[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Proposed Rules]
[Pages 78613-78677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29865]



[[Page 78613]]

Vol. 79

Tuesday,

No. 249

December 30, 2014

Part III





Department of Energy





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10 CFR Part 431





 Energy Conservation Program for Certain Industrial Equipment: Energy 
Conservation Standards for Single Package Vertical Air Conditioners and 
Single Package Vertical Heat Pumps; Proposed Rule

Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / 
Proposed Rules

[[Page 78614]]


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DEPARTMENT OF ENERGY

10 CFR Part 431

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


Energy Conservation Program for Certain Industrial Equipment: 
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: Notice of proposed rulemaking (NOPR) and announcement of public 
meeting.

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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as 
amended, prescribes energy conservation standards for various consumer 
products and certain commercial and industrial equipment, including 
single package vertical air conditioners and single package vertical 
heat pumps. EPCA also requires that each time the American Society of 
Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) 
Standard 90.1 is amended with respect to the standard levels or design 
requirements applicable to that equipment, the U.S. Department of 
Energy (DOE) must adopt amended uniform national standards for this 
equipment equivalent to those in ASHRAE Standard 90.1, unless DOE 
determines that there is clear and convincing evidence showing that 
more-stringent, amended standards would be technologically feasible and 
economically justified, and would save a significant additional amount 
of energy. DOE has tentatively concluded that there is sufficient 
record evidence to support more-stringent standards for two classes of 
this equipment. However, for four equipment classes, DOE is proposing 
to adopt the revised ASHRAE levels, due to the absence of any models on 
the market in two classes, and absence of any models above the revised 
ASHRAE level in the remaining two classes. Accordingly, DOE is 
proposing amended energy conservation standards for all classes of 
single package vertical air conditioners and single package vertical 
heat pumps. DOE also announces a public meeting to receive comment on 
these proposed standards and associated analyses and results.

DATES: Comments: DOE will accept comments, data, and information 
regarding this notice of proposed rulemaking (NOPR) before and after 
the public meeting, but no later than March 2, 2015. See section VII, 
``Public Participation,'' for details.
    Meeting: DOE will hold a public meeting on Friday, February 6, 
2014, from 8:30 a.m. to 12:30 p.m., in Washington, DC. The meeting will 
also be broadcast as a webinar. See section VII, ``Public 
Participation,'' for webinar registration information, participant 
instructions, and information about the capabilities available to 
webinar participants.

ADDRESSES: The public meeting will be held at the U.S. Department of 
Energy, Forrestal Building, Room 8E-089 1000 Independence Avenue SW., 
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at 
(202) 586-2945. Persons may also attend the public meeting via webinar. 
For more information, refer to section VII, ``Public Participation,'' 
near the end of the preamble.
    Due to the REAL ID Act implemented by the Department of Homeland 
Security (DHS), there have been recent changes regarding identification 
(ID) requirements for individuals wishing to enter Federal buildings 
from specific States and U.S. territories. As a result, driver's 
licenses from the following States or territory will not be accepted 
for building entry, and instead, one of the alternate forms of ID 
listed below will be required.
    DHS has determined that regular driver's licenses (and ID cards) 
from the following jurisdictions are not acceptable for entry into DOE 
facilities: Alaska, American Samoa, Arizona, Louisiana, Maine, 
Massachusetts, Minnesota, New York, Oklahoma, and Washington.
    Acceptable alternate forms of Photo-ID include: U.S. Passport or 
Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued 
by the States of Minnesota, New York or Washington (Enhanced licenses 
issued by these States are clearly marked Enhanced or Enhanced Driver's 
License); a military ID or other Federal government-issued Photo-ID 
card.
    Instructions: Any comments submitted must identify the NOPR for 
Energy Conservation Standards for Single Package Vertical Air 
Conditioners and Single Package Vertical Heat Pumps, and provide docket 
number EERE-2012-BT-STD-0041 and/or regulatory information number (RIN) 
number 1904-AC85. Comments may be submitted using any of the following 
methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: SPVU2012STD0041@ee.doe.gov. Include the docket number 
and/or RIN in the subject line of the message. Submit electronic 
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and 
avoid the use of special characters or any form of encryption.
    3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC 20585-0121. If possible, please submit all items on 
a compact disc (CD), in which case it is not necessary to include 
printed copies.
    4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of 
Energy, Building Technologies Program, 950 L'Enfant Plaza SW., Suite 
600, Washington, DC 20024. Telephone: (202) 586-2945. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.
    Written comments regarding the burden-hour estimates or other 
aspects of the collection-of-information requirements contained in this 
proposed rule may be submitted to the Office of Energy Efficiency and 
Renewable Energy through the methods listed above and by email to 
Chad_S._Whiteman@omb.eop.gov.
    No telefacsimilies (faxes) will be accepted. For detailed 
instructions on submitting comments and additional information on the 
rulemaking process, see section VII of this document (Public 
Participation).
    Docket: The docket, which includes Federal Register notices, public 
meeting attendee lists and transcripts, comments, and other supporting 
documents/materials, is available for review at www.regulations.gov. 
All documents in the docket are listed in the www.regulations.gov 
index. However, some documents listed in the index, such as those 
containing information that is exempt from public disclosure, may not 
be publicly available.
    A link to the docket Web page can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=107. This Web page contains a link to the docket 
for this NOPR on the www.regulations.gov site. The www.regulations.gov 
Web page contains simple instructions on how to access all documents, 
including public comments, in the docket. See section VII, ``Public 
Participation,'' for further information on how to submit comments 
through www.regulations.gov.
    For further information on how to submit a comment, review other 
public

[[Page 78615]]

comments and the docket, or participate in the public meeting, contact 
Ms. Brenda Edwards at (202) 586-2945 or by email: 
Brenda.Edwards@ee.doe.gov.

FOR FURTHER INFORMATION CONTACT:  Mr. Ron Majette, U.S. Department of 
Energy, Office of Energy Efficiency and Renewable Energy, Building 
Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, 
DC 20585-0121. Telephone: (202) 586-7935. Email: 
Ronald.Majette@ee.doe.gov.
    Mr. Eric Stas, U.S. Department of Energy, Office of the General 
Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 20585-
0121. Telephone: (202) 586-9507. Email: Eric.Stas@hq.doe.gov.
    For information on how to submit or review public comments, contact 
Ms. Brenda Edwards at (202) 586-2945 or by email: 
Brenda.Edwards@ee.doe.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Summary of the Proposed Rule
    A. Benefits and Costs to Consumers
    B. Impact on Manufacturers
    C. National Benefits
II. Introduction
    A. Authority
    B. Background
    1. Current Standards
    2. History of Standards Rulemaking for Single Package Vertical 
Air Conditioners and Single Package Vertical Heat Pumps
III. General Discussion
    A. Compliance Dates
    B. Equipment Classes and Scope of Coverage
    1. Consideration of a Space Constrained SPVU Equipment Class
    C. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    D. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    E. Economic Justification
    1. Specific Criteria
    2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Definitions of a SPVAC and a SPVHP
    2. Equipment Classes
    3. Review of the Current Market for SPVUs
    4. Technology Assessment
    B. Screening Analysis
    C. Engineering Analysis
    1. Efficiency Levels for Analysis
    2. Teardown Analysis
    3. Cost Model
    4. Manufacturing Production Costs
    5. Cost-Efficiency Relationship
    6. Manufacturer Markup
    7. Shipping Costs
    8. Manufacturer Interviews
    D. Markups Analysis
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Approach
    2. Life-Cycle Cost Inputs
    3. Payback Period
    G. National Impact Analysis
    1. Approach
    a. National Energy Savings
    b. Net Present Value
    2. Shipments Analysis
    3. Base-Case and Standards-Case Forecasted Distribution of 
Efficiencies
    H. Consumer Subgroup Analysis
    I. Manufacturer Impact Analysis
    1. Overview
    2. GRIM Analysis
    3. Manufacturer Interviews
    J. Emissions Analysis
    K. Monetizing Carbon Dioxide and Other Emissions Impacts
    1. Social Cost of Carbon
    2. Valuation of Other Emissions Reductions
    L. Utility Impact Analysis
    M. Employment Impact Analysis
V. Analytical Results and Conclusions
    A. Trial Standard Levels
    B. Economic Justification and Energy Savings
    1. Economic Impacts on Commercial Consumers
    2. Economic Impact on Manufacturers
    3. National Impact Analysis
    4. Impact on Utility or Performance of Equipment
    5. Impact of Any Lessening of Competition
    6. Need of the Nation to Conserve Energy
    7. Other Factors
    C. Proposed Standards
    1. Benefits and Burdens of Trial Standard Levels Considered for 
SPVUs
    2. Summary of Benefits and Costs (Annualized) of the Proposed 
Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act of 1995
    D. Review Under the National Environmental Policy Act of 1969
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under Executive Order 12630
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001
    K. Review Under Executive Order 13211
    L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
    A. Attendance at the Public Meeting
    B. Procedure for Submitting Requests to Speak and Prepared 
General Statements for Distribution
    C. Conduct of the Public Meeting
    D. Submission of Comments
    E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary

I. Summary of the Proposed Rule

    Title III, Part C \1\ of the Energy Policy and Conservation Act of 
1975 (``EPCA'' or ``the Act''), Pub. L. 94-163 (42 U.S.C. 6311-6317, as 
codified), added by Public Law 95-619, Title IV, Sec.  441(a), 
established the Energy Conservation Program for Certain Industrial 
Equipment, which includes the single package vertical air conditioners 
(SPVACs) and single package vertical heat pumps (SPVHPs) that are the 
subject of this rulemaking (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 the American Society of Heating, 
Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 90.1 
(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.
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    At the time DOE commenced this rulemaking, the Department had not 
considered 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)), because the current energy conservation 
standards for SPVUs were already set at those levels by EPCA. 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 there is 
clear and convincing evidence supporting 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)(I) and (II)) Once complete, this rulemaking will 
satisfy DOE's statutory obligations under both 42 U.S.C. 6313(a)(6) and 
(10)(B).
    In accordance with these and other statutory provisions discussed 
in this preamble, DOE has tentatively concluded that there is 
sufficient evidence to support more-stringent standards for two classes 
of SPVUs. For the remaining four equipment classes,

[[Page 78616]]

DOE has tentatively decided to adopt the levels in ASHRAE Standard 
90.1-2013. Accordingly, DOE is proposing amended energy conservation 
standards for all classes of single package vertical air conditioners 
and single package vertical heat pumps. As shown in Table I.1, the 
proposed 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; and (2) 
coefficient of performance (COP), which is the ratio of produced 
heating effect to total work input (applicable only to heat pump 
units).
    If adopted, the proposed standards listed in Table I.1 that are 
more stringent than those contained in ASHRAE Standard 90.1-2013 would 
apply to such equipment manufactured in, or imported into, the United 
States, excluding equipment that is manufactured for export, on and 
after a date four years after publication of an energy conservation 
standards final rule. If adopted, the proposed standards listed in 
Table I.1 that are set at the levels contained in ASHRAE Standard 90.1-
2013 would apply to such equipment manufactured in, or imported into, 
the United States, excluding equipment that is manufactured for export, 
on and after a date two or three years after the effective date of the 
requirements in ASHRAE Standard 90.1-2013, depending on equipment size 
(i.e., October 9, 2015 or 2016).

                           Table I.1--Proposed Energy Conservation Standards for SPVUs
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                                  Cooling capacity                                                Anticipated
        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      2019.
 Conditioner.                                                              than ASHRAE.       [4 years after
                                                                                               publication of
                                                                                               final rule].
Single Package Vertical Air      >=65,000 Btu/h and  EER = 10.0.........  ASHRAE............  October 9, 2015.
 Conditioner.                     <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      2019.
 Pump.                                               COP = 3.3..........   than ASHRAE.       [4 years after
                                                                                               publication of
                                                                                               final rule].
Single Package Vertical Heat     >=65,000 Btu/h and  EER = 10.0.........  ASHRAE............  October 9, 2015.
 Pump.                            <135,000 Btu/h.    COP = 3.0..........
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 
proposed energy conservation standards on consumers of SPVACs and 
SPVHPs, as measured by the average life-cycle cost (LCC) savings and 
the median payback period (PBP). In order to adopt levels above the 
levels specified in ASHRAE Standard 90.1, DOE must determine that such 
more-stringent standards would result in significant additional 
conservation of energy (relative to the efficiency levels specified in 
ASHRAE Standard 90.1) and that it 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 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.\2\
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    \2\ 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/IES 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/IES Standard 90.1.
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    The Office of Management and Budget's Circular A-4 \3\ provides 
guidance on establishing the baseline for regulatory impact analyses as 
follows:
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    \3\ 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, DOE presents consumer, manufacturer, and economic 
costs and benefits for the proposed SPVU standards as compared to the 
current Federal (EPCA) minimum that are currently in effect (pre-
statute baseline). In addition, as required by Statute in this case 
when proposing a standard more stringent than ASHRAE 90.1, and 
recommended by 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. The same analytic 
methodologies are used in both baselines. Key analyses (using both 
baselines) are summarized in this Executive Summary in Tables I-2: 
Impacts of Proposed Energy Conservation Standards on Consumers of 
SPVUs; I-3: Summary of National Economic Benefits and Costs of Proposed 
SPVU Energy Conservation Standards; and I-4 and I-5: Annualized 
Benefits and Costs of Proposed Energy Conservation Standards for SPVUs. 
Additional analyses are presented in section V.C of this preamble, and 
in the NOPR 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 2013). In all cases, the baseline(s) used are 
indicated in the analyses.
    In overview, the average LCC savings are positive for the equipment 
classes for which standards higher than the levels in ASHRAE 90.1-2013 
are being proposed. DOE did not evaluate economic impacts to the 
consumers of

[[Page 78617]]

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 NOPR TSD. DOE also presents results for the 
parallel class of SPVHPs >=65,000 Btu/h and <135,000 Btu/h using the 
EPCA baseline.\4\ DOE did not evaluate economic impacts for the large 
equipment classes because there are no models on the market, and, 
therefore, no consumers.\5\
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    \4\ However, there are no models available on the market for 
this class, and therefore these results are not carried into the 
national impact analysis or other downstream analyses.
    \5\ 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).

                     Table I.2--Impacts of Proposed Energy Conservation Standards on Consumers of SPVUs for ASHRAE and EPCA Baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Average LCC savings 2013$                 Median payback period years
            Equipment class               Cooling capacity Btu/h  --------------------------------------------------------------------------------------
                                                                         ASHRAE baseline        EPCA baseline       ASHRAE baseline        EPCA baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
Single Package Vertical Air             <65,000 Btu/h............  $179......................            $261  8.4......................            10.4
 Conditioner.
Single Package Vertical Air             >=65,000 Btu/h and         Adopt ASHRAE..............             737  Adopt ASHRAE.............             7.0
 Conditioner.                            <135,000 Btu/h.
Single Package Vertical Air             >=135,000 Btu/h and        Adopt ASHRAE..............             N/A  Adopt ASHRAE.............             N/A
 Conditioner.                            <240,000 Btu/h.
Single Package Vertical Heat Pump.....  <65,000 Btu/h............  $424......................             382  4.8......................             9.3
Single Package Vertical Heat Pump.....  >=65,000 Btu/h and         Adopt ASHRAE..............             241  Adopt ASHRAE.............            10.9
                                         <135,000 Btu/h.
Single Package Vertical Heat Pump.....  >=135,000 Btu/h and        Adopt ASHRAE..............             N/A  Adopt ASHRAE.............             N/A
                                         <240,000 Btu/h.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Expected life of SPVUs is on average 15 years.

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,\6\ DOE estimates that the INPV for manufacturers of SPVUs is 
$36.5 million in 2013$ using ASHRAE 2013 as a baseline. The INPV of 
SPVUs from the EPCA baseline can be found in chapter 12 of the NOPR 
TSD. Under the proposed standards, DOE expects that manufacturers may 
lose up to 9.0 percent of their INPV, which is approximately $3.3 
million.
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    \6\ 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 HVAC final rules. DOE presented the draft financial metrics 
to manufacturer in 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 TSD chapter 12.
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C. National Benefits \7\
---------------------------------------------------------------------------

    \7\ All monetary values in this section are expressed in 2013 
dollars and are discounted to 2014. National benefits apply only to 
DOE's proposed standard levels that are higher than the ASHRAE 
levels, and impacts are presented as compared to the ASHRAE 90.1-
2013 level as baseline. For equipment classes where DOE is proposing 
the ASHRAE levels, national benefits do not accrue.
---------------------------------------------------------------------------

    DOE's analyses indicate that the proposed energy conservation 
standards for SPVUs would save a significant amount of energy. The 
cumulative energy savings for SPVUs purchased in the 30-year period 
that begins in the year of compliance with amended standards (2019-
2048) amount to 0.23 quadrillion Btus (quads) using ASHRAE as a 
baseline. This is a savings of 6 percent relative to the energy use of 
this equipment.\8\ Energy savings using EPCA as a baseline can be found 
in chapter 10 of the NOPR TSD.
---------------------------------------------------------------------------

    \8\ The base case assumptions are described in section IV.G.
---------------------------------------------------------------------------

    The cumulative net present value (NPV) of total customer costs and 
savings of the proposed SPVU standards ranges from $0.11 billion (at a 
7-percent discount rate) to $0.44 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 NOPR 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.
    In addition, the proposed standards would have significant 
environmental benefits. The energy savings described above using the 
ASHRAE baseline would result in cumulative emission reductions (over 
the same period as for energy savings) of 20 million metric tons (Mt) 
\9\ of carbon dioxide (CO2), 59 thousand tons of methane, 53 
thousand tons of sulfur dioxide (SO2), 18 thousand tons of 
nitrogen oxides (NOX), and 0.06 tons of mercury (Hg).\10\ 
The cumulative reduction in CO2 emissions through 2030 
amounts to 2.2 Mt. Emissions results using the EPCA baseline can be 
found in chapter 13 of the NOPR TSD, and cumulative reduction in 
CO2 emissions through 2030 amounts to 4.7 Mt relative to the 
EPCA baseline.
---------------------------------------------------------------------------

    \9\ A metric ton is equivalent to 1.1 short tons. Results for 
NOX and Hg are presented in short tons.
    \10\ DOE calculated emissions reductions relative to the Annual 
Energy Outlook 2013 (AEO 2013) Reference case, which generally 
represents current legislation and environmental regulations for 
which implementing regulations were available as of December 31, 
2012. Emissions factors based on the Annual Energy Outlook 2014 (AEO 
2014), which became available too late for incorporation into this 
analysis, indicate that a significant decrease in the cumulative 
emission reductions of carbon dioxide and most other pollutants can 
be expected if the projections of power plant utilization assumed in 
AEO 2014 are realized. For example, the estimated amount of 
cumulative emission reductions of CO2 is expected to 
decrease by 33% from DOE's current estimate based on the projections 
in AEO 2014 relative to AEO 2013. The monetized benefits from GHG 
reductions would likely decrease by a comparable amount. DOE plans 
to use emissions factors based on the most recent AEO available for 
the next phase of this rulemaking, which may or may not be AEO 2014, 
depending on the timing of the issuance of the next rulemaking 
document.
---------------------------------------------------------------------------

    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.\11\ The derivation of

[[Page 78618]]

the SCC values is discussed in section IV.K. DOE estimates that the 
present monetary value of the CO2 emissions reduction 
described above is between $0.12 and $1.9 billion using the ASHRAE 
baseline. DOE also estimates the present monetary value of the 
NOX emissions reduction using the ASHRAE baseline is $7.3 
million at a 7-percent discount rate and $21 million at a 3-percent 
discount rate.\12\ Results using the EPCA baseline can be found in 
chapter 14 of the NOPR TSD.
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    \11\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
    \12\ DOE is currently investigating valuation of avoided Hg and 
SO2 emissions.
---------------------------------------------------------------------------

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

 Table I.3--Summary of National Economic Benefits and Costs of Proposed SPVU Energy Conservation Standards using
                                           ASHRAE and EPCA Baselines*
----------------------------------------------------------------------------------------------------------------
                                                                    Present value  Billion 2013$
                                                                   ------------------------------  Discount rate
                             Category                                   ASHRAE          EPCA             %
                                                                       baseline       baseline
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings...................................         0.49            1.0                 7
                                                                           1.2             2.6                 3
CO2 Reduction Monetized Value ($12.0/t case)**....................         0.12            0.26                5
CO2 Reduction Monetized Value ($40.5/t case)**....................         0.60            1.2                 3
CO2 Reduction Monetized Value ($62.4/t case)**....................         1.0             2.0               2.5
CO2 Reduction Monetized Value ($119/t case)**.....................         1.9             3.8                 3
NOX Reduction Monetized Value (at $2,684/ton)**...................         0.0073          0.015               7
                                                                           0.021           0.042               3
                                                                   ---------------------------------------------
    Total Benefits[dagger]........................................         1.1             2.3                 7
                                                                           1.9             3.8                 3
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Consumer Incremental Installed Costs..............................         0.38            0.77                7
                                                                           0.79            1.5                 3
----------------------------------------------------------------------------------------------------------------
                                                  Net Benefits
----------------------------------------------------------------------------------------------------------------
Including CO2 and NOX Reduction Monetized Value...................         0.72            1.5                 7
                                                                           1.1             2.3                 3
----------------------------------------------------------------------------------------------------------------
* This table presents the costs and benefits associated with SPVU shipped in 2019-2048. These results include
  benefits to customers which accrue after 2044 from the equipment purchased in 2019-2048. The results account
  for the incremental variable and fixed costs incurred by manufacturers due to the amended standard, some of
  which may be incurred in preparation for this final rule.
** The CO2 values represent global monetized values of the SCC, in 2013$, in 2015 under several scenarios of the
  updated SCC values. The first three cases use the averages of SCC distributions calculated using 5%, 3%, and
  2.5% discount rates, respectively. The fourth case represents the 95th percentile of the SCC distribution
  calculated using a 3% discount rate. The SCC time series used by DOE incorporates an escalation factor.\13\
[dagger] Total Benefits for both the 3% and 7% cases are derived using the series corresponding to SCC value of
  $40.5/t in 2015.

    The benefits and costs of these proposed standards, for equipment 
sold in 2019-2048, can also be expressed in terms of annualized values. 
The annualized monetary values are the sum of: (1) The annualized 
national economic value of the benefits from customer operation of 
equipment that meet the proposed standards (consisting primarily of 
operating cost savings from using less energy, minus increases in 
equipment purchase and installation costs, which is another way of 
representing customer NPV); and (2) the annualized monetary value of 
the benefits of emission reductions, including CO2 emission 
reductions.\14\
---------------------------------------------------------------------------

    \13\ The CO2 and NOX results are based on 
emissions factors in AEO 2013, the most recent version available at 
the time of this analysis. Use of emissions factors in AEO 2014 
would result in a significant decrease in cumulative emissions 
reductions for CO2, estimated at 33%, and an increase in 
NOX, estimated at 13%. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
    \14\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2014, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of three and seven percent 
for all costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates, as 
shown in Table I.3. From the present value, DOE then calculated the 
fixed annual payment over a 30-year period (2019 through 2048) that 
yields the same present value. The fixed annual payment is the 
annualized value. Although DOE calculated annualized values, this 
does not imply that the time-series of cost and benefits from which 
the annualized values were determined is a steady stream of 
payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 emission reductions provides a useful perspective, two 
issues should be considered. First, the national operating savings are 
domestic U.S. customer monetary savings that occur as a result of 
market transactions, 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 equipment shipped in 2019-
2048. Because carbon dioxide emissions have a very long residence time 
in the

[[Page 78619]]

atmosphere,\15\ the SCC values reflect future climate-related impacts 
resulting from the emission of one ton of carbon dioxide that continue 
well beyond 2100.
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    Estimates of annualized benefits and costs of the proposed 
standards (over a 30-year period) 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 average SCC series that has a value of $40.5/t in 2015, 
the cost of the proposed standards is $29 million per year in increased 
equipment costs, while the benefits are $38 million per year in reduced 
equipment operating costs, $29 million from CO2 reductions, 
and $0.57 million from reduced NOX emissions. In this case, 
the annualized net benefit amounts to $38 million per year. Using a 3-
percent discount rate for all benefits and costs and the average SCC 
series that has a value of $40.5/t in 2015, the cost of the standards 
proposed in today's rule is $37 million per year in increased equipment 
costs, while the benefits are $58 million per year in reduced operating 
costs, $29 million from CO2 reductions, and $0.97 million in 
reduced NOX emissions. In this case, the net benefit amounts 
to $51 million per year.\16\ Results using the EPCA baseline are shown 
in Table I.5.
---------------------------------------------------------------------------

    \16\ All CO2 and NOX results shown in this 
paragraph are based on emissions factors in AEO 2013, the most 
recent version available at the time of this analysis. Use of 
emissions factors in AEO 2014 would result in a significant decrease 
in cumulative emissions reductions for CO2, estimated at 
33%, and an increase in NOX, estimated at 13%. In the 
next phase of this rulemaking, DOE plans to use emissions factors 
based on the most recent AEO available, which may or may not be AEO 
2014, depending on the timing of the issuance of the next rulemaking 
document.
    \17\ The CO2 and NOX results are based on 
emissions factors in AEO 2013, the most recent version available at 
the time of this analysis. Use of emissions factors in AEO 2014 
would result in a significant decrease in cumulative emissions 
reductions for CO2, estimated at 33%, and an increase in 
NOX, estimated at 13%. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.

          Table I.4--Annualized Benefits and Costs of Proposed Energy Conservation Standards for SPVUs
                                                [ASHRAE baseline]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                      Discount rate              Primary      Low net benefits      High net
                                                                estimate*         estimate*          benefits
                                                                                                    estimate*
                                                           -----------------------------------------------------
                                                                             million 2013$/year
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings.......  7%.........................  38..............  36..............  39.
                               3%.........................  58..............  55..............  61.
CO2 Reduction Monetized Value  5%.........................  7.7.............  7.6.............  7.7.
 ($12.0/t case)**.
CO2 Reduction Monetized Value  3%.........................  29..............  28..............  29.
 ($40.5/t case)**.
CO2 Reduction Monetized Value  2.5%.......................  43..............  42..............  43.
 ($62.4/t case)**.
CO2 Reduction Monetized Value  3%.........................  89..............  88..............  89.
 ($119/t case)**.
NOX Reduction Monetized Value  7%.........................  0.57............  0.56............  0.57.
 (at $2,684/ton)**.            3%.........................  0.97............  0.97............  0.98.
Total Benefits[dagger].......  7% plus CO2 range..........  46 to 127.......  44 to 125.......  48 to 129.
                               7%.........................  67..............  65..............  69.
                               3% plus CO2 range..........  67 to 148.......  63 to 144.......  70 to 151.
                               3%.........................  88..............  84..............  91.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs..  7%.........................  29..............  40..............  28.
                               3%.........................  37..............  53..............  36.
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
Total[dagger]................  7% plus CO2 range..........  17 to 98........  4 to 85.........  19 to 101.
                               7%.........................  38..............  25..............  40.
                               3% plus CO2 range..........  30 to 111.......  11 to 91........  34 to 115.
                               3%.........................  51..............  31..............  55.
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These
  results include benefits to customers which accrue after 2048 from the products purchased in 2019-2048. Costs
  incurred by manufacturers, some of which may be incurred in preparation for the rule, are not directly
  included, but are indirectly included as part of incremental equipment costs. The Primary, Low Benefits, and
  High Benefits Estimates utilize projections of energy prices and building growth (leading to higher shipments)
  from the AEO 2013 Reference case, Low Estimate, and High Estimate, respectively. In addition, incremental
  equipment costs reflect constant real prices for the Primary Estimate, an increase in projected equipment
  price trends for the Low Benefits Estimate, and a decline rate in projected equipment price trends for 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 SCC values, in 2013$, in 2015 under several scenarios. 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 incorporates an escalation factor. The value for NOX (in 2013$) is an
  average value.\17\
[dagger] Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average
  SCC with a 3% discount rate ($40.5/t case). In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2
  range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values
  are added to the full range of CO2 values.


[[Page 78620]]


          Table I.5--Annualized Benefits and Costs of Proposed Energy Conservation Standards for SPVUs
                                                 [EPCA baseline]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                      Discount rate              Primary      Low net benefits      High net
                                                                estimate*         estimate*          benefits
                                                                                                    estimate*
                                                           -----------------------------------------------------
                                                                             million 2013$/year
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Operating Cost Savings.......  7%.........................  80..............  76..............  83.
                               3%.........................  121.............  114.............  126.
CO2 Reduction Monetized Value  5%.........................  16..............  16..............  16.
 ($12.0/t case)**.
CO2 Reduction Monetized Value  3%.........................  58..............  58..............  59.
 ($40.5/t case)**.
CO2 Reduction Monetized Value  2.5%.......................  87..............  87..............  88.
 ($62.4/t case)**.
CO2 Reduction Monetized Value  3%.........................  181.............  181.............  182.
 ($119/t case)**.
NOX Reduction Monetized Value  7%.........................  1.2.............  1.2.............  1.2.
 (at $2,684/ton)**.
                               3%.........................  2.0.............  2.0.............  2.0.
Total Benefits[dagger].......  7% plus CO2 range..........  97 to 262.......  93 to 257.......  100 to 266.
                               7%.........................  139.............  135.............  143.
                               3% plus CO2 range..........  139 to 305......  132 to 297......  144 to 311.
                               3%.........................  182.............  174.............  187.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Incremental Equipment Costs..  7%.........................  60..............  79..............  58.
                               3%.........................  70..............  97..............  68.
----------------------------------------------------------------------------------------------------------------
                                               Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
Total[dagger]................  7% plus CO2 range..........  37 to 203.......  14 to 179.......  42 to 208.
                               7%.........................  80..............  56..............  85.
                               3% plus CO2 range..........  68 to 234.......  35 to 199.......  76 to 243.
                               3%.........................  111.............  77..............  119.
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with SPVUs shipped in 2019-2048. These
  results include benefits to customers which accrue after 2048 from the products purchased in 2019-2048. Costs
  incurred by manufacturers, some of which may be incurred in preparation for the rule, are not directly
  included, but are indirectly included as part of incremental equipment costs. The Primary, Low Benefits, and
  High Benefits Estimates utilize projections of energy prices and building growth (leading to higher shipments)
  from the AEO 2013 Reference case, Low Estimate, and High Estimate, respectively. In addition, incremental
  equipment costs reflect constant real prices for the Primary Estimate, an increase in projected equipment
  price trends for the Low Benefits Estimate, and a decline rate in projected equipment price trends for 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 SCC values, in 2013$, in 2015 under several scenarios. 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 incorporates an escalation factor. The value for NOX (in 2013$) is an
  average value.\18\
[dagger] Total benefits for both the 3% and 7% cases are derived using the series corresponding to the average
  SCC with a 3% discount rate ($40.5/t case). In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2
  range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those values
  are added to the full range of CO2 values.

    DOE has tentatively concluded that, based upon clear and convincing 
evidence, the proposed standards for the equipment classes with levels 
more stringent than those presented in ASHRAE Standard 90.1-2013 
represent the maximum improvement in energy efficiency that is 
technologically feasible and economically justified, and would result 
in the significant conservation of energy.\19\ DOE further notes that 
products achieving these standard levels are already commercially 
available for all equipment classes covered by this proposal.\20\ Based 
on the analyses described above, DOE has tentatively concluded that the 
benefits of the proposed standards to the Nation (energy savings, 
positive NPV of customer benefits, customer LCC savings, and emission 
reductions) would outweigh the burdens (loss of INPV for 
manufacturers). DOE also considered higher energy efficiency levels as 
trial standard levels, and is still considering them in this 
rulemaking. However, DOE has tentatively concluded that the potential 
burdens of the higher energy efficiency levels would outweigh the 
projected benefits.
---------------------------------------------------------------------------

    \18\ The CO2 and NOX results are based on 
emissions factors in AEO 2013, the most recent version available at 
the time of this analysis. Use of emissions factors in AEO 2014 
would result in a significant decrease in cumulative emissions 
reductions for CO2, estimated at 33%, and an increase in 
NOX, estimated at 13%. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
    \19\ DOE based this decision to set more stringent levels by 
using 2013 ASHRAE as the base case.
    \20\ As shown in section 3.8, chapter 3 of the Technical Support 
Document, for equipment less than 65,000 Btu/h, there are 42 SPVAC 
models and 69 SPVHP models available at 11 EER or higher.
---------------------------------------------------------------------------

    For the four equipment classes for which no models are available on 
the market at all, or for which there are no models with efficiency 
above those levels presented in ASHRAE 90.1-2013, DOE is proposing to 
adopt the levels in ASHRAE Standard 90.1-2013, per the statutory 
directive.
    Based on consideration of the public comments DOE receives in 
response to this NOPR and related information collected and analyzed 
during the course of this rulemaking effort, DOE may adopt energy 
efficiency levels presented in this NOPR that are either higher or 
lower than the proposed standards, or some combination of level(s) that 
incorporate the proposed standards in part.

[[Page 78621]]

    As noted previously, in compliance with EPCA, DOE based its 
determination to adopt more stringent standards on an analysis 
comparing these proposed standards with ASHRAE 2013 as the base case. 
DOE presents Table I.5 as requested in OMB Circular A-4.

II. Introduction

    The following section briefly discusses the statutory authority 
underlying this proposal, as well as some of the relevant historical 
background related to the establishment of standards for single package 
vertical air conditioners and single package vertical heat pumps.

A. Authority

    Title III, Part C \21\ of the Energy Policy and Conservation Act of 
1975 (``EPCA'' or ``the Act''), Pub. L. 94-163 (42 U.S.C. 6311-6317, as 
codified), added by Pub. L. 95-619, Title IV, Sec.  441(a), established 
the Energy Conservation Program for Certain Industrial Equipment, which 
includes the single package vertical air conditioners and single 
package vertical heat pumps that are the subjects of this 
rulemaking.\22\ In general, this program addresses the energy 
efficiency of certain types of commercial and industrial equipment. 
Relevant provisions of the Act specifically 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).
---------------------------------------------------------------------------

    \21\ For editorial reasons, upon codification in the U.S. Code, 
Part C was redesignated Part A-1.
    \22\ All references to EPCA in this document refer to the 
statute as amended through the American Energy Manufacturing 
Technical Corrections Act, Pub. L. 112-210 (enacted December 18, 
2012).
---------------------------------------------------------------------------

    EPCA contains mandatory energy conservation standards for 
commercial heating, air-conditioning, and water-heating equipment. (42 
U.S.C. 6313(a)) Specifically, the statute sets standards for small, 
large, and very large commercial package air-conditioning and heating 
equipment, packaged terminal air conditioners (PTACs) and packaged 
terminal heat pumps (PTHPs), warm-air furnaces, packaged boilers, 
storage water heaters, instantaneous water heaters, and unfired hot 
water storage tanks. Id. In doing so, 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 
Standard 90.1-1989), for each type of covered equipment listed in 42 
U.S.C. 6313(a). The Energy Independence and Security Act of 2007 (EISA 
2007), Pub. L. 110-240, amended EPCA by adding definitions and setting 
minimum energy conservation standards for single package vertical air 
conditioners (SPVACs) and single package vertical heat pumps (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.
    EPCA requires that DOE must 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 in ASHRAE Standard 90.1, 
unless clear and convincing evidence supports a determination that 
adoption of a more-stringent level would produce significant additional 
energy savings and be technologically feasible and economically 
justified. (42 U.S.C. 6313(a)(6)(A)(ii)) In addition, DOE notes that 
pursuant to the EISA 2007 amendments to EPCA, under 42 U.S.C. 
6313(a)(6)(C), the agency must periodically review its already-
established energy conservation standards for ASHRAE equipment. In 
December 2012, this provision was further amended by the American 
Energy Manufacturing Technical Corrections Act (AEMTCA) to clarify that 
DOE's periodic review of ASHRAE equipment must occur ``[e]very six 
years.'' (42 U.S.C. 6313(a)(6)(C)(i))
    AEMTCA also modified EPCA to specify that any amendment to the 
design requirements with respect to the ASHRAE equipment, would trigger 
DOE review of the potential energy savings under U.S.C. 
6313(a)(6)(A)(i). Additionally, AEMTCA amended EPCA to require that if 
DOE proposes an amended standard for ASHRAE equipment at levels more 
stringent than those in ASHRAE Standard 90.1, DOE, in deciding whether 
a standard is economically justified, must determine, after receiving 
comments on the proposed standard, whether the benefits of the standard 
exceed its burdens by considering, to the maximum extent practicable, 
the following seven factors:
    (1) The economic impact of the standard on manufacturers and 
consumers of the products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the product in the type (or class) compared to any increase in 
the price, initial charges, or maintenance expenses of the products 
likely to result from the standard;
    (3) The total projected amount of energy savings likely to result 
directly from the standard;
    (4) Any lessening of the utility or the performance of the products 
likely to result from the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
standard;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary considers relevant. (42 U.S.C. 
6313(a)(6)(B)(ii))
    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 this rulemaking by 
analyzing amended standards consistent with the procedures defined 
under 42 U.S.C. 6313(a)(6)(C). Specifically, pursuant to 42 U.S.C. 
6313(a)(6)(C)(i)(II), DOE, must use the procedures established under 
subparagraph (B) when issuing a NOPR. The statutory

[[Page 78622]]

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 following seven factors, as 
stated previously.
    However, before DOE could finalize this NOPR, ASHRAE acted on 
October 9, 2013 to adopt ASHRAE Standard 90.1-2013, and this revision 
did contain 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 determines 
that there is clear and convincing evidence supporting the adoption of 
more-stringent energy conservation standards than the ASHRAE levels. 
Consequently, DOE prepared an analysis of the energy savings potential 
of amended standards at the ASHRAE Standard 90.1 levels (as required by 
42 U.S.C. 6313(a)(6)(A)(i)) and updated this NOPR and accompanying 
analyses to reflect appropriate statutory provision, timelines, and 
compliance dates.
    DOE has tentatively concluded that following this rulemaking 
process will provide ``clear and convincing evidence'' that for two 
equipment classes for which the proposed standards are more stringent 
than those set forth in ASHRAE Standard 90.1-2013 would result in 
significant additional conservation of energy and would be 
technologically feasible and economically justified, as mandated by 42 
U.S.C. 6313(a)(6). For the other four equipment classes, DOE has 
tentatively concluded to adopt the levels set forth in ASHRAE Standard 
90.1-2013.
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not 
prescribe an amended or new standard if interested persons have 
established by a preponderance of the evidence that the standard is 
likely to result in the unavailability in the United States of any 
covered product type (or class) of performance characteristics 
(including reliability), features, sizes, capacities, and volumes that 
are substantially the same as those generally available in the United 
States. (42 U.S.C. 6313(a)(6)(B)(iii)(II))
    Further, EPCA, as codified, establishes a rebuttable presumption 
that a standard is economically justified if the Secretary finds that 
the additional cost to the customer of purchasing a product complying 
with an energy conservation standard level will be less than three 
times the value of the energy (and, as applicable, water) savings 
during the first year that the consumer will receive as a result of the 
standard, as calculated under the applicable test procedure.
    Additionally, when a type or class of covered equipment such as 
ASHRAE equipment, has two or more subcategories, DOE often specifies 
more than one standard level. DOE generally will adopt a different 
standard level than that which applies generally to such type or class 
of products for any group of covered products that have the same 
function or intended use if DOE determines that products within such 
group: (A) Consume a different kind of energy from that consumed by 
other covered products within such type (or class); or (B) have a 
capacity or other performance-related feature which other products 
within such type (or class) do not have and which justifies a higher or 
lower standard. In determining whether a performance-related feature 
justifies a different standard for a group of products, DOE generally 
considers such factors as the utility to the customer of the feature 
and other factors DOE deems appropriate. In a rule prescribing such a 
standard, DOE includes an explanation of the basis on which such higher 
or lower level was established. DOE followed a similar process in the 
context of this rulemaking.

B. Background

    Single package vertical units primarily serve modular classroom 
buildings in educational facilities; telecommonunications and 
electronics enclosures; and offices and other miscellaneous commercial 
buildings. 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.
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 pump 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 on the market at these cooling capacities.


[[Page 78623]]

2. History of Standards Rulemaking for Single Package Vertical Air 
Conditioners and Single Package Vertical Heat Pumps
    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 (EPACT 2005) had revised the language in 42 
U.S.C. 6313(a)(6)(A)(i) \23\ 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 SPVU 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).
---------------------------------------------------------------------------

    \23\ The relevant language in 42 U.S.C. 6313(a)(6)(A)(i) was 
subsequently revised by EISA 2007 to remove the reference to January 
1, 2010.
---------------------------------------------------------------------------

    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 which 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 notice of proposed rulemaking 
(January 2012 NOPR) in which it proposed to incorporate by reference 
the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) 
Standard 390-2003, ``Performance 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. DOE also decided to conduct additional analysis for 
SPVUs to consider more-stringent standards. Id. at 2359. On May 16, 
2012, DOE published a final 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. That final rule (as with the NOPR) did not contain amended 
standards for SPVUs, as DOE decided to consider more-stringent 
standards for such equipment on a separate timeline.
    However, as noted before, during the course of the present 
rulemaking, ASHRAE acted on October 9, 2013, to adopt 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 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 Notice of Data Availability (NODA) in the Federal 
Register on April 11, 2014. 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 two 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). However, given the advanced stage of the NOPR and DOE's 
rulemaking process (including analysis of the levels ultimately adopted 
by ASHRAE in Standard 90.1-2013), the Department plans to move as 
expeditiously as possible and in advance of the statutory deadlines 
associated with the ASHRAE trigger. With that said, this NOPR is the 
next step for DOE's analysis of amended energy conservation standards 
for SPVUs.
    In developing this NOPR, DOE reviewed the 11 comments it received 
in response to the April 2014 NODA. Commenters included: First Co.; 
Lennox International Inc.; National Comfort Products (NCP); 
Earthjustice; Goodman Global, Inc.; California Investor-Owned Utilities 
(CA IOUs); GE Appliances; Appliance Standards Awareness Project (ASAP), 
the American Council for an Energy-Efficient Economy (ACEEE), the 
National Resources Defense Council (NRDC), and the Northwest Energy 
Efficiency Alliance (jointly referred to as the Advocates); Daikin 
Applied; Edison Electric Institute (EEI); and Air-Conditioning, Heating 
& Refrigeration Institute (AHRI). All comments relevant to SPVU (as 
opposed to the other products discussed in the April 2014 NODA) are 
discussed in this NOPR.
    In general, AHRI, Lennox International, Goodman Global, Daikin 
Applied, and EEI recommended that DOE should adopt the ASHRAE 90.1-2013 
values as minimum standards for all considered equipment, including 
SPVUs. (AHRI, No. 24 at p. 1, Lennox International Inc., No. 15 at p. 
2; Goodman Global, Inc., No. 18 at p. 4; Daikin Applied, No. 22 at p. 
1; EEI, No. 23 at p. 2) In contrast, the CA IOUs, as well as the 
Advocates stated that the DOE should adopt more-stringent levels for 
certain equipment types, including SPVU, because of the potential 
energy

[[Page 78624]]

savings. (CA IOUs, No. 19 at pp. 2-3; The Advocates, No. 21 at p. 1)
    After careful consideration of the public comments and the 
available information, DOE has tentatively decided to propose energy 
conservation standards more stringent than those set forth in ASHRAE 
Standard 90.1-2013 for two SPVU equipment classes and to propose 
adoption of the levels set forth in ASHRAE Standard 90.1-2013 for the 
remaining four SPVU equipment classes. Comments specific to individual 
issues or analyses are discussed in the relevant sections that follow.

III. General Discussion

A. Compliance Dates

    As noted above, this rulemaking was initiated pursuant to an EISA 
2007 amendment to EPCA that requires DOE to conduct a one-time review 
of the standard levels for SPVUs under the procedures established in 
paragraph (6) of 42 U.S.C. 6313(a). (42 U.S.C. 6313(a)(10)(B)) 
Paragraph (6) contains a number of possible compliance dates for any 
resulting amended standards, which vary depending on the type of 
equipment, the triggering mechanism for DOE review (i.e., whether DOE 
is triggered by a revision to ASHRAE Standard 90.1 or by the ``6-year 
look back'' requirement), and the action taken (i.e., whether DOE is 
adopting ASHRAE Standard 90.1 levels or more-stringent levels). The 
discussion below explains the potential compliance dates as they 
pertain to the present rulemaking.
    Under the first relevant provision, EPCA requires that when ASHRAE 
Standard 90.1 is amended with respect to certain commercial equipment, 
DOE must amend its minimum standards to either adopt levels equivalent 
to the ASHRAE Standard 90.1 levels, or to adopt more-stringent levels. 
(42 U.S.C. 6313(a)(6)(A)(ii)) If DOE adopts the ASHRAE Standard 90.1 
levels as Federal standard levels, compliance with the amended Federal 
standards is required either two or three years from the effective date 
of the ASHRAE Standard 90.1 level, depending on the equipment type. (42 
U.S.C. 6313(a)(6)(D)) For small commercial package air-conditioning and 
heating equipment, PTACs, PTHPs, warm-air furnaces, packaged boilers, 
storage water heaters, instantaneous water heaters, and unfired hot 
water storage tanks, compliance is required two years after the 
effective date of the applicable minimum energy efficiency requirement 
in the amended ASHRAE Standard 90.1. For large and very large 
commercial package air-conditioning and heating equipment, compliance 
is required three years after the effective date of the applicable 
minimum energy efficiency requirement in the amended ASHRAE Standard 
90.1. If DOE adopts more-stringent standard levels than the levels 
contained in the amended ASHRAE Standard 90.1 for any type of 
equipment, compliance is required four years after the date such final 
rule is published in the Federal Register. Id.
    Under the second relevant provision, EPCA requires that at least 
once every 6 years, DOE must review standards for covered equipment and 
publish either a notice of determination that standards do not need to 
be amended or a NOPR proposing new standards. (42 U.S.C 6313(a)(6)(C)) 
For any NOPR published pursuant to 42 U.S.C. 6313(a)(6)(C), the final 
rule would apply on the date that is the later of either 3 years after 
publication of the final rule establishing a new standard, or 6 years 
after the effective date of the current standard for a covered product. 
(42 U.S.C. 6313(a)(6)(C)(iv)).
    In the context of the current rulemaking, when DOE first commenced 
the rulemaking process, ASHRAE had not released a full revision of 
ASHRAE Standard 90.1 that revises the minimum energy efficiency 
requirements for SPVUs. Thus, DOE initially determined the procedural 
requirements of 42 U.S.C. 6313(a)(6)(C) to be applicable, and 
accordingly, DOE anticipated a compliance date of 2017, or 3 years 
after the expected publication of the final rule in 2014.\24\
---------------------------------------------------------------------------

    \24\ 2017 is the later date compared to the alternative of 6 
years after the effective date of the current standard, which would 
be 2016 (as the current SPVU standards became effective in 2010).
---------------------------------------------------------------------------

    However, as DOE expected might happen, ASHRAE released a revision 
of ASHRAE Standard 90.1 on October 9, 2013, consistent with its recent 
practice of releasing a full revision of ASHRAE Standard 90.1 every 3 
years. Because this revision increased the energy efficiency 
requirements for SPVUs in ASHRAE Standard 90.1, DOE was triggered to 
act on the ASHRAE Standard 90.1 levels for SPVUs pursuant to 42 U.S.C. 
6313(a)(6)(A), and consequently, this rulemaking will simultaneously 
satisfy the requirements of 42 U.S.C. 6313(a)(6)(A), 42 U.S.C. 
6313(a)(6)(C), and 42 U.S.C. 6313(a)(10)(B). However, in this case, DOE 
believes that the statutory lead time for compliance under such 
circumstances must ultimately be dictated by the requirements of 42 
U.S.C. 6313(a)(6)(A), given that there is now an ``ASHRAE trigger'' 
upon which DOE is acting. Thus, DOE will use the compliance dates 
specified under 42 U.S.C. 6313(a)(6)(D) for analyzing amended standards 
in the final rule. More specifically, if DOE adopts the ASHRAE Standard 
90.1-2013 levels for certain SPVU equipment classes, as proposed, the 
applicable compliance date would be two or three years after the 
effective date of the applicable ASHRAE standard, depending on 
equipment size (i.e., by October 9, 2015 or October 9, 2016).\25\ If 
DOE adopts more-stringent standards for certain other SPVU equipment 
classes, as proposed, the applicable compliance date would be four 
years after publication of the final rule in the Federal Register.
---------------------------------------------------------------------------

    \25\ 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 two 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 three 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 products into equipment classes by the type of energy 
used or by capacity or other performance-related features that 
justifies a different standard. In making a determination whether a 
performance-related feature justifies a different standard, DOE must 
consider such factors as the utility to the consumer of the feature and 
other factors DOE determines are appropriate.
    Existing energy conservation standards group SPVUs into the 
following six equipment classes based on the cooling capacity and 
whether the equipment is an air conditioner or a heat pump:

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

[[Page 78625]]

 
Single Package Vertical Heat Pumps........  <65,000.
                                            >=65,000 and <135,000.
                                            >=135,000 and <240,000.
------------------------------------------------------------------------
10 Code of Federal Regulations (CFR) 431.97(d).

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 applications, with a definition for ``nonweatherized 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 currently listed by manufacturers 
as SPVUs, most of which would meet the ASHRAE space-constrained 
definition, are being misclassified and should be classified as central 
air conditioners (in most cases, space-constrained central air 
conditioners). 79 FR 20114, 20123 (April 11, 2014).
    In response to the April 2014 NODA, AHRI and NCP requested that DOE 
adopt the new ASHRAE 90.1-2013 space-constrained SPVU product class. 
(AHRI, No. 24 at pp. 1-2; NCP, No. 16 at p. 3) First Co. disagreed with 
DOE's conclusion that space-constrained SPVUs should be regulated as 
consumer products rather than commercial equipment and stated that 
increasing energy conservation standards for SPVU should be done by 
changing EER/COP, as ASHRAE has done, not by reclassifying them as 
consumer products. (First Co. No. 14 at p. 1)
    DOE does not agree with these commenters and has provided responses 
to specific concerns below.
    Lennox and NCP stated that multi-family structures above 3 stories 
are considered commercial buildings by both EPCA and ASHRAE Standard 
90.1. (Lennox International, No. 15 at p. 4; NCP, No. 16 at pp. 7-8) 
AHRI added that hotels, apartments, and dormitories are all commercial 
applications in building types falling within the scope of ASHRAE 
Standard 90.1. (AHRI, No. 24 at p. 4) NCP argued that SPVUs are 
distributed to a significant extent for commercial applications, 
including commercial lodging such as student housing and dormitories, 
nursing homes, assisted care facilities, hotels, and high-rise 
apartment buildings. (NCP, No. 16 at p. 10) GE, Lennox, and AHRI 
analogized that many SPVU are distributed in the same market segments 
as PTAC/PTHP, which is a type of commercial equipment. (GE Appliances, 
No. 20 at p. 2; Lennox International, No. 15 at p. 4; AHRI, No. 24 at 
p. 4)
    GE, Lennox, and AHRI stated that SPVU are sold to commercial 
entities and that consumers are never involved in those sale 
transactions. (GE Appliances, No. 20 at p. 2; Lennox International, No. 
15 at p. 5; AHRI, No. 24 at p. 5) Lennox added that SPVUs (including 
space-constrained models) involve a much higher degree of design 
integration than residential split system central air conditioners. 
(Lennox International, No. 15 at p. 5) NCP argued that while SPVUs may 
be used temporarily by individual occupants, over their life, they are 
owned and maintained by the commercial entities that own the buildings. 
(NCP, No. 16 at p. 7) NCP also added that characterizing SPVUs used in 
lodging as consumer products is going overbroad, because it overlooks 
the energy use constraints of various multi-family building 
configurations. (NCP, No. 16 at p. 3)
    DOE notes that the definitions for ``consumer product'' and 
``industrial equipment'' in EPCA are not dependent on the definition of 
residential or commercial buildings found elsewhere in EPCA or in 
ASHRAE Standard 90.1. As discussed in the April 2014 ASHRAE NODA, EPCA 
defines ``industrial equipment'' as any article of equipment of certain 
specified types that consumes, or is designed to consume, energy, which 
is distributed to any significant extent for industrial and commercial 
use, and which is not a covered product as defined in 42 U.S.C. 
6291(2),\26\ without regard to whether such article is in fact 
distributed in commerce for industrial or commercial use. (42 U.S.C. 
6311(2)(A)) EPCA defines ``consumer product'' as any article: (1) Of a 
type that consumes or is designed to consume energy, and, to any 
significant extent, is distributed in commerce for personal use or 
consumption by individuals, (2) without regard to whether such article 
of such type is in fact distributed in commerce for personal use or 
consumption by an individual. (42 U.S.C. 6291(1)) Consistent with the 
NODA and these relevant statutory provisions, DOE maintains that 
products serving individual rooms in multi-family and lodging 
applications is for personal use or consumption by individuals, 
regardless of who designed the system, was involved in the sale 
transaction, or maintains the equipment. In addition, DOE found 
similarities between units designed for multi-family applications and 
those intended for commercial lodging applications, indicating that 
those products should be treated the same under DOE's regulatory 
scheme.
---------------------------------------------------------------------------

    \26\ The term ``covered product'' means a consumer product of a 
type specified in section 6292 of this title. (42 U.S.C. 6291(2)) 
Central air conditioners and central air conditioning heat pumps are 
listed as a covered product in section 6292. (42 U.S.C. 6292(a)(3))
---------------------------------------------------------------------------

    Furthermore, the definitions of ``industrial equipment'' and 
``consumer product'' are mutually exclusive. A product can only be 
considered commercial/industrial equipment under EPCA if it does not 
fit the definition of consumer product. PTACs, referenced by 
stakeholders as commercial equipment with applications similar to 
space-constrained SPVUs, are not relevant to this argument because the 
definition for ``central air conditioner'' explicitly excludes PTACs 
(see 42 U.S.C. 6291(21)). Therefore, DOE differentiates these 
situations, because while many of the products that would meet the 
ASHRAE definition for a space-constrained SPVU would also meet the EPCA 
definition for central air conditioner, PTACs cannot meet the latter 
definition because they are explicitly excluded.
    Lennox and AHRI stated that in the November 4, 2013 proposed rule, 
``Energy Conservation Program for Consumer Products and Certain 
Commercial and Industrial Equipment: Test Procedures for Residential 
and Commercial Water Heaters,'' (78 FR 66202), DOE recognized that 
there are commercial water heaters that ``could have residential 
applications,'' yet DOE specifically chose not to treat that equipment 
as a consumer covered product because it would be distributed to a 
(more) significant extent as a commercial product. (Lennox 
International, No. 15 at p. 5; AHRI, No. 24 at p. 5) NCP agreed that 
DOE should regulate SPVU in the same manner as DOE recently proposed 
for light commercial water heaters. (NCP, No. 16 at p. 10) Lennox 
International, AHRI, and NCP all maintain that SPVUs are used to a 
significant extent in commercial applications and more rarely in 
residential applications. (Lennox International, No. 15 at p. 5; AHRI, 
No. 24 at p. 5; NCP, No. 16 at p. 10)
    To clarify this issue, DOE provides the following excerpt from the 
November 2013 NOPR, along with additional information. The specific

[[Page 78626]]

reference from the November 2013 NOPR is as follows: ``Although light 
commercial water heaters could have residential applications, DOE notes 
that the new `light commercial water heater' definition represents a 
type of water heater that, to a significant extent, is distributed in 
commerce for industrial or commercial use. These water heaters were and 
continue to be covered industrial equipment, and, if these proposals 
are finalized, will continue to be subject to the regulations in part 
431 and the certification requirements for commercial and industrial 
equipment in part 429.'' 78 FR 66202, 66207 (Nov. 4, 2013). One must 
keep in mind that EPCA's definition addressing various types of ``water 
heater[s]'' contains specific limitations on the input capacities for 
such models to be considered consumer products. (42 U.S.C. 6291(27); 
codified at 10 CFR 430.2) DOE further notes that the proposed 
definition for ``light commercial water heater'' makes the equipment a 
subtype of commercial water heater. 78 FR 66202, 66207 (Nov. 4, 2013). 
Commercial storage and instantaneous water heaters are specifically 
listed in EPCA as a type of industrial equipment at 42 U.S.C. 
6313(1)(K) and defined at 42 U.S.C. 6311(12), and there are a number of 
related definitions in DOE's regulations (see 10 CFR 431.102). 
Therefore, under the statutory scheme, equipment can only be classified 
as a ``light commercial water heater'' if it does not meet the 
definition of a ``water heater'' under 10 CFR 430.2. In the same way, 
space-constrained SPVUs can only be classified as industrial equipment 
if they do not meet the definition of ``central air conditioner'' or 
any other covered consumer product.
    Lennox, NCP, and AHRI also referred to the history of SPVUs, 
stating that all SPVUs were previously classified as central air 
conditioners; the product class was not introduced in ASHRAE Standard 
90.1 until the 2004 version and not established in EPCA until EISA 
2007, which explicitly separated out SPVUs as type of covered 
equipment. (NCP, No. 16 at p. 9; Lennox International, No. 15 at p. 3; 
AHRI, No. 24 at pp. 3-4) NCP and Lennox added that EISA 2007 specified 
that SPVACs include equipment that is mounted ``through an outside 
wall,'' expressly contemplating space-constrained units. (NCP, No. 16 
at p. 9; Lennox International, No. 15 at pp. 2-3) NCP commented that in 
an October 2000 NOPR (65 FR 59590, 59610 (Oct. 5, 2000)), DOE proposed 
creating standards for SPVUs as a niche product, noting that SPVUs 
``are not distributed for personal use or consumption by individuals, 
and therefore believes that at present they are commercial products. . 
. .'' NCP added that the NOPR (Id.) acknowledged that ``the difficult 
air flow configuration . . . combined with the attempt to minimize the 
size constrains the ability of these units to attain higher SEERs.'' 
(NCP, No. 16 at p. 9)
    DOE disagrees that all SPVUs were classified as residential central 
air conditioners prior to EISA 2007. Traditional (non-space 
constrained) SPVU units and three-phase units would have been 
classified either as commercial air conditioners or not covered. 
Furthermore, in the April 2014 NODA, DOE was referring to products 
classified as through-the-wall (TTW) until January 23, 2010 (when TTW 
was removed as a product class and TTW products had to meet the 
regulatory requirements for other central air conditioner product 
classes). 79 FR 20114, 20121-23 (April 11, 2014). In regards to the 
intent of EISA 2007 and the October 2000 NOPR, DOE notes that before 
ASHRAE released Addendum ``i'' to Standard 90.1-2010 in March 2011, 
there was no such thing as a space-constrained SPVU equipment class. 
Prior to that time, any references to SPVUs were in regards to 
traditional units that were not limited in size. Consistent with DOE's 
position in the October 2000 NOPR, EISA 2007 added SPVUs as a type of 
commercial equipment, but Congress declined to distinguish a separate 
equipment class for space-constrained SPVUs. DOE notes that the October 
2000 NOPR also considered niche products called ``through-the-wall 
condensers,'' which were proposed for a separate residential product 
class.\27\ 65 FR 59590, 59610 (Oct. 5, 2000). It is in this product 
class that DOE expressly contemplated residential space-constrained 
units, including those models previously classified as TTW that 
manufacturers are now attempting to classify as SPVUs. DOE does not 
believe the design, market, and application for these space-constrained 
units has changed substantially over the past 10 years. In fact, DOE 
believes the space-constrained products are properly classified, as 
they were once certified, as central air conditioners, a practice which 
changed only when the TTW product class was combined with the space-
constrained product class and compliance with amended standards for 
these product classes was required. Based upon the above reasoning, DOE 
does not see a basis or a need for the space-constrained SPVU equipment 
class, as these basic models are already covered products as space-
constrained central air conditioners. Any product that meets the 
definition of a ``consumer product'' (42 U.S.C. 6291(1)) is classified 
as a consumer product and must meet any applicable energy conservation 
standard, regardless of whether it is used in a commercial application 
or marketed as commercial equipment.
---------------------------------------------------------------------------

    \27\ A TTW product class was created in a May 2002 final rule 
(67 FR 36368 (May 23, 2002)) and was replaced by the residential 
space-constrained product class in a June 2011 Direct Final Rule (76 
FR 37408, (June 27, 2011)).
---------------------------------------------------------------------------

    Lennox and AHRI asserted that the existing base of SPVU products in 
commercial buildings with fixed physical-dimension requirements limits 
the ability of manufacturers to increase efficiency; this was the 
reason for ASHRAE's development of the space-constrained SPVU equipment 
class. (Lennox International No. 15 at p. 5; AHRI No. 24 at p. 5) NCP 
stated that lodging and commercial SPVACs are configured for ease of 
access and maintenance, which impacts efficiency. (NCP, No. 16 at pp. 
7-8) NCP added that the presence of multiple units venting to the 
outside also would affect an individual unit's ultimate performance. 
(NCP, No. 16 at p. 7) Lennox commented that space-constrained SPVU 
cannot meet the efficiency levels of residential units. (Lennox 
International, No. 15 at pp. 5-6)
    DOE notes that while equipment meeting the ASHRAE Standard 90.1 
definition of a space-constrained SPVU may in fact be constrained in 
efficiency, the presence of the space-constrained central air 
conditioner (CAC) equipment class already provides respite for these 
products. The SEER requirement for space-constrained CAC is 12 SEER, 
one point below the current standards for CAC and two points below the 
standard for some CACs (split system CACs in the South and all single 
package CACs) beginning January 1, 2015. (10 CFR 430.32(c)(1)-(3)) 
Furthermore, DOE notes that there are currently space-constrained units 
on the market that meet the 12 SEER requirement.
    NCP argued that if DOE excludes equipment used in high-rise multi-
family or other commercial lodging applications from the SPVAC class, 
DOE must establish a new equipment class because such equipment does 
not qualify as CAC or otherwise fall within any other existing 
category. (NCP, No. 16 at p. 10) Specifically, NCP stated that their 
Comfort Pack products cannot be classified as CAC because they always

[[Page 78627]]

include gas or electric resistance heat. (NCP, No. 16 at pp. 5-6)
    In response to NCP, EPCA defines ``central air conditioner'' as a 
product, other than a packaged terminal air conditioner, which: (1) Is 
powered by single phase electric current; (2) is air-cooled; (3) is 
rated below 65,000 Btu per hour; (4) is not contained within the same 
cabinet as a furnace with a rated capacity above 225,000 Btu per hour; 
and (5) is a heat pump or a cooling only unit. (42 U.S.C. 6291(21); 10 
CFR 430.2) DOE notes that criteria number 5 refers to coverage of both 
a type of air conditioner unit that can only perform cooling (i.e., a 
``cooling only unit'') as well as a type of air conditioner unit that 
can perform both cooling and heating (i.e., a ``heat pump''). Criteria 
number 5 does not refer to other components such as a furnace or 
electric heater. The only heating component that excludes equipment 
from coverage under this definition is a furnace with a rated capacity 
above 225,000 Btu/hour, as set forth in criteria number 4. DOE notes 
that for units meeting the definition of ``central air conditioner'' 
and also containing a furnace in the package (with a rated capacity 
under 225,000 Btu/hour), the air conditioner is subject to one set of 
energy conservation standards, while the furnace may be subject to 
separate standards.
    First Co. stated that its commercially-designed SPVHPs cannot be 
tested under the HSPF test procedure because they cannot be operated at 
temperatures required for testing Frost Accumulation or Low 
Temperature. (First Co., No. 14 at p. 2)
    In response to First Co., DOE notes that whether a product can be 
tested in accordance with the test procedure is not typically 
determinative of whether it meets the product's definition. Instead, 
the characteristics of the product (as outlined above for central air 
conditioning) determine whether it meets the definition. If a product 
that meets the definition cannot be tested in accordance with the test 
procedure, a manufacturer may apply to DOE for a waiver of the test 
procedure..
    AHRI and GE Appliances stated that all models of SPVUs listed in 
the AHRI Directory meet the requirement of having components arranged 
vertically and current models of space-constrained SPVU meet the EPCA 
definition of ``SPVU.'' (AHRI, No. 24 at pp. 3-4; GE Appliances, No. 20 
at pp. 1-2) NCP reasoned that by ``arranged vertically,'' DOE intends 
to address products that operate in a vertical manner, with a bottom 
``return air'' opening and a top ``supply air'' opening. This 
configuration is commonly referred to within the industry as an 
``Upflow'' unit. In addition, for NCP Comfort Pack units, the gas 
furnace or electrical heating component is positioned vertically above 
the cooling component and along the vertically moving air flow. 
Accordingly, NCP's products are vertically arranged as contemplated by 
the EPCA. (NCP, No. 16 at pp. 4-5)
    In response, the EPCA definition for ``SPVU'' requires that the 
major components be arranged vertically. (42 U.S.C. 6311(22)(A)(i); 10 
CFR 431.92) In the April 2014 NODA, when stating that some models do 
not have their components arranged vertically, DOE was referring to 
units in which all components were on the same horizontal plane within 
the cabinet. 79 FR 20114, 20122 (April 11, 2014). DOE acknowledges that 
most of the products in the AHRI database do have their components 
arranged vertically. However, even if the units in the AHRI database 
have their components arranged vertically and otherwise meet the 
definition of ``SPVU,'' they may also meet the definition of an 
applicable consumer product, which takes precedence, as discussed 
previously.
    For all of the reasons discussed in this section, DOE is 
maintaining the position on space-constrained units that it outlined in 
the April 2014 NODA. Specifically, DOE has not identified a need to 
establish a separate space-constrained class for SPVUs, given that 
certain units currently listed by manufacturers as SPVUs, most of which 
would meet the ASHRAE space-constrained definition, are being 
misclassified and are appropriately classified as central air 
conditioners (in most cases, space-constrained central air 
conditioners).
    Lennox and AHRI stated that DOE should expand the applications 
considered in the analysis; AHRI specified that in addition to office, 
education, and telecom, DOE should consider lodging, multi-family, and 
assisted-living applications. (Lennox International No. 15 at p. 7; 
AHRI No. 24 at p. 6) DOE notes that the applications used in the 
analysis apply to traditional (non-space constrained) SPVUs. DOE 
believes that the additional applications suggested by Lennox and AHRI 
are primarily related to space-constrained applications. Given that DOE 
is not considering the space-constrained units to be SPVUs, DOE has not 
included the additional applications in its analysis.
    Issue 1: DOE seeks comment on its tentative conclusion that the 
creation of a space-constrained equipment class for SPVUs is not 
warranted.

C. 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 products 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 product 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 preamble discusses the results 
of the screening analysis for SPVUs, particularly the designs DOE 
considered, those it screened out, and those that are the basis for the 
trial standard levels (TSLs) in this rulemaking. For further details on 
the screening analysis for this rulemaking, see chapter 4 of the NOPR 
Technical Support Document (TSD).
    After screening out or otherwise removing from consideration most 
of the technologies, the following technologies were identified for 
consideration in the engineering analysis: (1) Increased frontal coil 
area; (2) increased depth of coil; (3) improved fan motor efficiency; 
(4) improved fan blade efficiency; and (5) improved compressor 
efficiency, and (6) dual condensing heat exchangers. To adopt standards 
for SPVUs that are more stringent than the efficiency levels in ASHRAE 
Standard 90.1 as amended, DOE must determine, supported by clear and 
convincing evidence, that such standards are technologically feasible. 
(42 U.S.C. 6313(a)(6)(A)(ii)(II)) Since these six design options are 
commercially available, have been used in SPVU equipment, and are the 
most common ways by which manufacturers improve the energy efficiency 
of their

[[Page 78628]]

SPVUs, DOE has tentatively determined that clear and convincing 
evidence supports the conclusion that all of the efficiency levels 
evaluated in this NOPR are technologically feasible.
    Additionally, DOE notes that the four screening criteria do not 
directly address the propriety status of design options. DOE only 
considers efficiency levels achieved through the use of proprietary 
designs in the engineering analysis if they are not part of a unique 
path to achieve that efficiency level (i.e., if there are other non-
proprietary technologies capable of achieving the same efficiency). DOE 
believes the proposed standards for the equipment covered in this 
rulemaking would not mandate the use of any proprietary technologies, 
and that all manufacturers would be able to achieve the proposed levels 
through the use of non-proprietary designs. DOE seeks comment on this 
tentative conclusion and requests additional information regarding 
proprietary designs and patented technologies.
2. Maximum Technologically Feasible Levels
    When DOE proposes to adopt an amended standard for a type or class 
of covered product, it must determine the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such product. Accordingly, in the engineering analysis, 
DOE determined the maximum technologically feasible (``max-tech'') 
improvements in energy efficiency for SPVUs, using the design 
parameters for the most efficient products available on the market or 
in working prototypes. (See chapter 5 of the NOPR TSD.) The max-tech 
levels that DOE determined for this rulemaking are described in section 
IV.C.1 of this proposed rule.

D. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from the products that 
are the subject of this rulemaking purchased in the 30-year period that 
begins in the year of compliance with amended standards (2015-2044 for 
the ASHRAE level, and 2019-2048 for higher efficiency levels). The 
savings are measured over the entire lifetime of products purchased in 
the 30-year analysis period.\28\ DOE quantified the energy savings 
attributable to each TSL as the difference in energy consumption 
between each standards case and both base cases. The base case 
represents a projection of energy consumption in the absence of amended 
mandatory energy conservation standards, and it considers market forces 
and policies that affect demand for more-efficient products.
---------------------------------------------------------------------------

    \28\ In the past, DOE presented energy savings results for only 
the 30-year period that begins in the year of compliance. In the 
calculation of economic impacts, however, DOE considered operating 
cost savings measured over the entire lifetime of products purchased 
in the 30-year period. DOE has chosen to modify its presentation of 
national energy savings to be consistent with the approach used for 
its national economic analysis.
---------------------------------------------------------------------------

    DOE used its national impact analysis (NIA) spreadsheet model to 
estimate energy savings from amended standards for the products that 
are the subject of this rulemaking. The NIA spreadsheet model 
(described in section IV.G of this preamble) calculates energy savings 
in site energy, which is the energy directly consumed by products at 
the locations where they are used. For electricity, DOE reports 
national energy savings in terms of the savings in the energy that is 
used to generate and transmit the site electricity. To calculate this 
quantity, DOE derived annual conversion factors from the model used to 
prepare the Energy Information Administration's (EIA) Annual Energy 
Outlook 2013 (AEO 2013).\29\
---------------------------------------------------------------------------

    \29\ Conversion factors based on the Annual Energy Outlook 2014 
(AEO 2014), which became available too late for incorporation into 
this analysis, show very little change compared to the AEO 2013-
based factors. DOE plans to use convresion factors based on the most 
recent AEO available for the next phase of this rulemaking, which 
may or may not be AEO 2014, depending on the timing of the issuance 
of the next rulemaking document.
---------------------------------------------------------------------------

    DOE has begun to also estimate full-fuel-cycle energy savings, as 
discussed in DOE's statement of policy and notice of policy amendment. 
76 FR 51281 (August 18, 2011), as amended at 77 FR 49701 (August 17, 
2012). The full-fuel-cycle (FFC) metric includes the energy consumed in 
extracting, processing, and transporting primary fuels, and, thus, 
presents a more complete picture of the impacts of energy efficiency 
standards. DOE's approach is based on the calculation of an FFC 
multiplier for each of the energy types used by covered equipment. See 
section IV.G.1.a for further discussion.
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'' additional energy savings. 
(42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term ``significant'' is 
not defined in the Act, the U.S. Court of Appeals, in Natural Resources 
Defense Council v. Herrington, 768 F.2d 1355, 1373 (D.C. Cir. 1985), 
indicated that Congress intended ``significant'' energy savings in this 
context to be savings that were not ``genuinely trivial.'' DOE's 
estimates of the energy savings for each of the TSLs considered for the 
proposed 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).

E. Economic Justification

1. Specific Criteria
    As discussed beforehand, EPCA provides seven factors to be 
evaluated in determining whether a potential energy conservation 
standard is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-
(VII)) The following sections discuss how DOE has addressed each of 
those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    In determining the impacts of a potential amended standard on 
manufacturers, DOE conducts a manufacturer impact analysis (MIA), as 
discussed in section IV.I. DOE first uses an annual cash-flow approach 
to determine the quantitative impacts. This step incorporates both a 
short-term impacts--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 impacts over a 30-year 
period.\30\ The industry-wide impacts analyzed include: (1) Industry 
net present value (INPV), which values the industry on the basis of 
expected future cash flows; (2) cash flows by year; (3) changes in 
revenue and income; and (4) other measures of impact, as appropriate. 
Second, DOE analyzes and reports the impacts on sub-groups 
manufacturers, such as 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, as discussed 
in section IV.M. Finally, DOE takes into account cumulative impacts of 
various DOE regulations and other regulatory requirements on 
manufacturers.
---------------------------------------------------------------------------

    \30\ DOE also presents a sensitivity analysis that considers 
impacts for products shipped in a 9-year period.

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

[[Page 78629]]

    For individual consumers, measures of economic impact include the 
changes in life-cycle cost (LCC) and payback period (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 net present value of the economic impacts 
applicable to a particular rulemaking. DOE also evaluates the LCC 
impacts of potential standards on identifiable subgroups of consumers 
that may be affected disproportionately by a national standard.
b. Savings in Operating Costs Compared to Increase in Price (Life-Cycle 
Costs)
    EPCA requires DOE to consider the savings in operating costs 
throughout the estimated average life of the covered product compared 
to any increase in the price of the covered product that are likely to 
result from the imposition of the standard. (42 U.S.C. 
6313(a)(6)(B)(ii)(II)) DOE conducts this comparison in its LCC and PBP 
analysis.
    The LCC is the sum of the purchase price of a piece of equipment 
(including its installation) and the operating expense (including 
energy, maintenance, and repair expenditures) discounted over the 
lifetime of the equipment. To account for uncertainty and variability 
in specific inputs, such as equipment lifetime and discount rate, DOE 
uses a distribution of values, with probabilities attached to each 
value. For its analysis, DOE assumes that 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 adopting 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 
national energy savings.
d. Lessening of Utility or Performance of Products
    In establishing classes of products, 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 products. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) Based on 
data available to DOE, the proposed standards would not reduce the 
utility or performance of the products under consideration in this 
rulemaking.
e. Impact of Any Lessening of Competition
    EPCA directs DOE to consider any lessening of competition that is 
likely to result from energy conservation standards. It also directs 
the Attorney General of the United States (Attorney General) to 
determine the impact, if any, of any lessening of competition likely to 
result from a proposed standard and to transmit such determination to 
the Secretary within 60 days of the publication of a proposed rule, 
together with an analysis of the nature and extent of the impact. (42 
U.S.C. 6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of this proposed 
rule to the Attorney General with a request that the Department of 
Justice (DOJ) provide its determination on this issue. DOE will publish 
and address the Attorney General's determination in the final rule.
f. Need for National Energy Conservation
    In evaluating the need for national energy conservation, DOE 
expects that the energy savings from the proposed standards are likely 
to provide improvements to the security and reliability of the nation's 
energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) Reductions in the 
demand for electricity also may result in reduced costs for maintaining 
the reliability of the nation's electricity system. DOE conducts a 
utility impact analysis to estimate how standards may affect the 
nation's needed power generation capacity, as discussed in section 
IV.L.
    The proposed standards also are likely to result in environmental 
benefits in the form of reduced emissions of air pollutants and 
greenhouse gases associated with energy production. DOE reports the 
emissions impacts from the proposed standards, and from each TSL it 
considered, in section IV.J of this preamble. DOE also reports 
estimates of the economic value of emissions reductions resulting from 
the considered TSLs, as discussed in section IV.K.
g. Other Factors
    EPCA allows the Secretary of Energy, in determining whether a 
standard is economically justified, to consider any other factors that 
the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII))
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 analyses generate values used to calculate the effects that 
proposed energy conservation standards would have on the payback period 
for customers. These analyses include, but are not limited to, the 3-
year payback period contemplated under the rebuttable-presumption test.
    In addition, DOE routinely conducts an economic analysis that 
considers the full range of impacts to customers, manufacturers, the 
Nation, and the environment, as required under 42 U.S.C. 
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 proposed 
rule.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regards to SPVACs and SPVHPs. A separate subsection 
addresses each component of the analysis.

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 publically-
available information. The topics addressed in this market and 
technology assessment for the rulemaking include definitions, equipment 
classes, manufacturers, quantities, and types of equipment sold and 
offered for sale. The key findings of

[[Page 78630]]

DOE's market assessment are summarized below. For additional detail, 
see chapter 3 of the NOPR TSD.
1. Definitions of a SPVAC and a SPVHP
    EPCA 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 mountain on, adjacent 
interior to, or through an outside wall. DOE codified these definitions 
into its regulations at 10 CFR 431.92. Certain of these equipment types 
are sometimes referred to as ``wall-mount'' units and are commonly 
installed on the exterior wall of classrooms, modular office buildings, 
and telecom shelters. Certain others of these units are also sometimes 
found installed in the interior wall of classrooms, such as in a 
utility closet. These units are beneficial because they provide each 
room with individual temperature control, and because in the event of a 
failure of the system, only one room would be affected as opposed to 
the whole space.
2. Equipment Classes
    In evaluating and establishing energy conservation standards, DOE 
divides covered equipment into equipment classes based on the type of 
energy used or by capacity or other performance-related feature that 
justifies having a higher or lower standard from that which applies to 
other equipment classes.
    EPCA currently divides both SPVACs and SPVHPs into 3 size 
categories and sets a Federal minimum energy efficiency standard for 
each equipment class. During its research for the market and technology 
assessment, DOE did not find any performance-related features that 
would justify creating a new equipment class for SPVUs. Accordingly, 
for this rulemaking, DOE is proposing to maintain the same equipment 
classes, as shown in Table IV.1.

         Table IV.1--Current Federal Equipment Classes for SPVUs
------------------------------------------------------------------------
          Equipment class                   Size category  (Btu/h)
------------------------------------------------------------------------
SPVAC..............................  <65,000.
                                     >=65,000 and <135,000.
                                     >=135,000 and <240,000.
SPVHP..............................  <65,000.
                                     >=65,000 and <135,000.
                                     >=135,000 and <240,000.
------------------------------------------------------------------------

3. Refrigerants
    Since January 1st, 2010, all newly manufactured SPVUs in the United 
States have no longer been allowed to use the previously-prevalent R-22 
refrigerant per the Montreal Protocol. As result, the vast majority of 
SPVUs began using R410A refrigerant instead. DOE is aware of one 
alternative refrigerant, R407C, which can be used as a replacement for 
R410A in SPVUs. DOE is aware of some SPVUs which utilize R407C; 
however, these units are not offered for sale in the United States and 
therefore are not included among the products potentially regulated by 
this rule.
4. Review of the Current Market for SPVUs
    In order to gather information needed for the market assessment for 
SPVUs, DOE consulted a variety of sources, including manufacturer 
literature, manufacturer Web sites, and the AHRI Directory of Certified 
Product Performance. This information served as resource material 
throughout the rulemaking. The sections below provide an overview of 
the SPVU market. For more detail on the SPVU market, see chapter 3 of 
the NOPR TSD.
a. Trade Association Information
    The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) 
is the trade association representing SPVU manufacturers. AHRI develops 
and publishes technical standards for residential and commercial air-
conditioning, heating, and refrigeration equipment using rating 
criteria and procedures for measuring and certifying equipment 
performance. The current Federal test procedure for SPVUs incorporates 
by reference an AHRI standard--AHRI 390-2003, ``Performance Rating of 
Single Package Vertical Air-Conditioners and Heat Pumps.'' AHRI also 
maintains the Directory of Certified Product Performance, which is a 
database of equipment ratings for all manufacturers who elect to 
participate in the program. AHRI has two subsections for SPVUs: (1) 
Single Package Vertical Systems--AC; and (2) Single Package Vertical 
Systems--HP. DOE used the data in this certification directory in its 
market assessment.
b. Manufacturer Information
    For SPVUs, DOE identified seven manufacturers: (1) Bard 
Manufacturing Company; (2) Change'Air; (3) Johnson Controls, Inc.; (4) 
Marvair; (5) Modine Manufacturing Company; (6) National Coil Company; 
and (7) Temspec, Inc. DOE also identified certain other companies that 
list their products in the AHRI Directory, but DOE believes that these 
models are residential products and not commercial equipment. 
Therefore, DOE did not include those manufacturers in this list.
    Issue 2: DOE seeks comment on whether there are additional 
companies not named which manufacture this type of equipment.
    DOE also takes into consideration the impact of amended energy 
conservation standards on small businesses. At this time, DOE has 
identified one small business (Bard Manufacturing Company) in the SPVU 
market that fall under the Small Business Administration (SBA)'s 
threshold as having 750 employees or fewer. DOE studies the potential 
impacts on these small businesses in detail during the manufacturer 
impact analysis (MIA). A summary of these impacts is contained in 
section IV.I and VI.B of this NOPR and described in further detail in 
chapter 12 of the NOPR TSD.
c. Market Data
    From the AHRI Directory and manufacturers' Web sites, DOE compiled 
a database of 319 SPVACs and 270 SPVHPs. Of the 589 total SPVUs, DOE 
was able to gather efficiency data on 497 units (about 86 percent of 
DOE's database). DOE was not able to find any units on the market for 
SPVAC or SPVHP equipment with a cooling capacity greater than or equal 
to 135,000 Btu/h and less than 240,000 Btu/h and for SPVHP with a 
cooling capacity greater than or equal to 65,000 Btu/h and less than 
135,000 Btu/h. For more information on the SPVU equipment currently 
available on the market, including a full breakdown of these units into 
their equipment classes and graphs showing performance data, see 
chapter 3 of the NOPR TSD.
5. Technology Assessment
    In the technology assessment, DOE identifies technology options 
that appear to be feasible mechanisms for improving equipment 
efficiency. This assessment provides the technical background and 
structure on which DOE bases its screening and engineering analyses.
    DOE began its technology assessment by examining SPVUs that are 
currently on the market at both the baselines and higher efficiency 
levels. This allowed DOE to identify technologies that are commonly 
incorporated into equipment to achieve higher efficiencies, as well as 
the impact of certain components and improvements on SPVU efficiency. 
DOE also researched technology options that are utilized in other air-
conditioning

[[Page 78631]]

and refrigeration equipment to determine their potential applicability 
to SPVUs. Lastly, DOE explored the market and technical information to 
identify technologies that have not yet come to market but that are 
under development and to determine whether those technologies have the 
potential to improve SPVU efficiency. Although DOE does consider 
technologies that are proprietary, it does not consider efficiency 
levels that can only be reached through the use of proprietary 
technologies, which could allow a single manufacturer to monopolize the 
market (any such technologies are eliminated during the engineering 
analysis). Through these methods, DOE identified numerous technologies 
that could improve the energy efficiency of SPVUs.
    Generally, these technologies involve improvements to either the 
heat exchangers or to the other system components that will improve the 
overall energy efficiency of the system. First, DOE identified 
technologies that improve the heat exchanger effectiveness, which 
included: (1) Increased frontal coil area; (2) increased depth of coil 
(additional tube rows); (3) increased fin density; (4) improved fin 
design; (5) improved tube design; (6) hydrophilic film coating on fins; 
(7) changing to microchannel heat exchangers; and (8) dual condensing 
heat exchangers. Second, DOE identified technologies that improve the 
efficiency of other components that make up the rest of the system, 
including: (1) Improved indoor and outdoor fan motor efficiency; (2) 
improved fan blade efficiency; (3) improved compressor efficiency 
(including multi-speed compressors); (4) thermostatic or electronic 
expansion valves; and (5) thermostatic cyclic controls. All of these 
technology options are presented in Table IV.2.

 Table IV.2--Potential Technology Options for Improved Energy Efficiency
                                of SPVUs
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                           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            Improved fan motor efficiency.
 Improvements.
                                         Improved fan blades.
Compressor Improvements................  Improved compressor efficiency.
                                         Multi-speed Compressors.
Other Improvements.....................  Thermostatic expansion valves.
                                         Electronic expansion valves.
                                         Thermostatic cyclic controls.
------------------------------------------------------------------------

    Chapter 3 of the NOPR TSD provides additional detail and 
descriptions of the basic construction and operation of SPVUs, followed 
by a detailed discussion of each of the technology options discussed in 
the preceding paragraph. After identifying technology options that will 
improve the efficiency of SPVUs, DOE passed each of those technology 
options to the screening analysis for further evaluation.

B. Screening Analysis

    DOE uses the following four screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    1. Technological feasibility. DOE will consider technologies 
incorporated in commercial products or in working prototypes to be 
technologically feasible.
    2. Practicability to manufacture, install, and service. If mass 
production and reliable installation and servicing of a technology in 
commercial products could be achieved on the scale necessary to serve 
the relevant market at the time the standard comes into effect, then 
DOE will consider that technology practicable to manufacture, install, 
and service.
    3. Adverse impacts on product utility or product availability. If 
DOE determines a technology would have a significant adverse impact on 
the utility of the product to significant subgroups of consumers, or 
would result in the unavailability of any covered product type with 
performance characteristics (including reliability), features, sizes, 
capacities, and volumes that are substantially the same as products 
generally available in the United States at the time, it will not 
consider this technology further.
    4. Adverse impacts on health or safety. If DOE determines that a 
technology will have significant adverse impacts on health or safety, 
it will not consider this technology further.

(10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b))

    These four screening criteria do not include the propriety status 
of design options. As noted previously, DOE will only consider 
efficiency levels achieved through the use of proprietary designs in 
the engineering analysis if they are not part of a unique path to 
achieve that efficiency level. DOE does not believe that any of the 
technologies identified in the technology assessment are proprietary, 
and thus, did not eliminate any technologies for that reason. Through a 
review of each technology, DOE found that the technologies identified 
met all four screening criteria to be examined further in the analysis.
    Typically, technologies that pass the screening analysis are 
subsequently passed through to the engineering analysis for 
consideration in DOE's downstream cost-benefit analysis. However, DOE 
did not analyze some of the technologies identified in the technology 
assessment because either: (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, DOE eliminated the 
following technologies from further consideration based upon these 
three additional considerations:
    (1) Increased fin density
    (2) Improved fin design;
    (3) Improved tube design;
    (4) Hydrophilic film coating on fins;

[[Page 78632]]

    (5) Thermostatic or electronic expansion valves;
    (6) Thermostatic cyclic controls;
    (7) Microchannel heat exchangers; and
    (8) Multi-speed compressors.
    Of these technologies, numbers 1 through 4 are used in baseline 
products, so no additional energy savings would be expected. Any 
potential energy savings of technologies 5, 6, or 8 cannot be measured 
with the established energy use metrics (EER and COP) because those 
technologies are associated with part-load performance, which is not 
captured in the EER or COP metrics used for rating SPVUs. Information 
indicating efficiency improvement potential in SPVUs is not available 
for technology number 7.
    Issue 3: DOE requests comment on its elimination of these 
technologies from consideration based upon the criteria discussed 
above.
    After screening out or otherwise removing from consideration most 
of the technologies, the following technologies were identified for 
consideration in the engineering analysis: (1) Increased frontal coil 
area; (2) increased depth of coil; (3) improved fan motor efficiency; 
(4) improved fan blade efficiency; (5) improved compressor efficiency, 
and (6) dual condensing heat exchangers.
    Chapter 4 of the NOPR TSD contains additional details on the 
screening analysis.

C. Engineering Analysis

    The engineering analysis establishes the relationship between an 
increase in energy efficiency of the equipment and the increase in 
manufacturer selling price (MSP) associated with that efficiency level. 
This relationship serves as the basis for cost-benefit calculations for 
individual consumers, manufacturers, and the Nation. DOE typically 
structures its engineering analysis using one of three approaches: (1) 
Design-option; (2) efficiency-level; or (3) reverse engineering (or 
cost-assessment). A design-option approach identifies individual 
technology options (from the market and technology assessment) that can 
be used alone or in combination with other technology options to 
increase the energy efficiency of a unit of equipment. Under this 
approach, cost estimates of the baseline equipment and more-efficient 
equipment that incorporates design options are based on manufacturer or 
component supplier data or engineering computer simulation models. 
Individual design options, or combinations of design options, are added 
to the baseline model in descending order of cost-effectiveness. An 
efficiency-level approach establishes the relationship between 
manufacturer cost and increased efficiency at predetermined efficiency 
levels above the baseline. Under this approach, DOE typically assesses 
increases in manufacturer cost for incremental increases in efficiency, 
without identifying the technology or design options that would be used 
to achieve such increases. A reverse-engineering, or cost-assessment, 
approach involves disassembling representative units of SPVACs and 
SPVHPs, and estimating the manufacturing costs based on a ``bottom-up'' 
manufacturing cost assessment; such assessments use detailed data to 
estimate the costs for parts and materials, labor, shipping/packaging, 
and investment for models that operate at particular efficiency levels.
    DOE conducted this engineering analysis for SPVUs 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 market data 
and then used the cost-assessment approach to determine the 
manufacturing costs at those levels.
1. 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. Based on market data, 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. In the case of SPVUs with a 
cooling capacity less than 65,000 Btu/h, 3-ton represents the cooling 
capacity with the most models in the database for SPVACs and SPVHPs. 
For SPVACs with a cooling capacity greater than or equal to 65,000 Btu/
h and less than 135,000 Btu/h, 6-ton represents the most common size 
for that equipment class. DOE did not find any models of SPVHPs greater 
than or equal to 65,000 Btu/h and less than 135,000 Btu/h on the 
market. DOE did not find any SPVUs on the market with cooling 
capacities greater than or equal to 135,000 Btu/h and less than 240,000 
Btu/h.
    Next, using the information DOE gathered during the market and 
technology assessment, DOE selected higher efficiency levels for 
analysis for these representative cooling capacities based on the most 
common equipment efficiencies on the market and identified typical 
technologies and features incorporated into equipment at these higher 
efficiency levels. DOE also selected the highest efficiency level on 
the market for each equipment class (i.e., the max-tech level). To 
determine the appropriate coefficient of performance (COP) levels for 
SPVHPs, DOE performed an analysis of how COP relates to energy 
efficiency ratio (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 
below list the efficiency levels for analysis for SPVUs. Because DOE 
found no equipment on the market for SPVUs with cooling capacities 
>=135,000 Btu/h and <240,000 Btu/h, DOE did not analyze any efficiency 
levels for those equipment classes.
---------------------------------------------------------------------------

    \31\ Refers to the currently-applicable federal minimum 
efficiency level. See http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/productid/35.
    \32\ Refers to the current minimum efficiency permitted by the 
latest version of the ASHRAE standard, ASHRAE 90.1-2013.

   Table IV.3--Efficiency Levels for Analysis for SPVUs <65,000 Btu/h
------------------------------------------------------------------------
                                   SPVAC, 36,000 Btu/    SPVHP,  36,000
         Efficiency level                   h                Btu/h
------------------------------------------------------------------------
EPCA Baseline \31\...............  9.0 EER             9.0 EER.
                                                       3.0 COP.
ASHRAE Baseline \32\.............  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.
                                                       3.9 COP.
EL4 (max-tech)...................  12.3 EER            12.3 EER.
                                                       3.9 COP.
------------------------------------------------------------------------


 Table IV.4--Efficiency Levels for Analysis for SPVUs >=65,000 Btu/h and
                             <135,000 Btu/h
------------------------------------------------------------------------
                                   SPVAC, 72,000 Btu/  SPVHP, 72,000 Btu/
         Efficiency level                   h                  h
------------------------------------------------------------------------
EPCA Baseline....................  8.9 EER             8.9 EER.
                                                       3.0 COP.

[[Page 78633]]

 
ASHRAE Baseline (max-tech).......  10.0 EER            10.0 EER.
                                                       3.0 COP.
------------------------------------------------------------------------

    Issue 3: DOE seeks comment on the EER and COP pairings for SPVHPs 
and its method of deriving the pairings.
2. Teardown Analysis
    After selecting a representative capacity and efficiency level for 
each equipment class, DOE selected equipment near both the 
representative cooling capacity and the selected efficiency levels for 
its teardown analysis. DOE gathered information from these teardowns to 
create a detailed bill of materials (BOMs) that included all components 
and processes used to manufacture the equipment. To assemble the BOMs 
and to calculate the manufacturing product costs (MPCs) of SPVUs, DOE 
disassembled multiple units into their base components and estimated 
the materials, processes, and labor required for the manufacture of 
each individual component, a process known as a ``physical teardown.'' 
Using the data gathered from the physical teardowns, DOE characterized 
each component according to its weight, dimensions, material, quantity, 
and the manufacturing processes used to fabricate and assemble it.
    DOE also used a supplementary method called a ``virtual teardown,'' 
which examines published manufacturer catalogs and supplementary 
component data to estimate the major differences between a unit of 
equipment that was physically disassembled and a similar unit of 
equipment that was not. For virtual teardowns, DOE gathered product 
data such as dimensions, weight, and design features from publicly-
available information, (e.g., manufacturer catalogs and manufacturer 
Web sites). DOE also obtained information and data not typically found 
in catalogs, such as fan motor details or assembly details, from 
physical teardowns of similar equipment or through estimates based on 
industry knowledge. The teardown analysis included 14 physical and 
virtual teardowns of SPVUs.
    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, 
which DOE developed for each of the physical and virtual teardowns. The 
BOMs incorporate all materials, components, and fasteners (classified 
as either raw materials or purchased parts and assemblies) and 
characterize the materials and components by weight, manufacturing 
processes used, dimensions, material, and quantity. The BOMs from the 
teardown analysis were then used as inputs to the cost model to 
calculate the MPCs for each type of equipment that was torn down. The 
MPCs resulting from the teardowns were then used to develop an industry 
average MPC for each equipment class analyzed. See chapter 5 of the 
NOPR TSD for more details.
    During the development of this 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 NOPR 
TSD.
    During the teardown process, DOE gained insight into the typical 
design options manufacturers use to reach specific efficiency levels. 
DOE can also determine the efficiency levels at which manufacturers 
tend to make major technological design changes. For this engineering 
analysis, DOE assumed that manufacturers will switch from a permanent-
split capacitor (PSC) indoor motor to a brushless permanent magnet 
(BPM) motor to achieve the 10 EER level, which was consistent with DOE 
observations during the physical teardowns. As a result, the 
engineering results at 10 EER (and higher levels) include the cost of a 
BPM blower motor. This assumption is further supported by data gathered 
during the market assessment. In the market assessment, DOE found that 
at 10 EER, there is a slightly higher number of models with BPM motors 
than with PSC motors. However, DOE found that most of the models (18 
out of 21 models) using a PSC motor at 10 EER are gas-heat units, which 
DOE estimates make up a small percentage (<4%) of total SPVU shipments. 
A breakdown of the number of models on the market with BPM and PSC 
motors, as well as market share estimates of SPVUs with gas-heat, can 
be found in Chapter 3 of the NOPR TSD (Market and Technology 
Assessment).
    After considering the information gathered during the market 
assessment and observed during the teardown process, DOE concluded that 
BPM motors tend to be the dominant blower design option for SPVU 
manufacturers when reaching the 10 EER level. This assumption is 
accounted for in the engineering results at the 10 EER level and higher 
levels, as well as in the energy use characterization and, 
consequently, in the downstream analyses. For more information on the 
design options DOE considered at each efficiency level, see chapter 3 
of the NOPR TSD.
    Issue 4: DOE seeks comment as to whether switching to a BPM motor 
at 10 EER represents the most probable option of achieving that 
efficiency level.
3. Cost Model
    DOE developed a manufacturing cost model to estimate the 
manufacturing production cost 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 five-year averages (from 
2006 to 2011). 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 
NOPR TSD.
4. Manufacturing Production Costs
    Once the cost estimates for all the components in each teardown 
unit were finalized, DOE totaled the cost of materials, labor, and 
direct overhead used to manufacture each type of equipment in order to 
calculate the manufacturing production cost. The total cost of the 
equipment was broken down into two main costs: (1) The full 
manufacturing production cost, referred to as 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

[[Page 78634]]

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 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.
    The MPCs were initially developed in 2011$. To update the MPCs to 
2013$, DOE multiplied the costs by the ratio of the mid-year producer 
price index (PPI) in 2011 to the mid-year PPI in 2013. For SPVACs, DOE 
used the PPI for ``unitary air-conditioners, except for air source heat 
pumps'' (PCU333415333415E),\33\ and similarly, the SPVHP costs were 
updated using the PPI for ``heat pumps'' (PCU333415333415H), which can 
be found on the Bureau of Labor Statistics Web site.\34\
---------------------------------------------------------------------------

    \33\ From http://www.bls.gov/news.release/ppi.htm, ``current 
price indexes grouped by industry according to the North American 
Industry Classification System (NAICS) have series identifiers that 
begin with the prefix ``PCU.'' After the prefix, there are twelve 
digits (the six-digit industry code is listed twice) followed by up 
to seven alphanumeric characters identifying product detail.'' The 
air-conditioning, refrigeration, and forced air heating equipment 
industry is identified by NAICS with the code 333415.
    \34\ See http://www.bls.gov/ppi/.

                                      Table IV.5--Incremental MPC Increases
----------------------------------------------------------------------------------------------------------------
                                        EPCA        ASHRAE
          Equipment type              baseline     baseline       EL1          EL2          EL3          EL4
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h...............  ...........      $274.63      $343.35      $412.06      $616.89    $1,001.24
SPVAC >=65,000 Btu/h and <135,000   ...........       381.65  ...........  ...........  ...........  ...........
 Btu/h............................
SPVHP <65,000 Btu/h...............  ...........       315.51       394.45       473.39       708.71     1,150.27
SPVHP >=65,000 Btu/h and <135,000   ...........       438.45  ...........  ...........  ...........  ...........
 Btu/h............................
----------------------------------------------------------------------------------------------------------------

5. Cost-Efficiency Relationship
    The result of the engineering analysis is a cost-efficiency 
relationship. DOE created a separate cost-efficiency relationship at 
the representative cooling capacity for each of the four equipment 
classes analyzed. DOE reported the MPCs 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 and 
supplemented that with virtual teardowns to develop cost-efficiency 
relationships for each manufacturer and then created a market-share-
weighted relationship based on approximate market share data obtained 
during the 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 Btu/h and <135,000 Btu/h to get the respective cost-
efficiency curves for the SPVHP equipment class.
    In order to develop the cost-efficiency relationships for SPVUs, 
DOE examined the cost differential to move from one efficiency level to 
the next for each manufacturer. 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 detail on how DOE developed the cost-efficiency 
relationships and related results are available in chapter 5 of the 
NOPR TSD. Chapter 5 of the NOPR TSD also presents these cost-efficiency 
curves in the form of energy efficiency versus MPC.
    Issue 5: DOE seeks comment on its derivation of the cost-efficiency 
curves for SPVHPs and SPVACs with a cooling capacity >=65,000 Btu/h and 
<135,000 Btu/h.
6. 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 manufacturer selling price (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 the 
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 final rule published on 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

[[Page 78635]]

industry in terms of the size of the market (i.e., the number of annual 
shipments) and the types of the equipment on the market (i.e., both are 
commercial air conditioners of similar capacities). Based on 
manufacturer feedback during the interviews, DOE determined that the 
manufacturer markup used in the PTAC and PTHP final rule (1.29) was 
slightly high for use with SPVU manufacturers. Thus, DOE lowered the 
estimated average manufacturer markup for the SPVU industry to 1.28 
based on the feedback received. See chapter 6 of the NOPR TSD for 
additional details.
7. Shipping Costs
    Manufacturers of heating, ventilation, and air-conditioning (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 multiplied the MPC at each efficiency level (determined from the 
cost model) by the manufacturer markup and added shipping costs for 
equipment at the given efficiency level. More specifically, DOE 
calculated shipping costs at each efficiency level based on the average 
outer dimensions of equipment at the given efficiency and assuming the 
use of a typical 53-foot straight-frame trailer with a storage volume 
of 4,240 cubic feet.
    In this rulemaking, shipping costs for SPVUs were determined on an 
area basis. These products are typically too tall to be double-stacked 
in a vertical fashion, and they cannot be shipped in any other 
orientation other than vertical. During interviews, manufacturers 
agreed with this approach and stated that the compressor and heat 
exchangers are more likely to be damaged in transit if they are 
oriented in any direction other than vertical. To calculate these 
shipping costs, DOE calculated the cost per area of a trailer, based on 
an estimated cost of $4,000 per shipping load and the standard 
dimensions of a 53-foot trailer (which would approximate the cost of 
shipping the equipment across the country). Next, DOE examined the 
average sizes of equipment in each equipment class at each efficiency 
level. DOE then estimated the shipping costs by multiplying the 
equipment area by the respective cost per area on the trailer. DOE 
updated the shipping costs to 2013$ by using a general gross domestic 
product (GDP) deflator.\35\ Chapter 5 of the NOPR TSD contains 
additional details about DOE's shipping cost assumptions and DOE's 
shipping cost estimates.
---------------------------------------------------------------------------

    \35\ U.S. Department of Commerce, Bureau of Economic Analysis 
(BEA), Implicit Price Deflators for Gross Domestic Product 
(Available in Section 1, Table 1.1.9 at http://www.bea.gov/national/nipaweb/DownSS2.asp) (Last accessed February 7, 2014).
---------------------------------------------------------------------------

8. 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 
manufacturer impact analysis. 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 are contained in chapter 12 of 
the NOPR TSD.

D. Markups Analysis

    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 added sales taxes and 
installation costs (where appropriate) to arrive at the final installed 
equipment prices for baseline and higher-efficiency equipment. (See 
chapter 6 of the NOPR TSD for additional details on markups.) As noted 
above, 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 below.

          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.

[[Page 78636]]

 
Modular Building Manufacturer..........  Mechanical Contractor or
                                          Modular Building Distributor.
Modular Building Distributor or General
 Contractor.
Customer...............................  Customer.
------------------------------------------------------------------------

    DOE estimated a baseline markup and an incremental markup. DOE 
defined a ``baseline markup'' as a multiplier that converts the 
manufacturer selling price of equipment with baseline efficiency into 
the customer purchase price for the equipment at the same baseline 
efficiency level. An ``incremental markup'' is defined as the 
multiplier to convert the incremental increase in manufacturer selling 
price of higher-efficiency equipment into the customer purchase price 
for the same (higher-efficiency) equipment.
    DOE developed the 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.\36\ DOE also 
used financial data from the 2007 U.S. Census Bureau \37\ for the wood 
\38\ and non-wood \39\ modular building manufacturing industries; 
concrete product manufacturing sector; \40\ the wood \41\ and non-wood 
\42\ modular building wholesale industries; brick, stone, and related 
construction material merchant wholesalers; \43\ the plumbing, heating, 
and air-conditioning contractor industry; \44\ and the non-residential 
general contractor industries \45\ to estimate markups for all of these 
sectors.
---------------------------------------------------------------------------

    \36\ Heating, Air-conditioning & Refrigeration Distributors 
International (HARDI), 2013 Profit Report (2012 Data) (Available at: 
http://www.hardinet.org/Profit-Report).
    \37\ The U.S. Census Bureau conducts an Economic Census every 
five years. The 2012 Economic Census is may become available early 
in 2015; if so, the final rule analysis will be updated with data 
from the 2012 Economic Census.
    \38\ 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).
    \39\ 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).
    \40\ 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).
    \41\ 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).
    \42\ 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).
    \43\ 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).
    \44\ 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).
    \45\ 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) for the different steps within a distribution channel plus 
sales tax. DOE calculated sales taxes based on 2013 State-by-State 
sales tax data reported by the Sales Tax Clearinghouse.\46\ 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 NOPR TSD provides additional detail on markups.
---------------------------------------------------------------------------

    \46\ The Sales Tax Clearing House (2013) (Last accessed Feb. 7, 
2014) (Available at: www.thestc.com/STrates.stm).
---------------------------------------------------------------------------

    Issue 6: Because the identified market channels are complex and 
their characterization required a number of assumptions, DOE seeks 
input on its analysis of market channels for the above equipment 
classes.

E. Energy Use Analysis

    Based on information received from manufacturer interviews, DOE 
believes that approximately 35 percent of SPVAC shipments go to 
educational facilities, the majority of which are for space 
conditioning of modular classroom buildings. Another approximately 35 
percent of the shipments go to providing cooling for telecommunications 
and electronics enclosures. The remainder of shipments (30 percent) is 
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 believes that shipments of SPVHP 
equipment would primarily be to educational facilities or office-type 
end uses, but would be infrequently used for telecommunication or 
electronic 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

[[Page 78637]]

types, DOE developed building simulation models for use with DOE's 
EnergyPlus software.\47\ 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.\48\ 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 the year, this load ran at 
a scheduled 65 percent of peak value, reflecting estimates for computer 
server environments.\49\ Each of these three building models was used 
to establish the energy usage of SPVAC and SPVHP equipment in the same 
building class.
---------------------------------------------------------------------------

    \47\ EnergyPlus Energy Simulation Software and documentation are 
available at: http://apps1.eere.energy.gov/buildings/energyplus/.
    \48\ 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).
    \49\ 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.\50\ DOE believes that the 
requirements in ASHRAE Standard 90.1-2004 are sufficiently 
representative of a mixture of both older and more recent construction 
\51\ 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.\52\
---------------------------------------------------------------------------

    \50\ American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (ASHRAE), Energy Standard for Buildings 
Except Low-Rise Residential Buildings, ANSI/ASHRAE/IESNA Standard 
90.1-2004 (2005).
    \51\ 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.
    \52\ American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (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.\53\ 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 for 45 percent of 
buildings, based on manufacturer interviews. In response to the April 
2014 NODA and DOE's request for information on the use of economizers 
in telecommunications shelters, Lennox International stated their 
belief that economizers would be used in a majority of equipment 
serving this market. The commenter pointed out that ASHRAE Standard 
90.1 now requires the use of economizers in HVAC equipment greater than 
54,000 Btu/h in all but two climate zones. Lennox stated that this 
change in ASHRAE Standard 90.1 has driven this economizer requirement 
to over 90 percent of units shipped for the telecommunications shelter 
application (Lennox International Inc., No. 15 at p. 7).
---------------------------------------------------------------------------

    \53\ 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.
---------------------------------------------------------------------------

    In response, 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/
sf--as would be typical of a telecommunication shelter).\54\ 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. Additionally, manufacturers generally agreed during 
manufacturer interviews that approximately 45 percent of SPVUs that are 
shipped for telecommunications shelters contain economizers. For these 
reasons, in this NOPR, DOE still assumed that 45 percent of these 
buildings used economizers, and requests further information regarding 
the percentage of SPVUs in telecommunication shelters that use 
economizers. Users of the SPVU LCC spreadsheet can change the 
percentage of equipment using economizers to see the impact of 
different weights. In addition, for the telecommunication shelter, 
redundant identical air conditioners with alternating usage were 
assumed when establishing average annual energy consumption per unit.
---------------------------------------------------------------------------

    \54\ 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

[[Page 78638]]

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.\55\ 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 files for each 
climate.\56\ 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.
---------------------------------------------------------------------------

    \55\ Wilcox S. and W. Marion, User's Manual for TMY3 Data Sets, 
National Renewable Energy Laboratory, Report No. NREL/TP-581-43156 
(2008).
    \56\ EnergyPlus TMY3-based weather data files and design day 
data files 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 NOPR 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 
SPVAC. In a deviation from the SPVU NODA analysis, DOE also noted that 
where fan power was reduced for higher efficiency levels, there was a 
corresponding increase in the amount of heating required in each 
climate to make up for the loss of heat energy imparted into the supply 
air stream through the use of the more efficient supply air blower 
during the heating season. This impact was climate dependent, with 
little heating impact in warm climates, and greater heating impact in 
cold climates where heating energy requirements dominate during the 
year. DOE calculated this 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 SPVAC 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 (AFUE).
    The analytical method for SPVHP 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 SPVHP for each combination of 
building type, climate, and efficiency level.
    For each combination of equipment class, building type, climate, 
and efficiency level, DOE developed unit energy consumption (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 life-
cycle cost 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 NOPR 
TSD.
    Table IV.7 shows the annual UEC estimates for SPVAC and SPVHP 
corresponding to the efficiency levels analyzed.

[[Page 78639]]



                        Table IV.7--National UEC Estimates for SPVAC and SPVHP Equipment
----------------------------------------------------------------------------------------------------------------
                                                                  Equipment class
                                 -------------------------------------------------------------------------------
                                        SPVAC, <65  kBtu/h          SPVHP, <65      SPVAC, >=65     SPVHP, >=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          18,775              NA              NA
EL4 **..........................           5,185              54          18,633              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 SPVAC and SPVHP greater than or equal to 65,000
  Btu/h, but less than 135,000 Btu/h. EL4 represents max-tech levels established for SPVAC and SPVHP less than
  65,000 Btu/h.

    Issue 7: DOE seeks input on its analysis of UEC for the equipment 
classes in Table IV.7 and its use in establishing the energy savings 
potential for higher standards. Of particular interest to DOE is input 
on shipments of SPVHP equipment to telecommunication shelters and the 
frequency of use of economizers in equipment serving these shelters.
    Issue 8: DOE also recognizes that there may be regional differences 
between the shipments of heat pumps and air conditioners to warmer or 
cooler climates, and requests stakeholder input on how or if such 
differences can be taken into account in the energy use 
characterization.

F. Life-Cycle Cost and Payback Period Analysis

    DOE conducted the life-cycle cost (LCC) and payback period (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. Because the PBP does not 
account for changes in operating expense over time or the time value of 
money, it is also referred to as a simple PBP.
    DOE conducted the LCC and PBP analyses using a commercially-
available spreadsheet tool and a purpose-built spreadsheet model, 
available on DOE's Web site.\57\ 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 and described in detail in chapter 8 of the 
NOPR TSD.
---------------------------------------------------------------------------

    \57\ 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.\58\
---------------------------------------------------------------------------

    \58\ 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 
analyses 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.

[[Page 78640]]

    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 Analyses
------------------------------------------------------------------------
              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, plus 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 \59\ and
                                     converted to 2013$.
------------------------------------------------------------------------
                        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 Energy Information
                                     Administration (EIA) Form 826 data
                                     for 2013.\60\ Future electricity
                                     prices are projected based on
                                     Annual Energy Outlook 2013 (AEO
                                     2013).\61\ DOE developed natural
                                     gas prices based on EIA state-level
                                     commercial prices in EIA data
                                     navigator.\62\ Future natural gas
                                     prices are projected based on AEO
                                     2013.
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.63 64 65
Discount Rate.....................  Mean real discount rates for all
                                     buildings range from 2.4 percent
                                     for education buildings to almost
                                     11.5 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 NOPR TSD provides additional details on selections of efficiency 
levels and cost.
---------------------------------------------------------------------------

    \59\ RS Means CostWorks 2014, R.S. Means Company, Inc. (2013) 
(Last accessed on February 27, 2014).
    \60\ U.S. Energy Information Administration. Electric Sales, 
Revenue, and Average Price 2013, Select table Sales and Revenue Data 
by State, Monthly Back to 1990 (Form EIA-826), (Last accessed on 
February 19, 2014) (Available at: http://www.eia.gov/cneaf/electricity/page/sales_revenue.xls).
    \61\ U.S. Energy Information Administration. Annual Energy 
Outlook 2013 (2013) DOE/EIA-0383(2013). (Last Accessed March 12, 
2014) (Available at: http://www.eia.gov/forecasts/archive/aeo13/).
    \62\ 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).
    \63\ American Society of Heating, Refrigerating, and Air-
Conditioning Engineers, ASHRAE Handbook: 2011 Heating, Ventilating, 
and Air-Conditioning Applications (2011).
    \64\ Abramson, Interactive Web-based Owning and Operating Cost 
Database, Final Report ASHRAE Research Project RP-1237 (2005).
    \65\ 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).

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

[[Page 78641]]

a. Equipment Prices
    The price of SPVU equipment reflects the application of 
distribution channel markups (mechanical contractor markups) and sales 
tax to the manufacturer sales price (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 NOPR, DOE derived an 
inflation-adjusted index of the 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 2013, 
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 2013 
values for each efficiency level in each equipment class. Appendix 8-D 
of the NOPR TSD describes the historical data and the derivation of the 
price projection.
    Issue 9: DOE requests comments on the most appropriate trend to use 
for real (inflation-adjusted) SPVU prices.
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 NOPR LCC analysis, 
DOE assumed that installation cost would not increase as a function of 
increased efficiency.
    Issue 10: DOE seeks comments on its assumption that installation 
costs would not increase for higher-efficiency SPVUs.
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 NOPR 
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 \66\ and commercial natural gas 
prices \67\ at the State level from Energy Information Administration 
(EIA) data for 2013. 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 CBECS data set \68\ 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 2013 
State price data.
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    \66\ 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 March 26, 2014).
    \67\ 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).
    \68\ Energy Information Administration, Commercial Building 
Energy Consumption Survey 2003, CBECS Public Use Microdata Files 
(Available at: <http://www.eia.gov/consumption/commercial/data/2003/index.cfm?view=microdata>) (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 2013. 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 $0.074 per kWh to approximately $0.341 
per kWh for electricity and from approximately $6.81 per MBtu to $43.36 
per MBtu for natural gas. See chapter 8 of the NOPR 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 AEO 2013 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

[[Page 78642]]

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 AEO 2013 high-price and low-price projections in 
appendix 8-C of the NOPR 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 
$311 per year (2013$) 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 $345 per year; costs were 
$414 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: $2,594 (2013$) for both air 
conditioners and heat pumps less than 65,000 Btu/h capacity, and $3,245 
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 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 NOPR 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 NOPR TSD contains a detailed discussion of equipment lifetimes.
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.\69\ 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.
---------------------------------------------------------------------------

    \69\ 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).\70\ 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.\71\
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    \70\ Federal Reserve Bank of St. Louis, State and Local Bonds--
Bond Buyer Go 20-Bond Municipal Bond Index (Last accessed February 
12, 2014 (Available at: http://research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995).
    \71\ Rate calculated with 1973-2013 data. Data source: U.S. 
Federal Reserve (Last accessed February 12, 2014) (Available at: 
http://www.federalreserve.gov/releases/h15/data.htm).
---------------------------------------------------------------------------

    Based on this database, DOE calculated the weighted-average, after-
tax discount rate for SPVU equipment purchases, adjusted for inflation, 
in each of the five business types, which were allocated to the three 
building types used in the analysis based on estimated market shares of 
modular buildings used by each business type. The allocation 
percentages came from a combination of manufacturer interviews and 
industry data published by the Modular Buildings 
Institute.72 73 74 75
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    \72\ Modular Building Institute, State of the Industry 2006 
(Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) 
(March 6, 2014).
    \73\ Modular Building Institute, Commercial Modular Construction 
Report 2008 (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
    \74\ Modular Building Institute, Commercial Modular Construction 
Report 2009 (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
    \75\ Modular Building Institute, Relocatable Buildings 2011 
Annual Report (Available at: http://www.modular.org/HtmlPage.aspx?name=analysis) (March 6, 2014).
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    Chapter 8 of the NOPR 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

[[Page 78643]]

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 simple 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 NOPR TSD provides additional details about 
the PBP.

G. National Impact Analysis

    The national impact analysis (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 net present value (NPV) (future amounts 
discounted to the present) and the national energy savings (NES) of 
total commercial consumer costs and savings that are expected to result 
from amended standards at specific efficiency levels.
    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 base case (ASHRAE 
Standard 90.1-2013) as the difference between total operating cost 
savings and increases in total installed cost. DOE accounted for 
operating cost savings until 2068, 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,\76\ 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.
---------------------------------------------------------------------------

    \76\ 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 project 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 a time 
series of conversion factors derived from the latest version of EIA's 
National Energy Modeling System (NEMS). 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 efficiency level considered for SPVUs in this rulemaking.
    DOE has historically presented NES in terms of primary energy 
savings. 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 Science, DOE announced 
its intention to use full-fuel-cycle (FFC) measures of energy use and 
greenhouse gas and other emissions in the national impact analyses and 
emissions analyses included in future energy conservation standards 
rulemakings. 76 FR 51281 (August 18, 2011). While DOE stated in that 
notice that it intended to use the Greenhouse Gases, Regulated 
Emissions, and Energy Use in Transportation (GREET) model to conduct 
the analysis, it also said it would review alternative methods, 
including the use of NEMS. After evaluating both models and the 
approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in the Federal Register in which DOE 
explained its determination that NEMS is a more appropriate tool for 
its FFC analysis and its intention to use NEMS for that purpose. 77 FR 
49701 (August 17, 2012). DOE received one comment, which was supportive 
of the use of NEMS for DOE's FFC analysis.\77\
---------------------------------------------------------------------------

    \77\ Docket ID: EERE-2010-BT-NOA-0028, comment by Kirk 
Lundblade.
---------------------------------------------------------------------------

    The approach used for the NOPR, and the FFC multipliers that were 
applied, are described in appendix 10A of the NOPR TSD. NES results are 
presented in

[[Page 78644]]

both primary and FFC savings in section V.B.3.a.
    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. The NEMS model assumes an 
efficiency rebound to account for an increased demand for service due 
to the increase in cooling (or heating) efficiency.\78\ 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. Because SPVUs are a commercial appliance, 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.
---------------------------------------------------------------------------

    \78\ An overview of the NEMS model and documentation is found 
at: www.eia.doe.gov/oiaf/aeo/overview/index.html.
---------------------------------------------------------------------------

    Issue 11: DOE seeks comment on whether a rebound effect should be 
included in the determination of annual energy savings. If a rebound 
effect should be included, DOE seeks data to assist in calculation of 
the rebound effect.
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 Producer Price Index (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 AEO 2013. The derivation of these price trends is described in 
appendix 10B of the NOPR 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. 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 2014 for SPVUs bought on 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,\79\ 
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.
---------------------------------------------------------------------------

    \79\ 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.
    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,\80\ 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 SPVHP 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 NOPR TSD for more details on 
the initial shipment estimates by equipment class that were used as the 
basis for the shipments projections discussed below.
---------------------------------------------------------------------------

    \80\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy, Technical Support Document: Energy Efficiency 
Program for Commercial and Industrial Equipment: Efficiency 
Standards for Commercial Heating, Air-Conditioning, and Water 
Heating Equipment Including Packaged Terminal Air-Conditioners and 
Packaged Terminal Heat Pumps, Small Commercial Packaged Boiler, 
Three-Phase Air-Conditioners and Heat Pumps <65,000 Btu/h, and 
Single-Package Vertical Air Conditioners and Single-Package Vertical 
Heat Pumps <65,000 Btu/h (March 2006) (Available at: http://www1.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/ashrae_products/ashrae_products_draft_tsd_030206.pdf). This TSD was 
prepared for the rulemaking that resulted in the Final Rule: Energy 
Efficiency Program for Certain Commercial and Industrial Equipment: 
Efficiency Standards for Commercial Heating, Air-Conditioning, and 
Water-Heating Equipment. 72 FR 10038 (March 7, 2007).
---------------------------------------------------------------------------

    To project shipments of SPVUs for new construction (starting in 
2006), 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 AEO 2013) to estimate a saturation rate.\81\ DOE 
applied this

[[Page 78645]]

saturation rate to AEO 2013 projections of new construction floor space 
to project shipments to new construction in the education sector 
through 2048. In this projection, shipments to education decline 
through 2026 before rising to levels still lower than those in 2005. 
DOE originally used this methodology for offices also, as published in 
the April 2014 NODA. However, in response to the April 2014 NODA, AHRI 
and Lennox International suggested that the SPVU projected shipment 
trend was ``optimistic'' and did not reflect the economic downturn. 
(AHRI, No. 24 at p. 6; Lennox International Inc., No. 15 at p. 7) After 
reviewing modular building industry literature,\82\ DOE agrees with 
AHRI and Lennox, but for the small office sector only; DOE has 
determined that the increasing trend in the AEO for small offices does 
not adequately represent the modular building industry. As a result, 
DOE has tentatively decided to hold SPVU shipments to new office 
construction constant at 2005 levels. (For more details, see chapter 9 
of the NOPR TSD.) For shipments to telecom, DOE developed an index 
based on County Business Pattern data for establishments \83\ and 
projected this trend forward. This projection increases significantly 
over the analysis period, which may have led in part to AHRI and 
Lennox's suggestion that the overall shipment projection was 
optimistic. However, in response to the April 2014 NODA, the CA IOUs 
pointed out that the rapid expansion of wireless communications 
resulted in expanded use of SPVUs. (CA IOUs, No. 19 at p. 5) DOE agrees 
with the CA IOUs' assessment for telecom and has chosen to maintain the 
increasing projection for that sector.
---------------------------------------------------------------------------

    \81\ 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.
    \82\ Modular Building Institute, Relocatable Buildings 2012 
Annual Report; Relocatable Buildings 2011 Annual Report (Available 
at: http://www.modular.org/documents/2012-RB-Annual-Report.pdf and 
http://www.triumphmodular.com/resources/documents/2011relocatable.pdf).
    \83\ U.S. Census Bureau, County Business Patterns for NAICS 
237130 Power and Communication Line and Related Structures 
Construction (Available at: http://www.census.gov/econ/cbp/index.html) (Last accessed April 15, 2014).
---------------------------------------------------------------------------

    To allocate the total projected shipments for office, education, 
and telecom into the equipment classes applicable to each sector, DOE 
used the fraction of shipments from 2005 for each equipment class in 
each sector. This fractions within each sector remained constant over 
time. The complete discussion of shipment allocation and projected 
shipments for the different equipment classes can be found in chapter 9 
of the NOPR TSD.
    In order to model shipments for replacement SPVUs, DOE developed 
historical shipments for SPVUs back to 1981 based on an index of square 
footage production data from the Modular Buildings Institute.\84\ 
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. The complete discussion of the method for 
extrapolating historical shipments can be found in chapter 9 of the 
NOPR TSD.
---------------------------------------------------------------------------

    \84\ Available at: http://www.modular.org/HtmlPage.aspx?name=analysis (Last accessed May 18, 2012).
---------------------------------------------------------------------------

    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, 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. In addition, DOE notes that SPVUs serve a specific niche market 
and that a switch from SPVUs to another type of equipment would require 
significant changes in the market, such as installation on site rather 
than at the modular building manufacturer, the use of a mechanical 
contractor (including their markups), and potential changes to needed 
ductwork and other infrastructure. Therefore, DOE assumed that the 
shipments projection would not change under the considered standard 
levels.
    Issue 12: DOE seeks comment on whether amended standards would be 
likely to affect shipments.
3. Base-Case and Standards-Case Forecasted Distribution of Efficiencies
    DOE uses a base-case distribution of efficiency levels 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 a base-case efficiency trend, 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.\85\ DOE used this same trend in the 
standards-case scenarios, when seeking to ascertain the impact of 
amended standards.
---------------------------------------------------------------------------

    \85\ See DOE's technical support document 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 base-case 
efficiency distributions for each equipment class are presented in 
chapter 10 of the NOPR 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.

[[Page 78646]]

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.
    For the NOPR, 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.\86\ 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.
---------------------------------------------------------------------------

    \86\ 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 analyses 
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 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 NOPR TSD.

I. Manufacturer Impact Analysis

1. Overview
    DOE performed a manufacturer impact analysis (MIA) to estimate the 
financial impact of amended energy conservation standards on 
manufacturers of SPVUs and to calculate the potential impact of such 
standards on employment and manufacturing capacity.
    The MIA has both quantitative and qualitative aspects. The 
quantitative portion of the MIA primarily relies on the Government 
Regulatory Impact Model (GRIM), an industry cash-flow model customized 
for this rulemaking. The key GRIM inputs are data on the industry cost 
structure, equipment costs, shipments, and assumptions about markups 
and conversion expenditures. The key output is the industry net present 
value (INPV). Different sets of assumptions (markup scenarios) will 
produce different results. The qualitative portion of the MIA addresses 
factors such as equipment characteristics, as well as industry and 
market trends. Chapter 12 of the NOPR TSD describes the complete MIA.
    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 of 
the GRIM model, the baseline technology is at an efficiency of 10 EER/
3.0 COP.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the SPVU industry which 
includes a top-down cost analysis of manufacturers that DOE used to 
derive preliminary financial inputs for the GRIM (e.g., sales, general, 
and administration (SG&A) expenses; research and development (R&D) 
expenses; and tax rates). DOE used public sources of information, 
including the 2008 Energy Conservation Program for Commercial and 
Industrial Equipment: Packaged Terminal Air Conditioner and Packaged 
Terminal Heat Pump Energy Conservation Standards Final Rule (73 FR 
58772 (Oct. 7, 2008)), the 2011 Energy Conservation Standards Direct 
Final Rule for Residential Furnaces, Central Air Conditioners and Heat 
Pumps (76 FR 37408 (June 27, 2011)); Securities and Exchange Commission 
(SEC) 10-K filings; \87\ corporate annual reports; the U.S. Census 
Bureau's Annual Survey of Manufacturers; \88\ and Hoovers reports.\89\
---------------------------------------------------------------------------

    \87\ Filings & Forms, Securities and Exchange Commission (2013) 
(Available at: http://www.sec.gov/edgar.shtml) (Last accessed April 
3, 2013).
    \88\ U.S. Census Bureau, Annual Survey of Manufacturers: General 
Statistics: Statistics for Industry Groups and Industries (2010) 
(Available at: http://www.census.gov/manufacturing/asm/index.html>) 
(Last accessed April 3, 2013).
    \89\ Hoovers [bond] Company Information [bond] Industry 
Information [bond] Lists, D&B (2013) (Available at: http://www.hoovers.com/) (Last accessed April 3, 2013).
---------------------------------------------------------------------------

    In phase 2 of the MIA, DOE prepared an industry cash-flow analysis 
to quantify the potential impacts of an amended energy conservation 
standard. In general, new or more-stringent 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.
    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. See section IV.I.3 for a 
description of the key issues manufacturers raised during the 
interviews.
    Additionally, in phase 3, DOE evaluates 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

[[Page 78647]]

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 one domestic 
company which manufactures equipment covered by this rulemaking and 
qualifies as a small business under the SBA definition. The small 
business subgroup is discussed in section VI.B of the preamble, and in 
chapter 12 of the NOPR TSD.
2. GRIM Analysis
    As discussed previously, DOE uses the GRIM to quantify the changes 
in cash flow that result in a higher or lower industry value due to 
amended energy conservation standards. The GRIM analysis uses a 
discounted cash-flow methodology 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 amended energy 
conservation standards. The GRIM spreadsheet uses the inputs to arrive 
at a series of annual cash flows, beginning in 2014 (the base year of 
the analysis) and continuing to 2048. DOE calculated INPVs by summing 
the stream of annual discounted cash flows during this period. DOE 
applied a 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 the base case and each TSL (the 
standards case). Essentially, the difference in INPV between the base 
case and a standards case represents the financial impact of the 
amended energy conservation standard on manufacturers. Additional 
details about the GRIM, the discount rate, and other financial 
parameters can be found in chapter 12 of the NOPR TSD.
a. GRIM Key Inputs
i. Manufacturer Production Costs
    Manufacturing a higher-efficiency product is typically more 
expensive than manufacturing a baseline product due to the use of more 
expensive components and larger quantities of raw materials. The 
changes in the manufacturer production cost (MPC) of the analyzed 
products can affect revenues, gross margins, and cash flow of the 
industry, making these product cost data key GRIM inputs for DOE's 
analysis.
    In the MIA, DOE used the MPCs for each considered efficiency level 
calculated in the engineering analysis, as described in section IV.C 
and further detailed in chapter 5 of the NOPR TSD. In addition, DOE 
used information from its teardown analysis, described in section IV.C, 
to disaggregate the MPCs into material, labor, and overhead costs. To 
calculate the MPCs for products higher than 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 
product mark-ups were revised based on manufacturer comments received 
during MIA interviews.
ii. Shipments Forecast
    The GRIM estimates manufacturer revenues based on total unit 
shipment forecasts and the distribution of shipments by equipment 
class. For the base-case analysis, the GRIM uses the NIA base-case 
shipments forecasts from 2014 (the base year for the MIA analysis) to 
2048 (the last year of the analysis period). In the shipments analysis, 
DOE estimates the distribution of efficiencies in the base case for all 
equipment classes. See section IV.G.2 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.2, above, for additional 
details.
iii. Product and Capital Conversion Costs
    Amended energy conservation standards would cause manufacturers to 
incur one-time conversion costs to make necessary changes to their 
production facilities and bring product 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 purpose of 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, and marketing, focused 
on making product designs comply with the amended energy conservation 
standard. Capital conversion costs are one-time investments in 
property, plant, and equipment to adapt or change existing production 
facilities so that amended equipment designs can be fabricated and 
assembled.
    To determine the level of capital conversion expenditures 
manufacturers would incur to comply with amended energy conservation 
standards, DOE gathered data on the level of capital investment 
required at each efficiency level during manufacturer interviews. DOE 
validated manufacturer comments through estimates of capital 
expenditure requirements derived from the product teardown analysis and 
engineering model described in section IV.C.
    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 standard. The investment 
figures used in the GRIM can be found in section V.B.2 of the preamble. 
For additional information on the estimated product conversion and 
capital conversion costs, see chapter 12 of the NOPR TSD.
b. GRIM Scenarios
i. Markup Scenarios
    As discussed previously, manufacturer selling prices (MSPs) include 
direct manufacturing production costs (i.e., labor, materials, and 
overhead estimated in DOE's MPCs) and all non-production costs (i.e., 
SG&A, R&D, and interest), along with profit. To calculate the MSPs in 
the GRIM, DOE applied non-production cost markups to the MPCs estimated 
in the engineering analysis for each equipment class and efficiency 
level. Modifying these markups in the standards case yields different 
sets of impacts on manufacturers. For the MIA, DOE modeled two 
standards-case markup scenarios to represent the uncertainty regarding 
the potential impacts on prices and profitability for manufacturers 
following the implementation of amended energy conservation standards: 
(1) A

[[Page 78648]]

preservation of gross margin percentage; and (2) a preservation of 
operating profit. These scenarios lead to different markup values 
which, when applied to the input 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, research and development 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. Manufacturer Interviews
    As part of the MIA, DOE discussed potential impacts of standards 
with three manufacturers of SPVUs. The interviewed manufacturers 
account for over 90 percent of the domestic SPVU market. In interviews, 
DOE asked manufacturers to describe their major concerns about this 
rulemaking. The following section highlights manufacturers' most 
significant concerns.
a. Size Constraints
    Manufacturers noted that higher efficiency standards could force 
them to increase the size of their SPVU equipment to levels that are 
not acceptable to their customers. The manufacturers stated that some 
critical design options, such as increasing the amount of heat 
exchanger surface area, would necessitate an increase in cabinet size 
and footprint. For example, in the modular classroom and modular office 
markets, any additional floor space taken up by a larger SPVU could not 
be used by students and tenants. In the telecom market, manufacturers 
noted that telecom operators have standard-sized telecom shelters and 
current SPVU designs already make use of all available wall space. Any 
increase in size would force their customers to redesign the layout of 
the shelters and the complex telecommunications electronics housed 
therein. These size constraints would affect manufacturers if the 
amended standards are increased beyond the levels set in ASHRAE 
Standard 90.1-2013.
    According to manufacturers, a change in cabinet size would be 
particularly problematic in the replacement market. Amended designs may 
no longer physically fit into existing installation locations. Some 
examples include units that are too wide to fit through standard-width 
doorways, that are too tall for the standard ceiling heights, and that 
protrude too far into classrooms or offices. Aside from the physical 
space constraints, manufacturers are concerned that air vents and wall 
plenums would no longer align. The use of sleeves or adaptors to 
reroute air flow would be unsightly, take up valuable space, and affect 
air flow in a manner that reduces product efficiency.
b. Alternative Products
    Multiple manufacturers stated that a large increase in efficiency 
could lead to price increases that would cause their customers to 
consider alternative products, such as unitary systems or commercial 
roof top units. The manufacturers argued that these systems are often 
less convenient for end-users due to the need for extensive duct work, 
the use of long refrigerant lines, and/or the reduced ability to 
control the flow of fresh air. These manufacturers were concerned that 
an increase in the energy conservation standard would raise the SPVU 
prices to the point where end-users would accept the drawbacks of 
alternative products. DOE did not receive any quantitative comments on 
the price point at which unitary systems and commercial systems 
typically become cost-competitive alternatives.
c. Compliance Tolerances
    Two manufacturers stated concerns about the tolerances required by 
compliance testing. They argued that SPVU manufacturers have no control 
over the variability in the performance of purchased components (such 
as compressors) or the variability of instrumentation within different 
test laboratories. As a result, the manufacturers stated that it is 
unrealistic for DOE to expect their products could test within the 
narrow confidence limits set forth at 10 CFR 429.43.
d. Constrained Innovation and Customization
    Multiple manufacturers noted that complying with more-stringent 
energy conservation standards would draw time, resources, and focus 
away from innovation, customization, and customer responsiveness. 
Manufacturers believe that the design, engineering, and testing 
resources used to comply with amended standards would be better 
invested in developing features requested by their customers. 
Furthermore, multiple manufacturers stated that higher standards push 
manufacturers toward similar designs. Manufacturers argued that DOE's 
energy conservation standards constrain their ability to customize 
products in ways that maximize efficiency based on the end user's 
specific use-case.

J. Emissions Analysis

    In the emissions analysis, DOE estimates the reduction in power 
sector emissions of carbon dioxide (CO2), nitrogen oxides 
(NOX), sulfur dioxide (SO2), and mercury (Hg) 
from amended energy conservation standards for the considered SPVU 
equipment. In addition, DOE estimates emissions impacts in production 
activities (extracting, processing, and transporting fuels) that 
provide the energy inputs to power plants. These are referred to as 
``upstream'' emissions. Together, these emissions account for the full-
fuel-cycle (FFC). In accordance with DOE's FFC Statement of Policy (76 
FR 51281 (August 18, 2011)), this FFC analysis includes impacts on 
emissions of methane (CH4) and nitrous oxide 
(N2O), both of which are recognized as greenhouse gases.
    DOE primarily conducted the emissions analysis using emissions 
factors for CO2 and most of the other gases derived from 
data in AEO 2013.\90\

[[Page 78649]]

Combustion emissions of CH4 and N2O were 
estimated using emissions intensity factors published by the 
Environmental Protection Agency (EPA) through its GHG Emissions Factors 
Hub.\91\ DOE developed separate emissions factors for power sector 
emissions and upstream emissions. DOE also calculated site and upstream 
emissions from the additional use of natural gas associated with some 
of the SPVU efficiency levels. The method that DOE used to derive 
emissions factors is described in chapter 13 of the NOPR TSD.
---------------------------------------------------------------------------

    \90\ Emissions factors based on the Annual Energy Outlook 2014 
(AEO 2014), which became available too late for incorporation into 
this analysis, indicate that a significant decrease in the 
cumulative emission reductions of carbon dioxide and most other 
pollutants can be expected if the projections of power plant 
utilization assumed in AEO 2014 are realized. For example, the 
estimated amount of cumulative emission reductions of CO2 
is expected to decrease by 33% from DOE's current estimate based on 
the projections in AEO 2014 relative to AEO 2013. The monetized 
benefits from GHG reductions would likely decrease by a comparable 
amount. DOE plans to use emissions factors based on the most recent 
AEO available for the next phase of this rulemaking, which may or 
may not be AEO 2014, depending on the timing of the issuance of the 
next rulemaking document.
    \91\ See: http://www.epa.gov/climateleadership/inventory/ghg-emissions.html.
---------------------------------------------------------------------------

    For CH4 and N2O, DOE calculated emissions 
reduction in tons and also in terms of units of carbon dioxide 
equivalent (CO2eq). Gases are converted to CO2eq 
by multiplying the physical units by the gas's global warming potential 
(GWP) over a 100-year time horizon. Based on the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change,\92\ DOE used 
GWP values of 28 for CH4 and 265 for N2O.
---------------------------------------------------------------------------

    \92\ IPCC, 2013: Climate Change 2013: The Physical Science 
Basis. Contribution of Working Group I to the Fifth Assessment 
Report of the Intergovernmental Panel on Climate Change [Stocker, 
T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. 
Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge 
University Press, Cambridge, United Kingdom and New York, NY, USA. 
Chapter 8.
---------------------------------------------------------------------------

    EIA prepares the Annual Energy Outlook using NEMS. Each annual 
version of NEMS incorporates the projected impacts of existing air 
quality regulations on emissions. AEO 2013 generally represents current 
legislation and environmental regulations, including recent government 
actions, for which implementing regulations were available as of 
December 31, 2012.
    SO2 emissions from affected electric generating units 
(EGUs) are subject to nationwide and regional emissions cap-and-trade 
programs. Title IV of the Clean Air Act sets an annual emissions cap on 
SO2 for affected EGUs in the 48 contiguous States and the 
District of Columbia (DC). SO2 emissions from 28 eastern 
States and DC were also limited under the Clean Air Interstate Rule 
(CAIR; 70 FR 25162 (May 12, 2005)), which created an allowance-based 
trading program that operates along with the Title IV program. CAIR was 
remanded to the U.S. Environmental Protection Agency (EPA) by the U.S. 
Court of Appeals for the District of Columbia Circuit, but it remained 
in effect. 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). In 2011 EPA 
issued a replacement for CAIR, the Cross-State Air Pollution Rule 
(CSAPR). 76 FR 48208 (August 8, 2011). On August 21, 2012, the D.C. 
Circuit issued a decision to vacate CSAPR.\93\ The court ordered EPA to 
continue administering CAIR. The emissions factors used for this NOPR, 
which are based on AEO 2013, assume that CAIR remains a binding 
regulation through 2040.\94\
---------------------------------------------------------------------------

    \93\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38 
(D.C. Cir. 2012).
    \94\ On April 29, 2014, the U.S. Supreme Court reversed the 
judgment of the D.C. Circuit and remanded the case for further 
proceedings consistent with the Supreme Court's opinion. The Supreme 
Court held in part that EPA's methodology for quantifying emissions 
that must be eliminated in certain States due to their impacts in 
other downwind States was based on a permissible, workable, and 
equitable interpretation of the Clean Air Act provision that 
provides statutory authority for CSAPR. See EPA v. EME Homer City 
Generation, No 12-1182, slip op. at 32 (U.S. April 29, 2014). 
Because DOE is using emissions factors based on AEO 2013 for this 
NOPR, the analysis assumes that CAIR, not CSAPR, is the regulation 
in force. The difference between CAIR and CSAPR is not relevant for 
the purpose of DOE's analysis of SO2 emissions.
---------------------------------------------------------------------------

    The attainment of emissions caps is typically flexible among EGUs 
and is enforced through the use of emissions allowances and tradable 
permits. Under existing EPA regulations, any excess SO2 
emissions allowances resulting from the lower electricity demand caused 
by the adoption of an efficiency standard could be used to permit 
offsetting increases in SO2 emissions by any regulated EGU. 
In past rulemakings, DOE recognized that there was uncertainty about 
the effects of efficiency standards on SO2 emissions covered 
by the existing cap-and-trade system, but it concluded that negligible 
reductions in power sector SO2 emissions would occur as a 
result of standards.
    Beginning around 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 final MATS rule, EPA 
established a standard for hydrogen chloride as a surrogate for acid 
gas hazardous air pollutants (HAP), and also established a standard for 
SO2 (a non-HAP acid gas) as an alternative equivalent 
surrogate standard for acid gas HAP. The same controls are used to 
reduce HAP and non-HAP acid gas; thus, SO2 emissions will be 
reduced as a result of the control technologies installed on coal-fired 
power plants to comply with the MATS requirements for acid gas. AEO 
2013 assumes that, in order to continue operating, coal plants must 
have either flue gas desulfurization or dry sorbent injection systems 
installed by 2016. Both technologies, which are used to reduce acid gas 
emissions, also reduce SO2 emissions. Under the MATS, 
emissions will be far below the cap that would be established by CAIR, 
so it is unlikely that excess SO2 emissions allowances 
resulting from the lower electricity demand would be needed or used to 
permit offsetting increases in SO2 emissions by any 
regulated EGU. Therefore, DOE believes that energy efficiency standards 
will reduce SO2 emissions in 2016 and beyond.
    CAIR established a cap on NOX emissions in 28 eastern 
States and the District of Columbia.\95\ Energy conservation standards 
are expected to have little effect on NOX emissions in those 
States covered by CAIR because excess NOX emissions 
allowances resulting from the lower electricity demand could be used to 
permit offsetting increases in NOX emissions. However, 
standards would be expected to reduce NOX emissions in the 
States not affected by the caps, so DOE estimated NOX 
emissions reductions from the standards considered in the NOPR for 
these States.
---------------------------------------------------------------------------

    \95\ 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 AEO 2013, which 
incorporates MATS.

K. Monetizing Carbon Dioxide and Other Emissions Impacts

    As part of the development of this NOPR, DOE considered the 
estimated monetary benefits from the reduced emissions of 
CO2 and NOX that are expected to result from each 
of the considered efficiency levels. In order to make this calculation 
similar to the calculation of the NPV of customer benefit, DOE 
considered the reduced emissions expected to result over the lifetime 
of products shipped in the forecast period for each efficiency level. 
This section summarizes the basis for the monetary values used for 
CO2 and NOX emissions and presents the values 
considered in this rulemaking.
    For this NOPR, DOE is relying on a set of values for the social 
cost of carbon (SCC) that was developed by an interagency process. A 
summary of the basis for those values is provided in the

[[Page 78650]]

following subsection, and a more detailed description of the 
methodologies used is provided as an appendix to chapter 14 of the NOPR 
TSD.
1. Social Cost of Carbon
    The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services. Estimates of the SCC are provided 
in dollars per metric ton of carbon dioxide. A domestic SCC value is 
meant to reflect the value of damages in the United States resulting 
from a unit change in carbon dioxide emissions, while a global SCC 
value is meant to reflect the value of damages worldwide.
    Under section 1(b)(6) of Executive Order 12866, ``Regulatory 
Planning and Review,'' 58 FR 51735 (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 the SCC 
estimates, technical experts from numerous agencies met on a regular 
basis to consider public comments, explore the technical literature in 
relevant fields, and discuss key model inputs and assumptions. The main 
objective of this process was to develop a range of SCC values using a 
defensible set of input assumptions grounded in the existing scientific 
and economic literatures. In this way, key uncertainties and model 
differences transparently and consistently inform the range of SCC 
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of challenges. A 
recent report from the National Research Council points out that any 
assessment will suffer from uncertainty, speculation, and lack of 
information about: (1) Future emissions of greenhouse gases; (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.
    Despite the limits of both quantification and monetization, SCC 
estimates can be useful in estimating the social benefits of reducing 
carbon dioxide emissions. The agency can estimate the benefits from 
reduced emissions in any future year by multiplying the change in 
emissions in that year by the SCC value appropriate for that year. The 
net present value of the benefits can then be calculated by multiplying 
the 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 agencies, the Administration sought to 
develop a transparent and defensible method, specifically designed for 
the rulemaking process, to quantify avoided climate change damages from 
reduced CO2 emissions. The interagency group did not 
undertake any original analysis. Instead, it combined SCC estimates 
from the existing literature to use as interim values until a more 
comprehensive analysis could be conducted. The outcome of the 
preliminary assessment by the interagency group was a set of five 
interim values: global SCC estimates for 2007 (in 2006$) of $55, $33, 
$19, $10, and $5 per metric ton of CO2. These interim values 
represented the first sustained interagency effort within the U.S. 
government to develop an SCC for use in regulatory analysis. The 
results of this preliminary effort were presented in several proposed 
and final rules.
c. Current Approach and Key Assumptions
    After the release of the interim values, the interagency group 
reconvened on a regular basis to generate improved SCC estimates. 
Specifically, the group considered public comments and further explored 
the technical literature in relevant fields. The interagency group 
relied on three integrated assessment models commonly used to estimate 
the SCC: the 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. Each model 
was given equal weight in the SCC values that were developed.
    Each model takes a slightly different approach to model how changes 
in emissions result in changes in economic damages. A key objective of 
the interagency process was to enable a consistent exploration of the 
three models while respecting the different approaches to quantifying 
damages taken by the key modelers in the field. An extensive review of 
the literature was conducted to select three sets of input parameters 
for these models: climate sensitivity, socio-economic and emissions 
trajectories, and discount rates. A probability distribution for 
climate sensitivity was specified as an input into all three models. In 
addition, the interagency group used a range of scenarios for the 
socio-economic parameters and a range of values for the discount rate. 
All other model features were left unchanged, relying on the model 
developers' best estimates and judgments.
    The interagency group selected four sets of SCC values for use in 
regulatory analyses. Three sets of values are based on the average SCC 
from three integrated assessment models, at discount rates of 2.5 
percent, 3 percent, and 5 percent. The fourth set, which represents the 
95th-percentile SCC estimate across all three models at a 3-percent 
discount rate, is 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, 
although preference is given to consideration of the global benefits of 
reducing CO2 emissions.

[[Page 78651]]

Table IV.9 presents the values in the 2010 interagency group 
report,\96\ which is reproduced in appendix 14-A of the NOPR TSD.
---------------------------------------------------------------------------

    \96\ 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: 
http://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
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                          Discount rate %
                                                 ---------------------------------------------------------------
                                                         5               3              2.5              3
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2010............................................             4.7            21.4            35.1            64.9
2015............................................             5.7            23.8            38.4            72.8
2020............................................             6.8            26.3            41.7            80.7
2025............................................             8.2            29.6            45.9            90.4
2030............................................             9.7            32.8            50.0           100.0
2035............................................            11.2            36.0            54.2           109.7
2040............................................            12.7            39.2            58.4           119.3
2045............................................            14.2            42.1            61.7           127.8
2050............................................            15.7            44.9            65.0           136.2
----------------------------------------------------------------------------------------------------------------

    The SCC values used for the NOPR were generated using the most 
recent versions of the three integrated assessment models that have 
been published in the peer-reviewed literature.\97\ (See appendix 14-B 
of the NOPR TSD for further information.) Table IV.10 shows the updated 
sets of SCC estimates in five year increments from 2010 to 2050. 
Appendix 14-B of the NOPR TSD provides the full set of SCC estimates. 
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.
---------------------------------------------------------------------------

    \97\ Technical Update of the Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866. Interagency 
Working Group on Social Cost of Carbon, United States Government 
(May 2013; revised November 2013) (Available at: http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).

                     Table IV.10--Annual SCC Values From 2013 Interagency Update, 2010-2050
                                      [In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                          Discount rate %
                                                 ---------------------------------------------------------------
                                                         5               3              2.5              3
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2010............................................              11              32              51              89
2015............................................              11              37              57             109
2020............................................              12              43              64             128
2025............................................              14              47              69             143
2030............................................              16              52              75             159
2035............................................              19              56              80             175
2040............................................              21              61              86             191
2045............................................              24              66              92             206
2050............................................              26              71              97             220
----------------------------------------------------------------------------------------------------------------

    It is important to recognize that a number of key uncertainties 
remain, and that current SCC estimates should be treated as provisional 
and revisable since they will evolve with improved scientific and 
economic understanding. The interagency group also recognizes that the 
existing models are imperfect and incomplete. The National Research 
Council report mentioned above points out that there is tension between 
the goal of producing quantified estimates of the economic damages from 
an incremental ton of carbon and the limits of existing efforts to 
model these effects. There are a number of 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 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, adjusted to 2013$ using the Gross Domestic 
Product price deflator. For each of the four cases specified, the 
values used for emissions in 2015 were $12.0, $40.5, $62.4, and $119 
per metric ton avoided (values expressed in 2013$). DOE derived values 
after 2050 using the relevant growth rates for the 2040-2050 period in 
the interagency update.
    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SCC value for that year in each of the four cases. To 
calculate a present value

[[Page 78652]]

of the stream of monetary values, DOE discounted the values in each of 
the four cases using the specific discount rate that had been used to 
obtain the SCC values in each case.
2. Valuation of Other Emissions Reductions
    As noted above, DOE has taken into account how amended energy 
conservation standards would reduce NOX emissions in those 
22 States not affected by emissions caps. DOE estimated the monetized 
value of NOX emissions reductions resulting from each of the 
TSLs considered for the NOPR based on estimates found in the relevant 
scientific literature. Estimates of monetary value for reducing 
NOX from stationary sources range from $476 to $4,893 per 
ton (2013$).\98\ DOE calculated monetary benefits using a medium value 
for NOX emissions of $2,684 per short ton (in 2013$), and 
real discount rates of 3 percent and 7 percent.
---------------------------------------------------------------------------

    \98\ U.S. Office of Management and Budget, Office of Information 
and Regulatory Affairs, 2006 Report to Congress on the Costs and 
Benefits of Federal Regulations and Unfunded Mandates on State, 
Local, and Tribal Entities, Washington, DC. Available at: 
www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_cb_final_report.pdf.
---------------------------------------------------------------------------

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

L. Utility Impact Analysis

    In the utility impact analysis, DOE analyzes the changes in 
electric installed capacity and generation that result for each trial 
standard level. The utility impact analysis uses a variant of NEMS,\99\ 
which is a public domain, multi-sectored, partial equilibrium model of 
the U.S. energy sector. DOE uses a variant of this model, referred to 
as NEMS-BT,\100\ to account for selected utility impacts of new or 
amended energy conservation standards. DOE's analysis consists of a 
comparison between model results for the most recent AEO Reference Case 
and for cases in which energy use is decremented to reflect the impact 
of potential standards. The energy savings inputs associated with each 
TSL come from the NIA. Chapter 15 of the NOPR TSD describes the utility 
impact analysis.
---------------------------------------------------------------------------

    \99\ For more information on NEMS, refer to the U.S. Department 
of Energy, Energy Information Administration documentation. A useful 
summary is National Energy Modeling System: An Overview 2003, DOE/
EIA-0581(2003), March, 2003.
    \100\ DOE/EIA approves use of the name ``NEMS'' to describe only 
an official version of the model without any modification to code or 
data. Because this analysis entails some minor code modifications 
and the model is run under various policy scenarios that are 
variations on DOE/EIA assumptions, DOE refers to it by the name 
``NEMS-BT'' (``BT'' is DOE's Building Technologies Program, under 
whose aegis this work has been performed).
---------------------------------------------------------------------------

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.\101\ 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.
---------------------------------------------------------------------------

    \101\ 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 NOPR, DOE 
estimated indirect national employment impacts using an input/output 
model of the U.S. economy called Impact of Sector Energy Technologies 
version 3.1.1 (ImSET).\102\ ImSET is a special-purpose version of the 
``U.S. Benchmark National Input-Output'' (I-O) model, which was 
designed to estimate the national employment and income effects of 
energy-saving technologies. The ImSET software includes a computer-
based I-O model having structural coefficients that characterize 
economic flows among the 187 sectors. ImSET's national economic I-O 
structure is based on a 2002 U.S. benchmark table, specially aggregated 
to the 187 sectors most relevant to industrial, commercial, and 
residential building energy use. DOE notes that ImSET is not a general 
equilibrium forecasting model, and understands the uncertainties 
involved in projecting employment impacts, especially changes in the 
later years of the analysis. Because ImSET does not incorporate price 
changes, the employment effects predicted by ImSET may over-estimate 
actual job impacts over the long run. For the NOPR, DOE used ImSET only 
to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------

    \102\ 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 NOPR TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to potential energy conservation standards for SPVUs in 
this rulemaking. It addresses the TSLs examined by DOE, the projected 
impacts of each of these levels if adopted as energy conservation 
standards for SPVUs, and the proposed standard levels that DOE sets 
forth in the NOPR. Additional details regarding DOE's analyses are 
contained in the TSD supporting this NOPR.

A. Trial Standard Levels

    DOE developed Trial Standard Levels (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

[[Page 78653]]

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  baseline      ASHRAE     ---------------------------------------------------------------
                                                                             baseline            1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.....................................             9.0            10.0            10.5            11.0           11.75            12.3
SPVHP <65,000 Btu/h.....................................         9.0/3.0        10.0/3.0        10.5/3.2        11.0/3.3       11.75/3.9        12.3/3.9
SPVAC >=65,000 Btu/h and <135,000 Btu/h.................             8.9            10.0            10.0            10.0            10.0            10.0
SPVHP >=65,000 Btu/h and <135,000 Btu/h.................         8.9/3.0        10.0/3.0        10.0/3.0        10.0/3.0        10.0/3.0        10.0/3.0
SPVAC >=135,000 Btu/h and <240,000 Btu/h................             8.6            10.0            10.0            10.0            10.0            10.0
SPVHP >=135,000 Btu/h and <240,000 Btu/h................         8.6/2.9        10.0/3.0        10.0/3.0        10.0/3.0        10.0/3.0        10.0/3.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

                                            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)
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVAC <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.
SPVHP <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.
*SPVAC >=65,000 Btu/h and <135,000   BPM Indoor motor,       No change.............  No change............  No change............  No change.
 Btu/h.                               Increased HX face
                                      area.
*SPVHP >=65,000 Btu/h and <135,000   BPM Indoor motor,       No change.............  No change............  No change............  No change.
 Btu/h.                               Increased HX face
                                      area.
SPVAC >=135,000 Btu/h and <240,000   No change.............  No change.............  No change............  No change............  No change.
 Btu/h.
SPVHP >=135,000 Btu/h and <240,000   No change.............  No change.............  No change............  No change............  No change.
 Btu/h.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* TSL1 through TSL4 are marked as ``no change'' because for these equipment classes, each TSL consists of the ASHRAE efficiency level.

B. Economic Justification and Energy Savings

1. Economic Impacts on Commercial Consumers
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. 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

[[Page 78654]]

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 NOPR TSD provides detailed information on 
the LCC and PBP analyses.
    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 analyses 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.\103\ DOE's results indicate that for SPVAC units, affected 
customer savings are positive at TSLs 1 and 2, and for SPVHP units, 
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 NOPR TSD.
---------------------------------------------------------------------------

    \103\ 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 Single-Package Vertical Air Conditioners, <65,000 Btu/h Capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Life-cycle cost 2013$                    Life-cycle cost savings            Payback
                                                          ------------------------------------------------------------------------------------   period
                                                                                                               % of customers that experience    years
                TSL                    Efficiency level     Installed    Discounted                 Average  -------------------------------------------
                                                               cost       operating       LCC       savings                  No        Net
                                                                            cost                     2013$*    Net cost    impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    ASHRAE Baseline......        4,795        12,335       17,130  .........  .........  .........  .........  .........
1.................................  1....................        4,939        12,074       17,013        116         25         26         49        7.9
2.................................  2....................        5,083        11,839       16,922        179         37          1         62        8.4
3.................................  3....................        5,546        11,578       17,123       (24)         62          0         38       14.4
4.................................  4....................        6,407        11,516       17,924      (825)         87          0         13       27.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.


                          Table V.4--Summary LCC and PBP Results for Single-Package Vertical Heat Pumps, <65,000 Btu/h Capacity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Life-cycle cost 2013$                    Life-cycle cost savings            Payback
                                                          ------------------------------------------------------------------------------------   period
                                                                                                               % of customers that experience    years
                TSL                    Efficiency level     Installed    Discounted                 Average  -------------------------------------------
                                                               cost       operating       LCC       savings                  No        Net
                                                                            cost                    2013$ *    Net cost    impact    benefit     Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    ASHRAE Baseline......        5,363        30,464       35,827  .........  .........  .........  .........  .........
1.................................  1....................        5,529        29,939       35,468        358          0         26         74        4.1
2.................................  2....................        5,695        29,618       35,313        424          1          1         98        4.8
3.................................  3....................        6,224        28,690       34,914        819          7          0         92        6.2
4.................................  4....................        7,210        28,698       35,909      (177)         68          0         32       13.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.

b. Life-Cycle Cost Subgroup Analysis
    Using the LCC spreadsheet model, DOE estimated the impacts of the 
TSLs on the following consumer subgroups: (1) Mining and construction 
firms using modular temporary office buildings; (2) public education 
providers using portable classrooms; and (3) small businesses and other 
businesses with high risk premiums (often due to volatility in their 
share price and reliance on equity rather than debt financing) and high 
discount rates (described as ``high rate'' subgroup in this section). 
DOE analyzed this final subgroup because this group has typically had 
less access to capital than other businesses, which results in higher 
financing costs and a higher discount rate than the industry average. 
Businesses with high discount rates need an earlier return on 
investment than other businesses and, other things equal, would place a 
lower value on future energy savings relative to immediate returns than 
would other businesses. Consequently, the present

[[Page 78655]]

value of future savings is lower for these businesses. DOE estimated 
the average LCC savings and median PBP using the ASHRAE baseline for 
the high rate subgroup compared with average SPVU consumers, as shown 
in Table V.5 and Table V.6 below.
    The results of the life-cycle cost subgroup analysis indicate that 
for SPVAC units, the three subgroups all fare slightly worse than the 
average consumer, with those subgroups being expected to have lower LCC 
savings and longer payback periods than average. In the cases of 
education and mining and construction customers, this occurs mainly 
because although they pay the same installed cost premium for more-
efficient SPVAC units, they use and save less energy than do average 
customers and so benefit less from the energy savings. In the case of 
mining and construction customers, LCC savings are also further reduced 
by the effects of their higher discount rate, which further reduces the 
value of their already-smaller energy savings. The picture is somewhat 
more mixed for SPVHPs, with the high-rate subgroup and construction/
mining firms generally faring worse, and education generally faring 
somewhat better than the average consumer. Education SPVHP customers 
save more energy than the average customer, whereas the opposite is 
true for education customers for air conditioners. Thus, even though 
they pay a lower price on average, education customers' energy cost 
savings are higher than average, and they have a lower discount rate on 
those savings, making them worth more. In combination, these two 
factors make their LCC savings higher than those of the average SPVHP 
customer. The construction and mining SPVHP customers save less energy 
than the average customer, and their higher discount rate makes these 
savings worth less to them. Finally, since high discount rate customers 
save the same amount of energy as the average customer, they only 
experience the effects of their higher discount rate, which moderately 
reduces their LCC savings and has no effect on PBP. Chapter 11 of the 
NOPR TSD provides more detailed discussion on the LCC subgroup analysis 
and results.

                             Table V.5--Comparison of Impacts for Consumer Subgroups With All Consumers, SPVAC <65,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     LCC Savings 2013$*                            Median payback period years
                                   Energy efficiency ---------------------------------------------------------------------------------------------------
               TSL                       level          Construction                                      Construction
                                                         and mining    Education  High rate     All        and mining    Education  High rate     All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...............................  1.................             (27)         98        101        116             13.8        9.6        7.9        7.9
2...............................  2.................             (60)        148        153        179             14.7       10.1        8.3        8.4
3...............................  3.................            (429)       (92)       (66)       (24)             26.7       17.5       14.3       14.4
4...............................  4.................          (1,323)      (944)      (867)      (825)             55.0       33.5       28.1       27.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.


                             Table V.6--Comparison of Impacts for Consumer Subgroups With All Consumers, SPVHP <65,000 Btu/h
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     LCC savings 2013$*                            Median payback period years
                                   Energy efficiency ---------------------------------------------------------------------------------------------------
               TSL                       level          Construction                                      Construction
                                                         and mining    Education  High rate     All        and mining    Education  High rate     All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...............................  1.................              259        440        342        358              4.2        3.8        4.1        4.1
2...............................  2.................              274        549        403        424              5.4        4.6        4.8        4.8
3...............................  3.................              527      1,056        769        819              6.3        6.1        6.2        6.2
4...............................  4.................            (488)         83      (222)      (177)             14.5       12.7       13.6       13.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.

c. Rebuttable Presumption Payback
    As discussed in section III.E.2, EPCA provides a rebuttable 
presumption that, in essence, an energy conservation standard is 
economically justified if the increased purchase cost for a product 
that meets the standard is less than three times the value of the 
first-year energy savings resulting from the standard. However, DOE 
routinely conducts a full economic analysis that considers the full 
range of impacts, including those to the consumer, manufacturer, 
Nation, and environment, as required under 42 U.S.C. 6295(o)(2)(B)(i) 
and 6316(e)(1). The results of this 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. For comparison 
with the more detailed analytical results, DOE calculated a rebuttable 
presumption payback period for each TSL. Table V.7 shows the rebuttable 
presumption payback periods for the representative equipment classes 
using the ASHRAE baseline. No equipment class has a rebuttable 
presumption payback period of less than 3 years.

                  Table V.7--Rebuttable Presumption Payback Periods for SPVU Equipment Classes
----------------------------------------------------------------------------------------------------------------
                                                               Rebuttable presumption payback years
                 Equipment class                 ---------------------------------------------------------------
                                                       TSL 1           TSL 2           TSL 3           TSL 4
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............................             5.2             5.4             8.6            14.8
SPVHP <65,000 Btu/h.............................             3.2             4.0             4.8             9.5
----------------------------------------------------------------------------------------------------------------


[[Page 78656]]

2. Economic Impact on Manufacturers
    As noted in section IV.I, DOE performed a manufacturer impact 
analysis to estimate the impact of amended energy conservation 
standards on manufacturers of SPVUs. 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 NOPR 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 industry net present value.
    The impact of potential amended energy conservation standards were 
analyzed under two markup scenarios: (1) The preservation of gross 
margin percentage; and (2) the preservation of operating profit. As 
discussed in section IV.I.2.b, DOE considered the preservation of gross 
margin percentage scenario by applying a uniform ``gross margin 
percentage'' markup across all efficiency levels. As production cost 
increases with efficiency, this scenario implies that the absolute 
dollar markup will increase. DOE assumed the nonproduction cost 
markup--which includes SG&A expenses, research and development 
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.
    The preservation of operating profit scenario 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 result from the sum 
of discounted cash flows from the base year 2014 through 2048, the end 
of the analysis period. To provide perspective on the short-run cash 
flow impact, DOE includes in the discussion of the results a comparison 
of free cash flow between the base case and the standards case at each 
TSL in the year before amended standards would take effect. This figure 
provides an understanding of the magnitude of the required conversion 
costs relative to the cash flow generated by the industry in the base 
case.

                                                Table V.8--Manufacturer Impact Analysis Results for SPVUs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Trial standard level*
                                  Units    Base case ---------------------------------------------------------------------------------------------------
                                                                 1                        2                        3                        4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV..........................         $M       36.5  32.4 to 34.2             33.2 to 38.0             27.5 to 49.2             3.0 to 47.4
Change in INPV................         $M  .........  (4.1) to (2.3)           (3.3) to 1.5             (9.0) to 12.7            (33.4) to 10.9
                                        %  .........  (11.3) to (6.3)          (9.0) to 4.1             (24.7) to 34.9           (91.7) to 29.9
Free Cash Flow (FCF) in 2018..         $M        2.9  0.6                      0.4                      (2.1)                    (9.5)
Change in FCF in 2018.........         $M  .........  (2.3)                    (2.5)                    (5.0)                    (12.4)
                                        %  .........  (78.2)                   (85.0)                   (174.0)                  (428.2)
Conversion Costs..............         $M  .........  6.5                      7.2                      16.1                     33.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.

    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 -$4.1 to -$2.3 
million, or a change of -11.3 percent to -6.3 percent. At this level, 
free cash flow is estimated to decrease to $0.6 million, or a decrease 
of 78.2 percent compared to the base-case value of $2.9 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 sixty-five 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 
$6.5 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 $1.5 million to -$3.3 million, 
or a change in INPV of 4.1 percent to -9.0 percent. At this level, free 
cash flow is estimated to decrease to $0.4, or a change of -85.0 
percent compared to the base-case value of $2.9 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. Product updates and associated testing expenses would 
further increase conversion costs for the industry to $7.2 million.
    At TSL 3, the standard increases to 11.75 EER/3.9 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

[[Page 78657]]

and 2. DOE estimates impacts on INPV to range from $12.7 million to -
9.0 million, or a change in INPV of 34.9 percent to -24.7 percent. At 
this level, free cash flow is estimated to decrease to less than zero, 
to -$2.1 million, or a change of -174.0 percent compared to the base-
case value of $2.9 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-
four 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 $16.1 million for the industry.
    At TSL 4, the standard increases to 12.3 EER/COP of 3.9 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 $10.9 million 
to -33.4 million, or a change in INPV of 29.9 percent to -91.7 percent. 
At this level, free cash flow is estimated to decrease to -$9.5 
million, or a decrease of 428.2 percent compared to the base-case value 
of $2.9 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-eight 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 $33.9 million for the industry.
b. Impacts on Direct 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,\104\ 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 manufacturing of the 
product are a function of the labor intensity of the product, 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 SPVU units are produced domestically.
---------------------------------------------------------------------------

    \104\ 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 who 
are directly involved in fabricating and assembling a product within an 
original equipment manufacturer (OEM) facility. Workers performing 
services that are closely associated with production operations, such 
as materials handling tasks using forklifts, are also included as 
production labor. DOE's estimates only account for production workers 
who manufacture the specific products covered by this rulemaking. To 
estimate an upper bound to employment change, DOE assumes all domestic 
manufacturers would choose to continue producing products in the U.S. 
and would not move production to foreign countries. To estimate a lower 
bound to employment, DOE estimated the maximum portion of the industry 
that would choose 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 
NOPR TSD.
    Using the GRIM, DOE estimates that in the absence of amended energy 
conservation standards, there would be 454 domestic production workers 
for SPVU equipment. As noted previously, DOE estimates that 95 percent 
of SPVU units sold in the United States are manufactured domestically. 
Table V.9 below shows the range of the impacts of potential amended 
energy conservation standards on U.S. production workers of SPVUs.

               Table V.9--Potential Changes in the Total Number of SPVU Production Workers in 2019
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level*
                               ---------------------------------------------------------------------------------
                                 Base case          1               2               3                 4
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic                412  389 to 421      389 to 432      339 to 461      285 to 559
 Production Workers in 2019.
Potential Changes in Domestic   ...........  (23) to 9       (23) to 20      (73) to 49      (127) to 147
 Production Workers in 2019.
----------------------------------------------------------------------------------------------------------------
*Parentheses indicate negative values.

c. Impacts on Manufacturing Capacity
    According to SPVU manufacturers interviewed, demand for SPVUs, 
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 SPVU 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

[[Page 78658]]

standard requiring BPMs would monopolize their testing resources and 
facilities--to their point when some manufacturers anticipated the need 
to build new psychometric test labs just to have enough in-house 
testing capacity to meet the 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
    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 SPVU 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 qualifies as a small business. For a 
discussion of the impacts on the small manufacturer subgroup, see the 
regulatory flexibility analysis in section VI.B of this NOPR and 
chapter 12 of the NOPR TSD.
e. Cumulative Regulatory Burden
    While any one regulation may not impose a significant burden on 
manufacturers, the combined effects of several impending regulations 
may have serious consequences for some manufacturers, groups of 
manufacturers, or an entire industry. Assessing the impact of a single 
regulation may overlook this cumulative regulatory burden. Multiple 
regulations affecting the same manufacturer can strain profits and can 
lead companies to abandon product lines or markets with lower expected 
future returns than competing products. For these reasons, DOE conducts 
an analysis of cumulative regulatory burden as part of its rulemakings 
pertaining to appliance efficiency.
    For the cumulative regulatory burden analysis, DOE looks at other 
regulations that could affect SPVU manufacturers that will take effect 
approximately three years before or after the compliance date of 
amended energy conservation standards for these products. For equipment 
with proposed standards that are more stringent than those contained in 
ASHRAE Standard 90.1-2013, the compliance date is four 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 proposed standards that are set at the levels contained 
in ASHRAE Standard 90.1-2013, the compliance date is two or three 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 SPVU 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 SPVUs 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 three years of the compliance date for any amended SPVU 
standards. The compliance years and expected industry conversion costs 
are listed below:

Table V.10--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
                                               SPVU Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                    Approximate
     Federal energy conservation standards        compliance date    Estimated total industry conversion expense
----------------------------------------------------------------------------------------------------------------
2008 Packaged Terminal Air Conditioners and                   2012  $33.7M (2007$).
 Heat Pumps 73 FR 58772 (Oct. 7, 2008).
2011 Room Air Conditioners 76 FR 22454 (April                 2014  $171M (2009$).
 21, 2011); 76 FR 52854 (August 24, 2011).
2007 Residential Furnaces & Boilers 72 FR 65136               2015  $88M (2006$).*
 (Nov. 19, 2007).
2011 Residential Furnaces 76 FR 37408 (June 27,               2015  $2.5M (2009$).**
 2011); 76 FR 67037 (Oct. 31, 2011).
2011 Residential Central Air Conditioners and                 2015  $26.0M (2009$).**
 Heat Pumps 76 FR 37408 (June 27, 2011); 76 FR
 67037 (Oct. 31, 2011).
2010 Gas Fired and Electric Storage Water                     2015  $95.4M (2009$).
 Heaters 75 FR 20112 (April 16, 2010).
Walk-in Coolers and Freezers 79 FR 32050 (June                2017  $33.6M (2012$).
 3, 2014).
Dishwashers***.................................               2018  TBD.
Commercial Warm-Air Furnaces***................               2018  TBD.
Commercial Packaged Air Conditioners and Heat                 2019  $226.4M (2013$).
 Pumps*** 79 FR 58948 (September 18, 2014).
Furnace Fans 79 FR 38130 (July 3, 2014)........               2019  $40.6M (2013$).
Packaged Terminal Air Conditioners and Heat                   2019  $14.3M (2013$).
 Pumps*** 79 FR 55538 (September 16, 2014).
Miscellaneous Residential Refrigeration***.....               2019  TBD.
Commercial Water Heaters***....................               2019  TBD.
Commercial Packaged Boilers***.................               2020  TBD.
Residential Water Heaters***...................               2021  TBD.
Clothes Dryers***..............................               2022  TBD.
Central Air Conditioners***....................               2022  TBD.
Room Air Conditioners***.......................               2022  TBD.
----------------------------------------------------------------------------------------------------------------
*Conversion expenses for manufacturers of oil-fired furnaces and gas-fired and oil-fired boilers associated with
  the November 2007 final rule for residential furnaces and boilers are excluded from this figure. The 2011
  direct final rule for residential furnaces sets a higher standard and earlier compliance date for oil-fired
  furnaces than the 2007 final rule. As a result, manufacturers will be required to design 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.

[[Page 78659]]

 
**Estimated industry conversion expense and approximate compliance date reflect a court-ordered April 24, 2014
  remand of the residential non-weatherized and mobile home gas furnaces standards set in the 2011 Energy
  Conservation Standards for Residential Furnaces and Residential Central Air Conditioners and Heat Pumps. The
  costs associated with this rule reflect implementation of the amended standards for the remaining furnace
  product classes (i.e., oil-fired furnaces).
***The final rule for this energy conservation standard has not been published. The compliance date and analysis
  of conversion costs have not been finalized at this time. (If a value is provided for total industry
  conversion expense, this value represents an estimate from the NOPR.)

    Additionally, manufacturers cited increasing ENERGY STAR standards 
for room air conditioners and packaged terminal air conditioners as a 
source of regulatory burden. In response, 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.
3. National Impact Analysis
a. Significance of Energy Savings
    For each TSL, DOE projected energy savings for SPVUs purchased in 
the 30-year period that begins in the year of compliance with amended 
standards (2015-2044 for the ASHRAE level and 2019-2048 for higher 
efficiency levels). The savings are measured over the entire lifetime 
of equipment purchased in the 30-year period. DOE quantified the energy 
savings attributable to each TSL as the difference in energy 
consumption between each standards case and the ASHRAE base case. 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).
    Table V.11 presents the estimated primary energy savings for the 
ASHRAE level and for each considered TSL, and Table V.12 presents the 
estimated FFC energy savings. The approach is further described in 
section IV.G.1. As mentioned previously, NES (and NPV) were not 
calculated for equipment classes with no shipments.

  Table V.11--Cumulative National Primary Energy Savings for SPVU Trial Standard Levels for Units Sold in 2015-
                                       2044 (ASHRAE) or 2019-2048 (Higher)
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                      ASHRAE     ---------------------------------------------------------------
                                     baseline            1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                                                      quads*
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............            0.14            0.06            0.13            0.21            0.23
SPVHP <65,000 Btu/h.............            0.07            0.04            0.10            0.15            0.16
SPVAC >=65,000 Btu/h to <135,000            0.01  ..............  ..............  ..............  ..............
 Btu/h..........................
                                 -------------------------------------------------------------------------------
    Total--All Classes..........            0.22            0.09            0.22            0.36            0.39
----------------------------------------------------------------------------------------------------------------
* All energy savings from TSLs above the ASHRAE Standard 90.1-2013 level are calculated with those ASHRAE levels
  as a baseline.
Note: Components may not sum to total due to rounding.


 Table V.12--Cumulative National Full-Fuel-Cycle Energy Savings for SPVU Trial Standard Levels for Units Sold in
                                    2015-2044 (ASHRAE) or 2019-2048 (Higher)
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                      ASHRAE     ---------------------------------------------------------------
                                     baseline            1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                                                      quads*
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............            0.15            0.06            0.13            0.22            0.24
SPVHP <65,000 Btu/h.............            0.07            0.04            0.10            0.15            0.16
SPVAC >=65,000 Btu/h to <135,000            0.01  ..............  ..............  ..............  ..............
 Btu/h..........................
                                 -------------------------------------------------------------------------------
    Total--All Classes..........            0.22            0.09            0.23            0.37            0.39
----------------------------------------------------------------------------------------------------------------
* All energy savings from TSLs above the ASHRAE Standard 90.1-2013 level are calculated with those ASHRAE levels
  as a baseline.
Note: Components may not sum to total due to rounding.

    Circular A-4 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.\105\ 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.\106\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing

[[Page 78660]]

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 results based on a 
nine-year analytical period are presented in Table V.13. The impacts 
are counted over the lifetime of products purchased in 2015-2023 for 
the ASHRAE level and for 2019-2027 for higher levels.
---------------------------------------------------------------------------

    \105\ 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/).
    \106\ 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. (42 U.S.C. 
6313(a)(6)(C)) 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 V.13--Cumulative National Primary Energy Savings for SPVU Trial Standard Levels for Units Sold in 2015-
                                       2023 (ASHRAE) or 2019-2027 (Higher)
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
                                      ASHRAE     ---------------------------------------------------------------
                                     baseline            1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                                                      quads*
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............            0.04            0.01            0.03            0.06            0.07
SPVHP <65,000 Btu/h.............            0.01            0.01            0.02            0.04            0.05
SPVAC >=65,000 Btu/h to <135,000            0.00  ..............  ..............  ..............  ..............
 Btu/h..........................
                                 -------------------------------------------------------------------------------
    Total--All Classes..........            0.06            0.02            0.05            0.10            0.11
----------------------------------------------------------------------------------------------------------------
* All energy savings from TSLs above the ASHRAE Standard 90.1-2013 level are calculated with those ASHRAE levels
  as a baseline.
Note: Components may not sum to total due to rounding.

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 SPVUs. In 
accordance with OMB's guidelines on regulatory analysis,\107\ DOE 
calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.14 shows the consumer NPV results for each TSL considered 
for SPVUs using the ASHRAE baseline. In each case, the impacts cover 
the lifetime of equipment purchased in 2019-2048. DOE conducted all 
economic analyses relative to the ASHRAE baseline; because the ASHRAE 
level is max-tech for classes greater than or equal to 65,000 Btu/h and 
less than 135,000 Btu/h, DOE did not include results for these classes 
in the NPV tables. Results for all equipment classes using the EPCA 
baseline can be found in chapter 10 of the NOPR TSD.
---------------------------------------------------------------------------

    \107\ OMB Circular A-4, section E (Sept. 17, 2003) (Available 
at: http://www.whitehouse.gov/omb/circulars_a004_a-4).

  Table V.14--Cumulative Net Present Value of Customer Benefit for SPVU Trial Standard Levels for Units Sold in
                                                    2019-2048
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
         Equipment class           Discount rate ---------------------------------------------------------------
                                        (%)              1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                                                  billion 2013$*
                                 -------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............               3            0.13            0.13          (0.64)          (1.05)
                                               7            0.04            0.01          (0.38)          (0.66)
SPVHP <65,000 Btu/h.............               3            0.13            0.32            0.14          (0.06)
                                               7            0.04            0.10            0.01          (0.12)
                                 -------------------------------------------------------------------------------
    Total--All Classes..........               3            0.26            0.44          (0.50)          (1.10)
                                               7            0.09            0.11          (0.37)          (0.78)
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative NPV.
Note: Components may not sum to total due to rounding.

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

  Table V.15--Cumulative Net Present Value of Customer Benefit for SPVU Trial Standard Levels for Units Sold in
                                                    2019-2027
----------------------------------------------------------------------------------------------------------------
                                                                       Trial standard level
         Equipment class           Discount rate ---------------------------------------------------------------
                                        (%)              1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                                                  billion 2013$*
                                 -------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............               3            0.06            0.09          (0.04)          (0.34)
                                               7            0.02            0.03          (0.08)          (0.30)

[[Page 78661]]

 
SPVHP <65,000 Btu/h.............               3            0.05            0.09            0.14          (0.01)
                                               7            0.02            0.04            0.05          (0.05)
    Total--All Classes..........               3            0.10            0.19            0.09          (0.35)
                                               7            0.05            0.08          (0.03)          (0.36)
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative NPV.
Note: Components may not sum to total due to rounding.

    The results presented in this section reflect an assumption of no 
change in SPVU prices over the forecast period. In addition, DOE 
conducted sensitivity analysis using alternative price trends: one in 
which prices decline over time, and one in which prices increase. These 
price trends, and the associated NPV results, are described in appendix 
10B of the NOPR TSD.
c. Indirect Impacts on Employment
    DOE expects energy conservation standards for SPVUs to reduce 
energy costs for equipment owners, with the resulting net savings being 
redirected to other forms of economic activity. Those shifts in 
spending and economic activity could affect the demand for labor. As 
described in section IV.M, 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 these proposed standards would be likely 
to have negligible impact on the net demand for labor in the economy. 
The net change in jobs is so small that it would be imperceptible in 
national labor statistics and might be offset by other, unanticipated 
effects on employment. Chapter 16 of the NOPR TSD presents more 
detailed results about anticipated indirect employment impacts.
4. Impact on Utility or Performance of Equipment
    DOE has tentatively concluded that the amended standards it is 
proposing in this NOPR would not lessen the utility or performance of 
SPVUs.
5. Impact of Any Lessening of Competition
    DOE has also considered any lessening of competition that is likely 
to result from new and amended standards. The Attorney General 
determines the impact, if any, of any lessening of competition likely 
to result from a proposed standard, and transmits such determination in 
writing to the Secretary, together with an analysis of the nature and 
extent of such impact. (42 U.S.C. 6313(a)(6)(B)(ii)(V))
    To assist the Attorney General in making such a determination, DOE 
has provided DOJ with copies of this notice and the TSD for review. DOE 
will consider DOJ's comments on the proposed rule in preparing the 
final rule, and DOE will publish and respond to DOJ's comments in that 
document.
6. Need of the Nation To Conserve Energy
    An improvement in the energy efficiency of the products subject to 
this rule is likely to improve the security of the nation's energy 
system by reducing overall demand for energy. Reduced electricity 
demand may also improve the reliability of the electricity system. 
Reductions in national electric generating capacity estimated for each 
considered TSL are reported in chapter 15 of the NOPR TSD.
    Energy savings from amended standards for the SPVU equipment 
classes covered in the NOPR could also produce environmental benefits 
in the form of reduced emissions of air pollutants and greenhouse gases 
associated with electricity production. Table V.16 provides DOE's 
estimate of cumulative emissions reductions projected 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 NOPR 
TSD. The table includes both power sector emissions and upstream 
emissions. The upstream emissions were calculated using the multipliers 
discussed in section IV.G. DOE reports annual CO2, 
NOX, and Hg emissions reductions for each TSL in chapter 13 
of the NOPR TSD. As discussed in section IV.J, DOE did not include 
NOX emissions reduction from power plants in States subject 
to CAIR, because an energy conservation standard would not affect the 
overall level of NOX emissions in those States due to the 
emissions caps mandated by CSAPR.

                  Table V.16--Cumulative Emissions Reduction for Potential Standards for SPVUs
----------------------------------------------------------------------------------------------------------------
                                                                                TSL
                                                 ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
                                        Power Sector and Site Emissions*
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................          8.0            20              32              34
SO2 (thousand tons).............................         22              53              86              90
NOX (thousand tons).............................          3.6             8.9            14              14
Hg (tons).......................................          0.03            0.06            0.10            0.11
N2O (thousand tons).............................          0.11            0.27            0.44            0.46
CH4 (thousand tons).............................          0.60            1.4             2.4             2.5
----------------------------------------------------------------------------------------------------------------

[[Page 78662]]

 
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................          0.28            0.68            1.1             1.2
SO2 (thousand tons).............................          0.06            0.15            0.24            0.26
NOX (thousand tons).............................          3.9             9.4            16              17
Hg (tons).......................................          0.0002          0.0004          0.0006          0.0006
N2O (thousand tons).............................          0.003           0.007           0.011           0.012
CH4 (thousand tons).............................         24              57              94             101
----------------------------------------------------------------------------------------------------------------
                                                 Total Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons).......................          8.3            20              33              35
SO2 (thousand tons).............................         22              53              86              91
NOX (thousand tons).............................          7.4            18              30              31
Hg (tons).......................................          0.03            0.06            0.11            0.11
N2O (thousand tons).............................          0.11            0.28            0.45            0.47
CH4 (thousand tons).............................         24              59              97             103
----------------------------------------------------------------------------------------------------------------
* Includes emissions from additional gas use of more-efficient SPVUs.
Note: These results are based on emissions factors in AEO 2013, the most recent version available at the time of
  this analysis. Use of emissions factors in AEO 2014 would result in a significant decrease in cumulative
  emissions reductions for CO2, estimated at 33%, and an increase in NOX, estimated at 13%. In the next phase of
  this rulemaking, DOE plans to use emissions factors based on the most recent AEO available, which may or may
  not be AEO 2014, depending on the timing of the issuance of the next rulemaking document.

    As part of the analysis for this NOPR, DOE estimated monetary 
benefits likely to result from the reduced emissions of CO2 
and NOX estimated for each of the TSLs considered for SPVUs. 
As discussed in section IV.K, for CO2, DOE used values for 
the SCC developed by an interagency process. The interagency group 
selected four sets of SCC values for use in regulatory analyses. Three 
sets are based on the average SCC from three integrated assessment 
models, at discount rates of 2.5 percent, 3 percent, and 5 percent. The 
fourth set, which represents the 95th-percentile SCC estimate across 
all three models at a 3-percent discount rate, is included to represent 
higher-than-expected impacts from temperature change further out in the 
tails of the SCC distribution. The four SCC values for CO2 
emissions reductions in 2015, expressed in 2013$, are $12.0/ton, $40.5/
ton, $62.4/ton, and $119/ton. The values for later years are higher due 
to increasing emissions-related costs as the magnitude of projected 
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 NOPR TSD. DOE 
calculated domestic values as a range from 7 percent to 23 percent of 
the global values, and these results are presented in chapter 14 of the 
NOPR TSD for both the ASHRAE and EPCA baselines.

          Table V.17--Global Present Value of CO2 Emissions Reduction for Potential Standards for SPVUs
----------------------------------------------------------------------------------------------------------------
                                                              SCC Scenario*
                       -----------------------------------------------------------------------------------------
                                                              million 2013$
          TSL          -----------------------------------------------------------------------------------------
                          5% discount rate,      3% discount rate,     2.5% discount rate,    3% discount rate,
                               average                average                average           95th percentile
----------------------------------------------------------------------------------------------------------------
                                       Power Sector and Site Emissions **
----------------------------------------------------------------------------------------------------------------
                1                       50                    241                   386                   747
                2                      120                    584                   937                  1812
                3                      202                    969                  1552                  3006
                4                      216                   1035                  1656                  3209
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
                1                      1.8                    8.5                    14                    26
                2                      4.3                     21                    33                    64
                3                      7.2                     34                    55                   107
                4                      7.8                     37                    59                   114
----------------------------------------------------------------------------------------------------------------
                                                 Total Emissions
----------------------------------------------------------------------------------------------------------------
                1                       52                    249                   400                   773
                2                      124                    605                   970                  1875
                3                      209                   1003                  1607                  3112
                4                      224                   1072                  1715                  3324
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, $62.4 and $119
  per metric ton (2013$).\108\
** Includes site emissions associated with additional use of natural gas by more-efficient SPVUs.


[[Page 78663]]

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other greenhouse gas (GHG) emissions 
to changes in the future global climate and the potential resulting 
damages to the world economy continues to evolve rapidly. Thus, any 
value placed in this rulemaking on reducing CO2 emissions 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 NOPR the most 
recent values and analyses resulting from the interagency review 
process.
---------------------------------------------------------------------------

    \108\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
decrease in cumulative emissions reductions for CO2, 
estimated at 33%. The monetized benefits from GHG reductions would 
likely change by a comparable amount. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
---------------------------------------------------------------------------

    DOE also estimated a range for the cumulative monetary value of the 
economic benefits associated with NOX emissions reductions 
anticipated to result from amended standards for the SPVU equipment 
that is the subject of this NOPR. The dollar-per-ton values that DOE 
used are discussed in section IV.K. Table V.18 presents the present 
value of cumulative NOX emissions reductions for each TSL 
using the ASHRAE baseline calculated using the average dollar-per-ton 
values and 7-percent and 3-percent discount rates. Results using the 
EPCA baseline are available in chapter 14 of the NOPR TSD.

   Table V.18--Present Value of NOX Emissions Reduction for Potential
                        Standards for SPVUs \109\
------------------------------------------------------------------------
                                          million 2013$
          TSL          -------------------------------------------------
                            3% Discount rate         7% Discount rate
------------------------------------------------------------------------
                   Power Sector and Site Emissions **
------------------------------------------------------------------------
                 1                      3.6                      1.0
                 2                      9.1                      2.6
                 3                     15                        4.2
                 4                     15                        4.3
------------------------------------------------------------------------
                           Upstream Emissions
------------------------------------------------------------------------
                 1                      4.8                      2.0
                 2                     11                        4.7
                 3                     19                        8.2
                 4                     21                        9.0
------------------------------------------------------------------------
                             Total Emissions
------------------------------------------------------------------------
                 1                      8.4                      3.0
                 2                     21                        7.3
                 3                     34                       12
                 4                     36                       13
------------------------------------------------------------------------
* Includes site emissions associated with additional use of natural gas
  by more-efficient SPVUs.

    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 a 3-
percent discount rate. The CO2 values used in the columns of 
each table correspond to the four scenarios for the valuation of 
CO2 emission reductions discussed above.
---------------------------------------------------------------------------

    \109\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in an increase in 
NOX emissions reductions, estimated at 13%. The monetized 
benefits from NOX reductions would likely change by a 
comparable amount. In the next phase of this rulemaking, DOE plans 
to use emissions factors based on the most recent AEO available, 
which may or may not be AEO 2014, depending on the timing of the 
issuance of the next rulemaking document.

    Table V.19--SPVU TSLs: Net Present Value of Consumer Savings Combined With Net Present Value of Monetized
                                 Benefits From CO2 and NOX Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                                             Consumer NPV at 3% discount rate added with:
                    --------------------------------------------------------------------------------------------
                                                   SCC Value of $40.5/  SCC Value of $62.4/   SCC Value of $119/
        TSL            SCC Value of $12.0/metric   metric ton CO2* and  metric ton CO2* and  metric ton CO2* and
                      ton CO2* and  medium value     medium value for     medium value for     medium value for
                               for NOX**                  NOX**                NOX**                NOX**
----------------------------------------------------------------------------------------------------------------
                1                          0.32                0.52                  0.67                 1.0
                2                          0.59                1.1                   1.4                  2.3
                3                        (0.26)                0.54                  1.1                  2.6
                4                        (0.84)                0.005                 0.65                 2.3
----------------------------------------------------------------------------------------------------------------
                1                          0.14                0.34                  0.49                 0.86

[[Page 78664]]

 
                2                          0.24                0.72                  1.1                  2.0
                3                        (0.15)                0.65                  1.3                  2.8
                4                        (0.54)                0.31                  0.95                 2.6
----------------------------------------------------------------------------------------------------------------
\1\ Billion 2013$.
Note: Parentheses indicate negative values.
* These label values represent the global SCC in 2015, in 2013$. The present values have been calculated with
  scenario-consistent discount rates.\110\
** Medium Value corresponds to $2,684 per ton of NOX emissions.

    Although adding the value of consumer savings to the values of 
emission reductions provides a valuable perspective, two issues should 
be considered. First, the national operating cost savings are domestic 
U.S. customer monetary savings that occur as a result of market 
transactions, while the value of CO2 reductions is based on 
a global value. Second, the assessments of operating cost savings and 
the SCC are performed with different methods that use quite different 
time frames for analysis. The national operating cost savings is 
measured for the lifetime of products shipped in 2019-2048. The SCC 
values, on the other hand, reflect the present value of future climate-
related impacts resulting from the emission of one metric ton of 
CO2 in each year. These impacts continue well beyond 2100.
---------------------------------------------------------------------------

    \110\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
decrease in cumulative emissions reductions for CO2, 
estimated at 33%, and in increase in cumulative emissions reductions 
for NOX, estimated at 13%. The monetized benefits from 
GHG reductions would likely change by a comparable amount. In the 
next phase of this rulemaking, DOE plans to use emissions factors 
based on the most recent AEO available, which may or may not be AEO 
2014, depending on the timing of the issuance of the next rulemaking 
document.
---------------------------------------------------------------------------

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. 6295(o)(2)(B)(i)(VI)) No 
other factors were considered in this analysis.

C. Proposed Standards

    EPCA contains criteria for prescribing new or amended energy 
conservation standards. For commercial HVAC equipment such as SPVUs, 
DOE must adopt as national standards the levels in amendments to ASHRAE 
Standard 90.1 unless DOE determines, supported by clear and convincing 
evidence, that standards more stringent than those levels ``would 
result in significant additional conservation of energy and [be] 
technologically feasible and economically justified.'' (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) In determining whether a standard is 
economically justified, the Secretary must determine whether the 
benefits of the standard exceed its burdens by, to the greatest extent 
practicable, considering the seven statutory factors discussed 
previously. (42 U.S.C. 6313(a)(6)(B)(ii))
    In this rulemaking, DOE has evaluated whether standards more 
stringent than the efficiency levels in ASHRAE Standard 90.1-2013 for 
SPVUs are justified under the above criteria. As stated in sections 
III.C.1 and III.D.2, DOE has tentatively determined, based on clear and 
convincing evidence, that all of the more-stringent standard levels 
considered in this rulemaking are technologically feasible and would 
save significant additional amounts of energy. For this NOPR, DOE 
considered the impacts of amended standards for SPVUs at each TSL, 
beginning with the maximum technologically feasible level, to determine 
whether that level was economically justified. Where 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 and saves a significant amount of energy.
    To aid the reader in understanding the benefits and/or burdens of 
each TSL, tables in this section summarize the quantitative analytical 
results for each TSL, based on the assumptions and methodology 
discussed herein. The efficiency levels contained in each TSL are 
described in section V.A. In addition to the quantitative results 
presented in the tables, DOE also considers other burdens and benefits 
that affect economic justification. These include the impacts on 
identifiable subgroups of consumers who may be disproportionately 
affected by a national standard, and impacts on employment. Section 
V.B.1.b presents the estimated impacts of each TSL for these subgroups. 
DOE discusses the impacts on direct employment in SPVU manufacturing in 
section V.B.2.b, and discusses the indirect employment impacts in 
section V.B.3.c.
1. Benefits and Burdens of Trial Standard Levels Considered for SPVUs
    Table V.20, Table V.21, and Table V.22 summarize the quantitative 
impacts estimated for each TSL for SPVUs using the ASHRAE baseline. The 
national impacts are measured over the lifetime of SPVUs purchased in 
the 30-year period that begins in the year of compliance with amended 
standards (2019-2048). The energy savings, emissions reductions, and 
value of emissions reductions refer to full-fuel-cycle results. Results 
for the proposed standard level using the EPCA baseline can be found in 
Tables V.24 through V.28.
---------------------------------------------------------------------------

    \111\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
change in cumulative emissions reductions for CO2 and 
most other pollutants. For example, the estimated change for 
CO2 emissions reductions is a decrease of 33%, while the 
estimated change for NOX emissions reductions is an 
increase of 13%. The monetized benefits from GHG reductions would 
likely change by a comparable amount. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.

[[Page 78665]]



                                       Table V.20--Summary of Analytical Results for SPVUs: National Impacts \111\
--------------------------------------------------------------------------------------------------------------------------------------------------------
              Category                           TSL 1                        TSL 2                        TSL 3                        TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Energy Savings quads.......  0.09.......................  0.23.......................  0.37.......................  0.39.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        NPV of Customer Benefits (2013$ billion)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate....................  0.26.......................  0.44.......................  (0.50).....................  (1.10).
7% discount rate....................  0.09.......................  0.11.......................  (0.37).....................  (0.78).
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Cumulative Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...........  8.3........................  20.........................  33.........................  35.
SO2 (thousand tons).................  22.........................  53.........................  86.........................  91.
NOX (thousand tons).................  7.4........................  18.........................  30.........................  31.
Hg (tons)...........................  0.03.......................  0.06.......................  0.11.......................  0.11.
N2O (thousand tons).................  0.11.......................  0.28.......................  0.45.......................  0.47.
CH4 (thousand tons).................  24.........................  59.........................  97.........................  103.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Value of Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2013$ million)*................  52 to 773..................  124 to 1875................  209 to 3112................  224 to 3324.
NOX--3% discount rate (2013$          8.4........................  21.........................  34.........................  36
 million).
NOX--7% discount rate (2013$          3.0........................  7.3........................  12.........................  13.
 million).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
Note: Parentheses indicate negative values.


                             Table V.21--NPV of Consumer Benefits by Equipment Class
----------------------------------------------------------------------------------------------------------------
                                                                       Trial Standard Level
         Equipment class           Discount rate ---------------------------------------------------------------
                                        (%)              1               2               3               4
----------------------------------------------------------------------------------------------------------------
SPVAC...........................               3            0.13            0.13          (0.64)          (1.05)
<65,000 Btu/h...................               7            0.04            0.01          (0.38)          (0.66)
SPVHP...........................               3            0.13            0.32            0.14          (0.06)
<65,000 Btu/h...................               7            0.04            0.10            0.01          (0.12)
                                 -------------------------------------------------------------------------------
    Total--All Classes..........               3            0.26            0.44          (0.50)          (1.10)
                                               7            0.09            0.11          (0.37)          (0.78)
----------------------------------------------------------------------------------------------------------------
\1\ Billion 2013$.
Note: Parentheses indicate negative values.


             Table V.22--Summary of Analytical Results for SPVUs: Manufacturer and Consumer Impacts
                                                [ASHRAE baseline]
----------------------------------------------------------------------------------------------------------------
                                            TSL 1              TSL 2              TSL 3              TSL 4
----------------------------------------------------------------------------------------------------------------
                                              Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Industry NPV relative to a base case       32.4 to 34.2       33.2 to 38.0       27.5 to 49.2        3.0 to 47.4
 value of 36.5 (2013$ millions).....
Industry NPV (% change).............    (11.3) to (6.3)       (9.0) to 4.1     (24.7) to 34.9     (91.7) to 29.9
----------------------------------------------------------------------------------------------------------------
                                        Consumer Mean LCC Savings (2013$)
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.................                116                179               (24)              (825)
SPVHP <65,000 Btu/h.................                358                424                819              (177)
----------------------------------------------------------------------------------------------------------------
                                           Consumer Median PBP (years)
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.................                7.9                8.4               14.4               27.3
SPVHP <65,000 Btu/h.................                4.1                4.8                6.2               13.6
----------------------------------------------------------------------------------------------------------------
                                      Distribution of Consumer LCC Impacts
----------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h:
    Net Cost (%)....................                 25                 37                 62                 87
    Net Benefit (%).................                 49                 62                 38                 13
    No Impact (%)...................                 26                  1                  0                  0
SPVHP <65,000 Btu/h:
    Net Cost (%)....................                  0                  1                  7                 68
    Net Benefit (%).................                 74                 98                 92                 32

[[Page 78666]]

 
    No Impact (%)...................                 26                  1                  0                  0
----------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

    First, DOE considered TSL 4, which would save an estimated total of 
0.39 quads of energy, an amount DOE considers significant. TSL 4 has an 
estimated NPV of customer benefit of negative $0.78 billion using a 7-
percent discount rate, and negative $1.10 billion using a 3-percent 
discount rate.
    The cumulative emissions reductions at TSL 4 are 35 million metric 
tons of CO2, 31 thousand tons of NOX, and 0.11 
tons of Hg. The estimated monetary value of the CO2 
emissions reductions at TSL 4 ranges from $224 million to $3,324 
million.\112\
---------------------------------------------------------------------------

    \112\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
change in cumulative emissions reductions for CO2 and 
most other pollutants. For example, the estimated change for 
CO2 emissions reductions is a decrease of 33%, while the 
estimated change for NOX emissions reductions is an 
increase of 13%. The monetized benefits from GHG reductions would 
likely change by a comparable amount. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
---------------------------------------------------------------------------

    At TSL 4, the average LCC savings ranges from a negative $825 to a 
negative $177 depending on equipment class. The fraction of consumers 
with positive LCC benefits range from 13 percent for SPVACs less than 
65,000 Btu/h to 32 percent for SPVHPs less than 65,000 Btu/h.
    At TSL 4, the projected change in INPV ranges from a decrease of 
$33.4 million to an increase of $10.9 million. At TSL 4, DOE recognizes 
the risk of negative impacts if manufacturers' expectations concerning 
reduced profit margins are realized. If the lower bound of the range of 
impacts is reached, as DOE expects, TSL 4 could result in a net loss of 
up to 91.7 percent in INPV for manufacturers.
    Accordingly, the Secretary tentatively concludes that at TSL 4 for 
SPVUs, the benefits of energy savings, emission reductions, and the 
estimated monetary value of the CO2 emissions reductions 
would be outweighed by negative NPV of consumer benefit overall, 
negative LCC savings for both equipment classes (SPVAC and SPVHP less 
than 65,000 Btu/h), and the significant burden on the industry. 
Consequently, DOE has concluded that TSL 4 is not economically 
justified.
    Next, DOE considered TSL 3, which would save an estimated total of 
0.37 quads of energy, an amount DOE considers significant. TSL 3 has an 
estimated NPV of consumer benefit of negative $0.37 billion using a 7-
percent discount rate, and negative $0.50 billion using a 3-percent 
discount rate.
    The cumulative emissions reductions at TSL 3 are 33 million metric 
tons of CO2, 30 thousand tons of NOX, and 0.11 
tons of Hg. The estimated monetary value of the CO2 
emissions reductions at TSL 3 ranges from $209 million to $3,112 
million.\113\
---------------------------------------------------------------------------

    \113\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
change in cumulative emissions reductions for CO2 and 
most other pollutants. For example, the estimated change for 
CO2 emissions reductions is a decrease of 33%, while the 
estimated change for NOX emissions reductions is an 
increase of 13%. The monetized benefits from GHG reductions would 
likely change by a comparable amount. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
---------------------------------------------------------------------------

    At TSL 3, the average LCC savings are range from a negative $24 to 
a positive $819 depending on equipment class. The fraction of consumers 
with positive LCC benefits ranged from 38 percent for SPVACs less than 
65,000 Btu/h to 92 percent for SPVHPs less than 65,000 Btu/h.
    At TSL 3, the projected change in INPV ranges from a decrease of 
$9.0 million to an increase of $12.7 million. If the lower bound of the 
range of impacts is reached, TSL 3 could result in a net loss of up to 
24.7 percent in INPV for manufacturers.
    Accordingly, the Secretary tentatively concludes that at TSL 3 for 
SPVUs, the benefits of energy savings, emission reductions, and the 
estimated monetary value of the CO2 emissions reductions 
would be outweighed by the negative NPV of consumer benefits, negative 
LCC savings for SPVAC less than 65,000 Btu/h, and the negative INPV on 
manufacturers. Consequently, DOE has tentatively concluded that TSL 3 
is not economically justified.
    Next, DOE considered TSL 2, which would save an estimated total of 
0.23 quads of energy, an amount DOE considers significant. TSL 2 has an 
estimated NPV of consumer benefit of $0.11 billion using a 7-percent 
discount rate, and $0.44 billion using a 3-percent discount rate.
    The cumulative emissions reductions at TSL 2 are 20 million metric 
tons of CO2, 18 thousand tons of NOX, and 0.06 
tons of Hg. The estimated monetary value of the CO2 
emissions reductions at TSL 3 ranges from $124 million to $1,875 
million.\114\
---------------------------------------------------------------------------

    \114\ These results are based on emissions factors in AEO 2013, 
the most recent version available at the time of this analysis. Use 
of emissions factors in AEO 2014 would result in a significant 
change in cumulative emissions reductions for CO2 and 
most other pollutants. For example, the estimated change for 
CO2 emissions reductions is a decrease of 33%, while the 
estimated change for NOX emissions reductions is an 
increase of 13%. The monetized benefits from GHG reductions would 
likely change by a comparable amount. In the next phase of this 
rulemaking, DOE plans to use emissions factors based on the most 
recent AEO available, which may or may not be AEO 2014, depending on 
the timing of the issuance of the next rulemaking document.
---------------------------------------------------------------------------

    At TSL 2, the average LCC savings range from $179 to $424 depending 
on equipment class. The fraction of consumers with positive LCC 
benefits range from 62 percent for SPVACs less than 65,000 Btu/h to 98 
percent for SPVHPs less than 65,000 Btu/h.
    At TSL 2, the projected change in INPV ranges from a decrease of 
$3.3 million to an increase of $1.5 million. At TSL 2, DOE recognizes 
the risk of negative impacts if manufacturers' expectations concerning 
reduced profit margins are realized. If the lower bound of the range of 
impacts is reached, as DOE expects, TSL 2 could result in a net loss of 
up to 9.0 percent in INPV for manufacturers.
    After considering the analysis and weighing the benefits and the 
burdens, DOE has tentatively concluded that at TSL 2 for SPVUs, the 
benefits of energy savings, positive NPV of consumer benefit, positive 
average consumer LCC savings, emission reductions, and the estimated 
monetary value of the emissions reductions would outweigh the potential 
reduction in INPV for manufacturers. The Secretary of Energy has 
tentatively 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. For the above reasons, DOE 
proposes to

[[Page 78667]]

adopt the energy conservation standards for SPVUs at TSL 2. Table V.23 
presents the proposed 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 proposing amended standards for SPVUs 
equivalent to those in ASHRAE Standard 90.1-2013 for these four 
equipment classes, as required by law.

                          Table V.23--Proposed Energy Conservation Standards for SPVUs
----------------------------------------------------------------------------------------------------------------
             Equipment class                  Cooling capacity  Btu/h                Efficiency level
----------------------------------------------------------------------------------------------------------------
Single Package Vertical Air Conditioner..  <65,000 Btu/h...............  EER =11.0.
Single Package Vertical Air Conditioner..  >=65,000 Btu/h and <135,000   EER = 10.0.
                                            Btu/h.
Single Package Vertical Air Conditioner..  >=135,000 Btu/h and <240,000  EER = 10.0.
                                            Btu/h.
Single Package Vertical Heat Pump........  <65,000 Btu/h...............  EER = 11.0.
                                                                         COP = 3.3.
Single Package Vertical Heat Pump........  >=65,000 Btu/h and <135,000   EER = 10.0.
                                            Btu/h.                       COP = 3.0.
Single Package Vertical Heat Pump........  >=135,000 Btu/h and <240,000  EER = 10.0.
                                            Btu/h.                       COP = 3.0.
----------------------------------------------------------------------------------------------------------------

    Table V.24 through Table V.28 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 propose these standards. The results compared to the ASHRAE 
baseline are also included for comparison.

                                       Table V.24--Consumer Impact Results for SPVU Proposed Trial Standard Level
                                                                  [Baseline Comparison]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Life-cycle cost, all customers             Life-cycle cost savings
                                                                              2013$                -------------------------------------------
                                                              -------------------------------------   Affected        % of Consumers that        Median
           Equipment class                    Baseline                                               customers'           experience            payback
                                                                Installed   Discounted                average   ------------------------------   period
                                                                  cost      operating       LCC       savings       Net       No        Net      years
                                                                               cost                    2013$       cost     impact    benefit
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVAC <65 kBtu/h.....................  ASHRAE................       5,083       11,839      16,922          179        37         1        62        8.4
                                       EPCA..................       5,083       11,839      16,922          261        42         1        57       10.4
SPVHP <65 kBtu/h.....................  ASHRAE................       5,695       29,618      35,313          424         1         1        98        4.8
                                       EPCA..................       5,695       29,618      35,313          382        21         1        78        9.3
SPVAC 65-135 kBtu/h..................  ASHRAE................  ..........  ...........  ..........  ...........  ........  ........  ........  .........
                                       EPCA..................       6,659       19,805      26,464          737        16        29        55        7.0
SPVHP 65-135 kBtu/h..................  ASHRAE................  ..........  ...........  ..........  ...........  ........  ........  ........  .........
                                       EPCA..................       7,409       56,078      63,487          241        34        29        37       10.9
--------------------------------------------------------------------------------------------------------------------------------------------------------


Table V.25--Manufacturer Impact Analysis Results for SPVU Proposed Trial
                             Standard Level
                          [Baseline Comparison]
------------------------------------------------------------------------
                                 ASHRAE baseline        EPCA baseline
------------------------------------------------------------------------
Base Case INPV (2013$         36.5................  33.9.
 millions).
Standards Case INPV (2013$    33.2 to 38.0........  24.0 to 40.2.
 millions).
Change in INPV (% Change)...  (9.0) to 4.1........  (29.2) to 18.6.
------------------------------------------------------------------------


[[Page 78668]]


  Table V.26--Cumulative National Primary and Full-Fuel-Cycle Energy Savings and Net Present Value of Customer Benefit for SPVU Proposed Trial Standard
                                                            Level for Units Sold in 2019-2048
                                                                  [Baseline Comparison]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    National primary    National FFC  energy   NPV at 3%  (billion   NPV at 7%  (billion
                                                                     energy savings       savings  (quads)           2013$)                2013$)
                                                                         (quads)       -----------------------------------------------------------------
                                                                 ----------------------
                                                                    ASHRAE      EPCA      ASHRAE      EPCA      ASHRAE      EPCA      ASHRAE      EPCA
                                                                   baseline   baseline   baseline   baseline   baseline   baseline   baseline   baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPVAC <65,000 Btu/h.............................................       0.13       0.28       0.13       0.28       0.13       0.51       0.01       0.10
SPVHP <65,000 Btu/h.............................................       0.10       0.17       0.10       0.17       0.32       0.53       0.10       0.15
SPVAC >=65,000 Btu/h to <135,000 Btu/h..........................  .........       0.01  .........       0.01  .........       0.02  .........       0.01
                                                                 ---------------------------------------------------------------------------------------
    Total--All Classes..........................................       0.22       0.45       0.23       0.46       0.44       1.07       0.11       0.26
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum to total due to rounding.


 Table V.27--Cumulative Emissions Reduction, Global Present Value of CO2 Emissions Reduction, and Present Value of NOX Emissions Reduction for Proposed
                                                                   Standards for SPVUs
                                                                  [Baseline Comparison]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Power sector and site            Upstream emissions                Total emissions
                                                                    emissions *          ---------------------------------------------------------------
                                                         --------------------------------
                                                              ASHRAE                          ASHRAE      EPCA  baseline      ASHRAE      EPCA  baseline
                                                             baseline     EPCA  baseline     baseline                        baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Cumulative Emissions Reductions
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...............................              20              40            0.68             1.4              20              41
SO2 (thousand tons).....................................              53             107            0.15            0.30              53             108
NOX (thousand tons).....................................             8.9              18             9.4              19              18              37
Hg (tons)...............................................            0.06            0.13          0.0004          0.0007            0.06            0.13
N2O (thousand tons).....................................            0.27            0.55           0.007           0.014            0.28            0.56
CH4 (thousand tons).....................................             1.4             3.0              57             116              59             119
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Global Present Value of CO2 Emissions Reduction, SCC Scenario ** (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5% discount rate, average...............................             120             247             4.3             8.8             124             256
3% discount rate, average...............................             584            1194              21              42             605            1236
2.5% discount rate, average.............................             937            1914              33              67             970            1982
3% discount rate, 95th percentile.......................            1812            3704              64             131            1875            3834
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Present Value of NOX Emissions Reduction (million 2013$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate........................................             9.1              18              11              24              21              42
7% discount rate........................................             2.6             5.3             4.7             9.7             7.3              15
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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, $40.5, $62.4 and $119 per metric ton (2013$).


  Table V.28--SPVU Proposed TSL: Net Present Value of Consumer Savings Combined with Net Present Value of Monetized Benefits from CO2 and NOX Emissions
                                                                       Reductions
                                                                  [Baseline Comparison]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     SCC Value of $12.0/       SCC Value of $40.5/       SCC Value of $62.4/    SCC Value of $119/metric
                                                     metric ton CO2* and       metric ton CO2* and       metric ton CO2* and       ton CO2* and medium
                                                   medium value for NOX**    medium value for NOX**    medium value for NOX**        value for NOX**
                                                 -------------------------------------------------------------------------------------------------------
                                                     ASHRAE        EPCA        ASHRAE        EPCA        ASHRAE        EPCA        ASHRAE        EPCA
                                                    baseline     baseline     baseline     baseline     baseline     baseline     baseline     baseline
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      billion 2013$
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% Discount Rate added with each         0.59          1.4          1.1          2.3          1.4          3.1          2.3          4.9
 SCC and NOX value..............................
Consumer NPV at 7% Discount Rate added with each         0.24         0.53         0.72          1.5          1.1          2.3          2.0          4.1
 SCC and NOX value..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values.

[[Page 78669]]

 
* These label values represent the global SCC in 2015, in 2013$. The present values have been calculated with scenario-consistent discount rates.
** Medium Value corresponds to $2,684 per ton of NOX emissions.

2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The annualized monetary values 
are the sum of: (1) The annualized national economic value, expressed 
in 2013$, of the benefits from operating products that meet the 
proposed standards (consisting primarily of operating cost savings from 
using less energy, minus increases in equipment purchase costs, which 
is another way of representing consumer NPV), and (2) the monetary 
value of the benefits of emission reductions, including CO2 
emission reductions.\115\ The value of the CO2 reductions, 
otherwise known as the Social Cost of Carbon (SCC), is calculated using 
a range of values per metric ton of CO2 developed by a 
recent interagency process.
---------------------------------------------------------------------------

    \115\ DOE used a two-step calculation process to convert the 
time-series of costs and benefits into annualized values. First, DOE 
calculated a present value in 2014, the year used for discounting 
the NPV of total consumer costs and savings, for the time-series of 
costs and benefits using discount rates of 3 and 7 percent for all 
costs and benefits except for the value of CO2 
reductions. For the latter, DOE used a range of discount rates. From 
the present value, DOE then calculated the fixed annual payment over 
a 30-year period, starting in 2013 that yields the same present 
value. The fixed annual payment is the annualized value. Although 
DOE calculated annualized values, this does not imply that the time-
series of cost and benefits from which the annualized values were 
determined would be a steady stream of payments.
---------------------------------------------------------------------------

    Although combining the values of operating savings and 
CO2 reductions provides a useful perspective, two issues 
should be considered. First, the national operating savings are 
domestic U.S. consumer 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 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 2019-2048. The SCC 
values, on the other hand, reflect the present value of future climate-
related impacts resulting from the emission of one metric ton of 
CO2 in each year. These impacts continue well beyond 2100.
    Table V.29 shows the annualized values for the proposed standards 
for SPVUs compared to the ASHRAE baselines. The results under the 
primary estimate are as follows. (All monetary values below are 
expressed in 2013$.) 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 corresponding to a 
value of $40.5/ton in 2015, the cost of the SPVU standards proposed in 
the NOPR is $29 million per year in increased equipment costs, while 
the benefits are $38 million per year in reduced equipment operating 
costs, $29 million in CO2 reductions, and $0.57 million in 
reduced NOX emissions. In this case, the net benefit amounts 
to $38 million per year. Using a 3-percent discount rate for all 
benefits and costs and the SCC series corresponding to a value of 
$40.5/ton in 2015, the cost of the SPVU standards proposed in the NOPR 
is $37 million per year in increased equipment costs, while the 
benefits are $58 million per year in reduced operating costs, $29 
million in CO2 reductions, and $0.97 million in reduced 
NOX emissions. In this case, the net benefit amounts to $51 
million per year.\116\
---------------------------------------------------------------------------

    \116\ All CO2 and NOX results shown in 
this paragraph are based on emissions factors in AEO 2013, the most 
recent version available at the time of this analysis. Use of 
emissions factors in AEO 2014 would result in a significant decrease 
in cumulative emissions reductions for CO2, estimated at 
33%, and an increase in cumulative NOX reductions, 
estimated at 13%. In the next phase of this rulemaking, DOE plans to 
use emissions factors based on the most recent AEO available, which 
may or may not be AEO 2014, depending on the timing of the issuance 
of the next rulemaking document.

                                    Table V.29--Annualized Benefits and Costs of Proposed Standards (TSL 2) for SPVUs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     million 2013$/year
                                                                  --------------------------------------------------------------------------------------
                                             Discount rate                                                                        High net  benefits
                                                                        Primary estimate*        Low net benefits estimate*           estimate*
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
    Operating Cost Savings..........  7%                           38                           36                           39
                                      3%                           58                           55                           61
    CO2 Reduction Monetized Value     5%                           7.7                          7.6                          7.7
     ($12.0/t case)**.
    CO2 Reduction Monetized Value     3%                           29                           28                           29
     ($40.5/t case)**.
    CO2 Reduction Monetized Value     2.5%                         43                           42                           43
     ($62.4/t case)**.
    CO2 Reduction Monetized Value     3%                           89                           88                           89
     $119/t case)**.
    NOX Reduction at $2,684/ton**...  7%                           0.57                         0.56                         0.57
                                      3%                           0.97                         0.97                         0.98
    Total Benefits[dagger]..........  7% plus CO2 range            46 to 127                    44 to 125                    48 to 129
                                      7%                           67                           65                           69
                                      3% plus CO2 range            67 to 148                    63 to 144                    70 to 151
                                      3%                           88                           84                           91
Costs:
    Incremental Equipment Costs.....  7%                           29                           40                           28
                                      3%                           37                           53                           36
Net Benefits/Costs:
    Total:..........................  7% plus CO2 range            17 to 98                     4 to 85                      19 to 101
                                      7%                           38                           25                           40
                                      3% plus CO2 range            30 to 111                    11 to 91                     34 to 115

[[Page 78670]]

 
                                      3%                           51                           31                           55
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 products purchased in 2019-2048. Costs incurred by manufacturers, some of which may be incurred in preparation for the
  rule, are not directly included, but are indirectly included as part of incremental equipment costs. The Primary, Low Benefits, and High Benefits
  Estimates utilize projections of energy prices and building growth from the AEO 2013 Reference case, Low Estimate, and High Estimate, respectively. In
  addition, incremental equipment costs reflect constant real prices for the Primary Estimate, an increase for projected equipment price trends for the
  Low Benefits Estimate, and a decline for projected equipment price trends for 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 2013$, in 2015 under several scenarios. The values of $12.0, $40.5, and $62.4 per
  metric ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of $119/t represents the
  95th percentile of the SCC distribution calculated using a 3% discount rate. The SCC time series used by DOE incorporate an escalation factor. The
  value for NOX (in 2013$) is the average of the low and high values used in DOE's analysis.\117\
[dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to SCC value of $40.5/t. In the rows
  labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount rate, and those
  values are added to the full range of CO2 values.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866 and 13563

    Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and 
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify 
the problem that it intends to address, including, where applicable, 
the failures of private markets or public institutions that warrant new 
agency action, as well as to assess the significance of that problem. 
The problems that the proposed standards address are as follows:
---------------------------------------------------------------------------

    \117\ All CO2 and NOX results shown in 
this paragraph are based on emissions factors in AEO 2013, the most 
recent version available at the time of this analysis. Use of 
emissions factors in AEO 2014 would result in a significant decrease 
in cumulative emissions reductions for CO2, estimated at 
33%, and an increase in cumulative NOX reductions, 
estimated at 13%. In the next phase of this rulemaking, DOE plans to 
use emissions factors based on the most recent AEO available, which 
may or may not be AEO 2014, depending on the timing of the issuance 
of the next rulemaking document.
---------------------------------------------------------------------------

    (1) There are external benefits resulting from improved energy 
efficiency of SPVUs that are not captured by the users of such 
equipment. These benefits include externalities related to 
environmental protection and energy security that are not reflected in 
energy prices, such as reduced emissions of greenhouse gases. DOE 
attempts to quantify some of the external benefits through use of 
Social Cost of Carbon values.
    In addition, the Office of Information and Regulatory Affairs 
(OIRA) in the Office of Management and Budget (OMB) has determined that 
this regulatory action is a ``significant regulatory action'' under 
Executive Order 12866. DOE has also prepared a regulatory impact 
analysis (RIA) for the proposed rule.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281 (Jan. 21, 2011)). 
Executive Order 13563 is supplemental to and explicitly reaffirms the 
principles, structures, and definitions governing regulatory review 
established in Executive Order 12866. To the extent permitted by law, 
agencies are required by Executive Order 13563 to: (1) Propose or adopt 
a regulation only upon a reasoned determination that its benefits 
justify its costs (recognizing that some benefits and costs are 
difficult to quantify); (2) tailor regulations to impose the least 
burden on society, consistent with obtaining regulatory objectives, 
taking into account, among other things, and to the extent practicable, 
the costs of cumulative regulations; (3) select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety, and other advantages; distributive impacts; and equity); 
(4) to the extent feasible, specify performance objectives, rather than 
specifying the behavior or manner of compliance that regulated entities 
must adopt; and (5) identify and assess available alternatives to 
direct regulation, including providing economic incentives to encourage 
the desired behavior, such as user fees or marketable permits, or 
providing information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. For the reasons stated in the preamble, 
DOE believes that the NOPR is consistent with these principles, 
including the requirement that, to the extent permitted by law, 
benefits justify costs and that net benefits are maximized.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (IRFA) for 
any rule that by law must be proposed for public comment, unless the 
agency certifies that the rule, if promulgated, will not have a 
significant economic impact on a substantial number of small entities. 
As required by Executive Order 13272, ``Proper Consideration of Small 
Entities in Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE 
published 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 determined that it cannot certify that the proposed rule, 
if promulgated, would not have a significant effect on a substantial 
number of small manufacturers. Therefore, DOE has prepared an initial 
regulatory flexibility analysis (IRFA), as presented in sections VI.B.1 
through VI.B.4, for this rulemaking.

[[Page 78671]]

1. Description and Estimated Number of Small Entities Regulated
    For manufacturers of SPVUs, the Small Business Administration (SBA) 
has set a size threshold, which defines those entities classified as 
``small businesses'' for the purposes of the statute. DOE used the 
SBA's small business size standards to determine whether any small 
entities would be subject to the requirements of the rule. 65 FR 30836, 
30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) 
and codified at 13 CFR part 121. The size standards are listed by North 
American Industry Classification System (NAICS) code and industry 
description and are available at http://www.sba.gov/content/table-small-business-size-standards. SPVU manufacturing is classified under 
NAICS 333415, ``Air-Conditioning and Warm Air Heating Equipment and 
Commercial and Industrial Refrigeration Equipment Manufacturing.'' The 
SBA sets a threshold of 750 employees or less for an entity to be 
considered as a small business for this category.
    DOE reviewed the proposed energy conservation standards for SPVUs 
considered in the notice of proposed rulemaking under the provisions of 
the Regulatory Flexibility Act and the procedures and policies 
published on February 19, 2003. 68 FR 7990. 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. DOE used 
available public information to identify potential small manufacturers. 
DOE's research involved industry trade association membership 
directories (including AHRI), the DOE certification database, 
individual company Web sites, and marketing research tools (e.g., 
Hoovers reports) to create a list of companies that manufacture or sell 
SPVU systems covered by this rulemaking. DOE also asked stakeholders 
and industry representatives if they were aware of any other small 
manufacturers during manufacturer interviews and at previous DOE public 
meetings. DOE reviewed the publicly-available data and contacted 
companies on its list, as necessary, to determine whether they met the 
SBA's definition of a small business manufacturer of SPVU equipment. 
DOE screened out companies that did not offer equipment covered by this 
rulemaking, did not meet the definition of a ``small business,'' or are 
foreign-owned and operated.
    DOE identified seven companies that produce equipment covered under 
the single package vertical unit energy conservation standard 
rulemaking. Two of the seven companies are foreign-owned and operated. 
Of the remaining five 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 48 percent of the active 
listings in the AHRI Directory.\118\ The other has a more modest market 
share and 5 percent of active listings in the AHRI Directory.
---------------------------------------------------------------------------

    \118\ 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 
large market share had 229 active listings. Fifty-four of those 
listings, or 24 percent, would meet the proposed standards. The other 
76 percent of the listings would not meet the proposed 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 proposed 
standard.
    The domestic small manufacturer with the smaller market share had 
27 active listings. None of those listings would meet the proposed 
standards. At the proposed 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 proposed standard, they would need to make capital conversion 
and product conversion investments. DOE estimated an average total 
conversion cost of $1.49 million per manufacturer. DOE expects this 
investment, which is roughly 12% of an average manufacturer's annual 
revenue, to be made over the four-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 BPMs, 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 with 
manufacturers, the Department believes one of the identified small 
businesses would be able to meet the proposed standard. That small 
manufacturer has the strong market share, technical expertise, and the 
production capability to meet the amended standard. The company 
successfully competes in both the current baseline-efficiency and 
premium-efficiency market segments. The other small business has 
significantly less market share and does not compete in the premium-
efficiency market today. Given the lack of existing product that meets 
the standard, potential conversion costs, and disadvantages in 
financing costs as well as in pricing for sourced components, the 
second small business may face headwinds in meeting the proposed 
standard.

[[Page 78672]]

3. Duplication, Overlap, and Conflict with Other Rules and Regulations
    DOE is not aware of any rules or regulations that duplicate, 
overlap, or conflict with the rule being considered.
4. Significant Alternatives to the Rule
    The discussion in section VI.B.2 analyzes impacts on small 
businesses that would result from DOE's proposed rule. In addition to 
the other TSLs being considered, the proposed rulemaking TSD includes a 
regulatory impact analysis (RIA). For SPVUs, the RIA discusses 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 standards, DOE determined that the energy savings of these 
regulatory alternatives are from 0.01 to 0.5 percent smaller than those 
that would be expected to result from adoption of the proposed standard 
levels. Thus, DOE rejected these alternatives and is proposing the 
standards set forth in this rulemaking. (See chapter 17 of the NOPR TSD 
for further detail on the policy alternatives DOE considered.)

C. Review Under the Paperwork Reduction Act of 1995

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

D. Review Under the National Environmental Policy Act of 1969

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

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' imposes certain requirements 
on Federal agencies formulating and implementing policies or 
regulations that preempt State law or that have Federalism 
implications. 64 FR 43255 (August 10, 1999). 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 that it will 
follow in the development of such regulations. 65 FR 13735. DOE has 
examined this proposed rule and has tentatively 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 products that are the 
subject of this proposed rule. States can petition DOE for exemption 
from such preemption to the extent, and based on criteria, set forth in 
EPCA (42 U.S.C. 6297). Therefore, Executive Order 13132 requires no 
further action.

F. Review Under Executive Order 12988

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

G. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Pub. L. 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a proposed regulatory action likely to result in a rule that may 
cause the expenditure by State, local, and Tribal governments, in the 
aggregate, or by the

[[Page 78673]]

private sector, of $100 million or more in any one year (adjusted 
annually for inflation), section 202 of UMRA requires a Federal agency 
to publish a written statement that estimates the resulting costs, 
benefits, and other effects on the national economy. (2 U.S.C. 1532(a), 
(b)) The UMRA also requires a Federal agency to develop an effective 
process to permit timely input by elected officers of State, local, and 
Tribal governments on a proposed ``significant intergovernmental 
mandate,'' and requires an agency plan for giving notice and 
opportunity for timely input to potentially affected small governments 
before establishing any requirements that might significantly or 
uniquely affect 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 www.energy.gov/gc/office-general-counsel.
    Although the proposed rule, which proposes amended energy 
conservation standards for SPVUs, does not contain a Federal 
intergovernmental mandate, it may require annual expenditures of $100 
million or more by the private sector. Specifically, the proposed rule 
would likely result in a final rule that could require expenditures of 
$100 million or more, including: (1) Investment in research and 
development and in capital expenditures by SPVUs manufacturers in the 
years between the final rule and the compliance date for the amended 
standards, and (2) incremental additional expenditures by consumers to 
purchase higher-efficiency SPVUs, starting at the compliance date for 
the applicable standard.
    Section 202 of UMRA authorizes a Federal agency to respond to the 
content requirements of UMRA in any other statement or analysis that 
accompanies the proposed rule. 2 U.S.C. 1532(c). The content 
requirements of section 202(b) of UMRA relevant to a private sector 
mandate substantially overlap the economic analysis requirements that 
apply under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the NOPR and the ``Regulatory 
Impact Analysis'' section of the TSD for this proposed rule respond to 
those requirements.
    Under section 205 of UMRA, the Department is obligated to identify 
and consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. 2 U.S.C. 1535(a). DOE is required to select from those 
alternatives the most cost-effective and least burdensome alternative 
that achieves the objectives of the proposed rule unless DOE publishes 
an explanation for doing otherwise, or the selection of such an 
alternative is inconsistent with law. As required by 42 U.S.C. 6313(a), 
the proposed rule would establish amended energy conservation standards 
for SPVUs that are designed to achieve the maximum improvement in 
energy efficiency that DOE has determined to be both technologically 
feasible and economically justified. A full discussion of the 
alternatives considered by DOE is presented in the ``Regulatory Impact 
Analysis'' section of the TSD for the proposed rule.

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

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

I. Review Under Executive Order 12630

    Pursuant to Executive Order 12630, ``Governmental Actions and 
Interference with Constitutionally Protected Property Rights,'' 53 FR 
8859 (March 15, 1988), DOE has determined that this proposed rule would 
not result in any takings that might require compensation under the 
Fifth Amendment to the U.S. Constitution.

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

    Section 515 of the Treasury and General Government Appropriations 
Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review 
most disseminations of information to the public under 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 NOPR under the OMB and DOE 
guidelines and has concluded that it is consistent with applicable 
policies in those guidelines.

K. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA 
at OMB, a Statement of Energy Effects for any proposed significant 
energy action. A ``significant energy action'' is defined as any action 
by an agency that promulgates or is expected to lead to promulgation of 
a final rule, and that: (1) Is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use.
    DOE has tentatively concluded that this regulatory action, which 
sets forth proposed energy conservation standards for SPVUs, is not a 
significant energy action because the proposed standards are not likely 
to have a significant adverse effect on the supply, distribution, or 
use of energy, nor has it been designated as such by the Administrator 
at OIRA. Accordingly, DOE has not prepared a Statement of Energy 
Effects on this proposed rule.

L. Review Under the Information Quality Bulletin for Peer Review

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (OSTP), issued its Final Information 
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14, 
2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal Government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the bulletin is to enhance the quality and credibility of 
the Government's scientific information. Under the Bulletin, the energy 
conservation standards rulemaking analyses are ``influential scientific 
information,'' which the Bulletin defines as ``scientific information 
the agency reasonably can determine will have or does have a clear and 
substantial impact on important public policies or private sector 
decisions.'' Id. at 2667.
    In response to OMB's Bulletin, DOE conducted formal in-progress 
peer reviews of the energy conservation standards development process 
and

[[Page 78674]]

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: energy.gov/eere/buildings/peer-review.

VII. Public Participation

A. Attendance at the Public Meeting

    The time, date, and location of the public meeting are listed in 
the DATES and ADDRESSES sections at the beginning of this proposed 
rule. If you plan to attend the public meeting, please notify Ms. 
Brenda Edwards at (202) 586-2945 or Brenda.Edwards@ee.doe.gov. Please 
note that foreign nationals participating in the public meeting are 
subject to advance security screening procedures which require advance 
notice prior to attendance at the public meeting. If a foreign national 
wishes to participate in the public meeting, please inform DOE as soon 
as possible by contacting Ms. Regina Washington at (202) 586-1214 or by 
email: foreignvisit@ee.doe.gov so that the necessary procedures can be 
completed. Please also note that any person wishing to bring a laptop 
computer into the Forrestal Building will be required to obtain a 
property pass. Visitors should avoid bringing laptops, or allow an 
extra 45 minutes
    In addition, you can attend the public meeting via webinar. Webinar 
registration information, participant instructions, and information 
about the capabilities available to webinar participants will be 
published on DOE's Web site at: http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=107. Participants are 
responsible for ensuring their systems are compatible with the webinar 
software.

B. Procedure for Submitting Requests to Speak and Prepared General 
Statements for Distribution

    Any person who has an interest in the topics addressed in this 
notice, or who is representative of a group or class of persons that 
has an interest in these issues, may request an opportunity to make an 
oral presentation at the public meeting. Such persons may hand-deliver 
requests to speak to the address shown in the ADDRESSES section at the 
beginning of this proposed rule between 9:00 a.m. and 4:00 p.m., Monday 
through Friday, except Federal holidays. Requests may also be sent by 
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy, 
Building Technologies Program, Mailstop EE-5B, 1000 Independence Avenue 
SW., Washington, DC 20585-0121, or Brenda.Edwards@ee.doe.gov. Persons 
who wish to speak should include with their request a computer diskette 
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file 
format that briefly describes the nature of their interest in this 
rulemaking and the topics they wish to discuss. Such persons should 
also provide a daytime telephone number where they can be reached.
    DOE requests persons scheduled to make an oral presentation to 
submit an advance copy of their statements at least one week before the 
public meeting. DOE may permit persons who cannot supply an advance 
copy of their statement to participate, if those persons have made 
advance alternative arrangements with the Building Technologies 
Program. As necessary, requests to give an oral presentation should ask 
for such alternative arrangements.

C. Conduct of the Public Meeting

    DOE will designate a DOE official to preside at the public meeting 
and may also use a professional facilitator to aid discussion. The 
meeting will not be a judicial or evidentiary-type public hearing, but 
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C. 
6306). A court reporter will be present to record the proceedings and 
prepare a transcript. DOE reserves the right to schedule the order of 
presentations and to establish the procedures governing the conduct of 
the public meeting. There shall not be discussion of proprietary 
information, costs or prices, market share, or other commercial matters 
regulated by U.S. anti-trust laws. After the public meeting, interested 
parties may submit further comments on the proceedings, as well as on 
any aspect of the rulemaking, until the end of the comment period.
    The public meeting will be conducted in an informal, conference 
style. DOE will present summaries of comments received before the 
public meeting, allow time for prepared general statements by 
participants, and encourage all interested parties to share their views 
on issues affecting this rulemaking. Each participant will be allowed 
to make a general statement (within time limits determined by DOE), 
before the discussion of specific topics. DOE will allow, as time 
permits, other participants to comment briefly on any general 
statements.
    At the end of all prepared statements on a topic, DOE will permit 
participants to clarify their statements briefly and comment on 
statements made by others. Participants should be prepared to answer 
questions by DOE and by other participants concerning these issues. DOE 
representatives may also ask questions of participants concerning other 
matters relevant to this rulemaking. The official conducting the public 
meeting will accept additional comments or questions from those 
attending, as time permits. The presiding official will announce any 
further procedural rules or modification of the above procedures that 
may be needed for the proper conduct of the public meeting.
    A transcript of the public meeting will be included in the docket, 
which can be viewed as described in the Docket section at the beginning 
of this proposed rule and will be accessible on the DOE Web site. In 
addition, any person may buy a copy of the transcript from the 
transcribing reporter.

D. Submission of Comments

    DOE will accept comments, data, and information regarding this 
proposed rule before or after the public meeting, but no later than the 
date provided in the DATES section at the beginning of this proposed 
rule. Interested parties may submit comments, data, and other 
information using any of the methods described in the ADDRESSES section 
at the beginning of this proposed rule.
    Submitting comments via www.regulations.gov. The 
www.regulations.gov Web page will require you to provide your name and 
contact information. Your contact information will be viewable to DOE 
Building Technologies staff only. Your contact information will not be 
publicly viewable except for your first and last names, organization 
name (if any), and submitter representative name (if any). If your 
comment is not processed properly because of technical difficulties, 
DOE will use this information to contact you. If DOE cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, DOE may not be able to consider your comment.
    However, your contact information will be publicly viewable if you 
include it in the comment itself or in any documents attached to your 
comment. Any information that you do not want

[[Page 78675]]

to be publicly viewable should not be included in your comment, nor in 
any document attached to your comment. Otherwise, persons viewing 
comments will see only first and last names, organization names, 
correspondence containing comments, and any documents submitted with 
the comments.
    Do not submit to www.regulations.gov information for which 
disclosure is restricted by statute, such as trade secrets and 
commercial or financial information (hereinafter referred to as 
Confidential Business Information (CBI)). Comments submitted through 
www.regulations.gov cannot be claimed as CBI. Comments received through 
the Web site will waive any CBI claims for the information submitted. 
For information on submitting CBI, see the Confidential Business 
Information section below.
    DOE processes submissions made through www.regulations.gov before 
posting. Normally, comments will be posted within a few days of being 
submitted. However, if large volumes of comments are being processed 
simultaneously, your comment may not be viewable for up to several 
weeks. Please keep the comment tracking number that www.regulations.gov 
provides after you have successfully uploaded your comment.
    Submitting comments via email, hand delivery/courier, or mail. 
Comments and documents submitted via email, hand delivery, or mail also 
will be posted to www.regulations.gov. If you do not want your personal 
contact information to be publicly viewable, do not include it in your 
comment or any accompanying documents. Instead, provide your contact 
information in a cover letter. Include your first and last names, email 
address, telephone number, and optional mailing address. The cover 
letter will not be publicly viewable as long as it does not include any 
comments.
    Include contact information each time you submit comments, data, 
documents, and other information to DOE. If you submit via mail or hand 
delivery/courier, please provide all items on a CD, if feasible, in 
which case it is not necessary to submit printed copies. No 
telefacsimiles (faxes) will be accepted.
    Comments, data, and other information submitted to DOE 
electronically should be provided in PDF (preferred), Microsoft Word or 
Excel, WordPerfect, or text (ASCII) file format. Provide documents that 
are not secured, that are written in English, and that are free of any 
defects or viruses. Documents should not contain special characters or 
any form of encryption and, if possible, they should carry the 
electronic signature of the author.
    Campaign form letters. Please submit campaign form letters by the 
originating organization in batches of between 50 to 500 form letters 
per PDF or as one form letter with a list of supporters' names compiled 
into one or more PDFs. This reduces comment processing and posting 
time.
    Confidential Business Information. Pursuant to 10 CFR 1004.11, any 
person submitting information that he or she believes to be 
confidential and exempt by law from public disclosure should submit via 
email, postal mail, or hand delivery/courier two well-marked copies: 
one copy of the document marked ``confidential'' including all the 
information believed to be confidential, and one copy of the document 
marked ``non-confidential'' with the information believed to be 
confidential deleted. Submit these documents via email or on a CD, if 
feasible. DOE will make its own determination about the confidential 
status of the information and treat it according to its determination.
    Factors of interest to DOE when evaluating requests to treat 
submitted information as confidential include: (1) A description of the 
items; (2) whether and why such items are customarily treated as 
confidential within the industry; (3) whether the information is 
generally known by or available from other sources; (4) whether the 
information has previously been made available to others without 
obligation concerning its confidentiality; (5) an explanation of the 
competitive injury to the submitting person which would result from 
public disclosure; (6) when such information might lose its 
confidential character due to the passage of time; and (7) why 
disclosure of the information would be contrary to the public interest.
    It is DOE's policy that all comments may be included in the public 
docket, without change and as received, including any personal 
information provided in the comments (except information deemed to be 
exempt from public disclosure).

E. Issues on Which DOE Seeks Comment

    Although DOE welcomes comments on any aspect of this proposal, DOE 
is particularly interested in receiving comments and views of 
interested parties concerning the following issues:
    1. DOE seeks comment on its tentative conclusion that the creation 
of a space-constrained equipment class for SPVUs is not warranted. (See 
section III.B.1 of this preamble for additional information.)
    2. DOE seeks comment on the EER and COP pairings for SPVHPs and its 
method of deriving the pairings. (See section IV.C.1 of this preamble 
for additional information.)
    3. DOE requests comment on its elimination of technologies from 
consideration based upon the criteria using in the screening analysis. 
(See section IV.B of the preamble for additional information.)
    4. DOE seeks comment as to whether switching to a BPM motor at 10 
EER represents the most probable option of achieving that efficiency 
level for manufacturers. (See section IV.C.2 of this preamble for 
additional information.)
    5. DOE seeks comment on its derivation of the cost efficiency 
curves for SPVHPs and SPVACs with a cooling capacity >=65,000 Btu/h and 
<135,000 Btu/h. (See section IV.C.5 of this preamble for additional 
information.)
    6. DOE seeks input on its analysis of market channels for the SPVU 
equipment classes. (See section IV.D of this preamble for additional 
information.)
    7. DOE seeks input on its analysis of unit energy consumption (UEC) 
for the above equipment classes and its use in establishing the energy 
savings potential for more-stringent standards. Of a particular 
interest to DOE is input on shipments of SPVHP equipment to 
telecommunication shelters and the frequency of use of economizers in 
equipment serving these shelters. (See section IV.E of this preamble 
for additional information.)
    8. DOE also recognizes that there may be regional differences 
between the shipments of heat pumps and air conditioners to warmer or 
cooler climates, and requests stakeholder input on how or if such 
differences can be taken into account in the energy use 
characterization. (See section IV.E of this preamble for additional 
information.)
    9. DOE requests comments on the most appropriate trend to use for 
real (inflation-adjusted) SPVU prices. (See section IV.F.2.a of this 
preamble for additional information.)
    10. DOE seeks comments on its assumption that installation costs 
would not increase for higher-efficiency SPVUs. (See section IV.F.2.b 
of this preamble for additional information.)
    11. DOE seeks comment on whether a rebound effect should be 
included in the determination of annual energy savings. If a rebound 
effect should be included, DOE seeks data to assist in calculation of 
the rebound effect. (See section IV.G.1.a of this preamble for 
additional information.)

[[Page 78676]]

    12. DOE seeks comment on whether amended standards would affect 
shipments, and if so, DOE also requests data with which to estimate the 
elasticity of shipments for SPVUs as a function of first costs, repair 
costs, or operating costs. (See section IV.G.2 of this preamble for 
additional information.)

VIII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of 
proposed rulemaking.

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business 
information, Energy conservation, Reporting and recordkeeping 
requirements.

    Issued in Washington, DC, on December 10, 2014.
David T. Danielson,
Assistant Secretary of Energy, Energy Efficiency and Renewable Energy.
    For the reasons set forth in the preamble, DOE proposes to amend 
part 431 of Chapter II, Subchapter D, of Title 10 of the Code of 
Federal Regulations as set forth below:

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

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

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

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2. Section 431.97 is amended by:
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a. Revising paragraph (d); and
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b. Redesignating Table 7 in paragraph (e) as Table 9, and Table 8 in 
paragraph (f) as Table 10;
    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 6 of this section.

       Table 6 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 package     ......................  HP.........................  EER = 9.0..................  January 1, 2010.
 vertical heat pumps, single-phase                                                        COP = 3.0..................
 and three-phase.
Single package vertical air          >=65,000 Btu/h and      AC.........................  EER = 8.9..................  January 1, 2010.
 conditioners and single package      <135,000 Btu/h.        HP.........................  EER = 8.9..................  January 1, 2010.
 vertical heat pumps.                ......................                               COP = 3.0..................
Single package vertical air          >=135,000 Btu/h and     AC.........................  EER = 8.6..................  January 1, 2010.
 conditioners and single package      <240,000 Btu/h.        HP.........................  EER = 8.6..................  January 1, 2010.
 vertical heat pumps.                ......................                               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 [date 4 years 
after publication of a final rule] 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 package                             HP.........................  EER = 9.0..................  January 1, 2010.
 vertical heat pumps, single-phase                                                        COP = 3.0..................
 and three-phase.
 
Single package vertical air          >=65,000 Btu/h and      AC.........................  EER = 10.0.................  October 9, 2015.
 conditioners and single package      <135,000 Btu/h.        HP.........................  EER = 10.0.................  October 9, 2015.
 vertical heat pumps.                ......................                               COP = 3.0..................
Single package vertical air          >=135,000 Btu/h and     AC.........................  EER = 10.0.................  October 9, 2016.
 conditioners and single package      <240,000 Btu/h.        HP.........................  EER = 10.0.................  October 9, 2016.
 vertical heat pumps.                ......................                               COP = 3.0..................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (3) Each single package vertical air conditioner and single package 
vertical heat pump manufactured on and after [date 4 years after 
publication of a final rule] must meet the applicable minimum energy 
conservation standard level(s) set forth in Table 8 of this section.

[[Page 78677]]



   Table 8 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.................  [Date 4 years after publication
 conditioners and single package     ......................                                                             of final rule].
 vertical heat pumps, single-phase
 and three-phase.
                                                             HP.........................  EER = 11.0.................  [Date 4 years after publication
                                                                                          COP = 3.3..................   of final rule].
Single package vertical air          >=65,000 Btu/h and      AC.........................  EER = 10.0.................  October 9, 2015.
 conditioners and single package      <135,000 Btu/h.        HP.........................  EER = 10.0.................  October 9, 2015.
 vertical heat pumps.                ......................                               COP = 3.0..................
Single package vertical air          >=135,000 Btu/h and     AC.........................  EER = 10.0.................  October 9, 2016.
 conditioners and single package      <240,000 Btu/h.        HP.........................  EER = 10.0.................  October 9, 2016.
 vertical heat pumps.                ......................                               COP = 3.0..................
--------------------------------------------------------------------------------------------------------------------------------------------------------

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[FR Doc. 2014-29865 Filed 12-29-14; 8:45 am]
BILLING CODE 6450-01-P