CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF C ONTENTS

**2.1 INTRODUCTION** 

**................................... ........................................................................**  **2­1**

**2.2 BACKGROUND** 

**..................................... ........................................................................**  **2­4**

**2.3 MARKET**  **A ND**  **TECHNOLOGY ASSESSMENT** 

**........................................................ 2­4** 

**2.3.1 Market**  **A ssessment** 

**.............................................................................................. 2­4** 

**2.3.2 Technology**  **A ssessment.......................................................................................**  **2­4**

**2.3.3 Product**  **C lasses** 

**.................................................................................................... 2­5** 

**2.4 SCREENING**  **ANALYSIS**

**............................. .................................................................**  **2­5**

**2.5 ENGI**  **NEERING ANALYSIS..........................................................................................**  **2­5**

**2.5.1 Representative**  **P roduct**  **Classes**

**........................................................................... 2­5** 

**2.5.2 Selected**  **B aseline**  **Lamps**

**..................................................................................... 2­5** 

**2.5.3 Identified**  **L amps**  **and Ballast**  **Designs**

**................................................................. 2­6** 

**2.5.4 Developed**  **C andidate**  **Standard Level..................................................................**  **2­6**

**2.6 ENERG**  **Y USE**  **CHARACTERIZATION**

**....................................................................... 2­6** 

**2.7 PRODUCT**  **P RICE**  **DETERMINATION**

**........................................................................ 2­7** 

**2.8 LIFE­CYCLE**  **C OST**  **AND PAYBACK**  **PERIOD ANALYSIS** 

**..................................... 2­7** 

**2.9 NATIONAL**  **IMPACT ANALYSIS** 

**....................... .........................................................**  **2­8**

**2.9.1 National**  **En ergy**  **Savings Analysis.......................................................................**  **2­8**

**2.9.2 Net**  **P resent**  **Value Analysis** 

**................................................................................. 2­8** 

**2.9.3 Efficiency**  **S cenarios**  **and Trends** 

**......................................................................... 2­9** 

**2.10 LIFE­CYCLE**  **C OST**  **SUB­GROUP ANALYSIS** 

**......................................................... 2­10** 

**2.11 MANUFACTURER**  **I MPACT**  **ANALYSIS.................................................................. 2­10** 

**2.12 UTILITY**  **I MPACT**  **ANALYSIS**

**................................................................................... 2­10** 

**2.13 ENVI**  **RONMENTAL ASSESSMENT** 

**.......................................................................... 2­11** 

**2.14 EMPLOYMENT**  **I MPACT**  **ANALYSIS**

**....................................................................... 2­11** 

**2.15 REGULATORY**  **I MPACT**  **ANALYSIS**

**....................................................................... 2­12** 

**2.16 DEPARTMENT**  **O F**  **JUSTICE REVIEW** 

**..................................................................... 2­12** 

LIST OF F IGURES

**Figure 2.1.1**  **F low**  **Diagram of**  **Analyses for**  **the GSFL**  **and IRL**  **Rulemaking Process...............**  **2­2**

**2­i**CHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

**Sections 6295(o)(2)(A)**  **a nd**  **(3) of**  **Title 42**  **United States**  **Code (42**  **U.S.C. 6295(o)(2)(A)** 

**and (3))**  **require that**  **energy conservation**  **standards set**  **by the**  **U.S. Department**  **of Energy**  **(DOE)**

**be technologically**  **feasible and**  **economically justified,**  **and achieve**  **the maximum**  **improvement**

**in energy**  **efficiency. This**  **chapter provides**  **a description**  **of the**  **general analytical**  **framework**

**that DOE**  **uses in**  **developing such**  **standards, and**  **in particular,**  **standards for**  **general service** 

**fluorescent lamps**  **(GSFL) and**  **incandescent reflector**  **lamps (IRL).**  **The analytical**  **framework is** 

**a description**  **of the**  **methodology, the**  **analytical tools,**  **and relationships**  **among the**  **various**

**analyses that**  **are part**  **of this**  **rulemaking. For**  **example, the**  **methodology that**  **addresses the** 

**statutory requirement**  **for economic**  **justification includes**  **analyses of**  **life­cycle cost**  **(LCC);**

**economic impact**  **on manufacturers**  **and users;**  **national benefits;**  **impacts, if**  **any, on**  **utility**

**companies; and**  **impacts, if**  **any, from**  **lessening competition**  **among manufacturers.**  **DOE will** 

**also solicit**  **the views**  **of the**  **Department of**  **Justice (DOJ)**  **on any**  **lessening of**  **competition that**  **is**

**likely to**  **result from**  **the imposition**  **of a**  **proposed standard.** 

**Figure 2.1.1**  **s ummarizes**  **the analytical**  **components of**  **the standards­setting**  **process. The** 

**focus of**  **this figure**  **is the**  **center column,**  **identified as**  **“Analyses.” The**  **columns labeled**  **“Key**

**Inputs” and**  **“Key Outputs”**  **show how**  **the analyses**  **fit into**  **the rulemaking**  **process, and**  **how the** 

**analyses relate**  **to each**  **other. Key**  **inputs are**  **the types**  **of data**  **and information**  **that the**  **analyses**

**require. Some**  **key inputs**  **exist in**  **public databases;**  **DOE collects**  **other inputs**  **from stakeholders** 

**or persons**  **with special**  **knowledge. Key**  **outputs are**  **analytical results**  **that feed**  **directly into**  **the**

**standards­setting process.**  **Dotted lines**  **connecting analyses**  **show types**  **of information**  **that feed** 

**from one**  **analysis to**  **another. While**  **Figure 2.1.1**  **summarizes the**  **inputs, outputs**  **and analyses**  **of**

**a typical**  **standards rulemaking,**  **individual inputs**  **and outputs**  **may vary**  **by rulemaking.**  **For**

**example, as**  **discussed in**  **Chapter 5**  **and Chapter**  **7, this**  **rulemaking combines**  **the results**  **of the** 

**engineering analysis**  **and the**  **product price**  **determination to**  **derive typical**  **inputs for**  **the LCC**  **and**

**NIA rather**  **than estimating**  **costs in**  **the engineering**  **analysis and**  **marking them**  **up to**  **derive end** 

**user prices.** 

**The analyses**  **p erformed**  **in the**  **Advance Notice**  **of Proposed**  **Rulemaking (ANOPR)**  **stage**

**and reported**  **in this**  **technical support**  **document (TSD)**  **include:**

• **A market**  **and t**  **echnology assessment**  **to characterize**  **the relevant**  **fluorescent and** 

**incandescent lamp**  **markets; to**  **identify technology**  **options and**  **to develop**  **initial**

**product classes.** 

• **A screening**  **an alysis**  **to review**  **each technology**  **option and**  **determine if**  **it is** 

**technologically feasible;**  **practical to**  **manufacture, install,**  **and service;**  **would**

**adversely affect**  **lamp utility**  **or lamp**  **availability; or**  **would have**  **adverse impacts** 

**on health**  **and safety.** 

**2­1**•

•

Utility Impact

Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology

Assessment

Screening Analysis

Engineering Analysis

Product Price

Determination Life­Cycle Cost and

Payback Period

Analyses

National Impact

Analysis Energy Use

Revise ANOPR

Analyses

Life­Cycle Cost

Sub­Group Analysis

Manufacturer Impact

Analysis Shipments

Analysis

Employment Impact

Analysis

Revise Analyses • Product Classes

• Technology Options

• Industry Cash Flow

• Sub­Group Cash­Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burden • Product Designs

• Life­Cycle Costs

• Payback Periods

• National Energy Savings

• Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry

• Market Segmentation

• Non­Regulatory Programs Framework Document

• Efficiency­Level Approach

• Design Option Approach

• Energy Prices

Installation Costs

Maintenance & Repair Costs

• Accounting Approach

• Backcast and Forecast

• Market Saturation

• Stakeholder Comments

• Demographics

• Manufacturer Interviews

• GRIM Analysis

• Emission Rates

• National Energy Savings

• Stakeholder Comments • Identify Firms/Products

• Historical Shipments

•Retail Price Collection and

Analysis

• Manufacturer Prices

• Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail

Prices Design Energy/ Use

Advance Notice of Proposed Rulemaking (ANOPR) • Efficiency/Performance • Commercial Products

Candidate

Standard

Levels • Analysis of Energy Use

Data

Environmental

Assessment

Regulatory Impact

Analysis Technology Options

• Emission Estimates • Utility Load Factors

• National Energy Savings

• Non­Regulatory

Alternatives • NEMS­BT

• ImSET

• NEMS­BT • Design Options

• Energy Price Forecasts

• Site­to­Source Factors • Energy­Efficiency Levels

Direct Employment

Impacts

• National Energy Savings

• National Product Costs

• National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life­Cycle Costs

• Payback Periods • Installation

Costs

• Maint Costs

• Repair Costs • UEC

• Energy Prices Annual Energy Use (UEC)

Preliminary

Manufacturer Impact

Analysis • Manufacturer Prices

• Average Costs • Conversion Capital Expenditures

• Direct Employment Impacts

• National Energy Savings

• Net Present Values • Trial Standard Levels (TSLs)

TSLs • Product Prototypes

Energy­Efficiency

Levels

• Department of Justice Review Product Designs

Figure 2.1.1 Flow Diagram of Analyses for the GSFL and IRL Rulemaking Process

**2­2**• **An engineering**  **analysis t**  **o study**  **the appropriate**  **lamp and**  **lamp­and­ballast**

**designs used**  **as substitutes**  **for the**  **baseline lamps,**  **to select**  **candidate standard** 

**levels and**  **to determine**  **lamp­and­ballast system**  **power ratings.** 

• **An energy**  **u se**  **analysis to**  **determine the**  **annual energy**  **consumption of** 

**fluorescent and**  **incandescent reflector**  **lamps.**

• **A product**  **p rice**  **determination to**  **develop average**  **end­user prices**  **for the**  **lamp**

**designs and**  **lamps­and­ballast designs**  **used in**  **the analyses.** 

• **A life­cycle**  **co st**  **(LCC) and**  **payback period**  **(PBP) analysis**  **to calculate,**  **at the** 

**customer level,**  **the cost­effectiveness**  **of the**  **candidate standard**  **levels.**

• **A national**  **impact a**  **nalysis (NIA)**  **to assess**  **the aggregate**  **impacts at**  **the national** 

**level of**  **the net**  **present value**  **(NPV) and**  **national energy**  **savings (NES)**  **of the** 

**standard levels.** 

• **A preliminary**  **m anufacturer**  **impact analysis**  **(MIA) to**  **provide initial**  **discussion**

**on any**  **potential impacts**  **of energy**  **conservation standards**  **on lamp**  **manufacturers.**

**The analyses**  **t o**  **be performed**  **in the**  **subsequent Notice**  **of Proposed**  **Rulemaking (NOPR)** 

**stage include**  **those listed**  **below. In**  **addition, DOE**  **re­analyzes the**  **work done**  **in the**  **ANOPR**

**stage.**

• **A LCC**  **s ub­group**  **analysis to**  **evaluate variations**  **in residential**  **and commercial** 

**building characteristics**  **(e.g., energy**  **prices, equipment**  **use behavior,**  **installation**

**costs) that**  **might cause**  **a standard**  **to impact**  **particular customer**  **sub­populations,**

**such as**  **specific building**  **owners or**  **other customers**  **that purchase**  **and use**  **the**

**general service**  **fluorescent lamps**  **and incandescent**  **reflector lamps.** 

• **A MIA**  **to estimate**  **t he**  **financial impact**  **of standards**  **on manufacturers**  **and to** 

**calculate impacts**  **on competition,**  **employment, and**  **manufacturing capacity.** 

• **A utility**  **impact a**  **nalysis to**  **estimate the**  **effects of**  **proposed standards**  **on electric** 

**utilities.**

• **An environmental**  **a ssessment**  **to provide**  **estimates of**  **changes in**  **emissions of** 

**pollutants from**  **electricity generation**  **(i.e., carbon**  **dioxide (CO**  **2 ),**  **oxides of** 

**nitrogen (NOx),**  **and sulfur**  **dioxide (SO**  **2 ).** 

• **An employment**  **i mpact**  **analysis to**  **assess the**  **aggregate impacts**  **on national** 

**employment.**

• **A regulatory**  **im pact**  **analysis to**  **present major**  **alternatives to**  **proposed standards** 

**that could**  **achieve substantially**  **the same**  **regulatory goal**  **at a**  **lower cost.** 

**2­3**2.2 BACKGROUND

**As described**  **i n**  **Chapter 1,**  **the Process**  **Rule outlined**  **procedural improvements**  **to the** 

**standards rulemaking**  **process which**  **included a**  **review of**  **the following**  **elements used**  **in the** 

**rulemaking process:**  **(1) economic**  **models, (2)**  **analytical tools,**  **(3) methodologies,**  **(4) non** 

**regulatory approaches,**  **and (5)**  **prioritization of**  **future rules.**  **See appendix**  **A to**  **subpart C**  **of**

**Title 10**  **Code of**  **Federal Regulations,**  **Part 430**  **(10 CFR**  **Part 430).** 

**DOE developed**  **t his**  **analytical framework**  **for the**  **fluorescent and**  **incandescent reflector** 

**lamps rulemaking**  **under the**  **Process Rule.**  **DOE documented**  **this analytical**  **framework in**  **the**

Rulemaking Framework for General Service Fluorescent Lamps, Incandescent Reflector Lamps,

and General Service Incandescent Lamps **(hereafter, “Framework**  **Document”), and**  **presented**

**the analytical**  **approach to**  **stakeholders during**  **a public**  **meeting held**  **on June**  **15, 2006**  **(hereafter**

**“Public Meeting”).**  **This document**  **is available**  **at**

**http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/lamps_framework.pd**

**f. The**  **following s**  **ections provide**  **a general**  **description of**  **the different**  **analytical components**  **of**

**the rulemaking**  **framework.**

2.3 MARKET AN D TECHNOLOGY ASSESSMENT

**The market**  **a nd**  **technology assessment**  **characterizes the**  **relevant product**  **markets and** 

**existing technology**  **options, including**  **prototype designs,**  **and outlines**  **product classes.** 

2.3.1 Market Assessment

**W hen**  **initiating a**  **standards rulemaking,**  **DOE develops**  **information on**  **the industry** 

**structure and**  **market characteristics**  **of the**  **product(s) concerned.**  **This activity**  **consists of**  **both**

**quantitative and**  **qualitative efforts**  **to assess**  **the industry**  **based on**  **publicly available**  **information.**

**As such,**  **DOE addresses:**  **(1) industry**  **structure and**  **manufacturer market**  **shares, (2)**  **existing**

**regulatory and**  **non­regulatory efficiency**  **improvement initiatives,**  **and (3)**  **trends in**  **product**

**characteristics and**  **retail markets.**  **This information**  **serves as**  **resource material**  **throughout the** 

**rulemaking.**

**DOE has**  **u sed**  **and will**  **use the**  **most reliable**  **and accurate**  **data available**  **at the**  **time of** 

**each analysis**  **in this**  **rulemaking. DOE**  **welcomes and**  **will consider**  **any submissions**  **of**

**additional data.** 

2.3.2 Technology As sessment

**DOE typically**  **u ses**  **information relating**  **to existing**  **technology options**  **to develop**  **more**

**efficacious fluorescent**  **and incandescent**  **reflector lamp**  **designs. DOE**  **prepared a**  **list of** 

**technologies for**  **consideration which**  **could improve**  **the efficacy**  **of GSFL**  **and IRL.**  **To develop** 

**this list,**  **DOE reviewed**  **manufacturer catalogs,**  **recent trade**  **publications and**  **technical journals,** 

**as well**  **as consulted**  **with technical**  **experts.**

**2­4**2.3.3 Product Classes

**D OE**  **divides c**  **overed products**  **into classes**  **by: (a)**  **the type**  **of energy**  **used; and**  **(b)**

**capacity of**  **the product**  **or any**  **other performance­related**  **feature that**  **justifies different**  **standard**

**levels, such**  **as features**  **affecting consumer**  **utility. (42**  **U.S.C. 6295(q))**  **For this**  **rulemaking on** 

**lamps, DOE**  **has analyzed**  **GSFL and**  **IRL separately,**  **where appropriate.**  **In general,**  **DOE**

**defined classes**  **using information**  **obtained from**  **manufacturers, trade**  **association, and**  **other**

**interested parties.** 

2.4 SCREENING AN ALYSIS

**The screening**  **a nalysis**  **examines the**  **technology options**  **from the**  **technology assessment** 

**as to**  **whether they:**  **(1) are**  **technologically feasible;**  **(2) are**  **practical to**  **manufacture, install,**  **and**

**service; (3)**  **have an**  **adverse impact**  **on product**  **utility or**  **availability; and**  **(4) have**  **adverse**

**impacts on**  **health and**  **safety. As**  **described above,**  **DOE develops**  **an initial**  **list of**  **technology**

**options from**  **the technologies**  **identified in**  **the technology**  **assessment. Then**  **DOE, in** 

**consultation with**  **interested parties,**  **reviews the**  **list to**  **determine if**  **these technologies**  **are**

**practicable to**  **manufacture, install,**  **and service,**  **would adversely**  **affect product**  **utility or** 

**availability, or**  **would have**  **adverse impacts**  **on health**  **and safety.**  **DOE did**  **not consider**  **those**

**technology options**  **that fail**  **one or**  **more of**  **the screening**  **criteria in**  **the analysis.**  **In the** 

**engineering analysis,**  **DOE considers**  **design options**  **that remain**  **after the**  **screening process.** 

2.5 ENGINEERING AN ALYSIS

**In the**  **e ngineering**  **analysis, DOE**  **selects representative**  **product classes**  **to analyze.**  **It**

**then selects**  **baseline lamps**  **from these**  **representative product**  **classes, and**  **develops lamp**  **designs**

**that represent**  **more efficacious**  **versions of**  **the baseline**  **lamps. DOE**  **then uses**  **these lamp** 

**designs to**  **develop candidate**  **standard levels**  **(CSLs). While**  **DOE establishes**  **CSLs based**  **on**

**lamp designs,**  **it also**  **is developing**  **lamp­and­ballast designs**  **for the**  **LCC and**  **NIA. DOE**  **is**

**considering lamp­and­ballast**  **designs for**  **the GSFL**  **LCC and**  **NIA because**  **fluorescent lamps**  **are**

**a component**  **of a**  **system, and**  **their performance**  **is related**  **to the**  **ballast on**  **which it**  **operates. In** 

**addition to**  **selecting lamp­and­ballast**  **systems, the**  **engineering analysis**  **develops system**  **power**

**ratings which**  **DOE uses**  **to develop**  **energy consumption**  **in Chapter**  **6).**

2.5.1 Representative Pr oduct Classes

**DOE reviewed**  **c overed**  **lamps and**  **the associated**  **product classes.**  **In the**  **case where**  **a**

**product had**  **multiple product**  **classes, DOE**  **identified and**  **selected certain**  **product classes**  **as**

**“representative” product**  **classes where**  **DOE would**  **concentrate its**  **analytical effort.**  **DOE chose** 

**these representative**  **product classes**  **primarily because**  **of their**  **high market**  **volumes.**

2.5.2 Selected Baseline L amps

**DOE selected**  **baseline l**  **amps from**  **the representative**  **product classes**  **on which**  **it**

**conducted the**  **engineering analysis**  **(and subsequent**  **analyses). These**  **baseline lamps**  **were**

**selected to**  **represent the**  **characteristics of**  **lamps in**  **a given**  **product class.**  **Typically, a**  **baseline**

**2­5 lamp**  **is one**  **that just**  **meets existing**  **mandatory energy**  **conservation standards**  **or one**  **that**

**represents the**  **typical lamp**  **sold. Specific**  **characteristics such**  **as correlated**  **color temperature** 

**(CCT), operating**  **life, and**  **light output**  **were all**  **selected to**  **characterize the**  **most common**  **lamps**

**purchased by**  **consumers today.**  **For all**  **the representative**  **product classes,**  **DOE selected**  **multiple**

**baseline lamps,**  **to ensure**  **consideration of**  **different high­volume**  **lamps and**  **their associated** 

**consumer economics.** 

2.5.3 Identified La mps and Ballast Designs

**DOE selected**  **a s**  **eries of**  **more­efficacious lamps**  **for each**  **of the**  **baseline lamps** 

**considered within**  **each representative**  **product class.**  **DOE considered**  **technologies not** 

**eliminated in**  **the screening**  **analysis. DOE**  **considered these**  **technologies either**  **explicitly as** 

**design options**  **or implicitly**  **as design**  **options incorporated**  **into commercially**  **available lamps**  **at**

**the efficiency**  **levels evaluated.**  **These selections**  **were made**  **such that**  **potential substitutions** 

**maintained light**  **output above**  **a maximum**  **10 percent**  **decrease from**  **the baseline**  **lamp’s light** 

**output and**  **that the**  **substitute lamp**  **had performance**  **characteristics similar**  **to those**  **of the** 

**baseline lamp.**  **In identifying**  **the more­efficacious**  **substitutes, DOE**  **utilized a**  **database of** 

**commercially available**  **lamps. For**  **GSFL, DOE**  **considered commercially**  **available lamps**  **under**

**two different**  **substitute scenarios:**  **(1) lower­wattage**  **lamps that**  **operated on**  **existing ballasts**  **and**

**whose system**  **light output**  **never dropped**  **below 10**  **percent of**  **the baseline**  **system and**  **(2) more** 

**efficacious lamps**  **that have**  **the same**  **rated wattage,**  **and, therefore,**  **must be**  **associated with**  **a**

**ballast replacement**  **in order**  **to save**  **energy and**  **maintain light**  **output. For**  **IRL, DOE**  **used some** 

**commercially available**  **lamps, but**  **also developed**  **“model” lamps**  **which incorporate**  **design**

**options that**  **may not**  **be commercially**  **available for**  **certain lamp**  **types and**  **wattages but**  **which**

**use commercially**  **available technologies.**  **For example,**  **DOE developed**  **efficacy estimates**  **for**

**reduced­wattage IRL**  **with an**  **HIR coating.** 

2.5.4 Developed Ca ndidate Standard Level

**Having identified**  **the m**  **ore­efficacious substitutes**  **for each**  **of the**  **baseline lamps**  **(or lamp** 

**and­ballast systems),**  **DOE developed**  **CSLs based**  **on the**  **consideration of**  **several factors** 

**including: (1)**  **the design**  **options associated**  **with the**  **specific lamps**  **being studied**  **(e.g., grades**  **of**

**phosphor for**  **fluorescent lamps,**  **the use**  **of infrared**  **coatings for**  **IRL, etc.);**  **(2) the**  **ability of** 

**1 lamps**  **across wattages**  **to comply**  **with the**  **standard level**  **of a**  **given product**  **class; and**  **(3) the** 

**maximum technologically**  **feasible level.** 

2.6 ENERGY USE CH ARACTERIZATION

**The energy­use**  **c haracterization**  **provides estimates**  **of annual**  **energy use**  **for the**  **two**

**categories of**  **lamps which**  **DOE uses**  **in the**  **LCC and**  **PBP analyses**  **and the**  **NIA. To**  **develop**

**annual energy**  **use estimates,**  **DOE multiplied**  **annual usage**  **(in hours**  **per year)**  **by the**  **system**

**power estimates**  **(in watts).**  **DOE developed**  **the system**  **power estimates**  **in the**  **engineering**

**analysis. To**  **derive annual**  **energy usage,**  **DOE used**  **data published**  **in the**  **U.S. Lighting**  **Market**

**Characterization: Volume**  **I (LMC),**  **the Residential**  **Energy Consumption**  **Survey (RECS),**  **the**

**1 Efficacy**  **levels span**  **multiple lamps**  **of different**  **wattages. In**  **selecting CSLs,**  **DOE considered**  **whether these** 

**multiple lamps**  **can meet**  **the efficacy**  **levels.**

**2­6 Commercial**  **Building Energy**  **Survey (CBECS)**  **and the**  **Manufacturer Energy**  **Consumption**

**Survey (MECS).** 

2.7 PRODUCT PR ICE DETERMINATION

**This chapter**  **f ocuses**  **on the**  **methodology followed**  **by DOE**  **in developing**  **end­user**

**product prices**  **for lamps**  **and ballasts**  **used in**  **the rulemaking**  **analysis. DOE**  **based the**  **product**

**price determination**  **for lamps**  **and ballasts**  **on marked­down**  **manufacturer price**  **schedules,**

**developing low,**  **mid and**  **high end­user**  **retail prices.** 

2.8 LIFE­CYCLE CO ST AND PAYBACK PERIOD ANALYSIS

**The effects**  **o f**  **new energy**  **conservation standards**  **on equipment**  **result in**  **changes in** 

**operating expenses**  **(usually decreased)**  **and changes**  **in customer**  **price (usually**  **increased). DOE** 

**analyzed the**  **net effect**  **of new**  **standards on**  **consumers by**  **evaluating the**  **net LCC**  **using the** 

**efficacies and**  **system power**  **ratings derived**  **in the**  **engineering analysis**  **and the**  **cost trends** 

**derived from**  **the product**  **price determination.**  **Inputs to**  **the LCC**  **calculation include**  **the installed** 

**cost to**  **the customer**  **(customer price**  **plus installation**  **cost), operating**  **expenses (energy**  **expenses**

**and maintenance**  **costs), the**  **lifetime of**  **the appliance,**  **and a**  **discount rate.** 

**DOE reviewed**  **E IA’s**  **energy price**  **data for**  **GSFL and**  **IRL to**  **establish electricity**  **prices.**

**DOE relied**  **on regional**  **average electricity**  **price data**  **for the**  **residential and**  **commercial sectors.** 

**DOE used**  **projections of**  **these electricity**  **prices for**  **residential and**  **commercial customers**  **to**

**estimate future**  **electricity prices**  **in its**  **LCC analysis.**  **DOE used**  **EIA’s Annual**  **Energy Outlook** 

**(AEO) as**  **the default**  **source of**  **projections for**  **future electricity**  **prices.**

**DOE developed**  **d iscount**  **rates by**  **estimating the**  **cost of**  **capital to**  **companies that** 

**purchase lamps**  **covered under**  **this rulemaking.**  **For residential**  **consumers of**  **GSFL and**  **IRL,**

**DOE derived**  **the discount**  **rates from**  **estimates of**  **the interest**  **or “finance**  **cost” to**  **purchase**

**residential products.**  **By applying**  **the financial**  **theory, the**  **finance cost**  **of raising**  **funds to** 

**purchase residential**  **products can**  **be interpreted**  **as: (1)**  **the financial**  **cost of**  **any debt**  **incurred to** 

**purchase residential**  **products, principally**  **interest charges**  **on debt,**  **or (2)**  **the opportunity**  **cost of** 

**any equity**  **used to**  **purchase residential**  **products, principally**  **interest earnings**  **on household** 

**equity. Household**  **equity is**  **represented by**  **holdings in**  **assets such**  **as stocks**  **and bonds,**  **as well** 

**as the**  **return on**  **homeowner equity.**  **DOE obtained**  **much of**  **the data**  **required to**  **determine the** 

**cost of**  **debt and**  **equity from**  **the Federal**  **Reserve Board’s**  **triennial** Survey of Consumer

Finances

**.**

**For commercial**  **a nd**  **industrial consumers**  **of GSFL**  **and IRL,**  **DOE used**  **the same** 

**approach it**  **relied on**  **for developing**  **discount rates**  **for other**  **commercial equipment.**  **DOE derives** 

**discount rates**  **for commercial**  **consumers by**  **estimating the**  **cost of**  **capital of**  **companies that** 

**purchase commercial**  **equipment. The**  **cost of**  **capital is**  **commonly used**  **to estimate**  **the present** 

**value of**  **cash flows**  **to be**  **derived from**  **a typical**  **company project**  **or investment.**  **Most**

**companies use**  **both debt**  **and equity**  **capital to**  **fund investments,**  **so the**  **cost of**  **capital is**  **the**

**weighted­average cost**  **of equity**  **and debt**  **financing. This**  **corporate finance**  **approach is**  **referred**

**to as**  **the weighted­average**  **cost of**  **capital (WACC).** 

**2­7**2.9 NATIONAL IM PACT ANALYSIS

**The national**  **i mpact**  **analysis assesses**  **the NPV**  **of total**  **customer LCC**  **and NES.**  **DOE**

**determined both**  **the NPV**  **and NES**  **for the**  **performance levels**  **considered for**  **the product**  **classes**

**analyzed. To**  **make the**  **analysis more**  **accessible and**  **transparent to**  **all stakeholders,**  **DOE**

**prepared an**  **NES Spreadsheet**  **Model in**  **Microsoft Excel**  **to forecast**  **energy savings**  **and the** 

**national economic**  **costs and**  **savings resulting**  **from new**  **standards. The**  **NES Spreadsheet**  **Model**

**does not**  **use probability**  **distributions for**  **inputs or**  **outputs. To**  **assess the**  **impact of**  **input**

**uncertainty on**  **the NES**  **and NPV**  **results, DOE**  **can conduct**  **sensitivity analyses**  **for future** 

**analyses by**  **running scenarios**  **on input**  **variables that**  **are of**  **interest to**  **stakeholders. DOE** 

**conducted an**  **assessment of**  **the aggregate**  **economic impacts**  **at the**  **national level**  **for this** 

**ANOPR.**

2.9.1 National Energy S avings Analysis

**The inputs**  **D OE**  **uses to**  **determine the**  **NES are:**  **(1) annual**  **energy consumption**  **per unit;** 

**(2) shipments;**  **(3) e**  **quipment stock;**  **(4) national**  **energy consumption;**  **and (5)**  **site­to source** 

**conversion factors.**  **DOE calculates**  **the national**  **energy consumption**  **by multiplying**  **the number** 

**2 of**  **units, or**  **stock, of**  **equipment (by**  **vintage) by**  **the unit**  **energy consumption**  **(also by**  **vintage).**

**DOE calculates**  **national annual**  **energy savings**  **from the**  **difference between**  **national energy** 

**consumption in**  **the base**  **case (without**  **new energy**  **conservation standards)**  **and in**  **each standards** 

**case (with**  **new energy**  **conservation standards).**  **The analysis**  **includes estimates**  **of energy** 

**savings by**  **fuel type**  **used for**  **generating electricity.**  **DOE estimates**  **energy consumption**  **and**

**savings based**  **on site**  **energy, and**  **converts the**  **electricity consumption**  **and savings**  **to source** 

**energy. Cumulative**  **energy savings**  **are the**  **sum of**  **the annual**  **NES, which**  **DOE determines**  **over**

**specified time**  **periods.**

**The installed**  **s tock**  **of equipment**  **is dependent**  **on annual**  **shipments and**  **the lifetime**  **of the** 

**equipment. DOE**  **conducts shipments**  **projections under**  **the base**  **case and**  **standards cases**  **for a** 

**variety of**  **possible equipment**  **efficiency scenarios**  **and equipment**  **efficiency trends.**  **DOE**

**determined that**  **shipment projections**  **under the**  **standards cases**  **were lower**  **than those**  **from the** 

**base case**  **projection because**  **of higher**  **installed costs**  **in the**  **standards case**  **with the**  **use of**  **more**

**efficient equipment.**  **Higher installed**  **costs caused**  **some customers**  **to forego**  **equipment**

**purchases. As**  **a result,**  **DOE uses**  **the standard**  **case shipments**  **projection and,**  **in turn,**  **the**

**resulting stock**  **of equipment**  **under the**  **standards case,**  **to determine**  **the NES.**  **Calculating the** 

**NES in**  **this way**  **avoids the**  **inclusion of**  **savings resulting**  **from displaced**  **shipments.**

2.9.2 Net Present V alue Analysis

**The inputs**  **D OE**  **uses to**  **determine the**  **NPV are:**  **(1) total**  **annual installed**  **cost; (2)**  **total**

**annual operating**  **cost savings;**  **(3) discount**  **factor; (4)**  **present value**  **of costs;**  **and (5)**  **present**

**value of**  **savings. DOE**  **calculates net**  **savings each**  **year as**  **the difference**  **between total**  **operating**

**cost savings**  **and increases**  **in total**  **installed costs**  **(including equipment**  **price and**  **installation**

**cost). DOE**  **calculates savings**  **over the**  **life of**  **the equipment,**  **accounting for**  **differences in** 

**yearly energy**  **rates. DOE**  **calculates NPV**  **as the**  **difference between**  **the present**  **value of** 

**2 Vintage**  **represents the**  **age of**  **the equipment.** 

**2­8 operating**  **cost savings**  **and the**  **present value**  **of increased**  **total installed**  **costs. DOE**  **discounts**

**future costs**  **and savings**  **to the**  **present with**  **a discount**  **factor.**

**DOE calculates**  **i ncreases**  **in total**  **installed costs**  **as the**  **product of**  **the difference**  **in the** 

**total installed**  **cost between**  **the base**  **case and**  **standards case**  **and the**  **annual shipments**  **in the** 

**standards case.**  **Because costs**  **of the**  **more­efficient equipment**  **bought in**  **the standards**  **case are** 

**higher than**  **those of**  **equipment bought**  **in the**  **base case,**  **price increases**  **appear as**  **negative values** 

**in the**  **NPV.**

**DOE expresses**  **op erating**  **cost savings**  **as decreases**  **in operating**  **costs associated**  **with the** 

**lower energy**  **consumption of**  **equipment bought**  **in the**  **standards case**  **compared to**  **the base** 

**efficiency case.**  **Total operating**  **cost savings**  **are the**  **product of**  **savings per**  **unit and**  **the number** 

**of units**  **of each**  **vintage surviving**  **in a**  **particular year.** 

2.9.3 Efficiency Sc enarios and Trends

**Several of**  **t he**  **inputs for**  **the determination**  **of NES**  **(e.g., the**  **annual energy**  **consumption**

**per unit)**  **and NPV**  **(e.g., the**  **total annual**  **installed cost**  **and the**  **total annual**  **operating cost** 

**savings) are**  **dependent upon**  **the efficiency**  **of the**  **equipment. Thus,**  **DOE develops**  **base case**  **and**

**standards case**  **efficiency trends.**  **The efficiency**  **trends specify**  **the annual**  **historical and** 

**forecasted shipment­weighted**  **average equipment**  **efficiencies.**

**For GSFL,**  **D OE**  **is developing**  **two shipment**  **scenarios: “roll­up”**  **and “shift.”**  **The “roll** 

**up” scenario**  **represents the**  **standards case**  **assuming all**  **product efficacies**  **in the**  **base case**  **which**

**do not**  **meet the**  **standard would**  **“roll­up” to**  **meet the**  **new standard**  **level. Those**  **that were**  **above**

**the standard**  **level are**  **considered unaffected**  **and continue**  **to purchase**  **the same**  **base­case lamp**  **or**

**lamp system.**  **The “roll­up”**  **scenario characterizes**  **consumers primarily**  **driven by**  **the first­cost** 

**of the**  **lamp, and**  **they are**  **restricted to**  **replacing their**  **base­case lamp**  **with an**  **equal wattage**  **lamp**

**when possible.**  **The “shift”**  **scenario models**  **the standards**  **case assuming**  **all base­case**  **consumer**

**GSFL purchases**  **are affected**  **by the**  **standard (whether**  **or not**  **their base­case**  **efficacy meets**  **the**

**standard). In**  **this scenario,**  **any consumer**  **may purchase**  **a reduced**  **wattage lamp.**  **The shift** 

**scenario characterizes**  **consumers primarily**  **concerned with**  **system energy**  **consumption.**

**For IRL,**  **D OE**  **considers one**  **main shipment**  **scenario and**  **two sensitivity**  **shipment**

**scenarios. In**  **the main**  **shipment scenario,**  **DOE assumes**  **that any**  **consumer who**  **purchases**

**regulated IRL**  **in the**  **base case**  **will purchase**  **equivalent lumen**  **output regulated**  **IRL in**  **the**

**standards case.**  **In the**  **first sensitivity**  **scenario, called**  **the “65**  **Watt BR**  **lamp substitution”** 

**scenario, DOE**  **assumes that**  **the increasing**  **price of**  **IRL at**  **higher standard**  **levels will**  **cause some** 

**additional IRL**  **consumers to**  **switch to**  **unregulated 65**  **Watt BR30**  **lamps. In**  **the second** 

**sensitivity scenario,**  **called the**  **“10­percent lumen**  **increase” scenario,**  **DOE assumes**  **that a** 

**portion of**  **residential consumers**  **of IRL**  **will buy**  **a more**  **efficacious lamp**  **at the**  **same or**  **higher**

**wattage, and**  **therefore higher**  **lumen output**  **as in**  **the base**  **case**

**2­9**2.10 LIFE­CYCLE CO ST SUB­GROUP ANALYSIS

**The LCC**  **s ub­group**  **analysis will**  **evaluate consumer**  **impacts by**  **identifying consumer** 

**subgroups and**  **accounting for**  **variations in**  **key inputs**  **to the**  **LCC analysis.**  **A consumer** 

**subgroup comprises**  **a subset**  **of the**  **population that**  **is likely,**  **for one**  **reason or**  **another, to**  **be**

**impacted disproportionately**  **by new**  **or revised**  **energy conservation**  **standards. The**  **purpose of**  **a**

**subgroup analysis**  **is to**  **determine the**  **extent of**  **this disproportional**  **impact. During**  **the NOPR** 

**stage, DOE**  **intends to**  **evaluate the**  **impacts of**  **particular sub­groups**  **of customers**  **in part**  **by**

**analyzing the**  **LCC for**  **these particular**  **customers.**

**DOE intends**  **t o**  **evaluate variations**  **in regional**  **electricity prices,**  **usage profiles**  **and in** 

**installation costs**  **that might**  **affect the**  **NPV of**  **an energy­efficiency**  **standard to**  **customer sub** 

**groups. To**  **the extent**  **possible, DOE**  **will get**  **estimates of**  **the variability**  **of each**  **input parameter** 

**and consider**  **this variability**  **in its**  **calculation of**  **customer impacts.**  **DOE intends**  **to perform** 

**sensitivity analyses**  **to consider**  **how differences**  **in energy**  **use will**  **affect various**  **sub­groups of** 

**customers.**

2.11 MANUFACTURER IMPACT AN ALYSIS

**The MIA**  **focuses on**  **t he**  **manufacturers of**  **GSFL and**  **IRL. DOE**  **intends to**  **conduct a** 

**separate MIA**  **for each**  **of the**  **lamp types**  **covered under**  **this rulemaking.**  **Potential impacts**  **would**

**include financial**  **effects, both**  **quantitative and**  **qualitative, that**  **might result**  **from new**  **energy**

**conservation standards,**  **and consequently**  **lead to**  **changes in**  **the manufacturing**  **practices for** 

**these lamps.**  **DOE will**  **identify these**  **potential impacts**  **through interviews**  **with manufacturers** 

**and other**  **experts.**

**DOE intends**  **t o**  **conduct each**  **MIA in**  **three phases,**  **and will**  **further tailor**  **the analytical** 

**framework for**  **each MIA**  **based on**  **stakeholder comments.**  **Phase One**  **consists of**  **two activities:** 

**prepare an**  **industry characterization,**  **and identify**  **issues. Phase**  **Two addresses**  **the broader** 

**industry where**  **DOE would**  **use the**  **Government Regulatory**  **Impact Model**  **(GRIM) to**  **perform**

**an industry**  **cash flow**  **analysis. Phase**  **Three involves**  **interviewing manufacturers.**  **The interview** 

**guide for**  **use in**  **Phase Three**  **is developed**  **in Phase**  **Two. At**  **the beginning**  **of Phase**  **Three, DOE** 

**will interview**  **manufacturers and**  **adjust the**  **industry cash**  **flow analysis**  **as appropriate.** 

**Thereafter, Phase**  **Three will**  **entail additional**  **cash flow**  **analyses of**  **the different**  **sub­groups that** 

**could be**  **affected by**  **the rulemaking.**  **Furthermore, Phase**  **Three will**  **examine any**  **additional**

**impacts on**  **competition, manufacturing**  **capacity, direct**  **employment, and**  **the cumulative**  **burden**

**of other**  **regulations impacting**  **manufacturers.**

2.12 UTILITY IMPACT AN ALYSIS

**The utility**  **i mpact**  **analysis will**  **include an**  **analysis of**  **the impact**  **of higher**  **energy**

**conservation standards**  **on the**  **electric and**  **the gas**  **utility industries.**  **DOE is**  **considering adapting** 

**the National**  **Energy Modeling**  **System (NEMS)**  **produced by**  **the EIA**  **for this**  **analysis. NEMS** 

**(EIA 2005)**  **is a**  **large multi­sectoral**  **partial­equilibrium model**  **of the**  **U.S. energy**  **sector that**  **has**

**been developed**  **over the**  **past decade**  **by the**  **EIA, primarily**  **for the**  **purpose of**  **preparing DOE’s** 

**AEO. In**  **prior rulemakings,**  **a variant**  **of NEMS**  **(currently termed**  **NEMS­BT, BT**  **referring to**  **the**

**2­10 DOE’s**  **Building Technologies**  **Program) was**  **developed to**  **better address**  **the specific**  **impacts of** 

**an equipment**  **efficiency standard.** 

**The NEMS**  **p roduces**  **a widely**  **recognized baseline**  **energy forecast**  **for the**  **United States** 

**through the**  **year 2030,**  **and is**  **available in**  **the public**  **domain. The**  **typical NEMS**  **outputs include** 

**forecasts of**  **electricity sales,**  **price, and**  **avoided electric**  **generating capacity.**  **DOE plans**  **on**

**conducting the**  **utility impact**  **analysis as**  **a scenario**  **departing from**  **the latest**  **AEO reference**  **case.**

**In other**  **words, the**  **energy savings**  **impacts from**  **amended energy**  **conservation standards**  **will be** 

**modeled using**  **NEMS­BT to**  **generate forecasts**  **that deviate**  **from the**  **AEO reference**  **case.**

2.13 ENVIRONMENTAL AS SESSMENT

**The primary**  **e nvironmental**  **effects of**  **energy conservation**  **standards for**  **GSFL and**  **IRL**

**are likely**  **to be**  **reduced emissions**  **resulting from**  **reduced electrical**  **energy consumption.**  **The**

**environmental impact**  **analysis will**  **track the**  **impact of**  **possible standards**  **on three**  **energy­related**

**emissions: CO**  **2 ,**  **NOx, and**  **SO 2** 

**. DOE**  **intends to**  **base these**  **calculations on**  **the NEMS­BT** 

**modeling work**  **proposed for**  **the utility**  **impact analysis.**  **This approach**  **has the**  **advantage of** 

**examining the**  **marginal impact**  **of standards**  **for general**  **service fluorescent**  **lamps and** 

**incandescent reflector**  **lamps on**  **the utility**  **generation mix**  **and the**  **subsequent environmental** 

**emissions.**

**CO 2**  **emissions are**  **tracked in**  **NEMS­BT by**  **a detailed**  **module that**  **produces robust**  **results**

**because of**  **its broad**  **coverage of**  **all sectors**  **and inclusion**  **of interactive**  **effects. NEMS­BT**  **also**

**includes a**  **module for**  **SO 2**  **­allowance trading**  **and delivers**  **a forecast**  **of SO**  **2 ­allowance**  **prices. It** 

**is important**  **to note,**  **however, that**  **simulation of**  **SO 2**  **trading tends**  **to imply**  **that physical** 

**emissions effects**  **will be**  **zero. However,**  **there is**  **an SO**  **2 benefit**  **from conservation**  **in the**  **form**

**of a**  **lower allowance**  **price and,**  **if big**  **enough to**  **be calculable**  **by NEMS,**  **this value**  **can be** 

**reported. NEMS­BT**  **also has**  **an algorithm**  **for estimating**  **NOx emissions**  **from power** 

**generation.**

2.14 EMPLOYMENT IM PACT ANALYSIS

**The imposition**  **of s**  **tandards can**  **impact employment**  **both directly**  **and indirectly.**  **Direct**

**employment impacts**  **are changes**  **in the**  **number of**  **employees at**  **the factories**  **that produce**  **the**

**covered lamp**  **types, along**  **with the**  **affiliated distribution**  **and service**  **companies, resulting**  **from**

**the imposition**  **of new**  **standards. DOE**  **will evaluate**  **direct employment**  **impacts in**  **the MIA.** 

**Indirect employment**  **impacts may**  **result from**  **expenditures shifting**  **between goods**  **(the**

**substitution effect)**  **and changes**  **in income**  **and overall**  **expenditure levels**  **(the income**  **effect) that** 

**occur due**  **to the**  **imposition of**  **standards. The**  **combined direct**  **and indirect**  **employment impacts** 

**will be**  **investigated in**  **the employment**  **impact analysis**  **using the**  **Pacific Northwest**  **National**

**Laboratory’s “Impact**  **of Sector**  **Energy Technologies”**  **(ImSET) model.**  **The ImSET**  **model was** 

**developed for**  **DOE’s Office**  **of Planning,**  **Budget, and**  **Analysis, and**  **estimates the**  **employment**

**and income**  **effects of**  **energy­saving technologies**  **in buildings,**  **industry, and**  **transportation. In** 

**comparison with**  **simple economic**  **multiplier approaches,**  **ImSET allows**  **for more**  **complete and** 

**automated analysis**  **of the**  **economic impacts**  **of energy**  **conservation investments.** 

**2­11**2.15 REGULATORY IMPACT AN ALYSIS

**In the**  **NO PR**  **stage, DOE**  **will prepare**  **a regulatory**  **impact analysis**  **(RIA) pursuant**  **to**

**Executive Order**  **12866, “Regulatory**  **Planning and**  **Review,” 58**  **FR 51735,**  **October 4,**  **1993,**

**which is**  **subject to**  **review under**  **the Executive**  **Order by**  **the Office**  **of Information**  **and**

**Regulatory Affairs**  **at the**  **Office of**  **Management and**  **Budget. The**  **RIA will**  **address the**  **potential**

**for non­regulatory**  **approaches to**  **supplant or**  **augment energy**  **conservation standards**  **to improve** 

**the energy**  **efficiency of**  **GSFL and**  **IRL on**  **the market.** 

**DOE recognizes**  **t hat**  **voluntary or**  **other non­regulatory**  **efforts by**  **manufacturers, utilities** 

**and other**  **interested parties**  **can result**  **in substantial**  **improvements to**  **energy efficiency**  **or**

**reductions in**  **energy consumption.**  **DOE intends**  **to consider**  **the likely**  **effects of**  **non­regulatory**

**initiatives on**  **lamp energy**  **use, consumer**  **utility, and**  **LCCs. DOE**  **will base**  **its assessment**  **on the** 

**actual impacts**  **of any**  **such initiatives**  **to date,**  **but also**  **will consider**  **information presented** 

**regarding the**  **impacts that**  **any existing**  **initiative might**  **have in**  **the future.** 

2.16 DEPARTMENT OF JUSTICE REVIEW

**Section 325(o)(2)(B)(i)(V)**  **o f**  **the Energy**  **Policy and**  **Conservation Act**  **(EPCA) states** 

**that, before**  **the Secretary**  **of Energy**  **may prescribe**  **a new**  **or amended**  **energy conservation** 

**standard, the**  **Secretary shall**  **ask the**  **U.S. Attorney**  **General to**  **make a**  **determination of**  **“the**

**impact of**  **any lessening**  **of competition...that**  **is likely**  **to result**  **from the**  **imposition of**  **the**

**standard.” (42**  **U.S.C. 6295)**  **Pursuant to**  **this requirement,**  **DOE will**  **solicit the**  **views of**  **the DOJ** 

**on any**  **lessening of**  **competition that**  **is likely**  **to result**  **from the**  **imposition of**  **a proposed**  **standard**

**and will**  **give the**  **views provided**  **full consideration**  **in assessing**  **economic justification**  **of a** 

**proposed standard.**  **In addition,**  **DOE may**  **consult with**  **DOJ at**  **earlier stages**  **in the**  **standards**

**development process**  **to seek**  **to obtain**  **preliminary views**  **on competitive**  **impacts.**

**2­12**