8

- i

CHAPTER 8. LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYSIS

TABLE OF CONTENTS

8.1 INTRODUCTION

................................ ................................ ................................ ........... 8

- 1

8.1.1 Approach

................................ ................................ ................................ .......................... 8

- 1

8.1.2 Summary of Inputs

................................ ................................ ................................ ........... 8

- 3

8.2 INPUTS TO LIFE

- CYCLE COST ANALYSIS

................................ ............................. 8

- 7

8.2.1 Inputs to Total Installed Cost

................................ ................................ ........................... 8

- 8

8.2.1.1 Forecasting Future Product Prices

................................ ................................ . 8

- 9

8.2.1.2 Baseline Manufacturer Cost

................................ ................................ ......... 8

- 10

8.2.1.3 Increases in Manufacturer Costs

................................ ................................ .. 8

- 10

8.2.1.4 Markup and Sales Tax

................................ ................................ ................. 8

- 12

8.2.1.5 Total Installed Cost

................................ ................................ ...................... 8

- 12

8.2.2 Inputs to Operating Costs

................................ ................................ ............................... 8

- 12

8.2.2.1 Annual Energy and Water Consumption

................................ ..................... 8

- 14

8.2.2.2 Energy and Water Prices

................................ ................................ .............. 8

- 16

8.2.2.3 Trends in Energy and Water Prices

................................ ............................. 8

- 20

8.2.2.4 Repair and Maintenance Costs

................................ ................................ ..... 8

- 22

8.2.3 Product Lifetimes

................................ ................................ ................................ ........... 8

- 23

8.2.4 Discount Rates

................................ ................................ ................................ ............... 8

- 24

8.2.4.1 Discount Rates for Residential Consumers

................................ .................. 8

- 24

8.2.4.2 Assignment of Discount Rates to Sample Households

................................ 8

- 28

8.2.5 Effective Date of Standard

................................ ................................ ............................. 8

- 28

8.2.6 Product Assignment for the Base Case

................................ ................................ .......... 8

- 28

8.3 INPUTS TO PAYBACK PE RIOD ANALYSIS

................................ ........................... 8

- 30

8.4 RESULTS OF ANALYSES

................................ ................................ .......................... 8

- 32

8.4.1 Distributions of Life

- Cycle Cost for Baseline Units

................................ ...................... 8

- 32

8.4.2 Distributions of Life

- Cycle Cost Under New Standards

................................ ............... 8

- 35

8.4.3 Distributions of Payback Period Under New Standards

................................ ................ 8

- 37

8.4.4 Life

- Cycle Costs and Pay back Periods

................................ ................................ .......... 8

- 40

8.5 REBUTTABLE PAYBACK P ERIOD

................................ ................................ .......... 8

- 46

8.5.1 Metric

................................ ................................ ................................ ............................. 8

- 46

8.5.2 Inputs

................................ ................................ ................................ .............................. 8

- 46

8.5.3 Results

................................ ................................ ................................ ............................ 8

- 47

LIST OF TABLES

Table 8.1.1 Residential Clothes Washers: Summary of Inputs to Life

- Cycle Cost and

Payback Period

................................ ................................ ................................ ..... 8

- 6

Table 8.2.1 Baseline Manufacturer Costs

................................ ................................ ............. 8

- 10

Table 8.2.2 Top

- Loading Clothes Washers: Standard

- Level Manufacturer Cost

Increases

................................ ................................ ................................ ............. 8

- 118

- ii

Table 8.2.3 Front

- Loading Clothes Washers: Standard

- Level Manufacturer Cost

Increases

................................ ................................ ................................ ............. 8

- 11

Table 8.2.4 Overall Markup

................................ ................................ ................................ .. 8

- 12

Table 8.2.5 Top

- Loading Clothes Washer s: Energy and Water Use per Cycle by

Efficiency Level

................................ ................................ ................................ . 8

- 15

Table 8.2.6 Front

- Loading Clothes Washers: Energy and Water Use per Cycle by

Efficiency Level

................................ ................................ ................................ . 8

- 16

Table 8.2.7 Average Residential Electricity Prices

................................ ............................... 8

- 18

Table 8.2.8 Average Residential Natural Gas Prices

................................ ............................ 8

- 19

Table 8.2.9 Average Water and Wastewater Prices per Unit Volume

................................ .. 8

- 20

Table 8.2.10 Types of Household Debt and Equity by Percentage Shares

............................. 8

- 25

Table 8.2.11 Average Nominal Interest Rates for Household Debt

................................ ....... 8

- 26

Table 8.2.12 Average Real Effective Interest Rates for Household Debt

.............................. 8

- 26

Table 8.2.13 Avera ge Nominal and Real Interest Rates for Household Equity

..................... 8

- 27

Table 8.2.14 Average Interest on Household Debt and Equity

................................ .............. 8

- 28

Table 8.2.15 Top

- Loading Clothes Washers: Base

- Case Market Shares

............................... 8

- 30

Table 8.2.16 Front

- Loading Clothes Washers: Base

- Case Market Shares

............................. 8

- 30

Table 8.4.1 Top

- Loading Clothes Washers: Life

- Cycle Cost and Payback Period

Results

................................ ................................ ................................ ................ 8

- 40

Table 8.4.2 Front

- Loading Clothes Washers: Life

- Cycle Cost and Payback Period

Results

................................ ................................ ................................ ................ 8

- 40

Table 8.5.1 Top

- Loading Clothes Washers: Rebuttable Payback Periods

........................... 8

- 47

Table 8.5.2 Front

- Loading Clothes Washers: Rebuttable Payback Periods

......................... 8

- 48

LIST OF FIGURES

Figure 8.1.1 Flow Diagram for Calculation of Life

- Cycle Cost and Payback Period

............. 8

- 4

Figure 8.2.1 T rends in Electricity Prices

................................ ................................ ................ 8

- 21

Figure 8.2.2 Trends in Natural Gas Prices

................................ ................................ ............. 8

- 21

Figure 8.2.3 Trend in Water and Sewerage Prices

................................ ................................ . 8

- 22

Figure 8.2.4 Weibull Retirement Function for Clothes Washers

................................ ........... 8

- 24

Figure 8.4.1 Top

- Loading Clothes Washers: Distribution of Life

- Cycle Cost for

Baseline Unit

................................ ................................ ................................ ...... 8

- 33

Figure 8.4.2 Front

- Loading Clothes Washers: Distribution of Life

- Cycle Cost for

Baseline Unit

................................ ................................ ................................ ...... 8

- 33

Figure 8.4.3 Top

- Loading Clothes Washers: Distribution of Impacts on Life

- Cycle

Cost for Candidate Standard Level 2

................................ ................................ . 8

- 35

Figure 8.4.4 Front

- Loading Clothes Washers: Distribution of Impacts on Life

- Cycle

Cost for Candidate Standard Level 5

................................ ................................ . 8

- 36

Figure 8.4.5 Top

- Loading Clothes Washers : Distribution of Payback Period for

Candidate Standard Level 2

................................ ................................ ............... 8

- 38

Figure 8.4.6 Front

- Loading Clothes Washers: Distribution of Payback Period for

Candidate Standard Level 5

................................ ................................ ............... 8

- 38

Figure 8.4.7 Range of Life

- Cycle Cost Savings for Top

- Loading Clothes Washers

............. 8

- 428

- iii

Figure 8.4.8 Range of Life-Cycle Cost Savings for Front-Loading Clothes Washers ........... 8-42

Figure 8.4.9 Range of Payback Periods for Top-Loading Clothes Washers .......................... 8-44

Figure 8.4.10 Range of Payback Periods for Front-Loading Clothes Washers ....................... 8-448-1

CHAPTER 8. LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSIS

8.1 INTRODUCTION

This chapter describes the method the U.S. Department of Energy (DOE) used to analyz e the economic impacts on individual consumers of potential energ y efficiency standards for

clothes washers

. Impacts include a change in operating costs (usually a decrease) and a change in

purchase price (usually an increase). This chapter describes three metrics DOE used in analyzing

the effect of standards on individ ual consumers who purchase residential clothes washers

.

 Life

- cycle cost (LCC) is the total consumer expense over the life of an appliance,

including purchase price and operating costs (including energy and water

expenditures). DOE discounts future operating costs to the time of purchase and sums

them over the lifetime of the product

.

 Payback period (PBP) measures the amount of time it takes a consumer to recover the

assumed higher purchase price of a more energy e fficient product through lower

operating costs.

 Rebuttable payback period is a special case of the PBP. Although LCC and PBP are

estimated for a range of inputs that reflect real

- world conditions, rebuttable payback

period is based on laboratory conditions

, specifically those representative of the DOE

test procedur e.

DOE examined the life

- cycle cost, payback period, and rebuttable payback period of all

potential efficiency standards for four product classes of residential clothes washers

. Inputs to the

LCC and to the PBP are discussed in sections 8.2 and 8.3, respectively , of this chapter. Results of

the LCC and PBP analysis are presented in section 8.4. The rebuttable PBP is discussed in

section 8.5. Key variables and calculations are presented for each of the three metric s described

above . DOE performed the calculations discussed here us i ng a series of Microsoft Excel

spreadsheets that are accessible on the Internet

( www1.eere.energy.gov/buildings/appliance_standards/ ). Appendix 8A provides d etails and

instructions pertaining to the spreadsheets

.

In addition to conducting an LCC and PBP analysis to evaluate the effects of poten tial

standards on individual consumers who purchase residential clothes washers, DOE conducted a

panel regression analysis to assess the impacts on consumer welfare of the clothes washer

standards that required compliance in 2007. This retrospective analys is, which is described in

appendix 8

- F, provides insight into how the standards being analyzed in the current rulemaking

may affect consumer welfare in the future.

8.1.1 Approach

Recognizing that several inputs to the analysis of consumer LCC and PBP are either

variable or uncertain, DOE used Monte Carlo simulation and probability distributions to define8-2

inputs when appropriate

. Appendix 8B provides a detailed explanation of the application of

Monte Carlo simulatio n and probability distributions. The LCC and PBP spreadsheet models

DOE develop ed incorporat e both Monte Carlo simulation and probability distributions via

Microsoft Excel spreadsheets combined with Crystal Ball (a commercially available add

- in

software program).

In addition to using prob ability distributions to characteriz e several inputs to the analysis,

DOE developed sample s of individual households that use one of the product class es of clothes

washer s

. As described in chapter 7, DOE used the Energy Information Administration (EIA)’s

2 005 Residential Energy Consumption Survey (RECS) to develop household samples for each

product class. 1 The RECS surveys a sample of housing units nation wide to collect statistical
information on each housing unit’s consumption of and expenditures for energ y. RECS also

collects data on the energy

- related characteristics of the housing units and occupants. The 2005

RECS, which comprised 4,382 housing units, was constructed by EIA to be a national

representation of the household population in the United States

. The household sample sizes for

clothes washers we re: 299 for front

- loading clothes washers and 3610 for top

- loading washers

. By perform ing LCC and PBP calculations for each household in each sample, DOE account ed

for the varia tion in both energy and water consumption and price s in a wide range of households

. Although the standard error of the subsamples is three times that of the size of the entire 200 5

RECS, it is still less than 5 percent. DOE believes a standard error of less than 5 perc ent is small

enough to yield meaningful results. Therefore, DOE believes the results generated from the

household samples for residential clothes washers are representative of U.S. households that us e

th o se appliances.

In its LCC and PBP analysis, DOE us ed RECS to establish the variability in annual

energy and water use and pricing. DOE assign ed unique annual energy and water us ages and

price s to each household in each sample. T he large number of households considered in the LCC

and PBP analysis resulted in a large r ange in annual energy and water use and prices

. T he range

in washer usage (which impacts energy and water consumption ) is presented and discussed in

chapter 7

. ) T he variability in annual energy and water use and pricing across all hou seholds

contributes to the range of LCCs and PBPs calculated for each standard level. As described later

in this chapter, DOE characterized the variability and uncertainty in energy and water pric es through regional differences.

DOE displays LCC and PBP results as distributions of impacts compared to baseline

conditions. Results

, presented in section 8.4

, are based on 10,000 samples per Monte Carlo

simulation run. To illustrate the implications of the analysis, DOE generated a freque ncy chart

that depict s the variation in LCC and PBP for each standard level and product class

.8-3

8.1.2 Summary of Inputs

The LCC is the total consumer expense throughout the life of a product , including

purchase price and operating costs (including energy and wat er cost s). DOE discounts future

operating costs to the time of purchase and sums them throughout the lifetime of the product

. The PBP is calculated as the change in purchase price due to an increased efficiency standard

divided by the change in annual oper ating cost that results from a standard. The PBP represents the number of years it will take a consumer to recover an increased purchase price through

decreased operating costs

.

I nputs to the LCC and PBP analysis include (1) inputs for establishing total installed cost,

including purchase price, and (2) inputs for determin ing operating cost s

. The primary inputs for

establishing total installed cost are described below.

 Baseline manufacturer cost is that incurred by the ma nufacturer to produce a baseline

product (one that meet s current minimum efficiency standards )

.

 Standard

- level manufacturer cost increases represent t he change in manufacturer cost

associated with producing a product t hat meet s a given efficiency standar d.

 Markups and sales tax are costs associated with converting the manufacturer cost to a

consumer product price. M arkups and sale tax are described in detail in chapter 6

.

 Installation cost is t he cost to the consumer of installing a product after purchase . The

installation cost includes labor, overhead, and any miscellaneous materials and parts

. Total installed cost equals the consumer product price plus installation cost.

The primary inputs for calculating operating cost s are described b elow.

 Product energy and water consumption has two parts, the site energy and water use associated with operating a product

. Chapter 7 , Energy and Water Use

Characterization

, details how DOE used various data sources to de velop energy and

water consumption for each product class

.

 Product efficiency dictates the energy and water consumption associated with a

standard

- level product ( a product having an efficienc y greater than that of the

baseline product ). Chapter 7 details how energy and water con sumption change with

increasing product efficiency.

 Energy and water prices are the prices consumers pa y for those commodities . DOE

determined current energy prices based on data from the DOE

– EIA and Natural Gas

Monthly (see section 8.2.2.2)

. DOE determine d water prices based on data from the

Raftelis Financial Consultants and the American Water Works Association 2 (see

section 8.2.2.2).

 Energy and water price trends are used t o forecast future energy prices . F or the

analyses described in this chapter, DOE used the reference case in EIA’s Annual

Energy Outlook 20 10

. DOE forecasted the trend in water price s based on Bureau of

Labor Statistics’ consumer price index (CPI) data specific to water and sewerage

services

.8-4

 Repair and maintenance costs : Repair costs are associated with repairing or replacing

components that have failed . Maintenance costs are associated with maintaining the

operation of a product

. Section 8.2.2.4 details DOE’s method for estimating repair

and maintenance costs.

 Lifetime : The age at which a product is retired from service. Section 8.2.3 describes

the distribution DOE developed for product lifetimes.

 Discount rate : The rate at which DOE discounted future expenditures t o establish

their present value (7 percent and 3 percent)

.

Figure 8.1.1 depicts the relationships among inputs for installed cost and operating costs

that DOE used to calculate LCC and PBP. I n Figure 8.1.1 , the yellow boxes indicate inputs, the

green boxes indicate intermediate outputs, and the blue boxes indicate final outputs (the LCC

and PBP).

Figure 8.1.1 Flow Diagram for Calculati on of Life

- Cycle Cost and Payback

P eriod Baseline

Manufacturer

Cost

Std

- Level

Manufacturer

Cost

Manufacturer

Markup

Retailer or

Distributor

Markup

Sales Tax Installation

Cost Total Installed

Cost

Water Prices Energy and

Water

Consumption Product

Price

Lifetime

Operating

Cost Annual Energy

and Water

Expense

Lifetime Repair and

Maintenance

Cost

Discount Rate

Energy and

Water Price

Trends Annual

Operating

Cost Payback

Period Life

- Cycle

Cost

Energy Prices8-5

Table 8.1.1 summari ze s the input values DOE used to calculate the LCC and PBP for the

four classes of residential clothes washers. I nputs to calculating total installed and operating

costs includ e the lifetime, discount rate, and energy and water price trends. DOE used single

point values t o characterize all the inputs to total installed cost, but used probability distributions

to capture the uncertainty and/or variability in several of the inputs to operating cost s . For those

inputs characterized using probability distr ibutions, the values in Table 8.1.1 are average or typical values . Also listed in the table is the section of th is preliminary technical support

do cument (TSD) that contains more detailed information on each input8-6

Table 8.1.1 Residential Clothes Washers : Summary of Input s to Life

- Cycle Cost and

Payback Period

Input Product

Class Value Characterization TSD

Section

Inputs to Total Installed Cost

Baseline

Manufacturer

Cost Top

Loading 0.84 IMEF* + 0W† standby; 9.92 IWF‡: $247.65

Single

- point value 8.2.1.1 Front

Loading 1.37 IMEF + 2.3W standby; 8.31 IWF: $518.13

Top

Loading

Compact 0.59 IMEF* + 0W† standby; 14.4 IWF‡: $250.68

Front

Loading

Compact 1.03 IMEF* + 2.3W† standby; 8.8 IWF‡: $515.75

Increase in

Manufacturer

Cost for

Standard

Levels Top

Loading CSL§ 1 (0.98 IMEF + 0W standby): $3.11

Single

- point value 8.2.1.1

CSL 2 (1.29 IMEF + 0W standby): $8.44

CSL 3 (1.34 IMEF + 2.3W standby): $13.06

CSL 4 (1.34 IMEF + 1.7W standby): $16.98

CSL 5 (1.37 IMEF + 0.08W standby): $14.24

CSL 6 (1.57 IMEF + 0.08W standby): $25.29

CSL 7 (1.83 IMEF + 0.08W standby): $60.65

CSL 8 (2.04 IMEF + 0.08W standby): $69.79

Front

Loading CSL 1 (1.39 IMEF + 1.7W standby): $3.92

CSL 2 (1.41 IMEF + 0.08W standby): $1.18

CSL 3 (1.49 IMEF + 0.08W standby): $3.18

CSL 4 (1.66 IMEF + 0.08W standby): $6.20

CSL 5 (1.84 IMEF + 0.08W standby): $17.25

CSL 6 (2.02 IMEF + 0.08W standby): $40.36

CSL 7 (2.2 IMEF + 0.08W standby): $53.88

CSL 8 (2.46 IMEF + 0.08W standby): $73.51

Top

Loading

Compact CSL§ 1 (0.86 IMEF + 0W standby): $5.00

CSL 2 (1.15 IMEF + 2.3W standby): $45.00

Front

Loading

Compact CSL§ 1 (1.13 IMEF + 0.08W standby): $3.00

Manufacturer

Markup Top

Loading Top

- loading 1.22 Single

- point value 6.2

Front

Loading Front

- loading 1. 22 Single

- point value 6.2

Retailer

Markup Both Baseline: 1.45

Incremental: 1.17 Single

- point value 6.3

Sales Tax Both Top

- loading, average: 7.17%

Front

- loading, average: 7.06% Variable based on

location 6.5

Inputs to Operating Costs

Energy Prices Both Electricity = 0.12 ¢/kWh

Gas = 13.13 $/MMBtu

Oil = 24.67 $/MMBtu Variable based on

location 8.2.2.28-7

Input Product

Class Value Characterization TSD

Section

Water and

Wastewater

Prices Both Water = 3. 30 $/10 3 gallon

Wastewater = 3.87 $/10 3 gallo n Variable based on

location 8.2.2.2

Repair and

Maintenance

Costs Both No appreciable difference between baseline and

efficiency level repair costs 0 8.2.2.4

Lifetime Both 14.2 Weibull

distribution 8.2.3

Discount Rate Both Top

- loading, average: 4.8 4 %

Front

- loading, average: 4.6 9 % Custom distribution 8.2.4

Energy Price

Trend Both AEO 2010 AEO reference case 8.2.2.3

Water and

Wastewater

Price Trend Both Extrapolated based on growth from 1970

– 2009,

Bureau of Labor Statistics:

CPI for water and sewerage. Single forecast 8.2.2.3

* I MEF = integrated modified energy factor

. The higher the I MEF value, the more efficient the clothes washer.

† W = watts.
‡ I WF = integrated water factor.

§ CSL = candidate standard level; one of the efficiency levels DOE is considering for new standards for clothes

washers.

8.2 INPUTS TO LIFE

- CYCLE COST ANALYSIS

Life

- cycle cost is the total consumer cost throughout the life of an appliance, including

purchase price and operating costs such as energy and water costs . DOE discounts future

operating costs to the time of purchase and sums them over the lifetime of the product

. DOE

defines LCC by the follo wing equation

.

W here:

LCC = life

- cycle cost in dollars

, IC = total installed cost in dollars

, ∑ = sum over the lifetime, from year 1 to year N

, N = l ifetime of product in years

, OC = operating cost in dollars

,

r = discount rate

, and

t = year for which operating cost is being determined.8-8

The following sections discuss total installed cost, operating cost, product lifetime s , and discount

rate. Because DOE gathered most o f its data for the LCC and PBP analysis in 20 10 , DOE

expresses dollar values in 20 10 $.

8.2.1 Inputs to Total Installed Cost

DOE uses the following equation to define the total installed cost :

W here:

EQ P = p roduct price ( price the consumer pays for the product , including taxes ),

expressed in dollars

, and

INST = installation cost ( cost to the consumer to install the product , including

labor and materials), also in dollars.

As discussed in c hapter 6 , DOE develop ed markups and sales taxes for converting

manufacturing costs into cons umer product prices. T otal installed cost include:

 The baseline manufacturer cost is the cost incurred by the manufacturer to produce a

product that meets current minimum efficiency st andards.

 The s tandard

- level manufacturer cost increases are the changes in manufacturer cost

associated with producing a product that meets a given efficiency standard.

 Manufactur er and retaile r, m arkups plus sales tax convert the manufacturer cost to a

consumer product price.

 The i nstallation cost

, which is the cost to the consumer to install a product

, represents all

costs other than the marked

- up consumer product price. The installation cost includes

labor, overhead , and any miscellaneous materials and parts.

Thus, total installed cost equals the consumer product price plus the installation cost.

DOE calculated the total installed cost for baseline products based on the following equation

.

Where :

IC BASE = total installed cost for baseline product

, EQ P BASE = c onsumer p roduct price for baseline product

, INST BASE = installation cost for baseline product

, COST MFG = manufacturer cost for baseline product , and8-9

MU OVERALL_BASE = overall baseline markup (product of manufacturer markup, baseline

retailer markup, and sales tax).

DOE calculated the total installed cost for standard

- level products based on the following

equation

.

Where :

IC STD = total installed cost for standard

- level product

, EQ P STD = c onsumer product price for standard

- level product

, INST STD = installation cost for standard

- level product

, P P BASE = c onsumer product price for baseline product

, Δ P P STD = change in product price for standard

- level product

, INST BASE = installation cost for baseline product

, Δ INST

STD = change in installation cost for standard

- level product

, IC BASE = total installed cost for baseline product

, Δ COST

MFG = change in manufacturer cost for standard

- level product , and

MU OVERALL_INCR = incremental overall markup (product of manufacturer markup,

incremental retailer markup, and sales tax).

The remainder of this section describes in detail each input variable that DOE used to

calculate total installed cost s for residential clothes washers.

8.2.1.1 Forecasting Future Product Prices

Examination of historical price data for certain appliances and equipment that have been

subject to energy conservation standards indicates that th e assumption of constant real prices and

costs may, in many cases, overestimate long

- term trends in appliance and equipment price s

. Economic literature and historical data suggest that the real costs of these products may in fact

trend downward over time a ccording to “learning” or “experience” curves.

In light of these data and DOE’s aim to improve the accuracy and robustness of its

analyses, for this analysis DOE performed an exponential fit on historical Producer Price Index

(PPI) data for household la undry equipment from the Bureau of Labor Statistics’ (BLS). (PPI

data specific to residential clothes washers were not available.) The PPI data used cover the

period 1991

– 2010. An inflation

- adjusted price index for household laundry equipment was

calculate d by dividing the PPI series by the GDP price deflator for the same years.8-10

DOE forecast a price factor index using this exponential model. The value for 2015 used

in the LCC and PBP analysis is 0.882. Thus, product prices forecast for the LCC and PBP

an alysis are equal to 0.882 times the 2010 values for each efficiency level in each product class.
The details of DOE’s approach are described in A ppendix 8

- E

.

8.2.1.2 Baseline Manufacturer Cost

DOE used data from AHAM to develop the baseline manufacturer costs for front

- loading

and top

- loading clothes washers. 3 Based on a manufacturer markup of 1.2 2 for all clothes

washers as determined in section 6 .2 of chapter 6 , DOE arrived at a baseline manufacturer cost

of $51 8

. 13 for front

- loading standard

- size clothes washers

, $ 24 7

. 65 for top

- loading standard

- size clothes washers, $250.68 for top

- loading compact

- size clothes washers, and $515.75 for front

loading compact

- size clothes washers. Table 8.2.1 presents the baseline manufacturer cost s along with the associated baseline modified energy factor , integrated modified energy factor, and

water factor

, for th e four product classes of residential clothes washers

.

Table 8.2.1 Baseline Manufacturer Costs

Product Class Baseline M EF

cu ft /kWh/cycle * Baseline

IMEF Baseline

I WF

gal lons/cu ft Baseline

Manufacturer

Cost 2010 $

Top

- loading 1. 26 MEF 0.84 9.92 247.65

Front

- loading 1.72 MEF + 2.3 W standby 1.37 8.31 518.13

Top

- loading

compact 0.77 MEF 0.59 14.40 250.68

Front

- loading

compact 1.6 MEF 1.03 8.80 515.75

* Cubic feet per kilowatt

- hour per cycle

. Source: AHAM 20 10

.

8.2.1.3 Increases in Manufacturer Cost s

DOE used cost data submitted by AHAM

, along with a reverse engineering analysis

, to develop manufacturer cost increases associated with increases in standard levels for residential

clothes washers. Refer to chapter 5 for details. Tables 8.2.2 through 8.2.5 present the standard

level manufactu rer cost increases and associated modified energy factors and water factors for

the four product classes

.8-11

Table 8.2.2 Top

- Loading Clothes Washers: Standard

- Level Manufacturer Cost Increases

Standard

Level MEF

cu ft /kWh/cycle IMEF I WF

gallons/cu ft Manufacturer Cost

Increase 2010 $

Baseline 1.26 0.84 9.92 NA

1 1.40 0.98 9.92 $3.11

2 1.72 1.29 8.44 $8.44

3 1.80 1.34 7.95 $13.06

4 1.80 1.34 7.95 $16.98

5 1.80 1.37 7.95 $14.24

6 2.00 1.57 6.47 $25.29

7 2.26 1.83 4.96 $60.65

8 2.47 2.04 4.10 $69.79

Table 8.2.3 Front

- Loading Clothes Washers: Standard

- Level Manufacturer Cost

Increases

Standard

Level MEF

cu ft /kWh/cycle IMEF WF

gallons/cu ft Manufacturer Cost

Increase 2010 $

Baseline 1.72 1.37 8.31 NA

1 1.72 1.39 8.31 $3.92

2 1.72 1.41 8.31 $1.18

3 1.80 1.49 7.80 $3.18

4 2.00 1.66 6.26 $6.20

5 2.20 1.84 4.73 $17.25

6 2.40 2.02 4.42 $40.36

7 2.60 2.20 4.01 $53.88

8 2.89 2.46 3.39 $73.51

Table 8.2.4 Top

- Loading Compact Clothes Washers: Standard

- Level Manufacturer Cost

Increases

Standard

Level MEF

cu ft /kWh/cycle IMEF WF

gallons/cu ft Manufacturer Cost

Increase 2010 $

Baseline 0.77 0.59 14.40 NA

1 1.26 0.86 14.40 $5.00

2 1.81 1.15 12.00 $45.008-12

Table 8.2.5 Front

- Loading Compact Clothes Washers: Standard

- Level Manufacturer Cost

Increases

Standard

Level MEF

cu ft /kWh/cycle IMEF WF

gallons/cu ft Manufacturer Cost

Increase 2010 $

Baseline 1.60 1.03 8.80 NA

1 1.72 1.13 8.30 $3.00

8.2.1.4 Markup and Sales Tax

The overall markup is determined by multiplying the manufacturer markups, retailer

markups

, and sales tax together to arrive at a si ngle markup value. Table 8.2.6 shows the overall

baseline and incremental markups for residential clothes washers. Refer t o chapter 6 for details

.

Table 8.2.6 Overall Markup

Front

- Loading Top

- Loading

Markup Baseline Incremental Baseline Incremental

Manufacturer 1. 22 1.22

Retailer 1.4 5 1.1 7 a 1.4 5 1.1 7 a

Sales Tax 7.06% 7.17%

Overall 1.89 1.53 1.90 1.53

8.2.1.5 Total Installed Cost

Because the cost to install residential clothes washers does not change as efficiency

increases, DOE did not incorporate installation costs in its analysis.

8.2.2 I nputs to Operating Costs

DOE uses the following equ ation to define the operating cost for an appliance.

W here:

OC = operating cost,

a The LCC analysis for the preliminary analysis was conducted prior to finalization of the new markup calculation

described here. It used an interim value of 1.19. For the NOPR, DOE plans to use 1.17 for the incremental retail

markup.8-13

EC = energy cost associated with operating the product

, WC = water cost associated with operating the product

, RC = repair cost s associated with component failure, and

MC = service cost s for maintaining product operation.

The inputs for calculating operating costs also are ne eded to determin e lifetime operating

costs , which include trends in energy and water prices, product lifetime s , discount rate, and

effective date of a new standard :

 The annual energy consumption is the site energy use associated with operating the

product

.

 The annual water consumption is the site water use associated with operating the

product

. A nnual energy and water consumption change with product efficiency. That

is, the energy and water consumption associated with a standard

- level product ( i.e.

, a product having an efficienc y greater than that of the baseline product ) are less than

those associated with a baseline product

.

 Energy and water prices are the prices consumers pay for energy (electricity or gas )

and water. Multiplying annual energy consumption by energy prices and water consumption by water prices yields the annual costs for e nergy and water.

 Repair costs are costs associated with repairing or replacing components that fail.

 Maintenance costs are costs associated with maintaining operation of the product

.

 DOE used energy and water price trends to forecast prices into the fu ture . DOE used

those forecasts , along with the product lifetime and discount rate, to establish

lifetime energy and water costs.

 The product l ifetime is the age at which a product is retired from service.

 The d iscount rate is the rate at which DOE discounted future expenditures to

establish their present value (7% and 3%).

DOE used the following equation to calculate the operating cost for baseline products

.

W here:

OC BASE = operating cost for baseline product

, EC BASE = energy cost associated with operating baseline product

, WC BASE = water cost associated with operating baseline product

, RC BASE = repair cost associated with component failure for baseline product

, MC BASE = service cost for maintaining operation of baseline product

, AEC BASE = annual energy consumption for baseline product

, PRICE

ENERGY = energy price,

AWC BASE = annual water consumption for baseline product , and8-14

PRICE WATER = water price.

DOE used the follo wing equation to calculate the operating cost for standard

- level

products

.

Where :

O C STD = operating cost for standard

- level product

, EC STD = energy cost associated with operating standard

- level product

, WC STD = water cost associated with operating standard

- level product

, RC STD = repair cost associated with component failure for standard

- level product

, MC STD = service cost for maintaining operation of standard

- level product

, AE C STD = annual energy consumption for standard

- level product

, PRICE

ENERGY = energy price,

A WC STD = annual water consumption for standard

- level product

, PRICE WATER = water price,

Δ AE C STD = change in annual energy consumption associated with standar d level

product

, Δ A WC STD = change in annual water consumption associated with standard

- level

product

, Δ RC STD = change in repair cost associated with standard

- level product , and

Δ MC STD = change in maintenance cost associated with standard

- level product

.

The rest of this section provides information about each of the input variables that DOE

used to calculate operating costs for residential clothes washers.

8.2.2.1 Annual Energy and Water Con sumption

Chapter 7 , Energy and Water Use Characterization , details how DOE determined the

annual energy and water consumption for baseline and sta ndard

- level products.

As described in chapter 7 and section 8.1.1 o f this chapter, DOE developed sample s of

individual households that use one of the product class es of clothes washer . By developing

household samples, DOE was able to calculate the LCC and PBP for each household to account

for the variability in the usage and price of both energy and water . DOE used EIA’s 200 5 RECS

to develop the household samples and, in turn, to establish the variability both in annual energy

and water consumption and in energy and water price . Refer to chapter 7 to review the variability

of usage and therefore, annual energy consumption for residential clothes washers.8-15

Tables 8.2 .7 through 8.2.10 provide the per cycle energy and annual water consumption

by efficiency level for the four product classes of residential clothes washers

. The tables are

similar to those in section 7.2 of chapter 7. Based on data from the RECS

, 39.4 percent of single

and multi

- family housing units use electric water heating, 57.2 percent use gas water heating

, and 3.4 percent use oil

. Refer to chapter 7 , to review how DOE characterized the variability in

clothes washer usage. Keep in mind that the t ables present only average annual water

consumption. DOE captured the variability in energy and water consumption when it conducted

its LCC and PBP analysis

.

Table 8.2.7 Top

- Loading Clothes Washers: Energy and Water Use per Cycle by

Efficiency Level

Standard

Level I M EF

cu ft/

kWh/cycle I WF

gal./cu ft Water Heating † Dryer Heating

Machine

kWh Water

Use

gallon Elec

kWh Gas

MMBtu Oil

MMBtu Elec

kWh Gas

MMBtu

Baseline 0.84 9.92 1.24 0.0057 0.0057 2.16 0.0082 0.28 30.6

1 0.98 9.92 0.74 0.0034 0.0034 2.43 0.0093 0.28 33.5

2 1.29 8.44 0.69 0.0032 0.0032 1.69 0.0065 0.23 28.5

3 1.34 7.95 1.26 0.0057 0.0057 1.41 0.0054 0.08 29.9

4 1.34 7.95 1.26 0.0057 0.0057 1.41 0.0054 0.08 29.9

5 1.37 7.95 1.25 0.0057 0.0057 1.41 0.0054 0.08 29.3

6 1.57 6.47 0.99 0.0045 0.0045 1.38 0.0053 0.08 25.0

7 1.83 4.96 0.67 0.0031 0.0031 1.41 0.0054 0.08 19.6

8 2.04 4.10 0.66 0.0030 0.0030 1.39 0.0053 0.08 17.8

† Electric and gas water heating are based on water heater recovery efficiencies of 100% for electric, 75% for gas,

and 75% for oil.8-16

Table 8.2.8 Front

- Loading Clothes Washers: Energy and Water Use per Cycle by

Efficiency Level

Standard

Level IMEF

cu ft/

kWh/cycle IWF

gal./cu ft Water Heating † Dryer Heating

Machine

kWh Water

Use

gallon Elec

kWh Gas

MMBtu Oil

MMBtu Elec

kWh Gas

MMBtu

Baseline 1.37 8.31 0.69 0.0032 0.0032 1.31 0.0050 0.11 24.9

1 1.39 8.31 0.69 0.0031 0.0031 1.31 0.0050 0.11 24.9

2 1.41 8.31 0.70 0.0032 0.0032 1.31 0.0050 0.11 24.9

3 1.49 7.80 0.60 0.0027 0.0027 1.31 0.0050 0.11 23.4

4 1.66 6.26 0.40 0.0018 0.0018 1.42 0.0054 0.16 20.7

5 1.84 4.73 0.36 0.0016 0.0016 1.34 0.0051 0.15 16.1

6 2.02 4.42 0.20 0.0009 0.0009 1.41 0.0054 0.16 15.9

7 2.20 4.01 0.21 0.0009 0.0009 1.37 0.0052 0.17 15.4

8 2.46 3.39 0.04 0.0002 0.0002 1.51 0.0058 0.16 13.2

† Electric and gas water heating are based on water heater recovery efficiencies of 100% for electric, 75% for gas,

and 75% for oil.

Table 8.2.9 Top

- Loading Compact Clothes Washers: Energy and Water Use per Cycle

by Efficiency Level

Standard

Level IMEF

cu ft/

kWh/cycle IWF

gal./cu ft Water Heating † Dryer Heating

Machine

kWh Water

Use

gallon Elec

kWh Gas

MMBtu Oil

MMBtu Elec

kWh Gas

MMBtu

Baseline 0.59 14.4 0.90 0.0041 0.0041 1.35 0.005 0.3 21.6

1 0.86 14.4 0.40 0.0018 0.0018 1.35 0.005 0.1 22.9

2 1.15 12.0 0.34 0.0016 0.0016 0.87 0.003 0.1 19.1

† Electric and gas water heating are based on water heater recovery efficiencies of 100% for electric, 75% for gas,

and 75% for oil.

Table 8.2.10 Front

- Loading Compact Clothes Washers: Energy and Water Use per Cycle

by Efficiency Level

Standard

Level IMEF

cu ft/

kWh/cycle IWF

gal./cu ft Water Heating † Dryer Heating

Machine

kWh Water

Use

gallon Elec

kWh Gas

MMBtu Oil

MMBtu Elec

kWh Gas

MMBtu

Baseline 1.03 8.80 0.27 0.0012 0.0012 1.02 0.004 0.1 13.2

1 1.13 8.30 0.20 0.0009 0.0009 1.02 0.004 0.1 12.5

† Electric and gas water heating are based on water heater recovery efficiencies of 100% for electric, 75% for gas,

and 75% for oil.8-17

8.2.2.2 Energy and Water Prices

DO E used probability distributions to characterize the regional variability in energy and

water price s

. DOE developed the probability associated with each regional energy and water

price based on the population weight of each region. DOE’s method for deriving energy and

water prices is described below.

Electricity Prices

DOE derived average energy prices from data that are published annually based on EIA

Form 861

. Tho se data include

, for every utility that serves final consumers, annual electricity

sales in k ilowatt

- hours ; revenues from electricity sales ; and number of c ustomer s in the

residential, com mercial, and industrial sectors

. DOE calculated prices for each of 13 geographic

areas: the nine U.S. Census divisions plus four large states (New York, Florida, Texas, and

California). For Census divisions that contain one of the large s tates, DOE removed the data for

that s t ate from the calculat ion of the regional average . T he Pacific regio n average does not

include California, for example, and the West South Central does not include Texas.

The calculation of average residential electricity price proceed ed in two steps

. 1. For each utility, DOE estimate d an average residential price by dividing residential

revenues by residential sales.

2. DOE c alculate d a regional average price, weighting each utility that serves residences in

a region by the number of residential c ustomer s served in that region.

Table 8.2.11 shows results for the 13 geographic region s

.8-18

Table 8.2.11 Average Residential Electricity Prices

Geographic Area Average Price

2010 $/kWh

New England $0.179

Middle Atlantic (excluding New York) $0.133

East North Central $0.107

West North Central $0.090

South Atlantic (excluding Florida) $0.104

East South Central $0.094

West South Central (excluding Texas) $0.098

Mountain $0.100

Pacific (excluding California) $0.107

New York $0.194

Florida $0.140

Texas $0.132

California $0.118

Source: EIA Form 861 for 200 9

.

Natural Gas Prices

DOE obtained data for calculating regional prices of natural gas from the EIA

publication

, Natural Gas Navigator

. 4 This publication presents monthly volumes of natural gas

deliver ies and average prices by state for residential, commercial, and industrial customers. The

Department used t he complete annual data for 200 9 to calculate an average annu a l price for each

geographic area. The calculation of average prices proceeded in two steps

. 1. For each state, DOE c alculate d the annu a l residential price of natural gas using a simple

average of data

. 2. DOE then c alculate d a regional price, weighting each state in a region by its population.

Th e method used to calculate natural gas prices differs from th at used to calculate

electricity prices

, because the EIA does not provide consumer

- or utility

- level data on gas

consumption and prices. The price s in Table 8.2.12 are in dollars per thousand cubic feet ($/tcf).8-19

Table 8.2.12 Averag e Residential Natural Gas Prices

Geographic Area Average Price

2010 $/tcf

New England $16.64

Middle Atlantic (excluding New York) $15.49

East North Central $11.84

West North Central $11.83

South Atlantic (excluding Florida) $17.46

East South Central $14.62

West South Central (excluding Texas) $13.97

Mountain $12.18

Pacific (excluding California) $14.93

New York $15.53

Florida $9.21

Texas $12.63

California $21.35

Source: EIA Natural Gas Monthly

, 2009

Because DOE conducted the LCC and PBP analysis in 20 10 , all natural gas prices are in

2010 $

.

Water Prices

DOE obtained data on water price s f or 20 10 from the Water and Wastewater Rate Survey

conducted by Raftelis Financial Consultants and the American Water Works Association. 2 The

survey covers approximately 308 water utilities and 2 28 wastewater utilities , analyzing each

industry (water and wastewater) separately. The water survey includes, for each utility, the cost

to consumers of a given volume of water. T he total consumer cost is divided into fixed and

volumetric charges. DOE’s calculation of water prices use s only volumetric charge s

, because

only th ose charge s would be affected by a change in water consumption. Including the fixed

charge in the average would lead to a slightly higher water price.

For wastewater utilities, the data format is similar, except that the price represents the

cost to treat a given volume of wastewater. A sample of 308 or 2 28 utilities is too small to calculate regional prices for all U.S. Census di visions and large states (for comparison, data from

EIA Form 861 cover more than 3

, 000 uti lities ). Therefore, DOE calculated regional costs for

wastewater service at the level of Census region s only (Northeast, South, Midwest, and West).

The calculation of average prices per unit volume proceeds in three steps

.

1. For each water or wastewater uti lity, DOE calculate d the price per unit volume by

dividing the total volumetric cost by the volume delivered.8-20

2. DOE calculated a state

- level average price by weighting each utility in a given state by

the number of residential c ustom ers it serves.

3. DOE c alculate d a regional average by combining the state

- level averages, weighting each

by the state’s population. This third step helps reduce any bias in the sample that may

result from the relative under

- sampling of large states

.

Table 8.2.13 presents the results of the calculation of costs for water and wastewater

service . The price units in the table are 20 10 dollars per thousand gallons (/tg).

Table 8.2.13 Average Water and Wastewater Prices per Unit Volume

Census Region Water 2010 $ /tg Wastewater

2010 $ /tg

Northeast $4.07 $3.53

Midwest $2.21 $2.77

South $3.01 $4.68

West $4.06 $3.96

National Average $3.30 $3.87

8.2.2.3 Trends in Energy and Water Price s

DOE used EIA price forecasts to estimate the trends in natural gas and electricity prices

. To arrive at prices in future years, it multiplied the average prices described in section 8.2.2.2 by

the forecast of annual average price changes in EIA’s AEO 20 10

. 5 To estimate the trend s after

203 5 , DOE followed past guidelines provided to the Federal Energy Management Program by

EIA and used the average rate of change during 2020

– 203 5

. For the LCC results presented in

section 8.4, DOE used the energy price forecasts from the AEO re ference case only.8-21 Figure 8.2.1 Trends in Electricity Price s

Figure 8.2.2 Trends in Natural Gas Price s8-22

To estimate the future trend for water and wastewater prices, DOE used data on the

historic trend in the national water price index (U.S. city average) from 197 0 through 2009. 6

DOE extrapolated the future trend base d on the linear growth from 197 0 to 200 9. DOE used the

extrapolated trend to fore cast prices through 2044

. Figure 8.2.3 shows historical and projected

trend s in water and sewerage price s . DOE used the forecasted data to estimate water and

wastewater prices for residential clothes washer use

.

Figure 8.2.3 Trend in Water and Sewerage Price s

8.2.2.4 Repair and Maintenance Costs

Typically, small changes in product efficiency produce no, or only slight , changes in

repair and maintenance costs compared to baseline products. DOE assumes that for the

efficiency levels of all product classes there is no appreciable change in repair costs.8-23

8.2.3 Product Lifetime s

RECS records the presence of various appliances in each household, and places the age
of each appliance into bins comprising several years. Data from the U.S. Census’s American

Hou sing Survey (AHS), 7 which surveys all housing including vacant and second homes, enabled

DOE to adjust the RECS data to reflect some appliance use outside of primary residences. By

combining the results of both surveys with the known history of appliance s hipments (collected

from Appliance magazine or directly from manufacturer trade associations), DOE estimated the

percentage of appliances of a given age still in operation. This survival function, which DOE

assumed has the form of a cumulative Weibull dist ribution, provides an average and a median

appliance lifetime. DOE calculated the average lifetime all both product classes at 14. 2 years.

The Weibull distribution is a probability distribution commonly used to measure failure rates. b

Its form is similar to an exponential distribution, which models a fixed failure rate, except that a

Weibull distribution allows for a failure rate that changes over time in a particular fashion. The

cumulative Weibull distribution takes the form:

for x > θ and

P(x) = 1 for x ≤ θ

Where:

P(x) = probability that the appliance is still in use at age x ;

x = appliance age;

α = scale parameter, which would be the decay length in an exponential distribution;
β = shape parameter, which determines the way in which the failure rate changes through

time; and

θ = delay parameter, which allows for a delay before any failures occur.

When β = 1, the failure rate is constant over time, giving the distribution the form of a

cumulative exponential distribution. I n the case of appliances, β commonly is greater than 1,

reflecting an increasing failure rate as appliances age.

b For reference on the Weibull distribution, see sections 1.3.6.6.8 and 8.4. 1.3 of the NIST/SEMATECH e

- Handbook

of Statistical Methods

, < www.itl.nist.gov/div898/handbook/ >

.8-24

Figure 8.2.4 Weibull Retirement Function for Clothes Washers

Appendix 8C presents the Weibull distributions that DOE used in the LCC and PBP

analysis.

8.2.4 Discount Rates

The d iscount rate is the rate at which DOE discounts future expenditures to establish their

present value. DOE derived discount rates for the LCC and PBP analyses from estimates of the

cost to finance the purchase of the considered products. Following financial theory, the financial

cost of raising funds to purchase appliances can be interpreted as: (1) the financial cost of any

debt incurred to purchase a product, or (2) the opportunity cost of any equity used to purchase a

product.

8.2.4.1 Discount Rates for Residential Consumer s

Households use various methods to finance the purchase of major appliances. In

principle, one could estimate the interest rates on the actual financing vehicles used to purchase

appliances. The frequency with which each financing vehicle is used to purc hase an appliance is

unknown, however.

DOE’s approach involved identifying all possible debt or asset classes that might be used

to purchase the considered appliances, including household assets that might be affected

indirectly. c DOE excluded debt from primary mortgages and the equity of assets considered

non

- liquid (such as retirement accounts), because those are unlikely to be used to purchase

c An indirect effect would arise if a household sold assets in order to pay off a loan or credit card debt that might

have been used to finance the appliance purchase.8-25

appliances. DOE estimated the average percentage shares of the various types of debt and equity
in the average U.S. household using data from the Federal Reserve Board’s Survey of Consumer

Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and 2007. 8 Table 8.2.1 4 shows the

average percentages of each considered type of debt or equity. DOE derived the mean

percentages of each source of financing throughout the 7 years surveyed.

Table 8.2.14 Types of Household Debt and Equity by Percentage Shares

Type of Debt or Equity 1989 % 1992 % 1995 % 1998 % 2001 % 2004 % 2007 % Mean %

Home equity loan 4.3 4.5 2.7 2.8 2.8 4.4 4.6 3.7

Credit card 1.6 2.1 2.6 2.2 1.7 2.0 2.4 2.1

Other installment loan 2.8 1.7 1.4 1.7 1.1 1.3 1.1 1.6

Other residential loan 4.4 6.9 5.2 4.3 3.1 5.8 7.1 5.3

Other line of credit 1.1 0.6 0.4 0.2 0.3 0.5 0.3 0.5

Checking account 5.8 4.7 4.9 3.9 3.6 4.2 3.4 4.4

Savings or money market

account 19.2 18.8 14.0 12.8 14.2 15.1 13.0 15.3

Certificate of deposit 14.5 11.7 9.4 7.0 5.4 5.9 6.5 8.6

Savings bond 2.2 1.7 2.2 1.1 1.2 0.9 0.7 1.4

Bonds 13.8 12.3 10.5 7.0 7.9 8.4 6.7 9.5

Stocks 22.4 24.0 25.9 36.9 37.5 28.0 28.6 29.0

Mutual funds 8.0 11.1 20.9 20.1 21.3 23.4 25.5 18.6

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source s : Federal Reserve Board. Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and

2007

.

DOE estimated interest or return rates associated with each type of equity and debt. The

source for interest rates for loans, credit cards, and lines of credit was the Federal Reserve

Board’s SCF for 1989, 1992, 1995, 1998, 2001, 2004, a nd 2007. Table 8.2.1 5 shows the average

nominal rates in each year and the inflation factors used to calculate real rates. DOE calculated

effective interest rates for home equity loans in a similar manner as for mortgage rates, because

interest on both suc h loans is tax deductible. Table 8.2.1 6 shows the average effective real rates

in each year and the mean rate across years. Because the interest rates for each type of household

debt reflect economic conditions throughout numerous years, they are expected to be

representative of rates that may be in effect in 2014.8-26

Table 8.2.15 Average Nominal Interest Rates for Household Debt

Type of Debt 1989 % 1992 % 1995 % 1998 % 2001 % 2004 % 2007 % Mean %

Home equity loan 11.5 9.6 9.6 9.8 8.7 5.7 6.3 7.9

Credit card*

- - 14.2 14.5 14.2 11.7 7.9 9.0

Other installment loan 9.0 7.8 9.3 7.8 8.7 7.4 12.6 13.4

Other residential loan 8.8 7.6 7.7 7.7 7.5 6.0 10.4 8.6

Other line of credit 14.8 12.7 12.4 11.9 14.7 8.8 6.3 7.4

Inflation rate 4.82 3.01 2.83 1.56 2.85 2.66 2.85

Source s : Federal Reserve Board. Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and

2007.

* No data on interest rate s available for credit cards in 1989 or 1992.

Table 8.2.16 Average Real Effective Interest Rates for Household Debt

Type of Debt 1989 % 1992 % 1995 % 1998 % 2001 % 2004 % 2007 % Mean %

Home equity loan 3.8 4.3 4.4 5.8 3.8 1.9 2.1 3.0

Credit card*

- - 11.0 12.7 11.1 9.1 3.3 3.9

Other installment loan 4.9 5.8 7.0 6.6 6.1 5.4 9.7 10.7

Other residential loan 4.0 4.7 4.8 6.0 4.6 3.3 5.8 6.0

Other line of credit 9.6 9.4 9.3 10.2 7.3 6.0 3.4 4.4

Source s : Federal Reserve Board. Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001,

2004, and 2007.

* No data on interest rates available for credit cards in 1989 or 1992.

No similar rate data are available from the SCF for classes of assets, so the Department

derived that information from national historical data. The interest rates associated with

certificates of deposit, 9 savings bonds, 10 and bonds (AAA corporate bonds) 11 were collected from

Federal Reserve Board time

- series data for 1977

– 200 9

. DOE assumed rates on checking

accounts to be zero. Rates on savings and money market accounts came from Cost of Savings

Index data covering 1984

– 200 9

. 12 The rates for stocks are the annual returns on the Standard and

Poor’s 500 for 1977

– 200 9

. 13 Rates for mutual funds are a weighted average of the stock rates

(two

- thirds weight) and the bond rates (one

- third weight) in each year for 1977

– 200 9 . DOE

adjus ted the nominal rates to real rates using the annual inflation rate for each year. Average

nominal and real interest rates for the classes of household assets are listed in Table 8.2.1 7

. Because the interest and return rates for each type of asset reflect economic conditions

throughout numerous years, they are expected to be representative of rates that may be in effect

in 2014.8-27

Table 8.2.17 Average Nominal and Real Interest Rates for Household Equity

Type of Equity Average Nominal Rate % Average Real Rate %

Checking account

- 0.0

Savings and money market accounts 5.4 2.2

Certificate of deposit 6.6 2.3

Savings bond 7.7 3.3

Bonds 8.5 4.1

Stocks 11.6 7.1

Mutual funds 10.3 5.8

Table 8.2. 18 summarizes the mean real effective rates of each type of equity or debt.

DOE determined the average percentage of each type of debt and asset using SCF data for 1989,

1992, 1995, 1998, 2001, 2004, and 2007. Each year of SCF data provides the percents of d ebts

and assets for U.S. households. DOE averaged those percentages for the 7 years of survey data to

arrive at the percentages shown in Table 8.2.1 5 . The average rate across all types of household

debt and equity, weighted by the percentages of each type, is 4.8 percent

.8-28

Table 8.2.18 Average Interest on Household Debt and Equity

Type of Debt or Equity Average % of Household

Debt plus Equity* Mean Effective Real Rate

% **

Home equity loan 3.7 3.9

Credit card 2.1 10.7

Other installment loan 1.6 6.0

Other residential loan 5.3 4.4

Other line of credit 0.5 8.8

Checking account 4.4 0.0

Savings and money market account 15.3 2.2

Certificate of deposit 8.6 2.3

Savings bond 1.4 3.3

Bonds 9.5 4.1

Stocks 29.0 7.1

Mutual funds 18.6 5.8

Total/weighted

- average discount rate 100.0 4.8

* Not including primary mortgage or retirement accounts.

** Adjusted for inflation and, for home equity loans, tax deduction of interest.

8.2.4.2 Assignment of Discount Rates to Sample Households

To account for variations among households, DOE assigned each sampled RECS

household a rate from a distribution of rates for each type of debt and equity. DOE developed a

probability distribution of interest rates based on SCF data.

8.2.5 Compliance Date of Stan dard

The compliance date is the future date at which a new standard becomes operative. The

Department calculated the LCC for all consumers as if each would purchase a new clothes

washer in 2015

.

8.2.6 Energy Efficiency in the Base Case

In determining the LCC for clothes washers , DOE analyze d standard levels relat ive to a

base case efficiency. S ome consumers already purchase products that have efficiencies greater

than baseline levels , however . To estimate accurately the percentage of consumers who would be

affected by a particular standard level, DOE took into account the distribution of product

efficiencies currently in the marketplace. In other words, rather than analyzing the impacts of a

particular standard assuming that all consumers currently purchas e products th at function at the

baseline level, DOE condu cted the analysis by account ing for the full breadth of product8-29

efficiencies that consumers purchase under the base case ( i.e. , the case without new energy

efficiency standards).

As noted in section 8.1.1, DOE’s approach to conducting the LCC analysis for residential

clothes washers relied on developing samples of households that use each product clas s. DOE

used Monte Carlo simulation to calculate the LCC for the households in the sample. Using the

current distribution of product efficiencies, DOE assigned each sampled household a unique

product efficiency. Because it calculated the LCC on a household

- by

- household basis, DOE

based the LCC for a particular candidate standard level (CSL) on the efficiency of the product

assigned to each given household. For e xample, if a household was assigned a product efficiency

greater than or equal to the efficiency of the CSL under consideration, the LCC ca lculation

would reveal that the household would not be affected by an increase in product efficiency equal

to the sta ndard level

. The distributions of product efficienc ies that DOE used for the LCC

analysis for clothes washers are discussed in detail below.

DOE relied on data submitted by AHAM to estimate the base

- case efficiency

distributions for each of the product classes that were analyzed in the LCC and PBP analysis. To

project the efficiency distributions in 2015, DOE considered the 2006

– 2008 trends and the

potential effect of programs such as ENERGY STAR.

For front

- loading clothes washers, the data from AHAM show some increase in the share

of higher efficiency levels between 2006 and 2008. However, by 2008 over 95 percent of the

front

- loading clothes washer market was already at or above the 2011 ENERGY STAR criteria

(Efficiency Level 4). Therefore, DOE believes that the new ENERGY STAR qualification

requirements are likely to have a limited impact in further expanding the market shares of higher

effi ciency front

- loading clothes washers. Based on the above considerations, DOE assumed that

these market shares would remain constant through 2015.

For top

- loading clothes washers, the data from AHAM show an increase in the share of

medium

- and high

- effici ency levels (2

- 8) from 6.3 percent in 2006 to 8.5 percent in 2008. DOE

fit an exponential curve to the three data points, assuming that the growth in share would level

off at around 20 percent. The estimated total share of the medium

- and high

- efficiency l evels in

2015 is 19.2 percent. DOE then disaggregated this total share using the following breakdown:

14.5% to CSL 2, 4.8% each to CSLs 3

- 5, 47.4% to CSL 6, 23.7% to CSL 7, and 0.0% to CSL 8.

For the compact product classes, DOE estimated that the entire market would be at the

baseline efficiency levels in 2015. There are currently no compact clothes washer models

available that exceed the baseline level.

Tables 8.2.19 through 8.2.22 present the market shares of efficiency levels in the base

case for th e four product classes . The tables describe the efficiency levels of each product class

that consumers would purchase in 201 5 in the absence of new standards

.8-30

Table 8.2.19 Top

- Loading Clothes Washers: Base

- Case Market Shares

Standard

Level MEF IMEF I WF Market

Share %

Baseline 1.26 0.84 9.92 40.4

1 1.40 0.98 9.92 40.4

2 1.72 1.29 8.44 2.8

3 1.80 1.34 7.95 0.9

4 1.80 1.34 7.95 0.9

5 1.80 1.37 7.95 0.9

6 2.00 1.57 6.47 9.1

7 2.26 1.83 4.96 4.6

8 2.47 2.04 4.10 0.0

Table 8.2.20 Front

- Loading Clothes Washers: Base

- Case Market Shares

Standard

Level MEF IMEF I WF Market

Share %

Baseline 1.72 1.37 8.31 0.0

1 1.72 1.39 8.31 0.0

2 1.72 1.41 8.31 0.0

3 1.80 1.49 7.80 4.3

4 2.00 1.66 6.26 24.0

5 2.20 1.84 4.73 48.9

6 2.40 2.02 4.42 11.4

7 2.60 2.20 4.01 11.4

8 2.89 2.46 3.39 0.0

Table 8.2.21 Top

- Loading Compact Clothes Washers: Base

- Case Market Shares

Standard

Level MEF IMEF I WF Market

Share %

Baseline 0.77 0.59 14.40 100.0

1 1.26 0.86 14.40 0.0

2 1.81 1.15 12.00 0.08-31

Table 8.2.22 Front

- Loading Compact Clothes Washers: Base

- Case Market Shares

Standard

Level MEF IMEF I WF Market

Share %

Baseline 1.60 1.03 8.80 100.0

1 1.72 1.13 8.30 0.0

8.3 INPUTS TO PAYBACK PERIOD ANALYSIS

The payback period (PBP) is the amount of time it takes a consumer to recover , through

lower operating costs, the assumed higher purchase price of a more energy efficient product

. Numerically, the PBP is the ratio of the increase in purchase price (from a less efficient to more

efficient design) to the decrease in annual ope rating costs . This type of calculation provides what

is known as a simple payback period, because it does not take into account changes in operating

costs over time or the time value of money . T hat is

, the calculation is done at an effective

discount rate of 0 percent.

The equation for PBP is:

W here:

Δ IC = difference in the total installed cost between the standard

- level unit and the baseline

unit , and

Δ OC = difference in annual operating costs

.

Payback periods are expressed in years. Payback periods greater than the life of a product

mean that the increased total installed cost is not recovered through reduced operating costs

.

The data inputs to PBP are the total installe d cost of the product to the consumer for each

efficiency level and the annual first

- year operating costs for each CSL

. The inputs to the total

installed cost are the product price and the installation cost. The inputs to the operating costs

comprise the a nnual costs of energy and water, repair, and maintenance. The PBP uses the same

inputs as the LCC analysis described in section 8.2, except that it does not require trends in

energy and water price s or discount rates. Because the PBP is a simple payback, t he energy and

water price s are only for the year in which a new standard take s effect

— in this case, 201 5

. The

energy and water price s DOE used in the PBP calculation were the price s projected for that year.8-32

8.4 RESULTS OF ANALYSES

This section presents the LCC and PBP results for residential clothes washers. A s

discuss ed in section 8.1.1, DOE’s approach to conducting the LCC analysis relied on developing

samples of households that use each product class . DOE also used probability di stributions to

characterize the uncertainty in many of the inputs. DOE applied a Monte Carlo simulation to

calculate the LCC for the households in the sample

. For each set of sample households using a

particular product class, DOE calculated the average LC C and LCC savings and the median and

average PBP for each CSL

.

DOE calculated LCC savings and PBPs relative to the base

- case product it assigned to

the households. As discussed in section 8.2.6, DOE assigned some households a base

- case product that wa s more efficient than some of the CSLs . For that reason, the average LCC impacts

are not equal to the difference between the LCC of a specific CSL and the LCC of the baseline

product

.

LCC and PBP calculations were performed 10,000 times on the sample of households

established for each product class . Each LCC and PBP calculation was performed on a single

household selected from the sample. The selection of a household was based on its weight ( i.e.

, how representativ e a particular household wa s of other hou seholds in the distribution ). Each

LCC and PBP calculation also sampled from the probability distributions that DOE developed to

characterize many of the inputs to the analysis.

DOE utilized results of the Monte Carlo simulation on 10,000 samples to calculate, for

the base case and each CSL

, the percent of households that would experience a net LCC benefit,

a net LCC cost, or no impact. DOE considered a household to receive no impact at a given CSL

if DOE assigned it a base

- case product having an effi ciency equal to or greater than the CSL

. The following sections present figures showing the distribution of LCC impacts and of PBPs for

each product class under the base case and each CSL . The figures are presented as frequency

charts that show the distrib ution of LCCs, LCC impacts, and PBPs, along with their

corresponding probability of occurrence.

8.4.1 Distributions of Life

- Cycle Cost for Base line Units

The figures below are presented as frequency charts that show the distribution of LCCs,

LCC impacts, and PBPs with their corresponding probability of occurrence. DOE generated t he

figures for the distributions from a Monte Carlo simulation run based on 10,000 samples.

Figures 8.4.1 through 8.4.4 show frequency charts for the base line LCC for the four

product classes.8-33

Figure 8.4.1 Top

- Loading Clothes Washers: Distribution of Life

- Cycle Cost for

Baseline Unit

Figure 8.4.2 Front

- Loading Clothes Washers: Distribution of L ife

- Cy cle Cost for

Baseline Unit8-34

Figure 8.4.3 Top

- Loading Compact Clothes Washers: Distribution of Life

- Cycle

Cost for Baseline Unit

Figure 8.4.4 Front

- Loading Compact Clothes Washers: Distribution of Life

Cycle Cost for Baseline Unit8-35

8.4.2 Distributions of Life

- Cycle Cost Under New Standards

Figure s 8.4.5 through 8.4.8 are examples of frequency charts showing the distribution of

LCC savings for clothes washers at the CSL levels corresponding to TSL 3 . DOE can generate

frequency charts similar to those shown for every CSL.

Figure 8.4.5 T op

- Loading Clothes Washers: Distribution of Impacts on Life

Cycle Cost for Candidate Standard Level 28-36

Figure 8.4.6 Front

- Loading Clothes Washers: Distribution of Impacts on Life

Cycle Cost for Candidate Standard Level 5

Figure 8.4.7 Top

- Loading Compact Clothes Washers: Distri bution of Impacts on

Life

- Cycle Cost for Candidate Standard Level 18-37

Figure 8.4.8 Front

- Loading Compact Clothes Washers: Distribution of Impacts

on Life

- Cycle Cost for Candidate Standard Level 1

8.4.3 Distributions of Payback Period Under New Standards

Figure s 8.4. 9 through 8.4. 12 are examples of frequency charts showing the distribution of

PBPs for clothes washers at the CSL levels corresponding to TSL 3. DOE can generate

frequency charts similar to those shown for every standard level.8-38

Figure 8.4.9 Top

- Loading Clothes Washers : Distribution of Payback Period for

Candidate Standard Level 2

Figure 8.4.10 Front

- Loading Clothes Washers: Distribution of Payback Period

for Candidate Standard Level 58-39

Figure 8.4.11 Top

- Loading Compact Clothes Washers: Distribution of Payback

Period for Candidate Standard Le vel 1

Figure 8.4.12 Front

- Loading Compact Clothes Washers: Distribution of

Payback Period for Candidate Standard Level 18-40

8.4.4 Life

- Cycle Cost s and Payback P eriod s

Tables 8.4.1 through 8.4.4 show the LCC and PBP results for the four product classes of

residential clothes washers

. I n the case of front

- loading washer s

, for example, CSL 5 shows an

average LCC savings of $ 47 . Note that for CSL 5

, approximately 72 percent of consumers in

2015 in the base case are assumed to already be using a clothes washer at CSL 5 an d thus have

zero savings (no impact) from the standar d. For level 5, 2 6 % of household receive a net LCC

benefit.

Table 8.4.1 Top

- Loading Clothes Washers: Life

- Cycle Cost and Payback Period Results

Standard

Level Life

- Cycle Cost 2010 $ Life

- Cycle Cost Savings 2010 $

Median

Payback

Period

years Avg.*

Installed

Price Avg.

Operating

Cost Avg.

LCC Avg.

Savings Households Showing

Net

Cost % No

Impact

% Net

Benefit

%

Baseline $414 $1,652 $2,066 NA 0% 100% 0% NA

1 $418 $1,665 $2,083

- $7 30% 60% 11% 3.2

2 $425 $1,317 $1,743 $268 1% 19% 80% 0.4

3 $432 $1,379 $1,810 $211 9% 17% 74% 0.7

4 $437 $1,373 $1,810 $212 10% 16% 74% 1.0

5 $433 $1,340 $1,773 $243 6% 15% 79% 0.7

6 $448 $1,182 $1,630 $366 3% 14% 82% 0.9

7 $496 $1,003 $1,499 $491 8% 5% 87% 1.8

8 $508 $958 $1,466 $524 9% 0% 91% 1.9

Table 8.4.2 Front

- Loading Clothes Washers: Life

- Cycle Cost and Payback Period

Results

Standard

Level Life

- Cycle Cost 2010 $ Life

- Cycle Cost Savings 2010 $

Median

Payback

Period

years Avg.*

Installed

Price Avg.

Operating

Cost Avg.

LCC Avg.

Savings Households Showing

Net

Cost % No

Impact

% Net

Benefit

%

Baseline $865 $1,236 $2,101 NA 0% 100% 0% NA

1 $870 $1,228 $2,099 $0 0% 100% 0% NA

2 $867 $1,214 $2,081 $0 0% 100% 0% NA

3 $869 $1,151 $2,020 $0 0% 100% 0% NA

4 $874 $1,088 $1,961 $2 0% 96% 4% 0.9

5 $888 $946 $1,835 $37 2% 72% 26% 1.3

6 $920 $924 $1,843 $30 42% 23% 35% 10.0

7 $938 $900 $1,838 $35 45% 12% 43% 9.2

8 $964 $807 $1,771 $102 30% 0% 70% 5.28-41

Table 8.4.3 Top

- Loading Compact Clothes Washers: Life

- Cycle Cost and Payback

Period Results

Standard

Level Life

- Cycle Cost 2010 $ Life

- Cycle Cost Savings 2010 $

Median

Payback

Period

years Avg.*

Installed

Price Avg.

Operating

Cost Avg.

LCC Avg.

Savings Households Showing

Net

Cost % No

Impact

% Net

Benefit

%

Baseline $419 $1,154 $1,573 NA 0% 100% 0% NA

1 $426 $988 $1,414 $159 2% 0% 98% 0.5

2 $480 $781 $1,261 $312 13% 0% 87% 2.1

Table 8.4.4 Front

- Loading Compact Clothes Washers: Life

- Cycle Cost and Payback

Period Results

Standard

Level Life

- Cycle Cost 2010 $ Life

- Cycle Cost Savings 2010 $

Median

Payback

Period

years Avg.*

Installed

Price Avg.

Operating

Cost Avg.

LCC Avg.

Savings Households Showing

Net

Cost % No

Impact

% Net

Benefit

%

Baseline $861 $752 $1,613 NA 0% 100% 0% NA

1 $865 $694 $1,559 $54 0% 0% 100% 0.8

Figures 8.4.13 through 8.4.16 show the range in LCC savings for all CSLs for the four

product classes

. For each CSL , the top and the bottom of the box in a figure indicate the 75 th and

25 th percentiles, respectively. The bar in the middle of the box indicates the median : under that

CSL, 50 percent of the households have LCC savings that exceed that value

. The “whiskers” at

the bottom and th e top of the box indicate the 5 th and 95 th percentiles. The small box shows the

average LCC sav ings for each CSL.8-42

Figure 8.4.13 Range of Life

- Cycle Cost Savings for Top

- Loading Clothes

Washers

Figure 8.4.14 Range of Life

- Cycle Cost Savings for Front

- Loading Clothes

Washers8-43

Figure 8.4.15 Range of Life

- Cycle Cost Savings for Top

- Loading Compact

Clothes Washers

Figure 8.4.16 Range of Life

- Cycle Cost Savings for Front

- Loading Compact

Clothes Washers

Figures 8.4.17 through 8.4.20 show t he range in PBPs for all CSLs for the four product

classes

. H ouseholds that are not affected by a new standard are not included in the figures.8-44

Figure 8.4.17 Range of Payback Periods for Top

- Loading Clothes Washers

Figure 8.4.18 Range of Payback Periods for Front

- Loading Clothes Washers8-45

Figure 8.4.19 Range of Payback Periods for Top

- Loading Compact Clothes

Washers

Figure 8.4.20 Range of Payback Periods for Front

- Loading Compact Clothes

Washers8-46

8.5 REBUTTABLE PAYBACK P ERIOD

DOE develops rebuttable PBPs to support the legally established rebuttable presumption

that an energy efficiency standard is economically justified if the additional product costs

attributed to the standard are less than three times the value of the first

- year savings in energy

and water costs. (42 U.S.C. §6295 (o)(2)(B)(iii))

8.5.1 Metric

The basic equation for calculating rebuttable PBP is the same as that shown in section 8.3

for calculating the standard PBP . Unlike the analyses described in sections 8.2 and 8.3, however,

the rebuttable PBP does not rely on household samples and probability distributions. Rather, the

rebuttable PBP is based on discrete, single

- point values. For example, although DOE uses a

probability distribution of regional energy and water prices in analyzing PBP , it uses only the

national average energy and water price s from the probability distribution to determine the

rebuttable PBP.

Other th an the use of single

- point values, the most notable difference between the
distributional and the rebuttable PBP is the latter’s reliance on the DOE test procedure to

determine a product’s annual energy and water consumption. DOE based the values for annua l

energy and water consumption used to determine the rebuttable PBP for each product class of

clothes washers on the number of wash cycles per year specified in the draft revised DOE test

procedure. The draft te st procedure for residential clothes washer s assumes that the annual

number of wash cycles is 2 9 5

.

8.5.2 Inputs

As note d in section 8.5.1, the calculation of the rebuttable PBP differ s from that

of the general PBP in that the inputs are discrete values rather than distributions. F or the general

PBP, inputs for determin ing total installed cost were based on single

- point values

. However, the

variability and/or uncertainty in the inputs for determining operating cost s required using

distributions to calculate the general PBP

. DOE used t he following single

- point values in

determining the rebuttable PBP.

 Manufacturing costs, markups, sales taxes, and installation costs were the same as the

single

- point values used in the general LCC and PBP analysis.

 As noted in section 8.5.1, annual e nergy and water consumption were based on the

usage in the draft revised DOE test procedure.

 Energy and water prices we re based on national average values for the year that new

standards are assumed to take effect (2015)

.

 Neither a n average discount rate n or a lifetime is required for calculating the

rebuttable PBP.8-47

8.5.3 Results

DOE calculated rebuttable PBPs for each CSL relative to the baseline efficienc y levels

. In other words, DOE did not determine the rebuttable PBP relative to the current distribution of

product efficiencies determined for the base case.

Tables 8.5.1 through 8.5.4 present the rebuttable PBPs for the four product classes

.

Table 8.5.1 Top

- Loading Clothes Washers: Rebuttable Payback Periods

CSL MEF IMEF I WF Rebuttable

PBP

years

Baseline 1.26 0.84 9.92 NA

1 1.40 0.98 9.92 1.83

2 1.72 1.29 8.44 0.27

3 1.80 1.34 7.95 0.55

4 1.80 1.34 7.95 0.70

5 1.80 1.37 7.95 0.53

6 2.00 1.57 6.47 0.62

7 2.26 1.83 4.96 1.08

8 2.47 2.04 4.10 1.178-48

Table 8.5.2 Front

- Loading Clothes Washers: Rebuttable Payback Periods

CSL MEF IMEF I WF Rebuttable

PBP

years

Baseline 1.72 1.37 8.31 NA

1 1.72 1.39 8.31 6.32

2 1.72 1.41 8.31 0.74

3 1.80 1.49 7.80 0.48

4 2.00 1.66 6.26 0.53

5 2.20 1.84 4.73 0.79

6 2.40 2.02 4.42 1.68

7 2.60 2.20 4.01 2.09

8 2.89 2.46 3.39 2.22

Table 8.5.3 Top

- Loading Compact Clothes Washers: Rebuttable Payback Periods

CSL MEF IMEF I WF Rebuttable

PBP

years

Baseline 0.77 0.59 14.40 NA

1 1.26 0.86 14.40 0.30

2 1.81 1.15 12.00 1.31

Table 8.5.4 Front

- Loading Compact Clothes Washers: Rebuttable Payback Periods

CSL MEF IMEF I WF Rebuttable

PBP

years

Baseline 1.60 1.03 8.80 NA

1 1.72 1.13 8.30 0.718-49

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