[Federal Register Volume 80, Number 184 (Wednesday, September 23, 2015)]
[Rules and Regulations]
[Pages 57438-57502]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23029]



[[Page 57437]]

Vol. 80

Wednesday,

No. 184

September 23, 2015

Part II





Department of Energy





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10 CFR Part 431





Energy Conservation Program: Energy Conservation Standards for Single 
Package Vertical Air Conditioners and Single Package Vertical Heat 
Pumps; Final Rule

  Federal Register / Vol. 80 , No. 184 / Wednesday, September 23, 2015 
/ Rules and Regulations  

[[Page 57438]]


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DEPARTMENT OF ENERGY

10 CFR Part 431

[Docket Number EERE-2012-BT-STD-0041]
RIN 1904-AC85


Energy Conservation Program: Energy Conservation Standards for 
Single Package Vertical Air Conditioners and Single Package Vertical 
Heat Pumps

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

ACTION: Final rule.

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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 
single package vertical air conditioner (SPVAC) and single package 
vertical heat pump (SPVHP) equipment (collectively referred to as 
single package vertical units or SPVUs). EPCA also requires the U.S. 
Department of Energy (DOE) to determine whether more-stringent 
standards for SPVACs and SPVHPs would be technologically feasible and 
economically justified, and would save a significant amount of energy. 
In this final rule, DOE is adopting standards equivalent to the 
American National Standards Institute (ANSI)/American Society of 
Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE)/
Illuminating Engineering Society (IES) Standard 90.1-2013 levels for 
four SPVU equipment classes, and adopting amended energy conservation 
standards for two other equipment classes of single package vertical 
units more stringent than the SPVU standards in ASHRAE Standard 90.1-
2013. DOE has determined that the amended energy conservation standards 
for this equipment are technologically feasible and economically 
justified, and would result in the significant conservation of energy.

DATES: The effective date of this rule is November 23, 2015. Compliance 
with the amended standards established for SPVACs and SPVHPs <65,000 
Btu/h cooling capacity is required on September 23, 2019; for SPVACs 
and SPVHPs >=65,000 and <135,000 Btu/h cooling capacity, compliance is 
required on October 9, 2015; and for SPVACs and SPVHPs >=135,000 and 
<240,000 Btu/h cooling capacity, compliance is required on October 9, 
2016.

ADDRESSES: The docket, which includes Federal Register notices, public 
meeting attendee lists and transcripts, comments, and other supporting 
documents/materials, is available for review at regulations.gov. All 
documents in the docket are listed in the 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.
    For further information on how to review the docket, contact Ms. 
Brenda Edwards at (202) 586-2945 or by email: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Mr. John Cymbalsky, 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) 287-1692. Email: [email protected].
    Ms. Jennifer Tiedeman, U.S. Department of Energy, Office of the 
General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 
20585-0121. Telephone: (202) 287-6111. Email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Final Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits and Costs
    D. Conclusion
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for SPVACs and SPVHPs
III. General Discussion
    A. Compliance Dates
    B. Equipment Classes and Scope of Coverage
    1. Consideration of a Space-Constrained SPVU Equipment Class
    2. Relationship to Dual Duct Air Conditioners
    C. Test Procedure
    D. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    E. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    F. Economic Justification
    1. Specific Criteria
    a. Economic Impact on Manufacturers and Consumers
    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
    G. Additional Comments
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    B. Screening Analysis
    C. Engineering Analysis
    1. Methodology
    2. Efficiency Levels for Analysis
    3. Teardown Analysis
    4. Incremental Efficiency Levels and Design Options
    5. Cost Model
    6. Manufacturer Production Costs
    7. Cost-Efficiency Relationship
    8. Manufacturer Markup
    9. Shipping Costs
    10. Manufacturer Interviews
    D. Markups To Determine Equipment Price
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Approach
    2. Life-Cycle Cost Inputs
    a. Equipment Prices
    b. Installation Costs
    c. Annual Energy Use
    d. Electricity and Natural Gas Prices
    e. Maintenance Costs
    f. Repair Costs
    g. Equipment Lifetime
    h. Discount Rate
    3. Payback Period
    G. National Impact Analysis
    1. Approach
    a. National Energy Savings
    b. Net Present Value
    2. Shipments Analysis
    a. Shipments Model and Forecast
    b. Effect of Amended Standards on Shipments
    3. Base-Case and Standards-Case Forecasted Distribution of 
Efficiencies
    H. Consumer Subgroup Analysis
    I. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model
    a. Government Regulatory Impact Model Key Inputs
    b. Government Regulatory Impact Model Scenarios
    3. Discussion of Comments
    a. Cumulative Regulatory Burden
    b. Conversion Costs
    c. Changes in Customer Demand
    d. Diminished Product Offering
    e. Impacts on the Subgroup of Small Business Manufacturers
    J. Emissions Analysis
    K. 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

[[Page 57439]]

    c. Current Approach and Key Assumptions
    1. Social Cost of Other Air Pollutants
    L. Utility Impact Analysis
    M. Employment Impact Analysis
V. Analytical Results
    A. Trial Standard Levels
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Commercial Consumers
    a. Life-Cycle Cost and Payback Period
    b. Consumer Subgroup 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. Significance of Energy Savings
    b. Net Present Value of Consumer 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. Other Factors
    8. Summary of National Economic Impacts
    C. Conclusions
    1. Benefits and Burdens of TSLs Considered for SPVU Standards
    2. Summary of Benefits and Costs (Annualized) of the Amended 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Administrative Procedure Act
    C. Review Under the Regulatory Flexibility Act
    1. Description and Estimated Number of Small Entities Regulated
    2. Description and Estimate of Compliance Requirements
    3. Duplication, Overlap, and Conflict With Other Rules and 
Regulations
    4. Significant Alternatives to the Rule
    D. Review Under the Paperwork Reduction Act
    E. Review Under the National Environmental Policy Act of 1969
    F. Review Under Executive Order 13132
    G. Review Under Executive Order 12988
    H. Review Under the Unfunded Mandates Reform Act of 1995
    I. Review Under the Treasury and General Government 
Appropriations Act, 1999
    J. Review Under Executive Order 12630
    K. Review Under the Treasury and General Government 
Appropriations Act, 2001
    L. Review Under Executive Order 13211
    M. Review Under the Information Quality Bulletin for Peer Review
    N. Congressional Notification
VII. Approval of the Office of the Secretary

I. Synopsis of the Final 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. 6311 et seq.), 
added by Public Law 95-619, Title IV, section 441(a), established the 
Energy Conservation Program for Certain Industrial Equipment, which 
sets forth a variety of provisions designed to improve energy 
efficiency.\2\ This equipment includes single package vertical air 
conditioners (SPVACs) and single package vertical heat pumps (SPVHPs), 
the subjects of this final rule (collectively referred to as single 
package vertical units or SPVUs). Pursuant to EPCA, not later than 3 
years after the date of enactment of the Energy Independence and 
Security Act of 2007 (EISA 2007), DOE must review ASHRAE Standard 90.1, 
``Energy Standard for Buildings Except Low-Rise Residential 
Buildings,'' with respect to single package vertical air conditioners 
and single package vertical heat pumps in accordance with the 
procedures established in 42 U.S.C. 6313(a)(6). (42 U.S.C. 
6313(a)(10)(B))
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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 Energy Efficiency Improvement Act of 2015, 
Public Law 114-11 (Apr. 30, 2015).
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    In addition, EPCA requires that DOE conduct a rulemaking to 
consider amended energy conservation standards for SPVACs and SPVHPs 
each time ASHRAE Standard 90.1 is updated with respect to such 
equipment. (42 U.S.C. 6313(a)(6)(A))
    At the time DOE commenced this rulemaking, energy conservation 
standards for SPVUs had been set by EISA 2007. The levels promulgated 
in EISA 2007 correspond to the levels contained in ASHRAE 90.1-2004. 
Because ASHRAE did not revise its SPVU standard levels until 2013, the 
Department did not explicitly consider adoption of the then-current 
ASHRAE Standard 90.1-2010 levels as part of its analytical baseline (as 
is typically the case under 42 U.S.C. 6313(a)(6)). Energy conservation 
standards for SPVUs at the time already corresponded to the ASHRAE 
Standard 90.1-2010 levels. However, on October 9, 2013, ASHRAE adopted 
ASHRAE Standard 90.1-2013, and this revision did contain amended 
standard levels for SPVUs, thereby triggering DOE's statutory 
obligation to promulgate an amended uniform national standard at those 
levels, unless DOE determines that clear and convincing evidence 
supports the adoption of more-stringent energy conservation standards 
than the ASHRAE levels. The test for adoption of more-stringent 
standards is whether such standards would result in significant 
additional conservation of energy and would be technologically feasible 
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii) (II)) As a 
step toward meeting DOE's statutory obligations under both 42 U.S.C. 
6313(a)(6) and (a)(10)(B), DOE published a notice of proposed 
rulemaking (NOPR) on December 30, 2014. 79 FR 78614. In the NOPR, DOE 
proposed amended standards for two equipment classes of SPVUs that are 
more stringent than those set forth in ASHRAE Standard 90.1-2013, and 
adoption of the ASHRAE Standard 90.1-2013 levels for all other SPVU 
equipment classes. 79 FR 78614 at 78667.
    In this final rule, in accordance with these and other statutory 
provisions discussed in this document, DOE is adopting amended energy 
conservation standards for SPVUs. For four of the six SPVU equipment 
classes, DOE is adopting the levels specified in ASHRAE Standard 90.1-
2013. For the remaining two equipment classes, DOE has concluded that 
there is clear and convincing evidence to support more-stringent 
standards than the levels in ASHRAE Standard 90.1-2013. Accordingly, 
DOE is amending energy conservation standards for all classes of SPVUs 
from their existing levels consistent with ASHRAE Standard 90.1-2010. 
The amended standards are expressed in terms of (1) energy efficiency 
ratio (EER), which is the ratio of the produced cooling effect of an 
air conditioner or heat pump to its total work input (in Btu/watt-
hour); and (2) coefficient of performance (COP), which is the ratio of 
produced heating effect to total work input (this metric is unitless 
and applicable only to heat pump units). The amended standards are 
shown in Table I.1. These standards apply to all products listed in 
Table I.1 and manufactured in, or imported into, the United States on 
and after the compliance date listed in the table.
    The standards listed in Table I.1 that are more stringent than 
those contained in ASHRAE Standard 90.1-2013 apply to such equipment 
manufactured in, or imported into, the United States, excluding 
equipment that is manufactured for export, on and after a date 4 years 
after publication of this final rule. The standards listed in Table I.1 
that are set at the levels contained in ASHRAE Standard 90.1-2013 apply 
to such equipment manufactured in, or imported into, the United States, 
excluding equipment that is manufactured for export, on and after the 
date 2 or 3 years after the effective date of the requirements in 
ASHRAE Standard 90.1-2013, depending on equipment size (i.e., October 
9, 2015 or October 9, 2016).

[[Page 57440]]



                           Table I.1--Amended Energy Conservation Standards for SPVUs
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                                  Cooling capacity
        Equipment class                Btu/h         Efficiency level    Standard level       Compliance date
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Single Package Vertical Air      <65,000 Btu/h....  EER = 11.0.......  More Stringent     September 23, 2019.
 Conditioner.                                                           than ASHRAE.
Single Package Vertical Air      >=65,000 Btu/h     EER = 10.0.......  ASHRAE...........  October 9, 2015.
 Conditioner.                     and <135,000 Btu/
                                  h.
Single Package Vertical Air      >=135,000 Btu/h    EER = 10.0.......  ASHRAE...........  October 9, 2016.
 Conditioner.                     and <240,000 Btu/
                                  h.
Single Package Vertical Heat     <65,000 Btu/h....  EER = 11.0.......  More Stringent     September 23, 2019.
 Pump.                                              COP = 3.3........   than ASHRAE.
Single Package Vertical Heat     >=65,000 Btu/h     EER = 10.0.......  ASHRAE...........  October 9, 2015.
 Pump.                            and <135,000 Btu/ COP = 3.0........
                                  h.
Single Package Vertical Heat     >=135,000 Btu/h    EER = 10.0.......  ASHRAE...........  October 9, 2016.
 Pump.                            and <240,000 Btu/ COP = 3,0........
                                  h.
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A. Benefits and Costs to Consumers

    Table I.2 presents DOE's evaluation of the economic impacts of the 
adopted standards on consumers of single package vertical units, as 
measured by the average life-cycle cost (LCC) savings and the median 
payback period (PBP).\3\ In order to adopt levels above the levels 
specified in ASHRAE Standard 90.1, DOE must determine that any more-
stringent standards would result in significant additional conservation 
of energy (relative to the efficiency levels specified in ASHRAE 
Standard 90.1) and that they would be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In compliance 
with this statutory requirement, DOE based its determination to adopt 
more-stringent standards for two classes of SPVUs on an analysis 
comparing these proposed standards with ASHRAE 90.1-2013 (Table I.2). 
Thus, economic impacts of this determination are calculated as compared 
to the ASHRAE 90.1-2013 level because DOE is required by statute to, at 
a minimum, adopt that standard.\4\
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    \3\ The average LCC savings are measured relative to the 
efficiency distribution in the ASHRAE base case, which depicts the 
market in the compliance year should DOE adopt the standards set 
forth in ASHRAE 90.1-2013, as minimally required (see section IV.F). 
The median PBP, which is designed to compare specific SPVU 
efficiency levels, is measured relative to the baseline model (see 
section IV.C.2).
    \4\ See 42 U.S.C. 6313(a)(6)(A)(ii)(I): In general--Except as 
provided in subclause (II), not later than 18 months after the date 
of publication of the amendment to the ASHRAE Standard 90.1 for a 
product described in clause (i), the Secretary shall establish an 
amended uniform national standard for the product at the minimum 
level specified in the amended ASHRAE Standard 90.1.
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    The Office of Management and Budget's (OMB's) Circular A-4 \5\ 
provides guidance on establishing the baseline for regulatory impact 
analyses as follows:
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    \5\ U.S. Office of Management and Budget ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) contains guidelines regarding 
development of a baseline, including that ``This baseline should be 
the best assessment of the way the world would look absent the 
proposed action.'' (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/)

    In some cases, substantial portions of a rule may simply restate 
statutory requirements that would be self-implementing, even in the 
absence of the regulatory action. In these cases, you should use a 
pre-statute baseline. If you are able to separate out those areas 
where the agency has discretion, you may also use a post-statute 
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baseline to evaluate the discretionary elements of the action.

    Accordingly, in this section, DOE presents consumer, manufacturer, 
and economic costs and benefits for the amended SPVU standards as 
compared to the current Federal (EPCA) minimum that are currently in 
effect (pre-statute baseline). In addition, as required by statute, 
when proposing a standard more stringent than ASHRAE 90.1, and 
recommended by OMB Circular A-4, DOE also provides these same analyses 
relative to the post-statute (ASHRAE 90.1-2013) baseline. As noted 
above, it is these latter analyses that DOE has used as the basis for 
its determination to adopt more-stringent standards for two classes of 
SPVUs. DOE has used the same analytic methodologies in both baselines. 
Key analyses (using both baselines) are summarized in Table I.2: 
Impacts of Amended Energy Conservation Standards on Consumers of SPVUs; 
Table I.3: Summary of National Economic Benefits and Costs of Amended 
SPVU Energy Conservation Standards; and Table I.4 and Table I.5: 
Annualized Benefits and Costs of Amended Energy Conservation Standards 
for SPVUs. Additional analyses are presented in section V.C of this 
preamble, and in the final rule technical support document (TSD). Note 
that not all analyses were conducted using both baselines; rather, DOE 
used the baseline(s) most appropriate to the purpose of the analysis 
(showing economic impacts relative to the pre-statute status quo and/or 
determining whether to adopt standards more stringent than ASHRAE 90.1-
2013). In all cases, the baseline(s) used are indicated in the 
analyses.
    The average LCC savings are positive for the equipment classes for 
which standards higher than the levels in ASHRAE 90.1-2013 are being 
adopted, and the PBP is less than the average lifetime of single 
package vertical units, which is estimated to be 15 years (see section 
IV.F.2.g). DOE did not evaluate economic impacts to the consumers of 
SPVACs >=65,000 Btu/h and <135,000 Btu/h for the ASHRAE baseline, as 
the ASHRAE level is equal to max-tech. However, the economic impacts 
for this equipment class using the EPCA baseline can be found in Table 
I.2 and in appendix 8B of the final rule TSD. DOE also presents results 
for the parallel class of SPVHPs >=65,000 Btu/h and <135,000 Btu/h 
using the EPCA baseline.\6\ DOE did not evaluate economic impacts for 
the SPVAC and SPVHP >=135,000 Btu/h and <240,000 Btu/h equipment 
classes because there are no models on the market, and, therefore, no 
consumers.\7\
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    \6\ However, there are no models available on the market for 
this class, and therefore these results were not carried into the 
national impact analysis or other downstream analyses.
    \7\ Equipment classes for these cooling capacities exist in 
ASHRAE Standard 90.1 and were established in DOE regulation through 
EISA 2007. Despite the lack of models and consumers, for these 
equipment classes DOE is proposing to adopt as federal standards the 
efficiency levels in ASHRAE 90.1-2013 as required under 42 U.S.C. 
6313(a)(6)(A)(ii)(I).

[[Page 57441]]



 Table I.2--Table Impacts of Amended Energy Conservation Standards on Consumers of Single Package Vertical Units
                                         Using ASHRAE and EPCA Baselines
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                                                   Average LCC savings  2014$      Median payback period  years
       Equipment Class             Cooling     -----------------------------------------------------------------
                               capacity  Btu/h  ASHRAE baseline  EPCA  baseline  ASHRAE baseline  EPCA  baseline
----------------------------------------------------------------------------------------------------------------
Single Package Vertical Air    <65,000 Btu/h..  $174...........            $280  9.6............            10.6
 Conditioner.
Single Package Vertical Air    >=65,000 Btu/h   Adopt ASHRAE...             833  Adopt ASHRAE...             7.3
 Conditioner.                   and <135,000
                                Btu/h.
Single Package Vertical Air    >=135,000 Btu/h  Adopt ASHRAE...             N/A  Adopt ASHRAE...             N/A
 Conditioner.                   and <240,000
                                Btu/h.
Single Package Vertical Heat   <65,000 Btu/h..  435............             392  5.8............             9.9
 Pump.
Single Package Vertical Heat   >=65,000 Btu/h   Adopt ASHRAE...             287  Adopt ASHRAE...            11.3
 Pump.                          and <135,000
                                Btu/h.
Single Package Vertical Heat   >=135,000 Btu/h  Adopt ASHRAE...             N/A  Adopt ASHRAE...             N/A
 Pump.                          and <240,000
                                Btu/h.
----------------------------------------------------------------------------------------------------------------

    DOE's analysis of the impacts of the adopted standards on consumers 
is described in section IV.F of this document.

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 10.4 
percent,\8\ DOE estimates that the INPV for manufacturers of SPVUs is 
$41.2 million in 2014$ using ASHRAE 90.1-2013 as a baseline. The INPV 
of SPVUs from the EPCA baseline can be found in chapter 12 of the final 
rule TSD. Under the amended standards adopted in this final rule, DOE 
expects that manufacturers may lose between 17.9 and 10.3 percent of 
their INPV, which is approximately $7.4 to $4.3 million, respectively. 
Total conversion costs for the industry are expected to reach $9.2 
million.
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    \8\ DOE estimated draft financial metrics, including the 
industry discount rate, based on data in Securities and Exchange 
Commission (SEC) filings and on industry-reviewed values published 
in prior heating, ventilation, and air-conditioning (HVAC) final 
rules. DOE presented the draft financial metrics to manufacturers in 
manufacturer impact analysis (MIA) interviews. DOE adjusted those 
values based on feedback from manufacturers. The complete set of 
financial metrics and more detail about the methodology can be found 
in section 12.4.3 of final rule TSD chapter 12.
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    DOE's analysis of the impacts of the adopted standards on 
manufacturers is described in section IV.I of this document.

C. National Benefits and Costs \9\
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    \9\ All monetary values in this section are expressed in 2014 
dollars and, where appropriate, are discounted to 2015 unless 
explicitly stated otherwise. Energy savings in this section refer to 
the full-fuel-cycle savings (see section IV.G for discussion). 
National benefits apply only to DOE's amended standard levels that 
are more stringent than the ASHRAE levels, and impacts are presented 
as compared to the ASHRAE 90.1-2013 level as baseline. For equipment 
classes where DOE is proposing the ASHRAE levels, national benefits 
do not accrue.
---------------------------------------------------------------------------

    DOE's analyses indicate that the amended energy conservation 
standards adopted here for SPVUs would save a significant amount of 
energy. Relative to the case in which DOE adopts the efficiency levels 
in ASHRAE 90.1-2013 (the ASHRAE base case), the lifetime energy savings 
for SPVUs purchased in the 30-year period that begins in the 
anticipated year of compliance with the amended standards (2019-2048), 
amount to 0.15 quadrillion British thermal units (quads).\10\ This 
represents a savings of 4 percent relative to the energy use of these 
products in the ASHRAE base case. Energy savings using EPCA as a 
baseline can be found in chapter 10 of the final rule TSD.
---------------------------------------------------------------------------

    \10\ A quad is equal to 10\15\ British thermal units (Btu). The 
quantity refers to full-fuel-cycle (FFC) energy savings. FFC energy 
savings includes the energy consumed in extracting, processing, and 
transporting primary fuels (i.e., coal, natural gas, petroleum 
fuels), and, thus, presents a more complete picture of the impacts 
of energy efficiency standards. For more information on the FFC 
metric, see section IV.G.1.a.
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    The cumulative net present value (NPV) of total consumer costs and 
savings of the standards for SPVUs ranges from $0.11 billion (at a 7-
percent discount rate) to $0.38 billion (at a 3-percent discount rate) 
using ASHRAE as a baseline. NPV results using EPCA as a baseline can be 
found in chapter 10 of the final rule TSD. This NPV expresses the 
estimated total value of future operating-cost savings minus the 
estimated increased product costs for SPVUs purchased in 2019-2048 
under amended standards.
    In addition, amended standards for SPVUs would have significant 
environmental benefits. DOE estimates that the standards would result 
in cumulative greenhouse gas (GHG) emission reductions using the ASHRAE 
baseline (over the same period as for energy savings) of 8.9 million 
metric tons (Mt) \11\ of carbon dioxide (CO2), 4.9 thousand 
tons of sulfur dioxide (SO2), 16 tons of nitrogen oxides 
(NOX), 38 thousand tons of methane (CH4), 0.10 
thousand tons of nitrous oxide (N2O), and 0.02 tons of 
mercury (Hg).\12\ The cumulative reduction in CO2 emissions 
through 2030 amounts to 2 Mt, which is equivalent to the emissions 
resulting from the annual electricity use of more than 220,000 homes. 
Emissions results using the EPCA baseline can be found in chapter 13 of 
the final rule TSD, and cumulative reduction in CO2 
emissions through 2030 amounts to 3 Mt relative to the EPCA baseline.
---------------------------------------------------------------------------

    \11\ A metric ton is equivalent to 1.1 short tons. Results for 
NOX and Hg are presented in short tons.
    \12\ DOE calculated emissions reductions relative to the ASHRAE 
base-case, which reflects key assumptions in the Annual Energy 
Outlook 2015 (AEO2015) Reference case, which generally represents 
current legislation and environmental regulations for which 
implementing regulations were available as of October 31, 2014.
---------------------------------------------------------------------------

    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.\13\ The derivation of the SCC values is discussed 
in section IV.K. Using discount rates appropriate for each set of SCC 
values, DOE estimates that the net present monetary value of the 
CO2 emissions reduction using the ASHRAE baseline (not 
including CO2 equivalent emissions of other gases with 
global warming potential) is between $0.06 billion and $0.85 billion, 
with a value of $0.28 billion using the central SCC case represented by 
$40.0/t in 2015. DOE

[[Page 57442]]

also estimates that the net present monetary value of the 
NOX emissions reduction is $0.02 billion at a 7-percent 
discount rate, and $0.06 billion at a 3-percent discount rate.\14\ 
Results using the EPCA baseline can be found in chapter 14 of the final 
rule TSD.
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    \13\ 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 July 2015. (Available at: https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf.)
    \14\ DOE is currently investigating valuation of avoided Hg and 
SO2 emissions.
---------------------------------------------------------------------------

    Table I.3 summarizes the national economic benefits and costs 
expected to result from the adopted standards for SPVUs using both the 
ASHRAE and EPCA baselines.

  Table I.3--Summary of National Economic Benefits and Costs of Amended Energy Conservation Standards for SPVUs
                                        Using ASHRAE and EPCA Baselines *
----------------------------------------------------------------------------------------------------------------
                                                                    Present value billion 2014$
                                                                 --------------------------------  Discount rate
                            Category                                  ASHRAE                            (%)
                                                                     baseline      EPCA baseline
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................            0.37            0.80               7
                                                                            0.88            1.86               3
CO2 Reduction Value ($12.2/t case) **...........................            0.06            0.13               5
CO2 Reduction Value ($40.0/t case) **...........................            0.28            0.59               3
CO2 Reduction Value ($62.3/t case) **...........................            0.44            0.93             2.5
CO2 Reduction Value ($117/t case) **............................            0.85            1.79               3
NOX Reduction Monetized Value [dagger]..........................            0.02            0.05               7
                                                                            0.06            0.12               3
----------------------------------------------------------------------------------------------------------------
Total Benefits[dagger][dagger]..................................            0.67            1.43               7
                                                                            1.21            2.56               3
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs............................            0.26            0.58               7
                                                                            0.50            1.04               3
----------------------------------------------------------------------------------------------------------------
                                                  Net Benefits
----------------------------------------------------------------------------------------------------------------
Including CO2 and NOX Reduction Monetized Value [dagger][dagger]            0.41            0.86               7
                                                                            0.71            1.52               3
----------------------------------------------------------------------------------------------------------------
* This table presents the costs and benefits associated with SPVUs shipped in 2019-2048. These results include
  benefits to consumers that accrue after 2048 from the products purchased in 2019-2048. The costs account for
  the incremental variable and fixed costs incurred by manufacturers due to the amended standards, some of which
  may be incurred in preparation for the rule.
** The CO2 values represent global monetized values of the SCC, in 2014$, 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 high and low values found in the literature.
[dagger] The $/ton values used for NOX are described in section IV.K.
[dagger][dagger] Total benefits for both the 3% and 7% cases are derived using the series corresponding to
  average SCC with a 3-percent discount rate ($40.0/t case).

    The benefits and costs of the adopted standards, for SPVUs sold in 
2019-2048, can also be expressed in terms of annualized values. The 
monetary values for the total annualized net benefits are the sum of 
(1) the national economic value of the benefits in reduced operating 
costs, minus (2) the increases in product purchase prices and 
installation costs, plus (3) the value of the benefits of 
CO2 and NOX emission reductions, all 
annualized.\15\
---------------------------------------------------------------------------

    \15\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2015, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(e.g., 2020 or 2030), and then discounted the present value from 
each year to 2015. The calculation uses discount rates of 3 and 7 
percent for all costs and benefits except for the value of 
CO2 reductions, for which DOE used case-specific discount 
rates, as shown in Table I.3. Using the present value, DOE then 
calculated the fixed annual payment over a 30-year period, starting 
in the compliance year, which yields the same present value.
---------------------------------------------------------------------------

    Although DOE believes that the value of operating cost savings and 
CO2 emission reductions are both important, two issues are 
relevant. First, the national operating cost savings are domestic U.S. 
consumer monetary savings that occur as a result of market 
transactions, whereas 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 SPVUs shipped in 2019-2048. 
Because CO2 emissions have a very long residence time in the 
atmosphere,\16\ the SCC values in future years reflect future 
CO2-emissions impacts that continue beyond 2100.
---------------------------------------------------------------------------

    \16\ The atmospheric lifetime of CO2 is estimated of 
the order of 30-95 years. Jacobson, MZ (2005), ``Correction to 
`Control of fossil-fuel particulate black carbon and organic matter, 
possibly the most effective method of slowing global warming,' '' J. 
Geophys. Res. 110. pp. D14105.

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

[[Page 57443]]

    Estimates of annualized benefits and costs of the adopted standards 
are shown in Table I.4. The results under the primary estimate using 
the ASHRAE baseline 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 SCC series that has a 
value of $40.0/t in 2015),\17\ the estimated cost of the standards in 
this rule is $20 million per year in increased equipment costs, while 
the estimated annual benefits are $28 million in reduced equipment 
operating costs, $13 million in CO2 reductions, and $1.6 
million in reduced NOX emissions. In this case, the net 
benefit amounts to $24 million per year. Using a 3-percent discount 
rate for all benefits and costs and the SCC series has a value of 
$40.0/t in 2015, the estimated cost of the standards is $24 million per 
year in increased equipment costs, while the estimated annual benefits 
are $43 million in reduced operating costs, $13 million in 
CO2 reductions, and $2.7 million in reduced NOX 
emissions. In this case, the net benefit amounts to $35 million per 
year. Results using the EPCA baseline are shown in Table I.5.
---------------------------------------------------------------------------

    \17\ DOE used a 3-percent discount rate because the SCC values 
for the series used in the calculation were derived using a 3-
percent discount rate (see section IV.K).

                               Table I.4--Annualized Benefits and Costs of Amended Standards for SPVUs (ASHRAE Baseline) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Discount rate                Primary estimate        Low net benefits estimate  High net benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Million 2014$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  28........................  26........................  28.
                                    3%..............................  43........................  39........................  44.
CO2 Reduction Value ($12.2/t case)  5%..............................  3.7.......................  3.6.......................  3.7.
 **.
CO2 Reduction Value ($40.0/t case)  3%..............................  13........................  13........................  14.
 **.
CO2 Reduction Value ($62.3/t case)  2.5%............................  20........................  20........................  20.
 **.
CO2 Reduction Value ($117/t case)   3%..............................  41........................  41........................  41.
 **.
NOX Reduction Value [dagger]......  7%..............................  1.6.......................  1.6.......................  1.6.
                                    3%..............................  2.7.......................  2.7.......................  2.7.
    Total Benefits                  7% plus CO2 range...............  33 to 71..................  31 to 68..................  34 to 71.
     [dagger][dagger].
                                    7%..............................  43........................  41........................  43.
                                    3% plus CO2 range...............  49 to 86..................  45 to 83..................  50 to 87.
                                    3%..............................  59........................  55........................  60.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  20........................  25........................  19.
                                    3%..............................  24........................  32........................  24.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger][dagger]............  7% plus CO2 range...............  14 to 51..................  6 to 44...................  14 to 52.
                                    7%..............................  24........................  16........................  24.
                                    3% plus CO2 range...............  25 to 62..................  14 to 51..................  26 to 63.
                                    3%..............................  35........................  23........................  36.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers that
  accrue after 2048 from the SPVUs purchased from 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 AEO2015 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition,
  incremental product costs reflect a constant rate in the Primary Estimate, an increasing rate in the Low Benefits Estimate, and a decline in the High
  Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.2.a.
** The CO2 values represent global monetized values of the SCC, in 2014$, 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.
[dagger] The $/ton values used for NOX are described in section IV.K.
[dagger][dagger] Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with 3-percent discount rate
  ($40.0/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.


                                Table I.5--Annualized Benefits and Costs of Amended Standards for SPVUs (EPCA Baseline) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Discount rate                Primary estimate        Low net benefits estimate  High net benefits estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Million 2014$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  60........................  55........................  60.
                                    3%..............................  90........................  82........................  92.
CO2 Reduction Value ($12.2/t case)  5%..............................  7.8.......................  7.7.......................  7.8.
 **.
CO2 Reduction Value ($40.0/t case)  3%..............................  28........................  28........................  29.
 **.

[[Page 57444]]

 
CO2 Reduction Value ($62.3/t case)  2.5%............................  42........................  42........................  43.
 **.
CO2 Reduction Value ($117/t case)   3%..............................  87........................  86........................  87.
 **.
NOX Reduction Value [dagger]......  7%..............................  3.5.......................  3.5.......................  3.5.
                                    3%..............................  5.8.......................  5.8.......................  5.8.
Total Benefits [dagger][dagger]...  7% plus CO2 range...............  71 to 150.................  66 to 144.................  72 to 151.
                                    7%..............................  92........................  87........................  92.
                                    3% plus CO2 range...............  104 to 183................  96 to 174.................  106 to 185.
                                    3%..............................  124.......................  117.......................  126.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  43........................  53........................  43.
                                    3%..............................  50........................  65........................  50.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger][dagger]............  7% plus CO2 range...............  28 to 107.................  13 to 92..................  29 to 108.
                                    7%..............................  49........................  34........................  50.
                                    3% plus CO2 range...............  53 to 132.................  31 to 110.................  56 to 135.
                                    3%..............................  74........................  52........................  76.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers which
  accrue after 2048 from the SPVUs purchased from 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 AEO2015 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition,
  incremental product costs reflect a constant rate in the Primary Estimate, an increasing rate in the Low Benefits Estimate, and a decline in the High
  Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.2.a.
** The CO2 values represent global monetized values of the SCC, in 2014$, 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.
[dagger] The $/ton values used for NOX are described in section IV.K.
[dagger][dagger] Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with 3-percent discount rate
  ($40.0/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's analysis of the national impacts of the adopted standards is 
described in sections IV.G, IV.J, and IV.K of this final rule.

D. Conclusion

    Based on the analyses culminating in this final rule, DOE found the 
benefits to the nation of the standards (energy savings, consumer LCC 
savings, positive NPV of consumer benefit, and emission reductions) 
outweigh the burdens (loss of INPV and LCC increases for some users of 
this equipment). DOE has concluded that, based upon clear and 
convincing evidence, the amended standards adopted in this final rule 
represent a significant improvement in energy efficiency that is 
technologically feasible and economically justified, and would result 
in significant conservation of energy.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying this final rule, as well as some of the relevant historical 
background related to the establishment of standards for SPVUs.

A. Authority

    Title III, Part C \18\ of the Energy Policy and Conservation Act of 
1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311 et. seq.), 
added by Public Law 95-619, Title IV, section 441(a), established the 
Energy Conservation Program for Certain Industrial Equipment, which 
includes the SPVAC and SPVHP equipment that is the subject of this 
final rule.\19\ 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)
---------------------------------------------------------------------------

    \18\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
    \19\ All references to EPCA in this document refer to the 
statute as amended through the Energy Efficiency Improvement Act of 
2015, Public Law 114-11 (Apr. 30, 2015).
---------------------------------------------------------------------------

    EPCA contains mandatory energy conservation standards for 
commercial heating, air-conditioning, and water-heating equipment. 
Specifically, the statute sets standards for small, large, and very 
large commercial package air-conditioning and heating equipment, SPVACs 
and SPVHPs, warm-air furnaces, packaged boilers, storage water heaters, 
instantaneous water heaters, and unfired hot water storage tanks. (42 
U.S.C. 6313(a)) 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/Illuminating Engineering 
Society of North America (IESNA) Standard 90.1-1989), for each type of 
covered equipment listed in 42 U.S.C. 6313(a). EISA 2007, Public Law 
110-240, amended EPCA by adding definitions and setting minimum energy 
conservation standards for SPVACs and SPVHPs. (42 U.S.C. 
6313(a)(10)(A)) The efficiency standards for SPVACs and SPVHPs 
established by EISA 2007 correspond to the levels contained in ASHRAE 
Standard 90.1-2004, which originated as addendum ``d'' to ASHRAE 
Standard 90.1-2001.

[[Page 57445]]

    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 SPVACs and SPVHPs 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)(II)) In 
addition, DOE notes that pursuant to the 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:
    (I) The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    (II) 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;
    (III) The total projected amount of energy savings likely to result 
directly from the standard;
    (IV) Any lessening of the utility or the performance of the 
products likely to result from the standard;
    (V) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
standard;
    (VI) The need for national energy conservation; and
    (VII) Other factors the Secretary considers relevant.
(42 U.S.C. 6313(a)(6)(B)(ii))
    EISA 2007 amended EPCA to provide an independent basis for a one-
time review regarding SPVUs that is not tied to the conditions for 
initiating review specified by 42 U.S.C. 6313(a)(6)(A) or 42 U.S.C. 
6313(a)(6)(C) described previously. Specifically, pursuant to 42 U.S.C. 
6313(a)(10)(B), DOE must commence review of the most recently published 
version of ASHRAE Standard 90.1 with respect to SPVU standards in 
accordance with the procedures established under 42 U.S.C. 6313(a)(6) 
no later than 3 years after the enactment of EISA 2007. DOE notes that 
this provision was not tied to the trigger of ASHRAE publication of an 
updated version of Standard 90.1 or to a 6-year period from the 
issuance of the last final rule, which occurred on March 7, 2009 (74 FR 
12058). DOE was simply obligated to commence its review by a specified 
date.
    Because ASHRAE did not update its efficiency levels for SPVACs and 
SPVHPs in ASHRAE Standard 90.1-2010, DOE began the current rulemaking 
by analyzing amended standards consistent with the 6-year look-back 
procedures defined under 42 U.S.C. 6313(a)(6)(C). 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 its rulemaking initiated by the 
one-time SPVU review requirement in EISA, ASHRAE acted on October 9, 
2013 to adopt ASHRAE Standard 90.1-2013. This revision of ASHRAE 
Standard 90.1 contained amended standard levels for SPVUs, 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 determined 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 ASHRAE Standard 90.1-2013 
levels (as required by 42 U.S.C. 6313(a)(6)(A)(i)), and issued a NOPR. 
79 FR 78614 (Dec. 30, 2014). For this final rule, DOE updated the 
analyses that accompanied the NOPR in response to stakeholder comments.
    DOE is adopting amended standards for two equipment classes of 
SPVUs that are more stringent than those set forth in ASHRAE Standard 
90.1-2013, and is adopting the ASHRAE Standard 90.1-2013 levels for all 
other SPVU equipment classes. DOE has concluded that there is clear and 
convincing evidence that the amended standards more stringent than 
those set forth in ASHRAE Standard 90.1-2013 for two SPVU equipment 
classes will result in significant additional conservation of energy 
and 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 consumer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy savings during the first year that the 
consumer will receive as a result of the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii) and 
6316(e)(1))

[[Page 57446]]

    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. (42 U.S.C. 6295(q)(1) and 6316(e)(1)) 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 consumer 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. (42 U.S.C. 6295(q)(2) and 6316(e)(1))
    Federal energy conservation requirements generally supersede State 
laws or regulations concerning energy conservation testing, labeling, 
and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 42 
U.S.C. 6297(d)).

B. Background

1. Current Standards
    As noted above, EISA 2007 amended EPCA to establish separate 
equipment classes and minimum energy conservation standards for SPVACs 
and SPVHPs. (42 U.S.C. 6313(a)(10)(A)) DOE published a final rule 
technical amendment in the Federal Register on March 23, 2009, which 
codified into DOE's regulations the new SPVAC and SPVHP equipment 
classes and energy conservation standards for this equipment as 
prescribed by EISA 2007. 74 FR 12058. These standards apply to all 
SPVUs manufactured on or after January 1, 2010. The current standards 
are set forth in Table II.1.

  Table II.1--Current Federal Energy Conservation Standards for Single
            Package Vertical Air Conditioners and Heat Pumps
------------------------------------------------------------------------
                                Cooling capacity  Btu/
        Equipment type                     h            Efficiency level
------------------------------------------------------------------------
Single Package Vertical Air     <65,000 Btu/h.........  EER = 9.0
 Conditioner.
Single Package Vertical Air     >=65,000 Btu/h and      EER = 8.9
 Conditioner.                    <135,000 Btu/h.
Single Package Vertical Air     >=135,000 Btu/h and     EER = 8.6
 Conditioner.                    <240,000 Btu/h *.
Single Package Vertical Heat    <65,000 Btu/h.........  EER = 9.0
 Pump.                                                  COP = 3.0
Single Package Vertical Heat    >=65,000 Btu/h and      EER = 8.9
 Pump.                           <135,000 Btu/h *.      COP = 3.0
Single Package Vertical Heat    >=135,000 Btu/h and     EER = 8.6
 Pump.                           <240,000 Btu/h *.      COP = 2.9
------------------------------------------------------------------------
* There are no models currently on the market with available efficiency
  data at these cooling capacities.

2. History of Standards Rulemaking for SPVACs and SPVHPs
    Single package vertical units were established as a separate 
equipment class in ASHRAE Standard 90.1 by addendum ``d'' to ASHRAE 
Standard 90.1-2001. DOE subsequently evaluated the possibility of 
creating separate equipment classes for SPVUs, but determined that the 
Energy Policy Act of 2005 had revised the language in 42 U.S.C. 
6313(a)(6)(A)(i) to limit DOE's authority to adopt ASHRAE amendments 
for small, large, and very large commercial package air-conditioning 
and heating equipment until after January 1, 2010, and thus, DOE could 
not adopt equipment classes and standards for SPVUs at that time. As 
explained in a March 2007 energy conservation standards final rule for 
various ASHRAE products, DOE determined that SPVUs fall under the 
definition of ``commercial package air conditioning and heating 
equipment'' (42 U.S.C. 6311(8)(A)), and that any SPVUs with cooling 
capacities less than 760,000 Btu/h would fit within the commercial 
package air conditioning and heating equipment categories listed in 
EPCA and be subjected to their respective energy efficiency standards. 
72 FR 10038, 10046-10047 (March 7, 2007).
    Subsequently, EISA 2007 amended EPCA to: (1) Create separate 
equipment classes for SPVACs and SPVHPs; (2) set minimum energy 
conservation standards for these equipment classes; (3) eliminate the 
restriction on amendments for small, large, and very large commercial 
package air-conditioning and heating equipment until after January 1, 
2010; and (4) instruct DOE to review the most recently published ASHRAE 
Standard 90.1 with respect to SPVUs no later than 3 years after the 
enactment of EISA 2007. As noted previously, DOE published a final rule 
technical amendment in the Federal Register that codified into DOE 
regulations the standards for SPVUs that were established by EISA 2007. 
74 FR 12058 (March 23, 2009).
    On October 29, 2010, ASHRAE officially released ASHRAE Standard 
90.1-2010 to the public. As an initial step in reviewing SPVUs under 
EPCA, DOE published a notice of data availability (NODA) on May 5, 
2011, which contained potential energy savings estimates for certain 
industrial and commercial equipment, including SPVUs. 76 FR 25622. 
Although ASHRAE Standard 90.1-2010 did not update the efficiency levels 
for SPVUs, DOE was obligated to review the potential energy savings for 
these equipment classes under 42 U.S.C. 6313(a)(10)(B), as noted above. 
On January 17, 2012, DOE published a NOPR (January 2012 NOPR), which 
proposed revised energy conservation standards for certain types of 
commercial equipment (not including SPVUs), in response to standard 
levels contained in ASHRAE Standard 90.1-2010 that were more-stringent 
than Federal minimum standards at the time. In addition, the January 
2012 NOPR proposed test procedure amendments for certain types of 
commercial equipment, including SPVUs, in order to incorporate the most 
current industry test procedures specified in ASHRAE Standard 90.1-
2010. In the January 2012 NOPR, DOE proposed to incorporate by 
reference the Air-Conditioning, Heating, and Refrigeration Institute 
(AHRI) Standard 390-2003, ``Performance

[[Page 57447]]

Rating of Single Package Vertical Air-Conditioners and Heat Pumps,'' 
into the DOE test procedure for SPVUs and proposed an optional 
equipment break-in period of no more than 16 hours. 77 FR 2356. On May 
16, 2012, DOE published a final rule (May 2012 Rule), which 
incorporated by reference AHRI Standard 390-2003 into the DOE test 
procedure for SPVUs and increased the maximum duration of the optional 
break-in period to 20 hours. 77 FR 28928. The May 2012 Rule (as with 
the January 2012 NOPR) did not contain amended standards for SPVUs, 
because ASHRAE Standard 90.1-2010 did not set standard levels for SPVUs 
that were more stringent than the federally mandated standard levels at 
the time. As directed by EISA 2007, DOE was considering more-stringent 
standards for SPVUs on a separate timeline from the other equipment 
analyzed under the May 2012 Rule.
    However, as noted before, during the analyses regarding whether 
standards more stringent than those promulgated by EISA 2007 would be 
justified, ASHRAE acted on October 9, 2013 to adopt ASHRAE Standard 
90.1-2013. This revision to ASHRAE Standard 90.1 did contain amended 
standard levels for SPVUs, thereby triggering DOE's statutory 
obligation 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.
    Once triggered by ASHRAE action, DOE became subject to certain new 
statutory requirements and deadlines. For example, the statute required 
DOE to publish in the Federal Register for comment an analysis of the 
energy savings potential of amended energy conservation standards at 
the ASHRAE Standard 90.1-2013 levels, not later than 180 days after 
amendment of the ASHRAE standard. DOE published this energy savings 
analysis as a NODA in the Federal Register on April 11, 2014 (April 
2014 NODA). 79 FR 20114.
    Once triggered by ASHRAE action, the applicable legal deadline for 
completion of this standards rulemaking also shifted. When DOE first 
commenced this rulemaking pursuant to 42 U.S.C. 6313(a)(10)(B), that 
provision directed DOE to follow the procedures established under 42 
U.S.C. 6313(a)(6). Because DOE had not been triggered by ASHRAE action 
at the time (as would necessitate use of the procedures under 42 U.S.C. 
6313(a)(6)(A)), DOE proceeded as a 6-year-lookback amendment of the 
standard under 42 U.S.C. 6313(a)(6)(C), which called for a NOPR 
followed by a final rule not more than 2 years later. DOE was close to 
issuing a NOPR at the time it was triggered by ASHRAE action on 
Standard 90.1-2013. Once triggered, DOE was then required to either 
adopt the levels in ASHRAE Standard 90.1-2013 not later than 18 months 
after the publication of the amended ASHRAE standard (i.e., by April 9, 
2015), or to adopt more-stringent standards not later than 30 months 
after publication of the amended ASHRAE standard (i.e., by April 9, 
2016). Subsequently, DOE published a NOPR in December 2014 with 
proposed standards for SPVU equipment. 79 FR 78614. DOE received a 
number of comments from interested parties; the parties are summarized 
in Table II.2. DOE considered these comments in the preparation of the 
final rule. Relevant comments, and DOE's responses, are provided in the 
appropriate sections of this document.

            Table II.2--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 et al...........  EA
 Project, Alliance to Save Energy,
 Natural Resources Defense Council.
Bard Manufacturing Company........  Bard.................  M
Edison Electric Institute.........  EEI..................  U
Howe, Anderson, and Smith, P.C.     First Company........  M
 (on behalf of First Company).
Friedrich Air Conditioning          Friedrich............  M
 Company, LTD.
General Electric..................  GE...................  M
Lennox International..............  Lennox...............  M
National Coil Company.............  .....................  M
Northwest Energy Efficiency         NEEA.................  EA
 Alliance.
Pacific Gas and Electric Company,   CA IOUs..............  U
 Southern California Gas Company,
 Southern California Edison, San
 Diego Gas and Electric.
Southern Company Services.........  SCS..................  U
U.S. Chamber of Commerce and 10     Associations.........  TA
 trade associations.
------------------------------------------------------------------------
* IR: Industry Representative; M: Manufacturer; EA: Efficiency/
  Environmental Advocate; TA: Trade Association; U: Utility.

III. General Discussion

A. Compliance Dates

    Based on the statutory lead time for compliance in 42 U.S.C. 
6313(a)(6)(D), for the SPVU equipment classes for which DOE is adopting 
the ASHRAE Standard 90.1-2013 levels, the compliance date is either 2 
or 3 years after the effective date of the applicable ASHRAE standard, 
depending on equipment size (i.e., by October 9, 2015 or October 9, 
2016).\20\ The compliance date for the SPVU equipment classes for which 
DOE is adopting more-stringent standards than the ASHRAE Standard 90.1-
2013 levels is 4 years after the publication of this final rule in the 
Federal Register. Therefore, SPVU equipment classes subject to the 
standards more stringent than ASHRAE Standard 90.1-2013 level, which 
are manufactured on or after September 23, 2019 will be required to 
meet the more-stringent Federal standards.
---------------------------------------------------------------------------

    \20\ Under 42 U.S.C. 6313(a)(6)(D)(i), the applicable compliance 
date when DOE adopts the ASHRAE standard levels for small commercial 
package air conditioning and heating equipment (including SPVACs and 
SPVHPs under 135,000 Btu/h) is 2 years after the effective date of 
the minimum energy efficiency requirements in the amended ASHRAE 
Standard 90.1. Under 42 U.S.C. 6313(a)(6)(D)(ii), the applicable 
compliance date when DOE adopts the ASHRAE standard levels for large 
and very large commercial package air conditioning and heating 
equipment (including SPVACs and SPVHPs >=135,000 Btu/h and <240,000 
Btu/h) is 3 years after the effective date of the minimum energy 
efficiency requirement in the amended ASHRAE Standard 90.1.
---------------------------------------------------------------------------

B. Equipment Classes and Scope of Coverage

    When evaluating and establishing energy conservation standards, DOE 
divides covered equipment into

[[Page 57448]]

equipment classes by the type of energy used or by capacity or other 
performance-related features that justify 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 consumer of the feature and other factors DOE determines are 
appropriate. (42 U.S.C. 6295(q))
    EPCA, as amended, defines ``single package vertical air 
conditioner'' and ``single package vertical heat pump'' in 42 U.S.C. 
6311(23) and (24). In particular, these units can be single- or three-
phase; must have major components arranged vertically; must be an 
encased combination of components; and must be intended for exterior 
mounting on, adjacent interior to, or through an outside wall. DOE 
codified these definitions into its regulations at 10 CFR 431.92.
    EPCA, as amended, set energy conservation standards for eight SPVU 
equipment classes based on cooling capacity, whether the equipment is 
an air conditioner or a heat pump, and in certain cases, phase, as 
shown in Table III.1. (42 U.S.C. 6313(a)(10)(A)) The energy 
conservation standards for SPVACs and SPVHPs are identical across 
phase, and as such, DOE does not always show the phase breakdown. (See, 
for example, 10 CFR part 431, Table 1 to Sec.  431.97.)

    Table III.1--Equipment Classes for Single Package Vertical Units
------------------------------------------------------------------------
                               Cooling capacity Btu/
        Equipment type                   h                   Phase
------------------------------------------------------------------------
Single Package Vertical Air    <65,000..............  Single-Phase.
 Conditioners.                                        3-Phase.
                               >=65,000 and <135,000  All.
                               >=135,000 and          All.
                                <240,000.
Single Package Vertical Heat   <65,000..............  Single-Phase.
 Pumps.                                               3-Phase.
                               >=65,000 and <135,000  All.
                               >=135,000 and          All.
                                <240,000.
------------------------------------------------------------------------

1. Consideration of a Space-Constrained SPVU Equipment Class
    In the April 2014 NODA, DOE noted that ASHRAE Standard 90.1-2013 
created a new equipment class for SPVACs and SPVHPs used in space-
constrained and replacement-only applications, with a definition for 
``non-weatherized space constrained single-package vertical unit'' and 
efficiency standards for the associated equipment class. In the NODA, 
DOE tentatively concluded that there was no need to establish a 
separate space-constrained class for SPVUs, given that certain models 
listed by manufacturers as SPVUs, most of which would meet the ASHRAE 
space-constrained definition, were being misclassified and should have 
been classified as central air conditioners (in most cases, space-
constrained central air conditioners). 79 FR 20114, 20123 (April 11, 
2014). DOE reaffirmed this position in the December 2014 NOPR. In 
response to the NOPR, DOE received several comments from stakeholders 
related to the classification of products that these commenters are 
referring to as space constrained SPVUs, the statutory definition of 
SPVU, how these products are applied in the field or specified for 
purchase, and whether the products warranted a separate equipment class 
within SPVU. (AHRI, No. 19 at p. 2; Lennox, No. 16 at pp. 11-12, 14,15, 
17; First Company, No. 12 at pp. 1-3; GE, No. 21 at p. 2; Friedrich, 
No. 15 at p. 1; NEEA, No. 23 at p. 2; CA IOUs, No. 22 at p. 2) DOE will 
consider these comments and take appropriate action in a separate 
rulemaking.
2. Relationship to Dual Duct Air Conditioners
    DOE notes that in the September 30, 2014 NOPR for commercial 
package air conditioning and heating equipment, it discussed a type of 
air-conditioning equipment designed for indoor installation in 
constrained spaces using ducting to an outside wall for the supply and 
discharge of condenser air to the condensing unit, referring to these 
units as ``dual-duct air-cooled air conditioners.'' 79 FR 58948, 58964. 
A subsequent working group established to negotiate standards for 
commercial package equipment recommended that dual duct air 
conditioners and heat pumps become a separate equipment class within 
the category of commercial packaged air-conditioning and heating 
equipment with their own standards and recommended the following 
definition:
    ``Dual duct air conditioner or heat pump means air-cooled 
commercial package air conditioning and heating equipment that
     is either a horizontal single package or split-system 
unit; or a vertical unit that consists of two components that may be 
shipped or installed either connected or split;
     is intended for indoor installation with ducting of 
outdoor air from the building exterior to and from the unit, where the 
unit and/or all of its components are non-weatherized and are not 
marked (or listed) as being in compliance with UL 1995 or equivalent 
requirements for outdoor use;
     (a) if it is a horizontal unit, the complete unit has a 
maximum height of 35 inches or the unit has components that do not 
exceed a maximum height of 35 inches;
     (b) if it is a vertical unit, the complete (split, 
connected, or assembled) unit has component that do not exceed maximum 
depth of 35 inches; and
     (c) has a rated cooling capacity greater than and equal to 
65,000 Btu/h and up to 300,000 Btu/h.'' (EERE-2013-BT-STD-0007-0093, 
pp. 4-5).
    DOE notes that the proposed definition does not encompass vertical 
single package units, and as such there is not any overlap with the 
definition of SPVU. DOE has not identified any equipment on the market 
that is arranged vertically in a single package configuration and meets 
all the criteria of the dual duct definition, with the sole exception 
of not consisting of two components. If such equipment existed, DOE 
would consider it to be an SPVU rather than a dual duct air conditioner 
or heat pump.

C. Test Procedure

    DOE's current energy conservation standards for SPVUs are expressed 
in terms of EER for cooling efficiency and COP for heating efficiency 
(see 10 CFR 431.96(b)).
    DOE's test procedures for SPVACs and SPVHPs are codified at Title 
10 of the Code of Federal Regulations (CFR), section 431.96. The 
current test

[[Page 57449]]

procedures were amended in a final rule dated May 16, 2012. 77 FR 
28928, 28987-91. The test procedures are incorporated by reference at 
10 CFR 431.95(b)(6) and include the ANSI and AHRI Standard 390-2003 
``Performance Rating of Single Package Vertical Air-Conditioners and 
Heat Pumps'' (AHRI 390-2003).

D. Technological Feasibility

1. General
    In each energy conservation standards rulemaking, DOE conducts a 
screening analysis based on information gathered on all current 
technology options and prototype designs that could improve the 
efficiency of the 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 equipment or in working prototypes to be 
technologically feasible. 10 CFR part 430, subpart C, appendix A, 
Section 4(a)(4)(i).
    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, and service; (2) adverse 
impacts on equipment utility or availability; and (3) adverse impacts 
on health or safety. 10 CFR part 430, subpart C, appendix A, Section 
4(a)(4)(ii)-(iv). Section IV.B of this document discusses the results 
of the screening analysis for SPVACs and SPVHPs, particularly the 
designs DOE considered, those it screened out, and those that are the 
basis for the standards considered in this rulemaking. For further 
details on the screening analysis for this rulemaking, see chapter 4 of 
the final rule TSD.
2. Maximum Technologically Feasible Levels
    When DOE adopts (or does not adopt) an amended energy conservation 
standard for a type or class of covered equipment, it must determine 
the maximum improvement in energy efficiency or maximum reduction in 
energy use that is technologically feasible for such equipment. (42 
U.S.C. 6295(p)(1) and 6313(a)) Accordingly, in the engineering 
analysis, DOE determined the maximum technologically feasible (``max-
tech'') improvements in energy efficiency for SPVACs and SPVHPs using 
the design parameters that passed the screening analysis. The max-tech 
levels that DOE determined for this rulemaking are described in section 
IV.C.4 of this final rule and in chapter 5 of the final rule TSD.

E. Energy Savings

1. Determination of Savings
    For each trial standard level (TSL), DOE projected energy savings 
from application of the TSL to SPVUs purchased in the 30-year period 
that begins in the year of compliance with any amended standards (2015-
2044 for the ASHRAE level, and 2019-2048 for higher efficiency 
levels).\21\ The savings are measured over the entire lifetime of 
products purchased in the 30-year analysis period. DOE quantified the 
energy savings attributable to each TSL as the difference in energy 
consumption between each standards case and the ASHRAE base case, or 
the case in which DOE must adopt the standard levels in ASHRAE 90.1-
2013.
---------------------------------------------------------------------------

    \21\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet models to 
estimate energy savings from potential amended standards for SPVUs. The 
NIA spreadsheet model (described in section IV.G of this final rule) 
calculates savings in site energy, which is the energy directly 
consumed by products at the locations where they are used. Based on the 
site energy, DOE calculates national energy savings (NES) in terms of 
primary energy savings at the site or at power plants, and also in 
terms of full-fuel-cycle (FFC) energy savings. The FFC metric includes 
the energy consumed in extracting, processing, and transporting primary 
fuels (i.e., coal, natural gas, petroleum fuels), and thus presents a 
more complete picture of the impacts of energy conservation 
standards.\22\ DOE's approach is based on the calculation of an FFC 
multiplier for each of the energy types used by covered products or 
equipment. For more information on FFC energy savings, see section 
IV.G.1 of this final rule. For natural gas, the primary energy savings 
are considered to be equal to the site energy savings.
---------------------------------------------------------------------------

    \22\ The FFC metric is discussed in DOE's statement of policy 
and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as 
amended at 77 FR 49701 (Aug. 17, 2012).
---------------------------------------------------------------------------

2. Significance of Savings
    Among the criteria that govern DOE's adoption of more-stringent 
standards for SPVUs 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, for the District of Columbia 
Circuit 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 the final rule for SPVUs 
<65,000 Btu/h (presented in section V.B.3.a) provide evidence that the 
additional energy savings each would achieve by exceeding the 
corresponding efficiency levels in ASHRAE 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).

F. Economic Justification

1. Specific Criteria
    EPCA provides seven factors to be evaluated in determining whether 
a more stringent standard for SPVACs and SPVHPs is economically 
justified. (42 U.S.C. 6313(a)(6)(B)(ii))
    In response to the NOPR, AHRI stated that DOE is not performing the 
full cost-benefit analysis that EPCA section 6313(a)(6)(B)(ii) 
requires. It stated that DOE performed cost-benefit considerations at 
various points of its analysis, yet never fully reconciled those 
analyses or the assumptions and scope of coverage underlying them. It 
added that DOE's cost-benefit analyses with respect to the nation, 
manufacturers, and employment utilize very different geographic scopes, 
ignore the immediately apparent effects on employment, and rely on 
unsupported analyses for effects on the general economy. AHRI urged DOE 
to reconcile these various approaches and their assumptions, and also 
to make available any models or inputs/outputs DOE relied on. AHRI 
stated that DOE should remedy this shortcoming by performing an 
integrated, full cost-benefit analysis considering all factors, 
including the effects on all directly related domestic industries. 
(AHRI, No. 19 at p. 23)
    As noted above, EPCA section 6313(a)(6)(B)(ii) lays out the factors 
the Secretary should consider, to the maximum extent practicable, in 
determining whether the benefits of a proposed standard exceed the 
burdens. EPCA does not mention or require the

[[Page 57450]]

type of integrated cost-benefit analysis that AHRI envisions. It does 
not state or imply that all of the benefits and burdens need be 
quantified in monetary terms. Indeed, it is clear from reading the list 
of factors that no integrated analysis could encompass all of the 
factors in a single framework.
    AHRI appears to be concerned that DOE's national cost-benefit 
analysis does not encompass the impacts on manufacturers of the 
proposed standards. The NIA considers, from a national perspective, all 
of the costs and benefits projected for consumers of SPVUs meeting the 
amended standards. The costs account for the incremental variable and 
fixed costs incurred by manufacturers due to the standards, some of 
which may be incurred in preparation for the final rule. DOE assumes 
that these costs will be reflected in higher prices for the covered 
products. DOE does consider the potential effects of standards on 
employment, both within the SPVU manufacturing industry and in the 
larger economy. Apart from estimating employment impacts, DOE does not 
attempt to estimate effects on the general economy. DOE has made 
available the models used for the NIA and the manufacturer and consumer 
impact analyses, and the inputs are described in the final rule TSD.
    The following sections discuss how DOE has addressed each of the 
seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of an amended standard on manufacturers, 
DOE conducts a manufacturer impact analysis (MIA), as discussed in 
section IV.J. 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 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 standards on domestic manufacturer 
employment and manufacturing capacity, as well as the potential for 
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 consumers, measures of economic impact include the 
changes in LCC and PBP associated with new or amended standards. These 
measures are discussed further in the following section. For consumers 
in the aggregate, DOE also calculates the national NPV of the economic 
impacts applicable to a particular rulemaking. DOE also evaluates the 
LCC impacts of potential standards on identifiable subgroups of 
consumers 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 is likely to 
result from a 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 equipment (including 
its installation cost) and operating expenses (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 consumers 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 consumers 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. 6313(a)(6)(B)(ii)(III)) As 
discussed in section IV.G, DOE uses the NIA spreadsheet to project NES.
    AHRI stated that DOE is violating section 6313(a)(6)(A)(ii)(II) and 
section 6313(a)(6)(B)(ii)(I)-(VII) of EPCA by purporting to give energy 
savings disproportionate weight. AHRI noted that EPCA requires that DOE 
consider seven different factors in determining whether the benefits of 
a proposed standard exceed its burdens, and stated that there is no 
indication in the statute or otherwise that Congress intended this 
analysis to be anything other than a roughly equal weighting of factors 
where no particular factor is ``king'' over all the others. (AHRI, No. 
19 at p. 21)
    Section 6313(a)(6)(A)(ii)(II) concerns DOE's authority to adopt a 
national standard more stringent than the amended ASHRAE/IES Standard 
90.1 if such standard would result in significant additional 
conservation of energy and is technologically feasible and economically 
justified. Section V.C of this document sets forth in detail the 
reasons why DOE has concluded that the adopted standards for SPVUs 
would indeed result in significant additional conservation of energy 
and are technologically feasible and economically justified.
    Section 6313(a)(6)(B)(ii)(I)-(VII) lists the factors that DOE must 
consider in determining whether a standard is economically justified 
for the purposes of subparagraph (A)(ii)(II). There is no language in 
the statute that indicates how the factors should be weighted, nor is 
there a basis for AHRI's interpretation of Congressional intent. 
Furthermore, given that some of the factors are amenable to 
quantification while others are more qualitative, it is not clear how 
the roughly equal weighting envisioned by AHRI would be accomplished. 
DOE does agree that no single factor should be given excessive 
consideration, and it does not give disproportionate weight to the 
projected quantity of 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 
potential standards that would not lessen the utility or performance of 
the considered equipment. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) Based on 
data available to DOE, the standards adopted in this final rule would 
not reduce the utility or performance of the equipment under 
consideration in this rulemaking.

[[Page 57451]]

e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider the impact of 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 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 transmitted a copy of 
its proposed rule to the Attorney General with a request that the 
Department of Justice (DOJ) provide its determination on this issue.
    In a letter dated March 2, 2015, DOJ expressed concern over the 
proposed energy conservation standards for SPVUs less than 65,000 Btu/
h. In particular, DOJ noted that, based on its consideration of the 
rulemaking documents and observations at the public meeting, 
manufacturers seemed concerned that the costs of compliance might be 
prohibitive, and that higher costs may necessitate higher prices to 
consumers who may opt to switch to other potentially less efficient 
products or solutions. It also noted industry concerns that proposed 
standards will require them to increase the size and footprint of 
SPVUs, which may not be feasible or acceptable to consumers, thereby 
potentially limiting the range of competitive alternatives available to 
consumers. DOJ stated that, while it is not in a position to judge 
whether individual manufacturers will be able to meet the proposed 
standards, it had concern that the proposed changes could have an 
effect on competition and it urged DOE to take these into account in 
determining its final energy efficiency standards for SPVUs. In 
addition, DOJ recognized that the classification of space-constrained 
equipment was a potentially significant issue within the rulemaking, 
but could offer no assessment of the possible competitive impacts of 
the resolution of that issue.
    In response to DOJ concerns, DOE notes that the technologies 
required to reach the adopted level are not proprietary, are understood 
by the industry, and are generally available to all manufacturers. In 
its engineering analysis, DOE concluded that the typical design path 
would require changes the size of the heat exchanger but would not 
affect the outer dimensions of the product. Moreover, DOE based its 
engineering analysis solely on equipment models and configurations 
which are currently on the market and thus which are, presumably, 
acceptable to consumers. For these reasons, DOE does not believe that 
the standard levels included in this final rule will result in adverse 
impacts on competition within the SPVU marketplace. Additionally, with 
respect to DOJ's comment on the classification of space-constrained 
equipment, DOE is currently addressing that topic in a separate 
rulemaking.
    AHRI commented that failing to secure the views of the Attorney 
General in advance of the proposed rule prevented public comment on the 
conclusions. (AHRI, No. 19 at p. 23) AHRI seems to be suggesting that 
DOE should request DOJ's determination prior to publication of the NOPR 
so that such determination could be included in the NOPR. EPCA requires 
the Attorney General to make a determination of the impact, of any, of 
any lessening of competition likely to result from such standard and 
shall transmit such determination, not later than 60 days after the 
publication of a proposed rule prescribing or amending an energy 
conservation standard, in writing to the Secretary, together with an 
analysis of the nature and extent of such impact. Any such 
determination and analysis shall be published by the Secretary in the 
Federal Register. 42 U.S.C. 6295(o)(2)(B)(ii). The Attorney General 
makes a determination of the likely competitive impacts of the proposed 
standard, which can occur only after the proposed standard is issued by 
DOE. Additionally, AHRI had the opportunity to comment on all aspects 
of the NOPR, including the impact of any lessening of competition.
    AHRI asked DOE to explain how it weighed section 
6313(a)(6)(B)(ii)(IV) (impacts on utility and product performance) or 
(V) (the impact of a lessening of competition) in the process of 
deciding which TSL to select. In the context of market competition, 
AHRI stated that DOE failed to consider whether the negative impacts on 
small business can be averted if ASHRAE 90.1-2013 or TSL 1 levels are 
selected. (AHRI, No. 19 at p. 23)
    As discussed in sections V.B.4 and V.B.5, DOE concluded: (1) That 
the efficiency levels adopted in this document are technologically 
feasible and would not reduce the utility or performance of SPVACs and 
SPVHPs, and (2) the amended levels would be unlikely to have a 
significant adverse impact on competition. In selecting a standard 
level, DOE is required to weigh the sum of all benefits against all 
costs. The impact on small manufacturers is one consideration in the 
balancing of costs and benefits. Given the size and composition of the 
industry, any publication of conversion costs or impacts by subgroup 
could disclose proprietary content or enable decomposition of aggregate 
numbers. In the following table, DOE shows the average conversion cost 
per manufacturer and those conversion costs as a percentage of revenue 
for the industry.

----------------------------------------------------------------------------------------------------------------
                                                                       Trial Standard Level
                                       Units     ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Average Conversion Costs per              2014$M              .9             1.0             2.2             4.5
 Manufacturer...................
Conversion Costs as a Percentage               %             7.2             7.8            16.8            34.5
 of Revenue for the Industry *..
----------------------------------------------------------------------------------------------------------------
* Based on 2015 projected industry revenue.

f. Need for National Energy Conservation
    DOE also considers the need for national energy conservation in 
determining whether a new or amended standard is economically 
justified. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) The energy savings from 
the adopted standards are likely to improve the security and 
reliability of the nation's energy system. 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.L.
    The adopted standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and GHGs 
associated with energy production and use. DOE

[[Page 57452]]

conducts an emissions analysis to estimate how potential standards may 
affect these emissions, as discussed in section IV.J; the emissions 
impacts are reported in section V.B.6 of this final rule. DOE also 
estimates the economic value of emissions reductions resulting from the 
considered TSLs, as discussed in section IV.K.
    AHRI questioned DOE's inclusion of environmental benefits in its 
consideration since none of the specific factors in section 
6313(a)(6)(B)(ii)(I)-(VI) refer to environmental matters. AHRI stated 
that DOE must clarify precisely why and how it believes that it has the 
statutory authority under section 6313(a)(6)(B)(ii) to consider SCC 
issues in any fashion and, if so, under which sub-provision (i.e., 
which of the seven factors). (AHRI, No. 19 at pp. 24-25)
    DOE maintains that environmental and public health benefits 
associated with more-efficient use of energy are important to take into 
account when considering the need for national energy and water 
conservation. Given the threats posed by global climate change to the 
economy, public health, and national security,\23\ combined with the 
well-recognized potential of many energy conservation measures to 
reduce emissions of GHGs, DOE believes that evaluation of the potential 
benefits from slowing anthropogenic climate change must be part of the 
consideration of the need for national energy conservation required 
under 42 U.S.C. 6313(a)(6)(B)(ii)(VI).
---------------------------------------------------------------------------

    \23\ See the National Academies 2014 report America's Climate 
Choices. Available at: http://nas-sites.org/americasclimatechoices/sample-page/panel-reports/americas-climate-choices-final-report/.
---------------------------------------------------------------------------

g. Other Factors
    EPCA allows the Secretary, in determining whether a standard is 
economically justified, to consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) To 
the extent interested parties submit any relevant information regarding 
economic justification that does not fit into the other categories 
described above, DOE could consider such information under ``other 
factors.''
2. Rebuttable Presumption
    EPCA creates a rebuttable presumption that an energy conservation 
standard is economically justified if the additional cost to the 
consumer 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 analysis generates values used to calculate the effects 
that potential amended energy conservation standards would have on the 
PBP for consumers. These analyses include, but are not limited to, the 
3-year PBP contemplated under the rebuttable-presumption test.
    In addition, DOE routinely conducts an economic analysis that 
considers the full range of impacts to consumers, manufacturers, the 
Nation, and the environment, as required under 42 U.S.C. 
6313(a)(6)(B)(ii). 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 final rule.

G. Additional Comments

    DOE received additional non-methodological comments that are not 
classified in the discussion sections above. Responses to these 
additional comments are provided below.
    Referring to section VI.A of the NOPR, AHRI stated that DOE failed 
to identify market failures or how energy prices fail to reflect costs 
associated with emissions of CO2 and other pollutants. AHRI 
pointed out that those who purchase and rent commercial buildings (and 
their tenants) are typically sophisticated consumers who have access to 
information on energy costs, so any market failure in this context 
would not be large. AHRI stated that DOE must demonstrate that market 
failures actually exist in the real world and that, once quantified, 
DOE's assessment of costs and benefits for its rules in this area align 
with such an important external validity check on its analysis. (AHRI, 
No. 19 at pp. 26-27)
    Section 1(b)(1) of Executive Order (E.O.) 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. As discussed in section VI.A of this final rule, DOE 
identified two problems that are related to certain features of 
consumer decision-making (numbers 1 and 2 in section VI.A), and one 
problem (number 3) that concerns environmental externalities that are 
not reflected in energy prices.\24\ Energy prices only reflect costs 
incurred in the production and delivery of energy products (including 
costs related to meeting existing emissions regulations). They do not 
reflect costs associated with the effects of the pollutant emissions 
that do occur. In the case of GHGs, the wide range of economic, public 
health, and environmental costs associated with climate change are 
discussed in the National Academies 2014 report America's Climate 
Choices.\25\
---------------------------------------------------------------------------

    \24\ Note that since the publication of the SPVU NOPR, DOE has 
refined the description of the problems identified pursuant to E.O. 
12866. See section VI.A.
    \25\ Available at: http://nas-sites.org/americasclimatechoices/sample-page/panel-reports/americas-climate-choices-final-report/.
---------------------------------------------------------------------------

    DOE acknowledges that many SPVU consumers have access to 
information on energy costs and have the capacity to factor this 
information into their purchase decision. Indeed, DOE estimates that 
many consumers would purchase equipment with efficiency that meets or 
exceeds the proposed standards in the ASHRAE base case. It is possible 
that the problem related to information is not highly significant in 
the SPVU market, but DOE believes that the problem of misaligned 
incentives between purchasers and users exists in the case of building 
tenants who pay for electricity.
    Neither EPCA nor E.O. 12866 require quantification of the problems. 
Nor is it clear how any such quantification would bear any relationship 
to the costs and benefits estimated for the adopted standards. In the 
case of the problem that there are external benefits resulting from 
improved energy efficiency of equipment that are not captured by the 
users, DOE attempts to qualify some of the external benefits through 
use of SCC values.
    AHRI commented that, by proposing energy conservation standards for 
SPVUs above the levels presented in ASHRAE 90.1-2013, DOE failed to 
recognize that Congress intended that DOE rely on the ``ASHRAE 
process'' for commercial standards-making. AHRI added that DOE should 
have raised concerns regarding the proposed efficiency levels through 
the ASHRAE process. (AHRI, No. 19 at pp. 13-15) In proposing energy 
conservation standards for SPVUs above the levels presented in ASHRAE 
90.1-2013, DOE followed the relevant provisions of EPCA, which 
authorize the adoption of an energy conservation standard above the 
levels adopted by ASHRAE if clear and convincing evidence shows that 
adoption of such a more-stringent standard would result in significant

[[Page 57453]]

additional conservation of energy and be technologically feasible and 
economically justified. 42 U.S.C. 6313(a)(6)(A)(ii)(II)
    AHRI commented that DOE did not make a meaningful attempt to show 
that the energy savings meet the ``clear and convincing'' requirement 
of proof, and that the analysis falls short as a result of omissions 
related to increases in physical size, decreases in shipments, and lack 
of evidence for the conclusions of the net employment impacts. 
Furthermore, AHRI noted that the analysis used by DOE in this 
rulemaking is functionally equivalent to the 6295(o) process that does 
not have this elevated requirement of proof. (AHRI, No. 19 at pp. 14-
17) Following the publication of the NOPR, DOE revised its analysis to 
incorporate feedback received through stakeholder comments and 
otherwise responded to specific concerns, including those related to 
physical size, shipments, and employment impacts; specific revisions 
and comment responses are addressed in the relevant sections of the 
document. Following the update of its analyses and review of the 
results, DOE continues to believe that there is clear and convincing 
evidence that the standard would result in significant additional 
conservation of energy and is technologically feasible and economically 
justified. Section V.C of this document sets forth in detail the 
reasons why DOE has made this conclusion.
    AHRI also commented that the commercial provisions of the statute 
do not require the maximum improvement in energy efficiency as is 
required by the residential provisions of the statute (42 U.S.C. 
6295(o)(2)(A)). Therefore, AHRI reported that DOE should not have 
started at TSL 4 and walked down, but should have first considered 
ASHRAE and only considered higher levels based on clear and convincing 
evidence as noted previously. (AHRI, No. 19 at pp. 15-17) In response, 
as described in this final rule, DOE adopted ASHRAE levels except where 
clear and convincing evidence supported the adoption of a more 
stringent standard.
    DOE also received several comments from stakeholders regarding the 
proposed efficiency levels. ASAP et al., NEEA, and the CA IOUs 
supported the proposed standards for SPVUs. (ASAP et al., No. 18 at p. 
1; NEEA, No. 23 at p. 1; and CA IOUs, No. 22 at pp. 1-2) AHRI, Lennox, 
Friedrich, First Company, and National Coil Company opposed increasing 
efficiency levels about the ASHRAE 90.1-2013 levels. (AHRI, No. 19 at 
p. 2; Lennox, No. 16 at p. 2; Friedrich, No. 15 at p. 2; First Company, 
No. 12 at p. 3; National Coil Company, No. 14 at p. 1) Friedrich stated 
that adopting the ASHRAE 90.1-2013 standards would allow for a 
realistic product design cycle. (Friedrich, No. 15 at p. 2) Lennox and 
AHRI stated that DOE has not provided clear and convincing evidence of 
the benefits of levels above ASHRAE including TSL 2. (Lennox, No. 16 at 
pp. 7-8; AHRI, No. 19 at p. 2) Lennox also cited instances when DOE 
rejected TSLs with higher energy savings in favor of ASHRAE, and noted 
that TSL 2 does not result in significant energy savings if DOE were to 
consider reduced future shipments and repairs. (Lennox, No. 16 at pp. 
7-8) Similarly, National Coil Company noted that the economic benefits 
would actually be smaller than those in the NOPR because shipments 
projections are flawed and the PBPs will discourage consumers from 
purchasing the higher efficiency product. (National Coil Company, No. 
14 at p. 2)
    DOE appreciates stakeholder comments on the proposed efficiency 
levels. With respect to Friedrich's comment regarding design cycle, DOE 
believes that the compliance period associated with TSL 2 provides 
adequate time for development and implementation of any necessary 
changes to equipment offerings. Additionally, DOE's engineering 
analysis is based on equipment already on the market, so DOE does not 
believe that design cycle concerns should be a significant issue. In 
response to Lennox and AHRI, in section V.C of this final rule, DOE 
presents results related to energy savings, economic justification, and 
technological feasibility, which together meet the clear and convincing 
evidence requirement. While Lennox is correct in stating that in the 
past DOE has rejected TSLs with energy savings greater than those 
expected from adopting ASHRAE standard levels, in each of those cases, 
DOE had determined that there is not clear and convincing evidence to 
support the higher levels based on specific concerns identified in 
those rulemakings. DOE has revised its shipments analysis in response 
to comments, including those from Lennox and National Coil Company. 
After making these revisions, which include consideration of increased 
repairs and reduced shipments in the standards case, DOE still finds 
that there is clear and convincing evidence that TSL 2 provides 
significant energy savings that are economically justified.
    Lennox stated that if DOE does not adopt the ASHRAE 90.1-2013 
efficiency levels, it should engage stakeholders in a negotiated 
rulemaking to address multiple concerns. (Lennox, No. 16 at p. 2) AHRI 
stated that as an alternative to adopting the levels in ASHRAE 90.1-
2013, DOE could issue a supplemental notice of proposed rulemaking 
(SNOPR) and allow stakeholders opportunity to comment on a revised 
analysis and proposal. (AHRI, No. 19 at p. 2) AHRI also noted that DOE 
may not adopt a final rule with energy conservation standards that it 
determined in the NOPR are not economically justified (i.e., above TSL 
2) without issuing an SNOPR. (AHRI, No. 19 at p. 22)
    In response, DOE notes that there is no legal requirement for DOE 
to engage in a negotiated rulemaking. Furthermore, all stakeholders 
have had the opportunity to comment on DOE's proposals, which 
specifically included proposed standards for certain classes of SPVUs 
at levels more stringent than ASHRAE 90.1-2013. In this final rule, DOE 
is not adopting energy conservation standards above TSL 2.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to SPVACs and SPVHPs. Separate subsections 
address each component of the analysis.
    DOE used several analytical tools to estimate the impact of the 
standards considered in this document. The first tool is a spreadsheet 
that calculates the LCC and PBP of potential amended or new energy 
conservation standards. The NIA uses a second spreadsheet set that 
provides shipments forecasts and calculates NES and NPV resulting from 
potential energy conservation standards. DOE uses the third spreadsheet 
tool, the Government Regulatory Impact Model (GRIM), to assess 
manufacturer impacts of potential standards. These three spreadsheet 
tools are available on the DOE docket Web page for this rulemaking: 
http://www.regulations.gov/#!docketDetail;D=EERE-2012-BT-STD-0041. 
Additionally, DOE used output from the latest version of the Energy 
Information Administration's (EIA's) Annual Energy Outlook (AEO) for 
the emissions and utility impact analyses.
    AHRI stated that in the NOPR, DOE used AEO2013 rather than AEO2014 
even though DOE acknowledged that AEO2014 would reduce environmental 
benefits resulting from reductions of certain emissions. AHRI further 
stated that updating to AEO2014 in the final rule is not consistent 
with the theory or practice of notice and comment rulemaking. According 
to AHRI, if DOE determines not to adopt ASHRAE 90.1-2013 levels, DOE 
must issue an SNOPR based on AEO2014 data. AHRI stated that if DOE 
issues a final rule, it will be

[[Page 57454]]

too late to file comments and AHRI's only option will be litigation as 
the rule will have a fatal procedural error. (AHRI, No. 19 at pp. 18-
19)
    For the final rule, DOE updated to AEO2015, the most recent version 
available, wherever possible. Updating to the most recent AEO versions, 
however, had de minimus impact on the analysis and no impact on the 
conclusions DOE reached. The NOPR provided stakeholders with the 
opportunity to comment on the methodology in the rulemaking.

A. Market and Technology Assessment

    To start the rulemaking analysis for SPVACs and SPVHPs, DOE 
researched information that provided an overall picture of the market 
for this equipment, including the purpose of the equipment, the 
industry structure, manufacturers, market characteristics, and 
technologies used in the equipment. This activity included both 
quantitative and qualitative assessments based primarily on publicly 
available information.
    The market and technology assessment presented in the December 2014 
NOPR discussed definitions, equipment classes, manufacturers, 
quantities, types of equipment sold and offered for sale, and 
technology options that could improve the energy efficiency of the 
equipment under examination. See chapter 3 of the final rule TSD for 
further discussion of the market and technology assessment.
    In written submissions after publication of the NOPR, and 
discussion during the February 6, 2015 NOPR public meeting, several 
stakeholders provided comment on DOE's NOPR market and technology 
assessment. Bard commented that there were several domestic SPVU 
manufacturers that were not listed among the seven manufacturers 
considered by DOE in the NOPR. (Bard, NOPR Public Meeting Transcript, 
No. 11 at p. 52) DOE subsequently identified two additional domestic 
manufacturers of SPVUs that were not considered in the NOPR. AHRI 
commented that floor-mounted SPVUs used in offices and retail spaces 
were not included in the analysis. (AHRI, No. 19 at p. 27) DOE is not 
aware of any manufacturers of products that meet the statutory 
definition of an SPVU and are designed to be floor-mounted inside an 
office or retail space.
    Lennox commented that, according to the AHRI database, no units 
exist on the market that meet the 12.3 EER max-tech level analyzed in 
the NOPR. (Lennox, No. 16 at p. 17) AHRI also commented that there are 
no units currently on the market that meet the 12.3 EER max-tech 
efficiency level. (AHRI, No. 19 at p. 34) For the final rule analysis, 
DOE reexamined up-to-date SPVU product listings in both the AHRI 
database and manufacturers' Web sites, and found the max-tech level to 
be 12.0 EER. This resulted in DOE's selection of a different max-tech 
level, but did not significantly alter the outcome of the analyses, 
because the standard level selected was not at the max-tech level of 
performance.
    The December 2014 NOPR listed all of the potential technology 
options that DOE considered for improving energy efficiency of SPVACs 
and SPVHPs. 79 FR at 78631. These technology options are listed in 
Table IV.1.

          Table IV.1--Potential Technology Options for Improving Energy Efficiency of SPVACs and SPVHPs
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                               Technology options
----------------------------------------------------------------------------------------------------------------
Heat Exchanger Improvements.................  Increased frontal coil area.
                                              Increased depth of coil.
                                              Increased fin density.
                                              Improved fin design.
                                              Improved tube design.
                                              Hydrophilic film coating on fins.
                                              Microchannel heat exchangers.
                                              Dual condensing heat exchangers.
Indoor Blower and Outdoor Fan Improvements..  Improved fan motor efficiency.
                                              Improved fan blades.
Compressor Improvements.....................  Improved compressor efficiency.
                                              Multi-speed Compressors.
Other Improvements..........................  Thermostatic expansion valves.
                                              Electronic expansion valves.
----------------------------------------------------------------------------------------------------------------

    DOE received multiple comments regarding implementation of the 
technology options listed in Table IV.1 as a means of improving the 
energy efficiency of SPVUs. These comments are addressed in the 
relevant sections of the screening analysis and engineering analysis in 
sections IV.B and IV.C, respectively. DOE did not receive any comments 
regarding technology options that are not listed in Table IV.1.

B. Screening Analysis

    After DOE identified the technologies that might improve the energy 
efficiency of SPVACs and SPVHPs, 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 uses four screening 
criteria to determine which design options are suitable for further 
consideration in a standards rulemaking. Namely, design options will be 
removed from consideration if they are not technologically feasible; 
are not practicable to manufacture, install, or service; have adverse 
impacts on product utility or product availability; or have adverse 
impacts on health or safety. (10 CFR part 430, subpart C, appendix A at 
4(a)(4) and 5(b)) Details of the screening analysis are in chapter 4 of 
the final rule TSD.
    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 proprietary status of design 
options. 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.
    Through a review of each technology, DOE found that the 
technologies identified met all four screening criteria to be examined 
further in the analysis in the December 2014 NOPR. 79 FR at 78631.
Technologies Not Considered in the Engineering Analysis
    Typically, energy-saving technologies that pass the screening 
analysis are evaluated in the engineering analysis.

[[Page 57455]]

However, some technologies are not included in the analysis for other 
reasons, including: (1) Data are not available to evaluate the energy 
efficiency characteristics of the technology; (2) available data 
suggest that the efficiency benefits of the technology are negligible; 
or (3) the test procedure and EER or COP metric would not measure the 
energy impact of these technologies. Accordingly, in the December 2014 
NOPR, DOE eliminated the following technologies from consideration in 
the engineering analysis based upon these additional considerations: 
increased fin density, improved fin design, improved tube design, 
hydrophilic film coating on fins, thermostatic or electronic expansion 
valves, thermostatic cyclic controls, microchannel heat exchangers 
(MCHXs), and multi-speed compressors. 79 FR at 78631-32.
    DOE received multiple comments on its exclusion of MCHXs from the 
engineering analysis. ASAP et al. commented that higher efficiency 
levels may have been found to be more cost effective if MCHXs had been 
incorporated in the analysis. Although DOE did not find any models on 
the market that use MCHX technology, ASAP et al. expressed the position 
that DOE could have modeled MCHX technology in order to determine its 
cost effectiveness. Additionally, ASAP et al. stated that MCHX 
technology offers reliability benefits to users of SPVUs. (ASAP et al., 
No. 18 at p. 2) NEEA commented that MCHXs are currently found in some 
rooftop units manufactured by at least one manufacturer of SPVUs. NEEA 
stated that DOE would have found MCHXs to be a cost effective design 
option if modeling software had been used to simulate their use in 
SPVUs in the engineering analysis. (NEEA, No. 23 at pp. 1-2). The CA 
IOUs commented that MCHX is a mature technology that has been proven in 
various automotive and HVAC applications. Further, the CA IOUs stated 
that the non-existence of this technology in SPVUs may be because the 
current efficiency standards are sufficiently low to not encourage its 
use, and it may be cost effective if utilized. (CA IOUs, No. 22 at p. 
2) DOE is aware that the technological feasibility of MCHX technology 
has been proven in certain HVAC applications, including some commercial 
packaged air conditioners (CUACs). However, DOE is not aware of any 
manufacturers of SPVUs who either currently or in the past have 
incorporated MCHX technology into SPVU products. As such, DOE is not 
aware of any research or data that document the effect that MCHX 
technology has on the energy efficiency of SPVUs. Therefore, DOE did 
not consider MCHX technology in its engineering analysis.
    After screening out or otherwise removing from consideration the 
aforementioned technologies, the technologies that DOE identified for 
consideration in the engineering analysis are included in Table IV.2.

      Table IV.2--Design Options Retained for Engineering Analysis
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Increased frontal coil area.
Increased depth of coil.
Improved fan motor efficiency.
Improved fan blade efficiency.
Improved compressor efficiency.
Dual condensing heat exchangers.
------------------------------------------------------------------------

    These remaining technology options from Table IV.2 are briefly 
described below.
Increased Frontal Coil Area
    Manufacturers of SPVACs and SPVHPs will often improve the 
effectiveness of a unit's heat exchangers by using a coil with a larger 
frontal area, which increases the total heat transfer surface area. 
Enlarging the frontal area of a condenser coil allows heat to be 
rejected from the refrigerant at a lower condensing temperature. 
Similarly, such changes to the evaporator coil allow air to be cooled 
at a higher refrigerant temperature. These changes (either 
individually, or in tandem) can reduce the pressure difference across 
the compressor, and thus reduce the required compressor power. 
Increases in frontal coil area are limited by two factors. Growth of 
the evaporator coil is limited because it must be able to dehumidify 
the indoor air at a higher evaporating temperature. Also, existing 
cabinet dimensions often cannot accommodate increases in frontal coil 
area without the incursion of additional costs to enlarge the cabinet.
Increased Depth of Coil
    Manufacturers of SPVACs and SPVHPs may choose to increase heat 
exchanger efficiency by adding tube rows to the evaporator and/or 
condenser coils. Adding tube rows increases total heat transfer surface 
area, which decreases the required compressor power (similar to the 
effect of increased frontal coil area). Adding tube rows to a coil 
increases its depth. Due to cabinet size constraints, there are limits 
on how much the depth of the coil can be increased without requiring 
cabinet expansion. Also, increased coil depth may impose a greater 
static pressure drop for the fan motor to overcome such that adequate 
air flow can be maintained. Any added fan power requirements must be 
considered when assessing the net efficiency benefit of increasing coil 
depth.
Improved Fan Motor Efficiency
    SPVU manufacturers use either permanent split capacitor (PSC) 
motors or brushless permanent magnet (BPM) motors to power the fans and 
blowers of the SPVU. BPM motors have higher efficiencies than PSC 
motors, but are also more expensive and require additional control 
hardware. In addition, BPM motors weigh more than PSC motors, and may 
necessitate some system redesign to accommodate their increased weight.
    DOE found that PSC motors are the dominant motor design in lower 
efficiency units and BPM motors are commonly found in higher efficiency 
equipment. Based on market data, DOE found that, in general, at the 10 
EER efficiency level manufacturers transition from using a PSC motor to 
using a BPM motor to power the indoor blower.
Improved Fan Blade Efficiency
    Air system efficiency can be improved through more advanced fan and 
blower design and by reducing the restrictions to air flow. The air 
delivery system of an SPVU typically consists of two motors driving 
three fans: Two indoor blowers (which move air across the evaporator 
coil) and an outdoor fan (which moves air across the condenser coil). 
The evaporator blowers are typically centrifugal blowers, while the 
condenser fan is typically a propeller-type fan. Improvements to the 
fan blade designs could increase the overall efficiency by decreasing 
the power demands for the fan motor. Most SPVUs use forward-curved 
blowers, but some manufacturers have been experimenting with backward-
curved blowers for their quieter performance and higher efficiencies. 
However, the space limitations within SPVUs make reduction of flow 
resistance difficult. Backward-curved fan blades were found in SPVUs at 
the max-tech efficiency level. DOE has not found any data quantifying 
the efficiency improvement of a backward-curved blower in SPVU models.
Improved Compressor Efficiency
    The compressors used in SPVUs are almost exclusively scroll 
compressors, which use two interleaving scrolls to pump refrigerant 
throughout the sealed system. The compressor consumes the majority of 
the electrical input to an

[[Page 57456]]

SPVU (indoor and outdoor blower fans and controls account for the 
remainder). As such, utilizing a higher efficiency compressor yields a 
significant improvement to the EER/COP of an SPVU.
    Based on physical teardowns, baseline efficiency SPVUs use single-
speed compressors with lower peak-load EERs, whereas more-efficient 
SPVUs incorporate two-speed compressors with higher EERs in their 
designs.
Dual Condenser Heat Exchangers
    In air-conditioning equipment, the effectiveness of a condenser at 
discharging heat into the outdoor air stream is directly related to the 
amount of surface area of the condenser heat exchanger coils.
    In order to continue improving the efficiency of the condenser 
section of a unit when increasing the size of the condenser coil is 
uneconomical, SPVU manufacturers may utilize two separate condensing 
heat exchangers, rather than just one. Doing so allows the manufacturer 
to achieve the desired increase in total condenser coil surface area 
without the cost constraints of manufacturing a single, large condenser 
coil as an alternative.
    Based on all available information, DOE did not change the 
screening analysis between the December 2014 NOPR and this final rule. 
Additional detail on the screening analysis is contained in chapter 4 
of the final rule TSD.

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 
increase. This relationship serves as the basis for cost-benefit 
calculations for individual consumers, 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 higher efficiency levels for each 
equipment class.
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.
    DOE conducted the engineering analysis presented in the December 
2014 NOPR using a combination of the efficiency level and cost-
assessment approaches for analysis of the EER and COP efficiency 
levels. More specifically, DOE identified the efficiency levels for the 
analysis based on the range of rated efficiencies of SPVAC and SPVHP 
equipment found in the AHRI database and manufacturer literature. DOE 
selected SPVAC and SPVHP equipment that was representative of the 
market at different efficiency levels, then purchased and reverse-
engineered the selected equipment. DOE used the cost-assessment 
approach to determine the manufacturer production costs (MPCs) for 
SPVAC and SPVHP equipment across a range of efficiencies from the 
baseline to max-tech efficiency levels. The methodology used to perform 
the reverse-engineering analysis and derive the cost-efficiency 
relationship is described in chapter 5 of the final rule TSD.
2. Efficiency Levels for Analysis
    The engineering analysis first identifies representative baseline 
equipment, which is the starting point for analyzing potential 
technologies that provide energy efficiency improvements. ``Baseline 
equipment'' refers to a model or models having features and 
technologies typically found in the least-efficient equipment currently 
available on the market. As described in the December 2014 NOPR, DOE 
identified 36,000 Btu/h (3-ton) as the representative cooling capacity 
for SPVACs and SPVHPs with a cooling capacity less than 65,000 Btu/h, 
and DOE identified 72,000 (6-ton) as the representative cooling 
capacity for SPVACs and SPVHPs with a cooling capacity greater than or 
equal to 65,000 Btu/h and less than 135,000 Btu/h. 79 FR at 78632. DOE 
identified some SPVHP models with a cooling capacity greater than or 
equal to 65,000 Btu/h and less than 135,000 Btu/h; however, it could 
not identify any models in this category with efficiency data 
available, so these units were not included in the engineering 
analysis. DOE did not find any models of SPVHP greater than or equal to 
135,000 Btu/h on the market. DOE found some SPVAC models with cooling 
capacities greater than or equal to 135,000 Btu/h and less than 240,000 
Btu/h; however, DOE did not consider these models in the engineering 
analysis due to a lack of available efficiency data.
    Next, using the information DOE gathered during the market and 
technology assessment, DOE selected higher efficiency levels for 
analysis for the representative cooling capacities based on the most 
common equipment efficiencies on the market and efficiency levels that 
are typically achieved via substantial design changes, as well as the 
highest efficiency level on the market for each equipment class (i.e., 
the max-tech level). Next, DOE identified typical technologies and 
features incorporated into equipment at these higher efficiency levels. 
To determine the appropriate COP heating mode efficiency levels for 
SPVHPs, DOE performed an analysis of how COP relates to EER. DOE 
reviewed the models in the database it compiled, and for each equipment 
class, DOE calculated the median COP for each EER efficiency level for 
analysis.
    Table IV.3 and Table IV.4 list the efficiency levels analyzed for 
SPVUs. Due to changes in equipment efficiency certification ratings 
since the analysis conducted for the December 2014 NOPR, the max-tech 
efficiency level (EL) decreased from 12.3 EER to 12.0 EER. In addition, 
the median COP value at both EL 3 and EL 4 decreased from 3.9 COP to 
3.7 COP. Because DOE could not find any SPVUs with cooling capacities 
>=135,000 Btu/h and <240,000 that had efficiency data available, DOE 
did not analyze any efficiency levels for SPVACs or SPVHPs with cooling 
capacities >=135,000 Btu/h and <240,000 Btu/h.

[[Page 57457]]



   Table IV.3--Efficiency Levels for Analysis for SPVUs <65,000 Btu/h
------------------------------------------------------------------------
                                  SPVACs, 36,000 Btu/ SPVHPs, 36,000 Btu/
        Efficiency level                   h                   h
------------------------------------------------------------------------
EPCA Baseline *.................  9.0 EER...........  9.0 EER
                                                      3.0 COP
ASHRAE Baseline **..............  10.0 EER..........  10.0 EER
                                                      3.0 COP
EL1.............................  10.5 EER..........  10.5 EER
                                                      3.2 COP
EL2.............................  11.0 EER..........  11.0 EER
                                                      3.3 COP
EL3.............................  11.75 EER.........  11.75 EER
                                                      3.7 COP
EL4 (max-tech)..................  12.0 EER..........  12.0 EER
                                                      3.7 COP
------------------------------------------------------------------------
* Refers to the currently applicable Federal minimum efficiency level.
  See http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35.
** Refers to the current minimum efficiency permitted by the latest
  version of the ASHRAE standard, ASHRAE 90.1-2013.


 Table IV.4--Efficiency Levels for Analysis for SPVUs >=65,000 Btu/h and
                             <135,000 Btu/h
------------------------------------------------------------------------
                                  SPVACs, 72,000 Btu/ SPVHPs, 72,000 Btu/
        Efficiency level                   h                   h
------------------------------------------------------------------------
EPCA Baseline...................  8.9 EER...........  8.9 EER
                                                      3.0 COP
ASHRAE Baseline (max-tech)......  10.0 EER..........  10.0 EER
                                                      3.0 COP
------------------------------------------------------------------------

    DOE received multiple comments regarding the method that was used 
to correlate the EER and COP efficiency metrics for formulation of the 
efficiency levels analyzed in the December 2014 NOPR. AHRI opined that 
it is not appropriate to correlate increases in EER with COP, since 
manufacturers may choose to increase either cooling or heating 
performance levels without increasing the other. (AHRI, No. 19 at p. 
30) Lennox also asserted that EER and COP are not necessarily related 
because product designs may be optimized for cooling or heating 
performance. (Lennox, No. 16 at p. 17)
    DOE acknowledges that product designs may be optimized for either 
cooling or heating performance, and understands that EER and COP cannot 
be directly correlated in practice. In its analyses, DOE found that the 
EER efficiency distributions for SPVACs and SPVHPs are similar, and 
that the design options used to achieve each EER efficiency level are 
generally the same for SPVACs and SPVHPs. Due to the similar 
relationships of cooling mode efficiency ratings versus implementation 
of design options for both SPVACs and SPVHPs, DOE has determined that 
SPVHP equipment is usually optimized to achieve a certain cooling mode 
performance level, with heating mode performance as a secondary 
concern. This determination has also been confirmed by feedback from 
manufacturer interviews. As such, DOE believes that because design 
option implementation in SPVHPs is more closely aligned with changes in 
cooling mode efficiency ratings than changes in heating mode efficiency 
ratings, the efficiency levels analyzed for SPVHPs should be centered 
on cooling mode efficiency data. Therefore, with the understanding that 
changes in COP do not have a definitive relationship to changes in EER, 
DOE believes that selecting the median COP value for SPVHPs on the 
market at each EER efficiency level is the most market-representative 
way of analyzing trends between SPVHP design option implementation and 
heating mode efficiency ratings.
3. Teardown Analysis
    After selecting a representative capacity for each equipment class, 
DOE selected equipment near both the representative capacity and the 
selected efficiency levels for each of the equipment classes that was 
directly analyzed via physical teardowns. DOE gathered information from 
these teardowns to create detailed bills of materials (BOMs) that 
included all components and processes used to manufacture the 
equipment. The teardown analysis allowed DOE to identify the 
technologies that manufacturers typically incorporate into their 
equipment, along with the efficiency levels associated with each 
technology or combination of technologies. The end result of each 
teardown is a structured BOM. The BOMs from the teardown analysis were 
used as inputs to calculate the MPC for each unit that was torn down. 
The MPCs resulting from the teardowns were used to develop an industry 
average MPC for each efficiency level analyzed in each equipment class. 
During the development of the engineering analysis, DOE held interviews 
with manufacturers to gain insight into the SPVU industry and to 
request feedback on the engineering analysis and assumptions that DOE 
used. DOE used the information it gathered from those interviews, along 
with the information obtained through the teardown analysis, to refine 
the assumptions and data in the cost model. For additional detail on 
the teardown process, see chapter 5 of the final rule TSD.
4. Incremental Efficiency Levels and Design Options
    During the teardown process, DOE quantified the typical design 
options manufacturers use to reach specific efficiency levels, as well 
as the efficiency levels at which manufacturers tend to make major 
technological design changes. DOE determined that to improve efficiency 
from the current EPCA baseline efficiency level of 9 EER to 10 EER, 
manufacturers will usually increase the heat exchanger face area, which 
necessitates an increase in cabinet size. In addition, DOE determined 
from market data and teardown results that manufacturers will typically 
switch from using a PSC indoor blower motor to using a BPM motor to 
reach 10 EER. To increase

[[Page 57458]]

efficiency from 10 EER to 10.5 EER, teardown data showed that 
manufacturers will typically increase the depth of one of the heat 
exchanger coils (either the evaporator or condenser) by adding another 
tube row. To increase from 10.5 EER to 11 EER, DOE found that 
manufacturers will add another tube row to the other heat exchanger 
coil that was not enlarged in the process of increasing efficiency from 
10 EER to 10.5 EER. In the units torn down, both of these design 
changes were found to not necessitate an increase in cabinet size. To 
further increase efficiency from 11 EER to 11.75 EER, DOE determined 
that manufacturers will typically increase the face areas of both the 
evaporator and condenser heat exchanger coils, which necessitates an 
increase in cabinet size. In addition, DOE found that manufacturers 
will often utilize a higher efficiency compressor to reach 11.75 EER. 
To reach the 12.0 EER (max-tech) efficiency level, DOE found that 
manufacturers may switch from using a PSC outdoor fan motor to using a 
more-efficient BPM motor, as well as incorporate a high-efficiency fan 
blade for the outdoor fan. In addition, product data verified that 
manufacturers may also choose to increase the condensing heat exchanger 
face area by using two condensing heat exchangers rather than just one, 
which necessitates an increase in cabinet size.
    DOE received multiple comments on the usage of BPM indoor blower 
motors as a design option to increase efficiency to 10 EER. AHRI stated 
that not all manufacturers will find it necessary to switch from a PSC 
to a BPM motor in order to reach the 10 EER efficiency level, but that 
BPM motors will likely be required to reach 11 EER. (AHRI, No. 19 at p. 
34) Similarly, Lennox stated that while some manufacturers may choose 
to switch to a BPM motor as a means of achieving the 10 EER level, 
others may continue to use a PSC motor and instead modify heat transfer 
efficiency in order to reach 10 EER. (Lennox, No. 16 at p. 17) 
Friedrich stated that it would need to use a BPM motor to reach 10 EER. 
(Friedrich, No. 15 at p. 2) Additionally, National Coil Company stated 
that it currently uses BPM motors, in tandem with other means of 
improving energy efficiency, to achieve the 10 EER efficiency level in 
its products. (National Coil Company, No. 14 at p. 2) DOE understands 
that the usage of a BPM motor to reach the 10 EER efficiency level may 
not be required across all product lines by all manufacturers. However, 
DOE cannot determine specifically what share of SPVU product lines 
would not use a BPM motor to reach 10 EER, due to a lack of definitive 
data from stakeholders. In addition, market data indicates that a 
majority of SPVUs with efficiencies greater than or equal to 10 EER use 
BPM indoor blower motors. As a result, in the engineering analysis DOE 
has maintained the use of a BPM indoor blower motor as a required 
design option to reach the 10 EER efficiency level.
    DOE also received multiple comments regarding the addition of heat 
exchanger coil rows as a design option to increase efficiency. 
Friedrich commented that it would need to increase the footprint of its 
units in order to add two additional heat exchanger coil rows. 
(Friedrich, NOPR Public Meeting Transcript, No. 11 at p. 111) AHRI 
commented that using the addition of two heat exchanger coil rows to 
increase efficiency from 10 to 11 EER may not be possible for all 
manufacturers, and that this design change will require some 
manufacturers to increase cabinet size for certain units, such as 
floor-mounted SPVUs. Additionally, AHRI stated that an increase in coil 
depth will negatively affect airside pressure drop, which may further 
complicate the design of the SPVU by requiring a larger fan motor. 
(AHRI, No. 19 at pp. 30-31) Bard commented that there are many 
different manufacturers and versions of SPVU products on the market, 
and it may not be possible to use the addition of tube rows to increase 
efficiency in all SPVU models without overcoming certain design 
hurdles. According to Bard, specific issues may include the need to 
jump cabinet sizes to a larger cabinet, as well as redesigning the 
entire backup electric heat system for particular models. (Bard, NOPR 
Public Meeting Transcript, No. 11 at pp. 92-93). Bard also commented 
that, in particular, the industry will have trouble reaching 11 EER in 
the higher capacity 5-ton units without increasing cabinet size. (Bard, 
No. 13 at p. 3) In addition, National Coil Company stated that simply 
adding rows of coil to their heat exchangers would not be sufficient to 
meet an 11 EER standard, and a complete redesign of their product lines 
would be needed. (National Coil Company, No. 14 at p. 2) DOE is aware 
that there are numerous SPVU product lines with unique characteristics, 
and that the applicability of design options will vary by manufacturer. 
In the engineering analysis, DOE estimated the aggregate industry cost 
of design changes to meet the efficiency levels analyzed by tearing 
down units that are representative of most models at each efficiency 
level. The teardown process provided definitive data that were used as 
a basis for determining the cost-efficiency relationship for market-
representative SPVUs. DOE did not receive any additional, specific data 
from stakeholders that describe changes to particular units resulting 
from the addition of heat exchanger tube rows, that are not already 
accounted for in the engineering analysis. As a result, DOE was not 
able to modify the engineering analysis to model additional design 
changes; DOE did not receive any definitive engineering information to 
use as a platform for such adjustments.
    Several stakeholders commented on the potential use of modeling to 
determine the energy efficiency impacts of design options. ASAP 
commented that when there is a technology proven in the market, but not 
incorporated in the specific product covered by the rulemaking, that 
DOE will typically use modeling to look at the impact of that 
technology. Specifically, ASAP asked whether DOE considered modeling 
the energy efficiency impact of MCHX technology. (ASAP, NOPR Public 
Meeting Transcript, No. 11 at p. 76) AHRI also noted that DOE has 
modeled the effect of technology options for other recent air-
conditioning product rulemakings but not for this one. Further, AHRI 
noted that since the market for SPVUs is relatively small, it would 
likely take less time to develop a proper model for SPVUs. (AHRI, NOPR 
Public Meeting Transcript, No. 11 at pp. 77-81) NEEA expressed support 
of AHRI's suggestion that DOE model technology options for SPVUs, such 
as higher efficiency compressors and MCHXs. (NEEA, NOPR Public Meeting 
Transcript, No. 11 at pp. 91-92)
    DOE acknowledges that in the rulemaking for CUACs (docket EERE-
2014-BT-STD-0015), modeling was used to determine the effects on energy 
use of different technology options. In the analyses for that 
rulemaking, the integrated energy efficiency ratio (IEER) metric is 
used as the basis for differentiating the efficiency levels considered, 
which is different from the metric of EER, which is currently used to 
certify CUAC equipment. IEER is an efficiency metric that accounts for 
part load operations while EER is the full load efficiency measure. The 
AHRI Directory of Certified Product Performance provides IEER ratings 
as well as EER at the full load condition, but it does not provide 
detailed EERs at different part load conditions. DOE understands that 
part load operating characteristics of CUAC equipment are critical for 
accurate assessment of equipment energy use in the field. DOE

[[Page 57459]]

conducted laboratory testing for CUAC equipment in order to understand 
the part load operations at different ambient conditions. However, DOE 
was limited by the number of units the Department could purchase, as 
well as laboratory testing capability. Therefore, DOE conducted 
equipment modeling using simulation programs to better understand the 
part load operations of CUAC equipment in order to more accurately 
characterize the energy use in the field. In the analyses for SPVUs, 
each efficiency level is distinguished by the full load EER rating. DOE 
elected not to use the same type of detailed equipment modeling for 
part load operations that was conducted for CUAC because the design 
options that can potentially impact part load efficiency do not impact 
EER, and were therefore not considered in the engineering analysis. 
However, equipment performance curves were used to model energy use.
    For CUAC, modeling was also used in the engineering analysis to 
characterize the design changes needed to reach incrementally higher 
efficiency levels, because the large breadth of CUAC product offerings 
could not be accurately examined solely via a teardown analysis. For 
SPVUs, due to the relatively small number of product offerings, DOE 
determined that teardowns combined with analysis of product literature 
and published efficiency ratings were sufficient to accurately examine 
the design changes used in market-representative products to improve 
efficiency. As a result, modeling was not needed to determine the 
efficiency impacts of technology options currently used in SPVUs. 
Lastly, DOE did not model the efficiency impacts of MCHX technology on 
SPVUs. As explained in detail in section IV.B, DOE did not consider 
MCHX in the engineering analysis due to a lack of documentation 
regarding any improvements offered by MCHX to the overall energy 
efficiency of an SPVU.
    For more information on the design options DOE considered at each 
efficiency level, see chapter 5 of the final rule TSD.
5. Cost Model
    DOE developed a manufacturing cost model to estimate the MPC of 
SPVUs. The cost model is a spreadsheet model that converts the 
materials and components in the BOMs 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 5-year averages (2010 to 2014). The cost of transforming the 
intermediate materials into finished parts is estimated based on 
current industry pricing. Additional details on the cost model are 
contained in chapter 5 of the final rule TSD.
6. Manufacturer Production Costs
    Once the cost estimates for all the components in each teardown 
unit were finalized, DOE totaled the cost of materials, labor, 
depreciation, and overhead used to manufacture each type of equipment 
in order to calculate the MPC. The total cost of the equipment was 
broken down into two main costs: (1) The full MPC; and (2) the non-
production cost, which includes selling, general, and administration 
(SG&A) costs; the cost of research and development; and interest from 
borrowing for operations or capital expenditures. DOE estimated the MPC 
at each efficiency level considered for each equipment class, from the 
baseline through the max-tech level. The incremental increases in MPC 
over the EPCA baseline efficiency level for each subsequently higher 
efficiency level in each equipment class are shown in Table IV.5. After 
incorporating all of the assumptions into the cost model, DOE 
calculated the percentages attributable to each element of total 
production costs (i.e., materials, labor, depreciation, and overhead). 
These percentages are used to validate the assumptions by comparing 
them to manufacturers' actual financial data published in annual 
reports, along with feedback obtained from manufacturers during 
interviews. DOE uses these production cost percentages in the MIA.

                                  Table IV.5--Incremental MPC Increases (2014$)
----------------------------------------------------------------------------------------------------------------
                                        EPCA        ASHRAE
          Equipment type              baseline     baseline       EL1          EL2          EL3          EL4
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h..............  ...........         $271         $349         $427         $578         $917
SPVACs >=65,000 Btu/h and <135,000  ...........          385  ...........  ...........  ...........  ...........
 Btu/h............................
SPVHPs <65,000 Btu/h..............  ...........          316          407          498          673        1,069
SPVHPs >=65,000 Btu/h and <135,000  ...........          449  ...........  ...........  ...........  ...........
 Btu/h............................
----------------------------------------------------------------------------------------------------------------

7. Cost-Efficiency Relationship
    The result of the engineering analysis is a cost-efficiency 
relationship, which depicts how changes in the energy efficiency of 
SPVUs drive changes in MSP. DOE created a separate cost-efficiency 
relationship at the representative cooling capacity for each of the 
four equipment classes analyzed. DOE reported the MPCs for the units 
analyzed in the teardown analysis in aggregated form to maintain 
confidentiality of sensitive component data. DOE obtained input from 
manufacturers during the manufacturer interview process on the MPC 
estimates and assumptions to confirm their accuracy. For SPVACs with a 
cooling capacity <65,000 Btu/h, DOE performed physical teardowns 
supplemented with virtual teardowns to develop cost-efficiency 
relationships for each manufacturer analyzed in the teardown analysis, 
and then created a market-share-weighted relationship based on 
approximate market share data obtained during manufacturer interviews. 
For SPVACs with a cooling capacity >=65,000 Btu/h and <135,000 Btu/h, 
DOE performed virtual teardowns of a 6-ton SPVAC and determined the 
average percentage increase in cost from a 3-ton SPVAC to a 6-ton 
SPVAC. Then, DOE scaled the 3-ton cost-efficiency curve by that average 
percentage increase in cost. Likewise for SPVHPs with a cooling 
capacity <65,000 Btu/h, DOE performed a physical teardown and compared 
the average percentage increase in cost of a 3-ton SPVHP compared to a 
3-ton SPVAC. DOE applied this average percentage increase in cost to 
the cost-efficiency curve for both SPVACs with a cooling capacity 
<65,000 Btu/h and SPVACs with a cooling capacity >=65,000

[[Page 57460]]

Btu/h and <135,000 Btu/h to obtain the respective cost-efficiency 
curves for both SPVHP equipment classes.
    In order to develop the final cost-efficiency relationships for 
SPVUs, DOE examined the cost differential to move from one efficiency 
level to the next for each manufacturer analyzed in the teardown 
analysis. DOE used the results of the teardowns on a market-share 
weighted average basis to determine the industry average cost increase 
to move from one efficiency level to the next. Additional details on 
how DOE developed the cost-efficiency relationships and related 
results, as well as a presentation of the final results, are available 
in chapter 5 of the final rule TSD.
8. Manufacturer Markup
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting MSP is the price at which the 
manufacturer can recover all production and non-production costs and 
earn a profit. To meet new or amended energy conservation standards, 
manufacturers often introduce design changes to their equipment lines 
that result in increased MPCs. Depending on competitive pressures, some 
or all of the increased production costs may be passed from 
manufacturers to retailers and eventually to customers in the form of 
higher purchase prices. As production costs increase, manufacturers 
typically incur additional overhead. The MSP should be high enough to 
recover the full cost of the equipment (i.e., full production and non-
production costs) and yield a profit. The manufacturer markup has an 
important bearing on profitability. A high markup under a standards 
scenario suggests manufacturers can readily pass along the increased 
variable costs and some of the capital and product conversion costs 
(the one-time expenditure) to customers. A low markup suggests that 
manufacturers will not be able to recover as much of the necessary 
investment in plant and equipment.
    DOE normally develops the manufacturer markup through an 
examination of corporate annual reports and Securities and Exchange 
Commission (SEC) 10-K reports; however, in the case of SPVU 
manufacturers, DOE did not feel this process would be representative of 
the majority of the industry, because most SPVU manufacturers are 
privately held companies. Therefore, DOE based the manufacturer markup 
for the SPVU industry on the markup used for the package terminal air 
conditioner and package terminal heat pump (PTAC/PTHP) final rule 
published in the Federal Register on October 7, 2008 (73 FR 58772), and 
sought manufacturer feedback on this markup number during the interview 
process. DOE used the PTAC manufacturer markup because it is a 
comparable industry to the SPVU industry in terms of the size of the 
market (i.e., the number of annual shipments) and the types of 
equipment on the market (i.e., both are commercial air conditioners of 
similar capacities). DOE estimated the average manufacturer markup for 
the SPVU industry to 1.28. See chapter 5 of the final rule TSD for 
additional details.
9. Shipping Costs
    Manufacturers of HVAC equipment typically pay for shipping to the 
first step in the distribution chain. Freight is not a manufacturing 
cost, but because it is a substantial cost incurred by the 
manufacturer, DOE is accounting for shipping costs of SPVUs separately 
from other non-production costs that comprise the manufacturer markup. 
To calculate the MSP for SPVUs, DOE first multiplied the MPC at each 
efficiency level (determined from the cost model) by the manufacturer 
markup, and then added the shipping costs for equipment at that given 
efficiency level. Chapter 5 of the final rule TSD contains details 
about DOE's shipping cost assumptions and DOE's shipping cost 
estimates.
10. Manufacturer Interviews
    As noted in the preceding section, throughout the rulemaking 
process, DOE has sought and continues to seek feedback and insight from 
interested parties that would improve the information used in its 
analysis. DOE interviewed manufacturers as part of the NOPR MIA. During 
the interviews, DOE sought feedback on all aspects of its analyses for 
SPVUs. For the engineering analysis, DOE discussed the analytical 
assumptions and estimates, cost model, and cost-efficiency curves with 
SPVU manufacturers. DOE considered all the information manufacturers 
provided when refining the cost model and assumptions. However, DOE 
incorporated data and information specific to individual manufacturers 
into the analysis as averages in order to avoid disclosing sensitive 
information about individual manufacturers' equipment or manufacturing 
processes. More detail about the manufacturer interviews is contained 
in chapter 12 of the final rule TSD.

D. Markups To Determine Equipment Price

    The markups analysis develops appropriate markups in the 
distribution chain to convert the estimates of MSP to consumer prices. 
(``Consumer'' 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 consumer price.
    DOE understands that the price of SPVU equipment depends on the 
distribution channel the customer uses to purchase the equipment. 
Typical distribution channels for most commercial HVAC equipment 
include shipments that may pass through manufacturers' national 
accounts, or through entities including wholesalers, mechanical 
contractors, and/or general contractors. However, DOE understands that 
there are multiple branched distribution channels for SPVU equipment 
for both new construction and replacement equipment. For SPVU 
equipment, the new equipment distribution channel is one in which SPVU 
equipment is sold directly or indirectly to manufacturers of wood and 
non-wood modular buildings, and the rest of the supply chain is 
essentially the chain of manufacturing, wholesaling, and contractor 
support for wood and non-wood modular buildings. The distribution 
channel for replacement equipment goes directly, or through air 
conditioning wholesalers/distributors, to mechanical contractors who 
install replacements on behalf of customers, or to wholesalers/
distributors of modular buildings, who own leased fleets of modular 
buildings and who are assumed to perform their own SPVU replacements in 
their leased fleets.
    DOE developed supply chain markups in the form of multipliers that 
represent increases above equipment purchase costs for air-conditioning 
equipment wholesalers/distributors, modular building manufacturers and 
wholesalers/distributors, and mechanical contractors and general 
contractors working on behalf of customers. DOE applied these markups 
(or multipliers) to each distribution channel entity's costs that were 
developed from the engineering analysis. DOE then included sales taxes 
and installation costs (where appropriate) to arrive at the final 
installed equipment prices for baseline

[[Page 57461]]

and higher-efficiency equipment. DOE identified two separate 
distribution channels for SPVU equipment to describe how the equipment 
passes from the equipment manufacturer to the customer, as presented in 
Table IV.6.

          Table IV.6--Distribution Channels for SPVU Equipment
------------------------------------------------------------------------
                                           Channel 2  Replacement SPVU
     Channel 1  New SPVU equipment                  equipment
------------------------------------------------------------------------
Air-Conditioning Wholesale Distributor   Air-Conditioning Wholesale
 or Manufacturer's Representative.        Distributor or Manufacturer's
                                          Representative.
Modular Building Manufacturer..........  Mechanical Contractor or
                                          Modular Building Distributor.
 Modular Building Distributor or
 General Contractor
Customer...............................  Customer.
------------------------------------------------------------------------

    DOE developed baseline and incremental markups based on available 
financial data. More specifically, DOE based the air-conditioning 
wholesaler/distributor markups on data from the Heating, Air 
Conditioning, and Refrigeration Distributors International (HARDI) 2013 
Profit Report.\26\ DOE also used financial data from the 2007 U.S. 
Census Bureau \27\ for the wood \28\ and non-wood \29\ modular building 
manufacturing industries; concrete product manufacturing sector; \30\ 
the wood \31\ and non-wood \32\ modular building wholesale industries; 
brick, stone, and related construction material merchant wholesalers 
\33\; the plumbing, heating, and air-conditioning contractor industry 
\34\; and the non-residential general contractor industries \35\ to 
estimate markups for all of these sectors.
---------------------------------------------------------------------------

    \26\ Heating, Air-conditioning & Refrigeration Distributors 
International (HARDI), 2013 Profit Report (2012 Data) (Available at: 
http://www.hardinet.org/Profit-Report).
    \27\ The U.S. Census Bureau conducts an economic census every 5 
years. The 2012 Economic Census may become available early in 2015; 
if so, the final rule analysis will be updated with data from the 
2012 Economic Census.
    \28\ U.S. Census Bureau. 2007. Prefabricated Wood Building 
Manufacturing. Sector 32: 321992. Table EC073111 Manufacturing: 
Industry Series: Detailed Statistics by Industry for the United 
States: 2007. (Available at http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none)
    \29\ U.S. Census Bureau. 2007. Prefabricated Metal Building and 
Component Manufacturing. Sector 33: 332311. EC073111 Manufacturing: 
Industry Series: Detailed Statistics by Industry for the United 
States: 2007 (Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \30\ U.S. Census Bureau. 2007. Other Concrete Product 
Manufacturing Sector 32: 327390. EC073111 Manufacturing: Industry 
Series: Detailed Statistics by Industry for the United States: 2007 
(Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \31\ U.S. Census Bureau. 2007. 423310 Lumber, plywood, millwork, 
and wood panel merchant wholesalers. EC0742SXSB06. Wholesale Trade: 
Subject Series--Misc Subjects: Gross Margin and its Components for 
Merchant Wholesalers for the United States: 2007. (Available at: 
http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \32\ U.S. Census Bureau. 2007. 423390 Other construction 
material merchant wholesalers. EC0742SXSB06. Wholesale Trade: 
Subject Series--Misc Subjects: Gross Margin and its Components for 
Merchant Wholesalers for the United States: 2007. (Available at: 
http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \33\ U.S. Census Bureau. 2007. Brick, stone, and related 
construction material merchant wholesalers: 2007. Sector 42: 423320 
Other Construction Material Merchant Wholesalers. Brick, stone, and 
related construction material merchant wholesalers: Merchant 
wholesalers, except manufacturers' sales branches and offices. 
Detailed Statistics by Industry for the United States: 2007. 
(Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \34\ U.S. Census Bureau. 2007. Sector 23: 238220. Plumbing, 
heating, and air-conditioning contractors. EC0723I1: Construction: 
Industry Series: Preliminary Detailed Statistics for Establishments: 
2007. (Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
    \35\ U.S. Census Bureau. 2007. Sector 23: 236220. Commercial and 
institutional building construction. EC0723I1: Construction: 
Industry Series: Preliminary Detailed Statistics for Establishments: 
2007. (Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?ref=top&refresh=t#none).
---------------------------------------------------------------------------

    The overall markup is the product of all the markups (baseline or 
incremental markups) for the different steps within a distribution 
channel, and sales tax. DOE calculated sales taxes based on 2014 State-
by-State sales tax data reported by the Sales Tax Clearinghouse.\36\ 
Because both distribution channel costs and sales tax vary by State, 
DOE allowed markups due to distribution channel costs and sales taxes 
within each distribution channel to vary by State. No information was 
available to develop State-by-State distributions of SPVU equipment by 
building type or business type, so the distributions of sales by 
business type are assumed to be the same in all States. The national 
distribution of the markups varies among business types. Chapter 6 of 
the final rule TSD provides additional detail on markups.
---------------------------------------------------------------------------

    \36\ The Sales Tax Clearing House (2014) (Last accessed Feb. 16, 
2015) (Available at: www.thestc.com/STrates.stm).
---------------------------------------------------------------------------

    DOE requested comment regarding the selected distribution channels 
and the shipments through each channel as outlined in the NOPR. DOE did 
not specifically receive comment on the selected channels, but did 
receive comments regarding incremental markups. AHRI commented that 
incremental markups understate the cost to manufacturers and end user 
of the proposed standards. (AHRI, No. 19 at pp. 2, 25) Lennox commented 
that baseline markups get carried through to the end user in all 
efficiency ranges. (Lennox, NOPR Public Meeting Transcript, No. 11 at 
p. 129) Downstream markups do not affect manufacturer MSPs or MPCs, and 
the Department maintains that incremental markups are applicable and 
reasonable to use in the markups analysis.

E. Energy Use Analysis

    The energy use analysis provides estimates of the annual unit 
energy consumption (UEC) of SPVAC and SPVHP equipment at the considered 
efficiency levels. The annual UECs are used in subsequent analyses.
    Approximately 35 percent of SPVAC shipments go to educational 
facilities, the majority of which are for space conditioning of modular 
classroom buildings. Additionally, approximately 35 percent of the 
shipments go to providing cooling for telecommunications and 
electronics enclosures. The remainder of all shipments (30 percent) are 
used in a wide variety of commercial buildings, including offices, 
temporary buildings, and some miscellaneous facilities. In almost all 
of these commercial building applications, the buildings served are 
expected to be of modular construction, because SPVUs, as packaged air 
conditioners installed on external building walls, do not impact site 
preparation costs for modular buildings, which may be relocated 
multiple times over the building's life. The vertically oriented 
configuration of SPVUs allows the building mounting to be unobtrusive 
and minimizes impacts on modular building transportation requirements. 
These advantages do not apply to a significant extent in site-
constructed buildings. DOE also modeled shipments of SPVHP equipment to 
primarily

[[Page 57462]]

educational facilities or office-type end uses, but notes that SPVHPs 
would be infrequently used for telecommunication or electronics 
enclosures for which the heating requirements are often minimal.
    DOE analyzed energy use in three different classes of commercial 
buildings that utilize SPVU equipment: (1) Modular classrooms; (2) 
modular offices; and (3) telecommunications shelters. To estimate the 
energy use of SPVU equipment in these building types, DOE developed 
building simulation models for use with DOE's EnergyPlus software.\37\ 
A prototypical building model was developed for each building type, 
described by the building footprint, general building size, and design. 
The building types were represented by a 1,568 ft\2\ wood-frame modular 
classroom, a 1,568 ft\2\ wood-frame modular office, and a 240 ft\2\ 
concrete-wall telecommunication shelter. In each case, the building 
construction (footprint, window-wall ratio, general design) was 
developed to be representative of typical designs within the general 
class of building. Operating schedules, internal load profiles, 
internal electric receptacle (plug) loads, and occupancy for the 
modular classroom were those from classroom-space-type data found in 
the DOE Primary School commercial prototype building model.\38\ 
Operating schedules, internal load profiles, internal plug loads, and 
occupancy for modular office buildings were those from office space in 
the DOE Small Office commercial prototype building model. Id. For the 
telecommunications shelters, DOE did not identify a source for typical 
representative internal electronic loads as a function of building 
size, nor did it find information on representative internal gain 
profiles. However, based on feedback from shelter manufacturers, DOE 
used a 36,000 Btu/h (10.55 kW) peak internal load to reflect internal 
design load in the shelter. DOE determined that on average over a given 
year, this load ran at a scheduled 65 percent of peak value, reflecting 
estimates for computer server environments.\39\ Each of these three 
building models was used to establish the energy usage of SPVAC and 
SPVHP equipment in the same building class.
---------------------------------------------------------------------------

    \37\ EnergyPlus Energy Simulation Software and documentation are 
available at: http://apps1.eere.energy.gov/buildings/energyplus/.
    \38\ The commercial prototype building models are available on 
DOE's Web site as Energy Plus input files at: http://www.energycodes.gov/development/commercial/90.1_models. 
Documentation of the initial model development is provided in: Deru, 
M., et al., U.S. Department of Energy Commercial Reference Building 
Models of the National Building Stock, NREL/TP-5500-46861 (2011).
    \39\ EnergyConsult Pty Ltd., Equipment Energy Efficiency 
Committee Regulatory Impact Statement Consultation Draft: Minimum 
Energy Performance Standards and Alternative Strategies for Close 
Control Air Conditioners, Report No 2008/11 (2008) (Available at: 
www.energyrating.gov.au).
---------------------------------------------------------------------------

    Envelope performance (e.g., wall, window, and roof insulation, and 
window performance) and lighting power inputs were based on 
requirements in ASHRAE Standard 90.1-2004.\40\ DOE believes that the 
requirements in ASHRAE Standard 90.1-2004 are sufficiently 
representative of a mixture of both older and more recent construction 
\41\ and that resulting SPVU equipment loads will be representative of 
typical SPVU equipment loads in the building stock. Ventilation levels 
were based on ASHRAE Standard 62.1-2004.\42\
---------------------------------------------------------------------------

    \40\ ASHRAE, Energy Standard for Buildings Except Low-Rise 
Residential Buildings, ANSI/ASHRAE/IESNA Standard 90.1-2004 (2005).
    \41\ ASHRAE 90.1-2004 is still one of the prevailing building 
codes for the design of new commercial buildings. In addition, a 
large percentage of existing buildings were built in accordance with 
earlier versions of ASHRAE Standard 90.1.
    \42\ ASHRAE, Ventilation for Acceptable Indoor Air Quality, 
ANSI/ASHRAE/IESNA Standard 62.1-2004 (2004).
---------------------------------------------------------------------------

    DOE simulated each building prototype in each of 237 U.S. climate 
locations, taking into account variation in building envelope 
performance for each climate as required by ASHRAE 90.1-2004. For 
simulations used to represent the less than 65,000 Btu/h SPVU 
equipment, no outside air economizers were assumed for the modular 
office and modular classroom buildings.\43\ However, for simulations 
used to represent greater than or equal to 65,000 Btu/h but less than 
135,000 Btu/h equipment, economizer usage was presumed to be climate-
dependent in these building types, based on ASHRAE Standard 90.1-2004 
requirements for unitary equipment in that capacity range. For the 
telecommunications shelters, economizers were assumed to operate in 45 
percent of buildings, based on multiple comments received in the NOPR 
stage of this rulemaking.
---------------------------------------------------------------------------

    \43\ An ``outside air economizer'' is a combination of 
ventilation and exhaust air dampers and controls that increase the 
amount of outside air brought in to a building when the outside air 
conditions (i.e., temperature and humidity) are low, such that 
increasing the amount of ventilation air reduces the equipment 
cooling loads.
---------------------------------------------------------------------------

    DOE's understanding is that the 54,000 Btu/h limit introduced in 
ASHRAE Standard 90.1-2010 is for comfort cooling applications and that 
ASHRAE Standard 90.1 has separate economizer requirements for computer 
rooms (generally defined as a space where the primary function is to 
house equipment for processing of electronic data and which has a 
design electronics power density exceeding 20 W/ft\2\--as would be 
typical of a telecommunication shelter).\44\ These computer room 
economizer requirements begin to require economizers only for fan 
cooling units greater than or equal to 65,000 Btu/h and at that 
threshold only for certain climate zones. The comfort cooling 
requirements in ASHRAE Standard 90.1, to the extent they are adopted by 
local jurisdictions, would appear not to apply to telecommunications 
shelters. And, if such requirements were to apply, they would do so 
only for a fraction of the products in the less than 65,000 Btu/h SPVU 
market. For these reasons, DOE maintained its NOPR analysis assumption 
regarding economizers for this final rule by implementing economizer 
use in 45 percent of the SPVAC units used in telecommunication 
shelters. Users of the SPVU LCC spreadsheet can change the percentage 
of equipment using economizers to see the impact of different weights. 
In addition, for telecommunication shelters, redundant identical air 
conditioners with alternating usage were assumed when establishing 
average annual energy consumption per unit.
---------------------------------------------------------------------------

    \44\ DOE notes that these requirements introduced in ASHRAE 
Standard 90.1.2010 continued unchanged in ASHRAE Standard 90.1-2013.
---------------------------------------------------------------------------

    Simulations were done for the buildings using SPVAC equipment and 
electric resistance heating, and then a separate set of simulations was 
done for buildings with SPVHP equipment. For each equipment type and 
building type combination, DOE simulated each efficiency level 
identified in the engineering analysis for each equipment class. Fan 
power at these efficiency levels was based on manufacturer's literature 
and reported fan power consumption data as developed in the engineering 
analysis. BPM supply air blower motors were assumed at an EER of 10.0 
and higher for all classes of equipment based on results from the 
engineering analysis. The supply air blower motors are assumed to run 
at constant speed and constant power while operating.
    DOE used typical meteorological weather data (TMY3) for each 
location in the simulations.\45\ DOE sized equipment for each building 
simulation using a design day sizing method incorporating the design 
data found in the EnergyPlus design-day weather data

[[Page 57463]]

files for each climate.\46\ DOE also incorporated an additional cooling 
sizing factor of 1.1 for the equipment used in the modular office and 
modular classroom simulations, reflective of the typical sizing 
adjustment needed to account for discrete available equipment 
capacities in SPVAC and SPVHP equipment.
---------------------------------------------------------------------------

    \45\ Wilcox S. and W. Marion, User's Manual for TMY3 Data Sets, 
National Renewable Energy Laboratory, Report No. NREL/TP-581-43156 
(2008).
    \46\ EnergyPlus TMY3-based weather data files and design day 
data files are available at: http://apps1.eere.energy.gov/buildings/energyplus/weatherdata_about.cfm.
---------------------------------------------------------------------------

    EER and heating COP were converted to corresponding simulation 
inputs for each efficiency level simulated. These inputs, along with 
the calculated fan power at each efficiency level, were used in the 
building simulations. Further details of the building model and the 
simulation inputs for the SPVAC and SPVHP equipment can be found in 
chapter 7 of the final rule TSD.
    From the annual simulation results for SPVAC equipment, DOE 
extracted the condenser energy use for cooling, the supply air blower 
energy use for both heating and cooling hours, the electric resistance 
heating energy, and the equipment capacity for each building type, 
climate, and efficiency level. From these, DOE developed corresponding 
normalized annual cooling energy per cooling ton and annual blower 
energy per ton for the efficiency levels simulated. DOE also developed 
the electrical heating energy per ton for the building. These per-ton 
cooling and blower energy values were added together and then 
multiplied by the average cooling capacity estimated for the equipment 
class simulated to arrive at an initial energy consumption estimate for 
SPVACs. DOE calculated a heating ``take back'' effect for higher 
efficiency levels as a deviation from the baseline heating energy use 
for each equipment capacity. The final SPVAC energy consumption 
estimates were then based on the calculated cooling and supply blower 
energy uses plus this heating take back, which allowed the resulting 
energy savings estimates to correctly account for the heating energy 
increase during the year. In addition, it was estimated that 5 percent 
of the market for the SPVACs less than 65,000 Btu/h class utilize gas 
furnace heating. The heating take back for these systems was estimated 
based on the heating load of the systems with electric resistance heat 
and assuming an average 81-percent furnace annual fuel utilization 
efficiency.
    The analytical method for SPVHPs was carried out in a similar 
fashion; however, for heat pumps, DOE included the heating energy 
(compressor heating and electric resistance backup) directly from the 
simulation results and, thus, did not separately calculate a heating 
take back effect. From these data, DOE developed per-ton energy 
consumption values for cooling, supply blower, and heating electric 
loads. These per-ton energy figures were summed and multiplied by the 
nominal capacity for the equipment class simulated to arrive at the 
annual per-ton energy consumption for SPVHPs for each combination of 
building type, climate, and efficiency level.
    For each combination of equipment class, building type, climate, 
and efficiency level, DOE developed UEC values for each State using 
weighting factors to establish the contribution of each climate in each 
State. Once State-level UEC estimates were established, they were 
provided as input to the LCC analysis. National average UEC estimates 
for each equipment class and efficiency level were also established 
based on population-based weighting across States and shipment weights 
to the different building types. With regard to the latter, while DOE 
established shipment weights for SPVAC equipment related to the three 
building types (educational, office, and telecommunications), DOE 
determined that SPVHP equipment was not used to a significant extent in 
telecommunication facilities and, thus, only allocated shipments of 
SPVHP equipment to two building types: educational and office.
    For details of this energy use analysis, see chapter 7 of the final 
rule TSD.
    Table IV.7 shows the annual UEC estimates for SPVACs and SPVHPs 
corresponding to the efficiency levels analyzed.


                        Table IV.7--National UEC Estimates for SPVAC and SPVHP Equipment
----------------------------------------------------------------------------------------------------------------
                                                                  Equipment class
                                 -------------------------------------------------------------------------------
                                        SPVACs, <65 kBtu/h          SPVHPs, <65    SPVACs, >=65    SPVHPs, >=65
        Efficiency level         --------------------------------     kBtu/h      and <135 kBtu/  and <135 kBtu/
                                                                 ----------------        h               h
                                      kWh/yr       Gas kBtu/yr *                 -------------------------------
                                                                      kWh/yr          kWh/yr          kWh/yr
----------------------------------------------------------------------------------------------------------------
EPCA Baseline...................           6,880              --          20,921          13,743          41,721
ASHRAE Baseline \**\............           6,175              54          20,383          12,251          40,589
EL1.............................           5,923              54          19,921              NA              NA
EL2.............................           5,694              54          19,629              NA              NA
EL3.............................           5,387              54          18,924              NA              NA
EL4 \**\........................           5,300              54          18,858              NA              NA
----------------------------------------------------------------------------------------------------------------
* Calculated average gas heating ``take back'' based on 5 percent of market with gas heat.
** ASHRAE baseline represents max-tech levels established for SPVACs and SPVHPs greater than or equal to 65,000
  Btu/h, but less than 135,000 Btu/h. EL 4 represents max-tech levels established for SPVACs and SPVHPs less
  than 65,000 Btu/h.

    DOE received multiple comments during the NOPR public meeting and 
public comment period regarding the use of economizers in 
telecommunication shelters. AHRI commented that energy savings 
currently realized through the use of economizers could be greater than 
that determined by DOE in the NOPR due to the more pervasive use of 
economizers. AHRI suggested that 40 to 80 percent of units used in 
telecommunication shelters use this operating feature. (AHRI, No. 19 at 
pp. 31, 35) Bard commented that 40 to 45 percent of the units in the 
telecommunication shelter market use economizers. (Bard, No. 13 at p. 
2) Consistent with these suggestions, DOE's final rule maintains the 
assumptions made for the NOPR analysis, which is that 45 percent of all 
telecommunication shelters use economizers.

[[Page 57464]]

F. Life-Cycle Cost and Payback Period Analysis

    DOE conducted the LCC and PBP analysis to estimate the economic 
impacts of potential standards on individual consumers of SPVU 
equipment. DOE first analyzed these impacts for SPVU equipment by 
calculating the change in consumers' LCCs likely to result from higher 
efficiency levels compared with the EPCA and ASHRAE baseline efficiency 
levels for the SPVU classes discussed in the engineering analysis. The 
LCC calculation considers total installed cost (equipment cost, sales 
taxes, distribution chain markups, and installation cost), operating 
expenses (energy, repair, and maintenance costs), equipment lifetime, 
and discount rate. DOE calculated the LCC for all customers as if each 
would purchase an SPVU unit in the year the standard takes effect. DOE 
presumes that the purchase year for all SPVU equipment for purposes of 
the LCC calculation is 2015, the compliance date for the energy 
conservation standard equivalent to the levels in ASHRAE 90.1-2013 (for 
the EPCA baseline), or 2019, the compliance date for the energy 
conservation standard more stringent than the corresponding levels in 
ASHRAE 90.1-2013 (for the ASHRAE baseline). To compute LCCs, DOE 
discounted future operating costs to the time of purchase and summed 
them over the lifetime of the equipment.
    Next, DOE analyzed the effect of changes in installed costs and 
operating expenses by calculating the PBP of potential standards 
relative to baseline efficiency levels. The PBP estimates the amount of 
time it would take the customer to recover the incremental increase in 
the purchase price of more-efficient equipment through lower operating 
costs. In other words, the PBP is the change in purchase price divided 
by the change in annual operating cost that results from the energy 
conservation standard. DOE expresses this period in years. Similar to 
the LCC, the PBP is based on the total installed cost and operating 
expenses. However, unlike the LCC, DOE only considers the first year's 
operating expenses in the PBP calculation and does not account for 
changes in operating expense over time or the time value of money.
    DOE conducted the LCC and PBP analysis using a commercially 
available spreadsheet tool and a purpose-built spreadsheet model, 
available on DOE's Web site.\47\ This spreadsheet model developed by 
DOE accounts for variability in energy use and prices, installation 
costs, repair and maintenance costs, and energy costs. It uses 
weighting factors to account for distributions of shipments to 
different building types and States to generate national LCC savings by 
efficiency level. The results of DOE's LCC and PBP analysis are 
summarized in section V.B.1 and described in detail in chapter 8 of the 
final rule TSD.
---------------------------------------------------------------------------

    \47\ See http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35.
---------------------------------------------------------------------------

1. Approach
    Recognizing that each business that uses SPVU equipment is unique, 
DOE analyzed variability and uncertainty by performing the LCC and PBP 
calculations assuming a correspondence between five types of businesses 
(education, telecommunications, construction and mining firms occupying 
temporary offices, a variety of service and retail firms occupying 
conventional office space, and health care firms) for customers located 
in three types of commercial buildings (telecommunications, education, 
and office). DOE developed financial data appropriate for the customers 
in each business and building type. Each type of building has typical 
customers who have different costs of financing because of the nature 
of the business. DOE derived the financing costs based on data from the 
Damodaran Online Web site.\48\
---------------------------------------------------------------------------

    \48\ Damodaran Online (Last accessed Feb. 14, 2014) (Available 
at: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm).
---------------------------------------------------------------------------

    The LCC analysis used the estimated annual energy use for each SPVU 
equipment unit described in section IV.E. Because energy use of SPVU 
equipment is sensitive to climate, energy use varies by State. Aside 
from energy use, other important factors influencing the LCC and PBP 
analysis are energy prices, installation costs, equipment distribution 
markups, and sales tax. All of these factors are assumed to vary by 
State. At the national level, the LCC spreadsheets explicitly model 
both the uncertainty and the variability in the model's inputs, using 
probability distributions based on the shipments of SPVU equipment to 
different States.
    As mentioned earlier, DOE generated LCC and PBP results by business 
type within building type and State and developed weighting factors to 
generate national average LCC savings and PBPs for each efficiency 
level. As there is a unique LCC and PBP for each calculated value at 
the building type and State level, the outcomes of the analysis can 
also be expressed as probability distributions with a range of LCC and 
PBP results. A distinct advantage of this type of approach is that DOE 
can identify the percentage of customers achieving LCC savings or 
attaining certain PBP values due to an increased efficiency level, in 
addition to the average LCC savings or average PBP for that efficiency 
level.
2. Life-Cycle Cost Inputs
    For each efficiency level DOE analyzed, the LCC analysis required 
input data for the total installed cost of the equipment, its operating 
cost, and the discount rate. Table IV.8 summarizes the inputs and key 
assumptions DOE used to calculate the consumer economic impacts of all 
energy efficiency levels analyzed in this rulemaking. A more detailed 
discussion of the inputs follows.

  Table IV.8--Summary of Inputs and Key Assumptions Used in the LCC and
                              PBP analysis
------------------------------------------------------------------------
              Inputs                             Description
------------------------------------------------------------------------
                        Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price...................  Equipment price was derived by
                                     multiplying manufacturer sales
                                     price or MSP (calculated in the
                                     engineering analysis) by
                                     distribution channel markups, as
                                     needed, and sales tax from the
                                     markups analysis.
Installation Cost.................  Installation cost includes
                                     installation labor, installer
                                     overhead, and any miscellaneous
                                     materials and parts, derived from
                                     RS Means CostWorks 2014.\49\
------------------------------------------------------------------------

[[Page 57465]]

 
                        Affecting Operating Costs
------------------------------------------------------------------------
Annual Energy Use.................  Annual unit energy consumption for
                                     each class of equipment at each
                                     efficiency level estimated by state
                                     and building type using simulation
                                     models and a population-based
                                     mapping of climate locations to
                                     states.
Electricity Prices, Natural Gas     DOE developed average electricity
 Prices.                             prices based on EIA Form 826 data
                                     for 2014.\50\ Future electricity
                                     prices are projected based on
                                     Annual Energy Outlook 2015
                                     (AEO2015).\51\ DOE developed
                                     natural gas prices based on EIA
                                     state-level commercial prices in
                                     EIA data navigator.\52\ Future
                                     natural gas prices are projected
                                     based on AEO2015.
Maintenance Cost..................  DOE estimated annual maintenance
                                     costs based on RS Means CostWorks
                                     2014 for small, single-zone rooftop
                                     commercial air conditioning
                                     equipment. Annual maintenance cost
                                     did not vary as a function of
                                     efficiency.
Repair Cost.......................  DOE estimated the annualized repair
                                     cost for baseline-efficiency SPVU
                                     equipment based on cost data from
                                     RS Means CostWorks 2014 for small,
                                     single-zone rooftop commercial air
                                     conditioning equipment. DOE assumed
                                     that the materials and components
                                     portion of the repair costs would
                                     vary in direct proportion with the
                                     MSP at higher efficiency levels
                                     because it generally costs more to
                                     replace components that are more
                                     efficient.
------------------------------------------------------------------------
        Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Equipment Lifetime................  DOE estimated that SPVU equipment
                                     lifetimes range between 10 and 25
                                     years, with an average lifespan of
                                     15 years, based on estimates cited
                                     in available packaged air
                                     conditioner literature.53 54 55
Discount Rate.....................  Mean real discount rates for all
                                     buildings range from 2.6 percent
                                     for education buildings to almost
                                     10.5 percent for some office
                                     building owners.
Analysis Start Year...............  Start year for LCC is 2019, which is
                                     the earliest compliance date that
                                     DOE can set for new standards if it
                                     adopts any efficiency level for
                                     energy conservation standards
                                     higher than that shown in ASHRAE
                                     Standard 90.1-2013.
------------------------------------------------------------------------
                       Analyzed Efficiency Levels
------------------------------------------------------------------------
Analyzed Efficiency Levels........  DOE analyzed the ASHRAE baseline
                                     efficiency levels and up to four
                                     higher efficiency levels for SPVUs
                                     <65,000 Btu/h and only the ASHRAE
                                     baseline for SPVUs >65,000 Btu/h.
                                     See the engineering analysis for
                                     additional details on selections of
                                     efficiency levels and cost.
------------------------------------------------------------------------

    DOE analyzed the EPCA and ASHRAE baseline efficiency levels 
(reflecting the efficiency levels in ASHRAE Standard 90.1-2013) and up 
to four higher efficiency levels for SPVUs <65,000 Btu/h. Chapter 5 of 
the final rule TSD provides additional details on selections of 
efficiency levels and cost.
---------------------------------------------------------------------------

    \49\ RS Means CostWorks 2014, R.S. Means Company, Inc. (2013) 
(Last accessed on February 27, 2014) (Available at: 
www.meanscostworks.com/).
    \50\ U.S. Energy Information Administration. Electric Sales, 
Revenue, and Average Price 2014, Select table Sales and Revenue Data 
by State, Monthly Back to 1990 (Form EIA-826), (Last accessed on 
April 17, 2015) (Available at: http://www.eia.gov/cneaf/electricity/page/sales_revenue.xls).
    \51\ U.S. Energy Information Administration. Annual Energy 
Outlook 2015 (2015) DOE/EIA-0383(2015). (Last Accessed April 18, 
2015) (Available at: http://www.eia.gov/forecasts/aeo/data.cfm).
    \52\ U.S. Energy Information Administration. Average Price of 
Natural Gas Sold to Commercial Consumers--by State. (Last accessed 
on February 17, 2014) (Available at: http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm).
    \53\ ASHRAE, ASHRAE Handbook: 2011 Heating, Ventilating, and 
Air-Conditioning Applications (2011).
    \54\ Abramson, Interactive Web-based Owning and Operating Cost 
Database, Final Report ASHRAE Research Project RP-1237 (2005).
    \55\ Energy Efficient Strategies Pty Ltd., Equipment Energy 
Efficiency Committee Regulatory Impact Statement Consultation Draft. 
Revision to the Energy Labelling Algorithms and Revised MEPS levels 
and Other Requirements for Air Conditioners, Report No 2008/09 
(September 2008) (Last accessed March 22, 2012) (Available at: 
http://www.energyrating.gov.au/wp-content/uploads/Energy_Rating_Documents/Library/Cooling/Air_Conditioners/200809-ris-ac.pdf).
---------------------------------------------------------------------------

a. Equipment Prices
    The price of SPVU equipment reflects the application of 
distribution channel markups (mechanical contractor markups) and sales 
tax to the MSP, which is the cost established in the engineering 
analysis. As described in section IV.D, DOE determined distribution 
channel costs and markups for air-conditioning equipment. For each 
equipment class, the engineering analysis provided contractor costs for 
the ASHRAE baseline equipment and up to four higher equipment 
efficiencies.
    The markup is the percentage increase in price as the SPVU 
equipment passes through distribution channels. As explained in section 
IV.D, SPVU equipment is assumed to be delivered by the manufacturer 
through a variety of distribution channels. If the SPVU equipment is 
for a new installation, it is assumed to be sold as a component of a 
new modular building. There are several distribution pathways that 
involve different combinations of the costs and markups of air-
conditioning equipment wholesaler/distributors, manufacturers of 
modular buildings, and wholesalers/distributors of modular buildings. 
In some cases, a general contractor is also involved for site 
preparation and management. Some replacement equipment is assumed to be 
sold directly to mechanical contractors and to wholesalers/distributors 
of modular buildings, but some is sold through air-conditioning 
equipment wholesalers/distributors to these same entities. The overall 
markups used in LCC analyses are weighted averages of all of the 
relevant distribution channel markups.
    To project an MSP price trend for the final rule, DOE derived an 
inflation-

[[Page 57466]]

adjusted index of the Producer Price Index (PPI) for miscellaneous 
refrigeration and air-conditioning equipment over the period 1990-2010. 
These data show a general price index decline from 1990 to 2004, 
followed by a sharp increase, primarily due to rising prices of copper 
and steel components that go into this equipment, in turn driven by 
rapidly rising global demand. Since 2009, there has been no clear trend 
in the price index. Given the continued slow global economic activity 
in 2009 through 2014, DOE believes that the extent to which the future 
trend can be predicted based on the last two decades is very uncertain 
and that the observed data do not provide a firm basis for projecting 
future costs trends for SPVU equipment. Therefore, DOE used a constant 
price assumption as the default price factor index to project future 
SPVU prices in 2019. Thus, prices projected for the LCC and PBP 
analysis are equal to the 2014 values for each efficiency level in each 
equipment class. Appendix 8D of the final rule TSD describes the 
historical data and the derivation of the price projection.
b. Installation Costs
    DOE derived national average installation costs for SPVU equipment 
from data provided in RS Means CostWorks 2014 (hereafter referred to as 
RS Means) specifically for packaged air-conditioning equipment. RS 
Means provides estimates for installation costs for SPVU units by 
equipment capacity, as well as cost indices that reflect the variation 
in installation costs for 295 cities in the United States. The RS Means 
data identify several cities in all 50 States and the District of 
Columbia. DOE incorporated location-based cost indices into the 
analysis to capture variation in installation costs, depending on the 
location of the consumer.
    For more-stringent efficiency levels, DOE recognized that 
installation costs potentially could be higher with larger units and 
higher-efficiency SPVU equipment, mainly due to increased size. DOE 
utilized RS Means installation cost data from RS Means to derive 
installation cost curves by size of unit for base-efficiency models. 
DOE did not have data to calibrate the extent to which installation 
costs might change as efficiency increased. For the final rule LCC 
analysis, DOE assumed that installation cost would not increase as a 
function of increased efficiency.
c. Annual Energy Use
    DOE estimated the annual electricity and natural gas consumed by 
each class of SPVU equipment, by efficiency level, based on the energy 
use analysis described in section IV.E and in chapter 7 of the final 
rule TSD.
d. Electricity and Natural Gas Prices
    Electricity prices and natural gas prices are used to convert 
changes in the electric and natural gas consumption from higher-
efficiency equipment into energy cost savings. Because of the variation 
in annual electricity and natural gas consumption savings and equipment 
costs across the country, it is important to consider regional 
differences in electricity and natural gas prices. DOE used average 
effective commercial electricity prices \56\ and commercial natural gas 
prices \57\ at the State level from EIA data for 2014. This approach 
captured a wide range of commercial electricity and natural gas prices 
across the United States. Furthermore, different kinds of businesses 
typically use electricity in different amounts at different times of 
the day, week, and year, and therefore, face different effective 
prices. To make this adjustment, DOE used EIA's 2003 Commercial 
Building Energy Consumption Survey (CBECS) data set \58\ to identify 
the average prices that the five business types paid for electricity 
and natural gas and compared them separately with the corresponding 
average prices that all commercial customers paid. DOE used the ratios 
of prices paid by the five types of businesses to the national average 
commercial prices seen in the 2003 CBECS as multipliers to adjust the 
average commercial 2014 State price data.
---------------------------------------------------------------------------

    \56\ Energy Information Administration, Form EIA-826 Database 
Monthly Electric Utility Sales and Revenue Data (EIA-826 Sales and 
Revenue Spreadsheets) (Available at: http://www.eia.gov/electricity/data/eia826/; on the right side of the screen under Aggregated, 
select 1990-current) (Last accessed April 17, 2015).
    \57\ Energy Information Administration, Natural Gas Prices 
(Available at: http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm) (Last accessed February 13, 2014).
    \58\ Energy Information Administration, Commercial Building 
Energy Consumption Survey 2003, CBECS Public Use Microdata Files 
(Available at: http://www.eia.gov/emeu/cbecs/cbecs2003/public_use_2003/cbecs_pudata2003.html) (Last accessed February 12, 
2014).
---------------------------------------------------------------------------

    DOE weighted the electricity and natural gas consumption and prices 
each business type paid in each State by the estimated percentages of 
SPVU equipment in each business type and by the population in each 
State to obtain weighted-average national electricity and natural gas 
costs for 2014. The State/building-type weights reflect the 
probabilities that a given unit of SPVU equipment shipped will operate 
with a given fuel price. The original State-by-State average commercial 
prices range from approximately $0.078 per kWh to approximately $0.343 
per kWh for electricity and from approximately $6.81 per MBtu to $43.36 
per MBtu for natural gas. See chapter 8 of the final rule TSD for 
further details.
    The electricity and natural gas price trends provide the relative 
change in electricity and natural gas costs for future years. DOE used 
the AEO2015 Reference case to provide the default electricity and 
natural gas price scenarios. DOE extrapolated the trend in values at 
the Census Division level from 2025 to 2040 of the projection for all 
five building types to establish prices beyond 2040 (see section 
IV.F.2.g). DOE provides a sensitivity analysis of the LCC savings and 
PBP results to different fuel price scenarios using both the AEO2015 
high-price and low-price projections in appendix 8C of the final rule 
TSD.
e. Maintenance Costs
    Maintenance costs are the costs to the consumer of ensuring 
continued equipment operation. Maintenance costs include services such 
as cleaning heat-exchanger coils and changing air filters. DOE 
estimated annual routine maintenance costs for SPVU air conditioners as 
$315 per year (2014$) for capacities up to 135,000 Btu/h. For heat 
pumps less than 65,000 Btu/h capacity, maintenance costs reported in 
the RS Means CostWorks 2013 database were $350 per year; costs were 
$420 per year for larger capacities. Because data were not available to 
indicate how maintenance costs vary with equipment efficiency, DOE used 
preventive maintenance costs that remain constant as equipment 
efficiency increases.
f. Repair Costs
    The repair cost is the cost to the customer of replacing or 
repairing components that have failed in the SPVU equipment. DOE 
estimated the one-time repair cost in RS Means as equivalent to those 
for small packaged rooftop units: $2,630 (2014$) for both air 
conditioners and heat pumps less than 65,000 Btu/h capacity, and $3,291 
for larger units. Based on frequency and type of major repairs in the 
RS Means database, DOE assumed that the repair would be a one-time 
event at about year 10 of the equipment life that involved replacing 
the supply fan motor, compressor, some bearings, and refrigerant. DOE 
then annualized the present value of the cost over the average 
equipment life of 15 years to obtain an annualized equivalent repair 
cost. DOE determined that the materials portion of annualized repair 
costs

[[Page 57467]]

would increase in direct proportion with increases in equipment prices, 
because the replacement parts would be similar to the more-expensive 
original equipment that they replaced. Because the price of SPVU 
equipment increases with efficiency, the cost for component repair is 
also expected to increase as the efficiency of equipment increases. See 
chapter 8 of the final rule TSD for details on the development of 
repair cost estimates.
g. Equipment Lifetime
    DOE defines ``equipment lifetime'' as the age when a unit of SPVU 
equipment is retired from service. DOE reviewed available literature to 
establish typical equipment lifetimes, which showed a wide range of 
lifetimes from 10 to 25 years. The data did not distinguish between 
classes of SPVU equipment. Consequently, DOE used a distribution of 
lifetimes between 10 and 25 years, with an average of 15 years based on 
a review of a range of packaged cooling equipment lifetime estimates 
found in published studies and online documents. DOE applied this 
distribution to all classes of SPVU equipment analyzed. Chapter 8 of 
the final rule TSD contains a detailed discussion of equipment 
lifetimes.
    Friedrich commented during the public meeting that based on 
feedback from its customers, 8 to 9 years was a more realistic lifetime 
than the 15 years proposed by DOE. (Friedrich, NOPR Public Meeting 
Transcript, No. 11 at p. 166) For the final rule, DOE maintained its 
equipment lifetime assumptions for the LCC and PBP analysis, but notes 
that there is a distribution of lifetimes between 10 and 25 years, 
wherein approximately half of the equipment fails before 15 years.
h. Discount Rate
    The discount rate is the rate at which future expenditures are 
discounted to establish their present value. DOE determined the 
discount rate by estimating the cost of capital for purchasers of SPVU 
equipment. Most purchasers use both debt and equity capital to fund 
investments. Therefore, for most purchasers, the discount rate is the 
weighted-average cost of debt and equity financing, or the weighted-
average cost of capital (WACC), less the expected inflation.
    To estimate the WACC of SPVU equipment purchasers, DOE used a 
sample of more than 340 companies grouped to be representative of 
operators of each of five commercial business types (health care, 
education, telecommunications, temporary office, and general office) 
drawn from a database of 7,766 U.S. companies presented on the 
Damodaran Online Web site.\59\ This database includes most of the 
publicly traded companies in the United States. The WACC approach for 
determining discount rates accounts for the current tax status of 
individual firms on an overall corporate basis. DOE did not evaluate 
the marginal effects of increased costs, and, thus, depreciation due to 
more-expensive equipment, on the overall tax status.
---------------------------------------------------------------------------

    \59\ Damodaran financial data used for determining cost of 
capital is available at: http://pages.stern.nyu.edu/~adamodar/ for 
commercial businesses (Last accessed February 12, 2014).
---------------------------------------------------------------------------

    DOE used the final sample of companies to represent purchasers of 
SPVU equipment. For each company in the sample, DOE derived the cost of 
debt, percentage of debt financing, and systematic company risk from 
information on the Damodaran Online Web site. Damodaran estimated the 
cost of debt financing from the nominal long-term Federal government 
bond rate and the standard deviation of the stock price. DOE then 
determined the weighted average values for the cost of debt, range of 
values, and standard deviation of WACC for each category of the sample 
companies. Deducting expected inflation from the cost of capital 
provided estimates of the real discount rate by ownership category.
    For most educational buildings and a portion of the office 
buildings occupied by public schools, universities, and State and local 
government agencies, DOE estimated the cost of capital based on a 40-
year geometric mean of an index of long-term tax-exempt municipal bonds 
(>20 years).\60\ Federal office space was assumed to use the Federal 
bond rate, derived as the 40-year geometric average of long-term (>10 
years) U.S. government securities.\61\
---------------------------------------------------------------------------

    \60\ Federal Reserve Bank of St. Louis, State and Local Bonds--
Bond Buyer Go 20-Bond Municipal Bond Index (Last accessed April 16, 
2015) Available at: http://research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995.
    \61\ Rate calculated with 1975-2014 data. Data source: U.S. 
Federal Reserve (Last accessed April 16, 2015) (Available at: 
www.federalreserve.gov/releases/h15/data.htm).
---------------------------------------------------------------------------

    Based on this database, DOE calculated the weighted-average, after-
tax discount rate for SPVU equipment purchases, adjusted for inflation, 
in each of the five business types, which were allocated to the three 
building types used in the analysis based on estimated market shares of 
modular buildings used by each business type. The allocation 
percentages came from a combination of manufacturer interviews and 
industry data published by the Modular Buildings 
Institute.62 63 64 65
---------------------------------------------------------------------------

    \62\ Modular Building Institute, State of the Industry 2006 
(Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) 
(March 6, 2014).
    \63\ Modular Building Institute, Commercial Modular Construction 
Report 2008 (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
    \64\ Modular Building Institute, Commercial Modular Construction 
Report 2009 (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
    \65\ Modular Building Institute, Relocatable Buildings 2011 
Annual Report (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
---------------------------------------------------------------------------

    Chapter 8 of the final rule TSD contains the detailed calculations 
related to discount rates.
3. Payback Period
    DOE also determined the economic impact of potential amended energy 
conservation standards on consumers by calculating the PBP of more-
stringent efficiency levels relative to the base-case efficiency 
levels. The PBP measures the amount of time it takes the commercial 
customer to recover the assumed higher purchase expense of more-
efficient equipment through lower operating costs. Similar to the LCC, 
the PBP is based on the total installed cost and the operating expenses 
for each building type and State, weighted on the probability of 
shipment to each market. Because the PBP does not take into account 
changes in operating expense over time or the time value of money, DOE 
considered only the first year's operating expenses to calculate the 
PBP, unlike the LCC, which is calculated over the lifetime of the 
equipment. Chapter 8 of the final rule TSD provides additional details 
about the PBP calculations.
    DOE received comments during the NOPR public meeting and in written 
form regarding the LCC analysis. AHRI commented that physical changes 
in cabinet size will incur higher installation costs, and that physical 
size changes also affect repair vs. replacement decisions. (AHRI, No. 
19 at pp. 16, 17, 31, 32, 34) Bard commented that schools will repair 
failing equipment rather than replace it with more-expensive, efficient 
models; customers will not tolerate 14.7 and 10.1 year PBPs, and more 
efficient models require larger cabinet sizes. (Bard, No. 13 at pp. 2, 
3) Lennox commented that increasing cabinet size will increase 
installation cost as modifications to buildings will be required. 
(Lennox, No. 16 at p. 18) Lennox also commented that commercial 
entities will not like paybacks as long as 8.4 years, and will end up 
repairing old equipment rather

[[Page 57468]]

than buying new. (Lennox, NOPR Public Meeting Transcript, No. 11 at p. 
138) DOE appreciates these comments and addressed repair vs. 
replacement decisions in the NIA, as discussed in section IV.G.2.b. 
National Coil Company commented that more efficient equipment yields 
larger cabinet sizes, which are more expensive to install. (National 
Coil Company, No. 14 at p. 3) Edison Electric Institute commented that 
some modular portable buildings are only used for 4 to 5 years, which 
is shorter than the average lifetime of this equipment, and expressed 
concern that education facilities have longer paybacks and higher net 
costs relative to the average customer. (Edison Electric Institute, 
NOPR Public Meeting Transcript, No. 11 at pp. 118, 144) DOE notes that 
most modular buildings are not destroyed after 4 to 5 years of use, but 
are moved to another location and continue to be used. Because they are 
an integral component of modular buildings, SPVUs are moved along with 
the building and continue giving service in the new location. Friedrich 
commented that the majority of its equipment goes to the hotel/motel 
industry, and there is a higher cost to install more-efficient, larger 
units. (Friedrich, NOPR Public Meeting Transcript, No. 11 at p. 132)
    DOE acknowledges and appreciates the comments shared in the public 
meeting and via written comment. DOE agrees that to a certain extent, 
more-efficient equipment requires larger cabinet sizes and therefore 
higher installation costs. As discussed in section IV.C.4, 
transitioning from EER 9.0 to EER 10.0 necessitates an increase in 
cabinet size. The economic analyses DOE conducted for equipment with 
efficiencies greater than EER 10.0 equipment are compared against EER 
10.0 equipment. DOE notes that the standard levels for equipment less 
than 65,000 Btu/h of EER 11.0 and EER 11.0/COP 3.3 for SPVACs and 
SPVHPs, respectively, do not necessitate larger cabinet sizes than the 
ASHRAE efficiency equipment. Therefore, DOE did not modify its approach 
for calculating installation costs for the final rule.

G. National Impact Analysis

    The NIA evaluates the effects of a considered energy conservation 
standard from a national perspective rather than from the customer 
perspective represented by the LCC. This analysis assesses the NPV 
(future amounts discounted to the present) and the NES of total 
commercial consumer costs and savings that are expected to result from 
amended standards at specific efficiency levels.\66\
---------------------------------------------------------------------------

    \66\ The NIA accounts for impacts in the 50 States and the U.S. 
territories.
---------------------------------------------------------------------------

    The NES refers to cumulative energy savings for the lifetime of 
units shipped from 2019 through 2048. DOE calculated energy savings in 
each year relative to a base case, defined as DOE adoption of the 
efficiency levels specified by ASHRAE Standard 90.1-2013. DOE also 
calculated energy savings from adopting efficiency levels specified by 
ASHRAE Standard 90.1-2013 compared to the EPCA base case (i.e., the 
current Federal standards) for units shipped from 2015 through 2044. 
The NPV refers to cumulative monetary savings. DOE calculated net 
monetary savings in each year relative to the ASHRAE base case as the 
difference between total operating cost savings and increases in total 
installed cost. DOE accounted for operating cost savings until 2072, 
when the equipment installed in the 30th year after the compliance date 
of the amended standards should be retired. Cumulative savings are the 
sum of the annual NPV over the specified period.
1. Approach
    The NES and NPV are a function of the total number of units in use 
and their efficiencies. Both the NES and NPV depend on annual shipments 
and equipment lifetime. Both calculations start by using the shipments 
estimate and the quantity of units in service derived from the 
shipments model.
    To make the analysis more transparent to all interested parties, 
DOE used a spreadsheet tool, available on DOE's Web site,\67\ to 
calculate the energy savings and the national economic costs and 
savings from potential amended standards. Interested parties can review 
DOE's analyses by changing various input quantities within the 
spreadsheet.
---------------------------------------------------------------------------

    \67\ DOE's Web page on SPVUs can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35.
---------------------------------------------------------------------------

    Unlike the LCC analysis, the NES spreadsheet does not use 
distributions for inputs or outputs, but relies on national average 
equipment costs and energy costs developed from the LCC spreadsheet. 
DOE used the NES spreadsheet to perform calculations of energy savings 
and NPV using the annual energy consumption and total installed cost 
data from the LCC analysis. For efficiency levels higher than ASHRAE, 
DOE projected the energy savings, energy cost savings, equipment costs, 
and NPV of benefits for equipment sold in each SPVU class from 2019 
through 2048. For the ASHRAE level, DOE projected energy savings for 
equipment sold from 2015 through 2044. DOE does not calculate economic 
benefits for the ASHRAE level because it is statutorily required to use 
the ASHRAE level as the baseline. The projection provided annual and 
cumulative values for all four output parameters described above.
a. National Energy Savings
    DOE calculated the NES associated with the difference between the 
per-unit energy use under a standards-case scenario and the per-unit 
energy use in the base case. The average energy per unit used by the 
SPVUs in service gradually decreases in the standards case relative to 
the base case because more-efficient SPVUs are expected to gradually 
replace less-efficient ones.
    Unit energy consumption values for each equipment class are taken 
from the LCC spreadsheet for each efficiency level and weighted based 
on market efficiency distributions. To estimate the total energy 
savings for each efficiency level, DOE first calculated the delta unit 
energy consumption (i.e., the difference between the energy directly 
consumed by a unit of equipment in operation in the base case and the 
standards case) for each class of SPVUs for each year of the analysis 
period. The analysis period begins with the earliest expected 
compliance date of amended energy conservation standards (i.e., 2015), 
assuming DOE adoption of the baseline ASHRAE Standard 90.1-2013 
efficiency levels. For the analysis of DOE's potential adoption of 
more-stringent efficiency levels, the analysis period does not begin 
until the compliance date of 2019, four years after DOE would likely 
issue a final rule requiring such standards.
    Second, DOE determined the annual site energy savings by 
multiplying the stock of each equipment class by vintage (i.e., year of 
shipment) by the delta unit energy consumption for each vintage (from 
step one). As mentioned in section IV.E, this includes an increase in 
gas usage for some SPVAC units sold with gas furnaces (where fan power 
was reduced to achieve higher efficiency levels).
    Third, DOE converted the annual site electricity savings into the 
annual amount of energy saved at the source of electricity generation 
(the source or primary energy), using annual conversion factors derived 
from AEO2015. Finally, DOE summed the annual primary energy savings for 
the lifetime of units shipped over a 30-year period to calculate the 
total NES. DOE performed these calculations for each

[[Page 57469]]

efficiency level considered for SPVUs in this rulemaking.
    In 2011, in response to the recommendations of a committee on 
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
DOE announced its intention to use FFC measures of energy use and GHG 
and other emissions in the national impact analyses and emissions 
analyses included in future energy conservation standards rulemakings. 
76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed 
in the August 18, 2011 document, DOE published a statement of amended 
policy in which DOE explained its determination that EIA's National 
Energy Modeling System (NEMS) is the most appropriate tool for its FFC 
analysis and its intention to use NEMS for that purpose. 77 FR 49701 
(Aug. 17, 2012). NEMS is a public domain, multi-sector, partial 
equilibrium model of the U.S. energy sector \68\ that EIA uses to 
prepare its Annual Energy Outlook. The approach used for the final 
rule, and the FFC multipliers that were applied, are described in 
appendix 10A of the final rule TSD. NES results are presented in both 
primary and FFC savings in section V.B.3.a.
---------------------------------------------------------------------------

    \68\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview, DOE/EIA-0581 (98) (Feb. 1998) 
(Available at:  http://www.eia.gov/oiaf/aeo/overview/).
---------------------------------------------------------------------------

    DOE considered whether a rebound effect is applicable in its NES 
analysis for SPVUs. A rebound effect occurs when an increase in 
equipment efficiency leads to increased demand for its service. For 
example, when a consumer realizes that a more-efficient air conditioner 
will lower the electricity bill, that person may opt for increased 
comfort in the home by lowering the temperature, thereby returning a 
portion of the energy cost savings. For the SPVU market, there are two 
ways that a rebound effect could occur: (1) Increased use of the air-
conditioning equipment within the commercial buildings in which such 
units are installed; and (2) additional instances of air-conditioning 
of spaces that were not being cooled before. In the case of SPVUs, the 
person owning the equipment (i.e., the building owner) is usually not 
the person operating the equipment (i.e., the renter). Because the 
operator usually does not own the equipment, that person will not have 
the operating cost information necessary to influence their operation 
of the equipment. Therefore, DOE believes that the first instance is 
unlikely to occur. Similarly, the second instance is unlikely because a 
small change in efficiency is insignificant among the factors that 
determine how much floor space will be air-conditioned.
b. Net Present Value
    To estimate the NPV, DOE calculated the net impact as the 
difference between total operating cost savings and increases in total 
installed costs. DOE calculated the NPV of each considered standard 
level over the life of the equipment using the following three steps.
    First, DOE determined the difference between the equipment costs 
under the standard-level case and the base case in order to obtain the 
net equipment cost increase resulting from the higher standard level. 
As noted in section IV.F.2.a, DOE used a constant price assumption as 
the default price forecast; the cost to manufacture a given unit of 
higher efficiency neither increases nor decreases over time. In 
addition, DOE considered two alternative price trends in order to 
investigate the sensitivity of the results to different assumptions 
regarding equipment price trends. One of these used an exponential fit 
on the deflated PPI for all other miscellaneous refrigeration and air-
conditioning equipment, and the other is based on the ``deflator--other 
durables excluding medical'' that was forecasted for AEO2015. The 
derivation of these price trends is described in appendix 10B of the 
final rule TSD.
    Second, DOE determined the difference between the base-case 
operating costs and the standard-level operating costs in order to 
obtain the net operating cost savings from each higher efficiency 
level. The operating cost savings are energy cost savings, which are 
calculated using the estimated energy savings in each year and the 
projected price of the appropriate form of energy. To estimate energy 
prices in future years, DOE multiplied the average regional energy 
prices by the forecast of annual national-average residential energy 
price changes in the Reference case from AEO2015, which has an end year 
of 2040. To estimate price trends after 2040, DOE used the average 
annual rate of change in prices from 2030 to 2040. As part of the NIA, 
DOE also analyzed scenarios that used inputs from the AEO2015 Low 
Economic Growth and High Economic Growth cases. Those cases have higher 
and lower energy price trends compared to the Reference case. NIA 
results based on these cases are presented in appendix 10B of the final 
rule TSD.
    Third, DOE determined the difference between the net operating cost 
savings and the net equipment cost increase in order to obtain the net 
savings (or expense) for each year. DOE then discounted the annual net 
savings (or expenses) to 2015 for SPVUs bought in or after 2019 and 
summed the discounted values to provide the NPV for an efficiency 
level.
    In accordance with the OMB's guidelines on regulatory analysis,\69\ 
DOE calculated 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. DOE used this 
discount rate to approximate the opportunity cost of capital in the 
private sector, because recent OMB analysis has found the average rate 
of return on capital to be near this rate. DOE used the 3-percent rate 
to capture the potential effects of standards on private consumption 
(e.g., through higher prices for products and reduced purchases of 
energy). This rate represents the rate at which society discounts 
future consumption flows to their present value. This rate can be 
approximated by the real rate of return on long-term government debt 
(i.e., yield on United States Treasury notes minus annual rate of 
change in the Consumer Price Index), which has averaged about 3 percent 
on a pre-tax basis for the past 30 years.
---------------------------------------------------------------------------

    \69\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at: 
www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------

2. Shipments Analysis
    In its shipments analysis, DOE developed shipment projections for 
SPVUs and, in turn, calculated equipment stock over the course of the 
analysis period. DOE used the shipments projection and the equipment 
stock to determine the NES. In order to account for the analysis 
periods of both the ASHRAE level and higher efficiency levels, the 
shipments portion of the spreadsheet model projects SPVU shipments from 
2015 through 2048.
a. Shipments Model and Forecast
    To develop the shipments model, DOE started with 2005 shipment 
estimates from the Air-Conditioning and Refrigeration Institute (ARI, 
now AHRI) for units less than 65,000 Btu/h as published in a previous 
rulemaking,\70\

[[Page 57470]]

as more recent data are not available. DOE added additional shipments 
for SPVACs greater than or equal to 65,000 Btu/h and less than 135,000 
Btu/h, which make up 3 percent of the market, based on manufacturer 
interviews. As there are no models on the market for SPVHPs greater 
than or equal to 65,000 Btu/h and less than 135,000 Btu/h, or for any 
SPVUs greater than or equal to 135,000 Btu/h, DOE did not develop 
shipment estimates (or generate NES and NPV) for these equipment 
classes. See chapter 9 of the final rule TSD for more details on the 
initial shipment estimates by equipment class that were used as the 
basis for the shipments projections discussed below.
---------------------------------------------------------------------------

    \70\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy, Technical Support Document: Energy Efficiency 
Program for Commercial and Industrial Equipment: Efficiency 
Standards for Commercial Heating, Air-Conditioning, and Water 
Heating Equipment Including Packaged Terminal Air-Conditioners and 
Packaged Terminal Heat Pumps, Small Commercial Packaged Boiler, 
Three-Phase Air-Conditioners and Heat Pumps <65,000 Btu/h, and 
Single-Package Vertical Air Conditioners and Single-Package Vertical 
Heat Pumps <65,000 Btu/h (March 2006) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/ashrae_products/ashrae_products_draft_tsd_030206.pdf). This TSD was 
prepared for the rulemaking that resulted in the Final Rule: Energy 
Efficiency Program for Certain Commercial and Industrial Equipment: 
Efficiency Standards for Commercial Heating, Air-Conditioning, and 
Water-Heating Equipment. 72 FR 10038 (March 7, 2007).
---------------------------------------------------------------------------

    To project shipments of SPVUs for new construction (starting in 
2006) for the NOPR, DOE relied primarily on sector-based estimates of 
saturation and projections of floor space. Based on manufacturer 
interview information, DOE allocated 35 percent of shipments to the 
education sector, 35 percent to telecom, and 30 percent to offices. DOE 
used the 2005 new construction shipments and 2005 new construction 
floor space for education (from AEO2013) to estimate a saturation 
rate.\71\ DOE applied this saturation rate to AEO2013 projections of 
new construction floor space to project shipments to new construction 
in the education sector through 2048. For offices, DOE decided to hold 
SPVU shipments to new office construction constant at 2005 levels. For 
shipments to telecom, DOE developed an index based on County Business 
Pattern data for establishments \72\ and projected this trend forward.
---------------------------------------------------------------------------

    \71\ Manufacturers reported that in 2012, 50 percent of 
shipments were for new construction. DOE originally adjusted that 
split for 2005 until the result from the shipments model was 50/50 
in 2012. This resulting 2005 split was 84 percent new construction 
and 16 percent replacement. However, this led to a steep shipments 
increase in the model from 2005 to 2006. Instead, DOE used the 50/50 
split directly in 2005, which resulted in a much steadier shipments 
trend. Therefore, 2005 new construction shipments are derived using 
50 percent of the total 2005 historical shipments.
    \72\ U.S. Census Bureau, County Business Patterns for NAICS 
237130 Power and Communication Line and Related Structures 
Construction (Available at: http://www.census.gov/econ/cbp/index.html) (Last accessed April 15, 2014).
---------------------------------------------------------------------------

    To allocate the total projected shipments for office, education, 
and telecom into the equipment classes applicable to each sector for 
the NOPR, DOE used the fraction of shipments from 2005 for each 
equipment class in each sector. The fractions within each sector 
remained constant over time.
    In order to model shipments for replacement SPVUs for the NOPR, DOE 
developed historical shipments for SPVUs back to 1981 based on an index 
of square footage production data from the Modular Buildings 
Institute.\73\ Shipments prior to 1994 were extrapolated based on a 
trend from 1994 to 2005. In the stock model, the lifetime of SPVUs 
follows the distribution discussed in section IV.F.2.g, with a minimum 
of 10 years and a maximum of 25 years. All retired units are assumed to 
be replaced with new shipments.
---------------------------------------------------------------------------

    \73\ Available at: http://www.modular.org/HtmlPage.aspx?name=analysis (Last accessed May 18, 2012).
---------------------------------------------------------------------------

    In response to the NOPR, Lennox commented that the NOPR indicated 
that the SPVU market has grown since 2006, ignoring past market 
volatility and the recent recession. Lennox stated that its own 
shipments of SPVUs declined dramatically in the 2008 to 2009 timeframe 
and have continued at levels lower than the 2005 to 2006 timeframe when 
DOE began its projections. (Lennox, No. 16 at pp. 6, 20) Similarly, 
AHRI commented that SPVU levels decreased through 2009 and have not yet 
rebounded to their 2006 levels, so DOE's projections are too high for 
2006-2013. (AHRI, No. 19 at pp. 28-29) Bard also stated that its unit 
shipments in that same period experienced a decline. (Bard 
Manufacturing Company, No. 13 at p. 2)
    For the final rule, DOE modified its estimate of shipments prior to 
2014 to account for decline in shipments related to the recession. DOE 
used information on historical shipments from Lennox and AHRI to 
develop a revised trend for shipments from 2005 to 2014 to more 
accurately reflect the shipments of SPVUs as defined in this final 
rule. The complete discussion of the method for extrapolating 
historical shipments can be found in chapter 9 of the final rule TSD. 
As a result of the above change, DOE modified its projection of 
shipments to new construction. Instead of using shipments in 2005 as a 
basis (as described above), DOE used the revised estimates for 2014.
    The complete discussion of shipment allocation and projected 
shipments for the different equipment classes can be found in chapter 9 
of the final rule TSD.
b. Effect of Amended Standards on Shipments
    As equipment purchase price and repair costs increase with 
efficiency, higher first costs and repair costs can result in a drop in 
shipments. In manufacturer interviews prior to the NOPR, manufacturers 
expressed concern that an increase in first cost could lead customers 
to switch to split-system or rooftop units. However, manufacturers did 
not provide any information on the price point at which this switch 
might occur, and DOE had insufficient data for estimating the 
elasticity of shipments for SPVUs as a function of first costs, repair 
costs, or operating costs. For these and other reasons, DOE assumed 
that the shipments projection would not change under the considered 
standard levels.
    In response to the NOPR, numerous stakeholders disagreed with the 
NOPR assumption of no change in shipments.
    AHRI commented that higher efficiency equipment will be more 
expensive and consumers will look towards other HVAC products if the 
price becomes prohibitive or the PBP is too long, or equipment will be 
repaired instead of replaced. AHRI stated that DOE should analyze the 
negative impacts that occurred when small unitary air conditioning 
efficiencies were increased from 10 to 13 seasonal energy efficiency 
ratio, and noted that the recent CUAC NOPR projects a reduction in 
shipments after higher standards. (AHRI, No. 19 at p. 28) Lennox 
indicated that the shipments model should project a drop in future 
shipments due to increased efficiency levels. Lennox commented that 
many businesses that are end-users of SPVU equipment have strict budget 
obligations and will forgo replacements due to the higher installation 
and building modification costs and instead repair their current SPVU 
products. Lennox also noted that the CUAC NOPR projects a decline in 
future shipments due to increased product costs. (Lennox, No. 16 at pp. 
6-7) Bard stated that an 11.0 EER standard would cause many of its 
customers to abandon SPVUs in favor of other more economically sensible 
products. In particular, Bard stated that DOE's assumption ignores the 
price sensitivity of the modular/relocatable building market, which is 
the largest SPVU market. (Bard Manufacturing Company, No. 13 at p. 3)
    For the final rule, DOE modified its approach to reflect the 
potential market response to more-stringent standards for SPVUs. DOE 
implemented a repair vs. replace decision in the shipment model. First, 
DOE assumed a price elasticity of

[[Page 57471]]

-0.5 to estimate the fraction of consumers that would be sensitive to 
the higher prices of equipment under new standards.\74\ Their units 
would undergo a major repair instead of replacement upon failure, in 
this case assumed to be a compressor repair. In the case of the adopted 
standards, the model resulted in 3 percent of SPVU consumers opting to 
repair rather than replace in the compliance year. Next, DOE extended 
the lifetime of repaired equipment by half the original lifetime, or 
approximately 7.5 years on average. The complete discussion of the 
method for the repair vs. replace decision can be found in chapter 9 of 
the final rule TSD. For the adopted standards, the revised shipments 
model results in a cumulative drop in shipments of 1 percent compared 
to the shipments in the ASHRAE case, or 2 percent compared to the 
market base case.
---------------------------------------------------------------------------

    \74\ DOE typically uses a price elasticity of -0.34 for 
residential products. However, DOE has no information regarding the 
price elasticity for commercial equipment. DOE believes that the 
price elasticity may be somewhat higher for commercial equipment 
than for residential products, as it is more expensive, but that it 
would be less than perfectly elastic because of other significant 
considerations. As a result, DOE selected the midpoint between 
inelastic and elastic.
---------------------------------------------------------------------------

    DOE also modified the NES and NPV calculations to take into account 
the increased energy use and repair cost for the units that are 
repaired instead of replaced in each standards case. These calculations 
are discussed in chapter 10 of the final rule TSD.
3. Base-Case and Standards-Case Forecasted Distribution of Efficiencies
    To project what the SPVU market would look like in the absence of 
amended standards, DOE developed a base-case distribution of efficiency 
levels for SPVU equipment using manufacturer-provided estimates. DOE 
applied the percentages of models within each efficiency range to the 
total unit shipments for a given equipment class to estimate the 
distribution of shipments for the base case. Then, from those market 
shares and projections of shipments by equipment class, DOE 
extrapolated future equipment efficiency trends both for a base-case 
scenario and for standards-case scenarios.
    To estimate an efficiency trend in the base-case, DOE used the 
trend from 2012 to 2035 found in the Commercial Unitary Air Conditioner 
Advance Notice of Proposed Rulemaking (ANOPR), which estimated an 
increase of approximately 1 EER every 35 years.\75\ DOE used this same 
trend in the standards-case scenarios, when seeking to ascertain the 
impact of amended standards.
---------------------------------------------------------------------------

    \75\ See DOE's TSD underlying DOE's July 29, 2004 ANOPR. 69 FR 
45460 (Available at: http://www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0103-0078). SPVUs have only had EER 
standards since 2002, which was not long enough to establish an 
efficiency trend.
---------------------------------------------------------------------------

    For each efficiency level analyzed, DOE used a ``roll-up'' scenario 
to establish the market shares by efficiency level for the year that 
compliance would be required with amended standards (i.e., 2015 if DOE 
adopts the efficiency levels in ASHRAE Standard 90.1-2013, or 2019 if 
DOE adopts more-stringent efficiency levels than those in ASHRAE 
Standard 90.1-2013). DOE collected information suggesting that, as the 
name implies, the efficiencies of equipment in the base case that did 
not meet the standard level under consideration would roll up to meet 
the amended standard level. This information also suggests that 
equipment efficiencies in the base case that were above the standard 
level under consideration would not be affected. The efficiency 
distributions for each equipment class are presented in chapter 10 of 
the final rule TSD.

H. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended standards on 
commercial consumers, DOE evaluates the impact on identifiable groups 
(i.e., subgroups) of consumers, such as different types of businesses 
that may be disproportionately affected by a national standard level. 
For this rulemaking, DOE identified mining and construction companies 
occupying temporary office space as a disproportionately affected 
subgroup. Because it has generally higher costs of capital and, 
therefore, higher discount rates than other firms using SPVUs, this 
consumer subgroup is less likely than average to value the benefits of 
increased energy savings. However, this group also faces relatively 
high electricity prices compared with some other consumer subgroups. 
These two conditions tend to offset each other, so a quantitative 
analysis was required to determine whether this subgroup would 
experience higher or lower than average LCC savings. Another type of 
consumer that might be disproportionately affected is public education 
facilities. Because of their tax-exempt status, public education 
agencies generally have lower capital costs than other SPVU users and, 
thus, might disproportionately benefit from increased SPVU energy 
efficiency; however, they also typically face lower electricity costs 
than other commercial customers, so a quantitative analysis was 
required to determine whether they would have lower or higher than 
average LCC savings.
    DOE also analyzed the potential effects of amended SPVU standards 
on businesses with high capital costs, which are generally (but not 
always) small businesses. DOE analyzed the potential impacts of amended 
standards by conducting the analysis with different discount rates, 
because small businesses do not have the same access to capital as 
larger businesses, but they may pay similar prices for electricity. DOE 
obtained size premium data from Ibbotson Associates' Stocks, Bonds, 
Bills, and Inflation 2013 Yearbook.\76\ For the period of 1926-2012, 
the geometric mean of annual returns for the smallest companies in all 
industries (13 percent) was 103.1 percent of the average for the total 
value-weighted index of companies listed on the New York Stock Exchange 
(NYSE), American Stock Exchange (AMEX), and National Association of 
Security Dealers Stock Exchange (NASDAQ) (9.6 percent), implying that 
on average, historical performance of small companies has been (113.0/
109.6) = 1.031 or 3.1 percent points higher than the market average, in 
effect a ``small company size premium,'' an extra cost premium that 
they have to pay to do business. DOE assumed that for businesses 
purchasing SPVUs and purchasing or renting modular buildings containing 
SPVUs, the average discount rate for small companies is 3.1 percent 
higher than the industry average.
---------------------------------------------------------------------------

    \76\ Morningstar, Inc., Ibbotson SBBI 2013 Classic Yearbook. 
Market Results for Stocks, Bonds, Bills, and Inflation 1926-2012 
(2013).
---------------------------------------------------------------------------

    DOE determined the impact of consumer subgroup costs and savings 
using the LCC spreadsheet model. DOE conducted the LCC and PBP analysis 
separately for consumers represented by the mining and construction 
firms using temporary office buildings and for public education 
agencies using portable classrooms, and then compared the results with 
those for average commercial customers. DOE also conducted an analysis 
in which only firms with a discount rate 3.1 percent higher than the 
corresponding industry average were selected. While not all of these 
firms were small businesses (some had volatile stock prices or other 
special circumstances), they were the ones that had the highest costs 
of capital and were the least likely to benefit from increased SPVU 
standards.
    Due to the higher costs of conducting business, benefits of SPVU 
standards for small and other high-capital-cost businesses are 
estimated to be slightly

[[Page 57472]]

lower than for the general population of SPVU owners.
    The results of DOE's LCC subgroup analysis are summarized in 
section V.B.1.b and described in detail in chapter 11 of the final rule 
TSD.

I. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to estimate the financial impact of amended 
energy conservation standards on manufacturers of SPVACs and SPVHPs, 
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 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 INPV. Different sets 
of assumptions (markup scenarios) will produce different results. The 
qualitative part of the MIA addresses factors such as equipment 
characteristics, impacts on particular subgroups of firms, and 
important market and equipment trends. The complete MIA is outlined in 
chapter 12 of the final rule 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 SPVAC and SPVHP 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.
    DOE used information obtained during these interviews to prepare a 
profile of the SPVAC and SPVHP industry, including a manufacturer cost 
analysis. Drawing on financial analysis performed as part of the 2008 
energy conservation standard for SPVACs and SPVHPs as well as feedback 
obtained from manufacturers, DOE derived financial inputs for the GRIM 
(e.g., 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,\77\ corporate annual reports, the U.S. Census 
Bureau's Economic Census,\78\ and Hoover's reports,\79\ to develop the 
industry profile.
---------------------------------------------------------------------------

    \77\ U.S. Securities and Exchange Commission. Annual 10-K 
Reports. Various Years. http://www.sec.gov.
    \78\ ``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.
    \79\ 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 SPVACs and SPVHPs. 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 
SPVAC and SPVHP industry using financial values derived during Phase 1.
    In Phase 3 of the MIA, DOE conducted structured, detailed 
interviews with a representative cross-section of manufacturers. During 
these interviews, DOE discussed engineering, manufacturing, 
procurement, and financial topics to validate assumptions used in the 
GRIM and to identify key issues or concerns.
    Additionally, in Phase 3, DOE evaluated subgroups of manufacturers 
that may be disproportionately impacted by standards or that may not be 
accurately represented 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. Thus, during Phase 3, DOE analyzed small manufacturers as a 
subgroup.
    The Small Business Administration (SBA) defines a small business 
for North American Industry Classification System (NAICS) code 333415, 
``Air-Conditioning and Warm Air Heating Equipment and Commercial and 
Industrial Refrigeration Equipment Manufacturing,'' as having 750 
employees or fewer. During its research, DOE identified two domestic 
companies that manufacture equipment covered by this rulemaking and 
qualify as small businesses under the SBA definition. The SPVAC and 
SPVHP small manufacturer subgroup is discussed in chapter 12 of the 
final rule TSD and in section VI.C 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 for a 
30-year period that begins in the compliance year for each equipment 
class. DOE calculated INPVs by summing the stream of annual discounted 
cash flows during this period. DOE used a real discount rate of 10.4 
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.
    DOE collected information on critical GRIM inputs from a number of 
sources, including publicly available data and interviews with 
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 
final rule 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 MPC 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 final rule TSD. In addition, 
DOE used information

[[Page 57473]]

from its teardown analysis, described in chapter 5 of the final rule 
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. See section IV.G and chapter 10 of the final rule TSD for 
additional details.
    For the standards-case shipment forecast, the GRIM uses the NIA 
standards-case shipment forecasts. The NIA assumes that product 
efficiencies in the base case that do not meet the energy conservation 
standard in the standards case ``roll up'' to meet the amended standard 
in the standard year. See section IV.G and chapter 9 of the final rule 
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 
equipment teardown analysis and engineering analysis described in 
chapter 5 of the final rule 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 from multiple 
manufacturers to determine conversion costs, such as R&D expenditures, 
at each efficiency level. Manufacturer numbers were aggregated to 
better reflect the industry as a whole and to protect confidential 
information.
    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 in section V.B.2 of this 
document. For additional information on the estimated product and 
capital conversion costs, see chapter 12 of the final rule TSD.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
    MSPs include direct MPCs (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. As production costs increase with efficiency, this 
scenario implies that the absolute dollar markup will increase as well. 
DOE assumed the non-production cost markup--which includes SG&A 
expenses, R&D expenses, interest, and profit--to be 1.28 for SPVU 
equipment. This markup is consistent with the one DOE assumed in the 
base case for the GRIM. Manufacturers tend to believe it is optimistic 
to assume that they would be able to maintain the same gross margin 
percentage markup as their production costs increase. Therefore, DOE 
assumes that this scenario represents a high bound to industry 
profitability under an amended energy conservation standard.
    In the preservation-of-operating-profit scenario, as the cost of 
production goes up under a standards case, manufacturers are generally 
required to reduce their markups to a level that maintains base-case 
operating profit. DOE implemented this scenario in the GRIM by lowering 
the manufacturer markups at each TSL to yield approximately the same 
earnings before interest and taxes in the standards case as in the base 
case in the year after the compliance date of the amended standards. 
The implicit assumption behind this markup scenario is that the 
industry can only maintain its operating profit in absolute dollars 
after the standard.
3. Discussion of Comments
    During the NOPR public comment period, interested parties commented 
on assumptions and results described in the December 2014 NOPR and 
accompanying TSD. Written comments submitted to DOE and oral comments 
delivered during the February 2015 NOPR public meeting address several 
topics related to manufacturer impacts. These include cumulative 
regulatory burden, conversion costs, changes in customer demand, 
diminished product offering, and impacts on the subgroup of small 
business manufacturers.
a. Cumulative Regulatory Burden
    Many manufacturers commented that this rule combined with other 
pending rulemakings would place high cumulative regulatory burden on 
manufacturers with multiple products subject to updated appliances 
standards. (AHRI, No. 19 at p. 26; Bard, No. 11 at p. 173; Friedrich, 
No. 11 at p. 175, No. 15 at p. 2; Lennox, No. 11 at p. 171, No. 16 at 
p. 2; National Coil Company, No. 11 at p. 174, No. 14 at p. 2) 
Specifically, the stakeholders noted obligations related to room air 
conditioners, residential central air conditioners and heat pumps, 
commercial warm air furnaces, air-cooled CUACs and heat pumps, and 
walk-in coolers and freezers

[[Page 57474]]

rulemakings. DOE provides additional detail on these rules in section 
V.B.2.e of this final rule. First Company and Bard also added that the 
cumulative regulatory burden would have a more significant effect on 
small and mid-sized companies that are already overburdened by other 
regulations. (First Company, No. 12 at p. 2; Bard, No. 11 at p. 173). 
DOE has taken these comments under advisement. The Department lists the 
complete set of Federal regulations contributing to cumulative 
regulatory burden in section V.B.2.e. DOE takes cumulative regulatory 
impact into account when selecting the appliance standard in this final 
rule.
b. Conversion Costs
    Lennox and AHRI commented that DOE underestimated the conversion 
costs needed to update manufacturing facilities, and that this undue 
financial burden on manufacturers could diminish their ability to stay 
competitive in the marketplace. (Lennox, No. 11 at p. 173; AHRI, No. 19 
at p. 11) Lennox stated that its estimate of the industry's conversion 
costs are at least twice DOE's estimate, but more likely in the 300 to 
500 percent range above DOE's current estimate. (Lennox, No. 16 at p. 
4) In response, DOE's conversion costs are based on detailed 
discussions of capital and production conversion costs with a broad 
range of manufacturers of the covered product. DOE interviewed and 
collected conversion cost data from manufacturers that constitute the 
majority of the SPVU market. While any single manufacturer may have 
higher conversion cost than the average, DOE believes its conversion 
cost model is representative of the industry at large. DOE did revise 
its conversion costs upward between the NOPR and final rule, from $7.2M 
to $9.2M. However, this revision was primary driven by changes in the 
number of manufacturers and shifts in the number of product listings 
between the time of the NOPR analysis and the time of the final rule 
analysis.
c. Changes in Customer Demand
    Bard stated that an 11.0 EER standard would cause many of its 
customers to abandon SPVUs in favor of other more economically sensible 
products, which would cause Bard to shrink in size. (Bard, No. 13 at p. 
3) DOE estimates shipments impacts in the shipment analysis. During 
interviews, manufacturers stated that split system air conditioners and 
rooftop units would be the primary competitors. For much of the 
replacement market, these alternatives would continue to have a much 
higher installed cost than SPVUs due to the need for ductwork. 
Therefore, DOE believes that its shipments analysis accurately reflects 
potential changes in industry shipments over the analysis period.
d. Diminished Product Offering
    AHRI and Bard commented that raising the standard for smaller units 
to 11 EER and 3.3 COP would eliminate most product lines from the 
market. AHRI also suggested that the cost to redesign, impact on annual 
shipments, and the loss of utility to customers would be extremely 
significant. (AHRI, No. 11 at p. 19; Bard, No. 11 at p. 176) DOE notes 
that its analysis takes into account the percentage of products that 
would be eliminated by an 11 EER and 3.3 COP standard, as described in 
section V.B.2.a. In response to AHRI and Bard, DOE's INPV calculations 
and estimates of manufacturer impacts take into account manufacturers' 
costs to redesign in its estimate of conversion costs, changes in 
annual shipments as estimated in the shipments analysis, and 
considerations of changes in utility in the screening and engineering 
analyses. Through tear-downs of existing products on the market, DOE 
concluded that most models could reach 11 EER and 3.3 COP with changes 
in heat exchanger surface area that do not require changes to the 
dimensions of the cabinet. DOE's analysis does reflect Bard's and 
AHRI's comments on the portion of units that require redesign. DOE's 
analysis concludes that 71 percent of SPVU models require some redesign 
to meet the adopted standard. The need for product redesign affect's 
DOE's analysis of conversion costs and MSPs. These, in turn, drive the 
estimates of manufacturer impacts. The portion of products that require 
redesign are considered in the MIA and are part of the weighing of cost 
and benefits in the selection of the adopted standard.
e. Impacts on the Subgroup of Small Business Manufacturers
    Bard stated that they direct much of their engineering resources 
towards remaining competitive in the SPVU market. They added that to 
achieve the proposed 11 EER efficiency level, they would have to 
repurpose these resources, which could impact their ability to stay 
competitive, particularly since it is a small business.. (Bard, No. 13 
at p. 3). In response to Bard, . DOE notes that regulations apply to 
the entire industry and all manufacturers will need to re-direct 
engineering resources to comply with efficiency regulations. However, 
DOE understands that small businesses manufacturers generally have 
smaller engineering teams to manage the redesign of products. DOE notes 
that disproportionate impacts to small business as a result of an 
energy conservation standard are analyzed in section VI.C
    National Coil Company added that it believes it should be treated 
as a small business because, even though it has a parent company 
(Eubank) that has more than 750 total employees, Nation Coil Company 
operates as a separate entity and directly employs a number of 
employees much less that the 750 person threshold. (National Coil 
Company, No. 14 at p. 1) In response to National Coil Company, DOE 
notes that small business standards are listed by NAICS code and 
industry description and are available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. Further, the SBA requires 
parent company employees to be included when determining whether a 
business is a small manufacturer.

J. Emissions Analysis

    The emissions analysis consists of two components. The first 
component estimates the effect of potential energy conservation 
standards on power sector and site (where applicable) combustion 
emissions of CO2, NOX, SO2, and Hg. 
The second component estimates the impacts of potential standards on 
emissions of two additional GHGs, CH4 and N2O, as 
well as the reductions to emissions of all species due to ``upstream'' 
activities in the fuel production chain. These upstream activities 
comprise extraction, processing, and transporting fuels to the site of 
combustion. The associated emissions are referred to as upstream 
emissions.
    The analysis of power sector emissions uses marginal emissions 
factors that were derived from data in AEO2015, as described in section 
IV.L. The methodology is described in chapter 13 and chapter 15 of the 
final rule TSD.
    Combustion emissions of CH4 and N2O are 
estimated using emissions intensity factors published by the U.S. 
Environmental Protection Agency (EPA), GHG Emissions Factors Hub.\80\ 
The FFC upstream emissions are estimated based on the methodology 
described in chapter 13 of the final rule TSD. The upstream emissions 
include both emissions from fuel combustion during extraction, 
processing, and transportation of fuel, and ``fugitive''

[[Page 57475]]

emissions (direct leakage to the atmosphere) of CH4 and 
CO2.
---------------------------------------------------------------------------

    \80\ Available at: http://www.epa.gov/climateleadership/inventory/ghg-emissions.html.
---------------------------------------------------------------------------

    The emissions intensity factors are expressed in terms of physical 
units per MWh or MMBtu of site energy savings. Total emissions 
reductions are estimated using the energy savings calculated in the 
NIA.
    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 each ton of gas by the gas' global warming potential 
(GWP) over a 100-year time horizon. Based on the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change,\81\ DOE used 
GWP values of 28 for CH4 and 265 for N2O.
---------------------------------------------------------------------------

    \81\ 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.
---------------------------------------------------------------------------

    The AEO incorporates the projected impacts of existing air quality 
regulations on emissions. AEO2015 generally represents current 
legislation and environmental regulations, including recent government 
actions, for which implementing regulations were available as of 
October 31, 2014. DOE's estimation of impacts accounts for the presence 
of the emissions control programs discussed in the following 
paragraphs.
    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). (42 U.S.C. 7651 et seq.) SO2 
emissions from 28 eastern States and DC were also limited under the 
Clean Air Interstate Rule (CAIR). 70 FR 25162 (May 12, 2005). CAIR 
created an allowance-based trading program that operates along with the 
Title IV program. In 2008, CAIR was remanded to EPA by the U.S. Court 
of Appeals for the District of Columbia Circuit, but it remained in 
effect.\82\ In 2011, EPA issued a replacement for CAIR, the Cross-State 
Air Pollution Rule (CSAPR). 76 FR 48208 (Aug. 8, 2011). On August 21, 
2012, the DC Circuit issued a decision to vacate CSAPR,\83\ and the 
court ordered EPA to continue administering CAIR. On April 29, 2014, 
the U.S. Supreme Court reversed the judgment of the DC Circuit and 
remanded the case for further proceedings consistent with the Supreme 
Court's opinion.\84\ On October 23, 2014, the DC Circuit lifted the 
stay of CSAPR.\85\ Pursuant to this action, CSAPR went into effect (and 
CAIR ceased to be in effect) as of January 1, 2015.
---------------------------------------------------------------------------

    \82\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008); 
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
    \83\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012), cert. granted, 81 U.S.L.W. 3567, 81 U.S.L.W. 3696, 
81 U.S.L.W. 3702 (U.S. June 24, 2013) (No. 12-1182).
    \84\ See EPA v. EME Homer City Generation, 134 S.Ct. 1584, 1610 
(U.S. 2014). 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.
    \85\ See Georgia v. EPA, Order (D. C. Cir. filed October 23, 
2014) (No. 11-1302),
---------------------------------------------------------------------------

    EIA was not able to incorporate CSAPR into AEO2015, so it assumes 
implementation of CAIR. Although DOE's analysis used emissions factors 
that assume that CAIR, not CSAPR, is the regulation in force. However, 
the difference between CAIR and CSAPR is not relevant for the purpose 
of DOE's analysis of emissions impacts from energy conservation 
standards.
    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. 
77 FR 9304 (Feb. 16, 2012). In the 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. AEO2015 
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.\86\ Therefore, DOE believes that energy conservation standards 
will generally reduce SO2 emissions in 2016 and beyond.
---------------------------------------------------------------------------

    \86\ DOE notes that the Supreme Court recently remanded EPA's 
2012 rule regarding national emission standards for hazardous air 
pollutants from certain electric utility steam generating units. See 
Michigan v. EPA (Case No. 14-46, 2015). DOE has tentatively 
determined that the remand of the MATS rule does not change the 
assumptions regarding the impact of energy efficiency standards on 
SO2 emissions. Further, while the remand of the MATS rule 
may have an impact on the overall amount of mercury emitted by power 
plants, it does not change the impact of the energy efficiency 
standards on mercury emissions. DOE will continue to monitor 
developments related to this case and respond to them as 
appropriate.
---------------------------------------------------------------------------

    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia.\87\ 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 from other 
facilities. 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 final rule for these States.
---------------------------------------------------------------------------

    \87\ CSAPR also applies to NOX and it would supersede 
the regulation of NOX under CAIR. As stated previously, 
the current analysis assumes that CAIR, not CSAPR, is the regulation 
in force. The difference between CAIR and CSAPR with regard to DOE's 
analysis of NOX emissions is slight.
---------------------------------------------------------------------------

    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 AEO2015, which 
incorporates the MATS.

K. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this 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

[[Page 57476]]

calculation analogous to the calculation of the NPV of consumer 
benefit, DOE considered the reduced emissions expected to result over 
the lifetime of products 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 final 
rule.
    For this final rule, DOE relied on a set of values for the SCC that 
was developed by a Federal interagency process. The basis for these 
values is summarized in the next section, and a more detailed 
description of the methodologies used is provided as an appendix to 
chapter 14 of the final rule 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) climate-change-related 
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 
CO2. A domestic SCC value is meant to reflect the value of 
damages in the United States resulting from a unit change in 
CO2 emissions, while a global SCC value is meant to reflect 
the value of damages worldwide.
    Under section 1(b) of Executive Order 12866, ``Regulatory Planning 
and Review,'' 58 FR 51735 (Oct. 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 
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 these 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 
CO2 emissions, the analyst faces a number of challenges. A 
report from the National Research Council \88\ 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.
---------------------------------------------------------------------------

    \88\ National Research Council, Hidden Costs of Energy: Unpriced 
Consequences of Energy Production and Use, National Academies Press: 
Washington, DC (2009).
---------------------------------------------------------------------------

    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 NPV 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. 
Specially, 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 FUND, DICE, and 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.
    In 2010, the interagency group selected four sets of SCC values for 
use in regulatory analyses. Three sets of values are based on the 
average SCC

[[Page 57477]]

from the three integrated assessment models, 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 climate 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,\89\ although 
preference is given to consideration of the global benefits of reducing 
CO2 emissions. Table IV.9 presents the values in the 2010 
interagency group report,\90\ which is reproduced in appendix 14A of 
the final rule TSD.
---------------------------------------------------------------------------

    \89\ 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.
    \90\ 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 at: 
www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).

                      Table IV.9--Annual SCC Values From 2010 Interagency Report, 2010-2050
                                           [2007$ 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 final rule were generated using the 
most recent versions of the three integrated assessment models that 
have been published in the peer-reviewed literature, as described in 
the 2013 update from the interagency working group (revised July 
2015).\91\ Table IV.10 shows the updated sets of SCC estimates from the 
latest interagency update in 5-year increments from 2010 to 2050. The 
full set of annual SCC values between 2010 and 2050 is reported in 
appendix 14B of the final rule TSD. The central value that emerges is 
the average SCC across models at the 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.
---------------------------------------------------------------------------

    \91\ 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 July 2015) (Available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).

           Table IV.10--Annual SCC Values From 2013 Interagency Update (Revised July 2015), 2010-2050
                                           [2007$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                           Discount rate
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              10              31              50              86
2015............................................              11              36              56             105
2020............................................              12              42              62             123
2025............................................              14              46              68             138
2030............................................              16              50              73             152
2035............................................              18              55              78             168
2040............................................              21              60              84             183
2045............................................              23              64              89             197
2050............................................              26              69              95             212
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable because 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 previously 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 analytical 
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

[[Page 57478]]

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, DOE used the values from the 
2013 interagency report (revised July 2015), adjusted to 2014$ using 
the implicit price deflator for gross domestic product from the Bureau 
of Economic Analysis. For each of the four sets of SCC cases specified, 
the values for emissions in 2015 were $12.2, $40.0, $62.3, and $117 per 
metric ton avoided (values expressed in 2014$). 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.
    In responding to the NOPR, AHRI criticized DOE's use of SCC 
estimates that are subject to considerable uncertainty. (AHRI, No. 19 
at pp. 19-21) The Associations \92\ objected to DOE's use of the SCC in 
the cost-benefit analysis performed in the NOPR, and expressed the 
belief that the SCC should not be used in any rulemaking or 
policymaking until it undergoes a more rigorous notice, review, and 
comment process. (The Associations, No. 17 at p. 4)
---------------------------------------------------------------------------

    \92\ The U.S. Chamber of Commerce, the American Chemistry 
Council, the American Forest & Paper Association, the American Fuel 
& Petrochemical Manufacturers, the American Petroleum Institute, the 
Brick Industry Association, the Council of Industrial Boiler Owners, 
the National Association of Manufacturers, the National Mining 
Association, the National Oilseed Processors Association, and the 
Portland Cement Association (collectively, ``the Associations'').
---------------------------------------------------------------------------

    In conducting the interagency process that developed the SCC 
values, 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. Key 
uncertainties and model differences transparently and consistently 
inform the range of SCC estimates. These uncertainties and model 
differences are discussed in the interagency working group's reports, 
which are reproduced in appendices 14A and 14B of the final rule TSD, 
as are the major assumptions. Specifically, uncertainties in the 
assumptions regarding climate sensitivity, as well as other model 
inputs such as economic growth and emissions trajectories, are 
discussed and the reasons for the specific input assumptions chosen are 
explained. However, the three integrated assessment models used to 
estimate the SCC are frequently cited in the peer-reviewed literature 
and were used in the last assessment of the IPCC. In addition, new 
versions of the models that were used in 2013 to estimate revised SCC 
values were published in the peer-reviewed literature (see appendix 14B 
of the final rule TSD for discussion). Although uncertainties remain, 
the revised estimates that were issued in November 2013 are based on 
the best available scientific information on the impacts of climate 
change. The current estimates of the SCC have been developed over many 
years, using the best science available, and with input from the 
public.\93\ DOE stands ready to work with OMB and the other members of 
the interagency working group on further review and revision of the SCC 
estimates as appropriate.
---------------------------------------------------------------------------

    \93\ In November 2013, OMB announced a new opportunity for 
public comment on the interagency technical support document 
underlying the revised SCC estimates. 78 FR 70586. In July 2015 OMB 
published a detailed summary and formal response to the many 
comments that were received. https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions.
---------------------------------------------------------------------------

    AHRI criticized DOE's reliance on the impact of CO2 
emissions over a time period greatly exceeding that used to measure the 
economic costs. (AHRI, No. 19 at pp. 19-21)
    For the analysis of national impacts of standards, DOE considers 
the lifetime impacts of equipment shipped in a 30-year period. With 
respect to energy cost savings, impacts continue until all of the 
equipment shipped in the 30-year period is retired. Emissions impacts 
occur over the same period. With respect to the valuation of 
CO2 emissions reductions, the SCC estimates developed by the 
interagency working group are meant to represent the full discounted 
value (using an appropriate range of discount rates) of emissions 
reductions occurring in a given year. For example, CO2 
emissions in 2050 have a long residence time in the atmosphere, and 
thus contribute to radiative forcing, which affects global climate, for 
a long time. In the case of both consumer economic costs and benefits 
and the value of CO2 emissions reductions, DOE is accounting 
for the lifetime impacts of equipment shipped in the same 30-year 
period.
    AHRI also criticized DOE's use of global rather than domestic SCC 
values, pointing out that EPCA references weighing of the need for 
national energy conservation. (AHRI, No. 19 at p. 20)
    DOE's analysis estimates both global and domestic benefits of 
CO2 emissions reductions. Following the recommendation of 
the interagency working group, the December 2014 NOPR and this final 
rule focus on a global measure of SCC. As discussed in appendix 14A of 
the final rule TSD, the climate change problem is highly unusual in at 
least two respects. First, it involves a global externality: Emissions 
of most GHGs contribute to damages around the world even when they are 
emitted in the United States. Consequently, to address the global 
nature of the problem, the SCC must incorporate the full (global) 
damages caused by GHG emissions. Second, climate change presents a 
problem that the United States alone cannot solve. Even if the United 
States were to reduce its GHG emissions to zero, that step would be far 
from enough to avoid substantial climate change. Other countries would 
also need to take action to reduce emissions if significant changes in 
the global climate are to be avoided. Emphasizing the need for a global 
solution to a global problem, the United States has been actively 
involved in seeking international agreements to reduce emissions and in 
encouraging other nations, including emerging major economies, to take 
significant steps to reduce emissions. When these considerations are 
taken as a whole, the interagency group concluded that a global measure 
of the benefits from reducing U.S. emissions is preferable. DOE's 
approach is not in contradiction of the requirement to weigh the need 
for national energy conservation, as one of the main reasons for 
national energy conservation is to contribute to efforts to mitigate 
the effects of global climate change.
    AHRI disputed DOE's assumption that SCC values will increase over 
time. It suggested that adaptation and mitigation efforts would work in 
the opposite direction. (AHRI, No. 19 at p. 21) As discussed in 
appendix 14A of the final rule TSD, SCC increases over time because 
future emissions are expected to produce larger incremental damages as 
physical and economic systems become more stressed in response to 
greater climatic change. The approach used by the interagency working 
group allowed estimation of the growth rate of the SCC directly using 
the three integrated assessment models, which helps to ensure that the 
estimates are internally consistent with other modeling assumptions. 
Adaptation and mitigation efforts, while necessary and important, are 
not without cost,

[[Page 57479]]

particularly if their implementation is delayed.
1. Social Cost of Other Air Pollutants
    As noted previously, DOE has estimated how the considered energy 
conservation standards would decrease power sector NOX 
emissions in 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 this final rule based on 
estimates developed by EPA for 2016, 2020, 2025, and 2030.\94\ The 
values reflect estimated mortality and morbidity per ton of directly 
emitted NOX reduced by electricity generating units. EPA 
developed estimates using a 3-percent and a 7-percent discount rate to 
discount future emissions-related costs. The values in 2016 are $5,562/
ton using a 3-percent discount rate and $4,920/ton using a 7-percent 
discount rate (2014$). DOE extrapolated values after 2030 using the 
average annual rate of growth in 2016-2030. DOE multiplied the 
emissions reduction (tons) in each year by the associated $/ton values, 
and then discounted each series using discount rates of 3 percent and 7 
percent as appropriate.
---------------------------------------------------------------------------

    \94\ http://www2.epa.gov/benmap/sector-based-pm25-benefit-ton-estimates.
---------------------------------------------------------------------------

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

L. Utility Impact Analysis

    The utility impact analysis estimates several effects on the 
electric power industry that would result from the adoption of new or 
amended energy conservation standards. The utility impact analysis 
estimates the changes in installed electrical capacity and generation 
that would result for each TSL. The analysis is based on published 
output from the NEMS associated with AEO2015. NEMS produces the AEO 
Reference case, as well as a number of side cases that estimate the 
economy-wide impacts of changes to energy supply and demand. DOE uses 
published side cases to estimate the marginal impacts of reduced energy 
demand on the utility sector. These marginal factors are estimated 
based on the changes to electricity sector generation, installed 
capacity, fuel consumption, and emissions in the AEO Reference case and 
various side cases. Details of the methodology are provided in the 
appendices to chapters 13 and 15 of the final rule TSD.
    The output of this analysis is a set of time-dependent coefficients 
that capture the change in electricity generation, primary fuel 
consumption, installed capacity, and power sector emissions due to a 
unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of new or amended 
energy conservation standards.

M. Employment Impact Analysis

    Employment impacts include direct and indirect impacts. Direct 
employment impacts are any changes in the number of employees of 
manufacturers of the products 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 
appliances. Indirect employment impacts from standards consist of the 
jobs created or eliminated in the national economy 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 products; 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.\95\ 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 
energy conservation standards for SPVUs.
---------------------------------------------------------------------------

    \95\ See Bureau of Economic Analysis, ``Regional Multipliers: A 
User Handbook for the Regional Input-Output Modeling System (RIMS 
II),'' U.S. Department of Commerce (1992).
---------------------------------------------------------------------------

    For the amended standard levels considered in the final rule, 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).\96\ 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 final rule, DOE used 
ImSET only to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------

    \96\ M. J. Scott, O. V. Livingston, P. J. Balducci, J. M. Roop, 
and R. W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies, 
PNNL-18412, Pacific Northwest National Laboratory (2009) (Available 
at: www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
---------------------------------------------------------------------------

    For more details on the employment impact analysis, see chapter 16 
of the final rule TSD.
    AHRI commented that the employment analysis ignores the immediately 
apparent effects on employment and relies on unsupported analysis for 
effects on the general economy. AHRI claimed that DOE's current 
approach ignores the ripple effects of the burdens on manufacturers (on 
suppliers, their employees, and investors). (AHRI, No. 19 at pp. 24-26)
    DOE conducts two separate analyses of employment impacts of 
standards. The MIA looks at the potential impacts of amended energy 
conservation standards on direct employment in manufacturing of 
particular covered

[[Page 57480]]

products. As described in section V.B.2.b of this document, DOE 
estimates that the adopted standards could either slightly increase or 
decrease the number of SPVU production workers. To estimate employment 
impacts in the general economy, DOE used ImSET, an I-O model that was 
specifically designed to estimate the national employment effects of 
energy-saving technologies. Here too the estimated impacts of the 
amended standards for SPVUs are negligible. DOE did not have sufficient 
information to estimate how suppliers to SPVU manufacturers would be 
affected by the standards, but it is likely that any additional costs 
would be passed on in the price of goods sold to the manufacturers.

V. Analytical Results

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for SPVAC 
and SPVHP equipment. It addresses the TSLs examined by DOE and the 
projected impacts of each of these levels if adopted as energy 
conservation standards for SPVAC and SPVHP equipment. Additional 
details regarding DOE's analyses are contained in the final rule TSD 
supporting this document.

A. Trial Standard Levels

    DOE developed TSLs that combine efficiency levels for each 
equipment class of SPVACs and SPVHPs. Table V.1 presents the efficiency 
EERs for each equipment class in the EPCA and ASHRAE baseline and each 
TSL. TSL 1 consists of efficiency level 1 for equipment classes less 
than 65,000 Btu/h. TSL 2 consists of efficiency level 2 for equipment 
classes less than 65,000 Btu/h. TSL 3 consists of efficiency level 3 
for equipment classes less than 65,000 Btu/h. TSL 4 consists of 
efficiency level 4 (max-tech) for equipment classes less than 65,000 
Btu/h. For SPVACs between 65,000 and 135,000 Btu/h, there are no models 
on the market above the ASHRAE level, and for SPVHPs between 65,000 and 
135,000 Btu/h and SPVUs greater than or equal to 135,000 Btu/h and less 
than 240,000 Btu/h, there are no models on the market at all, and, 
therefore, DOE had no basis with which to develop higher efficiency 
levels or conduct analyses. As a result, for each TSL, the EER (and 
COP) for these equipment classes is shown as the ASHRAE standard level 
of 10.0 EER (and 3.0 COP for heat pumps).

                 Table V.1--EPCA Baseline, ASHRAE Baseline, and Trial Standard Levels for SPVUs
----------------------------------------------------------------------------------------------------------------
                                                                      Trial standard levels EER(/COP)
       Equipment class            EPCA         ASHRAE    -------------------------------------------------------
                                baseline      baseline          1             2             3             4
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h........          9.0          10.0          10.5          11.0         11.75          12.0
SPVHPs <65,000 Btu/h........      9.0/3.0      10.0/3.0      10.5/3.2      11.0/3.3     11.75/3.9      12.0/3.9
SPVACs >=65,000 Btu/h and             8.9          10.0          10.0          10.0          10.0          10.0
 <135,000 Btu/h.............
SPVHPs >=65,000 Btu/h and         8.9/3.0      10.0/3.0      10.0/3.0      10.0/3.0      10.0/3.0      10.0/3.0
 <135,000 Btu/h.............
SPVACs >=135,000 Btu/h and            8.6          10.0          10.0          10.0          10.0          10.0
 <240,000 Btu/h.............
SPVHPs >=135,000 Btu/h and        8.6/2.9      10.0/3.0      10.0/3.0      10.0/3.0      10.0/3.0      10.0/3.0
 <240,000 Btu/h.............
----------------------------------------------------------------------------------------------------------------

    For clarity, DOE has also summarized the different design options 
that would be introduced across equipment classes at each TSL in Table 
V.2.

                                            Table V.2--Design Options at Each Trial Standard Level for SPVUs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Trial standard levels
          Equipment class                ASHRAE baseline    --------------------------------------------------------------------------------------------
                                                                        1                      2                      3                      4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                               Design Options for Each TSL (options are cumulative--TSL 4 includes all preceding options)
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h...............  BPM indoor motor,       Addition of HX tube     Addition of HX tube    Improved compressor    BPM outdoor motor,
                                      increased HX face       row.                    row.                   efficiency,            high-efficiency
                                      area.                                                                  increased HX face      outdoor fan blade,
                                                                                                             area.                  dual condensing heat
                                                                                                                                    exchangers.
SPVHPs <65,000 Btu/h...............  BPM indoor motor,       Addition of HX tube     Addition of HX tube    Improved compressor    BPM outdoor motor,
                                      increased HX face       row.                    row.                   efficiency,            high-efficiency
                                      area.                                                                  increased HX face      outdoor fan blade,
                                                                                                             area.                  dual condensing heat
                                                                                                                                    exchangers.
*SPVACs >=65,000 Btu/h and <135,000  BPM indoor motor,       No change.............  No change............  No change............  No change.
 Btu/h.                               increased HX face
                                      area.
*SPVHPs >=65,000 Btu/h and <135,000  BPM indoor motor,       No change.............  No change............  No change............  No change.
 Btu/h.                               increased HX face
                                      area.
SPVACs >=135,000 Btu/h and <240,000  No change.............  No change.............  No change............  No change............  No change.
 Btu/h.
SPVHPs >=135,000 Btu/h and <240,000  No change.............  No change.............  No change............  No change............  No change.
 Btu/h.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* TSL 1 through TSL 4 are marked as ``no change'' because for these equipment classes, each TSL consists of the ASHRAE efficiency level.


[[Page 57481]]

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 SPVACs 
and SPVHPs 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 Consumers
    DOE analyzed the economic impacts on SPVAC and SPVHP equipment 
consumers by looking at the effects that amended standards would have 
on the LCC and PBP. DOE also examined the impacts of potential 
standards on consumer subgroups. These analyses are discussed below.
a. Life-Cycle Cost and Payback Period
    Customers affected by new standards usually incur higher purchase 
prices and lower operating costs. DOE evaluates these impacts on 
individual customers by calculating changes in LCC and the PBP 
associated with the TSLs. The results of the LCC analysis for each TSL 
were obtained by comparing the installed and operating costs of the 
equipment in the base-case scenario (EPCA and ASHRAE baselines) against 
the standards-case scenarios at each TSL. It is important to note that 
for equipment less than 65,000 Btu/h, efficiency levels higher than 
ASHRAE were compared against ASHRAE-level equipment. Inputs used for 
calculating the LCC include total installed costs (i.e., equipment 
price plus installation costs), operating expenses (i.e., annual energy 
savings, energy prices, energy price trends, repair costs, and 
maintenance costs), equipment lifetime, and discount rates.
    The LCC analysis is carried out using Monte Carlo simulations. 
Consequently, the results of the LCC analysis are distributions 
covering a range of values, as opposed to a single deterministic value. 
DOE presents the mean or median values, as appropriate, calculated from 
the distributions of results. The LCC analysis also provides 
information on the percentage of consumers for whom an increase in the 
minimum efficiency standard would have a positive impact (net benefit), 
a negative impact (net cost), or no impact.
    DOE also performed a PBP analysis as part of the LCC analysis. The 
PBP is the number of years it would take for the consumer to recover 
the increased costs of higher-efficiency equipment as a result of 
energy savings based on the operating cost savings. The PBP is an 
economic benefit-cost measure that uses benefits and costs without 
discounting. Chapter 8 of the final rule TSD provides detailed 
information on the LCC and PBP analysis.
    As described in section IV.G, DOE used a ``roll-up'' scenario in 
this rulemaking. Under the roll-up scenario, DOE assumes that the 
market shares of the efficiency levels (in the ASHRAE base-case) that 
do not meet the standard level under consideration would be ``rolled 
up'' into (meaning ``added to'') the market share of the efficiency 
level at the standard level under consideration, and the market shares 
of efficiency levels that are above the standard level under 
consideration would remain unaffected. Customers in the ASHRAE base-
case scenario who buy the equipment at or above the TSL under 
consideration would be unaffected if the standard were to be set at 
that TSL. Customers in the ASHRAE base-case scenario who buy equipment 
below the TSL under consideration would be affected if the standard 
were to be set at that TSL. Among these affected customers, some may 
benefit from lower LCCs of the equipment and some may incur net cost 
due to higher LCCs, depending on the inputs to the LCC analysis such as 
electricity prices, discount rates, installation costs, and markups.
    DOE's LCC and PBP analysis provided key outputs for each efficiency 
level above the baseline (i.e., efficiency levels more stringent than 
those in ASHRAE 90.1-2013), as reported in Table V.3 and Table V.4.\97\ 
DOE's results indicate that for SPVAC and SPVHP units, affected 
customer savings are positive at TSLs 1, 2, and 3. LCC and PBP results 
using the EPCA baseline are available in appendix 8B of the final rule 
TSD.
---------------------------------------------------------------------------

    \97\ Because there are no units above the ASHRAE baseline in the 
classes greater than or equal to 65,000 Btu/h and less than 135,000 
Btu/h, and no units greater than or equal to 135,000 Btu/h and less 
than 240,000 Btu/h, there are no LCC savings for these classes.

                                        Table V.3--Summary LCC and PBP Results for SPVACs, <65,000 Btu/h Capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Life-cycle cost (2014$)                    Life-cycle cost savings                 Payback
                                                       --------------------------------------------------------------------------------------   period
               TSL                   Efficiency level               Discounted               Average       % of customers that experience       (years)
                                                        Installed   operating      LCC       savings  --------------------------------------------------
                                                           cost        cost                 (2014$*)     Net cost    No impact   Net benefit    Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   ASHRAE Baseline....      4,708       13,029     17,737  ..........  ...........  ...........  ...........  ..........
1................................  1..................      4,871       12,750     17,621         115           28           26           47         9.1
2................................  2..................      5,035       12,499     17,534         174           39            1           59         9.6
3................................  3..................      5,386       12,190     17,576         130           53            0           47        12.7
4................................  4..................      6,151       12,232     18,384       (678)           85            0           15        25.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


                                        Table V.4--Summary LCC and PBP Results for SPVHPs, <65,000 Btu/h Capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Life-cycle cost (2014$)                    Life-cycle cost savings                 Payback
                                                       --------------------------------------------------------------------------------------   period
               TSL                   Efficiency level               Discounted               Average       % of customers that experience       (years)
                                                        Installed   operating      LCC       savings  --------------------------------------------------
                                                           cost        cost                 (2014$*)     Net cost    No impact   Net benefit    Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   ASHRAE Baseline....      5,314       32,799     38,112  ..........  ...........  ...........  ...........  ..........
1................................  1..................      5,505       32,231     37,736         375            0           26           74         4.5
2................................  2..................      5,697       31,887     37,584         435            2            1           96         5.8
3................................  3..................      6,102       31,095     37,197         817            4            0           95         6.2

[[Page 57482]]

 
4................................  4..................      6,989       31,176     38,165       (153)           69            0           31        14.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

b. Consumer Subgroup Analysis
    As described in section IV.H of this final rule, DOE estimated the 
impact of the considered TSLs on three consumer subgroups. Table V.5 
and Table V.6 show the results using the ASHRAE baseline for SPVAC and 
SPVHP consumer subgroups. In most cases, the average LCC savings and 
PBP for the subgroup at the considered efficiency levels are not 
substantially different from the average for all businesses. Chapter 11 
of the final rule TSD presents the complete LCC and PBP results for the 
subgroups.

                            Table V.5--Comparison of Impacts for Consumer Subgroups With All Consumers, SPVACs <65,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               LCC Savings (2014$ *)                            Median payback period (years)
                                      Energy   ---------------------------------------------------------------------------------------------------------
               TSL                  efficiency  Construction                                         Construction
                                      level      and mining    Education    High rate       All       and mining    Education    High rate       All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................            1          (40)           90           98          115          15.5         10.3          9.0          9.1
2................................            2          (84)          131          146          174          16.5         10.9          9.6          9.6
3................................            3         (312)           48           84          130          22.4         14.5         12.6         12.7
4................................            4       (1,158)        (802)        (719)        (678)          49.1         33.0         25.4         25.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


                            Table V.6--Comparison of Impacts for Consumer Subgroups with All Consumers, SPVHPs <65,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               LCC Savings (2014$ *)                            Median payback period (years)
                                      Energy   ---------------------------------------------------------------------------------------------------------
               TSL                  efficiency  Construction                                         Construction
                                      level      and mining    Education    High rate       All       and mining    Education    High rate       All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................            1           273          459          359          375           4.9          4.4          4.5          4.5
2................................            2           279          562          413          435           6.1          5.3          5.8          5.8
3................................            3           533        1,047          772          817           6.8          6.0          6.3          6.2
4................................            4         (431)           78        (192)        (153)          15.6         13.5         14.3         14.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

c. Rebuttable Presumption Payback
    As discussed above, 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. In calculating a rebuttable presumption PBP for each 
of the considered TSLs, DOE used discrete values rather than 
distributions for input values, and, as required by EPCA, based the 
energy use calculation on the DOE test procedures for SPVAC and SPVHP 
equipment. As a result, DOE calculated a single rebuttable presumption 
payback value, and not a distribution of PBPs, for each efficiency 
level. Table V.7 presents the rebuttable-presumption PBPs for the 
considered TSLs. While DOE examined the rebuttable-presumption 
criterion, it considered whether the standard levels considered for 
this rule are economically justified through a more detailed analysis 
of the economic impacts of those levels, pursuant to 42 U.S.C. 
6295(o)(2)(B)(i), that considers the full range of impacts to the 
consumer, manufacturer, Nation, and environment. The results of that 
analysis serve as the basis for DOE to definitively evaluate the 
economic justification for a potential standard level, thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification. Table V.7 shows the rebuttable presumption PBPs 
for the considered TSLs for SPVAC and SPVHP equipment using the ASHRAE 
baseline.

             Table V.7--Rebuttable-Presumption Payback Period (Years) for SPVAC and SPVHP Equipment
----------------------------------------------------------------------------------------------------------------
                                                              Rebuttable presumption payback (years)
                 Equipment class                 ---------------------------------------------------------------
                                                       TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h............................             5.1             5.3             6.7            12.8
SPVHPs <65,000 Btu/h............................             3.6             4.4             4.8             9.7
----------------------------------------------------------------------------------------------------------------


[[Page 57483]]

2. Economic Impacts on Manufacturers
    DOE performed an MIA to estimate the impact of amended energy 
conservation standards on SPVAC and SPVHP manufacturers. DOE calculated 
manufacturer impacts relative to a base case, defined as DOE adoption 
of the efficiency levels specified by ASHRAE Standard 90.1-2013. 
Consequently, when comparing the INPV impacts under the GRIM model, the 
baseline technology is at an efficiency of 10 EER/3.0 COP. The 
following subsection describes the expected impacts on manufacturers at 
each considered TSL. Chapter 12 of the final rule TSD explains the 
analysis in further detail, and also contains results using the EPCA 
baseline.
a. Industry Cash Flow Analysis Results
    Table V.8 depicts the estimated financial impacts on manufacturers 
and the conversion costs that DOE expects manufacturers would incur at 
each TSL. The financial impacts on manufacturers are represented by 
changes in INPV.
    As discussed in section IV.I.2, DOE modeled two different markup 
scenarios to evaluate the range of cash flow impacts on the SPVAC and 
SPVHP 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. DOE assumed the nonproduction 
cost markup--which includes SG&A expenses, R&D expenses, interest, and 
profit--to be a factor of 1.28. These markups are consistent with the 
ones DOE assumed in the engineering analysis and in the base case of 
the GRIM. Manufacturers have indicated that it is optimistic to assume 
that as their production costs increase in response to an amended 
energy conservation standard, they would be able to maintain the same 
gross margin percentage markup. Therefore, DOE assumes that this 
scenario represents a high bound to industry profitability under an 
amended energy conservation standard.
    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 about their inability to 
maintain their margins as manufacturing production costs increase to 
reach more-stringent efficiency levels. In this scenario, while 
manufacturers make the necessary investments required to convert their 
facilities to produce new standards-compliant equipment, operating 
profit does not change in absolute dollars and 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 results 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 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 following tables present results for 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.

 Table V.8--Manufacturer Impact Analysis Results for SPVACs and SPVHPs, Gross Margin Percentage Markup Scenario
----------------------------------------------------------------------------------------------------------------
                                                                            Trial standard level *
                                     Units        Base case  ---------------------------------------------------
                                                                   1            2            3            4
----------------------------------------------------------------------------------------------------------------
INPV.........................  2014$M..........         41.2         36.7         37.0         34.8         20.4
Change in INPV...............  2014$M..........  ...........        (4.5)        (4.3)        (6.5)       (20.9)
                               % Change........       (10.9)       (10.3)       (15.7)       (50.6)
Product Conversion Costs.....  2014$M..........  ...........          5.6          6.3         16.3         27.8
Capital Conversion Costs.....  2014$M..........  ...........          2.9          2.9          3.5         13.0
Total Conversion Costs.......  2014$M..........  ...........          8.5          9.2         19.8         40.9
Free Cash Flow **............  2014$M..........          3.4          0.5          0.3        (2.8)       (12.0)
                               % Change........       (84.5)       (90.7)      (182.2)      (451.4)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
** DOE presents free cash flow impacts in 2018, the year before the 2019 compliance date for SPVACs in the
  standards case.


 Table V.9--Manufacturer Impact Analysis Results for SPVACs and SPVHPs, Preservation of Operating Profit Markup
                                                    Scenario
----------------------------------------------------------------------------------------------------------------
                                                                            Trial standard level *
                                     Units        Base case  ---------------------------------------------------
                                                                   1            2            3            4
----------------------------------------------------------------------------------------------------------------
INPV.........................  2014$M..........        41.2         35.7         33.9         26.3          5.0
Change in INPV...............  2014$M..........  ...........        (5.5)        (7.4)       (15.0)       (36.2)
                               % Change........       (13.3)       (17.9)       (36.3)       (87.8)
Product Conversion Costs.....  2014$M..........  ...........         5.6          6.3         16.3         27.8
Capital Conversion Costs.....  2014$M..........  ...........         2.9          2.9          3.5         13.0
Total Conversion Costs.......  2014$M..........  ...........         8.5          9.2         19.8         40.9
Free Cash Flow **............  2014$M..........         3.4          0.5          0.3         (2.8)       (12.0)

[[Page 57484]]

 
                               % Change........       (84.5)       (90.7)      (182.2)      (451.4)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
** DOE presents free cash flow impacts in 2018, the year before the 2019 compliance date for SPVACs in the
  standards case.

    At TSL 1, the standard for all equipment classes with capacity less 
than 65,000 Btu/h is set at 10.5 EER/3.2 COP. The standard for all 
equipment classes with capacity greater than or equal to 65,000 Btu/h 
and less than 135,000 Btu/h and greater than or equal to 135,000 Btu/h 
and less than 240,000 Btu/h is set at the baseline (i.e., 10.0 EER/3.0 
COP). DOE estimates the change in INPV to range from -$5.5 to -$4.5 
million, or a change of -13.3 percent to -10.9 percent. At this level, 
free cash flow is estimated to decrease to $0.5 million, or a decrease 
of 84.5 percent compared to the base-case value of $3.4 million in the 
year 2018, the year before the standards year. DOE does expect a 
standard at this level to require changes to manufacturing equipment, 
thereby resulting in capital conversion costs. The engineering analysis 
suggests that manufacturers would reach this amended standard by 
increasing heat exchanger size. Roughly 61 percent of the SPVU models 
listed in the AHRI Directory would need to be updated to meet this 
amended standard level. Estimated industry conversion costs total $8.5 
million.
    At TSL 2, the standard for all equipment classes with capacity less 
than 65,000 Btu/h is set at 11.0 EER/3.3 COP. The standards for all 
equipment classes with capacity greater than or equal to 65,000 Btu/h 
and less than 135,000 Btu/h and greater than or equal to 135,000 Btu/h 
and less than 240,000 Btu/h remain at baseline as in TSL 1. DOE 
estimates impacts on INPV to range from -$7.4 million to -$4.3 million, 
or a change in INPV of -17.9 percent to -10.3 percent. At this level, 
free cash flow is estimated to decrease to $0.3, or a change of -90.7 
percent compared to the base-case value of $3.4 million in the year 
2018. Based on the engineering analysis, DOE expects manufacturers to 
reach this level of efficiency by further increasing the size of the 
heat exchanger. Seventy-one percent of the SPVU models listed in the 
AHRI Directory would require redesign at this amended standard level. 
Product updates and associated testing expenses would further increase 
conversion costs for the industry to $9.2 million.
    At TSL 3, the standard increases to 11.75 EER/3.7 COP for equipment 
with capacity less than 65,000 Btu/h. The standards for SPVAC and SPVHP 
equipment with capacity greater than or equal to 65,000 Btu/h and less 
than 135,000 Btu/h and greater than or equal to 135,000 Btu/h and less 
than 240,000 Btu/h remain at baseline as in TSLs 1 and 2. DOE estimates 
impacts on INPV to range from -$15.0 million to -$6.5 million, or a 
change in INPV of -36.3 percent to -15.7 percent. At this level, free 
cash flow is estimated to decrease to less than zero, to -$2.8 million, 
or a change of -182.2 percent compared to the base-case value of $3.4 
million in the year 2018. The engineering analysis suggests that 
manufacturers would reach this amended standard by once again 
increasing heat exchanger size and by switching to more-efficient two-
stage compressors. Manufacturers that produce heat exchangers in-house 
may need to add coil fabrication equipment to accommodate the size of 
the heat exchanger necessary to meet the standard. Additionally, the 
new heat exchanger size may require manufacturers to invest additional 
capital into their sheet metal bending lines. Ninety-six percent of the 
SPVU models listed in the AHRI Directory would require redesign at this 
amended standard level. DOE estimates total conversion costs to be 
$19.8 million for the industry.
    At TSL 4, the standard increases to 12.0 EER/COP of 3.7 for SPVAC 
and SPVHP equipment with capacity less than 65,000 Btu/h. The standards 
for SPVAC and SPVHP equipment with capacity greater than or equal to 
65,000 Btu/h and less than 135,000 Btu/h and greater than or equal to 
135,000 Btu/h and less than 240,000 Btu/h remain at baseline as in TSLs 
1, 2, and 3. DOE estimates impacts on INPV to range from -$36.2 million 
to -$20.9 million, or a change in INPV of -87.8 percent to -50.6 
percent. At this level, free cash flow is estimated to decrease to -
$12.0 million, or a decrease of 451.4 percent compared to the base-case 
value of $3.4 million in the year 2018. TSL 4 represents the max-tech 
standard level. DOE expects manufacturers to meet the amended standard 
by dramatically increasing the size of the evaporating heat exchanger 
and incorporating two condensing heat exchangers. Ninety-seven percent 
of all SPVU models listed in the AHRI Directory would require redesign 
at this amended standard level. Additionally, DOE expects designs to 
use BPMs for both the indoor and outdoor motors. Total conversion costs 
are expected to reach $40.9 million for the industry.
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,\98\ 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 95 percent of SPVAC and SPVHP units are produced 
domestically.
---------------------------------------------------------------------------

    \98\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2011) 
(Available at http://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

[[Page 57485]]

who are directly involved in fabricating and assembling a product 
within an original equipment manufacturer 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 estimated the maximum portion 
of the industry that would choose to leave the industry rather than 
make the necessary product conversions. A complete description of the 
assumptions used to generate these upper and lower bounds can be found 
in chapter 12 of the final rule TSD.
    As noted above, DOE estimates that 95 percent of SPVAC and SPVHP 
units sold in the United States are manufactured domestically. In the 
absence of amended energy conservation standards, DOE estimates that 
the SPVAC and SPVHP industry would employ 310 domestic production 
workers in 2019.
    Table V.10 shows the range of the impacts of potential amended 
energy conservation standards on U.S. production workers of SPVUs.

                      Table V.10--Potential Changes in the Total Number of Standard Size SPVAC and SPVHP Production Workers in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Trial standard level *
                                                                    ------------------------------------------------------------------------------------
                                                                        Base case
                                                                         [dagger]            1                2                3                4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Number of Domestic Production Workers in 2019................             310       294 to 314       294 to 325       260 to 337       223 to 403
Potential Changes in Domestic Production Workers in 2019...........              --        (16) to 4       (16) to 15       (50) to 27       (87) to 93
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
[dagger] Base case assumes 310 domestic production workers in the SPVAC and SPVHP industry in 2019.

    The upper end of the range estimates the maximum increase in the 
number of production workers in the SPVAC and SPVHP 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 indicates the total number of U.S. 
production workers in the industry who could lose their jobs if all 
existing production were moved outside of the United States. The lower 
end of the range represents the maximum decrease to the total number of 
U.S. production workers in the industry due to manufacturers choosing 
to leave the industry or due to moving production to other countries.
    This conclusion is independent of any conclusions regarding 
indirect employment impacts in the broader United States economy, which 
are documented in chapter 16 of the final rule TSD.
c. Impacts on Manufacturing Capacity
    According to SPVAC and SPVHP manufacturers interviewed, demand for 
SPVACs and SPVHPs, which roughly correlates to trends in 
telecommunications spending and construction of new schools, peaked in 
the 2001-2006 time frame. As a result, excess capacity exists in the 
industry today.
    Except at the max-tech level, any necessary redesign of SPVAC and 
SPVHP models would not fundamentally change the assembly of the 
equipment. Any bottlenecks are more likely to come from the redesign, 
testing, and certification process rather than from production 
capacity. To that end, some interviewed manufacturers expressed concern 
that the redesign of all products to include BPM motors would require a 
significant portion of their engineering resources, taking resources 
away from customer responsiveness and R&D efforts. Furthermore, some 
manufacturers noted that an amended standard requiring BPMs would 
monopolize their testing resources and facilities--to the point where 
some manufacturers anticipated the need to build new psychometric test 
labs to have enough in-house testing capacity to meet an amended 
standard. Once all products have been redesigned to meet an amended 
energy conservation standard, manufacturers did not anticipate any 
production constraints.
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 
equipment manufacturers, and manufacturers exhibiting a cost structure 
substantially different from the industry average could be affected 
disproportionately. As discussed in section IV.I, using average cost 
assumptions developed for an industry cash-flow estimate is inadequate 
to assess differential impacts among manufacturer subgroups.
    For SPVAC and SPVHP equipment, DOE identified and evaluated the 
impact of amended energy conservation standards on one subgroup, 
specifically small manufacturers. The SBA defines a ``small business'' 
as having 750 employees or less for NAICS 333415, ``Air-Conditioning 
and Warm Air Heating Equipment and Commercial and Industrial 
Refrigeration Equipment Manufacturing.'' Based on this definition, DOE 
identified two domestic manufacturers in the industry that qualify as 
small businesses. The SPVAC and SPVHP small business subgroup analysis 
is discussed in chapter 12 of the final rule TSD and in section VI.C 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

[[Page 57486]]

rulemakings pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE looks at other 
regulations that could affect SPVAC and SPVHP manufacturers that will 
take effect approximately 3 years before or after the compliance date 
of amended energy conservation standards for these products. For 
equipment with standards that are more stringent than those contained 
in ASHRAE Standard 90.1-2013, the compliance date is 4 years after 
publication of an energy conservation standards final rule (i.e., 
compliance date assumed to be 2019 for the purposes of MIA). For 
equipment with standards that are set at the levels contained in ASHRAE 
Standard 90.1-2013, the compliance date is 2 or 3 years after the 
effective date of the requirements in ASHRAE Standard 90.1-2013, 
depending on equipment size (i.e., 2015 or 2016). For this cumulative 
regulatory burden analysis, DOE considered regulations that could 
affect SPVAC and SPVHP manufacturers that take effect from 2012 to 
2022, to account for the range of compliance years.
    In interviews, manufacturers cited Federal regulations on equipment 
other than SPVACs and SPVHPs that contribute to their cumulative 
regulatory burden. In particular, manufacturers noted that some of them 
also produce residential central air conditioners and heat pumps, 
residential furnaces, room air conditioners, and water-heating 
equipment. These products have amended energy conservation standards 
that go into effect within 3 years of the compliance date for any 
amended SPVAC and SPVHP standards. The compliance years and expected 
industry conversion costs are listed in the following table.

Table V.11--Compliance Dates and Expected Conversion Expenses of Federal
  Energy Conservation Standards Affecting SPVAC and SPVHP Manufacturers
------------------------------------------------------------------------
 Federal energy conservation    Approximate     Estimated total industry
          standards           compliance date      conversion expense
------------------------------------------------------------------------
2008 Packaged Terminal Air    2012...........  $33.7M (2007$)
 Conditioners and Heat Pumps
 73 FR 58772 (Oct. 7, 2008).
2011 Room Air Conditioners    2014...........  $171M (2009$)
 76 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).
Walk-in Coolers and Freezers  2017...........  $33.6M (2012$)
 79 FR 32050 (June 3, 2014).
Packaged Terminal Air         2017...........  N/A ***
 Conditioners and Heat Pumps
 80 FR 43162 (July 21, 2015).
Dishwashers[infin]..........  2018...........  TBD
Commercial Warm-Air           2018...........  $19.9M (2013$)
 Furnaces[infin] 80 FR 6181
 (February 4, 2015).
Commercial Packaged Air       2019...........  $226.4M (2013$)
 Conditioners and Heat
 Pumps[infin]79 FR 58948
 (September 18, 2014).
Furnace Fans 79 FR 38130      2019...........  $40.6M (2013$)
 (July 3, 2014).
Miscellaneous Residential     2019...........  TBD
 Refrigeration[infin].
Commercial Water              2019...........  TBD
 Heaters[infin].
Commercial Packaged           2020...........  TBD
 Boilers[infin].
Residential Water             2021...........  TBD
 Heaters[infin].
Clothes Dryers[infin].......  2022...........  TBD
Central Air                   2022...........  TBD
 Conditioners[infin].
Room Air Conditioners[infin]  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
  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 higher standards and earlier
  compliance dates for residential boilers than were in 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).
*** This rule adopted the efficiency levels established in ASHRAE
  Standard 90.1-2013. DOE does not conduct economic analysis for this
  level, as it is the minimum level that DOE is statutorily required to
  adopt. [infin] 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.)

    Some stakeholders have expressed concern regarding potential 
conflicts with other certification programs, in particular EPA ENERGY 
STAR requirements. DOE realizes that the cumulative effect of several 
regulations on an industry may significantly increase the burden faced 
by manufacturers who need to comply with multiple certification 
programs from different organizations and levels of government. 
However, the Department does not consider ENERGY STAR in its 
presentation of cumulative regulatory burden, because ENERGY STAR is a 
voluntary program and is not Federally mandated.
    Some stakeholders also noted that The Clean Air Act has 
historically affected their products. The Clean Air Act defines the 
EPA's responsibilities

[[Page 57487]]

for protecting and improving the nation's air quality and the 
stratospheric ozone layer. For SPVU manufacturers, the most significant 
of these additional regulations are the EPA mandated phase-out of 
hydrochlorofluorocarbons (HCFCs). The Act demands on a quarterly basis 
that any person who produced, imported, or exported certain ozone-
depleting substances, including HCFC refrigerants, must report the 
amount produced, imported, and exported. Additionally, effective 
January 1, 2015, selling, manufacturing, and using any ozone-depleting 
substance is banned unless such substance has been used, recovered, and 
recycled; is used and entirely consumed in the production of other 
chemicals; or is used as a refrigerant in appliances manufactured prior 
to January 1, 2020. Finally, production phase-outs will continue until 
January 1, 2030, when such production will be illegal. For HCFC-22, 
which is commonly used in older air-conditioning equipment, EPA 
regulations make it illegal to manufacture a new appliance using virgin 
HCFC-22 refrigerant or pre-charge any appliance or appliance component 
with HCFC-22 as of January 1, 2010. Additionally, HCFC-22 production 
will stop by January 1, 2020. These bans could trigger design changes 
to low GWP refrigerants.
3. National Impact Analysis
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential amended 
standards for SPVUs, DOE compared the energy consumption of those 
products under the ASHRAE base case to their anticipated energy 
consumption under each TSL. DOE also compared the energy consumption of 
SPVUs under the ASHRAE Standard 90.1-2013 efficiency levels to energy 
consumption of SPVUs under the EPCA base case (i.e., the current 
Federal standard). The savings are measured over the entire lifetime of 
products purchased in the 30-year period that begins in the year of 
anticipated compliance with amended standards (2015-2044 for the ASHRAE 
level and 2019-2048 for higher efficiency levels). Table V.12 presents 
DOE's projections of the NES for the ASHRAE level and for each TSL 
considered for SPVUs. The savings were calculated using the approach 
described in section IV.G.1 of this final rule.

  Table V.12--Cumulative National Energy Savings for SPVUs Shipped in 2015-2044 (ASHRAE) or 2019-2048 (Higher)
----------------------------------------------------------------------------------------------------------------
                                      ASHRAE                      Trial standard level ** (quads)
                                  Standard 90.1- ---------------------------------------------------------------
                                      2013 *             1               2               3               4
----------------------------------------------------------------------------------------------------------------
Primary energy..................            0.15            0.06            0.14            0.21            0.21
FFC energy......................            0.16            0.06            0.15            0.22            0.22
----------------------------------------------------------------------------------------------------------------
* Energy savings determined from comparing SPVU energy consumption at the ANSI/ASHRAE/IES Standard 90.1-2013
  efficiency level to that at the Federal minimum efficiency level.
** Energy savings determined from comparing SPVU energy consumption at each TSL to that at the ASHRAE 90.1-2013
  efficiency level.

    Each TSL that is more stringent than the corresponding levels in 
ANSI/ASHRAE/IES Standard 90.1-2013 results in additional energy 
savings. The NES from adopting the ANSI/ASHRAE/IES Standard 90.1-2013 
for SPVUs saves 0.16 quad over the Federal minimum standards.
    OMB Circular A-4 \99\ 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 undertook a sensitivity analysis using nine, rather than 30, years 
of product 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.\100\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to SPVUs. Thus, such results are 
presented for informational purposes only and are not indicative of any 
change in DOE's analytical methodology. The NES sensitivity analysis 
results based on a 9-year analytical period are presented in Table 
V.13. The impacts are counted over the lifetime of SPVUs purchased in 
2015-2023 for the ASHRAE level and for 2019-2027 for higher levels.
---------------------------------------------------------------------------

    \99\ U.S. Office of Management and Budget, ``Circular A-4: 
Regulatory Analysis'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/).
    \100\ Section 325(m) of EPCA requires DOE to review its 
standards at least once every 6 years, and requires, for certain 
products, 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. 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. A 9-year 
analysis period may not be appropriate given the variability that 
occurs in the timing of standards reviews and the fact that for some 
consumer products, the compliance period is 5 years rather than 3 
years.

                 Table IV.13--Cumulative National Energy Savings for SPVUs; 9 Years of Shipments
                                   [2015-2023 (ASHRAE) or 2019-2027 (Higher)]
----------------------------------------------------------------------------------------------------------------
                                      ASHRAE                      Trial standard level ** (quads)
                                  Standard 90.1- ---------------------------------------------------------------
                                      2013 *             1               2               3               4
----------------------------------------------------------------------------------------------------------------
Primary energy..................           0.046           0.018           0.038           0.068           0.069
FFC energy......................           0.049           0.018           0.039           0.071           0.072
----------------------------------------------------------------------------------------------------------------
* Energy savings determined from comparing SPVU energy consumption at the ANSI/ASHRAE/IES Standard 90.1-2013
  efficiency level to that at the Federal minimum efficiency level.
** Energy savings determined from comparing SPVU energy consumption at each TSL to that at the ASHRAE 90.1-2013
  efficiency level.


[[Page 57488]]

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSLs considered for SPVAC and 
SPVHP equipment. In accordance with OMB's guidelines on regulatory 
analysis,\101\ DOE calculated the NPV using both a 7-percent and a 3-
percent real discount rate.
---------------------------------------------------------------------------

    \101\ ``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.14 shows the consumer NPV results using the ASHRAE baseline 
with impacts counted over the lifetime of equipment purchased in 2019-
2048. Results using the EPCA baseline can be found in chapter 10 of the 
final rule TSD.

          Table V.14--Cumulative Net Present Value of Consumer Benefits for SPVUs Shipped in 2019-2048
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level ** (billion 2014$)
                  Discount rate                  ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
3 percent.......................................            0.20            0.38          (0.33)          (0.55)
7 percent.......................................            0.07            0.11          (0.27)          (0.43)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    The NPV results based on the aforementioned 9-year analytical 
period are presented in Table V.15. The impacts are counted over the 
lifetime of SPVU equipment purchased in 2019-2027. As mentioned 
previously, such results are presented for informational purposes only 
and is not indicative of any change in DOE's analytical methodology or 
decision criteria.

     Table V.15--Cumulative Net Present Value of Consumer Benefits for SPVUs: 9 Years of Shipments 2019-2027
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level ** (billion 2014$)
                  Discount rate                  ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
3 percent.......................................            0.08            0.15            0.06          (0.15)
7 percent.......................................            0.04            0.06          (0.03)          (0.19)
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.

    The above results reflect the use of a constant price trend over 
the analysis period (see section IV.G.1.b of this document). DOE also 
conducted a sensitivity analysis that considered one scenario with 
price decrease and one scenario with a price increase. The results of 
these alternative cases are presented in appendix 10B of the final rule 
TSD. In the price increase case, the NPV of consumer benefits is lower 
than in the default case. In the price decrease case, the NPV of 
consumer benefits is higher than in the default case.
c. Indirect Impacts on Employment
    DOE expects energy conservation standards for SPVUs to reduce 
energy bills for consumers of those products, with the resulting net 
savings being redirected to other forms of economic activity. These 
expected shifts in spending and economic activity could affect the 
demand for labor. As described in section IV.M of this document, 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 
(2019-2023), where these uncertainties are reduced.
    The results suggest that the adopted standards are likely to have a 
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 final rule TSD presents detailed results 
regarding anticipated indirect employment impacts.
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 
adopted in this final rule are technologically feasible and would not 
reduce the utility or performance of SPVACs and SPVHPs. SPVAC and SPVHP 
manufacturers currently offer equipment that meets or exceeds the 
amended standard levels.
5. Impact of Any Lessening of Competition
    EPCA directs DOE to consider the impact of any lessening of 
competition, as determined in writing by the Attorney General, that is 
likely to result from a standard. It also directs the Attorney General 
to determine the impact, if any, of any lessening of competition likely 
to result from a 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. DOE 
transmitted a copy of its proposed rule to the Attorney General with a 
request that the Department of Justice (DOJ) provide its determination 
on this issue. In its assessment letter responding to DOE, received on 
March 2, 2015, DOJ expressed concerns that the proposed changes could 
have an effect on competition and urged DOE to take this into account 
in determining its final

[[Page 57489]]

standards. Part of this concern was based on an understanding that the 
proposed standards would require manufacturers to increase the size and 
footprint of SPVUs, which may not be feasible or acceptable to 
consumers. In response to DOJ concerns, DOE notes that the technologies 
required to reach the adopted level are not proprietary, are understood 
by the industry, and are generally available to all manufacturers. In 
its engineering analysis, DOE concluded that the typical design path 
would require changes the size of the heat exchanger but would not 
affect the outer dimensions of the product. Due to the accessible 
nature of these technologies and equipment form factors, as well as 
their current, proven implementation through existing designs currently 
available in the marketplace, DOE has concluded that the standard 
levels included in this final rule will not result in the lessening of 
competition. DOE is publishing the Attorney General's assessment at the 
end of this final rule.
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 (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 in the final rule TSD presents the estimated 
reduction in generating capacity, relative to both the ASHRAE and EPCA 
base case, for the TSLs that DOE considered in this rulemaking.
    Energy conservation from amended standards for SPVUs is expected to 
yield environmental benefits in the form of reduced emissions of air 
pollutants and GHGs. Table V.16 provides DOE's estimate of cumulative 
emissions reductions expected to result from the TSLs considered in 
this rulemaking using the ASHRAE baseline, while results using the EPCA 
baseline can be found in chapter 13 of the final rule TSD. The table 
includes both power sector emissions and upstream emissions. The 
emissions were calculated using the multipliers discussed in section 
IV.J. DOE reports annual emissions reductions for each TSL in chapter 
13 of the final rule TSD.

                   Table V.16--Cumulative Emissions Reductions for SPVUs Shipped in 2019-2048
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                                 ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................            3.65            8.39            12.8            12.9
SO2 (thousand tons).............................            2.11            4.85            7.47            7.52
NOX (thousand tons).............................            4.06            9.35            14.3            14.3
Hg (tons).......................................           0.008           0.018           0.028           0.028
CH4 (thousand tons).............................           0.303           0.697            1.07            1.08
N2O (thousand tons).............................           0.043           0.099           0.152           0.153
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................           0.206           0.475           0.720           0.722
SO2 (thousand tons).............................           0.038           0.088           0.134           0.134
NOX (thousand tons).............................            2.95            6.82           10.32            10.3
Hg (tons).......................................           0.000           0.000           0.000           0.000
CH4 (thousand tons).............................            16.3            37.6            57.0            57.1
N2O (thousand tons).............................           0.002           0.004           0.007           0.007
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................            3.85            8.87            13.6            13.6
SO2 (thousand tons).............................            2.15            4.94            7.60            7.66
NOX (thousand tons).............................            7.01            16.2            24.6            24.7
Hg (tons).......................................            0.01            0.02            0.03            0.03
CH4 (thousand tons).............................            16.6            38.3            58.1            58.2
CH4 (thousand tons CO2eq) *.....................             465           1,074           1,626           1,629
N2O (thousand tons).............................            0.04            0.10            0.16            0.16
N2O (thousand tons CO2eq) *.....................            11.9            27.3            41.9            42.2
----------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same GWP.

    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 considered TSLs 
for SPVUs. As discussed in section IV.K of this document, for 
CO2, DOE used the most recent values for the SCC developed 
by an interagency process. The four sets of SCC values for 
CO2 emissions reductions in 2015 resulting from that process 
(expressed in 2014$) are represented by $12.2/metric ton (the average 
value from a distribution that uses a 5-percent discount rate), $40.0/
metric ton (the average value from a distribution that uses a 3-percent 
discount rate), $62.3/metric ton (the average value from a distribution 
that uses a 2.5-percent discount rate), and $117/metric ton (the 95th-
percentile value from a distribution that uses a 3-percent discount 
rate). The values for later years are higher due to increasing damages 
(public health, economic and environmental) as the projected magnitude 
of climate change increases.
    Table V.17 presents the global value of CO2 emissions 
reductions at each TSL using the ASHRAE baseline, while results using 
the EPCA baseline are available in chapter 14 of the final rule TSD. 
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

[[Page 57490]]

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; 
these results are presented in chapter 14 of the final rule TSD for 
both the ASHRAE and EPCA baselines.

   Table V.17--Estimates of Global Present Value of CO2 Emissions Reduction for Products Shipped in 2019-2048
----------------------------------------------------------------------------------------------------------------
                                                                     SCC Case * million 2014$
                                                 ---------------------------------------------------------------
                       TSL                          5% Discount     3% Discount    2.5% Discount    3% Discount
                                                   rate, average   rate, average   rate, average    rate, 95th
                                                         *               *               *         percentile *
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
1...............................................            24.9             115             183             350
2...............................................            56.8             263             418             801
3...............................................            89.8             410             650           1,248
4...............................................            90.8             413             655           1,258
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1...............................................            1.38            6.41            10.2            19.6
2...............................................            3.16            14.7            23.5            45.0
3...............................................            4.95            22.8            36.2            69.4
4...............................................            4.99            22.9            36.3            69.7
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
1...............................................            26.3             121             193             369
2...............................................            60.0             278             442             846
3...............................................            94.7             433             686           1,317
4...............................................            95.8             436             692           1,328
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is 12.0, $40.0, $62.3, and $117
  per metric ton (2014$). The values are for CO2 only (i.e., not CO2eq of other GHGs).

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other 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 
reduced 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 rule the most 
recent values and analyses resulting from the interagency review 
process.
    DOE also estimated the cumulative monetary value of the economic 
benefits associated with NOX emissions reductions 
anticipated to result from the considered TSLs for SPVUs. The dollar-
per-ton value that DOE used is discussed in section IV.K of this 
document. Table V.18 presents the cumulative present values for 
NOX emissions for each TSL using the ASHRAE baseline 
calculated using 7-percent and 3-percent discount rates. Results using 
the EPCA baseline are available in chapter 14 of the final rule TSD.

  Table V.18--Estimates of Present Value of NOX Emissions Reduction for
                       SPVUs Shipped in 2019-2048
------------------------------------------------------------------------
                                                   million 2014$
                                         -------------------------------
                   TSL                      3% discount     7% discount
                                               rate            rate
------------------------------------------------------------------------
                         Power Sector Emissions
------------------------------------------------------------------------
1.......................................            14.3            5.69
2.......................................            32.8            12.8
3.......................................            51.4            21.0
4.......................................            51.8            21.4
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
1.......................................            10.3            3.99
2.......................................            23.7            9.01
3.......................................            36.8            14.7
4.......................................            37.0            14.9
------------------------------------------------------------------------
                           Total FFC Emissions
------------------------------------------------------------------------
1.......................................            24.7            9.68
2.......................................            56.5            21.8
3.......................................            88.2            35.6
4.......................................            88.8            36.3
------------------------------------------------------------------------

7. Other Factors
    The Secretary of Energy, in determining whether a standard is 
economically justified, may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) No 
other factors were considered in this analysis.
8. 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 consumer 
savings calculated for each TSL considered in this rulemaking. Table 
V.19 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 consumer savings calculated for each TSL considered in this 
rulemaking using the ASHRAE baseline, at both a 7-percent and 3-percent 
discount rate. The CO2 values used in the columns of each 
table correspond to the four sets of SCC values discussed above.

[[Page 57491]]



Table V.19--Net Present Value of Consumer Savings Combined With Present Value of Monetized Benefits From CO2 and
                                            NOX Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                                       SCC Case $12.0/    SCC Case $40.0/    SCC Case $62.3/     SCC Case $117/
                 TSL                    Metric ton and     Metric ton and     Metric ton and     Metric ton and
                                       medium NOX value   medium NOX value   medium NOX value   medium NOX value
----------------------------------------------------------------------------------------------------------------
                          Consumer NPV at 3% Discount Rate Added with: (million 2014$)
----------------------------------------------------------------------------------------------------------------
1...................................               0.25               0.34               0.42               0.59
2...................................               0.49               0.71               0.88               1.28
3...................................             (0.14)               0.20               0.45               1.08
4...................................             (0.37)             (0.03)               0.23               0.86
----------------------------------------------------------------------------------------------------------------
                          Consumer NPV at 7% Discount Rate Added with: (million 2014$)
----------------------------------------------------------------------------------------------------------------
1...................................               0.10               0.20               0.27               0.45
2...................................               0.20               0.41               0.58               0.98
3...................................             (0.14)               0.20               0.46               1.09
4...................................             (0.30)               0.04               0.30               0.93
----------------------------------------------------------------------------------------------------------------
* These label values represent the global SCC in 2015, in 2014$.

    In considering the above results, two issues are relevant. First, 
the national operating cost savings are domestic U.S. 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 
products shipped in 2019 to 2048. Because CO2 emissions have 
a very long residence time in the atmosphere,\102\ the SCC values in 
future years reflect future climate-related impacts that continue 
beyond 2100.
---------------------------------------------------------------------------

    \102\ The atmospheric lifetime of CO2 is estimated of 
the order of 30-95 years. Jacobson, MZ, ``Correction to `Control of 
fossil-fuel particulate black carbon and organic matter, possibly 
the most effective method of slowing global warming,' '' J. Geophys. 
Res. 110. pp. D14105 (2005).
---------------------------------------------------------------------------

C. Conclusions

    Any new or amended energy conservation standard for any class of 
SPVAC and SPVHP equipment must demonstrate that adoption of a uniform 
national standard more stringent than the amended ASHRAE Standard 90.1 
for SPVAC and SPVHP equipment would result in significant additional 
conservation of energy, is technologically feasible and economically 
justified, and is supported by clear and convincing evidence. (42 
U.S.C. 6313(a)(6)(A)(i)(II)) In determining whether a standard is 
economically justified, the Secretary must determine whether the 
benefits of the standard exceed its burdens to the greatest extent 
practicable, considering the seven statutory factors discussed 
previously. (42 U.S.C. 6313(a)(6)(B)(ii))
    DOE considered the impacts of potential standards at each TSL, 
beginning with the maximum technologically feasible level, to determine 
whether that level met the evaluation criteria. If the max-tech level 
was not justified, DOE then considered the next most-efficient level 
and undertook the same evaluation until it reached the highest 
efficiency level that is both technologically feasible and economically 
justified, results in significant additional conservation of energy, 
and is supported by clear and convincing evidence.
    To aid the reader as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section present a summary of the results of 
DOE's quantitative analysis for each TSL. 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 consumers who may be 
disproportionately affected by a national standard and impacts on 
employment.
1. Benefits and Burdens of TSLs Considered for SPVU Standards
    Table V.20 and Table V.21 summarize the quantitative impacts 
estimated for each TSL for SPVAC and SPVHP equipment using the ASHRAE 
baseline. The national impacts are measured over the lifetime of SPVAC 
and SPVHP equipment purchased in the 30-year period that begins in the 
anticipated year of compliance with amended standards (2019-2048). The 
energy savings, emissions reductions, and value of emissions reductions 
refer to full-fuel-cycle results. The efficiency levels contained in 
each TSL are described in section V.A. Results for the amended standard 
level using the EPCA baseline can be found in Table V.23 through Table 
V.27.

            Table V.20--Summary of Analytical Results for SPVAC and SPVHP Equipment: National Impacts
----------------------------------------------------------------------------------------------------------------
                    Category                           TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
                                 Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
                                                            0.06            0.15            0.22            0.22
----------------------------------------------------------------------------------------------------------------
                              NPV of Consumer Costs and Benefits*** (2014$ billion)
----------------------------------------------------------------------------------------------------------------
3% discount rate................................            0.20            0.38          (0.33)          (0.55)
7% discount rate................................            0.07            0.11          (0.27)          (0.43)
----------------------------------------------------------------------------------------------------------------

[[Page 57492]]

 
                            Cumulative FFC Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................            3.85            8.87            13.6            13.6
SO2 (thousand tons).............................            2.15            4.94            7.60            7.66
NOX (thousand tons).............................            7.01            16.2            24.6            24.7
Hg (tons).......................................            0.01            0.02            0.03            0.03
CH4 (thousand tons).............................            16.6            38.3            58.1            58.2
CH4 (thousand tons CO2eq) *.....................             465           1,074           1,626           1,629
N2O (thousand tons).............................            0.04            0.10            0.16            0.16
N2O (thousand tons CO2eq) *.....................            11.9            27.3            41.9            42.2
----------------------------------------------------------------------------------------------------------------
                               Value of Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (2014$ billion) **..........................    0.03 to 0.37    0.06 to 0.85    0.09 to 1.32    0.10 to 1.33
NOX--3% discount rate (2014$ million)...........            24.7            56.5            88.2            88.8
NOX--7% discount rate (2014$ million)...........            9.68            21.8            35.6            36.3
----------------------------------------------------------------------------------------------------------------
* 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.
[dagger] Energy and emissions savings determined from comparing SPVU energy consumption and emissions at the
  ANSI/ASHRAE/IES Standard 90.1-2013 efficiency level to that at the Federal minimum efficiency level.


   Table V.21--Summary of Analytical Results for SPVAC and SPVHP Equipment: Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
                    Category                          TSL 1 *         TSL 2 *         TSL 3 *         TSL 4 *
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV (2014$ million) (No-new-standards      35.7 to 36.7    33.9 to 37.0    26.3 to 34.8     5.0 to 20.4
 case INPV = 41.2)..............................
Industry NPV (% change).........................       (13.3) to       (17.9) to       (36.3) to       (87.8) to
                                                          (10.9)          (10.3)          (15.7)          (50.6)
----------------------------------------------------------------------------------------------------------------
                                      Consumer Average LCC Savings (2014$)
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h............................             115             174             130           (678)
SPVHPs <65,000 Btu/h............................             375             435             817           (153)
----------------------------------------------------------------------------------------------------------------
                                           Consumer Median PBP (years)
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h............................             9.1             9.6            12.7            25.2
SPVHPs <65,000 Btu/h............................             4.5             5.8             6.2            14.4
----------------------------------------------------------------------------------------------------------------
                                     % of Consumers that Experience Net Cost
----------------------------------------------------------------------------------------------------------------
SPVACs <65,000 Btu/h............................              28              39              53              85
SPVHPs <65,000 Btu/h............................               0               2               4              69
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative (-) values.

    DOE first considered TSL 4, which represents the max-tech 
efficiency levels. TSL 4 would save an estimated 0.22 quads of energy, 
an amount DOE considers significant. Under TSL 4, the NPV of consumer 
benefit would be negative $0.43 billion using a discount rate of 7 
percent, and negative $0.55 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 4 are 13.6 Mt of 
CO2, 7.66 thousand tons of SO2, 24.7 thousand 
tons of NOX, 58.2 thousand tons of CH4, and 0.16 
thousand tons of N2O. The estimated monetary value of the 
CO2 emissions reduction at TSL 4 ranges from $0.10 billion 
to $1.33 billion.
    At TSL 4, the average LCC savings for SPVAC and SPVHP equipment are 
-$678 and -$153, respectively. On average, these consumers have a 
higher LCC over the lifetime of the equipment than consumers of less-
efficient equipment. The median PBPs are 25.2 and 14.4 years for SPVAC 
and SPVHP consumers, respectively. The fraction of SPVAC and SPVHP 
consumers experiencing a net LCC cost are 85 and 69 percent, 
respectively.
    At TSL 4, the projected change in INPV ranges from a decrease of 
$36.2 million to a decrease of $20.9 million, which represent a 
decrease of 87.8 percent and a decrease of 50.6 percent, respectively. 
DOE estimates 97% of models on the market would require redesign. 
Industry conversion costs are expected to total $40.9 million.
    The Secretary concluded that at TSL 4 for SPVAC and SPVHP 
equipment, the benefits of energy savings, emission reductions, and the 
estimated monetary value of the emissions reductions would be 
outweighed by the negative NPV of consumer benefits, economic burden on 
many consumers, and the impacts on manufacturers, including the 
conversion costs and profit margin impacts that could result in a large 
reduction in INPV. Consequently, the Secretary has concluded that TSL 4 
is not economically justified.

[[Page 57493]]

    DOE then considered TSL 3, which would save an estimated 0.22 quads 
of energy, an amount DOE considers significant. Under TSL 3, the NPV of 
consumer benefit would be negative $0.27 billion using a discount rate 
of 7 percent, and negative $0.33 billion using a discount rate of 3 
percent.
    The cumulative emissions reductions at TSL 3 are 13.6 Mt of 
CO2, 7.60 thousand tons of SO2, 24.6 thousand 
tons of NOX, 58.1 thousand tons of CH4, and 0.16 
thousand tons of N2O. The estimated monetary value of the 
CO2 emissions reduction at TSL 3 ranges from $0.09 billion 
to $1.32 billion.
    At TSL 3, the average LCC savings for SPVAC and SPVHP equipment are 
$130 and $817, respectively. The median PBPs are 12.7 and 6.2 years for 
SPVAC and SPVHP consumers, respectively. The fraction of SPVAC and 
SPVHP consumers experiencing a net LCC cost are 53 and 4 percent, 
respectively.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$15.0 million to a decrease of $6.5 million, which represent decreases 
of 36.3 percent and 15.7 percent, respectively. DOE estimates 96 
percent of models on the market would require redesign. Industry 
conversion costs are expected to total $19.8 million.
    The Secretary concluded that at TSL 3 for SPVAC and SPVHP 
equipment, the benefits of energy savings, emission reductions, and the 
estimated monetary value of the emissions reductions would be 
outweighed by the economic burden on many SPVAC consumers, and the 
impacts on manufacturers, including the conversion costs and profit 
margin impacts that could result in a large reduction in INPV. 
Consequently, the Secretary has concluded that TSL 3 is not 
economically justified.
    DOE then considered TSL 2, which would save an estimated 0.15 quads 
of energy, an amount DOE considers significant. Under TSL 2, the NPV of 
consumer benefit would be $0.11 billion using a discount rate of 7 
percent, and $0.38 billion using a discount rate of 3 percent.
    The cumulative emissions reductions at TSL 2 are 8.87 Mt of 
CO2, 4.94 thousand tons of SO2, 16.2 thousand 
tons of NOX, 38.3 thousand tons of CH4, and 0.10 
thousand tons of N20. The estimated monetary value of the 
CO2 emissions reduction at TSL 2 ranges from $0.6 billion to 
$0.85 billion.
    At TSL 2, the average LCC savings for SPVAC and SPVHP equipment are 
$174 and $435, respectively. The median PBPs are 9.6 and 5.8 years for 
SPVAC and SPVHP consumers, respectively. The fraction of SPVAC and 
SPVHP consumers experiencing a net LCC cost are 39 and 2 percent, 
respectively.
    At TSL 2, the projected change in INPV ranges from a decrease of 
$7.4 million to a decrease of $4.3 million, which represent a decrease 
of 17.9 percent and a decrease of 10.3 percent, respectively. DOE 
estimates 71 percent of models on the market would require redesign. 
Industry conversion costs are expected to total $9.2 million.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary has concluded that at TSL 2 for SPVUs, the 
benefits of energy savings, positive NPV of consumer benefits, emission 
reductions, the estimated monetary value of the emissions reductions, 
and positive average LCC savings would outweigh the negative impacts on 
some consumers and on manufacturers, including the conversion costs 
that could result in a reduction in INPV for manufacturers. The 
Secretary has concluded that TSL 2 would save a significant amount of 
energy, is technologically feasible and economically justified, and is 
supported by clear and convincing evidence.
    Therefore, based on the above considerations, DOE adopts the energy 
conservation standards for SPVUs at TSL 2. Table V.22 presents the 
amended energy conservation standards for SPVUs. As mentioned 
previously, for SPVHPs greater than or equal to 65,000 Btu/h and less 
than 135,000 Btu/h and for SPVUs greater than or equal to 135,000 Btu/h 
and less than 240,000 Btu/h, there are no models on the market, and, 
therefore, DOE had no basis with which to develop higher efficiency 
levels or conduct analyses. For SPVACs greater than or equal to 65,000 
Btu/h and less than 135,000 Btu/h, there are no models on the market 
higher than the ASHRAE 90.1-2013 level, and, therefore, DOE has no 
clear and convincing evidence with which to adopt higher levels. As a 
result, DOE is adopting amended standards for SPVUs equivalent to those 
in ASHRAE Standard 90.1-2013 for these four equipment classes, as 
required by law.

                           Table V.22--Amended Energy Conservation Standards for SPVUs
----------------------------------------------------------------------------------------------------------------
                                                                                             Compliance date:
            Equipment type                 Cooling capacity         Efficiency level      Products manufactured
                                                                                            on and after . . .
----------------------------------------------------------------------------------------------------------------
Single Package Vertical Air            <65,000 Btu/h..........  EER =11.0..............  September 23, 2019.
 Conditioner.
                                       >=65,000 Btu/h and       EER = 10.0.............  October 9, 2015.
                                        <135,000 Btu/h.
                                       >=135,000 Btu/h and      EER = 10.0.............  October 9, 2016.
                                        <240,000 Btu/h.
Single Package Vertical Heat Pump....  <65,000 Btu/h..........  EER = 11.0               September 23, 2019.
                                                                COP = 3.3..............
                                       >=65,000 Btu/h and       EER = 10.0               October 9, 2015.
                                        <135,000 Btu/h.         COP = 3.0..............
                                       >=135,000 Btu/h and      EER = 10.0               October 9, 2016.
                                        <240,000 Btu/h.         COP = 3.0..............
----------------------------------------------------------------------------------------------------------------

    Table V.23 through Table V.27 present the benefits and burdens on 
the consumer, the manufacturer, and the Nation in comparison to a base 
case including the current Federal standards (i.e., the EPCA baseline), 
although only the incremental quantitative impacts from the ASHRAE 
baseline to the various TSL standard levels under consideration was 
used to amend these standards. The results compared to the ASHRAE 
baseline are also included for comparison.

[[Page 57494]]



                              Table V.23--Consumer Impact Results for SPVU Amended Standards (TSL 2) (Baseline comparison)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Life-cycle cost, all customers               Life-cycle cost savings
                                                                        (2014$)             -------------------------------------------------
                                                          ----------------------------------  Affected      % of consumers that experience      Median
          Equipment class                  Baseline                                          customers' -------------------------------------   payback
                                                           Installed  Discounted               average                                          period
                                                              cost     operating     LCC       savings    Net cost    No impact  Net benefit     years
                                                                         cost                  (2014$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVACs <65 kBtu/h.................  ASHRAE...............      5,035      12,499     17,534         174          39           1           59         9.6
                                    EPCA.................      5,034      12,350     17,384         280          43           1           56        10.6
SPVHPs <65 kBtu/h.................  ASHRAE...............      5,697      31,887     37,584         435           2           1           96         5.8
                                    EPCA.................      5,696      30,968     36,664         392          22           1           77         9.9
SPVACs 65-135 kBtu/h..............  ASHRAE
                                    EPCA.................      6,617      20,776     27,393         833          14          29           57         7.3
SPVHPs 65-135 kBtu/h..............  ASHRAE
                                    EPCA.................      7,430      58,777     66,207         287          31          29           40        11.3
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Table V.24--Manufacturer Impact Analysis Results for SPVU Amended
                 Standards (TSL 2) (Baseline Comparison)
------------------------------------------------------------------------
                                     ASHRAE baseline     EPCA baseline
------------------------------------------------------------------------
Base Case INPV (2014$ millions)...               41.2               38.8
Standards Case INPV (2014$               33.9 to 37.0       27.5 to 34.9
 millions)........................
Change in INPV (% Change).........   (17.9) to (10.3)   (29.1) to (10.0)
------------------------------------------------------------------------


   Table V.25--Cumulative National Primary and Full-Fuel-Cycle Energy
   Savings and Net Present Value of Customer Benefit for SPVU Amended
              Standards (TSL 2) for Units Sold in 2019-2048
                          [Baseline comparison]
------------------------------------------------------------------------
                                     ASHRAE baseline     EPCA baseline
------------------------------------------------------------------------
National Primary Energy Savings                  0.14               0.29
 (quads)..........................
National FFC Energy Savings                      0.15               0.31
 (quads)..........................
NPV at 3% (billion 2014$).........               0.38               0.82
NPV at 7% (billion 2014$).........               0.11               0.22
------------------------------------------------------------------------


  Table V.26--Cumulative Emissions Reduction, Global Present Value of CO2 Emissions Reduction, and Present Value of NOX Emissions Reduction for Amended
                                                    Standards (TSL 2) for SPVUs (Baseline Comparison)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Power sector and site            Upstream  emissions            Total FFC  emissions
                                                                    emissions *          ---------------------------------------------------------------
                                                         --------------------------------
                                                              ASHRAE                          ASHRAE      EPCA  baseline      ASHRAE      EPCA  baseline
                                                             baseline     EPCA  baseline     baseline                        baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Cumulative Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...............................            8.39            17.6           0.475           0.996            8.87            18.6
SO2 (thousand tons).....................................            4.85            10.2           0.088           0.185            4.94            10.4
NOX (thousand tons).....................................            9.35            19.6            6.82            14.3            16.2            33.9
Hg (tons)...............................................           0.018           0.038           0.000           0.000            0.02            0.04
CH4 (thousand tons).....................................           0.697            1.46            37.6            78.8            38.3            80.3
N2O (thousand tons).....................................           0.099           0.207           0.004           0.009            0.10            0.22
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Global Present Value of CO2 Emissions Reduction, SCC Scenario ** (million 2014$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5% discount rate, average...............................            56.8             120            3.16            6.67            60.0             127
3% discount rate, average...............................             263             555            14.7            31.0             278             586
2.5% discount rate, average.............................             418             882            23.5            49.4             442             932
3% discount rate, 95th percentile.......................             801            1690            45.0            94.6             846            1785
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Present Value of NOX Emissions Reduction (million 2014$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate........................................            32.8            69.4            23.7            49.8            56.5             119
7% discount rate........................................            12.8            27.4            9.01            19.2            21.8            46.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Includes site emissions associated with additional use of natural gas by more-efficient SPVUs.
** For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.0, $62.3 and $117 per metric ton (2014$).


[[Page 57495]]


Table V.27--SPVU Amended Standards (TSL 2): Net Present Value of Consumer Savings Combined With Net Present Value of Monetized Benefits From CO2 and NOX
                                                       Emissions Reductions (Baseline Comparison)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      (Billion 2014$)
                                                                 ---------------------------------------------------------------------------------------
                                                                   SCC value of $12.0/   SCC value of $40.0/   SCC value of $62.3/   SCC value of $117/
                                                                  metric ton CO2 * and  metric ton CO2 * and  metric ton CO2 * and  metric ton CO2 * and
                                                                  medium value for NOX  medium value for NOX  medium value for NOX  medium value for NOX
                                                                 ---------------------------------------------------------------------------------------
                                                                    ASHRAE      EPCA      ASHRAE      EPCA      ASHRAE      EPCA      ASHRAE      EPCA
                                                                   baseline   baseline   baseline   baseline   baseline   baseline   baseline   baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% Discount Rate added with each SCC and NOX           0.49       1.06       0.71       1.52       0.88       1.87       1.28       2.72
 value..........................................................
Consumer NPV at 7% Discount Rate added with each SCC and NOX           0.20       0.40       0.41       0.86       0.58       1.20       0.98       2.06
 value..........................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.
* These label values represent the global SCC in 2015, in 2014$.

2. Summary of Benefits and Costs (Annualized) of the Amended Standards
    The benefits and costs of the adopted standards can also be 
expressed in terms of annualized values. The annualized net benefit is 
the sum of (1) the annualized national economic value (expressed in 
2014$) of the benefits from operating products that meet the adopted 
standards (consisting primarily of operating cost savings from using 
less energy, minus increases in product purchase costs, and (2) the 
annualized monetary value of the benefits of CO2 and 
NOX emission reductions.\103\
---------------------------------------------------------------------------

    \103\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2014, the year 
used for discounting the NPV of total consumer costs and savings. 
For the benefits, DOE calculated a present value associated with 
each year's shipments in the year in which the shipments occur 
(2020, 2030, etc.), and then discounted the present value from each 
year to 2015. The calculation uses discount rates of 3 and 7 percent 
for all costs and benefits except for the value of CO2 
reductions, for which DOE used case-specific discount rates. Using 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period, starting in the compliance year that yields the 
same present value.
---------------------------------------------------------------------------

    Table V.28 shows the annualized values for SPVUs under TSL 2, 
expressed in 2014$, compared to the ASHRAE baseline. 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 
SCC series that has a value of $40.0/t in 2015),\104\ the estimated 
cost of the standards in this rule is $20 million per year in increased 
equipment costs, while the estimated annual benefits are $28 million in 
reduced equipment operating costs, $13 million in CO2 
reductions, and $1.6 million in reduced NOX emissions. In 
this case, the net benefit amounts to $24 million per year. Using a 3-
percent discount rate for all benefits and costs and the SCC series has 
a value of $40.0/t in 2015, the estimated cost of the standards is $24 
million per year in increased equipment costs, while the estimated 
annual benefits are $43 million in reduced operating costs, $13 million 
in CO2 reductions, and $2.7 million in reduced 
NOX emissions. In this case, the net benefit amounts to $35 
million per year.
---------------------------------------------------------------------------

    \104\ DOE used a 3-percent discount rate because the SCC values 
for the series used in the calculation were derived using a 3-
percent discount rate (see section IV.K).

                                    Table V.28--Annualized Benefits and Costs of Adopted Standards (TSL 2) for SPVUs
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Discount rate...................  Primary estimate..........  Low net benefits estimate.  High net benefits estimate
                                   ---------------------------------------------------------------------------------------------------------------------
                                                                                                      Million 2014$/year
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...  7%..............................  28........................  26........................  28
                                    3%..............................  43........................  39........................  44
CO2 Reduction Value ($12.2/t case)  5%..............................  3.7.......................  3.6.......................  3.7
 **.
CO2 Reduction Value ($40.0/t case)  3%..............................  13........................  13........................  14
 **.
CO2 Reduction Value ($62.3/t case)  2.5%............................  20........................  20........................  20
 **.
CO2 Reduction Value ($117/t case)   3%..............................  41........................  41........................  41
 **.
NOX Reduction Value [dagger]......  7%..............................  1.6.......................  1.6.......................  1.6
                                    3%..............................  2.7.......................  2.7.......................  2.7
Total Benefits [dagger][dagger]...  7% plus CO2 range...............  33 to 71..................  31 to 68..................  34 to 71
                                    7%..............................  43........................  41........................  43
                                    3% plus CO2 range...............  49 to 86..................  45 to 83..................  50 to 87
                                    3%..............................  59........................  55........................  60
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer Incremental Product Costs  7%..............................  20........................  25........................  19
                                    3%..............................  24........................  32........................  24
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Net Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger][dagger]............  7% plus CO2 range...............  14 to 51..................  6 to 44...................  14 to 52
                                    7%..............................  24........................  16........................  24
                                    3% plus CO2 range...............  25 to 62..................  14 to 51..................  26 to 63

[[Page 57496]]

 
                                    3%..............................  35........................  23........................  36
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These results include benefits to consumers which
  accrue after 2048 from the SPVUs purchased from 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 AEO2015 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition,
  incremental product costs reflect a constant rate in the Primary Estimate, an increasing rate in the Low Benefits Estimate, and a decline in the High
  Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.2.a.
** The CO2 values represent global monetized values of the SCC, in 2014$, 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.
[dagger] The $/ton values used for NOX are described in section IV.K.
[dagger][dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to the average SCC with 3-percent discount rate
  ($40.0/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.

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 adopted standards for SPVUs are intended to 
address are as follows:
    (1) Insufficient information and the high costs of gathering and 
analyzing relevant information leads some consumers to miss 
opportunities to make cost-effective investments in energy efficiency.
    (2) In some cases the benefits of more-efficient equipment are not 
realized due to misaligned incentives between purchasers and users. An 
example of such a case is when the equipment purchase decision is made 
by a building contractor or building owner who does not pay the energy 
costs.
    (3) There are external benefits resulting from improved energy 
efficiency of equipment that are not captured by the users of such 
equipment. These benefits include externalities related to public 
health, environmental protection and national energy security that are 
not reflected in energy prices, such as reduced emissions of air 
pollutants and GHGs that impact human health and global warming. DOE 
attempts to qualify some of the external benefits through use of SCC 
values.
    The Administrator of the Office of Information and Regulatory 
Affairs (OIRA) in the OMB has determined that the proposed regulatory 
action is not a significant regulatory action under section (3)(f) of 
Executive Order 12866. Accordingly, this rule was not reviewed by OIRA.
    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, 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 this final rule 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. Administrative Procedure Act

    The Administrative Procedure Act, 5 U.S.C. 553, establishes the 
procedural requirements for rulemaking. It requires, generally, that an 
agency publish notice and provide opportunity for public comment before 
adopting a rule. In this final rule, DOE has adopted regulatory text 
applicable to packaged terminal air conditioners and packaged terminal 
heat pumps that corrects table number references in current regulatory 
text. This text is being adopted without providing prior notice and an 
opportunity for public comment pursuant to authority at 5 U.S.C. 
553(b)(B), which authorizes an agency to waive those requirements when 
there is good cause to do so because such procedures are unnecessary, 
impracticable or contrary to the public interest. Because these 
corrections, merely correcting table references, are non-substantive in 
nature, DOE finds good cause to waive the requirement for providing 
prior notice and an opportunity for public comment as such procedures 
are unnecessary.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an final regulatory flexibility analysis (FRFA) for any 
rule that by law must be 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

[[Page 57497]]

entities. As required by Executive Order 13272, ``Proper Consideration 
of Small Entities in Agency Rulemaking,'' 67 FR 53461 (Aug. 16, 2002), 
DOE published procedures and policies on February 19, 2003 to ensure 
that the potential impacts of its rules on small entities are properly 
considered during the rulemaking process. 68 FR 7990. DOE has made its 
procedures and policies available on the Office of the General 
Counsel's Web site (www.energy.gov/gc/office-general-counsel). DOE has 
prepared the following FRFA for the products that are the subject of 
this rulemaking.
    For manufacturers of SPVACs and SPVHPs, the 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 (Sept. 5, 2000) and codified at 
13 CFR part 121. The size standards are listed by NAICS code and 
industry description and are available at http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. SPVAC and SPVHP 
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.
1. Description and Estimated Number of Small Entities Regulated
    DOE reviewed the potential standard levels considered in this final 
rule 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 equipment 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 SPVAC and SPVHP equipment 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 equipment impacted by this rulemaking, do 
not meet the definition of a ``small business,'' or are foreign owned 
and operated.
    DOE identified nine companies that produce equipment covered under 
the SPVU energy conservation standard rulemaking. Three of the nine 
companies are foreign-owned and operated. Of the remaining six domestic 
businesses, two companies met the SBA definition of a ``small 
business.'' One small business manufacturer has the largest market 
share in the SPVU industry and approximately 37 percent of the active 
listings in the AHRI Directory.\105\ Based on marketing literature and 
product offerings, the second small domestic manufacturer focuses on 
industrial capacities. However, no data on the product efficiency or 
market share was publicly available for the second small manufacturer.
---------------------------------------------------------------------------

    \105\ Based on model listings in the AHRI directory accessed on 
June 6, 2012 (Available at: http://www.ahridirectory.org/ahridirectory/pages/ac/defaultSearch.aspx).
---------------------------------------------------------------------------

2. Description and Estimate of Compliance Requirements
    At the time of analysis, the domestic small manufacturer with the 
largest market share had 347 active listings. One hundred and twenty 
three of those listings, or 35 percent, would meet the standards. The 
other 65 percent of the listings would not meet the standard. The small 
manufacturer would need to either redesign those products or drop those 
products and move their customers to more-efficient offerings. However, 
DOE notes that the small manufacturer had more product listings than 
any other manufacturer that could meet the standard.
    The domestic small manufacturer with the smaller market share had 
40 active listings. However, this manufacturer is not a member of AHRI 
and does not publish any efficiency data on its product offerings. 
Thus, DOE was unable to determine what portion of products would 
require redesign for amended energy conservation standard. At the 
standard level, this manufacturer would need to redesign its entire 
product offering or leave the SPVU market.
    If small manufacturers chose to redesign their products that do not 
meet the standard, they would need to make capital conversion and 
product conversion investments. DOE estimated an average total 
conversion cost of $1.0 million per manufacturer. DOE expects this 
investment, which is roughly 8 percent of an average manufacturer's 
annual revenue, to be made over the 4-year period between the 
publication of the final rule and the effective date of the standard. 
Since small businesses may have a greater difficulty obtaining credit 
or may obtain less favorable terms than larger businesses, the small 
manufacturers may face higher overall costs if they choose to finance 
the conversion costs resulting from the change in standard.
    DOE notes that the small manufacturer with the larger market share 
produces more SPVU units than its larger competitors. The company could 
potentially spread the conversion costs over a larger number of units 
than its competitors. However, the small manufacturer did express 
concern in MIA interviews that such an effort would tie up their 
available engineering resources and prevent them from focusing on 
technology advancements and customer-driven feature requests. Larger 
manufacturers, which do not have the same shipment volumes as the small 
manufacturer, may have fewer engineers dedicated to SPVU equipment but 
potentially could marshal engineering and testing resources across 
their organization. The concern about adequate availability of 
engineering resources would also likely apply to the small manufacturer 
with the smaller market share.
    Smaller manufacturers generally pay higher prices for purchased 
parts, such as BPM motors, relative to larger competitors. Even the 
small manufacturer with the larger market share and the highest number 
of SPVU shipments of any manufacturer in the industry, could pay higher 
prices for component than the larger competition. If their competitors 
have centralized sourcing, those companies could combine component 
purchases for SPVU product lines with purchases for other non-SPVU 
product lines and obtain higher volume discounts than those available 
to small manufacturers.
    Due to the potential conversion costs, the potential engineering 
and testing effort, and the potential increases in component prices 
that result from a standard, DOE conducted this regulatory flexibility 
analysis. Based on DOE's analysis, including interviews

[[Page 57498]]

with manufacturers, the Department believes one of the identified small 
businesses would be able to meet the standard. That small manufacturer 
has the strong market share, technical expertise, and production 
capability to meet the amended standard. The company successfully 
competes in both the current baseline-efficiency and premium-efficiency 
market segments. No data on the efficiency or market share of the 
second small manufacturer is available to analyze.
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 this final rule.
4. Significant Alternatives to the Rule
    The discussion above analyzes impacts on small businesses that 
would result from DOE's rule. In addition to the other TSLs being 
considered, the final rule TSD includes an analysis of the following 
policy alternatives: (1) No change in standard; (2) consumer rebates; 
(3) consumer tax credits; (4) manufacturer tax credits; (5) voluntary 
energy efficiency targets; (6) early replacement; and (7) bulk 
government purchases. While these alternatives may mitigate to some 
varying extent the economic impacts on small entities compared to the 
adopted standards, DOE does not intend to consider these alternatives 
further because DOE has determined that the energy savings of these 
alternatives are significantly smaller than those that would be 
expected to result from adoption of the standards (ranging from 
approximately 0.01 to 0.5 percent of the energy savings from the 
adopted standards). Accordingly, DOE is declining to adopt any of these 
alternatives and is adopting the standards set forth in this document. 
(See chapter 17 of the final rule TSD for further detail on the policy 
alternatives DOE considered.)
    Additional compliance flexibilities may be available through other 
means. For example, individual manufacturers may petition for a waiver 
of the applicable test procedure. Further, EPCA provides that a 
manufacturer whose annual gross revenue from all of its operations does 
not exceed $8 million may apply for an exemption from all or part of an 
energy conservation standard for a period not longer than 24 months 
after the effective date of a final rule establishing the standard. 
Additionally, section 504 of the Department of Energy Organization Act, 
42 U.S.C. 7194, provides authority for the Secretary to adjust a rule 
issued under EPCA in order to prevent ``special hardship, inequity, or 
unfair distribution of burdens'' that may be imposed on that 
manufacturer as a result of such rule. Manufacturers should refer to 10 
CFR part 430, subpart E, and part 1003 for additional details.

D. Review Under the Paperwork Reduction Act

    Manufacturers of SPVACs and SPVHPs must certify to DOE that their 
equipment complies with any applicable energy conservation standards. 
In certifying compliance, manufacturers must test their equipment 
according to the DOE test procedures for SPVACs and SPVHPs, 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 
SPVACs and SPVHPs. See generally, 10 CFR part 429. 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 30 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.

E. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act (NEPA) of 1969, 
DOE has determined that the 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); 1021.410(b) and app. B, B(1)-(5). The rule fits within this 
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 rule. DOE's CX determination for this rule is 
available at http://cxnepa.energy.gov/.

F. 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 State and local officials in the 
development of regulatory policies that have Federalism implications. 
On March 14, 2000, DOE published a statement of policy describing the 
intergovernmental consultation process it will follow in the 
development of such regulations. 65 FR 13735. DOE has examined this 
rule and has determined that it would not have a substantial direct 
effect on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. EPCA governs 
and prescribes Federal preemption of State regulations as to energy 
conservation for the equipment that are the subject of this final 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) 
Therefore, no further action is required by Executive Order 13132.

G. 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; (3) 
provide a clear legal standard for affected conduct rather than a 
general standard; and (4) promote simplification and burden reduction. 
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 
3(a), 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

[[Page 57499]]

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 final rule meets the 
relevant standards of Executive Order 12988.

H. 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 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 ``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 them. 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/sites/prod/files/gcprod/documents/umra_97.pdf.
    DOE has concluded that although this final rule does not contain a 
Federal intergovernmental mandate, it may require expenditures of $100 
million or more in any one year on the private sector. Such 
expenditures may include (1) investment in research and development and 
in capital expenditures by SPVU manufacturers in the years between the 
final rule and the compliance date for the new standards, and (2) 
incremental additional expenditures by consumers to purchase higher-
efficiency SPVUs.
    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 final 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 notice of final rulemaking and 
the ``Regulatory Impact Analysis'' section of the TSD for this final 
rule responds 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 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. 6295(d), 
(f), and (o), 6313(e), and 6316(a), this final rule would establish 
amended energy conservation standards for SPVAC and SPVHP equipment 
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 this final rule.

I. 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.

J. Review Under Executive Order 12630

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

K. 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 
information quality 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 this final rule under the OMB 
and DOE guidelines and has concluded that it is consistent with 
applicable policies in those guidelines.

L. 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 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 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 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 concluded that this regulatory action, which sets forth 
amended energy conservation standards for SPVAC and SPVHP equipment, is 
not a significant energy action because the 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 this final rule.

[[Page 57500]]

M. 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.'' Id. at 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.

N. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of this rule prior to its effective date. The report will 
state that it has been determined that the rule is not a ``major rule'' 
as defined by 5 U.S.C. 804(2).

VII. Approval of the Office of the Secretary

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

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Household appliances, Imports, 
Intergovernmental relations, Reporting and recordkeeping requirements, 
Small businesses.

    Issued in Washington, DC, on August 28, 2015.
David T. Danielson,
Assistant Secretary, Energy Efficiency and Renewable Energy.
    For the reasons set forth in the preamble, DOE amends 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. Section 431.97 is amended by:
0
a. Redesignating Table 8 in paragraph (e) as Table 10, and Table 9 in 
paragraph (f) as Table 11; and
0
b. Revising paragraph (d).
    The revisions read as follows:


Sec.  431.97  Energy efficiency standards and their compliance dates.

* * * * *
    (d)(1) Each single package vertical air conditioner and single 
package vertical heat pump manufactured on or after January 1, 2010, 
but before October 9, 2015 (for models >=65,000 Btu/h and <135,000 Btu/
h) or October 9, 2016 (for models >=135,000 Btu/h and <240,000 Btu/h), 
must meet the applicable minimum energy conservation standard level(s) 
set forth in Table 7 of this section.

 Table 7 to Sec.   431.97--Minimum Efficiency Standards for Single Package Vertical Air Conditioners and Single
                                           Package Vertical Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                                Compliance date:
                                                                                                    products
         Equipment type           Cooling capacity       Sub-category       Efficiency level    manufactured on
                                                                                                and  after . . .
----------------------------------------------------------------------------------------------------------------
Single package vertical air      <65,000 Btu/h.....  AC.................  EER = 9.0..........  January 1, 2010
 conditioners and single                             HP.................  EER = 9.0..........  January 1, 2010
 package vertical heat pumps,                                             COP = 3.0..........
 single-phase and three-phase.
Single package vertical air      >=65,000 Btu/h and  AC.................  EER = 8.9..........  January 1, 2010
 conditioners and single          <135,000 Btu/h.    HP.................  EER = 8.9..........  January 1, 2010
 package vertical heat pumps.                                             COP = 3.0..........
Single package vertical air      >=135,000 Btu/h     AC.................  EER = 8.6..........  January 1, 2010
 conditioners and single          and <240,000 Btu/  HP.................  EER = 8.6..........  January 1, 2010
 package vertical heat pumps.     h.                                      COP = 2.9..........
----------------------------------------------------------------------------------------------------------------

    (2) Each single package vertical air conditioner and single package 
vertical heat pump manufactured on and after October 9, 2015 (for 
models >=65,000 Btu/h and <135,000 Btu/h) or October 9, 2016 (for 
models >=135,000 Btu/h and <240,000 Btu/h), but before September 23, 
2019 must meet the applicable minimum energy conservation standard 
level(s) set forth in Table 8 of this section.

[[Page 57501]]



 Table 8 to Sec.   431.97--Minimum Efficiency Standards for Single Package Vertical Air Conditioners and Single
                                           Package Vertical Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                                Compliance date:
                                                                                                    Products
         Equipment type           Cooling capacity       Sub-category       Efficiency level    manufactured on
                                                                                                and  after . . .
----------------------------------------------------------------------------------------------------------------
Single package vertical air      <65,000 Btu/h.....  AC.................  EER = 9.0..........  January 1, 2010
 conditioners and single                             HP.................  EER = 9.0..........  January 1, 2010
 package vertical heat pumps,                                             COP = 3.0..........
 single-phase and three-phase.
Single package vertical air      >=65,000 Btu/h and  AC.................  EER = 10.0.........  October 9, 2015
 conditioners and single          <135,000 Btu/h.    HP.................  EER = 10.0.........  October 9, 2015
 package vertical heat pumps.                                             COP = 3.0..........
Single package vertical air      >=135,000 Btu/h     AC.................  EER = 10.0.........  October 9, 2016
 conditioners and single          and <240,000 Btu/  HP.................  EER = 10.0.........  October 9, 2016
 package vertical heat pumps.     h.                                      COP = 3.0..........
----------------------------------------------------------------------------------------------------------------

    (3) Each single package vertical air conditioner and single package 
vertical heat pump manufactured on and after September 23, 2019 must 
meet the applicable minimum energy conservation standard level(s) set 
forth in Table 9 of this section.

 Table 9 to Sec.   431.97--Updated Minimum Efficiency Standards for Single Package Vertical Air Conditioners and
                                       Single Package Vertical Heat Pumps
----------------------------------------------------------------------------------------------------------------
                                                                                                Compliance date:
                                                                                                    products
         Equipment type           Cooling capacity       Sub-category       Efficiency level    manufactured on
                                                                                                and  after . . .
----------------------------------------------------------------------------------------------------------------
Single package vertical air      <65,000 Btu/h.....  AC.................  EER = 11.0.........  September 23,
 conditioners and single                             HP.................  EER = 11.0.........   2019.
 package vertical heat pumps,                                             COP = 3.3..........  September 23,
 single-phase and three-phase.                                                                  2019.
Single package vertical air      >=65,000 Btu/h and  AC.................  EER = 10.0.........  October 9, 2015.
 conditioners and single          <135,000 Btu/h.    HP.................  EER = 10.0.........  October 9, 2015.
 package vertical heat pumps.                                             COP = 3.0..........
Single package vertical air      >=135,000 Btu/h     AC.................  EER = 10.0.........  October 9, 2016.
 conditioners and single          and <240,000 Btu/  HP.................  EER = 10.0.........  October 9, 2016.
 package vertical heat pumps.     h.                                      COP = 3.0..........
----------------------------------------------------------------------------------------------------------------

* * * * *

    Note: The following letter will not appear in the Code of 
Federal Regulations.

U.S. Department of Justice
Antitrust Division
William J. Baer
Assistant Attorney General
RFK Main Justice Building
950 Pennsylvania Ave. NW
Washington, DC 20530-0001
(202) 514-2401/(202) 616-2645 (Fax)

March 2, 2015

Anne Harkavy
Deputy General Counsel for Litigation
Regulation and Enforcement
U.S. Department of Energy
Washington, DC 20585

RE: SPVU Energy Conservation Standards

Dear Deputy General Counsel Harkavy:
    I am responding to your December 12, 2014 letter seeking the views 
of the Attorney General about the potential impact on competition of 
proposed energy conservation standards for, and a possible revised 
definition of, single package vertical air conditioners (SPVACs) and 
single package vertical heat pumps (SPVHPs), collectively referred to 
as single package vertical units (SPVUs).
    Your request was submitted under Section 325(o)(2)(B)(i)(V) of the 
Energy Policy and Conservation Act, as amended (ECPA), 42 U.S.C. 
6295(o)(2)(B)(i)(V), which requires the Attorney General to make a 
determination of the impact of any lessening of competition that is 
likely to result from the imposition of proposed energy conservation 
standards. The Attorney General 's responsibility for responding to 
requests from other departments about the effect of a program on 
competition has been delegated to the Assistant Attorney General for 
the Antitrust Division in 28 CFR 0.40(g).
    In conducting its analysis the Antitrust Division examines whether 
a proposed standard may lessen competition, for example, by 
substantially limiting consumer choice, by placing ce1tain 
manufacturers at an unjustified competitive disadvantage, or by 
inducing avoidable inefficiencies in production or distribution of 
particular products. A lessening of competition could result in higher 
prices to manufacturer s and consumers.
    We have reviewed the proposed standards, as well as DOE's tentative 
conclusion not to create a space-constrained equipment class for SPVUs, 
contained in the Notice of Proposed Rulemaking (79 FR 78614, December 
30, 2014) (NOPR) and the related Technical Support Documents. We also 
have reviewed information provided by industry participants and have 
listened to the Webinar of the Public Meeting held on 2/06/2015.
    Based on our review, it appears that many SPVU manufacturers are 
concerned about their ability to meet DOE's proposed energy 
conservation standards for SPVUs in the less than 65,000 Btu/h 
category, where DOE is recommending a standard more stringent than that 
set out by the American Society of Heating, Refrigeration, and Air 
Conditioning Engineers (ASHRAE). In particular, manufacturers are 
concerned that the costs of compliance may be prohibitive, and that 
higher costs may necessitate higher prices to consumers who may opt to 
switch to other potentially less efficient products or solutions. 
Manufacturers are also concerned that the proposed standards will 
require

[[Page 57502]]

them to increase the size and footp1int of SPVUs, which may not be 
feasible or acceptable to consumers, thereby potentially limiting the 
range of competitive alternatives available to consumers. Although the 
Department of Justice is not in a position to judge whether individual 
manufacturers will be able to meet the proposed standards, we have some 
concerns that these proposed changes could have an effect on 
competition and we urge the Department of Energy to take this into 
account in determining its final energy efficiency standards for SPVUs.
    In addition, it appears that DOE intends to reclassify space-
constrained SPVUs in conjunction with the promulgation of the proposed 
standards, which would subject these products to more stringent 
residential energy efficiency standards. Given the lack of analysis and 
data available in the record on this issue, we can offer no view on the 
likely competitive impact of this reclassification.
Sincerely,

William J. Baer

[FR Doc. 2015-23029 Filed 9-22-15; 8:45 am]
BILLING CODE 6450-01-P