CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION ........................................................................................................... 2­1

2.2 BACKGROUND ............................................................................................................. 2­4

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

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

2.3.2 Technology Assessment........................................................................... 2­5

2.3.3 Product Classes........................................................................................ 2­5

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

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

2.5.1 Representative Product Classes ............................................................... 2­6

2.5.2 Selected Baseline Lamps ......................................................................... 2­6

2.5.3 Identified Lamps and Ballast Designs ..................................................... 2­6

2.5.4 Developed Efficacy Levels...................................................................... 2­6

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

2.7 PRODUCT PRICE DETERMINATION ........................................................................ 2­7

2.8 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSIS ..................................... 2­7

2.9 SHIPMENTS ANALYSIS .............................................................................................. 2­8

2.9.1 Shipment Scenarios.................................................................................. 2­8

2.10 NATIONAL IMPACT ANALYSIS................................................................................ 2­9

2.10.1 National Energy Savings Analysis....................................................... 2­10

2.10.2 Net Present Value Analysis ................................................................. 2­10

2.11 LIFE­CYCLE COST SUB­GROUP ANALYSIS......................................................... 2­11

2.12 MANUFACTURER IMPACT ANALYSIS.................................................................. 2­11

2.13 UTILITY IMPACT ANALYSIS................................................................................... 2­11

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

2.15 EMPLOYMENT IMPACT ANALYSIS....................................................................... 2­13

2.16 REGULATORY IMPACT ANALYSIS ....................................................................... 2­13

2.17 DEPARTMENT OF JUSTICE REVIEW ..................................................................... 2­13

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the GSFL and IRL Rulemaking Process............... 2­2

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CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Sections 6295(o)(2)(A) and (3) of Title 42 United States Code (42 U.S.C.

6295(o)(2)(A) and (3)) require that energy conservation standards set by the U.S. Department of

Energy (DOE) be technologically feasible and economically justified, and achieve the maximum

improvement in energy efficiency. This chapter provides a description of the general analytical

framework that DOE uses in developing such standards, and in particular, standards for general

service fluorescent lamps (GSFL) and incandescent reflector lamps (IRL). The analytical

framework is a description of the methodology, the analytical tools, and relationships among the

various analyses that are part of this rulemaking. For example, the methodology that addresses

the statutory requirement for economic justification includes analyses of life­cycle cost (LCC);

economic impact on manufacturers and users; national benefits; impacts, if any, on utility

companies; and impacts, if any, from lessening competition among manufacturers. DOE will

also solicit the views of the Department of Justice (DOJ) on any lessening of competition that is

likely to result from the imposition of a proposed standard.

Figure 2.1.1 summarizes the analytical components of the standards­setting process. The

focus of this figure is the center column, identified as “Analyses.” The columns labeled “Key

Inputs” and “Key Outputs” show how the analyses fit into the rulemaking 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 databases; DOE collects other inputs from stakeholders

or persons with special knowledge. Key outputs are analytical results that feed directly into the

standards­setting process. Dotted lines connecting analyses show types of information that feed

from one analysis to another. While Figure 2.1.1 summarizes the inputs, outputs and analyses of

a typical standards rulemaking, individual inputs and outputs may vary by rulemaking. For

example, as discussed in Chapter 5 and Chapter 7, this rulemaking combines the results of the

engineering analysis and the product price determination to derive typical inputs for the LCC and

NIA rather than estimating costs in the engineering analysis and marking them up to derive enduser prices.

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Utility Impact

Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule

Approaches Key Inputs Analyses Key Outputs

Market and Technology

Assessment

Screening Analysis

Engineering Analysis

Product Price

Determination Life­Cycle Cost and

Payback Period

Analyses

National Impact

Analysis

Energy Use

Revise ANOPR

Analyses

Life­Cycle Cost

Sub­Group Analysis

Manufacturer Impact

Analysis

Shipments

Analysis

Employment Impact

Analysis

Revise Analyses

• Product Classes

• Technology Options

• Industry Cash Flow

• Sub­Group Cash­Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden

• Product Designs

• Life­Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results

• Characterize Industry

• Market Segmentation

• Non­Regulatory Programs

Framework Document

• Efficiency­Level Approach

• Design Option Approach

• Energy Prices

• Installation Costs

• Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments

• Identify Firms/Products

• Historical Shipments

•Retail Price Collection and

Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data

Design Options

Product Classes

Retail

Prices

Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANOPR)

• Efficiency/Performance

• Commercial Products

Candidate

Standard

Levels

• Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact

Analysis

Technology Options

• Emission Estimates

• Utility Load Factors

• National Energy Savings

• Non­Regulatory

Alternatives

• NEMS­BT

• ImSET

• NEMS­BT

• Design Options

• Energy Price Forecasts

• Site­to­Source Factors

• Energy­Efficiency Levels

Direct Employment

Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs

• Utility Impacts

• Analysis of Market Data

• Analysis of Product Data

• Life­Cycle Costs

• Payback Periods

• Installation

Costs

• Maint Costs

• Repair Costs

• UEC

• Energy Prices

Annual Energy Use (UEC)

Preliminary

Manufacturer Impact

Analysis

• Manufacturer Prices

• Average Costs

• Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values

• Trial Standard Levels (TSLs)

TSLs

• Product Prototypes

Energy­Efficiency

Levels

• Department of Justice Review

Product Designs

Figure 2.1.1 Flow Diagram of Analyses for the GSFL and IRL Rulemaking Process

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The analyses performed in the Notice of Proposed Rulemaking (NOPR) stage and

reported in this technical support document (TSD) include:

A market and technology assessment to characterize the relevant fluorescent and

incandescent lamp markets; to identify technology options that improve efficacy; and to develop

product classes.

A screening analysis to review each technology option and determine if it is

technologically feasible; practical to manufacture, install, and service; would adversely affect

lamp utility or lamp availability; or would have adverse impacts on health and safety.

An engineering analysis to study the appropriate lamp and lamp­and­ballast designs used

as substitutes for the baseline lamps, to select efficacy levels and to determine lamp­and­ballast

system power ratings.

An energy use analysis to determine the annual energy consumption of fluorescent and

incandescent reflector lamps.

A product price determination to develop average end­user prices for the lamp designs

and lamps­and­ballast designs used in the analyses.

A life­cycle cost (LCC) and payback period (PBP) analysis to calculate, at the customer

level, the cost­effectiveness of the efficacy levels.

A shipments analysis to estimate yearly shipments of covered fluorescent and

incandescent reflector lamp products over the analysis period.

A national impact analysis (NIA) to assess the aggregate impacts at the national level of

the net present value (NPV) and national energy savings (NES) of the standard levels.

A LCC sub­group analysis to evaluate variations in residential and commercial building

characteristics (e.g., energy prices, equipment use behavior, installation costs) that might cause a

standard to impact particular customer sub­populations, such as specific building owners or other

customers that purchase and use the general service fluorescent lamps and incandescent reflector

lamps.

A manufacturer impact analysis (MIA) to calculate the financial impacts of energy

conservation standards on lamp manufacturers and to identify impacts on competition,

employment at manufacturing plants, and manufacturing capacity.

A utility impact analysis to estimate the effects of proposed standards on electric utilities.

An environmental assessment to provide estimates of changes in emissions of pollutants

from electricity generation (i.e., carbon dioxide (CO2), oxides of nitrogen (NOx), and sulfur

dioxide (SO2).

An employment impact analysis to assess the aggregate impacts on national employment.

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A regulatory impact analysis to present major alternatives to proposed standards that

could achieve substantially the same regulatory goal at a lower cost.

In response to comments it receives on the NOPR, DOE may revise some of its analyses

before publishing the final rule.

2.2 BACKGROUND

As described in Chapter 1 of the TSD, in September 1995, the Department announced a

formal effort to consider further improvements to the process used to develop appliance

efficiency standards. The Department called on energy­efficiency groups, manufacturers, trade

associations, state agencies, utilities, and other interested parties to provide input to this effort.

As a result of this combined effort, the Department published Procedures, Interpretations and

Policies for Consideration of New or Revised Energy Conservation Standards for Consumer

Products (the “Process Rule”), 10 CFR 430, Subpart C, Appendix A. The Process Rule outlined

the procedural improvements identified by the interested parties, and included a review of the: 1)

economic models, 2) analytic tools, 3) methodologies, 4) non­regulatory approaches, and 5)

prioritization of future rules. The Process Rule recommended that the Department take into

account uncertainty and variability by carrying out scenario or probability analysis.

DOE developed this analytical framework for the fluorescent and incandescent reflector

lamps rulemaking under the Process Rule. DOE documented this analytical framework in the

Rulemaking Framework for General Service Fluorescent Lamps, Incandescent Reflector Lamps,

and General Service Incandescent Lamps (hereafter, “Framework Document”), and presented

the analytical approach to stakeholders during a public meeting held on June 15, 2006 (hereafter

“Public Meeting”). This document is available at

http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/lamps_framework.pd

f. The following sections provide a general description of the different analytical components of

the rulemaking framework.

2.3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment characterizes the relevant product markets and

existing technology options, including prototype designs, and outlines product classes.

2.3.1 Market Assessment

When initiating a standards rulemaking, DOE develops information on the industry

structure and market characteristics of the product(s) concerned. This activity consists of both

quantitative and qualitative efforts to assess the industry based on publicly available information.

As such, DOE addresses: (1) industry structure and manufacturer market shares, (2) existing

regulatory and non­regulatory efficiency improvement initiatives, and (3) trends in product

characteristics and retail markets. This information serves as resource material throughout the

rulemaking.

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DOE has used and will use the most reliable and accurate data available at the time of

each analysis in this rulemaking. DOE welcomes and will consider any submissions of

additional data.

2.3.2 Technology Assessment

DOE typically uses information relating to existing technology options to develop more

efficacious fluorescent and incandescent reflector lamp designs. DOE prepared a list of

technologies for consideration which could improve the efficacy of GSFL and IRL. To develop

this list, DOE reviewed manufacturer catalogs, recent trade publications and technical journals,

and consulted with technical experts.

2.3.3 Product Classes

DOE divides covered products into classes by: (a) the type of energy used; and (b)

capacity of the product or any other performance­related feature that justifies different standard

levels, such as features affecting consumer utility. (42 U.S.C. 6295(q)) For this rulemaking on

lamps, DOE has analyzed GSFL and IRL separately, where appropriate. In general, DOE

defined product classes using information obtained from manufacturers, trade association, and

other interested parties.

2.4 SCREENING ANALYSIS

The screening analysis examines the technology options from the technology assessment

as to whether they: (1) are technologically feasible; (2) are practical to manufacture, install, and

service; (3) do not have an adverse impact on product utility or availability; and (4) do not have

adverse impacts on health and safety. As described above, DOE develops an initial list of design

options from the technologies identified in the technology assessment. Then DOE, in

consultation with interested parties, reviews the list to determine if these technologies are

practicable to manufacture, install, and service, would adversely affect product utility or

availability, or would have adverse impacts on health and safety. In the engineering analysis,

DOE only considers design options that meet all four of the screening criteria.

2.5 ENGINEERING ANALYSIS

In the engineering analysis, DOE selects representative product classes to analyze.

It then selects baseline lamps from these representative product classes, and develops lamp

designs that represent more efficacious versions of the baseline lamps. DOE then uses these

lamp designs to develop candidate standard levels (CSLs). While DOE establishes CSLs based

on lamp designs, it also is developing lamp­and­ballast designs for the LCC and NIA. DOE is

considering lamp­and­ballast designs for the GSFL LCC and NIA because fluorescent lamps are

a component of a system, and their performance is related to the ballast on which it operates. In

addition to selecting lamp­and­ballast systems, the engineering analysis develops system power

ratings which DOE uses to develop energy consumption in Chapter 6.

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2.5.1 Representative Product Classes

DOE reviewed covered lamps and the associated product classes. In the case where a

product had multiple product classes, DOE identified and selected certain product classes as

“representative” product classes where DOE would concentrate its analytical effort. DOE chose

these representative product classes primarily because of their high market volumes.

2.5.2 Selected Baseline Lamps

DOE selected baseline lamps from the representative product classes on which it

conducted the engineering analysis (and subsequent analyses). These baseline lamps were

selected to represent the characteristics of lamps in a given product class. Typically, a baseline

lamp is one that just meets existing mandatory energy conservation standards or one that

represents the typical lamp sold. Specific characteristics such as correlated color temperature

(CCT), operating life, and light output were all selected to characterize the most common lamps

purchased by consumers today. For all the representative product classes, DOE selected multiple

baseline lamps, to ensure consideration of different high­volume lamps and their associated

consumer economics.

2.5.3 Identified Lamps and Ballast Designs

DOE selected a series of more­efficacious lamps for each of the baseline lamps

considered within each representative product class. DOE only considered technologies that met

all four criteria in the screening analysis. DOE considered these technologies either explicitly as

design options or implicitly as design options incorporated into commercially available lamps at

the efficiency levels evaluated. These selections were made such that potential substitutions

maintained light output above a maximum 10­percent decrease from the baseline lamp’s light

output and that the substitute lamp had performance characteristics similar to those of the

baseline lamp. In identifying the more­efficacious substitutes, DOE utilized a database of

commercially available lamps. For GSFL, DOE considered commercially available lamps under

two different substitute scenarios: (1) lower­wattage lamps that operated on existing ballasts and

whose system light output never dropped below 10 percent of the baseline system and (2) moreefficacious lamps that have the same rated wattage, and, therefore, must be associated with a

ballast replacement in order to save energy and maintain light output. For IRL, DOE used some

commercially available lamps, but also developed “model” lamps which incorporate design

options that may not be commercially available for certain lamp types and wattages but which

use commercially available technologies. For example, DOE developed efficacy estimates for

reduced­wattage IRL with an HIR coating.

2.5.4 Developed Efficacy Levels

Having identified the more­efficacious substitutes for each of the baseline lamps (or

lamp­and­ballast systems), DOE developed efficacy levels based on the consideration of several

factors including: (1) the design options associated with the specific lamps being studied (e.g.,

grades of phosphor for fluorescent lamps, the use of infrared coatings for IRL, etc.); (2) the

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1 ability of lamps across wattages to comply with the standard level of a given product class; and

(3) the maximum technologically feasible level.

2.6 ENERGY USE CHARACTERIZATION

The energy­use characterization provides estimates of annual energy use for the two

categories of lamps which DOE uses in the LCC and PBP analyses and the NIA. To develop

annual energy use estimates, DOE multiplied annual usage (in hours per year) by the system

power estimates (in watts). DOE developed the system power estimates in the engineering

analysis. To derive annual energy usage, DOE used data published in the U.S. Lighting Market

Characterization: Volume I (LMC), the Residential Energy Consumption Survey (RECS), the

Commercial Building Energy Survey (CBECS) and the Manufacturer Energy Consumption

Survey (MECS).

2.7 PRODUCT PRICE DETERMINATION

This chapter focuses on the methodology followed by DOE in developing enduser product prices for lamps and ballasts used in the rulemaking analysis. DOE based the

product price determination for lamps and ballasts on marked­down manufacturer price

schedules, developing low, mid and high end­user retail prices.

2.8 LIFE­CYCLE COST AND PAYBACK PERIOD ANALYSIS

The effects of new energy conservation standards on equipment result in changes in

operating expenses (usually decreased) and changes in customer price (usually increased). DOE

analyzed the net effect of new standards on consumers by evaluating the net LCC using the

efficacies and system power ratings derived in the engineering analysis and the cost trends

derived from the product price determination. Inputs to the LCC calculation include the installed

cost to the customer (customer price plus installation cost), operating expenses (energy expenses

and maintenance costs), the lifetime of the appliance, and a discount rate.

DOE reviewed EIA’s energy price data for GSFL and IRL to establish electricity prices.

DOE relied on regional average electricity price data for the residential and commercial sectors.

DOE used projections of these electricity prices for residential and commercial customers to

estimate future electricity prices in its LCC analysis. DOE used EIA’s Annual Energy Outlook

(AEO) as the default source of projections for future electricity prices.

DOE developed discount rates by estimating the cost of capital to companies that

purchase lamps covered under this rulemaking. For residential consumers of GSFL and IRL,

DOE derived the discount rates from estimates of the interest or “finance cost” to purchase

residential products. By applying the financial theory, the finance cost of raising funds to

1 Efficacy levels span multiple lamps of different wattages. In selecting CSLs, DOE considered whether

these multiple lamps can meet the efficacy levels.

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purchase residential products can be interpreted as: (1) the financial cost of any debt incurred to

purchase residential products, principally interest charges on debt, or (2) the opportunity cost of

any equity used to purchase residential products, principally interest earnings on household

equity. Household equity is represented by holdings in assets such as stocks and bonds, as well

as the return on homeowner equity. DOE obtained much of the data required to determine the

cost of debt and equity from the Federal Reserve Board’s triennial Survey of Consumer

Finances.

For commercial and industrial consumers of GSFL and IRL, DOE used the same

approach it relied on for developing discount rates for other commercial equipment. DOE derives

discount rates for commercial consumers by estimating the cost of capital of companies that

purchase commercial equipment. The cost of capital is commonly used to estimate the present

value of cash flows to be derived from a typical company project or investment. Most

companies use both debt and equity capital to fund investments, so the cost of capital is the

weighted­average cost of equity and debt financing. This corporate finance approach is referred

to as the weighted­average cost of capital (WACC).

Chapter 8 also describes the PBP analysis, which calculates the amount of time needed to

recover the additional cost that consumers pay for increased efficiency. Numerically, the simple

payback period is the ratio of the increase in purchase price to the decrease in annual energy

costs.

2.9 SHIPMENTS ANALYSIS

Shipment forecasts are required to calculate the national impacts of standards on energy,

NPV, and future manufacturer cash flows. DOE developed shipment forecasts using historical

data as a basis for projecting future shipments of the GSFL and IRL that are the subject of this

rulemaking. In projecting shipments, DOE accounted for several market segments including: (1)

new construction; (2) renovation; (3) lamp failure; (4) ballast failure or fixture replacement (for

GSFL only); and (5) retrofit. In addition, DOE used market­share matrices to characterize the

product mix of the shipments and installed stock.

2.9.1 Shipment Scenarios

To calculate shipments, DOE created several base­case and standards case shipment

scenarios. As rapidly emerging new lighting technologies (such as reflector compact fluorescent

lamps, ceramic metal­halide, and light­emitting diodes) could penetrate GSFL and IRL markets

and significantly affect shipment forecasts, DOE creates two base­case shipment scenarios:

Existing Technologies and Emerging Technologies. The Existing Technologies scenario,

considering only technologies that have already achieved technological and market maturation

assumes more limited penetration of other higher efficacy products than the Emerging

Technologies scenario.

To characterize consumer behavior in the standards­case for GSFL, DOE considers many

lamp­and­ballast system properties that consumers take into account when purchasing their

GSFL systems. Specifically, DOE regards system price, system energy consumption, and

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system lumen output as three key drivers of consumer purchases. DOE develops two sets of

shipment scenarios, to characterize consumers that may weigh these factors differently. The first

set of scenarios comprises the “Roll­up” and “Shift” scenarios; the second set comprises the

“High” and “Market segment­based” lighting expertise scenarios.

In the first set of standards­case scenarios for GSFL, the Roll­up scenario represents a

standards­case in which all product efficacies in the base case that do not meet the standard

would roll up to meet the new standard level. Consumers who in the base case purchase lamps

above the standard level are not affected as they are assumed to continue to purchase the same

base case lamp or lamp system in the Roll­up scenario. The Roll­up scenario characterizes

consumers primarily driven by the first­cost of the lamp. In contrast, the Shift scenario models a

standards­case in which all base case consumer purchases are affected by the standard (whether

or not their base case efficacy is below the standard).scenario. The second set of standards­case

GSFL scenarios comprises the lighting expertise scenarios: High and Market Segment­Based.

This set of scenarios characterizes consumers’ decisions (or lack thereof) to either maintain

equivalent light output upon the purchase of a new higher efficacy lamp or accept higher lighting

levels. The High expertise scenario generally characterizes more sophisticated lighting decisions

in which consistent lighting levels and/or energy savings play a determinant role in consumer

behavior. In this scenario, consumers are more likely to choose a lower ballast factor to pair

with higher efficacy lamps or reduced­wattage lamps. Conversely, in the Market Segment­Based

scenario, DOE assumes consumers occasionally accept high lighting levels and reduced (or in

many cases, zero) energy savings as a consequence of their expertise (or lack thereof).

As with GSFL, DOE considers two sets of standards­case scenarios for IRL. The first set

of scenarios for IRL includes the “Roll­up” and “Shift” scenarios. Again, the Roll­up scenario

represents a standards­case in which all product efficacies in the base case that do not meet the

standard would roll up to meet the new standard level. Those product efficacies that were above

the standard level are considered unaffected, as consumers continue to purchase the same base

case lamp or lamp system. The Roll­up scenario characterizes consumers primarily driven by

the first­cost of the lamp In contrast, the Shift scenario models a standards­case in which all

base case consumer purchases are affected by the standard (whether or not their base case

efficacy meets the standard). The second set of standards­case IRL scenarios includes the

“Product Substitution” and “No Product Substitution” scenarios. In the Product Substitution

scenario, DOE assumes consumers do not necessarily continue to purchase the same lamp as

they do in the base case. DOE thus models a shift to both exempted bulged reflector lamps and

to reflector compact fluorescent lamps in the standards case. The No Product­Substitution

scenario assumes all consumers who purchase IRL in the base case continue to do so in the

standards case.

2.10 NATIONAL IMPACT ANALYSIS

The national impact analysis assesses the NPV of total customer LCC and NES.

DOE determined both the NPV and NES for the performance levels considered for the product

classes analyzed. To make the analysis more accessible and transparent to all stakeholders, DOE

prepared an NES Spreadsheet Model in Microsoft Excel to forecast energy savings and the

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national economic costs and savings resulting from new standards. The NES Spreadsheet Model

does not use probability distributions for inputs or outputs. To assess the impact of input

uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses for future

analyses by running scenarios on input variables that are of interest to stakeholders. Chapter 11

of the TSD describes DOE’s assessment of the aggregate economic impacts at the national level.

2.10.1 National Energy Savings Analysis

The inputs DOE uses to determine the NES are: (1) annual energy consumption

per unit; (2) shipments; (3) equipment stock; (4) national energy consumption; and (5) site­to

source conversion factors. DOE calculates the national energy consumption by multiplying the

number of units, or stock, of lamps (by vintage) by the unit energy consumption (also by

2 vintage). DOE calculates national annual energy savings from the difference between national

energy consumption in the base case (without new energy conservation standards) and in each

standards case (with new energy conservation standards). The analysis includes estimates of

energy savings by fuel type used for generating electricity. DOE estimates energy consumption

and savings based on site energy, and converts the electricity consumption and savings to source

energy. Cumulative energy savings are the sum of the annual NES, which DOE determines over

specified time periods.

2.10.2 Net Present Value Analysis

The inputs DOE uses to determine the NPV are: (1) total annual installed cost; (2)

total annual operating cost savings; (3) discount factor; (4) present value of costs; and (5) present

value of savings. DOE calculates net savings each year as the difference between total operating

cost savings and increases in total installed costs (including equipment price and installation

cost). DOE calculates savings over the life of the equipment, accounting for differences in

yearly energy rates. DOE calculates NPV as the difference between the present value of

operating cost savings and the present value of increased total installed costs. DOE discounts

future costs and savings to the present with a discount factor.

DOE calculates increases in total installed costs as the product of the difference in

the total installed cost between the base case and standards case and the annual shipments in the

standards case. Because costs of the more­efficient 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.

DOE expresses operating cost savings as decreases in operating costs associated

with the lower energy consumption of equipment bought in the standards case compared to the

base efficiency case. Total operating cost savings are the product of savings per unit and the

number of units of each vintage surviving in a particular year.

2 Vintage represents the age of the equipment.

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2.11 LIFE­CYCLE COST SUB­GROUP ANALYSIS

A consumer subgroup comprises a subset of the population that is likely, for one reason

or another, to be impacted disproportionately by new or revised energy conservation standards.

In this NOPR, DOE identified low­income consumers, houses of worship, historical facilities,

and institutions that serve low­income populations as consumers that would be

disproportionately impacted by the proposed standards. The LCC sub­group analysis evaluates

impacts on these consumer sub­groups by accounting for variations in key inputs to the LCC

analysis.

2.12 MANUFACTURER IMPACT ANALYSIS

DOE performed a MIA to estimate the financial impact of higher energy

conservation standards on GSFL and IRL manufacturers, and to calculate the impact of such

standards on domestic manufacturing employment and capacity. The MIA has both quantitative

and qualitative aspects. The quantitative part of the MIA primarily relies on two separate

Government Regulatory Impact Models (GRIMs)⎯industry­cash­flow models customized for

this rulemaking. The GRIM inputs are data characterizing the industry cost structure, shipments,

and revenues. The key output is the industry net present value. Different sets of assumptions

(scenarios) will produce different results. The qualitative part of the MIA addresses factors such

as product characteristics, characteristics of particular firms, and market and product trends, and

includes an assessment of the impacts of standards on subgroups of manufacturers. The

complete MIA is outlined in Chapter 12 of the TSD.

DOE conducted the MIA in three phases. Phase 1, “Industry Profile,” consisted of the

preparation of an industry characterization. Phase 2, “Industry Cash Flow,” focused on the

industry as a whole. In this phase, DOE used two separate GRIMs (one for the GSFL industry

and one for IRL industry) to prepare an industry cash­flow analysis. DOE used publicly

available information developed in Phase 1 to adapt each GRIM structure to facilitate the

analysis of amended GSFL and IRL standards. In Phase 3, “Subgroup Impact Analysis,” DOE

conducted interviews with manufacturers representing the majority of domestic GSFL and IRL

sales. During these interviews, DOE discussed engineering, manufacturing, procurement, and

financial topics specific to each company, and also obtained each manufacturer’s view of the

industry as a whole. The interviews provided valuable information DOE used to evaluate the

impacts of an amended energy conservation standard on manufacturer cash flows, manufacturing

capacities, and employment levels.

2.13 UTILITY IMPACT ANALYSIS

The utility impact analysis will include an analysis of the impact of higher energy

conservation standards on the electric utility industries. DOE is considering adapting the

National Energy Modeling System (NEMS) produced by the EIA for this analysis. NEMS (EIA

2005) is a large multi­sectoral general­equilibrium model of the U.S. energy sector that has been

developed over the past decade by the EIA, primarily for the purpose of preparing DOE’s AEO.

In prior rulemakings, a variant of NEMS (currently termed NEMS­BT, BT referring to the

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DOE’s Building Technologies Program) was developed to better address the specific impacts of

an equipment efficiency standard.

The NEMS produces a widely recognized baseline energy forecast for the United States

through the year 2030, and is available in the public domain. The typical NEMS outputs include

forecasts of electricity sales, price, and avoided electric generating capacity. DOE conducted the

utility impact analysis as a scenario departing from the latest AEO reference case. In other

words, the energy savings impacts from amended energy conservation standards were modeled

using NEMS­BT to generate forecasts that deviate from the AEO reference case.

2.14 ENVIRONMENTAL ASSESSMENT

DOE conducted the environmental assessment (EA) pursuant to the National

Environmental Policy Act and the requirements under 42 U.S.C. 6295(o)(2) to determine the

environmental impacts of the amended standards. (42 U.S.C. 6316(a)) The primary

environmental effects of energy conservation standards for GSFL and IRL are likely to be

reduced emissions resulting from reduced electrical energy consumption. The environmental

impact analysis will track the impact of possible standards on three energy­related emissions:

carbon dioxide (CO2), nitrogen oxides (NOX), and mercury (Hg). The analyses do not include

the estimated reduction in power plant emissions of sulfur dioxide (SO2) because the Clean Air

Act Amendments of 1990 set an emissions cap on SO2 emitted by the power generation sector

and it is assumed that SO2 emissions will always be at, or near, the ceiling. DOE based the

environmental assessment calculations on the NEMS­BT modeling work proposed for the utility

impact analysis. The output is the forecasted physical emissions. The net benefit of the standard

is the difference between emissions estimated by NEMS­BT and the AEO2008 Reference Case.

This approach has the advantage of examining the marginal impact of standards for general

service fluorescent lamps and incandescent reflector lamps on the utility generation mix and the

subsequent environmental emissions.

CO2 emissions are tracked in NEMS­BT by a detailed module that produces robust results

because of its broad coverage of all sectors and inclusion of interactive effects. NEMS­BT also

includes a module for SO2­allowance trading and delivers a forecast of SO2­allowance prices. It

is important to note, however, that simulation of SO2 trading tends to imply that physical

emissions effects will be zero, as it is assumed that SO2 emissions will always be at, or near, the

emissions cap set by the Clean Air Act. Thus, there is virtually no possible SO2 environmental

benefit from electricity savings as long as there is an enforcement of the emissions ceiling.

However, there is an SO2 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.

NOX emissions are currently not regulated by a national cap and trade program. DOE

generated low­ and high­end estimates of changes in NOX emissions associated with an energy

conservation standard using current emission rates for the power sector in AEO2008. Hg

emissions are also currently not regulated by a national cap and trade program. DOE generated

low­ and high­end estimates of changes in Hg emissions associated with an energy conservation

standard using current emission rates for the power sector in AEO2008.

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2.15 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can impact employment both directly and indirectly. Direct

employment impacts are changes in the number of employees at the factories that produce the

covered lamp types, along with the affiliated distribution and service companies, resulting from

the imposition of new standards. DOE will evaluate direct employment impacts in the MIA.

Indirect employment impacts 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. The combined direct and indirect employment impacts

will be investigated in the employment impact analysis using the Pacific Northwest National

Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. The ImSET model was

developed for DOE’s Office of Planning, Budget, and Analysis, and estimates the employment

and income effects of energy­saving technologies in buildings, industry, and transportation. In

comparison with simple economic multiplier approaches, ImSET allows for more complete and

automated analysis of the economic impacts of energy conservation investments.

2.16 REGULATORY IMPACT ANALYSIS

In the NOPR stage, DOE prepared a regulatory impact analysis (RIA) pursuant to

Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735, October 4, 1993,

which is subject to review under the Executive Order by the Office of Information and

Regulatory Affairs at the Office of Management and Budget. The RIA addressed the potential

for non­regulatory approaches to supplant or augment energy conservation standards to improve

the energy efficiency of GSFL and IRL on the market.

2.17 DEPARTMENT OF JUSTICE REVIEW

Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act (EPCA) states

that, before the Secretary of Energy may prescribe a new or amended energy conservation

standard, the Secretary shall ask the U.S. Attorney General to make a determination of “the

impact of any lessening of competition...that is likely to result from the imposition of the

standard.” (42 U.S.C. 6295) Pursuant to this requirement, DOE will solicit the views of DOJ on

any lessening of competition that is likely to result from the imposition of a proposed standard

and will give the views provided full consideration in assessing economic justification of a

proposed standard. In addition, DOE may consult with DOJ at earlier stages in the standards

development process to seek to obtain preliminary views on competitive impacts.

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