REGULATORY IMPACT ANALYSIS FOR PROPOSED

ENERGY CONSERVATION STANDARDS FOR 

DISTRIBUTION TRANSFORMERS

July 2006

U.S. Department of Energy

Assistant Secretary

Office of Energy Efficiency & Renewable Energy

Building Technologies Program

Appliances and Commercial Equipment Standards

Washington, DC 20585

 EE-RM/STD-00-550 COMMENT 92
RIA-i

REGULATORY IMPACT ANALYSIS FOR PROPOSED ENERGY 

CONSERVATION STANDARDS FOR ELECTRICAL DISTRIBUTION

TRANSFORMERS

TABLE OF CONTENTS

1.0 INTRODUCTION .................................................. RIA-1

2.0 NON-REGULATORY POLICIES ..................................... RIA-2

2.1 Methodology ................................................ RIA-2

2.1.1 Modeling Method ....................................... RIA-2

2.1.2 Policy Assumptions ..................................... RIA-3

2.1.3 Policy Interactions ...................................... RIA-4

2.2 Non-Regulatory Policy Assumptions .............................. RIA-5

2.2.1 No New Regulatory Action ............................... RIA-5

2.2.2 Financial Incentives Policies .............................. RIA-5

2.2.3 Voluntary Energy-Efficiency Targets ...................... RIA-13

2.2.4 Early Replacement ..................................... RIA-14

2.2.5 Bulk Government Purchases ............................. RIA-14

2.3 Results Summary for Non-Regulatory Alternatives ................. RIA-15

APPENDIX RIA.A: USING IMPLEMENTATION CURVES TO ESTIMATE MARKET

PENETRATION OF NON-REGULATORY POLICIES ....... RIA-17

LIST OF TABLES

Table RIA.1 Policy Alternatives to Proposed National Distribution Transformer 

Standards ................................................... RIA-2

Table RIA.2 Proposed Standard Levels for Distribution Transformers .............. RIA-4

Table RIA.3 Benefit/Cost Ratios for Proposed Standard and Rebate Policy Cases ..... RIA-7

Table RIA.4 Market Share and Effective Market Share Increases for Consumer 

Rebates Policy Case by Medium-Voltage, Dry-Type Product Class ...... RIA-9

Table RIA.5 Market Share and Effective Market Share Increases for Consumer 

Rebates Policy Case by Liquid-Immersed Product Class .......... RIA-10

Table RIA.6 Effective Market Share Increases for Consumer Tax Credits Policy 

Case by Product Class ........................................ RIA-12

Table RIA.7 Effective Market Share Increases for Manufacturer Tax Credits Policy 

Case by Product Class ........................................ RIA-13

 EE-RM/STD-00-550 COMMENT 92
RIA-ii

LIST OF FIGURES

Figure RIA.1 Market Penetration Curve for Design Line 13 of Medium-Voltage, 

Dry-Type Transformers ..................................... RIA-8

Figure RIA.2 Market Penetration Curve for Design Line 1 of Liquid-Immersed 

Transformers ............................................ RIA-10

Figure RIA.A.1 Comparison of Exponential and Logistic Curves Showing 

External and Internal Influences on Consumers ................. RIA-18

 EE-RM/STD-00-550 COMMENT 92
a

 Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type

distribution transformers, the Department has removed this type of transformer from the NOPR stage of its analysis. 

RIA-1

REGULATORY IMPACT ANALYSIS FOR PROPOSED ENERGY 

CONSERVATION STANDARDS FOR ELECTRICAL DISTRIBUTION 

TRANSFORMERS

1.0 INTRODUCTION

The Department of Energy (Department, or DOE) has determined that distribution

transformer energy-efficiency standards constitute an “economically significant regulatory

action” under Executive Order (E.O.) 12866 “Regulatory Planning and Review.” 58 FR 51735,

October 4, 1993. Therefore, the proposed energy-efficiency standards require a regulatory

impact analysis (RIA), which involves an evaluation of non-regulatory alternatives to the

proposed standards. This document evaluates several possible alternatives to the proposed

standards, and compares the costs and benefits of each to the proposed standards. As described

in section 2.0 of this report, the proposed standards are those in trial standard level (TSL) 2 for

liquid-immersed distribution transformers and TSL 2 for medium-voltage, dry-type distribution

transformers.a

Under the Process Rule (Procedures, Interpretations and Policies for Consideration of

New or Revised Energy Conservation Standards for Consumer Products, 10 CFR 430, Subpart

C, Appendix A), DOE is committed to continually explore non-regulatory alternatives to

standards. 62 FR 54817. The Department has prepared this draft regulatory analysis pursuant to

E.O. 12866, which is subject to review under the Executive Order by the Office of Information

and Regulatory Affairs (OIRA). 58 FR 51735.

The Department identified six major, non-regulatory alternatives to standards as

representing feasible policy options to achieve potentially similar improvements in distribution

transformer energy efficiency. Table RIA.1 lists the six alternatives. The Department evaluated

each of those alternatives that apply to the distribution transformers covered by this notice of

proposed rulemaking (NOPR) in terms of its ability to achieve significant energy savings at a

reasonable cost, and compared the effectiveness of each one to the effectiveness of the proposed

standards. As discussed in section 2.2 below, DOE found that some of these policy alternatives

would not have an impact on those transformers for which there are proposed standards and

therefore did not further analyze them.

 EE-RM/STD-00-550 COMMENT 92
RIA-2

Table RIA.1 Policy Alternatives to Proposed National Distribution Transformer

Standards

No New Regulatory Action

Consumer Rebates

Consumer Tax Credits

Manufacturer Tax Credits

Voluntary Energy-Efficiency Targets

Early Replacement

Bulk Government Purchases

2.0 NON-REGULATORY POLICIES

2.1 Methodology

This section describes the approach DOE used to analyze non-regulatory policies for the

appropriate distribution transformer product classes. The Department assumed that each policy

would apply to one or both of the two transformer types: liquid-immersed and medium-voltage,

dry-type.

2.1.1 Modeling Method

To calculate the national energy savings (NES) and the net present value (NPV)

corresponding to each policy alternative, the Department used the national impact analysis (NIA)

Spreadsheet Model. (See Chapter 10 of the technical support document (TSD)1 for a description

of the NIA Spreadsheet Model.) To compare each alternative to the proposed standards, the

Department quantified the effect of each alternative on the purchase of distribution transformers

meeting efficiency levels equivalent to those in the proposed standards. This report refers to

these levels as target levels. Once it had made the quantitative assumptions for each alternative,

DOE made the appropriate revisions to the inputs in the NIA Spreadsheet Model. The main

model inputs that DOE revised were the market shares of equipment at the target efficiencies. 

The shipments for any given year comprise a distribution of efficiency levels. The

Department assumed that the proposed standards would affect 100 percent of the shipments,

while the non-regulatory policies affect a smaller percentage of the shipments. In each policy

case, DOE made particular assumptions about the percentage of shipments (market shares)

impacted by the policy under analysis. In the base case and the policy case, the impacted

shipments enter the stock each year. Using the estimates of transformer losses from the life-cycle

cost analysis (Chapter 8 of the TSD), the Department calculated the annual total energy use by

the stock of transformers. For each year analyzed, the difference in source energy use between

the proposed standards case and the policy case is the annual energy savings.

 EE-RM/STD-00-550 COMMENT 92
a

 The Department used the same time period for NPV in the RIA as it did for the NIA in the advance notice of

proposed rulemaking.

RIA-3

A shift in market share to higher-efficiency transformers may increase the average

installed cost of distribution transformers. Operating costs will generally decrease due to a

decline in energy consumption. Therefore, DOE was able to calculate an NPV for non-regulatory

alternatives in the same way as for the proposed standard. In some scenarios, total installed cost

increases are partially mitigated by government rebates or tax credits. The Department assumed

that credits and rebates would be paid for by consumers in another form (such as additional

taxes), and therefore did not include them as a benefit for the purposes of calculating the national

NPV.

The key measures of the impact of each alternative are:

• National energy savings in quadrillion British thermal units (quads): Cumulative national

primary energy savings for equipment bought in the period from the effective date of the

policy case (2010) to the year 2038.

• Net present value: The value of net monetary savings from equipment bought in the

period from the effective date of the policy case (2010) to the year 2038. The Department

calculated the NPV as the difference between the present value of equipment and

operating expenditures (including energy) in the base case, and the present value of

expenditures in each alternative policy case. The Department calculated capacity and

operating cost savings through the year 2073 for transformers purchased in the period

2010 to 2038.a

2.1.2 Policy Assumptions

The impacts of non-regulatory policies are by nature uncertain, since they depend on

program implementation and marketing efforts and the subsequent consumer behavior response. 

The projected impacts depend on the assumptions about the consumer participation rate and are

therefore subject to more uncertainties than the impacts of mandatory standards, which the

Department assumed would have full compliance. To increase the robustness of the analysis, the

Department conducted a literature review on each non-regulatory policy and consulted with key

experts to gather information on similar incentive programs that have been implemented in the

U.S. By studying field experience with sample programs of each type, DOE sought to make

credible assumptions of their potential market impacts. Section 2.2 below reports the

conclusions from this research as they apply to the policy modeling assumptions and includes the

corresponding literature citations.

Each of the policy alternatives to the proposed standards that DOE considered improves

the average efficiency of new distribution transformers relative to the base case (no new

regulatory action). The analysis considered that each alternative policy would induce consumers

to purchase units at the target levels, the same efficiency levels as required by the proposed

 EE-RM/STD-00-550 COMMENT 92
RIA-4

standards. In contrast to the proposed standards, however, the penetration rate in the alternative

policy cases may not be 100 percent.

The proposed standards are those in TSL 2, as shown in Table RIA.2. Section II of the

NOPR shows the efficiency levels for the proposed standard levels by product class and kilovoltampere (kVA) size.

The size of the eligible market for the policies varies among the product classes. Table

RIA.2 shows the percentages of the distribution transformer market that the Department projects

will be below the target levels in 2010 (in the column labeled “Percent Non-Compliant”). 

Therefore, policies that aim for the target level will impact the non-complying portion of the

distribution transformer market for each product class. Non-regulatory policies would thus

impact some fraction of these portions of the market. 

The Department assumed that the non-regulatory policy impacts last from the effective

date for proposed distribution transformer standards, 2010, through the end of the analysis period,

2038. 

Table RIA.2 Proposed Standard Levels for Distribution Transformers

Distribution Transformer Type TSL Percent Non-Compliant

Liquid-Immersed 2 43.6

Medium Voltage, Dry-Type 2 31.2

The Department did not consider administrative costs for any of the non-regulatory

policies in its analysis. Inclusion of such costs would decrease their NPV by a small amount.

2.1.3 Policy Interactions

The Department calculated the impacts of each regulatory policy separately from those of

the other policies. In actual practice, certain policies are often most effective when implemented

in combination to provide incentives. The Department attempted to make conservative

assumptions to avoid double-counting policy impacts. Therefore, the policy impacts reported

below are not additive; the combined impact of several or all of the policies may not be inferred

from adding the results together. 

Section 2.3 below presents the results of the analysis of the non-regulatory policies for

distribution transformers.

 EE-RM/STD-00-550 COMMENT 92
RIA-5

2.2 Non-Regulatory Policy Assumptions

2.2.1 No New Regulatory Action

The case in which no new regulatory action is taken with regard to distribution transformer

efficiency constitutes the base case scenario described in Chapter 10 of the TSD. This case

defines the basis of comparison for all other scenarios. By definition, no new regulatory action

yields zero energy savings and a net present value of zero dollars.

2.2.2 Financial Incentives Policies

The Department considered scenarios in which the Federal government would provide two

types of financial incentives: rebates and tax credits. The government could provide consumers

with a cash rebate at the time of purchase. Tax credits could be granted to consumers who

purchased target-level distribution transformers, or the government could issue tax credits to

manufacturers to offset costs associated with producing such equipment. 

The Department’s evaluation of financial incentive policies used a comprehensive study of

the potential for energy efficiency in California performed by Xenergy, Inc., which summarizes

experience with various utility rebate programs.2 Xenergy developed a re-parameterized, mixedsource, information-diffusion model to estimate market impacts induced by financial incentives

for energy-efficient appliances. The basic premise of this mixed-source model is that information

diffusion drives technology adoption. The model is formulated to characterize the influences of

both internal and external sources of information on consumer behavior by superimposing two

components in the equation, each capturing the effect of one of two different types of information

source. The effects of these two types of information-diffusion mechanisms are different. 

Internal sources of information influence consumers to purchase new products, due mainly to

word-of-mouth from early adopters, while external information sources influence consumers to

change their adoption decisions as a result of marketing efforts and information coming from

outside the consumer group. The mixed-source model describes a combined impact of the two

information-source types, and specific parameterization determines consumer adoption behavior. 

(Appendix RIA.A contains further details.) 

Xenergy’s model combined these two information diffusion mechanisms and generated a

set of “implementation curves,” which Xenergy calibrated using evaluation data from utility

rebate programs conducted in the 1990s. Consumer response to rebate incentives appears to result

from a combination of the two information-source types. The implementation curves illustrate the

increased penetration of efficient equipment (i.e., increased market share) as a result of consumer

response to benefit/cost (B/C) ratio changes induced by a specific rebate program. The

implementation curves are used to depict various diffusion patterns based on perceived barriers to

consumer purchase of high-efficiency equipment. There are implementation curves for varying

levels of market barriers, from “no barriers” to “extremely high barriers.” These curves provide a

means to study the impact on the consumer participation rate of changing the B/C ratio by

reducing the initial equipment cost through financial incentives. 

 EE-RM/STD-00-550 COMMENT 92
a

 The base case is a market weighted-average of units at several efficiency levels.

RIA-6

To further understand the impacts of financial incentives policies, the Department used

studies on forecasting the impact of consumer tax credits.3, 4 This research differentiated the

impact of tax credits into the “direct price effect,” which arises from the incremental equipment

cost savings, and the “announcement effect,” which is independent of the rebate amount. The

announcement effect derives from the credibility that a particular technology receives from its

inclusion in an incentive program, as well as changes in product marketing strategy and the

resulting modifications in markups and pricing. The Department assumed that the direct price

effect and the announcement effect would also apply to rebate programs. It assumed that half of

the increases in market penetration associated with rebates would be due to the direct price effect

and half to the announcement effect.

Consumer Rebates. The Department modeled the impact of the consumer rebate policy

by determining the increase in market penetration of target-level equipment relative to the base

case. It assumed that this policy would apply to medium-voltage, dry-type transformers.

For medium-voltage, dry-type distribution transformers, the Department estimated the

impact of increasing the B/C ratio via a rebate that paid 70 percent of the incremental equipment

cost between a distribution transformer meeting the base case efficiency levela and a unit meeting

the target efficiency. The Department based the 70 percent rebate amount on existing utility

rebate programs for low-voltage, dry-type distribution transformers that require TP1-2002

efficiency levels to qualify.5, 6, 7, 8 The Department studied each of these programs and found that

the average rebate amounted to about 70 percent of the incremental equipment cost for lowvoltage, dry-type transformers. It then assumed that the consumer rebate policy would reduce the

incremental equipment costs for medium-voltage, dry-type transformers during the analysis period

by the same percentage.

The Department assumed the rebates would remain in effect until they had transformed the

market, so that the shift in market share efficiencies seen in the first year of the program would be

maintained throughout the forecast period (2010–2038). Section 2.3 below presents the results of

the analysis for the consumer rebate policy.

To estimate the B/C ratios, the Department first calculated the B/C ratio for each design

line with an efficiency meeting the target level relative to the base case design line with no rebate 

(see Ch.8 of the TSD for details on transformer design lines). It then calculated another B/C ratio

for each design line meeting the target level, with a rebate reducing its incremental equipment

cost, relative to the base case unit. Because of the incremental cost reduction due to the rebate,

the B/C ratio for the rebate policy unit is larger. Table RIA.3 shows the inputs to these

calculations and the resulting B/C ratios for each design line (DL). See Chapter 8 of the TSD for

a detailed discussion of design lines. 

 EE-RM/STD-00-550 COMMENT 92
a

 Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type

distribution transformers, the Department has removed from this NOPR its analysis of design lines 6, 7, and 8.

RIA-7

Table RIA.3 Benefit/Cost Ratios for Proposed Standard and Rebate Policy Cases

Design

Linea

Benefit (Lifetime

Operating Cost

Savings)

($)

Incremental

Installed Cost 

($)

B/C

Ratio

with No

Rebate

Rebate

Amount

($)

Incremental

Equipment Cost

after Rebate

($)

B/C Ratio

for Rebate

Policy Case

DL 1 375 364 1.0 186 178 2.1

DL 2 255 51 5.0 47 4 59.2

DL 3 8,310 632 13.2 493 139 59.8

DL 4 2,134 1,191 1.8 712 480 4.5

DL 5 18,706 2,934 6.4 1,870 1,064 17.6

DL 9 3,758 396 9.5 270 126 29.9

DL 10 18,441 6,350 2.9 4,220 2,130 8.7

DL 11 6,432 1,352 4.8 900 452 14.2

DL 12 15,868 3,433 4.6 2,311 1,122 14.1

DL 13 11,087 3,599 3.1 2,426 1,174 9.4

Note: Design lines 1 though 5 represent liquid-immersed transformers. Design lines 9 though 13 represent

medium-voltage, dry-type transformers.

The Department then used the implementation curves discussed above to estimate the

increased percentage of consumers who would purchase units that meet the policy target levels if

given a rebate incentive. The Department assumed that medium-voltage, dry-type transformers

would fit the “moderate barriers” curve, since they are typically purchased by industrial entities

that analyze the economics of the purchase and, therefore, have some incentive for energy

efficiency.

Figure RIA.1 shows an implementation curve with the penetration rates (market shares) of

target-level units for an example design line of medium-voltage, dry-type transformers as a

function of B/C ratios. Using this method, DOE estimated that, for design line 13 (one of the

medium-voltage, dry-type design lines), the penetration rate increase, as shown, would be about

32 percent.

To estimate the impacts of this rebate policy on medium-voltage, dry-type transformers,

DOE calculated the weighted average of the resulting market share increases by product class,

using the market shares of the design lines. The Department applied these market share increases

to the portion of shipments affected by the standards (non-compliant) in each product class,

generating effective market share increases of distribution transformers meeting the target levels

 EE-RM/STD-00-550 COMMENT 92
RIA-8

Figure RIA.1 Market Penetration Curve for Design Line 13 of MediumVoltage, Dry-Type Transformers

by product class. In the RIA model, DOE adjusted the base case shipments projection to reflect

these percentage increases in effective market share. 

Table RIA.4 lists the market share increases of the affected shipments, the percentage of

the product class (PC) affected by the standards, and the effective PC market share increases, for

each medium-voltage, dry-type transformer product class.

 EE-RM/STD-00-550 COMMENT 92
RIA-9

Table RIA.4 Market Share and Effective Market Share Increases for Consumer Rebates

Policy Case by Medium-Voltage, Dry-Type Product Class

Product

Class

Increased Market Share

(Percentage of Affected Market

Segment)

(%)

Percent Affected

by Proposed

Standard

(%)

Increased

Effective Market

Share

(%)

PC 5 30.8 43.3 13.5

PC 6 30.8 43.3 13.5

PC 7 27.3 28.3 7.9

PC 8 27.3 28.3 7.9

PC 9 32.4 27.1 8.8

PC 10 32.4 27.1 8.8

Although the Department assumed that the rebate policy would not apply to utilities, and

therefore liquid-immersed transformers, it did analyze the impacts of consumer and manufacturer

tax credits on liquid-immersed transformers. Therefore, DOE needed to calculate the impacts of a

hypothetical rebate-type incentive for liquid-immersed transformers, assuming that such rebates

would reduce the incremental installed cost of these transformers by the same percentage as they

would for the medium-voltage, dry-type transformers. Using this assumption, DOE calculated the

changes in B/C ratios for the liquid-immersed representative units, as shown above in Table

RIA.3.

The Department assumed liquid-immersed transformers would fit the “low barriers” curve,

because the utilities that purchase them usually evaluate the economics of the purchase. In 1996,

Oak Ridge National Laboratory (ORNL) stated in its determination analysis that 90 percent of the

liquid-immersed transformer purchases were evaluated.9 Data submitted by the National

Electrical Manufacturers Association (NEMA) for years after 1996 showed that about 65 percent

of utilities still evaluated their distribution transformer purchases.

For liquid-immersed transformers, DOE estimated the market-weighted averages of the

penetration rates from the design line at the product class level. The Department then used

implementation curves to estimate the increased percentage of consumers who would purchase

units that meet the policy target levels, if given hypothetical rebates covering 70 percent of

incremental costs. For example, as shown in Figure RIA.2, for design line 1 the penetration rate

(market share) would increase by almost 17 percent. Table RIA.5 lists the market share increases

of the affected shipments, the percentage of the product class impacted by the proposed standards,

and the effective product class market share increases, for each liquid-immersed transformer

product class. The Department used these values to calculate the impacts of the tax credit policies

on liquid-immersed transformers, as explained in the sections below.

 EE-RM/STD-00-550 COMMENT 92
RIA-10

Figure RIA.2 Market Penetration Curve for Design Line 1 of LiquidImmersed Transformers

Table RIA.5 Market Share and Effective Market Share Increases for Consumer Rebates

Policy Case by Liquid-Immersed Product Class

Product Class Increased Market

Share (Percentage of

Affected Market

Segment)

Percent Impacted

by Proposed

Standard

Increased Effective

Market Share

(Percentage of Product

Class)

PC 1 19.2 40.2 7.7

PC 2 14.3 46.5 6.6

Consumer Tax Credits. The Department assumed that a tax credit policy would apply to

medium-voltage, dry type transformers, as well as those liquid-immersed transformers that are

purchased by investor-owned utilities (IOUs). 

The Department assumed a consumer tax credit equivalent to the amount covered by

rebates (i.e., 70 percent of the incremental cost between distribution transformer base case

equipment and equipment meeting the policy target levels). 

The Department estimated that, for both transformer types, the consumer participation rate

would be lower than that for consumer rebates. Research on tax credits has shown that the time

delay to the consumer in receiving a reimbursement via tax credit, plus the added transaction costs

in tax-return preparation, make the tax credit incentive less effective than a rebate received at the

 EE-RM/STD-00-550 COMMENT 92
RIA-11

time of purchase. Based on previous analysis,10 DOE assumed that only 60 percent as many

consumers would take advantage of the tax credit as would take advantage of a rebate. 

Using a similar approach as for the rebate policy, DOE estimated that the market share of

target efficiency distribution transformers would increase due to consumer tax credits over the

base case by the percentages shown in Table RIA.6. For both transformer types, these percentage

market share increases are 60 percent of the market increases estimated for the rebate policy

(which are shown in Tables RIA.4 and RIA.5). For liquid-immersed transformers product classes

1 and 2, DOE adjusted the effective market shares to reflect the percentage of those transformers

owned by IOUs, as shown in Table RIA.6. The Department used data on transformer ownership

by design line to estimate the percentage of liquid-immersed transformers owned by IOUs. Refer

to Chapter 8 of the TSD for more information.

The Department assumed the impact of this policy would be to permanently transform the

market so that the shipment-weighted efficiency gain seen in the first year of the program would

be maintained throughout the forecast period. Section 2.3 below presents the results of the

analysis for the consumer tax credit policy.

 EE-RM/STD-00-550 COMMENT 92
a

 Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type

distribution transformers, the Department has removed from this NOPR its analysis of product class 3 (low-voltage,

dry-type, single-phase) and product class 4 (low-voltage, dry-type, three-phase).

RIA-12

Table RIA.6 Effective Market Share Increases for Consumer Tax Credits Policy Case by

Product Class

Product Classa Percent Owned by IOUs

(%)

Increased Effective Market Share

(Percentage of Product Class)

(%)

PC 1 72.3 3.4

PC 2 50.7 2.0

PC 5 0 8.1

PC 6 0 8.1

PC 7 0 4.8

PC 8 0 4.8

PC 9 0 5.3

PC 10 0 5.3

Manufacturer Tax Credits. The Department assumed that tax credits could be given to

manufacturers of liquid-immersed and medium-voltage, dry-type transformers. It assumed that

this incentive policy would help reimburse manufacturers for retooling costs. Because these tax

credits would go to manufacturers instead of consumers, DOE assumed that manufacturers would

pass on the reduced costs, causing a direct price effect. However, DOE assumed that the

announcement effect would not occur because the program would not be visible to owners of

distribution transformers. Since the direct price effect is approximately equivalent to the

announcement effect,3 the Department assumed that half of the consumers assumed to take

advantage of consumer tax credits would purchase more-efficient products with a manufacturer

tax credit program. As a result, DOE estimated the percentage by which market shares of efficient

distribution transformers would increase due to manufacturer tax credits over the base case, as

shown in Table RIA.7.

 EE-RM/STD-00-550 COMMENT 92
a

 The only programs that DOE found that include medium-voltage, dry-type transformers are Oregon’s equipment

standard and Minnesota’s building code.

RIA-13

Table RIA.7 Effective Market Share Increases for Manufacturer Tax Credits Policy Case

by Product Class

Product Class Increased Effective Market Share

(Percentage of Product Class)

(%)

PC 1 1.7

PC 2 1.0

PC 5 4.1

PC 6 4.1

PC 7 2.4

PC 8 2.4

PC 9 2.6

PC 10 2.6

The Department assumed that the impact of this policy would be to permanently

transform the market so that the shipment-weighted efficiency gain seen in the first year of the

program would be maintained throughout the forecast period. Section 2.3 below presents the

results of the analysis for the manufacturer tax credit policy.

2.2.3 Voluntary Energy-Efficiency Targets

The Department assumed that this policy would apply only to low-voltage, dry-type

distribution transformers. For the RIA, DOE would model the voluntary efficiency target policy

assuming some form of enhancement of the existing Energy Star program conducted by the

Environmental Protection Agency (EPA) and the Department.11 The Energy Star program sets

minimum energy-efficiency specifications for various products. Energy Star encourages

consumer adoption of these products through marketing to promote consumer label recognition,

adoption of the specifications by various efficiency incentive programs, and manufacturer

production and promotion of Energy Star-compliant appliances. 

Energy Star has a modest program for low-voltage, dry-type transformers, with efficiency

specifications at the NEMATP 1-2002 standard level. Energy Star does not have specifications

for medium-voltage, dry-type transformers.a While the Energy Star website states that “utility

transformers” (i.e., liquid-immersed) are included in its program, EPA staff indicate that there

 EE-RM/STD-00-550 COMMENT 92
RIA-14

has been very little program activity on liquid-immersed transformers in recent years.12 Thus,

DOE concluded that there is no historical basis to project the impact of a voluntary efficiency

program on the market for medium-voltage, dry-type or liquid-immersed transformers, and

assumed that voluntary programs would have no impact during the forecast period. The flat or

declining market share of TP 1-compliant medium-voltage, dry-type transformers observed in the

shipment data is consistent with this conclusion. 

Therefore, since this policy would apply only to low-voltage, dry-type transformers,

which are no longer part of this rulemaking, DOE did not analyze the impacts of this policy. 

2.2.4 Early Replacement

Early replacement refers to the replacement of distribution transformers before the end of

their useful lives. The purpose of this policy is to replace old, inefficient equipment with higherefficiency units. 

In 1995, ORNL performed a study of savings potential for early replacement of

distribution transformers.13 This study found that early replacement would be practical only at

the time of routine transformer maintenance and would be cost-effective for just 13 percent of

transformers as an alternative to refurbishment. As discussed in Chapter 10 of the TSD, in

discussions with DOE, transformer owners stated that refurbishment was uncommon in current

practice. Thus, the RIA analysis assumed that owners would replace their transformers rather

than refurbishing them. Therefore, the Department concluded that an early replacement policy

for this equipment would have minimal impact and did not further analyze it. 

2.2.5 Bulk Government Purchases

The Department assumed that this policy would apply only to low-voltage, dry-type

distribution transformers. For the RIA, DOE assumed that a bulk government purchase policy

would encourage Federal, State, and local governments to purchase distribution transformers

meeting the target levels. Aggregating public sector demand could provide a market signal to

manufacturers and vendors that some of their largest customers seek suppliers with products that

meet an efficiency target at competitive prices. This program could also induce “market pull”

impacts through the effects of manufacturers and vendors achieving economies of scale for highefficiency products. The Department assumed that government agencies, such as the U.S.

General Services Administration (GSA), would administer such a program. A bulk purchasing

program could impact government purchases of low-voltage, dry-type transformers. However,

while government entities own medium-voltage, dry-type and liquid-immersed transformers, they

are typically purchased on a custom basis rather than for inventory. Thus, DOE concluded that a

bulk purchasing program would not be appropriate for MV dry-type or liquid-immersed

distribution transformers.

Therefore, because low-voltage, dry type transformers are no longer part of this

rulemaking, DOE did not analyze the impacts of this policy.

 EE-RM/STD-00-550 COMMENT 92
RIA-15

2.3 Results Summary for Non-Regulatory Alternatives

 Table RIA.8 shows the NES and NPV of each of the applicable non-regulatory

alternatives. The results are reported for liquid-immersed and medium-voltage, dry-type

transformers, as well as in total. The case in which no regulatory action is taken with regard to

distribution transformers constitutes the base case (or “No Action”) scenario. Since this is the

base case, energy savings and NPV are zero by definition. For comparison, the table includes

the impacts of the proposed energy conservation standards. The NPV amounts shown in Table

RIA.8 refer to the NPV based on two discount rates (seven percent and three percent real). Note

that, for three of the policy alternatives, no results are reported; as discussed above, DOE found

that those policies would not impact the distribution transformers covered by this NOPR. 

None of the alternatives DOE examined would save as much energy or have an NPV as

high as the proposed standards. Also, several of the alternatives would require new enabling

legislation, such as consumer or manufacturer tax credits, since authority to carry out those

alternatives does not presently exist.

 EE-RM/STD-00-550 COMMENT 92
RIA-16

Table RIA.8 Non-Regulatory Alternatives and the Proposed Standard

Policy Alternatives Type

Primary

Energy Savings

(quads)

Net Present Value*

(billion $2004)

7% discount rate 3% discount

rate

No New Regulatory Action 0.0 0.0 0.0

Consumer Rebates

Liquid 0.0 0.0 0.0

MV** Dry 0.007 0.013 0.042

Total 0.007 0.013 0.042

Consumer Tax Credits

Liquid 0.058 0.058 0.218

MV Dry 0.004 0.008 0.025

Total 0.06 0.07 0.24

Manufacturer Tax Credits

Liquid 0.029 0.028 0.108

MV Dry 0.002 0.004 0.013

Total 0.03 0.03 0.12

Voluntary Energy-Efficiency Targets NA NA NA

Early Replacement NA NA NA

Bulk Government Purchases NA NA NA

Proposed Standards at TSL 2

Liquid 2.28 2.31 8.78

MV Dry 0.113 0.207 0.683

Total 2.40 2.52 9.47

* The Department determined the NPV discounted to 2004 in billion 2004$.

** MV = medium-voltage

 EE-RM/STD-00-550 COMMENT 92
RIA-17

APPENDIX RIA.A: USING IMPLEMENTATION CURVES TO ESTIMATE 

MARKET PENETRATION OF NON-REGULATORY POLICIES

There is extensive economic literature on the diffusion process of new products as

technologies evolve. Some of the literature focuses primarily on the development of analytical

models of diffusion patterns of new products for individual consumers or for technologies from

competing firms.14, 15, 16, 17 One study records researchers’ attempts to investigate underlying

factors that drive diffusion processes.16 Because of distinct characteristics of the diverse new

products, few studies are conclusive in terms of developing a universally applicable model. 

Some key findings, however, seem to have gained wide recognition in academia and industry. 

First, new technologies may not be adopted by all potential users, regardless of their

economic benefits and technological merits. Therefore, a ceiling of adoption rate exists for many

products. Second, not all adopters purchase new products at the same time; some act earlier to

purchase new products, while others respond slowly, waiting for products to become more

mature. Third, diffusion processes can be approximately characterized by asymmetric S-curves,

depicting three stages of the diffusion: starting, accelerating, and decreasing as the adoption

ceiling is being reached.

An important diffusion model, the epidemic model, is widely used in marketing and

social studies on diffusion. It assumes a) that consumers value the benefits of a new product

identically, and b) that the cost of a new product is constant or declines monotonically over time. 

What induces a consumer to purchase the new product is information about the availability and

the benefits of the product. In other words, it is information diffusion that drives new product

adoption by individual consumers.16 The model embraces information diffusion from both

internal sources (news spread by word of mouth from early adopters) and external sources (the

announcement effect by government or commercial advertising programs) by superimposing a

logistic function with an exponential function.14, 17

The degree of relative dominance of influence by internal or external sources will

determine the general shape of the diffusion curve of a specific product.14, 17 For instance, if the

adoption of one particular product is more influenced by external sources of information

diffusion (announcement effect) than by internal sources (word of mouth among earlier adopters

to prospective adopters), the rate of diffusion at the beginning stage of the diffusion process is

much higher. This reflects the immediate information exposure to a significant number of

prospective adopters brought about by external sources, in contrast to the more gradual exposure

to internal sources such as news propagation by earlier adopters, a small proportion of the

population, to other prospective adopters. 

Graphically speaking, a relatively dominant external source of information diffusion will

give an immediate jump-start to the adoption of a new product in the first years, forming a

concave curve with respect to the Y axis (see the exponential curve in Figure RIA.A.1). 

Adoption of a new product with a stronger influence by internal sources of information diffusion

(such as a socially tightened network formed by prospective adopters) may start with a few early

 EE-RM/STD-00-550 COMMENT 92
RIA-18

adopters and gradually increase as the number of adopters grows Once a critical mass

accumulates, the growth appears to accelerate very rapidly and thus forms a convex curve with

respect to the Y-axis during the starting and acceleration stages (see the logistic curve in Figure

RIA.A.1).

Figure RIA.A.1 Comparison of Exponential and Logistic Curves Showing

External and Internal Influences on Consumers

 EE-RM/STD-00-550 COMMENT 92
RIA-19

REFERENCES

1. U.S. Department of Energy-Office of Building Technologies. Technical Support

Document: Energy Conservation Program for Commercial and Industrial Equipment:

Electrical Distribution Transformers - NOPR Version. 2005. U.S. Department of Energy.

Washington, DC.

<http://www.eere.energy.gov/buildings/appliance_standards/commercial/distribution_tran

sformers.html>

2. Rufo, M. and F. Coito. California's Secret Energy Surplus: The Potential for Energy

Efficiency. 2002. Xenergy Inc. Oakland, CA. Prepared for The Energy Foundation and

The Hewlett Foundation. 

3. Koomey, J. G. Avoiding "The Big Mistake" in Forecasting Technology Adoption.

Technological Forecasting and Social Change. 2002. 69(2002): pp. 511-518. LBNL45383. <http://enduse.lbl.gov/info/LBNL-45383.pdf>

4. Lawrence Berkeley National Laboratory - End-Use Forecasting Group. Analysis of Tax

Credits for Efficient Equipment. (Last accessed June 10, 2005.) This material is available

in Docket #86. Contact Ms. Brenda Edwards-Jones, U.S. Department of Energy,

Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW,

Washington, DC, 20585-0121, telephone (202) 586-2945 for more information.

<http://enduse.lbl.gov/Projects/TaxCredits.html>

5. Tacoma Power. Transformer Rebate Program. Transformer Rebates: For commercial

and industrial customers. (Last accessed August 10, 2005.) This material is available in

Docket #86. Contact Ms. Brenda Edwards-Jones, U.S. Department of Energy, Building

Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW, Washington,

DC, 20585-0121, telephone (202) 586-2945 for more information.

<http://www.ci.tacoma.wa.us/power/Business/transformer_rebates.htm>

6. Efficiency Vermont. ENERGY STAR® Three-Phase, Low-Voltage Transformer Incentive

Application. (Last accessed August 10, 2005.) This material is available in Docket #86. 

Contact Ms. Brenda Edwards-Jones, U.S. Department of Energy, Building Technologies

Program, Mailstop EE-2J, 1000 Independence Avenue, SW, Washington, DC, 20585-

0121, telephone (202) 586-2945 for more information.

<http://www.efficiencyvermont.com/Docs/Transformer.pdf>

7. Public Service of New Hampshire. New Equipment and Construction Program. (Last

accessed August 10, 2005.) This material is available in Docket #86. Contact Ms.

Brenda Edwards-Jones, U.S. Department of Energy, Building Technologies Program,

Mailstop EE-2J, 1000 Independence Avenue, SW, Washington, DC, 20585-0121,

telephone (202) 586-2945 for more information.

<http://www.psnh.com/Energy/Business_Efficiency/newequipment.asp>

 EE-RM/STD-00-550 COMMENT 92
RIA-20

8. Narragansett Electric (National Grid). Design Plus2000. (Last accessed August 10, 2005.) 

This material is available in Docket #86. Contact Ms. Brenda Edwards-Jones, U.S.

Department of Energy, Building Technologies Program, Mailstop EE-2J, 1000

Independence Avenue, SW, Washington, DC, 20585-0121, telephone (202) 586-2945 for

more information.

<http://www.nationalgridus.com/narragansett/non_html/energy_eff_d2_dry_trans_pif.pdf

>

9. Barnes, P. R., J. W. Van Dyke, B. W. McConnell, and S. Das. Determination Analysis of

Energy Conservation Standards for Distribution Transformers. 1996. Oak Ridge

National Laboratory. Oak Ridge, TN. Report No. ORNL-6847. 

10. U.S. Department of Energy-Office of Codes and Standards. Technical Support

Document: Energy Efficiency Standards for Consumer Products: Refrigerators,

Refrigerator-Freezers, and Freezers, including Environmental Assessment and

Regulatory Impact Analysis. July, 1995. Washington, DC. Report No. DOE/EE-0064.

<http://www.osti.gov/bridge/product.biblio.jsp?osti_id=90266>

11. U.S. Environmental Protection Agency and U.S. Department of Energy. Energy Star

Program. (Last accessed June 10, 2005.) This material is available in Docket #86. 

Contact Ms. Brenda Edwards-Jones, U.S. Department of Energy, Building Technologies

Program, Mailstop EE-2J, 1000 Independence Avenue, SW, Washington, DC, 20585-

0121, telephone (202) 586-2945 for more information. <http://www.energystar.gov>

12. Ryan, S. Personal communication. U.S. Environmental Protection Agency, Climate

Protection Partnerships Division. E-mail to Rich Brown, Lawrence Berkeley National

Laboratory. July 14, 2005.

13. Barnes, P. R., J. W. Van Dyke, B. W. McConnell, S. M. Cohn, and S. L. Purucker. The

Feasibility of Replacing or Upgrading Utility Distribution Transformers During Routine

Maintenance. 1995. Oak Ridge National Laboratory. Oak Ridge, TN. Report No. ORNL6804/R1. < http://www.ornl.gov/~webworks/cpr/v823/rpt/78562.pdf>

14. Geroski, P. A. Models of Technology Diffusion. Research Policy. 2000. 29: pp. 603-625. 

15. Hall, B. H. and B. Khan. Adoption of New Technology. 2003. Department of Economics,

University of California, Berkeley, CA. Working Paper No. E03-330. 

16. Lekvall. P and C. Wahlbin. A Study of Some Assumptions Underlying Innovation

Diffusion Functions. Swedish Journal of Economics. 1973. 75: pp. 362–377. 

17. Van den Bulte, C. Want to Know How Diffusion Speed Varies Across Countries and

Products? Try a Bass Model. PDMA Visions. 2002. 26(4): pp. 12-15. 

 EE-RM/STD-00-550 COMMENT 92