[Federal Register Volume 64, Number 226 (Wednesday, November 24, 1999)]
[Proposed Rules]
[Pages 66306-66340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30480]



[[Page 66305]]

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Part III





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



_______________________________________________________________________



10 CFR Part 430



Energy Conservation Program for Consumer Products: Energy Conservation 
Standards for Central Air Conditioner and Heat Pumps; Proposed Rule

  Federal Register / Vol. 64, No. 226 / Wednesday, November 24, 1999 / 
Proposed Rules  

[[Page 66306]]



DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430

[Docket No. EE-RM/STD-98-440]
RIN 1904-AA77


Energy Conservation Program for Consumer Products: Energy 
Conservation Standards for Central Air Conditioners and Heat Pumps

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

ACTION: Supplemental Advance Notice of Proposed Rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Department of Energy publishes this Supplemental Advance 
Notice of Proposed Rulemaking (ANOPR) to consider amending the energy 
conservation standards for central air conditioners and heat pumps.
    The purpose of this Supplemental ANOPR is to provide interested 
persons with an opportunity to comment on:
    First, the product classes that the Department is planning to 
analyze;
    Second, the analytical framework, models (e.g., the Government 
Regulatory Impact Model (GRIM)), and tools (e.g., a Monte Carlo 
sampling methodology, and life-cycle cost (LCC) and national energy 
savings (NES) spreadsheets) that the Department has been using in 
performing analyses of the impacts of energy conservation standards;
    Third, the results of preliminary analyses for the engineering, 
LCC, payback and NES contained in the Preliminary Technical Support 
Document (TSD): Energy Efficiency Standards for Consumer Products: 
Central Air Conditioners and Heat Pumps and summarized in this 
Supplemental ANOPR; and
    Fourth, the candidate energy conservation standard levels that the 
Department has developed from these analyses.

DATES: Written comments must be received by February 7, 2000. The 
Department requests 10 copies of the written comments and, if possible, 
a computer disk. The Office of Building Research and Standards is 
currently using WordPerfect 8.
    A public hearing will be held on December 9, 1999, from 9 am-5 pm. 
See Section IV of the Supplementary Information for further details.

ADDRESSES: Written comments should be submitted to: U.S. Department of 
Energy, Attn: Brenda Edwards-Jones, Office of Energy Efficiency and 
Renewable Energy, ``Energy Efficiency Standards for Consumer 
Products,'' (Docket No. EE-RM-94-403), EE-431, Forrestal Building, 1000 
Independence Avenue, SW, Room 1J-018, Washington, DC 20585, (202) 586-
2945.
    The public hearing will be held at the U.S. Department of Energy, 
Forrestal Building, 1000 Independence Avenue SW, Room 1E-245, 
Washington, DC 20585.
    Copies of the Preliminary TSD: Energy Efficiency Standards for 
Consumer Products: Central Air Conditioners and Heat Pumps may also be 
obtained from: U.S. Department of Energy, Office of Building Research 
and Standards, 1000 Independence Avenue, SW, Rm 1J-018, Washington, 
D.C. 20585-0121, (202) 586-9127. The Preliminary TSD will also be 
available through DOE's web site. The Preliminary TSD provides the 
technical details of the analysis that was conducted in support of the 
Supplemental ANOPR being issued today.
    Public Information: The public may visit the Freedom of Information 
Reading Room, located at the US Department of Energy, Forrestal 
Building, 1000 Independence Avenue, SW, Room 1E-190, Washington, DC 
20585 between the hours of 9 am and 4 pm, Monday through Friday, 
(except Federal holidays). Call (202) 586-3142 for information.
    For more information concerning public participation in this 
rulemaking proceeding, see section IV, ``Public Comment Procedures,'' 
of this document.

FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department 
of Energy, Office of Energy Efficiency and Renewable Energy, Forrestal 
Building, Mail Station EE-41, 1000 Independence Avenue, SW, Washington, 
DC 20585-0121, (202) 586-0854, E-mail: Michael.E.McC[email protected].
    Edward Levy, Esq., U.S. Department of Energy, Office of General 
Counsel, Forrestal Building, Mail Station GC-72, 1000 Independence 
Avenue, SW, Washington, DC 20585, (202) 586-9507, E-mail: 
Edward.L[email protected].

SUPPLEMENTARY INFORMATION:

I. Introduction
    A. Authority
    B. Background
    1. History
    2. Process Improvement
    3. Test Procedure
II. Central Air Conditioners and Heat Pumps Analyses
    A. Preliminary Market and Technology Assessment
    1. Market Assessment
    a. General
    b. Product Specific
    2. Technology Assessment
    a. General
    b. Product Specific
    3. Preliminary Baseline Shipments Forecast
    a. General
    b. Product Specific
    B. Screening Analysis
    1. Product Classes
    a. General
    b. Product Specific
    2. Baseline Equipment
    a. General
    b. Product Specific
    3. Technology Screening
    a. General
    b. Product Specific
    C. Engineering Analysis
    1. Energy Savings Potential and Production Costs
    a. General
    b. Product Specific
    i. Efficiency-Level Approach
    ii. Reverse Engineering Approach
    iii. Design Option Approach
    iv. Outside Regulatory Changes Affecting the Engineering 
Analysis
    2. Manufacturing Costs
    a. General
    b. Product Specific
    i. Characterizing Uncertainty
    ii. Variability in Costs Among Manufacturers
    iii. Proprietary Design
    D. Life-Cycle Cost (LCC) and Payback Analysis
    1. LCC Spreadsheet Model
    a. General
    b. Product Specific
    i. LCC Analysis
    ii. Equipment Prices
    iii. Payback Analysis (Distribution of Paybacks)
    iv. Rebuttable Payback
    2. Preliminary Results
    a. General
    b. Product Specific
    E. Preliminary National Impact Analyses
    1. National Energy Savings (NES) Spreadsheet Model
    a. General
    b. Product Specific
    i. Inputs to NES Analysis
    ii. Shipments Model
    iii. National Net Present Value
    2. Preliminary Results
    a. General
    b. Product Specific
    3. Indirect Employment Impacts
    a. General
    b. Product Specific
    F. Consumer Analyses
    1. Consumer Sub-group Analysis
    a. General
    b. Product Specific
    2. Consumer Participation
    a. General
    b. Product Specific
    G. Manufacturer Impact Analysis
    1. Industry Characterization (Phase 1)
    a. General
    b. Product Specific
    2. Industry Cash Flow (Phase 2)
    a. General
    b. Product Specific

[[Page 66307]]

    3. Manufacturer Sub-Group Analysis (Phase 3)
    a. General
    b. Product Specific
    4. Interview Process
    a. General
    b. Product Specific
    H. Competitive Impact Assessment
    a. General
    b. Product Specific
    I. Utility Analysis
    1. Proposed Methodology
    a. General
    b. Product Specific
    J. Environmental Analysis
    1. Proposed Methodology
    a. General
    b. Product Specific
    K. Regulatory Impact Analysis
III. Proposed Standards Scenarios
IV. Public Comment Procedures
    A. Participation in Rulemaking
    B. Written Comment Procedures
    C. Issues for Public Comment
V. Review Under Executive Order 12866 and other provisions

I. Introduction

A. Authority

    Part B of Title III of the Energy Policy and Conservation Act, Pub. 
L. 94-163, as amended by the National Energy Conservation Policy Act, 
Pub. L. Law 95-619, the National Appliance Energy Conservation Act of 
1987, Pub. L. 100-12, the National Appliance Energy Conservation 
Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, 
Pub. L. 102-486, (EPCA or the Act), created the Energy Conservation 
Program for Various Consumer Products other than Automobiles. 42 U.S.C. 
6291-6309.
    The National Appliance Energy Conservation Act of 1987 amended EPCA 
to impose performance standards for central air conditioners and heat 
pumps as part of the energy conservation program for consumer products. 
EPCA, section 325(d), 42 U.S.C. 6295 (d). EPCA also requires the 
Department to publish final rules thereafter, to determine if these 
standards should be amended.
    Before the Department determines whether to adopt a proposed energy 
conservation standard it must first solicit comments on the proposed 
standard. EPCA, section 325 (p), 42 U.S.C. 6295 (p). Any new or amended 
standard must be designed so as to achieve the maximum improvement in 
energy efficiency that is technologically feasible and economically 
justified. EPCA, section 325(o)(2)(A), 42 U.S.C. 6295 (o)(2)(A). To 
determine whether economic justification exists the Department must 
review comments on the proposal and determine that the benefits of the 
proposed standard exceed its burdens based to the greatest extent 
practicable, weighing the following seven factors:
    (1) The economic impact of the standard on the manufacturers and on 
the consumers of the products subject to such standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered product in the type (or class) compared to any 
increase in the price, initial charges, or maintenance expenses for the 
covered products that are likely to result directly from the imposition 
of the standard;
    (3) The total projected amount of energy savings likely to result 
directly from the imposition of the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from the imposition of the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
imposition of the standard;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary considers relevant.
EPCA, Section 325(2)(B), 42 U.S.C. 6295(2)(B)

B. Background

1. History
    The Energy Policy and Conservation Act, as amended (EPCA or Act), 
requires the Department of Energy (DOE or Department) to consider 
amending the energy conservation standards for certain major household 
appliances. In 1992, the Department initiated engineering and LCC 
studies for central air conditioners and heat pumps based on use of 
computer simulation models. An ad hoc working group was formed to 
advise the Department and to provide engineering and test data to use 
with the computer models. The working group, which included 
representatives from central air conditioner and heat pump 
manufacturers, the Air Conditioning & Refrigeration Institute (ARI), 
Lawrence Berkeley National Laboratory (LBNL), and Oak Ridge National 
Laboratory (ORNL), also provided production cost data for establishing 
the cost-effectiveness of the various design options selected for 
study.
    On September 8, 1993, the Department published an ANOPR (58 FR 
47326 ) which discussed the number of product classes and design 
options, the computer simulation models, and the methodologies which 
the Department intended to use in its analysis of increased energy 
efficiency standards for central air conditioners and heat pumps. After 
the ANOPR was issued, the Department continued its analysis of LCCs, 
payback periods, and preliminary NES which were shared with 
representatives from the air-conditioning industry.
    In 1995, the Department abandoned the approach of using computer 
simulation models as a result of concerns expressed by the industry. 
The concerns included: the cost/performance relations derived from the 
computer simulations were not consistent with the experience of the 
industry; the assumptions and procedures were flawed; and the industry 
expressed doubts over the Department's experience with selection of 
appropriate design options.
    In October, 1995, a moratorium on proposing, issuing, or 
prescribing energy conservation standards took effect pertaining to 
standards for central air conditioners and heat pumps, and the dialogue 
between the air-conditioning industry and the Department, on the 
analysis performed, was suspended.
2. Process Improvement
    During consideration of the fiscal year 1996 appropriations, there 
was considerable debate about the efficacy of the standards program. 
The Department of the Interior and Related Agencies Appropriations Act 
for Fiscal Year 1996 included the aforementioned moratorium on 
proposing or issuing energy conservation appliance standards for the 
remainder of Fiscal Year 1996. See Pub. L. 104-134. Congress advised 
DOE to correct the standards-setting process and to bring together 
stakeholders (such as manufacturers and environmentalists) for 
assistance. In September 1995, the Department announced a formal effort 
to consider further improvements to the process used to develop 
appliance efficiency standards, calling on manufacturers, energy 
efficiency groups, trade association, state agencies, utilities and 
other interested parties to provide input to guide the Department. On 
July 15, 1996, the Department published a Final Rule: Procedures for 
Consideration of New or Revised Energy Conservation Standards for 
Consumer Products (hereinafter referred to as the Process Rule). 61 FR 
36974.
    The Process Rule outlines the procedural improvements identified by 
the interested parties. The process improvement effort included a 
review of the: (1) Economic models, such as the Manufacturer Analysis 
Model and Residential Energy Model; (2) analytical tools, such as the 
use of a Monte Carlo sampling methodology; and (3)

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prioritization of future rules. The Process Rule requires the 
evaluation of uncertainty and variability by doing scenario or 
probability analysis (as detailed in the Process Rule, 10 CFR part 430, 
subpart C, appendix A sections 1(f), 4(d)(2), and 10(f)(1)). In 
addition, an Advisory Committee on Appliance Energy Efficiency 
Standards, consisting of a representative group of these interested 
parties, was established to make recommendations to the Secretary 
regarding the implementation of the Process Rule.
    The Process Rule is applicable in this rulemaking to develop new 
central air conditioner and heat pump standards. In this Supplemental 
ANOPR, the Department is presenting the framework by which it will 
develop the standards. The framework reflects improvements and steps 
detailed in the Process Rule. The rulemaking process is dynamic. If 
timely new data, models or tools that enhance the development of 
standards become available, they will be incorporated into the 
rulemaking. For example the Advisory Committee has made several 
recommendations and the Department has developed new models which are 
discussed in this Supplemental ANOPR.
    The Department held a workshop on June 30, 1998 to discuss the 
analytical framework that was being proposed for conducting the central 
air conditioner and heat pump rulemaking. The analytical framework 
presented at the workshop described the different analyses (e.g., the 
LCC, payback and national impact analyses) to be conducted (See Table 
1), the methods proposed for conducting them, and the relationship 
among the various analyses.

                   Table 1.--Central Air Conditioner and Heat Pump Analyses Under Process Rule
----------------------------------------------------------------------------------------------------------------
                ANOPR                               NOPR                              Final Rule
----------------------------------------------------------------------------------------------------------------
Screening Analysis...................  Revised Pre-ANOPR Analyses     Revise Analyses (LCC and National Impacts
                                        (LCC and National Impacts      Analyses).
                                        Analyses).
Engineering Analysis.................  Consumer Sub-group Analysis.
LCC Analysis.........................  Industry Cash Flow Analysis
                                        (GRIM).
Preliminary National Impacts Analysis  Manufacturer Impact Analysis.
                                       Utility Impact Analysis.
                                       Environmental Analysis.
 
----------------------------------------------------------------------------------------------------------------

    A number of concerns were raised at the framework workshop relating 
to the application of the Process Rule to the central air conditioner 
and heat pump rulemaking, with particular emphasis on (1) the 
appropriate approaches for conducting the Engineering Analysis, (2) how 
to validate manufacturer cost figures submitted by ARI, (3) methods for 
developing consumer equipment price data, and (4) how non-regulatory 
issues, e.g., the phase-out of hydro-fluoro-chloro-carbon (HCFC) 
refrigerants might affect the effective date of any new standards.
    In response to the concerns and comments of interested parties at 
the Framework Workshop, the Department decided to perform the 
Engineering Analysis based on the efficiency-level approach rather than 
the design option approach, using cost data submitted by manufacturers 
in aggregate via their trade association, ARI. The Department also 
decided to utilize a reverse engineering approach as a ``stand alone'' 
analysis for developing manufacturer costs and validating the ARI-
provided manufacturer's cost data. Both approaches are discussed in 
detail in the discussion of the Engineering Analysis (II C.).
    As part of the information gathering and sharing process, the 
Department and its contractors met several times with members of the 
ARI Unitary Equipment Regulatory Committee, presenting the preliminary 
manufacturer costs developed through the reverse engineering approach 
and demonstrating the LCC spreadsheet model. During this time period, 
ARI submitted relative production cost data for the four different 
product classes of central air conditioners and heat pumps (split 
system and single package for both air conditioners and heat pumps) for 
3-ton capacity systems at various efficiency levels. Efficiency levels 
are defined differently for air conditioners and for heat pumps. Air 
conditioner efficiency is defined by the descriptor, Seasonal Energy 
Efficiency Rating (SEER). Heat pump efficiency is defined by the 
descriptor, Heating Season Performance Factor (HSPF) while operating 
during the heating season and by SEER while operating during the 
cooling season. The cooling season efficiencies provided by ARI ranged 
from 11 to 14 SEER. The individual manufacturers provided their costs, 
which were normalized to 10 SEER equipment costs, to ARI. ARI 
aggregated the individual manufacturers' costs and provided the 
Department with minimum, maximum and shipment-weighted mean values.
    As will be discussed in the Engineering Analysis, the ARI-provided 
and reverse engineering manufacturer costs overlap considerably, 
especially at the lower efficiency levels in the split air conditioning 
class and in the middle efficiency levels of the split heat pump class. 
For the most part, the range between ARI's minimum and mean 
manufacturer costs completely encompasses the reverse engineering 
costs. This agreement is encouraging given the levels of uncertainty 
and variability involved in estimating representative manufacturer 
costs under different efficiency baselines across a diverse industry. 
These areas of convergence provide an excellent indication of the most 
likely costs of producing equipment utilizing today's technology under 
new standard levels.
    Although the two sets of manufacturer costs do overlap, they 
disagree in some respects. In particular, there are significant 
differences in the breadth of the manufacturer cost distributions at 
each efficiency level. The Department assumes that vigorous competition 
in the market for minimum-efficiency equipment will compel 
manufacturers to meet new standards at similar incremental manufacturer 
costs, and that the market cannot sustain as broad a range of costs as 
ARI's results may imply. Furthermore, we cannot replicate ARI's maximum 
manufacturer costs without altering our underlying assumptions beyond 
what we currently consider justified.
    The Department and ARI have worked diligently to identify possible 
sources of those discrepancies. The Department sincerely appreciates 
ARI's and its members' dedicated participation in the Engineering 
Analysis. Their relative manufacturer costs provide a solid

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foundation for further analysis, and their frequent review of and input 
to our validation effort is a valuable addition to our understanding of 
the production and design issues associated with meeting higher 
standards. The Department will work with ARI to understand the 
remaining differences between our two sets of manufacturer costs.
    With regard to the LCC, payback, and preliminary national impact 
analyses, three new spreadsheet tools were developed for this 
rulemaking in an effort to meet the objectives of the Process Rule. The 
first spreadsheet calculates LCC and payback. The second one calculates 
impacts of standards at various levels on shipments. The third 
calculates the NES and national net present values (NPV) at various 
standard levels. These spreadsheets and the results of the preliminary 
analysis were posted on the Department's web site on August 24, 1999. 
The preliminary results posted on the web consisted of two sets of 
data: one set based on the manufacturer costs submitted by ARI and the 
other set based on manufacturer costs developed through reverse 
engineering. The Department suggested that any errors in the web site 
materials be immediately brought to our attention for correction, and 
that any other comments be submitted during the 75 day period following 
publication of this Supplemental ANOPR.
    The Department has reviewed the recommendations made by the 
Advisory Committee on Appliance Energy Efficiency Standards on April 
21, 1998. (Advisory Committee, No. 96) These recommendations relate to 
using the full range of consumer marginal energy rates (CMER) in the 
LCC Analysis (replacing the use of national average energy prices), 
defining a range of energy price futures for each fuel used in the 
economic analyses and defining a range of primary energy conversion 
factors and associated emission reductions, based on the generation 
displaced by energy efficiency standards for each rulemaking. The 
Department has incorporated the use of consumer marginal energy rates 
and a range of future energy prices for the analysis that was conducted 
for this Supplemental ANOPR. The Department plans to incorporate the 
recommendations on energy conversion factors in future analyses for the 
Notice of Proposed Rulemaking (NOPR).
    Today's Supplemental ANOPR pertains to central air conditioners and 
heat pumps and utilizes the framework described in Section II. Both 
written and verbal comments from the June 30, 1998 Framework Workshop 
are being addressed in this document. The commentor's name and 
organization are shown in parentheses after each comment. Written 
comments are further identified by a number assigned to each set of 
written comments received during the commentary period. Verbal comments 
are further identified by the page number in the workshop transcript. 
Written comments and the Workshop transcript are viewable at the 
Department's Freedom of Information Reading Room described previously.
3. Test Procedure
    Section 7(b) of the Process Rule states that necessary 
modifications to test procedures concerning efficiency standards will 
be identified and proposed before issuance of an ANOPR. The residential 
central air conditioner and heat pump test procedure is currently being 
revised to improve its organization and ease of use, with a proposed 
rule expected in November, 1999. This revision of the test procedure is 
not expected to alter the measured efficiencies as determined under the 
existing test procedure. Therefore, the revised test procedure would 
not affect development of revised efficiency standards. For these 
reasons, revisions to the test procedure are not a ``necessary 
modification'' as that term is used in the Process Rule, but rather a 
routine update, and hence need not be proposed before issuance of the 
proposed rule for these standards.

II. Central Air Conditioner and Heat Pump Analyses

    This section includes a general introduction to each analysis 
section and provides a discussion of issues relevant to energy 
conservation standards for central air conditioners and heat pumps.
    The Department received a number of general comments from Energy 
Market & Policy Analysis (EMPA) regarding the analysis conducted for 
the rulemaking (EMPA, # 3). Some of these concern the rulemaking 
procedure, while others refer to the analytic methods, and are as 
follows: the methodology for evaluating standards is extremely complex 
and increasingly unrealistic; approaches, models, assumptions, data, 
and data sources need to be more detailed and should to be put out for 
public comment before issuance of the ANOPR; and inadequate 
consideration is given to the impact of standards on ``real consumers'' 
as EMPA believes that groups on the DOE Advisory Committee do not 
represent and protect the interests of ``real consumers.''
    The Department appreciates the concerns expressed previously. The 
methods and approaches used for the analyses conducted for this 
Supplemental ANOPR are well described and have been released on the 
Department's web site prior to the issuance of this notice. Any 
questions or comments as to how to clarify the methodologies used in 
this rulemaking are always welcome and appreciated.

A. Preliminary Market and Technology Assessment

    The preliminary market and technology assessment characterizes the 
relevant product markets and existing technology options including 
prototype designs.
1. Market Assessment
a. General
    When initiating a standards rulemaking, the Department develops 
information on the present and past industry structure and market 
characteristics of the product(s) concerned. This activity consists of 
both quantitative and qualitative efforts to assess the industry and 
products based on publicly available information. Issues to be 
addressed include: (1) Manufacturer market share and characteristics; 
(2) trends in the number of firms; (3) the financial situation of 
manufacturers; (4) existing non-regulatory efficiency improvement 
initiatives; and (5) trends in product characteristics and retail 
markets. The information collected serves as resource material to be 
used throughout the rulemaking. For instance, historical product 
shipments and prices are used to help predict future prices and 
shipments. Market structure data are particularly useful in conducting 
the competitive impacts analysis.
b. Product Specific
    The Department reviewed existing literature and interviewed 
manufacturers to get an overall picture of the residential central air-
conditioning market in the United States. Industry publications and 
trade journals, government agencies, and trade organizations provided 
the bulk of the information, including: (1) Manufacturer market share; 
(2) shipments by capacity and efficiency level; (3) price distribution; 
(4) market saturation; and (5) distribution trends. The information 
described is discussed in the sections where it is used in the 
analysis.
    Edison Electric Institute (EEI) commented that contractors should 
be interviewed when market assessments are being developed (EEI, # 2) 
while the

[[Page 66310]]

Oregon Office of Energy (OOE) requested the Department to gather 
information on trends in product characteristics and non-regulatory 
efficiency improvement initiatives, and to interview manufacturers of 
components (compressors, motor/fan assemblies, heat exchangers) on 
initiatives to improve system efficiency. (OOE, # 7) The Department 
relied predominantly upon literature searches and input from equipment 
manufacturers while developing its market assessment, but also 
interviewed national contracting organizations, independent contractors 
and component suppliers. Of course, this market assessment is 
preliminary, and any additional comments will be taken into 
consideration when the assessment is revised.
2. Technology Assessment
a. General
    Information relating to existing and past technology options and 
prototype designs are typically used as inputs to determine what 
technologies manufacturers utilize to attain higher energy efficiency 
levels. In consultation with interested parties, the Department 
develops a list of technologies that can and should be considered. 
Initially, the technologies encompass all those considered to be 
technologically feasible and serve to establish the maximum 
technologically feasible design.
b. Product Specific
    The Department based its list of technically feasible design 
options on design options included in a previous ANOPR (58 FR 47326, 
September 8, 1993). The Department then updated the list through 
consultation with manufacturers of components and systems, trade 
publications, and technical papers. Since many options for improving 
product efficiency are available in existing equipment, product 
literature and direct examination provided additional information. 
Further descriptions of the most current technologies are provided in 
the engineering section of the Preliminary TSD.
    OOE asserted that all appropriate component and system technologies 
must be considered in the technology assessment, and that it should 
include microchannel heat exchangers and electrohydrodynamic 
enhancement technologies (OOE, # 7). Additional technologies were 
considered as set forth in the Technology Screening Analysis (section 
II.B.3) including such emerging technologies as microchannel heat 
exchangers, modulating compressors, and advanced variable speed motors 
and controls. Electrohydrodynamic enhancement technologies were not 
considered as they have yet to be publicly demonstrated in prototypical 
central air conditioner and heat pump designs.
3. Preliminary Baseline Shipments Forecast
a. General
    The Department develops a preliminary baseline forecast of product 
shipments that assumes no new standards. This is an initial step in an 
iterative process. Subsequently, a more comprehensive baseline 
shipments forecast is prepared using a shipments model, superceding the 
preliminary forecast.
    The baseline shipments forecast is used as an input to the National 
Benefits Analysis. To perform the National Benefits Analysis, a 
forecast of shipment-weighted product efficiencies is prepared to the 
year 2030. To assess the average impact on the affected consumer, a 
forecast of product shipments by efficiency level was prepared for the 
year a new standard would come into effect.
b. Product Specific
    The Department prepared a baseline shipments forecast for central 
air conditioners and heat pumps. Data on historical product shipments 
guided preparation of the preliminary baseline shipments forecast.
    The Oregon Office of Energy (OOE) pointed out that non-regulatory 
energy efficiency programs are on the wane, and that if these programs 
are to be considered in shipment forecasting, it must be quantifiably 
demonstrated how they will transform the market (OOE, #7). Information 
from parties involved in market-based initiatives for increasing the 
sales of high-efficiency models was reviewed, but provided no 
quantifiable measure of how these programs impact product efficiencies 
on a national basis. However, because the baseline forecast assumes an 
efficiency distribution of 10.7 SEER, based on current sales, the 
impact of market-based initiatives is implicit in the baseline 
forecast.
    OOE also noted that since central air conditioning is not an 
essential appliance for most areas of the country, central air 
conditioning purchase price elasticities will likely be different than 
those used for forecasting shipments in other product rulemakings (OOE, 
#7). Since the shipments model used in this rulemaking was prepared 
specifically for central air conditioners and heat pumps, the 
Department believes this concern is addressed. The shipments model is 
further described in the Preliminary National Impacts Analysis 
discussion in section E.1.b.ii.

B. Screening Analysis

    The Screening Analysis reviews various technologies with regard to 
whether they: (a) Are technologically feasible; (b) are impracticable 
to manufacture, install and service; (c) have an adverse impact on 
product utility or product availability; and (d) have adverse impacts 
on health and safety. The subsequent Engineering Analysis does not 
consider or incorporate technologies that do not pass these tests, 
regardless of whether the Engineering Analysis takes a Design Option 
approach or an Efficiency-level approach. Technologies that pass the 
Screening Analysis tests may be considered further to determine their 
potential cost and efficiency impacts. The Screening Analysis also 
identifies possible product classes and baseline equipment to serve as 
a basis for further analysis.
1. Product Classes
a. General
    Product types are divided into classes using the following 
criteria: (a) The type of energy used; (b) capacity; and (c) 
performance-related features that affect consumer utility or 
efficiency. Different energy efficiency standards are applied to 
different product classes. In general, classes are defined using 
information obtained in discussions with appliance manufacturers, trade 
associations, and other interested parties.
b. Product Specific
    As prescribed by the National Appliance Energy Conservation Act 
(NAECA), central air conditioners and heat pumps are each categorized 
into split and single package systems, giving four product classes. The 
analysis performed to date includes only products in these four product 
classes at a nominal 3 ton capacity. However, there may be 
justification for establishing additional classes including product 
types such as:
     Through-the-wall condensing units,
     Ductless split systems,
     High-velocity space-conditioning systems, and
     Vertical packaged, wall mounted.
    The Department is also considering establishing new classes defined 
by the cooling or heating capacity of the equipment.
    OOE felt that the addition of more classes may be reasonable. For 
example, mini-splits and combined space/water

[[Page 66311]]

heating systems might be considered as separate classes based on their 
characteristics and configuration constraints (OOE, #7).
    EEI commented that the product classes be expanded to include gas-
fired air-conditioning equipment. Gas-fired equipment would then not be 
included as a design option, but as an additional product class for 
which baseline models must be developed. (EEI, # 2) Although the 
Department appreciates EEI's comments, the NAECA definition of central 
air conditioners subsumes only certain types of electric driven 
systems. This rulemaking addresses only products covered by that 
definition, and thus, no consideration will be given here to developing 
standards for fuel driven technologies.
    With regard to the additional product classes listed in this 
section, the Department is seeking input on whether they need to be 
established.
2. Baseline Equipment
a. General
    The Department defines baseline equipment for each product class as 
the starting point for analyzing energy efficiency improvements. 
Baseline equipment are models with the minimum allowable energy 
efficiency specified by the NAECA. Such baseline equipment are 
typically ``low-end'' units that contain no premium features, e.g., 
noise reduction or appearance features.
b. Product Specific
    Efficiency is the most important statistic required to establish 
the baseline model. Current minimum efficiency standards for split and 
single package system central air conditioners and central air 
conditioning heat pumps are 10.0 and 9.7 SEER, respectively. The 
current minima for the heating performance of split and single package 
central air conditioning heat pump systems are 6.8 and 6.6 HSPF, 
respectively. The Department used the split system minimum efficiency 
standards as the baseline efficiency for each of the above classes. If 
additional classes are created, the Department will apply the 
appropriate existing standard as the baseline efficiency for that 
class.
    OOE agreed with the Department's intent to use the efficiency of 
products that just meet the current minimum NAECA requirements as the 
baseline efficiency. (OOE, #7)
3. Technology Screening
a. General
    An initial list of efficiency enhancement options is developed from 
the technologies identified in the technology assessment. Then the 
Department, in consultation with interested parties, reviews the list 
to determine if they are practicable to manufacture, install and 
service, would adversely affect product utility or product 
availability, or would have adverse impacts on health and safety. 
Efficiency enhancement options not eliminated in the screening process 
are considered further in the Engineering Analysis.
b. Product Specific
    Compiling a list of efficiency enhancement options provided an 
understanding of the technologies available to manufacturers to improve 
equipment efficiency. This understanding also helped the Department 
estimate maximum technologically feasible efficiency levels. For split 
air conditioners, the Department believes, based on a preliminary 
analysis, that 20 SEER is the highest efficiency level attainable by 
2006 on a commercially practicable basis using design and technology 
options that pass the screening criteria. These include the following: 
enhanced and oversized heat transfer surfaces; variable or multispeed 
or variable capacity compressors; high efficiency compressors; 
electrically-commutated, variable-speed fan or blower motors, and 
thermostatic or electronic expansion valves. We assumed that the 
efficiency of compressors, motors, and heat transfer surfaces would 
improve slightly prior to the effective date of any new rule. The 20 
SEER level does not depend on any emerging technologies, because the 
Department believes that, although those technologies could reduce the 
cost of the equipment in the SEER 13 to SEER 17 range compared to 
established technologies, the emerging technologies will not advance 
the maximum attainable efficiency level.
    The analysis of manufacturing costs and prices was based only on 
technologies and designs available in mass produced products as of 
1998. The Department considered the potential cost impact of emerging 
technologies in a separate analysis described in the Preliminary TSD. 
The emerging technologies that pass the screening criteria include:
     Microchannel heat exchangers
     Advanced compressors
     Variable speed motor controls
    The American Council for an Energy Efficient Economy (ACEEE), OOE, 
Modine Manufacturing (Modine), and York International (York) all 
provided comments pertaining to emerging technologies. Both ACEEE and 
OOE suggested that all advanced or emerging technologies be considered 
(ACEEE, #5; Steve Nadel, ACEEE, Transcript, pp 80-81; OOE, #7) . ACEEE 
identified improved compressors and microchannel heat exchangers. ACEEE 
also stated that emerging technologies could be analyzed in the context 
of a reverse engineering analysis. Modine stated that PF (microchannel) 
heat exchangers are a viable technology for improving equipment 
efficiency, but their acceptance should be driven by market needs 
rather than through a desire to push the technology into the market 
(Modine, #1). Bristol Compressors (Bristol) is now bringing to market 
the Twin-Single (TS) compressor, a reciprocating compressor that 
reduces system capacity by de-activating one or more pistons under 
part-load operating conditions. Bristol states that this technology can 
increase central air conditioner and heat pump efficiency from either 
10 to 12 SEER or from 12 to 14 SEER. With a variable-speed indoor 
blower, the TS can increase system efficiency from 10 to 14 SEER (York, 
#4).
    In contrast, an industry representative contended that emerging 
technologies would already be in the marketplace if they were feasible 
and that, in the context of conducting an Engineering Analysis based on 
the use of the efficiency-level approach, emerging technologies should 
not be considered until they are shown to radically change the shape of 
the industry cost curve. (Jim Crawford, The Trane Company (Trane), 
Transcript, pp 81,87) ARI stated that in developing an aggregate 
industry cost curve, emerging technologies may or may not be included 
depending on whether manufacturers submitting data include them in 
their cost estimates (Ted Leland, ARI, Transcript, pp 85).
    The Department has performed a preliminary assessment of the 
potential impact of these technologies on the manufacturing costs of 
air-conditioning equipment and is seeking comment on the following: 
Whether these emerging technologies do in fact pass the screening 
criteria; the potential impact of these technologies on manufacturing 
cost, operating cost, and price; whether additional emerging 
technologies should be considered; and whether the maximum 
technologically feasible level is commercially practical.
    The Department notes that it is not considering fuel-driven 
technologies, such as gas-fired engine driven heat pumps, absorption 
heat pumps, and Stirling refrigeration cycles, as design options for 
central air conditioners and heat pumps. NAECA defines a central air 
conditioner and heat pump, in part,

[[Page 66312]]

as being ``powered by single phase electric current.'' This rulemaking 
concerns only products that meet the NAECA definition. Thus, fuel-
driven technologies are precluded from consideration here.

C. Engineering Analysis

    The purpose of the Engineering Analysis is to estimate the energy 
savings potential from increased equipment efficiency levels and the 
costs of achieving those levels, compared to the baseline equipment. 
The increased efficiency levels are associated with increased 
production costs. The efficiency/cost relations developed in the 
Engineering Analysis are combined with end-user costs in the LCC 
Analysis.
1. Energy Savings Potential and Production Costs
a. General
    The Engineering Analysis estimates the energy savings potential of 
the individual or combinations of design options not eliminated in the 
previous Screening Analysis. The Department, in consultation with 
stakeholders, uses the most appropriate means available to determine 
energy consumption, including an overall system approach or engineering 
modeling. Ranges and uncertainties in performance are established.
    The Engineering Analysis involves adding individual or combinations 
of design options to the baseline equipment. A cost-efficiency 
relationship is developed to show the manufacturer cost of achieving 
increased efficiency. The efficiency levels corresponding to various 
design option combinations are determined from manufacturer data 
submittals and from DOE engineering calculations.
    EPCA requires that, any new or amended standard, ``shall be 
designed to achieve the maximum improvement in energy efficiency that 
the Secretary determines is technologically feasible and economically 
justified.'' EPCA, section 325(l)(2)(A), 42 U.S.C. 6295(l)(2)(A). An 
essential role of the Engineering Analysis consists of identifying the 
maximum technologically feasible level. The maximum technologically 
feasible level is one that can be reached by the addition of efficiency 
improvements and/or design options, both commercially feasible or in 
working prototypes, to the baseline equipment. The Department believes 
that the design options must have been physically demonstrated in at 
least a prototype form to be considered technologically feasible.
    Three methodologies can be used to generate the manufacturing costs 
needed for the Engineering Analysis. These methods include: (1) The 
design-option approach, reporting the incremental costs of adding 
specific design options to a baseline model; (2) the efficiency-level 
approach, reporting relative costs of achieving energy efficiency 
improvements; and/or (3) the reverse engineering or cost-assessment 
approach which requires a ``bottoms-up'' manufacturing cost assessment 
based on a detailed bill of materials for models that operate at 
particular efficiency levels. The Department considers public comments 
in determining the best approach for a rulemaking.
    If the efficiency-level approach is used, the Department will 
select appropriate efficiency levels for data collection on the basis 
of: (1) Energy savings potential identified from engineering models; 
(2) observation of existing products on the market; and/or (3) 
information obtained for the technology assessment. Stakeholders will 
be consulted on the efficiency-level selection.
    The use of a design-option approach provides useful information 
such as the identification of potential technological paths 
manufacturers could use to achieve increased product energy efficiency. 
It also allows the use of engineering models to simulate the energy 
consumption of different design configurations under various user 
profiles and applications. However, the Department recognizes that the 
manufacturer cost information derived in the design-option approach 
does not reflect the variability in design strategies and cost 
structures that can exist among manufacturers. Therefore, the 
Department may derive additional manufacturing cost estimates from 
other approaches developed in consultation with interested parties.
    The reverse engineering or cost-assessment approach can be used to 
supplement the efficiency-level or design option approaches under 
special circumstances when data is not publically available for 
proprietary reasons, the product is a prototype and/or the data is not 
provided by the manufacturers.
b. Product Specific
    The Department, in consultation with stakeholders, has used both 
overall efficiency level and reverse engineering approaches. The 
efficiency-level analysis relies upon manufacturer cost submittals from 
ARI while the reverse engineering analysis relies upon manufacturer 
costs developed by Arthur D. Little, Inc. (ADL) for the Department. The 
design options selected in the Screening Analysis helped to establish 
potential efficiency improvements.
    Manufacturing cost estimates under the efficiency-level approach 
were submitted by individual manufacturers to ARI. For purposes of 
ensuring manufacturer confidentiality, ARI submitted to the Department 
minimum, maximum, and shipment-weighted averages of incremental 
manufacturer cost increases associated with various efficiency levels. 
In the case of the reverse engineering approach, ADL derived 
manufacturing cost estimates from detailed incremental cost data 
enabling them to establish costs for labor, purchased parts and 
material, shipping/packaging, and investment. Both sets of manufacturer 
costs were input into the Engineering Analysis and cost-efficiency 
relationships were developed to show the manufacturing costs of 
achieving various levels of increased efficiency.
    As discussed earlier in the section on Process Improvement, 
attempts were made to reconcile differences between the ARI and the 
preliminary reverse engineering production cost data. Feedback from the 
industry resulted in revising the reverse engineering production costs 
of such components as outdoor cabinet (labor and materials), indoor 
coil (materials) and refrigerant materials. Packaging and shipping 
costs were also revised. The Department is continuing consultations 
with manufacturer representatives regarding other industry suggested 
issues, including manufacturing production volume, copper and aluminum 
raw material costs, compressor costs, indoor and outdoor coil costs, 
and freight costs. For more detail on how the ARI and the reverse 
engineering costs were developed, and our revisions to the reverse 
engineering costs, please refer to the Preliminary TSD. As noted 
earlier, these revisions helped to reconcile some of the differences 
between the ARI production costs and the reverse engineering production 
costs, but remaining differences between the two sets of manufacturer 
cost require further examination.
i. Efficiency-Level Approach
    The efficiency-level approach establishes the relationship between 
manufacturer cost and increased efficiency at predetermined efficiency 
levels. It has the distinct advantage of being simple and straight 
forward. Manufacturers typically provide incremental manufacturer cost 
data for

[[Page 66313]]

incremental increases in efficiency. Cost-efficiency curves can be 
easily constructed to clearly identify at what point manufacturers are 
incurring significant costs to raise efficiency. Additionally, the 
efficiency-level approach allows manufacturers the ability to supply 
detailed cost data without revealing their unique design strategies for 
achieving increased efficiency levels.
    But the simplicity of the efficiency-level approach is also its 
primary drawback. Namely, since technological details are not provided, 
it is extremely difficult to verify whether the costs provided for each 
specific efficiency level are truly representative of the costs for 
that level. In addition, prototypical designs become difficult to 
evaluate and maximum technologically feasible designs are then 
difficult to ascertain. As a result, some other type of analysis is 
likely needed in order to verify the accuracy of the costs supplied 
through the efficiency-level approach.
    In reply to the Department's request to stakeholders at the 1998 
Framework Workshop regarding the most appropriate approach which should 
be pursued for the Engineering Analysis, some industry members stated 
their support for the efficiency-level approach (Ted Leland, ARI; David 
Lewis, Lennox International Inc (Lennox), Transcript, pp 55-56, 61, 
76). More specifically, these industry members stated their intention 
to provide costs under the efficiency-level approach as one cost-
efficiency curve that would represent an aggregate of the entire 
industry, i.e., a smooth curve relating the relative manufacturer cost 
increases associated with increased efficiency. Industry indicated that 
the curve would represent the 90th percentile, i.e., the cost 
efficiency level at which 90% of manufacturers would be able to produce 
product.
    ACEEE and the OOE stated they would be willing to accept the 
efficiency-level approach only if certain conditions were met (ACEEE, 
#5, OOE, #7; Steven Nadel, ACEEE, Transcript, pp 65-67; Charlie 
Stephens, OOE, Transcript, pp 65-67). For example, in addition to 
providing costs at the 90th percentile, costs at multiple percentiles 
should be reported. Having the full distribution of costs allows for a 
more meaningful probability analysis to be conducted. With regard to 
heat pumps, costs should be collected for achieving different HSPF 
levels in addition to providing costs at different SEER levels. ACEEE 
and OOE stated that verification of the costs submitted is extremely 
important and they suggest that DOE staff members or consultants be 
permitted to inspect raw data in order to ascertain its reasonableness. 
OOE suggested that a reverse engineering or design option approach be 
used to verify the cost data, although they prefer the design option 
approach. ACEEE also contended that a design approach could be used to 
verify cost data. ACEEE stated that it is more important to verify 
costs submitted for high-efficiency equipment (14 to 15 SEER) as 
current market prices do not reflect mature market costs. Both the 
Consortium for Energy Efficiency and the Pacific Gas and Electric 
Company (PG&E) supported ACEEE's conditions for adopting the 
efficiency-level approach (CEE, #6; PG&E, #8). In addition, PG&E 
believed that the cost of efficiency upgrades for heat pumps will be 
similar to air conditioners since their components are nearly identical 
(PG&E, #8).
    On the issue of cost verification, one industry representative 
contended that if industry provided disaggregated cost data it would 
allow for the determination of the sources of the data and, thus, 
result in violation of anti-trust laws. (Jim Crawford, Trane, 
Transcript, pp 70-72) In any case, he stated that if the reverse 
engineering approach were used and it validated the aggregated industry 
cost-efficiency curve the issue of cost verification would be a moot 
point.
    The Department selected two approaches, one of which was the 
efficiency-level approach, for conducting the Engineering Analysis. 
Specific efficiency levels were selected by the Department based on 
consultations with stakeholders. In the case of central air 
conditioners, efficiency levels were based upon SEER. Efficiency levels 
for heat pumps were based upon both the cooling season SEER and the 
heating season HSPF efficiencies.
    ARI collected data from individual manufacturers and, rather than 
providing only costs at the 90th percentile, submitted minimum, 
maximum, and shipment-weighted mean incremental manufacturer costs for 
five distinct efficiency levels (11, 12, 13, 14, and 15 SEER). ARI also 
provided incremental manufacturer costs for heat pumps for the same 
five SEER levels. Since heat pumps are also rated for their heating 
performance using the HSPF efficiency descriptor, the Department 
developed a simple relationship between the two efficiency descriptors 
for purposes of setting an HSPF standard in addition to an SEER 
standard. The Department assumed the following set of heating seasonal 
performance factors corresponding to the above five SEER levels: 7.1, 
7.4, 7.7, 8.0, and 8.2 HSPF).
    Tables 2 to 5 show the incremental manufacturer costs, also called 
manufacturer cost multipliers, which ARI submitted for the four primary 
product classes for systems with cooling capacities of approximately 3 
tons (36,000 Btu/hr). The manufacturer cost multipliers are used 
together with the baseline manufacturer cost (which will be presented 
in Section II.C.2.b.) to determine the manufacturer costs for each 
efficiency level. For example, the mean manufacturer cost multiplier 
for an 11 SEER split system air conditioners from Table 2 is 1.16 and 
the baseline manufacturer cost for a split system air conditioner is 
$454. Thus, the mean manufacturer cost for an 11 SEER split system air 
conditioner is the product of the baseline manufacturing cost ($454) 
and the cost multiplier (1.16), or $527. While the manufacturer cost 
multipliers in Tables 2 to 5 included low and high values as well as 
mean values, because the probability distribution for the cost data at 
a given standard level are unknown, only the mean values were 
subsequently used in the LCC Analysis (section II.D).

     Table 2.--Split System Air Conditioners--ARI Manufacturer Cost
                               Multipliers
------------------------------------------------------------------------
                     SEER                        Low      Mean     High
------------------------------------------------------------------------
10...........................................  .......     1.00  .......
11...........................................     1.03     1.16     1.30
12...........................................     1.09     1.36     1.55
13...........................................     1.30     1.63     1.90
14...........................................     1.60     2.03     3.00
15...........................................     1.81     2.40     3.50
------------------------------------------------------------------------


  Table 3.--Split System Heat Pumps--ARI Manufacturer Cost Multipliers
------------------------------------------------------------------------
                    SEER/HSPF                       Low    Mean    High
------------------------------------------------------------------------
10/6.8..........................................  ......    1.00  ......
11/7.1..........................................    1.05    1.10    1.15
12/7.4..........................................    1.11    1.24    1.35
13/7.7..........................................    1.17    1.44    1.66
14/8.0..........................................    1.30    1.64    1.88
15/8.2..........................................    1.75    2.09    2.52
------------------------------------------------------------------------


    Table 4.--Single Package Air Conditioners--ARI Manufacturer Cost
                               Multipliers
------------------------------------------------------------------------
                     SEER                        Low      Mean     High
------------------------------------------------------------------------
10...........................................  .......     1.00  .......
11...........................................     1.03     1.19     1.27
12...........................................     1.15     1.30     1.40
13...........................................     1.40     1.63     1.75
14...........................................     1.59     1.87     2.00

[[Page 66314]]

 
15...........................................     1.89     2.23     2.92
------------------------------------------------------------------------


 Table 5.--Single Package Heat Pumps--ARI Manufacturer Cost Multipliers
------------------------------------------------------------------------
                    SEER/HSPF                       Low    Mean    High
------------------------------------------------------------------------
10/6.8..........................................  ......    1.00  ......
11/7.1..........................................    1.06    1.14    1.25
12/7.4..........................................    1.06    1.28    1.50
13/7.7..........................................    1.45    1.60    1.90
14/8.0..........................................    1.65    1.75    2.30
15/8.2..........................................    1.93    2.13    2.47
------------------------------------------------------------------------

    In response to EEI's comment that the Engineering Analysis should 
include the impact of any standard on the EER rating of the equipment 
(EEI, #2), the Department plans on conducting a Utility Impact Analysis 
for the Notice of Proposed Rulemaking (NOPR). The Utility Impact 
Analysis will capture the peak power impacts of an increased SEER 
standard, which EEI is alluding to in their comment regarding the EER.
ii. Reverse Engineering Analysis
    As mentioned in the previous section, a reverse engineering 
approach was conducted in parallel with the efficiency-level approach 
to validate the ARI production cost data. The use of a component-based 
technology-costing (reverse engineering) approach provides useful 
information including the identification of potential technological 
paths manufacturers could use to achieve increased product energy 
efficiency. Under this type of analysis, actual equipment on the market 
is physically analyzed, i.e., dismantled, component-by-component to 
determine what technologies and designs manufacturers employ to 
increase efficiency. Independent costing methods or manufacturer and 
component supplier data are then used to estimate the costs of the 
components. This approach has the distinct advantage of using ``real'' 
market equipment to establish the technologies which manufacturers use 
as the basis for estimating the cost to reach higher efficiencies.
    The primary disadvantage of reverse engineering is the time and 
effort required to analyze ``real'' equipment. Several models from a 
diverse range of manufacturers may have to be assessed in order to 
ensure that an accurate representation of technological paths for 
increasing efficiency are identified. In addition, since only equipment 
in the market is analyzed, prototypical designs may not be captured by 
the analysis, thus making it difficult to establish maximum 
technologically feasible designs.
    The industry contends that a reverse engineering approach could be 
used to verify the cost data submitted through the efficiency-level 
approach but DOE must first define the acceptable level of variability 
between the costs that are developed through each approach. (Jim 
Crawford, Trane; David Lewis, Lennox, pp 110-113) Industry also 
maintained that there is wide variation in production costs between 
manufacturers due to the levels of services that are provided with the 
purchase of the equipment. OOE stated that reverse engineering could be 
used to validate the efficiency approach (OOE, #7) while ACEEE stated 
that reverse engineering has the benefit of analyzing advanced 
technologies. (Steven Nadel, ACEEE, pp 80-81)
    The Department carried out the reverse engineering approach to 
validate the cost estimates provided by ARI from the efficiency-level 
approach. The manufacturer costs of 71 equipment models at eight 
efficiency levels were estimated. Three 3-ton models were torn down: 
(1) A 10 SEER split system cooling-only condenser, (2) a 10 SEER 
packaged heat pump, and (3) a 12 SEER split system heat pump condenser. 
Manufacturer submissions, catalog data, and the ARI Product Attributes 
Database provided design information on the other 68 models. For split 
system air conditioners, cost estimates were developed for whole-number 
efficiency levels ranging from 10 to 17 SEER. For split system heat 
pumps, cost estimates were developed for whole-number efficiency levels 
ranging from 10 to 16 SEER. The heating efficiencies corresponding to 
each of the whole-number SEER levels were: 6.8 HSPF for 10 SEER, 7.1 
HSPF for 11 SEER, 7.4 for 12, 7.7 for 13, 8.0 for 14, 8.2 for 15, and 
8.4 for 16. A limited set of models were analyzed for single package 
systems. For single package air conditioners cost estimates were 
developed for 10, 12, and 13 SEER efficiency levels while for single 
package heat pumps cost estimates were developed for 10 SEER/6.8 HSPF 
and 12 SEER/7.4 HSPF efficiency levels.
    Tables 6 to 9 show the manufacturer cost multipliers developed by 
reverse engineering for the four primary product classes. Probability 
distributions rather than single point-values were used in the LCC 
analysis. The low and high values shown in the following represent the 
10th and 90th percentiles, respectively, of the distributions.

      Table 6.--Split System Air Conditioners--Reverse Engineering
                      Manufacturer Cost Multipliers
------------------------------------------------------------------------
                     SEER                        Low    Average    High
------------------------------------------------------------------------
10...........................................     0.96     1.00     1.05
11...........................................     1.08     1.13     1.18
12...........................................     1.20     1.25     1.31
13...........................................     1.35     1.42     1.48
14...........................................     1.65     1.73     1.81
15...........................................     1.87     1.95     2.04
16...........................................     1.98     2.07     2.17
17...........................................     2.13     2.23     2.33
------------------------------------------------------------------------


Table 7.--Split System Heat Pumps--Reverse Engineering Manufacturer Cost
                               Multipliers
------------------------------------------------------------------------
                   SEER/HSPF                       Low   Average   High
------------------------------------------------------------------------
10/6.8.........................................    0.96     1.00    1.05
11/7.1.........................................    0.97     1.01    1.06
12/7.4.........................................    1.05     1.10    1.15
13/7.7.........................................    1.29     1.35    1.41
14/8.0.........................................    1.57     1.65    1.72
15/8.2.........................................    1.79     1.87    1.96
16/8.4.........................................    1.92     2.01    2.10
------------------------------------------------------------------------


     Table 8.--Single Package Air Conditioners--Reverse Engineering
                      Manufacturer Cost Multipliers
------------------------------------------------------------------------
                     SEER                        Low    Average    High
------------------------------------------------------------------------
10...........................................     0.96     1.00     1.05
11...........................................  .......  .......  .......
12...........................................     1.08     1.14     1.19
13...........................................     1.33     1.40     1.46
------------------------------------------------------------------------


  Table 9.--Single Package Heat Pumps--Reverse Engineering Manufacturer
                            Cost Multipliers
------------------------------------------------------------------------
                   SEER/HSPF                       Low   Average   High
------------------------------------------------------------------------
10/6.8.........................................    0.96     1.00    1.05
11/7.1.........................................  ......  .......  ......
12/7.4.........................................    1.11     1.16    1.22
------------------------------------------------------------------------

iii. Design Option Approach
    Industry representatives contended that the design option approach 
can only be conducted by industry personnel with years of experience, 
but the industry is not willing to provide this expertise because of 
the expense involved. (Jim Crawford, Trane; David Lewis, Lennox; Ted 
Leland, ARI, Transcript, pp105-106) The industry also stated that DOE 
should not provide funds for others to carry out this

[[Page 66315]]

approach because they lack the necessary expertise.
    In contrast, ACEEE and OOE believe that the design option approach 
has merits (Steven Nadel, ACEEE, Transcript, p 108; OOE, #7). ACEEE 
stated that it can be useful for evaluating new technologies, while OOE 
believes it is the approach of choice for conducting the Engineering 
Analysis, since the impact of any single technology on cost and 
efficiency is explicitly stated.
    The Department used only the efficiency level and reverse 
engineering approaches to establish the manufacturer costs of achieving 
increased efficiency levels for the following reasons: (1) Central air 
conditioners and heat pumps are complex products; (2) a wide variety of 
options exist to improve their efficiency; (3) these options interact 
in complex ways; and (4) the industry strongly opposed use of the 
design option approach and was willing to provide data for the 
efficiency-level approach.
iv. Outside Regulatory Changes Affecting the Engineering Analysis
    There sometimes occur regulatory changes outside of the EPCA 
efficiency standards process that can affect the manufacture of a 
product. In some cases, such changes affect the energy efficiency of a 
product. The Department has attempted to identify all regulatory issues 
outside the efficiency standards process that would influence the 
Engineering Analysis.
    The central air conditioning and heat pump industry faces the 
impending phase-out of HCFC-22, the refrigerant used in almost all the 
equipment currently being installed in the U.S. The phase-out of HCFC-
22 begins in the year 2010, and the industry has responded by 
conducting in-depth analyses of various HCFC-22 alternatives. The most 
notable effort to date has been the ARI's Alternative Refrigeration 
Evaluation Program (AREP). Under AREP, several HCFC-22 alternatives 
were identified, and their effects on equipment capacity, efficiency, 
and longevity, and other variables were established.
    Two primary candidates have emerged from the field of alternatives: 
R-410A and R-407C. Although R-410A shows promise of being able to 
significantly raise equipment efficiencies, its high volumetric 
capacity requires systems to be redesigned to handle the significantly 
higher discharge pressures. R-407C is a virtual drop-in replacement, 
but results in an efficiency degradation of 5-10% relative to HCFC-22.
    In response to the issue of alternative refrigerants for HCFC-22, 
industry representatives stated that manufacturing costs that will be 
submitted will attempt to factor in the impact of switching to R-410A. 
(Ted Leland, ARI, Transcript, pp 287-288; Jim Crawford, Trane, p 288; 
David Lewis, Lennox, p 290, p 297) In response to a schedule presented 
at the 1998 Framework Workshop showing that a new minimum standard 
would become effective in the year 2005, the industry representatives 
stated that the effective date of any new efficiency standard should 
coincide with the phase-out date of HCFC-22 (the year 2010) or be in 
the 2006 to 2010 time frame. Additionally, they warned that efficiency 
gains through the use of R-410A are not as great as first believed.
    In response to industry's proposal to postpone the effective date 
of the standard, both ACEEE and OOE stated that DOE should make new 
standards effective in 2005. (ACEEE, #5; OOE, #7; Steven Nadel, ACEEE, 
Transcript, p 298; PG&E, #8) In their view, any delay will compromise 
U.S. commitments to reduce global warming gases. OOE offers two 
approaches for completing the rulemaking on-schedule: (1) Base the 
rulemaking analysis on replacement refrigerants or (2) base the 
analysis on HCFC-22 and use a correction factor to adjust equipment 
performance based on the use of alternative refrigerants. PG&E adds 
that an effective date of 2005 will allow any new building standards 
proposed by the California Energy Commission (CEC) to include the 
beneficial impact of higher-efficiency air conditioners. PG&E states 
that if standards are delayed to 2010, then over 500,000 new California 
dwellings would be significantly less efficient.
    The Department has determined that the phase-out date for HCFC-22 
is far enough in the future that it will not affect a manufacturer's 
ability to meet any new efficiency standards, whether using HCFC-22 
before the phase-out, or using alternative refrigerants before and 
after the phase-out. The Department does not plan to delay the 
effective date of any new standards to coincide with the phase-out date 
of HCFC-22. The Engineering Analysis has therefore been based on the 
assumption that equipment will use HCFC-22. However, the Department 
recognizes that equipment design changes to accommodate alternate 
refrigerants may alter the manufacturing cost-efficiency relationship 
developed for HCFC-22 equipment. The Department welcomes input 
regarding the analysis of equipment designed for alternate 
refrigerants.
    Other non-regulatory issues of concern to the industry include the 
need to make systems increasingly tighter to prevent refrigerant leaks 
due to the use of HCFC-based refrigerants (David Lewis, Lennox, 
Transcript, p 298), and international standardization of test 
procedures. (Jim Crawford, Trane, Transcript, pp 298-299). The 
Department has not explicitly addressed these concerns in its current 
analysis but welcomes any comments as to how to address these issues in 
the course of the rulemaking.
2. Manufacturing Costs
a. General
    In addition to being inputs to the Engineering Analysis, 
manufacturing costs are used as the means of determining retail prices, 
and are needed for the manufacturer impact analysis.
b. Product Specific
    Two sets of manufacturing costs were prepared. Using an efficiency-
level approach, ARI collected data from individual manufacturers and 
submitted incremental manufacturing cost estimates. The Department also 
conducted a reverse engineering analysis to determine manufacturing 
costs. This analysis included an assessment of uncertainty and 
variability among manufacturers.
    Baseline manufacturer costs, i.e., the costs associated with 
producing equipment with efficiencies of 10 SEER, were also developed 
through the reverse engineering analysis. Table 10 shows the baseline 
manufacturer costs developed for the four primary product classes for 
systems with cooling capacities of approximately 3 tons (36,000 Btu/
hr). Note that for split system air conditioners, two costs were 
developed; one for systems sold without indoor blowers and the another 
for systems sold with indoor blowers. (A split system air conditioner 
is usually sold without an indoor blower when the air conditioner's 
indoor unit is installed in conjunction with a heating furnaces that is 
equipped with a blower). The uncertainty and variability of the 
baseline costs are noted in the manufacturer cost multipliers derived 
in the reverse engineering analysis (Tables 6 to 9) in the rows 
identified as 10 SEER/6.8 HSPF.

                 Table 10.--Baseline Manufacturer Costs
------------------------------------------------------------------------
                                                       Without    With
                    Product Class                      blower    blower
------------------------------------------------------------------------
Split System A/C....................................      $367      $454

[[Page 66316]]

 
Split System Heat Pump..............................  ........       615
Single Package A/C..................................  ........       534
Single Package Heat Pump............................  ........       589
------------------------------------------------------------------------

i. Characterizing Uncertainty
    Consistent with the Process Rule, DOE places a range around the 
average manufacturing costs of achieving various efficiency levels. The 
OOE concurs with DOE's plan for dealing with uncertainty and 
variability in manufacturer cost estimates. (OOE, #7) The ranges of 
costs are used to generate retail prices for the consumer LCC Analysis, 
and are used in the Industry Cash Flow Analysis.
    ARI collected data from manufacturers and developed a shipment-
weighted mean, along with minimum and maximum cost multipliers for each 
efficiency level to account for variability and uncertainty. Since the 
actual distribution of manufacturer costs were not provided to the 
Department, only the shipment-weighted means were used in the 
calculation of retail prices and, in turn, the LCCs.
    In conducting the reverse engineering approach, the Department 
developed a range of cost estimates for each efficiency level. For each 
efficiency level in each product class, the range of cost estimates 
were approximated by multiplying the mean value by a uniform 
distribution (from 95% of the mean to 105% of the mean) and a normal 
distribution (centered on the mean, with a standard deviation of 1.9%). 
The resulting cost distributions were then used in the calculation of 
retail prices and, in turn, the LCCs.
ii. Variability in Cost Among Manufacturers
    The Department is committed to assessing the differential impacts 
of standards on different manufacturers. The results are used as inputs 
for the sub-group analysis of manufacturing impacts, which entails 
calculating cash flows separately for each class of manufacturer.
    In previous analyses for other appliances, manufacturing costs 
submitted to DOE have demonstrated large variability. In line with the 
Department's preference, ARI therefore collected cost data 
disaggregated by manufacturer, although, as discussed earlier, ARI 
provided to the Department only aggregated shipment-weighted 
manufacturer costs. Under the efficiency-level approach, this same 
disaggregated company-specific cost information developed for the 
Engineering Analysis can be used to perform Government Regulatory 
Impact Analysis for each manufacturer or manufacturer subgroup. These 
aggregated data, however, were insufficient to generate distributions 
of costs by manufacturer. Therefore, only mean values were used in the 
subsequent LCC Analysis.
iii. Proprietary Design
    The Department considers in its analysis all design options that 
are commercially available or present in a working prototype, including 
proprietary designs. OOE stated that designs meeting the stated 
criteria of a proprietary design should be analyzed as a design option, 
providing the example of the microchannel heat exchanger (OOE, #7). 
Proprietary designs are considered in the Department's engineering and 
economic analyses. The Department looked at the potential impact of 
proprietary heat exchanger and compressor designs plus any proprietary 
designs that were part of equipment which were analyzed in the course 
of the reverse engineering analysis.
    The Department considered the potential impact of proprietary 
designs as part of its preliminary assessment of design options. Its 
initial conclusion is that the inclusion of proprietary designs will 
not materially affect the results of the Engineering Analysis because 
equipment can achieve the same efficiencies competitively using non-
proprietary designs. The Department intends to continue examining this 
issue during the Manufacturing Impact Analysis and welcomes input on 
the appropriateness of considering proprietary designs.

D. Life-Cycle Cost (LCC) and Payback Analysis

    In determining economic justification, EPCA directs the Department 
to consider a number of different factors, including the economic 
impact of potential standards on consumers. EPCA also establishes a 
rebuttable presumption that a standard is economically justified if the 
additional cost of purchasing a product, attributed to the standard, is 
less than three times the value of the first year energy cost savings. 
EPCA, section 325(o)(2)(B)(iii), 42 U.S.C. 6295 (o)(2)(B)(iii).
    To address these provisions the Department calculates changes in 
LCCs to the consumers that are likely to result from the proposed 
standard, as well as two different simple payback periods, i.e., 
distribution of payback periods, and a payback period calculated for 
purposes of the rebuttable presumption clause. The effects of standards 
on individual consumers include changes in operating expenses (usually 
lower) and changes in total installed cost (usually higher). The net 
effect is analyzed by calculating the change in LCC as compared to the 
base case. The base case manufacturing cost is determined in the 
reverse engineering analysis. The LCC calculation considers installed 
consumer cost (equipment purchase price plus installation cost), 
operating expenses (energy, repair, and maintenance costs), appliance 
lifetime, and discount rate. The LCC Analysis is performed from the 
perspective of the consumer.
    At the ANOPR stage, the Department generates LCC and payback period 
results as probability distributions using a simulation based on Monte-
Carlo methods, in which inputs to the analysis consist of probability 
distributions rather than single-point values. As a result, the Monte 
Carlo analysis produces a range of LCC and payback period results 
rather than single-point values. A distinct advantage of this type of 
approach is that the percentage of consumers achieving LCC savings or 
attaining certain payback values due to an increased efficiency 
standard can be identified in addition to the average LCC savings or 
average payback for that standard. Because the analysis is being 
conducted in this manner, the uncertainties associated with the various 
input variables (as described in the next paragraph) can be expressed 
as probability distributions. During the post-ANOPR consumer analysis, 
the Department will evaluate additional parameters, and prepare a 
comprehensive assessment of the impacts on sub-groups of consumers.
    The LCC and one of the payback periods (distribution of payback 
periods) are calculated using the LCC spreadsheet model developed in 
Microsoft Excel for Windows 95, combined with Crystal Ball (a 
commercially available software program), based on probability 
distributions of input variables. The second payback, the Rebuttable 
payback based on DOE test procedure assumptions for estimating annual 
energy consumption, is not calculated using Crystal Ball and input 
probability distributions, but is instead based on the spreadsheet 
option allowing single-values for the input variables.

[[Page 66317]]

    Based on the results of the Engineering and LCC Analyses, DOE 
selects candidate standard levels for a more detailed analysis. The 
range of candidate standard levels typically includes: (1) The most 
energy-efficient combination of design options or most energy-efficient 
level; (2) the efficiency level with the lowest LCC; and (3) an 
efficiency level with a payback period of not more than three years. 
Additionally, candidate standard levels that incorporate noteworthy 
technologies or fill in large gaps between efficiency levels of other 
candidate standards levels may be selected.
    The payback, for purposes of the rebuttable presumption test, 
attempts to capture the payback to consumers affected if a new standard 
is promulgated. It compares the purchase cost and energy use of central 
air conditioners and heat pumps consumers would buy in the year the 
standard becomes effective with what they would buy without a new 
efficiency standard. In some cases, this means comparing the baseline 
energy efficiency and cost with those associated with the standard 
level. In other cases, the standard level would also be compared to a 
higher-efficiency appliance purchased without new standards (but at a 
lower efficiency than the trial standard level). A weighted average of 
these payback periods, in the year a new standard level would take 
effect, is considered the payback for purposes of the rebuttable 
presumption clause.
    In addressing the usefulness of the LCC Analysis, an industry 
representative asserted that LCCs have no relationship to market 
dynamics, have no relationship to what the customer will buy, and have 
no relationship to the cost effectiveness of any efficiency standard. 
(Jim Crawford, Trane, Transcript, pp 135) But section 
325(l)(2)(B)(I)(II) of EPCA requires the Department to consider the 
savings and costs of standards, and virtually mandates performance of 
an LCC Analysis.
    One commenter during the Framework Workshop stated that tax credits 
[incentives] for consumer purchases of high efficiency equipment should 
be included in the LCC Analysis. (Transcript, pp 243) The Department 
has not considered tax incentives in the LCC Analysis being presented 
here, because there are no such tax benefits available under Federal 
law. However, the Department seeks specific information from 
stakeholders regarding whether the Department should consider LCC 
analyses with alternative tax incentive scenarios.
1. LCC Spreadsheet Model
a. General
    This section describes the LCC spreadsheet model used for analyzing 
the economic impacts of possible standards on individual consumers. The 
LCC spreadsheet model is available on the Department's web site for use 
by interested parties who wish to modify the assumptions in the models 
and view the results of those changes. The LCC Analysis is conducted 
using a spreadsheet model developed in Microsoft Excel for Windows 95, 
combined with Crystal Ball. The Model uses a Monte Carlo simulation to 
perform the analysis considering uncertainty and variability. The 
spreadsheet is organized so that ranges (distributions) can be entered 
for each input variable needed to perform the calculations.
    The Department wishes to consider the impacts of varying regional 
climate, energy prices, and consumer behavior on LCCs and payback 
periods. Calculations were therefore based on a Monte Carlo uncertainty 
analysis in which variables are represented by probability 
distributions of values. With this approach, the Department could 
express LCCs and payback periods as national means, with ranges that 
fully account for regional variations in climate, electricity cost, and 
behavior. The spreadsheet has the capability to sample subsets of 
households for the analysis of particular sub-populations, e.g., low 
income households, and will be used for Consumer Sub-Group Impact 
Analysis prior to issuance of the NOPR.
    An industry representative commented that an LCC Analysis based 
upon uncertain or distributional inputs is suspect and totally 
unverifiable if the uncertainty of the inputs cannot be clearly 
defined. (Jim Crawford, Trane, Transcript, pp 252-254) He suggested 
that a simpler approach be used. Others supported the use of a 
distributional LCC Analysis, commenting that this approach is better 
than what has been used in prior rulemakings. (Charles Stephens, OOE; 
Michael Martin, CEC, Transcript, pp 256) EEI stated that the use of 
ranges of values for appliance price and life, fuel costs, energy 
usage, and discount rates follows recommendations provided by the 
Appliance Standards Advisory Committee. (EEI, #2) OOE asserts that use 
of a distributional analysis creates potential pitfalls in accounting 
for regional climatic and energy price variations. Use of traditional 
methods for screening out design options based upon increased LCC or 
excessively long payback periods will be more difficult as results for 
one region may demonstrate that a design option is economically 
attractive while another region does not. DOE must establish some basis 
for rejecting or retaining design improvements. (OOE, #7) Although the 
use of distributional LCC Analysis may be more complex, the Department 
has decided it is the best approach to use to capture the uncertainty 
and variability inherent in input variables. In response to OOE's 
concerns for selecting appropriate standard levels, the Department will 
keep in mind their concerns when selecting appropriate standard levels 
for the NOPR.
    In order to generate the distributions required for the analysis, 
the Department used the Energy Information Administration's (EIA's) 
Residential Energy Consumption Survey (RECS). The 1993 RECS is based on 
a representative sample of 7,111 households from the population of all 
primary, occupied residential housing units in the United States. Each 
household is weighted so that the data properly represent the 96.6 
million households in the 50 states and the District of Columbia 
reported in the 1993 RECS.
    RECS estimates end-use energy consumption and reports the age of 
equipment as well as household energy prices. Of the over 7,000 
households surveyed in RECS, 2550 households representing 35.6% of the 
housing population have a central air conditioner while 651 households 
representing 8.3% of housing population have an electric heat pump. The 
distribution of LCC and payback results are generated by performing an 
LCC and payback calculation for each RECS household with a central air 
conditioner or heat pump. For example, in conducting the LCC Analysis 
for a 12 SEER standard level for central air conditioners, all RECS 
households with a central air conditioner have their existing equipment 
``replaced'' first with a baseline (i.e.,10 SEER) system. The 
corresponding LCCs of the baseline systems are then calculated. Then 
all RECS households with a central air conditioner have their existing 
equipment ``replaced'' with a 12 SEER system and the LCC of these 
systems are established. On a household-by-household basis, the payback 
periods and the LCC differences of the 12 SEER system are determined 
relative to the economics of the baseline system. The result is a 
distribution of LCCs and payback periods. Since climatic conditions and 
consumer behavior affect the energy consumption of a given

[[Page 66318]]

piece of equipment, these data implicitly account for regional 
variations. Similarly, variations in the RECS energy price data 
represent the range faced by consumers in the U.S.
    Both EEI and EMPA warned of problems using the RECS data in a LCC 
and Payback Analysis. (EEI, #2; EMPA, #3) EEI asserts the following: 
(1) The age of the RECS data (1993) is too old to be used with 
efficiency and price data from 1998, (2) only total annualized average 
electricity and fuel rates rather than summer marginal rates are 
provided, (3) the stated age of the equipment may be inaccurate if the 
households surveyed are not original homeowners, and (4) there is no 
accounting of equipment used in small commercial facilities. EEI also 
claims that RECS may not reflect regional or national equipment 
saturations as the 1993 RECS shows that 42% of survey homes have a 
central air conditioner while an industry publication (ACHR News, June 
22, 1998) shows saturations ranging from 55% in the western U.S. to 99% 
in the southern U.S. EMPA questioned whether the 7,000 to 8,000 
households surveyed households in RECS can be representative of the 90 
million households in the U.S. They also commented that RECS experts 
from EIA needed to provide a written statement in support of the way in 
which DOE plans to use the RECS data in its LCC analyses. In contrast 
to these comments, OOE states that they are very comfortable with the 
analysis methodology as it was applied to other products (clothes 
washers) where RECS data was used to determine annual energy use and 
equipment age. (OOE, #7)
    Although the Department understands the concerns of the EEI and 
EMPA, the 1993 RECS data is the most recent and appropriate database 
available for conducting the desired distributional LCC Analysis. DOE 
plans to conduct updates to the LCC and Payback Period Analysis with 
the 1997 RECS. Use of this data will address most of the concerns 
brought up by both EEI and EMPA.
    Estimates of the efficiency of equipment currently in use are based 
upon the age of the equipment as established by RECS and historical 
shipment-weighted efficiency values. The age of the equipment 
establishes the year of manufacture which in turn, using the shipment-
weighted efficiency data, allows for the determination of the 
equipment's most probable efficiency. Replacing existing equipment with 
new equipment results in reductions in energy consumption. These 
reductions were approximated by multiplying current energy use by the 
ratio of the efficiencies of existing and new equipment. Using an 
energy price allowed for the calculation of the operating costs of 
existing and new replacement equipment, and, in turn, the LCCs and 
payback periods associated with different efficiency levels of new 
equipment.
    The Department developed LCCs and payback periods based on both 
sets of manufacturer cost estimates developed in the Engineering 
Analysis: (1) The ARI cost data developed through the efficiency-level 
approach, and (2) the cost data developed through the reverse 
engineering analysis.
    A more detailed description of the methodology and contents of the 
RECS database is contained in the Preliminary TSD.
b. Product Specific
    This section discusses the approaches for analyzing the economic 
impacts on individual consumers from potential new central air 
conditioner and heat pump standards. An LCC spreadsheet model, 
described previously in Section II.D.1.a, is used to calculate two of 
the economic impacts, LCC and payback period, based on input variables 
that have uncertainty and variability expressed with probability 
distributions. A third economic impact, Rebuttable Payback Period, is 
determined without the use of the spreadsheet model. In future 
analyses, all three of these economic metrics will be compared to 
baseline efficiencies of appliances sold in the year the new standard 
would take effect. In this preliminary analysis, only the Rebuttable 
Payback Period is compared to a distribution of efficiencies forecasted 
to the year 2006.
i. LCC Analysis
    The Department determined values of input variables for central air 
conditioners and heat pumps, including total installed cost (consisting 
of both the equipment purchase price and installation price), annual 
energy use, lifetime, repair costs, and maintenance costs of equipment, 
as well as average energy prices, marginal energy prices, and discount 
rate. Table 11 summarizes some of the major assumptions used to 
calculate the consumer economic impacts of various energy-efficiency 
levels.

                                 Table 11.--Assumptions Used in the LCC Analysis
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Total Installed Cost: Equipment Purchase Price.........  Manufacturer cost multiplied by manufacturer markup,
                                                          distributor markup, dealer markup, and sales tax.
    Installation Price.................................  Central air conditioners--$1190; heat pumps--$2035.
Existing Equipment Efficiency..........................  Distribution imputed from RECS database based on
                                                          equipment age and historical shipment-weighted
                                                          efficiencies (central air conditioners--5.3 to 15.2
                                                          SEER, weighted average of 8.58 SEER; heat pumps--5.3
                                                          to 15.2 SEER, weighted average of 8.72 SEER; 4.88 to
                                                          9.67 HSPF, weighted average of 6.52 HSPF).
Existing Annual Energy Use.............................  Distribution from RECS database (central air
                                                          conditioners--174 to 12,929 kWh/yr, weighted average
                                                          of 2629 kWh/yr; heat pumps--space-cooling equals 0 to
                                                          14,771 kWh/yr, weighted average of 2987 kWh/yr; space-
                                                          heating equals 162 to 29,839 kWh/yr, weighted average
                                                          of 4658 kWh/yr).
Average Energy Prices..................................  Historical--distribution from RECS database (central
                                                          air conditioners--2.70 to 16.50  cents/kWh, weighted
                                                          average 8.49  cents/kWh; heat pumps--2.60 to 13.00
                                                          cents/kWh, weighted average 7.86  cents/kWh);
                                                          projections--AEO--1999.
Marginal Energy Prices.................................  Historical--estimated from RECS database (central air
                                                          conditioners--0.58 to 19.42  cents/kWh, weighted
                                                          average 8.74  cents/kWh; heat pumps--0.82 to 18.62
                                                          cents/kWh, weighted average 7.99  cents/kWh);
                                                          projections--scaled to trends in average energy
                                                          prices.
Lifetime...............................................  Distribution based on empirical data (mean life is 18.4
                                                          years).
Discount Rate..........................................  Distribution (0% to 19%, weighted average 6.51%)
Repair Costs...........................................  For systems with efficiencies of 10 SEER or greater
                                                          than 12 SEER, one-half equipment price divided by mean
                                                          lifetime. For systems with efficiencies of 11 or 12
                                                          SEER, 1% greater than the 10 SEER repair cost.
Maintenance Costs......................................  Distribution ($0 to $135/year, weighted average $36/
                                                          year).
----------------------------------------------------------------------------------------------------------------


[[Page 66319]]

    Total Installed Cost: The total installed cost consists of the 
equipment purchase price and the installation price. Markups are used 
to convert the manufacturer cost to the equipment purchase price. The 
determination of equipment purchase prices is described in the next 
section.
    Installation Price: The installation price represents all costs 
required to install the equipment other than the marked-up equipment 
cost. The installation price includes labor, overhead, and any 
miscellaneous materials and parts such as linesets. For central air 
conditioners the installation price used in the analysis used is $1190, 
and for heat pumps it is $2035. The installation price was determined 
by subtracting the derived equipment purchase price from the typical 
total installed cost. The typical total installed cost values were 
collected from public sources and phone calls to heating ventilating 
and air conditioning (HVAC) contractors. While the data collected were 
for split systems, the Department has assumed the installation prices 
apply to single package systems, although installation price for these 
systems might be somewhat lower than for the split systems, since only 
single packages are involved and no line sets are required. The 
Department is interested in obtaining information on the installation 
prices for all classes of products.
    Annual Energy Use: Currently, the DOE test procedure calculates 
annual cooling and heating energy consumption based on 1,000 and 2,080 
hours of operation, respectively. Although this procedure seems to be 
widely accepted for comparing the seasonal performance of different 
units, the procedure overstates equipment energy use compared to RECS 
estimates. As described above, basing operating and LCC on RECS 
household data provides a more accurate measure of the savings possible 
from more-efficient equipment, and accounts for variability in LCCs due 
to climatic conditions and energy prices.
    Variations in energy use for a particular appliance can depend on 
factors such as climate, type of household, people in household, etc. 
For purposes of this analysis, annual energy use was based on the 
annual end-use energy consumption values in RECS. Climatic and consumer 
behavior are inherent to the RECS energy use data. The Department will 
perform sensitivity analyses prior to issuance of the NOPR to consider 
how differences in energy use will affect sub-groups of consumers.
    For the RECS households with central air conditioners, the range of 
annual space-cooling energy consumption is 174 to 12,929 kWh/year with 
a weighted-average value of 2629 kWh/year. For the RECS households with 
heat pumps, the range of annual space-cooling energy consumption is 0 
to 14,771 kWh/year with a weighted-average value of 2987 kWh/year. The 
annual space-heating energy consumption for households with heat pumps 
ranges from 162 to 29,839 kWh/year with a weighted-average value of 
4658 kWh/year.
    For each RECS household equipped with either a central air 
conditioner or heat pump, the annual energy use associated with a 
particular standard level is calculated by taking the annual energy use 
associated with the existing system and multiplying it by the ratio of 
the existing system's efficiency to the efficiency of the standard 
level of interest. To illustrate this approach, this calculation 
procedure is carried out here based on the weighted-average annual 
energy use and the weighted-average efficiency from all RECS households 
equipped with central air conditioners. As presented earlier, for all 
RECS households with a central air conditioner, the weighted-average 
annual energy use and the weighted-average efficiency are 2629 kWh/year 
and 8.58 SEER, respectively. Thus, for the case of a 12 SEER air 
conditioner, the weighted-average annual energy use is determined 
according to the following expression:

Weighted-average annual energy use of 12 SEER A/C = 2629 kWh/yr 4  x  
(8.58 SEER  12 SEER) = 1880 kWh/yr

Of course, as the efficiency of the standard level being analyzed 
increases, its corresponding annual energy use decreases 
proportionally. It should be noted that in the case of establishing the 
annual space-heating energy use of heat pumps, the ratio of HSPF values 
are used rather than the SEER values. It must also be emphasized that 
the above calculation is illustrative only. In order to generate the 
distribution of LCC and payback results for a particular standard 
level, each RECS household that is equipped with a central air 
conditioner or heat pump is analyzed.
    Concerning use of RECS data in the economic analysis, EEI stated 
that, although energy use is dependent on equipment design, weather, 
and consumer operation, it is also a strong function of house design, 
landscape, and thermostatic controls, and their impacts should be taken 
into consideration. (EEI, #2) They also stated that EER ratings, in 
addition to SEER ratings, ranges of cooling capacity, and the climatic 
impact on hours of operation, should also have an impact on energy use 
and should also be considered. With regard to the annual operating 
hours, EEI stated that a range of values based upon end-use metering 
studies, load management programs, and other utility or research 
organization studies should be used. They cited state utility 
commissions, Internet web sites, and software providers as possible 
sources for determining variations on energy use.
    As stated earlier, the Department believes that the 1993 RECS is 
the most recent and appropriate data available. In addition to the 
equipment design, weather, and consumer operation, the RECS annual end-
use estimates also consider the household's shell characteristics 
including any prominent shading. Past RECS data sets have been 
validated against end-use metering studies in an attempt to better its 
procedures for estimating end-use energy consumption. Although the 
Department is comfortable with the use of RECS as its source for 
establishing annual energy consumption, interested parties are welcome 
to present any metered end-use data that could verify or substitute for 
the RECS estimates.
    Average Energy Prices: As discussed above, the Department is using 
RECS household data to establish energy prices. Projections of future 
energy prices for the LCC Analysis use high, low, and reference case 
projections of national average electricity prices to residential 
customers. The current edition of EIA's Annual Energy Outlook (AEO) is 
used as the source of projections for uncertainty in the LCC analysis.
    For the RECS households with central air conditioners, the range of 
average electricity prices in 1993$ is 2.70 to 16.50  cents/kWh with a 
weighted-average value of 8.49  cents/kWh. For the RECS households with 
heat pumps, the range of average electricity prices is 2.60 to 13.00 
cents/kWh with a weighted-average value of 7.86  cents/kWh. While 
average energy prices establish the annual electricity cost of baseline 
equipment (i.e., split-system air conditioners with efficiencies of 10 
SEER and heat pumps with efficiencies of 10 SEER and 6.8 HSPF), 
marginal energy prices establish savings in electricity costs 
associated with increased efficiency standards.
    Both EEI and EMPA stated that the average energy prices in RECS are 
outdated and that marginal energy prices should be used in their place 
in conducting the LCC and Payback Analysis. (EEE, #2; EMPA, #3) Both

[[Page 66320]]

pointed to subtracting out the fixed cost portion of the price as an 
interim step in developing marginal prices. EEI suggested several data 
sources for developing marginal prices including state utility 
commissions, Internet web sites such as the PowerRates site, and 
software providers such as such as EPS solutions and Energy 
Interactive. EMPA stated that any work to identify marginal energy 
costs should include a detailed description of the methodology and that 
any data collection efforts must comply with Paperwork Reduction Act. 
ACEEE noted how air conditioners are used during peak periods when the 
cost of supplying electricity is high and that price data should be 
collected during these periods for use in the economic analyses. 
(ACEEE, #5)
    Regarding future energy prices, several participants at the 1998 
Framework Workshop stated that future residential electricity prices 
will be dependent on the how the electric utility industry is 
restructured. (Transcript, pp 220-230) EMPA was critical of EIA's 
forecasts of future energy prices, stating that the forecasts have 
consistently underestimated rates, and that EIA's forecasting models do 
not reflect the factors resulting from the deregulation of the electric 
utility industry. (EMPA, #3)
    The Department used the most recent forecasts from the 1999 AEO to 
predict the trend in both average and marginal electricity prices by 
multiplying the average and marginal price for the base year (1998) by 
the AEO's forecasted relative electricity price increases and/or 
decreases. In addition, LCC and payback spreadsheets can be run with 
price forecasts from the Gas Research Institute (GRI). The Department 
believes these forecasts are the most reliable available to predict 
future energy trends.
    Marginal Energy Prices: Marginal energy prices are those prices 
consumers pay for the last units of energy used. Marginal prices 
reflect a change in a consumer's bill associated with a change in 
energy consumed, consequently, marginal energy prices, rather than 
average energy prices, are appropriate for determining energy cost 
savings associated with increased efficiency standards. For LCC 
analyses, the Advisory Committee recommended that DOE use the full 
range of consumer marginal energy prices instead of national average 
energy prices. Absent consumer marginal energy price information, the 
Committee recommended DOE use a range of net energy prices, calculated 
by removing all fixed charges. The Department agrees the use of 
marginal energy prices improves the accuracy of the LCC Analysis and 
has estimated marginal prices for electricity and natural gas.
    The Department estimated consumer marginal electricity and natural 
gas prices directly from household data in the 1993 RECS survey by 
calculating the slopes of the regression lines of customers' bills vs. 
energy consumption for these two fuels. Those slopes are equal to the 
change in bill divided by the change in energy consumption, that is, 
the marginal prices paid by each household. Since this rulemaking 
concerns only energy efficiency standards that apply to electrically-
driven central air conditioners and heat pumps, only marginal 
electricity prices are of concern here.
    For electricity, the Department calculated separately the slopes of 
the regression lines for four summer months (June-September) and for 
the remaining (``winter'') months. The annual marginal price was 
derived by taking the weighted average of the two seasonal prices, 
where the weighting was the relative energy consumption of the 
appliance in each season. For air conditioners/heat pumps, the 
weighting was based on the regional location and age of each of the 
households in the RECS sample.
    Given restructuring of parts of the energy supply sector, customers 
may have more than one bill (e.g., one from the distribution company, 
and one or more from generators or suppliers). To capture complete 
information, future surveys would best gather energy pricing 
information directly from customers, rather than from utilities or 
local distribution companies. Efficient collection of energy pricing 
information in the future will require changing the current processing 
of the billing information so as to gather consumption by month and 
pricing information for each customer from the bills. The pricing 
information would comprise the applicable rate schedule, including 
marginal prices, fixed charges, and demand charges for commercial and 
industrial customers, or time-of-use rates where applicable. The Office 
of Energy Efficiency and Renewable Energy has expressed the need for 
these data in discussions with EIA concerning the design of future 
surveys.
    Until a time series of marginal prices is available, the Department 
will use projected trends in energy prices to derive estimates of 
consumer marginal energy prices for the economic analysis of proposed 
standards. An index (scaling factor) was created relative to current 
prices from the trend in average prices (by fuel and sector) and was 
applied to the current range of marginal prices. For example, if the 
trend in average residential electricity prices was a decline by 20 
percent over a given period of time, then we assume the marginal price 
for each household would decline from its initial observed value by 20 
percent over that same period.
    The Department recognizes that a simple scaling of marginal energy 
prices may be incorrect in a restructured electric power market. 
Therefore, the Department may develop a different approach to forecast 
future marginal energy prices when restructuring becomes more widely 
implemented.
    Given the uncertainty of projections, the Department has made 
available to stakeholders the ability to conduct a scenario analysis to 
examine the robustness of different efficiency levels under different 
energy-price conditions. Each scenario provides a self-consistent 
projection, integrating energy supply and demand. The scenarios differ 
from each other in the energy prices that result. The Advisory 
Committee suggested the use of three scenarios. While many scenarios 
can be envisioned, the three scenarios specified are sufficient to 
bound the range of energy prices.
    The three scenarios suggested by the Advisory Committee are based 
on projections in the 1999 AEO. The Department's most recent reference 
case, published in the 1999 AEO, provides a well-defined middle 
scenario. In addition, DOE can use the scenarios with the highest and 
lowest energy prices in the sector from the range of scenarios in the 
1999 AEO. The future trend in energy prices assumed in each of the 
three scenarios is clearly labeled and accessible in each spreadsheet. 
Also included as a scenario is the GRI energy price forecast for 1998. 
Stakeholders can easily substitute alternative assumptions in the 
Department's web site LCC spreadsheets to examine additional scenarios.
    For the RECS households with central air conditioners, the range of 
marginal electricity prices in 1993 dollars is 0.58 to 19.42  cents/kWh 
with a weighted-average value of 8.74  cents/kWh. For the RECS 
households with heat pumps, the range of marginal electricity prices is 
0.82 to 18.62  cents/kWh with a weighted-average value of 7.99  cents/
kWh.
    As discussed previously under the section describing average energy 
prices, marginal energy prices are used to determine the annual 
electricity costs associated with energy savings resulting from an 
increased efficiency standard (i.e., any efficiency above baseline 
efficiencies).
    Lifetime: In choosing a value for lifetimes of central air 
conditioners and

[[Page 66321]]

heat pumps, a variety of sources were reviewed. These studies on 
lifetimes of central air conditioners and heat pumps indicates that 
there is a wide range of values for lifetimes. The references are 
provided in Table 12, with the mean lifetimes given in years.

     Table 12.--Central Air Conditioner and Heat Pump Mean Lifetimes
------------------------------------------------------------------------
                                                      In years--
                   Source                    ---------------------------
                                               Central AC     Heat pump
------------------------------------------------------------------------
Appliance Magazine. The Life Expectancy/              13.0            14
 Replacement Picture, Sept. 1998 a..........
National Association of Home Builders.                15.0            15
 Housing Facts, Figures, and Trends, 1998 b.
1995 ASHRAE Applications Handbook c.........          15.0            15
M.E. Bucher et al, American Electric Power    ............          d 19
 Service Corp. 1990. ``Heat Pump Life and
 Compressor Longevity in Diverse Climates'',
 ASHRAE Transactions 96(1):1567-1571........
K.A. Pientka, Commonwealth Edison Co. 1987.   ............       d 15-16
 ``Heat Pump Service Life and Compressor
 Longevity in a Northern Climate'', ASHRAE
 Transactions 93(1):1087-1101...............
C.C. Hiller, EPRI and N.C. Lovvorn, Alabama   ............          d 20
 Power Co. 1987. ``Heat Pump Compressor Life
 in Alabama'', ASHRAE Transactions
 93(1):1102-1110............................
J.E. Lewis, Easton Consultants. 1987.                 12.1          10.9
 ``Survey of Residential Air-to-Air Heat
 Pump Service Life and Maintenance Issues'',
 ASHRAE Transactions 93(1):1111-1127........
MTSC, Inc. Energy Capital in the U.S.                 12.0            12
 Economy, prepared for the Office of Policy,
 Planning, and Evaluation, U.S. Department
 of Energy, Nov. 1980 e.....................
------------------------------------------------------------------------
a Based on first-owner use. Central AC min life = 8, max life = 18. Heat
  Pump min life = 10, max life = 17.
b Sources: Air Conditioning and Refrigeration Institute; Air
  Conditioning, Heating, and Refrigeration News; Air Movement and
  Control Association; American Gas Association; American Society of Gas
  Engineers; ASHRAE.
c Source for Central A/C: Akalin, M.T. 1978. ``Equipment life and
  maintenance cost survey'', ASHRAE Transactions 84(2):94-106. Source
  for Heat Pump: ASHRAE Technical Committee 1.8, 1986.
d Median lifetime.
e Based on retirement function.

    The available sources report mean and median lifetimes ranging from 
10.9 to 20 years. The Department's analysis assumed a mean lifetime of 
18.4 years, based on a 1990 ASHRAE technical paper that has the most 
recent and most detailed information on heat pump life available, based 
on a survey of 2,184 heat pump installations in a seven-state region of 
the United States. The sources that report shorter average lifetimes 
are based on data of a lesser quality, and the Department considers 
those figures are less reliable. For example, in the case of Appliance 
Magazine, the reported lifetime values are based on expert opinion 
rather than empirical data.
    Appliances produced at some future date may have different 
lifetimes than those in the same class produced in the past. The 
projections of lifetimes and other parameters used in the analysis 
should be based on observed empirical trends, as well as expert 
knowledge of likely changes in the industry, since future changes are 
not always straight-line projections of past trends. While expert 
judgement is crucial, however, it must have a strong empirical basis. 
With this in mind, the Department believes that the probability 
distribution of equipment lifetime used in the analysis is the most 
sound, given available evidence of past performance and recent trends. 
Because none of the data on equipment lifetime indicates a relationship 
between efficiency and lifetime, the Department assumes that equipment 
lifetime is independent of efficiency.
    EMPA claimed that lifetime should be based on first ownership 
rather than actual equipment life. (Glenn Schleede, EMPA, Transcript, 
pp 232; EMPA, #3) They stated that homeowners usually change residences 
every 7 years. In response to this assertion, it was stated that 
although the statute requires that LCC be determined it does not 
specify the exact meaning of lifetime. (Mike Rivest, ADL, Transcript, p 
236) Counter to EMPA's claims, OOE stated that energy efficiency 
benefits are essentially swapped when a homeowner changes residence. 
(Charlie Stephens, OOE, Transcript, pp 233; OOE, #7) That is, the new 
homeowner will realize the benefits of the first owner's more efficient 
equipment. They also add that an equipment lifetime of 15 years seems 
reasonable for split system air conditioners, but that field data 
indicates that heat pumps have a shorter life.
    The Department believes that equipment life rather than first 
ownership is the correct measure of lifetime. The Department continues 
to seek any additional information that may provide better data on 
actual air conditioner and heat pump life.
    Discount Rate: Interested parties submitted several comments 
recommending values or procedures for determining discount rates. An 
industry representative suggested that rates of 18 to 20% may be 
appropriate as consumers are paying off credit card debt at these 
rates. (Jim Crawford, Trane, Transcript, p 237) He also asserted that 
practical (i.e., implicit) discount rates (which are derived from 
analyzing actual consumer behavior) may be on the order of 30%. EEI 
also believes that credit card interest rates should be used as a basis 
for establishing discount rates. (EEI, #2) EMPA believes DOE's discount 
rates (as presented at the 1998 Framework Workshop) are too high and 
based on faulty assumptions. They stated that discount rates should 
reflect the true cost of money that consumers would have to spend to 
purchase more efficient appliances. (EMPA, #3) Industry representatives 
also stated that questions concerning consumer discount rates should be 
included on any market surveys for determining retail prices and that 
DOE needs to take into account any information supplied by the 
industry's trade association, ARI. (Jim Crawford, Trane, Transcript, p 
243; David Lewis, Lennox, Transcript, pp 243-244)
    In contrast to these comments, OOE believes that prior discount 
rates developed by DOE seem reasonable, although there are differences 
in how consumers purchase air conditioner and heat pump equipment 
compared to how they purchase other appliances. (OOE, #7) They strongly 
disagreed that discount rates in excess of 15% might be appropriate. 
They claim such high rates are based on calculating an

[[Page 66322]]

implicit discount rate or market failure factor based on past 
shipments.
    The Department's Process Rule for establishing new or revised 
energy efficiency standards for consumer products describes how real 
discount rates are to be established for residential consumers, as 
follows:

    For residential and commercial consumers, ranges of three 
different real discount rates will be used. For residential 
consumers, the mid-range discount rate will represent DOE's 
approximation of the average financing cost (or opportunity costs of 
reduced savings) experienced by typical consumers. Sensitivity 
analyses will be performed using discount rates reflecting the costs 
more likely to be experienced by residential consumers with little 
or no savings and credit card financing and consumers with 
substantial savings.

    Based on the Department's guidelines provided in the Process Rule, 
a distribution of discount rates was derived to reflect the variability 
in financing methods consumers use in purchasing central air 
conditioners and heat pumps. The real interest rate associated with 
financing an appliance purchase is a good indicator of the additional 
costs incurred by consumers who pay a higher first cost, but enjoy 
future savings, although it is not the only indicator of such costs. 
While the method used to derive this distribution relies on a number of 
uncertain assumptions regarding the financing methods used by 
consumers, DOE believes that the resulting distribution of discount 
rates encompasses the full range of discount rates that are appropriate 
to consider in evaluating the impacts of DOE standards on consumers 
(i.e., values represented by the mid-range financing cost, consumers 
with no savings, and consumers with substantial savings), as well as 
all the discount rates which fall between the high and low extreme 
values.
    The method of purchase used by consumers is assumed to be 
indicative of the source of the funds and the type of financing used, 
although DOE is not aware of detailed research into this relationship. 
Consumers purchase appliances as parts of new homes (mortgages) and as 
separate retail purchases. Retail purchases are paid by cash, credit 
cards, or loans. In the case of space-conditioning equipment, the loans 
are assumed to take the form of second mortgages, as central air 
conditioner and heat pump purchases often occur when home upgrades are 
made. Based upon recommendations provided by the ARI, the shares of the 
different financing mechanisms used for purchasing central air 
conditioners and heat pumps were assumed to be 30% with a new home 
(first mortgages), 25% through loans (second mortgages), 10% paid by 
cash, and 35% by use of credit cards.
    In order to derive a full distribution of discount rates, DOE 
estimated a range of interest rates, based on historical data and 
judgments of future trends, for different types of consumer savings or 
financing.
    For new housing, the Department based its real mortgage rates on 
ARI's suggested mean value of 3.0% and assumed a range of 1.6 to 4.4%. 
Applying an assumed marginal tax rate of 28% (i.e., the maximum 
marginal rate paid by most U.S. taxpayers) and an assumed inflation 
rate of 2% results in a mean nominal mortgage rate of 6.94% with a 
range of 5.0 to 8.89%.
    For second mortgages or loans, ARI suggested a mean real interest 
rate of 8.0%. This rate is more representative of a nominal rate for 
second mortgages and was used as such. Assuming a tax rate of 28%, then 
subtracting an assumed inflation rate of 2% (the same rates used to 
derive the new home real interest rates) we arrive at a mean real 
interest rate of 3.76%. Nominal minimum and maximum interest rates of 
6% and 10% were assumed to arrive at the real interest rate range of 
2.32% to 5.20%.
    For cash, the minimum rate was assumed to equal 0%. This rate 
applies to purchasers making cash purchases without withdrawing from 
savings accounts. Based upon ARI's recommendation, the maximum is taken 
to be the opportunity cost represented by the interest that could have 
been earned in a typical mutual fund (assumed to be 6% real). A real 
mean rate of 3% results.
    For credit cards, the Department based its real interest rate on 
ARI's suggested mean value of 12.5%. Minimum and maximum real rates of 
6% and 19% were assumed. It should be noted that the use of these 
credit card rates reflects an assumption that all consumers who use 
credit cards do so as a means of long term financing for product 
purchases, rather than as simply a convenient method of purchase or as 
a means of short term financing.
    Combining the assumed shares of each financing method, the above 
real interest rates result in a weighted-average (mean) value of 6.51% 
and a distribution that varies from 0 to 19%. Sensitivity studies show 
that while the LCC results are sensitive to the value chosen for mean 
discount rate, the LCC results are not sensitive to the distribution of 
discount rates.
    The Department believes that the above method is a valid basis for 
establishing a distribution of discount rates over the full range of 
discount rates relevant to most purchasers of the products covered by 
this rulemaking, but acknowledges that different assumptions might be 
made about likely interest, inflation and marginal tax rates, or about 
consumer financing methods, and that different approaches to 
identifying valid consumer discount rates might also be valid. For 
example, it is also possible to base consumer discount rates on the 
average real rates of return on consumer investment or other measures 
of the opportunity costs incurred by consumers that purchase the 
covered products. DOE does not believe, however, that such alternative 
assumptions or alternative approaches would significantly alter the 
range of discount rates used by the Department or the conclusions drawn 
from the life cycle cost analyses conducted using these discount rates.
    The Department is seeking any information that would support 
significant alterations in the range or distribution of the discount 
rates derived from DOE's analysis. Alternatively, DOE is soliciting 
comment on the possible use of a standardized distribution of discount 
rates ranging from approximately 4% to 12%, with a mean of 6%. The use 
of such a standardized distribution would explicitly recognize the many 
uncertainties associated with DOE's current analysis and, based on 
sensitivity analyses already performed by DOE, such a standardized 
distribution would not significantly alter the conclusions of DOE's 
life cycle cost analyses.
    Repair Costs: The annual repair cost covers the replacement or 
repair of components which have failed. The Department assumed repair 
costs for minimum efficiency equipment (10 SEER) and equipment with 
efficiencies greater than 12 SEER were equal one-half the equipment 
price divided by the mean equipment lifetime. The Department assumed 
equipment with efficiencies of 11 and 12 SEER incur a 1% increase in 
repair cost over the minimum efficiency (10 SEER) level. The rationale 
for assuming essentially flat repair costs through efficiencies up to 
and including 12 SEER pertains to the level of technology being used at 
these system efficiency levels. Through 12 SEER, system technology 
generally does not incorporate sophisticated electronic components 
which are believed to incur higher repair costs. Increases in SEER are 
generally achieved through more efficient single-speed compressors or 
more efficient and/or larger heat exchanger coils. Systems with

[[Page 66323]]

efficiencies beyond 12 SEER start to incorporate modulating blowers or 
compressors which are generally believed to be more susceptible to 
failure.
    Maintenance Costs: The annual maintenance cost covers such items as 
checking and maintaining refrigerant charge levels and cleaning heat 
exchanger coils. Data from Service Experts, an HVAC service company, 
were used to establish maintenance costs. The maintenance cost ranges 
from $0 to $135 with a weighted-average value of $36.
    EMPA stated that DOE needs to collect and include extended warranty 
and service costs in LCC calculations. (Glenn Schleede, EMPA, 
Transcript, p 231; EMPA, #3) EMPA also requested that the assumptions 
regarding maintenance and repair costs be reevaluated and described in 
greater detail. An industry representative supported including these 
costs, and also stated that they will be a function of equipment 
efficiency. (David Lewis, Lennox, Transcript, p 231) A suggestion was 
made to include questions on warranty and service costs on any market 
survey for determining retail prices (Steven Nadel, ACEEE, Transcript, 
p 232). OOE endorsed the concept of accounting for differences in 
maintenance, service, and installation costs, provided these 
incremental costs are attributable only to equipment at different 
efficiency levels (OOE, #7).
    Although the Department included maintenance costs in its LCC 
calculations, no attempt was made to account for warranty costs. The 
Department assumed that warranty costs are constant with increased 
efficiency and, thus, there was no need to explicitly account for 
warranty costs. The Department welcomes any comments that can provide 
insight as to how warranty costs should be accounted for in the LCC 
Analysis.
ii. Equipment Prices
    How manufacturing costs and profit margins associated with 
standards are passed through from manufacturers to consumers has an 
impact on both consumers and manufacturers. Consumer and manufacturer 
economics are linked and inversely related. For this reason, equipment 
purchase prices used for the LCC Analysis need to be reconciled with 
manufacturer costs.
    At the pre-ANOPR stage, a consumer LCC curve, based in part on mean 
installed consumer costs, is a significant factor in the initial 
selection of potential standards levels. Total installed costs are 
needed for a base case, absent new standards, and for all efficiency 
levels to be considered. As noted earlier, equipment purchase price 
coupled with the installation price equals the total installed consumer 
cost.
    There was a great deal of discussion at the 1998 Framework Workshop 
concerning equipment or retail prices, because equipment prices were 
being viewed as a means to verify industry-supplied manufacturer cost 
data. Much of the discussion focused on the correlation between 
manufacturer costs and prices. Some claimed that there is practically a 
random relationship between manufacturer costs and prices and that 
prices are based more upon market dynamics rather than improvements in 
equipment efficiency. (Jim Crawford, Trane, Transcript, pp 90, 139-140) 
It was also stated that, due to the tremendous variability in city 
size, dealer groups, dealer size, dealer proximity to warehouses, bulk 
purchasing, and national account purchasing, the markups involved in 
converting manufacturer costs to retail prices are highly variable. 
Also, because some manufacturers use distributors while others do not, 
markups can vary significantly from manufacturer-to-manufacturer. 
(David Lewis, Lennox, Transcript, pp 168-170) It was also noted that 
markups are unlikely to be constant across all efficiencies. (Jim 
Crawford, Trane, Transcript, pp 154)
    In order better to determine equipment prices, participants at the 
Workshop agreed that it would be appropriate to conduct a market 
survey. There was discussion as to whether the survey should be 
administered to contractors or consumers. It was pointed out that 
contractors may not provide true prices as they may not want to reveal 
their profit margins while consumers may simply not know the price of 
only the equipment (i.e., the price exclusive of the labor, materials 
and profit for installation). (Transcript, pp 170-186) With regard to 
price data that may be collected from utilities, some of it might be 
distorted due to demand side management (DSM) incentive programs, more 
specifically rebate programs. The price collected may not be the actual 
price of the equipment, but rather, the price after a rebate has been 
applied. (Steve Rosenstock, EEI, Transcript, pp 190)
    In written comments, EEI stated that there is little correlation 
between manufacturer costs and retail prices, and that market surveys 
of customers, utilities, and contractors will likely provide the best 
information on retail prices. (EEI, #2) EMPA claimed that price data 
collected will likely not reflect conditions in the current market. 
(EMPA, #3) EMPA also stated that DOE should not shift the 
responsibility of collecting and providing data to interested parties.
    ACEEE noted two possible data sources: a 1996 Xenergy report and 
Chris Neme at the Vermont Energy Investment Fund in Burlington, VT. 
(ACEEE, #5) OOE suggested that two methods are needed for deriving 
prices, each as a cross-check on the results of the other. (OOE, #7) 
One approach should be a ``mark-up'' of manufacturer costs which yield 
a range of retail prices. A market survey of equipment prices should be 
used as the second approach, as opposed to a survey of market experts 
trying to predict consumers' willingness to pay at various price 
levels. With regard to current market prices, PG&E believes that split 
system air conditioning equipment that exceeds 10 SEER are available at 
competitive prices with 12 SEER systems being readily available. (PG&E, 
#8)
    For the pre-ANOPR Analysis, the Department did not attempt to 
conduct a comprehensive contractor or consumer survey of equipment 
prices. The primary reasons were the complexity of and the time needed 
for a comprehensive survey, and the short time frame allotted by the 
Department for publishing the Supplemental ANOPR. The Department will 
consider conducting a survey for any updates to the analyses conducted 
for the NOPR.
    On November 30, 1998, however, the Department issued a Federal 
Register Notice (63 FR 65767) requesting comments on a proposal to 
survey retail prices for Central Air Conditioners and Heat Pumps. ARI 
responded to that request by submitting comments. The comments asserted 
that the proposed survey is woefully inadequate, given the number of 
variables involved. (ARI, #9) ARI suggested that, at a minimum, data on 
the following factors should be considered: (1) Three capacity sizes 
(1.5, 3, and 5 tons), (2) five efficiency levels (10, 11, 12, 13, 14 
SEER), and (3) four classes (split and single package air-conditioner/c 
and heat pump). The survey should be weighted to reflect regional sales 
markets and a large number of manufacturers should be represented in 
the survey. In addition, there should be no reason to include questions 
on the impact of utility rebates, as they are dwindling rapidly.
    The Department uses various assumptions about cost pass-through 
that are reflected in the price forecast approach. The output of this 
analysis is a table describing retail prices for each possible 
efficiency level, assuming that each level represents a new minimum 
efficiency standard. Consistent with the

[[Page 66324]]

process rule, and building on the estimates generated by the various 
assumptions, projected retail prices are described within a range of 
uncertainty.
    Purchase prices of baseline equipment were determined by estimating 
manufacturing costs and applying appropriate markups along the 
distribution chain. Markups were determined in two ways: through 
surveys of distributor (wholesale) and retail prices, and through 
publicly available financial reports. For about 90% of residential air 
conditioning equipment, the distribution chain includes manufacturers, 
distributors (wholesalers), and dealers (contractors). Equipment 
purchase prices are thus estimated as the product of manufacturing 
cost, manufacturer markup, distributor markup, dealer markup, and sales 
tax.
    For the determination of markups via financial reports, it was 
assumed that product markups equal gross margin less pre-tax profit 
margin (earnings-before-taxes) and outbound freight of 6%, plus 1%. The 
baseline central air conditioner and heat pump units covered by this 
analysis typically have lower margins than other products handled by 
diversified companies. The values for markups given in the next 
paragraphs may change in future stages of analysis as the underlying 
data are improved and cross-checked.
    Manufacturer Markup: Financial reports from five publicly traded 
air conditioner manufacturers, representing 75% of the market, were 
examined for a five-year period (1993-1997). Five-year average markups 
for the two most dependent on air conditioner sales were 1.18 and 1.17 
respectively. The other three companies are more diversified and, as 
expected, exhibited higher markups--1.25, 1.24, and 1.18 respectively. 
A central value of 1.18 was chosen for the Price Analysis, with a range 
of 1.15 to 1.26, based on the lowest and highest markups for the five 
manufacturers for the five-year period.
    Distributor Markup: Five-year average markups for the 500 members 
of the Air-conditioning and Refrigeration Wholesalers (ARW) were 1.37, 
the same as for 1997. This value was used for the analysis. However, 
since margins for after-market parts are substantially higher than 
margins for baseline equipment, the actual markup on baseline equipment 
is likely to be lower than the assumed value of 1.37. The markup value 
may be revised downwards based on future information.
    Dealer Markup: Markups were calculated for contractors represented 
by the Air Conditioning Contractors of America (ACCA) and two 
contractor consolidators that focus on the residential market. 
Information used from ACCA covered ``residential and light commercial'' 
dealers, and was divided into new and retrofit services, with markups 
of 1.41 and 1.63, respectively. The weighted average markup for ACCA 
was 1.55 (based on 66 percent of all sales being retrofit sales), close 
to the markup of 1.54 for one of the contractor consolidators. The 
markup for the other consolidator was 1.38, but half of its revenues 
come from plumbing, electrical, and other services that typically have 
lower margins. A central value of 1.55 was chosen for the Price 
Analysis, with a range of 1.37 (based on information from ICF 
Consulting on equipment markups for direct replacement) to 1.63.
    Sales Tax: In many cases, local and state sales taxes are applied 
to equipment purchases. Using 1997 state and local sales tax data and 
1994 state unitary shipment data, the Department calculated a 
distribution of combined sales tax rates. Although the distribution 
revealed a small percentage of consumers at tax rates of 0% and 10%, 
the effective distribution was triangular with a mean of 6.7% and a 
range from 5% to 8%. This corresponds to a mean markup of 1.07 with a 
range from 1.05 to 1.08.
    Overall Markup: Equipment purchase price is determined by 
multiplying manufacturer cost and overall markup. Mean values and 
ranges for the overall markup are the products of the mean values and 
ranges for manufacturer markup, distributor markup, dealer markup and 
sales tax. The mean overall markup is thus calculated as 2.68, with a 
range of 2.27 to 3.04.
iii. Payback Analysis (Distribution of Paybacks)
    Payback is calculated based on the same inputs used for the LCC 
Analysis with the difference that the payback values are based on first 
year savings achieved after the standard takes effect. The output of 
the analysis is a distribution of payback periods. The mean payback 
period is also reported. Additional information is available in the LCC 
spreadsheet which is posted to the Department's web site. The data 
includes charts of cash flow taking into account the changing annual 
fuel prices.
iv. Rebuttable Payback
    As discussed previously, EPCA established a rebuttable presumption 
that a standard is economically justified if the additional product 
purchase cost attributed to the standard is less than three times the 
value of the first year energy cost savings, which is equivalent to a 
three year simple payback. The calculation of rebuttable payback is 
based on single point-values instead of probability distributions used 
in the LCC analysis. For example, where a probability distribution of 
electricity prices are used in the distributional Payback Analysis, 
only the weighted-average value from the probability distribution of 
electricity prices is used for the determination of the Rebuttable 
payback.
    Other than the use of single point-values, the most notable 
difference between the two payback analyses is the Rebuttable payback's 
reliance on the DOE test procedure to determine a central air 
conditioner's or heat pump's annual energy consumption. The DOE test 
procedure for central air conditioners and heat pumps in the cooling 
season uses the following expression to calculate the annual space-
cooling energy consumption:

Space-Cooling Annual Energy Use = (Cooling Capacity  SEER)  x  
Hours

where the Hours equal 1000, the assumed annual operational hours of the 
space-cooling equipment.
    The DOE test procedure for the heating season performance of heat 
pumps uses the following expression to calculate the annual space-
heating energy consumption:

Space-Heating Annual Energy Use = (DHR  HSPF)  x  0.77  x  
Hours

where DHR equals the design heating requirement (which for 3-ton 
cooling capacity heat pumps is typically 35,000 Btu/hr) and Hours equal 
2080, the assumed seasonal operational hours of the space-heating 
equipment.
    The annual space-cooling and heating energy consumption calculated 
based on the previous equations from the DOE test procedure are on the 
order of 50% greater than the weighted-average values from the 1993 
RECS. This means that the payback value calculated from the DOE test 
procedure equations will be significantly lower than the average 
payback value calculated from the RECS analysis, for any standard 
level.
    Rebuttable payback periods are first calculated between the new 
standard level being analyzed and each central air conditioner or heat 
pump efficiency being sold in the year 2006. The paybacks are then 
weighted and averaged according to the percentage of each equipment 
efficiency sold before a new standard is enacted. Rather than being 
based on probability distributions, single point values are used for 
the input variables. These values (e.g., operating hours per year) will 
correspond to those defined in the DOE

[[Page 66325]]

test procedure. The result is a single-value of payback and not a 
probability distribution. The payback is calculated for the expected 
effective year of the standard (e.g., 2006). Examples and further 
details are presented in the Preliminary TSD.
    Based on the most recently available shipments data from ARI (from 
1994), Table 13 shows the markets shares by efficiency level for each 
of the four product classes being analyzed.

                                    Table 13.--Efficiency Level Market Shares
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                      Single          Single
                      SEER                           Split A/C       Split HP       package A/C     package HP
----------------------------------------------------------------------------------------------------------------
10..............................................            78.7            59.3            82.3            64.2
11..............................................             5.4            15.0             9.7            13.6
12..............................................            12.0            19.7             6.8            22.2
13..............................................             3.6             4.5             1.2             0.0
14..............................................             0.1             1.0             0.0             0.0
15..............................................             0.2             0.5             0.0             0.0
----------------------------------------------------------------------------------------------------------------

Because the shipment-weighted efficiencies of unitary air conditioners 
and heat pumps has remained essentially flat over the four year period 
from 1994 to 1997, the previous market shares in Table 13 for 1994 are 
assumed to be applicable for the year 2006. If available, data on a 
forecasted distribution of equipment efficiencies in the year 2006 will 
be used to refine these calculations for the NOPR Analysis.
2. Preliminary Results
a. General
    Calculation of LCC captures the tradeoff between the increases in 
purchase price and reductions in operating expenses for increasing 
efficiencies of appliances. In addition, two other measures of economic 
impact are calculated: distributions of payback periods and a payback 
period calculated for purposes of the rebuttable presumption clause. 
The outputs of the LCC spreadsheet include probability distributions 
and single-point average values of the impacts for each energy 
efficiency level compared to the baseline. A distinct advantage of 
modeling based on probability distributions is that the percentage of 
consumers achieving LCC savings or attaining certain payback periods 
due to an increased efficiency standard can be identified. A variety of 
graphic displays can illustrate the implications of the analysis 
results. These include: (1) A cumulative probability distribution 
showing the percentage of U.S. households that would have a net saving 
by owning a more energy-efficient appliance, and (2) a chart depicting 
the variation in LCC for each efficiency level considered.
b. Product Specific
    The following LCC results show the mean LCCs associated with the 
standard levels which were analyzed. In addition, the percent of 
households with reduced LCCs relative to current minimum efficiency 
equipment (10 SEER) are provided. LCC results are provided based upon 
the manufacturer cost estimates from the efficiency-level approach 
(section II C.1.b.i.) and the reverse engineering (section 
II.C.1.b.ii.). LCC results are presented for nominal 3-ton capacities 
for the four primary product classes, i.e., split-type air 
conditioners, split-type heat pumps, single-package air conditioners, 
and single-package heat pumps (See Tables 14 to 17). Since the values 
of most inputs are uncertain and are represented by probability 
distributions of values rather than discrete values, the results 
presented in the Preliminary TSD (which describes the analytic results 
in greater detail) are also described by probability distributions.

                               Table 14.--Split-Type Air Conditioners--LCC Results
----------------------------------------------------------------------------------------------------------------
                                                                 Source of manufacturing cost data
                                                 ---------------------------------------------------------------
                                                             Industry                   Reverse engineering
                      SEER                       ---------------------------------------------------------------
                                                                   Percent with                    Percent with
                                                     Mean LCC        lower LCC       Mean LCC        lower LCC
----------------------------------------------------------------------------------------------------------------
10..............................................          $4,837  ..............          $4,828  ..............
11..............................................           4,827              39           4,786              48
12..............................................           4,886              31           4,770              45
13..............................................           5,229              12           4,931              27
14..............................................           5,659               6           5,246              15
15..............................................           6,052               4           5,456              11
16..............................................  ..............               2           5,533              11
17..............................................  ..............  ..............           5,672              10
----------------------------------------------------------------------------------------------------------------


[[Page 66326]]


                                  Table 15.--Split-Type Heat Pumps--LCC Results
----------------------------------------------------------------------------------------------------------------
                                                                 Source of manufacturing cost data
                                                 ---------------------------------------------------------------
                                                             Industry                   Reverse engineering
                   SEER / HSPF                   ---------------------------------------------------------------
                                                                   Percent with                    Percent with
                                                     Mean LCC        lower LCC       Mean LCC        lower LLC
----------------------------------------------------------------------------------------------------------------
10 / 6.8........................................         $10,086  ..............         $10,001  ..............
11 / 7.1........................................           9,915              74           9,695              99
12 / 7.4........................................           9,852              63           9,533              90
13 / 7.7........................................          10,119              36           9,850              49
14 / 8.0........................................          10,311              28          10,246              27
15 / 8.2........................................          11,079              11          10,534              20
16 / 8.2........................................  ..............  ..............          10,679              18
----------------------------------------------------------------------------------------------------------------


                             Table 16.--Single Package Air Conditioners--LCC Results
----------------------------------------------------------------------------------------------------------------
                                                                 Source of manufacturing cost data
                                                 ---------------------------------------------------------------
                                                             Industry                   Reverse engineering
                      SEER                       ---------------------------------------------------------------
                                                                   Percent with                    Percent with
                                                     Mean LCC        lower LCC       Mean LCC        lower LCC
----------------------------------------------------------------------------------------------------------------
10..............................................          $5,341  ..............          $5,324  ..............
11..............................................           5,429              20  ..............
12..............................................           5,433              26           5,194              58
13..............................................           6,031               5           5,598              17
14..............................................           6,362               4  ..............  ..............
15..............................................           6,921               2  ..............  ..............
----------------------------------------------------------------------------------------------------------------


                                Table 17.--Single Package Heat Pumps--LCC Results
----------------------------------------------------------------------------------------------------------------
                                                                 Source of manufacturing cost data
                                                 ---------------------------------------------------------------
                                                             Industry                   Reverse engineering
                      SEER                       ---------------------------------------------------------------
                                                                   Percent with                    Percent with
                                                     Mean LCC        lower LCC       Mean LCC        lower LCC
----------------------------------------------------------------------------------------------------------------
10 / 6.8........................................         $10,025  ..............          $9,912  ..............
11 / 7.1........................................           9,906              61  ..............  ..............
12 / 7.4........................................           9,835              58           9,551              80
13 / 7.7........................................          10,342              22  ..............  ..............
14 / 8.0........................................          10,425              21  ..............  ..............
15 / 8.2........................................          11,031              10  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    Tables 18 to 21 show the median payback periods associated with 
each standard level. To note, the median value of a distribution has an 
equal number of payback periods that are greater than and less than the 
reported value. As with the LCC results, payback periods are provided 
based upon both the manufacturer cost estimates from the industry and 
from the reverse engineering analysis. Payback period results are 
presented for the four primary product classes; split-type air 
conditioners, split-type heat pumps, single-package air conditioners, 
and single-package heat pumps.

     Table 18.--Split-type Air Conditioners--Median Payback Periods
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11............................................           13           10
12............................................           15           11
13............................................           41           20
14............................................           80           35
15............................................          137           43
16............................................  ...........           46
17............................................  ...........           49
------------------------------------------------------------------------


        Table 19.--Split-type Heat Pumps--Median Payback Periods
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                                               -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11/7.1........................................            6            1
12/7.4........................................            8            3
13/7.7........................................           13           10
14/8.0........................................           17           17
15/8.2........................................           31           21
16/8.4........................................  ...........           22
------------------------------------------------------------------------


[[Page 66327]]


   Table 20.--Single Package Air Conditioners--Median Payback Periods
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11............................................           20  ...........
12............................................           17            8
13............................................           84           30
14............................................          133  ...........
15............................................          559  ...........
------------------------------------------------------------------------


      Table 21.--Single Package Heat Pumps--Median Payback Periods
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                   SEER/HSPF                   -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11/7.1........................................            8  ...........
12/7.4........................................            9            5
13/7.7........................................           20  ...........
14/8.0........................................           20  ...........
15/8.2........................................           31  ...........
------------------------------------------------------------------------

    Tables 22 to 25 show the simple paybacks for purposes of the 
rebuttable presumption clause. This means test procedure assumptions 
are followed for central air conditioners and heat pumps.

         Table 22.--Split-Type Air Conditioners--Simple Payback
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11............................................          6.2          5.0
12............................................          7.6          5.4
13............................................         13.7          7.8
14............................................         20.9         12.7
15............................................         26.8         14.7
16............................................  ...........         14.6
17............................................  ...........         15.4
------------------------------------------------------------------------


            Table 23.--Split-Type Heat Pumps--Simple Payback
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                   SEER/HSPF                   -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11/7.1........................................          3.2          0.4
12/7.4........................................          4.2          1.8
13/7.7........................................          6.8          5.6
14/8.0........................................          8.0          8.8
15/8.2........................................         13.8         10.5
16/8.4........................................  ...........         10.8
------------------------------------------------------------------------


       Table 24.--Single Package Air Conditioners--Simple Payback
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11............................................          9.9  ...........
12............................................          8.5          3.8
13............................................         21.2         11.2
14............................................         25.2  ...........
15............................................         35.8  ...........
------------------------------------------------------------------------


          Table 25.--Single Package Heat Pumps--Simple Payback
                               [In years]
------------------------------------------------------------------------
                                                 Source of manufacturing
                                                        cost data
                   SEER/HSPF                   -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11/7.1........................................          4.3  ...........
12/7.4........................................          4.6          2.7
13/7.7........................................          9.7  ...........
14/8.0........................................          9.2  ...........
15/8.2........................................         13.7  ...........
------------------------------------------------------------------------

E. Preliminary National Impacts Analyses

    The National Impacts Analysis assesses the net present value (NPV) 
of total consumer LCC, average consumer payback, NES, and indirect 
employment impacts. Each of the above are determined for selected 
standard levels. These calculations are done by the use of a 
spreadsheet tool called the NES Spreadsheet Model, which has been 
developed for all the standards rulemakings and tailored to each 
specific appliance rulemaking. NES spreadsheets for central air 
conditioners and heat pumps are posted to the Department's web site. A 
preliminary assessment of the aggregate impacts at the national level 
has been conducted for this Supplemental ANOPR.
    Analyzing impacts of Federal energy-efficiency standards requires a 
comparison of projected U.S. residential energy consumption without 
standards (baseline case) and with standards. The baseline case 
includes the mix of efficiencies of appliances being sold at the time 
the standard becomes effective. The forecasts contain projections of 
unit energy consumption of new appliances, annual appliance shipments, 
and prices of purchased appliances. The differences between the 
baseline and standards cases represent the energy and cost savings. 
Depending on the method used for sales projections, the sales under a 
standards case projection may differ from those of a baseline case 
projection.
    The Department calculated national energy consumption for each 
year, beginning with the expected effective date of the standards, for 
the base case and for each candidate standards level using two methods, 
i.e., simple spreadsheets, and multiplication of shipment forecasts by 
unit energy savings. Spreadsheets for shipments analysis are posted to 
the Department's web site. Energy consumption and savings are estimated 
based on site energy (kWh of electricity), then the electricity 
consumption and savings are converted to source energy. The differences 
in annual energy consumption between the base case and standards case 
were aggregated to arrive at cumulative energy savings through the year 
2030.
    DOE agrees with the Advisory Committee's recommendation that the 
assumption of a constant site to source-energy conversion factor should 
be dropped in favor of a conversion factor that changes from year to 
year. The conversion factor would be calculated for each year of the 
analysis based on the generating capacity displaced and the amount of 
site energy saved (see the following detailed procedure). For future 
conversion factors, DOE proposes to use the following method:
    (1) Start with an integrated projection of electricity supply and 
demand (e.g., the National Energy Modeling System (NEMS) AEO reference 
case), and extract the source energy consumption.
    (2) Estimate projected energy savings due to possible standards for 
each year (e.g., using the NES spreadsheet).
    (3) Feed these energy savings back to NEMS as a new scenario, 
specifically a deviation from the reference case, to obtain the 
corresponding source energy consumption.
    (4) Obtain the difference in source energy consumption between this 
standard level scenario and the reference case.
    (5) Divide the source energy savings in Btu, adjusted for class 
specific transmission and distribution losses, by the site energy 
savings in kilowatt-hours to provide the time series of conversion 
factors in Btu per kilowatt-hour.
    The resulting conversion factors will change over time, and will 
account for the displacement of generating sources. Furthermore, the 
NES spreadsheet models will include a clearly defined column of 
conversion factors, one for each year of the projection. DOE and 
stakeholders can examine the effects of alternative assumptions by 
replacing this column of numbers.

[[Page 66328]]

1. National Energy Savings (NES) Spreadsheet Model
a. General
    In order to make the analysis more accessible and transparent to 
all stakeholders, the Department has previously prepared spreadsheet 
models using Microsoft Excel in Windows 95 for other appliances to 
forecast energy savings and to demonstrate how improvements in 
efficiency can be accounted for over time. These models, the NES 
spreadsheets, are specific applications of a common model structure to 
each appliance, and a model was tailored to the case of central air 
conditioners and another for the case of heat pumps. These same NES 
spreadsheets were also used to forecast net present value (NPV). These 
spreadsheets are posted to the Department's web site.
    The NES spreadsheets are used to calculate the NES, and the 
national economic costs and savings from new standards. Input 
quantities can be changed within the spreadsheet. Unlike the LCC 
Analysis, the NES Spreadsheet does not use probability distributions 
for inputs or outputs. Both EEI and OOE stated that the NES Analysis 
should use a range of values rather than single point-values. 
Specifically, EEI stated that a range of equipment costs should be used 
to determine NES and net present values while OOE presumes that 
distributional inputs will be used to depict regional differences. 
(EEI, #2; OOE, #7) In order to address these concerns, the Department 
will conduct sensitivity analyses as needed for the NOPR Analysis by 
running scenarios on the input variables of interest.
    One of the more important components of any estimate of the impact 
of future standards is shipments. Forecasts of shipments for the base 
case and the standards case need to be obtained as an input to the NES. 
The Department developed a base case forecast of product shipments in 
the absence of new standards. For all candidate standards levels, 
shipment forecasts are needed to calculate the national benefits of 
standards and to calculate the future cash flows of manufacturers. 
There are a variety of methods available for projecting shipments. A 
sophisticated accounting model was used by the Department and run to 
determine shipment scenarios for each energy efficiency level.
    Other quantities in the NES spreadsheet are: energy price 
projections, including an analysis of consumer marginal electricity 
rates (See Section II.D.1.a); effective date of the standard (start 
year); discount rate and the year of the NPV (1999); manufacturing 
cost; total installed cost; baseline energy use; lifetime; and the 
conversion factor from site to source energy.
    An industry representative requested that the impact of existing 
minimum efficiency standards be calculated in order to determine 
whether the existing standards are indeed cost-effective. (David Lewis, 
Lennox International, Transcript, pp 313) The Department has not made 
any attempt to determine the cost-effectiveness of the existing minimum 
efficiency standards. The Department believes that such an analysis 
would not materially contribute to a decision whether to adopt a more 
stringent standard. Rather, the energy savings and NPV are calculated 
from the expected date any new standard level would take effect to the 
year 2030. Both individual year and cumulative data are generated. 
Output charts and tables provide cumulative energy savings, the cost 
and savings per year (in a chart), and the cost and NPV due to 
standards.
b. Product Specific
i. Inputs to NES Analysis
    Table 26 summarizes the inputs used in the NES model. The NES model 
uses the same basic data as the LCC model for energy use and cost of 
equipment, except that shipment weighted-average values (based on the 
shipment and energy-efficiency distribution forecasts) are used instead 
of distributions. As with the LCC Analysis, two sets of results, 
including forecasts of shipments, energy savings, and net present value 
(NPV), were calculated based on two different sets of costs (industry 
data and reverse engineering) associated with increasing efficiency.

                 Table 26.--Summary of NES Model Inputs
------------------------------------------------------------------------
                     Parameter                        Data description
------------------------------------------------------------------------
Shipments.........................................  Output from Shipment
                                                     Model.
Total installed Consumer Cost.....................  Average value for
                                                     the baseline and
                                                     each standard
                                                     level. From LCC
                                                     Analysis.
Repair and Maintenance Costs......................  Average values for
                                                     the baseline and
                                                     each standard
                                                     level. From LCC
                                                     Analysis.
Historical Efficiencies...........................  Shipment-weighted
                                                     efficiency data
                                                     (SEER) from the Air-
                                                     Conditioning and
                                                     Refrigeration
                                                     Institute for the
                                                     years 1976-1997.
Future Efficiency Trend...........................  For the years 1998
                                                     to the assumed
                                                     effective date of
                                                     the new standard
                                                     (2006), shipment-
                                                     weighted
                                                     efficiencies are
                                                     assumed to remain
                                                     constant at the
                                                     shipment-weighed
                                                     efficiency level in
                                                     1997. For years
                                                     beyond the assumed
                                                     effective date of
                                                     the new standard,
                                                     shipment-weighted
                                                     efficiencies are
                                                     assumed to equal
                                                     the new standard
                                                     level.
Unit Annual Energy Consumption....................  Based on the
                                                     weighted-average
                                                     annual energy
                                                     consumption and
                                                     efficiency from LCC
                                                     Analysis. To
                                                     estimate the
                                                     representative
                                                     annual energy
                                                     consumption of a
                                                     central air
                                                     conditioner or heat
                                                     pump for any given
                                                     year, the ratio of
                                                     the RECS weighted-
                                                     average efficiency
                                                     to the efficiency
                                                     level in that year
                                                     is multiplied by
                                                     the RECS weighted-
                                                     average annual
                                                     energy consumption.
Electricity Prices................................  Based on the
                                                     weighted-average
                                                     marginal
                                                     electricity price
                                                     determined from
                                                     RECS93 in the LCC
                                                     Analysis.
Escalation of Electricity Prices..................  1999 EIA AEO
                                                     forecasts (to 2020)
                                                     and extrapolation
                                                     from 2020 to 2030.
Electricity Site-to-Source Conversion.............  Conversion varies
                                                     yearly and is
                                                     provided by the
                                                     1999 Annual Energy
                                                     Outlook (a time
                                                     series conversion
                                                     factor; includes
                                                     electric generation
                                                     transmission and
                                                     distribution
                                                     losses).
Discount Rate.....................................  7% real.
Present Year......................................  Future expenses are
                                                     discounted to year
                                                     1999.
------------------------------------------------------------------------

    Both EEI and EMPA provided comments on the type of electricity 
price that should be used in the analysis. EEI warned that energy 
savings will decrease as a result of dropping energy prices, and that 
the 1998 AEO electricity price forecasts do not decline rapidly enough, 
since factors resulting from deregulation are not accounted for. Both 
EEI and EMPA stated that marginal rather than average electricity 
prices should be used in all calculations. (EEI, #2; EMPA, #3) As noted 
in Table 26 and as discussed earlier in the LCC Analysis (section II 
D.1.b.i.), the Department used

[[Page 66329]]

the most recent forecasts from the 1999 AEO to predict the trend in 
both average and marginal electricity prices. In addition, the NES 
spreadsheets can be run with price forecasts from the GRI. The 
Department believes these forecasts are the most reliable available to 
predict future energy trends. With regard to marginal energy prices, 
the Department is using mean marginal prices to calculate energy 
savings.
    EEI also warned that energy savings from higher SEERs could be 
lower in hot and humid climatic regions, where EER is a better 
indicator of equipment performance. (EEI, #2) Although the performance 
of equipment can vary depending on climatic conditions, the Department 
believes that SEER will provide the best indicator of annual energy use 
in all climates. The annual energy consumption values from the 1993 
RECS, which the NES spreadsheet uses as the basis for determining the 
energy savings from higher SEER standards, accounts for regional 
variations in energy use.
    EEI stated that diversity factors must be taken into account when 
calculating NES, as not all air conditioners are on at the same time. 
Utility load factors should also be addressed. (Steve Rosenstock, EEI, 
Transcript, p 272; EEI, #2). Diversity and utility load factors are not 
accounted for in the determination of NES. Rather, the NES are passed 
through to the Utility Impact Analysis which will establish the impacts 
of the savings on utility generation and distribution. The model to be 
used in the Utility Analysis (NEMS-BRS) accounts for diversity and 
utility load factors when determining the impacts on the utility 
industry. NEMS-BRS is a variant of U.S. DOE/EIA's NEMS and is named as 
such for two reasons: (1) The Utility Analysis to be performed entails 
some minor code modifications and (2) the model will be run under 
various policy scenarios that will be variations on DOE/EIA 
assumptions. The name NEMS-BRS refers to the model to be used for the 
Utility Analysis (BRS is DOE's Building Research and Standards office). 
NEMS was used by DOE/EIA to produce the 1999 AEO, and NEMS-BRS is used 
to provide some key equivalent inputs to the standards analysis.
ii. Shipments Model
    The Department chose an accounting model method to prepare shipment 
scenarios for baseline (10 SEER) and five standard levels (11 through 
15 SEER) for central air conditioners and heat pumps. The model tracks 
the stocks and purchases of each type of central air conditioner and 
heat pump. Events and consumer decisions influence how the stock and 
supply of central air conditioner and heat pump systems flow from one 
category to another. Decisions that are economically influenced are 
modeled with econometric equations.
    OOE supports the use of the accounting method for forecasting 
shipments, but stated that thorough discussions will be required in 
order to quantify the impacts of non-regulatory programs and market 
trends. (OOE, #7) The Department reviewed information from parties 
involved in market-based initiatives for increasing the sales of high-
efficiency models but was unable to determine any quantifiable measure 
of how these programs impact product efficiencies on a national basis. 
Thus, the impact of market-based initiatives was not incorporated into 
the baseline and standard level forecasts.
    The model is organized into three classes of elements: Stocks, 
events, and decisions. Stocks of central air conditioners and heat 
pumps are divided into ownership categories, and units are assigned to 
age categories. Events are things that happen to stocks independent of 
economic conditions, i.e., breakdowns requiring repair or replacement. 
Decisions are consumer reactions to market conditions, e.g., whether to 
repair or replace equipment, or to buy a house with or without an air 
conditioner or heat pump. Consumer purchase decisions are categorized 
by market segments. Decision trees are used to describe consumer 
choices for purchases and repairs. A logit probability model simulates 
consumer purchase decisions that are based on equipment price, 
operating costs, and income level.
    Ownership Categories: Households are first divided into central air 
conditioner and heat pump markets, then the two markets are further 
divided into four different ownership categories, including (1) new 
housing, (2) existing housing with a regular central air conditioner or 
heat pump (i.e., equipment has not been repaired to extend its life), 
(3) housing without a central air conditioner or heat pump, and (4) 
housing with an extended life central air conditioner or heat pump 
(i.e., equipment repaired to extend its life). The population of 
central air conditioner and heat pump units in each ownership category 
are referred to as the stock of central air conditioner and heat pump 
units of that category. Accounting equations relate annual changes in 
stocks to activities in the various market segments.
    Market Segments: Central air conditioner and heat pump purchases 
are divided into five market segments:
     Net New Housing Market: Net increase in the housing stock 
forces the purchase of new central air conditioner and heat pump 
systems.
     Early (Discretionary) Replacement Market: About 29% of 
central air conditioner and heat pump owners replace the existing 
systems before the systems break down because they want an updated 
model, because of remodeling, or for other miscellaneous reasons.
     Regular Replacement Market: Most central air conditioner 
and heat pump purchases are to replace an existing system that has 
broken down after completion of its useful life.
     Extra Repair Market: Since replacement of central air 
conditioner and heat pump systems is costly, a few consumers will 
rebuild or repair a malfunctioning system (thus extending its lifetime) 
rather than purchasing a new system. Eventually, even extended-life 
central air conditioner and heat pump systems are replaced.
     Homes without an air conditioner or heat pump system: A 
few households without a central air conditioner or heat pump system 
will purchase them and become new central air conditioner or heat pump 
owners.
    Events and decisions (e.g., the probability that an existing 
central air conditioner has a problem and the course of action taken by 
the consumer) are modeled separately for each market segment.
    Logit Probability Model: The logit probability of purchase model is 
used to estimate the impact of standards-induced price and features 
changes on consumer decisions. The model accounts for consumer 
responsiveness to purchase price, operating costs, and income. 
Coefficients for the responsiveness to these three factors were 
developed for each of the market segments, based on the results of 
empirical research on consumer purchase behavior. The probabilities are 
applied to equations that govern activities in the various market 
segments.
    Table 27 summarizes the various inputs and sources of the central 
air conditioner and heat pump shipment model.

[[Page 66330]]



               Table 27.--Summary of Shipment Model Inputs
------------------------------------------------------------------------
                                                      Data description/
                     Parameter                             source
------------------------------------------------------------------------
Data for New Housing Starts.......................  Census Bureau data
                                                     on new housing
                                                     construction.
Data for Early Replacement Market.................  1990 ASHRAE
                                                     technical paper
                                                     entitled ``Heat
                                                     Pump Life and
                                                     Compressor
                                                     Longevity in
                                                     Diverse Climates''.
                                                     In the paper, 29%
                                                     of consumers in
                                                     1987 replaced their
                                                     equipment for
                                                     reasons other than
                                                     unit failure.
Data for Regular Replacement Market...............  1990 ASHRAE
                                                     technical paper
                                                     entitled ``Heat
                                                     Pump Life and
                                                     Compressor
                                                     Longevity in
                                                     Diverse Climates''.
                                                     Survival functions
                                                     for total system
                                                     life and original
                                                     compressor life are
                                                     presented. The
                                                     compressor survival
                                                     function was used
                                                     to establish the
                                                     probability that a
                                                     system has problems
                                                     while the
                                                     difference between
                                                     the two survival
                                                     functions was used
                                                     to establish the
                                                     probability of
                                                     repair vs.
                                                     replacement.
Data for Extra Repair Market......................  1990 ASHRAE
                                                     technical paper
                                                     entitled ``Heat
                                                     Pump Life and
                                                     Compressor
                                                     Longevity in
                                                     Diverse Climates''.
                                                     Total system
                                                     survival function
                                                     was used establish
                                                     the probability of
                                                     extended or extra
                                                     repair.
Data for Homes without an air conditioner or heat   March 29, 1993 issue
 pump.                                               of the Air-
                                                     Conditioning,
                                                     Heating and
                                                     Refrigeration News.
                                                     In 1992, 14% of
                                                     central air
                                                     conditioner and
                                                     heat pump shipments
                                                     went to non-owner
                                                     households.
Elasticities......................................  Purchase Price,
                                                     Operating cost, and
                                                     Income
                                                     elasticities--from
                                                     The ORNL
                                                     Engineering-
                                                     Economic Model of
                                                     Residential Energy
                                                     Use, Oak Ridge
                                                     National
                                                     Laboratory, 1978.
Source of Household Income........................  EIA, 1999 AEO.
------------------------------------------------------------------------

    This shipments model allows appliance saturations to be expressed 
as a function of consumer price and operating cost in order to capture 
the effect of those two variables on future shipments. The Department 
prepared consumer price and operating cost elasticities to calibrate 
appliance forecasts to historical shipments. These and other features 
of the model allow it to provide estimates that are consistent with the 
recent history of central air conditioner and heat pump shipments, 
market structure, and consumer preferences.
    Drawbacks of this method include: (1) Saturation of units in new 
and stock households must be forecasted, (2) housing starts must be 
forecasted (although the AEO does provide readily available forecasts), 
and (3) retirement of units must be based upon assumptions regarding 
lifetimes.
    Unlike the LCC model, the shipments model does not use probability 
distributions of values for inputs. While the shipment models uses the 
same basic input data as the LCC model for energy use and cost of 
equipment, the model uses shipment weighted-average values instead of 
probability distributions.
    Because NES are dependent on shipments (which, in turn, are 
dependent on equipment purchase price), the Department prepared two 
sets of shipments forecasts, one based on manufacturer cost data for 
increases in efficiency levels and the other based on cost data from 
the reverse engineering methodology, both of which are presented in the 
Preliminary TSD.
iii. National Net Present Value
    Net present value (NPV) is the sum over time of discounted net 
savings. The national NPV of each candidate standards level is the 
difference between the base case national average LCC and the national 
average LCC in the standards case.
    Using the NES model, NPV was calculated from projections of 
national expenditures for central air conditioners and heat pumps, 
including total installed consumer cost and operating expenses. Future 
costs and savings were discounted to the present with a discount 
factor, which was calculated from the discount rate and the number of 
years between the present (year to which the sum is being discounted) 
and the year in which the costs and savings occur.
    The inputs for the determination of national NPV were detailed in 
the discussion of the NES model. Like the NES results, two sets of NPV 
results were prepared; one based on industry-provided manufacturer 
costs and the other on the reverse engineering data.
2. Preliminary Results
a. General
    The Department calculated the national energy consumption by 
multiplying the number of central air conditioners and heat pumps (by 
vintage) by the unit energy consumption (also by vintage). Vintage is 
the age of the equipment (varying from one to twenty four-years). 
National annual energy savings is the difference between national 
energy consumption at the base case (without new standards) and each 
standards case. Cumulative energy savings are the sum of the annual NES 
over several time periods (e.g., 2006-2010, 2006-2020, and 2006-2030).
    National economic impacts are calculated from the energy savings. 
The primary metric for measuring national economic impact is NPV. The 
NPV can be expressed by the following equation:

NPV = PVS-PVC

Where PVS equals the present value of operating cost savings (including 
electricity, repair, and maintenance cost savings) and PVC equals the 
present value of increased equipment costs (including equipment price 
and installation price). Another way of describing NPV is that it is 
the difference between the LCCs (for all appliances sold) with and 
without standards.
    In NPV, costs are calculated as the product of (1) the difference 
in the purchase price between the base case and standards case and (2) 
the annual sales volume in the standards case. Since costs of the more-
efficient equipment purchased in the standards case are higher than 
those of equipment purchased in the base case, price increases appear 
as negative values in the NPV.
    Monetary savings are typically exhibited as decreases in operating 
costs associated with the higher energy efficiency of appliances 
purchased in the standards case compared to the base case. Total 
operating cost savings is the product of savings per unit and the 
number of units of each vintage surviving in a particular year. Savings 
appear as positive values in the NPV.
    Net savings each year are calculated as the difference between 
Total Operating Cost Savings and Total Equipment Costs. The savings are 
calculated over the life of the appliance, accounting for the 
differences in yearly energy rates. Future annual costs and savings are 
discounted to the present time and summed. NPV greater than zero 
indicates net savings (i.e., that the standard reduces consumer 
expenditures in the standards case relative to the base case). NPV less 
than

[[Page 66331]]

zero indicates that the standard incurs net costs.
    The elements of the NPV can be expressed in another form, as the 
benefit/cost ratio. The benefit is the savings in decreased operating 
expenses (including electricity, repair, and maintenance), while the 
cost is the increase in the purchase price (including equipment and 
installation price) due to standards relative to the base case. When 
the NPV is greater than zero, the benefit/cost ratio is greater than 
one.
b. Product Specific
    Tables 28 to 31 show the forecasted NES for the four primary 
product classes at each of the five efficiency levels analyzed (11 
through 15 SEER). The results shown are based on a single shipment 
weighted average (SWA) cost instead of a cost distribution.

Table 28.--Split-Type Air Conditioners: Cumulative NES Impacts From 2006
                                 to 2030
                                 [Quads]
------------------------------------------------------------------------
                                                 Source of manufacturer
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   Engineering
------------------------------------------------------------------------
Base Case \1\.................................         24.3         24.3
11............................................          0.7          0.7
12............................................          2.6          2.5
13............................................          4.3          4.1
14............................................          5.8          5.6
15............................................          7.0          6.7
------------------------------------------------------------------------
\1\ Values for Base Case are the cumulative national energy consumption
  from 2006 to 2030.


  Table 29.--Split-Type Heat Pumps: Cumulative NES Impacts From 2006 to
                                  2030
                                 [Quads]
------------------------------------------------------------------------
                                                 Source of manufacturer
                                                        cost data
                   SEER/HSPF                   -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
Base Case \1\.................................         27.8         27.8
11/7.1........................................          0.1          0.0
12/7.4........................................          1.3          1.1
13/7.7........................................          2.9          2.8
14/8.0........................................          4.3          4.4
15/8.2........................................          5.8          5.6
------------------------------------------------------------------------
\1\ Values for Base Case are the cumulative national energy consumption
  from 2006 to 2030.


 Table 30.--Single Package Air Conditioners: Cumulative NES Impacts From
                              2006 to 2030
                                 [Quads]
------------------------------------------------------------------------
                                                 Source of manufacturer
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
Base Case \1\.................................          3.8          3.8
11............................................          0.1  ...........
12............................................          0.4          0.4
13............................................          0.7          0.7
14............................................          0.9  ...........
15............................................          1.1  ...........
------------------------------------------------------------------------
\1\ Values for Base Case are the cumulative national energy consumption
  from 2006 to 2030.


 Table 31.--Single Package Heat Pumps: Cumulative NES Impacts From 2006
                                 to 2030
                                 [Quads]
------------------------------------------------------------------------
                                                 Source of manufacturer
                                                        cost data
                   SEER/HSPF                   -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
Base Case \1\.................................          4.7          4.7
11/7.1........................................          0.0  ...........
12/7.4........................................          0.2          0.2
13/7.7........................................          0.5  ...........
14/8.0........................................          0.7  ...........
15/8.2........................................          1.0  ...........
------------------------------------------------------------------------
\1\ Values for Base Case are the cumulative national energy consumption
  from 2006 to 2030.

    Tables 32 to 35 show the national NPVs for the four primary product 
classes at each of the five efficiency levels analyzed (11 through 15 
SEER).

  Table 32.--Split-Type Air Conditioners: Cumulative Net Present Value
                        Impacts From 2006 to 2030
                      [In billions of 1998 dollars]
------------------------------------------------------------------------
                                                 Source of manufacturer
                                                        cost data
                     SEER                      -------------------------
                                                               Reverse
                                                  Industry   engineering
------------------------------------------------------------------------
11............................................         -0.3          0.1
12............................................         -2.8         -0.1
13............................................         -7.5         -1.8
14............................................         -156         -8.4
15............................................        -22.0        -12.1
------------------------------------------------------------------------


 Table 33.--Split-type Heat Pumps: Cumulative Net Present Value Impacts
                            From 2006 to 2030
                      [In billions of 1998 dollars]
------------------------------------------------------------------------
                                                Source of manufacturer
                                                       cost data
                  SEER/HSPF                  ---------------------------
                                                               Reverse
                                                Industry     engineering
------------------------------------------------------------------------
11/7.1......................................           0.0           0.1
12/7.4......................................          -0.6           0.5
13/7.7......................................          -1.6          -1.5
14/8.0......................................          -2.8          -4.3
15/8.2......................................          -8.1          -6.2
------------------------------------------------------------------------


Table 34.--Single Package Air Conditioners: Cumulative Net Present Value
                        Impacts From 2006 to 2030
                      [In billions of 1998 dollars]
------------------------------------------------------------------------
                                                Source of manufacturer
                                                       cost data
                    SEER                     ---------------------------
                                                               Reverse
                                                Industry     engineering
------------------------------------------------------------------------
11..........................................          -0.2
12..........................................          -0.3           0.2
13..........................................          -1.9          -1.0
14..........................................          -2.8
15..........................................          -4.3
------------------------------------------------------------------------


   Table 35.--Single Package Heat Pumps: Cumulative Net Present Value
                        Impacts From 2006 to 2030
                      [In billions of 1998 dollars]
------------------------------------------------------------------------
                                                Source of manufacturer
                                                       cost data
                  SEER/HSPF                  ---------------------------
                                                               Reverse
                                                Industry     engineering
------------------------------------------------------------------------
11/7.1......................................           0.0
12/7.4......................................          -0.1           0.1
13/7.7......................................          -0.6
14/8.0......................................          -0.6
15/8.2......................................          -1.3
------------------------------------------------------------------------

3. Indirect Employment Impacts
a. General
    The July 1996 Process Rule includes employment impacts among the 
factors to be considered in selecting a proposed standard. The Process 
Rule states a presumption against any proposed standard level that 
would cause significant plant closures or losses of domestic 
employment.
    The Department estimates the impacts of standards on employment for 
appliance manufacturers, relevant service industries, energy suppliers, 
and the economy in general. Employment impacts are separated into 
indirect and direct impacts. Direct employment

[[Page 66332]]

impacts would result if standards lead to a change in the number of 
employees at manufacturing plants and related supply and service firms. 
Direct impacts are estimated in the Manufacturer Sub-Group Analysis 
(section G.2).
    Indirect impacts are impacts on the national economy other than in 
the manufacturing sector being regulated. Indirect impacts may result 
from both expenditures shifting among goods (substitution effect), and 
income changing, which will lead to a change in overall expenditure 
levels (income effect). Indirect employment impacts from standards are 
defined as net jobs eliminated or created in the general economy as a 
consequence of increased spending on the purchase price of appliances 
and reduced household spending on energy.
    New appliance standards are expected to increase the purchase price 
of appliances (retail price plus sales tax, and installation). The same 
standards are also expected to decrease energy consumption, and 
therefore reduce household expenditures for energy. Over time, the 
increased purchase price is paid back through energy savings. The 
savings in energy expenditures may be spent on other items. Using an 
input/output model of the U.S. economy, this analysis seeks to estimate 
the effects on different sectors, and the net impact on jobs. National 
impacts will be estimated for major sectors of the U.S. economy in the 
NOPR. Public and commercially available data sources and software will 
be utilized to estimate employment impacts. At least three scenarios 
will be analyzed to bound the range of uncertainty in future energy 
prices. All methods and documentation will be made available for 
review.
b. Product Specific
    The Department of Energy's Office of Building Technologies and 
State Programs (BTS) has developed a spreadsheet model (IMBUILD) that 
could be used to analyze indirect employment impacts. IMBUILD is a 
special-purpose version of the Impact Analysis for Planning (IMPLAN) 
national input-output model which specifically estimates the employment 
and income effects of building energy technologies. IMPLAN was 
developed originally by the U.S. Forest Service in cooperation with the 
Federal Emergency Management Agency (FEMA) and the Bureau of Land 
Management (BLM) to assist the Forest Service in land and resource 
management planning. IMBUILD is an economic analysis system that 
focuses on those sectors most relevant to buildings, and characterizes 
the interconnections among 35 sectors as national input-output 
matrices. The IMBUILD output includes employment, industry output, and 
wage income. Changes in expenditures due to appliance standards can be 
introduced to IMBUILD as perturbations to existing economic flows and 
the resulting net national impact on jobs by sector can be estimated. 
Additional detail is provided in the Preliminary TSD.
    OOE stated that they are not familiar with this type of analysis 
and believe that DOE should utilize specialists that may exist at the 
Department of Commerce or the Department of Labor. (OOE, #7) The 
Department intends to use IMBUILD in its analysis of indirect 
employment impacts due to its relatively long history of being used as 
a tool (in its original form as IMPLAN) for assessing economic impacts. 
Although neither the Departments of Commerce or Labor were involved in 
the development of IMPLAN, the model was based on use of the Commerce 
Department's make-and-use tables, input-output model of the U.S. 
economy, and price deflators; and use of the Labor Department's 
schedule of wages. Consequently, DOE believes IMBUILD is a sound method 
for analyzing indirect employment impacts. IMBUILD, in its original 
form as IMPLAN, has been used since 1979 by a wide variety of 
government and private agencies including FEMA and BLM in conducting 
economic impact analyses.

F. Consumer Analyses

    The Consumer Analysis evaluates impacts on any identifiable groups, 
such as consumers of different income levels, who may be 
disproportionately affected by any national energy efficiency standard 
level.
    The Department plans to evaluate variations in regional energy 
prices, variations in energy use and variations in installation costs 
that might affect the NPV of a standard to consumer sub-populations. To 
the extent possible, the Department will obtain estimates of the 
variability of each input parameter and consider this variability in 
its calculation of consumer impacts. The analysis is structured to 
answer questions such as: How many households are better off with 
standards and by how much? How many households are not better off and 
by how much? The variability in each input parameter and likely sources 
of information will be discussed with stakeholders.
    Variations in energy use for a particular appliance depend on 
factors such as climate, type of household, and people in household. 
Annual energy use can be estimated by a calculation based on an 
accepted test procedure or it can be measured directly in the field. 
The Department plans to perform sensitivity analyses to consider how 
differences in energy use will affect sub-groups of consumers.
    The impact on consumer sub-groups will be determined using the LCC 
spreadsheet model. Details of this model are explained in the LCC 
section of the Preliminary TSD.
1. Consumer Sub-Group Analysis
a. General
    The Department will be sensitive to increases in the purchase price 
to avoid negative impacts to identifiable population groups, such as 
consumers of lower income levels. Additionally, the Department will 
assess the likely impacts of an increased purchase price on product 
sales and fuel switching.
b. Product Specific
    For consumers, one measure of economic impact is the first cost of 
the product. The Department will analyze first costs to determine their 
impacts on consumer subgroups. The Department will be especially 
attentive to the need to avoid negative impacts on population groups 
such as low-income households. Increased first costs to consumers 
resulting from standards are especially important for lower-income 
consumers, since this group is most sensitive to price increases. For 
lower-income consumers, increases in first costs for a product can 
preclude the purchase of a new model of that product. As a result, some 
consumers may retain products past their useful life, or purchase 
older, used appliances. These older products are generally less 
efficient, and their efficiency may deteriorate if they are retained 
beyond their useful life. Increases in first cost can also preclude the 
purchase and use of a product altogether resulting in a potentially 
large loss of utility.
    OOE commented that with regard to first-cost increases on low-
income households, the number of low-income households affected by any 
new standards should first be determined (OOE, #7). The Department 
seeks input on identifying the potential impacts of a large first-cost 
increase on consumers (affordability, financing, and on other financial 
issues), and on methods and data the Department could use in conducting 
its analysis. The Department also seeks input on methods the Department 
might use to assess the likely impacts of first-cost increases on 
product sales and fuel switching.

[[Page 66333]]

2. Consumer Participation
a. General
    The Department seeks to inform and involve consumers and consumer 
representatives in the process of developing standards. This includes 
notification of consumer representatives during the rulemaking process 
and where appropriate, seeking direct consumer input.
    For all products, consumer input is important for several related 
but separate analytical tasks. First, consumer preferences should be 
understood prior to determining product classes in order to preserve 
product utility. Second, assessing the impact of changes in first cost 
may require direct consumer participation from affected consumer sub-
groups (particularly low-income households). Finally, consumer input is 
useful to ensure that life-cycle costs are accurately estimated for 
relevant subgroups of consumers. To assess consumer impacts, the 
Department usually combines life-cycle cost modeling and direct 
consumer input.
    The advisory committee sub-group on consumer issues has suggested 
appropriate means of obtaining consumer input, including: (1) Using 
focus groups, (2) conducting surveys, (3) conducting demonstration 
projects, (4) conducting marketing analysis, and, (5) researching 
existing literature from voluntary programs. In seeking this 
information, the advisory committee sub-group emphasized the need for 
the Department to obtain information from statistically significant 
sample sizes of all relevant consumer categories.
b. Product Specific
    OOE recommended that the Department first investigate the actual 
level of consumer input or choice involved in the purchase of these 
systems before spending any time putting resources into surveying 
consumers about first cost increases. (OOE, #7) OOE warned that HVAC 
contractors, rather than consumers, may have greater decision-making 
power regarding the purchase of systems.

G. Manufacturer Impact Analysis

    The Manufacturer Impact Analysis estimates the financial impact of 
standards on manufacturers and calculates impacts on competition, 
employment, and manufacturing capacity.
    Prior to initiating the detailed Manufacturing Impact Analysis, the 
Department will prepare an approach document and have it available for 
review. While the general framework will serve as a guide, the 
Department intends to tailor the methodology for each rule on the basis 
of stakeholder comments. The document will outline procedural steps and 
outline issues for consideration. Three important elements of the 
approach consist of the preparation of an industry cash flow, the 
development of a process to consider sub-group cash flow, and the 
design of an guide to interview manufacturers and others in gathering 
information.
    The policies outlined in the Process Rule required substantial 
revisions to the analytical framework to be used in performing 
Manufacturer Impact Analysis for each rulemaking. In the approach 
document, the Department will describe and obtain comments on the 
methodology to be used in performing the manufacturer impact analyses. 
The manufacturer impact analyses will be conducted in three phases. 
Phase 1 consists of two activities, namely, preparation of an industry 
characterization and identification of issues. Phase 2 has as its focus 
the larger industry, and in this phase, the GRIM will be used to 
perform an Industry Cash Flow Analysis. Phase 3 involves repeating the 
process described in Phase 2 (the Industry Cash Flow Analysis) but on 
different sub-groups of manufacturers. Phase 3 also entails determining 
additional impacts on competition, employment, and manufacturing 
capacity.
1. Industry Characterization (Phase 1)
a. General
    Phase 1 of the Manufacturer Impact Analysis consists of collecting 
pertinent financial and market information. This activity involves both 
quantitative and qualitative efforts. Data gathered will include market 
share, corporate operating ratios, wages, employment, and production 
cost ratios. These data are incorporated into the Engineering Analysis 
in the estimation of equipment production costs and distribution 
markups. Sources of information include reports published by industry 
groups, trade journals, and the U.S. Bureau of Census, and copies of 
SEC 10-K filings.
b. Product Specific
    The Department collected central air conditioner manufacturer 
information to support the Engineering Analysis. This included 
manufacturer market shares, markups along the distribution chain, and 
typical ratios for labor, materials, and overhead. This information 
appears throughout the Preliminary TSD that accompanies this 
Supplemental ANOPR.
2. Industry Cash Flow (Phase 2)
a. General
    A change in standards affects the analysis in three distinct ways. 
Standards at higher levels will require additional investment, will 
raise production costs, and will affect revenue through higher prices 
and, possibly, lower quantities sold. The Department will quantify 
these changes by performing an Industry Cash Flow Analysis using the 
GRIM. Usually this analysis will use manufacturing costs, shipments 
forecasts, and price forecasts developed for the other analyses. 
Financial information, also required as an input to GRIM, will be 
developed based on publicly available data and confidentially submitted 
manufacturer information.
    The GRIM Analysis uses a number of factors: Annual expected 
revenues; manufacturer costs such as cost of sales, selling and general 
administration costs; taxes; and capital expenditures related to 
depreciation, new standards, and maintenance, to arrive at a series of 
annual cash flows beginning from before implementation of standards and 
continuing explicitly for several years after implementation. The 
measure of industry net present values are calculated by discounting 
the annual cash flows from the period before implementation of 
standards to some future point in time. The Preliminary TSD describes 
the GRIM's operating principles.
b. Product Specific
    The Industry Cash Flow Analysis uses average manufacturing costs 
(with uncertainty) as described in the Engineering Analysis (section 
II.C.2), shipments forecasts as described in the Preliminary National 
Impact Analysis (section II.E.1), and price forecasts as described in 
the LCC and Payback Analysis (section II.D.1.) Financial information, 
also required as an input to the GRIM, is based on publicly available 
data and confidentially submitted manufacturer information. The cash 
flow analysis will be distributed to interested parties prior to the 
workshop to be held after publication of this Supplemental ANOPR.
    In Phase 2, the Department intends to expand the Phase 1 analysis 
to include a Cash Flow Analysis covering, in aggregate, the firms that 
manufacture residential central air conditioning equipment. The data 
gathered in Phase 1 will be augmented with data from additional public 
and private sources.

[[Page 66334]]

These include shipment projections developed for the NES Analysis and 
interviews with individual manufacturers. The GRIM will estimate the 
potential effects of new standards on industry cash flow, net present 
value, capacity, and employment. Scenarios will include both HCFC-22 
and hydro-fluoro-carbon (HFC) refrigerants, HFC-410A. Other 
considerations include imports and exports, uncertainty, and cumulative 
regulatory burden.
    An industry representative stated that his company would be very 
unlikely to provide proprietary cost data directly to DOE or its 
contractors. (Jim Crawford, Trane, Transcript, p 134). The Oregon 
Office of Energy (OOE) warned that an Industry Cash Flow Analysis 
should be internally consistent with data used in other analyses (OOE, 
#7). The Department currently is seeking further input from 
stakeholders on whether additional scenarios are needed, and on the 
general appropriateness of the data sources and methods.
3. Manufacturer Sub-Group Analysis (Phase 3)
a. General
    Assessment of impacts on sub-groups of manufacturers is Phase 3 of 
the Manufacturing Impact Analysis. Using industry ``average'' cost 
values is not adequate for assessing the variation in impacts among 
sub-groups of manufacturers. Smaller manufacturers, niche manufacturers 
or manufacturers exhibiting a cost structure largely different from 
industry averages could be more negatively affected. Ideally, the 
Department would consider the impact on every firm individually. In 
highly concentrated industries this may be possible. In industries 
having numerous participants, the Department will use the results of 
the industry characterization to group manufacturers exhibiting similar 
characteristics. The financial analysis of the ``prototypical'' firm 
performed in the Phase 2 industry analysis can serve as a benchmark 
against which manufacturer sub-groups can be analyzed.
    The manufacturing cost data collected for the Engineering Analysis 
will be used to the extent practical in the sub-group impact analysis. 
To be useful, however, this data should be disaggregated to reflect the 
variability in costs between relevant sub-groups of firms.
    The Department will conduct detailed interviews with as many 
manufacturers as is possible to gain insight into the potential impacts 
of standards. During these interviews, the Department will solicit the 
information necessary to evaluate cash flows and to assess competitive, 
employment and capacity impacts. Firm-specific cumulative burden will 
also be considered.
b. Product Specific
    In order to conduct a Manufacturer Sub-Group Analysis, it will be 
necessary to define representative sub-groups and conduct separate Cash 
Flow Analysis for each. For example, one option consists of conducting 
separate cash flows for all manufacturers. Another option, could entail 
conducting Cash flow Analysis only for those manufacturers which 
believe their impacts are more severe then industry average.
    The Department intends to examine two sub-groups: high-volume 
manufacturers and low-volume manufacturers. A ``strawman'' GRIM 
Analysis on each subgroup will be prepared for review prior to the 
interviews. Information from the interviews will be used to develop 
revised GRIM sub-group analyses for consideration in the NOPR.
    OOE recommended that the analysis use the minimum number of sub-
groups required to fully capture different levels of impact on 
different sizes and type of manufacturers (OOE, #7).
    The Department seeks input from stakeholders on whether the defined 
sub-groups are appropriate, or whether fewer, or additional, subgroups 
are needed. Comments are also requested regarding the value in grouping 
manufacturers into sub-groups, compared to conducting individual GRIM 
Analysis for each manufacturer. Additional commentary is sought 
regarding which manufacturers should be asked to participate in the 
interviews, and, more generally, what a well executed sub-group 
analysis would entail.
4. Interview Process
a. General
    The revised rulemaking process provides for greater public input 
and for improved analytical approaches, with particular emphasis on 
earlier and more extensive information gathering from interested 
parties. The proposed three-phase Manufacturer Impact Analysis process 
will draw on multiple information sources, including structured 
interviews with manufacturers and a broad cross-section of interested 
parties. Interviews may be conducted in any and all phases of the 
analyses as determined in Phase 1.
    The interview process has a key role in the manufacturer impact 
analyses, since it provides an opportunity for manufacturers to 
privately express their views on important issues. A key characteristic 
of the interview process is that it is designed to allow confidential 
information to be considered in the rulemaking process.
    The initial industry characterization will collect information from 
relevant industry and market publications, industry trade 
organizations, company financial reports, and product literature. This 
information will aid in the development of detailed and focused 
questionnaires, as needed, to perform all phases of the manufacturer 
impact analyses. It is the intention of the Department that the 
contents of questionnaires and the list of interview participants be 
publicly vetted prior to initiating the interview process.
    The Phase 3 (sub-group analysis) questionnaire will solicit 
information on the possible impacts of potential efficiency levels on 
manufacturing costs, product prices, and sales. Evaluation of the 
possible impacts on direct employment, capital assets, and industry 
competitiveness will also draw heavily on the information gathered 
during the interviews. The questionnaires will solicit both qualitative 
and quantitative information. Supporting information will be requested 
whenever applicable.
    Interviews will be scheduled well in advance in order to provide 
every opportunity for key individuals to be available for comment. 
Although a written response to the questionnaire is acceptable, an 
interactive interview process is preferred because it helps clarify 
responses and provides the opportunity for additional issues to be 
identified.
    Interview participants will be requested to identify all 
confidential information provided in writing or orally. Approximately 
two weeks following the interview, an interview summary will be 
provided to give participants the opportunity to confirm the accuracy 
and protect the confidentiality of collected information. All the 
information transmitted will be considered, when appropriate, in the 
Department's decision-making process. However, confidential information 
will not be made available in the public record.
    DOE will collate the completed interview questionnaires and prepare 
a summary of the major issues and outcomes. The Department will seek 
comment on the outcome of the interview process.
b. Product Specific
    The Department completed a round of preliminary interviews at the 
start of the

[[Page 66335]]

Engineering Analysis that focused on design and cost issues. A second 
round of interviews will be scheduled soon after publication of the 
Supplemental ANOPR. The intent will be to develop an accurate 
representation of the impacts of new standards on each sub-group. As 
noted previously, the Department intends to examine two sub-groups: 
high-volume manufacturers and low-volume manufacturers.

H. Competitive Impact Assessment

a. General
    EPCA directs the Department to consider any lessening of 
competition that is likely to result from standards. It directs the 
Attorney General to gauge the impacts, if any, of any lessening of 
competition. The Department will make a determined effort to gather and 
report firm-specific financial information and impacts. The competitive 
analysis will focus on assessing the impacts to smaller, yet 
significant, manufacturers. The assessment will be based on 
manufacturing cost data and on information collected from interviews 
with manufacturers, consistent with Phase 3 of the manufacturer impact 
analyses. The Department of Justice (DOJ) has offered to help in 
drafting questions to be used in the manufacturer interviews. These 
questions will pertain to the assessment of the likelihood of increases 
in market concentration levels and other market conditions that could 
lead to anti-competitive pricing behavior. The manufacturer interviews 
will focus on gathering information that would help in assessing 
asymmetrical cost increases to some manufacturers, increased proportion 
of fixed costs potentially increasing business risks, and potential 
barriers to market entry (proprietary technologies, etc.).
b. Product Specific
    The Department will consult with DOJ prior to conducting the 
manufacturer interviews and will share the results of those interviews 
and subsequent analyses with DOJs according to the rulemaking schedule, 
and as appropriate.

I. Utility Analysis

    The Utility Analysis estimates the effects of proposed standards on 
electric and gas utilities.
1. Proposed Methodology
a. General
    To estimate the effects of proposed standards on electric and gas 
utilities, the Department intends to use EIA's NEMS. NEMS is a large 
multi-sectoral partial-equilibrium model of the U.S. energy sector that 
has been developed over several years by EIA primarily to prepare the 
AEO. NEMS produces a widely recognized baseline forecast for the U.S. 
through 2020, and is available in the public domain. Outputs of the 
Utility Analysis will parallel results that appear in the latest AEO, 
with some additions. Typical output includes forecasts of sales and 
price. The entire Utility Analysis will be conducted as a policy 
deviation from the latest AEO using NEMS-BRS, and the assumptions in 
place in NEMS will serve as the basic set of assumptions that will be 
applied to the Utility Analysis. For example, the operating 
characteristics (energy efficiency, emissions rates, etc.) of future 
electricity generating plants used in the Utility Impact Analysis will 
be those used in the latest AEO. As discussed earlier, NEMS-BRS is a 
variant of U.S. DOE/EIA's NEMS and is referred to as such for two 
reasons: (1) The Utility Analysis to be performed entails some minor 
code modifications and (2) the model will be run under policy 
deviations that are variations on DOE/EIA assumptions. The name NEMS-
BRS refers to the model that will be used for the Utility Analysis (BRS 
is DOE's Building Research and Standards office).
    Forecasting for the electric utility industry is seriously 
complicated by the implications of industry restructuring, which is 
only partially reflected in the latest AEO (1999). DOE plans to explore 
the consequences of a wider restructuring pattern through appropriate 
scenario analysis using NEMS-BRS.
    NEMS offers a sophisticated picture of the effect of appliance 
standards since its scale allows it to measure the interactions between 
the various energy supply and demand sectors and the economy as a 
whole. In addition, the scale of NEMS permits analysis of the effects 
of standards on both the electric and gas utility industries.
b. Product Specific
    To analyze the effect of standards, NEMS-BRS will first be run 
exactly as it would be to produce an AEO forecast, then a second run 
will be conducted with residential energy usage reduced by the amount 
of energy (gas, oil, and electricity) saved due to appliance standards 
for central air conditioners and heat pumps. The energy savings input 
will be obtained from the NES spreadsheet (section II.E.1). Outputs 
available are the same as those in the original NEMS model, including 
residential energy prices, generation, and installed capacity (and, in 
the case of electricity, which primary fuel is used for generation). 
Other than the difference in energy consumption due to central air 
conditioner and heat pump standards, input assumptions into NEMS-BRS 
will follow those used to produce the 1999 AEO.
    Since the AEO 1999 version of NEMS-BRS forecasts only to the year 
2020, a method for extrapolating price data to 2030 is required. The 
method adopted will be the EIA approach to forecasting fuel prices for 
the Federal Energy Management Programs (FEMP). These are the prices 
used by FEMP to estimate LCCs of Federal equipment procurement. For 
petroleum products, the average growth rate for the world oil price 
over the years 2010 to 2020 is used in combination with the refinery 
and distribution markups for the year 2020 to determine regional price 
forecasts. Similarly, natural gas prices are derived from an average 
growth rate along with regional price margins for the year 2020. 
Electricity prices are held constant at 2020 levels on the assumption 
that the transition to a restructured utility industry will have been 
completed.
    In principle, any of the forecasts that appear in the 1999 AEO 
could be estimated by NEMS-BRS to take into account the effects of a 
particular level of central air conditioner and heat pump standards. 
The Department intends to report the major results on residential sales 
of fuels, prices of fuels, and generating sources displaced by energy 
savings. As might be expected, as the total energy use of America is 
much larger than that possible due to the savings from central air 
conditioners and heat pumps, there is little expected difference in the 
forecasted price of energy.
    EEI stated that the Utility Analysis should incorporate the impact 
of any new standard on the equipment's Energy Efficiency Ratio (EER) 
rating in order to establish the impact on peak loads and power plant 
operation. The analysis should also be market based, and take into 
account that several merchant plants are coming on-line and that 
customers, rather than utility dispatchers, will dictate how power 
plants are utilized to meet air conditioning loads. (EEI, #2) Since it 
incorporates representative load shapes for central air conditioners 
and heat pumps, NEMS-BRS has the capability to determine both the 
impacts on power plant operation and peak loads that result from 
central air conditioner and heat pump energy savings. Thus, the type of 
power plant that will go off-line and the resulting reduction in peak 
loads can and will be determined.

[[Page 66336]]

J. Environmental Analysis

    An Environmental Assessment is required pursuant to the National 
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.), 
regulations of the Council on Environmental Quality (49 CFR parts 1500-
1508), the Department regulations for compliance with NEPA (10 CFR part 
1021), and the Secretarial Policy on the National Environmental Policy 
Act (June 1994). The Department will present a discussion of the Draft 
Environmental Assessment as part of the NOPR. The Department will 
present the Draft Environmental Assessment in the Technical Support 
Document for the NOPR. The NOPR will provide an opportunity for 
comments prior to the final rule.
    The Environmental Analysis will track three types of energy-related 
airborne emissions: sulfur dioxide (SO2), nitrogen oxides 
(NOx) and carbon dioxide (CO2). The first two 
have direct consequences for human health, and are major causes of acid 
precipitation, which can affect humans by reducing the productivity of 
farms, forests and fisheries, decreasing recreational opportunities and 
degrading susceptible buildings and monuments. NOx is also a 
precursor gas to urban smog and is particularly detrimental to air 
quality during hot, still weather. CO2 emissions are 
believed to contribute to raising the average global temperature via 
the ``greenhouse effect.'' The long-term consequences of higher 
temperatures may include perturbed air and ocean currents, perturbed 
precipitation patterns, changes in the gaseous equilibrium between the 
atmosphere and the biosphere, and the melting of some of the ice now 
covering polar lands and oceans, causing a rise in sea level. The 
source of emissions covered in this analysis is fossil fuel-fired 
electricity generation.
1. Proposed Methodology
a. General
    To perform the Environmental Analysis, the Department intends to 
use NEMS-BRS, which it also uses for the Utility Impact Analysis 
described in the previous section. Outputs of the Environmental 
Analysis will parallel results that appear in the latest AEO, with some 
additions. The Department will conduct entire Environmental Analysis as 
a policy deviation from the latest AEO using NEMS-BRS, and the 
assumptions in place in NEMS will serve as the basic set of assumptions 
that will be applied to the Environmental Analysis.
    Carbon emissions (which are a physically equivalent indicator of 
actual emissions of carbon dioxide) are tracked in NEMS-BRS by a 
detailed carbon module with broad coverage of all sectors and inclusion 
of interactive effects. NEMS-BRS also includes a module for 
SO2 allowance trading and delivers a forecast of 
SO2 allowance prices. Accurate simulation of SO2 
trading, however, tends to imply that physical emissions effects will 
be zero. This fact has caused considerable confusion in the past, and, 
in prior appliance standards analyses, a simple figure for emission 
reductions has been reported, with the caveat that emissions trading 
implies that this reduction will unlikely be realized. On the other 
hand, there is an SO2 benefit from conservation in the form 
of a lower allowance price. If the reduction in allowance price is 
large enough to be calculable by NEMS-BRS, the Department will report 
this value.
    The results for the Environmental Analysis can be in the form of a 
complete NEMS-BRS run. In general, NEMS-BRS outputs become the tables 
of an AEO, and these should provide a good idea of the range of results 
available. Outputs from a NEMS-BRS run include SO2, 
NOX and CO2 emissions from the power sector and a 
trading price for SO2 allowances. The only form of carbon 
tracked by NEMS-BRS is CO2, so the carbon discussed in the 
analysis is only in the form of CO2 but is reported as 
elemental carbon to remain consistent with the 1999 AEO. The conversion 
factor from carbon to CO2 is approximately 3.7.
b. Product Specific
    The version of NEMS used for appliance standards analysis is called 
NEMS-BRS, and is based on the 1999 AEO version with minor 
modifications. NEMS-BRS is run exactly the same as the original NEMS, 
except that residential energy usage is reduced by the amount of energy 
(gas, oil, and electricity) saved due to central air conditioner and 
heat pump standards. The amount of energy savings is obtained from the 
NES spreadsheet (Section 8.2). The output of the Environmental Analysis 
is forecasted physical emissions. The net benefits of a standard will 
be the difference between emissions estimated by the AEO 1999 version 
of NEMS-BRS and those estimated with a standard in place.
    Energy use for central air conditioner and heat pump efficiency 
levels will be the same as those in the NES spreadsheet. Other input 
assumptions into NEMS-BRS will follow those used to produce AEO 1999. 
In principle, any of the forecasts that appear in AEO 1999 could be 
estimated by NEMS-BRS to take into account the effects of a particular 
central air conditioner and heat pump efficiency standard level, but, 
in the standard reporting, the Department intends to report emissions 
of SO2, NOX and CO2.
    The time horizon of NEMS-BRS is 2020. The Department will 
extrapolate beyond 2020 using a simple formula (according to the method 
set out in the Preliminary TSD) to extend the forecast to 2030. The 
Department will generate alternative price forecasts corresponding to 
the side cases found in AEO 1999 for use by NES and will explore 
alternatives in a similar fashion with NEMS-BRS runs.
    EEI stated the environmental impact results generated from NEMS 
will be less accurate than they could be, since consumers may switch 
electricity suppliers and since the impacts from other emissions, such 
as carbon monoxide and precursor organic compounds, are not being 
analyzed.(EEI, #2) EMPA also stated that NEMS does not accurately 
account for recent changes in the electric utility industry. (EMPA, #3) 
Although NEMS might have some short comings, the Department believes 
that NEMS-BRS is the most appropriate and accurate model to estimate 
environmental impacts. Although the Department is comfortable with the 
use of NEMS-BRS for establishing environmental impacts, interested 
parties are welcome to present any other models or data that could 
verify or refute the NEMS estimates.

K. Regulatory Impact Analysis

    DOE will be preparing a draft Regulatory Analysis pursuant to E.O. 
12866, ``Regulatory Planning and Review,'' which will be subject to 
review under the Executive Order by the Office of Information and 
Regulatory Affairs (OIRA) 58 FR 51735 (October 4, 1993).
    As part of the Regulatory Analysis, the Department will identify 
and seek to mitigate the overlapping effects on manufacturers of new or 
revised DOE standards and other regulatory actions affecting the same 
products. Through manufacturer interviews and literature searches, the 
Department will compile information on burdens from existing and 
impending regulations affecting central air conditioners (e.g. HCFC 
phase out) and other products (e.g. room air conditioners). The 
Department also seeks input from stakeholders regarding other 
regulations that should be considered.

[[Page 66337]]

III. Proposed Standards Scenarios

    Upon reviewing the preliminary LCC and NES results, the Department 
observes that the efficiency levels analyzed; (generally a 10 to 70 
percent improvement over the existing standard), produced a range of 
impacts at the National level. For example, the NES impacts show a 
range from 0.81 to 14.11 quads of energy saved over the 2006 to 2030 
period. As expected, the higher the efficiency level, the greater the 
savings.
    The national Net Present Value (NPV), which is the discounted sum 
over future years of the operating cost savings in energy less the 
increase in first cost of more efficient units, also showed a range of 
impacts. A positive NPV is a net benefit to the nation. The NPVs based 
on reverse engineering costs show positive benefits to the Nation for 
all efficiency levels less than 13 SEER (with the exception of the 12 
SEER efficiency level for split system air conditioners), while NPVs 
based on industry-provided manufacturer costs show negative benefits to 
the nation for all efficiency levels.
    At the consumer level, the LCC and payback analyses results also 
depend on manufacturer costs. For example, with reverse engineering 
costs, minimum LCC occurs at 12 SEER for all product classes, and with 
industry-provided costs, minimum LCC occurs at 12 SEER for heat pumps 
(both split system and packaged), but there is no minimum LCC for air 
conditioners. Payback analyses for SEER 12 equipment also show a range 
of payback times varying from 3 to 15 years, depending on the product 
class and the manufacturer costs.
    The maximum technologically feasible efficiency levels for these 
products (approximately 20 SEER in 2006) were not explicitly analyzed 
in this Supplemental ANOPR because the Department assumed that the 
products could not be economically justified. While the split-system 
air conditioner with the highest efficiency in the market in 1998 was 
rated at SEER 18, the most efficient product analyzed in this 
Supplementary ANOPR was SEER 17. At this efficiency level, all the 
products had greater LCCs than the baseline and had payback periods 
that exceeded the mean product lifetime. The Department assumed that 
products with efficiencies greater than SEER 17 would have greater 
incremental costs than incremental savings, and that, consequently, 
efficiency levels greater than SEER 17 could not be economically 
justified. This assumption will be reexamined prior to issuance of the 
NOPR, where products at the maximum technologically feasible level will 
be analyzed.
    Based on the analyses performed, the Department observes that, 
depending on product class, efficiency levels ranging from 11 to 13 
SEER would appear to result in the greatest economic benefit to the 
Nation. The Process Rule requires the Department to specify in the 
ANOPR candidate standards levels, but not to propose a particular 
standard. Because the preliminary LCC and NES results show economic 
benefits to both consumers and to the Nation in the SEER 11 to 13 
efficiency range, the Department intends to further consider and 
conduct analyses for the following candidate standards levels, for each 
product class, prior to issuance of the NOPR:

 SEER 11
 SEER 12
 SEER 13

In addition, the Department intends to conduct Engineering and LCC 
analyses specifically for the Maximum Technologically Feasible 
(approximately SEER 20) level for each product class prior to issuance 
of the NOPR.
    Split System Central Air Conditioners: The minimum mean LCC for 
split system air conditioners occurs at either 11 or 12 SEER, based on 
the industry cost data or the reverse engineering manufacturing cost 
data, respectively. Although the minimum mean LCC occurs at efficiency 
levels greater than the baseline (10 SEER) in both of the these cases, 
the percent of the population with LCCs lower than the baseline is less 
than 50% (39% at 11 SEER, based on industry data, and 45% at 12 SEER, 
based on reverse engineering data). The median payback periods 
corresponding to the industry data and reverse engineering LCC 
minimums, 13 and 11 years, respectively, are both less than the 18.4 
year average product lifetime. However, mean payback periods exceed the 
average product lifetime.
    Split System Heat Pumps: The minimum mean LCC for split system heat 
pumps occurs at 12 SEER for both the industry cost data and the reverse 
engineering manufacturing cost data, although based on the reverse 
engineering cost data, the mean LCC corresponding to 13 SEER is also 
less than that for the baseline. The percent of the split heat pump 
population at 12 SEER with LCCs lower than the baseline is well above 
50% based on both the industry data and reverse engineering cost data 
(63% based on industry data and 90% based on reverse engineering). The 
median payback periods corresponding to the industry data and reverse 
engineering LCC minimums, 8 and 3 years, respectively, are both less 
than the average 18.4 year product lifetime.
    Single Package Air Conditioners: The minimum mean LCC for single 
package air conditioners occurs at either 10 or 12 SEER, based on the 
industry cost data or the reverse engineering manufacturing cost data, 
respectively. The percent of the population at 12 SEER with LCCs lower 
than the baseline varies significantly depending on which cost data are 
used; the industry cost data results in a percentage of 26% while the 
reverse engineering cost data results in a percentage of 58%. The 
median payback periods corresponding to the industry data at 11 SEER 
efficiency level and the reverse engineering 12 SEER efficiency level 
are 20 and 8 years, respectively.
    Single Package Heat Pumps: The minimum mean LCC for single package 
heat pumps occurs at 12 SEER for both the industry cost data and the 
reverse engineering manufacturing cost data. The percent of the single 
package heat pump population at 12 SEER with LCCs lower than the 
baseline is above 50% (58% and 80%, based on industry data and reverse 
engineering data, respectively). The median payback periods 
corresponding to the industry data and reverse engineering LCC 
minimums, 9 and 5 years, respectively, are less than the mean lifetime 
of the product.
    The above observations are based on preliminary LCC and NES 
results, which will be updated and revised in the NOPR and final rule 
analyses. The LCC and NES results are considered preliminary because 
they do not include any results from the manufacturer impact and 
consumer subgroup analyses, or contain information from a consumer 
survey. The Department seeks comments on whether standards that meet 
alternative scenarios would provide energy savings to the Nation 
comparable to the savings that would be obtained by the highest 
standards that are technologically feasible and economically justified 
effective in 2006. Standards that meet the following alternative 
scenarios, for example, might be presented to the Department for 
consideration:
     A moderate increase in the efficiency level at an earlier 
effective date, for example, an effective date three years after the 
publication of the Final Rule.
     A stringent increase in efficiency level at a later 
effective date, for

[[Page 66338]]

example, an effective date in 2010 coinciding with the HCFC-22 phase 
out.
     A two-phase approach combining the two scenarios, for 
example, a lower efficiency level for some product classes effective at 
an earlier date and a higher efficiency level effective at a later 
date.
    The Department seeks comments on standards under various scenarios, 
including the candidate standards, for consideration in preparing the 
analysis on which the Department will base the proposed rule.

IV. Public Comment Procedures

A. Participation in Rulemaking

    The Department encourages the maximum level of public participation 
possible in this rulemaking. Individual consumers, representatives of 
consumer groups, manufacturers, associations, States or other 
governmental entities, utilities, retailers, distributors, 
manufacturers, and others are urged to submit written statements on the 
analysis presented here.
    The Department has established a period of 75 days following 
publication of this notice for persons to comment. All public comments 
received will be available for review in the Department's Freedom of 
Information Reading Room. In addition, the following data is available 
in the Department's Freedom of Information Reading Room:

 Copies of the Preliminary TSD
 Transcripts of the Central Air Conditioning policy Workshop 
held on June 30, 1998
 Copies of the public comments received by the Department thus 
far
 Previous Federal Register notices relating to this central air 
conditioner and heat pump rulemaking

    A public hearing will be held on December 9, 1999, (9 a.m.--5 
p.m.), at the U.S. Department of Energy, Forrestal Building, 1000 
Independence Avenue SW, Room 1E-245, Washington, DC 20585. More 
detailed information about this hearing will be on the Office of Codes 
and Standards web site beginning in November. The web site address is 
as follows: http://www.eren.doe.gov/buildings/codes__standards/
index.htm.

B. Written Comment Procedures

    Interested persons are invited to participate in this proceeding by 
submitting written data, views, or arguments with respect to the 
subjects set forth in this notice. Comments will not be accepted by fax 
or e-mail. Instructions for submitting written comments are set forth 
at the beginning of this notice and in this section.
    Comments should be labeled both on the envelope and on the 
documents, ``Central Air Conditioners and Heat Pumps Rulemaking (Docket 
No. EE-RM-94-403),'' and must be received by the date specified at the 
beginning of this document. The Department requests that ten copies of 
your comments be submitted. Additionally, the Department would 
appreciate an electronic copy of the comments to the extent possible. 
The Department is currently using WordPerfectTM 8. All 
comments and other relevant information received by the date specified 
at the beginning of this notice will be considered by the Department in 
the proposed rule.
    All written comments received on this supplemental Advance Notice 
of Proposed Rulemaking will be available for public inspection at the 
Freedom of Information Reading Room, as provided at the beginning of 
this notice.
    Pursuant to the provisions of 10 CFR 1004.11, any person submitting 
information or data that is believed to be confidential, and exempt by 
law from public disclosure, should submit one complete copy of the 
document and ten (10) copies, if possible, from which the information 
believed to be confidential has been deleted. The Department will make 
its own determination with regard to the confidential status of the 
information or data and treat it according to its determination.
    Factors of interest to the Department, when evaluating requests to 
treat information as confidential, include: (1) A description of the 
item; (2) an indication as to whether and why such items of information 
have been treated by the submitting party as confidential, and whether 
and why such items are customarily treated as confidential, and whether 
and why such items are customarily treated as confidential within the 
industry; (3) whether the information is generally known or available 
from other sources; (4) whether the information has previously been 
available to others without obligation concerning its confidentiality; 
(5) an explanation of the competitive injury to the submitting person 
that would result from public disclosure; (6) an indication as to when 
such information might lose its confidential character due to the 
passage of time; and (7) whether disclosure of the information would be 
in the public interest.

C. Issues for Public Comment

    The Department is interested in receiving comments and data to 
improve its preliminary analysis. In particular, the Department is 
interested in responses to the following questions and/or concerns that 
were addressed in this notice.
    1. Differences between the industry and the reverse engineering 
cost data:
     Use of the industry and the reverse engineering cost data 
yield significantly different LCC, payback period, NES, and NPV 
results. Efforts preceding the publication of this Supplemental ANOPR 
between the Department and the industry have yet to reveal why 
differences still persist between the two sets of cost data. Continued 
efforts and suggestions are needed to resolve the differences between 
the two cost data sets. These differences are discussed in the Process 
Improvement section (I B.3.).
    2. The incorporation of emerging technologies into the Engineering 
Analysis:
     The Department has conducted a preliminary analysis of how 
emerging technologies may impact the manufacturing costs of achieving 
higher efficiency levels. But due to the uncertainty associated with 
the future development of these technologies, in particular, 
microchannel heat exchangers, advanced compressors, and variable speed 
motor controls, the costs currently projected for their incorporation 
into air conditioning and heat pump equipment may change significantly.
    3. The assessment of the impacts on steady-state efficiency, i.e. 
EER, due to increases in the SEER:
     Comments submitted by the EEI and the ACEEE call for 
assessments of how the Energy Efficiency Ratio (EER) of air 
conditioning and heat pump equipment may be impacted by an increase in 
the SEER. In particular, they are concerned that a higher efficiency 
standard based on SEER may lead to a decrease in steady-state 
efficiency during peak demand because of the prevalence of modulating 
systems at the higher SEER levels. Up to efficiency levels of 12 SEER, 
the rate of EER increase is directly proportional to the increase in 
SEER as manufacturers typically rely on single-speed technology to 
attain the SEER increase. But as efficiency levels move beyond 12 SEER, 
manufacturers use an array of technologies that have significantly 
different impacts on EER. How should the Department quantify the 
relationship of EER to the higher SEER values?
    4. For heat pump systems, the relationship between SEER and HSPF:
     Based on heat pumps in the marketplace, a range of HSPF 
values are possible for any particular SEER. But recognizing that the 
HSPF of heat pump equipment generally increases with

[[Page 66339]]

SEER, the current analysis assumes a simple relationship between the 
two efficiency descriptors for purposes of setting an HSPF standard in 
addition to a SEER standard for heat pumps. Should the Department 
continue with this simple approach or should another procedure be 
developed to assess the impact of SEER on HSPF?
    5. Additional product classes based on system capacity:
     The current analyses are based on manufacturing cost data 
developed for nominal 3-ton capacity systems. Although product 
shipments are predominantly at nominal capacities of 3-tons, the cost 
of achieving higher efficiency for systems with higher and lower 
capacities may be different. If data submitted in response to this 
Supplemental ANOPR reveals significantly different manufacturing cost 
increases based on system capacity, the Department will analyze whether 
this results in justifiably lower or higher efficiency levels for 
equipment of differing capacity.
    6. Niche product classes:
     Several manufacturers have asked the Department to 
establish new classes to protect the viability of certain niche 
products under higher efficiency standards. These products (ductless 
split systems, high-velocity/small duct systems, vertical packaged/wall 
mounted systems, and through-the-wall condensing units) serve niche 
markets and probably account for less than three percent of the 
residential unitary market. As such, the efficiency standard 
established for these products will have little effect on NES and 
consumer LCC. The Department seeks comments as to whether these 
products provide a unique utility that cannot be met by other products. 
One important question is whether the constraints imposed by higher 
standards would eliminate these products from the marketplace. For this 
reason the Department is also interested in recommendations as to how 
to define these new product classes so that these products would 
continue to be available to satisfy the unique needs for which they are 
intended.
    7. The impact of alternative refrigerants for HCFC-22:
     The current analysis assumes that the phase-out date for 
HCFC-22 is far enough in the future that it will not affect a 
manufacturer's ability to meet any new efficiency standards, whether 
using HCFC-22 before the phase-out, or using alternative refrigerants 
before and after the phase-out. Through manufacturer interviews and 
literature searches, the Department plans to compile information on 
burdens from existing and impending regulations affecting central air 
conditioners (e.g. HCFC phase out). But should the Department more 
explicitly account for the impact of the HCFC phase out in the 
Engineering Analysis? Any analysis in this area will require assessment 
of the impact on manufacturer cost due to the use of the alternative 
refrigerant.
    8. Data on retail mark-up assumptions:
     Retail mark-up assumptions are based upon the following 
distribution chain: manufacturer-to-distributor/wholesaler-to-
contractor/dealer. Although this is not the only type of distribution 
chain currently in existence for central air conditioning and heat pump 
equipment, it is assumed that the mark-ups reflected by this chain of 
distribution will reflect the mark-ups resulting from other methods of 
distribution (e.g., manufacturer directly to dealer). At present the 
Department does not intend to change the retail mark-up assumptions but 
will continue to research data sources and seek comment on this issue.
    9. Information relating to the determination of price and operating 
cost elasticities in conducting shipment forecasts:
     In order to determine the effect of an increase in the 
purchase price and operating cost on shipments, it would be useful to 
know the elasticities of central air conditioner and heat pump prices 
and operating costs. Due to the lack of data in this area specific to 
central air conditioners and heat pumps, the Department is currently 
using elasticities developed from analyses conducted over twenty years 
ago. With regard to purchase price, in making estimates of these 
effects, the Department needs to estimate how price changes resulting 
from revised energy efficiency standards for central air conditioners 
and heat pumps will affect the behavior of consumers in their 
purchasing decisions.
    10. Data on the possible adverse affects of standards on 
identifiable groups of consumers that experience below-average utility 
or usage rates:
     The consumer analysis can evaluate impacts on any 
identifiable groups, such as consumers of different income levels, who 
may be disproportionately affected by any national energy efficiency 
standard level.
    11. Information on what non-regulatory alternatives to standards 
need to be reviewed:
     Under the Process Rule policies, the Department is 
committed to continually explore non-regulatory alternatives to 
standards. The table following presents what is being proposed for 
consideration in this rulemaking. The Department is seeking comments on 
this approach. This approach is further discussed in the Preliminary 
TSD.
Alternatives To Be Considered
--No new regulatory action
--Consumer tax credits
--Manufacturer tax credits
--Performance standards
--Rebates
--Voluntary energy efficiency targets
--Early replacement
--Mass government purchases

    12. Comments on the candidate standard levels and the alternative 
standard scenarios.
     The Department has identified candidate standards levels 
of 11 SEER, 12 SEER and 13 SEER for all product classes. The Department 
has also provided examples of several alternative scenarios which could 
have different effective dates and different standards levels but which 
could provide comparable energy savings.

[[Page 66340]]

V. Review Under Executive Order 12866 and Other Provisions

    DOE provided to the Office of Information and Regulatory Affairs 
(OIRA) in the Office of Management and Budget a copy of this document 
for comment. At the proposal stage for this rulemaking, DOE and OIRA 
will determine whether this rulemaking is a significant regulatory 
action under Executive Order 12866, Regulatory Planning and Review. 58 
FR 51735 (October 4, 1993). Were DOE to propose amendments to the 
energy conservation standards for central air conditioners and heat 
pumps, the rulemaking could constitute an economically significant 
regulatory action and DOE would prepare and submit to OIRA for review 
the assessment of costs and benefits required by Section 6(a)(3) of 
Executive Order 12866. Other procedural and analysis requirements in 
other Executive Orders and statutes also may apply to such future 
rulemaking action, including the requirements of the regulatory 
Flexibility Act, 5 U.S. C. 601 et seq.; the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq.; and the Unfunded Mandates Act of 1995, Pub. L. 
104-4; and the National Environmental Policy Act of 1969, 42 U.S. C. 
4321 et seq.
    Today's action and any other documents submitted to OIRA for review 
have been made a part of the rulemaking record and are available for 
public review in the Department's Freedom of Information Reading Room, 
1000 Independence Avenue, SW, Room 1E-190, Washington, DC 20585 between 
the hours of 9 and 4, Monday through Friday, telephone (202) 586-3142.

    Issued in Washington, DC, on November 8, 1999.
Dan W. Reicher,
Assistant Secretary, Energy Efficiency and Renewable Energy.
[FR Doc. 99-30480 Filed 11-23-99; 8:45 am]
BILLING CODE 6450-01-P