CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS

2.1 INTRODUCTION

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

............................................................................................................. 2-5 2.3 MARKET AND TECHNOLOGY ASSESSMENT

........................................................ 2-5 2.3.1 Market Assessment

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

................................................................................................... 2-6 2.4 SCREENING ANALYSIS

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

.......................................................................................... 2-7 2.6 ENERGY AND WATER USE DETERMINATION

...................................................... 2-7 2.7 MARKUPS FOR PRODUCT PR ICE DETERMINATION

........................................... 2-7 2.8 LIFE-CYCLE COST AND PAYB ACK PERIOD ANALYSIS

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

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

................................................................................ 2-9 2.10.1 National Energy Savings Analysis

................................................................................... 2-9 2.10.2 Net Present Value Analysis

........................................................................................... 2-10 2.10.3 Forecasted Efficiencies

.................................................................................................. 2-11 2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS

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

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

................................................................................... 2-12 2.14 EMPLOYMENT IMPACT ANALYSIS

....................................................................... 2-12 2.15 ENVIRONMENTAL ASSESSMENT

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

........................................................................ 2-14 2.17 DEPARTMENT OF JUSTICE REVIEW

..................................................................... 2-14

LIST OF FIGURES

Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

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

2-iCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION
Sections 6295(o)(2)(A) and 6316( a) of 42 U.S.C. require the U.S. Department of Energy (DOE) to set forth energy conservation sta ndards that are technologically feasible and economically justified and would result in sign ificant additional ener gy conservation. This chapter provides a description of the general analytical framework that DOE uses in developing such standards, in particular, standards for re sidential dishwashers, dehumidifiers, and cooking products, and commercial clothes washers (CCWs) (“the considered products”). The analytical framework is a description of the methodology, the analytical tools, and relationships among the various analyses that are part of this rule making. For example, the methodology that addresses the statutory requirement for economic justificat ion includes analyses of life-cycle cost (LCC); economic impact on manufacturers and users; na tional benefits; impact s, if any, on utility companies; and impacts, if any, from lesseni ng competition among manufact urers. DOE has also solicited the views of the U.S. Department of Justice (DOJ) on any lessening of competition likely to result from the imposition of a new or amended standard.

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

2-1Notice of Proposed Rulemaking (NOPR)

Final Rule Framework Document

Advance Notice of Proposed Rulemaking (ANOPR)

Utility Impact

Analysis Approaches Key Inputs Analyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Product Price Determination Life-Cycle Cost and Payback Period Analysis

National Impact Analysis Energy Use

Revise ANOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs

• Efficiency-Level 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

• Define Distribution Channels • Economic Census Data Analysis • Retail Price Collection and Analysis

• Manufacturer Prices • Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail Prices Design Energy/ Use • Efficiency/Performance • Manufacturing Cost

Candidate Standard

Levels • Analysis of Energy Use Data

Environmental Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle 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

Energy-Efficiency Levels

• Department of Justice Review Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Product Price Determination Life-Cycle Cost and Payback Period Analysis

National Impact Analysis Energy Use

Revise ANOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs Framework Document

• Efficiency-Level 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

• Define Distribution Channels • Economic Census Data Analysis • 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 • Manufacturing Cost

Candidate Standard

Levels • Analysis of Energy Use Data

Environmental Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle 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

Energy-Efficiency Levels

• Department of Justice Review

Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

2-2The analyses performed in the adva nce notice of proposed rulemaking (ANOPR) a stage and reported in the ANOPR technical support document (TSD) include:

• A market and technology assessment to char acterize the relevant product markets and existing technology options, in cluding prototype designs.

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

• An engineering analysis to de velop cost-efficiency relations hips, which are the increased manufacturer production cost (material, labo r, and factory overhead ) of more efficient products and equipment.

• A product price markup analysis to determin e how manufacturing costs are converted to customer prices, which are then used in th e LCC and payback period (PBP) analyses and the manufacturer impact analysis (MIA).

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

• An LCC and PBP analysis to calculate, at th e customer level, the discounted savings in operating costs (less maintenance and repair costs) throughout the estimated average life of the covered products and equipment, compar ed to any increase in the installed cost likely to result directly from the imposition of the standard.

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

• A national impact analysis to assess the aggr egate impacts at the national level of the NPV of total consumer LCC and national energy savings (NES).

• A preliminary MIA to identify key issues fo r the manufacturers and to qualitatively assess potential impacts of en ergy conservation standards.

a In energy conservation standards rulemakings in the past, and for this rulemaking, DOE issued an ANOPR following publication of the framework document. EISA 20 07 eliminated the requirement that DOE issue ANOPRs as part of the standards rulemaking process; see EISA 20 07, at sec. 307. DOE is now using an alternative process known as the preliminary activities and analyses. The pre liminary activities and analys es will provide the same information and ability for public comment as the ANOPR, but without publication of analyses in the Federal Register

.

2-3The analyses DOE performed in the subse quent notice of proposed rulemaking (NOPR) stage and reported in the NOPR TS D include those liste d below. In addition, DOE re-analyzed the work done in the ANOPR stage. Because the Energy Independence and Security Act of 2007 (EISA 2007) (Pub. L. No. 110-140) amended the En ergy Policy and Conservation Act (EPCA) of 1975 (42 U.S.C. 6291–6309) to establish revised energy conservation standards for residential dishwashers and dehumidifiers (42 U.S.C. 6295(g)(9 ) and (cc)), DOE did not adopt standards for these products in a final rule for this rulemaking, and instead codified thes e statutory standards in a separate final rule. 74 FR 12058 (March 23, 2009). Therefore, DOE did not re-analyze dishwashers and dehumidifiers for the NOPR, an d did not report the results of the ANOPR analyses for these products in the NOPR TSD nor is DOE reporting these results in this TSD.

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

• An MIA to estimate the financial impact of standards on manufactur ers and to calculate impacts on competition, employment , and manufacturing capacity.

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

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

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

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

After the publication of the NOPR, DOE reviewed comments fr om interested parties and revised its analyses as appropria te before issuing a final rule . In addition, information DOE received from interested parties regarding th e NOPR indicated that further analyses were warranted for CCWs and microwave ovens as to standby power. As a result, DOE continued the rulemaking for these products, and a fina l rule for conventional cooking products ( i.e. , cooktops and ovens) and microwave oven energy factor (EF) was published on April 8, 2009. 74 FR 16040.

DOE revised its NOPR analyses for CCWs in a subsequent supplemental notice of proposed rulemaking (SNOPR) that was published on November 9, 2009. 74 FR 57738. After the publication of the SNOPR, DOE reviewed comme nts from interested pa rties and revised its analyses to issue a final rule for CCWs.

2-4The information DOE developed for all covere d products and equipment as part of the market and technology assessment is presented in chapter 3, but only the details of the analyses for CCWs are included in this TSD. Discussi on of the analyses whic h were conducted at the NOPR stage for the covered products can be f ound in the NOPR TSD for this rulemaking, and updated analyses for the final rule for conventional cooking products and microwave oven EF are presented in the final rule TSD for those products. Details of th e revised analyses for microwave oven standby power will be provided in a separate TSD when a final rule for this product is published. This final rule TSD contains details of the revised SNOPR analyses conducted for CCWs.

2.2 BACKGROUND
As described in chapter 1, the July 15, 1996, Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products (the “Process Rule”), 61 FR 36974 (July 15, 1996) outlined procedural improvem ents to the standards rulemaking process which included a review of the following elements used in the rulemaking process: (1) economic models; (2) analytical tools; (3) methodologies; (4) non -regulatory approaches; and (5) prioritization of future rules. See appendix A to subpart C of Title 10 Code of Federal Regulations Part 430 (10 CFR Part 430).

DOE developed this analytical framew ork for the rulemaking on the considered equipment under the Process Rule. DOE documen ted this analytical framework in the Rulemaking Framework for Commercial Clothe s Washers and Residential Dishwashers, Dehumidifiers, and Cooking Products (March 15, 2006), and presente d the analytical approach to interested parties during a public meeti ng held on April 30, 2006. The framework document is available at http:// www1.eere.energy.gov/buildings/appliance_standards /

. The following sections provide a general descri ption of the different analyti cal components of the rulemaking framework.

2.3 MARKET AND TECHNOLOGY ASSESSMENT
The market and technology assessment charact erizes the relevant equipment markets and existing technology options, incl uding prototype designs, for the considered equipment.

2.3.1 Market Assessment
When initiating a standards rulemaking, DOE develops information on the present and past industry structure and market characteristics for the products and equipment concerned. This activity assesses the industry and equipment, both quantitatively and qualitatively, based on publicly available information. As such, for the considered products and equipment, DOE addressed the following: (1) manufacturer mark et share and characte ristics; (2) existing regulatory and non-regulatory produ ct efficiency improvement in itiatives; and (3) trends in

2-5product characteristics a nd retail markets. This information serves as resource material throughout the rulemaking.

DOE reviewed existing literature and interv iewed manufacturers to ge t an overall picture of the markets for the considered products and equipment in the United States. Industry publications and trade journals, government agencies, and trade organizations provided the bulk of the information, including information on: (1 ) manufacturers and thei r market share; (2) shipments by capacity; and (3) market saturation. Th e appropriate sections of this TSD describe the resulting information as DOE used it in the analysis.

DOE has used the most reliable and accurate da ta available at the time of each analysis in this rulemaking. All data is available for public review.

2.3.2 Technology Assessment
DOE typically uses information relating to existing and past technology options and prototype designs as inputs to determine what technologies manufacturer s use to attain higher performance levels. In consultation with interest ed parties, DOE develops a list of technologies for consideration. Initially, these technologies encompass all those it believes are technologically feasible.

DOE developed its list of technologically f easible design options for the considered products and equipment through consultation with manufacturers of components and systems, and from trade publications and technical pa pers. Since many options for improving product efficiency are available in existing units, produ ct literature and direct examination provided additional information.

2.4 SCREENING ANALYSIS
The screening analysis examines various technologies as to whether they: (1) are technologically feasible; (2) are practicable to manufacture, in stall, and service; (3) have an adverse impact on product utility or availability; and (4) have adverse impacts on health and safety. As described in section 2.3.2 above, DOE develops an initia l list of efficiencyenhancement options from the technologies id entified as technologically feasible in the technology assessment. Then DOE, in consultation w ith interested parties, reviews the list to determine if these options are practicable to ma nufacture, install, and se rvice, would adversely affect equipment utility or availability, or woul d have adverse impacts on health and safety. In addition, DOE removed from the list technology options that lack energy consumption data as well as technology options whose energy consump tion could not be adequately measured by existing DOE test procedures. In the engineering analysis, DOE further considers efficiency enhancement options that it did not sc reen out in the screening analysis.

2-62.5 ENGINEERING ANALYSIS
As presented in chapter 5, the engineering analysis establishes the relationship between the manufacturing cost and efficiency of CCWs. This relationship serves as the basis for cost/benefit calculations in te rms of individual consumers, manufacturers, and the Nation. Chapter 5 discusses the equipment classes DOE an alyzed, the representati ve baseline units, the incremental efficiency levels, the methodology DOE used to develop manufacturing costs, and the cost-efficiency curves.

In determining the relationship between ma nufacturer cost and energy efficiency for CCWs, DOE estimated the increase in manufacturer cost associated with technological changes that increase the efficiency of the baseline mode ls. DOE typically obtains cost estimates for the engineering analysis (which it al so uses in the MIA) from detaile d incremental cost data supplied by manufacturers, disaggregated into the cost of incremental material, labor, and overhead. DOE created an industry-wide anal ysis based primarily on the ma nufacturer-supplied data, and supplemented this analysis with a manufacturi ng cost estimate. This approach involved the limited laboratory testin g, data gained through review of recent residential clothes washer (RCW) engineering analyses, and other primar y and secondary resear ch. DOE obtained input from interested parties on the manufacturing co st estimates and assumptions to confirm their
accuracy.

For each of the equipment classes presented in chapter 5, DOE selected efficiency levels and estimated incremental cost data at each of these levels.

2.6 ENERGY AND WATER USE DETERMINATION
The energy use determination assessed th e energy- and water-savings potential of different efficiencies for CCWs.

As part of the energy use determination, DOE made certain engi neering assumptions regarding equipment applica tion, including how the equipmen t is operated and under what conditions. For CCWs, the test proc edure that is codified in th e Code of Federal Regulations (CFR) provides a viable method for es tablishing a unit’s rated efficiency— e.g. , cubic feet of capacity/kilowatt-hour energy consumption (kWh) —but does not provide an accurate means for establishing annual energy consumption. Because the test procedure is based on rating the performance of RCWs, the cycles-per-year va lues do not reflect CCW usage. Thus, DOE conducted further research to establish the ener gy and water consumption for this equipment.

2.7 MARKUPS FOR PRODUCT PRICE DETERMINATION
For the LCC and PBP analysis and the MIA, retail prices are required for the baseline efficiency level and all other efficiency levels under consideration. DOE de rived retail prices by

2-7applying manufacturer-to-customer markups to the manufacturing cost estimates. To develop markups, DOE identified di stribution channels ( i.e. , how the equipment is distributed from the manufacturer to the customer.) Once DOE esta blished proper distribution channels for each of the equipment classes, it relied on economic census data from the U.S. Census Bureau and input from the industry to define how equipment is ma rked up from the manufacturer to the customer.

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS
The effects of amended energy conserva tion standards are changes in operating expenses—usually a decrease—and changes in customer price—usually an increase. DOE analyzed the net effect of new standards on cu stomers by evaluating the net LCC using the costefficiency relationships derived in the engineering analysis, as we ll as the costs derived from the energy and water use determination. Inputs to the LCC calculation include th e installed cost to the customer (customer price plus installation co st), operating expenses (energy expenses and maintenance costs), the lifetime of th e equipment, and a discount rate.

The installed and operating costs of equipm ent typically change in response to new standards—installed cost typically increases whil e operating cost typically decreases. Thus, there is a specific time in the life of higher-than-bas eline efficiency equipment when the net operating cost benefit (in dollars) from the time of purchas e is equal to the incremental first cost of purchasing the higher efficiency unit. The length of time required for equipment to reach this cost-equivalence point is known as the payback period.

For the ANOPR, DOE conducted the LCC and PBP analysis using typical values to reflect the conditions in the field for equipment life, equipment reta il price, national or regional energy costs, energy consumption, and discount rates. DOE subsequently conducted the LCC subgroup analysis for the NOPR and included an assessment of impacts on subgroups of consumers. For the SNOPR and this final ru le, DOE updated the NOPR LCC and PBP analysis, as well as the LCC subgroup analysis, to reflect current energy costs.

To estimate the LCC for CCWs, DOE had to determine several input values, including retail prices; electricity and natural gas prices ; discount rates; mainte nance, service, and installation costs; and equipment lifetim es. DOE reviewed the Energy Information Administration (EIA)’s energy pri ce data to establish electricity and natural gas prices for residential customers. DOE used EIA’s Annual Energy Outlook (

AEO ) as the default source of projections of future energy pric es in its LCC and PBP analysis.

DOE developed discount rates for compan ies that purchase CCWs. It derived the discount rates from estimates of the interest or “finance cost” to purch ase residential products. Following financial theory, the fina nce cost of raising funds to purchase this equipment can be interpreted as: (1) the financial cost of any de bt incurred to purchase equipment, principally interest charges on debt, or (2) the opportunity cost of any equ ity used to purchase equipment, principally interest earnings on household equity.

2-8DOE considered expected changes to mainte nance, repair, and inst allation costs for the equipment covered in this rulemaking. Typical ly, small incremental changes in equipment efficiency incur no, or only very small, change s in repair and maintenance costs over baseline efficiency equipment. There is a greater probab ility that units with efficiencies that are significantly greater than the baseline will incur increased repair and maintenance costs, since such equipment is more likely to incorporate technologies that are new to the industry and not widely available. DOE used input from manufact urers, installers, and servicers in developing appropriate repair and maintenance costs.

DOE used information from various literature sources ( e.g. , Appliance Magazine ) and input from manufacturers and othe r interested parties to estab lish average equipment lifetimes for use in the LCC and subsequent analyses.

2.9 SHIPMENTS ANALYSIS
Shipment forecasts are required to calculat e the national impacts of standards on energy, NPV, and future manufacturer cash flows. DOE de veloped shipment forecasts using historical data as a basis for projecting future shipme nts of CCWs. In proj ecting shipments, DOE accounted for three market segments: (1) ne w construction; (2) existing buildings ( i.e. , replacing failed equipment); and (3) retired units not replaced. DOE used the non-replacement market segment to calibrate the Shipments Model to historical shipments data. For purposes of estimating the impacts of prospectiv e standards on equipment shipments ( i.e. , forecasting standards-case shipments,) DOE accounted for the combined effects of changes in purchase price, annual operating cost, and household income on the consumer purchase decision.

2.10 NATIONAL IMPACT ANALYSIS
The national impact analysis assesses the NPV of total customer LCC and NES. DOE determined both the NPV and the NES for the perf ormance levels considered for the equipment classes it analyzed. To make the analysis more acces sible and transparent to all interested parties, DOE prepared an NES Spreadsheet Model in Microsoft Excel to forecast energy savings and the national economic costs and savi ngs resulting from new standa rds. The model assessed the aggregate economic impacts of standards at the national level. The NES Spreadsheet Model does not use probability distributions for inputs or out puts. To assess the impact of input uncertainty on the NES and NPV results, DOE can conduct se nsitivity analyses by running scenarios on input variables that are of interest.

2.10.1 National Energy Savings Analysis
The inputs for the determination of NES are: (1) annual energy consumption per unit; (2) shipments; (3) product stock; (4) national energy consumption; and (5) s ite-to-source conversion

2-9factors. DOE calculated the national energy consumption by multiplying the number of units, or stock, of equipment (by vintage) by the unit energy consumption (also by vintage). b DOE calculated national annual energy savings as the difference between national energy consumption in the base case (without amended energy conser vation standards) and in each higher efficiency standards case. The analysis included estimated energy savings by fuel type used for generating electricity. DOE estimated energy consumption a nd savings based on site energy, and converted the electricity consumption and savings to sour ce energy. Cumulative energy savings are the sum of the annual NES, which DOE determined over specified time periods.

The stock of equipment is dependent on annual shipments and the lifetime of the equipment. DOE conducted shipments projectio ns under the base efficiency case and higher efficiency standards cases for a variety of possi ble equipment efficiency scenarios and trends. DOE determined that shipment projections under the higher standard efficiency cases were lower than those from the base efficiency case project ion, because of the higher installed cost of the more efficient equipment. The projections indicate d that higher installed costs would cause some customers to forego equipment purchases. As a result, DOE used the higher efficiency standard case shipments projection and, in turn, the resulting stock of equipment under the higher efficiency standards case, to determine the NES. Calculating the NES in this way avoids the inclusion of savings resulting from displaced shipments.

2.10.2 Net Present Value Analysis
The inputs for the determination of NPV ar e (1) total annual inst alled cost; (2) total annual operating cost savings; (3) discount factor; (4) pr esent value of cost s; and (5) present value of savings. DOE calculated NPV as the di fference between the present value of operating cost savings and the present value of increased total installed costs. It calculated net savings each year as the difference between total operating cost savings (including electricity, repair, and maintenance cost savings) and increases in tota l installed costs (incl uding equipment price and installation cost). DOE calcula ted savings over the life of the equipment, accounting for differences in yearly energy rates, and discounted future costs and savings to the present with a discount factor.

DOE calculated increases in total installed costs by multiplying the difference in the total installed cost between the base case and standards cas e by the annual shipment s in the standards case. Because costs of the more efficient equipm ent bought in the standards case are higher than those of the equipment bought in th e base case, price increases app ear as negative values in the NPV analysis.

DOE expressed operating cost savings as decr eases in operating costs associated with the lower energy consumption of equipment bought in th e standards case compared to the base case. Total operating cost savings are the product of savi ngs per unit and the numb er of units of each vintage surviving in a particular year.

b Vintage represents the age of the equipment.

2-102.10.3 Forecasted Efficiencies
Several of the inputs for the determination of NES ( e.g. , the annual energy consumption per unit) and NPV ( e.g. , the total annual installed cost and the total annual operating cost savings) are dependent on the effi ciency of the equipment. Thus, DOE forecasted efficiencies for the base case and standards cases. The forecaste d efficiencies specify the annual shipmentweighted average equipment efficiencies for future years.

DOE based the development of the equipmen t efficiencies in the base case on the assignment of efficiencies in the year 2005. In ot her words, DOE determined the distribution of equipment efficiencies currently in the market place to develop a shipment-weighted efficiency for the year 2005. As described in chapter 11, DOE assumed that forecasted efficiencies remained frozen at the efficiency level in the year 2005 until the end of the forecast period.

DOE based its standards case forecasts ( i.e. , forecasts of efficiency trends after standards take effect) on the use of a roll-up efficiency scen ario. Under a roll-up scen ario, all equipment at performance levels below a prospective standa rd are moved, or rolled up, to the minimum performance level allowed under the new standard. The distribution of equipment at efficiency levels above the new minimum standard levels is assumed to be unaffected ( i.e. , this equipment remains at its pre-standard performance levels.) The roll-up efficiency scenario dictates how DOE determined efficiency distri butions in the first year a new standard takes effect, but does not define how equipment efficiency will be dist ributed in the future. As was done for the base case, DOE assumed that forecasted efficiencies u nder the standards case remained frozen at the level in the year that standards became e ffective until the end of the forecast period.

2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS
The LCC subgroup analysis evaluates economic impacts of standards on any identifiable groups of customers who might be disproportionate ly affected by a change in the national energy conservation standard levels for CCWs. During the NOPR stage of the rulemaking, DOE evaluated the impacts of particul ar subgroups of customers in part by using the LCC Spreadsheet Model to analyze the LCC and PBP for these part icular customers. DOE updated these analyses for the SNOPR and the final rule.

For CCWs, DOE analyzed as subgroups: (1) low-income households; (2) households occupied by senior citizens; (3) small business subgroups that own commerc ial laundries; and (4) consumers not served by municipal water and sewer.

2.12 MANUFACTURER IMPACT ANALYSIS
The MIA assesses the impacts of ame nded energy conservation standards on manufacturers of CCWs. Potential impacts incl ude financial effects, both quantitative and

2-11qualitative, that might lead to changes in the manufacturing practices for this equipment. DOE identified these potential impact s through interviews with manuf acturers and other interested parties.

DOE conducted the MIA in three phases, a nd further tailored the analytical framework based on interested parties’ comments. In Phase I, an industry profile was created to characterize the industry, and a preliminary MIA was conducted to identify important issues that required consideration. In Phase II, an industry cash flow model and an interview questionnaire were prepared to guide subsequent discussions. In Ph ase III, manufacturers we re interviewed, and the impacts of standards were assessed both quantita tively and qualitativel y. Industry and cash flow and industry NPV were assessed through use of the Government Regulatory Impact Model (GRIM). Then impacts on competition, manufact uring capacity, employment, and cumulative regulatory burden were assesse d based on manufacturer interv iew feedback and discussions.

2.13 UTILITY IMPACT ANALYSIS

The utility impact analysis assessed the imp act of energy conservation standards on the electric and gas utility industrie s. To carry out this analysis, DOE used a variant of the EIA’s National Energy Modeling System (NEMS). NEMS is a large, multi-sectoral, partial-equilibrium model of the U.S. energy sector that EIA has developed over the past decade, primarily for the purpose of preparing the AEO . DOE used a variant known as NEMS-BT to provide key inputs to the analysis. c

NEMS produces a widely recognized baseli ne energy forecast for the United States through the year 2030, and is ava ilable in the public domain. The typical NEMS outputs include forecasts of electricity sales, price, and avoi ded electric generating capacity. DOE conducted the utility impact analysis as a scen ario departing from the latest AEO reference case. In other words, DOE modeled the energy savings impacts from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from the AEO reference case.

2.14 EMPLOYMENT IMPACT ANALYSIS
New or amended energy conservation standa rds can impact employ ment both directly and indirectly. Direct employment impacts are cha nges in the number of em ployees at the plants that produce CCWs, and at the affiliated distribu tion and service companies, resulting from the

a For more information on NEMS, pl ease refer to the U.S. Departme nt of Energy, Energy Information Administration documentati on . A useful summary is National Energy Modeling System: An Overview 2000
, DOE/EIA‐0581(2000), March 2000 . EI A approves use of the name N EMS to describe only an official version of the model without any modifica tion to code or data . Because this analysis entails some minor code modifications and the model is run under various policy scenari os that are variations on EIA assumptions, DOE refers to the model by the name NEMS‐BT (BT is DOE’s Buildi ng Technologies Program, under whose aegis this work has been perform ed) . NEMS‐BT was previously ca lled NEMS‐BRS.

2-12adoption of new standards. DOE evaluated direct employment impacts in the MIA. Indirect employment impacts may result from expenditu res shifting between goods (the substitution effect) and changes in income a nd overall expenditure levels (the income effect) that occur due to the adoption of standards. DOE investigated the combined direct and indirect employment impacts using the Pacific Northwest National Laboratory (PNNL)’s “Impact of Sector Energy Technologies” (ImSET) model. PNNL devel oped the ImSET model for DOE’s Office of Planning, Budget, and Analysis. The model estima tes the employment and income effects of energy-saving technologies in build ings, industry, and transportati on. In comparison with simple economic multiplier approaches, ImS ET allows for more complete and automated analysis of the economic impacts of energy conservation investments.

2.15 ENVIRONMENTAL ASSESSMENT
The environmental assessment estimates the impact of possible energy conservation standards on three ener gy-related pollutants—NO x , SO 2 , and Hg—as well as CO 2 emissions. The primary environmental effects of energy conservation standards for CCWs will be reduced emissions resulting from reduced electricity a nd natural gas consumpti on. For power sector CO 2 emissions, DOE based these calculations on the NEMS-BT modeling work used for the utility impact analysis. NEMS-BT tracks CO 2 emissions using a detailed module that produces robust results because of its broad coverage of all sect ors and inclusion of interactive effects. This approach has the advantage of examining the ma rginal impact of energy conservation standards for CCWs on the utility generation mix and the subsequent environmental emissions. There are two rules regulating SO 2 , NO x , and Hg emissions, the Clean Air Intestate Rule (CAIR) and the Clean Air Mercury Rule (CAMR). Both the CAIR and CAMR were vacated by federal courts in July and February of 2008, respectively. However, on December 23, 2008, the U.S. Court of Appeals for the District of Columb ia Circuit decided to allow CAIR to remain in effect until it is replaced by a rule consistent with the cour t’s earlier opinion. The CAIR permanently caps emissions of SO 2 and NO x in 28 eastern States and the Dist rict of Columbia. The CAMR is closely related to the CAIR and would have established standards of performance for Hg emissions from new and existing coal-fired electr ic utility steam generating units. DOE used the NEMS-BT model for this fina l rule to estimate the NO x and Hg emissions reductions due to standards.

With regard to SO 2 emissions, DOE has preliminarily determined that SO 2 emissions from affected Electric Generating Units (EGUs) ar e subject to nationwide and regional emissions cap and trading programs that create un certainty about standard’s impact on SO 2 emissions. Title IV of the Clean Air Act sets an annual emissions cap on SO 2 for all affected EGUs. SO 2 emissions from 28 eastern States and the District of Columbia (D .C.) are also limited under the Clean Air Interstate Rule (CAIR, published in the Federal Register on May 12, 2005. 70 FR 25162 (May 12, 2005), which creates an allowance-based trading program that will gradually replace the Title IV program in those States and D.C. The attainment of the emissions caps is flexible among EGUs and is enforced through th e use of emissions allowances and tradable permits. The standard could lead EGUs to trade allowances and increase SO 2 emissions that

2-13offset some or all SO 2 emissions reductions attributable to th e standard. DOE is not certain that there will be reduced overall SO 2 emissions from the standa rds. The NEMS-BT modeling system that DOE plans to use to forecast em issions reductions currently indicates that no physical reductions in power sect or emissions would occur for SO 2 . However, remaining uncertainty prevents DOE from estimating SO 2 reductions from the standards at this time.

Because CCWs have an impact on commercial building CO 2 and NO x emissions at the site, DOE estimated the reduction in thes e building emissions due to standards.

DOE also estimated the economic value of CO 2 , NO x , and Hg emission reductions. DOE used several sources to estimate a range in the possible economic value. As noted above, there is a possible SO 2 impact from conservation in the form of changes in allowance prices. DOE used NEMS-BT to estimate the impact of standards on SO 2 -allowance trading and forecasts of SO 2 - allowance prices.

2.16 REGULATORY IMPACT ANALYSIS
DOE has prepared a regulatory impact analysis (RIA) under Executive Order 12866, “Regulatory Planning and Review ,” 58 FR 51735, October 4, 1993, wh ich is subject to review under the Executive Order by the Office of Inform ation and Regulatory Affairs (OIRA) at the Office of Management and Budget. The RIA evalua tes non-regulatory alternatives to standards, in terms of their ability to achieve significant en ergy savings in CCWs at a reasonable cost, and compares the effectiveness of each one to th e effectiveness of the proposed standards.

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

2.17 DEPARTMENT OF JUSTICE REVIEW
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...th at is likely to result from the imposition of the standard.” (42 U.S.C. 6295(o)) Pursuant to th is requirement, DOE solicited the views of the Department of Justice (DOJ) on any lessening of competition likely to result from the imposition of amended standards. DOE gave full consid eration to DOJ’s views in assessing economic justification for the amended standards.

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