4-1

CHAPTER 4: ENGINEERING ANALYSIS

The Engineering Analysis develops the relationship between the efficiency and cost of a

central air conditioner or heat pump. This relationship serves as the basis for the subsequent costbenefit calculations in terms of individual consumers, manufacturers, and the nation. Determining

the cost-efficiency relationship involves analysis of the options available to manufacturers for

increasing the efficiency of the baseline product (i.e, one that just meets the minimum efficiency

standard.)

Residential central air conditioners are somewhat unique among the products regulated by

the Department in that manufacturers: 1) structure their product lines around efficiency levels, 2) sell

significant volumes of higher efficiency equipment, and 3) offer, or have studied, most of the design

options available for increasing product efficiency. These characteristics make it possible to largely

determine the cost-efficiency relationship for central air conditioners and heat pumps by examining

actual products in the marketplace instead of estimating the cost and performance of design options

using theoretical models.

The Department has chosen to take an efficiency level approach to this rulemaking. That is,

analysis is performed in terms of product efficiency levels rather than design options. This method

recognizes that manufacturers may use different paths to meet an efficiency requirement and

estimates the cost of achieving the efficiency level without specifying precisely which path is taken.

Therefore, the Engineering Analysis estimated equipment production costs at each potential

efficiency level.

In addition to their effect on equipment production costs, higher efficiency standards can

affect consumers by changing: 1) equipment prices, 2) installation costs, 3) maintenance costs, 4)

repair costs, 5) product life, and 6) energy costs. The Engineering Analysis characterizes all of these

potential effects.

The analysis of equipment production costs proceeded in two distinct phases—the validation

analysis phase and the emerging technology analysis phase—as shown in Figure 4.1. The validation

analysis phase (Section 4.2) included the tasks needed to determine the reasonableness of the cost

data that the Air Conditioning and Refrigeration Institute (ARI) submitted to the Department. The

emerging technology analysis phase then estimated the potential reduction in production costs due

to the utilization of technologies that are currently under development but which have not been

widely deployed.

For the validation analysis, the Department estimated the costs of producing equipment

utilizing today’s established technologies under new efficiency standards. Thus, each efficiency level

analyzed assumed that new minimum efficiency standard was set at that level. The Department

believes that current production costs for a higher efficiency product, say a 12 SEER air conditioner,

would decrease if the minimum efficiency were raised to that level. Manufacturers of such products

 EE-RM-STD-98-440 COMMENT 312
4-2

Figure 4.1 Phases of the Engineering Analysis 

would have a greater incentive to cost-optimize their production at that level because of more intense

competition and higher production volumes. ARI’s guidelines to their members were to incorporate

the same assumption regarding production at a new efficiency standard. However, some

manufacturers might argue that costs of high-efficiency products may actually increase under new

standards due to capital, engineering, and marketing costs incurred in converting to the new standard.

For the emerging technology analysis, the Department assessed the potential impacts of

technologies that are currently under development on the production costs under new efficiency

standards (Section 4.5). These include new technologies that have never been widely deployed and

existing technologies that can benefit from further technological advance and economies of scale.

The Department expects that these emerging technologies have the potential to lower the cost of

improved efficiency.

In addition to quantifying manufacturing costs and the potential benefits of emerging

technologies, this chapter includes the following subject areas:

` Markups (Section 4.3)

` Max Tech (Section 4.4)

` Product Classifications (Section 4.6)

` Alternative Refrigerants (Section 4.7)

` Relationship between HSPF and SEER

(Section 4.8.1)

` Repair versus Replace (Section 4.8.2)

` Establishing an EER-based Standard

(Section 4.9)

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a

 Numbered references refer to notes at end of the chapter

4-3

Split Packaged

Cooling-only 10.0 SEER 9.7 SEER

Heat pump 10.0 SEER

6.8 HSPF

9.7 SEER

6.6 HSPF

Table 4.1 NAECA Minimum Efficiencies for Single

Phase Unitary Products 18,000 BTU/hr - 65,000 BTU/hr

4.1 DESCRIPTION OF “BASELINE” UNIT

As mentioned in Chapter 2, NAECA defines four central air conditioning product classes:

1) split central air conditioning systems (cooling-only), 2) split central air conditioning heat pump

systems, 3) single packaged central air conditioning systems (cooling-only), and 4) single packaged

central air conditioning heat pump systems. Cooling efficiency is expressed as a Seasonal Energy

Efficiency Rating (SEER) and heating efficiency is expressed as a Heating Seasonal Performance

Factor (HSPF). NAECA requires products to achieve the minimum efficiencies listed in Table 4.1.

More than 75 percent of equipment sold is rated at the minimum allowable efficiency.1 a

Products rated at the minimum efficiency level are termed baseline. They compete primarily on price

and share similar physical characteristics. Although the efficiency level approach describes only the

cost of the product at the minimum efficiency level (and higher efficiency levels) without reference

to the underlying design or designs, the sample of baseline models selected for this analysis

displayed the following similar characteristics:

` rifled copper tubes

` lanced aluminum fins

` single speed, single capacity compressor

` expansion orifice

` single speed permanent split capacitor (PSC) fan and blower motors

Equipment at higher efficiency levels may contain enhancements in one or more of these

areas or may contain additional efficiency-related features such as variable speed control and time

delay relays. Appendix B provides a more complete description of design choices displayed in our

equipment samples.

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4.2 MANUFACTURING COSTS

Manufacturers routinely use reverse engineering to discover their competitors’ designs, to

evaluate the cost of adopting those designs themselves, and to attempt to avoid infringing on their

competitor’s patents. In the context of this Engineering Analysis, the term “reverse engineering”

solely describes the estimation of production costs by examining actual equipment or designs. The

ample examples of residential unitary equipment in the market provide the opportunity to use reverse

engineering methods as the basis for estimating production costs. In this analysis, the production

costs of 71 equipment models at eight efficiency levels were estimated, assuming each became

baseline equipment under new efficiency standards. These production costs were normalized to the

cost of their respective baseline costs, yielding relative costs analogous to ARI’s relative costs. The

cost multipliers were then compared to the ARI relative costs to help to identify any discrepancies

and improve the underlying reverse engineering assumptions. 

The production cost estimation process consisted of four tasks:

1. Selecting representative equipment

2. Describing equipment attributes

3. Modeling production processes

4. Determining the cost of materials, components, and assembly operations

Assumptions and data were based upon six sources of information:

` Interviews with manufacturers and suppliers

` Disassembly and analysis of equipment (tear down)

` Manufacturer data submittals

` ARI Product Attribute Database (proprietary)

` Published industry data

` Product literature

Table 4.2 illustrates the relationship between the information sources and the reverse engineering

tasks.

4.2.1 Visits to Manufacturers and Component Suppliers

Between September and November 1998, DOE and ADL employees visited the facilities of

16 manufacturers and component suppliers and participated in presentations, interviews, and tours.

Topics of discussion included product design, manufacturing methods, market dynamics, alternative

refrigerants, product classifications, special issues related to heat pumps, and concerns related to new

standards. Several visits also included tours of manufacturing facilities.

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Uses of Information

Equipment

selection

Description

of product

attributes

Process

modeling

Component

pricing

Sources of Information

Manufacturer/supplier

visits/interviews q q q

Manufacturer data

submissions

q

Tear downs q q

ARI Attribute Data q q

Product Literature qq q

Table 4.2 Sources of Design Information

The visits served many purposes including gathering information concerning the Engineering

Analysis, introducing company executives to the rulemaking process, and understanding the impact

of a new standard on manufacturers. Ten of these meetings were conducted under an agreement of

confidentiality, and the DOE employees did not retain written materials from any of the meetings.

Meeting notes reside at ADL and are covered by separate non-disclosure agreements. 

4.2.2 Selecting Representative Equipment

To select equipment samples for the reverse engineering analysis, we requested that

manufacturers identify equipment in their product lines that would most nearly represent baseline

equipment at each efficiency level through 17 SEER. For example, they named their current

12 SEER model that they would expect would be similar to the 12 SEER model under a 12 SEER

standard. Manufacturers were also asked to describe the efficiency-related attributes of the products

they selected. Four major manufacturers submitted design data for split cooling-only equipment, and

three of those submitted design data for the other classes as well. This submission process yielded

information on 62 models. We selected an additional nine models from catalogs of those and other

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b

 Catalog data were collected on two more models, but we eliminated the models from consideration when it

was determined that their costs fell outside of the range of the costs bounded by manufacturer submissions. This ensured

that the sample included only models with cost considered “representative” by manufacturers.

4-6

Models

Examined

Tear

Downs

Split Air Conditioner 32 1

Split Heat Pump 19 1

Packaged Air

Conditioner

9 0

Packaged Heat Pump 11 1

Total 71 3

Table 4.3 Breakdown of Equipment Subjected to

Cost Estimation Analysis

manufacturers.b We also used the ARI Product Attribute Database (provided to our contractor under

a non-disclosure agreement) and technical literature to describe the efficiency-related attributes in

those products. Finally, from the group of manufacturer submittals, three units were purchased for

extensive disassembly and inspection. Table 4.3 shows the breakdown of models examined.

4.2.3 Disassembly and Inspection of Sample Equipment

One of the most effective methods for determining the production cost of a piece of

equipment is to disassemble a sample and analyze it thoroughly. This process of disassembly and

inspection is commonly called a tear down. Tear down identifies components, materials, and

fabrication and assembly operations, and is the most accurate and precise method of estimating

production cost short of obtaining the information directly from the manufacturers.

The three 3-ton models torn down were: 1) a 10 SEER split cooling-only condenser and

evaporator combination, 2) a 10 SEER packaged heat pump, and 3) a 12 SEER split heat pump

condenser. The 10 SEER tear downs were meticulous and provided comprehensive knowledge about

those products. After disassembly, each part was identified, weighed, and described in detail. The

12 SEER tear down was less thorough since it was intended only to confirm the results of the cost

estimates for the 12 SEER level.

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Designed production capacity

(split A/C) (units per year)

130,000 Production days per year 240

Actual production volume

(split A/C and HP)

(units per yr)

125,000 Fabrication shifts per day 2

Designed production capacity

(pkg A/C and HP)

(units per yr)

30,000 Hours per shift 8

Actual production volume

(split HP, pkg A/C and HP)

(units per yr)

25,000 Press lot size per day 1

Assembly line Dedicated Worker downtime 20%

Coil fabrication lines NondedicatedEquipment downtime 10%

Table 4.4 Production Facility Specifications

4.2.4 Modeling the Production Facility

From each detailed tear down, a structured bill-of-materials (BOM) was created. This

structured BOM describes each part and its relationship to the other parts by the order of assembly.

Each fabrication and assembly operation is described in detail, including the type of equipment used

and the cycle time. The result is a thorough and explicit model of the production process. Visits to

equipment plants and detailed discussions with a major supplier of plant equipment contributed to

the assumptions regarding the production facility.

Two prototypical production facilities were created—a split system plant and a packaged

system plant. Table 4.4 lists the specifications for each plant. Notice that the plants are greenfield

facilities. “Greenfield” means that the facility is built new from the ground-up for the sole purpose

of producing the equipment under analysis. This simplification suppresses differences among

manufacturers and focuses on generic differences in plant and process that are related to efficiency.

The results may, therefore, overestimate or underestimate the production costs of a particular

manufacturer, but since they are calibrated to aggregate industry data, they should be accurate for

the industry as a whole. Cost variability introduced by differences in manufacturers is handled

separately as described in Appendix B . The Manufacturer Impact Analysis (Chapter 8) examines

manufacturer variability in greater depth.

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4.2.5 Compensating for the Commoditization Effect of Efficiency Standards on Baseline

Equipment

Manufacturers must offer low-priced baseline products to attract price-sensitive home

builders, dealers, and homeowners. Since price-sensitive purchasers are not willing to pay a great

deal for added features, most baseline products possess only those attributes needed to meet

minimum expectations of reliability and comfort. This emphasis on low price puts pressure on

manufacturers to reduce production costs on baseline products. The pressure to reduce the production

costs of higher efficiency products is not as great because those purchasers are less sensitive to price.

Since baseline products make up the majority of their production volume, manufacturers

must consider this difference in cost reduction pressure between baseline and non-baseline products

when seeking to optimize their production processes. Consequently, optimal production typically

results in more cost-efficient production of baseline equipment and less cost-efficient production of

non-baseline equipment. 

As the efficiency standard rises, models that once exceeded the minimum efficiency level

become the new baseline models. The Department assumes that commoditization of those products

occurs as the market drives out premium products with added features in favor of lower price

models. The elimination of features and the pricing pressures that result from more intense

competition lower the cost of the product. The cost estimates in the reverse engineering analysis are

based on these commoditized versions of today’s higher efficiency equipment.

Two assumptions simulate the commoditization effect:

` Only those aspects of existing high-efficiency models that are essential for

satisfactory operation and performance ratings were considered.

` Each model was assumed to be constructed and configured in the same way as the

baseline equipment evaluated in the tear downs.

In effect, new baseline equipment were created at each efficiency level by substituting into

today’s 10 SEER baseline those efficiency-related attributes from today’s higher efficiency

equipment. Those efficiency-related attributes are listed in Table 4.5 along with the non-efficiency

attributes that were not considered. The efficiency-related attributes that remained are significant.

The analysis concluded that more than 95 percent of the cost of the baseline system was efficiencyrelated. 

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Efficiency-related Attributes Non-efficiency Attributes

Coil features and dimensions Noise suppression

Cabinet size Aesthetic enhancement

Fin configuration Serviceability

enhancement

Compressor type

Accumulator

Controls

Motor type

Table 4.5 Examples of Product Attributes Related to Efficiency

The analysis did not consider the non-efficiency attributes listed for two reasons. First, the

attributes were not observed in the baseline equipment samples, and pricing pressures will continue

to prevent manufacturers from incorporating non-efficiency attributes into baseline equipment under

new standards. Second, only those differences in incremental cost that relate to incremental

efficiency affect the results of the consumer life cycle cost analysis.

Some may argue that one or more of the designated non-efficiency attributes are, in fact, tied

to efficiency. For example, if higher efficiency products are inherently noisier, purchasers could

require manufacturers to incorporate special noise suppression features even on their baseline

equipment. If that were the case, the reverse engineering analysis would underestimate the cost of

higher efficiency baseline equipment.

4.2.6 Estimating Parts, Assembly, and Overhead Costs

Parts were characterized based on whether manufacturers purchase them from outside

suppliers or fabricate them in-house. For purchased parts, the purchase price was estimated. For

fabricated parts, the price of intermediate materials (e.g. tube, sheet metal) and the cost of

transforming them into finished parts was estimated. Whenever possible, ADL obtained price quotes

directly from suppliers in volumes necessary to produce the equipment volumes shown in Table 4.4.

For higher efficiency equipment, this assumption generally resulted in higher component purchase

volumes and may have resulted in lower component prices than manufacturers currently pay.

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Direct labor rate $13.33 per hr Utility cost 21.6% of depreciation

Fringe 30% of wage Maintenance cost 4% of depreciation

Indirect labor 50% of direct labor Property tax 0.9% of revenues

Equipment

Depreciation

1-20 years based on

equipment type

Property insurance 0.8% of revenues

Building depreciation 30 years Freight-in 3% of materials cost

Freight-out $1.66 per cubic foot

Table 4.6 Production Cost Assumptions

After incorporating information on prices and manufacturing processes, estimates of labor

rates, factory overhead, and indirect costs were added. For the most part, estimates were derived

from generally available industry data. Table 4.6 lists the assumptions for those cost elements.

4.2.7 Generating Production Cost Results

All data were input into eight Microsoft ExcelTM workbooks – two for each product class.

One workbook in each pair is devoted specifically to estimating the cost of producing coils. The

other estimates the cost of fabricating the remaining components and assembling the equipment. The

workbooks contain proprietary and confidential information and are not publically available. More

complete details of this methodology are presented in Appendix C.

The completed spreadsheets generated the production cost for each of the 71 models

evaluated and the results were published in the Supplemental ANOPR and Preliminary TSD.

Commenters generally supported the reverse engineering approach used to estimate the production

costs of split air conditioners, several noted that heat pumps and packaged equipment received less

rigorous treatment. The incremental production cost estimates for those three product classes were

less consistent than were those for split air conditioners.

To address those concerns and shore-up the estimates for split heat pumps and packaged

equipment, we applied “rules-of-thumb” suggested by Mr. Joseph Pietsch in an independent review.

For systems of equivalent capacity and efficiency ratings, the guidelines are:

1. A split air conditioning fancoil system and cased coil system will share the same outdoor

unit.

2. A split air conditioning fancoil system and split heat pump will share the same indoor unit.

3. A packaged air conditioner and packaged heat pump will share the same cabinet.

4. A split air conditioner and packaged air conditioner will share the same functional parts.

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4-11

Figure 4.2 Relationship of Production Cost Estimates in New Reverse Engineering Approach

5. A split heat pump and packaged heat pump will share the same functional parts..

6. The cost differential between a split air conditioner with fancoil and a split heat pump, and

a packaged air conditioner and a packaged heat pump, should be consistent across efficiency

levels.

These guidelines are valid only for a particular manufacturer’s product line and do not hold

across product lines or across manufacturers. Since the reverse engineering equipment sample

contained several manufacturers and product lines, applying these rules has the effect of minimizing

any variability and bias introduced by the sample set. The approach also allows us to estimate the

production costs of equipment at efficiency levels where we did not have any samples originally. We

assessed only through 15 SEER to cover the range of relative cost estimates provided by ARI. 

Figure 4.2 illustrates how the split air conditioner (cased coil) is used to derive the production

cost estimates for the other products. At each stage, common costs are translated to the next product,

and any missing costs are filled in using results from the original reverse engineering analysis

described in the Preliminary TSD.

Table 4.7 provides the cost estimates resulting from this new approach. Results do not

include any potential cost reduction due to emerging technologies, which are also under revision.

Revised results are generally lower than the original results, particularly at the baseline 10 SEER

level. The most significant change is that the new analysis includes nine additional estimates that

were not presented in the Supplemental ANOPR and Preliminary TSD due to lack of data.

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Table 4.7 Revised Reverse Engineering Production Cost Estimates for 3-ton Unitary

Equipment

Efficiency

Level

(SEER)

Split Air

Conditioner

(cased coil)

Split Air

Conditioner

(fancoil)

Split Heat Pump Packaged Air

Conditioner

Packaged Heat

Pump

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 -- $638

12 $468 $468 -- $563 $690 $648 $627 $595 $708 $668

13 $529 $529 $756 $637 $840 $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

Table 4.8 compares the results relative to the 10 SEER unit in each product class. Most

revised results are similar to the original results presented in the Supplemental ANOPR and

Preliminary TSD. The only significant departures are found in split air conditioners with fancoils,

where the new estimates are lower, and in 14 SEER and 15 SEER equipment where the new results

are higher.

Table 4.8 Revised Reverse Engineering Production Cost Multipliers for 3-ton Unitary

Equipment

Efficiency

Level

(SEER)

Split Air

Conditioner

(cased coil)

Split Air

Conditioner

(fancoil)

Split Heat Pump Packaged Air

Conditioner

Packaged Heat

Pump

Original Revised Original Revised Original Revised Original Revised Original Revised

10 ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

11 ?? ?? ?? ?? -- ?? -- ?? -- ??

12 ?? ?? -- ?? ?? ?? ?? ?? ?? ??

13 ?? ?? ?? ?? ?? ?? ?? ?? -- ??

14 ?? ?? ?? ?? ?? ?? -- ?? -- ??

15 -- -- ?? ?? ?? ?? -- ?? -- ??

Appendix B provides the detailed cost estimates for each cost element for products at each

efficiency level. The tables indicate which cost elements were derived directly from the reverse

engineering analysis on those products and which were based on Mr. Peitsch’s rules of thumb using

costs estimated for other product classes.

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4-13

4.2.8 Outbound Freight

Outbound freight is normally considered a sales expense and not a production cost. However,

in the reverse engineering analysis, outbound freight charges scale as the size of equipment changes,

so outbound freight charges are included in the production cost results. To avoid double-counting,

outbound freight is later deducted from the recommended manufacturer markup (Section 4.3.2).

4.2.9 Industry Review

Although the cost-efficiency results are a suitable basis for subsequent analyses, the intent

of reverse engineering methodology was to validate industry cost-efficiency projections and

establish the absolute costs of present baseline equipment. This section describes that validation

effort.

4.2.9.1 ARI Results

The Department and ARI agreed on a set of basic assumptions before ARI began collecting

the data from its members. Each member who provided data to ARI estimated its own equipment

cost under each new standard relative to its own current 10 SEER equipment. On March 13, 1999

ARI provided the aggregated results of this survey to the Department consisting of the mean,

minimum, and maximum values at each efficiency level (11 SEER through 15 SEER) in each

product class, all normalized to the baseline. Since each of ARI’s members related its costs to its

own baseline, each submittal had a baseline cost of 1.0. The aggregated curve, therefore, displays

no variability in the baseline equipment.

To address the Department’s question of whether the relative costs reflected the distribution

of shipments, ARI received permission from its members to provide shipment weighted mean values.

These data, which were provided to the Department on April 26, 1999, were based on 1998

manufacturer shipments and represent 90 percent of the total industry shipments.

4.2.9.2 Second ARI Review

On May 14, 1999 the Department presented the reverse engineering estimates to ARI for all

four classes, having earlier reported results for split air conditioners only. ARI’s members also

received a prior version of the tables in Appendix B. The Department pointed out that significant and

unexplained discrepancies still existed, and ARI agreed to review the results again. Certain

manufacturers contacted the Department’s contractor (Arthur D. Little, Inc.) to review the results and

assumptions, and after several meetings with those manufacturers to identify and resolve apparent

discrepancies, we finalized our original reverse engineering results. 

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4.2.10 Comparison Between Reverse Engineering and ARI Relative Costs

Table 4.9 compares the relative production costs provided by ARI with those developed in

the reverse engineering analysis. These data show that as efficiency increases, ARI’s mean relative

production costs rise more rapidly than do the reverse engineering estimates. For split air

conditioners, the difference is small through 12 SEER, but grows quickly above 12 SEER. For the

other three classes, significant differences begin at 11 SEER. In all cases, the reverse engineering

estimates match or exceed ARI’s “minimum” relative costs.

The derivation of reverse engineering relative costs for the split air conditioner class is not

straightforward since fancoil and cased coil units were evaluated separately. Eighty-four (84) percent

of the split air conditioner samples through 13 SEER were cased coil units. At 14 SEER, 57 percent

of the split air conditioner samples were cased coil. Over 14 SEER, there are no cased coil units

represented in the sample set. The relative cost calculations paralleled that equipment selection. In

Table 4.9, split air conditioner relative costs through 13 SEER represent the cost of cased coil

systems relative to the cost of the average cost of a 10 SEER cased coil system. Relative split air

conditioner costs for 15 SEER and above are fancoil system costs relative to the 10 SEER fancoil

system cost. The 14 SEER split air conditioner relative cost represents the average of both the cased

coil and fancoil costs relative to their respective 10 SEER counterparts.

Because the level of detail differs between the reverse engineering and ARI results, it is

difficult to definitively identify the reasons for the discrepancies. Industry representatives have

suggested that three aspects of the reverse engineering results significantly underestimate the

incremental production costs of split air conditioners, and that the three aspects can explain most,

if not all, of the discrepancy between the two sets of relative costs:

` Outdoor unit cabinet materials and labor

` Indoor coil materials

` Refrigerant

After reexamining those components and making adjustments, the reverse engineering results

still fall below ARI’s suggested values. ARI did not suggest improvements for split air conditioners

over 14 SEER or for the other classes.

The Department believes that other factors may explain part of the remaining differences.

These factors include: 

` Essential features “Essential” features are defined as any product attributes that

are required to meet minimum standards of operation,

performance, and reliability at a given efficiency rating. The

Department assumes that baseline equipment sold under a

higher efficiency standard will incorporate only essential

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4-15

features. Industry members might have defined essential

features differently.

` Metal prices The reverse engineering analysis assumed flat 1998 prices, but

some ARI members may assume higher prices more in line with

historic averages.

` R-22 prices Although both the reverse engineering and ARI results are

based on equipment charged with HCFC-22. Some ARI

members may have assumed an inflation in HCFC-22 prices

due to the EPA mandated HCFC-22 phaseout. The reverse

engineering analysis assumed flat 1998 HCFC-22 prices.

` Conversion costs The reverse engineering analysis assumed that a generic

manufacturer builds a modern production facility dedicated to

producing equipment at only one efficiency level. Actual

manufacturers may incur conversion costs that would result in

increasing depreciation relative to increasing product cost.

` Baseline costs Manufacturers with similar incremental costs but different

baseline costs will produce different relative cost curves.

Therefore, the actual incremental costs contained in ARI’s

relative cost estimates cannot be determined without knowing

their assumptions of baseline equipment cost. Thus, differences

in baseline equipment cost could explain much of the variation

in the ARI curves as well as disagreements with the reverse

engineering-derived relative costs.

Uncertainty and variability also affect both sets of results. For example, the reverse

engineering analysis was based primarily on a sample of models and design data submitted by

manufacturers. It did not attempt to weigh the samples based on their representation in the

marketplace. Also, some efficiency levels contained relatively few samples, increasing the

uncertainty about whether those samples represent a “typical” model. These uncertainties could

either raise or lower the reverse engineering estimates with respect to ARI’s.

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Standard Level (SEER)

11 12 13 14 15

Split Air Conditioners

Rev Eng Most Likely1 1.12 1.28 1.44 1.68 1.96

ARI 

Mean 1.16 1.36 1.63 2.03 2.40

Min 1.03 1.09 1.30 1.60 1.81

Max 1.30 1.55 1.90 3.00 3.50

Split Heat Pumps

Rev Eng Most Likely 1.05 1.13 1.30 1.79 1.94

ARI 

Mean 1.10 1.24 1.44 1.64 2.09

Min 1.05 1.11 1.17 1.30 1.75

Max 1.15 1.35 1.66 1.88 2.52

Packaged Air Conditioners

Rev Eng Most Likely 1.09 1.16 1.43 1.74 1.87

ARI 

Mean 1.19 1.30 1.63 1.87 2.23

Min 1.03 1.15 1.40 1.59 1.89

Max 1.27 1.40 1.75 2.00 2.92

Packaged Heat Pumps

Rev Eng Most Likely 1.08 1.13 1.38 1.74 1.86

ARI 

Mean 1.14 1.28 1.60 1.75 2.13

Min 1.06 1.06 1.45 1.65 1.93

Max 1.25 1.50 1.90 2.30 2.47

“Cost of 1.0 represents base cost for 10 SEER for split systems and 9.7 SEER packaged systems

1

 11 SEER - 13 SEER based on cased coil only, with respect to the 10 SEER cased coil system cost.

15 SEER based on fancoil only with respect to the 10 SEER fancoil system cost. 14 SEER represents the

mean of relative cased coil and fancoil system costs with respect to their 10 SEER baselines. 

Table 4.9 Comparison of Revised Reverse Engineering Cost Estimates and ARI

Relative Unitary Production Costs - 3-ton

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4.2.11 Validation of ARI Results

In all cases, ARI’s mean production cost multipliers exceed those from the reverse

engineering analysis. However, the reverse engineering cost model cannot replicate many of ARI’s

maximum values. Also, the analysis cannot explain the wide range between ARI’s minimum and

maximum values at the higher efficiency levels. This result seems to conflict with the premise that

new standards will force high-efficiency products to compete on price and keep products within the

same price variation as current baseline equipment. Without further explanation from ARI as to the

assumptions behind their maximum values, the reverse engineering analysis cannot validate ARI’s

results completely.

4.3 MARKUPS

The Life Cycle Cost Analysis requires among its inputs 1) the price consumers pay for

baseline equipment, and 2) the incremental prices they must pay to purchase higher efficiency levels

equipment assuming efficiency standards set at those levels. For the water heater and ballast

rulemakings, the Department relied on market surveys to determine retail prices and has applied

relative cost-efficiency curves to determine incremental prices. That approach works well for

appliances that consumers can purchase directly since retail prices are easy to ascertain. However,

in the central air conditioning market, dealers sell equipment as part of an installation package and

do not list retail equipment prices separately from installation cost. Furthermore, differences in local

markets, weather conditions, demand, and many other factors can all affect the price contractors

charge for air conditioning equipment. 

As an alternative to the retail price survey, the Department determined typical markups along

the distribution chain from the manufacturer through the consumer. We also used this approach in

the clothes washer rulemaking. The markup approach makes it possible to estimate a retail price

from the manufacturing cost. Representative markups were determined from the top-down using

publicly available corporate and industry data. This approach is transparent and avoids the confusing

and largely irrelevant differences with which a survey must contend. However, because it depends

on high level information, it risks overlooking details that are important to the analysis.

4.3.1 Description of Distribution Chain

Most residential central air conditioning equipment passes through a two-step distribution

chain: 1) manufacturer to distributor (or wholesaler), and 2) distributor to dealer (or contractor).

Lennox uses one-step distribution (manufacturer to dealer) for its Lennox-brand products and is the

only notable exception. Large retailers (Sears, Home Depot) replace the distributor in the chain for

some manufacturers. 

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Roughly two dozen equipment manufacturers, several hundred distributors, and more than

30,000 dealers operate in the United States. Due to a wave of consolidation over the last 15 years,

the top seven manufacturers control 97 percent of the market share. Most remaining small

manufacturers produce only indoor coils or niche product lines.

Equipment manufacturers sell most of their products directly to distributors (also called

wholesalers.) Distributors sell to dealers at the distributor (wholesale) price. Distributors absorb

short-term imbalances in supply and demand, allowing manufacturers to operate more efficiently and

satisfying consumer needs for fast deliveries. Distributors may specialize in HVAC equipment or

may deal in other products. They are also important sources for after-market parts that boost margins.

Distributors compete on price and service, although geographic boundaries and relationships prevent

margins from being squeezed to commodity levels.

Most dealers compete at the local level. Many carry more than one brand, and most install

the products they sell. Some are engaged in other contracting business, and most do commercial

work. Dealers are consolidating rapidly in the wake of similar trends at the wholesale and

manufacturer levels. There are now several large, national, publicly traded air conditioning dealers.

Lennox has also acquired dealers to complement its vertical integration of its distribution channels.

At each point in the distribution chain, companies mark up the price of the equipment to

cover their business costs and profit margin. In financial statements, gross margin is the effective

markup on a company's cost of sales. It includes all corporate overhead costs; sales, general, and

administration (SG&A); research and development (R&D) and interest expenses; depreciation and

taxes; and profits. In order for sales of a product to contribute positively to company cash flow, its

markup must be greater than the corporate gross margin less the company's operating profit margin.

Individual products may command a lower or higher markup depending on their perceived added

value and the competition they face. The Department generally assumes that gross margins on

baseline residential unitary equipment are lower than the average gross margin of a diversified

company.

4.3.2 Determination of the Manufacturer Markup

Publicly held corporations file annual reports (10-Ks) with the Securities and Exchange

Commission (SEC). There are six sets of 10-K reports for the six publicly traded air conditioner

manufacturers (listed in Table 4.10 as Mfr. A – Mfr. F). Two of the manufacturers listed have since

merged. The six sets of reports served as the basis for the estimation of the manufacturer markup.

The companies represented account for about 85 percent of the unitary market. Manufacturers D, E,

and F engage substantially in business other than the production of air conditioning equipment.

Manufacturer F engages substantially in business not related to building equipment. All companies

sell products other than residential unitary air conditioners, including furnaces, commercial air

conditioners, and after market parts. Many of these other products command higher margins than do

baseline air conditioners. 

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4-19

Year(s) Mfr A Mfr B Mfr C Mfr D Mfr E Mfr F

Fraction of

revenues related

to space

conditioning

products 

1997 100% 100% 100% 25% 60% 25%

Corporate gross

margin

1997

1993-97

20.1%

17.4%

35.3%

(1999)

19.9%

21.0%

26.7%

27.7%

26.7%

27.7%

24.5%

24.0%

Gross margin

with 2% EBIT

1997

1993-97

18.6%

20.6%

33.1%

(1999)

19.4%

19.5%

24.9%

25.5%

24.9%

25.5%

19.4%

20.1%

Markup 1997

1993-97

1.23

1.26

1.49

(1999)

1.24

1.24

1.33

1.34

1.33

1.34

1.24

1.25

Markup (less

freight-out)

1997

1993-97

1.17

1.20

1.43

(1999)

1.18

1.18

1.25

1.26

1.27

1.28

1.18

1.19

Sources: SEC 10-K reports (1993-1997), 10-Q report (4Q1999)

Table 4.10 Manufacturer Gross Margins and Markups

Of the six public companies, Manufacturers A and B are most dependent on residential

unitary sales, and we expect their financial statement to be most indicative of the cost structure

associated with the production and sale of residential unitary equipment. Manufacturer C, because

it is also engaged solely in the air conditioning business, is also a good example. Manufacturer A’s

five year average is adversely affected by extraordinary restructuring charges in 1995. Manufacturer

B’s gross margin is substantially higher than that of its competing firms. The others best represent

typical markups on building products in general.

Table 4.10 lists the corporate gross margin, gross margin adjusted for baseline equipment,

and corresponding markups for each of the six manufacturers. Each firm’s profit margin (EBIT,

Earnings Before Interest and Taxes) is replaced with a 2 percent figure to simulate the margin on a

baseline unit. Actual margins may be higher, particularly for firms who specialize in the production

and sale of baseline equipment. Outbound freight was also deducted since it is already included it

in the reverse engineering cost estimates (see Section 4.2.8). Except where noted, figures are listed

for 1997 as well as the averages over the preceding four years.

The Department selected a representative manufacturer markup of 1.23 for use in estimating

the price of baseline equipment. This represents a weighted average of Mfr B’s and Mfr C’s

calculated markups assuming a 20 percent / 80 percent ratio, respectively.

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Gross

margin

1997

1993-97

27.0%

26.9%

Markup 1997

1993-97

1.37

1.37

Source: 1998 Wholesaler PROFIT Survey

Report, Air Conditioning and Refrigeration

Table 4.11 Distributor Median Gross

Margins and Markups 

Standard Level Markup

10 SEER 1.37

11 SEER 1.33

12 SEER 1.30

13 SEER 1.26

Table 4.12 Distributor Markups used in the

Analysis for each Standard Level

4.3.3 Determination of Distributor Markup

Table 4.11 lists the median 1997 gross margin for 14 members of the Air Conditioning and

Refrigeration Wholesalers (ARW) engaged in the sale of air conditioning and heating equipment.

The indicated markup of 1.37 represents the typical markup applied to products sold in the

base case. As the cost of an air conditioner increases, we would expect that the markup on the price

difference to be less than the average markup since only a fraction of the distributor’s costs scale

with the unit cost of materials.

To determine what the markup on the incremental price difference might be, we examined

the ARW financial reports in closer detail, identifying the financial components that we would

expect to scale with prices changes. The markup suggested by that analysis is 1.11. An examination

of U.S. Census data suggested a value of 1.09. A wide uncertainty band exists around both of these

results, but they are much lower than the average markup of 1.37.

Since the statistical evidence provided a probability distribution, we used those results to

represent the distributor markup on the incremental portion of equipment costs. The basic portion

of equipment costs we assume continues to be marked up at the average value of 1.37. Table 4.12

provides the mean combined markup at each standard level considered.

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Appendix D presents the detailed derivation of the distributor markups.

4.3.4 Determination of Builder Markup

In new construction, the builder marks up the cost of the property, including the air

conditioning equipment. Based on gross margins estimated by Dunn and Bradstreet2 and Risk

Management Associates (formerly Robert Morris Associates)3

, we chose to apply a uniform range

of markups from 1.20 to 1.32 to the 34 percent of air conditioners and heat pumps that find their way

into new construction. That yields a weighted average markup new and existing construction

together of 1.09. In all cases, we assume that builders purchase their equipment from distributors

rather than directly from the manufacturer.

4.3.5 Determination of Dealer Markup

Dealers, or contractors, sell equipment to consumers at the dealer price. However, since the

dealer also install the system, the purchaser typically pays an installed price that includes all labor,

materials, and markups required to install the equipment. This flat rate pricing hides the actual dealer

price of the equipment.

Just as with the distributor markup, we estimated the average equipment markup on baseline

equipment, and the markup on changes in the unit cost of the equipment. Analysis of financial

reports published by the Air Conditioning Contractors of America (ACCA)4

 suggests that the

average markup on all costs, including labor, for residential air conditioning contractors varies

between 1.41 for new construction and 1.63 for retrofit and replacement, for an overall average of

1.55. However, closer examination of the financial statements suggest that the average contractor

markup on equipment only is closer to 1.28. Examination of U.S. Census Bureau data suggests that

both the average and the marginal markup are 1.27. Details of these analysis are described in

Appendix D.

Since the statistical analysis provides a range of dealer markups, we chose to use it in the

analysis. Thus, we applied a mean dealer markup of 1.27 to all product classes at all standard levels.

4.3.6 Determination of Sales Tax

In many cases, local and state governments apply sales taxes to air conditioner purchases. The

sales tax applied to the dealer price yields the retail price paid by the consumer. Table 4.13 lists the

cumulative and shipment-weighted sales tax rates based on 1997 state sales tax data5, 1997 local

sales tax data6

, and 1994 state unitary shipment data7. The mean sales tax rate is 6.7 percent,

corresponding to a markup of 1.07. We adopted this distribution for the sales tax paid, except for the

34 percent of units sold into the new construction market. In those cases, we assumed that purchasers

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Combined Sales Tax

Rate (nearest whole

percent) 0% 5% 6% 7% 8% 10%

Fraction of Shipments 1% 10% 29% 37% 22% 1%

Table 4.13 Distribution of 1994 Unitary Shipments at Various Sales Tax Rates

Manufacturer Markup 1.23

Wholesaler/Distributor

10 SEER 1.37

11 SEER 1.33

12 SEER 1.30

13 SEER 1.26

Dealer/Contractor 1.27

Builder Markup 1.09

Sales Tax 1.04

Overall Markup

10 SEER 2.42

11 SEER 2.35

12 SEER 2.30

13 SEER 2.23

Table 4.14 Average Markups on Baseline Residential Air

Conditioners

pay no sales tax on the equipment. This is equivalent to a weighted average sales tax for all products

of 1.04.

4.3.7 Overall Markup

Overall markups applied to baseline equipment result from combining the manufacturer,

distributor, builder, dealer, and sales tax markups at each efficiency level. They range from 2.42

under a 10 SEER standard down to 2.23 under a 13 SEER standard. Table 4.14 summarizes the

results. These markups are valid only when outbound freight is considered a production cost

(Section 4.2.8).

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c

 In heat pumps, the role of the condenser and evaporator reverses in the heating mode, but the names remain

the same.

4-23

4.4 MAX TECH

The highest efficiency level that is “technologically feasible and economically justified” is

known as “Max Tech.” A product can be technologically feasible without being either commercially

practical or economically justified.

Based on a limited assessment of thermodynamic limitations and potential system

improvements, the Department estimates that the highest technologically feasible level for 3-ton air

conditioners is 30 EER, but that equipment is not commercially practical. The highest commercially

practical efficiency level is estimated to be nearly 16 EER, or 20 SEER. Thus, the Department is

proposing to eliminate from consideration any potential standard level that exceeds a 20 SEER rating

as not commercially practical, and therefore, not economically justified. Furthermore, since we are

not aware of any prototype or production unit that exceeds, or has ever exceeded, 18 SEER, we are

considering 18 SEER to be the Max Tech level. Some niche products and all coil-only products have

a Max Tech that is considerably lower.

We did not estimate the cost of all equipment through 18 SEER, but are confident that their

costs exceed those of the highest efficiency products we evaluated. For example, the cost of a

18 SEER split air conditioner is expected to cost at least as much to produce as a 15 SEER split air

conditioner.

The remainder of this section examines in more detail the factors that determine Max Tech

and the highest efficiency level that is commercially practical.

4.4.1 The Vapor Compression Cycle

Conventional air conditioners utilize a thermodynamic cycle known as the vaporcompression cycle to cool interior air and reject the heat to exterior air. (In heating mode, heat pumps

operate the cycle in reverse, cooling the exterior air and heating the interior air.) Heat is transferred

between the interior and exterior air using a intermediate refrigerant–usually HCFC-22. The

refrigerant passes through the tubes in tube-and-fin heat exchanger “coils” as air passes over the fins.

Within the air conditioner, cold refrigerant gas accepts heat in the evaporator and rejects it

in the condenser.c

 A compressor pumps refrigerant to the condenser, raising its temperature and

pressure in the process. In the condenser, the hot gas rejects heat to the outside air and condenses into

a liquid. After leaving the condenser, the liquid refrigerant passes through an orifice or expansion

valve and returns to the evaporator at a lower pressure. In the evaporator, the cold gas accepts heat

from the indoor air. Some of the heat comes from water vapor (humidity) as it condenses on the

evaporator coil.

 EE-RM-STD-98-440 COMMENT 312
d

 The formula for determining First Law efficiency in EER is 3.412 *TL/(TH-TL) where TL and TH are the lowest

and highest temperatures in the system in Rankine (0°F = 460 R).

4-24

4.4.2 Technically Feasible Efficiencies

Technical feasibility implies that a system is not only theoretically possible, but is capable

of being designed, constructed, and operated. A technically feasible system may be quite costly or

may exceed constraints such as size or comfort and may, therefore, not be commercially practical.

4.4.2.1 Carnot Efficiency

The ideal efficiency of a vapor compressor cycle can be expressed in terms of its comparison

to the efficiency of a Carnot cycle. The Carnot cycle is an ideal cycle because it is perfectly

reversible. It is impossible for real equipment to achieve Carnot efficiency because real processes

are not reversible. For the EER test, the outdoor and indoor air temperatures are 95°F and 80°F

respectively. The efficiency of a Carnot cycle operated under those conditions is 123 EER.d

However, in practice, the requirement for dehumidification lowers the evaporator temperature.

Assuming that the air conditioner is designed to lower the indoor wet bulb temperature from 67°F

to 62°F, both at a 77°F indoor dry bulb temperature, the evaporator must cool the indoor air to its

dew point temperature of 52°F. The efficiency of a Carnot cycle operating between 52°F and 95°F

is 41 EER. It is theoretically, but not technically, possible to build a system that approaches this

efficiency rating.

4.4.2.2 Practical Barriers to Carnot Cycle Equipment

The use of an expansion valve or orifice in conventional air conditioners results in

superheated vapor that must be returned to a liquid in the condenser. A Carnot system would replace

the expansion device with a turbine or other mechanical expander that could generate power as the

refrigerant expands. The power generated would then be used to power the compressor. The Carnot

system also would use another compressor to raise the pressure of the refrigerant to its saturation

pressure before it reaches the condenser. The added cost and maintenance associated with the extra

compressor and power transmission equipment is prohibitive for residential applications.

Furthermore, each piece of real equipment would contribute inefficiencies that would reduce the

overall effectiveness of the system.

4.4.2.3 Irreversibilities

As an ideal cycle, the Carnot cycle is comprised of a set of perfectly reversible processes.

Real cycles, on the other hand, contain several imperfections that result in irreversible processes.

These include:

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4-25

Component Fraction of Total

Irreversibility (%)

Evaporator 19

Suction Line 4

Compressor 32

Discharge Line 6

Condenser 17

Liquid Line 0

Expansion Device 23

Source: 1997 ASHRAE Handbook 

Table 4.15 Sources of Irreversibility in a

Conventional Refrigerator

` Pressure drops due to fluid friction as the refrigerant and lubricant flows through the

system

` Transfer of heat to the environment at points other than the heat exchangers

` Inefficient compression and expansion due to friction heating and heat transfer

between the refrigerant and the compressor or expansion valve

` Compressor motor inefficiency and transfer of heat from the compressor motor to the

refrigerant

The 1997 ASHRAE Handbook– Fundamentals (F-1.13) gives some relative values for

sources of irreversibility in a 2-ton refrigeration system operating between the temperatures of 20°F

and 90°F (Table 4.15).

There is also significant irreversibility associated with the transfer of heat at the heat

exchangers. The Carnot cycle assumes that there is no temperature difference between the heat

exchangers and their surroundings. For this to be possible, the heat exchanger surfaces have to be

infinitely large or the heat transfer coefficient would have to be infinitely high.

4.4.2.4 Practical Barriers to Eliminating Irreversibilities

Manufacturers can do several things to reduce irreversibilities, but because of various

thermodynamic and operating constraints, they cannot eliminate them altogether:

` Actual systems must maintain a high enough temperature difference between the

refrigerant and the air to result in sufficient heat transfer within a finite space. The

smaller the heat transfer surface, the higher the required temperature difference. The

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4-26

impact of this constraint is significant. For example, a temperature difference of 25°F

at the condenser and 10°F at the evaporator reduces the maximum attainable cycle

efficiency to 22 EER.

` Refrigerant velocities in actual systems must be high enough to entrain the

compressor lubricant and return it to compressor. This limits tube diameters and

results in unavoidable drops in pressure.

` Cost, size, weight, and maintenance considerations all prevent the substitution of a

mechanical expander for the expansion device in conventional residential systems.

However, such a substitution is technically feasible.

` Insulation of lines and components can be highly effective, but would have only a

slight impact on system efficiency. Cost is the primary constraint, although a highly

insulated system is technically feasible.

` Clearances in the compressor can be reduced to lessen internal circulation between

high and low pressure zones. This is technically feasible to a point, but increases cost.

4.4.2.5 Parasitics

Electric power consumed by components other than the compressor are called parasitics.

Equipment parasitics consume system power and affect system EER and SEER ratings, but are not

accounted for in the calculation of the vapor-compression cycle efficiency. Fan motors are the most

significant of these. Controls are another example. Parasitic requirements can account for up to

25 percent of the power consumed in a conventional residential air conditioner.

4.4.2.6 Practical Barriers to Eliminating Parasitic Losses

Again, manufacturers have a few options for reducing parasitic losses, but they cannot

eliminate them:

` Fan power can be reduced by improving fan aerodynamics, increasing motor

efficiency, and improving air flow in the equipment cabinet. Aerodynamic and

airflow improvements typically signify slower, larger fans and contoured cabinets.

Size and cost are primary considerations, although significant improvements over

conventional systems are technically feasible.

` Heat exchangers can be designed that impose less air resistence also reduce fan

power (e.g. tubes without fins). However, they may reduce the coil’s ability to

effectively transfer heat and cause a countervailing increase in compressor power.

 EE-RM-STD-98-440 COMMENT 312
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Still, coil designs that are capable of reducing air resistence while maintaining coil

effectiveness are technically feasible.

4.4.2.7 Max Tech

Starting with a theoretical efficiency of 41 EER, and assuming that parasitics and

irreversibilities are kept to a minimum while maintaining reasonable constraints on heat exchanger

size, the technically feasible rating for a residential air conditioner is expected to be on the order of

30 EER. However, such a system would not be commercially practical since it would require an

expander and would possess heat exchangers that would make the system too large for residential

service.

4.4.3 Commercially Practical Efficiencies

Given the conventional use of an expansion valve or orifice, condenser and evaporator size

limitations, and projected improvements in compressor and heat exchanger technology, the highest

efficiency level expected to be commercially practical for a 3-ton system is on the order of 16 EER

by 2007. According to the ARI Unitary Directory (Feb - Jul 1998), the highest EER available in that

capacity currently is 14.65 EER. The highest EER available in any size range is 15.15 in a 47,000

BTU (nearly 4 ton) system.

Although EER is a straightforward measure of equipment efficiency at a particular set of test

conditions, the federal efficiency standard is based on the Seasonal Energy Efficiency Rating, or

SEER test. The SEER test attempts to quantify the energy consumed by an air conditioning system

over an entire cooling season in a typical U.S. home as a function of the cooling load. Although the

SEER test procedure differs with the type of system being rated, it favors equipment that performs

most efficiently at an 82°F outdoor ambient temperature—much lower than the 95°F EER test point.

The SEER test also considers cyclic losses caused by equipment startup and shutdown.

There is no direct relationship between EER and SEER across product types. However, there

are strong correlations in systems with single capacity, single speed compressors and in systems that

are totally modulating (see Figure 4.6). Assuming a commercially feasible limit of 16 EER, the

relationship would suggest a potential commercially feasible SEER rating of 20 SEER. However,

given that we are not aware of any equipment or prototype that has ever exceeded 18 SEER, we

would identify 18 SEER as the Max Tech level to be used in the rulemaking.

It is important to note that only about half of all air conditioner condensers sold are paired

with fancoils. The other half are paired with cased coils and therefore are not capable of using

evaporator blower energy savings or fan modulation to raise their SEER ratings. For these cased coil

systems, the Max Tech selection would be substantially less than the 18 SEER identified for fancoil

systems. A closer estimate would be approximately 14.5 SEER. However, since fancoil and cased

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4-28

0.40

0.45

0.50

0.55

0.60

0.65

0.70

0.75

1960 1970 1980 1990 2000 2010

Year

(Fraction of Isentropic Efficiency)

Figure 4.3 Historical Compressor EER Improvements

Courtesy of Copeland Corporation (1998)

coil systems are not considered to be separate product classes, the Max Tech used must be the

highest efficiency attainable by any member of the class. Still, if manufacturers are to be able to sell

cased coil equipment, the standard level must remain below 14.5 SEER.

4.4.4 Prospects for Near-Term Efficiency Gains

The commercially practical efficiencies outlined above exceed the best efficiency of today’s

equipment by over 1 EER (6 percent) and 2 SEER (10 percent). That improvement requires advances

in several system components.

The compressor would be the first place to look for efficiency gains, but as Figure 4.3

illustrates, compressor efficiency has been topping out after rapidly increasing over the past two

decades. Compressor manufacturers expect no more than a 3 percent increase in compressor

efficiency by 2007.

According to some manufacturers, fan motors and improved air flow present the greatest

potential for efficiency gains. Conventional permanent split capacitor (PSC) motors operate at

typically 60 percent efficiency. Electrically commutated motors (ECMs) can boost that to more than

85 percent. However, the highest efficiency systems already incorporate ECMs, and there is no

prospect for further efficiency improvement in ECMs the near future. There may be opportunities

to improve internal air flow and slightly reduce fan power consumption in both the indoor and

outdoor units. This would rely on improvements in fan design and cabinet configuration and

contouring.

 EE-RM-STD-98-440 COMMENT 312
e

 The term "central air conditioner" means a product, other than a packaged terminal air conditioner, which:

(A) is powered by single phase electric current; (B) is air-cooled; (C) is rated below 65,000 Btu per hour; (D) is not

contained within the same cabinet as a furnace the rated capacity of which is above 225,000 Btu per hour; and (E) is a

heat pump or a cooling only unit.

4-29

Friction losses related to refrigerant flow restrictions are difficult to reduce without increasing

the flow diameters within the system. However, larger tube sizes reduce heat transfer and impede

oil return. Equipment must meet these types of size and operational constraints in order to be

considered commercially practical. Therefore, no near-term reductions in refrigerant flow resistance

are expected.

Heat exchanger improvements can improve system efficiency by lowering condensing

temperatures, increasing evaporator temperatures, or lowering fan power consumption. Current

round tube, plate fin (RTPF) technology is mature, however, and no significant advances are

expected. Other heat exchanger designs, such as microchannel, can be more effective, and could

raise the EER achievable in residential systems slightly higher than the 16 EER level we identified

as the technological limit.

4.4.5 Not-in-kind Cooling Technologies

Although the vapor compression cycle dominates air conditioning technology, other not-inkind cooling effects exist that are not subject to many factors that constrain the efficiency of

conventional equipment. Four not-in-kind technologies are absorption, evaporative, dessicant and

thermoelectric cooling. None of these is compatible with the definition of central air conditioners

in NAECAe

, so are not considered further.

4.5 EMERGING TECHNOLOGIES

The reverse engineering cost estimation methodology lends itself to the analysis of products

that are currently available. However, assessing the effects of emerging technologies that have not

found their way into the market requires additional analysis based on those results. Emerging

technologies can be incorporated into a reverse engineering analysis if their effects on the cost and

efficiency of conventional systems are known.

For example, assume that a manufacturer is developing a new high-efficiency compressor,

and that modeling data suggest that replacing a conventional compressor with the advanced

compressor could boost system efficiency from 10 SEER to 11 SEER. Knowing the price of the new

compressor, the cost of the 11 SEER system can be determined by adding the cost of the new

compressor to the cost of the 10 SEER components. If the difference in price between the

conventional and new compressors is less than the difference in manufacturing cost between the

balance of the two systems, the new compressor will lower the cost-efficiency curve at 11 SEER.

 EE-RM-STD-98-440 COMMENT 312
4-30

This technique can assess the impacts of more than one emerging technology at a time.

Suppose test data show that substituting an advanced heat exchanger into a conventional system can

have the same effect, boosting efficiency from 10 SEER to 11 SEER. Since the compressor and the

heat exchanger are independent, their cost impact on the system can be estimated as the product of

both individual impacts on the system. Components that are not perfectly independent would have

a lesser combined effect.

Although convenient and transparent, this technique is only an estimate of the potential

impact of emerging technologies on the conventional cost-efficiency relationship. When certainty

is essential, the technique cannot substitute for testing or modeling. The emerging technology

analysis can suggest the likely effect on the reverse engineering cost-efficiency curve, but should not

be considered definitive.

4.5.1 Technological Advances to be Considered

Chapter 3 introduced the emerging technologies that pass the NAECA screening criteria:

` Variable speed motor control (DC controllers and AC inverters)

` Advanced compressors (Bristol TSTM, Copeland Modulating ScrollTM)

` Microchannel heat exchangers

This section further explains these technologies and assesses their potential impacts on the

production costs of the conventional systems estimated using reverse engineering.

4.5.1.1 Variable Speed Motor Controls

Because of practical limitations on equipment efficiency as measured by EER, variable speed

(VS) systems dominate the market over 14 SEER, and it is rare to find a system over 13 SEER that

does not incorporate a variable speed indoor blower. In addition to the SEER benefits provided by

VS systems, they are more flexible than single-speed systems and offer consumers added comfort

and lower energy consumption.

VS systems currently use either alternating current (AC) inverters or direct current (DC)

controllers depending on the motor type. For example, a type of permanent magnet DC motor, the

electrically commutated motor, (ECM) is now the typical choice as an indoor fan motor in high

SEER systems. The SEER benefit is a combination of higher motor efficiency (80 percent versus 60

percent) and variable speed capability. 

With compressor and fan motor efficiencies already nearing their practical limits,

manufacturers will continue to turn to VS systems for cost effective SEER boosts. Continued

advances in power supply and digital control technologies will make VS systems more reliable and

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4-31

less costly. These trends will tend to drive the use of variable speed systems in lower SEER levels

and will lower the cost of systems over 14 SEER. Manufacturers can choose to give up some of the

SEER gains by making high efficiency systems smaller and more marketable.

With all their potential benefits, VS systems have some significant drawbacks that could

prevent manufacturers from favoring them in their mass market products. First, many residential

service technicians have not been exposed to control systems as complex as those found in VS

equipment. Manufacturers are likely to introduce such systems slowly to allow contractors ample

time to hire and train qualified technicians so that VS systems do not gain a reputation for poor

quality and high repair costs. Second, power electronics generate electrical noise. If not properly

filtered, the noise can affect sensitive electronics elsewhere in the power grid and can generate radio

interference. Stricter filtering requirements would add to the cost of VS equipment and may make

them less cost effective.

While VS fan motors are certainly viable, the largest SEER impact comes from incorporating

VS technology into compressors. The current SEER test does not offer VS systems much of a benefit

over two-capacity equipment, so existing VS compressor controls are generally not cost effective.

However, developments in switched reluctance motors (SRMs) and ECMs for hermetic compressors

could ultimately offer a true VS compressor at only a slight premium over a single-speed compressor

equipment.

4.5.1.2 Advanced Compressors

Compressor manufacturers are pursuing advanced designs that can raise EER and SEER

ratings. Most of these efforts are still confidential, but manufacturers have announced two products

that show particular potential. Both the Copeland Modulated ScrollTM and the Bristol Twin-Single,

or TSTM, reciprocating compressor will offer original equipment manufacturers (OEMs) the ability

to produce a simple two-capacity system that our analysis suggests will be cost effective in the range

of existing modulating systems.

The TSTM deactivates one of its two pistons when running in reverse. A TSTM system requires

additional compressor motor controls and a two-speed indoor blower motor inverter. York began

offering TSTM systems in an upgraded version of its Stellar product line in the summer of 1999.

The other advances in compressor technology come from Copeland who introduced its 

Modulated ScrollTM technology in early 2000. The Modulated ScrollTM also functions as a twocapacity compressor, and OEMs would use it for the same reasons. Rather than reversing direction,

the Modulating ScrollTM bypasses refrigerant internally to achieve a lower capacity at a single speed.

The compressor offers many of the same advantages as Bristol’s TSTM and could provide an

alternative in larger, quieter systems where the scrolls have held the advantage over reciprocating

compressors.

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Modulating compressors perform best at low capacity. At high capacity, they are likely to be

slightly less efficient than their single capacity counterparts. To fully utilize the potential of full

modulation in a complete system, we assume that low cost two speed inverters are used to drive

indoor and outdoor fans when a modulating compressor is used.

4.5.1.3 Microchannel Heat Exchangers

Several companies produce a heat exchanger for the automobile industry known as

microchannel. Unlike a conventional round tube plate fin (RTPF) heat exchanger, the microchannel

has a rectangular cross-section containing several small channels through which refrigerant passes.

Fins pass between the tubes and are brazed to the tubes. All components are aluminum. The resulting

microchannel coil transfers more heat per unit of face area than does an RTPF coil of comparable

capacity. It does so with a lower airside pressure drop, yielding reduced fan power consumption.

These benefits can improve system EER and SEER ratings in residential air conditioners when

compared to a condenser coil of the same face area. Because the microchannel fin arrangement

prevents natural condensate drainage, heat pump and evaporator coil applications are not

forthcoming.

Although the microchannel heat exchanger costs more to produce than a conventional RTPF

coil, the microchannel heat exchanger offers particular opportunities to reduce the size and weight

of the heat exchanger. Those advantages led to the rapid and almost total transition of the automobile

air conditioner market to microchannel technology. Microchannel heat exchangers also offer

significant reductions in refrigerant charge, which suggests that they reduce compressor failures due

to refrigerant slugging. A reduction in refrigerant charge can also be attractive as the price of HCFC22 rises and more expensive alternative refrigerants take its place.

Even after several years of dominance in the automobile market, the microchannel heat

exchanger has not penetrated the building air conditioning markets where size and weight constraints

are not as important. The cost advantages of reducing the size and weight of the condenser or the

capacity of the system have not outweighed the added costs and risk associated with the

microchannel technology in building applications. Several limitations and uncertainties are

particularly hindering the adoption of microchannel heat exchangers. First, microchannel

construction makes condensate removal much more challenging. That poses a serious barrier to the

adoption of the technology in evaporators and in heat pump condensers. Some manufacturers may

decide not to adopt the new technology if they cannot offer it in all of their products. Second, there

are concerns whether residential heat exchangers are proven to perform well under wide variations

in ambient temperatures given that they are considerably larger than automobile heat exchangers and

are configured differently. Third, compressor lubrication is entrained in the refrigerant, and

residential microchannel heat exchangers must display a proven ability to consistently return

lubricant to the compressor to avoid costly damage. Fourthly, manufacturers are concerned that

contractors will not be able to repair coil leaks effectively because of the difficulty of successfully

brazing aluminum in the field.

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With the possible exception of condensate removal, none of these barriers seems

insurmountable, but without a clear cost advantage over conventional coils manufacturers have had

little incentive to make determined efforts to address them. Recent activity indicates the attitude may

be changing, however. Several major OEMs have performed limited testing of microchannel heat

exchangers in residential equipment. One small company, Peregrine Industries, offers a residential

condenser line based on microchannel technology for sale in coastal markets8

. Thermal

Components, a supplier of heat exchangers, including microchannel, expects several air conditioner

OEMs to produce air conditioners utilizing microchannel condensers beginning later in 2000 and

extending into 2001.9

 OEMs may be finding that microchannel heat exchangers offer advantages in

reductions of SKUs, shipping costs, warrantee costs, and condenser size that outweigh any

production cost disadvantage they may have. The transition to microchannel heat exchangers is

therefore a somewhat subjective business decision, and the future of microchannel technology in

residential air conditioner applications is difficult to predict with certainty.

There is unresolved intellectual property litigation surrounding microchannel technology.

It is possible that a few companies or even a single company could be granted exclusive rights to sell

and license microchannel heat exchangers in the United States.

4.5.2 Potential Cost Impacts of Emerging Technologies

Various OEMs and suppliers provided us with guidance of how to estimate the impacts of

each emerging technology on a system. We compiled that information and applied our own

judgement to develop guidelines for estimating the cost of a system utilizing a single emerging

technology at each efficiency level using the cost data generated by the reverse engineering analysis.

Those guidelines are presented in Table 4.16. Since we intend to present only a roughly accurate

projection of the potential of emerging technologies to reduce system cost, we have not evaluated

prototype designs to verify the accuracy of our estimates, nor have we asked OEMs or suppliers to

verify our assumptions.

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Table 4.16 Key Assumptions used to Derive Emerging Technology System Cost Estimates

Equipment

Efficiency

(SEER)

VS Compressor

Motors

Advanced Modulating

Compressors

Microchannel Heat

Exchangers

Next Generation VS

Fan Motors

10 -not applied- -not applied- 80% increase in

outdoor coil costs, no

coil labor, 20%

decrease in cabinet

size and freight cost,

58% decrease in

refrigerant charge

-not applied11 -not applied- -not applied- Similar to 10 SEER

modifications

-not applied12 -not applied- 10 SEER conventional

system with:

compressor cost

+10%; outdoor unit

electronics + $30;

indoor unit electronics

+ $25

Similar to 10 SEER

modifications. Used

10 SEER compressor

price and 10 SEER

condenser chassis.

-not applied13 -not applied- 11 SEER conventional

system with same

changes as 12 SEER

Similar to 10 SEER

modifications. Used

12 SEER compressor

price and 11 SEER

condenser chassis.

-not applied14 -not applied- 12 SEER conventional

system with electrical

and compressor costs

of the modified

13 SEER system

Similar to 10 SEER

modifications with

only 60% increase in

coil cost. Used 12

SEER compressor

price and condenser

chassis and 12 SEER

indoor electrical

materials

14 SEER conventional

system with $125

indoor electronics

15 13 SEER

compressor

$130 outdoor unit

electronics

13 SEER conventional

system with electrical

and compressor costs

of the modified

13 SEER system

Similar to 14 SEER

modifications.

15 SEER conventional

system with $125

indoor unit electronics

In cases where the emerging technology would obviously raise the cost of the system, we did

not develop a guideline or estimate the system cost, and “not applied” appears in Table 4.16.

Table 4.17 summarizes our conclusions regarding potential impact of each emerging

technology on a 3-ton split air conditioning system with a fancoil. The reverse engineering results

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Efficiency

Level

VS Compressor

Motors

Advanced

Modulating

Compressors

Microchannel

Heat Exchangers

Next

generation

VS Fan

Motors

10 + + ++

11 + + -5% +

12 + + -2% +

13 + + -1% 0%

14 + -22% -17% -7%

15 + -23% -21% -5%

16 -6% -27% -- -5%

17 -6% -- -- --

+ Tends to raise production costs

– Not enough information to assess cost impacts

Table 4.17 Potential Impact of Emerging Technologies on the Production

Cost of 3-ton Split Air Conditioners with Fancoils by 2007

captured in the CAC Cost v3.1 spreadsheet (Appendix B) were used to estimate the cost impacts of

emerging technologies by substituting components at each efficiency level in accordance with the

guidelines in Table 4.16.

We assume that OEMs will adopt a new technology only if it promises to lower the cost of

the system relative to conventional technologies. Therefore, if a technology tends to increase the cost

of a system, the amount of increase is not reported.

No emerging technology identified promises a clear benefit in equipment rated lower than

14 SEER. The incremental costs of applying the technology exceed the savings achieved in the

balance of the system. At 14 SEER and 15 SEER, however, advanced modulating compressors and

microchannel heat exchangers both have the potential to eliminate the need for costly variable speed

fan motor controls as well as reducing cabinet size and refrigerant charge.

Table 4.18 provides an assessment of the likelihood that the product will be the dominant

design choice in baseline equipment at the time a new standard becomes effective (2006) under a

standard level that is most favorable to it. This means that a product will be practical and functional

at price point acceptable for mass market products and will be the most attractive technology

employed. This assessment reflects the level of resistence to the broad adoption of a new technology

given the other viable alternatives.

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Table 4.18 Estimated Likelihood of Commercial Dominance in Baseline Equipment by

2006 Under Various Standard Levels

10 SEER 11 SEER 12 SEER 13 SEER

VS Compressor motors 0% 0% 0% 10%

Advanced modulating compressors 0% 0% 10% 30%

Microchannel heat exchangers 20% 20% 30% 40%

VS Fan Motors 0% 0% 10% 40%

The microchannel heat exchanger, since it offers cabinet size reductions without the added

complexity of controls and without requiring an indoor blower, has the highest potential of being

used in baseline equipment. However, along with other potential drawbacks, not being applicable

to indoor coil and heat pump applications limits its potential use in cooling-only condensers.

As Table 4.19 shows, for premium equipment with efficiency ratings higher than the

baseline, manufacturers will still likely choose a modulating technology option, although it is unclear

whether they would decide to do so rather than offer microchannel heat exchangers.

Table 4.19 Estimated Likelihood of Commercial Dominance in Premium Equipment by

2006 Under Various Standard Levels

10 SEER 11 SEER 12 SEER 13 SEER

VS Compressor motors 10% 10% 10% 10%

Advanced modulating compressors 20% 30% 60% 70%

Microchannel heat exchangers 20% 20% 30% 60%

VS Fan Motors 20% 20% 50% 90%

Finally, we considered the potential impact on system costs that could be achieved by

combining multiple technologies in a single system. Variable speed compressor motors and next

generation variable speed fan motors are not beneficial in a baseline system since a system utilizing

an advanced modulating compressor or microchannel heat exchanger would require neither of these

and would have a cost advantage. Therefore, the combination of the advanced modulating

compressor and the microchannel heat exchanger is likely to be the only combination of emerging

technologies that would be used in practice. Such a system would be a dual-capacity microchannel

heat exchanger system designed primarily for low-capacity operation, incorporating a modulating

compressor and its associated controls. The low-capacity design reduces coil and cabinet sizes and

costs, but does not reduce the size of the compressor since compressor capacity is established at the

high capacity.

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Since both technologies remove the need for variable speed controls or a second or dual

compressor, the combination of the two technologies produces a more costly system than does using

either separately. Therefore, we would not expect hybrid systems to be used except in cases where

space constraints are particularly severe.

4.5.3 Potential of Emerging Technologies to Benefit Niche Products

Emerging technologies can have an even more significant impact on many of the niche

products identified (Section 4.6.2.2). Cabinet size is a major constraint to improving niche product

efficiency, and all of the emerging technologies can improve either EER or SEER ratings without

increasing size. Niche products that face condenser constraints (through the wall packaged

equipment and split condensers) can benefit the most. Fancoil units benefit the least since

microchannel heat exchangers are not applicable because of their condensate removal limitations.

4.5.4 Issues Associated with Proprietary Technologies

Where a company holds exclusive rights to produce and sell an emerging technology, a new

standard that favors that technology can potentially reduce competition. At this point, however, the

Department believes that enough viable competing technologies exist at each efficiency level to

encourage vigorous competition at any potential standard level. The Manufacturing Impact Analysis

(Chapter 8) describes further expected impacts on competition.

4.6 PRODUCT CLASSIFICATIONS

NAECA segmented central air conditioners into four classes: split cooling-only, split heat

pump, packaged cooling-only, and packaged heat pump. The Department assessed whether these

class designations are justified and whether new classes are needed.

4.6.1 The Case for Eliminating or Combining Existing Classes

The four existing product classes are defined based on 1) whether equipment provides

cooling only or also provides electric heating, and 2) whether a system is split or packaged. This

section examines whether those four classes are justified from a technical standpoint.

4.6.1.1 Heat Pump versus Cooling-only

In addition to the features offered by cooling-only air conditioners, heat pumps offer electric

heating. This unique feature and the different energy use that results continue to support separate

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 There are niche packaged products that do face special size constraints which are considered separately.

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classifications for heat pumps. No manufacturer has expressed a strong desire to eliminate the

separate classifications for heat pumps.

In Section 4.8.1 the relationship between seasonal heating efficiency (HSPF) and seasonal

cooling efficiency (SEER) is examined to determine whether the separate HSPF standard is

warranted.

4.6.1.2 Split versus Packaged 

The special installation capabilities for packaged systems also offer utility that differs from

that of split systems. This supports the separate classes for packaged systems. The Department

examined whether the different efficiency standards for packaged systems are justified from a

technical standpoint.

Packaged systems currently face less stringent SEER and HSPF standards than do split

systems. The intent is to compensate packaged equipment for efficiency losses due to heat transfer

between the evaporator and condenser compartments. There are two reasons why packaged

equipment may not require a lower efficiency standard.

First, split systems incur refrigerant line losses that packaged systems do not incur. Some

manufacturers have expressed that line losses and cabinet losses are similar in magnitude, and

therefore, packaged systems do not deserve an efficiency advantage.

Second, no physical constraint prevents a typical packaged systems from attaining the same

minimum efficiency as split systems.f

 Boosting the efficiency of packaged systems by 0.3 SEER to

match that of split systems is trivial from a design standpoint. Based on the reverse engineering

analysis, the costs of raising packaged system efficiency by 0.3 SEER is expected to be roughly

3 percent. This added cost is not trivial, but we would not expect it to alter the distribution of sales

in the marketplace. In fact, as Table 4.20 shows, most manufacturers do not take advantage of the

lower standard currently. They prefer instead to incur a bit more cost to align their marketing

approach with that of their split systems.

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SEER PAC PHP

9.70-9.99 15 4

10.0 96 89

Source: ARI Unitary Directory, February-July 1998

Table 4.20 Available Packaged Systems Models Rated

at and below 10 SEER

At higher efficiency levels, packaged systems possess an advantage over split systems. Since

they are usually roof-mounted, they typically face less stringent footprint and height constraints.

Although weight constraints can be important, packaged systems can attain higher EER ratings than

split systems by using larger evaporator and condenser coils.

No manufacturer has expressed a strong desire either to continue or to eliminate the disparity

between efficiency standards between packaged and split systems.

Packaged systems continue to possess unique utility. However, there is not strong technical

argument why the two classes must continue to have different efficiency standards.

4.6.2 The Case for Creating Additional Classes

Some manufacturers have expressed a desire for the Department to create classes other than

the four that are currently established. This section assesses those proposals.

4.6.2.1 Classes for Different Cooling and Heating Capacities

During the manufacturer interviews, some manufacturers remarked that they have more

difficulty attaining higher efficiencies in low and high capacity systems (below 30,000 BTU/h and

above 48,000 BTU/h) than in mid-capacity systems. This situation could justify the creation of new

product classes based on product capacity and allow the Department to impose a less aggressive

standard on small and large capacity equipment.

According to manufacturers, low capacity equipment has difficulty meeting higher standards

because 1) efficient compressors are more costly to produce in small capacities, and 2) cyclic effects

are more severe. High capacity, high efficiency equipment faces cabinet constraints. Figure 4.4

seems to support these contentions. Each band in the figure represents 20 percent of the split air

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10

20

30

40

50

60

70

10 11 12 13 14 15 16 17 18

Efficiency Level (SEER)

Capacity (Kbtu/hr)

Source: ARI Unitary Directory, February-July 1998

100%

60%

40%

80%

20%

0%

Figure 4.4 Distribution of Split Air Conditioner Models by Capacity

and Efficiency

conditioner models available at each efficiency level. Low and high capacity models become

increasingly scarce at efficiencies higher than 15 SEER.

Weak demand is another reason system manufacturers do not offer low capacity systems in

higher efficiencies. This is a combination of two market effects. First, as Table 4.21 illustrates, fewer

consumers purchase low capacity equipment in general. Second, since low capacity systems use less

energy, price is more important to consumers relative to efficiency. More stringent efficiency

standards would guarantee strong demand for high efficiency, low capacity equipment. This would

likely stimulate the development of efficient components in smaller sizes and encourage system

manufacturers to incorporate them. Higher standards would also encourage manufacturers to boost

SEER by reducing cyclic losses and expanding their offering of modulating systems.

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Capacity

 (BTU/hr)

Nominal

Capacity

 (tons)

Quantity

Shipped

Percent

Shipped in

Class

Split Air Conditioners

 Under 22,000 1-1/2 304,748 8%

 22,000 to 26,999 2 921,717 23%

 27,000 to 32,999 2-1/2 881,477 22%

 33,000 to 38,999 3 836,423 21%

 39,000 to 43,999 3-1/2 396,722 10%

 44,000 to 53,999 4 389,728 10%

 54,000 to 64,999 5 323,793 8%

Split Heat Pumps

 Under 27,000 1-1/2 to 2 314,239 32%

 27,000 to 41,999 2-1/2 to 3-1/2 467,573 47%

 42,000 to 64,999 3-1/2 to 5 209,339 21%

Packaged Air Conditioners

 Under 27,000 1-1/2 to 2 19,983 11%

 27,000 to 32,999 2-1/2 35,546 19%

 33,000 to 53,999 3 to 4-1/2 96,673 52%

 54,000 to 64,999 5 35,497 19%

Packaged Heat Pumps

 Under 27,000 1-1/2 to 2 30,204 16%

 27,000 to 41,999 2 to 3-1/2 95,624 50%

 42,000 to 64,999 3-1/2 to 5 63,939 34%

Source: U.S. Bureau of the Census MA-35M-96

Table 4.21 Shipments of Residential Unitary Condensers by Capacity

(1996)

High capacity systems do face cabinet size constraints in single capacity systems. Modulating

systems do not face the same constraints, so weak demand is probably responsible for the lack of

high capacity, high efficiency products. Emerging technologies can also play a role in easing cabinet

constraints (Section 4.6.2.4.3).

Since the absence of products at all efficiency levels results from a lack of demand for those

products and not from any strict physical limitation, the Department finds no compelling technical

justification for defining new product classes based on capacity.

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Niche Product Key Manufacturers Key Physical Constraints Typical Application

Ductless splits Mitsubishi Electronics

Carrier

Sanyo Fisher

Enviromaster International

Small cabinet size

Refrigerant line loss

Residential retrofit and

small commercial

High-velocity, small

duct

Unico

Mestek

High static pressure

Low evaporator temperature

Small cabinet size

Residential retrofit

New high-end homes

Vertical packaged,

wall mounted

Bard Small cabinet size

Poor airflow

Factory-built commercial

buildings and enclosures

Through-the-wall

condensing unit

First Company

National Comfort Products

Enviromaster International

Small cabinet size

Poor air flow

Multi-family retrofit

Through-the-wall

packaged unit

First Company

Skymark

Armstrong (Lennox)

Small cabinet size

Poor air flow

New multi-family

Table 4.22 Characteristics of Niche Products

4.6.2.2 Classes for Niche Products

Several manufacturers have asked the Department to establish new classes to protect the

viability of certain niche products under higher efficiency standards. Table 4.22 provides some key

information on these products.

All these products serve niche markets and probably account for less than 3 percent of the

residential unitary market. As such, the efficiency standard established for these products will have

little effect on national energy savings and consumer life cycle cost calculations. However, each is

a unique product with some unique utility. The question is whether the constraints these products

face justify separate classification and different efficiency standards from other products.

4.6.2.2.1 Ductless Splits

Ductless split systems, or mini-splits as they are commonly known, dominate the

international market but hold only about 1 percent of the domestic market. They consist of a single

outdoor unit and an indoor fancoil unit discharging directly into the conditioned space. (Ductless

systems with multiple fancoil units are often called multi-splits.) Mini-splits are attractive in many

applications because tubing and electrical service can often be installed for less cost and in less space

than can the equivalent ducting. This makes them particularly attractive for the retrofit market. They

also offer the possibility of true individual temperature control. Since consumers may consider the

interior units to be more intrusive than a ducted system, manufacturers strive to make them as

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compact as possible. This cabinet size constraint combined with efficiency losses due to heat transfer

between refrigerant lines puts pressure on equipment efficiency.

4.6.2.2.2 High Velocity, Small Duct

High velocity, small duct fancoil units target primarily the retrofit market. According to the

manufacturers, the small, easy to install ducts, non-intrusive discharges, and silent operation make

these units attractive for many retrofit situations where consumers’ space is a premium, and where

installing a conventional split system is cost prohibitive. Architectural and aesthetic advantages also

make this a viable product for high-end custom homes.

High velocity systems are designed to discharge conditioned air rapidly through round ducts

that can 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 it more than a

conventional system. This increases the cost through added tube rows and larger capacity, but offers

the associated benefit of enhanced humidity removal.

The inefficient fancoil unit in high velocity systems requires them to pair with high efficiency

condensing units (typically 13 - 14 SEER) to attain the 10 SEER NAECA minimum. Mestek’s

SpacePak product offers equipment rated at 12.0 SEER.

Contractors typically install fancoil units outside the conditioned space, penalizing efficiency

in the field. However, the manufacturers of high velocity systems claim that the ducts are tight and

durable, and that superior dehumidification will cause occupants to raise their thermostat settings.

Both would lower energy consumption compared to conventional systems of equal SEER ratings.

4.6.2.2.3 Vertical Packaged, Wall Mounted

Manufacturers design these products for installation in mobile or modular structures, which

are almost exclusively commercial applications. However, manufacturers may offer them with

single-phase motors, placing them under NAECA. The difficult air flow configuration (each of the

condenser and evaporator compartments takes air in and exhausts it through the same face) combined

with the attempt to minimize size constrains the ability of these units to attain higher SEERs.

4.6.2.2.4 Through-the-wall Condenser

Through-the-wall condensers were popular in 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 1-1/2 to 2-1/2 ton capacity

range.

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New through-the-wall condensers must fit within the same wall opening as the original units,

even though original units may be half as efficient as the new ones. Residents or building owners are

particularly sensitive to any increase in price or to the cost of enlarging 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 the turnover of old, inefficient equipment.

4.6.2.2.4 Through-the-wall Packaged

Through-the-wall packaged equipment is similar to packaged terminal air conditioners

(PTACs), but are typically installed in a closet and ducted to the interior space. Like through-the-wall

condensing units, they serve primarily multi-family high rise applications. However, unlike today’s

through-the-wall condensing units, through-the-wall packaged units are targeted to new construction

without prior wall opening constraints.

4.6.2.3 Description of Niche Product Constraints

4.6.2.3.1 Small Cabinet Size

Cabinet size constrains efficiency primarily by restricting coil face area and coil

configuration. As face area decreases, the velocity of the moving air increases. This slightly improves

the heat transfer between the air and the coil, but it also increases the pressure drop across the coil

and increases the power consumption of the blower or fan. As face area shrinks, the increased fan

power negates any benefits from improved heat transfer and lowers the efficiency of the system. The

face area limitation is particularly important in the condenser where the similarity between ambient

air temperature and refrigerant temperature requires higher air volumes to transfer the same amount

of heat. In the evaporator, the temptation to increase coil face area to reduce blower power

consumption and increase cycle efficiency is somewhat counteracted by the need to provide adequate

dehumidification.

A cramped cabinet may also make it difficult, or impossible, to install optimal components

or technical upgrades, like controls, that could improve system efficiency.

4.6.2.3.2 Poor Airflow Configuration

The orientation of air intake and discharge and the internal path of the airflow can affect

system efficiency. Most split system outdoor units take in air horizontally around their entire

perimeter and discharge it vertically upward. Restricting the outdoor unit to take in air through only

one face, or to take in and exhaust air through the same face can reduce efficiency by increasing fan

power consumption. Some short-circuiting of exhaust air into the intake may also occur. Indoor units

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typically take in air horizontally near the bottom of the unit and discharge it vertically at the top.

Other configurations may boost or harm efficiency. In either the indoor and outdoor unit, sharp

changes in airflow direction can increase blower power consumption and may also result in uneven

airflow over the coil, resulting in only partial coil use.

Packaged units may suffer from the same airflow related problems, with the additional

possibility of heat transfer or air leakage between the evaporator and condenser compartments.

4.6.2.3.3 High Static Pressure

Higher indoor static pressure causes the blower to work harder at a given capacity and

airflow. The Department’s test procedure prescribes minimum static pressures, and products that

exceed them may be penalized through higher blower power consumption than is assumed in the test

procedure. This constraint is particularly relevant to manufacturers of high-velocity, small duct

systems, but also affects other niche products as well.

4.6.2.3.4 Low Evaporator Discharge Temperature

Producing a lower than normal air temperature from the evaporator requires either more tube

rows or a slower face velocity. Under cabinet size constraints, these improvements may not be

possible. Furthermore, the additional heat transfer increases the required capacity of the condensing

unit.

4.6.2.4 Remedies for Niche Product Constraints

Most niche manufacturers, although they serve specialized markets, still attempt to keep costs

at a minimum. Since many niche products serve manufactured and multifamily housing markets,

specifiers and consumers may be especially price-conscious. Furthermore, because of the low sales

volumes, many niche manufacturers have no real market incentive to supply higher efficiency

products. Many manufacturers do not pursue advanced designs for those reasons. Standards that

apply evenly to their competitors would allow them to introduce more expensive, but more efficient,

design options without losing market share or reducing profit margins. Several of these design

options can ease the efficiency constraints that niche products face.

4.6.2.4.1 More Efficient Components

Many niche products use motors and compressors with only moderate efficiency or fixed

orifice expansion devices. Those products can upgrade to higher efficiency or variable speed

components without exceeding performance or size constraints, but these modifications would raise

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production costs. Depending on the cross-price elasticity with competing products, any increase in

price could result in a substantial loss of market share. 

4.6.2.4.2 Larger Cabinet Size

Through-the-wall and wall mounted packaged equipment and ductless splits do not face a

rigid size constraint. A manufacturer may lose sales when it increases cabinet sizes to attain higher

efficiencies, but no clear thresholds exist above which its products cease to be commercially viable.

Without thresholds, the Manufacturer Impact Analysis is the appropriate analysis for determining

whether a standard level threatens the viability of the product.

4.6.2.4.3 Use of Emerging Technologies

Emerging technologies, especially advanced modulating compressors and microchannel heat

exchangers, are attractive options for niche products whose primary constraint is condenser size.

This would include through-the-wall split and packaged units. It would not included high-velocity

systems or ductless split systems since those systems are constrained by the size of the evaporator,

which is not currently being considered as a viable application for microchannel technology because

of condensate removal concerns. Furthermore, heat pump condensers, since they also require

removal of condensate in the heating mode, are not expected to benefit from microchannel

technology.

4.6.2.4.4 Modifications for Testing

Some niche products may benefit from modifications that allow them to operate under

conditions that differ from the test conditions. For example, manufacturers of high velocity systems

intend their equipment to operate under higher static pressures, lower temperatures, and lower

airflows than those the test procedures prescribe. They can explore whether installing mulitap

blowers or other variable speed or adjustable components could raise their SEER ratings by allowing

them to test under a set of conditions more closely representative of conventional equipment while

still allowing proper installation in the field.

4.6.2.4.5 Redefinition

Vertical packaged, wall mounted equipment currently falls under the definition of residential

products (single phase, less than 65,000 BTU/h), but is intended for commercial application. The Air

Conditioning and Refrigeration Institute has defined the product as commercial equipment. The

Department may decide to classify equipment intended primarily for commercial application as

covered by EPACT efficiency requirements rather than NAECA.

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4.6.2.5 Justification for New Classes Based on Niche Products

One type of niche product, vertical packaged-wall mounted, is intended for commercial

application with commercial operating characteristics. As such, NAECA may not be the proper

governing regulation. To limit abuse, the Department could consider imposing a labeling

requirement for the class to restrict those products from being installed in residential applications.

For the other niche products, Table 4.23 shows the highest viable cooling efficiency

achievable for each of the candidate products utilizing both conventional and emerging technologies.

Discussions with manufacturers of these products and engineering and marketing judgment are the

basis for the preliminary conclusions. In this case, “viable” means technically feasible, commercially

practical, and able to retain its own unique characteristics and utility. For example, consumers

purchase high velocity systems for their small diameter, easy to install ducts and compact air handler.

As the air handler gets larger and duct branches get more numerous, the product eventually loses its

uniqueness compared to conventional systems and becomes increasingly unviable as a product with

unique utility. It is also important to note that two products having the same viable efficiency level

cannot necessarily achieve that level for similar costs.

Table 4.23 also lists the substitutes available for each product and the sensitivity of

consumers to price increases with respect to price increases in the substitutes. High cross-price

sensitivity means that a consumer will be likely to purchase the substitute if the price difference

between the two products changes even slightly. This will cause consumers to shift to the substitute

product, and could eventually eliminate the subject product from the market. A price differential can

increase when a new efficiency standard results in a more severe price increase in the subject product

than in the substitute. In cases where the substitute faces a less stringent efficiency standard (e.g.

window units, repair), a new efficiency standard could reduce national energy savings by driving

consumers to the less efficient substitutes.

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Niche Product Estimated Highest Viable

Efficiency Level (SEER)

Substitutes 

(ranked in order of

decreasing

attractiveness for

most typical

applications)

Efficiency of

Substitute

Cross- price

sensitivity

Conventional

Technology

Emerging

Technology

Ductless split 12.0 12.0 1. Window Lower Moderate

2. High-velocity Same

3. Conventional split Higher

High-velocity,

small duct

12.5 12.5 1. Window Lower Low

2. Ductless split Same

3. Conventional split Higher

Vertical packaged,

wall mounted

12.0 12.5 1. Conventional

packaged

Higher Moderate

Through-the-wall

condenser

11.0 13.0 1. Repair Lower High

Through-the-wall

packaged

12.0 15.0 1. Hydronic systems

2. Conventional split

Higher

Higher

High

Table 4.23 Assessment of Factors that Influence the Decision to Establish Separate

Classes for Niche Products 

4.6.3 Possible Loopholes Created by Product Class Definitions

Anytime two product classes exist with different efficiency standards, there is the potential

for companies to attempt to exploit the lower standards. Taking steps to define the products as

carefully as possible and to ensure that the new standards do not significantly alter the cost

differential between the product classes can minimize the temptation to market lower efficiency

products in applications traditionally served by equipment that have higher efficiency requirements.

For example, there is nothing that would physically prevent a contractor from installing a through

the wall condensing unit on a pad. That is not common practice today since both conventional split

condensers and through-the-wall condensers must meet the same efficiency requirements and

conventional split condensers are less costly. However, if through-the-wall condensers were granted

a lower efficiency standard than their conventional pad-mounted counterparts, the price difference

between the two systems could favor the through-the-wall equipment, causing their use in padmounted applications to increase. More widespread use of less efficient equipment would increase

national energy consumption.

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The price differential between ductless minisplits and high velocity equipment is high (about

twice) that of conventional equipment at the same efficiency and capacity. Therefore, the concern

about creating attractive loopholes is low for these products. Similarly, if properly defined and

regulated, there is little chance that wall-mounted vertical packaged systems would find their way

into conventional residential applications due to the prevalence of lower priced competing

technologies.

However, the price premium for through-the-wall condensing and packaged equipment is

relatively low--about 30 percent and 70 percent, respectively. For three-ton equipment, that equates

to a $200 and $430 difference in manufacturer price, respectively, for the two systems compared to

their conventional counterparts. To maintain those price differences, standards for through-the-wall

systems would have to stay within one SEER point of the standards set for pad or roof mounted

systems in order to reduce the likelihood that the market will exploit the difference and increase the

demand for through-the-wall equipment in pad or roof mounted applications.

4.7 ALTERNATIVE REFRIGERANTS

Effective January 1, 2010, the Environmental Protection Agency will prohibit the sale of new

equipment utilizing HCFC refrigerants, including HCFC-22 (R-22), the dominant refrigerant in

unitary air conditioning systems. Researchers continue to develop and test alternative refrigerants,

but a consensus is settling on two chlorine-free HFC alternatives: HFC-407C (407C) and HFC-410A

(410A). Each has comparative advantages and disadvantages, particularly regarding energy

efficiency.

407C is a blend of HFC-32, -125, and -134a. Its physical properties and operating

characteristics make it a suitable drop-in replacement for R-22. However, 407C lowers the efficiency

of unmodified R-22 systems by 5-10 percent under the SEER test conditions. Likewise, a new 407C

system is likely to be more costly than an R-22 system at the same efficiency level. If 407C becomes

the refrigerant of choice for new equipment, this will increase the cost of attaining a given efficiency

compared to HCFC-22. Lennox has announced that they will introduce a line of light commercial

products based on 407C early in 2000.

410A is an mixture of HFC-32 and -125. It operates at substantially higher pressure (50-70

percent) than does R-22 and requires a soluble polyol ester lubricant, so it is not suitable as a drop-in

R-22 replacement. However, its higher operating pressure and slightly better thermodynamic

properties may allow new 410A systems to achieve the same efficiencies as R-22 systems at a

slightly lower cost. The higher operating pressure in 410A equipment requires either smaller tube

diameters or thicker tube walls. Since 410A has a higher cooling capacity than R-22, manufacturers

can preserve system capacity by reducing tube diameter (and tube cost). Furthermore, 410A can

provide a slight efficiency boost at the SEER testing points. However, at the EER test point which

more closely represents peak cooling conditions, 410A is about 3 percent less efficient than R-22.10

This would exacerbate utilities’ peak loading concerns. Furthermore, manufacturers will bear a

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significant capital conversion cost to allow plants to handle the smaller tube diameters and strict anticontamination standards. Carrier introduced a line of products based on 410A in 1998 and most other

major manufacturers have since followed suit.

Momentum is building behind 410A as the refrigerant of choice in new equipment, but it is

too early to predict with absolute certainty which refrigerant will ultimately dominate by 2006.

Hydrocarbons and carbon dioxide both could still dominate by 2010. However, for the 2006

rulemaking date, neither 410A nor 407C will substantially change the cost-efficiency relationship,

and neither will substantially affect consumer life cycle costs. Therefore, conclusions suggested by

analysis of HCFC-22-based equipment should still be valid for equipment utilizing either 410A or

407C. The issue plays a greater role in assessing the cumulative burden of new standards on

manufacturers (Chapter 8).

4.8 OTHER ANALYSES IN THE ENGINEERING ANALYSIS

Beyond the preceding analysis, there are several other engineering issues that can play an

important role in the Department’s selection of trial standard levels.

4.8.1 Definition of the Relationship between SEER and HSPF in Heat Pumps

Currently, cooling efficiency standards (SEER) do not differ based on whether a system

provides heating, but heat pumps do face an additional regulation on heating efficiency (HSPF). The

Department investigated whether the relationship between HSPF and SEER is rigid enough to allow

a SEER standard to serve as a de facto HSPF standard.

Since SEER and HSPF are calculated values and incorporate factors other than system

physics, no rigid relationship between the two would be expected. As Figure 4.5 illustrates, a survey

of available equipment supports that hypothesis. Each band in the Figure represents 20 percent of

the products available at the stated efficiency level. Although HSPF generally increases with SEER,

the correlation is low (0.63). However, the relationship between HSPF and SEER is surprisingly

close below 13 SEER, with 60 percent of models falling within a range of 0.3 to 0.5 HSPF.

To set efficiency standards for heat pumps, the Department must determine both an HSPF

level and a SEER level. This complicates the analysis since each SEER level corresponds to a broad

range of HSPF ratings. To provide a rationale for selecting SEER-HSPF pairs, the Department

examined histograms based on Figure 4.5 that showed the number of models possessing each HSPF

at each SEER level. Table 4.24 lists the results. Median (50th percentile) HSPFs are generally well

above the minimum allowable HSPF, revealing that market does not apply strong downward

pressure on HSPF.

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6

6.5

7

7.5

8

8.5

9

9.5

10

10 11 12 13 14 15 16 17 SEER

HSPF

Figure 4.5 Relationship between HSPF and SEER in available 3-ton Split Heat

Pumps

After examining the histograms, the Department plotted the relationship between HSPF and

SEER for all 3-ton split heat pumps listed in the Spring 1998 ARI Unitary Directory (Figure 4.5).

At 10 SEER, the difference between the minimum HSPF (6.8) and the median (7.1) is 0.3 HSPF.

We then defined the equation of a line that ran generally parallel with the median HSPF at each

SEER level while passing through the 10 SEER, 6.8 HSPF point:

The proposed minimum HSPF requirements are derived by inserting the minimum SEER

requirements into the formula. For example, under a 12 SEER standard, all products would have to

attain a minimum HSPF of 7.4.

Even though the Department does not have information on the distribution of heat pump sales

by HSPF 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 for high HSPF heat pumps in cooler climates. The

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Efficiency/Standard Level 

(SEER)

10 11 12 13 14 15 16 17

Recommended minimum

HSPF

6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.6

Median HSPF in available

products

7.1 7.4 7.9 7.9 7.9 8.9 8.2 8.4

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

Increase in Minimum HSPF

from Base HSPF

-- 0% 67% -33% -133% 133% -167% -167%

Fraction of Available

Equipment below the

recommended HSPF Level

0% <10% 10% 10% <60% <30% <100% <100%

ARI “Most Likely” HSPF -- 7.28 7.69 7.99 8.25 8.28 -- –

Table 4.24 Comparison of Proposed HSPF Standard Levels with Median HSPFs of

Equipment Listed in the ARI Unitary Directory

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 and burden of

designing, producing, testing, and qualifying the product without resulting in a significant increase

in the average HSPF of equipment sold. 

Table 4.24 summarizes the selection of HSPF standard levels. It also shows the HSPF levels

that ARI considered to be the “most likely” HSPF rating at each SEER standard level. In all cases,

the ARI “most likely” HSPF value exceeds the selected minimum HSPF levels, typically by 0.2 to

0.3 HSPF.

Table 4.25 provides a more detailed breakdown of the models available at each efficiency

level in 1998 as well as the total number of models at each efficiency level.

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Decile

Efficiency Level (SEER)

11 12 13 14 15 16 17

Selected HSPF

7.1 7.4 7.7 8.0 8.2 8.4 8.6

0% 6.7 6.8 7.1 6.9 7.9 8.0 8.3

10% 7.2 7.4 7.7 7.4 8.0 8.1 8.4

20% 7.3 7.5 7.9 7.5 8.1 8.1 8.4

30% 7.4 7.6 7.9 7.6 8.4 8.1 8.4

40% 7.4 7.7 7.9 7.9 8.9 8.2 8.4

50% 7.4 7.9 7.9 7.9 8.9 8.2 8.4

60% 7.4 7.9 7.9 8.4 8.9 8.3 8.4

70% 7.5 7.9 8.1 8.4 8.9 8.3 8.4

80% 7.6 7.9 8.4 8.7 8.9 8.3 8.5

90% 7.9 8.1 8.5 8.9 8.9 8.3 8.5

100% 8.2 8.7 9.0 9.5 9.0 8.5 8.6

No.

Models

1015 1127 437 257 13 36 7

Source: ARI Unitary Directory, February-July 1998

Table 4.25 Prevalence of HSPF Ratings by SEER Level for 3-ton Split Heat

Pumps with Impacts of Suggested HSPF Standards

4.8.2 Repair versus Replace

A few parties have expressed concern that standards which are too aggressive will encourage

consumers to repair old, inefficient equipment rather than replace it, and that this could actually

increase national energy consumption with respect to the base case. Since most equipment sales are

replacement sales, this is an important concern.

We used a simple equipment attrition model to project equipment shipments through 2030

assuming that new standards would result in the tendency to repair rather than replace equipment,

thereby extending its life. Table 4.26 shows the added lifespan that would have to be at each

potential standard level to result in an increase in national energy consumption over the base case

(no new standard).

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Standard Level

 (SEER)

Necessary Years Added

to Life

10.7 1

10.8 3

10.9 5

11.0 7

11.1 10

11.2 14

11.3 18

Table 4.26 Equipment Life Extension Resulting in

Increased National Energy Consumption

As expected, the results do not support the suggestion that higher standards would necessarily

increase national energy consumption by delaying equipment replacement. For example, an 11 SEER

standard would have to extend equipment life by more than seven years in order to increase energy

consumption nationwide. Standards higher than 11.4 SEER will not increase energy consumption

unless products survive for more than an additional 20 years. Neither scenario is likely. More likely

is that a slight increase in the standard would increase national energy consumption. For instance,

the change in retail price under a standard of 10.8 SEER is estimated to be about $80. According to

Table 4.26, a standard level of 10.8 would increase national energy consumption if it extended

equipment life beyond an additional three years.

New standards will reduce national energy consumption even if they prolong equipment life

because sales into the new construction market accumulate over time. In the attrition model base

case, equipment sold into homes built after 1998 consumes 15 percent of the total consumed by all

residential air conditioners through 2030. That cumulative effect causes the repair-replace decision

to have less of an effect on national energy consumption as standard levels rise. The Shipments

analysis in Chapter 6 explores this repair-replace issue in greater detail.

4.9 ESTABLISHING A MINIMUM EER(95°F) REQUIREMENT

Many utilities and environmental advocates support the establishment of minimum efficiency

standards based on EER at an outdoor temperature of 95°F, (EER(95°F)) in lieu of, or in addition

 EE-RM-STD-98-440 COMMENT 312
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to, SEER, which is based largely on an outdoor temperature of 82°F. They are concerned that an

increase in SEER does not necessarily correspond to an increase in EER, and that a 95°F rating

condition better represents the performance of an 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 of the 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. The

utilities and environmental advocates also believe that reducing peak demand is an important

component of any integrated plan to improve the reliability of the nation’s electrical system.

Recently there have been several well-publicized blackouts and brownouts following, or in the midst

of, hot periods. Advocates of an EER-based standard believe that a SEER-only standard does not

guarantee the desired improvement in peak-period performance.

4.9.1 Current Relationship between SEER and EER

It is certainly true that SEER is not an ideal indicator of system efficiency in very hot

weather, and SEER may not be the best indicator of the seasonal efficiency for equipment operating

in the warmest regions of the 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

of unitary equipment in the marketplace. For other equipment, including variable or multi-speed

equipment or equipment with modulating capacity, the 82°F test point is given a great deal of weight

in determining the SEER rating. In these cases, the relationship between SEER and EER(95°F) is

less certain, and manufacturers have some flexibility and incentive to improve SEER without

improving EER(95°F).

The SEER test, 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. The EER(95°F) test, which is a measure of steady-state performance

under only one set of climatic conditions, cannot provide insight into cyclical performance or cooling

efficiency at cooler temperatures which represent the bulk of the cooling season nationwide.

Figure 4.6 shows the relationship between SEER and EER in available 3-ton split air

conditioners based on three factors: 1) whether the compressors are single speed/capacity or

modulating, 2) whether outdoor fans are single or variable speed, and 3) whether indoor fans are

single or variable speed. Each oval represents a particular combination of the three factors. No

models with a combination of factors falls outside its oval.

 EE-RM-STD-98-440 COMMENT 312
g

 The DOE SEER test procedure for modulating systems gives weight to the operating efficiency at low-capacity

and an outdoor dry bulb of 82°F.

4-56

8

9

10

11

12

13

14

10 11 12 13 14 15 16 17 18 19

SOSCVI

Single Speed Compressor

Modulating Compressor

Models

below 12

SEER not

shown

Single-Single

Multi-Single

Single-Multi

Multi-Multi

Single-Multi Single-Single

Multi-Sing

Outdoor fan

le

Multi-Multi

speeds

Indoor fan

speeds

Figure 4.6 Effects of Compressor and Fan Modulation on the EER-SEER

Relationship in Existing 3-ton Split Air Conditioning Systems

The graph shows a clear division between models based on whether they possess modulating

compressors. The models with the highest SEER ratings have modulating compressors (this includes

systems with multiple compressors, variable speed compressors, and variable capacity compressors.)

This suggests that, all else equal, a system with a modulating compressor will achieve a SEER boost

of 2-4 points or will suffer an EER loss of up to 2 points.

Manufacturers have some leeway in designing the SEER-EER relationship. Systems with

modulating compressors are typically optimized for low capacity operation to boost SEERg

. This can

reduce the performance of the system at high capacity. Sensible heat ratios (dehumidification) and

sound levels can also suffer. Since the efficiency standards and the market are tied to SEER ratings,

manufacturers have the incentive to boost SEER at the expense of EER. Notice, however, that totally

modulating systems can attain the same EER ratings as their single speed counterparts. That

indicates that manufacturers can design and produce high efficiency, totally modulating systems that

boost both EER and SEER.

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The graph also suggests a few conclusions about the indoor and outdoor fans. First, the SEER

and EER impacts of modulating indoor fans is greater than the impacts of outdoor fans. Second,

modulating compressors cannot achieve their greatest SEER and EER benefits unless both the indoor

and outdoor fans are also modulating. Third, systems with efficient single speed compressors do not

receive much of a boost in either SEER or EER by virtue of the presence of variable speed fans.

Clearly, a higher SEER standard will not guarantee a proportional increase in EER. As time

progresses, thermodynamic limitations make it more expensive to squeeze additional efficiency from

a system. At the same time, advances in control and power technologies reduce the cost of

incorporating the modulating capabilities that allow manufacturers to boost SEER without raising

EER.

4.9.2 The Effect of Refrigerant Choice on EER and SEER

Refrigerant also plays a role in this issue. 410A is less efficient than both HCFC-22 and 407C

at high condenser temperatures, but more efficient at low condenser temperatures. The difference

between 410A and 407C is on the order of 5 percent at the EER rating points. 410A can result in

improved SEER ratings and reduced EER ratings. Equipment manufacturers will be encouraged to

adopt 410A for its SEER effect, but utilities may prefer 407C for its EER effect.

4.9.3 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 SEER to ensure that an increase in SEER would result in a corresponding

increase in EER. The Department is not aware of any modulating, multi-speed, or variable speed

air conditioners (hereafter referred to collectively as modulating equipment) being offered below

13 SEER, and very few of the available 13 SEER products are modulating equipment.

The second option would be to establish an EER(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 for

modulating equipment only or for all equipment.

The fourth 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 of the cooling season and warmer

regions of the country.

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The first option, relying on the current relationship between EER and SEER, would provide

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 SEER test procedure to favor

higher temperatures, would require a new rulemaking to establish new procedures as well as a full

revision to the analysis supporting this rule to incorporate the new SEER values.

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 is more aggressive since it would require that products of

higher SEER ratings must also meet increasingly stringent EER ratings.

Within the second and third options, the Department could establish EER requirements of

varying degrees of stringency. For example, it could select EER levels equivalent to the ratings of

the minimum EER rating of available equipment today at the proposed standard level, the median

EER rating, anywhere in between, or even higher.

A serious concern regarding the third option and EER standards higher than the minimum

EER ratings available today is that both would discourage the development and sale of modulating

capacity and variable speed equipment. Modulating equipment realizes a benefit in the SEER test,

allowing manufacturers to reduce the cost of the core components compared to non-modulating

equipment. This cost reduction partially offsets the cost of the modulation, making modulating

equipment more affordable for consumers. Being required to meet the same EER standards as nonmodulating equipment would negate this cost benefit.

Consumers value the added benefits of modulation, and manufacturers realize this value in

the form of higher revenues. For consumers and the nation, modulation mitigates the inefficiencies

caused by oversizing the system during installation. Oversizing is a widespread 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.

4.9.4 EER-SEER Relationship in Current Equipment

To help to determine what the appropriate EER(95°F) requirement might be for each of the

four classes, Table 4.27 shows the EER rating for models at each decile within a SEER level. The

data source is the ARI Unitary Directory. We considered only NAECA-covered products below

66,000 BTU/hr intended for domestic sale. Each SEER level includes all products from the nominal

SEER level through those rated 0.2 SEER higher than the nominal level (e.g. 10 SEER through

10.2 SEER). We considered only coil-only models where possible. The data includes all models

available, not only the High Sales Volume models subject to DOE certification. The Table also

provides the number of models included in the dataset in each category.

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Table 4.27 Distribution of Energy Efficiency Ratios (EERs) in Residential Unitary Products

Nominal Efficiency (SEER)

10 11 12 13 10 11 12 13

Decile Split Air Conditioners (RCU-A-C) Packaged Air Conditioners (SP-A)

0% 8.5 9.4 9.1 9.7 8.3 9.2 10.0 10.1

10% 9.0 9.8 10.5 11.2 8.7 9.5 10.3 10.1

20% 9.1 9.8 10.6 11.4 8.8 9.6 10.4 10.5

30% 9.2 9.9 10.7 11.5 8.9 9.8 10.4 10.9

40% 9.3 10.0 10.7 11.5 9.0 10.0 10.5 11.0

50% 9.3 10.0 10.8 11.6 9.1 10.1 10.5 11.0

60% 9.4 10.2 10.9 11.7 9.2 10.2 10.5 11.0

70% 9.5 10.2 11.0 11.8 9.3 10.3 10.6 11.0

80% 9.5 10.4 11.0 11.8 9.4 10.5 10.7 11.1

90% 9.6 10.6 11.2 12.0 9.6 11.0 10.8 11.4

100% 10.8 11.4 12.8 13.0 10.7 11.2 11.0 11.5

Number 5133 2809 4156 901 446 146 157 50

Decile Split Heat Pumps (HRCU-A-C) Packaged Heat Pumps (HSP-A)

0% 7.4 9.3 8.6 9.6 8.2 9.0 9.8 11.0

10% 9.0 9.6 10.3 11.1 8.7 9.2 10.0 11.0

20% 9.1 9.7 10.4 11.3 9.0 9.3 10.1 11.0

30% 9.1 9.9 10.5 11.5 9.0 9.5 10.2 11.0

40% 9.2 10.0 10.6 11.6 9.0 9.5 10.3 11.0

50% 9.3 10.0 10.7 11.9 9.1 9.7 10.4 11.0

60% 9.4 10.2 10.8 12.3 9.2 9.9 10.5 11.6

70% 9.5 10.3 10.9 12.3 9.4 10.0 10.6 12.0

80% 9.5 10.5 11.0 12.4 9.5 10.0 10.8 12.0

90% 9.6 10.7 11.4 12.5 9.6 10.0 11.0 12.0

100% 10.8 12.0 12.7 13.7 10.5 10.2 11.5 12.0

Number 2538 1408 2147 452 443 96 306 7

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1. ARI Report U-SEER-5-Q, January - December, 1994. Industry sources confirm that the

prevalence of 10 SEER equipment remains valid in 1999.

2. Dun & Bradstreet, Duns Financial Profile, Industry Profile, 1999. SIC# 1521 "Construction-

-General--General Contractors--Single-Family Houses". Markup = 1/(1998 cost of sales)

3. Risk Management Associates, Annual Statement Studies: SIC#1521. 1999. Markup = 1/(1 -

Gross Profit from 4/1/98 - 3/31/99 for all firms)

4. Financial Analysis for the HVACR Contracting Industry, Air Conditioning Contractors of

America (1995)

5. Federal Trade Administration, January 1998

6. Sales Tax Institute, 1999

7. ARI U-SEER-5-Q ,1994

8. Energy Design, June 1999

9. Thermal Components “List of commonly asked questions about coils manufactured using

brazed aluminum technology”, February 2000.

10. Optimization Strategies for Unitary Air Conditioners Using R-410A, Jing Zheng, H. Hughes,

M. Spatz, G. Zyhowoski, Allied Signal

REFERENCES

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