CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION

........................................................................................................... 2-1
2.2 BACKGROUND

............................................................................................................. 2-4
2.3 MARKET AND TECHNOLOGY ASSESSMENT

........................................................ 2-4
2.3.1 Market Assessment

.............................................................................................. 2-4
2.3.2 Technology Assessment

....................................................................................... 2-5
2.3.3 Test Procedure

..................................................................................................... 2-5
2.4 SCREENING ANALYSIS

.............................................................................................. 2-6
2.4.1 Technology Screening

......................................................................................... 2-6
2.5 ENGINEERING ANALYSIS

.......................................................................................... 2-6
2.5.1 Equipment Classes Analyzed

............................................................................... 2-6
2.5.2 Manufacturing Cost Assessment

.......................................................................... 2-7
2.5.3 Energy Consumption Model

................................................................................ 2-7
2.6 ENERGY USE CHARACTERIZATION

....................................................................... 2-7
2.7 MARKUPS TO DETERMINE EQUIPMENT PRICE

................................................... 2-8
2.8 LIFE-CYCLE COST AND PA YBACK PERIOD ANALYSES

.................................... 2-9
2.9 SHIPMENTS ANALYSIS

............................................................................................. 2-11
2.10 NATIONAL IMPACT ANALYSIS

.............................................................................. 2-11
2.10.1 National Energy Savings Analysis

..................................................................... 2-11
2.10.2 Net Present Value Analysis

............................................................................... 2-12
2.10.3 Efficiency Scenarios and Trends

....................................................................... 2-12
2.11 LIFE-CYCLE COST SUB-GROUP ANALYSIS

......................................................... 2-13
2.12 MANUFACTURER IMPACT ANALYSIS

.................................................................. 2-14
2.13 UTILITY IMPACT ANALYSIS

................................................................................... 2-14
2.14 ENVIRONMENTAL ASSESSMENT

.......................................................................... 2-15
2.15 EMPLOYMENT IMPACT ANALYSIS

....................................................................... 2-15
2.16 REGULATORY IMPACT ANALYSIS

........................................................................ 2-16
2.17 DEPARTMENT OF JUSTICE REVIEW

..................................................................... 2-16

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the Commercial Refrigeration Equipment Rulemaking Process

............................................................................................... 2-2

2-i2-iiCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Section 6295(o)(3)(B) of Title 42 United States Code (42 U.S.C.), as directed by 42
U.S.C. 6316(a) (1)-(3)), require s the U.S. Department of Energy (DOE) to set forth energy
conservation standards that are technologically feasible and ec onomically justified, and would achieve the maximum improvement in energy effici ency. This chapter pr ovides a description of the general analytical framework that DOE uses in developing such standards, and in particular, standards for commercial refrigeration equipm ent (CRE). The analytical framework is a description of the methodology, the analytical tools, and re lationships among the various analyses that are part of th is rulemaking. For example, th e methodology that addresses the statutory requirement for economic justificati on includes analyses of life-cycle cost (LCC); economic impact on manufacturers and users; nati onal benefits; impacts on utility companies; and impacts from lessening competition among manuf acturers. DOE also solicited the views of the U.S. Department of Justice (DOJ) on any less ening of competition likely to result from the imposition of a proposed standard.

Figure 2.1.1 summarizes the analytic al components of the standards-setting process. The focus of this figure is the center column, identif ied as “Analyses.” The columns labeled “Key Inputs” and “Key Outputs” show how the analyses fit into the rulemaki ng process, and how the analyses relate to each other. Key inputs are the types of data and information that the analyses require. Some key inputs exist in public databa ses; DOE collects other inputs from stakeholders or persons with special knowledge. Key outputs are analytical results that feed directly into the standards-setting process. Arrows connecting analyses show types of information that feed from one analysis to another.

2-1Figure 2.1.1 Flow Diagram of Analyses fo r the Commercial Refrigeration Equipment Rulemaking Process

2-2The analyses performed in the final rule stage and reported in this technical support document (TSD) are listed below.

• A market and technology assessment character izes the relevant equipment markets and existing technologies, incl uding prototype designs.

• A screening analysis is conducted to revi ew each technology and determine if it is technologically feasible ; is practical to manufacture, inst all, and service; would adversely affect equipment utility or equipment availa bility; or would have adverse impacts on health and safety.

• An engineering analysis devel ops the cost-efficiency relatio nship, which is the increased manufacturer production cost (material, labo r, and factory overh ead) of more-efficient equipment. The increased cost to the cust omer is determined through an analysis of engineering markups, which convert manuf acturer production cost to manufacturer selling price (MSP).

• An equipment price markup analysis to de termine equipment pr ice converts the MSP estimates from the engineering analysis to cu stomer prices, which are then used in the LCC and payback period (PBP) analyses and the manufacturer impact analysis.

• An energy use analysis is conducted to determine the annual energy use and hourly power consumption characteristics of commercial refrigeration equipment in commercial buildings.

• LCC and PBP analyses calculate, at the cu stomer level, the discounted savings in operating costs (less maintenance and repair costs) throughout the estimated average life of the covered equipment, compared to a ny increase in the installed cost for the equipment likely to result direct ly from imposition of the standard.

• A shipments analysis forecasts equipment shipme nts, which are then used to calculate the national impacts of standards on energy consum ption and costs, net present value (NPV),
and future manufacturer cash flows.

• A national impact analysis (NIA) assesses the aggregate impacts at the national level of the NPV of total consumer LCC and national energy savings (NES).

• A life-cycle cost sub-group analysis evaluate s variations in comm ercial business type characteristics ( e.g., energy prices, equipment use patte rns, installation and maintenance costs) that might cause a sta ndard to affect particular cu stomer sub-populations, such as specific building owners or other cust omers who purchase and use commercial refrigeration equipment differently than the overall population.

2-3• A manufacturer impact analysis estimates the financial impact of standards on manufacturers and calculates impacts on competition, employment, and manufacturing capacity.

• A utility impact analysis estimates the effect s of proposed standards on electric utilities.

• An employment impact analysis assesses the aggregate impacts on national employment.

• An environmental assessment provides estima tes of changes in emissions of pollutants from electricity genera tion (carbon dioxide (CO 2 ), oxides of nitrogen (NOx), and sulfur dioxide (SO 2 )).

• A regulatory impact analysis presents major al ternatives to proposed standards that could achieve substantially the same regulatory goal at a lower cost.

2.2 BACKGROUND

Chapter 1 of this TSD outlines procedural requirements of the standards rulemaking process, which includs a review of the following elements: (1) economic models, (2) analytical tools, (3) methodologies, (4) non-regulatory approach es, and (5) prioritization of future rules.

DOE documented its analytical framework in the Rulemaking Framework for Commercial Refrigeration Equipment Incl uding Ice-Cream Freezer s; Self-Contained Commercial Refrigerators, Freezers, and Refrig erator-Freezers without doors; and Remote Condensing Commercial Refrigerators, Freezers, and Refrigerator-Freezers , and presented the analytical approach to stakeholders during a public meeting held on May 16, 2006. This
document is available at http://www.eere.energy.gov/buildin gs/appliance_standards/commerc ial/pdfs/comml_refrig_fram ework.pdf . The following sections provide a general description of the di fferent analytical components of the rulemaking framework.

2.3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment character izes the relevant equipment markets and existing technology options, in cluding prototype designs.

2.3.1 Market Assessment

When initiating a standards rulemaking, DOE develops information on the present and past industry structure and mark et characteristics for the equi pment concerned. This activity assesses the industry and equipment both quantit atively and qualitative ly, based on publicly available information, and encompasses the foll owing: (1) manufacturer market share and characteristics, (2) existing regulatory and non -regulatory equipment efficiency improvement initiatives, and (3) trends in equipment charact eristics and retail markets. This information
serves as resource materi al throughout the rulemaking.

2-4DOE reviewed existing literature and interviewed manufacturers to get an overall picture
of the CRE market in the United States. Indus try publications and trad e journals, government agencies, and trade organizations provided the bulk of the information, including (1) manufacturers and their market share, (2) sh ipments by capacity, and (3) market saturation.

DOE uses the most reliable and accurate data available at the time of analysis.

.

2.3.2 Technology Assessment

DOE typically uses information about existi ng and past technology options and prototype designs to determine which technologies manufactu rers use to attain hi gher energy performance levels. In consultation with stakeholders, DOE de velops a list of technolog ies for consideration. Initially, these technologies encompass all t hose DOE believes are technologically feasible.

DOE developed its list of technologically feas ible design options af ter consultation with manufacturers of components and systems, and from trade publications and technical papers. Since many options for improving efficiency ar e available in existing equipment, product literature and direct examination of commercial refrigeration equipment provided additional information, described in Chapter 3 of the TSD.

2.3.3 Test Procedure

A test procedure outlines the method by which manufacturers will determine the efficiency of their commercial refrigeration equi pment, and thereby assess compliance with an energy conservation standard.

Section 136(f)(1)(B) of EP ACT 2005 amended section 343 of EPCA (42 U.S.C. 6314) by adding new subsections 343(a)(6)(A)-(D) (42 U. S.C. 6314(a)(6)(A)-(D)), which direct the Secretary to develop test procedures for comm ercial refrigeration equipment. On December 8, 2006, DOE published a final rule (the Decembe r 2006 final rule) in which DOE adopted American National Standards Institute (ANS I)/Air-Conditioning and Refrigeration Institute (ARI) Standard 1200-2006, Performance Rati ng of Commercial Refr igerated Display Merchandisers and Storage Cabinets , with one modification, as the DOE test procedure for this equipment. 71 FR 71340, 71369-70. a Standard 1200-2006 cont ains equipment rating temperature specifications of 38 ° F (±2 ° F) for commercial refrigerators and refrigerator compartments, 0 ° F (±2 ° F) for commercial freezers and freezer compartments, and -5 ° F (±2 ° F) for ice-cream freezers. The standard requires performance tests to be conducted according to the American Society of Heating, Refrigerat ing, and Air-Conditioning Engineers (ASHRAE) Standard 72-2005, Method of Testing Co mmercial Refrigerators and Freezers . DOE made only
one modification to ANSI/ARI Standa rd 1200-2006: DOE selected -15 ° F (±2 ° F) as the rating temperature for ice-cream freezers, instead of -5 ° F (±2 ° F). 71 FR 71370. In addition, DOE adopted ANSI/Association of Home Applia nce Manufacturers (AHAM) Standard HRF-1-2004, Energy, Performance and Capacity of Househol d Refrigerators, Refrigerator-Freezers and
Freezers , for determining compartment volumes. 71 FR 71369-70.

a Test procedures are found at 10 CFR section 431.64.

2-52.4 SCREENING ANALYSIS

The screening analysis examines whether va rious technologies (1 ) are technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an adverse impact on equipment utility or availability; and (4) have adverse impacts on health and safety. In the engineering analysis, DOE furthe r considered design options that remained after the screening

process.

2.4.1 Technology Screening

As described in Chapter 4 of this TSD, DOE grouped technologies into the following categories: (1) emerging tec hnologies, which are currently no t available on the commercial market but are being examined in the laboratory as possible means to enhance efficiency; and (2) commercially available technologi es that are used to improve energy consumption under DOE’s test procedure.

Because the energy descriptor for commercial refrigeration equipment is daily energy consumption and the test procedure uses a steady-state approach, DOE did not include technologies or designs that improve energy consumption under varying ambient conditions ( e.g., expansion valves or variable-speed compressors ). Therefore, only th ose technologies that improve the daily energy consumption rati ng were considered viable for review.

2.5 ENGINEERING ANALYSIS

As discussed in Chapter 5 of the TSD, the engineering analysis establishes the relationship between the cost and efficiency of commercial refrigeration equipment. This relationship serves as the basis for cost/benefit calculations in terms of individual customers, manufacturers, and the Nation. The engineering analysis discusses the industry-supplied costefficiency curves, the equipment classes anal yzed, the representative baseline units, the methodology used to develop manufacturing costs, the methodology used to develop the energy consumption model, the analytic ally-derived cost-efficiency curves, the methodology used to extend the analysis to low-shipment volume e quipment classes, and the use of alternative refrigerants.

2.5.1 Equipment Classes Analyzed

Because of the large number of equipment classes in this rulemaking, the engineering analysis did not assess all covere d equipment classes. DOE used th e shipment data in the market and technology assessment (Chapter 3) to priori tize equipment classes to analyze. Equipment
classes with fewer than 100 annua l units shipped were not consider ed for the analysis, leaving 14 “high-shipment” equipment classes for analysis. According to the equipment shipments, these 14 equipment classes represent 98 percent of th e total industry shipments. One additional equipment class, the vertical open remote condensing unit equipment class (VOP.RC.L), was

2-6added after discussions with manufacturers. b Thus, 15 covered equipment classes were analyzed and 15 cost-efficiency curves were ge nerated in the engineering analysis.

2.5.2 Manufacturing Cost Assessment

DOE conducted a manufacturing cost assessment to estimate the manufacturing costs associated with a decrease in energy consumpti on for commercial refrigera tion equipment. This approach involved disassembling a vertical closed transparent self-contained medium temperature (VCT.SC.M) refrigerator, analysis of the materials and manufacturing processes, and development of a spreadsheet cost model. Using the manufacturing cost assessment, DOE developed a clear and consistent manufacturi ng cost assessment methodology, built a detailed manufacturing cost assessment model that accurate ly predicts manufacturing cost, reported the manufacturing costs in aggregated form to maintain confidentiality of the data, and obtained input from stakeholders on th e manufacturing cost estimates and assumptions to confirm

accuracy.

2.5.3 Energy Consumption Model

DOE developed an energy consumption mode l to calculate energy consumption of the equipment at various performance levels within each equipment class. The model is based on ANSI/ARI Standard 1200, Performance Rati ng of Commercial Refr igerated Display Merchandisers and Storage Cabinets , but calculates the total refrig eration load as a summation of
electric and non-electric heat lo ads. Electric heat loads includ e the internal loads from fan motors, lighting, defrost heaters, and anti-sweat heaters. DOE assumed that all electrical energy ends up as heat inside the case (except for ligh ting outside of the air curtain on open cases and the defrost power that is consumed condensing the ice on the coils to water). Non-electric loads
include heat loads from radiat ion through glass, seals, and ope nings; conduction through walls and solid doors; and infiltration of warm, mo ist air into the case. DOE used a thermal conductivity, or U-factor, to calculate a combined conduction/convection/radiation load for glass. DOE used a simple conduction/convectio n model to calculate conduction through walls and solid doors, and empirical data to calculate infiltration loads.

2.6 ENERGY USE CHARACTERIZATION

The energy use characteriza tion assesses the energy savings impacts from higher efficiency standards and provides the basis for the energy savings used in the LCC and subsequent analyses. The energy use characte rization validated the use of the engineering analysis energy estimates for assessing energy sa vings for higher equipment efficiencies. DOE assessed the energy savings impacts for seven diffe rent classes of remote condensing commercial

b Equipment class designations consist of a combination (in sequential order separated by periods) of an equipment family code (VOP=vertical open, SVO=semivertical open, HZO=horizontal open, VCT=vertical transparent doors, VCS=vertical solid doors, HCT=horizo ntal transparent doors, HCS=horizont al solid doors, or SOC=service over counter), an operating mode code (RC=remote condensing or SC=self-contained), and a rating temperature code (M=medium temperature (38°F), L=low te mperature (0°F), or I=ice-cream temperature (-15°F)). For example, "VOP.RC.M refers to the "vertical open, remote condensing, medium temperature" equipment class. See Chapter 3, Market and Technology Assessment, for a more detailed explanation of the equipment class terminology.

2-7refrigeration equipment across a range of U.S. climates. Various design options corresponded to different energy efficiency levels. DOE a ssessed the energy impacts at the level of the refrigeration equipment case (display case) alone, the case and associated refrigeration system, and the whole building. As part of the en ergy use characterization, DOE made certain engineering assumptions regarding equipment application, including how the equipment is operated and under what conditions and has docum ented these assumptions in the TSD.

Studies conducted by Arthur D. Little, Inc., Southern California Edison, Lawrence Berkeley National Laboratory, and Caneta Research assisted in characterizing the annual energy consumption of commercial re frigeration equipment. These studies primarily focused on refrigerated display cases packag ed with remote condensing units.

For buildings using commercial refrigerati on equipment, the primary energy consumption and demand impact are from the energy and power use of the equipment itself and from the associated refrigeration loads and remote condensing equipment, both of which can vary with climate. The impact on building heating and cooling energy is a secondary impact that also relates to climate. Characterizing the en ergy savings from more-efficient commercial refrigeration equipment and the associated ener gy impacts from the remote condensing system and the building heating and cooling load is a cri tical part of the standards rulemaking analysis because it assesses the relative importance of these secondary impacts and validates the engineering energy use estimates.

In the energy use characterization, DOE defined a single building prototype

― a mediumsized supermarket—for modeling energy impacts. DOE characterized combinations of design options representing four efficiency levels for e ach class of remote condensing equipment. DOE used whole building energy analysis software with the capability to model refrigeration equipment and the building prototypes in different climate regions in orde r to capture the energy impacts at the CRE case, for the refrigerati on system and case combined, and for the entire building.

2.7 MARKUPS TO DETERMINE EQUIPMENT PRICE

DOE used manufacturer-to-customer markups to convert the MSP estimates from the engineering analysis to customer prices, wh ich were then used in the LCC, PBP, and manufacturer impact analyses. Because retail pr ices are required for all the performance levels under consideration, DOE obtained these retail prices by applying manuf acturer-to-customer markups to the MSP estimates.

Before it can develop markups, DOE must identify distribution channels ( i.e., how the equipment is distributed from the manufacturer to the custome r). Once it established proper distribution channels for each of the equipment classes, DOE relied on economic data from the
U.S. Census Bureau and input from the tr ade organization repres enting distributors of refrigeration equipment to define how equi pment are marked up as they pass from the manufacturer to the customer (see Chapter 6 of the TSD).

2-8DOE has estimated manufacturer-to-customer markups for reside ntial air-conditioningproducts and commercial air-conditioning equipment. In the recent commercial unitary airconditioners and heat pumps (CUAC) rulemaking, analysis of distribution channel markups focused on three distribution channel paths and calculated markups for individual points along these paths. Two of these pa ths involved sales of equipment through a mechanical contractor and then through a general contractor before re aching the final customer. A third “national account” path involved sales directly from manu facturer to the end customer. The CUAC analysis noted that in the case of replacement equipment (approximately 70 percent of the CUAC market), a general contractor typically was not involved and therefore no general contractor markups were incurred for replacement equipment.

DOE’s review of information for CRE dist ribution suggested a si milar set of three
distribution channels wo uld be appropriate:

Manufacturer → Distributor → Mechanical Contractor → Customer (7 percent of sales)

Manufacturer → Distributor → Customer (7 percent of sales)

Manufacturer → Customer (National Account ) (86 percent of sales)

The data suggests that a general contr actor was not involved in the purchase of commercial refrigeration equipment at either the new construction or replacement levels, and that the fraction of sales through each distributi on channel would be the same for both new and replacement equipment.

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

The effects of new energy conservation standards on equipment re sult in changes in operating expenses (usually a decr ease) and changes in customer pr ice (usually an increase). DOE analyzed the net effect of new standards on customers by evaluating the net LCC using the cost-efficiency relationship derived in the engi neering analysis, as well as the energy costs derived from the energy use characterization analys is. Inputs to the LCC calculation include the installed cost to the customer (customer price pl us installation cost), operating expenses (energy expenses and maintenance costs), the lifetime of the a ppliance, and a discount rate. Chapter 8 discusses these inputs in detail.

The installed and operating costs of equipmen t typically change in response to new standards (installed cost usually increases while operating cost usually decr eases). Thus, there is a specific time in the life of higher-than-baseline efficiency equipment when the net operatingcost benefit (in dollars) from the time of purchas e is equal to the incremental first cost of purchasing the more-efficient equipment. The length of time required for equipment to reach this cost-equivalence point is known as the payback period.

DOE conducted the LCC and PBP analyses using typical values to reflect the conditions in the field for equipment life and energy consump tion. Distributions of values were used to develop equipment retail price a nd national or regional energy co sts. Discount rates varied by

2-9business type. DOE conducted the life-cycle co st sub-group analysis for the final rule and included an assessment of impact s on sub-groups of customers.

For commercial refrigeration equipment, it was necessary to determine several of the input values for the LCC estimation, including re tail prices; electricity prices; discount rate; maintenance, service, and installation costs; and equipment lifetimes.

DOE reviewed energy price data from the En ergy Information Administration (EIA) for commercial refrigeration equipment to establish el ectricity and natural gas prices. DOE relied on State average energy price data for the commercial s ector scaled to reflect average prices paid by businesses using commercial refri geration equipment relative to the entire commercial sector. DOE used projections of these energy prices fo r commercial customers to estimate future energy prices in its LCC and PBP analyses. DOE used EIA’s Annual Energy Outlook (AEO) as the default source of projections for future energy prices.

DOE developed discount rates by estimating th e cost of capital to businesses that purchase commercial refrigera tion equipment covered under th is rulemaking. DOE commonly uses the cost of capital to estimate the present va lue of cash flows to be derived from a typical company project or investment. Most companies use both debt and eq uity capital to fund investments, so the cost of capital is the weighted -average cost to the firm of equity and debt financing. This corporate finance approach is referred to as the we ighted-average cost of capital.

DOE considered expected changes to maintena nce, repair, and inst allation costs for the equipment covered in this rulemaking. Typical ly, small incremental changes in equipment efficiency incur no, or only very small, change s in repair and maintenance costs over baseline efficiency equipment. Equipment with efficien cies significantly greater than the baseline can incur increased repair and maintenance costs, sin ce such equipment is more likely to incorporate technologies that are new to the industry and no t widely available. DOE relied on facilities’ planning literature and industry da ta to develop appropriate repa ir and maintenance costs.

DOE divided maintenance costs into preven tive maintenance and lighting maintenance activities. Reliable performance is a market prere quisite for commercial re frigeration equipment. Since no data were available to suggest increa sed preventive maintenance costs for the design options considered, DOE assumed that maintenance co sts did not increase with efficiency level.

When lighting changes were considered as design options, DOE separately assessed regular lighting maintenance costs (primarily bul b, ballast, or fixture replacement). Because no data was available to suggest repair costs increase with more-efficient equipment, DOE held repair costs fixed, but made a pr ovision for repair costs that va ry in proportion to equipment costs. Unless the efficiency increases considered for this rulemaking result in significantly larger or heavier equipment, DOE determined that mo re-efficient commercial refrigeration equipment
would not increase in stallation costs.

DOE used information from various publishe d sources and input from the equipment
distributors and the food retail i ndustry to establish av erage equipment lifetimes for use in the LCC and subsequent analyses.

2-102.9 SHIPMENTS ANALYSIS

Shipment forecasts are required to calculat e the national impacts of standards on energy, NPV, and future manufacturer cash flows. DOE developed shipment forecasts based on an analysis of key market drivers for commercial refrigeration equipment.

DOE developed a set of shipment forecasts for each equipment cl ass for each set of standards analyzed. These standards case foreca sts were used to evaluate the impacts of standards on equipment shipments. Standards cas e forecasts were derived using the same data sets as base case forecasts. However, becau se the standards case forecasts account for the increase in customer price and the decrease in operating costs caused by standards, forecasted shipments can deviate from the base case. The magnitude of the difference between the standards case and base case shipment forecas ts depends on the estimated customer price increase as well as the operating cost savings du e to the standard. Because the customer price tends to have a larger impact than operati ng cost on equipment purchase decisions, standards case forecasts typically show a drop in equipm ent shipments relative to the base case.

The data required to develop sensitivities of shipments to custom er price and operatingcost-savings were limited. Therefore, DOE modeled total standa rds case shipments forecasts as identical to base case shipments, but provided the option of defining scenarios ( i.e., specified impacts to equipment shipments) rather than developing sensitivities to customer price or operating-cost-savings.

2.10 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the NP V of total customer LCC and NES. DOE determined both the NPV and NES for the performance levels considered for the equipment classes analyzed. To make the analysis more accessible and transparent to all stakeholders, DOE prepared an NES Spreadsheet Model in Micros oft Excel to forecast energy savings and the national economic costs and savings resulting from new standards. The NES Spreadsheet Model uses typical values for inputs or outputs (as oppose d to probability distributions). To assess the impact of input uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses for future analyses by running scen arios on input variables of intere st to stakeholders. Chapter
10 of the TSD describes DOE’s assessment of the aggregate economic impacts at the National
level.

2.10.1 National Energy Savings Analysis

The inputs for the determination of NES fo r each class of commercial refrigeration equipment analyzed are (1) annual energy consum ption per unit, (2) shipments, (3) equipment stock, (4) national energy consumption, and (5 ) site-to-source conve rsion factors. DOE calculated the national energy consumption by multiplying the number of units, or stock, of commercial refrigeration equipment (by vint age) by the unit energy consumption (also by vintage). c Then, DOE calculated national annual energy savings from the difference between

c Vintage represents the age of the equipment.

2-11national energy consumption in th e base case (without new efficien cy standards) and in each higher efficiency standard case. DOE estimated energy consumption and savings based on site energy, and converted the electricity consumption and saving s to source energy. Cumulative energy savings are the sum of the annual NES, which DOE determined over specified time periods.

The stock of commercial refrigeration equi pment depends on annual shipments and the lifetime of the equipment. DOE conducted shipme nts projections under th e base efficiency case and higher efficiency standards cases for a variety of possible equipment efficiency scenarios and equipment efficiency trends. DOE’s shipment s model presumed that growth in commercial floor space for building types using commercial refrigeration equipment as well as necessary stock replacements drove shipments of new commercial refrigeration equipment. DOE’s shipments model did not assess changes in total CR E shipments as a function of standard level,
either due to increases in first costs or decreases in energy consumption.

2.10.2 Net Present Value Analysis

The inputs for the determination of NPV are (1) total annual insta lled cost, (2) total annual operating cost savings, (3) discount factor, (4) present value of co sts, and (5) present value of savings. DOE calculated net savings e ach year as the differen ce between total operating cost savings (including electricit y, repair, and maintenance cost sa vings) and increases in total installed costs (including equi pment price and installation cost). DOE calculated savings over the life of the equipment, accounting for differe nces in yearly energy rates. DOE calculated NPV as the difference between the present value of operating cost savings and the present value
of increased total installed costs. DOE discounted future costs and savings to the present with a
discount factor.

DOE calculated increases in total installed co sts as the product of the difference in the
total installed cost between th e base case and standards case ( i.e., once the standards take effect) and the annual shipments in the standards case. Because costs of the more-efficient equipment bought in the standards case are higher than thos e of equipment bought in the base case, price increases appear as negative values in the NPV.

DOE expressed operating cost savings as decrea ses in operating costs associated with the lower energy consumption of equipment bought in the standards case compared to the base efficiency case. Total operating cost savings are the product of savings per unit and the number of units of each vintage surv iving in a particular year.

2.10.3 Efficiency Scenarios and Trends

Several of the inputs for determining NES ( e.g., the annual energy consumption per unit) and NPV ( e.g., the total annual installed co st and the total annual ope rating cost savings) depend on the efficiency of the equipment. Thus, DOE developed base case and standards case efficiency trends. The efficiency trends speci fy the annual historical and forecasted shipmentweighted average equipment efficiencies.

2-12DOE based historical shipment-weighted av erage efficiency trends for commercial refrigeration equipment on limited efficiency data . Once DOE established historical efficiency trends, it could determine future trends of equipment efficien cy, and in turn, annual energy consumption by extrapolating from the historical trend.

DOE based its standards case forecasts ( i.e., forecasts of efficiency trends after standards take effect) on the use of a roll-up efficiency scenario and parallel growth trend. Under a roll-up scenario, all equipment at perfor mance levels below a prospective standard are moved or rolled up to the minimum performance level allowed u nder the new standard. The distribution of equipment at higher efficiency standard levels is unaffected ( i.e., this equipment remains at its pre-standard performance levels). The roll-up ef ficiency scenario dictates how DOE determined efficiency distributions in the first year a ne w standard takes effect, but does not define how equipment efficiency will be distributed in th e future. Under the parallel growth trend, DOE assumes that the standards case efficiency trend para llels the base case efficiency trend. In other words, the initial jump in shipment-weighted e fficiency that occurs when the standard first becomes effective is maintained throughout the forecast.

2.11 LIFE-CYCLE COST SUB-GROUP ANALYSIS

The LCC sub-group analysis evaluates ec onomic impacts on virtually any group of customers. For the final rule, DOE evaluated the impacts on particular sub-groups in part by analyzing the LCC and PBP for these customers.

DOE evaluated variations both in regional ener gy prices and use that might affect the NPV of an energy-efficiency standard to customer sub-groups. DOE sought estimates of the variability of each input parameter and consider this variability when calculating customer impacts. Variations in energy use for a partic ular equipment type or equipment class depend on factors such as climate, building type, and type of business. DOE performed sensitivity analyses to consider how differences in energy use w ill affect various sub-groups of customers.

DOE determined the impact on customer sub- groups using the LCC spreadsheet model. The spreadsheet model for the LCC analysis can be used with different data inputs. The standard LCC analysis includes various commercial build ing types that use commercial refrigeration equipment. Moreover, DOE can analyze the LCC for any sub-group by using the LCC spreadsheet model and only sampling that sub-group. Details of this model are explained in the section describing the LCC and PBP analyses.

DOE is particularly sensitive to increase s in the customer price of more-efficient commercial refrigeration equipment. Such sub-groups as small businesses ( i.e., those with low annual revenues) might not be able to afford a significant increase in th e price of commercial refrigeration equipment. For these types of cu stomers, increases in first costs for equipment could preclude the purchase of a new CRE unit. As a result, some customers might keep refrigeration equipment beyond its useful life. These older pieces of e quipment are generally less efficient, and their efficiency may decline if kept beyond their useful lif e. Also, increases in first cost could preclude the pur chase and use of equipment altoge ther, resulting in a potentially large loss of utility.

2-13For this rulemaking, DOE identified independent small grocery and convenience stores as a commercial refrigeration equipment customer sub-group that could be disproportionately affected, and examined the impact of proposed standards on this group. DOE determined the impact on this commercial refrigeration e quipment customer sub-group using the LCC spreadsheet model. DOE conducted the LCC a nd PBP analyses for commercial refrigeration equipment customers represented by the subgroup.

2.12 MANUFACTURER IMPACT ANALYSIS

The manufacturer impact analysis focuses on manufacturers of comm ercial refrigeration equipment. Potential impacts would include quan titative and qualitative financial effects that might result from new energy efficiency standa rds, and consequently lead to changes in manufacturing practices. DOE identified thes e potential impacts th rough interviews with
manufacturers and other stakeholders.

Previously, DOE did not report manufacturer impact analysis results during the advanced notice of proposed rulemaking (ANOPR) phase. However, DOE recently announced changes to the manufacturer impact analysis format thr ough a report issued to Congress on January 31, 2006 (as required by section 1 41 of the Energy Policy Act of 2005 (EPACT 2005)). d Under this new format, DOE collects, evaluates, and reports pr eliminary information and data in the ANOPR. Such preliminary information includes the anticipated conve rsion capital expenditures by efficiency level and the corre sponding anticipated impacts on jobs. DOE solicits this information during the ANOPR engineeri ng analysis manufac turer interviews.

DOE conducts the manufacturer im pact analysis in three phase s. Phase one consists of preparing an industry ch aracterization and identifying issues . Phase two addresses the broader industry where DOE would use the Government Regulatory Impact Model to perform an industry cash-flow analysis. Ph ase three involves interviewing manufacturers. DOE develops the questionnaire for Phase three in Phase tw o. At the beginning of Phase three, DOE interviewed manufacturers and adjusted the i ndustry cash-flow analys is as appropriate. Thereafter, Phase three entailed additional cash-flow analyses of the different sub-groups that the rulemaking could affect. During Phase three, DOE also examined any additional impacts on competition, manufacturing capacity, direct employment, and the cumulative burden of other regulations affec ting manufacturers.

2.13 UTILITY IMPACT ANALYSIS

The utility impact analysis will include an an alysis of the impact of higher efficiency standards on electric and gas utilities. DOE adapted the Na tional Energy Modeling System (NEMS) produced by the EIA for this analysis . NEMS (EIA 2005) is a large multi-sectoral, partial-equilibrium model of the U.S. energy sect or that EIA has develope d over the past decade, primarily for the purpose of preparing DOE’s AEO . In prior rulemakings, a variant of NEMS

d This report, entitled “Energy Conservation Standards Activities,” is available on the DOE website at http://www1.eere.energy.gov/buildings/appliance_st andards/pdfs/congressional_report_013106.pdf

.

2-14(currently termed NEMS-BT, BT referring to the DOE’s Building Technologies Program) was developed to better address th e specific impacts of an equipment efficiency standard.

The NEMS produces a widely recognized base line energy forecast for the United States through 2030, and is available to the public. Th e typical NEMS outputs include forecasts of electricity sales, price, and avoided electric generating capacity. The energy savings impacts from amended energy conservation standards wi ll be modeled using NEMS-BT to generate
forecasts that deviate from the AEO reference case.

2.14 ENVIRONMENTAL ASSESSMENT

The primary environmental effects of energy conservation standards for the commercial refrigeration equipment covered under this rule making will be reduced emissions resulting from reduced electrical energy consumption. The e nvironmental assessment tracks the impact of possible standards on three energy-related emissions: CO 2 , NOx, and SO 2 . DOE based these calculations on the NEMS-BT modeling work used for the utility impact anal ysis. This approach has the advantage of examining the marginal impact of higher efficiency standards for the covered equipment on the utility generation mix and the subsequent environmental emissions.

NEMS-BT tracks CO 2 emissions with a detailed module that produces robust results because of its broad coverage of all sectors and inclusion of inte ractive effects. NEMS-BT also
includes a module for SO 2 allowance trading and forecasts SO 2 allowance prices. The simulation
of SO 2 trading tends to imply that physical emissions effects will be zero. However, there is an
SO 2 benefit from conservation in the form of a lo wer allowance price and, if large enough to be calculable by NEMS, this value can be reported. NEMS-BT also has an algorithm for estimating NOx emissions from power generation.

2.15 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can affect employme nt both directly and indirectly. Direct employment impacts are changes in the number of employees at the plants that produce the covered equipment and at affiliated distributi on and service companies resulting from the imposition of new standards. DOE evaluated direct employment impacts in the manufacturer impact analysis. Indirect employment impact s may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur because of th e imposition of standards. The combined direct and indirect employment impacts were investigated in the employment impact analysis using the Pacific Northwest National Laboratory’s “Impact of Sect or Energy Technologies” (ImSET) model. The ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis, and estimates the employment and income effects of energy-sa ving technologies in bu ildings, industry, and transportation. In comparison with simple ec onomic multiplier approaches, ImSET allows for more complete and automated analysis of the economic impacts of energy conservation
investments.

2-152.16 REGULATORY IMPACT ANALYSIS

In the final rule stage, DOE prepared a re gulatory impact analysis (RIA) pursuant to Executive Order 12866, “Regulatory Planning an d Review,” 58 FR 51735, October 4, 1993, which is subject to review under the Execu tive Order by the Office of Information and Regulatory Affairs at th e Office of Management and Budget. The RIA addressed the potential for non-regulatory approaches to supplant or augment energy conservation standards to improve the energy efficiency or reduce the energy c onsumption of the commercial refrigeration equipment covered under this rulemaking.

DOE recognizes that voluntary or other non-regulatory effort s by manufacturers, utilities, and other interested parties can result in subs tantial improvements to energy efficiency or reductions in energy consumption. DOE considered the likely effects of non-regulatory initiatives on equipment energy use, consumer utility, and LCC. DOE based its assessment on the actual impacts of any such ini tiatives to date, but also consid ered potential impacts that any existing initiative might have in the future.

2.17 DEPARTMENT OF JUSTICE REVIEW

Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conserva tion Act (EPCA) states that before the Secretary of Energy may prescribe a new or amended energy conservation standard, the Secretary shall ask the U.S. A ttorney General to make a determ ination of “the impact of any lessening of competition...that is likely to resu lt from the imposition of the standard.” (42
U.S.C. 6295) Pursuant to this requirement, DO E solicited the views of the DOJ on any lessening of competition likely to result from the impositio n of a proposed standard. DOE gave the views provided full consideration in assessing economic justification of a pr oposed standard. In addition, DOE consulted with DOJ at earlier stag es in the standards development process to obtain preliminary views on competitive impacts.

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