## APPENDIX 17A. REGULATORY IMPACT ANALYSIS SUPPORTING

MATE RIAL

TABLE OF CONTENTS

17A.1 BACKGROUND ON MARKET PENETRATION CURVES DEVELOPED

BY XENERGY..................................................................................................... 17A-2

17A.2 UTILITY REBATE PROGRAMS FOR RE SIDENTIAL DISHWASHERS...... 17A-3 17A.2.1 Rebate Programs for Residential Dishwashers..................................................... 17A-4

17A.3 DEVELOPMENT OF CONSUMER TAX CREDITS IMPACT ANALYSIS.... 17A-8

17A.4 EPACT 2005 FEDERAL TAX CRE DIT LEVELS FOR RESIDENTIAL

APPLIANCES AND APPLIANC E MANUFACTURERS ................................. 17A-9

17A.4.2 Residential Appliances.......................................................................................... 17A-9

17A.4.3 Energy Efficient Appliance Cr edits for Manufacturers........................................ 17A-9

LIST OF TABLES

Table 17A.2.1 Rebate Programs for Residential Dishwashers......................................... 17A-5

LIST OF FIGURE

Figure 17A.1.1 Comparison of Exponential and L ogistic Curves Showing External and

Internal Influences on Consumers ............................................................ 17A-3

17A-i

## APPENDIX 17A. REGULATORY IMPACT ANALYSIS SUPPORTING MATERIAL

17A.1 BACKGROUND ON MARKET PENETR ATION CURVES DEVELOPED BY

XENERGY

Xenergy, Inc. developed a re-parameterize d, mixed-source information diffusion model to estimate market impacts induced by financial incentives for energy-efficient appliances. The basic premise of this mixed-source model is that information diffu sion drives technology adoption.

There is extensive economic literature on the diffusion process of new products as technologies evolve. Some of the literature focu ses primarily on the development of analytical models of diffusion patterns of new products for individual consumers or for technologies from
competing firms. 1



## , 2



## , 3 

## One study records researchers’ atte mpts to investigate underlying factors that drive diffusion processes. 4 

## Because of the distinct characteristics of diverse new products, few studies have conclusively developed a universally-applicable model. Some key findings, however, have seemed to gain wide recognition in academia and industry.

First, new technologies may not be adopted by all potential users, regardless of their economic benefits and technological merits. Theref ore, a ceiling on the adoption rate exists for many products. Second, not all adopters purchase new products at the same time; some act earlier after the introduction of a new product, while others respond slowly, waiting for products to become more mature. Third, diffusion proc esses can be approximately characterized by asymmetric S-curves, depicting three stages of diffusion: starting, accelerating, and decreasing as the adoption ceili ng is being reached.

An important diffusion model, the epidemic model , is widely used in marketing and social studies on diffusion. It assumes that a) consumers value the benefits of a new product identically and b) the cost of a new product is constant or de clines monotonically over time. What induces a consumer to purchase the new pr oduct is information about the availability and the benefits of the product. In other words, it is information diffusion that drives new product adoption by individual consumers. 3 

## The model incorporates in formation diffusion from both internal sources (news spread by word of mouth from early adopter s) and external sources (the “announcement effect” by government, other inst itutions, or commercial advertising) by superimposing a logistic functi on with an exponential function. 1,4



## The relative degree of influen ce by internal or external so urces determines the general shape of the diffusion curv e of a specific product. 1,4 

## For instance, if the adoption of one particular product is more influenced by external sources of information diffusion (announcement effect) than by internal sources (word of mouth among ea rlier adopters to prospective adopters), the rate of diffusion at the beginning stage of the diffusion process is much higher. This reflects the immediate in formation exposure to a significant number of

17A-2

## prospective adopters brought about by external so urces, in contrast to th e more gradual exposure to internal sources such as news propagati on by earlier adopters, a small proportion of the population, to other prospective adopters. Grap hically speaking, a relativ ely dominant external source of information diffusion gives an immediat e jump-start to the adoption of a new product in the first years, forming a concave curve with respect to the Y axis (see the exponential curve in Figure A.1). Adoption of a new product with a stronger influence by internal sources of information diffusion (such as a socially-tighten ed network formed by pr ospective adopters) may start with a few early adopters and gradually incr ease as the number of adopters grows, and thus form a convex curve (see the logistic curve in Figure 17A.1.1).

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0 5 10 15 20 25 30



### YearMarket Penetration Logistic Function Modified Exponential Function



## External Influence

Internal Influence



## Figure 17A.1.1 Comparison of Exponential and Logistic Curves Showing External

and Internal Influences on Consumers

17A.2 UTILITY REBATE PROGRAMS FOR RESIDENTIAL DISHWASHERS

The following two tables present a summ ary of rebate program amounts offered throughout the U.S. for residential dishwashers. Since there have not been rebate programs for conventional cooking products, DOE studied rebate programs for residential dishwashers as an analogous product.

17A-3

## 17A.2.1 Rebate Programs for Residential Dishwashers

DOE found 88 agencies with programs for resi dential dishwashers. Rebates for this product have been offered by electric utilities, gas utilities, and municipal and regional agencies.

These entities offer rebates for dishwashers meeti ng efficiency criteria that usually match those set by ENERGY STAR or the Consortium for Energy Efficiency. Table 17A.2.2 shows the agency names, States, rebate amounts, and progr am websites. Multiple entries in the table indicate that an agency offers two rebate amounts, one for cust omers with gas water heaters and

another for those with electric wa ter heaters. The aver age rebate amount is a simple average of the wide range of all of the entries.

17A-4Table 17A.2.1Rebate Programs for Residential DishwashersUtility or AgencyStateAmountWebsiteCity of RosevilleCA$25http://www.conservationrebates.com/programs/REC/AppliancesProgram.aspxAspen CORECO$75http://www.aspencore.org/sitepages/pid46.php#washerFort Collins UtilitiesCO$25http://fcgov.com/water/washer-rebate.phpHoly Cross EnergyCO$25http://www.holycross.com/$75Longmont PowerCO$50http://www.ci.longmont.co.us/lpc/index.htmGroton UtilitiesCT$60http://www.grotonutilities.com/elec_conserv_resident_appliance.aspKootenai ElectricID$25http://www.kec.com/rebates.phpRocky Mountain PowerID, UT$20http://www.homeenergysavings.net/idaho/dishwashers.htmlLinn County RECIA$50http://www.linncountyrec.com/cgi-script/csarticles/articles/000003/000334.htmMaquoketa Valley RECIA$25http://www.mvec.com/index.php?option=com_content&task=view&id=20&Itemid=23#starEastern Iowa RECIA$25http://www.easterniowa.com/East-Central RECIA$25http://www.ecirec.coop/prod_serv/rebates.shtmlTIP RECIA$35http://www.tiprec.com/rebates.htmlConsumers EnergyIA$25http://www.consumersenergy.coop/residential/products_services/incentives/index.htmlGuthrie County RECIA$25http://www.guthrie-rec.coop/cgi-script/csArticles/articles/000000/000049.htmFarmers RECIA$25http://www.farmersrec.com/Promotions.htmSouthwest Iowa RECIA$25http://www.swiarec.coop/prod_serv/rebates.shtmlClarke ECIA$25http://www.cecnet.net/rebates.htmlChicopee Electric LightMA$50http://www.celd.com/news.php?id=36Concord Muni Light PlantMA$50http://www.concordma.gov/pages/ConcordMA_LightPlant/applianceMansfield Muni Elec Dep'tMA$75http://www.mansfieldelectric.com/rebateBrochure/billingForm.htmlMarblehead Light Dep'tMA$25http://www.marbleheadelectric.com/rebate.htmMarblehead Light Dep'tMA$50http://www.marbleheadelectric.com/rebate.htmNorth Attleboro ElectricMA$30http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=MA61F&Search=TableType&type=Rebate&CurrentPageID=7&EE=1&RE=1Reading Muni Light Dep'tMA$50http://www.rmld.com/rebates.htmShrewsbury ElectricMA$50http://www.shrewsbury-ma.gov/light/rebates.aspWakefield Gas & LightMA$50http://www.wakefield.ma.us/Public_Documents/WakefieldMA_MGLD/rcsprogram.htmLincoln Electric Co-OpMT$10http://www.lincolnelectric.coop/energy_star_rebates.htmCity of AnaheimCA$50http://www.anaheim.net/article.asp?id=992Burbank Water and PowerCA$75http://www.burbankwaterandpower.com/homerewards.htmlPG&ECA$30http://www.pge.com/res/rebates/dishwashers/index.html$50SDG&E (Sempra)CA$30http://www.sdge.com/residential/singleFamilyRebate/docs/rebateOverview.pdfSouthern California GasCA$30http://www.socalgas.com/residential/savemoney/instant.shtml,City of LompocCA$50http://www.cityoflompoc.com/splash/utilprograms.htmGlendale Waterand PowerCA$40http://www.glendalewaterandpower.com/smart_home_saving_rebates.asp17A-5Utility or AgencyStateAmountWebsiteHercules Municipal UtilityCA$50http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=CA133F&Search=TableType&type=Rebate&CurrentPageID=7&EE=1&RE=1IID EnergyCA$50http://www.dsireusa.org/library/includes/incentivesearch.cfm?Incentive_Code=CA97F&Search=TableType&type=Rebate&CurrentPageID=7&EE=1&RE=1Lassen MUDCA$35http://www.lmud.org/rebate.htmLodi Electric UtilityCA$25http://www.lodielectric.com/residential/rebateoffer.php?id=2City of Palo AltoCA$50http://www.cityofpaloalto.org/depts/utl/news/details.asp?NewsID=65&TargetID=12Plumas Sierra Rural ElectricCoopCA$35http://www.psln.com/energy_rebates.php?sec=enersol&pag=enerrebRedding Electric UtilityCA$25http://www.reupower.com/energysvc/energy-rebates.aspRiverside Public UtilitiesCA$50http://www.riversideca.gov/utilities/resi-energystar.aspSMUDCA$30http://www.smud.org/rebates/index.html$50Truckee Donner PUDCA$100http://www.tdpud.org/index.php?cId=34City of GridleyCA$25http://www.gridley.ca.us/documents/appliancerebateapp.pdfImperial Irrigation DistrictqCA$50http://www.iid.com/Media/PubRebApp-En_WEB07b.pdfHawaiian Electric CompanyHI$50http://www.heco.com/portal/site/heco/menuitem.508576f78baa14340b4c0610c510b1ca/?vgnextoid=a2670c0ed85b2110VgnVCM1000005c011bacRCRD&vgnextchannel=6558f2b154da9010VgnVCM10000053011bacRCRD&vgnextfmt=default&vgnextrefresh=1&level=0&ct=article#mainContent%20idKauai Island Utility CooperativeHI$50http://www.kiuc.coop/co-opportunities/index.htmBlachly Lane, EugeneOR$5http://www.northwestenergystar.com/index.php?cID=183&searchType=state&state=OR&type%5B%5D=Dishwashers&slSearch=searchCentral Electric, RedmondOR$25AshlandOR$30OR$60BandonOR$50Columbia River PUD, St. HelensOR$25Consumers Power, PhilomathOR$20Douglas EC, RoseburgOR$30Emerald, EugeneOR$25Eugene Water and ElectricOR$20Forest GroveOR$30Milton FreewaterOR$15MonmouthOR$15Salem ElectricOR$60TillamookOR$25Wasco, The DallesOR$25CheneyWA$21$24ChewelahWA$10017A-6Utility or AgencyStateAmountWebsiteMason County PUD #3, SheltonWA$25Mason County PUD #1, SheltonWA$60Modern Electric, SpokaneWA$22$24Snohomish County, EverettWA$35Okanogan CountyWA$50Coulee DamWA$60Wahkiakum PUD #1,CathlametWA$75DelcoID$15City of RupertID$15East End, RupertID$15Riverside Electric, RupertID$50Soda SpringsID$15Fall River, AshtonID$25Farmers, HeyburnID$15Idaho FallsID$15Northern Lights, SagleID$25Glacier, Cut BankMT$25Lincoln, EurekaMT$10Mission Valley , PabloMT$50Anoka Muni UtilityMN$50http://www.ci.anoka.mn.us/vertical/Sites/%7B213A9A90-C8E1-49AA-AC02-51D3C4882D33%7D/uploads/%7B93715A51-EA59-4213-BD5E-73A264F5E4F2%7D.PDFBuffalo Municipal UtilitiesNY$50http://www.ci.buffalo.mn.us/Utilities/Electric/EnergyRebate.htmBPA$25http://www.bpa.gov/Energy/N/projects/post2006conservation/manual/Number of Agencies88Average Rebate Amount$37Websites last accessed January, 2008.17A-7

## 17A.3 DEVELOPMENT OF CONSUMER T AX CREDITS IMPACT ANALYSIS

Because there have not been consumer ta x credits for conventional cooking products, DOE analyzed Oregon's RETC data for dishwash ers as an analogous kitchen product. For 2006 DOE calculated that Oregon taxpayers claimed credits for 14 percent of Oregon’s total dishwasher shipments. DOE did not find data comparing Oregon and Washington’s efficient dishwasher sales. To estimate the portions of these tax credit claims that were likely due to utility rebates and to market impacts, DOE review ed a report by Itron on utility rebate programs in California. That report compared the percenta ge of free riders in residential clothes washer and dishwasher rebate programs in 2005. 5 

## Itron found that the pe netration rate of ENERGY STAR dishwashers (85%) was much higher th an that of ENERGY STAR clothes washers (40%). a 

## Itron also found that the percentage of fr ee riders was greater for dishwasher programs than for clothes washer programs. DOE’s previ ous estimates showed that the incremental cost from the baseline was much smaller for high-effi ciency dishwashers than for high-efficiency clothes washers, 6,7 

## which could explain the hi gher penetration rate for e fficient dishwashers; an incentive program for a product whose market sh are is already high would tend to have more free riders. Similarly, conventi onal cooking product models meeti ng the target level have a high

market share and a small incremental cost for th ose units not needing elec tric outlets, indicating that dishwashers are an appropriate analogous product. Based on these various factors, DOE estimated that market impacts (p art of which are due to free ride rs) were responsible for a higher percentage of dishwasher tax credit claims th an were market impacts for residential clothes

washer tax credit claims.

Itron’s report contained two estimates of free riders for ENERGY STAR dishwashers for 2005. DOE took the simple average of the suppl ier estimate of 93% in the self-reported consumer estimate of 59%, yielding 76%. DOE compar ed this to the simple average of free rider estimates for residential clothes washers, which were 77% from s uppliers and 43% from consumers, yielding 60%. DOE assumed that the difference in free riders between the two products would be on the order of the diffe rence between these two estimates (16%).

DOE interpreted the higher percentage of consumers purchasing dishwashers as free riders and then claiming tax credits, and the lowe r percentage of taxpayers influenced primarily by rebates, estimating that 49 percent of Or egon's 2006 dishwasher tax credits claimed (6.9 percent of total dishwasher shipments) were due to market impacts. It estimated that utility rebates were responsible for 32 percent of tax cr edits claimed (4.5 percent of total shipments). DOE attributed the remaining 20 percent of tax cr edits claimed (2.8 percent of total shipments)

to tax credits.

a 

### Values are from ENERGY STAR website base d on D&R International data by state.


## 17A-8

## 17A.4 EPACT 2005 FEDERAL TAX CREDIT LEVELS FOR RESIDENTIAL

APPLIANCES AND APPLIANCE MANUFACTURERS

17A.4.2 Residential Appliances

The residential appliance Federal tax cr edit qualification sp ecifications are:

• 

## Furnaces and boilers: Annual Fuel Use Efficiency (AFUE) 95 or higher

• 

## Central air conditioning units: highest tier standards set by the Consortium for Energy Efficiency (CEE), which require a SEER of 15 and an EER of 12.5 for split systems and SEER 14 and EER 12 for single-package systems.

o 

## Air-source heat pumps must have a HSPF of 9 or greater, SEER 15 or higher, and EER 13 or higher.

o 

## Ground-source heat pumps must meet the follo wing criteria (the same criteria as for ENERGY STAR):

 

## Closed-loop systems—14.1 cooling EER and 3.3 COP

 

## Open-loop systems—16.2 EER and 3.6 COP

 

## Direct-expansion systems—15 EER and 3.5 COP. In addition, groundsource heat pumps must in clude a desuperheater (whi ch preheats water for a water heater) or an integr ated water heating system.

• 

## Fans for heating and cooling systems: fan uses no more than 2 per cent of total heating system energy use, as defined by DOE test procedure.

• 

## Water heaters:

o 

## Gas or propane water heaters—Energy Factor of at least 0.8. The only models that meet this standard currently are tankless water heaters and some systems that combine both space and water heating.

o 

## Heat pump water heaters—Ener gy Factor of at least 2.0

17A.4.3 Energy Efficient Appliance Credits for Manufacturers

Each manufacturer is limited to a total of $75 million for all cred its under this provision. Of that cap, no more than $20 million can be claimed for the lowest tier of qualifying refrigerators. The tax credit amounts and criteria for production of energy-efficient appliances

are as follows:

• Clothes washers: $100 for models that meet the 2007 ENERGY STAR © 

## criteria

• Refrigerators (three tiers):

o 

## $75 for models that save at least 15 pe rcent relative to 2001 Federal standards (same as the current ENERGY STAR criteria); available only in 2006

o 

## $125 for models that save at least 20 pe rcent relative to 2001 Federal standards

o 

## $175 for models that save 25 percent or more relative to 2001 Federal standards

• Dishwashers: $32.31 for models that meet the 2007 ENERGY STAR criteria

17A-9

## REFERENCES

1 

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

2 

## Hall, B. H. and B. Khan. “Adoption of New Technology.” 2003. Working Paper No.E03

- 330. Department of Economics, Univer sity of California, Berkeley, CA.

3 

## Lekvall, P. and C. Wahlbin. “A Study of Some Assumptions Underlying Innovation

Diffusion Functions.” 1973. Sw edish Journal of Economics.

4 

## Van den Bulte, C. “Want to Know How Diffusion Speed Varies Across Countries and Products? Try a Bass Model.” PDMA Visi on, October 2002. Product Development and Management Association. XXVI No 4.

5 

## Itron And KEMA. 2004/2005 Statewide Reside ntial Retrofit Single-Family Energy Efficiency Rebate Evaluation. 2007. Prep ared for The Califor nia Public Utilities Commission, Pacific Gas and Electric Company, San Diego Gas and Electric Company, Southern California Edison, and Southern Calif ornia Gas Company. Itron, Inc. and KEMA, Inc.: Oakland, CA. CPUC-Id#: 1115-04.

6 

## U.S. Department of Energy. Technical Support Document: Ener gy Efficiency Standards for

Consumer Products and Commercial and Industria l Equipment: Residential Dishwashers, Dehumidifiers, and Cooking Products, and Commercial Clothes Washers , November 2007. Washington, DC. Chapter 8.

< http://www.eere.energy.gov/buildings/appliance_ standards/residential/home_appl_tsd.html >

7 

## U.S. Department of Energy. Final Rule Technical Support Document (TSD): Energy Efficiency Standards for Consum er Products: Clothes Washers , December 2000. Washington, DC. Chapter 7.

< http://www.eere.energy.gov/buildings/appliance_ standards/residential/clwash_0900_r.html >



## 17A-10