[Federal Register Volume 73, Number 67 (Monday, April 7, 2008)]
[Proposed Rules]
[Pages 18858-18916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6907]



[[Page 18857]]

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Part II





Department of Energy





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Office of Energy Efficiency and Renewable Energy



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10 CFR Part 431



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

  Federal Register / Vol. 73, No. 67 / Monday, April 7, 2008 / Proposed 
Rules  

[[Page 18858]]


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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 431

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


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

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

ACTION: Notice of proposed rulemaking and public meeting.

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

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

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

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

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

[[Page 18859]]

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

I. Summary of the Proposed Rule

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

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

[[Page 18860]]

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

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

    In view of its analyses, DOE believes that the proposed standard, 
TSL 4, represents the maximum improvement in energy efficiency of PTAC 
and PTHP equipment that is technologically feasible and economically 
justified. DOE found that the benefits to the Nation (energy savings, 
customer average LCC savings, national NPV increase, and emission 
reductions) of the proposed standards outweigh the burdens (loss of 
INPV and LCC increases for some customers). When DOE considered higher 
energy efficiency levels as TSLs, it found that the burdens (loss of 
manufacturer NPV and LCC increase for some customers) of the higher 
efficiency levels outweighed the benefits (energy savings, LCC savings 
for some customers, national NPV increase, and emission reductions) of 
those higher levels.
    DOE recognizes that manufacturers of PTAC and PTHP equipment are 
also facing a mandated refrigerant phase-out on January 1, 2010. R-22, 
the only refrigerant currently used by PTACs and PTHPs, is an HCFC 
refrigerant and subject to the phase-out requirement. Phase-out of this 
refrigerant could have a significant impact on the manufacturing, 
performance, and cost of PTAC and PTHP equipment. DOE further discusses 
and estimated the impacts of the refrigerant phase-out on PTAC and PTHP 
equipment and on the manufacturers of this equipment in today's notice.

II. Introduction

A. Overview

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

[[Page 18861]]

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

B. Authority

    Part A-1 of Title III of EPCA addresses the energy efficiency of 
certain types of commercial and industrial equipment.\2\ (42 U.S.C. 
6311-6317) It contains specific mandatory energy conservation standards 
for commercial PTACs and PTHPs. (42 U.S.C. 6313(a)(3)) The Energy 
Policy Act of 1992 (EPACT), Public Law 102-486, also amended EPCA with 
respect to PTACs and PTHPs, providing definitions in section 122(a), 
test procedures in section 122(b), labeling provisions in section 
122(c), and the authority to require information and reports from 
manufacturers in section 122(e).\3\ DOE publishes today's notice of 
proposed rulemaking (NOPR) pursuant to Part A-1. The PTAC and PTHP test 
procedures appear at Title 10 Code of Federal Regulations (CFR) section 
431.96.
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    \2\ This part was originally titled Part C., However, it was 
redesignated Part A-1 after Part B of Title III of EPCA was repealed 
by Public Law 109-58.
    \3\ These requirements are codified in Part C of Title III of 
EPCA, now Part A-1, as amended, 42 U.S.C. 6311-6316, and Title 10 of 
the Code of Federal Regulations, Part 431 (10 CFR Part 431) at 10 
CFR 431.92, 431.96, 431.97, and subparts U and V.
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    EPCA established Federal energy conservation standards that 
generally correspond to the levels in ASHRAE/IESNA Standard 90.1, as in 
effect on October 24, 1992 (ASHRAE/IESNA Standard 90.1-1989), for each 
type of covered equipment listed in section 342(a) of EPCA, including 
PTACs and PTHPs. (42 U.S.C. 6313(a)) For each type of equipment, EPCA 
directed that if ASHRAE/IESNA Standard 90.1 is amended, DOE must adopt 
an amended standard at the new level in ASHRAE/IESNA Standard 90.1, 
unless clear and convincing evidence supports a determination that 
adoption of a more stringent level as a national standard would produce 
significant additional energy savings and be technologically feasible 
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II).
    EPCA also provides that in deciding whether such a more stringent 
standard is economically justified, DOE must, after receiving comments 
on the proposed standard, determine whether the benefits of the 
standard exceed its burdens by considering, to the greatest extent 
practicable, the following seven factors:
    (1) The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the product in the type (or class) compared to any increase in 
the price of, or in the initial charges for, or maintenance expenses of 
the products which are likely to result from the imposition of the 
standard;
    (3) The total projected amount of energy savings likely to result 
directly from the imposition of the standard;
    (4) Any lessening of the utility or the performance of the products 
likely to result from the imposition of the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
imposition of the standard;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary considers relevant.
(42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)-(ii)).

    Furthermore, EPCA contains what is commonly known as an ``anti-
backsliding'' provision. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(1)) This 
provision mandates that the Secretary not prescribe any amended 
standard that either increases the maximum allowable energy use or 
decreases the minimum required energy efficiency of covered equipment. 
It is a fundamental principle in EPCA's statutory scheme that DOE 
cannot amend standards downward; that is, weaken standards, from those 
that have been published as a final rule. Natural Resources Defense 
Council v. Abraham, 355 F.3d 179 (2nd Cir. 2004).
    Additionally, the Secretary may not prescribe an amended standard 
if interested persons have established by a preponderance of the 
evidence that the amended standard is ``likely to result in the 
unavailability in the United States of any product type (or class)'' 
with performance characteristics, features, sizes, capacities, and 
volumes that are substantially the same as those generally available in 
the United States at the time of the Secretary's finding. (42 U.S.C. 
6316(a); 42 U.S.C. 6295(o)(4))
    Federal energy efficiency requirements for commercial equipment 
generally supersede State laws or regulations concerning energy 
conservation testing, labeling, and standards. (42 U.S.C. 6316(a) and 
(b)) DOE can, however, grant waivers of preemption for particular State 
laws or regulations, in accordance with the procedures and other 
provisions of section 327(d) of EPCA. (42 U.S.C. 6297(d) and 
6316(b)(2)(D))

C. Background

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

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

[[Page 18862]]

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

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

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

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

[[Page 18863]]

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

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

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

III. General Discussion

A. Test Procedures

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

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

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

B. Technological Feasibility

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

[[Page 18864]]

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

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

C. Energy Savings

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

D. Economic Justification

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

[[Page 18865]]

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

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

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

[[Page 18866]]

amended energy conservation standards are estimated in section V.

IV. Methodology and Analyses

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

A. Market and Technology Assessment

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

[[Page 18867]]

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

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

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

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

[[Page 18868]]

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

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

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

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

[[Page 18869]]

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

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

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

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

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

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

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

B. Screening Analysis

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

[[Page 18870]]

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

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

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

C. Engineering Analysis

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

[[Page 18871]]

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

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

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

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

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

[[Page 18872]]

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

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

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

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

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

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

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

[[Page 18873]]

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

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

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

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

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

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

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

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

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

[[Page 18874]]

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

                                                   Table IV.5.--Average EER and COP Pairings for PTHPs
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
          Equipment class                                                             Efficiency level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size PTHP--9,000 Btu/h           EER = 10.9              EER = 11.1              EER = 11.3              EER = 11.5              EER = 12
 Cooling Capacity.                  COP = 3.1               COP = 3.2               COP = 3.3               COP = 3.3              COP = 3.5
Standard Size PTHP--12,000 Btu/h          EER = 10.2              EER = 10.4              EER = 10.6              EER = 10.8             EER = 11.7
 Cooling Capacity.                  COP = 3.0               COP = 3.1               COP = 3.1               COP = 3.1              COP = 3.3

[[Page 18875]]

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

D. Markups To Determine Equipment Price

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

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

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

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

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

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

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

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

[[Page 18876]]

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

E. Energy Use Characterization

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

F. Life-Cycle Cost and Payback Period Analyses

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

[[Page 18877]]

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

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

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

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

[[Page 18878]]

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

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

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

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

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

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

[[Page 18879]]

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

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

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

[[Page 18880]]

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

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

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

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

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

[[Page 18881]]

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

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

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

[[Page 18882]]

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

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

[[Page 18883]]

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

H. Life-Cycle Cost Sub-Group Analysis

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

I. Manufacturer Impact Analysis

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

[[Page 18884]]

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

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

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

[[Page 18885]]

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

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

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

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

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

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

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

[[Page 18886]]

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

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

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

[[Page 18887]]

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

J. Employment Impact Analysis

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

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

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

K. Utility Impact Analysis

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

[[Page 18888]]

of the utility analysis methods and results.

L. Environmental Analysis

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

M. Discussion of Other Issues

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

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

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

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

[[Page 18889]]

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

V. Analytical Results

A. Trial Standard Levels

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

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

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

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

[[Page 18890]]

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


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

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

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


[[Page 18891]]


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

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

B. Economic Justification and Energy Savings

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

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


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


[[Page 18892]]


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


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


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


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

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

[[Page 18893]]

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

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


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

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

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

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


[[Page 18894]]


   Table V.15.--Manufacturer Impact Analysis for Standard Size PTACs and PTHPs Under the Partial Cost Recovery
                                                 Markup Scenario
----------------------------------------------------------------------------------------------------------------
             R-410A base case full cost recovery with amended energy standards partial cost recovery
-----------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level
                                                           Units               Base  ---------------------------
                                                                               case    1   2   3   4   5   6   7
----------------------------------------------------------------------------------------------------------------
INPV........................................  (2006$ millions)..............     305  26  25  25  24  23  21  13
                                                                                      8   7   0   9   6   0   9
Change in INPV..............................  (2006$ millions)..............  ......  (3  (4  (5  (5  (6  (9  (1
                                                                                      7)  8)  5)  6)  9)  5)  66
                                                                                                               )
                                              (%)...........................  ......  -1  -1  -1  -1  -2  -3  -5
                                                                                      2.  5.  8.  8.  2.  1.  4.
                                                                                      1   7   1   3   7   2   5
R-410A Equipment Conversion Expenses *......  (2006$ millions)..............    14.0  ..  ..  ..  ..  ..  ..  ..
R-410A Capital Conversion Expenses *........  (2006$ millions)..............     7.0  ..  ..  ..  ..  ..  ..  ..
Amended Energy Conservation Standards         (2006$ millions)..............  ......  4.  7.  6.  10  7.  13  17
 Equipment Conversion Expenses.                                                       4   2   1   .3  0   .1  .5
Amended Energy Conservation Standards         (2006$ millions)..............  ......  3.  5.  4.  7.  5.  10  13
 Capital Conversion Expenses.                                                         4   6   7   9   4   .1  .5
                                                                             -----------------------------------
    Total Investment Required **............  (2006$ millions)..............  ......  28  33  31  39  33  44  52
                                                                                      .8  .8  .9  .2  .4  .3  .2
 
----------------------------------------------------------------------------------------------------------------
* Equipment conversion expenses and capital conversion expenses for converting PTACs and PTHPs to R-410A are
  made in 2009 and accounted for in the base case.
** Total investment calculates both the equipment conversion expenses and the capital investments necessary for
  both converting PTACs and PTHPs to R-410A and complying with amended energy conservation standards.

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

[[Page 18895]]

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

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

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

[[Page 18896]]

 
R-410A Equipment Conversion Expenses *......  (2006$ millions)..............     0.6  ..  ..  ..  ..  ..  ..  ..
R-410A Capital Conversion Expenses *........  (2006$ millions)..............     7.0  ..  ..  ..  ..  ..  ..  ..
Amended Energy Conservation Standards         (2006$ millions)..............  ......  2.  6.  5.  10  8.  11  15
 Equipment Conversion Expenses.                                                       5   3   6   .6  8   .9  .0
Amended Energy Conservation Standards         (2006$ millions)..............  ......  1.  2.  1.  3.  2.  3.  3.
 Capital Conversion Expenses.                                                         3   2   9   5   6   2   9
                                                                             -----------------------------------
    Total Investment Required **............  (2006$ millions)..............  ......  11  16  15  21  18  22  26
                                                                                      .4  .1  .1  .7  .9  .7  .5
 
----------------------------------------------------------------------------------------------------------------
* Equipment conversion expenses and capital conversion expenses for converting PTACs and PTHPs to R-410A are
  made in 2009 and accounted for in the base case.
** Total investment calculates both the equipment conversion expenses and the capital investments necessary for
  both converting PTACs and PTHPs to R-410A and complying with amended energy conservation standards.


 Table V.17.--Manufacturer Impact Analysis for Non-Standard Size PTACs and PTHPs Under the Partial Cost Recovery
                                                 Markup Scenario
----------------------------------------------------------------------------------------------------------------
             R-410A Base case full cost recovery with amended energy standards partial cost recovery
-----------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level
                                                           Units               Base  ---------------------------
                                                                               case    1   2   3   4   5   6   7
----------------------------------------------------------------------------------------------------------------
INPV........................................  (2006$ millions)..............      28  23  20  20  15  17  13  7
Change in INPV..............................  (2006$ millions)..............  ......  (4  (7  (7  (1  (1  (1  (2
                                                                                       )   )   )  2)  0)  5)  1)
                                              (%)...........................  ......  -1  -2  -2  -4  -3  -5  -7
                                                                                      4.  6.  5.  3.  7.  3.  4.
                                                                                      8   9   7   9   5   4   7
R-410A Equipment Conversion Expenses *......  (2006$ millions)..............     0.6  ..  ..  ..  ..  ..  ..  ..
R-410A Capital Conversion Expenses *........  (2006$ millions)..............     7.0  ..  ..  ..  ..  ..  ..  ..
Amended Energy Conservation Standards         (2006$ millions)..............  ......  2.  6.  5.  10  8.  11  15
 Equipment Conversion Expenses.                                                       5   3   6   .6  8   .9  .0
Amended Energy Conservation Standards         (2006$ millions)..............  ......  1.  2.  1.  3.  2.  3.  3.
 Capital Conversion Expenses.                                                         3   2   9   5   6   2   9
                                                                             -----------------------------------
    Total Investment Required **............  (2006$ millions)..............  ......  11  16  15  21  18  22  26
                                                                                      .4  .1  .1  .7  .9  .7  .5
 
----------------------------------------------------------------------------------------------------------------
* Equipment conversion expenses and capital conversion expenses for converting PTACs and PTHPs to R-410A are
  made in 2009 and accounted for in the base case.
** Total investment calculates both the equipment conversion expenses and the capital investments necessary for
  both converting PTACs and PTHPs to R-410A and complying with amended energy conservation standards.

    For the results shown above, DOE examined only the impacts of 
amended energy conservation standards on the INPV. The results shown 
assume that manufacturers are able to recover all of costs associated 
with the conversion to R-410A refrigerant, which allows DOE to examine 
the impacts of the refrigerant phase-out separately in the cumulative 
regulatory burden analysis. See Chapter 13 of the TSD for a complete 
summary of results including the cumulative regulatory burden analysis.
    At TSL 1, DOE estimated the impacts in INPV to range from less than 
-$2 million up to -$4 million, or a change in INPV of -7.7 percent up 
to -14.8 percent. At this level, the industry cash flow decreases by 
approximately 50 percent, $1 million, compared to the base case value 
of $2 million in the year leading up to the standards. Since more than 
half of the equipment being sold is already at or above this level 
using R-22 refrigerant, those manufacturers that do not fall below TSL 
1 using R-410A refrigerant will not have to make additional 
modifications to their product lines to conform to the amended energy 
conservation standards. At TSL 1, the results of the analysis show the 
least impact on manufacturers.

[[Page 18897]]

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

[[Page 18898]]



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


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

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

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


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

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

[[Page 18899]]

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

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

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

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

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

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


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

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

[[Page 18900]]

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

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

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

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

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

[[Page 18901]]

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

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

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

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

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

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

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

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


[[Page 18902]]


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

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

C. Proposed Standard

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

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

[[Page 18903]]

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

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

[[Page 18904]]

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

[[Page 18905]]

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

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

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

[[Page 18906]]

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

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866

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

[[Page 18907]]

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

          Table VI.1.--Non-Regulatory Alternatives to Standards
 
------------------------------------------------------------------------
                                                   Net present value**
                                      Energy         (billion 2006$)
       Policy alternatives           savings*  -------------------------
                                     (quads)    7% Discount  3% Discount
                                                    rate         rate
------------------------------------------------------------------------
No New Regulatory Action.........        0.000        0.000        0.000
Commercial Customer Rebates......        0.006        0.003        0.017
Commercial Customer Tax Credits..        0.010        0.007        0.032
Voluntary Energy-Efficiency              0.017        0.013        0.057
 Targets--ENERGY STAR............
Today's Standards at TSL 4.......        0.019        0.016       0.061
------------------------------------------------------------------------
* Energy savings are in source quads.
** Net present value is the value in the present of a time series of
  costs and savings. DOE determined the net present value from 2012 to
  2062 in billions of 2006$.

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

[[Page 18908]]

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

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

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

[[Page 18909]]



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

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

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

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

[[Page 18910]]

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

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

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

[[Page 18911]]

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

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

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

[[Page 18912]]

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

C. Review Under the Paperwork Reduction Act

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

D. Review Under the National Environmental Policy Act

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

E. Review Under Executive Order 13132

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

F. Review Under Executive Order 12988

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

G. Review Under the Unfunded Mandates Reform Act of 1995

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

[[Page 18913]]

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

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

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

I. Review Under Executive Order 12630

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

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

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

K. Review Under Executive Order 13211

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

L. Review Under the Information Quality Bulletin for Peer Review

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

VII. Public Participation

A. Attendance at Public Meeting

    The time and date of the public meeting are listed in the DATES 
section at the beginning of this notice of proposed rulemaking. The 
public meeting will be held at the U.S. Department of Energy, Forrestal 
Building, Room 1E-245, 1000 Independence Avenue, SW., Washington, DC, 
20585-0121. To attend the public meeting, please notify Ms. Brenda 
Edwards at (202) 586-2945. Foreign nationals visiting DOE Headquarters 
are subject to advance security screening procedures, requiring a 30-
day advance notice. Any foreign national wishing to participate in the 
meeting should advise DOE of this fact as soon as possible by 
contacting Ms. Brenda Edwards to initiate the necessary procedures.

B. Procedure for Submitting Requests To Speak

    Any person who has an interest in today's notice, or who is a 
representative of a group or class of persons that has an interest in 
these issues, may request an opportunity to make an oral presentation. 
Such persons may hand-deliver requests to speak, along with a computer 
diskette or CD in WordPerfect, Microsoft Word, PDF, or text (ASCII) 
file format to the address shown in the ADDRESSES section at the 
beginning of this notice of proposed rulemaking between the hours of 9 
a.m. and 4 p.m., Monday through Friday, except Federal holidays. 
Requests may also be sent by mail or e-mail to: 
[email protected].
    Persons requesting to speak should briefly describe the nature of 
their interest in this rulemaking and provide a telephone number for 
contact. DOE requests persons selected to be heard to submit an advance 
copy of their statements by 4 p.m., April 21, 2008. At its discretion, 
DOE may permit any person who cannot supply an advance copy of their 
statement to participate, if that person has made advance alternative 
arrangements with the Building Technologies Program. The request to 
give an oral presentation should ask for such alternative arrangements.

C. Conduct of Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may use a professional facilitator to aid discussion. The meeting 
will not be a judicial or evidentiary-type public hearing, but DOE will 
conduct it in accordance with 5 U.S.C. 553 and section 336 of EPCA, 42 
U.S.C. 6306. A court reporter will be present to record the proceedings 
and prepare a transcript. DOE reserves the right to schedule the order 
of presentations and to establish the procedures governing

[[Page 18914]]

the conduct of the public meeting. After the public meeting, interested 
parties may submit further comments on the proceedings as well as on 
any aspect of the rulemaking until the end of the comment period.
    The public meeting will be conducted in an informal, conference 
style. DOE will present summaries of comments received before the 
public meeting, allow time for presentations by participants, and 
encourage all interested parties to share their views on issues 
affecting this rulemaking. Each participant will be allowed to make a 
prepared general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will permit other 
participants to comment briefly on any general statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting.
    DOE will make the entire record of this proposed rulemaking, 
including the transcript from the public meeting, available for 
inspection at the U.S. Department of Energy, Forrestal Building, 
Resource Room of the Building Technologies Program, 950 L'Enfant Plaza, 
SW., 6th Floor, Washington, DC 20024, (202) 586-9127, between 9 a.m. 
and 4 p.m., Monday through Friday, except Federal holidays. Any person 
may buy a copy of the transcript from the transcribing reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding the 
proposed rule before or after the public meeting, but no later than the 
date provided at the beginning of this notice of proposed rulemaking. 
Please submit comments, data, and information electronically. Send them 
to the following e-mail address: [email protected]. Submit electronic 
comments in WordPerfect, Microsoft Word, PDF, or text (ASCII) file 
format and avoid the use of special characters or any form of 
encryption. Comments in electronic format should be identified by the 
docket number EE-RM/STD-2007-BT-STD-0012 and/or RIN 1904-AB44, and 
wherever possible carry the electronic signature of the author. Absent 
an electronic signature, comments submitted electronically must be 
followed and authenticated by submitting the signed original paper 
document. No telefacsimiles (faxes) will be accepted.
    According to 10 CFR 1004.11, any person submitting information that 
he or she believes to be confidential and exempt by law from public 
disclosure should submit two copies: one copy of the document including 
all the information believed to be confidential, and one copy of the 
document with the information believed to be confidential deleted. DOE 
will make its own determination about the confidential status of the 
information and treat it according to its determination.
    Factors of interest to DOE when evaluating requests to treat 
submitted information as confidential include: (1) A description of the 
items; (2) whether and why such items are customarily treated as 
confidential within the industry; (3) whether the information is 
generally known by or available from other sources; (4) whether the 
information has previously been made available to others without 
obligation concerning its confidentiality; (5) an explanation of the 
competitive injury to the submitting person which would result from 
public disclosure; (6) when such information might lose its 
confidential character due to the passage of time; and (7) why 
disclosure of the information would be contrary to the public interest.

E. Issues on Which DOE Seeks Comment

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

[[Page 18915]]

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

VIII. Approval of the Office of the Secretary

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

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Energy conservation, 
Household appliances.

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

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

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

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

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


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

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


Sec.  431.97  Energy efficiency standards and their effective dates.

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

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


[[Page 18916]]


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

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

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

[FR Doc. E8-6907 Filed 4-4-08; 8:45 am]
BILLING CODE 6450-01-P