'!'1uests public comments on a proposal to adopt a standard for steady-state cooling efficiency, EER. 4 A requirement on EERwould ensure more efficient operation a high outdoortemperature, during periods when electricity use by air conditioners is at its peak. This would help to further alleviate the need for new electric powerplants and reduce the demands placed on the electric

3 Quad, means quadrillion (lOIS Btus).

4 EER. Energy Efficiency Ratio, is a steady-state measure ofenergy efficiency which measures efficiency at ap"escribed outdoortemperature (9S'F), and is one ofthe test conditions in the Department's testprocedure used to develop the SEER. 7 Q:IEE-411EE-431ICAClStandRul\.1II0PR\Draftl\OPRICACNOPR16.wpd August 4;2000 (I.4SPM)**----------------~--**EE-RM/STD-98-440- ^ _7 

### transmission and distribution systems during periods ofhigh usage, thereby, improving system reliability. Finally, consumers would seebenefits fromthe proposed standards. For example, a typical consumer would save enough over the air conditioner's life to pay for the increase in the price ofthe equipment plus an extra $45. Many consumers, especially air conditioner owners in
warmer parts ofthe country and heat pump owners, would save even more.
While the higher efficiency units are widely available today and promoted through the Department ofEnergy and theEnvironmental Protection Agency (EPA) Energy Star' program,
aswell as utility rebate programs, manufacturers would be redesigning their product line to meet the efficiency standards. At the same timethey would be redesigning theirproducts to respond to the phase-out hydrochloroflourocarbons (HCFC's) refrigerants required by EPA. Bymaking both changes at once, i.e., efficiency and HCFC refrigerants, manufacturers will be able to plan and apply their resources in a cost-effective manner, resulting in lower burdens and costs.

II. Introduction A. Authority 

### Part B ofTitle III oftheEnergy Policy and Conservation Act (EPCA), Pub. L. 94-163, as amended by the National Energy Conservation Policy Act of 1978, Pub. L. 95-619, theNational Appliance Energy Conservation Act, Pub. L. 100-12, theNational Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub.
Q:\EE41\EE-431\CAC\StandRul\NOPR':rafttNOPR\CACNOPR1 6.vpd 8 August 4, 2000 (1:45PM)
i EE-RM/STD-98-440

## -.f1::**~**

# 7 transmission and distribution systems during periods ofhigh usage, thereby, improving system reliability. Finally, consumers would see benefits from the proposed standards. For example, a typical consumerwould save enough overthe air conditioner's life to pay for the increase in the price ofthe equipment plus an extra $45. Many consumers, especially air conditioner owners in
warmer parts ofthe country and heat pump owners, would save even more.
While the higher efficiency units are widely available today and promoted through the Department ofEnergy and the Environmental Protection Agency (EPA) Energy**Star~** program, as well as utilitY'rebate programs, manufacturers would be redesigning their product line to meet the efficiency standards. At the same time they would be redesigning theirproducts to respond to the phase-out hydrochloroflourocarbons (HCFC's) refrigerants required by EPA. By making both changes at once, i.e., efficiency and HCFC refrigerants, manufacturers will be able to plan dnd Rpply their resources in acost-effective manner, resulting in lowerburdens and costs.

D. Introduction A. Authority Part B ofTitle illofthe Energy Policy and Conservation Act (EPCA), Pub. L. 94-163, as amended by the National Energy ConservationPolicy Act of 1978, Pub. L. 95-619, the National Appliance Energy Conservation Act, Pub. L. 100-12, the NationaJ Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub. 8 Q:\EE-41\EE-431\CAClStandRulINOPRiDraftNOPRICACNOPRI6.wpd August 4.2000 (1 :45P!\I)' EE-RM/STD.8.440- 

### ~ 0 /' 7 L. 102-486

5 created the Energy Consevation Program for Consumer Produs other than 

### L. 102-486' created the Energy Conservation Program for Consumer Producs other than Automobiles. The consumer products subject to this program (often referred to hereafter as "covered products") include central air conditioners and heat pumps. EPCA Section 322(a)(4), 42 U.S.C. 6292(a)(4).
Under the Act, the program consists essentially offour parts: testing, labeling, Federal energy conservation standards, and certification and enforcement procedures. The Federal Trade Commission isresponsible for labeling, and DOE implements the remainder ofthe program. Section 323 ofthe Act authorizes the Department, with assistance from theNational Institute of Standards and Technology (NIST) and subject to certain criteria and conditions, to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. 42 U.S.C. 6293. The central air conditioners and heat pump test procedures appear at Title 10 Code ofFederal Regulations (CFR) Part 430, Subpart B, Appendix M.
The Act prescribes initial Federal energy conservation standards for each ofthe listed covered products, except television sets. EPCA Section 325 (b)-(k), 42 U.S.C. 6295 (b)-(k). For ceitral air conditioners and heat pumps, EPCA Section 325(d)(3)(A) specifies that the standards
areto be reviewed by the Department no later than January 1, 1994. 42 U.S.C. 6295(d)(3)(A).

5Part B ofTitle I ofthe Energy Policy and Conservation Act, as amended bythe National Energy Conservation Policy Act, the National Appliance Energy Conservation Act, the National Appliance Energy Conservation Amendments of 1988, and the Energy Policy Act of 1992, is referred to in this notice as the "Act," or "EPCA." Part B ofTitle m1 is codified at 42 U.S.C. 6291 et seq. Part B ofTitle m ofthe Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act only, is referred to in this notice as the National Energy Conservation PolicyAct. Q:\EE41\EE431\CAC\StandRul\'OPR'DraftNOPR'CACNOPR 16 pd 9 August 4. 2000 (1:45PM) ,. , .,.**~** 

### EE-RM/STD-'8..MO- 

## #

# ~ tJ 

# r-r L. 102-4865 createdthe Energy

# Con;~~ation P;ogram for

# Co~s~~er Produt other than Automobiles. The consumer products subject to this program**(ofte~** referred to hereafter as "covered products") include central air conditioners and heat pumps. EPCA Section 322(a)(4), 42 US.C. 6292(a)(4).

Under the Act, the program consists essentially offour parts: testing, labeling, Federal energy conservation standards, and certification and enforcement procedures. The Federal Trade Commission is responsible for labeling, and DOE implements the remainder ofthe program. Section 323 ofthe Act authorizes the Department, with assistance from the National Institute of Standards and Technology (NIST) and subject to certain criteria and conditions, to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. 42 US.c. 6293. The central air conditioners and heat pump test procedures appear at Title 10 Code ofFederal Regulations (CFR) Part 430, Subpart B, AppendixM.

The Act prescribes initial Federal energy conservation standards for each ofthe listed covered products, except television sets. EPCA Section 325 (b)-(k), 42 US.c. 6295 (b)-(k). For celitral air conditioners and heat pumps, EPCA Section 325(d)(3)(A) specifies that the standards
are tobereviewed by theDepartment no later than January 1, 1994. 42 US.c. 6295(d)(3)(A).

SPartB ofTitle illofthe Energy Policy and ConservationAct, as amended bythe National Energy Conservation PolicyAct, the National ApplianceEnergy Conservation Act, theNational Appliance Energy Conservation Amendments of1988, and the EnergyPolicy Act of1992,is referred to inthis notice as the "Act," or ''£PCA.'' Part BofTitie

### m is codified at42 U.S.C. 6291 et seq. PanB ofTitlemoftheEnergy Policy and ConservationAct, as amended by the National Energy Conservation Policy Act only, is referred to inthis notice as the NationalEnergy Conservation Policy Act. 9 Q:\EE-41IEE-431\CAClStandRul\NOPR\DraftNOPR\CACNOPR16 wpd August 4. 2000 (1 :45P}'f)

### EE-RM/STD-98-440- + a? 

## '7 Any new or amended standard mustbe'designed'so as to achieve the 'miaximum improvement in energy efficiency that istechnologically feasible and economicallyjustified. EPCA Section 325(o)(2)(A), 42 U.S.C. 6295(o)(2)(A). Moreover, theDepartment may not prescribe a standard for: (1) certain products, including central air conditioners and heat pumps, ifno test procedure hasbeen established for theproduct, or (2) any product, ifDOE determines by rule that a standard for the product either would not result insignificant conservation of energy, or is not technologically feasible or economically justified. EPCA Section 325(o)(3), 42 U.S.C. 6295(o)(3).

Section 325(o)(2)(B)(i), 42 U.S.C. 6295(o)(2)(B)(i) provides that DOE must determine 

### whether a standard iseconomically justified,after receiving comments on the proposed standard, and whether the benefits ofthe standard exceed itsburdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors: "(1) The economic impact ofthe standard onthe manufacturers and the consumers of the products subject to such standard; (2) The savings in operating costs throughout the estimated average life ofthe covered product in the 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; (3) The total projected amount ofenergy ... savings likely to result directly from the imposition ofthe standard;

Q:\EE-41\EE431\CAC\StandRul'NOPRDraftNOPR\CACNOPR1 6spd 10 August 4,2000 (1:45PM)

.......;., ' -.-- -**~ ":~**  :.. ,.1T ) I }.f.Ii\_**.:..~ EE.RM/STD-98.440--4F'~**  

# ()? ' Any new or amended standard must

### b·e~design 

# eo. so as to achieve

### the71m'aximu'~""~' improvement in energy efficiency that is technologically feasible and economicallyjustified. cPCA Section 325(0)(2)(A), 42 U.S.C. 6295(0)(2)(A). Moreover, the Department may not prescribe a standard for: (1) certain products, including central air conditioners and heat pumps, ifno test procedure has been established for the product, or (2) any product, ifDOE determines by rule that a standard for the product either would not result in significant conservation of energy, oris not technologically feasible oreconomicallyjustified. EPCA Section 325(0)(3), 42 U.S.C. 6295(0)(3).

Section 325(o)(2)(B)(i), 42 U.S.C. 6295(0)(2)(B)(i) provides that DOEmust determine whether a standard is economicallyjustified,.after receiving comments on the proposed standard, and whether the benefits ofthe standard exceed its burdens, based, to the greatest extent prf.cticable, on a weighing ofthe following seven factors: "(1) The economic impact ofthe standard on the manufacturers and the consumers of the products subject to such standard; (2) The savings in operating coststhroughout the estimated average life ofthe coverec.: product in the type (or class) compared to any increase in the price of, orin the initial charges for, ormaintenance expenses of, the covered products which are likely to result from the imposition ofthe standard; (3) The total projected amount ofenergy ... saVings likely to result directly from the

.imposition ofthe standard;

10 Q:\EE.41\EE-431\CAClStandRul\NOPRiDraftNOPRICACl\OPR16wpd August 4, 2000 (1**:45P~I)**EE-RM/STD-98-440-?/U /' 

### (4) Any lessening oftheutility or the performance ofthe covered products likely to result from the imposition ofthe standard; (5) The impact ofany lessening ofcompetition, as determined in writing bythe Attorney General, that is likely to result from the imposition ofthe standard; (6) The need for national energy ... conservation; and (7) Other factors the Secretary considers relevant."

In addition, Section 325(o)(2)(B)(iii) ofthe Act, 42 U.S.C. 6295(o)(2)(B)(iii), establishes
arebuttable presumption that a standard iseconomicallyjustified ifthe Secretary finds that "the additional cost to the consumer ofpurchasing a product complying with an energy conservation standard level will be less thanthree times the value ofthe energy... savings during the first year that the consumer will receive as a result ofthe standard, as calculated under the applicable test procedure .... " The rebuttable presumption test is an alternative path to establishing economic 

### justification.
Section 327 ofthe Act, 42 U.S.C. 6297, provides that generally theFederal energy efficiency requirements supersede State laws or regulations concerning energy conservation testing, labeling, and standards, and specifies limited exceptions to this general rule. EPCA Section 327(a)-(c), 42 U.S.C. 6297 (a)-(c). The Department can grant a waiver ofpreemption in accordance with the procedures and other provisions ofSection 327(d) ofthe Act. 42 U.S.C. 6297(d).

Q:\EE41\EE-431\CAC\StandRul\NOPR'ODrftNOPR\CACNOPR16.-pd 11 August 4, 2000 (1:45P.I)

4 (



### ..

# ~":~.**EE.RM/sTD-9~-44o#cR**()

# 7 (4) Any lessening ofthe utility orthe performance ofthe Jbvered products likely to +.,: result from the imposition ofthe standard; (5) The impact ofany lessening ofcompetition, as determined in writing by the Attorney General, that is likely to result from the imposition ofthe standard; (6) The need for national energy ... conservation; and (7) Other factors the Secretary considers relevant."
In addition, Section 32S(0)(2)(B)(iii) ofthe Act, 42 US.c. 629S(0)(2)(B)(iii), establishes



### - a rebuttable presumptionthat a standard is economicallyjustified ifthe Secretary finds that'i'the additional cost to the consumer ofpurchasing a product complying with an energy conservation standard level will be less than threetimes the value ofthe energy...**savi~gs** during the first year that the consumer will receive as a result ofthe standard, as calculated under the applicable test procedure ...." The rebuttable presumption test is an alternative pathto establishing economic justification.

Section 327 ofthe Act, 42 US.C. 6297, provides that generally the Federal energy efficiency requirements supersede State laws orregulations concerning er.ergy conservation testir.g, labeling, and standards, and specifies limited exceptions tothis general rule. EPCA Section 327(a)-(c), 42 US.C. 6297 (a)-(c). The Department can grant a waiver ofpreemption in . accordance withthe procedures and other provisions ofSection 327(d) ofthe Act. 42 US.c. 6297(d).

11 Q:\EE-41\EE-431\CAClSu!,\dRulINOPR\DraftNOPR\CACNOPR16.wpd Augus14. 2000 (I:45P!\!)

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

# '7 B. Background 1. Current Standards The existing standards for residential central air conditioners and heat pumps have been in effect since 1992. Energy efficiency for air conditioner and heat pump cooling has been defined bythe descriptor SEER. Energy efficiency forheat pumps has been defined bythe descriptor, Heating Seasonal Performance Factor (HSPF) while operating during the heating
season andby SEER while operating during the cooling season. The current central air conditioners and heat pumps 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

2. History ofPrevious Rulemakings On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing the Department's intention to revise the existing central air conditioner and heat pump efficiency standard. (58 FR47326). On November 24, 1999, DOE published a Supplemental ANOPR (hereinafter referred to as the Supplemental ANOPR). 64 FR 66306. Ihl the Supplemental ANOPR and during the December 9, 1999, public workshop, we provided interested persons an opportunity to comment on several issues, including: (1) the product classes that theDepartment planned to analyze; (2) the analytical framework, models (e.g., the Government Regulatory Impact Model (GRIM)), and tools (e.g., aMonte Carlo sampling methodology, and the life-cycle cost

Q:\EE.41\EE431 \CAC\StandRulNOPRDraft-NOPR\CACNOPR 16 wpd

~~~~~~~12 ~~~~August 4, 2000 (I45PM) B.· Background 1. Current Standards The existing standards for residential central air conditioners and heat pumps·have been in effect since 1992. Energy efficiency for air cGmditioner and heat pump cooling has been defined by the descriptor SEER. Energy efficiency for heat pumps has been defined by the descriptor, Heating Seasonal PerformanceFactor (HSPF) while operating during the heating
season and by SEERwhile operating during the cooling season. The current central air conditioners and heat pumps efficiency standards are as follows:

.. 

## ..

-- Split system air conditioners and heat pumps - 10 SEERl6.8 HSPF

-- Single package air conditioners and heat pumps - 9.7 SEERl6.6 HSPF

2. History ofPrevious Rulemakings On September 8, 1993, DOE published anAdvanceNotice ofProposed Rulemaking (ANOPR) announcing the Department'sintention to revise the existing central air conditioner and heat pump efficiency standard. (58 FR47326). On November 24, 1999, DOE published a Supplemental ANOPR (hereinafter referred to as the Supplemental ANOPR). 64 FR 66306. It! the Supplemental ANOPR and during the December 9, 1999, public workshop, weprovided interested persons an opportunity to comment on several issues, including: (1) theproduct classes that theDepartment planned to analyze; (2) the analytical framework, models (e.g., the Government Regulatory Impact Model (GRIM), and tools (e.g., a Monte Carlo sampling methodology, and the life-cycle cost

12 Q:\EE.41\EE.431ICAClStandRu1\NOPRIDraftNOPRICACNOPR16.wpd Augus14. 2000**(1·45P~{)**EE-RM/STD-98-440 - :a: 0 / 

### (LCC) and national energy savings (NES) spreadsheets) that the Department was using in performing analyses ofthe impacts ofenergy conservation standards; (3)the results ofpreliminary analyses for the engineering, LCC, payback and NES; and (4) the candidate energy conservation standard levels that the Department had developed from these analyses.
3. Process Improvement The fiscal year (FY) 1996 appropriations legislation imposed a moratorium on proposed
or final rules for appliance efficiency standards for FY 1996. Pub. L. 104-134. During the moratorium, the Department examined the appliance standards program and how itwas working. Congress advised DOE to correct the standards-setting process and to bring together stakeholders (such as manufacturers and environmentalists) forassistance. Therefore, we consulted with energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other interested parties to provide input to the process used to develop appliance efficiency standards. As aresult, on July 15, 1996, the Department published afinal rule: Procedures for Consideration ofNew or Revised Energy Conservation Standards for Consumer Products (referred to as the Process Rule) (61 FR 36974), codified at 10 CFR Part 430, Subpart C, Appendix A.
The Process Rule states that for products, such as central air conditioners andheat pumps, for which DOE issued a proposed rule prior to August 14, 1996, DOE would conduct a review to decide whether any ofthe analytical or procedural steps already completed shouldbe repeated.
Q :\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR 16. pd 13 August 4, 2000(1:45PM)
f4

# ~E-RM/STD-9~-440**~·1t-4**tJ 

# 1

. .-. (LCC) and national energy savings (NES) spreadsheets) that the Department was using in perfonning analyses ofthe impacts ofenergy conservation standards; (3) the results ofpreliminary analyses for the engineering, LCC, payback**a~d** NES; and (4) the candidate energy conservation**st~ndard** levels that the Department had developed from these analyses.

3. Process Improvement The fiscal year (FY) 1996 appropriations legislation imposed a moratorium on prop?sed

, 

# .. orfinal rules for appliance efficiency standards for FY 1996. Pub. L. 104-134. During the . moratorium, theDepartment examined the appliance standards program and how it was working. Congress advised DOE to correct the standards-setting process and to bring together stakeholders (such as manufacturers and environmentalists) for assistance. Therefore, we consulted with energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other interested parties to provide input to the process used to develop· appliance efficiency standards. As a result, on July 15, 1996, the Department published a final rule: Procedures for Consideration ofNew orRevised Energy Conservation Standards for ConsumerProducts (referred to as the ProcessRule) (61 FR 36974), codified at 10 CFR Part 430, Subpart C, Appe:ldix 

### A.

The ProcessRule states that for products, such as central air conditioners and heat pumps, fOT whichDOE issued a proposed rule priorto August 14, 1996, DOEwould conduct a review to decide whether any ofthe analytical orprocedural steps already completed should be repeated. 13 Q:IEE-411EE-431\CAClStandRulINOPRlDraftNOPR\CACNOPRI6wpd August 4, 2000 (1 :45P!\1)

### EE-RM/STD-98-440-'4 a 

## '7 (61 FR 36982). DOE completed this review and decided to use the Process Rule, to the extent possible, inthe development ofthe revised central air conditioners and heat pumps standards.

We developed an analytical framework for the central air conditioners and heat pumps standards rulemaking for our stakeholders, which we presented during a workshop on June 30, 1998. The analytical framework described the different analyses (e.g., LCC, payback and manufacturing impact analyses (MIA)) to be conducted, the method for conducting them, the use ofnew LCC and NES spreadsheets, andthe relationship ofthe various analyses. 

## ml. General Discussion A. TestProcedures 

### Section 7(b) ofthe Process Rule states that necessary modifications to test procedures concerning efficiency standards will be proposed before issuance ofaproposed rule. Section 7(c) oftheProcess Rule states that afinal modified test procedure will be issued prior to issuing

proposed ruleregarding energy conservation standards. The residential central air conditioner and heat pump test procedure isbeing revised to improve its organization and ease ofuse, with a proposed ruleto be published. This revision ofthe test procedure isnot expected to alter the measured efficiencies as determined under the existing test procedure. Therefore, the revised test procedure would not affect development ofrevised efficiency standards. For thesereasons, revisions to the test procedure are not a "necessary modification" as that term isused inthe Process Rule, but rather aroutine update, and hence need notbe finalized before issuance ofthe proposed rule for these standards.
Q:\EE-41\EE-431\CAC\StandRuiWNOPR'DraftNOPR\CACNOPRI 6.!pd 14 August4, 2000 (1:45PfM

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

# c:R tJ

# 'i (61 FR36982). DOE completed this review and decided touse the Process Rule, to the extent possible, in the development ofthe revised central air conditioners and heat pumps standards.

We developed an analytical framework**f~r** the central air conditioners and heat pumps standards rulemaking for our stakeholders, which we presented during a workshop on June 30, 1998. The analytical framework described the different analyses (e.g., 

## Lee, payback and manufacturing impact analyses (MIA» to be conducted, the method for conducting them, the use ofnew 

## Lee and NES spreadsheets, and the relationship ofthe various analyses.


## m. General Discussion A. TestProcedures Section 7(b) ofthe Process Rule states that necessary modifications to test**proc~dures** concerning efficiency standards will be proposed before issuance ofa proposed rule. Section 7(c) ofthe ProcessRule statesthat a final modified test procedure will be issued prior to issuing

.. proposed rule regarding energy conservation standards. The residential central air conditioner and heat pump test procedure is being revised to improve its organization and ease ofuse, ·with a proposed rule tobepublished. This revision ofthe test procedure is not expected to alter the measured efficiencies as determined underthe existing test procedure. Therefore, the revised test procedure would not affect development ofrevised efficiency standards. Forthese reasons, revisions to the test procedure are not a "necessary modification" as that term is used in the ProcessRule, but rather a routine update, and hence need notbe finalized before issuance ofthe p:oposed rule for these standards. 14 Q:\EE-41IEE-431\CAClStandRuJ'-."lOPR"Draft."lOPR\CACNOPR16.wpd August4.2000 (1 :45P\1j

### B. TechnologicalFeasibility ERMST 984 1. General 

### There are central air conditioners and heat pumps inthe market at all ofthe efficiency levels analyzed in today's notice. The Department, therefore, believes all ofthe efficiency levels discussed intoday's notice aretechnologically feasible.
2. Maximum Technologically Feasible Levels The Act requires the Department, inaproposed rule that sets forth new or amended standards, to "determine the maximum improvement inenergy efficiency... that is technologically feasible for each type (or class) ofcovered products.." EPCA Section 325 (p)(2), 42 U.S.C. 6295(p)(2). Accordingly, for each class ofproduct under consideration inthis rulemaking, a maximum technologically feasible (Max Tech) level was identified.
As previously stated in Section II.B, residential central air conditioner and heat pump cooling efficiency isexpressed as a SEER. Heating efficiency is expressed as a HSPF. The most efficient technology presently available isa 3-ton 18 SEER central air conditioner. The Department has determined that atthis time 18 SEERistheMax Tech level for cooling efficiency for all product classes and capacities inthis analysis. The Max Tech level for heating efficiency, corresponding to the 18 SEER level, is9.4 HSPF1 which is the highest HSPF rating currently available in residential heat pumps.

Q:'EE-41\EE-431\CAC\StandRul\NOPR:iraftNOPR\CACNOPRl 6.wpd 15 August 4. 2000 (1:45PM)) B. TechnologicalFeasibility EE-RM/STO-9S-440'

# --#02J

# 7
1. General There are central air conditioners and heat pumps in the market at all ofthe efficiency levels analyzed in today's notice. The**Departm~nt,** therefore, believes all ofthe efficiency levels discussed in today's notice aretechnologically feasible.

2. Maximum TechnologicallyFeasible Levels The Act requires the Department, in a proposed rule that sets forth new or**amende~** standards, to "determinethe maximum improvement in energy efficiency... that is , 

# .. technologically feasible for each type (or class) ofcovered products.." EPCA Section 325 (p)(2), 42 U.S.C. 6295(p)(2). Accordingly, for**e~ch** class ofproduct under consideration in this ruleniaking, a maximum technologically feasible (Max Tech) level was identified.

As previously stated in Section II.B, residential central air conditione: and heat pump cooling efficiency is expressed as a SEER. Heating efficiency is expressed as a HSPF. The most efficient technology presently available is a 3-ton 18 SEER central air conditioner. The Departmenthas detennined that at this time 18 SEER is the Max Tech level for cooling efficiency for all product classes and capacities in this analysis. TheMaxTech level for heating**effici~ncy,** corresponding to the 18 SEERlevel, is 9.4 HSPFI which is the highest HSPF rating currently available in residential heat pumps.

15 Q:\EE-41\EE-431ICAClStandRuliNOPRIDraftNOPRICAC};OPR16.wpd August4, 2000 (1**:45P~l)**

### C. Energy

### Savings EE-RM/STD-98440-/c'7) 1. Determination ofSavings The Department estimated energy savings through the use ofthe NES spreadsheet, which forecasted energy savings over the period ofanalysis for candidate standards relative to the base
case. The Department quantified the energy savings that would be attributable to astandard as the difference in energy consumption between the candidate standards case and thebase case. The base case represents the forecast ofenergy consumption inthe absence ofamended mandatory efficiency standards.
The NES spreadsheet model isdescribed inSection IV.B ofthis notice, Appendix ofthe Technical Support Document and also in the Supplemental ANOPR. (64 FR 66306). The NES spreadsheet model calculates the energy savings insite energy orkilowatt-hours (kWh). Site energy isthe energy directly consumed at building sites by the central air conditioner or heat pump. National energy savings are expressed interms ofthe source energy savings which isthe savings in energy used to generate and transmit the electricity consumed atthe site. Chapter 7of the TSD contains a table offactors used to convert kWh toBtu. These conversion factors, which change with time, are derived from DOE's Energy-Information Administration's (EIA) Annual Energy Outlook 2000 (AE02000).
2. Significance ofSavings TheAct prohibits theDepartment from adopting a standard for a product ifthat standard would not result in "significant" energy savings. EPCA Section 325(o)(3)(B), 42 U.S.C. Q:\EE4EE\EE431\CAC\StandRulOPROPR\OCACNOPR16.wpd 16 Augus 4, 2000 (1.45PM)

* 

### C. Energy Savings

### EE.RM/STD.98-440~jI= 

# c9**~7** 

### 1. Detennination ofSavings The Department estimated energy savings through the use ofthe NES spreadsheet, which forecasted energy savings overthe period ofanaJysis for candidate standards relative to the base
case. TheDepartment quantified the energy savings that would be attributable to a standard as the difference in energy consumptionbetween the candidate standards case and the base case. The base case represents the forecast ofenergy consumption in the absence ofamended mandatory efficiency standards. .' 

# .. TheNES spreadsheet model is described in Section IV.B ofthis notice, Appendix ofthe Technical Support Document and also in the 'Supplemental ANOPR. (64 FR 66306). The NES spreadsheet model calculates the energy savings in site energy orkilowatt-hours (kWh). Site energy is the energy directly consumed at building sites by the central air conditioner orheat pump. National energy savings are expressed in terms ofthe source energy savings which is·the savir.gs in energy used to generate and transmit the electricity consumed at the site. Chapter 7 of the TSD contains a table offactorsused to convert kWh to Btu. These conversion factors, whi.::h changewith time, are derived from DOE'sEnergyInformation Administration's (EIA) Annual**En~rgy** Outlook 2000 (AE02000).

2. Significance ofSavings The Act prohibits theDepartment from adopting a standard for a product ifthat standard would not result in "significant" energy savings. EPCA Section 32S(o)(3)(B), 42 U.S.C. 16 Q:\EE41IEE431\CAClStandRul\NOPR\Draft."lOPR\CACNOPRI6.wpd • August 4, 2000 (l.45P!\!j

### EE-RM/STD-98-440 -7" d

# I 6295(o)(3)(B). While the term "significant" isnot defined inthe Act, the U.S. Court ofAppeals, inNatural ResourcesDefense Councilv. Herrington,768 F,2d 1355, 1373 (D.C. Cir. 1985), 

### indicated that Congress intended "significant" energy savings inthis context to be savings that
were not "genuinely trivial." The energy savings for all ofthetrial standard levels considered in this rulemaking are non-trivial and therefore we consider them "significant" within the meaning ofSection 325 ofthe Act.

D. RebuttablePresumption 

### The National Appliance Energy Conservation Act established new criteria for determining whether a standard level iseconomicallyjustified. EPCA Section 325(o)(2)(B)(iii) states: "If the Secretary finds that the additional cost to the consumer ofpurchasing a product complying with an energy conservation standard level willbe less than three times the value ofthe energy... savings during the first year that the consumer will receive
as a result ofthe standard, as calculated under the applicable test procedure, there shall be
a rebuttable presumption that such standard level iseconomicallyjustified. A determination by the Secretary that such criterion isnot met shall not be taken into consideration inthe Secretary's determination ofwhether a standard iseconomically justified."
Ifthe increase in initial price ofan appliance due to a conservation standard would repay itselftothe consumer in energy savings in less than three years, then we presume that such
Q:\EE41\EE431 \CAC\StndRul\NOPR\DrafhNOPR\CACNOPR 6.wpd 17 August 4,2000 (1:45PM\ 6295(0)(3)(B). While the term "significant" is not defined in the Act, the U.S. Court ofAppeals, inNaturalResourcesDefense Councilv. Herrington, 768 F,2d 1355, 1373 (D.c. Cir. 1985), indicated that Congress intended "significant" energy savings in this context to be savings that

.were not "genuinely trivial." The energy**saving~** for all ofthe trial standard levels considered in this rulemaking are non-trivial and therefore we consider them "significant" within the meaning ofSection 325 ofthe Act.

D. RebuttablePresumption TheNational Appliance Energy Conservation Act established new criteria for .' 

# .. determining whether a standard level is economicallyjustified..EPCA Section 325(0)(2)(B)(iii) states: IIlfthe Secretary finds that the additional cost to the consumer ofpurchasing a product 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 a result ofthe standard, as calculated underthe applicable test procedure, there shall be
a rebuttable presumptionthat such standard level is economicallyjustified. A determination by the Secretarythat such criterion is not met shan not betaken into consideration in the Secretary's determination ofwhether a standard is economically justified."
Ifthe 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 we presume that such 17 Q:\EE41\EE431 ICACISta."dRu1INOPR\Draft."<OPRICACNOPRI6.wpd August 4. 2000 (1**:45P~!)**

### EE-RM/STD-98-440-7O c: 

# d7 standard is economically justified.6 

### This presumption ofeconomicjustification can be rebutted upon a proper showing.

E. EconomicJustification 

### As noted earlier, Section 325(o)(2)(B)(i) ofthe Act provides seven factors to be evaluated in determining whether a conservation standard iseconomicallyjustified.
1. Economic Impact on Manufacturers and Consumers The Process Rule established procedures, interpretations and policies to guide the Department inthe consideration ofnew or revised appliance efficiency standards. The provisions ofthe rule have direct bearing onthe implementation ofmanufacturer impact analyses. First, the Department will use an annual cash flow approach in determining the quantitative impacts on manufacturers. This includes a short-term assessment based on the cost and capital requirements during the period between the announcement ofa regulation and the time when the regulation comes into effect, and a long-term assessment. Impacts analyzed include industry net present value, cash flows.by year, changes in revenue and income, and othe:
measures ofimpact, as appropriate. Second, the Department will analyze and report the impacts
on different types ofmanufacturers, with particular attention to impacts on small manufacturers. Third, the Department will consider the impact ofstandards on domestic manufacturer employment, manufacturing capacity, plant closures and loss ofcapital investment. Finally, the

6Forthis calculation, the Department calculated cost-of-operation based on the DOEtest procedure, with thetest procedure assumed annual hours ofoperation. Consumers that use the central air conditioner orheat pump fewer hours will experience a longer payback while those thatuse them more will have a shorter payback. Q:EE-41 \EE431\CAC\StandRul\NOPRZ\DralNOPR\CACNOPR1 6.%vpd 18 August4, 2000 (1:45PM)

4

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

### t3

# 'i standard is economicallyjustified. 6 This presumption ofeconomicjustification can be rebutted upon aproper showing.

E. EconomicJustification As noted earlier, Section 32S(0)(2)(B)(i) ofthe Act provides seven factors to be evaluated in determining whether a conservation standard is economicallyjustified.
1. Economic Impact on Manufacturers and Consumers .' 

# .. The Process Rule established procedures, interpretations and policies to guide the Department in the consideration ofnew or revised appliance efficiency standards. The provisions ofthe rule have direct bearing on the implementation ofmanufacturer impact analyses. First, the Department will use an annual cash flow approach in determining the quantitative impacts on manufacturers. This includes a short-term assessment based on the cost and capital requirements during the period between the announcement ofaregulation and the time when the regulation comes into effect, and along-term assessment. Impacts analyzed include industry net present value, cash flows.by year, changes in revenue and income, and othe:-
measures ofimpact, as appropriate. Second, the Department will analyze and report the impacts on different types ofmanufacturers, with particular attention to impacts on small manufacturers. Third, the Departmentwill considerthe impact ofstandards on domestic manufacturer employment, manufacturing capacity, plant closures and loss ofcapital investment. Finally, the
liporthis calculation, the Department calculated cost-of-operation based onthe DOE test procedure, with thetest procedure Ill>sumed annual hours ofoperation. Consumers that use the central air conditioner orheat pump fewer hours will experience a longer payback while those that use them more will have a shorterpayback. 18 Q:IEE-41 1EE-431\CAClStmdRul\NOPR\DraftNOPR\CACNOPR16.....'Pd August4. 2000 (1 :45P:-"1)

### EE.RM/STD-98.44"0- c' 

## I7 Department will take into account cumulative impacts ofdifferent DOE regulations on manufacturers.
For consumers, measures ofeconomic impact are the changes in installed cost and annual operating costs, i.e., LCC. The life-cycle cost ofthe product at each standard level are presented in Chapter 5ofthe TSD. Under Section 325 ofthe Act, the life-cycle cost analysis is a separate factor to be considered indetermining economicjustification.
2. Life-Cycle Costs The life-cycle cost isthe sum ofthe purchase price, including the installation, ard the operating expense, including operating energy, maintenance, and repair expenditures, discounted
over the lifetime ofthe appliance.
For each central air conditioner and heat pump product class, we calculated both lifecycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 12, 13, and 18 SEER. Forheat pumps, the following space-heating efficiency levels correspond to the above SEER values: 7.1, 7.4, 7.7, and 8.8 HSPF, respectively. The calculated life-cycle cost savings isgiven as a distribution, with a mean value and a range. We used a distribution ofreal discount rates ranging from 0.1 to 18% for the calculations. The assumption isthat the
consumer purchases the central air conditioner and/or heat pump in2006. For the probabilitybased LCC analysis, abuilding-by-building analysis isperformed for purposes ofgenerating a distribution oflife-cycle costs for each efficiency level analyzed. The building stock is
Q :\EE41EE-431\CAC\StandRulWOPR\DitNOPR\CACNOPR 6.Apd 19 August 4,2000 (145PM)

* 

### EE-RM/STO-98-440--Tb?

## ~~ Department will take into account cumulative impacts ofdifferent DOE regulations on manufacturers.

For consumers, measures ofeconomic impact are the changes in installed cost and annual operating costs, i.e., LCC. The life-cycle cost ofthe product at each standard level are presented in Chapter 5ofthe TSD. Under Section 325 ofthe Act, the life-cycle cost analysis is a separate factor to be considered in determining economicjustification.
2. Life-Cycle Costs 

### - 

# .. The life-cycle cost is the sum ofthe purchase price, including the installation, ar1 the operating expense, including operating energy, maintenance, and repair expenditures, discounted over the lifetime ofthe appliance.

For each central air conditioner and heat pump product class, we calculated both lifecycle costs and life cycle cost savings for the following space-cooling efficiency levels: 11, 12, 13, and 18 SEER. For heat pumps, the following space-heating efficiency levels correspond to the above SEERvalues: 7.1, 7.4, 7.7, and 8.8 HSPF, respectively. The calculated life-cycle cost savings is given as a distribution, with amean value and arange. We used a distribution ofrel1 discount rates ranging from 0.1 to 18% for the calculations. The assumption is that the
consumerpurchases the central air conditioner and/or heat pump in 2006. For the probabilitybased LCC analysis, abuilding-by-building analysis is performed for purposes ofgenerating a distribution oflife-cycle costs for each efficiency level analyzed. The building stockis 19 Q:1EE411EE431\CAC'StandRul\NOPR\DraftNOPR\CACNOPRI6wpd August 4, 2000 (I**:45P~l)** 

# •EE-RM/STD-98-440--/%Y/' 

### composed ofboth residential and commercial buildings underthe assumption that 90% ofsinglephase central air conditioners and heat pumps are utilized inresidential buildings with the remaining 10% in commercial-buildings. The 1997 Residential Energy Consumption Survey (RECS) is used to represent the residential building stock while 77 commercial buildings are used to represent the commercial building stock based on assumptions consistent with those used in the process to update ASHRAE Standard 90.1-1999. Annual energy costs are based on marginal electricity prices which are developed for each residential and commercial building. Electricity price forecasts aretaken from the AEO2000 (DOE/EIA-0383) The LCC calculations include markup structures developed for both the new construction and replacement/retrofit markets. Chapter 5ofthe TSD contains the details ofthe LCC calculations including those considered under factor seven below.
3. Energy Savings While significant conservation ofenergy isa separate statutory requirement for imposing
an erergy conservation standard, the Act requires DOE, in determining the economicjustification ofa standard, to consider the total projected energy savings that are expected to result directly from revised standards. The Department used the NES spreadsheet results, discussed earlier, in its consideration oftotal projected savings. The savings are provided in Section V ofthis notice.
4. Lessening, ifAny, ofUtility or Performance ofProducts This factor cannot be quantified. In establishing classes ofproducts, and in evaluating design options and the impact ofpotential standard levels, theDepartment tried to eliminate any
Q:\EE41\EE 431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR 16.upd 20 August 4,2000 (1:45PMi
4 

## ·. EE-RM/STD-98-440---1{0>

# '7 composed ofboth residential and commercial buildings under the assumption that 90% ofsinglephase central air conditioners and heat pumps are utilized in residential buildings with the remaining 10% in commercial-buildings. The 1997 Residential Energy Consumption Survey (RECS) is used to represent the residential build,ing stock while 77 commercial buildings are used to represent the commercial building stockbased on assumptions consistent with those used

. . in the process to update ASHRAE Standard 90.1-1999. Annual energy costs are based on marginal electricity prices which are developed for each residential and commercial building. Electricity price forecasts are taken from the AE02000 (DOEIEIA--0383). The LCC calculations

, include markup structures developed for both the new construction and replacement/retrofit . markets. Chapter 5 ofthe TSD contains the details ofthe LCC calculations including those considered under factor seven below..
3. Energy Savings While significant conservation ofenergy is a separate statutory requirement for imposing
..ill eI"ergy conservation standard, the Act requires DOE, in determining the economicjustification ofa standard, to considerthe total projected energy savings that are expected to result directly from revised standards. The Department used the NES spreadsheet results, discussed earlier, in its consideration oftotal projected savings. The savings are provided in Section V ofthis notice.

4. Lessening, ifAny, ofUtility orPerformance ofProducts This factor cannotbe quantified. In establishing classes ofproducts, and in evaluating design options and the impact ofpotential standard levels, the Department tried to eliminate any 20 Q:\EE-41\EE-431ICAClStandRu1\NOPR\DraftNOPRICACNOPR16.wpd August4, 2000 (I**:4SP~!)**

### EE-RM/STD-98-44 0O ? degradation ofutility orperformance inthe products under consideration inthis rulemaking. None ofthe proposed trial standard levels reduces the performance ofcentral air conditioners and heat pumps.
5. Impact ofAny Lessening ofCompetition The Act directs the Department to consider any lessening ofcompetition that islikely to result from standards. It further directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from a proposed standard and transmit such determination to the Secretary, not later than 60days afterthe publication ofa proposed rule, together with an analysis ofthe nature and extent ofsuch impact. Section 325(o)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii).
In order to assist the Attorney General inmaking such a determination, the Department has provided the Attorney General with copies ofthis notice and the Technical Support Document forreview.
6 Need ofTheNation to Conserve Energy We report the environmental effects from each standard level for each product under this factor in Section VI ofthis notice.
7. Other Factors

Q:\EE-41'EE-431\CAC\StandRulNOPRDraflNOPR\CACNOPR16.pd 21 August 4,2000 (1:45PM)

1

### EE.RM/STD.98.440---7f=~

## tJ

# 1 degradation ofutility orperformance in the products under consideration in this rulemaking. None ofthe proposed trial standard levels reduces the performance ofcentral air conditioners and heat pumps.

5. Impact ofAny Lessening ofCompetition The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. Itfurther directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from a proposed**st~ndard** andtransmit such .' determination to the Secretary, not later than 60 days after the publication ofa proposed niie, togetherwith an analysis ofthe nature and extent ofsuch impact. Section 325(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii).
In orderto assist the Attorney General in making such a determination, the Department has provided the Attorney General with copies ofthis notice and the Technical Support Document for review.

6 Need ofTheNation to Conserve Energy We report the environmental effects from each standard level for each product under this factor in SectionVI ofthis notice.

7. OtherFactors



### 21 Q:IEE-41I.EE-431ICAClStandRulINOPRlDraftNOPRICACNOPRI6.wpd . August 4. 2000 (1 :45PM)EE-RM/STD-98-440 -H~i 2 

## & 7 

### During the extreme periods ofheat and humidity that tookltace in the summer of 1999, electric power outages and other system disturbances disrupted the lives ofmillions ofpeople and thousands ofbusinesses invarious regions ofour country. In response to public concerns about this problem, the Secretary ofEnergy formed a team ofexperts to investigate the problem and to recommend actions that the Federal government can take to help avoid future power outages by improving the reliability ofthe U.S. electric power system. One ofthe actions proposed by the Secretary at that time was to accelerate the rulemaking process and advance the publication ofafinal rule for central air conditioners by six months.
The Final Report by the team ofexperts, issued inMarch, 2000, included the recommendation to increase the energy efficiency ofcentral air conditioners as one means for enhancing reliability. The report stated, "Technologies and practices that reduce loads during times ofpeak demand, such as high-efficiency air conditioning and lighting equipment, are especially valuable.' This wasbased onthe finding that inseveral ofthe affected regions "Retail customers have limited mechanisms and incentives to conserve energy or resort to alternatives during electricity shortages." Included inthe federal activities that promote energy efficiency recommended tothe Secretary was to promulgate standards for more efficient technologies.
As an additional element to consider under this factor, the Secretary has decided to evaluate the life-cycle cost impacts on those subgroups ofconsumers who are at orbelow the poverty line (e.g., for a family offour, this constitutes a household income ofless than $16,036).

Q;\EEA1EE43 1\CAC\StandRu]NOPR\DraflNOPR>CACNOPR 16.wpd 22 August 4,2000 (1 45PM) 4

## EE.RM/STD.9~-440**~1t ~** tJ 

# 7 Duringthe extreme periods ofheat and humidity that**took~ce** in the summer of 1999, electric power outages and other system disturbances disrupted the lives ofmillions ofpeople and thousands ofbusinesses 

### in various regions ofour country. In response to public concerns about this problem, the Secretary ofEnergy fonned a team ofexperts to investigate the problem and to recommend actions that the Federal government can take to help avoid future power outagesby improving the reliability ofthe U.S. electric power system. One ofthe actions proposedby the Secretary at that time was to accelerate the rulemaking process and advance the publication ofa final rule for central air conditioners by six months.

The Final Report by the team ofexperts, issued in March, 2000, included the recommendation to increase the energy efficiency ofcentral air conditioners as one means for enhancing reliability. The report stated, "Technologies and practices that reduce loads during**tim~s**

## 0:peak demand, such as high-efficiency air conditioning and lighting equipment, are especially valuable." This wasbased on the finding that in several ofthe affected regions "Retail**cu~to!l1ers** have limited mechanisms and incentives to conserve energy orresort to alternatives during electricity shonages." Included 

### in the federal activities that promote energy efficiency recommended tothe Secretary was to promulgate standards for more efficient technologies.

As an additional element to consider underthis factor, the Secretary has decided to evaluatethe life-cycle cost impacts on those subgroups ofconsumers who are at orbelowthe poverty line (e.g., for a family offour, this constitutes a household income oflessthan $16,036).

22 Q:IEE-41IEE-431ICAClStandRuI'NOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (I "45P\fj

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

# 7/ IV. Methodology as

### The Process Rule outlines the procedural improvements identified by the interested parties. 61 FR 36974. The process improvement effort also included a review ofthe: 1)economic models; 2) analytical tools; 3)methodologies; 4)non-regulatory approaches; and 5)prioritization offuture rules.
The Department continues to use two spreadsheet tools to meet the objectives ofthe Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods ofpotential
new energy conservation standards. The second conducts shipments forecasts and then calculates national energy savings and net present value impacts ofpotential new energy conservation standards. The Department also completely revised the methodology used in assessing manufacturer impacts including the adoption ofthe GRIM. Additionally, DOE has estimated the impacts ofcentral air conditioner and heat pump energy efficiency standards on electric utilities andthe environment. TheDepartment used a version ofEIA's National EnergyModeling System (NEMS) for the utility and environmental analyses. NEMS simulates the energy economy oftheU.S. and haz been developed over several years by the EIA primarily for the purpose ofpreparing the AEO. NEMS produces a widelyknown baseline forecast forthe U.S. through 2020 that isavailable inthe public domain. The version ofNEMS used for appliance standards analysis is called NEMS-BRS 7

### , and isbased on

7 EIA approves use ofthe name NEFS to describe only an AEO version ofthe model without any modification to code or data.Because our analysis entails some minorcode modifications andthe model is run under various policy scenarios that deviate frcm AEO assumptions, the name NEMS-BRS refers to the model as used here. For more information on NEMS, please Q:\EE41\EE-43ftAC\StandRulaNOPRa.NOPR\CACNOPR 6.pd 23 August4, 2000 (1:45PM1)

ft**---~**... - -- 

### EE-RM/STD-SI-440

# -it

# cA

# 31 IV. Methodology The Process Rule outlines the procedural improvements identified by the interested parties. 61 FR 36974. The process improvement effort also included a review ofthe: 1) economic models; 2) analytical tools; 3) methodologies; 4) non-regulatory approaches; and 5) prioritization offuture rules.

The Department continues to use two spreadsheet tools to meet the objectives ofthe Process Rule. The first spreadsheet calculates life-cycle-costs and payback periods of**pote~tial** new energy' conservation standards. The second conducts shipments forecasts and then calculates national energy savings and net present value impacts ofpotential new energy conservation standards. TheDepartment also completely revised the methodology used in assessing manufacturer impacts including the adoption ofthe GRIM.
Additionally, DOE has estimated the impacts ofcentral air conditioner and heat pump energy efficiency standards on electric utilities and the environme!'.t. TheDepartment used a version ofEIA'sNational EnergyModeling System (NEMS) for the utility and environmental analyses. NEMS simulates the energy economy oftheU.S. and**h;:.~** t,cen developed over several yean. by theEIAprimarily for the purpose ofpreparing the AEO. NEMS produces a widelyknown baselineforecast for the U.S. through 2020 that is available in the public domain. The version ofNEMS used for appliance standards analysis is called NEMS-BRS7, and is based on

7EIA 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 frem AEO assumptions, the nameNEMS-BRS refers to the model as used here. For more information onNEMS, please 23 Q:\EE-41\EE-43f\CAClStandRuI\]·,JOPRIDraftNOPRICACNOPRI6.""pd August4,2000 (I**:45P~I)**

### EE-RM/STD-98-440-.-4, 7 the AE02000 version with minor modifications. NEMS offers a sophisticated picture ofthe effect ofstandards since its scope allows itto measure the interactions between the various energy supply and demand sectors and the economy as a whole.

A. Life-Cycle CostandPayback Period Analysis This section describes the LCC and payback period analysis and the spreadsheet model used for analyzing the economic impacts ofpossible standards on individual residential and commercial consumers. Details ofthe spreadsheet model can be found inChapters 5in the TSD. We conduct the LCC and payback period analysis with a spreadsheet model developed in Microsoft Excel for Windows 95 or above. When combined with Crystal Ball (a commercially available software program), the LCC and payback period generates a Monte Carlo simulation to perform the analysis byincorporating uncertainty and variability considerations.
The LCC is the total consumer expense over the life ofthe appliance, including purchase expense.and operating costs (including energy expenditures). Future operating costs are discounted to thetime ofpurchase and summed over the lifetime ofthe appliance. The payback period isthe change in purchase expense due to an increased efficiency standard divided bythe change in annual operating cost that results from the standard. For today's proposed rule, both the LCC and payback period are based on abuilding-by-building analysis ofa nationally representative set ofresidential and commercial buildings.

refer to theNational EnergyModeling System: An Overview 1998. DOE/EIA-0581 (98), February, 1998. BRS is DOE's Office ofBuildingResearch and Standards. Q:\EE-41\EE431 \CAC\StandRul\NOPR\DrafNOPR\CACNOPR1 6.9 d 24 August 4. 2000 (1:45PM)
a

### EE.RM/STD.98-440-1f~

## d

# J

.t**~)** • ...:.., .....1.} the AE02000 version with minor modifications. NEMS offers a sophisticated picture ofthe effect ofstandards since its scope allows itto measure the interactions between the various

. energy supply and demand sectors and the economy as awhole.

A. Life-Cycle CostandPaybackPeriodAnalysis This section describes the LCC and payback period analysis and the spreadsheet model used for analyzing the economic impacts ofpossible standards on individual residential and commercial consumers. Details ofthe spreadsheet model can be found in Chapters 5in the TSD. We conduct the LeC and payback period analysis with a spreadsheet model developed in Microsoft Excel for Windows 95 or above. When combined with Crystal Ball (a commercially available software program), the LCe and payback period generates aMonte Carlo simulation to perform the analysis by incorporating uncertainty and variability considerations.
The LCC is the total consumer expense overthe life ofthe appliance, including purchase p.X?eT1se. and operating costs (including energy expenditures). Future operating costs are discounted to the time ofpurchase and summed overthe lifetime ofthe appliance. The payback period is the change in purchase expense due to an increased efficiency standard divided by the change in annual operating cost that results from the standard. Fortoday's proposed rule, both the!JCC and payback period are based on abuilding-by-building analysis ofa nationally representative set ofresidential and commercial buildings.

referto the NationalEnergyModeling System: An Overview 1998. DOElElA-OS81 (98),February, 1998. BRS is DOE'sOffice ofBuildingResearch and Standards. 

### 24 Q:IEE-411EE-431\CAC\SWldRulINOPR\DraftNOPRiCACNOPR16.\\1'd August4, 2000 (l :45PM)

### EE-RM/STD-98-440--'^ /7 The set ofresidential buildings are taken from those households in the 1997 RECS equipped with either a central air conditioner or heat pump. Ofthe 5,900 households surveyed in the 1997 RECS, 2,003 households representing 37.6% ofthe housing population have a central air conditioner while 579 households representing 11.1% ofthe housing population have a heat pumps'. RECS specifies the annual space-cooling energy consumption and, in the case ofheat pumps, the annual space-heating energy consumption associated with the space-conditioning equipment. Also provided isthe age ofthe space-conditioning equipment which, when coupled with historical equipment efficiency data provided by the Air-Conditioning and Refrigeration Institute (ARI), allows for the imputation ofthe household's space-conditioning equipment efficiency (i.e., the SEER and, inthe case ofheat pumps, the HSPF). With both the anrual energy use and the efficiency ofthe central air conditioner or heat pump specified, the annual energy use associated with equipment at higher efficiency levels is simply determined by multiplying the household's existing annual energy use by theratio ofthe existing equipment efficiency divided by the efficiency ofthe more efficient equipment. Household utility billing data in RECS allows forthe determination ofaverage and marginal electricity prices. The electricity price data along with the annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level.

The number ofhouseholds actually used in thecentral air conditioner and heat pumpLCC andPayback period analyses were 1218 and 308, respectively. Some central air-conditioned households were dropped from the analysis forone ormore ofthefollowing reasons: 1)thecentral air conditioner was notused, 2)aroom air conditioner waspresent and used, or 3)marginal energy prices could notbe determined forthe household. With regard tohouseholds with heatpumps, they were dropped from the analysis forone or more ofthe following reasons: 1)the heat pump was notused or 2)marginal energy prices could notbe determined for the household. Q:\EE41\EE431\CAC\StandRul\NOPR\DrftNOPR\CACNOPR 6.wpd 25 August 4,2000 (1:45PI) 4 The set of residential buildings are taken from those households in the 1997 RECS equipped with either a central air conditioner orheat pump. Ofthe 5,900 households surveyed in the 1997 RECS, 2,003 households representing 37.6% ofthe housing population have a central air conditionerwhile 579 households representing 11.1% ofthe housing population have a heat pumpsB. RECS specifies the annual space-cooling energy consumption and, in the case ofheat pumps, the annual space-heating energy consumption associated with the space-conditioning equipment. Also provided is the age ofthe space-conditioning equipment which, when coupled with historical equipment efficiency data provided bythe Air-Conditioning and Refrigeration

, Institute (ARI), allows for the imputation ofthe household's space-conditioning equipment' efficiency (i.e., the SEER and, in the case ofheat pumps, the HSPF). Withboththe anr'.lal energy use and the efficiency ofthe central air conditioner orheat pump specified, the annual energyuse associated with equipment at higher efficiency levels is simply determined by multiplying the household's existing annual**en~rgy** use by the ratio ofthe existing equipment efficiency divided by the efficiency ofthe more efficient equipment. Household utility billing data in RECS allows for the determination ofaverage and marginal electricity prices. The electricity price data along with the annual energy use data allows for the determination ofannual ele::tricity cost savings for any efficiency level.

& The number ofhouseholds actually used in the central air conditioner and heatpump LCC and Payback period analyses were 1218 and 308, respectively. Some central air-conditioned households were dropped from the anaIysb for one or more oCthe following reasons: 1) the central air conditioner was not used, 2) a room air conditioner was present and used. or 3) marginal energy prices could not be determined for the household. With regard to households with heatpumps, they were dropped from the analysis for one or more ofthe follo\\ing reasons: 1) the heat pump was notused or 2) marginal energy prices could notbe determined for the household. 25**Q:~-41~-431\CAClStandRuI\NOPR\DraftNOPR\CACNOPRI6.wpd** August4. 2000 (1**:45P~·!)**

### EE-RM/STD-98-440 -j4 c 

### 7 The set ofcommercial buildings are based on assumptions consistent with those used to develop the American Society ofHeating, Refrigerating, and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. The commercial building data set consists ofseven building types located ineleven different geographic regions yielding a total of77buildings. An hourly simulation program isused to calculate the annual full-load equivalent operating hours (FLEOH) ofthe space-cooling and space-heating equipment ineach building. The FLEOHs are used with the Department ofEnergy's test procedure equations for central air conditioners and heat pumps to obtain each building's annual space-cooling and space-heating energy consumption. Similar to the analysis forresidential buildings, the energy use associated with equipment at higher efficiency levels is simply determined by multiplying the building's simulated annual energy use by the ratio ofthe building's assumed equipment efficiency (i.e., 10 SEER) divided bythe efficiency ofthe more efficient equipment. Average and marginal electricity prices for each commercial building are determined by applying a national sample ofelectric utility tariffs to the simulated load and demand. The electricity price data along with the annual energy use data allows forthe determination ofannual electricity cost savings for any efficiency level for each commercial building.
The probability-based LCC and payback period analysis samples buildings from the residential and commercial building data set inorder to produce a distribution ofLCC results for
a given standard level. TheLCC and payback period analysis takes 10,000 samples to create a distribution ofresults based on the assumption that 90% ofthe single-phase central air

Q:\EE.41\EE431\CAC'StandRulLNOPRR\fNOPR\CACNOPR 16 wpd 26 August 4,2000 (1:45PM)

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

# -tt:ctJ!

## ~

.. 1-=1:: I, ",' The set ofcommercial buildings are based on assumptions consistent with those used to develop the American Society ofHeating, Refrigerating, and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. The commercial building data set consists ofseven building types located in eleven different geographic regions yielding atotal of77 buildings. An hourly simulation program is used**t~** calculate the annual full-load equivalent operating hours (FLEOH) ofthe space-cooling and space-heating equipment in each building. The FLEOHs are used with the Department ofEnergy's test procedure equations for central air conditioners and heat pumps to obtain each building'S annual space-cooling and space-heating energy consumption. Sim}lar

, 

# .. to the analysis for residential buildings, the energy use associated with equipment at higher . efficiency levels is simply determined by multiplying the building's simulated annual energy use by the ratio ofthe building's assumed equipm·ent efficiency (i.e., 10 SEER) divided by the efficiency ofthe more efficient equipment. Average and marginal electricity prices for each commercial building are determined by applying a national sample ofelectric utility tariffs to the simulated load and demand. The electricity price data along with the annual energy use data allows for the determination ofannual electricity cost savings for any efficiency level for each commercial building.
The probability-based LCC and payback period analysis samples buildings from the residential and commercial building data set in orderto produce a distribution ofLCC results for
a given standard level. TheLCC and payback period analysis takes 10,000 samples to create a distribution ofresults based on the assumption that 90% ofthe single-phase central air

26 Q:\EE-41\EE-431\CAC\StandRu1\.'-lOPRIDraftNOPR\CACl\OPR16 wpd August4. 2000 (1**:45P~1)**EE-RM/STD-98-440 - :F d 

### conditioning and heat pump equipment stock are inresidential buildings with.the remaining 10% incommercial buildings.
The spreadsheet model is organized so that ranges or distributions can be entered for each input variable needed to performthe calculations. TheLCC and payback period output can be either a point value when we use the average value ofthe inputs or a distribution when we use distributions for some or all ofthe inputs. Inputs for determining the total installed cost include: baseline manufacturer costs, manufacturer cost multipliers for each efficiency level, manufacturer markups, distributor or wholesaler markups, dealer or contractormarkups, builder markups, sales taxes, and installation costs. Ofthe above total installed cost inputs, the manufacturer, dealer, distributor, andbuilder markups, aswell as the sales tax and installation price are described with distributions. Inputs for determining operating expenses include: annual energy consumption, average electricity prices, marginal electricity prices, electricity price projections, repair costs, maintenance costs, equipment lifetime, discount rates, and the year standards take effect. Ofthe above operating expense inputs, the discount rate and equipment lifetime are described with distributions (note that neitherthe discount rate nor lifetime are needed to determine the payback period). Operating expense, annual energy use and electricity prices, although represented by point-values for each residential and commercial building, are highlyvariable when looking atthe entire building data set. Chapter 5 ofthe TSD contains the details ofall the inputs to theLCC and payback period analysis.

Q:\EE41\EE-431\CAC\StandRul'NOPR\DraftNOPR\CACNOPR16.wpd 27 August 4. 2000 (1:45Pf) 4

## EE.RM/STD-9~-440-1F 

# cqIJ

# 7 conditioning arid heat pump equipment stock are in residential buildings withtheremaining 10% in commercial buildings.

The spreadsheet model is organized so that ranges or distributions can be entered for each input variable needed to performthe calculations. TheLCC and payback period output can be either a point value when weuse the average value ofthe inputs or a distribution when we use distributions for some orall ofthe inputs. Inputs for determining the total installed cost include: baseline manufacturer costs, manufacturer cost multipliers for each efficiency level,

, 

# .. manufacturer markups, distributor orwholesaler markups, dealer orcontractor.markups, builder markups, sales taxes, and installation costs. Ofthe above total installed cost inputs, the manufacturer, dealer, distributor, and buildermarkups, as well as the sales tax and installation price are described with distributions. Inputs for determining operating expenses include: annual energy consumption, average electricity prices, marginal electricity prices, electricity price projections, repair costs, maintenance costs, equipment lifetime, discount rat.!s, and the year standardstake effect. Ofthe above operating expense inputs, the discount rate and equipment lifetime are described with distributions (notethat neither the discount rate nor lifetime are**n~eded** to determine the payback period). Operating expense, annual energy use and electricity**price~,** although representedby point-values for each residential and commercial building, are highly variable when looking at**th~** entire building data set. Chapter 5 ofthe TSD contains the details ofall the inputs to the LCC and payback period analysis.

27 Q:\EE-41\£E-431ICAC\StandRuI\NOPR\Draftl";10PRICACNOPR16wpd August4. 2000 (I**:45P~f)**

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

### ' 7 

### In addition to determining payback periods with the spreadsheet model, the Act requires
us to determine a rebuttable payback period. The Act requires theDepartment to examine payback periods to determine ifthethree year rebuttable presumption ofeconomicjustification applies. As prescribed by the Act, the rebuttable'payback period is "calculated under the applicable test procedure, ...."
The annual space-cooling and space-heating energy consumption calculated based onthe Department's test procedure are on the order of50% greater than the weighted-average values from the LCC analysis (i.e., analyses based onthe 1997 RECS for residential buildings and hourly simulations for commercial buildings). As will be shown in Section VI (Analytical Results), the payback value calculated fromthe Department's test procedure equations willbe significantly lower than the average payback value calculated from the LCC analysis, for any standard level.
B. NationalEnergySavingsand NetPresentValueAnalysis In order to makethe analysis more accessible andtransparent to all stakeholders, we continue to use an Excel spreadsheet model to calculate the energy savings and the national economic costs and savings from new standards. Various input quantities within the spreadsheet
can be changed. Unlike the LCC analysis, theNES spreadsheet does not use distributions for inputs oroutputs. We conduct sensitivities byrunning different scenarios.

Q:\EE41 EE-431\CAC\StandRu',NOPR\DafNOPR\CACNOPRl 6 pd ~~~~~~~~28 ~~~~August 4.2000 (1:45PM) EE-RM/STD-98-440

# -It0/tl

# 7 In addition to detennining payback periods with the spreadsheet model, the Act requires
us to detennine a rebuttable payback period. The Act requires the Department to examine payback periods to detennine ifthe three yearrebuttable presumption ofeconomicjustification applies. As prescribed by the Act, the rebuttable'payback period is "calculated underthe applicable test procedure, ...."

The annual space-cooling and space-heating energy consumption calculated based on the Department'stest procedure are on the order of50% greater than the weighted-averagevalues

, from theLCC analysis (i.e., analyses based onthe 1997 RECS for residential buildings and" hourly simulations for commercial buildings). As will be shown in Section VI (Analytical Results), the payback value calculated from the Department'stest procedure equations will be significantly lowerthan the average payback value calculated from theLCC analysis, for any star,dard level.

B. NationalEnergy Savings andNetPresent ValueAnalysis In orderto makethe analysis more accessible and transparent to all stakeholders, we continue to use an Excel spreadsheet model to calculate the energy savings and the national ecunomic costs and savings from new standards. Various input quantities within the spreadsheet CEln be changed. UnliketheLCC analysis, theNES spreadsheet does not use distributions for inputs or outputs. We conduct sensitivities by running different scenarios.

28 Q:\E.E-41\E.E-431ICAC'StandRuI\NQPR\Draf\NOPRICACNOPRI6 "'I'd August 4. 2000 (145PM)

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

--/~ a 

### 7 DOE uses theNES spreadsheet to perform calculations ofenergy savings and net present value (NPV) based on user inputs similar to those for the LCC spreadsheet. The energy savings, energy cost savings, equipment costs, and NPV ofbenefits for several product classes are forecast from the chosen startyear through 2030. The forecasts provide annual and cumulative values for all four output parameters.
The Department calculates the national energy savings by subtracting energy use under a standards scenario from energy use inabase case (no new standards scenario). Energy use is reduced when the baseline central air conditioner or heat pump (i.e; 10 SEER) is replaced by a more efficient piece ofequipment. Unit energy savings for each product class are the same weighted-average values as calculated intheLCC and Payback period spreadsheet. Additional information about the NES spreadsheet can be found inChapter 7ofthe TSD.
User inputs include: (1) achoice from among several electricity price projections: (2)effective date ofthe central air conditioners and heat pumps standard; (3)discount rate and discount-year; (4) a standards case efficiency level; (5)an equipment price; (6) an equipment price and housing projection; and (7) an efficiency scenario. Additionally, we use atime series ofconversion factors to change from site to source energy.
The efficiency scenario specifies the equipment efficiency distribution after new standards would take effect. Three efficiency scenarios were used to forecast the impact new standards would have after they take effect: (1)National Appliance Energy Conservation Act Q:\EE41\EE-431\CAC'.StandRul\NOPR\DraftNOPR\CACNOPR16 wpd 29 August4.2000 (145P.X EE-RM/STD-98-440 

# -1F 

# q d

# 7 DOE uses the NES spreadsheet to perform calculations ofenergy savings and net present value (NPV) based on user inputs similar to those for the LCC spreadsheet. The energy savings, energy cost savings, equipment costs, andNPV ofbenefits for several product classes are forecast from the chosen start year through 203.0. The forecasts provide annual and cumulative values for all four output parameters.

The Department calculates the national energy savings by subtracting energy use under a standards scenario from**en~rgy** use in abase case (no new standards scenario). Energy use is

" reduced when the baseline central air conditioner orheat pump (i.e; 10 SEER) is replaced

## by a more efficient piece ofequipment. Unit energy savings for each product class are the same weighted-average values as calculated in theLCC and Payback pt!riod spreadsheet. Additional information about theNES spreadsheet can be found in Chapter 7 ofthe TSD.

User inputs include: (1) a choice from among several electricity price projections: (2) effective date ofthe central air conditioners and heat pumps standard; (3) discount rate and discount'year; (4) a standards case efficiency level; (5) an equipment price; (6) an equipment price and housing projection; and (7) an efficiency scenario. Adc1itionalJy, we use a time series ofconversion factors to change from site to source energy.
The efficiency scenario specifies the equipment efficiency distribution after new standards would take effect. Three efficiency scenarios wereused to forecast the impact new standards would have afterthey take effect: (1) National Appliance Energy Conservation Act 

### 29 Q:IEE-41\EE-431\CAC',St:mdRul\NOPRIDraftNOPRICACNOPR16wpd August 4. 2000 (I**45P~n ,~** 

### EE-RM/STD-98-440 -tc '7 (NAECA) scenario, (2) Roll-up scenario, and (3) Shift scenario. As opposed to the Supplemental ANOPR where weighted-average equipment efficiencies were forecasted, an actual distribution ofefficiencies (i.e., the percentage ofshipments which occur inincremental SEER bins over the range from the minimum standard to 18 SEER) were used inthe analysis for the proposed rule. Each ofthe efficiency scenarios model equipment efficiency ina different way. TheNAECA scenario isnamed after thelegislation which promulgated minimum efficiency standards for central air conditioners and heat pumps. Under theNAECA scenario, equipment efficiencies after the adoption ofnew standards are forecasted to change inthe same pattern as the efficiency changes that occurred in 1992 when minimum efficiency standards first took effect. The Roll-up scenario simply moves equipment from efficiency levels that exist below the modeled standard level to the SEERvalue ofthe new standard (e.g., in the case ofa 12 SEER standard, if60% ofcurrent shipments have efficiencies below 12 SEER, all those shipments are moved tothe 12 SEERlevel without affecting the efficiency distribution above 12 SEER). The Shift scenario retains the pattern ofthe existing efficiency distribution but simply re-orients that distribution at and above the new minimum standard that is being modeled. The NAECA and Roll-up efficiency scenarios yield somewhat similar efficiency distributions. The Shift scenario, forecasts more equipment at higher efficiencies than either theNAECA orRoll-up scenarios.
One ofthe more important components ofany estimate offuture impact isshipments. Forecasts ofshipments for thebase case and standards case are determined within the NES spreadsheet. The shipments portion ofthe spreadsheet forecasts central air conditioner and heat
Q EE-41\E-431\CAC\StandRul'NOPRDraftNOPR\CACNOPR 16.wpd 30 August 4. 2000 (1:45PM)
4 EE-RM/STD-98-440 

# -7F-cqIJ

# 7 (NAEtA) scenario, (2) Roll-up scenario, and (3) Shift scenario. As opposed to the Supplemental ANOPRwhere weighted-average equipment efficiencies were forecasted, an actual distribution ofefficiencies (i.e., the percentage ofshipments which occur in incremental SEERbins overthe range from the minimum standard to 18 SEER) were used in the analysis for th.e proposed rule. Each ofthe efficiency scenarios model equipment efficiency in a different way. TheNAECA scenario is named after the legislation which promulgated minimum efficiency standards for central air conditioners and heat pumps. UndertheNAECA scenario, equipment efficiencies afterthe adoption ofnew standards are forecasted to change in the s.ame pattern as the efficiency changes that occurred in 1992 when miniinum efficiency standards first took effect. TheRoll-up scenario simply moves equipment from efficiency levels that exist below the modeled standard level to the SEERvalue ofthe new standard (e.g., in the case ofa 12 SEER standard, if60% ofcurrent shipments have efficiencies below 12 SEER, all those shipments are moved tothe 12 SEERlevel without affecting the efficiency distribution above 12 SEER). The Shift scenario retains the pattern ofthe existing efficiency distribution but simply re-orients that distribution at and above the new minimum standard that is being modeled. The NAECA and Roll-up efficiency scenarios yield somewhat similar efficiency distributions. The Shift scenario, forecasts more equipment at higher efficiencies than eithertheNAECA orRoll-up scenarios.

One ofthe more important components ofany estimate offutureimpact is shipments. Forecasts ofshipmentsfor thebase case and standards case are determined within the NES spreadsheet. The shipments portion ofthe spreadsheet forecasts central air conditioner and heat 30 Q:\EE-41\EE-431\CAC\StandRuI"JIl0PR\DraftNOPRiCACl\OPRI6.wpd Augus14. 2000 (I :45PM)

### EE-RM/STD-98-440 -- 3 O 7 pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (1) the combined effects ofequipment price, operating cost, and household income; (2)different market segments (e.g., new housing, replacement decisions, and non-owners adding a central air conditioner orheat pump); (3)decisions to repairrather than replace; and (4) different equipment age categories. Additional details onthe various shipments forecasts areprovided in Chapter 6 ofthe TSD.
C. Manufacturer ImpactAnalysis The MIA estimates the financial impact ofstandards on manufacturers and calculates impacts on employment and manufacturing capacity.
The Department published theproposed MIA approach as part oftheFederal Register publication ofthe supplemental ANOPR, and received no comments suggesting substantive changes in the methodology. Asproposed, the MIA was conducted inthree phases. Phase 1, "IndustryProfile," consisted ofthepreparation ofan industry characterization. Phase 2, "Industry Cash Flow," focused on the industry as awhole, including both major and niche-product manufacturers. The GRIM was used to prepare an industry cash flow analysis. The Department used publicly available information developed inPhase 1to adapt the GRIM structure to facilitate the analysis ofnew central air conditioner and central air conditioning heat pump standards.

3 Q:\EE-41\EE43 \CAC\StandRulNOPR\DafNOPR\CACNOPRI 6.1pd August 4, 2000 (1:45P.M
4 - -----**---------~--.---------** 

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

# -frc:? tJ

# 7. pump shipments from 2000 to 2030. Shipments forecasts are developed by accounting for: (1) 

### the combined effects ofequipment price, operating cost, and household income; (2) 

### different market segments (e.g., new housing, replacement decisions, and non-owners adding acentral air conditioner or heat 

### pump); (3) 

### decisions to repairratherthan replace; and (4) 

### different equipment age categories. Additional details on the various shipments forecasts are provided in Chapter 6 

### ofthe 

### ISO.
C. ManufacturerImpactAnalysis 

### The MIA estimates the financial impact ofstandards on manufacturers and calculates impacts on employment and manufacturing capacity.
The Department published the proposed MIA approach as part ofthe Federal Register publication ofthesupplemental ANOPR, and received no comments suggesting substantive changes in the methodology. As 

### proposed, the MIA was conducted in three phases. Phase 1, "Industry Profile," consisted ofthe preparation ofan industry characterization. Phase 2, "Industry Cash Flow," focused on the industry as awhole, including both major and niche-product manufacturers. The GRIM was used to prepare an industry cash flow analysis. The Department used ;JubliCly available information developed in Phase 1

### to adapt the GRIM' structure to facilitate the analysis ofnew central air 

### conditioner and central air conditioning heat pump standards.

31 Q:IEE-4JIEE-43JICAClStancIRuJ\NOPR\DrafINOPR\CACNOPRJ6.\\pd August 4, 2000 (J**:45P~!)**EE.RM/STD-98-4 40 -- 

### _#£ c 7 

### InPhase 3, "Sub-Group Impact Analysis," the Department conducted interviews with several niche-product manufacturers to determine the financial impacts ofrevised standards. Phase 3also entailed documenting additional impacts on employment and manufacturing capacity through a structured interview process.
1.Phase 1,Industry Profile Phase 1ofthe MIA consisted ofpreparing an Industry Profile. Prior to initiating the detailed impact studies, DOE collected information on the present and past structure and market characteristics ofthe central air conditioning industry. This activity involved both quantitative and qualitative efforts to assess the industry and products to be analyzed. The information collected included manufacturer market shares and characteristics and financial information, market trends, and product characteristics.
The industry profile included a top-down cost analysis ofthe central air conditioner manufacturing industry that was used to derive cost and financial inputs for the GRIM, e.g., revenues, and material, labor, overhead, depreciation, Sales General & Administration (SG&A), and Research & Development (R&D) expenses. The Department also utilized additional sources ofinformation to further characterize theindustry. These included company Securities and Exchange Commission (SEC) 10-K reports, Moody's company data reports, Standard & Poor's (S&P) stock reports, Value Line industry composites, and Dow Jones Financial Services.
2. Phase 2, Industry Cash FlowAnalysis
Q:\EE41 EE-431\CAC\SlandRul\OPR\DrafNOPR\CACNOPR 16 w pd 32 August 4. 2000 (1:45PM) EE-RM/STD-98-440 

# -IId1 tJ

# 1 InPhase 3, "Sub-Group Impact Analysis," the Department conducted interviews with several niche-product manufacturers to determine the financial impacts ofrevised standards. Phase 3 also entailed documenting additional impacts on employment and manufacturing capacity through a structured interview process. '

1. Phase 1, Industry Profile Phase 1ofthe MIA consisted ofpreparing an Industry Profile. Priorto initiating the detailed impact studies, DOE collected information on the present and past structure and market
.' characteristics ofthe central air conditioning industry. This activity involved both quantitative and qualitative efforts to assess the industry and products to be analyzed. The information collected included manufacturer market shares and characteristics and financial information, market trends, and product characteristics.
The industry profile included atop-down cost analysis ofthe central air conditioner manu!acturing industry that was used to derive cost and financial inputs for the GRIM, e.g., revenues, and material, labor, overhead, depreciation, Sales General &Administration (SG&A), and Research &Development (R&D) expenses. The Department also utilized additional sources ofinformation to further characterize the industry. These included company Securities and Exchange Commission (SEC) 

### IO-K reports, Moody's company data reports, Standard &Poor's (S&P) stock reports, Value Line industry composites, and Dow Jones Financial Services.
2. Phase 2, Industry CashFlow Analysis 32 Q:IEE-41IEE-431ICAClStandRullNOPRIDraftNOPRICACNOPR16wpd August4. 2000**(\:45P~f)**EE-RM/STD-98-440 -*- D 7 

### Phase 2 ofthe MIA focused on the financial impacts ofnew standards on the industry as a whole. The analytical tool used for calculating the financial impacts ofstandards on manufacturers isthe GRIM. As part ofthe analysis, DOE interviewed several ofthemajor manufacturers. For the Industry Cash Flow Analysis, DOE usedthe financial values determined during Phase 1andthe shipment scenarios used inthe LCC and NES analyses.

3. Phase 3, Sub-Group Impact Analysis The Department has received many comments during workshops and interviews, and in writing, suggesting that manufacturers ofnicheproducts, representing less than 3%ofindustry shipments, could be more negatively impacted by new standards than major manufacturers. To
assess the differential impacts, theDepartment interviewed two manufacturers ofniche products, in addition to those conducted during theEngineering Analysis. The focus ofthe interviews was to determine which GRIM parameters differed for niche manufacturers byvirtue oftheir smaller
revenue base and more limited markets.

From a financial standpoint, the common distinguishing characteristic ofniche product manufacturers was their need to spread the costs ofconverting to new standards over smaller production volumes, aswell asthe product size constraints identified duringthe Engineering Analysis which make their shipments more sensitive to increases inproduct size. During the interviews, small manufacturers demonstrated that several ofthe costs necessary to meet any new regulation are largely independent ofthe product volume produced. The most apparent are the costs necessary to design a new product meeting the proposed energy standards. Other costs, Q:\EE41\EE-431\CAC\StandRul\NOPR\DtrtNOPR\CACNOPR16.wpd 33 Augu 4, 2000 (1:45PM) EE-RM/STD-98-440 

# -=IF-

# =1 P 

# 7 Phase 2 ofthe MIA focused on the financial impacts ofnew standards on the industry as a whole. The analytical tool used for calculating the financial impacts ofstandards on manufacturers is the GRIM. Aspart ofthe analysis, DOE interviewed several ofthe major manufacturers. For the Industry Cash Flow Analysis, DOE used the financial values determined during Phase 1and the shipment scenarios used inthe LCC and NESanalyses.
3. Phase 3, Sub-Group Impact Analysis The Department has received many comments during workshops and interviews, and in writing, suggesting that manufacturers ofniche products, representing less than 3% ofindtistry shipments, could be more negatively impacted by new standards than major manufacturers. To assess the differential impacts, the Department interviewed two manufacturers ofniche products, in addition to those conducted during the Engineering Analysis. The focus ofthe interviews was to determine which GRIM parameters differed for niche manufacturers by virtue oftheir smaller revenue base andmore limited markets.

From afinancial standpoint, the common distinguishing characteristic ofniche product manufacturers was their need to spread the costs ofconverting to new standards over smaller production volumes, as well as the product size constraints identified during the Engineering Analysis which make their shipments more sensitiveto increases in product size. During the interviews, small manufacturers demonstrated that several ofthe costs necessary to meet any new regulation are largely independent ofthe productvolume produced. The most apparent are the costs necessary to design anew product meeting the proposed energy standards. Other costs, 33 Q:\E.E-41\E.E-431\CAClStandRuI\NOPRIDraftNOPR\CACNOPRI6.wpd August 4, 2000 (l**:45P~**\)

### EE-RM/STD-98-440 -7 : 7 such as plant,engineering, some tooling, and other capital costs, have significant portions that are independent offinal production volumes.
4. GRIM Analysis An increase in standards affects a manufacturer's cash flow inthree distinct ways: (1) increased investment; (2) higherproduction costs per unit; and (3) altered revenue by virtue of higher per unitprices and changes in sales volumes. As mentioned, theDepartment uses the GRIM to quantify the changes incash flow that result in a higher or lower industry value.
The GRIM analysis uses a number ofinputs -- annual shipments; prices; manufacturer costs such as materials and labor, selling and general administration costs, taxes, and capital expenditures -- to arrive at a series ofannual net cash flows beginning today and continuing ten years past the implementation ofnew standards. This information was collected from a number ofsources, including publically available data, as well as interviews with ofthe major manufacturers and two specialty manufacturers. Industry net present values are calculated by discounting and summingthe annual net cash flows. Additional information about the GRIM spreadsheet can be found in Chapter 8ofthe TSD.
D. NEMSEnvironmental Analysis The environmental analysis provides estimates ofchanges in emissions ofnitrogen oxides (NO)O and carbon from carbon dioxide (CO 2

### ). The Department used NEMS-BRS for central air conditioner and heat pump analyses (as well as theutility analyses). NEMS-BRS isrun similar
Q:\EE41\EE-43 \CAC'StandRul'NOPRDraRNOPR'CACNOPR1 6.upd 34 August4. 2000 (1:45PM) 4 EE-RM/STD-98-440

## -#~ t1 

# 7 such as plant.engineering, some tooling, and other capital costs, have significant portions that are independent offinal production volumes.
4. GRIM Analysis An increase in standards affects amanufacturer's cash flow in three distinct ways: (1) increased investment; (2) higherproduction costs perunit; and (3) altered revenue by virtue of higherperunit prices and changes in sales volumes. 

### As mentioned, the Department uses the GRIM to quantify the changes in cash flow that result in ahigher or lower industry value.
" 

# .. The GRIM analysis uses a number ofinputs

-- annual shipments; prices; manufacturer costs such as materials and labor, selling and general administration costs, taxes, and capital expenditures

-- to arrive at a series ofannual net cash flows beginning today and continuing ten years pa!\t the implementation ofnew standards. This information was collected from anumber ofsources, including publically available data, as well as interviews with ofthe major manufacturers and two specialty manufacturers. Industry net present values are calculated by discour.tingand summing the annual net cash flows, Additional information about the GRIM spreadsheet can be found in Chapter 8ofthe TSD.

D. NEMSEnvironmentalAnalysis The environmental analysis provides estimates ofchanges in emissions ofnitrogen oxides (NOJ and carbon from carbon dioxide (C02), TheDepartment used NEMS-BRS for central air conditioner and heat pump analyses (as well as the utility analyses). NEMS-BRS is run similar 34 Q:1EE41\EE431\CAC'StandRuI',NOPRIDrafINOPR\CACNOPRI6.....pd August 4. 2000 (I :45PM)EE-RM/STD-98-440 -c 9 '9 

## $7 to the AEO2000 NEMS except that central air conditioner and heat pump energy usages are reduced by the amount ofenergy (electricity) saved due tothe proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet. For the environmental analysis, the output isthe forecasted physical emissions. The netbenefits ofthe standard isthe difference between emissions estimated by NEM-BRS and the AEO2000 Reference Case.
The environmental analysis isrelatively straightforward fromNEMS-BRS. Carbon emissions are tracked inNEMS-BRS using adetailed carbon module that provides robust results because ofitsbroad coverage ofall sectors and inclusion ofinteractive effects. The only form of carbon tracked by NEMS-BRS isCO2

### . However, inthis report the carbon savings are reported as elemental carbon.
Thetwo airborne pollutant emissions that havebeen reported inpast analyses, sulfur dioxide (SO 2

### ) and NOx, are reported by NEMS-BRS. NOX results are based on forecasts of compliance with existing legislation. In the case ofSO 2

### , the Clean Air Act Amendments of 1990 set an emissions cap on allpower generation. The attainment ofthis target, however, isflexible among generators and isenforced by applying market forces, throigh the use ofemissions allowances and tradable permits. As a result, accurate simulation ofSO2 trading tends to imply that physical emissions effects will be zerobecause emissions will always be at, ornear, the ceiling. This fact has caused considerable confusion inthe past. There isvirtually no real possible SO2 environmental benefit from electricity savings as long as there isenforcement ofthe emission ceilings. See Chapter 12 ofthe TSD for a discussion ofthis issue.
Q:\EE-41\EE-431\CAC\StandRu'NOPR\DafNOPR\CACNOPR ]6.pd 35 'August 4. 200(1 45Phf 4 EE-RM/STD-9S-440

# -#cq**~**

# 7 .

. ' to the AE02000 NEMS except that central air conditioner and heat pump energy usages are reduced by the amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet. Forthe ·environmental analysis, the output is the forecasted physical emissions; The net benefits ofthe standard is the difference between emissions estimated by NEM-BRS and the AE02000 Reference Case.
The environmental analysis is relatively straightforward from NEMS-BRS. Carbon emissions are tracked inNEMS-BRS using adetailed carbon module that provides robust results

, because ofitsbroad coverage ofall sectors and inclusion ofinteractive effects. The only form of carbon tracked by NEMS-BRS is CO2 , However, in this report the carbon savings are repor:ted
as elemental carbon.
The two airborne pollutant emissions that have been reported in past analyses, sulfur dioxide (S02) and NO", are reported by NEMS-BRS. NO" results are based on forecasts of compliance with existing legislation. In the case ofS02' the Clean Air Act Amendments of 1990 set an emissions cap on all power generation. The attainment ofthis target, however, is flexible among generators and is enforced by applying market forces, thr0 1 .:gn the use ofemissions allowances and tradable permits. 

### As aresult, accurate simulation ofS02 trading tends to imply that physical emissions effects will be zero because emissions will always be at, or near, the ceiling. This fact has caused considerable confusion 

### in the past. There is virtually no real possible S02 environmental benefit from electricity savings as long as there is enforcement ofthe emission ceilings. See Chapter 12 ofthe TSD for adiscussion ofthis issue. 

### 35 Q:\EE41\EE-431ICACISu.ndRu1\NOPR\DraftNOPRICACNOPRI6.wpd

.August4. 2000 (1·45PU)EE-RM/STD-98-4 40 -~- ^97 

### Alternative price forecasts corresponding tothe high and low economic growth side
cases found in AEO 2000 have also been generated for usebyNEMS-BRS, and were used as alternative scenarios, and are presented inthe TSD. (See TSD, Chapter 12).
V. Discussion of Comments As noted above, DOE published the Supplemental ANOPR regarding central air conditioners and heat pumps onNovember 24, 1999, and conducted a public workshop to present the analyses and to solicit comments on December 9, 1999. The Department requested comments on thefollowing twelve issues: 1. Differences between the industry and the reverse engineering cost data: 2. The incorporation ofemerging technologies into the Engineering Analysis; 3. The assessment ofthe impacts on steady-state efficiency, i.e. EER, due to increases in the SEER; 4. Forheat pump systems, the relationship between SEER and HSPF; 5. Additional product classes based on system capacity; 6. Niche product classes a) ductless split b) high-velocity, small-duct c) vertical-package, wall-mounted d) split, through-the-wall-condenser; 7. The impact ofalternative refrigerants forHCFC-22; 8. Data on retail mark-up assumptions; Q:\EE41\EE431\CAC\StandRulWOPRDrafNOPR\CACNOPR16 apd 36 August 4, 2000 (1:45PMN 4 EE-RM/STD-98-440 

# .-#cBtJ

# 1. Alternative price forecasts corresponding to the high and low economic growth side
cases found in AEO 2000 have also been generated for use by NEMS-BRS, and were used as alternative scenarios, and are presented in the TSD. (See TSD, Chapter 12).


## v. Discussion ofComments Asnoted above, DOE published the Supplemental ANOPRregarding central air conditioners and heat pumps onNovember 24, 1999, and conducted apublic workshop to present the analyses and to solicit comments on December 9, 1999. The Department requested comments onthefollowing twelve issues: 1. Differences betweenthe industry and the reverse engineering cost data: 2. The incorporation ofemerging technologies into the Engineering Analysis; 3. The assessment ofthe impacts on steady-state efficiency, i.e. EER, due to increases in the SEER; 4. Forheat pump systems, the relationship between SEER and HSPF; 5. Additional product classes based on system capacity; 6. Niche product classes a) ductless split b) high-velocity, small-duct c) vertical-package, wall-mounted d) split, through-the-wall-condenser ; 7. The impact ofalternative refrigerants for HCFC-22; 8. Data on retail mark-up assumptions; 

### 36 Q:\EE.41\EE.431\CAClStandRuI\NOPRIDnftNOPRICACNOPR16wpd Augus14. 2000 (1 :45PM)

### EE-RM/STD-98-440 - ,6'6 9. Information relating to the determination ofprice and operating cost elasticities in conducting shipment forecasts; 10. Data on the possible adverse affects ofstandards on identifiable groups ofconsumers that experience below-average utility orusage rates; 11. Information onwhat non-regulatory alternatives to standards need to be reviewed; and 12. Comments on the candidate standard levels and the alternative standard scenarios.

Based on responses and comments received sincethat workshop, we provide the following discussion.
A. EngineeringCostData



### 1. Reverse Engineering Cost Estimates The Department's reverse engineering analysis prepared as abasis forthe Supplemental ANOPR received a broad range ofcomments, both supportive and critical. ARI and theNatural Resources Defense Council (NRDC) commented onthe apparent accuracy ofthe split air conditioner cost estimates and the ease with which the results are able to be scrutinized by outside parties. (Wethje, ARI, Transcript, p. 42; ARI, No. 11 at 1; Goldstein, NRDC, Transcript, p. 94).
TheDepartment also received comments criticizing the reverse engineering results for splitheat pumps and for packaged air conditioners and heat pumps, noting the lack ofdesign
Q:\EE41\EE431\CAC\StandRuINOPRaf-NOPR\CACNOPRI 6.wpd 3 7 AAugust 4, 2000(1:45PMI)
4 EE-RM/STD-98-440

# -#

# qt17 9. Information relating to the determination ofprice and operating'cost elasticities in conducting shipment forecasts; 10. Data on the possible adverse affects ofstandards on identifiable groups ofconsumers that experiencebelow-average utility orusage rates; 11. Information on what non-regulatory alternatives to standards need to be reviewed; and 12. Comments on the candidate standard levels and the alternative standard scenarios.
Based on responses and**~omments** received since that workshop, we provide the following discussion.

A. Engineering CostData 1. Reverse Engineering Cost Estimates 

### - 

# ..

The Department's reverse engineering analysis prepared as abasis for the Supplemental ANOPR received abroad range ofcomments, both supportive and critical. AlU and the Natural Resources Defense Council (NRDC) commented on the apparent accuracy ofthe split air conditioner cost estimates and the ease with which the results are able to be scrutinized by outside parties. (Wethje, ARl, Transcript, p. 42; ARl, No. 11 at 1; Goldstein, NRDC, Transcript, p. 94).
TheDepartment also received comments criticizingthe reverse engineering results for split heat pumps and for packaged air conditioners and heat pumps, noting the lack ofdesign 37 Q:\EE-41\EE-431\CAClStandRul\lilOPR\DraftNOPR\CACNOPR16.wpd

. Augus14.**2000(1:4SP~1)**

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

## 7 detail and the aggregation ofthe results into an efficiency level-based analysis. (Hodges, ARI, Transcript, p. 85; Madera, York International (York), Transcript, pp. 90, 91, 93; Goldstein, NRDC, Transcript p. 96 and California Energy Commission (CEC) No. 47 at 7). The comments observed that therelative cost results for split heat pumps and packaged equipment differed significantly fromthose ofsplit air conditioners, and that those analyses were less rigorous than the split air conditioner analysis. They also noted that the split heat pump and packaged equipment analysis was based onfewer equipment samples; did not include a detailed tear-down ofa 10 SEER split heat pump or packaged air conditioner; and was based on questionable production volume assumptions.
The Department agreed that those deficiencies were likely to cause some ofthe differences between the ARI cost andthe reverse engineering cost estimates, and revised its analysis ofsplit heat pumps and packaged equipment.
In responding to the comment on sample size for split heat pumps and packaged equipment, the Department took guidance from a review ofthe engineering analysis performed by DOE consultant, Joseph Pietsch. Mr. Pietsch presented five guidelines for comparing the production cost ofequipment for different product classes. (Pietsch, No 36 at 2-5). * At each cooling capacity and SEER level, the same outside unit will likely be used for split air conditioners (fancoil) and split air conditioners (cased coil); * At each cooling capacity and SEER level, the same fancoil will likelybe used for split air conditioners (fancoil) and split heat pumps; Q:\EE-41EE-431 \CAC\SuandRul'NOPR'DraftNOPR\CACNOPR 16 upd 38 August 4, 2000 (1:45PM)
4 EE-RM/STD-98-440

### -#~CJ 

# 1 detail and the aggregation oftheresults into an efficiency level-based analysis. (Hodges, ARI, Transcript, p. 85; Madera, YorkInternational (York), Transcript, pp. 90, 91, 93; Goldstein, NRDC, Transcript p. 96 and California Energy Commission (CEC)No. 47 at 7). The comments observedthattherelative cost results for split heat pumps and packaged equipment differed significantly from those ofsplit air conditioners, and thatthose analyses were less rigorous than the split air conditioner analysis. They also noted that the split heat pump and packaged equipment analysis wasbased onfewer equipment samples; did not include a detailed tear-down ofa 10 SEER split heat pump orpackaged air conditioner; and was based on questionable . productionvolume assumptions.

The Department agreed that those deficiencies were likely to cause some ofthe , 

# ..

differences between the ARI cost and the reverse engineering cost estimates, and revised its anaiysis ofsplit heat pumps and packaged equipment.

In responding to the comment on sample size for split heat pumps and packaged 'equipment, the Department took guidance from a review ofthe engineering analysis performed byDOE consultant, Joseph Pietsch. Mr. Pietsch presented five guidelines for comparingthe production cost ofequipment for different product classes. (pietsch, No 36 at 2-5).
• At each cooling capacity and SEERlevel, the same Clutside unit will likely be used for split air conditioners (fancoil) and split air conditioners (cased coil);
• At each cooling capacity and SEERlevel, the same fancoil will likely beused for split air conditioners (fancoil) and split heat pumps; 38 Q:\EE41\EE431ICAClStandRul\NOPR\Dra!ll\OPRICACNOPR16 wl'd August4.. 2000 (1**:45P~1)**

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

### d7. At each cooling capacity and SEER level, the same cabinet will likelybe used for packaged air conditioners and packaged heat pumps; There should be some degree ofconsistency inthe cost to "convert" an air conditioner into aheat pump; and Split systems with fan coils and single package units'at the same cooling capacity and SEER level should have nearly identical costs forthe major functional components.
Based on the above guidelines, DOE revised the analysis ofsplit heat pumps and packaged equipment. Table V. 1provides the original and the revised production dollar cost estimates resulting from this new approach. Table V.2 provides the same information, but in terms ofrelative costs. Revised production costs are generally lower than the original costs, particularly atthe baseline 10 SEER level. The most significant change isthat the new analysis includes nine additional estimates that were not presented originally.
Table V.1: Engineering Production Cost Estimates for 3-ton Unitary Equipment Efficiency Split Air Conditioner Split AirConditioner Split Heal Pump Packaged Air Packaged Heat Pump

Level (cased coil) (fancoil) Conditioner (SEER) Original Revised Original Revised Original Revised Original Revised Original Revised

10 $367 $367 $456 $449 $622 $572 $552 $511 $643 $593 11 $412 $412 $550 $519

- $602

- $555

- S638 12 $468 $468

- S563 $690 $648 $627 S595 $708 $668 13 $529 $529 $756 $637 S840 $743 $809 $730

- $820 14 $588 $588 $802 $815 $1,011 $1,023

- $889

- $1,029 15
- - $893 $893 $1,147 $1,107

- $955

- $1,100 Q:\EE41\EE431 \CACStandRulWOPR'DrafiNOPR\CACNOPR16.wpd 39 August4,2000 (1:45PNI) 4 EE-RM/STO-98-440 - 

# If=-**~ ~** 

# 1.
• At each cooling capacity and SEERlevel, the same cabinet will likely be used for packaged air conditioners and packaged heat pumps; • There should be some degree ofconsistency in the cost to "convert" an air conditionerinto a heat pump; an'd
• Split systems with fan coils and single package units'at the same cooling capacity and SEER level should have nearly identical costs for the major functional components,
Based on the above guidelines, DOE revised the analysis ofsplit heat pumps and , 

# .. packaged equipment. Table V.I provides the original and the revised production dollar cost estimates resulting from this new approach. Table V.2 provides the same information, but in terms ofrelative costs. Revised production costs are generally lowerthan the original costs, particularly at the baseline 10 SEER level. The most significant change is that the new analysis includes nine additional estimates that were not presented originally..

Efficiency

Level (SEER)

10 11 12 13 14 IS Table V.I: Engineering Production Cost Estimates for 3-ton Unitary Eq,uipment Split AirConditioner Split AirConditioner (cased coil) (fancoil) Original Revised Original Revised 5367 $367 $456 $449 $412 $412 5550 5519 $468 5468 

# - 5563 5529 5529 57S6 $637 5588 5588 5802 5815



## - - 5893 S893 Split HeatPump PackagedAir Packaged Heat Pump 

## I
Original $622



### - $690 5840 S1,011 SI,147 39 Conditioner Revised Original Revised Original Revised

5572 5552 5511 5643 5593 $602 

### - 5555 

## - 5638 5648 $627 5595 5708 5668 $743 5809 5730 

### - 5820 51,023 

### - S889 

### - 51,029 51,107 

### - 595S 

### - SI,IOO Q:\EE-4I\EE-431ICAC\StandRul\'''IOPR\])raftNOPRICACNOPRI6.wpd August4, 2000 (I :45PM)

### EE-RM/STD-98-440 -- 4 6D 

# 7

The only significant departures are found insplit air conditioners with fancoils, where the new estimates are lower, and in 14 SEER arid 15 SEER equipment where the new results are higher.
Table V.2: Revised Reverse Engineering Production Cost Multipliers for 3-ton Unitary Equipment Efficiency Split Ar Split Air Split Heat Pump Packaged Air Packaged, Heat

Level Conditioner (cased Conditioner Conditioner Pump (SEER) con) (fancoil) Original Revised Original Revised Original Revised Original Revised Original Revised 10 1.00 1.00 1.00 1.00
. 1.00 1.00 1.00 1.00 1.00 1.00 11 1.12 1.12 1.21 1.16 - 1.05 - 1.09

- 1.08 12 1.28 1.28
- 1.25 1.11 1.13 1.14 1;16 1.10 1.13 13 1.44 1.44 1.66 1.42 135 1.30 1.47 1.43
- 1.38 14 1.60 1.60 1.76 1.82 1.63 1.79

- 1.74
- 1.74 15

- - 1.96 1.99 1.84 1.94
- 1.87
- 1.86 

### In response to comments on its production volume assumptions prior to the publication ofthe Supplemental ANOPR, the Department had reduced its heat pump production volume from 125,000 units per year to 25,000 units per year. However, since heat pumps and air conditioners are typically produced with the sameplant equipment, reducing the production volume significantly increases the overhead allocated to each heat pump produced. The higher overhead allocation raises the cost ofthebaseline heat pump, lowering the relative cost of producing equipment at higher efficiency levels. To compensate for this overestimate of

Q:\EE-41\EE431\CAC\StandRul\NOPR'Draf\CACN\CACNOPR 16 pd 40 August 4,2000 (1:45PM) EE-RM/STD-98-440

# -ltd?(J

# 1

The only significant departures are found in split air conditioners with fancoils, where the new estimates are lower, and in 14 SEER arid 15 SEER equipment where the new results are higher.
Table V.2: 

### Revised Reverse Engineering**Produc~ion** 

### Cost Multipliers for 3-ton Unitary Equipment Efficiency Split Air SpOt Air spOt Heat Pump Packaged Air Packaged,Heat

Level Conditioner(cased Conditioner 

### - Conditioner Pump (SEER) coD) (fancoU) Original Revised Original Re\ued Original Re\ised Original Re\ised Origlnal Re\isedrIO 1.00 1.00 1.00 . 1.00 1.00 1.00 1.00 1.00 1.00 1.00 11 1.12 1.12 1.21 1.16 

### .- 1.05 

### - 1.09 

### - 1.08 12 1.28 1.28 - 1.25 1.11 1.13 1.14 U6 1.10 1.13 13 i.44 1.44 1.66 1.42 1.35 1.30 1.47 1.43 

### - 1.38 14 1.60 1.60 1.76 1.82 1.63 1.79 

### - 1.74 

### - 1.74 15 

### - - 1.96 1.99 1.84 1.94 

### - 1.87 

### - 1.86 

### In response to comments on its production volume assumptions priorto !hepublication ofthe Supplemental ANOPR, the Department had reduced its heat pump production volume from 125,000 units peryear to 25,000 units peryear. However, since heat pumps and air conditioners are typically produced with the same plant equipment, reducing the production VOlume significantly increases the overhead allocated to each heat pump produced. The higher overhead allocation raises the cost ofthe baseline heat pump, lowering the relative cost of producing equipment at higher efficiency levels. To compensate for this overestimate of

40 Q:\EE-4IIEE-431ICAClStandRuJ\.l\]OPKDraftNOPRICACNOPR16wpd August 4. 2000 (1 :45PM) .\

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

# 7 overhead allocation, we set the split heat pump overhead allocation equal to that ofthe split air conditioner at each efficiency level.
The Department believes that the revisions tothe split heat pump and packaged equipment production costs have improved the cost estimates for those product classes and that no additional equipment samples need to be subjected to tear-down or reverse engineering analysis. The revised reverse engineering cost estimates were used in the analysis fortoday's proposed rule.
2. Productivity Efficiency Improvements According to the American Council for anEnergy Efficient Economy (ACEEE), Census Bureau Current Industrial Report (CIR) data suggest that theunit price ofequipment shipments below 65,000 Btu/hr fell inreal terms between 1992 and 1997. (ACEEE, No. 43 at 4). ACEEE suggested that theDepartment apply an annual deflator of1.7% to projected prices to account for this apparent productivity improvement.
For other rulemakings, the Department has used productior input costs and production technologies based on thebest information available at thetime. DOE has not made any assumptions about productivity improvements and material cost changes over time. The Department does notbelieve historical price trends for unitary air conditioners, or other products, can be applied to forecast equipment costs where there are no data toindicate the trends will continue. Therefore, without specific data on the likely costs to manufacture a product, the
Q:EE-4\EE-431\CACStandRuNOPRDraftNOPR',CACNOPRI 6.wpd 41 August 4. 2000 (1:45PM) EE-RM/STD-98-440 

# -::jf-c5JtJ 

# 1
overhead allocation, we set the split heat pump overhead allocation equal to that ofthe split air conditioner at each efficiency level.

TheDepartmentbelieves that therevisions to the split heat pump and packaged equipment production costs have improved the cost estimates for those product classes and that
no additional equipment samples need tobe subjected to tear-down orreverse engineering analysis. The revised reverse engineering cost estimates were used in the analysis for today's proposed rule.

2. ProductivityEfficiency Improvements According to the American Council for an Energy Efficient Economy (ACEEE), Census Bureau Current Industrial Report (CIR) data suggest that the unit price ofequipment shipments below 65,000 Btulhrfell in real terms between 1992 and 1997. (ACEEE, No. 43 at 4). ACEEE suggested that the Department apply an annual deflator of 1.7% to projected prices to account for this apparent productivity improvement.

Forotherrulemakings, the Department has used production input costs and production technologies based onthe best information available at the time. DOE has not made any assumptions about productivity improvements and material cost changes overtime. The Department does not believe historical price trends for unitary air conditioners, orother products,
can be applied to forecast equipment costs where ther'e are no data to indicate the trends will continue. Therefore, without specific data onthe likely costs to manufacture a product, the
41 Q:IEE-4J1EE-43J ICAC"StandRuJINOPRlDraftNOPR\CACNOPRJ6.wpd August 4, 2000 (l:45PM)

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

### 1: 7 Department will not apply a productivity improvement factor inthis rulemaking or other rulemakings.
3. Emerging Technologies Emerging technologies that are not established inthe residential central air conditioning market have the potential to lower the cost ofachieving higher efficiency. Inthe Supplemental ANOPR, we considered advances invariable speed and variable capacity compressors, and reductions inthe cost ofvariable speed fan motors and parallel-flow, microchannel heat exchangers to be potentially viable methods for increasing the efficiency ofequipment at a lower cost than currently established methods.
Bard Manufacturing (Bard), Unico, Inc. (Unico) and NRDC disagreed with this approach, questioning whether some ofthetechnologies considered were commercially and technically viable, but proposed no other technologies for consideration. (Bard Manufacturing, No. 28 at4; Unico, No. 34 at 1; NRDC No. 35 at 11-12). ARI stated that they considered some compressor and motor advances but not microchannel heat exchangers intheir relative production cost data. (ARI No. 48 at 3). The Trane Company (Trane) and Edison Electric Institute (EEI) also expressed concern over some apparent inconsistencies inthe emerging technologies analysis presented inTable 4.16 and the use and calculation ofthe Carnot efficiency on page 4-27 ofthe Supplemental ANOPR TSD. (Trane, No. 23 at 2; and EEI No. 20 at 3).

Q:\EE.41 EE-431\CAC\StandRul'NOPRODrafNOPR\CACNOPR] 6.pd 42 August4, 2000 (1:45PM)

* · EE-RM/STD-98-440

### ~**~**

### J

# 1 Department will not apply aproductivity improvement factor 

### in this rulemaking or other rulemakings.
3. Emerging Technologies Emerging technologies that are not established inthe residential central air conditioning market have the potential to lowerthe cost ofachieving higher efficiency. In the Supplemental ANOPR, we considered advances 

### in variable speed and variable capacity compressors, and reductions in the cost ofvariable speed fan motors and parallel-flow, microchannel heat exchangers to be potentially viable methods for increasing the efficiency ofequipment at a lower cost than currently established methods.
Bard Manufacturing (Bard), Vnico, Inc. (Vnico) and NRDC disagreed with this approach, questioning whether some ofthe technologies considered were commercially and technically viable, but proposed no othertechnologies for consideration. (Bard Manufacturing, No. 28 at 4; Vnicc" No. 34 at 1; NRDC No. 35 at 11-12). AR1 stated that they considered some compressor and motor advances but not microchannel heat exchangers in theirrelative production cost data. (ARl No. 48 at 3). The Trane Company (Trane) and Edison Electric Institute (EEl) also expressed concern over some apparent inconsistencies in the emerging technologies analysis presented 

### in Table 4.16 and the use and calculation ofthe Carnot efficiency on page 4-27 ofthe Supplemental ANOPR TSD. (Trane, No. 23 at 2; and EEl No. 20 at 3).

42 Q;IEE411EE431\CAClStandRul\NOPRIDraftNOPR\CACNOPR16 ....'Pd August4.2000(1 :45PM)

### EE-RM/STD-98-44O0-

_ 

# n3 Pacific Gas and Electric (PG&E) voiced concern that new technologies, such asthe Bristol modulating compressor, could reduce costs to the point that manufacturers mayuse them at lower SEER levels resulting ina negative impact on peak loads and electrical system reliability. (PG&E, No. 31 at 3).
The emerging technology analysis based on reverse engineering information seems to confirm that, ofthe technologies considered, only variable capacity compressors and variable speed fan motors have the potential to be cost options for providing additional efficiency compared to today's established technologies. This provides evidence that ARI is justified innot considering the potential benefits ofmicrochannel heat exchangers as part ofits relative cost data submission. Therefore, we will apply emerging technologies only to the reverse engineering results and consider theARI relative cost multipliers to already include the effects ofemerging technologies.
We do not believe our original emerging technology analysis was inconsistent, as expressed by Trane and EEI above, although we do recognize that combining the effects of component efficiency improvements does not necessarily lead to a cumulative improvement in the system. The intent ofthe analysis is notto provide adefinitive estimate ofthe impact ofany or all emerging technologies on system cost. It isto provide evidence as to-the extent to which reverse engineering overestimates the cost ofhigher efficiency equipment by neglecting emerging technologies. Therefore, the method used previously for portraying and combining the

Q:\EE.41EE-431\CAC\StandRulNOPR\DrafNOPR'CACNOPRI 6.wpd 43 August 4,2000 (1:45PM) EE-RM/STO-9S-440-#

### ~1J1 '" Pacific Gas and Electric (pG&E) voiced concern that new technologies, such as the Bristol modulating compressor, could reduce costs to the point that manufacturers may use them at lower SEER levels resulting in a negative impact on peak loads and electrical system reliability. (pG&E, No. 31 at 3).
The emerging technology analysis based on reverse engineering infonnation seems to confinn that, ofthe technologies considered, only variable capacity compressors and variable speed fan motors have the potential to be cost options for providing additional efficiency . compared to today's established technologies. This provides evidence that ARI isjustified in not considering the potential benefits ofmicrochannel heat exchangers as part ofits relative cost data submission. Therefore, we will apply emerging technologies only to the reverse engineering results and consider the ARI relative cost multipliers to already include the effects ofemerging technologies.
We do not believe our original emerging technology analysis was inconsistent, as expressed by Trane and EEl above, although we do recognize that combining the effects of component efficiency improvements does not necessarily lead to a cumulative improvement in the system. The intent ofthe analysis is not to provide a definitive estimate ofthe impact ofany or all emerging technologies on system cost. Itis to provide evidence as to-the extent to which reverse engineering overestimates the cost ofhigher efficiency equipment by neglecting

-er.1erging technologies. Therefore, the method used previously for portraying and combining the

43 Q:IEE-4IIEE-431\CAClStandRul\NOPRIDnIftNOPR\CACNOPRI6.wpd August 4. 2000 (I:45P!\1)

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


## - /". potential effects ofemerging technologies on system costs iscarried forward into today's rule. Chapter 2ofthe TSD provides the details ofthe revised emerging technologies analysis.
4. HFC-Based Engineering Analysis ARI and Trane supported the Department's decision not to explicitly examine the effects ofthe HCFC phaseout on equipment cost and efficiency. (Wethje, ARI, Transcript p. 145; Crawford, Trane, Transcript p. 143). The Oregon Energy Office (OEO) and NRDC urged the Department to reconsider, given that a large fraction ofthe equipment sold under the new efficiency standard will likely use a refrigerant otherthan HCFC-22, even prior to the 2010 phaseout date. (Stevens, OEO, Transcript, p. 144; NRDC, No. 35 at 11-12).
To date, no data presented to theDepartment indicate that the incremental cost for increasing the efficiency ofequipment using either HFC-407c or HFC-410a refrigerants will differ significantly from the incremental cost ofincreasing efficiency using HCFC-22 equipment. Although thebase cost may differ somewhat, the incremental cost determines the life-cycle-cost savings. Furthermore, the Department continues to receive information that much ofthe market ischanging to HFC-410a and that HFC-410a offers little, ifany, efficiency benefit over HCFC22 at the same equipment cost.
For these reasons, the Department will not perform additional engineering analysis related to alternate refrigerants. The costs to manufacturers related to their conversion to the new refrigerant will be considered inthe Manufacturer Impact Analysis.
Q:\EE.41 EE-431 \CAC\StandRu2'NOPR\DraftOPR\CACNOPR 16.wpd 44 August 4, 2000 (1:45PM)

« ., potential effects ofemerging technologies on system costs is carried forward into today's rule. Chapter 2 ofthe TSD provides the details ofthe revised emerging technologies analysis.

4. HFC-Based Engineering Analysis ARl and Trane supp.orted theDepartment's decision not to explicitly examine the effects ofthe HCFC phaseout on equipment cost and efficiency. (Wethje, ARl, Transcript p. 145; Crawford, Trane, Transcript p. 143). The Oregon Energy Office (OEO) and NRDC urged the Department to reconsider, given that a large fraction ofthe equipment sold under the new .



## .. efficiency standard will likely use a refrigerant otherthan HCFC-22, even priorto the 2010 phaseout date. (Stevens, OED, Transcript, p. 144; NRDC, No. 35 at 11-12).

To date, no data presented tothe Department indicate that the incremental cost for increasing the efficiency ofequipment using eitherHFC-407c orHFC-41Oa refrigerants will differ significantly from the incremental cost ofincreasing efficiency using HCFC-22 equipment. Although thebase cost may differ somewhat, the incremental cost determines the life-cycle-cost savings. Furthermore, theDepartment continues to receive information that much ofthe market is changing to HFC-41Oa and that HFC-41Oa offers little, ifany, efficiency benefit overHCFC22 at the same equipment cost.

Forthese reasons, theDepartment will not perform additional engineering analysis related to alternaterefrigerants. The coststo manufacturers related to their conversionto the new refrigerant will be considered in the Manufacturer Impact Analysis. 44 Q:IEE-411EE-431ICAClStancIRuJ'NOPRlDraftl'OPRICAOIOPR16.wpd August 4. 2000 (1 :45PM)

### EE-RM/STD-98-440 -'c:: '2. B. Life-Cycle-CostParameters 1. Extended Warranty and Service Costs Energy Market and Policy Analysis, Inc. (EMPA) noted that theLife Cycle Cost analysis did not explicitly address extended warranty and'service costs and asserted that they should be taken into account. (Schleede, EMPA, Transcript, p. 221). The Alliance to Save Energy (ASE) stated that the inclusion ofextended warranty and service costs would have the impact of reducing repair and maintenance costs. (Prindle, ASE, Transcript, p.222). Industry consultant Joseph Pietsch stated that manufactureres may provide longer-term warranties for high efficiency systems that cover a wider range ofcomponents, to alleviate customer concerns regarding possible future repair cost ofthe more complex systems. (Pietsch, No. 36 at 22).
Air conditioner manufacturers warranty their equipment against defects, and contractors typically guarantee performance and installation. Manufacturer warranties typically cover parts and labor for one year, with longer warranties applying to the compressor. Mvr Pietsch noted that compared to law-SEER products, high-SEER products have more components, many ofwhich have arelatively short history. Reliability patterns ofthese new components are less known, so warranty accruals maybe significantly higher for these products. (Pietsch, No. 36 at 22). Dealers also may offer extended warranties which are usually underwritten by the manufacturer
or athird party. We did not consider incremental warranty costs explicitly inthe analysis.

We did consider service costs explicitly. Ifthe owner chooses not to purchase an extended warranty, the ownerwill incur service costs should the system malfunction. We
Q:\EE41\EE-431 \CAC\StandRulNOPRDraftNOPR\CACN'OPR16.wpd 45 August 4, 2000 (1:45PM) 1 B. Life-Cycle-CostParameters 1. Extended Warranty and Service Costs Energy Market and Policy Analysis, Inc. (EMPA) noted that the Life Cycle Cost analysis did not explicitly address extended warranty and'service costs and asserted that they should be taken into account. (Schleede, EMPA, Transcript, p. 221). The Alliance to Save Energy (ASE) stated that the inclusion ofextended warranty and service costs would have the impact of reducing repair and maintenance costs. (prindle, ASE, Transcript, p. 222). Industry consultant Joseph Pietsch stated that manufactureres may provide longer-term warranties for high**effi~iency** systems that cover awider range ofcomponents, to alleviate customer concerns regarding possibb future repair cost ofthe more complex systems. (pietsch, No. 36 at 22). , 

# ..

Air conditioner manufacturers warranty their equipment' against defects, and contractors typically guarantee performance and installation. Manufacturerwarranties typically cover parts and laborfor one year, with longer warranties applying to the compressor. :MrPietsch noted that compared to law-SEER products, hiEfoh-SEER products have more components, many ofwhich**h~\Ve** arelatively short history. Reliability patterns ofthese new components are less known, so warranty accruals may be significantly higher for these products. (pietsch, No. 36 at 22). Dealers also may offer extended warranties which are usually underwritten by the manufacturer or athird party. We did not consider incremental warranty costs explicitly in the analysis.

We did consider service costs explicitly. Ifthe owner chooses not to purchase an extended warranty, the ownerwill incur service costs should the system malfunction. We 45 Q:\EE-41IEE-431\CAClStandRuI\NOPRIDraf1NOPR\CACNOPR16,wpd' August 4, 2000 (L45Pl'.f)EE-RM/STD-98-440

- - 7. 

### assumed that owners incurred annual service costs that increase inproportion to the equipment price. 

### Presumably, equipment owners who purchase extended warrantees do so to avoid service charges. Thus, we would expect that calculating the cost ofextended warranties would be equivalent to bringing all future service cost expenditures forward into the year the equipment is purchased. In both cases, the ownerisbearing the same costs offuture repairs. Wewould expect, therefore, that considering extended warranties would produce the same results asthose based on service costs alone.
Since consideration ofrepair costs issatisfied by considering either service costs or extended warranties, we limited our consideration to service costs, which are slightly easier to estimate, communicate, and incorporate into the analysis. Considering them both would require amuch more rigorous analysis ofservice costs since we would have to estimate the service cost incurred on a year-by-year basis. That additional analysis would likely not produce significantly different results. Comments are welcome as to whether explicit consideration ofextended warranties would produce significantly different results from those based on service costs alone.
2. Residential Energy Consumption Survey BothNRDC and EMPA asserted that RECS' method for estimating end-use energy consumption (i.e., conditional demand analysis) yields unreliable and flawed results. NRDC added that conditional demand analysis methods inherently underestimate central air conditioner
Q:\EE-41\EE-431\CAC\StandRul\NOPRraftNOPR\CACNOPRI6.wvpd 46 August 4,2000 (1:45PM)

*

### EE~RM/STD~98~440_F--~**~**

# 7 assumed that owners incurred annual service costs that increase in proportion to the equipment pnce. Presumably, equipment owners who purchase extended warrantees do so to avoid service charges. Thus, we would expect that calculating the cost ofextended warranties would be equivalent to bringing all future service cost expenditures fOIWard into the year the equipment is purchased. In

### both cases, the owneris bearing the same costs offuture repairs. We would expect, therefore, that considering extended warranties would produce the same results as**~hose** 

### based on service costs alone.
Since consideration ofrepair costs is satisfied by considering either service costs or extended warranties, we limited our consideration to service costs, which are slightly easierto estimate, communicate, and incorporate into the analysis. Considering them both would require
a f!1u(;h more rigorous analysis ofservice costs since we would have to estimate the service cost incur!"ed on ayear-by-yearbasis. That additional analysis would likely not produce significantly different results. Comments are welcome as to whether explicit consideration ofextended warr::.r.ties would produce significantly different results from those based on service costs alone.
2. Residential Energy Consumption Survey BothNRDC and EMPA asserted that RECS' method for estimating end-use energy consumption (i.e., conditional demand analysis) yields unreliable and flawed results. NRDC added that condition8.I demand analysis methods inherently underestimate central air conditioner 46 Q:1EE41\EE431\CAClStandRuI\NOPR\DraftNOPR\CACNOPR16.wpd August 4. 2000 (l:45PM)

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

# 7

. energy use due to its treatment ofinternal loads. EMPA stated that the RECS household sample size istoo small to be used inthe manner inwhich itisbeing treated inthe life-cycle cost analysis. (NRDC, No. 35 at 6-7; EMPA, No. 33 at4-6; Schleede, EMPA, Transcript, pp. 160- 161). Virginia Power, EEI, and EMPA all requested that the analysis be updated to use RECS 1997 data rather than RECS 1993 data. EEI added that actual submetered end-use data should be used ifpossible rather than the end-use data inRECS. (Virgina Power, No. 27 at 2; EEI, No. 20 at 5, Schleede, EMPA, Transcript, pp. 160-161).
As part ofthe process to improvethe new energy efficiency standards analysis, we are committed touse sensitivity analysis tools to evaluate the potential distribution ofimpacts among different subgroups ofconsumers. The Department believes that RECS provides a nationally representative household data set which issuited for conducting the type ofsensitivity analyses suggested bythe Process Rule. Limiting theRECS households tothose equipped with either central air conditioners or heat pumps, the LCC analysis performs a household-by-household analysis that predicts the percentage ofhouseholds that will incur net life-cycle cost savings or costs from an increased efficiency standard.
End-use energy consumption data frompast RECS surveys have been compared to submetered end-use data for purposes ofvalidating their conditional demand analysis estimates. Central air conditioning and space-heating energy data fromthe 1990 RECS were shown to differ by 5% to 22% compared to submetered end-use data from five utility service areas. The Department believes that this range ofdifference isacceptable considering that the conditional
Q:\EE41 \EE431\CAC\StandRul\NOPR\DrftNOPR\CACNOPRI 6.wpd 47 August4, 2000(1:45PM) 4, EE-RM/STD-98-440

# -#-cq tJ

# 7. energy use due to its treatment ofintemalloads. EMPA stated that the RECS household sample size is too small to be used in the mannerin which it is being treated in the life-cycle cost analysis. (NRDC, No. 35 at 6-7; EMPA,·No. 33 at 4-6; Schleede, EMPA, Transcript, pp. 160- 161). Virginia Power, EEl, and EMPA all**req~ested** that the analysis be updated to use RECS 1997 data rather than RECS 1993 data. EEl added that actual submetered end-use data should be u'sed ifpossible rather than the end-use data in RECS. (Virgina Power, No. 27 at 2; EEl, No. 20 at 5, Schleede, EMPA, Transcript, pp. 160-161).

As part ofthe process to improve the new energy efficiency standards analysis, we are committed to use sensitivity analysis tools to evaluate the potentia.l distribution ofimpacts among different subgroups ofconsumers. The Department believes that RECS provides a nationally representative household data set which is suited for conducting the type ofsensitivity analyses suggested by the Process Rule. Limiting the RECS households to those equipped with either central air conditioners or heat pumps, the LCC analysis performs ahousehold-by-household analysis that predicts the percentage ofhouseholds that will incur net life-cvcle cost savings or costs from an increased efficiency standard.

. End-use energy cqnsumption data from past RECS surveys have been compared to submetered end-use data for purposes ofvalidating their conditio:1al demand analysis estimates. Central air conditioning and space-heating energy data from the 1990 RECS were shown to differ by 5% to 22% compared to submetered end-use data from five utility service areas. The Department believes that this range ofdifference is acceptable considering that the conditional 47**Q:~**1 1EE-431 ICAClStandRul\NOPRIDraftNOPRICACNOPRI6.wpd August4.2000(I :45PM) 

### ."

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

## D 7
. demand analysis utilized by RECS isfully capable ofestimating the energy consumption of equipment throughout the nation. Because RECS is avery well suited source ofdata for performing the analyses suggested bythe Process Rule and RECS hasbeen shown to provide reasonable estimates ofend-use energy consumption, we will continue to rely onRECS for providing the annual energy consumption data necessary for conducting the life-cycle cost analysis.
The analysis conducted insupport ofthis proposed rule hasbeen revised based on data from the 1997 RECS rather than the 1993 RECS.
3. Equipment Lifetime Virginia Power, EEI, ARI, Unico, Rheem Co., and Trane commented that the average equipment lifetime of 18.4 years assumed inthe Supplemental ANOPR wasincorrect, and suggested an actual lifetime between 12 and 15 years. (Virginia Power, No. 27 at 2; EEI, No. 20 at 10: ARI, No. 48 at 3;Unico, No. 34 at 3;Lux, Rheem Co., Transcript, p. 165; Foster, EEI, Transcript, p. 170; Crawford, Trane, Transcript, p. 191; Wethje, ARI, Transcript, p. 193). EMPA asserted that the length offirst ownership should be used as the basis for equipment lifetime. (EMPA, No. 33 at 3,Schleede, EMPA, Transcript, p. 162).
NRDC, ACEEE, and the Vermont Energy Investment Corporation (VEIC) all believed that the 18:4 year equipment lifetime wasreasonable. They reasoned that a shorter or longer average equipment lifetime would result inless accurate estimates ofhistorical shipments.
Q:\EE41 \EE-431\CAC\StandRul'NOPR\DraftNOPR\CACNOPR1 6.wpd 48 August 4. 2000 (1:45PM) 

## .. EE-RM/STO-98-440-!t'0

## t 

# 7 . demand analysis utilized byRECS is fully capable ofestimating the energy consumption of equipmentthroughout the nation, BecauseRECS is a very well suited source ofdata for performingthe analyses suggested by the Process Rule and RECS has been shown to provide reasonable estimates ofend-use energy consumption, we will continue to rely onRECS for providing the annual energy consumption data necessary for conducting the life-cycle cost analysis,

The analysis conducted in support ofthis proposed rule has been revised based on d.ata from the 1997 RECS rather thanthe 1993 RECS.

3. Equipment Lifetime , 

# . ,

Virginia Power, EEl, ARI, 

### Vnico, Rheem Co., and Trane commented that the average equipment lifetime of 18.4 years assumed in the Supplemental ANOPR was incorrect, and suggested an actual lifetime between 12 and 15 years. (Virginia Power, No. 27 at 2; EEl, No. 20 at 10: ARI, No. 48 at 3; 

### Vnico, No. 34 at 3; Lux, Rheem Co., Transcript, p. 165; Foster, EEl, Transcript, p. 170; Crawford, Trane, Transcript, p. 191; Wethje, ARI, Transcript, p. 193). EM?A asserted that the length offirst ownership should be used as the basis for equipment lifetime. (EMPA, No. 33 at 3, Schleede, EMPA, Transcript, p. 162).
NRDC, ACEEE, and the Vermont Energy Investment Corporation (VEIC) all believed that the 18'.4 year equipment lifetime was reasonable. They reasoned that a shorter orlonger average equipment lifetime would result in less accurate estimates ofhistorical shipments. 48 Q:\EE-41\EE-431ICAC\StandRul\NOPRIDraftNOPRICACNOPR16.wpd August4. 2000 (1 :45PM)EE-RM/STD-98-440-! 

## .7 ACEEE added that unless manufacturers can provide new data, the 18.4year average lifetime should be retained. (NRDC, No. 35 at 7-8; ACEEE, No. 43 at 6-7; VEIC, No. 32 at 7).
The Department notes that the basis ofthe 18.4 year equipment lifetime was asurvey conducted on more than 2,100 heat pumps inaseven state region ofthe U.S9


### . The survey determined not only thelifetime of a complete heat pump system, butthe life ofthe original compressor as well. Although the system lifetime ison 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 heatpump owners replaced their original compressor once inthe lifetime ofsystem.
In the LCC analysis conducted for the Supplemental ANOPR, we did not include any repair costs associated with replacing the compressor. But since the heat pump survey clearly indicates that the original compressor isreplaced once in a system's life,the analysiswas revised
.oinclude a repair cost for the compressor. Conducting the analysis inthis manner retains the average systemlifetime 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 bereplaced inthe 14 

### m year ofthe system's life. In addition, because more efficient systems tend to use more efficient and, thus, more expensive compressors, the compressor replacement cost was assumed to vary with system efficiency.

9 "Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and Compressor Longevity in Diverse Climates." ASHRAE Transactions, 1990. 96(1): p. 1567-1571. Q:\EE41\XEE431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR1 6. Tpd 49 August 4, 2000 (1:45PM) 

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

# O?IJ

# 1 ACEEE added that unless manufacturers can provide new data, the 18.4 year average lifetime should be retained. (NRDC, No. 35 at 7-8; ACEEE, No. 43 at 6-7; VEIC, No. 32 at 7).

TheDepartment notesthat thebasis ofthe 18.4 year equipment lifetime was a survey conducted on more than 2,100 heat pumps in a seven state region ofthe U.S9. The survey determined not only the lifetime of a 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 that the original compressorlifetime was, on average, 14 years. Thus, the survey

, indicated that essentially all heat pump owners replaced their original compressor once in the' lifetime ofsystem.
Inthe LCC analysis conducted for the Supplemental ANOPR, we did not include any repair costs associated with replacing the compressor. But since the heat pump survey clearly indicates that the original compressor is replaced once in a system's life, the analysis was revised**~o** include arepair cost for the compressor. Conductingthe analysis in this manner retains the average system lifetime of

### i8.4 years but explicitly addresses thereplacement cost ofthe compressor, which is the most expensive component ofa system. As indicated by the survey

, data, the compressorwas assumed tobereplaced 

### in the 141hyear ofthe system's life. In addition,

because more efficient systems tend to usemore efficient and, thus,'more expensive comrressors, the compressorreplacement cost was assumed to vary with system efficiency.
9<'Bucher, M.E., Grastataro, C.M., and Coleman, W.R., "Heat Pump Life and CompressorLonge\;ty in Diverse Climates," ASHRAE Transactions, 1990.96(1): p. 1567-1571. 49 Q:\EE41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR16v.-pd August4. 2000 (1 :4SPM)EE-RM/STD-98-440 - g O/7 

### Although the revised LCC analysis assumed an 18.4 year average equipment life and one compressor replacement, a shorter equipment lifetime was investigated as an alternative scenario. In this alternative scenario, a retirement function yielding an average lifetime of 14 years was used and compressor replacement costs were not considered. The shorter equipment lifetime is plausible assuming that most, ifnot all, consumers when faced with replacing a failed compressor would choose to replace the entire system rather thanreplace the compressor in a relatively old system. LCC results based on both the 18.4 year and 14 year average equipment lifetimes are provided in Section VI as well as Chapter 5ofthe TSD.
4. Commercial Applications NRDC, ACEEE, VEIC, CEC, andthe Northwest Power Planning Council (NPPC) commented that DOE should analyze the application ofresidential central air conditioners and heat pumps (i.e., single-phase equipment) incommercial buildings. All stated that there is a significant portion ofthis type equipment being used insmall commercial buildings. They argued that since the energyuse patterns incommercial buildings are distinctly different than those in households, the analysis should include residential equipment use incommercial applications. (NRDC, No. 35 at 12-13; ACEEE, No. 43 at 2; VEIC, No. 32 at 6-7; CEC, No. 47 at 8; Tom Eckman, NPPC, Transcript, p. 166).

EEI requested clarification asto how the commercial application analysis was conducted for the Department's January 14, 2000, LCC Sensitivity Analysis. (EEI,No. 20 at 10).

Q:\EE41\EE431\CAC\StandRulNOPR\DraftNOPR\CACNOPRI6.wpd 5 0 August 4, 2000 (1:45PM) 4 

## .. EE·RM/STD-98-440

### 4-~

# 111 Although the revised LCC analysis assumed an 18.4 year average equipment life and one compressor replacement, a shorter equipment lifetime was investigated as an alternative scenario. Inthis alternative scenario, a retirement function yielding an averagelifetime of 14 years was used and compressor replacement costs were not considered. The shorter equipment lifetime is plausible assuming that most, ifnot all, consumers when faced with replacing afailed compressor would choose to replace the entire systemrather than replace the compressorin a relatively old system. LCC results based on both the 18.4 year and 14 year average equipment lifetimes are provided in Section VI as well as Chapter 5 ofthe TSD.
4. Commercial Applications NRDC, ACEEE, VEIC, CEC, and the Northwest PowerPlanning Council (NPPC) commented that DOE should analyze the application ofresidential central air conditioners and heat pumps (i.e., single-phase equipment) in commercial buildings. All stated that there is a significant portion ofthis type equipment being used in small commercial buildings. They argued that since the energy use patterns in commercial buildings are distinctly different than those in households, the analysis should include residential equipment use in commercial applications. (NRDC, No. 35 at**12-13~** ACEEE, No. 43 at**2~** VEIC, No. 32 at**6-7~** CEC, No. 47 at 8; Tom Eckman, NPPC, Transcript, p. 166).
EEl requested clarification as to how the commercial application analysis was conducted for the Department's January 14,2000, LCC Sensitivity Analysis. (EEl, No. 20 at 10).

50 Q:\EE-41\EE-431ICAClStandRuI\NOPRIDraftNOPRICACNOPR16.v ..pd August 4. 2000 (l**:45P~1)**EE-RM/STD-98-440 

# a-M-; @

### 97. Fortoday's proposed rule, the use ofresidential equipment in commercial buildings was analyzed assuming that 10% ofall central air conditioners and heat pumps are used in commercial applications. This figure isbased on ARI's estimate that approximately 10% of single-phase air conditioning and heat pump shipments are used incommercial buildings. The annual energy consumption ofcommercially applied air-conditioning and heat pump equipment
wasbased on the simulation of77 nationally representative commercial buildings consistent with the approach and assumptions utilized to develop the American Society ofHeating, Refrigerating and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and marginal electricity rates were developed by matching a set ofcommercial electric utilitytariffs to the above simulated building loads and demands.
TheLCC spreadsheet models were modified so that commercial buildings with their corresponding annual energy consumption and marginal and average electricity costs represent 10% ofthe entire residential and commercial building population. Complete details on the procedure to incorporate commercial applications are included in Chapter 5ofthe TSD.
5. Marginal Electricity Prices NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commented that the Supplemental ANOPR analysis underestimated future marginal electricity prices. Several ofthe comments stated thebeliefthat deregulation ofthe electric utility industry would result in greater volatility ofelectricity pricing that eventually would translate into higher electricity prices during peak power periods. (Goldstein, NRDC, Transcript, p. 175; ACEEE, No. 43 at 6; CEC,No 47 at 8;
Q:EE41\EE-431 \CAC\SandRulNOPRDraftNOPR\CACNOPR16.1pd 51 August 4, 2000 (1:45PIM)
4 EE-RM/STD-98-440**'-#--~**

## tJ

# 1. Fortoday's proposed rule, the use ofresidential equipment in commercial buildings was analyzed assuming that 10% ofall central air conditioners and heat pumps are used in commercial applications. This figure is based on ARl's estimate that approximately 10% of single-phase air conditioning and heat pump shipments are used in commercial buildings. The annual energy consumption ofcommercially applied air-conditioning and heat pump equipment was based on the simulation of77 nationally representative commercial buildings consistent with the approach and assumptions utilized to develop the American Society ofHeating, Refrigerating and Air-Conditioning Engineers' (ASHRAE) Standard 90.1-1999. Both average and**marg~nal** 

### electricity rates were developed by matching a set ofcommercial electric utility tariffs to the above simulated building loads and demands.
The LCC spreadsheet models were modified so that commercial buildings with their corresponding annual energy consumption and marginal and average electricity costs represent 10% ofthe entire 'residential and commercial building population. Complete details on the procedure to incorporate commercial applications are included in Chapter 5ofthe TSD.

5. 

### Marginal Electricity Prices NRDC, ACEEE, CEC, PG&E, NPCC, and ASE commented that the Supplemental ANOPR analysis underestimated future marginal electricity prices. Several ofthe comments stated the beliefthat deregulation ofthe electric utility industry**woul~** 

### result in greatervolatility ofelectricity pricing that eventually would translate into higher electricity prices during peak power periods. (Goldstein, NRDC, Transcript, p. 175; ACEEE, No. 43 at 6; CEC, No 47 at 8; 51 Q:\EE-41\EE-431\CAClSundRuI\NOPRIDraftNOPR\CACNOPR16.wpd August4. 2000 (I :45P}'1)EE-RM/STD-98-440 ,.e_ 7 

### PG&E, No. 31 at 6-7; Eckman, NPPC, Transcript, pp. 167-168; Prindle, ASE, Transcript, p. 168).
ARI and EEI were not convinced that a deregulated electric utility industry would result in higher electricity prices in the future. ARI noted that under apeak pricing scenario consumers may decline to operate their air-conditioning equipment to avoid incurring high electricity bills. EEI added that currently, there is no mechanism to capture utility capital costs for providing peak power in residential pricing. (Wethje, ARI, Transcript, pp. 168-169; Foster, EEI, Transcript, pp. 169, 175-176).
The current method for establishing marginal electricity prices only allows for defining marginal prices forthose years inwhich data are available. In the case ofresidential pricing, the data for establishing marginal prices (the 1997 RECS) was taken from the year 1997. The same
can be said for commercial buildings. The utilitytariffs usedto establish marginal prices (as described earlier) were collected inthe year 1997. On average, residential marginal prices for households with central air conditioners are 3%lower than average rates while for households with heat pumps marginal prices are 7% lower. Space-cooling marginal prices incommercial buildings are on average 2% greater than average commercial rates. Future marginal prices were in turn based upon theReference Caseelectricity price forecast from the AE02000. The Reference Caseforecasts declining electricity rates through the year 2020. Although itis certainly possible that future electricity rates may increase ina deregulated climate, the evidence to date (i.e., residential marginal prices are actually lower than average rates and AEO 2000
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4 EE-RM/STD-98-440

# ---#d;tJ

# 7. PG&E, No. 31 at 6-7; Eckman, NPPC, Transcript, pp. 167-168; Prindle, ASE, Transcript, p. 168).

ARI and EElwere not convinced that a deregulated electric utility industry would result in higher electricityprices in the future. ARI noted that under a peak pricing scenario consumers may decline to operate their air-conditioning equipment to avoid incurring high electricitybills. EEl added that currently, there is no mechanism to capture utility capital costs for providing peak powerin residential pricing. (Wethje, ARI, Transcript, pp. 168-169; Foster, EEl, Transcript, pp. 169, 175-176).

The current method for establishing marginal electricity prices only allows for defining marginal prices for those years in which data are available. In the case ofresidential pricing, the datafor establishing marginal prices (the 1997RECS) was taken from the year 1997. The same can'be said for commercial bUildings. The utility tariffs used to establish marginal prices (as desr-rihed earlier) were collected in theyear 1997. On average, residential marginal prices for households with central air conditioners are 3% lowerthan average rates while for households with heat pumps marginal prices are 7% lower. Space-cooling marginal prices in commercial**b~ildings** are on average 2% greaterthan average commercial rates. Future marginal prices were in tumbased uponthe

### Reference Case electricity price forecast from the AE02000. The 

### Reference Case forecasts declining electricityrates through the year 2020. Although it is certainly possible that future electricity rates may increase in a deregulated climate, the evidence to date (i.e., residential marginal prices are actually lower than average rates and AEO 2000 52 Q:1EE41\EE0431\CAC\StandRuI\NOPRIDraftNOPR\CACNOPR16.wpd Augus14. 2000 (1 :45PM)EE-RM/STD-98-440L'4' 7 

### forecasts project declining electricity rates) convinces us that our current methods for establishing marginal prices are reasonable. To state that future prices may decrease orincrease is speculative. Even inthe case ofcommercial buildings where demand pricing already exists, marginal prices are only2% greater than average electricity rates. Thisreenforces our conviction to keep ourcurrent methodology for establishing marginal prices. However, the Department seeks comments on its methodology and data for determining the appropriate marginal energy costs to use in future analysis.
6. Forecast ofFuture Electricity Prices EMPA asserted that the EIA's forecast ofelectricity prices asfound inthe Annual Energy Outlook underestimates the future drop inelectricity rates. EMIPA, No. 33 at 2-3; Schleede, EMPA, Transcript, p. 185). Don Dasher stated that any forecast ofelectricity prices should capture the future use ofrenewable energy and emerging technologies for generating power. (Dasher, Transcript, pp. 192-193).
Future marginal prices are based upon theReference Caseelectricity price forecast from the AEO 2000. TheReference Caseforecasts declining electricity rates through the year 2020. Although itis certainly possible that future electricity rates may increase in a deregulated climate, the evidence to date (i.e., residential marginal prices are actually lower than average rates and current AEO forecasts project declining electricity rates) leads us to believe that our current methods for establishing future marginal prices are reasonable.

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4**EE.RM/STD.98.440-#~a**

# 1. forecasts project declining electricity rates) convinces us that our current methods for establishing marginal prices are reasonable. To state that future prices may decrease orincrease is speculative. Even in the case ofcommercial buildings where demand pricing already exists, marginal prices are only 2% greaterthan average electricity rates. This reenforces our conviction to keep our current methodology for establishing marginal prices. However, the Department seeks comments on its methodology and data for determining the appropriate marginal energy costs to use in future analysis.

6. Forecast ofFuture Electricity Prices EMPA asserted that the EIA'sforecast ofelectricity prices as found in the Annual Energy Outlook underestimates the future drop in electricity rates. (EMPA, No. 33 at 2-3; Schleede, EMPA, Transcript, p. 185). Don Dasher stated that any forecast ofelectricity prices should capture the future use ofrenewable energy and emerging technologies for generating power. (Dasher, Transcript, pp. 192-193).

Future marginal prices are based upon the Reference Case electricity price forecast from the AEO 2000. The Reference Case forecasts declining electricity rates through the year 2020. 

### Alth')ugh it is certainlypossiblethat future electricity rates may increase in aderegulated climate, the evidence to date (i.e.,·residential marginal prices are actually lowerthan average rates and current AEO forecasts project declining electricity rates) leads us to believe that our current methods for establishing future marginal prices are reasonable.

53 Q:\EE-41IEE-431ICAClStandRuI\NOPRIDraftNOPR\CACNOPR16..... -pd August4.2000(1**:4SP~1)**

### EE-RM/STD-98-440 -oC6 7. Discount Rate NRDC, ACEEE, VEIC, PG&E, and CEC believe that the discount rate used inthe Supplemental ANOPR analysis wastoo high. Their primary criticism pertained to the breakdown offinance methods which were assumed for establishing the discount rate. The Supplemental ANOPR analysis assumed that 35% ofconsumers purchasing a central air conditioner orheat pump used a credit card to finance their purchase. The comments argued for
a much lower percentage and cited a recent PG&E survey that demonstrated that only 5%of
consumers used credit cards. VEIC also cited a survey by Potomac Electric Power Company (PEPCO) that reported lower purchases with credit cards. (NRDC, No. 35 at 10-11; ACEEE, No. 43 at 3; VEIC, No. 32 at 3-4;Neme, VEIC, Transcript, pp. 186-187; PG&E, No. 31 at 7; CEC, No. 47 at 7). Counter to the above assertion, Trane maintained that the Supplemental ANOPR's assumption regarding the percentage ofconsumers using credit cards to purchase equipment was correct, based on the number ofconsumers intheU.S. that carry credit card debt. (Crawford, Trane, Transcript, p. 191-192). EEI commented that the interest rates associated with cirdii card and cash purchases needed to be revisited. (EEI, No. 20 at 6). EMPA asserted that with higher cost air conditioners, consumers' after tax income would be reduced, requiring them to forego the purchase ofvarious household necessities such as food, clothing, and shelter. (EMPA, No. 33 at 3). The Department performed an extensive review and revision to the methodology that determines consumer discount rate. The Supplemental ANOPR established the share ofvarious finance methods used for purchasing air-conditioning equipment and determined the associated interest rates for each ofthe finance methods. For equipment obtained through the purchase ofa
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4 7. Discount Rate EE-RM/STD-98-440

### -~~tJ 

# 1
NRDC, ACEEE, VEIC, PG&E, and CEC believe that the discount rate used in the Supplemental ANOPRanalysis was too high. Their primary criticism pertained to the breakdown offinance methods which were assumed for establishing the discount rate. The' Supplemental ANOPR analysis assumed that 35% ofconsumers purchasing a central air conditioner orheat pump used a credit card to finance their purchase. The comments argued for
a much lower percentage and cited a recent PG&E survey that demonstrated that only 5.% of
consumers used credit cards. VEIC also cited a surveyby PotomacElectric Power Company (PEPCO) that reported lowerpurchases with credit cards. (NRDC, No. 35 at 10-11; ACEEE, No. 43 at 3; VEIC, No. 32 at 3-4; Neme, VEIC, Transcript, pp. 186-187; PG&E, No. 31 at 7; CEC, No. 47 at 7). Counterto the above assertion, Trane maintained that the Supplemental ANOPR's assumption regarding the percentage ofconsumers using credit cards to purchase equipment was correct, based on the number ofconsumers in the U.S. that carry credit card debt. (Crawford, Trane, Transcript, p. 191-192). EEl commented that the interest rates associated with cl'tdiI card and cash purchases needed to be revisited. (EEl, No. 20 at 6). EMPA asserted that with higher cost air conditioners, consumers' after taxincome would be reduced, requiring them to forego the purchase ofvarious household necessities such as food, clothing, and shelter. (EMPA, No. 33 at 3). The Department perfonned an extensive review and revision to the methodology that determines consumer discount rate. The Supplemental ANOPR established the share ofvarious finance methods used for purchasing air-conditioning equipment and determined the associated interest rates for each ofthe finance methods. For equipment obtained through the purchase ofa 54 Q:\EE41\EE431ICAC\StandRul\NOPR'.DnftNOPR\CACNOPR16.wpd August 4. 2000 (1 :45PM) 

# •

### EE-RM/STD-98-440 E" n' new home, second mortgage, orhome equitylines ofcredit, this approach isreasonable. But for purchases madeto replace old or failed equipment where cash or some form ofcredit isused to finance the acquisition, we determined it more appropriate to establish how the purchase affects
a consumer's overall household financial situation. For example, even though the purchase might be financed through a dealer loan or some other lowinterest financing vehicle, the more probable effect ofthe purchase isto either causethe consumer to incur additional credit card debt
or forego their investment in some type ofsavings-related asset. Cash that was once available to either pay forhousehold necessities or to invest inan asset like the stock market or a simple savings account now must be earmarked to pay offthe equipment purchase loan, thus, either causing the consumer to incur additional credit card debt or to lose the opportunity to warn income from their assets. For today's proposed rule, we have decided to use the above methodology for defining the discount rate for central air conditioner and heat pump purchases. The 1998 Survey ofConsumer Finances (SCF) was used to estimate the percentage of households that used second mortgages to finance their equipment purchase aswell asthose households that either would incur more credit card debt orbe forced to forgo their normal
course ofinvesting. Data from the Air Conditioning, Heating, and Refrigeration News (December 12, 1998) established the percentage ofshipment going to new homes.
After establishing the share captured by each finance method, the range ofinterest rates due to each method were developed. The 1998 SCF established the range ofinterest rates for
new home mortgages, second mortgages, and credit cards. Rates ofreturn on certificates of deposit, savings bonds, and bonds were based on historical interest rates. A weighted-average Q:\EE41\EE431\CAC\StandRul\NOPR\DaftNOPR\CACNOPR 6.w.pd 55 August 4, 2000(1:45PM) EE-RM/STO-98-440

### -~.~ {) 

# J

newhome, second mortgage, orhome equity lines ofcredit, this approach is reasonable. But for purchases made to replace old orfailed equipment where cash or some form ofcredit is used to finance the acquisition, we determined it more appropriate to establish how the purchase affects
a consumer's overall household financial situatipn. Forexample, even though the purchase might be financed through a dealerloan or some other low interest financing vehicle, the more probable effect ofthe purchase is to either cause the consumerto incur additional credit card debt
orforego their investment in some type ofsavings-related asset. Cash that was once available to either pay for household necessities orto invest in an asset like the stock market or a simple savings account nowmust be earmarked to pay offthe equipment purchase loan, thus, either causing the consumer to incur additional credit card debt orto lose the opportunityto ""am income from their assets. For today's proposed rule, we have decided to use the above methodology for defining the discount rate for central air conditioner and heat pump purchases. The 1998 Survey ofConsumerFinances (SCF) was used to estimate the percentage of households that used second mortgages to finance their equipment purchase as well as those**~ous~holds** that either would incur more credit card debt orbe forced to forgo their normal
course ofinvesting. Datafrom the Air Conditioning, Heating, and RefrigerationNews (December 12, 1998) established the percentage ofshipment going to new homes.

After establishing the share captured by each finance**~ethod,** the range ofinterest rates due to each method were developed. The 1998 SCF established the range ofinterest rates for
new home mortgages, second mortgages, and credit cards. Rates ofretum on certificates of deposit, savings bonds, and bonds were based on historical interest rates. A weighted-average 55 Q:\EE-41\EE-431ICAClStandRuI\NOPRIDraftNOPRICACNOPR16.wpd Augus14. 2000 (1 :45P!o.1)EE-RM/STD-98-440
- #6 ' 7. 

### discount rate of5.6% iscalculated from themean interest rates for each finance method. Amore detailed discussion ofthe data sources and how the interest rates were derived isfound in Chapter 5 ofthe TSD.
8. Percentage ofHouseholds with LCC Savings For the Supplemental ANOPR, all consumers having an LCC increase resulting from the standard were considered to be adversely impacted. Several comments expressed concern on how we would use this information on adverse consumer impacts inselecting minimum efficiency standards. ARI, Unico and EMPA asserted that the a majority ofhouseholds would need to benefit from the standard in order tojustify its selection. (ARI, No. 48 at 5; Unico, No. 34 at 3;EMPA, No. 33 at 2). NRDC stated that the percentage ofhouseholds with LCC savings
or costs relative to the baseline level should not be a criterion in basing a standard's economic justification. NRDC stated that variations in electricity pricing make itnearly impossible to determine consumer costs on a disaggregated level. (NRDC, No.35 at 12-15). PG&E commented that the percentage ofhouseholds at any particular standard level with net LCC costs actually overstates the significance ofthe negative LCC impacts. Most consumers experience LCC increases ofonly a few dollars over the life ofthe equipment. (PG&E, No. 31 at 8).
The Department agrees with PG&E's comment and informulating today's proposed rnle, DOE hasredefined the criteria for determining negative impacts. Noting that the baseline LCC is approximately $5,000 for central air conditioners and $10,000 for heat pumps, previously all
consumers incurring an LCC increase as small as $10 were considered to be adversely impacted
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4» EE-RM/STD-98-440

# -#-c55 t3

# 7. discount rate of5.6% is calculated from the mean interest rates for each finance method. A more detailed discussion ofthe data sources and how the interest rates were derived is found in Chapter 5 ofthe TSD.

8. Percentage ofHouseholds with LCC Savings Forthe Supplemental ANOPR, all consumers having an LCC increase resulting fromthe standard were considered tobe adversely impacted. Several comments expressed concern on howwewould use this information on adverse consumerimpacts in selecting minimum

, efficiency standards. ARI, Unico and EMPA asserted that the a majority ofhouseholds would need tobenefit from the standard in ordertojustify its selection. (ARl, No. 48 at 5; Unico, No. 34 at 3; EMPA, No. 33 at 2). NRDC stated that the percentage ofhouseholds with LCC savings
or costs relative to thebaseline level should not be a criterion in basing a standard's economic justification. NRDC stated that variations in electricity pricing make it nearly impossible to**det~rmine** consumer costs on a disaggregated level. (NRDC, No.35 at 12-15). PG&E commented thatthe percentage ofhouseholds at any particular standard level with net LCC costs actually overstatesthe significance ofthe negativeLCC impacts. Most consumers experience LCC increases ofonly a few dollars overthe life ofthe equipment. (pG&E, No. 31 at 8).

TheDepartment agrees withPG&E's comment and in formulating today'sproposed mle, DOE has redefined the criteria for determining negative impacts. Notingthat thebaseline LCC is approximately $5,000 for central air conditioners and $10,000 for heat pumps, previously all
consumers incurring anLCC increase as small as $10 were considered tobe adversely impacted 56 Q:\EE-41\EE-431\CAC\StandRul\.NOPR\Draf\NOPR\CACNOPRI6.wpd August4.2000 (1:45PM)

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

# < by an increase in the standard. In the revised LCC analysis, the Department defines consumers impacts as follows: consumers who achieve significantnet LCC savings (i.e., LCC savings 

### greater than 2% ofthe baseline LCC), consumers who are impacted in an insignificant mannerby having either a small reduction or small increase inLCC (i.e., within ±2% ofthe baseline LCC),
or consumers who achieve a significant net LCC increase (i.e., anLCC increase exceeding 2% of the baseline LCC). Consequently, only consumers (both residential and commercial) having an LCC increase greater than 2% ofthe baseline are considered to be negatively impacted.
9. Regional Analysis At the December 9, 1999, public workshop, NRDC and CEC requested further information on regional distributions ofhouseholds with net LCC savings or costs relative to the regional baseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p. 274). The Department responded byconducting additional analysis, which was posted to our web site on January 14, 2000, and included LCC analysis disaggregated by region into census divisions. From this regional analysis itcould be determined how different parts ofthe country would be impacted by an increase inthe minimum efficiency standard.
1C. Rebuttable Payback EEI asked why the rebuttable payback period isnot determined with annual energy use data from RECS. They also requested clarification asto how rebuttable payback periods will factor into the decision to select a new minimum efficiency standard. (EEI, No. 20 at 7-8).

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### --.~

# cqIJ

# 7 by an increase in the standard. In

### the revised LCe analysis, the Department defines consumers impacts as follows: consumers who achieve significant

### net LCC savings (i.e., LCC savings greaterthan 2% ofthe baseline LCC), consumers who are impacted in an insignificant mannerby having either a small reduction or small increase in LCC (i.e., within ±2% ofthe baseline LCC), or consumers who achieve asignificant

### net LCC increase (i.e., an LCC increase eX'ceeding 2% of the baseline LCC). Consequently, only consumers (both residential and commercial) having an LCC increase greaterthan 2% ofthe baseline are considered to be negatively impacted.
.' 

### 9. Regional Analysis 

# .. At the December 9, 1999, public workshop, NRDC and CEC requested further infonnation on regional distributions ofhouseholds with net LCC savings or costs relative to the regional baseline level. (Goldstein, NRDC, Transcript, pp. 188-189; Martin, CEC, Transcript, p. 274). The Department responded by conducting additional analysis, which was posted to our we!l site on January 14,2000, and included LCC analysis disaggregated by region into census divisions. From this regional analysis it could be determined how different parts ofthe country wOl11d 

### be impacted by an increase in the minimum efficiency standard.
10. Rebuttable Payback EEl asked why the rebuttable payback period is not determined with annual energy use data from RECS. They also requested clarification as to how rebuttable payback periods will factor into the decision to select anew minimum efficiency standard. (EEl, No. 20 at 7-8).

57 Q:'lEE4\\EE43\ICAC'StandRul\NOPR\DraftNOPRICACNOPR\6.wpd Augusl4, 2000 (1 :45PM) 

## "EE-RM/STD-98-440 -'~ ?7 

### As prescribed by Section 325(o)(2)(B)(iii) ofEPCA, the rebuttable payback period is calculated under the applicable test procedure. Thus, allrebuttable payback periods are based on an annual energy consumption that isdetermined through the current Department ofEnergy test procedure for central air conditioners and heat pumps. Theresulting annual energy use as determined by the test procedure issignificantly greater than what isindicated by RECS.. Thus, the rebuttable payback periods are significantly shorter than those based onthe RECS annual energy consumption data.
The rebuttable presumption test does not consider the full range ofimpacts ofstandards, including manufacturer impacts and energy savings. Therefore, the Department bases its decision primarily onthe seven factors specified inSection 325(o) ofthe Act.
1 i. Sensitivity Analyses ACEEE recommended that several sensitivity analyses be conducted to determine how the LCC varies with changes incertain input variables. (Nadel, ACEEE, Transcript, pp. 233- 236; ACEEE, No. 43 at 10). NRDC also requested some ofthe sensitivity analyses described by ACEEE. (NRDC, No. 35 at 12-13). Trane went on the record as not endorsing all ofACEEE's requested sensitivities. (Crawford, Trane, Transcript, p.237).
We conducted several ofthe requested LCC sensitivity analyses, as well asthe previously described regional analyses, and posted theresults to our web site on January 14, 2000. The sensitivities examined how the LCCs for central air conditioners andheat pumps were impacted
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EE-RM/STD-98-440 

# -jt::,::tJcJ( As 

### prescribed by-Section 325(o)(2)(B)(iii) ofEPCA, the rebuttable payback period is calculated under the applicable test procedure. Thus, all rebuttable payback periods arebased on an annual energy consumption that is determined through the current Department ofEnergy test procedure for central air conditioners and heat**~umps.** 

### The resulting annual energy use as determined by the test procedure is significantly greaterthan what is indicated by RECS.. Thus, the rebuttable payback periods are significantly shorterthan those based on the RECS annual energy consumption data.

.' 

### The rebuttable presumptiontest does not considerthe full range ofimpacts ofstandards, including manufacturer impacts and energy savings. Therefore, the Departmentbases its decision primarily on the seven factors specified in Section 325(0) ofthe Act.
1i. 

### Sensitivity Analyses ACEEE recommended that several sensitivity analyses be conducted to determine how the LCC varies with changes in certain input variables. (Nadel, ACEEE, Transcript, pp. 233- 236; ACEEE, No. 43 at 10). NRDC.also requested some ofthe sensitivity analyses described cy ACEEE. (NRDC, No. 35 at 12-13). Trane went on the record as not endorsing all ofACEEE's requested sensitivities. (Crawford, Trane, Transcript, p. 237).
We conducted several ofthe requested LCC sensitivity analyses, as well as the previously described regional analyses, and posted the results to ourweb site on January 14,2000. The sensitivities examined how the LCCs for central air 

### conditioners and heat pumps were impacted 58 Q:\EE4J\EE43JICAC\StandRuJ\'''lOPR\DraftNOPRICACNOPRl6wpd Augus14. 2000 (l:45P!-.l)

### EE-RM/STD-98-440 :;: //7 by changes in the following: dealer markups, builder markups, repair costs, lifetime, emerging technologies, and the use ofsingle-phase central air conditioning and heat pump equipment in commercial applications. Ofthe sensitivities examined, the assumption offixed margins (i.e., no variation in the difference between the equipment price to the consumer and the cost to manufacture with increased efficiency) hadthe largest impact on the LCC results. Changes in the lifetime had a noticeable affect but not the same order ofmagnitude as the fixed margin assumption. All other sensitivities had only minor impacts on the LCC results.
In preparing the sensitivity analyses, we found reason to revise our assumptions regarding markups, compressor replacement, and commercial applications. Those revisions are incorporated into the analysis that supports today's proposed rule and are discussed elsewhere in this Section.
C. ShipmentsAnalysis 1. Forecasted Housing Shifts Both the OEO and NPPC stated that there will likely be significant shifts in regional housing populations. For example, future housing shifts may result i;n more housing inwarmer weather climates where central air conditioning ismore prevalent and used more often, thus, impacting the nation's future space-conditioning energy use. Since the Shipment Analysis does not account for regional housing shifts, OEO and NPPC request that itbe accounted for inthe analysis. (Stephens, OEO, Transcript, pp. 171-172; and Eckman, NPPC, Transcript, pp. 216- 217).
Q:\EE41\EE431 \CAC\SndRulNOPR\DrafNOPR\CACNOPR16.wpd 59 August 4, 2000 (1:45P)**~---------~-.--.------** - EE·RM/STD-98-440

### -#~ 

# tJ7 by changes in the following: dealer markups, builder markups, repair costs, lifetime, emerging technologies, and the use ofsingle-phase central air conditioning and heat pump equipment in commercial applications. Ofthe sensitivities examined, the assumption offixed margins (i.e., no variation in the difference between the**equipm~nt** price to the consumer and the cost to manufacture with increased efficiency) had the largest impact on the LCC results. Changes in the lifetime had anoticeable affect but not the same order ofmagnitude as the fixed margin assumption. All other sensitivities had only minor impacts on the LCC results.

. In preparing the sensitivity analyses, we found reason to revise our assumptions regarding markups, compressorreplacement, and commercial applications. Those revisions are incorporated into the analysis that supports today's proposed rule and are discussedelsewhere in this Section.


### C. ShipmentsAnalysis 1. Forecasted Housing Shifts Boththe OED and NPPC stated that there will likely be significant shifts in regional housing populations. For example, future housing shifts may**resu~:** in more housing in warmer weather climates where central air conditioning is more prevalent and used more often, thus, impacting the nation's future space-conditioning energy use. Since the Shipment Analysis does not**accoun~** for regional housing shifts,OEO and NPPC request that it be accounted for in the analysis. (Stephens, OEO, Transcript, pp. 171-172; and Eckman, NPPC, Transcript, pp. 216- 217). 

### 59 Q:IEE-41IEE-431ICAClStandRul\NOPRIDraftNOPRICACNOPR16.wpd August4, 2000 (I :45PM) 

# •

### EE-RM/STD-98-440O-Ac t 7 Preliminary analysis ofregional housing shifts hasbeen examined and determined to have arelatively small effect (i.e., a maximum change of2% inthe cumulative amount ofmonetary energy savings). This isprimarily due to the large size ofthe housing stock and the fact that changes inthe housing stock occur over a long time scale resulting inslow changes inregional housing shifts. A preliminary analysis ofhistorical housing data coupled with worst case forecasts ofregional housing and air-conditioning market share shifts demonstrated the small impact on national NPV due to changes inregional housing.
New housing starts are only about 2% ofexisting housing stock andthis isforecast'to decrease to about 1%ofhousing stock by 2030. Historical data over the period from 1980 to 1990 showed the shift inregional shares ofhousing stock changed by less than 2% (decreased by 1.2% and 1.7% in the Northeast and Midwest, respectively, and increased by 1.7% and 1.2% in the South and West, respectively). Ifthese changes continue at a steady rate, the housing share of the Northeast will decrease another 3.6% over three decades. Thistranslates to a relative decrease of 17% inthe Northeast's air-conditioning market share. Ifthe entire loss in the Northeast's market share goes to that portion ofthe South with the highest annual energy use (Census Region 7), the absolute market share ofthis region would increase from 15.7% to 17.7%. The result ofthis change isthat the dollar value ofenergy savings at a 12 SEER standard level would increase from $5.73 billion to $5.85 billion, or about a 2% increase inthe dollar energy savings. The actual impact on dollar savingswould likelybe lessthan halfofthis because the above housing shift was assumed to be immediate andto the highest energy use area ofthe South. As a result, the actual impact would likely be less than 1%on the dollar value of
Q:\EE-41\EE-431\CAC\StandRulNOPR\DrafNOPR\CACNOPR16.upd 

### 60 ^Augus 4, 2000 (1:45PM) 4 EE-RM/STO-98-440--#=o?

### ~

# 1

. .. 

### Preliminary analysis ofregional housing shifts has been examined and determined to have arelatively small effect (i.e., amaximum change of2% in the cumulative amount ofmonetary energy savings). This is primarily due to the large size ofthe housing stock and the fact that changes in the housing stock occur over along,time scale resulting in slow changes in regional housing shifts. Apreliminary analysis ofhistorical housing data coupled with worst case forecasts ofregional housing and air-conditioning market share shifts demonstrated the small impact on national NPV

### due to changes in regional housing.

, 

### New housing starts are only about 2% ofexisting housing stock and this is forecasfto decrease to about 1 % ofhousing stockby 2030. Historical data over the period from 1980 to 1990 showed the shift in regional shares ofhousing stockchanged by less than 2% (decreased by 1.2% and 1.7% in the Northeast and Midwest, respectively, and increased by 1.7% and 1.2% in the South and West, respectively). If

### these changes continue at a steady rate, the housing share of the Northeast will decrease another 3.6% overthree decades. This translates to arelative decrease of 17% in the Northeast's air-conditioning market share. 

### Ifthe entire loss in the Northeast's market share goes to that portion ofthe South with the highest annual energy use (Census Region 7), the absolute market share ofthis region would increase from 15.7% to 17.7%. The result ofthis change is that the dollarvalue ofenergy savings at a 12 

### SEER standard level would increase from $5.73 billion to $5.85 bi11ion, or about a 2% increase in the dollar energy savings. The actual impact on dollar savings would likely be less than halfofthis because the above housing shift was assumed to be immediate and to the highest energy use area ofthe South. As 

### aresult, the actual impact would likely be less than 1 % on the dollarvalue of 60 Q:IEE-411EE-431ICAClStandRulINOPRIDnftNOPR\CACNOPR16.wpd August 4, 2000 (1 :4SPM)EE-RM/STD-98-440 -jf 

# 67 the energy savings. Forthese reasons, the Department has not revised its Shipments Analysis to account for shifts inregional housing populations.
2. Elasticities Both ACEEE and NRDC note that thepurchase price elasticities are based on data from the 1970s and are likely no longer applicable to current market conditions. Both stated that price elasticities should be developed from more recent data. (ACEEE, No. 43 at 10; Nadel, ACEEE, Transcript, p. 211; Goldstein, NRDC, Transcript, pp.211-212).
This has been corrected for inthe analysis underlying today's proposed rule wh.re an elasticity for price relative to household income has been calibrated with historical data from 1970 to 1996.
3. Equipment Efficiency Several comments received questioned the use ofa weighted-average equipment efficiency equaling the SEER ofthe standard level for forecasting shipments and national energy savings. All asserted that inthe event ofan increase intheminimum efficiency standard, the actual weighted-average efficiency ofequipment inthe marketplace would be greater than the minimum efficiency standard. For example, ifa 12 SEER standard was set as the new minimum, the weighted-average efficiency would be equal to a value which was greater than 12 SEER. (Neme, VEIC, Transcript, pp. 214, 226-227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35 at 8-9; PG&E, No. 31 at 6-7).

Q:\EE41 \E.E431 \CAC\StandRul\NOPR'NR\CACNOPR 6.pd ~~~~~~~~61 ~~~~August 4, 2000 (1:45PM)

4, 

## ·. EE-RM/STD-9S-440 

## -tptP;t/'/ the energy savings. Forthese reasons, the Department has not revised its Shipments Analysis to account for shifts in regional housing populations.
2. Elasticities Both ACEEE and NRDC note that the purchase price elasticities are based on data from the 1970s and are likely no longer applicable to current market conditions. Both stated that price elasticities should be developed from more recent data. (ACEEE, No. 43 at 10; Nadel, ACEEE, Transcript, p. 2 II; Goldstein, NRDC, Transcript, pp.211-212).

, 

## .. This has been corrected for in the analysis underlying today'sproposed rule wh..:re an elasticity for price relative to household**in~ome** has been calibrated with historical data from ]970 to 1996.
3. Equipment Efficiency Several comments received questioned the use ofa weighted-average equipment efficiency equaling the SEER ofthe standard level for forecasting shipments and national.energy savings. All asserted that in the event ofan increase in the minimum efficiency standard, the actual weighted-average efficiency ofequipment in the marketplace would be greaterthan tht minimum efficiency standard. For example, ifa 12 SEER standard was set as the new minimum, the weighted-average efficiency would be equal to avalue which was greaterthan 12 SEER.**(Nem~,** VEIC, Transcript, pp. 214, 226-227; Nadel, ACEEE, Transcript, p. 228; NRDC, No. 35 at 8-9; PG&E, No.3I at 6-7). 

### 61 Q:1EE411EE431ICAClStandRulINOPR\DnftNOPRICACNOPRI6.wpd August4. 2000 (I :4SPM)

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

### ; 

## 7 The Department has modified several assumptions with regard to future equipment efficiencies. The Shipments Model no longer simply forecasts a weighted-average equipment efficiency, but rather, an actual distribution ofefficiencies (i.e., the percentage ofshipments which occur in incremental SEER bins over the range ofthe minimum standard 10 to 18 SEER). Also, as discussed in Section IV, three efficiency scenariosare provided to model future 

### equipment efficienciesl The impact ofthethree different scenarios on national energy savings and national net present values are discussed inSection VI.
EEl asked the reason for assuming the weighted-average efficiency remains fixed itthe
same SEERlevel from the year 1997 to the assumed effective date ofstandard (2006). (EEI, No. 20 at 7-8). Historical data from theyears 1994 through 1997 indicate that shipment-weighted efficiencies have remained essentially flat. As a result, weighted-average efficiencies were assumed to remain constant from 1997 through 2006.
4. Fuel Switching EEI, York, Virginia Power and Southern Company stated that shipment forecasts must account for any fuel switching that might occur as a result ofincreased heat pump prices to the
consumer. The concern isthat anincrease inthe total installed price ofaheat pump would cause
some consumers'to choose agas-space heating appliance rather than an electric heat pump. (Foster, EEI, Transcript, p.263; Madera, York, Transcript, p.264; Virginia Power, No.27 at 2-3; Southern Company, No. 29 at 1-2). ACEEE stated that any incorporation offuel switching into

Q:\EE-41 EE431\CAC\StandRul'NOPR\DafNOPR\CACNOPR16.,pd 62 August 4. 2000 (1:45PM)
4 EE-RM/STO-9S-440-fF:--

### 2-fJ

# 7 The Department has modified several assumptions with regard to future equipment efficiencies. The Shipments Model no longer simply forecasts aweighted-average equipment efficiency, but rather, an actual distribution ofefficiencies (i.e., the percentage ofshipments which occur in incremental SEERbins overthe range ofthe minimum standard 10 to 18 SEER). Also, as discussed in Section IV, three 

### efficiencyscenarios are provided to model future equipment efficiencies: The impact ofthe three different scenarios on national energy savings and national net present values are discussed in Section VI
..
EEl asked the reason for assuming the weighted-average efficiency remains fixed

# at the
same SEERlevel from the year 1997 to the assumed effective date ofstandard (2006). (EEl, No. 20 at 7-8). Historical data from the years 1994 through 1997 indicate that shipment-weighted efficiencies have remained essentially flat. As aresult, weighted-average efficiencies were assL:med to remain constant from 1997 through 2006.
4. Fuel Switching EEl, York, Virginia Power and Southern Company stated that shipment forecasts mU5t account for any fuel switching that might occur as aresult ofincreased heat pump prices to the cor..sumer. The concern is that an increase inthe total installed price ofaheat pump would cause some consumers'to choose agas-spaceheating appliance rather than an electric heat pump. (Foster, EEl, Transcript, p.263; Madera, York, Transcript, p.264; Virginia Power, No.27 at 2-3; Southern Company, No. 29 at 1-2). ACEEE stated that any incorporation offuel switching into

62 Q:IEE-411EE-431\CAC\StandRuI\NOPR\DraftJ-;OPRICACNOPR16.wpd August 4. 2000 (l:45PM)

### EE-RM/STD-98-440
_ c9*

# ,7 the Shipments Model must account for future changes ingas-fired space-heating minimum efficiency standards. (Nadel, ACEEE, Transcript, p.266).
Our examination ofthe historical data tends to indicate that the relative installed price of heat pumps is not the primary driver inheat pump vs. gas furnace purchase decisions. The more important factor inthese decisions seemsto be the availability ofgas service. In the middle 1980's, there was a large peak ingas prices relative to electricity, but only a small, delayed increase inthe relative market share ofheat pumps. Besides this one historical event, the relative market share ofheat pumps hasbeen relatively constant from 1977 to the present.

D. National EnergySavingsAnalysis 

### Changes to theLCC assumptions impact the NES and theNational Net Present Value (NPV) analyses directly asthe NES analysis uses the same basic data asthe LCC analysis for the energy use and cost ofthe central air-conditioning and heat pump equipment.
As previously mentioned, estimates ofNES and NPV also depend on the distribution of product efficiencies among units sold after a standard takes effect ii.the marketplace. For the Supplemental ANOPR, the assumed product efficiency distribution was based on a weightedaverage equipment efficiency equal to the SEER ofthe new standard level.
1. Uncertainty in NES Results

Q:\EE-41\EE-431\CAC\StandRul'NOPR'raftNOPR'.CACNOPR16 \pd 63 Augus 4, 2000(1:45PM) EE-RM/STD-98-440

### ~=I/'0 If 

# J
the ShipmentsModel must account for future changes in gas-fired space-heating minimum efficiency standards. (Nadel, ACEEE, Transcript, p.266).

Our examination ofthe historical datatends to indicate that the relative installed price of heat pumps is not the primary driver in heat pump vs. gasfurnace purchase decisions. The more important factor 

### in these decisions seems to be the availability ofgas service. Inthe middle 1980's, there was a large peak in gas prices relative to electricity, but only a small, delayed increase in the relative market share ofheat pumps. Besidesthis one historical event, the relative market share ofheat pumps has been relatively constant from 1977 to the present.

D. NationalEnergy SavingsAnalysis Changes to theLCC assumptions impact theNES and theNational Net Present Value (NPV) analyses directly as theNES analysis uses the same basic data as the LCC analysis for the energy use and cost ofthe central air-conditioning and heat pump equipment.

As previously mentioned, estimates ofNES and NPV also depend onthe distribution of product efficiencies among units sold after a standard takes effect iI. the marketplace. Forthe Suppiemental ANOPR, the assumed product efficiency distribution wasbased on a weightedaverage equipment effiCiency equal to the SEERofthe new standard level.

. 1. Uncertainty in NES Results

63 Q:IEE-41IEE-43IICACiStandRul\'''lOPRIDraftNOPR\CACNOPRI 6wpd August 4. 2000 (1**:45P~1)**

### EE-RM/STD-98-440 -70c^ 

# °17 EEI believes that due to the uncertainty inthe electric utility industry and its impact on future electricity prices it is more appropriate to represent theNES results with some degree of uncertainty. (EEI, No. 20 at 8). Although NES results presented inthe Supplemental ANOPR were based only on electricity price estimates fromthe Reference Case forecast from the 1999AnnualEnergy Outlook, ourNES spreadsheets have provided users with five different options for estimating future electricity prices; 1999AEOReference Case forecast, 1999AEOHigh Growth Case forecast, 1999AEO Low Growth Case forecast, 1998 Gas Research Institute (GRI) forecasts, and constant electricity prices. Providing a number ofoptions for forecasting future prices recognizes the uncertainty inthe electric utility industry and how that uncertainty can impact the NES results. The NES uses single point values rather than ranges as used inLCC; consequently, NES provided single point results rather than a range. However, inorder to account for the uncertainty inelectricity price forecasts, DOE evaluated three energy price scenarios in the NES. The NES Spreadsheets have been made available to all interested parties via our web site to facilitate analysis ofsensitivities for assumptions different than those for the Supplemental ANOPR. For today's proposed rule, we continue to provide the same options for forecasting future electricity prices with the exception thatAEO 1999forecasts have been replaced with those from theAEO 2000aswell asthe five options for energy prices as described above.
2. Site-to-Source Conversion

Q:\EE-41\EE431\CAC\StandRul\NOPRDraftLNOPR\CACNOPRI 6.wpd 64 August4, 2000 (1:45PX)
4 EE-RM/STD-98-440

# -tFtA

# tJ7. EElbelieves that due to the uncertainty in the electric utility industry and its impact on future electricity prices it is more appropriate to represent theNES results with some degree of uncertainty. (EEl, No. 20 at 8).
Although NES results presented in the Supplemental ANOPR were based only on electricity price estimates from theReference Case forecast from the 1999AnnualEnergy Outlook, ourNES spreadsheets have provided users with five different options for estimating future electricity prices; 1999AEOReference Case forecast, 1999AEOHigh Growth'Case

,

. forecast, 1999AEOLow Growth Case forecast, 1998 Gas Research Institute (GRJ) forecasts, and

comitant electricity prices. Providing a number ofoptions for forecasting future prices recognizes the uncertainty in the electric utility industry and how that uncertainty can impact the NES results. TheNES uses single point values rather than ranges as used in LCC; consequently, NES provided single point results rather than a range. However, in order to account for the uncertainty in electricity price forecasts, DOE evaluated three energy price scenarios in the NES. The**~"ES** Spreadsheets have been made available to all interested parties via ourwebsiteto facilitate analysis ofsensitivities for assumptions different than those for the Supplemental ANOPR. Fortoday's proposed rule, we continueto provide the same opti?ns for forecasting future electricity prices with the exception thatAEO 1999forecasts have been replaced with those from theAEO2000 as well as the five options for energy prices as described above.

Z. Site-to-Source Conversion

64 Q:IEE-411EE-431\CAClStandRuI'u"lOPR\Drafl"lOPRiCACNOPRJ6.wpd August4.2000 (J :45P}.1)

### EE-RM/STD-98-440 - P o Both the Southern Company and EEI questioned the validity ofthe site-to-source conversions used in the NES spreadsheet model. The Southern Company and EEI asserted that hydroelectric power and renewable forms ofelectric energy are assigned fossil fuel-fired power plant heat rates. (Southern Company, No. 29 at 4-5; EEI,No. 20 at 7).

We estimated the effects ofproposed central air conditioner and heat pump standard levels onboth the gas and electric utility industries using a variant ofDOE/EIA's NEMS-BRS, together with some exogenous calculations' ° . NEMS-BRS is used to determine site-to-source conversion factors and does not assign fossil-fuel-fired power plant heat rates to hydroelectric or renewable power plants. The site-to-source conversion factors used in the Supplement.l ANOPR are average annual values forthe residential sector. The average conversion factors are based on all forms ofelectricity generation with their corresponding heat rates (e.g., heat rates are assigned to fossil-fuel fired power plants which are much different than those assigned to other types ofpower plants). As a result, the site-to-source conversion factors are significantly lower than ifall power plants were assigned the heat rates associated with fossil fuel-fired power plants. For today's proposed rule, site-to-source conversion factors are based on recommendations ofthe Advisory Committee on Appliance Energy Efficiency Standards. In this analysis, heat rates are based on determining how a deviation in national energy consumption due

'o

For more information on NEMS, pleasereferto the U.S. Department ofEnergy, Energy Information Administration documentation. Auseful summary is NationalEnergyModelingSystem:An Overniew1998, DOE/EIA-0581(98), February, 1998. DOE/EIA approves useofthe name NEMS todescribe only an official version ofthe model without any modification to code or data. Because our analysisentails someminor code modifications andthe model is rununder various policy scenarios that arevariations on DOE/EIA assumptions, the name NEMS-BRS refers tothe model as used here (BRS isDOE'sBuilding Research and Standards office, under whose aegis this work hasbeen performed). Q:\EE41\EE-431\CAC\StandRul\NOPR'DrafNOPR'CACNOPR 16wpd 65 August 4, 2000 (1:45PM) EE-RM/STD-98-440

# -#0

# t11 Boththe Southern Company and EEl questioned the validity ofthe site-to-source conversionsused in theNES spreadsheet model. The Southern Company and EEl asserted that hydroelectric power and renewable forms ofet"ectric energy are assigned fossil fuel-fired power plant heat rates. (Southern Company, No. 29 at ,4-5; EEl, No. 20 at 7).

We estimated the effects ofproposed central air conditioner and heat pump standard levels on boththe gas and electric utility industries using a variant ofDOEIEIA'sNEMS-BRS, together with some exogenous caIculations lO

. NEMS-BRS is used to determine site-to-source conversion factors and does not assign fossil-fuel-fired power plant heat rates to hydroelectric or renewable powerplants. The site-to-source conversion factors used in the Supplementql ANOPR are average annual values for the residential sector. The average conversion factors are based on all forms ofelectricity generation with their corresponding heat rates (e.g., heat rates are assigned to fossil-fuelfired power plants which are much different than those assigned to other types ofpowerplants). As a result, the site-to-source conversion factors are significantly lower than 

### ifall powerplants were assigned the heat rates**associat~d** with fossil fuel-ared power plants. Fortoday's proposed rule, site-to-source conversion factors are based on recommendations ofthe Advisory Committee on ApplianceEnergyEfficiency Standards. In this analysis, heat rates are based on determining how a deviation in national er.ergy consumption due

10For more information on NEMS, please referto the U.S. Department ofEnergy, Energy Information Administration documentation. Auseful summary is NationalEnergyModeling System:An Oven1iew 1998, DOElEIA-0581(98), February, 1998. DOEIEIA approves use ofthe name NEMS to describe only an official version ofthe model without any modification to code ordata. Because our analysis entails some minor code modifications and the model is run undervarious policy scenarios that are variations on DOEIEIA 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). 65 Q:\EE41\EE431\CAC\StandRuI\NOPRiDraftNOPRiCACKOPR16wpd August4. 2000 (1 :45P!'S)

### EE-RM/STD-98-440-:L:1⁄2 

### 2'7 to standards impacts thetype ofelectricity generation. In otherwords, heat rates are based on those power plants which are avoided as a result ofthe standard.

E. ConsumerSub-Group Analysis-Low IncomeRenters 

### NRDC stated thatimpacts on low-income renters should be investigated, because such renters do not purchase their space-conditioning equipment and they have no choice as to the efficiency ofthe equipment which isused to space-condition their home. (NRDC, No. 35 at 9). low-income We have investigated the economic impact ofstandards on low-income households; and have included such impacts insection VI.7 oftoday's proposed rule and in Chapter 5 ofthe TSD. But we have not investigated the impacts on low-income renters separately. Renters at each income level are considered to have the same choice inefficiency as new home purchasers atthe same level. Regardless ofwhether a household isoccupied by an owner or a renter, we implicitly assume that the occupant incurs all costs ofownership, either directly or through rent payments. Therefore, we believe that our consideration oflow income households generally applies to renters as well as.owners.

F. Utility andEnvironmental Analysis 1. Peak Power Impacts
- Reliability 

### The CEC raised concerns over peak power by stating that the western region ofthe U.S. will soon face a capacity shortfall which will necessitate reductions inpeak demand (CEC, No. 47 at 2-4). Leon Neal, Advanced Energy Corporation (AEC), stated that because of a
Q:\EE-41\EE431\CAC\StandRul'\NOPR'DraftNOPR\CACNOPRI6.wpd 66 August4. 2000 (:45PM)

* ----------- ---

### EE-RM/srO.98-440-~~

# tJ7

to standards impacts the type ofelectricity generation. In other words, heat rates are based on those powerplants which are avoided as aresult ofthe standard.

E. 

### ConsumerSub-GroupAnalysis-LowIncome Renters NRDC stated that impacts on low-income renters should be investigated, because such renters do not purchase their space-conditioningequipment and they have

## no choice as to the efficiency ofthe equipment which is used to space-condition theirhome. (NRDC, No. 35 at 9). low-income .' We have investigated the economic impact ofstandards on low-income households:'and have included such impacts in section VI.7 oftoday'sproposed rule and in Chapter 5ofthe TSD. But we have not investigated the impacts on low-income renters**separat~ly.** Renters at each income level are considered to have the same choice in efficiency as new home purchasers at the
same level. Regardless ofwhether ahousehold is occupied by an owner or arenter, we implicitly
assume that the occupant incurs all costs ofownership, either directly orthrough rent payments. Therefore, we believe that our consideration oflow income h(;>useholds generally applies to renters as well as·owners.


### F. Utility andEnvironmentalAnalYSis 1. PeakPower Impacts
- Reliability The CEC raised concerns overpeak powerby stating that the western region ofthe U.S. will soon face a capacity shortfall which will necessitate reductions in peak demand (CEC, No. 47 at 2-4). LeonNeal, Advanced Energy Corporation (AEC), stated thatbecause ofa 

### 66 Q:IEE-4IIEE-431ICAC\StandRuJINOPRIDraftNOPRICACNOPRI6.wpd August4.2000 (I**:4SP~f)**EE-RM/STD-98-440 -: _ 7 

### relationship between SEER, EER, and equipment capacity which is not captured by using only the "nominal 3ton" unit and SEER analyses, there were important factors not addressed inthe DOE analysis. They argued that with larger capacity units at higher SEER, itiseconomic for manufacturers to use multi-compressor units and multi-speed compressor units, which results in
apenalty inEER. They noted major national trends, i.e., increasing average size ofresidential dwellings, the tendency to sell bigger systems to increase profits and compensate for poor installations, and the distrust ofcontractors for higher efficiency equipment. (AEC, No. 17 at 1). EEI stated that the consideration ofpeak power impacts insetting new efficiency standards departs from theDepartment's statutory mandate. (Foster, EEI, Transcript, p. 176).
With regard to AEC's concern that an increase inthe efficiency standard would be accompanied by an increased air-conditioning power demand, we are not convinced that this situation would occur. Over thelast 20 years, while shipment-weighted efficiency has continually increased, usage has remained relatively constant. Therefore, we see no reason that a significant jump insystem usage would occur inconjunction with higher efficiency standards. Regarding EEI's claimthat the consideration ofpeak power impacts departs from the Department's statutory mandate, Section 325(o)(2)(B)(i)(VII) ofthe Act, 42 U.S.C. 6295(o)(2)(B)(i)(VII), allows the Secretary to consider other factors deemed relevant for updating minimum efficiency standards, including peak power impacts.
2. Quantitative Assessment ofImpacts onPeak Demand Q:\EE41\EE.431\CAC\SandRul\NOPR'raftNOPR\CACNOPR16 wpd 67 August 4.2000 (1:45PM)
.1

### EE.RM/STD.98-~40**-#-z;;S"~**

# 1 relationship between SEER, EER, and equipment capacity**whi~h** 

### is not capturedby using only the "nomina13 ton" unit and SEER analyses, there were important factors not addressed in the DOE analysis. They argued that with larger"capacity units at higher SEER, it is economic for manufacturers to use multi-compressor units andmulti-speed compressor units, which results in . apenalty in EER. They noted major national trends, i.e., increasing average size ofresidential dwellings, the tendency to sell bigger systems to increase profits and compensate for poor installations, and the distrust ofcontractors for higher efficiency equipment. (AEC, No. 17 at 1). EEl stated that the consideration ofpeak power impacts in setting new efficiency standards" departs from the Department's statutory mandate. (Foster, EEl, Transcript, p. 176).
With regard to AEC's concern that an"increase in the efficiency standard would be accompanied by an increased air-conditioning power demand, we are not convinced that this situation would occur. Overthe last 20 years, while shipment-weighted efficiency has continually increased, usage has remained relatively constant. Therefore, we see no reason that a significantjump in system usage would occur in conjunction with higher efficiency standards. Regarding EEl's claimthat the consideration ofpeak power impacts departs from the Department's statutory mandate, Section 325(o)(2)(B)(i)(VII) ofthe Act, 42 U.S.C. 6295(o)(2)(B)(i)(Vll), allows the Secretary to consider otherfactors deemed relevant for updating minimum efficiency standards, including peak powerimpacts.
2" Quantitative Assessment ofImpacts on PeakDemand 67 Q:\EE-41\EE-431ICAClStandRul\NOPR\DraftNOPRICACNOPR16wpd " Augus14. 2000 (l:45Pl\1)

### EE-RM/STD-98-440- O27 For purposes ofestimating peak demand impacts from an increase inthe central air conditioner and heat pump energy efficiency standard, we are using a version ofthe NEMS, called NEMS-BRS. NEMS-BRS isrun similar to the AE02000 NEMS except that central air conditioner and heat pump energy usages are reduced bythe amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from theNES spreadsheet.
NEMS estimates peak power impacts by determining the reduction in installed generation capacity due to an increase inthe minimum efficiency standard. For central air conditioners and heat pumps, NEMS uses a single nationally representative end-use load shape to estimate peak power impacts. The overall end-use load shape isreduced inproportion to the amount ofenergy savings achieved through an increase inthe standard. Thereduction inpower demand achieved by shaving the end-use load shape isextrapolated to a national scale to come up with nationally representative peak power impacts. Thus, NEMS does not use the equipment's EER performance, per se, to estimate peak power impacts. Rather, because the load shape is shaved in proportion to the energy savings, the EER isimplicitly assumed to increase inproportion to the SEER.

Because NEMS shaves the end-use load shape in proportion to the energy savings, i.e., 

### power demand isreduced equally over the 24-hour period, we are concerned that NEMS may underestimate peak power impacts. The use ofair-conditioning isbelieved to occur more during hours where peak demand isofconcern. Thus, because NEMS shaves the end-use load shape
Q:\EE.41\EE431\CAC\StandRulNOPR\DrafNOPR\CACNOPR ]6.wpd 68 August 4.2000 (1:4pPM)

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

# 0; For purposes ofestimating peak demand impacts from an increase in the central air condlt:oner and heat pump energy efficiency standard, we are using aversion ofthe NEMS, called NEMS-BRS. NEMS-BRS is run similarto the AE02000NEMS except that central air conditioner and heat pump energy usages are**re~uced** by the amount ofenergy (electricity) saved due to the proposed trial standard levels. The input ofenergy savings are obtained from the NES spreadsheet.
NEMS estimates peak power impacts by determining the reduction in installed generation .' capacity due to an increase in the minimum efficiency standard. For central air conditioners'and hC!at pumps, NEMS uses a single nationally representative end-use load shape to estimate peak puwer impacts. The overall end-use load shape is reduced in proportion to'the amount ofenergy savings achieved through an increase in the standard. The reduction in power demand achieved 

### by shaving the end-use load shape is extrapolated to a national scale to come up with nationally representative peak power impacts. Thus, NEMS does not use the equipment**~**sEER pC!rformance, per se, to estimate peak powerimpacts. Rather, because the load shape is shaved in proportion to the energy savings, the EER is implicitly assumed to increase in proportion to the SEER.
Because NEMS shaves the end-use load shape in proportion to the energy savings, i.e., power demand is reduced equally over the 24-hourperiod, we are concerned that NEMS may underestimate peak power impacts. theuse ofair-conditioning is believed to occurmore during hours where peak demand is ofconcern. Thus, becauseNEMS shaves the end-use load shape 68 Q:\EE-41IEE-431ICAClStandRulINOPRIDraftNOPRICACNOPR16.wpd Augus14. 2000 (1**:45P~f)**

### EE-RM/STD-98-440 -:% ° 7 equally over all hours, it may not capture the true impact on peak. In addition, NEMS cannot capture regional peak impacts because ofits reliance on a single end-use load shape for central air conditioners and heat pumps. For example, itiswidely believed that air-conditioning isused differently inthe southern region oftheU.S. than in the northern and western regions. Because ofthis regional variance NEMS does not capture any regional effects ofstandards on peak demand. We believe, however, NEMS underestimates the positive effects standards have on peak power demands.
Because ofthe above concerns, we are examining ways to modify NEMS to develop a more robust forecast ofpeak power impacts. Ifsuccessful, we will make the analysis and methodology available for public review during the comment period on today's proposed rule. The forecasted peak impacts are presented in Section VI oftoday's proposed rule. But due to the aforementioned concerns, we believe that the forecasted peak impacts are conservative.
3. Qualitative Assessment ofAir Conditioning Standards Impact onPower System Reliability We also recognize that reducing growth inelectricity demand during peak periods may improve the reliability oftheU.S. electric power system. But there are number offactors with the electric power system itselfthat may overwhelm any effect that an improvement inresidential air conditioning efficiency might offer. First, investment in system expansion has fallen behind demand growth, and future development maybe limited bysiting constraints. Second, industry restructuring requires the development ofnew technologies, operating procedures, and regulatory structures to meet peak demands. Andthird, the strong demand expansion ofrecent years may
Q:EE-41\EE431 \CAC\StanRul\NOPR\DraftNOPR\CACNOPR 16.wpd 69 August 4. 2000 (1.45PM)

4 '( EE-RM/STD-98-440 

## -::If:::

# q

# tJ.1 equally over all hours, 

### it may not capture the true impact on peak. In addition, NEMS cannot capture regional peak impacts because ofits reliance on a single end-use load shape for central air conditioners and heat pumps. For example, it is widely believed that air-conditioning is used differently in the southern region ofthe

## u.s. than)n the northern and western regions. Because ofthis regional variance NEMS does not capture any regional effects ofstandards on peak demand. We believe, however, NEMS underestimates the positive effects standards have on peak power demands.

, 

### Because ofthe above concerns, we are examining ways to modify NEMS to develo·pa more robust forecast ofpeak power impacts. Ifsuccessful, we will make the analysis and methodology available for public review during the comment period on today's proposed rule. The forecasted peak impacts are presented in Section VI oftoday'sproposed rule. But due to the aforementioned concerns, we believe that the forecasted peak impacts are conservative.
3. Qualitative Assessment ofAir Conditioning Standards Impact on Power System Reliability We also recognize that reducing growth in electricity demand during peak periods may improve the reliability ofthe U.S. electric power system. But there qre number offactors with 

### the electric power system itselfthat may overwhelm any effect that an improvement in residential air conditioning efficiency might offer. First, investment in system expansion has fallen behind demand growth, and future development may be limited by siting constraints. Second, industry restructuring requires the development ofnew technologies, operating procedures, and regulatory structures to meet peak demands. And third, the strong demand expansion ofrecent years may 

### 69 Q:\EE-4I\EE-43!ICACISUll'\:!Ru!INOPRlDraftNOPRICACNOPRI6.wpd August 4. 2000 (1.45P!\1)

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

# 7. well continue into the future. Within this environment, the potential benefits ofa central air conditioner and heat pump standard that could lower growth inpeak demand could be desirable. But, due to the existing problems with the electric power system described above, itis difficult to assess, in quantitative terms, the impact ofan air conditioner standard on system reliability. Thus, in addition to the planned activities to improve NEMS to forecast more credible peak demand impacts, we plan to assess thereliability ofthe U.S. electric system to determine what connection exists between end-use peak demand reductions and system reliability. The assessment will focus on three areas: (1) defining reliability, (2) historic performance ofthe utility system, and (3)analyzing near- and long-term utility changes and howthey might impact reliability. In defining reliability, we will use typical threats (e.g., weather, tree falls, excess load, and inaccurate demand forecasts) to put system reliability into context. In addition, industry indices for the frequency offailures and the number ofcustomers affected will be used. With regard to historic performance, we will attempt to analyze the history ofsystem disturbances and estimate their economic consequences. Finally, we will look at the changes occurring inthe utility industry such as restructuring and increasing demand growth to determine to try and assess how these future changes might impact reliability.


### 4. Competitive Residential Market EEI asked whether NEMS, the model which is used for forecasting utility and environmental impacts, will be adapted to model more accurately the deregulated electric utility industry. As part ofthe deregulated industry, EEI stated that consumers will have choice of

Q:EE.41\EE.431 \CAC\SandRul\NOPR'DrafNOPR\CACNOPR1 6.vpd 70 August 4, 2000 (1:45PNM) EE·RM/STD·98·440

# -if=-cR6J

# 1. well**~ontinue** into the future. Within this environment, the potential benefits ofa central air conditioner and heat pump standard that could lowergrowth in peak demand could be desirable. But, due to the existing problems with the electric power system described above, it is difficult to assess, in quantitative terms, the impact ofan air conditioner standard on system reliability. Thus, in addition to the planned activities to improveNEMS to forecast more credible peak demand impacts, we plan to assess the reliability ofthe

## u.s. electric system to determine w,hat connection exists between end-use peak demand reductions and system reliability. The assessment will focus on three areas: (l)defining reliability, (2) historic performance ofthe utility system, and (3) analyzing near- and long-term utility changes and how they might impact reliability. In defining reliability, we will use typical threats (e.g., weather, tree falls, excess load, and inaccurate demand forecasts) to put system reliability into context. In addition, industry indices for the frequency offailures and the number ofcustomers affected will be used. With regard to historic performance, we will attempt to analyze the history ofsystem disturbances and estimate their economic consequences. Finally, we wil1look at the changes occurring in the utility industry such as restructuring and increasing demand growth to determine to try and assess llCiw these future changes might impact reliability.
4. CompetitiveResidential Market EEl asked whetherNEMS, the model which is used for forecasting utility and environmental impacts, will be adapted to model more accurately the deregulated electric utility industry. As part ofthe deregulated industry, EEl stated that consumers will have choice of

70 Q:\E.E-41\EE-431\CAClStandRuJINOPR\DraftNOPR \CAC!'OPR16.wpd August4, 2000 (1 :45P:-I)

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

# 67 electricity providers. In addition, the industry will likely build more merchant power plants. (EEI, No. 20 at 9). Although we recognize that NEMS may not be entirely accurate inits modeling ofthe changing electric utility industry, we believe itisstill the best tool for forecasting the impacts due to increased central air conditioner and heat pump standards. We also recognize the difficulty for any model or tool to forecast changes inthe utility industry. Thus, the results from NEMS are used to provide a gross picture ofthe impacts that can be expected from the imposition ofnew efficiency standards for central air conditioners and heat pumps. Sensitivities are conducted with the AEO High Growth and Low Growth cases to capture the variability that could arise from changes in the electric utility industry.

G. Manufacturer ImpactAnalysis
- Low Volume Manufacturers 

### First Company (First Co.) and National Comfort Products commented that the assumptions used inthe engineering analysis were not applicable for low volume manufacturers and urged theDepartment to consider the situations ofall firms in the industry. (First Co., No. 40 at 10; National Comfort Products, No. 30 at 1).
Since the engineering analysis isused to assess theimpacts on consumers and the nation, itismore appropriate to rely on assumptions reflective oflarger manufacturers who control more than 95% ofthe market. However, we did consider the special circumstances oflower volume manufacturers as part ofthe manufacturer impact analysis. We interviewed the major
Q:\EE41\EE431\CAC\StandRulNOPR\DrafNOPR',CACNOPR1 6 Upd 71 August 4,2000 (1:45PM)

EE-RM/STO-98-440-#-ci

### LJ

# 7 electricity providers. In addition, the industry will likely build more merchant power plants. (EEl, No. 20 at 9).
Although we recognize that NEMS may not be entirely accurate in its modeling ofthe changing electric utility industry, webelieve it is still thebest tool for forecasting the impacts due to increased central air conditioner and heat pump standards. We also recognize the difficulty for any model ortool to forecast changes in the utility industry. Thus, the results from NEMS are used to provide a gross picture ofthe impacts that can be expected from the imposition ofnew efficiency standards for central air conditioners and heat pumps. Sensitivities are conductedwith the AEO High Growth and Low Growth cases to capture the variability that could arise from changes in the electric utility industry.



### .G. ManufacturerImpactAnalysis

-Low Volume Manufacturers First Company (First Co.) and National Comfort Products commented that the assumptions used in the engineering analysis were not applicable for low volume manufacturers and urged theDepartment to consider the situations ofall firms in the industry. (First Co., No. 40 at 10; National Comfort Products, No. 30 at 1).·

Since the engineering analysis is used to assess the impacts on consumers and the nation, it is more appropriate to rely on assumptions reflective oflarger manufacturers who control more than 95% ofthe market. However, we did consider the special circumstances oflowervolume manufacturers as part ofthe manufacturer impact analysis. Weinterviewed the major 71 Q:\EE-411EE-431ICAClStandRulINOPR\DraftNOPR'.cADJOPR16 wpd

. Augus14. 2000 (145Pl\i)

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

### 7 manufacturers aswell as two smaller manufacturers, and based on this information, estimated the impact ofstandards on bothlarge and small manufacturers separately.

H. Markups The Supplemental ANOPR's engineering analysis estimated the cost ofproducing baseline air conditioners and heat pumps and also estimated the series ofmarkups onthat product cost that yield the price ofthe equipment to the consumer. Four markups were applied: manufacturer markup (1.18), distributor/wholesaler markup (1.37), dealer/contractor markup (1.54), and sales tax (1.07). In general, these were based on financial reports for each group on a national basis.
NRDC, ACEEE and VEIC commented that instead ofapplying average markups to the incremental increase incosts resulting from new standards, it was more reasonable to apply a lower markup to those incremental costs. Otherwise, companies would receive a windfall from :he new standard, which would surely not be the case ina competitive industry such asheating, ventilation, and air conditioning. (NRDC, No. 35 at 6,ACEEE, No. 43 at 2,VEIC, No. 32 at 2). NRDC also advocated theuse ofa fixed gross margin indollars rather than a fixedpercentage (NRDC, No. 35 at 6), while EEI stated that the fixed percentage assumption isunreasonable. (EEI, No. 20 at 10). ARI supported the markups the Department used. (ARI, No. 48 at 4). Department consultant Joseph Pietsch stated that at the distributor level, since no labor is involved to modify the product, the markup isapplied to a well-documented material cost.
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## -::;t-C::<t1

# ? manufacturers as well as two smaller manufacturers, and based onthis information, estimated the impact ofstandards onboth large and small manufacturers separately.


### H. Markups The Supplemental ANOPR's engineering analysis estimated the cost ofproducing

.baseline air conditioners and heat pumps and also estimated the series ofmarkups on that product

cost that yield the price ofthe equipment to the consumer.· Four markups were applied: manufacturer markup (1.18), distributor/wholesaler markup (1.37), dealer/contractor markup (1.54), and sales tax (1.07). In general, these werebased on financial reports for each group on a national basis.
NRDC, ACEEE and VEIC commented that instead ofapplying average markups to the incremental increase in costs resulting from new standards, it was more reasonable to apply a lower markup tothose incremental costs. Otherwise, companies would receive a windfall from :her.ew standard, which would surely not be the case in a competitive industry such as heating, ventilation, and air conditioning. (NRDC, No. 35 at 6, ACEEE, No. 43 at 2, VEIC, No. 32 at 2). NRDC also advocated the use ofa fixed gross margin in dollars rather than a fixed percentage (NRDC, No. 35 at 6), while EEl stated that the fixed percentage assumption is unreasonable. (EEl, No. 20 at 10). ARl supportedthe markups the Department used. (ARl, No. 48 at 4).
Department consultant JosephPietsch stated that at the distributor level, since no labor is involved to modify the product, the markup is applied to a well-documented material cost. 72 Q:IEE-411EE-431\CAC\StandRuJ\NOPRlDraftJ'lQPR\CACNOPR16.wpd August 4, 2000 (I :45PM)

### EE-RM/STD-98-440O-5 a 2 

### However, the distributor's markup percentage may varyby product type. Ifthe distributor's mark-up prices to the installing trade are not competitive in the market served, the distributor might have to seek price adjustments from the manufacturer. Further, installing contractors typically use amarkup procedure for laborthat is, most likely be at a different percentage than a markup for materials. (Pietsch, No. 36 at 23). Finally, prompted by comments we received,
we now distinguish markupsbased onwhether products are sold into new homes or as replacements orretrofits. (Nadel, ACEEE, Transcript pp. 122-123; and Eckman, NPPC, Transcript p. 152-153; CEC, No. 47 at 7).
After reviewing the comments and publishing an interim analysis with fixed dollar margin, the Department undertook a thorough review ofits markup assumptions and made one minor and one major revision. First, at the manufacturer level, the markups were raised slightly (from 1.18 to 1.24) partially to reflect new financial data for a manufacturer who recently completed an initial public offering, and partially to incorporate results fromthe MIA. The MIA suggests that firms accrue a higher profit margin onbaseline equipment than the conservative 1%assumed for the Supplemental ANOPR's Engineering Analysis. Second, at the distributor and dealer levels, analysis ofU.S. Census Bureau data and recent industry financial reports suggest that markups on changes inthe unit price ofequipment
are less than the average markups forthose industries. In light ofthese new findings, the
Q:\EE-41\EE431\CAC\StandRul\NOPRaftNOPR\CACNOPRl 6.pd 73 August4, 2000 (1:45PM)

### EE.RM/STD.98-4404=~!J

# 7. However, the distributor's markup percentage may vary by product type. Ifthe distributor's mark-up prices to the installing trade are not competitive in the market served, the distributor might have to seek price adjustments fromthe manufacturer. Further, installing contractors typically use a markup procedure for laborthat is- most likely be at a different percentage than a markup for materials. (pietsch, No. 36 at 23). Finally, prompted by comments we received,
we now distinguish markupsbased onwhether products are sold into new homes or as replacements orretrofits. (Nadel, ACEEE, Transcript pp. 122-]23; and Eckman, NPPC, Transcript p. 152-153; CEC, No. 47 at 7).

After reviewing the comments and publishing an interim analysis with fixed dollar margin, the Department undertook a thorough review ofits markup assumptions and made one minor and one major. revision.
First, at the manufacturer level, the markups were raised slightly (from 1.18 to 1.24) partially to reflect new financial data for a manufacturer who recently completed an initial public offering, and partially to incorporate results from the MIA. TheMIA suggests that firms accrue a higher profit margin onbaseline equipment than the conservative 1 % assumed for the Supplemental ANOPR'sEngineering Analysis.
Second, at the distributor and dealer levels, analysis ofU.S. Census Bureau data and recent industry financial reports suggest that markups on changes in the unit price ofequipment
are less than the average markups for those industries. In light ofthese new findings, the 73 Q:IEE-411EE-431ICAC\SlMIdRul\NOPRIDraftNOPRICACNOPR16...... pd Augusl4, 2000 (1 :45P!\!)

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

### 67 markups forthe distributors and dealers on the incremental increase inequiprient cost were lowered from 1.37 to 1.09 and 1.54 to 1.27, respectively. For the distributor, the markup on the portion ofequipment cost equal tothe cost ofthebaseline equipment remains at 1.37. For the dealer, the 1.27 markup is applied to thetotal cost. The original 1.54 assumption included the markup.on thelabor portion ofinstallation, which isnot appropriately applied to equipment. We increased our estimate of.the markup on installation labor slightly to compensate for the lower markup on equipment price, keeping the overall installed price the same. The Department's pricing information indicates that the total installed price ofbaseline equipment isaccurate as published in the Supplemental ANOPR. The overall effect ofthese changes isto slightly decrease distributor and dealer equipment markups as the standard level rises.
We introduced a new builder markup of 1.27 for new construction markets only and applied the sales tax rate of 1.07 inonly replacement/retrofit markets.
Table V.3 summarizes the changes inmarkups. The Technical Support Document (Chapter 5)provides more details on the derivation ofthese new estimates.

Q:\EE41\EE431 \CAC\StandRul'.NOPR'DraftNOPR\CACNOPR 16.wpd 74 August 4.2000 (1.45PM)
4 EE-RM/STD-98-440**--1F.~**

### tJ

# l. markups'forthe distributors and dealers on the incremental increase in equipment cost were lowered from 1.37 to 1.09 and 1.54 to 1.27, respectively. Forthe distributor, the markup on the

. . ;Jortion ofequipment cost equal to the cost ofthe baseline equipment remains at 1.37. Forthe df.aler, the 1.27 markup is applied to the total cpst. The original 1.54 assumption included the markup.on the labor portion ofinstallation, which is not appropriately applied to equipment. We increased our estimate of.the markup on installation labor slightly to compensate for the lower markup on equipment price, keeping the overall installed price the same. The Department's pricing information indicates that the total installed price ofbaseline equipment is accurate as published in the Supplemental ANOPR The overall effect ofthese changes is to slightly '.**d~crease** distributor and dealer equipment markups as the standard level rises.
We introduced anew builder markup of1.27 for new construction markets only and applied the sales tax rate of 1.07 in only replacement/retrofit markets.
Table V.3 summarizes the changes in markups. The Technical Support Document (Chapter 5) provides more details on the derivation ofthese new estimates.

74 Q:1EE411EE431ICAClStandRul'-NOPRiDraftNOPRICACNOPR16.....'Pd August 4. 2000 (145P!-.1)

### EE-RM/STD-98-440-% 2'0 

## 7. Table V.3: Comparison ofRevised Markups and Supplemental ANOPR Markups Tp *,.-.*,.»». ~Supplemental ANOPR Type Revised Analysis Markup Suppl l Markup Manufacturer Markup 1.23 1.18 Wholesaler/Distributor Markups 10 SEER 1.37 11 SEER 1.33 1.37 12 SEER 1.30 13 SEER 1.26 Dealer/Contractor Equipment Markup 1.27 1.55 Installation Labor Air Conditioner $1,279 / $1,367 S1,190 Heat Pump $2,280 / $2,160 $2,035 Builder Markup 1.09b 1.00' Sales Tax 1.04b 1.07 Overall Markup 10 SEER 2.42 2.68 11 SEER 2.35 2.68 12 SEER 2.30 2.68 13 SEER 2.23 2.68 ' For revised analysis, first value pertains to split systems and second value pertains to single package systems. bWeighted-average markups representing both the new construction andreplacement mar!:ets.
c For the SANOPR, buildermarkups were not considered. dFor the Supplemental ANOPR, sales taxes representing only the replacement market were used.
I. EER-Based EfficiencyStandard 

### The Department received numerous comments on the relationship ofsteady state efficiency (EER) to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Unico and Southern Company support the establishment ofminimum efficiency standards based on EER at an outdoor temperature of95 F, (EER(95 °F)) inlieu of, or in addition to, SEER, which isbased largely on an outdoor temperature of82°F. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8-9; Q:IEE41\EE-431 \CAC\StacdRul\NOPRDraftNOPR\CACNOPRI6.wpd 

### 75 August 4. 2000 (1:45P\) EE-RM/STO-98-440.-:;rcq

### ~

# 7. Table V.3: Comparison ofRevised Markups 8l;ld Supplemental ANOPR Markups Type Revised Analysis Markup Supplemental ANOPR Markup ManufacturerMarkup 1.23 1.18 WbolesaierlDistributorMarkups 10 SEER 1.37 11 SEER 1.33 1.37 12 SEER 1.30 13 SEER 1.26 Dealer/Contractor Equipment Markup 1.27 1.55 Installation Labor• AirConditioner $1,279/$1,367 $1,190 Heat Pump $2,280 / $2,160 $2,035 BuilderMarkup 1.09b 1.00< Sales Tax 1.04b 1.07d Overall Markup 10 SEER 2.42 2.68 11 SEER 2.35 2.68 12 SEER 2.30 2.68 13 SEER 2.23 2.68
a Forrevised analysis, first value pertains to split systems and second value pertains to single package systems. b Weighted-average markups representing both the new construction and replacement**=:ll!"!:~t~.** C Forthe SANOPR, buildermarkups were not considered. d Forthe Supplemental ANOPR, sales taxes representing only the replacement market were used.
1. EER-BasedEfficiencyStandard The Department received numerous comments on the relationship ofsteady state , 

# ..**efficien~y** (EER) to increases in SEER. NRDC, ACEEE, VEIC, PG&E, CEC, OEO, Vnico and Southern Company support the establishment ofminimum efficiency standards based on EER at an outdoortemperature of95°F, (EER(95OF)) in lieu of, orin addition to, SEER, which is based largely on an outdoortemperature of8ZOF. (NRDC, No. 35 at 15-16; ACEEE, No. 43 at 8-9; 75 Q:\EE-41\EE-431\CAC\SundRuI\NOPRIDraftNOPRICACNOPRI6.wpd Augus14. 2000 (I :45Pt-.f)EE-RM/STD-98-440- O

- 7. 

### VEIC, No. 32 at 5; PG&E, No. 31 at 1-4; CEC, No. 47 at 5; OEO, No. 46 at 10-12; Unico, No. 34 at 2; Southern Company, No. 29 at 3).
Their concern isthat an increase inSEER does not necessarily correspond to an increase inEER, and that a 95°F rating condition better represents the performance ofan air conditioner
on hot days when electricity demand isat itshighest. They believe that residential air conditioners contribute significantly to this peak demand, particularly in warmer regions ofthe country. Since electricity generation, transmission, and distribution capacity isdetermined by the electrical load served during thesepeak demand times, products that demonstrate improved: efficiency under peak conditions can reduce the need for added electrical system capacity. They alsobelieve that reducing peak demand isan important component ofany integrated plan to improve the reliability ofthe nation's electrical system. Recently there have been several wellpublicized blackouts and brownouts following, or inthe midst of, hot periods. Advocates ofan EER-based standard believe that a SEER-only standard does not guarantee the desired improvement in peak-period performance.
1. Current Relationship between SEER and EER It is certainly true that SEER isnot anideal indicator ofsystem efficiency invery hot weather, and SEER may notbe thebest indicator ofthe seasonal efficiency for equipment operating inthe warmest regions ofthe country. However, the relationship between efficiency at 82°F and at 95°F is fairly close for single-speed, single-capacity equipment, which represents the vast majority ofunitary equipment inthe marketplace. For other equipment, including variable
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i4 EE-RM/STD-9S-440

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# 7. VEIC, No. 32 at 5; PG&E, No. 31 at 1-4; CEC, No. 47 at 5; OEO, No. 46 at 10-12; Uruco, No. 34 at 2; Southern Company, No. 29 at 3).
Their concern is that an increase in**SEE~** does not necessarily correspond to an increase in EER, and that a95ofrating condition betterrepresents the performance ofan air conditioner
on hot days when electricity demand is at its highest. They·believe that residential air conditioners contribute significantly to this peak demand, particularly in warmer regions ofthe country. Since electricity generation, transmission, and distribution capacity is determined by the electrical load served during these peak demand times, products that demonstrate improved·: efficiency under peak conditions can reduce the need for added electrical system capacity. They also believe that reducing peak demand is an important component ofany integrated plan to improve the reliability ofthe nation's electrical system. Recently there have been several wellpublicized blackouts and brownouts following, or in the midst of, hot periods. Advocates ofan EER-based standard believe that a SEER-only standard does not guarantee the desired improvement in peak-period performance.

1. Current Relationship between SEER and EER 

### It is certainly truethat SEER is not an ideal indicator ofsystem efficiency in very hot weather, and SEERmay notbe the best indicator ofthe seasonal efficiency for equipment' operating in the warmest regions ofthe country. However, the relationship between efficiency at 82OF and at 95OF is fairly close for single-speed, single-capacity equipment, which represents the vast majority ofurutary equipment inthe marketplace. For other equipment, including variable 76 Q:IEE-41\EE-431\CAClStandRul\NOPR\DraftNOPR\CACNOPR16.v.'Pd August 4. 2000 (I**:45P~!)**

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

## 7,
or multi-speed equipment or equipment with modulating capacity, the 82 F test point isgiven a great deal ofweight indetermining the SEER rating. In these cases, the relationship between SEER and EER(95 F) isless certain, and manufacturers have some flexibility and incentive to improve SEER without improving EER(95 F).
The SEERtest, representing equipment performance over the entire cooling season, encourages manufacturers to design equipment that consumes less energy throughout the cooling
season for the average user. TheEER(95 °F) test, which isa measure ofsteady-state performance under only one set ofclimatic conditions, cannot provide insight into cyclical performance or cooling efficiency at cooler temperatures which represent the bulk ofthe cooling seasor nationwide. The Department, therefore, maintains that a SEER-based standard isessential to its effort to reduce national energy consumption. Further, we assume that peak demand savings would accompany any seasonal energy savings resulting from an increase inthe required SEER level, because ofthe relationship between SEER and EER(95 °F), and the costs ofincreasing EER(95°F) are already incorporated into the analysis.
However, theDepartment isparticularly interested inensuring that the current relationship between EER(95°F) and SEER will remain intact under new efficiency standards, resulting inreduction in'growth ofpeak demand. This additional reduction inpeak demand growth wouldbenefit utilities through an eventual and incremental reduction inthe need for new capacity. Maintaining higherEER(95 F) would also benefit consumers. Since the cost of electricity is highest during periods ofpeak demand, any decrease inelectricity consumption
Q:\EE41\EE-431 CAC\StandRu'NOPRDraftNOPR\CACNOPR 6.wpd 77 August 4, 2000(1:,45PPM EE-RM/STD-98-440

# -7t-

# c5?/)J,
or multi-speed equipment or equipment with modulating capacity, the 82oftest point is given a great deal ofweight in determining the SEER rating. Inthese cases, the relationship between SEER and EER(95OF) is less certain, and manufacturers have some flexibility and incentive to improve SEER without improving EER(95OF). ,
The SEERtest, representing equipment performance overthe entire cooling season, encourages manufacturers to design equipment that consumes less energy throughout the cooling season forthe average user. The EER(95OF) test, which is ameasure ofsteady-state performance .' under only one set ofclimatic conditions, cannot provide insight into cyclical performance or cooling efficiency at coolertemperatures which represent the bulk ofthe cooling seasor nationwide. The Department, therefore, maintains that a SEER-based standard is essential to its effort to reduce national energy consumption. Further, we assume that peak demand savings would accompany any seasonal energy savings resulting from an increase in the required SEER level, because ofthe relationship between SEER and EER(95OF), and the costs ofincreasing EER(95OF) are already incorporated into the analysis.
However, the Department is particularly interested in ensuring that the current relationship between EER(95OF) and SEERwill remain intact under new efficiency standards, resulting in reduction in'growth ofpeak demand. This additional reduction in peak demand growth would benefit utilities through an eventual and incremental reduction in the need for new capacity. Maintaining higherEER(95OF) would also benefit consumers. Since the cost of electricity is highest during periods ofpeak demand, any decrease in electricity consumption 

### 77 Q:\EE-41\EE-431\CAC\StandRulINOPR\Draft.'"<OPR\CACNOPR16.wpd Augus14. 2000 (I :45PM)

### EE-RM/STD-98-440-+ 7 during peak-periods, could reduce the user's annual electricitybill, particularly ifthe user pays time-of-day or seasonal rates.
2. Options for Possible EER Standards The Department has at least four options for ensuring that EER(95 °F) performance is maintained under new SEER standards. First, the Department could rely on the physical relationship between EER(95 °F) and SEERto ensure that an increase in SEER would result ina corresponding increase inEER. The Department isnot aware ofany modulating, multi-speed, or variable speed air conditioners (hereafter referred to collectively as modulating equipment)'being offered below 13 SEER, and very few ofthe available 13 SEER products are modulating equipment. Therefore, SEER and EER are closely related inequipment currently available at the efficiency levels that, as discussed below, the Department isproposing today to adopt as ninimum levels-12 SEER for air conditioners and 13 SEER for heat pumps. Assuming that relationship holds under such new standards, EER would increase as SEER increases.
The second option would be to establish anEER(95 F) floor that must be met by modulating equipment only or, alternately, all equipment.

The third option would be to establish a minimum EER requirement at each SEER level,
even for products exceeding the minimum SEER level. Again, this could be established fo: modulating equipment only or for all equipment.

Q:\EE-41\EE-431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR 16 upd 78 August4, 2000 (1:45PMI)

*

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

# C? IJ

# 7. during peak-periods, could reduce the user's annual electricitybill, particularly ifthe user pays time-of-day or seasonal rates.
2. Options for Possible EER Standards The Department has at least four options for ensuring that EER(95OF) performance is maintained under new SEER standards. First, the Department could rely on the physical relationship between EER(95OF) and SEERto ensure that an increase in SEER would result in a corresponding increase in EER. The Department is not aware ofany modulating, multi-speed, or variable speed air conditioners (hereafterreferred to collectively as modulating equipmentYbeing offered below 13 SEER, and very few ofthe available 13 SEER products are modulating equipment. Therefore, SEER**an~** 

### EER are closely related in equipment currently available at the efficiency levels that, as discussed below, the Department is proposing today to adopt as minimum levels-12 SEERfor air conditioners and 13 SEERfor heat pumps. Assuming that relationship holds under such new standards, EERwould increase as SEERincreases.
The second option would be to establish an EER(95OF) floor that must be met by modulating equipment only or, alternately, all equipment.


### The third option would be to establish aminimumEERrequirement at each SEERlevel, even for products exceeding the minimum SEERlevel. Again, this could be established fo; modulating equipment only orfor all 

### equipment.

78 Q:\EE-41\EE-431ICAClStandRul\NOPRIDraftNOPR\CACNOPR16.wpd August4. 2000 (I :45P!>.!)EE-RM/STD-98-440 _- O 2 

### Thefourth option would be to alter the SEER test procedure to rely more on 95°F performance and less on performance at cooler temperatures. This would provide incentive for manufacturers to optimize their designs to favor the warmer part ofthe cooling season and
warmer regions ofthe country.
We considerthe second and third options to be the most attractive. While we believe that the first option, relying onthe current relationship between EER and SEER, would satisfy our
concerns inthe foreseeable future, this option provides no assurance that manufacturers would not develop and promote equipment inthe long termthat would seriously reduce EER ratings. The fourth option, altering the SEERtest procedure to favor higher temperatures, would require
us to embark on a new rulemaking to establish those new procedures and then to redo this rule to incorporate the new SEER values. We would prefer to avoid those delays and the design uncertainty associated with altering the procedures.
Both the second and third options, mandating minimum EER ratings, would guarantee that products under new standards would achieve the same EER ratings as they do today without altering the test procedures. The third option ismore aggressive since itwould require that products ofhigher SEER ratings must also meet increasingly stringent EER ratings.

Within the second and third options, we could establish EER requirements ofvarying degrees ofstringency. For example, we could select EER levels equivalent to the ratings ofthe

Q:\EE41 rEE431\CAC\StandRulWOPR\DrTafNOPR\CACNOPRI 6.upd 79 August 4,2000 (1:45PM) -- -**--~-------**

### EE.R~/STD.98.440.:ffc?tJ

# 7. The fourth option would be to alterthe SEERtest procedure to rely more on 95OF performance and less on performance at coolertemperatures. This would provide incentive for manufacturers to optimize their designs to favor the warmer part ofthe cooling season and wanner**re~ons** 

### ofthe country.
We considerthe second arid third options to be the most attractive. While we believe that the first option, relying onthe current relationship between EER and SEER, would satisfy our concerns in the foreseeable future, this option provides no assurance that manufacturers would

, 

### not develop and promote equipment in the long term that would seriously reduce EER ratings. The fourth option, altering the SEERtest procedure to favor highertemperatures, would require us to embark on anew rulemaking to establish those new procedures and then to redo this rule to incorporate the hew SEERvalues. We would prefer to avoid those delays and the design uncertainty associated with altering the procedures.
Both the second and third options, mandating minimum EERratings, would guarantee that products under new standards would achieve the same EERratings as they do today without altering the test procedures. Thethird option is more aggressive since it would require that**product~** 

### ofhigher SEER ratings must also meet increasingly stringent EERratings.
Within the second and third options, we could establish EERrequirements ofvarying degree!; ofstringency. For example, we could select EERlevels equivalent to the ratings ofthe

79 Q:\EE-4)\EE-43)ICAClStandRuJ\NOPRIJ:>ra!Ll\lOPR\CACNOPR)6.wpd August4. 2000 (1 :45P}.f)

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

### 9

# 9. minimum EER rating ofavailable equipment today at the proposed standard level, the median EER rating, anywhere inbetween, or even higher.
The concern that prevents us from fully endorsing the third option and EER standards higher thanthe minimum EER ratings available today isthat bothwould discourage the development and sale ofmodulating capacity and variable speed equipment. Modulating equipment realizes abenefit inthe SEER test, allowing manufacturers to reduce the cost ofthe
core components compared to non-modulating equipment. This cost reduction partially offsets the cost ofthe modulation, making modulating equipment more affordable for consumers. 'Being required to meet the sameEER standards as non-modulating equipment would negate this cost benefit.
The Department wishes to encourage, not discourage, the development and sale of modulating equipment. Consumers value the added benefits ofmodulation, and manufacturers realize this value inthe form ofhigher revenues. For consumers and the nation, modulation mitigates the inefficiencies caused by oversizing the system during installation. Oversizing isa widespread problem that causes frequent equipment cycling, increasing energy consumption. Furthermore, oversizing arguably contributes more to peak power demand than does any reduction inEER associated with modulating equipment.

Q:\EE 41 EE-431\CAC\SIandRulNOPR\DraftNOPR'"CACNOPRl 6 pd 80 August 4, 2000 (1:45PM) 1 EE-RM/STD-98-440

# -1t"cqtJ

# 1. rninbmm EERrating ofavailable equipment today at the proposed standard level, the median EER rating, anywhere in between, or even higher.
The concern that prevents us from fully**~ndorsing** the third option and EER standards higher than the minimum EERratings available today is that bothwould discourage the development and sale ofmodulating capacity and variable speed equipment. Modulating . equipment realizes abenefit 

### in the SEERtest, allowing manufacturers to reduce the cost ofthe
core components compared to non-modulating equipment. This cost reduction partially offsets

, the cost ofthe modulation, making modulating equipment more affordable for consumers. 'Being required to meet the same EER standards as non-modulating equipment would negate this cost b(;nefit.
The Department v.ishes to encourage, not discourage, the development and sale of modulating equipment. Consumers value the added benefits ofmodulation, and manufacturers realize tins value in the form ofrugher revenues. For consumers and the nation, modulation mitigates the inefficiencies caused by oversizing the system during installation. Oversizing is a -Nidespread problem that causes frequent equipment cycling, increasing energy consumption. Furthermore, oversizing arguably contributes more to peak power demand than does any

, reduction in EER associated with modulating equipment.



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### EE-RM/STD-98-440--.4: O

# 7 For the foregoing reasons, we are inclined to adopt an EER(95 F) floorbased onthe minimum EER available in single-speed, single-capacity equipment today at the proposed standard levels of 12 SEER for air conditioners and 13 SEER for heat pumps.
To determine what the appropriate EER(95°F) requirement might be, the Department assessed ARI performance data on the high-sales volume residential equipment certified asof February 1998. The lowest EERs available for each product class are identified inTable V.3 as the "Lowest Available EER at Proposed Minimum SEER." In addition to the minimum SEER proposal contained inthis notice, theDepartment isinclined to adopt inthe Final Rule minimum EER(95°F) requirements equal to these values. However, since there are very fewpackaged heat pumps available from which to draw a conclusion concerning EER, DOE believes the minimum EER requirement forpackaged heat pumps should be the same as split heat pumps (10.8 EER).

Table V.3: Lowest Available Energy Efficiency Ratings (EER) and Proposed Minimum EERs in Residential Unitary Equipment (1998) Proposed Lowest Available EER at Proposed Product Class Minimum SEER Proposed Minimum SEER Minimum EER Split Air Conditioners 12.0 10.1 10.1 Packaged Air 12.0 10.1 10.1 Conditioners Split Heat Pumps 13.0 10.8 10.8 Packaged Heat Pumps 13.0 11.0 10.8

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

## tJ

# 7 For the foregoing reasons, we are inclined to adopt an EER(95OF) floor based on the minimum EERavailable in single-speed, single-capacity equipment today at the proposed standard levels of12 SEER for air conditioners and 13 SEER for heat pumps.
To detennine what the appropriate EER(95OF) requirement might be, the Department assessed ARI performance data on the high-sales volume residential equipment certified as of February 1998. The lowest EERs available for .each product class are identified in Table Y.3 as the "Lowest Available EER at Proposed Minimum SEER." In addition to the minimum SE.ER .' 

# .. proposal contained in this notice, the Department is inclined to adopt in the Final Rule minimum EER(95OF) requirements equal to these values. However, since there are very few packaged heat pumps·available from which to draw a conclusion concerning EER, DOE believes the minimum EER requirement for packaged heat pumps should be the same as split heat pumps (10.8 EER).
Table Y.3: Lowest Available Energy Efficiency Ratings (EER) and Proposed Minimum EERs in

. Residential Unitary Equipment (1998)
Product Class Proposed Minimum SEER Split Air Conditioners 12.0 Packaged Air 12.0 Conditioners Split HeatPumps 13.0 Packaged HeatPumps 13.0 

### ----'

.. --.. Lowest A\'ailable EER at Proposed Proposed Minimum SEER Minimum EER 10.1 10.1



### -- 10.1 10.1 10.8 10.8 11.0 10.8 I

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

# /. We encourage comments regarding theburdens and benefits that would result from including anEER requirement inthe final rule. Ofparticular interest are comments regarding burdens on manufacturers, benefits regarding reduction in peak electricity demand, the effect of
more stringent standards on the cost and availability ofmodulating equipment, and the effect that
an EER floor would have on electrical system reliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe other options described above.

J. NicheProducts 

### Niche products are those products that limit the areas forthe entry and discharge of outdoor air to one surface and thus require additional fan power and have a greater potential for recirculation ofsome ofthe outside air. Included are single package units that are designed to be mounted within or immediately adjacent to an opening inan outside wall ofthe structure and split systems where the outdoor unit isdesigned to be mounted inthe same manner. This would be comparable to the classes that have been established for room air conditioners that are defined
as 'without louvered sides." Also included are non-ducted mini-split air conditioners and heat pumps, and high velocity, high pressure, small duct systems. Typical installation ofniche products may include: high-rise condominiums, garden apartments, retirement villages, hotel and motel suites and the like.
1. Ductless Split Air Conditioners and Heat Pumps Mitsubishi andEnviroMaster International (EMI), manufacturers ofductless split systems, commented that ductless products should be assigned a separate product class with a Q:EE-41\EE431 \CACStandRulNOPR\DrafNOPR\CACNOPR 16.wpd 82 August 4,2000 (1:45PM)
4 EE-RM/STD-98-440

# -#,J$t!J/. We encourage comments regarding the burdens and benefits that would result from including an EERrequirement in the final rule. Ofparticular interest are comments regarding burdens on manufacturers, benefits regarding reduction in peak electricity demand, the effect of
more stringent standards on the cost and availability ofmodulating equipment, and the effect that an EER floor would have on electrical system reliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe other options described above.

J. Niche Products

, 

# .. Niche products are those products that limit the areas for the entry and discharge of outdoor air to one surface and thus require additional fan power and have agreater potential for recirculation ofsome ofthe outside air. Included are single package units that are designed to be mounted within or immediately adjacent to an opening in an outside wall ofthe structure and split systems where the outdoorunit is designed to be mounted in the same manner. This would be comparable to the classes that have been established for room air conditioners that are defined as ·'without louvered sides." Also included are non-ducted**mi~-split** 

### air conditioners and heat pumps, and high velocity, high pressure, small duct systems. Typical installation ofniche products may include: high-rise condominiums, garden apartments, retirement villages, hotel and motel suites and the like.
1. Ductless Split Air Conditioners and Heat Pumps Mitsubishi and EnviroMasterInternational (EMI), manufacturers ofductless split systems, commented that ductless products should be assigned a separate product class with a 82 Q:\EE41\EE-431\CAC\StandRuI\NOPR\DraftNOPR\CACNOPRI6.wpd August 4. 2000 (1 :4SP},!)EE-RM/STD-98-440 2 

### lower standard. (Mitsubishi, No. 18 at 1andEMI, No. 26 at 1). Their arguments for a separate class are: * Ductless units are operated like room air conditioners, because the "compressor delivering air conditioning to a particular room operates only when necessary rather thanwhen a central thermostat calls for cooling in another area;" Ductless units do not have the duct losses ofa central air conditioning system, and
so have greater installed system efficiency. Mitsubishi claims that: "a 10 SEER ductless unit may be virtually equivalent or even higher inefficiency than a 12 SEER ducted unit"; The overwhelming portion ofthe market ofductless mini-splits isincapc-.ities of 18,000 Btu/hr and less. Making significant increases inthe efficiency ofmotors and compressors used inthese small units isdifficult; Ductless air conditioners frequently employ variable speed control ofthe compressor motors. Mitsubishi claims: "Controlling the speed ofthe compressor by inverter will not benefit the 100% capacity ratingbut ithas a tremendous benefit when the compressor begins slowing down. During 50% capacity operation the SEER level would be several points above the 100% capacity SEER. This results in more energy savings, quieter operation, less peak load demands." Mitsubishi also argued that an EER rating, like a room air conditioner, would be more appropriate because ofthe inverter driven system's low cyclic losses; and

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it EE-RM/STD-98-440

# -/Fc5ltJ

# ? lower standard. (Mitsubishi, No. 18 at 1and EMI, No. 26 at 1). Their arguments for a separate class are: • Ductless units are operated like room air conditioners, because the "compressor

• delivering air conditioning to aparticularroom operates only when necessary ratherthan when a central thermostat calls for cooling in another area;" Ductless units do not have the duct losses ofa central air conditioning system, and
so have greaterinstalled system efficiency. Mitsubishi claims that: "a 10 SEER ductless unit may be virtually equivalent or even higher in efficiencythan a 12 SEER ducted unit"; , 

# ..
• The overwhelming portion ofthe market ofductless mini-splits is in cap.:-.:::ities of. 18,000 BtuIhr and less. Making significant increases in the efficiency ofmotors and compressors used in these small units is difficult;
• Ductless air conditioners frequently employ variable speed control ofthe compressormotors. Mitsubishi claims: "Controlling the speed ofthe compressor by inverterwill not benefit the 100% capacity rating but it has atremendous benefit when the compressorbegins slowing down. During 50% capacity operation the SEERlevel would be several points above the 100% capacity SEER. This results in more energy savings, quieter operation, less peak load demands." Mitsubishi also argued that an EER rating, like aroom air conditioner, would be more appropriate because ofthe inverter driven system's low cyclic losses; and

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### EE-RM/STD-98-440- 4 

### 9 7 Perton, (ofcooling capacity) a ductless air conditioning system isone ofthe most expensive HVAC systems intheU.S. today. Some ofthe reasons for high production costs are: lowvolumes inthe United States, the indoor unit isa "finished" product fullyvisible to,the customer so itrequires additional cosmetic expenses, and the unit must be small, so complex design ofcoilsisnecessary.
After review ofthe available information, the Department does notbelieve a separate class with an efficiency standard below 12 SEER, is warranted for these products. The evidence presented in the comments does not convince us that these products would not be able to meet an increased standard level. The constraints are the size ofthe indoor units, and the small capacity ofthe average system. The esthetic disadvantage oflarger cabinet sizewill be compensated by higher efficiency and lower cost ofoperation. The claim that the small capacities make increased efficiencies difficult isa reasonable one, but again, not enough data was submitted tojustify exempting these products from an efficiency standards increase.
2. Small Duct High Velocity Air Conditioners High velocity, small duct fancoil units target primarily the retrofit market. High velocity systems are designed to discharge conditioned air rapidly through round ducts small enough to fit inside stud walls. Blowers must, therefore, overcome high static pressures. To mitigate the burden on the blowers, designers reduce the required air volume by cooling itmore than a conventional system. This increases the cost through added tube rows and larger capacity, but offers the associated benefit ofenhanced humidity removal. In order to meet the current 10 Q:\EE41\EE-431\CAC\StandRul\NOPRDrafNOPR\PCACNOPR16.wpd 84 .August 4, 2000 (1:45PM)

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

# j?

• Perton, (ofcooling capacity) aductless air conditioning system is one ofthe most expensive HVAC systems 

### in the U.S. today. Some ofthe reasons for high production costs are: low volumes 

### in the United States, the indoorunit is a "finished" product fully visible to,the customer so it requires additional cosmetic expenses, and the unit must be small, so complex design ofcoils is necessary.
After review ofthe available information, the Department does not believe a separate class with an efficiency standard below 12 SEER, is warranted for these products. The evidence

.. presented in the comments does not convince us that these products would not be able to meet an increased standard level. The constraints are the size ofthe indoor units, and the small capacity ofthe average system. The esthetic disadvantage oflarger cabinet size will be compensated by higher efficiency and lower cost ofoperation. The.claimthat the small capacities make increased efficiencies difficult is areasonable one, but again, not enough data was submitted tojustify exempting these products from an efficiency standards increase.
2. Small Duct High Velocity Air Conditioners High velocity, small duct fancoil units target primarily the retrofit market. High velocity systems are designed to discharge conditioned airrapidly through round ducts small enough to fit inside stud walls. Blowers must, therefore, overcome high static pressures. To mitigate the burden on the blowers, designers reduce the required airvolume by cooling 

### it more than a conventional system. This increases the cost through added tube rows and larger capacity, but offers the associated benefit ofenhanced humidity removal. Inorderto meet the current 10 84 Q:\EE-41\EE-431\CAClStandRulI.NOPRIDraftNOPRICACNOPRI6.wpd August 4. 2000 (1 :45PM)

### EE-RM/STD-98-440 -7 O SEER standard, manufacturers ofthese higher velocity systems typically pair the fan coil with high efficiency condensing units (typically 13
- 14 SEER).
Unico commented that to keep the number ofducts reasonable, they use about halfthe air flow ofa conventional system, and they use a higherpressure blower with a larger size motor. These design changes reduce the efficiency ofthe system. (Unico, No. 34 at 2). Unico asked the Department to either exempt them from any increase in standards, allow a 15% SEER credit, or allow their systems to be tested as a coil only (without a blower) at a conventional airflow and using the default fan power. (Unico, No. 34 at 3). Spacepak, the other major manufacturer ofthis type ofproduct, argued against any special treatment for this type ofproduct. (Spacepak, No. 39 at 1).

The Department believes that it isnot technologically feasible for small-duct high velocity systems to meet the higher efficiency levels proposed intoday's notice because ofthe higher fan power required for such units. In order to address this problem, we are proposing to modify the DOE test procedure to allow small-duct high velocity system manufacturers to test 

### their products as coil only products, inthe manner thetest procedure provides for mix-matched systems. With this allowance, the products would have to meet the proposed standards for split system air conditioners and split system heat pumps as well as any EER standard DOE adopts in the final rule.

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# -#c:<CJ 

# 7. SEER standard, manufacturers ofthese highervelocity systems typically pairthe fan coil with high efficiency condensing units (typically 13
- 14 SEER).
Vnico commented that to keep the number ofducts reasonable, they use about halfthe air flow ofa conventional system, and they use ahigherpressure blower with alarger size motor. These design changes reduce the efficiency ofthe ·system. (Vnico, No. 34 at 2). Vnico asked the Department to either exempt them from any increase in standards, allow a 15% SEER credit, or allow their systems to be tested as a coil only (without ablower) at a conventional airflow**~nd** using the default fan power. (Vnico, No. 34 at 3). Spacepak, the other major manufacturer ofthis type ofproduct, argued against any special treatment for this type ofproduct. (Spacepak, No. 39 at 1).
TheDepartment believes that it is not technologically feasible for small-duct high velocity systems to meet the higher efficiency levels proposed in today's notice because ofthe highe!" fan power required for such units. In orderto address this problem, we are proposing to modify theDOEtest procedureto allow small-duct high velocity system manufacturersto test their prC'ducts as coil only products, in the manner the test procedure provides for mix-matched systems. With this allowance, the products would have to meet the proposed standards for split system air conditioners and split system heat pumps as well as any EER standard DOE adopts in the final rule.

85 Q:\EE-41\EE-431ICAClStandRul\NOPRlDraftNOPRICACNOPR16."l'd August 4, 2000 (1 :45P!'.1)EE-RiM/STD-96-440 _--7 : 

### 3. Vertical Packaged, Wall Mounted Bard commented, "The vertical air conditioners and heat pumps are not a residential product and should not be regulated as aresidential product. The test procedure, life cycle costing and cost efficiency data are all clearly not appropriately applied to these products. We believe that moving these products from NAECA to EPACT is the proper and best solution as it continues to provide federal regulation but does itunder an appropriate standard and methodology for the product and its application." (Bard, No. 28 at 1).

ARI formed a Single Package Vertical Unit (SPVU) subsection inthe Spring of2000 to develop atest standard forthe vertical packaged, wall mounted products. The product scope for the SPVU subsection isas follows: Factory-assembled single packaged vertical air-conditioners and heat pumps intended for use in commercial and industrial heating and cooling systems. A single package vertical air-conditioner isa separate encased or unencased combination ofcooling and/or heating components, factory assembled as a single package, and intended for exterior mounting on, adjacent interior to, or through, an outside wall. Unit major components are arranged vertically, and may contain separate indoor grille(s), outdoor louvers, various ventilation options, indoor free air discharge, ductwork, wall plenum or sleeve. Heating components may include electrical resistance, steam, hot water, gas or no heat, but may not include reverse cycle refrigeration as a heating means. A single packaged vertical heat pump isa separate encased orunencased combination ofcooling and/or heating components, factory assembled as a single package, and intended for exterior mounting on, adjacent interior to, or through, an outside wall. Unit major components are arranged vertically, and may contain Q:\EE41\EE431\CAC\StandRulNOPRDraftNOPR\CACNOPR16.upd 86 August 4, 2000 ( :45PM) 

### 3. V.ertical Packaged, Wall Mounted Bard commented, "The vertical air conditioners and heat pumps are not aresidential procuct and should not be regulated as aresidential product. The test procedure, life cycle costing and cost efficiency data are all clearly not appropriately applied to these products. We believe that moving these products from NAECA to EPACT is the proper and best solution as it 

### continues to provide federal regulation but does it under an appropriate standard and methodology for the product and its application." (Bard, No. 28 at 1).
ARI formed a Single Package Vertical Unit (SPVU) subsection-inthe Spring of2000 to develop atest standard for the vertical packaged, wall mounted products. The product scope for the SPVU subsection is as follows: Factory-assembled single packaged vertical air-conditioners and heat pumps intended for use in commercial and industrial heating and cooling systems. A single package vertical air-conditioner is a separate encased orunencased combination ofcooling and/or heating components, factory assembled as a single package; and intended for exterior mounting on, adjacent interiortO,or through, an outside wall. Unit major components are arrangl!d vertically, and may contain separate indoor grille(s), outdoor louvers, various ventilation options, indoor free air discharge, ductwork, wall plenum or sleeve. Heating ccmponents may include electrical resistance, steam, hot water, gas or no heat, but may not ir.c1ude reverse cycle refrigeration as aheating means. Asingle packaged vertical heat pump is a separate encased orunencased .combination ofcooling and/or·heating components, factory assembled as a single package, and intended for exterior mounting on, adjacent interiorto, or through, an outside wall. Unit major components are arranged vertically, and may contain 

### 86 Q:IEE-41IEE-431ICAClStandRuJINOPRIDraftNOPRICACNOPR16.wpd August 4, 2000 (l**:45P~I)**EE-RVM/s6T-@-440 +-7 O 

### separate indoor grille(s), outdoor louvers, various ventilation options, indoor free air discharge, ductwork, wall plenum or sleeve. Its primary heating means shall be reverse cycle refrigeration, with secondary supplemental heating by means ofelectrical resistance, steam, hot water or gas. Specifically excluded are products included in the scopes ofother product sections ofARI and
room air-conditioners and heat pumps.
Once the ARI standard isfinalized, ARI intends on implementing a certification program to verify certified EER ratings for SPVUs comparable to how they are currently verifying ratings for EPACT covered products.
The Department understands that single-package vertical air-conditioners and heat pumps
are not distributed for use in residences (i.e., for personal use or consumption by individuals), and therefore agrees that at present they are commercial products covered byEPACT and not by residential energy efficiency standards. Vertical packaged, wall mounted equipment willbe included under this definition ofsinge package vertical air-conditioners and heat pumps, and would not be covered bytoday's proposed rule for residential products.
4. Through-the-Wall Condensers First Co. commented that imposing higher efficiency standards will eliminate throughthe-wall products from the marketplace because ofthe significant increase in the price with a correspondingly small operating cost savings. (First Co., No. 40 at 1).

Q:\EE-41\EE431\CAC\StandRulNOPR\DraftNOPR\CACNOPRI6 wpd 87 August 4. 2000 (1:45PM)
4 

### separate indoor grille(s), outdoorlouvers, various ventilation options, indoorfree air discharge, ductwork, wall plenum or sleeve. Its primary heating means shall be reverse cycle refrigeration, with secondary supplemental heating by means ofelectrical resistance, steam" hot water or gas. Specifically excluded are products included in the scopes ofother product sections ofARI and room air-conditioners and heat pumps.
Once the ARI standard is finalized, ARI intends on implementing acertification program to veIify certified EERratings for SPVUs comparable to how they are currently verifying**r~tings** 

### for EPACT covered products. , 

# . ,



### The Department understands that single-package vertical air-conditioners and heat pumps are not distributed for use in residences (Le., for personal use or consumptionby individuals), and therefore agrees that at present they are commercial products covered by EPACT and not by residential energy efficiency standards. Vertical packaged, wall mounted equipment will be included under this definition ofsinge package vertical air-conditioners and heat pumps, and would not be covered by today's proposed rule for residential products.
4. Through-the-Wall Condensers First Co. commented that imposing higher efficiency standards will eliminate throughthe-wall products from the marketplace because ofthe significant increase in the price with a correspondingly small operating cost savings. (First Co., No. 40 at 1).



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### EE-RM/STD-98-440-/ c7 

# 7 Through-the-wall (TTW) condensers were popular in new multistory residential construction in the 1960s and 1970s. Major manufacturers have since abandoned the replacement market, providing an opportunity forlower volume manufacturers. Most equipment is in the 1-1/2 to 2-1/2 ton capacity range.
New through-the-wall condensers must fit within the same wall opening as the original units, even though original units may be halfas efficient as the new ones. Residents or building owners are particularly sensitive to any increase in price orto the cost ofenlarging the wall opening to accommodate a larger condenser. Since repair is the only.other cost effective alternative to replacement, a new standard that increases cabinet size or results in a significant price increase could be counterproductive, preventing theturnover ofold, inefficient equipment. According to submitted data, 10 SEER TTW split condensing air-conditioners with fancoils (when scaled up to 3-tons) are $206 more expensive (manufacturer price) than 10 SEER pdd-rnounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners, the $206 differential would be maintained ifTTW Condenser systems had to meet an 11 SEER rating (also based on submitted data). This differential increases when wall modifications are necessary. DOE believes 11 SEER is technologically feasible at this time for most configurations ofTTW equipment. TTW condensers come in three sizes (height x weight 

### exteriorto thebuilding): 32" x 24" (768 sq. in.); 28" x 26" (721 sq. in.); and 23" x 30" (679 sq. in.).

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# 7 Through-the-wall (TTW) condensers were popularin new multistory residential construction in the 1960s and 1970s. Major manufacturers have since abandoned the replacement market, providing an opportunity for lower volume manufacturers. Most equipment is in the 1-112 to 2-112 ton capacity range.

Newthrough-the-wall condensers must fit within the same wall opening as the original units, even though original units may be halfas efficient as the new ones. Residents orbuilding
owners are particularly sensitive to any increase in price orto the cost ofenlarging the wall

, opening to accommodate a larger condenser. Since repair is the only.other cost effective ". alternative to replacement, a new standard that increases cabinet size orresults in a significant price increase could be counterproductive, pI:'eventing the turnover ofold, inefficient equipment.
According to submitted data, 10 SEERTTW split condensing air-conditioners with fancoils (when scaled up to 3-tons) are $206 more expensive (manufacturer price) than 10 SEER pctd-r.1ounted split systems. Under a 12 SEER standard for pad-mounted split air conditioners, the $206 differential would be maintained ifTTW Condenser systems had to meet an 11 SEER rating (also based on submitted data). This differential increases when wall modifications are necessary. DOE believes 11 SEERis technologically feasible at this time for most configurations ofTTW equipment. TTW condensers come in three sizes (height x weight exteriorto the building): 32" x 24" (768 sq.**in.)~** 28" x 26" (721 sq.**in.)~** and 23" x 30" (679 sq. i'1.).



### 88 Q:IEE-41IEE-431ICAClStandRuJ\NOPRIDraftNOPRICACNOPR16 wpd August 4. 2000 (I:45PM)

### EE-RM/STD-98-440 -4-G'od 7 TTW packaged systems are intended forboth new construction and retrofit. First Co's dimensions (new construction) are 43" x 28" (1,204 sq. in.). Skymark's retrofit unit is 15" x 55" (825 sq. in.). TTW packaged equipment for new construction, which isnot severely sizeconstrained, should be able to reach 12 SEER inits current configuration with component upgrades. The current manufacturer price differential (First Co.) between TTW packaged and conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that differential would be maintained under an 11 SEER standard for TTWpackaged with a 12 SEER for conventional packaged.
The Department proposes to establish a separate class for TTW equipment (inch.Jing packaged and split, cooling only and heat pump) based on a maximum combined surface area of the air inlet and outlet ofthe condenser of830 square inches, and a maximum capacity of30,000 Btu/hr. The purpose ofthe maximum capacity requirement isto ensure that ifnew technology reduces the size ofthe condenser, manufacturers won't offer 3-ton equipment that fitsthe definition but is intended for use inconventional applications. Tomaintain the price differential between this new class and conventional equipment, we propose a SEER standard of 11.0. Because electric strip heat ispopular inTTW equipment, the 11.0 SEER standard would also apply to TTW heat pumps.
5. Non-Weatherized Single-Package Unit, Mounted Entirely withinthe Structure Another niche product, which was not discussed in the Supplemental ANOPR, is a non-weatherized single-package unit, mounted entirely within the structure (inan attic, basement,
Q:\EE41\EE-431\CAC\SLandRulWOPR\DrafNOPR\CACNOPR 16 wpd 89 August 4.2000 (1:45PhM) $ EE-RM/STD-98-440

# -/FeqiJ

# J TTW packaged systems are intended for both new construction and retrofit. First Co's dimensions (new construction) are 43" x28" (1,204 sq. in.). Skymark's retrofit unit is 15" x 55" (825 sq. in.). 

### TTW packaged equipment for new construction, which is not severely sizeconstrained, should be able to reach 12 SEERin**~ts** 

### current configuration with component upgrades. The current manufacturer price differential (First Co.) between TTW packaged and conventional packaged equipment (scaled to 3-tons) is $430. According to First Co. data, that differential would be maintained under an 11 SEER standard for TTW packaged with a 12 SEER for conventional packaged.

, 

# .. The Department proposes to establish a separate class for TTW equipment (incll.jing packaged and split, cooling only and heat pump) based on amaximum combined surface area of the air inlet and outlet ofthe condenser of830 square inches, and amaximum capacity of30,000 BtuIhr. 

### The purpose ofthe maximum capacity requirement is to ensure that ifnew tech..l1ology reduces the size ofthe condenser, manufacturers won't offer 3-ton equipment that fits the definition but is intended for use in conventional applications. To.maintain the price differential between this new class and conventional equipment, we propose a SEER standard of11.0. Because electric strip heat is popular in TTW equipment, the 11.0 SEER standard would also apply to TTW heat pumps.
5. Non-Weatherized Single-PackageUnit, Mounted Entirely within the Structure Another niche product, which was not discussed in the Supplemental ANOPR, is a non-weatherized single-package unit, mounted entirely within the structure (in an attic, basement, 

### 89 Q:\EE41\EE431**\CAClStandRul\'~OPRlDraftNOPR\CACNOPR**16,."d August 4. 2000 (1 :45PM)

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

### 67. or closet), with outdoor air ducted to and fromthe unit. Thisunit isused inhigh-rise and garden apartments, manufactured homes, and other residential applications where locations for placement ofoutdoor units may be unavailable or too remote, where architectural aesthetics may be compromised byvisible outdoor units, where vandalism ortheft.ofoutdoor units isa potential problem, or where compliance with local sound ordinances restricts the placement ofoutdoor air conditioning equipment.
Consolidated Technologies, Inc., manufacturer ofthe INSIDER, commented, "Forthe INSIDERto be used inManufactured Housing andModular housing itis important to have the smallest footprint possible." (Consolidated Technologies, Inc., No. 42 at 2):
The Department recognizes that this product has space constraints, albeit not as severe as products that must fit awall opening. Products at the 12 SEER level (the proposed air conditioning standard level) are currently onthe market. Avery difficult obstacle to establishing
a separate class for this product is adefinition that could not beused as a loophole to use its lower standard for conventional products. Its salient feature is its indoor location; product class definitions should bebased on physical characteristics, and itis nearly impossible to define physical characteristics that would ensure products beinstalled in a particular location. No separate class is proposed for this product.

6.Request for Comments Regarding Niche Product Standards

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# 1.
orcloset), with outdoor air ducted to and from the unit. This unit is used in high-rise and garden apartments, manufactured homes, and otherresidential applications where locations for placement ofoutdoorunits may be unavailable ortoo remote, where architectural aesthetics may be compromised by visible outdoorunits, where vandalism ortheft.ofoutdoorunits is a potential problem, orwhere compliance with local sound ordinances restricts the placement ofoutdoor air conditioning equipment..

Consolidated Technologies, Inc., manufacturer ofthe INSIDER, commented, "Forthe

, INSIDERtobe used inManufactured Housing and Modularhousing it is important to havethe smallest footprint possi?le." (Consolidated Technologies, Inc., No. 42 at 2}.

The Department recognizes that this product has space constraints, albeit not as severe as products that must fit a wall opening. Products at the 12 SEERlevel (the proposed air conditioning standard level) are currently on the market. A very difficult obstacleto establishing d separate class for this product is a defInition that couldnot beused as a loopholeto use its lowe: standard for conventional products. Its salient feature is its indoor location; product class defInitions shouldbebased on physical characteristics, and itis nearly impossibleto defme physical characteristics that would ensure products beinstalledin a particularlocation. No separate class is proposedfor this product.

6. Request for Comments Regarding Niche Product Standards


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# 7
The Department encourages comments regarding whether theproposed standards concerning high-velocity, vertically-packaged wall-mounted equipment, andthrough-the-wall equipment provide a significant advantage to those products versus competing products, whether they are sufficient to preserve the unique features ofthose products, and whether improvements in the definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional comment iswelcome onthe impacts that meeting the new standards would have onthe availability ofthose products.

K. ThermostaticExpansion Valves 

### VEIC, NRDC, ACEEE, and CEC requested that a design standard requiring the use of thermostatic expansion valves (TXVs) be adopted to ensure that energy savings expected from an increase inthe minimum efficiency standard are realized inthe field. Several ofthe comments cited studies which demonstrate that TXVs can mitigate adverse effects on efficiency due to field installation problems such as inadequate evaporator airflow and improper refrigerant charge. CEC suggested that separate classes be established for systems with and without TXVs and that more stringent minimum efficiency standards be established for classes not utilizing TXVs, and VEIC suggested mandating the use ofTXVs inall new equipment. (VEIC, No. 32 at 4-5; Neme, VEIC, Transcript, pp. 187-189; NRDC, No. 35 at 11-12; ACEEE, No. 43 at 5-6; CEC, No. 47 at 5-6).
At least two regulatory options exist for encouraging the use ofTXVs. The first isto require that all equipment contain TXVs, hereafter called TXV requirement. The second isto Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR 6.wpd 91 * August 4, 2000 (1:45P.I)**---------~~~.** -------- _._----- EE-RM/STD-98-440

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# c:1()7
The Department encourages comments regarding whether the proposed standards concerning**high~velocity,** vertically-packaged wall-mounted equipment, andthrough-the-wall equipment provide a significant advantage to those products versus competing products, whether they are sufficient to preserve the unique features ofthose products, and whether improvements in the definitions are needed to prevent loopholes. For ductless split equipment and nonweatherized vertical packaged equipment, additional comment is welcome on the impacts that meeting the new standards would have on the availability ofthose products.

K. 

### Thermostatic Expansion Valves VEIC, NRDC, ACEEE, and CEC requested that a design standard requiring the use of thermostatic expansion valves (TXVs) be adopted to ensure that energy savings expected from an increase in the minimum efficiency standard are realized in the field. Several ofthe comments**ci~ed** studies which demonstrate that TXVs can mitigate adverse effects on efficiency due to field installation problems such as inadequate evaporator airflow and improper refrigerant charge. CEC suggested that separate classes be established for systems with and without TXVs and that more stringent minimum efficiency standards be established for classes not utilizing TXVs, and VEIC suggested mandating the use ofTXVs in all new equipment. (VEIC, No. 32 at 4-5; Neme, VEIe, Transcript, pp. 187-189; NRDC, No. 35 at 11-12; ACEEE, No. 43 at 5-6; CEC, No. 47 at 5-6).

At least two regulatory options exist for encouraging the use ofTXVs. The first is to require that all equipment contain TXVs, hereafter called TXV requirement. The second is to 91 Q:IEE-4IIEE-431ICAC\StandRuJINOPR\DraftNOPRICA010PRI6.wpd

,. August 4. 2000 (I :45P!l.I)

### EE-RM/STD-98-440-,^4 7 establish a separate product class for TXV-bearing equipment andto reduce the minimum SEER iequirements for those classes from the levels intoday's proposed rule.
The EPCA allows theDepartment to issue arequirement such as mandating the use of TXVs ifthe Secretary determines that such arequirement isnecessary to ensure that the product meets its performance-based standard. In the case ofTXVs, the Department's current opinion is that products can meet theproposed SEER requirements without TXVs. This iscertainly true in the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it is unclear whether we could find that TXVs are needed for those systems to perform attheir rated efficiencies. Regarding the second option, EPCArequires theDepartment to establish separate product classes for products based on aperformance related feature (such as a TXV) ifthe Secretary determines that a higher or lower efficiency standard is justified for those products. Evidence indicates that TXVs maintain system efficiency better than do fixed orifices or capillary tube expansion devices in cases where split system equipment is over- or under-charged with 

### refrigerant. This apparently includes most installations. To encourage the use ofTXVs we could consider establishing lower SEER standards for products containing TXVs.
While the evidence ofthe potential energy-saving benefits ofTXVs iscertainly persuasive, the current SEERtest procedures already encourage theiruse. Forrating a manufacturer's condenser with the evaporator ofa different manufacturer, the SEER

-92 Q:\EE41\E-43 1\CAC\StandRulNOPR\DraftNOPR\CACNOPR 6.wpd 92 * August 4, 2000 (1:45PM)**------------------------------~~~.** -**--~-~~--** EE-RM/STD-98-440- 

# #="07tJ 

# 7 establish a separate product class for.TXV-bearing equipment and to reduce the minimum SEER
I

### equirements for those classes from the levels in today's proposed rule.
The EPCA allows the Department to issue arequirement such as mandating the use of TXVs if

### the Secretary determines that such arequirement is necessary to ensure that the product meets its performance-based standard. In the case ofTXVs, the Department's current opinion is that products can meet the proposed SEER requirements without TXVs. This is certainly true in the laboratory. In the field, although many installations could undoubtedly benefit from TXVs, it is unclear whether we could find that TXVsare needed for those systems to perform at their rated efficiencies. Regarding the second option, EPCArequires the Department to establish separate product classes for products based on aperformance related feature (such as aTXV) ifthe Secretary determines that ahigher or lower efficiency standard isjustified for those products. Evidence**indicat~s** 

### that TXVs maintain system efficiencybetter than do fixed orifices or capi!lary tube expansion devices in cases where split system equipment is over- orunder-charged with reEigerant. This apparently includes most installations. To encourage the use ofTXVs we could consider establishing lower SEER standards for products containing TXVs.
While the evidence ofthe potential energy-saving benefits·ofTXVsis certainly persuasive, the current SEERtest procedures already encourage theiruse. Forrating a manufacturer's condenserwith the evaporator ofadifferent manufacturer, the SEER 92 Q:IEE-41'lE-431ICACIStmdRulINOPRIDrafL\lOPRICACNOPR16.wpd August4. 2000 (145P!I.{)

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determination procedures provide a credit for systems that incorporate TXVs. For matched systems, the use ofTXVs typically lowers the degradation coefficient, resulting inhigher SEER results.
We hesitate to provide stronger support for TXV-bearing equipment thanthat which is already granted through thetest procedures. Unlike fixed orifices, TXVs are mechanical components. Some manufacturers avoid their usage because of reliability concerns, and the additional repair costs incurred by consumers could outweigh their energy-saving benefits. Furthermore, contractors are able to adjust the factory-set TXV inthe field, and it ispossible that alleviating problems due to over- or under-charging by encouraging the use ofTXVs could create another problem--improperly set TXVs. Also, itis not clearthat TXVs are the only, or even the best, option for maintaining equipment efficiency inthe field. For example, technologies that could mitigate dirty coils or prevent improper charging and airflow may be more attractive options, and we would not want to discourage their development oruse by mandating theuse of TXVs.
In any case, manufacturers may well find that the SEER benefits offered by TXVs are compelling enough under the new efficiency standards that they would offer TXVs in a substantial amount of baseline equipment without further encouragement by the Department. The Engineering Analysis suggests that manufacturers are currently more likely to incorporate TXVs into their 12 SEER and 13 SEER products than intheir 10 SEER products. We would

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# 7
detennination procedures provide acredit for systems that incorporate TXVs. For matched systems, the use ofTXVstypically lowers the degradation**coefficien~,** 

### resulting in higher SEER results.

We hesitate to provide stronger support for TXV-bearing equipment than that which is already granted through the test procedures. Unlike fixed orifices, TXVs are mechanical components. Some manufacturers avoid theirusage because of reliability concerns, and the additional repair costs incurred by consumers could outweigh their energy-saving benefits. Furthermore, contractors are able to adjust the factory-set TXV in the field, and it is possible that alleviating problems due to over- orunder-charging by encouraging the use ofTXVs could create another problem--improperly set TXVs. Also, it is not clearthat TXVs are the only, or even the best, option for maintaining equipment efficiency in the field. For example, technologies that could mitigate dirty coils or prevent improper charging and airflow may be more attractive options, and we would not want to discourage their developmenL oruse bv mandating the use of TXVs.
In

### any case, manufacturers may well find that the SEERbenefits offered by TXVsare compelling enough under the new efficiency standards that they would offer TXVsin a substantial amount of baseline equipment without further encouragementby the Department. The Engineering Analysis suggests that manufacturers are currently more likely to incorporate TXVs into their 12 SEER and 13 SEERproducts than in their 10 SEER products. We would

93 Q:\EE-4I\iE-431ICAC\StandRul\NOPR\DraftNOPRICACNOPRI6.wpd August4. 2000 (I:45PM)

### EE-RM/STD.98-4 40 

### -^ 7 expect, therefore, that TXV use would be much more prevalent under higher efficiency standards.
Forthese reasons, the Department feels that the current test procedure provides the proper encouragement for manufacturers to incorporate TXVs into their products, and that neither a 'XV requirement nor a lower standard for TXV-bearing products arejustified at thistime. We welcome additional comments on this issue, particularly regarding whether our concerns regarding the perceived reliability problems and potential misuses associated with widespread use ofTXVs are valid.

L. OtherComments 

### 1. Latent Heat Removal The Southern Company, Virginia Power, and R.B. Stotz insisted that increased equipment efficiency impacts the equipment's ability to properly dehumidify (i.e., remove latent heat). Virginia Power specifically wants assurances that any increase in the standard will maintain current humidity control capabilities. In addition, it assertsthat the costs ofmaintaining humidity control should be included inthe analysis. (Virginia Power, No. 27 at 2). The Southern Company claims that higher SEER values will lead to larger indoor coils which inturn will result in higher air temperatures leaving theindoor coil. The higher the air temperature, the less dehumidification occurs. They also claim that while more efficient systems may dehumidify properly at rated test conditions, their ability to dehumidify under high indoor humidity conditions are worse than less efficient equipment. (Southern Company, No. 29 at 3-4; R.B.
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# 7
expect, therefore, that TXVuse would be much more prevalent underhigher efficiency standards.

Forthese reasons, the Department feels that the current test procedure provides the proper encouragement for manufacturers to incorporate TXVs into their products, and that neither a TXV requirement nor a lower standard for TXV-bearing products arejustified at this time. We welcome additional comments on this issue, particularlyregarding whether our concerns regarding the perceived reliability problems and potential misuses associated with widespread
use ofTXVs are valid.
L. Other Comments 1. Latent Heat Removal The Southern Company, Virginia Power, 'and R.B. Stotz insisted that increased equ:pment efficiency impacts the equipment's ability to properly dehumidify (i.e., remove latent**hea~).** Vi.rginia Power specifically wants assurances that any increase in the standard will mainta!n current humidity control capabilities. In addition, it asserts that the costs ofmaintaining humidity control should be included in the analysis. (Virginia Power, No. 

### 27 at 

### 2). The Southern Company claims that higher SEERvalues will lead to larger indoor coils which in tum will result in higher air temperatures leaving the indoor coil. The higher the air**tempera~re,** the less dehumidification occurs. They also claim that while more efficient systems may dehumidify !,roperly at rated test conditions, their ability to dehumidify under high indoorhumidity conditions are worse than less efficient equipment. (Southern Company, No. 29 at 3-4; R.B. 94 Q:\EE41\EE431ICAC\StandRuJ\NOPR\DraftNOPR\CAC:-;OPR16.**~ ~**  August 4. 2000 (I**:45P~**EE-RM/STD-98-440- 

## 7 Stotz, No. 24 at 1). Trane counters the claims made by the Southern Company and Virginia Power by stating that there isabsolutely no evidence to support the claim that more efficient equipment has less latent heat removal capability. (Crawford, Trane, Transcript, pp. 272-273).
Trane's claim that there isno relationship between equipment efficiency and its ability to dehumidify issubstantiated by research conducted by ARI. From this research, ARI demonstrated for hundreds ofsystems that latent heat removal isnot obviously impacted by increases in equipment efficiency at rated conditions (i.e., 95°F outdoor temperature)". Not to dismiss the concerns ofVirginia Power and the Southern Company, we recognize the h'umidity 

### control problems that exist inthe southern region ofthe U.S. For the excessive humidity conditions commonly experienced inthe South, the equipment may very likely not provide adequate dehumidification. But rather than focusing on the equipment efficiency as the source of the problem, proper installation and maintenance practices also likely play a large role inthe equipment's performance. Other factors to consider are the duct system as well as thebuilding shell characteristics. All these factors play a role inhow a system dehumidifies. Tolay blame only onthe efficiency ofthe equipment ignores how otherfactors contribute to the system's abilit; to properly dehumidify.
2. 3-Phase Equipment ACEEE asserted that ifan identical standard is tobe set for both single-phase and 3-phase central air conditioners and heat pumps under 65,000 Btu/hr, then 3-phase equipment
"D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2). Q:\EE-41\EE-431\CAC\StandRWuNOPR\DraftNOPR\CACNOPR 6.wpd 95 August 4, 2000 (1:45PM) EE-RM/STO-9S-440-:#0?

# t11
Stotz, No. 24 at 1). Trane countersthe claims made by the Southern Company and Virginia Powerby stating that there is absolutely no evidence to support the claim that more efficient equipment has less latent heat removal capability. (Crawford, Trane, Transcript, pp. 272-273).

Trane's claim that there is no relationship between equipment efficiency and its ability to dehumidify is substantiated by research conductedby ARI. Fromthis research, ARI demonstrated for hundreds ofsystems that latent heat removal is not obviously impacted by increases 

### in equipment efficiency at rated conditions (i.e., 95°F outdoortemperature)ll. Not to dismiss the concerns ofVirginia Power and the Southern Company, we recognize the r:Jmic:iity control problems that exist in the southern region ofthe U.S. Forthe excessive humidity conditions commonly experienced in the South, the equipment may very likely not provide adequate dehumidification. But rather than focusing on the equipment efficiency as the source of the problem, proper installation and maintenance practices also likely playa large role in the equipment's performance. Other factors to consider are the duct system as well as the building shell characteristics. All these factors playarole in how a system dehumidifies. To lay blame only on.the efficiency ofthe equipment ignores how other factors contribute to the system's**abilit~** to properly dehumidify.

2. 3-Phase Equipment ACEEE asserted that ifan identical standard is to be set for both single-phase and 3-phase central air conditioners and heat pumps under 65,000 Btuihr, then 3-phase equipment

11 D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2). 95 Q:IEE-4IIEE-431ICAClStandRuI\NOPRIDraftNOPRiCAQ;OPRI6.wpd**~** August4. 2000 (J :45PM)

### EE-RM/STD-98-440--'e / .o should be incorporated into the rulemaking analysis. Alternatively, if3-phase equipment is excluded from the analysis, it should be made clear that a new standard on 3-phase equipment willbe set based on a new analysis covering 3-phase equipment.
EPACT provides for DOE to amend the standards for these products when ASHRAE amends the standards found in ASHRAE 90.1. When ASHRAE has completed its consideration of standards forthese products, DOE will analyze 3-phase equipment under a separate rulemaking pertaining to commercial air-conditioning and heat pump equipment.

3. SEER-HSPF Relationship ARI supports the Department's HSPF-SEER standard pairings proposed in the Supplemental ANOPR. (ARI No. 48 at 4). ACEEE, VEIC, and PG&E noted that the Department's definition ofHSPF-SEER pairing for the standard levels itanalyzed seemed arbitrary or too lenient and preferred that the Department establish higher HSPF levels. (ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4). The objections are understandable since the Supplemental ANOPR and its associated TSD did not adequately explain the Department's methodology for arriving atthe HSPF-SEER pairings.
The Department plotted the relationship between HSPF and SEER for all 3-ton split heat pumps listed inthe Spring 1998 ARI Directory ofCertified Unitary Equipment. At 10 SEER, the difference between the minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The Department then determined the equation ofthe line thatran generally parallel with the median
Q:\EE.41\EE-431\CAC\SandRul\NOPR\DaftNOPR\CACNOPRI 6.pd 96 August 4, 2000 (1.45PM) EE-RM/STO-9S-440-#-

### ~!}

# 1, . should be incorporated into the rulemaking analysis. Alternatively, if3-phase equipment is excluded from the analysis, it should be made clearthat anew standard on 3-phase equipment willbe setbased on a new analysis covering 3-phase equipment.

EPACT provides for DOE to amend the standards for these products when ASHRAE amends the standards found 

### in ASHRAE 90.1. When ASHRAE has completed its consideration ofstandards for these products, DOE will analyze 3-phase equipment under a separate rulemaking pertaining to commercial air-conditioning and heat pump equipment.

3. SEER-HSPF Relationship ARI supports the Department's HSPF-SEER standard pairings proposed in the Supplemental ANOPR. 

### (ARI No. 48 at 4). ACEEE, VEIC, and PG&E noted that the Department's definition ofHSPF-SEER pairing for the standard levels it analyzed seemed arbitlary or too lenient and preferred that the Department establish higher HSPF levels. (ACEEE, No. 43 at 5; VEIC, No. 32 at 6; PG&E, No. 31 at 4). The objections are**llOder~imdable** since the Supplemental ANOPR and its associatedTSD did not adequately explain the Department's methodology for arriving at the HSPF-SEER pairings.
The Department plotted the relationship between HSPF and SEER for all 3-ton split heat pumps listed in the**~pring** 1998 

### ARI Directory ofCertified Unitary Equipment. At 10 SEER, the difference between the minimum HSPF (6.8) and the median (7.1) was 0.3 HSPF. The Department then determined the equation ofthe line that ran generally parallel with the median 96**Q:\EE-41~-431**ICAC\StandRul\NOPR\DraftNOPRICACNOPRI6.wpd August 4. 2000 (1.45PM)

### EE-RM/STD-98-440-i'7~: 7. HSPF at each SEER level, while passing through the 10 SEER, 6.8 HSPF point. Table V.5 reviews the derivation ofthe SEER-HSPF pairings.

Table V.5: Comparison ofProposed HSPF Standard Levels with Median HSPFs of Equipment Listed in the ARI Unitary Directory Cooling Efficiency (SEER) 10 11 12 13 14 15 16 17 Median Heating Efficiency 7.1 7.4 7.9 7.9 7.9 8.9 8.2 8.4 (HSPF) Recommended Heating 6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.6 Efficiency Standard (HSPF)

_ Offset from Median (HSPF) -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2

Even though the Department does not have information on the distribution ofheat pump sales byHSPF at each SEER level, it is apparent that the market currently favors products that exceed the minimum allowable HSPF level. This is due both to the natural relationship between HSPF and SEER and the preference in the market forhigh HSPF heat pumps in cooler climates. The Department believes that establishing an HSPF standard equal to the current median at a given SEER level would impose an undue design constraint on manufacturers, adding to the cost andburden ofdesigning, producing, testing, and qualifying the product without resulting in a significant increase in the average HSPF ofequipment sold. Without further information onthe cost ofattaining higher HSPFs or the shipments ofheat pumps byHSPF level, the Department has no basis for modifying its current HSPF-SEER standard combinations.

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HSPF at each SEERlevel, while passing through the 10 SEER, 6.8 HSPF point. Table VS reviews the derivation ofthe SEER-HSPF pairings.

Table V.S: Comparison ofProposedHSPF StandardLevels with Median HSPFs of Equipment Listed in the ARI Unitary Directory Cooling Efficiency (SEER) 10 11 12 13 14 15 16 Median Heating Efficiency 7.1 7.4 7.9 7.9 7.9 8.9 8.2 (HSPF) Recommended Heating 6.8 7.1 7.4 7.7 8.0 8.2 8.4 Effidency Standard (HSPF) 17 8.4 8.6 Offset from Median (HSPF) -0.3 -0.3 -0.5 -0.2 +0.1 -0.7 +0.2 +0.2

Even though the Department does not have information on the distribution of heat pump**sal~s** by HSPF at each SEERlevel, it is apparent that the market currently favors products that exceed the minimum allowable HSPF level. This is due bothtothe natural relationship between HSPf and SEER and the preference in the market for high HSPF heat pumps in cooler climates. The Department believes that establishing an HSPF standard·equal to the current median at a given SEERlevel wouldimpose an undue design constraint on manufacturers, adding to the cost and burden ofdesigning, producing, testing, and qualifying the product without resulting in a significant increase

### in the average HSPF ofequipment sold. Without further information on the cost ofattaining higherHSPFs orthe shipments ofheat pumps byHSPF level, the Department has no basis for modifying its current HSPF-SEER standard combinations.

97 Q:IEE-411EE-431ICACIStandRu!\NOPR\Dra!l'iOPR\CACNOPR16.wpd " August 4. 2000 (I:45PM)

### EE-RM/STD-98-440 - 40 

# 7 4. Max Tech The Supplemental ANOPR analysis proposed a Max Tech level of20 SEER. ARI, Trane, andYork commented that a prototype hasn't been built that has exceeded 18 SEER. (Wethje, ARI, Transcript p.66; Crawford, Trane, Transcript p.69; andMadera, York, Transcript p. 71). The Department also understands that 18 SEER isthe highest efficiency level currently available.
While the Department believes improvements to the 18 SEER design are certainly possible, it agrees with the industry that any analysis based on a design higher than 18 SEER would be pure speculation. Therefore, the Department considers 18 SEER to be the Max Tech at this timefor cooling performance. The Max Tech level for heating efficiency is9.4 HSPF, which isthe highest HSPF rating currently available inresidential heat pumps. Any parties possessing knowledge ofprototype central air conditioners or heat pumps that exceed 18 SEER
or 9.4 HSPFlevels are encouraged to provided such information incomment on today's proposed rule.
DOE does not have relative cost data for 18 SEER units as ARI did not provide the Department data for equipment exceeding 15 SEER. In lieu ofperforming a reverse engineering analysis on an 18 SEER design, theDepartment isproceeding as ifthe 18 SEER equipment cost and price were equal to those ofthe 15 SEER equipment. DOE believes the 18 SEER cost would be higher because the product is more complex:

Q:\EE41'.-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR1 6.wpd 98 ' August4. 2000 (1:45PM) EE-RM/STD-9800440

# -# 

# c:?() 

# 1 4. Max Tech The Supplemental ANOPR analysis proposed a Max Tech level of20 SEER. ARI, Trane, and York commented that aprototype hasn't been built that has exceeded 18 SEER. (Wetnje, ARI, Transcript p. 66; Crawford, Trane, Transcript p. 69; and Madera, York, Transcriptp.71). The Department also understands that 18 SEER is the highest efficiency level currently available.

While the Department believes improvements to the 18 SEERdesign are certainly possible, it agrees with the industry that any analysis based on a design higher than 18 SEER would be pure speculation. Therefore, the Department considers 18 SEERto be the Max Tech at this time for cooling performance. The Max Tech level for heating efficiency is 9.4 HSPF, whi.:h is the highest HSPF rating currentlyavailable in residential heat pumps. Any parties possessing knowledge ofprototype central air conditioners orheat pumps that exceed 18 SEER
or 9.4 HSPF levels are encouraged to provided such information in com,ment ontoday's**propos~d** rule.

DOE does not have relative cost data for 18 SEER units as ARI did not provide the Dp.partment data for equipment exceeding 15 SEER. In lieu ofperforming a reverse engineering analysis on an 18 SEER design, the Department is proceeding as ifthe 18 SEER equipment cost and price were equal to those ofthe 15 SEER.equipment. DOE believes the 18 SEER cost would be higher because the product is more complex:

98 Q:\EE-41,¥-431\CAc\StandRuI\NOPR\Draft."10PR\CACNOPR16.wpd August 4. 2000 (1:45PM)EE-RM/STD-98-440 j#^ / VI. Analytical Results A. TrialStandard Levels 

### Table VI. 1presents the trial standards levels analyzed for today's proposed rule and the corresponding efficiency level for each class ofproduct. Trial standard level 5 isthe max tech level for each class ofproduct.
Table VI. 1: Trial Standards Levels for Central Air Conditioners andHeat Pumps (SEER) Trial Standard Split Air Packaged Air Split Heat Packaged Level Conditioners Conditioners Pumps HeatPumps 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
B. Significanceof EnergySavings 

### To estimate the energy savings through 2030 due to revised standards, we compared the energy-consumption ofcentral air conditioners and heat pumps under the base case to energy consumption ofcentral air conditioners and heat pumps under the revised standard. We examined five standard levels. For each trial standard examined, several different scenarios were analyzed consisting ofvariations on: (1) electricity price and housing projections; (2)equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5)societal discount rate. Electricity price and housingprojections were based onthree different AEO 2000 forecasts: (1)Reference Case, (2) High Growth Case, and (3)Low Growth Case. We analyzed

Q:\EE-41\EE431 \CAC\StandRulNOPR\DratNOPR\CACNOPR 16wpd 99 August 4. 2000 (1:45PM) VI. Analytical Results A. Trial StandardLevels Table VI. 1presents the trial standards levels analyzed for today's proposed rule and the corresponding efficiency level for each class ofproduct. Trial standard level 5is the max: tech level for each class ofproduct.
Table VI.I: Trial Standards Levels for Central Air Conditioners and Heat Pumps (SEER) Trial Standard Split Air Packaged Air Split Heat Packaged Level Conditioners Conditioners Pumps HeatPumps 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
B. Significance of EnergySavings To estimate the energy savings through 2030 due to revised standards, we compared the energy,1:onsumption ofcentral air conditioners and heat pumps under the base case to energy



### - ' cons11mption ofcentral air conditioners and heat pumps under the revised standard. We examined five standard levels. For each trial standard examined, several different scenarios were analyzed consisting ofvariations on: (1) electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) societal discount rate. Electricity price and housing projections were based on three different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. We analyzed
99 Q:IEE-4I,fE-431ICAC\StandRuJINOPRIDrnftNOPRICACNOPR16,wpd August4. 2000 (I:45PM)

### EE-RM/STD-98-440O-,4 

### 97 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. Manufacturer costs were based onARI-provided mean cost data. Since several comments suggested that the industry-provided cost estimates were overstated, cost data from the reverse engineering analysis were analyzed as an alternative scenario. Equipment lifetime was based on aretirement function with an 18.4 year average lifetime coupled with the inclusion ofcompressor replacement costs. However, since several comments suggested that the equipment life is actually shorter, a retirement function yielding an average lifetime of 14 years without the inclusion ofcompressor replacement costs was analyzed as an alternative scenario.
For calculating NPV, a societal discount rate of 7% was assumed however, a 3%value was investigated as an alternative scenario inaccordance withthe Office ofManagement and Budget's (OMB) GuidelinestoStandardize MeasuresofCostsandBenefitsandtheFormat of AccountingStatements.
Table VI.2 shows the range ofenergy savings for each thethree shipments scenarios for each trial standard level based on varying electricity and housing projections. The energy savings assume the ARI mean manufacturer cost estimate, an 18.4-year average lifetime with compressor replacement and a 7% societal discount rate. The electricity scenarios are the AEO 2000 Reference, High Growth, andLow Growth cases.

Q:\EE-41IE-431\CAC\StandRulNOPR\DraftNOPR\CACNOPR 16.wpd 100 August 4, 2000 (1:45PM) ------ ------------



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

## p?lJ 

# 1 three efficiency scenarios, each ofwhich assumed adifferent efficiency distribution after new standards would take effect: (1) 

### NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturer costs were based on ARI-provided mean cost data. Since several comments**s~ggested** 

### that the industry-provided cost estimates were overstated, cost data from the reverse engineering analysis were analyzed as an alternative scenario. Equipment lifetime was based on aretirement function with an lS.4 year average lifetime coupled with the inclusion ofcompressor replacement costs: However, since several comments suggested that the equipment life is actually shorter, aretirement function yielding an average lifetime of 14 years·without the inclusion ofcompressor replacement costs was analyzed as an alternative scenario.
For calculating NPV, a societal discount rate of 7% was assumed however, a 3% value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to StandardizeMeasures a/CostsandBenefitsandthe Format of AccountingStatements.



### .Table VI.2 shows the range ofenergy savings for each the three shipments scenarios for each trial standard level based on varying electricity and housing projections. The energy savings assume the ARI mean manufacturer cost estimate, an lS.4-year average lifetime with compressor replacement and a7% societal discount rate. The electricity scenarios are the AEO 2000 Reference, High Growth, and Low Growth cases.

100 Q:IEE-41\EE-43JICAC\StandRuI\NOPRlDraftNOPRICAOiOPRJ6.wpd August 4. 2000 (J :45PM)

### EE-RM/STD-98-440- o7 " 7 Table VI.2: Energy Savings based on ARI Mean Manufacturer Costs, 18.4 year Retirement Function with Compressor Replacement, and a 7% Discount Rate Energy Savings For Units Sold from 2006 to 2030 Trial Standard Energy Savings (Quads) Level NAECA Roll-up Shift 1 2.1 to 2.2 1.9 to 2.0 2.3 to 2.5 2 3.7 to 4.0 3.5 to 3.8 4.2 to 4.6 3 4.3 to 4.6 4.1to4.4 4.8 to 5.1 4 5.3 to 5.7 5.2 to 5.5 5.8 to 6.2 5 10.2 to 10.9 10.2 to 10.9 10.2 to 10.9 

### Table VI.3 shows how each ofthethree scenarios described above (reverse engineering costs, 14 year average life, and 3%discount rate) impact the energy savings. The three scenarios
were investigated only for the NAECA efficiency scenario and the AEO 2000 Reference Case electricity price and housing projection. Table VI.3: Energy Savings based on the NAECA Efficiency Scenario and AEO Reference Case Energy Savings ForUnits Sold from 2006 to 2030 Energy Savings (Quads) Trial Standard .Level Reverse Engineering Manufacturing Cost 14year Lifetime 3% Discount Rate 1 2.2 2.1 2.2 2 3.8 3.7 3.8 3 4.4 4.2 4.4 4 5.5 5.3 5.4 5 10.8 10.4 10.4 

### C. PaybackPeriod As discussed above, the Act requires the Department to examine payback periods to determine ifthe three year rebuttable presumption ofeconomicjustification applies. As

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

# c1/tJ 1
Table VI.2: Energy Savingsbased on ARI Mean Manufacturer Costs, 18.4 year Retirement Function with CompressorReplacement, and a 7% Discount Rate Energy Savings ForUnits Sold from 2006 to 2030 Trial Standard Energy Savings (Quads) Level NAECA Roll-up Shift 1 2.1 to 2.2 l.9to 2.0 2.3 to 2.5 2 3.7 to 4.0 3.5 to 3.8 4.2 to 4.6 3 4.3 to 4.6 4.1 to 4.4 4.8 to 5.1 4 5.3 to 5.7 5.2 to 5.5 5.8 to 6.2 5 lO.2 to 10.9 lO.2 to lO.9 lO.2 to 10.9
Table VI:3 shows how each ofthe three scenarios described above (reverse engineering costs, 14 year average life, and 3% discount rate) impact the energy savings. The three scenarios
were investigated only for theNAECA efficiency scenario and the AEO 2000 Reference Case electricity price and housing projection. Table VI.3: Energy Savings based on the NAECAEfficiency Scenario and AEO Reference Case Energy Savings ForUnits Sold from 2006 to 2030 Trial Standard Energy Savings (Quads) Level Reverse Engineering ManufacturingCost 14 yearLifetime 3% Discount Rate 1 2.2 2.1 2.2 2 3.8 3.7 3.8 3 4.4 4.2 4.4 4 5.5 5.3 5.4 5 10.8 10.4 lO.4 

### C. PaybackPeriod As discussed above, the Act requires the Departmentto examine payback periods to determine ifthe three year rebuttable·presumption ofeconomicjustification applies. As

101 Q:IEE-4I\EE-431ICAC\StandRuJINOPR\Draft.'10PRICACNOPRI6.wpd**~** August 4. 2000 (I :4SPM)

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

## t-7' 7 

## / prescribed bythe Act, the rebuttable payback period is"calculated under the applicable test procedure, ...".


### The annual space-cooling and space-heating energy consumption calculated based onthe hours ofuse inthe test procedure are on the order of50% greater than the weighted-average values from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and hourly simulations for commercial buildings). Thismeans that, for any given standard level, the payback period calculated from the test procedure will be significantly shorter than the average payback value calculated from the LCC analysis which was based on the 1997 RECS data.
In Table VI.4a, we list the median payback periods for product classes and efficiency levels according to themethods employed by the LCC analysis. Table VI.4b isthe rebuttable presumption payback period based on the Department ofEnergy's test procedure.

102 Q:\EE-41\-431\CAC\StandRul\NOPR'raftNOPR\CACNOPR 16.wpd ~~~~~~102 ^,~~~August 4,2000 (1:45PM) EE-RM/STD-98-440
.... 

## f::c:<lJ 

# 1 prescribed by the Act, the rebuttable payback period is "calculated under the applicable test procedure, ...".
The annual space-cooling and space-heating energy consumption calculated based on the hours ofuse in the test procedure are on the order of50% greaterthan the weighted-average values from the LCC analysis (i.e., analyses based on the 1997 RECS for residential buildings and hourly simulations for commercial buildings). This means that, for any given standard level, the payback period calculated from the test**proce~ure** 

### will be significantly shorterthan the average payback value calculated from the LCC analysis which was based on the 1997 RECS data.

In Table VI.4a, we list the median payback periods for prcduct classes and efficiency levels according to the methods employed by the LCC analysis. Table VI.4b is the rebuttable presl'mption payback period based on the Department ofEnergy's test procedure.

102 Q:\EE41\Fj431ICAC\StandRuJINOPR\DraftNOPRICACNOPR16.wpd August4. 2000 (I :45PM)

### EE-RM/STD-98-440--/' 72 Table VI.4a: Summary ofLCC Payback Median Period ARI Mean Reverse 14-year Lifetime Efficiency Manufacturing Engineering Scenario ARI Mean Product Class Level Cost' Manufacturing Manufacturing Cost Cost Scenario' Split System Central 11 10.6 7.8 10.5 Air Conditioner 12 12.6 9.8 12.8 13 16.0 11.3 16.2 18 36.0 19.6 50.4 Split System Heat 11 5.5 2.7 5.5 Pump 12 7.2 3.9 7.3 13 9.3 6.4 9.5 18 17.3 14.0 19.9 Single Package Air 11 16.1 7.7 16.6 Conditioner 12 14.0 7.5 14.2 13 21.8 14.5 21.8 18 48.8 25.1 88.1 Single Package Heat 11 8.1 4.6 8.1 Pump 12 8.7 4.0 8.7 13 13.2 8.4 13.4 18 19.4 12.8 23.1 Assumes a 18.4-year lifetime with a compressor replacement at 14 years.

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## EE.RM/STD.9~.440-.tt 

# c??lJ

# 7
Table VI.4a: Summary ofLCC Payback Median Period ARlMean Reverse 14-yearLifetime Product Class Efficiency Manufacturing Engineering ScenarioARI Mean Level Cost! Manufacturing ManufacturingCost Cost Scenariol Split System Central 11 10.6 7.8 10.5 Air Conditioner 12 12.6 9.8 12.8 13 16.0 11.3 16.2 18 36.0 19.6 50.4 Split System Heat 11 5.5 2.7 5.5 Pump 12 7.2 3.9 7.3 13 9.3 6.4 9.5 18 17.3 14.0 19.9 Single Package Air 11 16.1 7.7 16.6 Conditioner 12 14.0 7.5 14.2 13 21.8 14.5 21.8 18 48.8 25.1 88.1 Single Package Heat 11 8.1 4.6 8.1 Pump 12 8.7 4.0 8.7 13 13.2 8.4 13.4 18 19.4 12.8 23.1 1Assumes a 18.4·year lifetime with a compressor replacement at 14 year:s.

103 Q:IEE-411EE-431ICAC\StandRuJINOPRIDraftNOPRICACNOPR16.wpd 4 . August4. 2000 (I :45PM)

### EE-RM/STD-98-440O-# Table VI.4b: Summary ofRebuttable Payback Period ARI Mean Product Class Efficiency Level Manufacturing Cost' Split System Central '11 4.7 Air Conditioner 12 5.8 13 7.6 18 11.3 Split System Heat 11 2.5 Pump 12 3.3 13 4.5 18 6.8 Single Package Air 11 7.3 Conditioner 12 6.2 13 9.8 18 13.3 Single Package Heat 11 3.7 Pumip 12 4.0 13 6.5 18 7.2 Assumes a 18.4-year lifetime with acompressor replacement at 14 years.

D. EconomicJustification 

### 1. Economic Impact on Manufacturers 'a.Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the impact ofhigher efficiency standards on air conditioner manufacturers. The TSD explains the analysis infurther detail. As part ofthe MIA, we discussed potential impacts with six major manufacturers responsible for approximately 90% ofthe residential air conditioner and heat pump sales. We also interviewed two niche manufacturers to understand how theirfinancial situation differs from that oftheirlarger counterparts. These interviews are inaddition to those
we conducted as part ofthe Supplemental ANOPR. The interviews provided valuable Q:\EE-41EE-431\CAC\StandRul\NOPR\DratNOPR\CACNOPR16.wpd 104 August 4,2000 (1:45PM) 

### ------------------- --

..-.- EE-RM/STO-9S-440-/t'

### ~() 

# 1
Table VI.4b: Summary ofRebuttable Payback Period ARIMean Product Class Efficiency Level Manufacturing Costl Split System Central '11 4.7 Air Conditioner 12 5.8 13 7.6 18 11.3 Split System Heat 11 2.5 Pump 12 3.3 13 4.5 18 6.8 SinglePackage Air 11 7.3 Conditioner 12 6.2 13 9.8 18 ' 13.3 Single PackageHeat 11 3.7 Pump 12 4.0 13 6.5 18 7.2 1Assumes a 18.4-yearlifetime with acompressorreplacement at 14 years.
D. EconomicJustification 1. Economic Impact on Manufacturers ". a. Background. We performed a Manufacturer Impact Analysis (MIA) to estimate the inI!Jact ofhigher efficiency standards on air conditioner manufacturers. The TSD explains the analysis in further detail. As part oftheMIA, we discussed potential impacts with six major manufacturers responsible for approximately 90% ofthe residential air conditioner and heat pilmp sales. We also interviewed two niche manufacturers to understand how their financial situation differs from that oftheir larger counterparts. These interviews are in addition to those
we conducted as part ofthe Supplemental ANOPR. Theinterviews provided valuable 104 Q:\EE41\EE431ICAC\StandRulINOPRIDraftNOPRICACNOPRI6.wpd August4, 2000 (1:45P!o,1)

### EE-RM/STD-98-440-4_~ , 7 information used to evaluate the impacts ofa new standard onmanufacturers 'cash flows, manufacturing capacities and employment levels.
TheMIA has both quantitative and qualitative aspects. Quantitative analysis primarily relies on the GRIM, an industry cash flow model customized for this rulemaking. The GRIM inputs are assumptions regarding the industry cost structure, shipments, and revenues. The key output isthe industrynet present value (INPV). Different sets ofassumptions (scenarios) produce different results as described below.

In the GRIM we evaluated each ofthe shipment scenarios, i.e., "NAECA", "Rollup", and "Shift". Changes inefficiency mixby efficiency standard level are akey driver ofmanufacturer finances since costs and revenues are both tiedto shipments.
Two cost scenarios, "Industry Relative Cost" and "Reverse-Engineering Relative Cost",
were also examined. These relative costs are also used as thebasis for deriving the production costs o'fequipment above theminimum efficiency level. The "Reerse-Engineering Relative Cost" scenario was applied only tothe "NAECA" product mix scenario in order to determine the effects oflower production costs onthe MIAresults.
The equipment lifetime scenarios assumptions, "18-year life" and "14-year life", were considered. The "14-year life" assumption applied only to the "NAECA" and "Industry Relative Cost" scenarios to isolate the effects ofa shorter product life on the results.
Q:\EE-41\EE431 \CAC\StandRulNOPR\DraftNOPR'CACNOPR16.wpd 105 August 4, 2000 (1:45PM) EE-RM/STO-98-440

# 4f**~ ~** 

# 1 information used to evaluate the impacts ofanew standard on manufacturers 'cash flows, manufacturing capacities and employment levels.
The MIAhas both quantitative and qualitative aspects. Quantitative analysis primarily relies on the GRIM, an industry cash flow model customized for this l1Jlemaking. The GRIM inputs are assumptions regarding the industry cost structure, shipments, and revenues. The key' output is the industry net present value (INPV). Different sets ofassumptions (scenarios) produce different results as described below.
In

### the GRIM we evaluated each ofthe shipment scenarios, i.e., "NAECA", "Rollup", and "Shift". Changes in 

### efficiency mixby efficiency standard level are akey driver ofmanufacturer finances since costs and revenues are both tied to shipments.
Two cost scenarios, "IndustryRelative Cost" and "Reverse-Engineering Relative Cost",. were also examined. These relative costs are also used as thebasis for deriving the production costs**~'f**

### equipment above the minimum efficiency level. The "Re"erse-EngineeringRelative Cost" scenario was applied only to the "NAECA" product mix scenario in orderto determine the effects oflowerproduction costs on the MIAresults.
The equipment lifetime scenarios assumptions, "IS-year life" and "I4-yearlife", were considered. The "14-yearlife" assumption applied only to the "NAECA" and "Industry Relative Cost" scenarios to isolate the effects ofa shorter product life on the results. 105 Q:\EE-41\EE-431ICAC\StandRulINOPRIDraftNOPR\CACNOPRI6.wpd .1 August4. 2000 (1:45PM)

### EE-RM/STD-98-440-- 4 

# 7
The interviews revealed that manufacturers use different pricing strategies and place different levels ofemphasis on the sale ofhigher efficiency-products. Manufacturers fall into two basic groups inthis regard. The first group has lower operating and production costs than its competitors and targets such price-sensitive consumers as new home builders. This focus on low price limits manufacturers' ability and desire to sell premium equipment. Because they have a cost advantage over their competitors, the lower cost manufacturers can achieve a higher operating profit margin on their baseline equipment and still maintain a price advantage. They then apply a fairly consistent markup across efficiency levels.
The higher cost manufacturers typically place more ofan emphasis on marketing, service, and research than do their lower cost competitors. Faced with stiffprice competition from the lower cost manufacturers in price-sensitive markets, the higher cost manufacturers are forced to reduce their price (and markup) on their baseline equipment to the minimum level sustainable. They then target lessprice sensitive customers by offering products with premium features and higher efficiency. These products carry higher markups.
Since higher efficiency standards will affect each group ofmanufacturers differently, we set up two versions ofthe GRIMto model each group independently. To represent the lower cost manufacturers, we reduced the operating expense ratio and research and development expense ratio to below the industry averages. We also assumed that a single markup applies to products across all efficiency levels. To model higher cost manufacturers, we raised the operating expense Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR16.wpd 106 August4. 2000 (1:45PM) -------.--

The interviews revealed that manufacturers use different pricing strategies and place different levels ofemphasis on the sale ofhigher efficiency-products. Manufacturefs fall into two basic groups in this regard. The first group has lower operating and production costs than its competitors and targets such price-sensitive consumers as new home builders. This focus on low price limits manufacturers' ability and desire to sell premium equipment. Because they have a cost advantage overtheir competitors, the lower cost manufacturers can achieve a higher operating**pr~fit** margin on theirbaseline equipment and still maintain aprice advantage. They then apply afairly consistent markup across efficiency levels.
The higher cost manufacturers typically place more ofan emphasis on marketing, service, and researchthan do their lower cost competitors. Faced with stiffprice competition from the lower cost manufacturers in price-sensitive markets, the higher cost manufacturers are forced to reduce their price (and markup) on theirbaseline equipment to the minimum level sustainable.**Th~y** then target less price sensitive customers by offering products with premium features and higher efficiency. These products carry higher markups.
Since higher efficiency standards will affect each group ofmanufacturers differently, we set up two versions ofthe GRIM to model each group independently. To represent the lower cost manufacturers, we reduced the operating expense ratio and research and development expense ratio to below the industry averages. We also assumed that a single markup applies to products across all efficiency levels. To model higher cost manufacturers, we raised the operating expense 106 Q:IEE-41IEE-431\CAc\StandRulINOPR\DraftNOPR\CACNOPR16.wpd August 4. 2000 (l :45PM)

### EE-RM/STD-98-440-^ 4 / ratio and research and development ratios to above the industry average. We then assumed that markups increase roughly linearly as the efficiency level increases. This represents two effects: selling a greater fraction ofhigher margin premium product as efficiency level rises, and being able to secure a higher profit margin onproducts byvirtue ofthe higher efficiency.
To represent the industry in aggregate, we combined the results ofthe two GRIM versions, giving 25% weight to the results ofthe lower-operating-cost group and 75% weight to the results ofthe higher-operating-cost group. This ratio reflects theprevalence ofeach strategy in the marketplace. Many companies may pursue both strategies simultaneously through different brands and divisions.
b. Industry CashFlow AnalysisResults. Tables VI.5 through VI.7 present the GRIM results for the unitary air conditioning industry for the three shipment scenarios based onthe industry provided mean cost multipliers and an 18-year product life. Results assume that manufacturers with lower operating costs control 25% ofthe market and those with higher operating costs control 75%. Since we did not collect information regarding the cost or investments involved in manufacturing product at 18 SEER, we did not assess impacts under Max Tech.
Table VI.5: Changes inIndustry NetPresent Value
- IndustryRelative Cost, 18 Year Life, NAECA Efficiency Mix

Q:\EE-41\EE.431\CAC\StandRul\NOPR\DraftNOPRxCACNOPRI6.wpd 107 August4. 2000 (1:45PM) ratio and research and development ratios to above the industry average. We then assumed that markups increase roughly linearly as the efficiency level increases. This represents two effects: selling a greaterfraction ofhigher margin premium product as efficiency level rises, and being able to secure a higher profit margin on productsby virtue ofthe higher efficiency.

To represent the industry in aggregate, we combined the results ofthetwo GRIM versions, giving 25% weight to the results ofthe lower-operating-cost group and 75% weight to the results ofthe higher-operating-cost group. This ratio reflects the prevalence ofeach strategy in the marketplace. Many companies may pursueboth strategies simultaneously through different brands and divisions.

h. Industry Cash FlowAnalysisResults. Tables VI.5 through VI.7 present the GRIM results for theunitary air conditioning industry for the three shipment scenariosbased on the industry provided mean cost multipliers and an I8-year product life. Results assume that manufacturers w,ith lower operating costs control 25% ofthe market and those with higher operating costs control 75%. Since we did not collect information regarding the cost or investments involved in manufacturing product at 18 SEER, we did not assess impacts under MaxTech.

Table VI.5: Changes in IndustryNetPresent Value

- IndustryRelative Cost, 18 YearLife, NAECAEfficiency Mix

107 Q:IEE-41IEE-431\CAC\StandRulINOPR\DraftNOPR,CACNOPRI6,wpd August4. 2000 (1 :45PM)EE-RM/STD-98-440,7 

### # ? /.
Stevdar Industry Net Change in INPV from Base Present Value Case Level ($ million) $ million % Base $ 1,603
--

1 $ 1,566 $ (37) -2% 2 $ 1,417 $ (186) -12% 3 $ 1,406 $ '(197) -12% 4 $ 1,420 $ (183) -11% 

### Table VI.6: Changes in Industry Net Present Value

- Industry Relative Cost, 18 Year Life, Roll-up Efficiency Mix

- , Industry Net Change in INPV from Base Standard ent Value ase Present Value Level (Smillion) $ million % Base $ 1,603
-

1 $ 1,422 $ (181) -11% 2 $ 1,241 $ (362) -23% 3 $ 1,236 $ (367) -23% 4 $ 1,268 $ (335) -21%

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## EE.RM/STD.9~.440__

# tf-0?tJ

# 1.
Industry Net Changein INPV from Base Standard Case

Level Present Value ($ million) $ million 0/0 Base $ 1,603 

## - --

I $ 1,566 $ (37) -2% 2 $ 1,417 $ (186) -12% 3 $ 1,406 $ '(197) -12% 4 $ 1,420 $ (183) -11% 

### Table VI.6: Changes in Industry NetPresent Value

- Industry Relative Cost, 18 YearLife, Roll-up Efficiency Mix
Industry Net Standard PresentValue

Level ($ million) Base $ 1,603

1 $ 1,422 2 $ 1,241 3 $ 1,236 4 $ 1,268 $ $ $ $



### 108 Change'in INPVfrom Base Case $ million 0/0



### - - (181) -11% (362) -23% (367) -23% (335) -21%

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

# 1. Table VI.7: Changes in Industry Net Present Value
- Industry Relative Cost, 18 Year Life, Shift Efficiency Mix Industry Net Change in INPV from Base Standard Present Value ase Present Value

Lev($ million) $ million % Base $ 1,603
- -

1 $ 1,740 $ 137 9% 2 $ 1,825 $ 222 14% 3 $ 1,854 $ 251 16% 4 $ 1,914 $ 311 19% 

### TheNAECA and Roll-up scenarios reduce INPV whilethe Shift scenario increases INPV. This result occurs because we assume the higher-operating cost manufacturers accrue much oftheir profits from the sale ofhigher efficiency equipment. As the standard level increases, they earn lower profit margins on that equipment. The loss in profits can be offset by the combination ofmore sales and more expensive equipment. The Shift scenario provides a much more favorable projection ofhigh-efficiency equipment sales than do theNAECA and Rollup scenarios.

Tables VI.8 and VI.9 present the results for the 14-year life assumption and the Reverse 

### Engineering Relative Cost scenario with the NAECA Efficiency Mix scenario.

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# 1. Table VI.?: Changes in Industry Net Present Value _.Industry Relative Cost, 18 Y 

### Lm Shift Effi . Mi 

### ear e, clency x Industry Net Change inINPVfrom Base Standard Case

Level PresentValue ($ million) $ million % Base $ 1,603 

### - -

1 $ 1,740 $ 137 9% 2 $ 1,825 $ 222 14% 3 $ 1,854 $ 251 16% 4 $ 1,914 $ 311 19% 

### The NAECA and Roll-up scenarios reduce INPV while the Shift scenario increases INPY. This result occurs because we assume the higher-operating cost manufacturers accrue much oftheir profits from the sale ofhigher efficiency equipment. As the standard level increases, they earn lower profit margins on that equipment. The loss in profits can be offset by the combination ofmore sales and more expensive equipment. The Shift scenario provides a much more favorable projection ofhigh-efficiency equipment sales than do the NAECA and Rollup scenarios.

Tables VI.S and VI.9 present the results for the 14-yearlife assumption and the Reverse 

### Engineering Relative Cost scenario with the NAECAEfficiencyMix scenario.

109 Q:IEE-41\EE-431ICAClStandRulINOPRlDraftNOPRICACNOPR16.wpd August4, 2000 (I :45PM)EE-RM/STD-98-440 

### tgj9l 7 Table VI.8: Changes in Industry Net Present Value

- Industry Relative Cost, 14 Year Life, NAECA Efficiency Mix Standard IndustryNet Change in INPV from Base

LevelStandard Present Value Case Level (Smillion) million Base $ 1,726

-

1 $ 1,701 $ (25) -1% 2 $ 1,558 $ (168) -10% 3 $ 1,555 $ (171) -10% 4 $ 1,598 $ (128) -7%

Table VI.9: Changes in Industry Net Present Value

- Reverse Engineering Relative Cost, 18 Year Life, NAECA Efficiency Mix Standard Industry Net Change in INPV from Base Standard Present Value Case Level (Smillion) million Base $ 1,539

1 $ 1,509 $ (30) -2% 2 $ 1,380 $ (159) -10% 3 $ 1,368 $ (171) -11% 4 $ 1,370 $ (169) -11% Table VI.10 presents the differential impacts between the groups ofmanufacturers with lower and higher operating costs. The lower operating cost manufacturers benefit under all scenarios and trial standard levels, and the higher operating cost manufacturers benefit only under the Shift scenario. Thereason, again, is that we assume that lower operating cost manufacturers accrue the same profit margin regardless ofthe efficiency level, so as the cost of

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Table VI.8: Changes in Industry Net Present Value

- Industry Relative Cost, 14 Year Life, NAECAEfficiency Mix IndustryNet Change in INPVfrom Base Standard Case

Level PresentValue ($ million) $ million % Base $ 1,726 

## - -

1 $ 1,701 $ (25) -1% 2 $ 1,558 $ (168) -10% 3 $ 1,555 $ (171) -10% 4 $ 1,598 $ (128) -7%

Table VI.9: Changes in IndustryNet Present Value

- Reverse EngineeringRelative Cost, 18 YearLife, NAECAEfficiency Mix Industry Net Changein INPVfrom Base Standard PresentValue Case

Level ($ million) $ million % Base $ 1,539 

## -- --

I $ 1,509 $ (30)**~2%** 2 $ 1,380 $ (159) -10% 3 $ 1,368 $ (171) -11% 4 $ 1,370 $ (169) -11%
TableVI.I 0 presents the differential impacts betweenthegroups ofmanufacturers with lower and higher operating costs..Thelower operating cost manufacturers benefit under all scenarios andtrial standardlevels, and thehigher operating cost manufacturers benefit only underthe Shift scenario. Thereason, again, is that we assumethatlower operating cost manufacturers accrue the sameprofitmargin regardless ofthe efficiencylevel, so as the cost of 110 Q:IEE-41IEE-431ICAC\StandRulINOPR\DraftNOPRICACNOPRI6.wpd August4, 2000 (I:45PM)

### EE-RM/STD-98-440-.. ? '7 the product increases, profits also increase. The higher operating cost manufacturers, on the other hand, lose profits as the standard level rises and theproducts face pricing pressure from the lower cost manufacturers. Table VI. 10: Change inIndustry Net Present Value (%) Relative to Base

- Comparison Between Lower and Higher Cost Manufacturers Reverse IndushyRelative Cost' Engineering Relative Cost Standard

Level NAECA NAECA-14 Year Level N 4 LiYe Roll-up Shift NAECA Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher

Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost 1 5% -5% 6% 4% 3% -16% 9% 9% 5% 4% 2 7% -17% 9% -16% 5% -31% 14% 16% 7% -16% 3 9% -19% 11% -16% 6% -32% 16% 17% 8% -17% 4 15% -19% 19% -16% 13% -31% 19% 20% 12% -18% 18-year lifetime unless otherwise noted.
For the group most negatively impacted, i.e., the higher cost group, Table VI. 11 presents the Return on Invested Capital (ROIC) associated withthe base case, and with each new standard level for the NAECA and Roll-up efficiency mix scenarios, for indiustry relative costs and an 18- year lifetime. A reduction in ROIC increases the likelihood that the company will choose to exit the market or sell its assets rather than to make the investments required to move to the new efficiency level.

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, theproduct increases, profits also increase. Thehigher operating cost manufacturers, on the otherhand, loseprofits as the standard level rises and theproducts face pricingpressure from the lower costmanufacturers.
Table VI. 1 0: Change in IndustryNetPresent Value (%) Relative toBase
- Comparison Between Lower and Higher Cost Manufacturers Reverse IndustryRelative Costl Engineering Relative Cost Standard NAECA-14 Year

Level NAECA Life Roll-up Shift NAECA Lower Higher Lower Higher Lower Higher Lower Higher Lower Higher Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost 1 5% -5% 6% -4% 3% -16% 9% 9% 5% -4% 2 7% -17% 9% -16% 5% -31% 14% 16% 7% -16% 3 9% -19% 11% -16% 6% ·-32% 16% 17% 8% -17% 4 15% -19% 19% -16% 13% -31% 19% 20% 12% -18%



### - 1 I8-yearlifetime unless otherwisenoted.

Forthe group most negatively impacted, i.e., thehigher cost group, Table VI.II presents the Return on Invested Capital (ROIC) associated with the base case, and with each new**~tandarC1** level for theNAECA and Roll-up efficiency mix scenarios, for**indl~stry** reiative costs and an 18- year lifetime. A reduction in ROIC increases the likelihood that the companywill chooseto exit the market or sell its assets rather than to make the investments required to move to the new efficiency level.

111 Q:IEE-41IEE-431iCAC\StandRulINOPR\DraftNOPRICACNOPR16.wpd August4, 2000 (I :45PM)EE-RM/STD-98-440 t- 

### DSc , 7 Table VI. 11: Return on Invested Capital (ROIC) in 2011 for Higher Cost Manufacturers Standard eStandard NAECA Roll-up Level Base 13.3% 13.3%

1 12.3% 10.7% 2 10.2% 8.4% 3 10.0% 8.3% 4 9.6% 8.3%
Table VI. 12 provides a summary ofthe total investment required for each trial standard level. Product conversion expenses include mostly product development and testing costs. Capital investments include new equipment, tooling, and floor space. Since these investments
occur inthe years leading up to the effective date ofthe new standard, larger investments equate to a more serious strain on cash flows in the near-term.

Table VI. 12: Manufacturer Expenditures Related toNew Efficiency Standards (million 1999 $) Trial Standard Product Capital Total Level Conversion Investments Investment Expenses Base

1 $31 $54 $85 2 $93 $109 $202 3 $110 $138 $248 4 $157 $167 $324
The TSD which accompanies today's proposed rule provides more details onthe MIA assumptions, methodology, results, and conclusions, including the assessments ofimpacts on
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Table VI.II: Return on Invested Capital (ROIC) in 2011 for Higher Cost Manufacturers Standard NAECA Roll-up

Level Base 13.3% 13.3%

1 12.3% 10.7% 2 10.2% 8.4% 3 10.0% 8.3% 4 9.6% 8.3%
Table VI. 12 provides a summary ofthe total investment required for each trial standard level. Product conversion expenses include mostly product development and testing costs. Capital investments include new equipment, tooling, and floor sp·ace. Since these investments
occur in the years leading up to the effective date ofthe new standard, larger investments equate to a more serious strain on cash flows in the near-term.

Table VI.I2: ManufacturerExpenditures Related toNewEfficiency Standards (million 1999 $) Trial Standard Product Capital Total Level Conversion Investments Investment Expenses Base 

### -- 

## -- --

I $31 $54 $85 2 $93 $109 $202 3 $110 $138 $248 4 $157 $167 $324
The TSD which accompanies today's proposed rule provides more details ontheMIA**ass~mptions,** methodology, results, and conclusions, including the assessments ofimpacts on 112 Q:\EE-41IEE-431ICAClStandRulINOPR\DraftNOPRICACNOPR16.wpd August4, 2000 (I:45PM) 

# •

### EE-RM/STD-98-440 - ,4 

## ' lower volume equipment manufacturers and compressor manufacturers, which we estimate to be similar in proportion to the impacts described above.

c. Impacts onEmployment Manufacturers stated uniformly that labor requirements track materials costs. Since a new standard will increase the amount and cost ofmaterial ineach product, labor requirements are expected to rise proportionally. However, the industry has recently been experiencing rapid growth in sales volume and isnowfaced with production capacity constraints. Since new efficiency standards will increase the product's size and complexity, many manufacturers will need to add additional capacity to accommodate the new products and retain their sales volumes. It ispossible that those companies will choose to add the new capacity outside oftheUnited States. This effect could keep domestic employment levels flat orresult in employment loss ifcompanies choose to shift current production to new facilities in other countries.
d Impacts onManufacturing Capacity. It islikely that a central air conditioner and heat pump standard would increase central air conditioner and heat pump production capacity in the United States. Since more efficient conventional heat exchangers are also larger, plants that now face capacity constraints will be unable to produce as many heat exchangers as they can under existing standards. Five ofthe sixmanufacturers we interviewed identified capacity constraints during peak production periods.

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lower volume equipment manufacturers and compressor manufacturers, which we estimate to be similar in proportionto the impacts described above.

c. Impacts on Employment Manufacturers stated uniformly that laborrequirements track materials costs. Since a new standard will increase the amount and cost ofmaterial in each product, laborrequirements are expected to rise proportionally. However, the industry has recently been experiencing rapid growth in sales volume and is nowfaced with production capacity constraints. Since new efficiency standards will increase the product's size and complexity, many manufacturers will need to add additional capacity to accommodate the new products and retain their sales volumes. Itis possible that those companies will chooseto add the
new capacity outside oftheUnited States. This effect could keep domestic employment levels flat orresult in employment loss ifcompanies choose to shift current production to new facilities in other countries.
d Impacts on Manufacturing Capacity. Itis likely that a central air conditioner and heat pump standard would increase central air conditioner and heat pump production capacity in theUnited States. Since more efficient conventional heat exchangers are also larger, plants that
now face capacity constraints will beunable to produce as many heat exchangers as they can under existing standards. Five ofthe six manufacturers we interviewed identified capacity constraints during peakproduction periods.

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e. ImpactonLower VolumeManufacturers. Converting from a company's current basic product line involves creating, testing, and moving a new design into production. These tasks have associated capital investments. Manufacturers ofniche products and those who produce only coils and fancoils, because oftheir need to spread these investments over smaller production volumes, maybe affected more negatively than major manufacturers by an increase in efficiency standards. This isparticularly true for those manufacturers that compete head-to-head with major manufacturers insome product lines, and less true for coil-only manufacturers. These results occur separately from any technical considerations related to the manufacturer's ability to modify its products to bring them into compliance with a new standard. Technical considerations are typically more important for 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 are made in the standard for niche products that face severe technological constraints, we would not expect the impacts on lower-volume manufacturers as a group to be disproportionate with those ofthe industry as a whole.
2. Life-Cycle Cost More efficient central air conditioners and heat pumps would affect consumers intwo ways: annual operating expense would decrease and purchase price would increase. We analyzed the net effect by calculating theLCC. Inputs required for calculating LCC includetotal installed costs (i.e., equipment priceplus installation costs), annual energy savings, average and marginal electricity rates, electricity price trends, repair costs, maintenance costs, equipment lifetime, and discount rates.
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e. ImpactonLower VolumeManufacturers. Converting from a company's current basic product line involves creating, testing, and moving a new design into production. These tasks have associated capital investments. Manufacturers ofniche products and those who produce only coils and fancoils, because oftheir need to spread these investments over smaller production volumes, may be affected more negatively than major manufacturers by an increase in efficiency standards. This is particularly true for those manufacturers that compete head-to-head with major manufacturers in some product lines, and less true for coil-only manufacturers. These results occur separately from any technical considerations related to the manufacturer's ability to modify its products to bring them into compliance with a new standard. Technical considerations
are typically more important for**nic~e** manufacturers than for major manufacturers and have
more severe consequences related to increased production costs orloss ofsales volume due to increased price. Overall, ifprovisions are made in the standard for niche products that face
severe technological constraints, we would not expect the impacts on lower-volume manufacturers as a group to be disproportionate with those ofthe industry as a whole.

2. Life-Cycle Cost More efficient central air conditioners and heat pumps would affect consumers in two ways: annual operating expense would decrease and purchase price would increase. We analyzed the net effect by calculating the LCC. Inputs required for calculating LCC include total installed costs (i.e., equipment price plus installation costs), annual energy savings, average and marginal electricity rates, electricity price trends, repair costs, maintenance costs, equipment lifetime, and discount rates. 114 Q:1EE-41\EE-431\CAc\standRuI\NOPR\DraftNOPR\CACNOPR16.wpd

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

### /' The output ofthe LCC model isa mean LCC savings for each product class as well as a probability distribution or likelihood ofLCC reduction or increase. The LCC analysis for today's proposed rule introduces a new concept with regard tothe percentage ofconsumers (both residential and commercial) that are negatively impacted by an increase inthe minimum efficiency standard. (For the Supplemental ANOPR, all consumers that would incur an LCC increase were considered to be adversely impacted by an increase inthe standard. This included even consumers that would incur arelatively small LCC increase e.g., as small as $10, as compared to a relatively large baseline level total LCC. Note that thebaseline LCC is approximately $5,000 for central air conditioners and $10,000 for heat pumps.)
The revised analysis defines negative impacts by including inthis category only those consumers which incur LCC increases greater than 2% ofthebaseline LCC. For central air conditioners, thistranslates to anLCC increase ofapproximately $100 or an annual expense of approximately $5over the lifetime ofthe system. Table VI.13 summarizes the baseline LCCs for split system and single package central air conditioners and heat pumps and also provides the 2% threshold at which consumers are considered to be adversely impacted.

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The output oftheLee model is a mean Lce savings for each product class as well as a probability distribution orlikelihood ofLCC reduction orincrease. The LCC analysis for today's proposed rule introduces a new concept with regard to the percentage ofconsumers (both residential and commercial) that are negatively impacted by anincrease in the minimum efficiency standard. (Forthe Supplemental ANOPR, all consumers that would incur an LCe increase were considered tobe adversely impacted by an increase in the standard. This included
even consumersthat would incur a relatively small LCC increase e.g., as small as $10, as compared to a relatively large baseline level total LCC. Note that the baseline LCC is approximately $5,000 for central air conditioners and $10,000 for heat pumps.)

The revised analysis defines negative impactsby including in this category only those
consumers which incurLCC increases greaterthan 2% ofthe baseline Lee. Forcentral air conditioners, this translates to an LCC increase ofapproximately $100 or an annual expense of approximately $5 overthe lifetime ofthe system. Table VI. 13 summarizes thebaseline LCCs for split system and single package central air conditioners and heat pumps and also provides the 2% threshold at which consumers are considered to be adversely impacted.

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### 0-? Table VI. 13: Baseline Life-Cycle Costs and Threshold for Adverse Impacts Product C s Baseline Life-Cycle Threshold for Adverse Impacts: Cost 2% of Baseline LCC Split Air Conditioners $5,170 $103 Split Heat Pumps $9,679 $194 Single Package Air Conditioners $5,629 $113 Single Package Heat Pumps $9,626 $193 

### Table VI. 14 depicts the LCC results for split system and single package central air conditioners and heat pumps. The table shows the average LCC values for the baseline and each Trial Standard Level. Since manufacturer cost datawere not available for the 18 SEER efficiency levels, 15 SEER cost data were used for all 18 SEER calculations resulting in 18 SEER LCC results which underestimate theirtrue cost level. Table VI.14 also provides for each product class the difference in LCC at each efficiency level relativeto the baseline. The differences represent either an LCC savings or an LCC cost increase. In addition, the table shows the subset ofconsumers (both residential and commercial) at each efficiency level who are impacted in one ofthree ways: consumers who achieve significantnet LCC savings (i.e., LCC 

### savings greater than 2% ofthebaseline LCC), consumers who are impacted in an insignificant manner by having either a small reduction or small increase inLCC (i.e., within ±2% ofthe baseline LCC), or consumers who achieve a significantnet LCC increase (i.e., an LCC increase 

### exceeding 2% ofthe baseline LCC).

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Table VI.13: BaselineLife-Cycle Costs and Threshold for Adverse Impacts Product Class Baseline Life-Cycle Threshold for Adverse Impacts: Cost 2% ofBaseline LCC Split Air Conditioners $5,170 $103 SplitHeat Pumps $9,679 $194 Single Package Air Conditioners $5,629 $113 SinglePackageHeat Pumps $9,626 $193
Table VI.14 depicts the LCC results for split system and single package central air conditioners and heat pumps. The table shows the average LCC values for the baseline and each Trial Standard Level. Since manufacturer cost data were not available for the 18 SEER efficiency levels, 15 SEER cost datawere used for all 18 SEERcalculations resulting in 18 SEERLCC results whichunderestimate their true cost level. Table VI. 14 also provides for each product class the difference in Lee at each efficiency level relative tothe baseline. The**diff~renc.es** represent either an Lee savings or an Lee cost increase. In addition, thetable shows the subset ofconsumers (both residential and commercial) at each efficiency level who are**impa~ted** in one ofthree ways: consumers who achieve significantnet Lee savings (i.e., Lee savings greaterthan 2% ofthe baseline Lee), consumers who are impacted in an insignificant
manner by having either a small reduction or small increase in Lee (i.e., within ±2% ofthe baseline Lee), or consumers who achieve a significant net Leeincrease (i.e., an Lee increase exceeding 2% ofthe baseline Lee).

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Table VI. 14: Summary ofLCC Results based on ARI Mean Manufacturer Costs and a 18.4 year average Lifetime Percent of Consumers with Product Class 

### Efficiency Average LCC (Savings) _5a_.C Product Class Levege LCC (Savings) Net Savings No Significant Net Costs LvlCosts (>2(>2%) Impact 10 $5,170

- Split System 11 $5,126 ($44) 23% 68% 9% Central Air 12 $5,125 ($45) 27% 34% 39% Conditioner 13 $5,199 $29 25% 17% 58% 18 $5,725 $555 15% 4% 81% 10 $9,679

- 11 $9,529 ($150) 30% 70% 0% Split System 12 $9,437 ($242) 42% 55% 3% HeatPump 13 $9,464 ($215) 39% 39% 22% 18 $9,955 $276 23% 11% 66% 10 $5,629 -. Single Package 11 $5,649 $20 16% 47% 37% Air 12 $5,600 ($29) 26% 30% 44% Conditioner 13 $5,804 $175 18% 11% 71% 18 $6,370 $741 12% 4% 84% 10 $9,626 -. 11 $9,492 ($134) 28% 72% 0% Single Package 12 $9,372 ($254) 44% 49% 7% Heat Pump
- 13 $9,514 ($112) 33% 31% 36% 18 $9,922 $296 24% 10% 66%



### As discussed previously for thepresentation ofenergy savings and payback period results, we have investigated two scenarios where lower estimates ofthe manufacturer costs (reverse engineering) and system lifetime (retirement function with 14 year average lifetime without compressor replacement costs) were analyzed. Table VI. 15 presents the results forthe manufacturer cost scenario while Table VI. 16 presents the results forthe lifetime scenario.

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Table VI.14: Summary ofLCC Results based on ARI Mean Manufacturer Costs and a 18.4 year average Lifetime Average LCC PercentofConsumers with Efficiency Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs Costs (>2%) Impact (>2%) 10 $5,170 

## - - 

## - - Split System 11 $5,126 ($44) 23% 68% 9% Central Air 12 $5,125 ($45) 27% 34% 39% Conditioner 13 $5,199 $29 25% 17% 58% 18 $5,725 $555 15% 4% 81% 10 $9,679 

## - - - - 11 $9,529 ($150) 30% 70% 0% Split System 12 $9,437 ($242) 42% 55% 3% HeatPump $9,464 ($215) 39% 39% 22% 13 18 $9,955 $276 23% 11% 66% 10 $5,629 

# - - - - Single Package 11 $5,649 $20 16% 47% ,37% Air 12 $5,600 ($29) 26% 30% 44% Conditioner 13 $5,804 $175 18% 11% 71% 18 $6,370 $741 12% 4% 84% 10 $9,626 

## - 

# - - - 11 $9,492
. ($134) 28% 72% 0% SinglePackage 12 $9,372 ($254) 44% 49% 7% Heat Pump $9,514 13 ($112) 33% 31% 36% 18 $9922 $296 24% .- .._.•.. _.}!'% 66%

A.s discussed previously for the presentation ofenergy savings and payback period results, we have investigated two scenarios where lower estimates ofthe manufacturer costs (reverse engineering) and system lifetime (retirement function with 14 year average lifetime without compressorreplacement costs) were analyzed. Table VI.lS presents the results for the manufacturer cost scenario while Table VI.16 presents the results for the lifetime scenario.

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Table VI. 15: Summary ofLCC Results based on Reverse Engineering Manufacturer Costs Effici y LCC Percent of Consumers with Product Class Average LCC Product Class Level Average LCC (Savings) Net Savings No Significant Net Costs ___Costs (>2%) Impact (>2%) 10 $5,170

- - Split System 11 $5,095 ($75) 28% 70% 2% Central Air 12 $5,057 ($113) 35% 40% 25% Conditioner 13 $5,057 ($113) 34% 27% 39% 18 $5,307 $137 25% 7% 68% 10 $9,679

- - 11 $9,470 ($209) 40% 60% 0% Split System 12 $9,314 ($365) 58% 42% 0% Heat Pump 13 $9,307 ($372) 52% 42% 6% ___18 $9,720 $41 28% 15% 57% 10 $5,629

- - Single Package 11 $5,551 ($78) 27% 72% 1% Air 12 $5,466 ($163) 40% 51% 9% Conditioner 13 $5,600 ($29) 28% 20% 52% 18 $5,905 $276 21% 6% 73% 10 $9,626

- - 11 $9,419 ($207) 39% 61% 0% lePackage 12 $9,205 ($421) 66% 34% 0% Heat Pump 13 $9,273 ($353) 50% 38% 12% 1_8 $9,460 ($166) 37% 15% 48%

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Table VI.IS: Summary ofLCC Results based onReverse Engineering Manufacturer Costs Average LCC Product Class Efficiency Average LCC (Savings) Level Costs

10 $5,170 

### - Split System 11 $5,095 ($75) Central Air 12 $5,057 ($113) Conditioner 13 $5,057 ($113) 18 $5,307 $137 10 $9,679 

### - 11 $9,470 ($209) Split System 12 $9,314 ($365) HeatPump $9,307 ($372) 13 18 $9,720 $41 10 $5,629 

### - Single Package 11 $5,551 ($78) Air 12 $5,466 ($163) Conditioner 13 $5,600 ($29) 18 $5,905 $276 10 $9,626 

### - 11 $9,419 ($207) Single Package 12 $9,205 ($421) HeatPump $9,273 ($353) 13 18 $9,460 J$1661

118 Percent ofConsumers with Net Savings No Significant Net Costs (>2%) Impact (>2%)



### - 

## - - 28% 70% 2% 35% 40% 

### . 25% 34% 27% 39% 25% 7% 68%



# - - - 40% 60% 0% 58% 42% 0% 52% 42% 6% 28% 15% 57%



### - - - 27% 72% 1% 40% 51% 9% 28% 20% 52% 21% 6% 73%



# - - - 39% 61% 0% 66% 34% 0% 50% 38% 12% 37% 15% 48%

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Table VI. 16: Summary ofLCC Results Based on 14-year Average Lifetime Average LCC Percent of Consumers with 

## E Average LCC(Savings) Product Class fency Average LCC (Savings) Net Savings No Significant Net Costs Lv Costs (>2%) Impact (>2%) 10 $4,682 Split System 11 $4,650 ($32) 22% 69% 9% Central Air 12 $4,672 ($10) 24% 31% 45% Conditioner 13 $4,769 $87 21% 15% 64% 18 $5,336 $654 12% 3% 85% 10 $8,747
- - 11 $8,623 ($124) 27% 73% 0% Split System 12 $8,587 ($160) 35% 58% 7% Heat Pump 13 $8,630 ($117) 33% 37% 30% 18 $9,184 $437 18% 9% 73% 10 $5,150 Single Package 11 $5,182 $32 14% 46% 40% Air 12 $5,157 $7 22% 29% 49% Conditioner 13 $5,378 $228 14% 10% 76% 18 $6,011 $861 9% 3% 88% 10 $8,747

- - 11 $8,623 ($124) 27% 73% 0% Single Package 12 $8,587 ($160) 35% 58% 7% Heat Pump 13 $8,630 ($117) 33% 37% 30% 18 $9,184 $437 18% 9% 73% 3. Net Present Value and Net National Employment The net present value analysis is a measure ofthe cumulative benefit or cost to theNation ofstandards. As with the determination ofnational energy savings, five different scenarios were analyzed for each trial standard level consisting ofvariations on: (1) electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) societal discount rate. Electricity price and housing projections were based on three different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3)

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Table VI. 16: Summary ofLCCResults Based on 14-yearAverage Lifetime Average LCC PercentofConsumers with Product Class Efficiency Average LCC (Savings) Level Net Savings No Significant Net Costs Costs (>2%) Impact (>2%) 10 $4,682 

### - 

## - - 

## - Split System 11 $4,650 ($32) 22% 69% 9% Central Air 12 $4,672 ($10) 24% 31% 45% Conditioner 13 $4,769 $87 21% 15% 64% 18 $5,336 $654 12% 3% 85% 10 $8,747 

### - - 

## - - 11 $8,623 ($124) 27% 73% 0% Split System 12 $8,587 ($160) 35% 58% 7% Heat Pump $8,630 ($117) 33% 37% 30% 13 18 $9,184 $437 18% 9% 73% 10 $5,150 

## - - - 

## - Single Package 11 $5,182 $32 14% 46% 40% Air 12 $5,157 $7 22% 29% 49% Conditioner 13 $5,378 $228 14% 10% 76% 18 $6,011 $861 9% 3% 88% 10 $8,747 

### - 

# - - 

## - 11 $8,623 ($124) 27% 73% 0% Single Package 12 $8,587 ($160) 35% 58% 7% HeatPump $8,630 ($117) 13 33% 37% 30% 18 $9184 $437 18% 9% 73% 3. Net Present Value and NetNational Employment The net present value analysis is a measure ofthe cumulativebenefit orcost to theNation ofstandards. As with the determination ofnational energy savings, five different scenarios were analyzed for eachtrial standard level consisting ofvariations on: (1) electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; (4) equipment lifetime; and (5) societal discount rate. Electricity price and housing projections were base.d onthree different AEO 2000 forecasts: (1) Reference Case, (2) High Growth Case, and (3)
119 Q:IEE-41IEE-431\CAC\StandRuI\NOPRIDraftNOPR\CACNOPRI6.wpd August4,2000 (I:45PM)

### EE-RM/STD-98-440 -- '^ 7 Low Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency distribution after new standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturer costs were based on ARI mean cost estimates. Equipment lifetime was assumed to be 18.4 years, coupled with the inclusion of compressor replacement costs. A societal discount rate of 7% was assumed. The range ofNPVs
are reported in Table VI. 17.

Table VI. 17: Net Present Value Variation with Electricity Price and Housing Projections Net Present Value For Units Sold from 2006 to2030 Trial Standard (billion 98$)' Level NAECA Roll-up Shift 1 0 1 Oto-1 2 -1 Otol -3 to -4 3 -1to -2 Oto-1 -5 4 -5 to -6 -4 -10 5 -22 -22 -22 Based on ARI meanmanufacturer costs, 18.4-year retirement function with compressor replacement, and a 7% discount rate.
In order to show the significance ofthe NPVs in Table V. 17 to the various input assumptions, Tables VI. 18-21 report the range ofNPV results for a range ofassumptions and scenarios relative to the total national equipment and operating costs for all central airconditioning and heat pump equipment under thebase case (i.e., in the absence ofnew efficiency standards). The results in Table VI. 18 are based on the AEO 2000 Reference Case forecast of electricity prices and housing. The total costs are presented for the base case and each Trial Standard Level. In addition, the NPV (the difference in total costsbetween the base case and

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# -1/-c:q() 

# 7.
Low Growth Case. Three efficiency scenarios were analyzed which forecast the equipment efficiency distribution after new standards were assumed to take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. Manufacturer costs were based on ARI mean cost estimates. Equipment lifetime was assumed to be 18.4 years, coupled with the inclusion of compressor replacement costs. A societal discount rate of 7% was assumed. The range ofNPVs
are reported in Table VI.I7.

Table VI.17: Net Present Value Variation with Electricity Price and Housing Projections Net PresentValue ForUnits Sold from 2006 to 2030 Trial Standard (billion 98$)1 Level ·NAECA Roll-up Shift 1 0 1 

### oto-l 2 -1 

### oto 1 -3 to -4 3 -1 to -2 

### oto-l -5 4 -5 to-6 -4 -10 5 -22 -22 -22 1 BasdonARl meanmanufacturercosts, 18.4-yearretirementfunction with compressorreplacement, anda 7%discount rate.
In orderto showthe significance oftheNPVs in Table V.I7to the various input**a~sumptions,** Tables VI. 18-21 report the range ofNPVresults for a range ofassumptions and scenarios relative to thetotal national equipment and operating costs for all central airconditioning and heat pump equipment underthe base case (i.e., in**t~le** absence ofnew**efficien~y** standards). The results in Table VI.18 are based onthe AEO 2000 Reference Case forecast of electricity prices and housing. The total costs are presented for the base case and each Trial Standard Level. In addition, the NPV (the difference in total costsbetween the base case and
120 Q:\EE-41\EE-431ICAC\StandRulINOPRIDraftNOPRICACNOPRI6.wpd August 4, 2000 (I:45PM)

### EE-RM/STD-98-440-.-' / trial standard level), as well asthe NPV as a percentage ofthe "Base Case Total Costs," are calculated for each trial standard level.

Table VI.18: Net Present Values Relative to Base Case Total Equipment and Operating Costs' Efficiency Scenario Base Case NAECA Roll-up Shift

Total NPV NPV NPV TSL Costs Total Total Total billion 98S Costs as% of osts as %of Costs as%of billion 98$ billion98$ Base Case bilon 98$ billion 98$ Base Case bil billion b 985 Base Case Total Total Total 1 $381 $381 $0 0.0% $381 $1 0.2% $385 $0 -0.1% 2 $381 $382 $-1 -0.3% $381 $0 0.0% $388 $-3 -0.9% 3 $381 $383 $-2 -0.5% $382 $-1 -0.2% $390 $-5 -1.4% 4 $381 $387 $-5 -1.4% $386 $-4 -1.1% $395 $-10 -2.5% 5 $381 $403 $-22 -5.8% $403 $-22 -5.8% $407 $-22 -5.8% Based onAEO 2000 Reference Case, ARI mean manufacturer costs, 18.4-year retirement function with compressor replacement, and a7% discount rate. Values rounded tothe nearest $1 billion. Tables VI.19 through VI.21 show how the three scenarios, i.e., reverse engineering costs, 14-year average life, and 3% discount rate 2, impact the net present value. The three scenarios
were investigated only for the NAECA efficiency scenario and the AEO Reference Case electricity price and housing projection.

12 Asocietal discountrate of 3% valuewas investigated as a scenario in accordance with the Office ofManagement and Budget's (OMB) GuidelinestoStandardize MeasuresofCosts andBenefitsandtheFormat ofAccounting Statements. Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPRI6.wpd 121 August 4,2000 (1:45PM) 4

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

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# 1
trial standard level), as well as theNPV as a percentage ofthe "Base Case Total Costs," are calculated for each trial standard level.

Table VI.18: Net Present Values Relative to Base Case Total Equipment and Operating Costsl Efficiency Scenario Base Case NAECA RoD-up Shirt

Total NPV NPV NPV TSL Costs Total Total Total billion 98$ Costs as%of Costs as%of Costs as%of billion98$ billion 98$ BaseCase billion 98$ billion 98$ Base Case billion 98$ billion 98$ Base Case Total Total Total 1 $381 $381 $0 0.0% $381 $1 0.2% $385 $0 -0.1% 2 $381 $382 $-1 -0.3% $381 $0 0.0% $388 $-3 -0.9% 3 $381 $383 $-2 -0.5% $382 $-1 -0.2% $390 $-5 -1.4% 4 $381 $387 $-5 -1.4% $386 $-4 -1.1% $395 $-10 -2.5% 5 $381 $403 $-22 -5.8% $403 $-22 -5.8% $407 $-22 -5.8% 1Based on AEO 2000 Reference Case, ARI mean manufacturercosts, 18.4-yearretirementfunction with compressorreplacement, and a 7% discountrate. Values rounded tothe nearest $1 billion.
Tables VIJ9 through VI.21 show how the three scenarios, i.e.,**rever~e** engineering costs, 14-year average life, and 3% discount rate12, impact the net present value. Thethree scenarios
were investigated only for theNABCA efficiency scenario and the ABO Reference Case electricity price and'housing projection.

12 A societal discountrate of 3%value was investigated as a scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to StandardizeMeasures of Costs andBenefitsandtheFormat of Accounting Statements. 121 Q:IEE-4IIEE-431ICAC\StandRuJ\NOPRIDraftNOPRICACNOPRI6.wpd August 4. 2000 (1 :45PM)

### EE-RM/STD-98-440-4--0 ? Table V. 19: Net Present Values Results based on Reverse Engineering Manufacturer Costs' Trial Stad Bse Case Total _____Trial Standard Level TrialStandard Level Costs Total Cost Net Present Value as %of Base Case billion98$ billion98$ billion98$ TotalCosts 1 $379 $378 $2 0.4% 2 $379 $377 $2 0.5% 3 $379 $378 $1 0.4% 4 $379 $379 $0 0.0% 5 $379 $390 $-10 -2.7% Based on AEO 2000 Reference Case, NAECA efficiency scenario, 18.4-year retirement function with compressor replacement, and a7% discount rate. Values rounded tothe nearest $1 billion.
Table V1.20: Net Present Values Results based on 14-year Average Lifetime' T l S

d Base Case Total Trial StandardLevel Trial Standard Level Costs Total Cost Net Present Value as %of Base Case billion98$ billion98$ billion 98$ TotalCosts 1 $363 $364 $0 0.0% 2 $363 $365 $-2 -0.5% 3 $363 $366 $-3 -0.8% 4 $363 $370 $-7 -1.9% 5 $363 $389 $-25 -6.9% ' Based on AEO 2000 Reference Case, NAECA efficiency scenrio, ARI meanmanufacturer costs,and a7% discount rate. Valuesrounded to the nearest $1 billion.
Table VI.21: Net Present Values Results based on 3% Discount Rate' Tri ada Base Case Total TrialStandard Level Trial Standard Level Costs Total Cost Net Present Value as %of Base Case billion98$ billion98$ billion98$ TotalCosts 1 $712
. $708 $3 0.5% 2 $712 $708 $4 0.5% 3 $712 $708 $3 0.4% 4 $712 $714 $-3 -0.4% 5 $712 $746 $-35 -4.9%

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### EE-RM/STO-9S-440-jlcq

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# 7
Table Y.19: Net Present Values Results based on Reverse Engineering Manufacturer Costsl Base Case Total Trial Standard Level Trial Standard Costs Level Total Cost Net PresentValue as % of Base Case billion 98$ billion 98$ billion 98$ Total Costs 1 $379 $378 $2 0.4% 2 $379 $377 $2 0.5% 3 $379 $378 $1 0.4% 4 $379 $379 $0 0.0% 5 $379 $390 $-10 -2.7% I Based onAEO 2000 Reference Case, NAECAefficIency scenano, IS.4-yearretIrement functIon WIth compressorreplacement, anda 7% discountrate. Values roundedtothe nearest $1 billion.
Table V1.20: Net Present Values Results based on 14-yearAverage Lifetimel Base Case Total Trial Standard Level Trial Standard Costs Level Total Cost Net PresentValue as % of Base Case billion 98$ billion 98$ billion 98$ Total Costs 1 $363 $364 $0 0.0% 2 $363 $365 $-2 -0.5% 3 $363 $366 $-3 -0.8% 4 $363 $370 $-7 -1.9% 5 $363 $389 $-25 -6.9% I Based on AEO 2000 Reference Case, NAECAeffiCIency scenno, ARI meanmanufacturercosts, anda 7%discountrate. Valuesroundedtothe nearest $1 Lillion.
Table VI.21: Net Present Values Results based on 3%Discount Ratel 

## I Base Case Total Trial Standard Costs Level Total Cost billion 98$ billion 98$ 1 $712
. $708 2 $712 $708 3 $712 $708 4 $712 $714 5 $712 $746
122 Trial StandardLevel Net PresentValue as %of Base Case billion 98$ Total Costs $3 0.5% $4 0.5% $3 0.4% $-3 -0.4% $-35 -4.9%
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# •

### EE-RM/STD-98-440-t z:2

lBased on AEO 2000 Reference Case, NAECA efficiency scenario, ARI mean manufacturer costs, and 18.4-year retirement function with compressor replacement. Values rounded tothe nearest $1 billion. The Department committed in its 1996 Process Improvement Rule to develop estimates ofthe employment impacts ofproposed standards in the economy in general. 61 FR 36983.

As discussed above, energy efficiency standards for central air conditioners and heat pumps are expected to reduce electricity bills for residential and commercial consumers. The resulting net savings are expected to be redirected to other forms ofeconomic activity. These shifts in spending and economic activity are expected to affect the demand for labor, but there is
nc generally accepted method for estimating these effects.

One method to assess the possible effects on the demand for labor ofsuch shifts in economic activity is to compare sectoral employment statistics developed by the Labor Department's Bureau ofLabor Statistics (BLS). The BLS regularly publishes its estimates ofthe number of jobs per million dollars ofeconomic activity in different sectors ofthe economy, as well as thejobs created elsewhere in the economy by this same economic activity. BLS data indicate that expenditures inthe electric sector generally are associated with fewerjobs (both directly and indirectly) than expenditures in other sectors ofthe economy. There are many reasons for these differences, including the capital-intensity oftheutility sector and wage differences.

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# ;;;"·lJ

# ?

1Based on AEO 2000 Reference Case, NAECAefficiency scenario, ARI mean manufacturercosts, and 18.4-yearretirementfunction with compress"rreplacement. Values roundedtothe nearest $1 billion. TheDepartment committed in its 1996 Process Improvement Rule to develop estimates ofthe employment impacts ofproposed standards in the economy in general. 61 FR 36983.

As discussed above, energy efficiency standards for central air conditioners and heat pumps are expected to reduce electricitybills for residential and commercial consumers. The resulting net savings are expected to be redirected to otherforms ofeconomic activity. These shifts in spending and economic activity are expected to affect the demand for labor, but there is
nc generally accepted method for estimating these effects.

One method to assess the possible effects onthe demand for labor of**suc~** shifts in economic activity is to compare sectoral employment statistics developed by the Labor De!'artment'sBureau ofLabor Statistics (BLS). TheBLS regularly publishes its estimates ofthe number of jobspermillion dollars ofeconomic activity in different sectors ofthe economy, as well as thejobs created elsewhere in the economyby this same economic activity. BLS data indic(;.!e that expenditures in the electric sector generally are associated with fewerjobs (both directly and indirectly) than expenditures in other sectors ofthe economy. There are many
reasons for these differences, including the capital-intensity oftheutility sector and wage differences.

123 Q:IEE411EE431\CAC\StandRu1INOPR\DraftNOPR\CACNOPR16.wpd August4, 2000 (I :45PM)

### EE-RM/STD-98-440 - t-:? 7 In developing this proposed rule, theDepartment attempted a more precise analysis ofthe impacts on national labor demand using an input/output model oftheU.S. economy. The model characterizes the interconnections among 35 economic sectors using the data from theBureau of Labor Statistics. Since the electric utility sector is more capital-intensive and less labor-intensive than other sectors (see Bureau ofEconomic Analysis, Regional Multipliers:A UserHandbook fortheRegional Input-Output ModelingSystem (RIMS II), Washington, D.C., U.S. Department 

### ofCommerce, 1992), a shift inspending away from energy bills into other sectors would be expected to increase overall employment. But forthis analysis, since the increased manufacturing costs to the nation ofmeeting a new efficiency standard are relatively large, there isan overall decrease in national employment. The results oftheDepartment's analysis are shown inChapter 7ofthe TSD.
While this input/output model suggests the proposed central air conditioner and heat pump standards are likely to decrease the net demand for labor inthe economy, the losses would most likelybe very small relative to total national employment. For several reasons, however, even these modest losses are indoubt: Unemployment is now atthe lowest rate in30 years. Ifunemploymient remains very low during the period when the proposed standards are put into effect, it isunlikely that the standards alone could result in any net decrease innational employment levels. * Neither the BLS data nor the input-output model used byDOE include the quality or wage level ofthejobs. One reason that the demand for labor decreases inthe model may

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## ,-if 

# cqtJ**~** In developing this proposed rule, the Department attempted amore precise analysis ofthe impacts on national labor demand using an input/output model ofthe U.S. economy. The model characterizes the interconnections among 35 economic sectors using the data from the Bureau of Labor Statistics. Since the electricutility sectoris more capital-intensive and less labor-intensive than other sectors (see Bureau ofEconomic Analysis, RegionalMultipliers:A UserHandbook for theRegionalInput-OutputModelingSystem (RIMSII), Washington, D.C., U.S. Department ofCommerce, 1992), a shift in spending away from energy bills into other sectors would be e..<pected to increase overall employment. But for this analysis, since the increased manufacturing costs to the nation ofmeeting anew efficiency standard are relatively large, there is an overall decrease in national employment. The results ofthe Department's analysis are shown in Chapter 7 ofthe TSD.
While this input/output model suggests the proposed central air conditioner and heat pump standards are likely to decrease the net demand for laborin the \;;C0i10my, the losses would most likely be very small relative to total national employment. For several reasons, however,
eventhese modest losses are in doubt: • Unemployment is now at the lowest rate in 30 years. Ifunemployment remains very low during the period when the proposed standards are put into,effect, it is unlikely that the standards alone could result in any net decrease in national employment levels.
• Neitherthe BLS data nor the input-output model used by DOE include the quality or wage level ofthejobs. One reason that the demand for labor decreases in the model may

124 Q:1EE41\EE-43JICAC\StandRu1\NOPRIDraftNOPRICACNOPR16,wPd August4,2000 (J :45PM)

### EE-RM/STD-9-440O#4R<9 

# 2
be that thejobs expected to be created pay more than thejobsbeing lost. The losses from any potential employment reduction would be offset if job quality and pay are increased. The netbenefits from potential employment changes are a result ofthe estimated net present value ofbenefits or losses likely to result fromthe proposed standards. It may not be appropriate to separately identify and consider any employment impacts beyond the calculation ofnet present value. Taking into consideration these legitimate concerns regarding the interpretation and use ofthe employment impacts analysis, the Department concludes only that the proposed central air conditioner and heat pump standards are likely to result inno appreciable job losses tothe nation.
Public comments are solicited on thevalidity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis.
4. Impact on Utility or Performance ofProducts As detailed in Section V, in establishing classes ofproducts we have tried to eliminate any degradation ofutility or performance inthe products under consideration inthis rulemaking.
5. Impact ofAny Lessening ofCompetition The Act directs theDepartment to consider any lessening ofcompetition that is likely to result from standards. It further directs the Attorney General to determine the impact, ifany, of any lessening ofcompetition likely to result from aproposed standard and transmit such
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### EE-RMJSTD..**8I-440-~**

## 0 

# 1 ,t4 bethat thejobs expected to be created pay more than thejobsbeing lost. The losses from any potential employment reduction would be offset if job quality and pay are increased.
• The netbenefits from potential employment changes are aresult ofthe estimated net present value ofbenefits orlosses likely to result from the proposed standards. It may not be appropriate to separately identify and consider any employment impacts beyond the calculation ofnet present value. Taking into consideration these legitimate concerns regarding the interpretation and use ofthe employment impacts analysis, the Department Goncludes only that the proposed central air conditioner and heat pump standards are likely to result in no appreciablejob losses to the nation.

. Public comments are solicited on the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis.
4. Impact on Utility orPerformance ofProducts As detailed in Section V, in establishing classes ofproducts we have tried to eliminate any degradation ofutility or performance in the products under consideration in this rulemaking.
5. Impact ofAny Lessening ofCompetition The Act directs the Department to consider any lessening ofcompetition that is likely to result from standards. It further directs the Attorney General to determine the impact, ifany, of an)' lessening ofcompetition likely to result from aproposed standard and transmit such 125 Q:1EE-41\EE-431ICAClStandRuJ\NOPRIDraftNOPRICACNOPR16.wpd August4, 2000 (1 :45PM)

### EE-RM/STD-98-440- 0-~ 7 determination to the Secretary, not laterthan 60 days after the publication of aproposed rule, together with an analysis ofthe nature and extent ofsuch impact. EPCA Section 325(o)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii).
In orderto assist the Attorney General in making such a determination, theDepartment has provided the Department ofJustice (DOJ) with copies ofthis notice and the TSD for review. At DOE's request, the DOJ reviewed the manufacturer impact analysis interview questionnaire to ensure that it would provide insight concerning any lessening ofcompetition due to any proposed trial standard levels.
6. Need ofthe Nation to Save Energy Enhanced energy efficiency improves the nation's energy security, strengthens the economy and reduces the environmental impacts ofenergy production. The energy savings from central air conditioner and heat pump standards result inreduced emissions ofcarbon andNO,.. Cumulative emissions savings over the 16-year period modeled are shown in Table VI.22. Emission savings are based onthe use of: (1)the ARI mean manufacturer cost data and (2)an 18.4-year average lifetime. The results presented inTable VI.22 are based only on the AEO 2000 Reference Case for electricity price and housing projections and theNAECA efficiency scenario.

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### EE-RM/STD-98-440*,c?

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# 7
determination to the Secretary, not laterthan 60 days after the publication ofa proposed rule, togetherwith an analysis ofthe nature and extent ofsuch impact. EPCA Section 325(0)(2)(B)(i)(V) and (B)(ii), 42 U.S.C. 6295(0)(2)(B)(i)(V) and (B)(ii).
Inorderto assist the Attorney General in making such a determination, the Department has provided theDepartment ofJustice (D01) with copies ofthis notice and the TSD for review. At DOE'srequest, the DOJreviewed the manufacturer impact analysis interview questionnaire to
ensure that it would provide insight concerning any lessening ofcompetition due to any proposed trial standard levels.

6. Need oftheNationto Save Energy

. Enhanced energy efficiency improves the nation's energy security, strengthens the economy and reduces the environmental impacts ofenergy production. The energy savings from central air conditioner and heat pump standards result in reduced emissions ofcarbon and NOx.. Cumulative emissions savings overthe 16-yearperiod modeled are shown in Table VI.22. Emission savings are based on the use of (I)the ARI mean manufacturer cost data and (2) an 18.4-year average lifetime. The results presented in Table VI.22 arebased only on the AEO 2000 Reference Case for electricity price and housing projections and the NAECA efficiency
scenano.

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### EE-RM/STD-98.-440-*O? 

# X
Table VI.22: Cumulative Emissions Reductions based on AEO 2000 Reference Case and NAECA Efficiency Scenario(2006-2020) Trial Standard Emissions Reductions Trial Standard Level Level Carbon (Mt) NO, (kt) 1 16.1 68.3 2 25.6 98.4 3 29.7 114.1 4 36.4 135.7 5 71.9 294.9

The impact ofvarying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency scenarios were considered only for the Trial Standard Level 3. Table VI.23 shows how carbon and NOX emissions are impacted by the different projections and scenarios.

Table VI.23 Cumulative Emissions Reductions for Proposed Standard (2006-2020) and the impact ofDifferent Electricity Price/Housing Projections and Efficiency Scenarios Electricity Price and Efficiency Emission

Housing Projection Scenario Carbon (Mt) NO, (kt) AEO Reference Case NAECA 29.7 114.1 AEO Reference Case Roll-up 28.4 105.4 AEO Reference Case Shift 33.4 129.5 AEO Low Growth Case NAECA 27.7 122.8 AEO High Growth Case NAECA 34.6 98.3

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

# 1
Table VI.22: CumulativeEmissions Reductions based on AEO 2000 Reference Case and NAECAEfficiency Scenario(2006-2020)

- Trial Standard Emissions Reductions Level Carbon (Mt) NO.(kt) 1 16.1 68.3 2 25.6 98.4 3 29.7 114.1 4 36.4 135.7 5 71.9 294.9

The impact ofvarying electricity price and housing projections (i.e., different AEO cases)
as well as different efficiency scenarios were considered only for the Trial Standard Level 3. Table VI.23 shows how carbon and NOx emissions are impacted by the different projections and scenarios.

Table VI.23· CumulativeEmissions Reductions for Proposed Standard (2006-2020) and the impact ofDifferentElectricity PriceIHousing Projections and Efficiency Scenarios ElectricityPrice and Efficiency HousingProjection Scenario ABO Reference Case NABCA ABO Reference Case Roll-up ABO Reference Case Shift ABO Low Growth Case NABCA ABO High Growth Case NABCA

127 Emission Carbon (Mt) NO. (kt) 29.7 114.1 28.4 105.4 33.4 129.5 27.7 122.8 34.6 98.3**Q:\E~I\E~31\CAC\StandRuJ\NOPR\DraftNOPR\CACNOPRI6.wpd** August4, 2000 (I:45PM)

### EE-RM/STD-98-440-#4?4 , The annual carbon emission reductions range up to 9.0 Mt in 2020 and the NOx emissions reductions up to 28.7 ktin 2015. 3' 14 Total carbon and NO, emissions for each trial standard level are reported in Appendix E ofthe TSD.

7. Other Factors This provision allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, to consider any other factors that the Secretary deems to be relevant. EPCA Section 325(o)(2)(B)(i)(VI), 42 U.S.C. 6295(o)(2)(B)(i)(VI). The Secretary has decided that the impacts ofthe proposed standards on peak power requirements and electric utility system reliability, as well as their LCC impacts on those subgroups ofconsumers who are at or below the poverty line, are relevant tothe economic justification ofthe standards, and has decided to consider such impacts in this rulemaking.

Peak power impacts are determined as part ofthe analysis to estimate impacts on electric 

### utilities from increases inthe central air conditioner and heat pump standard. NEMS-BRS is used to estimate peak power impacts by calculating the reduction in installed generation capacity due to an increase inthe minimum efficiency standard. Table VI.24 shows the estimated reductions in installed generation capacity, in giga-watts (GW), in the year 2020 due to each of the trial standard levels. The results presented in Table VI.24 are based only on the AEO 2000 

### Reference Case for electricity price and housingprojections and theNAECA efficiency scenario.

13Million metric tons (Mt). 4 Thousand metric tons (kt). Q:\EE-41\EE431\CAC\StandRul\NOPRDraftNOPR\CACNOPRI 6.wpd 128 August 4,2000 (1:45PM) 4 The annual carbon emission reductions range up to 9.0 Mt in 2020 and the NOx emissions reductions up to 28.7 kt in 201Sy,14 Total carbon and NOx emissions for each trial standard level are reported in Appendix E ofthe TSD.

7. OtherFactors This provision allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, to consider any otherfactors that the Secretary deems toberelevant. EPCA Section 32S(0)(2)(B)(i)(VI), 42 U.S.c. 629S(0)(2)(B)(i)(VI). The Secretary has decided that the impacts ofthe proposed standards on peak power requirements and electric utility system reliability, as well as their LCC impacts on those subgroups ofconsumers who are at orbelow the poverty line, are relevant to the economicjustification ofthe standards, and has decided to consider such impacts in this rulemaking.

Peakpowerimpacts are determined as part ofthe analysis to estimate impacts on electric utilities from increases in the central air conditioner and heat pump standard. NEMS-BRS is used to**e~timate** peakpowerimpacts by calculating the reduction in installed generation capacity due to an increase in the minimum efficiency standard. Table VI.24 shows the estimated f-::ductions in installed generation capacity, in giga-watts (GW), in the year 2020 due to each of the trial standard levels. The results presented in Table VI.24 are based only on the AEO 2000 Reference Case for electricity price and housing projections and the NAECA efficiency scenario.**I~lion** metric tons (Mt). l"Thousand metric tons (let). 128 Q:IEE-411EE-431\CAClStandRulINOPRIDraftNOPR\CACNOPR16.wpd A1J8USI4. 2000 (J :45PM) "

### EE-RM/STD-98-4 4

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## I 6 Table VI.24: Installed Generation Capacity Reductions intheyear 2020 based on AEO 2000 Reference Case and NAECAEfficiency Scenario Trial Standard Installed Generating Level Capacity Reduction (GW) 1 3.8 2 8.0 3 9.3 4 11.7 5 19.6 

### The impact ofvarying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency scenarios were considered only for the proposed standard (trial standard level 3). Table VI.25 shows how installed generation capacity isimpacted bythe different projections and scenarios.
Table VI.25 Installed Generation Capacity Reductions inthe year 2020 for Trial Standard

Level 3and the Impact ofDifferent Electricity Price/Housing Projections and Efficiency Scenarios Electricity Price and Efficiency Scenario Installed Generating

Housing Projection Capacity Reduction (GW) AEO Reference Case NAECA 9.3 AEO Reference Case Roll-up 9.0 AEO Reference Case Shift 9.9 AEO Low Growth Case NAECA 8.8 AEO High Growth Case NAECA 9.1 

### As discussed above, there are concerns that NEMS forecasted peak impacts may be overly conservative. In addition, the impact ofthe peak power requirements ofany single endQ:\EE-41\EE-431\CAC\StandRulNOPR\DraftNOPR\CACNOPRI6.wpd 129 August 4, 2000 (1:45PM) 

### EE-RM/STO-98-440

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Table VI.24: Installed Generation Capacity Reductions in the year 2020 based on ABO 2000 Reference Case and NABCAEfficiency Scenario Trial Standard Installed Generating Level Capacity Reduction (GW) 1 3.8 2 8.0 3 9.3 4 11.7 5 19.6 The impact ofvarying electricity price and housing projections (i.e., different AEO cases)
as well as different efficiency scenarios were considered only for the proposed standard (trial standard level 3). Table VI.25 shows how installed generation capacity is impacted by the

.different projections and scenarios.
Table VI.25 Installed Generation CapacityReductions in the year 2020 for Trial Standard

Level 3 and the Impact ofDifferent Electricity PricelHousing Projections and Efficiency Scenarios ElectricityPrice and Efficiency Scenario Installed Generating HousingProjection CapacityReduction (GW) AEO Reference Case NAECA 9.3 AEO Reference Case Roll-up 9.0 AEO Reference Case Shift 9.9 AEO Low Growth Case NAECA 8.8 AEO High Growth Case NAECA 9.1
As discussed above, there are concerns thatNEMS forecasted peak impacts may be overly conservative. Inaddition, the impact ofthe peakpower requirements ofany single end129 Q:1EE41\EE431ICAC\StandRulINOPRIDraftNOPRICACNOPRI6.wpd August 4, 2000 (1 :45PM)

### EE-RM/STD-98-44047t> ? 

### 0

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use on electric utility system reliability is highly uncertain. Thus, we plan on conducting further research intwo areas: (1) how to revise NEMS-BRS to come upwith a more credible forecast of peak power impacts and (2) what connection, ifany, exists between end-use peak demand reductions and system reliability. Ifsuch research is completed and applicable to this rulemaking, we will make it available for public review during the comment period on today's proposed rule.

Consumer subgroup impacts have been estimated by determining the LCC impacts ofthe trial standard levels onthose consumers who are at or below the poverty line (e.g., for a family of four, this constitutes a household income ofless than $16,036). To perform this calculation, we used the subset ofRECS 97 data for households that are considered low-income.15 Table VI.26 summarizes the LCC impacts on those low-income consumers who utilize central air conditioners and heat pumps. The results in Table VI.26 are based on ARI mean manufacturer costs and an 18.4-year average lifetime.

15 Approximately 7 percent ofthe RECS 97 households with central air conditioners and 9 percent ofthe households with heat pumpsmet this criteria. Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR 6.wpd 130 August 4, 2000 (1:45PM) * 

### EE-RM/STO-98-440-t't 

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use on electric utility system reliability is highly uncertain. Thus, we plan on conducting further research in two areas: (1) howto revise NEMS-BRS to come up with a more credible forecast of peak powerimpacts and (2) what connection, ifany, exists between end-use peak demand reductions and system reliability. Ifsuch research is completed and applicable to this rulemaking, wewill make it available for public review during the comment period on today's proposed rule.

Consumer subgroup impacts have been estimated by determining the LCC impacts ofthe trial standard levels onthose consumers who are at orbelow the poverty line (e.g., for a family of four, this constitutes a household income ofiessthan $16,036). To perform this calculation, we used the subset ofRECS 97 data for households that are considered low-income. 1s Table VI.26 summarizes theLCC impacts onthose low-income consumers who utilize central air conditioners and heat pumps. The results in Table VI.26 are based on ARI mean manufacturer**cost~** and an 18.4-year average lifetime.

15 Approximately 7percent ofthe RECS 97 households with central airconditioners and 9 percent ofthe households with heat pumps metthis criteria. 130 Q:IEE-411EE-431ICAClStandRulINOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (1 :45PM)

### EE-RM/STD-98-.440--:-, 7 Table VI.26: Summary ofLCC Results on Low-Income Consumers Based on ARI Mean Manufacturer Costs and an 18.4-year Average Lifetime Average LCC Percent of Consumers with Product Class Levl Average LCC (Savings) Net Savings No Significant Net Costs _Level _Costs (>2%) Impact (>2%) 10 $4,906 Split System 11 $4,887 ($19) 17% 66% 17% Central Air 12 $4,903 ($3) 20% 29% 51% Conditioner 13 $5,007 $101 17% 14% 69% 18 $5,598 $692 10% 2% 88% 10 $8,965

- - 11 $8,890 ($75) 16% 84% 0% Split System 12 $8,862 ($103) 27% 64% 9% Heat Pump 13 $8,948 ($17) 25% 40% 35% 18 $9,610 $645 11% 8% 81% 10 $5,327
- - Single Package 1 $5,283 ($44) 11% 42% 47% Air 12 $5,313 ($14) 20% 27% 53% Conditioner 13 $5,568 $241 12% 9% 79% 18 $6,158 $831 10% 2% 88% 10 $9,149

- - 11 $9,057 ($92) 21% 78% 1% Single Package 12 $8,973 ($176) 35% 53% 12% Heat Pump 13 $9,145 ($4) 25% 27% 48% ______18 $9,619 $470 18% 8% 74%
In comparing the LCC results on the subgroup ofconsumers who are low-income (Table V.26) versus all central air conditioner and heat pump consumers (Table V. 14), it appears that 'ow-income consumers have lower savings at the different trial standard levels than the general population ofcentral air conditioner and heat pump consumers. Table V.27 directly compares the LCC impacts ofthe proposed standard on low-income and all consumers.

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

## ~**~**

# 1

,. Table VI.26: Summary ofLCC Results on Low-Income Consumers Based on ARI Mean M f1 C d 184 A L·ti . anu acturer osts an an . -year verage 1etlme Average LCC Percent ofConsumers witb Efficiency Product Class Level Average LCC (Sa\ings) Net Sa\ings No Significant . Net Costs Costs (>2%) Impact (>2%) 10 $4,906 

# - - 

# - - Split System 11 $4,887 ($19) 17% 66% 17% Central Air 12 $4,903 ($3) 20% 29% 51% Conditioner 13 S5,007 S101 17% 14% 69% 18 $5,598 $692 10% 2% 88% 10 S8,965 

## - - 

# - - 11 $8,890 ($75) 16% 84% 0% Split System 12 S8,862 ($103) 27% 64% 9% Heat Pump $8,948 ($17) 25% 40% 35% 13 18 $9,610 S645 11% 8% 81 c .'/o 10 $5,327 

# - - - 

## - S!ngle Package 11 $5,283 ($44) 11% 42% 47% Air 12 $5,313 ($14) 20% 27% 53% Conditioner 13 $5,568 $241 12% 9% 79% 18 $6,158 $831 10% 2% 88% 10 $9,149 

# - - 

## - - 11 $9,057 ($92) 21% 78% 1% Single Package 12 $8,973 ($176) 35% 53% 12% Heat Pump 13 $9,145 ($4) 25% 27% 48% 18 $9,619 $470 18% 8% 74%
In comparing theLCC results on the subgroup ofconsumers who are low-income (Table V.26) versus all central air conditioner and heat pump consumers (Table V, 14), it appearsthat low-income consumers have lower savings at the different trial standard levels than the ger!eral population ofcentral air conditioner and heat pump consumers. Table V,27 directly compares the LCC impacts ofthe proposed standard on low-income and all consumers.

131 Q:\EE-41\EE-431ICAClStandRuJINOPR\OraftNOPRICACNOPRI6.wpd Augus14. 2000 (I :45P!-v!) 

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### EE-RM/STD-98-440 O .7 Table VI.27: Comparison ofLCC Impacts oftheProposed Standard on All Consumers vs. Low-Income Consumers e. . ( g C Percent of Consumers with Net .AverageLCC (Sa .ngs) Costs Costs (>2% ofBaseline LCC) Product Class Efficiency Level All Consumers Low-Income All Consumers Low-Income Split System Central 12 (45)(3) 39% 1% Air Conditioner Split SystemHeat 13 ($215) ($17) 22% 35%0 Pump__ Single Package Air 12 ($29) -($14) 44% 53% Conditioner _ _ - - . Single Package Heat 13 ($112) ($4) 36% 48% Pump

E. Conclusion Section 325(o)(2)(A) ofthe Act, 42 U.S.C. 6295(o)(2)(A), specifies that any new or 

### amended energy conservation standard for any type (or class) ofcovered product shall be designed to achieve the maximum improvement inenergy efficiency which the Secretary determines istechnologically feasible and economicallyjustified. In determining whether a standard is economicallyjustified, the Secretary must determine whether the benefits ofthe standard exceed its burdens. EPCA Section 325(o)(2)(B)(i), 42 U.S.C. 6295(o)(2)(B)(i). The amended standard must "result in significant conservation ofenergy." EPCA Section 325(o)(3)(B), 42 U.S.C. 6295(o)(3)(B).
We consider the impacts ofstandards at each offive trial standards levels, beginning with the Max Tech Level, i.e., Trial Standard Level 5. We then consider less efficient'levels. Trial

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# 4c1tJ / .. Table VI.27: Comparison ofLCC Impacts ofthe Proposed Standard on All Consumers vs. Low-Income Consumers Average LCC (Savings) Costs Percent ofConsumers witb Net Product Class Efficiency Level Costs (>2% ofBaselineLCC) All Consumers Low-Income All Consumers Low-Income 

# I Split System Central
-- 

# I Air Conditioner 12 ($45) ($3) 39% 51%

- - Split SystemHeat 13 ($215) ($17) 22% 35% Pump .. Single Package Air j 12 ($29) -($14) 44%

### ~~o/~~~__

### ~ Conditioner ..
-- - -- .- - Single Package Heat 13 ($112) ($4) 36% 48% Pump

E. 

### Conclusion - , 

# ..

Section 325(0)(2)(A) ofthe Act, 42 US.c. 6295(0)(2)(A), specifies that any new or amended energy conservation standard for any type (orclass) ofcovered product shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economicallyjustified. In determining whether a stancard is economicallyjustified, the Secretary must determine whether th.e benefits ofthe standard exceed its burdens. EPCA Section 325(o)(2)(B)(i), 42 US.c. 6295(o)(2)(B)(i). The amencled standard must "result in significant conservation ofenergy." 

### EPCA Section 325(0)(3)(B), 42US.C. 6295(o)(3)(B).

We considerthe impacts ofstandards at each offive trial standards levels, beginning with the Max TechLevel, i.e., Trial StandardLevel 5. Wethen cOIisider less efficienflevels. Trial

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## 6 ? Standard Level 3 is a combination ofdifferent efficiency levels for the different classes. It combines the SEER values for air conditioners from Trial Standard Level 2 (12 SEER) with the SEER values for heat pumps from Trial Standard Level 4 (13 SEER). By combining efficiency levels in this way, the Department is able to evaluate the impacts ofdifferent combinations of standard levels to make an informed decision onthe merits ofdifferent efficiency combinations.

To aid the reader as we discuss the benefits orburdens ofthe trial levels, we have included a summary ofthe analysis results in Tables VI.28 and VI.29. Table VI.28 presents a summary ofanalysis results based on ARI mean manufacturing costs, NAECA and Rool-up efficiency scenarios and 7% and 3% societal discount rate scenarios.. Table VI.29 presents a summary ofanalysis results based on manufacturing costs obtained from the reverse engineering analysis for theNAEC efficiency scenario and 7% societal discount rate scenario. Both tables
assume an 18.4 year equipment lifetime, including one compressor replacement. Significant scenarios/sensitivities summarized in Table VI.28 include results ofthe National NPV using both societal discount rates of3 and 7% and, given their importance to the cash flow analysis, and manufacturer impacts are reported for both NAECA and Roll-up shipment scenarios. The
reverse engineering scenario results in Table VI.29 are limited to single scenarios which highlight the impact ofmanufacturing costs on the consumer and manufacturer impacts and the national energy savings andNPV.

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4

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.' Standard Level 3 is a combination ofdifferent efficiency levels for the different classes. It combines the SEERvalues for air conditioners from Trial Standard Level 2 (12 SEER) with the SEERvalues for heat pumps from Trial Standard Level 4 (13 SEER). By combining efficiency levels in this way, theDepartment is able to evaluate the impacts ofdifferent combinations of standard levels to make an i¢'ormed decision onthe merits ofdifferent efficiency combinations.

To aid the reader as we discuss the benefits orburdens ofthe trial levels, we have included a summary ofthe analysis results in Tables VI.28 and VI.29. Table VI.28 presents a summary ofanalysis results based on ARI mean manufacturing costs, NAECAand Rool-up efficiency scenarios and 7% and 3% societal discount rate scenarios
.. Table VI.29 presents a summary ofanalysis results based on manufacturing costs obtained from the reverse engineering analysis for theNAEC efficiency scenario and 7% societal discount rate scenario. Bothtables
assume an 18.4 year equipment lifetime, including one compressor replacement. Significant scenarios/sensitivities summarized in Table VI.28 include results ofthe National NPVusing both societal discount rates of3 and 7% and, given their importance to the cash flow analysis, and manufacturer impacts are reported for bothNAECA and Roll-up shipment scenarios. The
reverse engineering scenario results in Table VI.29 are limited to single scenarios which highlight the impact ofmanufacturing costs on the consumer and manufacturer impacts and the national energy savings and NPY.

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## , 7 Table VI.28. Summary ofAnalysis Results based on ARI Mean Manufacturer Costs' Trial Std 1 TrialStd 2 TrialStd 3 Trial Std 4 TrialStd 5 Total Quads Saved 2 2.1-2.2 3.7-4.0 4.3- 4.6 5.3
- 5.7 10.2- 10.9 Generation Capacity Offset (GW)3 3.8 8.0 9.3 11.7 19.6 NPV ($Billion) 4 7 %DiscountRate I 0 -1
- to -2 -5to -6 -22 3% DiscountRate 3 4 3 -3 -35 Emissions '

Carbon Equivalent (Mt) 16.1 25.6 | 29.7 36.4 71.9 NOx (kt) 68.3 98.4 114.1 135.7 294.9 Cumulative Change in INPV (S Million)6

NAECA (37) (186) (197) (183)_ Roll-up (181) (362) (367) (335) Life Cycle Cost (S)

SplitAC (S44) ($45) (S45) S29 $555 Packaged AC $20 ($29) (S29) S175 S741 SplitHP ($150) ($242) (S215) ($215) S276 Packaged HP (S134) (S254) (S112) (S112) S296 Payback (years)

Split AC 10.6 12.6 12.6 16 36 Packaged AC 16.1 14 14 21.8 48.8 Split HP 5.5 7.2 9.3 9.3 17.3 Packaged HeatPump 8.1 8.7 13.2 13.2 19.4 1 Estimates are based on 18 Year lifetime. 2 Basedon AEO 2000 reference, high and low growth cases, and NAECA efficiency distributions. 3 Reductions in installed generation capacity inthe year 2020, based on AEO 2000 reference case, NAECA efficiency scenario. 4 Basedon NAECA efficiency distribution only. Range for 7% discount ratebased onAEO 2000 reference, high and low growth cases. 5 Basedon AEO 2000 Reference Case, NAECA efficiency scenario, and ARI mean manufacturing costs. 6 Notcalculated at Trial Standard Level 5.

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# · EE-RM/STD-88 440

## ~¥:0(J

# 7, T bl VI 28 S



### a e ummaryofAn I . R 

### alYS1S esu ts b d 

### ase on 

### ARIMean M f1 

### anu acturer

## costs Trial Std 1 Trial Std2 Trial Std 3 Trial Std4 Trial Std 5 Total Quads Saved 1 2.1-2.2 3.7-4.0 4.3-4.6 5.3
- 5.7 10.2- 10.9 Generation Capacity Offset (GWY 3.8 8.0 9.3 11.7 19.6 NPV ($Billion) 4

7 % DiscountRate 0 -1 -1 to-2 -5 to -6 -22 3% DiscountRate 3 4 3 -3 -35 Emissions S

Carbon Equivalent (Mt) 16.1 25.6 29.7 36.4 71.9 NOx (let) 68.3 98.4 114.1 135.7 294.9 Cumulative Change in INPV ($ Million)6

NAECA (37) (186) (197) (183) Roll-up (181) (362) (367) (335) Life Cycle Cost ($)

SplitAC ($44) ($45) ($45) $29 $555 PackagedAC $20 ($29) ($29) $175 $741 SplitHP ($150) ($242) ($215) ($215) $276 PackagedHP ($134) ($254) ($112) ($112) $296 Payback (years)

SplitAC 10.6 12.6 12.6 16 36 PackagedAC 16.1 14 14 21.8 48.8 SplitHP 5.5 7.2 9.3 9.3 17.3 Packaged Heat Pump 8.1 8.7 13.2 13.2 19.4 1EstlJllates are based on 1 g Year lifetlJlle. 2 Based on AEO 2000reference, high and low growth cases, andNAECAefficiency distributions. 3 Reductions in installed generation capacity in the year 2020, based on AEO 2000reference case, NAECA efficiency scenario. 4 Based on l'AECAefficiencydistribution only. Range for 7%discount rate based on AEO 2000reference, high and low growth cases. S Based on AEO 2000 Reference Case, NAECAefficiency scenario, and ARI mean manufacturingcosts. 6 Not calculated atTrial StandardLevel S.

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## $7 Table VI.29. Summary ofAnalysis Results based on Reverse Engineering Manufacturing Costs' ~~____ _________Trial Std 1 Trial Std2 TrialStd 3 Trial Std 4 Trial Std 5 Total Quads Saved 2.5 3.8 4.4 5.5 10.8 Generation Capacity Offset (GW)2 NPV (SBillion) 7%Discount Rate 2 2 1 I 0 -10 3 %Discount Rate

_____ Emissions2

Carbon Equivalent (Mt) NOx (kt)

___ Cumulative Change inINPV (SMillion)

NAECA (30) (159) (171) (169) Roll-up2 Life Cycle Cost ($)

SplitAC (S75) ($113) (S113) (S113) S137 Packaged AC (S78) (S163) ($163) (S29) $276 SplitHP ($209) (S365) (S372) (S372) $41 Packaged HP ($207) ($421) ($353) (S353) S166) Payback (years)

SplitAC 7.8 9.8 11.3 11.3 19.6 Packaged AC 7.7 7.5 7.5 14.5 25.1 Split HP 2.7 3.9 6.4 6.4 14.0 Packaged Heat Pump 4.6 4.0 8.4 8.4 12.8 1Basedon 18 Year Lifetime, NAECA efficiency scenario and AEO 2000 reference. 2Not calculated. 

### First we considered Trial Standard Level five, the most efficient level for each offour classes, representing uniform 18 SEER requirements. Trial Standard Level 5saves between 10.2 and 10.9 quads ofenergy, a significant amount. The emissions reductions of71.9 Mt ofcarbon equivalent and 294.9 kt ofNO, are also significant. However, at this level, the vast majority of consumers would experience an increase inLCC costs. Spanning the range ofLCC results using ARI andReverse Engineering costs, owners ofsplit central air-conditioners would lose between $135 and $555 over the life oftheir appliance. Owners ofpackaged air conditioners would lose from $276 and $741, and owners ofsplit heat pumps would losebetween $41 and $276 dollars. Using ARI cost estimates, owners ofpackaged heat pumps would lose $296 in contrast to the $166 savings obtained using Reverse Engineering data. The Department considers these results
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## EE.RM/STD.98-440~070

# J
T b! VI29 S

a e umrnary 0fAn I . RIb d R alysls esu ts ase on everse

### E . ngmeenng

### M f1 anu actunng

## costs Trial Std 1 Trial Std 2**~.** Total Quads Saved 2.5 3.8 Generation Capacity Offset (GWY NPV (SBillion)

7 % DiscountRate 2 2 3 % DiscountRate2 Emissions'

Carbon Equivalent (Mt) NOx (let) Cumulative Change in INPV (S Million)

NAECA (30) (159) Roll-up' Lite Cycle Cost ($)

SpiitAC ($75) (Sl13) PackagedAC (S78) ($163) SplitHP (S209) (S365) Packaged HP ($207) ($421) Payback (years)

SpiitAC 7.8 9.8 PackagedAC 7.7 7.5 SplitHP 2.7 3.9 Packajled Heat Pump 4.6 4.0 I Based on 18 "l earLifetune, NAECA effiCiency scenano and AEO 2000 .reference. 2 Not calcula1ed. Trial Std3 Trial Std4 Trial Std 5 4.4 5.5 10.8

1 0 -10

(171) (169) (SIB) ($113) $137 ($163) ($29) $276 (S372) ($372) $41 ($353) (S353) (£166)

11.3 11.3 19.6 7.5 14.5 25.1 6.4 6.4 14.0 8.4 8.4 12.8

First we considered Trial Standard Level five, the most efficient level for each offour classes, representing uniform 18 SEERrequirements. Trial Standard Level 5 saves between 10.2 .md 10.9 quads ofenergy, a significant amount. The emissions reductions of71.9 Mt ofcarbon equivalent and 294.9 kt ofNO x are also significant. However, at this level, the vast majority of
consumers would experience an increase in 

### Lee costs. Spanning the range of

### Lee results using ARI and Reverse Engineering costs, owners ofsplit central air-conditioners would lose between $135 and $555 overthe life oftheir appliance. Owners ofpackaged air conditioners would lose from $276 and $741, and owners ofsplit heat pumps would lose between $41 and $276 dollars. Using ARI cost estimates, owners ofpackaged heat pumps would lose $296 in contrast to the $166 savings obtained using Reverse Engineering data. TheDepartment considers these results
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# •

### EE.RM/STD-98-440 - 0 7 as overstating thebenefits ofthis trial standard level because the cost estimates used for 18 SEER equipment isthat provided by ARI and the Reverse Engineering analysis for 15 SEER equipment. For the nation as a whole Trial Standard Level 5would have a net cost between 10 and 35 billion dollars in NPV. The Department did not calculate manufacturer impacts at this level, although we expect that they would bevery harmful tothe industry since it would have shown costs roughly equal to Trail Standard Level 4 since the same equipment costs were used. The Department concludes that the resulting energy savings and emission reductions at this level would be outweighed by the negative economic impacts to the nation, to the vast majority of consumers and tothe manufacturers. Consequently, the Department concludes Trial Standard Level 5,the Max Tech Level, isnot economically justified.
Next, we considered Trial Standard Level 4. This level specifies 13 SEER equipment for all product classes and would save between 5.3 and 5.7 quads ofenergy, a significant amount. The emissions reductions would also be significant: 36.4 Mt ofcarbon equivalent and 29.7 kt of NO,. However, the national NPV ofTrial Standard Level 4 would be negative using ARI and reverse engineering cost data for both the 7% and 3%societal discount rates. There would be a net lossto the nation ofbetween 0and 6billion dollars. While the economic benefits to consumers would be significant for heat pumps, thebenefits for air conditioners less certain and dependant on the manufacturing cost assumption. The average LCC savings for consumers with split and package heat pumps would be $215 and $11, respectively, using ARI costs and $372 and $353, respectively, using Reverse Engineering costs. Owners ofsplit air conditioners could see their LCC decrease by $133 (based on Reverse Engineering costs) or increase by $29 (based
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as overstating thebenefits ofthis trial standard level because the cost estimates used for 

### i8 SEER equipment is that provided by ARI and the Reverse Engineering analysis for 15 SEER equipment. Forthe nation as a whole Trial Standard Level 5 would have a net cost between 10 and 35 billion dollars in NPV The Department did not calculate manufacturer impacts at this level, although we expect that they would bevery harmful to the industry since it would have shown costs roughly equal to Trail Standard Level 4 since the same equipment costs wereused. The Department concludes that the resulting energy savings and emission reductions at this level would be outweighed by the negative economic impacts tothe nation, to the vast majority of
consumers and to the manufacturers. Consequently, the Department concludes Trial Standard Level 5, the Max Tech Level, is not economicallyjustified.
Next, we considered Trial Standard Level 4. This level specifies 13 SEERequipment for all product classes and would save between 5.3 and 5.7 quads ofenergy, a significant amount. The emissions reductions would also be significant: 36.4 Mt ofcarbon equivalent and 29.7 kt of NOx. However, the national NPV ofTrial Standard Level 4 would be negative using ARI and
reverse engineering cost data for both the 7% and 3% societal discount rates. There would be a net loss to the nation ofbetween 0 and 6 billion dollars. While the '!conomic benefits to
consumers would be significant for heat pumps, the benefits for air conditioners less certain and dependant on the manufacturing cost assumption. The average LCC savings for consumers with split and package heat pumps would be $215 and $11, respectively, using ARI costs and $372 and $353, respectively, using Reverse Engineering costs. Owners ofsplit air conditioners could
see their LeC decrease by $133 (based on Reverse Engineering costs) orincrease by $29 (based 136 Q:\E.E-411EE-431\CAClStandRuJINOPR\DraftNOPRICACNOPR16.wpd August 4. 2000 (1 :45PM)
.It

### EE-RM/STD-98-440 -77c: 7
on ARI costs). Similarly, owners ofpackage air conditioners could see their LCC decrease by $29 (based on Reverse Engineering costs) or increase by $175 (based on ARI costs).

Under Trial Standard Level 4, the air conditioning industry would experience an NPV loss ofbetween $169 and 304 million. The range ofimpacts is driven primarily by the assumption regarding the distribution ofair conditioner and heat pump efficiencies in the market after implementation ofthe standard (NAECA or Roll-up). The Department recognizes that the ability to maintain a full product line is more difficult at higher standard levels and therefore places more weight on the Roll-up scenario at Trial Standard Level 4 than at Trial Standard Level 3. The Department concludes that at Trial Standard Level 4the national energy savings and emission reductions and the reduction in LCC for some consumers are outweighed by the negative economic impacts onthe nation, most consumers and manufacturers. Consequently, theDepartment concludes Trial Standard Level 4 is not economically justified.
Next, we considered Trial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEER equipment for heat pumps. The energy savings are estimated to be between 4.3 and 4.6 Quads, a significant amount. The emissions reductions would also be significant: 29.7 Mt ofcarbon equivalent and 114.1 kt ofNO,. Estimates ofthe national NPV of Trial Standard Level 3 using Reverse Engineering costs are 1and 3 Billion using 7 and 3% discount rates. IfARI mean costs are used, the national NPV estimates vary from -$1 to -2 Billion for the 7% discount rate, to $3Billion for the 3% discount rate. All classes ofproduct would have mean LCC savings. The average LCC savings for consumers with split and package
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on ARI costs). Similarly, owners ofpackage air conditioners could see their LCC decrease by $29 (based onReverse Engineering costs) orincrease by $175 (based on ARI costs).

Under Trial StandardLevel 4, the air conditioning industry would experience an NPV loss ofbetween $169 and 304 million. The range ofimpacts is driven primarily by the assumption regarding the distribution ofair conditioner and heat pump efficiencies in the market after implementation ofthe standard (NAECA orRoll-up). TheDepartment recognizes that the ability to maintain a full product line is more difficult at higher standard levels and therefore places more weight onthe Roll-up scenario at Trial Standard Level 4 than at Trial Standard'Level 3. The Department concludes that at Trial Standard Level 4 the national energy savings and emission reductions and the reduction in LCC for some consumers are outweighed by the negative economic impacts on the nation, most consumers and manufacturers. Consequently, theDepartment concludes Trial Standard Level 4 is not economicallyjustified.
Next, we considered Trial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEERequipment for heat pumps. The energy savings are estimated to be between 4.3 and 4.6 Quads, a significant amount. The emissions reductions would also be significant: 29.7 Mt ofcarbon equivalent and 114.1 kt ofNOx' Estimates ofthe national NPV of Trial Standard Level 3 using Reverse Engineering costs are 1 and 3 Billion using 7 and 3% di3count rates. IfARI mean costs are used, the national NPV estimates vary from -$1 to -2 Billion for the 7% discount rate, to $3 Billion for the 3% discount rate. All classes ofproduct would have mean LCC savings. The average LCC savings for consumers with split and package 137 Q:\EE-41\EE-431ICAClStandRu1\NOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (1 :4SP}'!)EE-RM/STD-98-440 

## d / 

## - .l 7. .; air conditioners would be $45 and $49, respectively, using 

### RI cots·d 

### S113and $163^ 

### . , .. respectively, using reverse engineering costs. The average 

### C savringsf nsumers with 

### st -pg . and package heat pumps would be $215 and $112, respecti uing.AR.ts -nd.$372 and S.1:

Wi
. . $353, respectively, using reverse engineering costs. Under gs ial i dlv, he ai: conditioning industry would experience an INPV loss ofbe -$71 -ad

### 336nillion . - .-. depending on whether the Roll-up or NAECA efficiency di tic 

### ceno considered.

In determining the economic justification ofTrial StandardLevel 3 the Department has weighed the benefits ofenergy savings, reduced average ccmsumer LCC, likely positive NPV,

· . . '.

- and emissions reductions, and theburdens ofa loss in man&ir t p ntaluar..- * e ,_ ...

"=-.
_ . ' ....... ... _ consumer LCC increases for some households. After carefiully consideing.the results ofthe-:
- analysis, DOE has determined the benefits ofTrial Standar ·Level 3 woul outweigh its burdg 

### ns .:^

. ,_ * . _ ' i . ,, . .... ; f and is economicallyjustified. The Department believes, foexamp, even ifral Stid
. Level 3were to result in the relatively small negative NPV .as.preeditedbysome ofour-. :. .'- estimates, its benefits would outweigh its burdens. Howevgr, wbel~eve itisunlikelysuch suh >, . negative NPVs will occur, particularly, given our other sceaeios d. orelefthit is 5- reasonable to expect decreases in equipment prices. The Department also concludes Trial -. Standard Level 3 would save a significant amount ofener ad is technlogically easible.

.:. c. · -, s: ' .~ . ,. .,; : . ; : Therefore, the Department today proposes to adopt the en onservan standards for a -ir , . conditioners and heat pumps at Trial Standard Level 3. .. - - - .-

, ' .- ' , ' - , s . .. % rP~~~~~~~~~~ :, : . . ',..

138
. Augu- 4. 2000 (1.45P:M)

## EE.RM/STD.9~.440**~II**

# 05tJ

# 7**,Dg'·;.~~:·'~f~~~·,.,)~~i~'~ ',')iIf~11~** **L;~*·** 

# ,i7;e.t}f



# .**~. ..I~~t~~;'~~~~** **.~§~~~f'~~::."** 

# :t**)·~'1:~~~'·;!:·~;titl2;·:'·~~!:~~:** air conditioners would be $45 and $49, respectively, using

# iuco"Stt'AAd

### $l'~~I~**$163;I~"':l·':,··r~~~~f.:;.::**

### ..

## :§l**·m~·.- ,~.** **:····~'·~;~tH;**

### ':,**.~-:~~~,~~~** 

### ,:. .**_~.r&~~** 

### ..**;~.~.** 

### :.**r~:~.~_~.~~:~~~ ~~;i:i:'~~:':"~**  respectively, using reverse engineering costs. The average

# tx:**saVi~.:f~fcOrOOmers**

# "it b

# sPlit**<':.:~l,.:t~~:~~:~** 

# .**tt~**

# ..·**.:~** 

# .'**;~:.'·;J~ts~·~~·.~>,·::::** ': 

# ;> ";: : ....**·;~:~tif~·i:~?·:** and package heat pumps would be $215 and $112,

## respectit~Y~r~4~~an~!~~7~**'an~::-~}i~~]f;~I;fi~~~** $353, respectively, using reverse engineering costs. Under's

# trial**~andaJdj~the~au:~** 

# .**·t:~,f:J;~li··li;t~~-**

.**.~:;i' -:~~(~.** **~:;**t":**·:S~~** .**~:** ..'**}~~ ~::~:.** **.~~~** ..**~~ -~-~·~:~~;f~~t;·** **-:2~~ :~;:f:**  conditioning industry would experience an INPVloss

## ofbe~~'$l~h**,~.,~.j~;~on':·~. 1~L~1f~'** **~)y~: 'fi;~:'** **·t~:;~.·~** 

## :**1t:~~·t~·-~~::. ·i~·~~.** **~~1**•.**~:~'-"~~'~,~::;:'~~~ :~~~j::;**  depending onwhether the Roll-up orNAECA efficiency**ctif,b~ti~.c~n~~~.:consid~~.** :,-"**.:~~~.~~~**..**~~~** :



# .**f~~tl-:** 

# .**~~:c~-=::,i~i~~~~··**

# , In determining the economicjustification ofTrial

### S~daTd Level

### i:'~**Dep~eirt ruiSl~,:~t~1ii!'f~,.l·:;**  

# . 

# t . "'.' :'.,**.~;~~;i}~~;;~~**

# ,**.~\** weighed the benefits ofenergy savings, reduced average ce>!1sumer**LCC,~ely posi~ve** NPV,;:**:~lJ/~**

# '{**;~.,=::~~~i'** 

## f,:,·**;.~** 

## .;'
. '; :**'~)';~}Y;5** 

### .**,:~;tJ.r~If;:** and emissions reductions, and the burdens ofa loss in**manu.factUrer-Aet-pre.senLva1~.E ··fr~'.:'·** **\~~i** .'**":fI:~~;i**

### ~i: 

### :.; :,...· ..

# ;i. { '.. ...:...._.**~i~' .~r··:~:~::i'** 

# ..**~t}~;;~;f_** consumerLCC increases for some households, After care@ly considering.tbe**res~:**ofthe**].~r('?i'; .;;~}i** * ;:**;:";'~':** ,.'".**Ji.;.!'~..** .'::'**.:~** ..::,**".~~~ t~1"\'':** _**:-~,-'** . .**~.** analysis, DOE has determined the benefits ofTrial

## Standar{~~ei:ttvouikou~eigh**l~.s :.burd~s,·f~;f::1::,~** **~~~:f' ~;** **~-** 

# "::**-l:::i;:~'~:** 

# '.; i

# l· " '
..**~~**

# ,:' :,;**'::~'~7;~L;! ::~~rt~[:**  and is economicallyjustified. The Department believes,

### foiex~~~,:ev~**~~:w S.t~d** **j_}l~?WE.,~,·::li;** Level 3 were to result in the relatively small negative**NPV~as:piedlctedby'some** 

### ofDur-"**,:,'~Jt'}~':;~0hi~~:::'~:,~** 

# . . i', ,:;,,-'< '." ; -.**.2:'~,.,:.: :i~j(;:~** **i;~ e~timates,**  its benefits would outweigh its burdens.

### Howev~:**~~:b~li_eye~·.is ~nlik~':suCh** **~~;:i ;~·,:'f..,:;ig.** **I,~'~::~:~X** 

# F? :;'"5;,::. 

# t,:._ ._**.:"~:I'f~~j;-"~;!"** negative**~-rpvs** will occur, particularly, given our other**sce!illfi~}l;l!~ Q.P.lJ~:e~~f~Jt** 

## it
..**-':;;~'!;::::~ ·:'~iq;w;~·:~j.-;** **'~ -.~;** ..**~;** .':...""**,:~..** .-:::**~}';'"** .' t**"'~** .';',**~~' ".:';::~.~~;'-** **··~~-'~"j,;f~~·::"T..··** reasonable to expect decreases in equipment prices. The

### ~p~ment**al~ conc1ud~**  Trial·I ""

### ·t;'"·~,:· 

# i··..**:~~** i;.**";;-:'~"** ;:,., 

### ·'ite., {'.. 

### -1:.. Standard Level 3 would save a significant amount ofener$J

## ~d,

# is**t~c~~ogic#lIY·feasibIe·:!t~' .;~.** **~:~~:::;~,~,.** '" . ',.- .. .**,~** " ''9'" .**#"::;~'~~~." :R~~**  ,',_ .**:!~.~** ..**:~" .~:~::_,**  ..**:.-,:'~**...**'~~**.. ' Therefore, the Department today proposesto adopt the**ener~**conservation,.standards for

### Bit ' 7 .**~~,.(;** :;, • conditioners and heat pumps at Trial Standard Level 3.

# r.r~c~'~):"~'f;}:r. c

# ··;~~!<;'~~11;

# ....

. :r**~** j
... 

### -.**~.,** 138 Q:U!E-411EE-431\CAClSlllldRuhNOPRIDrafL'iOPR,CACNOPRI6 wpd iii AIIgIU! 4, 1000**(1.45P}'~. .~**  .'- ,r

### EE-RM/STD-98-440-,4, /7 

### Central air conditioners are perceived as contributing significantly to peak demand for electricity, particularly in warmer regions ofthe country. Since new electricity generation, transmission, and distribution-capacity is determined by the electricity load served during these peak demand times, products that demonstrate improved efficiency under peak conditions can reduce the need for added electrical system capacity. Reducing peak demand isan important component ofany integrated plan to improve the reliability ofthe nation's electrical system. In addition to the minimum SEER proposals contained intoday's proposed rule language, the Department isproposing an approach for setting a minimum EER(95 F) requirement. The Department requests comment on this approach and on othermeans, including inparticular the other approaches described above, for ensuring that EER(95 ) performance ismaintained under the proposed SEER standards. We encourage comments regarding the burdens and benefits that would result from this requirement. Ofparticular interest are comments regarding burdens on manufacturers andbenefits regarding reduction inpeak electricity demand andthe effect that would have on improved electrical system reliability.
VII. Procedural Issues and Regulatory Review A. Review UndertheNational Environmental PolicyAct We prepared a Draft Environmental Assessment and are publishing a Finding ofNo Significant Impact (FONSI) for the Proposed Energy Conservation Standards for central air conditioners and heat pumps pursuant to theNational Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.), the regulations ofthe Council on Environmental Quality (40 CFR Parts

Q:\EE-41\EE-431\CAC\StandRulNOPR\DrafINOPR\CACNOPR 16.wpd 139 August 4. 2000 (1:45PM) 4 --------------------------- 

### EE-RM/STO-98-440-j/

# cfJ () 

# 1 Central air conditioners are perceived as contributing significantly to peak demand for electricity, particularly in warmerregions ofthe country. Since new electricity generation, transmission, and distribution-capacity is determined by the electricity load served during these peak demand times, products that demonstrate improved efficiency under peak conditions can reduce the need for added electrical system capacity. Reducing peak demand is an important component ofany integrated plan to improve the reliability ofthe nation's electrical system. In addition to the minimum SEER proposals contained in today's proposed rule language, the Department is proposing an approach for setting aminimum EER(95OF) requirement. The .' Department requests comment on this approach and on other means, including in particular'the other approaches described above, for ensuring that EER(950) performance is maintained under the proposed SEER standards. We encourage comments regarding the burdens and benefits that w()uld result from this requirement. Ofparticular interest are comments regarding burdens on manufacturers and benefits regarding reduction in peak electricity demand and the effect that would have on improved electrical system reliability.

YD. Procedural Issues and Regulatory Review A. Review Under the NationalEnvironmentalPolicyAct We prepared aDraft Environmental Assessment and are publishing aFinding ofNo Significant Impact (FONSI) for the Proposed Energy Conservation Standards for central air conditioners and heat pumps pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 U.S.c. 4321 et seq.), the regulations ofthe Council on Environmental Quality (40 CFRParts

139 Q:IEE-41\EE-431ICAClStandRuJ\NOPRIDraftN'OPRICACNOPR16.wpd August4, 2000 (1**:45P~f)**

### EE-RM/STD-98-440 --7 0 7 1500-1508), the Department's regulations for compliance with NEPA (10 CFR Part 1021) and Secretarial Policy (June 1994).


### B. Review underExecutive Order12866, "Regulatory Planning andReview" The Department has determined today's regulatory action is a significant regulatory action within the scope ofSection 3(0(1) ofExecutive Order 12866, "Regulatory Planning and Review." (58 FR 51735, October 4, 1993). Therefore, this proposal requires a regulatory analysis. Such an analysis presents major alternatives to theproposed regulation that could achieve substantially the same goal, as well as a description ofthe cost and benefits (including potential net benefits) ofthe proposed rule. Accordingly, the Office ofInformation and Regulatory Affairs (OIRA) reviewed today's action under the Executive Order.

There were no substantive changes between the draft we submitted to OIRA and today's action. The draft and other documents we submittedto OIRA for review are a part ofthe ruleraking record and are available for public review in the Department's Freedom of Information Reading Room, 1000 Independence Avenue, SW, Washington, DC 20585, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays, telephone (202) 586-3142.

The following summary ofthe Regulatory Impact Analysis (RIA) focuses on the major alternatives considered in arriving at theproposed approach to improving the energy efficiency ofconsumer products. The reader is referred to the complete RIA, which is contained in the Q:\EE-41\EE-431\CAC\StandRul\NOPR\DrmfNOPR\CACNOPR1 6.,pd 140 August 4, 2000 (1:45PM) 4

# EE.RM/STD.9~.440 

# -/f-6?D

# 1 1500-1508), theDepartment'sregulations for compliance with NEPA (IO CFRPart 1021) and Secretarial Policy (June 1994).


### B. Review underExecutive Order 12866, 

### "RegulatoryPlanningandReview" TheDepartmenthas determined today's regulatory action is a significantregulatory action within the scope ofSection 3(£)(1) ofExecutive Order 12866, "Regulatory Planning and Review." (58 FR51735, October4, 1993). Therefore, this proposal requires a regulatory analysis. Such an analysis presents major alternatives to theproposedregulation that**coul~** , 

# .. achieve substantially the same goal, as well as a description ofthe cost andbenefits (includ1ng potential netbenefits) oftheproposedrule. Accordingly, the Office ofInformation and Regulatory Affairs (OIRA) reviewed today's action under the Executive Order.

There wereno substantive changes between the draftwe submittedto OIRA and today's action. The draft and other documents we submittedto OIRA for review are a part ofthe rulemdking record and are available for public review inthe Department's Freedom of Information Reading Room, 1000 Independence Avenue, SW, Washington, DC 20585, between thehours of9:00 a.m. and4:00 p.m., Monday through Friday, except Federal holidays, telephone**~202)** 586-3142.

Thefollowing summary ofthe Regulatory Impact Analysis (RIA) focuses on themajor alternatives considered 

### in arriving at theproposed approach to improving the energy efficiency ofconsumerproducts. Thereader is referredto the complete RIA, which is containedinthe 140 Q:\EE411EE-431\CAC\StandRuI\NOPR\DraftNOPRICACNOPRI6.wpd August4.2000 (I :45PM)

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

### c0 7. TSD, available as indicated at thebeginning oftoday's proposed rule. The RIA consists of: 1)a statement ofthe problem addressed by this regulation, and themandate for government action; 2)
a description and analysis ofthe feasible policy alternatives tothis regulation; 3)a quantitative comparison of the impacts ofthe alternatives; and 4)the economic impact ofthe proposed standard.
The RIA calculates the effects offeasible policy alternatives to central air conditioner and heat pump energy efficiency standards, and provides a quantitative comparison ofthe impacts of the alternatives. We evaluate each alternative interms ofits ability to achieve significant energy savings atreasonable costs, andwe compare itto the effectiveness ofthe proposed rule.

We created the RIA using a series ofregulatory scenarios (with various assumptions), which we used as input to the shipments model for central air conditioners and heat pumps. We used the results from the shipments model as inputsto theNES spreadsheet calculations.
DOE identified the following seven major policy alternatives for achieving consumer product energy efficiency. These alternatives include: * No New Regulatory Action * Informational Action

- Product Labeling

- Consumer Education



### · Prescriptive Standards Q:\EE41\EE431\CAC\StandRul\NOPRDraftNOPR\CACNOPR 6.wpd 141 August4. 2000 (1:45PhI) 4 EE-RM/STD-9S-440

# -::tfOJ0 

# 7.

" TSD, available as indicated at thebeginning oftoday'sproposedrule. The RIA consists of: 1) a statement oftheproblem addressedby this regulation, andthemandate for government action; 2) 

### e description and analysis ofthe feasible policy alternatives to this regulation; 3) a quantitative comparison oftheimpacts ofthe alternatives; and 4) the economic impact oftheproposed standard.

The RIA calculates the effects offeasible policy alternatives to central air conditioner and heatpump energy efficiency standards, andprovides a quantitative comparison ofthe**imp~cts** of the alternatives. Weevaluate each alternative interms ofits ability to achieve significant energy savings at reasonable costs, and we compare it to the effectiveness ofthe proposedrule.

Wecreatedthe RIA using a series ofregulatory scenarios (with various assumptions), which weused,as input to the shipments model for central air conditioners andheat pumps. We used the results from the shipments model as inputs to theNES spreadsheet calculations.


### DOE identifiedthe following seven majorpolicy alternatives for achieving consumer prOC:lct energy efficiency. These alternatives include:
• NoNewRegulatory Action
• Informational Action

- ProductLabeling

- ConsumerEducation
• Prescriptive Standards 141 Q:\EE-4I\EE-431\CAC\StancIRuI\NOPRIDraftNOPR\CACNOPRI6,wpd August 4.2000 (I :45Pl\!)

### EE-RM/STD-98-440 -- '"~ a 

### * Financial Incentives

- Tax credits

- Rebates

- Low income and seniors subsidy * Voluntary Energy Efficiency Targets (5 Years, 10 Years) * Mass Government Purchases * The Proposed Approach (Performance Standards)

We have evaluated each alternative in terms ofits ability to achieve significant energy savings at reasonable costs (Table VII. 1), and have compared itto the effectiveness ofthe proposed rule. All ofthe results below have been determined with the AEO Reference Case and the NAECA efficiency scenario.

Q:\EE41\EE-431 \CAC\StandRul\NOPR\DaftNOPR\CACNOPR1 6..pd 142 August 4, 2000 (1:45PM)

# EE.RM/STD.9~-440

# 4"01()1
• Financial Incentives

- Tax credits

- Rebates

- Lowincome and seniors subsidy
• Voluntary Energy Efficiency Targets (5 Years, 10 Years)
• Mass GovernmentPurchases
• TheProposedApproach (Performance Standards)

, 

# .. Wehave evaluated each alternative in terms ofits ability to achieve significant energy**s~vings** at reasonable costs (TableVII. 1 ), and have compared itto the effectiveness ofthe proposedrule. All of theresults belowhave been determined with the AEO Reference Case and theNAECA efficiency scenario.

142 Q:IEE-411EE-431ICAClStandRull.lIJOPR\DraftNOPRICACNOPR16wpd August4. 2000 (1 :45P:-.n

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

- c 

### 6 ? Table VII.I Alternatives Considered NPV Energy Savings Policy Alternatives ( 9 Energy Savings _______________________(Billions 985) (Quads) Consumer Product Labeling 0 0.1 Consumer Education 0 0.1 Prescriptive Standards 0 1.1 Consumer Tax Credits 0 0.1 Consumer Rebates 0 0.2 Manufacturer Tax Credits 0 0.0 Voluntary Efficiency Target (5 year delay) -1 3.1 Voluntary Efficiency Target (10 year delay) -1 1.9 Low Income Subsidy 0 0.1 Mass Government Purchases 0 0 Performance Standards -2 4.4 NPV = Net Present Value (2006-2030, in billion 19985) (does not include government expenses) Savings = Energy Savings (Source Quads) 

### Ifwe imposed no new regulatory action, then we would implement no new standards for this product. This is essentially the "base case" for central air conditioners and heat pumps. In this case, between the years 2006 and 2030, there wouldbe an _:pccted .zsrgy use of46 Quads ofprimary energy, with no energy savings and azero NPV.
We grouped several alternatives to the base case under theheading ofinformational action. They include consumer product labeling and DOE public education and information programs. Both ofthese alternatives are already mandated by, and are being implemented under EPCA Sections 324 and 337, 42 U.S.C. 6294, 6297. One base case alternative would beto estimate the energy conservation potential ofenhancing consumerproduct labeling. To model 143 Q:\EE-41\EE-43 \CAC\StandRulNOPR\DrafNOPR\CACNOPR 16.wpd August 4, 2000 (1:4SPM) 

### EE-RM/STO-98-440'-=!fc!5 {J

# 7
Table VIT.1 Alternatives Considered Policy Alternatives NPV Energy Savings (Billions 98$) (Quads) ConsumerProduct Labeling 0 0.1

.ConsumerEducation 0 0.1 Prescriptive Standards 0 1.1 ConsumerTax Credits 0 0.1 ConsumerRebates 0 0.2 ManufacturerTax Credits 0 0.0 Voluntary Efficiency Target (S yeardelay) -I 3.1 Voluntary Efficiency Target (10 yeardelay) -1 1.9 Low Income Subsidy 0 0.1 Mass Government Purchases 0 0 Performance Standards -2 4.4

.. NPV = Net Present Value (2006-2030, mbllhon 1998$) (does not mclude government expenses) Savings = Energy Savings (Source Quads) , 

# ..

Ifwe imposed no new regulatory action, then we would implementno new standards for this product. This is essentially the "base case" for central air conditioners and heat pumps. In this case, between theyears 2006 and 2030, there wouldbe an**,?:::J('C~cC ~~:rgy**  use of46 Quads ofprimary energy, with no energy savings and azero NPV.
We grouped several alternatives to the base case under the heading ofinformational action. They include consumerproduct labeling and DOE public education and information programs. Both ofthese alternatives are already mandatedby, 2nd are being implemented under EPCA Sections 324 and 337,42 U.S.C. 6294, 6297. One base case alternative wouldbeto estimate the energy conservation potential ofenhancing consumerproduct labeling. To model 143 Q:IEE411EE431 ICAC\StandRuJ\NOPRIDraftNOPRICACNOPR1 6.wpd August 4, 2000 (I :45Plvl)EE.RM/STD-98-440 -1 

### ?H 

# / this possibility, the Department estimated that 5% ofthe consumers purchasing 10 SEER equipment and 5% ofthe consumers purchasing 12 SEER equipment would change their decisions and purchase 12 SEER and 13 SEER systems, respectively. It is assumed thatthe program would last six years and upon its expiration consumers would revert back to their prior purchase decisions. The consumer product labeling alternative resulted in 0.1 Quad ofenergy savings with no impact on theNPV.

Another approach, called consumer education, isto consider an Energy Star®program for 12 SEER and 13 SEER central air conditioners andheat pumps. We assume, under this program, there would be a 20% increase in the sales ofboth 12 SEER and 13 SEER systems. As with the consumer product labeling program, it is assumed that the education program would last six years and upon its expiration sales would drop back to their market share levels prior to the program's implementation. This consumer education program results in energy savings equal to 0.1 Quad with no impact on theNPV.

Another method ofsetting standards would entail requiring that certain design options be used on each product, i.e., for DOE to impose prescriptive standards. For this approach, we
assume that a prescriptive standard is implemented to ensure that all central air conditioners and heat pumps are equipped with thermostatic expansion valves (TXVs). The resulting efficiency increase is 0.5 SEER. That is, the baseline efficiency of 10 SEER is assumed to increase to 10.5 SEER as a result ofthe prescriptive standard. Manufacturer costs associated with this standard
were arrived by linearly interpolating between those costs associated with the baseline (i.e., 10 Q:\EE-41\EE-431\CAC\StandRul\NOPR\DraftNOPR\CACNOPR16.wpd 144 August 4,2000(1:45P-M)

## EE.RM!STD-9~-1tcXCJ

# 7
this possibility, the Department estimatedthat 5% ofthe consumers purchasing 10 SEER equipment and 5% ofthe consumers purchasing 12 SEER equipment would change their decisions andpurchase 12 SEERand 13 SEER systems, respectively. It is assumed that the program would last sixyears andupon its expiration consumers wouldrevertbackto their prior purchase decisions. Theconsumerproduct labeling alternativeresulted in 0.1 Quad ofenergy savings with no impact on theNPV.

Another approach, called consumer education, is to consider an Energy Star® program for 12 SEER and 13 SEERcentral air conditioners andheatpumps. We assume, under this program, there wouldbe a 20% increasein the sales ofboth 12 SEER and 13 SEER systems. As with the consumerproduct labeling program, it is assumed that the education program would last six years and upon its expiration sales would drop backto their market share levels priorto the program's implementation. This consumer education program results in energy savings equal to 0.1 Quadwith no impact ontheNPV.

Another method ofsetting standards would entail requiring that certain design options be used on each product, i.e., for DOE to impose prescriptive standards. Forthis approach, we assume that a prescriptive standard is implemented to ensure that all central air conditioners and hea! pumps are equipped with thermostatic expansion valves (TXVs). The resulting efficiency increase is 0.5 SEER. That is, thebaseline efficiency of 10 SEERis assumed to increase to 10.5 SEERas a result oftheprescriptive standard. Manufacturer costs associated with this standard
wr.re arrived by linearly interpolating between those costs associated with the baseline (i.e., 10 144 Q:IEE-411EE-431\CAClStandRulINOPR\DraftNOPRICACNOPRI6.wpd August 4. 2000 (1:45PM)

### EE-RM/STD-98-440--A c 0 y SEER) and 11 SEER efficiency levels. This resulted in energy savings of 1.1 Quad and no impact on theNPV.
We tested various financial incentive alternatives. These included tax credits and rebates to consumers, aswell astax credits to manufacturers. We assumed the tax credits to consumers
were 50% ofthe incremental purchase price for higher energy-efficiency equipment. The incremental price is based on the difference between the 2006 baseline price and the price of 12 SEER equipment. We estimate the impact ofthis policy would be to move 5% ofthe market share from the 2006 baseline to 12 SEER models. These tax credits would start in 2006 and run for six years. We assume people stop buying these more efficient and more expensive central air conditioners and heat pumps when the tax credits stop. The tax credits to consumers showed a change from thebase case, saving 0.1 Quad with no impact tothe NPV.

To estimate the impact ofconsumer rebates, we assumed rebates of35% ofthe incremental retail prices for higher energy-efficiency equipment. The incremental cost is based


### on the difference between the2006 baseline cost andthe cost of 12 SEER equipment. We estimate the impact ofthis policy would beto move 10% ofmarket share from the 2006 baseline tothe 12 SEER models. Theserebates would start in 2006 and run for six years. We assume people stop buying thesemore efficient and more expensive central air conditioners and heat pumps when therebates stop. Therebates to consumers showed a change from thebase case, would save 0.2 Quad withno impact to theNPV.

Q:\EE41\EE-31 \CAC\StndRulNOPR\DrafNOPR\CACNOPR 6.wpd 145 .August 4,2000 (I:45PM) ---------- 

### EE-RM/STD-98-440-t/c:B

### [J

# ? SEER) and 11 SEER efficiency levels. This resulted in energy savings of 1.1 Quad and no impact on the NPV.

We tested various financial incentive alternatives. These included tax credits and rebates to consumers, as well as tax credits to manufacturers. We assumed the tax credits to consumers were 50% ofthe incremental purchase price for higher energy-efficiency equipment. The incremental price is based on the difference between the 2006 baseline price and the price of 12 SEER equipment. We estimate the impact ofthis policy would be to move 5% ofthe**m~rket** , 

# .. share from the 2006 baseline to 12 SEER models. These tax credits would start in 2006 and'run for six years. We assume people stop buying these more efficient and more expensive central air conditioners and heat pumps when the tax credits stop. The tax credits to consumers showed a change from the base case, saving 0.1 Quad with no impact to the 

### NPy.

To estimate the impact ofconsumerrebates, we assumed rebates of35% ofthe**~ncremental** retail prices for higher energy-efficiency equipment. The incremental cost is based
on the differencebetween the 2006 baseline cost and the cost of 12 SEERequipment. We esti!natethe impact ofthis policy would beto move 10% ofmarket share from the 2006 baseline to the 12 SEER models. Theserebates would startin 2006 and run for**s~x** years. We assume people stop buying these more efficient and more expensive central air conditioners andheat pumps when therebates stop. Therebates to consumers showed achange from thebase case, would save 0.2 Quadwith no impactto theNPV.

145 Q:\EE-41IEE-431\CAClStandRulINOPR\DraftNOPR\CACJ\OPRI6.wpd August 4, 2000 (1 :45PM)

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

### t / Another financial incentive we considered was atax credit to manufacturers for the production ofenergy-efficient models ofcentral air conditioners and heat pumps. We assumed
an investment tax credit of20%, applicable tothe tooling and machinery costs ofthe manufacturers. These are tooling costs as theyrelate to producing 12 SEER central air conditioners and heat pumps. We estimate the impact ofthis policy would be to move 1%ofthe market share from the 2006 baseline to the 12 SEER models. These tax credits would start in 2006 and run for sixyears. We assume no persistence in the market once they stop. Tax credits to manufacturers would save no energy and have no impact onthe NPV. The impact ofthis scenario would benegligible because the investment tax credit was applicable only to the tooling and machinery costs ofthe firms. The firms' fixed costs and some ofthe design improvements that would likely be adopted to manufacture more efficient versions ofthis product would involve purchased parts. Expenses forpurchased parts would notbe eligible for an investment tax credit.
We examined two scenarios ofvoluntary energy efficiency targets. In the first one, we assumed all the relevant manufacturers voluntarily adopted the proposed energy conservation standards in five years. In the second scenario, we assumed the proposed standards were adopted in 10 years. In these scenarios, voluntary improvements having a five-year delay, compared to implementation ofmandatory standards, would result in energy savings of3.1Quads and -$1 billion NPV; voluntary improvements having a 10-year delay would result in1.9 Quads being saved and -$1 billion NPV. These scenarios assume that there wouldbe universal voluntary

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# EE-RM/STD-9~-440

# 4 

# 0 tJ

# ?
Another fmancial incentive we consideredwas a tax credit to manufacturers for the production ofenergy-efficientmodels ofcentral air conditioners and heat pumps. We assumed
an investmenttax credit of20%,**applicabl~** to thetooling andmachinery costs ofthe manufacturers. These aretooling costs as they relate to producing 12 SEERcentral air conditioners andheat pumps. We estimatethe impact ofthis policy wouldbeto move 1% ofthe market sharefrom the 2006 baselineto the 12 SEERmodels. These tax credits would start in 2006 and run for six years. We assume no persistence inthemarket oncethey stop. Tax credits to manufacturers would save no energy andhave no impact ontheNPV. Theimpact ofthis

, 

# .. scenario wouldbenegligiblebecausethe investmenttax credit was applicable only to thetooling and machinery costs ofthe firms. Thefirms' fixed costs and some ofthe design improvements

--- that wouldlikely be adopted to manufacturemore efficient versions ofthis product would involvepurchasedparts. Expenses for purchasedparts would notbe eligible for an investment tax credit.

We examinedtwo scenarios ofvoluntary energy efficiency targets. Inthe fL""St one, we assumed all therelevant manufacturers voluntarily adoptedtheproposed energy conservation standards in five years. Inthe second scenario, we assumedtheproposed standards were adopted in 10 years. Inthese scenarios, voluntary improvements having a five-year delay, compared to implementation ofmandatory standards, wouldresult in energy savings of3.1Quads and -$1 billionNPV; voluntary improvements having a 10-year delay wouldresult inl.9 Quads being saved and -$1 billionNPV. These scenarios assume that there wouldbe-universal voluntary

146 Q:IEE-4IIEE-431ICAClStandRul\NOPRlDraftNOPRICACNOPRI6_wpd August 4. 2000 (I :45PM)

### EE-RM/STD-98-440-(7V U 

### / adoption ofthe energy conservation standards by these appliance manufacturers, an assumption forwhich there is no assurance.
One ofthe market barriers to higher efficiency central air conditioners and heatpumps is the expense to upgrading to amore efficient system. Since these expenses can be a particular burden on low income households, we considered a low income subsidy of $500 to makehigher efficiency central air-conditioning and heat pump equipment available and cost effective for these households. We determined thenumber oflow income households with central air-. conditioning from the RECS public use data. We assumed that half ofthese households will take advantage ofthe program. The program would start in 2006 and run for sixyears. This subsidy would save 0.1 Quad with no impact to the NPV.
Another policy alternative we reviewed was that oflarge purchases ofhigh efficiency central air conditioners and heatpumps by Federal, State, and local governments. We modeled this policy by assuming these governmental entities (e.g., U.S. Department ofHousing and Urban Development at the Federal level) purchased 12 SEER equipment for 5%ofthe low income, rented housing stock utilizing central air-conditioning and heat pump equipment. This nolicy alternative resulted in no energy savings with no impact to theNPV. Lastly, all ofthese alternatives mustbe gauged against the performance standards we are proposing in today's proposed rule. Such performance standards would result in energy savings
7 Q:EE-41 EE-431\CAC\StandRulOPR\DaftNOPR\CACNOPR 6.wpd 147 August 4. 2000 (1:4PM) 4 adoption ofthe energy conservation standards by these appliance manufacturers, an assumption for which thereis no assurance.

One ofthe marketbarriers to higher efficiency central air conditioners and heat pumps is the expenseto upgrading to a more efficient system. Sincethese expenses can be a particular burden on low incomehouseholds, we considered a low income subsidy of$500 to makehigher efficiency central air-conditioning andheat pump equipment available and cost effective for these households. We determined the number oflow income households with central air-, conditioning from the RECS public use data. We assumedthat halfofthese households will take advantage oftheprogram. Theprogram would start in 2006 and run for six years. This subsidy would save 0.1 Quadwith no impactto 'theNPV.

Anotherpolicy alternativewereviewed was that oflarge purchases ofhigh efficiency central air conditioners and heat pumps by Federal, State, and local governments. Wemodeled this p::>licy by assuming these governmental entities (e.g., U.S. Department ofHousing and Urban Development at the Federal level) purchased 12 SEERequipment for 5% ofthe low**in~ome,** rentedhousing stock utilizing central air-conditioning and heat pump equipment. This nolicy alternativeresulted in no energy savings with no impact to theNPV.
Lastly, all ofthese alternatives mustbegauged againsttheperformance standards we are proposing in today's proposedrule. Suchperformance standards wouldresult in energy savings

147 Q:\EE41\EE431ICAClStandRuJINOPR\DraftNOPRICACNOPRI6wpd August 4, 2000 (1 :45PM)

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

# 2 underthe AEO Reference Case and NAECA efficiency scenario of4.4 Quads, and theNPV estimates range from an increase of$3billion to a cost of$2billion.
As indicated in theparagraphs above, none ofthe alternatives we examined for these products would save asmuch energy astoday's proposed rule. Also, several ofthe alternatives would require new enabling legislation, since authority to carry out those alternatives does not presently exist.

C. Review UndertheRegulatoryFlexibilityAct 

### The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment ofthe impact ofregulations on small businesses. For air conditioning and warm airheating equipment manufacturing, a "firm" is definedby the Small Business Administration as a small business ifit (including affliates) has 750 or fewer employees.
The residential air-conditioner industry is characterized by seven firms accounting for nearly 95% ofsales. DOE understands that each ofthese firms, including its affiliates, has more than 150 employees. Smaller businesses and firms, which make specialty air-conditioning products and supply niche markets, share 5%ofthe market.

In this industry, average production cost is inversely related to firm size. The industry displays economies of scale, and large firms (to the extentthat their facilities are modernized) have lower average production costs than small firms. This fact, coupled with increasing Q:\EEEE-41EE431 \CAC\StandRul\NOPR\DraftNOPR\CACNOPR 16.wpd 148 August 4. 2000 (1:45PM) 4

# EE.RM/STD-9~.440**-If~** t!J 

# ? underthe AEO Reference Case andNAECA efficiency scenario of4.4 Quads, and the NPV estimates range from an increase of$3 billion to a cost of$2 billion.

As indicated inthe paragraphs above, none ofthe alternatives we examined for these products would save as much energy as today's proposedrule. Also, several ofthe alternatives would require new enabling legislation, since authority to carry out those alternatives does not presently exist.


### C. Review Under theRegulatoryFlexibilityAct The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an assessment ofthe impact ofregulations on small businesses. For air conditioning and warm air heating equipment manufacturing, a "firm" is defmedby the Small Business Administration as a small business ifit (including affliates) has 750 or fewer employees.
The residential air-conditioner industry is characterizedby seven firms accounting for nearly 95% ofsales. DOE understands that each ofthese firms, including its affiliates, has more than 150 employees. Smallerbusinesses and firms, which make specialty air-conditioning products and supply niche markets, share 5% ofthe market.

Inthis industry, average production cost is inversely relatedto firm size. The industry displays economies ofscale, andlarge firms (to the extentthat their facilities are modernized) have lower average production costs than small firms. This fact, coupled with increasing 148 Q:IEE-411EE-431ICAClStandRuJ\'''IOPRIDraftNOPRICACKOPR16.wpd Augus14. 2000 (lA5P}'f)

### EE-RM/STD-98-440-- 0 7 competitiveness ofthe national market, probably accounts forthe consolidation that has occurred for several decades. The fact that the consolidation has been producing larger firms strongly corroborates the finding that large firms have a cost advantage.

A principal implication ofconsolidation is that the smaller ofthe firms will be, on average, more vulnerable to the financial impacts ofhigher efficiency standards. Any decrease in average profitability is more likely to mean the difference between success and failure for a smaller firm.

The impact ofhigher efficiency standards on small firms is likely to be mixed. Those firms that face a large technological challenge in meeting the new standards may face a disproportionate burden, because smaller firms have more limited research and development capabilities than their larger competitors. Some smaller manufacturers indicated the potential for
a negative economic impact ofany higher standard level on their firms. However, since these
concerns apply primarily to small manufacturers ofniche products, they F nefit from the provisions proposed by the Department to somewhat protect those products from the new standards. For example, a separate product class is being proposed for through-the-wall equipment, many ofwhich are manufactured by small manufacturers. Also, the Department has acknowledged that small manufacturers ofhigh velocity distribution systems may potentially be adversely affected by the proposed standard level. The Department is proposing modifications to the SEER test procedure, which would grant these manufacturers some relief. Verticalpackaged, wall-mounted equipment is another product manufactured by small firms, and, as 1 Q:\EE41 \EE-431\CAC\StandRulNOPR\DraftNOPR\CACNOPR 6.wpd 149 August 4. 2000 (1:45PM) -t competitiveness ofthenational market, probably accounts for the consolidation thathas occurred for several decades. The fact that the consolidation has been producing larger fIrms strongly corroborates the finding that large ftrms have a cost advantage.

A principal implication ofconsolidation is that thesmaller ofthe ftrms will be, on average, morevulnerableto the fmancial impacts ofhigher effIciency standards. Any decrease in averageprofttability is more likely to mean the differencebetween success and failure for a smaller ftrm.

The impact ofhigher efftciency standards on small ftrms is likely to bemixed. Those fIrms that face a largetechnological challenge in meeting the new standards may face a disproportionateburden, because smaller ftrms have more limitedresearch and development capabilities than their larger competitors. Some smaller manufacturers indicatedthepotential for
a negative economic impact ofany higher standardlevel on their fIrms. However, sincethese
concerns apply primarily to small manufacturers ofniche**prod'l'.:~s,** 6ey1:.:neftt from the**prov~sions** proposedby the Department to somewhatprotectthose products from the new standards. For example, a separateproduct class is being proposed for through-the-wall equipment, many ofwhich aremanufacturedby small manufacturers. Also, the Departmenthas acknowledged that small manufacturers ofhigh velocity distribution systems may potentiully be adversely affectedby theproposed standardlevel. TheDepartment is proposing modiftcations to the SEERtest procedure, which would grant these manufacturers somerelief. Verticalpackaged, wall-mounted equipmentis anotherproduct manufacturedby small fIrms, and, as 149 Q:1EE411EE431ICAClStandRuJINOPRIDrnftNOPRICACNOPR16.wpd August4. 2000 (1 :45P}'!)


## .,

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

### 7 stated in Section V.J.3 ofthis notice, the Department intends to consider those to be commercial products under EPACT. These provisions should eliminate any potential for significant economic impact on small manufacturers related tothe proposed standard level. Many small manufacturers produce coils only. Since there are no intensive incremental technological or capital requirements for these companies to increase the efficiency oftheir products, we do not expect them to face any incremental burden as aresult ofthenew standards.

In view ofthese conclusions, the Department has determined and hereby certifies pursuant to Section 605(b) ofthe Regulatory Flexibility Act that, for this particular industry, the proposed standard levels in today's proposed rule will not "have a significant economic impact
on a substantial number ofsmall entities," and itis not necessary to prepare aregulatory flexibility analysis. 

## i'. Review UnderthePaperwork ReductionAct 

### No new information orrecord keeping requirements are proposed inthis rulemaking. Accordingly, no Office ofManagement and Budget clearance isrequired under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq.

E. Review UnderExecutive Order12988, "CivilJusticeReform" 

### With respect to the review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR 4729 Q:\EE-41\EE431\CAC\SlandRul\NOPR\DratNOPR\CACNOPR 16:.pd 150 August 4.2000 (1 :45PM) a .

## EE.RM/STD.9~-440 '-

# fI: ;?IJ 

# 1
stated in SectionV.1.3 ofthis notice, the Department intends to considerthose to be commercial products under EPACT. TheseprovisionS shouldeliminate any potential for significant economic impact on small manufacturers relatedto theproposed standard level.
Many small manufacturers produce coils only. Since there are no intensiveincremental technological or capital requirements for these companies to increase the efficiency oftheir products, we do not expectthem to face any incremental burden as a result ofthe new standards.

Inview ofthese conclusions, the Department has determined and hereby certifies pursuant to Section 605(b) ofthe Regulatory Flexibility Act that, for this particular industry, the proposed standardlevels in today's proposedrule will not "have a significant economic impact
on a substantial number ofsmall entities," and itis not necessary to prepare a regulatory flexibility analysis.**i.~.** Review Under the PaperworkReductionAct No new information orrecord keeping requirements are proposed in this rulemaking.**A~cordingly,** no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq.
E. Review UnderExecutive Order 12988, "CivilJustice Reform " With respect tothe review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR4729 150 Q:\EE-41\EE-431ICAClStandRuJ\lI/OPR\DraftNOPRICACNOPR16.wpd August4.2000 (I :45PM) 

# •

### EE-RM/STD-98-440- :j0

# z (February 7, 1996), imposes onExecutive agencies the general dutyto 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, ifany; (2) clearly specifies any effect on 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 keyterms; 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 inlight ofapplicable standards inSection 3(a) and Section 3(b) to determine whether they are met or itisunreasonable to meet one or more ofthem. DOE reviewed today's proposed rule under the standards ofSection 3oftheExecutive Order and determined that, to the extent permitted by law, the regulations meet the relevant standards.

F. "Takings"AssessmentReview 

### The Department has determined pursuant to Executive Order 12630, "Governmental Actions and Interference with Constitutionally Protected PropertyRights," 53 FR 8859 (March 18, 1988), that this regulation would not result in any takings that might require compensation under the Fifth Amendment to the United States Constitution.

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# EE.RM/STD.9~.440

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# 7 (February 7, 1996), imposes onExecutive agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to 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, ifany; (2) clearly specifies any effect on existingFederal law orregulation; (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 whetherthey are met orit is unreasonable to meet one ormore ofthem. DOE reviewed today's proposed rule under the standards ofSection 3 ofthe Executive Order and determined that, to the extent permitted by law, the regulations meet the relevant standards.


### F. ''Takings''AssessmentReview TheDepartment has determined pursuant toExecutive Order 12630, "Governmental Actions and Interference with ConstitutionallyProtected PropertyRights," 53 FR 8859 (March 18, 1988), that this regulation would not result in any takings that might require compensation under the Fifth Amendment to the United States Constitution.

151 Q:\EE-4I\EE-431ICAC\StandRulINOPRlDrafl"lOPRICACNOPRI6.wpd August 4. 2000 (I :45PM)EE-RM/STD-98-440-$ S 

### / G. Review Under Executive Order13132 

### Executive Order 13132 (64 FR 43255, August 4, 1999) requires agencies to develop an accountable process to ensure meaningful and timely inputby State and local officials in the development ofregulatory policies that have "federalism implications." Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe States and carefully assess the necessity for such actions. DOE has examined today's proposed rule and has determined that itwould not have a substantial direct effect on the States, onthe relationship between the national government andthe States, or on the distribution ofpower and responsibilities among the various levels ofgovernment. State regulations that mayhave existed on the products that are the subject oftoday's proposed rule
were preempted by theFederal standards established intheNAECA of 1987. States can petition the Department for exemption from such preemption based oncriteria set forth inEPCA. No further action isrequired byExecutive Order 13132.

H. Review Underthe Unfunded MandatesReformAct 

### With respect to a proposed regulatory action that may result inthe expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of$100 million or more (adjusted annually for inflation) inany one year, Section 202(a) ofthe Unfunded Mandates Reform Action of 1995 (UMRA), 2 U.S.C. 1531 etseq.requires a Federal agency to publish a written statement concerning estimates oftheresulting costs, benefits and other effects onthe national economy. 2 U.S.C. 1532(a),(b). DOE estimates that theproposed standards, ifadopted, would not result in the expenditure by the private sector of$100 million or more inayear, with
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*

# EE.RM/STD.9~.44o-#cAIJ 

# ? G. Review UnderExecutive Order 13132 Executive Order 13132 (64 FR43255, August 4, 1999) requires agencies to develop an accountable process to ensure meaningful and timely input by State and local officials in the development ofregulatory policies that have "federalism implications." Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe States and carefully assess the necessity for such actions. DOE has examined today's proposed rule and has 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 distributionofpower and responsibilities among the various levels ofgovernment. State regulations that may have existed on the products that are the subject oftoday's proposed rule
were preempted by the Federal standards established in theNAECA of 1987. States can petition the Department for exemption from such preemption based on criteria set forth in EPCA. No further action is required by Executive Order 13132.

H. Review Under the UnfundedMandatesReformAct With respect to a proposed regulatory action that may result in the expenditure by State, bcal, and tribal governments, in the aggregate, orby the private sector, of$106 million or more (adjusted arinually for inflation) in anyoneyear, Section 202(a) ofthe Unfunded Mandates Reform Action of 1995 (UMRA), 2 U.S.c. 1531 etseq. requires a Federal agency to publish a written statement concerning estimates ofthe resulting costs, benefits and other effects on the national economy. 2 U.S.c. 1532(a),(b). DOE estimates that the proposed standards, ifadopted, would not result in the expenditureby the private sector of$100 million or more in a year,;,with 152 Q:IEE-4IIEE-431ICAC\StandRuJINOPRIDraftNOPRICACNOPR16.wpd August 4, 2000 (I :45Pl\f) 

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

### - 4 7 the possible exception ofone year in which industry expenditures could total approximately $110 million.

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) of EPCA and Executive Order 12866. The Supplementary Information section ofthe Notice of Proposed Rulemaking and "Regulatory Impact Analysis" section ofthe TSD for today's proposed rule responds tothose requirements.

DOE is obligated by Section 205 ofUMRA, 2 U.S.C. 1535, to identify and consider a reasonable number ofregulatory alternatives before promulgating a rule for which a written statement under Section 202 is required. From those alternatives, DOE must select the least costly, more cost-effective or least burdensome alternative that achieves the objectives ofthe rule, unless DOE publishes an explanation ofwhy a different alternative is selected. As required by Section 325(o) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(o)), this proposed rule would establish energy conservation standards for central air conditioners and heat 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 of the alternatives considered by DOE is presented in the "Regulatory Impact Analysis" section of the TSD forthis notice.
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# Itc5j

## IJ

# 'l

the possible exception ofone year in which industry expenditures could total approximately $110 million.

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) ofUMRArelevant to a private sector mandate substantially overlap the economic analysis requirements that apply under Section 325(0) of EPCAand Executive Order 12866. The Supplementary Information section ofthe Notice**~f** Proposed Rulemaking and "Regulatory Impact Analysis" section ofthe TSD for today's proposed rule responds to those requirements. , 

# ..

DOE is obligated by Section 205 ofUMRA, 2 U.S.c. 1535, to identify and consider a reasonable number ofregulatory alternatives before promulgating a rule for which a written statement under Section 202 is required. From those alternatives, DOE must select the least costly, more cost-effective orleast burdensome alternative that achieves the objectives ofthe rule, unless DOE publishes an explanation ofwhy a different alternative is selected..As required by Section 325(0) oftheEnergyPolicy and Conservation Act (42 U.S.c. 6295(0)), this proposed rule would establish energy conservation standards for central air conditioners and heat pumps that are designed to achieve the maximum improvement in energy efficiency thatDOE has determined tobebothtechnologically feasible and economicallyjustified. A full discussion of the alternatives considered by DOEis presented in the "Regulatory Impact Analysis" section of the TSD for this notice. 153 Q:\EE-41\EE-431ICAClStandRulINOPRIDniftNOPRICACNOPRI6.wpd August 4, 2000 (I:45PM)EE-RM/STD-98-440' 

# 7 I. Review Underthe TreasuryandGeneralGovernmentAppropriations Act of1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. L. No. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule or policy that may affect family well-being. Today's proposal would not have any impact on the autonomy or integrity ofthe family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

J. Review UnderthePlain LanguageDirectives Section 1(b)(12) ofExecutive Order 12866 requires that each agency draft its regulations to be simple and easy to understand, with the goal ofminimizing the potential for uncertainty and litigation arising from such uncertainty. Similarly, the Presidential memorandum ofJune 1, 1998 (63 FR 31883) directs the heads ofexecutive departments and agencies to use, byJanuary 1, 1999, plain language in all proposed and final rulemaking documents published in the Federal Register, unless the rule was proposed before that date.
Today's proposed rule uses the following general techniques to abide by Section 1(b)(12) of Executive Order 12866 and the Presidential memorandum ofJune 1, 1998 (63 FR 31883): * Organization ofthe material to serve the needs ofthe readers (stakeholders). * Use ofcommon, everyday words in short sentences. * Shorter sentences and sections. We invite your comments on how tomake this proposed rule easier to understand.

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4

## EE.RM/STD.9~.440"- 

# 110{)

# 7
/. Review Under the Treasury andGeneral GovernmentAppropriationsActof1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (pub. L. No. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule orpolicy that may affect family well-being. Today's proposal would not have any impact onthe autonomy orintegrity ofthe family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.
J. Review Under the PlainLanguageDirectives Section l(b)(12) ofExecutive Order 12866 requires that each agency draft its regulations t('l be simple and easy to understand, with the goal ofminimizing the potential for uncertainty and litigation arising from such uncertainty. Similarly, the Presidential memorandum ofJune 1, 1998 (63 FR 31883) directs the heads ofexecutive departments and agencies to use, by January 1, 1999, p;ain language in all proposed and final rulemaking documents published in the Federal**Regi~ter,** unless the rule was proposed before that date.
Today's proposed rule uses the following general techniques to abide by Section l(b)(12) of Executive Order 12866 and thePresidential memorandum ofJune 1, 1998 (63 FR 31883):
• Organization ofthe material to serve the needs ofthe readers (stakeholders).
• Use ofcommon, everyday words in short sentences.
• ShOIter sentences and sections. We invite your comments on howto make this proposed rule easier tounderstand.

154 Q:IEE-41IEE-431ICAClStandRulINOPRIDraftNOPRICACNOPRI6.wpd August4.2000 (I :45PM)

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

# 7 VIII. Public Comment A. Written CommentProcedures 

### The Department invites interested persons toparticipate inthe proposed rulemaking by submitting data, comments, or information with respect to the proposed issues set forth intoday's proposed rule to Ms. Brenda Edwards-Jones, atthe address indicated at the beginning ofthis notice. We will consider all submittals received by the date specified atthe beginning ofthis notice in developing the final rule. According to 10 CFR 1004.11, any person submitting information that he or shebelieves to be confidential and exempt by law from public disclosure should submit one complete copy of the document and ten (10) copies, ifpossible, from which the information believed to be confidential hasbeen deleted. The Department ofEnergy will make its own determination with regard to the confidential status ofthe information and treat it according to its determination.

Factors ofinterest tothe Department when evaluating requests to treat as confidential information that hasbeen submitted include: (1)a description ofthe items; (2) an indication as to whether and why such items are customarily treated as confidential within the industry; (3) whether the information is generally known by or available from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5)an explanation ofthe competitive injury to the submitting person which would result from public disclosure; (6) an indication as to when such information might lose its

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

# il'R !J

# 7 VIII. Public Comment A. Written CommentProcedures The Department invites interested persons to participate in the proposed rulemaking by submitting data, comments, orinformation with respect to the proposed issues set forth in today's proposed rule to Ms. BrendaEdwards-Jones, at the address indicated at the beginning ofthis notice. We will consider all submittals received by the date specified at the beginning ofthis notice in developing the final rule.

, According to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit one complete copy of the document and ten (10) copies, ifpossible, from which the information believed to be confidential has been deleted. The Department ofEnergy will make its own determination with regard to the confidential status ofthe information and treat it according to its determination.

Factors ofinterest to the Department when evaluating reyuests to treat as confidential information that has been submitted include: (1) a descriptiqn ofthe items; (2) an indication as to whether and why such items are customarily treated as confidp.lllial within the industry; (3) whetherthe information is generally known by or available from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5) an explanation of.the competitive injury to the submitting person which would result from public disclosure; (6) an indication as to when such information might lose its

155 Q:IEE411EE431ICAClStandRullNOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (1 :45PM)

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# 7 confidential character due to the passage oftime; and (7) whether disclosure ofthe information would be contrary to the public interest.

B. PublicWorkshop/Hearing 1. Procedure for Submitting Requests to Speak You will find the time and place ofthe public hearing listed at the beginning of this notice. We invite any person who has an interest in today's notice, or who is a representative ofa group or class ofpersons that has an interest in these issues, to request an opportunity to make an oral presentation. Ifyou would like to attend the public hearing, please notify Ms. Brenda Edwards-Jones at (202) 586-2945. You may hand deliver requests to speak to the address indicated at the beginning ofthis notice between the hours of8:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may also send them by mail or E-mail to brenda.edwards-jones@ee.doe.gov.

The person making the request should state why he or she, either individually or as a representative ofa group or class ofpersons, is an appropriate spokesperson, briefly describe the nature ofthe interest inthe rulemaking, and provide atelephone number for contact. We request each person selected to be heard to submit an advance copy ofhis or her statement at least two weeks prior to the date ofthis hearing as indicated at thebeginning ofthis notice. At our discretion, we may permit any person who cannot do this to participate ifthat person has made alternative arrangements withthe Office ofBuilding Research and Standards in advance. The request to give an oral presentation should ask for such alternative arrangements.
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## EE.RM/STD-9~-440**-#.~** {f}

# 7
confidential character due tothe passage oftime; and (7) whether disclosure ofthe information would be contrarytothe public interest.

B. Public WorkshoplHearing 1. Procedure for Submitting Requests to Speak You will find the time and place ofthe public hearing listed at thebeginning of this notice. We invite any person who has an interest in today's notice, orwho is a representative ofa group or class ofpersons that has an interest in these issues, to request an opportunityto make an oral presentation. Ifyou would like to attend the public hearing, please notify**Ms~'** BrendaEdwards-Jones at (202) 586-2945. You may hand deliver requests to speaktothe address indicated at the beginning ofthis notice between the hours of8:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may also send them by mail orE-mail to brenda.edwards-jones@ee.doe.gov.

The person making the request should state why he or she, either individually or as a r-epresentative ofa group orclass ofpersons, is an appropriate spokesperson, briefly describe the**n!'~ure** ofthe interest in the rulemaking, and provide a telephone number for contact. We request each person selected tobe heard to submit an advance copy ofhis orher statement at least two weeks prior tothe date ofthis hearing as indicated at the beginning ofthis notice. At our discretion, we may permit any person who cannot do this to participate ifthat person has made alternative arrangements with the Office ofBuilding Research and Standards in advance. The request to give an oral presentation should ask for such alternative arrangements. 156 Q:\EE-41\EE-431ICAClSllIndRulINOPRIDraftNOPRICACNOPRI6.wpd August 4. 2000 (1:45PM)

### EE-RM/STD-98-440--- 7 0 2. Conduct ofHearing The Department will designate a Department official to preside at the workshop and we may also use a professional facilitator to facilitate discussion. The workshop will not be a judicial or evidentiary-type hearing, but the Department will conduct it inaccordance with 5 U.S.C. 553 and Section 336 oftheAct and a court reporter will be present to record the transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establish the procedures governing the conduct ofthe workshop.
The Department will permit each participant to make a prepared general statement, limited to five (5) minutes, prior to the discussion ofspecific topics. The general statement should not address these specific topics, but may cover any other issues pertinent to this rulemaking. The Department will permit other participants to briefly comment on any general statements. We will divide the remainder ofthe hearing into segments, with each segment consisting ofone or more ofthe following specific topics covered bythis notice:
* Engineering analysis, including mark-up; * Life-Cycle-Cost andpayback analysis; * National Energy Savings andNet Present Value; * Manufacturer impacts; * Utility impacts; * Proposed standards, including an EER-based standard and TXV considerations; and
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## ~ 

## 0 / 2. Conduct ofHearing TheDepartmentwill designate a Department official to preside at the workshop and we may also use a professional facilitator to facilitate discussion. The workshop will not be a judicial orevidentiary-typehearing, but the Department will conduct it in accordance with 5 U.S.c. 553 and Section 336 ofthe Act and a court reporter will be present to record the transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establish the procedures governing the conduct ofthe workshop.

The Department will permit each participant to make a prepared general statement, , 

# .. limited to five (5) minutes, priorto the discussion ofspecific topics. The general statelllent should not address these specific topics, but may cover any other issues pertinent to this rulemaking. TheDepartment will permit otherparticipants to briefly comment on any general statements. We will divide the remainder ofthe hearing into segments, with each segment consisting ofone ormore ofthe following specific topics covered by this notice:

• Engineering analysis, including mark-up;
• Life-Cycle-Cost and payback analysis;
• National Energy Savings and Net Present Value;
• Manufacturer impacts;
• Utility impacts;
• Proposed standards, including an EER-based standard and TXV considerations; and 157 Q:1EE41IEE431ICAClStandRuJ\NOPRIDraftNOPRICACNOPRI6.wpd August4.2000 (I :45PM)EE-RM/STD-98-440- ;6 ? 

### Other issues. TheDepartment will introduce each topic with a briefsummary ofthe relevant provisions ofthe proposed rule, and the significant issues involved. We will then permit participants in the hearing to make a prepared statement limited to five (5) minutes on that topic. At the end ofall prepared statements on a topic, the Department will permit each participant to briefly clarify his
or her statement and comment on statements made by others. Participants should be prepared to
answer questions by us and by other participants concerning these issues. Our representatives may also ask questions ofparticipants concerning other matters relevant to the hearing. The'total cumulative amount oftime allowed for each participant to make prepared statements will be 20 minutes.

The official conducting the hearing will accept additional comments or questions from those attending, as time permits. The presiding official will announce any further procedural rules, or modification ofthe above procedures, needed for the proper conduct ofthe hearing.

We will make the entire record ofthis rulemaking, including the transcript, available for inspection in the Department's Freedom ofInformation Reading Room. Any person may purchase a copy ofthe transcript from the transcribing reporter.
C. IssuesforWhichDOESeeks Comment.

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# 0tJ

# '1

The,Department will introduce each topic with a briefsummary ofthe relevant provisions ofthe proposed rule, and the significant issues involved. We will then permit participants in the hearing to make a prepared.statement limited to five (5) minutes on that topic. At the end ofall prepared statements on a topic, theDepartment will permit each participant to briefly clarify his
orher statement and comment on statements made by others. Participants should be prepared to
answer questions by us and by other participants concerning these issues. Our**representati~es** may also ask questions ofparticipants concerning other matters relevant to the hearing..The'total cumulative amount oftime allowed for each participant to make prepared statements will be 20 minutes.

The official conducting the hearing will accept additional c;omments or questions from those attending, as time permits. The presiding official will announce any further procedural rules, ormodification ofthe above procedures, needed for the proper conduct ofthe hearing.

Wewill make the entire record ofthis rulemaking, including the transcript, available for inspection in the Department'sFreedom ofInformation Reading Room. Any person may purchase a copy ofthetranscript from the transcribing reporter.

C. Issues for Which DOESeeks Comment.

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

## 6 7 The Department is particularly interested inreceiving comments and views ofinterested parties concerning: (1) whether explicit consideration ofextended warranties would produce significantly different results from thosebased on service costs alone; (2) the Department's methodology and data for determining the appropriate marginal energy costs; (3)theburdens andbenefits that would result from including an EER requirement inthe final rule. Ofparticular interest are comments regarding burdens onmanufacturers, benefits regarding reduction in peak electricity demand, the effect ofmore stringent standards onthe cost and availability ofmodulating equipment, and the effect that an EERfloor would have on electrical system reliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe options described in Section V.I.4 above, as well as other approaches; (4)whether theproposed standards concerning high-velocity, vertically-packaged wall-mounted equipment, andthrough-the-wall equipment provide a significant advantage to those products
versus competing products and are sufficient to preserve the unique features ofthoseproducts, and whether improvements in the definitions are needed to prevent loopholes. For ductless split equipment and non-weatherized vertical packaged equipment, additional comment iswelcome
on the impacts that meeting the new standards would have on the availability ofthose products; (5)the issue ofthermal expansion valves (TXV), particularly whether our concerns regarding th; perceived reliability problems and potential misuses associated with widespread use ofTXVs are valid;

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# 7 The Department is particularly interested in receiving comments and views ofinterested parties concerning: (1) whether explicit consideration ofextended warranties would produce significantly different results from thosebased on service costs alone; (2) the Department'smethodology and data for determining the appropriate marginal energy costs; (3) theburdens and benefits that would result from including an EERrequirement in the final rule. Ofparticular interest are comments regarding burdens on manufacturers, benefits**reg~rding** , 

# .. reduction in peak electricity demand, the effect ofmore stringent standards on the cost and . availability ofmodulating equipment, and the effect that an EERfloor would have on electrical system reliability. In addition, comments are welcome to discuss the pros and cons ofany ofthe options described in SectionV.I.4 above, as well as other approaches; (4) whethertheproposed standards concerning high-velocity, vertically-packagedwall-mounted equipment, andthrough-the-wall equipmentprovide a significant advantage to thoseproducts vers'Jr. competing products and are sufficientto preservethe unique features ofthoseproducts, anll whether improvements in the definitions are needed to prevent loopholes. For ductless split equipment and non-weatherized vertical packaged equipment, additional comment is welcome f)n the impacts that meeting thenew standards would have onthe availability ofthose products; (5) the issue ofthermal expansion valves (TXV), particularly whether our concerns**r~garding** th..: perceived reliability problems and potential misuses associated with widespread use ofTXVs are valid;

159 Q:\EE-41\EE-431\CAClStandRuJINOPR\DraftNOPR\CACNOPRI6.v.'Pd August4,2000 (I:45PM)EE-RM/STD-98-44 -4t i / (6) the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis; and (7) the Draft Environmental Assessment, which is printed within the TSD accompanying today's proposed rule.

In addition, theDepartment requests comments on what would be the impacts on manufacturers and consumers ifthe levels in today's proposed rulewere applied to commercial three-phase unitary air conditioners lessthan 65K Btu/h as well.

List ofSubjects in 10 CFR Part 430

Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C.,

Dan W. Reicher Assistant Secretary Energy Efficiency and Renewable Energy

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# 1 (6) the validity ofthe analytical methods used and the appropriate interpretation and use ofthe results ofthis analysis; and (7) the DraftEnvironmental Assessment, which is printed within the TSD accompanying today's proposed rule.
In addition, theDepartmentrequests comments on what would be the impacts on manufacturers and consumers ifthe levels in today's proposed rule were applied to commercial three-phase unitary air conditioners less than 65KBtulh as well.

List ofSubjects in 10 CFRPart430 , 

# ..

Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C.,

160 Dan W. Reicher Assistant Secretary Energy Efficiency and Renewable Energy

Q:\EE-41IEE-43IICAClStandRuJ\NOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (I 45PM)EE-RM/STD-98-440-,_ 07 For the reasons set forth in the preamble Part 430 ofChapter II ofTitle 10, Code of Federal Regulations, is proposed tobe 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 to add a definition for "through-the-wall air conditioner and heat pump:" * * * * * Through-the-wallairconditioner andheat pump means a central air conditioner, having a rated capacity between 18,000 Btu/hr and 30,000 Btu/hr that is: (1) designed to be installed partially within, or mounted against, a fixed-size opening in an exterior wall; and (2) air for the outdoor coil is taken in and discharged at the same surface.

3. Section 430.32 ofSubpart C is amended by revising paragraph (c) to read as follows:
§ 430.32 Energy conservation standards and effective dates.
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4 EE-RM/STO-9S-440-ff

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# 7 Forthe reasons set forth in the preamble Part 430 ofChapter II ofTitle 10, Code of FederalRegulations, is proposed to be amended as set forth below.

Part 430
- ENERGYCONSERVATIONPROGRAM FOR CONSUMERPRODUCTS

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 to add a definition for "through-the-wall air conditioner and heat pump:"
• ... 

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

### Through-the-wallairconditionerand

### heatpump means a central air conditioner, having a rated capacity between 18,000 Btulhr and 30,000 Btulhrthat is: (1) designed to be installed partially within, ormounted against, a fixed-size opening in an exterior wall; and (2) air for the outdoor coil is taken in and discharged at the same surface.



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

## *

3. Section 430.32 ofSubpart C is amended by revising paragraph (c) to read as follows:
§ 430.32 Energy conservation standards and effective dates. 161 Q:\EE-41\EE-431ICAC\Stanc!Rul\NOPRIDraftNOPRICACNOPR16.wpd August 4. 2000 (1**:45P~1)**

### EE-RM/STD-98-440-- 7 77
* * * * * (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 1,2006, and single package central air conditioners and central air conditioning heat pumps manufactured after January 1, 1993, and before January 1,2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than: 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 1,2006, 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 7.4 2. Split system heatpumps....................................................... 13 7.7 3. Single package air conditioners...................................... .... 12 7.4 4. Single package heat pumps................................... 13 7.7 5. Through the wall airconditioners and heat pumps......... 11 7.1

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# 1 • • 

# • • 

# • (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 1,2006, and single package central air conditioners and central air conditioning heat pumps manufactured after January 1, 1993, and beforeJanuary 1,2006, shall have Seasonal EnergyEfficiency Ratio and Heating Seasonal Performance Factorno less than: 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 1,2006, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than: 

# I Product class

1. Split system air conditioners................................................. 2. Split system heat pumps........................................................**~.** Single package air conditioners............................................. 4. Single package heat pumps................................................... 5. Through the wall air conditioners and heat pumps.........

162 Seasonal Energy Heating Seasonal Efficiency Ratio Perfonnance Factor (SEER) (HSPF) 12 7.4 13 7.7 12 7.4 13 7.7 11 7.1

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