CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS
2.1 INTRODUCTION

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

............................................................................................................. 2-3 2.3 MARKET AND TECHNOLOGY ASSESSMENT

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

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

................................................................................................... 2 -4 2.4 SCREENING ANALYSIS

.............................................................................................. 2-5 2.5 ENGINEERING ANALYSIS

.......................................................................................... 2-5 2.5.1 Manufacturing Cost Assessment

...................................................................................... 2-6 2.6 ENERGY AND WATER USE DETERMINATI ON

...................................................... 2-6 2.7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION

....................................... 2-7 2.8 LIFE-CYCLE COST AND PA YBACK PERIOD ANAL YSIS

..................................... 2-7 2.9 NATIONAL IMPACT ANALYSIS

................................................................................ 2-8 2.9.1 National Energy Savings Analysis

................................................................................... 2-9 2.9.2 Net Present Value Analysis

............................................................................................. 2- 9 2.9.3 Forecasted Efficiencies

.................................................................................................. 2-10 2.10 MANUFACTURER IMPACT ANALYSIS

.................................................................. 2-10 2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS

.......................................................... 2-11 2.12 UTILITY IMPACT ANALYSIS

................................................................................... 2-11 2.13 EMPLOYMENT IMPACT ANALYSIS

....................................................................... 2-12 2.14 ENVIRONMENTAL ASSESSMENT

.......................................................................... 2-12 2.15 REGULATORY IMPACT ANALYSIS

........................................................................ 2-13

LIST OF FIGURES Figure 2.1.1 Flow Diagram of Analyses for the Rulem aking Process

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

2-iCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION Section 6313(a)(6)(A) of 42 U. S.C. requires the U.S. Depart ment of Energy (DOE) to set forth energy conservation standard s that are technologically feasible and economically justified and would result in significan t additional energy conservation. This chapter provides a description of the general analyt ical framework that DOE uses indeveloping such standards, and in particular, standards for re sidential dishwashers, dehumidif iers, and cooking products, and commercial clothes washers (“the considered pr oducts”). 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; na tional benefits; impact s, if any, on utility companies; and impacts, if any, from lessening competition among manufacturers. Figure 2.1.1 summarizes the analyt ical com ponents 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. Dotted lines connecting analyses show types of information that feed from one analysis to another. The analyses performed in the advance notice of proposed rulem aking (ANOPR) stage and reported in this technical support document (TSD) include:

• A market and technology assessment to charac terize the relevant equipm ent markets and existing technology options, in cluding prototype designs.

• A screening analysis to review each technology o ption and determine if it is technologically feasible ; is practical to manufacture, inst all, and service; would adversely affect equipment utility or equipment availability; or would have adverse impacts on health and safety.

• An engineering analysis to develop cost -efficiency relationships that show the manufacturer’s cost of ach ieving increased efficiency.

• An energy and water use analysis to determ ine the annual energy and water use of the considered products.

2-1Notice of Proposed Rulemaking (NOPR)

Final Rule Framework Document

Advance Notice of Proposed Rulemaking (ANOPR) Approaches Key Inputs Analyses Key Outputs Approaches Key Inputs
Framework Document

• Identify Firms/Products
• Product Classes Market and Technology • Technology Options Market and Technology • Technology Options • Characterize Industry • • Historical Shipcal Shipments

• Market Segmentation Assessment • Analysis of Market Data • Non-Regulatory Programs • Non-Regulatory Programs Product Classes Te chnology Options Product Classes chnology Options

• Analysis of Product Data • • Product Prototypes Screening Analysis • Design Options Screening Analysis • Design Options

• Efficiency-Level Approach

• Design Option Approach • • Manufacturing Cost Design Options

• Efficiency/Performance Engineering Analysis • Cost-Efficiency Relationship Engineering Analysis • Cost-Efficiency Relationship

• Analysis of Energy Use Data Energy Use Design Energy/ Use Energy Use Energy-Efficiency
• Annual Energy Use (UEC) • Define Distribution Channels Levels
• Economic Census Data AnalysisAnalysis Markups for Retail Prices Markups for

• Retail Price Colleice Collection and Product Price AnalysisAnalysis Determination Life-Cycle Cost and • Life-Cycle Costs Life-Cycle Cost and

Payback Period • Payback Periods Payback Period • Payback Periods • Energy Prices
• Installation Costs AnalysisAnalysis • Maintenance & Repair Costs Candidate • U Candidate EC • Installation • Installation • Energy-Efficiency Levels Standard • Energy Prices • Energy Prices Costs Levels • M aint Costs Levels • Maint Costs
• Repair Costs • Accounting Approach Shipments
• National Energy Savings

• Backcast and Forecast AnalysisAnalysis National Impact • Net Present Values National Impact • Net Present Values • Market Saturation AnalysisAnalysis • Energy Price Forecasts

• Site-to-Source Factors Preliminary • Conversion Capital Expenditures Preliminary • Conversion Capital Expenditures
• Manufacturer Prices Manufacturer Impact • Direct Employment Impacts Manufacturer Impact • Direct Employment Impacts
• Average Costs AnalysisAnalysis Advance Notice of Proposed Rulemaking (ANOPR)

• Stakeholder Comments Revise ANOPR • Trial Standard Levels (TSLs) Revise ANOPR • Trial Standard Levels (TSLs) Analyses TSLs Analyses

• Life-Cycle Costs

• Payback Periods • Demographics Life-Cycle Cost Sub-Group Analysis • Industry Cash Flow
• Manufacturer Prices • Sub-Group Cash-Flow
• Average Costs • Direct Employment Impacts • Manufacturer Interviews • Competitive Impacts Manufacturer Impact
• Cumulative Regulatory Burden
• GRIM Analysis • • Manufacturer Financial Data AnalysisAnalysis Direct Employment • Utility Load Factors Impacts • NEMS-BT • National Energy Savings • National Energy Savings Utility Impact

• Utility Impacts AnalysisAnalysis
• National Energy Savings

• National Product Costs

• ImSET • National Operating Costs Employment Impact

• National Employment Impacts AnalysisAnalysis

• Emission Rates

• NEMS-BT • National Energy Savings Environmental • National Energy Savings • Emission Estimates Assessment

• Non-Regulatory • National Energy Savings Alternatives Regulatory Impact • Net Present Values AnalysisAnalysis Notice of Proposed Rulemaking (NOPR)

• Department of Justice Review Revise Analyses • Revised Results Revise Analyses • Revised Results
• Stakeholder Comments

Final Rule Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

2-2• An LCC and payback period (PBP) analysis to calculate, at the customer level, the discounted savings in operating costs (less maintenance and repair costs) throughout the estimated average life of the c overed products, compared to a ny increase in the installed cost for the equipment likely to result di rectly from the imposition of the standard.

• A national impact analysis to assess the aggreg ate im pacts at the national level of the net present value (NPV) of total consumer LCC and national energy savings (NES).

• A preliminary manufacturer impact analysis to assess the potentia l im pacts of energy conservation standards on manufacturers, such as impacts on capital conversion expenditures, marketing costs, shipments, and research and development costs. The analyses DOE will perform in the subsequent notice of proposed rulemaking (NOPR) stage includ e those listed below. In ad dition, DOE will revise the analyses it performed in the ANOPR stage based on comments and new information received.

• An LCC subgroup analysis to evaluate variati ons in customer characteristics that might cause a standard to impact particular cu stomer sub-populations differently than the overall population.

• A manufacturer impact analysis to estimat e the financial impact of standards on manufacturers and to calculate impacts on competition, employment, and manufacturing capacity.

• A utility impact analysis to estimate effects of proposed standards on electric and gas utilities.

• An employment impact analysis to assess th e aggregate impacts of standards on national employment.

• An environmental assessment to provide estim ates of the effects of stand ards on three pollutants—sulfur dioxide (SO 2 ), nitrogen oxides (NO x ), and mercury—as well as carbon emissions.

• A regulatory impact analysis to present majo r alternatives to proposed standards that could achieve energy savings at a low er cost.

2.2 BACKGROUND As described in Chapter 1, the Process Ru le outlined procedural improvements to the standards rulem aking process which included a re view of the following elements used in the rulemaking process: (1) economic models; (2) analytical tools; (3 ) methodologies; (4) non2-3regulatory approaches; and (5) prio ritization of future rules. See appendix A to subpart C of Title 10 Code of Federal Regulations Part 430 (10 CFR Part 430). DOE developed this analytical framework for the rulem aking on the considered products under the Process Rule. DOE documented this analytical framework in the Rulemaking Framework for Commercial Clothes Washers and Residential Dishwashers, Dehumidifiers, and Cooking Products (March 15, 2006), and presented the anal ytical approach to stakeholders during a public meeting held on April 30, 2006. The Framework Document is available at http://www.eere.energy.gov/buildings/appliance_ standards/pdfs/home_appl_framework_31506.pdf . The following sections provide a gene ral description of the different analytical components of the rulemaking framework.

2.3 MARKET AND TECHNOLOGY ASSESSMENT The market and technology assessment char acterizes the relevant product markets and existing technology options, incl uding prototype designs, fo r the considered products.
2.3.1 Market Assessment When initiating a standards rulemaking, DOE develops information on the present and past industry structure and m ark 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. As such, for the consid ered products, DOE addressed the following: (1) manufacturer market share and characteristics; (2) existing regul atory and non-regulatory equipment efficiency improvement initiatives; and (3) trends in product characteristics and retail markets. This information serves as re source material throughout the rulemaking. DOE reviewed existing literature and interviewed manufacturers to get an overall picture of the m arkets for the considered products in the United States. Industr y publications and trade journals, government agencies, and trade orga nizations provided the bulk of the information, including information on: (1) manufacturers and their market share; (2) shipments by capacity; and (3) market saturation. The appropriate sections of this TSD describe the resulting information as DOE used it in the analysis. DOE has used and will use the most reliable andaccurate data avai lable at the time of each analysis in this rulemaking. All data will be available for public review. DOE welcomes and will consider any recommendations of additional data.
2.3.2 Technology Assessment DOE typically uses information relating to existing and past technology options and prototype designs as inputs to determine what technologies manufacturer s use to attain higher performance levels. In consultation with stakeholders, DOE devel ops a list of technologies for

2-4consideration. Initially, these technologies enco mpass all those it believes are technologically feasible. DOE developed its list of technologically f easible design options for the considered products through consultation with m anufacturers of components and systems, and from trade publications and technical papers. Since ma ny options for improving product efficiency are available in existing equipment, product literatu re and direct examination provided additional information.

2.4 SCREENING ANALYSIS The screening analysis examines various technologies as to whether th ey: (a) are technologically feasible; (b) are practicable to manufacture, in stall, and service; (c) have an adverse impact on equipment utility or availabil ity; and (d) have adverse impacts on health and safety. As described in section 2.3.2 above, DOE develops an initia l list of efficiencyenhancement options from the technologies id entified as technologically feasible in the technology assessment. Then DOE, in consultation with interested partie s, reviews the list to determine if these options are practicable to ma nufacture, install, and se rvice, would adversely affect equipment utility or availability, or would have adverse impacts on health and safety. In addition, DOE removed from the list technology options that lack energy consumption data as well as technology options whose energy consump tion could not be adequately measured by existing DOE test procedures. In the engineering analysis, DOE further considers efficiency enhancement options that it did not sc reen out in the screening analysis.

2.5 ENGINEERING ANALYSIS As presented in Chapter 5, the engineering analy sis establishes the relationship between the cost and efficiency of the considered products . This relationship serves as the basis for cost/benefit calculations in te rms of individual consumers, manufacturers, and the nation. Chapter 5 discusses the product classes DOE anal yzed, the representative baseline units, the incremental efficiency levels, the methodology DOEused to develop manufacturing costs, the methodology it used to develop the energy consump tion model, the cost-efficiency consumption curves, the impact of efficiency improvement s on the considered products, and the methodology DOE used to extend the analysis to low-shipment-volume product classes. In determining the relationship between manuf acturer selling price and en ergy efficiency for the considered products, DOE estimated the in crease in manufacturer se lling price associated with technological changes that increase the e fficiency of the baseline models. DOE obtained cost estimates for the engineering analysis (w hich it also will use in the manufacturer impact analysis) from detailed incremental cost data supplied by manufacturers, disaggregated into the cost of incremental material, labor, and overhead. DOE created anindustry-wide analysis based

2-5primarily on the manufactu rer-supplied data, and supplemented th is analysis with cost estimates of specific design options. For each of the product classes presented in Chap ter 5, DOE selected efficiency levels and obtained incremental cost data at each of these levels. DOE conducted the engineering analysis on all product classes for all of the produc ts except dishwashers and dehumidifiers. For dishwashers, DOE did not receive incremental co st data for compact dishwashers since fewer than three manufacturers produce such products. Therefore, DOE only analyzed standard dishwashers. For dehumidifiers, DOE ev aluated the 0–35.00 pints/ day, 35.01–45.00 pints/day, and 54.01–74.99 pints/day product classes for which incr emental cost data was received. The 0- 35.00 pints/day represents an aggregation of the 0-25.00 pints/day and 25.01-35.00 pints/day product classes. The engineering analysis was subsequently extended to the 45.01-54.00 pints/day and 75.00 and greater pints/day product classes in later analyses.
2.5.1 Manufacturing Cost Assessment The manufacturing cost assessment estimated th e manufacturing costs associated with an increase in energy efficiency for the consid ered products. This approach involved the disassembly of specific units, analysis of the materials a nd manufacturing processes, and development of a spreadsheet cost model, us ing a clear and consistent manufacturing cost assessment methodology. DOE built a detailed ma nufacturing cost assessment model that accurately predicts manufacturing cost, and report s the manufacturing costs in aggregated form to maintain confidentiality of the data. DOE obtained input from stakeholders on the manufacturing cost estimates and assu mptions to confirm their accuracy.

2.6 ENERGY AND WATER USE DETERMINATION The energy and water use determination assessed the energy-savings potential of different equipm ent efficiencies for the consid ered products. For comm ercial clothes washers and residential dishwashers, DOE also evaluate d the water-savings potential of more-efficient products. As part of the energy and water use dete rmination, DOE made certain engineering assumptions regarding equipment application, including how the equipment is operated and under what conditions. For example, DOE ha s recently revised its test procedure for dishwashers to more accurately reflect their annual energy and water consumption. 68 FR 51887. DOE relied on the assumptions in this te st procedure to establ ish the typical annual energy and water consumption of this product. For cooking products, DOE also has relatively recently revised its test procedures to more accu rately reflect their annual energy consumption. 62 FR 51976. As with dishwashers, DOE relied on the assumptions in this test procedure to establish the typical annual ener gy consumption of cooking products.

2-6For commercial clothes washers and dehumidif iers, the test procedures that are being codified in the Code of Federal Regulations (CFR) provide good methods for establishing each product’s rated efficiency—e.g., liters/kWh fo r dehumidifiers and cubic feet/kWh for commercial clothes washers, but neither provid es an accurate means for establishing annual energy consumption. In the case of commercial clothes washers, because the test procedure is based on rating the performance of residential clothes washers, th e cycles-per-year values do not reflect commercial clothes washer usage. In th e case of dehumidifiers, the test procedure does not offer a method for establishing annual energy consumption. Thus, DOE needed to conduct further research to establish the energy a nd water consumption of these two products.

2.7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION For the LCC and PBP analysis and the manuf acturer im pact analysis, retail prices are required for the baseline efficiency level and all other efficiency levels under consideration. DOE derived retail prices by applying manufactur er-to-customer markups to the manufacturerselling-price estimates. To de velop markups, DOE identified 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 product classes, DOE relied on economic census data from the U.S. Census Bureau and input from the indus try to define how products are marked up from the manufacturer to the customer.

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS The effects of new energy conservation st andards on equipment re su lt in changes in operating expenses—usually a decrease—and changes in customer price—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 and water use determination. Inputs to the L CC calculation include the installed cost to the customer (customer price pl us installation cost), operating expenses (energy expenses and maintenance cost s), the lifetime of the appl iance, and a discount rate. The installed and operating costs of equipm ent typically change in response to new standard s (installed cost typically increases wh ile operating cost typica lly decreases). Thus, there is a specific time in the life of higher- than-baseline efficiency equipment when the net operating cost benefit (in dollars) from the time of purchase is equal to the incremental first cost of purchasing the higher efficien cy equipment. The length of time required for equipment to reach this cost-equivalence point is known as the payback period. For the ANOPR, DOE conducted the LCC and PBP analysis using typical values to ref lect the conditions in the field for equipment life, equipment retail price, national or regional energy costs, energy consumption, and discount rates. DOE will conduct the LCC subgroup analysis for the NOPR and will include an assessment of impacts on subgroups of consumers.

2-7To estimate the LCC for each of the considered products, DOE had to determine several input values, including retail prices; electricity and natura l gas prices; discount rates; maintenance, service, and installation costs; a nd equipment lifetimes. DOE reviewed the Energy Information Administration (EIA)’s energy price data to establis h electricity and natural gas prices for residential and commerc ial customers. DOE used EIA’s Annual Energy Outlook ( AEO ) as the default source of projections of futu re energy prices in its LCC and PBP analysis. DOE developed discount rates separately fo r resid ential consumers and for companies that purchase commercial clothe s washers. It derived the disc ount rates from estimates of the interest or “finance cost” to purchase residential products. Fo llowing financial theory, the finance cost of raising funds to purchase these products can be in terpreted as: (1) the financial cost of any debt incurred to pur chase products, principally interest charges on debt, or (2) the opportunity cost of any equity used to purch ase products, principally interest earnings on household equity. DOE considered expected changes to mainte nance, 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 products. There is a greater probabili ty that equipment with efficiencies that are significantly greater than the baseline will incur increased repair and maintenance costs since such equipment is more likely to incorporate technologies that are new to the industry and not widely available. DOE relied on input from manu facturers and other stak eholders in developing appropriate repair and maintenance costs. DOE used information from various literature sources (e.g., Appliance Magazine ) and input from manufacturers and othe r stakeholders to establish aver age equipment lifetimes for use in the LCC and subsequent analyses.

2.9 NATIONAL IMPACT ANALYSIS The national impact analysis assesses the NPV of total custom er LCC and NES. DOE determined both the NPV and the NES for the pe rformance levels cons idered for the product classes it analyzed. To make the analysis mo re accessible and transparent to all stakeholders, DOE prepared an NES Spreadsheet Model in Micr osoft Excel to forecast energy savings and the national economic costs and savi ngs resulting from new standa rds. The model assessed the aggregate economic impacts of standards at th e national level. The NES Spreadsheet Model does not use probability distributi ons for inputs or outputs. To assess the impact of input uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses by running scenarios on input variab les that are of interest to stakeholders.

2-82.9.1 National Energy Savings Analysis The inputs for the determination of NES are: (1) annual energy consumption per unit; (2) shipments; (3) equipment stock; (4) national energy consumption; and (5) site-to-source conversion factors. DOE calculated the nati onal energy consumption by multiplying the number of units, or stock, of equipment (by vintage) by the unit energy consumption (also by vintage). a DOE calculated national annual energy savings as the difference between national energy consumption in the base case (without new effici ency standards) and in each higher efficiency standards case. The analysis included estimated energy savings by fuel type used for generating electricity. DOE estimated energy consumption and savings based on site energy, and converted the electricity consumption and savings to s ource energy. Cumulative energy savings are the sum of the annual NES, which DOE de termined over specified time periods. The stock of equipment is dependent on annual shipments and the lifetime of the equipm ent. DOE conducted shipments projectio ns under the base efficiency case and higher efficiency standards cases for a variety of possi ble equipment efficiency scenarios and equipment efficiency trends. DOE determined that sh ipment projections under the higher standard efficiency cases were lower than those from th e base efficiency case pr ojection, because of the higher installed cost of the more-efficient equi pment. The projections indicated that higher installed costs would cause some customers to forego equipment purchases. As a result, DOE used the higher efficiency standard case shipments projection and, in turn, the resulting stock of equipment under the higher efficiency standards case, to determine the NES. Calculating the NES in this way avoids the inclusion of savings resulting from displaced shipments.
2.9.2 Net Present Value Analysis The inputs for the determination of NPV are: (1) total annual inst alled cost; (2) total annual operating cost savings; (3) discount factor; (4) pr esent value of cost s; and (5) present value of savings. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of increased total installed cost s. It calculated net savings each year as the difference between total operating cost savings (including electricity, repair, and maintenance cost savings) and increases in tota l installed costs (incl uding equipment price and installation cost). DOE calcu lated savings over the life of the equipment, accounting for differences in yearly energy rates, and 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 tota l installed cost between th e base case and standards case and the annual shipments in the standards case. Because costs of the more-effi cient equipment bought in the standards case are higher than those of equipment bought in the base case, price increases appear as negative values in the NPV analysis.

aVintage represents the age of the equipment.
2-9DOE expressed operating cost savings as decr eases in operating costs associated with the lower energy consumption of equipment bought inthe 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.
2.9.3 Forecasted Efficiencies Several of the inputs for the determinati on of NES (e.g., the annual energy consumption per unit) and NPV (e.g., the total annual instal led cost and the tota l annual operating cost savings) are dependent on the efficiency of the equipment. Thus, DOE forecasted efficiencies for the base case and standards cases. The foreca sted efficiencies specify the annual shipmentweighted average equipment efficiencies for future years. For each of the products considered, DOEbased the develop ment of the product efficiencies in the base case on the assignment of equipment efficiencies in the year 2005. In other words, DOE determined the distributi on of product efficiencies currently in the marketplace to develop a shipment-weighted effi ciency for the year 2005. As described in Chapter 10, DOE assumed that foreca sted efficiencies remained froz en at the efficiency level in the year 2005 until the end of the forecast period. DOE based its standards case forecasts (i.e., fo recasts of efficiency trends after standards take effect) on the use o f a roll-up efficiency scen ario. Under a roll-up sc enario, all equipment at performance levels below a prospective standard are moved, or rolled up, to the minimum performance level allowed under the new standard. The distribution of equipment at efficiency levels above the new minimum sta ndard 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. As was done for the base case, DOE assumed that forecasted efficiencies under the standards case remained frozenat the level in the year that standards became effective until the end of the forecast period.

2.10 MANUFACTURER IMPACT ANALYSIS The manufacturer impact analysis (MIA) a ssess es the impacts of new energy efficiency standards on manufacturer s of the considered products. Potential impacts would include financial effects, both quanti tative and qualitative, that mi ght lead to changes in the manufacturing practices for these products. DOE will identify these potential impacts through interviews with manufacture rs and other stakeholders. DOE conducts the MIA in three phases, and further tailors the analytical fram ework based on stakeholder comments. In Phase I, an industry profile is creat ed to characterize the industry, and a preliminary MIA is conducted to identify impo rtant issues that require consideration. DOE has conducted the prelimin ary MIA for dishwashers, dehumidifiers, and

2-10commercial clothes washers. In Phase II, an industry cash flow model and an interview questionnaire are prepared to gui de subsequent discu ssions. In Phase III, manufacturers are interviewed, and the impacts of standards are assessed both quantitatively and qualitatively. Industry and sub-group cash flow and NPV ar e assessed through use of the Government Regulatory Impact Model (GRIM). Then im pacts on competition, manufacturing capacity, employment, and cumulative regulatory burden are assessed based on ma nufacturer interview feedback and discussions.

2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS The LCC subgroup analysis evaluates economic impacts of standards on any identifiable groups of customers who might be disproportionate ly affected by a change in the national energy efficiency standard levels for the considered products. During the NOPR stage of the rulemaking, DOE intends to evaluate the impacts of particular subgroups of customers in part by using the LCC Spreadsheet Model to analyze the LCC and PBP for these particular customers. In the case of dishwashers, dehumidifiers, and cooking products, DOE may choose to consider subgroups such as low-incom e house holds and senior citizens. In the case of commercial clothes washers, DOE may choose to c onsider small businesses. DOE also intends to evaluate variations in regi onal energy prices and use that mi ght affect the NPV of an energy efficiency standard to customer subgroups. To the extent possible, DOE will obtain estimates of the variability of each input parameter and consider this variability in its calculation of customer impacts. DOE intends to perform sensitivity anal yses to consider how differences in energy use will affect various subgroups of customers. DOE will determine the impact on customer subgroups using the LCC Spreadsheet Model, which allows for different data inputs. The standard L CC analysis focuses on the households that use dishwashers, dehumidifi ers, and cooking produc ts, and the different establishments that use commercial clothes wash ers. DOE can use the LCC Spreadsheet Model to analyze the LCC for any subgr oup by sampling only that subgroup.

2.12 UTILITY IMPACT ANALYSIS The utility impact analysis will assess th e impact of higher efficiency standards on the electric and gas utility industries. To carry out this analysis, DOE will use a variant of theEIA’s National Energy Modeling System (NEMS). NEMS is a large, multi-sectoral, partialequilibrium model of the United States energy sector that EIA has developed over the past decade, primarily for the purpose of preparing the AEO . DOE will use a variant known as NEMS-BT to provide key inputs to the analysis. b

a For more information on NEMS, please refer to th e U.S. Department of Energy, Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 2000 , 2-11NEMS produces a widely recognized baseli ne energy forecast for the United States through the year 2030, and is ava ilable in the public domain. Th e typical NEMS outputs include forecasts of electricity sales, price, and avoi ded electric generating capacity. DOE plans to conduct the utility impact analysis as a scenario de parting from the latest AEO reference case. In other words, DOE will model the energy savings impacts from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from the AEO reference case.

2.13 EMPLOYMENT IMPACT ANALYSIS The imposition of standards can impact employ ment both directly and indirectly. Direct employment impacts are changes in the number of employees at the plants that produce the covered equipment, and at the affiliated distribu tion and service companies, resulting from the imposition of new standards. DOE will evaluate 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 due to the imposition of standards. DOE will investigate the combined direct and indirect employment impacts using the Pacific Northwest National Laboratory (PNNL)’s “Impact of Sector Energy Technologies” (ImS ET) model. PNNL developed the ImSET model for DOE’s Office of Planning, Budget, and Analys is. The model estimates the employment and income effects of energy-saving technologies in buildings, industry, and transportation. In comparison with simple economic multiplier appro aches, ImSET allows for more complete and automated analysis of the economic imp acts of energy conservation investments.

2.14 ENVIRONMENTAL ASSESSMENT The environmental assessment will track the im pact of possible standards on three energy-related pollutants—oxides of n itrogen (NOx), sulfur dioxide (SO 2 ), and mercury—as well as carbon dioxide (CO 2 ) emissions. The primary environmental effects of energy conservation standards for the considered produc ts will be reduced emissions resulting from reduced electricity and natural gas consumption. DOE intends to base these calculations on the NEMS-BT modeling work proposed for the utility impact analysis. This approach has the advantage of examining the marginal impact of higher efficiency standards for the considered products on the utility generation mix and the subsequent environmental emissions. NEMS-BT tracks CO 2 emissions using a detailed modul e that produces robust results because of its broad coverage of all sectors and inclusion of inte ractive effects. NEMS-BT also
DOE/EIA-0581(2000), March 2000. 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 EIA assumptions, DOE refers to the model by the name NEMS-BT (BT is DOE’s Building Technologies Program, under whose aegis this work has been performed). NEMS-BT was previously called NEMS-BRS.
2-12includes a module for SO 2 -allowance trading and delivers a forecast of SO 2 -allowance prices. It is important to note, however, that 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 lower allowance price and, if big enough to be calculable by NEMS, this value can be reported. NEMS-BT also has algorithms for estimating NO X and mercury emissions from power generation. As with SO 2 emissions, recent caps on NO X and mercury emissions mean that equipment efficiency standards may have no physical effect on these emissions, although standards could produce an envir onmental-related economic benefit in the form of lower prices for emissions allowance credits.

2.15 REGULATORY IMPACT ANALYSIS In the NOPR stage, DOE will prepare a regulatory impact analysis (RIA) under Executive O rder 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 (OIRA) at th e Office of Management and Budget. The RIA will evaluate non-regulatory alternatives to sta ndards, in terms of their abili ty to achieve significant energy savings in the considered products at a reasonable cost, and wi ll compare the effectiveness of each one to the effectiveness of the proposed standards rule. DOE recognizes that voluntar y or other non-regulatory effo rts by m anufacturers, utilities, and other interested parties can result in subs tantial improvements to energy efficiency or reductions in energy consumption. DOE intends to consider the likely effects of non-regulatory initiatives on product energy use, consumer utility, and LCC. DOE will base its assessment on the actual impacts of any such initiatives to date, but also will consider information presented regarding the impacts that any existing initiative might have in the future.

2-13