FR Doc E8-6907

[Federal Register: April 7, 2008 (Volume 73, Number 67)]
[Proposed Rules]
[Page 18857-18916]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap08-21]

[[Page 18857]]

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Part II

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:
Packaged Terminal Air Conditioner and Packaged Terminal Heat Pump
Energy Conservation Standards; Proposed Rule

[[Page 18858]]

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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 431

[Docket No. EERE-2007-BT-STD-0012]
RIN 1904-AB44

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

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

ACTION: Notice of proposed rulemaking and public meeting.

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

DATES: DOE will hold a public meeting on May 1, 2008, from 9 a.m. to 4
p.m., in Washington, DC. DOE must receive requests to speak at the
public meeting before 4 p.m., April 21, 2008. DOE must receive a signed
original and an electronic copy of statements to be given at the public
meeting before 4 p.m., April 21, 2008.
DOE will accept comments, data, and information regarding the
notice of proposed rulemaking (NOPR) before and after the public
meeting, but no later than June 6, 2008. See section VII, ``Public
Participation,'' of this NOPR for details.

ADDRESSES: The public meeting will be held at the U.S. Department of
Energy, Forrestal Building, Room 1E-245, 1000 Independence Avenue, SW.,
Washington, DC. Please note that foreign nationals visiting DOE
Headquarters are subject to advance security screening procedures,
requiring a 30-day advance notice. If you are a foreign national and
wish to participate in the public meeting, please inform DOE as soon as
possible by contacting Ms. Brenda Edwards at (202) 586-2945 so that the
necessary procedures can be completed.
You may submit comments identified by docket number EERE-2007-BT-
STD-0012 and/or Regulation Identifier Number (RIN) 1904-AB44 using any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: ptac_hp@ee.doe.gov. Include EERE-2007-BT-STD-0012
and/or RIN 1904-AB44 in the subject line of your message.
Postal Mail: Ms. Brenda Edwards, U.S. Department of
Energy, Building Technologies Program, Mailstop EE-2J, 1000
Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202)
586-2945. Please submit one signed paper original.
Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department
of Energy, Building Technologies Program, 950 L'Enfant Plaza, 6th
Floor, Washington, DC 20024. Please submit one signed original paper
copy.
Instructions: All submissions received must include the agency name
and docket number or RIN for this rulemaking. For detailed instructions
on submitting comments and additional information on the rulemaking
process, see section VII, ``Public Participation,'' of this document.
Docket: For access to the docket to read background documents or
comments received, visit the U.S. Department of Energy, Forrestal
Building, Resource Room of the Building Technologies Program, 950
L'Enfant Plaza, SW., 6th Floor, Washington, DC 20024, (202) 586-2945,
between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays. Please call Ms. Brenda Edwards at the above telephone number
for additional information regarding visiting the Resource Room.

FOR FURTHER INFORMATION CONTACT: Wes Anderson, Project Manager, Energy
Conservation Standards for Packaged Terminal Air Conditioners and
Packaged Terminal Heat Pumps, U.S. Department of Energy, Energy
Efficiency and Renewable Energy, Building Technologies Program, EE-2J,
1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-
7335. E-mail: Wes.Anderson@ee.doe.gov. Francine Pinto, Esq., or Eric
Stas, Esq., U.S. Department of Energy, Office of General Counsel, GC-
72, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202)
586-9507. E-mail: Francine.Pinto@hq.doe.gov or Eric.Stas@hq.doe.gov.

SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
II. Introduction
A. Overview
B. Authority
C. Background
1. Current Standards
2. History of Standards Rulemaking for Packaged Terminal Air
Conditioners and Packaged Terminal Heat Pumps
III. General Discussion
A. Test Procedures
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
1. Determination of Savings
2. Significance of Savings
D. Economic Justification
1. Economic Impact on Manufacturers and Commercial Customers
2. Life-Cycle Costs
3. Energy Savings
4. Lessening of Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
IV. Methodology and Analyses
A. Market and Technology Assessment
1. Definitions of a PTAC and a PTHP
2. Equipment Classes
3. Market Assessment
a. Trade Association
b. Manufacturers
c. Shipments
4. Technology Assessment
B. Screening Analysis
C. Engineering Analysis
1. Approach
2. Equipment Classes Analyzed
3. Cost Model
4. Baseline Equipment
5. Alternative Refrigerant Analysis
a. R-22
b. R-410A
c. R-410A Compressor Availability
d. R-410A Manufacturing Production Cost
6. Cost-Efficiency Results
7. Mapping Energy Efficiency Ratio to Coefficient of Performance
D. Markups to Determine Equipment Price
E. Energy Use Characterization
1. Building Type
2. Simulation Approach
F. Life-Cycle Cost and Payback Period Analyses
1. Approach
2. Life-Cycle Cost Inputs
a. Equipment Prices
b. Installation Costs
c. Annual Energy Use
d. Electricity Prices
e. Maintenance Costs
f. Repair Costs
g. Equipment Lifetime
h. Discount Rate
3. Payback Period
G. National Impact Analysis--National Energy Savings and Net
Present Value Analysis
1. Approach
2. Shipments Analysis
3. Base Case and Standards Case Forecasted Distribution of
Efficiencies
4. National Energy Savings and Net Present Value
H. Life-Cycle Cost Sub-Group Analysis
I. Manufacturer Impact Analysis

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1. Overview
a. Phase 1, Industry Profile
b. Phase 2, Industry Cash Flow Analysis
c. Phase 3, Sub-Group Impact Analysis
2. Government Regulatory Impact Model Analysis
3. Manufacturer Interviews
a. Issues
b. Government Regulatory Impact Model Scenarios and Key Inputs
i. Base Case Shipments Forecast
ii. Standards Case Shipments Forecast
iii. R-410A Base Case and Amended Energy Conservation Standards
Markup Scenarios
iv. Equipment and Capital Conversion Costs
J. Employment Impact Analysis
K. Utility Impact Analysis
L. Environmental Analysis
M. Discussion of Other Issues
1. Effective Date of the Proposed Amended Energy Conservation
Standards
2. ASHRAE/IESNA Standard 90.1-1999 Labeling Requirement
V. Analytical Results
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Commercial Customers
a. Life-Cycle Cost and Payback Period
b. Life-Cycle Cost Sub-Group Analysis
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
i. Standard Size PTACs and PTHPs
ii. Non-Standard Size PTACs and PTHPs
b. Cumulative Regulatory Burden
c. Impacts on Employment
d. Impacts on Manufacturing Capacity
e. Impacts on Subgroups of Manufacturers
3. National Impact Analysis
a. Amount and Significance of Energy Savings
b. Net Present Value
c. Impacts on Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
C. Proposed Standard
1. Overview
2. Conclusion
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Order 12866
B. Review Under the Regulatory Flexibility Act/Initial
Regulatory Flexibility Analysis
1. Reasons for the proposed rule
2. Objectives of, and legal basis for, the proposed rule
3. Description and estimated number of small entities regulated
4. Description and estimate of compliance requirements
5. Duplication, overlap, and conflict with other rules and
regulations
6. Significant alternatives to the rule
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act of 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act of 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
A. Attendance at Public Meeting
B. Procedure for Submitting Requests to Speak
C. Conduct of Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

The Energy Policy and Conservation Act (EPCA), as amended, provides
the Department of Energy (DOE) the authority to establish energy
conservation standards for certain commercial equipment covered by the
American Society of Heating, Refrigerating, and Air-Conditioning
Engineers (ASHRAE) and the Illuminating Engineering Society of North
America (IESNA) Standard 90.1, including packaged terminal air
conditioners (PTACs) and packaged terminal heat pumps (PTHPs), the
subject of this proceeding. (42 U.S.C. 6313(a)(6)(A)) Section
342(a)(6)(A) provides that DOE may prescribe a standard more stringent
than the level in ASHRAE/IESNA Standard 90.1, after ASHRAE amends the
energy conservation standards found in ASHRAE/IESNA Standard 90.1, if
DOE can demonstrate ``by clear and convincing evidence,'' that such a
more stringent standard ``would result in significant additional
conservation of energy and is technologically feasible and economically
justified.'' (42 U.S.C. 6313(a)(6)(A)(II) In accordance with these
criteria discussed in this notice, DOE proposes to amend the energy
conservation standards for PTACs and PTHPs by raising the efficiency
levels for this equipment to the levels shown in Table I.1, above the
efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999. The
proposed standards would apply to all covered PTACs and PTHPs
manufactured on or after the date four years after publication of the
final rule in the Federal Register. (42 U.S.C. 6313(a)(6)(D)) The
proposed standards for PTACs and PTHPs represent an improvement in
energy efficiency of 12 to 33 percent compared to the efficiency levels
specified by ASHRAE/IESNA Standard 90.1-1999, depending on the
equipment class.

Table I.1.--Proposed Energy Conservation Standards for PTACs and PTHPs
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Equipment class
------------------------------------------------------------------------------------ Proposed energy
Equipment Category Cooling capacity conservation standards*
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PTAC............................... Standard Size**....... <7,000 Btu/h.......... EER = 11.4
>=7,000 Btu/h and EER = 13.0-(0.233 x
<=15,000 Btu/h. Cap[dagger][dagger])
>15,000 Btu/h......... EER = 9.5
Non-Standard <7,000 Btu/h.......... EER = 10.2
Size[dagger].
>=7,000 Btu/h and EER = 11.7-(0.213 x
<=15,000 Btu/h. Cap[dagger][dagger])
>15,000 Btu/h......... EER = 8.5
PTHP............................... Standard Size**....... <7,000 Btu/h.......... EER = 11.8
COP = 3.3
>=7,000 Btu/h and EER = 13.4-(0.233 x
<=15,000 Btu/h. Cap[dagger][dagger])
COP = 3.7-(0.053 x
Cap[dagger][dagger])
>15,000 Btu/h......... EER = 9.9
COP = 2.9
Non-Standard <7,000 Btu/h.......... EER = 10.8
Size[dagger]. COP = 3.0
>=7,000 Btu/h and EER = 12.3-(0.213 x
<=15,000 Btu/h. Cap[dagger][dagger])
COP = 3.1-(0.026 x
Cap[dagger][dagger])

[[Page 18860]]

>15,000 Btu/h......... EER = 9.1
COP = 2.8
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* For equipment rated according to the DOE test procedure (ARI Standard 310/380-2004), all energy efficiency
ratio (EER) values must be rated at 95[deg]F outdoor dry-bulb temperature for air-cooled equipment and
evaporatively-cooled equipment and at 85[deg]F entering water temperature for water cooled equipment. All
coefficient of performance (COP) values must be rated at 47[deg]F outdoor dry-bulb temperature for air-cooled
equipment, and at 70[deg]F entering water temperature for water-source heat pumps.
** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches
high, or greater than or equal to 42 inches wide.
[dagger] Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high
and less than 42 inches wide.
[dagger][dagger] Cap means cooling capacity in thousand British thermal units per hour (Btu/h) at 95[deg]F
outdoor dry-bulb temperature.

DOE's analyses indicate that the proposed energy conservation
standards, trial standard level (TSL) 4 for PTAC and PTHP equipment
(See section V.A for a discussion of the TSLs), would save a
significant amount of energy--an estimated 0.019 quadrillion British
thermal units (Btu), or quads, of cumulative energy over 30 years
(2012-2042). The economic impacts on the nation (i.e., national net
present value) and the commercial customer (i.e., the average life-
cycle cost (LCC) savings) are positive.
The national net present value (NPV) of TSL 4 is $17 million using
a 7 percent discount rate and $61 million using a 3 percent discount
rate, cumulative from 2012 to 2062 in 2006$. This is the estimated
total value of future savings minus the estimated increased equipment
costs, discounted to 2008. The benefits and costs of the standard can
also be expressed in terms of annualized 2006$ values over the forecast
period 2012 through 2062. Using a 7 percent discount rate for the
annualized cost analysis, the cost of the standard is $3.4 million per
year in increased equipment and installation costs while the annualized
benefits are $5.0 million per year in reduced equipment operating
costs. Using a 3 percent discount rate, the annualized cost of the
standard is $2.9 million per year while the annualized benefits of
today's standard are $5.6 million per year. See section V.B.3 for
additional details.
Using a real corporate discount rate of 5 percent, DOE estimated
the industry's NPV (INPV) for manufacturers of PTACs and PTHPs to be
$332 million in 2006$. The impact of the proposed standards on INPV of
manufacturers of standard size PTACs and PTHPs is estimated to be
between an 18 percent loss and a 2 percent loss (-$56 million to -$5
million). The non-standard size PTAC and PTHP industry is estimated to
lose between 44 percent and 34 percent of its NPV (-$12 million to -$9
million) as a result of the proposed standards. Additionally, based on
DOE's interviews with manufacturers of PTACs and PTHPs, DOE expects
minimal plant closings or loss of employment as a result of the
proposed standards.
DOE's analyses indicate that the proposed standard, TSL 4, has
energy savings and environmental benefits. All of the energy saved is
electricity, and DOE expects the energy savings from the proposed
standards to eliminate the need for approximately 81 megawatts (MW) of
generating capacity by 2042. These results reflect DOE's use of energy
price projections from the U.S. Energy Information Administration
(EIA)'s Annual Energy Outlook 2007 (AEO2007).\1\ The proposed standard
has environmental benefits leading to reductions in greenhouse gas
emissions (i.e., cumulative (undiscounted) emission reductions) of 2.7
million tons (Mt) of carbon dioxide (CO2) from 2012 to 2042.
Additionally, the standard would likely result in 0.16 thousand tons
(kt) of nitrogen oxides (NOX) emissions reductions or generate a
similar amount of NOX emissions allowance credits in areas where such
emissions are subject to emissions caps.
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\1\ DOE intends to use EIA's Annual Energy Outlook 2008
(AEO2008) to generate the results for the final rule. In addition,
DOE will use 2007$ to reflect all dollar values in the final rule.
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In view of its analyses, DOE believes that the proposed standard,
TSL 4, represents the maximum improvement in energy efficiency of PTAC
and PTHP equipment that is technologically feasible and economically
justified. DOE found that the benefits to the Nation (energy savings,
customer average LCC savings, national NPV increase, and emission
reductions) of the proposed standards outweigh the burdens (loss of
INPV and LCC increases for some customers). When DOE considered higher
energy efficiency levels as TSLs, it found that the burdens (loss of
manufacturer NPV and LCC increase for some customers) of the higher
efficiency levels outweighed the benefits (energy savings, LCC savings
for some customers, national NPV increase, and emission reductions) of
those higher levels.
DOE recognizes that manufacturers of PTAC and PTHP equipment are
also facing a mandated refrigerant phase-out on January 1, 2010. R-22,
the only refrigerant currently used by PTACs and PTHPs, is an HCFC
refrigerant and subject to the phase-out requirement. Phase-out of this
refrigerant could have a significant impact on the manufacturing,
performance, and cost of PTAC and PTHP equipment. DOE further discusses
and estimated the impacts of the refrigerant phase-out on PTAC and PTHP
equipment and on the manufacturers of this equipment in today's notice.

II. Introduction

A. Overview

The proposed standard will save a significant amount of energy and,
as a result of less energy being produced, result in a cleaner
environment. In the 30-year period after the amended standard becomes
effective, the nation will save 0.019 quads of primary energy. These
energy savings also will result in significantly reduced emissions of
air pollutants and greenhouse gases associated with electricity
production, by avoiding the emission of 2.7 Mt of CO2 and
0.16 kt of NOX. In addition, once the standard is
implemented in 2012, DOE expects to eliminate the need for the
construction of approximately 81 MW of new power plants by 2042. In
total, DOE estimates the net present value to the Nation of this
standard to be $17 million from 2012 to 2062 in 2006$.
Finally, commercial customers will see benefits from the proposed
standard. Although DOE expects the price of the high efficiency PTAC
and PTHP equipment to be approximately 2 percent higher than the
average price of

[[Page 18861]]

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

B. Authority

Part A-1 of Title III of EPCA addresses the energy efficiency of
certain types of commercial and industrial equipment.\2\ (42 U.S.C.
6311-6317) It contains specific mandatory energy conservation standards
for commercial PTACs and PTHPs. (42 U.S.C. 6313(a)(3)) The Energy
Policy Act of 1992 (EPACT), Public Law 102-486, also amended EPCA with
respect to PTACs and PTHPs, providing definitions in section 122(a),
test procedures in section 122(b), labeling provisions in section
122(c), and the authority to require information and reports from
manufacturers in section 122(e).\3\ DOE publishes today's notice of
proposed rulemaking (NOPR) pursuant to Part A-1. The PTAC and PTHP test
procedures appear at Title 10 Code of Federal Regulations (CFR) section
431.96.
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\2\ This part was originally titled Part C., However, it was
redesignated Part A-1 after Part B of Title III of EPCA was repealed
by Public Law 109-58.
\3\ These requirements are codified in Part C of Title III of
EPCA, now Part A-1, as amended, 42 U.S.C. 6311-6316, and Title 10 of
the Code of Federal Regulations, Part 431 (10 CFR Part 431) at 10
CFR 431.92, 431.96, 431.97, and subparts U and V.
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Furthermore, EPCA contains what is commonly known as an ``anti-
backsliding'' provision. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(1)) This
provision mandates that the Secretary not prescribe any amended
standard that either increases the maximum allowable energy use or
decreases the minimum required energy efficiency of covered equipment.
It is a fundamental principle in EPCA's statutory scheme that DOE
cannot amend standards downward; that is, weaken standards, from those
that have been published as a final rule. Natural Resources Defense
Council v. Abraham, 355 F.3d 179 (2nd Cir. 2004).
Additionally, the Secretary may not prescribe an amended standard
if interested persons have established by a preponderance of the
evidence that the amended standard is ``likely to result in the
unavailability in the United States of any product type (or class)''
with performance characteristics, features, sizes, capacities, and
volumes that are substantially the same as those generally available in
the United States at the time of the Secretary's finding. (42 U.S.C.
6316(a); 42 U.S.C. 6295(o)(4))
Federal energy efficiency requirements for commercial equipment
generally supersede State laws or regulations concerning energy
conservation testing, labeling, and standards. (42 U.S.C. 6316(a) and
(b)) DOE can, however, grant waivers of preemption for particular State
laws or regulations, in accordance with the procedures and other
provisions of section 327(d) of EPCA. (42 U.S.C. 6297(d) and
6316(b)(2)(D))

C. Background

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

Table II.1.--Existing Federal Energy Conservation Standards for PTACs
and PTHPs
------------------------------------------------------------------------
Equipment class Existing federal
--------------------------------------------------- energy conservation
Equipment Cooling capacity standards*
------------------------------------------------------------------------
PTAC........................ < 7,000 Btu/h....... EER = 8.88
>= 7,000 Btu/h and EER = 10.0 - (0.16 x
<= 15,000 Btu/h Cap**)

[[Page 18862]]

> 15,000 Btu/h EER = 7.6
PTHP........................ < 7,000 Btu/h....... EER = 8.88
COP = 2.7
>= 7,000 Btu/h and EER = 10.0-(0.16 x
<= 15,000 Btu/h Cap**)
COP = 1.3 + (0.16 x
EER)
> 15,000 Btu/h EER = 7.6
COP = 2.5
------------------------------------------------------------------------
* For equipment rated according to the Air-Conditioning and
Refrigeration Institute (ARI) standards, all EER values must be rated
at 95 [deg]F outdoor dry-bulb temperature for air-cooled products and
evaporatively-cooled products and at 85 [deg]F entering water
temperature for water cooled products. All COP values must be rated at
47 [deg]F outdoor dry-bulb temperature for air-cooled products, and at
70 [deg]F entering water temperature for water-source heat pumps.
** Cap means cooling capacity in kBtu/h at 95 [deg]F outdoor dry-bulb
temperature.

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

Table II.2.--ASHRAE/IESNA Standard 90.1-1999 Energy Efficiency Levels for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
Equipment class ASHRAE/IESNA standard 90.1-
------------------------------------------------------------------------------------ 1999 efficiency levels*
Equipment Category Cooling capacity
----------------------------------------------------------------------------------------------------------------
PTAC............................... Standard Size**....... < 7,000 Btu/h......... EER = 11.0
>= 7,000 Btu/h and <= EER = 12.5-(0.213 x
15,000 Btu/h Cap[dagger][dagger])
> 15,000 Btu/h EER = 9.3
Non-Standard < 7,000 Btu/h EER = 9.4
Size[dagger].
>= 7,000 Btu/h and <= EER = 10.9-(0.213 x
15,000 Btu/h Cap[dagger][dagger])
> 15,000 Btu/h EER = 7.7
PTHP............................... Standard Size**....... < 7,000 Btu/h......... EER = 10.8
COP = 3.0
>= 7,000 Btu/h and <= EER = 12.3-(0.213 x
15,000 Btu/h Cap[dagger][dagger])
COP = 3.2-(0.026 x
Cap[dagger][dagger])
> 15,000 Btu/h EER = 9.1
COP = 2.8
Non-Standard < 7,000 Btu/h......... EER = 9.3
Size[dagger]. COP = 2.7
>= 7,000 Btu/h and <= EER = 10.8-(0.213 x
15,000 Btu/h Cap[dagger][dagger])
COP = 2.9-(0.026 x
Cap[dagger][dagger])
>15,000 Btu/h EER = 7.6
COP = 2.5
----------------------------------------------------------------------------------------------------------------
* For equipment rated according to ARI standards, all EER values must be rated at 95[deg]F outdoor dry-bulb
temperature for air-cooled products and evaporatively-cooled products and at 85[deg]F entering water
temperature for water cooled products. All COP values must be rated at 47[deg]F outdoor dry-bulb temperature
for air-cooled products, and at 70[deg]F entering water temperature for water-source heat pumps.
** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches
high, or greater than or equal to 42 inches wide.
[dagger] Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high
and less than 42 inches wide. ASHRAE/IESNA Standard 90.1-1999 also includes a factory labeling requirement for
non-standard size PTAC and PTHP equipment as follows: ``MANUFACTURED FOR REPLACEMENT APPLICATIONS ONLY; NOT TO
BE INSTALLED IN NEW CONSTRUCTION PROJECTS.''
[dagger][dagger] Cap means cooling capacity in kBtu/h at 95[deg]F outdoor dry-bulb temperature.

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

[[Page 18863]]

Equipment'' (commonly referred to as the 2000 Screening Analysis) \4\
summarizes this analysis, and estimates the annual national energy
consumption and the potential for energy savings that would result if
the covered equipment were to meet efficiency levels higher than those
specified in ASHRAE/IESNA Standard 90.1-1999. The baselines for the
comparison were the corresponding levels specified in ASHRAE/IESNA
Standard 90.1-1999 and EPCA.
---------------------------------------------------------------------------

\4\ U.S. Department of Energy, Office of Energy Efficiency and
Renewable Energy. ``Energy Conservation Program for Consumer
Products: Screening Analysis for EPACT-Covered Commercial HVAC and
Water-Heating Equipment Screening Analysis.'' April 2000.
---------------------------------------------------------------------------

On January 12, 2001, DOE published a final rule for commercial HVAC
and water heating equipment, which concluded that the 2000 Screening
Analysis indicated at least a reasonable possibility of finding ``clear
and convincing evidence'' that more stringent standards ``would be
technologically feasible and economically justified and would result in
significant additional conservation of energy'' for PTACs and PTHPs. 66
FR 3336, 3349. Under EPCA, these are the criteria for DOE adoption of
standards more stringent than those in ASHRAE/IESNA Standard 90.1. (42
U.S.C. 6313(a)(6)(A)(ii)(II))
In addition, on March 13, 2006, DOE issued a Notice of Availability
(NOA) announcing the availability of a technical support document (TSD)
DOE was using in re-assessing whether to adopt, as uniform national
standards, energy conservation standards contained in amendments to the
ASHRAE/IESNA Standard 90.1-1999 for certain types of commercial
equipment. 71 FR 12634. In the NOA, DOE revised the energy savings
analysis from the 2000 Screening Analysis and summarized the
assumptions and results in the NOA TSD. Id. DOE also stated that, even
though the revised analysis reduced the potential energy savings that
might result from more stringent standards than the efficiency levels
specified in ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs, DOE
believed that there was a possibility that clear and convincing
evidence exists that more stringent standards are warranted. Therefore,
DOE stated in the NOA that it was inclined to seek more stringent
standard levels than the efficiency levels in ASHRAE/IESNA Standard
90.1-1999 for PTACs and PTHPs through a separate rulemaking. 71 FR
12639. Lastly, on March 7, 2007, DOE issued a final rule reaffirming
DOE's inclination in the March 2006 NOA and stating DOE's decision to
explore more stringent efficiency levels than in ASHRAE/IESNA Standard
90.1-1999 for PTACs and PTHPs through a separate rulemaking. 72 FR
10038, 10044.
In January 2008, ASHRAE published ASHRAE/IESNA Standard 90.1-2007,
which reaffirmed the definitions and efficiency levels for PTACs and
PTHPs in ASHRAE/IESNA Standard 90.1-1999. Since the definitions and
efficiency levels for PTACs and PTHPs are the same in the two versions
of ASHRAE/IESNA Standard 90.1, DOE is only referencing the ASHRAE/IESNA
Standard 90.1-1999 version throughout today's notice even though DOE
reviewed both versions.

III. General Discussion

A. Test Procedures

Section 343(a) of EPCA authorizes the Secretary to amend the test
procedures for PTACs and PTHPs to the latest version generally accepted
by industry or the rating procedures developed by the Air-Conditioning
and Refrigeration Institute (ARI) \5\, as referenced by ASHRAE/IESNA
Standard 90.1, unless the Secretary determines by clear and convincing
evidence the latest version of the industry test procedure does not
meet the requirements for test procedures described in paragraphs (2)
and (3) of that section. (42 U.S.C. 6314(a)(4))
---------------------------------------------------------------------------

\5\ The Air-Conditioning and Refrigeration Institute (ARI) and
the Gas Appliance Manufacturers Association (GAMA) announced on
December 17, 2007, that their members voted to approve the merger of
the two trade associations to represent the interests of cooling,
heating, and commercial refrigeration equipment manufacturers. The
merged association became AHRI on Jan. 1, 2008.
---------------------------------------------------------------------------

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

B. Technological Feasibility

1. General
DOE considers design options technologically feasible if the
industry is already using them or if research has progressed to
development of a working prototype. DOE defines technological
feasibility as: ``Technologies incorporated in commercially available
products or in working prototypes will be considered technologically
feasible.'' 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(i).
In each energy conservation standards rulemaking, DOE conducts a
screening analysis based on information gathered on all current
technology options and prototype designs that could improve the
efficiency of the equipment that is the subject of the rulemaking. In
consultation with interested parties, DOE develops a list of design
options for consideration in the rulemaking. All technologically
feasible design options are candidates in this initial assessment. DOE
eliminates from consideration, early in the process, any design option
that is not practicable to manufacture, install, or service; that will
have adverse impacts on equipment utility or availability; or for which
there are adverse impacts on health or safety. 10 CFR 430, subpart C,
appendix A, section 4(a)(4). In addition, for the types of equipment
identified in section 342(a) of EPCA, 42 U.S.C. 6313(a), which includes
PTACs and PTHPs, DOE eliminates from consideration any design option
whose technological feasibility is not supported by clear and
convincing evidence.
The design options DOE considered as part of this rulemaking all
have the potential to improve EER or COP. DOE considered any design
option for PTACs and PTHPs to be technologically feasible if it is used
in equipment the PTAC and PTHP industry distributes in commerce or is
in a working prototype.
2. Maximum Technologically Feasible Levels
In developing today's proposed standards, DOE has determined the
maximum improvement in energy efficiency that is technologically
feasible (``max tech'') for PTACs and PTHPs. EPCA requires that DOE
adopt amended energy conservation standards for equipment covered by
ASHRAE/IESNA Standard 90.1 that achieves the maximum improvement in
energy efficiency that is technologically feasible and economically
justified, or to identify the ``max tech'' efficiency levels. (42
U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A)) Therefore, in reviewing the
amended ASHRAE/IESNA Standard 90.1 efficiency standards for PTACs and
PTHPs, DOE identified the ``max tech'' levels as part of the
engineering analysis (Chapter 5 of the TSD). At the present time, those
levels are the levels set forth in TSL 7. For the representative
cooling capacities within a given equipment class, PTACs and PTHPs
utilizing R-22 with these efficiency levels already are being offered
for sale and there is no

[[Page 18864]]

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

Table III.1.--``Max Tech'' Efficiency Levels (>=7,000 Btu/h and <=15,000 Btu/h Equipment Classes)\*\
----------------------------------------------------------------------------------------------------------------
Cooling
Equipment type Equipment class capacity ``Max tech'' efficiency
(Btu/h) level\**\
----------------------------------------------------------------------------------------------------------------
PTAC..................................... Standard Size[dagger]....... 9,000 12.0 EER
12,000 11.5 EER
Non-standard 11,000 11.2 EER
Size[dagger][dagger].
----------------------------------------------------------------------------------------------------------------
PTHP..................................... Standard Size[dagger]....... 9,000 12.0 EER
3.5 COP
12,000 11.7 EER
3.3 COP
Non-standard 11,000 11.4 EER
Size[dagger][dagger]. 2.9 COP
----------------------------------------------------------------------------------------------------------------
\*\ As discussed in section IV.C.2 of today's notice, DOE is presenting the results for two cooling capacities
of standard size PTACs and PTHPs, 9,000 Btu/h and 12,000 Btu/h, which fall within the equipment classes of
PTACs and PTHPs with cooling capacities >=7,000 Btu/h and <=15,000 Btu/h.
\**\ For equipment rated according to the DOE test procedure, all EER values would be rated at 95[deg]F outdoor
dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85[deg]F entering water
temperature for water cooled products. All COP values must be rated at 47[deg]F outdoor dry-bulb temperature
for air-cooled products, and at 70[deg]F entering water temperature for water-source heat pumps.
[dagger] Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16
inches high, or greater than or equal to 42 inches wide.
[dagger][dagger] Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16
inches high and less than 42 inches wide.

C. Energy Savings

1. Determination of Savings
DOE used the national energy savings (NES) Microsoft Excel
spreadsheet to estimate energy savings that could result from amended
energy conservation standards for PTACs and PTHPs. The spreadsheet
forecasts energy savings over the period of analysis for TSLs relative
to the base case. DOE quantified the energy savings attributable to an
energy conservation standard as the difference in energy consumption
between the trial standards case and the base case. The base case
represents the forecast of energy consumption in the absence of amended
mandatory energy conservation standards beyond the levels in ASHRAE/
IESNA Standard 90.1-1999. Section IV.G of this Notice and Chapter 11 of
the TSD describes the NES spreadsheet model.
The NES spreadsheet model calculates the energy savings in both
site energy (in kilowatt-hours (kWh)) or source energy (in British
thermal units (Btu)). Site energy is the energy directly consumed at
building sites by PTACs and PTHPs. DOE expresses national energy
savings in terms of source energy savings (i.e., savings in energy used
to generate and transmit the energy consumed at the site). Chapter 11
of the TSD contains a table of factors used to convert site energy
consumption in kWh to source energy consumption in Btu. DOE derived
these conversion factors, which change over time, from EIA's AEO2007.
2. Significance of Savings
Section 342(a)(6)(A)(ii)(II) of EPCA allows DOE to adopt a more
stringent standard for PTACs and PTHPs than the amended level in
ASHRAE/IESNA Standard 90.1, if clear and convincing evidence supports a
determination that the more stringent standard would result in
``significant'' additional energy savings. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) While EPCA does not define the term
``significant,'' a U.S. Court of Appeals, in Natural Resources Defense
Council v. Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated
that Congress intended ``significant'' energy savings in section 325 of
EPCA to mean savings that are not ``genuinely trivial.'' For all the
TSLs considered in this rulemaking, DOE's estimates of energy savings
provide clear and convincing evidence that the additional energy
savings to be achieved from exceeding the corresponding efficiency
level[s] in ASHRAE/IESNA Standard 90.1-1999 are nontrivial, and
therefore DOE considers them ``significant'' as required by section 342
of EPCA. (42 U.S.C. 6313 (a)(6)(A)(ii)(II))

D. Economic Justification

As noted earlier, EPCA provides seven factors for DOE to evaluate
in determining whether an energy conservation standard for PTAC and
PTHP is economically justified. (42 U.S.C. 6316(a); 42 U.S.C.
6295(o)(2)(B)(i)-(ii)) The following discussion explains how DOE has
addressed each factor in this rulemaking.
1. Economic Impact on Manufacturers and Commercial Customers
DOE has established procedures, interpretations, and policies to
guide DOE in considering new or amended appliance energy conservation
standards. DOE investigates the impacts of amended energy conservation
standards of PTACs and PTHPs on manufacturers through the manufacturer
impact analysis (MIA) (see Chapter 13 of the TSD). First, DOE uses an
annual cash flow approach in determining the quantitative impacts of a
new or amended energy conservation standard on manufacturers. This
includes both a short- and long-term assessment based on the cost and
capital requirements during the period between the announcement of a
regulation and the time when the regulation comes into effect. Impacts
analyzed include INPV, cash flows by year, changes in revenue and
income, and other measures of impact, as appropriate. Second, DOE
analyzes and reports the impacts on different types of manufacturers,
paying particular attention to impacts on small manufacturers. Third,
DOE considers the impact of standards on domestic manufacturer
employment, manufacturing capacity, plant closures, and loss of capital
investment. Finally, DOE takes into account cumulative impacts of
different DOE regulations on manufacturers.
For customers, DOE measures the economic impact as the change in
installed cost and life-cycle operating costs, i.e., the LCC. Chapter 8
of the TSD presents the LCC of the equipment at

[[Page 18865]]

each efficiency level examined. LCC, described below, is one of the
seven factors EPCA requires DOE to consider in determining the economic
justification for a new or amended standard. (42 U.S.C. 6316(a); 42
U.S.C. 6295(o)(2)(B)(i)(II))
2. Life-Cycle Costs
The LCC is the sum of the purchase price, including the
installation and operating expense (including operating energy
consumption, maintenance, and repair expenditures) discounted over the
lifetime of the equipment. To determine the purchase price including
installation, DOE estimated the markups that are added to the
manufacturer selling price (MSP) by distributors and contractors, and
estimated installation costs from an analysis of PTAC and PTHP
installation cost estimates for each of the equipment classes. DOE
determined that maintenance cost is not dependent on PTAC and PTHP
efficiency and that repair cost increases with MSP.
In estimating operating energy costs, DOE used the average
commercial electricity price in each State, using EIA data from
2006.\6\ DOE modified the 2006 average commercial electricity prices to
reflect the average electricity prices for each of four types of
businesses examined in this analysis. The LCC savings analysis compares
the LCCs of equipment designed to meet possible proposed energy
conservation standards with the LCC of the equipment likely to be
installed in the absence of amended energy conservation standards. The
LCC analysis also defines a range of energy price forecasts for
electricity used in the economic analyses.
---------------------------------------------------------------------------

\6\ The EIA data for 2006 is the latest data set published by
EIA on commercial electricity prices by State.
---------------------------------------------------------------------------

For each PTAC and PTHP equipment class, DOE calculated both the LCC
and LCC savings at various efficiency levels. The LCC analysis
estimated the LCC for representative equipment used in four types of
buildings, two of which were hotels/motels and health care facilities
that are representative of the segment of U.S. commercial building
stock that uses PTACs and PTHPs.
To account for uncertainty and variability in specific inputs, such
as equipment lifetime and discount rate, DOE used a distribution of
values with probabilities attached to each value. For each of the four
types of commercial buildings, DOE sampled the value of these inputs
from the probability distributions. As a result, the analysis produced
a range of LCCs. A distinct advantage of this approach is that DOE can
identify the percentage of customers achieving LCC savings or attaining
certain payback values due to an increased energy conservation
standard, in addition to identifying the average LCC savings or average
payback period for that standard. DOE gives the LCC savings as a
distribution, with a mean value and a range. DOE's analysis assumes
that the customer purchases the PTAC and PTHP in 2012. Chapter 8 of the
TSD contains the details of the LCC calculations.
3. Energy Savings
While significant additional energy conservation is a separate
statutory requirement for imposing a more stringent energy conservation
standard than the level in ASHRAE/IESNA Standard 90.1, EPCA requires
that DOE consider the total projected energy savings expected to result
directly from the standard when determining the economic justification
for a standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(III))
DOE used the NES spreadsheet results in its consideration of total
projected savings. Section V.B.3 discusses the savings figures.
4. Lessening of Utility or Performance of Equipment
In establishing equipment classes, and in evaluating design options
and the impact of proposed standards, DOE has attempted to avoid
proposing amended standards for PTACs and PTHPs that would lessen the
utility or performance of such equipment. (See 42 U.S.C. 6316(a); 42
U.S.C. 6295(o)(2)(B)(i)(IV)) The design options considered in the
engineering analysis of this rulemaking do not involve changes in
equipment design or unusual installation requirements that could reduce
the utility or performance of PTACs and PTHPs. In addition, DOE is also
considering manufacturers' concerns that one-third of the non-standard
size market subject to the more stringent standards under ASHRAE/IESNA
Standard 90.1-1999 would not be able to meet the efficiency levels
specified by ASHRAE/IESNA Standard 90.1-1999 for standard size
equipment due to the physical size constraints of the wall sleeve as
further discussed in section IV.A.2.
5. Impact of Any Lessening of Competition
EPCA directs that DOE consider any lessening of competition that is
likely to result from proposed standards. The Attorney General
considers the impact, if any, of any lessening of competition likely to
result from imposition of a proposed standard. (42 U.S.C. 6316(a); 42
U.S.C. 6295(o)(2)(B)(i)(V)) DOE has transmitted a copy of this NOPR to
the Attorney General soliciting written views on this issue.
6. Need of the Nation To Conserve Energy
The non-monetary benefits of the proposed standards are likely to
be reflected in improvements to the security and reliability of the
Nation's energy system-namely, reductions in the overall demand for
energy will result in a reduction in the Nation's reliance on foreign
sources of energy and increased reliability of the Nation's electricity
system. DOE conducts a utility impact analysis to show the reduction in
installed generation capacity. The proposed standards are also likely
to result in improvements to the environment. In quantifying these
improvements, DOE has defined a range of primary energy conversion
factors and associated emission reductions based on the generation
displaced by energy conservation standards. DOE reports the
environmental effects from each TSL in the environmental assessment,
Chapter 16 of the TSD. (42 U.S.C. 6313(a); 42 U.S.C.
6295(o)(2)(B)(i)(VI))
7. Other Factors
EPCA allows the Secretary of Energy, in determining whether a
proposed standard is economically justified, to consider any other
factors that the Secretary deems to be relevant. (42 U.S.C. 6316(a); 42
U.S.C. 6295(o)(2)(B)(i)(VII)) DOE considered the impacts of setting
different amended energy conservation standards for PTACs and PTHPs
(i.e., the amended standard level for a given PTAC cooling capacity
would be different from the amended standard level for a give PTHP with
the same cooling capacity). DOE also considered the effects of
potential equipment switching within the PTAC and PTHP market (e.g.,
switching from PTHPs to PTACs, which include a less-efficient heating
system). In addition, DOE also considered the uncertainty associated
with the market due to the impending refrigerant phase-out in 2010,
including equipment availability, compressor availability, and the
available efficiencies of R-410A PTACs and PTHPs. Lastly, DOE
considered the uniqueness of the non-standard size of this equipment
and any differential impacts that might result on this industry from
amended energy conservation standards. The non-standard size market is
further discussed in section IV and the impacts on the non-standard
size industry from

[[Page 18866]]

amended energy conservation standards are estimated in section V.

IV. Methodology and Analyses

This section addresses the analyses DOE has performed for this
rulemaking. A separate sub-section addresses each analysis. DOE used a
spreadsheet to calculate the LCC and payback periods (PBPs) of
potential amended energy conservation standards. Another spreadsheet
was used to provide shipments forecasts and then calculates national
energy savings and net present value impacts of potential amended
energy conservation standards. DOE also assessed manufacturer impacts,
largely through use of the Government Regulatory Impact Model (GRIM).
DOE also estimated the impacts of proposed PTAC and PTHP energy
conservation standards on electric utilities and the environment using
a version of EIA's National Energy Modeling System (NEMS). The NEMS
model simulates the U.S. energy economy and has been developed over
several years by the EIA primarily for preparing the AEO. The NEMS
produces a widely known baseline forecast for the United States through
2030 that is available in the public domain. The version of NEMS used
for the proposed energy conservation standards analysis is called NEMS-
BT , and is based on the AEO2007 version with minor modifications. The
NEMS-BT offers a sophisticated picture of the effect of standards,
since it can measure the interactions between the various energy supply
and demand sectors and the economy as a whole.

A. Market and Technology Assessment

When beginning an energy conservation standards rulemaking, DOE
develops information that provides an overall picture of the market for
the equipment concerned, including the purpose of the equipment, the
industry structure, and market characteristics. This activity includes
both quantitative and qualitative assessments based primarily on
publicly available information. The subjects addressed in the market
and technology assessment for this rulemaking (see Chapter 3 of the
TSD) include equipment classes, manufacturers, quantities, and types of
equipment sold and offered for sale, retail market trends, and
regulatory and non-regulatory programs.
1. Definitions of a PTAC and a PTHP
Section 340 of EPCA defines a ``packaged terminal air conditioner''
as ``a wall sleeve and a separate unencased combination of heating and
cooling assemblies specified by the builder and intended for mounting
through the wall. It includes a prime source of refrigeration,
separable outdoor louvers, forced ventilation, and heating availability
by builder's choice of hot water, steam, or electricity.'' (42 U.S.C.
6311(10)(A)) EPCA defines a ``packaged terminal heat pump'' as ``a
packaged terminal air conditioner that utilizes reverse cycle
refrigeration as its prime heat source and should have supplementary
heat source available to builders with the choice of hot water, steam,
or electric resistant heat.'' (42 U.S.C. 6311(10)(B)) DOE codified
these definitions in 10 CFR 431.92 in a final rule issued October 21,
2004. 69 FR 61970.
2. Equipment Classes
When evaluating and establishing energy conservation standards, DOE
generally divides covered equipment into equipment classes by the type
of energy used or by capacity or other performance-related features
that affect efficiency. Different energy conservation standards may
apply to different equipment classes. (42 U.S.C. 6316(a); 42 U.S.C.
6295(q))
PTACs and PTHPs can be divided into various equipment classes
categorized by physical characteristics that affect equipment
efficiency. Key characteristics affecting the energy efficiency of the
PTAC or PTHP are whether the equipment has reverse cycle heating (i.e.,
air conditioner or heat pump), the cooling capacity, and the physical
dimensions of the unit.
The existing Federal energy conservation standards for PTACs and
PTHPs correspond to the efficiency levels in ASHRAE/IESNA Standard
90.1-1989, as shown in Tables 1 and 2 of 10 CFR Part 431.97, dividing
PTACs and PTHPs into six equipment classes. These equipment classes are
differentiated by whether the equipment has supplemental heating or
reverse cycle heating (i.e., air conditioner or heat pump) and by
cooling capacity in Btu/h.
When installed, PTACs and PTHPs are fitted into a wall sleeve.
There is a wide variety of wall sleeve sizes found in different
buildings. These wall sleeves are market driven (i.e., the applications
or facilities where the PTACs or PTHPs are installed is what determines
the ``market standard'' wall sleeve dimension) and require
manufacturers to offer various PTACs and PTHPs that can fit into
various wall sleeve dimensions. For new units, the industry has
standardized the wall sleeve dimension for PTACs and PTHPs in buildings
over the past 20 years to be 16 inches high by 42 inches wide.
Therefore, units that have a wall sleeve dimension of 16 inches high by
42 inches wide are considered ``standard size'' equipment and all other
units are considered ``non-standard size'' equipment. In contrast, the
industry does not have a common wall sleeve dimension that is typical
for all older existing facilities. These facilities, such as high-rise
buildings found in large cities, typically use non-standard size
equipment. In these installations, altering the existing wall sleeve
opening to accommodate the more efficient, standard size equipment
could include extensive structural changes to the building, could be
very costly, and is therefore, rarely done.
When ASHRAE amended the efficiency levels for PTACs and PTHPs in
1999, it acknowledged the physical size constraints among various
sleeve sizes on the market. Consequently, ASHRAE/IESNA Standard 90.1-
1999 used the equipment classes defined by EPCA, which are
distinguished by whether the product has reverse cycle heating (i.e.,
air conditioner or heat pump) and cooling capacity in Btu/h, and
further separated these equipment classes by wall sleeve dimensions.
ASHRAE/IESNA Standard 90.1-1999 refers to wall sleeve dimensions in
two categories: ``New Construction'' and ``Replacement.'' ASHRAE/IESNA
Standard 90.1-1999 does not describe ``New Construction,'' but Table
6.21D, footnote b of ASHRAE/IESNA Standard 90.1-1999 states that
``replacement'' efficiencies apply only to units: (1) ``Factory labeled
as follows: Manufactured for Replacement Applications Only; Not to be
Installed in New Construction Projects''; and (2) ``with existing wall
sleeves less than 16 inches high and less than 42 inches wide.'' DOE
understands that the ``New Construction'' category under ASHRAE/IESNA
Standard 90.1-1999 is residual, and covers all other PTAC and PTHPs.
Hence, this category consists of equipment with wall sleeve dimensions
greater than or equal to 16 inches high and greater than or equal to 42
inches wide, or lacking the requisite label. In addition, when ASHRAE
approved ASHRAE/IESNA Standard 90.1-1999, not only did it include
delineations by wall sleeve dimensions, but it also associated these
delineations with specified efficiency levels. The efficiency levels
associated with non-standard equipment, or ``Replacement'' equipment,
are significantly less stringent than those associated with standard
size equipment, or ``New Construction'' equipment.
ARI recently submitted a continuous maintenance proposal on PTAC
and

[[Page 18867]]

PTHP equipment to the ASHRAE/IESNA Standard 90.1 committee, which in
part suggests alterations to the delineations within ASHRAE/IESNA
Standard 90.1-1999 for standard and non-standard size equipment.\7\ ARI
believes ASHRAE misclassified approximately one-third of the non-
standard size market when it adopted ASHRAE/IESNA Standard 90.1-1999.
ARI believes the one third of the non-standard size market subject to
the more stringent standards under ASHRAE/IESNA Standard 90.1-1999 are
not capable of meeting the efficiency levels specified by ASHRAE/IESNA
Standard 90.1-1999 for standard size equipment due to the physical size
constraints of the wall sleeve. For example, a PTAC or PTHP unit with
wall sleeve dimensions of 16.5 inches high and 27 inches wide would be
classified as standard size equipment under ASHRAE's delineations and
would be required to meet the higher efficiency levels specified by
ASHRAE/IESNA Standard 90.1-1999. However, since this unit does not have
the industry standard wall sleeve dimension of 16 inches high by 42
inches wide, ARI believes these units are solely non-standard units
that are used in very old buildings and should therefore be considered
as replacement units. Due to the space limitations typically associated
with non-standard size PTACs and PTHPs, manufacturers have few options
to increase energy efficiency. As noted above, many of the existing
buildings cannot be retrofitted to accommodate larger wall sleeves
associated with more efficient standard-size units.
---------------------------------------------------------------------------

\7\ Air-Conditioning and Refrigeration Institute. Continuous
Maintenance Proposal on Package Terminal Equipment. October 5, 2007.
---------------------------------------------------------------------------

In response to this apparent misclassification within ASHRAE/IESNA
Standard 90.1-1999, ARI proposed a continuous maintenance proposal to
ASHRAE that includes a new definition for non-standard size PTACs and
PTHPs in place of the ``replacement'' delineation in ASHRAE/IESNA
Standard 90.1-1999. The new definition of non-standard size PTACs and
PTHPs reads: ``equipment with existing sleeves having an external wall
opening of less than 16 in. high or less than 42 in. wide, and having a
cross-sectional area less than 670 in ².'' Effectively, this
new definition of non-standard equipment would allow approximately five
percent of the total PTAC and PTHP market to qualify for the less
stringent, non-standard efficiency levels.
DOE recognizes ARI's concerns regarding non-standard size equipment
and the possible misclassification under the delineations established
by ASHRAE/IESNA Standard 90.1-1999. When ASHRAE approved ASHRAE/IESNA
Standard 90.1-1999, not only did it include delineations by wall sleeve
dimensions, but it also associated these delineations with specified
efficiency levels. The efficiency levels associated with non-standard
equipment, or ``Replacement'' equipment, are significantly less
stringent than those associated with standard size equipment, or ``New
Construction'' equipment.
DOE reviewed the ARI shipment data and found approximately 15
percent of the total market (i.e., approximately 67,000 units shipped
annually) are non-standard size equipment. Under ASHRAE/IESNA Standard
90.1-1999, approximately 5 percent of the total non-standard size
equipment market would be required to meet the more stringent standards
established for standard size equipment. If DOE were to adopt equipment
classes consistent with those delineations in ASHRAE/IESNA Standard
90.1-1999, manufacturers could be forced to cease production of those
equipment lines, which are potentially misclassified and could not meet
the more stringent standards. Under the ARI continuous maintenance
proposal to ASHRAE, all of the non-standard size equipment would be
subject to the less stringent standards.
Since ARI's proposed definitions would effectively reclassify some
equipment under ASHRAE/IESNA 90.1-1999's delineations as non-standard
size equipment, DOE believes ASHRAE must adopt ARI's continuous
maintenance proposal before DOE can officially use this definition as
the basis for DOE's standard. (42 U.S.C. 6313(a)(6)(A)(ii)) DOE
understands that the ARI continuous maintenance proposal on PTACs and
PTHPs has been approved by ASHRAE as Addendum t to ASHRAE/IESNA
Standard 90.1-2007 and will be the subject of public review. If ASHRAE
is able to adopt Addendum t to ASHRAE/IESNA Standard 90.1-2007 prior to
September 2008, when DOE must issue a final rule on this rulemaking,
DOE proposes to incorporate that version of the ASHRAE standard,
including the modified definition in its final rule.
At this time, DOE seeks stakeholder comment on Addendum t to
ASHRAE/IESNA Standard 90.1-2007 (i.e., ARI's continuous maintenance
proposal to ASHRAE). Specifically, Addendum t to ASHRAE/IESNA Standard
90.1-2007 incorporates the following revised definition for non-
standard size equipment: ``equipment with existing sleeves having an
external wall opening of less than 16 in. high or less than 42 in.
wide, and having a cross-sectional area less than 670 in
².'' If ASHRAE were to approve Addendum t to ASHRAE/IESNA
Standard 90.1-2007 prior to September 2008, DOE proposes to adopt
equipment classes in the final rule for PTACs and PTHPs as shown in
Table IV.1.

Table IV.1.--Equipment Classes for PTACs and PTHPs if ASHRAE Adopts
Addendum T to ASHRE/IESNA Standard 90.1-2007
------------------------------------------------------------------------
Equipment Class
-------------------------------------------------------------------------
Equipment Category Cooling capacity
------------------------------------------------------------------------
PTAC.......................... Standard Size*... < 7,000 Btu/h
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
Non-Standard < 7,000 Btu/h
Size**.
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
PTHP.......................... Standard Size*... < 7,000 Btu/h
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
Non-Standard < 7,000 Btu/h
Size**.

[[Page 18868]]

>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
------------------------------------------------------------------------
* Standard size refers to PTAC or PTHP equipment with wall sleeve
dimensions having an external wall opening of greater than or equal to
16 inches high or greater than or equal to 42 inches wide, and having
a cross-sectional area greater than or equal to 670 inches squared.
** Non-standard size refers to PTAC or PTHP equipment with existing wall
sleeve dimensions having an external wall opening of less than 16
inches high or less than 42 inches wide, and having a cross-sectional
area less than 670 inches squared.

DOE would add the definitions of standard size and non-standard
size as defined in the footnotes of Table IV.1 under 10 CFR 431.2. This
is identified as Issue 1 under ``Issues to Which DOE Seeks Comment'' in
section VII.E of today's proposed rule.
In the absence of final action by ASHRAE on the addendum, DOE would
subdivide EPCA's existing classes for this equipment by wall sleeve
dimensions, consistent with ASHRAE/IENSNA Standard 90.1-1999.
Specifically, DOE would adopt equipment classes in the final rule for
PTACs and PTHPs as shown in Table IV.2.

Table IV.2.--Equipment Classes for PTACs and PTHPs if ASHRAE Does Not
Adopt Addendum T to ASHRE/IESNA Standard 90.1-2007
------------------------------------------------------------------------
Equipment class
-------------------------------------------------------------------------
Equipment Category Cooling capacity
------------------------------------------------------------------------
PTAC.......................... Standard Size*... < 7,000 Btu/h
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
Non-Standard < 7,000 Btu/h
Size**.
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
PTHP.......................... Standard Size*... < 7,000 Btu/h
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
Non-Standard < 7,000 Btu/h
Size**.
>= 7,000 Btu/h and <=
15,000 Btu/h
> 15,000 Btu/h
------------------------------------------------------------------------
* Standard size refers to PTAC or PTHP equipment with wall sleeve
dimensions greater than or equal to 16 inches high, or greater than or
equal to 42 inches wide.
** Non-standard size refers to PTAC or PTHP equipment with wall sleeve
dimensions less than 16 inches high and less than 42 inches wide.

DOE would add the definitions of standard size and non-standard
size as defined in the footnotes of Table IV.2 under section 10 CFR
431.2.
For the purposes of today's notice, DOE has based the proposed
standards and the proposed definitions of non-standard and standard
size PTACs and PTHPs as shown in the rule language of today's notice on
the delineations in ASHRAE/IESNA Standard 90.1-1999. However as stated
above, if ASHRAE adopts Addendum t to ASHRAE/IESNA Standard 90.1-2007
prior to September 2008, DOE proposes to incorporate the modified
definitions from the Addendum in the final rule. (42 U.S.C.
6313(a)(6)(A)(ii)) If Addendum t is not available for DOE to include in
the final rule, DOE's ability to do so at a later date will be
constrained by the anti-backsliding provision. (42 U.S.C. 6316(a); 42
U.S.C. 6295(o)(1))
3. Market Assessment
The subjects addressed in this market assessment for this
rulemaking include trade associations, manufacturers, and the
quantities and types of equipment sold and offered for sale. The
information DOE gathered serves as resource material throughout the
rulemaking. Chapter 3 of the TSD provides additional detail on the
market assessment.
a. Trade Association
The Air-Conditioning, Heating, and Refrigeration Institute (AHRI),
formerly and throughout this notice referred to as ARI, is the trade
association representing PTAC and PTHP manufacturers. ARI and the Gas
Appliance Manufacturers Association (GAMA) announced on December 17,
2007, that their members voted to approve the merger of the two trade
associations to represent the interests of cooling, heating, and
commercial refrigeration equipment manufacturers. The merged
association became AHRI on Jan. 1, 2008.
ARI develops and publishes technical standards for residential and
commercial equipment using rating criteria and procedures for measuring
and certifying equipment performance. The DOE test procedure is an ARI
standard. ARI has developed a certification program that the majority
of the manufacturers in the PTAC and PTHP industry have used to certify
their equipment. Manufacturers certify their own equipment by providing
ARI with test data. Through the ARI certification program, ARI
evaluates the test data and determines if the equipment conforms to ARI
310/380-2004.\8\ Once ARI has determined that the equipment has met all
the requirements under ARI 310/380-2004 standards and certification

[[Page 18869]]

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

\8\ DOE has incorporated by reference ARI Standard 310/380-2004
as the DOE test procedure at 10 CFR 431.97.
---------------------------------------------------------------------------

b. Manufacturers
DOE identified five large manufacturers of standard size PTAC and
PTHP that hold approximately 90 percent of the market in terms of
shipments. These five manufacturers include: General Electric (GE)
Company, Carrier Corporation, Amana,\9\ Trane,\10\ and McQuay
International. Three major manufacturers including McQuay
International, RetroAire, and Fedders Islandaire, Inc. share the non-
standard size PTAC and PTHP market. All of the major manufacturers
certify their equipment with ARI and are included in the ARI directory
of certified products.
---------------------------------------------------------------------------

\9\ Amana is a trademark of Maytag Corporation and is used under
license to Goodman Global, Inc.
\10\ Trane is a trademark and business of American Standard
companies.
---------------------------------------------------------------------------

The standard size PTAC and PTHP market differs from the non-
standard size PTAC and PTHP industry in that many of the manufacturers
are domestically owned with manufacturing facilities located outside of
the United States. Currently there is only one major manufacturer of
standard size PTAC and PTHP equipment manufacturing equipment in the
United States. In addition, there has been a recent trend in the PTAC
and PTHP standard size market for foreign owned companies to enter and
sell equipment in the United States.
Almost all of the manufacturers of non-standard size PTACs and
PTHPs are domestically owned with manufacturing facilities located
inside of the United States. The non-standard manufacturers tend to
specialize in equipment solely for replacement applications. In
addition, non-standard size manufacturers produce PTAC and PTHP
equipment on a made-to-order basis. Unlike standard size manufacturers,
there has not been an influx of foreign owned companies to sell non-
standard size PTAC and PTHP equipment in the United States.
In addition, DOE takes into consideration the impact of amended
energy conservation standards on small businesses. At this time, DOE
has identified several small business in both the standard size and
non-standard size PTAC and PTHP industry that fall under the Small
Business Administration (SBA)'s definition as having 750 employees or
fewer. DOE studies the potential impacts on these small businesses in
detail during the MIA (section IV.I of today's notice and Chapter 13 of
the TSD).
c. Shipments
DOE reviewed data collected by the U.S. Census Bureau and ARI to
evaluate the annual PTAC and PTHP equipment shipment trends and the
value of these shipments. The historical shipments data shown in Tables
IV.3 provide a picture of the market for PTAC and PTHP equipment. The
historical shipments for PTACs and PTHPs are based on data provided by
ARI for the years 1997-2005.

Table IV.3.--2006 Total PTAC and PTHP Industry Estimated Shipment Data
from ARI (Standard and Non-Standard)
------------------------------------------------------------------------
Total
Year (thousands
of units)
------------------------------------------------------------------------
2005....................................................... 484
2004....................................................... 446
2003....................................................... 399
2002....................................................... 389
2001....................................................... 388
2000....................................................... 402
1999....................................................... 453
1998....................................................... 471
1997....................................................... 434
------------------------------------------------------------------------

Using currently available data, ARI estimated that 85 percent of
the shipments for PTACs and PTHPs are standard size units, while 15
percent are non-standard size units. In addition, ARI identified the
two cooling capacities for standard size PTACs and PTHPs with the
highest number of shipments, which are 9,000 Btu/h and 12,000 Btu/h.
4. Technology Assessment
In the technology assessment, DOE identified technologies and
design options that could improve the efficiency of PTACs and PTHPs.
This assessment provides the technical background and structure on
which DOE bases its screening and engineering analyses. For PTACs and
PTHPs, DOE based its list of technologically feasible design options on
input from manufacturers, industry experts, component suppliers, trade
publications, and technical papers.
In surveying PTAC and PTHP technology options, DOE considered a
wide assortment of equipment literature, information derived from the
teardown analysis, information derived from the stakeholder interviews,
and the previous DOE energy conservation standards rulemaking for air-
conditioning rulemaking analyses. The following technology options were
identified as potential means to improve PTAC and PTHP performance:
Scroll compressors
Variable-speed compressors
Higher efficiency compressors
Complex control boards
Higher efficiency fan motors
Microchannel heat exchangers
Increase heat exchanger area
Material treatment of heat exchanger
Recircuiting heat exchanger coils
Improved air flow and fan design
Heat pipes
Corrosion protection

B. Screening Analysis

The purpose of the screening analysis is to evaluate the
technologies that improve equipment efficiency to determine which
technologies to consider further and which to screen out. DOE consulted
with a range of parties, including industry, technical experts, and
others to develop a list of technologies for consideration. DOE then
applied the following four screening criteria to determine which
technologies are unsuitable for further consideration in the rulemaking
(10 CFR Part 430, Subpart C, Appendix A at 4(a)(4) and 5(b)):
(1) Technological feasibility. Technologies incorporated in
commercial equipment or in working prototypes will be considered
technologically feasible.
(2) Practicability to manufacture, install, and service. If mass
production of a technology in commercial equipment and reliable
installation and servicing of the technology could be achieved on the
scale necessary to serve the relevant market at the time of the
effective date of the standard, then that technology will be considered
practicable to manufacture, install, and service.
(3) Adverse impacts on equipment utility or equipment availability.
If a technology is determined to have significant adverse impact on the
utility of the equipment to significant subgroups of customers, or
result in the unavailability of any covered equipment type with
performance characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as equipment
generally available in the United States at the time, it will not be
considered further.
(4) Adverse impacts on health or safety. If it is determined that a
technology will have significant adverse impacts on health or safety,
it will not be considered further.
DOE eliminated three technologies because they have no effect on,
or do

[[Page 18870]]

not increase EER or COP as measured by the test procedure since the
test procedure measures steady-state energy efficiency. However, these
features (i.e., variable speed compressors, complex control boards, and
corrosion protection) can reduce the energy consumption of the PTAC or
PTHP in actual applications, since they affect the cyclic operation of
the equipment. They do not affect the measure of efficiency (i.e., EER
and COP) since both are steady-state measures, not cyclic measures.
DOE also eliminated six of the technologies it identified in the
market and technology assessment. The specific technologies that were
eliminated based on the four screening criteria outlined above are: (1)
Scroll compressors, (2) higher efficiency fan motors, (3) microchannel
heat exchangers, (4) material treatment of heat exchangers, (5)
improved airflow and fan design, and (6) heat pipes. DOE screened out
scroll compressors because they are not currently practical to
manufacturer in the sizes necessary for use in PTACs and PTHPs. DOE
screened out higher efficiency fan motors, improved airflow and fan
design because further gains in PSC fan motor technology or changing
the type of fan design would affect the size of the motor or fan.
Because PTACs and PTHPs are space-constrained equipment, it is unlikely
that manufacturers would be able to redesign the motor or fans that
would be practical to manufacture, install, and service on a scale
necessary to serve the relevant market at the time of the effective
date of the standard. DOE screened out microchannel heat exchangers
because they are still in the research stage for PTAC and PTHP
equipment and would not be practicable to manufacture, install, or
service on a scale necessary to serve the relevant market at the time
of the effective date of the standard. DOE screened out material
treatment of heat exchangers because it is currently patented and only
used by one PTAC and PTHP manufacturer; thus, it would not be practical
to manufacture on broad scale for the entire industry. Lastly, DOE
screened out heat pipes because they are still in the research stage
and their energy savings potential has not been fully established.
Based on equipment literature, teardown analysis, and manufacturer
interviews, DOE has identified higher efficiency compressors,\11\
increasing the heat exchanger area, and recircuiting the heat exchanger
coils as the most common ways by which manufacturers improve the energy
efficiency of their PTACs and PTHPs as measured by the test procedure
and that are not excluded by the four criteria in Appendix A to Subpart
B of 10 CFR Part 430 listed above. See Chapter 3 of the TSD for
additional detail on the technology assessment and technologies
analyzed.
---------------------------------------------------------------------------

\11\ Currently, all PTAC and PTHP manufacturers incorporate
rotary compressors into their equipment designs. DOE is referring to
rotary compressors throughout today's notice unless specifically
noted.
---------------------------------------------------------------------------

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

C. Engineering Analysis

The purpose of the engineering analysis is to establish the
relationship between the cost and efficiency of PTACs and PTHPs, to
show the manufacturing costs of achieving increased efficiency. For
each equipment class, this analysis estimates the baseline manufacturer
cost, as well as the incremental cost for equipment at efficiency
levels above the baseline. In determining the performance and the costs
of more efficient equipment, DOE considers technologies and design
option combinations not eliminated in the screening analysis. The
output of the engineering analysis is a set of cost-efficiency
relationships or cost-efficiency curves that are used in further
analyses (e.g., the LCC and PBP analyses and the national impact
analysis (NIA)).
DOE typically structures its engineering analysis around one of
three methodologies: (1) The design-option approach, which calculates
the incremental costs of adding specific design options to a baseline
model; (2) the efficiency-level approach, which calculates the relative
costs of achieving increases in energy efficiency levels, without
regard to the particular design options used to achieve such increases;
and (3) the reverse-engineering or cost-assessment approach, which
involves ``bottom-up'' manufacturing cost assessments for achieving
various levels of increased efficiency, based on detailed data derived
from equipment tear-downs, as to costs for parts, material, labor,
shipping/packaging, and investment for models that operate at
particular efficiency levels.
1. Approach
For PTACs and PTHPs, each energy efficiency level is expressed as
an EER, which is a function of cooling capacity. For each class
analyzed, DOE used representative cooling capacities corresponding to
the cooling capacities with the highest equipment shipments within a
given equipment class. For the purposes of conducting the analyses, DOE
believes that the results from the representative cooling capacities
can be extrapolated to the entire range of cooling capacities for each
equipment class. DOE's approach for extending the results to the
omitted cooling capacities is discussed further in section V.1 of this
NOPR. DOE seeks comment on this approach to extend the engineering
analysis to cooling capacities for which complete analysis was not
performed. This is identified as Issue 2 under ``Issues to Which DOE
Seeks Comment'' in section VII.E of today's proposed rule.
For this analysis, DOE used a design option approach, which
involved consultation with outside experts, review of publicly
available cost and performance information, and modeling of equipment
cost. The design options DOE considered in the Engineering Analysis
include higher efficiency compressors, increasing the heat exchanger
area, and recircuiting the heat exchanger coils. The design option
analysis provides transparency of assumptions and results and the
ability to perform independent analyses for verification. The
methodology used to perform design-option analysis and derive the cost-
efficiency relationship is described in detail in Chapter 5 of the TSD.
2. Equipment Classes Analyzed
For the engineering analysis, DOE reviewed all twelve equipment
classes covered by this rulemaking. Since the wall sleeve dimensions
effect the energy efficiency of the equipment, DOE examined standard
size and non-standard size PTACs and PTHPs separately. In addition,
since the energy efficiency equations for PTACs and PTHPs established
by EPCA and ASHRAE/IESNA Standard 90.1-1999 are a function of the
equipment's cooling capacity, DOE examined specific cooling capacities
for standard size and non-standard size PTACs and PTHPs, which are
referred to as representative cooling capacities. See

[[Page 18871]]

Table 1 and Table 2 of 10 CFR Part 431.97 and ASHRAE/IESNA Standard
90.1-1999 for the energy efficiency equations. DOE reviewed the
shipments data provided by ARI for the 2000 Screening Analysis and
today's rulemaking,\12\ and found the majority of shipments have a
cooling capacity within the 7,000 Btu/h to 15,000 Btu/h range. See
Chapter 3 of the TSD for more details on the shipments data.
Consequently, DOE choose to examine these four equipment classes
further.
---------------------------------------------------------------------------

\12\ ARI provided DOE shipments data from 2000 for the 2000
Screening Analysis and shipments data from 2006 for today's
rulemaking.
---------------------------------------------------------------------------

For standard size PTAC and PTHP equipment classes, DOE identified
two representative cooling capacities. The representative cooling
capacities for standard size PTACs and PTHPs are 9,000 Btu/h and 12,000
Btu/h. DOE found these two representative cooling capacities to have
the highest number of shipments based on data in the 2006 ARI
Directory, the ACEEE database of equipment, as well as the shipment
information provided to DOE found in the 2000 Screening Analysis. For
non-standard size equipment, DOE could not identify representative
cooling capacities or wall sleeve dimensions. The non-standard size
PTAC and PTHP market also has a greater variety of shipments based on
the customers that use them and specialized applications. DOE used
11,000 Btu/h as the representative cooling capacity for non-standard
size equipment because it is the middle of the cooling capacity range.
Therefore, for the engineering analysis and subsequent analyses, DOE
analyzed non-standard size PTACs and PTHPs with 11,000 Btu/h cooling
capacity. See Chapter 5 of the TSD for additional details.
DOE developed the cost-efficiency curves based on these
representative cooling capacities and wall sleeve-size units. Table
IV.4 exhibits the representative cooling capacities within each
equipment class analyzed in the engineering analysis.

Table IV.4.--Representative Cooling Capacities for the Engineering
Analysis
------------------------------------------------------------------------
Representative
Equipment type Equipment class cooling capacity
(Btu/h)
------------------------------------------------------------------------
PTAC.......................... Standard Size*....... 9,000
12,000
Non-Standard Size**.. 11,000
PTHP.......................... Standard Size*....... 9,000
12,000
Non-Standard Size**.. 11,000
------------------------------------------------------------------------
* Standard size refers to PTAC or PTHP equipment with wall sleeve
dimensions greater than or equal to 16 inches high, or greater than or
equal to 42 inches wide.
** Non-standard size refers to PTAC or PTHP equipment with wall sleeve
dimensions less than 16 inches high and less than 42 inches wide.

DOE's selection of representative cooling capacities for further
examination is based on shipment information provided by ARI. For the
PTAC and PTHP equipment classes with a cooling capacity greater than or
equal to 7,000 Btu/h and less than or equal to 15,000 Btu/h, the energy
efficiency equation characterizes the relationship between the EER of
the equipment and cooling capacity (i.e., EER is a function of the
cooling capacity of the equipment). Therefore, for these equipment
classes, DOE explicitly analyzed the two cooling capacities with the
greatest number of shipments, which allows DOE to investigate the slope
of the energy efficiency capacity relationship. For all cooling
capacities less than 7,000 Btu/h and all cooling capacities greater
than 15,000 Btu/h, the EER is calculated based on the energy efficiency
equation for 7,000 Btu/h or 15,000 Btu/h, respectively.
For PTACs and PTHPs, DOE is proposing to equate the amended energy
conservation standards for equipment with a cooling capacity less than
7,000 Btu/h with the amended energy conservation standards for
equipment with a cooling capacity equal to 7,000 Btu/h. Similarly, for
PTACs and PTHPs, DOE is proposing to equate the amended energy
conservation standards for equipment with a cooling capacity greater
than 15,000 Btu/h to the amended energy conservation standards for
equipment with a cooling capacity equal to 15,000 Btu/h. This is the
same method established in the Energy Policy Act of 1992 as shown by
the existing Federal minimum energy conservation standards and
maintained by ASHRAE Standard 90.1-1999 for calculating the EER and COP
of equipment with cooling capacities less than 7,000 Btu/h and greater
than 15,000 Btu/h. More details explaining how DOE developed the
proposed energy efficiency equations based on the analysis results for
the representative cooling capacities are found in section V.A of
today's notice.
3. Cost Model
DOE developed a manufacturing cost model to estimate the
manufacturing production cost (MPC) of PTACs and PTHPs. The
manufacturing cost model is a spreadsheet model, which details the
structured bill of materials to estimate the MPCs of a PTAC or PTHP
based on all the manufacturing and fabrication resources required to
manufacture the equipment. Developing the cost model involved
disassembling various PTACs and PTHPs, analyzing the materials and
manufacturing processes, and developing component costing flexible
enough to be applicable to all equipment classes. In addition to
disassembling various PTACs and PTHPs, manufacturers provided DOE
supplemental component data for various PTAC and PTHP equipment. The
manufacturing cost model used the component specifications supplied by
manufacturers, the teardown data, component cost sources, and
engineering interviews to estimate the MPCs. DOE reported the MPCs in
aggregated form to maintain confidentiality of sensitive component
data. DOE obtained input from stakeholders on the MPC estimates and
assumptions to confirm accuracy. DOE used the cost model for all of the
representative cooling capacities within the PTAC and PTHP equipment
classes. Chapter 5 of the TSD provides details and assumptions of the
cost model.
DOE applied a manufacturer markup to the MPC estimates to arrive at
the MSP. This is the price at which the

[[Page 18872]]

manufacturer can recover both production and non-production costs \13\
and earns a profit. DOE developed a market-share-weighted average
industry markup by examining the major PTAC and PTHP manufacturers'
gross margin information from annual reports and Securities and
Exchange Commission (SEC) 10-K reports. The manufacturers DOE examined
represent approximately 75 percent of the PTAC and PTHP industry. Each
of these companies is a subsidiary of a more diversified parent company
that manufactures equipment other than PTACs and PTHPs. Because the SEC
10-K reports do not provide gross margin information at the subsidiary
level, the estimated markups represent the average markups that the
parent company applies over its entire range of offerings.
---------------------------------------------------------------------------

\13\ Full production costs include direct labor, direct
material, and direct overhead. Non-production costs include selling,
general and administrative, research and development, and interest.
See Chapter 5 of the TSD for more details.
---------------------------------------------------------------------------

DOE evaluated manufacturer markups from 2002 to 2006, except for
one manufacturer, whose markup was evaluated from 1998 to 2002 because
data from the latter years was not publicly available. The manufacturer
markup is calculated as 100/(100 - average gross margin), where gross
margin is calculated as revenue - cost of goods sold (COGS). DOE used
Internal Revenue Service industry statistics to validate the SEC 10-K
and annual report information. DOE estimated the average manufacturer
markup within the industry as 1.29. See Chapter 5 of the TSD for
additional details.
4. Baseline Equipment
As mentioned above, the engineering analysis estimates the
incremental costs for equipment with efficiency levels above the
baseline in each equipment class. For the purpose of the engineering
analysis, DOE used the engineering baseline EER as the starting point
to build the cost efficiency curves. DOE usually uses the Federal
minimum energy conservation standards to represent the baseline model's
energy efficiency in the engineering analysis. However, all of the PTAC
and PTHP equipment offered for sale, according to the ARI directory,
exceed the efficiency levels specified by the existing Federal minimum
energy conservation standards. Consequently, DOE identified the lowest
efficiency equipment currently on the market and is utilizing it as the
engineering baseline.
DOE established engineering baseline specifications for each of the
equipment classes modeled in the engineering analysis by reviewing
available manufacturer data, selecting several representative units
from available manufacturer data, and then aggregating the physical
characteristics of the selected units. These specifications include
wall sleeve dimensions, number of components, and other equipment
features that affect energy consumption, as well as a base cost (the
cost of a piece of equipment not including the major efficiency-related
components such as compressors, fan motors, and heat exchanger coils).
By excluding the equipment designs, which can be attributable to
specific manufacturers, DOE created an engineering baseline that is
representative of each equipment class with average characteristics,
including dimensions, components, and other equipment features that are
necessary to calculate the MPC of each unit within each equipment
class. The cost model was used to develop the MPC for each equipment
class. Specifications of the baseline equipment are provided in Chapter
5 of the TSD.
In estimating the economic impacts of standards, DOE used the
efficiency levels in ASHRAE/IESNA Standard 90.1-1999 as the baseline
efficiencies in order to estimate the impacts of standards more
stringent than ASHRAE/IESNA Standard 90.1-1999. ASHRAE/IESNA Standard
90.1-1999 is the least stringent energy efficiency level DOE could
adopt since EPCA directs that if ASHRAE/IESNA Standard 90.1 is amended,
DOE must adopt an amended standard at the new level in ASHRAE/IESNA
Standard 90.1 unless clear and convincing evidence supports a
determination that adoption of a more stringent level as a national
standard would produce significantly more energy savings and be
technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) Consequently, the minimum energy conservation
standard levels DOE could adopt in this rulemaking proceeding would be
the efficiency levels contained in ASHRAE/IESNA Standard 90.1-1999.
Thus, DOE is evaluating in this rulemaking whether efficiency levels
above those contained in ASHRAE/IESNA Standard 90.1-1999 are
technologically feasible and economically justified.\14\
---------------------------------------------------------------------------

\14\ DOE's estimates of potential energy savings from an amended
energy conservation standard are further discussed in section V.3.
---------------------------------------------------------------------------

5. Alternative Refrigerant Analysis
a. R-22
In 1987, the United Nations Environment Programme (UNEP) adopted
the Montreal Protocol on Substances that Deplete the Ozone Layer
(Montreal Protocol), which regulates the phase-out of ozone-depleting
substances through a collaborative and international effort. In 1988,
the United States ratified the Montreal Protocol and thus committed to
the phase-out.\15\
---------------------------------------------------------------------------

\15\ The 1987 Montreal Protocol on Substances that Deplete the
Ozone Layer (as agreed in 1987). United Nations Environment
Programme. http://ozone.unep.org/Ratification--status/montreal--
protocol.shtml.
---------------------------------------------------------------------------

In 1990, the Clean Air Act was amended to include Title VI,
``Stratospheric Ozone Protection,'' to implement the Montreal Protocol.
(42 U.S.C. 7671, et seq.) Title VI mandated the phase-out by 2020 of
hydrochlorofluorocarbon (HCFC) refrigerants for use in new air-
conditioning systems. (42 U.S.C. 7671d) Title VI, however, also
authorized the Environmental Protection Agency (EPA) to accelerate this
date if certain criteria were met, (42 U.S.C. 7671e) and EPA
subsequently adopted a rule on December 10, 1993 to require the phase-
out of HCFC refrigerants for use in new equipment by 2010. 58 FR 65018.
R-22, the only refrigerant currently used by PTACs and PTHPs, is an
HCFC refrigerant and subject to the phase-out requirement. Phase-out of
this refrigerant could have a significant impact on the manufacturing,
performance, and cost of PTAC and PTHP equipment.
b. R-410A
As part of the engineering analysis, DOE performed an alternative
refrigerant analysis to characterize the performance implications on
PTACs and PTHPs. This analysis included researching technical journal
reports, discussions with industry experts and manufacturers, and
developing an analysis that used the methodology DOE used in performing
the engineering analysis as to equipment using the R-22 refrigerant.
ARI, in comment on the March 13, 2006, Notice of Document Availability
(71 FR 12634) commented that R-410A is the most likely replacement
refrigerant for R-22 in standard and non-standard size PTACs and PTHPs.
(Docket No. EE-RM/STD-03-100, EE-RM/STD-03-200, EE-RM/STD-03-300, ARI,
No. 26 at pp. 2-3) \16\

[[Page 18873]]

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

\16\ ``ARI, No. 26 at pp 2-3'' refers (1) to a statement that
was submitted by the Air-Conditioning and Refrigeration Institute
and is recorded in the Resource Room of the Building Technologies
Program in the docket under ``Energy Efficiency Program for
Commercial and Industrial Equipment: Efficiency Standards for
Commercial Heating, Air-Conditioning and Water Heating Equipment,''
Docket Number EE-RM-STD-03-100, EE-RM-STD-03-200, and EE-RM-STD-03-
300, as comment number 26; and (2) a passage that appears on pages 2
and 3 of that statement.
---------------------------------------------------------------------------

DOE identified the ``max-tech'' efficiency levels as described in
section III.B.2 of today's proposed rule. These ``max-tech'' efficiency
levels are based on currently available R-22 PTACs and PTHPs for a
given representative cooling capacity within a given equipment class.
In order to analyze the impact of using R-410A in PTACs and PTHPs, DOE
considered the impact of using R-410A on PTAC components, the
engineering analysis of past rulemakings that addressed the refrigerant
phase-out, and markets in which a similar transition has occurred.
First, DOE expects that the phase-out of R-22 and the subsequent
adoption of R-410A refrigerants in PTACs and PTHPs will require the
redesign of the sealed systems found inside the PTAC and PTHP units.
The sealed system consists of the indoor and outdoor heat exchangers,
the compressor, refrigerant flow-control devices, and any piping that
connects these components through which refrigerant flows during unit
operation. Since R-22 refrigerants have different operating
characteristics than R-410A, the sealed system in a PTAC or PTHP unit
using R-410A will have to be redesigned to optimize the unit for
operation with R-410A. Specifically, equipment using R-410A operates at
higher system pressure requiring stronger sealed system walls and the
use of different oils (i.e., R-410 equipment will use POE, while R-22
equipment uses mineral). In addition, R-410A compressors must also be
designed with thicker and stronger compressor shells and components to
withstand 50 percent to 60 percent more pressure than R-22
compressors.\17\
---------------------------------------------------------------------------

\17\ Emerson Climate Technologies. R410A Questions. http://
www.emersonclimate.com/faq_copeland.htm#R410A (Last accessed August
2, 2007.) We will need to save the portion of this web site that we
rely upon for the administrative record.
---------------------------------------------------------------------------

The loss in compressor efficiency can be overcome with optimized
heat exchanger design to a limited extent. As discussed in the market
and technology assessment (Chapter 3 of the TSD), different heat
exchanger redesigns not currently associated with compressors could
increase overall system performance. According to manufacturers, some
redesigns, such as adding coils, re-circuiting, and increasing the
frontal heat exchanger surface area, are applicable to PTACs and PTHPs
regardless of the refrigerant used. However, DOE does not have
sufficient information to predict with precision the performance
benefits of heat exchanger redesigns. Initially, DOE expects any such
redesigns to result in efficiency improvements insufficient to offset
the efficiency reductions resulting from the switch from R-22 to R-
410A. Thus, DOE expects the overall system efficiency of R-410A PTAC
and PTHP equipment will be lower than if that equipment used R-22, as
predicted by manufacturer testing, ARI's research,\18\ National
Institute of Standards and Technology studies,\19\ and as observed in
response to the transition from R-22 to R-410A in the residential air
conditioning market. Optimizing the heat exchanger and HVAC circuits to
compensate could be costly, depending on whether a heat exchanger
manufacturer needs to change the fin tooling, expansion, and assembly
systems.
---------------------------------------------------------------------------

\18\ Air-Conditioning and Refrigeration Institute. Response to
ASHRAE 90.1 Continuous Maintenance Proposal on Package Terminal
Equipment. May 18, 2006.
\19\ Payne, W., Domanski, P. A Comparison of an R22 and an R410A
Air Conditioner Operating at High Ambient Temperatures. National
Institute of Standards and Technology Building Environment Division:
Thermal Machinery Group. http://www.fire.nist.gov/bfrlpubs/build02/
PDF/b02186.pdf. (Last accessed August 2, 2007.)
---------------------------------------------------------------------------

Therefore, in this rulemaking, DOE is using an overall lower system
performance for PTAC and PTHP equipment with R-410A. For standard size
PTACs and PTHPs with 9,000 Btu/h cooling capacity, DOE calculated an
overall system performance degradation consistent with ARI estimates of
6.3 percent.\20\ For standard size PTACs and PTHPs with 12,000 Btu/h
cooling capacity, DOE calculated overall system performance degradation
consistent with ARI estimates of 7.6 percent.\21\ For non-standard size
PTACs and PTHPs of all cooling capacities, DOE calculated overall
system performance degradation of 6.8 percent. See Chapter 5 of the TSD
for additional details.
---------------------------------------------------------------------------

\20\ Air-Conditioning and Refrigeration Institute. Response to
ASHRAE 90.1 Continuous Maintenance Proposal on Package Terminal
Equipment. May 18, 2006.
\21\ Id.
---------------------------------------------------------------------------

DOE has no evidence that the incremental efficiency gains from the
design options used in the R-22 case would have a different effect on
the system performance of R-410A equipment. Therefore, DOE assumed the
design options for the R-22 analysis previously discussed are
applicable to the alternative refrigerant analysis. DOE also assumed
that the corresponding incremental EER improvement for each design
option in the R-22 analysis would be the same in the alternative
refrigerant analysis. See Chapter 5 of the TSD for additional details.
Similar issues existed within the residential, central air
conditioning industry. Systems utilizing R-410A have been available in
the residential air-conditioning market for several years, and DOE
believes the impact of the refrigerant transition to R-410A for PTACs
and PTHPs and on the manufacturers and purchasers of central air
conditioners and heat pumps will be similar. The residential air-
conditioning market is a much larger market than the PTAC and PTHP
market, and thus offers greater incentives for compressor manufacturers
to make the necessary investments to produce more efficient R-410A
compressors. Initially, DOE found that the R-410A compressors available
for use in residential, central air conditioning equipment were less
efficient than their R-22 counterparts they were replacing. However,
DOE has observed that residential, central air conditioning
manufacturers were able to develop technologies and redesign their
equipment, so that the R-22 phase-out has had little effect on system
efficiency when the equipment eventually came onto the market.
At a minimum, DOE believes manufacturers of PTAC and PTHP equipment
will be able to manufacture equipment with R-410A at the efficiency
levels specified by ASHRAE/IESNA Standard 90.1-1999. Since PTAC and
PTHP equipment utilizing R-22 exists at efficiency levels well above
ASHRAE/IESNA Standard 90.1-1999, DOE believes the manufacturers will be
able to produce equipment utilizing R-410A at least at the efficiency
levels specified by ASHRAE/IESNA Standard 90.1-1999, even after the
estimated performance degradations from the engineering analysis are
applied. DOE has preliminarily concluded that the R-410A compressors
available for use in PTAC and PTHP equipment could be less efficient
than their R-22 counterparts could at the time the takes effect, based
upon manufacturer feedback during interviews and by examining other
air-conditioning markets where similar refrigerant transitions have
taken place. However, DOE is hopeful that over time component
manufacturers and PTAC and PTHP manufacturers will be able to

[[Page 18874]]

overcome the degradation in system efficiency caused by the switch to
R-410A refrigerant. Therefore, DOE is continuing to analyze, the
higher, R-22-based, energy efficiency levels identified in section
III.B.2 as the ``max-tech'' efficiency levels. DOE will give particular
attention to the PTAC and PTHP efficiency levels that cannot be met
with current technologies and practices with R-410A in weighing the
benefits and burdens of the various TSLs. Based on information received
in public comments concerning this NOPR, DOE may consider and adopt in
the final rule other potential standard levels that take into account
the impact of R-410A.
c. R-410A Compressor Availability
The availability of R-410A compressors in a wide range of
efficiencies is uncertain. Several compressor manufacturers make R-22,
PTAC and PTHP compressors of different capacities and efficiencies for
standard and non-standard equipment. When the market transitions to R-
410A, these manufacturers may only offer one line of compressors for
PTACs and PTHPs. In engineering interviews, compressor manufacturers
said they do not know if R-410A compressors will have equivalent
performance to R-22 compressors by the 2010 date. They also stated in
interviews that they expect to offer R-410A compressors at only one
efficiency level in the initial stages of the phase-out, which could
further reduce compressor options for PTAC and PTHP manufacturers.
d. R-410A Manufacturing Production Cost
To derive the baseline MPCs for the R-410A PTACs and PTHPs, DOE
made additional cost determinations (e.g., R-410 refrigerant pricing,
R-410A compressor pricing, etc.) and incorporated them in the same cost
model used for the R-22 engineering analysis. See Chapter 5 of the TSD
for additional details about component prices using R-410A. DOE assumed
a 25 percent increase in heat exchanger tubing thickness to account for
the higher pressures of R-410A refrigerant based on technical journals
and manufacturer interviews. DOE switched the working refrigerant in
the cost model to R-410A and used the current R-410A refrigerant price
based upon cost estimates from refrigerant suppliers and engineering
interviews with manufacturers. During engineering interviews, several
manufacturers of PTAC and PTHP equipment and several component
manufacturers stated that compressor prices would increase anywhere
between 10 percent and 20 percent from current R-22 compressor prices.
To incorporate manufacturers' comments, DOE assumed that compressor
costs would increase by 15 percent, which is consistent with the
feedback DOE received during the engineering interviews. Using the
above assumptions, DOE recalculated baseline equipment and design
option MPCs to establish the cost-efficiency relationship for R-410A
equipment.
The physical differences between PTACs and PTHPs are mainly in the
reversing valve and other minor components. The results from the
engineering and teardown analysis showed that the sum of the MPCs for
reversing valves and other minor components are constant across the
cost-efficiency relationship for the R-22 case. Therefore, DOE
initially concluded that the cost-efficiency relationship (i.e., cost-
efficiency curves) of PTACs is the same as the cost-efficiency
relationship of PTHPs, minus the MPCs for the reversing valve and other
minor components at various cooling capacities. In performing the
alternative refrigerant analysis, DOE found no evidence that the cost-
efficiency relationships for PTACs and PTHPs would be any different for
equipment using R-410A. Therefore, DOE assumed that incremental
cumulative MPCs for PTACs and PTHPs of the same equipment class would
be the same as in the R-22 case (i.e., that both PTACs and PTHPs have
the same incremental cost-efficiency curves in the R-410A case). To be
consistent, DOE used the same cost model as in the R-22 analysis to
estimate MPCs of equipment at various efficiency levels in the R-410A
analysis. Chapter 5 of the TSD provides additional details on the
alternative refrigerant analysis.
6. Cost-Efficiency Results
The results of the engineering analysis are reported as a set of
cost-efficiency data (or ``curves'') in the form of MPC (in dollars)
versus EER, which form the basis for other analyses in the NOPR. DOE
created cost-efficiency curves for the six representative cooling
capacities within the four equipment classes of PTACs and PTHPs, as
discussed in section IV.C.2, above. DOE used the R-410A cost-efficiency
curves for all subsequent analyses in the NOPR. See Chapter 5 of the
TSD for additional detail on the engineering analysis and complete
cost-efficiency results.
DOE also conducted a sensitivity analysis on material prices to
examine the effect of spikes in metal prices that the industry has
experienced over the past few years. The sensitivity analysis used the
annual average 2006 prices for various metals used in the manufacturing
of PTACs and PTHPs. Chapter 5 of the TSD shows the results of the
sensitivity analysis.
7. Mapping Energy Efficiency Ratio to Coefficient of Performance
DOE used the analyses detailed in the sections above to determine
the relationship between cost and cooling efficiency (EER) for PTACs
and PTHPs. DOE also performed an analysis to determine the heating
efficiency (COP) that corresponds to the cooling efficiency (EER)
analyzed. DOE reviewed the 2006 ARI directory and the PTHP units
listed. There were 675 units listed, which DOE separated into two
groups based on wall sleeve size (standard size and non-standard size).
DOE then selected all of the standard size 9,000 and 12,000 Btu/h
cooling capacity units, and all of the non-standard units. Within each
group, DOE next eliminated repetitive and discontinued units and then
constructed a listing of the units by EER and ranked them by COP. DOE
graphed each listing (EER versus COP) and calculated the minimum,
maximum, and average COPs. Table IV.5 shows the average EER and COP
pairings for PTHPs. DOE seeks comment on the average EER and COP
pairings for PTHPs as shown in Table IV.5, which DOE has identified as
Issue 3 under ``Issues to Which DOE Seeks Comment'' in section VII.E of
this NOPR. Additional details detailing how DOE arrived at the average
EER and COP pairings for PTHPs is shown in Chapter 5 of the TSD.

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment class Efficiency level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size PTHP--9,000 Btu/h EER = 10.9 EER = 11.1 EER = 11.3 EER = 11.5 EER = 12
Cooling Capacity. COP = 3.1 COP = 3.2 COP = 3.3 COP = 3.3 COP = 3.5
Standard Size PTHP--12,000 Btu/h EER = 10.2 EER = 10.4 EER = 10.6 EER = 10.8 EER = 11.7
Cooling Capacity. COP = 3.0 COP = 3.1 COP = 3.1 COP = 3.1 COP = 3.3

[[Page 18875]]

Non-Standard Size PTHP--11,000 Btu/ EER = 9.4 EER = 9.7 EER = 10.0 EER = 10.7 EER = 11.4
h Cooling Capacity. COP = 2.8 COP = 2.8 COP = 2.9 COP = 2.9 COP = 2.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Markups To Determine Equipment Price

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

Table IV.6.--Distribution Channels for PTAC and PTHP Equipment
----------------------------------------------------------------------------------------------------------------
Channel 1 Channel 2 Channel 3 Channel 4
----------------------------------------------------------------------------------------------------------------
Manufacturer (through national Manufacturer....... Manufacturer....... Manufacturer.
accounts).
Wholesaler......... Wholesaler......... Wholesaler.
Mechanical General Contractor.
Contractor.
Customer........................ Customer........... Customer........... Customer.
----------------------------------------------------------------------------------------------------------------

Using Ducker Worldwide data,\22\ DOE estimated percentages, for
both the new construction and replacement markets, of the total sales
in each market through each of the four distribution channels, as shown
in Table IV.7. The entire market of PTAC and PTHP equipment consists of
standard size equipment (85 percent of shipment volume) and non-
standard size equipment (15 percent of shipment volume). Of the
standard size equipment, 80 percent are sold for the replacement market
and 20 percent are for the new construction market. Non-standard size
equipment is only used in the replacement market. This results in
approximately 17 percent of PTAC and PTHP equipment that are purchased
to be installed in new construction, while the remaining 83 percent is
assumed to replace existing PTAC and PTHP equipment.
---------------------------------------------------------------------------

\22\ Ducker Worldwide, 2001. 2000 U.S. Market for Residential
and Specialty Air Conditioning: Packaged Terminal Air Conditioning.
HVAC0002. Final Report, March 2001. Ducker Industrial Standards,
6905 Telegraph Road, Suite 300, Bloomfield Hills, Michigan 48301.

Table IV.7.--Percentage of PTAC and PTHP Market Shares Passing Through Each Distribution Channel
----------------------------------------------------------------------------------------------------------------
Channel 1 Channel 2 Channel 3 Channel 4
----------------------------------------------------------------------------------------------------------------
Replacement Market.......................................... 15 25 60 0
New Construction Market..................................... 30 0 38 32
----------------------------------------------------------------------------------------------------------------

For each of the steps in the distribution channels presented above,
DOE estimated a baseline markup and an incremental markup. DOE defined
a baseline markup as a multiplier that converts the MSP of equipment
with baseline efficiency to the customer purchase price for the
equipment at the same baseline efficiency level. An incremental markup
is defined as the multiplier to convert the incremental increase in MSP
of higher efficiency equipment to the customer purchase price for the
same equipment. Both baseline and incremental markups are only
dependent on the particular distribution channel and are independent of
the efficiency levels of the PTACs and PTHPs.
DOE developed the markups for each step of the distribution
channels based on available financial data. DOE based the wholesaler
and mechanical contractor markups on the Heating, Airconditioning &
Refrigeration Distributors International (HARDI) 2005 Profit Planning
Report, Air Conditioning Contractors of America (ACCA), and the 2002
U.S. Census Bureau financial data for the plumbing, heating, and air
conditioning industry.\23\ DOE derived the general contractor markups
from U.S. Census Bureau financial data for the commercial and
institutional building construction sector. DOE estimated average
markup for sales through national accounts to be one-half of those for
the wholesaler to customer distribution channel. DOE determined this
markup for national accounts on an assumption that the resulting
national account equipment price must fall somewhere between the MSP
(i.e., a markup of 1.0) and the customer price under a typical chain of
distribution (i.e., a markup of wholesaler, mechanical contractor, or
general contractor).
---------------------------------------------------------------------------

\23\ The 2002 U.S. Census Bureau financial data for the
plumbing, heating, and air conditioning industry is the latest
version data set and was issued in December 2004.
---------------------------------------------------------------------------

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

[[Page 18876]]

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

E. Energy Use Characterization

The building energy use characterization analysis was used to
assess the energy savings potential of PTAC and PTHP equipment at
different efficiency levels. This analysis accomplishes this by
estimating the energy use of PTACs and PTHPs at specified energy
efficiency levels through energy use simulations for key commercial
building types, across a range of climate zones. The energy simulations
yielded hourly estimates of the building energy consumption, including
lighting, plug, and air-conditioning and heating equipment. The annual
energy consumption of PTACs and PTHPs are used in subsequent analyses
including the LCC, PBP, and NES.
In determining the reduction in energy consumption of PTAC and PTHP
equipment due to increased efficiency, DOE did not take into account a
rebound effect. The rebound effect occurs when a piece of equipment,
when it is made more efficient, would be used more intensively, so the
expected energy savings from the efficiency improvement do not fully
materialize. Since the user of the equipment, e.g., the customer in a
hotel/motel room, does not pay the utility bill, the customer's usage
will be unaffected by increasing the efficiency. Therefore, DOE has no
basis for concluding that a rebound effect would occur and has not
taken the rebound effect into affect in the energy use
characterization. DOE seeks comment on the rebound effect for the PTAC
and PTHP customer and DOE's assumption that the rebound effect is not
applicable to this industry. DOE identified this as Issue 4 under
``Issues on Which DOE Seeks Comment'' in section VII.E of this NOPR.
See Chapter 7 of the TSD for additional details.
1. Building Type
PTAC and PTHP units generally are used in hotel/motel rooms, health
care facilities (e.g., assisted living homes, nursing homes etc.),
small offices, or any application that requires individual zone heating
and cooling. According to the Ducker Worldwide analysis, PTAC and PTHP
units are primarily used in hotels/motels with less than 125 rooms and
less than 3 stories, each. Therefore, DOE selected this type of hotel/
motel building as the representative commercial building in order to
assess the energy use of PTAC and PTHP units. While DOE realizes that
PTACs and PTHPs are found in other building types, DOE believes that,
based on engineering judgment and consultation with industry experts,
the cooling and heating loads of an individual room served by a single
PTAC or PTHP unit are independent of the building type in which the
room is situated.
2. Simulation Approach
DOE used a whole-building hourly simulation tool, DOE-2.1E, to
estimate the energy use of PTACs and PTHPs in the representative hotel/
motel building for various efficiency levels and equipment classes at
various climate locations within the United States. The DOE-2.1E
program has a built-in PTAC/PTHP module in its HVAC system components.
DOE used the EIA 2003 Commercial Building Energy Consumption Survey
(2003 CBECS) as the primary source of data, supplemented by other data
sources, to develop the representative building size and other building
characteristics for this analysis (i.e., aspect ratio, building
construction type, envelope characteristics, internal loads and
schedules, mechanical systems and equipment etc.). DOE modeled hotel/
motel guest rooms facing in all orientations by rotating a symmetrical
rectangular floor plan prototype building 90 degrees to capture the
orientation-driven changes in annual energy use of the PTAC and PTHP.
The Ducker Worldwide analysis and other available data estimated that
PTHPs represent approximately 45 percent of the total market for
packaged terminal equipment. Therefore, DOE estimated the annual energy
use per unit using a PTHP as well as a PTAC in each climate location.
DOE assumed that generally the building would use a PTAC or PTHP unit.
DOE calculated the weighted-average annual energy use for each PTAC and
PTHP equipment class in each State through the population weighting of
the representative climate location(s) within the state. DOE further
aggregated the energy use at the State level to national average energy
use using the 2000 Census population data, published by the U. S.
Census Bureau.
DOE estimated the annual energy use for each equipment class at the
baseline efficiency level (i.e., the efficiency level specified by
ASHRAE/IESNA Standard 90.1-1999) plus five higher efficiency levels. As
is to be expected, annual energy use of PTAC and PTHP units decreases
as the efficiency level increases from the baseline efficiency level to
the highest efficiency level analyzed. Additional details on the energy
use characterization analysis can be found in Chapter 7 of the TSD.

F. Life-Cycle Cost and Payback Period Analyses

DOE conducted the LCC and PBP analyses to estimate the economic
impacts of potential standards on individual customers of PTACs and
PTHPs. DOE analyzed these impacts for PTACs and PTHPs, first, by
calculating the change in customers' LCCs likely to result from higher
efficiency levels as compared with the baseline efficiency levels. The
LCC calculation considers total installed cost (MSP, sales taxes,
distribution chain markups, and installation cost), operating expenses
(energy, repair, and maintenance costs), equipment lifetime, and
discount rate. DOE calculated the LCC for all customers as if each
would purchase a new PTAC or PTHP unit in the year the standard takes
effect. A standard becomes effective on the date on and after which the
equipment manufactured must meet or exceed the standard, which is
September 30, 2012 for this rulemaking. To compute LCCs, DOE discounted
future operating costs to the time of purchase and summed them over the
lifetime of the equipment.
Second, DOE analyzed the effect of changes in installed costs and
operating expenses by calculating the PBP of potential standards
relative to baseline efficiency levels. The PBP estimates the amount of
time it would take the customer to recover, through lower operating
costs, the increment that represents the increase in purchase expense
of more energy efficient equipment. The PBP is that change in purchase
price divided by the change in annual operating cost that results from
the standard. DOE expresses this period in years. Similar to the LCC,
the PBP is based on the total installed cost and the operating
expenses. However, unlike the LCC, only the first year's operating
expenses are considered in the calculation of the PBP. Because the PBP
does not account for changes in operating expense over time or the time
value of money, it is also referred to as a simple PBP.
DOE conducted the LCC and PBP analyses using a spreadsheet model
developed in Microsoft Excel. When combined with Crystal Ball (a
commercially available software program), the LCC and PBP model

[[Page 18877]]

generates a Monte Carlo simulation to perform the analyses by
incorporating uncertainty and variability considerations in certain of
the key parameters as discussed below. The results of DOE's LCC and PBP
analyses are summarized in section V.B.1.a below and described in
detail in TSD Chapter 8.
1. Approach
Recognizing that each business that uses PTAC and PTHP equipment is
unique, DOE analyzed variability and uncertainty by performing the LCC
and PBP calculations for four types of businesses, each of which tends
to have different costs of financing because of the nature of the
business. The first type of business is a ``large chain'' hotel or
motel, which, DOE believes, has access to a wide range of financing
options and thus a relative low financing costs. The second type is an
``independent'' hotel or motel, which is not affiliated with a national
chain, which has fewer financing options and thus a relative high
financing costs. A third type of business is called ``health care'' and
includes nursing homes, as well as assisted living and long-term care
facilities, which, similar to the large chain hotel, has a relative low
financing costs. The fourth type is called ``office'' and applies to
small office buildings that are occupied by offices of non-hospital
medical professionals such as physicians and dentists which, DOE
believes, has the fewest financing options, and as a result, the
highest costs. DOE derived the financing costs based on data from the
Damodaran Online site.\24\
---------------------------------------------------------------------------

\24\ Damodaran Online. Leonard N. Stern School of Business, New
York University: http://www.stern.nyu.edu/adamodar/New_Home_Page/
data.html. January 2006.
---------------------------------------------------------------------------

The LCC analysis used the estimated annual energy use for each PTAC
or PTHP unit as described in section IV.E, energy use characterization.
Energy use of PTACs and PTHPs is sensitive to climate, so it varies by
State within the United States. Aside from energy use, other important
factors influencing the LCC and PBP analyses include energy prices,
installation costs, equipment distribution markups, and sales tax. At
the National level, the LCC spreadsheets explicitly modeled both the
uncertainty and the variability in the model's inputs, using
probability distributions based on the shipment of PTAC and PTHP
equipment to different States.
As mentioned above, DOE generated LCC and PBP results as
probability distributions using a simulation based on Monte Carlo
analysis methods, in which certain key inputs to the analysis consist
of probability distributions rather than single-point values.
Therefore, the outcomes of the Monte Carlo analysis can also be
expressed as probability distributions. As a result, the Monte Carlo
analysis produces a range of LCC and PBP results. A distinct advantage
of this type of approach is that DOE can identify the percentage of
customers achieving LCC savings or attaining certain PBP values due to
an increased efficiency level, in addition to the average LCC savings
or average PBP for that efficiency level.
2. Life-Cycle Cost Inputs
For each efficiency level analyzed, the LCC analysis requires input
data for the total installed cost of the equipment, its operating cost,
and the discount rate. Table IV.8 summarizes the inputs and key
assumptions used to calculate the customer economic impacts of all
energy efficiency levels analyzed in this rulemaking. A more detailed
discussion of the inputs follows.

Table IV.8.--Summary of Inputs and Key Assumptions Used in the LCC and
PBP Analyses
------------------------------------------------------------------------
Inputs Description
------------------------------------------------------------------------
Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price.............. Derived by multiplying MSP (from the
engineering analysis) by wholesaler
markups and contractor markups plus
sales tax (from markups analysis). Used
the probability distribution for the
different markups to describe their
variability.
Installation Cost............ Includes installation labor, installer
overhead, and any miscellaneous
materials and parts, derived from RS
Means CostWorks 2007.
------------------------------------------------------------------------
Affecting Operating Costs
------------------------------------------------------------------------
Annual Energy Use............ Derived from whole-building hourly energy
use simulation for PTACs or PTHPs in a
representative hotel/motel building in
various climate locations (from energy
use characterization analysis). Used
annual electricity use per unit. Used
the probability distribution to account
for which State a unit will be shipped
to, which in turn affects the annual
energy use.
Electricity Price............ Calculated average commercial electricity
price in each State, as determined from
EIA data for 2006. Used the AEO2007
forecasts to estimate the future
electricity prices. Used the probability
distribution for the electricity price.
Maintenance Cost............. Annual maintenance cost did not vary as a
function of efficiency.
Repair Cost.................. Estimated the annualized repair cost for
baseline efficiency PTAC and PTHP
equipment as $15, based on costs of
extended warranty contracts for PTACs
and PTHPs and further discussed in
Chapter 8 of the TSD. Assumed that
repair costs would vary in direct
proportion with the MSP at higher
efficiency levels because it generally
costs more to replace components that
are more efficient.
------------------------------------------------------------------------
Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Equipment Lifetime........... Used the probability distribution of
lifetimes, with mean lifetime for each
of four equipment classes assumed to be
10 years based on literature reviews and
consultation with industry experts.
Discount Rate................ Mean real discount rates ranging from 5.7
percent for owners of health care
facilities to 8.2 percent for
independent hotel/motel owners. Used the
probability distribution for the
discount rate.
Date Standards Become September 30, 2012 (four years after the
Effective. publication of the final rule).
------------------------------------------------------------------------

[[Page 18878]]

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

a. Equipment Prices
The price of a PTAC or PTHP reflects the application of
distribution channel markups and the addition of sales tax to the MSP.
As described in section IV.C above, DOE determined manufacturing costs
for a set of six cooling capacities of equipment representing all
equipment classes. To derive the manufacturing costs for other sizes of
PTACs and PTHPs, DOE scaled the costs from these six cooling
capacities. For the LCC and PBP analyses and subsequent analyses in
today's rulemaking, DOE used the manufacturing costs as developed in
the Engineering Analysis for PTAC and PTHP equipment utilizing R-410A.
Each baseline MSP is the price charged by manufacturers to either a
wholesaler/distributor or very large customer for equipment meeting a
baseline efficiency. Each standard-level MSP increase is the change in
MSP associated with producing equipment at an efficiency level above
the baseline. DOE developed MSP, which increases as a function of
efficiency level for each of the six representative capacities. Refer
to Chapter 5 of the TSD for details.
The markup is the percentage increase in price as the PTAC and PTHP
equipment passes through the distribution channel. As discussed
earlier, distribution chain markups are based on one of four
distribution channels, as well as whether the equipment is being
purchased for the new construction market or to replace existing
equipment. Probability distributions were used for the different
distribution channel markups to describe their variability. DOE
developed markups for both the standard size and non-standard size PTAC
and PTHP equipment as explained in section IV.D above.
b. Installation Costs
DOE derived installation costs for PTACs and PTHPs from data
provided in RS Means CostWorks 2007 (RS Means).\25\ RS Means provides
estimates on the person-hours required to install PTAC and PTHP
equipment and the labor rates associated with the type of crew required
to install the equipment. Specifically, RS Means provides person-hour
and labor rate data for the installation of ``Unitary Air Conditioning
Equipment,'' which includes PTAC and PTHP equipment. Labor rates vary
significantly from region to region of the country and the RS Means
data provide the necessary information to capture this regional
variability. RS Means provides cost indices that reflect the labor
rates for 295 cities in the United States. Several cities in all 50
States and the District of Columbia are identified in the RS Means
data. DOE incorporated these cost indices into the analysis to capture
variation in installation cost, depending on the location of the
customer. DOE calculated the installation cost by multiplying the
number of person-hours by the applicable labor rate. DOE assumed the
installation costs are fixed for each equipment class and independent
of the efficiency of the equipment.
---------------------------------------------------------------------------

\25\ R.S. Means Company, Inc. 2007. RS Means CostWorks 2007.
Kingston, Massachusetts.
---------------------------------------------------------------------------

c. Annual Energy Use
DOE estimated the electricity consumed by the PTAC and PTHP
equipment based on the energy use characterization as described
previously in section IV.E. DOE used a whole-building hourly simulation
tool to estimate the energy use in a representative hotel/motel
building for different efficiency levels and equipment classes at
various climate locations within the United States. DOE aggregated the
average annual energy use per unit at the State level by applying a
population-weighting factor for each examined climate location within a
State. Details of the annual energy use calculations can be found in
TSD Chapter 7.
d. Electricity Prices
The applicable electricity prices are needed to convert the
electric energy savings into energy cost savings. Because of the wide
variation in electricity consumption patterns, wholesale costs, and
retail rates across the country, it is important to consider regional
differences in electricity prices. In order to simplify the NOPR
analysis, DOE decided not to develop marginal electricity prices from
the tariff-based electricity price model in this rulemaking. Instead,
DOE used average effective commercial electricity prices at the State
level from EIA data for 2006. This approach captured a wide range of
commercial electricity prices across the Untied States. Furthermore,
DOE recognized that different kinds of businesses typically use
electricity in different amounts at different times of the day, week,
and year, and therefore face different effective prices. To make this
adjustment, DOE used EIA's 2003 CBECS data set to identify the average
prices paid by the four kinds of businesses in this analysis and
compared them with the average prices paid by all commercial
customers.\26\ The ratios of prices paid by the four types of
businesses to the national average commercial prices seen in the 2003
CBECS were used as multipliers to adjust the average commercial 2006
price data from EIA.
---------------------------------------------------------------------------

\26\ EIA's 2003 CBECS is the most recent version of the data
set.
---------------------------------------------------------------------------

DOE weighted the prices paid by each business in each State by the
estimated sales of PTACs and PTHPs to each business type to obtain a
weighted-average national electricity price. The State/business type
weights reflect the probabilities that a given PTAC or PTHP unit
shipped will be operated with a given electricity price. To account for
this variability, DOE used a probability distribution for not only
which State the equipment is shipped to, but also to determine which
business type would purchase the equipment and therefore, what
electricity price they would pay. The effective prices (2006$) range
from approximately 5.5 cents per kWh to approximately 23.2 cents per
kWh. The development and use of State-average electricity prices by
business type are described in more detail in Chapter 8 of the TSD.
The electricity price trend provides the relative change in
electricity prices for future years out to the year 2042. Estimating
future electricity prices is difficult, especially considering that
there are efforts in many States throughout the country to restructure

[[Page 18879]]

the electricity supply industry. DOE applied the AEO2007 reference case
as the default scenario and extrapolated the trend in values from the
years 2020 to 2030 of the forecast to establish prices in the years
2030 to 2042. This method of extrapolation is in line with methods
currently being used by the EIA to forecast fuel prices for the Federal
Energy Management Program. DOE provides a sensitivity analysis of the
LCC savings and PBP results to future electricity price scenarios using
both the AEO2007 high-growth and low-growth forecasts in Chapter 8 of
the TSD.
e. Maintenance Costs
Maintenance costs are the costs to the customer of maintaining
equipment operation. Maintenance costs include services such as
cleaning heat-exchanger coils and changing air filters. DOE was not
able to identify publicly available data on annual maintenance costs
per unit. DOE estimated annual routine maintenance costs for PTAC and
PTHP equipment at $50 per year per unit. Some manufacturers interviewed
for the manufacturer impact analysis indicated verbally that this
assumption was reasonable. Because data were not available to indicate
how maintenance costs vary with equipment efficiency, DOE thus
determined to use this preventative maintenance costs that remain
constant as equipment efficiency is increased.
f. Repair Costs
The repair cost is the cost to the customer for replacing or
repairing components that have failed in the PTAC and PTHP equipment.
DOE estimated the annualized repair cost for baseline efficiency PTAC
and PTHP equipment as $15, based on costs of extended warranty
contracts PTACs and PTHPs. DOE determined that repair costs would
increase in direct proportion with increases in equipment prices,
because the price of PTAC and PTHP equipment increases with its
efficiency and DOE recognizes that complexity for repair will increase
as the efficiency of equipment increases.
DOE specifically seeks comment on its estimation for the repair
costs, as well as the installation and maintenance costs. In
particular, DOE is interested in how the installation, maintenance, and
repair costs may change with the use of R-410A refrigerant in 2010
because DOE's estimates are based on data from the field for equipment
using R-22. See Chapter 8 of the TSD for additional information. DOE
identified this as Issue 5 under ``Issues on Which DOE Seeks Comment''
in section VII.E of this NOPR.
g. Equipment Lifetime
DOE defines equipment lifetime as the age when a PTAC or PTHP unit
is retired from service. DOE reviewed available literature and
consulted with manufacturers in order to establish typical equipment
lifetimes. The literature and experts consulted offered a wide range of
typical equipment lifetimes. Individuals with previous experience in
manufacturing or distribution of PTACs and PTHPs suggested a typical
lifetime of 5 to 15 years. Some experts suggested that the lifetime
could be even lower because of the daily or continuous use of the
equipment and neglect of maintenance such as cleaning the heat
exchangers or replacing the air filters. Previously, DOE used a 15-year
lifetime for PTACs and PTHPs in the 2000 Screening Analysis based on
data from ASHRAE's 1995 Handbook of HVAC Applications. Stakeholders
commented on the 2000 Screening Analysis and suggested DOE use the 10-
year lifetime assumption rather than 15-year lifetime to more
accurately reflect the life and usage characteristics of this
equipment.\27\ 66 FR 3336, 3349[0]. Therefore, based on the information
it gathered, DOE concluded that a typical lifetime of 10 years is
appropriate for PTAC and PTHP equipment. Furthermore, DOE modeled the
lifetime of PTAC and PTHP equipment as a Weibull statistical
distribution with an average lifetime of 10 years and a maximum
lifetime of 20 years. Chapter 3 of the TSD contains a discussion of
equipment lifetime, and TSD Chapter 8 discusses how equipment life is
modeled in the LCC analysis.
---------------------------------------------------------------------------

\27\ U.S. Department of Energy, Office of Energy Efficiency and
Renewable Energy. ``Energy Efficiency Program for Commercial and
Industrial Equipment: Efficiency Standards for Commercial Heating,
Air Conditioning and Water Heating Equipment; Final Rule''. January
2001.
---------------------------------------------------------------------------

h. Discount Rate
The discount rate is the rate at which future expenditures are
discounted to establish their present value. DOE estimated the discount
rate by estimating the cost of capital for purchasers of PTAC and PTHP
equipment. Most purchasers use both debt and equity capital to fund
investments. Therefore, for most purchasers, the discount rate is the
weighted average cost of debt and equity financing, or the weighted-
average cost of capital (WACC), less the expected inflation.
To estimate the WACC of PTAC and PTHP equipment purchasers, DOE
used a sample of companies including large hotel/motel chains and
health care chains drawn from a database of 7,319 U.S. companies given
on the Damodaran Online website. This database includes most of the
publicly traded companies in the United States. Based on this database,
DOE calculated the weighted average after-tax discount rate for PTAC
and PTHP purchases, adjusted for inflation, as 5.71 percent for large
hotel chains and 5.65 percent for health care (nursing homes and
assisted living facilities). The cost of capital for independent
hoteliers, and small office companies with more limited access to
capital is more difficult to determine. Individual credit-worthiness
varies considerably, and some franchisees have access to the financial
resources of the franchising corporation. However, personal contacts
with a sample of commercial bankers yielded an estimate for the small
operator weighted cost of capital of about 200 to 300 basis points (2
percent to 3 percent) higher than the rates for larger hotel chains.
Therefore, DOE used a central value equal to the weighted average of
discount rate for large hotel chains plus 2.5 percent for independent
hotel/motels and the same adder was used to the discount rate for large
nursing home/assisted care companies to derive an estimate for small
office buildings. As a result, DOE calculated the weighted average
after-tax discount rate for PTAC and PTHP purchases, adjusted for
inflation, as 8.21 percent for independent hotels and 8.15 percent for
small offices (medical and dental offices). The discount rate is
another key variable for which DOE used a probability distribution in
the LCC and PBP analyses. TSD Chapter 8 contains the detailed
calculations on the discount rate.
3. Payback Period
DOE also determined the economic impact of potential standards on
customers by calculating the PBP of the TSLs relative to a baseline
efficiency level. The PBP measures the amount of time it takes the
commercial customer to recover the assumed higher purchase expense of
more energy efficient equipment through lower operating costs. Similar
to the LCC, the PBP is based on the total installed cost and the
operating expenses and is calculated as a range of payback periods,
depending on the probability distributions of the two key inputs (i.e.,
the supply chain markups and where the unit is likely to be shipped
to). However, unlike for the LCC, in the calculation of the PBP, by
definition, DOE considered only the first year's operating expenses.
Because the PBP does not take into account changes in operating expense
over time

[[Page 18880]]

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

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

The national impacts analysis evaluates the impact of a proposed
standard from a national perspective rather than from the customer
perspective represented by the LCC. This analysis assesses the NES, and
the NPV (future amounts discounted to the present) of total commercial
customer costs and savings, which are expected to result from amended
standards at specific efficiency levels. For each TSL, DOE calculated
the NPV, as well as the NES, as the difference between a base case
forecast (without amended standards) and the standards case (with
amended standards). The NES refers to cumulative energy savings from
2012 through 2042. The NPV refers to cumulative monetary savings. DOE
calculated net monetary savings in each year relative to the base case
as the difference between total operating cost savings and increases in
total installed cost. Cumulative savings are the sum of the annual NPV
over the specified period. DOE accounted for operating cost savings
until 2062; that is, until all the equipment installed through 2042 is
retired.
1. Approach
Over time, in the standards case, equipment that is more efficient
gradually replaces less efficient equipment. This affects the
calculation of both the NES and NPV, both of which are a function of
the total number of units in use and their efficiencies, and thus are
dependent on annual shipments and equipment lifetime, including changes
in shipments and retirement rates in response to changes in equipment
costs due to standards. Both calculations start by using the estimate
of shipments, and the quantity of units in service, that are derived
from the shipments model.
With regard to estimating the NES, because more efficient PTACs and
PTHPs gradually replace less efficient ones, the energy per unit of
capacity used by the PTACs and PTHPs in service gradually decreases in
the standards case relative to the base case. DOE calculated the NES by
subtracting energy use under a standards scenario from energy use in a
base-case scenario.
Unit energy savings for each equipment class are the same weighted-
average values as calculated in the LCC and PBP spreadsheet. To
estimate the total energy savings for each TSL, DOE first calculated
the national site energy consumption (i.e., the energy directly
consumed by the units of equipment in operation) for PTACs or PTHPs for
each year, beginning with the expected effective date of the standards
(2012), for the base case forecast and the standards case forecast.
Second, DOE determined the annual site energy savings, consisting of
the difference in site energy consumption between the base case and the
standards case. Third, DOE converted the annual site energy savings
into the annual amount of energy saved at the source of electricity
generation (the source energy), using a site-to-source conversion
factor. Finally, DOE summed the annual source energy savings from 2012
to 2042 to calculate the total NES for that period. DOE performed these
calculations for each TSL considered in this rulemaking.
DOE considers whether a rebound effect is applicable in its NES
analysis. A rebound effect occurs when an increase in equipment
efficiency leads to an increased demand for its service. EIA in its
NEMS model assumes a certain elasticity factor to account for an
increased demand for service due to the increase in cooling (or
heating) efficiency. EIA refers to this as an efficiency rebound.\28\
For the commercial cooling equipment market, there are two ways that a
rebound effect could occur:
---------------------------------------------------------------------------

\28\ EIA, 2007. Assumptions to the Annual Energy Outlook 2007.
accessed at http://www.eia.doe.gov/oiaf/aeo/assumption/index.html
---------------------------------------------------------------------------

1. An increased use of the cooling equipment within the commercial
buildings they are installed in.
2. Additional instances of cooling a commercial building where it
was not being cooled before.
The first instance does not occur for the PTAC and PTHP equipment
that are typically used in guest rooms of hotel/motel buildings, and
patient rooms in hospitals and health care clinics since these
buildings are already being operated and conditioned 24 hours a day and
seven days a week. Furthermore, the guest or the patient in these rooms
has no incentive to use the equipment more or less, because they do not
pay the electricity bills.
Additionally, DOE feels that the PTAC and PTHP equipment would not
significantly penetrate into previously un-cooled building spaces. The
existing market for this equipment is specialized to lodging type
applications where the equipment serves both a cooling and heating need
for a small room on the perimeter of a building. Drawbacks for
installing these equipment in other spaces include noise, increased
installation costs, high use of electric resistance heating, and their
limitation of being able to provide cooling to only perimeter spaces.
These considerations make the packaged terminal equipment, in general,
not the first choice for adding cooling to other non-conditioned
building spaces. Therefore, DOE did not assume a rebound effect in the
present NOPR analysis.
To estimate NPV, DOE calculated the net impact as the difference
between total operating cost savings (including electricity, repair,
and maintenance cost savings) and increases in total installed costs
(which consists of MSP, sales taxes, distribution chain markups, and
installation cost). DOE calculated the NPV of each TSL over the life of
the equipment, using the following three steps. First, DOE determined
the difference between the equipment costs under the TSL case and the
base case in order to obtain the net equipment cost increase resulting
from the TSL. Second, DOE determined the difference between the base
case operating costs and the TSL operating costs, in order to obtain
the net operating cost savings from the TSL. Third, DOE determined the
difference between the net operating cost savings and the net equipment
cost increase in order to obtain the net savings (or expense) for each
year. DOE then discounted the annual net savings (or expenses) to the
year 2008 for PTACs and PTHPs bought on or after 2012 and summed the
discounted values to provide the NPV of a TSL. An NPV greater than zero
shows net savings (i.e., the TSL would reduce customer expenditures
relative to the base case in present value terms). An NPV that is less
than zero indicates that the TSL would result in a net increase in
customer expenditures in present value terms.
To make the analysis more accessible and transparent to all
stakeholders, DOE used an MS Excel spreadsheet model to calculate the
energy savings and the national economic costs and savings from amended
standards. In addition, the TSD (chapter 10) and other documentation on
the website that DOE provides during the rulemaking help explain the
models and how to use them, and stakeholders can review DOE's analyses
by changing various input quantities within the spreadsheet.
Unlike the LCC analysis, the NES spreadsheet does not use
distributions for inputs or outputs. DOE examined sensitivities by
applying different scenarios. DOE used the NES spreadsheet to perform
calculations of energy savings and NPV, using the annual energy
consumption and total

[[Page 18881]]

installed cost data from the LCC analysis. DOE forecasted the energy
savings, energy cost savings, equipment costs, and NPV of benefits for
each of equipment classes from 2012 through 2042. The forecasts
provided annual and cumulative values for all four output parameters as
described above.
2. Shipments Analysis
An important element in the estimate of the future impact of a
standard is equipment shipments. DOE developed shipments projections
under a base case and each of the standards cases using a shipments
model. DOE used the standards case shipments projection and, in turn,
the standards case equipment stock to determine the NES. The shipments
portion of the spreadsheet model forecasts PTAC and PTHP shipments from
2012 to 2042. The details of the shipment projections are given in
chapter 10 of the TSD.
DOE developed shipments forecasts by accounting for: (1) The growth
in the building stock of hotel/motel, health care and office buildings
that are the primary end users of PTACs and PTHPs; (2) market segments;
(3) equipment retirements; and (4) equipment ages.
The shipments model assumes that, in each year, each existing PTAC
or PTHP either ages by one year or breaks down, and that equipment that
breaks down is replaced. In addition, new equipment can be shipped into
new commercial building floor space, and old equipment can be removed
through demolitions. Historical shipments are critical to the
development of the shipments model, since DOE used the historical data
to calibrate the model. DOE's primary source of historical data for
shipments of PTACs and PTHPs was the shipment data provided by ARI. ARI
provided DOE with shipments data for 10 years (1997-2006), which
allowed DOE to allocate sales of equipment to the different equipment
classes. The shipments data is summarized in Chapter 3 of the TSD.
Although there is a provision in the spreadsheet for a change in
projected shipments in response to efficiency level increases, DOE has
no information with which to calibrate such a relationship. Therefore,
for the NOPR analysis, DOE presumed that the shipments do not change in
response to the changing TSLs.
Table IV.9 shows the forecasted shipments for the different
equipment classes of PTACs and PTHPs for the baseline efficiency level
(ASHRAE/IESNA Standard 90.1-1999) for selected years from 2012 to 2042.
As equipment purchase price increases with efficiency, generally a drop
in shipments would be expected. Although there is a provision in the
shipments analysis spreadsheet for a change in shipments as the
efficiency increases and the equipment becomes more expensive, DOE has
no basis for concluding that such a change would occur as the
efficiency of PTACs and PTHPs increases. Therefore, DOE presumed that
total shipments do not change with TSL and that the effect of the
standards would be to shift the percentage mix of shipments from lower
to higher efficiencies. Table IV.9 also shows the cumulative shipments
for PTAC and PTHP equipment from 2012 to 2042.

Table IV.9.--Shipments Forecast for Base Case PTAC and PTHP Equipment
----------------------------------------------------------------------------------------------------------------
Thousands of units shipped by year and equipment class
----------------------------------------------------------------------------
Equipment Cumulative
2012 2015 2020 2025 2030 2035 2040 2042 shipments
(2012-2042)
----------------------------------------------------------------------------------------------------------------
Standard Size PTACs................ 242 249 266 286 307 333 361 373 9,256
Standard Size PTHPs................ 181 186 199 214 230 249 270 279 6,918
Non-Standard Size PTACs............ 17 16 15 13 12 11 10 9 398
Non-Standard Size PTHPs............ 13 12 11 10 9 8 7 7 300
----------------------------------------------------------------------------
Total.......................... 453 464 490 522 558 600 648 668 16,873
----------------------------------------------------------------------------------------------------------------

DOE also uses the shipments estimates developed above as an input
to the MIA, discussed in section IV.I. Chapter 10 of the TSD provides
additional details on the shipments forecasts.
3. Base Case and Standards Case Forecasted Distribution of Efficiencies
The annual energy consumption of a PTAC or PTHP unit is directly
related to the efficiency of the unit. Thus, DOE forecasted shipment-
weighted average equipment efficiencies that, in turn, enabled a
determination of the shipment-weighted annual energy consumption values
for the base case and each TSL analyzed. DOE based shipment-weighted
average efficiency trends for PTAC and PTHP equipment on first
converting the 2005 PTAC and PTHP equipment shipments by equipment
class into market shares by equipment class. DOE then adapted a cost-
based method used in the NEMS to estimate market shares for each
equipment class by TSL. Then, from those market shares and projections
of shipments by equipment class, DOE extrapolated future equipment
efficiency trends both for a base case scenario and standards case
scenarios. The difference in equipment efficiency between the base case
and standards cases was the basis for determining the reduction in per-
unit annual energy consumption that could result from amended
standards. There is, however, the refrigerant phase-out issue that also
affects the equipment efficiency. DOE recognizes that the industry has
been able to meet the ASHRAE/IESNA Standard 90.1-1999 efficiency levels
with R-22 as the primary refrigerant, but is waiting to switch to R-
410A as the primary refrigerant starting in 2010.
For the base case, DOE assumed that, absent amended standards,
forecasted market shares would remain frozen at the 2012 efficiency
levels until the end of the forecast period (30 years after the
effective date--the year 2042). DOE realized that this prediction may
have the effect of causing DOE to overestimate the savings associated
with the TSLs discussed in this notice since historical data indicated
PTACs and PTHP equipment efficiencies or relative equipment class
preferences may change voluntarily over time. Therefore, DOE seeks
comment on this assumption and the potential significance of any
overestimate of savings. In particular, DOE requests data that would
enable it to better characterize the likely increases in efficiency
that would occur over the 30-year analysis period absent adoption of
either the standards proposed, or the TSLs considered, in

[[Page 18882]]

this rule. DOE identified this as Issue 6 under ``Issues to Which DOE
Seeks Comment'' in section VII.E of this NOPR.
For each of the TSLs analyzed, DOE used a ``roll-up'' scenario to
establish the market shares by efficiency level for the year that
standards become effective (i.e., 2012). Information available to DOE
suggests that the efficiencies of equipment in the base case that did
not meet the standard level under consideration would ``roll-up'' to
meet the standard level. In addition, available information suggests
that all equipment efficiencies in the base case that were above the
standard level under consideration would not be affected.
DOE specifically seeks input on its basis for the NES-forecasted
base case distribution of efficiencies and its prediction on how
amended energy conservation standards impact the distribution of
efficiencies in the standards case. DOE identified this as Issue 7
under ``Issues on Which DOE Seeks Comment'' in section VII.E of this
NOPR.
In addition, DOE specifically seeks comment on whether DOE's
adoption of higher amended energy conservation standard levels would be
likely to cause the PTAC and PTHP customers to shift to using other,
less efficient type of equipment. Acknowledging over 80 percent of PTAC
and PTHP equipment are sold for the replacement market, DOE believes it
is unlikely that PTAC and PTHP equipment users would switch to other
type of equipment due to the additional installation cost caused by
this potential switching. However, DOE recognizes that potential
equipment switching from PTHPs to a combination of PTACs and electric
resistance heating might occur if DOE were to adopt a standard level
for PTHPs significantly higher than the proposed standard level for
PTACs. DOE specifically seeks input on whether disparity in the
proposed standards for PTACs and PTHPs is likely to cause the PTHP
customers to shift to PTACs with electric resistance heating. DOE
identified this as Issue 8 under ``Issues on Which DOE Seeks Comment''
in section VII.E of this NOPR.
4. National Energy Savings and Net Present Value
The PTAC and PTHP equipment stock at any point in time is the total
number of PTACs and PTHPs purchased or shipped from previous years that
have survived until that point. The NES spreadsheet, through the use of
the shipments model, keeps track of the total number of PTAC and PTHP
units shipped each year. For purposes of the NES and NPV analyses, DOE
assumes that retirements follow a Weibull distribution with a 10-year
mean lifetime. Retired units are not replaced until 2042. For units
shipped in 2042, any units still remaining at the end of 2062 are
retired.
The national annual energy consumption is the product of the annual
unit energy consumption and the number of PTAC and PTHP units of each
vintage. This approach accounts for differences in unit energy
consumption from year to year. In determining national annual energy
consumption, DOE initially calculated the annual energy consumption at
the site (i.e., electricity in kWh consumed by the PTAC and PTHP unit).
DOE then calculated primary energy consumption from site energy
consumption by applying a marginal site-to-source conversion factor to
account for losses associated with the generation, transmission, and
distribution of electricity.
The site-to-source conversion factor is a multiplier used for
converting site energy consumption, expressed in kWh, into primary or
source energy consumption, expressed in quads (quadrillion Btu). The
site-to-source conversion factor accounts for losses in electricity
generation, transmission, and distribution. DOE obtained these
conversion factors using the NEMS model. The conversion factors vary
over time, due to projected changes in electricity generation sources
(i.e., the power plant types projected to provide electricity to the
country).
To discount future impacts, DOE follows OMB guidance in the
selection of seven percent and three percent in evaluating the impacts
of regulations. In selecting the discount rate corresponding to a
public investment, OMB directs agencies to use ``the real Treasury
borrowing rate on marketable securities of comparable maturity to the
period of analysis.'' Office of Management and Budget (OMB) Circular
No. A-94, ``Guidelines and Discount Rates for Benefit-Cost Analysis of
Federal Programs,'' dated October 29, 1992, section 8.c.1. The seven
percent rate is an estimate of the average before-tax rate of return on
private capital in the United States economy, and reflects the returns
to real estate and small business capital as well as corporate capital.
DOE used this discount rate to approximate the opportunity cost of
capital in the private sector, since recent OMB analysis has found the
average rate of return on capital to be near this rate. In addition,
DOE used the 3 percent rate to capture the potential effects of
standards on private customers' consumption (e.g., through higher
prices for equipment and purchase of reduced amounts of energy). This
rate represents the rate at which ``society'' discounts future
consumption flows to their present value. This rate can be approximated
by the real rate of return on long-term government debt (e.g., yield on
Treasury notes minus annual rate of change in the Consumer Price
Index), which has averaged about 3 percent on a pre-tax basis for the
last 30 years. Table IV.10 summarizes the inputs to the NES spreadsheet
model along with a brief description of the data sources. The results
of DOE's NES and NPV analysis are summarized in section V.B.3 below and
described in detail in TSD Chapter 11.

Table IV.10.--Summary of NES and NPV Model Inputs
------------------------------------------------------------------------
Inputs Description
------------------------------------------------------------------------
Shipments............................ Annual shipments from shipments
model (see Chapter 10 of the
TSD).
Effective Date of Standard........... September 2012.
Base Case Efficiencies............... Distribution of base case
shipments by efficiency level.
Standard Case Efficiencies........... Distribution of shipments by
efficiency level for each
standards case. Standards case
annual shipment-weighted market
shares remain the same as in the
base case and each standard
level for all efficiencies above
the TSL. All other shipments are
at the TSL efficiency.
Annual Energy Use per Unit........... Annual national weighted-average
values are a function of
efficiency level (Chapter 7 of
the TSD).
Total Installed Cost per Unit........ Annual weighted-average values
are a function of efficiency
level (Chapter 8 of the TSD).

[[Page 18883]]

Repair Cost per Unit................. Annual weighted-average values
increase with manufacturer's
cost level (Chapter 8 of the
TSD).
Maintenance Cost per Unit............ Annual weighted-average value
equals $50 (Chapter 8 of the
TSD).
Escalation of Electricity Prices..... 2007 EIA AEO forecasts (to 2030)
and extrapolation for beyond
2030 (Chapter 8 of the TSD).
Electricity Site-to-Source Conversion Conversion factor varies yearly
Factor. and is generated by EIA's NEMS*
model. Includes the impact of
electric generation,
transmission, and distribution
losses.
Discount Rate........................ 3 percent and 7 percent real.
Present Year......................... Future costs are discounted to
year 2008.
------------------------------------------------------------------------
* Chapter 14 on the utility impact analysis provides more detail on NEMS
model.

H. Life-Cycle Cost Sub-Group Analysis

In analyzing the potential impact of new or amended standards on
customers, DOE evaluates the impact on identifiable groups (i.e.,
subgroups) of customers, such as different types of businesses, which
may be disproportionately affected by a national standard level. For
this rulemaking, DOE identified small businesses as a PTAC and PTHP
customer subgroup that could be disproportionately affected, and
examined the impact of proposed standards on this group.
DOE determined the impact on this PTAC and PTHP customer sub-group
using the LCC spreadsheet model. DOE conducted the LCC and PBP analysis
for both PTAC and PTHP customers. The standard LCC and PBP analysis
(described in section IV.F) includes various types of businesses
occupying commercial buildings that use PTAC and PTHP equipment. The
LCC spreadsheet model allows for the identification of one or more
subgroups of businesses, which can then be analyzed by sampling only
each such subgroup. The results of DOE's LCC subgroup analysis are
summarized in section V.B.1.c below and described in detail in TSD
Chapter 12.

I. Manufacturer Impact Analysis

1. Overview
DOE performed an MIA to estimate the financial impact of higher
energy conservation standards on both manufacturers of standard size
PTACs and PTHPs and manufacturers of non-standard size PTACs and PTHPs,
and to calculate the impact of such standards on employment and
manufacturing capacity. The MIA has both quantitative and qualitative
aspects. The quantitative part of the MIA relies on the GRIM, an
industry-cash-flow model customized for this rulemaking. The GRIM
inputs are information regarding the industry cost structure,
shipments, and revenues. This includes information from many of the
analyses described above, such as manufacturing costs and prices from
the engineering analysis and shipments forecasts. The key GRIM output
is the industry net present value. Different sets of assumptions
(scenarios) will produce different results. The qualitative part of the
MIA addresses factors such as equipment characteristics,
characteristics of particular firms, and market and equipment trends,
and includes assessment of the impacts of standards on sub-groups of
manufacturers. The complete MIA is outlined in Chapter 13 of the TSD.
DOE conducted the MIA for PTACs and PTHPs in three phases. Phase 1,
Industry Profile, consisted of preparing an industry characterization,
including data on market share, sales volumes and trends, pricing,
employment, and financial structure. Phase 2, Industry Cash Flow,
focused on the industry as a whole. In this phase, DOE used the GRIM to
prepare an industry-cash-flow analysis. Using publicly available
information developed in Phase 1, DOE adapted the GRIM's generic
structure to perform an analysis of PTAC and PTHP energy conservation
standards. In Phase 3, Subgroup Impact Analysis, DOE conducted
interviews with manufacturers representing the majority of domestic
PTAC and PTHP sales. This group included large and small manufacturers
of both standard and non-standard size PTACs and PTHPs, providing a
representative cross-section of the industry. During these interviews,
DOE discussed engineering, manufacturing, procurement, and financial
topics specific to each company and also obtained each manufacturer's
view of the industry as a whole. The interviews provided valuable
information DOE used to evaluate the impacts of an amended energy
conservation standard on manufacturers' cash flows, manufacturing
capacities, and employment levels.
a. Phase 1, Industry Profile
In Phase 1 of the MIA, DOE prepared a profile of the PTAC and PTHP
industry based on the market and technology assessment prepared for
this rulemaking. Before initiating the detailed impact studies, DOE
collected information on the present and past structure and market
characteristics of the PTAC and PTHP industry. The information DOE
collected at that time included market share, equipment shipments,
markups, and cost structure for various manufacturers. The industry
profile includes further detail on equipment characteristics, estimated
manufacturer market shares, the financial situation of manufacturers,
trends in the number of firms, the market, and equipment
characteristics of the PTAC and PTHP industry.
The industry profile included a top down cost analysis of PTAC and
PTHP manufacturers that DOE used to derive cost and preliminary
financial inputs for the GRIM (e.g., revenues; material, labor,
overhead, and depreciation expenses; selling, general, and
administrative expenses (SG&A); and research and development (R&D)
expenses). DOE also used public sources of information to further
calibrate its initial characterization of the industry, including SEC
10-K reports, Standard & Poor's (S&P) stock reports, and corporate
annual reports.
b. Phase 2, Industry Cash Flow Analysis
Phase 2 of the MIA focused on the financial impacts of amended
energy conservation standards on the industry as a whole. Higher energy
conservation standards can affect a manufacturer's cash flow in three
distinct ways, resulting in: (1) A need for increased investment; (2)
higher production costs per unit; and (3) altered revenue by virtue of
higher per-unit prices and changes in sales values. To quantify these
impacts in Phase 2 of the MIA, DOE performed separate cash flow
analyses, using the GRIM, on the part of the industry that manufactures
standard size PTACs and PTHPs and on the part of the industry that
manufactures non-standard size equipment. In performing

[[Page 18884]]

these analyses, DOE used the financial values derived during Phase 1
and the shipment scenarios used in the NES analyses.
c. Phase 3, Sub-Group Impact Analysis
Using average cost assumptions to develop an industry-cash-flow
estimate is not adequate for assessing differential impacts among
subgroups of manufacturers. For example, small manufacturers, niche
players, or manufacturers exhibiting a cost structure that largely
differs from the industry average could be more negatively affected.
DOE used the results of the industry characterization analysis (in
Phase 1) to group manufacturers that exhibit similar characteristics.
DOE established two sub-groups for the MIA corresponding to the two
types of PTAC and PTHP equipment and manufacturers, i.e., manufacturers
of standard size equipment and manufacturers of non-standard size
equipment. The standard size PTAC and PTHP market is mostly
domestically owned with manufacturing facilities located outside of the
United States, where as the non-standard size PTAC and PTHP market is
mostly domestically owned with manufacturing facilities located inside
of the United States. There has been a recent trend of foreign owned,
foreign operated companies to enter the standard size PTAC and PTHP
market and sell equipment within the United States.
Based on the identification of these two sub-groups, DOE prepared
two different interview guides--one for standard size PTAC and PTHP
manufacturers and one for non-standard size PTAC and PTHP
manufacturers. These interview guides were used to tailor the GRIM to
address unique financial characteristics of manufacturers of each
equipment size. DOE interviewed companies from each subgroup, including
small and large companies, subsidiaries and independent firms, and
public and private corporations. The purpose of the meetings was to
develop an understanding of how manufacturer impacts vary with the
TSLs. During the course of the MIA, DOE interviewed manufacturers
representing the majority of domestic PTAC and PTHP sales. Many of
these same companies also participated in interviews for the
engineering analysis. However, the MIA interviews broadened the
discussion from primarily technology-related issues to include business
related topics. One objective was to obtain feedback from industry on
the assumptions used in the GRIM and to isolate key issues and
concerns.
DOE also evaluated the impact of the energy conservation standards
on the manufacturing impacts of small businesses. Small businesses, as
defined by the SBA for the PTAC and PTHP manufacturing industry, are
manufacturing enterprises with 750 or fewer employees. DOE shared the
interview guides with small manufacturers and tailored specific
questions for small PTAC and PTHP manufacturers. See Chapter 13 of the
TSD for details.
2. Government Regulatory Impact Model Analysis
As mentioned above, DOE uses the GRIM to quantify changes in cash
flow that result in a higher or lower industry value. The GRIM analysis
uses a standard, annual-cash-flow analysis that incorporates
manufacturer prices, manufacturing costs, shipments, and industry
financial information as inputs and models changes in costs,
distribution of shipments, investments, and associated margins that
would result from new or amended regulatory conditions (in this case,
standard levels). The GRIM spreadsheet uses a number of inputs to
arrive at a series of annual cash flows, beginning with the base year
of the analysis, 2007, and continuing to 2042. DOE calculated INPVs by
summing the stream of annual discounted cash flows during this period.
DOE used the GRIM to calculate cash flows using standard accounting
principles and to compare changes in INPV between a base case and
different TSLs (the standards cases). Essentially, the difference in
INPV between the base case and a standards case represents the
financial impact of the amended energy conservation standards on
manufacturers. DOE collected this information from a number of sources,
including publicly available data and interviews with several
manufacturers. See Chapter 13 of the TSD for details.
3. Manufacturer Interviews
As part of the MIA, DOE discussed potential impacts of amended
energy conservation standards with manufacturers responsible for a
majority of PTAC and PTHP sales. The manufacturers interviewed
manufacture 90 percent of the standard size PTACs and PTHPs and over 50
percent of the non-standard size PTACs and PTHPs.\29\ These interviews
were in addition to those DOE conducted as part of the engineering
analysis. The interviews provided valuable information that DOE used to
evaluate the impacts of amended energy conservation standards on
manufacturers' cash flows, manufacturing capacities, and employment
levels.
---------------------------------------------------------------------------

\29\ DOE contacted other non-standard size manufacturers as part
of the MIA, but they did not wish to participate in the MIA process.
---------------------------------------------------------------------------

a. Issues
According to all manufacturers interviewed, the biggest concern
relating to this rulemaking is the EPA mandated phase-out of the HCFC
refrigerants that are used in current PTAC and PTHP equipment. Every
manufacturer interviewed stated that it intends to switch from the
current R-22 refrigerant to R-410A refrigerant in PTAC and PTHP
equipment, regardless of equipment class. All manufacturers interviewed
expect to be affected by the refrigerant phase-out for the following
reasons:
Availability of R-410A refrigerant compressors--All of the
manufacturers interviewed stated their concern that only a small number
of compressors utilizing R-410A refrigerant are or will be available
before the R-22 refrigerant must be replaced in 2010. Furthermore, not
all current cooling capacities available in R-22 refrigerant
compressors are or will be available in R-410A refrigerant versions. In
addition, not all voltages currently offered by some manufacturers of
PTAC and PTHP equipment are or will be available in an R-410A
refrigerant version. All manufacturers noted that the small size of
their industry gives them little to no leverage to encourage compressor
manufacturers to develop R-410A refrigerant compressors for them.
Compressor performance degradation--According to all
manufacturers of PTAC and PTHP equipment, R-410A refrigerant
compressors currently on the market have at least a 0.8 to 1.0 EER
compressor performance degradation relative to the R-22 refrigerant
compressors that they are intended to replace. The degradation in
compressor performance can be attributed to several factors including a
reduction in displacement, increase in complexity, necessity of
increase in strength of the compressor shell, and use of non-mineral
oils. As a result, some manufacturers anticipate difficulty initially
meeting even the ASHRAE/IESNA Standard 90.1-1999 efficiency levels with
R-410A-based units.
Increase in manufacturing costs--All manufacturers expect
their PTAC and PTHP equipment manufacturing costs to increase as the
sealed-system portions of the equipment are upgraded

[[Page 18885]]

to handle the higher system pressures associated with R-410A
refrigerant. In addition to an increase in manufacturing cost to
accommodate higher working pressures associated with R-410A refrigerant
and increased refrigerant and compressor costs, manufacturers are
concerned about the anticipated drop in compressor efficiency, which
would cause them to incorporate some level of redesign into their R-
410A refrigerant equipment to help offset this degradation and would
further increase manufacturing costs. All manufacturers noted that
cost-recovery is very difficult in this industry due to intense price
competition. Multiple United States-based manufacturers noted the entry
of foreign-based competitors as a source for the intense price
competition.
Combination of regulations--All manufacturers anticipate
that the combination of the R-22 refrigerant phase-out and possible
amendment of Federal energy conservation standards will lead the
industry to reduce the scope of equipment offered. In addition, several
manufacturers anticipate as a result of the three factors just
discussed, shifts in market share, consolidation within the industry,
and/or the departure of marginal manufacturers from the business.
Other manufacturing issues include the delineation of non-standard
size equipment classes and the timing of the regulations. First,
manufacturers of non-standard size PTACs and PTHPs anticipate that, if
the ASHRAE/IESNA Standard 90.1-1999 equipment class definition (i.e.,
equipment with wall sleeve dimensions less than 16 inches high and less
than 42 inches wide) is adopted by DOE, a significant portion of the
equipment they currently offer for replacement purposes will be
misclassified as new construction. For example, a PTAC or PTHP unit
with one of its wall sleeve dimensions less than the 16 inches high and
42 inches wide would be classified as standard size equipment.
Manufacturers stated that these types of units are often sold on demand
as custom order to replace existing equipment with the same wall sleeve
dimensions. The comments assert that if DOE adopts the ASHRAE
definitions of standard and non-standard units, it will force a small
volume of non-standard sleeve size equipment to meet higher efficiency
levels, intended for standard size equipment, which these units are
physically unable to meet because of physical constraints due to the
equipment size. Further, some manufacturers estimated that up to half
of their equipment lines could be eliminated if DOE chooses to adopt
ASHRAE's delineations of equipment classes.\30\
---------------------------------------------------------------------------

\30\ DOE understands that ARI has submitted a continuous
maintenance proposal to modify the definitions of non-standard size
PTACs and PTHPs, which was subsequently approved by ASHRAE as
Addendum t to ASHRAE/IESNA Standard 90.1-2007. As further discussed
in section IV.A.2 above, if ASHRAE is able to adopt Addendum t to
ASHRAE/IESNA Standard 90.1-2007 prior to September 2008, when DOE
must issue a final rule on this rulemaking, DOE proposes to
incorporate the modified definition into its final rule.
---------------------------------------------------------------------------

Second, the EPA mandated R-22 refrigerant phase-out date (January
1, 2010) and the anticipated effective date of the DOE amended energy
conservation standards rulemaking (September 2012) are a concern for
all manufacturers. All manufacturers stated that, because of the gap
between these dates, as well as the fact that DOE does not expect to
promulgate its rule until September 30, 2008, each manufacturer will
have to make a separate development effort to comply with each of these
regulations. Most manufacturers stated that there could be some gains
if each is able to combine its efforts to comply with the conversion to
R-410A refrigerant and amended minimum energy conservation standards.
Most manufacturers were uncertain, however, of the magnitude of the
anticipated benefit from any such combined effort.
b. Government Regulatory Impact Model Scenarios and Key Inputs
i. Base Case Shipments Forecast
The GRIM estimates manufacturer revenues based on total-unit-
shipment forecasts and the distribution of these values by EER. Changes
in the efficiency mix at each standard level are a key driver of
manufacturer finances. For this analysis, the GRIM used both the NES
shipments forecasts and a modified version referred to as the R-410A
shipments forecasts for both standard size and non-standard size PTACs
and PTHPs from 2007 to 2042. Total shipments forecasted by the NES for
the base case in 2012 are shown in Table IV.11 and are further
discussed in this section of today's notice. DOE allocated to the
closest representative cooling capacity, in the appropriate equipment
class, any shipments forecasted by the NES of equipment that was not
within one of the representative cooling capacities. For example, the
total PTAC or PTHP shipments with a cooling capacity less than 10,000
Btu/h for standard size equipment are included with the 9,000 Btu/h
representative cooling capacity.

Table IV.11.--Total NES-Forecasted Shipments in 2012
------------------------------------------------------------------------
Total
Equipment class (cooling capacities) industry
shipments*
------------------------------------------------------------------------
Standard Size PTACs (9,000 Btu/h).......................... 97,900
Standard Size PTHPs (9,000 Btu/h).......................... 76,500
Standard Size PTACs (12,000 Btu/h)......................... 144,100
Standard Size PTHPs (12,000 Btu/h)......................... 104,400
Non-Standard Size PTACs.................................... 17,100
Non-Standard Size PTHPs.................................... 12,900
------------------------------------------------------------------------
* Estimates rounded to the nearest hundred.

DOE also estimated, in the shipments analysis, the distribution of
efficiencies in the base case for PTACs and PTHPs. (See Chapter 10 of
the TSD.) Table IV.12 shows one example of the distribution of
efficiencies in the base case for standard size PTACs with a cooling
capacity of 9,000 Btu/h plus those with cooling capacities allocated to
this category. The distribution of efficiencies in the base case for
other equipment classes shown in Chapter 10 of the TSD.

Table IV.12.--NES Distribution of Shipments in the Base Case for Standard Size PTACs with Cooling Capacities
Less Than 10,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Baseline TSL 1, 2, 4
TSL (EER) 10.6 10.9 TSL 3 11.1 TSL 5 11.3 TSL 6 11.5 TSL 7 12.0
----------------------------------------------------------------------------------------------------------------
Distribution of Shipments (%)..... 19.2 18.0 17.2 16.4 15.6 13.5
----------------------------------------------------------------------------------------------------------------

During the course of the MIA interviews, DOE asked manufacturers to
comment on the NES shipment forecasts. For all equipment classes,
manufacturers were in general agreement with the NES total shipment

[[Page 18886]]

results. However, their views differed on the impacts of the
refrigerant phase-out on the distribution of efficiencies in the base
case.
Many manufacturers commented that the NES shipments forecast did
not adequately account for the reduction in efficiency resulting from
the refrigerant phase-out. Manufacturers believe there will be a system
performance degradation as characterized in the engineering analysis.
In particular, manufacturers commented that they were planning to
implement R-410A refrigerant as a ``drop-in'' redesign to meet the
initial 2010 deadline. In a drop-in redesign, manufacturers would
continue to use the current basic R-22 design for the PTAC or PTHP
equipment, and only replace compressors, refrigerant and make other
minor adjustments.
DOE considered manufacturers' concerns with the NES shipments
forecast and derived an alternative shipments forecast (referred to as
the ``R-410A-shipments forecast''). Several manufacturers interviewed
stated that total shipments for both standard and non-standard size
equipment would not be affected by the R-22 refrigerant phase-out.
Therefore, DOE assumed that the total industry shipments forecasted in
the shipment analysis would not change due to the refrigerant phase-out
(i.e., DOE assumed the total shipments of equipment with R-410A
refrigerant would be equal to the total shipments of equipment with R-
22 refrigerant as forecasted by the NES). Furthermore, DOE assumed
that, for both standard and non-standard size PTACs and PTHPs, the
distributions by efficiencies would shift in accordance with the
degradation in system performance that the engineering analysis
estimates will occur in 2010 (i.e., effective date for the R-22
refrigerant phase-out).
DOE assumed that manufacturers with equipment that would fall below
ASHRAE/IESNA Standard 90.1-1999 levels with a drop-in redesign would
nevertheless modify such equipment so that it would achieve at least
these baseline efficiency levels. As an example of the impact of the
refrigerant phase-out on the distribution of efficiencies in the base
case, Table IV.13 illustrates the change in the distribution of
efficiencies for standard size PTACs with a cooling capacity of 9,000
Btu/h from 2009 to 2010. DOE is seeking comment about the distribution
of efficiencies in the R-410A base case for each of the representative
cooling capacities.

Table IV.13.--R-410A Distribution of Efficiencies as Forecasted by the NES and as Forecasted by the R-410A-
Shipment Forecast
----------------------------------------------------------------------------------------------------------------
Baseline TSL 1, 2, 4
TSL (EER) 10.6 10.9 TSL 3 11.1 TSL 5 11.3 TSL 6 11.5 TSL 7 12.0
----------------------------------------------------------------------------------------------------------------
NES Distribution of Shipments (%). 19.2 18.0 17.2 16.4 15.6 13.5
R-410A-Shipments Forecast 70.9 15.6 0 13.5 0 0
Distribution of Shipments (%)....
----------------------------------------------------------------------------------------------------------------

ii. Standards Case Shipments Forecast
For each standards case, DOE assumed that shipments at efficiencies
below the projected minimum standard levels were most likely to roll up
to those efficiency levels in response to an increase in energy
conservation standards. This scenario assumes that demand for high
efficiency equipment is a function of its price without regard to the
standard level. In addition, DOE assumed that manufacturers would not
be able to manufacture equipment higher than TSL 5 or TSL 6 depending
on equipment class for R-410A equipment using today's technology. For
TSLs above TSL 5 or TSL 6 depending on equipment class, DOE assumed one
hundred percent of the products would be manufactured at the efficiency
levels specified by the TSL. See Chapter 13 for additional details.
iii. R-410A Base Case and Amended Energy Conservation Standards Markup
Scenarios
The PTAC and PTHP manufacturer impact analysis is explicitly
structured to account for the cumulative burden of sequential
refrigerant and amended energy conservation standards. This section
describes the markup scenarios DOE used to calculate the base case INPV
after implementation of the R-22 refrigerant phase-out, and the
standards case INPV at each TSL.
DOE learned from interviews with manufacturers that the majority of
manufacturers offer only one equipment line. A single equipment line
means that there is no markup strategy used to differentiate a lower
efficiency piece of equipment from a premium piece of equipment.
Through its analysis of the PTAC and PTHP industry, DOE also learned
that prices of a PTAC and a PTHP made by the same manufacturer at the
same cooling capacity do not demand different pricing strategies.
Therefore, for the R-22 base case industry cash flow analysis, DOE
assumed a flat markup for all equipment regardless of whether it is a
PTAC or PTHP and regardless of cooling capacity.
During interviews, many manufacturers stated that they have not
been able to recover fully the increased costs from increased metals
prices. Instead, manufacturers were only able to recover a percentage
of the full increase in manufacturing production cost. Many
manufacturers believe a similar situation would happen as a result of
both the R-22 refrigerant phase-out and amended energy conservation
standards. Therefore, DOE made different assumptions about how
manufacturers could recoup both R-410A refrigerant conversion costs and
the costs associated with amended energy conservation standards, so
that it could examine the effects of different cost recovery scenarios.
After discussions with manufacturers, DOE analyzed two distinct R-
410A base case and amended energy conservation standards markup
scenarios: (1) The flat markup scenario, and (2) the partial cost
recovery markup scenario. The flat markup scenario can also be
characterized as the ``preservation of gross margin percentage''
scenario. Under this scenario, DOE applied, across all TSLs, a single
uniform ``gross margin percentage'' markup that DOE believes represents
the current markup for manufacturers in the PTAC and PTHP industry.
This flat markup scenario implies that, as production costs increase
with efficiency, the absolute dollar markup will also increase. DOE
calculated that the non-production cost markup, which consists of SG&A
expenses, R&D expenses, interest, and profit, is 1.29. This markup is
consistent with the one DOE used in the engineering analysis and GRIM
analysis for the base case. The implicit assumption behind the
``partial cost recovery'' scenario is that the industry can pass-
through only part of its regulatory-driven increases in production
costs to consumers in the

[[Page 18887]]

form of higher prices. DOE implemented this markup scenario in the GRIM
by setting the non-production cost markups at each TSL to yield an
increase in MSP equal to half the increase in production cost. These
markup scenarios characterize the markup conditions described by
manufacturers, and reflect the range of market responses manufacturers
expect as a result of the R-22 phase-out and the amended energy
conservation standards. See Chapter 13 of the TSD for additional
details of the markup scenarios.
iv. Equipment and Capital Conversion Costs
Energy conservation standards typically cause manufacturers to
incur one-time conversion costs to bring their production facilities
and equipment designs into compliance with the amended standards. For
the purpose of the MIA, DOE classified these one-time conversion costs
into two major groups; equipment conversion and capital conversion
costs. Equipment conversion expenses are one-time investments in
research, development, testing, and marketing, focused on making
equipment designs comply with the new energy conservation standard.
Capital conversion expenditures are one-time investments in property,
plant, and equipment to adapt or change existing production facilities
so that new equipment designs can be fabricated and assembled.
DOE assessed the R&D expenditures manufacturers would be required
to make at each TSL. It obtained financial information through
manufacturer interviews and compiled the results in an aggregated form
to mask any proprietary or confidential information from any one
manufacturer. For both standard size and non-standard size PTACs and
PTHPs at each TSL, DOE considered a number of manufacturer responses.
DOE estimated the total equipment conversion expenditures by gathering
the responses received during the manufacturer interviews, then
weighted these data by market share for each industry and, finally,
extrapolated each manufacturer's R&D expenditures for each product.
DOE also evaluated the level of capital conversion costs
manufacturers would incur to comply with amended energy conservation
standards. It prepared preliminary estimates of the capital investments
required using the manufacturing cost model. DOE then used the
manufacturer interviews to gather additional data on the level of
capital investment required at each TSL. Manufacturers explained how
different TSLs impacted their ability to use existing plants,
warehouses, tooling, and equipment. From the interviews, DOE was able
to estimate what portion of existing manufacturing assets needed to be
replaced and/or reconfigured, and what additional manufacturing assets
were required to manufacture the higher efficiency equipment. In most
cases, DOE projects that, as standard levels for PTACs and PTHPs
increase, the proportion of existing assets that manufacturers would
have to replace would also increase. Additional information on the
estimated equipment conversion and capital conversion costs is set
forth in Chapter 13 of the TSD.

J. Employment Impact Analysis

Employment impact is one of the factors that DOE considers in
selecting a standard. Employment impacts include direct and indirect
impacts. Direct employment impacts are any changes in the number of
employees for PTAC and PTHP manufacturers, their suppliers, and related
service firms. Indirect impacts are those changes of employment in the
larger economy that occur due to the shift in expenditures and capital
investment that is caused by the purchase and operation of more
efficient PTAC and PTHP equipment. The MIA in this rulemaking addresses
only the employment impacts on manufacturers of PTACs and PTHPs, i.e.,
the direct employment impacts (See Chapter 13 of the TSD); this section
describes other, primarily indirect, employment impacts.
Indirect employment impacts from PTAC and PTHP standards consist of
the net jobs created or eliminated in the national economy, other than
in the manufacturing sector being regulated, as a consequence of (1)
reduced spending by end users on energy (electricity, gas--including
liquefied petroleum gas--and oil); (2) reduced spending on new energy
supply by the utility industry; (3) increased spending on the purchase
price of new PTACs and PTHPs; and (4) the effects of those three
factors throughout the economy. DOE expects the net monetary savings
from standards to be redirected to other forms of economic activity.
DOE also expects these shifts in spending and economic activity to
affect the demand for labor.
In developing this proposed rule, DOE estimated indirect national
employment impacts using an input/output model of the United States
economy, called ImSET (Impact of Sector Energy Technologies) developed
by DOE's Building Technologies Program. ImSET is a personal-computer-
based, economic-analysis model that characterizes the interconnections
among 188 sectors of the economy as national input/output structural
matrices, using data from the United States Department of Commerce's
1997 Benchmark United States table.\31\ The ImSET model estimates
changes in employment, industry output, and wage income in the overall
United States economy resulting from changes in expenditures in the
various sectors of the economy. DOE estimated changes in expenditures
using the NES spreadsheet. ImSET then estimated the net national
indirect employment impacts of potential PTAC and PTHP equipment
efficiency standards on employment by sector.
---------------------------------------------------------------------------

\31\ Lawson, Ann M., Kurt S. Bersani, Mahnaz Fahim-Nader, and
Jiemin Guo. 2002. ``Benchmark Input-Output Accounts of the U.S.
Economy, 1997,'' Survey of Current Business, December, pp. 19-117.
---------------------------------------------------------------------------

The ImSET input/output model suggests the proposed PTAC and PTHP
efficiency standards could increase the net demand for labor in the
economy; the gains would most likely be very small relative to total
national employment. DOE therefore concludes only that the proposed
PTAC and PTHP standards are likely to produce employment benefits that
are sufficient to offset fully any adverse impacts on employment in the
PTAC and PTHP industry. For more details on the employment impact
analysis, see Chapter 15 of the TSD.

K. Utility Impact Analysis

The utility impact analysis estimates the effects of reduced energy
consumption due to improved equipment efficiency on the utility
industry. This utility analysis consists of a comparison between
forecast results for a case comparable to the AEO2007 Reference Case
and forecasts for policy cases incorporating each of the PTAC and PTHP
TSLs.
DOE analyzed the effects of proposed standards on electric utility
industry generation capacity and fuel consumption using a variant of
the EIA's NEMS. NEMS, which is available in the public domain, is a
large, multi-sectoral, partial-equilibrium model of the United States
energy sector. EIA uses NEMS to produce its AEO, a widely recognized
baseline energy forecast for the United States. DOE used a variant
known as NEMS-BT.
DOE conducted the utility analysis as policy deviations from the
AEO2007, applying the same basic set of assumptions. The utility
analysis reported the changes in installed capacity and generation--by
fuel type--that result for each TSL, as well as changes in end-use
electricity sales. Chapter 14 of the TSD provides details

[[Page 18888]]

of the utility analysis methods and results.

L. Environmental Analysis

DOE has prepared a draft Environmental Assessment (EA) pursuant to
the National Environmental Policy Act and the requirements under 42
U.S.C. 6295(o)(2) to determine the environmental impacts of the
proposed standards. (42 U.S.C. 6316(a)) As part of the environmental
analysis, DOE calculated the reduction in power plant emissions of
CO2, NOX and mercury (Hg), using the NEMS-BT
computer model. The EA has been integrated into Chapter 16 of the TSD.
The analyses do not include the estimated reduction in power plant
emissions of SO2 because, as discussed below, any such reduction
resulting from an energy conservation standard would not affect the
overall level of SO2 emissions in the United States.
The NEMS-BT is run similarly to the AEO2007 NEMS, except that PTAC
and PTHP energy usage is reduced by the amount of energy (by fuel type)
saved due to the TSLs. DOE obtained the inputs of national energy
savings from the NES spreadsheet model. For the environmental analysis,
the output is the forecasted physical emissions. The net benefit of the
standard is the difference between emissions estimated by NEMS-BT and
the AEO2007 Reference Case. The NEMS-BT tracks CO2 emissions using a
detailed module that provides results with a broad coverage of all
sectors and inclusion of interactive effects.
In the case of SO2, the Clean Air Act Amendments of 1990 set an
emissions cap on all power generation. The attainment of this target,
however, is flexible among generators and is enforced by applying
market forces, using emissions allowances and tradable permits. As a
result, accurate simulation of SO2 trading tends to imply that the
effect of energy conservation standards on physical emissions will be
near zero because emissions will always be at, or near, the ceiling.
Thus, there is virtually no real possible SO2 environmental benefit
from electricity savings as long as there is enforcement of the
emissions ceilings. However, although there may not be an actual
reduction in SO2 emissions from electricity savings, there still may be
an economic benefit from reduced demand for SO2 emission allowances.
Electricity savings decrease the generation of SO2 emissions from power
production, and consequently can decrease the need to purchase or
generate SO2 emissions allowance credits. This decreases the costs of
complying with regulatory caps on emissions.

M. Discussion of Other Issues

1. Effective Date of the Proposed Amended Energy Conservation Standards
Generally, covered equipment to which a new or amended energy
conservation standard applies must comply with the standard if they are
manufactured or imported on or after a specified date. Section
342(a)(6)(A)(ii)(II) of EPCA directs DOE to ``establish an amended
uniform national standard for [PTACs and PTHPs] at the minimum level
for each effective date specified in the amended ASHRAE Standard 90.1
[-1999 for PTACs and PTHPs], unless the Secretary 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 [-1999 for PTACs and
PTHPs] would result in significant additional conservation of energy
and is technologically feasible and economically justified.'' (42
U.S.C. 6313(a)(6)(A)(ii)(II)) In today's NOPR, DOE is proposing to
adopt a rule prescribing energy conservation standards higher than the
efficiency levels contained in ASHRAE/IESNA Standard 90.1-1999. EPCA
states that any such standards ``shall become effective for products
manufactured on or after a date which is four years after the date such
rule is published in the Federal Register.'' (42 U.S.C. 6313(a)(6)(D))
DOE has applied this four-year implementation period to determine the
effective date of any energy conservation standard prescribed by this
rulemaking. Thus, since DOE expects to issue a final rule in this
proceeding in September 2008 \32\, the rule would apply to products
manufactured on or after September 2012, four years from the date of
publication of the final rule. Thus, DOE calculated the LCCs and PBPs
for all customers as if each one purchased a new PTAC or PTHP in 2012.
---------------------------------------------------------------------------

\32\ This rulemaking is subject to a Consent Decree filed with
the U.S. District Court for the Southern District of New York to
settle the consolidated cases of State of New York, et al. v.
Bodman, and Natural Resources Defense Council, Inc., et al., (Civ.
7807 (JES) and Civ. 7808 (JES) (S.D.N.Y consolidated December 6,
2005)), under which DOE is required to publish a final rule for
amended energy conservation standards for PTACs and PTHPs by
September 30, 2008.
---------------------------------------------------------------------------

2. ASHRAE/IESNA Standard 90.1-1999 Labeling Requirement
ASHRAE/IESNA Standard 90.1-1999 established separate categories for
PTACs and PTHPs based on standard and non-standard size wall sleeve
dimensions. Further, it described standard size units as being for new
construction and non-standard size units as being for replacement
purposes. In addition, ASHRAE Standard 90.1-1999 includes a labeling
requirement in order to differentiate between new construction and
replacement equipment. Specifically, under ASHRAE/IESNA Standard 90.1-
1999, to be considered a non-standard size unit (i.e., replacement),
PTACs and PTHPs must have a sleeve size less than 16 inches high and
less than 42 inches wide, and be labeled as being for replacement
applications only. DOE believes ASHRAE included a labeling requirement
for PTACs and PTHPs to help deter less efficient, non-standard size
equipment from being used for new construction.
Section 344 of EPCA provides the Secretary with the authority to
establish labeling rules for certain commercial equipment, including
PTACs and PTHPs. (42 U.S.C. 6315(e)) Section 344 of EPCA directs the
Secretary to consider labeling rules which: (1) Indicate the energy
efficiency of the equipment on the permanent nameplate attached to such
equipment or on other nearby permanent marking; (2) prominently display
the energy efficiency of the equipment in new equipment catalogs used
by the manufacturer to advertise the equipment; and (3) include such
other markings as the Secretary determines necessary solely to
facilitate enforcement of the standards established for such equipment.
(42 U.S.C. 6315(e)) In addition, section 344 of EPCA states that the
Secretary shall not promulgate labeling rules for any class of
industrial equipment, including PTACs and PTHPs, unless DOE has
determined that:
Labeling in accordance with this section is
technologically and economically feasible with respect to such class;
Significant energy savings will likely result from such
labeling; and
Labeling in accordance with this section is likely to
assist consumers in making purchasing decisions.
(42 U.S.C. 6315(h)).

At this time, DOE is uncertain of the types of energy use or
efficiency information commercial customers and owners of PTACs and
PTHPs would find useful for making purchasing

[[Page 18889]]

decisions. Before DOE can establish labeling rules, it must first
ascertain whether the above-referenced criteria are met. DOE will work
with the Federal Trade Commission and other stakeholders to determine
the types of information and the forms (e.g., labels, fact sheets, or
directories) that would be most useful for commercial customers and
owners of PTACs and PTHPs. DOE preliminarily believes that a label on
PTAC and PTHP equipment indicating the equipment class would be useful
for enforcement of both the energy conservation standards as well as
the building codes and would assist States and other stakeholders in
determining which application correlates to a given PTAC or PTHP (based
upon size). DOE anticipates proposing labeling requirements for PTAC
and PTHP equipment in a separate rulemaking. DOE invites public comment
on the type of information and other requirements or factors it should
consider in developing a proposed labeling rule for PTACs and PTHPs.

V. Analytical Results

A. Trial Standard Levels

Table V.1 presents the baseline efficiency level and the efficiency
level of each TSL analyzed for standard size and non-standard size
PTACs and PTHPs subject to today's proposed rule. The baseline
efficiency levels correspond to the efficiency levels specified by the
energy efficiency equations in ASHRAE/IESNA Standard 90.1-1999. TSLs 1,
3, 5, 6 represent matched pairs of efficiency levels for the three
representative cooling capacities of PTACs and PTHPs. The efficiency
levels for PTACs and PTHPs with the same cooling capacity and wall
sleeve dimensions are equal. DOE maintained the 0.7 EER decrement
established by ASHRAE/IESNA Standard 90.1-1999 between the standard
size equipment with cooling capacities of 9,000 Btu/h and 12,000 Btu/h.
TSL 7 is the maximum technologically feasible (``max tech'') level for
each class of equipment as discussed in section III.B.2, above. TSLs 2
and 4 combine different efficiency pairings between PTACs and PTHPs. In
other words, DOE examined the impacts of amended energy conservation
standards when PTACs and PTHPs are required to meet different
efficiency levels. For TSL 2, DOE combined TSL 1 for PTACs and TSL 3
for PTHPs. For TSL 4, DOE combined TSL 1 for PTACs and TSL 5 for PTHPs.
These two combination levels serve to maximize LCC savings, while
recognizing the differences in LCC results for PTACs and PTHPs.

Table V.1.--Standard Size and Non-Standard Size PTACs and PTHPs Baseline Efficiency Levels and TSLs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline
(ASHRAE/IESNA TSL 7
Equipment class (cooling capacity) Efficiency metric Standard 90.1- TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 Max-
1999) Tech
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size PTAC 9,000 Btu/h............ EER.......................... 10.6 10.9 10.9 11.1 10.9 11.3 11.5 12.0
Standard Size PTAC 12,000 Btu/h........... EER.......................... 9.9 10.2 10.2 10.4 10.2 10.6 10.8 11.5
Non-Standard Size PTAC 11,000 Btu/h....... EER.......................... 8.6 9.4 9.4 9.7 9.4 10.0 10.7 11.2
Standard Size PTHP 9,000 Btu/h............ EER.......................... 10.4 10.9 11.1 11.1 11.3 11.3 11.5 12.0
COP.......................... 3.0 3.1 3.2 3.2 3.3 3.3 3.3 3.5
Standard Size PTHP 12,000 Btu/h........... EER.......................... 9.7 10.2 10.4 10.4 10.6 10.6 10.8 11.7
COP.......................... 2.9 3.0 3.1 3.1 3.1 3.1 3.1 3.3
Non-Standard PTHP 11,000 Btu/h............ EER.......................... 8.5 9.4 9.7 9.7 10.0 10.0 10.7 11.4
COP.......................... 2.6 2.8 2.8 2.8 2.9 2.9 2.9 2.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

As stated in the engineering analysis (see Chapter 5 of this TSD),
current Federal energy conservation standards and the efficiency levels
specified by ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs are a
function of the equipment's cooling capacity. Both the Federal energy
conservation standards and the efficiency standards in ASHRAE/IESNA
Standard 90.1-1999 are based on equations to calculate the efficiency
levels for PTACs and PTHPs with a cooling capacity greater than or
equal to 7,000 Btu/h and less than or equal to 15,000 Btu/h for each
equipment class. To derive the standards (i.e., efficiency level as a
function of cooling capacity), DOE plotted the representative cooling
capacities and the corresponding efficiency levels for each TSL. DOE
then calculated the equation of the line passing through the EER values
for 9,000 Btu/h and 12,000 Btu/h for standard size PTACs and PTHPs.
More details describing how DOE determined the energy efficiency
equations for each TSL are found in Chapter 9 of the TSD. Table V.2 and
Table V.3 identify the energy efficiency equations for each TSL for
standard size PTACs and PTHPs.

Table V.2.--Energy-Efficiency Equations (EER as a Function of Cooling Capacity) by TSL for Standard Size PTACs
----------------------------------------------------------------------------------------------------------------
Standard size** PTACs Energy efficiency equation*
----------------------------------------------------------------------------------------------------------------
Baseline ASHRAE/IESNA Standard 90.1- EER = 12.5-(0.213 x Cap[dagger]/1000)
1999.
TSL 1............................... EER = 13.0-(0.233 x Cap[dagger]/1000)
TSL 2............................... EER = 13.0-(0.233 x Cap[dagger]/1000)
TSL 3............................... EER = 13.2-(0.233 x Cap[dagger]/1000)
TSL 4............................... EER = 13.0-(0.233 x Cap[dagger]/1000)

[[Page 18890]]

TSL 5............................... EER = 13.4-(0.233 x Cap[dagger]/1000)
TSL 6............................... EER = 13.6-(0.233 x Cap[dagger]/1000)
TSL 7............................... EER = 13.5-(0.167 x Cap[dagger]/1000)
----------------------------------------------------------------------------------------------------------------
* For equipment rated according to the DOE test procedure, all EER values must be rated at 95 [deg]F outdoor dry-
bulb temperature for air-cooled products and evaporatively-cooled products and at 85 [deg]F entering water
temperature for water cooled products.
** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches
high, or greater than or equal to 42 inches wide.
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.

Table V.3.--Energy-Efficiency Equations (EER as a Function of Cooling Capacity) by TSL for Standard Size PTHPs
----------------------------------------------------------------------------------------------------------------
Standard size** PTHPs Energy efficiency equation*
----------------------------------------------------------------------------------------------------------------
Baseline ASHRAE/IESNA Standard 90.1- EER = 12.3-(0.213 x Cap[dagger]/1000)
1999.
COP = 3.2-(0.026 x Cap[dagger]/1000)
TSL 1............................... EER = 13.0-(0.233 x Cap[dagger]/1000)
COP = 3.6-(0.046 x Cap[dagger]/1000)
TSL 2............................... EER = 13.2-(0.233 x Cap[dagger]/1000)
COP = 3.6-(0.044 x Cap[dagger]/1000)
TSL 3............................... EER = 13.2-(0.233 x Cap[dagger]/1000)
COP = 3.6-(0.044 x Cap[dagger]/1000)
TSL 4............................... EER = 13.4-(0.233 x Cap[dagger]/1000)
COP = 3.7-(0.053 x Cap[dagger]/1000)
TSL 5............................... EER = 13.4-(0.233 x Cap[dagger]/1000)
COP = 3.7-(0.053 x Cap[dagger]/1000)
TSL 6............................... EER = 13.6-(0.233 x Cap[dagger]/1000)
COP = 3.8-(0.053 x Cap[dagger]/1000)
TSL 7............................... EER = 12.9-(0.100 x Cap[dagger]/1000)
COP = 4.1-(0.074 x Cap[dagger]/1000)
----------------------------------------------------------------------------------------------------------------
* For equipment rated according to the DOE test procedure, all EER values must be rated at 95 [deg]F outdoor dry-
bulb temperature for air-cooled products and evaporatively-cooled products and at 85 [deg]F entering water
temperature for water cooled products. All COP values must be rated at 47 [deg]F outdoor dry-bulb temperature
for air-cooled products, and at 70 [deg]F entering water temperature for water-source heat pumps.
** Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16 inches
high, or greater than or equal to 42 inches wide.
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.

For non-standard size PTACs and PTHPs, DOE used the ASHRAE/IESNA
Standard 90.1-1999 equation slope and the representative cooling
capacity (i.e., 11,000 Btu/h cooling capacity) to determine the energy
efficiency equations corresponding to each TSL. More details describing
how DOE determined the energy efficiency equations for each TSL are
found in Chapter 9 of the TSD. Table V.4 and Table V.5 identify the
energy efficiency equations for each TSL for non-standard size PTAC and
PTHP.

Table V.4--Energy-Efficiency Equations (EER as a Function of Cooling Capacity) by TSL for Non-Standard Size
PTACs
----------------------------------------------------------------------------------------------------------------
Non-standard size\**\ PTACs Energy efficiency equation\*\
----------------------------------------------------------------------------------------------------------------
Baseline ASHRAE/IESNA Standard 90.1- EER = 10.9 - (0.213 x Cap[dagger]/1000)
1999.
TSL 1............................... EER = 11.7 - (0.213 x Cap[dagger]/1000)
TSL 2............................... EER = 11.7 - (0.213 x Cap[dagger]/1000)
TSL 3............................... EER = 12.0 - (0.213 x Cap[dagger]/1000)
TSL 4............................... EER = 11.7 - (0.213 x Cap[dagger]/1000)
TSL 5............................... EER = 12.3 - (0.213 x Cap[dagger]/1000)
TSL 6............................... EER = 13.0 - (0.213 x Cap[dagger]/1000)
TSL 7............................... EER = 13.5 - (0.213 x Cap[dagger]/1000)
----------------------------------------------------------------------------------------------------------------
\*\ For equipment rated according to the DOE test procedure, all EER values must be rated at 95 [deg]F outdoor
dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85 [deg]F entering water
temperature for water cooled products.
\**\ Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and
less than 42 inches wide.
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.

[[Page 18891]]

Table V.5--Energy-Efficiency Equations (EER as a Function of Cooling Capacity) by TSL for Non-Standard Size
PTHPs
----------------------------------------------------------------------------------------------------------------
Non-standard size\**\ PTHPs Energy efficiency equation\*\
----------------------------------------------------------------------------------------------------------------
Baseline ASHRAE/IESNA Standard 90.1- EER = 10.8 - (0.213 x Cap[dagger]/1000)
1999. COP = 2.9 - (0.026 x Cap[dagger]/1000)
TSL 1............................... EER = 11.7 - (0.213 x Cap[dagger]/1000)
COP = 3.1 - (0.026 x Cap[dagger]/1000)
TSL 2............................... EER = 12.0 - (0.213 x Cap[dagger]/1000)
COP = 3.1 - (0.026 x Cap[dagger]/1000)
TSL 3............................... EER = 12.0 - (0.213 x Cap[dagger]/1000)
COP = 3.1 - (0.026 x Cap[dagger]/1000)
TSL 4............................... EER = 12.3 - (0.213 x Cap[dagger]/1000)
COP = 3.1 - (0.026 x Cap[dagger]/1000)
TSL 5............................... EER = 12.3 - (0.213 x Cap[dagger]/1000)
COP = 3.1 - (0.026 x Cap[dagger]/1000)
TSL 6............................... EER = 13.0 - (0.213 x Cap[dagger]/1000)
COP = 3.2 - (0.026 x Cap[dagger]/1000)
TSL 7............................... EER = 13.7 - (0.213 x Cap[dagger]/1000)
COP = 3.2 - (0.026 x Cap[dagger]/1000)
----------------------------------------------------------------------------------------------------------------
\*\ For equipment rated according to the DOE test procedure, all EER values must be rated at 95 [deg]F outdoor
dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85 [deg]F entering water
temperature for water cooled products. All COP values must be rated at 47 [deg]F outdoor dry-bulb temperature
for air-cooled products, and at 70 [deg]F entering water temperature for water-source heat pumps.
\**\ Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high and
less than 42 inches wide.
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.

For PTACs and PTHPs with cooling capacity less than 7,000 Btu/h,
DOE determined the EERs using a cooling capacity of 7,000 Btu/h in the
efficiency-capacity equations. For PTACs and PTHPs with a cooling
capacity greater than 15,000 Btu/h cooling capacity, DOE determined the
EERs using a cooling capacity of 15,000 Btu/h in the efficiency-
capacity equations. This is the same method established in the Energy
Policy Act of 1992 and provided in ASHRAE 90.1-1999 for calculating the
EER and COP of equipment with cooling capacities smaller than 7,000
Btu/h and larger than 15,000 Btu/h.

B. Economic Justification and Energy Savings

1. Economic Impacts on Commercial Customers
a. Life-Cycle Cost and Payback Period
DOE's LCC and PBP analyses provided five outputs for each TSL that
are reported in Tables V.6 through V.11 below. The first three outputs
are the proportion of PTAC and PTHP purchases where the purchase of a
standard-compliant piece of equipment would create a net LCC increase,
no impact, or a net LCC savings for the customer. The fourth output is
the average net LCC savings from standard-compliant equipment. Finally,
the fifth output is the average PBP for the customer investment in
standard-compliant equipment.

Table V.6.--Summary LCC and PBP Results for Standard Size PTAC With a Cooling Capacity of
9,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Trial standard level
----------------------------------------------------------
1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
EER.................................................. 10.9 10.9 11.1 10.9 11.3 11.5 12
PTAC with Net LCC Increase (%)....................... 11 11 23 11 35 47 65
PTAC with No Change in LCC (%)....................... 81 81 63 81 46 29 14
PTAC with Net LCC Savings (%)........................ 8 8 14 8 19 23 22
Mean LCC Savings* ($)................................ 0 0 0 0 (2) (4) (13)
Mean PBP (years)..................................... 11.6 11.6 12.5 11.6 13.2 14.0 16.0
----------------------------------------------------------------------------------------------------------------
*Numbers in parentheses indicate negative LCC savings, i.e., an increase in LCC.

Table V.7.--Summary LCC and PBP Results for Standard Size PTHP With a Cooling Capacity of
9,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Trial standard level
-------------------------------------------------------
1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
EER..................................................... 10.9 11.1 11.1 11.3 11.3 11.5 12
PTHP with Net LCC Increase (%).......................... 4 6 6 8 8 15 20
PTHP with No Change in LCC (%).......................... 81 64 64 47 47 30 14
PTHP with Net LCC Savings (%)........................... 15 30 30 45 45 55 66
Mean LCC Savings ($).................................... 13 23 23 32 32 30 40
Mean Payback Period (years)............................. 4.5 4.0 4.0 3.9 3.9 4.5 4.8
----------------------------------------------------------------------------------------------------------------

[[Page 18892]]

Table V.8.--Summary LCC and PBP Results for Standard Size PTAC With a
Cooling Capacity of
12,000 Btu/h
------------------------------------------------------------------------
Trial standard level
---------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------------
EER......................................... 10 10 10 10 10 10 11
.2 .2 .4 .2 .6 .8 .5
PTAC with Net LCC Increase (%).............. 13 13 25 13 41 54 75
PTAC with No Change in LCC (%).............. 80 80 62 80 44 28 12
PTAC with Net LCC Savings (%)............... 7 7 13 7 15 18 13
Mean LCC Savings* ($)....................... (1 (1 (3 (1 (7 (1 (3
) ) ) ) ) 1) 6)
Mean PBP (years)............................ 13 13 13 13 14 15 19
.0 .0 .9 .0 .8 .9 .8

------------------------------------------------------------------------
*Numbers in parentheses indicate negative savings, i.e., an increase in
LCC.

Table V.9.--Summary LCC and PBP Results for Standard Size PTHP With a
Cooling Capacity of
12,000 Btu/h
------------------------------------------------------------------------
Trial standard level
---------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------------
EER......................................... 10 10 10 10 10 10 11
.2 .4 .4 .6 .6 .8 .7
PTHP with Net LCC Increase (%).............. 5 7 7 15 15 27 45
PTHP with No Change in LCC (%).............. 80 62 62 45 45 28 12
PTHP with Net LCC Savings (%)............... 15 31 31 40 40 45 43
Mean LCC Savings ($)........................ 15 26 26 22 22 18 8
Mean PBP (years)............................ 4. 4. 4. 5. 5. 6. 7.
9 4 4 3 3 1 5
------------------------------------------------------------------------

Table V.10.--Summary LCC and PBP Results for Non-Standard Size PTACs
With a Cooling Capacity of 11,000 Btu/h
------------------------------------------------------------------------
Trial standard level
---------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------------
EER......................................... 9. 9. 9. 9. 10 10 11
4 4 7 4 .7 .2
PTAC with Net LCC Increase (%).............. 3 3 9 3 16 33 48
PTAC with No Change in LCC (%).............. 80 80 62 80 44 27 12
PTAC with Net LCC Savings (%)............... 17 17 30 16 40 40 40
Mean LCC Savings ($)........................ 27 27 31 27 33 26 12
Mean PBP (years)............................ 4. 4. 4. 4. 5. 7. 9.
2 2 9 2 7 8 6
------------------------------------------------------------------------

Table V.11.--Summary LCC and PBP Results for Non-Standard Size PTHPs
With a Cooling Capacity of 11,000 Btu/h
------------------------------------------------------------------------
Trial Standard level
---------------------------
1 2 3 4 5 6 7
------------------------------------------------------------------------
EER......................................... 9. 9. 9. 10 10 10 11
4 7 7 .7 .4
PTHP with Net LCC Increase (%).............. 0 2 2 3 3 14 29
PTHP with No Change in LCC (%).............. 81 62 62 45 45 27 12
PTAC with Net LCC Savings (%)............... 19 36 36 53 53 59 59
Mean LCC Savings ($)........................ 61 66 66 81 80 74 53
Mean PBP (years)............................ 2. 2. 2. 2. 2. 4. 5.
0 6 6 8 8 2 8
------------------------------------------------------------------------

For PTACs and PTHPs with a cooling capacity less than 7,000 Btu/h,
DOE established the proposed energy conservation standards using a
cooling capacity of 7,000 Btu/h in the proposed efficiency-capacity
equation. DOE believes the LCC and PBP impacts for equipment in this
category will be similar to the impacts of the 9,000 Btu/h units
because the MSP and usage characteristics are in a similar range.
Similarly, for PTACs and PTHPs with a cooling capacity greater than
15,000 Btu/h, DOE established the proposed energy conservation
standards using a cooling capacity of 15,000 Btu/h in the proposed
efficiency-capacity equation. Further, for PTACs and PTHPs with a
cooling capacity greater than 15,000 Btu/h, DOE believes the impacts
will be similar to units with a cooling capacity of 12,000 Btu/h. More
details explaining how DOE developed the proposed energy efficiency
equations based on the analysis results for the representative cooling
capacities are provided in Section V.A of today's notice.
b. Life-Cycle Cost Sub-Group Analysis
Using the LCC spreadsheet model, DOE determined the impact of the
TSLs on the following customer subgroup: small businesses. Table V.12
shows the mean LCC savings from proposed energy conservation standards,
and Table V.13 shows the mean payback

[[Page 18893]]

period (in years) for this subgroup. More detailed discussion on the
LCC subgroup analysis and results can be found in Chapter 12 of the
TSD.

Table V.12.--Mean Life-Cycle Cost Savings for PTAC or PTHP Equipment Purchased by LCC Sub-Groups (2006$)
----------------------------------------------------------------------------------------------------------------
Equipment class (cooling capacity) TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
Standard Size PTAC (9,000 Btu/h).......... ($1) ($1) ($2) ($1) ($4) ($7) ($17)
Standard Size PTHP (9,000 Btu/h).......... 10 19 19 26 26 23 30
Standard Size PTAC (12,000 Btu/h)......... (2) (2) (5) (2) (9) (15) (42)
Standard Size PTHP (12,000 Btu/h)......... 11 20 20 16 16 11 (4)
Non-Standard Size PTAC.................... 22 22 25 22 26 16 1
Non-Standard Size PTHP.................... 53 56 56 69 69 60 37
----------------------------------------------------------------------------------------------------------------
*Numbers in parentheses indicate negative savings.

Table V.13.--Mean Payback Period for PTAC or PTHP Equipment Purchased by LCC Sub-Groups (Years)
----------------------------------------------------------------------------------------------------------------
Equipment class (cooling capacity) TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
Standard Size PTAC (9,000 Btu/h)................. 11.5 11.5 12.4 11.5 13.2 13.9 15.9
Standard Size PTHP (9,000 Btu/h)................. 4.5 4.0 4.0 3.9 3.9 4.5 4.8
Standard Size PTAC (12,000 Btu/h)................ 12.9 12.9 13.8 12.9 14.7 15.7 19.7
Standard Size PTHP (12,000 Btu/h)................ 4.9 4.4 4.4 5.2 5.2 6.1 7.5
Non-Standard Size PTAC........................... 4.2 4.2 4.9 4.2 5.7 7.8 9.5
Non-Standard Size PTHP........................... 2.0 2.6 2.6 2.8 2.8 4.2 5.8
----------------------------------------------------------------------------------------------------------------

For PTACs and PTHPs with a cooling capacity less than 7,000 Btu/h,
DOE believes that the LCC and PBP impacts for equipment in this
category will be similar to the impacts of the 9,000 Btu/h units
because the MSP and usage characteristics are in a similar range.
Similarly, for PTACs and PTHPs with a cooling capacity greater than
15,000 Btu/h, DOE believes the impacts will be similar to units with a
cooling capacity of 12,000 Btu/h. See chapter 5 of the TSD for how we
selected representative capacities that were analyzed.
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on PTAC and PTHP manufacturers. (See TSD,
Chapter 13.)
a. Industry Cash Flow Analysis Results
i. Standard Size PTACs and PTHPs
Table V.14 and Table V.15 show the MIA results for each TSL using
both markup scenarios described above for standard size PTACs and
PTHPs.\33\
---------------------------------------------------------------------------

\33\ The MIA estimates the impacts on standard size
manufacturers of equipment in the entire range of cooling capacities
(i.e., the MIA results in Tables V.15 and V.16 take into
consideration the impacts on manufacturers of equipment from all 6
standard size equipment classes).

Table V.14.--Manufacturer Impact Analysis for Standard Size PTACs and PTHPs Under the Flat Markup Scenario
----------------------------------------------------------------------------------------------------------------
R-410A full cost recovery with amended energy standards full recovery of increased cost
-----------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base ---------------------------------------
case 1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
INPV.................................. (2006$ millions)........ 305 30 30 306 30 308 30 314
5 3 0 4
Change in INPV........................ (2006$ millions)........ ...... (0 (2 1 (5 3 (1 9
) ) ) )
(%)..................... ...... -0 -0 0.2 -1 0.9 -0 3.1
.1 .8 .5 .2
R-410A Equipment Conversion Expenses * (2006$ millions)........ 14.0 .. .. ...... .. ...... .. ......
R-410A Capital Conversion Expenses *.. (2006$ millions)........ 7.0 .. .. ...... .. ...... .. ......
Amended Energy Conservation Standards (2006$ millions)........ ...... 4. 7. 6.1 10 7.0 13 17.5
Equipment Conversion Expenses. 4 2 .3 .1
Amended Energy Conservation Standards (2006$ millions)........ ...... 3. 5. 4.7 7. 5.4 10 13.5
Capital Conversion Expenses. 4 6 9 .1
-----------------------------------------------
Total Investment Required **...... (2006$ millions)........ ...... 28 33 31.9 39 33.4 44 52.2
.8 .8 .2 .3
----------------------------------------------------------------------------------------------------------------
* Equipment conversion expenses and capital conversion expenses for converting PTACs and PTHPs to R-410A are
made in 2009 and accounted for in the base case.
** Total investment calculates both the equipment conversion expenses and the capital investments necessary for
both converting PTACs and PTHPs to R-410A and complying with amended energy conservation standards.

[[Page 18894]]

Table V.15.--Manufacturer Impact Analysis for Standard Size PTACs and PTHPs Under the Partial Cost Recovery
Markup Scenario
----------------------------------------------------------------------------------------------------------------
R-410A base case full cost recovery with amended energy standards partial cost recovery
-----------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base ---------------------------
case 1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
INPV........................................ (2006$ millions).............. 305 26 25 25 24 23 21 13
8 7 0 9 6 0 9
Change in INPV.............................. (2006$ millions).............. ...... (3 (4 (5 (5 (6 (9 (1
7) 8) 5) 6) 9) 5) 66
)
(%)........................... ...... -1 -1 -1 -1 -2 -3 -5
2. 5. 8. 8. 2. 1. 4.
1 7 1 3 7 2 5
R-410A Equipment Conversion Expenses *...... (2006$ millions).............. 14.0 .. .. .. .. .. .. ..
R-410A Capital Conversion Expenses *........ (2006$ millions).............. 7.0 .. .. .. .. .. .. ..
Amended Energy Conservation Standards (2006$ millions).............. ...... 4. 7. 6. 10 7. 13 17
Equipment Conversion Expenses. 4 2 1 .3 0 .1 .5
Amended Energy Conservation Standards (2006$ millions).............. ...... 3. 5. 4. 7. 5. 10 13
Capital Conversion Expenses. 4 6 7 9 4 .1 .5
-----------------------------------
Total Investment Required **............ (2006$ millions).............. ...... 28 33 31 39 33 44 52
.8 .8 .9 .2 .4 .3 .2

----------------------------------------------------------------------------------------------------------------
* Equipment conversion expenses and capital conversion expenses for converting PTACs and PTHPs to R-410A are
made in 2009 and accounted for in the base case.
** Total investment calculates both the equipment conversion expenses and the capital investments necessary for
both converting PTACs and PTHPs to R-410A and complying with amended energy conservation standards.

For the results shown above, DOE examined only the impacts of
amended energy conservation standards on the INPV. The results shown
assume that manufacturers are able to recover all of costs associated
with the conversion to R-410A refrigerant, which allows DOE to examine
the impacts of the refrigerant phase-out separately in the cumulative
regulatory burden analysis. DOE also estimated the impacts of amended
energy conservation standards when manufacturers were only able to
recover part of the costs associated with the conversion to R-410A and
presented the results in the TSD. See Chapter 13 of the TSD for a
complete summary of results including the cumulative regulatory burden
analysis.
At TSL 1, the impact on INPV and cash flow varies greatly depending
on the manufacturers and their ability to pass on increases in MPCs to
the customer. DOE estimated the impacts in INPV at TSL 1 to range from
less than -$1 million up to -$37 million, or a change in INPV of
negative 0.1 percent up to negative 12.1 percent. At this level, the
industry cash flow decreases by approximately 25 percent, to $9
million, compared to the base case value of $12 million in the year
leading up to the standards. Since more than 75 percent of PTAC and
PTHP market is at or above the efficiency levels specified by TSL 1
using the R-22 refrigerant, those manufacturers that do not fall below
the efficiency levels specified by TSL 1 after the refrigerant phase-
out will not have to make additional modifications to their product
lines to conform to the amended energy conservation standards. DOE
expects the lower end of the impacts to be reached, which indicates
that industry revenues and costs are not significantly negatively
impacted as long as manufacturers are able to recover fully the
increase in manufacturer production cost from the customer.
At TSL 2, the impact on INPV and cash flow would be similar to TSL
1 and dependent on whether manufacturers are able to recover fully the
increases in MPCs from the customer. DOE estimated the impacts in INPV
at TSL 2 to range from -$2 million up to -$48 million, or a change in
INPV of -0.8 percent up to -15.7 percent. At this level, the industry
cash flow decreases by approximately 33 percent, to $8 million,
compared to the base case value of $12 million in the year leading up
to the standards. Up to 75 percent of PTACs and up to 50 percent of
PTHPs being sold are already at or above this level using R-22
refrigerant. Similar to TSL 1 for PTACs, manufacturers whose equipment
does not fall below the efficiency levels specified by TSL 1 after the
refrigerant phase-out will not have to make additional modifications to
their product lines to conform to TSL 2. For PTHPs, the required higher
level of efficiency will cause some manufactures to make additional
modifications to their product lines to conform to the amended energy
conservation standards. These additional plant and product
modifications are estimated in the capital and product conversion costs
shown in Tables V.14 and V. 15. Even though TSL 2 requires efficiency
levels that are different for PTACs and PTHPs, there are small
differences between the EER values for a given capacity in sleeve size,
which will minimize the amount of redesign manufacturers will have to
undertake to modify their product lines. DOE expects the impacts of TSL
2 on manufacturers of standard size PTACs will be greater than TSL 1,
but the magnitude of impacts largely depends on the ability of
manufacturers to recover fully the increase in MPC from the customer
and minimize the level of redesign between the two efficiency levels.
At TSL 3, the impact on INPV and cash flow continues to vary
depending on the manufacturers and their ability to pass on increases
in MPCs to the customer. DOE estimated the impacts in INPV at TSL 3 to
range from approximately positive $1 million to -$55 million, or a
change in INPV of 0.2 percent to -18.1 percent. At this level, the
industry cash flow decreases by approximately 33 percent, to $8
million, compared to the base case value of $12 million in the year
leading up to the standards. Currently the bulk of the equipment being
sold is already at or above this level using R-22 refrigerant. DOE does
not expect industry revenues and costs to be impacted significantly as
long as standard size PTAC and PTHP manufacturers are able the increase
in manufacturer production cost from the customer. The positive INPV
value is explained by increases in MSP due to higher costs of R-410A
equipment, which DOE assumed under this scenario

[[Page 18895]]

that manufacturers would be able to recover fully the investments
needed for conversion to R-410A. See Chapter 13 of the TSD for
additional details of each markup scenario.
At TSL 4, DOE estimated the impacts in INPV to range from
approximately -$5 million to -$56 million, or a change in INPV of -1.5
percent up to -18.3 percent. At this level, the industry cash flow
decreases by approximately 50 percent, to $6 million, compared to the
base case value of $12 million in the year leading up to the standards.
At higher TSLs, manufacturers have a harder time fully passing on
larger increases in MPCs to the customer. At to TSL 4, manufacturers
are concerned about whether they will be able to produce PTHPs, by the
effective date of the standard, that use R-410A refrigerant. Using the
performance degradations from the engineering analysis, TSL 4 for PTHPs
using R-410A would correspond to the ``max-tech'' efficiency levels for
PTHPs unless higher efficiency compressors enter the market prior to
the effective date of an amended energy conservation standard. Based on
information submitted by industry, manufacturers would be required to
redesign completely their PTHP equipment lines. Since most
manufacturers only manufacture one product line, and combine their R&D
efforts for PTACs and PTHPs into one design, manufacturers would likely
choose to redesign their entire equipment offering. Similar to TSL 1,
for PTACs, manufacturers that do not fall below TSL 1 after the
refrigerant phase-out will not have to make additional modifications to
their PTAC equipment lines to conform to TSL 4. Due to the disparity
between efficiency levels of standard size PTACs and PTHPs specified by
TSL 4, DOE initially believes that it is more likely that the higher
end of the range of impacts could be reached (i.e., a drop of 18.3
percent in INPV).
At TSL 5, DOE estimated the impacts in INPV to range from
approximately $3 million up to -$69 million, or a change in INPV of
approximately 1 percent up to -22.7 percent. At this level, the
industry cash flow decreases by approximately 33 percent, to $8
million, compared to the base case value of $12 million in the year
leading up to the standards. As with TSL 4, standard size PTAC and PTHP
manufacturers continue to have a hard time fully passing on larger
increases in MPCs to the customer. At TSL 5, manufacturers stated their
concerns over the ability to be able to produce both PTACs and PTHPs by
the effective date of the standard utilizing R-410A refrigerant. Using
the performance degradations from the engineering analysis, TSL 5 would
correspond to the ``max-tech'' efficiency levels for both PTACs and
PTHPs using R-410A unless higher efficiency compressors enter the
market prior to the effective date of an amended energy conservation
standard. Based on information submitted by industry, the majority of
manufacturers would require a complete redesign of their equipment.
Thus, DOE believes it is likely that the higher range of the impacts
could be reached.
At TSL 6, DOE estimated the impacts in INPV to range from -$1
million up to -$95 million, or a change in INPV of approximately -0.2
percent up to -31.2 percent. At this level, the industry cash flow
decreases by approximately 66 percent, to $4 million, compared to the
base case value of $12 million in the year leading up to the standards.
At higher TSLs, manufacturers have a harder time fully passing on
larger increases in MPCs to the customer, and therefore manufacturers
expect the higher end of the range of impacts to be reached (i.e., a
drop of 31.2 percent in INPV). TSL 6 requires the production of
standard size PTACs and PTHPs using R-410A that are not currently
available on the market today assuming the system performance
degradations estimated in the engineering analysis. If manufacturers do
not have the ability to integrate a high efficiency R-410A compressor
into the PTACs and PTHPs, the impacts could be greater than
characterized by DOE's MIA analysis.
At TSL 7 (max tech), DOE estimated the impacts in INPV to range
from $9 million up to -$166 million, or a change in INPV of
approximately 3 percent up to -54.5 percent. At this level, the
industry cash flow decreases by approximately 92 percent, to $1
million, compared to the base case value of $12 million in the year
leading up to the standards. At higher TSLs, manufacturers have a
harder time fully passing on larger increases in MPCs to the customer,
and therefore manufacturers expect the higher end of the range of
impacts to be reached (i.e., a drop of 31.2 percent in INPV).
Currently, there is only one model being manufactured at these
efficiency levels, which uses R-22 refrigerant. Most manufacturers did
not provide DOE with projected equipment conversion costs or capital
conversion costs at this level, since they could not conceive of what
designs using R-410A might achieve this efficiency level. The industry
would experience an increase in net present value if it were able to
fully pass through to customers the increase in production costs
associated with meeting new amended energy conservation standards.
However, there is a risk of very large negative impacts if
manufacturers' expectations are realized about reducing profit margins.
During the interviews, manufacturers expressed disbelief at the
possibility of manufacturing an entire equipment line at the max-tech
levels using R-410A refrigerant.
ii. Non-Standard Size PTACs and PTHPs
Table V.16 and Table V.17 shows the MIA results for each TSL using
both markup scenarios described above for non-standard size PTACs and
PTHPs.\34\
---------------------------------------------------------------------------

\34\ The MIA estimates the impacts on non-standard size
manufacturers of equipment in the entire range of cooling capacities
(i.e., the MIA results in Tables V.15 and V.16 take into
consideration the impacts on manufacturers of equipment from all 6
non-standard size equipment classes).

Table V.16.--Manufacturer Impact Analysis for Non-Standard Size PTACs and PTHPs Under Full Cost Recovery Markup
Scenario
----------------------------------------------------------------------------------------------------------------
R-410A full cost recovery with amended energy standards full recovery of increased cost
-----------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base ---------------------------
case 1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
INPV........................................ (2006$ millions).............. 28 25 22 23 18 21 18 16
Change in INPV.............................. (2006$ millions).............. ...... (2 (5 (4 (9 (7 (9 (1
) ) ) ) ) ) 1)
(%)........................... ...... -7 -1 -1 -3 -2 -3 -4
.7 8. 5. 4. 4. 2. 0.
5 7 2 6 9 6

[[Page 18896]]

R-410A Equipment Conversion Expenses *...... (2006$ millions).............. 0.6 .. .. .. .. .. .. ..
R-410A Capital Conversion Expenses *........ (2006$ millions).............. 7.0 .. .. .. .. .. .. ..
Amended Energy Conservation Standards (2006$ millions).............. ...... 2. 6. 5. 10 8. 11 15
Equipment Conversion Expenses. 5 3 6 .6 8 .9 .0
Amended Energy Conservation Standards (2006$ millions).............. ...... 1. 2. 1. 3. 2. 3. 3.
Capital Conversion Expenses. 3 2 9 5 6 2 9
-----------------------------------
Total Investment Required **............ (2006$ millions).............. ...... 11 16 15 21 18 22 26
.4 .1 .1 .7 .9 .7 .5

Table V.17.--Manufacturer Impact Analysis for Non-Standard Size PTACs and PTHPs Under the Partial Cost Recovery
Markup Scenario
----------------------------------------------------------------------------------------------------------------
R-410A Base case full cost recovery with amended energy standards partial cost recovery
-----------------------------------------------------------------------------------------------------------------
Trial standard level
Units Base ---------------------------
case 1 2 3 4 5 6 7
----------------------------------------------------------------------------------------------------------------
INPV........................................ (2006$ millions).............. 28 23 20 20 15 17 13 7
Change in INPV.............................. (2006$ millions).............. ...... (4 (7 (7 (1 (1 (1 (2
) ) ) 2) 0) 5) 1)
(%)........................... ...... -1 -2 -2 -4 -3 -5 -7
4. 6. 5. 3. 7. 3. 4.
8 9 7 9 5 4 7
R-410A Equipment Conversion Expenses *...... (2006$ millions).............. 0.6 .. .. .. .. .. .. ..
R-410A Capital Conversion Expenses *........ (2006$ millions).............. 7.0 .. .. .. .. .. .. ..
Amended Energy Conservation Standards (2006$ millions).............. ...... 2. 6. 5. 10 8. 11 15
Equipment Conversion Expenses. 5 3 6 .6 8 .9 .0
Amended Energy Conservation Standards (2006$ millions).............. ...... 1. 2. 1. 3. 2. 3. 3.
Capital Conversion Expenses. 3 2 9 5 6 2 9
-----------------------------------
Total Investment Required **............ (2006$ millions).............. ...... 11 16 15 21 18 22 26
.4 .1 .1 .7 .9 .7 .5

[[Page 18897]]

At TSL 2, DOE estimated the impacts in INPV to range from -$5
million up to -$7 million, or a change in INPV of -18.5 percent up to -
26.9 percent. At this level, the industry cash flow decreases by
approximately 150 percent, -$1 million, compared to the base case value
of $2 million in the year leading up to the standards. At this level,
the majority of the industry is impacted. At higher TSLs, manufacturers
have a harder time fully passing on larger increases in MPCs to the
customer, thus manufacturers expect the higher end of the range of
impacts to be reached (i.e., a drop of 26.9 percent in INPV).
At TSL 3, DOE estimated the impacts in INPV to range from -$4
million up to -$7 million, or a change in INPV of -15.7 percent up to -
25.7 percent. At this level, the industry cash flow decreases by
approximately 150 percent, -$1 million, compared to the base case value
of $2 million in the year leading up to the standards. At higher TSLs,
manufacturers continue to have a hard time fully passing on larger
increases in MPCs to the customer, thus manufacturers expect the higher
end of the range of impacts to be reached (i.e., a drop of 25.7 percent
in INPV). Manufacturers stated that the level of re-design required to
manufacture all the equipment lines and cooling capacity ranges would
be so extensive that they would consider not investing the time,
research, or development efforts necessary to make equipment utilizing
R-410A at TSL 3.
At TSL 4, DOE estimated the impacts in INPV to range from -$9
million up to -$12 million, or a change in INPV of -34.2 percent up to
-43.9 percent. At this level, the industry cash flow decreases by
approximately 250 percent, -$3 million, compared to the base case value
of $2 million in the year leading up to the standards. At TSL 4,
manufacturers stated their concerns over the ability to be able to
produce PTHPs by the effective date of the standard utilizing R-410A
refrigerant. Using the performance degradations from the engineering
analysis, TSL 4 for PTHPs would correspond to the ``max-tech''
efficiency levels for PTHPs unless higher efficiency compressors enter
the market prior to the effective date of an amended energy
conservation standard. Based on information submitted by industry,
manufacturers would be required to redesign completely their PTHP
equipment lines.
At TSL 5, DOE estimated the impacts in INPV to range from -$7
million up to -$10 million, or a change in INPV of -24.6 percent up to
-37.5 percent. At this level, the industry cash flow decreases by
approximately 200 percent, -$2 million, compared to the base case value
of $2 million in the year leading up to the standards. Using the
performance degradations from the engineering analysis, TSL 5 for PTACs
and PTHPs would correspond to the ``max-tech'' efficiency levels for
PTHPs unless higher efficiency compressors enter the market prior to
the effective date of an amended energy conservation standard.
At TSL 6, DOE estimated the impacts in INPV to range from -$9
million up to -$15 million, or a change in INPV of -32.9 percent up to
-53.4 percent. At this level, the industry cash flow decreases by
approximately 300 percent, -$4 million, compared to the base case value
of $2 million in the year leading up to the standards.
At TSL 5 and 6, manufacturers stated their concerns over the
ability to be able to produce this equipment by the effective date of
the standard utilizing R-410A. Based on information submitted by
industry, manufacturers would require a complete redesign of their non-
standard PTAC and PTHP platforms. Many manufacturers stated they would
be unwilling to redesign completely non-standard size equipment because
of the small size of the market and the declining sales. Manufacturers
also commented non-standard size PTACs and PTHPs are manufactured to
order based on unique building designs for replacement applications.
Therefore, manufacturers did not see the advantage to completely
redesigning non-standard size PTACs and PTHPs in small and declining
market.
At TSL 7, DOE estimated the impacts in INPV to range from -$11
million up to -$21 million, or a change in INPV of -40.6 percent up to
-74.7 percent. At this level, the industry cash flow decreases by
approximately 350 percent, -$5 million, compared to the base case value
of $2 million in the year leading up to the standards. During their MIA
interviews, all manufacturers stated that this level is simply not
achievable with current technologies after the refrigerant phase-out.
In addition, some manufacturers would not provide equipment conversion
cost or capital conversion costs at this level, since they could not
conceive what designs might reach this efficiency level.
Lastly, non-standard size manufacturers stated great concern over
the amplification of impacts if ASHRAE/IESNA Standard 90.1-1999
definitions are adopted by DOE and their equipment lines are reduced.
Several manufacturers believe the ASHRAE/IESNA Standard 90.1-1999
definitions would cause up to 50 percent of their equipment lines to be
misclassified. Consequently, this equipment would be required to meet
the higher energy conservation standards for standard size equipment,
which manufacturers do not believe is attainable with non-standard size
equipment. If manufacturers' expectations were reached with a declining
equipment offering, the INPV and cash flow impacts of the declining
industry as estimated by the MIA would be further negatively affected.
b. Cumulative Regulatory Burden
While any one regulation may not impose a significant burden on
manufacturers, the combined effects of several impending regulations
may have serious consequences for some manufacturers, groups of
manufacturers, or an entire industry. Assessing the impact of a single
regulation may overlook this cumulative regulatory burden.
As previously mentioned, all PTAC and PTHP manufacturers believe
that the refrigerant phase-out will be the biggest external burden on
manufacturers. DOE took all comments and concerns into consideration
and examined different impacts the refrigerant phase-out would have on
standard and non-standard size PTAC and PTHP industries. DOE first
examined the possible impacts on INPV from converting current
production of R-22 equipment into R-410A equipment. DOE then examined
the possible impacts of amended energy conservation standards on the R-
410A base case. In other words, DOE examined the cumulative impacts of
both R-410A conversion and compliance with the proposed energy
conservation standards (see Chapter 13 of the TSD). Table V.18 and
Table V.19 show the changes in INPV because of conversion to R-410A in
2012 on the base case (i.e., the shipments forecast in the absence of
amended mandatory energy conservation standards beyond the levels in
ASHRAE/IESNA Standard 90.1-1999). For the results presented in the two
tables below, DOE assumed manufacturers would be able to cover fully
any increase in manufacturing costs associated with the conversion to
R-410A in 2010. DOE also estimated the impacts on the base case from
the R-410A conversion if manufacturers were not able to recover fully
the increases in MPCs and displayed the results in Chapter 13 of the
TSD. In general, if manufacturers were not able to recover fully the
increases in MPC because of the R-410A conversion, the impacts on the
base case would be amplified.

[[Page 18898]]

Table V.18.--Changes in Industry Net Present Value for Standard Size
PTACs and PTHPs From R-410A Conversion
------------------------------------------------------------------------
Energy conservation standards
flat markup
--------------------------------
TSL Change in INPV from
base case
INPV $MM ---------------------
$MM % Change
------------------------------------------------------------------------
Base Case (R-22 only).................. 298 ......... .........
Base Case (R-22 with R-410A Conversion) 305 7 2.3%
------------------------------------------------------------------------

Table V.19.--Changes in Industry Net Present Value for Non-Standard Size
PTACs and PTHPs From R-410A Conversion
------------------------------------------------------------------------
Energy conservation standards
flat markup
--------------------------------
TSL Change in INPV from
base case
INPV $MM ---------------------
$MM % Change
------------------------------------------------------------------------
Base Case (R-22 only).................. 32 ......... .........
Base Case (R-22 with R-410A Conversion) 28 (4) -12.5%
------------------------------------------------------------------------

c. Impacts on Employment
DOE estimated industry-wide labor expenditures based on the
engineering analysis. Coil fabrication; tube cutting and soldering;
electronic connection assembly; package assembly; testing and packing
of the completed PTAC or PTHP represent the bulk of the labor. DOE
estimated the amount of labor needed to perform these functions, and
incorporated these estimates into the GRIM, which projects labor
expenditures annually. Under the GRIM, total labor expenditures are a
function of the labor intensity in manufacturing equipment, the sales
volume, and the unit cost of labor (i.e., the wage rate), which remains
fixed in real terms over time. Table V.20 and Table V.21 provide DOE's
estimate of the changes in labor measured as the change in labor
expenditures for standard and non-standard size PTACs and PTHPs in
2012, the date DOE expects the amended energy conservation standard to
become effective, compared to the base case.

Table V.20.--Projected Change in Labor Expenditures, Standard Size PTACs and PTHPs (2012)
----------------------------------------------------------------------------------------------------------------
Trial standard levels
-----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
+1.9%................................................. +2.4% +3.0% +2.9% +4.3% +5.7% +11.5%
----------------------------------------------------------------------------------------------------------------

Table V.21.--Projected Change in Labor Expenditures, Non-Standard Size PTACs and PTHPs (2012)
----------------------------------------------------------------------------------------------------------------
Trial standard levels
-----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
+1.8%................................................... +2.2% +2.7% +2.6% +3.7% +7.3% +11.6%
----------------------------------------------------------------------------------------------------------------

Based on these results, DOE expects no significant discernable
direct employment impacts among standard and non-standard size PTAC and
PTHP manufacturers for TSL1 through TSL 7. This conclusion is
independent of any conclusions regarding employment impacts in the
broader United States economy, which are documented in Chapter 15 of
the TSD. This conclusion also ignores the possible relocation of
domestic employment to lower-labor-cost countries. Manufacturers stated
their concerns, throughout the interviews, about increasing offshore
competition entering the market over the past five years.
d. Impacts on Manufacturing Capacity
According to the majority of standard and non-standard size PTAC
and PTHP manufacturers, amended energy conservation standards will not
significantly affect the manufacturer's production capacity. Any
necessary redesign of PTACs and PTHPs will not change the fundamental
assembly of the equipment. However, manufacturers anticipate some
minimal changes to the assembly line due to the conversion to R-410A
refrigerant. Because of the properties of R-410A refrigerant, the
assembly line will need to give special attention to creating vacuums
within each unit's chambers, and additional assembly will be needed if
the number of fan motors increases. DOE believes manufacturers will be
able to maintain production capacity levels and continue

[[Page 18899]]

to meet market demand under amended energy conservation standards.
e. Impacts on Subgroups of Manufacturers
As discussed above, using average cost assumptions to develop an
industry cash flow estimate is not adequate for assessing differential
impacts among subgroups of manufacturers. Small manufacturers, niche
players, or manufacturers exhibiting a cost structure that differs
largely from the industry average could be affected differently. DOE
used the results of the industry characterization to group
manufacturers exhibiting similar characteristics.
DOE evaluated the impact of amended energy conservation standards
on small businesses, as defined by the SBA for the PTAC and PTHP
manufacturing industry as manufacturing enterprises with 750 or fewer
employees. DOE shared the interview guides with small PTAC and PTHP
manufacturers and tailored specific questions for these manufacturers.
During DOE's interviews with small manufacturers, they provided
information, which suggested that the impacts of standards on them
would not differ from impacts on larger companies within the industry.
(See TSD, Chapter 13.)
3. National Impact Analysis
a. Amount and Significance of Energy Savings
Table V.22 shows the forecasted national energy savings for all the
equipment classes of PTACs and PTHPs at each of the TSLs. DOE estimated
the national energy savings using the AEO2007 energy price forecast.
The table also shows the magnitude of the energy savings if the savings
are discounted at rates of 7 percent and 3 percent. Each TSL considered
in this rulemaking would result in significant energy savings, and the
amount of savings increases with higher energy conservation standards.
(See TSD, Chapter 11.)

Table V.22.--Summary of Cumulative National Energy Savings for PTACs and PTHPs (Energy Savings for Units Sold
From 2012 to 2042)
----------------------------------------------------------------------------------------------------------------
Primary national energy savings (quads) (sum
of all equipment classes)
Trial standard level -----------------------------------------------
Undiscounted 3% Discounted 7% Discounted
----------------------------------------------------------------------------------------------------------------
1............................................................... 0.008 0.005 0.002
2............................................................... 0.014 0.008 0.004
3............................................................... 0.017 0.009 0.004
4............................................................... 0.019 0.010 0.005
5............................................................... 0.027 0.014 0.007
6............................................................... 0.038 0.021 0.010
7............................................................... 0.086 0.046 0.023
----------------------------------------------------------------------------------------------------------------

DOE reports both undiscounted and discounted values of energy
savings. There is evidence that each TSL that is more stringent than
the corresponding level in ASHRAE/IESNA Standard 90.1-1999 results in
additional energy savings, ranging from 0.008 quads to 0.086 quads for
TSLs 1 through 7. For example, the estimated energy savings for TSL 4
is equivalent to the electricity used annually by approximately 4,000
motels.\35\
---------------------------------------------------------------------------

\35\ Energy Information Agency. http://www.eia.doe.gov/emeu/
cbecs/cbecs2003/detailed_tables_2003/2003set1/2003pdf/b1.pdf. June
2006.
---------------------------------------------------------------------------

b. Net Present Value
The NPV analysis is a measure of the cumulative benefit or cost of
standards to the Nation. Tables V.23 and V.24 provide an overview of
the NPV results.

Table V.23.--Summary of Cumulative Net Present Value for PTACs
------------------------------------------------------------------------
NPV* (billion 2006$)
-------------------------------
Trial standard level 7% discount 3% discount
rate rate
------------------------------------------------------------------------
1....................................... $0.000 $0.005
2....................................... 0.000 0.005
3....................................... (0.001) 0.007
4....................................... 0.000 0.005
5....................................... (0.006) 0.005
6....................................... (0.014) (0.000)
7....................................... (0.066) (0.071)
------------------------------------------------------------------------
* Numbers in parentheses indicate negative NPV, i.e., a net cost.

Table V.24.--Summary of Cumulative Net Present Value for PTHPs
------------------------------------------------------------------------
NPV* (billion 2006$)
-------------------------------
Trial standard level 7% discount 3% discount
rate rate
------------------------------------------------------------------------
1....................................... $0.006 $0.021
2....................................... 0.014 0.043
3....................................... 0.014 0.043
4....................................... 0.016 0.056
5....................................... 0.016 0.056
6....................................... 0.010 0.052
7....................................... (0.001) 0.074
------------------------------------------------------------------------
* Numbers in parentheses indicate negative NPV, i.e., a net cost.

Use of a 3 percent discount rate increases the present value of
future equipment-purchase costs and operating cost savings. Because
annual operating cost savings in later years grow at a faster rate than
annual equipment purchase costs, use of a 3 percent discount rate
increases the NPV at most TSLs. (See TSD, Chapter 11.)
c. Impacts on Employment
DOE develops estimates of the indirect employment impacts of
proposed standards in the economy in general. As discussed above, DOE
expects energy conservation standards for PTACs and PTHPs to reduce
energy bills for commercial customers, and the resulting net savings to
be redirected to other forms of economic activity. DOE

[[Page 18900]]

also realizes that these shifts in spending and economic activity could
affect the demand for labor. To estimate these effects, DOE used an
input/output model of the U.S. economy using BLS data (as described in
section IV.J). (See TSD, Chapter 15.)
This input/output model suggests the proposed PTAC and PTHP energy
conservation standards are likely to increase the net demand for labor
in the economy. Neither the BLS data nor the input/output model used by
DOE includes the quality or wage level of the jobs. As shown in Table
V.25, DOE estimates that net indirect employment impacts from a
proposed PTAC and PTHP standards are likely to be very small. The net
increase in jobs is so small that it would be imperceptible in national
labor statistics and might be offset by other, unanticipated effects on
employment.

Table V.25.--Net National Change in Indirect Employment, Jobs in 2042
------------------------------------------------------------------------
Net national change in jobs
(number of jobs)
Trial standard level -------------------------------
PTACs PTHPs
------------------------------------------------------------------------
1....................................... 11 20
2....................................... 11 40
3....................................... 24 40
4....................................... 11 62
5....................................... 44 62
6....................................... 69 82
7....................................... 147 195
------------------------------------------------------------------------

4. Impact on Utility or Performance of Equipment
In performing the engineering analysis, DOE considered design
options that would not lessen the utility or performance of the
individual classes of equipment. (42 U.S.C. 6316(a); 42 U.S.C.
6295(o)(2)(B)(i)(IV)) As presented in section III.D.4, of this notice,
DOE concluded that none of the efficiency levels proposed for standard
size and non-standard size equipment in this notice will reduce the
utility or performance of PTACs and PTHPs except the small fraction of
the market that is potentially misclassified under ASHRAE/IESNA
Standard 90.1-1999. PTAC and PTHP manufacturers currently offer
equipment that meet or exceed the proposed standard levels. As detailed
in section IV.A.2 above, DOE recognizes ARI's concerns regarding non-
standard size equipment and the possible misclassification under the
definitions established by ASHRAE/IESNA Standard 90.1-1999. If ASHRAE
is able to adopt Addendum t to ASHRAE/IESNA Standard 90.1-2007 prior to
September 2008, DOE proposes to incorporate the modified definition in
the final rule to help alleviate manufacturers concerns about reduced
product availability.
5. Impact of Any Lessening of Competition
EPCA directs DOE to consider any lessening of competition that is
likely to result from standards. It directs the Attorney General to
determine in writing the impact, if any, of any lessening of
competition likely to result from a proposed standard. (42 U.S.C.
6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(V)) To assist the Attorney General
in making such a determination, DOE has provided the Department of
Justice (DOJ) with copies of this notice and the TSD for review. DOE
found that numerous foreign manufacturers have entered the standard
size PTAC and PTHP market over the past several years. DOE believes
this will continue to happen in this market regardless of the proposed
standard level chosen.
6. Need of the Nation To Conserve Energy
Increasing the energy efficiency of PTACs and PTHPs promotes the
Nation's energy security by reducing overall demand for energy, and
thus reducing the Nation's reliance on foreign sources of energy.
Reduced demand also may improve the reliability of the Nation's
electricity system, particularly during peak-load periods. As a measure
of this reduced demand, DOE expects the proposed standards to eliminate
the need for the construction of new power plants with approximately 81
megawatts (MW) electricity generation capacity in 2042.
Enhanced energy efficiency also produces environmental benefits.
The expected energy savings from higher [PTAC and PTHP] standards will
reduce the emissions of air pollutants and greenhouse gases associated
with fossil fuel use as well as other energy-related environmental
impacts. Table V.26 shows cumulative CO2, NOX,
and Hg emissions reductions for all the [PTAC and PTHP] equipment
classes over the forecast period. The cumulative CO2,
NOX and Hg emission reductions range up to 6.13 Mt, 0.53 kt,
and -0.04 t, respectively, for PTACs and 6.94 Mt, 0.40 kt, and -0.03 t,
respectively, for PTHPs. In Chapter 16 of the TSD, DOE reports annual
changes in CO2, NOX and Hg emissions attributable
to each TSL. As discussed in section IV.L, DOE does not report
SO2 emissions reduction from power plants because such
reduction from an energy conservation standard would not affect the
overall level of SO2 emissions in the United States due to
the caps on power plant emissions of SO2.
The impact of these NOX emissions will be affected by
the Clean Air Interstate Rule (CAIR) issued by the U.S. Environmental
Protection Agency on March 10, 2005.\36\ 70 FR 25162 (May 12, 2005).
CAIR will permanently cap emissions of NOX in 28 eastern
States and the District of Columbia. As with SO2 emissions,
a cap on NOX emissions means that equipment energy
conservation standards are not likely to have a physical effect on
NOX emissions in States covered by the CAIR caps. Therefore,
while the emissions cap may mean that physical emissions reductions in
those States will not result from standards, standards could produce an
environmental-related economic benefit in the form of lower prices for
emissions allowance credits. However, as with SO2 allowance
prices, DOE does not plan to monetize this benefit for those States
because the impact on the NOX allowance price from any
single energy conservation standard is likely to be small and highly
uncertain. DOE seeks comment on how it might value NOX
emissions for the 22 States not covered under CAIR.
---------------------------------------------------------------------------

\36\ See http://www.epa.gov/cleanairinterstaterule/.
---------------------------------------------------------------------------

With regard to mercury emissions, DOE is able to report an estimate
of the physical quantity changes in mercury emissions associated with
an energy conservation standard. Based on the NEMS-BT modeling, Hg
emissions generally decline out to 2020 or 2025. However, there is a
slight Hg increase by 2030, depending on the TSL level and the
equipment type. These changes in Hg emissions, as shown in Table V.26,
are extremely small, i.e., none of the changes come close to
approaching a 1 percent change in annual emissions. The NEMS-BT model
accounts for a wide variety of factors. One possible reason for the Hg
emissions increase could be due to emissions banking. The NEMS-BT model
assumed that power plant operators would be permitted to bank emission
allowances from years in which they release fewer emissions than the
maximum permitted. Power plant operators may then release more
emissions than permitted by their allowances in a later year.
The NEMS-BT model assumed that these emissions would be subject to
EPA's Clean Air Mercury Rule \37\ (CAMR), which would permanently cap
emissions of mercury for new and existing coal-fired plants in all
States by 2010. Similar to SO2 and NOX, DOE
assumed that under such system, energy

[[Page 18901]]

conservation standards would result in no physical effect on these
emissions, but would be expected to result in an environmental-related
economic benefit in the form of a lower price for emissions allowance
credits. DOE's plan for addressing analysis does not include monetizing
the benefits of reduced mercury emissions, because DOE considered that
valuation of such impact from any single energy conservation standard
would likely be small and highly uncertain.
---------------------------------------------------------------------------

\37\ 70 FR 28606 (May 18, 2005).
---------------------------------------------------------------------------

On February 8, 2008, the U.S. Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) issued its decision in State of New
Jersey, et al. v. Environmental Protection Agency,\38\ in which the
Court, among other actions, vacated the CAMR referenced above.
Accordingly, DOE is considering whether changes are needed to its plan
for addressing the issue of mercury emissions in light of the D.C.
Circuit's decision. DOE invites public comment on addressing mercury
emissions in this rulemaking.
---------------------------------------------------------------------------

\38\ No. 05-1097, 2008 WL 341338, at *1 (D.C. Cir. Feb. 8,
2008).

Table V.26.--Summary of Emissions Reductions for [PTAC and PTHP] (Cumulative reductions for equipment sold from
2012 to 2042)
----------------------------------------------------------------------------------------------------------------
Trial standard levels
----------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
Emissions reductions for PTACs*
----------------------------------------------------------------------------------------------------------------
CO2 (Mt)........................... 0.50 0.50 1.06 0.50 1.83 2.95 6.13
NOX (kt)........................... 0.04 0.04 0.09 0.04 0.16 0.26 0.53
Hg (t)............................. 0.00 0.00 -0.01 0.00 -0.01 -0.02 -0.04
----------------------------------------------------------------------------------------------------------------
Emissions reductions for PTHPs*
----------------------------------------------------------------------------------------------------------------
CO2 (Mt)........................... 0.73 1.49 1.49 2.19 2.19 3.00 6.94
NOX (kt)........................... 0.04 0.08 0.08 0.12 0.12 0.13 0.40
Hg (t)............................. 0.00 -0.01 -0.01 -0.01 -0.01 -0.02 -0.03
----------------------------------------------------------------------------------------------------------------
* Negative values indicate emission increases.

DOE is considering taking into account a monetary benefit of
CO2 emission reductions associated with this rulemaking.
During the preparation of its most recent review of the state of
climate science, the Intergovernmental Panel on Climate Change (IPCC)
identified various estimates of the present value of reducing carbon-
dioxide emissions by one ton over the life that these emissions would
remain in the atmosphere. The estimates reviewed by the IPCC spanned a
range of values. In the absence of a consensus on any single estimate
of the monetary value of CO2 emissions, DOE used the
estimates identified by the study cited in Summary for Policymakers
prepared by Working Group II of the IPCC's Fourth Assessment Report to
estimate the potential monetary value of the CO2 reductions
likely to result from the standards under consideration in this
rulemaking.
To put the potential monetary benefits from reduced CO2
emissions into a form that is likely to be most useful to decision
makers and stakeholders, DOE used the same methods used to calculate
the net present value of consumer costs savings: The estimated year-by-
year reductions in CO2 emissions were converted into
monetary values ranging from the $0 and $14 per ton. These estimates
were based on an assumption of no benefit to an average benefit value
reported by the IPCC.\39\ The resulting annual values were then
discounted over the life of the affected appliances to the present
using both 3 percent and 7 percent discount rates. The resulting
estimates of the potential range of net present value benefits
associated with the reduction of CO2 emissions are reflected
in Table V.27.
---------------------------------------------------------------------------

\39\ According to the IPCC, the mean social cost of carbon (SCC)
reported in studies published in peer-reviewed journals was U.S. $43
per ton of carbon. This translates into about $12 per ton of carbon
dioxide. The literature review (Tol 2005) from which this mean was
derived did not report the year in which these dollars are
denominated. However, since the underlying studies spanned several
years on either side of 2000, the estimate is often treated as year
2000 dollars. Updating that estimate to 2007 dollars yields a SCC of
$14 per ton of carbon dioxide.

Table V.27.--Preliminary Estimates of Savings From CO2 Emissions Reductions Under Considered PTACs and PTHP
Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
Estimated CO2 (Mt) Value of estimated CO2 emission reductions
PTAC TSL emission reductions based on IPCC range (million $)
----------------------------------------------------------------------------------------------------------------
1......................................... 0.50 0 to 7.00
2......................................... 0.50 0 to 7.00
3......................................... 1.06 0 to 14.84
4......................................... 0.50 0 to 7.00
5......................................... 1.83 0 to 25.62
6......................................... 2.95 0 to 41.3
7......................................... 6.13 0 to 85.82
----------------------------------------------------------------------------------------------------------------

[[Page 18902]]

Table V.27.--Preliminary Estimates of Savings From CO2 Emissions Reductions Under Considered PTACs and PTHP
Trial Standard Levels--Continued
----------------------------------------------------------------------------------------------------------------
Estimated CO2 (Mt) Value of estimated CO2 emission reductions
PTHP TSL emission reductions based on IPCC range (million $)
----------------------------------------------------------------------------------------------------------------
1......................................... 0.73 0 to 10.22
2......................................... 1.49 0 to 26.64
3......................................... 1.49 0 to 26.64
4......................................... 2.19 0 to 30.66
5......................................... 2.19 0 to 30.66
6......................................... 3.00 0 to 42.00
7......................................... 6.94 0 to 97.16
----------------------------------------------------------------------------------------------------------------

DOE relied on the average of the IPCC reported estimate as an upper
bound on the benefits resulting from reducing each metric ton of U.S.
CO2 emissions. It is important to note that the estimate of
the upper bound value represents the value of worldwide impacts from
potential climate impacts caused by CO2 emissions, and are
not confined to impacts likely to occur within the U.S. In contrast,
most of the other estimates of costs and benefits of increasing the
efficiency of PTACs and PTHPs in this proposal include only the
economic values of impacts that would be experienced in the U.S. For
example, in determining impacts on manufacturers, DOE generally does
not consider impacts that occur solely outside of the U.S.
Consequently, as DOE considers a monetary value for CO2
emission reductions, the value might be restricted to a representation
of those cost/benefits likely to be experienced in the United States.
Currently, there are no estimated values for the U.S. benefits likely
to result from CO2 emission reductions. However, DOE expects
that, if such values were developed, DOE would use those U.S. benefit
values, and not world benefit values, in its analysis. DOE further
expects that, if such values were developed, they would be lower than
comparable global values. DOE invites public comment on the above
discussion of CO2.
7. Other Factors
The Secretary of Energy, in determining whether a standard is
economically justified, may consider any other factors that he/she
deems to be relevant. (42 U.S.C. 6316 (a); 42 U.S.C.
6295(o)(2)(B)(i)(VI)) The Secretary has decided to consider the impacts
of setting different amended energy conservation standards for PTACs
and PTHPs (i.e., setting an amended standard level for a given PTAC
cooling capacity, which would be significantly different from the
amended standard level for a PTHP with the same cooling capacity). In
addition, DOE also considered the uncertainties associated with the
impending refrigerant phase-out in 2010, including equipment
availability, compressor availability, and the available efficiencies
of R-410A PTACs and PTHPs.

C. Proposed Standard

1. Overview
EPCA, at 42 U.S.C. 6313(a)(6)(A)(ii)(II), specifies that, for any
commercial and industrial equipment addressed in section
342(a)(6)(A)(i) of EPCA, 42 U.S.C. 6313(a), DOE may prescribe an energy
conservation standard more stringent than the level for such equipment
in ASHRAE/IESNA Standard 90.1, as amended, only if ``clear and
convincing evidence'' shows that a more stringent standard ``would
result in significant additional conservation of energy and is
technologically feasible and economically justified.'' (42 U.S.C.
6313(a)(6)(A)(ii)(II)).
In selecting the proposed energy conservation standards for PTACs
and PTHPs for consideration in today's notice of proposed rulemaking,
DOE started by examining the maximum technologically feasible levels,
and determined whether those levels were economically justified. Upon
finding the maximum technologically feasible levels not to be
justified, DOE analyzed the next lower TSL to determine whether that
level was economically justified. DOE repeated this procedure until it
identified a TSL that was economically justified.
To aid the reader as DOE discusses the benefits and/or burdens of
each TSL, Table V.28 presents a summary of quantitative analysis
results for each TSL based on the assumptions and methodology discussed
above. This table presents the results or, in some cases, a range of
results, for each TSL, and will aid the reader in the discussion of
costs and benefits of each TSL. The range of values reported in this
table for industry impacts represents the results for the different
markup scenarios that DOE used to estimate manufacturer impacts.

Table V.28.--Summary of Results Based Upon the AEO2007 Energy Price Forecast *
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7
----------------------------------------------------------------------------------------------------------------
Primary energy saved (quads) 0.008 0.014 0.017 0.019 0.027 0.038 0.086
7% Discount rate............ 0.002 0.004 0.004 0.005 0.007 0.010 0.023
3% Discount rate............ 0.005 0.008 0.009 0.010 0.014 0.021 0.046
Generation capacity 0.042 0.062 0.081 0.081 0.141 0.209 0.461
reduction (GW) **..........
NPV (2006$ billion):
7% Discount rate........ $0.007 $0.014 $0.013 $0.017 $0.010 ($0.004) ($0.067)
3% Discount rate........ $0.026 $0.049 $0.050 $0.061 $0.061 $0.052 $0.003
Industry impacts:
Industry NPV (2006$ (2)-(41) (8)-(55) (4)-(62) (14)-(68) (4)-(80) (10)-(110) (2)-(187)
million)...............
Industry NPV (% Change). (1)-(12) (2)-(17) (1)-(19) (4)-(20) (1)-(24) (3)-(33) (1)-(56)
Cumulative emissions
impacts[dagger]:
CO2 (Mt)................ 1.24 1.99 2.55 2.69 4.02 5.95 13.07
NOX (kt)................ 0.08 0.12 0.17 0.16 0.28 0.39 0.93

[[Page 18903]]

Hg (t).................. 0.00 -0.01 -0.02 -0.01 -0.02 -0.04 -0.07
Mean LCC savings * (2006$):
Standard Size PTAC, 0 0 (0) 0 (2) (4) (13)
9,000 Btu/h............
Standard Size PTHP, 13 23 23 32 32 30 40
9,000 Btu/h............
Standard Size PTAC, (1) (1) (3) (1) (6) (11) (36)
12,000 Btu/h...........
Standard Size PTHP, 14 26 26 22 22 18 8
12,000 Btu/h...........
Non-Standard Size PTAC.. 27 27 31 27 33 26 12
Non-Standard Size PTHP.. 61 66 66 81 81 74 53
Mean PBP (years):
Standard Size PTAC, 11.6 11.6 12.5 11.6 13.2 14.0 16.0
9,000 Btu/h............
Standard Size PTHP, 4.5 4.0 4.0 3.9 3.9 4.5 4.8
9,000 Btu/h............
Standard Size PTAC, 13.0 13.0 13.9 13.0 14.8 15.9 19.8
12,000 Btu/h...........
Standard Size PTHP, 4.9 4.4 4.4 5.3 5.3 6.1 7.5
12,000 Btu/h...........
Non-Standard Size PTAC.. 4.2 4.2 4.9 4.2 5.7 7.8 9.6
Non-Standard Size PTHP.. 2.0 2.6 2.6 2.8 2.8 4.2 5.8
LCC Results:
Standard Size PTAC,
9,000 Btu/h
Net Cost (%)........ 11.7 11.7 23.5 11.7 35.4 47.5 64.8
No Impact (%)....... 80.8 80.8 62.8 80.8 45.5 29.1 13.5
Net Benefit (%)..... 7.5 7.5 13.8 7.5 19.1 23.4 21.6
Standard Size PTHP,
9,000 Btu/h
Net Cost (%)........ 4.0 6.2 6.2 8.0 8.0 14.7 19.7
No Impact (%)....... 81.2 63.7 63.7 46.7 46.7 30.2 14.4
Net Benefit (%)..... 14.9 30.1 30.1 45.3 45.3 55.2 65.9
Standard Size PTAC,
12,000 Btu/h
Net Cost (%)........ 12.9 12.9 25.7 12.9 40.8 54.3 74.7
No Impact (%)....... 80.1 80.1 61.6 80.1 44.1 27.6 12.1
Net Benefit (%)..... 7.0 7.0 12.7 7.0 15.1 18.1 13.2
Standard Size PTHP,
12,000 Btu/h
Net Cost (%)........ 4.9 7.2 7.2 15.0 15.0 26.7 44.8
No Impact (%)....... 80.2 62.1 62.1 44.6 44.6 27.9 12.1
Net Benefit (%)..... 14.8 30.7 30.7 40.5 40.5 45.4 43.0
Non-Standard Size PTAC
Net Cost (%)........ 3.4 3.4 8.8 3.4 16.3 32.9 48.1
No Impact (%)....... 80.2 80.2 61.6 80.2 43.8 26.9 12.5
Net Benefit (%)..... 16.4 16.4 29.6 16.4 39.9 40.2 39.4
Non-Standard Size PTHP
Net Cost (%)........ 0.2 1.9 1.9 2.8 2.8 13.8 28.9
No Impact (%)....... 80.9 62.4 62.4 44.6 44.6 27.4 12.4
Net Benefit (%)..... 18.9 35.7 35.7 52.7 52.7 58.8 58.7
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount
indicated.
** Change in installed generation capacity by the year 2042 based on AEO2007 Reference Case.
[dagger] CO2 emissions impacts include physical reductions at power plants. NOX emissions impacts include
physical reductions at power plants as well as production of emissions allowance credits where NOX emissions
are subject to emissions caps. SO2 emissions impacts include physical reductions at households only.

In addition to the quantitative results, DOE also considered other
factors that might affect economic justification. DOE took into
consideration the EPA mandated refrigerant phase-out and its effect on
PTAC and PTHP equipment efficiency, which concern both standard size
and non-standard size PTACs and PTHPs. In addition, DOE considered the
uniqueness of the PTAC and PTHP industry, that is, manufacturers of
non-standard size equipment. In particular, DOE considered the
declining shipments of this equipment, the small size segment of the
industry (both relative to the rest of the PTAC and PTHP industry and
in absolute terms), and the differential impacts of potential amended
energy conservation standards on non-standard size manufacturers when
compared to standard size manufacturers.
2. Conclusion
First, DOE considered TSL 7, the max-tech level. TSL 7 would likely
save 0.086 quads of energy through 2042, an amount DOE considers
significant. Discounted at seven percent, the projected energy savings
through 2042 would be 0.023 quads. For the Nation as a whole, DOE
projects that TSL 7 would result in a net decrease of $67 million in
NPV, using a discount rate of seven percent. The emissions reductions
at TSL 7 are 13.07 Mt of CO2 and 0.93 kt of NOX. Total
generating capacity in 2042 is estimated to decrease compared to the
reference case by 0.461 gigawatts (GW) under TSL 7.
At TSL 7, DOE projects that the average PTAC customer will
experience an increase in LCC for all standard size equipment classes.
Purchasers of PTACs are projected to lose on average $21 (2006$) over
the life of the product and purchasers of PTHPs would save on average
$26 (2006$). DOE estimates LCC increases for 70 percent of customers in
the Nation that purchase a standard size PTAC, and for 34 percent of
customers in the Nation that purchase a standard size PTHP. DOE also
estimates LCC increases for 48 percent of customers in the Nation that
purchase a non-standard size PTAC, and for 29 percent of customers in
the Nation that purchase a non-standard size PTHP. The mean payback
period of each standard size PTAC equipment classes at TSL 7 is
projected to be substantially longer than the mean lifetime of the
equipment.
The projected change in industry value (INPV) ranges from a
decrease of $2 million to a decrease of $187 million. For PTACs and
PTHPs, the impacts are

[[Page 18904]]

driven primarily by the assumptions regarding the ability to pass on
larger increases in MPCs to the customer. Currently, there is only one
product line being manufactured at TSL 7 efficiency levels, and it uses
R-22 refrigerant, as discussed in section III.B.2 above. DOE believes
that PTAC and PTHP manufacturers will eventually be able to design and
produce R-410A equipment at TSL 7, based on manufacturers' response to
the residential central air conditioners refrigerant phase-out and
amended energy conservation standards. However, DOE has not initially
been able to identify technologies and design approaches for R-410A
units to meet these higher levels in the absence of a high efficiency
compressor. At TSL 7, DOE recognizes the risk of very large negative
impacts if manufacturers' expectations about reduced profit margins are
realized. In particular, if the high end of the range of impacts is
reached as DOE expects, TSL 7 could result in a net loss of 56 percent
in INPV to the PTAC and PTHP industry.
After carefully considering the analysis and weighing the benefits
and burdens of TSL 7, the Secretary has reached the following initial
conclusion: At TSL 7, even if manufacturers overcome the barriers to
produce R-410 equipment by the effective date of an amended energy
conservation standard, the benefits of energy savings and emissions
reductions would be outweighed by the potential multi-million dollar
negative net economic cost to the Nation, the economic burden on
consumers, and the large capital conversion costs that could result in
a reduction in INPV for manufacturers.
Next, DOE considered TSL 6. Primary energy savings is estimated at
0.038 quads of energy through 2042, which DOE considers significant.
Discounted at seven percent, the energy savings through 2042 would be
0.010 quads. For the Nation as a whole, DOE projects that TSL 6 would
result in a net decrease of $4 million in NPV, using a discount rate of
seven percent. The emissions reductions are projected to be 5.95 Mt of
CO2 and 0.39 kt of NOX. Total generating capacity in 2042
under TSL 6 is estimated to decrease by 0.209 GW.
At TSL 6, DOE found the impacts of amended energy conservation
standards on customers of PTACs would likely differ significantly from
their impacts on PTHP customers. While only 22 percent of customers of
standard size PTHPs would likely have an LCC increase at TSL 6, a
majority of customers of standard size PTACs (52 percent) would have
LCC increase at this TSL. A customer for a standard size PTAC, on
average, would experience an increase in LCC of $8, while the customer
for a standard size PTHP, on average, would experience a decrease in
LCC of $23. In addition, the customer for a non-standard size PTAC, on
average, would experience a decrease in LCC of $26, while the customer
for a non-standard size PTHP, on average, would experience a decrease
in LCC of $74. At TSL 6, DOE projects that the average PTAC customer
for a standard size PTAC will experience an increase in LCC in each
equipment class. In addition, the mean payback period of each standard
size PTAC equipment class at TSL 6 is projected to be substantially
longer than the mean lifetime.
At TSL 6, the projected change in INPV ranges between a loss of $10
million and a loss of $110 million. For manufacturers of non-standard
size equipment alone, DOE estimated a decrease in the collective value
of the industry to range from 33 percent to 53 percent. The magnitude
of projected impacts is still largely determined, however, by the
manufacturers' ability to pass on larger increases in MPC to the
customer. Thus, the potential INPV decrease of $110 million assumes
DOE's projections of partial cost recovery as described in Chapter 13
of the TSD. In addition, at TSL 6 the impending refrigerant phase-out
could have a significant impact on manufacturers. Currently, both
standard size and non-standard size PTACs and PTHPs using R-22
refrigerant are available on the market at TSL 6 efficiency levels.
But, if the performance degradations that DOE estimated in the
engineering analysis for R-410A equipment prove to be valid,
manufacturers might be unable to produce R-410A equipment at these
levels unless high efficiency R-410A compressors become available. The
absence of such compressors would likely mean that the negative
financial impacts of TSL 6 would be greater than characterized by DOE's
MIA analysis. Even though the ability of manufacturers to produce
equipment utilizing R-410A is greater at TSL 6 than at TSL 7, DOE
anticipates that it would still be difficult for manufacturers to
produce standard size and non-standard size PTACs and PTHPs at TSL 6 in
the full range of capacities available today due to the physical size
constraints imposed by the wall sleeve dimensions.
While DOE recognizes the increased economic benefits to the nation
that could result from TSL 6, DOE concludes that the benefits of a
Federal standard at TSL 6 would still be outweighed by the economic
burden that would be placed upon PTAC customers. In addition, DOE
believes at TSL 6, the benefits of energy savings and emissions impacts
would be outweighed by the large impacts on manufacturers' INPV.
Finally, DOE is concerned that manufacturers may be unable to offer the
full capacity range of equipment utilizing R-410A by the effective date
of the amended energy conservation standards.
Next, DOE considered TSL 5. DOE projects that TSL 5 would save
0.027 quads of energy through 2042, an amount DOE considers
significant. Discounted at seven percent, the projected energy savings
through 2042 would be 0.007 quads. For the Nation as a whole, DOE
projects TSL 5 to result in net savings in NPV of $10 million, using a
discount rate of seven percent, and $61 million, using a discount rate
of three percent. The estimated emissions reductions are 4.02 Mt of CO2
and 0.28 kt of NOX. Total generating capacity in 2042 under TSL 5 would
likely decrease by 0.141 GW.
At TSL 5, DOE projects that the average customer for standard size
PTAC will experience an increase in LCC in each equipment classes.
Purchasers of PTACs are projected to lose on average $5 (2006$) over
the life of the product and purchasers of PTHPs would save on average
$26 (2006$). DOE estimates LCC savings for 39 percent of customers of
standard size PTACs, and for 12 percent of customers of standard size
PTHPs. LCC increases are estimated for 16 percent of customers of non-
standard size PTACs, and for 3 percent of customers of non-standard
size PTHPs. The mean payback period for each standard size PTAC
equipment class at TSL 6 is projected to be substantially longer than
the mean lifetime of the equipment.
The projected change in INPV ranges between a loss of $4 million
and a loss of $80 million. For manufacturers of non-standard size
equipment alone, DOE projects their collective industry value would
decrease by 25 percent to 38 percent. Just as with TSL 6 and 7, the
projected impacts continue to be driven primarily by the manufacturers'
ability to pass on increases in MPCs to the customer. The loss of $80
million assumes DOE's projections of partial cost recovery as described
in Chapter 13 of the TSD. TSL 5 requires the production of standard
size and non-standard size PTACs and PTHPs using R-410A that would have
efficiencies equivalent to the ``max tech'' efficiency levels with R-
410A applying the degradations estimated in the engineering analysis in
the absence of a high efficiency compressor.

[[Page 18905]]

After carefully considering the analysis and weighing the benefits
and burdens, the Secretary has concluded that, at TSL 5, the benefits
of energy savings and emissions reductions would be outweighed by the
potential multi-million dollar net economic cost to the Nation, the
economic burden on PTAC consumers as compared with PTHP customers, and
the large capital conversion costs that could result in a reduction in
INPV for manufacturers.
Next, DOE considered TSL 4. For TSL 4, DOE combined TSL 1 for PTACs
and TSL 5 for PTHPs. This combination of efficiency levels serves to
maximize LCC savings, while recognizing the differences in LCC results
for PTACs and PTHPs. DOE projects that TSL 4 would save 0.019 quads of
energy through 2042, an amount DOE considers significant. Discounted at
seven percent, the projected energy savings through 2042 would be 0.005
quads. For the Nation as a whole, DOE projects that TSL 4 would result
in net savings in NPV of $17 million, using a discount rate of seven
percent, and $61 million, using a discount rate of three percent. The
estimated emissions reductions are 2.69 Mt of CO2 and 0.16 kt of NOX.
Total generating capacity in 2042 under TSL 4 would likely increase by
0.081 GW.
At TSL 4, DOE projects that the average PTAC or PTHP customer would
experience LCC savings. Purchasers of standard size PTACs, on average,
have LCC increase of $1 (2006$) over the life of the product and
purchasers of PTHPs would save on average $26 (2006$). DOE estimates
LCC savings for 12 percent of customers in the Nation that purchase a
standard size PTAC, and for 12 percent of customers in the Nation that
purchase a standard size PTHP. DOE estimates LCC increases for 3
percent of customers in the Nation that purchase a non-standard size
PTAC, and for 3 percent of customers in the Nation that purchase a non-
standard size PTHP. For both standard size and non-standard size PTACs
and PTHPs, the remainder of customers would experience either a
decrease or no change in LCC. DOE also projects that the mean payback
period of each standard size PTAC equipment class at TSL 4 would be
substantially longer than the mean lifetime of the equipment.
The projected change in INPV ranges between a loss of $14 million
and a loss of $68 million. For manufacturers of non-standard size
equipment alone, DOE projects their collective industry value would
decrease by 34 percent to 44 percent. Just as with TSL 5, 6, and 7, the
projected impacts continue to be driven primarily by the manufacturers'
ability to pass on increases in MPCs to the customer. The loss of $68
million assumes DOE's projections of partial cost recovery as described
in Chapter 13 of the TSD. TSL 4 requires the production of standard
size and non-standard size PTACs at TSL 1 efficiency levels and PTHPs
at TSL 5 efficiency levels. Thus, TSL 4 requires the production of
standard size and non-standard size PTHPs using R-410A that would have
efficiencies equivalent to the ``max tech'' efficiency levels with R-
410A applying the degradations estimated in the engineering analysis in
the absence of a high efficiency compressor.
After considering the analysis and weighing the benefits and the
burdens, DOE tentatively concludes that the benefits of a TSL 4
standard outweigh the burdens. In particular, the Secretary concludes
that TSL 4 saves a significant amount of energy and is technologically
feasible and economically justified. Therefore, DOE today proposes to
adopt the energy conservation standards for PTACs and PTHPs at TSL 4.
Table V.29 demonstrates the proposed energy conservation standards for
all equipment classes of PTACs and PTHPs, including all cooling
capacities.

Table V.29.--Proposed Energy Conservation Standards for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
Equipment class Proposed energy
---------------------------------------------------------------------------------------- conservation
Equipment Category Cooling capacity standards\*\
----------------------------------------------------------------------------------------------------------------
PTAC................................. Standard Size\**\...... < 7,000 Btu/h.......... EER = 11.4
>=7,000 Btu/h and EER = 13.0 - (0.233 x
<=15,000 Btu/h. Cap[dagger][dagger])
>15,000 Btu/h.......... EER = 9.5
Non-Standard <7,000 Btu/h........... EER = 10.2
Size[dagger].
>= 7,000 Btu/h and <= EER = 11.7-(0.213 x
15,000 Btu/h. Cap[dagger][dagger])
> 15,000 Btu/h......... EER = 8.5
PTHP................................. Standard Size\**\...... < 7,000 Btu/h.......... EER = 11.8, COP = 3.3
>= 7,000 Btu/h and <= EER = 13.4-(0.233 x
15,000 Btu/h. Cap[dagger][dagger])
COP = 3.7-(0.053 x
Cap[dagger][dagger])
> 15,000 Btu/h......... EER = 9.9, COP = 2.9
Non-Standard < 7,000 Btu/h.......... EER = 10.8, COP = 3.0
Size[dagger]
>= 7,000 Btu/h and <= EER = 12.3-(0.213 x
15,000 Btu/h. Cap[dagger][dagger])
COP = 3.1-(0.026 x
Cap[dagger][dagger])
> 15,000 Btu/h......... EER = 9.1, COP = 2.8
----------------------------------------------------------------------------------------------------------------
\*\ For equipment rated according to the DOE test procedure (ARI Standard 310/380-2004), all energy efficiency
ratio (EER) values must be rated at 95[deg] F outdoor dry-bulb temperature for air-cooled equipment and
evaporatively-cooled equipment and at 85[deg] F entering water temperature for water cooled equipment. All
coefficient of performance (COP) values must be rated at 47[deg] F outdoor dry-bulb temperature for air-cooled
equipment, and at 70[deg] F entering water temperature for water-source heat pumps.
\**\ Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions greater than or equal to 16
inches high, or greater than or equal to 42 inches wide.
[dagger] Non-standard size refers to PTAC or PTHP equipment with wall sleeve dimensions less than 16 inches high
and less than 42 inches wide.
[dagger][dagger] Cap means cooling capacity in thousand British thermal units per hour (Btu/h) at 95[deg] F
outdoor dry-bulb temperature.

As noted, TSL 4 would require PTHPs to meet the same efficiency
levels as specified in TSL 5. DOE believes that these efficiency levels
are equivalent to the expected ``max tech'' efficiency levels for
equipment utilizing R-410A applying the degradations estimated in the
engineering analysis. Therefore, DOE strongly encourages stakeholders
to scrutinize closely the analyses and other information presented with
this notice, and to comment on the viability of this standard level. In
addition, since TSL 4 requires different efficiency levels for PTACs
and PTHPs, DOE solicits comment on potential equipment switching as
discussed in section IV.G.3 of today's notice. In particular, DOE is
interested in receiving comment on whether: (1) Evidence shows that
equipment switching is likely and

[[Page 18906]]

would likely negate the energy savings from setting a standard at
different efficiency levels for PTHPs and PTACs; and (2) such evidence
warrants DOE adoption of some other TSL level or the ASHRAE/IESNA
Standard 90.1-1999 efficiency levels rather than TSL 4 for the final
rule.
Aside from the considerations discussed above, DOE is also
concerned about the unique nature of the non-standard size segment of
the PTAC and PTHP industry. At TSL 4, non-standard size manufacturers
are expected to lose from $9 million to $12 million in INPV, which is a
reduction in 34 percent to 44 percent. Many manufacturers stated they
would be unwilling to redesign completely non-standard size equipment
because of the small size of the market and the declining sales. In
supporting this assertion, manufacturers also pointed out that non-
standard size PTACs and PTHPs are manufactured to order based on unique
building designs for replacement applications. In addition,
manufacturers expressed great concern that negative impacts would be
amplified if DOE were to adopt the ASHRAE/IESNA Standard 90.1-1999
equipment class delineations, and their equipment lines were reduced.
Several manufacturers believe the ASHRAE/IESNA Standard 90.1-1999
delineations would cause up to 50 percent of their equipment lines to
be misclassified, and be subject to standard levels they could not meet
with resulting decline in equipment offerings. If these concerns were
realized, the negative INPV and cash flow impacts on the declining
industry would be even greater than estimated by the MIA. DOE is
particularly interested in receiving comments on the differential
impacts on non-standard size manufacturers and on whether DOE should
adopt lower minimum efficiency levels (e.g., TSL 1, TSL 2, or TSL 3)
for non-standard size PTAC and PTHP equipment in the final rule.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866

Today's regulatory action has been determined to be a significant
regulatory action under Executive Order 12866, ``Regulatory Planning
and Review.'' 58 FR 51735 (October 4, 1993). Accordingly, this action
was subject to review under the Executive Order by the Office of
Information and Regulatory Affairs at the Office of Management and
Budget (OMB).
The Executive Order requires that each agency identify in writing
the specific market failure or other specific problem that it intends
to address that warrant new agency action, as well as assess the
significance of that problem, to enable assessment of whether any new
regulation is warranted. Executive Order 12866, Sec. 1(b)(1).
DOE's preliminary analysis suggests that much of the hospitality
industry segment using PTAC and PTHP equipment tends to be small hotels
or motels. DOE believes that these small hotels and motels tend to be
individually owned and operated, and lack corporate direction in terms
of energy policy. The transaction costs for these smaller owners or
operators to research, purchase, and install optimum efficiency
equipment are too high to make such action commonplace. DOE believes
that there is a lack of information and/or information processing
capability about energy efficiency opportunities in the PTAC and PTHP
market available to hotel or motel owners. Unlike residential heating
and air conditioning products, PTACs and PTHPs are not included in
energy labeling programs such as the Federal Trade Commission's energy
labeling program. Furthermore, the energy use of PTACs and PTHPs is
dependent on climate and the equipment usage and, as such, is not
readily available for the owners or operators to make a decision on
whether improving the energy efficiency of PTAC and PTHP equipment is
cost-effective. DOE seeks data on the efficiency levels of existing
PTAC and PTHP equipment in use by building type (e.g., hotel, motel,
small office building, nursing home facility, etc.), electricity price
(and/or geographic region of the country) and installation type (i.e.,
new construction or replacement).
DOE recognizes that PTACs and PTHPs are not purchased in the same
manner as regulated appliances that are sold in retail stores, e.g.,
room air conditioners. When purchased by the end user, PTACs and PTHPs
are more likely purchased through contractors and builders that perform
the installation. The Air-Conditioning and Refrigeration Institute
(ARI) Directory of Certified Product Performance includes PTACs and
PTHPs and provides the energy efficiency and capacity information on
PTACs and PTHPs produced by participating manufacturers. DOE seeks
comment on the experience with this directory and the extent to which
the information it provides leads to more informed choices,
specifically given how such equipment are purchased.
To the extent, there is potentially a substantial information
problem, one could expect the energy efficiency for PTACs and PTHPs to
be more or less randomly distributed across key variables such as
energy prices and usage levels. However, since data are not available
on how such equipment is purchased, DOE seeks detailed data on the
distribution of energy efficiency levels for both new construction and
replacement markets. DOE plans to use these data to test the extent to
which purchasers of this equipment behave as if they are unaware of the
costs associated with their energy consumption. In the case of the PTHP
equipment with multiple heating systems (reverse cycle and electric
resistance), estimating the energy consumption from component level
changes is even more complex. DOE found energy efficiency and energy
cost savings are not the primary drivers of the hotel and motel
business. Instead, hotel and motel operators work on a fixed budget and
are primarily concerned with providing clean and comfortable rooms to
the customers to ensure customer satisfaction. If consumer satisfaction
decreases, hotel or motel owners may incur increased transaction costs,
thus preventing access to capital to finance energy efficiency
investment.
A related issue is the problem of asymmetric information (one party
to a transaction has more and better information than the other) and/or
high transactions costs (costs of gathering information and effecting
exchanges of goods and services) among the PTAC and PTHP equipment
customers. In the case of PTACs and PTHPs, in many cases, the party
responsible for the equipment purchase may not be the one who pays the
cost to operate it. For example, PTAC and PTHP equipment are also used
in nursing homes and medical office buildings where the builder or
complex owner often makes decisions about PTACs and PTHPs without input
from tenants nor do they offer options to tenants to upgrade them.
Furthermore, DOE believes the tenant typically pays the utility bills.
If there were no transactions costs, it would be in the builder or
complex owners' interest to install equipment the tenants would choose
on their own. For example, a tenant who knowingly faces higher utility
bills from low-efficiency equipment would expect to pay less in rent,
thereby shifting the higher utility cost back to the complex owner.
However, this information is not costless, and it may not be in the
interest of the tenant to take the time to develop it, or, in the case
of the complex owner who installs less efficient

[[Page 18907]]

equipment, to convey that information to the tenant.
To the extent that asymmetric information and/or high transaction
costs are problems, one would expect to find certain outcomes with
respect to PTAC and PTHP efficiency. For example, other things being
equal, one would not expect to see higher rents for office complexes
with high efficiency equipment. Alternatively, one would expect higher
energy efficiency in rental units where the rent includes utilities
compared to those where the tenant pays the utility bills separately.
DOE seeks data that might enable it to conduct tests of market failure.
In addition, this rulemaking is likely to yield certain
``external'' benefits resulting from improved energy efficiency of
PTACs and PTHPs that are not captured by the users of such equipment.
These include both environmental and energy security related
externalities that are not reflected in energy prices, such as reduced
emissions of greenhouse gases. With regard to environmental
externalities, the emissions reductions in today's proposed rule are
projected to be 2.7 Mt of CO2 and 0.16 kt of NOX.
DOE invites comments on the weight that should be placed on these
factors in DOE's determination of the maximum energy efficiency level
at which the total benefits are likely to exceed the total burdens
resulting from an amended DOE standard.
DOE conducted a regulatory impact analysis (RIA) and, under the
Executive Order, was subject to review by the Office of Information and
Regulatory Affairs (OIRA) in the OMB. DOE presented to OIRA for review
the draft proposed rule and other documents prepared for this
rulemaking, including the RIA, and has included these documents in the
rulemaking record. They are available for public review in the Resource
Room of the Building Technologies Program, 950 L'Enfant Plaza, SW., 6th
Floor, Washington, DC 20024, (202) 586-9127, between 9 a.m. and 4 p.m.,
Monday through Friday, except Federal holidays.
The RIA is contained in the TSD prepared as a separate report for
the rulemaking. The RIA consists of: (1) A statement of the problem
addressed by this regulation, and the mandate for government action;
(2) a description and analysis of the feasible policy alternatives to
this regulation; (3) a quantitative comparison of the impacts of the
alternatives; and (4) the national economic impacts of the proposed
standard.
The RIA calculates the effects of feasible policy alternatives to
PTAC and PTHP amended energy conservation standards, and provides a
quantitative comparison of the impacts of the alternatives. DOE
evaluated each alternative in terms of its ability to achieve
significant energy savings at reasonable costs, and compared it to the
effectiveness of the proposed rule. DOE analyzed these alternatives
using a series of regulatory scenarios as input to the NES Shipments
Model for PTACs and PTHPs, which it modified to allow inputs for these
measures.
DOE identified the following major policy alternatives for
achieving increased PTAC and PTHP energy efficiency:
No new regulatory action;
Commercial customer rebates;
Commercial customer tax credits;
Voluntary energy-efficiency targets--ENERGY STAR;

Table VI.1.--Non-Regulatory Alternatives to Standards

------------------------------------------------------------------------
Net present value**
Energy (billion 2006$)
Policy alternatives savings* -------------------------
(quads) 7% Discount 3% Discount
rate rate
------------------------------------------------------------------------
No New Regulatory Action......... 0.000 0.000 0.000
Commercial Customer Rebates...... 0.006 0.003 0.017
Commercial Customer Tax Credits.. 0.010 0.007 0.032
Voluntary Energy-Efficiency 0.017 0.013 0.057
Targets--ENERGY STAR............
Today's Standards at TSL 4....... 0.019 0.016 0.061
------------------------------------------------------------------------
* Energy savings are in source quads.
** Net present value is the value in the present of a time series of
costs and savings. DOE determined the net present value from 2012 to
2062 in billions of 2006$.

The net present value amounts shown in Table VI.1 refer to the NPV
for commercial customers. The costs to the government of each policy
(such as rebates or tax credits) are not included in the costs for the
NPV since, on balance, customers are both paying for (through taxes)
and receiving the benefits of the payments. The following paragraphs
discuss each of the policy alternatives listed in Table VI.1. (See TSD,
Regulatory Impact Analysis.)
No new regulatory action. The case in which no regulatory action is
taken with regard to PTACs and PTHPs constitutes the ``base case'' (or
``No Action'') scenario. In this case, between the years 2012 and 2042,
PTACs and PTHPs are expected to use 2.63 quads of primary energy. By
definition, no new regulatory action yields zero (0) energy savings and
a net present value of zero dollars.
Financial Incentives Policies. DOE considered several scenarios in
which the Federal government would provide some form of financial
incentive. It studied two types of incentives: tax credits and rebates.
Tax credits could be granted to customers who purchase high efficiency
PTAC and PTHP equipment. Alternatively, the government could issue tax
credits to manufacturers or customers to offset costs associated with
producing or purchasing high-efficiency equipment. For this analysis,
only a customer tax credit, patterned after provision in the EPACT of
2005, was considered. The second incentive program involved a rebate
program that was nominally patterned after existing rebate programs
currently offered by several utilities.
Commercial Customer Rebates. DOE modeled the impact of the customer
rebate policy by determining the increased customer participation rate
due to the rebates (i.e., the percent increase in customers purchasing
high-efficiency equipment). It then applied the resulting increase in
market share of efficient units to the NES spreadsheet model to
estimate the resulting NES and NPV with respect to the base case.
After reviewing several utility rebate programs currently in place
(see Chapter 3 of the TSD), DOE decided to pattern a potential national
rebate program after

[[Page 18908]]

a program now undertaken by Xcel Energy. Xcel Energy is a large utility
that provides service to eight Western and Midwestern states. A small
public utility in Minnesota, Shakopee Public Utilities, offers a
similar rebate program.
Under these programs, commercial and industrial businesses buying
PTACs can receive a base payment of $7.50 per ton for units rated at
9.20 EER and $1.25 per ton for every incremental increase of 0.1 EER
above base requirements. When compared against the incremental retail
costs of higher efficiency PTACs shown in Chapter 8 of the TSD, the
rebates generally range between 17 and 23 percent of the incremental
cost beyond TSL 1. Because the baseline (ASHRAE/IESNA Standard 90.1-
1999) efficiency standards are above 9.2 EER for all equipment, it is
more difficult to assess an appropriate level of the rebate for
equipment just above the baseline (specifically, at TSL 1) used in this
NOPR. For purposes of this analysis, it was assumed that the same
incremental fraction of the cost between the baseline unit and TSL 1
would be rebated as for higher incremental efficiency levels. A base
payment for any unit exceeding a minimum efficiency was also assumed to
be paid to commercial or industrial customers applying for the rebate.
The specific provisions of the rebate assumed for PTAC equipment were:
(a) $10.00 per ton for units rated above the ASHRAE/IESNA Standard
90.1-1999 efficiency levels.
(b) A rebate paying 25 percent of the incremental price difference
between the baseline efficiency level and the particular TSL.
For PTHP equipment, the rebate programs offered by Xcel Energy and
Shakopee Public Utilities double the payment for incremental efficiency
above the baseline (from $1.25 to $2.50 per ton per 0.1 increments in
the EER). Following that pattern, the provisions assumed for the PTHP
equipment were:
(a) $10.00 per ton for units rated above the ASHRAE/IESNA Standard
90.1-1999 efficiency levels.
(b) A rebate paying 50 percent of the incremental price difference
between the baseline efficiency level and the particular TSL.
As an example comparison, the rebate application form for Xcel
Energy shows the calculation for 9,000 Btu/h PTAC with an EER of 11.0.
This unit would receive a rebate of $39.37 under Xcel Energy's program.
Under the provisions of the National rebate program constructed for
this analysis, a 9,000 Btu/h PTHP unit at TSL 2 (EER = 11.1) would
receive a rebate of $38.97.
Using the method described in Chapter 10 of the TSD to estimate
market shares, a new distribution of sales by efficiency level
(corresponding to the various TSLs) was computed. The rebates elicit
greater purchases of higher efficiency equipment that lower the overall
average annual energy consumption per unit. The changes in shipment-
weighted annual energy consumption are shown in Table VI.2.

Table VI.2.--Shipment-Weighted Average Annual Energy Consumption per Unit for Customer Rebate Program
----------------------------------------------------------------------------------------------------------------
ASHRAE/IESNA
Representative standard 90.1- Customer Percent
Equipment classes cooling capacity 1999 (base case) rebate change
(Btu/h) kWh/yr
----------------------------------------------------------------------------------------------------------------
Standard Size PTAC................................ 9,000 1,012 1,007 -0.46
12,000 1,277 1,271 -0.49
Standard Size PTHP................................ 9,000 1,984 1,974 -0.49
12,000 2,379 2,366 -0.54
Non-Standard Size PTAC............................ 11,000 1,556 1,549 -0.42
Non-Standard Size PTHP............................ 11,000 2,505 2,499 -0.23
----------------------------------------------------------------------------------------------------------------

The rebate program lowers the retail cost to the customer, but must
be financed by tax revenues. From a societal point of view, the
installed cost at any efficiency level does not change with the rebate
policy; it simply transfers part of the cost from the customer to tax
payers as a whole. Thus, for calculation of total cost of equipment,
the revised estimates of sales by efficiency level are multiplied by
the pre-rebate costs (i.e., identical to those in the base case).
Commercial Customer Tax Credits. DOE assumed a (commercial or
industrial) customer tax credit that is patterned after the tax credits
that were created in EPACT 2005. EPACT 2005 provided tax credits to
customers who purchase and install specific products such as energy
efficient windows, insulation, doors, roofs, and heating and cooling
equipment. For many of these products, the tax credit is equal to the
10 percent of the retail cost, limited to specific dollar levels. For
example, to receive the tax credit for energy efficient windows, the
windows need to meet the requirements of the 2000 IECC and updated
versions of the IECC published since 2000.
The 10 percent customer tax credits were assumed to apply to all
PTAC equipment above the baseline efficiency (ASHRAE/IESNA Standard
90.1-1999). The credits were assumed to apply only to the retail cost
of the equipment and not to any additional costs related to
installation.
The 10 percent cost tax credit leads to increased shares of sales
of equipment with efficiencies above the baseline. In Chapter 11, a
market allocation algorithm is used to estimate market shares of
current sales of PTAC and PTHP equipment. This same algorithm was used
to estimate the impact of the tax credit upon the shares of equipment
by efficiency (as before, the discrete efficiency levels correspond to
the TSLs).
As for the rebate policy, the method described in Chapter 11 of the
TSD was used to estimate the change in market shares that may result
from a 10 percent tax credit. A new distribution of sales by efficiency
level (corresponding to the various TSLs) was computed. The tax credits
elicit greater purchases of higher efficiency equipment that lower the
overall average annual energy consumption per unit. The changes in
shipment-weighted annual energy consumption are shown in Table VI.3.

[[Page 18909]]

Table VI.3.--Shipment-Weighted Average Annual Energy Consumption per Unit for Customer Tax Credit Program
----------------------------------------------------------------------------------------------------------------
ASHRAE/IESNA
Representative standard 90.1- Customer Percent
Equipment classes cooling capacity 1999 (base case) tax credit change
(Btu/h) kWh/yr (10%)
----------------------------------------------------------------------------------------------------------------
Standard Size PTAC................................ 9,000 1,012 1,005 -0.68
12,000 1,277 1,269 -0.65
Standard Size PTHP................................ 9,000 1,984 1,971 -0.64
12,000 2,379 2,364 -0.63
Non-Standard Size PTAC............................ 11,000 1,556 1,544 -0.78
Non-Standard Size PTHP............................ 11,000 2,505 2,487 -0.73
----------------------------------------------------------------------------------------------------------------

DOE assumed that a policy for national voluntary energy efficiency
targets would be administered through the Federal government's ENERGY
STAR voluntary program conducted by the Environmental Protection Agency
(EPA) and DOE. EPA and DOE qualify energy efficient products as those
that exceed Federal minimum standards by a specified amount, or if no
Federal standard exists, exhibit selected energy saving features.
Generally, the ENERGY STAR program works to recognize the top quartile
of the products on the market, meaning that approximately 25 percent of
products on the market meet or exceed the ENERGY STAR levels.
Although an ENERGY STAR program for PTACs and PTHPs does not exist,
DOE is in the process of developing such a program. The program is
designed to encourage manufacturers to manufacture and promote
compliant (labeled) equipment and for customers to purchase labeled
equipment. As yet, no specific criteria have been established as to the
specific efficiency levels that would qualify PTAC or PTHP equipment to
receive an ENERGY STAR label. Most types of appliances and equipment in
the ENERGY STAR program must be 10 percent or more efficient than the
prevailing National efficiency standard. For the purpose of modeling
PTACs and PTHPs, DOE has assumed that TSL 3 is a reasonable estimate of
where an ENERGY STAR qualifying efficiency level may be established.
The promotional activities of the ENERGY STAR program are directed
toward increasing the sales of qualifying equipment over time. For
purposes of this analysis, DOE assumed that the market shares of ENERGY
STAR equipment would increase by a minimum of 20 percent as compared to
the base case. The revised market shares of sales by efficiency
translate into percentage increases (above the base case) in the
average EER for future shipments.
Because this is a voluntary program, without specific financial
incentives, some method must be developed to generate the market
distribution of equipment with various efficiencies that would result
from an ENERGY STAR program. As for the financial incentive programs,
the market shares algorithm described in Chapter 11 of the TSD was
employed. For each equipment class, the overall increase in the sales-
weighted efficiency achieved in this manner is shown in Table VI.4.

Table VI.4.--Shipment-Weighted Average Annual Energy Consumption per Unit for a Future ENERGY STAR program
----------------------------------------------------------------------------------------------------------------
ASHRAE/IESNA
Representative cooling standard 90.1- ENERGY Percent
Equipment capacity 1999 (base case) STAR level change
kWh/yr
----------------------------------------------------------------------------------------------------------------
Standard Size PTAC.................... 9,000 Btu/h.................. 1,012 1,006 -0.64%
12,000 Btu/h................. 1,277 1,271 -0.50%
Standard Size PTHP.................... 9,000 Btu/h.................. 1,984 1,958 -1.32%
12,000 Btu/h................. 2,379 2,353 -1.09%
Non-Standard Size PTAC................ 11,000 Btu/h................. 1,556 1,532 -1.52%
Non-Standard Size PTHP................ 11,000 Btu/h................. 2,505 2,463 -1.68%
----------------------------------------------------------------------------------------------------------------

Early Replacement Incentives. Early replacement refers to the
replacement of PTAC/PTHP equipment before the end of their useful
lives. The purpose of this policy is to retrofit or replace old,
inefficient equipment with high efficiency units. DOE studied the
feasibility of a Federal program to promote early replacement of
appliances and equipment under EPACT 1992. In this study, DOE
identified Federal policy options for early replacement that include a
direct national program, replacement of Federally-owned equipment,
promotion through equipment manufacturers, customer incentives,
incentives to utilities, market behavior research, and building
regulations.
While cost effective opportunities to install units that are more
efficient exist on a limited basis, DOE determined that a Federal early
replacement program is not economically justified because the market
for PTAC and PTHP equipment is relatively small and narrow. Moreover,
the savings are not likely to be significantly higher than those
achieved by a voluntary program such as ENERGY STAR program. A
temporary surge in PTAC and PTHP sales in the early 2000s further
reduces the potential for an effective early replacement program.
Bulk Government Purchases. In this policy alternative, bulk
government purchases refers to Federal, State, and local governments
being encouraged to purchase equipment meeting the energy conservation
standards. The motivations for this policy are that (1) aggregating
public sector demand could provide a market signal to manufacturers and
vendors that some of their largest customers seek suppliers with

[[Page 18910]]

equipment that meet an efficiency target at good prices, and (2) this
could induce ``market pull'' impacts through the effects of
manufacturers and vendors achieving economies of scale for high
efficiency equipment. As with the early retirement policy, bulk
government purchases may provide cost effective opportunities to
install more efficient equipment on a limited basis, however it was
concluded that a widespread bulk purchase program was not economically
justified. This is because the segment/share of the market that would
be affected by a bulk government purchase program is a small portion of
an already relatively small market, as most of the shipments/sales are
to non-governmental customers.
Energy Conservation Standards (TSL 4). DOE proposes to adopt the
energy conservation levels listed in section V.C. As indicated in the
paragraphs above, none of the alternatives DOE examined would save as
much energy as the proposed standards. In addition, several of the
alternatives would require new enabling legislation, such as customer
tax credits, since authority to carry out those alternatives does not
presently exist.

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

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis for any rule
that by law must be proposed for public comment, unless the agency
certifies that the rule, if promulgated, will not have a significant
economic impact on a substantial number of small entities. As required
by Executive Order 13272, ``Proper Consideration of Small Entities in
Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE published
procedures and policies on February 19, 2003, to ensure that the
potential impacts of its rules on small entities are properly
considered during the rulemaking process. 68 FR 7990. DOE has made its
procedures and policies available on the Office of General Counsel's
Web site: http://www.gc.doe.gov.
Small businesses, as defined by the Small Business Administration
(SBA) for the PTAC and PTHP manufacturing industry, are manufacturing
enterprises with 750 employees or fewer. DOE used the small business
size standards published on January 31, 1996, as amended, by the SBA to
determine whether any small entities would be required to comply with
the rule. 61 FR 3286 and codified at 13 CFR part 121. The size
standards are listed by North American Industry Classification System
(NAICS) code and industry description. PTAC and PTHP manufacturing is
classified under NAICS 333415.
The PTAC and PTHP industry is characterized by both domestic and
international manufacturers. Standard size PTACs and PTHPs are
primarily manufactured abroad with the exception of one domestic PTAC
and PTHP manufacturer. Non-standard size PTACs and PTHPs are primarily
manufactured domestically by a handful of manufacturers. Consolidation
within the PTAC and PTHP industry has reduced the number of parent
companies that manufacture similar equipment under different affiliates
and labels. Prior to issuing this notice of proposed rulemaking, DOE
interviewed two small businesses affected by the rulemaking. DOE also
obtained information about small business impacts while interviewing
manufacturers that exceed the small business size threshold of 750
employees.
DOE reviewed ARI's Applied Directory of Certified Product
Performance (2006) and created a list of every manufacturer that had
certified equipment ratings in the directory. DOE also asked
stakeholders and ARI representatives within the PTAC and PTHP industry
if they were aware of any other small manufacturers. DOE then looked at
publicly available data and contacted manufacturers, where needed, to
determine if they meet the SBA's definition of a small manufacturing
facility and have their manufacturing facilities located within the
United States. Based on this analysis, DOE estimates that there are two
small manufacturers of PTACs and PTHPs. Of these two manufacturers, one
of them operates manufacturing facilities within the United States. The
one domestic manufacturer solely produces non-standard equipment. DOE,
then, contacted both small manufacturers. It subsequently conducted two
on-site interviews with small manufacturers, one standard size
manufacturer and one non-standard size manufacturer, to determine if
there are differential impacts on these companies that may result from
amended energy conservation standards.
DOE found that, in general, small manufacturers have the same
concerns as large manufacturers regarding amended energy conservation
standards. DOE summarized the key issues for standard size and non-
standard size manufacturers in section IV.I.3 of today's notice. Both
manufacturers echoed the same concerns regarding amended energy
conservation standards as the larger manufacturers. In addition, the
small manufacturer of non-standard size equipment particularly stated
its concern for the equipment class misclassification within ASHRAE/
IESNA Standard 90.1-1999, which is detailed in sections IV.A.2 and V.C
of today's notice. DOE found no significant differences in the R&D
emphasis or marketing strategies between small business manufacturers
and large manufacturers. Therefore, for the classes comprised primarily
of small businesses, DOE believes the GRIM analysis, which models each
equipment class separately, is representative of the small businesses
affected by standards. The qualitative and quantitative GRIM results
are summarized in section V.B.2 of today's notice.
DOE reviewed the standard levels considered in today's notice of
proposed rulemaking under the provisions of the Regulatory Flexibility
Act and the procedures and policies published on February 19, 2003.
Based on the foregoing, DOE determined that it cannot certify that
these proposed energy conservation standard levels, if promulgated,
would have no significant economic impact on a substantial number of
small entities. DOE made this determination because of the potential
impacts that the proposed energy conservation standard levels under
consideration for standard size and non-standard size PTACs and PTHPs
would have on the manufacturers, including the small businesses, which
manufacture them. Consequently, DOE has prepared an initial regulatory
flexibility analysis (IRFA) for this rulemaking. The IRFA describes
potential impacts on small businesses associated with standard size and
non-standard size PTAC and PTHP design and manufacturing.
The potential impacts on standard size and non-standard size PTAC
and PTHP manufacturers are discussed in the following sections. DOE has
transmitted a copy of this IRFA to the Chief Counsel for Advocacy of
the Small Business Administration for review.
1. Reasons for the Proposed Rule
Part A-1 of Title III of EPCA addresses the energy efficiency of
certain types of commercial and industrial equipment. (42 U.S.C. 6311-
6317) It contains specific mandatory energy conservation standards for
commercial PTACs and PTHPs. (42 U.S.C. 6313(a)(3)) EPACT 1992, Public
Law 102-486, also amended EPCA with respect to PTACs and PTHPs,
providing definitions in section 122(a), test procedures in section
122(b), labeling

[[Page 18911]]

provisions in section 122(c), and the authority to require information
and reports from manufacturers in section 122(e).\40\ DOE publishes
today's NOPR pursuant to Part A-1. The PTAC and PTHP test procedures
appear at Title 10 CFR section 431.96.
---------------------------------------------------------------------------

\40\ These requirements are codified in Part A-1 of Title III of
EPCA, as amended, 42 U.S.C. 6311-6316, and Title 10 of the Code of
Federal Regulations, Part 431 (10 CFR Part 431) at 10 CFR 431.92,
431.96, 431.97, and subparts U and V.
---------------------------------------------------------------------------

EPCA established Federal energy conservation standards that
generally correspond to the levels in ASHRAE/IESNA Standard 90.1, as in
effect on October 24, 1992 (ASHRAE/IESNA Standard 90.1-1989), for each
type of covered equipment listed in section 342(a) of EPCA, including
PTACs and PTHPs. (42 U.S.C. 6313(a)) For each type of equipment, EPCA
directed that if ASHRAE/IESNA Standard 90.1 is amended, DOE must adopt
an amended standard at the new level in ASHRAE/IESNA Standard 90.1,
unless clear and convincing evidence supports a determination that
adoption of a more stringent level as a national standard would produce
significant additional energy savings and be technologically feasible
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In
accordance with these statutory criteria, DOE is proposing in today's
notice to amend the energy conservation standards for PTACs and PTHPs
by raising the efficiency levels for this equipment above the
efficiency levels specified by ASHRAE/IESNA Standard 90.1-1999.
2. Objectives of, and Legal Basis For, the Proposed Rule
For each type of equipment, EPCA directed that if ASHRAE/IESNA
Standard 90.1 is amended, DOE must adopt an amended standard at the new
level in ASHRAE/IESNA Standard 90.1, unless clear and convincing
evidence supports a determination that adoption of a more stringent
level as a national standard would produce significant additional
energy savings and be technologically feasible and economically
justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) To determine whether
economic justification exists, DOE reviews comments received and
conducts analysis to determine whether the economic benefits of the
proposed standard exceed the burdens to the greatest extent
practicable, taking into consideration seven factors set forth in 42
U.S.C. 6295(o)(2)(B) (see Section II.B of this preamble). (42 U.S.C.
6316(a)) Further information concerning the background of this
rulemaking is provided in Chapter 1 of the TSD.
3. Description and Estimated Number of Small Entities Regulated
By researching the standard size and non-standard size PTAC and
PTHP market, developing a database of manufacturers, and conducting
interviews with manufacturers (both large and small), DOE was able to
estimate the number of small entities that would be regulated under a
proposed energy conservation standard. DOE estimates that, of the 4
domestic manufacturers it has identified as making residential PTACs
and PTHPs, one is known to be a small business. See Chapter 12 of the
TSD for further discussion about the methodology used in DOE's
manufacturer impact analysis and its analysis of small-business
impacts.
4. Description and Estimate of Compliance Requirements
Potential impacts on manufacturers, including small businesses,
come from impacts associated with standard size and non-standard size
design and manufacturing. The margins and/or market share of
manufacturers, including small businesses, in the standard size and
non-standard size PTAC and PTHP industry could be negatively impacted
in the long term by the standard levels under consideration in this
notice of proposed rulemaking, specifically TSL 4. At TSL 4, as opposed
to lower TSLs, small manufacturers would have less flexibility in
choosing a design path. However, as discussed under subsection 6
(Significant alternatives to the rule) below, DOE expects that the
differential impact on small, standard and non-standard size PTAC and
PTHP manufacturers (versus large businesses) would be smaller in moving
from TSL 1 to TSL 2 than it would be in moving from TSL 3 to TSL 4. The
rationale for DOE's expectation is best discussed in a comparative
context and is therefore elaborated upon in subsection 6 (Significant
alternatives to the rule). As discussed in the introduction to this
IRFA, DOE expects that the differential impact associated with PTAC and
PTHP design and manufacturing on small, non-standard size and standard
size businesses would be negligible.
5. Duplication, Overlap, and Conflict With Other Rules and Regulations
DOE is not aware of any rules or regulations that duplicate,
overlap, or conflict with the rule being considered today.
6. Significant Alternatives to the Rule
The primary alternatives to the proposed rule considered by DOE are
the other TSLs besides the one being considered today, TSL 4. These
alternative TSLs and their associated impacts on small business are
discussed in the subsequent paragraphs. In addition to the other TSLs
considered, the TSD associated with this proposed rule includes a
report referred to in section VI.A in the preamble as the regulatory
impact analysis (RIA--discussed earlier in this report and in detail in
the TSD). This report discusses the following policy alternatives: (1)
No new regulatory action, (2) financial incentives policies, (3)
voluntary energy efficiency targets--ENERGY STAR, (4) early replacement
incentives, and (5) bulk government purchases. The energy savings and
beneficial economic impacts of these regulatory alternatives are one to
two orders of magnitude smaller than those expected from the standard
levels under consideration.
The entire non-standard size PTAC and PTHP industry has such low
shipments that no designs are produced at high volume. There is little
repeatability of designs, so small businesses can competitively produce
many non-standard size PTAC and PTHP designs. The PTAC and PTHP
industry as a whole primarily has experience producing equipment with
efficiencies that would comply with the ASHRAE/IESNA Standard 90.1-1999
baseline. In addition, the standard-size PTAC and PTHP industry
produces a significant number of units that would comply with
efficiency levels above the baseline using R-22 refrigerant. All
manufacturers, including small businesses, would have to develop
designs to enable compliance to higher TSLs, with the expected
Environmental Protection Agency mandated alternative refrigerant
requirement to take affect in 2010. Development costs would be more
burdensome to small businesses. Product redesign costs tend to be fixed
and do not scale with sales volume. Thus, small businesses would be at
a relative disadvantage at higher TSLs because research and development
efforts would be on the same scale as those for larger companies, but
these expenses would be recouped over smaller sales volumes.
At TSL 4, manufacturers stated their concerns over the ability to
be able to produce PTHPs by the future effective date of the standard
using R-410A refrigerant. Using the performance degradations from the
engineering analysis, TSL 4 for PTHPs would correspond to the ``max-
tech'' efficiency levels for PTHPs unless higher efficiency compressors
enter the market prior to the effective date of an amended energy
conservation standard. At TSL 4

[[Page 18912]]

and above, DOE estimates that the majority of manufacturers would be
negatively impacted, especially non-standard size manufacturers. Based
on information submitted by industry, manufacturers would require a
complete redesign of their non-standard PTAC and PTHP platforms' higher
TSLs. They did not see the advantage to completely redesigning non-
standard size PTACs and PTHPs in small and declining market and would
not be willing to redesign completely non-standard size equipment
because of the small size of the market and the declining sales.
Manufacturers also commented non-standard size PTACs and PTHPs are
manufactured to order based on unique building designs for replacement
applications. This concern was echoed by all manufacturers, not just
small business manufacturers.
The primary difference between TSL 3 and TSL 4 from the
manufacturers' viewpoint is that at TSL 3 both PTACs and PTHPs have to
conform to the same, higher efficiency levels at a given capacity. TSL
4 would require manufacturers to design PTHPs at higher efficiency
levels than that of PTACs at the same cooling capacity. The differences
in efficiencies between PTACs and PTHPs could negatively affect the
margins or decrease the market share of small businesses because
manufacturers would potentially need to design separate platforms of
PTACs and PTHPs. Each platform would require significant capital for
research and development that small business may not readily have as
their large competitors.
Chapter 12 of the TSD contains more information about the impact of
this rulemaking on manufacturers. DOE interviewed two small businesses
affected by this rulemaking (see also section IV.F.1 above). DOE also
obtained information about small business impacts while interviewing
manufacturers that exceed the small business size threshold of 750
employees.

C. Review Under the Paperwork Reduction Act

This rulemaking will impose no new information or record keeping
requirements. Accordingly, Office of Management and Budget clearance is
not required under the Paperwork Reduction Act. (44 U.S.C. 3501 et
seq.)

D. Review Under the National Environmental Policy Act

DOE has prepared a draft environmental assessment (EA) of the
impacts of the proposed rule, pursuant to the National Environmental
Policy Act of 1969 (42 U.S.C. 4321 et seq.), the regulations of the
Council on Environmental Quality (40 CFR parts 1500-1508), and DOE's
regulations for compliance with the National Environmental Policy Act
(10 CFR part 1021). The EA has been incorporated into the TSD; the
environmental impact analyses are contained primarily in Chapter 16 for
that document. Before issuing the final rule for PTACs and PTHPs, DOE
will consider public comments and, as appropriate, issue the final EA.
Based on the EA, DOE will determine whether to issue a finding of no
significant impact or prepare an environmental impact statement for
this rulemaking.

E. Review Under Executive Order 13132

Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999)
imposes certain requirements on agencies formulating and implementing
policies or regulations that preempt State law or that have federalism
implications. The Executive Order requires agencies to examine the
constitutional and statutory authority supporting any action that would
limit the policymaking discretion of the States and to assess carefully
the necessity for such actions. The Executive Order also requires
agencies to have an accountable process to ensure meaningful and timely
input by State and local officials in the development of regulatory
policies that have federalism implications. On March 14, 2000, DOE
published a statement of policy describing the intergovernmental
consultation process it will follow in the development of such
regulations. 65 FR 13735. DOE has examined today's proposed rule and
has determined that it does not have a substantial direct effect on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. EPCA governs and prescribes Federal
preemption of State regulations as to energy conservation for the
equipment that is the subject of today's proposed rule. States can
petition DOE for exemption from such preemption to the extent, and
based on criteria, set forth in EPCA. (42 U.S.C. 6297(d) and
6316(b)(2)(D)) No further action is required by Executive Order 13132.

F. Review Under Executive Order 12988

With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996) imposes on
Federal agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. Section 3(b) of Executive
Order 12988 specifically requires that Executive agencies make every
reasonable effort to ensure that the regulation: (1) Clearly specifies
the preemptive effect, if any; (2) clearly specifies any effect on
existing Federal law or regulation; (3) provides a clear legal standard
for affected conduct while promoting simplification and burden
reduction; (4) specifies the retroactive effect, if any; (5) adequately
defines key terms; and (6) addresses other important issues affecting
clarity and general draftsmanship under any guidelines issued by the
Attorney General. Section 3(c) of Executive Order 12988 requires
Executive agencies to review regulations in light of applicable
standards in section 3(a) and section 3(b) to determine whether they
are met or it is unreasonable to meet one or more of them. DOE has
completed the required review and determined that, to the extent
permitted by law, this proposed rule meets the relevant standards of
Executive Order 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) (UMRA) requires each Federal agency to assess the effects of Federal
regulatory actions on State, local, and Tribal governments and the
private sector. For a proposed regulatory action likely to result in a
rule that may cause the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector of $100 million
or more in any one year (adjusted annually for inflation), section 202
of UMRA requires a Federal agency to publish a written statement that
estimates the resulting costs, benefits, and other effects on the
national economy. (2 U.S.C. 1532(a),(b)) The UMRA also requires a
Federal agency to develop an effective process to permit timely input
by elected officers of State, local, and Tribal governments on a
proposed ``significant intergovernmental mandate,'' and requires an
agency plan for giving notice and opportunity for timely input to
potentially affected small governments before establishing any
requirements that might significantly or uniquely affect small
governments. On March 18, 1997, DOE published a statement of policy on
its process for intergovernmental consultation under UMRA (62 FR 12820)
(also available at

[[Page 18913]]

http://www.gc.doe.gov). The proposed rule published today contains
neither an intergovernmental mandate nor a mandate that may result in
expenditure of $100 million or more in any year, so these requirements
do not apply.

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

Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any rule that may affect family well-being.
This rule would not have any impact on the autonomy or integrity of the
family as an institution. Accordingly, DOE has concluded that it is not
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

DOE has determined, under Executive Order 12630, ``Governmental
Actions and Interference with Constitutionally Protected Property
Rights,'' 53 FR 8859 (March 18, 1988), that this regulation would not
result in any taking that would require compensation under the Fifth
Amendment to the United States Constitution.

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

The Treasury and General Government Appropriations Act, 2001 (44
U.S.C. 3516 note) provides for agencies to review most disseminations
of information to the public under guidelines established by each
agency pursuant to general guidelines issued by OMB. OMB's guidelines
were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines
were published at 67 FR 62446 (October 7, 2002). DOE has reviewed
today's notice under the OMB and DOE guidelines and has concluded that
it is consistent with applicable policies in those guidelines.

K. Review Under Executive Order 13211

Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001) requires Federal agencies to prepare and submit to the
Office of Information and Regulatory Affairs (OIRA) at OMB, a Statement
of Energy Effects for any proposed significant energy action. A
``significant energy action'' is defined as any action by an agency
that promulgated or is expected to lead to promulgation of a final
rule, and that: (1) Is a significant regulatory action under Executive
Order 12866, or any successor order; and (2) is likely to have a
significant adverse effect on the supply, distribution, or use of
energy, or (3) is designated by the Administrator of OIRA as a
significant energy action. For any proposed significant energy action,
the agency must give a detailed statement of any adverse effects on
energy supply, distribution, or use should the proposal be implemented,
and of reasonable alternatives to the action and their expected
benefits on energy supply, distribution, and use.
Today's regulatory action would not have a significant adverse
effect on the supply, distribution, or use of energy and, therefore, is
not a significant energy action. Accordingly, DOE has not prepared a
Statement of Energy Effects.

L. Review Under the Information Quality Bulletin for Peer Review

On December 16, 2004, OMB, in consultation with the Office of
Science and Technology (OSTP), issued its ``Final Information Quality
Bulletin for Peer Review'' (Bulletin). 70 FR 2664 (January 14, 2005).
The Bulletin establishes that certain scientific information shall be
peer reviewed by qualified specialists before it is disseminated by the
Federal government, including influential scientific information
related to agency regulatory actions. The purpose of the bulletin is to
enhance the quality and credibility of the Government's scientific
information. Under the Bulletin, the energy conservation standards
rulemakings analyses are ``influential scientific information.'' The
Bulletin defines ``influential scientific information'' as ``scientific
information the agency reasonably can determine will have, or does
have, a clear and substantial impact on important public policies or
private sector decisions.'' 70 FR 2667 (January 14, 2005).
In response to OMB's Bulletin, DOE conducted formal in-progress
peer reviews of the energy conservation standards development process
and analyses and has prepared a Peer Review Report pertaining to the
energy conservation standards rulemaking analyses. The ``Energy
Conservation Standards Rulemaking Peer Review Report'' dated February
2007 has been disseminated and is available at the following Web site:
http://www.eere.energy.gov/buildings/appliance_standards/peer_
review.html. DOE on June 28-29, 2005.

VII. 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., Washington, DC,
20585-0121. To attend the public meeting, please notify Ms. Brenda
Edwards at (202) 586-2945. Foreign nationals visiting DOE Headquarters
are subject to advance security screening procedures, requiring a 30-
day advance notice. Any foreign national wishing to participate in the
meeting should advise DOE of this fact as soon as possible by
contacting Ms. Brenda Edwards 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.
Such persons may 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 in the ADDRESSES section at the
beginning of this notice of proposed rulemaking between the hours of 9
a.m. and 4 p.m., Monday through Friday, except Federal holidays.
Requests may also be sent by mail or e-mail to:
Brenda.Edwards@ee.doe.gov.
Persons requesting to speak should briefly describe the nature of
their interest in this rulemaking and provide a telephone number for
contact. DOE requests persons selected to be heard to submit an advance
copy of their statements by 4 p.m., April 21, 2008. At its discretion,
DOE may permit any person 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

DOE will designate a DOE official to preside at the public meeting
and may 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 proceedings
and prepare a transcript. DOE reserves the right to schedule the order
of presentations and to establish the procedures governing

[[Page 18914]]

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. DOE 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. DOE 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. DOE
representatives may also ask questions of participants concerning other
matters relevant to this rulemaking. 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.
DOE will make the entire record of this proposed rulemaking,
including the transcript from the public meeting, available for
inspection at the U.S. Department of Energy, Forrestal Building,
Resource Room of the Building Technologies Program, 950 L'Enfant Plaza,
SW., 6th Floor, Washington, DC 20024, (202) 586-9127, 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

DOE will accept comments, data, and information regarding the
proposed rule before or after the public meeting, but no later than the
date provided at the beginning of this notice of proposed rulemaking.
Please submit comments, data, and information electronically. Send them
to the following e-mail address: ptac_hp@ee.doe.gov. 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-2007-BT-STD-0012 and/or RIN 1904-AB44, 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.
According 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. DOE
will make its own determination about the confidential status of the
information and treat it according to its determination.
Factors of interest to DOE 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

DOE is particularly interested in receiving comments and views of
interested parties concerning the following issues:
1. Addendum t to ASHRAE/IESNA Standard 90.1-2007 (i.e., ARI's
continuous maintenance proposal on PTACs and PTHPs), which proposes
changes to the non-standard delineations in ASHRAE/IESNA Standard 90.1-
1999. As explained in section IV.C.2, of this preamble, DOE proposes to
incorporate the modified definitions in Addendum t in the final rule if
ASHRAE adopts Addendum t prior to September 2008.
2. The approach to extrapolate the engineering analysis to cooling
capacities for which complete analysis was not performed.
3. The EER and COP pairings for PTHPs based on current ARI product
directory information.
4. The rebound effect for the PTAC and PTHP industry.
5. Estimation for the installation, maintenance, and repair costs.
In particular, DOE is interested in how the installation, maintenance,
and repair costs may change with the implementation of R-410A
refrigerant in 2010 because DOE's estimates are based on R-22 data from
the field.
6. The prediction and the potential significance of the
overestimate in energy savings due to the assumption that forecasted
market shares of PTACs and PTHPs at each efficiency level considered in
the NOPR would remain frozen beginning in 2012 until the end of the
forecast period (30 years after the effective date--the year 2042). In
particular, DOE requests data that would enable it to better
characterize the likely increases in efficiency that would occur over
the 30-year analysis period in the absence of this rule (i.e., the
distribution of efficiency levels in absence of standards is assumed to
be constant).
7. The NES-forecasted base case distribution of efficiencies after
the refrigerant phaseout and its prediction on how amended energy
conservation standards impact the distribution of efficiencies in the
standards case.
8. Whether amended energy conservation standards will result in
PTAC and PTHP customers shifting to other, less efficient equipment
types.
9. The NES shipments forecasts of total shipments for standard size
and non-standard size equipment. In addition, the distribution of
standard size equipment being placed into new construction buildings
versus replacing existing units.
10. The proposed standard level, TSL 4, for standard size PTACs and
PTHPs and non-standard size PTACs and PTHPs.
11. Whether DOE should consider either a higher or a lower TSL,
including the ASHRAE/IESNA Standard 90.1-1999 baseline efficiency
levels, in the final rule due to the magnitude of the impacts and the
cumulative regulatory burdens of the R-22 phaseout.
12. The proposal to adopt TSL 4 which requires different efficiency
levels for PTACs and PTHPs, DOE is interested in receiving comment on
potential equipment switching as discussed in section IV.G.3 of today's
notice (i.e., will TSL 4 cause PTHP customers to shift to less
efficient PTACs).
13. The unique impacts on the non-standard size equipment and
manufacturers. In particular, the consideration of a lower TSL for non-
standard size PTACs and PTHPs due to the unique market and potentially

[[Page 18915]]

substantial impacts. For example, at TSL 4, non-standard size
manufacturers are expected to lose from $9 million to $12 million in
INPV, which is a reduction in 34 percent to 44 percent. In addition,
whether the ASHRAE/IESNA Standard 90.1-1999 delineations for standard
and non-standard size units would result in equipment lines being
misclassified and unavailable.
14. The above-discussed approach for labeling of PTACs and PTHPs.
Specifically, DOE invites comments on the types of energy use
information and format consumers would find useful on a PTAC or PTHP
label.

VIII. Approval of the Office of the Secretary

The Secretary of Energy has approved publication of this proposed
rule.

List of Subjects in 10 CFR Part 431

Administrative practice and procedure, Energy conservation,
Household appliances.

Issued in Washington, DC, on March 28, 2008.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.
For the reasons set forth in the preamble, chapter II of title 10,
Code of Federal Regulations, part 431 is proposed to be amended to read
as set forth below.

PART 431--ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND
INDUSTRIAL EQUIPMENT

1. The authority citation for part 431 continues to read as
follows:

Authority: 42 U.S.C. 6291-6317.

2. Section 431.92 of Subpart F is amended by adding in alphabetical
order new definitions for ``Non-standard size'' and ``Standard size,''
to read as follows:

Sec. 431.92 Definitions concerning commercial air conditioners and
heat pumps.

* * * * *
Non-standard size means a packaged terminal air conditioner or
packaged terminal heat pump with wall sleeve dimensions less than 16
inches high and less than 42 inches wide.
* * * * *
Standard size means a packaged terminal air conditioner or packaged
terminal heat pump with a wall sleeve dimension greater than or equal
to 16 inches high, or greater than or equal to 42 inches wide.
* * * * *
3. Section 431.97 of Subpart F is amended by revising paragraph
(a), including Tables 1 and 2, and by adding a new paragraph (c) to
read as follows:

Sec. 431.97 Energy efficiency standards and their effective dates.

(a) All small or large commercial package air-conditioning and
heating equipment manufactured on or after January 1, 1994 (except for
large commercial package air-conditioning and heating equipment, for
which the effective date is January 1, 1995), and before January 1,
2010 in the case of the air-cooled equipment covered by the standards
in paragraph (b), must meet the applicable minimum energy efficiency
standard level(s) set forth in Tables 1 and 2 of this section. Each
packaged terminal air conditioner or packaged terminal heat pump
manufactured on or after January 1, 1994, and before September 30,
2012, must meet the applicable minimum energy efficiency standard
level(s) set forth in Tables 1 and 2 of this section.

Table 1 to Sec. 431.97.--Minimum Cooling Efficiency Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Efficiency level\1\
---------------------------------------------
Product Category Cooling capacity Sub-category Products manufactured Products manufactured
until October 29, on and after October
2003 29, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small Commercial Packaged Air Air Cooled, 3 Phase... <65,000 Btu/h......... Split System......... SEER = 10.0.......... SEER = 10.0.
Conditioning and Heating Equipment. Single Package....... SEER = 9.7........... SEER = 9.7.
Air Cooled............ >=65,000 Btu/h and All.................. EER = 8.9............ EER = 8.9.
<135,000 Btu/h.
Water Cooled <17,000 Btu/h......... AC................... EER = 9.3............ EER = 12.1.
Evaporatively Cooled, ...................... HP................... EER = 9.3............ EER = 11.2.
and Water-Source. >=17,000 Btu/h and AC................... EER = 9.3............ EER = 12.1.
<65,000 Btu/h. HP................... EER = 9.3............ EER = 12.0.
>=65,000 Btu/h and AC................... EER = 10.5........... EER = 11.5.\2\
<135,000 Btu/h. HP................... EER = 10.5........... EER = 12.0.
Large Commercial Packaged Air Air Cooled............ >=135,000 Btu/h and All.................. EER = 8.5............ EER = 8.5.
Conditioning and Heating Equipment. <240,000 Btu/h.
Water-Cooled and >=135,000 Btu/h and All.................. EER = 9.6............ EER = 9.6.\3\
Evaporatively Cooled. <240,000 Btu/h.
Packaged Terminal Air Conditioners All................... <7,000 Btu/h.......... All.................. EER = 8.88........... EER = 8.88.
and Heat Pumps.
>=7,000 Btu/h and ..................... EER = 10.0-(0.16 x EER = 10.0-(0.16 x
<=15,000 Btu/h capacity [in kBtu/h capacity [in kBtu/h
at 95[deg]F outdoor at 95[deg]F outdoor
dry-bulb dry-bulb
temperature]). temperature]).
>15,000 Btu/h......... ..................... EER = 7.6............ EER = 7.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For equipment rated according to the ARI standards, all EER values must be rated at 95 [deg]F outdoor dry-bulb temperature for air-cooled products
and evaporatively-cooled products and at 85 [deg]F entering water temperature for water-cooled products. For water-source heat pumps rated according
to the ISO standard, EER must be rated at 30 [deg]C (86 [deg]F) entering water temperature.
\2\ Deduct 0.2 from the required EER for units with heating sections other than electric resistance heat.
\3\ Effective 10/29/2004, the minimum value became EER = 11.0.

[[Page 18916]]

Table 2 to Sec. 431.97.--Minimum Heating Efficiency Levels
--------------------------------------------------------------------------------------------------------------------------------------------------------
Efficiency level \1\
---------------------------------------------
Product Category Cooling capacity Sub-category Products manufactured Products manufactured
until October 29, on and after October
2003 29, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small Commercial Packaged Air Air Cooled, 3 Phase... <65,000 Btu/h......... Split System......... HSPF = 6.8........... HSPF = 6.8.
Conditioning and Heating Equipment. Single Package....... HSPF = 6.6........... HSPF = 6.6.
Water-Source.......... <135,000 Btu/h........ Split System and COP = 3.8............ COP = 4.2.
Single Package.
Air Cooled............ >=65,000 Btu/h and All.................. COP = 3.0............ COP = 3.0.
<=135,000 Btu/h.
Large Commercial Packaged Air Air Cooled............ >=135,000 Btu/h and Split System and COP = 2.9............ COP = 2.9.
Conditioning and Heating Equipment. <0,000 Btu/h. Single Package.
Packaged Terminal Heat Pumps....... All................... All................... All.................. COP = 1.3+(0.16 x the COP = 1.3+(0.16 x the
applicable minimum applicable minimum
cooling EER cooling EER
prescribed in Table prescribed in Table
1--Minimum Cooling 1--Minimum Cooling
Efficiency Levels). Efficiency Levels).
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For units tested by ARI standards, all COP values must be rated at 47[deg] F outdoor dry-bulb temperature for air-cooled products, and at 70[deg] F
entering water temperature for water-source heat pumps. For heat pumps tested by the ISO Standard 13256-1, the COP values must be obtained at the
rating point with 20[deg] C (68[deg] F) entering water temperature.

* * * * *
(c) Each packaged terminal air conditioner or packaged terminal
heat pump manufactured on or after September 30, 2012, shall have an
Energy Efficiency Ratio and Coefficient of Performance no less than:

----------------------------------------------------------------------------------------------------------------
Equipment Category Cooling capacity Efficiency level \*\
----------------------------------------------------------------------------------------------------------------
Packaged Terminal Air Conditioner. Standard Size........ <7,000 Btu/h.............. EER = 11.4
>=7,000 Btu/h and <=15,000 EER = 13.0--(0.233 x Cap
Btu/h. \**\)
>15,000 Btu/h EER = 9.5
Non-Standard Size.... <7,000 Btu/h.............. EER = 10.2
>=7,000 Btu/h and <=15,000 EER = 11.7--(0.213 x Cap
Btu/h \**\)
>15,000 Btu/h EER = 8.5
Packaged Terminal Heat Pump....... Standard Size........ <7,000 Btu/h.............. EER = 11.8
.......................... COP = 3.3
>=7,000 Btu/h and <=15,000 EER = 13.4--(0.233 x Cap
Btu/h \**\)
COP = 3.7--(0.053 x Cap
\**\)
>15,000 Btu/h EER = 9.9
.......................... COP = 2.9
Non-Standard Size.... <7,000 Btu/h.............. EER = 10.8
.......................... COP = 3.0
>=7,000 Btu/h and <=15,000 EER = 12.3--(0.213 x Cap
Btu/h \**\)
COP = 3.1--(0.026 x Cap
\**\)
>15,000 Btu/h EER = 9.1
.......................... COP = 2.8
----------------------------------------------------------------------------------------------------------------
\*\ For equipment rated according to the DOE test procedure, all EER values must be rated at 95[deg] F outdoor
dry-bulb temperature for air-cooled products and evaporatively-cooled products and at 85[deg] F entering water
temperature for water cooled products. All COP values must be rated at 47[deg] F outdoor dry-bulb temperature
for air-cooled products, and at 70[deg] F entering water temperature for water-source heat pumps.
\**\ Cap means cooling capacity in thousand British thermal units per hour (Btu/h) at 95[deg] F outdoor dry-bulb
temperature.

[FR Doc. E8-6907 Filed 4-4-08; 8:45 am]

BILLING CODE 6450-01-P