[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
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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
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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.
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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.
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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.
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\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.
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\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.
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The value of the CO2 reductions is calculated using a
range of values per metric ton of CO2 (otherwise known as
the Social Cost of Carbon, or SCC) developed by a recent Federal
interagency process.\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 $0.06 billion at a 3-percent discount rate.\14\
Results using the EPCA baseline can be found in chapter 14 of the final
rule TSD.
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\13\ Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis Under Executive Order 12866. Interagency
Working Group on Social Cost of Carbon, United States Government.
May 2013; revised July 2015. (Available at: https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf.)
\14\ DOE is currently investigating valuation of avoided Hg and
SO2 emissions.
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Table I.3 summarizes the national economic benefits and costs
expected to result from the adopted standards for SPVUs using both the
ASHRAE and EPCA baselines.
Table I.3--Summary of National Economic Benefits and Costs of Amended Energy Conservation Standards for SPVUs
Using ASHRAE and EPCA Baselines *
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Present value billion 2014$
-------------------------------- Discount rate
Category ASHRAE (%)
baseline EPCA baseline
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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 ($117/t case) **............................ 0.85 1.79 3
NOX Reduction Monetized Value [dagger].......................... 0.02 0.05 7
0.06 0.12 3
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Total Benefits[dagger][dagger].................................. 0.67 1.43 7
1.21 2.56 3
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Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs............................ 0.26 0.58 7
0.50 1.04 3
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Net Benefits
----------------------------------------------------------------------------------------------------------------
Including CO2 and NOX Reduction Monetized Value [dagger][dagger] 0.41 0.86 7
0.71 1.52 3
----------------------------------------------------------------------------------------------------------------
* This table presents the costs and benefits associated with SPVUs shipped in 2019-2048. These results include
benefits to consumers that accrue after 2048 from the products purchased in 2019-2048. The costs account for
the incremental variable and fixed costs incurred by manufacturers due to the amended standards, some of which
may be incurred in preparation for the rule.
** The CO2 values represent global monetized values of the SCC, in 2014$, 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).
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\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/.
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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/.
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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\
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\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).
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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
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\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.
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\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).
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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.
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\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).
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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.
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\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.
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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.
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\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),
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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