REGULATORY IMPACT ANALYSIS FOR PROPOSED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING EQUIPMENT, AND POOL HEATERS TABLE OF CONTENTS 1.0 INTRODUCTION

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..................................................................................................... RIA-1 LIST OF TABLES Table RIA.1 Non-Regulatory Alternatives to Standards

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RIA-iREGULATORY IMPACT ANALYSIS FOR PROPOSED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING EQUIPMENT, AND POOL HEATERS 1.0 INTRODUCTION Under the Process Rule (Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products, 61 FR at 36974 (July 15, 1996)), the Department of Energy (DOE) is committed to continually explore non-regulatory alternatives to standards. DOE will prepare a draft regulatory impact analysis pursuant to E.O. 12866, “Regulatory Planning and Review,” which will be subject to review under the Executive Order by the Office of Management and Budget’s Office of Information and Regulatory Affairs. 58 FR at 51735. DOE has identified six major alternatives to standards as representing feasible policy options to achieve customer product energy efficiency. It will evaluate each alternative in terms of its ability to achieve significant energy savings at a reasonable cost, and will compare the effectiveness of each one to the effectiveness of the proposed standards rule. The non-regulatory means of achieving energy savings that DOE proposes to analyze are listed in Table RIA.1. The technical support document (TSD) in support of DOE’s notice of proposed rulemaking will include a complete quantitative analysis of each alternative, the methodology for which is discussed briefly below. Table RIA.1 Non-Regulatory Alternatives to Standards No new regulatory action Consumer tax credits Manufacturer tax credits Performance Standards Rebates Voluntary energy efficiency targets Early replacement Bulk government purchases 2.0 METHODOLOGY DOE will use the National Impact Analysis (NIA) Spreadsheet Models for each of the three appliance products to calculate the national energy savings and the net present value (NPV) corresponding to each alternative to the proposed standards. The NIA Spreadsheet Model for each of the three appliance products is discussed in Chapter 10 of the TSD. To compare each alternative quantitatively to the proposed conservation standards, DOE will need to quantify the effect of each alternative on the purchase and use of energy-efficient residential water heaters, direct heating equipment, and pool heaters. Once it has quantified each alternative, DOE will make the appropriate revisions to the inputs in the NIA Spreadsheet Models. Key inputs that DOE may revise in these models are: • Energy prices and escalation factors;

RIA-1• Implicit market discount rates for trading off purchase price against operating expense when choosing equipment efficiency; • Consumer purchase price, operating cost, and income elasticities; • Consumer price-versus-efficiency relationships; and • Equipment stock data (purchase of new equipment or turnover rates for inventories). The key measures of the impact of each alternative will be: • Energy use (in exajoules, or 10 18 joules): Cumulative energy use of the equipment from the effective date of the new standard to the year 2043 or 2045. DOE will report electricity consumption as primary energy. • National energy savings: Cumulative national energy use from the base case projection minus the alternative policy case projection. • Net present value: The value of future operating cost savings from equipment bought in the period from the effective date of the new standard (2013 for direct heating equipment and pool heaters, and 2015 for water heaters) to the year 2043 or 2045. DOE will calculate the NPV as the difference between the present value of equipment and operating expenditures (including energy) in the base case, and the present value of expenditures in each alternative policy case. DOE will discount future operating and equipment expenditures to 2007 using a seven-percent and three-percent real discount rate. It will calculate operating expenses (including energy costs) for the life of the equipment.

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