[Federal Register Volume 69, Number 145 (Thursday, July 29, 2004)]
[Proposed Rules]
[Pages 45460-45503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16575]
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Part IV
Department of Energy
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Office of Energy Efficiency and Renewable Energy
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10 CFR Part 431
Energy Conservation Program for Commercial and Industrial Equipment:
Energy Conservation Standards for Commercial Unitary Air Conditioners
and Heat Pumps; Proposed Rule
Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 /
Proposed Rules
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 431
[Docket No. EE-RM/STD-01-375]
RIN 1904-AB09
Energy Conservation Program for Commercial and Industrial
Equipment: Energy Conservation Standards for Commercial Unitary Air
Conditioners and Heat Pumps
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Advance notice of proposed rulemaking and notice of public
meeting.
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SUMMARY: The Energy Policy and Conservation Act (EPCA) directs the
Department of Energy (DOE or the Department) to consider whether to
adopt the amended energy efficiency levels in the American Society of
Heating, Refrigerating and Air-Conditioning Engineers, Inc. (ASHRAE)/
Illuminating Engineering Society of North America (IESNA) Standard
90.1-1999, or more stringent levels, for certain commercial unitary air
conditioners and heat pumps with rated cooling capacities of 65,000
British thermal units per hour (Btu/h) and greater, but less than
240,000 Btu/h. The Department publishes this Advance Notice of Proposed
Rulemaking (ANOPR) to solicit public comments on its preliminary
analyses for this equipment.
DATES: The Department will hold a webcast on Thursday, August 12, 2004,
from 1 p.m. to 4 p.m. If you are interested in participating in this
event, please inform James Raba at (202) 586-8654.
The Department will hold a public meeting on Thursday, September
30, 2004, from 9 a.m. to 5 p.m., in Washington, DC. The Department must
receive requests to speak at the meeting before 4 p.m., Thursday,
September 16, 2004. The Department must receive a signed original and
an electronic copy of statements to be given at the public meeting
before 4 p.m., Thursday, September 23, 2004.
The Department will accept comments, data, and information
regarding the ANOPR before or after the public meeting, but no later
than Friday, November 12, 2004. See section IV, ``Public
Participation,'' of this ANOPR for details.
ADDRESSES: You may submit comments, identified by docket number EE-RM/
STD-01-375 and/or RIN number 1904-AB09, by any of the following
methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: commercial [email protected]">aircon[email protected].
Include EE-RM/STD-01-375 and/or RIN 1904-AB09 in the subject line of
the message.
Mail: Ms. Brenda Edwards-Jones, U.S. Department of Energy,
Building Technologies Program, Mailstop EE-2J, ANOPR for Commercial
Unitary Air Conditioners and Heat Pumps, EE-RM/STD-01-375 and/or RIN
1904-AB09, 1000 Independence Avenue, SW., Washington, DC, 20585-0121.
Telephone: (202) 586-2945. Please submit one signed paper original.
Hand Delivery/Courier: Ms. Brenda Edwards-Jones, U.S.
Department of Energy, Building Technologies Program, Room 1J-018, 1000
Independence Avenue, SW., Washington, DC, 20585.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. For detailed instructions on submitting comments and
additional information on the rulemaking process, see section IV of
this document (Public Participation).
Docket: For access to the docket to read background documents or
comments received, go to the U.S. Department of Energy, Forrestal
Building, Room 1J-018 (Resource Room of the Building Technologies
Program), 1000 Independence Avenue, SW., Washington, DC, (202) 586-
9127, between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays. Please call Ms. Brenda Edwards-Jones at the above telephone
number for additional information regarding visiting the Resource Room.
Please note: The Department's Freedom of Information Reading Room
(formerly Room 1E-190 at the Forrestal Building) is no longer housing
rulemaking materials.
FOR FURTHER INFORMATION CONTACT: James Raba, U.S. Department of Energy,
Office of Energy Efficiency and Renewable Energy, Building
Technologies, EE-2J, 1000 Independence Avenue, SW., Washington, D.C.
20585-0121, (202) 586-8654. E-mail: [email protected]. Francine
Pinto, U.S. Department of Energy, Office of General Counsel, GC-72,
1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-9507. E-
mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Summary of the Analysis
1. Engineering Analysis
2. Building Energy Use and End-Use Load Characterization
3. Markups to Determine Equipment Prices
4. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
5. National Impact Analysis
B. Authority
C. Background
1. History
2. Rulemaking Process
3. Equipment Definitions
4. Efficiency Levels
5. Test Procedure
II. Commercial Unitary Air Conditioner and Heat Pump Analyses
A. Market and Technology Assessment
1. Manufacturers
2. Equipment Efficiency
3. Equipment Shipments
B. Screening Analysis
C. Engineering Analysis
1. Baseline Equipment
a. Efficiency Level
b. Maximum Technologically Feasible Design
c. Representative Capacities
2. Methodology
3. Cost Assessment Approach
a. Teardown Analysis
b. Cost Model
c. Cost/Efficiency Curves
4. Supplemental Design Option Analysis
5. Alternative Refrigerant Analysis
D. Building Energy Use and End-Use Load Characterization
1. Approach
2. Preliminary Results
E. Markups to Determine Equipment Price
1. Approach
2. Estimated Markups
F. Life-Cycle Cost and Payback Period Analysis
1. Inputs to LCC Analysis
a. Total Installed Cost Inputs
b. Operating Cost Inputs
(1) Use of Whole-Building Simulations
(2) Electricity Price Analysis
(a) Tariff-Based Approach
(b) Hourly Based Approach
(c) Comparison of Tariff-Based and Hourly Based Prices
(3) Electricity Price Trend
(4) Repair Cost
(5) Maintenance Cost
(6) Lifetime
(7) Discount Rate
(8) Effective Date
2. Inputs to the Payback Period Analysis
3. Preliminary Results
a. Life-Cycle Cost Results
b. Payback Period Results
G. National Impact Analysis
1. National Energy Savings (NES)
a. National Energy Savings Inputs
(1) Annual Energy Consumption Per Unit
(2) Shipments
(3) Equipment Stock
(4) National Annual Energy Consumption
(5) Electricity Site-to-Source Conversion Factor
2. National Net Present Value
a. National Net Present Value Calculations
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b. Net Present Value Inputs
(1) Total Annual Installed Cost
(2) Total Annual Operating Cost Savings
(3) Discount Factor
(4) Present Value of Costs
(5) Present Value of Savings
3. Shipments Model
a. Ownership Categories
b. Market Segments
c. Logit Probability Model
4. Preliminary Results
H. LCC Sub-Group Analysis
I. Manufacturer Impact Analysis
1. Sources of Information for the Manufacturer Impact Analysis
2. Industry Cash Flow Analysis
3. Manufacturer Sub-Group Analysis
4. Competitive Impacts Assessment
5. Cumulative Regulatory Burden
J. Utility Impact Analysis
K. Environmental Assessment
L. Employment Impact Analysis
M. Regulatory Impact Analysis
III. Candidate Energy Conservation Standards Levels
IV. 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
1. Approaches to Analyses for Split Systems, Heat Pumps, and
Niche Equipment
2. Alternative Refrigerant Analysis
3. Candidate Standards Levels
4. Design-Option Analysis and Maximum Energy Efficiency Levels
5. Industrial Buildings
6. Economizer Performance
7. Fan Energy Consumption
8. Equipment Markups
9. Hourly Based Electricity Prices
10. Forecasts of Electricity Prices
11. Equipment Lifetime
12. Maximum Market Share of Commercial Unitary Air Conditioning
Equipment
13. Future Building Types Using Commercial Unitary Equipment
14. Customer Sub-Groups
15. Effective Date of New Standards and Phaseout Date of R-22
Refrigerant
16. Independent Expert Third-Party Reviews
a. Sample of Buildings
b. Building Loads and System Thermodynamics Simulation and
Commercial Buildings Energy Consumption Survey Estimates of Energy
Use
c. Supply Fan Energy Use While Ventilating
d. Incremental Markups
17. Effect of Income Taxes on Life-Cycle Cost
18. Technologies that Affect Full-or Part-Load Performance
19. Environmental Assessment
20. Rebound Effect
V. Regulatory Review and Procedural Requirements
VI. Approval of the Office of the Secretary
I. Introduction
A. Summary of the Analysis
The Energy Policy and Conservation Act (42 U.S.C. 6311 et seq.)
establishes minimum energy conservation standards for certain
industrial and commercial equipment, including the commercial unitary
air conditioners and heat pumps under consideration in this rulemaking.
The EPCA further requires that, if certain industry standards are
amended after the date of enactment of the Energy Policy Act of 1992,
DOE must establish a new energy efficiency standard at that amended
level, or at a more stringent level if DOE determines, ``by rule
published in the Federal Register and supported by clear and convincing
evidence, that adoption of a uniform national standard more stringent
than such amended ASHRAE/IESNA Standard 90.1 for such product would
result in significant additional conservation of energy and is
technologically feasible and economically justified.'' (42 U.S.C.
6313(a)(6)(A))
The Department conducted in-depth technical analyses for this ANOPR
in the following areas: (1) Engineering, (2) building energy use and
end-use load characterization, (3) markups to determine equipment
prices, (4) life-cycle cost (LCC) and payback periods (PBP), and (5)
national impacts.
1. Engineering Analysis
The engineering analysis establishes the relationship between the
cost and efficiency of commercial unitary air conditioners and heat
pumps. This relationship serves as the basis for cost/benefit
calculations in terms of individual consumers, manufacturers, and the
Nation. The engineering analysis identifies the representative baseline
equipment (using R-22 as the refrigerant), develops the bill of
materials and determines the costs, constructs the industry cost/
efficiency curves, and evaluates the impact of using an alternative to
R-22 refrigerant on the cost/efficiency relationship of certain
commercial unitary air conditioners and heat pumps. (See section II.C.
of this ANOPR for further details.)
2. Building Energy Use and End-Use Load Characterization
The building energy use and end-use load characterization analysis
uses building simulations to estimate the energy consumption of
commercial unitary air conditioning equipment at specified candidate
standards levels. The 1995 Commercial Buildings Energy Consumption
Survey (CBECS 95) data set was the primary source of the data used to
develop the building set and its associated characteristics. The
Department modeled each building in the set using the Building Loads
and System Thermodynamics (BLAST) software. (See section II.D of this
ANOPR for further details.)
3. Markups To Determine Equipment Prices
The equipment price analysis derives end-user or customer prices
for more energy efficient commercial unitary air-conditioning
equipment. To derive those prices, the Department differentiates
between a baseline (manufacturer's) markup and an incremental
(wholesaler's, general contractor's, and mechanical contractor's)
markup, based on the distribution channel that the customer uses to
purchase such equipment. (See section II.E of this ANOPR for further
details.)
4. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
When the Department is determining whether an energy efficiency
standard for commercial unitary air-conditioning equipment is
economically justified, EPCA directs DOE to consider, in part, the
economic impact of potential standards on consumers. (42 U.S.C.
6313(a)(6)(B)(i)(I)) To assess that impact, the Department calculated
the changes in LCCs which are likely to result from a candidate
standard, as well as a distribution of PBPs. The foundation of the LCC
and PBP analyses is the building set defined by the building energy use
and end-use load characterization analysis. The Department created a
representative sample from the building set, and determined the LCC and
PBP for a given energy efficiency standard level for each building in
the sample. Probability distributions characterize most other inputs to
the LCC and PBP analysis. The input probability distributions combined
with the building sample enabled the Department to generate LCC and PBP
results as probability distributions using a simulation based on Monte
Carlo statistical analysis methods. One of the most critical inputs to
the LCC and PBP analysis is electricity price. The Department derived
two sets of electricity prices to estimate annual energy expenses: A
tariff-based estimate and an hourly based estimate. Although the
Department used these two sets of electricity prices, it designated the
tariff-based prices as the primary approach. In combination with the
hourly electrical loads from the building simulations, the
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tariff-based approach estimates the annual energy expense using
electricity prices determined from electric utility tariffs collected
in the year 2002. (See section II.F of this ANOPR for further details.)
5. National Impact Analysis
The national impact analysis assesses the national energy savings
(NES) and the net present value (NPV) of total customer LCC and NES.
The Department calculated both NES and NPV for a given energy
efficiency standard level as the difference between a base case
(without new standards, i.e., EPCA levels) and the standards case (with
new standards). The Department determined national annual energy
consumption by multiplying the number of units or stock of commercial
unitary air conditioners (by vintage) by the unit energy consumption
(also by vintage). Cumulative energy cost savings is the sum of the
annual NES determined over specified time periods. The national NPV is
the sum over time of discounted net cost savings due to the energy
savings. The Department calculated net savings each year as the
difference between total operating cost savings (including electricity,
repair, and maintenance cost savings) and increases in total installed
costs (including equipment price and installation cost). As with the
NES, cumulative cost savings is the sum of the annual NPV determined
over specified time periods. One of the most critical inputs to this
analysis is shipments data. The Department developed shipments
projections under a base case and certain candidate standards cases. It
determined that shipment projections under the standards cases were
lower than those from the base case projection, due to the higher
installed cost of the more energy-efficient unitary air conditioning
equipment. Higher installed costs caused some customers to forego
equipment purchases. As a result, the Department used the standards
case shipments projection and, in turn, the standards case stock of
commercial unitary air conditioners to determine the NES and NPV to
avoid the inclusion of savings due to displaced shipments.
Table I.1 summarizes the key inputs, assumptions, and methodologies
for each analysis area, and provides general references for finding the
corresponding analyses in the Technical Support Document (TSD), a
``stand-alone'' report that provides the technical analyses and results
in support of the information presented in this ANOPR. The ANOPR and
TSD are available to interested parties on the Department's website at
http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html.
Also, Table I.1 provides references for finding the results of each
analysis in this ANOPR.
Table I.1.--In-Depth Technical Analyses Conducted for the ANOPR
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ANOPR section for
Analysis area Methodology Key inputs Key assumptions results
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Engineering (TSD Chapter 5).... Tear Down Component cost Maximum Section II.C.3.c.
Analysis data. Technologically
supplemented Feasible
with Design efficiency
Option Analysis. equals 12 EER.
Building Energy Use and End-Use Whole-Building 1997 Commercial (1) BLAST (2) Ventilation rates
Load Characterization (TSD simulations Building Energy characterization set equal to ASHRAE
Chapter 6). using Building Consumption of part-load 62 requirements; and
Loads and System Survey (CBECS) equipment (3) Fan power
Thermodynamics to identify and performance; consumption included
(BLAST) software. characterize the during times of
type of building ventilation and
using unitary heating
air conditioners.
Markups to Determine Equipment Assessment of (1) Differentiation Section II.E.2.
Price (TSD chapter 7). financial Characterization between a
reports to of distribution baseline markup
develop markups channels and and an
to transform markets; and (2) incremental
manufacturer Financial markup to relate
prices into reports manufacturer
customer prices. characterizing price to
firm costs, customer price.
expenses, and
profits.
LCC and Payback Period (TSD Building-by- (1) Output from Sample of Section II.F.3.
Chapter 8). building the Engineering, commercial
analysis of a Building buildings
representative Simulation, and representative
sample of Equipment Price of all unitary
commercial analyses; and air conditioner
building (2) Electricity users
customers prices based on (industrial
(customers are current electric users have been
appropriately utility tariffs. excluded).
weighted).
National Impact (TSD Chapter Forecasts of (1) Average Responsiveness of Section II.G.4.
10). unitary air values from the shipments
conditioner LCC analysis; forecasts to
costs and energy (2) Historical total installed
consumption to shipment data; cost, operating
the year 2035. and. costs, and
(3) Commercial business income.
building stock
and forecasts of
commercial
building starts.
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The Department consulted with interested parties while developing
the above analyses to make clear the sources of data and analytical
processes it used. The Department continues to seek input from all
interested parties on the methodologies, inputs, and assumptions used
to develop the analyses. In addition, certain analyses were very
complex and questions raised by stakeholders led the Department to
engage independent, third-party experts to review the Department's
assumptions, approaches, data, and analytical methods used in
particular for: (1) The sample of buildings used to represent
commercial unitary air conditioning equipment; (2) the BLAST and CBECS
estimates of energy use in these buildings; (3) supply fan energy use
while ventilating; and (4)
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incremental markup of commercial unitary air conditioning equipment
prices. The third-party reviews are available to interested parties on
the Department's website at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. The Department is requesting
stakeholder comments about the third-party reviews concerning the
subjects described in Issue 16, found in section IV.E., ``Issues on
Which DOE Seeks Comment,'' of this ANOPR.
B. Authority
Title III of EPCA sets forth a variety of provisions designed to
improve energy efficiency. Part C of title III (42 U.S.C. 6311-6317)
establishes an energy conservation program for ``Certain Industrial
Equipment'' and includes commercial air conditioning equipment, the
subject of this proceeding. Part C provides definitions, test
procedures, labeling provisions, energy efficiency standards, and
authority to require information and reports from manufacturers.
EPCA established efficiency requirements that correspond to the
levels in ASHRAE/IESNA Standard 90.1-1989, that went into effect on
October 24, 1992. EPCA further provides that if the efficiency levels
in ASHRAE/IESNA Standard 90.1 are amended after that date for certain
covered commercial equipment, including commercial unitary air
conditioners and heat pumps, the Department must establish an amended
uniform national standard for such equipment at the new minimum level
for each effective date specified in the amended ASHRAE/IESNA Standard
90.1, unless the Department determines, through a rulemaking supported
by clear and convincing evidence, that a more stringent standard is
technologically feasible and economically justified and would result in
significant additional energy conservation. (42 U.S.C. 6313(a)(6)(A))
Under EPCA, if DOE adopts a more stringent standard, DOE must
determine whether the benefits of the standard exceed its burdens to
the greatest extent practicable, by considering the following seven
factors (42 U.S.C. 6313(a)(6)(B)(i)):
(1) The economic impact of the standard on the manufacturers and
consumers of the affected products;
(2) The savings in operating costs throughout the estimated average
life of the product compared to any increases in the initial cost, or
maintenance expense;
(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.
Other statutory requirements are set forth in 42 U.S.C.
6313(a)(6)(B)(ii).
C. Background
1. History
On October 29, 1999, ASHRAE/IESNA adopted the energy efficiency
standards for certain commercial heating and air conditioning
equipment, including commercial unitary air conditioners and heat
pumps, in ASHRAE/IESNA Standard 90.1-1999. On March 1, 2000, the
Department published a notice of preliminary screening analysis to
decide which of the ASHRAE/IESNA Standard 90.1-1999 standards to adopt
immediately and which to analyze further. 65 FR 10984 (March 1, 2000).
On January 12, 2001, the Department published a final rule adopting the
energy efficiency levels in ASHRAE/IESNA Standard 90.1-1999 for 18
product categories and made a decision to further evaluate other
products. 66 FR 3336 (January 12, 2001). In the final rule, DOE
determined that further analysis was warranted for commercial unitary
air conditioners and heat pumps with rated cooling capacities of 65,000
Btu/h and greater, but less than 240,000 Btu/h. This conclusion was
based on DOE's screening analysis. As a result, the Department has
conducted further analysis and is considering more stringent standards
than those in ASHRAE/IESNA Standard 90.1-1999 for this equipment.
2. Rulemaking Process
The Procedures, Interpretations and Policies for Consideration of
New or Revised Energy Conservation Standards for Consumer Products (the
``Process Rule''), 10 CFR Part 430, Subpart C, Appendix A, applies to
the development of energy efficiency standards for consumer products.
DOE has decided, however, to apply its procedures to the development of
energy conservation standards for industrial equipment as well,
including commercial unitary air conditioners and heat pumps standards,
as appropriate. 62 FR 54817.
On June 13, 2001, the Department published a Framework Document for
Commercial Air Conditioner and Heat Pump Standards Rulemaking
(Framework Document) that describes the procedural and analytical
approaches available to evaluate energy conservation standards for
commercial unitary air conditioners and heat pumps. This document is
available at http://www.eere.energy.gov/buildings/appliance_standards/commercial/ac_hp.html. The Department held a Framework Workshop on
October 1, 2001, to discuss the procedural and analytical approaches
for use in the rulemaking, and to inform and facilitate stakeholders'
involvement in the rulemaking process. The analytical framework
presented at the workshop described different analyses, such as LCC and
PBP, the methods proposed for conducting them, and the relationships
among the various analyses (see Table I.2). The ANOPR TSD describes the
analytical framework in detail.
Statements received after publication of the Framework Document and
at the October 1, 2001, Framework Workshop helped identify issues
involved in this rulemaking, and provided information that has
contributed to DOE's proposed resolution of these issues. Many of the
statements are quoted and summarized in this ANOPR. A parenthetical
reference at the end of a quotation or passage provides the location
index in the public record.
Table I.2.--Commercial Unitary Air Conditioners and Heat Pumps
Rulemaking Analyses Pursuant to the Process Rule
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ANOPR NOPR Final rule
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Market and technology Revised ANOPR Revised analyses.
assessment. analyses.
Screening analysis........... Life-cycle cost
sub-group
analysis.
Engineering analysis......... Manufacturer
impact
analysis.
Building energy use and end- Utility impact
use load characterization. analysis.
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Markups to determine Environmental
equipment price. assessment.
Life-cycle cost and payback Employment
period analyses. impact
analysis.
Shipments analysis........... Regulatory
impact
analysis.
National impact analysis.
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On one hand, many stakeholders commented that DOE should
immediately adopt the minimum efficiency requirements in ASHRAE/IESNA
Standard 90.1-1999 for commercial unitary air conditioners and heat
pumps, rather than pursue a formal rulemaking, on grounds that ASHRAE's
``continuous maintenance'' process for Standard 90.1-1999 allows for
faster adoption of any necessary revisions to the commercial unitary
equipment standards than does a formal DOE rulemaking process.
``Continuous maintenance'' is an industry term for ASHRAE's current
process for maintaining standards. Under this process, ASHRAE accepts a
continual flow of proposals from the public for changes to its
standards, which in turn can result in multiple proposed addenda to an
ASHRAE standard on a regular basis. The ASHRAE continuous maintenance
process contrasts with the previous periodic maintenance process that
updated a standard at fixed, predetermined intervals. These same
stakeholders commented that DOE's preliminary screening analysis did
not demonstrate that more-cost-effective efficiency standards were
feasible for commercial unitary equipment. In addition, by not
immediately adopting the efficiency requirements in ASHRAE/IESNA
Standard 90.1-1999, the Department would forego the national energy
savings that would otherwise be realized in the next six to ten years
before a DOE final rule becomes effective. Finally, many of these
stakeholders commented that market confusion would ensue over which
standards requirements are applicable if DOE adopts ASHRAE/IESNA
Standard 90.1-1999 for some equipment and not for other equipment.
(Air-Conditioning and Refrigeration Institute (ARI), No. 11 at pp. 2-4;
Edison Electric Institute (EEI), No. 4 at pp. 1-2; Lennox International
Inc. (Lennox), No. 7 at pp. 1 and 4; Public Workshop Tr., No. 2EE at p.
46; National Rural Electric Cooperative Association (NRECA), No. 3 at
pp. 1-2; Southern Company Services (Southern Company), No. 5 at p.
1).\1\
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\1\ Example: ``(ARI, No. 11 at pp. 2-4)'' refers to a written
statement that was submitted by the Air-Conditioning & Refrigeration
Institute and is recorded in the Resource Room of the Building
Technologies Program in the Docket under ``Commercial Central Air
Conditioners and Heat Pumps'' as comment number 11, and the passage
appears on pages 2 through 4 of that statement. Likewise, ``(Public
Workshop Tr., No. 2EE at p. 46)'' refers to the page number of the
transcript of the ``Framework Workshop'' held in Washington, DC,
October 1, 2001.
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In contrast to the above comments, many other stakeholders
commented that DOE should abandon the ASHRAE/IESNA Standard 90.1-1999
continuous maintenance process and pursue a formal rulemaking. Many of
them participated in the ASHRAE/IESNA Standard 90.1-1999 process and
asserted that it was fundamentally flawed. These stakeholders also
challenged the technical merits of the analysis used to update ASHRAE/
IESNA Standard 90.1-1999, stating that: (1) Manufacturing cost
estimates for more efficient equipment were not representative, i.e.,
too high; (2) electricity prices did not capture the variability
associated with an industry moving toward economic deregulation; and
(3) the ASHRAE process used high discount rates and short payback
periods to evaluate energy efficiency measures instead of a carefully
constructed life-cycle cost analysis. (Alliance to Save Energy (ASE),
No. 9 at pp. 1-2; American Council for an Energy-Efficient Economy
(ACEEE), No. 10 at pp. 3, 6-7, and 10; Natural Resources Defense
Council (NRDC), No. 6 at pp. 2-6; Public Workshop Tr., No. 2EE at p.
77).
The Department intends to make its findings available to the
ASHRAE/IESNA Standard 90.1-1999 committee and other stakeholders to
inform ASHRAE's ``continuous maintenance'' process. Furthermore,
consistent with the approach outlined in the Department's January 12,
2001, final rule (66 FR 3348), DOE may engage in the ASHRAE continuous
maintenance process by proposing an addendum to the commercial unitary
air conditioner efficiency levels in ASHRAE/IESNA Standard 90.1-1999
based on its analysis as part of this rulemaking.
Also, if during the rulemaking process the Department concludes
that the EPCA criteria for a more stringent energy conservation
standard are not likely to be satisfied, then the Department may either
adopt the energy efficiency levels in ASHRAE/IESNA Standard 90.1-1999
or any new addendum to ASHRAE/IESNA Standard 90.1 that establishes
higher levels.
3. Equipment Definitions
Unitary package air conditioning units represent the heating,
ventilating, and air conditioning (HVAC) equipment class with the
greatest energy use in the commercial building sector in the United
States. Equipment covered under this rulemaking--air-cooled package air
conditioning and heating equipment with rated cooling capacities of
65,000 British thermal units per hour (Btu/h) and greater, but less
than 240,000 Btu/h--accounts for the majority of the total shipped
tonnage of unitary HVAC equipment for commercial building applications.
Under EPCA, the term ``small commercial package air conditioning
and heating equipment'' means ``air-cooled, water-cooled,
evaporatively-cooled, or water source (not including ground water
source) electrically operated, unitary central air conditioners and
central air conditioning heat pumps for commercial application which
are rated below 135,000 Btu per hour (cooling capacity).'' (42 U.S.C.
6311(8)) The term ``large commercial package air conditioning and
heating equipment'' means ``air-cooled, water-cooled, evaporatively-
cooled, or water source (not including ground water source)
electrically operated, unitary central air conditioners and central air
conditioning heat pumps for commercial application which are rated at
or above 135,000 Btu per hour and below 240,000 Btu per hour (cooling
capacity).'' (42 U.S.C. 6311(9)) These definitions parallel the
categories of equipment outlined in ASHRAE/IESNA Standard 90.1-1999.
The standards for the product subcategories of water-cooled unitary
central air conditioners rated <=240,000 Btu/h, evaporatively cooled
unitary central air conditioners, and water-source unitary central heat
pumps rated <=240,000 Btu/h were covered under a separate standards
[[Page 45465]]
rulemaking (66 FR 3336 (January 12, 2001)) and currently appear under
10 CFR Part 431 Subpart Q. In this rulemaking, the Department will
limit its analysis to air-cooled equipment, which is the largest subset
of the small and large unitary air conditioners and heat pumps covered
by EPCA.
Based on data from EIA's 1995 Commercial Buildings Energy
Consumption Survey (CBECS 95), the Department estimates that a
significant part of the unitary package air conditioning market has gas
heating rather than either air conditioning only or electric resistance
heating. Hence, the Department has elected to base the engineering
analysis on equipment with a gas heating section.
Several comments questioned whether the Department planned to
consider engine-driven units, units operating with 100 percent outside
air, and split systems as unique categories. (Public Workshop Tr., No.
2EE at p. 82; Public Workshop Tr., No. 2EE at p. 148) The Department
has decided not to analyze engine-driven units or units operating with
100 percent outside air because they represent very specialized or
niche applications, but may analyze them if necessary for the Notice of
Proposed Rulemaking (NOPR) in this rulemaking proceeding. The
Department did not analyze split systems explicitly because they are
similar in technology and application to packaged units, which
represent 77 percent of the combined sales of the commercial unitary
air-conditioning market. (See Market Assessment section (Chapter 3) of
the ANOPR TSD.) While the size constraints (i.e., cabinet requirements)
may be different for the two types of systems, the technologies and
design choices required to increase the efficiency are similar. The
Department intends to apply the results of the single package air-
conditioning equipment analysis, and the resulting efficiency levels,
to both single package and split system equipment. This method is
consistent with the residential central air-conditioner rulemaking
where DOE applied the analysis results from split system air
conditioners (the most common residential central air conditioner
configuration) to packaged air conditioners. This method is also
consistent with the current efficiency levels in EPCA and ASHRAE/IESNA
Standard 90.1-1999, which are the same for single package and split
system equipment. This is identified as Issue 1 under ``Issues on Which
DOE Seeks Comment'' in section IV.E of this ANOPR.
4. Efficiency Levels
The language of 42 U.S.C. 6313(a)(6)(A) requires DOE to establish
an amended uniform national standard for commercial unitary air
conditioners and heat pumps at the minimum levels for each date
specified in the amended ASHRAE/IESNA Standard 90.1-1999, unless DOE
determines, by rule and supported by clear and convincing evidence,
that a more stringent standard is technologically feasible and
economically justified and would result in significant additional
energy conservation. Because the Department cannot consider levels
lower than that of the most recent ASHRAE/IESNA Standard 90.1, the
Department will consider the baseline efficiency to be the minimum
level specified in ASHRAE/IESNA Standard 90.1-1999, which is the most
recent amendment to ASHRAE/IESNA 90.1 that changed efficiency levels.
Table I.3 presents the ASHRAE/IESNA Standard 90.1-1999 minimum
efficiency levels.
Table I.3.--ASHRAE/IESNA Standard 90.1-1999 Minimum EER Requirements* for Unitary Equipment
----------------------------------------------------------------------------------------------------------------
Heating section Minimum
Equipment type Size category type Sub-category efficiency
----------------------------------------------------------------------------------------------------------------
Air Conditioners, Air Cooled.... >=65,000 Btu/h and Electric Split System and 10.3 EER
<135,000 Btu/h. Resistance (or Single Package. 10.1 EER
None). Split System and
All Other......... Single Package.
>=135,000 Btu/h and Electric Split System and 9.7 EER
<240,000 Btu/h. Resistance (or Single Package. 9.5 EER
None). Split System and
All Other......... Single Package.
Heat Pumps, Air Cooled (Cooling >=65,000 Btu/h and Electric Split System and 10.1 EER
Mode). <135,000 Btu/h. Resistance (or Single Package. 9.9 EER
None). Split System and
All Other......... Single Package.
>=135,000 Btu/h and Electric Split System and 9.3 EER
<240,000 Btu/h. Resistance (or Single Package. 9.1 EER
None). Split System and
All Other......... Single Package.
Heat Pumps, Air Cooled (Cooling >=65,000 Btu/h and 47[deg]F db/ 3.2 COP
Mode). <135,000 Btu/h. 43[deg]F wb 2.2 COP
(Cooling Capacity). Outdoor Air.
17[deg]F db/
15[deg]F wb
Outdoor Air.
>=135,000 Btu/h.... 47[deg]F db/ 3.1 COP
(Cooling Capacity). 43[deg]F wb 2.0 COP
Outdoor Air.
17[deg]F db/
15[deg]F wb
Outdoor Air.
----------------------------------------------------------------------------------------------------------------
* The current version of ASHRAE/IESNA Standard 90.1 is the 2001 version, which contains identical minimum
efficiency levels to the 1999 version of the standard.
The ASHRAE/IESNA Standard 90.1-1999 rates the cooling performance
of commercial unitary air conditioners and heat pumps using the energy
efficiency ratio (EER) and heating coefficient of performance (COP).
(These are the same energy efficiency descriptors used in EPCA for this
type of equipment.) The Department received comments that it should
consider part-load performance as part of the screening process and a
part-load descriptor in addition to EER in the present rulemaking.
(ACEEE, No. 10 at p. 3; Lennox, No. 7 at p. 3; NRDC, No. 6 at p. 7) The
ACEEE provided several comments about the efficiency level used in the
performance standards. Specifically, it advocates that the performance
standard include efficiency ratings for both full-load and part-load
conditions, reflecting that equipment operates for many more hours at
part-load conditions than at full-load conditions. Further, ACEEE
suggests
[[Page 45466]]
that the performance standard incorporate integrated part-load value
(IPLV) levels for commercial unitary air conditioning equipment.
(ACEEE, No. 10 at pp. 3-4, and 7)
The Department understands that there are potential energy savings
associated with technologies and techniques that operate under full- or
part-load conditions and that can improve the net annual energy
performance of a system, but which generally reduce the EER of
commercial unitary air-conditioning equipment, or have no effect on
EER. However, because the EPCA energy descriptor for commercial unitary
air conditioners and air source heat pumps is an EER, and the test
procedure does not account for part-load operation, DOE will not
include a part-load performance descriptor.
Although this rulemaking covers both commercial unitary air
conditioners and heat pumps, this ANOPR and the detailed analyses in
the accompanying TSD cover only unitary air conditioners. The
Department did not collect the necessary data for conducting the
detailed technical analyses for unitary heat pumps for this ANOPR
because unitary heat pumps represent only 9 percent of the total market
for commercial unitary air conditioning and heat pump equipment above
65,000 Btu/h. Instead, the Department proposes to streamline the
analysis for commercial unitary heat pumps and use a method similar to
the ASHRAE committee's method to establish the minimum EER and COP
levels for heat pumps. The Department understands that ASHRAE
determined the minimum efficiency level for air conditioners and then
agreed to a minimum heat pump EER after reviewing ARI's industry data.
The minimum heat efficiency of the heat pump, defined by the heat pump
COP, was set to correspond to the minimum EER using ARI data that
correlated the heat pump COP to the heat pump EER. In section IV.E,
``Issues on Which DOE Seeks Comment,'' the Department requests input
from interested parties on the need for conducting analyses specific to
commercial unitary heat pumps.
5. Test Procedure
The Department began development of test procedures for commercial
unitary air conditioners and heat pumps on April 14 and 15, 1998, when
it held a public workshop to solicit views and information from
interested parties. The Department held a second public workshop on
October 18, 1998. The Department published a NOPR on August 9, 2000,
and held a public workshop on September 21, 2000. 65 FR 48828. The
Department intends to publish the test procedure final rule as soon as
possible.
On June 12, 2001, the Department published a Framework Document
that described procedural and analytical approaches to evaluate energy
conservation standards for commercial unitary air conditioners and heat
pumps, and presented this analytical framework to stakeholders during
the workshop held on October 1, 2001. In response to DOE's Framework
Document and within the context of this standards rulemaking
proceeding, ACEEE filed comments on the test procedure used to assess
equipment EER levels. The ACEEE believes that the temperature used for
testing current EER levels represents the lowest outside temperature
possible for properly evaluating peak performance, and that a higher
temperature would more accurately represent peak conditions encountered
in many parts of the United States. It also commented that the test
procedure should include a maximum sensible heat ratio (SHR) to ensure
that all equipment provides sufficient dehumidification capacity and
prevents manufacturers from sacrificing dehumidification performance to
satisfy minimum EER levels. (ACEEE, No. 10 at pp. 3-4, and 7)
The Department acknowledges that the test procedure for EER
reflects equipment performance under a single condition and that this
condition does not represent actual equipment performance under part-
load conditions nor necessarily at the peak design condition, nor does
it specify a maximum SHR. Furthermore, the Department understands that
there are potential energy savings associated with technologies and
techniques that improve the part-load performance of the equipment.
However, because the Department believes that the test procedure
referenced by the ASHRAE/IESNA Standard 90.1-1999 is widely accepted
and well established, the Department has elected to follow the
conventions of the ASHRAE/IESNA Standard 90.1-1999 and use the EER as
the only descriptor for efficiency.
II. Commercial Unitary Air Conditioner and Heat Pump Analyses
This section includes a general introduction to each analysis
section and a discussion of relevant issues addressed in comments
received from interested parties.
A. Market and Technology Assessment
The Department reviewed existing marketing materials and
literature, and interviewed manufacturers to get an overall picture of
the market in the United States for commercial unitary air conditioners
and heat pumps. Industry publications and trade journals, government
agencies, and trade organizations provided most of the information,
including: (1) Manufacturer market share, (2) equipment efficiency, and
(3) shipments by capacity and efficiency level. This ANOPR discusses
the information in the appropriate sections.
The Department has used the most reliable and accurate data
available at the time of the analysis. All data are available for
public review in the TSD that accompanies this ANOPR. The TSD is
available to interested parties on the Department's Web site at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. The
Department welcomes and will consider any recommendations of additional
data.
1. Manufacturers
There are six major domestic manufacturers of the equipment covered
under this rulemaking. Four companies, Carrier Corporation (Carrier),
The Trane Company (Trane), Lennox International, Inc. (Lennox), and
York International Corporation (York) each hold a major share of the
market for commercial unitary air conditioners and heat pumps. Two
other manufacturers, AAON, Inc. (AAON) and Rheem Manufacturing Company
(Rheem), hold significant niche market shares. The AAON corporation
manufactures and sells high efficiency, air-cooled equipment almost
exclusively to large corporate accounts. Rheem produces mostly smaller-
capacity models in all the categories. Among the six major
manufacturers, Carrier and Trane command a majority of the market for
commercial unitary air conditioning equipment, followed by Lennox,
York, AAON, and Rheem. For more detail on major manufacturers and
market share, refer to the market assessment section (Chapter 3) of the
ANOPR TSD.
2. Equipment Efficiency
In its analysis of the equipment efficiency data from ARI's Unitary
Large Equipment Directory, January 2002, the Department found that most
models of equipment manufactured by the six major domestic
manufacturers met or exceeded the ASHRAE/IESNA Standard 90.1-1999
energy efficiency levels.
Also, in its analysis of the ARI Unitary Large Equipment Directory,
January 2002, the Department found it could be easy to misinterpret the
number of base models for each parent
[[Page 45467]]
company because each parent company manufactures similar models under
different ``brands'' or manufactures base models with relatively
superficial design changes around a base model. Consequently, the
Department estimated the number of actual base models listed for each
parent company in the ARI Directory. (See Market and Technology
Assessment (Chapter 3, section 3.7.3) of the ANOPR TSD.)
3. Equipment Shipments
The Department extracted and documented information related to
equipment shipments by domestic manufacturers from U.S. Census Bureau
Current Industrial Reports. The United States (U.S.) Census Bureau data
expresses cooling capacity ranges in a slightly different way from the
DOE rulemaking equipment classifications. The major classifications
presented in the U.S. Census Bureau data for single and split system
air conditioners are for cooling capacity ratings 65,000 Btu/h to
134,999 Btu/h and 135,000 Btu/h to 249,999 Btu/h. (See U.S. Census
Bureau Current Industrial Report for ``Refrigeration, Air Conditioning,
and Warm Air Heating Equipment: 2001,'' (MA333M(01)-1), at http://www.census.gov/industry/1/ma333m01.pdf.) For heat pumps, the U.S.
Census Bureau data list shipments for capacities rated greater than
65,000 Btu/h. In section II.G below, ``National Impact Analysis,'' the
Department used the shipments data in its development of a Shipments
Model for forecasting future equipment shipments.
B. Screening Analysis
This section describes the technology/design options and a process
for screening these options as part of the DOE rulemaking. Screening
eliminates certain design options from further consideration in the
engineering analysis phase of the rule development. The Process Rule
established four factors DOE uses for screening design options: (1)
Technological feasibility; (2) practicability to manufacture, install,
and service; (3) adverse impacts on equipment utility or equipment
availability; and (4) adverse impacts on health and/or safety. 10 CFR
Part 430, subpart C, Appendix A, under paragraph 5(b). In view of these
factors, the technology/design options DOE considered as part of this
rulemaking fall into two categories based on their development status
and on their impacts on EER: emerging technologies that can enhance EER
and commercial technologies that can enhance EER. For more detail on
how the Department developed the technology options and the process for
screening these options, refer to the technology and screening section
(Chapter 4) of the ANOPR TSD.
First, the Department considered emerging technologies that
encompass design options currently not available on the commercial
market but that are being examined in the laboratory as possible means
to enhance efficiency. These are:
Electro-hydrodynamic enhanced heat transfer;
Copper rotor motor with improved efficiency; and
Non-hydrofluorocarbon/hydrochlorofluorocarbon (HFC/HCFC)
refrigerants (e.g., ammonia, hydrocarbons, carbon dioxide).
Second, the Department considered commercial technologies that are
currently available for unitary air conditioners or similar equipment,
and which have an impact on the EER (nominal full-load) rating under
DOE's test conditions. These are:
Evaporator coil area (keeping the number of coil rows the
same);
Condenser coil area (keeping the number of coil rows the
same);
Coil rows (keeping face area the same);
Condenser fan diameters;
Evaporator fan diameters;
Air leakage paths within unit;
Coil rows (keeping coil heat transfer performance the
same);
Microchannel heat exchangers;
Deep coil heat exchangers;
Low-pressure-loss filters;
High efficiency fan motors;
High efficiency compressors;
Air foil centrifugal fans;
Backward-curved centrifugal fans;
Synchronous (toothed) belts;
Direct-drive fans; and
High efficiency propeller condenser fans.
Several of these technologies have penetrated the commercial
equipment market and raised the available EER range. Because the EPCA
energy descriptor for commercial unitary air conditioners and air
source heat pumps is an EER, only those design options that improve the
EER (nominal full-load) rating under DOE's test procedures were viable
for consideration in the engineering analysis. DOE addresses matters
with respect to other technologies that can improve the net annual
energy performance of a system, but which generally reduce or have no
effect on EER, as Issue 18 under ``Issues on Which DOE Seeks Comment''
in section IV.E of this ANOPR.
C. Engineering Analysis
The engineering analysis establishes the relationship between the
cost and efficiency of commercial unitary air conditioners and heat
pumps. This relationship serves as the basis for cost/benefit
calculations in terms of individual consumers, manufacturers, and the
Nation. The engineering analysis identifies the representative baseline
equipment (using R-22 as the refrigerant), develops the bill of
materials and determines the costs, constructs the industry cost/
efficiency curves, and evaluates the impact of using an alternative to
R-22 refrigerant on the cost/efficiency relationship of certain
commercial air conditioners and heat pumps. The R-22 refrigerant is in
current use and will phase out of new equipment in 2010 in compliance
with the Environmental Protection Agency's (EPA's) requirements under
the Clean Air Act of 1990, as amended (42 U.S.C. 7401 et seq.).
1. Baseline Equipment
As discussed above, the engineering analysis considered only single
package commercial unitary air conditioning equipment with gas heat in
the estimate of the cost/efficiency relationship for the equipment
classes under consideration. The Department analyzed single package
commercial unitary air conditioning equipment with gas heat rather than
single package units with electric heat or no heating section, because
the gas heat units represent about 77 percent of the air conditioners
covered in this rulemaking. (See the Market and Technology Assessment,
section 3.6.1 of the ANOPR TSD, that provides information on historical
shipments and efficiencies.) Although the Department did not explicitly
analyze split air conditioning systems in the engineering analysis, the
Department believes that the results of the unitary air conditioning
equipment analysis apply to the split systems and that both unitary and
split systems have equivalent cost/efficiency relationships. (See the
engineering analysis, section 5.2 of the ANOPR TSD.) The Department
discussed this approach during the initial interviews with
manufacturers, and it is consistent with the ASHRAE methodology used to
set the ASHRAE/IESNA Standard 90.1-1999.
The Department proposes to address the energy efficiency of
commercial unitary heat pump equipment in a way that is consistent with
the ASHRAE methodology used to set the ASHRAE/IESNA Standard 90.1-1999
levels for unitary air conditioning systems with heat pump heating,
rather than conduct an explicit analysis of the unitary and split heat
pump systems. According to Census Bureau data, commercial unitary
[[Page 45468]]
heat pumps with a capacity greater than 65,000 Btu/h represent about 10
percent of products covered under this rulemaking. Although the census
data do not specify the quantity, the Department believes that most of
these units have less cooling capacity and are within the 65,000 Btu/h
to 135,000 Btu/h size range. (See the Market and Technology Assessment,
section 3.6.1 of the ANOPR TSD, that provides information on historical
shipments and efficiencies.) Under the ASHRAE process, the ASHRAE 90.1
committee worked with ARI to develop new efficiency levels for
inclusion in ASHRAE/IESNA Standard 90.1-1999. For heat pumps in these
capacity ranges, ARI supplied the ASHRAE 90.1 committee with curves
relating the COP as a function of EER. The committee then set the
minimum COP levels based on EER. The Department used a similar process
in the residential central air conditioner and heat pump rulemaking,
where it established minimum Heating Seasonal Performance Factors
(HSPF) for heat pumps using functions relating the HSPF to the Seasonal
Energy Efficiency Ratio (SEER). The Department intends to do the same
for the NOPR analysis for commercial unitary air conditioning and heat
pump equipment.
For more detail on baseline equipment, refer to the engineering
analysis, section 5.3 of the ANOPR TSD. The Department requests
comments from interested parties about this proposed approach to the
engineering analysis, and has identified it as Issue 1 under ``Issues
on Which DOE Seeks Comment'' in section IV.E. of this ANOPR.
Identification of the baseline for commercial unitary air
conditioning equipment requires both establishing a baseline efficiency
level and selecting a size typical of that equipment to represent the
different capacity ranges of commercial, unitary, air conditioning
equipment classes: [gteqt]65,000 Btu/h to <135,000 Btu/h; and
[gteqt]135,000 Btu/h to <240,000 Btu/h.
a. Efficiency Level
As described above, the Department selected ASHRAE/IESNA Standard
90.1-1999 for the baseline efficiency levels both for [gteqt]65,000
Btu/h to <135,000 Btu/h and [gteqt]135,000 Btu/h to <240,000 Btu/h
classes of commercial unitary air conditioning equipment. To aid in
analyzing the economic impact of increasing standard levels, DOE
examined the costs associated with moving from EPCA levels to the
ASHRAE Standard 90.1-1999 levels. Additionally, to provide a reasonable
span of efficiency levels to evaluate, DOE limited the efficiency
levels under consideration to those that are commercially available.
In some cases, manufacturers' product lines span efficiency ranges
from levels below the baseline to levels above the baseline. To
properly assess the incremental cost of increasing the efficiency level
beyond the baseline level, DOE evaluated the manufacturing costs of the
equipment with efficiency levels below the baseline and included these
data in the industry cost/efficiency curves. The Department determined
the manufacturing costs of this lower efficiency equipment in the same
way as it did for the equipment above the baseline efficiency level.
For more detail on efficiency levels, refer to the discussion of
efficiency levels in section 5.3.1 of the ANOPR TSD.
b. Maximum Technologically Feasible Design
In previous rulemakings, the Department relied on the maximum
technologically feasible design to define the highest level of energy
efficiency it would evaluate. The maximum energy efficiency level that
is technologically feasible is often referred to as ``max tech.''
Technological feasibility requires that a system be not only
theoretically possible, but also capable of being designed,
constructed, and operated. At the time the engineering analysis was
conducted, the highest efficiency level for commercial unitary air
conditioners in the [gteqt]65,000 Btu/h to <240,000 Btu/h range
available on the market was 11.5 EER. The engineering analysis used
reverse engineering on this existing equipment to develop a cost-
efficiency curve up to 11.5 EER. Extending the curve beyond 11.5 EER
required extrapolation and then verification using design-option
analysis modeling. The Department's modeling indicated that with some
additional conventional-type design modifications, such as increases to
the size of heat exchangers and modification of the airflow paths (both
of which may need new and larger cabinets), the highest practical
efficiency level was about 12.0 EER. To limit uncertainty associated
with the extrapolated curve beyond 11.5 EER, the maximum efficiency
level that DOE evaluated in the engineering analysis was 12.0 EER. The
Department verified the extrapolated cost-efficiency curve using
design-option modeling between 11.5 and 12.0 EER. Beyond the 12.0 EER
level, the Department would need to consider technologies that are not
currently available or non-conventional technologies that are not
typically in use by the industry.
The Department seeks comments on commercial unitary air-
conditioning equipment designs that are currently used in the
engineering analysis. The Department will review public comments after
the ANOPR meeting and during the NOPR phase of the rulemaking to
further evaluate design options, including the following, which could
achieve higher technologically feasible efficiency levels.
Larger heat transfer surface area for the tube and fin
condensers accomplished by increasing the number of rows or by
increasing the face area of the condenser (or some combination of
both), while limiting the minimum condensing temperature to 110 [deg]F
with 10 [deg]F of subcooling capability.
Larger heat transfer surface area for the tube and fin
evaporators accomplished by increasing the number of rows or by
increasing the face area of the evaporator (or some combination of
both), but limiting the maximum evaporating temperature to 52 [deg]F
and the sensible heat ratio to 0.75.
Use of premium efficiency motors with compressors,
condenser fans, and evaporator blowers.
Use of larger diameter airfoil or backward-curved blade
blowers for evaporators.
Use of larger diameter airfoil fans for condensers.
Since the time the engineering analysis was completed in late 2002,
several new commercial unitary air conditioners, with rated efficiency
levels greater that 12.0 EER, have become available on the market. The
Department requests comments from stakeholders on any commercial
unitary air conditioners with rated efficiency levels above 12.0 EER.
This is identified as Issue 4 under ``Issues on Which DOE Seeks
Comment'' in section IV.E of this ANOPR.
c. Representative Capacities
After reviewing the available single package equipment and
interviewing four major commercial air-conditioning equipment
manufacturers and two niche manufacturers, the Department set the
representative capacity (i.e., the equipment capacity to be analyzed in
detail for this capacity range) for the [gteqt]65,000 to <135,000 Btu/h
capacity range at 7.5 tons and the representative capacity of the
[gteqt]135,000 to <240,000 Btu/h capacity range at 15 tons. An air
conditioning ton is equivalent to 12,000 Btu/h of cooling capacity.
Also, for consistency with the ASHRAE standards development process,
DOE chose the same equipment capacities of 7.5 tons and 15 tons to
represent these commercial unitary air conditioning
[[Page 45469]]
equipment classes. These nominal capacities represent units which,
according to the industry, are volume shipment points in the capacity
range. Because manufacturers do not necessarily manufacture commercial
unitary air conditioning equipment with the exact capacity of these
units (90,000 Btu/h and 180,000 Btu/h), the Department uses the
industry standard terminology of nominal ``tons'' for consistency with
the current equipment catalogs.
Similarly, during the development of the ASHRAE 90.1-1999 standard,
ASHRAE chose the 7.5- and 15-ton capacities as representative
capacities for its analysis. In addition, these capacities fall close
to the middle of the capacity range. For some manufacturers, these
sizes represent their optimum design, i.e., where they have optimized
the ratio of cooling capacity to manufacturing cost. Increasing the
efficiency of these models would generally be very difficult and
expensive because the manufacturers have packed as much component
equipment as possible into the smallest possible cabinet size. On the
other hand, some manufacturers may have optimized their equipment at a
higher capacity and, therefore, may initially use a larger cabinet for
the evaluated equipment. Increasing the efficiency of this equipment
would be less expensive because there intrinsically is more room in the
cabinet to increase coil size and add other types of energy-saving
devices without moving to the next larger cabinet.
After DOE reviewed available products in each equipment class and
interviewed several manufacturers, it found that a majority of the
manufacturers who were interviewed agreed that the 7.5-ton and 15-ton
capacities adequately represent the [gteqt]65,000 to <135,000 Btu/h and
[gteqt]135,000 to <240,000 Btu/h equipment classes, respectively, and
the wide array of design constraints. Lennox, however, suggested that
10-ton and 20-ton units would provide a better representation of the
baseline, because larger capacity units are generally the hardest to
upgrade and are, therefore, the units that would force design changes
in a specific line of commercial unitary air-conditioning equipment.
Also, Lennox stated that 7.5-ton units are generally built off of 10-
ton cabinets and 15-ton units are generally built off of 20-ton
cabinets. (Public Workshop Tr., No. 2EE at pp. 87 and 88)
The Department believes that the 7.5-ton and 15-ton capacities are
appropriate for the following reasons: (1) They are near the middle of
the capacity range; (2) a majority of the manufacturers interviewed
agreed that these capacities adequately represented the equipment
classes; (3) they are consistent with the capacities chosen for the
ASHRAE standards development process; and (4) these capacities
represent both equipment that was cost-optimized (cabinet-size
constrained), as well as equipment that was not constrained within the
cabinet, to account for variations among manufacturers. In addition,
data regarding commercial unitary air-conditioning system shipments by
capacity, while not precise, suggest that shipments of 7.5-ton and 15-
ton units are significantly higher than those of 10- and 20-ton
systems, respectively. Therefore, it is more appropriate to select 7.5-
and 15-ton units as representative capacities for their respective
capacity ranges. Finally, the Department reviewed cabinet sizes and
capacities for commercial unitary air conditioners and found a wide
variation of cabinet sizes, and an equally wide variation of
corresponding capacities within each cabinet size. Many 7.5-ton units
are built off of 7.5-, 8.5-, 10-, 12-, and 12.5-ton cabinet sizes; and
many 15-ton units are built off of 15-, 20-, and 25-ton cabinet sizes.
Therefore, using 7.5- and 15-ton capacity sizes for several different
manufacturers and aggregating the results will capture the diversity of
cabinet sizes and space constraints for the industry. The Department
will consider manufacturer-specific cabinet sizes and conversion costs
when it conducts the MIA. For more detail on representative capacities,
refer to the Engineering Analysis, section 5.3.2 of the ANOPR TSD.
2. Methodology
At the October 1, 2001, Framework Workshop, the Department
solicited stakeholder comments on the most appropriate approach for the
engineering analysis. However, there was no clear consensus among the
respondents for a particular approach. The Northwest Power Planning
Council (NWPPC) expressed the view that transparency should be the
primary criterion for selecting one approach or another. (Public
Workshop Tr., No. 2EE at p. 132) The Natural Resources Defense Council
also commented on the need for a transparent approach. (NRDC, No. 6 at
p. 6)
The ACEEE and NRDC commented that DOE should not use the
efficiency-level approach because of concerns about the lack of
transparency of data and the accuracy of cost estimates that could
result from this approach. (ACEEE, No. 10 at p. 4; NRDC, No. 6 at p. 4)
The ACEEE commented that developing estimates of uncertainty, i.e.,
confidence intervals, for manufacturing cost estimates is irrelevant in
the case of an efficiency-level analysis, due to the inability to
validate the accuracy of those costs. It also noted that the
incremental values ARI provided in the past were much greater than
those the Northeast Energy Efficiency Partnerships (NEEP) and the
Consortium for Energy Efficiency (CEE) found empirically. (ACEEE, No.
10 at pp. 8-10)
On a related issue, ACEEE, ASE, and NRDC argued that the Department
should not use cost data that represent the 90th percentile of
equipment cost used during the development of the ASHRAE/IESNA Standard
90.1-1999, because these costs are not representative of most equipment
and would bias any life-cycle cost analysis away from higher standards.
(ACEEE, No. 10 at p. 6; ASE, No. 9 at p. 2; NRDC, No. 6 at pp. 4-7) The
NRDC further criticized the 90th percentile approach because it used
the costs of the most expensive manufacturer, those costs could not be
verified independently, and one erroneous data point could skew the
cost data. Instead, NRDC recommended using third-party cost estimates
and presenting them to the public for evaluation, even though NRDC
believed that third-party estimates tended to be high because of the
difficulty associated with anticipating innovation. (NRDC, No. 6 at p.
7) The ACEEE also noted that ``revealed costs,'' i.e., the cost
differential between high and low efficiency equipment in regions where
high efficiency units have appreciable sales volumes, can provide
insight into cost differentials. (Public Workshop Tr., No. 2EE at p.
65) Along these lines, NEEP submitted equipment incremental cost data
related to the CEE efficiency levels. (NEEP, No. 8 at p. 3) The
Alliance to Save Energy recommended applying reverse engineering
analysis, particularly teardowns, to estimate future costs of different
efficiency levels and supplementing this information with cost data
obtained from market surveys performed in regions where products at
higher efficiency levels have higher market shares. (ASE, No. 9 at p.
3)
As a result of the above comments from stakeholders, the Department
used a cost assessment approach and supplemented the data with a design
option analysis to develop incremental cost/efficiency curves for the
two representative capacities described above. The reverse engineering
analysis relied on creating bills of materials
[[Page 45470]]
(BOMs) for a sample of existing equipment that uses R-22 refrigerant.
The Department developed the BOMs through the reverse engineering of
either physical teardowns or catalog teardowns. The Department then
entered the BOMs into a cost model and used that model to estimate the
manufactured cost for each piece of equipment. The Department then
aggregated the costs of the equipment and their associated efficiencies
and fit them to a curve to represent the cost/efficiency behavior of
the industry. In addition, the Department derived confidence intervals
that described the accuracy of the curve, based on the variability of
the estimated manufacturer costs. The Department then used the design
option analysis to validate the accuracy of the curve between 11.5 and
12.0 EER, where there are no existing equipment data points, by using
the cost model and a performance model to simulate equipment at higher
efficiency levels. The last step in the process--the alternative
refrigerant analysis--compared the cost/efficiency behavior of R-410a
products to the R-22 cost/efficiency curve by using the cost model and
the performance model to simulate R-410a products. For more detail on
the Department's methodology, refer to the Engineering Analysis,
section 5.4 of the ANOPR TSD.
3. Cost Assessment Approach
The use of the cost assessment (reverse engineering) approach
provides useful information, including the identification of potential
technology paths manufacturers use to increase efficiency. Under this
type of analysis, the Department physically analyzes actual equipment
on the market (i.e., dismantles them component-by-component) or
generates BOMs from publicly available manufacturer catalogs and
specifications. This enables the Department to determine what
technologies and designs manufacturers employ to increase efficiency.
The Department then uses independent costing methods or manufacturer
and component supplier data to estimate the costs of the components.
This approach has the distinct advantage of using ``real'' market
equipment to ascertain the technologies that manufacturers use as the
bases for estimating the costs of reaching higher efficiencies.
The primary disadvantage of reverse engineering is the time and
effort required to analyze the existing equipment. The Department needs
several models of commercial unitary air conditioning equipment from
various manufacturers to ensure that it identifies a broad
representation of technological paths for increasing efficiency. In
addition, because the Department only analyzes equipment in the market,
the analysis might not capture prototypical designs, thus making it
difficult to establish the maximum technologically feasible designs.
Therefore, the Department has supplemented the reverse engineering
process with a design option analysis that considers the technologies
required to increase efficiency beyond what is currently available.
a. Teardown Analysis
The Department used a teardown analysis (or physical teardown) to
determine the production cost of a piece of equipment by disassembling
the equipment ``piece-by-piece'' and estimating the material and labor
cost of each component. A supplementary method called a catalog
teardown uses published manufacturer catalogs and supplementary
component data to estimate the major physical differences between a
piece of equipment that has been physically disassembled and another
piece of similar equipment. The teardown analysis that DOE performed
for the engineering analysis includes four physical teardowns and 14
catalog teardowns, for a total of 18 equipment teardowns. Tables II.1
and II.2 show the distribution of equipment teardown analyses that DOE
performed for the 7.5-ton and 15-ton commercial unitary air
conditioning equipment. The Department selected the equipment to
provide a full range of efficiency levels and included equipment from
similar product lines that had both higher and lower energy efficiency
ratings. For more detail on the teardown analysis, refer to the
Engineering Analysis, section 5.5 of the ANOPR TSD.
Table II.1.--Number of Commercial Unitary Air Conditioners Selected for Teardown Analysis in the >=65,000 Btu/h to <135,000 Btu/h Equipment Class
--------------------------------------------------------------------------------------------------------------------------------------------------------
EER Range 8.6-9.0 9.1-9.5 9.6-10.0 10.1-10.5 10.6-11.0 11.1-11.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment, Physical Teardown............................ 0 0 0 1 1 0
Equipment, Catalog Teardown............................. 2 0 0 2 0 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table II.2.--Number of Commercial Unitary Air Conditioners Selected for Teardown Analysis in the >=135,000 Btu/h to <240,000 Btu/h Equipment Class
--------------------------------------------------------------------------------------------------------------------------------------------------------
EER Range 8.6-9.0 9.1-9.5 9.6-10.0 10.1-10.5 10.6-11.0 11.1-11.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment, Physical Teardown............................ 0 0 1 0 0 1
Equipment, Catalog Teardown............................. 1 3 0 1 0 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
b. Cost Model
The cost model analysis created cost estimates for each of the 18
commercial unitary air conditioners, including all direct manufacturing
costs and a manufacturer's markup, which covers corporate overhead
expenses. This is the price at which DOE estimates a manufacturer sells
the equipment to distributors, resellers, and similar parties; it is
not the final cost to the end-user because it does not include the
distribution markups and contractor installation costs.
In converting physical information about the equipment into cost
information, the Department reconstructed manufacturing processes for
each component, using internal expertise and knowledge of the methods
used by the industry. The Department used assumptions regarding the
manufacturing process parameters, e.g., equipment use, labor rates,
tooling depreciation, and cost of purchased raw materials, to determine
the value of each component. It then summed the values of the
components into assembly costs and, finally, the total equipment cost.
The equipment cost includes the
[[Page 45471]]
material, labor, and overhead costs associated with the manufacturing
facility. The material costs include both direct and indirect
materials. The labor rates include fabrication, assembly, and indirect
and overhead (burdened) labor rates. The overhead costs include
equipment depreciation, tooling depreciation, building depreciation,
utilities, equipment maintenance, and rework. The Department also
applied a manufacturer markup of 1.23 to the equipment cost to arrive
at a final manufacturer cost. The markup accounts for the corporate
overhead that DOE believes to include sales and general administration,
research and development, and profit.
Both ACEEE and NRDC commented that the actual, retrospective cost
of compliance with appliance energy efficiency standards has been
substantially less than forecast by industry, and suggested analyzing
earlier cost-impact data to derive an appropriate discount for current
cost projections. (ACEEE, No. 10 at p. 9; Public Workshop Tr., No. 2EE
at p. 65; NRDC, No. 6 at p. 7) In response, Trane commented that
although actual future equipment costs may or may not have approached
predicted future equipment costs, these changes in costs reflect
improvements in manufacturing efficiency and, because they apply to all
equipment, do not necessarily result in a change in the marginal cost
between equipment. ( Public Workshop Tr., No. 2EE at pp. 65-66) Lennox
commented on the importance of understanding costs for both standard
equipment and custom-built equipment because they have different cost
structures. (Lennox, No. 7 at p. 7) Lastly, NWPPC commented that the
cost basis for equipment meeting the ASHRAE Standard 90.1-1999 levels
should not include retooling costs because manufacturers already have
had to retool to manufacture equipment satisfying this level. (Public
Workshop Tr., No. 2EE at p. 132)
The Department acknowledges that manufacturing efficiency evolves
over time, but notes that earlier trends do not necessarily reflect
future trends and that the incremental cost impact is the cost metric
for evaluating appliance energy efficiency standards via LCC analysis.
Thus, the Department believes that thorough and rigorous manufacturing
cost analysis based on actual equipment at all efficiency levels
represents the most effective and appropriate way to estimate current
and near term incremental manufacturing costs.
After deriving production cost estimates from the reverse
engineering analysis, the Department solicited detailed feedback on the
cost estimates from specific manufacturers of individual products. The
industry feedback resulted in revisions to the reverse engineering
production costs of specific components including: Controls equipment,
materials (sheet metal, refrigerant), labor, and buildings/capital. For
more detail on how the Department developed the manufacturing costs,
refer to the engineering analysis section (Chapter 5) of the ANOPR TSD.
Regarding the manufacturer markup, ARI believes that a value of
1.23 is not representative of what industry uses. Specifically, a value
of 1.23 does not produce an acceptable financial return on investment,
i.e., it underestimates manufacturers' operating expenses and
profitability. (ARI, No. 14 at p. 1)
The Department included the following expenses in the determination
of the manufacturer markup: Research and development, net profit,
general and administrative expenses, warranty expenses, taxes, and
sales and marketing. The Department based the value of 1.23 on its
analysis of industry corporate financial records and excluded shipping
expenses (out-bound) because these expenses were included in the
equipment cost. The Department determined research and development
expenses by assuming reallocation of engineering budgets from value-
engineering and new-feature development to product development and
redesign. The incremental cost of the equipment captures additional
capital outlays and re-tooling investments. For more detail on how the
Department developed the cost model, refer to the Engineering Analysis,
section 5.6 of the ANOPR TSD.
c. Cost/Efficiency Curves
Creating the cost/efficiency curves involved a three-step process:
Plotting raw data points as cost versus efficiency, normalizing the
cost data to go from absolute costs to incremental costs, and using a
linear regression analysis using the least-squares fitting technique to
determine the empirical equation and corresponding 95 percent
confidence interval that best defines the normalized data. This process
gives industry average cost/efficiency curves with a predicted range of
accuracy.
The Department refers to the manufacturer cost--what the cost model
directly provides as output--as the ``absolute cost'' in this section.
The Department correlated the absolute costs from the model as a
function of each commercial unitary air conditioner's rated EER. Each
manufacturer publishes the rated EER of its air conditioners according
to ARI specifications. The resulting two curves of absolute cost versus
efficiency--one for the >=65,000 Btu/h to <135,000 Btu/h equipment
class and one for the >=135,000 Btu/h to <240,000 Btu/h equipment
class--each has nine data points.
The absolute costs, represented as output by the cost model, are
not central to the rulemaking process and DOE does not present them in
this document (nor in the TSD) to avoid the possibility of exposing
sensitive information about individual manufacturers' equipment.
Different manufacturers might have substantially different costs for
their equipment at the same efficiency level, but this fact on its own
does not provide the required insight. To determine the relationship of
incremental cost versus EER for each of the 18 teardown commercial
unitary air conditioners, DOE normalized the absolute cost data for
every manufacturer. That is, DOE adjusted the costs of every
manufacturer's equipment so that the cost of its equipment was zero at
the baseline ASHRAE/IESNA Standard 90.1-1999 EER levels (10.1 EER for
the >=65,000 Btu/h to <135,000 Btu/h equipment class and 9.5 EER for
the >=135,000 Btu/h to <240,000 Btu/h equipment class). To do this, DOE
first fit an exponential curve to each manufacturer's data points
separately. Then, DOE shifted each curve until the incremental cost
equaled zero at the baseline efficiency. The Department shifted all
data points for a given manufacturer by the same amount as the entire
curve, so that the resulting data points represent incremental cost
versus EER. The Department then discarded individual manufacturer
curve-fits and continued the analysis with the normalized cost data
points. The engineering analysis section (Chapter 5) of the ANOPR TSD
provides more explanation and details of the normalization process.
After establishing the normalized data points, the Department used
a least-squares regression analysis to fit curves to the data and
established two cost/efficiency curves--one for each equipment class--
that represent the average incremental cost of increasing efficiency
above the ASHRAE/IESNA Standard 90.1-1999 levels. The curves do not
represent any single manufacturer, nor do they describe any variance
among manufacturers. The curves simply represent the industry's cost to
increase the efficiency of the equipment.
The Department also produced confidence intervals from the
regression analysis which describe the accuracy of the cost/efficiency
curves representing the mean value of the industry. The
[[Page 45472]]
Department selected a confidence interval of 95 percent to define the
probability that the actual industry average is within these bounds.
The LCC analysis (see section II.F of this ANOPR) uses the cost/
efficiency curves and confidence intervals to compute the mean,
minimum, and maximum cost cases.
At the time the engineering analysis was conducted, the highest
efficiency level available in the equipment's representative capacities
was 11.5 EER. Because the engineering analysis relies on reverse
engineering of existing equipment, extending the curve beyond 11.5 EER
required extrapolation and then verification using design/option
analysis. To limit the uncertainty associated with the part of the
curve that was extrapolated, the maximum efficiency level that DOE
evaluated was 12.0 EER.
Tables II.3 and II.4 show the incremental manufacturer costs and
confidence intervals for the systems with cooling capacities of about
7.5 and 15 tons.
Table II.3.--The >=65,000 Btu/h to <135,000 Btu/h (7.5-ton) Equipment
Class Incremental Cost/Efficiency Relationship and 95 Percent Confidence
Interval
------------------------------------------------------------------------
95%
Incremental Confidence
EER cost interval
[]
------------------------------------------------------------------------
10.1.................................... $0 $0
10.5.................................... 47 14
11.0.................................... 139 41
11.5.................................... 292 85
12.0.................................... 543 159
------------------------------------------------------------------------
Table II.4--The >=135,000 Btu/h to <240,000 Btu/h (15-ton) Equipment
Class Incremental Cost/Efficiency Relationship and 95 Percent Confidence
Interval
------------------------------------------------------------------------
95%
Incremental Confidence
EER cost interval
[]
------------------------------------------------------------------------
9.5..................................... $0 $0
10.0.................................... 62 35
10.5.................................... 165 94
11.0.................................... 334 191
11.5.................................... 613 351
12.0.................................... 1,072 615
------------------------------------------------------------------------
For more detail on how the Department developed the industry cost
efficiency curves, refer to the engineering analysis, section 5.7 of
the ANOPR TSD.
4. Supplemental Design Option Analysis
The Department used the design option approach to validate the
accuracy of the cost efficiency curves at efficiency levels between
11.5 and 12.0 EER. As noted earlier, DOE did not evaluate any existing
equipment in that EER range during the teardown analysis, so there were
no data points available for the curve-fit. Therefore, DOE did not know
the level of accuracy of the cost/efficiency curves in this range. The
design option analysis simulates equipment with efficiency levels above
11.5 EER to compare their costs with the costs that the extrapolated
curve predicts.
The Department received comments from ACEEE and Trane about using
the design option approach. The ACEEE recommended using the design
option approach because it can consider technologies with limited
market share and take into account their cost impact at higher
production volumes. (ACEEE, No. 10 at p. 4; Public Workshop Tr., No.
2EE at p. 136) At the Framework Workshop, Trane commented that all
design options the Department considered were mature technologies'at
least 20 years old'and that the pricing for the options also is mature.
Consequently, development of costs for mature technologies should be
straightforward. (Public Workshop Tr., No. 2EE at pp. 133-34)
For the equipment simulation, DOE used a combination of modeling
tools and techniques. For more detail on the Department's approach to
the design option analysis and equipment simulation, refer to the
engineering analysis, section 5.8 of the ANOPR TSD. The Department
performed the refrigerant-side heat-transfer and balance calculations
with a simulation model called the Oak Ridge National Laboratory (ORNL)
Heat Pump Design Model using compressor map data from commercially
available compressors. A custom heat-exchanger software program
provided estimates of the air-side heat transfer and pressure-drops
associated with the equipment variations. The Department used a
combination of manufacturer data, test data, fan curves, and motor
curves to determine fan power and airflow.
To validate the accuracy of the simulations, the Department
simulated the performance of the four existing, physically torn down,
unitary air conditioners. In addition, DOE had a third-party testing
laboratory test and measure the specific performance limits of one of
the air conditioners. The Department then used the test data generated
from the tests to calibrate the performance model.
After constructing and calibrating the performance model, DOE
analyzed various combinations of design options to simulate equipment
with increased efficiencies. Then, through discussions with
manufacturers and reliance on sound engineering judgment, the
Department established guidelines to limit the design option
simulations.
The Department requests stakeholder comments regarding its design
option analysis. This concern is identified as Issue 4 under ``Issues
on Which DOE Seeks Comment'' in section IV.E. of this ANOPR.
5. Alternative Refrigerant Analysis
The ACEEE, ARI, and Lennox noted that the engineering analysis
should consider alternative refrigerants because R-22 refrigerant will
phaseout in 2010 in compliance with EPA requirements and this will
affect equipment component costs. (ACEEE, No. 10 at pp. 9-10; ARI, No.
11 at p. 4; Lennox, No. 7 at p. 1) Both ARI and Lennox stated that
significant uncertainty exists concerning what refrigerant will be the
likely replacement for R-22 in commercial unitary air conditioner and
heat pump equipment, thereby complicating analyses. (ARI, No. 11 at p.
4; Lennox, No. 7 at p. 1) During the October 1, 2001, Framework
Workshop, Trane commented that alternative refrigerants can behave
differently than R-22 at higher temperatures. (Public Workshop Tr., No.
2EE at p. 160) The ACEEE commented that DOE should base the cost impact
of alternative refrigerants on a least-cost strategy incorporating
efficiency and refrigerant re-designs in a single design cycle, along
with changes in assembly processes. (ACEEE, No. 10 at p. 9)
The Department acknowledges that the phaseout of R-22 will occur
shortly after the effective date of any new standards and therefore it
is important to consider the impact of new refrigerants on incremental
cost/efficiency relationships. In addition, the Department recognizes
that it is not certain that R-410a will be the ultimate replacement for
R-22 in future unitary air conditioner and heat pump equipment. Two
refrigerants, R-410a and R-407c, are currently under serious
consideration as substitutes for R-22. While R-407c has similar
pressure/temperature characteristics as R-22 and thus easily adapts to
existing R-22 designs, it is less efficient. By contrast, R-410a
operates at higher pressures than R-22, thus requiring redesign of R-22
equipment. However, R-410a offers efficiency benefits relative to R-
407c.
[[Page 45473]]
During the rulemaking process, the Department contacted manufacturers
and the consensus was that R-410a would be the most likely replacement
for R-22 in new commercial unitary equipment as the phaseout of R-22
approaches.
Although some unitary air conditioners using R-410a are
commercially available, none were available in the >=65,000 Btu/h to
<240,000 Btu/h range when the engineering analysis was conducted.
However, since the analysis was conducted, the Department has learned
that there is one R-410a commercial unitary air conditioner now
available on the market in the 15-ton representative capacity. Most air
conditioners that use R-410a are sold primarily for residential
applications. Consequently, the Department's analysis compared the
design differences between R-22 and R-410a equipment in smaller
packaged units (i.e., <65,000 Btu/h units) to gain general engineering
insight. In addition, the Department used performance information from
manufacturers of R-410a compressors to develop engineering models of
the larger R-410a systems.
The Department carried out preliminary performance analyses to
simulate R-410a equipment using the same performance models applied to
the R-22 equipment, and calculated the R-410a equipment costs using the
same cost model applied to the R-22 equipment. The engineering analysis
section (Chapter 5) of the ANOPR TSD presents additional details of the
R-410a analyses. The Department generated cost/efficiency curves that
represented the R-410a equipment using the performance analysis and
estimated equipment costs.
The Department realizes that the absolute costs of R-410a equipment
differ from those of the R-22 equipment. However, the analysis focuses
on the difference in the incremental costs between the two curves. The
Department intends to consider the absolute costs of the R-22 phaseout
in the manufacturer impact analysis. The alternative refrigerant
analysis provided no evidence to suggest that the incremental cost/
efficiency behavior of R-410a equipment in the >=65,000 Btu/h to
<135,000 Btu/h and >=135,000 Btu/h to <240,000 Btu/h equipment classes
differs substantially from the R-22 cost/efficiency behavior. For more
detail on the alternative refrigerant analysis, refer to the
engineering analysis, section 5.9 of the ANOPR TSD.
The Department requests comments from interested parties about its
proposed approach to the alternative refrigerant analysis, and has
identified it as Issue 2 under ``Issues on Which DOE Seeks Comment'' in
section IV.E. of this ANOPR.
D. Building Energy Use and End-Use Load Characterization
Energy savings from commercial unitary air conditioning equipment
vary according to the rated efficiency level of the equipment and a
number of other factors, including: Climate, building-type, and
building occupation schedule and use. Operating cost savings are a
result of reduced electricity consumption and a decrease in the peak
electric demand charge. The Department conducted building simulations
to estimate the energy use of the commercial unitary air conditioning
equipment at candidate standard levels for various combinations of the
above-mentioned factors. The simulations yielded hourly estimates of
the buildings' electric loads that included lighting, plug, and air
conditioning equipment. The Department uses these estimates in the
life-cycle cost analysis to assess the cost savings that the air
conditioning equipment provides at each of the efficiency levels
analyzed. For more detail on the building energy use and end-use load
characterization analysis, refer to Chapter 6 of the ANOPR TSD.
1. Approach
The 1995 CBECS (CBECS 95) data set was the primary source of the
data used to develop the building characteristics. The Department
considered the use of the 1999 CBECS (CBECS 99), but the entire
microdata set was not available in time for this analysis. In addition,
the sampling procedure for CBECS 99 specifically excluded new buildings
of less than 10,000 square feet, which is the type of building that
uses commercial unitary air conditioners. Using the CBECS 99 data would
have resulted in a biased data set. The Department used a subset of the
CBECS 95 representative building types to characterize the energy use
and loads for this analysis. It selected six building types that
included most of the top eight, energy-using building types in the
commercial sector based on CBECS data.
The Department did not explicitly include health care buildings.
Instead, because of similarities in modeling the outpatient segment of
a health care building and an office building, the Department added the
outpatient segment of a health care building into the office-building
category. However, the Department did not include the inpatient segment
of the health care building type, because there are insufficient data
to characterize the buildings for the purpose of energy simulations.
The Department did not consider the lodging building type because the
number of observations nationwide in the CBECS data set was small and
because these buildings do not typically use unitary packaged air
conditioning equipment for most of their conditioned spaces. For more
details on the engineering approach to building energy use,
representative building types, modeling methodology, climate and
building locations, and annual building energy use, refer to Chapter 6
of the ANOPR TSD.
Lennox provided comments indicating that industrial and light
manufacturing applications use a large fraction of unitary equipment,
which the DOE omitted from the building sample. (Lennox, No. 15 at p.
1) The CBECS data set excludes manufacturing facilities from its
sample. The Manufacturing Energy Consumption Survey (MECS) includes
manufacturing facilities, but the detailed data on building
characteristics and operation are not available in the MECS data set.
The lack of such data, including the square footage cooled by
commercial unitary air conditioning equipment, makes it difficult to
establish how significant this building category would be in the
analysis. The Department believes that, in the case of office space
attached to industrial or light manufacturing buildings, its analytical
approach provides a reasonable representation of the cooling loads
experienced by these building spaces. This issue is also discussed
later with regard to the development of electricity prices from utility
tariffs for the LCC analysis (see section II.F.1.b.(2)(a) of this
ANOPR). This concern is identified as Issue 5 under ``Issues on Which
DOE Seeks Comment'' in section IV.E of this ANOPR.
The Department further screened the individual CBECS buildings
within the six building types to include only buildings with at least
70 percent of their total floor space cooled by unitary packaged
equipment. The Department based the 70 percent value on the need to
keep the sample size reasonable, yet still representative of the
building stock that uses packaged cooling equipment. Using an 80
percent value would be too restrictive and using a 60 percent value
would be too extensive and make the sample size too large. The total
number of observations in the six building types meeting the 70 percent
threshold was 1033. These buildings accounted for over 73 percent of
the annual cooling energy use and 67 percent of the square
[[Page 45474]]
footage of commercial buildings with at least part of their floor space
being cooled with packaged equipment.
The Department modeled each CBECS sample building using the BLAST
software. The Department computed the building loads by simulating a
prototypical three-story, 48,000-square-foot building with five thermal
zones per floor with schedule and envelope characteristics chosen to
represent each building sampled. The Department used the ventilation
requirements of ASHRAE Standard 62.1-1999 as the basis for the
ventilation rates in the building simulations. The Department scaled
the results of that prototype's simulation to match the specific
geometry of the CBECS building being represented, e.g., conditioned
floor area, aspect ratio (defined as the ratio of the length to the
width of a building), number of floors, and number of thermal zones per
floor. The Department simulated the buildings with equipment at ten
different EER levels to determine the annual energy impacts of changes
in EER.
Lennox commented that the default part-load performance curve in
the BLAST simulation tool appears to be representative of equipment
that uses cylinder unloading at part-load, instead of multi-compressor
staging that is common in commercial unitary air conditioners. The
impact of using the BLAST default part-load performance curve is some
overestimation of the energy use of the compressors when lightly
loaded. (Lennox, No. 15 at p. 1) Due to the lack of available published
data on part-load performance of commercial unitary air conditioners,
the Department requests data on the part-load operating characteristics
to adjust the BLAST part-load performance curve.
Also, in view of the complexity of the BLAST analysis, and Lennox's
comments concerning the selection, characterization, and simulation of
the building set used for the building energy use and end-use load
characterization analysis (Lennox, No. 15 at p. 1), the Department had
an independent third-party expert review its analysis. The results of
the third-party review are available to interested parties on the
Department's website at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. This third-party review is addressed as issue 16
under ``Issues on Which DOE Seeks Comment'' in section IV.E, of this
ANOPR.
Also, Lennox provided comments on the ventilation rates used in the
DOE building simulation analysis. (Lennox, No. 15 at p. 1) Lennox and
ARI asserted that the DOE analysis overstates the ventilation load for
most buildings by assuming all commercial buildings typically operate
at ASHRAE Standard 62-1989 ventilation levels (15 cfm/person typical).
Lennox wrote that most existing building applications as well as half
of the new building applications of unitary air conditioning equipment
operate at pre-ASHRAE Standard 62-1989 ventilation levels (5 to 7.5
cfm/person typical), which accounts for nearly 85 percent of the total
shipments of commercial unitary air conditioning equipment. (Lennox,
No. 15 at p. 1; ARI, No. 18 at pp. 1-8) Consultation between the
Department and designers suggests that designers use ASHRAE Standard
62.1-1999 for establishing design ventilation rates, particularly since
many designers wish to avoid potential litigation arising from adverse
health effects attributable to low ventilation rates. (See the
discussion of building energy use and end-use load characterization
that addresses ventilation rates in section 6.2.5.5, ``Ventilation and
Infiltration,'' of the ANOPR TSD.) For commercial unitary air-
conditioning equipment, the ventilation rate is typically established
by an outside air damper setting on the installed equipment. It is not
a function of the age of the building, but rather is set at the time of
installation. Concern over the health effects of low ventilation rates
are the same regardless of the age of the building or the minimum
ventilation rates in effect at the time the building was constructed.
Consequently, the Department believes that the use of ASHRAE
Standard 62.1-1999 for setting ventilation requirements is the approach
most representative of that used in the construction industry today.
The Department is unaware of any field studies that would support use
of a different ventilation rate than that required by ASHRAE Standard
62.1-1999, and thus is inclined to use this as the basis for the
analysis for the ANOPR. However, in view of the complexity of the
analysis and issues concerning ventilation rates that Lennox addresses,
the Department had an independent third-party expert review its
analysis. The results of the third party review are available to
interested parties on the Department's website at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. This
concern is addressed as Issue 16 under ``Issues on Which DOE Seeks
Comment'' in section IV.E. of this ANOPR.
The Department received several comments that expressed concern
about whether the higher efficiency equipment provided adequate
humidity control while meeting ASHRAE Standard 62.1-1999 ventilation
requirements. (ACEEE, No. 10 at p. 5; Public Workshop Tr., No. 2EE at
p. 72; Lennox, No. 7 at p. 3; Public Workshop Tr., No. 2EE at p. 71)
The Department established maximum sensible heat ratios for equipment
analyzed via the design option process in the engineering analysis,
indicating that there could be high EER equipment designs that provide
acceptable humidity control (or adequate sensible heat ratio
performance) under ARI Standard Rating Conditions for cooling.
In addition, DOE received several comments concerning the
simulation of economizers. Lennox and the Oregon Office of Energy (OOE)
commented that economizer operation or failure to operate is difficult
to capture in a building simulation analysis. (Lennox, No. 7 at p. 4;
Public Workshop Tr., No. 2EE at p. 163) The Department agrees with
Lennox and OOE. However, for this ANOPR analysis, DOE assumed that if
CBECS data indicated the use of an economizer then it was a fully
functioning economizer. This might result in some underestimation of
the actual cooling loads in the buildings.
The Department requests comments from interested parties regarding
its proposed approach to economizers. This matter is identified as
Issue 6 under ``Issues on Which DOE Seeks Comment'' in section IV.E. of
this ANOPR.
Fan power in the energy analysis was raised as one of the issues in
the Framework Workshop. A written comment from ACEEE proposed (in
addition to the EER requirement) establishing a second requirement for
fan power as a function of flow rate in Watts per cubic feet per minute
(Watts/cfm) using the existing fan static pressures. (ACEEE, No. 10 at
p. 9) The Department notes that the current EER performance metric
includes fan power and has incorporated annual fan energy use in its
estimate of total system energy use for the simulations. Because DOE is
not planning to amend the test procedure at this time to extract the
fan power measurement, it does not anticipate adding a requirement for
fan efficiency (Watts/cfm).
In a related comment on the fan power issue, Lennox raised the
issue of the inclusion of supply fan energy during all operational
modes of the air conditioner (cooling, heating, and ventilating) in the
energy analysis. (Lennox, No. 15 at p. 1) The Department understands
that the supply fan is an integral part of a unitary air conditioner
and its operation contributes to the energy use of the equipment.
Including supply fan energy during hours when a commercial unitary air
conditioner is
[[Page 45475]]
operating in the heating or ventilating mode will increase the energy
use of that equipment, in comparison to including supply fan energy
only when the equipment is providing cooling. For the purposes of the
ANOPR analysis, the Department has included all energy from the supply
fan and welcomes public comments on this approach. This concern is
addressed in Issue 7 under ``Issues on Which DOE Seeks Comment'' in
section IV.E of this ANOPR.
Furthermore, in view of the complexity of the analysis concerning
fan energy and the issues addressed by Lennox, the Department had an
independent third party review its analysis. The results of the third-
party review are available to interested parties on the Department's
Web site at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. Also, this concern is addressed as Issue 16 under ``Issues on
Which DOE Seeks Comment'' in section IV.E of this ANOPR.
The end result of the simulation analysis was an hourly end-use
energy stream of data for the following end-use categories:
Cooling package equipment;
Heating (gas);
Lights;
Plug and miscellaneous loads;
Package-equipment fan;
Nnon-package cooling; and
Non-package fan.
2. Preliminary Results
The distribution of cooling energy use intensity (EUI) for all
buildings simulated at the 8.9 EER efficiency level shows that EUI
varies widely, from 0.33 kBtu/square-foot/year to a maximum of 63.3
kBtu/square-foot/year. However, the vast majority of the buildings fall
into the 5 to 20 kBtu/square-foot/year range. Chapter 6 of the ANOPR
TSD provides a comparison of the simulated cooling EUI for each
building with the calculated cooling EUI using the CBECS estimated
cooling energy use. On a square-footage-weighted basis, the BLAST
simulation cooling EUIs agree reasonably well with the CBECS estimated
EUIs. The CBECS estimated EUIs are higher for two of the building types
(Office and Food Service), while the BLAST simulation cooling EUIs are
higher for the four remaining building types (Retail, Education,
Assembly, Warehouse). The square-footage-weighted cooling EUI for this
set of buildings was 10.5 kBtu/square-foot/year for the BLAST
simulations compared to 9.6 kBtu/square-foot/year for the CBECS
estimates.
The hourly cooling energy use is only one of the energy inputs to
the LCC analysis. All the electric energy end-uses play some part in
determining which rate structure applies and where end-users are in the
rate structure for any given hour. The electric energy use of the
cooling equipment relative to the other electric energy use within a
building is a strong function of the building type, climate, and time
of use (seasonal as well as hourly). The peak hourly energy use becomes
particularly important when analyzing the marginal cost of energy saved
by higher EER levels.
In the progression to higher EER levels, the simulation runs
indicated reduced cooling and fan energy consumption. The Department
made a comparison of the change in cooling EUI (not including the fan
energy) for two buildings from the representative building set as the
equipment efficiency progressed from an EER of 8.5 to 12.0. As
expected, the cooling EUI decreases with each incremental EER increase,
but with a declining EUI benefit at higher EERs. This trend is the same
for all buildings, even though the base EUI is different for each of
them. The change in total fan energy use from the simulation as a
function of EER is less pronounced. This is because, while the
simulation model assumes that fan energy during the EER rating test is
reduced, a substantial fraction of the fan energy consumption is a
function of the external fan static pressure, which is assumed not to
change between efficiency levels. The Department used the hourly
simulated building electric-energy loads directly as inputs to the
detailed LCC analysis discussed in the next section of this ANOPR. See
Chapter 6 of the TSD for more details on this building load simulation
analysis.
In determining the reduction in cooling and fan energy consumption
due to higher EER levels, the Department did not take into account a
rebound effect. The rebound effect occurs when a piece of equipment
that is made more efficient is used more intensively, so that the
expected energy savings from the efficiency improvement do not fully
materialize. Because unitary air conditioners are a commercial
appliance, the person owning the equipment (i.e., the building owner)
is often not the person operating the equipment (i.e., the renter).
Because the operator does not own the equipment, they will not have the
information necessary to influence their operation of the equipment. In
other words, a rebound effect would appear to be unlikely. The
Department seeks comments on whether a rebound effect should be
included in the determination of annual energy savings. If a rebound
effect should be included, the Department seeks data for basing the
calculation of the rebound effect. This matter is identified as Issue
20 under ``Issues on Which DOE Seeks Comment'' in section IV.E. of this
ANOPR.
E. Markups To Determine Equipment Price
The Department understands that the price of a commercial unitary
air conditioner depends on how the customer purchases such equipment.
Because the customer price of such equipment is not generally known,
the Department used the manufacturers' costs developed from the
engineering analysis and applied multipliers called ``markups'' to
arrive at the final equipment price. The derivation of the equipment
price depends on the distribution channel the customer uses to purchase
the equipment. Typical distribution channels consist of wholesalers,
mechanical contractors, and general contractors. The Department based
the wholesale and contractor markups on a combination of firm balance
sheet data and U.S. Census Bureau data. For each of the markups, DOE
further differentiated between a baseline markup and an incremental
markup. The Department defines baseline markups as coefficients that
relate the manufacturer's price of baseline equipment to the
wholesaler's or contractor's sales price of such equipment. Incremental
markups are coefficients that relate changes in the manufacturer's
price of baseline equipment to changes in the wholesaler's or
contractor's sales price. For more detail on equipment prices and
markups, refer to Chapter 7 of the ANOPR TSD.
1. Approach
To carry out the LCC calculations, DOE needed to determine the cost
to the customer of a baseline commercial unitary air conditioning unit
and the cost of more efficient units. The customer price of such units
is not generally known. However, by applying a multiplier called a
``markup'' to the manufacturer's prices that DOE derived, DOE could
estimate customer prices both for baseline and more-efficient
equipment.
Both Lennox and Trane noted the importance of the methodology used
to determine markups and equipment prices. Lennox stated that markups
are dependent on how commercial equipment is sold and involve complex
distribution channels that include distributors (also known as
wholesalers), installing contractors, and business or building owners.
(Lennox,
[[Page 45476]]
No. 2 at p. 3; Public Workshop Tr., No. 2EE at p. 142) Trane also noted
that any publicly available price lists are not useful for estimating
equipment prices. (Public Workshop Tr., No. 2EE at p. 125) In response
to Trane, OOE commented that invoices are available for estimating the
installed cost of commercial unitary air conditioners. (Public Workshop
Tr., No. 2EE at p. 126)
The Department understands that the equipment price to the customer
depends on how the customer purchases the equipment. Based on
manufacturer input, DOE defined two types of distribution channels to
describe how the equipment passes from manufacturer to customer. In the
first distribution channel, the manufacturer sells the equipment to a
wholesaler, who in turn sells it to a mechanical contractor, who in
turn sells it (and its installation) to a general contractor, who in
turn sells it to the customer. In the second distribution channel, the
manufacturer sells the equipment directly to the customer through a
national account. The Department further subdivided the first
distribution channel by mechanical contractor size (as measured in
annual revenues). In its methodology for estimating equipment prices,
the Department relied solely on the above approach, i.e., defining
distribution channels and determining markups at each point in the
distribution channel. The Department could not collect any price lists
or invoices to assist in its determination of equipment prices. For
more detail on the distribution channels for commercial air
conditioners, refer to the introduction to Chapter 7, figure 7.1.1, and
section 7.7 of the ANOPR TSD.
Based on information provided by equipment manufacturers through
informal interviews, as well as the judgment of individuals familiar
with how commercial unitary air conditioning equipment is distributed
to commercial customers, the Department assumes that end use customers
purchase 50 percent of equipment through small mechanical contractors,
32.5 percent through large mechanical contractors, and the remaining
17.5 percent through national accounts. In addition, the Department
understands that 30 percent of commercial unitary air conditioning
equipment is purchased for the new construction market, while the
remaining 70 percent serves the replacement market. In the case of the
replacement market, where equipment is purchased through a mechanical
contractor, the mechanical contractor generally purchases equipment
directly from the wholesaler (i.e., a general contractor is not
involved in the distribution of equipment). The mechanical contractor
markup is a function of contractor size and whether the contractor
serves primarily the new construction or the replacement market. For
more detail on the new construction and replacement markets and their
effects on the mechanical contractor markups, refer to section 7.4.1 of
the ANOPR TSD.
For each of the markups, DOE further differentiated between a
baseline markup and an incremental markup. The Department defines
baseline markups as coefficients that relate the manufacturer price of
baseline equipment to the wholesale or contractor sales price of such
equipment. Incremental markups are coefficients that relate changes in
the manufacturer price of baseline equipment to changes in the
wholesale or contractor sales price. For more detail on the methodology
the Department used to determine baseline, incremental, and overall
markups, refer to sections 7.1.1 through 7.1.3 of the ANOPR TSD.
The Department based the wholesale and mechanical contractor
markups on firm balance sheet data, while it based the general
contractor markups on U.S. Census Bureau data for the commercial and
institutional building construction industry. The Department obtained
balance sheets from the trade associations representing wholesalers and
mechanical contractors. The Department put the building construction
industry data into the same format as the balance sheet data for
wholesalers and mechanical contractors to derive the markups for
general contractors. The key assumptions used to estimate markups using
this financial data are:
The firm balance sheets faithfully represent the various
average costs incurred by firms distributing and installing commercial
air conditioning.
There are two categories of costs: (1) Costs that vary in
proportion to the manufacturer price of commercial air conditioners
(variable costs); and (2) costs that do not vary with the manufacturer
price of commercial air conditioners (fixed costs).
Commercial air conditioner wholesale and contractor prices
across different efficiency levels vary in proportion to commercial air
conditioner wholesaler and contractor costs included in the balance
sheets.
For more detail on the basic assumptions the Department used to
estimate markups, wholesale markups, and mechanical contractor markups,
refer to sections 7.2 through 7.5 of the ANOPR TSD.
Commercial unitary air conditioning equipment purchased through
national accounts is an exception to the usual distribution of HVAC
equipment to end users. Large customers of HVAC equipment, such as
national retail chains, use national accounts to circumvent the typical
chain of distribution. Due to the large volume of equipment purchased,
large customers can purchase equipment directly from the manufacturer
at significantly lower prices than could be obtained through the
typical distribution chain.
To derive a national account markup, the Department considered
costs that are added to the manufacturer price as additional markups
and costs that are subtracted from the customer price as markups that
are avoided in a more typical manufacturer-to-wholesaler-to-mechanical-
contractor-to-general-contractor-to-customer distribution system. Costs
that are added include:
Freight charges (less-than-a-truck-load rates are higher
than trailer-load rates);
Account management and administration expenses (billing,
collections and warranty issues); and
Cost-of-sale increases (technical support and personalized
service).
Costs that are deducted include:
Wholesaler account management and administration expenses;
Wholesaler warehousing and handling expenses;
Mechanical contractor markup on equipment sale (profit,
labor warranty, and service reserve);
Mechanical contractor account management and
administration expenses;
Mechanical contractor warehousing and handling expenses;
General contractor account management and administration
expenses; and
General contractor project oversight markup.
In view of these additions and deductions, the Department derived a
national account markup assuming that the resulting equipment price
increase was one-half of that realized from a typical chain of
distribution. In other words, if the price increase resulting from the
multiplicative product of the wholesale, mechanical contractor, and
general contractor markups is $100, the national account markup is such
that the price increase is one-half of that, or $50. The Department
assumed that the resulting national account markup must fall somewhere
between the manufacturer price (i.e., a markup of 1.0) and the customer
price under a typical chain of distribution. Because
[[Page 45477]]
DOE did not know precise values (between zero and one for the markups)
for the actual national account equipment price, DOE used 0.5 to
represent a mid-point value between manufacturer price and customer
price. For more detail on national account markups, refer to section
7.7 of the ANOPR TSD.
As a final step, DOE applied a sales tax, which represents state
and local sales taxes that are applied to the customer price of the
equipment. The Department derived sales taxes representative of both
state and local sales taxes from 1997 state sales tax data and 1997
local sales tax data. Using state unitary air conditioner shipment data
from 1994, DOE weighted the state and local sales tax data by the
percentage of unitary air conditioners shipped to each state. The sales
tax has a mean value of 6.7 percent. The Department updated its
calculation of sales taxes based on 2003 state and local sales tax data
from the Sales Tax Clearinghouse (http://thestc.com/STrates.stm).
Although the updated mean sales tax value is 6.6 percent, virtually
unchanged from the value based on 1997 data, the Department intends to
update the sales tax data in its analysis for the NOPR. The Department
applied sales taxes to the customer equipment price irrespective of the
distribution channel and the market in which the customer is located.
The Department assumes the state and local sales tax rate is the same
for residential products and commercial/industrial equipment.
For more detail on the Department's approach to state and local
sales taxes, refer to section 7.6 of the ANOPR TSD. The Department
invites comments and data from interested parties on its assumption.
Also, the Department was not able to gather more recent state-by-state
shipments of >65,000 Btu/h to <240,000 Btu/h commercial unitary air
conditioners. The Department requests more recent data from interested
parties.
2. Estimated Markups
The Department multiplied the wholesale and contractor markups
described above by the sales tax to get the overall baseline and
incremental markups shown in Tables II.5 and II.6, respectively.
Overall markups are based on one of three assumed distribution channels
as well as whether the commercial unitary air conditioning equipment is
purchased for the new construction or the replacement market. The
Department based the distribution channel on whether such equipment is
purchased through small mechanical contractors, large mechanical
contractors, or national accounts. The tables show a weighted-average
overall markup, assuming that: (1) The new construction and replacement
markets represent 30 percent and 70 percent of the market,
respectively; and (2) end-use customers purchase 50 percent of
equipment through small mechanical contractors, 32.5 percent through
large mechanical contractors, and the remaining 17.5 percent through
national accounts. The weighted-average overall baseline markup equals
2.31, while the weighted-average overall incremental markup equals
1.56. For more details on how the Department derived overall markups,
refer to section 7.8 of the ANOPR TSD.
The Department used the overall markup to estimate the customer
price of baseline equipment, using the manufacturer price of baseline
equipment. For example, if the manufacturer price of a baseline
commercial air conditioner is $100, DOE multiplied this by the
weighted-average overall baseline markup to estimate the baseline
customer price of the equipment as $231. Similarly, DOE used the
overall incremental markup to estimate changes in the customer price,
in view of changes in the manufacturer price above the baseline price
resulting from a standard to raise equipment efficiency. For example,
if a standard increases the commercial air conditioner manufacturer
price by $25, DOE multiplied this by the weighted-average overall
incremental markup to estimate that the customer price will increase by
$39.
Table II.5.--Overall Baseline Markups
----------------------------------------------------------------------------------------------------------------
New construction Replacement
------------------------------------------------------------------------ Weighted-
Market sector Small Large National Small Large National average
mech. mech. account mech. mech. account
----------------------------------------------------------------------------------------------------------------
Wholesale................... 1.36 1.36 .......... 1.36 1.36
Mechanical Contractor....... 1.48 1.35 1.69 1.70 1.55 1.60
General Contractor.......... 1.24 1.24 .......... NA NA
Sales Tax................... 1.07 1.07 1.07 1.07 1.07 1.07
Overall..................... 2.66 2.42 1.80 2.47 2.24 1.71 2.31
----------------------------------------------------------------------------------------------------------------
Table II.6.--Overall Incremental Markups
----------------------------------------------------------------------------------------------------------------
New construction Replacement
------------------------------------------------------------------------ Weighted-
Market sector Small Large National Small Large National average
mech. mech. account mech. mech. account
----------------------------------------------------------------------------------------------------------------
Wholesale................... 1.11 1.11 .......... 1.11 1.11
Mechanical Contractor....... 1.26 1.18 1.27 1.37 1.29 1.24
General Contractor.......... 1.13 1.13 .......... NA NA
Sales Tax................... 1.07 1.07 1.07 1.07 1.07 1.07
Overall..................... 1.68 1.59 1.35 1.63 1.53 1.32 1.56
----------------------------------------------------------------------------------------------------------------
Referring specifically to the above wholesaler baseline and
incremental markups of 1.36 and 1.11, respectively, ARI's comments
reject the assumption that incremental markups should be less than
baseline markups. ARI states that these correspond to margins of 27
percent and 9 percent respectively, and that the underlying assumption
is that ``the wholesaler will accept one-third the margin on the
incremental cost that he receives on the baseline.'' (ARI, No. 14 at
pp. 1 and 2) According to ARI, this is saying that the wholesaler is
expected to sell premium goods for a lower
[[Page 45478]]
markup than commodity goods, which is counter to the trends in all
industries. Also, ARI states that ``premium goods demand premium
markups.'' By using incremental markups, the effect of any increase in
the standard would be to decrease the profit margins of the wholesalers
and all others in the distribution chain. Further, ARI states that,
over a period of time, ``this is a sure formula for bankruptcy and
collapse of an industry.'' (ARI, No. 14 at p. 1)
As ARI notes, the wholesale incremental markups are one-third of
the wholesale baseline markups. (ARI, No. 14 at p. 1) However, the
Department does not agree with ARI's characterization of these
estimates as counter to industry trends and ``a formula for
bankruptcy.'' Rather, the Department believes that the above
incremental markups are consistent with industry trends and sufficient
to maintain industry profits. There appears to be some fundamental
disagreement between ARI and the Department on whether growth in cost
of goods sold (CGS) must always be matched by a proportionate growth in
sales revenue. While this may be true within the context of a general
business expansion, the Department believes that it is not an
appropriate assumption within the context of an increase in equipment
price due to an increase in the minimum efficiency standard. To develop
markups, energy efficiency standards involve little or no change in the
number of units sold or in the labor needed to handle those units. This
situation is quite different from a market trend where both the number
of units sold and CGS increase. The following example illustrates this
case.
The Department uses a simple hypothetical example of a firm setting
prices before and after implementation of an efficiency standard (see
Table II.7). For illustration, the hypothetical standard is assumed to
raise equipment cost by 25 percent, from $5 million CGS in the Baseline
to $6.25 million CGS with the New Standard. For simplicity, the number
of units sold in this example is assumed to remain constant. The DOE
analyses of national energy savings and manufacturer impact takes into
account changes in sales as a result of energy efficiency standards.
Consequently, with the New Standards, labor and occupancy costs remain
constant and other overhead costs and profit are assumed to rise in
proportion to changes in CGS.
Table II.7.--Example Illustrating Impact of Profit on Markup
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Baseline New standard (proportional
profit)
New standard (fixed markup)
----------------------------------------------
Total CGS ($thousand)............. $5,000 Total CGS ($thousand) $6,250 Total CGS $6,250
($thousand).
-----------------------------------
Labor and Occupancy ($thousand)... $659 Labor and Occupancy $659 Labor and Occupancy $659
($thousand). ($thousand).
Other Overhead ($thousand)........ $659 Other Overhead $824 Other Overhead $824
($thousand). ($thousand).
Profit ($thousand)................ $333 Profit ($thousand)... $416 Profit ($thousand).. $580
------------
Total Revenue ($thousand)..... $6,650 Total Revenue $8,150 Total Revenue $8,313
($thousand). ($thousand).
-----------------------------------
Markup............................ 1.33 Markup............... 1.30 Markup.............. 1.33
----------------------------------------------------------------------------------------------------------------
The New Standard (proportional profit) shown in the middle column
of Table II.7 illustrates what would happen if the Department assumes
profits are proportional to CGS. Even though baseline profit rises from
$333,000 to $416,000, the apparent markup declines, compared to
Baseline. The apparent decline is the result of an arithmetic change in
the ratio of Total Revenue to Total CGS. In other words, if
profitability increases proportionally with CGS from $333,000 to
$416,000, then the markup declines from 1.33 to 1.30.
The New Standards (fixed markup) case illustrates the implications
if instead the Department were to assume a fixed markup. The results
(right column in Table II.7) show that if the markup is fixed at the
pre-standard level of 1.33, then firm profits will rise after the
standard becomes effective. In other words, with a fixed markup,
revenue after the standard becomes effective would be 1.33 multiplied
by the CGS, or $8,313,000. The profit that is consistent with this
amount is the revenue minus the sum of CGS, labor and occupancy, and
other overhead. This provides a profit of $580,000 after the standard,
or a 74 percent increase in profit.
The Department does not believe that it is possible for firms to
increase profits in this manner simply as a result of an increase in
equipment efficiency. In a competitive market, DOE believes increases
in profits do not persist because high profits attract competing firms
which results in an increase in equipment supply and lower prices. The
Department believes that a firm that used an efficiency standard as an
opportunity to increase profits would eventually lose market share to
firms that maintain profitability nearer to the pre-standard levels.
All this indicates that markups on goods sold after an energy
efficiency standard becomes effective would be lower than the baseline
markups. Thus, the Department believes that, due to implementation of
an energy efficiency standard, CGS would increase but the number of
units sold and associated labor costs would not increase.
Two sources of industry data support the Department's finding
concerning incremental markups. First, the incremental markup the
Department calculated is consistent with incremental markups calculated
from a statistical analysis of U.S. Census Bureau data covering the
HVAC sector. (See Wholesalers: U.S. Census Bureau, Gross Profit,
Employment and Gross Margin for Merchant Wholesalers for NAICS 42173.
By State: 1997. Refer to section 7.3 of the ANOPR TSD for details on
the derivation of incremental markups based on the use of U.S. Census
Bureau data.) Second, there are empirical observations of instances
where industry growth in revenue exceeds growth in profits. For
example, net sales of firms in the refrigeration and service industry
grew at 18.6 percent over a period of five years while operating income
grew by 12.6 percent. (See Ibbotson: 2001 Cost of Capital Yearbook.
Statistics for SIC Code 358. Medium firm growth rates.) The Department
concludes that many factors influence the relationship between CGS and
operating profits.
The Department believes that the use of incremental markups is the
most appropriate methodology for developing equipment prices for more
energy efficient equipment. Because fewer
[[Page 45479]]
expenses need to be covered by an incremental markup, it has a lower
value than its corresponding baseline markup. Nevertheless, the
Department understands that identifying expenses that need to be
covered by the incremental markup is essential to deriving its value.
Therefore, the Department seeks comments on whether the wholesale,
general contractor, and mechanical contractor incremental markups
should cover more or fewer expenses. This is addressed as Issue 8 under
``Issues on Which DOE Seeks Comment'' in section IV.E of this ANOPR.
In addition, in view of the complexity of the analysis and issues
addressed by ARI concerning markups (ARI, No. 14 at pp. 1 and 2), the
Department had an independent third-party expert review and comment on
its analysis. The results of the third-party review are available to
interested parties on the Department's Web site at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. This
subject is addressed as Issue 16 under ``Issues on Which DOE Seeks
Comment'' in section IV.E of this ANOPR.
Concerning the Department's characterization of distribution
channels, ARI states that replacement installations often need a
general contractor. (ARI, No. 14 at pp. 1 and 2) Specifically, ARI
states that replacements are divided between those due to equipment
failures and those required as part of a major building renovation. In
the latter case, ARI states that a general contractor is almost always
involved and estimates that 50 percent of the replacement market
includes a general contractor markup. (ARI, No. 14 at pp. 1 and 2)
As noted earlier, the Department developed the distribution
channels based on data collected from manufacturers as well as the
judgment of individuals familiar with how air conditioning equipment is
distributed to commercial customers. Based on ARI's input, and any
future comments from other interested parties in response to this
ANOPR, the Department may change the distribution channels for the NOPR
to be more reflective of how equipment is actually distributed.
For equipment purchased through national accounts, ARI states that
general and mechanical contractors remain involved in the distribution
and installation of the equipment. However, it adds that the
contractors may use a slightly lower effective markup if they do not
have to cover expenses associated with the cost of the equipment. Thus,
national accounts are more similar to a typical distribution channel
than not. ARI comments that the principal advantage of a national
account to a manufacturer is volume reduction of incremental selling
cost. The result is that some savings are shared with the customer in
the form of reduced cost for the installed equipment. Although there
are customer savings, ARI states that the large difference between
baseline and incremental markups is not representative of actual market
dynamics, and that national account markups should be 0.2 to 0.25
greater than the values shown in chart 13. (ARI, No. 14 at pp. 1 and 2)
The Department understands that ARI is referring to chart 13 (Image 14)
in the ``Life Cycle Cost Analysis Presentation: Inputs and Results,''
on the DOE Web site at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. In this case, chart 13 (Image 14) presents the
same information as Tables II.5 and II.6 in this ANOPR.
As noted earlier, the Department derived a national account markup
under the assumption that the resulting equipment price increase was
one-half of that realized from a typical chain of distribution. In view
of ARI's comments, and any future comments received from other
interested parties in response to this ANOPR, the Department may change
the national account markups for the NOPR to better reflect the actual
distribution of commercial unitary air conditioning equipment.
The ACEEE and ASE commented that DOE should extrapolate future
equipment prices from historical producer price trends for commercial
unitary air conditioners published by the U.S. Census Bureau. (ACEEE,
No. 10 at pp. 9 and 10; ASE, No. 9 at p. 4)
For other rulemakings, the Department used production input costs
and production technologies based on the best information available at
the time. The Department has not made any assumptions about
productivity improvements and material cost changes over time. The
Department believes historical price trends for commercial unitary air
conditioners (or other related equipment) do not apply to forecast
equipment prices where there are no data to show that the trends will
continue. Therefore, without specific data on the likely costs to
manufacture a piece of equipment, the Department does not plan to apply
a productivity improvement factor in this rulemaking.
F. Life-Cycle Cost and Payback Period Analysis
The LCC and PBP analysis determines the impact of potential
standards on consumers. The effects of standards on individual
commercial consumers include changes in operating expenses (usually
lower) and changes in total installed cost (usually higher). The
Department analyzed the net effect of these changes by calculating the
changes in LCCs compared to a base case. The LCC calculation considers
total installed cost (equipment purchase price plus installation cost),
operating expenses (energy, repair, and maintenance costs), equipment
lifetime, and discount rate. The Department performed the LCC analysis
from the perspective of the user of commercial unitary air conditioning
equipment.
The Department also determined the economic impact of potential
standards on consumers by calculating the PBP of potential standards
relative to a base case. The PBP measures the amount of time it takes
the commercial consumer to recover the assumed higher purchase expense
of more-energy-efficient equipment through lowering operating costs.
Similar to the LCC, the PBP is based on the total installed cost and
the operating expenses. But unlike the LCC, only the first year's
operating expenses are considered in the calculation of the PBP.
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. For more detail on the life-cycle cost and
payback period analysis, refer to Chapter 8 of the ANOPR TSD.
The Department generated LCC and PBP results as probability
distributions using a simulation based on Monte Carlo statistical
analysis methods, in which inputs to the analysis consist of
probability distributions rather than single-point values. 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 the Department can
identify the percentage of users achieving LCC savings or attaining
certain PBP values due to an increased efficiency standard, in addition
to the average LCC savings or average PBP for that standard. Because
DOE conducted the analysis in this way, it can express the
uncertainties associated with the various input variables as
probability distributions. During the post-ANOPR consumer analysis, the
Department may evaluate additional parameters and prepare a
comprehensive assessment of the impacts on sub-groups of users.
Lennox and NRDC had some general concerns regarding the LCC
analysis. Lennox commented that the technical analysis of the
commercial air conditioner market, building loads, and equipment
operation are much more
[[Page 45480]]
complex than past analyses conducted for residential central air
conditioners. (Lennox, No. 7 at p. 1) The NRDC stated that the analysis
must be credible and transparent. (NRDC, No. 6 at p. 3)
To make the analysis transparent, the Department developed a
spreadsheet model in Microsoft Excel. An add-on to Microsoft Excel
called Crystal Ball (a commercially available software program) allows
a user to characterize input variables with probability distributions.
Past LCC analyses conducted for residential central air conditioners
also used Microsoft Excel spreadsheets with Crystal Ball. Although the
residential and commercial air conditioner analyses are similar in this
respect, the commercial analysis is more complicated in that it
requires conducting whole-building simulations to derive equipment
energy use and demand.
In addition, the Department derived two sets of electricity prices
to estimate annual energy expenses: A tariff-based estimate and an
hourly based estimate. The tariff-based approach estimates an annual
energy expense using electricity prices determined from electric
utility tariffs collected in the year 2002. The hourly based approach
estimates annual energy expense using electricity prices that may
exist, assuming all electricity markets are deregulated. Under this
approach, the Department collected electricity production prices that
vary on an hourly basis and used them to model a scenario in which
customers are directly charged for the costs incurred by an electricity
provider to supply energy for air conditioning. For electricity markets
that are already deregulated, the Department collected actual wholesale
hourly electricity prices. For markets that are still regulated, it
collected hourly system load and generation cost data and used them as
a proxy for wholesale prices that might exist if those markets were
deregulated.
1. Inputs to LCC Analysis
For each efficiency level analyzed, the LCC analysis requires input
data for the total installed cost of the equipment and the operating
cost. Table II.8 summarizes the inputs used to calculate the customer
economic impacts of various energy efficiency levels. A more detailed
discussion of the inputs follows.
Table II.8. Summary of Inputs Used in the LCC Analysis
------------------------------------------------------------------------
Input Description
------------------------------------------------------------------------
Equipment Price................... Derived by multiplying manufacturer
cost by manufacturer, distributor,
mechanical contractor, and general
contractor markups and sales tax.
Manufacturer costs and markup
discussed in section II.C. and
summarized in Tables II.3 and II.4.
Other markups and sales tax
discussed in section II.E and
summarized in Tables II.5 and II.6.
Installation Cost................. >=65,000 Btu/h to <135,000 Btu/h--
$1585; >=135,000 Btu/h to <240,000
Btu/h--$2142. Installation costs
vary as a function of equipment
weight.
Annual Energy Use and Demand...... Derived through whole-building
energy use simulations. Discussed
in section II.D.
Annual Energy Expenses............ Derived from tariff-based and hourly
based electricity prices. Average
marginal tariff-based electricity
price--10.0[cent] per kilowatt/hour
(kWh). Average marginal hourly
based electricity price--9.9[cent]/
kWh.
Repair Costs...................... >=65,000 Btu/h to <135,000 Btu/h
annual repair cost--$151; >=135,000
Btu/h and <240,000 Btu/h annual
repair cost--$279. Annual repair
costs vary as a function of
manufacturer price.
Maintenance Costs................. Annual maintenance cost equals $200;
does not vary as a function of
cooling capacity or efficiency.
Lifetime.......................... Mean lifetime equals 15.4 years.
Discount Rate..................... Mean discount rate equals 6.1
percent.
Effective Date*................... 2008.
------------------------------------------------------------------------
* Refer to section II.F.1.b.(8).
As noted by its absence in Table II.8, the Department chose not to
include the impact of income taxes in the LCC analysis for this ANOPR.
The Department understands that there are two ways in which taxes
affect the net impacts attributed to purchasing more energy efficient
equipment compared to baseline equipment: (1) Energy efficient
equipment typically costs more to purchase than baseline equipment,
which in turn lowers net income and may lower company taxes; and (2)
efficient equipment typically costs less to operate than baseline
equipment, which in turn increases net income and may increase company
taxes. In general, the Department believes that the net impact of taxes
on the LCC analysis depends on firm profitability and expense practices
(how firms expense the purchase cost of equipment). For more detail on
the inputs to the life-cycle cost analysis, refer to section 8.2 of the
ANOPR TSD. The Department seeks input on whether income tax effects are
significant enough to warrant inclusion in the LCC analysis for the
NOPR. The Department specifically requests information on how many
firms that purchase commercial unitary air conditioners actually pay
taxes and, if they do, what expense-accounting practices they use to
depreciate the purchase costs. This is addressed as Issue 17 under
``Issues on Which DOE Seeks Comment'' in section IV.E of this ANOPR.
a. Total Installed Cost Inputs
The total installed cost is the sum of the equipment price and the
installation cost. The equipment price includes the distribution
markups (as determined in section II.E) that are applied to the
manufacturer costs estimated in the engineering analysis (section
II.C).
The Department derived installation costs for commercial air
conditioners from data in RS Means Mechanical Cost Data, 2002. The
Department decided that data for 7.5-ton and 15-ton rooftop air
conditioners are representative of installation costs for the >=65,000
Btu/h to <135,000 Btu/h and >=135,000 Btu/h to <240,000 Btu/h air
conditioning equipment classes, respectively. The Department derived
nationally representative installation costs of $1,585 and $2,142 for
7.5-ton and 15-ton commercial unitary air conditioners, respectively.
Because labor rates vary significantly in each region of the country,
DOE used data from RS Means Mechanical Cost Data, 2002 to identify how
installation costs vary from state to state and incorporated these
costs into the analysis.
Lennox, Trane, and ARI stated that installation costs will increase
with efficiency because of the increased
[[Page 45481]]
weight and size of more efficient equipment. (Lennox, No. 7 at p. 3;
Public Workshop Tr., No. 2EE at p. 146-148; ARI, No. 14 at p. 2 and No.
17 at p. 2) Lennox added that installation costs for the replacement
market would increase substantially if larger and heavier equipment
requires new roof mounting frames or structural modifications. (Lennox,
No. 7 at p. 3) Regarding replacements, ARI stated that most of the
equipment being replaced is likely to be older and rated 8.0 EER or
lower. The ARI stated that the more efficient equipment will be larger
and heavier, and is likely to need an adapter curb or rebooting and
perhaps structural modifications to carry the weight. Retrofit
installations use adapter curbs. An adapter curb consists of structural
members that provide a transition or alignment between existing roof
curbs and new equipment with a different size or configuration. Also,
ARI stated that the cost of adaptation may be significantly greater if
parapets must be increased (to meet building codes) to hide a unit
sitting on a tall adapter. The ARI provided rough estimates of $2500
for a 7.5-ton adapter curb and $3500 for a 15-ton adapter curb (parts
and labor included). (ARI, No. 14 at p. 2)
The Department could not find data that explicitly showed how
installation costs vary with equipment efficiency. As a result, the
Department considered varying installation costs in direct proportion
to the weight of the equipment. The Department developed linear
relationships of operating weight as a function of equipment efficiency
for 7.5-ton and 15-ton commercial unitary air conditioners and assumed
the installation cost increased in the same proportion. The Department
does not believe the weight increases are great enough to warrant
structural modifications and so it has excluded the cost of adaptor
curbs and increased parapets. Therefore, DOE did not develop a separate
set of installation costs for the replacement market. Spreadsheets used
in evaluating the LCC and PBP can also be used to evaluate LCC and PBP
based on a constant installation cost.
The Department will review the engineering analysis data for the
NOPR to determine when manufacturers increase box size and in what
direction (height, footprint, or both). Based on that review, the
Department will determine whether the current installation cost
analysis captures all the associated costs of installing more efficient
equipment. The Department did not include in the analysis the
incremental cost of replacing older equipment (i.e., equipment rated
8.0 EER or lower). This is because the analysis establishes the
incremental cost of installations exceeding the baseline efficiency
levels (i.e., the ASHRAE/IESNA 90.1-1999 efficiency levels of 10.1 EER
for the >=65,000 Btu/h to <135,000 Btu/h equipment class, and 9.5 EER
for the >=135,000 Btu/h to <240,000 Btu/h class), not the cost of
upgrading older equipment to baseline EER levels. Therefore, if
baseline equipment requires adaptor curbs or increased parapets to
replace older equipment, but upgrading baseline equipment to more
efficient equipment does not need further curb adaption or parapet
increases, then the analysis would not include the costs of adaptor
curbs or increased parapets. For more detail on the total installed
cost inputs, refer to section 8.2.2 of the ANOPR TSD.
b. Operating Cost Inputs
The operating costs consist of a series of discounted cash flows
that capture the cost of the electricity needed to operate the
equipment, the repair costs, and the maintenance costs over the
lifetime of the equipment beginning at the effective date of the
standard. The Department calculated the annual electricity expense from
the energy use data supplied by the whole-building simulations and
electricity prices. As discussed above, the Department used two
approaches to estimate electricity prices: A tariff-based approach and
an hourly based approach. Because data were not available to indicate
how repair costs (i.e., those costs associated with the repair or
replacement of failed components) vary with equipment efficiency, the
Department assumed that repair costs vary directly with the cost of the
equipment. Because equipment costs increase with efficiency and, to a
large extent, equipment replacement costs drive repair costs, the
Department reasonably assumes that repair costs will vary directly with
the cost of the equipment. On the other hand, the Department assumed
that maintenance costs remain constant regardless of equipment cost.
Because maintenance costs correspond to the upkeep of equipment
operation (e.g., cleaning heat-exchanger coils and recharging
refrigerant) and are not associated with repair or replacement of
system components, the Department reasonably assumed that maintenance
costs are not part of the cost of the equipment and, therefore, will
not vary with the equipment cost. Also, the Department used a survival
function to define the probable lifetime of the equipment with the mean
being 15.4 years. For the analyses conducted for this ANOPR, the
Department assumed that an energy efficiency standard for commercial
unitary air conditioning equipment would become effective in 2008. (42
U.S.C. 6313(a)(6)(C)) For more detail on operating cost inputs to the
life-cycle cost analysis, refer to section 8.2.3 of the ANOPR TSD.
(1) Use of Whole-Building Simulations
As discussed in the building energy use and end-use load
characterization analysis (section II.C of this ANOPR), the whole-
building simulation analysis generates building energy consumption data
for each hour of a typical meteorological year. For each of the 1,033
records in the building sample, DOE disaggregated the hourly whole-
building energy consumption into the air conditioning energy
consumption (i.e., the consumption due to the compressor and condenser
fan), the supply or ventilation fan energy consumption, and the energy
consumption due to all other electric end-uses in the building. Since
the supply fan is integral to commercial unitary air conditioning
equipment, DOE included energy consumption for ventilation even during
periods where mechanical cooling is not required for space-conditioning
(i.e., when the compressor is not operating).
(2) Electricity Price Analysis
The electric power industry is currently in a state of transition
between two different business models, from regulated monopoly
utilities providing bundled service to all customers in their service
area, to a system of deregulated independent suppliers who compete for
customers. While it is unclear when this transition will be finished,
it is possible that in the future customers will see a very different
pricing structure for electricity. To account for the impacts of this
change on the LCC, DOE used two different electricity price models in
this analysis. The first analysis uses information on utility tariffs
for commercial customers collected in 2002. The Department based the
second analysis on electricity production prices that vary on an hourly
basis and used them to model a scenario in which customers are directly
charged for the costs incurred by an electricity provider to supply
energy for air conditioning. The Department refers to the two analyses
as tariff-based and hourly based, respectively.
To account for the wide regional variation in electricity usage
patterns, wholesale costs, and retail rates across the country, the
Department divided the continental U.S. into 17 subdivisions. The
breakdown started with the nine census divisions, which were further
[[Page 45482]]
subdivided to take into account significant climate variation and the
existence of different electricity market or grid structures. The
Department based climate divisions on the nine climate regions defined
for the continental U.S. by the National Climatic Data Center. It
separated out Texas, Florida, New York, and California because their
electric grids operate independently. Finally, it assigned each record
from the 1,033 building sample to one of the 17 subdivisions. Both the
tariff-based and hourly based approaches used the complete set of 1033
buildings to develop electricity prices.
(a) Tariff-Based Approach
The tariff-based analysis uses tariffs for commercial customers
collected for a sample of 90 utilities across the country. The
Department used three main criteria in developing the utility sample:
(1) The sample of utilities should reflect the distribution of
population across the country, with more utilities drawn from more
populated areas; (2) the sample should reflect the proportion of
customers served by privately owned utilities (investor-owned utilities
(IOUs) and power marketers) versus publicly owned utilities
(municipals, cooperatives, State, and Federal); and (3) the sample
should cover as many customers as possible. The Department used data
from DOE's Energy Information Administration (EIA) Form 861 filings for
the year 2000 to determine the number of customers served by utilities
of different types. The Department determined the representativeness of
the sample by the percentage of the total number of commercial and
industrial (C&I) customers who were covered. The sampled utilities
serve 60 percent of the C&I customers of private utilities, and 14.4
percent of C&I customers for public utilities. The combined total for
the U.S. is 48.5 percent of all C&I customers. For more detail on the
tariff-based approach, refer to subsection 8.2.3.1 of the ANOPR TSD.
Pacific Gas and Electric (PG&E), ACEEE, NRDC, OOE, and NWPPC stated
that electricity prices should reflect actual rates faced by customers.
(Public Workshop Tr., No. 2EE at p. 202; ACEEE, No. 10 at p. 4; NRDC,
No. 6 at pp. 4-5; Public Workshop Tr., No. 2EE at pp. 197 and 210;
Public Workshop Tr., No. 2EE at p. 195) All but PG&E commented that
electricity rates used in the LCC analysis must reflect demand or peak
load pricing as well as time-of-use (TOU) or time-of-day (TOD) pricing.
(ACEEE, No. 10 at p. 4; NRDC, No. 6 at pp. 4-5; Public Workshop Tr.,
No. 2EE at pp. 197 and 210; Public Workshop Tr., No. 2EE at p. 195) The
OOE also stated that electricity prices should be based on marginal
rates. (Public Workshop Tr., No. 2EE at pp. 194 and 195) Counter to the
above comments, Southern Company stated that pricing strategies will be
much more simple in a deregulated electricity market, so [DOE] should
not consider real-time or TOU pricing in the analysis. (Public Workshop
Tr., No. 2EE at p. 194)
The Department collected tariff documents for the 90 utilities in
the sample to establish the actual electricity prices paid by
commercial air conditioner customers. The tariff documents encompassed
a variety of pricing strategies, including TOU rates. Because the
Department did not want to speculate whether TOU rates would exist in a
partially or fully deregulated market, DOE kept TOU rates in the
tariff-based analysis. As will be described below, based on the
electricity prices described in the tariffs, marginal pricing is the
basis for establishing electricity expenses in the LCC analysis. For
most of the utilities in the sample, the Department collected tariff
documents directly from their web sites. When web documents were not
available, the Department contacted the utilities directly. An archive
of the tariff documents is available at: http://eetd.lbl.gov/ea/ees/tariffs/index.php. The tariff documents reflect actual rates that
customers pay for electricity.
Utility companies have many tariffs separated into residential,
non-residential, and special-use, such as public street-lighting or
agricultural uses. Typically, a specific tariff is assigned to a
particular customer based on that customer's annual peak demand.
Following common utility practice, in the tariff analysis the
Department combined commercial and industrial customers into one
category. The Department's sampling strategy was to take the default
tariff for each customer type, including TOU tariffs where appropriate.
The Department assigned every building in the 1033 building simulation
sample to one of the 17 subdivisions, and treated each building as a
single customer. To increase the sample size and avoid bias in the
electricity bill calculations, the Department assigned each customer to
each utility in its subdivision. In other words, if the Department
assigns six utilities to a particular subdivision, it then assigns the
default tariff from each of the six utilities to each customer residing
in that subdivision. Then the Department calculates an electric utility
bill from each tariff assigned to the customer (the calculation of
customer bills is explained below). Because the Department assigned, on
average, almost six utilities to each of the 17 subdivisions, the above
customer assignment method enabled the Department to effectively expand
its building sample from 1033 to 6178 buildings. The particular tariff
assigned to each customer was based on the annual peak demand for the
base case EER level. The Department kept the customer on the same
tariff for all standard levels.
For each of the 1033 buildings simulated, the Department processed
the hourly simulation data for each standard level to compute the peak
demand and total energy consumption for the 12 calendar months. For
buildings assigned to TOU tariffs, DOE re-processed the hourly data to
compute the peak demand and total energy consumption for the 12
calendar months during the peak, off-peak, and shoulder hours as
defined by the utility. The Department entered into a bill-calculating
spreadsheet tool that estimated the total customer bill in each month.
The Department repeated the calculation for each standard level and
then totaled the monthly bills to arrive at an annual electricity bill.
The difference between the annual bills for each standard level gave
the associated operating cost savings. To compute the base case air
conditioning expense, DOE took the annual bill and multiplied it by the
ratio of the total air conditioning energy use to the total building
electricity use. It calculated customer marginal prices as the net
change in the total bill divided by the net change in energy
consumption between two standard levels. The Department implemented a
version of the ``Bill Calculator'' in a spreadsheet that includes
customer data for a set of representative buildings. Interested parties
can get the Bill Calculator spreadsheet at http://eetd.lbl.gov/ea/ees/tariffs/index.php.
Lennox commented that the energy analysis does not include the
effect of units operating on industrial tariffs. In particular, Lennox
stated that: (1) The building set analyzed is a subset of the CBECS
data set for commercial buildings; (2) the exclusion of manufacturing
sites excludes 30 percent of the electricity used for cooling; and (3)
the average rate for electricity in buildings specified in the MECS is
40 percent less than in CBECS buildings. As a result, Lennox commented
that the energy analysis overstates the cost of energy consumption by
10 to 15 percent and has the effect of biasing the life-cycle cost and
payback period analyses
[[Page 45483]]
so that higher efficiency levels would look more favorable to
customers. (Lennox, No. 15 at p. 1)
Overall, while the Department agrees that the analysis would be
improved by explicitly considering industrial buildings, it does not
believe that this will result in a meaningful change to the LCC
results.
First, the tariff data collection and analysis do, in fact, include
the effect of units operating on industrial tariffs. Through its
research, DOE found that utilities typically do not distinguish between
commercial and industrial customers in their tariffs. Instead,
utilities assign customers General Service tariffs where customer
classes are based on annual peak load. The Department's analysis for
this ANOPR included only tariffs for customers taking electrical
service at secondary voltage, which represents the largest non-
residential customer sub-class. The Department understands that
utilities could charge different rates to customers taking service at
primary voltage and plans to expand its database to include them,
although only about 10 percent of utility customers are on primary
voltage tariffs.
Concerning the issue of industrial electricity rates, Lennox cited
EIA data on estimates of U.S. electric utility average revenue per kWh
as the basis for its statement that the average electricity rate for
industrial/manufacturing buildings is 40 percent less than that for
commercial buildings. (Lennox, No. 15 at p. 1) The Department's
analysis for this ANOPR confirms the Lennox observations and shows that
the average revenues per kWh for the commercial and industrial
categories are 7.4 cents/kWh and 4.6 cents/kWh, respectively. However,
because of ambiguities in the definition of customer type and the
weighting of customer electricity bills, the Department believes that
4.6 cents/kWh cannot be a proxy for the marginal price charged to
customers in industrial buildings. For example, EIA calculates average
electricity rates by dividing total electricity revenues by total
sales, which is equivalent to assigning equal weight to each kWh sold
and giving much greater weight to large consumers. Since most consumers
in the Department's analysis are relatively small, DOE believes that
EIA's weighting greatly exaggerates the effect of any difference in the
per-kWh average price paid by industrial and commercial customers.
Also, the Department believes that the average electricity rate is not
appropriate for an LCC analysis because energy savings are priced at
marginal rates that are heavily dependent on both the building load and
the marginal load for a particular end use. The Department's analysis,
as detailed in the LCC section (Chapter 8) of the ANOPR TSD, found no
clear dependence of the marginal price on the size of the customer. As
a result, the Department sees no reason that customers with large peak
loads will automatically see significantly lower marginal prices.
Lennox commented that excluding manufacturing sites from the DOE
analysis excludes 30 percent of the energy used for cooling. (Lennox,
No. 15 at p. 1) According to Manufacturing Energy Consumption Survey
(MECS) of 1998, the industrial contribution to the total of commercial
and industrial buildings facility heating, ventilating, and air
conditioning energy use is about 30 percent. It is likely that
manufacturers ship a much smaller percentage of the commercial unitary
air conditioning equipment within the scope of this rulemaking to
industrial buildings because, on average, industrial buildings are
larger than commercial buildings and there is some correlation between
building size and equipment size. Therefore, it is not expected that
industrial buildings will use a large fraction of unitary air
conditioners in the >65,000 Btu/h to <240,000 Btu/h range for their air
conditioning needs.
Section II.D.1 addresses the impact of industrial/manufacturing
facilities on the Department's analysis and is addressed as Issue 5
under the list of ``Issues on Which DOE Seeks Comment'' in section IV.E
of this ANOPR. Also, in view of the above issues concerning industrial
tariffs and their impact on electricity prices, the Department had an
independent third-party expert review its analysis for this ANOPR. The
results of the third-party review are available to interested parties
on the Department's website at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. The Department intends to make the
results of that review available for public comments concurrently with
this ANOPR.
In summary, the Department made approximations that led both to
over- and under-estimations of electricity prices. Moreover, the
Department believes that the results are uncertain but not biased. In
making further refinements to the LCC and PBP analyses, the Department
believes that it is important not to introduce bias by including only
refinements that lower the electricity price. Issues such as primary
voltage tariffs, de-correlation between the hour of building peak load
and air conditioning peak load, putting small buildings on large-
building tariffs, using a distribution of fan power ratio, and so forth
are second-order effects that tend to lower the energy cost savings.
There are other second-order effects, such as sales taxes, seasonal
ratchets, and additional riders (particularly fuel cost adjustments)
that, when included, tend to raise the energy cost savings. The
Department believes that all these effects have roughly the same order
of magnitude and the net effect of their inclusion in the calculation
of the LCC will be to reduce uncertainty but leave the results
essentially unchanged.
(b) Hourly Based Approach
The goal of the hourly based electricity price analysis was to
estimate the real cost of meeting air conditioning loads for each
building in each subdivision, and to translate these to cost savings
that result from a given standard level. In this analysis, the
Department treated each subdivision as if it were a single electricity
system or control area, with a single hourly varying marginal
generation price. The dependence of system load on weather, and system
price on load, creates a correlation between the weather-sensitive air
conditioning load in each building and the time-varying generation
marginal price. This substantially increases the cost of meeting air
conditioning loads relative to base loads. Because DOE carried out the
building simulations using Typical Meteorological Year (TMY) weather
data to represent the correlations correctly, the Department had to
produce a set of corresponding TMY system loads and prices for each
subdivision. This was done by constructing a model for the load/
temperature relationship, and a model for the price/load relationship,
from historical data.
The analysis required hourly data for customer loads, local
temperatures, system loads, and system prices. The Department took
customer loads from the building simulations described above.
Historical data on hourly loads are available to the public from the
Federal Energy Regulatory Commission (FERC) website through Form 714
filings. See http://www.ferc.gov/docs-filing/eforms-elec.asp#714.
Historical data on hourly prices come from two sources: Annual data
submitted to FERC from regulated utilities and data developed from
independent system operator websites. The FERC requires that each year
a regulated utility submit FERC Form 714, which includes the ``control
area hourly system lambda'' for each hour of the year in dollars per
megawatt. A system lambda is the price of generating one additional
unit of
[[Page 45484]]
electricity. In the FERC Form 714, the system lambda represents the
cost to meet the next kilowatt of load, as computed for the local
control area of a particular utility using FERC's automatic dispatch
methodology. For areas in which there is substantial wholesale
electricity market competition, e.g., New England, New York,
California, and Pennsylvania-New Jersey-Maryland (PJM), DOE collected
load data and day-ahead market clearing prices directly from the
independent system operator (ISO) websites. The analysis used data from
2000 for New York, PJM, and New England, and from 1999 for all other
areas. The analysis required two types of weather data: Historical and
year-typical data. The Department purchased historical data used to
construct the models for the years 1999 and 2000 from the National
Climatic Data Center. Refer to ANOPR TSD section 8.2.3.1.3 for more
information.
The Department computed the energy-cost savings due to a given
standard level, assuming that the electricity provider passed all
savings on to the customer. The savings have two components: Avoided
generation costs and avoided capacity costs. The Department computed
avoided generation costs as the sum over each hour of the customer's
marginal energy savings times the hourly marginal price, multiplied by
factors accounting for additional costs that scale with generation
(such as ancillary services) and energy losses. The Department computed
the total avoided capacity costs as a total cost per kilowatt of
capacity times the customer's load reduction during the hour of the
system peak. The total cost per kilowatt for capacity included
generation, transmission, and distribution capacity, and factors that
account for losses and reserve margins. The Department converted the
electricity provider's avoided capacity costs to annual customer
savings by applying a fixed charge rate (FCR). The FCR is a factor that
converts a given capacity investment to the annual revenue requirement
needed to cover all costs associated with the investment. In
deregulated wholesale markets, hourly prices are assumed to include a
margin to cover generation capacity investments, so DOE did not include
these costs in the model. Instead, the Department computed reductions
to the electricity provider's annual installed capacity payments that
result from the standard. For more detail on the hourly based approach,
refer to subsection 8.2.3.1.3 of the ANOPR TSD. The computation of the
hourly price is Issue 9 under ``Issues on Which DOE Seeks Comment'' in
section IV.E of this ANOPR.
(c) Comparison of Tariff-Based and Hourly Based Prices
Table II.9 summarizes the results for the Department's electricity
price analysis for both the tariff-based and hourly based
methodologies. The Department computed the marginal price associated
with air conditioning loads in each subdivision by taking the ratio for
each building of the total cost savings to the total energy-savings
between standard levels 9.5 EER and 11.0 EER. The Department then
computed the weighted-average value for each subdivision. The table
also includes the percentage of the marginal price attributable to
demand charges for the tariff-based analysis and to capacity charges
for the hourly based analysis.
Table II.9.--Marginal Prices Computed From Air Conditioning Load Reductions Using the Tariff-based and Hourly Based Electricity Price Models
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tariff-based Hourly based
-----------------------------------------------
Subdivision Weight Census division Region Marginal Marginal %
[cent]/kWh % Demand [cent]/kWh Capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................... 4.7 New England.............. New England.............. 9.5 53 10.7 43
2.1................................... 7.4 Middle Atlantic.......... New York................. 14.6 53 10.5 35
2.2................................... 5.6 Middle Atlantic.......... PA, NJ................... 10.5 27 8.7 48
3..................................... 13.7 East North Central....... WI, IL, IN, OH, MI....... 10.8 46 11.0 65
4.1................................... 0.8 West North Central....... MN, IA, MO............... 6.2 44 8.4 60
4.2................................... 4.7 West North Central....... ND, SD, NE, KS........... 7.1 30 9.8 60
5.1................................... 5.6 South Atlantic........... DE, MD, VA, WV........... 7.9 41 9.9 63
5.2................................... 7.9 South Atlantic........... NC, SC, GA............... 7.3 22 7.4 68
5.3................................... 6.6 South Atlantic........... Florida.................. 8.0 36 11.0 66
6.1................................... 5.1 East South Central....... KY, TN................... 6.5 38 8.0 68
6.2................................... 5.4 East South Central....... MS, AL................... 6.1 39 12.8 70
7.1................................... 5.3 West South Central....... OK, AR, LA............... 5.8 26 11.6 76
7.2................................... 9.5 West South Central....... Texas.................... 10.0 23 10.8 75
8.1................................... 0.6 Mountain................. MT, ID, WY............... 6.1 20 4.5 43
8.2................................... 4.2 Mountain................. NV, UT, CO, AZ, NM....... 8.8 35 9.5 69
9.1................................... 1.7 Pacific.................. WA, OR................... 4.5 33 5.4 24
9.2................................... 11.2 Pacific.................. California............... 18.5 21 8.5 46
USA................................... 100.0 ......................... USA...................... 10.0 35 9.9 60
--------------------------------------------------------------------------------------------------------------------------------------------------------
As Table II.9 shows, the national average effective marginal prices
computed from the two approaches are relatively close (within one
percent). Thus, on a national basis, the estimated marginal electricity
price a provider would charge customers to supply electricity for an
air conditioning end use is not substantially different from the price
a customer currently pays under today's tariffs. As a result, the LCC
results from the two different approaches are not significantly
different. The LCC results are discussed later in this section. Also,
for more detail on the results of the tariff-based and hourly based
electricity price analysis, refer to subsection 8.2.3.1.4 of the ANOPR
TSD.
(3) Electricity Price Trend
The electricity price trend in this ANOPR provides the relative
change in electricity prices for future years out to the year 2035. The
ACEEE and ASE commented that future electricity prices will be
difficult to forecast during a period of electricity price
restructuring and early indications show that there will be greater
price volatility under
[[Page 45485]]
deregulated markets. To substantiate its assertion of higher
electricity rates in deregulated electricity markets, ACEEE referred to
a report by Synapse Energy Economics, ``Marginal Price Assumptions for
Estimating Customer Benefits of Air Conditioner Efficiency Standards,''
December 4, 2000, which demonstrates that summer, daytime, wholesale
electric prices exceeded average prices by 2.5 [cent]/kWh more than
annual average wholesale prices and, as markets restructure, suppliers
will increasingly pass these higher summer prices on to consumers as
higher rates. Refer to http://www.synapse-energy.com/publications.htm#repo. The ACEEE also commented that price projections
from EIA would not, at this time, be a good indicator of future
electricity prices. (ACEEE, No. 10 at pp. 4 and 10; ASE, No. 9 at p. 2)
Rather than speculate on how current volatility in energy markets
will affect future electricity prices, DOE has consistently relied on
EIA energy price forecasts and has used other forecasts, including the
various EIA scenarios, to delimit the energy prices used in standards
analyses. For this commercial unitary air conditioner analysis, DOE
applied a projected trend in national average electricity prices to
each customer's marginal energy expenses. The default electricity price
trend scenario used in the LCC analysis is the trend from EIA's Annual
Energy Outlook (AEO) 2003 Reference Case, which presents forecasts or
energy supply, demand, and prices through 2005. Spreadsheets used in
determining the LCC can be useful tools in evaluating other electricity
price trend scenarios, namely, the AEO 2003 High and Low Growth price
trends and constant energy prices. The high economic growth case
incorporates higher population, labor force, and productivity growth
rates than the reference case. Due to the higher productivity gains,
inflation and interest rates are lower compared to the reference case.
Investment, disposable income, and industrial production are increased.
Projections indicate that economic output will increase by 3.5 percent
per year. The low economic growth case assumes lower population, labor
force, and productivity gains, with resulting higher prices and
interest rates and lower industrial output growth. In the low economic
growth case, projections indicate that economic output will increase by
2.4 percent per year over the forecast horizon. The Department will
update the analyses conducted for the NOPR to reflect the most recently
available AEO.
The AEO 2003 recognizes that, over the past few years, energy
markets have been extremely volatile. (See U.S. Department of Energy-
Energy Information Administration (EIA), Annual Energy Outlook 2003
with Projections to 2025, DOE-EIA-0383(2003), January 2003. EIA
website: http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2003).pdf.) As a
result, AEO 2003 incorporates recent energy market volatility in its
short-term projections. The impact of recent energy market volatility
is evidenced from the average commercial electricity price estimated by
AEO 2003 for the year 2001. The average rate estimated by AEO 2003 for
2001 is 5.7 percent greater (or 0.4 [cent]/kWh) than that estimated by
the AEO 2000.\2\ Although the AEO 2003 short-term projections took into
account recent events, EIA expects that long term volatility in energy
markets will not occur from such future events as supply disruptions or
political actions. In other words, EIA estimates that recent
electricity market volatility will not impact long term electricity
price trends.
---------------------------------------------------------------------------
\2\ In the AEO 2003, EIA reports 2001 electricity prices from
their ``Annual Energy Review 2001.''
---------------------------------------------------------------------------
Concerning Synapse Energy Economics' wholesale electricity price
analysis, DOE does recognize that wholesale summertime electricity
costs are on average 2\1/2\ [cent]/kWh greater than average wholesale
costs. The Department's own analysis of hourly based electricity prices
showed that marginal generation costs for commercial air conditioning
ranged from 0.4 to 3.2[cent]/kWh greater than average generation costs,
depending on regional location. Although generation costs associated
with supplying electricity to commercial air conditioning are higher
than average generation costs, the national average of resulting
customer marginal electricity rates (based on the Department's
methodology for converting generation costs into customer rates) is no
greater than the national average of those marginal rates derived from
current electric utility tariffs. Although the marginal electricity
rates can be higher than average rates, the Department sees no reason
to adjust EIA's projections of future electricity prices. For more
detail on electricity price trend, refer to subsection 8.2.3.2 of the
ANOPR TSD. The Department's reliance on EIA's electricity price
projections is addressed as Issue 10 under ``Issues on Which DOE Seeks
Comment'' in section IV.E of this ANOPR.
(4) Repair Cost
The repair cost is the cost to the consumer for replacing or
repairing components in the air conditioning equipment that have
failed. The Department estimated the annualized repair cost for
baseline efficiency commercial unitary central air conditioning
equipment (i.e., the cost the customer pays annually for repairing the
equipment) as half of the equipment price divided by the average
lifetime of the equipment. Because data were not available to show how
repair costs vary with equipment efficiency, the Department considered
two scenarios: repair costs that varied in direct proportion with the
manufacturer price of the equipment, and repair costs that remained
flat (i.e., did not increase with efficiency).
The Department used repair costs that vary with manufacturer price
as the default annualized repair cost scenario in the LCC and PBP
analysis. The resulting weighted-average annualized repair cost is $151
and $279 for 7.5-ton and 15-ton commercial unitary central air
conditioners, respectively. The repair cost increases with weight and
efficiency. Because equipment prices are a function of distribution
variables rather than single point-values (i.e., manufacturer price,
markups, and sales tax), repair costs reflect a distribution of values.
For more detail on repair cost, refer to subsection 8.2.3.3 of the
ANOPR TSD.
(5) Maintenance Cost
Maintenance cost is the cost to the commercial consumer of
maintaining equipment operation. It is not the cost associated with the
replacement or repair of components that have failed (this is covered
by the repair cost discussed above). Rather, the maintenance cost is
associated with general maintenance (e.g., checking and maintaining
refrigerant charge levels and cleaning heat-exchanger coils).
The Department took annualized maintenance costs for commercial air
conditioners from data in RS Means Facilities Maintenance & Repair Cost
Data, 1995 (RS Means '95). These data provide estimates of person-
hours, labor rates, and materials required to maintain commercial air
conditioning equipment. Because data were not available to show how
maintenance costs vary with equipment efficiency, the Department
decided to use costs that stayed constant as equipment efficiency
increased. The estimated, nationally representative, annualized
maintenance cost for a commercial unitary air conditioner rated between
36,000 Btu/h and 288,000
[[Page 45486]]
Btu/h is $200. For more detail on maintenance cost, refer to subsection
8.2.3.4 of the ANOPR TSD.
ARI believes that the annual maintenance cost that the Department
developed is too low. ARI states that commercial air conditioning units
need servicing not less than four times per year for filter check/
replacement and general cleanliness. As a result, the annual cost is
closer to $800 per unit rather than $200. (ARI, No. 14 at p. 3)
As noted above, the Department based the annualized maintenance
costs for commercial air conditioners on RS Means '95 data. In addition
to providing estimates of person-hours, labor rates, and materials
required to maintain commercial air conditioning equipment, RS Means
'95 specifies eleven actions that constitute required annual
maintenance, including a thorough check of all components in the unit.
Because RS Means '95 provides an explicit accounting of the actions and
costs of maintaining commercial unitary central air conditioning
equipment, and no commenter has done so, the Department will retain its
use of $200 annual maintenance cost in its analysis.
(6) Lifetime
The Department defines lifetime as the age at which a commercial
unitary air conditioner is retired from service. It based the median
lifetime of commercial unitary air conditioners on data from the 1999
ASHRAE HVAC Applications Handbook, which estimates a median lifetime of
15 years for commercial unitary air conditioners. The Department found
no other data to show a different median lifetime for commercial
unitary air conditioning equipment. Because a range of values rather
than a single-point value more accurately represents the lifetime of
such equipment, DOE created a survival function for commercial unitary
air conditioners based on data for residential heat pump systems.
Although residential heat pump systems are smaller in cooling capacity
than commercial air conditioners, they are vapor compression systems
that have components and designs that are similar to those of
commercial systems. Thus, DOE believes that residential heat pumps
provide a valid basis from which to construct a survival function for
commercial unitary air conditioners. The Department created a Weibull
distribution to approximate the actual survival function for
residential heat pumps. The Department then modified the approximated
residential-heat-pump-based survival function to yield a median
lifetime equal to that for commercial air conditioners. The mean
lifetime from the derived Weibull-based commercial air conditioner
survival function is 15.4 years. For more detail on the lifetime
analysis, refer to subsection 8.2.3.5 of the ANOPR TSD.
ARI provided an analysis of EIA's 2001 Residential Energy
Consumption Survey (RECS) to show that the median life of air
conditioning equipment is 7 years, as opposed to 15 years.
Acknowledging the difficulty in getting lifetime data for commercial
unitary air conditioning equipment, ARI stated that, although the RECS
data are based on residential equipment, they are the best available
surrogate data for commercial air conditioning. (ARI, No. 14 at p. 2)
After reviewing ARI's analysis, the Department determined that the
data in RECS represent the age of the equipment, not the age at which
the equipment was retired from service (i.e., the equipment lifetime).
In view of this important distinction, the equipment lifetime required
for the commercial unitary air conditioner analysis is the operational
life of the equipment. The RECS data do not represent the lifetime,
rather, they simply represent the age of the equipment at the time of
the survey. Thus, even if DOE assumes that the residential equipment
data are a surrogate for commercial unitary air conditioning, the RECS
data are not useful for establishing equipment lifetime. The Department
continues to seek input from interested parties concerning equipment
lifetime. This concern is addressed in Issue 11 under ``Issues on Which
DOE Seeks Comment'' in section IV.E of this ANOPR.
(7) Discount Rate
The discount rate is the rate at which DOE discounted future
expenditures to establish their present value. Both ACEEE and NRDC
commented that DOE should use the weighted-average cost of capital (or
the avoided return on capital) as the basis for estimating discount
rates. (ACEEE, No. 10 at p. 6; NRDC, No. 6 at pp. 8 and 9) In stating
that there is a wide range of expected payback periods for investments
made in the commercial sector, Southern Company also appeared to imply
that discount rates should be based on the weighted-average cost of
capital. (Public Workshop Tr., No. 2EE at p. 119) The NRDC added that a
valid estimate of market rates of return on capital investments
requires a long-term perspective to factor out risk and short-term
market volatility. It also noted that, when adjusting for survivorship
biases and transaction costs, real rates of return on investments
should range from zero to five percent, even for risky corporate
investments. (NRDC, No. 6 at pp. 8-9) Advocating an approach based on
the cost of capital, ACEEE also stated that discount rates used in the
process of setting equipment standards for the ASHRAE/IESNA Standard
90.1-1999 were too high. (ACEEE, No. 10 at pp. 6 and 11) The Alliance
to Save Energy concurred with ACEEE about the discount rates used in
the process to update the ASHRAE/IESNA Standard 90.1-1999 equipment
standards. (ASE, No. 9 at p. 2) Although not advocating a specific
approach for developing discount rates, Trane stated that discount
rates in the range of 12-15 percent are appropriate for users of
commercial unitary air conditioning. Trane also noted that the
Department should consider income tax effects if it intends to include
them in the development of discount rates. (Public Workshop Tr., No.
2EE at pp. 189-190)
The Department believes the most accurate method for estimating the
discount rate is by evaluating the cost of capital of companies that
purchase commercial unitary air conditioning equipment. Most companies
use both debt and equity capital to fund investments. Therefore, for
most companies, 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. The Department calculated the expected
inflation (2.3 percent) from the average of the last five quarters'
change in gross domestic product (GDP) prices.
Because the WACC method is specific to commercial firms, the
technique is specific to commercial equipment and, therefore, was not
applied in past rulemakings covering residential products. However,
recent residential product rulemakings, specifically central air
conditioners and heat pumps, use a discount rate technique that is
conceptually similar to the WACC methodology. The technique for
residential products determines how an air conditioner or heat pump
purchase would affect a household's financial situation, which is
similar to what the WACC method attempts to do for commercial firms.
(See U.S. Department of Energy, Energy Efficiency and Renewable Energy:
Technical Support Document: Energy Efficiency Standards for Consumer
Products: Residential Central Air Conditioners and Heat Pumps
(Including: Regulatory Impact Analysis), May, 2002, Washington, DC,
Chapter 5, p. 5-71, at http://www.eere.energy.gov/buildings/appliance_standards/residential/ac_central.html.) For more detail on the
discount rate for future expenditures,
[[Page 45487]]
refer to subsection 8.2.3.6 of the ANOPR TSD.
Lennox questioned who the consumer is and who would benefit from a
life-cycle cost analysis: The person that owns the commercial unitary
air conditioner, the person that owns the building, or the person that
leases the building? Lennox then stated that consumers more often lease
this equipment, which needs to be factored into the analysis. (Public
Workshop Tr., No. 2EE at pp. 118 and 199) Trane and NRDC also addressed
the issue of the user's identity. Trane noted that the analysis should
encompass all users, whether they are building owners or occupants. The
NRDC stated that a split incentive exists between building lessees and
owners, i.e., there is no incentive for building owners to purchase
more efficient equipment because the lessee is paying the electricity
bill. As a result, the market fails to encourage the use of more
efficient air conditioning equipment, and standards are a way to
correct this market failure. (Public Workshop Tr., No. 2EE at p. 215;
NRDC, No. 6 at p. 5)
In addressing the user's identity, the Department included both
building owners and lessors in its development of discount rates,
established a sample of companies that use commercial air conditioning
according to ownership categories, and collected pertinent financial
data from those companies to derive an appropriate set of discount
rates. Ownership here is defined by the building occupant. Included in
these ownership categories are the owners of commercial buildings
(property owners), retail firms, medical service and hospital
companies, industrial firms, hotels, and food service companies
(restaurants and grocery stores). The Department determined ownership
shares by building square footage from the 1999 CBECS data. According
to CBECS, about 60 percent of buildings are owner-occupied and the
remaining 40 percent either are non-owner-occupied or leased by
property owners. Of the 40 percent of buildings that are leased, half
realized a WACC based on the building's occupancy, and the other half
realized discount rates based on the WACC of the property owner.
Pertinent financial data from companies using commercial air
conditioning equipment were taken from Damodaran Online. (See Damodaran
Online at http://pages.stern.nyu.edu/adamodar/New--Home--Page/data.html
and the ``compfirm.xls'' spreadsheet.)
The NRDC commented that values of 0 to 5 percent were appropriate,
while Trane maintained that DOE should use values ranging from 12 to 15
percent. (NRDC, No. 6 at pp. 8 and 9; Public Workshop Tr., No. 2EE at
pp. 189 and 190) Deducting expected inflation from the cost of capital
provides estimates of the real discount rate by ownership category,
shown in Table II.10. The mean real discount rate for these companies
varies between 3.0 percent (public for-profit) and 7.3 percent (public
not-for-profit). The weighted-average or mean discount rate across all
companies is 6.1 percent. The Department's approach for estimating the
cost of capital provides a measure of the discount rate spread as well
as the average discount rate. The discount rate spread by ownership
category represented by the standard deviation ranges between 0.7
percent and 3.2 percent. Thus, the variability in the discount rate is
as low as less than 1 percent and as high as 14 percent. By
characterizing the discount rates with probability distributions based
on a standard deviation, the range of discount rates used in the
analysis captures almost the full breadth of values suggested by the
interested parties.
Table II.10.--Real Discount Rates by Ownership Category*
----------------------------------------------------------------------------------------------------------------
Mean real
Standard industrial Ownership discount Standard
Ownership category classification (SIC) shares rate deviation Number
code (percent) (WACC) (percent) observations
(percent)
----------------------------------------------------------------------------------------------------------------
Retail stores..................... 53, 54, 56........... 16.5 7.1 2.1 218
Property owners and managers...... 6720................. 21.2 5.2 0.7 11
Medical services.................. 8000................. 6.7 7.0 1.7 115
Industrial companies.............. 1000-4000............ 4.9 6.9 3.2 253
Hotels............................ 7000................. 4.0 5.6 1.5 51
Food service companies............ 5400, 5812........... 5.3 6.1 1.4 88
Office/Service sector............. 5910-9913............ 19.4 6.9 2.1 128
Public for profit................. N.A.................. 11.0 3.0 0.7 41
Public not for profit............. 7950, 8299........... 11.0 7.3 1.8 68
Weighted Average.................. ..................... N.A 6.1 1.6 N.A.
----------------------------------------------------------------------------------------------------------------
*Sources: CBECS (1999), Damodaran Online (2002) and LBNL calculations.
(8) Effective Date
The effective date is the date on and after which a manufacturer
must comply with an energy conservation standard in the manufacture of
covered equipment. (See 10 CFR 430.2.) In accordance with 42 U.S.C.
6313(a)(6)(C), the effective date of any new energy efficiency standard
for commercial unitary air conditioners and heat pumps that is
established by rule and that is more stringent than the amended ASHRAE/
IESNA Standard 90.1, is four years after the final rule is published in
the Federal Register. Consistent with its published regulatory agenda,
the Department assumed that the final rule would be issued in 2004 and
that, therefore, the new standards would take effect in 2008 and used
these dates in the ANOPR analyses. For the NOPR analyses, the
Department will adjust these dates to accurately reflect then-current
expectations for the timing of the issuance of a final rule. The
Department calculated the LCC for customers as if each new commercial
unitary air conditioner or heat pump purchase occurs in the year the
standard takes effect. For purposes of conducting the analyses for this
ANOPR, it based the cost of the equipment on year 2008; however,
because the Department collected manufacturing cost data for the ANOPR
engineering analysis in 2001, it expresses all dollar values as year
2001 dollars. Also, the effective date of a standard is addressed in
subsection 8.2.3.7 of the ANOPR TSD.
2. Inputs to the Payback Period Analysis
The data inputs to the PBP analysis are the total installed cost of
the equipment to the customer for each efficiency level and the annual
(first
[[Page 45488]]
year) operating expenditures for each efficiency level. The PBP
analysis uses the same inputs as the LCC analysis, except that the PBP
analysis does not need electricity price trends and discount rates.
Because the PBP is a ``simple'' payback, the required electricity rate
is only for the year in which a new standard is to take effect, in the
case of this ANOPR the year 2008. The electricity rate that DOE used in
the PBP calculation was the price projected for that year. For more
detail on payback period inputs, refer to section 8.3 of the ANOPR TSD.
3. Preliminary Results
The preliminary results of the LCC and PBP analyses are based on:
(1) A sample of commercial buildings that represent all unitary air
conditioner users; (2) output from the engineering, building
simulation, and equipment price analyses; and (3) on current electric
utility tariffs.
a. Life-Cycle Cost Results
This section presents LCC results for the efficiency-improvement
levels specified in the engineering analysis. It provides only the LCC
results from the tariff-based approach because the national average
tariff-based and hourly based marginal electricity prices are so
similar (refer to Table II.9). The hourly based approach provides
important information because today's electric utility tariffs reflect,
to some extent, the prices an electricity provider might charge a
commercial customer for supplying electricity to operate a unitary air
conditioner under an hourly based pricing structure. However, the
hourly based prices are still an estimate and are not the actual
electricity prices that commercial customers pay. As a result, the
Department is designating the tariff-based approach as the primary
analysis approach because it is based on electricity prices that
commercial customers must actually pay for operating air conditioning
equipment. The Department will use the hourly based approach as
supplemental information that indicates what electricity pricing might
be like under an hourly regime. The hourly based LCC results are very
similar to the results from the tariff-based LCC analysis. For more
detail on the results of the tariff-based and hourly based approaches
to electricity prices, refer to sections 8.4 and 8.5 of the ANOPR TSD.
Most of the inputs to the LCC analysis are uncertain and are
therefore represented by a distribution of values rather than a single-
point value. As a result, the LCC analysis generates a distribution of
results to represent the LCC for any given efficiency level.
The Department's first step in developing LCC results was to
establish the baseline LCC for each of the two commercial air
conditioner equipment classes. As noted earlier, DOE selected the
ASHRAE/IESNA Standard 90.1-1999 levels as the baseline efficiency
levels for the present rulemaking. Table II.11 summarizes the baseline
distributions by showing the mean, median, minimum, and maximum LCCs.
Table II.11.--Baseline LCC
----------------------------------------------------------------------------------------------------------------
Equipment class Minimum Median Mean Maximum
----------------------------------------------------------------------------------------------------------------
>=65,000 to <135,000 Btu/h.................................. $6,667 $18,605 $20,514 $93,747
>=135,000 to <240,000 Btu/h................................. 11,395 34,876 39,044 197,535
----------------------------------------------------------------------------------------------------------------
The Department presents the differences in the LCC of standard-
level equipment relative to the baseline commercial unitary air
conditioner design. The LCC differences are depicted as a distribution
of values. Tables II.12 and II.13 show the mean and the percent of
units with LCC savings for each standard level.
Table II.12.--Summary of LCC Results for >=65,000 to <135,000 Btu/h
Commercial Unitary Air Conditioners
------------------------------------------------------------------------
Mean decrease
in LCC from Percent of
EER baseline (10.1 units with LCC
EER) (2001$) savings
------------------------------------------------------------------------
10.5.................................. $290 98
11.0.................................. 533 93
11.5.................................. 598 81
12.0.................................. 399 59
------------------------------------------------------------------------
Table II.13.--Summary of LCC Results for >=135,000 to <240,000 Btu/h
Commercial Unitary Air Conditioners
------------------------------------------------------------------------
Mean decrease
in LCC from Percent of
EER baseline (9.5 units with LCC
EER) (2001$) savings
------------------------------------------------------------------------
10.0.................................. $959 100
10.5.................................. 1,704 99
11.0.................................. 2,199 97
11.5.................................. 2,359 91
12.0.................................. 2,027 77
------------------------------------------------------------------------
b. Payback Period Results
This section presents PBP results based on annual operating costs
calculated from tariff-based electricity prices. Similar to the LCC
differences, the Department depicts PBP results as a distribution of
values. Tables II.14 and II.15 summarize the PBP results for each of
the two commercial unitary air conditioner equipment classes.
Table II.14.--Summary of PBP Results in Years for >=65,000 to <135,000
Btu/h Commercial Unitary Air Conditioners
------------------------------------------------------------------------
EER Median Mean
------------------------------------------------------------------------
10.5.................................. 2.3 2.6
11.0.................................. 3.1 3.5
11.5.................................. 4.3 5.1
12.0.................................. 6.4 8.1
------------------------------------------------------------------------
Table II.15.--Summary of PBP Results in Years for >=135,000 to <240,000
Btu/h Commercial Unitary Air Conditioners
------------------------------------------------------------------------
EER Median Mean
------------------------------------------------------------------------
10.0.................................. 1.5 1.6
10.5.................................. 1.8 2.0
11.0.................................. 2.4 2.7
11.5.................................. 3.2 3.7
12.0.................................. 4.5 5.5
------------------------------------------------------------------------
G. National Impact Analysis
The national impacts analysis assesses the NPV of total customer
LCC and NES. Assuming an effective date of 2008, the Department
determined both the NPV and NES for all of the energy
[[Page 45489]]
efficiency levels considered for the two equipment classes of
commercial unitary air conditioners. ARI requested a quick adoption of
the ASHRAE/IESNA Standard 90.1-1999 energy efficiency levels. (ARI, No.
14 at p. 3). The Department defined quick adoption to mean an effective
date of 2004, instead of 2008. In this way, the Department can evaluate
the national benefits of adopting more stringent standards at a later
effective date compared to adopting the ASHRAE/IESNA 90.1-1999 standard
levels almost immediately.
To make the analysis more accessible and transparent to all
stakeholders, the Department prepared a user-friendly NES Spreadsheet
Model in Microsoft Excel to forecast energy savings and the national
economic costs and savings resulting from new standards. Consequently,
a stakeholder can change certain input quantities to assess any impacts
of possible new standards on the NES and NPV. Unlike the LCC Analysis,
the NES Spreadsheet Model does not use probability distributions for
inputs or outputs. To assess the impact of input uncertainty on the NES
and NPV results, the DOE can conduct sensitivity analyses as needed for
future analyses by running scenarios on input variables that are of
interest to stakeholders. The Department conducted a preliminary
assessment of the aggregate impacts at the national level for this
ANOPR. For more detail on the NES and NPV, refer to Chapter 10 of the
ANOPR TSD.
Table II.16 summarizes the inputs used to calculate the NES and NPV
of the various energy efficiency levels. Chapter 10 of the ANOPR TSD
provides a more detailed discussion of these inputs.
Table II.16.--Summary of NES and NPV Inputs
------------------------------------------------------------------------
Parameter Data description
------------------------------------------------------------------------
Annual Energy Consumption per Unit Annual weighted-average values are a
function of efficiency level
(established from the Building
Simulation Analysis, section II.C)
and efficiency trend (base case and
standards case efficiencies as
noted below).
Base Case Efficiencies............ Annual shipment-weighted
efficiencies are based on
historical residential central air
conditioner shipment-weighted
efficiency trends and limited
commercial air conditioner shipment-
weighted efficiencies. Before 1993:
Efficiency trend growth rate
equivalent to 1982-1991 residential
equipment efficiency trend. 1993-
1994: Efficiency jump equivalent to
1991 to 1992 residential equipment
efficiency jump. 1994-1998:
Efficiency trend growth rate
equivalent to 1992-1999 residential
equipment efficiency trend. 1999-
2001: Actual shipment-weighted
efficiencies from ARI. 2002-2035:
Efficiency trend growth rate
equivalent to \1/2\ of 1992-1999
residential equipment efficiency
trend.
Standards Case Efficiencies (2008- Annual shipment-weighted
2035). efficiencies are based on a roll-up
efficiency scenario and parallel
growth trend.
Shipments......................... Annual shipments from shipments
model (see details in section
II.G.3).
Equipment Stock................... Number of air conditioning units of
each vintage (age). Based on annual
shipments and the age of the
equipment. The age of the equipment
is characterized with a retirement
function with an average lifetime
of 15.4 years.
National Energy Consumption....... Product of the annual energy
consumption per unit and the stock
(i.e., the number of air
conditioning units of each vintage.
Electricity Site-to-Source Conversion varies yearly and is
Conversion Factors. generated by DOE/EIA's National
Energy Modeling System (NEMS)
program (a time series conversion
factor; includes electric
generation, transmission, and
distribution losses).
Total Annual Installed Cost....... Annual per unit weighted-average
values are a function of efficiency
level (established from the Life-
Cycle Cost Analysis, section II.F).
Total annual costs are the per unit
cost multiplied by the shipments
forecasted.
Total Annual Operating Cost Annual per unit savings consist of
Savings. the per unit electricity cost
savings, the per unit repair costs,
and the per unit maintenance costs
(as noted below). Total annual
costs are the per unit cost
multiplied by the shipments
forecasted.
Annual Electricity Cost Savings... Annual per unit weighted-average
values are a function of the annual
energy consumption, electricity
prices (established from the Life-
Cycle Cost Analysis, section II.F),
and electricity price trends. Only
expenses based on tariff-based
electricity prices are used in the
NES spreadsheet model.
Electricity Price Trends.......... 2003 EIA Annual Energy Outlook
forecasts (to 2025) and
extrapolation for 2025 and beyond
(see the Life-Cycle Cost Analysis,
section II.F).
Annual Repair Costs............... Annual per unit weighted-average
values are a function of efficiency
level (established from the Life-
Cycle Cost Analysis, section II.F).
Annual Maintenance Costs.......... Annual per unit weighted-average
value equals $200 (established from
the Life-Cycle Cost Analysis,
section II.F).
Discount Factor................... Based on both a 3 percent and 7
percent real discount rate and the
year in which the present value of
costs and savings are being
determined.
Present Value of Costs............ Annual total installed cost in each
year discounted to the present
using the discount rate.
Present Value of Savings.......... Annual operating cost savings in
each year discounted to the present
using the discount rate.
Present Year...................... Future expenses are discounted to
year 2001.
Effective Date of Standard........ 2008 (2004 for ASHRAE/IESNA 90.1-
1999 efficiency levels).
------------------------------------------------------------------------
1. National Energy Savings (NES)
The Department calculated the national energy consumption by
multiplying the number or stock of commercial unitary air conditioners
(by vintage) by the unit energy consumption (also by vintage). Vintage
is the age of the equipment (varying from one to about 30 years). The
Department calculated annual NES from the difference between national
energy consumption in the base case (without new standards) and each
standards case (with standards). Cumulative energy savings are the
undiscounted sum of the
[[Page 45490]]
annual NES that DOE determined over specified time periods. The NES
analysis which will accompany the NOPR will include both discounted and
undiscounted values for future energy savings to account for their
timing. For more detail on NES and consumer impacts, refer to Chapter
10 of the ANOPR TSD.
The stock of commercial unitary air conditioning equipment is
dependent on annual shipments and the lifetime of the equipment. The
Department developed shipments projections under a base case and
standards cases for a variety of possible equipment efficiency
scenarios and equipment efficiency trends. It determined that shipment
projections under the standards cases were lower than those from the
base case projection, due to the higher installed cost of the more
efficient equipment. Higher installed costs caused some customers to
forego equipment purchases. As a result, the Department used the
standards case shipments projection and, in turn, the standards case
stock to determine the NES and to avoid the inclusion of savings due to
displaced shipments.
a. National Energy Savings Inputs
As summarized in Table II.16 above, the inputs for the
determination of NES are: (1) Annual energy consumption per unit, (2)
shipments, (3) equipment stock, (4) national energy consumption, and
(5) electricity site-to-source conversion factors.
(1) Annual Energy Consumption per Unit
The annual energy consumption per unit is the energy consumed by a
commercial unitary air conditioning unit per year. The annual energy
consumption is directly tied to the efficiency of the unit. Thus,
knowing the efficiency of a commercial unitary air conditioning unit
allows for the determination of the corresponding annual energy
consumption. As described below, the Department determined annual
historical and forecasted shipment-weighted average equipment
efficiencies which, in turn, allowed for the determination of shipment-
weighted, annual, energy-consumption values.
The Department based historical, shipment-weighted, average
efficiency trends for commercial air conditioners on a combination of
commercial air conditioner efficiency data from 1999 through 2001 and
residential central air conditioner efficiency trends. Once DOE
established historical efficiency trends, it established future trends
of equipment efficiency and, in turn, annual energy consumption by
extrapolating it from the historical trend. The Department forecasted
future trends of equipment efficiency for a base case and for standards
cases. The difference in equipment efficiency between the base and
standards cases was the basis for determining the reduction in per-unit
annual energy consumption due to new standards. For more detail on
annual energy consumption per unit, refer to subsection 10.2.2.1 of the
ANOPR TSD.
The Department chose a growth rate for its forecasted, base-case
efficiency trends of one-half the observed growth rate of the
historical residential air conditioner efficiency trend during the
1990s. The Department made this decision based on observed trends in
the historical commercial air conditioner efficiency data. The three
years of commercial air conditioner efficiency data revealed a
significant shift to higher equipment efficiencies from the year 2000
to 2001. Although the ASHRAE/IESNA 90.1-1999 standards are not
mandatory, it appears that their effect has been to move the commercial
air conditioner market to higher equipment efficiencies. Historical
efficiency trends for residential central air conditioners indicate
that the most significant effect of ASHRAE/IESNA 90.1-1999 standards on
transforming the market is in the short term. In the case of
residential central air conditioners, for years immediately after a new
minimum standard became effective the shipment-weighted efficiencies
grew at an annual rate of less than one percent. Therefore, if
historical efficiency trends for related products and equipment are any
indication, the growth rate of the commercial unitary air conditioner
efficiency trend in the long term (i.e., for years after 2001) should
be much lower than the shift in equipment efficiencies observed between
2000 and 2001.
The Department based its standards case forecasts (i.e., forecasts
of efficiency trends after standards take effect) on a roll-up
efficiency scenario and parallel growth trend. The roll-up scenario
moves or rolls-up all equipment efficiency levels from below a
prospective standard to the minimum efficiency level allowed under the
new standard. The distribution of equipment at efficiency levels above
the prospective standards is unaffected (i.e., this equipment remains
at its pre-standard efficiency levels). The roll-up efficiency scenario
dictates how DOE determined efficiency distributions in the first year
a new standard takes effect, but does not define future distribution of
equipment efficiencies. Under the parallel growth trend, the Department
assumes that the standards case efficiency trend parallels the base
case efficiency trend. In other words, the initial jump in shipment-
weighted efficiency that occurs when the standard first becomes
effective carries on throughout the forecast.
The 11.5 EER and 12.0 EER standards-case efficiency trends are
notable exceptions to the use of the parallel growth trend for the
entire time span of the forecast (i.e., through 2035). Because the
maximum technologically feasible design is 12.0 EER, the maximum
shipment-weighted efficiency for any given year is 12.0 EER. As a
result, because the efficiency trend for the 11.5 EER standards case
achieves a shipment-weighted efficiency of 12.0 EER in the year 2023,
the forecasted efficiency trend remains flat from the year 2023 through
2035. In the case of the 12.0 EER standards case, there is a shipment-
weighted efficiency of 12.0 EER immediately after the standard becomes
effective. Thus, the efficiency trend is flat (i.e., stays fixed at
12.0 EER) throughout the entire forecast.
(2) Shipments
The Department forecasted shipments for the base case and all
standards cases. Forecasted shipments are addressed in subsection
10.2.2.2 of the TSD ANOPR. The Shipments Model is discussed in more
detail in section II.G.3 of this ANOPR.
(3) Equipment Stock
The commercial unitary air conditioner stock is the number of
unitary air conditioners purchased or shipped in a particular year that
survive in a later year. The NES Spreadsheet Model keeps track of the
number of commercial unitary air conditioners shipped each year. The
Department assumes that commercial unitary air conditioners have an
increasing probability of retiring as they age. The probability of
survival, as a function of years after purchase, is the survival
function. Commercial unitary air conditioner lifetimes, otherwise
called the vintage, range from one to about 30 years, with an average
value of 15.4 years. Note that the resulting stock of commercial
unitary air conditioners under all standards cases is less than that
under the base case due to the smaller number of shipments forecasted
for the standards cases. For more detail on equipment stock, refer to
subsection 10.2.2.3 of the ANOPR TSD.
[[Page 45491]]
(4) National Annual Energy Consumption
The national annual energy consumption is the annual energy
consumption per commercial unitary air conditioner multiplied by the
number of commercial unitary air conditioners 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 commercial unitary air conditioning unit inside
the building it is serving). The Department then calculated primary
energy consumption from site energy consumption by applying a
conversion factor to account for losses, such as those losses
associated with the generation, transmission, and distribution of
electricity. For more detail on national annual energy consumption,
refer to subsection 10.2.2.4 of the ANOPR TSD.
(5) Electricity Site-to-Source Conversion Factors
To transform site energy savings into source energy savings, DOE
uses electricity site-to-source energy conversion factors that vary
from year to year. The Department based the annual source conversion
factors used for the analysis conducted for this ANOPR on U.S. average
values from the commercial sector, calculated from the AEO 2003. For
analyses conducted in the future, the Department plans to use marginal
conversion factors specific to the type of generation sources (i.e.,
power plants) displaced from decreases in national energy consumption
resulting from the use of more efficient commercial unitary air
conditioners. The resulting conversion factors will change over time.
For more information on electricity site-to-source conversion factors,
refer to subsection 10.2.2.5 of the ANOPR TSD.
2. National Net Present Value
The NPV is the sum over time of discounted net savings. The
national NPV of each candidate standards level is the difference
between the base case national average LCC and the national average LCC
in the standards case. For more detail on national net present value,
refer to section 10.3 of the ANOPR TSD.
a. National Net Present Value Calculations
The Department calculated net savings each year as the difference
between total operating cost savings (including electricity, repair,
and maintenance cost savings) and increases in total installed costs
(including equipment price and installation cost). The Department
calculated savings over the life of the equipment, which accounts for
the differences in yearly energy rates. The Department calculated the
NPV as the difference between the present value of operating cost
savings and the present value of increased total installed costs. It
discounted future costs and savings to the present with a discount
factor. The Department calculated the discount factor from the discount
rate and the number of years between 2001 (the year to which DOE
discounted the sum) and the year in which the costs and savings occur.
An NPV greater than zero shows net savings (i.e., the energy efficiency
standard reduces customer expenditures in the standards case relative
to the base case). An NPV that is less than zero indicates that the
energy efficiency standard incurs net costs.
The elements of the NPV can be expressed in another form, as the
benefit/cost ratio. The benefit is the savings in decreased operating
cost (including electricity, repair, and maintenance), while the cost
is the increase in the total installed cost (including equipment price
and installation cost) due to standards, relative to the base case.
When the NPV is greater than zero, the benefit/cost ratio is greater
than one.
In the determination of the NPV, the Department calculated costs as
the product of the difference in the total installed cost between the
base case and standards case, and the annual sales volume or number of
shipments in the standards case. Because costs of the more efficient
equipment purchased in the standards case are higher than those of
equipment purchased in the base case, price increases appear as
negative values in the NPV.
The Department depicted monetary savings as decreases in operating
costs associated with the higher energy efficiency of equipment
purchased in the standards case compared to the base case. Total
operating cost savings are the product of savings per unit and the
number of units of each vintage surviving in a particular year. Savings
appear as positive values in the NPV.
As noted earlier, the Department determined that shipment
projections under the standards cases were lower than those from the
base case projection, due to the higher installed cost of the more
efficient equipment. As a result, DOE used the standards case shipments
projection and, in turn, the standards case stock, to determine the
NPV, to avoid the inclusion of operating cost savings and increased
total installed costs due to displaced shipments.
b. Net Present Value Inputs
The inputs for the determination of NPV are: (1) Total annual
installed cost, (2) total annual operating cost savings, (3) discount
factor, (4) present value of costs, and (5) present value of savings.
Net present value inputs are discussed below. Also, for more detail on
net present value inputs, refer to subsection 10.3.2 of the ANOPR TSD.
(1) Total Annual Installed Cost
An increase in the total annual installed cost to the Nation is the
annual change in the per-unit total installed cost (the difference
between the base case and the standards case) multiplied by the
shipments forecasted in the standards case. As noted earlier concerning
the national energy savings, DOE used the standards case shipments
forecast to avoid miscounting the reduction in shipments as a reduction
in total installed costs.
The total installed cost includes both the equipment cost and the
installation price, and is a function of equipment efficiency. The
equipment cost includes the distribution markups (as determined in
section II.E of this ANOPR) that are applied to the manufacturer costs
estimated in the engineering analysis (section II.C of this ANOPR). The
resultant equipment prices increase with equipment efficiency. The
Department based average per-unit equipment costs on average
manufacturer prices, multiplied by average overall markup values. With
regard to installation prices, the Department varies installation
prices in direct proportion to the weight of the equipment (section
II.F.1.a of this ANOPR). The Department developed linear relationships
of operating weight as a function of equipment efficiency for 7.5-ton
and 15-ton commercial unitary air conditioners and assumed the
installation price increased in the same proportion. It based average
per-unit installation prices on nationally representative values for
each of the two commercial unitary air conditioner equipment classes.
Because DOE calculated the total installed cost as a function of
equipment efficiency, it could determine historical and forecasted
total installed costs based on the annual shipment-weighted efficiency
levels specified in the base case and standards case efficiency trends.
(2) Total Annual Operating Cost Savings
The annual operating cost savings to the Nation is the annual
change in the
[[Page 45492]]
per-unit annual operating costs (the difference between base case and
standards case) multiplied by the shipments forecasted in the standards
case. As just noted earlier concerning the total annual installed cost,
DOE used the standards case forecast to avoid miscounting the reduction
in shipments as an operating cost savings. The annual operating cost
includes the electricity, repair, and maintenance costs.
As described in the discussion of the LCC Analysis, the Department
calculated annual electricity expenses based on two approaches: A
tariff-based approach and an hourly based approach. The hourly based
approach resulted in annual energy expenses which were, on average,
less than one percent different from those in the tariff-based
analysis. As discussed in section II.F.3.b. (LCC results), because the
resulting national customer economic impacts from the two approaches
would not be significantly different, the Department designated the
tariff-based analysis as the primary analysis approach. Thus, the NPV
calculations are based only on the results from the tariff-based
approach.
The Department determined weighted-average per-unit annual energy
expenses as a function of equipment efficiency. As discussed in the
Building Simulation Analysis, Chapter 6 of the ANOPR TSD, DOE conducted
whole-building simulations on a representative sample of commercial
buildings that use commercial unitary air conditioning equipment. The
Department assigned tariff-based electricity rates to each building to
determine the annual energy expense for air conditioning in that
building. Using the representative set of buildings, DOE performed a
weighted-average calculation to arrive at the net present values as a
function of equipment efficiency. The Department based the weighting
not only on the representativeness of the building, but also on the
representativeness of the electric utility to which the building was
assigned, as well as the number of air conditioning units that were
required to meet the simulated cooling load.
As discussed in the LCC Analysis, Chapter 8 of the ANOPR TSD, the
Department based the average annual repair costs on the weight of the
equipment, and in turn, the equipment efficiency, while it determined
average annual maintenance costs to be $200 regardless of cooling
capacity or efficiency level. Thus, annual maintenance costs did not
factor into the determination of the total operating cost savings.
Because the Department calculated the annual energy expense and
repair costs as a function of equipment efficiency, it could determine
historical and forecasted annual energy expenses and repair costs based
on the annual shipment-weighted efficiency levels specified in the base
case and standards case efficiency trends. Further, the Department
characterized each standards case with three efficiency scenarios and
three growth trends, and from them it developed annual energy expense
and repair cost trends for a total of nine standards cases for each
possible new standard.
(3) Discount Factor
The discount factor is the factor by which DOE multiplied monetary
values in one year to determine the present value in a different year.
The discount factor is a function of the discount rate, the year of the
monetary value, and the year in which the present value is being
determined. For example, assuming a discount rate of seven percent, to
discount monetary values in the year 2010 to values in the year 2001,
DOE would use a discount factor of 1/(1.07)9 or 0.544.
The ACEEE commented that long-term social discount rates are
appropriate for assessing the national impacts of standards. (Public
Workshop Tr., No. 2EE at p. 201) Consistent with the Process Rule, the
Department estimated national impacts with both a three-percent and a
seven-percent real discount rate as the average real rate of return on
private investment in the U.S. economy. These discount rates are used
in accordance with the Office of Management and Budget's (OMB)
guidelines on Regulatory Analysis. (OMB Circular A-4, section E,
September 17, 2003) See Chapter 10 of the TSD for more details on
national impacts based on three-percent and seven-percent discount
rates. The Department defines the present year as 2001 for consistency
with the year in which the Department collected manufacturer cost data.
(4) Present Value of Costs
The present value of increased total installed costs is the total
installed cost increase (i.e., the difference between the standards
case and base case) discounted to the present, and summed over the time
period for which DOE evaluated the impact of standards (i.e., from the
effective date of standards for this ANOPR in year 2008 to the year
2035).
Costs are increases in total installed cost (including both
equipment cost and installation price) associated with the higher
energy efficiency of commercial unitary air conditioners purchased in
the standards case compared to the base case. The Department calculated
total equipment costs as the difference in total installed cost for new
equipment purchased each year, multiplied by the shipments in the
standards case.
(5) Present Value of Savings
The present value of operating cost savings is the annual operating
cost savings (i.e., the difference between the base case and standards
case) discounted to the present, and summed.
Savings are decreases in operating costs (including electricity,
repair, and maintenance) associated with the higher energy efficiency
of commercial unitary air conditioners purchased in the standards case
compared to the base case. Total operating cost savings are the savings
per unit multiplied by the number of units of each vintage surviving in
a particular year. Equipment consumes energy over its entire lifetime,
and for units purchased in 2035 the present value of savings includes
energy expenses incurred until the unit is retired from service.
3. Shipments Model
The Department chose an accounting model to prepare shipment
scenarios for the baseline and the various standard levels considered
for commercial unitary air conditioners. The model tracks the stocks
(inventory of installed equipment) and purchases of equipment in the
two equipment classes of commercial unitary air conditioners. Events
and customer decisions influence how the stock and supply of commercial
air conditioners flow from one category to another. The Department
modeled decisions that are influenced by economic parameters (i.e.,
total installed cost, operating cost, and income) with a logit
probability model. The logit probability model is described later in
this section.
The Department organized the model into three classes of elements:
Stocks, events, and decisions. It divided stocks of commercial unitary
air conditioners into ownership categories, and units are assigned to
age categories. Events are things that happen to stocks independent of
economic conditions, i.e., breakdowns requiring repair or replacement.
Decisions are customer reactions to market conditions, e.g., whether to
repair or replace equipment, or purchase an air conditioner for a
building which does not have one. The model characterizes customer
purchase decisions by market segments. The model uses decision trees to
describe customer choices for purchases and
[[Page 45493]]
repairs. A logit probability model simulates customer purchase
decisions that are based on equipment price, operating costs, and
business income level. A logit model allows a person to pinpoint
variables that affect the probability of purchase. For more detail on
the shipments model, refer to Chapter 9 of the ANOPR TSD.
a. Ownership Categories
The Department first divided buildings into commercial air
conditioner markets, then further divided the two markets into four
different ownership categories, including: (1) New buildings; (2)
existing buildings with a commercial unitary air conditioner; (3)
buildings without a commercial unitary air conditioner; and (4)
buildings with an extended-life commercial unitary air conditioner
(i.e., equipment repaired to extend its life). The Department refers to
the population of commercial unitary air conditioner units in each
ownership category as the stock of commercial unitary air conditioner
units of that category. Accounting equations relate annual changes in
stocks to activities in the various market segments.
b. Market Segments
The Department divided commercial unitary air conditioner purchases
into four market segments:
Net New Building Market: Net increases in the building
stock that force the purchase of new commercial unitary air
conditioners.
Regular Replacement Market: Most commercial unitary air
conditioner purchases are to replace an existing system that has broken
down after completion of its useful life.
Extra Repair Market: Because replacement of commercial
unitary air conditioners is costly, a few customers will rebuild or
repair a malfunctioning system (thus extending its lifetime), rather
than purchasing a new system. Eventually, even extended-life commercial
unitary air conditioners are replaced.
Buildings Without a Commercial Air Conditioner: Owners of
some buildings without a commercial air conditioner will purchase and
become new users of commercial unitary air conditioners.
The Department modeled events and decisions (e.g., the probability
that an existing commercial unitary air conditioner has a problem and
the customer's course of action) separately for each market segment.
Trane stated that large increases in energy efficiency standards
levels for commercial unitary air conditioners will cause users to
repair their equipment rather than replace it, thereby decreasing
shipments. (Public Workshop Tr., No. 2EE at p. 226) As noted above, the
Department explicitly accounts for those customers that choose to
repair their equipment rather than purchase a new system. Due to the
increased equipment purchase price from higher efficiency standards,
the shipments model estimates that some existing commercial unitary air
conditioner customers, when faced with a replacement decision, will
forego the purchase of a new piece of equipment and, instead, extend
its normal life by repairing it. As a result, DOE estimated shipment
projections under any standards case to be lower than those from the
base case projection. Also, the shipments model forecasted that a
greater number of existing customers would defer the purchase of a new
system and extend the life of their equipment as the purchase price
increased due to higher minimum efficiency standards.
c. Logit Probability Model
The Department used the logit probability-of-purchase model to
estimate the impact of standards-induced price and features changes on
customer decisions. The model accounts for customer responsiveness to
total installed cost, operating costs, and business income to capture
the effect of these three variables on future shipments. The Department
developed a coefficient of elasticity for the responsiveness to these
three factors for each of the market segments. The elasticity was
established by calibrating equipment forecasts to historical shipments.
This ensured that estimates were consistent with the recent history of
commercial unitary air conditioner shipments, market structure, and
customer preferences.
However, the Department understands that there are certain
drawbacks to this method which include: (1) The need to forecast
saturation of units in new and stock buildings; (2) the need to
forecast building starts (although the AEO does provide readily
available forecasts); and (3) the need to make assumptions concerning
the lifetime of a unit to determine its retirement date. Concerning
equipment saturation, the Department estimates that a maximum of ten
percent of the total commercial floor space is eligible to receive
equipment of the type covered by this rulemaking. Concerning building
starts, the Department believes that unitary air conditioners would
continue to be installed in the same types of buildings in which they
are currently being used, and future equipment installations of
commercial unitary air conditioners would not be preferentially
installed in particular building types (e.g., retail or office).
Although the Department believes its estimates for equipment
saturations and building starts are reasonable, the Department invites
comments from interested parties on the reasonableness of these
estimates. The equipment saturation and building start issues are
addressed as Issues 12 and 13 under ``Issues on Which DOE Seeks
Comment'' in section IV.E of this ANOPR.
Table II.17 summarizes the various inputs and sources of the
commercial unitary air conditioner shipments model.
Table II.17.--Summary of Shipments Model Inputs
------------------------------------------------------------------------
Parameter Data description
------------------------------------------------------------------------
New Commercial Building Starts......... DOE-Energy Information
Administration, Annual Energy
Outlook 2003.
Historical Commercial Building Starts.. U.S. Census Bureau, Statistical
Abstract of the United States:
2002.
Regular Replacement Market............. Based on a survival function
constructed from a Weibull
distribution function
normalized to produce a 15-
year median lifetime. DOE
based the 15-year median
lifetime on data from the 1999
ASHRAE HVAC Applications
Handbook.
Extra Repair Market.................... Same survival function as used
for regular replacement market
but with a six-year extended
life.
Buildings Without an Air Conditioner... This is a function of shipments
going to new commercial
buildings and existing floor
space.
Business Income........................ Building Owners and Managers
Association (BOMA)
International, Historical
Experience Exchange Reports.
[[Page 45494]]
Total Installed Cost................... Average values from LCC and PBP
Analysis.
Operating Cost......................... Average values from LCC and PBP
Analysis.
Elasticities........................... Developed by calibrating logit
probability model to
historical shipments.
Historical Shipments................... U.S. Census Bureau, Current
Industrial Reports,
Refrigeration, Air
Conditioning and Warm Air
Heating Equipment (MA333M
series 1970 through 2000).
------------------------------------------------------------------------
Unlike the LCC Analysis, the shipments model does not use
probability distributions of values for inputs. As noted in the above
discussion of the NES spreadsheet model, the shipments model uses the
same basic input data as the LCC model for energy use and cost of
equipment, but uses shipment-weighted average values instead of
probability distributions.
4. Preliminary Results
Tables II.18 and II.19 show the forecasted NES for the two primary
equipment classes at each of the candidate standard levels. Note that
in the case of both equipment classes, although the ASHRAE/IESNA
Standard 90.1-1999 energy efficiency levels allow for four additional
years of energy savings over the other standards cases, the amount is
not great enough to offset the additional energy savings realized from
adopting more stringent standards.
Table II.18.--Summary of Cumulative NES Impacts (Quads) Through the Year
2035 for >=65,000 to <135,000 Btu/h Commercial Air Conditioners
------------------------------------------------------------------------
Effective
Candidate standard level date of NES
standard (quads)
------------------------------------------------------------------------
ASHRAE 90.1--1999............................. 2004 0.31
10.5 EER...................................... 2008 0.39
11.0 EER...................................... 2008 0.70
11.5 EER...................................... 2008 0.98
12.0 EER...................................... 2008 1.08
------------------------------------------------------------------------
Table II.19.--Summary of Cumulative NES Impacts (Quads) Through the Year
2035 for >=135,000 to <240,000 Btu/h Commercial Air Conditioners
------------------------------------------------------------------------
Effective
Candidate standard level date of NES
standard (quads)
------------------------------------------------------------------------
ASHRAE 90.1--1999............................. 2004 0.20
10.0 EER...................................... 2008 0.31
10.5 EER...................................... 2008 0.53
11.0 EER...................................... 2008 0.79
11.5 EER...................................... 2008 1.02
12.0 EER...................................... 2008 1.09
------------------------------------------------------------------------
Tables II.20 and II.21 show the national NPVs for the two primary
equipment classes for each of the candidate standard levels evaluated
at discount rates of three-percent and seven-percent real per OMB's
guidelines contained in Circular A-4, Regulatory Analysis, September
17, 2003. Based on the use of a seven-percent real discount rate, note
that the NPV increases with the stringency of the standard level until
the 12.0 EER standards case. Although the 12.0 EER standards case
provides additional operating cost savings, the higher equipment
purchase costs incurred under the standard result in an NPV that is
lower than that realized under the 11.5 EER standards case. Use of a
three-percent discount rate, as called for by OMB guidelines, increases
both future equipment purchase costs and operating cost savings. But
because future annual operating cost savings in latter years grow at a
faster rate than annual equipment purchase costs, use of a three-
percent discount rate dramatically increases the NPV at all standard
levels for both equipment classes. For example, in the 11.5 EER
standard level scenario for the >=65,000 Btu/h to <135,000 Btu/h
commercial unitary air conditioning equipment class, the $1.08 billion
NPV based on a seven-percent discount rate becomes $3.06 billion under
a three-percent discount rate. Chapter 10 of the ANOPR TSD also
provides the full set of NPV results.
Table II.20.--Summary of Cumulative Net Present Value Impacts (in billion 2001 dollars) for >=65,000 to <135,000
Btu/h Commercial Air Conditioners Calculated with a Seven-Percent and Three-Percent Real Discount Rate
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001$)
Effective -------------------------------
Candidate standard level date of 7% discount 3% discount
standard rate rate
----------------------------------------------------------------------------------------------------------------
ASHRAE 90.1-1999................................................ 2004 0.52 1.25
10.5 EER........................................................ 2008 0.57 1.52
11.0 EER........................................................ 2008 0.93 2.53
11.5 EER........................................................ 2008 1.08 3.06
12.0 EER........................................................ 2008 1.02 3.05
----------------------------------------------------------------------------------------------------------------
[[Page 45495]]
Table II.21.--Summary of Cumulative Net Present Value Impacts (in billion 2001 dollars) for >=135,000 to
<240,000 Btu/h Commercial Air Conditioners Calculated with a Seven-Percent and Three-Percent Real Discount Rate
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001$)
Effective -------------------------------
Candidate standard level date of 7% discount 3% discount
standard rate rate
----------------------------------------------------------------------------------------------------------------
ASHRAE 90.1-1999................................................ 2004 0.38 0.90
10.0 EER........................................................ 2008 0.51 1.33
10.5 EER........................................................ 2008 0.83 2.19
11.0 EER........................................................ 2008 1.12 3.02
11.5 EER........................................................ 2008 1.24 3.44
12.0 EER........................................................ 2008 1.20 3.44
----------------------------------------------------------------------------------------------------------------
The engineering analysis, section II.C of the ANOPR, established a
maximum technologically feasible (i.e., ``max tech'') efficiency level
of 12.0 EER. However, the engineering analysis also described a process
(to be used for the NOPR) to ascertain whether the max tech level is
actually greater than 12 EER. In anticipation that a greater max tech
level could exist beyond 12.0 EER, the Department ran a sensitivity
analysis to determine the effect on NES and NPV of a max tech
efficiency level greater than 12.0 EER. For purposes of conducting the
sensitivity analysis, the Department assumed that the max tech
efficiency level would be 2 EER rating points beyond a given candidate
standard level. This means that under the ASHRAE/IESNA Standard 90.1-
1999 and 10.0 EER standards cases, the max tech level remains unchanged
at 12.0 EER. But for all other standards cases, the max tech level is
greater than 12.0 EER (i.e., 12.5 EER for the 10.5 EER standards case,
13.0 EER for the 11.0 EER standards case, 13.5 EER for the 11.5 EER
standards case, and 14.0 EER for the 12.0 EER standards case). Although
under these standards cases the max tech level is allowed to go beyond
12.0 EER, equipment with efficiencies equal to the max tech level are
assumed to be gradually phased in over time. As a result, the
forecasted efficiency trends for these candidate standards are not very
different from those developed with a max tech level of 12.0 EER. As a
result, only the NES and NPV results for the 11.5 EER and 12.0 EER
standards cases are significantly different from those results based on
a max tech level of 12.0 EER. For more details on the NES and NPV
results for the max tech sensitivity analysis, refer to subsection
10.4.5 of the ANOPR TSD.
H. LCC Sub-Group Analysis
The LCC sub-group analysis evaluates impacts on identifiable groups
of customers, such as customers of different business types, who may be
disproportionately affected by any national energy efficiency standard
level. The Department will accomplish this, in part, by analyzing the
LCC and PBPs for those customers that fall into those identifiable
groups.
Also, the Department plans to evaluate variations in energy prices
and variations in energy use that might affect the NPV of a standard to
customer sub-populations. To the extent possible, the Department will
get estimates of the variability of each input parameter and consider
this variability in its calculation of customer impacts. Variations in
energy use for a particular equipment type depend on factors such as
climate, building type, and type of business. The Department plans to
perform sensitivity analyses to consider how differences in energy use
will affect sub-groups of customers.
The Department will then determine the effect on customer sub-
groups using the LCC spreadsheet model. The standard LCC analysis
includes various commercial building types that use unitary air
conditioners. Where different data points are input to the spreadsheet
model, the Department can analyze the LCC for any sub-group, such as
office buildings in the U.S., by sampling only that sub-group. For more
detail on the LCC sub-group analysis, refer to Chapter 11 of the ANOPR
TSD.
The Department will be especially sensitive to purchase price
increases (``first cost'' increases) to avoid negative impacts on
identifiable population groups such as small businesses (i.e., those
with low annual revenues) which may not be able to afford a significant
increase in the price of commercial unitary air conditioning equipment.
Increased first costs to commercial customers which result from
standards are especially important to smaller businesses because this
group is most sensitive to price increases. For these types of
customers, an increase in first cost for a piece of unitary air
conditioning equipment might preclude the purchase of a new model of
that equipment. As a result, some commercial customers may keep a
unitary air conditioner past its anticipated useful life. An older
unitary air conditioner is generally less efficient than a new one and
its efficiency may further deteriorate if it keeps operating beyond
that useful life. Further, an increase in first cost might altogether
preclude the purchase and use of new equipment and potentially result
in a great loss of utility.
Although the Department does not know the actual business income
and annual revenues for the buildings analyzed in the LCC analysis, the
Department will attempt to identify a building characteristic that
correlates to annual income (e.g., floor space). If a characteristic
can be found, the Department will be able to perform sub-group analyses
on smaller businesses. If the Department cannot identify a building
characteristic that correlates with income, then the Department may not
be able to perform sub-group analyses on smaller businesses. The issue
of business income and how it might relate to a particular building
characteristic is addressed as Issue 14 under ``Issues on Which DOE
Seeks Comment'' in section IV.E of this ANOPR.
The ACEEE stated that a sub-group analysis is unnecessary, stating
that analyzing customer sub-groups will lead to an analytical quagmire.
(ACEEE, No. 10 at p. 11) The Department understands ACEEE's concerns
because the LCC analysis of numerous sub-groups could require an
inordinate amount of time and resources. However, as long as there are
valid reasons for analyzing certain sub-groups, such as those
businesses that may be affected more severely than the general
population by increases in purchase
[[Page 45496]]
price, the Department will analyze the LCC impacts on those sub-groups.
I. Manufacturer Impact Analysis
The purpose of the manufacturer analysis is to identify the likely
impacts of efficiency standards on manufacturers. Consistent with the
policies outlined in the Department's Process Rule, 10 CFR Part 430,
Subpart C, Appendix A, the Department will analyze the impact of
standards on manufacturers with substantial input from manufacturers
and other interested parties. The use of quantitative models will be
supplemented by qualitative assessments by industry experts.
The Department intends to conduct the manufacturer impact analysis
in three phases, and further tailor the analytical framework based on
stakeholder comments. In Phase I, an industry profile is created to
characterize the industry, and identify important issues that require
consideration. In Phase II, an industry cash flow model and an
interview questionnaire are prepared to guide subsequent discussions.
In Phase III, manufacturers are interviewed, and the impacts of
standards are assessed both quantitatively and qualitatively. First,
industry and sub-group cash flow and net present value are assessed
through use of the government regulatory impact model (GRIM). Second,
impacts on competition, manufacturing capacity, employment, and
regulatory burden are assessed based on manufacturer interview feedback
and discussions. For more detail on the manufacturer impact analysis,
refer to Chapter 12 of the ANOPR TSD.
1. Sources of Information for the Manufacturer Impact Analysis
Many of the analyses described above provide important information
concerning the manufacturer impact analysis. Such information includes
manufacturing costs (section II.C), shipments forecasts (section
II.G.3), and price forecasts (section II.E). The Department
supplemented this information with information gathered during
interviews with manufacturers. The interview process has a key role in
the manufacturer impact analysis because it allows interested parties
to privately express their views on important issues, and allows DOE to
consider confidential or sensitive information in the rulemaking
decision.
The Department intends to conduct detailed interviews with as many
manufacturers as necessary to gain insight into the range of potential
impacts of standards. Typically during the interviews, DOE solicits
information on the possible impacts of potential efficiency levels on
sales, direct employment, capital assets, and industry competitiveness.
Both qualitative and quantitative information is valuable. The
Department intends to schedule interviews well in advance to provide
every opportunity for key individuals to be available for comment.
Although a written response to a questionnaire would otherwise be
acceptable, DOE prefers an interactive interview process because it
helps clarify responses and identify additional issues.
Before the interviews, the Department will prepare and distribute
to the manufacturers estimates of the financial parameters that it
plans to use in the manufacturer impact analysis. During the
interviews, the Department will seek comment and suggestions regarding
the values selected for those parameters.
The Department will ask interview participants to give, either in
writing or orally, notice of any confidential information that is being
provided. The Department will consider all relevant information in its
decision-making process. However, DOE will not make confidential
information available in the public record. The Department also will
ask participants to identify all information that they wish to have
included in the public record and whether they want it to be presented
with, or without, attribution.
The Department will review the results of the interviews and
prepare a summary of the major issues and outcomes. For more detail on
the methodology used in the manufacturer impact analysis, refer to
section 12.2 of the ANOPR TSD.
2. Industry Cash Flow Analysis
The industry cash flow analysis relies primarily on the Government
Regulatory Impact Model (GRIM). The Department uses the GRIM to analyze
the financial impacts of more-stringent energy efficiency standards on
the industry.
The GRIM analysis uses several factors to determine annual cash
flows beginning with the first public announcement of a new standard
and for the several years after its implementation: Annual expected
revenues; manufacturer costs such as costs of sales, selling, and
general administration costs; taxes; and capital expenditures related
to depreciation, new standards, and maintenance. The Department
compares the results against baseline projections that involve no new
standards. The financial impact of new standards is the difference
between the two sets of discounted annual cash flows. Other performance
metrics, such as return on invested capital, also are available from
the GRIM. For more information on the industry cash flow analysis,
refer to subsection 12.2.2.1 of the ANOPR TSD.
3. Manufacturer Sub-Group Analysis
Industry cost estimates are not adequate to assess differential
effects among sub-groups of manufacturers. For example, there could be
greater negative effects on smaller manufacturers, niche players, or
manufacturers exhibiting a cost structure that differs largely from the
industry average. Ideally, the Department would consider the impact on
every firm individually; however, it typically uses the results of the
industry characterization to group manufacturers exhibiting similar
characteristics.
During the interview process, DOE will discuss the potential sub-
groups and sub-group members that it has identified for the analysis.
The Department will encourage the manufacturers to suggest what sub-
groups or characteristics are most appropriate for the analysis. For
more detail on the manufacturer sub-group analysis, refer to subsection
12.2.3 the ANOPR TSD.
4. Competitive Impacts Assessment
The Department must examine whether any lessening of competition is
likely to result if a standard is set above the levels established in
the ASHRAE/IESNA Standard 90.1-1999 and the Attorney General must
determine the impacts, if any, of any lessening of competition. (42
U.S.C. 6313(6)(B)(i)(V)) The Department will make a determined effort
to gather and report firm-specific financial information and impacts.
The competitive analysis will focus on assessing the impacts to smaller
manufacturers. The Department will base the assessment on manufacturing
cost data and on information collected from interviews with
manufacturers. The manufacturer interviews will focus on gathering
information that will help in assessing asymmetrical cost increases to
some manufacturers, increased proportions of fixed costs that could
potentially increase business risks, and potential barriers to market
entry (e.g., proprietary technologies).
5. Cumulative Regulatory Burden
The Department recognizes and seeks to mitigate the overlapping
effects on manufacturers of amended DOE standards and other regulatory
actions affecting the same equipment or companies. See the Department's
Process Rule, 10 CFR Part 430, Subpart C, Appendix A, sections
4(d)(7)(ii) and (vi), and 5(e)(3)(i)(B).
[[Page 45497]]
The Department understands that the phaseout in 2010 of R-22
refrigerant may occur shortly after the effective date of any new
standards for commercial unitary air-conditioning equipment. Two
refrigerants, R-410a and R-407c, are currently under consideration as
substitutes for R-22. In either case, the Department understands that
there may be additional capital conversion and production conversion
costs associated with the phaseout. The firms that manufacture the
commercial equipment, for the most part, also manufacture residential
central air conditioners and will face that conversion expense in 2010.
J. Utility Impact Analysis
To estimate the effects of candidate commercial unitary air
conditioner standard levels on the electric utility industry, the
Department intends to use a variant of DOE/EIA's National Energy
Modeling System (NEMS).\3\ The DOE/EIA used this model to produce the
Annual Energy Outlook. The Department will use a variant known as NEMS-
Building Technologies (BT) to provide key inputs to the analysis. The
utility impact analysis is a comparison between model results for the
base case and candidate standards cases. The analysis will consist of
forecasted differences between the base and standards cases for
electricity generation, installed capacity, sales, and prices. Because
the Department attempts to use a variant of the latest version of NEMS,
the NOPR analyses will use the most recently available version of NEMS,
which in all likelihood will be the version used to generate the AEO
2004.
---------------------------------------------------------------------------
\3\ For more information on NEMS, refer to the U.S. Department
of Energy, Energy Information Administration documentation. A useful
summary is National Energy Modeling System: An Overview 2000, DOE/
EIA-0581(2000), March, 2000. DOE/EIA approves use of the name NEMS
to describe only an official version of the model without any
modification to code or data. Because this analysis entails some
minor code modifications and the model is run under various policy
scenarios that are variations on DOE/EIA assumptions, DOE refers to
it by the name NEMS-BT (BT is DOE's Building Technologies program
that performs this work).
---------------------------------------------------------------------------
The use of NEMS for the utility analysis offers several advantages.
As the official DOE energy forecasting model, it relies on a set of
assumptions that are transparent and have received wide exposure and
commentary. This model allows an estimate of the interactions between
the various energy supply and demand sectors and the economy as a
whole. The utility analysis will report the changes in installed
capacity and generation by fuel type for each trial standard level, as
well as changes in electricity sales to the commercial sector.
The Department conducts the utility analysis as a policy deviation
from the AEO, applying the same basic set of assumptions. For example,
the utility analysis uses the operating characteristics (e.g., energy
conversion efficiency, emissions rates) of future electricity
generating plants and the prospects for natural gas supply as specified
in the AEO reference case.
The Department also will explore deviations from some of the
reference case assumptions to represent alternative futures. Two
alternative scenarios use the high and low economic growth cases of the
AEO. The AEO reference case projects that the U.S. economy, as measured
by gross domestic product (GDP), will grow at an average rate of three
percent from 2001 to 2025. The high economic growth case assumes higher
projected growth rates for population, labor force, and labor
productivity, resulting in lower predicted inflation and interest rates
relative to the reference case and higher overall aggregate economic
growth. The opposite is true for the low-growth case. While supply-side
growth determinants are varied in these cases, AEO assumes the same
reference case energy prices for all three economic growth cases.
Different economic growth scenarios will affect the rate of growth of
electricity demand.
This model provides reference case load shapes for several end uses
by census division, including commercial space cooling. The Department
uses predicted growth in demand for each end use to project the total
electric system load growth for each region, which in turn DOE uses to
predict the necessary additions to capacity. The NEMS-BT model accounts
for the implementation of efficiency standards by decreasing the value
of certain variables in the appropriate reference case load shape. The
Department determines the amount of decrease in a variable by using
data for the per-unit energy savings developed in the LCC and PBP
analyses and the shipments forecast developed for the NES analysis. For
more detail on the utility impact analysis, refer to Chapter 13 of the
ANOPR TSD.
The Southern Company stated that in conducting the utility
analysis, it is important to consider the effect on utilities from
changes that affect load factor and peak demand. (Public Workshop Tr.,
No. 2EE at p. 246) The Department recognizes the Southern Company's
concerns, and because the predicted reduction in capacity additions is
very sensitive to the peak load impacts of the standard, the Department
will also use the hourly load data from the building simulations to
provide an independent estimate of the total system load reduction that
results from a given trial standard level.
Because the current AEO (AEO 2003) version of NEMS forecasts only
to the year 2025, DOE must extrapolate results to 2035. The Department
will use the approach which the EIA uses to forecast fuel prices for
the Federal Energy Management Program (FEMP).\4\ The Federal Energy
Management Program uses these prices to estimate LCC of federal
equipment procurements. For petroleum products, FEMP uses the average
growth rate for the world oil price over the years 2010 to 2025, in
combination with the refinery and distribution markups from the year
2025, to determine the regional price forecasts. Similarly, FEMP
derives natural gas prices from an average growth rate figure in
combination with regional price margins from the year 2025.
---------------------------------------------------------------------------
\4\ Memorandum from the Office of Integrated Analysis and
Forecasting, Energy Information Administration, to the Federal
Energy Management Program Office, dated January 23, 2003, ``Energy
Price Projections for Federal Life Cycle Cost Analysis.''
---------------------------------------------------------------------------
Results of the analysis will include changes in commercial
electricity sales, and installed capacity and generation by fuel type,
for each trial standard level, in five-year forecasted increments
extrapolated to the year 2035. The Natural Resources Defense Council
stated that increases in the commercial unitary air conditioner
standards will protect lives by reducing electricity blackouts. (NRDC,
No. 6 at p. 5) Although the Department recognizes the possibility that
a reduction in installed capacity could reduce the likelihood of
blackouts, the Department does not intend to correlate reductions in
installed capacity to possible reductions in electricity outages.
K. Environmental Assessment
The Department will conduct an assessment of the impacts of
candidate commercial unitary air conditioner standard levels on certain
environmental indicators using NEMS-BT to provide key inputs to the
analysis. Results of the environmental assessment are similar to those
provided in the AEO. Because the Department attempts to use a variant
of the latest version of NEMS, the analyses conducted for the NOPR will
use the most recently available version of NEMS, which in all
likelihood will be the version used to generate the AEO 2004.
[[Page 45498]]
The Department intends the environmental assessment to provide
emissions results to policymakers and stakeholders, and to fulfill
relevant legal requirements concerning the evaluation of environmental
effects of new rules. The environmental assessment considers only two
pollutants, sulfur dioxide (SO2) and nitrogen oxides
(NOX), and one emission, carbon. The only form of carbon
NEMS-BT tracks is carbon dioxide (CO2), so the carbon
discussed in this report is only in the form of CO2. For
each of the standard levels, DOE will calculate total undiscounted and
discounted emissions using NEMS-BT and will use external analysis as
needed.
The Department will conduct the environmental assessment as a
policy deviation from the AEO applying the same basic set of
assumptions. For example, the emissions characteristics of an
electricity generating plant will be exactly those used in AEO. The
Southern Company stated that the environmental impacts calculated from
a standards increase must consider other factors that may also be
affecting power plant emissions. (Public Workshop Tr., No. 2EE at p.
254) Forecasts conducted with NEMS-BT also take into consideration the
supply-side and demand-side effects on the electric utility industry.
Thus, the Department's analysis takes into account any factors
affecting the type of electricity generation and, in turn, the type and
amount of airborne emissions the utility industry generates.
The NEMS-BT model tracks carbon emissions using a detailed carbon
module. This gives good results because of its broad coverage of all
sectors and inclusion of interactive effects. Past experience with
carbon results from NEMS suggests that emissions estimates are somewhat
lower than emissions estimates based on simple average factors. One of
the reasons for this divergence is that NEMS tends to predict that
conservation displaces renewable generating capacity in the out years.
On the whole, NEMS-BT provides carbon emissions results of reasonable
accuracy, at a level consistent with other Federal published results.
The NEMS-BT model reports the two airborne pollutant emissions that
DOE has reported in past analyses, SO2 and NOX.
The Clean Air Act Amendments of 1990 set an SO2 emissions
cap on all power generation. The attainment of this target, however, is
flexible among generators through the use of emissions allowances and
tradable permits. The NEMS-BT model includes a module for
SO2 allowance trading and delivers a forecast of
SO2 allowance prices. Accurate simulation of SO2
trading tends to imply that physical emissions effects will be zero, as
long as emissions are at the ceiling. This fact has caused considerable
confusion in the past. However, there is an SO2 benefit from
conservation in the form of a lower allowance price as a result of
additional allowances from this rule, and, if it is big enough to be
calculable by NEMS-BT, DOE will report this value. The NEMS-BT model
also has an algorithm for estimating NOX emissions from
power generation. Two recent regulatory actions proposed by the EPA
regarding regulations and guidelines for best available retrofit
technology determinations and the reduction of interstate transport of
fine particulate matter and ozone are tending towards further
NOX reductions and likely to an eventual emissions cap on
nation-wide NOX. 69 FR 25184 (May 5, 2004) and 69 FR 32684
(June 10, 2004). As with SO2 emissions, a cap on
NOX emissions will likely result in no physical emissions
effects from equipment efficiency standards.
The results for the environmental assessment are similar to a
complete NEMS run as published in the AEO. These include power sector
emissions for SO2, NOX, and carbon, and
SO2 prices, in five-year forecasted increments extrapolated
to the year 2035. The Department reports the outcome of the analysis
for each trial standard level as a deviation from the AEO reference
cases. The Natural Resources Defense Council stated that increases in
the commercial unitary air conditioner standards will protect lives by
reducing airborne emissions. (NRDC, No. 6 at p. 5) Although the
Department recognizes the possibility that a reduction in airborne
emissions could result in improved health benefits, the Department has
not correlated reductions in installed capacity to possible
improvements in public health for appliance standards rulemakings. The
Department requests data from stakeholders that identify specific
health benefits from reductions in installed generation capacity. For
more detail on the environmental assessment, refer to the environmental
assessment report in Chapter 14 of the ANOPR TSD. Also, see ``Issues on
Which DOE Seeks Comment'' in section IV.E of this ANOPR.''
L. Employment Impact Analysis
The Process Rule includes employment impacts among the factors to
be considered in selecting a proposed standard. The Department usually
would not issue any proposed standard level that would cause
significant plant closures or losses of domestic employment. See the
Department's Process Rule, 10 CFR Part 430, Subpart C, Appendix A,
sections 4.(d)(7)(ii) and (vi), and 10.
The Department estimates the impacts of standards on employment for
equipment manufacturers, relevant service industries, energy suppliers,
and the economy in general. The estimates cover both the indirect and
direct effects on employment. Direct employment impacts would result if
standards led to a change in the number of employees at manufacturing
plants and related supply and service firms. The discussion of the
manufacturer sub-group analysis in section II.I.3 of this ANOPR covers
estimates of the direct effects on employment.
Indirect impacts are impacts on the national economy other than in
the manufacturing sector being regulated. Indirect impacts may result
both from expenditures shifting among goods (substitution effect) and
changes in income which lead to a change in overall expenditure levels
(income effect). The Department defines indirect employment impacts
from standards as net jobs eliminated or created in the general economy
as a result of increased spending on the purchase price of equipment
and reduced customer spending on energy.
The Department expects new commercial unitary air conditioner
standards to increase the total installed cost of equipment (customer
purchase price plus sales tax, and installation). It expects the new
standards to decrease energy consumption, and therefore to reduce
customer expenditures for energy. Over time, the energy savings will
pay back the increased total installed cost. Customers that benefit
from the savings in energy expenditures may spend those savings on new
commercial investments and other items. Using an input/output model of
the U.S. economy, this analysis seeks to estimate the effects on
different sectors and the net impact on jobs. The Department will
estimate national impacts for major sectors of the U.S. economy in the
NOPR. Public and commercially available data sources and software will
be used to estimate employment impacts. The Department will make all
methods and documentation available for review.
In recent energy efficiency standards rulemakings, the Department
has used the Impact of Building Energy Efficiency Programs (IMBUILD)
spreadsheet model to analyze indirect employment impacts. The
Department's Building Technologies program office developed
[[Page 45499]]
IMBUILD, which is a special-purpose version of the Impact Analysis for
Planning (IMPLAN) national input/output model. IMPLAN specifically
estimates the employment and income effects of building energy
technologies. The IMBUILD model is an economic analysis system that
focuses on those sectors most relevant to buildings, and characterizes
the interconnections among 35 sectors as national input/output matrices
using data from the Bureau of Labor Statistics (BLS). The IMBUILD model
estimates changes in employment, industry output, and wage income in
the overall U.S. economy resulting from changes in expenditures in the
various sectors of the economy. Changes in expenditures due to
commercial air conditioning standards are modeled by IMBUILD as changes
to economic flows (e.g., increased equipment prices and increased
commercial sector investment). The economic flow changes provide
IMBUILD with the means to estimate the net national effect on
employment by sector.
While ACEEE generally supports the inclusion of a net national
employment impacts analysis, it stated that any model or tool used to
estimate employment impacts must be robust and sensitive enough to
reveal effects as small as those that can be foreseen. ACEEE commented
that DOE must show that any direct employment impacts differ
significantly from productivity-related employment changes. (ACEEE, No.
10 at p. 15) The IMBUILD model estimates standards-induced impacts on
the economy while holding constant all other economic factors that can
affect national employment (such as recessions, government stimulus
packages, and government budget deficits). While this approach to
estimating employment impacts cannot determine the impacts due to small
changes (such as productivity gains) on any particular industry, it
does provide an approximation of the impact that equipment standards
have on employment, barring any significant changes to the U.S.
economy. Nevertheless, increases or decreases in the net demand for
labor in the economy estimated by the input/output model due to
commercial unitary air conditioners and heat pump standards are likely
to be very small relative to total national employment. For the
following reasons, it is doubtful that even modest changes in
employment will be predicted in the NOPR.
Although unemployment has increased over the past few
years, it is still at a relatively low rate. If unemployment remains
low during the period when amended energy efficiency standards go into
effect, it is unlikely that the efficiency standards alone would cause
any change in national employment levels;
Neither the BLS data nor the input/output model used by
DOE include the quality or wage level of the jobs. The losses or gains
from any potential employment change might be offset if job quality and
pay also change; and
The net benefits or losses from potential employment
changes are a result of the estimated net present value of benefits or
losses that are likely to result from amended commercial unitary air
conditioner and heat pump energy efficiency standards. It may not be
appropriate to separately identify and consider any employment impacts
beyond the calculation of NPV.
Taking into consideration these legitimate concerns regarding the
interpretation and use of the employment impact analysis, the
Department expects that any energy efficiency standards for commercial
unitary air conditioners and heat pumps are likely to produce
employment benefits that are sufficient to offset fully any adverse
impacts on employment in the commercial air conditioning equipment or
energy industries. Employment impact analyses for products that have
recently gone through a standards rulemaking for energy efficiency,
such as residential water heaters and clothes washers, have
demonstrated that losses in the appliance and energy industries have
been offset by gains in other sectors of the economy.
Although the Department intends on using IMBUILD for its analysis
of employment impacts, the Department welcomes any input on tools that
might be better than IMBUILD. For more information on the net national
employment impacts analysis, refer to Chapter 14 of the ANOPR TSD.
M. Regulatory Impact Analysis
The Department will prepare a draft regulatory impact analysis
under Executive Order 12866, ``Regulatory Planning and Review,'' (58 FR
51735 (October 4, 1993)) which will be subject to review under the
Executive Order by the Office of Information and Regulatory Affairs
(OIRA).
As part of the regulatory analysis, the Department will identify
and seek to mitigate the overlapping effects on manufacturers of
revised DOE standards and other regulatory actions affecting the same
equipment. Through manufacturer interviews and literature searches, the
Department will compile information on burdens from existing and
impending regulations affecting commercial unitary air conditioners
(e.g., HCFC refrigerant phaseout) and other equipment (e.g., non-
unitary commercial air conditioners). Northeast Energy Efficiency
Partnerships (NEEP) stated that existing incentive programs have
demonstrated that commercial consumers need modest incentives to select
equipment with efficiencies that are greater than the minimum standard
requirements in ASHRAE Standard 90.1-1999. (NEEP, No. 8 at p. 3) The
Department takes note of NEEP's comment and intends to address its
concerns in the regulatory impact analysis discussion. The Department
also seeks input from other stakeholders regarding other regulations
that it should consider.
The NOPR will include a complete quantitative analysis of
alternatives to the proposed energy conservation standards. The
Department plans to use the NES spreadsheet model (as discussed earlier
in the section on the national impact analysis) to calculate the NES
and the NPV corresponding to specified alternatives to the proposed
conservation standards. For more information on the regulatory impact
analysis, refer to the regulatory impact analysis report in Chapter 16
of the ANOPR TSD.
III. Candidate Energy Conservation Standards Levels
The Process Rule requires the Department to specify candidate
standards levels in the ANOPR, but not to propose a particular
standard. 10 CFR Part 430, Subpart C, Appendix A, 4(c)(1). These
candidate levels appear in Tables II.18 through II.21 of today's ANOPR.
The Department intends to review the public comments received during
the public comment period following the ANOPR public meeting and to
update the analyses appropriately for each equipment class, before
issuing the NOPR.
Also, the Department requests comments from interested parties
about the phaseout of R-22 refrigerant, and has identified it as Issue
15 under ``Issues on Which DOE Seeks Comment'' in section IV.E. of this
ANOPR.
IV. Public Participation
A. Attendance at Public Meeting
The time and date of the public meeting are listed in the DATES
section at the beginning of this notice of proposed rulemaking. The
public meeting will be held at the U.S. Department of Energy, Forrestal
Building, Room 1E-245, 1000 Independence Avenue, SW.,
[[Page 45500]]
Washington, DC, 20585. Those stakeholders who want to attend the public
meeting should notify Ms. Brenda Edwards-Jones at (202) 586-2945.
Foreign nationals visiting DOE Headquarters are subject to advance
security screening procedures, requiring a 30-day advance notice. A
foreign national who wishes to participate in the meeting, must tell
DOE of this fact as soon as possible by contacting Ms. Brenda Edwards-
Jones to initiate the necessary procedures.
B. Procedure for Submitting Requests To Speak
Any person who has an interest in today's notice, or who is a
representative of a group or class of persons that has an interest in
these issues, may request an opportunity to make an oral presentation.
Hand-deliver requests to speak, along with a computer diskette or CD in
WordPerfect, Microsoft Word, PDF, or text (ASCII) file format, to the
address shown at the beginning of this advance notice of proposed
rulemaking between the hours of 9 a.m. and 4 p.m., Monday through
Friday, except Federal holidays. They may be submitted by mail or e-
mail to: [email protected].
Persons requesting to speak should briefly describe the nature of
their interest in this rulemaking and provide a telephone number for
contact. The Department requests persons selected to be heard to submit
an advance copy of their statements at least two weeks before the
public meeting. At its discretion, DOE may permit persons who cannot
supply an advance copy of their statement to participate, if that
person has made advance alternative arrangements with the Building
Technologies Program. The request to give an oral presentation should
ask for such alternative arrangements.
C. Conduct of Public Meeting
The Department will designate a DOE official to preside at the
public meeting and may also use a professional facilitator to aid
discussion. The meeting will not be a judicial or evidentiary-type
public hearing, but DOE will conduct it in accordance with 5 U.S.C. 553
and section 336 of EPCA. (42 U.S.C. 6306) A court reporter will be
present to record the transcript of the proceedings. The Department
reserves the right to schedule the order of presentations and to
establish the procedures governing the conduct of the public meeting.
After the public meeting, interested parties may submit further
comments on the proceedings as well as on any aspect of the rulemaking
until the end of the comment period.
The public meeting will be conducted in an informal, conference
style. The Department will present summaries of comments received
before the public meeting, allow time for presentations by
participants, and encourage all interested parties to share their views
on issues affecting this rulemaking. Each participant will be allowed
to make a prepared general statement (within time limits determined by
DOE), before the discussion of specific topics. The Department will
permit other participants to comment briefly on any general statements.
At the end of all prepared statements on a topic, DOE will permit
participants to clarify their statements briefly and comment on
statements made by others. Participants should be prepared to answer
questions by DOE and by other participants concerning these issues.
Department representatives may also ask questions of participants
concerning other matters relevant to the public meeting. The official
conducting the public meeting will accept additional comments or
questions from those attending, as time permits. The presiding official
will announce any further procedural rules or modification of the above
procedures that may be needed for the proper conduct of the public
meeting.
The Department will make the entire record of this rulemaking,
including the transcript from the public meeting, available for
inspection at the U.S. Department of Energy, Forrestal Building, Room
1J-018 (Resource Room of the Building Technologies Program), 1000
Independence Avenue, SW., Washington, DC, (202) 586-9127, between 9
a.m. and 4 p.m., Monday through Friday, except Federal holidays. Any
person may buy a copy of the transcript from the transcribing reporter.
D. Submission of Comments
The Department will accept comments, data, and information
regarding the ANOPR before or after the public meeting, but no later
than the date provided at the beginning of this advance notice of
proposed rulemaking. Please submit comments, data, and information
electronically. Send them to the following e-mail address:
commercial[email protected]">aircon[email protected]. Submit electronic comments
in WordPerfect, Microsoft Word, PDF, or text (ASCII) file format and
avoid the use of special characters or any form of encryption. Comments
in electronic format should be identified by the docket number EE-RM/
STD-01-375, and wherever possible carry the electronic signature of the
author. Absent an electronic signature, comments submitted
electronically must be followed and authenticated by submitting the
signed original paper document. No telefacsimiles (faxes) will be
accepted.
Pursuant to 10 CFR 1004.11, any person submitting information that
he or she believes to be confidential and exempt by law from public
disclosure should submit two copies: One copy of the document including
all the information believed to be confidential, and one copy of the
document with the information believed to be confidential deleted. The
Department of Energy will make its own determination about the
confidential status of the information and treat it according to its
determination.
Factors of interest to the Department when evaluating requests to
treat submitted information as confidential include: (1) A description
of the items, (2) whether and why such items are customarily treated as
confidential within the industry, (3) whether the information is
generally known by or available from other sources, (4) whether the
information has previously been made available to others without
obligation concerning its confidentiality, (5) an explanation of the
competitive injury to the submitting person which would result from
public disclosure, (6) when such information might lose its
confidential character due to the passage of time, and (7) why
disclosure of the information would be contrary to the public interest.
E. Issues on Which DOE Seeks Comment
The Department is particularly interested in receiving comments
(including data) concerning:
1. Approaches to Analyses for Split Systems, Heat Pumps, and Niche
Equipment
The Department assumes that the cost/efficiency relationship for
commercial single-package unitary air-conditioning equipment in the
ANOPR is similar to that of commercial split air-conditioning systems.
Is this a reasonable assumption for the DOE to make in its approach to
developing the cost/efficiency curves? (See section II.C.1 of this
ANOPR for details.)
This ANOPR and the analyses detailed in the accompanying TSD
address only commercial unitary air conditioning equipment. The
Department proposes to address energy efficiency standards for
commercial unitary heat pump equipment in a way that is consistent with
the ASHRAE methodology used to set the ASHRAE/IESNA Standard 90.1-1999
levels for unitary air conditioning systems with
[[Page 45501]]
heat pump heating. The Department requests comments on this proposed
approach. (See section II.C.1 of this ANOPR for details.)
The Department did not consider any niche equipment classes in the
engineering analysis. Should the Department consider any niche classes
of commercial unitary air conditioning equipment (e.g., portable units
and explosion-proof/hazardous-duty units) that would fall under the
definitions of either small unitary air conditioner, large unitary air
conditioner, small unitary heat pump, or large unitary heat pump, in
section I.C.3. of this ANOPR, apart from these general classes of
commercial unitary air-conditioning equipment?
2. Alternative Refrigerant Analysis
The Department based its alternative refrigerant analysis on the
use of R-410a refrigerant. The Department concluded that the
incremental manufacturing cost and efficiency relationship derived for
equipment using R-22 refrigerant would not be substantially different
for equipment using R-410a. The Department requests data concerning the
incremental cost/efficiency relationship associated with the use of R-
410a in commercial unitary air conditioners. Also, the Department
requests stakeholders to identify and provide similar information for
any other alternative refrigerants DOE should consider. (See section
II.C.5 of this ANOPR for details.)
3. Candidate Standards Levels
The Department has identified candidate energy efficiency standards
levels ranging from 10.0 to 12.0 EER. The Department seeks comments on
these efficiency standards levels and any other alternatives it should
consider. (See sections III. and II.G.4 of this ANOPR for details.)
4. Design-Option Analysis and Maximum Energy Efficiency Levels
Because there were no commercial unitary air conditioners that had
efficiencies beyond 11.5 EER when the Department conducted its
engineering analysis for commercial unitary air conditioners rated
>=65,000 Btu/h through <240,000 Btu/h, the Department had to rely on
its design-option analysis modeling to estimate the manufacturing cost
and efficiency relationship beyond 11.5 EER. The Department requests
comments from stakeholders on: (1) Whether the design options presented
in the engineering analysis accurately estimate cost and efficiency
trends beyond 11.5 EER, (2) whether the Department's assumptions for
evaluating a maximum technologically feasible design were appropriate,
and (3) what other design options should the Department consider in its
analysis.
Since the Department completed its engineering analysis in late
2002, several new commercial unitary air conditioners, with rated
efficiency levels greater than 12.0 EER, have become available on the
market. The Department requests comments from stakeholders on any
commercial unitary air-conditioning equipment with rated efficiency
levels above 12.0 EER. (See sections II.C.1.a and II.C.4 of this ANOPR
for details.)
5. Industrial Buildings
The Department's analysis relies on simulations of electric loads
in commercial buildings to determine the relative impact of the
standard. The analysis is also intended to cover equipment installed in
light-manufacturing buildings. Light-manufacturing buildings are those
engaged in the process of making, assembling, altering, converting,
fabricating, finishing, processing or treatment of a manufactured
product utilizing a relatively clean and quiet process which does not
include or generate significant objectionable or hazardous elements
such as smoke, odor, vibration, water pollution or dust. As such,
commercial unitary air-conditioning equipment covered under this
rulemaking could serve to provide space conditioning to light-
manufacturing buildings. If the electric load shapes and magnitudes,
and in particular the degree of correlation between the hour of the
peak air conditioning load and the hour of the peak building load, are
substantially different for light-manufacturing buildings, a separate
analysis for these buildings might be necessary. The Department seeks
comments about whether adding light-manufacturing buildings to its
analysis is necessary and what, if any, impact it would have on the
results. (See sections II.D.1 and II.F.1.b.(2)(a) of this ANOPR for
details.)
6. Economizer Performance
In its building simulation analysis, the Department assumed that
the economizers operated flawlessly where economizer presence was
indicated by CBECS data. This might result in some underestimation of
the actual cooling loads in the buildings. Should the Department revise
this assumption, and if so, what assumptions are appropriate? (See
section II.D.1 of this ANOPR for details.)
7. Fan Energy Consumption
The Department included fan energy consumption as part of the total
energy consumption of the commercial unitary air-conditioning equipment
in the ANOPR analysis. This analysis includes fan energy consumption
that occurs whenever the fan is in operation (i.e., during cooling,
heating, and ventilation). Should the Department revise this approach
in the NOPR analysis, and if so, what approach is appropriate? (See
section II.D.1 of this ANOPR for details.)
8. Equipment Markups
For purposes of deriving customer prices for more efficient
equipment, the Department differentiated between a baseline markup and
an incremental markup for wholesalers, general contractors, and
mechanical contractors. The incremental markup covers only those
expenses associated with a change in the manufacturer price and is used
to derive the incremental change in customer equipment price due to
higher EER levels. Because the incremental markup covers fewer
expenses, it has a lower value than its corresponding baseline markup.
Nevertheless, it is essential to identify all expenses the incremental
markup should cover. Therefore, the Department seeks comments on
whether more or fewer expenses should be covered by the wholesale,
general contractor, and mechanical contractor incremental markups. (See
section II.E.2 of this ANOPR for details.)
9. Hourly Based Electricity Prices
The Department's hourly based electricity price analysis uses
extensive data to develop estimates of generation and coincident peak
load savings due to the standard for each building in the sample. The
Department enters these savings estimates into a customer price model
to compute annual energy bill savings as an input to the LCC. The
Department's price model is based on the avoided-cost methodologies
traditionally used to value demand reduction programs. Should the
Department consider price models other than those based on avoided-cost
methodologies? (See section II.F.1.b.(2)(b) of this ANOPR for details.)
10. Forecasts of Electricity Prices
The Department has relied on EIA energy price forecasts, including
the various EIA scenarios, to bound projected energy prices used in the
standards analyses. The Department applied EIA's projected trend in
national average electricity prices to each customer's marginal energy
[[Page 45502]]
expenses. Although the Department believes the EIA forecasts are the
most credible projections available, the Department is open to using
other sources of credible information. Are there alternative
electricity price forecasts that are credible and warrant consideration
by the Department? (See section II.F.1.b.(3) of this ANOPR for
details.)
11. Equipment Lifetime
The Department based its equipment lifetime assumption on data from
the 1999 ASHRAE HVAC Applications Handbook, which gives a median
lifetime of 15 years for commercial unitary air conditioners. The
Department found no other data to indicate a different median or mean
lifetime for commercial unitary air conditioning equipment. The
Department seeks data concerning whether a 15-year median lifetime is
appropriate for commercial unitary air conditioners and heat pumps.
(See section II.F.1.b.(6) of this ANOPR for details.)
12. Maximum Market Share of Commercial Unitary Air Conditioning
Equipment
The shipments model uses a logit decision model to represent the
probability that a new building will have unitary air conditioning
equipment installed. Even if all eligible commercial customers decided
to acquire a unitary air conditioner, there is still only a finite
fraction of floor space that would contain the particular equipment
covered by the standard (due, for example, to the climate, the building
size or type, etc.). The Department estimates that the maximum fraction
of floor space that is eligible to receive the unitary air conditioning
equipment covered by the standard is about 10 percent for each
equipment category. The Department seeks data to determine whether it
should revise its estimate. (See section II.G.3.c of this ANOPR for
details.)
13. Future Building Types Using Commercial Unitary Equipment
Future shipments of unitary air conditioning equipment depend in
part on the rate of growth of commercial floor space. The Department
uses the average growth rate for all commercial buildings as provided
by AEO. The shipments model should cover the effects of any commercial
unitary air conditioning equipment that is preferentially installed in
particular types of buildings (e.g., retail or office) and any growth
rate of floor space for these building types that is substantially
different from the average. The Department seeks comments concerning
whether to base floor space growth rate on specific building types
rather than the average growth rate. (See section II.G.3.c. of this
ANOPR for details.)
14. Customer Sub-Groups
The Department has identified smaller businesses, as measured by
annual revenue, as a possible sub-group in which to conduct a separate
LCC analysis. Although the Department does not know the annual revenues
for the businesses in the buildings analyzed in the LCC analysis, the
Department hopes to identify a building characteristic that is an
indicator of annual revenues. The Department seeks comments from
interested parties on whether there is any building characteristic that
correlates to business income. (See section II.H. of this ANOPR for
details.)
15. Effective Date of New Standards and Phaseout Date of R-22
Refrigerant
For purposes of conducting the shipments and manufacturer impact
analyses, should the Department assume that manufacturers will change
over to a new refrigerant (R-410a) at the same time new standards
levels become effective? (See section III. of this ANOPR for details.)
16. Independent Expert Third-Party Reviews
ARI and Lennox raised the following issues: (a) Sample of
buildings, (b) BLAST simulation and CBECS data, (c) supply fan energy
use while ventilating, and (d) incremental markups. (ARI, Nos. 14, 17,
18, and 19; Lennox, No. 15; and Memo to the File: Meeting with ARI/
Lennox, March 12, 2003, No. 16) The Department engaged independent
third-party experts to review the approaches, assumptions, data, and
analytical methods used for the ANOPR analyses for these four issues.
The results of these third-party reviews are available to interested
parties on the Department's website at http://www.eere.doe.gov/buildings/appliance_standards/ac_hp.html. The Department seeks
comments about each of these issues and the third-party review of these
issues. (See sections I.A.5, II.D.1 and II.E.2 of this ANOPR and below
discussion for more details.)
a. Sample of Buildings
The Department's economic analysis examined energy-use estimates in
a sample of buildings from the EIA's CBECS database. The sample
represents a diversity of cooling loads where commercial unitary air
conditioning equipment is installed in six building types: assembly,
education, food services, office, retail, and warehouse (non-
refrigerated). Because of the complexity of this analysis, the
Department also obtained an independent third-party expert review to
ensure that the sample of buildings represented the operating
conditions associated with the population of commercial unitary air
conditioning equipment with rated cooling capacities of >=65,000 Btu/h
to <240,000 Btu/h. The Department seeks comments from interested
parties about this third-party review.
b. Building Loads and System Thermodynamics Simulation and Commercial
Buildings Energy Consumption Survey Estimates of Energy Use
The Department simulated load shapes for each of the above-sampled
buildings at various efficiency levels by using the Building Loads and
System Thermodynamics (BLAST) software. In doing so, the Department
found that cooling energy use intensity (EUI) predicted by BLAST is
higher than the cooling EUI estimated by CBECS for buildings with
commercial unitary air conditioning equipment, although both the BLAST
and CBECS calculations of energy end uses for cooling and ventilation
are derived from modeled data. In view of these findings, the
Department used a third party to examine the differences between the
BLAST simulation EUI and the CBECS estimated EUI. The Department seeks
comments from interested parties about the third-party review of the
BLAST simulation and CBECS estimates of energy use. (See section II.D.1
of this ANOPR for details.)
c. Supply Fan Energy Use While Ventilating
The Department's analysis examines the total energy impact of
commercial unitary air conditioning equipment on building energy
consumption and therefore includes both the energy use and savings
associated with the supply fan during non-cooling hours. The Department
presumes that the fan is an integral component of a commercial unitary
air conditioner and operates continuously to provide fresh air and air
circulation at established ASHRAE Standard 62-1989 air quality levels
when the building is occupied. The Department seeks comments from
interested parties about the third-party review of fan energy use in
the Department's ANOPR analysis. (See section II.D.1 of this ANOPR for
details.)
[[Page 45503]]
d. Incremental Markups
To determine customer prices for more efficient commercial unitary
air conditioning equipment, the ANOPR analysis addresses both the
manufacturer's baseline markup and incremental markups for wholesalers,
general contractors, and mechanical contractors. It addresses those
overhead expenses that may vary with an increase in equipment
efficiency for each step of the distribution channel, and in particular
those overhead expenses that can be attributed to higher EER levels.
The Department seeks comments from interested parties about the third-
party review of incremental markups in the ANOPR analysis. (See section
II.E.2 of this ANOPR for details.)
17. Effect of Income Taxes on Life-Cycle Cost
The Department did not include the effect of income taxes in the
LCC analysis for this ANOPR because it believes the net impact of taxes
on the LCC analysis depends upon how a firm's accounting procedures
expense the purchase cost of commercial equipment and measure
profitability. The Department requests comments as to whether DOE
should perform such an analysis. The Department also requests
information from interested parties on the number of firms that
purchase commercial unitary air conditioning equipment and actually pay
taxes, and for those that pay taxes, how the purchase of such equipment
is expensed and subsequently depreciated over time. (See section II.F.1
of this ANOPR for details.)
18. Technologies That Affect Full- or Part-Load Performance
The Department understands that there are other technologies that
operate under full- or part-load conditions and that can improve the
net annual energy performance of a system, but which generally reduce
the EER of commercial unitary air-conditioning equipment, or, at best,
have no effect on EER. Such technologies include, for example, multiple
compressors, economizers, inverter-driven variable-speed fans, and
exhaust air enthalpy recovery devices. The Department did not examine
such technologies because EPCA requires the commercial unitary air
conditioners that are under consideration in this rulemaking meet
certain energy levels measured in terms of EER. Moreover, EPCA
establishes minimum EER levels for these air-cooled commercial unitary
air conditioners and any amended national standard for that equipment
must be more stringent--in other words, have an increased EER.
Nevertheless, the Department understands that part-load and seasonal
performance of a commercial unitary air conditioner is important
because of the impact on national energy consumption. Therefore, the
Department seeks comments and recommendations from interested
stakeholders on how best to analyze the effects of those technologies
that can reduce EER or are EER-neutral, and the implications both on
national energy savings and consumer life cycle costs. (See section
II.B of this ANOPR for details.)
19. Environmental Assessment
The Department recognizes the possibility that a reduction in
airborne emissions may result from energy efficient commercial unitary
air conditioners and heat pumps which, in turn, could result in
improved health benefits. The Department has not correlated reductions
in installed generation capacity to possible improvements in public
health for this ANOPR. Nevertheless, the Department requests data from
stakeholders which identify specific health benefits from reductions
airborne emissions. (See section II.K of this ANOPR for details.)
20. Rebound Effect
As part of the building energy use and end-use load
characterization, the Department did not take into account a rebound
effect in determining the reduction in cooling and fan energy
consumption due to higher EER levels. The rebound effect occurs when a
piece of equipment that is made more efficient is used more
intensively, so that the expected energy savings from the efficiency
improvement do not fully materialize. The Department seeks comments on
whether a rebound effect should be included in the determination of
annual energy savings. If a rebound effect should be included, the
Department seeks data on which to base the calculation of the rebound
effect. (See section II.D.2 of this ANOPR for details.)
V. Regulatory Review and Procedural Requirements
This advance notice of proposed rulemaking was submitted for review
to the Office of Information and Regulatory Affairs (OIRA) in the
Office of Management and Budget under Executive Order 12866,
``Regulatory Planning and Review,'' 58 FR 51735 (October 4, 1993). If
DOE later proposes amended energy conservation standards for certain
air-cooled, electrically operated, unitary central air conditioners and
heat pumps for commercial applications, the rulemaking would likely
constitute a significant regulatory action, and DOE would prepare and
submit to OIRA for review the assessment of costs and benefits required
by section 6(a)(3) of the Executive Order. In addition, various other
analyses and procedures may apply to such future rulemaking action,
including those required by the National Environmental Policy Act, 42
U.S.C. 4321 et seq.; the Unfunded Mandates Act of 1995, Public Law 104-
4; the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.; the Regulatory
Flexibility Act, 5 U.S.C. 601 et seq.; and certain other Executive
Orders.
VI. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of today's Advance
Notice of Proposed Rulemaking.
Issued in Washington, DC, on July 13, 2004.
David K. Garman,
Assistant Secretary, Energy Efficiency and Renewable Energy.
[FR Doc. 04-16575 Filed 7-28-04; 8:45 am]
BILLING CODE 6450-01-U