[Federal Register Volume 79, Number 179 (Tuesday, September 16, 2014)]
[Proposed Rules]
[Pages 55538-55601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21189]



[[Page 55537]]

Vol. 79

Tuesday,

No. 179

September 16, 2014

Part II





 Department of Energy





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10 CFR Part 431





 Energy Conservation Program: Energy Conservation Standards for 
Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps; 
Proposed Rule

  Federal Register / Vol. 79 , No. 179 / Tuesday, September 16, 2014 / 
Proposed Rules  

[[Page 55538]]


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DEPARTMENT OF ENERGY

10 CFR Part 431

[Docket Number EERE-2012-BT-STD-0029]
RIN 1904-AC82


Energy Conservation Program: Energy Conservation Standards for 
Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps

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

ACTION: Notice of proposed rulemaking (NOPR) and public meeting.

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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, prescribes energy conservation standards for various consumer 
products and certain commercial and industrial equipment, including 
packaged terminal air conditioners (PTACs) and packaged terminal heat 
pumps (PTHPs). EPCA also requires the U.S. Department of Energy (DOE) 
to determine whether more-stringent, amended standards would be 
technologically feasible and economically justified, and would save a 
significant amount of energy. In this document, DOE proposes amended 
energy conservation standards for PTACs and PTHPs. The document also 
announces a public meeting to receive comment on these proposed 
standards and associated analyses and results.

DATES: DOE will hold a public meeting on Wednesday, October 29, 2014, 
from 9 a.m. to 4 p.m., in Washington, DC. The meeting will also be 
broadcast as a webinar. See section VII, ``Public Participation,'' for 
webinar registration information, participant instructions, and 
information about the capabilities available to webinar participants.
    DOE will accept comments, data, and information regarding this 
notice of proposed rulemaking (NOPR) before and after the public 
meeting, but no later than November 17, 2014. See section VII, ``Public 
Participation'' for details.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW., 
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at 
(202) 586-2945. For more information, refer to the Public Participation 
section near the end of this document.
    Any comments submitted must identify the NOPR for Energy 
Conservation Standards for packaged terminal air conditioners (PTACs) 
and packaged terminal heat pumps (PTHPs), and provide docket number 
EERE-2012-BT-STD-0029 and/or regulatory information number (RIN) number 
1904-AC82. Comments may be submitted using any of the following 
methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: [email protected]. Include the 
docket number and/or RIN in the subject line of the message.
    3. Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building 
Technologies Program, Mailstop EE-5B, 1000 Independence Avenue SW., 
Washington, DC 20585-0121. If possible, please submit all items on a 
CD. It is not necessary to include printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Program, 950 L'Enfant Plaza SW., Suite 
600, Washington, DC 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to Office of Energy Efficiency and 
Renewable Energy through the methods listed above and by email to 
[email protected].
    For detailed instructions on submitting comments and additional 
information on the rulemaking process, see section VII of this 
document, ``Public Participation.''
    Docket: The docket, which includes Federal Register notices, public 
meeting attendee lists and transcripts, comments, and other supporting 
documents/materials, is available for review at www.regulations.gov. 
All documents in the docket are listed in the www.regulations.gov 
index. However, some documents listed in the index, such as those 
containing information that is exempt from public disclosure, may not 
be publicly available.
    A link to the docket Web page can be found at: http://www.regulations.gov/#!docketDetail;D=EERE-2012-BT-STD-0029. This Web 
page contains a link to the docket for this document on the 
www.regulations.gov site. The www.regulations.gov Web page contains 
simple instructions on how to access all documents, including public 
comments, in the docket. See section VII for further information on how 
to submit comments through www.regulations.gov.
    For further information on how to submit a comment, review other 
public comments and the docket, or participate in the public meeting, 
contact Ms. Brenda Edwards at (202) 586-2945 or by email: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Mr. Ronald Majette, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Program, EE-5B, 1000 Independence Avenue SW., Washington, 
DC 20585-0121. Telephone: (202) 586-7935. Email: [email protected].
    Ms. Jennifer Tiedeman, U.S. Department of Energy, Office of the 
General Counsel, GC-71, 1000 Independence Avenue SW., Washington, DC 
20585-0121. Telephone: (202) 287-6111. Email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Proposed Rule
    A. Benefits and Costs to Customers
    B. Impact on Manufacturers
    C. National Benefits
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for PTACs and PTHPs
III. General Discussion
    A. Compliance Dates
    B. Equipment Classes and Scope of Coverage
    C. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    D. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    E. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Customers
    b. Savings in Operating Costs Compared to Increase in Price
    c. Energy Savings
    d. Lessening of Utility or Performance of Equipment
    e. Impact of Any Lessening of Competition
    f. Need for National Energy Conservation
    g. Other Factors
    2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
    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

[[Page 55539]]

    1. Methodology
    2. Equipment Classes Analyzed
    3. Cost Model
    4. Baseline Efficiency Level
    5. Incremental Efficiency Levels
    6. Equipment Testing and Reverse Engineering
    7. Cost-Efficiency Results
    D. Markups To Determine Equipment Price
    E. Energy Use Analysis
    F. Life Cycle Cost and Payback Period Analyses
    1. Equipment and Installation Costs
    2. Unit Energy Consumption
    3. Electricity Prices and Electricity Price Trends
    4. Repair Costs
    5. Maintenance Costs
    6. Lifetime
    7. Discount Rate
    8. Base Case Efficiency Distribution
    9. Payback Period Inputs
    10. Rebuttable-Presumption Payback Period
    G. Shipments Analysis
    H. National Impact Analysis--National Energy Savings and Net 
Present Value Analyses
    I. Customer Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model
    a. Government Regulatory Impact Model Key Inputs
    b. Government Regulatory Impact Model Scenarios
    c. Manufacturer Interviews
    d. Size Constraints
    e. Impact on Manufacturer Profitability
    f. Impact on Consumer Utility
    3. Discussion of Comments
    K. Emissions Analysis
    L. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    a. Monetizing Carbon Dioxide Emissions
    b. Development of Social Cost of Carbon Values
    c. Current Approach and Key Assumptions
    2. Valuation of Other Emissions Reductions
    M. Utility Impact Analysis
    N. Employment Impact Analysis
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. Customer Sub-Group Analysis
    c. Rebuttable Presumption Payback
    2. Economic Impacts on Manufacturers
    a. Industry Cash Flow Analysis Results
    b. Direct Impacts on Employment
    c. Impacts on Manufacturing Capacity
    d. Impacts on Subgroups of Manufacturers
    e. Cumulative Regulatory Burden
    3. National Impact Analysis
    a. Amount and Significance of Energy Savings
    b. Net Present Value of Customer Costs and Benefits
    c. Indirect 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. Summary of National Economic Impacts
    8. Other Factors
    C. Proposed Standard
    1. Benefits and Burdens of Trial Standard Levels Considered for 
Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps
    2. Summary of Benefits and Costs (Annualized) of the Proposed 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    1. Description and Estimated Number of Small Entities Regulated
    a. Methodology for Estimating the Number of Small Entities
    b. Manufacturer Participation
    c. PTAC and PTHP Industry Structure and Nature of Competition
    2. Description and Estimate of Compliance Requirements
    3. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    4. Significant Alternatives to the Rule
    C. Review Under the Paperwork Reduction Act
    D. Review Under the National Environmental Policy Act of 1969
    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, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting Prepared General Statements For 
Distribution
    C. Conduct of the Public Meeting
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment

I. Summary of the Proposed Rule

    Title III, Part C \1\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as 
codified), added by Public Law 95-619, Title IV, section 441(a), 
established the Energy Conservation Program for Certain Industrial 
Equipment.\2\ This equipment includes packaged terminal air 
conditioners (PTACs) and packaged terminal heat pumps (PTHPs), the 
subjects of this document.
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    \1\ For editorial reasons, upon codification in the U.S. Code, 
Part C was redesignated Part A-1.
    \2\ All references to EPCA in this document refer to the statute 
as amended through the American Energy Manufacturing Technical 
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).
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    Pursuant to EPCA, DOE may prescribe a standard more stringent than 
the level in American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (ASHRAE)/Illuminating Engineering Society of 
North America (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, DOE proposes to amend the energy conservation standards for 
standard-sized 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 ANSI/ASHRAE/IES Standard 90.1-2013. The proposed 
standards, which prescribe the minimum allowable energy efficiency 
ratio (EER) and, for packaged terminal heat pumps, coefficient of 
performance (COP), are shown in Table I.1.
    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 four to seven percent compared to the efficiency 
levels specified by ANSI/ASHRAE/IES Standard 90.1-2013, depending on 
the equipment capacity.

                      Table I.1--Proposed Energy Conservation Standards for PTACs and PTHPs
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                                    Equipment class                                          Proposed energy
----------------------------------------------------------------------------------------  conservation standards
              Equipment                        Category             Cooling capacity                *
----------------------------------------------------------------------------------------------------------------
PTAC.................................  Standard Size **.......  <7,000 Btu/h...........  EER = 12.6
                                                                >=7,000 Btu/h and        EER = 14.9-(0.324 x Cap
                                                                 <=15,000 Btu/h.          [Dagger])

[[Page 55540]]

 
                                                                >15,000 Btu/h..........  EER = 10.0
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PTHP.................................  Standard Size **.......  <7,000 Btu/h...........  EER = 12.6
                                                                                         COP = 3.5
                                                                >=7,000 Btu/h and        EER = 14.9 - (0.324 x
                                                                 <=15,000 Btu/h.          Cap [Dagger])
                                                                                         COP = 4.0 - (0.064 x
                                                                                          Cap [Dagger])
                                                                >15,000 Btu/h..........  EER = 10.0
                                                                                         COP = 3.0
----------------------------------------------------------------------------------------------------------------
* 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] Cap means cooling capacity in thousand British thermal units per hour (Btu/h) at 95 [deg]F outdoor dry-
  bulb temperature.

A. Benefits and Costs to Customers

    Table I.2 presents DOE's evaluation of the economic impacts of the 
proposed standards on customers of PTAC and PTHP equipment, as measured 
by the average life-cycle cost (LCC) savings and the median payback 
period. LCC savings refers to the additional dollar amount a customer 
is expected to save (or expend) over the equipment's lifetime when 
using equipment with higher efficiency compared to baseline efficiency 
equipment. For the two PTAC equipment classes the customer is expected 
to face costs, and for the two PTHP equipment classes the customer is 
expected to observe savings under the amended standards proposed in 
this document.

Table I.2--Impacts of Proposed Standards on Customers of PTACs and PTHPs
------------------------------------------------------------------------
                                       Average LCC       Median payback
         Cooling capacity            savings (2013$)     period (years)
------------------------------------------------------------------------
<12,000 Btu/h....................              $0.40                 8.0
>=12,000 Btu/h...................            ($2.11)                 9.9
------------------------------------------------------------------------
* Numbers in parentheses indicate negative savings.
Note: 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.

B. Impact on Manufacturers

    The industry net present value (INPV) is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
analysis period (2014 to 2048). Using a real discount rate of 8.5 
percent, DOE estimates that the INPV for manufacturers of PTACs and 
PTHPs is $58.5 million in 2013$. Under the proposed standards, DOE 
expects that manufacturers may lose up to 1.3 percent of INPV, which 
corresponds to approximately $0.7 million.

C. National Benefits \3\
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    \3\ All monetary values in this section are expressed in 2013 
dollars and are discounted to 2013.
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    DOE's analyses indicate that the proposed standards would save a 
significant amount of energy. The lifetime savings for PTACs and PTHPs 
purchased in the 30-year period that begins in the year of expected 
compliance with amended standards (2019-2048) amount to 0.06 
quadrillion British thermal units (quads). The annual energy savings in 
2030 (1.49 thousandths of a quad) are equivalent to 0.08 thousandths of 
a percent of total U.S. commercial primary energy consumption in 
2013.\4\
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    \4\ Based on U.S. Department of Energy, Energy Information 
Administration, Annual Energy Outlook 2013.
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    The cumulative net present value (NPV) of total customer costs and 
savings of the proposed standards for PTACs and PTHPs ranges from $10.7 
million (at a 7-percent discount rate) to $69.0 million (at a 3-percent 
discount rate). This NPV expresses the estimated total value of future 
operating-cost savings minus the estimated increase in product costs 
for equipment purchased in 2019-2048.
    In addition, the proposed standards would have significant 
environmental benefits. The energy savings would result in cumulative 
emission reductions of 4.3 million metric tons (Mt) \5\ of carbon 
dioxide (CO2), 16 thousand tons of methane, 9.7 thousand 
tons of sulfur dioxide (SO2), and 4.4 thousand tons of 
nitrogen oxides (NOX).\6\ The cumulative reduction in 
CO2 emissions through 2030 amounts to 0.7 Mt.
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    \5\ A metric ton is equivalent to 1.1 short tons. Results for 
NOX and Hg are presented in short tons.
    \6\ DOE calculated emissions reductions relative to the Annual 
Energy Outlook 2013 (AEO 2013) reference case, which generally 
represents current legislation and environmental regulations for 
which implementing regulations were available as of December 31, 
2012. The reduction in mercury (Hg) emissions is expected to be very 
small.
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    The value of the CO2 reductions is calculated using a 
range of values per metric ton of CO2 (otherwise known as 
the Social Cost of Carbon, or SCC) developed by a recent Federal 
interagency process.\7\ The derivation of

[[Page 55541]]

the SCC values is discussed in section IV.L.1. Using discount rates 
appropriate for each set of SCC values, DOE estimates that the present 
monetary value of the CO2 emissions reduction is between 
$28.1 million and $412.1 million. DOE also estimates that the present 
monetary value of the NOX emissions reduction is $2.20 
million at a 7-percent discount rate and $5.43 million at a 3-percent 
discount rate.\8\
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    \7\ Technical Update of the Social Cost of Carbon for Regulatory 
Impact Analysis Under Executive Order 12866. Interagency Working 
Group on Social Cost of Carbon, United States Government, May 2013; 
revised November 2013. Available online at www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.
    \8\ DOE is currently investigating valuation of avoided Hg and 
SO2 emissions.
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    Table I.3 summarizes the national economic costs and benefits 
expected to result from the proposed standards for PTACs and PTHPs.

 Table I.3--Summary of National Economic Benefits and Costs of Proposed
           Energy Conservation Standards for PTACs and PTHPs *
------------------------------------------------------------------------
                                      Present value      Discount rate
             Category                 million 2013$        (percent)
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Operating Cost Savings............              101.5                  7
                                                241.9                  3
CO2 Reduction Monetized Value                    28.1                  5
 ($12.0/t case) **................
CO2 Reduction Monetized Value                   133.0                  3
 ($40.5/t case) **................
CO2 Reduction Monetized Value                   212.3                2.5
 ($62.4/t case) **................
CO2 Reduction Monetized Value                   412.1                  3
 ($119/t case) **.................
NOX Reduction Monetized Value (at                2.20                  7
 $2,684/ton) **...................               5.43                  3
    Total Benefits [dagger].......              236.6                  7
                                                380.2                  3
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Incremental Installed Costs.......               90.8                  7
                                                172.9                  3
------------------------------------------------------------------------
                           Total Net Benefits
------------------------------------------------------------------------
Including Emissions Reduction                   145.9                  7
 Monetized Value [dagger].........              207.3                  3
------------------------------------------------------------------------
* This table presents the costs and benefits associated with PTACs and
  PTHPs shipped in 2019-2048. These results include benefits to
  customers which accrue after 2048 from the equipment purchased in 2019-
  2048. The results account for the incremental variable and fixed costs
  incurred by manufacturers due to amended standards, some of which may
  be incurred in preparation for the rule.
** The CO2 values represent global monetized values of the SCC, in
  2013$, in 2015 under several scenarios of the updated SCC values. The
  first three cases use the averages of SCC distributions calculated
  using 5%, 3%, and 2.5% discount rates, respectively. The fourth case
  represents the 95th percentile of the SCC distribution calculated
  using a 3% discount rate. The SCC time series used by DOE incorporates
  an escalation factor.
[dagger] Total Benefits for both the 3% and 7% cases are derived using
  the series corresponding to average SCC with 3-percent discount rate
  ($40.5/t case).

    The benefits and costs of the proposed standards, for equipment 
sold in 2019-2048, can also be expressed in terms of annualized values. 
The annualized monetary values are the sum of (1) the annualized 
national economic value of the benefits from customer operation of 
products that meet the proposed standards (consisting primarily of 
operating cost savings from using less energy, minus increases in 
equipment purchase and installation costs, which is another way of 
representing customer NPV), and (2) the annualized monetary value of 
the benefits of emission reductions, including CO2 emission 
reductions.\9\
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    \9\ DOE used a two-step calculation process to convert the time-
series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2013, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates, as 
shown in Table I.3. From the present value, DOE then calculated the 
fixed annual payment over a 30-year period (2019 through 2048) that 
yields the same present value. The fixed annual payment is the 
annualized value. Although DOE calculated annualized values, this 
does not imply that the time-series of cost and benefits from which 
the annualized values were determined is a steady stream of 
payments.
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    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. customer monetary savings that occur as a result of 
market transactions while the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of PTACs and PTHPs shipped in 
2019-2048. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one ton of carbon dioxide in each year. These impacts continue well 
beyond 2100.
    Estimates of annualized benefits and costs of the proposed 
standards are shown in Table I.4. The results under the primary 
estimate are as follows. Using a 7-percent discount rate for benefits 
and costs other than CO2 reduction, for which DOE used a 3-
percent discount rate along with the average SCC series that uses a 3-
percent discount rate, the cost of the proposed standards is $8.38 
million per year in increased equipment costs, while the benefits are 
$9.4 million per year in reduced equipment operating costs, $7.2 
million in CO2 reductions, and $0.20 million in reduced 
NOX emissions. In this case, the net benefit amounts to

[[Page 55542]]

$8.4 million per year. Using a 3-percent discount rate for all benefits 
and costs and the average SCC series, the estimated cost of the 
proposed standards is $9.36 million per year in increased equipment 
costs, while the benefits are $13.1 million per year in reduced 
operating costs, $7.2 million in CO2 reductions, and $0.29 
million in reduced NOX emissions. In this case, the net 
benefit amounts to $11.2 million per year.

     Table I.4--Annualized Benefits and Costs of Proposed Energy Conservation Standards for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
                                                                          Million 2013$/year
                                     Discount rate   -----------------------------------------------------------
              TSL 3                    (percent)                           Low net  benefits   High net benefits
                                                      Primary estimate *      estimate *          estimate *
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings..........  7.................  9.4...............  9.0...............  9.9
                                  3.................  13.1..............  2.5...............  3.9
CO2 Reduction Monetized Value     5.................  2.0...............  2.0...............  2.0
 ($12.0/t case) **.
CO2 Reduction Monetized Value     3.................  7.2...............  7.2...............  7.2
 ($40.5/t case) **.
CO2 Reduction Monetized Value     2.5...............  10.7..............  10.7..............  10.7
 ($62.4/t case) **.
CO2 Reduction Monetized Value     3.................  22.3..............  22.3..............  22.3
 ($119/t case) **.
NOX Reduction Monetized Value     7.................  0.20..............  0.20..............  0.20
 (at $2,684/ton) **.              3.................  0.29..............  0.29..............  0.29
    Total Benefits [dagger].....  7 plus CO2 range..  11.6 to 31.9......  11.2 to 31.5......  12.1 to 32.4
                                  7.................  16.8..............  16.4..............  17.3
                                  3 plus CO2 range..  15.4 to 35.7......  14.8 to 35.0......  16.2 to 36.5
                                  3.................  20.6..............  19.9..............  21.4
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Incremental Product Costs.......  7.................  8.38..............  8.18..............  10.61
                                  3.................  9.36..............  9.06..............  12.29
----------------------------------------------------------------------------------------------------------------
                                                  Net Benefits
----------------------------------------------------------------------------------------------------------------
    Total [dagger]..............  7 plus CO2 range..  3.2 to 23.5.......  3.0 to 23.3.......  1.5 to 21.8
                                  7.................  8.4...............  8.2...............  6.7
                                  3 plus CO2 range..  6.0 to 26.3.......  5.7 to 26.0.......  3.9 to 24.2
                                  3.................  11.2..............  10.9..............  9.1
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with PTACs and PTHPs shipped in 2019-2048.
  These results include benefits to customers which accrue after 2048 from the equipment purchased in 2019-2048.
  The results account for the incremental variable and fixed costs incurred by manufacturers due to amended
  standards, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High
  Benefits Estimates utilize projections of energy prices from the AEO 2013 Reference case, Low Estimate, and
  High Estimate, respectively. All three estimates use a constant rate for projected product price trends.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the
  updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and
  2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution
  calculated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to
  average SCC with 3-percent discount rate ($40.5/t case). In the rows labeled ``7% plus CO2 range'' and ``3%
  plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and
  those values are added to the full range of CO2 values.

    DOE has tentatively concluded that the proposed standards represent 
the maximum improvement in energy efficiency that is technologically 
feasible and economically justified, and would result in a significant 
conservation of energy. DOE further notes that products achieving these 
standard levels are already commercially available for at least some, 
if not most, equipment classes covered by this proposal. Based on the 
analyses described above, DOE has tentatively concluded that the 
benefits of the proposed standards to the Nation (energy savings, 
positive NPV of customer benefits, customer LCC savings, and emission 
reductions) would outweigh the burdens (loss of INPV for manufacturers 
and LCC increases for some customers).
    DOE also considered more-stringent energy efficiency levels as 
trial standard levels, and is still considering them in this 
rulemaking. However, DOE has tentatively concluded that the potential 
burdens of the more-stringent energy efficiency levels would outweigh 
the projected benefits. Based on consideration of the public comments 
DOE receives in response to this document and related information 
collected and analyzed during the course of this rulemaking effort, DOE 
may adopt energy efficiency levels presented in this document that are 
either higher or lower than the proposed standards, or some combination 
of level(s) that incorporate the proposed standards in part.
    As noted previously, in this rulemaking DOE is required to, at a 
minimum, adopt the ASHRAE levels as the Federal standard. (42 U.S.C. 
(a)(6)(A)(ii)(I)) In order to adopt levels above ASHRAE, DOE must 
determine that such a standard would result in significant additional 
conservation of

[[Page 55543]]

energy and is technologically feasible and economically justified. (42 
U.S.C. (a)(6)(A)(ii)(II)) To meet this statutory requirement, in this 
summary and throughout the NOPR, DOE examined and presents consumer, 
manufacturer, and economic benefits for the proposed PTAC and PTHP 
standards as compared to the default automatic adoption of the ASHRAE 
level, where no models would be available on the market at the current 
Federal minimum. However, for informational purposes only, in section 
V.C. DOE also presents summary results for the proposed standards in 
comparison to a base case including the current Federal minimum 
standards. This information was not used in the selection of the 
proposed standard level.
    The following section briefly discusses the statutory authority 
underlying this proposal, as well as some of the relevant historical 
background related to the establishment of standards for PTACs and 
PTHPs.

II. Introduction

A. Authority

    Title III, Part C \10\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as 
codified), added by Public Law 95-619, Title IV, section 441(a), 
established the Energy Conservation Program for Certain Industrial 
Equipment, which includes the PTAC and PTHP equipment that is the 
subject of this document. In general, this program addresses the energy 
efficiency of certain types of commercial and industrial equipment. 
Relevant provisions of the Act include definitions (42 U.S.C. 6311), 
energy conservation standards (42 U.S.C. 6313), test procedures (42 
U.S.C. 6314), labelling provisions (42 U.S.C. 6315), and the authority 
to require information and reports from manufacturers (42 U.S.C. 6316).
---------------------------------------------------------------------------

    \10\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
---------------------------------------------------------------------------

    EPCA contains mandatory energy conservation standards for 
commercial heating, air-conditioning, and water-heating equipment. (42 
U.S.C. 6313(a)) Specifically, the statute sets standards for small, 
large, and very large commercial package air-conditioning and heating 
equipment, PTACs and PTHPs, warm-air furnaces, packaged boilers, 
storage water heaters, instantaneous water heaters, and unfired hot 
water storage tanks. Id. EPCA established Federal energy conservation 
standards that generally correspond to the levels in ASHRAE Standard 
90.1, as in effect on October 24, 1992 (i.e., ASHRAE/IESNA Standard 
90.1-1989), for each type of covered equipment listed in 42 U.S.C. 
6313(a).
    EPCA requires that DOE conduct a rulemaking to consider amended 
energy conservation standards for a variety of enumerated types of 
commercial heating, ventilating, and air-conditioning equipment (of 
which PTACs and PTHPs are a subset) each time ASHRAE Standard 90.1 is 
updated with respect to such equipment. (42 U.S.C. 6313(a)(6)(A)) Such 
review is to be conducted in accordance with the procedures established 
for ASHRAE equipment under 42 U.S.C. 6313(a)(6). According to 42 U.S.C. 
6313(a)(6)(A), for each type of equipment, EPCA directs that if ASHRAE 
Standard 90.1 is amended, DOE must publish in the Federal Register an 
analysis of the energy savings potential of amended energy efficiency 
standards within 180 days of the amendment of ASHRAE Standard 90.1. (42 
U.S.C. 6313(a)(6)(A)(i)) EPCA further directs that DOE must adopt 
amended standards at the new efficiency level specified in ASHRAE 
Standard 90.1, unless clear and convincing evidence supports a 
determination that adoption of a more-stringent level would produce 
significant additional energy savings and be technologically feasible 
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) In addition, 
DOE notes that pursuant to the Energy Independence and Security Act of 
2007 (EISA 2007) amendments to EPCA, the agency must periodically 
review its already-established energy conservation standards for ASHRAE 
equipment. (42 U.S.C. 6313(a)(6)(C)) In December 2012, this provision 
was further amended by the American Energy Manufacturing Technical 
Corrections Act (AEMTCA) to clarify that DOE's periodic review of 
ASHRAE equipment must occur ``[e]very six years.'' (42 U.S.C. 
6313(a)(6)(C)(i))
    AEMTCA also modified EPCA to specify that any amendment to the 
design requirements with respect to the ASHRAE equipment would trigger 
DOE review of the potential energy savings under U.S.C. 
6313(a)(6)(A)(i). Additionally, AEMTCA amended EPCA to require that if 
DOE proposes an amended standard for ASHRAE equipment at levels more 
stringent than those in ASHRAE Standard 90.1, DOE, in deciding whether 
a standard is economically justified, must determine, after receiving 
comments on the proposed standard, whether the benefits of the standard 
exceed its burdens by considering, to the maximum 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, initial charges, or maintenance expenses of the products 
likely to result from the standard;
    (3) The total projected amount of energy savings likely to result 
directly from the standard;
    (4) Any lessening of the utility or the performance of the products 
likely to result from 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 
standard;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary considers relevant.

(42 U.S.C. 6313(a)(6)(B)(ii))

    Because ASHRAE did not update its efficiency levels for PTACs and 
PTHPs in ANSI/ASHRAE/IES Standard 90.1-2010, DOE began this rulemaking 
by analyzing amended standards consistent with the procedures defined 
under 42 U.S.C. 6313(a)(6)(C). Specifically, pursuant to 42 U.S.C. 
6313(a)(6)(C)(i)(II), DOE, must use the procedures established under 
subparagraph (B) when issuing a NOPR. The statutory provision at 42 
U.S.C. 6313(a)(6)(B)(ii), recently amended by AEMTCA, states that in 
deciding whether a standard is economically justified, DOE must 
determine, after receiving comments on the proposed standard, whether 
the benefits of the standard exceed its burdens by considering, to the 
maximum extent practicable, the seven factors stated above.
    However, before DOE could finalize this NOPR, ASHRAE acted on 
October 9, 2013 to adopt ANSI/ASHRAE/IES Standard 90.1-2013, and this 
revision did contain amended standard levels for PTACs, thereby 
triggering DOE's statutory obligation under 42 U.S.C. 6313(a)(6)(A) to 
promulgate an amended uniform national standard at those levels unless 
DOE determines that there is clear and convincing evidence supporting 
the adoption of more-stringent energy conservation standards than the 
ASHRAE levels. Consequently, DOE prepared an analysis of the energy 
savings potential of amended standards at the ANSI/ASHRAE/IES Standard 
90.1-2013 levels (as required by 42 U.S.C. 6313(a)(6)(A)(i)) and 
updated this NOPR and accompanying analyses to reflect appropriate 
statutory provisions, timelines, and compliance dates.
    EPCA defines a PTHP as ``a packaged terminal air conditioner that 
utilizes

[[Page 55544]]

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)) 
Because PTHPs are defined explicitly as a subset of PTACs, the 
publication of ANSI/ASHRAE/IES Standard 90.1-2013 also triggered DOE to 
consider whether clear and convincing evidence supports a more-
stringent standard than the ASHRAE levels for PTHPs, though the ASHRAE 
levels for PTHPs were not explicitly revised in 2013.
    DOE is proposing amended standards that are more stringent than 
those set forth in ANSI/ASHRAE/IES Standard 90.1-2013. DOE has 
tentatively concluded that this rulemaking provides ``clear and 
convincing evidence'' that the proposed standards would result in 
significant conservation of energy and would be technologically 
feasible and economically justified, as mandated by 42 U.S.C. 
6313(a)(6).
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not 
prescribe an amended or new standard if interested persons have 
established by a preponderance of the evidence that the standard is 
likely to result in the unavailability in the United States of any 
covered product type (or class) of performance characteristics 
(including reliability), features, sizes, capacities, and volumes that 
are substantially the same as those generally available in the United 
States. (42 U.S.C. 6313(a)(6)(B)(iii)(II))
    Further, EPCA, as codified, establishes a rebuttable presumption 
that a standard is economically justified if the Secretary finds that 
the additional cost to the customer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy (and, as applicable, water) savings 
during the first year that the customer will receive as a result of the 
standard, as calculated under the applicable test procedure.
    Additionally, when a type or class of covered equipment such as 
ASHRAE equipment, has two or more subcategories, DOE often specifies 
more than one standard level. DOE generally will adopt a different 
standard level than that which applies generally to such type or class 
of products for any group of covered products that have the same 
function or intended use if DOE determines that products within such 
group: (A) Consume a different kind of energy from that consumed by 
other covered products within such type (or class); or (B) have a 
capacity or other performance-related feature which other products 
within such type (or class) do not have and which justifies a higher or 
lower standard. In determining whether a performance-related feature 
justifies a different standard for a group of products, DOE generally 
considers such factors as the utility to the customer of the feature 
and other factors DOE deems appropriate. In a rule prescribing such a 
standard, DOE includes an explanation of the basis on which such higher 
or lower level was established. DOE has followed a similar process in 
the context of this proposed rulemaking.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281, January 21, 2011). 
Executive Order 13563 is supplemental to and explicitly reaffirms the 
principles, structures, and definitions governing regulatory review 
established in Executive Order 12866, which provides that significant 
regulatory actions be submitted for review to the Office of Information 
and Regulatory Affairs (OIRA) in the Office of Management and Budget 
(OMB). To the extent permitted by law, agencies are required by 
Executive Order 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, OIRA has emphasized that such techniques may include 
identifying changing future compliance costs that might result from 
technological innovation or anticipated behavioral changes. For the 
reasons stated in the preamble, DOE believes that the NOPR is 
consistent with these principles, including the requirement that, to 
the extent permitted by law, benefits justify costs and that net 
benefits are maximized. Consistent with Executive Order 13563, and the 
range of impacts analyzed in this rulemaking, the energy efficiency 
standards proposed herein by DOE achieves maximum net benefits.

B. Background

1. Current Standards
    In a final rule published on October 7, 2008 (73 FR 58772), DOE 
prescribed the current energy conservation standards for all standard 
size PTAC and PTHP equipment manufactured on or after September 30, 
2012, and for all non-standard size PTAC and PTHP equipment 
manufactured on or after September 30, 2010. (42 U.S.C. 6313(a)(3)) The 
current energy conservation standards align with ANSI/ASHRAE/IES 
Standard 90.1-2010. These levels are expressed in EER for the cooling 
mode and in COP for the heating mode. EER is defined as ``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. COP is 
defined as ``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.
    The current standards for PTACs and PTHPs are set forth in Table 
II.1.

[[Page 55545]]



                       Table II.1--Federal Energy Efficiency Standards for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
                           Equipment class
---------------------------------------------------------------------
                                                    Cooling capacity              Efficiency level *
        Equipment type             Sub-category         (Btu/h)
----------------------------------------------------------------------------------------------------------------
PTAC..........................  Standard Size **.  <7,000...........  EER = 11.7
                                                   >=7,000 and        EER = 13.8 - (0.300 x Cap
                                                    <=15,000.          [dagger][dagger])
                                                   >15,000..........  EER = 9.3
                               ---------------------------------------------------------------------------------
                                Non-Standard Size  <7,000...........  EER = 9.4
                                 [dagger].
                                                   >=7,000 and        EER = 10.9 - (0.213 x Cap
                                                    <=15,000.          [dagger][dagger])
                                                   >15,000..........  EER = 7.7
----------------------------------------------------------------------------------------------------------------
PTHP..........................  Standard Size **.  <7,000...........  EER = 11.9
                                                                      COP = 3.3
                                                   >=7,000 and        EER = 14.0 - (0.300 x Cap
                                                    <=15,000.          [dagger][dagger])
                                                                      COP = 3.7 - (0.052 x Cap [dagger][dagger])
                                                   >15,000..........  EER = 9.5
                                                                      COP = 2.9
                               ---------------------------------------------------------------------------------
                                Non-Standard Size  <7,000...........  EER = 9.3
                                 [dagger].                            COP = 2.7
                                                   >=7,000 and        EER = 10.8 - (0.213 x Cap
                                                    <=15,000.          [dagger][dagger])
                                                                      COP = 2.9 - (0.026 x Cap [dagger][dagger])
                                                   >15,000..........  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 k at 95 [deg]F outdoor dry-bulb temperature.

2. History of Standards Rulemaking for PTACs and PTHPs
    On October 29, 1999, ASHRAE adopted ASHRAE/IESNA Standard 90.1-
1999, ``Energy Standard for Buildings Except Low-Rise Residential 
Building,'' which included amended efficiency levels for PTACs and 
PTHPs. In amending the ASHRAE/IESNA Standard 90.1-1989 levels for PTACs 
and PTHPs, ASHRAE acknowledged the physical size constraints among the 
varying sleeve sizes on the market. Specifically, the wall sleeve 
dimensions of the PTAC and PTHP can limit the attainable energy 
efficiency of the equipment. Consequently, ASHRAE/IESNA Standard 90.1-
1999 used the equipment classes defined by EPCA, which are 
distinguished by equipment type (i.e., air conditioner or heat pump) 
and cooling capacity, and further separated these equipment classes by 
wall sleeve dimensions.\11\ Table II.2 shows the efficiency levels in 
ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs.
---------------------------------------------------------------------------

    \11\ Prior to 1999, ASHRAE/IESNA Standard 90.1 provided one 
efficiency standard for all PTAC and PTHP and did not have different 
standards by dimension. ASHRAE/IESNA Standard 90.1-1999 increased 
the standards for all classes and established more stringent 
standards for ``new construction'' than for ``replacements.'' DOE 
energy conservation standards for PTACs and PTHPs did not 
distinguish between standard and non-standard size units until 2010 
(for non-standard size) and 2012 (for standard size).

            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
           Equipment                 Category       Cooling capacity                   levels *
----------------------------------------------------------------------------------------------------------------
PTAC..........................  Standard Size **.  <7,000 Btu/h.....  EER = 11.0
                               ---------------------------------------------------------------------------------
                                                   >=7,000 Btu/h and  EER = 12.5 - (0.213 x Cap [Dagger])
                                                    <=15,000 Btu/h.
                                                   >15,000 Btu/h....  EER = 9.3
                               ---------------------------------------------------------------------------------
                                Non-Standard Size  <7,000 Btu/h.....  EER = 9.4
                                 [dagger].
                                                   >=7,000 Btu/h and  EER = 10.9 - (0.213 x Cap [Dagger])
                                                    <=15,000 Btu/h.
                                                   >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 Cap [Dagger])
                                                    <=15,000 Btu/h.   COP = 3.2 - (0.026 x Cap [Dagger])

[[Page 55546]]

 
                                                   >15,000 Btu/h....  EER = 9.1
                                                                      COP = 2.8
                               ---------------------------------------------------------------------------------
                                Non-Standard Size  <7,000 Btu/h.....  EER = 9.3
                                 [dagger].                            COP = 2.7
                                                   >=7,000 Btu/h and  EER = 10.8 - (0.213 x Cap [Dagger])
                                                    <=15,000 Btu/h.   COP = 2.9 - (0.026 x Cap [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 
whether more stringent levels would result in significant additional 
energy conservation of energy and be technologically feasible and 
economically justified. The report ``Screening Analysis for EPACT-
Covered Commercial [Heating, Ventilating and Air-Conditioning] HVAC and 
Water-Heating Equipment'' (commonly referred to as the 2000 Screening 
Analysis) \12\ summarizes this analysis. On January 12, 2001, DOE 
published a final rule for commercial HVAC and water heating equipment, 
which concluded that the 2000 Screening Analysis indicated a reasonable 
possibility of finding ``clear and convincing evidence'' that more 
stringent standards for PTACs and PTHPs ``would be technologically 
feasible and economically justified and would result in significant 
additional conservation of energy.'' 66 FR 3336, 3349. Under EPCA, 
these are the criteria for DOE adoption of standards more stringent 
than those found in ASHRAE/IESNA Standard 90.1. (42 U.S.C. 
6313(a)(6)(A)(ii)(II))
---------------------------------------------------------------------------

    \12\ ``Energy Conservation Program for Consumer Products: 
Screening Analysis for EPACT-Covered Commercial HVAC and Water-
Heating Equipment Screening Analysis,'' U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy. April 2000.
---------------------------------------------------------------------------

    In addition, on March 13, 2006, DOE issued a Notice of Availability 
(NOA), in which DOE revised the energy savings analysis from the 2000 
Screening Analysis. 71 FR 12634. DOE stated that, even though the 
revised analysis reduced the potential energy savings for PTACs and 
PTHPs that might result from more stringent standards than the 
efficiency levels specified in ASHRAE/IESNA Standard 90.1-1999, DOE 
believed that there was a possibility that clear and convincing 
evidence exists that more stringent standards were warranted. 
Therefore, DOE stated in the NOA that it was inclined to seek more 
stringent standard levels than the efficiency levels specified in 
ASHRAE/IESNA Standard 90.1-1999 for PTACs and PTHPs through a separate 
rulemaking. 71 FR 12639. On March 7, 2007, DOE issued a final rule 
stating that DOE had decided to explore more stringent efficiency 
levels than those in ASHRAE/IESNA Standard 90.1-1999 for PTACs and 
PTHPs through a separate rulemaking. 72 FR 10038, 10044.
    In January 2008, ASHRAE published ANSI/ASHRAE/IESNA Standard 90.1-
2007, which reaffirmed the definitions and efficiency levels for PTACs 
and PTHPs in ASHRAE/IESNA Standard 90.1-1999. On October 7, 2008, DOE 
published a final rule amending energy conservation standards for PTACs 
and PTHPs (2008 final rule). 73 FR 58772. This 2008 final rule divided 
PTACs and PTHPs into two equipment classes--standard size and non-
standard size. Prior DOE energy conservation standards for PTACs and 
PTHPs had not distinguished between standard and non-standard size 
units. Table II.1 shows the energy conservation standards for PTACs and 
PTHPs, as amended by the 2008 final rule. Compared to ASHRAE/IESNA 
Standard 90.1-1999, the standards in the 2008 final rule were identical 
for non-standard sized PTACs and PTHPs, but had steeper slopes for 
standard-size PTACs and PTHPs.
    In October 2010, ASHRAE published ANSI/ASHRAE/IES Standard 90.1-
2010, which reaffirmed the efficiency levels for non-standard size 
PTACs and PTHPs and increased the efficiency levels for standard size 
PTACs and PTHPs to match the DOE standards, effective as of October 8, 
2012. Hence, DOE did not consider revision of PTAC and PTHP standards 
at that time.
    On February 22, 2013, DOE published a notice of public meeting and 
availability of the framework document regarding energy conservation 
standards for PTACs and PTHPs. 78 FR 12252. The public meeting sought 
input on DOE's planned analytical approach and identified several 
issues of particular interest to DOE for this rulemaking proceeding.
    DOE received a number of comments from interested parties through 
the public meeting and written submissions. These commenters are 
summarized in Table II.3. DOE considered these comments in the 
preparation of the NOPR. Relevant comments, and DOE's responses, are 
provided in the appropriate sections of this document.

[[Page 55547]]



            Table II.3--Interested Parties Providing Comments
------------------------------------------------------------------------
              Name                  Abbreviation            Type *
------------------------------------------------------------------------
Air-Conditioning, Heating and    AHRI..............  IR
 Refrigeration Institute.
Appliance Standards Awareness    ASAP..............  EA
 Project.
Appliance Standards Awareness    ASAP, ACEEE (Joint  EA
 Project, American Council for    Efficiency
 an Energy-Efficient Economy.     Advocates).
Troy Abraham...................  TA................  I
EBM-Papst Inc..................  EBM-Papst.........  CS
General Electric...............  GE................  M
Goodman Manufacturing Company,   Goodman...........  M
 L.P..
Ice Air, LLC...................  Ice Air...........  M
McQuay International (now        McQuay............  M
 Daikin Applied).
Pacific Gas and Electric         PG&E, SCGC, SDG&E,  U
 Company, Southern California     SCE.
 Gas Company, San Diego Gas and
 Electric, Southern California
 Edison.
Southern Company Services......  SCS...............  U
------------------------------------------------------------------------
* IR: Industry Representative; M: Manufacturer; EA: Efficiency/
  Environmental Advocate; CS: Component Supplier; I: Individual; U:
  Utility.

    Subsequently, on October 9, 2013, ASHRAE published ANSI/ASHRAE/IES 
Standard 90.1-2013, which reaffirmed the efficiency levels for standard 
size PTHPs and for nonstandard size PTACs and PTHPs, and which 
increased the cooling efficiency levels for standard size PTACs to 
equalize them with the cooling efficiency levels for standard size 
PTHPs, effective as of January 1, 2015. The issuance of ANSI/ASHRAE/IES 
90.1-2013 triggered DOE's statutory obligation under 42 U.S.C. 
6313(a)(6)(A) to promulgate an amended uniform national standard at 
those levels unless DOE determines that there is clear and convincing 
evidence supporting the adoption of more-stringent energy conservation 
standards than the ASHRAE levels. Because PTHPs are defined as a subset 
of PTACs,\13\ the publication of ANSI/ASHRAE/IES Standard 90.1-2013 
also triggered DOE to consider whether clear and convincing evidence 
supports a more-stringent standard than the ASHRAE levels for PTHPs, 
though the ASHRAE levels for PTHPs were not explicitly revised.
---------------------------------------------------------------------------

    \13\ EPCA defines a PTHP 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)) Additionally, in its reverse 
engineering analysis, DOE observed that PTHPs are derivative designs 
of PTACs such that similar design changes for PTACs and PTHPs (e.g., 
more efficient compressors, more efficient motors, increased heat 
exchanger area, and improved air flow) are used to achieve higher 
efficiency levels.
---------------------------------------------------------------------------

III. General Discussion

A. Compliance Dates

    There are several possible compliance dates for any amended 
standards for PTACs and PTHPs. These compliance dates vary depending on 
the triggering mechanism for DOE review (i.e., whether DOE is triggered 
by a revision to ASHRAE Standard 90.1 or by the ``6-year look back'' 
requirement), and the action taken (i.e., whether DOE is adopting 
ASHRAE Standard 90.1 levels or more-stringent levels). The discussion 
below explains the potential compliance dates as they pertain to the 
present rulemaking.
    DOE performed the analyses in this rulemaking as if all customers 
were to purchase new equipment in the year that compliance with amended 
standards is required. Both PTAC and PTHP equipment fall under the EPCA 
directive that mandates DOE to publish a final rule amending the 
standard for this equipment not later than 2 years after a notice of 
proposed rulemaking is issued. (42 U.S.C. 6313(a)(6)(C)(iii)) At the 
time of preparation of the NOPR analysis, the expected final rule 
publication date was 2015. EPCA also states that amended standards 
prescribed under this subsection shall apply to equipment manufactured 
after a date that is the later of--(I) the date that is 3 years after 
publication of the final rule establishing a new standard; or (II) the 
date that is 6 years after the effective date of the current standard 
for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under 
clause (I) is currently projected to be 2018, and the date under clause 
(II) is also 2018.
    However, ASHRAE adopted a revised ANSI/ASHRAE/IES Standard 90.1-
2013, which increases minimum efficiency standards for PTACs and not 
for PTHPs, before DOE published the NOPR for this rulemaking. This 
action creates an exception to the aforementioned compliance 
requirements. The revision of the ANSI/ASHRAE/IES standard requires 
that the Federal standard for PTAC equipment become effective on or 
after a date which is two years after the effective date of the 
applicable minimum energy efficiency requirement in the amended ANSI/
ASHRAE/IES standard. (42 U.S.C 6313(a)(6)(D)(i)) The date of issuance 
of the amended ANSI/ASHRAE/IES standard is currently projected to be 
January 1, 2015. Therefore, PTAC equipment, only, manufactured on or 
after January 1, 2017 will be required to meet the amended ANSI/ASHRAE/
IES standard. However, if DOE adopts a uniform national standard more 
stringent than the amended ANSI/ASHRAE/IES Standard 90.1, equipment 
manufactured on or after a date which is four years after the date of 
final rule publication in the Federal Register must comply with the 
amended standard. (42 U.S.C 6313(a)(6)(D)) Therefore, both PTAC and 
PTHP equipment manufactured on or after January 1, 2019 would be 
required to meet the more stringent Federal standard.
    Based on the above considerations, DOE used 2017 as the compliance 
year for PTAC equipment with a proposed efficiency level at the ANSI/
ASHRAE/IES Standard 90.1-2013 minimum, and 2019 as the compliance year 
for PTAC and PTHP and equipment with proposed efficiency levels more 
stringent than that specified in ANSI/ASHRAE/IES Standard 90.1-2013.
    For each equipment class for which DOE developed a potential energy 
savings analysis, Table III.1 exhibits the approximate compliance dates 
of an amended energy conservation standard.

[[Page 55548]]



  Table III.1--Approximate Compliance Date of an Amended Energy Conservation Standard for Each Equipment Class
----------------------------------------------------------------------------------------------------------------
                                                       Approximate compliance date   Approximate compliance date
                                                       for adopting the efficiency   for adopting more stringent
                   Equipment class                      levels in ASHRAE standard   efficiency levels than those
                                                                90.1-2013           in ASHRAE standard 90.1-2013
----------------------------------------------------------------------------------------------------------------
PTAC <7,000 Btu/h...................................                       01/2017                       01/2019
PTAC >=7,000 to <=15,000 Btu/h......................                       01/2017                       01/2019
PTAC >15,000 Btu/h..................................                       01/2017                       01/2019
PTHP <7,000 Btu/h...................................                       01/2019                       01/2019
PTHP >=7,000 to <=15,000 Btu/h......................                       01/2019                       01/2019
PTHP >15,000 Btu/h..................................                       01/2019                       01/2019
----------------------------------------------------------------------------------------------------------------

B. Equipment Classes and Scope of Coverage

    When evaluating and establishing energy conservation standards, DOE 
divides covered equipment into equipment classes by the type of energy 
used or by capacity or other performance-related features that 
justifies a different standard. In making a determination whether a 
performance-related feature justifies a different standard, DOE must 
consider such factors as the utility to the customer of the feature and 
other factors DOE determines are appropriate. (42 U.S.C. 6295(q))
    Existing energy conservation standards divide PTACs and PTHPs into 
twelve equipment classes based whether the equipment is an air 
conditioner or heat pump; the equipment's cooling capacity; and the 
equipment's wall sleeve dimensions, which fall into two categories:

 Standard size (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 (PTAC or PTHP equipment with wall sleeve 
dimensions less than 16 inches high and less than 42 inches wide).

    DOE is not considering amended energy conservation standards for 
non-standard size PTAC and PTHP equipment in this rulemaking because 
this equipment class represents a small and declining portion of the 
market, and due to a lack of adequate information to analyze non-
standard size units. The shipments analysis conducted for the 2008 
final rule projected that shipments of non-standard size PTACs and 
PTHPs would decline from approximately 30,000 units in 2012 (6.6% of 
the entire PTAC and PTHP market) to approximately 16,000 units in 2042 
(2.4% of the entire PTAC and PTHP market).\14\ McQuay (now Daikin 
Applied) commented that the installed base for non-standard PTAC and 
PTHP products is slowly declining as older buildings are demolished. 
McQuay also commented that non-standard PTAC and PTHP products are 
being produced by a very limited number of U.S. manufacturers, 
exclusively for replacement applications in older buildings. (McQuay, 
No. 10 at p. 2) \15\ DOE believes McQuay's observations of the market 
are indicative of a steadily decreasing market share for non-standard-
size PTACs and PTHPs, and thus bolsters the justification to eliminate 
analysis of non-standard-size equipment in the present rulemaking.
---------------------------------------------------------------------------

    \14\ See DOE's discussion regarding shipment projections for 
standard and non-standard PTAC and PTHP equipment and the results of 
shipment projections in the PTAC and PTHP energy conservation 
standard technical support document at: http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/ptac_pthp_tsd/chapter_10.pdf (Chapter 10, 
Section 10.5).
    \15\ A notation in the form ``McQuay, No. 10 at p. 2'' 
identifies a written comment: (1) Made by McQuay International (now 
Daikin Applied) (``McQuay''); (2) recorded in document number 10 
that is filed in the docket of the PTAC energy conservation 
standards rulemaking (Docket No. EERE-2012-BT-STD-0029) and 
available for review at www.regulations.gov; and (3) which appears 
on page 2 of document number 10.
---------------------------------------------------------------------------

    An analysis of energy savings for the volume of shipments of non-
standard size products show that the national energy savings of non-
standard size equipment at a reasonable efficiency level adopted is 
five-thousandths of one quad of savings. Such level of savings DOE 
considers negligible.
    DOE has not been able to analyze and test non-standard sized PTACs 
and therefore the Department is proposing to maintain the non-standard 
size product classes but not subject them to amended minimum energy 
conservation standards.
    Ice Air commented that there should be separate equipment 
categories for PTACs that use hydronic or gas-fired heat sources. Ice 
Air also commented that PTACs with hydronic heat or gas heat comprise a 
significant portion of the market for PTACs installed in high-rise 
buildings, and asked whether DOE is addressing the efficiency impacts 
of packaged terminal units with central hydronic systems as compared to 
units heated by electric heat or heat pumps. Ice Air commented that 
PTACs that use hydronic or gas-fired heat sources should receive a form 
of efficiency credit. (Ice Air, No. 9 at p. 1)
    DOE understands that hydronic heat sources are often more efficient 
than electric resistance heaters or electric heat pumps, in terms of 
heat delivered versus primary energy consumed. DOE also understands 
that hydronic coils impose a pressure drop that may increase fan power 
consumption and reduce EER. DOE is concerned that this impact may lead 
manufacturers to eliminate hydronic heating options in PTACs and also 
lead to sales shifting from hydronic to electric resistance heating, a 
shift that would lead to increased overall HVAC energy use. Hence, DOE 
proposes to provide guidance in the future regarding which features 
(such as hydronic and steam heating systems) may be excluded from 
products that are tested.

C. Technological Feasibility

1. General
    In each 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 products or 
equipment that are the subject of the rulemaking. As the first step in 
such an analysis, DOE develops a list of technology options for 
consideration in consultation with manufacturers, design engineers, and 
other interested parties. DOE then determines which of those means for 
improving efficiency are technologically feasible. DOE considers 
technologies incorporated in commercially available products or in 
working prototypes to be technologically feasible. 10 CFR part 430, 
subpart C, appendix A, section 4(a)(4)(i).

[[Page 55549]]

    After DOE has determined that particular technology options are 
technologically feasible, it further evaluates each technology option 
in light of the following additional screening criteria: (1) 
Practicability to manufacture, install, or service; (2) adverse impacts 
on product utility or availability; and (3) adverse impacts on health 
or safety. Section IV.B of this document discusses the results of the 
screening analysis for PTACs and PTHPs, particularly the designs DOE 
considered, those it screened out, and those that are the basis for the 
TSLs in this rulemaking. For further details on the screening analysis 
for this rulemaking, see chapter 4 of the NOPR TSD.
    After screening out or otherwise removing from consideration most 
of the technologies, the following technologies were identified for 
consideration in the engineering analysis: (1) Improved compressor 
efficiency; (2) improved fan motor efficiency; (3) increased heat 
exchanger area; and (4) improved air flow and fan blade efficiency. To 
adopt standards for PTACs and PTHPs that are more stringent than the 
efficiency levels in ASHRAE Standard 90.1 as amended, DOE must 
determine, supported by clear and convincing evidence, that such 
standards are technologically feasible. (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) DOE has determined that the efficiency levels 
considered in this rulemaking are technologically feasible, because DOE 
has access to test reports showing the highest efficiency level was 
attainable in a commercially available model.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the 
engineering analysis, DOE determined the maximum technologically 
feasible (``max-tech'') improvements in energy efficiency for PTACs and 
PTHPs, using the design parameters for the most efficient products 
available on the market or in working prototypes. (See chapter 5 of the 
NOPR TSD.) The max-tech levels that DOE determined for this rulemaking 
are described in section IV.C.5 of this proposed rule.

D. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the equipment that 
is the subject of this rulemaking purchased in the 30-year period that 
begins in the year of expected compliance with amended standards (2019-
2048).\16\ The savings are measured over the entire lifetime of 
products purchased in the 30-year period.\17\ DOE quantified the energy 
savings attributable to each TSL as the difference in energy 
consumption between each standards case and the base case. The base 
case represents a projection of energy consumption in the absence of 
amended mandatory energy conservation standards, and it considers 
market forces and policies that affect demand for more-efficient 
equipment.
---------------------------------------------------------------------------

    \16\ DOE also presents a sensitivity analysis that considers 
impacts for equipment shipped in a 9-year period.
    \17\ In the past, DOE presented energy savings results for only 
the 30-year period that begins in the year of expected compliance. 
In the calculation of economic impacts, however, DOE considered 
operating cost savings measured over the entire lifetime of 
equipment purchased in the 30-year period. DOE has chosen to modify 
its presentation of national energy savings to be consistent with 
the approach used for its national economic analysis.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate energy savings from amended standards for the equipment that 
is the subject of this rulemaking. The NIA spreadsheet model (described 
in section IV.H of this document) calculates energy savings in site 
energy, which is the energy directly consumed by equipment at the 
locations where it is used. For electricity, DOE reports national 
energy savings in terms of the savings in the energy that is used to 
generate and transmit the site electricity. To calculate this quantity, 
DOE derives annual conversion factors from the model used to prepare 
the Energy Information Administration's (EIA) Annual Energy Outlook 
(AEO).
    DOE has begun to also estimate full-fuel-cycle energy savings, as 
discussed in DOE's statement of policy and notice of policy amendment. 
76 FR 51282 (August 18, 2011), as amended at 77 FR 49701 (August 17, 
2012). The full-fuel-cycle (FFC) metric includes the energy consumed in 
extracting, processing, and transporting primary fuels (i.e., coal, 
natural gas, petroleum fuels), and thus collectively presents a more 
complete picture of the impacts of energy efficiency standards. DOE's 
approach is based on the calculation of an FFC multiplier for each of 
the energy types used by covered equipment.
    For more information on FFC energy savings, see section IV.H.
2. Significance of Savings
    Among the criteria that govern DOE's adoption of more stringent 
standards for PTACs and PTHPs than the amended levels in ASHRAE 
Standard 90.1, clear and convincing evidence must support a 
determination that the standards would result in ``significant'' energy 
savings. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term 
``significant'' is not defined in the Act, the 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 the context of EPCA to be savings that were not 
``genuinely trivial.'' DOE's estimates of the energy savings for each 
of the TSLs considered for this proposed rule for PTACs and PTHPs 
(presented in section V.B.3.a) provide evidence that the additional 
energy savings each would achieve by exceeding the corresponding 
efficiency levels in ANSI/ASHRAE/IES Standard 90.1-2013 are nontrivial. 
Therefore, DOE considers these savings to be ``significant'' as 
required by 42 U.S.C.6313(a)(6)(A)(ii)(II).

E. Economic Justification

1. Specific Criteria
    EPCA provides seven factors to be evaluated in determining whether 
a more stringent standard for PTACs and PTHPs is economically 
justified. (42 U.S.C. 6313(a)(6)(B)(ii)) The following sections discuss 
how DOE has addressed each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Customers
    In determining the impacts of an amended standard on manufacturers, 
DOE first uses an annual cash-flow approach to determine the 
quantitative impacts. This step includes both a short-term assessment--
based on the cost and capital requirements during the period between 
when a regulation is issued and when entities must comply with the 
regulation--and a long-term assessment over a 30-year period. The 
industry-wide impacts analyzed include industry net present value 
(INPV), which values the industry on the basis of expected future cash 
flows; 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, including impacts on 
small manufacturers. Third, DOE considers the impact of amended 
standards on domestic manufacturer employment and manufacturing 
capacity, as well as the potential for

[[Page 55550]]

amended standards to result in plant closures and loss of capital 
investment. Finally, DOE takes into account cumulative impacts of 
various DOE regulations and other regulatory requirements on 
manufacturers.
    For individual customers, measures of economic impact include the 
changes in LCC and payback period (PBP) associated with new or amended 
standards. These measures are discussed further in the following 
section. For customers in the aggregate, DOE also calculates the 
national net present value of the economic impacts applicable to a 
particular rulemaking. DOE also evaluates the LCC impacts of potential 
standards on identifiable subgroups of customers that may be affected 
disproportionately by a national standard.
b. Savings in Operating Costs Compared to Increase in Price
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered equipment compared 
to any increase in the price of the covered product that are likely to 
result from the imposition of the standard. (42 U.S.C. 
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP 
analysis.
    The LCC is the sum of the purchase price of a product (including 
its installation) and the operating expense (including energy, 
maintenance, and repair expenditures) discounted over the lifetime of 
the equipment. To account for uncertainty and variability in specific 
inputs, such as equipment lifetime and discount rate, DOE uses a 
distribution of values, with probabilities attached to each value. For 
its analysis, DOE assumes that customers will purchase the covered 
equipment in the first year of compliance with amended standards.
    The LCC savings and the PBP for the considered efficiency levels 
are calculated relative to a base case that reflects projected market 
trends in the absence of amended standards. DOE identifies the 
percentage of customers estimated to receive LCC savings or experience 
an LCC increase, in addition to the average LCC savings associated with 
a particular standard level. DOE's LCC analysis is discussed in further 
detail in section IV.F.
c. Energy Savings
    Although significant conservation of energy is a separate statutory 
requirement for imposing an energy conservation standard, EPCA requires 
DOE, in determining the economic justification of a standard, to 
consider the total projected energy savings that are expected to result 
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As 
discussed in section IV.H, DOE uses the NIA spreadsheet to project 
national energy savings.
d. Lessening of Utility or Performance of Equipment
    In establishing classes of equipment, and in evaluating design 
options and the impact of potential standard levels, DOE evaluates 
standards that would not lessen the utility or performance of the 
considered equipment. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) The standards 
proposed in this document will not reduce the utility or performance of 
the equipment under consideration in this rulemaking.
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider any lessening of competition that is 
likely to result from energy conservation standards. It also directs 
the Attorney General of the United States (Attorney General) to 
determine the impact, if any, of any lessening of competition likely to 
result from a proposed standard and to transmit such determination to 
the Secretary within 60 days of the publication of a proposed rule, 
together with an analysis of the nature and extent of the impact. (42 
U.S.C. 6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of this proposed 
rule to the Attorney General with a request that the Department of 
Justice (DOJ) provide its determination on this issue. DOE will address 
the Attorney General's determination in the final rule.
f. Need for National Energy Conservation
    In evaluating the need for national energy conservation, DOE 
expects that the energy savings from the proposed standards are likely 
to provide improvements to the security and reliability of the nation's 
energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) Reductions in the 
demand for electricity also may result in reduced costs for maintaining 
the reliability of the nation's electricity system. DOE conducts a 
utility impact analysis to estimate how standards may affect the 
nation's needed power generation capacity, as discussed in section 
IV.M.
    The proposed standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases associated with energy production. DOE reports the 
emissions impacts from the proposed standards, and from each TSL it 
considered, in section V.B.6 of this document. DOE also reports 
estimates of the economic value of emissions reductions resulting from 
the considered TSLs, in section IV.L of this document.
g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) 
No other factors were considered in this proposal.
2. Rebuttable Presumption
    As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a 
rebuttable presumption that an energy conservation standard is 
economically justified if the additional cost to the customer of a 
product that meets the standard is less than three times the value of 
the first year's energy savings resulting from the standard, as 
calculated under the applicable DOE test procedure. DOE's LCC and PBP 
analyses generate values used to calculate the effects that proposed 
energy conservation standards would have on the payback period for 
customers. These analyses include, but are not limited to, the 3-year 
payback period contemplated under the rebuttable-presumption test. In 
addition, DOE routinely conducts an economic analysis that considers 
the full range of impacts to customers, manufacturers, the nation, and 
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The 
results of this analysis serve as the basis for DOE's evaluation of the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification). The rebuttable presumption payback calculation 
is discussed in section V.B.1.c of this proposed rule.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to PTACs and PTHPs. A separate subsection 
addresses each component of the analysis.

A. Market and Technology Assessment

    For the market and technology assessment, 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

[[Page 55551]]

subjects addressed in the market and technology assessment for this 
rulemaking include scope of coverage, equipment classes, types of 
equipment sold and offered for sale, and technology options that could 
improve the energy efficiency of the equipment under examination. The 
key findings of DOE's market assessment are summarized below. For 
additional detail, see chapter 3 of the NOPR TSD.
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 
ANSI/ASHRAE/IES Standard 90.1-2010, as shown in Tables 4 and 5 of 10 
CFR 431.97, dividing PTACs and PTHPs into twelve equipment classes 
based on these key characteristics. Table IV.1 shows the current 
equipment class structure.
    AHRI and Goodman separately commented that the current equipment 
classes for PTACs have worked well in the past and do not need to be 
changed. (Goodman, Framework Public Meeting Transcript, No. 7 at p. 41) 
(AHRI, Framework Public Meeting Transcript, No. 7 at p. 41) \18\ 
Goodman also commented that the current equipment classes are fair and 
representative of the market. (Goodman, No. 13 at p. 3) Accordingly, 
for this rulemaking, DOE is proposing to maintain the same equipment 
classes, as shown in Table IV.1. As previously described in section 
III.B, DOE is not considering amending the energy conservation 
standards of non-standard size PTAC and PTHP equipment in this 
rulemaking, because this equipment class represents a small and 
declining portion of the market, and because of a lack of adequate 
information available to analyze non-standard size units. As described 
in section III.B, Ice Air commented that there should be separate 
equipment categories for PTACs that use hydronic or gas-fired heat 
sources. (Ice Air, No. 9 at p. 1) DOE plans to provide guidance in the 
future regarding how to address features (such as hydronic or steam 
heating) which might require special treatment when testing this 
equipment.
---------------------------------------------------------------------------

    \18\ A notation in the form ``Goodman, Framework Public Meeting 
Transcript, No. 7 at p. 41'' identifies an oral comment that DOE 
received during the March 18, 2013, PTAC energy conservation 
standards framework public meeting, that was recorded in the public 
meeting transcript in the docket for the PTAC energy conservation 
standards rulemaking (Docket No. EERE-2012-BT-STD-0029), and is 
maintained in the Resource Room of the Building Technologies 
Program. This particular notation refers to a comment (1) made by 
Goodman during the public meeting; (2) recorded in document number 
7, which is the public meeting transcript that is filed in the 
docket of this energy conservation standards rulemaking; and (3) 
which appears on page 41 of document number 7.

                                Table IV.1--Equipment Classes for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
                                                 Equipment class
-----------------------------------------------------------------------------------------------------------------
              Equipment                      Category                          Cooling capacity
----------------------------------------------------------------------------------------------------------------
PTAC................................  Standard Size *.......  < 7,000 Btu/h
                                                              >= 7,000 Btu/h and <= 15,000 Btu/h
                                                              > 15,000 Btu/h
                                     ---------------------------------------------------------------------------
                                      Non-Standard Size **..  < 7,000 Btu/h
                                                              >= 7,000 Btu/h and <= 15,000 Btu/h
                                                              > 15,000 Btu/h
----------------------------------------------------------------------------------------------------------------
PTHP................................  Standard Size *.......  < 7,000 Btu/h
                                                              >=7 ,000 Btu/h and <= 15,000 Btu/h
                                                              > 15,000 Btu/h
                                     ---------------------------------------------------------------------------
                                      Non-Standard Size **..  < 7,000 Btu/h
                                                              >= 7,000 Btu/h and <= 15,000 Btu/h
                                                              > 15,000 Btu/h
----------------------------------------------------------------------------------------------------------------
* Standard size refers to PTAC or PTHP equipment with wall sleeve dimensions having an external wall opening
  greater than or equal to 16 inches high or greater than or equal to 42 inches wide, and a cross-sectional area
  greater than or equal to 670 square inches.
** 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 a cross-sectional area less than 670
  square inches.

3. Market Assessment
    This market assessment describes the trade associations, 
manufacturers in the PTAC/PTHP industry, and the quantities and types 
of PTAC and PTHP equipment sold and offered for sale. The information 
DOE gathered serves as resource material throughout the rulemaking. The 
sections below provide

[[Page 55552]]

an overview of the PTAC and PTHP market. For more detail on the PTAC 
and PTHP market, see chapter 3 of the NOPR TSD.
a. Trade Association
    The Air-Conditioning, Heating, and Refrigeration Institute (AHRI), 
formerly referred to as ARI, is the trade association representing PTAC 
and PTHP manufacturers. ARI and the Gas Appliance Manufacturers 
Association (GAMA) merged to become AHRI on January 1, 2008.
    AHRI develops and publishes technical standards for residential and 
commercial air-conditioning, heating, and refrigeration equipment using 
rating criteria and procedures for measuring and certifying equipment 
performance. The current Federal test procedure for PTACs and PTHPs 
incorporates by reference an AHRI standard--ANSI/AHRI/CSA 310/380-
2004.\19\ AHRI has developed a certification program that a number of 
manufacturers in the PTAC and PTHP industry have used to certify their 
equipment. Manufacturers certify their own equipment by providing AHRI 
with test data. Through the AHRI certification program, AHRI evaluates 
test data, determines if equipment conforms to ANSI/AHRI/CSA 310/380-
2004, and verifies that manufacturer-reported ratings are accurate. 
AHRI also maintains the Directory of Certified Product Performance, 
which is a database of equipment ratings for all manufacturers who 
elect to participate in the program. DOE used AHRI's certification 
data, as summarized by the 2013 AHRI directory of certified PTACs and 
PTHPs, to examine the population of commercially available units and to 
screen units for inclusion in the engineering analysis.
---------------------------------------------------------------------------

    \19\ DOE has incorporated by reference ANSI/AHRI/CSA Standard 
310/380-2004 as the DOE test procedure at 10 CFR 431.97.
---------------------------------------------------------------------------

    AHRI commented that its database is a good source of information, 
as are the data provided on manufacturers' Web sites. (AHRI, Framework 
Public Meeting Transcript, No. 7 at p. 56) McQuay (now Daikin Applied) 
commented that only five of the 19 interested parties are AHRI members 
and that non-member catalog and Web site performance data are not 
verified by an independent third party test facility. (McQuay, No. 10 
at p. 1) McQuay commented further that DOE should use extreme caution 
when using non-AHRI member efficiency data. (McQuay, No. 10 at p. 2) 
DOE notes that the Department used AHRI database and manufacturer-
provided data as initial screening criteria, and that an independent 
third party test facility used test procedure ANSI/AHRI/CSA 310/380-
2004 to measure the efficiencies of all units used in the cost 
assessment analysis.
b. Manufacturers
    DOE identified three large manufacturers of standard size PTAC and 
PTHP that represent more than 80 percent of the standard size market in 
terms of shipments. These three manufacturers include: General Electric 
(GE) Company, Amana,\20\ and Daikin Applied.\21\ Ten other 
manufacturers represent the remaining 20 percent of the standard size 
PTAC and PTHP market: Comitale National, Inc.; E-Air, LLC; Electrolux 
Home Products, Inc.; Friedrich Air Conditioning Company; Gree Electric 
Appliances of Zhuhai; Haier America; Heat Controller, Inc.; Islandaire; 
RetroAire; and YMGI Group, LLC.
---------------------------------------------------------------------------

    \20\ Amana is a trademark of Maytag Corporation and is used 
under license to Goodman Global, Inc.
    \21\ Daikin Applied (formally McQuay International) is a 
subsidiary of Daikin Industries, Ltd.
---------------------------------------------------------------------------

    DOE identified three major manufacturers of non-standard size PTAC 
and PTHP equipment: Daikin Applied, RetroAire, and Fedders Islandaire, 
Inc. These three manufacturers share the majority of the non-standard 
size PTAC and PTHP market. Other manufacturers of non-standard size 
units include: Air-Con International; Cold Point Corporation; Comitale 
National, Inc.; E-Air LLC; ECR International; Evergreen LLC; Heat 
Controller, Inc.; Ice Air LLC; International Refrigeration Products; 
Prem Sales LLC; Simon-Aire, Inc.; and YMGI Group LLC. All of the major 
manufacturers certify their standard-size equipment with AHRI and are 
included in the AHRI directory of certified products.
    The standard size PTAC and PTHP market differs from the non-
standard size PTAC and PTHP industry in that several of the 
manufacturers of standard size units are domestically owned with 
manufacturing facilities located outside of the United States. (In 
contrast, most non-standard size PTAC and PTHP production occurs in the 
United States.) Currently, there is only one major manufacturer of 
standard size PTAC and PTHP equipment manufacturing equipment in the 
United States. Several foreign-owned companies have recently entered 
the U.S. market for standard-sized PTACs and PTHPs.
    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 manufacturers of standard 
size equipment, there has not been an influx of foreign owned companies 
to sell non-standard size PTAC and PTHP equipment in the United States.
    DOE takes into consideration the impact of amended energy 
conservation standards on small businesses. At this time, DOE has 
identified several small businesses in the PTAC and PTHP industry that 
fall under the Small Business Administration (SBA)'s definition as 
having 750 employees or fewer. DOE identified at least 12 manufacturers 
that qualify as small businesses. The PTAC and PTHP small manufacturer 
subgroup is discussed in chapter 12 of the NOPR TSD and in section 
V.B.2 of this document.
c. Shipments
    DOE reviewed data collected by the U.S. Census Bureau and AHRI to 
evaluate the annual PTAC and PTHP equipment shipment trends and the 
value of these shipments. The historical shipments data shown in Table 
IV.2 provides a picture of the market for PTAC and PTHP equipment. The 
historical shipments for PTACs and PTHPs are based on data provided by 
AHRI for the years 2003-2012.

   Table IV.2--PTAC and PTHP Industry Estimated Shipment Data, 10-Year
        Totals for 2003-2012, From AHRI (Standard Size Equipment)
------------------------------------------------------------------------
                           Total shipments, standard size (thousands of
                                              units)
          Year          ------------------------------------------------
                                   PTAC                    PTHP
------------------------------------------------------------------------
        2003-2012                    2,458                   2,055
------------------------------------------------------------------------

Using information gathered in manufacturer interviews, DOE estimates 
that about 90 percent of the shipments for PTACs and PTHPs are standard 
size units, while about 10 percent are non-standard size units.\22\ 
AHRI did not provide a breakdown of shipment data by capacity; however, 
the cooling capacity with the highest number of models listed in the 
AHRI Directory of

[[Page 55553]]

Certified Product Performance is 9,000 Btu/h.
---------------------------------------------------------------------------

    \22\ This estimated breakdown of 90% standard-size and 10% non-
standard-size units is based on information obtained in manufacturer 
interviews. This updated estimate differs from the shipment 
projections from the 2008 PTAC rulemaking quoted in section III.B, 
which projected that non-standard units would comprise 6.6% of the 
market in 2014.
---------------------------------------------------------------------------

4. Technology Assessment
    In the technology assessment, DOE uses information about existing 
and past technology options and prototype designs to help identify 
technologies that manufacturers could use to improve the efficiency of 
PTACs and PTHPs. This assessment provides the technical background and 
structure on which DOE bases its screening and engineering analyses. 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 products and equipment.
    Table IV.3 presents the technology options that DOE identified in 
the Framework Document.\23\
---------------------------------------------------------------------------

    \23\ See DOE's discussion of technology options identified in 
the rulemaking framework document, available at: http://www.regulations.gov/#!documentDetail;D=EERE-2012-BT-STD-0029-0002 
(Section 3.3).

            Table IV.3--Framework Document Technology Options
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Compressor Improvements:
     Scroll Compressors
     Variable-speed Compressors
     Higher Efficiency Compressors
Complex Control Boards (fan motor controllers, digital ``energy
 management'' control interfaces, heat pump controllers)
Condenser and evaporator fan and fan motor improvements:
     Higher Efficiency Fan Motors
     Clutched Fan Motors (allows PTACs with a single motor to
     reduce power input in recirculation mode by disengaging the
     condenser fan)
Microchannel Heat Exchangers
Increased Heat Exchanger Area
Hydrophobic Material Treatment of Heat Exchangers (can improve repelling
 condensed water on evaporator coil)
Re-circuiting Heat Exchanger Coils
Improved Air Flow and Fan Design
Heat Pipes (enhances the evaporator coil dehumidification performance)
Corrosion Protection (helps prevent corrosion of coils and the resulting
 degradation of performance)
Thermostatic Expansion Valve
------------------------------------------------------------------------

    The framework document sought comment from interested parties on 
the technologies listed in Table IV.3, as well as other options that 
DOE had not listed. Several parties commented on the list of 
technologies. ASAP inquired whether microgroove heat exchangers are 
being considered as a potential technology. (ASAP, Framework Public 
Meeting Transcript, No. 7 at p. 42) DOE interpreted ASAP's comment to 
reference all heat exchangers with rifled interior tube walls. Goodman 
commented that DOE should add alternative refrigerants (such as HCFC-
32), which could have single-digit improvement in efficiency. (Goodman, 
No. 13 at p. 3)
    AHRI, Goodman, and SCS commented that proprietary designs should 
not be considered in establishing energy efficiency standards. (AHRI, 
Framework Public Meeting Transcript, No. 7 at p. 61) (Goodman, No. 13 
at p. 5) (SCS, Framework Public Meeting Transcript, No. 7 at p. 61) As 
noted in the framework document, DOE will not consider efficiency 
levels that can only be reached using proprietary designs. 78 FR 12252 
(February 22, 2013). Although DOE does consider technologies that are 
proprietary, it does not consider efficiency levels that can only be 
reached through the use of proprietary technologies, which could allow 
a single manufacturer to monopolize the market (any such technologies 
are eliminated during the engineering analysis). DOE only considers 
efficiency levels achieved through the use of proprietary designs in 
the engineering analysis if they are not part of a unique path to 
achieve that efficiency level (i.e., if there are other non-proprietary 
technologies capable of achieving the same efficiency). DOE believes 
the proposed standards for the equipment covered in this rulemaking 
would not mandate the use of any proprietary technologies, and that all 
manufacturers would be able to achieve the proposed levels through the 
use of non-proprietary designs.
    Table IV.4 lists all of the potential technology options 
considered, including options listed in the Framework Document and 
options suggested in stakeholder comments, for improving energy 
efficiency of PTACs and PTHPs.

Table IV.4--Potential Technology Options for Improving Energy Efficiency
                           of PTACs and PTHPs
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Compressor Improvements:
     Scroll Compressors
     Variable-speed Compressors
     Higher Efficiency Compressors
Complex Control Boards
Condenser and evaporator fan and fan motor improvements:
     Higher Efficiency Fan Motors
     Clutched Motor Fans
Microchannel Heat Exchangers
Rifled Interior Heat Exchanger Tube Walls
Increased Heat Exchanger Area
Hydrophobic Material Treatment of Heat Exchangers
Re-circuiting Heat Exchanger Coils
Improved Air Flow and Fan Design
Heat Pipes
Corrosion Protection
Thermostatic Expansion Valve
Alternate Refrigerants (such as HCFC-32)
------------------------------------------------------------------------

B. Screening Analysis

    After DOE identified the technologies that might improve the energy 
efficiency of PTACs and PTHPs, DOE conducted a 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 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. DOE will consider technologies 
incorporated in commercial equipment or in working prototypes to be 
technologically feasible.
    2. Practicability to manufacture, install, and service. If mass 
production and reliable installation and servicing of a technology in 
commercial equipment could be achieved on the scale necessary to serve 
the relevant market at the time the standard comes into effect, then 
DOE will consider that technology practicable to manufacture, install, 
and service.
    3. Adverse impacts on product utility or product availability. If 
DOE determines a technology would have a significant adverse impact on 
the utility of the equipment to significant subgroups of customers, or 
would 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 
consider this technology further.
    4. Adverse impacts on health or safety. If DOE determines that a 
technology will have significant adverse impacts on health or safety, 
it will not consider this technology further. (10 CFR part 430, subpart 
C, appendix A, 4(a)(4) and 5(b))
    Technologies that pass through the screening analysis are referred 
to as ``design options'' in the engineering analysis. These four 
screening criteria do not include the propriety status of

[[Page 55554]]

design options. As noted previously, DOE will only consider efficiency 
levels achieved through the use of proprietary designs in the 
engineering analysis if they are not part of a unique path to achieve 
that efficiency level.
    Details of the screening analysis are in chapter 4 of the NOPR TSD. 
In view of the above factors, DOE screened out the following design 
options:
Scroll Compressors
    Scroll compressors use two interleaved scrolls (with one scroll 
fixed and one scroll orbiting without rotating) to compress 
refrigerant, and may operate at higher efficiencies than the rotary 
compressors typically used in PTAC and PTHP applications. Goodman 
commented that presently scroll compressors are only available for 
equipment with capacity over 1.5 tons refrigeration and the largest 
model of PTAC or PTHP has capacity of 1.25 tons refrigeration. 
(Goodman, No. 13 at p. 4)
    Though scroll compressors are less common in the capacity range 
associated with PTAC and PTHP equipment (6,000 to 15,000 Btu/h), 
several companies manufacture scroll compressors from 9,000 Btu/h and 
up. However, DOE is not aware of scroll compressor models at these 
lower capacities that would fit in a PTAC cabinet and that are more 
efficient than the same capacity of rotary compressor. The rotary 
compressors found in reverse engineering of PTACs and PTHPs in the 
15,000 Btu/h class had efficiency ratings from 9.8 to 10.6 EER. By 
comparison, scroll compressors of similar capacity are rated from 7.2 
EER to 11.0 EER, but most are too tall to fit in a 16'' PTAC cabinet.
    As a result, DOE does not believe at this time that the use of 
scroll compressors would improve the efficiency of PTAC and PTHP units, 
given the size and capacity constraints of these units. For this 
reason, DOE did not consider scroll compressors further in the NOPR 
analyses.
Heat Pipes
    Under humid ambient conditions, using heat pipes to pre-treat the 
entering air from the conditioned space can improve the evaporator heat 
exchanger performance. Heat pipes increase the latent cooling capacity 
(i.e., moisture removal) of an air-conditioner. They do this by 
transferring heat from the air entering the evaporator to the air 
leaving the evaporator. This allows the evaporator air exit temperature 
to be significantly lower. Since the maximum possible moisture content 
of air increases with increasing temperature, this also means that the 
reduced-temperature air at the evaporator exit would have lower 
moisture content. The temperature of the air is then warmed by the 
post-evaporator portion of the heat pipe. Heat pipes generally shift 
some of the cooling capacity of the product from reduction of air 
temperature to reduction of humidity, but do not increase the cooling 
capacity of an evaporator. They impose additional pressure drop that 
the indoor fan must overcome, thus they do not improve EER of the 
equipment. Therefore, DOE screened out heat pipes as a design option 
for improving the energy efficiency of PTACs and PTHPs.
Alternate Refrigerants
    Nearly all PTAC and PTHP equipment is designed with R-410A as the 
refrigerant. The Environmental Protection Agency's (EPA's) Significant 
New Alternatives Policy (SNAP) Program evaluates and regulates 
substitutes for the ozone-depleting chemicals (such as air conditioning 
refrigerants) that are being phased out under the stratospheric ozone 
protection provisions of the Clean Air Act (CAA) (42 U.S.C. 7401 et 
seq.). The EPA's SNAP Program currently lists 23 acceptable 
alternatives for refrigerant used in the Household and Light Commercial 
Air Conditioning class of equipment (which includes PTAC and PTHP 
equipment). On July 9, 2014, the EPA issued a notice of proposed 
rulemaking proposing to list three flammable refrigerants as new 
acceptable substitutes, subject to use conditions, for refrigerant in 
the Household and Light Commercial Air Conditioning class of equipment. 
79 FR 38811 (July 9, 2014)
    Table IV.5 presents the list of potential substitute refrigerants 
(including refrigerants that are already approved and refrigerants that 
are proposed for approval) for use in new production in the Household 
and Light Commercial Air Conditioning class of equipment (which 
includes PTAC and PTHP equipment). DOE is not aware of any SNAP-
approved refrigerants, or any refrigerants that have been proposed for 
SNAP approval, that are known to enable better efficiency than R-410A 
for PTAC and PTHP equipment.\24\ Hence, DOE did not consider alternate 
refrigerants for further analysis.
---------------------------------------------------------------------------

    \24\ Additional information regarding EPA's SNAP Program is 
available online at: http://www.epa.gov/ozone/snap/.

 Table IV.5--Potential Substitutes for HCFCs in New Household and Light
                  Commercial Air Conditioning Equipment
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Substitutes Approved by EPA SNAP Program
    HFC-134a.
    ISCEON-59, NU-22, R-417A.
    R-410A.
    R-410B.
    R-407C.
    R-507, R-507A.
    Ammonia Absorption.
    Evaporative Cooling.
    Desiccant Cooling.
    R-404A.
    R-125/134a/600a.
    RS-44.
    R-421A.
    R-422D.
    R-424A.
    R-125/290/134a/600a.
    R-422C.
    R-422B.
    KDD5, R-438A.
    R-434A.
    R-407A.
    R-437A.
    R-407F.
Substitutes Proposed by EPA SNAP Program in NOPR issued July 9, 2014
    HFC-32.
    Propane (R-290).
    R-441A.
------------------------------------------------------------------------

    DOE is aware of initial research with drop-in applications (where 
an alternate refrigerant replaces the existing refrigerant in a system 
that is optimized for the existing refrigerant) using R-32 in place of 
R-410A in a residential ducted split-system application. Initial 
research shows that, in this application, R-32 had a higher capacity 
and similar efficiency as R-410A, but its discharge temperatures and 
pressures were significantly higher.\25\ This suggests that R-32 might 
show efficiency comparable to R-410A in PTAC and PTHP applications, and 
the research is inconclusive regarding whether R-32 will reduce energy 
use and/or by how much.
---------------------------------------------------------------------------

    \25\ This research was published in the journal ASHRAE 
Transactions, at: Biswas, Auvi; Barve, Atharva; Cremaschi, Lorenzo 
(2013). ``An Experimental Study of the Performance of New Low Global 
Warming Potential (LGWP) Refrigerants at Extreme High Temperature 
Ambient Conditions in Residential AC Ducted Split Systems,'' ASHRAE 
Transactions. 119(1), special section p1.
---------------------------------------------------------------------------

    DOE is not aware of test results from the use of alternate 
refrigerants in PTAC- or PTHP-specific applications that have been 
optimized for alternate refrigerants. DOE requests feedback on the 
efficacy of alternative refrigerants in PTAC and PTHP equipment. This 
is identified as issue 1 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''

[[Page 55555]]

Other Technologies Not Considered in the Engineering Analysis
    Typically, energy-saving technologies that pass the screening 
analysis are evaluated in the engineering analysis. However, some 
technologies are not included in the analysis for other reasons, 
including: (1) Available data suggest that the efficiency benefits of 
the technology are negligible; (2) data are not available to evaluate 
the energy efficiency characteristics of the technology; or (3) the 
test procedure and EER or COP metric would not measure the energy 
impact of these technologies. Accordingly, DOE eliminated the following 
technologies from consideration in the engineering analysis based upon 
these three additional considerations:
    (1) Re-circuiting heat exchanger coils;
    (2) Rifled interior tube walls;
    (3) Microchannel heat exchangers;
    (4) Variable speed compressors;
    (5) Complex control boards;
    (6) Corrosion protection;
    (7) Hydrophobic material treatment of heat exchangers;
    (8) Clutched motor fans; and
    (9) Thermostatic expansion valves.
    Of these technologies, numbers 1 and 2 are used in baseline 
products, so no additional energy savings would be expected from their 
use. Information indicating efficiency improvement potential in PTACs 
and PTHPs is not available for technology number 3; DOE is not aware of 
substantiated performance data for PTAC operation with microchannels. 
Any potential energy savings of technologies 4 through 9 cannot be 
measured with the established energy use metrics (EER and COP) because 
those technologies are associated with part-load performance or long-
term performance, which is not captured in the EER or COP metrics used 
for rating PTACs and PTHPs. AHRI commented that PTACs and PTHPs are 
generally operated at full load most of the time and that it is not 
common practice in the field to operate the units at part load. (AHRI, 
Framework Public Meeting Transcript, No. 7 at p. 36). DOE believes that 
the existing EER (full load) metric accurately reflects equipment 
efficiency during the year, and the PTAC test procedure revisions in 
progress at DOE are not expected to incorporate metrics that would 
account for part-load performance.
    Further details of these eliminations are provided below.
Re-circuiting Heat Exchanger Coils
    Manufacturers of PTAC and PTHP heat exchangers may improve the heat 
transfer efficiency across the heat exchanger by rearranging the 
refrigerant's path through the various tubes inside the heat exchanger. 
Manufacturers can rearrange the refrigerant path by ``re-circuiting'' 
the heat exchanger, either by splitting the refrigerant path into new 
circuits or re-routing the existing circuits. One objective of re-
circuiting is to optimally pair air and refrigerant at every location 
in the heat exchanger. Goodman commented that PTACs are a very mature 
industry and that engineers have already optimized the number of 
circuits for heat transfer. (Goodman, No. 13 at p. 4) DOE agrees with 
Goodman's comment and has eliminated heat exchanger re-circuiting as a 
potential avenue for efficiency improvement.
Rifled Interior Tube Walls
    Heat exchangers using rifled interior tube walls (also known as 
``microgrooves'') to enhance energy efficiency by improving heat 
transfer across the heat exchanger. With this technology, the internal 
face of heat exchanger tubes is rifled with small grooves that increase 
the interior surface area of the tube and induce turbulence in the 
refrigerant flow. Goodman commented that microgroove technology is 
currently being used in baseline products today. (Goodman, Framework 
Public Meeting Transcript, No. 7 at p. 43) Having observed that 
microgroove technology was used in the majority of baseline units 
disassembled in the engineering analysis, DOE agrees with Goodman's 
comment and has eliminated microgroove technology as a potential avenue 
for efficiency improvement.
Microchannel Heat Exchangers
    Microchannel heat exchangers in air conditioning applications are 
heat exchangers in which refrigerant fluid flows in confinements with 
typical hydraulic diameter of less than one millimeter. Microchannels 
may improve unit efficiency by improving the efficiency of heat 
transfer between refrigerant and air across the heat exchanger. 
Currently, microchannel heat exchangers are in the development stage 
for applications in PTACs and PTHPs. Goodman commented that 
microchannel heat exchangers are not proven for consistent, field 
installed product performance in PTACs and PTHPs. (Goodman, No. 13 at 
p. 4) ASAP and ACEEE commented that a 2011 scouting report by ENERGY 
STAR identified microchannel heat exchangers as technology option for 
improving efficiency. (ASAP and ACEEE, No. 14 at p. 2) DOE notes that 
the engineering analysis was based on efficiency levels and, because 
units with microchannels are not commercially available, DOE cannot 
estimate the increase manufacturing costs associated with whatever 
efficiency gains such units may offer.
    ASAP and ACEEE also commented that Zess, Inc. Industries indicates 
that it is developing an integrated microchannel refrigeration system 
for applications in PTAC units as high as 15 EER. (ASAP and ACEEE, No. 
14 at p. 2) DOE does not have information regarding these prototype 
tests that would allow assessment of the efficiency improvements 
associated with the specific microchannel technology and/or the costs 
associated with its implementation in a unit that achieves 15 EER.
Complex Control Boards
    Digital energy management control interfaces can reduce annual 
energy consumption of PTACs or PTHPs by optimizing the operation of the 
equipment under varying operating conditions. For example, they may 
allow operation managers in hotels to remotely turn off or change 
temperature set points of units throughout a building. Goodman 
commented that it offers controls that turn equipment off when the 
conditioned room is vacant. (Goodman, Framework Public Meeting 
Transcript, No. 7 at p. 103) Although this technology can reduce peak 
energy demand and also reduce overall energy consumption throughout the 
year, it does not increase the EER under the ARI 310/380-2004 test 
procedure because of the steady state test conditions.
    Ebm-papst commented that some electronic motor speed controllers 
can cause structure-borne noise, and that a better controller could 
potentially avoid the need for sound attenuation, which would in turn 
free up the air path for increased air-side efficiency. (Ebm-papst, No. 
8 at p. 1) DOE notes that sound attenuation between the outdoor and 
indoor sides of the unit is typically put in place to isolate noise 
originating from the compressor and from airflow across the outdoor 
heat exchanger. DOE acknowledges that well-designed motor controls can 
reduce motor noise at low frequencies, but DOE expresses doubt that 
this noise reduction would decrease the need to insulate against sound 
transmission from the compressor and outdoor heat exchanger. Goodman 
commented that complex control boards do not help steady state 
performance. (Goodman, No. 13 at p. 4) For the reasons noted above, DOE 
did not consider this technology in the engineering analysis.

[[Page 55556]]

Corrosion Protection
    Corrosion protection materials used in PTACs and PTHPs also protect 
the equipment and prolong its use when it is exposed to chemically 
harsh operating conditions. Goodman commented that corrosion protection 
has a negative impact on steady state operation to some degree, but 
that corrosion protection may help improve the overall unit performance 
over several years of operation. (Goodman, No. 13 at p. 4) Although it 
is beneficial for the unit to be corrosion protected, corrosion 
protection does not improve the EER as measured by the test procedure. 
Therefore, DOE did not consider this technology in the engineering 
analysis.
Hydrophobic Material Treatment of Heat Exchangers
    Material treatment of heat exchangers (also known as ``plasma 
treatment'') allows the condensate that forms on the fins to be 
repelled and drained faster than on non-treated heat exchangers. 
Hydrophobic treatments are used to reduce mineral build up and 
corrosion on heat exchanger fins, to improve long-term performance of 
the unit. Although enhanced long term performance is beneficial, this 
treatment is not shown to improve the EER as per the test procedure.
Thermostatic Expansion Valves
    Goodman commented that thermal expansion valves (TXVs) help with 
seasonal performance but not steady state performance. (Goodman, No. 13 
at p. 4) DOE notes that TXVs would not improve the energy efficiency of 
PTACs or PTHPs, because there is only one condition for which the 
fixed-orifice expansion device can be optimized. DOE has insufficient 
information to know whether testing at multiple conditions would make 
sufficient efficiency improvement to justify the increased test time.
    After screening out or otherwise removing from consideration most 
of the technologies, the technologies that DOE identified for 
consideration in the engineering analysis are included in Table IV.6. 
See chapter 3 of the TSD for additional detail on the technology 
assessment and the technologies analyzed.

      Table IV.6--Design Options Retained for Engineering Analysis
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Compressor Improvements:
   Higher Efficiency Compressors. \26\
Condenser and evaporator fan and fan motor improvements:
   Higher Efficiency Fan Motors.
Increased Heat Exchanger Area.
Improved Air Flow and Fan Design.
------------------------------------------------------------------------

    These remaining technology options from Table IV.6 are briefly 
described below.
---------------------------------------------------------------------------

    \26\ Currently, all PTAC and PTHP manufacturers incorporate 
rotary compressors into their equipment designs. DOE is referring to 
rotary compressors throughout this document unless specifically 
noted.
---------------------------------------------------------------------------

Higher Efficiency Compressors
    Manufacturers can improve the energy efficiency of PTAC and PTHP 
units by incorporating more efficient components, such as high 
efficiency compressors, into their designs. Goodman commented that it 
is not aware of any compressors currently available or in development 
by its suppliers that are significantly more efficient than what it is 
are using now. (Goodman, No. 13 at p. 4) In private interviews, other 
manufacturers indicated that they are already using the most efficient 
compressor that meets their other design specifications (such as size 
and noise). DOE observed in reverse engineering analysis that PTAC and 
PTHP manufacturers use several different compressor models with a wide 
range of efficiency ratings.
Higher Efficiency Fan Motors
    Manufacturers of baseline PTACs and PTHPs use permanent split 
capacitor (PSC) fan motors due to their modest cost, compact design, 
and durability. More efficient PSC motor designs applicable to PTACs 
and PTHPs are an ongoing industry challenge, and there been no 
substantial gain in efficiency in recent years. PSC manufacturers can 
improve efficiency by increasing the surface area of rotors, although 
the overall size of the PSC motor would increase in that case. PTACs 
and PTHPs have size constraints that do not allow an increase in motor 
size to a level which would have a significant impact on energy 
efficiency. DOE believes any further gains in PSC fan motor efficiency 
will be difficult to achieve, and has thus eliminated improvement of 
PSC fan motors as a potential avenue for efficiency improvement.
    Besides PSC-based fan motors, PTAC and PTHP original equipment 
manufacturers (OEMs) can choose to implement permanent magnet (PM) 
motors. Such motors typically offer higher efficiencies than PSC-based 
fan motors, but these improvements come with increased costs for the 
motor unit and control hardware. Several manufacturers use DC motors in 
their higher-efficiency PTAC and PTHP models.
Increased Heat Exchanger Area
    Manufacturers of PTACs and PTHPs increase unit efficiency by 
increasing heat exchanger size, either through elongating the face of 
the heat exchanger or increasing the number of heat exchanger tube 
rows. Goodman commented that PTACs (as predominantly a replacement 
product) are constrained by the dimensions of the equipment that they 
are replacing. (Goodman, No. 13 at p. 4) Because of these constraints 
on unit size, there are limits to the efficiency gains that may be had 
by increasing heat exchanger size. At least one manufacturer has 
incorporated bent heat exchanger coils to increase the heat exchanger 
face area while remaining inside the standard size unit constraints.
Improved Air Flow and Fan Design
    Manufacturers of PTACs and PTHPs currently use several techniques 
to shape and direct airflow inside PTAC and PTHP units. Ebm-papst 
commented that DOE should consider ``optimization of air path to 
minimize airflow impedance'' as a technology option. Ebm-papst also 
commented that fine tuning the fan blade design should be considered as 
a technology option. Ebm-papst further commented that DOE should look 
into optimization of the fan selection such that the peak fan 
efficiency is close to the performance demands of the PTAC and enhances 
the air path in the unit. DOE accepts that manufacturers may improve 
unit efficiency by selecting appropriate fan and motor combinations. 
(Ebm-papst, No. 8 at p. 1)

C. Engineering Analysis

    The engineering analysis establishes the relationship between an 
increase in energy efficiency of the equipment and the increase in 
manufacturer selling price (MSP) associated with that efficiency level. 
This relationship serves as the basis for cost-benefit calculations for 
individual customers, manufacturers, and the nation. In determining the 
cost-efficiency relationship, DOE estimates the increase in 
manufacturer cost associated with increasing the efficiency of 
equipment above the baseline up to the maximum technologically feasible 
(``max-tech'') efficiency level for each equipment class.

[[Page 55557]]

1. Methodology
    DOE has identified three basic methods for developing cost-
efficiency curves: (1) The design-option approach, which provides the 
incremental costs of adding design options to a baseline model that 
will improve its efficiency (i.e., lower its energy use); (2) the 
efficiency-level approach, which provides the incremental costs of 
moving to higher energy efficiency levels, without regard to the 
particular design option(s) used to achieve such increases; and (3) the 
reverse-engineering (or cost-assessment) approach, which provides 
``bottom-up'' manufacturing cost assessments for achieving various 
levels of increased efficiency, based on teardown analyses (or physical 
teardowns) providing detailed data on costs for parts and material, 
labor, shipping/packaging, and investment for models that operate at 
particular efficiency levels.
    In the framework document, DOE proposed using an efficiency-level 
approach combined with a cost-assessment approach to determine the 
cost-efficiency relationship, and requested comments on this approach. 
78 FR 12252 (February 22, 2013). Goodman commented that the process for 
DOE to calculate manufacturer costs is adequate, but that the cost 
analysis from previous rulemakings tended to be on the low side (even 
for a large manufacturer), and that aggressively low cost estimates 
could impact small businesses. (Goodman, No. 13 at p. 5) To gather 
information on the particular and unique costs that small businesses 
face, DOE interviewed a number of small business manufacturers of PTACs 
and PTHPs. In these interviews, DOE asked questions regarding the 
component costs, manufacturing costs, and cost of conversion to 
manufacturing PTAC and PTHP equipment with higher efficiency. Data 
collected from these interviews with small businesses were used in the 
engineering analysis and subsequent cost-benefit calculations.
    In the absence of recommended alternative approaches, DOE conducted 
this engineering analysis for PTACs and PTHPs using a combination of 
the efficiency level and cost-assessment approaches. More specifically, 
DOE identified the efficiency levels for the analysis based on the 
range of rated efficiencies of PTAC and PTHP equipment in the AHRI 
database. DOE selected PTAC and PTHP equipment that was representative 
of the market at different efficiency levels, then purchased, tested, 
and reverse engineered the selected equipment. DOE used the cost-
assessment approach to determine the manufacturing production costs for 
PTAC and PTHP equipment across a range of efficiencies from the 
baseline to max-tech efficiency levels.
    Where feasible, DOE selected models for reverse engineering with 
low and high efficiencies from a given manufacturer, at both 
representative cooling capacity levels and for both PTACs and PTHPs. 
The methodology used to perform reverse engineering analysis and derive 
the cost-efficiency relationship is described in chapter 5 of the TSD.
2. Equipment Classes Analyzed
    DOE developed its engineering analysis for the six equipment 
classes associated with standard-size PTACs and PTHPs listed in Table 
IV.1. As discussed in section III.B of this NOPR, DOE did not consider 
amending energy efficiency standards for non-standard size equipment 
classes because of their low and declining market share and because of 
a lack of adequate information to analyze these units.
    For PTACs and PTHPs, DOE focused its analysis on high-shipment-
volume cooling capacities spanning the range of available equipment. 
Based on manufacturer interviews,\27\ DOE found that the majority of 
shipments are in the classes with cooling capacity between 7,000 Btu/h 
to 15,000 Btu/h (see chapter 3 of the TSD for more details on the 
shipments data). In the framework document, DOE indicated that it would 
analyze units at the representative capacity of 9,000 Btu/h, and 
requested comments on this approach. 78 FR 12252 (February 22, 2013). 
Goodman commented that a 15,000 Btu/h model should be included in the 
comparison, specifically because 15,000 Btu/h is the largest typical 
capacity for PTAC and PTHP equipment, and which is space-constrained by 
its standard dimensions. (Goodman, No. 13 at p. 5) Hence, DOE conducted 
analysis for two representative cooling capacities: 9,000 Btu/h and 
15,000 Btu/h. The 9,000 Btu/h cooling capacity represents the greatest 
number of models available on the market,\28\ while the 15,000 Btu/h 
cooling capacity represents the greater technical hurdles for 
efficiency improvement, considering the size constraints of standard-
size PTACs and PTHPs.
---------------------------------------------------------------------------

    \27\ DOE conducted interviews with high- and low-volume PTAC and 
PTHP manufacturers, and collected information regarding shipments of 
PTACs and PTHPs at different cooling capacity levels.
    \28\ DOE found the cooling capacity of 9,000 Btu/h to have the 
highest number of models available based on data in the 2013 AHRI 
Directory and the ACEEE database of equipment.
---------------------------------------------------------------------------

    The selection of two cooling capacities for analysis, at 9,000 Btu/
h and 15,000 Btu/h, allowed DOE to investigate the slope of the energy 
efficiency capacity relationship. For the purposes of conducting the 
analyses, DOE believes that the results from the two representative 
cooling capacities can be extrapolated to the entire range of cooling 
capacities for each equipment class. DOE developed the cost-efficiency 
curves based on these representative cooling capacities of standard-
size units. 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) in 
which EER decreases as capacity increases. 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.
3. Cost Model
    DOE developed a manufacturing cost model to estimate the 
manufacturing production cost (MPC) of PTACs and PTHPs. The cost model 
is a spreadsheet model that converts the materials and components in 
the bills of materials (BOMs) for PTAC and PTHP equipment into dollar 
values based on the price of materials, average labor rates associated 
with fabrication and assembling, and the cost of overhead and 
depreciation, as determined based on manufacturer interviews and DOE 
expertise. To convert the information in the BOMs into dollar values, 
DOE collected information on labor rates, tooling costs, raw material 
prices, and other factors. For purchased parts, the cost model 
estimates the purchase price based on volume-variable price quotations 
and detailed discussions with manufacturers and component suppliers. 
For fabricated parts, the prices of raw metal materials (e.g., tube, 
sheet metal) are estimates on the basis of five-year averages (from 
2006 to 2011). The cost of transforming the intermediate materials into 
finished parts is estimated based on current industry pricing. Further 
details on the manufacturing cost analysis are provided in chapter 5 of 
the TSD.
    Developing the cost model involved disassembling various PTACs and 
PTHPs, analyzing the materials and manufacturing processes, and 
estimating the costs of purchased

[[Page 55558]]

components. In addition to disassembling various PTACs and PTHPs, 
manufacturers provided DOE supplemental component cost data for various 
PTAC and PTHP equipment. 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.
4. Baseline Efficiency Level
    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. As discussed in section III.A, ANSI/ASHRAE/IES 
Standard 90.1-2013 was issued in the course of this rulemaking, and 
this revised Standard 90.1-2013 amended standard levels for PTACs, 
raising standards by 1.8% above the Federal minimum energy conservation 
standards for PTACs. DOE is obligated either to adopt those standards 
developed by ASHRAE or to adopt levels more stringent than the ASHRAE 
levels if there is clear and convincing evidence in support of doing 
so. (42 U.S.C. 6313(a)(6)(A)). For the purposes of calculating energy 
savings over the ANSI/ASHRAE/IES standard, DOE identified the ANSI/
ASHRAE/IES Standard 90.1-2013 as the baseline efficiency level.\29\
---------------------------------------------------------------------------

    \29\ DOE's estimates of potential energy savings from an amended 
energy conservation standard are further discussed in section IV.H.
---------------------------------------------------------------------------

    The baseline efficiency levels for each equipment class are 
presented below in Table IV.7.

                                     Table IV.7--Baseline Efficiency Levels
----------------------------------------------------------------------------------------------------------------
                                                  Baseline
     Equipment type        Equipment class       efficiency          Cooling capacity       Baseline efficiency
                                                  equation                                         level
----------------------------------------------------------------------------------------------------------------
PTAC...................  Standard Size.....  EER = 14.0 -        9,000 Btu/h............  11.3 EER
                                              (0.300 x Cap       15,000 Btu/h...........  9.5 EER
                                              [dagger]/1000).
PTHP...................  Standard Size.....  EER = 14.0 -        9,000 Btu/h............  11.3 EER
                                              (0.300 x Cap       15,000 Btu/h...........  9.5 EER
                                              [dagger]/1000).
----------------------------------------------------------------------------------------------------------------
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.

5. Incremental Efficiency Levels
    DOE examined performance data of standard size PTACs and PTHPs 
published in the AHRI Directory of Certified Product Performance (AHRI 
Directory) and on manufacturers' Web sites in order to select 
efficiency levels for consideration in the rulemaking. AHRI commented 
that its database is a good source of information as well as data from 
manufacturers' Web sites. (AHRI, Framework Public Meeting Transcript, 
No. 7 at p. 56) McQuay commented that Web site performance data are not 
verified by an independent third party test facility. (McQuay, No. 10 
at p. 1) DOE used Web site-published data as an initial screening 
mechanism to select units for reverse engineering; a third party test 
facility verified the actual performance of the units selected for 
analysis.
    In the framework document, DOE proposed to analyze levels for 
standard size PTACs that are 4%, 8%, 12%, 16%, and 20% more efficient 
than the amended PTAC standards that became effective on October 8, 
2012. Goodman commented that the proposed increment of 4% for standard 
size PTACs is too large because PTAC equipment is space-constrained, 
and Goodman's opinion, 2% or 3% increments would be more reasonable. 
(Goodman, No. 13 at p. 5) DOE acknowledges Goodman's comment, but 
believes that an increment of 4% is appropriate to maintain a 
manageable number of efficiency levels spanning the range of efficiency 
from the 2012 PTAC standard to the max-tech level of 20% above the 2012 
PTAC standard.
    After extensive unit testing, DOE revised the maximum technology 
level from 20% above 2012 PTAC standard stated in the framework 
document down to 18% above the 2012 PTAC standard.\30\ The maximum 
efficiency level, at 18% above the standards that became effective on 
October 8, 2012, coincides with the maximum efficiency level observed 
in the market for standard size PTACs and PTHPs. DOE has independent 
test data to verify that one PTHP unit demonstrated a cooling 
efficiency at this ``max tech'' level. Although the rated efficiencies 
of PTACs without reverse cycle heating extend only up to the 16% 
efficiency level, DOE expects that such equipment should be able to 
attain the same cooling mode efficiencies as PTHPs.
---------------------------------------------------------------------------

    \30\ DOE announced in the framework document for this rulemaking 
that it planned to consider the maximum efficiency level equal to 
20% above the 2012 PTAC standard, because DOE observed a unit rated 
at that level in the 2013 AHRI Directory of Certified Product 
Performance. 78 FR 12252. Since issuing the framework document, DOE 
has acquired and tested many units rated at high efficiency levels. 
Having completed these observations, DOE believes that a the highest 
performing standard size PTAC or PTHP unit on the market can achieve 
an efficiency of 18% above the 2012 PTAC cooling standard.
---------------------------------------------------------------------------

    DOE analyzed levels for standard size PTACs that are 1.8%, 4%, 8%, 
12%, 16%, and 18% more efficient than the amended PTAC standards that 
became effective on October 8, 2012. AHRI commented that there is an 
addendum to ANSI/ASHRAE/IES Standard 90.1-2010 which amends the 
efficiency standards for standard size PTACs. (AHRI, No. 11 at p. 4) 
Separately, AHRI commented that the amended efficiency level should be 
included in DOE's analysis. (AHRI, Framework Public Meeting Transcript, 
No. 7 at p. 101) Since DOE received these comments, this addendum 
prescribing new efficiency standards for standard-size PTACs was 
integrated into ANSI/ASHRAE/IES Standard 90.1-2013. DOE selected the 
first efficiency level of 1.8% to align with the amended ANSI/ASHRAE/
IES Standard 90.1-2013 efficiency level for PTACs. Each of the 
remaining levels is represented by a percentage increase above the EER 
value of the PTAC standards that became effective on October 8, 2012.
    For the heating efficiency of PTHPs, DOE did not develop a cost-
efficiency curve separately to represent the cost of improving COP. 
Rather, DOE correlated the COP associated with each efficiency level 
with the efficiency level's EER based on COP and EER ratings from the 
AHRI database. DOE established a representative curve based on this 
data to obtain a relationship for COP in terms

[[Page 55559]]

of EER. DOE used this relationship to select COP values corresponding 
to each efficiency level. This approach takes into consideration the 
fact that a PTHP's EER and COP are related and cannot be independently 
analyzed, while basing the analysis on a representative average 
relationship between the two efficiency metrics. To determine the 
typical relationship between EER and COP, DOE examined the entire 
database of rated equipment and determined a relationship based on the 
EER and COP ratings of the collective body of certified PTAC and PTHP 
equipment.
    PG&E, SCGC, SDG&E, and SCE commented that DOE should use caution in 
drawing conclusions based on a relationship between EER and COP 
ratings, as this may decrease overall efficiency of the unit. Their 
joint comment states that, depending on the climate zone and operating 
cycle of a given unit, there may be instances where trading off COP for 
higher EER results in greater operating efficiency overall. (PG&E, 
SCGC, SDG&E, SCE, No. 12 at p. 3) DOE did not observe any instances of 
standard size equipment manufacturers producing different PTHP models 
for different climate zones. DOE notes that regional standards are not 
being considered in this rulemaking.
    The efficiency levels for each equipment class that DOE considered 
for the NOPR analyses are presented in Table IV.8. The percentages 
associated with efficiency levels (ELs) indicate the percentage above 
the current Federal standard for PTACs.

                                                           Table IV.8--Incremental Efficiency Levels for Standard Size PTACs and PTHPs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Efficiency levels (percentages relative to 2012 PTAC ECS)
                                             ---------------------------------------------------------------------------------------------------------------------------------------------------
    Equipment type        Cooling capacity    Current federal PTAC    EL1,  baseline,
                                                      ECS *               1.8% **              EL2, 4%              EL3, 8%              EL4, 12%             EL5, 16%       EL6, 18%  (MaxTech)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PTAC.................  All, EER.............  13.8 - (0.300 x Cap   14.0 - (0.300 x Cap  14.4 - (0.312 x Cap  14.9 - (0.324 x Cap  15.5 - (0.336 x Cap  16.0 - (0.348 x Cap  16.3 - (0.354 x Cap
                                               [dagger]).            [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).
                       9,000 Btu/h..........  11.1 EER............  11.3 EER...........  11.5 EER...........  12.0 EER...........  12.4 EER...........  12.9 EER...........  13.1 EER.
                       15,000 Btu/h.........  9.3 EER.............  9.5 EER............  9.7 EER............  10.0 EER...........  10.4 EER...........  10.8 EER...........  11.0 EER.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment type         Cooling..............                        Baseline, 1.8% **..  EL1, 4%............  EL2, 8%............  EL3, 12%...........  EL4, 16%...........  EL5, 18%
                       capacity.............                                                                                                                                 (MaxTech)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PTHP.................  All, EER.............  ....................  14.0 - (0.300 x Cap  14.4 - (0.312 x Cap  14.9 - (0.324 x Cap  15.5 - (0.336 x Cap  16.0 - (0.348 x Cap  16.3 - (0.354 x Cap
                                                                     [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).
                       All, COP.............  ....................  3.7 - (0.052 x Cap   3.8 - (0.058 x Cap   4.0 - (0.064 x Cap   4.1 - (0.068 x Cap   4.2 - (0.070 x Cap   4.3 - (0.073 x Cap
                                                                     [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).           [dagger]).
                       9,000 Btu/h..........  ....................  11.3 EER...........  11.5 EER...........  12.0 EER...........  12.4 EER...........  12.9 EER...........  13.1 EER.
                                                                    3.2 COP............  3.3 COP............  3.4 COP............  3.5 COP............  3.6 COP............  3.6 COP.
                       15,000 Btu/h.........  ....................  9.5 EER............  9.7 EER............  10.0 EER...........  10.4 EER...........  10.8 EER...........  11.0 EER.
                                                                    2.9 COP............  2.9 COP............  3.0 COP............  3.1 COP............  3.2 COP............  3.2 COP.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* This level represents the current Federal minimum for PTAC equipment.
** This level represents the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTAC and PTHP equipment. This level is used as the Baseline for PTAC and PTHP equipment since DOE is required to, at
  a minimum, adopt the ASHRAE levels as the Federal standard. (42 U.S.C. (a)(6)(A)(ii)(I)). DOE notes that the Baseline level is 1.8% higher than current Federal ECS for PTAC equipment, but is
  equivalent to current Federal ECS for PTHP equipment. For PTAC equipment, the Baseline level is also termed EL1, and is compared to current Federal ECS in the energy savings analysis in
  section V.B.3.a.
[dagger] Cap means cooling capacity in thousand Btu/h at 95 [deg]F outdoor dry-bulb temperature.

    ASAP commented that DOE should evaluate at least one level higher 
than the current market max efficient unit to arrive a true max-tech 
unit. (ASAP, Framework Public Meeting Transcript, No. 7 at p. 56-57) 
Separately, ASAP and ACEEE stated that DOE must capture the ``true max-
tech level,'' which they claim would be higher that what is currently 
represented by the market. (ASAP and ACEEE, No. 14 at p. 3) DOE 
acknowledges the comments from ASAP and ACEEE and confirms that this 
analysis tested the most efficient standard size PTAC and PTHP units 
available. These units include all of the efficiency-improving design 
options listed in the screening analysis (increased heat exchanger 
area, high efficiency compressors, and high efficiency fan motors). DOE 
does not believe it is feasible to include efficiency levels higher 
than this, as achieving efficiency levels higher than max tech would 
depend upon design options that have not been demonstrated in the 
market for PTACs and PTHPs.
6. Equipment Testing and Reverse Engineering
    As discussed above, for the engineering analysis, DOE specifically 
analyzed representative capacities of 9,000 Btu/h and 15,000 Btu/h to 
develop incremental cost-efficiency relationships. DOE selected twenty 
different models representing PTAC and PTHP equipment types at 9,000 
Btu/h and 15,000 Btu/h capacities. DOE selected the models as a 
representative sample of the market at different efficiency levels.DOE 
based the selection of units for testing and reverse engineering on the 
efficiency data available in the AHRI certification database. Details 
of the key features of the tested units are presented in chapter 5 of 
the NOPR TSD.
    DOE conducted testing on each unit according to the DOE test 
procedure outlined at 10 CFR 431.96, which incorporates by reference 
AHRI Standard 310/380-2004 (which itself incorporates ASHRAE Standard 
16 and ASHRAE Standard 58). DOE then conducted physical teardowns on 
each test unit to develop a manufacturing cost model and to evaluate 
key design features (e.g., improved heat exchangers, compressors, fans/
fan motors).
7. 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 two representative cooling 
capacities within the two standard-size equipment classes of PTACs and 
PTHPs, as discussed in section IV.C.3, above. DOE developed the 
incremental cost-efficiency results shown in Table IV.9 for each 
representative cooling capacity. These cost results are incremented 
from a baseline efficiency level equivalent to the ANSI/ASHRAE/IES 
Standard 90.1-2013. Details of the cost-efficiency analysis are 
presented in chapter 5 of the NOPR TSD.

[[Page 55560]]



                             Table IV.9--Incremental Manufacturing Production Costs (MPC) for Standard Size PTACs and PTHPs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Efficiency levels
                                                                           -----------------------------------------------------------------------------
               Equipment type                       Cooling capacity            EL1,
                                                                             baseline *      EL2          EL3          EL4          EL5          EL6
--------------------------------------------------------------------------------------------------------------------------------------------------------
PTAC.......................................  9,000 Btu/h..................        $0.00        $4.44       $13.08       $22.41       $32.45       $37.73
                                             15,000 Btu/h.................         0.00         4.26        15.93        30.97        49.38        59.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Baseline *      EL1          EL2          EL3          EL4          EL5
--------------------------------------------------------------------------------------------------------------------------------------------------------
PTHP.......................................  9,000 Btu/h..................        $0.00        $4.44       $13.08       $22.41       $32.45       $37.73
                                             15,000 Btu/h.................         0.00         4.26        15.93        30.97        49.38        59.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This level represents the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTAC and PTHP equipment. This level is used as the Baseline since DOE is
  required to, at a minimum, adopt the ASHRAE levels as the Federal standard. (42 U.S.C. (a)(6)(A)(ii)(I)). DOE notes that the Baseline level is 1.8%
  higher than current Federal ECS for PTAC equipment, but is equivalent to current Federal ECS for PTHP equipment. For PTAC equipment, the Baseline
  level is also termed EL1.

D. Markups To Determine Equipment Price

    The markups analysis develops appropriate markups in the 
distribution chain to convert the estimates of manufacturer selling 
price (MSP) derived in the engineering analysis to customer prices. 
(``Customer'' refers to purchasers of the equipment being regulated.) 
DOE calculates overall baseline and incremental markups based on the 
equipment markups at each step in the distribution chain. The 
incremental markup relates the change in the manufacturer sales price 
of higher efficiency models (the incremental cost increase) to the 
change in the customer price.
    DOE developed supply chain markups in the form of multipliers that 
represent increases above MSP and include distribution costs. DOE 
applied these markups to the MSPs it developed in the engineering 
analysis, and then added sales taxes to arrive at the equipment prices 
for baseline and higher efficiency equipment. See chapter 6 of the TSD 
for additional details on markups.
    In the 2008 Final Rule, DOE identified four distribution channels 
for PTACs and PTHPs, as shown in Table IV.10, to describe how the 
equipment passes from the manufacturer to the customer. 73 FR 58772. In 
the new construction market, the manufacturer sells the equipment 
directly to the customer through a national account. In the replacement 
market, the manufacturer sells to a wholesaler, who sells to a 
mechanical contractor, who in turn sells the equipment to the customer 
or end user. In the third distribution channel, used in both the new 
construction and replacement markets, the manufacturer sells the 
equipment to a wholesaler. The wholesaler sells the equipment to a 
mechanical contractor, who sells it to a general contractor, who in 
turn sells the equipment to the customer or end user. In the fourth 
distribution channel, also used in both the new construction and 
replacement markets, the manufacturer sells the equipment to a 
wholesaler, who directly sells to the purchaser. DOE used these same 
distribution channels for the NOPR.

                         Table IV.10--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 Contractor..  Mechanical Contractor.
                                                                                         General Contractor.
Customer.............................  Customer...............  Customer...............  Customer.
----------------------------------------------------------------------------------------------------------------

    In the 2008 Final Rule, DOE also estimated percentages of the total 
sales in the new construction and replacement markets for each of the 
four distribution channels, as shown in Table IV.11. Commenting on the 
framework document, Goodman stated that the distribution channels from 
the 2008 rulemaking are still applicable today. (Goodman, No. 13 at p. 
5) Accordingly, DOE used the same shares of the market for the NOPR. 
However, DOE updated the distribution of equipment to the new 
construction and replacement markets by using the ratio of projected 
new construction shipments to total shipments in the compliance year 
for PTAC equipment. DOE requests comment regarding the selected 
channels and distribution of shipments through the channels. This is 
identified as issue 2 in section VII.E, ``Issues on Which DOE Seeks 
Comment.''

                Table IV.11--Share of Market by Distribution Channel for PTAC and PTHP Equipment
----------------------------------------------------------------------------------------------------------------
                                                                    New construction
                     Distribution channel                              (percent)          Replacement (percent)
----------------------------------------------------------------------------------------------------------------
Wholesaler-Customer...........................................                       30                       15
Wholesaler-Mech Contractor-Customer...........................                        0                       25
Wholesaler-Mech Contractor-General Contractor-Customer........                       38                       60
National Account..............................................                       32                        0
                                                               -------------------------------------------------
    Total.....................................................                      100                      100
----------------------------------------------------------------------------------------------------------------


[[Page 55561]]

    For each of the steps in the distribution channels presented above, 
DOE estimated a baseline markup and an incremental markup. DOE defines 
a baseline markup as a multiplier that converts the MSP of equipment 
with baseline efficiency to the customer purchase price for that 
equipment. An incremental markup is defined as the multiplier to 
convert the incremental increase in MSP of higher efficiency equipment 
to the incremental customer purchase price for that equipment. Both 
baseline and incremental markups 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 utilized updated 
versions of the following data sources: (1) The Heating, Air 
Conditioning & Refrigeration Distributors International 2012 Profit 
Report \31\ to develop wholesaler markups; (2) the Air Conditioning 
Contractors of America's (ACCA) 2005 Financial Analysis for the HVACR 
Contracting Industry \32\ and U.S. Census Bureau economic data \33\ to 
develop mechanical contractor markups; and (3) U.S. Census Bureau 
economic data for the commercial and institutional building 
construction industry to develop general contractor markups.\34\ DOE 
estimated an average markup for sales through national accounts to be 
one-half of the markup 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).
---------------------------------------------------------------------------

    \31\ ``2012 Profit Report,'' Heating Air Conditioning & 
Refrigeration Distributors International. February 2012. Available 
online at: www.hardinet.org/Profit-Report.
    \32\ ``2005 Financial Analysis for the HVACR Contracting 
Industry,'' Air Conditioning Contractors of America. 2005.
    \33\ ``Plumbing, Heating, and Air-Conditioning Contractors. 
Sector 23: 238220. Construction: Industry Series, Preliminary 
Detailed Statistics for Establishments, 2007,'' U.S. Census Bureau. 
2007.
    \34\ ``2007 Economic Census, Construction Industry Series and 
Wholesale Trade Subject Series,'' U.S. Census Bureau. Available 
online at https://www.census.gov/newsroom/releases/archives/construction_industries/2009-07-27_economic_census.html.
---------------------------------------------------------------------------

    The overall markup is the product of all the markups (baseline or 
incremental markups) for the different steps within a distribution 
channel. Replacement channels include sales taxes, which were 
calculated based on State sales tax data reported by the Sales Tax 
Clearinghouse.

E. Energy Use Analysis

    The energy use analysis provides estimates of the annual unit 
energy consumption (UEC) of PTAC and PTHP equipment at the considered 
equipment classes and efficiency levels. The annual UECs are used in 
subsequent analyses including the LCC, PBP, and National Energy Savings 
(NES).
    Stakeholders commented on the data sources for UEC data. AHRI 
stated that the methodology used by the ASHRAE 90.1 Committee to 
estimate energy savings was satisfactory and should be used in this 
rulemaking. (AHRI, No. 7 at p. 69) Goodman, however, commented that it 
does not have significant concerns with the energy use analysis 
performed in the 2008 rulemaking. (Goodman, No. 13 at p. 5) Since the 
inputs, software, and methodology of the energy use analysis in the 
2008 rulemaking was vetted among the stakeholders and there were no 
comments on the deficiency of the same, DOE used the results of the 
whole-building simulation performed in the 2008 rulemaking for the 
source of UEC data. However, DOE wishes to address certain stakeholder 
concerns, as described below.
    AHRI commented that new requirements for minimum air filter 
effectiveness finalized in 2013 for ASHRAE Standard 62.1 would increase 
pressure drop and increase fan power. (AHRI, No. 11 at p. 4) Goodman 
echoed AHRI's concern. (Goodman, No. 13 at p. 6) In response, DOE notes 
that a simulation- and field-based study found that the extent of the 
impact on energy consumption due to the change in filter effectiveness 
at the levels finalized is less than 1%.\35\ DOE does not expect such 
an improvement to impact outputs significantly enough to warrant a 
change to the value of the filter pressure drop.
---------------------------------------------------------------------------

    \35\ Walker, I.S., et al., ``System Effects of High Efficiency 
Filters in Homes,'' Lawrence Berkeley National Laboratory, LBNL-
6144E, 2013.
---------------------------------------------------------------------------

    To estimate the UEC for each equipment class of PTAC and PTHP, DOE 
began with the cooling UECs for PTACs and the combined cooling and 
heating UECs for PTHPs utilized in the 2008 standards rulemaking. 73 FR 
58772. The cooling and heating UECs for PTHPs were split, assuming 
equal cooling energy use for PTACs and PTHPs. In addition, DOE adjusted 
the base-year UECs to account for changes in climate (i.e., heating 
degree-days and cooling degree-days) between 2008 and 2013, based on a 
typical meteorological year (TMY) hourly weather data set (referred to 
as TMY2) and an updated TMY3 data set.
    Where identical efficiency levels and cooling capacities were 
available, DOE used the cooling or heating UEC directly from the 
previous rulemaking. For additional efficiency levels, DOE scaled the 
cooling UECs based on interpolations between EERs and scaled the 
heating UECs based on interpolations between COPs, both at a constant 
cooling capacity. Likewise, for additional cooling capacities, DOE 
scaled the UECs based on interpolations between cooling capacities at a 
constant EER.
    For the LCC and PBP analyses, UECs were determined for the 
representative cooling capacities of 9,000 Btu/h and 15,000 Btu/h for 
which cost-efficiency curves were provided, as discussed in section 
IV.C.7. For the NES, UECs were determined for the cooling capacities of 
7,000 Btu/h, 9,000 Btu/h, and 15,000 Btu/h for which aggregate 
shipments were provided by AHRI, as highlighted in section IV.G. 
National UEC estimates for PTACs and PTHPs for the LCC and PBP 
analyses, and the NES, are described in detail in chapter 8 of the TSD.

F. Life Cycle Cost and Payback Period Analyses

    The purpose of the LCC and PBP analysis is to analyze the effects 
of potential amended energy conservation standards on customers of PTAC 
and PTHP equipment by determining how a potential amended standard 
affects their operating expenses (usually decreased) and their total 
installed costs (usually increased).
    The LCC is the total customer expense over the life of the 
equipment, consisting of equipment and installation costs plus 
operating costs over the lifetime of the equipment (expenses for energy 
use, maintenance, and repair). DOE discounts future operating costs to 
the time of purchase using customer discount rates. The PBP is the 
estimated amount of time (in years) it takes customers to recover the 
increased total installed cost (including equipment and installation 
costs) of a more efficient type of equipment through lower operating 
costs. DOE calculates the PBP by dividing the change in total installed 
cost (normally higher) due to a standard by the change in annual 
operating cost (normally lower) that results from the standard.
    For any given efficiency level, DOE analyzed these impacts for PTAC 
and PTHP equipment starting in the compliance years as set for in 
section V.B.1.a by calculating the change in customers' LCCs likely to 
result from

[[Page 55562]]

higher efficiency levels compared with the ASHRAE baseline efficiency 
levels for the PTAC and PTHP equipment classes discussed in the 
engineering analysis.
    DOE conducted the LCC and PBP analyses for the PTAC and PTHP 
equipment classes using a spreadsheet model developed in Microsoft 
Excel. When combined with Crystal Ball (a commercially available 
software program), the LCC and PBP model generates a Monte Carlo 
simulation to perform the analyses by incorporating uncertainty and 
variability considerations in certain of the key parameters as 
discussed below. Inputs to the LCC and PBP analysis are categorized as: 
(1) Inputs for establishing the total installed cost and (2) inputs for 
calculating the operating expense. Results of the LCC and PBP analyses 
were applied to other equipment classes through linear scaling of the 
results by the cooling capacity of the equipment class.
    The following sections contain brief discussions of comments on the 
inputs and key assumptions of DOE's LCC and PBP analysis and explain 
how DOE took these comments into consideration. They are also described 
in detail in chapter 8 of the NOPR TSD.
1. Equipment and Installation Costs
    The equipment costs faced by purchasers of PTAC and PTHP equipment 
are derived from the MSPs estimated in the engineering analysis and the 
overall markups estimated in the markups analysis.
    To develop an equipment price trend for the NOPR, DOE derived an 
inflation-adjusted index of the producer price index (PPI) for ``all 
other miscellaneous refrigeration and air-conditioning equipment'' from 
1990-2013.\36\ Although the inflation-adjusted index shows a declining 
trend from 1990 to 2004, data since 2008 have shown a flat-to-slightly 
rising trend. Given the uncertainty as to which of the trends will 
prevail in coming years, DOE chose to apply a constant price trend 
(2013 levels) for each efficiency level in each equipment class for the 
NOPR.
---------------------------------------------------------------------------

    \36\ ``Producer Price Indexes,'' Bureau of Labor Statistics 
(BLS). 2014. Available online at www.bls.gov/ppi/.
---------------------------------------------------------------------------

    For installation costs, DOE used a specific cost from RS Means \37\ 
for PTACs and PTHPs and linearly scaled the cost according to the 
cooling capacities of the equipment classes.
---------------------------------------------------------------------------

    \37\ RS Means Company, Inc. RS Means Mechanical Cost Data 2013. 
2013. Kingston, MA.
---------------------------------------------------------------------------

2. Unit Energy Consumption
    The calculation of annual per-unit energy consumption at each 
considered efficiency level and capacity is described in section IV.E.
3. Electricity Prices and Electricity Price Trends
    DOE determined electricity prices for PTAC and PTHP users based on 
tariffs from a representative sample of electric utilities. 69 FR 
45481-82. Since air-conditioning loads are strongly peak-coincident, 
regional marginal prices were developed from the tariff data and then 
scaled to approximate 2013 prices. This approach calculates energy 
expenses based on actual commercial building marginal electricity 
prices that customers are paying.\38\
---------------------------------------------------------------------------

    \38\ Coughlin, K., C. Bolduc, R. Van Buskirk, G. Rosenquist and 
J.E. McMahon, ``Tariff-based Analysis of Commercial Building 
Electricity Prices.'' Lawrence Berkeley National Laboratory. LBNL-
55551. 2008.
---------------------------------------------------------------------------

    The Commercial Buildings Energy Consumption Survey completed in 
1992 (CBECS 1992) and in 1995 (CBECS 1995) provides monthly electricity 
consumption and demand for a large sample of buildings. DOE used these 
values to help develop usage patterns associated with various building 
types. Using these monthly values in conjunction with the tariff data, 
DOE calculated monthly electricity bills for each building. The average 
price of electricity is defined as the total electricity bill divided 
by total electricity consumption. From this average price, the marginal 
price for electricity consumption was determined by applying a 5 
percent decrement to the average CBECS consumption data and 
recalculating the electricity bill. Using building location and the 
prices derived from the above method, a marginal price was determined 
for each region of the U.S.
    The tariff-based prices were updated to 2013 using the commercial 
electricity price index published in the AEO (editions 2009 through 
2012). An examination of data published by the Edison Electric 
Institute \39\ indicates that the rate of increase of marginal and 
average prices is not significantly different, so the same factor was 
used for both pricing estimates. DOE projected future electricity 
prices using trends in average U.S. commercial electricity price from 
AEO 2013.\40\
---------------------------------------------------------------------------

    \39\ ``EEI Typical Bills and Average Rates Report (bi-annual, 
2007-2012),'' Edison Electric Institute, Washington, DC 2012.
    \40\ ``Annual Energy Outlook 2013,'' U.S. Energy Information 
Administration. May, 2013. Available online at http://www.eia.gov/forecasts/archive/aeo13/index.cfm.
---------------------------------------------------------------------------

    Goodman commented on the need to consider the impact of peak loads 
on various parts of the analyses. (Goodman, No. 13 at p. 5) DOE is 
aware that cooling loads are peaking loads, which may be subject to 
demand charges. DOE's tariff-based electricity prices reflect demand 
charges.
    For further discussion of electricity prices, see chapter 8 of the 
NOPR TSD.
4. Repair Costs
    Repair costs are associated with repairing or replacing components 
that have failed. The cost of the material and labor in each incident 
is covered by extended warranties, which are service contracts that can 
be purchased, and the repair cost can be estimated from annualization 
of a contract's total price. DOE utilized manufacturer- and vendor-
provider extended warranty price data to estimate annual repair costs. 
DOE assumed that any routine or minor repairs are included in the 
annualized maintenance costs. Repair costs were linearly scaled by 
cooling capacity to apply to all equipment classes.
    Goodman commented that repair costs are dependent on the specific 
type of equipment. (Goodman, No. 7 at p. 77) The price data were 
disaggregated by equipment category, enabling determination of specific 
repair costs for PTACs and PTHPs.
    Goodman also commented that repair costs are typically higher for 
more efficient products. (Goodman, No. 7 at p. 77) DOE incorporated the 
cost of a major repair as a means of estimating repair costs by 
efficiency level. This resulted in repair costs that vary in direct 
proportion with the price of the equipment, which is a reasonable proxy 
for efficiency.
5. Maintenance Costs
    Maintenance costs are costs associated with general maintenance of 
the equipment (e.g., checking and maintaining refrigerant charge levels 
and cleaning heat-exchanger coils). Goodman commented that maintenance 
costs would depend on the specific type of equipment. (Goodman, No. 7 
at p. 77) For PTACs, DOE utilized estimates of annual maintenance cost 
from the previous rulemaking; the values were adjusted to current 
material and labor rates. For PTHPs, DOE scaled the adjusted estimate 
of PTAC maintenance costs with the ratio of PTHP to PTAC annualized 
maintenance costs from RS Means data.\41\ Since maintenance tasks do 
not change with efficiency level,

[[Page 55563]]

DOE does not expect maintenance costs to scale with efficiency level. 
Maintenance costs were linearly scaled by cooling capacity to apply to 
all equipment classes.
---------------------------------------------------------------------------

    \41\ RS Means Company, Inc. RSMeans Online. (Last accessed March 
26, 2013.) http://www.rsmeansonline.com.
---------------------------------------------------------------------------

6. Lifetime
    Equipment lifetime is the age at which the equipment is retired 
from service. In the 2008 Final Rule, DOE used a median equipment 
lifetime of 10 years and a maximum lifetime of 20 years based on a 
retirement function. 73 FR 58772, 58789 (October 7, 2008). In the 
framework document, DOE stated its intention to use the same median and 
maximum equipment lifetime in the present rulemaking. AHRI noted in a 
comment it submitted prior to the publication of the October 7, 2008 
Final Rule that the 11-year payback period from the previous rulemaking 
was longer than the actual life of the equipment, indicating that the 
value of the lifetime statistics in the present rulemaking too may be 
greater than the years of actual operation. (AHRI, No. 11 at p. 3) 
Likewise, Ice Air commented that the lifespan for PTACs and PTHPs with 
refrigerant-to-air heat transfer technology commonly purchased for 
commercial use should be 6-7 years based on its conversations with 
major hotel chains, and the lifespan for hydronic PTACs is 12-20+ 
years. (Ice Air, No. 9 at p. 1) SCS similarly commented that while 
equipment may last 20 years, equipment often will be replaced en masse, 
such as in hotels where a set of equipment is replaced if failures 
begin to occur often. (SCS, No. 7 at p. 81)
    Since DOE accounted for the vintage of each unit in addition to the 
average age of the stock, the retirement function was updated to allow 
the vintage of each unit as an input. Thereby, DOE updated the shape 
and scale factors so that the retirement function can be used to track 
individual failures for determination of replacement shipments. The 
details of utilizing the retirement function can be found in chapter 9 
of the NOPR TSD.
    Additionally, DOE acknowledges that there is some uncertainty 
regarding the lifetime of PTAC and PTHP equipment, but in the absence 
of data to substantiate the statements by the stakeholders, it chose to 
retain the median equipment lifetime of 10 years with a maximum 
lifetime of 20 years for this NOPR. DOE will consider any data that may 
be provided in its preparation of the final rule.
7. Discount Rate
    The discount rate is the rate at which future expenditures are 
discounted to estimate their present value. The cost of capital 
commonly is used to estimate the present value of cash flows to be 
derived from a typical company project or investment. Most companies 
use both debt and equity capital to fund investments, so the cost of 
capital is the weighted-average cost to the firm of equity and debt 
financing. DOE uses the capital asset pricing model (CAPM) to calculate 
the equity capital component, and financial data sources to calculate 
the cost of debt financing.
    DOE estimated the cost of capital of companies that purchase PTAC 
and PTHP equipment. The types of companies that DOE used are large 
hotel/motel chains, independent hotel/motel, assisted living/health 
care, and small office. More details regarding DOE's estimates of 
customer discount rates are provided in chapter 8 of the NOPR TSD.
    SCS suggested that in determining discount rates DOE should focus 
on franchise owners who are purchasing the equipment. (SCS, No. 7 at p. 
81) DOE believes that franchise owners would generally fall into the 
company categories listed above.
8. Base Case Efficiency Distribution
    For the LCC analysis, DOE analyzes the considered efficiency levels 
relative to a base case (i.e., the case without amended energy 
efficiency standards). This analysis requires an estimate of the 
distribution of equipment efficiencies in the base case (i.e., what 
customers would have purchased in the compliance year in the absence of 
amended standards). DOE refers to this distribution of equipment energy 
efficiencies as the base case efficiency distribution.
    DOE reviewed the AHRI certified products directory \42\ for 
relevant equipment classes to determine the distribution of efficiency 
levels for commercially-available models within each equipment class 
analyzed in this NOPR. DOE bundled the efficiency levels into 
efficiency ranges and determined the percentage of models within each 
range. To estimate the change between the present and the compliance 
year, DOE applied a slightly increasing efficiency trend, as explained 
in section IV.H.
---------------------------------------------------------------------------

    \42\ See www.ahridirectory.org/ahriDirectory/pages/home.aspx.
---------------------------------------------------------------------------

    The distribution of efficiencies in the base case for each 
equipment class can be found in Table IV.12 and Table IV.13 below.

     Table IV.12--Base Case Efficiency Market Shares for Packaged Terminal Air Conditioning Equipment (2019)
----------------------------------------------------------------------------------------------------------------
           PTAC <12,000 Btu/h cooling capacity                     PTAC >=12,000 Btu/h cooling capacity
----------------------------------------------------------------------------------------------------------------
            EER                 Market share (percent)                EER               Market share (percent)
----------------------------------------------------------------------------------------------------------------
               11.1-11.29                          0.0                    9.3-9.49                         0.0
               11.3-11.49                         43.6                    9.5-9.69                        25.8
               11.5-11.99                         24.3                    9.7-9.99                        34.8
               12.0-12.39                         29.5                  10.0-10.39                        34.7
               12.4-12.89                          2.1                  10.4-10.79                         2.7
               12.9-13.09                          0.5                  10.8-10.99                         1.4
                   >=13.1                          0.0                      >=11.0                         0.7
----------------------------------------------------------------------------------------------------------------


[[Page 55564]]


        Table IV.13--Base Case Efficiency Market Shares for Packaged Terminal Heat Pump Equipment (2019)
----------------------------------------------------------------------------------------------------------------
           PTHP <12,000 Btu/h cooling capacity                     PTHP >=12,000 Btu/h cooling capacity
----------------------------------------------------------------------------------------------------------------
            EER                 Market share (percent)                EER               Market share (percent)
----------------------------------------------------------------------------------------------------------------
               11.3-11.49                         48.5                    9.5-9.69                        58.2
               11.5-11.99                          8.9                    9.7-9.99                         0.0
               12.0-12.39                         30.2                  10.0-10.39                        32.5
               12.4-12.89                         12.4                  10.4-10.79                         7.9
               12.9-13.09                          0.0                  10.8-10.99                         1.4
                   >=13.1                          0.0                      >=11.0                         0.0
----------------------------------------------------------------------------------------------------------------

9. Payback Period Inputs
    The payback period is the amount of time it takes the customer to 
recover the additional installed cost of more efficient equipment, 
compared to baseline equipment, through energy cost savings. Payback 
periods are expressed in years. Payback periods that exceed the life of 
the equipment mean that the increased total installed cost is not 
recovered in reduced operating expenses.
    The inputs to the PBP calculation are the increase in the total 
installed cost of the equipment to the customer for each efficiency 
level and the annual operating cost savings for each efficiency level. 
The PBP calculation uses the same inputs as the LCC analysis, except 
that discount rates are not needed.
10. Rebuttable-Presumption Payback Period
    EPCA establishes a rebuttable presumption that a standard is 
economically justified if the Secretary finds that the additional cost 
to the customer of purchasing a product complying with an energy 
conservation standard level will be less than three times the value of 
the energy (and, as applicable, water) savings during the first year 
that the customer will receive as a result of the standard, as 
calculated under the test procedure in place for that standard. (42 
U.S.C. 6295(o)(2)(B)(iii) and 42 U.S.C. 6316(a)) For each considered 
efficiency level, DOE determines the value of the first year's energy 
savings by calculating the quantity of those savings in accordance with 
the applicable DOE test procedure, and multiplying that amount by the 
average energy price forecast for the year in which compliance with the 
amended standards would be required.

G. Shipments Analysis

    DOE uses projections of equipment shipments for PTACs and PTHPs 
together to calculate equipment stock over the course of the analysis 
period, which in turn is used to determine the impacts of amended 
standards on national energy savings, net present value, and future 
manufacturer cash flows. DOE developed shipment projections based on 
historical data and an analysis of key market drivers for each product. 
Historical shipments data are used to build up an equipment stock and 
also to calibrate the shipments model. Based off the equipment stock 
and calibrated model, DOE calculated shipments intended for new 
construction and replacement applications. The sum of new construction 
and replacement shipments is the total shipments.
    DOE determined the distribution of total shipments among the 
equipment classes using shipments data by equipment class provided by 
AHRI for the previous PTAC and PTHP rulemaking. 73 FR 58772.
    New construction shipments were calculated using projected new 
construction floor space of healthcare, lodging, and small office 
buildings from AEO 2013 and historical PTAC and PTHP saturation in new 
buildings, which was calculated by dividing historical shipments by 
historical new construction floor space. Due to unrepresentative market 
conditions during the financial crisis of 2008-2010, DOE used 
historical data from its previous analysis to determine the value for 
the PTAC and PTHP saturation that was used for each year of the 
analysis period. DOE then projected shipments based on the product of 
the historical saturation and AEO's projected floor space.
    Replacement shipments equal the number of units that fail in a 
given year. DOE used a retirement function in the form of a Weibull 
distribution with inputs based on lifetime values from the LCC analysis 
to estimate the number of units of a given age that fail in each year. 
When a unit fails, it is removed from the stock and a new unit is 
replaced in its stead. Replacement shipments account for the largest 
portion of total shipments.
    McQuay commented that non-AHRI PTAC manufacturers are not subject 
to report their shipment information, and this missing portion of the 
market should be calculated. (McQuay, No. 10 at p. 1) DOE is not aware 
of any data that would allow it to account for shipments by non-AHRI 
PTAC manufacturers. The Department also believes that such shipments 
represent a small fraction of total shipments. DOE requests comment 
regarding and data supporting the expected number of shipments that are 
unreported. This is identified as issue 3 in section VII.E, ``Issues on 
Which DOE Seeks Comment.''
    Goodman commented that if the annual payback period is not in the 
low single digits, customers will be more likely to repair equipment 
rather than replace it with a higher efficiency product. (Goodman, No. 
13 at p. 6) DOE recognizes that for any inoperable equipment, there 
exists a decision to repair or to replace. Given that repair generally 
would involve a new compressor, which is costly, and could also entail 
a new coil, DOE believes that equipment replacement would be more 
financially appealing than a major repair to most decision makers. 
Thus, for the NOPR DOE used the same shipments projections for the base 
case (assuming no amended standards) and each standards case.
    The details of the shipments analysis can be found in chapter 9 of 
the NOPR TSD.

H. National Impact Analysis--National Energy Savings and Net Present 
Value Analyses

    The purpose of the NIA is to estimate aggregate impacts of 
potential energy conservation standards from a national perspective, 
rather than from the customer perspective represented by the LCC and 
PBP analysis. Impacts that DOE reports include the national energy 
savings (NES) from potential standards, the net present value (NPV) of 
the total commercial customer costs, and the savings that are expected 
to result from amended standards at specific efficiency levels.

[[Page 55565]]

    To make the analysis more accessible and transparent to all 
interested parties, DOE used a spreadsheet model to calculate the 
energy savings and the national commercial customer costs and savings 
from each TSL.\43\ The NIA calculations are based on the annual energy 
consumption and total installed cost data from the energy use analysis 
and the LCC analysis. In the NIA, DOE forecasted the lifetime energy 
savings, energy cost savings, equipment costs, and NPV of commercial 
customer benefits for each equipment class over the lifetime of 
equipment sold from 2019 through 2048.
---------------------------------------------------------------------------

    \43\ DOE's use of spreadsheet models provides interested parties 
with access to the models within a familiar context. In addition, 
the TSD and other documentation that DOE provides during the 
rulemaking help explain the models and how to use them, and 
interested parties can review DOE's analyses by changing various 
input quantities within the spreadsheet.
---------------------------------------------------------------------------

    For the NIA, DOE considered the following equipment classes for 
which DOE received shipments data:
     PTAC: <7,000 Btu/h cooling capacity, >=7000 and <=15000 
Btu/h cooling capacity, and >=15000 Btu/h cooling capacity; and
     PTHP: <7,000 Btu/h cooling capacity, >=7000 and <=15000 
Btu/h cooling capacity, and >=15000 Btu/h cooling capacity.
    To develop the NES, DOE calculates annual energy consumption for 
the base case and the standards cases. DOE calculates the annual energy 
consumption using per-unit annual energy use data multiplied by 
projected shipments. DOE calculated energy savings in each year 
relative to a base case, defined as DOE adoption of the efficiency 
levels specified by ANSI/ASHRAE/IES Standard 90.1-2013. DOE also 
calculated energy savings from adopting efficiency levels specified by 
ANSI/ASHRAE/IES Standard 90.1-2013 compared to the EPCA base case.
    To develop the national NPV of customer benefits from potential 
energy conservation standards, DOE calculates annual energy 
expenditures and annual equipment expenditures for the base case and 
the standards cases. DOE calculated such customer benefits in each year 
relative to the base case (ANSI/ASHRAE/IES Standard 90.1-2013). DOE 
calculates annual energy expenditures from annual energy consumption by 
incorporating forecasted energy prices, using shipment projections and 
average energy efficiency projections. DOE calculates annual equipment 
expenditures by multiplying the price per unit times the projected 
shipments. The aggregate difference each year between energy bill 
savings and increased equipment expenditures is the net savings or net 
costs.
    Given the uncertainty about future equipment prices, DOE chose to 
apply a constant price trend (2013 levels) for each efficiency level in 
each equipment class.
    A key component of the NIA is the equipment energy efficiency 
forecasted over time for the base case and for each of the standards 
cases. To estimate a base-case efficiency trend, DOE started with the 
base-case efficiency distribution described in section IV.F.8. For the 
equipment classes that were not covered in the LCC analysis, DOE used 
the same source (i.e., the AHRI Directory of Certified Product 
Performance) to estimate the base-case efficiency distribution. Then, 
DOE applied the trend from 2012 to 2035 that was used in the commercial 
unitary air conditioner Advance Notice of Proposed Rulemaking (ANOPR), 
which estimated an increase of approximately 1 EER every 35 years.\44\ 
69 FR 45460 (July 29, 2004). DOE used this same trend in the standards-
case scenarios, when seeking to ascertain the impact of amended 
standards. DOE, however, assumed for PTACs that a gradual replacement 
of equipment at the Federal minimum with equipment at the ASHRAE 
minimum occurs over 10 years after the first year of expected 
compliance. DOE requests comment regarding and data supporting the 
selected efficiency trend. This is identified as issue 4 in section 
VII.E, ``Issues on Which DOE Seeks Comment.''
---------------------------------------------------------------------------

    \44\ See DOE's technical support document underlying DOE's July 
29, 2004 ANOPR. (Available at: http://www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0103-0078.)
---------------------------------------------------------------------------

    The base case efficiency distributions in 2019 for the considered 
PTAC and PTHP equipment classes can be found in Table IV.14 and Table 
IV.15.

                        Table IV.14--Base Case Efficiency Market Shares in 2019 for Packaged Terminal Air Conditioning Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
         PTAC <7000 Btu/h cooling capacity             PTAC >=7000 to <=15000 Btu/h cooling capacity           PTAC >=15000 Btu/h cooling capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
           EER             Market share (percent)              EER             Market share (percent)             EER             Market share (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                11.7                         0                      11.1                         0                       9.3                        0
                11.9                         0                      11.3                        38                       9.5                       65
                12.2                        63                      11.5                        29                       9.7                       17
                12.6                        37                      12.0                        29                      10.0                       18
                13.1                         0                      12.4                         3                      10.4                        0
                13.6                         0                      12.9                         1                      10.8                        0
                13.8                         0                      13.1                         0                      11.0                        0
--------------------------------------------------------------------------------------------------------------------------------------------------------


                            Table IV.15--Base Case Efficiency Market Shares in 2019 for Packaged Terminal Heat Pump Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
         PTHP <7000 Btu/h cooling capacity             PTHP >=7000 to <=15000 Btu/h cooling capacity           PTHP >=15000 Btu/h cooling capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
           EER             Market share (percent)              EER             Market share (percent)             EER             Market share (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                11.9                         0                      11.3                         0                       9.5                        0
                12.2                        85                      11.5                        64                       9.7                       74
                12.6                        15                      12.0                        26                      10.0                       26
                13.1                         0                      12.4                        10                      10.4                        0
                13.6                         0                      12.9                         1                      10.8                        0
                13.8                         0                      13.1                         0                      11.0                        0
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 55566]]

    To estimate the impact that amended energy conservation standards 
may have in the first year of compliance, DOE uses a ``roll-up'' 
scenario in its standards rulemakings. Under the ``roll-up'' scenario, 
DOE assumes equipment efficiencies in the base case that do not meet 
the new or amended standard level under consideration would ``roll up'' 
to meet that standard level, and equipment shipments at efficiencies 
above the standard level under consideration would not be affected. 
Tables showing the distribution of efficiencies in the base case and 
the standards cases for each equipment class can be found in chapter 10 
of the NOPR TSD.
    Using the distribution of efficiencies in the base case and in the 
standards cases for each equipment class analyzed in the NOPR, DOE 
calculated market-weighted average efficiency values. The market-
weighted average efficiency value represents the average efficiency of 
the total units shipped at a specified amended standard level. The 
market-weighted average efficiency values for the base case and the 
standards cases for each efficiency level analyzed within the equipment 
classes is provided in chapter 10 of the NOPR TSD.
    DOE converted the site electricity consumption and savings to 
primary energy (power sector energy consumption) using annual 
conversion factors derived from the AEO 2013 version of the National 
Energy Modeling System (NEMS). Cumulative energy savings are the sum of 
the NES for each year in which equipment shipped during 2019 to 2048 
continues to operate.
    DOE has historically presented NES in terms of primary energy 
savings. On August 18, 2011, DOE published a final statement of policy 
in the Federal Register announcing its intention to use full-fuel-cycle 
(FFC) measures of energy use and greenhouse gas and other emissions in 
the national impact analyses and emissions analyses included in future 
energy conservation standards rulemakings. 76 FR 51281. After 
evaluating the approaches discussed in the August 18, 2011 document, 
DOE published a statement of amended policy in the Federal Register in 
which DOE explained its determination that NEMS is the most appropriate 
tool for its FFC analysis and its intention to use NEMS for that 
purpose. 77 FR 49701 (August 17, 2012). Therefore, DOE used the NEMS 
model to conduct the FFC analysis. The approach used for this NOPR, and 
the FFC multipliers that were applied, are described in appendix 10-B 
of the NOPR TSD.

I. Customer Subgroup Analysis

    In analyzing the potential impacts of new or amended standards on 
commercial customers, DOE evaluates impacts on identifiable groups 
(i.e., subgroups) of customers that may be disproportionately affected 
by a national standard. AHRI stated that hotels and motels would be 
viable candidates for user subgroups. (AHRI, No. 7 at p. 91) For the 
NOPR, DOE evaluated impacts on a subgroup consisting of independently-
operating lodging businesses using the LCC and PBP spreadsheet model. 
To the extent possible, it utilized inputs appropriate for this 
subgroup.
    The commercial customer subgroup analysis is discussed in detail in 
chapter 11 of the NOPR TSD.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to estimate the financial impact of amended 
energy conservation standards on manufacturers of PTACs and PTHPs, and 
to calculate the potential impact of such standards on employment and 
manufacturing capacity. The MIA has both quantitative and qualitative 
aspects. The quantitative part of the MIA primarily relies on the 
Government Regulatory Impact Model (GRIM), an industry cash-flow model 
with inputs specific to this rulemaking. The key GRIM inputs are data 
on the industry cost structure, equipment costs, shipments, and 
assumptions about markups and conversion expenditures. The key output 
is the industry net present value (INPV). Different sets of assumptions 
(markup scenarios) will produce different results. The qualitative part 
of the MIA addresses factors such as product characteristics, impacts 
on particular subgroups of firms, and important market and product 
trends. The complete MIA is outlined in chapter 13 of the NOPR TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE conducted structured, detailed interviews with a 
representative cross-section of manufacturers and prepared a profile of 
the PTAC and PTHP industry. During manufacturer interviews, DOE 
discussed engineering, manufacturing, procurement, and financial topics 
to identify key issues or concerns and to inform and validate 
assumptions used in the GRIM. See section IV.J.2 for a description of 
the key issues manufacturers raised during the interviews.
    DOE used information obtained during these interviews to prepare a 
profile of the PTAC and PTHP industry, including a manufacturer cost 
analysis. Drawing on financial analysis performed as part of the 2008 
energy conservation standard for PTACs and PTHPs, as well as feedback 
obtained from manufacturers, DOE derived financial inputs for the GRIM 
(e.g., sales, general, and administration (SG&A) expenses; research and 
development (R&D) expenses; and tax rates). DOE also used public 
sources of information, including company SEC 10-K filings,\45\ 
corporate annual reports, the U.S. Census Bureau's Economic Census,\46\ 
and Hoover's reports,\47\ to develop the industry profile.
---------------------------------------------------------------------------

    \45\ U.S. Securities and Exchange Commission. Annual 10-K 
Reports. Various Years. http://www.sec.gov.
    \46\ ``Annual Survey of Manufacturers: General Statistics: 
Statistics for Industry Groups and Industries.'' U.S. Census Bureau. 
2014. Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t.
    \47\ Hoovers, Inc. Company Profiles. Various Companies. http://www.hoovers.com.
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis 
to quantify the potential impacts of an amended energy conservation 
standard on manufacturers of PTACs and PTHPs. In general, energy 
conservation standards can affect manufacturer cash flow in three 
distinct ways: (1) Create a need for increased investment; (2) raise 
production costs per unit; and (3) alter revenue due to higher per-unit 
prices and possible changes in sales volumes. To quantify these 
impacts, DOE used the GRIM to perform a cash-flow analysis for the PTAC 
and PTHP industry using financial values derived during Phase 1.
    In Phase 3 of the MIA, DOE evaluated subgroups of manufacturers 
that may be disproportionately impacted by amended energy conservation 
standards or that may not be represented accurately by the average cost 
assumptions used to develop the industry cash-flow analysis. 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 identified two subgroups 
for separate impact analyses: (1) Manufacturers with production assets; 
and (2) small businesses.
    DOE initially identified 22 companies that sell PTAC and PTHP 
equipment in the U.S. Most U.S. companies, however, do not own 
production assets; rather, they import and distribute PTACs and PTHPs 
manufactured overseas, primarily in China. DOE identified a

[[Page 55567]]

subgroup of three manufacturers that own production assets. Together, 
these three manufacturers account for approximately 80 percent of the 
domestic PTAC and PTHP market. Because manufacturers with production 
assets will incur different costs to comply with amended energy 
conservation standards compared to their competitors who do not own 
production assets, DOE conducted a separate subgroup analysis to 
evaluate the potential impacts of amended energy conservation standards 
on manufacturers with production assets. The subgroup analysis of PTAC 
and PTHP manufacturers with production assets is discussed in chapter 
12 of the NOPR TSD and in section VI.B of this document.
    For the small businesses subgroup analysis, DOE applied the small 
business size standards published by the Small Business Administration 
(SBA) to determine whether a company is considered a small business. 65 
FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 
5, 2000) and codified at 13 CFR part 121. To be categorized as a small 
business under North American Industry Classification System (NAICS) 
code 333415, ``Air-Conditioning and Warm Air Heating Equipment and 
Commercial and Industrial Refrigeration Equipment Manufacturing,'' a 
PTAC and PTHP manufacturer and its affiliates may employ a maximum of 
750 employees. The 750-employee threshold includes all employees in a 
business's parent company and any other subsidiaries. Based on this 
classification, DOE identified at least 12 manufacturers that qualify 
as small businesses. The PTAC and PTHP small manufacturer subgroup is 
discussed in chapter 12 of the NOPR TSD and in section V.B.2 of this 
document.
2. Government Regulatory Impact Model
    DOE uses the GRIM to quantify the changes in cash flow due to 
amended standards that result in a higher or lower industry value. The 
GRIM analysis uses a standard, annual cash-flow analysis that 
incorporates manufacturer costs, markups, shipments, and industry 
financial information as inputs. The GRIM models changes in costs, 
distribution of shipments, investments, and manufacturer margins that 
could result from an amended energy conservation standard. The GRIM 
spreadsheet uses the inputs to arrive at a series of annual cash flows, 
beginning in 2014 (the base year of the analysis) and continuing to 
2048. DOE calculated INPVs by summing the stream of annual discounted 
cash flows during this period. For PTAC and PTHP manufacturers, DOE 
used a real discount rate of 8.5 percent, which was derived from 
industry financials and then modified according to feedback received 
during manufacturer interviews.
    The GRIM calculates cash flows using standard accounting principles 
and compares changes in INPV between a base case and each standards 
case. The difference in INPV between the base case and a standards case 
represents the financial impact of the amended energy conservation 
standard on manufacturers. As discussed previously, DOE collected this 
information on the critical GRIM inputs from a number of sources, 
including publicly available data and interviews with a number of 
manufacturers (described in the next section). The GRIM results are 
shown in section V.B.2. Additional details about the GRIM, the discount 
rate, and other financial parameters can be found in chapter 12 of the 
NOPR TSD.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
    Manufacturing more efficient equipment is typically more expensive 
than manufacturing baseline equipment due to the use of more complex 
components, which are typically more costly than baseline components. 
The changes in the manufacturer production costs (MPCs) of the analyzed 
equipment can affect the revenues, gross margins, and cash flow of the 
industry, making these equipment cost data key GRIM inputs for DOE's 
analysis.
    In the MIA, DOE used the MPCs for each considered efficiency level 
calculated in the engineering analysis, as described in section IV.C 
and further detailed in chapter 5 of the NOPR TSD. In addition, DOE 
used information from its teardown analysis, described in chapter 5 of 
the TSD, to disaggregate the MPCs into material, labor, and overhead 
costs. To calculate the MPCs for equipment above the baseline, DOE 
added the incremental material, labor, and overhead costs from the 
engineering cost-efficiency curves to the baseline MPCs. These cost 
breakdowns and equipment markups were validated and revised with 
manufacturers during manufacturer interviews.
Shipments Forecasts
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of these values by efficiency 
level. Changes in sales volumes and efficiency mix over time can 
significantly affect manufacturer finances. For this analysis, the GRIM 
uses the NIA's annual shipment forecasts derived from the shipments 
analysis from 2014 (the base year) to 2048 (the end year of the 
analysis period). See section IV.G. above and chapter 10 of the NOPR 
TSD for additional details.
Product and Capital Conversion Costs
    An amended energy conservation standard would cause manufacturers 
to incur one-time conversion costs to bring their production facilities 
and equipment designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each equipment class. For the MIA, 
DOE classified these conversion costs into two major groups: (1) 
Product conversion costs; and (2) capital conversion costs. Product 
conversion costs are one-time investments in research, development, 
testing, marketing, and other non-capitalized costs necessary to make 
equipment designs comply with the amended energy conservation standard. 
Capital conversion costs are one-time investments in property, plant, 
and equipment necessary to adapt or change existing production 
facilities such that new compliant equipment designs can be fabricated 
and assembled.
    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with amended energy 
conservation standards, DOE used manufacturer interviews to gather data 
on the anticipated level of capital investment that would be required 
at each efficiency level. DOE validated manufacturer comments through 
estimates of capital expenditure requirements derived from the product 
teardown analysis and engineering analysis described in chapter 5 of 
the TSD.
    DOE assessed the product conversion costs at each considered 
efficiency level by integrating data from quantitative and qualitative 
sources. DOE considered market-share-weighted feedback regarding the 
potential costs of each efficiency level from multiple manufacturers to 
estimate product conversion costs and validated those numbers against 
engineering estimates of redesign efforts.
    In general, DOE assumes that all conversion-related investments 
occur between the year of publication of the final rule and the year by 
which manufacturers must comply with the new standard. The conversion 
cost figures used in the GRIM can be found

[[Page 55568]]

in section V.B.2 of this document. For additional information on the 
estimated product and capital conversion costs, see chapter 13 of the 
NOPR TSD.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
    Manufacturer selling prices (MSPs) include direct manufacturing 
production costs (i.e., labor, materials, and overhead estimated in 
DOE's MPCs) and all non-production costs (i.e., SG&A, R&D, and 
interest), along with profit. To calculate the MSPs in the GRIM, DOE 
applied non-production cost markups to the MPCs estimated in the 
engineering analysis for each equipment class and efficiency level. 
Modifying these markups in the standards case yields different sets of 
impacts on manufacturers. For the MIA, DOE modeled two standards-case 
markup scenarios to represent the uncertainty regarding the potential 
impacts on prices and profitability for manufacturers following the 
implementation of amended energy conservation standards: (1) A 
preservation of gross margin percentage markup scenario; and (2) a 
preservation of per unit operating profit markup scenario. These 
scenarios lead to different markup values that, when applied to the 
inputted MPCs, result in varying revenue and cash flow impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels, which assumes that manufacturers would be able to 
maintain the same amount of profit as a percentage of revenues at all 
efficiency levels within an equipment class. As production costs 
increase with efficiency, this scenario implies that the absolute 
dollar markup will increase as well. Based on publicly-available 
financial information for manufacturers of PTACs and PTHPs as well as 
comments from manufacturer interviews, DOE assumed the average non-
production cost markup--which includes SG&A expenses, R&D expenses, 
interest, and profit--to be 1.27 for all PTAC and PTHP equipment 
classes.
    Because this markup scenario assumes that manufacturers would be 
able to maintain their gross margin percentage markups as production 
costs increase in response to an amended energy conservation standard, 
it represents a high bound to industry profitability.
    In the preservation of per unit operating profit scenario, 
manufacturer markups are set so that operating profit one year after 
the compliance date of the amended energy conservation standard is the 
same as in the base case on a per unit basis. Under this scenario, as 
the costs of production increase under an amended standards case, 
manufacturers are generally required to reduce their markups to a level 
that maintains base-case operating profit per unit. The implicit 
assumption behind this markup scenario is that the industry can only 
maintain its operating profit in absolute dollars per unit after 
compliance with the new standard is required. Therefore, operating 
margin in percentage terms is reduced between the base case and 
standards case. DOE adjusted the manufacturer markups in the GRIM at 
each TSL to yield approximately the same earnings before interest and 
taxes in the standards case as in the base case. This markup scenario 
represents a low bound to industry profitability under an amended 
energy conservation standard.
c. Manufacturer Interviews
    As part of the MIA, DOE discussed the potential impacts of amended 
energy conservation standards with manufacturers of PTACs and PTHPs. 
DOE interviewed manufacturers representing approximately 90 percent of 
the market by revenue. Information gathered during these interviews 
enabled DOE to tailor the GRIM to reflect the unique financial 
characteristics of the industry.
    In interviews, DOE asked manufacturers to describe their major 
concerns regarding this rulemaking. The following section highlights 
manufacturer concerns that helped to shape DOE's understanding of 
potential impacts of an amended standard on the industry. Manufacturer 
interviews are conducted under non-disclosure agreements (NDAs), so DOE 
does not document these discussions in the same way that it does public 
comments in the comment summaries and DOE's responses throughout the 
rest of this document.
d. Size Constraints
    Manufacturers expressed concern regarding their ability to maintain 
the physical dimensions of PTACs and PTHPs while meeting amended energy 
conservation standards. PTACs and PTHPs are inherently space-
constrained equipment. Their value proposition rests in large part on 
the ability of units to fit into existing wall openings of fixed 
dimensions: In the case of standard-size equipment impacted by this 
rulemaking, this means a wall opening of 16'' x 42''. Manufacturers 
indicated that increasing the efficiency of units given these size 
constraints poses a significant technical challenge. Specifically, as 
units become more efficient, they tend to grow in size. Efficiency 
gains are often achieved by incorporating more efficient system 
components, including compressors and heat exchangers. Manufacturers 
noted that as these components become more efficient, they tend to 
become larger. Yet expanding the size of PTACs and PTHPs to accommodate 
larger, more efficient components is not an option, as manufacturers 
must continue to deliver products built to pre-existing dimensions.
    Manufacturers also indicated that increasing efficiency without 
altering product dimensions poses a greater technical challenge for 
higher-capacity models than for lower-capacity models. For example, 
redesigning a 15,000 Btu/hour PTAC--the highest capacity offered by 
many manufacturers--would be more difficult than redesigning a 7,000 
Btu/hour model. Some manufacturers stated this could lead them to stop 
producing their highest-capacity PTAC and PTHP models under an amended 
standard.
e. Impact on Manufacturer Profitability
    Manufacturers also stated that amended energy conservation 
standards could place downward pressure on profits. Manufacturers noted 
that consumers typically are unwilling to pay a premium for efficiency 
and instead purchase PTACs and PTHPs largely on a first-cost basis. 
Accordingly, manufacturers do not anticipate being able to pass all 
additional costs of manufacturing more efficient products onto 
consumers and would expect to see some decline in profitability as a 
result.
    Additionally, manufacturers indicated that higher production and 
purchase costs could impact profitability by reducing demand for PTACs 
and PTHPs. Specifically, manufacturers anticipate that higher purchase 
costs will lead greater numbers of consumers to repair rather than 
replace existing units. In addition, manufacturers stated higher costs 
could lead to product switching, as consumers turn to alternative HVAC 
systems. Presently, the market for PTACs and PTHPs is predominantly a 
replacement market: Approximately 80 percent of sales go toward 
replacement compared to 20 percent for new construction. Manufacturers 
indicated that higher costs could drive the new construction market to 
seek alternatives. The potential for market contraction in this manner 
could further impact profitability.

[[Page 55569]]

f. Impact on Consumer Utility
    Manufacturers stated that amended energy conservation standards 
could make it difficult to meet consumer needs effectively. Three 
primary concerns arose in this regard: Concerns surrounding noise; 
concerns surrounding humidity control; and concerns surrounding loss of 
specific product lines.
Noise
    Several manufacturers stated that there is a tradeoff between 
higher efficiency in PTACs and PTHPs and noise levels. Design changes 
that improve the efficiency of airflow systems (e.g., by increasing fan 
speed) tend to make units noisier. This is especially true among higher 
capacity models. Because PTACs and PTHPs are widely used in the lodging 
sector, where noise is a significant consideration, design changes that 
result in noisier equipment are not a viable option to increase system 
efficiency.
Humidity Control
    Several manufacturers also indicated that as units become more 
efficient, they tend to raise concerns surrounding humidity control and 
mold growth. One manufacturer indicated it has received more customer 
complaints about humidity levels since 2012, when the 2008 energy 
conservation standard for PTACs and PTHPs took effect. Another 
manufacturer noted it has designed a PTAC model with a built-in 
dehumidification function to better control humidity and prevent mold 
growth, but this reduces the overall system EER, making it more 
difficult to comply with amended standards.
Loss of Product Lines
    In addition, multiple manufacturers stated that certain models may 
become unavailable in the face of amended energy conservation 
standards. Within the standard-size market, the difficulty of 
redesigning higher capacity models (e.g., 15,000 Btu/hour) while 
maintaining the existing package size could drive manufacturers to 
discontinue those models, leaving lower-capacity models (e.g., 12,000 
Btu/hour) as the maximum capacity offered.
3. Discussion of Comments
Impact of Other Rulemakings
    AHRI commented that manufacturers of PTACs and PTHPs may be 
impacted by other product rulemakings. (AHRI, Framework Public Meeting 
at p. 93) In response, DOE has performed an analysis of cumulative 
regulatory burden (CRB) in section V.B.2 of the NOPR document. The CRB 
analysis includes only completed regulations that take effect within 
three years of the effective date of the current final rulemaking. 
Rulemakings addressed include those for: Residential Boilers (78 FR 
675, January 4, 2013), Residential Furnaces (76 FR 37408, June 27, 
2011) (76 FR 67037, October 31, 2011), Residential Central Air 
Conditioners and Heat Pumps (76 FR 37408, June 27, 2011) (76 FR 67037, 
October 31, 2011), Gas Fired and Electric Storage Water Heaters (75 FR 
20112, April 16, 2010), Electric Motors (79 FR 30933, May 29, 2014), 
Walk-in Coolers and Freezers (79 FR 32049, June 3, 2014), Furnace Fans 
(79 FR 38129, July 3, 2014), Compressors (79 FR 25377, August 5, 2014), 
and Commercial and Industrial Fans and Blowers. (78 FR 7306, February 
1, 2013).
Alternate Refrigerants
    Goodman commented that DOE should look into the impacts of 
alternate refrigerants on manufacturers as well as users in terms of 
total energy consumption. (Goodman, Framework Public Meeting at p. 94) 
Nearly all PTAC and PTHP equipment is designed with R-410A as the 
refrigerant. DOE is not aware of any regulations or pending regulations 
that would impact manufacturers' ability to continue using the 
refrigerant R-410A in PTAC and PTHP equipment.
    The U.S. EPA SNAP Program evaluates and regulates substitutes for 
ozone-depleting chemicals (such as air conditioning refrigerants) that 
are being phased out under the stratospheric ozone protection 
provisions of the CAA. On July 9, 2014, the EPA Administrator signed a 
notice of proposed rulemaking document that changes the listing status 
for certain substitutes under the SNAP Program.\48\ This proposal 
changes the status of several refrigerants used in automotive air 
conditioning and in food refrigeration systems. However, the proposal 
does not include delisting R-410A, nor does it mention that EPA may 
consider any future delisting of R-410A for use in air conditioning 
applications.
---------------------------------------------------------------------------

    \48\ The NOPR document for SNAP listing status changes has not 
yet published in the Federal Register. Proposed changes to air 
conditioning refrigerants status are listed in pp. 132-34 of a pre-
publication version of the document, available from the EPA at: 
http://www.epa.gov/ozone/downloads/SAN_5750_SNAP_Status_Change_Rule_NPRM_signature_version-signed_7-9-2014.pdf.
---------------------------------------------------------------------------

    DOE notes that the use of alternate refrigerants by manufacturers 
of PTACs and PTHPs would not be required as a direct result of this 
proposed rule. Furthermore, there is no requirement (nor any proposal 
to adopt requirements) mandating the use of alternate refrigerants at 
this time. Hence, alternate refrigerants were not considered in this 
analysis.
Non-Standard Size Equipment
    AHRI commented that some manufacturers of non-standard size PTACs 
and PTHPs would be considered small businesses. (AHRI, Framework Public 
Meeting at p. 94) DOE has not proposed amended standards for non-
standard size PTAC and PTHP equipment in this document. As a result, 
impacts on manufacturers that exclusively produce non-standard size 
PTACs and PTHPs are not analyzed. Impacts on small manufacturers that 
produce standard size PTACs and PTHPs are analyzed in section VI.B, 
Review Under the Regulatory Flexibility Act.

K. Emissions Analysis

    In the emissions analysis, DOE estimated the reduction in power 
sector emissions of carbon dioxide (CO2), nitrogen oxides 
(NOX), sulfur dioxide (SO2), and mercury (Hg) 
from potential energy conservation standards for PTAC and PTHP 
equipment. In addition, DOE estimates emissions impacts in production 
activities (extracting, processing, and transporting fuels) that 
provide the energy inputs to power plants. These are referred to as 
``upstream'' emissions. Together, these emissions account for the full-
fuel-cycle (FFC). In accordance with DOE's FFC Statement of Policy (76 
FR 51282 (August 18, 2011)), the FFC analysis includes impacts on 
emissions of methane (CH4) and nitrous oxide 
(N2O), both of which are recognized as greenhouse gases.
    DOE primarily conducted the emissions analysis using emissions 
factors for CO2 and most of the other gases derived from 
data in EIA's AEO 2013. Combustion emissions of CH4 and 
N2O were estimated using emissions intensity factors 
published by the Environmental Protection Agency (EPA), GHG Emissions 
Factors Hub.\49\ DOE developed separate emissions factors for power 
sector emissions and upstream emissions. The method that DOE used to 
derive emissions factors is described in chapter 13 of the NOPR TSD.
---------------------------------------------------------------------------

    \49\ ``GHG Emissions Factors Hub,'' U.S. Environmental 
Protection Agency. 2014. Available online at http://www.epa.gov/climateleadership/inventory/ghg-emissions.html.
---------------------------------------------------------------------------

    For CH4 and N2O, DOE calculated emissions 
reduction in tons and also in terms of units of carbon dioxide 
equivalent (CO2eq). Gases are converted to CO2eq 
by multiplying by the gas'

[[Page 55570]]

global warming potential (GWP) over a 100-year time horizon. Based on 
the Fifth Assessment Report of the Intergovernmental Panel on Climate 
Change,\50\ DOE used GWP values of 28 for CH4 and 265 for 
N2O.
---------------------------------------------------------------------------

    \50\ IPCC, 2013: Climate Change 2013: The Physical Science 
Basis. Contribution of Working Group I to the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change [Stocker, 
T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. 
Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge 
University Press, Cambridge, United Kingdom and New York, NY, USA. 
Chapter 8.
---------------------------------------------------------------------------

    EIA prepares the Annual Energy Outlook using the NEMS. Each annual 
version of NEMS incorporates the projected impacts of existing air 
quality regulations on emissions. AEO 2013 generally represents current 
legislation and environmental regulations, including recent government 
actions, for which implementing regulations were available as of 
December 31, 2012.
    SO2 emissions from affected electric generating units 
(EGUs) are subject to nationwide and regional emissions cap-and-trade 
programs. Title IV of the Clean Air Act sets an annual emissions cap on 
SO2 for affected EGUs in the 48 contiguous States and the 
District of Columbia (DC). SO2 emissions from 28 eastern 
states and DC were also limited under the Clean Air Interstate Rule 
(CAIR; 70 FR 25162 (May 12, 2005)), which created an allowance-based 
trading program that operates along with the Title IV program. CAIR was 
remanded to the EPA by the U.S. Court of Appeals for the District of 
Columbia Circuit but it remained in effect. In 2011 EPA issued a 
replacement for CAIR, the Cross-State Air Pollution Rule (CSAPR). 76 FR 
48208 (August 8, 2011). On August 21, 2012, the D.C. Circuit issued a 
decision to vacate CSAPR.\51\ The court ordered EPA to continue 
administering CAIR. The emissions factors used for this NOPR, which are 
based on AEO 2013, assume that CAIR remains a binding regulation 
through 2040.\52\
---------------------------------------------------------------------------

    \51\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012).
    \52\ On April 29, 2014, the U.S. Supreme Court reversed the 
judgment of the D.C. Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion. The Supreme 
Court held in part that EPA's methodology for quantifying emissions 
that must be eliminated in certain states due to their impacts in 
other downwind states was based on a permissible, workable, and 
equitable interpretation of the Clean Air Act provision that 
provides statutory authority for CSAPR. See EPA v. EME Homer City 
Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014). 
Because DOE is using emissions factors based on AEO 2013 for this 
NOPR, the analysis assumes that CAIR, not CSAPR, is the regulation 
in force. The difference between CAIR and CSAPR is not relevant for 
the purpose of DOE's analysis of SO2 emissions.
---------------------------------------------------------------------------

    The attainment of emissions caps is typically flexible among EGUs 
and is enforced through the use of emissions allowances and tradable 
permits. Under existing EPA regulations, any excess SO2 
emissions allowances resulting from the lower electricity demand caused 
by the adoption of an efficiency standard could be used to permit 
offsetting increases in SO2 emissions by any regulated EGU. 
In past rulemakings, DOE recognized that there was uncertainty about 
the effects of efficiency standards on SO2 emissions covered 
by the existing cap-and-trade system, but it concluded that negligible 
reductions in power sector SO2 emissions would occur as a 
result of standards.
    Beginning in 2016, however, SO2 emissions will fall as a 
result of the Mercury and Air Toxics Standards (MATS) for power plants, 
which were announced by EPA on December 21, 2011. 77 FR 9304 (February 
16, 2012). In the final MATS rule, EPA established a standard for 
hydrogen chloride as a surrogate for acid gas hazardous air pollutants 
(HAP), and also established a standard for SO2 (a non-HAP 
acid gas) as an alternative equivalent surrogate standard for acid gas 
HAP. The same controls are used to reduce HAP and non-HAP acid gas; 
thus, SO2 emissions will be reduced as a result of the 
control technologies installed on coal-fired power plants to comply 
with the MATS requirements for acid gas. AEO 2013 assumes that, in 
order to continue operating, coal plants must have either flue gas 
desulfurization or dry sorbent injection systems installed by 2016. 
Both technologies, which are used to reduce acid gas emissions, also 
reduce SO2 emissions. Under the MATS, emissions will be far 
below the cap established by CAIR, so it is unlikely that excess 
SO2 emissions allowances resulting from the lower 
electricity demand would be needed or used to permit offsetting 
increases in SO2 emissions by any regulated EGU. Therefore, 
DOE believes that efficiency standards will reduce SO2 
emissions in 2016 and beyond.
    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia. Energy conservation standards are 
expected to have little effect on NOX emissions in those 
States covered by CAIR because excess NOX emissions 
allowances resulting from the lower electricity demand could be used to 
permit offsetting increases in NOX emissions. However, 
standards would be expected to reduce NOX emissions in the 
States not affected by the caps, so DOE estimated NOX 
emissions reductions from the standards considered in this NOPR for 
these States.
    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards would likely reduce Hg emissions. DOE estimated mercury 
emissions reduction using emissions factors based on AEO 2013, which 
incorporates the MATS.

L. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this proposed rule, DOE considered 
the estimated monetary benefits from the reduced emissions of 
CO2 and NOX that are expected to result from each 
of the TSLs considered. In order to make this calculation similar to 
the calculation of the NPV of customer benefit, DOE considered the 
reduced emissions expected to result over the lifetime of equipment 
shipped in the forecast period for each TSL. This section summarizes 
the basis for the monetary values used for each of these emissions and 
presents the values considered in this rulemaking.
    For this NOPR, DOE is relying on a set of values for the social 
cost of carbon (SCC) that was developed by an interagency process. A 
summary of the basis for these values is provided below, and a more 
detailed description of the methodologies used is provided as an 
appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
    Under section 1(b)(6) of Executive Order 12866, ``Regulatory 
Planning and Review,'' 58 FR 51735 (October 4, 1993), agencies must, to 
the extent permitted by law, assess both the costs and the benefits of 
the intended regulation and, recognizing that some costs and benefits 
are difficult to quantify, propose or adopt a regulation only upon a 
reasoned determination that the benefits of the intended regulation 
justify its costs. The purpose of the SCC estimates presented here is 
to allow agencies to incorporate the monetized social benefits of

[[Page 55571]]

reducing CO2 emissions into cost-benefit analyses of 
regulatory actions. The estimates are presented with an acknowledgement 
of the many uncertainties involved and with a clear understanding that 
they should be updated over time to reflect increasing knowledge of the 
science and economics of climate impacts.
    As part of the interagency process that developed the SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of challenges. A 
report from the National Research Council \53\ points out that any 
assessment will suffer from uncertainty, speculation, and lack of 
information about (1) future emissions of GHGs, (2) the effects of past 
and future emissions on the climate system, (3) the impact of changes 
in climate on the physical and biological environment, and (4) the 
translation of these environmental impacts into economic damages. As a 
result, any effort to quantify and monetize the harms associated with 
climate change will raise questions of science, economics, and ethics 
and should be viewed as provisional.
---------------------------------------------------------------------------

    \53\ National Research Council. Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use. 2009. National Academies 
Press: Washington, DC.
---------------------------------------------------------------------------

    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
CO2 emissions. The agency can estimate the benefits from 
reduced (or costs from increased) emissions in any future year by 
multiplying the change in emissions in that year by the SCC values 
appropriate for that year. The net present value of the benefits can 
then be calculated by multiplying each of these future benefits by an 
appropriate discount factor and summing across all affected years.
    It is important to emphasize that the interagency process is 
committed to updating these estimates as the science and economic 
understanding of climate change and its impacts on society improves 
over time. In the meantime, the interagency group will continue to 
explore the issues raised by this analysis and consider public comments 
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
    In 2009, an interagency process was initiated to offer a 
preliminary assessment of how best to quantify the benefits from 
reducing carbon dioxide emissions. To ensure consistency in how 
benefits are evaluated across Federal agencies, the Administration 
sought to develop a transparent and defensible method, specifically 
designed for the rulemaking process, to quantify avoided climate change 
damages from reduced CO2 emissions. The interagency group 
did not undertake any original analysis. Instead, it combined SCC 
estimates from the existing literature to use as interim values until a 
more comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim values: Global SCC estimates for 2007 (in 2006$) of $55, $33, 
$19, $10, and $5 per metric ton of CO2. These interim values 
represented the first sustained interagency effort within the U.S. 
government to develop an SCC for use in regulatory analysis. The 
results of this preliminary effort were presented in several proposed 
and final rules.
c. Current Approach and Key Assumptions
    After the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates. 
Specifically, the group considered public comments and further explored 
the technical literature in relevant fields. The interagency group 
relied on three integrated assessment models commonly used to estimate 
the SCC: The Climate Framework for Uncertainty, Negotiation and 
Distribution (FUND), Dynamic Integrated Climate Economy (DICE), and 
Policy Analysis of the Greenhouse Effect (PAGE) models. These models 
are frequently cited in the peer-reviewed literature and were used in 
the last assessment of the Intergovernmental Panel on Climate Change 
(IPCC). Each model was given equal weight in the SCC values that were 
developed.
    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models, while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: Climate sensitivity, socio-economic and emissions 
trajectories, and discount rates. A probability distribution for 
climate sensitivity was specified as an input into all three models. In 
addition, the interagency group used a range of scenarios for the 
socio-economic parameters and a range of values for the discount rate. 
All other model features were left unchanged, relying on the model 
developers' best estimates and judgments.
    The interagency group selected four sets of SCC values for use in 
regulatory analyses. Three sets of values are based on the average SCC 
from the three IAMs, at discount rates of 2.5, 3, and 5 percent. The 
fourth set, which represents the 95th percentile SCC estimate across 
all three models at a 3-percent discount rate, was included to 
represent higher than expected impacts from temperature change further 
out in the tails of the SCC distribution. The values grow in real terms 
over time. Additionally, the interagency group determined that a range 
of values from 7 percent to 23 percent should be used to adjust the 
global SCC to calculate domestic effects,\54\ although preference is 
given to consideration of the global benefits of reducing 
CO2 emissions. Table IV.16 presents the values in the 2010 
interagency group report,\55\ which is reproduced in appendix 14A of 
the NOPR TSD.
---------------------------------------------------------------------------

    \54\ It is recognized that this calculation for domestic values 
is approximate, provisional, and highly speculative. There is no a 
priori reason why domestic benefits should be a constant fraction of 
net global damages over time.
    \55\ ``Social Cost of Carbon for Regulatory Impact Analysis 
Under Executive Order 12866,'' Interagency Working Group on Social 
Cost of Carbon, United States Government, February 2010. Available 
online at www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf.

[[Page 55572]]



                     Table IV.16--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2010............................................             4.7            21.4            35.1            64.9
2015............................................             5.7            23.8            38.4            72.8
2020............................................             6.8            26.3            41.7            80.7
2025............................................             8.2            29.6            45.9            90.4
2030............................................             9.7            32.8            50.0           100.0
2035............................................            11.2            36.0            54.2           109.7
2040............................................            12.7            39.2            58.4           119.3
2045............................................            14.2            42.1            61.7           127.8
2050............................................            15.7            44.9            65.0           136.2
----------------------------------------------------------------------------------------------------------------

    The SCC values used for this document were generated using the most 
recent versions of the three integrated assessment models that have 
been published in the peer-reviewed literature. Table IV.17 shows the 
updated sets of SCC estimates from the 2013 interagency update \56\ in 
five-year increments from 2010 to 2050. The full set of annual SCC 
estimates between 2010 and 2050 is reported in appendix 14B of the NOPR 
TSD. The central value that emerges is the average SCC across models at 
3-percent discount rate. However, for purposes of capturing the 
uncertainties involved in regulatory impact analysis, the interagency 
group emphasizes the importance of including all four sets of SCC 
values.
---------------------------------------------------------------------------

    \56\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866. Interagency 
Working Group on Social Cost of Carbon, United States Government, 
May 2013; revised November 2013. Available online at 
www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.

                     Table IV.17--Annual SCC Values From 2013 Interagency Update, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              11              32              51              89
2015............................................              11              37              57             109
2020............................................              12              43              64             128
2025............................................              14              47              69             143
2030............................................              16              52              75             159
2035............................................              19              56              80             175
2040............................................              21              61              86             191
2045............................................              24              66              92             206
2050............................................              26              71              97             220
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report mentioned above points out that there is tension between 
the goal of producing quantified estimates of the economic damages from 
an incremental ton of carbon and the limits of existing efforts to 
model these effects. There are a number of analytic challenges that are 
being addressed by the research community, including research programs 
housed in many of the Federal agencies participating in the interagency 
process to estimate the SCC. The interagency group intends to 
periodically review and reconsider those estimates to reflect 
increasing knowledge of the science and economics of climate impacts, 
as well as improvements in modeling.
    In summary, in considering the potential global benefits resulting 
from reduced CO2 emissions resulting from this proposed 
rule, DOE used the values from the 2013 interagency report, adjusted to 
2013$ using the Gross Domestic Product price deflator. For each of the 
four SCC cases specified, the values used for emissions in 2015 were 
$12.0, $40.4, $62.2, and $119 per metric ton avoided (values expressed 
in 2013$). DOE derived values after 2050 using the relevant growth 
rates for the 2040-2050 period in the interagency update.
    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SCC value for that year in each of the four cases. To 
calculate a present value of the stream of monetary values, DOE 
discounted the values in each of the four cases using the specific 
discount rate that had been used to obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
    As noted above, DOE has taken into account how amended energy 
conservation standards would reduce site NOX emissions 
nationwide and increase power sector NOX emissions in

[[Page 55573]]

those 22 States not affected by the CAIR. DOE estimated the monetized 
value of net NOX emissions reductions resulting from each of 
the TSLs considered for the NOPR based on estimates found in the 
relevant scientific literature. Estimates of monetary value for 
reducing NOX from stationary sources range from $476 to 
$4,889 per ton in 2013$.\57\ DOE calculated monetary benefits using a 
medium value for NOX emissions of $2,683 per short ton (in 
2013$), and real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------

    \57\ ``2006 Report to Congress on the Costs and Benefits of 
Federal Regulations and Unfunded Mandates on State, Local, and 
Tribal Entities,'' U.S. Office of Management and Budget, Office of 
Information and Regulatory Affairs. 2006.
---------------------------------------------------------------------------

    DOE is evaluating appropriate monetization of avoided 
SO2 and Hg emissions in energy conservation standards 
rulemakings. It has not included monetization in the current analysis.

M. Utility Impact Analysis

    The utility impact analysis estimates several effects on the power 
generation industry that would result from the adoption of new or 
amended energy conservation standards. In the utility impact analysis, 
DOE analyzes the changes in installed electricity capacity and 
generation that would result for each trial standard level. The utility 
impact analysis uses a variant of NEMS,\58\ which is a public domain, 
multi-sectored, partial equilibrium model of the U.S. energy sector. 
DOE uses a variant of this model, referred to as NEMS-BT,\59\ to 
account for selected utility impacts of new or amended energy 
conservation standards. DOE's analysis consists of a comparison between 
model results for the most recent AEO Reference Case and for cases in 
which energy use is decremented to reflect the impact of potential 
standards. The energy savings inputs associated with each TSL come from 
the NIA. Chapter 15 of the NOPR TSD describes the utility impact 
analysis in further detail.
---------------------------------------------------------------------------

    \58\ For more information on NEMS, refer to the U.S. Department 
of Energy, Energy Information Administration documentation. A useful 
summary is National Energy Modeling System: An Overview 2003, DOE/
EIA-0581(2003) (March 2003).
    \59\ DOE/EIA approves use of the name NEMS to describe only an 
official version of the model without any modification to code or 
data. Because this analysis entails some minor code modifications 
and the model is run under various policy scenarios that are 
variations on DOE/EIA assumptions, DOE refers to it by the name 
``NEMS-BT'' (``BT'' is DOE's Building Technologies Program, under 
whose aegis this work has been performed).
---------------------------------------------------------------------------

N. Employment Impact Analysis

    Employment impacts from new or amended energy conservation 
standards include direct and indirect impacts. Direct employment 
impacts are any changes in the number of employees of manufacturers of 
the equipment subject to standards; the MIA addresses those impacts. 
Indirect employment impacts are changes in national employment that 
occur due to the shift in expenditures and capital investment caused by 
the purchase and operation of more-efficient equipment. Indirect 
employment impacts from standards consist of the jobs created or 
eliminated in the national economy, other than in the manufacturing 
sector being regulated, due to: (1) Reduced spending by end users on 
energy; (2) reduced spending on new energy supply by the utility 
industry; (3) increased customer spending on the purchase of new 
equipment; and (4) the effects of those three factors throughout the 
economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (BLS). BLS regularly publishes its estimates of the 
number of jobs per million dollars of economic activity in different 
sectors of the economy, as well as the jobs created elsewhere in the 
economy by this same economic activity. Data from BLS indicate that 
expenditures in the utility sector generally create fewer jobs (both 
directly and indirectly) than expenditures in other sectors of the 
economy.\60\ There are many reasons for these differences, including 
wage differences and the fact that the utility sector is more capital-
intensive and less labor-intensive than other sectors. Energy 
conservation standards have the effect of reducing customer utility 
bills. Because reduced customer expenditures for energy likely lead to 
increased expenditures in other sectors of the economy, the general 
effect of efficiency standards is to shift economic activity from a 
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, based 
on the BLS data alone, DOE believes net national employment may 
increase because of shifts in economic activity resulting from amended 
standards for PTACs and PTHPs.
---------------------------------------------------------------------------

    \60\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
Handbook for the Regional Input-Output Modeling System (RIMS II),'' 
U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    For the standard levels considered in this NOPR, DOE estimated 
indirect national employment impacts using an input/output model of the 
U.S. economy called Impact of Sector Energy Technologies, Version 3.1.1 
(ImSET).\61\ ImSET is a special-purpose version of the ``U.S. Benchmark 
National Input-Output'' (I-O) model, which was designed to estimate the 
national employment and income effects of energy-saving technologies. 
The ImSET software includes a computer-based I-O model having 
structural coefficients that characterize economic flows among the 187 
sectors. ImSET's national economic I-O structure is based on a 2002 
U.S. benchmark table, specially aggregated to the 187 sectors most 
relevant to industrial, commercial, and residential building energy 
use. DOE notes that ImSET is not a general equilibrium forecasting 
model, and understands the uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Because ImSET does not incorporate price changes, the 
employment effects predicted by ImSET may over-estimate actual job 
impacts over the long run. For the NOPR, DOE used ImSET only to 
estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------

    \61\ Scott, M.J., O.V. Livingston, P.J. Balducci, J.M. Roop, and 
R.W. Schultz. ImSET 3.1: Impact of Sector Energy Technologies. 2009. 
Pacific Northwest National Laboratory, Richland, WA. Report No. 
PNNL-18412. www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf
---------------------------------------------------------------------------

    For more details on the employment impact analysis, see chapter 16 
of the NOPR TSD.

V. Analytical Results

A. Trial Standard Levels

    At the NOPR stage, DOE develops trial standard levels (TSLs) for 
consideration. TSLs are formed by grouping different efficiency levels, 
which are potential standard levels for each equipment class. DOE 
analyzed the benefits and burdens of the TSLs developed.
    In this proposed rule, DOE considers six efficiency levels for 
PTACs and five efficiency levels for PTHPs. DOE groups the efficiency 
levels into trial standard levels to determine the impact the selected 
trial standard level has on individual equipment classes. DOE may 
choose to promulgate equal or unequal efficiency levels, and, in the 
proposed rule, DOE bases its decision to group efficiency levels based 
on which is most economically justifiable. In the case of unequal 
efficiency levels, PTHP efficiency levels set higher than those of 
PTACs leads not only to additional national energy cost savings but 
also equipment switching from PTHPs to a less expensive PTAC with 
electric resistance strip heating, which consumes 190 to 280 percent 
more

[[Page 55574]]

energy than PTHPs for the same amount of heating. The national energy 
cost savings from unequal efficiency levels are negated by the energy 
costs from more electric resistance strip heating if 2.8 percent or 
more of total customers switch. Given that PTHPs cost approximately 10 
percent more in terms of total installed price compared to PTACs, DOE 
expects negative energy cost savings from unequal efficiency levels. 
DOE does not find the grouping of unequal efficiency levels 
economically justifiable and therefore groups PTAC and PTHP efficiency 
levels such that they are equalized for the five TSLs it examined.
    Table V.1 presents the baseline efficiency level and the efficiency 
level of each TSL analyzed for standard size PTACs and PTHPs subject to 
this proposed rule. The baseline efficiency levels correspond to the 
efficiency levels specified by the energy efficiency equations in ANSI/
ASHRAE/IES Standard 90.1-2013 for PTACs and PTHPs. 10 CFR 431.97(c). 
The TSL 1, 2, 3, 4 efficiency levels represent matched pairs of 
efficiency levels at 4%, 8%, 12%, and 16% above the current Federal 
energy conservation standards for PTACs. TSL 5 is the maximum 
technologically feasible (``max tech'') level for each class of 
equipment as discussed in section IV.C.5.

                                      Table V.1--Standard Size PTACs and PTHPs Baseline Efficiency Levels and TSLs
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Baseline (ANSI/      TSL 1        TSL 2        TSL 3        TSL 4        TSL 5
                                                                          ASHRAE/IES                                                            Max-Tech
                                                                        Standard 90.1-
                                                                           2013) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        PTAC efficiency level                                EL1             EL2          EL3          EL4          EL5          EL6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        PTHP efficiency level                          Current Federal       EL1          EL2          EL3          EL4          EL5
                                                                             ECS
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Equipment class (cooling capacity)         Efficiency metric
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size PTAC 9,000 Btu/h...........  EER......................               11.3         11.5         12.0         12.4         12.9         13.1
Standard Size PTAC 15,000 Btu/h..........  EER......................                9.5          9.7         10.0         10.4         10.8         11.0
Standard Size PTHP 9,000 Btu/h...........  EER......................               11.3         11.5         12.0         12.4         12.9         13.1
                                           COP......................                3.2          3.3          3.4          3.5          3.6          3.6
Standard Size PTHP 15,000 Btu/h..........  EER......................                9.5          9.7         10.0         10.4         10.8         11.0
                                           COP......................                2.9          2.9          3.0          3.1          3.2          3.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This level represents the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTAC and PTHP equipment. This level is used as the Baseline since DOE is
  required to, at a minimum, adopt the ASHRAE levels as the Federal standard. (42 U.S.C. (a)(6)(A)(ii)(I)). DOE notes that the Baseline level is 1.8%
  higher than current Federal ECS for PTAC equipment, but is equivalent to current Federal ECS for PTHP equipment. For PTAC equipment, the Baseline
  level is also termed EL1.

As stated in the engineering analysis (see chapter 5 of the NOPR TSD), 
current Federal energy conservation standards and the efficiency levels 
specified by ANSI/ASHRAE/IES Standard 90.1-2013 for PTACs and PTHPs are 
a function of the equipment's cooling capacity. Both the Federal energy 
conservation standards and the efficiency standards in ANSI/ASHRAE/IES 
Standard 90.1-2013 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 15,000 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 *** (ANSI/ASHRAE/IES Standard 90.1- EER = 14.0-(0.300 x Cap [dagger]/1000)
 2013).
TSL 1......................................  EER = 14.4-(0.312 x Cap [dagger]/1000)
TSL 2......................................  EER = 14.9-(0.324 x Cap [dagger]/1000)
TSL 3......................................  EER = 15.5-(0.336 x Cap [dagger]/1000)
TSL 4......................................  EER = 16.0-(0.348 x Cap [dagger]/1000)
TSL 5--MaxTech.............................  EER = 16.3-(0.354 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.
*** This level represents the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTAC and PTHP equipment. This level
  is used as the Baseline since DOE is required to, at a minimum, adopt the ASHRAE levels as the Federal
  standard. (42 U.S.C. (a)(6)(A)(ii)(I)).
[dagger] Cap means cooling capacity in Btu/h at 95 [deg]F outdoor dry-bulb temperature.


[[Page 55575]]


  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 *** (ANSI/ASHRAE/IES Standard 90.1- EER = 14.0-(0.300 x Cap [dagger]/1000)
 2013).
                                             COP = 3.7-(0.052 x Cap [dagger]/1000)
TSL 1......................................  EER = 14.4-(0.312 x Cap [dagger]/1000)
                                             COP = 3.8-(0.058 x Cap [dagger]/1000)
TSL 2......................................  EER = 14.9-(0.324 x Cap [dagger]/1000)
                                             COP = 4.0-(0.064 x Cap [dagger]/1000)
TSL 3......................................  EER = 15.5-(0.336 x Cap [dagger]/1000)
                                             COP = 4.1-(0.068 x Cap [dagger]/1000)
TSL 4......................................  EER = 16.0-(0.348 x Cap [dagger]/1000)
                                             COP = 4.2-(0.070 x Cap [dagger]/1000)
TSL 5--MaxTech.............................  EER = 16.3-(0.354 x Cap [dagger]/1000)
                                             COP = 4.3-(0.073 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.
*** This level represents the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTAC and PTHP equipment. This level
  is used as the Baseline since DOE is required to, at a minimum, adopt the ASHRAE levels as the Federal
  standard. (42 U.S.C. (a)(6)(A)(ii)(I)).
[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 ANSI/ASHRAE/IES Standard 90.1-2013 
for calculating the EER and COP of equipment with cooling capacities 
smaller than 7,000 Btu/h and larger than 15,000 Btu/h. (42 U.S.C. 
6313(a)(3)(A))

B. Economic Justification and Energy Savings

    As discussed in section II.A, EPCA provides seven factors to be 
evaluated in determining whether a more stringent standard for PTACs 
and PTHPs is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)) The 
following sections generally discuss how DOE has addressed each of 
those factors in this rulemaking.
1. Economic Impacts on Commercial Customers
    DOE analyzed the economic impacts on PTAC and PTHP equipment 
customers by looking at the effects amended standards would have on the 
LCC and PBP. DOE also examined the impacts of potential standards on 
customer subgroups. These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    To evaluate the net economic impact of potential amended energy 
conservation standards on customers of PTAC and PTHP equipment, DOE 
conducted LCC and PBP analyses for each TSL. In general, higher-
efficiency equipment would affect consumers in two ways: (1) Purchase 
price would increase, and (2) annual operating costs would decrease. 
Inputs used for calculating the LCC and PBP include total installed 
costs (i.e., product price plus installation costs), and operating 
costs (i.e., annual energy savings, energy prices, energy price trends, 
repair costs, and maintenance costs). The LCC calculation also uses 
product lifetime and a discount rate. Chapter 8 of the NOPR TSD 
provides detailed information on the LCC and PBP analyses.
    Table V.4 through Table V.7 show the LCC and PBP results for all 
efficiency levels considered for PTAC and PTHP equipment less than 
12,000 Btu/h cooling capacity and greater than and equal to 12,000 Btu/
h cooling capacity. In the first of each pair of tables, the simple 
payback is measured relative to the baseline product. In the second 
tables, the LCC savings are measured relative to the base-case 
efficiency distribution in the compliance year (see section IV.F.8 of 
this document).

                            Table V.4--Average LCC and PBP Results for Standard Size Equipment <12,000 Btu/h Cooling Capacity
                                                             [9,000 Btu/h cooling capacity]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average costs  (2013$)
                                                         ----------------------------------------------------------------     Simple          Average
                   TSL                      Efficiency                     First year's      Lifetime                         payback        lifetime
                                               level      Installed cost     operating       operating          LCC           (years)         (years)
                                                                               cost            cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................               1          $1,491            $194          $1,411          $2,902             6.6              10
2.......................................               2           1,508             192           1,395           2,903             7.3  ..............
3.......................................               3           1,527             189           1,379           2,906             7.8  ..............
4.......................................               4           1,547             187           1,363           2,910             8.2  ..............
5.......................................               5           1,557             186           1,356           2,913             8.3  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


[[Page 55576]]


Table V.5--LCC Savings Relative to the Base Case Efficiency Distribution for Standard Size Equipment <12,000 Btu/
                                               h Cooling Capacity
                                         [9,000 Btu/h cooling capacity]
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                    Efficiency    % of Consumers
                               TSL                                     level           that           Average
                                                                                  experience net      savings
                                                                                       cost          (2013$) *
----------------------------------------------------------------------------------------------------------------
1...............................................................               1              20           $1.23
2...............................................................               2              37            0.40
3...............................................................               3              62          (2.31)
4...............................................................               4              70          (6.66)
5...............................................................               5              73          (9.45)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
** The calculation includes households with zero LCC savings (no impact).


                           Table V.6--Average LCC and PBP Results for Standard Size Equipment >=12,000 Btu/h Cooling Capacity
                                                             [9,000 Btu/h cooling capacity]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average costs  (2013$)
                                            Efficiency   ---------------------------------------------------------------- Simple payback      Average
                   TSL                         level                       First year's      Lifetime                         (years)        lifetime
                                                          Installed cost  operating cost  operating cost        LCC                           (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................               1          $1,744            $252          $1,832          $3,575             7.8              10
2.......................................               2           1,767             249           1,812           3,579             8.6  ..............
3.......................................               3           1,797             246           1,793           3,590             9.8  ..............
4.......................................               4           1,833             244           1,776           3,609            11.1  ..............
5.......................................               5           1,854             243           1,767           3,621            11.7  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative to the
  baseline product.


 Table V.7--Savings Relative to the Base Case Efficiency Distribution for Standard Size Equipment >=12,000 Btu/h
                                                Cooling Capacity
                                         [15,000 Btu/h Cooling Capacity]
----------------------------------------------------------------------------------------------------------------
                                                                                      Life-cycle cost savings
                                                                                 -------------------------------
                                                                    Efficiency    % of Consumers
                               TSL                                     level           that           Average
                                                                                  experience net      savings
                                                                                       cost          (2013$) *
----------------------------------------------------------------------------------------------------------------
1...............................................................               1              23           $0.01
2...............................................................               2              42          (2.11)
3...............................................................               3              77         (12.64)
4...............................................................               4              87         (31.18)
5...............................................................               5              91         (43.49)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
** The calculation includes households with zero LCC savings (no impact).

    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. DOE believes the impacts for equipment in 
this category will be similar to units with a cooling capacity of 
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 provided in section V.A of this 
document.
b. Customer Sub-Group Analysis
    Using the LCC spreadsheet model, DOE determined the impact of the 
TSLs on the small businesses customer subgroup. Table V.8 shows the 
mean LCC savings from proposed energy conservation standards, and Table 
V.9 shows the median payback 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.

[[Page 55577]]



         Table V.8--Mean Life-Cycle Cost Savings for PTAC and PTHP Equipment Purchased by LCC Sub-Groups
                                                     [2013$]
----------------------------------------------------------------------------------------------------------------
    Equipment class (cooling
            capacity)                  TSL1            TSL2            TSL3            TSL4            TSL5
----------------------------------------------------------------------------------------------------------------
Standard Size Equipment (9,000             $0.81         ($0.85)         ($4.73)        ($10.32)        ($13.73)
 Btu/h).........................
Standard Size Equipment (15,000           (0.27)          (3.34)         (15.24)         (35.16)         (48.14)
 Btu/h).........................
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Note: The LCC savings for each TSL are calculated relative to the base case efficiency distribution. The
  calculation includes households with zero LCC savings (no impact).


            Table V.9--Median Payback Period for PTAC and PTHP Equipment Purchased by LCC Sub-Groups
                                                     [Years]
----------------------------------------------------------------------------------------------------------------
    Equipment class (cooling
            capacity)                  TSL1            TSL2            TSL3            TSL4            TSL5
----------------------------------------------------------------------------------------------------------------
Standard Size Equipment (9,000               7.1             8.0             8.9             9.5             9.7
 Btu/h).........................
Standard Size Equipment (15,000              8.4             9.9            12.4            14.7            15.9
 Btu/h).........................
----------------------------------------------------------------------------------------------------------------
Note: The median payback period is calculated only for affected establishments. Establishments with no impact
  have an undefined payback period, and are therefore not included in calculating the median PBP.

    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 15,000 Btu/h. See chapter 5 of the TSD for how DOE 
selected the representative capacities that were analyzed.
c. Rebuttable Presumption Payback
    As discussed in section IV.F.10, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for equipment that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. DOE calculated a rebuttable-
presumption PBP for each TSL to determine whether DOE could presume 
that a standard at that level is economically justified.
    DOE based the calculations on average usage profiles. As a result, 
DOE calculated a single rebuttable-presumption payback value, and not a 
distribution of PBPs, for each TSL. Table V.10 shows the rebuttable-
presumption PBPs for the considered TSLs. The rebuttable presumption is 
fulfilled in those cases where the PBP is three years or less. However, 
DOE routinely conducts an economic analysis that considers the full 
range of impacts to the customer, manufacturer, Nation, and 
environment, as required by EPCA. The results of that analysis serve as 
the basis for DOE to evaluate definitively the economic justification 
for a potential standard level (thereby supporting or rebutting the 
results of any three-year PBP analysis). Section V.C addresses how DOE 
considered the range of impacts to select this proposed standards.

              Table V.10--Rebuttable-Presumption Payback Period (Years) for PTAC or PTHP Equipment
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                 -------------------------------------------------------------------------------
                                         1               2               3               4               5
----------------------------------------------------------------------------------------------------------------
Standard Size Equipment (9,000               6.6             7.3             7.8             8.2             8.3
 Btu/h).........................
Standard Size Equipment (15,000              7.8             8.6             9.8            11.1            11.7
 Btu/h).........................
----------------------------------------------------------------------------------------------------------------

2. Economic Impacts on Manufacturers
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
impact of amended energy conservation standards on PTAC and PTHP 
manufacturers. The following section describes the expected impacts on 
manufacturers at each considered TSL. Chapter 13 of the TSD explains 
the analysis in further detail.
a. Industry Cash Flow Analysis Results
    Table V.11 depicts the estimated financial impacts (represented by 
changes in industry net present value, or INPV) of amended energy 
conservation standards on manufacturers of PTACs and PTHPs, as well as 
the conversion costs that DOE expects manufacturers would incur for all 
equipment classes at each TSL.
    As discussed in section IV.J.2, DOE modeled two different markup 
scenarios to evaluate the range of cash flow impacts on the PTAC and 
PTHP industry: (1) The preservation of gross margin percentage markup 
scenario; and (2) the preservation of per unit operating profit markup 
scenario.
    To assess the less severe end of the range of potential impacts, 
DOE modeled a preservation of gross margin percentage markup scenario, 
in which a uniform ``gross margin percentage'' markup is applied across 
all potential efficiency levels. In this scenario, DOE assumed that a 
manufacturer's absolute dollar markup would increase as production 
costs increase in the standards case.
    To assess the more severe end of the range of potential impacts, 
DOE modeled the preservation of per unit operating profit markup 
scenario, which reflects manufacturer concerns surrounding their 
inability to maintain margins as manufacturing production costs 
increase to meet more stringent

[[Page 55578]]

efficiency levels. In this scenario, as manufacturers make the 
necessary investments required to convert their facilities to produce 
new standards-compliant products and incur higher costs of goods sold, 
their percentage markup decreases. Operating profit does not change in 
absolute dollars but decreases as a percentage of revenue.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding industry values at each TSL. In the following 
discussion, the INPV results refer to the difference in industry value 
between the base case and each standards case that result from the sum 
of discounted cash flows from the base year 2014 through 2048, the end 
of the analysis period. To provide perspective on the short-run cash 
flow impact, DOE includes in the discussion of the results a comparison 
of free cash flow between the base case and the standards case at each 
TSL in the year before amended standards would take effect. This figure 
provides an understanding of the magnitude of the required conversion 
costs relative to the cash flow generated by the industry in the base 
case.
    The table below presents a range of results reflecting both the 
preservation of gross margin percentage markup scenario and the 
preservation of per-unit operating profit markup scenario. As noted, 
the preservation of operating profit scenario accounts for the more 
severe impacts presented. Estimated conversion costs and free cash flow 
in the year prior to the effective date of amended standards do not 
vary with markup scenario.

                                          Table V.11--Manufacturer Impact Analysis Results for PTACs and PTHPs*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Trial standard level
                                      Units         Base  ----------------------------------------------------------------------------------------------
                                                    case           1                  2                  3                  4                  5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV..........................  2013$M..........     58.5  57.1 to 57.4.....  57.7 to 58.8.....  55.4 to 57.5.....  55.0 to 58.5.....  51.8 to 55.9.
Change in INPV................  2013$M..........  .......  (1.4) to (1.1)...  (0.7) to 0.3.....  (3.1) to (0.9)...  (3.5) to 0.0.....  (6.7) to (2.6).
                                % Change........  .......  (2.4) to (1.9)...  (1.3) to 0.5.....  (5.3) to (1.6)...  (5.9) to 0.0.....  (11.4) to (4.4).
Product Conversion Costs......  2013$M..........  .......  2.2..............  4.7..............  7.2..............  8.5..............  13.5.
Capital Conversion Costs......  2013$M..........  .......  2.3..............  2.9..............  7.1..............  7.1..............  7.4.
Total Conversion Costs........  2013$M..........  .......  4.5..............  7.6..............  14.3.............  15.6.............  20.9.
Free Cash Flow................  2013$M..........      3.8  2.2..............  1.2..............  (1.5)............  (1.8)............  (3.4).
                                % Change........  .......  (43.5)...........  (69.9)...........  (138.6)..........  (148.2)..........  (190.3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    TSL 1 represents a 4 percent increase above current federal minimum 
efficiency standards for PTACs. At TSL 1, DOE estimates the impacts on 
INPV to range from -$1.4 million to -$1.1 million, or a change of -2.4 
percent to -1.9 percent. Industry free cash flow is estimated to 
decrease by $1.7 million, or a change of 43.5 percent compared to the 
base-case value of $3.8 million in the year before the compliance date 
(2018).
    DOE estimates that in the year of compliance (2019), 51 percent of 
all PTAC and PTHP shipments in the base case would already meet or 
exceed the standard levels at TSL 1. The capital and product conversion 
costs required to bring the balance of shipments into compliance with 
amended standards drive the negative INPV results at this level. DOE 
estimates industry conversion costs of $4.5 million at TSL 1.
    TSL 2 represents an 8 percent increase above current federal 
minimum efficiency standards for PTACs. At TSL 2, DOE estimates impacts 
on INPV to range from -$0.7 million to $0.3 million, or a change in 
INPV of -1.3 percent to 0.5 percent. At this level, industry free cash 
flow is estimated to decrease by $2.7 million, or a change of 69.9 
percent compared to the base-case value of $3.8 million in the year 
before the compliance date (2018).
    The INPV impacts at TSL 2 are slightly less severe than those at 
TSL 1 due to the interplay of conversion costs, manufacturer selling 
prices, and shipments. DOE estimates that in the year of compliance 
(2019), 37 percent of all PTAC and PTHP base case shipments would meet 
efficiency levels at TSL 2 or higher. DOE expects conversion costs 
required to bring the balance of shipments into compliance would 
increase to $7.6 million, reflecting the need for additional motor and 
control changes as well as a more significant R&D and testing burden. 
However, an anticipated increase in per-unit purchase price at this 
level combined with steady shipments could dampen the effects of 
conversion costs on INPV.
    TSL 3 represents a 12 percent increase above current federal 
minimum efficiency standards for PTACs. At TSL 3, DOE estimates impacts 
on INPV to range from -$3.1 million to -$0.9 million, or a change in 
INPV of -5.3 percent to -1.6 percent. At this level, industry free cash 
flow is estimated to decrease by $5.3 million, or a change of 138.6 
percent compared to the base-case value of $3.8 million in the year 
before the compliance date (2018).
    DOE estimates that in the year of compliance (2019), only 6 percent 
of all PTAC and PTHP base case shipments would already meet efficiency 
levels at TSL 3 or higher. DOE also estimates conversion costs would 
nearly double relative to conversion costs at TSL 2, increasing to 
$14.3 million. Anticipated conversion costs at this level include 
investing in new tooling and redesigning equipment to incorporate 
additional coils and/or formed coils.
    TSL 4 represents a 16 percent increase above current federal 
minimum efficiency standards for PTACs. At TSL 4, DOE estimates impacts 
on INPV to range from -$3.5 million to $0.0 million, or a change in 
INPV of -5.9 percent to 0.0 percent. At this level, industry free cash 
flow is estimated to decrease by $5.7 million, or a change of 148.2 
percent compared to the base-case value of $3.8 million in the year 
before the compliance date (2018).
    DOE estimates that in the year of compliance (2019), less than 1 
percent of all PTAC and PTHP base case shipments would already meet 
efficiency levels at TSL 4 or higher. Conversion costs required to 
bring nearly 100 percent of equipment into compliance would increase to 
an estimated $15.6 million. At this level, however, DOE does not 
anticipate capital conversion costs beyond those required at TSL 3. 
Rather, equipment

[[Page 55579]]

conversion costs account for the full increase.
    TSL 5 represents the use of max-tech design options for each 
equipment class. At this level, DOE estimates impacts on INPV to range 
from -$6.7 million to -$2.6 million, or a change in INPV of -11.4 
percent to -4.4 percent. Industry free cash flow is estimated to 
decrease by $7.3 million, or a change of 190.3 percent compared to the 
base-case value of $3.8 million in the year before the compliance date 
(2018).
    DOE estimates that in the year of compliance (2019), less than 1 
percent of all PTAC and PTHP base case shipments would already meet 
efficiency levels at TSL 5. At this level, conversion costs required to 
bring nearly 100 percent of equipment into compliance would increase to 
an estimated $20.9 million.
    At all TSLs, INPV impacts could prove more severe if consumer 
demand falls in the face of higher per-unit purchase prices.
    DOE requests feedback on the expected total conversion costs for 
the industry at the evaluated TSLs. This is identified as issue 5 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment, DOE used the GRIM to 
estimate the domestic labor expenditures and number of direct employees 
in the base case and at each TSL from 2014 through 2048. DOE used 
statistical data from the U.S. Census Bureau's 2011 Annual Survey of 
Manufacturers,\62\ the results of the engineering analysis, and 
interviews with manufacturers to determine the inputs necessary to 
calculate industry-wide labor expenditures and domestic direct 
employment levels. Labor expenditures related to producing the 
equipment are a function of the labor intensity of producing the 
equipment, the sales volume, and an assumption that wages remain fixed 
in real terms over time. The total labor expenditures in each year are 
calculated by multiplying the MPCs by the labor percentage of MPCs. DOE 
estimates that 50 percent of PTAC and PTHP units are produced 
domestically.
---------------------------------------------------------------------------

    \62\ ``Annual Survey of Manufacturers: General Statistics: 
Statistics for Industry Groups and Industries,'' U.S. Census Bureau, 
2011. Available at www.census.gov/manufacturing/asm/index.html.
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM were then converted to 
domestic production employment levels by dividing production labor 
expenditures by the annual payment per production worker (production 
worker hours times the labor rate found in the U.S. Census Bureau's 
2011 Annual Survey of Manufacturers). The production worker estimates 
in this section only cover workers up to the line-supervisor level who 
are directly involved in fabricating and assembling a product within an 
OEM facility. Workers performing services that are closely associated 
with production operations, such as materials handling tasks using 
forklifts, are also included as production labor. DOE's estimates only 
account for production workers who manufacture the specific products 
covered by this rulemaking.
    To estimate an upper bound to employment change, DOE assumes all 
domestic manufacturers would choose to continue producing products in 
the U.S. and would not move production to foreign countries. To 
estimate a lower bound to employment, DOE estimates the maximum portion 
of the industry that would choose to leave the industry or relocate 
production overseas rather than make the necessary conversions at 
domestic production facilities. A complete description of the 
assumptions used to generate these upper and lower bounds can be found 
in chapter 12 of the NOPR TSD.
    As noted above, DOE estimates that 50 percent of PTAC and PTHP 
units sold in the United States are manufactured domestically. In the 
absence of amended energy conservation standards, DOE estimates that 
the PTAC and PTHP industry would employ 170 domestic production workers 
in 2019.
    Table V.12 below shows the range of impacts of potential amended 
energy conservation standards on U.S. production workers of PTACs and 
PTHPs. The potential changes to direct employment presented suggest 
that the PTAC and PTHP industry could experience anything from a slight 
gain in domestic direct employment to a loss of all domestic direct 
employment.

                       Table V.12--Potential Changes in the Total Number of Standard Size PTAC and PTHP Production Workers in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Trial standard level *
                                   ---------------------------------------------------------------------------------------------------------------------
                                        Base
                                    case[dagger]           1                    2                    3                    4                    5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Potential Changes in Domestic       ............  (170) to 4.........  (170) to 10........  (170) to 17........  (170) to 22........  (170) to 24
 Production Workers in 2019.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
[dagger] Base case assumes 170 domestic production workers in the PTAC and PTHP industry in 2019.

    The upper end of the range estimates the maximum increase in the 
number of production workers in the PTAC and PTHP industry after 
implementation of an amended energy conservation standard. It assumes 
manufacturers would continue to produce the same scope of covered 
equipment within the United States and would require some additional 
labor to produce more efficient equipment.
    The lower end of the range represents the maximum decrease in total 
number of U.S. production workers that could result from an amended 
energy conservation standard. Throughout interviews, manufacturers 
stated their concerns about increasing offshore competition entering 
the market. If the cost of complying with amended standards 
significantly erodes the profitability of domestic manufacturers 
relative to their competitors who manufacture and/or import PTACs and 
PTHPs from overseas, manufacturers with domestic production could 
decide to exit the PTAC and PTHP market and/or shift their production 
facilities offshore. The lower bound of direct employment impacts 
therefore assumes domestic production of PTACs and PTHPs ceases, as 
domestic manufacturers either exit the market or shift production 
overseas in search of reduced manufacturing costs.
    This conclusion is independent of any conclusions regarding 
indirect employment impacts in the broader

[[Page 55580]]

United States economy, which are documented in chapter 15 of the TSD.
    DOE requests comments on the total annual direct employment levels 
in the industry for PTAC production. This is identified as issue 6 in 
section VII.E, ``Issues on Which DOE Seeks Comment.''
c. Impacts on Manufacturing Capacity
    According to PTAC and PTHP manufacturers interviewed, amended 
energy conservation standards will not significantly constrain 
manufacturing production capacity. Among manufacturers with production 
assets, some indicated that more stringent energy conservation 
standards could reduce sales volumes, thereby resulting in excess 
capacity. Among importers and distributors, amended energy conservation 
standards would not likely impact capacity. Accordingly, DOE believes 
manufacturers will be able to maintain production capacity levels 
sufficient to meet market demand under the proposed levels.
d. 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. Specifically, DOE 
identified two subgroups of manufacturers for separate impact analyses: 
Manufacturers with production assets and small business manufacturers.
    DOE initially identified 22 companies that sell PTAC and PTHP 
equipment in the U.S. Among U.S. companies, few own production assets; 
rather, they import and distribute PTACs and PTHPs manufactured 
overseas, primarily in China. DOE identified a subgroup of three 
manufacturers that own production assets. These manufacturers own 
tooling or production assets either in the U.S. or in foreign 
countries. Together, these three manufacturers account for 
approximately 80 percent of the domestic PTAC and PTHP market. Because 
manufacturers with production assets will incur different conversion 
costs to comply with amended energy conservation standards compared to 
their competitors who do not own production assets, DOE conducted a 
separate analysis to evaluate the impact of an amended standard on the 
subgroup of manufacturers with production assets.
    As with the overall industry analysis, DOE modeled two different 
markup scenarios to evaluate the range of cash flow impacts on 
manufacturers with production assets: (1) The preservation of gross 
margin percentage markup scenario; and (2) the preservation of per unit 
operating profit markup scenario. See Section IV.J.2 for a complete 
description of markup scenarios.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding INPV values at each TSL. In the following discussion, 
the INPV results refer to the difference in value of manufacturers with 
production assets between the base case and standards cases as 
represented by the sum of discounted cash flows from the base year 2014 
through 2048, the end of the analysis period. To provide perspective on 
the short-run cash flow impact, DOE includes in the discussion of 
results a comparison of free cash flow between the base case and the 
standards case at each TSL in the year before amended standards would 
take effect. This figure provides an understanding of the magnitude of 
the required conversion costs relative to the cash flow generated by 
manufacturers with production assets in the base case.
    The table below presents a range of results reflecting both the 
preservation of gross margin percentage markup scenario and the 
preservation of per unit operating profit markup scenario. As discussed 
in section IV.J.B, the preservation of operating profit scenario 
accounts for the more severe impacts presented. Estimated conversion 
costs and free cash flow in the year prior to the effective date of 
amended standards do not vary with markup scenario.

                 Table V.13--Manufacturer Impact Analysis Results for the Subgroup of PTAC and PTHP Manufacturers With Production Assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Trial standard level*
                                      Units         Base  ----------------------------------------------------------------------------------------------
                                                    case           1                  2                  3                  4                  5
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV..........................  2013$M..........     46.8  45.5 to 45.8.....  45.7 to 46.5.....  43.0 to 44.7.....  42.6 to 45.3.....  39.4 to 42.7
Change in INPV................  2013$M..........  .......  (1.3) to (1.0)...  (1.1) to (0.3)...  (3.8) to (2.1)...  (4.2) to (1.5)...  (7.3) to (4.1)
                                % Change........  .......  (2.7) to (2.2)...  (2.3) to (0.5)...  (8.2) to (4.5)...  (9.0) to (3.1)...  (15.7) to (8.7)
Product Conversion Costs......  2013$M..........  .......  1.4..............  3.9..............  6.4..............  7.7..............  12.7
Capital Conversion Costs......  2013$M..........  .......  2.3..............  2.9..............  7.1..............  7.1..............  7.4
Total Conversion Costs........  2013$M..........  .......  3.7..............  6.8..............  13.5.............  14.7.............  20.1
Free Cash Flow................  2013$M..........      3.1  1.6..............  0.6..............  (2.0)............  (2.4)............  (4.0)
                                % Change........  .......  (46.7)...........  (79.7)...........  (165.5)..........  (177.5)..........  (230.1)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    As the results above demonstrate, manufacturers with production 
assets will experience financial impacts more negative than those 
facing the industry as a whole, discussed earlier in section V.B.2. 
These differential impacts derive primarily from the conversion costs 
manufacturers with production assets will incur in order to comply with 
an amended standard. In particular, manufacturers with production 
assets will face capital conversion costs not shared by their 
competitors who import and distribute PTACs and PTHPs and do not 
require tooling investments. In interviews, manufacturers with 
production assets indicated that more stringent standards could require 
significant investment in new tooling to support new coil designs. In 
addition, manufacturers with production assets would face product 
conversion costs in the form of design engineering, product 
development, testing, certification, marketing, and related costs.
    At the standard proposed in this document, DOE estimates the PTAC 
and

[[Page 55581]]

PTHP industry as a whole would face $7.6 million in conversion costs; 
of this, the subgroup of manufacturers with production assets would 
incur $6.8 million in conversion costs, or 89 percent of the industry 
total. At this level, manufacturers with production assets would also 
face an estimated loss in INPV of up to 2.3 percent compared to 1.3 
percent for the industry as a whole.
    For the small business subgroup analysis, DOE applied the small 
business size standards published by the Small Business Administration 
(SBA) to determine whether a company is considered a small business. 65 
FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 
5, 2000) and codified at 13 CFR part 121. To be categorized as a small 
business under North American Industry Classification System (NAICS) 
code 333415, ``Air-Conditioning and Warm Air Heating Equipment and 
Commercial and Industrial Refrigeration Equipment Manufacturing,'' a 
PTAC and PTHP manufacturer and its affiliates may employ a maximum of 
750 employees. The 750-employee threshold includes all employees in a 
business's parent company and any other subsidiaries. Based on this 
classification, DOE identified at least 12 manufacturers that qualify 
as small businesses. The PTAC and PTHP small business subgroup analysis 
is discussed in chapter 12 of the NOPR TSD and in section VI.B of this 
document.
e. 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. Multiple 
regulations affecting the same manufacturer can strain profits and can 
lead companies to abandon product lines or markets with lower expected 
future returns than competing products. For these reasons, DOE conducts 
an analysis of cumulative regulatory burden as part of its rulemakings 
pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE looks at other 
regulations that could affect PTAC and PTHP manufacturers that will 
take effect approximately three years before or after the 2019 
compliance date of amended energy conservation standards for standard-
sized PTACs and PTHPs. In interviews, manufacturers cited federal 
regulations on equipment other than PTACs and PTHPs that contribute to 
their cumulative regulatory burden. The compliance years and expected 
industry conversion costs of relevant amended energy conservation 
standards are indicated in the table below:

Table V.14--Compliance Dates and Expected Conversion Expenses of Federal
   Energy Conservation Standards Affecting PTAC and PTHP Manufacturers
------------------------------------------------------------------------
                                  Approximate
  Federal energy conservation     compliance    Estimated total industry
           standards                 date          conversion expense
------------------------------------------------------------------------
2011 Room Air Conditioners 76             2014  $171M (2009$)
 FR 22454 (April 21, 2011); 76
 FR 52854 (August 24, 2011).
2007 Residential Furnaces &               2015  $88M (2006$) *
 Boilers 72 FR 65136 (Nov. 19,
 2007).
2011 Residential Furnaces 76              2015  $2.5M (2009$) **
 FR 37408 (June 27, 2011); 76
 FR 67037 (Oct. 31, 2011).
2011 Residential Central Air              2015  $26.0M (2009$) **
 Conditioners and Heat Pumps
 76 FR 37408 (June 27, 2011);
 76 FR 67037 (Oct. 31, 2011).
2010 Gas Fired and Electric               2015  $95.4M (2009$)
 Storage Water Heaters 75 FR
 20112 (April 16, 2010).
Dishwashers ***...............            2018  TBD
Commercial Packaged Air                   2018  TBD
 Conditioners and Heat Pumps
 ***.
Commercial Warm-Air Furnaces              2018  TBD
 ***.
Furnace Fans 79 FR 38129 (July            2019  $40.6M (2013$)
 3, 2014).
Miscellaneous Residential                 2019  TBD
 Refrigeration ***.
Single Packaged Vertical Units            2019  TBD
 ***.
Commercial Water Heaters ***..            2019  TBD
Commercial Packaged Boilers               2020  TBD
 ***.
Residential Water Heaters ***.            2021  TBD
Clothes Dryers ***............            2022  TBD
Central Air Conditioners ***..            2022  TBD
Room Air Conditioners ***.....            2022  TBD
------------------------------------------------------------------------
* Conversion expenses for manufacturers of oil-fired furnaces and gas-
  fired and oil-fired boilers associated with the November 2007 final
  rule for residential furnaces and boilers are excluded from this
  figure. The 2011 direct final rule for residential furnaces sets a
  higher standard and earlier compliance date for oil-fired furnaces
  than the 2007 final rule. As a result, manufacturers will be required
  to design to the 2011 direct final rule standard. The conversion costs
  associated with the 2011 direct final rule are listed separately in
  this table. EISA 2007 legislated more stringent standards and earlier
  compliance dates for residential boilers than were required by the
  November 2007 final rule. As a result, gas-fired and oil-fired boiler
  manufacturers were required to design to the EISA 2007 standard
  beginning in 2012. The conversion costs listed for residential gas-
  fired and oil-fired boilers in the November 2007 residential furnaces
  and boilers final rule analysis are not included in this figure.
** Estimated industry conversion expense and approximate compliance date
  reflect a court-ordered April 24, 2014 remand of the residential non-
  weatherized and mobile home gas furnaces standards set in the 2011
  Energy Conservation Standards for Residential Furnaces and Residential
  Central Air Conditioners and Heat Pumps. The costs associated with
  this rule reflect implementation of the amended standards for the
  remaining furnace product classes (i.e., oil-fired furnaces).
*** The final rule for this energy conservation standard has not been
  published. The compliance date and analysis of conversion costs have
  not been finalized at this time. (If a value is provided for total
  industry conversion expense, this value represents an estimate from
  the NOPR.)

    Additionally, manufacturers cited increasing ENERGY STAR \63\ 
standards for room air conditioners and ductless heating and cooling 
systems as a source of regulatory burden. In response, DOE does not 
consider ENERGY STAR in its presentation of cumulative regulatory 
burden, because ENERGY STAR is a voluntary program and is not Federally 
mandated.
---------------------------------------------------------------------------

    \63\ ENERGY STAR is a U.S. EPA voluntary program designed to 
identify and promote energy-efficient products to reduce greenhouse 
gas emissions. For more information on the ENERGY STAR program, 
please visit www.energystar.gov.

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

[[Page 55582]]

3. National Impact Analysis
a. Amount and Significance of Energy Savings
    For each TSL, DOE projected energy savings for PTAC and PTHP 
equipment purchased in the 30-year period that begins in the year of 
anticipated compliance with amended standards (2019-2048). The savings 
are measured over the entire lifetime of equipment purchased in the 30-
year period. DOE quantified the energy savings attributable to each TSL 
as the difference in energy consumption between each standards case and 
the base case. DOE also determined energy savings for PTAC equipment 
with the ANSI/ASHRAE/IES Standard 90.1-2013 minimum efficiency level by 
comparing with the energy consumption of PTAC equipment meeting the 
Federal minimum efficiency level. Table V.15 shows the estimated 
primary energy savings for all the equipment classes of PTACs and PTHPs 
at each of the TSLs, and Table V.16 presents the estimated full-fuel-
cycle energy savings for each TSL. The approach for estimating national 
energy savings is further described in section IV.H.

                                            Table V.15--Cumulative Primary Energy Savings for PTACs and PTHPs
                                                             [Units sold from 2019 to 2048]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              ASHRAE                               Trial standard level  (quads)
                                                          Standard 90.1- -------------------------------------------------------------------------------
                                                              2013 *             1               2               3               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 7,000 Btu/h....................           0.000           0.000           0.003           0.005           0.006           0.006
Standard Size Equipment, 9,000 Btu/h....................           0.000           0.013           0.050           0.100           0.129           0.132
Standard Size Equipment, 15,000 Btu/h...................           0.001           0.002           0.005           0.010           0.012           0.013
                                                         -----------------------------------------------------------------------------------------------
    Total all classes...................................           0.001           0.015           0.058           0.116           0.148           0.152
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Energy savings determined from comparing PTAC energy consumption at the ANSI/ASHRAE/IES Standard 90.1-2013 efficiency level to that at the Federal
  minimum efficiency level.


                                        Table V.16--Cumulative Full-Fuel-Cycle Energy Savings for PTACs and PTHPs
                                                             [Units sold from 2019 to 2048]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              ASHRAE                               Trial standard level  (quads)
                                                          Standard 90.1- -------------------------------------------------------------------------------
                                                              2013 *             1               2               3               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 7,000 Btu/h....................           0.000           0.000           0.003           0.005           0.006           0.007
Standard Size Equipment, 9,000 Btu/h....................           0.000           0.013           0.051           0.102           0.131           0.134
Standard Size Equipment, 15,000 Btu/h...................           0.001           0.002           0.005           0.010           0.013           0.014
                                                         -----------------------------------------------------------------------------------------------
    Total all classes...................................           0.001           0.015           0.059           0.118           0.150           0.155
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Energy savings determined from comparing PTAC energy consumption at the ANSI/ASHRAE/IES Standard 90.1-2013 efficiency level to that at the Federal
  minimum efficiency level.

    The results indicate that each TSL that is more stringent than the 
corresponding level in ANSI/ASHRAE/IES Standard 90.1-2013 results in 
additional energy savings. The primary national energy savings from 
adopting the ANSI/ASHRAE/IES Standard 90.1-2013 minimum for PTACs saves 
0.079 thousandths of a quad over the Federal minimum.
    OMB Circular A-4 \64\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE also undertook a sensitivity analysis using nine rather than 30 
years of equipment shipments. The choice of a nine-year period is a 
proxy for the timeline in EPCA for the review of certain energy 
conservation standards and potential revision of and compliance with 
such revised standards.\65\ The review timeframe established in EPCA is 
generally not synchronized with the equipment lifetime, equipment 
manufacturing cycles, or other factors specific to PTACs and PTHPs. 
Thus, such results are presented for informational purposes only and 
are not indicative of any change in DOE's analytical methodology. The 
NES results based on a 9-year analytical period are presented in Table 
V.17. The impacts are counted over the lifetime of PTAC and PTHP 
equipment purchased in 2019-2027.
---------------------------------------------------------------------------

    \64\ ``Circular A-4: Regulatory Analysis,'' U.S. Office of 
Management and Budget, September, 2003. Available at: 
www.whitehouse.gov/omb/circulars_a004_a-4/.
    \65\ EPCA requires DOE to review its standards at least once 
every 6 years, and requires, for certain equipment, a 3-year period 
after any new standard is promulgated before compliance is required, 
except that in no case may any new standards be required within 6 
years of the compliance date of the previous standards. (42 U.S.C. 
6313(a)(6)(C)(i)) While adding a 6-year review to the 3-year 
compliance period adds up to 9 years, DOE notes that it may 
undertake reviews at any time within the 6 year period and that the 
3-year compliance date may yield to the 6-year backstop.

[[Page 55583]]



               Table V.17--Cumulative Primary Energy Savings for PTAC and PTHP Equipment Trial Standard Levels for Units Sold in 2019-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              ASHRAE                               Trial standard level  (quads)
                     Equipment class                      Standard 90.1- -------------------------------------------------------------------------------
                                                              2013 *             1               2               3               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 7,000 Btu/h....................           0.000           0.000           0.000           0.002           0.002           0.002
Standard Size Equipment, 9,000 Btu/h....................           0.000           0.005           0.014           0.028           0.044           0.047
Standard Size Equipment, 15,000 Btu/h...................           0.000           0.000           0.002           0.004           0.005           0.005
                                                         -----------------------------------------------------------------------------------------------
    Total all classes...................................           0.000           0.005           0.017           0.033           0.050           0.055
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Energy savings determined from comparing PTAC energy consumption at the ANSI/ASHRAE/IES Standard 90.1-2013 efficiency level to that at the Federal
  minimum efficiency level.

b. Net Present Value of Customer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
customers that would result from the TSLs considered for PTAC and PTHP 
equipment. In accordance with OMB's guidelines on regulatory 
analysis,\66\ DOE calculated the NPV using both a 7-percent and a 3-
percent real discount rate. The 7-percent rate is an estimate of the 
average before-tax rate of return on private capital in the U.S. 
economy, and reflects the returns on real estate and small business 
capital as well as corporate capital. This discount rate approximates 
the opportunity cost of capital in the private sector (OMB analysis has 
found the average rate of return on capital to be near this rate). The 
3-percent rate reflects the potential effects of standards on private 
consumption (e.g., through higher prices for equipment and reduced 
purchases of energy). This rate represents the rate at which society 
discounts future consumption flows to their present value. It can be 
approximated by the real rate of return on long-term government debt 
(i.e., yield on United States Treasury notes), which has averaged about 
3 percent for the past 30 years.
---------------------------------------------------------------------------

    \66\ ``OMB Circular A-4, section E,'' U.S. Office of Management 
and Budget, September, 2003. Available online at http://www.whitehouse.gov/omb/circulars_a004_a-4.
---------------------------------------------------------------------------

    Table V.18 shows the customer NPV results for each TSL considered 
for PTAC and PTHP equipment. In each case, the impacts cover the 
lifetime of equipment purchased in 2019-2048.

 Table V.18--Net Present Value of Customer Benefits for Packaged Terminal Air Conditioning and Heat Pump Equipment Trial Standard Levels for Units Sold
                                                                      in 2019-2048
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Trial standard level *  (millions 2013$)
                      Product class                        Discount rate -------------------------------------------------------------------------------
                                                             (percent)           1               2               3               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
<7,000 Btu/h............................................               3             0.7             1.8             2.4             2.2             2.1
7,000-15,000 Btu/h......................................  ..............            22.3            65.9           113.8           134.6           136.4
>15,000 Btu/h...........................................  ..............             1.0             1.2           (2.4)           (6.7)           (7.6)
                                                         -----------------------------------------------------------------------------------------------
    Total--all classes..................................  ..............            23.9            69.0           113.8           130.2           131.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
<7,000 Btu/h............................................               7             0.1           (0.2)           (1.2)           (2.2)           (2.5)
7,000-15,000 Btu/h......................................  ..............             6.3            12.3            14.5            10.5             9.0
>15,000 Btu/h...........................................  ..............  ..............           (1.5)           (5.4)           (9.5)          (10.4)
                                                         -----------------------------------------------------------------------------------------------
    Total--all classes..................................  ..............             6.5            10.7             7.9           (1.1)           (3.8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values. Note: Values of 0.0 represent a non-zero NPV that cannot be displayed due to rounding. Numbers may not sum to
  total due to rounding.

    The NPV results based on the aforementioned nine-year analytical 
period are presented in Table V.19. The impacts are counted over the 
lifetime of equipment purchased in 2019-2027. As mentioned previously, 
this information is presented for informational purposes only and is 
not indicative of any change in DOE's analytical methodology or 
decision criteria.

 Table V.19--Net Present Value of Customer Benefits for Packaged Terminal Air Conditioning and Heating Equipment Trial Standard Levels for Units Sold in
                                                                        2019-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Trial standard level *  (millions 2013$)
                      Product class                        Discount rate -------------------------------------------------------------------------------
                                                             (percent)           1               2               3               4               5
--------------------------------------------------------------------------------------------------------------------------------------------------------
<7,000 Btu/h............................................               3             0.2             0.7             0.6             0.4             0.3
7,000--15,000 Btu/h.....................................  ..............            10.5            24.2            39.0            49.9            51.8

[[Page 55584]]

 
>15,000 Btu/h...........................................  ..............             0.5             1.2             0.2           (2.6)           (3.5)
                                                         -----------------------------------------------------------------------------------------------
    Total--all classes..................................  ..............            11.2            26.0            39.8            47.8            48.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
<7,000 Btu/h............................................               7             0.1  ..............           (0.7)           (1.4)           (1.6)
7,000--15,000 Btu/h.....................................  ..............             4.3             6.7             6.8             3.5             2.0
>15,000 Btu/h...........................................  ..............  ..............           (0.4)           (2.1)           (5.1)           (6.0)
                                                         -----------------------------------------------------------------------------------------------
    Total--all classes..................................  ..............             4.4             6.2             4.0           (2.9)           (5.6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Note: Values of 0.0 represent a non-zero NPV that cannot be displayed due to rounding. Numbers may not sum to total due to rounding.

c. Indirect Impacts on Employment
    DOE expects amended energy conservation standards for PTAC and PTHP 
equipment to reduce energy costs for equipment owners, and the 
resulting net savings to be redirected to other forms of economic 
activity. Those shifts in spending and economic activity could affect 
the demand for labor. As described in section IV.N, DOE used an input/
output model of the U.S. economy to estimate indirect employment 
impacts of the TSLs that DOE considered in this rulemaking. DOE 
understands that there are uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Therefore, DOE generated results for near-term time frames, 
where these uncertainties are reduced.
    The results suggest that the proposed standards are likely to have 
negligible impact on the net demand for labor in the economy. The net 
change in jobs is so small that it would be imperceptible in national 
labor statistics and might be offset by other, unanticipated effects on 
employment. Chapter 16 of the NOPR TSD presents detailed results.
4. Impact on Utility or Performance of Equipment
    In performing the engineering analysis, DOE considered efficiency 
levels that may be achieved using 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.C of this document, DOE concluded that the efficiency levels 
proposed for standard size equipment in this document are 
technologically feasible and would not reduce the utility or 
performance of PTACs and PTHPs. PTAC and PTHP manufacturers currently 
offer equipment that meet or exceed the proposed standard levels.
5. Impact of Any Lessening of Competition
    DOE considers any lessening of competition that is likely to result 
from amended standards. The Attorney General determines the impact, if 
any, of any lessening of competition likely to result from a proposed 
standard, and transmits such determination to the Secretary, together 
with an analysis of the nature and extent of such impact.
    To assist the Attorney General in making such determination, DOE 
will provide the Department of Justice (DOJ) with copies of this NOPR 
and the TSD for review. DOE will consider DOJ's comments on the 
proposed rule in preparing the final rule, and DOE will publish and 
respond to DOJ's comments in that document.
6. Need of the Nation To Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts or costs of energy production. Reduced 
electricity demand due to energy conservation standards is also likely 
to reduce the cost of maintaining the reliability of the electricity 
system, particularly during peak-load periods. As a measure of this 
reduced demand, chapter 15 of the TSD presents the estimated reduction 
in generating capacity for the TSLs that DOE considered in this 
rulemaking.
    The expected energy savings from amended PTAC and PTHP standards 
could also produce environmental benefits in the form of reduced 
emissions of air pollutants and greenhouse gases associated with 
electricity production. Table V.20 provides DOE's estimate of 
cumulative emissions reductions projected to result from the TSLs 
considered in this rulemaking. DOE reports annual emissions reductions 
for each TSL in chapter 13 of the NOPR TSD.

                          Table V.20--Summary of Emissions Reductions for PTAC and PTHP
                                         [Units sold from 2019 to 2048]
----------------------------------------------------------------------------------------------------------------
                                                               Trial standard level
                                 -------------------------------------------------------------------------------
                                         1               2               3               4               5
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......            1.06            4.15            8.23           10.52           10.81
SO2 (thousand tons).............            2.46            9.70           19.22           24.07           24.60
NOX (thousand tons).............            0.48            1.90            3.76            4.63            4.69
Hg (tons).......................            0.00            0.01            0.02            0.03            0.03
N2O (thousand tons).............            0.02            0.07            0.14            0.17            0.17

[[Page 55585]]

 
CH4 (thousand tons).............            0.10            0.39            0.77            0.98            1.01
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......            0.05            0.18            0.36            0.47            0.48
SO2 (thousand tons).............            0.01            0.04            0.08            0.10            0.10
NOX (thousand tons).............            0.65            2.53            5.02            6.43            6.62
Hg (tons).......................            0.00            0.00            0.00            0.00            0.00
N2O (thousand tons).............            0.00            0.00            0.00            0.00            0.00
CH4 (thousand tons).............            3.92           15.36           30.51           39.10           40.22
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......            1.10            4.33            8.60           10.98           11.29
SO2 (thousand tons).............            2.47            9.74           19.30           24.17           24.70
NOX (thousand tons).............            1.12            4.42            8.78           11.06           11.31
Hg (tons).......................            0.00            0.01            0.02            0.03            0.03
N2O (thousand tons).............            0.02            0.07            0.14            0.18            0.18
N2O (thousand tons CO2eq)*......            5.43           21.37           42.19           52.32           53.53
CH4 (thousand tons).............            4.02           15.75           31.28           40.08           41.22
CH4 (million tons CO2eq) *......          100.53          393.72          782.02         1001.97         1030.54
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP) as the subject emission.

    As part of the analysis for this rule, DOE estimated monetary 
benefits likely to result from the reduced emissions of CO2 
and NOX that DOE estimated for each of the TSLs considered. 
As discussed in section IV.L.1, DOE used the most recent values for the 
SCC developed by an interagency process. The four sets of SCC values 
resulting from that process (expressed in 2013$) are represented by 
$12.0/metric ton (the average value from a distribution that uses a 5-
percent discount rate), $40.5/metric ton (the average value from a 
distribution that uses a 3-percent discount rate), $62.4/metric ton 
(the average value from a distribution that uses a 2.5-percent discount 
rate), and $119/metric ton (the 95th-percentile value from a 
distribution that uses a 3-percent discount rate). These values 
correspond to the value of emission reductions in 2015; the values for 
later years are higher due to increasing damages as the projected 
magnitude of climate change increases.
    Table V.21 presents the global value of CO2 emissions 
reductions at each TSL. For each of the four cases, DOE calculated a 
present value of the stream of annual values using the same discount 
rate as was used in the studies upon which the dollar-per-ton values 
are based. DOE calculated domestic values as a range from 7 percent to 
23 percent of the global values, and these results are presented in 
chapter 14 of the NOPR TSD.

      Table V.21--Estimates of Global Present Value of CO2 Emissions Reduction Under Packaged Terminal Air
                           Conditioning and Heat Pump Equipment Trial Standard Levels
----------------------------------------------------------------------------------------------------------------
                                                   Social cost of carbon case *  (million 2013$)
                                 -------------------------------------------------------------------------------
               TSL                 5% discount rate,   3% discount rate,     2.5% discount     3% discount rate,
                                       average *           average *        rate, average *    95th percentile *
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1...............................                6.90               32.60               52.04              101.01
2...............................               26.86              127.30              203.32              394.56
3...............................               53.64              253.57              404.84              786.02
4...............................               70.70              329.56              524.84             1021.08
5...............................               73.17              339.99              541.12             1053.04
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1...............................                0.31                1.45                2.31                4.49
2...............................                1.20                5.66                9.03               17.53
3...............................                2.39               11.27               17.98               34.93
4...............................                3.16               14.70               23.40               45.54
5...............................                3.28               15.18               24.15               47.01
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1...............................                7.21               34.05               54.35              105.50
2...............................               28.06              132.95              212.35              412.08

[[Page 55586]]

 
3...............................               56.03              264.84              422.82              820.95
4...............................               73.86              344.26              548.24             1066.62
5...............................               76.45              355.18              565.28             1100.06
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4, and $119
  per metric ton (2013$).

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other greenhouse gas (GHG) emissions 
to changes in the future global climate and the potential resulting 
damages to the world economy continues to evolve rapidly. Thus, any 
value placed on reducing CO2 emissions in this rulemaking is 
subject to change. DOE, together with other Federal agencies, will 
continue to review various methodologies for estimating the monetary 
value of reductions in CO2 and other GHG emissions. This 
ongoing review will consider the comments on this subject that are part 
of the public record for this and other rulemakings, as well as other 
methodological assumptions and issues. However, consistent with DOE's 
legal obligations, and taking into account the uncertainty involved 
with this particular issue, DOE has included in this proposed rule the 
most recent values and analyses resulting from the interagency process.
    DOE also estimated the cumulative monetary value of the economic 
benefits associated with NOX emissions reductions 
anticipated to result from amended standards for PTACs and PTHPs. The 
dollar-per-ton values that DOE used are discussed in section IV.L.1. 
Table V.22 presents the cumulative present values for each TSL 
calculated using seven-percent and three-percent discount rates.

 Table V.22--Estimates of Present Value of NOX Emissions Reduction Under
    Packaged Terminal Air Conditioning and Heat Pump Equipment Trial
                             Standard Levels
------------------------------------------------------------------------
                                               Million 2013$
               TSL               ---------------------------------------
                                   3% discount rate    7% discount rate
------------------------------------------------------------------------
                         Power Sector Emissions
------------------------------------------------------------------------
1...............................                0.56                0.21
2...............................                2.20                0.81
3...............................                4.39                1.62
4...............................                5.57                2.13
5...............................                5.67                2.18
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1...............................                0.83                0.36
2...............................                3.23                1.39
3...............................                6.46                2.80
4...............................                8.59                3.89
5...............................                8.92                4.09
------------------------------------------------------------------------
                           Total FFC Emissions
------------------------------------------------------------------------
1...............................                1.39                0.57
2...............................                5.43                2.20
3...............................               10.85                4.42
4...............................               14.16                6.02
5...............................               14.59                6.27
------------------------------------------------------------------------

7. Summary of National Economic Impacts
    The NPV of the monetized benefits associated with emissions 
reductions can be viewed as a complement to the NPV of the customer 
savings calculated for each TSL considered in this rulemaking. Table 
V.23. presents the NPV values that result from adding the estimates of 
the potential economic benefits resulting from reduced CO2 
and NOX emissions in each of four valuation scenarios to the 
NPV of customer savings calculated for each TSL considered in this 
rulemaking, at both a seven-percent and three-percent discount rate. 
The CO2 values used in the columns of each table correspond 
to the four sets of SCC values discussed above.

[[Page 55587]]



Table V.23--Net Present Value of Customer Savings Combined With Present Value of Monetized Benefits From CO2 and
                                            NOX Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                                           Customer NPV at 3% discount rate added with:  (million 2013$)
                                 -------------------------------------------------------------------------------
                                    SCC case $12.0/     SCC case $40.5/     SCC case $62.4/     SCC case $119/
               TSL                  metric ton CO2*     metric ton CO2*     metric ton CO2*     metric ton CO2*
                                   and medium value    and medium value    and medium value    and medium value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
1...............................                32.5                59.4                79.7               130.8
2...............................               102.5               207.3               286.7               486.5
3...............................               180.6               389.4               547.4               945.5
4...............................               218.2               488.6               692.6              1211.0
5...............................               222.1               500.8               710.9              1245.7
----------------------------------------------------------------------------------------------------------------


 
                                           Customer NPV at 7% discount rate added with:  (million 2013$)
                                 -------------------------------------------------------------------------------
                                    SCC case $12.0/     SCC case $40.5/     SCC case $62.4/     SCC case $119/
               TSL                  metric ton CO2*     metric ton CO2*     metric ton CO2*     metric ton CO2*
                                   and medium value    and medium value    and medium value    and medium value
                                        for NOX             for NOX             for NOX             for NOX
----------------------------------------------------------------------------------------------------------------
1...............................                14.3                41.1                61.4               112.6
2...............................                41.0               145.9               225.2               425.0
3...............................                68.3               277.1               435.1               833.3
4...............................                78.7               349.1               553.1              1071.5
5...............................                78.9               357.6               567.7              1102.5
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$.

    Although adding the value of customer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating cost savings are domestic 
U.S. customer monetary savings that occur as a result of market 
transactions, while the value of CO2 reductions is based on 
a global value. Second, the assessments of operating cost savings and 
the SCC are performed with different methods that use different time 
frames for analysis. The national operating cost savings is measured 
for the lifetime of equipment shipped in 2019-2048. The SCC values, on 
the other hand, reflect the present value of future climate-related 
impacts resulting from the emission of one metric ton of CO2 
in each year. These impacts continue well beyond 2100.
8. 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)) No other factors were considered in this 
analysis.

C. Proposed Standard

    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 ANSI/ASHRAE/IES 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 this 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 
reached the highest efficiency level that is technologically feasible, 
economically justified and saves a significant amount of energy.
    To aid the reader as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section summarize the quantitative analytical 
results for each TSL, based on the assumptions and methodology 
discussed herein. The efficiency levels contained in each TSL are 
described in section V.A. In addition to the quantitative results 
presented in the tables, DOE also considers other burdens and benefits 
that affect economic justification. These include the impacts on 
identifiable subgroups of customers that may be disproportionately 
affected by a national standard (see section V.B.1.b), and impacts on 
employment. DOE discusses the impacts on employment in PTAC and PTHP 
manufacturing in section V.B.2, and discusses the indirect employment 
impacts in section V.B.3.c.
1. Benefits and Burdens of Trial Standard Levels Considered for 
Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps
    Table V.24 and Table V.25 summarize the quantitative impacts 
estimated for each TSL for packaged terminal air conditioners and 
packaged terminal heat pumps.

[[Page 55588]]



               Table V.24--Summary of Analytical Results for Packaged Terminal Air Conditioning and Heat Pump Equipment: National Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Category                      TSL 1                    TSL 2                   TSL 3                   TSL 4                   TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            National FFC Energy Savings quads
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 0.015..................  0.059.................  0.118.................  0.150.................  0.155
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NPV of Customer Benefits *** 2013$ million
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate...............  23.9...................  69.0..................  113.8.................  130.2.................  131.0
7% discount rate...............  6.5....................  10.7..................  7.9...................  (1.1).................  (3.8)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Cumulative Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 million metric tons........  1.10...................  4.33..................  8.60..................  10.98.................  11.29
SO2 thousand tons..............  2.47...................  9.74..................  19.30.................  24.17.................  24.70
NOX thousand tons..............  1.12...................  4.42..................  8.78..................  11.06.................  11.31
Hg tons........................  0.00...................  0.01..................  0.02..................  0.03..................  0.03
N2O thousand tons..............  0.02...................  0.07..................  0.14..................  0.18..................  0.18
N2O thousand tons CO2eq*.......  5.43...................  21.37.................  42.19.................  52.32.................  53.53
CH4 thousand tons..............  4.02...................  15.75.................  31.28.................  40.08.................  41.22
CH4 thousand tons CO2eq*.......  100.53.................  393.72................  782.02................  1001.97...............  1030.54
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Value of Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 2013$ million**............  7.2 to 105.5...........  28.1 to 412.1.........  56.0 to 820.9.........  73.9 to 1066.6........  76.4 to 1100.1
NOX--3% discount rate 2013$      1.39...................  5.43..................  10.85.................  14.16.................  14.59
 million.
NOX--7% discount rate 2013$      0.57...................  2.20..................  4.42..................  6.02..................  6.27
 million.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP) as the subject emission.
** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
*** Parentheses indicate negative values.


       Table V.25--Summary of Analytical Results for Packaged Terminal Air Conditioning and Heat Pump Equipment: Manufacturer and Customer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Category                      TSL 1                    TSL 2                   TSL 3                   TSL 4                   TSL 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Industry Impacts ***
--------------------------------------------------------------------------------------------------------------------------------------------------------
Change in Industry NPV (2013$M)  (1.4) to (1.1).........  (0.7) to 0.3..........  (3.1) to (0.9)........  (3.5) to 0.0..........  (6.7) to (2.6)
Industry NPV (% Change)........  (2.4) to (1.9).........  (1.3) to 0.5..........  (5.3) to (1.6)........  (5.9) to 0.0..........  (11.4) to (4.4)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Customer Mean LCC Savings *** 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 9,000   1.23...................  0.40..................  (2.31)................  (6.66)................  (9.45)
 Btu/h.
Standard Size Equipment, 15,000  0.01...................  (2.11)................  (12.64)...............  (31.18)...............  (43.48)
 Btu/h.
Weighted Average *.............  1.14...................  0.21..................  (3.05)................  (8.41)................  (11.89)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Customer Median PBP years
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 9,000   7.1....................  8.0...................  8.9...................  9.5...................  9.8
 Btu/h.
Standard Size Equipment, 15,000  8.4....................  9.9...................  12.4..................  14.8..................  15.9
 Btu/h.
Weighted Average *.............  7.2....................  8.2...................  9.2...................  9.9...................  10.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Standard Size Equipment 9,000 Btu/h **
--------------------------------------------------------------------------------------------------------------------------------------------------------
Customers with Net Cost %......  20%....................  37%...................  63%...................  71%...................  73%
Customers with No Impact %.....  54%....................  37%...................  7%....................  0%....................  0%
Customers with Net Benefit %...  26%....................  27%...................  31%...................  29%...................  27%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Standard Size Equipment 15,000 Btu/h **
--------------------------------------------------------------------------------------------------------------------------------------------------------
Customers with Net Cost %......  23%....................  42%...................  77%...................  87%...................  91%
Customers with No Impact %.....  61%....................  41%...................  7%....................  2%....................  1%
Customers with Net Benefit %...  17%....................  17%...................  16%...................  10%...................  9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Weighted Average **
--------------------------------------------------------------------------------------------------------------------------------------------------------
Customers with Net Cost %......  20%....................  37%...................  63%...................  72%...................  74%
Customers with No Impact %.....  54%....................  37%...................  7%....................  0%....................  0%
Customers with Net Benefit %...  26%....................  26%...................  30%...................  28%...................  26%
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Weighted by shares of each equipment class in total projected shipments in 2019.
** Rounding may cause some items to not total 100 percent.
*** Parentheses indicate negative values.


[[Page 55589]]

    First, DOE considered TSL 5, the most efficient level (max tech), 
which would save an estimated total of 0.155 quads of energy, an amount 
DOE considers significant. TSL 5 has an estimated NPV of customer cost 
of $3.8 million using a 7 percent discount rate, and an estimated NPV 
of customer savings of $131.0 million using a 3 percent discount rate.
    The cumulative emissions reductions at TSL 5 are 11.29 million 
metric tons of CO2, 11.31 thousand tons of NOX, 
24.70 thousand tons of SO2, 41.22 thousand tons of 
CH4, and 0.03 tons of Hg. The estimated monetary value of 
the CO2 emissions reductions at TSL 5 ranges from $76.4 
million to $1,100.1 million.
    At TSL 5, DOE projects that the average PTAC customer or PTHP 
customer will experience an increase in LCC. Purchasers are projected 
to lose on average $11.89 over the life of the equipment. DOE estimates 
LCC increases for 74 percent of customers that purchase a standard size 
PTAC or PTHP. The median payback period for a standard size PTAC or 
PTHP at TSL 5 is projected to be longer than the mean lifetime of the 
equipment.
    At TSL 5, the projected change in INPV ranges from a decrease of 
$6.7 million to a decrease of $2.6 million. If the more severe range of 
impacts is reached, TSL 5 could result in a net loss of up to 11.4 
percent of INPV for manufacturers. Currently, there is only one 
equipment line being manufactured at TSL 5 efficiency levels, and the 
equipment is a PTHP. DOE believes that PTAC and PTHP manufacturers will 
be able to design and produce equipment at TSL 5, based on the 
existence of a unit that achieves TSL 5 levels without the use of 
proprietary technologies.
    In view of the foregoing, DOE concludes that, at TSL 5 for PTACs 
and PTHPs, 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 customers, and the 
large capital conversion costs that could result in a reduction in INPV 
for manufacturers. Consequently, DOE has concluded that TSL 5 is not 
economically justified.
    Next, DOE considered TSL 4, which would save an estimated total of 
0.150 quads of energy, an amount DOE considers significant. TSL 4 has 
an estimated NPV of customer cost of $1.1 million using a 7 percent 
discount rate, and an estimated NPV of customer savings of $130.2 
million using a 3 percent discount rate.
    The cumulative emissions reductions at TSL 4 are 10.98 million 
metric tons of CO2, 11.06 thousand tons of NOX, 
24.17 thousand tons of SO2, 40.08 thousand tons of 
CH4, and 0.03 tons of Hg. The estimated monetary value of 
the CO2 emissions reductions at TSL 4 ranges from $73.9 
million to $1066.6 million.
    At TSL 4, DOE projects that the average PTAC customer or PTHP 
customer will experience an increase in LCC. Purchasers are projected 
to lose on average $8.41 over the life of the equipment. DOE estimates 
LCC increases for 72 percent of customers that purchase a standard size 
PTAC or PTHP. The median payback period for a standard size PTAC or 
PTHP at TSL 4 is projected to be shorter than the mean lifetime of the 
equipment.
    At TSL 4, the projected change in INPV ranges from a decrease of 
$3.5 million to a decrease of $0.0 million. If the lower bound of the 
range of impacts is reached, TSL 4 could result in a net loss of up to 
5.9 percent of INPV for manufacturers.
    After carefully considering the analysis and weighing the benefits 
and burdens of TSL 4, the Secretary has tentatively concluded that at 
TSL 4, 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 customers, and the large 
capital conversion costs that could result in a reduction in INPV for 
manufacturers.
    Next, DOE considered TSL 3, which would save an estimated total of 
0.118 quads of energy, an amount DOE considers significant. TSL 3 has 
an estimated NPV of customer savings of $7.9 million using a 7 percent 
discount rate, and $113.8 million using a 3 percent discount rate.
    The cumulative emissions reductions at TSL 3 are 8.60 million 
metric tons of CO2, 8.78 thousand tons of NOX, 
19.30 thousand tons of SO2, 31.28 thousand tons of 
CH4, 0.02 tons of Hg. The estimated monetary value of the 
CO2 emissions reductions at TSL 3 ranges from $56.0 million 
to $820.9 million.
    At TSL 3, DOE projects that the average PTAC customer or PTHP 
customer will experience an increase in LCC. Purchasers are projected 
to lose on average $3.05 over the life of the product. DOE estimates 
LCC increases for 63 percent of customers that purchase a standard size 
PTAC or PTHP. The median payback period for a standard size PTAC or 
PTHP at TSL 3 is projected to be shorter than the mean lifetime of the 
equipment.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$3.1 million to a decrease of $0.9 million. If the lower bound of the 
range of impacts is reached, TSL 3 could result in a net loss of up to 
5.3 percent of INPV for manufacturers.
    After carefully considering the analysis and weighing the benefits 
and burdens of TSL 3, the Secretary has tentatively concluded that at 
TSL 3, the benefits of energy savings, emissions reductions, and net 
economic savings to the Nation would be outweighed by the potential 
economic burden on the majority of customers of PTAC and PTHP equipment 
and the capital conversion costs that could result in a reduction in 
INPV for manufacturers.
    Next, DOE considered TSL 2, which would save an estimated total of 
0.059 quads of energy, an amount DOE considers significant. TSL 2 has 
an estimated NPV of customer savings of $10.7 million using a 7 percent 
discount rate, and $69.0 million using a 3 percent discount rate.
    The cumulative emissions reductions at TSL 2 are 4.33 million 
metric tons of CO2, 4.42 thousand tons of NOX, 
9.74 thousand tons of SO2, 15.75 thousand tons of 
CH4, and 0.01 tons of Hg. The estimated monetary value of 
the CO2 emissions reductions at TSL 2 ranges from $28.1 
million to $412.1 million.
    At TSL 2, DOE projects that the average PTAC or PTHP customer will 
experience an decrease in LCC. Purchasers are projected to save on 
average $0.21 over the life of the equipment. DOE estimates LCC 
increases for 37 percent of customers that purchase a standard size 
PTAC or PTHP. The median payback period for a standard size PTAC or 
PTHP at TSL 2 is projected to be shorter than the mean lifetime of the 
equipment.
    At TSL 2, the projected change in INPV ranges from a decrease of 
$0.7 million to an increase of $0.3 million. If the lower bound of the 
range of impacts is reached, TSL 3 could result in a net loss of up to 
1.3 percent of INPV for manufacturers.
    After carefully considering the analysis and weighing the benefits 
and burdens of TSL 2, the Secretary has tentatively concluded that at 
TSL 2, the benefits of energy savings, emissions reductions, net 
economic benefits to the Nation and the potential economic savings to 
customers of PTAC and PTHP equipment outweigh the potential economic 
burden on customers and the capital conversion costs that could result 
in a reduction in INPV for manufacturers. Accordingly, the Secretary 
concludes that TSL 2 saves a significant amount of energy and is 
technologically feasible and economically justified. Therefore, DOE 
proposes to adopt the energy

[[Page 55590]]

conservation standards for PTACs and PTHPs at TSL 2.
    Although DOE proposed this level based on examining energy savings 
and economic justification as compared to adoption of the ANSI/ASHRAE/
IES Standard 90.1-2013 level (i.e., the ASHRAE Standard 90.1-2013 
baseline) as required by statute (42 U.S.C. 6313(a)(6)(A)(ii)), DOE 
presents in Table V.26 to Table V.31, for informational purposes only, 
the benefits and burdens on the customer, the manufacturer, and the 
Nation in comparison to a base case including the current Federal 
standards. The results compared to the ASHRAE Standard 90.1-2013 
baseline are also included for comparison.

  Table V.26--Average LCC and PBP Results for PTACs and PTHPs at the Proposed Trial Standard Level for Units Sold in 2019-2048 Compared to the Current
                                                                    Federal Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Average Life-Cycle Costs (2013$)                     Simple
                                                         ----------------------------------------------------------------     payback         Average
                                       Equipment class                     First year's      Lifetime                         (years)        lifetime
                                                          Installed cost  operating cost  operating cost        LCC          [dagger]         (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ASHRAE baseline...................  <12,000 Btu/h.......          $1,508            $192          $1,395          $2,903             7.3              10
                                    >=12,000 Btu/h......           1,767             249           1,812           3,579             8.6
                                   ------------------------------------------------------------------------------------------------------
                                       Total--All                  1,527             196           1,425           2,952             7.4
                                        Classes.
-----------------------------------------------------------------------------------------------------------------------------------------
Current Federal standards.........  <12,000 Btu/h.......           1,506             192           1,395           2,901             7.2
                                    >=12,000 Btu/h......           1,764             249           1,812           3,576             8.1
                                   ------------------------------------------------------------------------------------------------------
                                       Total--All                  1,525             196           1,425           2,950             7.3
                                        Classes.
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] Note: The results for each TSL are calculated assuming that all consumers use products with that efficiency level. The PBP is measured relative
  to the baseline product.


  Table V.27--LCC Savings Relative to the Base Case Efficiency Distribution for PTACs and PTHPs at the Proposed
           Trial Standard Level for Units Sold in 2019-2048 Compared to the Current Federal Standards
----------------------------------------------------------------------------------------------------------------
                                                                             Life-Cycle Cost Savings
                                                               -------------------------------------------------
                                           Equipment class        % of Consumers that
                                                                  experience net cost     Avg. savings  (2013$)*
----------------------------------------------------------------------------------------------------------------
ASHRAE baseline......................  <12,000 Btu/h..........                       37                    $0.40
                                       >=12,000 Btu/h.........                       42                  ($2.11)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
                                          Total--All Classes..                       37                     0.21
----------------------------------------------------------------------------------------------------------------
Current Federal standards............  <12,000 Btu/h..........                       36                     0.47
                                       >=12,000 Btu/h.........                       41                  ($2.02)
                                      --------------------------------------------------------------------------
                                          Total--All Classes..                       36                     0.29
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
** The calculation includes households with zero LCC savings (no impact).


  Table V.28--Manufacturer Impact Analysis Results for PTACs and PTHPs at the Proposed Trial Standard Level for
                        Units Sold in 2019-2048 Compared to the Current Federal Standards
----------------------------------------------------------------------------------------------------------------
                                         ASHRAE standard 90.1-2013 baseline       Current Federal  standards
----------------------------------------------------------------------------------------------------------------
Base Case INPV (2013$ millions).......  58.47..............................  58.46
Standards Case INPV (2013$ millions)..  57.73 to 58.76.....................  57.68 to 58.75
Change in INPV (% Change).............  (1.26) to 0.49.....................  (1.34) to 0.50
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative savings.


Table V.29--Cumulative National Primary and Full-Fuel-Cycle Energy Savings and Net Present Value of Customer Benefit for PTACs and PTHPs at the Proposed
                                Trial Standard Level for Units Sold in 2019-2048 Compared to Current Federal Standards *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  National primary energy      National FFC energy       NPV at 3%  (million       NPV at 7%  (million
                                                      savings (quads)            savings (quads)               2013$)                    2013$)
                                               ---------------------------------------------------------------------------------------------------------
                                                   ASHRAE                      ASHRAE                    ASHRAE                    ASHRAE
                                                  standard       Current      standard     Current      standard     Current      standard     Current
                                                  90.1-2013      Federal     90.1-2013     Federal     90.1-2013     Federal     90.1-2013     Federal
                                                  baseline      standards     baseline    Standards     baseline    standards     baseline    standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standard Size Equipment, 7,000 Btu/h..........         0.003         0.003        0.003        0.003          1.8          1.8        (0.2)        (0.2)

[[Page 55591]]

 
Standard Size Equipment, 9,000 Btu/h..........         0.05          0.05         0.051        0.051         65.9         65.8         12.3         12.3
Standard Size Equipment, 15,000 Btu/h.........         0.005         0.006        0.005        0.006          1.2          1.1        (1.5)        (1.7)
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total--All Classes........................         0.058         0.059        0.059        0.060         69.0         68.8         10.7         10.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Note: Components may not sum to total due to rounding.


 Table V.30--Cumulative Emissions Reduction, Global Present Value of CO2 Emissions Reduction, and Present Value of NOX Emissions Reduction for PTACs and
                                  PTHPs at the Proposed Trial Standard Level Compared to the Current Federal Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Power sector and site            Upstream  emissions              Total  emissions
                                                                     emissions           ---------------------------------------------------------------
                                                         --------------------------------
                                                              ASHRAE                          ASHRAE          Current         ASHRAE          Current
                                                          standard 90.1-      Current     standard 90.1-      Federal     standard 90.1-      Federal
                                                           2013 baseline      Federal      2013 baseline     standards     2013 baseline     standards
                                                                             standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Cumulative Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...............................            4.15            4.17            0.18            0.18            4.33            4.35
SO2 (thousand tons).....................................            9.70            9.76            0.04            0.04            9.74            9.80
NOX (thousand tons).....................................            1.90            1.91            2.53            2.54            4.42            4.45
Hg (tons)...............................................            0.01            0.01            0.00            0.00            0.01            0.01
N2O (thousand tons).....................................            0.07            0.07            0.00            0.00            0.07            0.07
CH4 (thousand tons).....................................            0.39            0.39           15.36           15.45           15.75           15.84
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Global Present Value of CO[ihel2] Emissions Reduction, SCC Scenario * (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5% discount rate, average...............................           26.86           27.02            1.20            1.20           28.06           28.23
3% discount rate, average...............................          127.30          128.04            5.66            5.69          132.95          133.73
2.5% discount rate, average.............................          203.32          204.51            9.03            9.08          212.35          213.59
3% discount rate, 95th percentile.......................          394.56          396.87           17.53           17.63          412.08          414.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Present Value of NOX Emissions Reduction (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate........................................            2.20            2.22            3.23            3.25            5.43            5.46
7% discount rate........................................            0.81            0.81            1.39            1.40            2.20            2.22
--------------------------------------------------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4 and $119 per metric ton (2013$).
** Values of ``0.00'' represent rounded non-zero emissions reductions.


  Table V.31--PTACs and PTHPs at the Proposed TSL: Net Present Value of Consumer Savings Combined with Net Present Value of Monetized Benefits from CO2
                                         and NOX Emissions Reductions Compared to the Current Federal Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SCC Value of $12.0/       SCC Value of $40.5/       SCC Value of $62.4/    SCC Value of $119/metric
                                                    metric ton CO[ihel2]*     metric ton CO[ihel2]*     metric ton CO[ihel2]*      ton CO[ihel2]* and
                                                    and medium value for      and Medium Value for      and Medium Value for     Medium Value for NOX**
                                                            NOX**                     NOX**                     NOX**          -------------------------
                                                 ------------------------------------------------------------------------------
                                                     ASHRAE                    ASHRAE                    ASHRAE                    ASHRAE      Current
                                                    standard     Current      Standard     Current      Standard     Current      Standard     Federal
                                                   90.1-2013     Federal     90.1-2013     Federal     90.1-2013     Federal     90.1-2013    standards
                                                    baseline    standards     baseline    standards     baseline    standards     baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               million 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% Discount Rate added with each        102.5        102.5        207.3        208.0        286.7        287.8        486.5        488.7
 SCC and NOX value..............................
Consumer NPV at 7% Discount Rate added with each         41.0         40.9        145.9        146.4        225.2        226.3        425.0        427.2
 SCC and NOX value..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2013$. The present values have been calculated with scenario-consistent discount rates.
** Medium Value corresponds to $2,684 per ton of NOX emissions.


[[Page 55592]]

    Table V.32 shows the proposed energy conservation standards for all 
equipment classes of PTACs and PTHPs, including all cooling capacities.

                     Table V.32--Proposed Energy Conservation Standards for PTACs and PTHPs
----------------------------------------------------------------------------------------------------------------
                                    Equipment Class
----------------------------------------------------------------------------------------     Proposed energy
              Equipment                        Category             Cooling capacity     conservation standards*
----------------------------------------------------------------------------------------------------------------
PTAC.................................  Standard Size**........  <7,000 Btu/h...........  EER = 12.6.
                                                                >=7,000 Btu/h and        EER = 14.9 - (0.324 x
                                                                 <=15,000 Btu/h.          Cap[dagger][dagger]).
                                                                >15,000 Btu/h..........  EER = 10.0.
PTHP.................................  Standard Size**........  <7,000 Btu/h...........  EER = 12.6
                                                                                         COP = 3.5.
                                                                >=7,000 Btu/h and        EER = 14.9 - (0.324 x
                                                                 <=15,000 Btu/h.          Cap[dagger][dagger])
                                                                                         COP = 4.0 - (0.064 x
                                                                                          Cap[dagger][dagger]).
                                                                >15,000 Btu/h..........  EER = 10.0
                                                                                         COP = 3.0.
----------------------------------------------------------------------------------------------------------------
* 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.

2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
    The benefits and costs of the proposed standards, for equipment 
sold in 2019-2048, can also be expressed in terms of annualized values. 
The annualized monetary values are the sum of (1) the annualized 
national economic value of the benefits from customer operation of 
equipment that meet the proposed standards (consisting primarily of 
operating cost savings from using less energy, minus increases in 
equipment purchase and installation costs, which is another way of 
representing customer NPV), and (2) the annualized monetary value of 
the benefits of emission reductions, including CO2 emission 
reductions.\67\
---------------------------------------------------------------------------

    \67\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2013, the year used for discounting 
the NPV of total customer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates. From 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period (2019 through 2048) that yields the same present 
value. The fixed annual payment is the annualized value. Although 
DOE calculated annualized values, this does not imply that the time-
series of cost and benefits from which the annualized values were 
determined is a steady stream of payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. customer monetary savings that occur as a result of 
market transactions while the value of CO2 reductions is 
based on a global value. Second, the assessments of operating cost 
savings and CO2 savings are performed with different methods 
that use different time frames for analysis. The national operating 
cost savings is measured for the lifetime of PTACs and PTHPs shipped in 
2019-2048. The SCC values, on the other hand, reflect the present value 
of some future climate-related impacts resulting from the emission of 
one ton of carbon dioxide in each year. These impacts continue well 
beyond 2100.
    Estimates of annualized benefits and costs of the proposed 
standards PTACs and PTHPs are shown in Table V.33. The results under 
the primary estimate are as follows. Using a 7-percent discount rate 
for benefits and costs other than CO2 reduction, for which 
DOE used a 3-percent discount rate along with the average SCC series 
that uses a 3-percent discount rate, the cost of the amended standards 
proposed in this rule is $8.38 million per year in increased equipment 
costs; while the estimated benefits are $9.4 million per year in 
reduced equipment operating costs, $7.2 million in CO2 
reductions, and $0.20 million in reduced NOX emissions. In 
this case, the net benefit would amount to $8.4 million per year. Using 
a 3-percent discount rate for all benefits and costs and the average 
SCC series, the estimated cost of the standards proposed in this rule 
is $9.36 million per year in increased equipment costs; while the 
estimated benefits are $13.1 million per year in reduced operating 
costs, $7.2 million in CO2 reductions, and $0.29 million in 
reduced NOX emissions. In this case, the net benefit would 
amount to approximately $11.2 million per year.

         Table V.33--Annualized Benefits and Costs of Proposed Standards for Packaged Terminal Air Conditioners and Packaged Terminal Heat Pumps
                                                                  [Million 2013$/year]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Low net benefits estimate       High net benefits
                                              Discount rate               Primary  estimate *                  *                      estimate *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
    Operating Cost Savings........  7%..............................  9.4.......................  9.0.......................  9.9
                                    3%..............................  13.1......................  12.5......................  13.9
    CO[ihel2] Reduction Monetized   5%..............................  2.0.......................  2.0.......................  2.0
     Value ($12.0/t case) **.
    CO[ihel2] Reduction Monetized   3%..............................  7.2.......................  7.2.......................  7.2
     Value ($40.5/t case) **.

[[Page 55593]]

 
    CO[ihel2] Reduction Monetized   2.5%............................  10.7......................  10.7......................  10.7
     Value ($62.4/t case) **.
    CO[ihel2] Reduction Monetized   3%..............................  22.3......................  22.3......................  22.3
     Value ($119/t case) **.
    NOX Reduction Monetized Value   7%..............................  0.20......................  0.20......................  0.20
     (at $2,684/ton) **.
                                    3%..............................  0.29......................  0.29......................  0.29
    Total Benefits [dagger].......  7% plus CO2 range...............  11.6 to 31.9..............  11.2 to 31.5..............  12.1 to 32.4
                                    7%..............................  16.8......................  16.4......................  17.3
                                    3% plus CO2 range...............  15.4 to 35.7..............  14.8 to 35.0..............  16.2 to 36.5
                                    3%..............................  20.6......................  19.9......................  21.4
Costs:
    Incremental Product Costs.....  7%..............................  8.38......................  8.18......................  10.61
                                    3%..............................  9.36......................  9.06......................  12.29
Net Benefits:
                                   ---------------------------------------------------------------------------------------------------------------------
    Total [dagger]................  7% plus CO2 range...............  3.2 to 23.5...............  3.0 to 23.3...............  1.5 to 21.8
                                    7%..............................  8.4.......................  8.2.......................  6.7
                                    3% plus CO2 range...............  6.0 to 26.3...............  5.7 to 26.0...............  3.9 to 24.2
                                    3%..............................  11.2......................  10.9......................  9.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with PTAC and PTHP shipped in 2019-2048. These results include benefits to customers
  which accrue after 2048 from the equipment purchased in 2019-2048. The results account for the incremental variable and fixed costs incurred by
  manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates
  utilize projections of energy prices from the AEO 2013 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In
  addition, incremental equipment costs reflect no change for projected product price trends in the Primary Estimate, an increasing trend for projected
  product prices in the Low Benefits Estimate, and a decreasing trend for projected product prices in the High Benefits Estimate. The methods used to
  derive projected price trends are explained in section IV.F.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three
  cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th
  percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series incorporate an escalation factor. The value for NOX is the
  average of the low and high values used in DOE's analysis.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to average SCC with 3-percent discount
  rate. In the rows labeled ``7% plus CO[ihel2] range'' and ``3% plus CO[ihel2] range,'' the operating cost and NOX benefits are calculated using the
  labeled discount rate, and those values are added to the full range of CO[ihel2] values.

    The annualized values of benefits and burdens of the proposed trial 
standard level compared to a base case including the Federal baseline 
are shown in Table V.34.

  Table V.34--Annualized Benefits and Costs of Proposed Standards for PTACs and PTHPs at the Proposed Trial Standard Level for Units Sold in 2019-2048
                                                        Compared to the Current Federal Standards
                                                                  [Million 2013$/year]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Low net benefits estimate      High net  benefits
                                              Discount rate               Primary  estimate *                  *                      estimate *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
    Operating Cost Savings........  7%..............................  9.4.......................  9.0.......................  9.9
                                    3%..............................  13.2......................  12.5......................  14.0
    CO[ihel2] Reduction Monetized   5%..............................  2.0.......................  2.0.......................  2.0
     Value ($12.0/t case) **.
    CO[ihel2] Reduction Monetized   3%..............................  7.2.......................  7.2.......................  7.2
     Value ($40.5/t case) **.
    CO[ihel2] Reduction Monetized   2.5%............................  10.7......................  10.7......................  10.7
     Value ($62.4/t case) **.
    CO[ihel2] Reduction Monetized   3%..............................  22.4......................  22.4......................  22.4
     Value ($119/t case) **.
    NOX Reduction Monetized Value   7%..............................  0.20......................  0.20......................  0.20
     (at $2,684/ton) **.
                                    3%..............................  0.30......................  0.30......................  0.30
    Total Benefits [dagger].......  7% plus CO2 range...............  11.6 to 32.1..............  11.3 to 31.7..............  12.2 to 32.6
                                    7%..............................  16.9......................  16.5......................  17.4
                                    3% plus CO2 range...............  15.5 to 35.9..............  14.8 to 35.3..............  16.3 to 36.7
                                    3%..............................  20.7......................  20.1......................  21.5
Costs:
    Incremental Product Costs.....  7%..............................  8.45......................  8.25......................  10.71
                                    3%..............................  9.44......................  9.14......................  12.39
Net Benefits:
                                   ---------------------------------------------------------------------------------------------------------------------
    Total [dagger]................  7% plus CO2 range...............  3.2 to 23.6...............  3.0 to 23.4...............  1.5 to 21.9
                                    7%..............................  8.4.......................  8.2.......................  6.7
                                    3% plus CO2 range...............  6.0 to 26.5...............  5.7 to 26.1...............  3.9 to 24.3

[[Page 55594]]

 
                                    3%..............................  11.3......................  10.9......................  9.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with PTAC and PTHP shipped in 2019-2048. These results include benefits to customers
  which accrue after 2048 from the equipment purchased in 2019-2048. The results account for the incremental variable and fixed costs incurred by
  manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates
  utilize projections of energy prices from the AEO 2013 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In
  addition, incremental product costs reflect no change for projected product price trends in the Primary Estimate, an increasing trend for projected
  equipment prices in the Low Benefits Estimate, and a decreasing trend for projected equipment prices in the High Benefits Estimate. The methods used
  to derive projected price trends are explained in section IV.F.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the updated SCC values. The first three
  cases use the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The fourth case represents the 95th
  percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series incorporate an escalation factor. The value for NOX is the
  average of the low and high values used in DOE's analysis.
[dagger] Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to average SCC with 3-percent discount
  rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled
  discount rate, and those values are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems that the proposed standards address are as follows:
    (1) For certain segments of the companies that purchase PTACs and 
PTHPs, such as small hotels and residential facilities, there may be a 
lack of customer information and/or information processing capability 
about energy efficiency opportunities in the commercial space 
conditioning market.
    (2) There is asymmetric information (one party to a transaction has 
more and better information than the other) and/or high transactions 
costs (costs of gathering information).
    (3) There are external benefits resulting from improved energy 
efficiency of PTACs and PTHPs that are not captured by the users of 
such equipment. These benefits include externalities related to 
environmental protection and energy security that are not reflected in 
energy prices, such as reduced emissions of greenhouse gases. DOE 
attempts to quantify some of the external benefits through use of 
Social Cost of Carbon values.
    In addition, DOE has determined that this regulatory action is not 
an ``economically significant regulatory action'' under section 3(f)(1) 
of Executive Order 12866. Section 6(a)(3)(A) of the Executive Order 
states that absent a material change in the development of the planned 
regulatory action, regulatory action not designated as significant will 
not be subject to review under the aforementioned section unless, 
within 10 working days of receipt of DOE's list of planned regulatory 
actions, the Administrator of OIRA notifies the agency that OIRA has 
determined that a planned regulation is a significant regulatory action 
within the meaning of the Executive order. Accordingly, DOE is not 
submitting this NOPR for review by the Office of Information and 
Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB).
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011. (76 FR 3281, Jan. 21, 2011) EO 13563 
is supplemental to and explicitly reaffirms the principles, structures, 
and definitions governing regulatory review established in Executive 
Order 12866. To the extent permitted by law, agencies are required by 
Executive Order 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. For the reasons stated in the preamble, 
DOE believes that this NOPR is consistent with these principles, 
including the requirement that, to the extent permitted by law, 
benefits justify costs and that net benefits are maximized.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (IRFA) 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

[[Page 55595]]

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 the General 
Counsel's Web site (http://energy.gov/gc/office-general-counsel).
1. Description and Estimated Number of Small Entities Regulated
a. Methodology for Estimating the Number of Small Entities
    For manufacturers of PTACs and PTHPs, the Small Business 
Administration (SBA) has set a size threshold, which defines those 
entities classified as ``small businesses'' for the purposes of the 
statute. DOE used the SBA's small business size standards to determine 
whether any small entities would be subject to the requirements of the 
rule. 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 53533, 
53544 (September 5, 2000) and codified at 13 CFR part 121. The size 
standards are listed by North American Industry Classification System 
(NAICS) code and industry description and are available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. PTAC and PTHP manufacturing 
is classified under NAICS 333415, ``Air-Conditioning and Warm Air 
Heating Equipment and Commercial and Industrial Refrigeration Equipment 
Manufacturing.'' The SBA sets a threshold of 750 employees or less for 
an entity to be considered as a small business for this category.
    DOE reviewed the potential standard levels considered in this NOPR 
under the provisions of the Regulatory Flexibility Act and the 
procedures and policies published on February 19, 2003. To better 
assess the potential impacts of this rulemaking on small entities, DOE 
conducted a more focused inquiry of the companies that could be small 
business manufacturers of products covered by this rulemaking. During 
its market survey, DOE used available public information to identify 
potential small manufacturers. DOE's research involved industry trade 
association membership directories (e.g., AHRI), information from 
previous rulemakings, individual company Web sites, and market research 
tools (e.g., Hoover's reports) to create a list of companies that 
manufacture or sell PTAC and PTHP products covered by this rulemaking. 
DOE also asked stakeholders and industry representatives if they were 
aware of any additional small manufacturers during manufacturer 
interviews and at DOE public meetings. DOE reviewed publicly available 
data and contacted various companies on its complete list of 
manufacturers, as necessary, to determine whether they met the SBA's 
definition of a small business manufacturer. DOE screened out companies 
that do not offer products impacted by this rulemaking, do not meet the 
definition of a ``small business,'' or are foreign owned and operated.
    DOE initially identified 22 companies that sell PTAC and PTHP 
equipment that would be affected by this proposal. Of these 22 
companies, DOE identified 12 as small businesses.
b. Manufacturer Participation
    DOE contacted the identified small businesses to invite them to 
take part in a manufacturer impact analysis interview. Of the 12 small 
businesses contacted, DOE was able to reach and discuss potential 
standards with two. DOE also obtained information about small 
businesses and potential impacts on small businesses while interviewing 
large manufacturers.
c. PTAC and PTHP Industry Structure and Nature of Competition
    Three major manufacturers supply approximately 80 percent of the 
market for PTACs and PTHPs. DOE estimates that the remaining 20 percent 
of the PTAC and PTHP market is served by a combination of small 
businesses and large businesses that are foreign owned and operated. 
None of the major manufacturers of PTACs and PTHPs affected by this 
rulemaking is a domestic small business.
    Further, the small businesses identified are not original equipment 
manufacturers of standard-size PTACs and PTHPs impacted by this 
rulemaking. Rather, they import, rebrand, and distribute standard-size 
PTACs and PTHPs manufactured overseas by foreign companies. Some small 
businesses identified are original equipment manufacturers of non-
standard size PTACs and PTHPs. However, energy conservation standards 
for non-standard equipment are not being amended by this rulemaking. 
Accordingly, non-standard equipment is not considered in this small 
business analysis. Rather, this analysis focuses on likely impacts of 
the proposed rule on small businesses that sell standard-size PTACs and 
PTHPs.
2. Description and Estimate of Compliance Requirements
    As noted, the small businesses identified are not OEMs of standard-
size PTACs and PTHPs impacted by this rulemaking. Rather, they import, 
rebrand, and distribute PTACs and PTHPs manufactured overseas. 
Accordingly, small businesses would not face capital conversion costs 
in order to comply with amended standards, as machinery used to produce 
covered products is owned and operated by OEMs overseas. Small 
businesses also would not face product conversion costs associated with 
engineering and redesign of equipment. However, small businesses could 
experience an increase in equipment purchase price from overseas OEMs 
if the OEMs incur capital and product conversion costs and pass those 
onto small business importers. If small businesses are not able to pass 
all additional costs onto consumers, they could potentially face 
reduced markups and profits.
    Additionally, small businesses would likely face product conversion 
costs associated with testing and certifying PTACs and PTHPs redesigned 
to comply with amended standards. Typically, testing and certification 
costs are proportional to the number of models offered by a company and 
not to the volume of sales. Because the volume of sales of a small 
business is often lower than that of a larger manufacturer, a small 
business's testing and certification costs may be spread over fewer 
units and lower revenues per model relative to a larger manufacturer. 
This may result in a disproportionate cost burden on small 
manufacturers.
    Table VI.1 below presents estimated conversion costs as a 
percentage of annual financial metrics for an average small 
manufacturer relative to an average large manufacturer.

[[Page 55596]]



     Table VI.1--Magnitude of Conversion Costs Facing an Average Small Manufacturer Versus an Average Large
                                      Manufacturer Under the Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                           Capital
                                      conversion  costs       Product        Total conversion   Total conversion
                                       as a  percentage   conversion costs      costs as a         costs as a
                                          of  annual      as a percentage     percentage of      percentage of
                                           capital         of annual  R&D     annual revenue    annual EBIT  (%)
                                      expenditures  (%)     expense  (%)           (%)
----------------------------------------------------------------------------------------------------------------
Average Small Manufacturer..........                  0                 61                  2                 56
Average Large Manufacturer..........                 29                 70                  4                109
----------------------------------------------------------------------------------------------------------------

    Because small businesses are not expected to incur capital 
conversion costs and are expected to face limited product conversion 
costs in order to comply with the proposed rule, DOE estimates that 
small businesses will experience lower conversion costs as a percentage 
of annual revenue and other financial metrics compared to large 
manufacturers. Nevertheless, DOE recognizes that amended energy 
conservation standards could potentially impact small businesses 
disproportionately. In general, larger businesses tend to have larger 
production and sales volumes over which to spread costs and could have 
a competitive advantage due to their size and ability to access capital 
that may not be available to small businesses. Since the proposed 
standards could cause competitive concerns for small manufacturers, DOE 
cannot certify that the proposed standards would not have a significant 
impact on a substantial number of small businesses.
    DOE requests comments on the impacts of amended energy conservation 
standards on small business. This is identified as issue 7 in section 
VII.E, ``Issues on Which DOE Seeks Comment.''
3. 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.
4. Significant Alternatives to the Rule
    The discussion above analyzes impacts on small businesses that 
would result from the TSL DOE is proposing in this document. Though 
TSLs less stringent than the proposed TSL would be expected to reduce 
the impacts on small entities, DOE is required by EPCA to establish 
standards that achieve the maximum improvement in energy efficiency 
that is technically feasible and economically justified, and result in 
a significant conservation of energy. Therefore, DOE rejected the 
lowest TSL.
    In addition to the other TSLs being considered, the NOPR TSD 
includes a regulatory impact analysis in chapter 17. For PTACs and 
PTHPs, this report discusses the following policy alternatives: (1) No 
rebate, (2) consumer rebates, (3) consumer tax credits, (4) 
manufacturer tax credits, (5) voluntary energy efficiency targets, and 
(6) government bulk purchases. DOE does not intend to consider these 
alternatives further because they either are not feasible to implement 
without authority and funding from Congress, or are not expected to 
result in energy savings as large as those that would be achieved by 
the proposed energy conservation standards. For PTACs and PTHPs, the 
energy benefits of alternative policies analyzed range from less than 1 
percent to approximately 22 percent of those estimated to result from 
amended standards.
    DOE continues to seek input from businesses that would be affected 
by this rulemaking and will consider comments received in the 
development of any final rule.

C. Review Under the Paperwork Reduction Act

    Manufacturers of PTACs and PTHPs must certify to DOE that their 
products comply with any applicable energy conservation standards. In 
certifying compliance, manufacturers must test their products according 
to the DOE test procedures for PTACs and PTHPs, including any 
amendments adopted for those test procedures. DOE has established 
regulations for the certification and recordkeeping requirements for 
all covered consumer products and commercial equipment, including PTACs 
and PTHPs. 76 FR 12422 (March 7, 2011). The collection-of-information 
requirement for the certification and recordkeeping is subject to 
review and approval by OMB under the Paperwork Reduction Act (PRA). 
This requirement has been approved by OMB under OMB control number 
1910-1400. Public reporting burden for the certification is estimated 
to average 20 hours per response, including the time for reviewing 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act (NEPA) of 1969, 
DOE has determined that the proposed rule fits within the category of 
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets 
the requirements for application of a CX. See 10 CFR part 1021, app. B, 
B5.1(b); Sec.  1021.410(b) and appendix B, B(1)-(5). The proposed rule 
fits within the category of actions because it is a rulemaking that 
establishes energy conservation standards for consumer products or 
industrial equipment, and for which none of the exceptions identified 
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for 
this rulemaking, and DOE does not need to prepare an Environmental 
Assessment or Environmental Impact Statement for this proposed rule. 
DOE's CX determination for this proposed rule is available at http://cxnepa.energy.gov/.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999) 
imposes certain requirements on Federal 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 carefully assess the necessity for such actions. The Executive Order 
also requires agencies to have an accountable process to ensure 
meaningful and timely input by

[[Page 55597]]

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. EPCA governs and prescribes Federal preemption of State 
regulations as to energy conservation for the products that are the 
subject of the 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) 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,'' 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. 61 FR 
4729 (Feb. 7, 1996). 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 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
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. DOE's policy 
statement is also available at http://energy.gov/gc/office-general-counsel.
    This proposed rule is not expected to require expenditures of $100 
million or more on the private sector.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the proposed rule. 2 U.S.C. 1532(c). The content 
requirements of section 202(b) of UMRA relevant to a private sector 
mandate substantially overlap the economic analysis requirements that 
apply under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory 
Impact Analysis'' section of the TSD for this proposed rule respond to 
those requirements.
    Under section 205 of UMRA, the Department is obligated to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. 2 U.S.C. 1535(a). DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the proposed rule unless DOE publishes 
an explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. As required by 42 U.S.C. 6313(a), 
the proposed rule would establish energy conservation standards for 
PTACs and PTHPs that are designed to achieve the maximum improvement in 
energy efficiency that DOE has determined to be both technologically 
feasible and economically justified. A full discussion of the 
alternatives considered by DOE is presented in the ``Regulatory Impact 
Analysis'' section of the TSD for the proposed rule.

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 (Mar. 18, 1988), that this regulation would not 
result in any takings that might require compensation under the Fifth 
Amendment to the U.S. Constitution.

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

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516, note) provides for Federal 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 (Feb. 22, 
2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 
2002). DOE has reviewed the NOPR 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 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 promulgates 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

[[Page 55598]]

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.
    DOE has tentatively concluded that this regulatory action, which 
proposes energy conservation standards for PTACs and PTHPs, is not a 
significant energy action because the proposed standards are not likely 
to have a significant adverse effect on the supply, distribution, or 
use of energy, nor has it been designated as such by the Administrator 
at OIRA. Accordingly, DOE has not prepared a Statement of Energy 
Effects on the proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 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 rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines 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.
    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. Generation of this 
report involved a rigorous, formal, and documented evaluation using 
objective criteria and qualified and independent reviewers to make a 
judgment as to the technical/scientific/business merit, the actual or 
anticipated results, and the productivity and management effectiveness 
of programs and/or projects. The ``Energy Conservation Standards 
Rulemaking Peer Review Report'' dated February 2007 has been 
disseminated and is available at the following Web site: 
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.

VII. Public Participation

A. Attendance at the Public Meeting

    The time, date, and location of the public meeting are listed in 
the DATES and ADDRESSES sections at the beginning of this document. If 
you plan to attend the public meeting, please notify Ms. Brenda Edwards 
at (202) 586-2945 or [email protected]. Please note that 
foreign nationals visiting DOE Headquarters are subject to advance 
security screening procedures. Any foreign national wishing to 
participate in the meeting should advise DOE as soon as possible by 
contacting Ms. Edwards to initiate the necessary procedures. Please 
also note that those wishing to bring laptop computers into the 
Forrestal Building will be required to obtain a property pass. Visitors 
should avoid bringing laptop computers, or allow an extra 45 minutes. 
Persons can attend the public meeting via webinar.
    In addition, you can attend the public meeting via webinar. Webinar 
registration information, participant instructions, and information 
about the capabilities available to webinar participants will be 
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/45. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Prepared General Statements for 
Distribution

    Any person who has plans to present a prepared general statement 
may request that copies of his or her statement be made available at 
the public meeting. Such persons may submit requests, along with an 
advance electronic copy of their statement in PDF (preferred), 
Microsoft Word or Excel, WordPerfect, or text (ASCII) file format, to 
the appropriate address shown in the ADDRESSES section at the beginning 
of this document. The request and advance copy of statements must be 
received at least one week before the public meeting and may be 
emailed, hand-delivered, or sent by mail. DOE prefers to receive 
requests and advance copies via email. Please include a telephone 
number to enable DOE staff to make follow-up contact, if needed.

C. Conduct of the Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may also use a professional facilitator to aid discussion. The 
meeting will not be a judicial or evidentiary-type public hearing, but 
DOE will conduct it in accordance with 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 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 prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this rulemaking. Each participant will be allowed 
to make a general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will allow, as time 
permits, 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.
    A transcript of the public meeting will be included in the docket, 
which can be viewed as described in the Docket section at the beginning 
of this document. In addition, 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 this 
proposed rule before or after the public meeting, but no later than the 
date provided in the DATES section at the beginning of this proposed 
rule. Interested parties

[[Page 55599]]

may submit comments, data, and other information using any of the 
methods described in the ADDRESSES section at the beginning of this 
document.
    Submitting comments via regulations.gov. The regulations.gov Web 
page will require you to provide your name and contact information. 
Your contact information will be viewable to DOE Building Technologies 
staff only. Your contact information will not be publicly viewable 
except for your first and last names, organization name (if any), and 
submitter representative name (if any). If your comment is not 
processed properly because of technical difficulties, DOE will use this 
information to contact you. If DOE cannot read your comment due to 
technical difficulties and cannot contact you for clarification, DOE 
may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want to be publicly viewable 
should not be included in your comment, nor in any document attached to 
your comment. Otherwise, persons viewing comments will see only first 
and last names, organization names, correspondence containing comments, 
and any documents submitted with the comments.
    Do not submit to regulations.gov information for which disclosure 
is restricted by statute, such as trade secrets and commercial or 
financial information (hereinafter referred to as Confidential Business 
Information (CBI)). Comments submitted through regulations.gov cannot 
be claimed as CBI. Comments received through the Web site will waive 
any CBI claims for the information submitted. For information on 
submitting CBI, see the Confidential Business Information section 
below.
    DOE processes submissions made through regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email, hand delivery/courier, or mail. 
Comments and documents submitted via email, hand delivery, or mail also 
will be posted to regulations.gov. If you do not want your personal 
contact information to be publicly viewable, do not include it in your 
comment or any accompanying documents. Instead, provide your contact 
information in a cover letter. Include your first and last names, email 
address, telephone number, and optional mailing address. The cover 
letter will not be publicly viewable as long as it does not include any 
comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. If you submit via mail or hand 
delivery/courier, please provide all items on a CD, if feasible. It is 
not necessary to submit printed copies. No facsimiles (faxes) will be 
accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. 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 via 
email, postal mail, or hand delivery/courier two well-marked copies: 
One copy of the document marked confidential including all the 
information believed to be confidential, and one copy of the document 
marked non-confidential with the information believed to be 
confidential deleted. Submit these documents via email or on a CD, if 
feasible. 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.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    1. DOE did not consider alternate refrigerants in the analysis 
because DOE is not aware of any SNAP-approved refrigerants that are 
known to have better efficiency than R-410A for PTAC and PTHP 
equipment. DOE requests feedback on the efficacy of alternative 
refrigerants in PTAC and PTHP equipment.
    2. To estimate the number and type of distribution channels and the 
distribution of the shipments through the distribution channels, DOE 
leveraged the information from the 2008 PTAC and PTHP final rule. (73 
FR 58772). DOE requests comment regarding the selected channels and 
distribution of shipments through the channels.
    3. Stakeholders mentioned that a number of shipments are not 
accounted for in the AHRI database because certain manufacturers are 
non-AHRI manufacturers and are not subject to reporting to the 
database. DOE requests comment regarding and data supporting the 
expected number of shipments that are unreported.
    4. To estimate a base-case efficiency trend, DOE applied the trend 
from 2012 to 2035 that was used in the commercial unitary air 
conditioner Advance Notice of Proposed Rulemaking (ANOPR), which 
estimated an increase of approximately 1 EER every 35 years. 69 FR 
45460 (July 29, 2004). DOE requests comment regarding and data 
supporting the selected efficiency trend.
    5. DOE used information provided by manufacturers to estimate the 
conversion costs for manufacturers at each TSL. DOE requests feedback 
on the expected total conversion costs for the industry at the 
evaluated TSLs.
    6. DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the base case and at each TSL from 
2014 through 2048. DOE requests comments on the total annual direct 
employment levels in

[[Page 55600]]

the industry for PTAC and PTHP production.
    7. DOE used information provided by manufacturers to analyze the 
effects of amended energy conservation standards on small businesses. 
DOE requests comments on impacts facing small businesses as a result of 
amended standards.

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, Confidential business 
information, Energy conservation, Reporting and recordkeeping 
requirements.

    Issued in Washington, DC, on August 28, 2014.
Michael Carr,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable 
Energy.

    For the reasons set forth in the preamble, DOE proposes to amend 
part 431 of chapter II, subchapter D, of title 10 of the Code of 
Federal Regulations as set forth below:

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

0
1. The authority citation for part 431 continues to read as follows:

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

0
2. Amend Sec.  431.97 by revising paragraph (c) to read as follows:


Sec.  431.97  Energy efficiency standards and their compliance dates.

* * * * *
    (c) Each non-standard size packaged terminal air conditioner (PTAC) 
and packaged terminal heat pump (PTHP) manufactured on or after October 
7, 2010 must meet the applicable minimum energy efficiency standard 
level(s) set forth in Table 4 of this section. Each standard size PTAC 
and PTHP manufactured on or after October 8, 2012, and before January 
1, 2019 must meet the applicable minimum energy efficiency standard 
level(s) set forth in Table 4 of this section. Each standard size PTAC 
and PTHP manufactured on or after January 1, 2019 must meet the 
applicable minimum energy efficiency standard level(s) set forth in 
Table 5 of this section.

                    Table 4 to Sec.   431.97--Minimum Efficiency Standards for PTAC and PTHP
----------------------------------------------------------------------------------------------------------------
                                                                                      Compliance date: Products
        Equipment type             Category      Cooling capacity  Efficiency level   manufactured on and  after
                                                                                                . . .
----------------------------------------------------------------------------------------------------------------
PTAC.........................  Standard Size...  <7,000 Btu/h....  EER = 11.7......  October 8, 2012. \2\
                                                 >=7,000 and       EER = 13.8 -      October 8, 2012. \2\
                                                  <=15,000 Btu/h.   (0.3 x Cap \1\).
                                                 >15,000 Btu/h...  EER = 9.3.......  October 8, 2012. \2\
                              ----------------------------------------------------------------------------------
                               Non-Standard      <7,000 Btu/h....  EER = 9.4.......  October 7, 2010.
                                Size.
                                                 >=7,000 and       EER = 10.9 -      October 7, 2010.
                                                  <=15,000 Btu/h.   (0.213 x Cap
                                                                    \1\).
                                                 >15,000 Btu/h...  EER = 7.7.......  October 7, 2010.
                              ----------------------------------------------------------------------------------
PTHP.........................  Standard Size...  <7,000 Btu/h....  EER = 11.9......  October 8, 2012. \2\
                                                                   COP = 3.3.......
                                                 >=7,000 and       EER = 14.0 -      October 8, 2012. \2\
                                                  <=15,000 Btu/h.   (0.3 x Cap \1\).
                                                                   COP = 3.7 -
                                                                    (0.052 x Cap
                                                                    \1\).
                                                 >15,000 Btu/h...  EER = 9.5.......  October 8, 2012. \2\
                                                                   COP = 2.9.......
                              ----------------------------------------------------------------------------------
                               Non-Standard      <7,000 Btu/h....  EER = 9.3.......  October 7, 2010.
                                Size.                              COP = 2.7.......
                                                 >=7,000 and       EER = 10.8 -      October 7, 2010.
                                                  <=15,000 Btu/h.   (0.213 x Cap
                                                                    \1\).
                                                                   COP = 2.9 -
                                                                    (0.026 x Cap
                                                                    \1\).
                                                 >15,000 Btu/h...  EER = 7.6.......  October 7, 2010.
                                                                   COP = 2.5.......
----------------------------------------------------------------------------------------------------------------
\1\ ``Cap'' means cooling capacity in thousand Btu/h at 95 [deg]F outdoor dry-bulb temperature.
\2\ And manufactured before January 1, 2019. See Table 5 of this section for updated efficiency standards that
  apply to this category of equipment manufactured on and after January 1, 2019.


[[Page 55601]]


                Table 5 to Sec.   431.97--Updated Minimum Efficiency Standards for PTAC and PTHP
----------------------------------------------------------------------------------------------------------------
                                                                                      Compliance date: Products
        Equipment type             Category      Cooling capacity  Efficiency level   manufactured on and  after
                                                                                                . . .
----------------------------------------------------------------------------------------------------------------
PTAC.........................  Standard Size...  <7,000 Btu/h....  EER = 12.6......  January 1, 2019.
                                                 >=7,000 and       EER = 14.9 -      January 1, 2019.
                                                  <=15,000 Btu/h.   (0.324 x Cap
                                                                    \1\).
                                                 >15,000 Btu/h...  EER = 10.0......  January 1, 2019.
                              ----------------------------------------------------------------------------------
PTHP.........................  Standard Size...  <7,000 Btu/h....  EER = 12.6......  January 1, 2019.
                                                                   COP = 3.5.......
                                                 >=7,000 and       EER = 14.9 -      January 1, 2019.
                                                  <=15,000 Btu/h.   (0.324 x Cap
                                                                    \1\).
                                                                   COP = 4.0 -
                                                                    (0.064 x Cap
                                                                    \1\).
                                                 >15,000 Btu/h...  EER = 10.0......  January 1, 2019.
                                                                   COP = 3.0.......
----------------------------------------------------------------------------------------------------------------
\1\ ``Cap'' means cooling capacity in thousand Btu/h at 95 [deg]F outdoor dry-bulb temperature.

* * * * *
[FR Doc. 2014-21189 Filed 9-15-14; 8:45 am]
BILLING CODE 6450-01-P