11-i CHAPTER 11. LIFE-CYCLE CO ST SUBGROUP ANALYSIS

TABLE OF CONTENTS

11.1 INTRODUCTION ......................................................................................................... 11-1

11.2 PURCHASE PRICE IMPACTS.................................................................................... 11-111-1 CHAPTER 11. LIFE-CYCLE COST SU BGROUP ANALYSIS

11.1 INTRODUCTION

The life-cycle cost (LCC) subgroup analysis ev aluates impacts on any identifiable groups or customers who may be dispropo rtionately affected by any nati onal energy efficiency standard level. The U.S. Department of Energy (DOE) will conduct this analysis as one of the analyses for the notice of proposed rulemaking. DOE will accomplish this, in part, by analyzing the LCC and payback periods (PBPs) for those customers that fall into any iden tifiable groups. DOE plans to evaluate varia tions in regional energy prices and variations in energy use that might affect the net present value of a standard to customer subpopulat ions. To the extent possible, DOE will obtain estimates of each input parameter’s variability and will consider this variability in its calculation of customer impacts. DOE plan s to perform sensitivity analyses to consider how differences in energy use will affect subgroups of customers.

DOE will determine the impact on customer subgroups using the LCC spreadsheet model, which allows for different data inputs. The standard life-cycle cost and payback period analysis (described in the pr eliminary Technical Support Docume nt (TSD) chapter 8) focuses on residential, commercial, industrial and agricultural cons umers that use small electric motors or equipment containing small electric motors. DOE can use the LCC spreadsheet model to analyze the LCC for any subgroup by sampling only that subgroup. Model inputs used by the Department to determine LCC and PBPs are desc ribed in detail in the life-cycle cost and payback period analysis (see preliminary TSD chapter 8).

In the case of small electric motors, some possible subgroups DOE may choose to consider are: (1) small businesses (i.e., those with low annual revenues) and (2) farmers. These subgroups may experience different economic cond itions than the average owner of a small electric motor. Small businesses are likely to have higher borrowing costs and cost of capital than larger commercial and i ndustrial firms. Farmers may ha ve lower costs of electricity compared to the average small electric motor owner, and this may decrease the potential operating cost reductions from improved efficiency small electric motors for this subgroup.

11.2 PURCHASE PRICE IMPACTS

DOE will be especially sensitiv e to increases in the purchase price of the equipment due to new standards, to avoid negative impacts on id entifiable population groups that may not be able to afford significant increases in equipment price. For such customers that are sensitive to price increases, increases in first costs of a product can precl ude the purchase of a new model of that product. As a result, some customers may reta in products past their useful life. These older products are generally less efficien t to begin with, and their effici ency may deteriorate further if11-2 they are retained beyond th eir useful life. Increas es in first cost also can preclude the purchase and use of a product altogether, re sulting in a potentially large loss of utility to the customer.