Energy Conservation Program for Commercial and Industrial Equipment: Packaged Terminal Air Conditioner and Packaged Terminal Heat Pump Energy Conservation Standards

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 431

[Docket No. EERE-2007-BT-STD-0012]

RIN 1904-AB44

Energy Conservation Program for Commercial and Industrial Equipment: Packaged Terminal Air Conditioner and Packaged Terminal Heat Pump Energy Conservation Standards

AGENCY:

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

ACTION:

Notice of proposed rulemaking and public meeting.

SUMMARY:

The Energy Policy and Conservation Act (EPCA) prescribes energy conservation standards for various consumer products and commercial and industrial equipment, and requires the Department of Energy (DOE) to administer an energy conservation program for these products. In this notice, DOE is proposing amended energy conservation standards for packaged terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs) and is announcing a public meeting.

DATES:

DOE will hold a public meeting on May 1, 2008, from 9 a.m. to 4 p.m., in Washington, DC. DOE must receive requests to speak at the public meeting before 4 p.m., April 21, 2008. DOE must receive a signed original and an electronic copy of statements to be given at the public meeting before 4 p.m., April 21, 2008.

DOE will accept comments, data, and information regarding the notice of proposed rulemaking (NOPR) before and after the public meeting, but no later than June 6, 2008. See section VII, “Public Participation,” of this NOPR for details.

ADDRESSES:

The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room 1E-245, 1000 Independence Avenue, SW., Washington, DC. Please note that foreign nationals visiting DOE Headquarters are subject to advance security screening procedures, requiring a 30-day advance notice. If you are a foreign national and wish to participate in the public meeting, please inform DOE as soon as possible by contacting Ms. Brenda Edwards at (202) 586-2945 so that the necessary procedures can be completed.

You may submit comments identified by docket number EERE-2007-BT-STD-0012 and/or Regulation Identifier Number (RIN) 1904-AB44 using any of the following methods:

•

Federal eRulemaking Portal: http://www.regulations.gov

. Follow the instructions for submitting comments.

•

E-mail: ptac_hp@ee.doe.gov

. Include EERE-2007-BT-STD-0012 and/or RIN 1904-AB44 in the subject line of your message.

•

Postal Mail:

Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202) 586-2945. Please submit one signed paper original.

•

Hand Delivery/Courier:

Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, 950 L'Enfant Plaza, 6th Floor, Washington, DC 20024. Please submit one signed original paper copy.

Instructions:

All submissions received must include the agency name and docket number or RIN for this rulemaking. For detailed instructions on submitting comments and additional information on the rulemaking process, see section VII, “Public Participation,” of this document.

Docket:

For access to the docket to read background documents or comments received, visit the U.S. Department of Energy, Forrestal Building, Resource Room of the Building Technologies Program, 950 L'Enfant Plaza, SW., 6th Floor, Washington, DC 20024, (202) 586-2945, between 9 a.m. and 4 p.m., Monday through Friday, except Federal holidays. Please call Ms. Brenda Edwards at the above telephone number for additional information regarding visiting the Resource Room.

FOR FURTHER INFORMATION CONTACT:

Wes Anderson, Project Manager, Energy Conservation Standards for Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps, U.S. Department of Energy, Energy Efficiency and Renewable Energy, Building Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-7335. E-mail:

Wes.Anderson@ee.doe.gov

. Francine Pinto, Esq., or Eric Stas, Esq., U.S. Department of Energy, Office of General Counsel, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-9507. E-mail:

Francine.Pinto@hq.doe.gov

or

Eric.Stas@hq.doe.gov

.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

II. Introduction

A. Overview

B. Authority

C. Background

1. Current Standards

2. History of Standards Rulemaking for Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps

III. General Discussion

A. Test Procedures

B. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

C. Energy Savings

1. Determination of Savings

2. Significance of Savings

D. Economic Justification

1. Economic Impact on Manufacturers and Commercial Customers

2. Life-Cycle Costs

3. Energy Savings

4. Lessening of Utility or Performance of Equipment

5. Impact of Any Lessening of Competition

6. Need of the Nation to Conserve Energy

7. Other Factors

IV. Methodology and Analyses

A. Market and Technology Assessment

1. Definitions of a PTAC and a PTHP

2. Equipment Classes

3. Market Assessment

a. Trade Association

b. Manufacturers

c. Shipments

4. Technology Assessment

B. Screening Analysis

C. Engineering Analysis

1. Approach

2. Equipment Classes Analyzed

3. Cost Model

4. Baseline Equipment

5. Alternative Refrigerant Analysis

a. R-22

b. R-410A

c. R-410A Compressor Availability

d. R-410A Manufacturing Production Cost

6. Cost-Efficiency Results

7. Mapping Energy Efficiency Ratio to Coefficient of Performance

D. Markups to Determine Equipment Price

E. Energy Use Characterization

1. Building Type

2. Simulation Approach

F. Life-Cycle Cost and Payback Period Analyses

1. Approach

2. Life-Cycle Cost Inputs

a. Equipment Prices

b. Installation Costs

c. Annual Energy Use

d. Electricity Prices

e. Maintenance Costs

f. Repair Costs

g. Equipment Lifetime

h. Discount Rate

3. Payback Period

G. National Impact Analysis—National Energy Savings and Net Present Value Analysis

1. Approach

2. Shipments Analysis

3. Base Case and Standards Case Forecasted Distribution of Efficiencies

4. National Energy Savings and Net Present Value

H. Life-Cycle Cost Sub-Group Analysis

I. Manufacturer Impact Analysis

1. Overview

a. Phase 1, Industry Profile

b. Phase 2, Industry Cash Flow Analysis

c. Phase 3, Sub-Group Impact Analysis

2. Government Regulatory Impact Model Analysis

3. Manufacturer Interviews

a. Issues

b. Government Regulatory Impact Model Scenarios and Key Inputs

i. Base Case Shipments Forecast

ii. Standards Case Shipments Forecast

iii. R-410A Base Case and Amended Energy Conservation Standards Markup Scenarios

iv. Equipment and Capital Conversion Costs

J. Employment Impact Analysis

K. Utility Impact Analysis

L. Environmental Analysis

M. Discussion of Other Issues

1. Effective Date of the Proposed Amended Energy Conservation Standards

2. ASHRAE/IESNA Standard 90.1-1999 Labeling Requirement

V. Analytical Results

A. Trial Standard Levels

B. Economic Justification and Energy Savings

1. Economic Impacts on Commercial Customers

a. Life-Cycle Cost and Payback Period

b. Life-Cycle Cost Sub-Group Analysis

2. Economic Impacts on Manufacturers

a. Industry Cash Flow Analysis Results

i. Standard Size PTACs and PTHPs

ii. Non-Standard Size PTACs and PTHPs

b. Cumulative Regulatory Burden

c. Impacts on Employment

d. Impacts on Manufacturing Capacity

e. Impacts on Subgroups of Manufacturers

3. National Impact Analysis

a. Amount and Significance of Energy Savings

b. Net Present Value

c. 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

C. Proposed Standard

1. Overview

2. Conclusion

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866

B. Review Under the Regulatory Flexibility Act/Initial Regulatory Flexibility Analysis

1. Reasons for the proposed rule

2. Objectives of, and legal basis for, the proposed rule

3. Description and estimated number of small entities regulated

4. Description and estimate of compliance requirements

5. Duplication, overlap, and conflict with other rules and regulations

6. Significant alternatives to the rule

C. Review Under the Paperwork Reduction Act

D. Review Under the National Environmental Policy Act

E. Review Under Executive Order 13132

F. Review Under Executive Order 12988

G. Review Under the Unfunded Mandates Reform Act of 1995

H. Review Under the Treasury and General Government Appropriations Act of 1999

I. Review Under Executive Order 12630

J. Review Under the Treasury and General Government Appropriations Act of 2001

K. Review Under Executive Order 13211

L. Review Under the Information Quality Bulletin for Peer Review

VII. Public Participation

A. Attendance at Public Meeting

B. Procedure for Submitting Requests to Speak

C. Conduct of Public Meeting

D. Submission of Comments

E. Issues on Which DOE Seeks Comment

VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

The Energy Policy and Conservation Act (EPCA), as amended, provides the Department of Energy (DOE) the authority to establish energy conservation standards for certain commercial equipment covered by the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America (IESNA) Standard 90.1, including packaged terminal air conditioners (PTACs) and packaged terminal heat pumps (PTHPs), the subject of this proceeding. (42 U.S.C. 6313(a)(6)(A)) Section 342(a)(6)(A) provides that DOE may prescribe a standard more stringent than the level in ASHRAE/IESNA Standard 90.1, after ASHRAE amends the energy conservation standards found in ASHRAE/IESNA Standard 90.1, if DOE can demonstrate “by clear and convincing evidence,” that such a more stringent standard “would result in significant additional conservation of energy and is technologically feasible and economically justified.” (42 U.S.C. 6313(a)(6)(A)(II) In accordance with these criteria discussed in this notice, DOE proposes to amend the energy conservation standards for PTACs and PTHPs by raising the efficiency levels for this equipment to the levels shown in Table I.1, above the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999. The proposed standards would apply to all covered PTACs and PTHPs manufactured on or after the date four years after publication of the final rule in the

Federal Register

. (42 U.S.C. 6313(a)(6)(D)) The proposed standards for PTACs and PTHPs represent an improvement in energy efficiency of 12 to 33 percent compared to the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999, depending on the equipment class.

Table I.1.—Proposed Energy Conservation Standards for PTACs and PTHPs

Equipment class

Equipment

Category

Cooling capacity

Proposed energy conservation standards*

PTAC

Standard Size**

<7,000 Btu/h

EER = 11.4

≥7,000 Btu/h and ≤15,000 Btu/h

EER = 13.0−(0.233 × Cap

††

)

>15,000 Btu/h

EER = 9.5

Non-Standard Size

†

<7,000 Btu/h

EER = 10.2

≥7,000 Btu/h and ≤15,000 Btu/h

EER = 11.7−(0.213 × Cap

††

)

>15,000 Btu/h

EER = 8.5

PTHP

Standard Size**

<7,000 Btu/h

EER = 11.8

COP = 3.3

≥7,000 Btu/h and ≤15,000 Btu/h

EER = 13.4−(0.233 × Cap

††

)

COP = 3.7−(0.053 × Cap

††

)

>15,000 Btu/h

EER = 9.9

COP = 2.9

Non-Standard Size

†

<7,000 Btu/h

EER = 10.8

COP = 3.0

≥7,000 Btu/h and ≤15,000 Btu/h

EER = 12.3−(0.213 × Cap

††

)

COP = 3.1−(0.026 × Cap

††

)

>15,000 Btu/h

EER = 9.1

COP = 2.8

* For equipment rated according to the DOE test procedure (ARI Standard 310/380-2004), all energy efficiency ratio (EER) values must be rated at 95°F outdoor dry-bulb temperature for air-cooled equipment and evaporatively-cooled equipment and at 85°F entering water temperature for water cooled equipment. All coefficient of performance (COP) values must be rated at 47°F outdoor dry-bulb temperature for air-cooled equipment, and at 70°F entering water temperature for water-source heat pumps.

** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches high, or greater than or equal to 42 inches wide.

†

Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and less than 42 inches wide.

††

Cap means cooling capacity in thousand British thermal units per hour (Btu/h) at 95°F outdoor dry-bulb temperature.

DOE's analyses indicate that the proposed energy conservation standards, trial standard level (TSL) 4 for PTAC and PTHP equipment (See section V.A for a discussion of the TSLs), would save a significant amount of energy—an estimated 0.019 quadrillion British thermal units (Btu), or quads, of cumulative energy over 30 years (2012-2042). The economic impacts on the nation (i.e., national net present value) and the commercial customer (i.e., the average life-cycle cost (LCC) savings) are positive.

The national net present value (NPV) of TSL 4 is $17 million using a 7 percent discount rate and $61 million using a 3 percent discount rate, cumulative from 2012 to 2062 in 2006$. This is the estimated total value of future savings minus the estimated increased equipment costs, discounted to 2008. The benefits and costs of the standard can also be expressed in terms of annualized 2006$ values over the forecast period 2012 through 2062. Using a 7 percent discount rate for the annualized cost analysis, the cost of the standard is $3.4 million per year in increased equipment and installation costs while the annualized benefits are $5.0 million per year in reduced equipment operating costs. Using a 3 percent discount rate, the annualized cost of the standard is $2.9 million per year while the annualized benefits of today's standard are $5.6 million per year. See section V.B.3 for additional details.

Using a real corporate discount rate of 5 percent, DOE estimated the industry's NPV (INPV) for manufacturers of PTACs and PTHPs to be $332 million in 2006$. The impact of the proposed standards on INPV of manufacturers of standard size PTACs and PTHPs is estimated to be between an 18 percent loss and a 2 percent loss (−$56 million to −$5 million). The non-standard size PTAC and PTHP industry is estimated to lose between 44 percent and 34 percent of its NPV (−$12 million to −$9 million) as a result of the proposed standards. Additionally, based on DOE's interviews with manufacturers of PTACs and PTHPs, DOE expects minimal plant closings or loss of employment as a result of the proposed standards.

DOE's analyses indicate that the proposed standard, TSL 4, has energy savings and environmental benefits. All of the energy saved is electricity, and DOE expects the energy savings from the proposed standards to eliminate the need for approximately 81 megawatts (MW) of generating capacity by 2042. These results reflect DOE's use of energy price projections from the U.S. Energy Information Administration (EIA)'s Annual Energy Outlook 2007 (AEO2007).

1

The proposed standard has environmental benefits leading to reductions in greenhouse gas emissions (i.e., cumulative (undiscounted) emission reductions) of 2.7 million tons (Mt) of carbon dioxide (CO2) from 2012 to 2042. Additionally, the standard would likely result in 0.16 thousand tons (kt) of nitrogen oxides (NOX) emissions reductions or generate a similar amount of NOX emissions allowance credits in areas where such emissions are subject to emissions caps.

1

DOE intends to use EIA's Annual Energy Outlook 2008 (AEO2008) to generate the results for the final rule. In addition, DOE will use 2007$ to reflect all dollar values in the final rule.

In view of its analyses, DOE believes that the proposed standard, TSL 4, represents the maximum improvement in energy efficiency of PTAC and PTHP equipment that is technologically feasible and economically justified. DOE found that the benefits to the Nation (energy savings, customer average LCC savings, national NPV increase, and emission reductions) of the proposed standards outweigh the burdens (loss of INPV and LCC increases for some customers). When DOE considered higher energy efficiency levels as TSLs, it found that the burdens (loss of manufacturer NPV and LCC increase for some customers) of the higher efficiency levels outweighed the benefits (energy savings, LCC savings for some customers, national NPV increase, and emission reductions) of those higher levels.

DOE recognizes that manufacturers of PTAC and PTHP equipment are also facing a mandated refrigerant phase-out on January 1, 2010. R-22, the only refrigerant currently used by PTACs and PTHPs, is an HCFC refrigerant and subject to the phase-out requirement. Phase-out of this refrigerant could have a significant impact on the manufacturing, performance, and cost of PTAC and PTHP equipment. DOE further discusses and estimated the impacts of the refrigerant phase-out on PTAC and PTHP equipment and on the manufacturers of this equipment in today's notice.

II. Introduction

A. Overview

The proposed standard will save a significant amount of energy and, as a result of less energy being produced, result in a cleaner environment. In the 30-year period after the amended standard becomes effective, the nation will save 0.019 quads of primary energy. These energy savings also will result in significantly reduced emissions of air pollutants and greenhouse gases associated with electricity production, by avoiding the emission of 2.7 Mt of CO

2

and 0.16 kt of NO

X

. In addition, once the standard is implemented in 2012, DOE expects to eliminate the need for the construction of approximately 81 MW of new power plants by 2042. In total, DOE estimates the net present value to the Nation of this standard to be $17 million from 2012 to 2062 in 2006$.

Finally, commercial customers will see benefits from the proposed standard. Although DOE expects the price of the high efficiency PTAC and PTHP equipment to be approximately 2 percent higher than the average price of

this equipment today, the energy efficiency gains will result in lower energy costs. Based on this calculation, DOE estimates that the mean payback period for the high efficiency PTACs will be approximately 11.2 years and the mean payback period for the high efficiency PTHPs will be approximately 4.4 years. When these savings are summed over the lifetime of the high efficiency equipment, customers of PTACs will save $4, on average, and customers of PTHPs will save $35, on average, compared to their expenditures on today's baseline PTACs and PTHPs.

B. Authority

Part A-1 of Title III of EPCA addresses the energy efficiency of certain types of commercial and industrial equipment.

2

(42 U.S.C. 6311-6317) It contains specific mandatory energy conservation standards for commercial PTACs and PTHPs. (42 U.S.C. 6313(a)(3)) The Energy Policy Act of 1992 (EPACT), Public Law 102-486, also amended EPCA with respect to PTACs and PTHPs, providing definitions in section 122(a), test procedures in section 122(b), labeling provisions in section 122(c), and the authority to require information and reports from manufacturers in section 122(e).

3

DOE publishes today's notice of proposed rulemaking (NOPR) pursuant to Part A-1. The PTAC and PTHP test procedures appear at Title 10 Code of Federal Regulations (CFR) section 431.96.

2

This part was originally titled Part C., However, it was redesignated Part A-1 after Part B of Title III of EPCA was repealed by Public Law 109-58.

3

These requirements are codified in Part C of Title III of EPCA, now Part A-1, as amended, 42 U.S.C. 6311-6316, and Title 10 of the Code of Federal Regulations, Part 431 (10 CFR Part 431) at 10 CFR 431.92, 431.96, 431.97, and subparts U and V.

EPCA established Federal energy conservation standards that generally correspond to the levels in ASHRAE/IESNA Standard 90.1, as in effect on October 24, 1992 (ASHRAE/IESNA Standard 90.1-1989), for each type of covered equipment listed in section 342(a) of EPCA, including PTACs and PTHPs. (42 U.S.C. 6313(a)) For each type of equipment, EPCA directed that if ASHRAE/IESNA Standard 90.1 is amended, DOE must adopt an amended standard at the new level in ASHRAE/IESNA Standard 90.1, unless clear and convincing evidence supports a determination that adoption of a more stringent level as a national standard would produce significant additional energy savings and be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II).

EPCA also provides that in deciding whether such a more stringent standard is economically justified, DOE must, after receiving comments on the proposed standard, determine whether the benefits of the standard exceed its burdens by considering, to the greatest extent practicable, the following seven factors:

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

(2) 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 of, or in the initial charges for, or maintenance expenses of the products which are likely to result from the imposition of the standard;

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

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

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

(6) The need for national energy conservation; and

(7) Other factors the Secretary considers relevant.

(42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)-(ii)).

Furthermore, EPCA contains what is commonly known as an “anti-backsliding” provision. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(1)) This provision mandates that the Secretary not prescribe any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of covered equipment. It is a fundamental principle in EPCA's statutory scheme that DOE cannot amend standards downward; that is, weaken standards, from those that have been published as a final rule.

Natural Resources Defense Council

v.

Abraham

, 355 F.3d 179 (2nd Cir. 2004).

Additionally, the Secretary may not prescribe an amended standard if interested persons have established by a preponderance of the evidence that the amended standard is “likely to result in the unavailability in the United States of any product type (or class)” with performance characteristics, features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States at the time of the Secretary's finding. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(4))

Federal energy efficiency requirements for commercial equipment generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6316(a) and (b)) DOE can, however, grant waivers of preemption for particular State laws or regulations, in accordance with the procedures and other provisions of section 327(d) of EPCA. (42 U.S.C. 6297(d) and 6316(b)(2)(D))

C. Background

1. Current Standards

The current energy conservation standards in EPCA for PTACs and PTHPs apply to all equipment manufactured on or after January 1, 1994, (42 U.S.C. 6313(a)(3)) and correspond to the minimum efficiency levels in ASHRAE/IESNA Standard 90.1-1989. These levels consist of the EER for the cooling mode and the COP for the heating mode. The EER means “the ratio of the produced cooling effect of an air conditioner or heat pump to its net work input, expressed in Btu/watt-hour.” 10 CFR 431.92. The COP means “the ratio of produced cooling effect of an air conditioner or heat pump (or its produced heating effect, depending on model operation) to its net work input, when both the cooling (or heating) effect and the net work input are expressed in identical units of measurement.” 10 CFR 431.92. Table II.1 depicts the Federal energy conservation standards for PTACs and PTHPs found in 10 CFR 431.97.

Table II.1.—Existing Federal Energy Conservation Standards for PTACs and PTHPs

Equipment class

Equipment

Cooling capacity

Existing federal energy

conservation standards*

PTAC

< 7,000 Btu/h

EER = 8.88

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 10.0 − (0.16 × Cap**)

> 15,000 Btu/h

EER = 7.6

PTHP

< 7,000 Btu/h

EER = 8.88

COP = 2.7

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 10.0−(0.16 × Cap**)

COP = 1.3 + (0.16 × EER)

> 15,000 Btu/h

EER = 7.6

COP = 2.5

* For equipment rated according to the Air-Conditioning and Refrigeration Institute (ARI) standards, all EER values must be rated at 95 °F outdoor dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85 °F entering water temperature for water cooled products. All COP values must be rated at 47 °F outdoor dry-bulb temperature for air-cooled products, and at 70 °F entering water temperature for water-source heat pumps.

** Cap means cooling capacity in kBtu/h at 95 °F outdoor dry-bulb temperature.

2. History of Standards Rulemaking for Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps

On October 29, 1999, ASHRAE's Board of Directors approved ASHRAE/IESNA Standard 90.1-1999 (ASHRAE/IESNA Standard 90.1-1999), which addressed efficiency standard levels for 34 categories of commercial heating, ventilating and air-conditioning (HVAC) and water heating equipment covered by EPCA, including PTACs and PTHPs. In amending the ASHRAE/IESNA Standard 90.1-1989 levels for PTACs and PTHPs, ASHRAE acknowledged the physical size constraints between the varying sleeve sizes on the market. Specifically, the wall sleeve dimensions of the PTAC and PTHP affect the energy efficiency of the equipment. Consequently, ASHRAE/IESNA Standard 90.1-1999 used the equipment classes defined by EPCA, which are distinguished by equipment (i.e., air conditioner or heat pump) and cooling capacity, and further separated these equipment classes by wall sleeve dimensions as further discussed in section IV.C.2. Table II.2 shows the efficiency levels in ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs.

Table II.2.—ASHRAE/IESNA Standard 90.1-1999 Energy Efficiency Levels for PTACs and PTHPs

Equipment class

Equipment

Category

Cooling capacity

ASHRAE/IESNA standard

90.1-1999 efficiency levels*

PTAC

Standard Size**

< 7,000 Btu/h

EER = 11.0

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 12.5−(0.213 × Cap

††

)

> 15,000 Btu/h

EER = 9.3

Non-Standard Size

†

< 7,000 Btu/h

EER = 9.4

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 10.9−(0.213 × Cap

††

)

> 15,000 Btu/h

EER = 7.7

PTHP

Standard Size**

< 7,000 Btu/h

EER = 10.8

COP = 3.0

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 12.3−(0.213 × Cap

††

)

COP = 3.2−(0.026 × Cap

††

)

> 15,000 Btu/h

EER = 9.1

COP = 2.8

Non-Standard Size

†

< 7,000 Btu/h

EER = 9.3

COP = 2.7

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

EER = 10.8−(0.213 × Cap

††

)

COP = 2.9−(0.026 × Cap

††

)

>15,000 Btu/h

EER = 7.6

COP = 2.5

* For equipment rated according to ARI standards, all EER values must be rated at 95°F outdoor dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85°F entering water temperature for water cooled products. All COP values must be rated at 47°F outdoor dry-bulb temperature for air-cooled products, and at 70°F entering water temperature for water-source heat pumps.

** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches high, or greater than or equal to 42 inches wide.

†

Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and less than 42 inches wide. ASHRAE/IESNA Standard 90.1-1999 also includes a factory labeling requirement for non-standard size PTAC and PTHP equipment as follows: “MANUFACTURED FOR REPLACEMENT APPLICATIONS ONLY; NOT TO BE INSTALLED IN NEW CONSTRUCTION PROJECTS.”

††

Cap means cooling capacity in kBtu/h at 95°F outdoor dry-bulb temperature.

Following the publication of ASHRAE/IESNA Standard 90.1-1999, DOE performed a screening analysis that covered 24 of the 34 categories of equipment addressed in ASHRAE/IESNA Standard 90.1-1999, to determine if more stringent levels would result in significant additional energy conservation of energy, be technologically feasible and economically justified. For each of these types of equipment, the screening analysis examined a range of efficiency levels that included the levels specified in EPCA and ASHRAE/IESNA Standard 90.1-1999, as well as the maximum technologically feasible efficiency levels. The report “Screening Analysis for EPACT-Covered Commercial [Heating, Ventilating and Air-Conditioning] HVAC and Water-Heating

Equipment” (commonly referred to as the 2000 Screening Analysis)

4

summarizes this analysis, and estimates the annual national energy consumption and the potential for energy savings that would result if the covered equipment were to meet efficiency levels higher than those specified in ASHRAE/IESNA Standard 90.1-1999. The baselines for the comparison were the corresponding levels specified in ASHRAE/IESNA Standard 90.1-1999 and EPCA.

4

U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. “Energy Conservation Program for Consumer Products: Screening Analysis for EPACT-Covered Commercial HVAC and Water-Heating Equipment Screening Analysis.” April 2000.

On January 12, 2001, DOE published a final rule for commercial HVAC and water heating equipment, which concluded that the 2000 Screening Analysis indicated at least a reasonable possibility of finding “clear and convincing evidence” that more stringent standards “would be technologically feasible and economically justified and would result in significant additional conservation of energy” for PTACs and PTHPs. 66 FR 3336, 3349. Under EPCA, these are the criteria for DOE adoption of standards more stringent than those in ASHRAE/IESNA Standard 90.1. (42 U.S.C. 6313(a)(6)(A)(ii)(II))

In addition, on March 13, 2006, DOE issued a Notice of Availability (NOA) announcing the availability of a technical support document (TSD) DOE was using in re-assessing whether to adopt, as uniform national standards, energy conservation standards contained in amendments to the ASHRAE/IESNA Standard 90.1-1999 for certain types of commercial equipment. 71 FR 12634. In the NOA, DOE revised the energy savings analysis from the 2000 Screening Analysis and summarized the assumptions and results in the NOA TSD.

Id.

DOE also stated that, even though the revised analysis reduced the potential energy savings that might result from more stringent standards than the efficiency levels specified in ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs, DOE believed that there was a possibility that clear and convincing evidence exists that more stringent standards are warranted. Therefore, DOE stated in the NOA that it was inclined to seek more stringent standard levels than the efficiency levels in ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs through a separate rulemaking. 71 FR 12639. Lastly, on March 7, 2007, DOE issued a final rule reaffirming DOE's inclination in the March 2006 NOA and stating DOE's decision to explore more stringent efficiency levels than in ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs through a separate rulemaking. 72 FR 10038, 10044.

In January 2008, ASHRAE published ASHRAE/IESNA Standard 90.1-2007, which reaffirmed the definitions and efficiency levels for PTACs and PTHPs in ASHRAE/IESNA Standard 90.1-1999. Since the definitions and efficiency levels for PTACs and PTHPs are the same in the two versions of ASHRAE/IESNA Standard 90.1, DOE is only referencing the ASHRAE/IESNA Standard 90.1-1999 version throughout today's notice even though DOE reviewed both versions.

III. General Discussion

A. Test Procedures

Section 343(a) of EPCA authorizes the Secretary to amend the test procedures for PTACs and PTHPs to the latest version generally accepted by industry or the rating procedures developed by the Air-Conditioning and Refrigeration Institute (ARI)

5

,

as referenced by ASHRAE/IESNA Standard 90.1, unless the Secretary determines by clear and convincing evidence the latest version of the industry test procedure does not meet the requirements for test procedures described in paragraphs (2) and (3) of that section. (42 U.S.C. 6314(a)(4))

5

The Air-Conditioning and Refrigeration Institute (ARI) and the Gas Appliance Manufacturers Association (GAMA) announced on December 17, 2007, that their members voted to approve the merger of the two trade associations to represent the interests of cooling, heating, and commercial refrigeration equipment manufacturers. The merged association became AHRI on Jan. 1, 2008.

DOE published a final rule on October 21, 2004, that amends its test procedure for PTACs and PTHPs to incorporate by reference the most recent amendments to the industry test procedure for PTACs and PTHPs, ARI Standard 310/380-2004. 69 FR 61962 (October 21, 2004). DOE does not believe further modifications to this test procedure are necessary at this time because no further amendments have been made to the industry test procedure for PTACs and PTHPs.

B. Technological Feasibility

1. General

DOE considers design options technologically feasible if the industry is already using them or if research has progressed to development of a working prototype. DOE defines technological feasibility as: “Technologies incorporated in commercially available products or in working prototypes will be considered technologically feasible.” 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(i).

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 equipment that is the subject of the rulemaking. In consultation with interested parties, DOE develops a list of design options for consideration in the rulemaking. All technologically feasible design options are candidates in this initial assessment. DOE eliminates from consideration, early in the process, any design option that is not practicable to manufacture, install, or service; that will have adverse impacts on equipment utility or availability; or for which there are adverse impacts on health or safety. 10 CFR 430, subpart C, appendix A, section 4(a)(4). In addition, for the types of equipment identified in section 342(a) of EPCA, 42 U.S.C. 6313(a), which includes PTACs and PTHPs, DOE eliminates from consideration any design option whose technological feasibility is not supported by clear and convincing evidence.

The design options DOE considered as part of this rulemaking all have the potential to improve EER or COP. DOE considered any design option for PTACs and PTHPs to be technologically feasible if it is used in equipment the PTAC and PTHP industry distributes in commerce or is in a working prototype.

2. Maximum Technologically Feasible Levels

In developing today's proposed standards, DOE has determined the maximum improvement in energy efficiency that is technologically feasible (“max tech”) for PTACs and PTHPs. EPCA requires that DOE adopt amended energy conservation standards for equipment covered by ASHRAE/IESNA Standard 90.1 that achieves the maximum improvement in energy efficiency that is technologically feasible and economically justified, or to identify the “max tech” efficiency levels. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A)) Therefore, in reviewing the amended ASHRAE/IESNA Standard 90.1 efficiency standards for PTACs and PTHPs, DOE identified the “max tech” levels as part of the engineering analysis (Chapter 5 of the TSD). At the present time, those levels are the levels set forth in TSL 7. For the representative cooling capacities within a given equipment class, PTACs and PTHPs utilizing R-22 with these efficiency levels already are being offered for sale and there is no

equipment at higher efficiency levels that are currently available. Table III.1 lists the “max tech” levels that DOE identified for this rulemaking.

Table III.1.—“Max Tech” Efficiency Levels (≥7,000 Btu/h and

≤

15,000 Btu/h Equipment Classes)

*

Equipment type

Equipment class

Cooling capacity

(Btu/h)

“Max tech” efficiency level

**

PTAC

Standard Size

†

9,000

12.0 EER

12,000

11.5 EER

Non-standard Size

††

11,000

11.2 EER

PTHP

Standard Size

†

9,000

12.0 EER

3.5 COP

12,000

11.7 EER

3.3 COP

Non-standard Size

††

11,000

11.4 EER

2.9 COP

*

As discussed in section IV.C.2 of today's notice, DOE is presenting the results for two cooling capacities of standard size PTACs and PTHPs, 9,000 Btu/h and 12,000 Btu/h, which fall within the equipment classes of PTACs and PTHPs with cooling capacities ≥7,000 Btu/h and ≤15,000 Btu/h.

**

For equipment rated according to the DOE test procedure, all EER values would be rated at 95°F outdoor dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85°F entering water temperature for water cooled products. All COP values must be rated at 47°F outdoor dry-bulb temperature for air-cooled products, and at 70°F entering water temperature for water-source heat pumps.

†

Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches high, or greater than or equal to 42 inches wide.

††

Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and less than 42 inches wide.

C. Energy Savings

1. Determination of Savings

DOE used the national energy savings (NES) Microsoft Excel spreadsheet to estimate energy savings that could result from amended energy conservation standards for PTACs and PTHPs. The spreadsheet forecasts energy savings over the period of analysis for TSLs relative to the base case. DOE quantified the energy savings attributable to an energy conservation standard as the difference in energy consumption between the trial standards case and the base case. The base case represents the forecast of energy consumption in the absence of amended mandatory energy conservation standards beyond the levels in ASHRAE/IESNA Standard 90.1-1999. Section IV.G of this Notice and Chapter 11 of the TSD describes the NES spreadsheet model.

The NES spreadsheet model calculates the energy savings in both site energy (in kilowatt-hours (kWh)) or source energy (in British thermal units (Btu)). Site energy is the energy directly consumed at building sites by PTACs and PTHPs. DOE expresses national energy savings in terms of source energy savings (i.e., savings in energy used to generate and transmit the energy consumed at the site). Chapter 11 of the TSD contains a table of factors used to convert site energy consumption in kWh to source energy consumption in Btu. DOE derived these conversion factors, which change over time, from EIA's AEO2007.

2. Significance of Savings

Section 342(a)(6)(A)(ii)(II) of EPCA allows DOE to adopt a more stringent standard for PTACs and PTHPs than the amended level in ASHRAE/IESNA Standard 90.1, if clear and convincing evidence supports a determination that the more stringent standard would result in “significant” additional energy savings. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) While EPCA does not define the term “significant,” a U.S. Court of Appeals, in

Natural Resources Defense Council

v.

Herrington

, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended “significant” energy savings in section 325 of EPCA to mean savings that are not “genuinely trivial.” For all the TSLs considered in this rulemaking, DOE's estimates of energy savings provide clear and convincing evidence that the additional energy savings to be achieved from exceeding the corresponding efficiency level[s] in ASHRAE/IESNA Standard 90.1-1999 are nontrivial, and therefore DOE considers them “significant” as required by section 342 of EPCA. (42 U.S.C. 6313 (a)(6)(A)(ii)(II))

D. Economic Justification

As noted earlier, EPCA provides seven factors for DOE to evaluate in determining whether an energy conservation standard for PTAC and PTHP is economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)-(ii)) The following discussion explains how DOE has addressed each factor in this rulemaking.

1. Economic Impact on Manufacturers and Commercial Customers

DOE has established procedures, interpretations, and policies to guide DOE in considering new or amended appliance energy conservation standards. DOE investigates the impacts of amended energy conservation standards of PTACs and PTHPs on manufacturers through the manufacturer impact analysis (MIA) (see Chapter 13 of the TSD). First, DOE uses an annual cash flow approach in determining the quantitative impacts of a new or amended energy conservation standard on manufacturers. This includes both a short- and long-term assessment based on the cost and capital requirements during the period between the announcement of a regulation and the time when the regulation comes into effect. Impacts analyzed include INPV, 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, paying particular attention to impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment, manufacturing capacity, plant closures, and loss of capital investment. Finally, DOE takes into account cumulative impacts of different DOE regulations on manufacturers.

For customers, DOE measures the economic impact as the change in installed cost and life-cycle operating costs, i.e., the LCC. Chapter 8 of the TSD presents the LCC of the equipment at

each efficiency level examined. LCC, described below, is one of the seven factors EPCA requires DOE to consider in determining the economic justification for a new or amended standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(II))

2. Life-Cycle Costs

The LCC is the sum of the purchase price, including the installation and operating expense (including operating energy consumption, maintenance, and repair expenditures) discounted over the lifetime of the equipment. To determine the purchase price including installation, DOE estimated the markups that are added to the manufacturer selling price (MSP) by distributors and contractors, and estimated installation costs from an analysis of PTAC and PTHP installation cost estimates for each of the equipment classes. DOE determined that maintenance cost is not dependent on PTAC and PTHP efficiency and that repair cost increases with MSP.

In estimating operating energy costs, DOE used the average commercial electricity price in each State, using EIA data from 2006.

6

DOE modified the 2006 average commercial electricity prices to reflect the average electricity prices for each of four types of businesses examined in this analysis. The LCC savings analysis compares the LCCs of equipment designed to meet possible proposed energy conservation standards with the LCC of the equipment likely to be installed in the absence of amended energy conservation standards. The LCC analysis also defines a range of energy price forecasts for electricity used in the economic analyses.

6

The EIA data for 2006 is the latest data set published by EIA on commercial electricity prices by State.

For each PTAC and PTHP equipment class, DOE calculated both the LCC and LCC savings at various efficiency levels. The LCC analysis estimated the LCC for representative equipment used in four types of buildings, two of which were hotels/motels and health care facilities that are representative of the segment of U.S. commercial building stock that uses PTACs and PTHPs.

To account for uncertainty and variability in specific inputs, such as equipment lifetime and discount rate, DOE used a distribution of values with probabilities attached to each value. For each of the four types of commercial buildings, DOE sampled the value of these inputs from the probability distributions. As a result, the analysis produced a range of LCCs. A distinct advantage of this approach is that DOE can identify the percentage of customers achieving LCC savings or attaining certain payback values due to an increased energy conservation standard, in addition to identifying the average LCC savings or average payback period for that standard. DOE gives the LCC savings as a distribution, with a mean value and a range. DOE's analysis assumes that the customer purchases the PTAC and PTHP in 2012. Chapter 8 of the TSD contains the details of the LCC calculations.

3. Energy Savings

While significant additional energy conservation is a separate statutory requirement for imposing a more stringent energy conservation standard than the level in ASHRAE/IESNA Standard 90.1, EPCA requires that DOE consider the total projected energy savings expected to result directly from the standard when determining the economic justification for a standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(III)) DOE used the NES spreadsheet results in its consideration of total projected savings. Section V.B.3 discusses the savings figures.

4. Lessening of Utility or Performance of Equipment

In establishing equipment classes, and in evaluating design options and the impact of proposed standards, DOE has attempted to avoid proposing amended standards for PTACs and PTHPs that would lessen the utility or performance of such equipment. (See 42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(IV)) The design options considered in the engineering analysis of this rulemaking do not involve changes in equipment design or unusual installation requirements that could reduce the utility or performance of PTACs and PTHPs. In addition, DOE is also considering manufacturers' concerns that one-third of the non-standard size market subject to the more stringent standards under ASHRAE/IESNA Standard 90.1-1999 would not be able to meet the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999 for standard size equipment due to the physical size constraints of the wall sleeve as further discussed in section IV.A.2.

5. Impact of Any Lessening of Competition

EPCA directs that DOE consider any lessening of competition that is likely to result from proposed standards. The Attorney General considers the impact, if any, of any lessening of competition likely to result from imposition of a proposed standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(V)) DOE has transmitted a copy of this NOPR to the Attorney General soliciting written views on this issue.

6. Need of the Nation To Conserve Energy

The non-monetary benefits of the proposed standards are likely to be reflected in improvements to the security and reliability of the Nation's energy system-namely, reductions in the overall demand for energy will result in a reduction in the Nation's reliance on foreign sources of energy and increased reliability of the Nation's electricity system. DOE conducts a utility impact analysis to show the reduction in installed generation capacity. The proposed standards are also likely to result in improvements to the environment. In quantifying these improvements, DOE has defined a range of primary energy conversion factors and associated emission reductions based on the generation displaced by energy conservation standards. DOE reports the environmental effects from each TSL in the environmental assessment, Chapter 16 of the TSD. (42 U.S.C. 6313(a); 42 U.S.C. 6295(o)(2)(B)(i)(VI))

7. Other Factors

EPCA allows the Secretary of Energy, in determining whether a proposed standard is economically justified, to consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(VII)) DOE considered the impacts of setting different amended energy conservation standards for PTACs and PTHPs (i.e., the amended standard level for a given PTAC cooling capacity would be different from the amended standard level for a give PTHP with the same cooling capacity). DOE also considered the effects of potential equipment switching within the PTAC and PTHP market (e.g., switching from PTHPs to PTACs, which include a less-efficient heating system). In addition, DOE also considered the uncertainty associated with the market due to the impending refrigerant phase-out in 2010, including equipment availability, compressor availability, and the available efficiencies of R-410A PTACs and PTHPs. Lastly, DOE considered the uniqueness of the non-standard size of this equipment and any differential impacts that might result on this industry from amended energy conservation standards. The non-standard size market is further discussed in section IV and the impacts on the non-standard size industry from

amended energy conservation standards are estimated in section V.

IV. Methodology and Analyses

This section addresses the analyses DOE has performed for this rulemaking. A separate sub-section addresses each analysis. DOE used a spreadsheet to calculate the LCC and payback periods (PBPs) of potential amended energy conservation standards. Another spreadsheet was used to provide shipments forecasts and then calculates national energy savings and net present value impacts of potential amended energy conservation standards. DOE also assessed manufacturer impacts, largely through use of the Government Regulatory Impact Model (GRIM).

DOE also estimated the impacts of proposed PTAC and PTHP energy conservation standards on electric utilities and the environment using a version of EIA's National Energy Modeling System (NEMS). The NEMS model simulates the U.S. energy economy and has been developed over several years by the EIA primarily for preparing the

AEO

. The NEMS produces a widely known baseline forecast for the United States through 2030 that is available in the public domain. The version of NEMS used for the proposed energy conservation standards analysis is called NEMS-BT , and is based on the AEO2007 version with minor modifications. The NEMS-BT offers a sophisticated picture of the effect of standards, since it can measure the interactions between the various energy supply and demand sectors and the economy as a whole.

A. Market and Technology Assessment

When beginning an energy conservation standards rulemaking, DOE develops information that provides an overall picture of the market for the equipment concerned, including the purpose of the equipment, the industry structure, and market characteristics. This activity includes both quantitative and qualitative assessments based primarily on publicly available information. The subjects addressed in the market and technology assessment for this rulemaking (see Chapter 3 of the TSD) include equipment classes, manufacturers, quantities, and types of equipment sold and offered for sale, retail market trends, and regulatory and non-regulatory programs.

1. Definitions of a PTAC and a PTHP

Section 340 of EPCA defines a “packaged terminal air conditioner” as “a wall sleeve and a separate unencased combination of heating and cooling assemblies specified by the builder and intended for mounting through the wall. It includes a prime source of refrigeration, separable outdoor louvers, forced ventilation, and heating availability by builder's choice of hot water, steam, or electricity.” (42 U.S.C. 6311(10)(A)) EPCA defines a “packaged terminal heat pump” as “a packaged terminal air conditioner that utilizes reverse cycle refrigeration as its prime heat source and should have supplementary heat source available to builders with the choice of hot water, steam, or electric resistant heat.” (42 U.S.C. 6311(10)(B)) DOE codified these definitions in 10 CFR 431.92 in a final rule issued October 21, 2004. 69 FR 61970.

2. Equipment Classes

When evaluating and establishing energy conservation standards, DOE generally divides covered equipment into equipment classes by the type of energy used or by capacity or other performance-related features that affect efficiency. Different energy conservation standards may apply to different equipment classes. (42 U.S.C. 6316(a); 42 U.S.C. 6295(q))

PTACs and PTHPs can be divided into various equipment classes categorized by physical characteristics that affect equipment efficiency. Key characteristics affecting the energy efficiency of the PTAC or PTHP are whether the equipment has reverse cycle heating (i.e., air conditioner or heat pump), the cooling capacity, and the physical dimensions of the unit.

The existing Federal energy conservation standards for PTACs and PTHPs correspond to the efficiency levels in ASHRAE/IESNA Standard 90.1-1989, as shown in Tables 1 and 2 of 10 CFR Part 431.97, dividing PTACs and PTHPs into six equipment classes. These equipment classes are differentiated by whether the equipment has supplemental heating or reverse cycle heating (i.e., air conditioner or heat pump) and by cooling capacity in Btu/h.

When installed, PTACs and PTHPs are fitted into a wall sleeve. There is a wide variety of wall sleeve sizes found in different buildings. These wall sleeves are market driven (i.e., the applications or facilities where the PTACs or PTHPs are installed is what determines the “market standard” wall sleeve dimension) and require manufacturers to offer various PTACs and PTHPs that can fit into various wall sleeve dimensions. For new units, the industry has standardized the wall sleeve dimension for PTACs and PTHPs in buildings over the past 20 years to be 16 inches high by 42 inches wide. Therefore, units that have a wall sleeve dimension of 16 inches high by 42 inches wide are considered “standard size” equipment and all other units are considered “non-standard size” equipment. In contrast, the industry does not have a common wall sleeve dimension that is typical for all older existing facilities. These facilities, such as high-rise buildings found in large cities, typically use non-standard size equipment. In these installations, altering the existing wall sleeve opening to accommodate the more efficient, standard size equipment could include extensive structural changes to the building, could be very costly, and is therefore, rarely done.

When ASHRAE amended the efficiency levels for PTACs and PTHPs in 1999, it acknowledged the physical size constraints among various sleeve sizes on the market. Consequently, ASHRAE/IESNA Standard 90.1-1999 used the equipment classes defined by EPCA, which are distinguished by whether the product has reverse cycle heating (i.e., air conditioner or heat pump) and cooling capacity in Btu/h, and further separated these equipment classes by wall sleeve dimensions.

ASHRAE/IESNA Standard 90.1-1999 refers to wall sleeve dimensions in two categories: “New Construction” and “Replacement.” ASHRAE/IESNA Standard 90.1-1999 does not describe “New Construction,” but Table 6.21D, footnote b of ASHRAE/IESNA Standard 90.1-1999 states that “replacement” efficiencies apply only to units: (1) “Factory labeled as follows: Manufactured for Replacement Applications Only; Not to be Installed in New Construction Projects”; and (2) “with existing wall sleeves less than 16 inches high and less than 42 inches wide.” DOE understands that the “New Construction” category under ASHRAE/IESNA Standard 90.1-1999 is residual, and covers all other PTAC and PTHPs. Hence, this category consists of equipment with wall sleeve dimensions greater than or equal to 16 inches high and greater than or equal to 42 inches wide, or lacking the requisite label. In addition, when ASHRAE approved ASHRAE/IESNA Standard 90.1-1999, not only did it include delineations by wall sleeve dimensions, but it also associated these delineations with specified efficiency levels. The efficiency levels associated with non-standard equipment, or “Replacement” equipment, are significantly less stringent than those associated with standard size equipment, or “New Construction” equipment.

ARI recently submitted a continuous maintenance proposal on PTAC and

PTHP equipment to the ASHRAE/IESNA Standard 90.1 committee, which in part suggests alterations to the delineations within ASHRAE/IESNA Standard 90.1-1999 for standard and non-standard size equipment.

7

ARI believes ASHRAE misclassified approximately one-third of the non-standard size market when it adopted ASHRAE/IESNA Standard 90.1-1999. ARI believes the one third of the non-standard size market subject to the more stringent standards under ASHRAE/IESNA Standard 90.1-1999 are not capable of meeting the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999 for standard size equipment due to the physical size constraints of the wall sleeve. For example, a PTAC or PTHP unit with wall sleeve dimensions of 16.5 inches high and 27 inches wide would be classified as standard size equipment under ASHRAE's delineations and would be required to meet the higher efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999. However, since this unit does not have the industry standard wall sleeve dimension of 16 inches high by 42 inches wide, ARI believes these units are solely non-standard units that are used in very old buildings and should therefore be considered as replacement units. Due to the space limitations typically associated with non-standard size PTACs and PTHPs, manufacturers have few options to increase energy efficiency. As noted above, many of the existing buildings cannot be retrofitted to accommodate larger wall sleeves associated with more efficient standard-size units.

7

Air-Conditioning and Refrigeration Institute. Continuous Maintenance Proposal on Package Terminal Equipment. October 5, 2007.

In response to this apparent misclassification within ASHRAE/IESNA Standard 90.1-1999, ARI proposed a continuous maintenance proposal to ASHRAE that includes a new definition for non-standard size PTACs and PTHPs in place of the “replacement” delineation in ASHRAE/IESNA Standard 90.1-1999. The new definition of non-standard size PTACs and PTHPs reads:

“equipment with existing sleeves having an external wall opening of less than 16 in. high or less than 42 in. wide, and having a cross-sectional area less than 670 in

2

.” Effectively, this new definition of non-standard equipment would allow approximately five percent of the total PTAC and PTHP market to qualify for the less stringent, non-standard efficiency levels.

DOE recognizes ARI's concerns regarding non-standard size equipment and the possible misclassification under the delineations established by ASHRAE/IESNA Standard 90.1-1999. When ASHRAE approved ASHRAE/IESNA Standard 90.1-1999, not only did it include delineations by wall sleeve dimensions, but it also associated these delineations with specified efficiency levels. The efficiency levels associated with non-standard equipment, or “Replacement” equipment, are significantly less stringent than those associated with standard size equipment, or “New Construction” equipment.

DOE reviewed the ARI shipment data and found approximately 15 percent of the total market (i.e., approximately 67,000 units shipped annually) are non-standard size equipment. Under ASHRAE/IESNA Standard 90.1-1999, approximately 5 percent of the total non-standard size equipment market would be required to meet the more stringent standards established for standard size equipment. If DOE were to adopt equipment classes consistent with those delineations in ASHRAE/IESNA Standard 90.1-1999, manufacturers could be forced to cease production of those equipment lines, which are potentially misclassified and could not meet the more stringent standards. Under the ARI continuous maintenance proposal to ASHRAE, all of the non-standard size equipment would be subject to the less stringent standards.

Since ARI's proposed definitions would effectively reclassify some equipment under ASHRAE/IESNA 90.1-1999's delineations as non-standard size equipment, DOE believes ASHRAE must adopt ARI's continuous maintenance proposal before DOE can officially use this definition as the basis for DOE's standard. (42 U.S.C. 6313(a)(6)(A)(ii)) DOE understands that the ARI continuous maintenance proposal on PTACs and PTHPs has been approved by ASHRAE as Addendum t to ASHRAE/IESNA Standard 90.1-2007 and will be the subject of public review. If ASHRAE is able to adopt Addendum t to ASHRAE/IESNA Standard 90.1-2007 prior to September 2008, when DOE must issue a final rule on this rulemaking, DOE proposes to incorporate that version of the ASHRAE standard, including the modified definition in its final rule.

At this time, DOE seeks stakeholder comment on Addendum t to ASHRAE/IESNA Standard 90.1-2007 (i.e., ARI's continuous maintenance proposal to ASHRAE). Specifically, Addendum t to ASHRAE/IESNA Standard 90.1-2007 incorporates the following revised definition for non-standard size equipment: “

equipment with existing sleeves having an external wall opening of less than 16 in. high or less than 42 in. wide, and having a cross-sectional area less than 670 in

2

.” If ASHRAE were to approve Addendum t to ASHRAE/IESNA Standard 90.1-2007 prior to September 2008, DOE proposes to adopt equipment classes in the final rule for PTACs and PTHPs as shown in Table IV.1.

Table IV.1.—Equipment Classes for PTACs and PTHPs if ASHRAE Adopts Addendum T to ASHRE/IESNA Standard 90.1-2007

Equipment Class

Equipment

Category

Cooling capacity

PTAC

Standard Size*

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

Non-Standard Size**

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

PTHP

Standard Size*

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

Non-Standard Size**

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

* Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions having an external wall opening of greater than or equal to 16 inches high or greater than or equal to 42 inches wide, and having a cross-sectional area greater than or equal to 670 inches squared.

** Non-standard size refers to PTAC or PTHP equipment with existing wall sleeve dimensions having an external wall opening of less than 16 inches high or less than 42 inches wide, and having a cross-sectional area less than 670 inches squared.

DOE would add the definitions of standard size and non-standard size as defined in the footnotes of Table IV.1 under 10 CFR 431.2. This is identified as Issue 1 under “Issues to Which DOE Seeks Comment” in section VII.E of today's proposed rule.

In the absence of final action by ASHRAE on the addendum, DOE would subdivide EPCA's existing classes for this equipment by wall sleeve dimensions, consistent with ASHRAE/IENSNA Standard 90.1-1999. Specifically, DOE would adopt equipment classes in the final rule for PTACs and PTHPs as shown in Table IV.2.

Table IV.2.—Equipment Classes for PTACs and PTHPs if ASHRAE Does Not Adopt Addendum T to ASHRE/IESNA Standard 90.1-2007

Equipment class

Equipment

Category

Cooling capacity

PTAC

Standard Size*

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

Non-Standard Size**

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

PTHP

Standard Size*

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

Non-Standard Size**

< 7,000 Btu/h

≥ 7,000 Btu/h and ≤ 15,000 Btu/h

> 15,000 Btu/h

* Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches high, or greater than or equal to 42 inches wide.

** Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and less than 42 inches wide.

DOE would add the definitions of standard size and non-standard size as defined in the footnotes of Table IV.2 under section 10 CFR 431.2.

For the purposes of today's notice, DOE has based the proposed standards and the proposed definitions of non-standard and standard size PTACs and PTHPs as shown in the rule language of today's notice on the delineations in ASHRAE/IESNA Standard 90.1-1999. However as stated above, if ASHRAE adopts Addendum t to ASHRAE/IESNA Standard 90.1-2007 prior to September 2008, DOE proposes to incorporate the modified definitions from the Addendum in the final rule. (42 U.S.C. 6313(a)(6)(A)(ii)) If Addendum t is not available for DOE to include in the final rule, DOE's ability to do so at a later date will be constrained by the anti-backsliding provision. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(1))

3. Market Assessment

The subjects addressed in this market assessment for this rulemaking include trade associations, manufacturers, and the quantities and types of equipment sold and offered for sale. The information DOE gathered serves as resource material throughout the rulemaking. Chapter 3 of the TSD provides additional detail on the market assessment.

a. Trade Association

The Air-Conditioning, Heating, and Refrigeration Institute (AHRI), formerly and throughout this notice referred to as ARI, is the trade association representing PTAC and PTHP manufacturers. ARI and the Gas Appliance Manufacturers Association (GAMA) announced on December 17, 2007, that their members voted to approve the merger of the two trade associations to represent the interests of cooling, heating, and commercial refrigeration equipment manufacturers. The merged association became AHRI on Jan. 1, 2008.

ARI develops and publishes technical standards for residential and commercial equipment using rating criteria and procedures for measuring and certifying equipment performance. The DOE test procedure is an ARI standard. ARI has developed a certification program that the majority of the manufacturers in the PTAC and PTHP industry have used to certify their equipment. Manufacturers certify their own equipment by providing ARI with test data. Through the ARI certification program, ARI evaluates the test data and determines if the equipment conforms to ARI 310/380-2004.

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Once ARI has determined that the equipment has met all the requirements under ARI 310/380-2004 standards and certification

program, it is added to a directory of certified equipment. DOE used ARI's certification data, as summarized by the 2006 ARI directory of certified PTACs and PTHPs, in the engineering analysis.

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DOE has incorporated by reference ARI Standard 310/380-2004 as the DOE test procedure at 10 CFR 431.97.

b. Manufacturers

DOE identified five large manufacturers of standard size PTAC and PTHP that hold approximately 90 percent of the market in terms of shipments. These five manufacturers include: General Electric (GE) Company, Carrier Corporation, Amana,

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Trane,

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and McQuay International. Three major manufacturers including McQuay International, RetroAire, and Fedders Islandaire, Inc. share the non-standard size PTAC and PTHP market. All of the major manufacturers certify their equipment with ARI and are included in the ARI directory of certified products.

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Amana is a trademark of Maytag Corporation and is used under license to Goodman Global, Inc.

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Trane is a trademark and business of American Standard companies.

The standard size PTAC and PTHP market differs from the non-standard size PTAC and PTHP industry in that many of the manufacturers are domestically owned with manufacturing facilities located outside of the United States. Currently there is only one major manufacturer of standard size PTAC and PTHP equipment manufacturing equipment in the United States. In addition, there has been a recent trend in the PTAC and PTHP standard size market for foreign owned companies to enter and sell equipment in the United States.

Almost all of the manufacturers of non-standard size PTACs and PTHPs are domestically owned with manufacturing facilities located inside of the United States. The non-standard manufacturers tend to specialize in equipment solely for replacement applications. In addition, non-standard size manufacturers produce PTAC and PTHP equipment on a made-to-order basis. Unlike standard size manufacturers, there has not been an influx of foreign owned companies to sell non-standard size PTAC and PTHP equipment in the United States.

In addition, DOE takes into consideration the impact of amended energy conservation standards on small businesses. At this time, DOE has identified several small business in both the standard size and non-standard size PTAC and PTHP industry that fall under the Small Business Administration (SBA)'s definition as having 750 employees or fewer. DOE studies the potential impacts on these small businesses in detail during the MIA (section IV.I of today's notice and Chapter 13 of the TSD).

c. Shipments

DOE reviewed data collected by the U.S. Census Bureau and ARI to evaluate the annual PTAC and PTHP equipment shipment trends and the value of these shipments. The historical shipments data shown in Tables IV.3 provide a picture of the market for PTAC and PTHP equipment. The historical shipments for PTACs and PTHPs are based on data provided by ARI for the years 1997-2005.

Table IV.3.—2006 Total PTAC and PTHP Industry Estimated Shipment Data from ARI (Standard and Non-Standard)

Year

Total

(thousands

of units)

2005

484

2004

446

2003

399

2002

389

2001

388

2000

402

1999

453

1998

471

1997

434

Using currently available data, ARI estimated that 85 percent of the shipments for PTACs and PTHPs are standard size units, while 15 percent are non-standard size units. In addition, ARI identified the two cooling capacities for standard size PTACs and PTHPs with the highest number of shipments, which are 9,000 Btu/h and 12,000 Btu/h.

4. Technology Assessment

In the technology assessment, DOE identified technologies and design options that could improve the efficiency of PTACs and PTHPs. This assessment provides the technical background and structure on which DOE bases its screening and engineering analyses. For PTACs and PTHPs, DOE based its list of technologically feasible design options on input from manufacturers, industry experts, component suppliers, trade publications, and technical papers.

In surveying PTAC and PTHP technology options, DOE considered a wide assortment of equipment literature, information derived from the teardown analysis, information derived from the stakeholder interviews, and the previous DOE energy conservation standards rulemaking for air-conditioning rulemaking analyses. The following technology options were identified as potential means to improve PTAC and PTHP performance:

• Scroll compressors

• Variable-speed compressors

• Higher efficiency compressors

• Complex control boards

• Higher efficiency fan motors

• Microchannel heat exchangers

• Increase heat exchanger area

• Material treatment of heat exchanger

• Recircuiting heat exchanger coils

• Improved air flow and fan design

• Heat pipes

• Corrosion protection

B. 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 consulted with a range of parties, including industry, technical experts, and others to develop a list of technologies for consideration. DOE then applied the following four screening criteria to determine which technologies are unsuitable for further consideration in the rulemaking (10 CFR Part 430, Subpart C, Appendix A at 4(a)(4) and 5(b)):

(1) Technological feasibility. Technologies incorporated in commercial equipment or in working prototypes will be considered technologically feasible.

(2) Practicability to manufacture, install, and service. If mass production of a technology in commercial equipment and reliable installation and servicing of the technology could be achieved on the scale necessary to serve the relevant market at the time of the effective date of the standard, then that technology will be considered practicable to manufacture, install, and service.

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

(4) Adverse impacts on health or safety. If it is determined that a technology will have significant adverse impacts on health or safety, it will not be considered further.

DOE eliminated three technologies because they have no effect on, or do

not increase EER or COP as measured by the test procedure since the test procedure measures steady-state energy efficiency. However, these features (i.e., variable speed compressors, complex control boards, and corrosion protection) can reduce the energy consumption of the PTAC or PTHP in actual applications, since they affect the cyclic operation of the equipment. They do not affect the measure of efficiency (i.e., EER and COP) since both are steady-state measures, not cyclic measures.

DOE also eliminated six of the technologies it identified in the market and technology assessment. The specific technologies that were eliminated based on the four screening criteria outlined above are: (1) Scroll compressors, (2) higher efficiency fan motors, (3) microchannel heat exchangers, (4) material treatment of heat exchangers, (5) improved airflow and fan design, and (6) heat pipes. DOE screened out scroll compressors because they are not currently practical to manufacturer in the sizes necessary for use in PTACs and PTHPs. DOE screened out higher efficiency fan motors, improved airflow and fan design because further gains in PSC fan motor technology or changing the type of fan design would affect the size of the motor or fan. Because PTACs and PTHPs are space-constrained equipment, it is unlikely that manufacturers would be able to redesign the motor or fans that would be practical to manufacture, install, and service on a scale necessary to serve the relevant market at the time of the effective date of the standard. DOE screened out microchannel heat exchangers because they are still in the research stage for PTAC and PTHP equipment and would not be practicable to manufacture, install, or service on a scale necessary to serve the relevant market at the time of the effective date of the standard. DOE screened out material treatment of heat exchangers because it is currently patented and only used by one PTAC and PTHP manufacturer; thus, it would not be practical to manufacture on broad scale for the entire industry. Lastly, DOE screened out heat pipes because they are still in the research stage and their energy savings potential has not been fully established.

Based on equipment literature, teardown analysis, and manufacturer interviews, DOE has identified higher efficiency compressors,

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increasing the heat exchanger area, and recircuiting the heat exchanger coils as the most common ways by which manufacturers improve the energy efficiency of their PTACs and PTHPs as measured by the test procedure and that are not excluded by the four criteria in Appendix A to Subpart B of 10 CFR Part 430 listed above. See Chapter 3 of the TSD for additional detail on the technology assessment and technologies analyzed.

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Currently, all PTAC and PTHP manufacturers incorporate rotary compressors into their equipment designs. DOE is referring to rotary compressors throughout today's notice unless specifically noted.

There are PTACs and PTHPs utilizing R-22 in the market at various efficiency levels incorporating the three design options analyzed in today's notice. DOE believes this constitutes clear and convincing evidence that all of the efficiency levels discussed in today's notice is technologically feasible. However, DOE recognizes the uncertainty associated with the conversion to R-410A refrigerant and will take this into further consideration when weighing the benefits and burdens for each TSL. For more details on how DOE developed the technology options and the process for screening these options, refer to the market and technology assessment (see Chapter 3 of the TSD) and the screening analysis (see Chapter 4 of the TSD).

C. Engineering Analysis

The purpose of the engineering analysis is to establish the relationship between the cost and efficiency of PTACs and PTHPs, to show the manufacturing costs of achieving increased efficiency. For each equipment class, this analysis estimates the baseline manufacturer cost, as well as the incremental cost for equipment at efficiency levels above the baseline. In determining the performance and the costs of more efficient equipment, DOE considers technologies and design option combinations not eliminated in the screening analysis. The output of the engineering analysis is a set of cost-efficiency relationships or cost-efficiency curves that are used in further analyses (e.g., the LCC and PBP analyses and the national impact analysis (NIA)).

DOE typically structures its engineering analysis around one of three methodologies: (1) The design-option approach, which calculates the incremental costs of adding specific design options to a baseline model; (2) the efficiency-level approach, which calculates the relative costs of achieving increases in energy efficiency levels, without regard to the particular design options used to achieve such increases; and (3) the reverse-engineering or cost-assessment approach, which involves “bottom-up” manufacturing cost assessments for achieving various levels of increased efficiency, based on detailed data derived from equipment tear-downs, as to costs for parts, material, labor, shipping/packaging, and investment for models that operate at particular efficiency levels.

1. Approach

For PTACs and PTHPs, each energy efficiency level is expressed as an EER, which is a function of cooling capacity. For each class analyzed, DOE used representative cooling capacities corresponding to the cooling capacities with the highest equipment shipments within a given equipment class. For the purposes of conducting the analyses, DOE believes that the results from the representative cooling capacities can be extrapolated to the entire range of cooling capacities for each equipment class. DOE's approach for extending the results to the omitted cooling capacities is discussed further in section V.1 of this NOPR. DOE seeks comment on this approach to extend the engineering analysis to cooling capacities for which complete analysis was not performed. This is identified as Issue 2 under “Issues to Which DOE Seeks Comment” in section VII.E of today's proposed rule.

For this analysis, DOE used a design option approach, which involved consultation with outside experts, review of publicly available cost and performance information, and modeling of equipment cost. The design options DOE considered in the Engineering Analysis include higher efficiency compressors, increasing the heat exchanger area, and recircuiting the heat exchanger coils. The design option analysis provides transparency of assumptions and results and the ability to perform independent analyses for verification. The methodology used to perform design-option analysis and derive the cost-efficiency relationship is described in detail in Chapter 5 of the TSD.

2. Equipment Classes Analyzed

For the engineering analysis, DOE reviewed all twelve equipment classes covered by this rulemaking. Since the wall sleeve dimensions effect the energy efficiency of the equipment, DOE examined standard size and non-standard size PTACs and PTHPs separately. In addition, since the energy efficiency equations for PTACs and PTHPs established by EPCA and ASHRAE/IESNA Standard 90.1-1999 are a function of the equipment's cooling capacity, DOE examined specific cooling capacities for standard size and non-standard size PTACs and PTHPs, which are referred to as representative cooling capacities. See

Table 1 and Table 2 of 10 CFR Part 431.97 and ASHRAE/IESNA Standard 90.1-1999 for the energy efficiency equations. DOE reviewed the shipments data provided by ARI for the 2000 Screening Analysis and today's rulemaking,

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and found the majority of shipments have a cooling capacity within the 7,000 Btu/h to 15,000 Btu/h range. See Chapter 3 of the TSD for more details on the shipments data. Consequently, DOE choose to examine these four equipment classes further.

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ARI provided DOE shipments data from 2000 for the 2000 Screening Analysis and shipments data from 2006 for today's rulemaking.

For standard size PTAC and PTHP equipment classes, DOE identified two representative cooling capacities. The representative cooling capacities for standard size PTACs and PTHPs are 9,000 Btu/h and 12,000 Btu/h. DOE found these two representative cooling capacities to have the highest number of shipments based on data in the 2006 ARI Directory, the ACEEE database of equipment, as well as the shipment information provided to DOE found in the 2000 Screening Analysis. For non-standard size equipment, DOE could not identify representative cooling capacities or wall sleeve dimensions. The non-standard size PTAC and PTHP market also has a greater variety of shipments based on the customers that use them and specialized applications. DOE used 11,000 Btu/h as the representative cooling capacity for non-standard size equipment because it is the middle of the cooling capacity range. Therefore, for the engineering analysis and subsequent analyses, DOE analyzed non-standard size PTACs and PTHPs with 11,000 Btu/h cooling capacity. See Chapter 5 of the TSD for additional details.

DOE developed the cost-efficiency curves based on these representative cooling capacities and wall sleeve-size units. Table IV.4 exhibits the representative cooling capacities within each equipment class analyzed in the engineering analysis.

Table IV.4.—Representative Cooling Capacities for the Engineering Analysis

Equipment type

Equipment class

Representative cooling capacity

(Btu/h)

PTAC

Standard Size*

9,000

12,000

Non-Standard Size**

11,000

PTHP

Standard Size*

9,000

12,000

Non-Standard Size**

11,000

* Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches high, or greater than or equal to 42 inches wide.

** Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and less than 42 inches wide.

DOE's selection of representative cooling capacities for further examination is based on shipment information provided by ARI. For the PTAC and PTHP equipment classes with a cooling capacity greater than or equal to 7,000 Btu/h and less than or equal to 15,000 Btu/h, the energy efficiency equation characterizes the relationship between the EER of the equipment and cooling capacity (i.e., EER is a function of the cooling capacity of the equipment). Therefore, for these equipment classes, DOE explicitly analyzed the two cooling capacities with the greatest number of shipments, which allows DOE to investigate the slope of the energy efficiency capacity relationship. For all cooling capacities less than 7,000 Btu/h and all cooling capacities greater than 15,000 Btu/h, the EER is calculated based on the energy efficiency equation for 7,000 Btu/h or 15,000 Btu/h, respectively.

For PTACs and PTHPs, DOE is proposing to equate the amended energy conservation standards for equipment with a cooling capacity less than 7,000 Btu/h with the amended energy conservation standards for equipment with a cooling capacity equal to 7,000 Btu/h. Similarly, for PTACs and PTHPs, DOE is proposing to equate the amended energy conservation standards for equipment with a cooling capacity greater than 15,000 Btu/h to the amended energy conservation standards for equipment with a cooling capacity equal to 15,000 Btu/h. This is the same method established in the Energy Policy Act of 1992 as shown by the existing Federal minimum energy conservation standards and maintained by ASHRAE Standard 90.1-1999 for calculating the EER and COP of equipment with cooling capacities less than 7,000 Btu/h and greater than 15,000 Btu/h. More details explaining how DOE developed the proposed energy efficiency equations based on the analysis results for the representative cooling capacities are found in section V.A of today's notice.

3. Cost Model

DOE developed a manufacturing cost model to estimate the manufacturing production cost (MPC) of PTACs and PTHPs. The manufacturing cost model is a spreadsheet model, which details the structured bill of materials to estimate the MPCs of a PTAC or PTHP based on all the manufacturing and fabrication resources required to manufacture the equipment. Developing the cost model involved disassembling various PTACs and PTHPs, analyzing the materials and manufacturing processes, and developing component costing flexible enough to be applicable to all equipment classes. In addition to disassembling various PTACs and PTHPs, manufacturers provided DOE supplemental component data for various PTAC and PTHP equipment. The manufacturing cost model used the component specifications supplied by manufacturers, the teardown data, component cost sources, and engineering interviews to estimate the MPCs. DOE reported the MPCs in aggregated form to maintain confidentiality of sensitive component data. DOE obtained input from stakeholders on the MPC estimates and assumptions to confirm accuracy. DOE used the cost model for all of the representative cooling capacities within the PTAC and PTHP equipment classes. Chapter 5 of the TSD provides details and assumptions of the cost model.

DOE applied a manufacturer markup to the MPC estimates to arrive at the MSP. This is the price at which the

manufacturer can recover both production and non-production costs

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and earns a profit. DOE developed a market-share-weighted average industry markup by examining the major PTAC and PTHP manufacturers' gross margin information from annual reports and Securities and Exchange Commission (SEC) 10-K reports. The manufacturers DOE examined represent approximately 75 percent of the PTAC and PTHP industry. Each of these companies is a subsidiary of a more diversified parent company that manufactures equipment other than PTACs and PTHPs. Because the SEC 10-K reports do not provide gross margin information at the subsidiary level, the estimated markups represent the average markups that the parent company applies over its entire range of offerings.

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Full production costs include direct labor, direct material, and direct overhead. Non-production costs include selling, general and administrative, research and development, and interest. See Chapter 5 of the TSD for more details.

DOE evaluated manufacturer markups from 2002 to 2006, except for one manufacturer, whose markup was evaluated from 1998 to 2002 because data from the latter years was not publicly available. The manufacturer markup is calculated as 100/(100 − average gross margin), where gross margin is calculated as revenue − cost of goods sold (COGS). DOE used Internal Revenue Service industry statistics to validate the SEC 10-K and annual report information. DOE estimated the average manufacturer markup within the industry as 1.29. See Chapter 5 of the TSD for additional details.

4. Baseline Equipment

As mentioned above, the engineering analysis estimates the incremental costs for equipment with efficiency levels above the baseline in each equipment class. For the purpose of the engineering analysis, DOE used the engineering baseline EER as the starting point to build the cost efficiency curves. DOE usually uses the Federal minimum energy conservation standards to represent the baseline model's energy efficiency in the engineering analysis. However, all of the PTAC and PTHP equipment offered for sale, according to the ARI directory, exceed the efficiency levels specified by the existing Federal minimum energy conservation standards. Consequently, DOE identified the lowest efficiency equipment currently on the market and is utilizing it as the engineering baseline.

DOE established engineering baseline specifications for each of the equipment classes modeled in the engineering analysis by reviewing available manufacturer data, selecting several representative units from available manufacturer data, and then aggregating the physical characteristics of the selected units. These specifications include wall sleeve dimensions, number of components, and other equipment features that affect energy consumption, as well as a base cost (the cost of a piece of equipment not including the major efficiency-related components such as compressors, fan motors, and heat exchanger coils). By excluding the equipment designs, which can be attributable to specific manufacturers, DOE created an engineering baseline that is representative of each equipment class with average characteristics, including dimensions, components, and other equipment features that are necessary to calculate the MPC of each unit within each equipment class. The cost model was used to develop the MPC for each equipment class. Specifications of the baseline equipment are provided in Chapter 5 of the TSD.

In estimating the economic impacts of standards, DOE used the efficiency levels in ASHRAE/IESNA Standard 90.1-1999 as the baseline efficiencies in order to estimate the impacts of standards more stringent than ASHRAE/IESNA Standard 90.1-1999. ASHRAE/IESNA Standard 90.1-1999 is the least stringent energy efficiency level DOE could adopt since EPCA directs that if ASHRAE/IESNA Standard 90.1 is amended, DOE must adopt an amended standard at the new level in ASHRAE/IESNA Standard 90.1 unless clear and convincing evidence supports a determination that adoption of a more stringent level as a national standard would produce significantly more energy savings and be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Consequently, the minimum energy conservation standard levels DOE could adopt in this rulemaking proceeding would be the efficiency levels contained in ASHRAE/IESNA Standard 90.1-1999. Thus, DOE is evaluating in this rulemaking whether efficiency levels above those contained in ASHRAE/IESNA Standard 90.1-1999 are technologically feasible and economically justified.

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DOE's estimates of potential energy savings from an amended energy conservation standard are further discussed in section V.3.

5. Alternative Refrigerant Analysis

a. R-22

In 1987, the United Nations Environment Programme (UNEP) adopted the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol), which regulates the phase-out of ozone-depleting substances through a collaborative and international effort. In 1988, the United States ratified the Montreal Protocol and thus committed to the phase-out.

15

15

The 1987 Montreal Protocol on Substances that Deplete the Ozone Layer (as agreed in 1987). United Nations Environment Programme.

http://ozone.unep.org/Ratification_status/montreal_protocol.shtml

.

In 1990, the Clean Air Act was amended to include Title VI, “Stratospheric Ozone Protection,” to implement the Montreal Protocol. (42 U.S.C. 7671,

et seq.

) Title VI mandated the phase-out by 2020 of hydrochlorofluorocarbon (HCFC) refrigerants for use in new air-conditioning systems. (42 U.S.C. 7671d) Title VI, however, also authorized the Environmental Protection Agency (EPA) to accelerate this date if certain criteria were met, (42 U.S.C. 7671e) and EPA subsequently adopted a rule on December 10, 1993 to require the phase-out of HCFC refrigerants for use in new equipment by 2010. 58 FR 65018. R-22, the only refrigerant currently used by PTACs and PTHPs, is an HCFC refrigerant and subject to the phase-out requirement. Phase-out of this refrigerant could have a significant impact on the manufacturing, performance, and cost of PTAC and PTHP equipment.

b. R-410A

As part of the engineering analysis, DOE performed an alternative refrigerant analysis to characterize the performance implications on PTACs and PTHPs. This analysis included researching technical journal reports, discussions with industry experts and manufacturers, and developing an analysis that used the methodology DOE used in performing the engineering analysis as to equipment using the R-22 refrigerant. ARI, in comment on the March 13, 2006, Notice of Document Availability (71 FR 12634) commented that R-410A is the most likely replacement refrigerant for R-22 in standard and non-standard size PTACs and PTHPs. (Docket No. EE-RM/STD-03-100, EE-RM/STD-03-200, EE-RM/STD-03-300, ARI, No. 26 at pp. 2-3)

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Every manufacturer interview confirmed that the industry is planning to substitute R-410A for R-22 in PTACs and PTHPs. Industry representatives expressed a preference for R-410A due to its performance similarities to R-22 and experience with other HVAC equipment that use R-410A. Therefore, DOE performed its alternative refrigerant analysis based on the use of R-410A. See Chapter 5 of the TSD for additional details.

16

“ARI, No. 26 at pp 2-3” refers (1) to a statement that was submitted by the Air-Conditioning and Refrigeration Institute and is recorded in the Resource Room of the Building Technologies Program in the docket under “Energy Efficiency Program for Commercial and Industrial Equipment: Efficiency Standards for Commercial Heating, Air-Conditioning and Water Heating Equipment,” Docket Number EE-RM-STD-03-100, EE-RM-

STD-03-200, and EE-RM-STD-03-300, as comment number 26; and (2) a passage that appears on pages 2 and 3 of that statement.

DOE identified the “max-tech” efficiency levels as described in section III.B.2 of today's proposed rule. These “max-tech” efficiency levels are based on currently available R-22 PTACs and PTHPs for a given representative cooling capacity within a given equipment class. In order to analyze the impact of using R-410A in PTACs and PTHPs, DOE considered the impact of using R-410A on PTAC components, the engineering analysis of past rulemakings that addressed the refrigerant phase-out, and markets in which a similar transition has occurred.

First, DOE expects that the phase-out of R-22 and the subsequent adoption of R-410A refrigerants in PTACs and PTHPs will require the redesign of the sealed systems found inside the PTAC and PTHP units. The sealed system consists of the indoor and outdoor heat exchangers, the compressor, refrigerant flow-control devices, and any piping that connects these components through which refrigerant flows during unit operation. Since R-22 refrigerants have different operating characteristics than R-410A, the sealed system in a PTAC or PTHP unit using R-410A will have to be redesigned to optimize the unit for operation with R-410A. Specifically, equipment using R-410A operates at higher system pressure requiring stronger sealed system walls and the use of different oils (i.e., R-410 equipment will use POE, while R-22 equipment uses mineral). In addition, R-410A compressors must also be designed with thicker and stronger compressor shells and components to withstand 50 percent to 60 percent more pressure than R-22 compressors.

17

17

Emerson Climate Technologies. R410A Questions.

http://www.emersonclimate.com/faq_copeland.htm#R410A

(Last accessed August 2, 2007.) We will need to save the portion of this web site that we rely upon for the administrative record.

The loss in compressor efficiency can be overcome with optimized heat exchanger design to a limited extent. As discussed in the market and technology assessment (Chapter 3 of the TSD), different heat exchanger redesigns not currently associated with compressors could increase overall system performance. According to manufacturers, some redesigns, such as adding coils, re-circuiting, and increasing the frontal heat exchanger surface area, are applicable to PTACs and PTHPs regardless of the refrigerant used. However, DOE does not have sufficient information to predict with precision the performance benefits of heat exchanger redesigns. Initially, DOE expects any such redesigns to result in efficiency improvements insufficient to offset the efficiency reductions resulting from the switch from R-22 to R-410A. Thus, DOE expects the overall system efficiency of R-410A PTAC and PTHP equipment will be lower than if that equipment used R-22, as predicted by manufacturer testing, ARI's research,

18

National Institute of Standards and Technology studies,

19

and as observed in response to the transition from R-22 to R-410A in the residential air conditioning market. Optimizing the heat exchanger and HVAC circuits to compensate could be costly, depending on whether a heat exchanger manufacturer needs to change the fin tooling, expansion, and assembly systems.

18

Air-Conditioning and Refrigeration Institute.

Response to ASHRAE 90.1 Continuous Maintenance Proposal on Package Terminal Equipment.

May 18, 2006.

19

Payne, W., Domanski, P.

A Comparison of an R22 and an R410A Air Conditioner Operating at High Ambient Temperatures.

National Institute of Standards and Technology Building Environment Division: Thermal Machinery Group.

http://www.fire.nist.gov/bfrlpubs/build02/PDF/b02186.pdf.

(Last accessed August 2, 2007.)

Therefore, in this rulemaking, DOE is using an overall lower system performance for PTAC and PTHP equipment with R-410A. For standard size PTACs and PTHPs with 9,000 Btu/h cooling capacity, DOE calculated an overall system performance degradation consistent with ARI estimates of 6.3 percent.

20

For standard size PTACs and PTHPs with 12,000 Btu/h cooling capacity, DOE calculated overall system performance degradation consistent with ARI estimates of 7.6 percent.

21

For non-standard size PTACs and PTHPs of all cooling capacities, DOE calculated overall system performance degradation of 6.8 percent. See Chapter 5 of the TSD for additional details.

20

Air-Conditioning and Refrigeration Institute.

Response to ASHRAE 90.1 Continuous Maintenance Proposal on Package Terminal Equipment.

May 18, 2006.

21

Id.

DOE has no evidence that the incremental efficiency gains from the design options used in the R-22 case would have a different effect on the system performance of R-410A equipment. Therefore, DOE assumed the design options for the R-22 analysis previously discussed are applicable to the alternative refrigerant analysis. DOE also assumed that the corresponding incremental EER improvement for each design option in the R-22 analysis would be the same in the alternative refrigerant analysis. See Chapter 5 of the TSD for additional details.

Similar issues existed within the residential, central air conditioning industry. Systems utilizing R-410A have been available in the residential air-conditioning market for several years, and DOE believes the impact of the refrigerant transition to R-410A for PTACs and PTHPs and on the manufacturers and purchasers of central air conditioners and heat pumps will be similar. The residential air-conditioning market is a much larger market than the PTAC and PTHP market, and thus offers greater incentives for compressor manufacturers to make the necessary investments to produce more efficient R-410A compressors. Initially, DOE found that the R-410A compressors available for use in residential, central air conditioning equipment were less efficient than their R-22 counterparts they were replacing. However, DOE has observed that residential, central air conditioning manufacturers were able to develop technologies and redesign their equipment, so that the R-22 phase-out has had little effect on system efficiency when the equipment eventually came onto the market.

At a minimum, DOE believes manufacturers of PTAC and PTHP equipment will be able to manufacture equipment with R-410A at the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999. Since PTAC and PTHP equipment utilizing R-22 exists at efficiency levels well above ASHRAE/IESNA Standard 90.1-1999, DOE believes the manufacturers will be able to produce equipment utilizing R-410A at least at the efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999, even after the estimated performance degradations from the engineering analysis are applied. DOE has preliminarily concluded that the R-410A compressors available for use in PTAC and PTHP equipment could be less efficient than their R-22 counterparts could at the time the takes effect, based upon manufacturer feedback during interviews and by examining other air-conditioning markets where similar refrigerant transitions have taken place. However, DOE is hopeful that over time component manufacturers and PTAC and PTHP manufacturers will be able to

overcome the degradation in system efficiency caused by the switch to R-410A refrigerant. Therefore, DOE is continuing to analyze, the higher, R-22-based, energy efficiency levels identified in section III.B.2 as the “max-tech” efficiency levels. DOE will give particular attention to the PTAC and PTHP efficiency levels that cannot be met with current technologies and practices with R-410A in weighing the benefits and burdens of the various TSLs. Based on information received in public comments concerning this NOPR, DOE may consider and adopt in the final rule other potential standard levels that take into account the impact of R-410A.

c. R-410A Compressor Availability

The availability of R-410A compressors in a wide range of efficiencies is uncertain. Several compressor manufacturers make R-22, PTAC and PTHP compressors of different capacities and efficiencies for standard and non-standard equipment. When the market transitions to R-410A, these manufacturers may only offer one line of compressors for PTACs and PTHPs. In engineering interviews, compressor manufacturers said they do not know if R-410A compressors will have equivalent performance to R-22 compressors by the 2010 date. They also stated in interviews that they expect to offer R-410A compressors at only one efficiency level in the initial stages of the phase-out, which could further reduce compressor options for PTAC and PTHP manufacturers.

d. R-410A Manufacturing Production Cost

To derive the baseline MPCs for the R-410A PTACs and PTHPs, DOE made additional cost determinations (e.g., R-410 refrigerant pricing, R-410A compressor pricing, etc.) and incorporated them in the same cost model used for the R-22 engineering analysis. See Chapter 5 of the TSD for additional details about component prices using R-410A. DOE assumed a 25 percent increase in heat exchanger tubing thickness to account for the higher pressures of R-410A refrigerant based on technical journals and manufacturer interviews. DOE switched the working refrigerant in the cost model to R-410A and used the current R-410A refrigerant price based upon cost estimates from refrigerant suppliers and engineering interviews with manufacturers. During engineering interviews, several manufacturers of PTAC and PTHP equipment and several component manufacturers stated that compressor prices would increase anywhere between 10 percent and 20 percent from current R-22 compressor prices. To incorporate manufacturers' comments, DOE assumed that compressor costs would increase by 15 percent, which is consistent with the feedback DOE received during the engineering interviews. Using the above assumptions, DOE recalculated baseline equipment and design option MPCs to establish the cost-efficiency relationship for R-410A equipment.

The physical differences between PTACs and PTHPs are mainly in the reversing valve and other minor components. The results from the engineering and teardown analysis showed that the sum of the MPCs for reversing valves and other minor components are constant across the cost-efficiency relationship for the R-22 case. Therefore, DOE initially concluded that the cost-efficiency relationship (i.e., cost-efficiency curves) of PTACs is the same as the cost-efficiency relationship of PTHPs, minus the MPCs for the reversing valve and other minor components at various cooling capacities. In performing the alternative refrigerant analysis, DOE found no evidence that the cost-efficiency relationships for PTACs and PTHPs would be any different for equipment using R-410A. Therefore, DOE assumed that incremental cumulative MPCs for PTACs and PTHPs of the same equipment class would be the same as in the R-22 case (i.e., that both PTACs and PTHPs have the same incremental cost-efficiency curves in the R-410A case). To be consistent, DOE used the same cost model as in the R-22 analysis to estimate MPCs of equipment at various efficiency levels in the R-410A analysis. Chapter 5 of the TSD provides additional details on the alternative refrigerant analysis.

6. Cost-Efficiency Results

The results of the engineering analysis are reported as a set of cost-efficiency data (or “curves”) in the form of MPC (in dollars) versus EER, which form the basis for other analyses in the NOPR. DOE created cost-efficiency curves for the six representative cooling capacities within the four equipment classes of PTACs and PTHPs, as discussed in section IV.C.2, above. DOE used the R-410A cost-efficiency curves for all subsequent analyses in the NOPR. See Chapter 5 of the TSD for additional detail on the engineering analysis and complete cost-efficiency results.

DOE also conducted a sensitivity analysis on material prices to examine the effect of spikes in metal prices that the industry has experienced over the past few years. The sensitivity analysis used the annual average 2006 prices for various metals used in the manufacturing of PTACs and PTHPs. Chapter 5 of the TSD shows the results of the sensitivity analysis.

7. Mapping Energy Efficiency Ratio to Coefficient of Performance

DOE used the analyses detailed in the sections above to determine the relationship between cost and cooling efficiency (EER) for PTACs and PTHPs. DOE also performed an analysis to determine the heating efficiency (COP) that corresponds to the cooling efficiency (EER) analyzed. DOE reviewed the 2006 ARI directory and the PTHP units listed. There were 675 units listed, which DOE separated into two groups based on wall sleeve size (standard size and non-standard size). DOE then selected all of the standard size 9,000 and 12,000 Btu/h cooling capacity units, and all of the non-standard units. Within each group, DOE next eliminated repetitive and discontinued units and then constructed a listing of the units by EER and ranked them by COP. DOE graphed each listing (EER versus COP) and calculated the minimum, maximum, and average COPs. Table IV.5 shows the average EER and COP pairings for PTHPs. DOE seeks comment on the average EER and COP pairings for PTHPs as shown in Table IV.5, which DOE has identified as Issue 3 under “Issues to Which DOE Seeks Comment” in section VII.E of this NOPR. Additional details detailing how DOE arrived at the average EER and COP pairings for PTHPs is shown in Chapter 5 of the TSD.

Table IV.5.—Average EER and COP Pairings for PTHPs

Equipment class

Efficiency level

Standard Size PTHP—9,000 Btu/h Cooling Capacity

EER = 10.9

COP = 3.1

EER = 11.1

COP = 3.2

EER = 11.3

COP = 3.3

EER = 11.5

COP = 3.3

EER = 12

COP = 3.5

Standard Size PTHP—12,000 Btu/h Cooling Capacity

EER = 10.2

COP = 3.0

EER = 10.4

COP = 3.1

EER = 10.6

COP = 3.1

EER = 10.8

COP = 3.1

EER = 11.7

COP = 3.3

Non-Standard Size PTHP—11,000 Btu/h Cooling Capacity

EER = 9.4

COP = 2.8

EER = 9.7

COP = 2.8

EER = 10.0

COP = 2.9

EER = 10.7

COP = 2.9

EER = 11.4

COP = 2.9

D. Markups To Determine Equipment Price

DOE understands that the price of PTAC or PTHP equipment depends on the distribution channel the customer uses to purchase the equipment. Typical distribution channels include manufacturers' national accounts, wholesalers, mechanical contractors, and/or general contractors.

The customer price of this equipment is not generally known. Therefore, DOE developed supply chain markups in the form of multipliers that represent increases above MSP and include distribution costs. DOE applied these markups (or multipliers) to the MSPs it developed from the engineering analysis, and then added sales taxes and installation costs, to arrive at the final installed equipment prices for baseline and higher efficiency equipment. See Chapter 6 of the TSD for additional details on markups. As shown in Table IV.6, DOE identified four distribution channels for PTACs and PTHPs to describe how the equipment passes from the manufacturer to the customer.

Table IV.6.—Distribution Channels for PTAC and PTHP Equipment

Channel 1

Channel 2

Channel 3

Channel 4

Manufacturer (through national accounts)

Manufacturer

Manufacturer

Manufacturer.

Wholesaler

Wholesaler

Mechanical Contractor

Wholesaler.

General Contractor.

Customer

Customer

Customer

Customer.

Using Ducker Worldwide data,

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DOE estimated percentages, for both the new construction and replacement markets, of the total sales in each market through each of the four distribution channels, as shown in Table IV.7. The entire market of PTAC and PTHP equipment consists of standard size equipment (85 percent of shipment volume) and non-standard size equipment (15 percent of shipment volume). Of the standard size equipment, 80 percent are sold for the replacement market and 20 percent are for the new construction market. Non-standard size equipment is only used in the replacement market. This results in approximately 17 percent of PTAC and PTHP equipment that are purchased to be installed in new construction, while the remaining 83 percent is assumed to replace existing PTAC and PTHP equipment.

22

Ducker Worldwide, 2001. 2000 U.S. Market for Residential and Specialty Air Conditioning: Packaged Terminal Air Conditioning. HVAC0002. Final Report, March 2001. Ducker Industrial Standards, 6905 Telegraph Road, Suite 300, Bloomfield Hills, Michigan 48301.

Table IV.7.—Percentage of PTAC and PTHP Market Shares Passing Through Each Distribution Channel

Channel 1

Channel 2

Channel 3

Channel 4

Replacement Market

15

25

60

0

New Construction Market

30

0

38

32

For each of the steps in the distribution channels presented above, DOE estimated a baseline markup and an incremental markup. DOE defined a baseline markup as a multiplier that converts the MSP of equipment with baseline efficiency to the customer purchase price for the equipment at the same baseline efficiency level. An incremental markup is defined as the multiplier to convert the incremental increase in MSP of higher efficiency equipment to the customer purchase price for the same equipment. Both baseline and incremental markups are only dependent on the particular distribution channel and are independent of the efficiency levels of the PTACs and PTHPs.

DOE developed the markups for each step of the distribution channels based on available financial data. DOE based the wholesaler and mechanical contractor markups on the Heating, Airconditioning & Refrigeration Distributors International (HARDI) 2005 Profit Planning Report, Air Conditioning Contractors of America (ACCA), and the 2002 U.S. Census Bureau financial data for the plumbing, heating, and air conditioning industry.

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DOE derived the general contractor markups from U.S. Census Bureau financial data for the commercial and institutional building construction sector. DOE estimated average markup for sales through national accounts to be one-half of those for the wholesaler to customer distribution channel. DOE determined this markup for national accounts on an assumption that the resulting national account equipment price must fall somewhere between the MSP (i.e., a markup of 1.0) and the customer price under a typical chain of distribution (i.e., a markup of wholesaler, mechanical contractor, or general contractor).

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The 2002 U.S. Census Bureau financial data for the plumbing, heating, and air conditioning industry is the latest version data set and was issued in December 2004.

The overall markup is the product of all the markups (baseline or incremental markups) for the different steps within a distribution channel plus sales tax. Sales taxes were calculated based on State-by-State sales tax data reported by the Sales Tax Clearinghouse. Because both contractor costs and sales tax vary by State, DOE developed distributions of markups within each distribution channel as a function of State and

business type (e.g., large chain hotel/motel, independent hotel, health care facility, or office). Because the State-by-State distribution of PTAC and PTHP units varies by business type (e.g., large chain hotels/motels may be more prevalent relative to independent hotels in one part of the country than in another), the National level distribution of the markups varies among business types. Additional detail on markups can be found in Chapter 6 of the TSD.

E. Energy Use Characterization

The building energy use characterization analysis was used to assess the energy savings potential of PTAC and PTHP equipment at different efficiency levels. This analysis accomplishes this by estimating the energy use of PTACs and PTHPs at specified energy efficiency levels through energy use simulations for key commercial building types, across a range of climate zones. The energy simulations yielded hourly estimates of the building energy consumption, including lighting, plug, and air-conditioning and heating equipment. The annual energy consumption of PTACs and PTHPs are used in subsequent analyses including the LCC, PBP, and NES.

In determining the reduction in energy consumption of PTAC and PTHP equipment due to increased efficiency, DOE did not take into account a rebound effect. The rebound effect occurs when a piece of equipment, when it is made more efficient, would be used more intensively, so the expected energy savings from the efficiency improvement do not fully materialize. Since the user of the equipment, e.g., the customer in a hotel/motel room, does not pay the utility bill, the customer's usage will be unaffected by increasing the efficiency. Therefore, DOE has no basis for concluding that a rebound effect would occur and has not taken the rebound effect into affect in the energy use characterization. DOE seeks comment on the rebound effect for the PTAC and PTHP customer and DOE's assumption that the rebound effect is not applicable to this industry. DOE identified this as Issue 4 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR. See Chapter 7 of the TSD for additional details.

1. Building Type

PTAC and PTHP units generally are used in hotel/motel rooms, health care facilities (e.g., assisted living homes, nursing homes etc.), small offices, or any application that requires individual zone heating and cooling. According to the Ducker Worldwide analysis, PTAC and PTHP units are primarily used in hotels/motels with less than 125 rooms and less than 3 stories, each. Therefore, DOE selected this type of hotel/motel building as the representative commercial building in order to assess the energy use of PTAC and PTHP units. While DOE realizes that PTACs and PTHPs are found in other building types, DOE believes that, based on engineering judgment and consultation with industry experts, the cooling and heating loads of an individual room served by a single PTAC or PTHP unit are independent of the building type in which the room is situated.

2. Simulation Approach

DOE used a whole-building hourly simulation tool, DOE-2.1E, to estimate the energy use of PTACs and PTHPs in the representative hotel/motel building for various efficiency levels and equipment classes at various climate locations within the United States. The DOE-2.1E program has a built-in PTAC/PTHP module in its HVAC system components. DOE used the EIA 2003 Commercial Building Energy Consumption Survey (2003 CBECS) as the primary source of data, supplemented by other data sources, to develop the representative building size and other building characteristics for this analysis (i.e., aspect ratio, building construction type, envelope characteristics, internal loads and schedules, mechanical systems and equipment etc.). DOE modeled hotel/motel guest rooms facing in all orientations by rotating a symmetrical rectangular floor plan prototype building 90 degrees to capture the orientation-driven changes in annual energy use of the PTAC and PTHP. The Ducker Worldwide analysis and other available data estimated that PTHPs represent approximately 45 percent of the total market for packaged terminal equipment. Therefore, DOE estimated the annual energy use per unit using a PTHP as well as a PTAC in each climate location. DOE assumed that generally the building would use a PTAC or PTHP unit. DOE calculated the weighted-average annual energy use for each PTAC and PTHP equipment class in each State through the population weighting of the representative climate location(s) within the state. DOE further aggregated the energy use at the State level to national average energy use using the 2000 Census population data, published by the U. S. Census Bureau.

DOE estimated the annual energy use for each equipment class at the baseline efficiency level (i.e., the efficiency level specified by ASHRAE/IESNA Standard 90.1-1999) plus five higher efficiency levels. As is to be expected, annual energy use of PTAC and PTHP units decreases as the efficiency level increases from the baseline efficiency level to the highest efficiency level analyzed. Additional details on the energy use characterization analysis can be found in Chapter 7 of the TSD.

F. Life-Cycle Cost and Payback Period Analyses

DOE conducted the LCC and PBP analyses to estimate the economic impacts of potential standards on individual customers of PTACs and PTHPs. DOE analyzed these impacts for PTACs and PTHPs, first, by calculating the change in customers' LCCs likely to result from higher efficiency levels as compared with the baseline efficiency levels. The LCC calculation considers total installed cost (MSP, sales taxes, distribution chain markups, and installation cost), operating expenses (energy, repair, and maintenance costs), equipment lifetime, and discount rate. DOE calculated the LCC for all customers as if each would purchase a new PTAC or PTHP unit in the year the standard takes effect. A standard becomes effective on the date on and after which the equipment manufactured must meet or exceed the standard, which is September 30, 2012 for this rulemaking. To compute LCCs, DOE discounted future operating costs to the time of purchase and summed them over the lifetime of the equipment.

Second, DOE analyzed the effect of changes in installed costs and operating expenses by calculating the PBP of potential standards relative to baseline efficiency levels. The PBP estimates the amount of time it would take the customer to recover, through lower operating costs, the increment that represents the increase in purchase expense of more energy efficient equipment. The PBP is that change in purchase price divided by the change in annual operating cost that results from the standard. DOE expresses this period in years. Similar to the LCC, the PBP is based on the total installed cost and the operating expenses. However, unlike the LCC, only the first year's operating expenses are considered in the calculation of the PBP. Because the PBP does not account for changes in operating expense over time or the time value of money, it is also referred to as a simple PBP.

DOE conducted the LCC and PBP analyses using a spreadsheet model developed in Microsoft Excel. When combined with Crystal Ball (a commercially available software program), the LCC and PBP model

generates a Monte Carlo simulation to perform the analyses by incorporating uncertainty and variability considerations in certain of the key parameters as discussed below. The results of DOE's LCC and PBP analyses are summarized in section V.B.1.a below and described in detail in TSD Chapter 8.

1. Approach

Recognizing that each business that uses PTAC and PTHP equipment is unique, DOE analyzed variability and uncertainty by performing the LCC and PBP calculations for four types of businesses, each of which tends to have different costs of financing because of the nature of the business. The first type of business is a “large chain” hotel or motel, which, DOE believes, has access to a wide range of financing options and thus a relative low financing costs. The second type is an “independent” hotel or motel, which is not affiliated with a national chain, which has fewer financing options and thus a relative high financing costs. A third type of business is called “health care” and includes nursing homes, as well as assisted living and long-term care facilities, which, similar to the large chain hotel, has a relative low financing costs. The fourth type is called “office” and applies to small office buildings that are occupied by offices of non-hospital medical professionals such as physicians and dentists which, DOE believes, has the fewest financing options, and as a result, the highest costs. DOE derived the financing costs based on data from the Damodaran Online site.

24

24

Damodaran Online. Leonard N. Stern School of Business, New York University:

http://www.stern.nyu.edu/adamodar/New_Home_Page/data.html

. January 2006.

The LCC analysis used the estimated annual energy use for each PTAC or PTHP unit as described in section IV.E, energy use characterization. Energy use of PTACs and PTHPs is sensitive to climate, so it varies by State within the United States. Aside from energy use, other important factors influencing the LCC and PBP analyses include energy prices, installation costs, equipment distribution markups, and sales tax. At the National level, the LCC spreadsheets explicitly modeled both the uncertainty and the variability in the model's inputs, using probability distributions based on the shipment of PTAC and PTHP equipment to different States.

As mentioned above, DOE generated LCC and PBP results as probability distributions using a simulation based on Monte Carlo analysis methods, in which certain key inputs to the analysis consist of probability distributions rather than single-point values. Therefore, the outcomes of the Monte Carlo analysis can also be expressed as probability distributions. As a result, the Monte Carlo analysis produces a range of LCC and PBP results. A distinct advantage of this type of approach is that DOE can identify the percentage of customers achieving LCC savings or attaining certain PBP values due to an increased efficiency level, in addition to the average LCC savings or average PBP for that efficiency level.

2. Life-Cycle Cost Inputs

For each efficiency level analyzed, the LCC analysis requires input data for the total installed cost of the equipment, its operating cost, and the discount rate. Table IV.8 summarizes the inputs and key assumptions used to calculate the customer economic impacts of all energy efficiency levels analyzed in this rulemaking. A more detailed discussion of the inputs follows.

Table IV.8.—Summary of Inputs and Key Assumptions Used in the LCC and PBP Analyses

Inputs

Description

Affecting Installed Costs

Equipment Price

Derived by multiplying MSP (from the engineering analysis) by wholesaler markups and contractor markups plus sales tax (from markups analysis). Used the probability distribution for the different markups to describe their variability.

Installation Cost

Includes installation labor, installer overhead, and any miscellaneous materials and parts, derived from RS Means CostWorks 2007.

Affecting Operating Costs

Annual Energy Use

Derived from whole-building hourly energy use simulation for PTACs or PTHPs in a representative hotel/motel building in various climate locations (from energy use characterization analysis). Used annual electricity use per unit. Used the probability distribution to account for which State a unit will be shipped to, which in turn affects the annual energy use.

Electricity Price

Calculated average commercial electricity price in each State, as determined from EIA data for 2006. Used the AEO2007 forecasts to estimate the future electricity prices. Used the probability distribution for the electricity price.

Maintenance Cost

Annual maintenance cost did not vary as a function of efficiency.

Repair Cost

Estimated the annualized repair cost for baseline efficiency PTAC and PTHP equipment as $15, based on costs of extended warranty contracts for PTACs and PTHPs and further discussed in Chapter 8 of the TSD. Assumed that repair costs would vary in direct proportion with the MSP at higher efficiency levels because it generally costs more to replace components that are more efficient.

Affecting Present Value of Annual Operating Cost Savings

Equipment Lifetime

Used the probability distribution of lifetimes, with mean lifetime for each of four equipment classes assumed to be 10 years based on literature reviews and consultation with industry experts.

Discount Rate

Mean real discount rates ranging from 5.7 percent for owners of health care facilities to 8.2 percent for independent hotel/motel owners. Used the probability distribution for the discount rate.

Date Standards Become Effective

September 30, 2012 (four years after the publication of the final rule).

Analyzed Efficiency Levels

Analyzed Efficiency Levels

Baseline efficiency levels (ASHRAE/IESNA Standard 90.1-1999) and five higher efficiency levels for six equipment classes (DOE also considered levels that were combinations of efficiency levels for PTACs and PTHPs).

a. Equipment Prices

The price of a PTAC or PTHP reflects the application of distribution channel markups and the addition of sales tax to the MSP. As described in section IV.C above, DOE determined manufacturing costs for a set of six cooling capacities of equipment representing all equipment classes. To derive the manufacturing costs for other sizes of PTACs and PTHPs, DOE scaled the costs from these six cooling capacities. For the LCC and PBP analyses and subsequent analyses in today's rulemaking, DOE used the manufacturing costs as developed in the Engineering Analysis for PTAC and PTHP equipment utilizing R-410A.

Each baseline MSP is the price charged by manufacturers to either a wholesaler/distributor or very large customer for equipment meeting a baseline efficiency. Each standard-level MSP increase is the change in MSP associated with producing equipment at an efficiency level above the baseline. DOE developed MSP, which increases as a function of efficiency level for each of the six representative capacities. Refer to Chapter 5 of the TSD for details.

The markup is the percentage increase in price as the PTAC and PTHP equipment passes through the distribution channel. As discussed earlier, distribution chain markups are based on one of four distribution channels, as well as whether the equipment is being purchased for the new construction market or to replace existing equipment. Probability distributions were used for the different distribution channel markups to describe their variability. DOE developed markups for both the standard size and non-standard size PTAC and PTHP equipment as explained in section IV.D above.

b. Installation Costs

DOE derived installation costs for PTACs and PTHPs from data provided in

RS Means CostWorks 2007

(RS Means).

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RS Means provides estimates on the person-hours required to install PTAC and PTHP equipment and the labor rates associated with the type of crew required to install the equipment. Specifically, RS Means provides person-hour and labor rate data for the installation of “Unitary Air Conditioning Equipment,” which includes PTAC and PTHP equipment. Labor rates vary significantly from region to region of the country and the RS Means data provide the necessary information to capture this regional variability. RS Means provides cost indices that reflect the labor rates for 295 cities in the United States. Several cities in all 50 States and the District of Columbia are identified in the RS Means data. DOE incorporated these cost indices into the analysis to capture variation in installation cost, depending on the location of the customer. DOE calculated the installation cost by multiplying the number of person-hours by the applicable labor rate. DOE assumed the installation costs are fixed for each equipment class and independent of the efficiency of the equipment.

25

R.S. Means Company, Inc. 2007. RS Means CostWorks 2007. Kingston, Massachusetts.

c. Annual Energy Use

DOE estimated the electricity consumed by the PTAC and PTHP equipment based on the energy use characterization as described previously in section IV.E. DOE used a whole-building hourly simulation tool to estimate the energy use in a representative hotel/motel building for different efficiency levels and equipment classes at various climate locations within the United States. DOE aggregated the average annual energy use per unit at the State level by applying a population-weighting factor for each examined climate location within a State. Details of the annual energy use calculations can be found in TSD Chapter 7.

d. Electricity Prices

The applicable electricity prices are needed to convert the electric energy savings into energy cost savings. Because of the wide variation in electricity consumption patterns, wholesale costs, and retail rates across the country, it is important to consider regional differences in electricity prices. In order to simplify the NOPR analysis, DOE decided not to develop marginal electricity prices from the tariff-based electricity price model in this rulemaking. Instead, DOE used average effective commercial electricity prices at the State level from EIA data for 2006. This approach captured a wide range of commercial electricity prices across the Untied States. Furthermore, DOE recognized that different kinds of businesses typically use electricity in different amounts at different times of the day, week, and year, and therefore face different effective prices. To make this adjustment, DOE used EIA's 2003 CBECS data set to identify the average prices paid by the four kinds of businesses in this analysis and compared them with the average prices paid by all commercial customers.

26

The ratios of prices paid by the four types of businesses to the national average commercial prices seen in the 2003 CBECS were used as multipliers to adjust the average commercial 2006 price data from EIA.

26

EIA's 2003 CBECS is the most recent version of the data set.

DOE weighted the prices paid by each business in each State by the estimated sales of PTACs and PTHPs to each business type to obtain a weighted-average national electricity price. The State/business type weights reflect the probabilities that a given PTAC or PTHP unit shipped will be operated with a given electricity price. To account for this variability, DOE used a probability distribution for not only which State the equipment is shipped to, but also to determine which business type would purchase the equipment and therefore, what electricity price they would pay. The effective prices (2006$) range from approximately 5.5 cents per kWh to approximately 23.2 cents per kWh. The development and use of State-average electricity prices by business type are described in more detail in Chapter 8 of the TSD.

The electricity price trend provides the relative change in electricity prices for future years out to the year 2042. Estimating future electricity prices is difficult, especially considering that there are efforts in many States throughout the country to restructure

the electricity supply industry. DOE applied the AEO2007 reference case as the default scenario and extrapolated the trend in values from the years 2020 to 2030 of the forecast to establish prices in the years 2030 to 2042. This method of extrapolation is in line with methods currently being used by the EIA to forecast fuel prices for the Federal Energy Management Program. DOE provides a sensitivity analysis of the LCC savings and PBP results to future electricity price scenarios using both the AEO2007 high-growth and low-growth forecasts in Chapter 8 of the TSD.

e. Maintenance Costs

Maintenance costs are the costs to the customer of maintaining equipment operation. Maintenance costs include services such as cleaning heat-exchanger coils and changing air filters. DOE was not able to identify publicly available data on annual maintenance costs per unit. DOE estimated annual routine maintenance costs for PTAC and PTHP equipment at $50 per year per unit. Some manufacturers interviewed for the manufacturer impact analysis indicated verbally that this assumption was reasonable. Because data were not available to indicate how maintenance costs vary with equipment efficiency, DOE thus determined to use this preventative maintenance costs that remain constant as equipment efficiency is increased.

f. Repair Costs

The repair cost is the cost to the customer for replacing or repairing components that have failed in the PTAC and PTHP equipment. DOE estimated the annualized repair cost for baseline efficiency PTAC and PTHP equipment as $15, based on costs of extended warranty contracts PTACs and PTHPs. DOE determined that repair costs would increase in direct proportion with increases in equipment prices, because the price of PTAC and PTHP equipment increases with its efficiency and DOE recognizes that complexity for repair will increase as the efficiency of equipment increases.

DOE specifically seeks comment on its estimation for the repair costs, as well as the installation and maintenance costs. In particular, DOE is interested in how the installation, maintenance, and repair costs may change with the use of R-410A refrigerant in 2010 because DOE's estimates are based on data from the field for equipment using R-22. See Chapter 8 of the TSD for additional information. DOE identified this as Issue 5 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.

g. Equipment Lifetime

DOE defines equipment lifetime as the age when a PTAC or PTHP unit is retired from service. DOE reviewed available literature and consulted with manufacturers in order to establish typical equipment lifetimes. The literature and experts consulted offered a wide range of typical equipment lifetimes. Individuals with previous experience in manufacturing or distribution of PTACs and PTHPs suggested a typical lifetime of 5 to 15 years. Some experts suggested that the lifetime could be even lower because of the daily or continuous use of the equipment and neglect of maintenance such as cleaning the heat exchangers or replacing the air filters. Previously, DOE used a 15-year lifetime for PTACs and PTHPs in the 2000 Screening Analysis based on data from ASHRAE's 1995

Handbook of HVAC Applications.

Stakeholders commented on the 2000 Screening Analysis and suggested DOE use the 10-year lifetime assumption rather than 15-year lifetime to more accurately reflect the life and usage characteristics of this equipment.

27

66 FR 3336, 3349[0]. Therefore, based on the information it gathered, DOE concluded that a typical lifetime of 10 years is appropriate for PTAC and PTHP equipment. Furthermore, DOE modeled the lifetime of PTAC and PTHP equipment as a Weibull statistical distribution with an average lifetime of 10 years and a maximum lifetime of 20 years. Chapter 3 of the TSD contains a discussion of equipment lifetime, and TSD Chapter 8 discusses how equipment life is modeled in the LCC analysis.

27

U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. “Energy Efficiency Program for Commercial and Industrial Equipment: Efficiency Standards for Commercial Heating, Air Conditioning and Water Heating Equipment; Final Rule”. January 2001.

h. Discount Rate

The discount rate is the rate at which future expenditures are discounted to establish their present value. DOE estimated the discount rate by estimating the cost of capital for purchasers of PTAC and PTHP equipment. Most purchasers use both debt and equity capital to fund investments. Therefore, for most purchasers, the discount rate is the weighted average cost of debt and equity financing, or the weighted-average cost of capital (WACC), less the expected inflation.

To estimate the WACC of PTAC and PTHP equipment purchasers, DOE used a sample of companies including large hotel/motel chains and health care chains drawn from a database of 7,319 U.S. companies given on the

Damodaran Online

website. This database includes most of the publicly traded companies in the United States. Based on this database, DOE calculated the weighted average after-tax discount rate for PTAC and PTHP purchases, adjusted for inflation, as 5.71 percent for large hotel chains and 5.65 percent for health care (nursing homes and assisted living facilities). The cost of capital for independent hoteliers, and small office companies with more limited access to capital is more difficult to determine. Individual credit-worthiness varies considerably, and some franchisees have access to the financial resources of the franchising corporation. However, personal contacts with a sample of commercial bankers yielded an estimate for the small operator weighted cost of capital of about 200 to 300 basis points (2 percent to 3 percent) higher than the rates for larger hotel chains. Therefore, DOE used a central value equal to the weighted average of discount rate for large hotel chains plus 2.5 percent for independent hotel/motels and the same adder was used to the discount rate for large nursing home/assisted care companies to derive an estimate for small office buildings. As a result, DOE calculated the weighted average after-tax discount rate for PTAC and PTHP purchases, adjusted for inflation, as 8.21 percent for independent hotels and 8.15 percent for small offices (medical and dental offices). The discount rate is another key variable for which DOE used a probability distribution in the LCC and PBP analyses. TSD Chapter 8 contains the detailed calculations on the discount rate.

3. Payback Period

DOE also determined the economic impact of potential standards on customers by calculating the PBP of the TSLs relative to a baseline efficiency level. The PBP measures the amount of time it takes the commercial customer to recover the assumed higher purchase expense of more energy efficient equipment through lower operating costs. Similar to the LCC, the PBP is based on the total installed cost and the operating expenses and is calculated as a range of payback periods, depending on the probability distributions of the two key inputs (i.e., the supply chain markups and where the unit is likely to be shipped to). However, unlike for the LCC, in the calculation of the PBP, by definition, DOE considered only the first year's operating expenses. Because the PBP does not take into account changes in operating expense over time

or the time value of money, it is also referred to as a simple payback period. Additional details of the PBP can be found in Chapter 8 of the TSD.

G. National Impact Analysis—National Energy Savings and Net Present Value Analysis

The national impacts analysis evaluates the impact of a proposed standard from a national perspective rather than from the customer perspective represented by the LCC. This analysis assesses the NES, and the NPV (future amounts discounted to the present) of total commercial customer costs and savings, which are expected to result from amended standards at specific efficiency levels. For each TSL, DOE calculated the NPV, as well as the NES, as the difference between a base case forecast (without amended standards) and the standards case (with amended standards). The NES refers to cumulative energy savings from 2012 through 2042. The NPV refers to cumulative monetary savings. DOE calculated net monetary savings in each year relative to the base case as the difference between total operating cost savings and increases in total installed cost. Cumulative savings are the sum of the annual NPV over the specified period. DOE accounted for operating cost savings until 2062; that is, until all the equipment installed through 2042 is retired.

1. Approach

Over time, in the standards case, equipment that is more efficient gradually replaces less efficient equipment. This affects the calculation of both the NES and NPV, both of which are a function of the total number of units in use and their efficiencies, and thus are dependent on annual shipments and equipment lifetime, including changes in shipments and retirement rates in response to changes in equipment costs due to standards. Both calculations start by using the estimate of shipments, and the quantity of units in service, that are derived from the shipments model.

With regard to estimating the NES, because more efficient PTACs and PTHPs gradually replace less efficient ones, the energy per unit of capacity used by the PTACs and PTHPs in service gradually decreases in the standards case relative to the base case. DOE calculated the NES by subtracting energy use under a standards scenario from energy use in a base-case scenario.

Unit energy savings for each equipment class are the same weighted-average values as calculated in the LCC and PBP spreadsheet. To estimate the total energy savings for each TSL, DOE first calculated the national site energy consumption (i.e., the energy directly consumed by the units of equipment in operation) for PTACs or PTHPs for each year, beginning with the expected effective date of the standards (2012), for the base case forecast and the standards case forecast. Second, DOE determined the annual site energy savings, consisting of the difference in site energy consumption between the base case and the standards case. Third, DOE converted the annual site energy savings into the annual amount of energy saved at the source of electricity generation (the source energy), using a site-to-source conversion factor. Finally, DOE summed the annual source energy savings from 2012 to 2042 to calculate the total NES for that period. DOE performed these calculations for each TSL considered in this rulemaking.

DOE considers whether a rebound effect is applicable in its NES analysis. A rebound effect occurs when an increase in equipment efficiency leads to an increased demand for its service. EIA in its NEMS model assumes a certain elasticity factor to account for an increased demand for service due to the increase in cooling (or heating) efficiency. EIA refers to this as an efficiency rebound.

28

For the commercial cooling equipment market, there are two ways that a rebound effect could occur:

28

EIA, 2007. Assumptions to the Annual Energy Outlook 2007. accessed at

http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

1. An increased use of the cooling equipment within the commercial buildings they are installed in.

2. Additional instances of cooling a commercial building where it was not being cooled before.

The first instance does not occur for the PTAC and PTHP equipment that are typically used in guest rooms of hotel/motel buildings, and patient rooms in hospitals and health care clinics since these buildings are already being operated and conditioned 24 hours a day and seven days a week. Furthermore, the guest or the patient in these rooms has no incentive to use the equipment more or less, because they do not pay the electricity bills.

Additionally, DOE feels that the PTAC and PTHP equipment would not significantly penetrate into previously un-cooled building spaces. The existing market for this equipment is specialized to lodging type applications where the equipment serves both a cooling and heating need for a small room on the perimeter of a building. Drawbacks for installing these equipment in other spaces include noise, increased installation costs, high use of electric resistance heating, and their limitation of being able to provide cooling to only perimeter spaces. These considerations make the packaged terminal equipment, in general, not the first choice for adding cooling to other non-conditioned building spaces. Therefore, DOE did not assume a rebound effect in the present NOPR analysis.

To estimate NPV, DOE calculated the net impact as the difference between total operating cost savings (including electricity, repair, and maintenance cost savings) and increases in total installed costs (which consists of MSP, sales taxes, distribution chain markups, and installation cost). DOE calculated the NPV of each TSL over the life of the equipment, using the following three steps. First, DOE determined the difference between the equipment costs under the TSL case and the base case in order to obtain the net equipment cost increase resulting from the TSL. Second, DOE determined the difference between the base case operating costs and the TSL operating costs, in order to obtain the net operating cost savings from the TSL. Third, DOE determined the difference between the net operating cost savings and the net equipment cost increase in order to obtain the net savings (or expense) for each year. DOE then discounted the annual net savings (or expenses) to the year 2008 for PTACs and PTHPs bought on or after 2012 and summed the discounted values to provide the NPV of a TSL. An NPV greater than zero shows net savings (i.e., the TSL would reduce customer expenditures relative to the base case in present value terms). An NPV that is less than zero indicates that the TSL would result in a net increase in customer expenditures in present value terms.

To make the analysis more accessible and transparent to all stakeholders, DOE used an MS Excel spreadsheet model to calculate the energy savings and the national economic costs and savings from amended standards. In addition, the TSD (chapter 10) and other documentation on the website that DOE provides during the rulemaking help explain the models and how to use them, and stakeholders can review DOE's analyses by changing various input quantities within the spreadsheet.

Unlike the LCC analysis, the NES spreadsheet does not use distributions for inputs or outputs. DOE examined sensitivities by applying different scenarios. DOE used the NES spreadsheet to perform calculations of energy savings and NPV, using the annual energy consumption and total

installed cost data from the LCC analysis. DOE forecasted the energy savings, energy cost savings, equipment costs, and NPV of benefits for each of equipment classes from 2012 through 2042. The forecasts provided annual and cumulative values for all four output parameters as described above.

2. Shipments Analysis

An important element in the estimate of the future impact of a standard is equipment shipments. DOE developed shipments projections under a base case and each of the standards cases using a shipments model. DOE used the standards case shipments projection and, in turn, the standards case equipment stock to determine the NES. The shipments portion of the spreadsheet model forecasts PTAC and PTHP shipments from 2012 to 2042. The details of the shipment projections are given in chapter 10 of the TSD.

DOE developed shipments forecasts by accounting for: (1) The growth in the building stock of hotel/motel, health care and office buildings that are the primary end users of PTACs and PTHPs; (2) market segments; (3) equipment retirements; and (4) equipment ages.

The shipments model assumes that, in each year, each existing PTAC or PTHP either ages by one year or breaks down, and that equipment that breaks down is replaced. In addition, new equipment can be shipped into new commercial building floor space, and old equipment can be removed through demolitions. Historical shipments are critical to the development of the shipments model, since DOE used the historical data to calibrate the model. DOE's primary source of historical data for shipments of PTACs and PTHPs was the shipment data provided by ARI. ARI provided DOE with shipments data for 10 years (1997-2006), which allowed DOE to allocate sales of equipment to the different equipment classes. The shipments data is summarized in Chapter 3 of the TSD.

Although there is a provision in the spreadsheet for a change in projected shipments in response to efficiency level increases, DOE has no information with which to calibrate such a relationship. Therefore, for the NOPR analysis, DOE presumed that the shipments do not change in response to the changing TSLs.

Table IV.9 shows the forecasted shipments for the different equipment classes of PTACs and PTHPs for the baseline efficiency level (ASHRAE/IESNA Standard 90.1-1999) for selected years from 2012 to 2042. As equipment purchase price increases with efficiency, generally a drop in shipments would be expected. Although there is a provision in the shipments analysis spreadsheet for a change in shipments as the efficiency increases and the equipment becomes more expensive, DOE has no basis for concluding that such a change would occur as the efficiency of PTACs and PTHPs increases. Therefore, DOE presumed that total shipments do not change with TSL and that the effect of the standards would be to shift the percentage mix of shipments from lower to higher efficiencies. Table IV.9 also shows the cumulative shipments for PTAC and PTHP equipment from 2012 to 2042.

Table IV.9.—Shipments Forecast for Base Case PTAC and PTHP Equipment

Equipment

Thousands of units shipped by year and equipment class

2012

2015

2020

2025

2030

2035

2040

2042

Cumulative shipments (2012-2042)

Standard Size PTACs

242

249

266

286

307

333

361

373

9,256

Standard Size PTHPs

181

186

199

214

230

249

270

279

6,918

Non-Standard Size PTACs

17

16

15

13

12

11

10

9

398

Non-Standard Size PTHPs

13

12

11

10

9

8

7

7

300

Total

453

464

490

522

558

600

648

668

16,873

DOE also uses the shipments estimates developed above as an input to the MIA, discussed in section IV.I. Chapter 10 of the TSD provides additional details on the shipments forecasts.

3. Base Case and Standards Case Forecasted Distribution of Efficiencies

The annual energy consumption of a PTAC or PTHP unit is directly related to the efficiency of the unit. Thus, DOE forecasted shipment-weighted average equipment efficiencies that, in turn, enabled a determination of the shipment-weighted annual energy consumption values for the base case and each TSL analyzed. DOE based shipment-weighted average efficiency trends for PTAC and PTHP equipment on first converting the 2005 PTAC and PTHP equipment shipments by equipment class into market shares by equipment class. DOE then adapted a cost-based method used in the NEMS to estimate market shares for each equipment class by TSL. Then, from those market shares and projections of shipments by equipment class, DOE extrapolated future equipment efficiency trends both for a base case scenario and standards case scenarios. The difference in equipment efficiency between the base case and standards cases was the basis for determining the reduction in per-unit annual energy consumption that could result from amended standards. There is, however, the refrigerant phase-out issue that also affects the equipment efficiency. DOE recognizes that the industry has been able to meet the ASHRAE/IESNA Standard 90.1-1999 efficiency levels with R-22 as the primary refrigerant, but is waiting to switch to R-410A as the primary refrigerant starting in 2010.

For the base case, DOE assumed that, absent amended standards, forecasted market shares would remain frozen at the 2012 efficiency levels until the end of the forecast period (30 years after the effective date—the year 2042). DOE realized that this prediction may have the effect of causing DOE to overestimate the savings associated with the TSLs discussed in this notice since historical data indicated PTACs and PTHP equipment efficiencies or relative equipment class preferences may change voluntarily over time. Therefore, DOE seeks comment on this assumption and the potential significance of any overestimate of savings. In particular, DOE requests data that would enable it to better characterize the likely increases in efficiency that would occur over the 30-year analysis period absent adoption of either the standards proposed, or the TSLs considered, in

this rule. DOE identified this as Issue 6 under “Issues to Which DOE Seeks Comment” in section VII.E of this NOPR.

For each of the TSLs analyzed, DOE used a “roll-up” scenario to establish the market shares by efficiency level for the year that standards become effective (i.e., 2012). Information available to DOE suggests that the efficiencies of equipment in the base case that did not meet the standard level under consideration would “roll-up” to meet the standard level. In addition, available information suggests that all equipment efficiencies in the base case that were above the standard level under consideration would not be affected.

DOE specifically seeks input on its basis for the NES-forecasted base case distribution of efficiencies and its prediction on how amended energy conservation standards impact the distribution of efficiencies in the standards case. DOE identified this as Issue 7 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.

In addition, DOE specifically seeks comment on whether DOE's adoption of higher amended energy conservation standard levels would be likely to cause the PTAC and PTHP customers to shift to using other, less efficient type of equipment. Acknowledging over 80 percent of PTAC and PTHP equipment are sold for the replacement market, DOE believes it is unlikely that PTAC and PTHP equipment users would switch to other type of equipment due to the additional installation cost caused by this potential switching. However, DOE recognizes that potential equipment switching from PTHPs to a combination of PTACs and electric resistance heating might occur if DOE were to adopt a standard level for PTHPs significantly higher than the proposed standard level for PTACs. DOE specifically seeks input on whether disparity in the proposed standards for PTACs and PTHPs is likely to cause the PTHP customers to shift to PTACs with electric resistance heating. DOE identified this as Issue 8 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.

4. National Energy Savings and Net Present Value

The PTAC and PTHP equipment stock at any point in time is the total number of PTACs and PTHPs purchased or shipped from previous years that have survived until that point. The NES spreadsheet, through the use of the shipments model, keeps track of the total number of PTAC and PTHP units shipped each year. For purposes of the NES and NPV analyses, DOE assumes that retirements follow a Weibull distribution with a 10-year mean lifetime. Retired units are not replaced until 2042. For units shipped in 2042, any units still remaining at the end of 2062 are retired.

The national annual energy consumption is the product of the annual unit energy consumption and the number of PTAC and PTHP units of each vintage. This approach accounts for differences in unit energy consumption from year to year. In determining national annual energy consumption, DOE initially calculated the annual energy consumption at the site (i.e., electricity in kWh consumed by the PTAC and PTHP unit). DOE then calculated primary energy consumption from site energy consumption by applying a marginal site-to-source conversion factor to account for losses associated with the generation, transmission, and distribution of electricity.

The site-to-source conversion factor is a multiplier used for converting site energy consumption, expressed in kWh, into primary or source energy consumption, expressed in quads (quadrillion Btu). The site-to-source conversion factor accounts for losses in electricity generation, transmission, and distribution. DOE obtained these conversion factors using the NEMS model. The conversion factors vary over time, due to projected changes in electricity generation sources (i.e., the power plant types projected to provide electricity to the country).

To discount future impacts, DOE follows OMB guidance in the selection of seven percent and three percent in evaluating the impacts of regulations. In selecting the discount rate corresponding to a public investment, OMB directs agencies to use “the real Treasury borrowing rate on marketable securities of comparable maturity to the period of analysis.” Office of Manage

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