### Rulemaking Framework for Walk-In Coolers and Walk-In Freezers RIN: 1904-AB86

United States Department of Energy Office of Energy Efficiency and Renewable Energy Building Technologies Program

December 22, 2008TABLE OF CONTENTS

1. INTRODUCTION

.................................................................................................. 6 1.1 The Appliances and Commercial Equipment Standards Program

.................. 6 1.2 Overview of Walk-In Coolers and Freezers

................................................... 9 1.3 Test Procedures

............................................................................................. 10 1.4 Rulemaking Process and St akeholder Participation

..................................... 12 1.4.1 Preliminary Analyses and Other Activities

....................................... 13 1.4.2 Notice of Proposed Rulemaking

....................................................... 15 1.4.3 Final Rule

.......................................................................................... 16 2. OVERVIEW OF ANALYSES FOR RULEMAKING

..................................... 16 3. MARKET AND TECHNOLOGY ASSESSMENT

.......................................... 19 3.1 Market Assessment

....................................................................................... 19 3.2 Equipment Classes

........................................................................................ 20 3.3 Technology Assessment

................................................................................ 21 4. SCREENING ANALYSIS

.................................................................................. 22 5. ENGINEERING ANALYSIS

............................................................................. 22 5.1 Engineering Analysis Overview

................................................................... 23 5.2 Baseline Units

............................................................................................... 23 5.3 Planned Approach for Determining the Cost-Efficiency Relationship

......... 23 5.4 Maximum Technologically Feas ible Efficiency Level

................................. 24 5.5 Manufacturer Prices

...................................................................................... 25 5.6 Proprietary Designs

....................................................................................... 25 5.7 Outside Regulatory Changes Aff ecting the Engineering Analysis

............... 25 6. ENERGY USE ANALYSIS

................................................................................ 26 6.1 Overview of Energy Use Analysis

................................................................ 26 7. MARKUPS FOR EQUIPMENT PRICE DETERMINATION

....................... 27 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

...................... 30 8.1 Overview

....................................................................................................... 30 8.2 Energy Prices

................................................................................................ 31 8.3 Life-Cycle Cost Discount Rates

.................................................................... 31 8.4 Maintenance, Repair, and Installation Costs

................................................. 32 8.5 Equipment Lifetimes

..................................................................................... 33 9. SHIPMENTS ANALYSIS

................................................................................... 33 9.1 Base Case Forecast

....................................................................................... 33 9.2 Accounting Methodology

............................................................................. 34 9.3 Impacts of Standards on Equipment Shipments

........................................... 34 10. NATIONAL IMPACT ANALYSIS

.................................................................... 35 10.1 Inputs to Forecast

........................................................................................ 35 10.2 Calculation of Energy Savings

.................................................................... 35 10.3 Net Present Value

....................................................................................... 36 11. LIFE-CYCLE COST SU BGROUP ANALYSIS

.............................................. 36 12. MANUFACTURER IMPACT ANALYSIS

...................................................... 37 12.1 Sources of Information

............................................................................... 37 12.2 Industry Cash-Flow Analysis

...................................................................... 38 12.3 Manufacturer Subgroup Analysis

............................................................... 39

ii12.4 Competitive Impacts Assessment

............................................................... 39 12.5 Cumulative Regulatory Burden

.................................................................. 40 13. UTILITY IMPACT ANALYSIS

........................................................................ 40 14. EMPLOYMENT IMPACT ANALYSIS

........................................................... 41 15. ENVIRONMENTAL IMPACT ANALYSIS

..................................................... 41 16. REGULATORY IMPACT ANALYSIS

............................................................ 44

LIST OF FIGURES

Figure 1. Flow Diagram of Analyses for the Walk-in Coolers and Walk-in Freezers Standards Rulemaking Process

..................................................................................... 18

iiiLIST OF ACRONYMS

AEO Annual Energy Outlook AHRI Air Conditioning, Heating, and Refrigeration Institute ANOPR advance notice of proposed rulemaking ANSI American National Standards Institute ARI Air-Conditioning and Re frigeration Institute ARW Air Conditioning & Refrigeration Wholesalers Association ASHRAE American Society of Heating, Refr igerating, and Air Conditioning Engineers ASTM American Society fo r Testing and Materials BOM bill of materials BT Building Technologies Office Btu British thermal units Btu/h British thermal units per hour CAIR Clean Air Interstate Rule CAMR Clean Air Mercury Rule CBECS Commercial Building Energy Consumption Survey CFC chlorofluorocarbon CFR Code of Federal Regulations CO 2 carbon dioxide COP coefficient of performance CSL candidate standard level DOE United States Department of Energy DOJ Department of Justice EERE Energy Efficiency and Renewable Energy EEV electronic expansion valve EIA Energy Information Administration EISA Energy Independence and Security Act of 2007 EPA Environmental Protection Agency EPACT Energy Policy Act of 2005 EPCA Energy Policy and Conservation Act of 1975 GRIM Government Regulatory Impact Model HARDI Heating, Air Conditioning, and Refrig eration Distributors International HCFC hydrochlorofluorocarbons Hg mercury ImSET Impact of Sector Energy Technologies LCC life-cycle cost MIA manufacturer impact analysis MPC manufacturer production cost NEMS National Energy Modeling System NEMS-BT a version of the NEMS develope d for DOE-Building Technologies office NES national energy savings NHRAW North American Heating, Refrig eration & Air Conditioning Wholesalers NIA national impact analysis NIST National Institute of Standards and Technology NOPR notice of proposed rulemaking

ivNO X oxides of nitrogen NPV net present value OHA Office of Hearings and Appeals OMB Office of Management and Budget PBP payback period R&D research and development SG&A selling, general, and administrative SNOPR supplemental notice of proposed rulemaking SO 2 sulfur dioxide TMY typical meteorological year TSD technical support document TSL trial standard level TXV thermostatic expansion valve WACC weighted-average cost of capital

v

### Rulemaking Framework for Walk-I n Coolers and Walk-in Freezers

1. INTRODUCTION

The purpose of this document is to describe th e procedural and analytical approaches the U.S. States Department of Energy (DOE) antic ipates using to evaluate and update existing energy conservation standards for walk-in coolers and freezers.

The DOE Appliances and Commercial Equipm ent Standards Program, within the Office of Energy Efficiency and Renewable Energy’s ( EERE’s) Building Technologies Program (BT), develops and promulgates test procedures a nd energy conservation standards for residential appliances and commercial equipment. The proc ess for developing standards involves analysis, public notice, and consulta tion with interested parties. Such parties, collectively referred to as “stakeholders,” include manuf acturers, commercial customers, energy conservation and environmental advocates, State and Federal agenci es, and any other groups or individuals with an interest in the standards.

This document is intended to inform stakeh olders about the process of developing an energy conservation standards rule making for walk-in coolers and fr eezers, and to encourage and facilitate stakeholder input during the rulema king. This document is the starting point for developing standards and is not a definitive statem ent about any issue to be determined in the rulemaking.

Section 1 provides an overview of the rulemaking process. Sections 2 through 16 discuss the analyses DOE intends to conduct to fulfill th e statutory requirements for this standards rulemaking. DOE will perform a set of separate anal yses, including an engineering analysis, lifecycle cost (LCC) and payback period (PBP) an alyses, a national impact analysis, and a manufacturer impact analysis for each type of appliance classified into equipment classes covered by this rulemaking.

Information regarding this rulemaking will be maintained on the DOE website at www.eere.energy.gov/buildings/appliance_standards

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This document contains comment boxes that highlight issues on which DOE seeks comment and requests feedback from interested pa rties. These boxes are also used to ask specific questions on the approaches DOE plans to follow in conducting the analyses required for the standards rulemaking. Such requests for stake holder feedback are numbered according to the section in which they appear.

1.1 The Appliances and Commercial Equipment Standards Program

Part A of Title III of the Energy Policy and Conservation Act of 1975 (EPCA), Pub. L. 94-163, as amended by the National Energy Cons ervation Policy Act (NECPA), Pub. L. 95-619, the National Appliance Energy Conservati on Act of 1987, Pub. L. 100-12, the National Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy

6Act of 1992 (EPACT 1992), Pub. L. 102-486, crea ted the “Energy Conservation Program for Customer Products Other Than Automobiles,” and the “Energy Policy Act of 2005” (EPACT 2005), Pub. L. 109-58 (42 U.S.C. 6291-6309). 1

NECPA amended EPCA to add Part C of Title III (42 U.S.C. 6311-6317), which established an energy conservation progr am for certain industrial equipment. 2 Part A-1 provides for a program similar to Part A for certain industrial equipment. EPACT 1992 included amendments to EPCA that expanded Title III to include additional commercial equipment.

More recently, EPCA was amended by the En ergy Independence and Security Act of 2007 (EISA), Pub. L. 110-140. In particular, sect ion 312(a) of EISA amends section 340 of EPCA by adding in new subsecti on 340(20) (42 U.S.C 6311(20)), wh ich defines walk-in coolers and freezers as follows:

(20) WALK-IN COOLER; WALK-IN FREEZER.— (A) IN GENERAL.—The terms "wal k-in cooler" and "walk-in freezer" mean an enclosed storage spa ce refrigerated to temperatures, respectively, above, and at or below 32 degrees Fahrenheit that can be walked into, and has a total chilled storage area of less than 3,000 square feet. (B) EXCLUSION.—The terms "wal k-in cooler" and "walk-in freezer" do not include products de signed and marketed exclusively for medical, scientific, or research purposes.

In addition, section 312(b) of EISA amends section 342 of EPCA in several ways.

First, section 312(b) adds new subsecti on 342(f)(1) (42 U.S.C. 6313(f)(1)), which establishes prescriptive standards for walk-in coolers and freezers manufactured on or after January 1, 2009:

(1) IN GENERAL.—Subject to paragr aphs (2) through (5), each walk-in cooler or walk-in freezer manufactu red on or after January 1, 2009, shall— (A) have automatic door closers that firmly close all walk-in doors that have been closed to within 1 in ch of full closure, except that this subparagraph shall not apply to doors wider than 3 f eet 9 inches or taller than 7 feet; (B) have strip doors, spring hinged doors, or other method of minimizing infiltration when doors are open; (C) contain wall, ceiling, and door in sulation of at least R–25 for coolers and R–32 for freezers, excep t that this subparagraph shall not apply to glazed portions of doors nor to structural members; (D) contain floor insulation of at least R–28 for freezers;

1 This part was originally titled Part B; however, it was redesignated Part A after Part B was repealed by Energy Policy Act of 2005 (EPACT 2005), Pub. L. 109-58.

2 This part was originally titled Part C; however, it was rede signated Part A-1 after Part B of Title III was repealed by Energy Policy Act of 2005 (EPACT 2005), Pub. L.-109-58.

7(E) for evaporator fan motors of under 1 horsepower and less than 460 volts, use— (i) electronically commutated motors (brushless direct current motors); or (ii) 3-phase motors; (F) for condenser fan motors of under 1 horsepower, use— (i) electronically commutated motors; (ii) permanent split capacitor-type motors; or (iii) 3-phase motors; and (G) for all interior lights, use lig ht sources with an efficacy of 40 lumens per watt or more, including balla st losses (if any), except that light sources with an efficacy of 40 lumens per watt or less, including ballast losses (if any), may be used in conj unction with a timer or device that turns off the lights within 15 minutes of when the walk-in cooler or walk-in freezer is not occupied by people.

Second, section 312 of EISA amends secti on 342 of EPCA by adding new subsection 342(f)(2) (42 U.S.C. 6313(f)(2)), which establishes requirement s for electronically commutated motors for walk-in coolers and freeze rs described in paragraph (1)(E)(i);

(2) ELECTRONICALLY COMMUTATED MOTORS.— (A) IN GENERAL.—The requireme nts of paragraph (1)(E)(i) for electronically commutated motors shall take effect January 1, 2009, unless, prior to that date, the Secret ary determines that such motors are only available from 1 manufacturer. (B) OTHER TYPES OF MOTOR S.—In carrying out paragraph (1)(E)(i) and subparagraph (A ), the Secretary may allow other types of motors if the Secretary determines that, on average, those other motors use no more energy in evaporator fan applications than electronically commutated motors. (C) MAXIMUM ENERGY CONSUMPTION LEVEL.—The Secretary shall establish the maxi mum energy consumption level under subparagraph (B) not later than January 1, 2010.

Third, section 312 of EISA amends sec tion 342 of EPCA by adding new subsection 342(f)(3) (42 U.S.C. 6313(f)(3)), which establishes additional requ irements for walk-in coolers or walk-in freezers with transp arent reach-in doors manufactured on or after January 1, 2009;

(3) ADDITIONAL SPECIFICATIONS.—Ea ch walk-in cooler or walk-in freezer with transparent reach-in do ors manufactured on or after January 1, 2009, shall also meet the following specifications: (A) Transparent reach-in doors fo r walk-in freezers and windows in walk-in freezer doors shall be of triple-pane glass w ith either heatreflective treated glass or gas fill. (B) Transparent reach-in doors fo r walk-in coolers and windows in walk-in cooler doors shall be— (i) double-pane glass with heat-reflective treated

8glass and gas fill; or (ii) triple-pane glass with either heat-reflective treated glass or gas fill. (C) If the appliance has an antisweat heater without antisweat heat controls, the appliance shall have a total door rail, glass, and frame heater power draw of not more t han 7.1 watts per square foot of door opening (for freezers) and 3.0 watts pe r square foot of door opening (for coolers). (D) If the appliance has an antiswe at heater with antisweat heat controls, and the total door rail, gl ass, and frame heater power draw is more than 7.1 watts per square foot of door opening (for freezers) and 3.0 watts per square foot of door opening (for coolers), the antisweat heat controls shall reduce the energy use of the antisweat heater in a quantity corresponding to the relative humidity in the air outside the door or to the condensation on the inner glass pane.

Finally, section 312 of EISA adds new s ubsection 342(f)(4) (42 U.S.C. 6313(f)(4)), which directs the Secretary to issue by rule , no later than January 1, 2012, performance-based standards for walk-in coolers and freezers manufactured on or after 3 years after the final rule is published, or 5 years if the Secretary determines, by rule, that a 3-year period is inadequate. This requirement is the subject of this framework document.

(4) PERFORMANCE-BASED STANDARDS.— (A) IN GENERAL.—Not later than January 1, 2012, the Secretary shall publish performance-based standards for walk-in coolers and walk-in freezers that achieve the maximum improvement in energy that the Secretary determines is technologically feasible and economically justified. (B) APPLICATION.— (i) IN GENERAL.—Except as provided in clause (ii), the standards shall apply to products described in subparagraph (A) that are manufac tured beginning on the date that is 3 years after the fi nal rule is published. (ii) DELAYED EFFECTIVE DA TE.—If the Secretary determines, by rule, that a 3- year period is inadequate, the Secretary may establish an effective date for products manufactured beginning on the date t hat is not more than 5 years after the date of publication of a final rule for the products.

1.2 Overview of Walk-In Coolers and Freezers

Walk-in coolers and freezers (also known as “w alk-ins”) are large, insulated refrigerated spaces with access door(s) large enough for peopl e to enter. Walk-ins temporarily store refrigerated or frozen food or other perishable materials. Two major classes exist: lowtemperature refrigerated space (-10  F to -20  F) and medium-temperature refrigerated space (

- 10  F to 30  F). Although walk-ins can be used in a wide variety of applications, they are primarily used in food service and sales. Food service includes fast food establishments and

9restaurants. Food sales include retail sales and wholesale food sales such as grocery or convenience stores.

1.3 Test Procedures

DOE is required to develop both test proce dures and energy conser vation standards for walk-in coolers and freezers. DOE is developing a test procedure in a separate concurrent rulemaking proceeding to enable manufacturers to test their products for compliance. DOE expects that the final rule for the test procedur es will be issued before the notice of proposed rulemaking (NOPR) for energy conservati on standards is issued (section 1.4).

Section 312(c) of EISA amends section 343( a) of EPCA (42 U.S.C. 6314(a)) by adding new subsection 343(a)(9) (42 U.S.C. 6314(a)(9)), whic h establishes test procedure definitions for walk-in coolers and freezers and directs the Secretary to establish test procedures to measure their energy use.

(9) WALK-IN COOLERS AND WALK-IN FREEZERS.— (A) IN GENERAL.—For the purpose of test procedures for walk-in coolers and walk-in freezers: (i) The R value shall be the 1/K factor multiplied by the thickness of the panel. (ii) The K factor shall be based on ASTM test procedure C518–2004. (iii) For calculating the R value for freezers, the K factor of the foam at 20°F (average foam temperature) shall be used. (iv) For calculating the R value for coolers, the K factor of the foam at 55°F (average foam temperature) shall be used. (B) TEST PROCEDURE.— (i) IN GENERAL.—Not later than January 1, 2010, the Secretary shall establis h a test procedure to measure the energyuse of walk-in coolers and walk-in freezers. (ii) COMPUTER MODELING.—Th e test procedure may be based on computer modeling, if th e computer model or models have been verified using the re sults of laboratory tests on a significant sample of walk-i n coolers and walk-in freezers.

Accordingly, DOE intends to propose such te st procedures under a separate rulemaking. Test procedures may incorporate by reference po rtions of test proce dures and definitional information from relevant sources, such as thos e developed by the Ameri can Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE), the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), the American So ciety for Testing and Materials (ASTM), or the American National Standards Institute (ANSI). The fo llowing 6 test procedures are of interest for walk-in coolers and freezers:

10 ARI Standard 520-2004, “Performance Rating of Positive Displacement Condensing Units;”

 ARI Standard 540-2004, “Performance Rating of Positive Displacement Refrigerant Compressors and Compressor Units;”

 ASHRAE Standard 23-1993, “Methods of Testing for Rating Positive Displacement Refrigerant Compressors and Condensing Units;”

 ARI Standard 460-2005, “Performance Rating of Remote Mechanical-Draft Air-Cooled Refrigerant Condensers;”

 ANSI/ASHRAE Standard 20-1997, “Method of Te sting for Rating Remote MechanicalDraft Air-Cooled Refriger ant Condensers;” and

 ARI Standard 420-2008, “Performance Rating of Forced-Circulation Free-Delivery Unit Coolers for Refrigeration.” 3

DOE is currently considering several poten tial testing methods. These methods include adapting an existing test procedure for commer cial refrigeration equipment, such as ARI Standard 1200-2006, “Performance Rating of Commer cial Refrigerated Di splay Merchandisers and Storage Cabinets” or ANSI/ASHRAE St andard 72-2005, “Method of Testing Commercial Refrigerators and Freezers,” and applying it to walk-in coolers and freezers; combining several test procedures from sources such as the 6 li sted above; or developi ng a computer model to simulate operation of a walk -in cooler or freezer.

Because EISA did not establish specific test metrics and normalization factors, DOE will do so as part of the test procedures rulemaki ng. Sample test metrics include daily or annual energy use; sample normalizati on factors include refrigerated volume or floor area. Energy conservation standards could be developed using these test metrics and normalization factors. For example, the energy conservation standard co uld be developed as an equation describing the maximum amount of daily energy use per unit volu me as tested under the DOE test procedure.

Item 1–1 DOE welcomes comments on the test procedures listed above and on any additional test procedures t hat should be considered along with the reasons for their consideration.

Item 1–2 DOE seeks feedback and supporting re asons regarding appropriate test procedure options for the walk-in co olers and freezers covered under this rulemaking.

Item 1–3 DOE seeks feedback on appropriate test metrics and normalization factors (e.g., daily energy use per unit volume or per- unit floor area) for the walk-in coolers and freezers covered under this rulemaking. Along with any detailed feedback, the reasons supporting the inclusion (or exclusion) of a particular metric or normalization factors should be submitted.

3 On January 1, 2008, the Air-Conditioning and Refrigerat ion Institute (ARI) and the Gas Appliance Manufacturers Association (GAMA) merged to become AHRI.

111.4 Rulemaking Process and Stakeholder Participation

Under EPCA, any standard DOE prescribes fo r consumer products shall be designed to “achieve the maximum improvement in energy e fficiency ... which the Secretary [of Energy] determines is technologically feasible and ec onomically justified.” (42 U.S.C. 6295(o)(2)(A)) Moreover, EPCA prohibits the Secretary from es tablishing an amended standard that would not result in “significant conservation of energy” or “is not technologically feasible or economically justified.” (42 U.S.C. 6295(o )(3)(B)) In determining whethe r a standard is economically justified, DOE considers the following 7 factors to the greatest extent practicable:

(1) the economic impact of the standard on the manufacturers and customers of the products subject to such standards;

(2) the savings in operating co sts throughout the estimated average life of the covered products in the type (or class) comp ared to any increases in the price, or in th e initial charges for, or maintenance expenses of the covered products which are likely to result from the imposition of the standard;

(3) the total projected amount of energy (or as applicable, wa ter) savings likely to result directly from the imposition of the standard;

(4) any lessening of the utility or the performance of the c overed products likely to result from the imposition of the standard;

(5) the impact of any lessening of competiti on, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;

(6) the need for national ener gy and water conservation; and

(7) other factors the Secr etary considers relevant.

(42 U.S.C. 6295(o)(2)(B)(i) and 42 U.S.C. 6316(a))

Additional statutory requirements are se t forth in 42 U.S.C. 6295(o)(1)–(2)(A), (2)(B)(ii)–(iii), and (3)–(6) and 42 U.S.C. 6316(a).

Developing efficiency standards involves an alysis, public notice, and consultation with interested parties. DOE considers stakeholder par ticipation to be a very important part of the process for setting energy conservation standards. The Department encourages the participation of all interested parties during the comment peri od at each stage of the rulemaking to ensure a balanced discussion of the information that is part of the standards rulemaking process.

In conducting the test procedure and standard s rulemakings, DOE involves stakeholders through a variety of means, including formal public notifications ( i.e.
, Federal Register notices) and public meetings. As discussed in further de tail below, the standa rds pre-rulemaking and rulemaking process generally involves a prelimin ary publication of analyses on the Department’s

12website and two major public no tices, which are published in the Federal Register . The publication of the preliminary analyses, as we ll as the NOPR, will be accompanied by public meetings to solicit stakeholder comment to guide the rulemaking process.

 Publication of preliminary analyses and public meeting (section 1.4.1): The publication of preliminary analyses and notice of the public meeting is designed to obtain public review of the models and tools that DOE w ill use in the rulemaki ng, and to facilitate public participation before the proposed rule stage. Candidate standard levels (CSLs), which span the range of efficiencies from baseline equipment to the most efficient technology, are the basis for demonstrating th e functionality of the models and tools. 4

 NOPR (section 1.4.2). The NOPR presents a discussion of comments received in response to the preliminary analyses; DOE’s analysis of the impacts of standards on customers, manufacturers, and the Nation; DOE’s weighting of the impacts; and the proposed standard levels for public comment.

 Final rule (section 1.4.3). The final rule presents a discussion of comments received in response to the NOPR, the revised analysis of the impacts of standards based on comments and any updated data, DOE’s weighting of the impacts, and the standard levels DOE is adopting. The final rule also establishes the effec tive date of the standards.

1.4.1 Preliminary Analyses and Other Activities

DOE’s preliminary activities typically in clude identifying product technology options and determining whether they warrant detailed an alysis or can be eliminated from further consideration. This process in cludes a market and technology assessment (section 3) and a screening analysis (section 4). DOE applies four criteria in the screening analysis to determine which technology options to eliminate from furt her consideration: tec hnological f easibility; practicability to manufacture, in stall, and service; adverse impacts on product utility or availability; and adverse impact s on health or safety. DOE calls technologies that pass the screening analysis “desig n options,” and considers them in th e engineering analysis as methods of improving the efficiency of the covered products.

Also in its preliminary analysis stage, DOE co llects data on manufactur er costs, historical shipments, shipment-weighted average efficien cy, and preliminary manu facturer impacts (e.g., capital conversion expenditures, marketing costs, and research and development costs). Given these data, and the efficiency levels achievable by the design options developed earlier, DOE estimates the impact of potential standards on individual consumers and the nation as a whole.

4 For past rulemakings, DOE was required to issue an Advanced Notice of Proposed Rulemaking (ANOPR) following publication of the framework document. The Energy Independence and Security Act of 2007 (EISA) eliminated the requirement that DOE issue an ANOPR as part of the standa rds rulemaking process; see EISA, at sec. 307. Instead, DOE will use an alternative process to provide the same information and ability for public comment as the ANOPR, but without publication of analyses in the Federal Register

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13These calculations are contained within the fo llowing analyses and explained in subsequent sections of this framework document:

 the engineering analysis (section 5);

 the consumer life-cycle cost (LCC) and pa yback period (PBP) analysis (section 8);

 the national impact analysis, which cons iders national energy savings (NES) and national consumer net present value (NPV) (section 10); and

 a preliminary manufacturer imp act analysis (section 12).

DOE will present the results of these analyses in a technical support document (TSD) to be published prior to the NOPR stage of the ru lemaking. The publication of the TSD, which will be made available on the Department’s website, will be followed by a public meeting to discuss these analyses. A meeting agenda, presentation slides, and an executive summary highlighting the issues on which DOE seeks comment will accompany the TSD on the website. DOE will publish a notice announcing the avai lability of the materials and the public meeting in the Federal Register

.

Discussion of various CSLs in the TSD w ill facilitate stakeholder review of the spreadsheet models that serve as the basis fo r the analyses. DOE will use stakeholder comments to refine the models for the NOPR stage of the rulemaking analyses, where DOE will propose specific efficiency levels for adoption. Based on the results, DOE selects CSLs from the energyefficiency or energy-use levels considered in the preliminary analyses. In addition to the efficiency levels corresponding to the maximum technologically feasible (“max-tech”) design and the minimum LCC point, DOE generally select s levels or design options for consideration that span the full range of tec hnologically achievable efficiencies. 5 DOE typically analyzes the following CSLs:

 the baseline CSL ( i.e. , the minimum level) is repr esented by the product with the lowest energy-efficiency level currently sold on the market for a given product class; for classes where minimum energy-efficiency standards already exist, the baseline efficiency level is typica lly defined by the existing energy conservation standard;

 the highest CSL or lowest energy consumpti on level that is technologically feasible ( i.e.
, the “max-tech” level);

 the level with the minimum LCC or greatest LCC savings; and

 levels that incorporate noteworthy technologi es or fill in large gaps between other CSLs considered.

In the preliminary analyses, DOE uses analytic al models and tools to assess the different product classes at each efficiency or energy use level analyzed. Ma ny of these analytical models

5 The “max-tech” represents the most efficient design th at is commercialized or has been demonstrated in a prototype with materials or technologies available today. “Max-tech” is not constraine d by economic justification, and typically is the most expensive design option considered in the engineering analysis.

14and tools are in the form of spreadsheets, some of which DOE uses to conduct the LCC and PBP analyses and to determine the NES and NPV of prospective standards. Preliminary results may facilitate discussions among interested parties on potential joint recommendations for standard levels.

In addition to the other materials mentione d above, DOE will make the spreadsheet tools used for the preliminary analyses available on it s website for review and will consider comments after the public meeting. 6 DOE will provide a 60-day public comment period following the publication of the notice. Furthermore, prelim inary results may facilitate discussions among interested parties on potential joint recommenda tions for standard levels. DOE encourages stakeholders to develop such recommendations. Any consensus recommendation must satisfy the statutory criteria provided by EPCA in determining whether an energy conservation standard is technologically feasible and econom ically justified and will result in signifi cant conservation of energy (42 U.S.C. 6295(o)(2)(A), (o)(3), (v)). Any consensus recommendation should also include information that DOE can use to assess th e 7 statutory factors that determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6925(o)(2)(B)(i))

1.4.2 Notice of Proposed Rulemaking

In developing the NOPR, DOE will first review and consider all the comments it receives after the preliminary public meeting. This process may result in revisions or refinement to the preliminary analyses, including the engineering and LCC analyses. DOE will also conduct additional economic and environmental impact anal yses at this stage of the rulemaking. These analyses generally include a customer LCC subgroup analysis (section 11), a manufacturer impact analysis (section 12), a utility impact analysis (section 13), an employment impact analysis (section 14), an environm ental assessment (section 15), and a regulatory impact analysis (section 16).

DOE will describe the methodology used and make the results of all the analyses available on its website for review. DOE will consider comments after publication of the NOPR. This review-and-comment process may result in revi sions to the analyses. This process ends with the selection of proposed energy conservation levels (if any) that will be presented in the NOPR. DOE selects these levels from the trial standard levels (TSLs) it analyzed. The NOPR, published in the Federal Register , will document the evaluation and sele ction of any proposed standards, along with a discussion of other TSLs considered but not selected (and the reasons DOE did not select them).

The selection process for proposed efficiency standards generally runs as follows. For each equipment class, DOE will identify the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible. If DOE propos es a level that is below this “max-tech” level, it will explain the reasons for el iminating higher levels, beginning with the highest level considered. DOE will presen t the results of the analysis in the NOPR and the details of the analysis in an accompanying TSD.

6 All materials associated with the walk-in coolers and freezers rulemaking are available on DOE’s website at http://www1.eere.energy.gov/buildings/appliance_standards/commercial_products.html

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15DOE considers many factors in selecting proposed standards. These fa ctors or criteria are established by statute and capture the many benefits, costs, and impacts of energy conservation standards. DOE will carefully consider any jo int recommendations in its decision process.

When DOE publishes the NOPR, it will provide the U.S. Department of Justice (DOJ) with a copy of the NOPR and TSD and will solic it feedback on the impact of the proposed standard levels on competition. DOJ will review these standard levels for any lessening of competition likely to result from the imposition of standards. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii)) DOE will consider DOJ’s determination on the impacts of the proposed standard on competition in preparing the final rule. The NOP R will be followed by a public comment period that includes one public meeting.

1.4.3 Final Rule

Revisions to the analyses may result from the public comments on the NOPR. On the basis of the public comments, DOE will review the engineering and economic impact analyses and proposed standards and make modifications as necessary. After publication of the NOPR, DOE will conduct a thorough review of all analyses performed and of the TSLs, and make revisions as appropriate.

Before the final rule is issued, DOE will consider any comments from DOJ on the impacts of the proposed standard levels on comp etition to determine whether changes to these standard levels are needed.

The standards rulemaking will conclude with publication of the final rule. DOE will select the final standard levels based on the co mplete record of the standards rulemaking. The final rule will promulgate the final standard leve ls and their effective date and explain the basis for their selection. The final rule will be accompanied by a final TSD.

2. OVERVIEW OF ANALYSES FOR RULEMAKING

The purpose of the analyses conducted in suppor t of the standards ru lemaking will be to ensure that DOE selects the final energy conservation standards that achieve the maximum energy savings that satisfy the criteria of tec hnological feasibility a nd economic justification. Economic justification include s consideration of the economic impacts on domestic manufacturers and customers, na tional benefits (including environmental impacts), issues of customer utility, and impacts fr om any lessening of competition.

This section offers an overview of DOE’s analytical methodology and discusses the major components of the analyses DOE will conduct. A consistent approach to analysis throughout the rulemaking will be ensured by consider ing each analysis as a part of the overall standards-setting process.

Figure 1 summarizes the analytical component s of the standards-setting process. The “analyses” are presented in the center column. Each analysis has a set of “key inputs,” which are data and information required for the analysis. “Approaches” are the methods that DOE will use to obtain key inputs, which may vary depending on the information in question. For example,

16some key inputs exist in public databases, some will be collected from interested parties or others with special knowledge, and some will be deve loped by the project team in support of the rulemaking. The results of each analysis are “k ey outputs,” which feed directly into the rulemaking. Arrows connecting one analysis to another indicate the flow of information.

17Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule Approaches Key Inputs Analyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

Markups for Product Price Determination Life-Cycle Cost and Payback Period Analyses

National Impact Analysis Energy Use

Revise Pre-NOPR Analyses

Life-Cycle Cost Sub-Group Analysis

Manufacturer Impact Analysis Shipments Analysis

Employment Impact Analysis

Revise Analyses • Product Classes • Technology Options

• Industry Cash Flow • Sub-Group Cash-Flow • Direct Employment Impacts • Competitive Impacts • Cumulative Regulatory Burden • Cost-Efficiency Relationship

• Life-Cycle Costs • Payback Periods

• National Energy Savings • Net Present Values

• National Employment Impacts

• Revised Results • Characterize Industry • Market Segmentation • Non-Regulatory Programs Framework Document

• Efficiency-Level 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

• Define Distribution Channels • Economic Census Data Analysis • Retail Price Collection and Analysis

• Manufacturer Prices • Average Costs

• Manufacturer Financial Data Design Options Product Classes

Retail Prices Design Energy/ Use

Preliminary Notice of Proposed Rulemaking (Pre-NOPR) • Efficiency/Performance • Manufacturing Cost

Candidate Standard

Levels • Analysis of Energy Use Data

Environmental Assessment

Regulatory Impact Analysis Technology Options

• Emission Estimates • Utility Load Factors • National Energy Savings

• Non-Regulatory Alternatives • NEMS-BT

• ImSET

• NEMS-BT • Design Options

• Energy Price Forecasts • Site-to-Source Factors • Energy-Efficiency Levels

Direct Employment Impacts

• National Energy Savings • National Product Costs • National Operating Costs • Utility Impacts • Analysis of Market Data

• Analysis of Product Data

• Life-Cycle 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

Energy-Efficiency Levels

• Department of Justice Review Cost-Efficiency Relationship

Figure 1. Flow Diagram of Analyses for the Walk-in Coolers and Freezers Standards Rulemaking Process

183. MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment will provide information about the walk-in coolers and freezers industry and market, and about the performance attributes of the equipment that DOE will use throughout the rulemaking. This assessment is particularly important at the outset of the rulemaking to determine equipment classes and identify potential design options or efficiency levels for each equipment class.

This section discusses the market assessm ent (section 3.1), equipment classes (section 3.2), and technology assessment (section 3.3).

3.1 Market Assessment

DOE will qualitatively and quantitatively char acterize the structure of the industry and market for walk-in coolers and freezers. In the market assessment, DOE will identify and characterize the manufacturers of this equipment, estimate market shares and trends, and address regulatory and non-regulatory ini tiatives intended to improve the energy efficiency of walk-in coolers and freezers. The assessment will also explore the potent ial for technological improvements in the design and manu facturing of such equipment.

The market assessment phase allows DOE to ga ther data that will assist in identifying important issues later in the rulemaking, such as potential small business impacts, competitive disruptions, and other factors that may arise from enacting standards. For example, DOE will use historical equipment shipments and prices as an indicator of futu re shipments and prices. Market structure data will be particularly useful for assessing competitive impacts as part of the manufacturer impact analysis. This phase also allows DOE to start updating design options by reviewing product literature, industry publications, and company websites.

EISA establishes prescriptive standards fo r the walk-in coolers and freezers covered under this rulemaking that are manufactured on or after January 1, 2009. (42 U.S.C. 6313(f)(1)) However, walk-in coolers and freezers have never before been the subject of performance based energy conservation standards at the Federal le vel. Some limited data on energy consumption and energy efficiency is available for this equipment. A preliminary investigation by DOE indicates that there is little or no publicly available data on th e cost of manufacturing this equipment, manufacturer market shares, shipment s, or channels of distribution. Such data are essential to the development of technologica lly feasible, economically justified energy conservation standards. Stakeholders are encour aged to submit any app licable data to DOE.

AHRI represents manufacturers of walk-in co olers and walk-in freezers and DOE expects this group will play an important role in prov iding market information, including information on manufacturers, market shares , and trends in the market.

Item 3–1 DOE seeks information that would cont ribute to the market assessment for walk-in coolers and freezers, including information on manufacturers, market

19shares, trends in the market, tec hnological improvements, and any other applicable information. Examples of th e type of information sought by DOE, include, but are not limited to: a lis ting of walk-in cooler and freezer manufacturers and their respective market shares, historical shipment data by equipment class, equipment efficienc y data by equipment class, etc.

3.2 Equipment Classes

DOE intends to separate walk-in coolers and freezers into different equipment classes. The criteria for separating equipmen t into different classes are: (1 ) the type of en ergy used; (2) capacity; and (3) other performance -related features, such as thos e that provide utility to the customer or other features deemed appropria te by the Secretary that would justify the establishment of a separate energy cons ervation standard. (4 2 U.S.C. 6295(q))

Possible equipment classes to consider for walk-in coolers and freezers include condensing unit type (self-contai ned vs. remote condensing), app lication (integrated interior systems vs. external addition systems), and capac ity (small, medium, and large capacities). These features provide utility and affect energy effici ency. Examples of possible classes could include:

 small, self-contained, integrated interior systems;

 medium, self-contained, integr ated interior systems;

 large, self-contained, integr ated interior systems;

 small, self-contained, exte rnal addition systems;

 medium, self-contained, exte rnal addition systems;

 large, self-contained, exte rnal addition systems

 small, remote condensing, inte grated interior systems;

 medium, remote condensing, integrated interior systems;

 large, remote condensing, inte grated interior systems;

 small, remote condensing, external addition systems;

 medium, remote condensing, external addition systems; and

 large, self-contained, exte rnal addition systems.

Integrated interior systems are fabricated within a building and have limited cooling capacities. External addition systems can be constr ucted as extensions to most existing buildings and are generally not limited by capacity.

Systems with small, medium, and large capacit ies can be partitioned into units less than or equal to 1,000 square feet (ft 2 ), units greater than 1,000 ft 2 and less than or equal to 2,000 ft 2

, and units greater than 2,000 ft 2 and less than or equal to 3,000 ft 2 , respectively.

Item 3–2 DOE requests feedback on which equipm ent classes among the ones listed above it should use in its analysis an d the reasons for their inclusion.

20Item 3–3 DOE also seeks information regarding other equipment classes it should consider for inclusion in its analysis . Please provide reasons supporting the inclusion of each class.

3.3 Technology Assessment

Typically, DOE uses information about existing and past technology options and prototype designs to help iden tify technologies that manufactur ers could use to meet and/or exceed energy conservation standards. In consulta tion with interested parties, DOE intends to develop a list of technologies to consider in the an alysis. Initially, this li st will include all those technologies considered to be technologically f easible and will serve to establish the maximum technologically feasible design. DOE is currently considerin g the specific technologies and design options listed below

. The following design options and technol ogies are relevant to walk-in coolers and walk-in freezers:

1. hot gas defrost; 2. thicker insulation; 3. floating head pressure; 4. ambient subcooling; 5. external heat rejection; 6. economizer cooling; 7. higher-efficiency evaporator and condenser fan blades; 8. higher-efficiency evaporator and condenser fan motors ( e.g. , electronically commutated motors (ECM)); 9. electronic ballasts; 10. higher-efficiency lighting; 11. anti-sweat heating control ( e.g. , dew point sensor); 12. evaporator and condenser fan motor controllers ( e.g. , optimize duty cycle); and 13. non-electric anti-sweat.

The following design options and technologi es are relevant only to walk-in freezers:

1. defrost controls.

Item 3–4 What technologies or design options, if any, should DOE add to or remove from these lists? Please provide the rationale for any such recommendations.

214. SCREENING ANALYSIS

The purpose of the screening analysis is to eliminate design options and technologies that will not be considered further in the analysis. Fo llowing development of the initial list of design options and technologies, DOE will review each one based on the following four criteria:

1. Technological feasibility. Design options and technologies that are not incorporated in commercially available equipment or in working prototypes will not be considered further.

2. Practicability to manufactu re, install, and service. If DOE determines that mass production of a design option or technology in commercially available equipment and reliable installation and serv icing of the technology could not be achieved on the scale necessary to serve the relevant market at the time of the effective date of the standard, that design option or technology w ill not be considered further.

3. Adverse impacts on product or equipment utility to customers or availability. If DOE determines that a design option or technology has significant adverse impact on the utility of the product on a significant number of cu stomer subgroups, or results in the unavailability of any covered product type w ith performance characteristics (including reliability), features, size, capacities, and vol umes that are substantially the same as equipment generally available in the United States at the time, it will not be considered further.

4. Adverse Impacts on Health or Safety. If DOE determines that a design option or technology will have significant adverse imp acts on health or safety, it will not be considered further.

10 CFR part 430, subpart C, appendix A.

The reasons for eliminating any design op tions or technologies during the screening analysis will be fully documented and published as part of the preliminary analyses and available for stakeholder review and comment.

5. ENGINEERING ANALYSIS

After conducting the screening analysis, DOE pe rforms an engineering analysis based on the remaining design options that would improve e fficiency. The engineering analysis consists of estimating the energy consumption and cost of equipment at various levels of increased efficiency. In this section, DOE discusses the engineering analysis (s ection 5.1), baseline units (section 5.2), the approach for determining the cost-efficiency relations hip (section 5.3), the maximum technologically feasible efficiency leve l (section 5.4), manufact urer prices (section 5.5), proprietary designs (section 5.6), and regul atory changes outside the realm of DOE’s energy conservation standards proc ess and other regulatory changes that affect the engineering analysis (section 5.7).

225.1 Engineering Analysis Overview

The engineering analysis estimates the cost-effi ciency relationship, which is the cost of equipment at various levels of increase d energy efficiency above a baseline ( i.e. , equipment that just meets the minimum energy cons ervation standards). This relationship serves as the basis for the cost-benefit calculations fo r individual customers, manuf acturers, and the Nation. In determining the cost-efficiency relationship, DOE will estimate the increase in manufacturer cost associated with the design options and technolog ies available to manufact urers for increasing the efficiency of equipment above the baseline.

5.2 Baseline Units

Once DOE establishes equipment classes, it wi ll select a baseline model as a reference point for each equipment class for use in the e ngineering analysis and the life-cycle cost and payback-period analyses. The baseline model repres ents the typical characteristics of equipment in each class. Using this baseline, DOE can es timate changes resulting from energy conservation standards. To determine energy savings and changes in manufacturer selling price, DOE will compare each higher-efficiency level against the baseline model.

Item 5–1 DOE seeks information on what parti cular components and features (e.g., materials, dimensions, compressors, coils, expansion devices, fans, motors, controls, and panel construction characte ristics) characterize the baseline model in each equipment class.

5.3 Planned Approach for Determining th e Cost-Efficiency Relationship

DOE typically structures its engineering an alysis using one of three approaches: (1) design-option; (2) efficiency-level; or (3) reve rse-engineering (or cost-assessment). A designoption approach uses individual design options, or combinations of design options, to identify increases in efficiency. Under this approach, es timates are based on manufacturer or component supplier data or engineering computer simu lation models. Individual design options, or combinations of design options, are added to th e baseline model in ascending order of costeffectiveness. An efficiency-level approach es tablishes the relationshi p between manufacturer cost and increased efficiency at predetermined ef ficiency levels above th e baseline. Under this approach, manufacturers typically provide manufacturer cost data for incremental increases in efficiency. A reverse-engin eering or cost-assessment a pproach involves purchasing representative walk-in coolers and/or walk-i n freezers, disassembling the units, and reverseengineering the manufacturing costs based on a “bottoms-up” manufactur ing cost assessment.

For this rulemaking, DOE plans to use a design -option approach for determining the costefficiency relationship because it provides tran sparency of assumptions and results and the ability to perform independent analyses for ve rification of industry data. This will involve

23consultation with outside experts, review of pub licly available cost and performance information, and modeling of equipment cost and energy consumption.

For each equipment class, the engineering an alysis will estimate manufacturer production costs (MPCs) for each design option considered. DOE plans to develop a cost model to estimate the cost of the core case ( i.e., the MPC of the structure, walls , doors, shelving, and fascia of walk-in coolers and freezers), but not th e cost of any energy-using components.

This cost model can be adapted from a cost model developed for DOE’s rulemaking on commercial refrigeration equipment (CRE). 7 The approach for commercial refrigeration equipment involved disassembling a self-contained refrigerator, analyzing the materials and manufacturing processes for each component, and de veloping a parametric spreadsheet to model the cost to fabricate or purchase each compone nt and the cost of assembly. Because of the similarities in manufacturing pr ocesses between commercial refr igeration equipment and walk-in coolers and walk-in freezers, DOE can adapt the commercial refrigeration equipment cost model by maintaining many of the assumptions about materials and manufact uring processes, but modifying the dimensions and types of component s for walk-in coolers and freezers. To confirm the accuracy of the cost model, DOE plans to obtain input from stakeholders on the production cost estimates and other assumptions in the mode l. DOE believes this approach is acceptable, given the similarities in materials and manufactur ing processes between commercial refrigeration equipment and walk-in coolers and freezers.

DOE plans to select models with a represen tative cooling capacity for each equipment class, while considering the possi ble design constraints at very small and very large capacities.

Item 5–2 DOE requests feedback on using a desi gn-option approach to determine the relationship between manufacturer producti on cost and energy-e fficiency levels for walk-in coolers and freezers.

Item 5–3 DOE requests feedback on an appropriate re presentative capacity (i.e., the most common or highest-volume capacity) for each equipment class of walk-in coolers and freezers.

5.4 Maximum Technologically Feasible Efficiency Level

For each equipment class of walk-in cooler s and freezers, DOE will analyze a baseline efficiency level and a maximum technologically f easible (“max-tech”) e fficiency level. (42 U.S.C. 6295(p)(2))

7 See www.eere.energy.gov/buildings/appliance_standards/commercial/refrigeration_equipment.html for further detail on and validation of the commercial refrigeration equipment cost model.

24Item 5–4 DOE seeks input from stakeholders on an appropriate maximum technologically feasible efficiency level fo r each equipment class and th e reasons in support of that level.

5.5 Manufacturer Prices

DOE plans to apply a manufacturer markup to convert manufacturer production cost to manufacturer selling price. DOE will estimate th is manufacturer markup from publicly available financial information ( e.g. , Securities and Exchange Commission 10-K reports).

Item 5–5 DOE seeks comment on the planned ma rkup approach for developing estimates of manufacturer selling prices.

5.6 Proprietary Designs

DOE will consider in its engi neering and economic analyses all design options that have not been screened out, including proprietary desi gns. DOE will consider proprietary designs in the subsequent analyses only if those designs are not unique path s to given efficiency levels. Otherwise, the analyses would appear to favor one manufact urer over others.

DOE seeks manufacturer input on the competitive impacts assessment and other economic analyses. DOE will make provisions to ma intain the confidential ity of any proprietary data submitted by manufacturers or discussed du ring manufacturer interviews. This data may be provided under a confidentia lity agreement with DOE’s contractor responsible for this part of the rulemaking analysis, Navigant Consulting, Inc. (N CI). NCI regularly works with confidential data from manufacturers and ot her organizations, preparing ag gregated results for DOE’s analysis that do not divulge sensitive raw data, but enable other stakeholders to review and comment on the aggregated dataset. Alternativel y, stakeholders may submit confidential data to DOE, indicating in writing which data should rema in confidential. To pr event public disclosure of the data due to actions taken by a third part y, stakeholders providing confidential information to DOE must submit that data according to 10 CFR 1004.11. This information will provide input to the competitive impacts assessment and other economic analyses.

Item 5–6 Are there proprietary designs or technol ogies that DOE should consider for any of the equipment under consideration in this rulemaking? If so, how should DOE acquire the cost data necessa ry for evaluating these designs?

5.7 Outside Regulatory Changes Affe cting the Engineering Analysis

In conducting an engineering analysis, DOE must consider the e ffects of regulatory changes outside DOE’s statutory energy conser vation standards rulemaking process that can affect the manufacturers of walk-in coolers and freezers. Some of these changes can also affect the energy efficiency or energy consumption of the equipment covered under this rulemaking. DOE will attempt to identify all such outside e ngineering issues. The consideration of these

25issues is closely related to the cumulative regulatory burden a ssessment that DOE will conduct as part of the manufactur er impact analysis.

After considering the comments received on th e engineering analysis in the preliminary phase, DOE will make the necessary changes to th e analysis. Those changes will be reflected in the NOPR.

Item 5–7 Are there outside regulatory issues that DOE should consider in its engineering analysis of walk-in coolers and freezers?

6. ENERGY USE ANALYSIS

6.1 Overview of Energy Use Analysis

The purpose of the energy use and end-use load characterization analysis is to assess the energy- and peak-demand-savings potential of walk-in coolers and freezers of different efficiencies and equipment classes. These energy savings estimates form the basis of the energy cost savings estimates DOE uses to assess economi c benefits for higher-efficiency standards. As part of the energy use analysis, DOE must make certain engineering assumptions about equipment application, including how the equipm ent is operated and under what conditions.

Critical to these assumptions are the climat e (which affects cooling loads for walk-in coolers and freezers located outside of a conditione d building, as well as estimates of condensing system performance), lighting operating hours for light s used in walk-in coolers and freezers, the size and design of the prototypes being studie d, and the corresponding equipment performance characteristics. In addition, because the major ity of walk-ins are likely located indoors, characterizing the energy savings estimates of walk-in coolers a nd freezers may include understanding the effect on build ing heating and cooling load s and the corresponding building energy use. Some installations of walk-in coolers and freezers release heat into the conditioned building space. Other installations re lease heat outside of the building.

A 1996 study by Arthur D. Little, Inc., provide d information on the energy consumption of walk-in coolers and freezers, including an exam ination of a self-contained walk-in freezer that rejected heat inside the conditioned building spac e and of a cooler (with doors) in a convenience store that rejected heat outside of the build ing. The study did not address the energy impact on the building space.

In 2007, DOE examined the energy impact of specific design changes for commercial refrigeration equipment ( i.e. , display cases) for the CRE Advance Notice of Proposed Rulemaking (ANOPR). 8 This research did not reveal significant overall impacts on building space heating and cooling energy in grocery stor es for the remote condensing equipment and

8 For this rulemaking, the ANOPR step has been replaced by a notice of a public meeting and the availability of an accompanying technical support document.

26design options DOE examined. 9 For equipment with the cond ensing unit located within the building space, all design options that save energy reduced building space cooling loads and generally increased space heating loads. For remote condensing equipment, some design options ( e.g., lights and fans) reduced the inte rnal heat generation within th e walk-in cooler, and thus the load and heat release on the compressor, but ha d no direct impact on a building’s space load. Other design options ( e.g. , increased insulation, reduced infi ltration) increased the building’s space cooling load, but also reduced the space heating load due to reduced heat transfer from the building to the cooler. The impact on space heat ing and cooling loads was further complicated by: the array of buildings that use walk-in co olers and freezers (large grocery, small grocery, full-service restaurants, fast f ood restaurants, and institutiona l buildings); the mix of selfcontained and remote condensing coolers and freezer s that may be used in individual building types; and whether the heat release is occu rring in fully or partially conditioned space ( e.g. , heated only work ar eas) in the building.

DOE is considering conducting a simplified anal ysis of walk-in cooler s and freezers that does not address the impact of higher-efficiency design options on building space heating and cooling loads, but is based on the engineering analysis tools DOE is developing for walk-in coolers and freezers. DOE seeks inpu t on the relative merits of in cluding whole building analysis for the energy analysis of walk-in coolers and fre ezers. If a whole building analysis approach is recommended, DOE also requests suggestions on the type of analysis and level of detail that would be justified for the pr esent standards rulemaking.

For the fraction of the market that consists of remote condensing equipment, DOE is considering modifying the engineering analysis tools to address these issues as well.

Item 6–1 DOE seeks input on the relative merits of incorporating whole building space heating and cooling energy in its en ergy analysis of walk-in coolers and freezers. If a whole building analysis is recommended, DOE seeks the reasons supporting this type of analysis as we ll as comments on what building types and analysis tools, and for which equipmen t classes, such analysis should be considered.

7. MARKUPS FOR EQUIPMENT PRICE DETERMINATION

DOE uses manufacturer-to-custom er markups to convert the manufacturer selling price estimates from the engineering analysis to custom er prices, which are then used in the LCC and payback period analyses and the manufacturer impact analysis. Retail prices are needed for the baseline efficiency level and all other efficiency levels under consideration. DOE will obtain these retail prices by applying manufacturer-to-customer markups to the manufacturer selling price estimates. To validate these markups, DOE w ill attempt to collect data on existing prices in

9 The commercial refrigera tion equipment rulemaking ANOPR and technical support document are available on DOE’s website at www1.eere.energy.gov/buildings/appliance_stan dards/commercial/refrigeration_equipment.html

.
27the market either by purchasing large data sets or by downloading data from distributor internet sites.

Before it can develop markups, DOE must identify distribution channels ( i.e. , how the equipment is distributed from the manufacturer to the customer). Once it establishes proper distribution channels for each product class, DOE will rely on economic census data from the U.S. Census Bureau and industry input from the industry to determine how equipment is marked up from the manufacturer to the customer. To th e extent possible, DOE also will use collected retail price data to help quantify overall manufacturer-to-customer markups.

This analysis will generate retail prices fo r each possible efficiency level. Because it expects to generate a range of price estimates, DOE plans to describe new retail prices within a range of uncertainty. If the ra nge of retail prices for the equipment is large enough, DOE will conduct a sensitivity analysis to determine how hi gh or low estimates of retail pricing could affect the economic feasibility of am ended energy conservation standards.

DOE has done a great deal of work to es timate manufacturer-to-customer markups for CRE. In the recent CRE rulemaking, DOE’s analysis focused on three distribution chain paths and calculated markups for individual points al ong these paths. Two of these paths involved selling the equipment through a mechanical cont ractor and then through a general contractor before the equipment reached the final custom er (82.5 percent of sales). A third “national account” path involved selling the equipment directly from the manufacturer to the end customer (17.5 percent of sales). The CRE analysis noted that in the case of replacement equipment (approximately 70 percent of the CRE market), a general contractor typi cally was not involved and therefore no general contractor markups were incurred for replacement equipment.

DOE’s review of walk-in coolers and freezer s suggests a set of three distribution channels:

Manufacturer  Distributor  Mechanical Contractor  Customer

Manufacturer  Distributor  Customer

Manufacturer  Customer (National Account)

A general contractor would not normally en ter into the distribution path for this equipment. The relative fractions of equipment distributed in each path of the distribution channel could be different de pending on the equipment class.

Item 7–1 DOE requests information from stakehol ders on the proposed distribution paths for the walk-in coolers and freezers co vered under this rulemaking. DOE also requests information on the relative frac tions of shipments expected for each path.

28Once it establishes proper distribution channels for each equipment class, DOE will rely on economic census data from the U.S. Census Bur eau and input from indust ry trade associations such as the Heating, Air-Conditioning, and Refrig eration Distributors International (HARDI) to determine how equipment is marked up from the manufacturer to the customer. 10 HARDI represents wholesalers for walk-in coolers a nd freezers and other heati ng, ventilation, and airconditioning (HVAC) equipment.

At each point in the distribution chain, companies mark up the price of their equipment to cover their business costs and profit margin. In financial statements, gross margin is the effective markup on a company's cost of sales. It includes: all corporate overhead costs; sales, general, and administrative costs; research and development and interest expenses; depreciation and taxes; and profits. For equipment sales to contribute po sitively to company cash flow, markups must be greater than the corporate gro ss margin less the company's oper ating profit margin. Individual equipment may command a lower or higher ma rkup depending on the equipment’s perceived added value and the competition the company f aces. DOE generally assumes that gross margins on baseline refrigeration equipment are lower th an the average gross margin of a diversified
company.
DOE based the CRE analysis of general contra ctor markups on U.S. Census Bureau data for the commercial and institutional buildi ng construction sector. These data are not disaggregated by individual firms, but examine the sector as a whole. DOE developed sectoraverage data for general contractor s in terms of contractor revenue per dollar of direct sale costs. DOE used these data to develop both average ma rkups for general contr actors and incremental markups. Incremental markups assume that certain industry costs, such as labor and building occupancy expenses, do not increase with an increase in cost of goods sold.

DOE intends to develop both an overall baseli ne markup (for obtaining the customer cost of baseline efficiency equipment) and an overa ll incremental markup to obtain the incremental cost of higher-efficiency equipment. Both of these overall markups will include an average multiplier to account for State sale s tax applied at the last stage of the distribution channel. DOE intends to use the State Tax Clearinghous e to calculate appl icable sales taxes. 11

The overall markups DOE developed for the CRE analysis resulted in a multiplier of 2.31 for the manufacturer price for the average markups in the distribution chain, and a multiplier of 1.56 for the incremental markup. These multipliers were applied to any increase in manufacturer prices that resulted from sta ndards for higher-efficiency equipm ent. Both markups include an average multiplier of 1.07 to account for sales tax applied at the last stage of the distribution chain.

10 U.S. Census Bureau. 2002. Plumbing, Heating, and Air-Conditioning Contractors: 2002. Report EC02-231

- 238220.

11 Sales Tax Clearinghouse, Inc., State Sales Tax Rates along with Combined Average City and County Rates

. Available at http://thestc.com/STrates.stm . tax rates along with combined average city and county rateso calculate applicable sales taxes.ill make the necessary

29Item 7–2 DOE requests feedback on the overall ma rkups for the walk-in coolers and freezers covered under this rulemaking fo r each path in the distribution chain.

Item 7–3 DOE requests feedback on its proposal to use incremental distribution chain markups for the LCC analysis.

Item 7–4 DOE seeks comment on other sources of re levant data that could be used to characterize markups for the walk-in coolers and freezers.

8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES

8.1 Overview

The effects of new energy conservation standards on equipment re sult in changes in operating expenses—usually a decrease—and change s in purchase price—usually an increase. DOE will analyze the net effect of new standa rds on customers by evaluating the net LCC using the cost-efficiency relationship derived in the engi neering analysis, energy costs derived from the energy use and end-use load charac terization analysis, a nd equipment retail prices. Inputs to the LCC and PBP analyses include the installed cost to the customer (purchase price plus installation cost), operating expenses (energy costs, maintenan ce costs, and, if applicable, repair costs), the lifetime of the appliance, energy pr ice forecasts, and discount rates.

The installed and operating cost s of the equipment typically change in response to new energy conservation standards. (Ins talled cost typically increases while operating cost typically decreases.) Thus, there is a specifi c time in the life of higher-than -baseline-efficiency appliances when the net operating cost benefit (in dollars ) from the time of purchase is equal to the incremental first cost of purchasing the higher-e fficiency appliance. The length of time required for the appliance to reach this cost-equivalen ce point is known as the payback period (PBP).

DOE considers both LCC and PBP (section 1.4) to determine whether a standard is economically justified and whether the benefits of an energy conservation standard will exceed its burdens to the greatest extent practicable. However, because LCC uses an explicit discount rate (that depends on customers’ cost of financing), takes in to account changing energy prices, and does not require selection of a baseline efficiency level, DOE considers this rate to be a better indicator of the likely economic impacts on customers. For the preliminary phase, DOE will conduct the LCC and PBP analysis using appr opriate values for equi pment life, equipment retail price, national or regional en ergy costs, and discount rates.

DOE will perform the LCC and PBP analyses using a spreadsheet model combined with Crystal Ball to account for uncertainty and variability among the input variables. 12 Each Monte Carlo simulation will consist of 10,000 LCC and PBP calculations. The models will perform each calculation using input values that are either sampled from probability distributions and

12 Crystal Ball is a commercially available software add-on program to Microsoft Excel that DOE uses to conduct stochastic analysis using Monte Carlo simulation and probability distributions.

30household samples or characterized with single point values. The analysis results will be a distribution of 10,000 data points showing the range of LCC savings and PBPs for a given efficiency level relative to th e baseline level. For any sensitiv ity analyses it conducts, DOE will account for correlations that may exist among inputs ( e.g. , there may be a correlation between energy usage and energy prices).

Based on the results of the LCC analysis, DOE will select CSLs for the preliminary analysis. The range of CSLs typically will include the efficiency level with the minimum LCC, the highest efficiency level that is technologi cally feasible, and othe r intermediate levels.

The following sections discuss the methodologies DOE plans to use to develop several of the inputs to the LCC and PBP analysis, including (1) electricity prices; (2) discount rates; (3) maintenance, repair, and installation costs; a nd (4) equipment lifetime. The following sections discuss the methodologies DOE plans to use in de termining these values. The other inputs to the LCC and PBP analysis—namely, manufacturer costs (section 5) , annual energy consumption (section 6), and markups for determining customer retail prices (section 7)—have been discussed previously.

8.2 Energy Prices

DOE will review energy price data from the Energy Information Administration (EIA) for walk-in coolers and freezers to establish electricity and natural gas prices. DOE plans to rely on regional average energy price data for the co mmercial sector. DOE will use projections of these energy prices for commercial customers to estimate future energy prices in its life-cycle cost and payback period analyses. DOE will use EIA’s Annual Energy Outlook ( AEO ) as the default source of projections for future energy prices.

Item 8–1 DOE seeks comment on the proposed approaches for estimating current and forecasted energy prices.

8.3 Life-Cycle Cost Discount Rates

The calculation of customer LCCs requires th e use of an appropriate discount rate. For walk-in coolers and freezers, DOE plans to use the same approach it relied on for developing discount rates for CREs and distribution transfor mers. DOE will derive the discount rates for commercial customers by estimating the cost of capital to companies that purchase walk-in coolers and freezers covered under this rulemaking. DOE commonly uses the cost of capital to estimate the present value of cash flows to be derived from a typica l company project or investment. Most companies use both debt and equ ity capital to fund investments, so the cost of capital is the weighted-average cost to the firm of equity and debt financing. This corporate finance approach is referred to as the weighted -average cost of capital (WACC). Companies that purchase walk-in coolers and freezers may differ from those that purchase commercial unitary air conditioners or distribution transformers, which may result in di fferent discount rates.

31DOE will present the discount rates and a ssociated calculations when the notice announcing the public meeting and availability of the preliminary analyses is published and invite comments.

Item 8–2 DOE seeks comment on the proposed appr oaches for estimating discount rates for customers using the equipment covered under this rulemaking.

Item 8–3 Given the relatively narrow commercial application of most of the equipment covered under this rulemaking, which, if any, commercial sectors beyond grocery stores and restaurants should DOE consider in its evaluation of discount rates? In addition, do stakeholde rs feel government purchases of this equipment are large enough to require including them in the evaluation of discount rates?

8.4 Maintenance, Repair, and Installation Costs

DOE will consider expected changes to maintenance, repair, and installation costs for the equipment covered in this rulemaking. Typical ly, small incremental changes in equipment efficiency incur no, or only very small, change s in repair and maintenance costs over baseline equipment. There is a greater probability that eq uipment with efficiencies that are significantly greater than the baseline will incur increased repa ir and maintenance costs since such equipment is more likely to incorporate technologies that are not widely available. DOE will rely on input from manufacturers and other st akeholders in developing appropr iate repair and maintenance costs if stakeholders feel such estimates are necessary.

Unless the efficiency increases considered for this rulemaking result in significantly larger or heavier equipment, DOE expects that mo re efficient walk-in cool ers and freezers will not incur increased installation costs.

Item 8–4 DOE seeks feedback on whether changes in maintenance, repair, and installation costs will be negligible for equipment with lower energy consumption. DOE also seeks feedback on whether changes in maintenance, repair, and installation costs will change as a result of efficiency increases and, if so, whether those changes are likely to be negligible. If those costs are not likely to be negligible, please explain what those costs would be and why this would likely be the case.

Item 8–5 If it is not appropriate to assume that changes in maintenance, repair, or installation costs would be negligible for equipment with lower energy consumption, DOE seeks comment on appropriate methodologies for assessing changes to each of these costs.

328.5 Equipment Lifetimes

DOE will use information from various literature sources ( e.g. , Appliance Magazine

, handbooks published by ASHRAE, etc.) and input from manufacturers and ot her stakeholders to establish average equipment lifetimes for use in the life-cycle cost and subsequent analyses.

Based on consideration of the comments re sponding to the prelim inary analyses, DOE will make necessary changes to the analyses. These changes will be reflected in the NOPR documentation.

Item 8–6 DOE seeks comment on the appropriate equipment lifetimes for estimates to use the equipment covered in this rulemaking and the basis for these estimates.

9. SHIPMENTS ANALYSIS

Shipment forecasts are required to calculat e the national impacts of standards on energy, NPV, and future manufacturer cash flows. DOE pl ans to develop shipment forecasts based on an analysis of key market drivers for walk-in coolers and freezers.

9.1 Base Case Forecast

To evaluate the various impacts of standard s, DOE must develop a base case forecast against which to compare forecasts for higher e fficiency levels. The base case forecast is designed to depict what will happen to energy consumption and energy costs over time if DOE does not adopt new energy conservation standa rds for the equipment covered under this rulemaking. In determining the base case forecast , DOE will consider historical shipments, the mix of efficiencies sold in the absence of sta ndards, and how that mix might change over time. For these purposes, DOE needs data on historical product shipments and the market shares of the different efficiency levels o ffered in each equipment class.

Appliance Magazine reports historical shipments for walk-in coolers and freezers as an overall product group. The U.S. Census Bureau has also published limited statistics on the quantity and value of equipment shipments fo r those companies with shipments over $100,000 in both 1997 and 2002. While the Bureau’s data identify several equipm ent classes separately, the data by product class are limited. Data for remote condensing and self-contained walk-in coolers and freezers are provided separately. Additionally, the data provide the dollar value of shipments rather than the actual shipment quantities in most cases.

DOE hopes to obtain shipment data within each equipment class, as well as market-share efficiency data ( i.e. , data on the distribution of equipment shipments by efficiency) for each equipment class. DOE recognizes that this in formation may be difficult to obtain, which may necessitate the consideration of other methods to estimate the efficiency distribution in the market. For example, when market share effi ciency data are not available, DOE may use efficiency distributions based on available mode ls as a proxy. DOE may also request separate

33shipment information for equipment so ld with specific design features ( e.g. , ECM evaporator fan motors).

9.2 Accounting Methodology

DOE proposes to determine annual shipment s in the base case by accounting for new building construction and historical rates of equipment ownership (s aturation rates) in buildings. For equipment retirements, DOE will use the same equipment lifetimes and retirement functions that it generates for the life-cycle cost and payback period analyses. This method has the advantage of separately accounting for units in stalled in both new c onstruction and existing buildings and also permits DOE to express equipm ent saturation rates as a function of customer price and operating cost to capture their impact on future shipments. DOE plans to rely on EIA’s Annual Energy Outlook (AEO) to forecast new commercial construction.

DOE will also consider any other input provided by stakeholders.

Item 9–1 DOE seeks information on representative saturation rates for each equipment class covered under this rulemaking, as well as industry trend data regarding relative growth in each equipment class.

9.3 Impacts of Standards on Equipment Shipments

For each equipment class, DOE will develop a set of shipment forecasts for the covered equipment for each set of standards analyzed. These standards case forecasts will be used to evaluate the impacts of standards on equipment shipments. Standards case forecasts are derived using the same datasets as base case forecasts; however, because the standards case forecasts take into account the increase in purchase price and the decrea se in operating costs caused by standards, forecasted shipments typically deviat e from the base case. The magnitude of the difference between the standards case and base ca se shipment forecasts depends on the estimated purchase price increase as well as the operating co st savings caused by the standard. Because the purchase price tends to have a larger imp act than operating cost on equipment purchase decisions, standards case forecasts typically s how a drop in product ship ments relative to the base case.

DOE’s past standards analyses have attempted to quantify the sensitivity of shipments to purchase price and operating cost savings. B ecause the data required to develop these sensitivities are limited and often difficult to obtain, DOE will consider modeling standards case shipment forecasts with scenarios ( i.e. , specific impacts on product shipments) rather than developing sensitivities to purchas e price or operating cost savings.

Market pull programs, such as customer reba te programs that encourage the purchase of more efficient equipment and manufacturer tax cr edits that encourage the production of more efficient equipment, also affect standards case forecasts. When such programs exist, DOE considers their impact on the forecast of bot h standards case and base case shipments.

34Item 9–2 As part of its preliminary manufacture r impact analysis, DOE will seek input from manufacturers on the potential impact of new energy conservation standards on product shipments. Other sta keholders are also invited to provide input. DOE also requests input on any ma rket pull programs that promote the adoption of more efficient equipmen t (e.g., customer rebate programs and manufacturer tax credits).

10. NATIONAL IMPACT ANALYSIS

Section 8 discusses methods for estimating the LCC savings and payback period for individual customers. This section discusses DOE ’s assessment of the aggregate impacts at the national level. Measures of impact to be repor ted include the NPV of total customer life-cycle costs and national energy savings.

10.1 Inputs to Forecast

Analyzing national impacts of Federal energy conservation standards requires comparing projected U.S. energy consumption for the wa lk-in coolers and freezers covered under this rulemaking with and without new or amended energy conservation standards. The forecasts contain projections of unit energy consumption for new equipment, annual equipment shipments, and the price of purchased equipment. The deriva tions of the base case shipment forecasts and approaches to determining per unit net energy co nsumption impact are discussed in section 6. Approaches to determining retail pr ices are described in section 7.

10.2 Calculation of Energy Savings

DOE intends to calculate national energy c onsumption for each year beginning with the expected effective date of the standards. It will calculate national energy consumption by fuel type for the base case and each standard level analyzed. DOE plans to perform this calculation using a spreadsheet model that effectively mu ltiplies annual shipment forecasts by unit energy savings.

In response to comments by stakeholders who asked for a simple, transparent model, DOE has developed NES spreadsheet models fo r its standards rulemakings since 1996. DOE expects the NES spreadsheet model to provide a credible, stand-alone forecast of national energy savings and net present value for walk-in coolers and freezers.

DOE has prepared NES spreadsheet models for other equipment to forecast energy savings and demonstrate how growth in e fficiency can be accounted for over time. 13 Although these models are specific to each equipment type, their general structure can be applied to walkin coolers and freezers.

13 For example, the NES model used in the commercial refrigeration equipment rulemaking is available for examination at www.eere.energy.gov/buildings/appliance_standards/commercial/docs/nes_cuac.xls

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35Based on consideration of the comments DOE may receive during th e preliminary phase, DOE will make any necessary changes to the analysis. Those changes will be reflected in the NOPR documentation.

Item 10–1 DOE seeks comment on its plan to de velop NES spreadsheet models for estimating national impacts of amen ded energy conservation standards.

10.3 Net Present Value

DOE calculates the national NPV of the sta ndards in conjuncti on with the NES and calculates annual energy expenditures from annual energy consumption by incorporating forecasted energy prices, and using the shipme nt and average energy conservation forecasts described in section 9.1. DOE calculates annual equipment expenditures by multiplying the price per unit by the forecasted shipments. The differen ce between a base case and a standards case scenario gives the national energy bill savings and increased equipment expenditures in dollars. The difference each year between energy bill savi ngs and increased equipment expenditures is the net savings (if positive) or net cost (if ne gative). DOE discounts these annual values to the present time and sums them to give an NPV.

Based on consideration of the comments received during the pr eliminary phase, DOE will make any necessary changes to the analysis and candidate standard levels. If major changes are required at this stage, DOE will give stak eholders an opportunity to review the revised analysis.

11. LIFE-CYCLE COST SU BGROUP ANALYSIS

This section describes how DOE analyzes cu stomer impacts by dividing customers into subgroups and accounting for variations in key input s to the life-cycle cost analysis. A customer subgroup comprises a subset of the population that is likely to be affected disproportionately by new or revised energy conservation standards. The purpose of a subgr oup analysis is to determine the extent of this impact. DOE will wo rk with stakeholders early in the rulemaking process to identify subgroups. However, DOE w ill not analyze the customer subgroups until the NOPR stage of the analysis.

In comparing potential impacts on the differe nt customer subgroups, DOE will evaluate variations in regional en ergy prices, energy use, and installati on costs that might affect the NPV of a standard to customer subgroups. To the exte nt possible, DOE may obtain estimates of the variability or each input and consid er this variability in its calculation of customer impacts. DOE will discuss the variability of each input and like ly sources of information with stakeholders.

DOE intends to consider the impact of any new standards on customer subgroups.

36Item 11–1 DOE seeks input on which customer s ubgroups DOE should consider in the present rulemaking. Examples of possi ble subgroups DOE could consider appropriate for walk-in coolers and freeze rs include independent grocery stores and small convenience stores.

12. MANUFACTURER IMPACT ANALYSIS

DOE announced changes to the manufacturer impact analysis format through a report, “Energy Conservation Standards Activities,” which was submitted to Congress on January 31, 2006 (as required by section 141 of EPACT 2005). 14

Previously, DOE did not repor t any manufacturer impact analysis results during the ANOPR phase; however, under this new format, DOE will collect, evaluate, and report preliminary information and data prior to the issuance of a NOPR. 15 Such preliminary information includes the anticipat ed conversion capital expenditure s by efficiency level and the corresponding anticipated impacts on employment. DOE will solicit this information during the preliminary engineering analys is manufacturer interviews.

The analysis is intended to provide DOE with an assessment of the potential impacts of energy conservation standards on manufacturers. In addition to financial impacts, a wide range of quantitative and qualitative effects may occu r following adoption of a standard that may require changes to manufacturing practices. DOE will identify these effects through interviews with manufacturers and other stakeholders.

DOE intends to supplement the results of th e preliminary manufacturer impact analysis prior to the publication of the NOPR. More de tailed analyses will follow with the NOPR. Specifically, DOE will conduct an industry-wide cash-flow analysis using the Government Regulatory Impact Model (GRIM) , identify and analyze subgr oups of manufacturers whose businesses vary significantly from the industr y as a whole, perform a competitive impacts assessment, and review the cumulativ e regulatory burden for the industry.

12.1 Sources of Information

Many of the analyses described earlier provide important information that DOE uses as inputs for the manufacturer impact analysis. Su ch information includes financial parameters developed in the market assessment (section 3.1), manufacturing costs and prices from the engineering analysis (section 5) , retail price estimates (section 7), and shipment forecasts (section 9). DOE supplements this information with information gathered during manufacturer interviews. The interview process will play a key ro le in the manufacturer impact analysis, which provides an opportunity for inte rested parties to express th eir views on important issues.

14 This report is available on the DOE website at www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html

. 15 “Energy Conservation Standards Activities,” January 31, 2006, p. 48.

37DOE will conduct detailed interviews with manuf acturers to gain insight into the range of potential impacts of energy conservation stan dards on the covered equipment. During the interviews, DOE will solicit information on the po ssible impacts of standards on manufacturing costs, equipment prices, sales, direct employment , capital assets, and industry competitiveness. Both qualitative and quantitative information are valuable for this analysis. DOE will schedule interviews well in advance to pr ovide every opportunity for key individuals to be involved. In addition, an interview guide will be provided before the interviews to allow the manufacturers to gather the appropriate information. Although a written response to th e questionnaire is acceptable, DOE prefers an interactive interview process because it helps clarify responses and provides the opportunity for additional issues to be identified.

DOE will ask interview participants to iden tify all confidential information provided, both in writing and orally. DOE will determine wh ether the information submitted is entitled to confidential treatment. While it will consider the information it gather s in its decision-making process, DOE will not make confidential informa tion from individual manufacturers available in the public record, although the De partment may aggregate informa tion to prevent the attribution of information to a particular manufacturer. DOE will also ask participants to identify all information that they wish included in the public r ecord, but do not want to have associated with their interview. DOE will incor porate this information into th e public record, but will report it without attribution.

DOE will collate the completed interview que stionnaires and prepare a summary of the major issues and outcomes. This summary will become part of the technical support document for this rulemaking.

12.2 Industry Cash-Flow Analysis

The industry cash-flow analysis relies primar ily on the GRIM. DOE uses the GRIM to analyze the financial impacts of more string ent energy conservation standards on the industry that produces the equipment covered by the standard.

The GRIM analysis uses a number of factors to arrive at a series of annual cash flows, beginning from the announcement of the new standard and continuing for several years after its implementation. These factors include annual expected revenues and manufacturer costs, such as costs of goods sold; selling, general, and ad ministrative costs; ta xes; ordinary capital expenditures related to deprecia tion; capital expenditures relate d to standards; costs of new standards; and maintenance costs. DOE will compare the results against base case projections that involve no new standards. Th e financial impact of new sta ndards is the difference between the two sets of discounted annual cash flows. Other performance metrics, such as return on invested capital, also are available from the GRIM.

DOE will gather this information from two primary sources: (1) the analyses conducted to this point, and (2) interviews with manuf acturers and information from other stakeholders. Information gathered from previous analyses will include financial parameters, manufacturing costs, price forecasts, and shipment forecasts. Interviews with manufacturers and information from other stakeholders will be essen tial in supplementing this information.

3812.3 Manufacturer Subgroup Analysis

The use of average industry cost values ma y not adequately assess differential impacts among subgroups of manufacturers. DOE recognizes that smaller manufacturers, niche players, and manufacturers exhibiting a cost structure that differs signifi cantly from the industry average may be affected differently by new standards. Ideally, DOE would consider the impact on every firm individually. In highly con centrated industries, this may be possible. In industries having numerous participants, however, DOE will use the results of the market and technology assessment to group manufacturers in to subgroups, as appropriate.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires prepar ation of an initial regulatory flexibility analysis (IRFA) for any rule that by law must be proposed for public comment, unless the agency certifies that the rule , if promulgated, will not have a significant economic impact on a substantial number of small entities. As re quired by Executive Order 13272, (Proper Consideration of Small Entities in Agency Rulemaking), 67 FR 53461 (August 16, 2002), DOE published procedures and policie s on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly co nsidered during the rulemaking process. 68 FR 7990. DOE has made its procedur es and policies available on the Office of General Counsel’s website, http://www.gc.doe.gov

. Small businesses, as defined by the Small Business Administration (SBA) for walk-in cooler and freezer manufacturers, are enterprises with 750 employees or fewer. Small business size standards are listed by Nort h American Industry Classificat ion System (NAICS) code and industry description. Walk-in c ooler and freezer manufacturi ng is classified under NAICS 333415. As part of its subgroup analysis, DOE w ill attempt to identify whether any small businesses are affected by the rulemaking, and if so, determine if there are differential impacts on these companies that result from new en ergy conservation standards. DOE will examine publicly available data and contac t manufacturers, when needed, to determine if they meet the SBA’s definition of a small busine ss and if their manufacturing f acilities are located within the United States. The detailed manufacturer subgro up impact analysis will entail calculating cash flows separately for each de fined class of manufacturer.

DOE will review the proposed rule under the provisions of the Regulatory Flexibility Act and the procedures and policies published on Fe bruary 19, 2003. Unless DOE certifies that the proposed rule will have no significant economic imp act on a substantial numb er of small entities, it will prepare an IRFA in accordance with the guidance from the SBA.

Item 12–1 DOE seeks comment on whether there are manufacturer subgroups for walk-in coolers and freezers that DOE should c onsider in a manufacturer subgroup analysis and the basis for their inclusion.

12.4 Competitive Impacts Assessment

EPCA directs DOE to consider any lessening of competition likely to result from the imposition of standards. (42 U.S.C. 6295(o)(2 )(B)(i)(V) and 6316(a)) It further directs the

39Attorney General to determine, in writing, the impacts, if any, of any lessening of competition.(42 U.S.C. 6295(o)(2)(B)(ii) and 6316(a)) DOE will make a determined effort to gather firmspecific financial information and information on any competitive impacts. DOE will then report the aggregated impact of the standard on manuf acturers. DOE will provide the Attorney General with a copy of the NOPR for consid eration in evaluating the impact of standards on the lessening of competition. DOE will base the assessment on manufacturing cost data and on information collected from manufacturer interv iews. The interviews will focus on gathering information that will help in assessing asymmetrical cost increa ses to some manufacturers; whether fixed costs will increase, potentially increasing business risk s; and potential barriers to market entry ( e.g. , proprietary technologies).

12.5 Cumulative Regulatory Burden

Other regulations may apply to equipment c overed under this rulemaking, as well as on other equipment produced by the same manufactu rers affected by this rulemaking. Multiple regulations may result in a cumulative regul atory burden on these manufacturers. DOE will analyze and seek to mitigate the overlap ping effects on manufacturers of amended DOE standards and other regulatory actions aff ecting the same equipment or companies.

Item 12–2 What regulations or pending regulations should DOE consider in its analysis of cumulative regulatory burdens on manufac turers of the equipment covered in this rulemaking?

13. UTILITY IMPACT ANALYSIS

To estimate the impacts of energy conservation standards for walk-in coolers and freezers on the electric utility industry, DOE plans to use a variant of the EIA’s National Energy Modeling System (NEMS) called NEMS-BT. 16 NEMS is a large, multi-sectoral, partialequilibrium model of the U.S. energy sector that EIA has developed over se veral years, primarily for the purpose of preparing the AEO . NEMS produces a widely recognized reference case forecast for the United States through 2030 and is available to the public.

The utility impact analysis is a comparison between the NEMS-BT m odel results for the base case and standard cases. Out puts of the utility impact analysis usually parallel results that appear in the latest AEO , with some additions. Typical output s of the utility impact analysis include forecasts of electricity sales, price, and avoided cap acity. DOE plans to conduct the utility impact analysis as a scen ario departing from the latest AEO reference case. In other words,

16 For more information on NEMS, please refer to th e U.S. Department of Energy, Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 2000

, DOE/EIA-0581 (March 2000), available at http://tonto.eia.doe.gov/ftp root/forecastin g/05812000.pdf . EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifica tions and the model is run under various policy scenarios that are variations on EIA assumptions, DOE refers to the model by the name NEMS-BT. (“BT” refers to DOE’s Building Technologies Program, under whose aegis this work is performed.)

40DOE will model the energy savings impacts from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from the AEO reference case. 17

Item 13–1 DOE seeks input from stakeholders on its plans to use NEMS-BT to conduct the utility impact analysis on the equipment covered under this rulemaking.

14. EMPLOYMENT IMPACT ANALYSIS

DOE estimates the impacts of standards on employment for equipment manufacturers, relevant service industries, ener gy suppliers, and the economy in ge neral. This analysis covers both direct and indirect employ ment impacts. Direct employme nt impacts are changes in the number of employees at the plants that produce the covered equipment, along with the affiliated distribution and service companies. DOE will ev aluate direct employment impacts in the manufacturer impact analysis, as described in section 12.

Indirect employment impacts may result from expenditures shifti ng between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur due to standards. DOE defi nes indirect employment impact s from standards as net jobs eliminated or created in the general economy as a result of increas ed spending driven by increased equipment prices a nd reduced spending on energy.

The combined direct and indirect employme nt impacts will be investigated in the employment impact analysis using the Pacifi c 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 estim ates the employment and income effects of energy-saving technologies in build ings, industry, and transportati on. In comparison with simple economic multiplier approaches, ImS ET allows for more complete and automated analysis of the economic impacts of energy conservation investments.

Item 14–1 DOE requests feedback on its approach to assessing employment impacts on the equipment covered under this rulemaking.

15. ENVIRONMENTAL IMPACT ANALYSIS

DOE will prepare its draft environmental a ssessment (EA) pursuant to the National Environmental Policy Act and the require ments under 42 U.S.C. 6295(o)(2)(B)(i)(VI) and 6316(a), to determine the environmental impacts of the amended standards. The intent of the

17 Several descriptions of NEMS-BT models from previous rulemakings, including residential furnaces and boilers, can be found on DOE’s website at www.eere.energy.gov/buildings/appliance_standa rds/residential/pdfs/fb_fr_tsd/chapter_13.pdf

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41environmental assessment is to provide emissions results estimates and to fulfill requirements to properly quantify and consider the environmental effects of all new Federal rules.

The environmental assessment will focus on the impact of possible energy conservation standards on the significant pollutants and emissions of el ectricity-generating power plants. Specifically, the environmental assessment for this rulemaking will consider three types of energy-related emissions — oxides of nitrogen (NO X ), mercury (Hg), and carbon dioxide (CO 2 ). An additional emission, sulfur dioxide (SO 2 ), was previously considered. However, DOE has determined that due to the presence of national caps on SO 2 emissions as addressed below, any such reduction resulting from an energy conservation standard woul d not affect the overall level of SO 2 emissions in the United States.

DOE will estimate the reduction in tota l emissions of carbon dioxide (CO 2 ) using the NEMS-BT computer model. DOE proposes to calc ulate a range of estimates for reduction in NO X emissions and Hg emissions using current power sector emission rates. DOE will conduct each portion of the environmental impact anal ysis performed under this rulemaking as an incremental policy impact ( i.e. , an energy conservation standard for WICFs) of EIA’s AEO forecast. Forecasts conducted with NEMS-BT cons ider the supply-side and demand-side effects on the electric utility industry. T hus, DOE’s analysis will account fo r factors affecting the type of electricity generation and, in turn, the amount of airborne emissions the utility industry generates.

The NEMS-BT is run similarly to the AEO 2008 NEMS, except the energy use is reduced by the amount of energy saved due to the TSLs . DOE obtained the inputs of national energy savings from the NIA spreadsheet model. Fo r assessing the environmental impact on CO2 emission, the output analyzed is the forecasted physical emissions. The net benefit of the standard is the difference between emi ssions estimated by NEMS-BT and the AEO2008 Reference Case. The NEMS-BT tracks CO 2 emissions using a detailed module that provides results with a broad coverage of all sectors and inclusi on of interactive effects.

Item 15–1 DOE seeks input from stakeholders on its plans to use NEMS-BT to conduct the environmental impact analysis on the e quipment covered by this rulemaking. DOE is particularly interested in whet her there are any other approaches to the environmental assessment that it sh ould consider and the advantages and disadvantages for each of those approaches.

The Clean Air Act Amendments of 1990 set an SO 2 emissions cap on all power generation. The attainment of this target, however, is flexible among generators through the use of emissions allowances and tradable pe rmits. Although NEMS includes a module for SO 2 allowance trading and de livers a forecast of SO 2 allowance prices, accurate simulation of SO 2 trading implies that the effect of energy cons ervation standards on physical emissions will be zero because emissions will always be at or near the ceiling. However, there is an SO 2 benefit from energy conservation, in the form of lower SO 2 allowance expenditures. DOE will examine the potential monetary impact or value of an SO 2 benefit that may arise from a standard.

42Under the Clean Air Interstate Act (CAIR) and the Clean Air Mercury Rule (CAMR), future emissions of NO X and Hg would have been subject to emissions caps. 18,19 The current NEMS-BT model, based on the model used for the AEO2008, assumes that both NO X and Hg emissions would be subject to CAIR and CA MR emissions caps. However on July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued its decision in North Carolina v. Environmental Protection Agency

, 20 in which the court vacated the CAIR. Similarly, on February 8, 2008, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued its decision in New Jersey v. EPA, 517 F.3d 574 (D.C. Cir. 2008), in which the Court, among other actions, vacated the CAMR.

In the case of NO X emissions, CAIR would have permanently capped emissions in 28 eastern States and the District of Columbia . Because the current NEMS-BT model assumes NO X emissions would be subject to CAIR, DOE proposes to establish a range of NO X reductions based on the use of a NO X low and high emissions rates (in metric kilotons (kt) of NO X emitted per terawatt-hours (TWh) of electricity generate d) derived from the current AEO for generation technologies. To estimate the reduction in NO X emissions, DOE will multiply these emission rates by the reduction in electric ity generation due to the standa rds considered. Similarly for mercury, because the current NEMS-BT model a pplies the emissions caps specified by CAMR, DOE will be unable to use NEMS-BT model’s emi ssion outputs to estimate the physical quantity changes in mercury emissions due to energy conservation standards. To estimate mercury emission reductions due to standa rds, DOE proposes to use an Hg emission rate (in metric tons of Hg per energy produced) based on the curren t AEO. Because virtually all mercury emitted from electricity generation is from coal-fired power plants, DOE will base the emission rate on the metric tons of mercury emitted per TWh of coal-generated electricity. To estimate the reduction in mercury emissions, DOE will then mu ltiply the emission rate by the reduction in coal-generated electricity associ ated with standards considered.

In the event that the NEMS model available at the time of the environmental analysis is modified to be consistent with current legislation on NO X and Hg emissions in the power sector, DOE proposes to develop the emissions reductions for NO X and Hg directly from the NEMS-BT output for these emissions, simila r to what is proposed for CO 2 emissions.

Item 15–2 Because court actions have vacated both the CAMR and CAIR, DOE seeks stakeholder input on how it should addre ss the respective emissions addressed by these vacated rules for pur poses of this rulemaking.

Nothing in EPCA, nor in the National Envi ronmental Policy Act, requires that the economic value of emissions reductions be incorpor ated in the net present value analysis of the value of energy savings. Unlike energy savings, th e economic value of emissions reductions is not priced in the marketplace.

18 See http://www.epa.gov/cleanairinterstaterule/

. 19 The EPA’s Clean Air Mercury Rule was published on May 18, 2005. 70 FR 28606.

20 Case No. 05-1244, 2008 WL 2698180 at *1 (D.C. Cir. July 11, 2008).

43For those emissions for which real nationa l emission reductions are anticipated (CO 2 , Hg, and NO X ), only a range of estimated economic values based on environmental damage studies of varying quality and applicability is availabl e. Consequently, DOE is reporting and weighing these values separately and is not including them in the NPV analysis.

Item 15–3 DOE invites comments on how to estimate such monetary values associated with emissions reductions or on any wi dely accepted values which might be used in DOE’s analyses.

Item 15–4 DOE seeks input on other environmental fact ors to consider in this rulemaking.

16. REGULATORY IMPACT ANALYSIS

In the NOPR and final rule stages of th is rulemaking, DOE will prepare a regulatory impact analysis. This analysis will address the potential fo r non-regulatory approaches to supplant or augment energy conservation standards to improve the efficiency of walk-in coolers and freezers on the market. DOE recognizes that voluntary and other non- regulatory efforts by manufacturers, utilities, and other stakeholders can result in substantial efficiency improvements. DOE intends to analyze the likely effects of non-regulatory initiatives on product energy use, customer utility, and LCCs. DOE will attempt to ba se its assessment on the actual impacts of any such initiatives to date, but w ill also consider information presented on the impacts that any existing initiative might have in the future.

If DOE determines that amended energy cons ervation standards for walk-in coolers and freezers would constitute a significant regulatory action, DOE will prepare and submit to OMB the assessment of costs and be nefits required under section 6(a)(3) of Executive Order 12866, “Regulatory Planning and Review ,” 58 FR 51735 (October 4, 1993).

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