From: Anderson, Wes Sent: Monday, June 02, 2008 7:45 PM To: 'Douglas Brookman'; Edwards, Brenda; Stas, Eric; Kido, Michael; Lewis, Ronald; McCabe, Michael; Friedrichs, Mark; Raymond, Michael; Pinto, Francine; Adam Darlington; Anderson, Wes; Bing Liu; Gregory Rosenquist (gjrosenquist@lb l.gov); Michael Scott (michael.scott@pnl.gov); Mike Christopher; Parker, Graham B; Sriram Smasundaram (sriram. somasundaram@pnl.gov) Subject: Notification of a rulemaking action to be ta ken on Residential Central Air Conditioners and Heap Pumps by the Department of Energy
This email is to inform you that DOE is init iating a rulemaking and data collection process to consider establishing amended energy conserva tion standards for Residential Central Air Conditioners & Heat Pumps [Docket No.: EE RD-2008-BT-STD-0006], [RIN: 1904-AB47]. There will be a Public Meeting held at the Department of Energy’s Headquarters location to discuss and receive comments on its planned analytical approach an d issues it will address in this rulemaking proceeding. Public meeting information is listed below:
Public Meeting Information:

Time: 09:00 AM- 04:00 PM Eastern Daylight Time

Date: June 12, 2008

Location: Room 1E245 1000 Independence Ave. SW, Washington, DC 20585-0121
DOE welcomes written comments from the public on this rulemaking. To inform stakeholders and to facilitate this process, DOE has prepar ed a Framework Document (Attached File: CAC Framework_Document06-02-08) which details the analytical approach and identifies several issues on which DOE is particularly interested in receiving comment. Also attached to this email is the Federal Register’s Notice of Document Availability (Attached File: CAC Framework_Fed_Reg_Notice06-02-08) summarizing who to contact and how to submit comments.

### [6450-01-P]

R ulemaking Framework for Residential Central Air Conditioners and Heat Pumps

RIN: 1904-AB47

U nited States Department of Energy Office of Energy Efficiency and Renewable Energy

Building Technologies Program

June 2, 2008ii T ABLE OF CONTENTS

1 . INTRODUCTION ..................................................................................................................1 1.1 The Residential Appliances and Commercial Equipment Standards Program...........2 1.2 Overview of Central Air Conditioners and Heat Pumps ............................................3 1.2.1 Product Definitions ......................................................................................4 1.2.2 Performance Descriptors..............................................................................5 1.2.3 Test Procedures............................................................................................6 1.3 Regional Standards .....................................................................................................9 1.4 Rulemaking Process and Stakeholder Participation .................................................12 1.4.1 Advance Notice of Proposed Rulemaking.................................................14 1.4.2 Notice of Proposed Rulemaking ................................................................16 1.4.3 Final Rule...................................................................................................16 2. OVERVIEW OF ANALYSES FOR RULEMAKING.........................................................17 3. MARKET AND TECHNOLOGY ASSESSMENT .............................................................19 3.1 Market Assessment ...................................................................................................19 3.2 Product Classes .........................................................................................................20 3.2.1 Split Systems and Single-Package Systems...............................................20 3.2.2 Small-Duct High-Velocity Systems...........................................................21 3.2.3 Space-Constrained Products ......................................................................24 3.2.4 Ductless Split Systems...............................................................................28 3.3 Technology Assessment............................................................................................29 4. SCREENING ANALYSIS ...................................................................................................30 5. ENGINEERING ANALYSIS...............................................................................................30 5.1 Engineering Analysis Overview ...............................................................................31 5.2 Baseline Units ...........................................................................................................31 5.3 Planned Approach for Determining the Cost-Efficiency Relationship.....................32 5.4 Efficiency Levels ......................................................................................................33 5.5 Manufacturer Prices..................................................................................................35 5.6 Proprietary Designs...................................................................................................35 5.7 Outside Regulatory Changes Affecting the Engineering Analysis...........................36 5.7.1 Refrigerant Phase-out.................................................................................36 6. ENERGY USE ANALYSIS .................................................................................................38 6.1 Overview of Energy Use Analysis............................................................................38 6.2 Annual Energy Consumption in Households............................................................39 6.3 Annual Energy Consumption in Commercial Buildings ..........................................41 7. MARKUPS FOR EQUIPMENT PRICE DETERMINATION............................................42 7.1 Description of Distribution Channels .......................................................................42 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES .........................................44 8.1 Overview...................................................................................................................44 8.2 Electricity Prices .......................................................................................................45 8.3 LCC Discount Rates .................................................................................................48 8.4 Maintenance, Repair, and Installation Costs.............................................................49 8.5 Equipment Lifetime ..................................................................................................50 9. SHIPMENTS ANALYSIS ...................................................................................................50 9.1 Base-Case Forecast ...................................................................................................50iii

9 .2 Standards Impacts on Product Shipments.................................................................53 10. NATIONAL IMPACT ANALYSIS .....................................................................................54 10.1 Inputs to NES and NPV Forecast..............................................................................54 10.2 Calculation of Energy Savings..................................................................................55 10.3 Net Present Value .....................................................................................................56 11. LIFE-CYCLE COST SUBGROUP ANALYSIS .................................................................57 12. MANUFACTURER IMPACT ANALYSIS.........................................................................57 12.1 Sources of Information .............................................................................................58 12.2 Industry Cash Flow Analysis....................................................................................59 12.3 Manufacturer Subgroup Analysis .............................................................................59 12.4 Competitive Impacts Assessment .............................................................................60 12.5 Cumulative Regulatory Burden ................................................................................60 13. UTILITY IMPACT ANALYSIS..........................................................................................60 14. EMPLOYMENT IMPACT ANALYSIS..............................................................................61 15. ENVIRONMENTAL IMPACT ANALYSIS .......................................................................62 16. REGULATORY IMPACT ANALYSIS ..............................................................................64

LIST OF FIGURES

F igure 1. Flow Diagram of Analyses for the Central Air Conditioners and Heat Pumps

Standards Rulemaking Process .....................................................................................18

LIST OF TABLES

Ta ble 1. Planned Product Classes for Central Air Conditioners and Heat Pumps. ......................20 Table 2. Current Energy Conservation Standards for Central Air Conditioners and Heat

Pumps. ...........................................................................................................................32 Table 3 Efficiency Levels for Product Classes of Central Air Conditioners................................34 Table 4 Efficiency Levels for Product Classes of Central Air Conditioning Heat Pumps...........34 Table 5. United States R-22 Refrigerant Phase-out Schedule ......................................................37iv LI ST OF ACRONYMS

AEO A nnual Energy Outlook AHS American Housing Survey ANOPR advance notice of proposed rulemaking AHRI Air Conditioning, Heating, and Refrigeration Institute ARI Air-Conditioning and Refrigeration Institute ARW Air Conditioning & Refrigeration Wholesalers Association ASHRAE American Society of Heating, Refrigerating, and Air Conditioning Engineers BOM bill-of-materials BT Building Technologies Office Btu British thermal units Btu/h British thermal units per hour CAIR Clean Air Interstate Rule CAMR Clean Air Mercury Rule CBECS Commercial Building Energy Consumption Survey CDD cooling degree day CFC chlorofluorocarbon CFR Code of Federal Regulations CO 2 c arbon dioxide COP coefficient of performance CSL candidate standard level DOE United States Department of Energy DOJ Department of Justice EERE Energy Efficiency and Renewable Energy EEV electronic expansion valve EIA Energy Information Administration EISA Energy Independence and Security Act of 2007 EPA Environmental Protection Agency EPACT Energy Policy Act of 2005 EPCA Energy Policy and Conservation Act of 1975 GAMA Gas Appliance Manufacturers Association GRIM Government Regulatory Impact Model HARDI Heating, Air Conditioning, and Refrigeration Distributors International HCFC hydrochlorofluorocarbons HDD Heating degree day Hg mercury HSPF heating seasonal performance factor ImSET Impact of Sector Energy Technologies LCC life-cycle cost MIA manufacturer impact analysis MPC manufacturer production cost NAECA National Appliance Energy Conservation Act of 1987 NEMS National Energy Modeling System NEMS-BT a version of the NEMS developed for DOE-Building Technologies office NES national energy savingsv

NH RAW Northamerican Heating, Refrigeration & Air Conditioning Wholesalers NIA national impact analysis NIST National Institute of Standards and Technology NOPR notice of proposed rulemaking NO X oxides of nitrogen NP V net present value OHA Office of Hearings and Appeals OMB Office of Management and Budget PBP payback period PTAC packaged terminal air conditioner R&D research and development RECS Residential Energy Consumption Survey SDHV small-duct, high-velocity SEER seasonal energy efficiency ratio SG&A selling, general, and administrative SANOPR Supplemental Advance Notice of Proposed Rulemaking SNOPR Supplemental Notice of Proposed Rulemaking SO 2 sulfur dioxide S PVU single package vertical unit SWEF shipment weighted energy factor TMY typical meteorological year TSD technical support document TSL trial standard level TTW through-the-wall TXV thermostatic expansion valve WACC weighted-average cost of capital1



### Rulemaking Framework for Residential Central Air Conditioners and Heat P umps

1. I NTRODUCTION
The purpose of this document is to describe the procedural and analytical approaches the United States Department of Energy (DOE) anticipates using to evaluate and update existing energy conservation standards for residential central air conditioners and heat pumps. Residential central air conditioners and heat pumps include equipment that are single phase 1 and with a rated

c apacity below 65,000 British thermal units per hour (Btu/h).
The DOE Appliances and Commercial Equipment Standards Program, within the Office of Energy Efficiency and Renewable Energy’s (EERE’s) Building Technologies Program (BT), develops and promulgates test procedures and energy conservation standards for residential appliances and commercial equipment. The process for developing standards involves analysis, public notice, and consultation with interested parties. Such parties, collectively referred to as “stakeholders,” include manufacturers, consumers and/or customers, energy conservation and environmental advocates, State and Federal agencies, and any other groups or individuals with an interest in the standards.
This document is intended to inform stakeholders of the process for the energy conservation standards rulemaking for residential central air conditioners and heat pumps, and to encourage and facilitate stakeholder input during the rulemaking. This document is the starting point for developing standards and is not a definitive statement with respect to any issue to be determined in the rulemaking.
Section 1 provides an overview of the rulemaking process. Sections 2 through 16 discuss the analyses DOE intends to conduct to fulfill the statutory requirements for this standards rulemaking. DOE will perform a set of separate analyses, including an engineering analysis, life-cycle cost and payback period analyses, a national impact analysis, and a manufacturer impact analysis for each type of appliance classified into product classes covered by this rulemaking.
Information regarding this rulemaking will be maintained on the DOE website at h ttp://www.eere.energy.gov/buildings/appliance_standa rds/

This document contains comment boxes that highlight issues on which DOE seeks comment and requests feedback from interested parties. These boxes are also used to ask specific questions on the approaches DOE plans to follow in conducting the analyses required for the standards rulemaking. Such requests for stakeholder feedback are numbered according to the section in which they appear.

1 “Single-phase” refers to the type of electrical supply. Single-phase electricity is supplied to residential and many

s mall commercial buildings and refers to the distribution of electric power using a system in which all the voltages of the supply vary in unison.2

1 .1 The Residential Appliances and Commercial Equipment Standards Program

Part A 2 of Title III of the Energy Policy and Conservation Act of 1975 (EPCA), Pub. L. 94-163,

a s amended by the National Energy Conservation Policy Act, Pub. L. 95-619, the National Appliance Energy Conservation Act of 1987, Pub. L. 100-12, the National Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub. L. 102-486, created the “Energy Conservation Program for Consumer Products Other Than Automobiles.” (42 U.S.C. 6291-6309) This program includes residential central air conditioners and central air conditioning heat pumps (hereafter referred to as central air conditioners and heat pumps).
The National Appliance Energy Conservation Act of 1987 (NAECA) established energy conservation standards for central air conditioners and heat pumps as well as requirements for determining whether these standards should be amended. Specifically, NAECA established energy conservation standards for central air conditioners and heat pumps in the form of minimum limits on the seasonal energy efficiency ratio (SEER) for air conditioners and for heat pumps operating in the cooling mode, and on the heating seasonal performance factor (HSPF) for heat pumps operating in the heating mode. NAECA established the following standards for central air conditioners and heat pumps: 10.0 SEER/6.8 HSPF for split systems, 3 9.7 SEER/6.6 H SPF for single-package systems. 4 These standards became effective January 1, 1992 for split

s ystems; standards for single-package systems came into effect one year later. See 42 U.S.C. 6295(d)(1)(A)-(B) and (2)(A)-(B). NAECA also required that DOE conduct two cycles of rulemakings to determine if more stringent standards are economically justified and technologically feasible. (42 U.S.C. 6295(d)(3)(A)-(B))
Pursuant to 42 U.S.C. 6295(d)(3)(A), DOE published a final rule in the Federal Register on January 22, 2001 (2001 final rule), amending the energy conservation standards for central air conditioners and heat pumps. 66 FR 7170. The amended standards would have increased the minimum SEER to 13 and the minimum HSPF to 7.7. Id. This final rule constituted the first cycle of revised standards for central air conditioners and heat pumps.
Shortly after the publication of the 2001 final rule, DOE postponed the effective date of the rule to take time to reconsider the amended standards for central air conditioners and heat pumps. DOE eventually promulgated a 12 SEER standard in a final rule published May 23, 2002 (2002 final rule), 67 FR 36368, but the U.S. Court of Appeals for the Second Circuit ruled that DOE had done so improperly. Natural Resources Defense Council v. Abraham , 355 F.3d 179 (2d Cir. 2004). As a result, DOE published a technical amendment on August 17, 2004, which

2 This part was originally titled Part B; however, it was redesignated Part A after Part B was repealed by Pub. L. 1 09-58.

3 “Split systems” consist of outdoor and indoor units which are “split” from each other and connected via refrigerant tu bing. The outdoor unit resides outdoors and consists of a compressor, heat exchanger coil, fan, and fan motor. The indoor unit, consisting of a heat exchanger coil, resides either within a furnace or blower-coil unit, and conditioned air is conveyed to the home via ducts

4 In “single-package systems,” all the components that comprise a split system, including the air circulation

e quipment, are placed in a single cabinet. The single-package system resides outdoors, and conditioned air is conveyed to the home via ducts.3

e stablished a 13 SEER standard for all central air conditioners and heat pumps, excluding through-the-wall and space-constrained systems. 69 FR 50997.
EPCA was further amended by the Energy Policy Act of 2005 (EPACT), Pub. L. 109-58. In Section 141 of EPACT, Congress directed DOE to submit an initial report regarding a plan for expeditiously prescribing new or revised standards. Pursuant to Section 141 of EPACT, DOE submitted an implementation report 5 to Congress in January 2006. This report specified a

s chedule for the completion of the second rulemaking cycle of revised standards for central air conditioners and heat pumps, requiring DOE to publish a final rule by June 2011, with a standards compliance effective date of June 2016. In separate court proceedings ( New York v. Bodman , No. 05 Civ. 7807 (S.D.N.Y. filed Sept. 7, 2005) and Natural Resources Defense Council v. Bodman , No. 05 Civ. 7808 (S.D.N.Y. filed Sept. 7, 2005) the resulting consent decree (filed November 6, 2006) adopted the schedule for central air conditioners and heat pumps that DOE published in the January 2006 report to Congress ( i.e. , June 30, 2011). This Framework Document initiates this second rulemaking cycle for central air conditioners and heat pumps.
More recently, EPCA was amended by the Energy Independence and Security Act of 2007 (EISA 2007), Pub. L. 110-140. In Section 306 of EISA 2007, Congress directed DOE to consider regional standards for central air conditioners and heat pumps (among other products), for one or two regions in addition to a base national standard. (42 U.S.C. 6295(o)(6)) EISA 2007 states that in considering regional standards, DOE may consider regions made up of contiguous States only. Further, in Section 310 of EISA 2007, Congress directed DOE to consider amended test procedures and standards for standby-mode and off-mode energy consumption by covered equipment (such as central air conditioners and heat pumps) for any amended standard published after July 1, 2010. (42 U.S.C. 6295(gg)(3)) Because this energy conservation standards rulemaking for central air conditioners and heat pumps will be completed in 2011, the requirement to incorporate standby-mode and off-mode energy use into the energy conservation standards analysis is applicable.

1.2 Overview of Central Air Conditioners and Heat Pumps
Residential central air conditioners and heat pumps are used to centrally heat and/or cool residential buildings. These products, also called unitary air conditioners and heat pumps, are limited to cooling capacities of less than 65,000 Btu/hr (5.4 tons) and do not include room air conditioners 6 or packaged terminal air conditioners and heat pumps. 7 Because of the history of

5 Energy Conservation Standards Activities , January 2006. This document can be downloaded from the DOE website at: http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.

6 “Room air conditioner” is defined in 10 CFR 430.2 as “a consumer product, other than a ‘packaged terminal air

c onditioner,’ which is powered by a single phase electric current which is an encased assembly designed as a unit for mounting in a window or through the wall for the purpose of providing delivery of conditioned air to an enclosed space. It includes a prime source of refrigeration and may include a means for ventilating and heating.” For more information on room air conditioners, see http://www.eere.energy.gov/buildings/appliance_standards/residential/room_ac.html.

7 “Packaged terminal air conditioner” is defined in 10 CFR 430.2 as “a wall sleeve and a separate unencased

c ombination of heating and cooling assemblies specified by the builder and intended for mounting through the wall. It includes a prime source of refrigeration, separable outdoor louvers, forced ventilation, and heating availability energy.” “Packaged terminal heat pump” is defined in 10 CFR 430.2 as “a packaged terminal air conditioner that4

r ulemakings and the existing standards for central air conditioners and heat pumps, product definitions and test procedures have already been established, as described in further detail below.

1.2.1 Product Definitions
Definitions for central air conditioners and heat pumps are codified in the Code of Federal Regulations (CFR) at 10 CFR 430.2 and read as follows:

Central air conditioner

means a product, other than a packaged terminal air conditioner, which is powered by single-phase electric current, air cooled, rated below 65,000 Btu per hour, not contained within the same cabinet as a furnace, the rated capacity of which is above 225,000 Btu per hour, and is a heat pump or a cooling only unit.

Heat pump means a product, other than a packaged terminal heat pump, which consists of one or more assemblies, powered by single-phase electric current, rated below 65,000 Btu per hour, utilizing an indoor conditioning coil, compressor, and refrigerant-to-outdoor air heat exchanger to provide air heating, and may also provide air cooling, dehumidifying, humidifying circulating, and air cleaning.
Other definitions pertaining to central air conditioners and heat pumps are also provided in 10 CFR 430.2:

Basic model

means all units of a given type of covered product (or class thereof) manufactured by one manufacturer and ... (11) With respect to central air conditioners, which have electrical characteristics which are essentially identical and which do not have any differing physical or functional characteristics that affect energy consumption.
Coil family means a group of coils with the same basic design features that affect the heat exchanger performance. These features are the basic configuration, i.e., A-shape, V-shape, slanted or flat top, the heat transfer surfaces on refrigerant and air sides (flat tubes vs. grooved tubes, fin shapes), the tube and fin materials, and the coil circuitry. When a group of coils has all these features in common, it constitutes a "coil family."
Condenser-evaporator coil combination means a condensing unit made by one manufacturer and one of several evaporator coils, either manufactured by the same manufacturer or another manufacturer, intended to be combined with that particular condensing unit.

utilizes reverse cycle refrigeration as its prime heat source and should have supplementary heating availability by b uilder’s choice of energy.” For more information on package terminal air conditioners and heat pumps, see http://www.eere.energy.gov/buildings/appliance_standards/commercial/packaged_ac_hp.html.5

C ondensing unit means a component of a central air conditioner which is designed to remove the heat absorbed by the refrigerant and to transfer it to the outside environment, and which consists of an outdoor coil, compressor(s), and air moving device.
Evaporator coil means a component of a central air conditioner which is designed to absorb heat from an enclosed space and transfer the heat to a refrigerant.
Small duct, high velocity system means a heating and cooling product that contains a blower and indoor coil combination that: (1) Is designed for, and produces, at least 1.2 inches of external static pressure when operated at the certified air volume rate of 220-350 CFM per rated ton of cooling; and (2) When applied in the field, uses high velocity room outlets generally greater than 1000 fpm which have less than 6.0 square inches of free area.
Space constrained product means a central air conditioner or heat pump: (1) That has rated cooling capacities no greater than 30,000 BTU/hr; (2) That has an outdoor or indoor unit having at least two overall exterior dimensions or an overall displacement that: (i) Is substantially smaller than those of other units that are: (A) Currently usually installed in site-built single family homes; and (B) Of a similar cooling, and, if a heat pump, heating capacity; and (ii) If increased, would certainly result in a considerable increase in the usual cost of installation or would certainly result in a significant loss in the utility of the product to the consumer; and (3) Of a product type that was available for purchase in the United States as of December 1, 2000.
Through-the-wall air conditioner and heat pump means a central air conditioner or heat pump that is designed to be installed totally or partially within a fixed-size opening in an exterior wall, and: (1) Is manufactured prior to January 23, 2010; (2) Is not weatherized; (3) Is clearly and permanently marked for installation only through an exterior wall; (4) Has a rated cooling capacity no greater than 30,000 Btu/hr; (5) Exchanges all of its outdoor air across a single surface of the equipment cabinet; and (6) Has a combined outdoor air exchange area of less than 800 square inches (split systems) or less than 1,210 square inches (single packaged systems) as measured on the surface described in paragraph (5) of this definition.

1.2.2 Performance Descriptors
Performance descriptors are used to quantify the energy efficiency of central air conditioners and heat pumps. For residential products, seasonal performance descriptors (SEER and HSPF) are the metric used to determine whether an air conditioner or heat pump is compliant with DOE6

e nergy conservation standards. Performance descriptors are defined in Appendix M to Subpart B of 10 CFR 430, and are as follows:

Heating Seasonal Performance Factor (HSPF) means the total space heating required during the space heating season, expressed in Btu’s, divided by the total electrical energy consumed by the heat pump system during the same season, expressed in watt-hours. The HSPF used to evaluate compliance with the Energy Conservation Standards (see 10 CFR 430.32(c), Subpart C) is based on Region IV, the minimum standardized design heating requirement, and the sampling plan stated in 10 CFR 430.24(m), Subpart B.

Seasonal Energy Efficiency Ratio (SEER) means the total heat removed from the conditioned space during the annual cooling season, expressed in Btu’s, divided by the total electrical energy consumed by the air conditioner or heat pump during the same season, expressed in watt-hours. * * * * *

1.2.3 Test Procedures
Under EPCA, DOE is authorized to establish or amend test procedures, as appropriate for each of the covered products, including central air conditioners and heat pumps. (42 U.S.C. 6293) The test procedures for central air conditioners and heat pumps are codified in 10 CFR 430, Subpart B, Appendix M. Most aspects of the existing test procedure for central air conditioners and heat pumps — which covers units having rated cooling capacities of less than 65,000 Btu/h — date back to its original publication in the Federal Register on December 27, 1979. 44 FR 76700. DOE modified the test procedure on March 14, 1988, to cover variable-speed central air conditioners and heat pumps, to address testing of split non-ducted units, and to change the method used for crediting heat pumps that provide a demand defrost capability. 53 FR 8304.
A further revision of the test procedure for central air conditioners and heat pumps was published as a final rule on October 11, 2005 and became effective on April 10, 2006. 70 FR 59122.Generally, the October 2005 final rule added new sections, revised several sections, and reorganized the test procedure in order to eliminate the need for several test procedure waivers and to make the test procedure more chronological in its progression. The revisions to the test procedure did not alter the minimum energy conservation standards in effect for central air conditioners and heat pumps. On July 20, 2006, DOE published a proposed rule to consider further changes to the test procedure in response to issues raised by stakeholders prior to the publication of the October 11, 2005, final rule. 71 FR 41320. DOE determined that it was appropriate to consider additional modifications to the test procedure for the following reasons: (1) to implement test-procedure revisions that are needed because of new energy conservation standards for small-duct, high-velocity (SDHV) systems; (2) to better address test procedure waivers for multi-split systems; and (3) to address sampling and rating issues that have been raised since new minimum energy conservation standards for these products became effective on January 23, 2006. 8 Id . a t 41321-22 A final rule adopting additional amendments to the central air conditioner and heat pump test procedures related to these issues was published on October 22, 2007, which became effective on April 21, 2008. 72 FR 59906. Subsequent waivers granted

8 10 CFR 432.32(c)(2)7

f or residential modulating multi-split systems terminated on the effective date of the latest test procedure final rule. 72 FR at 59906-07.
More recently, EISA 2007 amended EPCA to direct DOE to consider updated test procedures on a regular basis, and to include standby mode and off mode energy consumption. Section 302 of EISA 2007 amends section 323(b)(1) of EPCA (42 U.S.C. 6293(b)(1)) by replacing paragraph (1) with,
(1) TEST PROCEDURES.—

(A) AMENDMENT.—At least once every 7 years, the Secretary shall review test procedures for all covered products and— (i) amend test procedures with respect to any covered product, if the Secretary determines that amended test procedures would more accurately or fully comply with the requirements of paragraph (3); or (ii) publish notice in the Federal Register of any determination not to amend a test procedure.
EISA 2007 also directed DOE to amend test procedures for all covered products, including the central air conditioners and heat pumps. In addition, EISA 2007 requires DOE to include consideration of standby mode and off mode energy consumption in future amendments to both its test procedures and energy conservation standards. Specifically, section 310 of EISA 2007 amends section 325 of EPCA (42 U.S.C. 6295), by adding the following definitions and other requirements pertaining to standby and off-mode energy use:
(gg) STANDBY MODE ENERGY USE.

( 1) DEFINITIONS.— (A) IN GENERAL.—Unless the Secretary determines otherwise pursuant to subparagraph (B), in this subsection: (i) ACTIVE MODE.—The term "active mode" means the condition in which an energy-using product— (I) is connected to a main power source; (II) has been activated; and (III) provides 1 or more main functions. (ii) OFF MODE.—The term "off mode" means the condition in which an energy-using product— (I) is connected to a main power source; and (II) is not providing any standby or active mode function. (iii) STANDBY MODE.—The term "standby mode" means the condition in which an energy-using product— (I) is connected to a main power source; and (II) offers 1 or more of the following user-oriented or protective functions: (aa) To facilitate the activation or deactivation of other functions (including active mode) by remote switch (including remote control), internal sensor, or timer.8 ( bb) Continuous functions, including information or status displays (including clocks) or sensor-based functions. (B) AMENDED DEFINITIONS.—The Secretary may, by rule, amend the definitions under subparagraph (A), taking into consideration the most current versions of Standards 62301 and 62087 of the International Electrotechnical Commission. (2) TEST PROCEDURES.— (A) IN GENERAL.—Test procedures for all covered products shall be amended pursuant to section 323 to include standby mode and off mode energy consumption, taking into consideration the most current versions of Standards 62301 and 62087 of the International Electrotechnical Commission, with such energy consumption integrated into the overall energy efficiency, energy consumption, or other energy descriptor for each covered product, unless the Secretary determines that— (i) the current test procedures for a covered product already fully account for and incorporate the standby mode and off mode energy consumption of the covered product; or (ii) such an integrated test procedure is technically infeasible for a particular covered product, in which case the Secretary shall prescribe a separate standby mode and off mode energy use test procedure for the covered product, if technically feasible. * * * * *

(3) INCORPORATION INTO STANDARD.— (A) IN GENERAL.—Subject to subparagraph (B), based on the test procedures required under paragraph (2), any final rule establishing or revising a standard for a covered product, adopted after July 1, 2010, shall incorporate standby mode and off mode energy use into a single amended or new standard, pursuant to subsection (o), if feasible. (B) SEPARATE STANDARDS.—If not feasible, the Secretary shall prescribe within the final rule a separate standard for standby mode and off mode energy consumption, if justified under subsection (o).

By the definitions provided in EISA 2007, DOE understands the standby mode and off mode energy consumption by the central air conditioners and heat pumps means the energy that is consumed when the equipment is not providing cooling, heating, or ventilating functions. There was no set deadline by which to amend the test procedure for the central air conditioners and heat pumps. However, because this standby mode energy use is required to be incorporated into a single amended or new standard (for final rules adopted after July 1, 2010), DOE intends to publish its amended test procedure incorporating such provisions in the Federal Register prior to publishing the Notice of Proposed Rulemaking for the standards rulemaking (October 2010).9

I tem 1–1 What are the standby power modes and the magnitudes of the standby power

consumption during those modes in the operation of the central air conditioners and heat pumps that DOE should consider in this rulemaking? For example, are crank case heaters still being used in the product designs and if so, what is their typical power consumption?

Item 1–2 DOE invites comments on whether it would be technically feasible to

incorporate standby power consumption into the SEER metric or whether it instead must be considered as a stand-alone measure for this rulemaking.

Item 1–3 DOE also invites comments on the necessary changes to the existing DOE test

procedures for central air conditioners and heat pumps to account for standby power consumption and its measurement.

1.3 Regional Standards
Regional standards were recently authorized for central air conditioners and heat pumps by EISA 2007. Specifically, section 306 of EISA 2007 modifies section 325(o) of EPCA (42 U.S.C. 6295(o)) by adding, in relevant part, the following language:

(6) REGIONAL STANDARDS FOR FURNACES, CENTRAL AIR CONDITIONERS, AND HEAT PUMPS.— (A) IN GENERAL.—In any rulemaking to establish a new or amended standard, the Secretary may consider the establishment of separate standards by geographic region for...central air conditioners, and heat pumps. (B) NATIONAL AND REGIONAL STANDARDS.— (i) NATIONAL STANDARD.—If the Secretary establishes a

regional standard for a product, the Secretary shall establish a base national standard for the product. (ii) REGIONAL STANDARDS.—If the Secretary establishes a regional standard for a product, the Secretary may establish more restrictive standards for the product by geographic region as follows: * * * * * (II) For any cooling product, the Secretary may establish 1 or 2 additional standards that are applicable in 1 or 2 geographic regions as may be defined by the Secretary. (C) BOUNDARIES OF GEOGRAPHIC REGIONS.—

(i) IN GENERAL.—Subject to clause (ii), the boundaries of additional geographic regions established by the Secretary under this paragraph shall include only contiguous States.10 ( ii) ALASKA AND HAWAII.—The States of Alaska and Hawaii may be included under this paragraph in a geographic region that the States are not contiguous to. (iii) INDIVIDUAL STATES.—Individual States shall be placed only into a single region under this paragraph. (D) PREREQUISITES.—In establishing additional regional standards under this paragraph, the Secretary shall— (i) establish additional regional standards only if the Secretary determines that— (I) the establishment of additional regional standards will produce significant energy savings in comparison to establishing only a single national standard; and (II) the additional regional standards are economically justified under this paragraph; and (ii) consider the impact of the additional regional standards on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. (E) APPLICATION; EFFECTIVE DATE.—

* * * * * (F) CONTINUATION OF REGIONAL STANDARDS.— * * * * * (G) ENFORCEMENT.— (i) BASE NATIONAL STANDARD.— (I) IN GENERAL.—The Secretary shall enforce any base national standard. (II) TRADE ASSOCIATION CERTIFICATION PROGRAMS.— In enforcing the base national standard, the Secretary shall use, to the maximum extent practicable, national standard nationally recognized certification programs of trade associations. (ii) REGIONAL STANDARDS.— (I) ENFORCEMENT PLAN.—Not later than 90 days after the date of the issuance of a final rule that establishes a regional standard, the Secretary shall initiate a rulemaking to develop and implement an effective enforcement plan for regional standards for the products that are covered by the final rule. (II) RESPONSIBLE ENTITIES.—Any rules regarding enforcement of a regional standard shall clearly specify which entities are legally responsible for compliance with the standards and for making any required information or labeling disclosures. (III) FINAL RULE.—Not later than 15 months after the date of the issuance of a final rule that establishes a regional standard for a product, the Secretary shall promulgate a final rule covering enforcement of regional11 s tandards for the product. (IV) INCORPORATION BY STATES AND LOCALITIES.— A State or locality may incorporate any Federal regional standard into State or local building codes or State appliance standards. (V) STATE ENFORCEMENT.—A State agency may seek enforcement of a Federal regional standard in a Federal court of competent jurisdiction.

* * * * *
In evaluating regional energy conservation standards for central air conditioners and heat pumps, EPCA, as amended by EISA 2007, allows DOE to consider establishment of up to two regional standards, in addition to a base national standard. In this rulemaking, DOE plans to perform its analyses at the regional level, which will allow for calculation of benefits and burdens for any given region composed of contiguous States. Any regional standards would apply only to States in those regions, and would supersede the base national standard.
In evaluating the effectiveness of regional standards, DOE believes the selection of appropriate regions early in the rulemaking process is critical to completing the rulemaking efficiently. Because of the complexity of the analysis even in the absence of regional standards, reaching an early consensus on what regions to evaluate is necessary to prevent delays in the rulemaking. Accordingly, DOE requests public input on this issue.

Item 1–4 DOE seeks feedback from interested parties to help determine appropriate

regions when considering potential regional standards for central air conditioners and heat pumps.

Item 1–5 For an analysis that uses regional standards, what regions (e.g., the hot and dry

southwest, the hot and wet southeast) would be appropriate for setting standards above the base national standard? Which States would be included in such regions (keeping in mind the statutory directive to include contiguous States only)?

Item 1–6 How should DOE address impacts to other market participants (distributors,

dealers, contractors, installers) of the potential adoption of regional standards for central air conditioners and heat pumps?

Section 306(a) of EISA 2007 amended EPCA, in part, by adding a new provision at section 325(o)(6)(G)(ii) (42 U.S.C. 6295(o)(6)(G)(ii)), which sets forth a requirement for DOE to establish an effective enforcement plan for regional standards for central air conditioner and heat pumps. DOE realizes there are unique challenges to enforcing regional standards, since there must be enforcement of product distribution and installation in addition to the enforcement of performance ratings.12

I tem 1–7 What groups or organizations would be beneficial for DOE to contact in order

to begin developing a workable enforcement plan in the event DOE were to promulgate regional standards?

1.4 Rulemaking Process and Stakeholder Participation
Under EPCA, when DOE evaluates any new or amended standards for “covered products,” any standard DOE prescribes for consumer products shall be designed to “achieve the maximum improvement in energy efficiency ... which the Secretary [of Energy] determines is technologically feasible and economically justified.” (42 U.S.C. 6295(o)(2)(A)) Moreover, EPCA states that the Secretary may not establish an amended standard if such standard would not result in “significant conservation of energy,” or “is not technologically feasible or economically justified.” (42 U.S.C. 6295(o)(3)(B)) In determining whether a standard is economically justified, DOE considers, to the greatest extent practicable, the following seven factors:
(1) The economic impact of the standard on the manufacturers and consumers of the products subject to such standards;
(2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increases in the price, or in the initial charges for, or maintenance expenses of the covered products which are likely to result from the imposition of the standard;
(3) The total projected amount of energy (or as applicable, water) savings likely to result directly from the imposition of the standard;
(4) Any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard;
(5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i) and 42 U.S.C. 6316(a))
Additional statutory requirements are set forth in 42 U.S.C. 6295(o)(1)–(2)(A), (2)(B)(ii)–(iii), and (3)–(6) and 42 U.S.C. 6316(a).
The process for developing efficiency standards involves analysis, public notice, and consultation with interested parties. DOE considers stakeholder participation to be a very important part of the process for setting energy conservation standards and actively encourages the participation and interaction of all interested parties during the comment period at each stage13

o f the rulemaking. Beginning with this Framework Document and during every subsequent comment period, interactions among interested parties help ensure a balanced discussion of the information that is required as part of the standards rulemaking process.

In conducting the test procedure rulemakings and the energy (and water) conservation standards rulemakings, DOE involves stakeholders through a variety of means, including formal public notifications ( i.e. , Federal Register notices) and public meetings. As discussed in further detail below, the standards rulemaking process generally involves three Federal Register notices:

• Advance notice of proposed rulemaking (ANOPR, see section 1.4.1). The ANOPR is designed to publicly vet the models and tools that DOE will use in the rulemaking, and to facilitate public participation before the proposed rule stage. Candidate standard levels, which span the range of efficiencies from baseline products to the most efficient technology, are the basis for demonstrating the functionality of the models and tools.

• Notice of proposed rulemaking (NOPR, see section 1.4.2). The NOPR presents: a discussion of comments received in response to the ANOPR; the analysis of the impacts of standards on consumers, manufacturers, and the nation; DOE’s weighting of the impacts; and the proposed standard levels for public comment.

• Final rule (see section 1.4.3). The final rule presents a discussion of comments received in response to the NOPR, the revised analysis of the impacts of standards based on comments and any updated data, DOE’s weighting of the impacts, and the standard levels DOE is adopting. The final rule also establishes the effective date of the standards.

Recently, section 305 of EISA 2007 amended EPCA, by removing the requirement for DOE to publish an ANOPR when amending standards for consumer products. Specifically, section 305 of EISA 2007 replaced the existing section 325(m) of EPCA (42 U.S.C. 6295(m)), with the following:

(m) AMENDMENT OF STANDARDS.— (1) IN GENERAL.—Not later than 6 years after issuance of any final rule establishing or amending a standard, as required for a product under this part, the Secretary shall publish— (A) a notice of the determination of the Secretary that standards for the product do not need to be amended, based on the criteria established under subsection (n)(2); or (B) a notice of proposed rulemaking including new proposed standards based on the criteria established under subsection (o) and the procedures established under subsection (p). (2) NOTICE.—If the Secretary publishes a notice under paragraph (1), the Secretary shall— (A) publish a notice stating that the analysis of the Department is publicly available; and (B) provide an opportunity for written comment. (3) AMENDMENT OF STANDARD; NEW DETERMINATION.—14 ( A) AMENDMENT OF STANDARD.—Not later than 2 years after a notice is issued under paragraph (1)(B), the Secretary shall publish a final rule amending the standard for the product.

* * * * *

While DOE understands that removing a step in the rulemaking process could reduce the total time required to issue an amended standard, it believes that the ANOPR is an important step in the process that provides an early opportunity for DOE to vet its assumptions and analysis, and for interested parties to provide feedback, comments, and data. For these reasons, DOE intends to retain this step in the rulemaking process for the development of these standards.

Item 1–8 DOE requests feedback from interested parties on DOE’s intent to retain the

ANOPR step in the rulemaking process, both as a general matter and in the context of this specific rulemaking.

1.4.1 Advance Notice of Proposed Rulemaking
As part of its initial rulemaking activities, DOE typically identifies the available product-design options and then subjects them to a screening analysis in which each such equipment technology option is analyzed in detail in order to determine whether it should be eliminated from further consideration. This process includes a market and technology assessment (see section 3) and a screening analysis (see section 4). DOE applies four screening criteria in the screening analysis to determine which technology options to eliminate from further consideration. These four criteria are: (1) technological feasibility; (2) practicability to manufacture, install, and service; (3) adverse impacts on product or equipment utility or availability; and (4) adverse impacts on health or safety. Technologies that pass through the screening analysis are referred to as “design options” in the engineering analysis.
These activities include secondary research and consultations with stakeholders and independent technical experts who can assist with identifying the key issues and design options or efficiency levels to be considered by DOE in the rulemaking. DOE intends this Framework Document, the public meeting following its publication, and the opportunity for comment on this Framework Document to initiate dialogue with stakeholders, and to provide an opportunity for comment and input into the structure and analytical approach planned for this energy conservation standards rulemaking.
At the start of the ANOPR analysis, DOE considers design options or efficiency levels for each product class. DOE uses these design options or efficiency levels to collect manufacturer cost data, historical shipment data, shipment weighted-average efficiency data, and preliminary manufacturer impact data ( e.g. , manufacturer capital conversion expenditures, marketing costs, research and development costs). During the ANOPR stage, DOE presents other principal analyses, including: (1) the engineering analysis (see section 5); (2) consumer life-cycle cost (LCC) impact and payback period (PBP) results (see section 8); (3) national energy savings (NES) and consumer net present value (NPV) results for a range of efficiency or energy use15

l evels (see section 10); and (4) a preliminary manufacturer impact analysis (MIA) (see section 112).
Discussion of various candidate standard levels (efficiency levels) in the ANOPR will facilitate stakeholder review of the spreadsheet models that underpin the analyses. DOE’s selection of efficiency levels to analyze is based on the costs and benefits of efficiency levels or design options. DOE will use stakeholder comments to refine the models for the next stage of the rulemaking analyses, where DOE will propose specific efficiency levels for adoption. Based on the results of the ANOPR analysis, DOE selects candidate standard levels (CSLs) from the energy efficiency or energy use levels considered in the ANOPR analysis. In addition to the efficiency corresponding to the maximum technologically feasible (“max-tech”) design and the efficiency corresponding to the minimum LCC point, DOE generally selects efficiency levels or design options for consideration that span the full range of technologically-achievable efficiencies, specifically including:
1. The baseline efficiency level is defined by the product with the lowest energy efficiency level currently sold on the market for a given category. For product categories where minimum energy standards already exist, the baseline is typically defined by the existing energy conservation standard;
2. The highest efficiency level or lowest energy consumption level that is technologically feasible (the “max-tech” level);
3. The efficiency level with the minimum LCC or greatest LCC savings; and
4. Efficiency levels that incorporate noteworthy technologies or fill in large gaps between other efficiency levels considered.
The efficiency levels analyzed serve to demonstrate the functions and outputs of the models and tools. During the ANOPR, computer models and tools are tested for the different product classes at each efficiency or energy use level analyzed. DOE will make the results of the analyses available on its website for review and will consider comments on them after the publication of the ANOPR. 9 When DOE publishes the ANOPR, it will also make available a technical support d ocument (TSD) containing the details of all the analyses performed to date. After publication of the ANOPR, DOE will provide a public comment period and hold one public meeting.
In addition, preliminary ANOPR results may facilitate discussions among interested parties on potential joint recommendations for standard levels. DOE encourages stakeholders to develop joint recommendations for standard levels. DOE supports efforts by interested parties to work together to develop and present to DOE joint recommendations on standard levels. Any consensus recommendation must satisfy the statutory criteria provided by EPCA in determining whether an energy conservation standard is technologically feasible and economically justified and will result in significant conservation of energy. (42 U.S.C. 6295(o)(2)(A), (o)(3), (v)) Any consensus recommendation should also include information that DOE can use to assess the seven statutory factors that determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6925(o)(2)(B)(i))

9 All materials associated with the residential central air conditioner and heat pump rulemaking are available on D OE’s website at: http://www.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.html.16

1 .4.2 Notice of Proposed Rulemaking
In developing the NOPR, DOE will first review and consider all the comments it received after the publication of the ANOPR. This process may result in revisions or refinement to the ANOPR analyses, including the engineering and LCC analyses. After the ANOPR, DOE will conduct further economic and environmental impact analyses. These analyses may generally include a consumer LCC sub-group analysis (see section 11), a manufacturer impact analysis (see section 11), a utility impact analysis (see section 13), an employment impact analysis (see section 14), an environmental assessment (see section 15), and a regulatory impact analysis (see section 16).
DOE will describe the methodology used and make the results of all the analyses available on itswebsite for review and will consider comments after the publication of the NOPR. This reviewand-comment process may result in revisions to the analyses. This analytical process ends with the selection of proposed energy conservation levels (if any) that will be presented in the NOPR. DOE selects the proposed energy conservation standard levels from the trial standard levels (TSLs) analyzed. The NOPR, published in the Federal Register , will document the evaluation and selection of any proposed standards, along with a discussion of other TSLs considered but not selected (and the reasons for not selecting them).
The selection process for proposed efficiency standards generally runs as follows. For each product class, DOE will identify the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible. If DOE proposes a level that is below this “max-tech” level, it will explain the reasons for eliminating higher levels, beginning with the highest level considered. DOE will present the results of the analysis in the NOPR and the details of the analysis in an accompanying TSD. DOE considers many factors in selecting proposed standards. These factors or criteria are established by statute and capture the many benefits, costs, and impacts of the energy conservation standards. DOE will carefully consider any joint recommendations in its decision process.
When DOE publishes the NOPR, it will provide the U.S. Department of Justice (DOJ) with a copy of the NOPR and TSD and will solicit feedback on the impact of the proposed standard levels on competition. DOJ will review these standard levels in light of any lessening of competition that is likely to result from the imposition of standards. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii)) DOE will consider DOJ’s determination on the impacts of the proposed standard on competition in preparing the final rule. The NOPR is followed by a public comment period that includes one public meeting.

1.4.3 Final Rule
Revisions to the analyses may result from the public comments on the NOPR. On the basis of the public comments, DOE will review the engineering and economic impact analyses and proposed standards and make modifications as necessary. After the publication of the NOPR, DOE will conduct a thorough review of all analyses performed and of the trial standard levels. Final revisions to the analyses and trial standard levels will be made as appropriate.17

I n addition, before the final rule is issued, DOE will consider DOJ's comments on the NOPR relating to the impacts of the proposed standard levels on competition to determine whether changes to these standard levels are needed.
The standards rulemaking will conclude with the publication of the final rule. DOE will select the final standard levels based on the complete record of the standards rulemaking. The final rule will promulgate the final standard levels and their effective date and explain the basis for their selection. The final rule will be accompanied by a final TSD.

2. OVERVIEW OF ANALYSES FOR RULEMAKING
The purpose of the analyses conducted in support of the standards rulemaking will be to ensure that DOE selects the final energy conservation standards that achieve the maximum energy savings that satisfy the criteria of technological feasibility and economic justification. Economic justification includes consideration of the economic impacts on domestic manufacturers and consumers, national benefits (including environmental impacts), issues of consumer utility, and impacts from any lessening of competition.
This section offers an overview of DOE’s analytical methodology and discusses the major components of the analyses DOE will conduct. A consistent approach to analysis throughout the rulemaking will be ensured through the consideration of each analysis as a part of the overall standards-setting process.
Figure 1 summarizes the analytical components of the standards-setting process. The “analyses” are presented in the center column. Each analysis has a set of “key inputs,” which are data and information required for the analysis. “Approaches” are the methods that will be used to obtain key inputs, which may vary depending on the information in question. For example, some key inputs exist in public databases, some will be collected from interested parties or others with special knowledge; some will be developed by the project team in support of the rulemaking. The results of each analysis are “key outputs,” which feed directly into the rulemaking. Arrows connecting one analysis to another indicate the flow of information.18 Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs A nalyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Product Price Determination Life-Cycle Cost and Payback Period Analysis

National Impact Analysis Energy Use

Revise ANOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs Framework Document

• Efficiency-Level Approach

• Design Option Approach

• Energy Prices • Installation Costs • Maintenance & Repair Costs

• Accounting Approach
• Backcast and Forecast • Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates • National Energy Savings

• Stakeholder Comments • Identify Firms/Products • Historical Shipments

• Define Distribution Channels • Economic Census Data Analysis • Retail Price Collection and Analysis

• Manufacturer Prices • Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail Prices Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANOPR) • Efficiency/Performance • Manufacturing Cost

Candidate Standard Levels • Analysis of Energy Use Data

Environmental Assessment
Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle Costs • Payback Periods • Installation Costs • Maint Costs • Repair Costs • UEC • Energy Prices • Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices • Average Costs • Conversion Capital Expenditures • Direct Employment Impacts

• National Energy Savings • Net Present Values • Trial Standard Levels (TSLs)
TSLs • Product Prototypes

Energy-Efficiency Levels

• Department of Justice Review Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs A nalyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Product Price Determination Life-Cycle Cost and Payback Period Analysis

National Impact Analysis Energy Use

Revise ANOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs Framework Document

• Efficiency-Level Approach

• Design Option Approach

• Energy Prices • Installation Costs • Maintenance & Repair Costs

• Accounting Approach
• Backcast and Forecast • Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates • National Energy Savings

• Stakeholder Comments • Identify Firms/Products • Historical Shipments

• Define Distribution Channels • Economic Census Data Analysis • Retail Price Collection and Analysis

• Manufacturer Prices • Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail Prices Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANOPR) • Efficiency/Performance • Manufacturing Cost

Candidate Standard Levels • Analysis of Energy Use Data

Environmental Assessment
Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle Costs • Payback Periods • Installation Costs • Maint Costs • Repair Costs • UEC • Energy Prices • Annual Energy Use (UEC)

Preliminary Manufacturer Impact Analysis • Manufacturer Prices • Average Costs • Conversion Capital Expenditures • Direct Employment Impacts

• National Energy Savings • Net Present Values • Trial Standard Levels (TSLs)
TSLs • Product Prototypes

Energy-Efficiency Levels

• Department of Justice Review

Figure 1. Flow Diagram of Analyses for the Central Air Conditioners and Heat Pumps

Standards Rulemaking Process19

3

. MARKET AND TECHNOLOGY ASSESSMENT
The market and technology assessment will provide information about the central air conditioner and heat pump industry and market and specifics about the performance attributes of these products that DOE will use throughout the rulemaking. This assessment is particularly important at the outset of the rulemaking to determine product classes and to identify potential design options or efficiency levels for each product class. This section discusses the market assessment (section 3.1), product classes (section 3.2), and the technology assessment (section 3.3).

3.1 Market Assessment
DOE will qualitatively and quantitatively characterize the structure of the central air conditioner and heat pump industry and market. In the market assessment, DOE will identify and characterize the manufacturers of central air conditioners and heat pumps, estimate market shares and trends in the market, and address regulatory and non-regulatory initiatives intended to improve the energy efficiency or reduce the energy consumption of residential central air conditioners and heat pumps. It will also explore the potential for technological improvements in the design and manufacturing of such equipment.
The market assessment phase allows DOE to gather data that will assist in identifying important issues later in the rulemaking, such as potential small business impacts, competitive disruptions, and other factors that may arise from enacting standards. For example, DOE will use historical equipment shipments and prices as an indicator of future shipments and prices. Market structure data will be particularly useful for assessing competitive impacts as part of the manufacturer impact analysis. This phase also allows DOE to start updating design options by reviewing product literature, industry publications, and company websites.
Because the products covered under this rulemaking have been subject to standards for nearly two decades, DOE understands that there are considerable data available on manufacturers, market shares, and other information. Such data are essential to the development of technologically feasible, economically justified energy conservation standards. Stakeholders are encouraged to submit any available, applicable data to DOE. The Air Conditioning, Heating and Refrigeration Institute (AHRI) 10 is the trade association for manufacturers of central air

c onditioners and heat pumps. DOE expects that AHRI will play an important role in providing market information, including information on manufacturers, market shares, and trends in the market.

Item 3–1 DOE seeks information that would contribute to the market assessment for

residential central air conditioners and heat pumps, including information on manufacturers, market shares, trends in the market, and any other applicable information that is available.

10 On January 1, 2008, the Air-Conditioning and Refrigeration Institute (ARI) and the Gas Appliance Manufacturers A ssociation (GAMA) merged to become AHRI.20

3 .2 Product Classes
DOE intends to separate central air conditioners and heat pumps into different product classes. The criteria for separation into different product classes are: (1) the type of energy used; (2) capacity; or (3) other performance-related features, such as those that provide utility to the consumer or other features deemed appropriate by the Secretary that would justify the establishment of a separate energy conservation standard. (42 U.S.C. 6295(q))
DOE plans to continue to use the existing product classes for central air conditioners and heat pumps, which were developed during previous rulemakings. 11 However, as of January 23, 2010, ( i .e. , before the end of this rulemaking) through-the-wall split and package systems, the separate product class for through-the-wall units will have been eliminated. 12 Therefore, the product

c lasses that will be considered in this rulemaking are listed in Table 1. The current energy conservation standards for these products are codified in 10 CFR 430.32(c)(2), and are also listed in Table 2, section 5.2.

Table 1. Planned Product Classes for Central Air Conditioners and Heat Pumps. Split-system air conditioners Split-system heat pumps Single-package air conditioners Single-package heat pumps Small-duct high-velocity (SDHV) systems Space-constrained products – air conditioners Space-constrained products – heat pumps

Item 3–2 DOE requests feedback on the product classes proposed in Table 1.

Item 3–3 Are there other product classes that should be considered? Should all of the

identified product classes be considered?

3.2.1 Split Systems and Single-Package Systems
Central air conditioners are initially divided into product classes based on whether units make up a single package or are part of a split system ( i.e. , with separate indoor and outdoor components connected by refrigeration and electrical lines). Certain households cannot accommodate split

11 Product classes are discussed in numerous rulemaking notices going as far back as 1979. See for example 44 FR

a t 50, 45 FR at 5602, 58 FR at 47326, and 65 FR 59590. See, e.g. , 44 FR 49 (Jan. 2, 1979); 45 FR 5602 (Jan. 23, 1980); 58 FR 47326 (Sept. 8, 1993), and 65 FR 59590 (Oct. 5, 2000). The current product classes are codified by the 2004 Technical Amendment. 69 FR 50997 (August 17, 2004).

12 As defined in 10 CFR 430.2 (see section 1.2.1of this document), the through-the-wall product class applies only to products manufactured prior to January 23, 2010. This “sunset” provision eliminates through-the-wall units as a separate product class as of this date.21

s ystems because suitable space is not available for the outdoor unit, so a single-package system is used. Single-package systems are also often used in retrofit applications.
In contrast to cooling-only air conditioners, heat pumps offer both air conditioning and electric heating. This unique feature and the different energy use that results continue to support separate classifications for heat pumps.

3.2.2 S mall-Duct High-Velocity Systems
SDHV air conditioning systems currently marketed in the U.S. are similar to conventional split-system air conditioners that consist of an outdoor condensing unit and an indoor coil unit, with or without an integral blower. Manufacturers of SDHV systems typically pair the SDHV fan coil with condensing units in the range of 13 to 18 SEER. Manufacturers of SDHV systems certifying their products in the AHRI Unitary Directory 13 are SpacePak, Unico, and Energy S aving Products, Ltd. SDHV systems target primarily the retrofit market, where they are installed in attics or closet spaces and distribute conditioned, pressurized air through round ducts small enough to fit inside stud walls. The air-distribution system, together with the blower-coilunit, is usually installed in attic spaces of older homes that were not designed for forced-aircirculation heating or cooling. Such homes lack conventional ducts ( i.e. , large-size, lowvelocity), which are costly and difficult to install in retrofit applications. Thus, installation of anSDHV system helps satisfy the air conditioning needs for these older homes, replacing lessefficient window air conditioners. The outdoor condensing units used in SDHV systems are typically sourced from a full-line manufacturer of conventional split systems. These condensing units are identical to those used by the full-line manufacturers in their product lines of conventional systems.
Compared with conventional air conditioners and heat pumps that use large ducts, the indoor coil section of an SDHV system is compactly designed to facilitate retrofit installation in tight spaces, resulting in smaller face area and more rows of tubing than conventional systems. The compact fan coil design and small ducts contribute to high static-pressure loss that must be overcome by the blower, thereby requiring greater fan power. Manufacturers claim that the greater energy consumption of the blower motors and the limited space for installing the fan coils make it more difficult for SDHV systems to increase energy efficiency. To mitigate the burden on the blowers, designers reduce the required air volume by cooling it more than a conventional air conditioner, which offers an associated benefit of enhanced humidity removal, but increases cost.
DOE initially sought to create a separate product class for SDHV systems. DOE reasoned that SDHV systems have design considerations (confined installation spaces, high pressure drops,and blower motor power) that warrant special consideration in the analytical and standardssetting process. In the 1999 Supplemental Advance Notice of Proposed Rulemaking (1999 SANOPR; 64 FR 66306 (Nov. 24, 1999)) for central air conditioners, DOE proposed the creation of a separate class of “space-constrained” products that included SDHV systems and requested feedback from stakeholders on the proposal to create a separate product class for SDHV systems. However, DOE received feedback on the 1999 SANOPR that indicated some SDHV units were

13 http://www.ahridirectory.org.22

c apable of reaching 12 SEER, and that manufacturers were making investments to produce more efficient SDHV systems.
For these reasons, in the October 5, 2000, NOPR (2000 NOPR; 65 FR 59590), DOE proposed not to create a separate SDHV product class, instead requiring SDHV systems to meet the standards for conventional split- and single-package systems. 14 However, DOE also proposed to

a llow SDHV systems the option to test as coil-only products. This additional provision in the test procedure was estimated to provide an additional 1 to 2.5 SEER points for SDHV systems, making it easier for manufacturers to meet the standard. DOE again requested feedback from stakeholders on this proposal.
On January 22, 2001, DOE published the 2001 final rule, establishing a 13 SEER standard for conventional split- and single-package systems and reiterating that the characteristics of available SDHV systems did not warrant the creation of a separate product class. 66 FR at 7197 DOE explained that revisions to the test procedure would allow testing as coil-only products, and stated that SDHV systems were, therefore, subject to the 13 SEER standards being adopted for all split- and single-package air conditioners and heat pumps.

On July 25, 2001, in response to a petition for reconsideration and as a result of review under the President’s Regulatory Review Plan, 15 DOE reopened the standards rulemaking and published a S upplemental Notice of Proposed Rulemaking (SNOPR), in which DOE proposed to withdraw its January 22, 2001 final rule. 66 FR 38822. As a substitute, DOE proposed standards in that SNOPR which would have set a 12 SEER standard for all split- and single-package air conditioners and heat pumps, thereby resulting in a 20 percent increase in the minimum energy efficiency levels over prior levels. Again, DOE proposed not to establish a separate class for SDHV systems on the grounds that they would be able to meet the 12 SEER standard.
In the subsequent May 23, 2002 final rule, DOE adopted the 12 SEER standard for split- and single-package air conditioners and heat pumps, and responded to additional comments from stakeholders on SDHV systems. 67 FR 36368. Further information submitted by stakeholders led DOE to conclude that separate standards for SDHV systems were indeed warranted, and DOE stated it would perform a separate analysis to determine appropriate standard levels. A new product class and definition for SDHV systems were established, and standards were set at the 10 SEER NAECA level until a full analysis could be performed. Further, DOE stated it would consider stakeholders’ requests that the DOE test procedure be amended to allow special testing provisions for SDHV products. At the time of drafting the 2002 final rule, DOE had begun a separate engineering and life-cycle cost analysis to determine appropriate standard levels for SDHV products.
However, DOE’s efforts to reopen its rulemaking setting energy conservation standard levels for central air conditioners and heat pumps were challenged by a number of advocacy groups. In its

14 Standards for conventional systems were proposed at 12 SEER standard for split- and single-package air

c onditioners and 13 SEER for split and packaged heat pumps.

15 The Regulatory Review Plan, which called for agencies to (among other things) withdraw or postpone the

e ffective dates of regulations pending review by the White House, was published in the Federal Register at 66 FR 7702 (Jan. 24, 2001).23

d ecision in Natural Resources Defense Council, et al. v. Abraham , the Second Circuit Court concluded that “the May 23, 2002, final rules promulgated by DOE withdrawing the standards it published as a final rule on January 22, 2001, and replacing them with less stringent standards, were not a valid exercise of DOE's authority under the EPCA,” in light of the “anti-backsliding” provision in 325(o)(1) of EPCA. Section 325(o)(1) of EPCA states that “[t]he Secretary may not prescribe any new or amended standard which increases the maximum allowable energy use...of a covered product.” 355 F.3d 179, 206 (2d Cir. 2004). Accordingly, DOE published a technical

a mendment on August 17, 2004 (2004 Technical Amendment; 69 FR 50997). This technical amendment replaced standard levels established by the 2002 final rule (12 SEER) with the 13 SEER standards established in the 2001 final rule.
Because the 2001 final rule did not establish a separate class or separate standards for SDHV systems, and because SDHV systems are not considered “space constrained” (see discussion in 66 FR at 7197 and 65 FR at 59609-10), they are covered by the 13 SEER/7.7 HSPF standard adopted in that rule. The Court’s ruling prohibits DOE from adopting a standard of less than 13 SEER for SDHV systems, despite DOE’s more recent conclusion that SDHV systems have a maximum technologically feasible efficiency of just over 13 SEER. 16

F urther, in the test procedures detailed in the October 11, 2005 final rule, DOE stated that test procedure revisions to allow SDHV systems to test as coil-only units would result in unrealistic SEER ratings and would discourage manufacturers from making efficiency improvements to blower motors. 70 FR at 59124. Therefore, DOE did not amend the test procedure to allow testing of SDHV systems as coil-only units, making it more likely that SDHV products would be unable to meet even the 12 SEER standard. DOE advised manufacturers of SDHV systems of the procedure available under section 504 of the DOE Organization Act (42 U.S.C. 7194), which allows them to request relief from hardship or inequity caused by a regulation issued under EPCA.
On May 24, 2004, SpacePak and Unico, Inc., filed a joint application with the Office of Hearings and Appeals (OHA) for exception from the 13 SEER standard, arguing that they would suffer a “serious hardship and unfair distribution of burdens” if forced to comply with the 13 SEER rule (case nos. TEE-0010 and TEE-0011) The OHA granted the exception to SpacePak and Unico, citing technological constraints (compact indoor coils, high static-pressure losses, and higher fan motor power) that make it more difficult for SDHV systems to increase energy efficiency. Also cited was the serious hardship to SpacePak and Unico that would result should exception relief not be granted, possibly resulting in “the loss of all sales within the United States.” The OHA further noted that the unavailability of SDHV systems would negatively impact domestic consumers, and that granting exception relief would not have a significant impact upon competition in the air conditioner industry. On October 14, 2004, the OHA granted exception relief to SpacePak and Unico, Inc., authorizing them to manufacture and sell SDHV systems that

16 In 2002, DOE performed a separate engineering analysis for SDHV systems by evaluating the incremental costs

a nd efficiency improvements associated with design changes to blower coil units and pairing of existing SDHV blower coil units with higher-efficiency outdoor units. In that analysis, DOE found that the maximum technologically feasible (“max-tech”) efficiency of SDHV systems was just over 13 SEER. http://eere.energy.gov/buildings/appliance_standards/residential/pdfs/engineering_analysis_112602.pdf24

m eet an 11 SEER/6.8 HSPF standard. This decision became effective January 23, 2006, and remains in effect until DOE establishes a different standard for SDHV systems.
On September 28, 2005, Energy Savings Products, Ltd. (ESP), filed its own application for exception relief with the OHA (case no. TEE-0026). ESP asserted that it would suffer a gross inequity, serious hardship, and an unfair distribution of burdens if forced to comply with the 13 SEER standard. On December 20, 2005, the OHA granted the exception relief to ESP, citing the same reasons given in the SpacePak/Unico decision and authorizing Energy Savings Products to manufacture and sell SDHV systems that meet an 11 SEER/6.8 HSPF standard. This decision also became effective January 23, 2006, and remains in effect until DOE establishes a different standard for SDHV systems.
DOE is considering maintaining a separate product class for SDHV systems and conducting a detailed analysis to determine the appropriate standards for this type of equipment.

Item 3–4 DOE requests that stakeholders submit any available, applicable data to DOE

concerning SDHV systems, including market shares, shipments, cost and performance data, and design specifications.

3.2.3 Space-Constrained Products
Certain types of central air conditioners and heat pumps are manufactured for applications with space constraints and, therefore, have features that distinguish them from the majority of products available. Sometimes these products are not able to meet standards for regular split and packaged air conditioners and heat pumps, or are able to, but place a disproportionate burden on manufacturers and consumers in doing so. In the 1999 SANOPR, DOE first suggested separate product classes as a way to set standards for these niche products. 64 FR at 66310. Originally, these products included ductless split systems, SDHV systems, single-package vertical units(SPVU), and through-the-wall (TTW) split systems. In the subsequent 2000 NOPR, throughthe-wall packaged and non-weatherized single-package products were also considered space constrained. 65 FR at 59597. DOE’s efforts to establish standards for each of these types of products is explained below.
In the 2004 Technical Amendment, DOE established a separate product class for spaceconstrained systems and required them to meet a 12 SEER/7.4 HSPF standard. Product classes were also set for through-the-wall split- and single-package systems, with standards at 10.9SEER/7.1 HSPF and 10.6 SEER/7.0 HSPF, respectively. The separate product class for throughthe-wall products is set to expire January 23, 2010, which will return those products to the spaceconstrained product class and require them to meet the 12 SEER/7.4 HSPF standard.
Currently, ductless split systems are not considered a space-constrained product and are not given special consideration. They are, therefore, required to meet the 13 SEER/7.7 HSPFstandards for split- and single-package air conditioners and heat pumps. Small-duct highvelocity systems are also not considered space constrained, and are required to meet the 13 SEER/7.7 HSPF standards.25

A s part of the recent EISA 2007 legislation, statutory standards and definitions for singlepackage vertical units were adopted, removing them from consideration in this rulemaking. Therefore, only through-the-wall systems and non-weatherized single-package products are currently considered space-constrained products.
In this rulemaking, DOE is reevaluating whether to give special consideration to these spaceconstrained products. Below, the history of each type of product is reviewed, and DOE’s approach for how to handle each type in this rulemaking is presented.

3.2.3.1 Single-Package Vertical Units (SPVUs)
SPVUs, also referred to as “vertical-package wall-mounted” units, are factory-assembled, singlepackaged, vertically-oriented air conditioners and heat pumps using single-phase power, but such units are designed and intended for use in commercial and industrial heating and cooling applications. DOE understands that SPVUs are not distributed for personal use or consumption by individuals, and are, therefore, not considered a residential product. In the 2000 NOPR, DOE stated that SPVUs are not covered by standards for residential products. 65 FR at 59610.

As noted above, EISA 2007 added definitions 17 and standards 18 for SPVUs. Because E ISA 2007 defined SPVUs as a commercial product, SPVUs are not part of this rulemaking.

3.2.3.2 Th rough-the-Wall Systems
There are two main types of through-the-wall products: (1) through-the-wall split systems (condensers) and (2) through-the-wall package systems. Through-the-wall condensers were popular in new multi-story residential construction in the 1960s and 1970s. Major manufacturers have since abandoned the replacement market, providing an opportunity for lower-volume manufacturers, such as First Company, National Comfort Products, and EnviroMaster International to serve the replacement market. Most equipment is in the 1-1/2 to 2-1/2 ton (18,000 Btu/h to 30,000 Btu/h) capacity range. 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 and 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

17 Section 314 of EISA 2007 codifies definitions for “single package vertical air conditioner” and “single package

v ertical heat pump.” The term “single package vertical air conditioner” means “air-cooled commercial package air conditioning and heating equipment that (A) is factory-assembled as a single package that (i) has major components that are arranged vertically; (ii) is an encased combination of cooling and optional heating components; and (iii) is intended for exterior mounting on, adjacent interior to, or through an outside wall; (B) is powered by a single- or 3- phase current; (C) may contain 1 or more separate indoor grilles, outdoor louvers, various ventilation options, indoor free air discharges, ductwork, well plenum, or sleeves; and (D) has heating components that may include electrical resistance, steam, hot water, or gas, but may not include reverse cycle refrigeration as a heating means.” The term “single package vertical heat pump” means “a single package vertical air conditioner that (A) uses reverse cycle refrigeration as its primary heat source; and (B) may include secondary supplemental heating by means of electrical resistance, steam, hot water, or gas.’’ (42 U.S.C. 6311(22)-(23))

18 Section 314 of EISA 2007 set standards at 9.0 EER for single-package vertical air conditioners and 9.0 EER/3.0

c oefficient of performance (COP) for single-package vertical heat pumps.26

o r results in a significant price increase could be counterproductive, preventing the turnover of old, inefficient equipment.
Through-the-wall packaged equipment is similar to packaged terminal air conditioners (PTACs), but is typically installed in a closet with an exterior wall and ducted to the interior space. Like through-the-wall condensers, they serve primarily multi-family high-rise residential-building 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. Manufacturers of packaged through-the-wall equipment include First Company, Skymark (Johnson Controls), and Armstrong (Lennox).
In the 2000 NOPR, DOE recognized through-the-wall products as being a niche category of products with space constraints, and proposed adopting an 11 SEER standard for them. 65 FR at 59610. However, in light of stakeholders’ concerns that through-the-wall products would not beable to meet the 13 SEER standard, the 2001 Final Rule did not set standards for through-thewall products, pending completion of later rulemaking proceedings. Prior to the subsequent 2001 SNOPR, DOE performed engineering and life-cycle cost analyses for through-the-wall products to determine appropriate standard levels. Based on those analyses, DOE concluded that 10.9 SEER/7.1 HSPF and 10.6 SEER/7.0 HSPF were the appropriate standards for split- and single-package through-the-wall products, respectively, and adopted those standards in the 2002 final rule. 67 FR 36368 In the 2004 Technical Amendment, DOE explained that the standards for through-the-wall products, which fall within the definition of “space-constrained product,” would be those set in the 2002 final rule.
The definition of “through-the-wall air conditioner and heat pump” that DOE adopted in 10 CFR 430.2 provides that this product class exists only for products manufactured prior to January 23, 2010. After that date, the standards for space-constrained products (12 SEER/7.4 HSPF) will apply to through-the-wall split and packaged air conditioners and heat pumps. Because this “sunset” provision takes place well before the effective date of this rule (2016), DOE will evaluate standards for through-the-wall products based on an assumed baseline of 12 SEER/7.4 HSPF. Manufacturers will have six years between the time through-the-wall products must meet the 12 SEER/7.4 HSPF standard and the time new standards adopted in this rule become effective.
In this rulemaking, DOE is considering maintaining separate product classes for space-constrained products that would include through-the-wall systems, and developing standards using a 12 SEER/7.4 HSPF baseline.

Item 3–5 DOE requests submission of any available, applicable data concerning

through-the-wall systems, including market shares, shipments, cost and performance data, and design specifications.27

3. 2.3.3 Single-Package Non-Weatherized Units
Another niche product is single-package non-weatherized units, which are mounted entirely within a structure (in an attic, basement, or closet), with outdoor air ducted to and from the unit. The fact that air is ducted to and from the unit differentiates single-package non-weatherized units from through-the-wall products, which penetrate an exterior wall directly. Single-package non-weatherized products are used in high-rise and garden apartments, manufactured homes, and other residential applications where locations for placement of outdoor units may be unavailable or too remote, where architectural aesthetics may be compromised by visible outdoor units, where vandalism or theft of outdoor units is a potential problem, or where compliance with local sound ordinances restricts the placement of outdoor air conditioning equipment.
Single-package non-weatherized units have space constraints, but because they do not have to fit in a predefined wall opening, those constraints are not as severe as those on through-the-wall products. In the 2000 NOPR, DOE recognized single-package non-weatherized units as having space constraints, but due to the availability of models at the 12 SEER level (the proposed standard level for conventional air conditioners in that rule), DOE did not propose a separate class for them. 65 FR at 59610. Additionally, DOE concluded it would be difficult to define these products in such a way that would avoid the creation of a loophole whereby conventional products could take advantage of lower standards. In the 2001 final rule, DOE again made mention of single-package non-weatherized units, but DOE decided to include them as a type ofspace-constrained product. The 2001 final rule established a new product class for spaceconstrained products, but did not set standards in that rule pending completion of later rulemaking proceedings. In the subsequent 2001 SNOPR and the 2002 final rule, no specific mention was made of single-package non-weatherized units, but DOE still considered them as a type of space-constrained product. In the 2002 final rule, DOE concluded that space-constrained products (excluding through-the-wall products) would be able to meet the 12 SEER standard for conventional products, and did not adopt separate standards for those considered space constrained. Ultimately, in the 2004 Technical Amendment, DOE explained that the ruling by the Second Circuit Court of Appeals in Natural Resources Defense Council v. Abraham did not affect the standards established for space-constrained products in the 2002 final rule, since the 2001 final rule did not establish any standards for space-constrained products. Therefore, the 12 SEER standard established in the 2002 final rule was adopted for all space-constrained products, except those with through-the-wall condensers.
The only manufacturer of single-package non-weatherized units DOE was able to identify was Consolidated Technology Corporation, manufacturer of the “Insider” unit. 19 However, DOE

u nderstands that Consolidated Technology Corporation is no longer in business, having been liquidated under Chapter 7 bankruptcy. 20 DOE is not aware of any other manufacturer that

c urrently produces a unit that is single-package and non-weatherized, and seeks comment from stakeholders on whether any such products exist in the market today and whether single-package non-weatherized units should be considered in this rulemaking.

19 http://www.mechreps.com/news/insider.htm

20 http://www.bardhvac.com/ind_base_esg_isg.shtml28

3 .2.4 Ductless Split Systems
Ductless split systems, or “mini-splits,” dominate the international market, but hold only a small fraction of the domestic market. They consist of a single outdoor unit and an indoor fan coil unit discharging directly into the conditioned space. Ductless systems with multiple fan coil units are often called “multi-splits.” Mini-splits and multi-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 individual temperature control. Key manufacturers of ductless split systems include Mitsubishi Electronics, Carrier, Sanyo Fisher, and EnviroMaster International.
Ductless split systems were included in the revisions to the DOE test procedure in the March 14, 1987, Final Rule. 53 FR 8304. In the 1999 SANOPR, DOE first suggested separate product classes as a way to set standards for niche products, including ductless split systems. 64 FR at 66310. Since consumers may consider the interior units of mini- and multi-splits to be more intrusive than ducted systems, manufacturers strive to make them as compact as possible. After receiving stakeholder feedback, DOE decided that a separate product class was not warranted, and ultimately in the final rule that set the current standards, ductless split systems were required to meet the 13 SEER standards developed for regular split-system air conditioners and heat pumps. 66 FR at 7197.
Prior to the latest revision to the test procedure, manufacturers of ductless split systems applied for and received waivers from the test procedure because of the differences between multi-split systems and traditional split-system air conditioners and heat pumps. In the most recent final rule revising the central air conditioner and heat pump test procedure, DOE responded to stakeholder comments regarding changes to the test procedure for multi-splits. See generally 72 FR 59906, 59908-11 and 59913-14 (Oct. 22, 2007). Stakeholders asserted that multi-split systems should be rated using EER if those systems compete primarily with room air conditioners and SEER if they compete primarily with ducted residential systems. DOE responded in the October 2007 rule that it believes residential-size multi-split systems compete primarily with ducted systems, and that consumers will best be served if multi-split systems are rated using SEER. This will allow consumers to make direct comparisons of efficiency levels when considering system options.
In the present rulemaking, DOE is considering maintaining the status of ductless split systems, and not creating a separate product class with separate standards. Ductless split systems would, therefore, be required to meet the same standards adopted for conventional split systems, unless they meet the definition of “space constrained.”

Item 3–6 DOE requests submission of any available, applicable data concerning ductless

split systems, including market shares, shipments, cost and performance data, and design specifications.29

3 .3 Technology Assessment
Typically, DOE uses information about existing and past technology options and prototype designs as input in identifying technologies manufacturers could use to meet and/or exceed energy conservation standards. In consultation with interested parties, DOE intends to develop a list of technologies that should be considered in the analysis. Initially, this list will include all those technologies considered to be technologically feasible and will serve to establish the maximum technologically feasible (max-tech) design. DOE is currently considering the specific technologies and design options listed below.
The following design options and technologies are relevant to all product classes:

1. Higher-efficiency expansion valves ( e.g. , dual-port thermostatic expansion valves (TXVs) and electronic expansion valves (EEVs));

2. Higher-efficiency evaporator and condenser fan motors ( e.g. , electronically-commutated motors (ECM));

3. Increased evaporator and condenser coil surface area (with a possible increase in fan energy consumption);

4. Evaporator and condenser fan motor controllers;

5. Higher-efficiency evaporator and condenser fan blades;

6. Higher-efficiency compressors ( e.g. , variable-speed compressors);

7. Micro-channel heat exchangers;

8. Liquid-to-suction heat exchangers (LSHX) (sub-cool liquid refrigerant with suction line); and

9. Flat tube heat exchangers.
The following design options and technologies are relevant only to heat pumps:

1. High-efficiency defrost mechanism ( e.g. , “frost-less” heat pumps, hot water defrost); and

2. Improved defrost timer control (demand-based defrost cycles).

Item 3–7 What technologies or design options, if any, should DOE add to or remove from

the above lists? Please provide rationale for any such recommendations.30

4

. SCREENING ANALYSIS
The purpose of the screening analysis is to screen out design options and technologies that will not be considered further in the analysis. Following development of the initial list of design options and technologies, DOE will review each design option and technology based on the following four criteria, as addressed in sections 4(a)(4) and 5(b) of the Process Rule 21 :

1

. Technological feasibility. Design options and technologies that are not incorporated in commercially-available products or in working prototypes will not be considered further.

2. Practicability to manufacture, install, and service. If it is determined that mass production of a design option or technology in commercially available products and reliable installation and servicing of the technology could not be achieved on the scale necessary to serve the relevant market at the time of the effective date of the standard, that design option or technology will not be considered further.

3. Impacts on product or equipment utility to consumers or availability. If a design option or technology is determined to have significant adverse impact on the utility of the product to significant subgroups of consumers, or result in the unavailability of any covered product type with performance characteristics (including reliability), features, size, capacities, and volumes that are substantially the same as products generally available in the United States at the time, it will not be considered further.

4. Adverse Impacts on Health or Safety. If it is determined that a design option or technology will have significant adverse impacts on health or safety, it will not be considered further.
The reasons for eliminating any design options or technologies during the screening analysis will be fully documented and published as part of the ANOPR and will be available for stakeholder review and comment.

5. ENGINEERING ANALYSIS
After conducting the screening analysis, DOE performs an engineering analysis based on the remaining design options that would improve product efficiency. The engineering analysis consists of estimating the energy consumption and cost of products at various levels of increased efficiency. In this section, DOE discusses an overview of the engineering analysis (section 5.1), baseline units (section 5.2), the approach for determining the cost-efficiency relationship (section 5.3), efficiency levels (section 5.4), manufacturer prices (section 5.5), proprietary designs (section 5.6), and regulatory changes outside the realm of DOE’s energy conservation standards process, or outside regulatory changes, that affect the engineering analysis (section 5.7).

21 Procedures, Interpretations and Policies for Consideration of New or Revised Energy Conservation Standards for C onsumer Products, (“The Process Rule”), guides DOE in the consideration of new or revised appliance efficiency standards under EPCA. 10 CFR Part 430, Subpart C, Appendix A.31

5 .1 Engineering Analysis Overview
The engineering analysis estimates the cost-efficiency relationship, which is the cost of equipment at various levels of increased energy efficiency above a baseline ( i.e. , equipment that just meets the minimum energy conservation standards). This relationship serves as the basis for the subsequent cost-benefit calculations in terms of individual consumers, manufacturers, and the Nation. In determining the cost-efficiency relationship, DOE will estimate the increase in manufacturer cost associated with the options and technologies available to manufacturers for increasing the efficiency of equipment above the baseline.
Residential central air conditioners and heat pumps are somewhat unique among the products regulated by DOE 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 individual design options using theoretical models.

5.2 Baseline Units
Once DOE establishes product classes, it will select a baseline model as a reference point for each product class, against which it can estimate changes resulting from energy conservation standards. The baseline model in each product class represents the typical characteristics of equipment in that class. DOE will use the baseline models in the engineering analysis and the life-cycle cost and payback-period analyses. To determine energy savings and changes in manufacturer selling price, DOE will compare each higher-efficiency level against a baseline model. For central air conditioners and heat pumps, DOE will select a model for each product class that just meets current energy conservation standards for that class.
The energy conservation standards for central air conditioners and heat pumps are codified at 10 CFR 430.32(c), which sets forth the existing standard levels for each of the product classes of central air conditioners and heat pumps (see Table 2). For central air conditioners and heat pumps in the cooling mode, standards are in the form of minimum levels of the SEER. For heat pumps in the heating mode, standards are in the form of minimum levels of the HSPF.
DOE seeks comment on what is the industries’ typical 13 SEER design for models that are currently on the market. This design will become the new baseline for this rulemaking. For the standard 22 that took affect on January 23, 2006, DOE based that efficiency level of 13 SEER on a t heoretical model; in other words, DOE set a standard level without specifying the technologies to be used in meeting that standard. DOE now is interested in information in terms of what manufacturers have actually designed for a 13 SEER product.

22 69 FR 50997 (August 17, 2004).32

T able 2. Current Energy Conservation Standards for Central Air Conditioners and Heat Pumps.
10 CFR 430.32 Product Class Current Standard Level Split-system air conditioners 13 SEER Split-system heat pumps 13 SEER/7.7 HSPF Single-package air conditioners 13 SEER Single-package heat pumps 13 SEER/7.7 HSPF SDHV systems 13 SEER/7.7 HSPF 23 Space-constrained products – air conditioners 24 12 SEER Space-constrained products – heat pumps 12 SEER/7.4 HSPF

Item 5–1 DOE seeks information on what particular components and features (e.g.,

materials, dimensions, compressors, coils, expansion devices, fans, motors, and controls) characterize the baseline model in each product class.

5.3 Planned Approach for Determining the Cost-Efficiency Relationship
DOE recognizes that manufacturers may use different paths to meet a given efficiency level. In recognition of this fact, DOE plans to use an efficiency-level approach in this rulemaking. In an efficiency-level approach, analysis is performed in terms of product efficiency levels rather than solely focusing on design options. Thus, this approach estimates the cost of achieving a particular efficiency level without specifying which path is taken. For each product class, the engineering analysis will estimate manufacturer production costs (MPCs) at each potential efficiency level. DOE will supplement this analysis by investigating the cost and efficiency impacts of individual design options.
DOE will obtain cost estimates for the engineering analysis using a reverse-engineering

m ethodology. This approach involves the selection and disassembly of several central air conditioners and heat pumps, creation of bills-of-materials (BOMs), and formation of a cost model to estimate the MPC of each unit. The MPC includes material, labor, factory overhead, and depreciation associated with the manufacture of air conditioning equipment. DOE will supplement this analysis with cost estimates of specific design options. In addition, DOE must identify the model with the highest efficiency that is technologically feasible within each product class ( i.e. , the “max tech” model).
For each product class, DOE will select a range of models to analyze, including the baseline

m odel and models at efficiency levels above the baseline. DOE does not intend to differentiate

23 The OHA has granted exception relief to the three manufacturers of SDHV systems (case numbers TEE-0010, T EE-0011, and TEE-0026), and has required that SDHV air conditioners and heat pumps must meet standards of 11 SEER/6.8 HSPF. See Section 3.2.2.

24 As of January 23, 2010, space-constrained air conditioners and heat pumps will include split- and single-package th rough-the-wall systems. See section 3.2.3.2.33

p roduct classes by system capacity, because this would unnecessarily complicate the analysis, and provide little additional differentiation between products in terms of potential energy efficiency improvements. Instead, DOE will select models at a representative cooling capacity within each product class, while giving consideration to the design constraints for products at very small and very large capacities. For conventional split- and single-package air conditioners and heat pumps and for SDHV systems, the maximum cooling capacity is 5.4-tons (65,000 Btu/h). DOE has used 3 tons (36,000 Btu/h) as the representative cooling capacity in pastrulemakings, and intends to base its analysis in this rulemaking on 3-ton models. For spaceconstrained products (including through-the-wall systems), the maximum cooling capacity is, by definition, 2.5 tons (30,000 Btu/h). DOE previously analyzed 1.5- and 2.5-ton models in determining the current standard levels for through-the-wall products. For the space-constrained products in this rulemaking, DOE is seeking feedback from manufacturers on an appropriate representative capacity ( i.e. , the most-common or highest-volume capacity). DOE understands that it may be more difficult for manufacturers to design and produce equipment at capacities other than the representative capacity. In this rulemaking, DOE will take into consideration the capacity-related limitations of very small and very large capacity products in its analysis.

DOE may supplement the reverse-engineering data with information pulled from catalogs, websites, and trade publications to create a wider set of units for its efficiency-cost analysis. DOE will quantify disaggregated energy consumption during testing to analyze the link between specific technologies and efficiency levels, in effect supplementing the efficiency-level approach with a design-option approach as needed.

Item 5–2 DOE requests feedback on the use of an efficiency level approach to determine

the relationship between manufacturer production cost and energy- efficiency levels for central air conditioners and heat pumps.

Item 5–3 For each product class, DOE seeks feedback on what representative cooling

capacity to use (i.e., what is the most common, or most appropriate size air conditioner or heat pump to analyze).

Item 5–4 DOE seeks information on the limitations of products at very small and very

large capacities, and how to consider these limitations in its analysis.

5.4 Efficiency Levels
For each of the product classes presented in section 3.2, DOE will undertake analyses to determine potential efficiency levels and seek to develop incremental cost data at each of these levels. DOE plans to conduct an engineering analysis (and LCC and PBP analyses) on all product classes.

For each product class of split and single-package residential central air conditioners and heat pumps, DOE will analyze a baseline efficiency level ( i.e. , current standards listed in 10 CFR34

4 30.32(c)(2)) and a maximum technologically feasible (“max-tech”) efficiency level (42 U.S.C. 6295 (p)(2)). Table 3 and

Table 4 present several other efficiency levels DOE also intends to analyze. Included in these tables are those levels that represent the “maximum available” 25 efficiency, and levels from the E NERGY S TAR

Program 26 and the Consortium for Energy Efficiency (CEE) Residential Central A ir Conditioning and Heat Pump Initiative. 27 In addition, DOE may analyze other levels not i ncluded in these lists.

Table 3 Efficiency Levels for Product Classes of Central Air Conditioners Level S plit System Air Conditioners Packaged Air Conditioners E NERGY S TAR & CEE Tier 1 14 SEER 1 4 SEER CEE Tier 2 15 SEER 14 SEER or higher CEE Tier 3 16 SEER or higher N/A Maximum available 21 SEER 16.6 Note: E NERGY S TAR & CEE guidelines include EER levels as well, but they are omitted here because they are

n ot part of the efficiency metric for central air conditioners and heat pumps.

Table 4 Efficiency Levels for Product Classes of Central Air Conditioning Heat Pumps Level S plit System Heat Pumps Packaged Heat Pumps

E NERGY S TAR 1 4 SEER 8.2 HSPF 14 SEER 8 HSPF CEE Tier 1 14 SEER 8.5 HSPF 14 SEER 8 HSPF CEE Tier 2 15 SEER or higher 8.5 HSPF or

higher 14 SEER or

higher 8 HSPF or

higher Maximum Available 19.5 SEER 10.8 HSPF 16.4 SEER 9 HSPF Note: E NERGY S TAR & CEE guidelines include EER levels as well, but they are omitted here because they are

n ot part of the efficiency metric for central air conditioners and heat pumps.

25 The “maximum available” level refers to the maximum efficiency of all the models for each product class, as lis ted in the AHRI directory of certified performance for residential HVAC systems. It should be noted that the “maximum available” efficiency levels in the tables correspond to models with the maximum efficiency currently available in the market, but may not necessarily correspond to the “maximum technology” level. “Maximum available” models may not incorporate all possible design options for increasing efficiency and, therefore, may not achieve an annual energy use as low as the “maximum technology” level. Also, it is possible that some of the design options that have met the screening criteria ( i.e. , passed the screening analysis) may not yet be commercially available and, therefore, would not be found in today’s “maximum available” products. In light of this potential dichotomy between maximum technology and maximum available, and because DOE is required to analyze the maximum technology level, it will seek stakeholder input to determine appropriate max-tech efficiency levels. (42 U.S.C. 6295 (p)(2))

26 http://www.energystar.gov/index.cfm?c=cac.pr_central_ac

27 http://www.cee1.org/resid/rs-ac/rs-ac-main.php335

I tem 5–5 DOE seeks input from stakeholders concerning the efficiency levels it plans to

use for collecting incremental cost data from manufacturers. DOE also seeks input from stakeholders on appropriate maximum technologically feasible efficiency levels.

Item 5–6 DOE seeks input on appropriate levels to analyze for SDHV systems, and for

space constrained products. DOE also seeks input from stakeholders on appropriate maximum technologically feasible efficiency levels for SDHV systems and space constrained products.

5.5 Manufacturer Prices
DOE plans to apply a manufacturer markup to convert manufacturer production cost to manufacturer selling price. DOE will estimate this manufacturer markup from publicly available financial information ( e.g. , Securities and Exchange Commission 10-K reports).

Item 5–7 DOE seeks comment on the planned markup approach for developing estimates

of manufacturer selling prices.

5.6 Proprietary Designs
DOE will consider in its engineering and economic analyses all design options that have not been screened out, including proprietary designs. DOE will consider proprietary designs in the subsequent analyses only if it is not a unique path to a given efficiency level. This protects manufacturers without intellectual property rights from having to rely upon particular technologies and designs when they have no other route for reaching the efficiency level in question. If the proprietary design is the only approach available to achieve a given efficiency level, then DOE will reject that efficiency level from further analysis, as the analytical results would appear to favor one manufacturer over others.
Furthermore, DOE is sensitive to manufacturer concerns regarding proprietary designs and will make provisions to maintain the confidentiality of any proprietary data submitted by manufacturers or discussed during manufacturer interviews. This data may be provided under a confidentiality agreement with DOE’s contractor responsible for this part of the rulemaking analysis, Navigant Consulting, Inc. (NCI). As in other rulemakings, NCI regularly works with confidential data from manufacturers and other organizations, preparing aggregated results for DOE’s analysis that do not divulge sensitive raw data, but that enable other stakeholders to review and comment on the aggregated dataset. Alternatively, stakeholders may submit confidential data to DOE, indicating in writing which data should remain confidential. In order to prevent public disclosure of the data due to actions taken by a third party, stakeholders providing confidential information to DOE must submit that data according to 10 CFR 1004.11. This information will provide input to the competitive impacts assessment and other economic analyses.36

I tem 5–8 Are there proprietary designs or technologies that DOE should consider for any

of the products under consideration by this rulemaking? If so, how should DOE acquire the cost data necessary for evaluating these designs?

5.7 Outside Regulatory Changes Affecting the Engineering Analysis
In conducting an engineering analysis, DOE must consider the effects of regulatory changes outside DOE’s statutory energy conservation standards rulemaking process that can impact the manufacturers of central air conditioners and heat pumps. Some of these changes can also affect the energy efficiency or energy consumption of the products covered under this rulemaking. In particular, because the Environmental Protection Agency (EPA) has mandated the phase-out of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs) in all new equipment for sale in the U.S. by 2010, the industry must transition to non-ozone-depleting refrigerants such as hydrofluorocarbons (HFCs), which may negatively affect the energy efficiency of air conditioning and heat pump units due to different properties such as pressure and heat capacity. DOE will attempt to identify all such outside engineering issues that could impact the engineering analysis. The consideration of these issues is closely related to the cumulative regulatory burden assessment that DOE will carry out as part of the manufacturer impact analysis.
Based on consideration of the comments received on the engineering analysis documented in the ANOPR, DOE will make the necessary changes to the analysis. It will reflect those changes in the documentation of the NOPR.

5.7.1 Refrigerant Phase-out
Because of its potential to deplete the ozone layer, the EPA has begun a systematic phase-out of HCFC refrigerants, in implementation of the Montreal Protocol. 28 The EPA, under the Clean Air A ct, 29 will phase out R-22 in two major steps, as shown in Table 5. EPA published a final rule in t he Federal Register

on January 21, 2003 to effect this HCFC phase-out (68 FR 2820). This phase-out schedule was updated on September 21, 2007, when, pursuant to the Montreal Protocol, the U.S. agreed to accelerate the phase-out of HCFC refrigerants. As of this update, the phase-out of R-22 is scheduled to begin January 1, 2010, with a ban on the production and importation of R-22, except for use in equipment manufactured before this date. Effectively, this bans the production or importation of R-22 for equipment manufactured after January 1, 2010. This step in the phase-out is expected to reduce R-22 consumption to 25 percent of original consumption levels. Then, on January 1, 2020, step two of the phase-out bans the production and importation of R-22 completely, which is expected to lower R-22 consumption to 0.5 percent of baseline consumption, leaving enough R-22 for servicing existing equipment. In the current schedule, this baseline allowance continues until 2030, although the parties of the Montreal Protocol agreed to review this allowance in 2015.

28 The Montreal Protocol is an international agreement originally signed in 1987 in which signatory Nations agree to phase out the production and consumption of ozone-damaging chemicals.

29 42 U.S.C. 7401 e t seq

.37 T able 5. United States R-22 Refrigerant Phase-out Schedule

Year to be Implemented Implementation of R-22 Phase-out through Clean Air Act Regulations

2010 No production and no importing of R-22, except for use in equipment

manufactured before 1/1/2010 (so no production or importing for NEW equipment that uses these refrigerants)
2020 No production and no importing of R-22 Source: EPA HCFC Phase-out Schedule, http://www.epa.gov/Ozone/title6/phaseout/hcfc.html
The ban on production and importation of R-22 in new equipment that goes into effect in 2010 will directly impact manufacturers of central air conditioners and heat pumps. By this date manufacturers will no longer be able to produce new equipment with R-22, and, as a practical matter, they will have had to begin preparations for this date some years before. It appears likely that R-410A (an HFC) will be the refrigerant of choice to replace R-22 in central air conditioners and heat pumps, although R-407C (an HFC) and several hydrocarbon refrigerants have become popular in Europe. Based on research at the National Institute of Standards and Technology (NIST), DOE expects the refrigerant transition to result in a net system efficiency decrease of at least 5 to 7 percent. 30

Th e final rule for the present rulemaking is scheduled to be published by June 2011, with the relevant energy conservation standards becoming effective June 2016, should the analysis showthat higher standards are warranted. This effective date is more than six years after the ban on R22 for use in new equipment goes into effect, giving manufacturers time to adjust to the R-22 ban and allowing them to prepare for new energy conservation standards.
Although the ban on R-22 occurs well before the effective date of this rule, it is likely that the R22 phase-out will affect stakeholders in other ways. According to DuPont, demand for R-22 in the United States continues to grow, in part because of the increased use of R-22 to meet the 13 SEER standards enacted in the 2004 final rule technical amendment. 31 It is projected that

s hortages could occur by 2010 if current service practices and the reduced availability of reclaimed R-22 continue. An increase in demand for R-22 would likely result in increased prices.
DOE is interested in understanding the impact of limitations on the availability of alternative HFC refrigerants such as R-410A, For example, DOE is interested in information on additional burdens on manufacturers, who have already begun to transition to R-410A.

Item 5–9 DOE seeks feedback from interested parties on the potential impacts of reduced

availability R-410A?

30 Calm, J., and Domanski, P., R22 Replacement Status, A MERICAN S OCIETY OF H EATING , R EFRIGERATING AND A IR C ONDITIONING E NGINEERS (ASHRAE) J OURNAL , August 2004, 46(8):29-39.

31 www.epa.gov/ozone/title6/phaseout/hcfc.html38

I tem 5–10 Are there additional outside regulatory issues that DOE should consider in its

analysis of central air conditioners and heat pumps?

6. ENERGY USE ANALYSIS

6.1 Overview of Energy Use Analysis
The purpose of the energy use analysis is to determine the annual energy consumption of central air conditioners and heat pumps and to assess the energy-savings potential of increased product efficiencies. DOE will estimate the annual energy consumption of central air conditioners and heat pumps at specified energy efficiency levels across a range of climate zones. For central air conditioners, the annual energy consumption is the annual site energy use associated with providing space-cooling. For heat pumps, the annual energy consumption is the annual site energy use associated with providing both space-cooling and space-heating. The annual energy consumption of central air conditioners and heat pumps will be used in subsequent analyses, including the LCC, PBP, and National Impact Analyses.

In its last rulemaking for central air conditioners and heat pumps, DOE used the data from the Energy Information Administration’s (EIA) Residential Energy Consumption Survey (RECS) 32
t o determine the energy consumption of households using the covered equipment. Specifically, DOE used the 1997 version of the RECS data for the energy use analysis, which was the most current information available at that time. From RECS, DOE will develop household samples for each product. Because there is enough detail in RECS to specify or determine the usage of each product, DOE can determine the product’s annual energy consumption. Details on how DOE will use RECS to determine the annual energy consumption of central air conditioners and heat pumps are provided below. DOE plans to use the household samples not only to establish each product’s annual energy consumption but also as the basis for conducting the LCC and PBP analysis (see section 8).

In determining the annual energy consumption of central air conditioners and heat pumps used in households, DOE plans to use the latest available RECS data. RECS survey data provide information on the age of the equipment, as well as associated energy use in residential housing units in the United States. The survey includes information on the physical characteristics of housing units, demographic characteristics of households, heating and cooling equipment used, fuels used, energy consumption and expenditures, and other data on residential characteristics.

RECS data are available for the four Census regions, the nine Census divisions, and the four most populous States: California, Florida, New York, and Texas. The most recently published RECS version is from the survey conducted in 2001. The 2001 RECS is based on a sample of 4,822 households statistically selected to represent the 107 million housing units in the United States. A more recent survey was conducted in 2005. The results of the 2005 RECS are due to be released in the summer of 2008. If the 2005 RECS version is not available in time to conduct

32 See http://www.eia.doe.gov/emeu/.39

t he analyses for the ANOPR, DOE will use the 2001 version for the ANOPR analysis and will update the analyses to the 2005 version at the NOPR stage.

6.2 Annual Energy Consumption in Households
As indicated above, DOE intends to use the RECS data to estimate the annual energy consumption of central air conditioners and heat pumps used in existing households. Central air conditioners and heat pump energy efficiencies in existing households ( i.e. , the residential stock equipment efficiency) will be based primarily on data from RECS as well. To estimate the annual energy consumption associated with a baseline or a particular standard level, the ratio of the building stock’s efficiency to the baseline or standard-level efficiency will be multiplied by the building’s annual energy consumption. In particular, the annual baseline space-cooling energy use or the unit energy consumption (UEC res_base_c ) is defined by the following equation:

base stockres cstockres cbaseres SEER SEER UEC UEC

_

_ _ __ × = Eq. 1

Where, UEC res_base_c = annual space-cooling energy use of equipment at baseline

e fficiency level (kWh/year), UEC res_stock_c = annual space-cooling energy use associated with the stock

e quipment in the RECS household (kWh/year), SEER res_stock = the SEER associated with the stock equipment in the RECS

h ousehold, and SEER

base = the SEER associated with the baseline equipment ( i .e. , 13 SEER)

The approach to first determining UEC res_stock_c and SEER res_stock is as follows: Th e stock annual space-cooling energy consumption is based on data from the 2001 RECS. For each household with a central air conditioner or a heat pump, RECS estimates the equipment’s annual energy consumption from the household’s utility bills. It is important to note that the estimated annual energy consumption corresponds to the household’s stock equipment, specifically its capacity and efficiency. In order to mitigate the effect of annual weather fluctuations on the annual energy consumption values in the 2001 RECS, the household stock annual energy use values are adjusted based on 30-year average cooling degree day (CDD) data for the specific Census Division or one of the large State location of the RECS household, as shown below.

stockres yravg adjnoncstockres cstockres CDD CDD UEC UEC

_ 30

___ __ × =

− Eq. 2

Where, UEC res_stock_c = w eather-adjusted annual space-cooling energy use associated with the stock equipment in the RECS household (kWh/year),40

U EC res_stock_c_non-adj = annual space-cooling energy use associated with the stock

e quipment in the RECS household (kWh/year), CDD res_stock = t he CDD associated with the stock equipment in the RECS household, and CDD 30yravg = t he 30-year average CDD for the specific Census Division or State location of the RECS household.

The SEER res_stock is determined using the air conditioner vintage 33 from RECS and the average

s hipped efficiency data by year at a national level that has been published by AHRI in trade publications. 34

Item 6–1 DOE seeks comments on the accuracy and additional specificity of the annual

shipped efficiency (SEER) data by vintage year as published in the HVAC&R News. Also, are there regional distributions of the SEER data by vintage available? If so, where can these data be found?

In a similar manner, the standard-level annual energy use is directly proportional to the energy use associated with the stock air-conditioning or heat pump equipment in the specific RECS household being analyzed. Furthermore, the annual space-heating energy use of a heat pump (baseline and standard level) will be determined and adjusted to mitigate the annual weather effects using the same method as above for space-cooling energy use, with exceptions that the SEER in the above equations is substituted with HSPF and the CDD is substituted with the heating degree day (HDD) data.

Item 6–2 DOE seeks stakeholder input on the planned approach of using RECS data for

determining the energy consumption of central air conditioners and heat pumps in residential buildings.

DOE will consider the “rebound effect” in its determination of annual energy consumption. A rebound effect occurs when a piece of equipment that is made more efficient is used more intensively, so that the expected energy savings from the efficiency improvement may not fully materialize. Based on limited research, the rebound effect for residential space-cooling appears to be highly variable, ranging from zero to 50 percent ( i.e. , consumers may utilize more efficient

a ir-conditioning equipment zero to 50 percent more than baseline equipment). 35 DOE seeks

c omments on the rebound effect, if any, associated with more efficient central air conditioners and heat pumps.

33 The term “vintage” refers to the year of installation of the air conditioner in question.

34 Air Conditioning, Heating & Refrigeration News is the reference source for the shipped efficiency data by

v intage year. Available at : www.achrnews.com.

35 L.A. Greening, D.L. Greene, and C. Difiglio. Energy efficiency and consumption – the rebound effect – a survey
, Energy Policy 28 (2000) 389—401. < www.elsevier.com/locate/enpol >41

Item 6–3 Because the rebound effect for residential space-cooling appears to be highly

variable, DOE seeks comments on the rebound effect that may be associated with more efficient central air conditioners and heat pumps.

6.3 Annual Energy Consumption in Commercial Buildings
During the previous rulemaking for central air conditioners and heat pumps, DOE was asked by interested parties to consider installations of the covered products in commercial buildings as part of the energy consumption analysis. Stakeholders indicated at that time to DOE that approximately ten percent of single-phase central air conditioners and heat pumps were typically installed in commercial buildings. (65 FR 59590, 59601 (Oct. 5, 2000)) DOE performed a simulation-based analysis using seven commercial building types (across a range of climate zones) in that rulemaking to determine the annual energy consumption in the commercial building sector.

If the ten percent assumption is still an accurate estimate of the fraction of the covered products that are installed in commercial buildings, DOE is considering performing a whole-building simulation-based analysis for a representative commercial building type. Recognizing the diversity of commercial building types that use central air conditioners and heat pumps, DOE assessed the EIA’s Commercial Building Energy Consumption Survey (CBECS) data from 2 003. 36 Based on this assessment, DOE believes that a “small office building,” as defined by C BECS, is the predominant building type that uses central air conditioners and heat pumps. Therefore, DOE plans to conduct a whole-building simulation of a small office building prototype in different climate regions to capture the energy consumption and peak-demand impacts on the commercial building sector. This analysis approach is similar to what was done for the recent standards NOPR for packaged terminal air conditioners and heat pumps (73 FR 18858, 18876 (April 7, 2008)).

Item 6–4 DOE specifically requests comment on whether 10 percent is an accurate

estimate of the fraction of single-phase central air conditioners and heat pumps installed in commercial buildings.

Item 6–5 DOE requests input on whether, as defined by CBECS, the “small office

building” is the appropriate building type to be used for this analysis. If so, DOE further requests comment on its planned approach of using a small office building prototype to estimate the annual energy consumption and peak-demand impacts of the covered equipment installed in commercial buildings.

36 Available at: Energy Information Administration. h ttp://www.eia.doe.gov/emeu/cbecs/cbecs2003/detailed_ tables_2003/2003set1/2003pdf/b1.pdf . June 200642

7

. MARKUPS FOR EQUIPMENT PRICE DETERMINATION
The LCC and PBP analyses require among its inputs: (1) the price consumers pay for baseline equipment, and (2) the incremental prices consumers must pay to purchase higher-efficiency equipment assuming energy conservation standards are set at those levels. DOE uses manufacturer-to-consumer markups to convert the manufacturer selling price from the engineering analysis to consumer prices. 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 affect the price contractors charge for air conditioning equipment.

DOE will determine typical markups along the distribution chain from the manufacturer through to the consumer. The markup approach makes it possible to estimate a retail price from the manufacturing cost. Representative markups will be determined from a broader market-wide perspective using publicly-available corporate and industry data. This approach is transparent and has been used by DOE in the recent standards rulemaking analyses for other air conditioning products.

7.1 Description of Distribution Channels
Before it can develop markup information, DOE must first identify distribution channels ( i.e. , h ow the product is distributed from the manufacturer to the consumer). Most residential central air conditioning equipment passes through a two-step distribution channel: (1) manufacturer to distributor (or wholesaler), and (2) distributor to dealer (or contractor). The one notableexception is Lennox, which uses one-step distribution (manufacturer to dealer) for its Lennoxbrand products. In addition, large retailers ( e.g. , Sears, Home Depot) replace the distributor in t he channel for some equipment manufacturers. A snapshot of the industry shows roughly two dozen equipment manufacturers, several hundred distributors, and more than 30,000 dealers operate in the United States. However, due to a wave of consolidation over the last 20 years, the top seven manufacturers control approximately 97 percent of the market. Most remaining manufacturers produce only indoor coils or niche products.

Generally, 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 installation. Distributors may specialize in HVAC equipment or may deal in other products as well, and they are also important sources for after-market parts, an aspect of the business that tends to boost profit 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 dealers carry more than one brand, and most install the products they sell. Some dealers 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 HVAC dealers. Lennox has also acquired dealers to complement the vertical integration of its distribution channels. In new construction, the builders who are assumed to purchase their43

e quipment from distributors rather than directly from the manufacturers, would mark up the cost of the property, including the air conditioning equipment. This suggests the following three distribution channels for the central air conditioners and heat pumps market.

Manufacturer  Distributor (Wholesaler)  Dealer (Contractor)  Consumer

Manufacturer  Distributor (Wholesaler)  Builder  Consumer

Manufacturer  Large Retailer ( e.g. , Sears, Home Depot)  C onsumer
DOE understands that the relative fractions of equipment distributed in each path of the distribution channel could be different depending on the product class.

Item 7–1 DOE requests information from stakeholders on whether the distribution

channels for the central air conditioners and heat pumps would be similar to those described above and, if not, how they might be different. Also, what might be the differences in the distribution channels for the new versus replacement market? And are there any regional differences in the distribution channels?

Item 7–2 DOE also requests information on the relative fractions of shipments expected

for each channel in an appropriate distribution channel for new and replacement central air conditioners and heat pumps. Are there any regional differences in the relative fractions of shipments?

Once it establishes proper distribution channels for each of the product classes, DOE will rely on economic census data from the United States Census Bureau 37 and input from the industry trade

a ssociations such as the Heating, Air-Conditioning, and Refrigeration Distributors International (HARDI) to define how products are marked up from the manufacturer to the consumer. HARDI represents wholesalers for the central air conditioners and heat pumps as well as other HVAC products. 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;

s ales, general, and administration costs; research and development 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. DOE generally assumes that gross margins on baseline residential unitary equipment are lower than the average gross margin of a diversified company.

37 U.S. Census Bureau. 2002. Plumbing, Heating, and Air-Conditioning Contractors: 2002. Report EC02-231- 2 38220.44

D OE intends to develop both an overall baseline markup (for obtaining the consumer cost of baseline efficiency products) as well as an overall incremental markup to obtain the incremental cost of higher-efficiency products. Both of these overall markups will include an average multiplier to account for State sales tax applied at the last stage of the distribution channel. The State Tax Clearinghouse 38 is an Internet source that DOE intends to use to calculate applicable

s ales taxes.

Item 7–3 DOE requests feedback on its plan to use baseline and incremental distribution

channel markups for the LCC and PBP analysis.

Item 7–4 DOE seeks comment on other sources of relevant data that could be used to

characterize markups for the central air conditioners and heat pumps covered under this rulemaking.

8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

8.1 Overview
The effects of new energy conservation standards on equipment result in changes in operating expenses—usually a decrease—and changes in purchase price—usually an increase. DOE willanalyze the net effect of new standards on consumers by evaluating the net LCC using the costefficiency relationship derived in the engineering analysis, as well as the energy costs derived from the energy use and end-use load characterization analysis, and the equipment retail prices. Inputs to the LCC and PBP analyses include the installed cost to the consumer (purchase price plus installation cost), operating expenses (energy costs, maintenance costs, and, if applicable, repair costs), the lifetime of the appliance, energy price forecasts, and discount rates.
The installed and operating costs of the appliance typically change in response to new energy conservation standards (installed cost typically increases while operating cost typically decreases). Thus, there is a specific time in the life of higher-than-baseline efficiency appliances when the net operating cost benefit (in dollars) from the time of purchase is equal to the incremental first cost of purchasing the higher efficiency appliance. The length of time required for the appliance to reach this cost-equivalence point is known as the payback period (PBP).

DOE considers both LCC and PBP as discussed in section 1.4 to determine whether a standard is economically justified and whether the benefits of an energy conservation standard will exceed its burdens to the greatest extent practicable. However, because LCC uses an explicit discount rate (that depend on customers’ cost of financing), takes into account changing energy prices, and does not require selection of a baseline efficiency level, it is considered by DOE to be a better indicator of the likely economic impacts on consumers. For the ANOPR, DOE will conduct the LCC and PBP analysis using appropriate values for equipment life, equipment retail price, national or regional energy costs, and discount rates.

38 Sales Tax Clearinghouse, Inc., S tate sales tax rates along with combined average city and county rates

. Available at: http://thestc.com/STrates.stm

.45

D OE will perform the LCC and PBP analyses using a spreadsheet model combined with Crystal Ball (a commercially available software add-on program to Microsoft Excel to conduct stochastic analysis using Monte Carlo simulation and probability distributions) to account for uncertainty and variability among the input variables. Each Monte Carlo simulation will consist of 10,000 LCC and PBP calculations. The models will perform each calculation using input values that are either sampled from probability distributions and household samples or characterized with single point values. The analysis results will be a distribution of 10,000 data points showing the range of LCC savings and PBPs for a given efficiency level relative to the baseline level. For any sensitivity analyses it conducts, DOE will account for correlations that may exist between inputs ( e.g. , there may be a correlation between energy usage and energy p rices).

As discussed in section 6, DOE intends to take into account the rebound effect associated with more efficient central air conditioners and heat pumps. The take-back in energy consumption associated with the rebound effect provides consumers with increased value ( e.g. , a cooler or

w armer indoor environment). The net impact on consumers is thus the sum of the change in the cost of owning the space-conditioning equipment ( i.e., life-cycle cost) and the increased value f or the more comfortable indoor environment. DOE believes that, if it were able to monetize the increased value to consumers added by the rebound effect, this value would be similar in value to the foregone energy savings. For this standards rulemaking, DOE estimates that this value is equivalent to the monetary value of the energy savings that would have occurred without the rebound effect. Therefore, the economic impacts on consumers with or without the rebound effect, as measured in the LCC analysis, are the same.

Based on the results of the LCC analysis, DOE will select candidate standard levels (CSLs) for the ANOPR analysis. The range of CSLs typically will include the efficiency level with the minimum LCC, the highest efficiency level that is technologically feasible, and other intermediate levels DOE has not yet determined.

The following sections discuss the methodologies DOE plans to use to develop several of the inputs to the LCC and PBP analysis, including: (1) electricity prices; (2) discount rates; (3) maintenance, repair, and installation costs; and (4) equipment lifetime. The other inputs to the LCC and PBP analysis—namely, manufacturer costs (section 5), annual energy consumption (section 6), and markups for the determination of consumer retail prices (section 7)—have been discussed previously.
As noted above, for central air conditioners and heat pumps, it will be necessary to determine several values for the LCC estimation, including retail prices, electricity prices, discount rate, maintenance, service and installation costs, and appliance lifetimes. The following sections discuss the methodologies DOE plans to use in determining these values.

8.2 Electricity Prices
Electricity prices are used to evaluate the energy cost savings determined from the energy use analysis. Electricity prices can be characterized with average and marginal values. Average electricity prices reflect the average prices paid by consumers over the course of a billing period. To calculate average electricity prices for residential and commercial consumers, DOE46

c an use information provided for electric utilities as summarized in the most recent EIA Form 861 data. 39 These data are published annually for all electric utilities in the U.S. and include

e ach utility’s annual revenues, electricity sales (in kWh), and the number of customers served for each customer class ( i.e. , residential, commercial, and industrial). The calculation of a utility’s

a verage electricity price for a given customer class is estimated by dividing the utility’s revenues by its sales for that segment. Regionally-based weighted-average prices (where regions, if necessary, can be specified down to the State level) will be determined by weighting each utility’s average price within the defined region by the number of customers that the utility

serves.
But rather than using average electricity prices in its analysis of central air conditioners and heat pumps, DOE intends to use marginal electricity prices as they offer a more accurate way to value air conditioner energy savings. This is because for electricity loads that are not flat ( i.e. , not op erated over a 24-hour period), the average electricity price does not reflect the actual price of operating the appliance. In the case of air conditioning, the appliance’s load primarily occurs during utility "on peak" periods during the summer, a time for many utilities when it is more costly to provide electrical service to their customers. 40 Assuming that the way customers are

c harged reflects the utility's cost of supplying electricity, the electricity price during "on peak" periods for these utilities should be higher than during "off peak" periods. Therefore, using average electricity prices to value what consumers pay for using air conditioning undervalues their actual price for operating the air conditioner. In contrast, marginal electricity prices reflect the prices paid by consumers for the last kWh of electricity purchased. In the case of air conditioning savings that are achieved through energy conservation standards, the marginal price reflects what consumers avoid spending on air conditioning during “on peak” periods. Although the use of marginal electricity prices is a more accurate means of valuing air conditioning energy savings, their calculation can be more difficult than calculating the average prices.
DOE can use one of two data sources to develop marginal electricity prices: (1) EIA’s RECS (applicable to residential consumers only) or (2) electric utility tariffs. Each of these sources is discussed in turn immediately below.
RECS data were used in the last central air conditioner and heat pump standards rulemaking to establish marginal electricity prices. 41 RECS has also been used in recent DOE standards

r ulemakings to establish marginal energy prices for other residential products ( e.g. , residential f urnaces and boilers). 42 RECS provides utility bill data ( i.e. , monthly household consumption

a nd expenditures) for a majority of the households surveyed. Plotting the monthly expenditures against the monthly consumption data, the household’s marginal energy price for the summer

39 Available at: h ttp://www.eia.doe.gov/cneaf/electricity/page/eia861. html

. 40 In the case of heat pumps used for space-heating, loads occur during the winter and are obviously markedly d ifferent than air conditioning loads that occur during the summer.

41 U.S. DOE, Technical Support Document: Energy Efficiency Program for Consumer Products: Residential Central Air Conditioners and Heat Pumps , May 2002, Washington, DC. Chapter 5. Available at: http://www.eere.energy.gov/buildings/appliance_standards/residential/ac_central_1000_r.html.

42 U.S. DOE, Technical Support Document: Energy Efficiency Program for Consumer Products: Energy Conservation Standards for Residential Furnaces and Boilers , September 2007, Washington, DC. Chapter 8. Available at: http://www.eere.energy.gov/buildings/appliance_standa rds/residential/fb_tsd_0907.html

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m onths and winter months can be derived. 43 Therefore, marginal summer prices (for air

c onditioning) and marginal winter prices (for heat pumps) can be developed for most households in RECS that use a central air conditioner and heat pump. With marginal prices developed at the household level, DOE can aggregate prices to a regional level based on the geographic location and weighting of each household. The most recent version of RECS is from the year 2001. The 2005 version is due for release in the summer of 2008, but the utility billing data that accompanies it will likely not be available until six months after the release of RECS. If the 2005 utility bill data from RECS are not available in time to conduct analyses for the ANOPR, DOE will use the 2001 RECS utility bill data and adjust the resultant marginal prices to reflect more recent prices using adjustment factors developed from Edison Electric Institute (EEI) reports on summer-time and winter-time typical bills and average rates. 44 DOE will use the 2005 R ECS utility bill data to determine marginal prices assuming the 2005 RECS data is available at the time that the analyses for the NOPR need to be performed.
Electric utility tariffs serve as another data source for developing marginal electricity prices. Tariffs are the set of rules that utilities use to calculate a consumer’s utility bill. These rules are proposed by the utility and approved by the State public utilities commission for that jurisdiction. Tariff-based marginal prices were utilized for DOE’s commercial unitary air conditioner and heat pump standards rulemaking. 45 With this approach, a representative sample of private and p ublic utilities are first established. From the sample of utilities, the default tariffs for each utility are then collected and analyzed to determine the marginal electricity price. Default tariffs are those that apply to a typical customer with no special rules or requirements. Residential tariffs are typically fairly simple, consisting of monthly fixed charges and energy charges. Energy charges often use block rates, in which the price per unit kWh of energy consumed varies with the amount of energy consumed. The marginal price is the energy charge that corresponds to the highest block for that customer’s monthly energy consumption. DOE can aggregate marginal prices developed at the utility level to regional values based on the weighting of each utility within a given region.
If the use of central air conditioners and heat pumps in commercial buildings needs to be addressed, the results from DOE’s commercial unitary air conditioner and heat pump standards rulemaking tariff analysis can be utilized. From this prior analysis, marginal prices were found to be a function of two parameters: (1) the monthly energy consumption in kWh, and (2) the monthly energy demand in kW for the customer. Based on the tariff formula and the customer’s baseline load, a simple formula is developed that expresses the customer’s marginal change in expenditures as a function of the customer’s marginal change in energy consumption and

43 U.S. DOE, DRAFT Marginal Energy Prices Report , July 1999. Washington, DC. Available at: http://www.eere.energy.gov/buildings/appliance_standa rds/pdfs/marg_eprice_0799.pdf

44 Edison Electric Institute. Typical Bills and Average Rates Report – Summer 2007
, http://www.eei.org/products_and_services/descriptions _and_access/typ_bills_report.htm and Typical Bills and Average Rates Report – Winter 2007, http://www.eei.org/products_and_services/descriptions_and_access/typ_bill_winter_5.htm

. 45 U.S. DOE, Technical Support Document: Energy Efficiency Program for Commercial and Industrial Equipment: Commercial Unitary Air Conditioners and Heat Pumps , July 2004, Washington, DC. Chapter 8. Available at: http://www.eere.energy.gov/buildings/appliance_standa rds/commercial/cuac_tsd_060904.html

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d emand. 46 DOE has already collected commercial tariffs from the year 2004 for its standards

r ulemaking on distribution transformers. 47 Therefore, a representative set of marginal energy

a nd demand charges are already available from which marginal electricity prices can be developed. If necessary, DOE can collect tariffs from a more recent year and update this set of energy and demand charges. In any case, as described for residential electricity prices, customer-level marginal prices will be aggregated to regional values based on the weighting of each utility and tariff customer class within a given region.
DOE will use projections of national average electricity prices to residential and commercial consumers to estimate future marginal electricity prices or electricity bill savings in its LCC analysis. DOE will use the most recent available edition of EIA’s Annual Energy Outlook (AEO) as the default source of projections for future electricity prices.

Item 8–1 DOE seeks comments on which data source (RECS or electric utility tariffs)

should be used to estimate marginal electricity prices.

Item 8–2 DOE seeks comments on its planned use of EIA’s AEO to project future

marginal electricity prices.

8.3 LCC Discount Rates
The calculation of consumer LCC requires the use of an appropriate discount rate. DOE uses the discount rate to determine the present value of lifetime operating expenses. The discount rate used in the LCC analysis represents the rate from an individual consumer’s perspective. 48

F or residential consumers of central air conditioners and heat pumps, DOE plans to use the same approach that it relied on to develop discount rates for its recent residential furnaces and boilers standards rulemaking ( i.e. , deriving the discount rates from estimates of the interest or “finance

c ost” to purchase residential products). The finance cost of raising funds to purchase these products can be interpreted as: (1) the financial cost of any debt incurred to purchase products (principally interest charges on debt), or (2) the opportunity cost of any equity used to purchase products (principally interest earnings on household equity). Household equity is represented by holdings in assets such as stocks and bonds, as well as the return on homeowner equity. Much of the data required determining the cost of debt and equity comes from the Federal Reserve Board’s triennial Survey of Consumer Finances

. 49

46 K. Coughlin et al, Tariff-Base Analysis of Commercial Marginal Electricity Prices , April 2008, Lawrence Berkeley National Laboratory, Berkeley, CA.

47 U.S. DOE, Technical Support Document: Energy Efficiency Program for Commercial and Industrial Equipment: Electric Distribution Transformers , September 2007, Washington, DC. Chapter 8. Available at: http://www.eere.energy.gov/buildings/appliance_standa rds/commercial/distribution_transformers_fr_tsd.html

. 48 The consumer discount rate is in contrast to the discount rates used in the national impact analysis, which are in tended to represent the rate of return of capital in the U.S. economy as well as the societal rate of return on private consumption. Refer to section 10.3 for additional information.

49 Available at: h ttp://www.federalreserve.gov/pubs/oss/oss2/scfindex. html

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I n the event that commercial customers installing residential central air conditioners and heat pumps need to be addressed in the analysis, DOE will use the same approach it relied on for developing discount rates for commercial unitary air conditioners and commercial customers of distribution transformers. 50 This approach involves deriving the discount rates for commercial

c ustomers by estimating the cost of capital of companies that purchase central air conditioners and heat pumps. The cost of capital is commonly used to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so the cost of capital is the weighted-average cost to the firm of equity and debt financing. This corporate finance approach is referred to as the weighted-average cost of capital (WACC). The set of companies purchasing central air conditioners and heat pumps may differ from those who purchase commercial unitary air conditioners or distribution transformers, which may result in different discount rates.

Item 8–3 DOE seeks comment on the planned approaches for estimating discount rates

for residential consumers and commercial customers of central air conditioners and heat pumps.

8.4 Maintenance, Repair, and Installation Costs
DOE will consider expected changes to maintenance, repair, and installation costs for the central air conditioners and heat pumps covered in this rulemaking. Typically, small incremental changes in appliance efficiency incur no, or only very small, changes in repair and maintenance costs over baseline efficiency products. There is a greater probability that appliances with efficiencies that are significantly greater than the baseline efficiency appliances will incur increased repair and maintenance costs since such appliances are more likely to incorporate technologies that are not currently widely available. DOE will rely on input from manufacturers and other stakeholders in developing appropriate repair and maintenance cost estimates, as necessary.
Unless the efficiency increases considered for this rulemaking result in significantly larger or heavier products, DOE expects that more efficient central air conditioners and heat pumps will not incur increased installation costs.

Item 8–4 DOE seeks feedback on whether it is correct to assume that changes in

maintenance, repair, and installation costs will be negligible for more efficient equipment.

Item 8–5 If it is not appropriate to assume that changes in maintenance, repair, or

installation costs would be negligible for more efficient equipment, DOE seeks

50 U.S. DOE, Technical Support Document: Energy Efficiency Program for Commercial and Industrial Equipment: Commercial Unitary Air Conditioners and Heat Pumps , July 2004, Washington, DC. Chapter 8. Available at: http://www.eere.energy.gov/buildings/appliance_standards/commercial/cuac_tsd_060904.html.50 comment on appropriate methodologies for assessing changes to each of these
costs.

8.5 Equipment Lifetime
Equipment lifetime is the age at which the central air conditioner or heat pump is retired from service. In the prior standards rulemaking, DOE conducted a comprehensive analysis on equipment lifetime showing that the average lifetime for central air conditioners and heat pumps was 18.4 years. The analysis also demonstrated that compressors failed and were replaced, on average, in the fourteenth year of the system’s life. For this rulemaking, DOE will take a similar approach to use most recent information from various literature sources (e.g., Appliance Ma gazine , handbooks published by the American Society of Heating, Refrigerating, and AirC onditioning Engineers (ASHRAE)) and input from manufacturers and other stakeholders to determine the most relevant and accurate lifetime of central air conditioners and heat pumps.

Item 8–6 DOE seeks comments on appropriate equipment lifetimes for the central air

conditioners and heat pumps.

9. SHIPMENTS ANALYSIS
Shipment forecasts are required to calculate the national impacts of standards (NES and NPV) and future manufacturer cash flows. DOE will develop shipment forecasts based on an analysis of key market drivers for central air conditioners and heat pumps.

9.1 Base-Case Forecast
To evaluate the various impacts of standards, DOE will develop a base-case forecast against which to compare forecasts for higher efficiency levels. (Higher efficiency level forecasts are also referred to as standards-case forecasts.) DOE designs the base-case forecast to depict what would be anticipated to happen to energy consumption and costs over time if DOE does not adopt new energy conservation standards for the equipment covered under this rulemaking. In determining base-case shipments, DOE plans to calibrate its forecasts against historical shipments. DOE will also consider the mix of efficiencies sold in the absence of new standards and how that mix might change over time. As a result, DOE will need to collect data on historical product shipments and the market shares of the different efficiency levels offered in each product class.
Central air conditioners and heat pumps subject to this rulemaking are primarily utilized in residential applications. DOE plans to determine split-system and single-package annual shipments in the base-case by primarily accounting for sales to two market segments: (1) new construction and (2) the replacement market.
To forecast shipments to the new construction market, DOE plans to utilize estimates of forecasted new housing and apply historical rates of product ownership in new construction ( i.e. ,51

n ew housing saturation rates) to the forecasts. DOE plans to rely on the latest available edition of EIA’s AEO for forecasts of new residential construction. New housing historical saturation

r ates dating back to 1973 are provided by the U.S. Census Bureau’s Characteristics of New Ho using

. 51 Both EIA’s residential construction forecasts and the Census Bureau’s historical p roduct saturation rates are broken down by Census Region ( i.e. , Northeast, Midwest, South, and W est), thereby allowing DOE to estimate regional residential construction shipments.
To forecast replacement shipments to the residential sector, DOE plans to develop the product’s retirement function from the lifetime estimated in the LCC and PBP analysis and apply it to the existing units in the housing stock. The existing stock of units will be tracked by vintage and will be developed from historical shipments data dating back to the late 1970s. To establish historical shipments by product class, DOE plans to rely on public sources including Appliance Ma gazine 52 and the AHRI’s Industry Statistical Profile

. 53 The publicly-available data provides

s hipments of unitary air-conditioning and heat pump equipment but does not identify the percentage of equipment that are 3-phase and greater than or equal to 65,000 Btu/hr in cooling capacity (equipment which does not fall under this rulemaking). Therefore, DOE requests shipments data from the industry to ensure that the analysis accounts for only those shipments that are regulated under this rulemaking ( i.e. , single-phase and less than 65,000 Btu/hr in cooling

c apacity). DOE also requests regional data from the industry so that the national shipments data can be disaggregated into the four Census Regions.
After the historical shipments data have been compiled, DOE plans to validate the existing equipment stock developed from the historical shipments data with historical household saturations. Historical saturations at the Census Region level are provided by the Census Bureau’s American Housing Survey ( AHS ). 54 Because the AHS

does not distinguish between

w hich homes are cooled by central air conditioners and heat pumps, DOE plans to also use EIA’s RECS to develop saturations specific to both central air conditioners and heat pumps.

A s discussed earlier in section 6, although central air conditioners and heat pumps are utilized primarily in residential applications, DOE recognizes that some equipment is installed in commercial buildings. For example, in the previous standards rulemaking for central air conditioners and heat pumps, AHRI estimated that ten percent of central air conditioner and heat pump shipments are to commercial applications.
If DOE verifies that a significant share of product shipments are to commercial buildings, similar to the forecasts for residential buildings, DOE will determine split-system and single-package annual shipments in the base-case by primarily accounting for sales to two commercial building market segments: (1) new construction and (2) the replacement market. If there is a significantshare of product shipments to commercial buildings, this should be reflected in DOE’s crosscheck of historical household saturations with historical shipments.

51 Available at: http://www.census.gov/const/www/charindex.html.

52 Available at: http://www.appliancemagazine.com/.

53 Available at: http://www.ari.org/Content/EquipmentStatistics_118.aspx.

54 See http://www.census.gov/hhes/www/housing/ahs/ahs.html.52

To forecast shipments to the new commercial construction market, DOE plans to determine shipments by utilizing the same type of method that it plans to use for the residential construction market—namely, by relying on estimates of forecasted new commercial construction (by building type) and applying historical rates of new construction saturation rates to the forecasts. DOE plans to rely on the latest available edition of EIA’s AEO for forecasts of new commercial

c onstruction. DOE plans to develop new commercial building product saturation rates from past editions of EIA’s CBECS . Both the new commercial construction forecast and the product

s aturation rates are broken down by Census Region, thereby allowing DOE to estimate regional commercial construction shipments.
To forecast replacement shipments to the commercial building sector, DOE plans to develop the product’s retirement function (from the lifetime estimated in the LCC and PBP analysis) and apply it to the existing units in the housing stock. As DOE plans to do for the residential sector, the existing commercial stock of units will be tracked by vintage and will be developed from the historical shipments to the commercial sector. On an annual basis, DOE will allot ten percent of total historical shipments (or an updated percentage if provided by the industry) to commercial buildings. DOE plans to validate the existing equipment stock developed from the historical shipments data with historical commercial building saturations developed from past editions of EIA’s CBECS

.
I n addition to the new construction and replacement market segments, DOE plans to consider the market segment consisting of existing buildings that do not already own the product ( i.e. , the

“ existing” market). DOE plans to use the “existing” market segment to calibrate the base-case historical forecasts ( i.e. , backcasts) to historical shipments. In order to reduce the discrepancy b etween the backcasts and historical shipments, DOE plans to derive a historical rate of product adoption for the “existing” market. After historical rates of adoption have been determined, DOE plans to project future adoption rates from the historical trend.
For central air conditioners and heat pumps, DOE plans to develop four sets of base-case shipments forecasts based on the above accounting methodology for the following four product classes: (1) split-system air conditioners; (2) split-system heat pumps; (3) single-package air conditioners; and (4) single-package heat pumps. DOE plans to develop base-case forecasts for each of the four Census Regions that, in turn, can be aggregated to produce a single national forecast. As mentioned above, in order to calibrate its base-case forecasts as well as develop an existing stock of equipment, DOE requires and requests historical shipments data from the industry that are disaggregated by Census Region for each of the above four product classes.
If DOE analyzes SDHV and through-the-wall systems, because product shipments for these product classes are very small relative to the four primary product classes, DOE does not plan to use an accounting methodology that identifies shipments to the new construction, replacement, and “existing” market segments. Rather, DOE plans to extrapolate data from historical shipments trends. To utilize such an approach, DOE requests historical shipments data from the industry for SDHV systems, through-the wall air conditioners, and through-the-wall heat pumps.53

Item 9–1 DOE seeks historical shipments data, including shipment weighted energy

factor (SWEF), for each of the following product classes: (1) split-system air conditioners; (2) split-system heat pumps; (3) single-package air conditioners; (4) single-package heat pumps; (5) SDHV systems; (6) through-the-wall air conditioners; and (7) through-the-wall heat pumps. Within each product class, DOE also requests shipments data, including SWEF, disaggregated regionally by Census Region.

9.2 Standards Impacts on Product Shipments
For each product, DOE will develop a set of shipment forecasts for the covered equipment for each set of efficiency levels analyzed. These standards-case forecasts will be used to evaluate the impacts of standards on product shipments. Standards-case forecasts are derived using the same data sets as base-case forecasts; however, because the standards-case forecasts take into account the assumed increase in purchase price and the decrease in operating costs caused by standards, forecasted shipments typically deviate from the base case. Household income also factors into consumer purchase decisions. Therefore, the magnitude of the difference between the standards-case and base-case shipment forecasts depends on the estimated purchase price increase, as well as the operating cost savings caused by the energy conservation standard, relative to household income. Because the purchase price tends to have a larger impact than operating cost on equipment purchase decisions, standards-case forecasts typically show a drop in product shipments relative to the base case.
DOE’s past energy conservation standards analyses have attempted to quantify the sensitivity of shipments to increased purchase price and operating cost savings, as well as to changes in household income. Because the data required to develop these sensitivities are limited and often difficult to obtain, DOE will consider modeling standards-case shipments forecasts with scenarios ( i.e. , specified impacts to product shipments) rather than developing sensitivities to p urchase price or operating cost savings.
Irrespective of the methodology used to estimate the impacts of standards on shipments, for splitsystem and single-package heat pumps, DOE plans to account for fuel and equipment switching.That is, DOE will allocate any forecasted drop in heat pump shipments to increased sales of gasfired and electric-resistance forced-air furnaces. DOE will account for the composition of the space-heating equipment stock to determine how increases in non-heat pump sales will be allocated to gas-fired and electric-resistance forced-air furnaces. DOE plans to capture fuel and equipment switching because of the potentially significant impact it can have on diminishing the national energy savings and economic impacts due to a proposed heat pump energy conservation standard. Although allocating the forecasted drop in heat pump shipments in the manner described above reflects the maximum possible amount of fuel and equipment switching, the resulting impacts on national energy and economic savings will indicate how critical such switching is. If modeling fuel and equipment switching under a “maximum” scenario results in significant impacts to national energy consumption, DOE will conduct a more detailed analysis based on the findings from economic literature to better assess the potential for fuel and equipment switching.54

M arket-pull programs, such as consumer rebate programs or State tax credits to consumers (such as in Oregon) that encourage the purchase of more efficient products and manufacturer tax credits that encourage the production of more efficient products, also affect standards-case shipment forecasts. When such programs exist, DOE plans to consider their impact on the forecast of both standards-case and base-case shipments.

Item 9–2 As part of its preliminary manufacturer impact analysis, DOE seeks input from

manufacturers on the potential impact of new energy conservation standards on central air conditioner and heat pump shipments. DOE also seeks input from other stakeholders on the potential impact of standards on product shipments.

Item 9–3 DOE also requests input on any market-pull programs that currently exist to

promote the purchase or manufacture of more efficient central air conditioner and heat pump equipment.

10. NATIONAL IMPACT ANALYSIS
Section 8 discusses methods for estimating the LCC savings and payback period for individual consumers. This section discusses DOE’s assessment of the aggregate impacts of the amended standards at the national level. Measures of impact to be reported include the NPV of total consumer LCCs and future national energy savings from candidate standards.

10.1 Inputs to NES and NPV Forecast
Analyzing impacts of Federal energy conservation standards for central air conditioners and heat pumps requires a comparison of projected U.S. energy consumption with, and without, new or amended energy conservation standards. The forecasts contain projections of annual appliance shipments (as discussed in section 9), the annual energy consumption (and efficiency) of new appliances (as discussed in sections 6 and 9), and the purchase price of new appliances (as discussed in section 7).
A key component of DOE’s estimates of NES and NPV is the energy efficiencies forecasted over time for the base case (without new standards) and each of the standards cases. The forecasted efficiencies represent the annual shipment-weighted energy efficiency of the products under consideration over the forecast period ( i.e. , from the assumed effective date of a new standard to 3 0 years after the standard becomes effective). Because key inputs to the calculation of the NES and NPV (annual energy consumption for the NES, and retail prices and annual operating costs for the NPV) are dependent on the estimated efficiencies, these efficiencies are critical to the analysis.
DOE plans to rely on input from stakeholders to develop base-case historical shipment-weighted average efficiencies for each of the central air conditioner and heat pump product classes. For the last standards rulemakings on central air conditioners and heat pumps, AHRI was able to provide historical shipment-weighted efficiency data. DOE hopes that AHRI and manufacturers will provide similar historical shipment-weighted average efficiency data for as many of the55

p roduct classes as possible for this standards rulemaking. [Note that, although AHRI’s Industry Statistical Profile does provide historical shipment-weighted efficiency data, these data are not d isaggregated by product class.] DOE also hopes that for each product class, AHRI and manufacturers will provide historical efficiency data for each of the four Census Regions. To forecast base-case efficiencies, DOE intends to extrapolate from the historical trends as necessary to supplement manufacturer data.
To develop shipment-weighted efficiencies for the various standards cases, DOE expects to collect market-share efficiency data ( i.e. , data on the distribution of product shipments by

e fficiency) for the various product classes. Realizing that this information may be difficult to collect, DOE plans to obtain market-share efficiency data for at least the most predominant product classes ( i.e. , split- and single-package air conditioners and heat pumps) from a recent
y ear ( i.e. , 2005 or 2006).

Th e market-share efficiency data will allow DOE to estimate the efficiency impact that standards may have in the year they become effective. For example, DOE has assumed “roll-up” and “shift” scenarios for the prior central air conditioner and heat pump standards rulemaking. 55 U nder the “roll-up” scenario, DOE assumes: (1) product efficiencies in the base case that do not meet the standard level under consideration would “roll up” to meet the new standard level; and (2) product efficiencies above the standard level under consideration would not be affected. Under the “shift” scenario, DOE retains the pattern of the base-case efficiency distribution but re-orients the distribution at and above the new minimum energy conservation standard. Once DOE establishes the shipment-weighed efficiency for the assumed effective date of the standard, it plans to estimate future shipment-weighted efficiencies using the same rate of forecasted efficiency growth as in the base-case efficiency trend.

Item 10–1 DOE seeks historical shipment-weighted efficiency data by product class and by

the four Census Regions. DOE also seeks historical market share data showing the percentage of product shipments by efficiency level for as many product classes as possible.

Item 10–2 DOE seeks comments on the use of the “roll-up” and “shift” efficiency

scenarios to characterize the impact that potential standards will have on the product distributions.

10.2 Calculation of Energy Savings
DOE intends to calculate national energy consumption for each year beginning with the expected effective date of the standards. DOE will calculate national energy consumption by fuel type for the base case and each standard level analyzed. DOE plans to perform this calculation through the use of a spreadsheet model that multiplies the stock of equipment ( i.e. , annual shipping

55 Refer to the Chapter 7 of the central air conditioner TSD for more details, which is available at: h ttp://www.eere.energy.gov/buildings/appliance_standa rds/residential/ac_central_1000_r.html

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f orecasts) by unit energy savings, accounting for the stock of equipment affected by the energy conservation standards.
In response to comments by stakeholders who asked for a simple, transparent model, DOE has developed National Impact Analysis (NIA) spreadsheet models for its standards rulemakings since 1996, to forecast energy savings and to demonstrate how the growth in efficiency can be accounted for over time. 56 Although these models are specific to each product, DOE can apply t heir general structure to the entire central air conditioner and heat pump market. DOE expects the NIA spreadsheet model it develops for this rulemaking to provide a credible, stand-alone forecast of NES and NPV for residential central air conditioners and heat pumps.

As discussed in section 6, DOE intends to take into account the rebound effect associated with more efficient central air conditioners and heat pumps. DOE will incorporate the rebound effect utilized in the energy use analysis into its calculation of national energy savings.
Based on consideration of the comments DOE may receive on the ANOPR, DOE will make any necessary changes to the analysis. It will reflect those changes in the documentation for the NOPR.

Item 10–3 DOE seeks comment on its plan to develop NIA spreadsheet models for

estimating national impacts of amended energy conservation standards for residential central air conditioners and heat pumps.

10.3 Net Present Value
DOE calculates the national NPV of energy conservation standards in conjunction with the NES. It calculates annual energy expenditures from annual energy consumption by incorporating forecasted energy prices, using the shipment and average energy efficiency forecasts described in section 6 and section 9, respectively. DOE calculates annual equipment expenditures bymultiplying the price per unit times the forecasted shipments. The difference between a basecase and a standards-case scenario gives the national energy bill savings and increased equipment expenditures in dollars. The difference each year between energy bill savings and increased equipment expenditures is the net savings (if positive) or net costs (if negative). DOE discounts these annual values to the present time and sums them to give a net present value. According to U.S. Office of Management and Budget (OMB) requirements, DOE will conduct two NPV calculations, one using a real discount rate of three percent and another using a real discount rate of seven percent (OMB, Circular A-4: Regulatory Analysis. 2003). 57 The discount

r ates for the determination of NPV are in contrast to the discount rates used in the LCC analysis (which are developed from a consumer’s perspective). The seven percent real value is an estimate of the average before-tax rate of return to private capital in the U.S. economy. The three percent real value represents the “societal rate of time preference,” which is the rate at

56 Several NIA spreadsheet models from previous rulemakings, including the rulemaking for residential clothes

w ashers, can be found on DOE’s website at: http://www.eere.energy.gov/buildings/appliance_standards/residential/clothes_washers.html.

57 Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html.57

w hich society discounts future consumption flows to their present value. Based on consideration of the comments received on the ANOPR, DOE will make any necessary changes to the analysis and the efficiency levels.

As noted above in section 10.2, DOE intends to take into account the rebound effect associated with more efficient central air conditioners and heat pumps in its determination of national energy savings. As discussed in section 8, because the rebound effect provides consumers with increased value ( i.e. , a more comfortable environment), DOE believes that, if it were able to

m onetize the increased value to consumers added by the rebound effect, this value would be similar in value to the foregone energy savings. For this standards rulemaking, DOE estimates that this value is equivalent to the monetary value of the energy savings that would have occurred without the rebound effect. Therefore, the economic impacts on consumers with or without the rebound effect, as measured in the NPV, are the same.

11. LIFE-CYCLE COST SUBGROUP ANALYSIS
This section describes how DOE analyzes consumer impacts by dividing consumers into subgroups and accounting for variations in key inputs to the life-cycle cost analysis. A consumer subgroup comprises a subset of the population that is likely, for one reason or another, to be impacted disproportionately by new or revised energy conservation standards. The purpose of a subgroup analysis is to determine the extent of this disproportional impact. DOE will work with stakeholders early in the rulemaking process to identify any subgroups for consideration. However, it will not analyze the consumer subgroups until the NOPR stage of the rulemaking.
In comparing potential impacts on the different consumer subgroups, DOE will evaluate variations in regional energy prices, variations in energy use profiles, and variations in installation costs that might affect the NPV of a standard to consumer subgroups. In evaluating variations in energy use, DOE will take into account the effects of climate, specifically, how the climate associated with the consumer’s geographic location impacts the energy consumption of the equipment. To the extent possible, DOE may obtain estimates of the variability in each input variable and consider this variability in its calculation of consumer impacts. It will discuss the variability in each input variable and likely sources of information with stakeholders.
DOE intends to consider the impact of any new standards on consumer subgroups.

Item 11–1 DOE seeks input on which of the consumer subgroups DOE should consider

in this rulemaking. Examples of possible subgroups DOE could consider for this rulemaking include low-income consumers, senior citizens, or persons living in different climate zones that might be subject to the same standards.

12. MANUFACTURER IMPACT ANALYSIS
DOE announced changes to the manufacturer impact analysis format through a report issued to Congress on January 31, 2006 (as required by section 141 of EPACT 2005). This report, titled58

“ Energy Conservation Standards Activities,” (Standards Activities) is available on the DOE website at: http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.
Previously, DOE did not report any manufacturer impact analysis results during the ANOPR phase; however, under this new format, DOE will collect, evaluate, and report preliminary information and data in the ANOPR. (Standards Activities, page 48) Such preliminary information includes the anticipated conversion capital expenditures by efficiency level and the corresponding, anticipated impacts on employment. DOE will solicit this information during the ANOPR engineering analysis manufacturer interviews.
The analysis of impacts on manufacturers is intended to provide DOE with an assessment of the potential impacts of energy conservation standards on manufacturers. In addition to financial impacts, a wide range of quantitative and qualitative effects may occur following adoption of a standard that may require changes to the manufacturing practices for these products. DOE will identify these effects through interviews with manufacturers and other stakeholders.
For the NOPR, DOE intends to supplement the results of the preliminary manufacturer impact analysis conducted as part of the ANOPR with more detailed analyses. Specifically, DOE will carry out an industry-wide cash flow analysis using the Government Regulatory Impact Model (GRIM), identify and analyze subgroups of manufacturers whose business varies significantly from the industry as a whole, perform a competitive impacts assessment, and review the cumulative regulatory burden for the industry.

12.1 Sources of Information
Many of the analyses described earlier provide important information that DOE uses as inputs for the manufacturer impact analysis. Such information includes financial parameters developed in the market assessment (section 3.1), manufacturing costs and prices from the engineering analysis (section 5), retail price forecasts (section 7), and shipments forecasts (section 9). DOE supplements this information with information gathered during manufacturer interviews. The interview process will play a key role in the manufacturer impact analysis, as it provides an opportunity for interested parties to express their views on important issues.
DOE will conduct detailed interviews with manufacturers to gain insight into the range of potential impacts of energy conservation standards on the covered equipment. During the interviews, DOE will solicit information on the possible impacts of standards on manufacturing costs, equipment prices, sales, direct employment, capital assets, and industry competitiveness. Both qualitative and quantitative information are valuable in terms of this analysis. DOE will schedule interviews well in advance to provide every opportunity for key individuals to be available. In addition, an interview guide will be provided before the interviews to allow the manufacturers to gather the appropriate information. Although a written response to the questionnaire is acceptable, DOE prefers an interactive interview process because it helps clarify responses and provides the opportunity for additional issues to be identified.
DOE will ask that interview participants identify all confidential information provided, both in writing and orally, and DOE will determine whether the information submitted is entitled to59

c onfidential treatment. While it will consider information gathered, as appropriate, in its decision-making process, DOE will not make confidential information available in the public record. DOE will also ask participants to identify all information that they wish included in the public record, but that they do not want to have associated with their interview. DOE will incorporate this information into the public record, but will report it without attribution.
DOE will collate the completed interview questionnaires and prepare a summary of the major issues and outcomes. This summary will become part of the technical support document produced for this rulemaking.

12.2 Industry Cash Flow Analysis
The industry cash flow analysis relies primarily on the Government Regulatory Impact Model (GRIM). DOE uses the GRIM to analyze the financial impacts of more stringent energy conservation standards on the industry that produces the products covered by the standard.
The GRIM analysis uses a number of factors — annual expected revenues; manufacturer costs such as costs of goods sold; selling, general, and administrative costs; taxes; and capital expenditures (both ordinary capital expenditures related to depreciation and those related to standards), new standards, and maintenance costs — to arrive at a series of annual cash flows beginning from the announcement of the new standard and continuing for several years after its implementation. DOE compares the results against base-case projections that involve no new standards. The financial impact of new standards is the difference between the two sets of discounted annual cash flows. Other performance metrics, such as return on invested capital, also are available from the GRIM.
DOE will gather this information from two primary sources: (1) the analyses conducted to this point, and (2) interviews with manufacturers and information from other stakeholders. Information gathered from previous analyses will include financial parameters, manufacturing costs, price forecasts, and shipments forecasts. Interviews with manufacturers and information from other stakeholders will be essential in supplementing this information.

12.3 Manufacturer Subgroup Analysis
It is possible that the use of average industry cost values may not adequately assess differential impacts among subgroup manufacturers. DOE recognizes that smaller manufacturers, niche players, and manufacturers exhibiting a cost structure that differs significantly from the industry average may be impacted differently by any new standards. Ideally, DOE would consider the impact on every firm individually. In highly concentrated industries, this may be possible. In industries having numerous participants, however, DOE will use the results of the market and technology assessment to group manufacturers into subgroups, as appropriate.

Small businesses, as defined by the Small Business Administration (SBA) for residential central air conditioning manufacturers, are enterprises with 750 employees or fewer. Small business size standards are listed by North American Industry Classification System (NAICS) code and industry description. Air conditioner manufacturing is classified under NAICS 333415. As part of its subgroup analysis, DOE will attempt to identify whether there are any small businesses60

a ffected by the rulemaking, and if so, determine if there are differential impacts on these companies that may result from new energy conservation standards. DOE will examine publicly available data and contact manufacturers, when needed, to determine if they meet the SBA’s definition of a small business and if their manufacturing facilities are located within the United States. The detailed manufacturer subgroup impact analysis will entail calculating cash flows separately for each defined class of manufacturer.

Item 12–1 DOE seeks comment on appropriate manufacturer subgroups for residential

central air conditioners and heat pumps, if any, that DOE should consider in a manufacturer subgroup analysis.

12.4 Competitive Impacts Assessment
EPCA directs DOE to consider any lessening of competition that is likely to result from the imposition of standards. (42 U.S.C. 6295(o)(2)(B)(i)(V) and 6316(a)) It further directs the Attorney General to determine, in writing, the impacts, if any, of any lessening of competition.(42 U.S.C. 6295(o)(2)(B)(ii) and 6316(a)) DOE will make a determined effort to gather firmspecific financial information and impacts. DOE will then report the aggregated impact of the standard on manufacturers. DOE will provide the Attorney General with a copy of the NOPR for consideration in evaluation of the impact of standards on the lessening of competition. DOE will base the assessment on manufacturing cost data and on information collected from interviews with manufacturers. The manufacturer interviews will focus on gathering information that would help in assessing asymmetrical cost increases to some manufacturers, increased proportion of fixed costs potentially increasing business risks, and potential barriers to market entry ( e.g. , proprietary technologies).

1 2.5 Cumulative Regulatory Burden
DOE is aware that other regulations may apply to products covered under this rulemaking, as well as on other equipment produced by the same manufacturers affected by this rulemaking. Multiple regulations may result in a cumulative regulatory burden on these manufacturers. DOE will analyze and seek to mitigate the overlapping effects on manufacturers of amended DOE standards and other regulatory actions affecting the same equipment or companies.

Item 12–2 What regulations or pending regulations should DOE consider in the analysis

of cumulative regulatory burdens on manufacturers of covered equipment for this rulemaking?

13. UTILITY IMPACT ANALYSIS
To estimate the effects of energy conservation standards for central air conditioners and heat pumps on the electric utility industry, DOE plans to use a variant of the EIA’s National Energy Modeling System (NEMS), called NEMS-BT (BT refers to DOE’s Building Technologies61

P rogram). 58 NEMS is a large, multi-sectoral, partial-equilibrium model of the U.S. energy sector t hat EIA has developed over several years, primarily for the purpose of preparing the AEO

. NEM S produces a widely-recognized reference case forecast for the United States through 2030 and is available in the public domain.
The utility impact analysis is a comparison between the NEMS-BT model results for the base case and standards cases. Outputs of the utility impact analysis usually parallel results that appear in the latest AEO , with some additions. Typical outputs of the utility impact analysis i nclude forecasts of electricity sales, price, and avoided capacity. DOE plans to conduct the utility impact analysis as a scenario departing from the latest AEO reference case. In other

w ords, DOE will model the energy savings impacts from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from the AEO reference case. 59

Item 13–1 DOE seeks input from stakeholders on its plans to use NEMS-BT to conduct the

utility impact analysis on the equipment covered under this rulemaking.

14. EMPLOYMENT IMPACT ANALYSIS
DOE estimates the impacts of standards on employment for equipment manufacturers, relevant service industries, energy suppliers, and the economy in general. This analysis covers both direct and indirect employment impacts. Direct employment impacts are changes in the number of employees at the plants that produce the covered equipment, along with the affiliated distribution and service companies, resulting from the standards. DOE will evaluate direct employment impacts in the manufacturer impact analysis, as described in section 11.
Indirect employment impacts may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur due to the standards. DOE defines indirect employment impacts from standards as net jobs eliminated or created in the general economy as a result of increased spending driven by the increased equipment prices and reduced spending on energy.
The combined direct and indirect employment impacts will be investigated in the employment impact analysis using the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. The ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis, and estimates the employment and income effects of energy-

58 For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information A dministration documentation. A useful summary is National Energy Modeling System: An Overview 2000
, DOE/EIA-0581(March 2000) and is available at: http://tonto.eia.doe.gov/ftproot/forecasting/05812000 .pdf . EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifications and the model is run under various policy scenarios that are variations on EIA assumptions, DOE refers to the model by the name NEMS-BT (“BT” refers to DOE’s Building Technologies Program, under whose aegis this work has been performed).

59 Several descriptions of NEMS-BT models from previous rulemakings, including residential furnaces and boilers,

c an be found on DOE’s website at: http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/fb_fr_tsd/chapter_13.pdf

.62

s aving technologies in buildings, industry, and transportation. In comparison with simple economic multiplier approaches, ImSET allows for more complete and automated analysis of the economic impacts of energy conservation investments.

Item 14–1 DOE requests feedback on this approach to assessing employment impacts on

the equipment covered under this rulemaking.

15. ENVIRONMENTAL IMPACT ANALYSIS
The intent of the environmental impact analysis is to provide emissions results estimates and to fulfill requirements to properly quantify and consider the environmental effects of all new Federal rules. The primary environmental effects of energy conservation standards for central air conditioners and heat pumps are likely to be reduced emissions resulting from reduced electrical energy consumption. The environmental impact analysis will focus on the impact of possibleenergy conservation standards on the significant pollutants and emissions of electricitygenerating power plants. Specifically, the environmental assessment for this rulemaking will consider three types of energy-related emissions — oxides of nitrogen (NO x ), sulfur dioxide ( SO 2 ), and mercury (Hg); it will also consider one other emission — carbon dioxide (CO 2 ). D OE intends to base this analysis on the NEMS-BT modeling work planned for the utility impact analysis. This approach has the advantage of examining the marginal impact of standards for central air conditioners and heat pumps on the utility generation mix and the subsequent environmental emissions.
DOE will conduct each portion of the environmental impact analysis performed under this rulemaking as in incremental policy impact ( i.e. , an energy conservation standard for central air

c onditioners and heat pumps) of EIA’s AEO forecast, applying the same basic set of assumptions

u sed in the latest version of AEO available for use in this analysis. Also, forecasts conducted

w ith NEMS-BT consider the supply-side and demand-side effects on the electric utility industry. Thus, DOE’s analysis will account for any factors affecting the type of electricity generation and, in turn, the type an amount of airborne emissions the utility industry generates.

The NEMS-BT model tracks CO 2 emissions with a specialized carbon emissions estimation

s ubroutine, producing reasonably accurate results due to the broad coverage of all sectors and inclusion of interactive effects. Past experience with carbon dioxide emission results from NEMS-BT suggests that emissions estimates are somewhat lower than emissions based on simple average factors. One of the reasons for this divergence is that NEMS-BT tends to predict that conservation measures displace generating capacity growth in future years, and new generating capacity is expected to be more efficient than existing capacity. On the whole, NEMS-BT provides carbon dioxide emission results of reasonable accuracy, at a level consistent with other Federal published results. In addition to providing estimates of quantitative impacts of central air conditioner and heat pump standards on carbon dioxide emissions, DOE will consider the use of monetary values to represent the potential value of such emissions reductions.63

Item 15–1 DOE invites comments on how to estimate such monetary values associated

with CO 2 emissions reductions or on any widely accepted values which might be used in DOE’s analyses.

NEMS-BT also reports SO 2 , NO X , and Hg, which DOE has reported in past rulemaking analyses. Th e Clean Air Act Amendments of 1990 60 set an SO 2 emissions cap on fossil fuel-fired power g eneration units of 25 megawatts or greater. The attainment of this target, however, is flexible among generators through the use of emissions allowances and tradable permits. Although NEMS-BT includes a module for SO 2 allowance trading and delivers a forecast of SO 2
a llowance prices, accurate simulation of SO 2 trading implies that the effect of energy

c onservation standards on physical emissions will be zero because emissions will always be at or near the ceiling. However, there may be an SO 2 benefit from energy conservation, in the form of

a lower SO 2 allowance price. But since the impact of any one standard on the allowance price is l ikely small and highly uncertain, DOE does not plan to monetize any potential SO 2 benefit.

NEM S-BT also has an algorithm for estimating NO x emissions from power generation. The i mpact of these emissions, however, will be affected by the Clean Air Interstate Rule (CAIR), which the EPA issued on May 12, 2005. 70 FR 25162 (May 12, 2005). CAIR will permanently cap emissions of NO x in 28 eastern States and the District of Columbia. As with SO 2 emissions,

a cap on NO x emissions means that equipment efficiency standards may have little or no physical

e ffect on NO x emissions in States covered by the CAIR caps. When NO x emissions are subject t o emissions caps, DOE’s emissions reduction estimate corresponds to incremental changes in the prices of emissions allowances in cap-and-trade emissions markets rather than physical emissions reductions. Therefore, while the emissions cap may mean that physical emissions reductions in those States will not result from standards, standards could produce an environmental-related economic benefit in the form of lower prices for emissions allowance credits. However, as with SO 2 allowance prices, DOE does not plan to monetize this benefit b ecause the impact on the NO x allowance price from any single energy conservation standard is l ikely small and highly uncertain. DOE seeks comment on how it might value NO x emissions for t he 22 States not covered by CAIR.

With regard to mercury emissions from electric power generation, the NEMS-BT model has an algorithm for estimating these emissions, and, as it has done in the past, DOE is able to report an estimate of the physical quantity of mercury emissions reductions associated with an energy conservation standard. Furthermore, DOE had assumed that these emissions would be subject to EPA’s Clean Air Mercury Rule (CAMR), 61 which would have capped Hg emissions for new and

e xisting coal-fired power plants in all States by 2010. As with SO 2 and NO x emissions, a cap on H g emissions would have been interpreted by DOE as having no physical effect on these emissions, but would instead be expected to result in an environmental-related economic benefit in the form of a lower price for emission allowance credits. However, on February 8, 2008, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued its decision in New Jersey v. EPA, 517 F.3d 574 (D.C. Cir. 2008)

, in which the Court, among other actions,

60 Information available at: http://www.epa.gov/air/caa/.

61 The EPA’s Clean Air Mercury Rule was published on May 18, 2005. 70 FR 28606.64

v acated the CAMR referenced above. Accordingly, DOE is considering changes to its approach addressing the issue of Hg emissions in light of the D.C. Circuit’s decision.

Item 15–2 Because court actions have vacated the CAMR, DOE seeks stakeholder input on

how it should address Hg emissions in this rulemaking. In addition, DOE seeks comment on how it might value NO x emissions for the 22 States not covered by the CAIR.

In sum, the methodology for the environmental impact analysis will be similar to the methodology ( i.e. , based on NEMS) used to estimate the environmental impacts published in E IA’s AEO . These results include power sector emissions for SO 2 , NO X , Hg, and CO 2 in fivey ear forecasted increments extrapolated to 2046 . The outcome of the analysis for each trial standard level will be reported as a deviation from the AEO reference (base) case, with such

a nalysis being conducted at the NOPR stage of the rulemaking.

Item 15–3 DOE seeks input from stakeholders on its plans to use NEMS-BT to conduct the

environmental impact analysis on the equipment covered by this rulemaking. Are there any other approaches to the environmental assessment that DOE should consider?

Item 15–4 Are there any other environmental factors DOE should consider in this

rulemaking?

16. REGULATORY IMPACT ANALYSIS
In the NOPR and final rule stages of this rulemaking, DOE will prepare a regulatory impact analysis, which addresses the potential for non-regulatory approaches to supplant or augment energy conservation standards to improve the efficiency of central air conditioners and heat pumps on the market. DOE recognizes that voluntary or other non-regulatory efforts by manufacturers, utilities, and other interested parties can result in substantial efficiency improvements. DOE intends to analyze the likely effects of non-regulatory initiatives on product energy use, consumer utility, and LCCs. DOE will attempt to base its assessment on the actual impacts of any such initiatives to date, but will also consider information presented regarding the impacts that any existing initiative might have in the future.
If DOE determines that amended energy conservation standards for central air conditioners and heat pumps would constitute a significant regulatory action, DOE will prepare and submit to OMB for review the assessment of costs and benefits required under section 6(a)(3) of Executive Order 12866, “Regulatory Planning and Review,” 58 FR at 51735 (October 4, 1993).**1** [6450-01-P]

D EPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430

[Docket No. EERE-2008-BT-STD-0006]

RIN: 1904-AB47

Energy Efficiency Program for Consumer Products: Public Meeting and Availability of the

Framework Document for Residential Central Air Conditioners and Heat Pumps

AGENCY: **Office of Energy Efficiency and Renewable Energy, Department of Energy.**

ACTION: **Notice of public meeting and availability of the Framework Document.**

SUMMARY: **The Department of Energy (DOE) is initiating the rulemaking and data collection**

**process to consider establishing amended energy conservation standards for residential central**

**air conditioners and heat pumps. Accordingly, DOE will hold an informal public meeting to**

**discuss and receive comments on its planned analytical approach and issues it will address in this**

**rulemaking proceeding. DOE welcomes written comments from the public on this rulemaking.**

**To inform stakeholders and to facilitate this process, DOE has prepared a Framework Document**

**which details the analytical approach and identifies several issues on which DOE is particularly**

**interested in receiving comment. A copy of the Framework Document is available at:**

**http://www.eere.energy.gov/buildings/appliance_stand a**  **rds/residential/central_ac_hp.html 2** 

D ATES: **The Department will hold a public meeting on June 12, 2008, from 9:00 a.m. to 4:00**

**p.m. in Washington, DC. Any person requesting to speak at the public meeting should submit**

**such request along with a signed original and an electronic copy of the statement to be given at**

**the public meeting before 4:00 p.m., June 9, 2008. Written comments on the Framework**

**Document are welcome, especially following the public meeting, and should be submitted by**

[INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL

REGISTER]

**.**

ADDRESSES: **The public meeting will be held at the U.S. Department of Energy, Forrestal**

**Building, Room 1E-245, 1000 Independence Avenue, SW, Washington, DC 20585-0121.**

**Please note that foreign nationals participating in the public meeting are subject to advance**

**security screening procedures. If a foreign national wishes to participate in the public meeting,**

**please inform DOE of this fact as soon as possible by contacting Ms. Brenda Edwards at (202)**

**586-2945 so that the necessary procedures can be completed.**

**Stakeholders may submit comments, identified by docket number EERE-2008-BT-STD**

**0006 and/or Regulation Identifier Number (RIN) 1904-AB47, by any of the following methods:** 

**• Federal eRulemaking Portal :**  **http://www.regulations.gov Follow the instructions for** 

**submitting comments.**

**• E-mail :**  **Brenda.Edwards@ee.doe.gov Include EERE-2008-BT-STD-0006 and/or RIN** 

**1904-AB47 in the subject line of the message. 3** 

**• Mail : Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies** 

**Program, Mailstop EE-2J, Framework Document for Central Air Conditioners and Heat**

**Pumps, EERE-2008-BT-STD-0006 and/or RIN 1904-AB47, 1000 Independence Avenue,**

**SW, Washington, DC 20585-0121. Please submit one signed paper original.**

**• Hand Delivery/Courier : Ms. Brenda Edwards, U.S. Department of Energy, Building** 

**Technologies Program, Sixth Floor, 950 L’Enfant Plaza, SW, Washington, DC 20024.**

**Please submit one signed paper original.**

**Instructions : All submissions received must include the agency name and docket number** 

**or RIN for this rulemaking found at the beginning of this notice.**

**Docket : For access to the docket to read background documents, a copy of the transcript** 

**of the public meeting, or comments received, go to the U.S. Department of Energy, Resource**

**Room of the Building Technologies Program, Sixth Floor, 950 L’Enfant Plaza, SW, Washington,**

**DC 20024, (202) 586-2945, between 9:00 a.m. and 4:00 p.m., Monday through Friday, except**

**Federal holidays. Please call Ms. Brenda Edwards first at the above telephone number for**

**additional information regarding visiting the Resource Room.**

FOR FURTHER INFORMATION CONTACT: **M r. Wes Anderson, U.S. Department of** 

**Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies, EE-2J,**

**1000 Independence Avenue, SW, Washington, DC 20585-0121. Telephone: (202) 586-7335.**

**E-mail: Wes.Anderson@ee.doe.gov.** **4**

**Mr. Eric Stas or Mr. Michael Kido, U.S. Department of Energy, Office of the General**

**C ounsel, GC-72, 1000 Independence Avenue, SW, Washington, DC 20585-0121. Telephone:** 

**(202) 586-9507. E-mail: Eric.Stas@hq.doe.gov**  **or Michael.Kido @hq.doe.gov** 

**.**

**For information on how to submit or review public comments and on how to participate**

**in the public meeting, contact Ms. Brenda Edwards, U.S. Department of Energy, Office of**

**Energy Efficiency and Renewable Energy, Building Technologies Program, EE-2J, 1000**

**Independence Avenue, SW, Washington, DC, 20585-0121. Telephone (202) 586-2945. E-mail:**

**Brenda.Edwards@ee.doe.gov**

**.**

SUPPLEMENTARY INFORMATION: **Part A 1**  **of Title III of the Energy Policy and**

**C onservation Act of 1975 (EPCA), Pub. L. 94-163, as amended by the National Energy** 

**Conservation Policy Act, Pub. L. 95-619, the National Appliance Energy Conservation Act of**

**1987, Pub. L. 100-12, the National Appliance Energy Conservation Amendments of 1988, Pub.**

**L. 100-357, and the Energy Policy Act of 1992, Pub. L. 102-486, created the “Energy**

**Conservation Program for Consumer Products Other than Automobiles.” (42 U.S.C. 6291-6309)**

**The consumer products subject to this program include residential central air conditioners and**

**central air conditioning heat pumps (hereafter referred to as central air conditioners and heat**

**pumps).**

**1 This part was originally titled Part B; however, it was redesignated Part A after Part B was repealed by Pub. L.**  **1 09-58.** **5**

**The National Appliance Energy Conservation Act of 1987 (NAECA) established energy**

**c onservation standards for central air conditioners and heat pumps as well as requirements for** 

**determining whether these standards should be amended. Specifically, NAECA established**

**energy conservation standards for central air conditioners and heat pumps in the form of**

**minimum limits on the seasonal energy efficiency ratio (SEER) for air conditioners and for heat**

**pumps operating in the cooling mode, and on the heating seasonal performance factor (HSPF)**

**for heat pumps operating in the heating mode. 2**  **NAECA established the following standards for**

**c entral air conditioners and heat pumps: 10.0 SEER/6.8 HSPF for split systems and 9.7** 

**SEER/6.6 HSPF for single-package systems. These standards became effective January 1, 1992**

**for split systems; standards for single-package systems came into effect one year later. See 42** 

**U.S.C. 6295(d)(1)(A)-(B) and (2)(A)-(B). NAECA also required that DOE conduct two cycles**

**of rulemakings to determine if more stringent standards are economically justified and**

**technologically feasible. (42 U.S.C. 6295(d)(3)(A)-(B))**

**Pursuant to 42 U.S.C. 6295(b)(3)(A), DOE published a final rule in the** Federal Register

**on January 22, 2001 (2001 final rule), amending the energy conservation standards for central air**

**conditioners and heat pumps. 66 FR 7170. The amended standards would have increased the**

**minimum SEER to 13 and the minimum HSPF to 7.7.** Id. **This final rule constituted the first**

**cycle of revised standards for central air conditioners and heat pumps.**

**2 NAECA established the following standards for central air conditioners and heat pumps: 10.0 SEER/6.8 HSPF for** 

**s plit systems, 9.7 SEER/6.6 HSPF for single-package systems.** **6**

**Shortly after the publication of the 2001 final rule, DOE postponed the effective date of**

**t he rule to take time to reconsider the amended standards for central air conditioners and heat** 

**pumps. DOE eventually promulgated a 12 SEER standard in a final rule published in the**

Federal Register **May 23, 2002 (2002 final rule; 67 FR 36368), but the U.S. Court of Appeals**

**for the Second Circuit ruled that DOE had done so improperly.** Natural Resources Defense

Council v. Abraham **, 355 F.3d 179 (2d Cir. 2004). As a result, DOE published a technical**

**amendment in the** Federal Register **on August 17, 2004, which established a 13 SEER standard**

**for all central air conditioners and heat pumps, excluding through-the-wall and space-constrained**

**systems. 69 FR 50997.**

**EPCA was further amended by the Energy Policy Act of 2005 (EPACT), Pub. L. 109-58.**

**In Section 141 of EPACT, Congress directed DOE to submit an initial report regarding a plan for**

**expeditiously prescribing new or revised standards. Pursuant to Section 141 of EPACT, DOE**

**submitted an implementation report 3**  **to Congress in January 2006. This report specified a**

**s chedule for the completion of the second rulemaking cycle of revised standards for central air** 

**conditioners and heat pumps, requiring DOE to publish a final rule by June 2011, with a**

**standards compliance effective date of June 2016. In separate court proceedings (** New York, v.

Bodman
**, No. 05 Civ. 7807**  **(S.D.N.Y. filed Sept. 7, 2005) and** Natural Resources Defense

Council v. Bodman, **, No. 05 Civ. 7808 (S.D.N.Y. filed Sept. 7, 2005), the resulting consent**

**decree (filed November 6, 2006) adopted the schedule for central air conditioners and heat**

**3 Energy Conservation Standards Activities, January 2006. This document can be downloaded from the DOE** 

**w ebsite at: http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.** **7**

**pumps that DOE published in the January 2006 report to Congress (** i .e. **, publication of a final**

**rule by June 30, 2011). This Framework Document initiates this second rulemaking cycle for**

**central air conditioners and heat pumps.**

**More recently, EPCA was amended by the Energy Independence and Security Act of**

**2007 (EISA 2007), Pub. L. 110-140. In section 306 of EISA 2007, Congress directed DOE to**

**consider regional standards for central air conditioners and heat pumps (among other products),**

**for one or two regions in addition to a base national standard. (42 U.S.C. 6295(o)(6)) EISA**

**2007 states that in considering regional standards, DOE may consider regions made up of**

**contiguous States only. Further, in section 310 of EISA 2007, Congress directed DOE to**

**consider amended test procedures and standards for standby-mode and off-mode energy**

**consumption by covered equipment (such as central air conditioners and heat pumps) for any**

**standard published after July 1, 2010. (42 U.S.C. 6295(gg)(3)) Because this energy**

**conservation standards rulemaking for central air conditioners and heat pumps will be completed**

**in 2011, the requirement to incorporate standby-mode and off-mode energy use into the energy**

**conservation standards analysis is applicable.**

**To initiate the second rulemaking cycle to consider amended energy conservation**

**standards for central air conditioners and heat pumps, DOE has prepared a Framework**

**Document to explain the issues, analyses, and processes it anticipates using for the development**

**of potential energy conservation standards for central air conditioners and heat pumps. As noted 8** 

**above, DOE will hold a public meeting on June 12, 2008 in Washington, D.C., the main focus of**

**w hich will be to discuss the analyses presented and issued identified in the Framework** 

**Document. At the public meeting, the Department will make a number of presentations, invite**

**discussion on the rulemaking process as it applies to central air conditioners and heat pumps, and**

**solicit public comments, data, and information from participants and other stakeholders.**

**The Department encourages those who wish to participate in the public meeting to obtain**

**the Framework Document and to be prepared to discuss its contents. A copy of the draft**

**Framework Document is available at:**

**http://www.eere.energy.gov/buildings/appliance_stand a**  **rds/residential/central_ac_hp.html**

**Public meeting participants need not limit their comments to the issues identified in the**

**Framework Document. The Department is also interested in receiving views concerning other**

**relevant issues that participants believe would affect energy conservation standards for these**

**products and applicable test procedures. Furthermore, the Department welcomes all interested**

**parties, whether or not they participate in the public meeting, to submit in writing by** [INSERT

DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]
**,**
**comments and information on matters addressed in the Framework Document and on other**

**matters relevant to consideration of standards for central air conditioners and heat pumps.**

**The public meeting will be conducted in an informal, facilitated, conference style. There**

**shall be no discussion of proprietary information, costs or prices, market shares, or other 9** 

**commercial matters regulated by U.S. antitrust laws. A court reporter will record the**

**p roceedings of the public meeting, after which a transcript will be made available for purchase** 

**from the court reporter and available on the above-referenced website.**

**After the public meeting and the close of the comment period on the Framework**

**Document, DOE will begin collecting data, conducting the analyses as discussed in the**

**Framework Document and at the public meeting, and reviewing the comments received.**

**DOE considers public participation to be a very important part of the process for setting**

**energy conservation standards. DOE actively encourages the participation and interaction of the**

**public during the comment period in each stage of the rulemaking process. Beginning with the**

**Framework Document, and during each subsequent public meeting and comment period,**

**interactions with and between members of the public provide a balanced discussion of the issues**

**to assist DOE with the standards rulemaking process. Accordingly, anyone who would like to**

**participate in the public meeting, receive meeting materials, or be added to the DOE mailing list**

**to receive future notices and information regarding this rulemaking on central air conditioners**

**and heat pumps, should contact Ms. Brenda Edwards at (202) 586-2945, or via e-mail at:**

**Brenda.Edwards@ee.doe.gov**

**.**

**Issued in Washington, DC, on**

**_________________________________ Alexander A. Karsner**  **Assistant Secretary Energy Efficiency and Renewable Energy**