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The work presented in this paper shows how proper air conditioning equipment location, sizing, installation and operation can improve performance, save on energy bills, and reduce peak demand. A residential heat and mass transfer model, REGCAP, was used to determine the effect of several parameters on energy consumption, peak electrical demand and air conditioner performance. These parameters included placing the entire air conditioning system within the insulated envelope of the house, reducing air conditioner capacity, correct installation (refrigerant charge and evaporator airflow), and alternative operating strategies (thermostat setback versus constant thermostat set point). Our results indicate that a properly sized and installed air conditioner has either equivalent or improved performance compared to an oversized poorly installed air conditioner that is typical of residential construction. This paper examines a recent innovation in bringing the HVAC system inside the thermal and air leakage envelope by locating the system in a cathedralized attic that is insulated and sealed at the roofline and is well connected to the house. Both field measurements and simulation results show that houses with ducts located in cathedralized attics have dramatically increased cooling performance and lower energy consumption than houses with ducts in conventional attics. However, the marginal benefit of improving an air conditioning system once it is in a cathedralized attic is small: the largest part of energy savings come from insulating and sealing the attic.