## Results of the Appliance Rulemaking Process Improvement Effort Preliminary DRAFT for Review

April 26, 1996

U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy 1000 Independence Avenue, SW Washington, DC 20585 202-586-9220 Fax: 202-586-9260 

## Results of the Appliance Rulemaking Process Improvement Effort Preliminary DRAFT 

## for Review

April 26, 1996

U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy 1000 Independence Avenue, SW Washington, DC 20585 202-586-9220 Fax: 202-586-9260List of Tables

1. Letter from the Assistant Secretary

................................................................ 1-1 2. Major Themes of Stakeholder Consultations

................................................. 2-1 2.1 Background and Methodology ............................................................................. 2-1 2.2 Process Improvements ............................................. ....... ............................... 2-2 2.3 Prioritization of Rulemaking ............................................................................... 2-2, 2.4 Analysis Improvements ....................................................................................... 2-3 2.4.1 Product Issues .................................................................................................. 2-3 2.4.2 Consumer Issues ............................................................................................... 2-5 2.4.3 Manufacturer Issues............. ............................................................................. 2-6 2.4.4 National Issues ................................................................................................. 2-10 2.5 DOE Decision-Making ........................................................................................ 2-13 2.5.1 Characterizing Uncertaintv .............................................................................. 2-13 2.5.2 Involving Senior DOE Decision-Makers .......................................................... 2-13 2.5.3 Alternatives to Appliance Standards .................................................................2-14 3. Process Improvement Plan for Appliance Efficiency Standards

................. 3-1 3.1 Objectives ............................................................................................................ 3-1 3.2 Proposed Process Improvements for the Development of Appliance and Equipment Efficiency Standards ......................................................................... 3-2 3.2.1 Introduction ...................................................................................................... 3-2 3.2.2 Priority-Setting (All Products) ......................................................................... 3-2 3.2.3 Screening (Product-Specific) ........................................................................... 3-3 3.2.4 Analysis of Impacts ........................................................................................... 3-7 3.2.5 Final Standards ................................................................................................ 3-9 3.2.6 Crosscutting Analytical Assumptions ............................................................... 3-9 3.2.7 Test Procedures ................................................................................................ 3-10 3.2.8 Stakeholder Negotiations ................................................................................. 3-10 4. Analytical Improvements Agenda

.................................................................... 4-1 4.1 Engineering Analysis .......................................................................................... 4-1 4.2 Impacts on Manufacturers .................................................................................. 4-1 4.3 Alternatives to Standards ................................................................................... 4-1 5. Next Steps
........................................................................................................_ 5-1 5.1 Final Report on Results of the Appliance Rulemaking Process Improvement Effort ........................................................................................... 5-1 5.2 Priority-Setting Analysis and Development of a New Regulatory Agenda....... 5-1 5.3 Current Status/On-Going Activities ................................................................... 5-1 5.4 Analytical Improvements Agenda ...................................................................... 5-2 Table 3-1: Decision Criteria for Priority-Setting .............................................. ..... 3-3 Table 3-2: Decision Criteria for Screening of Design Options, Phase I ................... 3-5 Table 3-3: Decision Criteria for Selection of Candidate Standard Levels, Phase 11. 3-6 Table 3-4: Decision Criteria for Selection of Proposed Standard ............................. 3-8

ii List ofTables

1. Letterfrom the Assistant Secretary

................................................................ 1-1 2. MajorThemes of Stakeholder Consultations

................................................. 2-1 2.1Background and Methodology

............................................................................ 2-1 2.2 Process Improvements

.........................................................................................2-2 2.3 Prioritization ofRulemaking

............................................................................... 2-2, 2.4 Analysis Improvements

.......................................................................................2-3 2.4.1 ProductIssues

.................................................................................................. 2-3 2.4.2 ConsumerIssues

............................................................................................... 2-5 2.4.3ManufacturerIssues

.......................................................................................... 2-6 2.4.4National Issues

................................................................................................. 2-10 2.5 DOE Decision-Making

........................................................................................ 2-13 2.5.1 Characterizing Uncertainty

..... ......................................................................... 

### 2-1 3 2.5.2 Involving SeniorDOEDecision-Makers

............................,.............................2-13 2.5.3Alternatives toAppliance Standards

................................................................2-14 3. Process Improvement Plan for Appliance Efficiency Standards

................. 3-1 3.1 Objectives

............................................................................................................ 3-1 3.2 Proposed Process Improvements for the Development ofAppliance and Equipment Efficiency Standards

......................................................................... 3-2 3.2.1 Introduction

..................................................................... ................................. 3-2 3.2.2 Priority-Setting (All Products}

.......................; .................................................3-2 3.2.3 Screening (Product-Specific)

........................................................................... 3-3 3.2.4Analysis of bnpacts

...............................: .................................. ......................... 3-7 3.2.5 Final Standards

................................................................................................ 3-9 3.2.6 CrosscuttingAnalyticalAssumptions

...............................................................3-9 3.2.7 Test Procedures

................................................................................................ 3-10 3.2.8StakeholderNegotiations

................................................................................. 3-10 4. Analytical Improvements Agenda

.................................................................... 4-1 4.1 Engineering Analysis,

..........................................................................................4-1 4.2 Impacts on Manufacturers

..................................................................................4-1 4.3 Alternatives to Standards

........................................., ..........................................4-1 5.'Next Steps...............................•..•........•.............•.......................•............•.........

_5-1 5.1 Final Report on Results ofthe Appliance Rulemaking Process Improvement Effort

...........................................................................................5-1 5.2 Priority-Setting Analysis and Development ofa New Regulatory Agenda

....... 5-1 5.3 Current Status/On-Going Activities

................................................................... 5-1 5.4 Analytical Improvements Agenda

...................................................................... 5-2 Table 3-1: Decision Criteria for Priority-Setting

....................................................... 3-3 Table 3-2: Decision Criteria for Screening ofDesign Options, Phase 1

................... 3-5 Table 3-3: Decision Criteria for Selection ofCandidate Standard Levels, Phase II. 3-6 Table 3-4: Decision Criteria for Selection ofProposed Standard

............................. 3-8

ii1. Letter from the Assistant Secretary



### Department of Energy Washington, DC 20585

Since the National Performance Review's recommendations on Regulatory Reform were issued over two years ago, the U.S. Department of Energy has forged new ways of carrying out its appliance standards rulemaking responsibilities. To supplement the traditional rulemaking process, the Department has encouraged consensus-based alternatives and invited interest group participation in the early stages of rule proposals through technical sessions, workshops, and other agreement-based processes. In September 1995, the Department announced a formal appliance efficiency standards process improvement effort, calling on conservation groups, manufacturers, trade associations, state agencies, utilities, and other interested parties to guide our work. To date, the Department's process improvement efforts have consisted of four initiatives all of which have included extensive and in-depth stakeholder consultation and review: • A series of preliminary meetings were held to identify opportunities for improvement in the rulenaking process, standards priority setting, analysis methods and Department decision-making; • In-depth interviews were conducted with thirty organizations that have participated in past appliance rulemakings; • A preliminary draft Process Improvement Plan was developed from these initial meetings and interviews; • A workshop was held to obtain broad stakeholder input on a Major Themes document (summarizing the past consultations) and on the Department's draft Process Improvement Plan. This draft report presents the results of the Department's process improvement effort and is being distributed for the purpose of obtaining additional comment from interested parties. After this document has been reviewed and commented upon, it will receive widespread publication and will form the basis for continuing to move forward with an improved, more transparent process for the setting of energy efficiency standards for appliances. In this document, the Department presents its perspective on the major issues and themes raised in previous consultations and, as requested by our stakeholders at the March workshop, presents its plan in greater detail. The closing sections of the report


### DRAFT 4/30/96 4 : 13 PM 1-1 1. Letter from the Assistant Secretary



### Department of Energy Washington, DC 20585

Since the National Performance Review's recommendations on Regulatory Reform were issued over two years ago, the U.S. Department ofEnergy has forged new ways of carrying out its appliance standards rulemaking responsibilities. To supplement the traditional rulemaking process, the Department has encouraged consensus-based alternatives and invited interest group participation in the early stages ofrule proposals through technical sessions, workshops, and other agreement-based processes. In September 1995, the Department announced a formal appliance efficiency standards process improvement effort, calling on conservation groups, manufacturers, trade associations, state agencies, utilities, and other interested parties to guide our work. To date, the Department's process improvement efforts have consisted offour initiatives all ofwhich have included extensive and in-depth stakeholderconsultation and review:
• A s.eries ofpreliminary meetings were held to identify opportunities for improvement in the rulerriaking process, standards priority setting, analysis methods and Department decision-making;

• In-depth interviews were conducted with thirty organizations that have participated in past appliance rulemakings;
• A preliminary draft Process Improvement Plan was developed from these initial meetings and interviews;
• A workshop was held to obtain broad stakeholder input onaMajor Themes document (summarizing the past consultations) and on the Department's draft Process Improvement Plan. This draft report presents the results ofthe Department's process improvement effort and is being distributed for the purpose ofobtaining additional comment from interested parties. After this document has been reviewed and commented upon, it will receive widespread publication and will form the basis for continuing to move forward with an improved, more transparent process for the setting ofenergy efficiency standards for appliances.
In this document, the Department presents its perspective on the major issues and. themes raised in previous consultations a'nd, as requested by our stakeholders at the March workshop, presents its plan in greater detail. The closing sections ofthe report


### DRAFT 4/30/96 4:13 PM 1-1describe the next steps in the Department's improvement effort. Three essential elements are: a review of the manufacturing impact analysis model and methodologies; a public workshop on alternatives to standards; and the commencement of work on the prioritization of future rules, all of which will occur during the next few months and will continue to invite extensive stakeholder consultation. Tremendous effort has gone into the Department's process improvement planning by the Department's many stakeholders. I want to thank you, and I look forward to receiving your additional comments on this important Department initiative by May 20th, 1996.

Sincerely,

Christine A. Ervin Assistant Secretary Energy Efficiency and Renewable Energy 1000 Independence Avenue, SW Washington, DC 20585 202-586-9220 Fax: 202-586-9260



### DRAFT 4/30/96 4: 13 PM ' 1-2 describe the next steps in the Department's improvementeffort. Three essential elements are: a review ofthe: manufacturing impact analysis model and methodologies; a publiC workshop on alternatives to standards; and the commencement ofwork on the prioritization offuture rules, all ofwhich will occur during the next few months and will continue to invite extensive stakeholder consultation. Tremendous effort has gone into the Department's process improvement planning by the Department's many stakeholders. I wantto thank you, and I lookforward to receiving your additional comments on this important Department initiative by May 20th, 1996.



## DRAFT 4/30/96 4:13 PM ' Sincerely,

Christine A. Ervin Assistant Secretary Energy Efficiency and Renewable Energy 1000 Independence Avenue, SW Washington, DC 20585 202-586-9220 Fax: 202-586-9260

1-22. Major Themes of Stakeholder Consultations

2.1 Background and Methodology In September 1995, the U.S. Department of Energy (hereafter referred to as the Department or DOE) initiated an appliance standards rulemaking process improvement effort. To assist the Department in this effort, interested parties representing conservation groups, manufacturers, trade associations, state agencies, and utilities were asked to provide critical review and guidance in structuring the improvement process. Using their expertise and experience with standards development, essential issues were discussed through the use of a series of preliminary meetings, in-depth interviews, and a public workshop. Preliminary Meetings: A series of four meetings were held where persons representing a range of interested parties identified opportunities for improvement in four general areas: • The rulemaking process • Priority setting • Analysis methods • Department decision-making Each of these items is discussed in detail in Sections 2.2 - 2.5.
Interviews: Stakeholders worked with the Department and its contractors in the development of an interview guide that the Department used to obtain input from a larger number of parties through in-person and phone interviews. These interviews were held with a widespread sample of fifty individuals representing thirty different interests, all of whom had participated in previous appliance rulemakings. The interviews solicited specific comments on the various aspects of the rulemaking process and methodology including: • The formal regulatory process as specified by the law, including schedules • The weighing of benefits and burdens of standards • Technical and economic models/methodology • Cooperative development of standards • Consideration of alternatives to product standards Workshop: The interviews and small group meetings helped the Department prepare for a two-day public workshop on improving the appliance standards rulemaking process which was held on March 19-20, 1996. Feedback obtained during this meeting helped the Department better define key issues and was instrumental in preparing a more detailed Process Improvement Plan as presented in Section 3 of this document. The next four sections present the "Major Themes" of the stakeholder consultations. Process Improvements, Prioritization of Rulemakings, Analysis Improvements, and DOE Decision-Making are the broad areas that received extensive commentary.



### DRAFT 4/30/96 4: 13 PM 2-1 2. Major Themes of Stakeholder Consultations

2.1 Background and Methodology
In September 1995, the U.S. Department ofEnergy (hereafterreferred to as the Department orDOE) initiated an appliance standards rulemaking process improvement effort. To assist the Department in this effort, interested parties representing conservation groups, manufacturers, trade associations, state agencies, and utilities were asked to provide critical review and guidance in structuring the improvement process. Using their expertise and experience with standards development, essential issues were discussed through the use ofa series ofpreliminary meetings, in-depth interviews, and a public workshop. PreliminaryMeetings: A series offour meetings were held where persons representing a range ofinterested parties identified opportunities for improvement in four general areas:

• The rulemaking process • Priority setting
• Analysis methods
• Department decision-making Each ofthese items is discussed in detail in Sections 2.2

- 2.5.
Interviews: Stakeholders worked with the Department and its contractors in the development ofan interview guide that the Department used to obtain input from a larger number ofparties through in-person and phone interviews. These interviews were held with a widespread sample offifty individuals representing thirty different interests, all ofwhom had participated in previous appliance rulemakings. The interviews solicited specific comments on the various aspects ofthe rulemaking process and methodology including:

• The formal regulatory process as specified by the law, including schedules
• The weighing ofbenefits and burdens ofstandards
• Technical and economic models/methodology
• Cooperative development ofstandards
• Consideration ofalternatives to product standards Workshop: The interviews and small group meetings helped the Department prepare for atwo-day public workshop on improving the appliance standards rulemaking process which was held on March 19-20, 1996. Feedback obtained during this meeting helped the Department betterdefine key issues and was instrumental in preparing a more detailed Process Improvement Plan as presented in Section 3 ofthis document. The next four sections presentthe "MajorThemes" ofthe stakeholderconsultations. Process Improvements, Prioritization ofRulemakings, Analysis Improvements, and DOE Decision-Making are the broad areas that received extensive commentary.



### DRAFT 4/30/96 4:13 PM 2-12.2 Process Improvements A common element in many of the suggestions from stakeholders for an improved process was the perceived need for more participation by all groups in all stages of the standards setting process. The Department promulgates appliance standards through a notice and comment rulemaking process involving two rounds of public comment. The regulations are established by a three-phase public process: (a) Advance Notice of Proposed Rulemaking (ANOPR), (b) Notice of Proposed Rulemaking (NOPR), and (c) Final Rule. Building upon the National Performance Review's regulatory reform initiative, which began in 1993; an effort has been underway at the Department to increase stakeholder consultation at every stage of the rulemaking process. In addition to holding the formal public hearings and soliciting written comments, the Department has attempted to increase its use of public workshops and other less formal tools to develop more effective standards. Whenever possible, the Department has encouraged consensus rulemaking such as the consensus recommendations recently proposed to the Department for new refrigerator standards. The Department received broad support for its recent attempts to "open" the rulemaking process and obtain input from interested parties in the early stages of the rulemaking process-well in advance of the ANOPR. Many participants felt that the past process did not provide sufficient stakeholder involvement or dialogue prior to the issuance of the NOPR. Stakeholders recommended that the Department continue to involve participants early and often in the process, since frequent interaction provides a more balanced perspective on potential standards levels and identifies critical information required to effectively conduct the analyses. Institutionalizing early involvement of stakeholders is an important objective of the Department's Process Improvement Plan.
2.3 Prioritization of Rulemaking Stakeholders expressed the desire to have the Department prioritize rulemakings with input from the public and using clearly established criteria. Stakeholders were concerned that the Department was critically behind schedule in its statutory requirements and could not achieve the original rulemaking timetable set by legislation. Prioritization of future rulemakings was emphasized as a fundamental means of improving the efficacy of the appliance program. The Department agreed that focusing attention on high priority rulemakings, rather than trying to address all required rulemakings at once, would be more productive.



### DRAFT 4/30/96 4:13 PM 2-2 2.2 Process Improvements 

### A common elementin many ofthe suggestions from stakeholders for animproved process was the perceived need for moreparticipationby all groupsin all stages of the standards settingprocess. The Department promulgates appliance standards through a notice and comment rulemaking process involving two rounds ofpublic comment. Theregulations are established by a three-phase public process: (a) Advance Notice ofProposed Rulemaking (ANOPR), (b) Notice ofProposed Rulemaking (NOPR), and (c) Final Rule.

. Building upon the National Performance Review's regulatory reform initiative, which began in 1993; an effort has been underway at the Department to increase stakeholder consultation at every stage ofthe rulemaking process. In addition to holding the formal public hearings and soliciting written comments, the Department has attempted to increase its use ofpublic workshops and other less formal tools to develop more effective standards. Wheneverpossible, the Department has encouraged consensus rulemaking such as the consensus recommendations recently proposed to the Department for new refrigerator standards. The Department received broad support for its recent attempts to "open" the rulemaking process and obtain input from interested parties in the early stages ofthe rulemaking process-well in advance ofthe ANOPR. Many participants felt that the past process did not provide sufficient stakeholderinvolvement or dialogue prior to the issuance of the NOPR. Stakeholders recommended that the Department continue to involve participants early and often in the process, since frequent interaction provides a more balanced perspective on potential standards levels and identifies critical information required to effectively conduct the analyses. 

### Institutionalizing early involvement ofstakeholders is an importantobjective ofthe Department's Process ImprovementPlan.

2.3 Prioritization of Rulemaking 

### Stakeholdersexpressed thedesire tohavetheDepartmentprioritize rulemakings with inputfrom the public and using clearlyestablished criteria Stakeholders were concerned that the Department was critically behind schedule in its statutory requirements and could not achieve the original rulemaking timetable set by legislation. Prioritization offuture rulemakings was emphasized as a fundamental means ofimproving the efficacy ofthe appliance program. The Department agreed that focusing attention on high priority rulemakings, rather than trying to address all required rulemakings at once, would be more productive.



### DRAFT 4/30/96 4:13 PM 2-2Suggested criteria to be used in planning and prioritizing future rules include: • The legislated schedule • The potential for energy savings • An evaluation of market direction • The status of related test procedure revisions, if required • The status of regulation development (amount of analysis and other work already completed) • The presence of unresolved issues • The interrelationships with other Department or other agency regulations (Environmental Protection Agency, etc.). The Department agreed that focusing attention on high priority rulemakings, rather than trying to address all required rulemakings at once, would be more productive. The Department has identified the development of the Executive Branch's Regulatory Agenda, currently published twice yearly, as the process during which it could obtain significant stakeholder input into priority setting. Prioritization of rulemakings is a major element in the Department 's Process Improvement Plan, which is described in greater detail in Section 3 .2. The specific criteria the Department is considering are found in Table 3-1.
2.4 Analysis Improvements The Department, in consultation with its stakeholders, defined four broad categories of issues that needed to be addressed in its analysis of economic impacts: product issues, consumer issues, manufacturer issues, and national benefit and cost issues. Each is discussed in detail in the following sections. 2.4.1 Product Issues The first broad analysis improvement category focuses on issues relating to product attributes. Product issues arise in the course of conducting the engineering analysis, which seeks to answer three questions: (1) What are "technically feasible" design options?; (2) How much would these options cost?; and (3) How much energy would they save? This component of the rulemaking analysis involves obtaining manufacturing data, and may require developing or modifying product energy performance simulation models. The focus of stakeholder comments has been on the Department's interpretation of what constitutes a "technically feasible" product design, as well as with the difficulties of setting standards for products that are components of larger systems. "Max Tech" Several stakeholders oppose the way the Department has historically applied the statutory provision requiring that a maximum technologically feasible design ("max tech") be considered for each product under review in the standards rulemaking process.


### DRAFT 4/30/96 4:13 PM 2-3 Suggested criteria to be used in planning and prioritizing future rules include:

• The legislated schedule
• The potential for energy savings
• An evaluation ofmarket direction
• The status ofrelated test procedure revisions, ifrequired
• The status ofregulation development (amount ofanalysis and otherwork already completed)
• The presence ofunresolved issues
• The interrelationships with otherDepartment orother agency regulations (Environmental Protection Agency, etc.). 

### TheDepartmentagreed thatfocusing attention on high priorityrulemakings, ratherthan trying to address all required rulemakings atonce, would bemore productive. TheDepartmenthas identifiedthe development ofthe Executive Branch's Regulatory Agenda, currentlypublished twice yearly, as theprocess during which it could obtain significantstakeholderinputinto priority setting. Prioritization ofrulemakings is a**~ajor** 

### elementin theDepartment's Process ImprovementPlan, which is described in greaterdetail in Section 3.2. The specific criteriathe Departmentis considering arefound in Table3-1.

2.4 Analysis Improvements The Department, in consultation with its stakeholders, defined four broad categories of issues that needed to be addressed in its analysis ofeconomic impacts: product issues, consumer issues, manufacturer issues, and national benefit and cost issues. Each is discussed in detail in the following sections.
2.4.1 Product Issues The first broad analysis improvement category focuses on issues relating to product attributes. Product issues arise in the course ofconducting the engineering analysis, which seeks to answer three questions: (1) What are "technically feasible" design options?; (2) How much would these options cost?; and (3) How much energy would they save? This component ofthe rulemaking analysis involves obtaining

. manufacturing data, and may require developing ormodifying product energy performance simulation models. The focus ofstakeholder comments has been on the Department's interpretation ofwhat constitutes a "technically feasible" product design, as well as with the difficulties of setting standards for products that are components oflarger systems. "Max Tech" 

### Several stakeholders oppose the way the Departmenthas historically applied the statutoryprovision requiring that a maximum technologically feasible design ("max tech") be cons.dered for each productunderreview in the standards rulemaking process. '


### DRAFT 4/30/96 4:13 PM 2-3The Energy Policy and Conservation Act (EPCA) requires that standards achieve the

maximum improvement in energy efficiency that is both "technologically feasible" and "economically justified." Accordingly, for each class of product under consideration, a maximum technologically feasible design ("max tech") is identified. If a standard level achieving the maximum technologically feasible improvement in efficiency is not economically justified, EPCA requires DOE to explain why. The criteria used by the Department for evaluating design options for technical feasibility are the design options already in use by industry or that research has progressed to the development of a prototype. These criteria are consistent with the court ruling in Herrington v. Natural Resources Defense Council. Manufacturer interests generally believe that the Department has misapplied "Max Tech" by giving consideration to designs that should be immediately dismissed on the bases of criteria such as manufacturing practicality, anti-competitive patent restrictions, and product utility, reliability, and safety. Manufacturers have expressed their desire to see the theoretical "Max Tech" level quickly eliminated from consideration, when justified, to reduce uncertainty as to the likely direction of the standards process. As described below, the Department already considers these criteria, but often does so in later analyses. Several interested parties have suggested that DOE should not consider options without demonstration of manufacturing practicality. Currently, the ability to manufacture is considered under the economic justification analysis. One manufacturer has recommended that DOE not consider design options which are subject to patent restrictions. EPCA, however, already directs the Department to consider in a separate analysis any lessening of competition that is likely to result from appliance standards.. Several manufacturers and trade associations commented that in past rulemakings, candidate standards levels were considered that did not meet industry norms for product utility, reliability, and safety. Utility, reliability, and safety issues are specifically analyzed during the engineering analysis. To the extent that comments or research show that a product's utility or performance characteristics are modified, a separate product class with a different efficiency standard could be created. The Department expects that more stakeholder consultation during the engineering analysis will help identify technologies that appear to have unacceptable impacts. DOE has the flexibility to structure its analysis to consider elements of economic justification such as, manufacturing practicality, product utility, and anti-competitive effects early enough in the process to eliminate further analyses of levels which can be rejected on these bases. Components vs. Systems Stakeholders were concerned that, at times , the Department overlooked system interactions when setting standards for a product.



### DRAFT 4/30/96 4:13 PM 2-4 The Energy Policy and Conservation Act (EPCA) requires that standards achieve the maximum improvement in energy efficiency that is both "technologically feasible" and "economicallyjustified." Accordingly, for each class ofproductunderconsideration, a maximum technologically feasible design ("max tech") is identified. Ifa standard level achieving the maximum technologically feasible improvement in efficiency is not economicallyjustified, EPCA requires DOE to explain why. The criteria used by the Department for evaluating design options for technical

. feasibility are the design options already in use by industry orthatresearch has progressed to the development ofa prototype. These criteria are consistent with the court ruling in Herrington v. Natural Resources Defense Council. Manufacturer interests generally believe that the Department has misapplied "Max Tech" by giving consideration to designs that should be immediately dismissed on the bases ofcriteria such as manufacturing practicality, anti-competitive patent restrictions, and product utility, reliability, and safety. Manufacturers have expressed their desire to see the theoretical "Max Tech" level quickly eliminated from consideration, when justified, to reduce uncertainty as to the likely direction ofthe standards process. As described below, the Department already considers these criteria, but often does so in later analyses. Several interested parties have suggested that DOE should not consider options without demonstration ofmanufacturing practicality. Currently, the ability to manufacture is considered under the economicjustification analysis.
One manufacturerhas recommended that DOE not consider design options which are subjectto patentrestrictions. EPCA, however, already directs the Department to consider in a separate analysis any lessening ofcompetition that is likely to result from appliance standards

.. Several manufacturers and trade associations commented that in past rulemakings, candidate standards levels were considered that did not meet industry norms for product utility, reliability, and safety. Utility, reliability, and safety issues are specifically analyzed during the engineering analysis. To the extent that comments or research show that a product's utility or performance characteristics are modified, a separate product class with a different efficiency standard could be created. The Departmentexpects thatmore stakeholderconsultation duringthe engineering analysis will help identify technologies that appear to have unacceptableimpacts. DOEhas theflexibility to structureits analysis to consider elements ofeconomicjustification such as, manufacturingpracticality,product utility, and anti-competitive effects early enoughin the process to eliminatefurther analyses oflevels which can be rejected onthese bases. Components vs. Systems Stakeholders were concerned that, attimes, the Departmentoverlooked system interactions when setting standardsfor a product.



### DRAFT 4/30/96 4:13 PM 2-4Manufacturers of lighting products and electric motors asked the Department to pay more attention to system interactions when regulating their products. Motors and ballasts are components of larger systems that deliver a service; lighting, air movement, pumping, etc. Mandating an efficiency standard on a component may not contribute to system energy savings in some situations. Instead, there may be more cost effective means of achieving higher total system efficiency. For example, in lighting, many factors such as luminare type and positioning, lamp type (incandescent, fluorescent, HID), control strategy, and even wall color can have a greater impact on energy savings than a lamp's efficiency. For this and similar reasons, several manufacturers suggested that alternatives to product standards be given greater consideration when regulating components. The Department believes lighting products will make an excellent case study to begin developing methodologies for evaluating alternatives to standards. This summer, DOE will host a workshop to review the engineering re-analysis in support of the ballast rulemaking

. At that time, the Department will solicit input on a proposed methodology for evaluating alternatives to standards. 2.4.2 Consumer Issues The second broad analysis improvements category focuses on issues relating to the impact of standards on consumers. Three issues dominated the discussions relative to the impact on consumers: a lack of consumer participation in the standards process; the merits of life-cycle costing; and the importance of distributive impacts. Consumer Participation Stakeholders expressed concern about the lack of consumer participation in past rulemakings and in the process improvement effort itself. The Department recognizes that in improving the standards development process, DOE should institutionalize processes that actively solicit consumer input during rulemakings. Two potential avenues were suggested: (1) linkages with organizations that have a large membership of consumers; and (2) direct consumer contact through polling or focus groups of a representative sample of individual consumers. In the course of future rulemakings, the Department will reach out to consumers to seek their input as to the impact of candidate standards levels and/or design options on product utility and performance. Life-Cycle Costs and Payback Period Several stakeholders recommended the Department abandon life -cycle costing. Some industry participants suggested the Department adopt a three-year payback hurdle to better approximate the observed purchasing criteria of the average consumer. Others consider life-cycle-costing appropriate but asked for greater consideration of the uncertainties both in the inputs and the results.



### DRAFT 4/30/96 4 : 13 PM 2-5 Manufacturers oflighting products and electric motors asked the Department to pay more attention to system interactions when regulating their products. Motors and ballasts are components oflarger systems that deliver a service; lighting, air movement, pumping, etc. Mandating an efficiency standard on a component may not contribute to system energy savings in some situations. Instead, there may be more costeffective means ofachieving higher total system efficiency. Forexample, in lighting, many factors such as luminare type and positioning, lamp type (incandescent, fluorescent,

. HID), control strategy, and even wallcolor can have a greater impact on energy savings than a lamp's efficiency. For this and similarreasons, several manufacturers suggested that alternatives to product standards be given greater consideration when regulating components. 

### TheDepartmentbelieves lightingproducts will make anexcellent case studyto begin developing methodologies for evaluating alternatives to standards.

. This summer,DOE will host a workshop to review theengineeringre-analysis in supportofthe ballastrulemaking. At thattime, the Departmentwill solicit input on a proposed methodology for**evalu~ting** 

### alternatives to standards.
2.4.2 ConsumerIssues The second broad analysis improvements category focuses on issues relating to the impact ofstandards on consumers. Three issues dominated the discussions relative to the impact on consumers: a lack ofconsumerparticipation in the standards process; the merits oflife-cycle costing; and the importance ofdistributive impacts. ConsumerParticipation 

### Stakeholders expressed concern aboutthe lack ofconsumerparticipationin past rulemakings and in the process improvementeffort itself. The Department recognizes that in improving the standards developmentprocess, DOE should institutionalize processes that actively solicit consumer input during rulemakings. Two potential avenues were suggested: (1) linkages with organizations that have a large membership ofconsumers; and (2) direct consumer contact through polling or focus groups ofa representative sample ofindividual consumers. 

### Inthe course offuture rulemakings, the Department will reach outto consumers to seek their input as to the impact ofcandidate standards levels and/or design options on productutility andperformance. Life-Cycle Costs andPaybackPeriod 

### Several stakeholders recommended the Departmentabandon life-cycle costing. Some industry participants suggested the Department adopt a three-yearpayback hurdle to better approximate the observed purchasing criteria ofthe average consumer. Others consider life-cycle-costing appropriate but asked for greater consideration ofthe uncertainties both in the inputs and the results.



### DRAFT 4/30/96 4:13 PM 2-5The Department is statutorily required to consider the savings in operating costs throughout the estimated average life of the covered product compared to any increase in price or maintenance expenses. The Department will continue to use life-cycle costing in the economic justification of standards levels. However, the screening analysis, described in section 3.2.3, will consider uncertainty in life-cycle-costing. Distributive Impacts Most stakeholders suggested that the Department give some level of consideration to the differential impact of standards on the non-average consumer. The Department is concerned about the variability of impacts on consumer life-cycle costs. The Department will use regional analysis and sensitivity analysis tools to evaluate the potential distributive impacts of candidate standards levels. The Department will consider negative impacts on large segments of society in determining standards levels. Where these impacts are high, DOE will consider voluntary programs to bring about the additional potential energy savings. Given the uncertainties in determining the "average " costs,, and given the "variance" in costs, the Department is committed to considering benefits over a range of situations in setting standards levels. 2.4.3 Manufacturer Issues The third broad analysis improvements category focuses on issues relating to the impact of standards on manufacturers. The analysis of the impact of appliance standards on manufacturers is extremely controversial. Numerous assumptions cannot be verified empirically for such issues as cost pass-through, elasticity of demand, foregone investments, and manufacturing costs. This section describes these and other issues raised both by industry and other stakeholders on the Department's analysis of the impacts of standards on manufacturers. The Department uses models to estimate the short-term and long-term impacts of new or amended standards on industry profitability. The computations are performed by the Manufacturer Analysis Model (MAM) consisting of the earlier Lawrence Berkeley Laboratory (LBL) Manufacturer Impact Model (MIM) and the industry-developed Government Regulatory Impact Model (GRIM). To predict the effect of standards on industry profits and return-on-equity, the MAM model estimates how much of the cost increase imposed by standards will be passed-on to consumers. It estimates how the price increase and the accompanying reduction of energy operating costs will influence consumer demand for the product. Finally, given the new price, cost, and sales volume, the model computes industry profitability. Industry views elements of this methodology as seriously flawed. As is discussed in more detail later in this section, improvements to, or replacement of the current analytical models will be studied extensively in the Department's analysis improvement initiative.



### DRAFT 4/30/96 4: 13 PM 2-6 The Department is statutorily required to considerthe savings in operating costs throughout the estimated average life ofthe covered product compared to any increase in price or maintenance expenses.
. The Department will continue to use life-cycle costing in the economicjustification ofstandards levels. However, the screening analysis, described in section 3.2.3, will consideruncertainty in Iife-cycle-costing. Distributive Impacts Moststakeholders suggested that the Department give some level ofconsideration to the differential impact ofstandards on the non-average consumer. The Department is concerned about the variability ofimpacts on consumerlife-cycle costs. The Department will use regional analysis and sensitivity analysis tools to evaluate the potential distributive impacts ofcandidate standards levels. The Departmentwill consider negative impacts on large segments ofsociety in determining standards levels. Where these impacts are high, DOE will consider voluntary programs to bring about the additional potential energy savings. Given the uncertainties in determining the "average" costs, and given the "variance" in costs, the Department is committed to considering benefits over a range ofsituations in setting standards levels. 2.4.3 ManufacturerIssues The third broad analysis improvements category focuses on issues relating to the impact ofstandards on manufacturers. The analysis ofthe impact ofappliance standards on manufacturers is extremely controversial. Numerous assumptions cannot be verified empirically for such issues as cost pass-through, elasticity ofdemand, foregone investments, and manufacturing costs. This section describes these and other issues raised both by industry and other stakeholders on the Department's analysis ofthe impacts ofstandards on manufacturers. The Department uses models to estimate the short-term and long-term impacts ofnew or amended standards on industry profitability. The computations are performed by the Manufacturer Analysis Model (MAM) consisting ofthe earlier Lawrence Berkeley Laboratory (LBL) Manufacturer Impact Model (MIM) and the industry-developed Government Regulatory Impact Model (GRIM). Topredict the effect ofstandards on industry profits and return-on-equity, the MAM model**e~timates** how much ofthe cost increase imposed by standards will bepassed-on to consumers. Itestimates how the price increase and the accompanying reduction ofenergy operating costs will influence consumerdemand for the product. Finally, given the new price, cost, and sales volume, the model computes industry profitability. Industry views elements ofthis methodology as seriously flawed. As is discussed in more detail later in this section, improvements to, orreplacement ofthe current analytical models will be studied extensively in the Department's analysis improvement initiative.



## DRAFT 4/30/96 4:13 PM 2-6Average and Small Manufacturers Many stakeholders feel that the characterization of an "average" company has limited value for setting standards. The MAM estimates the impact of standards by modeling a hypothetical "average" company which is representative of the industry. Important parameters used in the model include the cost structure of the firm, profitability ratio, relative costs of complying with new standards and marketing strategies. Financial data are collected from publicly available sources such as Value Line, Standard and Poor's, Moody's, and company reports. Manufacturers and trade associations have commented that "average" companies do not exist and thus the analysis has limited value. In addition, they noted that standards may disproportionately burden smaller companies whose costs associated with meeting standards can be disproportionately high compared to larger companies. The Department takes very seriously the concerns about smaller manufacturers. Explicit treatment of small/niche manufacturers is integral to the Department's Analysis Improvement Plan described in Section 4. Elasticity of Demand Some stakeholders would like to see the Department update data for estimating the elasticity of demand for products covered by legislation. A critical influence on profits is the change in consumer appliance purchase behavior resulting from the increase in price and the reduction in operating cost attributable to standards. The MAM takes these effects into consideration by using separate demand elasticities for both changes in costs. The elasticities used were originally estimated based on data developed in the 1970s by the Oak Ridge National Laboratory (ORNL). The Department agrees with many stakeholders that it would be useful to have updated data for estimating elasticity. Other interests, however, expressed skepticism over the ultimate outcome since the elasticity for an industry as a whole may be very different than that experienced by individual firms. The Department's analytical approach for dealing with ill-defined parameters has been to perform sensitivity analyses using a wide range of possible input values. As a practical matter, developing new elasticity data would be time consuming, expensive, and potentially controversial. If it can be shown that the economic impacts are acceptable within a logical range of elasticity values, costly research would be unnecessary. During the analysis improvement effort, DOE will consult stakeholders on the merits of conducting future research to evaluate consumer elasticity of demand for regulated products.



### DRAFT 4/30/96 4 : 13 PM 2 -7 Average andSmallManufacturers 

### Many stakeholdersfeel thatthe characterizationof an "average" companyhas limited value for settingstandards. The MAM estimates the impact ofstandards by modeling ahypothetical "average" company which is representative ofthe industry. Importantparameters used in the model include the cost structure ofthe firm, profitability ratio, relative costs of complying with new standards and marketing strategies. Financial data are collected from publicly available sources such as Value Line, Standard and Poor's, Moody's, and company reports. Manufacturers and trade associations have commented that "average" companies do not exist and thus the analysis has limited value. In addition, they noted that standards may disproportionately burden smallercompanies whose costs associated with meeting standards can be disproportionately high compared to larger companies.


### TheDepartmenttakes very seriouslytheconcerns aboutsmallermanufacturers. Explicit treatmentofsmall/niche manufacturersis integraltotheDepartment's Analysis ImprovementPlan described in Section 4.· , Elasticity of Demand 

### Some stakeholders would like to see the Departmentupdatedatafor estimatingthe elasticity ofdemandfor products covered bylegislation. ' A critical influence on profits is the change in consumer appliance purchase behavior resulting from the increase in price and the reduction in operating cost attributable to standards. The MAM takes these effects into consideration by using separate demand elasticities for both changes in costs. The elasticities used were originally estimated based on data developed in the 1970sby the Oak Ridge National Laboratory (ORNL). The Department agrees with many stakeholders that it would be useful to have updated data for estimating elasticity. Otherinterests, however, expressed skepticism overthe ultimate outcome since the elasticity for an industry as a whole may be very different than that experienced by individual firms. The Department's analytical approach for dealing with ill-defined parameters has been to perform sensitivity analyses using a wide range ofpossible input values. As a practical matter, developing new elasticity data would be time consuming, expensive, and potentially controversial. Ifit can be shown that the economic impacts are acceptable within a logical range ofelasticity values, costly research would be unnecessary
. 

### Duringthe analysis improvement effort, DOE will 

### consult stakeholders on the merits ofconductingfuture research to evaluate consumerelasticity ofdemandfor regulated products.

.



### DRAFT 4/30/96 4:13 PM 2-7Cost Pass-Through Some Stakeholders believe that current analysis models do not accurately calculate how appliance prices will rise relative to the increased costs of manufacturing higher efficiency appliances. The primary issue regarding cost pass-through is how appliance prices will rise relative to the increased costs of manufacturing higher efficiency appliances. A major difference between the MIM and GRIM models is that the MIM forecasts annual appliance shipments and prices. GRIM considers these to be exogenous variables that must be entered based on informed judgment. Manufacturer associations question the economic assumptions used in MIM. Depending on consumer reaction to new, high. efficiency, more expensive products, manufacturers may be able to pass all, some, or none of their increased costs through to the purchaser. Unfortunately, minimal data are available on price changes and they are hard to interpret especially in light of the major industry restructuring that has occurred during the same period in which standards have taken effect. Possibilities for addressing this issue include scenario analysis and active manufacturer participation in performing the analysis. The Department intends to further explore these, and other possibilities, in the near-term. The Department's analysis improvement effort will focus on the issue of cost passthrough. Cumulative Burden Some stakeholders indicated that the Department does not adequately consider the effects of complying with multiple regulations when economic impacts on manufacturers are analyzed. Cumulative burden may be the result of complying with regulations from multiple federal agencies, or the compound effect of proposed efficiency standards for several products on a full-line manufacturer. MIM is designed to only analyze the impact of standards on industry profitability for an individual appliance. This results in treating each manufacturer as a single-product manufacturer. The Department recognizes the importance of accounting for the cumulative effects of multiple regulations on manufacturers. In its analysis improvement effort, the Department will be exploring new ways to account for the cumulative effects of standards for several appliance product types on a multi-product company. The proposed process, detailed in Section 3, allows for consideration of cumulative burden both in rule prioritization and in the calculation of manufacturer impacts. Stranded Assets Some stakeholders feel that the Department is overlooking some of the short-term financial burdens new appliance standards place on manufacturers.

DRAFT 4/30/96 4:13PM 2-8 Cost Pass-Through 

### Some Stakeholders believe thatcurrent analysis models do notaccurately calculate how appliance prices will rise relative to the increased costs ofmanufacturing higherefficiency appliances. The primary issue regarding cost pass-through is how appliance prices will rise relative to the increased costs ofmanufacturing higher efficiency appliances. A major difference between the MIM and GRIM models is that the MIM forecasts annual appliance shipments and prices. GRIM considers these to be exogenous variables that must be entered based on informedjudgment. Manufacturer associations question the economic assumptions used in MIM. Depending on consumerreaction to new, high.efficiency, more expensive products, manufacturers may be able to pass all, some, or none oftheirincreased costs through to the purchaser. Unfortunately, minimal data are available on price changes and they are hard to interpret especially in light ofthe majorindustry restructuring that has occurred during the same period in which standards have taken effect. Possibilities for addressing this issue include scenario analysis and active manufacturerparticipation in performing the analysis. The Department intends to further explore these, and other possibilities, in the near-term. 

### The Department's analysis improvementeffort will focus on theissue ofcost passthrough. Cumulative Burden 

### Some stakeholdersindicated thatthe Departmentdoes not adequately consider the effects ofcomplying with multiple regulations when economic impacts on manufacturers areanalyzed. Cumulative burden may be the result ofcomplying with regulations from multiple federal agencies, orthe compound effect ofproposed efficiency standards for several products on a full-line manufacturer. MIM is designed to only analyze the impact of standards on industry profitability for an individual appliance. This results in treating eachmanufacturer as a single-product manufacturer. The Department recognizes the importance ofaccounting for the cumulative effects of multiple regulations on manufacturers. In its analysis improvement effort, the Department will beexploring new ways to account for the cumulative effects of standards for several appliance product types on a multi-product company. 

### Theproposed process, detailed in Section 3, allows for consideration ofcumulative burden both in rule prioritization and in the calculation ofmanufacturerimpacts. StrandedAssets 

### Some stakeholders feel that the Departmentis overlooking some ofthe short-term financial burdens new appliance standardsplace on manufacturers.



## DRAFT 4/30/96 4:13PM 2-8One of the significant burdens of new appliance standards can be the consequential obsolescence of existing manufacturing assets including tooling and equipment. This burden is believed to fall most heavily on smaller manufacturers who have limited available capital and/or smaller production quantities over which their costs can be amortized. The Department will seek to expand the manufacturer impact analysis to evaluate the likely impacts of stranded assets on manufacturers. Foregone Investments Some manufacturers are concerned about the impact of energy efficiency standards on product innovation. Several manufacturers claim that recurring requirements to invest in energy efficiency reduce their ability to enhance non-energy product features and attributes which are attractive to consumers and stimulate the sales of new products. Other stakeholders maintain that energy efficiency standards are a strong stimulus for product innovation, frequently leading to enhanced quality and features. The possible short-term costs of dealing with new standards may lead to long-term benefits in product innovation and international competitive advantage. Additionally, national standards that anticipate standards levels that are eventually adopted in numerous countries can open foreign markets and pre-empt the loss of domestic markets to more efficient foreign markets. The Department believes that energy efficiency standards, if properly conceived, can stimulate product innovation and increase U.S. industry competitiveness in international markets. If efficiency standards are phased-in in a manner that is consistent with normal business capital-investment cycles, the cost of compliance may be minimal and the benefits substantial. The likely impacts of standards on product features and technology development will be a decision criterion for the selection of proposed standards

. The analysis methods and data requirements needed to perform this determination will be studied with stakeholders during the analysis improvement effort. Alternate Methodologies Several stakeholders are concerned that the current appliance rulemaking process relies too heavily on quantitative models. The Department recognizes that accurately evaluating the impact of standards on manufacturers may require substantial revisions to the current analysis methods. DOE intends to add more qualitative measures to enhance the analysis. Numerous parties have expressed considerable skepticism of computer models. Past analyses have relied too heavily on models that are over-complicated, hard to use, and poorly understood by those most impacted by their outputs. Compounding the difficulty, the data needed to run the models are proprietary and manufacturers are reluctant to fully disclose the necessary information. In addition, companies willing to share information sometimes


### DRAFT 4/30/96 4 : 13 PM 2-9 One ofthe significant burdens ofnew appliance standards canbethe consequential obsolescence ofexisting manufacturing assets including tooling and equipment. This burden is believed to fall most heavily on smallermanufacturers who have limited available capital and/or smaller production quantities over which their costs can be amortized.

. The Department will seek to expandthemanufacturerimpact analysis to evaluate the likely impacts ofstrandedassets on manufacturers. Foregone Investments Some manufacturers are concerned aboutthe impactofenergy efficiency standards onproductinnovation. Several manufacturers claim that recurring requirements to invest in energy efficiency reduce their ability to enhance non-energy product features and attributes which are attractive to consumers and stimulate the sales ofnew products. Other stakeholders maintain that energy efficiency standards are a strong stimulus for product innovation, frequently leading to enhanced quality and features. The possible short-term costs ofdealing with new standards may lead to long-termbenefits in product innovation and international competitive advantage. Additionally, national standards that anticipate standards levels that are eventually adopted in numerous countries can open foreign markets and pre-empt the loss ofdomestic markets to more efficient foreign markets. The Department believes that energy efficiency standards, ifproperly conceived, can stimulate product innovation and increase U.S. industry competitiveness in international markets. Ifefficiency standards are phase'd-in in a manner that is consistent with normal business capital-investment cycles, the cost ofcompliance may be minimal and the benefits substantial. The likely impacts ofstandards on productfeatures and technology development will be a decision criterionfor the selection ofproposed standards. The analysis methods and data requirements needed to perform this determination will be studied with stakeholders during the analysis improvement effort. AltemateMethodologies Several stakeholders are concernedthatthe currentappliance rulemakingprocess relies too heavily on quantitative models. The Department recognizes that accurately evaluating the impact ofstandards on manufacturers may require substantial revisions to the current analysis methods. DOE intends to add more qualitative measures to enhance the analysis. Numerous parties have expressed considerable skepticism ofcomputermodels. Past analyses have relied too heavily on models that are over-complicated, hard to use, and poorly understood by those most impacted by their outputs. Compounding the difficulty, the data needed to run the models are proprietary and manufacturers are reluctant to fully disclose the necessary information. In addition, companies willing to share information sometimes


## DRAFT 4/30/96 4:13 PM 2-9find that their accounting systems are incompatible with the data needs of the DOE models. At the March workshop, stakeholders expressed their sense that the past analyses were overly dependent on "black box" models, insufficiently validated by empirical evidence, and based on some highly controversial assumptions. As was announced at the March workshop, the Department is initiating a complete review of the manufacturing impact analysis methodologies

. The review may require improvements to, or replacement of, the current analytical models. Interested parties will be invited to play a major role in this improvement effort. 2.4.4 National Issues The fourth broad analysis improvements category focuses on a number of cross-cutting issues relevant to estimating the national benefits of energy efficiency standards. Need of the Nation to Save Energy Several stakeholders took issue with the Department's treatment of the need for national energy conservation, and expressed the opinion that this need was not proven. The Department believes that more efficient use of energy in our building stock is needed to reduce our reliance on foreign oil, reduce the adverse environmental impacts of energy use, and to stimulate economic growth. • U.S. oil imports are at record levels, are continuing to grow, and are projected to reach 70 percent by 2020. High oil imports make a significant contribution to the trade deficit and, according to a Department of Commerce analysis earlier this year, constitute a threat to U.S. economic security. Persian Gulf countries are projected tocontrol 70 percent of the global market for oil by 2010. The buildings sectorresidential and commercial buildings-currently uses over 31 quads of primary energy annually. This is about 36 percent of the total U.S. energy consumption, and includes 65 percent of all electricity used in the U.S. • Energy costs consumers about $210 billion annually; the average household spends about $1,200 annually. When consumers save money on energy bills, they spend the savings on more labor-intensive goods and services thereby stimulating economic growth as well as creating jobs. • The carbon dioxide emissions attributable to primary energy use in the our nation's buildings constitutes 35 percent of national and 8 percent of global totals. In addition, buildings-related emissions of sulfur and nitrogen oxides account for 50 percent and 25 percent respectively of U.S. totals. Successfully achieving the Department's goals will reduce carbon emissions from forecast levels of between 60 to 100 million metric tons annually by the year 2010. Emissions of sulfur and nitrogen oxides also will be greatly reduced.

DRAFT 4/30/96 4:13 PM 2-10 find that their accounting systems are incompatible with the data needs ofthe DOE models. At the March workshop, stakeholders expressed their sense that the past analyses were overly dependent on "blackbox" models, insufficiently validated by empirical evidence, and based on some highly controversial assumptions. 

### As was announced attheMarch workshop, the Department is 

### initiatinga complete review ofthe manufacturingimpactanalysis methodologies. Thereview may require improvements to, orreplacementof, the currentanalytical models. Interestedparties will be invited to playa majorrole in this improvementeffort.
2.4.4 Nationallssues The fourth broad analysis improvements category focuses on a number ofcross-cutting issues relevant to estimating the national benefits ofenergy efficiency standards. Need of the Nation to Save Energy 

### Several stakeholders took issue with the Department'streatmentofthe need for national energy conservation, and expressedthe opinion thatthis need was not proven. TheDepartmentbelieves thatmore efficient use ofenergyin our building stock is needed to reduce ourreliance on foreign oil, reduce the adverse environmental impacts ofenergy use, and to stimulate economic growth.

• U.S. oil imports are at record levels, are continuing to grow, and are projected to reach 70 percent by 2020. High oil imports make a significant contribution to the trade deficit and, according to a Department ofCommerce analysis earlierthis year, constitute a threat to U.S. economic security. Persian Gulfcountries are projected to control 70 percent ofthe global market for oil by 2010. The buildings sectorresidential and commercial buildings-currently uses over 31 quads ofprimary energy annually. This is about 36 percent ofthe total U.S. energy consumption, and includes 65 percent ofall electricity used in the U.S.

• Energy costs consumers about $210billion annually; the average household spends about $1,200 annually. When consumers save money on energy bills, they spend the savings on more labor-intensive goods and services thereby stimulating economic growth as well as creatingjobs.

• The carbon dioxide emissions attributable to primary energy use in the our nation's buildings constitutes 35 percent ofnational and 8percent ofglobal totals. In addition, buildings-related emissions ofsulfur and nitrogen oxides account for 50 percent and 25 percent respectively ofU.S. totals. Successfully achieving the Department's goals will reduce carbon emissions from forecast levels ofbetween 60 to 100 million metric tons annually by the year 2010. Emissions ofsulfur and nitrogen oxides also will be greatly reduced.



### DRAFT 4/30/96 4:13 PM 2-10Goals of the Standards Program Stakeholders recommended that the Department clearly enunciate the goals of the appliance standards program. Narrowly defined, the goal of the program is to implement the legislatively mandated objective of prescribing appliance efficiency standards levels which "achieve the maximum improvement in energy efficiency" which is, " technologically feasible and economically justified." The standards program does not have quantified energy savings targets. Setting strict numerical goals on a mandatory program would require assumptions about technology innovation that are inappropriate. Further guidance as to the mission of the program is obtained in the Administration's Sustainable Energy Strategy. A key objective of the Administration is to: "Increase the efficiency of energy use in order to: • Maximize energy productivity to strengthen our economy and improve living standards; • Prevent pollution to reduce the adverse environmental impacts associated with energy production, delivery, and use; and • Keep America secure by reducing our vulnerability to global energy market shocks." Although the standards program in isolation has no energy savings goals, appliance standards are an integral component of the Office ofBuilding Technologies, State, and Community Program's (BTS) strategy for reducing the energy intensity of our buildings by 20 percent by the year 2010. BTS programs include: (1) research, development and demonstration of advanced energy-efficient and renewable energy technologies; (2) appliance and building codes and standards; and (3) market outreach and conditioning. The overall objective of BTS is to cost effectively maintain energy consumption from non-renewable sources at or below its current level of approximately 32 quads through the year 2010. Considering the predicted growth in population, GNP, and standard of living, it will be necessary to reduce the current household energy intensity from 181 million Btu/household/year to 141 million Btu/household/year. For commercial buildings these figures are 172,000 Btu/sq. ft/year in 2010 down from 198,000 Btu/sq. ft/year in 1993. Significance of Energy Savings Stakeholders expressed varying interpretations of the meaning of the phrase

"significant energy savings". EPCA instructs DOE not to issue standards for a type or class of covered product if the Secretary determines, by rule, that the establishment of such standards will not result in "significant" conservation of energy. The issue of significance of energy savings is very controversial. Manufacturers claim that the savings are becoming insignificant because



### DRAFT 4/30/96 4:13 PM 2-1 1 Goals o/the Standards Program


### Stakeholders recommended that the Departmentclearlyenunciatethe goals ofthe appliance standardsprogram. Narrowly defined, the goal ofthe program is to implement the legislatively mandated objective ofprescribing appliance efficiency sta.ndards levels which "achieve the maximum improvement in energy efficiency" which is, " technologically feasible and economicallyjustified." The standards program does not have quantified energy savings targets. Setting strict numerical goals on a mandatory program would require assumptions about technology innovation that are inappropriate. Further guidance as to the mission ofthe program is obtained in the Administration's Sustainable Energy Strategy. A key objective ofthe Administration is to: "Increase the efficiency ofenergy use in order to:

.

• Maximize energy productivity to strengthen oureconomy and improve living standards;

• Prevent pollution to reduce the adverse environmental impacts associated with energy production, delivery, and use; and

• Keep America secure by reducing ourvulnerability to global energy market shocks." 

### Although the standardsprogram in isolation has no energy savings goals, appliance standards are an integral component ofthe Office ofBuilding Technologies, State,and Community Program's (BTS) strategyfor reducing the energy intensity ofourbuildings by20 percentbytheyear2010. BTS programs include: (1) research, development and demonstration ofadvanced energy-efficient and renewable energy technologies; (2) appliance and building codes and standards; and (3) market outreach and conditioning. The overall objective ofBTS is to cost effectively maintain energy consumption from non-renewable sources at or below its current level ofapproximately 32 quads through the year 2010. Considering the predicted growth in population, GNP, and standard ofliving, it will be necessary to reduce the current household energy intensity from 181 million Btulhouseholdlyearto 141 million Btulhouseholdlyear. Forcommercial buildings these figures are 172,000 Btu/sq. ftJyear in 2010 down from 198,000 Btu/sq. ftJyear in 1993. Significance of Energy Savings 

### Stakeholdersexpressed varying interpretations ofthe meaning ofthe phrase "significantenergy savings". EPCA instructs DOE not to issue standards for a type orclass ofcovered product if the Secretary determines, by rule, that the establishment ofsuch standards will not result in "significant" conservation ofenergy. The issue ofsignificance ofenergy savings is very controversial. Manufacturers claim that the savings are becoming insignificant because



### DRAFT 4/30/96 4:13 PM 2-11of decreasing marginal benefits, while conservationists claim that any savings are significant. The prioritization of rulemakings will enable the Department to focus on products with the most potential for energy savings.
Site vs. Source Some stakeholders noted that calculating energy efficiency based on point-of-use data and separating classes by fuel type can result in an unfair treatment of fossil fuels and send false information to consumers. In accounting for the energy consumed in the. U.S. economy, two metrics are commonly used: (1) site energy, as measured at the point of utilization; and (2) source energy, which occurs at the point of generation or extraction. In the case of fossil fuels, such as oil and gas, the amount of energy measured at the source is similar to the amount used at the site. For electricity, however, the difference is significant. The EPCA provisions establishing the standards program define energy use as the quantity of energy directly consumed at the point of use and energy efficiency is defined as the ratio of useful output to input energy, also measured at the site. The Department recognizes the importance of this subject, and has initiated a wide review of its site-source policy encompassing the Appliance Testing, Standards, and Labeling programs, the Home Energy Rating Systems Program, Building Codes, and the Federal Energy Management program. The Office of Codes and Standards is committed to working with interested parties to improve the information made available to consumers. For example, recently the Department held a workshop to obtain input on possible descriptors for appliances which use more than one energy source. Furthermore, as described in Section 3, in the course of future rules, DOE will seek consumer input to ensure that important product performance and labeling issues are identified. Monetization of Environmental Externalities Some stakeholders recommended that the Department account more explicitly for environmental externalities in the economic analysis of different standards levels. For appliance efficiency standards, the relevant environmental externalities reflect the adverse health effects and other social costs associated with emissions of pollutants dueto energy consumption. The standards setting process tracks three types of energyrelated emissions: sulfur dioxide (SO2), nitrous oxides (No) and carbon dioxide (CO2). Outside the scope of the current analysis are other types of emissions, such as particulates, carbon monoxide, air toxins, volatile organic compounds, solid wastes, and water discharges associated with energy use. During the recent consultations, a number of interested parties suggested that DOE account more explicitly for environmental and other externalities in the economic analysis of different standards levels. In order to incorporate such externalities into the economic analyses, the Department would have to convert physical quantities of

DRAFT 4/30/96 4:13 PM 2-12 ofdecreasing marginal benefits, while conservationists claim that any savings are significant. 

### Theprioritization ofrulemakings will enabletheDepartmenttofocus on products with the most potentialfor energy savings. Site vs. Source 

### Some stakeholders noted thatcalculatingenergy efficiency basedonpoint-of-use data and separatingclasses by fuel type canresult in anunfah; treatmentoffossil fuels and send false information to consumers. In accounting for the energy consumed in the U.S. economy, two metrics are commonly used: (1) site energy, as measured at the point ofutilization; and (2) source energy, which occurs at the.pointofgeneration or extraction. In the case offossil fuels, such as oil and gas, the amount ofenergy measured at the source is similarto the amount used at the site. Forelectricity, however, the difference is significant. TheEPCAprovisions establishing the standards program define energy use as the quantity ofenergy directly consumed at the point ofuse and energy efficiency is defined as the ratio ofuseful output to input energy, also measured at the, site. 

### TheDepartmentrecognizes the importance ofthis subject, andhas initiated a wide review ofits site-source policy encompassingtheAppliance Testing, Standards, andLabeling programs,theHomeEnergy RatingSystemsProgram,Building Codes, andthe FederalEnergy Management program. The Office ofCodes and Standards is committed to working with interested parties to improve the information made available to consumers. Forexample, recently the Department held a workshop to obtain input on possible descriptors for appliances which use more than one energy source. Furthermore, as described in Section 3, in the course offuture rules, DOE will seekconsumerinput to ensure that important product performance and labeling issues are identified. Monetization of EnvironmentalExternalities 

### Some stakeholders recommended thatthe Department account more explicitly for environmental externalities in the economic analysis ofdifferent standards levels. For appliance efficiency standards, the relevant environmental externalities reflect the adverse health effects and other social costs associated with emissions ofpollutants due to energy consumption. The standards setting process tracks three types ofenergyrelated emissions: sulfur dioxide (S02)' nitrous oxides (No) and carbon dioxide (C02), Outside the scope ofthe current analysis are other types ofemissions, such as particulates, carbon monoxide, air toxins, volatile organic compounds, solid wastes, and water discharges associated with energy use. During the recent consultations, a number ofinterested parties suggested that DOE account more.explicitly for environmental and other externalities in the economic analysis ofdifferent standards levels. In order to incorporate such externalities into the economic analyses, the Department would have to convert physical quantities of


## DRAFT 4/30196 4:13 PM 2-12emissions or other impacts into monetary values. A significant number of stakeholders were strongly opposed to monetizing externalities. It is important to note that current appliance standard levels do consider the physical effects of alternate standards on emissions and oil imports, and do not include monetization of externalities. Reduction of pollutants from new standards is reported separately, but no monetaryvalues are assigned. Reductions in emissions become part of the net national benefits estimated by the Department and are weighed along with the other statutory factors in determining a standards level. A Supplemental ANOPR published in 1994, solicited comments on whether a sound analytical basis existed for estimating the monetary value of externalities. If a sound analytical basis existed, the Department indicated that it would consider these values in conjunction with estimates of the total net national benefits but not in the analysis of consumer life-cycle costs. In consideration of the comments received, DOE announced in the July 1995 NOPR that it was not proposing to monetize externality estimates for lack of a sound analytical framework. To date, the Department has not identified a sound analytical basis for monetizing environmental or any other externalities. Job Creation In the recent consultations the Department was asked to explain how it measures the impact on jobs of proposed rules. Currently, the Department does not analyze the impact of standards on job creation or loss.

2.5 DOE Decision

-Making Some stakeholders are concerned that, historically, Department decisionmakers have not received sufficient information before making decisions regarding standards. In particular, stakeholders expressed concerns about how: (1) uncertainty was overlooked in the process; (2) key decisionmakers were absent from formal hearings; and (3) alternatives to regulatory standards received little consideration. 2.5.1 Characterizing Uncertainty Several stakeholders have observed that Department decision makers are not presented, with information that characterizes the range of uncertainty associated with DOE's analysis. Participants recommended that sensitivity analysis results be integrated into the briefing materials. 2.5.2 Involving Senior DOE Decision-Makers Several groups recommended that senior DOE staff, including the Assistant Secretary for Energy Efficiency and Renewable Energy, be present at formal hearings. This would enable interested parties to communicate directly with decision-makers. One commentor at the March workshop described proceedings of the California Energy Commission in which decision-makers not only listen to comments from stakeholders,



### DRAFT 4130/96 4:13 PM 2-13 emissions orother impacts into monetary values. A significant number ofstakeholders were strongly opposed to monetizing externalities. Itis important to note that current appliance standard levels do considerthe physical effects ofalternate standards on emissions and oil imports, and do not include monetization ofexternalities. Reduction ofpollutants from new standards is reported separately, but no monetary values are assigned. Reductions in emissions become part ofthe net national benefits estimated by the Department and are weighed along with the other statutory factors in determining a standards level. A Supplemental ANOPR published in 1994, solicited comments on whether a sound analytical basis existed for estimating the monetary value ofexternalities. Ifa sound analytical basis existed, the Department indicated that it would consider these values in conjunction with estimates ofthe total net national benefits butnot in the analysis of consumerlife-cycle costs. In consideration ofthe comments received, DOE announced in the July 1995 NOPR that it was not proposing to monetize externality estimates for lack ofa sound analytical framework. 

### To date, the Departmenthas not identified a sound analytical basis for monetizing environmental or any otherexternalities. Job Creation In the recent consultations the Department was asked to explain how it measures the impact onjobs ofproposed rules. 

### Currently, the Departmentdoes not analyze the impactofstandards onjob creation orloss.

2.5 DOE Decision-Making Some stakeholders are concerned that, historically, Department decisionmakers have not received sufficient information before making decisions regarding standards. In particular, stakeholders expressed concerns about how: (1) uncertainty was overlooked in the process; (2) key decisionmakers were absent from formal hearings; and (3) alternatives to regulatory standards received little consideration. 2.5.1 Characterizing Uncertainty Several stakeholders have observed that Department decision makers are not presented. with information that characterizes the range ofuncertainty associated with DOE's analysis. Participants recommended that sensitivity analysis results be integrated into the briefing materials. 2.5.2 Involving SeniorDOEDecision-Makers Several groups recommended that seniorDOE staff, including the Assistant Secretary for Energy Efficiency and Renewable Energy, be present at formal hearings. This would enable interested parties to communicate directly with decision-makers. One commentor at the March workshop described proceedings ofthe CaliforniaEnergy Commission in which decision-makers not only listen to comments from stakeholders,



### DRAFT 4/30/96 4:13 PM 2-13but also asked questions, offered possible compromises for discussion, and made final decisions in the public forum. The Department is looking into establishing an Appliance Advisory Committee, chaired by the Assistant Secretary and including stakeholder participation, to regularly review issues pertaining to the appliance rulemaking process. 2.5.3 Alternatives to Appliance Standards Some stakeholders commented that there are a variety of ways to reduce energy consumption, and that no energy efficiency standards should be mandated until alternative options are thoroughly considered. Federal minimum efficiency standards will continue to play a role in improving appliance efficiency by prohibiting the sale of inefficient products. However, at the Department of Energy and throughout the Administration, staff are seeking voluntary alternatives to increased regulation wherever appropriate. The Office of Energy Efficiency and Renewable Energy established a task force to study the interplay between the standards process, research, and voluntary market pull activities in the building sector. Its task is to identify and prioritize criteria which will enable the Department to identify opportunities for market mechanisms in lieu of new or amended standards. This group will report on their progress and solicit input at a public workshop to be held this summer.



### DRAFT 4/30/96 4: 13 PM 2-14 but also asked questions, offered possible compromises for discussion, and made final decisions in the public forum. 

### TheDepartmentis looking into establishing anApplianceAdvisory Committee, chaired by the AssistantSecretary andincluding stakeholderparticipation, to regularly review issues pertaining to the appliance rulemaking process. 2.5.3 Alternatives toAppliance Standards Some stakeholders commented that there are a variety ofways to reduce energy consumption, and that no energy efficiency standards should be mandated until alternative options are thoroughly considered. Federal minimum efficiency standards will continue to playarole in improving appliance efficiency by prohibiting the sale ofinefficient products. However, at the DepartmentofEnergy and throughout the Administration, staffare seeking voluntary alternatives to increased regulation wherever appropriate. The Office ofEnergy Efficiency and Renewable Energy established a task force to study the interplay between the standards process, research, and voluntary market pull activities in the building sector. Its task is to identify and prioritize criteria which will enable the Department to identify opportunities for market mechanisms in lieu ofnew or amended standards. This group will report on their progress and solicit input at a public workshop to be held this summer.



## DRAFT 4/30/96 4:13 PM 2-143. Process Improvement Plan for Appliance Efficiency Standards

3.1 Objectives In response to the stakeholder concerns identified during the recent consultations, the Department of Energy has developed a draft process improvement plan. The major objectives of the process improvement plan are: Early Involvement of Stakeholders - DOE will seek to have early input from stakeholders in setting rulemaking priorities and structuring the analysis for particular products. Stakeholders will be invited to provide input for the selection of design options and will help DOE identify analysis, data, and modeling needs. Increased Predictability of the Rulemaking Timetable - The Department will use the Regulatory Agenda to set priorities and timetables for standards development and test procedure modification. Increased Use of Product Expertise - DOE will increase the use of technical experts in developing, performing and reviewing the analyses. Draft analytical results will be distributed for peer and stakeholder review. Early Elimination of Impractical or Problematic Design Options - The Department will not engage in detailed analysis of design options if it concludes that manufacture or service of the design is impractical, or if it determines that standards will adversely affect the utility of the product. Consideration of Alternatives to Standards - The Department will continue to use voluntary efforts to increase efficiency and evaluate other market forces leading to increased efficiency. Enhanced Analysis of Impacts - The Department intends to expand its analyses of the impacts considered. The scope of the analyses also will be broadened to consider the variability of impacts on different groups of manufacturers and consumers. Improved Analytical Methods - DOE will initiate an effort to improve the analysis of impacts on manufacturers and institute other improvements to key analysis methods. Support of Consensus Rulemaking - DOE will encourage and support consensus rulemaking by stakeholders whenever possible. Reduced Time and Cost of Developing Standards - The Department believes that increased stakeholder involvement and increased use of technical experts will improve the quality of the analysis and will avoid the need for re-analysis. The new process for developing standards will substantially reduce the time from an ANOPR to the issuance of a final rule on an updated standard, while also decreasing the government and private resources required to complete this process. The whole process, from the date of issuance of the regulatory Agenda indicating that work is about to begin on the development of a new standard, to issuance of the final rule, should take no more than three years. The time required from issuance of an ANOPR to issuance of a final rule should be less than 18 months.



### DRAFT 4/30/96 4:13 PM 3-1 3. Process Improvement Plan for Appliance Efficiency Standards

3.1 Objectives


### In response to the stakeholderconcerns identified duringthe recent consultations, theDepartment ofEnergy has developed a draftprocess improvementplan.
The majorobjectives ofthe process improvement plan are: EarlyInvolvement of Stakeholders

- DOEwill seekto have early input from stakeholders in setting rulemaking priorities and structuring the analysis for particular products. Stakeholders will be invited to provide input for the selection ofdesign options and will help DOE identify analysis, data, and modeling needs. IncreasedPredictability of the Rulemaking Timetable

- The Department will use the Regulatory Agendato setpriorities and timetables for standards development and test procedure modification. Increased Use of ProductExpertise

- DOE will increase the use oftechnical experts in developing, performing and reviewing the analyses. Draft analytical results will be distributed for peer and stakeholderreview. Early Elimination of Impractical orProblematicDesign Options

- The Department will not engage in detailed analysis ofdesign options ifit concludes that manufacture or service ofthe design is impractical, or ifit determines that standards will adversely affect the utility ofthe product. Consideration of Alternatives to Standards

- The Department will continue to use voluntary efforts to increase efficiency and evaluate other market forces leading to increased efficiency. EnhancedAnalysis of Impacts

- The Department intends to expand its analyses ofthe impacts considered. The scope ofthe analyses also will be broadened to consider the variability ofimpacts on different groups ofmanufacturers and consumers. ImprovedAnalyticalMethods

- DOE will initiate an effort to improve the analysis of impacts on manufacturers and institute other improvements to key analysis methods. Support ofConsensusRulemaking

- DOEwill encourage and support consensus rulemaking by stakeholders wheneverpossible. Reduced Time and Cost of Developing Standards

- The Departmentbelieves that increased stakeholder involvement and increased use oftechnical experts will improve the quality ofthe analysis and will avoid the need for re-analysis. The new process for developing standards will substantially reduce the time from an ANOPR to the issuance ofa final rule on an updated standard, while also decreasing the government andprivate resources required to complete this process. The whole process, from the date of issuance ofthe regulatory Agenda indicating that work is about to begin on the development ofa new standard, to issuance ofthe final rule, should take no mote than three years. The time required from issuance ofan ANOPR to issuance ofa final rule should be less than 18 months.



### DRAFT 4/30/96 4:13 PM 3-1The Department believes that the objectives of the process improvement plan can

be realized without changes to the existing law.
3.2 Proposed Process Improvements for the Development of Appliance and Equipment Efficiency Standards

3.2.1 Introduction The following sections describe, in some detail, the Department's proposed process for updating appliance and equipment efficiency standards mandated by existing law. The Department believes that the proposed process will, when fully implemented, achieve all of the objectives set forth in Section 3.1. A number of elements of the new process will be phased in, because they depend on improved analytical methods that have yet to be developed or because the process of updating the standards for some categories of appliances and equipment is already well underway. For those products for which the standards development process is already underway, the Department will perform a case-by-case review in order to develop a plan for applying the new process to these rulemakings. Section 4 describes the steps the Department intends to take to improve certain analytical methods used in the development of standards, and Section 5 describes the next steps in the process improvement effort for priority setting and planning product rules. The Department intends to treat its process improvement plan as a living document, which will be modified and improved regularly in order to be responsive to experience gained and comments received during the course of its implementation. 3.2.2 Priority

-Setting (

All Products) In the future, the Department intends to consult with stakeholders on its planned analytical and rulemaking agenda. As described in this section , stakeholders will be able to comment on a draft agenda thatwill be the basis for the final priority list issued in the Administration's Regulatory Agenda. Priority-Setting Analysis and Development of DraftAgenda - At least once a year, Department staff will prepare an analysis of each of the criteria identified in Table 3-1 based largely on existing literature, direct communications with stakeholders and other experts, and internal documents

. The results of this analysis will be used by decisionmakers to develop rulemaking priorities and proposed schedules for the development and issuance of all rulemakings . The DOE analysis, priorities and proposed rulemaking schedules will be documented and distributed for review and comment. Stakeholder Review and Comment - Stakeholders will be able to submit written comments on the Department's analysis, priorities, and proposed rulemaking schedules. Each year, DOE expects to hold a public workshop to facilitate stakeholder review and comment on the priority analysis and proposed rulemaking schedules.



### DRAFT 4/30/96 4:13 PM 3-2 The Departmentbelieves thatthe objectives ofthe process improvementplan can be realized without changes to the existing law.

3.2 Proposed Process Improvementsforthe Development ofAppliance and Equipment Efficiency Standards

3.2.1 Introduction The following sections describe, in some detail, the Department's proposed process for updating appliance and equipment efficiency standards mandated by existing law. The Department believes that the proposed process will, when fully implemented, achieve all ofthe objectives set forth in Section 3.1. A number ofelements ofthe new process will bephased in, because they depend on improved analytical methods that have yet to be developed orbecause the process ofupdating the standards for some categories of appliances and equipment is already well underway. Forthose products for which the standards development process is already underway, the Department will perform a case-by-case review in order to develop aplan for applying the new process to these rulemakings. Section 4 describes the steps the Department intends to take to improve certain analytical methods used in the development ofstandards, and Section 5 describes the next steps in the process improvementeffort for priority setting and planning product rules. The Department intends to treat its process improvement plan as aliving document, which will be modified and improved regularly in orderto be responsive to experience gained and comments received during the course ofits implementation. 3.2.2 Priority-Setting (All. Products) In the future, the Department intends to consult with stakeholders on its planned analytical and rulemaking agenda. As described in this section, stakeholders will be able to comment on a draft agenda that will be the basis for the final priority list issued in the Administration's Regulatory Agenda. Priority-SettingAnalysisandDevelopment of DraftAgenda

- At least once a year, Department staffwill prepare an analysis ofeach ofthe criteria identified in Table 3-1 based largely on existing literature, direct communications with stakeholders and other experts, and internal documents. The results ofthis analysis will be used by decisionmakers to develop rulemaking priorities and proposed schedules for the development and issuance ofall rulemakings. The DOE analysis, priorities and proposed rulemaking schedules will be documented and distributed for review and comment. StakeholderReviewand Comment

- Stakeholders will be able to submit written comments on the Department's analysis, priorities, and proposed rulemaking schedules. Each year, DOE expects to hold a public workshop to facilitate stakeholder review and comment on the priority analysis and proposed rulemaking schedules.



### DRAFT 4/30/96 4:13 PM 3-2Issuance of Final Regulatory Agenda - At least once a year, the Department will issue, simultaneously ,with the issuance of the Administration's Regulatory Agenda, a final set of rulemaking priorities, the accompanying analysis, and the schedules for all priority rulemakings that it anticipates within the next two years.
Table 3-1: Decision Criteria for Priority

-Setting
Significance of Potential Energy Savings : Estimates of product fuel use; impacts of plausible Estimated energy savings technologies based on literature or expert views. Significance of Potential Economic Benefits : Cost savings derived from estimated energy Estimated life-cycle cost savings for individual savings; technology cost estimates based on consumer and Nation. literature or stakeholder input. Significance of Potential Environmental or Air emission impacts derived from energy savings Energy Security Benefits : Estimated impacts on estimates and other impacts based on literature or air emissions, and other product-specific impacts, if expert communication. significant. Statutory Deadline: EPCA Incremental DOE Resources-Required to Internal DOE documents (estimates would not Complete Rulemaking Process: Budget and staff include resources already expended). resource requirements to complete rulemaking. Timing/Burden of Other Federal Regulatory Communications with other agencies and Actions : Assessment of burdens or scheduling stakeholder input. implications of other related Federal actions. Stakeholder Recommendations : Specific Stakeholder input. recommendations regarding relative priority or desired schedule of different rulemakings, especially if consensus recommendations are made by a representative group of stakeholders. Evidence of Market

-Driven or Voluntary Existing literature and stakeholder input. Efficiency Improvements : Initial assessment of market trends and the possible impacts of existing utility programs, and Federal, state, or other voluntary programs. Costs/Impacts of Delay: Assessment of any Existing literature and stakeholder input. special costs or impacts of delaying the standards development process. Status of Required Changes to Test Procedures: Internal documents and communications with NIST. If changes to existing test procedures are required prior to the proposal of updated standards, the status and schedule for such test procedure modifications. Other Relevant Factors

DRAFT 4/30/96 4:13 PM 3-3 Issuance of FinalRegulatoryAgenda

- At least once a year, the Department will issue, simultaneously,with the issuance ofthe Administration's Regulatory Agenda, a final set ofrulemaking priorities, the accompanying analysis, and the schedules for all priority rulemakings that it anticipates within the next two years.

Table 3-1: Decision Criteria for Priority-Setting Decision Criteria" ' ,**~** ",!'\< ' BasisofAssessment-p

, , Significance of Potential Energy Savings: Estimates of product fuel use; impacts of plausible Estimated energy savings technologies based on literature or expert views. Significance of Potential Economic Benefits: Cost savings derived from estimated energy Estimated life-cycle cost savings for individual savings; technology cost estimates based on consumer and Nation. literature or stakeholder input. Significance of Potential Environmental or Air emission impacts derived from energy savings Energy Security Benefits: Estimated impacts on estimates and other impacts based on literature or air emissions, and other product-specific impacts, if expert communication. significant. Statutory Deadline: EPCA Incremental DOE Resources'Required to Internal DOE documents (estimates would not Complete Rulemaking Process: Budget and staff include resources already expended). resource requirements to complete rulemaking. Timing/Burden of Other Federal Regulatory Communications with other agencies and Actions: Assessment of burdens orscheduling stakeholder input. implications of other related Federal actions. Stakeholder Recommendations: Specific Stakeholder input. recommendations regarding relative priority or desired schedule of different rulemakings, especially if consensus recommendations are made by a representative group of stakeholders. Evidence of Market-Driven or Voluntary Existing literature and stakeholder input. Efficiency Improvements: Initial assessment of market trends and the possible impacts of existing utility programs, and Federal, state, or other voluntary programs. Costs/Impacts of Delay: Assessment of any Existing literature and stakeholder input. special costs or impacts of delaying the standards development process. Status of Required Changes to Test Procedures: Internal documents and communications with NIST. If changes to existing test procedures are required prior to the proposal of updated standards, the status and schedule for such test procedure modifications. Other Relevant Factors !{.



### DRAFT 4/30/96 4:13 PM 3-33.2.3 Screening Design Options ( Product-Specific) The screening analysis, as described in this section, will be used to narrow the range of design options being considered by the Department for the development of standards levels. Stakeholders will be consulted to identify key issues, develop a list of design options, and to help the Department identify the expertise necessary to conduct the analysis. The screening analysis will be performed in two phases. In Phase I, DOE will identify the product categories and design options to be analyzed in detail, and identify those design options eliminated from further consideration. In Phase II, DOE will perform the engineering analysis and the benefit/cost analysis for selected candidate standards levels. The results of the screening analysis will be published in a Technical Support, Document to accompany the ANOPR. Phase I: Identifying Issues and Design Options Identification of Issues and Stakeholder Representatives - The Department (through the regulatory agenda and direct communications with key stakeholders) will begin to identify the key issues to be addressed during the development of product specific efficiency standards. The Department will conduct one or more open meetings in order to help identify and prioritize key issues, as well as to identify individuals willing to participate in a standing group of stakeholder representatives providing input to the standards development process. Initial Screening of Candidate Design Options by the Department, with Input and Review by Stakeholders - In consultation with stakeholders, the Department will develop, a list of design options for consideration. Initially, the candidate design options would encompass all those technologies considered to be technically feasible (see Table 3-2)., Following the development of this initial list of design options, DOE, in consultation with stakeholders, would review each option to gather input into whether it was practicable to manufacture ( install and service) and whether it would have any significant impact on product utility. Finally, DOE would apply the relevant criteria used in the priority-setting process (see Table 3-1) to the design options. The reasons for eliminating any design option at this stage of the process would be fully documented, and ultimately published as part of the Advance Notice of Proposed Rulemaking. In making its determination, the Department will consider the criteria identified in Table 3-2 and weigh them with the benefits resulting from the standards level under consideration. Definition of Issues for Analysis and Contractor Expertise Requirements by DOE, with Input and Review by Stakeholders The Department, in consultation with stakeholders, will identify issues (e.g., impacts on specific types or groups of manufacturers or consumers, remaining concerns regarding the practicability of the product or possible impacts on consumer utility, etc.) that will be examined in the second phase of the analysis. DOE, in consultation with stakeholders, will identify the types of specialized expertise that may be required by the contractor(s) performing the second phase of the screening analysis and impact analyses.



### DRAFT 4/30/96 4:13 PM 3-4 3.2.3 Screening Design Options (Product-Specific) The screening analysis, as described in this section, will be used to narrow the range of design options being considered by the Department for the development ofstandards levels. Stakeholders will be consulted to identify key issues, develop a list ofdesign options, and to help the Department identify the expertise necessary to conduct the analysis. The screening analysis will be performed in two phases. In Phase I, DOE will identify the product categories and design options to be analyzed in detail, and identify those design options eliminated from further consideration. In Phase II, DOE will perform the engineering analysis and the benefit/cost analysis for selected candidate standards levels. The results ofthe screening analysis will be published in aTechnical Support· Document to accompany the ANOPR. Phase I: Identifying Issues and DeSign Options Identification of Issues andStakeholderRepresentatives

- The Department (through the regulatory agenda and direct cornmunicatio'ns with key stakeholders) will begin to identify the key issues to be addressed during the development ofproduct specific efficiency standards. The Department will conduct one or more open meetings in order to help identify and prioritize key issues, as well as to identify individuals willing to participate in a standing group ofstakeholderrepresentatives providing input to the standards development process. Initial Screening ofCandidate Design Options by the Department, with Input and Review byStakeholders

- In consultation with stakeholders, the Department will develop, alist Qfdesign options for consideration. Initially, the candidate design options would encompass all those technologies considered to be technically feasible (see Table 3-2). Following the development ofthis initial list ofdesign options, DOE, in consultation with stakeholders, would review each option to gather input into whether it was practicable to manufacture ( install and service) and whether it would have any significant impact on product utility. Finally, DOE would apply the relevant criteria used in the priority-setting process (see Table 3-1) to the design options. The reasons for eliminating any design option at this stage ofthe process would be fully documented, and ultimately published as part ofthe Advance Notice ofProposed Rulemaking. In making its determination, the Department will considerthe criteria identified in Table 3-2 and weigh them with the benefits resulting from the standards level under consideration. Definition of IssuesforAnalysisand ContractorExpertise Requirements byDOE, with Input andReview by Stakeholders

- The Department, in consultation with stakeholders, will identify issues (e.g., impacts on specific types orgroups ofmanufacturers or consumers, remaining concerns regarding the practicability ofthe product orpossible impacts on consumer utility, etc.) that will be examined in the second phase ofthe analysis. DOE, in consultation with stakeholders, will identify the types ofspecialized expertise that may be required by the contractor(s) performing the second phase ofthe screening analysis and impact analyses.



### DRAFT 4/30/96 4:13 PM 3-4Table 3-2: Decision Criteria for Screening of Design Options, Phase I Decision ^CrllterWvil`," Ex arnples of D. Technical Feasibility: Technologies now Documented components of Manufacturers, incorporated in commercial products or in commercial products or product experts working prototypes of commercial products prototypes. would be considered technically feasible. Practicability to Manufacture and Service: Number of units produced and Manufacturers, If the technology (or a technically comparable serviced; markets served; retailers and technology) can be produced in commercial technical comparison of service business; products and serviced by persons serving the comparable technologies; skills market experts relevant market (at the time of the effective required to service and skills of standard), then it will be considered existing service personnel. practicable to manufacture and service. Impacts on Product Utility to Consumers: Comparison of current products Retailers, market The technology must have no significant to new units; consumer survey or experts, adverse impact on the utility of the product to focus group results. manufacturers consumers. Review of Criteria Used for Priority-Setting: Review of any significant Manufacturers, Significance of energy, economic, changes in priority-setting retailers, product, environmental benefits; status of required test assessments. market, and procedure modifications; others, as environmental appropriate. impact experts
Identification of Technology/Industry Experts for Peer Review - DOE, in consultation with stakeholders, will identify a group of technology/industry experts who can provide independent, expert review of the results of the second phase of the screening analysis and the subsequent impact analysis. These experts will be, in addition to, and to the maximum extent possible, independent from stakeholders and other interested parties. DOE Selection of Contractor(s) - Using the specifications of necessary contractor expertise developed in consultation with stakeholders, DOE will select appropriate contractors, subcontractors, and as necessary, expert consultants to perform the second phase of the screening analysis and the impact analysis. Phase II : Engineering and Benefit/Cost Analyses Identification of Engineering Analytical Methods and Tools, in Consultation with Experts - The DOE contractor, in consultation with the "experts group", will select the specific engineering analysis tool(s) to be used in the analysis of the remaining design options. Engineering and Life-Cycle Cost Analysis of Design Options - The DOE contractor will perform engineering and initial life-cycle cost of the remaining design options. Review by Expert Group and Stakeholders - The results of the contractor's engineering and initial life-cycle cost analysis will be distributed for review by experts and stakeholders, and a workshop may be scheduled to review these results.



### DRAFT 4/30/96 4:13 PM 3-5 Table 3-2: Decision Criteria for Screening of Design Options, Phase I Decision**Criteria~l\ ~**  Examples ofRelevant Data, LikelySources , andAnalysis**~** Technical Feasibility: Technologies now Documented components of Manufacturers, incorporated in commercial products or in commercial products or product experts working prototypes of commercial products prototypes. would be considered technically feasible. Practicabilityto Manufacture and Service: Number of units produced and Manufacturers, If the technology (or a technically comparable serviced; markets served; retailers and technology) can be produced in commercial technical comparison of service business; products and serviced by persons serving the comparable technologies; skills market experts relevant market (at the time of the effective required to service and skills of standard), then it will be considered existing service personnel. practicable to manufacture and service. Impacts on Product Utilityto Consumers: Comparison of current products Retailers, market The technology must have no significant to new units; consumer surveyor experts, adverse impact on the utility of the product to focus group results. manufacturers consumers. Review of Criteria Used for Priority-Setting: Review of any significant Manufacturers, Significance of energy, economic, changes in priority-setting retailers, product, environmental benefits; status of required test assessments. market, and procedure modifications; others, as environmental appropriate. impact experts

Identification ofTechnologyllndustry ExpertsforPeerReview

- DOE, in consultation with stakeholders, will identify a group oftechnology/industry experts who can provide independent, expert review ofthe results ofthe second phase ofthe screening analysis and the subsequent impact analysis. These experts will be, in addition to, and to the maximum extent possible, independent from stakeholders and other interested parties. DOESelection ofContractor(s)

- Using the specifications ofnecessary contractor expertise developed in consultation with stakeholders, DOE will select appropriate contractors, subcontractors, and as necessary, expert consultants to perform the second phase ofthe screening analysis and the impact analysis. Phase II: Engineering and Benefit/Cost Analyses Identification of EngineeringAnalyticalMethods and Tools, in Consultation with Experts

- The DOEcontractor, in consultation with the "experts group", will select the specific engineering analysis tool(s) to be used in the analysis ofthe remaining design options.

. Engineering andLife-Cycle CostAnalysis of Design Options

- The DOE contractor will perform engineering and initial life-cycle cost ofthe remaining design options. Review byExpert Group andStakeholders

- Theresults ofthe contractor's engineering and initial life-cycle cost analysis will be distributed for review by experts and stakeholders, and aworkshop may be scheduled to review these results.



### DRAFT 4/30/96 4:13 PM 3-5Identification of Initial Candidate Standard Levels - Based on the results of the engineering and initial life-cycle cost analysis, DOE will define, in consultation with its contractor and with input from stakeholders, the candidate standard levels for further analysis. Selection of Candidate Standard Levels based on Engineering, and Consumer Life Cost and National Net Present Value Analyses - Using the results of its engineering analysisand other available data, the DOE contractor will perform additional consumer lifecycle cost and National net present value analyses of each of the candidate standard levels identified. Based on the results of these analyses and a review of any significant changes in the assessment of other criteria already considered, DOE will, if appropriate, propose a further narrowing of the range of candidate standard levels.

Table 3-3 : Decision Criteria for Selection of Candidate Standard Levels, Phase II

611'la M 

## I MEN Costs and Savings of Design Options : 

## ^N OMZ;9= Definition of baseline unit; Expected variability Manufacturing, retail, installation, service and engineering analysis tool or of costs and life-cycle cost impacts of each design.option. model; estimates of savings as a result manufacturing, retail, of installation costs, installation and service costs, and usage or and performance effects for performance each design option. variations. Consumer Life-Cycle Cost Impacts of Definition of baseline energy Expected variability Candidate Standard Levels : National efficiency trend; National of costs and average payback analysis and life-cycle cost average consumer energy price savings as a result impacts, with sensitivity or regional analyses and usage data; models or of installation costs, reflecting variations in energy cost and usage. other calculation tools; data on and usage or energy price and usage performance variations. variations. National Net Present Value of Candidate Estimated future sales trends Standard Levels : Estimated total National net and usage patterns of products present value of each candidate standard level to be covered by new over useful life of products. standards. Review of Criteria Used for Priority-Setting (see above) and Phase I Screening : Significance of energy, economic and environmental benefits; status of required test procedures and modifications; market driven or voluntary efficiency improvements; others, as appropriate. Documentation of Decisions on candidate standard selection - If DOE decides not to continue the standards development process because it appears at that time that no candidate standard level meets the criteria specified in law, a decision not to proceed will be announced. If standards appear justified, the Department will publish an Advance Notice of Proposed Rulemaking (ANOPR) in the Federal Register, and will distribute a Technical Support Document containing the elements analyzed to this point. The ANOPR will specify candidate standard levels but will not propose a particular standard.



### DRAFT 4/30/96 4:13 PM 3-6 Identification of Initial Candidate StandardLevels

- Based on the results ofthe engineering and initiallife-cyc1ecost analysis, DOE will define, in consultation with its contractor and with input from stakeholders, the candidate standard levels for further analysis. Selection ofCandidate StandardLevels basedon Engineering, and ConsumerLife Cost andNationalNet Present Value Analyses

- Using the results ofits engineering analysis and otheravailable data, the DOE contractor will performadditional consumer lifecycle cost and National net present value analyses ofeach ofthe candidate standard levels identified. Based on the results ofthese analyses and a review ofany significant changes in the assessment ofother criteria already considered, DOE will, ifappropriate, propose a further narrowing ofthe range ofcandidate standard levels.

Table 3-3: Decision Criteria for Selection of Candidate Standard Levels, Phase" /' /**'~,**Decision Criteria' "; : "',, ' Analysis Methods and Data:;,,;

### t"", Other Inputs**"':~** " ' "", , ;, , ,Ih '", R' t, " i' , , "**""~,,** "", ,', ,'" 'J equlremens.t" " .•"" '", " Costs arid Savings of Design Options: Manufacturing, retail, installation, service and life-cycle cost impacts of each design,option.

Consumer Life-Cycle Cost Impacts of Candidate Standard Levels: National average payback analysis and life-cycle cost impacts, with sensitivity or regional analyses reflecting variations in energy cost and usage.

National Net Present Value of Candidate Standard Levels: Estimated total National net present value of each candidate standard level over useful life of products. Review of Criteria Used for Priority-Setting and Phase I Screening: Significance of energy, economic and environmental benefits; status of required test procedures and modifications; market driven or voluntary efficiency improvements; others, as appropriate. Definition of baseline unit; engineering analysis tool or model; estimates of manufacturing, retail, installation and service costs, and performance effects for each design option. Definition of baseline energy efficiency trend; National average consumer energy price and usage data; models or other calculation tools; data on energy price and usage variations. Estimated future sales trends and usage patterns of products to be covered by new standards. (see above) Expected variability of costs and savings as a result of installation costs, and usage or performance variations. Expected variability of costs and savings as a result of installation costs, and usage or performance variations.

Documentation of Decisions on candidate standardselection

- IfDOE decides not to continue the standards development process because it appears at that time that no candidate standard level meets the criteria specified in law, a decision not to proceed will be announced. Ifstandards appearjustified, the Department will publish an Advance Notice ofProposed Rulemaking (ANOPR) in the Federal Register, and will distribute a Technical Support Document containing the elements analyzed to this point. The ANOPR will specify candidate standard levels but will not propose a particular standard.



## DRAFT 4/30/96 4:13 PM 3-6Other information dissemination activities will include: • Public Comment and Hearing - There will be at least 60 days for public comment on the ANOPR, with at least one public hearing or workshop. • Stakeholder and Expert Review - DOE will make a special effort to inform and solicit comments from all stakeholders and experts previously involved in the process. 3.2.4 Analysis of Impacts The impact analysis will fine-tune earlier analyses based on the comments received on the ANOPR. Additionally, economic impact analyses will be performed in four areas: (1) manufacturing impacts, (2) utility impacts, (3) regulatory impacts, and (4) environmental impacts. The Department will propose updated standards based on the results of the impact analysis. The Proposed Rule will be accompanied by a complete Technical Support Document. A detailed description of the impact analysis stage follows. Review of Public, Stakeholder, and Expert Comments - All comments on the Advance Notice of Proposed Rulemaking and the Technical Support Document will be reviewed and considered. A. Encouragement of StakeholderNegotiations

- If a representative group of stakeholders has begun negotiations prior to the Department's initiation of an impact analysis, DOE will consider deferring its own impact analysis until the stakeholder negotiations are completed or until the participants in the negotiations indicate that they are unable to reach a timely agreement. B. DOE Analysis

- In cases where stakeholders do not pursue negotiation of consensus standards recommendations or such negotiations are not successful, the Department will undertake its impact analyses. Based on the results of this analysis, DOE will propose to establish updated standards at the candidate standard level that appears to be the most desirable, given the criteria set forth in the statute

. Under these circumstances, DOE will take the following steps: • Review Candidate Standard Levels and Select Analytical Tools for Impact Analyses - Based on an analysis of the comments received on the ANOPR and further consultations with stakeholders and experts, DOE and its contractor will consider whether the range of candidate standard levels should be narrowed further, and then will choose the analytical tools to be used in performing the impact analyses. • Conduct of Impact Analyses - DOE's contractor will conduct specified impact analyses so as to support DOE's consideration of each of the decision criteria identified in Table 3-4.

DRAFT 4/30/96 4:13 PM 3-7 Other information dissemination activities will include:

• Public CommentandHearing

- There will be at least 60 days for public comment on the ANOPR, with at least one public hearing orworkshop.

• StakeholderandExpertReview

- DOE will make a special effort to inform and solicit comments from all stakeholders and experts previously involved in the process. 3.2.4 Analysis ofImpacts The impact analysis will fine-tune earlier analyses based on the comments received on the ANOPR. Additionally, economic impact analyses will be performed in four areas: (1) manufacturing impacts, (2) utility impacts, (3) regulatory impacts, and (4) environmental impacts. The Department will propose updated standards based on the results ofthe impact analysis. The Proposed Rule will be accompanied by a complete Technical Support Document. A detailed description ofthe impact analysis stage follows.
Review of Public, Stakeholder, andExpert Comments

- All comments on the Advance Notice ofProposed Rulemaking and the Technical Support Documentwill be reviewed and considered. A. Encouragement of StakeholderNegotiations

- Ifarepresentative group of stakeholders has begun negotiations prior to the Department's initiation ofan impact analysis, DOE will considerdeferring its own impact analysis until the stakeholder negotiations are completed oruntil the participants in the negotiations indicate that they are unable to reach a timely agreement. B. DOEAnalysis

- In cases where stakeholders do not pursue negotiation ofconsensus standards recommendations or such negotiations are not successful, the Department will undertake its impact analyses. Based on the results ofthis analysis, DOE will propose to establish updated standards at the candidate standard level that appears to be the most desirable, given the criteria set forth in the statute. Under these circumstances, DOE will take the following steps:

• Review Candidate Standard Levels andSelectAnalytical ToolsforImpactAnalyses

- Based on an analysis ofthe comments received on the ANOPR and further consultations with stakeholders and experts, DOE and its contractor will consider whether the range ofcandidate standard levels should be narrowed further, andthen will choose the analytical tools to be used in performing the impact analyses.

CD Conduct of ImpactAnalyses

- DOE's contractor will conduct specified impact analyses so as to support DOE's consideration ofeach ofthe decision criteria identified in Table 3-4.



### DRAFT 4/30/96 4:13 PM 3-7Table 3-4: Decision Criteria for Selection of Proposed Standard Decision Criterla'0':O'^'--
Stakeholder Recommendations : Consensus recommendations on updated efficiency levels submitted by a representative group of stakeholders. Impacts on Manufacturers: Estimated impacts on New, improved manufacturer Interviews with return on equity, assessments of impacts on impact methodologies selected manufacturers of specific categories of products, manufacturers; small or specialized manufacturers ; assessment of review of literature cumulative burden on manufacturers of multiple on product market Federal regulatory requirements, including efficiency and manufacturers standards for other products, as well as non-DOE characteristics; regulations. expert communications Impacts on Consumers : Estimated impacts based Revised Life-Cycle-Cost, net Focus groups or on: national average energy price and energy usage; present value and sensitivity surveys, if impacts major regional differences in usage and/or energy analyses reflecting on consumer utility prices; significant variations in installation costs or comments on ANOPR; use or satisfaction performance with sensitivity analyses using high and of regional impact or other might be low discount rates and high and low energy price models to estimate variable significant. forecasts. Consideration of changes to product utility. costs and savings, whenever these are substantial. Impacts on Utilities: Estimated marginal impacts on Utility impact models electric and gas utility costs and revenues. Impacts on the Environmental and Energy Based on current average Security: Estimated impacts of candidate standard and expected emissions, per levels on the physical quantities of carbon emissions, kwh, from the electric utility and relevant criteria pollutants or pollution control sector or from direct costs. Estimated impacts on oil use. controlled combustion of gas or oil. Impacts on Competition : Assessment of likely Dept. of Justice effects on competition among manufacturers of the analysis of impacts affected product and related products. on competition and an expert assessment of impacts on other market factors. Impacts of Non-Regulatory Alternatives to Data on actual participation Views of Standards : Assessment of possible and likely in, or impacts of, existing manufacturers, impacts of existing market driven and other voluntary nonregulatory alternatives; retailers and other changes in product efficiency, usage, and related estimated impacts based on experts. characteristics. prior experience or expert views. Review of Criteria Used for Priority

-Setting and (see above) (see above) Screening : Significance of energy, economic and environmental benefits; others, as appropriate Issuance of Notice of ProposedRulemaking

- documenting all analysis and decisionmaking to date, and proposing a standard level, to be followed by:

DRAFT 4/30/96 4:13 PM 3-8 Table 3-4: Decision Criteria for Selection of Proposed Standard Decision Criteria' Analysis Methodsand Data';',' Other Inputs "

, ' , Requirements','" ' , '? Stakeholder Recommendations: Consensus recommendations on updated efficiency levels submitted by a representative group of stakeholders. Impacts on Manufacturers: Estimated impacts on New, improved manufacturer Interviews with return on equity, assessments of impacts on impact methodologies selected manufacturers of specific categories of products, manufacturers; small or specialized manufacturers; assessment of review of literature cumUlative burden on manufacturers of multiple on product market Federal regulatory requirements, including efficiency and manufacturers standards for other products, as well as non-DOE characteristics; regulations. expert communications Impacts on Consumers: Estimated impacts based Revised Life-Cycle-Cost, net Focus groups or on: national average energy price and energy usage; present value and sensitivity surveys, if impacts major regional differences in usage and/or energy analyses reflecting on consumer utility prices; significant variations in installation costs or comments on ANOPR; use or satisfaction performance with sensitivity analyses using high and of regional impact or other might be low discount rates and high and low energy price models to estimate variable significant. forecasts. Consideration of changes to product utility. costs and savings, whenever these are substantial. Impacts on Utilities: Estimated marginal impacts on \Jtility impact models electric and gas utility costs and revenues. Impacts on the Environmental and Energy Based on current average Security: Estimated impacts of candidate standard and expected emissions, per levels on the physical quantities of carbon emissions, kwh, from the electric utility and relevant criteria pollutants or pollution control sector orfrom direct costs. Estimated impacts on oil use. controlled combustion of gas or oil. Impacts on Competition: Assessment of likely Dept. of Justice effects on competition among manufacturers of the analysis of impacts affected product and related products. on competition and an expert assessment of impacts on other market factors. Impacts of Non-Regulatory Alternatives to Data on actual participation Views of Standards: Assessment of possible and likely in, or impacts of, existing manufacturers, impacts of existing market driven and other voluntary nonregulatory alternatives; retailers and other changes in product efficiency, usage, and related estimated impacts based on experts. chan:lcteristics. prior experience or expert views. Review of Criteria Used for Priority-Setting and (see above) (see above) Screening: Significance of energy, economic and environmental benefits; others, as appropriate Issuance of Notice of ProposedRulemaking

- documenting all analysis and decisionmaking to date, and proposing a standard level, to be followed by:



## DRAFT 4/30/96 4:13 PM 3-8• Public Comment and Hearing: There would be at least 75 days for public comment on the NOPR, with at least one public hearing or workshop. • Stakeholder and Expert Review: DOE would make a special effort to inform and solicit comments from all stakeholders and experts previously involved in the process. 3.2.5 Final Standards As described in this section, the Department will update the analysis in response to the comments received and will issue the Final Rule. Review of Public, Stakeholder, and Expert Comments

- All comments on the Proposed Standards and the Technical Support Document will be reviewed and considered. Final Revisions to Impact Analyses and Standards - Based on the comments received, the impact analyses used to select the proposed standard will be modified, as necessary, and finalized. If major changes are required at this stage , stakeholders and experts will be given an opportunity to review the revised analysis.
Issuance of Final, Updated Efficiency Standards

- DOE will select the updated standard based on the criterion identified in Table 3-4, and issue a final rule accompanied by a final Technical Support Document. 3.2.6 Crosscutting Analytical Assumptions Underlying Economic Assumptions - The appliance standards analyses generally use the same economic growth and development assumptions that underlie the Energy Information Administration's (EIA's) Annual Energy Outlook (AEO). The Energy Information Administration'usually bases the Annual Energy Outlook on the economic forecasts of the Council of Economic Advisers. Energy Price and Demand Trends - Appliance standards analyses usually adopt the mid-range energy price and demand scenario of the EIA's most current AEO. Price sensitivities are likely to be based on the EIA's high and low energy price scenarios. Product-Specific Energy Efficiency Trends, without Updated Standards - Productspecific energy efficiency trends are likely to be based on a combination of the efficiency trends forecast by the EIA's residential and commercial demand model of the National Energy Modeling System (NEMS) and product-specific assessments by DOE and its contractors.
Discount Rates - For residential consumers, a mid-range real discount rate of 6 percent, with sensitivity analyses using 2 and 15 percent real discount rates would be used. For commercial equipment users, a mid-range real discount rate of 8 percent, with sensitivity analyses at 4 and 12 percent would be used. For national net present value calculations, a 7 percent real discount rate would be used. For manufacturer impacts, DOE plans to continue to use a 12 percent real discount rate.



### DRAFT 4/30/96 4:13 PM 3-9 • Public CommentandHearing: There would be at least 75 days for public comment on the NOPR, with at least one public hearing orworkshop.

• StakeholderandExpertReview: DOE would make a special effort to inform and solicit comments from all stakeholders and experts previously involved in the process. 3.2.5 Final Standards As described in this section, the Department will update the analysis in response to the comments received and will issue the Final Rule.
Review of Public, Stakeholder, andExpert Comments

- All comments on the Proposed Standards and the Technical Support Document will be reviewed and considered. Final Revisions to ImpactAnalyses andStandards

- Based on the comments received, the impact analyses used to select the proposed standard will be modified, as necessary, and finalized. Ifmajor changes are required at this stage, stakeholders and experts will be given an opportunity to review the revised analysis.
Issuance of Final, UpdatedEfficiency Standards

- DOE will select the updated standard based on the criterion identified in Table 3-4, and issue a final rule accompanied by a final Technical Support Document. 3.2.6 Crosscutting AnalyticalAssumptions Underlying EconomicAssumptions

- The appliance standards analyses generally use the same economic growth and development assumptions that underlie the Energy Information Administration's (EIA's) Annual Energy Outlook (AEO). The Energy Information Administration usually bases the Annual Energy Outlook on the economic forecasts ofthe Council ofEconomic Advisers. Energy Price andDemand Trends

- Appliance standards analyses usually adopt the mid-range energy price and demand scenario ofthe ErA's most current AEO. Price sensitivities are likely to be based on the EIA's high and low energy price scenarios. Product-Specific Energy Efficiency Trends, without Updated Standards

- Productspecific energy efficiency trends are likely to be based on a combination ofthe efficiency trends forecast by the EIA's residential and commercial demand model ofthe National Energy Modeling System (NEMS) and product-specific assessments by DOE and its contractors. DiscountRates

- For residential consumers, a mid-range real discount rate of6 percent, with sensitivity analyses using 2 and 15 percent real discount rates wouldbe used. For commercial equipment users, a mid-range real discountrate of8 percent, with sensitivity analyses at 4 and 12 percent would be used. For national net present value calculations, a 7 percent real discount rate wouldbe used. Formanufacturer impacts, DOE plans to continue to use a 12 percent real discount rate.



## DRAFT 4/30/96 4:13 PM 3-9Environmental and Energy Security Externalities - DOE expects to continue to calculate and consider the physical quantities of emissions avoided (or caused) by appliance efficiency standards. In some cases, such as sulfur oxide emissions, it may be appropriate to estimate the effects of standards on emission control costs, because actual emissions are, capped by the Clean Air Act. 3.2.7 Test Procedures During the screening process, the Department will decide whether test procedures need to be revised. Identifying the Need to Modify Test Procedures - DOE, in consultation with stakeholders, experts, and NIST will attempt to identify any necessary modifications to established test procedures before initiating the standards development process. The Department recognizes that any such test procedure modifications must be finalized before the NOPR is issued. Developing and Proposing Revised Test Procedures - Modifications to test procedures will begin with the stakeholder and expert consultation occurring early in the screening stage of the standards development process. Any necessary modifications will be proposed before issuance of an ANOPR. Issuing Final Test Procedure Modification

- Final, modified test procedures will be issued prior to the NOPR. Effective Date of Modified Test Procedures

- If required only for the evaluation and issuance of updated efficiency standards , modified test procedures will generally not go into effect until the effective date of updated standards. 3.2.8 Stakeholder Negotiations Throughout the standards development process, but especially following the issuance of the ANOPR, DOE will encourage stakeholders to negotiate among themselves with the goal of developing common recommendations to the Department on product categories and standard levels, as well as on more specific analytical issues. Identification of Representative Stakeholders - Stakeholder negotiation will be of most value to the Department if participants are reasonably representative of all major parties interested in the outcome of the standards development process, including consumers, manufacturers, utilities, states and representatives of environmental or energy efficiency interest groups. Technical Support of Negotiations, Including Impact Analyses Based on Statutory Criteria - In order to facilitate such negotiations, DOE will make available, upon request, appropriate technical and legal support to the group, and will provide copies of all relevant public documents and analyses. The Department will also give serious consideration to any requests for its participation in stakeholder negotiations, recognizing that such DOE participation may trigger an

DRAFT 4/30/96 4:13 PM 3-10 Environmental andEnergySecurityExternalities

- DOE expects to continue to calculate and consider the physical quantities ofemissions avoided (or caused) by appliance efficiency standards. In some cases, such as sulfur oxideemissions, it may be appropriate to estimate the effects ofstandards on emission control costs, because actual emissions are,capped by the Clean Air Act. 3.2.7 Test Procedures During the screening process, the Department will decide whethertest procedures need to be revised. Identifying the Need to Modify TestProcedures

- DOE, in consultation with stakeholders, experts, and NIST will attempt to identify any necessary modifications to established test procedures before initiating the standards development process. The Department recognizes that any such test procedure modifications must be finalized before the NOPR is issued. Developing andProposing Revised Test Procedures

- Modifications to test procedures will begin with the stakeholder and expert consultation occurring early in the screening stage ofthe standards development process. Any necessary modifications will be proposed before issuance ofan ANOPR. Issuing Final Test Procedure Modification

- Final, modified test procedures will be issued prior to the NOPR. Effective Date of Modified TestProcedures

- Ifrequired only for the evaluation and issuance ofupdated efficiency standards, modified test procedures will generally not go into effect until the effective date ofupdated standards. 3.2.8 StakeholderNegotiations Throughout the standards development process, but especially following the issuance of the ANOPR, DOE will encourage stakeholders to negotiate among themselves with the goal ofdeveloping common recommendations to the Department on product categories and standard levels, as well as on more specific analytical issues. Identification of Representative Stakeholders

- Stakeholdernegotiation will be ofmost value to the Department ifparticipants are reasonably representative ofall major parties interested in the outcome ofthe standards development process, including consumers, manufacturers, utilities, states and representatives ofenvironmental or energy efficiency interest groups. Technical Support of Negotiations, Including ImpactAnalysesBasedon Statutory Criteria

- In order to facilitate such negotiations, DOE will make available, upon request, appropriate technical and legal support to the group, and will provide copies of all relevant public documents and analyses. The Department will also give serious consideration to any requests for its participation in stakeholder negotiations, recognizing that such DOE participation may trigger an



## DRAFT 4/30/96 4:13 PM 3-10obligation to comply with the procedural requirements of the Federal Advisory

Committee Act. Stakeholder Recommendations - The consensus recommendations, and supporting analysis, of any representative group of stakeholders will be given substantial weight by DOE in the development of a proposed rule. If the supporting analysis provided by negotiators addresses all of the statutory criteria and uses valid economic assumptions and analytical methods, DOE will strongly consider using this supporting analysis as the basis of a proposed rule. DOE's proposed rule will explain any deviations from the consensus recommendations from stakeholders.



### DRAFT 4/30/96 4:13 PM
1 3-11 obligation to comply wnh the procedural requirements ofthe Federal Advisory Committee Act. StakeholderRecommendations

- The consensus recommendations, and supporting analysis, ofany representative group ofstakeholders will be given substantial weight by DOE in the development ofa proposed rule. Ifthe supporting analysis providedby negotiators addresses all ofthe statutory criteria and uses valid economic assumptions and analytical methods, DOE will strongly considerusing this supporting analysis as the basis ofa proposed rule. DOE's proposed rule will explain any deviations from the consensus recommendations from stakeholders.



## DRAFT 4/30/96 4:13 PM 3-114. Analytical Improvements Agenda

At the March 1996 workshop, the Department introduced the elements of a cooperative effort to improve the methods for analyzing the likely impacts of standards on stakeholder groups. This presentation had three goals: to obtain input on how this analysis should be conducted; to get feedback on which analysis issues should be given highest priority; and to begin developing a schedule for the analysis improvements. Improvement areas, as identified at the workshop, are summarized below.
4.1 Engineering Analysis Because many of the analytical issues involved in the engineering analysis of the rulemaking analysis are product specific, the Department's approach to improving the analysis methods will be to work closely with stakeholders during the course of rulemakings. Primary areas where the Department will be seeking input include: • Identification and selection of industry experts • Selection of suitable engineering models and suggestions for their improvement 0 Improvements to the methods used to obtain cost data • Validation of data and data sources • Development of alternative approaches to address uncertainty • Needs for product research and development associated with the evaluation of design options.
4.2 Impacts on Manufacturers The Department is initiating a review of the manufacturing impact analysis models and methodologies in close cooperation with interested parties. The Department will be starting with a "clean sheet of paper," possibly leading to the improvements, or replacement, of the current analysis methodologies. The Department seeks to include more qualitative methods to enhance whatever quantitative models are chosen. Issues raised during the consultations, including treatment of small/niche manufacturers and the cumulative impact of multiple standards will be addressed. The Department of Energy intends to hold a public workshop this summer to begin development of new approaches to conducting the manufacturer impact analysis.

4.3 Alternatives to Standards The Department of Energy has initiated a review of its R&D, market pull, and standards programs to ensure a thoughtful prioritization and selection among appliance project opportunities. Elements of this review include: • Rigorous consideration of market solutions • Consideration of Federal and private sector initiatives



### DRAFT 4/30/96 4:13 PM 4-1 4. Analytical Improvements Agenda

At the March 1996 workshop, the Department introduced the elements ofa cooperative effort to improve the methods for analyzing the likely impacts ofstandards on stakeholder groups. This presentation had three goals: to obtain input on how this analysis should be conducted; to get feedback on which analysis issues should be given highest priority; and to begin developing a schedule for the analysis improvements. Improvement areas, as identified at the workshop, are summarized below.

4.1 Engineering Analysis
Because many ofthe analytical issues involved in the engineering analysis ofthe rulemaking analysis are product specific, the Department's approach to improving the analysis methods will be to work closely with stakeholders during the course of rulemakings. Primary areas where the Department will be seeking input include:

• Identification and selection of**~ndustry** experts • Selection ofsuitable engineering models and suggestions for their improvement
• Improvements to the methods used to obtain cost data
• Validation ofdata and data sources • Development ofalternative approaches to address uncertainty
• Needs for product research and development associated with the evaluation of design options.

4.2 Impacts on Manufacturers The Department is initiating a review ofthe manufacturing impact analysis models and methodologies in close cooperation with interested parties. The Department will be starting with a "clean sheet ofpaper," possibly leading to the improvements, or replacement, ofthe current analysis methodologies. The Department seeks to include more qualitative methods to enhance whatever quantitative models are chosen. Issues raised during the consultations, including treatment ofsmall/niche manufacturers and the cumulative impactofmultiple standards will be addressed. The DepartmentofEnergy intends to hold a public workshop this summerto begin development ofnew approaches to conductingthe manufacturerimpactanalysis.

4.3 Alternatives to Standards The Department ofEnergy has initiated a review ofits R&D, market pull, and standards programs to ensure a thoughtful prioritization and selection among appliance project opportunities. Elements ofthis review include:

• Rigorous consideration ofmarket solutions
• Consideration ofFederal and private sectorinitiatives



### DRAFT 4/30/96 4:13 PM 4-1• Public participation in the planning and review of programs

• Improved resource allocations. Preliminary criteria that may suggest an increased emphasis on non

-regulatory alternatives to standards include: • Inequitable distribution of consumer life-cycle costs resulting from variable appliance usage patterns and energy prices • Standards which would result in products with a greatly increased first cost • New technology with undemonstrated utility, serviceability, reliability or safety Inequitable distribution of costs and benefits among regions of the country resulting from variable climate conditions and energy prices • Inequitable distribution of financial impacts on manufacturers with particular consideration of small manufacturers and possible anti-competitive effects • Strong commitment by manufacturers and distribution channels to voluntary efforts • New technology which would require major changes to manufacturing processes and industry infrastructure

• Absence of an adequate manufacturing, sales, and servicing infrastructure.



### DRAFT 4/30/96 4:13 PM 4-2 • Public participation in the planning and review ofprograms • Improved resource allocations. Preliminary criteria that may suggest an increased emphasis on non-regulatory alternatives to standards include:

• Inequitable distribution ofconsumer life-cycle costs resulting from variable appliance usage patterns and energy prices

• Standards which would result in products with a greatly increased first cost

• New technology with undemonstrated utility, serviceability, reliability or safety

• Inequitable distribution ofcosts and benefits among regions ofthe country resulting from variable climate conditions and energy prices

• Inequitable distribution offinancial impacts on manufacturers with particular consideration ofsmall manufacturers and possible anti-competitive effects

• Strong commitmentby manufacturers and distribution channels to voluntary efforts

• New technology which would require majorchanges to manufacturing processes and industry infrastructure

• Absence ofan adequate manufacturing, sales, and servicing infrastructure.



## DRAFT 4/30/96 4:13 PM 4-25. Next Steps

5.1 Final Report on Results of the Appliance Rulemaking Process Improvement Effort To ensure full consideration, stakeholder comments on this Draft Report must be received by the Department of Energy no later than May 20, 1996. • The Department expects to issue the Final Report during June.
5.2 Priority

-setting analysis and development of a new Regulatory Agenda• Comments on the criteria that the Department proposes to consider in the prioritysetting process, and on the process DOE intends to follow, must also be received by May 20. • In late May, the Department will begin its first priority-setting analysis and, by, early July, DOE will issue a draft Regulatory Agenda based on the results of this analysis. The draft Regulatory Agenda will: indicate for each covered product whether DOE is proposing to initiate or continue, during the next two years, the development of updated standards for that product category; document the contents and results of the priority-setting analysis which DOE used to develop the draft Regulatory Agenda; indicate the next steps for all currently active rulemakings; describe any variations from the new process that will be followed for specific products; and provide a schedule for completion of each rulemaking identified. • During the summer, the Department will hold a public workshop in order to describe, and obtain stakeholder comments on, the draft Regulatory Agenda. • Distribution of Program priorities in late summer with publication of the Regulatory Agenda in the Federal Register in October 1996.
5.3 Current Status of On-going Activities In parallel with the process improvement effort and the development of a new Regulatory Agenda, the Department. is continuing work on the supporting analyses for several standards rulemakings already underway, including: Refrigerators: The analysis of comments is complete. At this time, DOE believes that no major changes to the underlying analysis of the proposed refrigerator standards is necessary. However, the Department expects to consult with manufacturers and other interested parties to determine whether alterations to the proposed standards suggested by some stakeholders are desirable. Ballasts: The analysis underlying the proposed standards has been substantially revised and has been circulated for technical review by manufacturers and other interested parties. A public workshop to review this revised analysis, as well as to discuss and

DRAFT 4/30/96 4:13 PM 5-1 5. Next Steps

5.1 Final Report on Results of the Appliance Rulemaking Process Improvement Effort

• To ensure full consideration, stakeholdercomments on this Draft Report mustbe received by the Department ofEnergy no later than May 20, 1996.

• The Departmentexpects to issue the Final Report**duri~g** June.

5.2 Priority-setting analysis and development of a new Regulatory Agenda

• Comments on the criteria that the Department proposes to considerin the prioritysetting process, and on the process DOE intends to follow, must also be received by May 20.

• In late May, the Departmentwillbegin its first priority-setting analysis and, by early July, DOE will issue a draft Regulatory Agendabased on the results ofthis analysis. The draft Regulatory Agenda will: indicate for each covered product whether DOE is proposing to initiate or continue, during the next two years, the developmentof updated standards for that productcategory; document the contents and results ofthe priority-setting analysis which DOE used to develop the draft Regulatory Agenda; indicate the next steps for all currently active rulemakings; describe any variations from the new process that will be followed for specific products; and provide a schedule for completion ofeachrulemaking identified.

• During the summer, the Department will hold a public workshop in orderto describe, and obtain stakeholder comments on, the draft Regulatory Agenda.

• Distribution ofProgrampriorities in late summer with publication ofthe Regulatory Agenda in the Federal Register in October 1996.

5.3 Current Status of On-going Activities
In parallel with the process improvement effort and the development ofa new Regulatory Agenda, the Department.is continuing work on the supporting analyses for several standards rulemakings already underway, including: Refrigerators: The analysis ofcomments is complete. At this time, DOE believes that no majorchanges to the underlying analysis ofthe proposed refrigerator standards is necessary. However, the Department expects to consult with manufacturers and otherinterested parties to determine whether alterations to the proposed standards suggested by some stakeholders are desirable. Ballasts: The analysis underlying the proposed standards has been substantially revised and has been circulated for technical review by manufacturers and otherinterested parties. A public workshop to review this revised analysis, as well as to discuss and


## DRAFT 4/30/96 4:13 PM 5-1plan a proposed DOE assessment of possible non-regulatory alternatives to updated ballast efficiency standards, is planned for late Spring. DOE will consult with interested parties to schedule the date for the workshop and elaborate a detailed agenda. Cooking Products and Room Air Conditioners: The analyses underlying the proposed standards for these two product categories have been substantially revised and are now being circulated for technical review by manufacturers and other interested parties. Comments will be due two months after the revised analysis has been circulated.
5.4 Analytical improvements agenda Manufacturer Impact Analysis Workshop: In order to initiate the process of developing new and substantially improved methods for assessing the impacts of standards' on manufacturers, DOE is planning to hold a public workshop in June 1996. At the workshop, DOE will review in detail the existing analyses methodologies, lead a discussion on a draft work plan for the development of new methods for assessing manufacturer impact, and invite comments and suggestions from participants. Alternatives To Standards Workshop: In order to initiate the process of developing methods for comparing the likely benefits and costs of updated efficiency standards to various non-regulatory alternatives, DOE is planning to hold a public workshop in June 1996. At the workshop, DOE will present its ideas on how to perform such comparative analyses and will invite comments and suggestions from participants.



### DRAFT 4/30/96 4:13 PM 5-2 plan a proposed DOE assessment ofpossible non-regulatory alternatives to updated ballast efficiency standards, is planned for late Spring. DOE will consult with interested parties to schedule the date for the workshop and elaborate a detailed agenda. Cooking Products andRoomAir Conditioners: T,he analyses underlying the proposed standards for these two product categories have been substantially revised and are now being circulated for technical review by manufacturers and other interested parties. Comments will be due two months after the revised analysis has been circulated.

5.4 Analytical improvements agenda ManufacturerImpactAnalysis Workshop: In orderto initiate the process ofdeveloping new and substantially improved methods for assessing the impacts ofstandards'on manufacturers, DOE is planning to hold a public workshop in June 1996. Atthe workshop, DOE will review in detail the existing analyses methodologies, lead a discussion on a draft work plan for the development ofnew methods for assessing manufacturer impact, and invite comments and suggestions from participants. Alternatives To Standards Workshop: In orderto initiate the process ofdeveloping methods for comparing the likely benefits and costs ofupdated efficiency standards to various non-regulatory alternatives, DOE is planning to hold a public workshop in June 1996. At**th~** workshop, DOE will present its ideas on how to perform such comparative analyses and will invite comments and suggestions from participants.



## DRAFT 4/30/96 4:13 PM 5-2