Energy Conservation Program: Energy Conservation Standards for Single Package Vertical Air Conditioners and Single Package Vertical Heat Pumps

Federal RegisterSep 23, 2015

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DEPARTMENT OF ENERGY

10 CFR Part 431

[Docket Number EERE-2012-BT-STD-0041]

RIN 1904-AC85

Energy Conservation Program: Energy Conservation Standards for Single Package Vertical Air Conditioners and Single Package Vertical Heat Pumps

AGENCY:

Office of Energy Efficiency and Renewable Energy, Department of Energy.

ACTION:

Final rule.

SUMMARY:

The Energy Policy and Conservation Act of 1975 (EPCA), as amended, prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including single package vertical air conditioner (SPVAC) and single package vertical heat pump (SPVHP) equipment (collectively referred to as single package vertical units or SPVUs). EPCA also requires the U.S. Department of Energy (DOE) to determine whether more-stringent standards for SPVACs and SPVHPs would be technologically feasible and economically justified, and would save a significant amount of energy. In this final rule, DOE is adopting standards equivalent to the American National Standards Institute (ANSI)/American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE)/Illuminating Engineering Society (IES) Standard 90.1-2013 levels for four SPVU equipment classes, and adopting amended energy conservation standards for two other equipment classes of single package vertical units more stringent than the SPVU standards in ASHRAE Standard 90.1-2013. DOE has determined that the amended energy conservation standards for this equipment are technologically feasible and economically justified, and would result in the significant conservation of energy.

DATES:

The effective date of this rule is November 23, 2015. Compliance with the amended standards established for SPVACs and SPVHPs <65,000 Btu/h cooling capacity is required on September 23, 2019; for SPVACs and SPVHPs ≥65,000 and <135,000 Btu/h cooling capacity, compliance is required on October 9, 2015; and for SPVACs and SPVHPs ≥135,000 and <240,000 Btu/h cooling capacity, compliance is required on October 9, 2016.

ADDRESSES:

The docket, which includes

Federal Register

notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials, is available for review at regulations.gov. All documents in the docket are listed in the regulations.gov index. However, some documents listed in the index, such as those containing information that is exempt from public disclosure, may not be publicly available.

A link to the docket Web page can be found at:

http://www.regulations.gov/#!docketDetail;D=EERE-2012-BT-STD-0029

. This Web page contains a link to the docket for this document on the

www.regulations.gov

site. The

www.regulations.gov

Web page contains simple instructions on how to access all documents, including public comments, in the docket.

For further information on how to review the docket, contact Ms. Brenda Edwards at (202) 586-2945 or by email:

Brenda.Edwards@ee.doe.gov

FOR FURTHER INFORMATION CONTACT:

Mr. John Cymbalsky, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Program, EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 287-1692. Email:

SPVAC@ee.doe.gov

Ms. Jennifer Tiedeman, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 287-6111. Email:

Jennifer.Tiedeman@hq.doe.gov

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Final Rule

A. Benefits and Costs to Consumers

B. Impact on Manufacturers

C. National Benefits and Costs

D. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for SPVACs and SPVHPs

III. General Discussion

A. Compliance Dates

B. Equipment Classes and Scope of Coverage

1. Consideration of a Space-Constrained SPVU Equipment Class

2. Relationship to Dual Duct Air Conditioners

C. Test Procedure

D. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

E. Energy Savings

1. Determination of Savings

2. Significance of Savings

F. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Savings in Operating Costs Compared To Increase in Price

c. Energy Savings

d. Lessening of Utility or Performance of Equipment

e. Impact of Any Lessening of Competition

f. Need for National Energy Conservation

g. Other Factors

2. Rebuttable Presumption

G. Additional Comments

IV. Methodology and Discussion of Related Comments

A. Market and Technology Assessment

B. Screening Analysis

C. Engineering Analysis

1. Methodology

2. Efficiency Levels for Analysis

3. Teardown Analysis

4. Incremental Efficiency Levels and Design Options

5. Cost Model

6. Manufacturer Production Costs

7. Cost-Efficiency Relationship

8. Manufacturer Markup

9. Shipping Costs

10. Manufacturer Interviews

D. Markups To Determine Equipment Price

E. Energy Use Analysis

F. Life-Cycle Cost and Payback Period Analysis

1. Approach

2. Life-Cycle Cost Inputs

a. Equipment Prices

b. Installation Costs

c. Annual Energy Use

d. Electricity and Natural Gas Prices

e. Maintenance Costs

f. Repair Costs

g. Equipment Lifetime

h. Discount Rate

3. Payback Period

G. National Impact Analysis

1. Approach

a. National Energy Savings

b. Net Present Value

2. Shipments Analysis

a. Shipments Model and Forecast

b. Effect of Amended Standards on Shipments

3. Base-Case and Standards-Case Forecasted Distribution of Efficiencies

H. Consumer Subgroup Analysis

I. Manufacturer Impact Analysis

1. Overview

2. Government Regulatory Impact Model

a. Government Regulatory Impact Model Key Inputs

b. Government Regulatory Impact Model Scenarios

3. Discussion of Comments

a. Cumulative Regulatory Burden

b. Conversion Costs

c. Changes in Customer Demand

d. Diminished Product Offering

e. Impacts on the Subgroup of Small Business Manufacturers

J. Emissions Analysis

K. Monetizing Carbon Dioxide and Other Emissions Impacts

1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions

b. Development of Social Cost of Carbon Values

c. Current Approach and Key Assumptions

1. Social Cost of Other Air Pollutants

L. Utility Impact Analysis

M. Employment Impact Analysis

V. Analytical Results

A. Trial Standard Levels

B. Economic Justification and Energy Savings

1. Economic Impacts on Commercial Consumers

a. Life-Cycle Cost and Payback Period

b. Consumer Subgroup Analysis

c. Rebuttable Presumption Payback

2. Economic Impacts on Manufacturers

a. Industry Cash Flow Analysis Results

b. Direct Impacts on Employment

c. Impacts on Manufacturing Capacity

d. Impacts on Subgroups of Manufacturers

e. Cumulative Regulatory Burden

3. National Impact Analysis

a. Significance of Energy Savings

b. Net Present Value of Consumer Costs and Benefits

c. Indirect Impacts on Employment

4. Impact on Utility or Performance of Equipment

5. Impact of Any Lessening of Competition

6. Need of the Nation To Conserve Energy

7. Other Factors

8. Summary of National Economic Impacts

C. Conclusions

1. Benefits and Burdens of TSLs Considered for SPVU Standards

2. Summary of Benefits and Costs (Annualized) of the Amended Standards

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

B. Administrative Procedure Act

C. Review Under the Regulatory Flexibility Act

1. Description and Estimated Number of Small Entities Regulated

2. Description and Estimate of Compliance Requirements

3. Duplication, Overlap, and Conflict With Other Rules and Regulations

4. Significant Alternatives to the Rule

D. Review Under the Paperwork Reduction Act

E. Review Under the National Environmental Policy Act of 1969

F. Review Under Executive Order 13132.

G. Review Under Executive Order 12988

H. Review Under the Unfunded Mandates Reform Act of 1995

I. Review Under the Treasury and General Government Appropriations Act, 1999

J. Review Under Executive Order 12630

K. Review Under the Treasury and General Government Appropriations Act, 2001

L. Review Under Executive Order 13211

M. Review Under the Information Quality Bulletin for Peer Review

N. Congressional Notification

VII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

Title III, Part C

of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311

et seq.

), added by Public Law 95-619, Title IV, section 441(a), established the Energy Conservation Program for Certain Industrial Equipment, which sets forth a variety of provisions designed to improve energy efficiency.

This equipment includes single package vertical air conditioners (SPVACs) and single package vertical heat pumps (SPVHPs), the subjects of this final rule (collectively referred to as single package vertical units or SPVUs). Pursuant to EPCA, not later than 3 years after the date of enactment of the Energy Independence and Security Act of 2007 (EISA 2007), DOE must review ASHRAE Standard 90.1, “

Energy Standard for Buildings Except Low-Rise Residential Buildings,

” with respect to single package vertical air conditioners and single package vertical heat pumps in accordance with the procedures established in 42 U.S.C. 6313(a)(6). (42 U.S.C. 6313(a)(10)(B))

For editorial reasons, upon codification in the U.S. Code, Part C was redesignated Part A-1.

All references to EPCA in this document refer to the statute as amended through the Energy Efficiency Improvement Act of 2015, Public Law 114-11 (Apr. 30, 2015).

In addition, EPCA requires that DOE conduct a rulemaking to consider amended energy conservation standards for SPVACs and SPVHPs each time ASHRAE Standard 90.1 is updated with respect to such equipment. (42 U.S.C. 6313(a)(6)(A))

At the time DOE commenced this rulemaking, energy conservation standards for SPVUs had been set by EISA 2007. The levels promulgated in EISA 2007 correspond to the levels contained in ASHRAE 90.1-2004. Because ASHRAE did not revise its SPVU standard levels until 2013, the Department did not explicitly consider adoption of the then-current ASHRAE Standard 90.1-2010 levels as part of its analytical baseline (as is typically the case under 42 U.S.C. 6313(a)(6)). Energy conservation standards for SPVUs at the time already corresponded to the ASHRAE Standard 90.1-2010 levels. However, on October 9, 2013, ASHRAE adopted ASHRAE Standard 90.1-2013, and this revision did contain amended standard levels for SPVUs, thereby triggering DOE's statutory obligation to promulgate an amended uniform national standard at those levels, unless DOE determines that clear and convincing evidence supports the adoption of more-stringent energy conservation standards than the ASHRAE levels. The test for adoption of more-stringent standards is whether such standards would result in significant additional conservation of energy and would be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii) (II)) As a step toward meeting DOE's statutory obligations under both 42 U.S.C. 6313(a)(6) and (a)(10)(B), DOE published a notice of proposed rulemaking (NOPR) on December 30, 2014. 79 FR 78614. In the NOPR, DOE proposed amended standards for two equipment classes of SPVUs that are more stringent than those set forth in ASHRAE Standard 90.1-2013, and adoption of the ASHRAE Standard 90.1-2013 levels for all other SPVU equipment classes. 79 FR 78614 at 78667.

In this final rule, in accordance with these and other statutory provisions discussed in this document, DOE is adopting amended energy conservation standards for SPVUs. For four of the six SPVU equipment classes, DOE is adopting the levels specified in ASHRAE Standard 90.1-2013. For the remaining two equipment classes, DOE has concluded that there is clear and convincing evidence to support more-stringent standards than the levels in ASHRAE Standard 90.1-2013. Accordingly, DOE is amending energy conservation standards for all classes of SPVUs from their existing levels consistent with ASHRAE Standard 90.1-2010. The amended standards are expressed in terms of (1) energy efficiency ratio (EER), which is the ratio of the produced cooling effect of an air conditioner or heat pump to its total work input (in Btu/watt-hour); and (2) coefficient of performance (COP), which is the ratio of produced heating effect to total work input (this metric is unitless and applicable only to heat pump units). The amended standards are shown in Table I.1. These standards apply to all products listed in Table I.1 and manufactured in, or imported into, the United States on and after the compliance date listed in the table.

The standards listed in Table I.1 that are more stringent than those contained in ASHRAE Standard 90.1-2013 apply to such equipment manufactured in, or imported into, the United States, excluding equipment that is manufactured for export, on and after a date 4 years after publication of this final rule. The standards listed in Table I.1 that are set at the levels contained in ASHRAE Standard 90.1-2013 apply to such equipment manufactured in, or imported into, the United States, excluding equipment that is manufactured for export, on and after the date 2 or 3 years after the effective date of the requirements in ASHRAE Standard 90.1-2013, depending on equipment size (

i.e.,

October 9, 2015 or October 9, 2016).

Table I.1—Amended Energy Conservation Standards for SPVUs

Equipment class

Cooling capacity

Btu/h

Efficiency level

Standard level

Compliance date

Single Package Vertical Air Conditioner

<65,000 Btu/h

EER = 11.0

More Stringent than ASHRAE

September 23, 2019.

Single Package Vertical Air Conditioner

≥65,000 Btu/h and <135,000 Btu/h

EER = 10.0

ASHRAE

October 9, 2015.

Single Package Vertical Air Conditioner

≥135,000 Btu/h and <240,000 Btu/h

EER = 10.0

ASHRAE

October 9, 2016.

Single Package Vertical Heat Pump

<65,000 Btu/h

EER = 11.0

COP = 3.3

More Stringent than ASHRAE

September 23, 2019.

Single Package Vertical Heat Pump

≥65,000 Btu/h and <135,000 Btu/h

EER = 10.0

COP = 3.0

ASHRAE

October 9, 2015.

Single Package Vertical Heat Pump

≥135,000 Btu/h and <240,000 Btu/h

EER = 10.0

COP = 3,0

ASHRAE

October 9, 2016.

A. Benefits and Costs to Consumers

Table I.2 presents DOE's evaluation of the economic impacts of the adopted standards on consumers of single package vertical units, as measured by the average life-cycle cost (LCC) savings and the median payback period (PBP).

In order to adopt levels above the levels specified in ASHRAE Standard 90.1, DOE must determine that any more-stringent standards would result in significant additional conservation of energy (relative to the efficiency levels specified in ASHRAE Standard 90.1) and that they would be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In compliance with this statutory requirement, DOE based its determination to adopt more-stringent standards for two classes of SPVUs on an analysis comparing these proposed standards with ASHRAE 90.1-2013 (Table I.2). Thus, economic impacts of this determination are calculated as compared to the ASHRAE 90.1-2013 level because DOE is required by statute to, at a minimum, adopt that standard.

The average LCC savings are measured relative to the efficiency distribution in the ASHRAE base case, which depicts the market in the compliance year should DOE adopt the standards set forth in ASHRAE 90.1-2013, as minimally required (see section IV.F). The median PBP, which is designed to compare specific SPVU efficiency levels, is measured relative to the baseline model (see section IV.C.2).

See

42 U.S.C. 6313(a)(6)(A)(ii)(I): In general—Except as provided in subclause (II), not later than 18 months after the date of publication of the amendment to the ASHRAE Standard 90.1 for a product described in clause (i), the Secretary shall establish an amended uniform national standard for the product at the minimum level specified in the amended ASHRAE Standard 90.1.

The Office of Management and Budget's (OMB's) Circular A-4

provides guidance on establishing the baseline for regulatory impact analyses as follows:

U.S. Office of Management and Budget “Circular A-4: Regulatory Analysis” (Sept. 17, 2003) contains guidelines regarding development of a baseline, including that “This baseline should be the best assessment of the way the world would look absent the proposed action.” (Available at:

http://www.whitehouse.gov/omb/circulars_a004_a-4/

)

In some cases, substantial portions of a rule may simply restate statutory requirements that would be self-implementing, even in the absence of the regulatory action. In these cases, you should use a pre-statute baseline. If you are able to separate out those areas where the agency has discretion, you may also use a post-statute baseline to evaluate the discretionary elements of the action.

Accordingly, in this section, DOE presents consumer, manufacturer, and economic costs and benefits for the amended SPVU standards as compared to the current Federal (EPCA) minimum that are currently in effect (pre-statute baseline). In addition, as required by statute, when proposing a standard more stringent than ASHRAE 90.1, and recommended by OMB Circular A-4, DOE also provides these same analyses relative to the post-statute (ASHRAE 90.1-2013) baseline. As noted above, it is these latter analyses that DOE has used as the basis for its determination to adopt more-stringent standards for two classes of SPVUs. DOE has used the same analytic methodologies in both baselines. Key analyses (using both baselines) are summarized in Table I.2: Impacts of Amended Energy Conservation Standards on Consumers of SPVUs; Table I.3: Summary of National Economic Benefits and Costs of Amended SPVU Energy Conservation Standards; and Table I.4 and Table I.5: Annualized Benefits and Costs of Amended Energy Conservation Standards for SPVUs. Additional analyses are presented in section V.C of this preamble, and in the final rule technical support document (TSD). Note that not all analyses were conducted using both baselines; rather, DOE used the baseline(s) most appropriate to the purpose of the analysis (showing economic impacts relative to the pre-statute status quo and/or determining whether to adopt standards more stringent than ASHRAE 90.1-2013). In all cases, the baseline(s) used are indicated in the analyses.

The average LCC savings are positive for the equipment classes for which standards higher than the levels in ASHRAE 90.1-2013 are being adopted, and the PBP is less than the average lifetime of single package vertical units, which is estimated to be 15 years (see section IV.F.2.g). DOE did not evaluate economic impacts to the consumers of SPVACs ≥65,000 Btu/h and <135,000 Btu/h for the ASHRAE baseline, as the ASHRAE level is equal to max-tech. However, the economic impacts for this equipment class using the EPCA baseline can be found in Table I.2 and in appendix 8B of the final rule TSD. DOE also presents results for the parallel class of SPVHPs ≥65,000 Btu/h and <135,000 Btu/h using the EPCA baseline.

DOE did not evaluate economic impacts for the SPVAC and SPVHP ≥135,000 Btu/h and <240,000 Btu/h equipment classes because there are no models on the market, and, therefore, no consumers.

However, there are no models available on the market for this class, and therefore these results were not carried into the national impact analysis or other downstream analyses.

Equipment classes for these cooling capacities exist in ASHRAE Standard 90.1 and were established in DOE regulation through EISA 2007. Despite the lack of models and consumers, for these equipment classes DOE is proposing to adopt as federal standards the efficiency levels in ASHRAE 90.1-2013 as required under 42 U.S.C. 6313(a)(6)(A)(ii)(I).

Table I.2—Table Impacts of Amended Energy Conservation Standards on Consumers of Single Package Vertical Units Using ASHRAE and EPCA Baselines

Equipment Class

Cooling capacity

Btu/h

Average LCC savings

2014$

ASHRAE baseline

EPCA

baseline

Median payback period

years

ASHRAE baseline

EPCA

baseline

Single Package Vertical Air Conditioner

<65,000 Btu/h

$174

$280

9.6

10.6

Single Package Vertical Air Conditioner

≥65,000 Btu/h and <135,000 Btu/h

Adopt ASHRAE

833

Adopt ASHRAE

7.3

Single Package Vertical Air Conditioner

≥135,000 Btu/h and <240,000 Btu/h

Adopt ASHRAE

N/A

Adopt ASHRAE

N/A

Single Package Vertical Heat Pump

<65,000 Btu/h

435

392

5.8

9.9

Single Package Vertical Heat Pump

≥65,000 Btu/h and <135,000 Btu/h

Adopt ASHRAE

287

Adopt ASHRAE

11.3

Single Package Vertical Heat Pump

≥135,000 Btu/h and <240,000 Btu/h

Adopt ASHRAE

N/A

Adopt ASHRAE

N/A

DOE's analysis of the impacts of the adopted standards on consumers is described in section IV.F of this document.

B. Impact on Manufacturers

The industry net present value (INPV) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2014 to 2048). Using a real discount rate of 10.4 percent,

DOE estimates that the INPV for manufacturers of SPVUs is $41.2 million in 2014$ using ASHRAE 90.1-2013 as a baseline. The INPV of SPVUs from the EPCA baseline can be found in chapter 12 of the final rule TSD. Under the amended standards adopted in this final rule, DOE expects that manufacturers may lose between 17.9 and 10.3 percent of their INPV, which is approximately $7.4 to $4.3 million, respectively. Total conversion costs for the industry are expected to reach $9.2 million.

DOE estimated draft financial metrics, including the industry discount rate, based on data in Securities and Exchange Commission (SEC) filings and on industry-reviewed values published in prior heating, ventilation, and air-conditioning (HVAC) final rules. DOE presented the draft financial metrics to manufacturers in manufacturer impact analysis (MIA) interviews. DOE adjusted those values based on feedback from manufacturers. The complete set of financial metrics and more detail about the methodology can be found in section 12.4.3 of final rule TSD chapter 12.

DOE's analysis of the impacts of the adopted standards on manufacturers is described in section IV.I of this document.

C. National Benefits and Costs

All monetary values in this section are expressed in 2014 dollars and, where appropriate, are discounted to 2015 unless explicitly stated otherwise. Energy savings in this section refer to the full-fuel-cycle savings (see section IV.G for discussion). National benefits apply only to DOE's amended standard levels that are more stringent than the ASHRAE levels, and impacts are presented as compared to the ASHRAE 90.1-2013 level as baseline. For equipment classes where DOE is proposing the ASHRAE levels, national benefits do not accrue.

DOE's analyses indicate that the amended energy conservation standards adopted here for SPVUs would save a significant amount of energy. Relative to the case in which DOE adopts the efficiency levels in ASHRAE 90.1-2013 (the ASHRAE base case), the lifetime energy savings for SPVUs purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2019-2048), amount to 0.15 quadrillion British thermal units (quads).

This represents a savings of 4 percent relative to the energy use of these products in the ASHRAE base case. Energy savings using EPCA as a baseline can be found in chapter 10 of the final rule TSD.

A quad is equal to 10

British thermal units (Btu). The quantity refers to full-fuel-cycle (FFC) energy savings. FFC energy savings includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and, thus, presents a more complete picture of the impacts of energy efficiency standards. For more information on the FFC metric, see section IV.G.1.a.

The cumulative net present value (NPV) of total consumer costs and savings of the standards for SPVUs ranges from $0.11 billion (at a 7-percent discount rate) to $0.38 billion (at a 3-percent discount rate) using ASHRAE as a baseline. NPV results using EPCA as a baseline can be found in chapter 10 of the final rule TSD. This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased product costs for SPVUs purchased in 2019-2048 under amended standards.

In addition, amended standards for SPVUs would have significant environmental benefits. DOE estimates that the standards would result in cumulative greenhouse gas (GHG) emission reductions using the ASHRAE baseline (over the same period as for energy savings) of 8.9 million metric tons (Mt)

of carbon dioxide (CO

), 4.9 thousand tons of sulfur dioxide (SO

), 16 tons of nitrogen oxides (NO

), 38 thousand tons of methane (CH

), 0.10 thousand tons of nitrous oxide (N

O), and 0.02 tons of mercury (Hg).

The cumulative reduction in CO

emissions through 2030 amounts to 2 Mt, which is equivalent to the emissions resulting from the annual electricity use of more than 220,000 homes. Emissions results using the EPCA baseline can be found in chapter 13 of the final rule TSD, and cumulative reduction in CO

emissions through 2030 amounts to 3 Mt relative to the EPCA baseline.

A metric ton is equivalent to 1.1 short tons. Results for NO

and Hg are presented in short tons.

DOE calculated emissions reductions relative to the ASHRAE base-case, which reflects key assumptions in the

Annual Energy Outlook 2015

(AEO2015)

Reference case, which generally represents current legislation and environmental regulations for which implementing regulations were available as of October 31, 2014.

The value of the CO

reductions is calculated using a range of values per metric ton of CO

(otherwise known as the Social Cost of Carbon, or SCC) developed by a recent Federal interagency process.

The derivation of the SCC values is discussed in section IV.K. Using discount rates appropriate for each set of SCC values, DOE estimates that the net present monetary value of the CO

emissions reduction using the ASHRAE baseline (not including CO

equivalent emissions of other gases with global warming potential) is between $0.06 billion and $0.85 billion, with a value of $0.28 billion using the central SCC case represented by $40.0/t in 2015. DOE

also estimates that the net present monetary value of the NO

emissions reduction is $0.02 billion at a 7-percent discount rate, and $0.06 billion at a 3-percent discount rate.

Results using the EPCA baseline can be found in chapter 14 of the final rule TSD.

Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866.

Interagency Working Group on Social Cost of Carbon, United States Government. May 2013; revised July 2015. (Available at:

https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf

DOE is currently investigating valuation of avoided Hg and SO

emissions.

Table I.3 summarizes the national economic benefits and costs expected to result from the adopted standards for SPVUs using both the ASHRAE and EPCA baselines.

Table I.3—Summary of National Economic Benefits and Costs of Amended Energy Conservation Standards for SPVUs Using ASHRAE and EPCA Baselines *

Category

Present value

billion 2014$

ASHRAE baseline

EPCA

baseline

Discount rate

(%)

Benefits

Consumer Operating Cost Savings

0.37

0.80

0.88

1.86

Reduction Value ($12.2/t case) **

0.06

0.13

Reduction Value ($40.0/t case) **

0.28

0.59

Reduction Value ($62.3/t case) **

0.44

0.93

2.5

Reduction Value ($117/t case) **

0.85

1.79

Reduction Monetized Value †

0.02

0.05

0.06

0.12

Total Benefits††

0.67

1.43

1.21

2.56

Costs

Consumer Incremental Installed Costs

0.26

0.58

0.50

1.04

Net Benefits

Including CO

and NO

Reduction Monetized Value ††

0.41

0.86

0.71

1.52

* This table presents the costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers that accrue after 2048 from the products purchased in 2019-2048. The costs account for the incremental variable and fixed costs incurred by manufacturers due to the amended standards, some of which may be incurred in preparation for the rule.

** The CO

values represent global monetized values of the SCC, in 2014$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution, calculated using a 3% discount rate. The SCC time series incorporate an escalation factor. The value for NO

is the average of high and low values found in the literature.

† The $/ton values used for NO

are described in section IV.K.

†† Total benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC with a 3-percent discount rate ($40.0/t case).

The benefits and costs of the adopted standards, for SPVUs sold in 2019-2048, can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are the sum of (1) the national economic value of the benefits in reduced operating costs, minus (2) the increases in product purchase prices and installation costs, plus (3) the value of the benefits of CO

and NO

emission reductions, all annualized.

To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2015, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year's shipments in the year in which the shipments occur (

e.g.,

2020 or 2030), and then discounted the present value from each year to 2015. The calculation uses discount rates of 3 and 7 percent for all costs and benefits except for the value of CO

reductions, for which DOE used case-specific discount rates, as shown in Table I.3. Using the present value, DOE then calculated the fixed annual payment over a 30-year period, starting in the compliance year, which yields the same present value.

Although DOE believes that the value of operating cost savings and CO

emission reductions are both important, two issues are relevant. First, the national operating cost savings are domestic U.S. consumer monetary savings that occur as a result of market transactions, whereas the value of CO

reductions is based on a global value. Second, the assessments of operating cost savings and CO

savings are performed with different methods that use different time frames for analysis. The national operating cost savings is measured for the lifetime of SPVUs shipped in 2019-2048. Because CO

emissions have a very long residence time in the atmosphere,

the SCC values in future years reflect future CO

-emissions impacts that continue beyond 2100.

The atmospheric lifetime of CO

is estimated of the order of 30-95 years. Jacobson, MZ (2005), “Correction to `Control of fossil-fuel particulate black carbon and organic matter, possibly the most effective method of slowing global warming,' ”

J. Geophys. Res.

110. pp. D14105.

Estimates of annualized benefits and costs of the adopted standards are shown in Table I.4. The results under the primary estimate using the ASHRAE baseline are as follows. Using a 7-percent discount rate for benefits and costs other than CO

reduction, (for which DOE used a 3-percent discount rate along with the SCC series that has a value of $40.0/t in 2015),

the estimated cost of the standards in this rule is $20 million per year in increased equipment costs, while the estimated annual benefits are $28 million in reduced equipment operating costs, $13 million in CO

reductions, and $1.6 million in reduced NO

emissions. In this case, the net benefit amounts to $24 million per year. Using a 3-percent discount rate for all benefits and costs and the SCC series has a value of $40.0/t in 2015, the estimated cost of the standards is $24 million per year in increased equipment costs, while the estimated annual benefits are $43 million in reduced operating costs, $13 million in CO

reductions, and $2.7 million in reduced NO

emissions. In this case, the net benefit amounts to $35 million per year. Results using the EPCA baseline are shown in Table I.5.

DOE used a 3-percent discount rate because the SCC values for the series used in the calculation were derived using a 3-percent discount rate (see section IV.K).

Table I.4—Annualized Benefits and Costs of Amended Standards for SPVUs (ASHRAE Baseline) *

Discount rate

Primary estimate

Low net benefits estimate

High net benefits estimate

Million 2014$/year

Benefits

Consumer Operating Cost Savings

28.

44.

Reduction Value ($12.2/t case) **

3.7

3.6

3.7.

Reduction Value ($40.0/t case) **

14.

Reduction Value ($62.3/t case) **

2.5%

20.

Reduction Value ($117/t case) **

41.

Reduction Value †

1.6

1.6.

2.7

2.7.

Total Benefits ††

7% plus CO

range

33 to 71

31 to 68

34 to 71.

43.

3% plus CO

range

49 to 86

45 to 83

50 to 87.

60.

Costs

Consumer Incremental Product Costs

19.

24.

Net Benefits

Total ††

7% plus CO

range

14 to 51

6 to 44

14 to 52.

24.

3% plus CO

range

25 to 62

14 to 51

26 to 63.

36.

* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers that accrue after 2048 from the SPVUs purchased from 2019-2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the

AEO2015

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, incremental product costs reflect a constant rate in the Primary Estimate, an increasing rate in the Low Benefits Estimate, and a decline in the High Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.2.a.

** The CO

values represent global monetized values of the SCC, in 2014$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series incorporate an escalation factor.

† The $/ton values used for NO

are described in section IV.K.

†† Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with 3-percent discount rate ($40.0/t case. In the rows labeled “7% plus CO

range” and “3% plus CO

range,” the operating cost and NO

benefits are calculated using the labeled discount rate, and those values are added to the full range of CO

values.

Table I.5—Annualized Benefits and Costs of Amended Standards for SPVUs (EPCA Baseline) *

Discount rate

Primary estimate

Low net benefits estimate

High net benefits estimate

Million 2014$/year

Benefits

Consumer Operating Cost Savings

60.

92.

Reduction Value ($12.2/t case) **

7.8

7.7

7.8.

Reduction Value ($40.0/t case) **

29.

Reduction Value ($62.3/t case) **

2.5%

43.

Reduction Value ($117/t case) **

87.

Reduction Value †

3.5

3.5.

5.8

5.8.

Total Benefits ††

7% plus CO

range

71 to 150

66 to 144

72 to 151.

92.

3% plus CO

range

104 to 183

96 to 174

106 to 185.

124

117

126.

Costs

Consumer Incremental Product Costs

43.

50.

Net Benefits

Total ††

7% plus CO

range

28 to 107

13 to 92

29 to 108.

50.

3% plus CO

range

53 to 132

31 to 110

56 to 135.

76.

* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers which accrue after 2048 from the SPVUs purchased from 2019-2048. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the

AEO2015

** The CO

values represent global monetized values of the SCC, in 2014$, in 2015 under several scenarios of the updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series incorporate an escalation factor.

† The $/ton values used for NO

are described in section IV.K.

†† Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with 3-percent discount rate ($40.0/t case. In the rows labeled “7% plus CO

range” and “3% plus CO

range,” the operating cost and NO

benefits are calculated using the labeled discount rate, and those values are added to the full range of CO

values.

DOE's analysis of the national impacts of the adopted standards is described in sections IV.G, IV.J, and IV.K of this final rule.

D. Conclusion

Based on the analyses culminating in this final rule, DOE found the benefits to the nation of the standards (energy savings, consumer LCC savings, positive NPV of consumer benefit, and emission reductions) outweigh the burdens (loss of INPV and LCC increases for some users of this equipment). DOE has concluded that, based upon clear and convincing evidence, the amended standards adopted in this final rule represent a significant improvement in energy efficiency that is technologically feasible and economically justified, and would result in significant conservation of energy.

II. Introduction

The following section briefly discusses the statutory authority underlying this final rule, as well as some of the relevant historical background related to the establishment of standards for SPVUs.

A. Authority

Title III, Part C

of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311

et. seq.

), added by Public Law 95-619, Title IV, section 441(a), established the Energy Conservation Program for Certain Industrial Equipment, which includes the SPVAC and SPVHP equipment that is the subject of this final rule.

In general, this program addresses the energy efficiency of certain types of commercial and industrial equipment. Relevant provisions of the Act include definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 6313), test procedures (42 U.S.C. 6314), labelling provisions (42 U.S.C. 6315), and the authority to require information and reports from manufacturers. (42 U.S.C. 6316)

For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1.

All references to EPCA in this document refer to the statute as amended through the Energy Efficiency Improvement Act of 2015, Public Law 114-11 (Apr. 30, 2015).

EPCA contains mandatory energy conservation standards for commercial heating, air-conditioning, and water-heating equipment. Specifically, the statute sets standards for small, large, and very large commercial package air-conditioning and heating equipment, SPVACs and SPVHPs, warm-air furnaces, packaged boilers, storage water heaters, instantaneous water heaters, and unfired hot water storage tanks. (42 U.S.C. 6313(a)) EPCA established Federal energy conservation standards that generally correspond to the levels in ASHRAE Standard 90.1, as in effect on October 24, 1992 (

i.e.,

ASHRAE/Illuminating Engineering Society of North America (IESNA) Standard 90.1-1989), for each type of covered equipment listed in 42 U.S.C. 6313(a). EISA 2007, Public Law 110-240, amended EPCA by adding definitions and setting minimum energy conservation standards for SPVACs and SPVHPs. (42 U.S.C. 6313(a)(10)(A)) The efficiency standards for SPVACs and SPVHPs established by EISA 2007 correspond to the levels contained in ASHRAE Standard 90.1-2004, which originated as addendum “d” to ASHRAE Standard 90.1-2001.

EPCA requires that DOE conduct a rulemaking to consider amended energy conservation standards for a variety of enumerated types of commercial heating, ventilating, and air-conditioning equipment (of which SPVACs and SPVHPs are a subset) each time ASHRAE Standard 90.1 is updated with respect to such equipment. (42 U.S.C. 6313(a)(6)(A)) Such review is to be conducted in accordance with the procedures established for ASHRAE equipment under 42 U.S.C. 6313(a)(6). According to 42 U.S.C. 6313(a)(6)(A), for each type of equipment, EPCA directs that if ASHRAE Standard 90.1 is amended, DOE must publish in the

Federal Register

an analysis of the energy savings potential of amended energy efficiency standards within 180 days of the amendment of ASHRAE Standard 90.1. (42 U.S.C. 6313(a)(6)(A)(i)) EPCA further directs that DOE must adopt amended standards at the new efficiency level specified in ASHRAE Standard 90.1, unless clear and convincing evidence supports a determination that adoption of a more-stringent level would produce significant additional energy savings and be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In addition, DOE notes that pursuant to the EISA 2007 amendments to EPCA, the agency must periodically review its already-established energy conservation standards for ASHRAE equipment. (42 U.S.C. 6313(a)(6)(C)) In December 2012, this provision was further amended by the American Energy Manufacturing Technical Corrections Act (AEMTCA) to clarify that DOE's periodic review of ASHRAE equipment must occur “[e]very six years.” (42 U.S.C. 6313(a)(6)(C)(i))

AEMTCA also modified EPCA to specify that any amendment to the design requirements with respect to the ASHRAE equipment would trigger DOE review of the potential energy savings under U.S.C. 6313(a)(6)(A)(i). Additionally, AEMTCA amended EPCA to require that if DOE proposes an amended standard for ASHRAE equipment at levels more stringent than those in ASHRAE Standard 90.1, DOE, in deciding whether a standard is economically justified, must determine, after receiving comments on the proposed standard, whether the benefits of the standard exceed its burdens by considering, to the maximum extent practicable, the following seven factors:

(I) The economic impact of the standard on manufacturers and consumers of the products subject to the standard;

(II) The savings in operating costs throughout the estimated average life of the product in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses of the products likely to result from the standard;

(III) The total projected amount of energy savings likely to result directly from the standard;

(IV) Any lessening of the utility or the performance of the products likely to result from the standard;

(V) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;

(VI) The need for national energy conservation; and

(VII) Other factors the Secretary considers relevant.

(42 U.S.C. 6313(a)(6)(B)(ii))

EISA 2007 amended EPCA to provide an independent basis for a one-time review regarding SPVUs that is not tied to the conditions for initiating review specified by 42 U.S.C. 6313(a)(6)(A) or 42 U.S.C. 6313(a)(6)(C) described previously. Specifically, pursuant to 42 U.S.C. 6313(a)(10)(B), DOE must commence review of the most recently published version of ASHRAE Standard 90.1 with respect to SPVU standards in accordance with the procedures established under 42 U.S.C. 6313(a)(6) no later than 3 years after the enactment of EISA 2007. DOE notes that this provision was not tied to the trigger of ASHRAE publication of an updated version of Standard 90.1 or to a 6-year period from the issuance of the last final rule, which occurred on March 7, 2009 (74 FR 12058). DOE was simply obligated to commence its review by a specified date.

Because ASHRAE did not update its efficiency levels for SPVACs and SPVHPs in ASHRAE Standard 90.1-2010, DOE began the current rulemaking by analyzing amended standards consistent with the 6-year look-back procedures defined under 42 U.S.C. 6313(a)(6)(C). The statutory provision at 42 U.S.C. 6313(a)(6)(B)(ii), recently amended by AEMTCA, states that in deciding whether a standard is economically justified, DOE must determine, after receiving comments on the proposed standard, whether the benefits of the standard exceed its burdens by considering, to the maximum extent practicable, the seven factors stated above.

However, before DOE could finalize its rulemaking initiated by the one-time SPVU review requirement in EISA, ASHRAE acted on October 9, 2013 to adopt ASHRAE Standard 90.1-2013. This revision of ASHRAE Standard 90.1 contained amended standard levels for SPVUs, thereby triggering DOE's statutory obligation under 42 U.S.C. 6313(a)(6)(A) to promulgate an amended uniform national standard at those levels unless DOE determined that there is clear and convincing evidence supporting the adoption of more-stringent energy conservation standards than the ASHRAE levels. Consequently, DOE prepared an analysis of the energy savings potential of amended standards at the ASHRAE Standard 90.1-2013 levels (as required by 42 U.S.C. 6313(a)(6)(A)(i)), and issued a NOPR. 79 FR 78614 (Dec. 30, 2014). For this final rule, DOE updated the analyses that accompanied the NOPR in response to stakeholder comments.

DOE is adopting amended standards for two equipment classes of SPVUs that are more stringent than those set forth in ASHRAE Standard 90.1-2013, and is adopting the ASHRAE Standard 90.1-2013 levels for all other SPVU equipment classes. DOE has concluded that there is clear and convincing evidence that the amended standards more stringent than those set forth in ASHRAE Standard 90.1-2013 for two SPVU equipment classes will result in significant additional conservation of energy and be technologically feasible and economically justified, as mandated by 42 U.S.C. 6313(a)(6).

EPCA, as codified, also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States of any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6313(a)(6)(B)(iii)(II))

Further, EPCA, as codified, establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii) and 6316(e)(1))

Additionally, when a type or class of covered equipment, such as ASHRAE equipment, has two or more subcategories, DOE often specifies more than one standard level. DOE generally will adopt a different standard level than that which applies generally to such type or class of products for any group of covered products that have the same function or intended use if DOE determines that products within such group: (A) Consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and which justifies a higher or lower standard. (42 U.S.C. 6295(q)(1) and 6316(e)(1)) In determining whether a performance-related feature justifies a different standard for a group of products, DOE generally considers such factors as the utility to the consumer of the feature and other factors DOE deems appropriate. In a rule prescribing such a standard, DOE includes an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2) and 6316(e)(1))

Federal energy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under 42 U.S.C. 6297(d)).

B. Background

1. Current Standards

As noted above, EISA 2007 amended EPCA to establish separate equipment classes and minimum energy conservation standards for SPVACs and SPVHPs. (42 U.S.C. 6313(a)(10)(A)) DOE published a final rule technical amendment in the

Federal Register

on March 23, 2009, which codified into DOE's regulations the new SPVAC and SPVHP equipment classes and energy conservation standards for this equipment as prescribed by EISA 2007. 74 FR 12058. These standards apply to all SPVUs manufactured on or after January 1, 2010. The current standards are set forth in Table II.1.

Table II.1—Current Federal Energy Conservation Standards for Single Package Vertical Air Conditioners and Heat Pumps

Equipment type

Cooling capacity

Btu/h

Efficiency level

Single Package Vertical Air Conditioner

<65,000 Btu/h

EER = 9.0

Single Package Vertical Air Conditioner

≥65,000 Btu/h and <135,000 Btu/h

EER = 8.9

Single Package Vertical Air Conditioner

≥135,000 Btu/h and <240,000 Btu/h *

EER = 8.6

Single Package Vertical Heat Pump

<65,000 Btu/h

EER = 9.0

COP = 3.0

Single Package Vertical Heat Pump

≥65,000 Btu/h and <135,000 Btu/h *

EER = 8.9

COP = 3.0

Single Package Vertical Heat Pump

≥135,000 Btu/h and <240,000 Btu/h *

EER = 8.6

COP = 2.9

* There are no models currently on the market with available efficiency data at these cooling capacities.

2. History of Standards Rulemaking for SPVACs and SPVHPs

Single package vertical units were established as a separate equipment class in ASHRAE Standard 90.1 by addendum “d” to ASHRAE Standard 90.1-2001. DOE subsequently evaluated the possibility of creating separate equipment classes for SPVUs, but determined that the Energy Policy Act of 2005 had revised the language in 42 U.S.C. 6313(a)(6)(A)(i) to limit DOE's authority to adopt ASHRAE amendments for small, large, and very large commercial package air-conditioning and heating equipment until after January 1, 2010, and thus, DOE could not adopt equipment classes and standards for SPVUs at that time. As explained in a March 2007 energy conservation standards final rule for various ASHRAE products, DOE determined that SPVUs fall under the definition of “commercial package air conditioning and heating equipment” (42 U.S.C. 6311(8)(A)), and that any SPVUs with cooling capacities less than 760,000 Btu/h would fit within the commercial package air conditioning and heating equipment categories listed in EPCA and be subjected to their respective energy efficiency standards. 72 FR 10038, 10046-10047 (March 7, 2007).

Subsequently, EISA 2007 amended EPCA to: (1) Create separate equipment classes for SPVACs and SPVHPs; (2) set minimum energy conservation standards for these equipment classes; (3) eliminate the restriction on amendments for small, large, and very large commercial package air-conditioning and heating equipment until after January 1, 2010; and (4) instruct DOE to review the most recently published ASHRAE Standard 90.1 with respect to SPVUs no later than 3 years after the enactment of EISA 2007. As noted previously, DOE published a final rule technical amendment in the

Federal Register

that codified into DOE regulations the standards for SPVUs that were established by EISA 2007. 74 FR 12058 (March 23, 2009).

On October 29, 2010, ASHRAE officially released ASHRAE Standard 90.1-2010 to the public. As an initial step in reviewing SPVUs under EPCA, DOE published a notice of data availability (NODA) on May 5, 2011, which contained potential energy savings estimates for certain industrial and commercial equipment, including SPVUs. 76 FR 25622. Although ASHRAE Standard 90.1-2010 did not update the efficiency levels for SPVUs, DOE was obligated to review the potential energy savings for these equipment classes under 42 U.S.C. 6313(a)(10)(B), as noted above. On January 17, 2012, DOE published a NOPR (January 2012 NOPR), which proposed revised energy conservation standards for certain types of commercial equipment (not including SPVUs), in response to standard levels contained in ASHRAE Standard 90.1-2010 that were more-stringent than Federal minimum standards at the time. In addition, the January 2012 NOPR proposed test procedure amendments for certain types of commercial equipment, including SPVUs, in order to incorporate the most current industry test procedures specified in ASHRAE Standard 90.1-2010. In the January 2012 NOPR, DOE proposed to incorporate by reference the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) Standard 390-2003, “Performance

Rating of Single Package Vertical Air-Conditioners and Heat Pumps,” into the DOE test procedure for SPVUs and proposed an optional equipment break-in period of no more than 16 hours. 77 FR 2356. On May 16, 2012, DOE published a final rule (May 2012 Rule), which incorporated by reference AHRI Standard 390-2003 into the DOE test procedure for SPVUs and increased the maximum duration of the optional break-in period to 20 hours. 77 FR 28928. The May 2012 Rule (as with the January 2012 NOPR) did not contain amended standards for SPVUs, because ASHRAE Standard 90.1-2010 did not set standard levels for SPVUs that were more stringent than the federally mandated standard levels at the time. As directed by EISA 2007, DOE was considering more-stringent standards for SPVUs on a separate timeline from the other equipment analyzed under the May 2012 Rule.

However, as noted before, during the analyses regarding whether standards more stringent than those promulgated by EISA 2007 would be justified, ASHRAE acted on October 9, 2013 to adopt ASHRAE Standard 90.1-2013. This revision to ASHRAE Standard 90.1 did contain amended standard levels for SPVUs, thereby triggering DOE's statutory obligation to promulgate an amended uniform national standard at those levels, unless DOE determines that there is clear and convincing evidence supporting the adoption of more-stringent energy conservation standards than the ASHRAE levels.

Once triggered by ASHRAE action, DOE became subject to certain new statutory requirements and deadlines. For example, the statute required DOE to publish in the

Federal Register

for comment an analysis of the energy savings potential of amended energy conservation standards at the ASHRAE Standard 90.1-2013 levels, not later than 180 days after amendment of the ASHRAE standard. DOE published this energy savings analysis as a NODA in the

Federal Register

on April 11, 2014 (April 2014 NODA). 79 FR 20114.

Once triggered by ASHRAE action, the applicable legal deadline for completion of this standards rulemaking also shifted. When DOE first commenced this rulemaking pursuant to 42 U.S.C. 6313(a)(10)(B), that provision directed DOE to follow the procedures established under 42 U.S.C. 6313(a)(6). Because DOE had not been triggered by ASHRAE action at the time (as would necessitate use of the procedures under 42 U.S.C. 6313(a)(6)(A)), DOE proceeded as a 6-year-lookback amendment of the standard under 42 U.S.C. 6313(a)(6)(C), which called for a NOPR followed by a final rule not more than 2 years later. DOE was close to issuing a NOPR at the time it was triggered by ASHRAE action on Standard 90.1-2013. Once triggered, DOE was then required to either adopt the levels in ASHRAE Standard 90.1-2013 not later than 18 months after the publication of the amended ASHRAE standard (

i.e.,

by April 9, 2015), or to adopt more-stringent standards not later than 30 months after publication of the amended ASHRAE standard (

i.e.,

by April 9, 2016). Subsequently, DOE published a NOPR in December 2014 with proposed standards for SPVU equipment. 79 FR 78614. DOE received a number of comments from interested parties; the parties are summarized in Table II.2. DOE considered these comments in the preparation of the final rule. Relevant comments, and DOE's responses, are provided in the appropriate sections of this document.

Table II.2—Interested Parties Providing Comments

Name

Abbreviation

Type *

Air-Conditioning, Heating and Refrigeration Institute

AHRI

Appliance Standards Awareness Project

ASAP

Appliance Standards Awareness Project, Alliance to Save Energy, Natural Resources Defense Council

ASAP

et al

Bard Manufacturing Company

Bard

Edison Electric Institute

EEI

Howe, Anderson, and Smith, P.C. (on behalf of First Company)

First Company

Friedrich Air Conditioning Company, LTD

Friedrich

General Electric

Lennox International

Lennox

National Coil Company

Northwest Energy Efficiency Alliance

NEEA

Pacific Gas and Electric Company, Southern California Gas Company, Southern California Edison, San Diego Gas and Electric

CA IOUs

Southern Company Services

SCS

U.S. Chamber of Commerce and 10 trade associations

Associations

* IR: Industry Representative; M: Manufacturer; EA: Efficiency/Environmental Advocate; TA: Trade Association; U: Utility.

III. General Discussion

A. Compliance Dates

Based on the statutory lead time for compliance in 42 U.S.C. 6313(a)(6)(D), for the SPVU equipment classes for which DOE is adopting the ASHRAE Standard 90.1-2013 levels, the compliance date is either 2 or 3 years after the effective date of the applicable ASHRAE standard, depending on equipment size (

i.e.,

by October 9, 2015 or October 9, 2016).

The compliance date for the SPVU equipment classes for which DOE is adopting more-stringent standards than the ASHRAE Standard 90.1-2013 levels is 4 years after the publication of this final rule in the

Federal Register

. Therefore, SPVU equipment classes subject to the standards more stringent than ASHRAE Standard 90.1-2013 level, which are manufactured on or after September 23, 2019 will be required to meet the more-stringent Federal standards.

Under 42 U.S.C. 6313(a)(6)(D)(i), the applicable compliance date when DOE adopts the ASHRAE standard levels for small commercial package air conditioning and heating equipment (including SPVACs and SPVHPs under 135,000 Btu/h) is 2 years after the effective date of the minimum energy efficiency requirements in the amended ASHRAE Standard 90.1. Under 42 U.S.C. 6313(a)(6)(D)(ii), the applicable compliance date when DOE adopts the ASHRAE standard levels for large and very large commercial package air conditioning and heating equipment (including SPVACs and SPVHPs ≥135,000 Btu/h and <240,000 Btu/h) is 3 years after the effective date of the minimum energy efficiency requirement in the amended ASHRAE Standard 90.1.

B. Equipment Classes and Scope of Coverage

When evaluating and establishing energy conservation standards, DOE divides covered equipment into

equipment classes by the type of energy used or by capacity or other performance-related features that justify a different standard. In making a determination whether a performance-related feature justifies a different standard, DOE must consider such factors as the utility to the consumer of the feature and other factors DOE determines are appropriate. (42 U.S.C. 6295(q))

EPCA, as amended, defines “single package vertical air conditioner” and “single package vertical heat pump” in 42 U.S.C. 6311(23) and (24). In particular, these units can be single- or three-phase; must have major components arranged vertically; must be an encased combination of components; and must be intended for exterior mounting on, adjacent interior to, or through an outside wall. DOE codified these definitions into its regulations at 10 CFR 431.92.

EPCA, as amended, set energy conservation standards for eight SPVU equipment classes based on cooling capacity, whether the equipment is an air conditioner or a heat pump, and in certain cases, phase, as shown in Table III.1. (42 U.S.C. 6313(a)(10)(A)) The energy conservation standards for SPVACs and SPVHPs are identical across phase, and as such, DOE does not always show the phase breakdown. (

See,

for example, 10 CFR part 431, Table 1 to § 431.97.)

Table III.1—Equipment Classes for Single Package Vertical Units

Equipment type

Cooling capacity

Btu/h

Phase

Single Package Vertical Air Conditioners

<65,000

Single-Phase.

3-Phase.

≥65,000 and <135,000

All.

≥135,000 and <240,000

All.

Single Package Vertical Heat Pumps

<65,000

Single-Phase.

3-Phase.

≥65,000 and <135,000

All.

≥135,000 and <240,000

All.

1. Consideration of a Space-Constrained SPVU Equipment Class

In the April 2014 NODA, DOE noted that ASHRAE Standard 90.1-2013 created a new equipment class for SPVACs and SPVHPs used in space-constrained and replacement-only applications, with a definition for “non-weatherized space constrained single-package vertical unit” and efficiency standards for the associated equipment class. In the NODA, DOE tentatively concluded that there was no need to establish a separate space-constrained class for SPVUs, given that certain models listed by manufacturers as SPVUs, most of which would meet the ASHRAE space-constrained definition, were being misclassified and should have been classified as central air conditioners (in most cases, space-constrained central air conditioners). 79 FR 20114, 20123 (April 11, 2014). DOE reaffirmed this position in the December 2014 NOPR. In response to the NOPR, DOE received several comments from stakeholders related to the classification of products that these commenters are referring to as space constrained SPVUs, the statutory definition of SPVU, how these products are applied in the field or specified for purchase, and whether the products warranted a separate equipment class within SPVU. (AHRI, No. 19 at p. 2; Lennox, No. 16 at pp. 11-12, 14,15, 17; First Company, No. 12 at pp. 1-3; GE, No. 21 at p. 2; Friedrich, No. 15 at p. 1; NEEA, No. 23 at p. 2; CA IOUs, No. 22 at p. 2) DOE will consider these comments and take appropriate action in a separate rulemaking.

2. Relationship to Dual Duct Air Conditioners

DOE notes that in the September 30, 2014 NOPR for commercial package air conditioning and heating equipment, it discussed a type of air-conditioning equipment designed for indoor installation in constrained spaces using ducting to an outside wall for the supply and discharge of condenser air to the condensing unit, referring to these units as “dual-duct air-cooled air conditioners.” 79 FR 58948, 58964. A subsequent working group established to negotiate standards for commercial package equipment recommended that dual duct air conditioners and heat pumps become a separate equipment class within the category of commercial packaged air-conditioning and heating equipment with their own standards and recommended the following definition:

“Dual duct air conditioner or heat pump means air-cooled commercial package air conditioning and heating equipment that

• is either a horizontal single package or split-system unit; or a vertical unit that consists of two components that may be shipped or installed either connected or split;

• is intended for indoor installation with ducting of outdoor air from the building exterior to and from the unit, where the unit and/or all of its components are non-weatherized and are not marked (or listed) as being in compliance with UL 1995 or equivalent requirements for outdoor use;

• (a) if it is a horizontal unit, the complete unit has a maximum height of 35 inches or the unit has components that do not exceed a maximum height of 35 inches;

• (b) if it is a vertical unit, the complete (split, connected, or assembled) unit has component that do not exceed maximum depth of 35 inches; and

• (c) has a rated cooling capacity greater than and equal to 65,000 Btu/h and up to 300,000 Btu/h.” (EERE-2013-BT-STD-0007-0093, pp. 4-5).

DOE notes that the proposed definition does not encompass vertical single package units, and as such there is not any overlap with the definition of SPVU. DOE has not identified any equipment on the market that is arranged vertically in a single package configuration and meets all the criteria of the dual duct definition, with the sole exception of not consisting of two components. If such equipment existed, DOE would consider it to be an SPVU rather than a dual duct air conditioner or heat pump.

C. Test Procedure

DOE's current energy conservation standards for SPVUs are expressed in terms of EER for cooling efficiency and COP for heating efficiency (

see

10 CFR 431.96(b)).

DOE's test procedures for SPVACs and SPVHPs are codified at Title 10 of the Code of Federal Regulations (CFR), section 431.96. The current test

procedures were amended in a final rule dated May 16, 2012. 77 FR 28928, 28987-91. The test procedures are incorporated by reference at 10 CFR 431.95(b)(6) and include the ANSI and AHRI Standard 390-2003 “Performance Rating of Single Package Vertical Air-Conditioners and Heat Pumps” (AHRI 390-2003).

D. Technological Feasibility

1. General

In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially available equipment or in working prototypes to be technologically feasible. 10 CFR part 430, subpart C, appendix A, Section 4(a)(4)(i).

After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) Practicability to manufacture, install, and service; (2) adverse impacts on equipment utility or availability; and (3) adverse impacts on health or safety. 10 CFR part 430, subpart C, appendix A, Section 4(a)(4)(ii)-(iv). Section IV.B of this document discusses the results of the screening analysis for SPVACs and SPVHPs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of the final rule TSD.

2. Maximum Technologically Feasible Levels

When DOE adopts (or does not adopt) an amended energy conservation standard for a type or class of covered equipment, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such equipment. (42 U.S.C. 6295(p)(1) and 6313(a)) Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for SPVACs and SPVHPs using the design parameters that passed the screening analysis. The max-tech levels that DOE determined for this rulemaking are described in section IV.C.4 of this final rule and in chapter 5 of the final rule TSD.

E. Energy Savings

1. Determination of Savings

For each trial standard level (TSL), DOE projected energy savings from application of the TSL to SPVUs purchased in the 30-year period that begins in the year of compliance with any amended standards (2015-2044 for the ASHRAE level, and 2019-2048 for higher efficiency levels).

The savings are measured over the entire lifetime of products purchased in the 30-year analysis period. DOE quantified the energy savings attributable to each TSL as the difference in energy consumption between each standards case and the ASHRAE base case, or the case in which DOE must adopt the standard levels in ASHRAE 90.1-2013.

DOE also presents a sensitivity analysis that considers impacts for products shipped in a 9-year period.

DOE used its national impact analysis (NIA) spreadsheet models to estimate energy savings from potential amended standards for SPVUs. The NIA spreadsheet model (described in section IV.G of this final rule) calculates savings in site energy, which is the energy directly consumed by products at the locations where they are used. Based on the site energy, DOE calculates national energy savings (NES) in terms of primary energy savings at the site or at power plants, and also in terms of full-fuel-cycle (FFC) energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and thus presents a more complete picture of the impacts of energy conservation standards.

DOE's approach is based on the calculation of an FFC multiplier for each of the energy types used by covered products or equipment. For more information on FFC energy savings, see section IV.G.1 of this final rule. For natural gas, the primary energy savings are considered to be equal to the site energy savings.

The FFC metric is discussed in DOE's statement of policy and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as amended at 77 FR 49701 (Aug. 17, 2012).

2. Significance of Savings

Among the criteria that govern DOE's adoption of more-stringent standards for SPVUs than the amended levels in ASHRAE Standard 90.1, clear and convincing evidence must support a determination that the standards would result in “significant” energy savings. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term “significant” is not defined in the Act, the U.S. Court of Appeals, for the District of Columbia Circuit in

Natural Resources Defense Council

Herrington,

768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended “significant” energy savings in the context of EPCA to be savings that were not “genuinely trivial.” DOE's estimates of the energy savings for each of the TSLs considered for the final rule for SPVUs <65,000 Btu/h (presented in section V.B.3.a) provide evidence that the additional energy savings each would achieve by exceeding the corresponding efficiency levels in ASHRAE Standard 90.1-2013 are nontrivial. Therefore, DOE considers these savings to be “significant” as required by 42 U.S.C. 6313(a)(6)(A)(ii)(II).

F. Economic Justification

1. Specific Criteria

EPCA provides seven factors to be evaluated in determining whether a more stringent standard for SPVACs and SPVHPs is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii))

In response to the NOPR, AHRI stated that DOE is not performing the full cost-benefit analysis that EPCA section 6313(a)(6)(B)(ii) requires. It stated that DOE performed cost-benefit considerations at various points of its analysis, yet never fully reconciled those analyses or the assumptions and scope of coverage underlying them. It added that DOE's cost-benefit analyses with respect to the nation, manufacturers, and employment utilize very different geographic scopes, ignore the immediately apparent effects on employment, and rely on unsupported analyses for effects on the general economy. AHRI urged DOE to reconcile these various approaches and their assumptions, and also to make available any models or inputs/outputs DOE relied on. AHRI stated that DOE should remedy this shortcoming by performing an integrated, full cost-benefit analysis considering all factors, including the effects on all directly related domestic industries. (AHRI, No. 19 at p. 23)

As noted above, EPCA section 6313(a)(6)(B)(ii) lays out the factors the Secretary should consider, to the maximum extent practicable, in determining whether the benefits of a proposed standard exceed the burdens. EPCA does not mention or require the

type of integrated cost-benefit analysis that AHRI envisions. It does not state or imply that all of the benefits and burdens need be quantified in monetary terms. Indeed, it is clear from reading the list of factors that no integrated analysis could encompass all of the factors in a single framework.

AHRI appears to be concerned that DOE's national cost-benefit analysis does not encompass the impacts on manufacturers of the proposed standards. The NIA considers, from a national perspective, all of the costs and benefits projected for consumers of SPVUs meeting the amended standards. The costs account for the incremental variable and fixed costs incurred by manufacturers due to the standards, some of which may be incurred in preparation for the final rule. DOE assumes that these costs will be reflected in higher prices for the covered products. DOE does consider the potential effects of standards on employment, both within the SPVU manufacturing industry and in the larger economy. Apart from estimating employment impacts, DOE does not attempt to estimate effects on the general economy. DOE has made available the models used for the NIA and the manufacturer and consumer impact analyses, and the inputs are described in the final rule TSD.

The following sections discuss how DOE has addressed each of the seven factors in this rulemaking.

a. Economic Impact on Manufacturers and Consumers

In determining the impacts of an amended standard on manufacturers, DOE conducts a manufacturer impact analysis (MIA), as discussed in section IV.J. DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a short-term assessment—based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation—and a long-term assessment over a 30-year period. The industry-wide impacts analyzed include INPV, which values the industry on the basis of expected future cash flows; cash flows by year; changes in revenue and income; and other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different types of manufacturers, including impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity, as well as the potential for standards to result in plant closures and loss of capital investment. Finally, DOE takes into account cumulative impacts of various DOE regulations and other regulatory requirements on manufacturers.

For individual consumers, measures of economic impact include the changes in LCC and PBP associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national NPV of the economic impacts applicable to a particular rulemaking. DOE also evaluates the LCC impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a national standard.

b. Savings in Operating Costs Compared To Increase in Price

EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered equipment compared to any increase in the price of the covered product that is likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP analysis.

The LCC is the sum of the purchase price of equipment (including its installation cost) and operating expenses (including energy, maintenance, and repair expenditures) discounted over the lifetime of the equipment. To account for uncertainty and variability in specific inputs such as equipment lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value. For its analysis, DOE assumes that consumers will purchase the covered equipment in the first year of compliance with amended standards.

The LCC savings and the PBP for the considered efficiency levels are calculated relative to a base case that reflects projected market trends in the absence of amended standards. DOE identifies the percentage of consumers estimated to receive LCC savings or experience an LCC increase, in addition to the average LCC savings associated with a particular standard level. DOE's LCC analysis is discussed in further detail in section IV.F.

c. Energy Savings

Although significant conservation of energy is a separate statutory requirement for imposing an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III)) As discussed in section IV.G, DOE uses the NIA spreadsheet to project NES.

AHRI stated that DOE is violating section 6313(a)(6)(A)(ii)(II) and section 6313(a)(6)(B)(ii)(I)-(VII) of EPCA by purporting to give energy savings disproportionate weight. AHRI noted that EPCA requires that DOE consider seven different factors in determining whether the benefits of a proposed standard exceed its burdens, and stated that there is no indication in the statute or otherwise that Congress intended this analysis to be anything other than a roughly equal weighting of factors where no particular factor is “king” over all the others. (AHRI, No. 19 at p. 21)

Section 6313(a)(6)(A)(ii)(II) concerns DOE's authority to adopt a national standard more stringent than the amended ASHRAE/IES Standard 90.1 if such standard would result in significant additional conservation of energy and is technologically feasible and economically justified. Section V.C of this document sets forth in detail the reasons why DOE has concluded that the adopted standards for SPVUs would indeed result in significant additional conservation of energy and are technologically feasible and economically justified.

Section 6313(a)(6)(B)(ii)(I)-(VII) lists the factors that DOE must consider in determining whether a standard is economically justified for the purposes of subparagraph (A)(ii)(II). There is no language in the statute that indicates how the factors should be weighted, nor is there a basis for AHRI's interpretation of Congressional intent. Furthermore, given that some of the factors are amenable to quantification while others are more qualitative, it is not clear how the roughly equal weighting envisioned by AHRI would be accomplished. DOE does agree that no single factor should be given excessive consideration, and it does not give disproportionate weight to the projected quantity of energy savings.

d. Lessening of Utility or Performance of Equipment

In establishing classes of equipment, and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered equipment. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) Based on data available to DOE, the standards adopted in this final rule would not reduce the utility or performance of the equipment under consideration in this rulemaking.

e. Impact of Any Lessening of Competition

EPCA directs DOE to consider the impact of any lessening of competition that is likely to result from energy conservation standards. It also directs the Attorney General of the United States (Attorney General) to determine the impact, if any, of any lessening of competition likely to result from a standard and to transmit such determination to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S.C. 6313(a)(6)(B)(ii)(V)) DOE transmitted a copy of its proposed rule to the Attorney General with a request that the Department of Justice (DOJ) provide its determination on this issue.

In a letter dated March 2, 2015, DOJ expressed concern over the proposed energy conservation standards for SPVUs less than 65,000 Btu/h. In particular, DOJ noted that, based on its consideration of the rulemaking documents and observations at the public meeting, manufacturers seemed concerned that the costs of compliance might be prohibitive, and that higher costs may necessitate higher prices to consumers who may opt to switch to other potentially less efficient products or solutions. It also noted industry concerns that proposed standards will require them to increase the size and footprint of SPVUs, which may not be feasible or acceptable to consumers, thereby potentially limiting the range of competitive alternatives available to consumers. DOJ stated that, while it is not in a position to judge whether individual manufacturers will be able to meet the proposed standards, it had concern that the proposed changes could have an effect on competition and it urged DOE to take these into account in determining its final energy efficiency standards for SPVUs. In addition, DOJ recognized that the classification of space-constrained equipment was a potentially significant issue within the rulemaking, but could offer no assessment of the possible competitive impacts of the resolution of that issue.

In response to DOJ concerns, DOE notes that the technologies required to reach the adopted level are not proprietary, are understood by the industry, and are generally available to all manufacturers. In its engineering analysis, DOE concluded that the typical design path would require changes the size of the heat exchanger but would not affect the outer dimensions of the product. Moreover, DOE based its engineering analysis solely on equipment models and configurations which are currently on the market and thus which are, presumably, acceptable to consumers. For these reasons, DOE does not believe that the standard levels included in this final rule will result in adverse impacts on competition within the SPVU marketplace. Additionally, with respect to DOJ's comment on the classification of space-constrained equipment, DOE is currently addressing that topic in a separate rulemaking.

AHRI commented that failing to secure the views of the Attorney General in advance of the proposed rule prevented public comment on the conclusions. (AHRI, No. 19 at p. 23) AHRI seems to be suggesting that DOE should request DOJ's determination prior to publication of the NOPR so that such determination could be included in the NOPR. EPCA requires the Attorney General to make a determination of the impact, of any, of any lessening of competition likely to result from such standard and shall transmit such determination, not later than 60 days after the publication of a proposed rule prescribing or amending an energy conservation standard, in writing to the Secretary, together with an analysis of the nature and extent of such impact. Any such determination and analysis shall be published by the Secretary in the

Federal Register

. 42 U.S.C. 6295(o)(2)(B)(ii). The Attorney General makes a determination of the likely competitive impacts of the proposed standard, which can occur only after the proposed standard is issued by DOE. Additionally, AHRI had the opportunity to comment on all aspects of the NOPR, including the impact of any lessening of competition.

AHRI asked DOE to explain how it weighed section 6313(a)(6)(B)(ii)(IV) (impacts on utility and product performance) or (V) (the impact of a lessening of competition) in the process of deciding which TSL to select. In the context of market competition, AHRI stated that DOE failed to consider whether the negative impacts on small business can be averted if ASHRAE 90.1-2013 or TSL 1 levels are selected. (AHRI, No. 19 at p. 23)

As discussed in sections V.B.4 and V.B.5, DOE concluded: (1) That the efficiency levels adopted in this document are technologically feasible and would not reduce the utility or performance of SPVACs and SPVHPs, and (2) the amended levels would be unlikely to have a significant adverse impact on competition. In selecting a standard level, DOE is required to weigh the sum of all benefits against all costs. The impact on small manufacturers is one consideration in the balancing of costs and benefits. Given the size and composition of the industry, any publication of conversion costs or impacts by subgroup could disclose proprietary content or enable decomposition of aggregate numbers. In the following table, DOE shows the average conversion cost per manufacturer and those conversion costs as a percentage of revenue for the industry.

Units

Trial Standard Level

Average Conversion Costs per Manufacturer

2014$M

1.0

2.2

4.5

Conversion Costs as a Percentage of Revenue for the Industry *

7.2

7.8

16.8

34.5

* Based on 2015 projected industry revenue.

f. Need for National Energy Conservation

DOE also considers the need for national energy conservation in determining whether a new or amended standard is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) The energy savings from the adopted standards are likely to improve the security and reliability of the nation's energy system. Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the nation's electricity system. DOE conducts a utility impact analysis to estimate how standards may affect the nation's needed power generation capacity, as discussed in section IV.L.

The adopted standards also are likely to result in environmental benefits in the form of reduced emissions of air pollutants and GHGs associated with energy production and use. DOE

conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.J; the emissions impacts are reported in section V.B.6 of this final rule. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.K.

AHRI questioned DOE's inclusion of environmental benefits in its consideration since none of the specific factors in section 6313(a)(6)(B)(ii)(I)-(VI) refer to environmental matters. AHRI stated that DOE must clarify precisely why and how it believes that it has the statutory authority under section 6313(a)(6)(B)(ii) to consider SCC issues in any fashion and, if so, under which sub-provision (

i.e.,

which of the seven factors). (AHRI, No. 19 at pp. 24-25)

DOE maintains that environmental and public health benefits associated with more-efficient use of energy are important to take into account when considering the need for national energy and water conservation. Given the threats posed by global climate change to the economy, public health, and national security,

combined with the well-recognized potential of many energy conservation measures to reduce emissions of GHGs, DOE believes that evaluation of the potential benefits from slowing anthropogenic climate change must be part of the consideration of the need for national energy conservation required under 42 U.S.C. 6313(a)(6)(B)(ii)(VI).

See the National Academies 2014 report

America's Climate Choices.

Available at:

http://nas-sites.org/americasclimatechoices/sample-page/panel-reports/americas-climate-choices-final-report/.

g. Other Factors

EPCA allows the Secretary, in determining whether a standard is economically justified, to consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) To the extent interested parties submit any relevant information regarding economic justification that does not fit into the other categories described above, DOE could consider such information under “other factors.”

2. Rebuttable Presumption

EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE's LCC and PBP analysis generates values used to calculate the effects that potential amended energy conservation standards would have on the PBP for consumers. These analyses include, but are not limited to, the 3-year PBP contemplated under the rebuttable-presumption test.

In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment, as required under 42 U.S.C. 6313(a)(6)(B)(ii). The results of this analysis serve as the basis for DOE's evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section V.B.1.c of this final rule.

G. Additional Comments

DOE received additional non-methodological comments that are not classified in the discussion sections above. Responses to these additional comments are provided below.

Referring to section VI.A of the NOPR, AHRI stated that DOE failed to identify market failures or how energy prices fail to reflect costs associated with emissions of CO

and other pollutants. AHRI pointed out that those who purchase and rent commercial buildings (and their tenants) are typically sophisticated consumers who have access to information on energy costs, so any market failure in this context would not be large. AHRI stated that DOE must demonstrate that market failures actually exist in the real world and that, once quantified, DOE's assessment of costs and benefits for its rules in this area align with such an important external validity check on its analysis. (AHRI, No. 19 at pp. 26-27)

Section 1(b)(1) of Executive Order (E.O.) 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), requires each agency to identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action), as well as to assess the significance of that problem. As discussed in section VI.A of this final rule, DOE identified two problems that are related to certain features of consumer decision-making (numbers 1 and 2 in section VI.A), and one problem (number 3) that concerns environmental externalities that are not reflected in energy prices.

Energy prices only reflect costs incurred in the production and delivery of energy products (including costs related to meeting existing emissions regulations). They do not reflect costs associated with the effects of the pollutant emissions that do occur. In the case of GHGs, the wide range of economic, public health, and environmental costs associated with climate change are discussed in the National Academies 2014 report

America's Climate Choices.

Note that since the publication of the SPVU NOPR, DOE has refined the description of the problems identified pursuant to E.O. 12866. See section VI.A.

Available at:

http://nas-sites.org/americasclimatechoices/sample-page/panel-reports/americas-climate-choices-final-report/

DOE acknowledges that many SPVU consumers have access to information on energy costs and have the capacity to factor this information into their purchase decision. Indeed, DOE estimates that many consumers would purchase equipment with efficiency that meets or exceeds the proposed standards in the ASHRAE base case. It is possible that the problem related to information is not highly significant in the SPVU market, but DOE believes that the problem of misaligned incentives between purchasers and users exists in the case of building tenants who pay for electricity.

Neither EPCA nor E.O. 12866 require quantification of the problems. Nor is it clear how any such quantification would bear any relationship to the costs and benefits estimated for the adopted standards. In the case of the problem that there are external benefits resulting from improved energy efficiency of equipment that are not captured by the users, DOE attempts to qualify some of the external benefits through use of SCC values.

AHRI commented that, by proposing energy conservation standards for SPVUs above the levels presented in ASHRAE 90.1-2013, DOE failed to recognize that Congress intended that DOE rely on the “ASHRAE process” for commercial standards-making. AHRI added that DOE should have raised concerns regarding the proposed efficiency levels through the ASHRAE process. (AHRI, No. 19 at pp. 13-15) In proposing energy conservation standards for SPVUs above the levels presented in ASHRAE 90.1-2013, DOE followed the relevant provisions of EPCA, which authorize the adoption of an energy conservation standard above the levels adopted by ASHRAE if clear and convincing evidence shows that adoption of such a more-stringent standard would result in significant

additional conservation of energy and be technologically feasible and economically justified. 42 U.S.C. 6313(a)(6)(A)(ii)(II)

AHRI commented that DOE did not make a meaningful attempt to show that the energy savings meet the “clear and convincing” requirement of proof, and that the analysis falls short as a result of omissions related to increases in physical size, decreases in shipments, and lack of evidence for the conclusions of the net employment impacts. Furthermore, AHRI noted that the analysis used by DOE in this rulemaking is functionally equivalent to the 6295(o) process that does not have this elevated requirement of proof. (AHRI, No. 19 at pp. 14-17) Following the publication of the NOPR, DOE revised its analysis to incorporate feedback received through stakeholder comments and otherwise responded to specific concerns, including those related to physical size, shipments, and employment impacts; specific revisions and comment responses are addressed in the relevant sections of the document. Following the update of its analyses and review of the results, DOE continues to believe that there is clear and convincing evidence that the standard would result in significant additional conservation of energy and is technologically feasible and economically justified. Section V.C of this document sets forth in detail the reasons why DOE has made this conclusion.

AHRI also commented that the commercial provisions of the statute do not require the maximum improvement in energy efficiency as is required by the residential provisions of the statute (42 U.S.C. 6295(o)(2)(A)). Therefore, AHRI reported that DOE should not have started at TSL 4 and walked down, but should have first considered ASHRAE and only considered higher levels based on clear and convincing evidence as noted previously. (AHRI, No. 19 at pp. 15-17) In response, as described in this final rule, DOE adopted ASHRAE levels except where clear and convincing evidence supported the adoption of a more stringent standard.

DOE also received several comments from stakeholders regarding the proposed efficiency levels. ASAP

et al.,

NEEA, and the CA IOUs supported the proposed standards for SPVUs. (ASAP

et al.,

No. 18 at p. 1; NEEA, No. 23 at p. 1; and CA IOUs, No. 22 at pp. 1-2) AHRI, Lennox, Friedrich, First Company, and National Coil Company opposed increasing efficiency levels about the ASHRAE 90.1-2013 levels. (AHRI, No. 19 at p. 2; Lennox, No. 16 at p. 2; Friedrich, No. 15 at p. 2; First Company, No. 12 at p. 3; National Coil Company, No. 14 at p. 1) Friedrich stated that adopting the ASHRAE 90.1-2013 standards would allow for a realistic product design cycle. (Friedrich, No. 15 at p. 2) Lennox and AHRI stated that DOE has not provided clear and convincing evidence of the benefits of levels above ASHRAE including TSL 2. (Lennox, No. 16 at pp. 7-8; AHRI, No. 19 at p. 2) Lennox also cited instances when DOE rejected TSLs with higher energy savings in favor of ASHRAE, and noted that TSL 2 does not result in significant energy savings if DOE were to consider reduced future shipments and repairs. (Lennox, No. 16 at pp. 7-8) Similarly, National Coil Company noted that the economic benefits would actually be smaller than those in the NOPR because shipments projections are flawed and the PBPs will discourage consumers from purchasing the higher efficiency product. (National Coil Company, No. 14 at p. 2)

DOE appreciates stakeholder comments on the proposed efficiency levels. With respect to Friedrich's comment regarding design cycle, DOE believes that the compliance period associated with TSL 2 provides adequate time for development and implementation of any necessary changes to equipment offerings. Additionally, DOE's engineering analysis is based on equipment already on the market, so DOE does not believe that design cycle concerns should be a significant issue. In response to Lennox and AHRI, in section V.C of this final rule, DOE presents results related to energy savings, economic justification, and technological feasibility, which together meet the clear and convincing evidence requirement. While Lennox is correct in stating that in the past DOE has rejected TSLs with energy savings greater than those expected from adopting ASHRAE standard levels, in each of those cases, DOE had determined that there is not clear and convincing evidence to support the higher levels based on specific concerns identified in those rulemakings. DOE has revised its shipments analysis in response to comments, including those from Lennox and National Coil Company. After making these revisions, which include consideration of increased repairs and reduced shipments in the standards case, DOE still finds that there is clear and convincing evidence that TSL 2 provides significant energy savings that are economically justified.

Lennox stated that if DOE does not adopt the ASHRAE 90.1-2013 efficiency levels, it should engage stakeholders in a negotiated rulemaking to address multiple concerns. (Lennox, No. 16 at p. 2) AHRI stated that as an alternative to adopting the levels in ASHRAE 90.1-2013, DOE could issue a supplemental notice of proposed rulemaking (SNOPR) and allow stakeholders opportunity to comment on a revised analysis and proposal. (AHRI, No. 19 at p. 2) AHRI also noted that DOE may not adopt a final rule with energy conservation standards that it determined in the NOPR are not economically justified (

i.e.,

above TSL 2) without issuing an SNOPR. (AHRI, No. 19 at p. 22)

In response, DOE notes that there is no legal requirement for DOE to engage in a negotiated rulemaking. Furthermore, all stakeholders have had the opportunity to comment on DOE's proposals, which specifically included proposed standards for certain classes of SPVUs at levels more stringent than ASHRAE 90.1-2013. In this final rule, DOE is not adopting energy conservation standards above TSL 2.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this rulemaking with regard to SPVACs and SPVHPs. Separate subsections address each component of the analysis.

DOE used several analytical tools to estimate the impact of the standards considered in this document. The first tool is a spreadsheet that calculates the LCC and PBP of potential amended or new energy conservation standards. The NIA uses a second spreadsheet set that provides shipments forecasts and calculates NES and NPV resulting from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (GRIM), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE docket Web page for this rulemaking:

http://www.regulations.gov/#!docketDetail;D=EERE-2012-BT-STD-0041

. Additionally, DOE used output from the latest version of the Energy Information Administration's (EIA's)

Annual Energy Outlook

(

AEO)

for the emissions and utility impact analyses.

AHRI stated that in the NOPR, DOE used

AEO2013

rather than

AEO2014

even though DOE acknowledged that

AEO2014

would reduce environmental benefits resulting from reductions of certain emissions. AHRI further stated that updating to

AEO2014

in the final rule is not consistent with the theory or practice of notice and comment rulemaking. According to AHRI, if DOE determines not to adopt ASHRAE 90.1-2013 levels, DOE must issue an SNOPR based on

AEO2014

data. AHRI stated that if DOE issues a final rule, it will be

too late to file comments and AHRI's only option will be litigation as the rule will have a fatal procedural error. (AHRI, No. 19 at pp. 18-19)

For the final rule, DOE updated to

AEO2015,

the most recent version available, wherever possible. Updating to the most recent AEO versions, however, had

de minimus

impact on the analysis and no impact on the conclusions DOE reached. The NOPR provided stakeholders with the opportunity to comment on the methodology in the rulemaking.

A. Market and Technology Assessment

To start the rulemaking analysis for SPVACs and SPVHPs, DOE researched information that provided an overall picture of the market for this equipment, including the purpose of the equipment, the industry structure, manufacturers, market characteristics, and technologies used in the equipment. This activity included both quantitative and qualitative assessments based primarily on publicly available information.

The market and technology assessment presented in the December 2014 NOPR discussed definitions, equipment classes, manufacturers, quantities, types of equipment sold and offered for sale, and technology options that could improve the energy efficiency of the equipment under examination. See chapter 3 of the final rule TSD for further discussion of the market and technology assessment.

In written submissions after publication of the NOPR, and discussion during the February 6, 2015 NOPR public meeting, several stakeholders provided comment on DOE's NOPR market and technology assessment. Bard commented that there were several domestic SPVU manufacturers that were not listed among the seven manufacturers considered by DOE in the NOPR. (Bard, NOPR Public Meeting Transcript, No. 11 at p. 52) DOE subsequently identified two additional domestic manufacturers of SPVUs that were not considered in the NOPR. AHRI commented that floor-mounted SPVUs used in offices and retail spaces were not included in the analysis. (AHRI, No. 19 at p. 27) DOE is not aware of any manufacturers of products that meet the statutory definition of an SPVU and are designed to be floor-mounted inside an office or retail space.

Lennox commented that, according to the AHRI database, no units exist on the market that meet the 12.3 EER max-tech level analyzed in the NOPR. (Lennox, No. 16 at p. 17) AHRI also commented that there are no units currently on the market that meet the 12.3 EER max-tech efficiency level. (AHRI, No. 19 at p. 34) For the final rule analysis, DOE reexamined up-to-date SPVU product listings in both the AHRI database and manufacturers' Web sites, and found the max-tech level to be 12.0 EER. This resulted in DOE's selection of a different max-tech level, but did not significantly alter the outcome of the analyses, because the standard level selected was not at the max-tech level of performance.

The December 2014 NOPR listed all of the potential technology options that DOE considered for improving energy efficiency of SPVACs and SPVHPs. 79 FR at 78631. These technology options are listed in Table IV.1.

Table IV.1—Potential Technology Options for Improving Energy Efficiency of SPVACs and SPVHPs

Technology options

Heat Exchanger Improvements

Increased frontal coil area.

Increased depth of coil.

Increased fin density.

Improved fin design.

Improved tube design.

Hydrophilic film coating on fins.

Microchannel heat exchangers.

Dual condensing heat exchangers.

Indoor Blower and Outdoor Fan Improvements

Improved fan motor efficiency.

Improved fan blades.

Compressor Improvements

Improved compressor efficiency.

Multi-speed Compressors.

Other Improvements

Thermostatic expansion valves.

Electronic expansion valves.

DOE received multiple comments regarding implementation of the technology options listed in Table IV.1 as a means of improving the energy efficiency of SPVUs. These comments are addressed in the relevant sections of the screening analysis and engineering analysis in sections IV.B and IV.C, respectively. DOE did not receive any comments regarding technology options that are not listed in Table IV.1.

B. Screening Analysis

After DOE identified the technologies that might improve the energy efficiency of SPVACs and SPVHPs, DOE conducted a screening analysis. The purpose of the screening analysis is to evaluate the technologies that improve equipment efficiency to determine which technologies to consider further and which to screen out. DOE uses four screening criteria to determine which design options are suitable for further consideration in a standards rulemaking. Namely, design options will be removed from consideration if they are not technologically feasible; are not practicable to manufacture, install, or service; have adverse impacts on product utility or product availability; or have adverse impacts on health or safety. (10 CFR part 430, subpart C, appendix A at 4(a)(4) and 5(b)) Details of the screening analysis are in chapter 4 of the final rule TSD.

Technologies that pass through the screening analysis are referred to as “design options” in the engineering analysis. These four screening criteria do not include the proprietary status of design options. DOE will only consider efficiency levels achieved through the use of proprietary designs in the engineering analysis if they are not part of a unique path to achieve that efficiency level.

Through a review of each technology, DOE found that the technologies identified met all four screening criteria to be examined further in the analysis in the December 2014 NOPR. 79 FR at 78631.

Technologies Not Considered in the Engineering Analysis

Typically, energy-saving technologies that pass the screening analysis are evaluated in the engineering analysis.

However, some technologies are not included in the analysis for other reasons, including: (1) Data are not available to evaluate the energy efficiency characteristics of the technology; (2) available data suggest that the efficiency benefits of the technology are negligible; or (3) the test procedure and EER or COP metric would not measure the energy impact of these technologies. Accordingly, in the December 2014 NOPR, DOE eliminated the following technologies from consideration in the engineering analysis based upon these additional considerations: increased fin density, improved fin design, improved tube design, hydrophilic film coating on fins, thermostatic or electronic expansion valves, thermostatic cyclic controls, microchannel heat exchangers (MCHXs), and multi-speed compressors. 79 FR at 78631-32.

DOE received multiple comments on its exclusion of MCHXs from the engineering analysis. ASAP

et al.

commented that higher efficiency levels may have been found to be more cost effective if MCHXs had been incorporated in the analysis. Although DOE did not find any models on the market that use MCHX technology, ASAP

et al.

expressed the position that DOE could have modeled MCHX technology in order to determine its cost effectiveness. Additionally, ASAP

et al.

stated that MCHX technology offers reliability benefits to users of SPVUs. (ASAP

et al.,

No. 18 at p. 2) NEEA commented that MCHXs are currently found in some rooftop units manufactured by at least one manufacturer of SPVUs. NEEA stated that DOE would have found MCHXs to be a cost effective design option if modeling software had been used to simulate their use in SPVUs in the engineering analysis. (NEEA, No. 23 at pp. 1-2). The CA IOUs commented that MCHX is a mature technology that has been proven in various automotive and HVAC applications. Further, the CA IOUs stated that the non-existence of this technology in SPVUs may be because the current efficiency standards are sufficiently low to not encourage its use, and it may be cost effective if utilized. (CA IOUs, No. 22 at p. 2) DOE is aware that the technological feasibility of MCHX technology has been proven in certain HVAC applications, including some commercial packaged air conditioners (CUACs). However, DOE is not aware of any manufacturers of SPVUs who either currently or in the past have incorporated MCHX technology into SPVU products. As such, DOE is not aware of any research or data that document the effect that MCHX technology has on the energy efficiency of SPVUs. Therefore, DOE did not consider MCHX technology in its engineering analysis.

After screening out or otherwise removing from consideration the aforementioned technologies, the technologies that DOE identified for consideration in the engineering analysis are included in Table IV.2.

Table IV.2—Design Options Retained for Engineering Analysis

Increased frontal coil area.

Increased depth of coil.

Improved fan motor efficiency.

Improved fan blade efficiency.

Improved compressor efficiency.

Dual condensing heat exchangers.

These remaining technology options from Table IV.2 are briefly described below.

Increased Frontal Coil Area

Manufacturers of SPVACs and SPVHPs will often improve the effectiveness of a unit's heat exchangers by using a coil with a larger frontal area, which increases the total heat transfer surface area. Enlarging the frontal area of a condenser coil allows heat to be rejected from the refrigerant at a lower condensing temperature. Similarly, such changes to the evaporator coil allow air to be cooled at a higher refrigerant temperature. These changes (either individually, or in tandem) can reduce the pressure difference across the compressor, and thus reduce the required compressor power. Increases in frontal coil area are limited by two factors. Growth of the evaporator coil is limited because it must be able to dehumidify the indoor air at a higher evaporating temperature. Also, existing cabinet dimensions often cannot accommodate increases in frontal coil area without the incursion of additional costs to enlarge the cabinet.

Increased Depth of Coil

Manufacturers of SPVACs and SPVHPs may choose to increase heat exchanger efficiency by adding tube rows to the evaporator and/or condenser coils. Adding tube rows increases total heat transfer surface area, which decreases the required compressor power (similar to the effect of increased frontal coil area). Adding tube rows to a coil increases its depth. Due to cabinet size constraints, there are limits on how much the depth of the coil can be increased without requiring cabinet expansion. Also, increased coil depth may impose a greater static pressure drop for the fan motor to overcome such that adequate air flow can be maintained. Any added fan power requirements must be considered when assessing the net efficiency benefit of increasing coil depth.

Improved Fan Motor Efficiency

SPVU manufacturers use either permanent split capacitor (PSC) motors or brushless permanent magnet (BPM) motors to power the fans and blowers of the SPVU. BPM motors have higher efficiencies than PSC motors, but are also more expensive and require additional control hardware. In addition, BPM motors weigh more than PSC motors, and may necessitate some system redesign to accommodate their increased weight.

DOE found that PSC motors are the dominant motor design in lower efficiency units and BPM motors are commonly found in higher efficiency equipment. Based on market data, DOE found that, in general, at the 10 EER efficiency level manufacturers transition from using a PSC motor to using a BPM motor to power the indoor blower.

Improved Fan Blade Efficiency

Air system efficiency can be improved through more advanced fan and blower design and by reducing the restrictions to air flow. The air delivery system of an SPVU typically consists of two motors driving three fans: Two indoor blowers (which move air across the evaporator coil) and an outdoor fan (which moves air across the condenser coil). The evaporator blowers are typically centrifugal blowers, while the condenser fan is typically a propeller-type fan. Improvements to the fan blade designs could increase the overall efficiency by decreasing the power demands for the fan motor. Most SPVUs use forward-curved blowers, but some manufacturers have been experimenting with backward-curved blowers for their quieter performance and higher efficiencies. However, the space limitations within SPVUs make reduction of flow resistance difficult. Backward-curved fan blades were found in SPVUs at the max-tech efficiency level. DOE has not found any data quantifying the efficiency improvement of a backward-curved blower in SPVU models.

Improved Compressor Efficiency

The compressors used in SPVUs are almost exclusively scroll compressors, which use two interleaving scrolls to pump refrigerant throughout the sealed system. The compressor consumes the majority of the electrical input to an

SPVU (indoor and outdoor blower fans and controls account for the remainder). As such, utilizing a higher efficiency compressor yields a significant improvement to the EER/COP of an SPVU.

Based on physical teardowns, baseline efficiency SPVUs use single-speed compressors with lower peak-load EERs, whereas more-efficient SPVUs incorporate two-speed compressors with higher EERs in their designs.

Dual Condenser Heat Exchangers

In air-conditioning equipment, the effectiveness of a condenser at discharging heat into the outdoor air stream is directly related to the amount of surface area of the condenser heat exchanger coils.

In order to continue improving the efficiency of the condenser section of a unit when increasing the size of the condenser coil is uneconomical, SPVU manufacturers may utilize two separate condensing heat exchangers, rather than just one. Doing so allows the manufacturer to achieve the desired increase in total condenser coil surface area without the cost constraints of manufacturing a single, large condenser coil as an alternative.

Based on all available information, DOE did not change the screening analysis between the December 2014 NOPR and this final rule. Additional detail on the screening analysis is contained in chapter 4 of the final rule TSD.

C. Engineering Analysis

The engineering analysis establishes the relationship between an increase in energy efficiency of the equipment and the increase in manufacturer selling price (MSP) associated with that efficiency increase. This relationship serves as the basis for cost-benefit calculations for individual consumers, manufacturers, and the Nation. In determining the cost-efficiency relationship, DOE estimates the increase in manufacturer cost associated with increasing the efficiency of equipment above the baseline up to higher efficiency levels for each equipment class.

1. Methodology

DOE has identified three basic methods for developing cost-efficiency curves: (1) The design-option approach, which provides the incremental costs of adding design options to a baseline model that will improve its efficiency (

i.e.,

lower its energy use); (2) the efficiency-level approach, which provides the incremental costs of moving to higher energy efficiency levels, without regard to the particular design option(s) used to achieve such increases; and (3) the reverse-engineering (or cost-assessment) approach, which provides “bottom-up” manufacturing cost assessments for achieving various levels of increased efficiency, based on teardown analyses (or physical teardowns) providing detailed data on costs for parts and material, labor, shipping/packaging, and investment for models that operate at particular efficiency levels.

DOE conducted the engineering analysis presented in the December 2014 NOPR using a combination of the efficiency level and cost-assessment approaches for analysis of the EER and COP efficiency levels. More specifically, DOE identified the efficiency levels for the analysis based on the range of rated efficiencies of SPVAC and SPVHP equipment found in the AHRI database and manufacturer literature. DOE selected SPVAC and SPVHP equipment that was representative of the market at different efficiency levels, then purchased and reverse-engineered the selected equipment. DOE used the cost-assessment approach to determine the manufacturer production costs (MPCs) for SPVAC and SPVHP equipment across a range of efficiencies from the baseline to max-tech efficiency levels. The methodology used to perform the reverse-engineering analysis and derive the cost-efficiency relationship is described in chapter 5 of the final rule TSD.

2. Efficiency Levels for Analysis

The engineering analysis first identifies representative baseline equipment, which is the starting point for analyzing potential technologies that provide energy efficiency improvements. “Baseline equipment” refers to a model or models having features and technologies typically found in the least-efficient equipment currently available on the market. As described in the December 2014 NOPR, DOE identified 36,000 Btu/h (3-ton) as the representative cooling capacity for SPVACs and SPVHPs with a cooling capacity less than 65,000 Btu/h, and DOE identified 72,000 (6-ton) as the representative cooling capacity for SPVACs and SPVHPs with a cooling capacity greater than or equal to 65,000 Btu/h and less than 135,000 Btu/h. 79 FR at 78632. DOE identified some SPVHP models with a cooling capacity greater than or equal to 65,000 Btu/h and less than 135,000 Btu/h; however, it could not identify any models in this category with efficiency data available, so these units were not included in the engineering analysis. DOE did not find any models of SPVHP greater than or equal to 135,000 Btu/h on the market. DOE found some SPVAC models with cooling capacities greater than or equal to 135,000 Btu/h and less than 240,000 Btu/h; however, DOE did not consider these models in the engineering analysis due to a lack of available efficiency data.

Next, using the information DOE gathered during the market and technology assessment, DOE selected higher efficiency levels for analysis for the representative cooling capacities based on the most common equipment efficiencies on the market and efficiency levels that are typically achieved via substantial design changes, as well as the highest efficiency level on the market for each equipment class (

i.e.,

the max-tech level). Next, DOE identified typical technologies and features incorporated into equipment at these higher efficiency levels. To determine the appropriate COP heating mode efficiency levels for SPVHPs, DOE performed an analysis of how COP relates to EER. DOE reviewed the models in the database it compiled, and for each equipment class, DOE calculated the median COP for each EER efficiency level for analysis.

Table IV.3 and Table IV.4 list the efficiency levels analyzed for SPVUs. Due to changes in equipment efficiency certification ratings since the analysis conducted for the December 2014 NOPR, the max-tech efficiency level (EL) decreased from 12.3 EER to 12.0 EER. In addition, the median COP value at both EL 3 and EL 4 decreased from 3.9 COP to 3.7 COP. Because DOE could not find any SPVUs with cooling capacities ≥135,000 Btu/h and <240,000 that had efficiency data available, DOE did not analyze any efficiency levels for SPVACs or SPVHPs with cooling capacities ≥135,000 Btu/h and <240,000 Btu/h.

Table IV.3—Efficiency Levels for Analysis for SPVUs <65,000 Btu/h

Efficiency level

SPVACs, 36,000 Btu/h

SPVHPs, 36,000 Btu/h

EPCA Baseline *

9.0 EER

3.0 COP

ASHRAE Baseline **

10.0 EER

3.0 COP

EL1

10.5 EER

3.2 COP

EL2

11.0 EER

3.3 COP

EL3

11.75 EER

3.7 COP

EL4 (max-tech)

12.0 EER

3.7 COP

* Refers to the currently applicable Federal minimum efficiency level. See

http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35.

** Refers to the current minimum efficiency permitted by the latest version of the ASHRAE standard, ASHRAE 90.1-2013.

Table IV.4—Efficiency Levels for Analysis for SPVUs ≥65,000 Btu/h and <135,000 Btu/h

Efficiency level

SPVACs, 72,000 Btu/h

SPVHPs, 72,000 Btu/h

EPCA Baseline

8.9 EER

3.0 COP

ASHRAE Baseline (max-tech)

10.0 EER

3.0 COP

DOE received multiple comments regarding the method that was used to correlate the EER and COP efficiency metrics for formulation of the efficiency levels analyzed in the December 2014 NOPR. AHRI opined that it is not appropriate to correlate increases in EER with COP, since manufacturers may choose to increase either cooling or heating performance levels without increasing the other. (AHRI, No. 19 at p. 30) Lennox also asserted that EER and COP are not necessarily related because product designs may be optimized for cooling or heating performance. (Lennox, No. 16 at p. 17)

DOE acknowledges that product designs may be optimized for either cooling or heating performance, and understands that EER and COP cannot be directly correlated in practice. In its analyses, DOE found that the EER efficiency distributions for SPVACs and SPVHPs are similar, and that the design options used to achieve each EER efficiency level are generally the same for SPVACs and SPVHPs. Due to the similar relationships of cooling mode efficiency ratings versus implementation of design options for both SPVACs and SPVHPs, DOE has determined that SPVHP equipment is usually optimized to achieve a certain cooling mode performance level, with heating mode performance as a secondary concern. This determination has also been confirmed by feedback from manufacturer interviews. As such, DOE believes that because design option implementation in SPVHPs is more closely aligned with changes in cooling mode efficiency ratings than changes in heating mode efficiency ratings, the efficiency levels analyzed for SPVHPs should be centered on cooling mode efficiency data. Therefore, with the understanding that changes in COP do not have a definitive relationship to changes in EER, DOE believes that selecting the median COP value for SPVHPs on the market at each EER efficiency level is the most market-representative way of analyzing trends between SPVHP design option implementation and heating mode efficiency ratings.

3. Teardown Analysis

After selecting a representative capacity for each equipment class, DOE selected equipment near both the representative capacity and the selected efficiency levels for each of the equipment classes that was directly analyzed via physical teardowns. DOE gathered information from these teardowns to create detailed bills of materials (BOMs) that included all components and processes used to manufacture the equipment. The teardown analysis allowed DOE to identify the technologies that manufacturers typically incorporate into their equipment, along with the efficiency levels associated with each technology or combination of technologies. The end result of each teardown is a structured BOM. The BOMs from the teardown analysis were used as inputs to calculate the MPC for each unit that was torn down. The MPCs resulting from the teardowns were used to develop an industry average MPC for each efficiency level analyzed in each equipment class. During the development of the engineering analysis, DOE held interviews with manufacturers to gain insight into the SPVU industry and to request feedback on the engineering analysis and assumptions that DOE used. DOE used the information it gathered from those interviews, along with the information obtained through the teardown analysis, to refine the assumptions and data in the cost model. For additional detail on the teardown process, see chapter 5 of the final rule TSD.

4. Incremental Efficiency Levels and Design Options

During the teardown process, DOE quantified the typical design options manufacturers use to reach specific efficiency levels, as well as the efficiency levels at which manufacturers tend to make major technological design changes. DOE determined that to improve efficiency from the current EPCA baseline efficiency level of 9 EER to 10 EER, manufacturers will usually increase the heat exchanger face area, which necessitates an increase in cabinet size. In addition, DOE determined from market data and teardown results that manufacturers will typically switch from using a PSC indoor blower motor to using a BPM motor to reach 10 EER. To increase

efficiency from 10 EER to 10.5 EER, teardown data showed that manufacturers will typically increase the depth of one of the heat exchanger coils (either the evaporator or condenser) by adding another tube row. To increase from 10.5 EER to 11 EER, DOE found that manufacturers will add another tube row to the other heat exchanger coil that was not enlarged in the process of increasing efficiency from 10 EER to 10.5 EER. In the units torn down, both of these design changes were found to not necessitate an increase in cabinet size. To further increase efficiency from 11 EER to 11.75 EER, DOE determined that manufacturers will typically increase the face areas of both the evaporator and condenser heat exchanger coils, which necessitates an increase in cabinet size. In addition, DOE found that manufacturers will often utilize a higher efficiency compressor to reach 11.75 EER. To reach the 12.0 EER (max-tech) efficiency level, DOE found that manufacturers may switch from using a PSC outdoor fan motor to using a more-efficient BPM motor, as well as incorporate a high-efficiency fan blade for the outdoor fan. In addition, product data verified that manufacturers may also choose to increase the condensing heat exchanger face area by using two condensing heat exchangers rather than just one, which necessitates an increase in cabinet size.

DOE received multiple comments on the usage of BPM indoor blower motors as a design option to increase efficiency to 10 EER. AHRI stated that not all manufacturers will find it necessary to switch from a PSC to a BPM motor in order to reach the 10 EER efficiency level, but that BPM motors will likely be required to reach 11 EER. (AHRI, No. 19 at p. 34) Similarly, Lennox stated that while some manufacturers may choose to switch to a BPM motor as a means of achieving the 10 EER level, others may continue to use a PSC motor and instead modify heat transfer efficiency in order to reach 10 EER. (Lennox, No. 16 at p. 17) Friedrich stated that it would need to use a BPM motor to reach 10 EER. (Friedrich, No. 15 at p. 2) Additionally, National Coil Company stated that it currently uses BPM motors, in tandem with other means of improving energy efficiency, to achieve the 10 EER efficiency level in its products. (National Coil Company, No. 14 at p. 2) DOE understands that the usage of a BPM motor to reach the 10 EER efficiency level may not be required across all product lines by all manufacturers. However, DOE cannot determine specifically what share of SPVU product lines would not use a BPM motor to reach 10 EER, due to a lack of definitive data from stakeholders. In addition, market data indicates that a majority of SPVUs with efficiencies greater than or equal to 10 EER use BPM indoor blower motors. As a result, in the engineering analysis DOE has maintained the use of a BPM indoor blower motor as a required design option to reach the 10 EER efficiency level.

DOE also received multiple comments regarding the addition of heat exchanger coil rows as a design option to increase efficiency. Friedrich commented that it would need to increase the footprint of its units in order to add two additional heat exchanger coil rows. (Friedrich, NOPR Public Meeting Transcript, No. 11 at p. 111) AHRI commented that using the addition of two heat exchanger coil rows to increase efficiency from 10 to 11 EER may not be possible for all manufacturers, and that this design change will require some manufacturers to increase cabinet size for certain units, such as floor-mounted SPVUs. Additionally, AHRI stated that an increase in coil depth will negatively affect airside pressure drop, which may further complicate the design of the SPVU by requiring a larger fan motor. (AHRI, No. 19 at pp. 30-31) Bard commented that there are many different manufacturers and versions of SPVU products on the market, and it may not be possible to use the addition of tube rows to increase efficiency in all SPVU models without overcoming certain design hurdles. According to Bard, specific issues may include the need to jump cabinet sizes to a larger cabinet, as well as redesigning the entire backup electric heat system for particular models. (Bard, NOPR Public Meeting Transcript, No. 11 at pp. 92-93). Bard also commented that, in particular, the industry will have trouble reaching 11 EER in the higher capacity 5-ton units without increasing cabinet size. (Bard, No. 13 at p. 3) In addition, National Coil Company stated that simply adding rows of coil to their heat exchangers would not be sufficient to meet an 11 EER standard, and a complete redesign of their product lines would be needed. (National Coil Company, No. 14 at p. 2) DOE is aware that there are numerous SPVU product lines with unique characteristics, and that the applicability of design options will vary by manufacturer. In the engineering analysis, DOE estimated the aggregate industry cost of design changes to meet the efficiency levels analyzed by tearing down units that are representative of most models at each efficiency level. The teardown process provided definitive data that were used as a basis for determining the cost-efficiency relationship for market-representative SPVUs. DOE did not receive any additional, specific data from stakeholders that describe changes to particular units resulting from the addition of heat exchanger tube rows, that are not already accounted for in the engineering analysis. As a result, DOE was not able to modify the engineering analysis to model additional design changes; DOE did not receive any definitive engineering information to use as a platform for such adjustments.

Several stakeholders commented on the potential use of modeling to determine the energy efficiency impacts of design options. ASAP commented that when there is a technology proven in the market, but not incorporated in the specific product covered by the rulemaking, that DOE will typically use modeling to look at the impact of that technology. Specifically, ASAP asked whether DOE considered modeling the energy efficiency impact of MCHX technology. (ASAP, NOPR Public Meeting Transcript, No. 11 at p. 76) AHRI also noted that DOE has modeled the effect of technology options for other recent air-conditioning product rulemakings but not for this one. Further, AHRI noted that since the market for SPVUs is relatively small, it would likely take less time to develop a proper model for SPVUs. (AHRI, NOPR Public Meeting Transcript, No. 11 at pp. 77-81) NEEA expressed support of AHRI's suggestion that DOE model technology options for SPVUs, such as higher efficiency compressors and MCHXs. (NEEA, NOPR Public Meeting Transcript, No. 11 at pp. 91-92)

DOE acknowledges that in the rulemaking for CUACs (docket EERE-2014-BT-STD-0015), modeling was used to determine the effects on energy use of different technology options. In the analyses for that rulemaking, the integrated energy efficiency ratio (IEER) metric is used as the basis for differentiating the efficiency levels considered, which is different from the metric of EER, which is currently used to certify CUAC equipment. IEER is an efficiency metric that accounts for part load operations while EER is the full load efficiency measure. The AHRI Directory of Certified Product Performance provides IEER ratings as well as EER at the full load condition, but it does not provide detailed EERs at different part load conditions. DOE understands that part load operating characteristics of CUAC equipment are critical for accurate assessment of equipment energy use in the field. DOE

conducted laboratory testing for CUAC equipment in order to understand the part load operations at different ambient conditions. However, DOE was limited by the number of units the Department could purchase, as well as laboratory testing capability. Therefore, DOE conducted equipment modeling using simulation programs to better understand the part load operations of CUAC equipment in order to more accurately characterize the energy use in the field. In the analyses for SPVUs, each efficiency level is distinguished by the full load EER rating. DOE elected not to use the same type of detailed equipment modeling for part load operations that was conducted for CUAC because the design options that can potentially impact part load efficiency do not impact EER, and were therefore not considered in the engineering analysis. However, equipment performance curves were used to model energy use.

For CUAC, modeling was also used in the engineering analysis to characterize the design changes needed to reach incrementally higher efficiency levels, because the large breadth of CUAC product offerings could not be accurately examined solely via a teardown analysis. For SPVUs, due to the relatively small number of product offerings, DOE determined that teardowns combined with analysis of product literature and published efficiency ratings were sufficient to accurately examine the design changes used in market-representative products to improve efficiency. As a result, modeling was not needed to determine the efficiency impacts of technology options currently used in SPVUs. Lastly, DOE did not model the efficiency impacts of MCHX technology on SPVUs. As explained in detail in section IV.B, DOE did not consider MCHX in the engineering analysis due to a lack of documentation regarding any improvements offered by MCHX to the overall energy efficiency of an SPVU.

For more information on the design options DOE considered at each efficiency level, see chapter 5 of the final rule TSD.

5. Cost Model

DOE developed a manufacturing cost model to estimate the MPC of SPVUs. The cost model is a spreadsheet model that converts the materials and components in the BOMs into dollar values based on the price of materials, average labor rates associated with fabrication and assembling, and the cost of overhead and depreciation, as determined based on manufacturer interviews and DOE expertise. To convert the information in the BOMs into dollar values, DOE collected information on labor rates, tooling costs, raw material prices, and other factors. For purchased parts, the cost model estimates the purchase price based on volume-variable price quotations and detailed discussions with manufacturers and component suppliers. For fabricated parts, the prices of raw metal materials (

e.g.,

tube, sheet metal) are estimates on the basis of 5-year averages (2010 to 2014). The cost of transforming the intermediate materials into finished parts is estimated based on current industry pricing. Additional details on the cost model are contained in chapter 5 of the final rule TSD.

6. Manufacturer Production Costs

Once the cost estimates for all the components in each teardown unit were finalized, DOE totaled the cost of materials, labor, depreciation, and overhead used to manufacture each type of equipment in order to calculate the MPC. The total cost of the equipment was broken down into two main costs: (1) The full MPC; and (2) the non-production cost, which includes selling, general, and administration (SG&A) costs; the cost of research and development; and interest from borrowing for operations or capital expenditures. DOE estimated the MPC at each efficiency level considered for each equipment class, from the baseline through the max-tech level. The incremental increases in MPC over the EPCA baseline efficiency level for each subsequently higher efficiency level in each equipment class are shown in Table IV.5. After incorporating all of the assumptions into the cost model, DOE calculated the percentages attributable to each element of total production costs (

i.e.,

materials, labor, depreciation, and overhead). These percentages are used to validate the assumptions by comparing them to manufacturers' actual financial data published in annual reports, along with feedback obtained from manufacturers during interviews. DOE uses these production cost percentages in the MIA.

Table IV.5—Incremental MPC Increases (2014$)

Equipment type

EPCA

baseline

ASHRAE

baseline

EL1

EL2

EL3

EL4

SPVACs <65,000 Btu/h

$271

$349

$427

$578

$917

SPVACs ≥65,000 Btu/h and <135,000 Btu/h

385

SPVHPs <65,000 Btu/h

316

407

498

673

1,069

SPVHPs ≥65,000 Btu/h and <135,000 Btu/h

449

7. Cost-Efficiency Relationship

The result of the engineering analysis is a cost-efficiency relationship, which depicts how changes in the energy efficiency of SPVUs drive changes in MSP. DOE created a separate cost-efficiency relationship at the representative cooling capacity for each of the four equipment classes analyzed. DOE reported the MPCs for the units analyzed in the teardown analysis in aggregated form to maintain confidentiality of sensitive component data. DOE obtained input from manufacturers during the manufacturer interview process on the MPC estimates and assumptions to confirm their accuracy. For SPVACs with a cooling capacity <65,000 Btu/h, DOE performed physical teardowns supplemented with virtual teardowns to develop cost-efficiency relationships for each manufacturer analyzed in the teardown analysis, and then created a market-share-weighted relationship based on approximate market share data obtained during manufacturer interviews. For SPVACs with a cooling capacity ≥65,000 Btu/h and <135,000 Btu/h, DOE performed virtual teardowns of a 6-ton SPVAC and determined the average percentage increase in cost from a 3-ton SPVAC to a 6-ton SPVAC. Then, DOE scaled the 3-ton cost-efficiency curve by that average percentage increase in cost. Likewise for SPVHPs with a cooling capacity <65,000 Btu/h, DOE performed a physical teardown and compared the average percentage increase in cost of a 3-ton SPVHP compared to a 3-ton SPVAC. DOE applied this average percentage increase in cost to the cost-efficiency curve for both SPVACs with a cooling capacity <65,000 Btu/h and SPVACs with a cooling capacity ≥65,000

Btu/h and <135,000 Btu/h to obtain the respective cost-efficiency curves for both SPVHP equipment classes.

In order to develop the final cost-efficiency relationships for SPVUs, DOE examined the cost differential to move from one efficiency level to the next for each manufacturer analyzed in the teardown analysis. DOE used the results of the teardowns on a market-share weighted average basis to determine the industry average cost increase to move from one efficiency level to the next. Additional details on how DOE developed the cost-efficiency relationships and related results, as well as a presentation of the final results, are available in chapter 5 of the final rule TSD.

8. Manufacturer Markup

To account for manufacturers' non-production costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the full MPC. The resulting MSP is the price at which the manufacturer can recover all production and non-production costs and earn a profit. To meet new or amended energy conservation standards, manufacturers often introduce design changes to their equipment lines that result in increased MPCs. Depending on competitive pressures, some or all of the increased production costs may be passed from manufacturers to retailers and eventually to customers in the form of higher purchase prices. As production costs increase, manufacturers typically incur additional overhead. The MSP should be high enough to recover the full cost of the equipment (

i.e.,

full production and non-production costs) and yield a profit. The manufacturer markup has an important bearing on profitability. A high markup under a standards scenario suggests manufacturers can readily pass along the increased variable costs and some of the capital and product conversion costs (the one-time expenditure) to customers. A low markup suggests that manufacturers will not be able to recover as much of the necessary investment in plant and equipment.

DOE normally develops the manufacturer markup through an examination of corporate annual reports and Securities and Exchange Commission (SEC) 10-K reports; however, in the case of SPVU manufacturers, DOE did not feel this process would be representative of the majority of the industry, because most SPVU manufacturers are privately held companies. Therefore, DOE based the manufacturer markup for the SPVU industry on the markup used for the package terminal air conditioner and package terminal heat pump (PTAC/PTHP) final rule published in the

Federal Register

on October 7, 2008 (73 FR 58772), and sought manufacturer feedback on this markup number during the interview process. DOE used the PTAC manufacturer markup because it is a comparable industry to the SPVU industry in terms of the size of the market (

i.e.,

the number of annual shipments) and the types of equipment on the market (

i.e.,

both are commercial air conditioners of similar capacities). DOE estimated the average manufacturer markup for the SPVU industry to 1.28. See chapter 5 of the final rule TSD for additional details.

9. Shipping Costs

Manufacturers of HVAC equipment typically pay for shipping to the first step in the distribution chain. Freight is not a manufacturing cost, but because it is a substantial cost incurred by the manufacturer, DOE is accounting for shipping costs of SPVUs separately from other non-production costs that comprise the manufacturer markup. To calculate the MSP for SPVUs, DOE first multiplied the MPC at each efficiency level (determined from the cost model) by the manufacturer markup, and then added the shipping costs for equipment at that given efficiency level. Chapter 5 of the final rule TSD contains details about DOE's shipping cost assumptions and DOE's shipping cost estimates.

10. Manufacturer Interviews

As noted in the preceding section, throughout the rulemaking process, DOE has sought and continues to seek feedback and insight from interested parties that would improve the information used in its analysis. DOE interviewed manufacturers as part of the NOPR MIA. During the interviews, DOE sought feedback on all aspects of its analyses for SPVUs. For the engineering analysis, DOE discussed the analytical assumptions and estimates, cost model, and cost-efficiency curves with SPVU manufacturers. DOE considered all the information manufacturers provided when refining the cost model and assumptions. However, DOE incorporated data and information specific to individual manufacturers into the analysis as averages in order to avoid disclosing sensitive information about individual manufacturers' equipment or manufacturing processes. More detail about the manufacturer interviews is contained in chapter 12 of the final rule TSD.

D. Markups To Determine Equipment Price

The markups analysis develops appropriate markups in the distribution chain to convert the estimates of MSP to consumer prices. (“Consumer” refers to purchasers of the equipment being regulated.) DOE calculates overall baseline and incremental markups based on the equipment markups at each step in the distribution chain. The incremental markup relates the change in the manufacturer sales price of higher efficiency models (the incremental cost increase) to the change in the consumer price.

DOE understands that the price of SPVU equipment depends on the distribution channel the customer uses to purchase the equipment. Typical distribution channels for most commercial HVAC equipment include shipments that may pass through manufacturers' national accounts, or through entities including wholesalers, mechanical contractors, and/or general contractors. However, DOE understands that there are multiple branched distribution channels for SPVU equipment for both new construction and replacement equipment. For SPVU equipment, the new equipment distribution channel is one in which SPVU equipment is sold directly or indirectly to manufacturers of wood and non-wood modular buildings, and the rest of the supply chain is essentially the chain of manufacturing, wholesaling, and contractor support for wood and non-wood modular buildings. The distribution channel for replacement equipment goes directly, or through air conditioning wholesalers/distributors, to mechanical contractors who install replacements on behalf of customers, or to wholesalers/distributors of modular buildings, who own leased fleets of modular buildings and who are assumed to perform their own SPVU replacements in their leased fleets.

DOE developed supply chain markups in the form of multipliers that represent increases above equipment purchase costs for air-conditioning equipment wholesalers/distributors, modular building manufacturers and wholesalers/distributors, and mechanical contractors and general contractors working on behalf of customers. DOE applied these markups (or multipliers) to each distribution channel entity's costs that were developed from the engineering analysis. DOE then included sales taxes and installation costs (where appropriate) to arrive at the final installed equipment prices for baseline

and higher-efficiency equipment. DOE identified two separate distribution channels for SPVU equipment to describe how the equipment passes from the equipment manufacturer to the customer, as presented in Table IV.6.

Table IV.6—Distribution Channels for SPVU Equipment

Channel 1

New SPVU equipment

Channel 2

Replacement SPVU equipment

Air-Conditioning Wholesale Distributor or Manufacturer's Representative

Air-Conditioning Wholesale Distributor or Manufacturer's Representative.

Modular Building Manufacturer

Mechanical Contractor or Modular Building Distributor.

Modular Building Distributor or General Contractor

Customer

Customer.

DOE developed baseline and incremental markups based on available financial data. More specifically, DOE based the air-conditioning wholesaler/distributor markups on data from the Heating, Air Conditioning, and Refrigeration Distributors International (HARDI) 2013 Profit Report.

DOE also used financial data from the 2007 U.S. Census Bureau

for the wood

and non-wood

modular building manufacturing industries; concrete product manufacturing sector;

the wood

and non-wood

modular building wholesale industries; brick, stone, and related construction material merchant wholesalers

; the plumbing, heating, and air-conditioning contractor industry

; and the non-residential general contractor industries

to estimate markups for all of these sectors.

Heating, Air-conditioning & Refrigeration Distributors International (HARDI), 2013 Profit Report (2012 Data) (Available at:

http://www.hardinet.org/Profit-Report

The U.S. Census Bureau conducts an economic census every 5 years. The 2012 Economic Census may become available early in 2015; if so, the final rule analysis will be updated with data from the 2012 Economic Census.

U.S. Census Bureau. 2007. Prefabricated Wood Building Manufacturing. Sector 32: 321992. Table EC073111 Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007. (Available at

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

)

U.S. Census Bureau. 2007. Prefabricated Metal Building and Component Manufacturing. Sector 33: 332311. EC073111 Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007 (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. Other Concrete Product Manufacturing Sector 32: 327390. EC073111 Manufacturing: Industry Series: Detailed Statistics by Industry for the United States: 2007 (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. 423310 Lumber, plywood, millwork, and wood panel merchant wholesalers. EC0742SXSB06. Wholesale Trade: Subject Series—Misc Subjects: Gross Margin and its Components for Merchant Wholesalers for the United States: 2007. (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. 423390 Other construction material merchant wholesalers. EC0742SXSB06. Wholesale Trade: Subject Series—Misc Subjects: Gross Margin and its Components for Merchant Wholesalers for the United States: 2007. (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. Brick, stone, and related construction material merchant wholesalers: 2007. Sector 42: 423320 Other Construction Material Merchant Wholesalers. Brick, stone, and related construction material merchant wholesalers: Merchant wholesalers, except manufacturers' sales branches and offices. Detailed Statistics by Industry for the United States: 2007. (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. Sector 23: 238220. Plumbing, heating, and air-conditioning contractors. EC0723I1: Construction: Industry Series: Preliminary Detailed Statistics for Establishments: 2007. (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

U.S. Census Bureau. 2007. Sector 23: 236220. Commercial and institutional building construction. EC0723I1: Construction: Industry Series: Preliminary Detailed Statistics for Establishments: 2007. (Available at:

http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none

The overall markup is the product of all the markups (baseline or incremental markups) for the different steps within a distribution channel, and sales tax. DOE calculated sales taxes based on 2014 State-by-State sales tax data reported by the Sales Tax Clearinghouse.

Because both distribution channel costs and sales tax vary by State, DOE allowed markups due to distribution channel costs and sales taxes within each distribution channel to vary by State. No information was available to develop State-by-State distributions of SPVU equipment by building type or business type, so the distributions of sales by business type are assumed to be the same in all States. The national distribution of the markups varies among business types. Chapter 6 of the final rule TSD provides additional detail on markups.

The Sales Tax Clearing House (2014) (Last accessed Feb. 16, 2015) (Available at:

www.thestc.com/STrates.stm

DOE requested comment regarding the selected distribution channels and the shipments through each channel as outlined in the NOPR. DOE did not specifically receive comment on the selected channels, but did receive comments regarding incremental markups. AHRI commented that incremental markups understate the cost to manufacturers and end user of the proposed standards. (AHRI, No. 19 at pp. 2, 25) Lennox commented that baseline markups get carried through to the end user in all efficiency ranges. (Lennox, NOPR Public Meeting Transcript, No. 11 at p. 129) Downstream markups do not affect manufacturer MSPs or MPCs, and the Department maintains that incremental markups are applicable and reasonable to use in the markups analysis.

E. Energy Use Analysis

The energy use analysis provides estimates of the annual unit energy consumption (UEC) of SPVAC and SPVHP equipment at the considered efficiency levels. The annual UECs are used in subsequent analyses.

Approximately 35 percent of SPVAC shipments go to educational facilities, the majority of which are for space conditioning of modular classroom buildings. Additionally, approximately 35 percent of the shipments go to providing cooling for telecommunications and electronics enclosures. The remainder of all shipments (30 percent) are used in a wide variety of commercial buildings, including offices, temporary buildings, and some miscellaneous facilities. In almost all of these commercial building applications, the buildings served are expected to be of modular construction, because SPVUs, as packaged air conditioners installed on external building walls, do not impact site preparation costs for modular buildings, which may be relocated multiple times over the building's life. The vertically oriented configuration of SPVUs allows the building mounting to be unobtrusive and minimizes impacts on modular building transportation requirements. These advantages do not apply to a significant extent in site-constructed buildings. DOE also modeled shipments of SPVHP equipment to primarily

educational facilities or office-type end uses, but notes that SPVHPs would be infrequently used for telecommunication or electronics enclosures for which the heating requirements are often minimal.

DOE analyzed energy use in three different classes of commercial buildings that utilize SPVU equipment: (1) Modular classrooms; (2) modular offices; and (3) telecommunications shelters. To estimate the energy use of SPVU equipment in these building types, DOE developed building simulation models for use with DOE's EnergyPlus software.

A prototypical building model was developed for each building type, described by the building footprint, general building size, and design. The building types were represented by a 1,568 ft

wood-frame modular classroom, a 1,568 ft

wood-frame modular office, and a 240 ft

concrete-wall telecommunication shelter. In each case, the building construction (footprint, window-wall ratio, general design) was developed to be representative of typical designs within the general class of building. Operating schedules, internal load profiles, internal electric receptacle (plug) loads, and occupancy for the modular classroom were those from classroom-space-type data found in the DOE Primary School commercial prototype building model.

Operating schedules, internal load profiles, internal plug loads, and occupancy for modular office buildings were those from office space in the DOE Small Office commercial prototype building model.

Id.

For the telecommunications shelters, DOE did not identify a source for typical representative internal electronic loads as a function of building size, nor did it find information on representative internal gain profiles. However, based on feedback from shelter manufacturers, DOE used a 36,000 Btu/h (10.55 kW) peak internal load to reflect internal design load in the shelter. DOE determined that on average

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