CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE OF CONTENTS 2.1 INTRODUCTION

........................................................................................................... 2-1 2.2 BACKGROUND

............................................................................................................. 2-5 2.3 MARKET AND TECHNOLOGY ASSESSMENT

........................................................ 2-5 2.3.1 Market Assessment

........................................................................................................ .. 2-5 2.3.2 Technology Assessment

................................................................................................... 2 -6 2.4 SCREENING ANALYSIS

.............................................................................................. 2-6 2.5 ENGINEERING ANALYSIS

.......................................................................................... 2-6 2.6 ENERGY AND WATER USE DETERMINATION

...................................................... 2-7 2.7 MARKUPS FOR PRODUCT PR ICE DETERMINATION

........................................... 2-7 2.8 LIFE-CYCLE COST AND PA YBACK PERIOD ANALYSIS

..................................... 2-7 2.9 SHIPMENTS ANALYSIS

............................................................................................... 2-9 2.10 NATIONAL IMPACT ANALYSIS

................................................................................ 2-9 2.10.1 National Energy Savings Analysis

................................................................................... 2-9 2.10.2 Net Present Value Analysis

........................................................................................... 2-1 0 2.10.3 Forecasted Efficiencies

................................................................................................. . 2-10 2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS

.......................................................... 2-11 2.12 MANUFACTURER IMPACT ANALYSIS

.................................................................. 2-11 2.13 UTILITY IMPACT ANALYSIS

................................................................................... 2-12 2.14 EMPLOYMENT IMPACT ANALYSIS

....................................................................... 2-12 2.15 ENVIRONMENTAL ASSESSMENT

.......................................................................... 2-13 2.16 REGULATORY IMPACT ANALYSIS

........................................................................ 2-14 2.17 DEPARTMENT OF JUSTICE REVIEW

..................................................................... 2-14

LIST OF FIGURES Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

..................................... 2-2

2-iCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION Sections 6295(o)(2)(A) and 6316( a) of 42 U.S.C. require the U.S. Department of Energy (DOE) to set forth energy conservation sta ndards that are technologically feasible and economically justified and would result in significant additional energy conservation. This chapter provides a description of the general analytical framework that DOE uses in developing such standards, in particular, standards for re sidential dishwashers, dehumidifiers, and cooking products, and commercial clothes washers (“th e considered products”). The analytical framework is a description of the methodology, the analytical tools, and relationships among the various analyses that are part of this rulema king. For example, the methodology that addresses the statutory requirement for economic justification includes analyses of life-cycle cost (LCC); economic impact on manufacturers and users; na tional benefits; impact s, if any, on utility companies; and impacts, if any, from lesse ning competition among manufacturers. DOE has also solicited the views of the U.S. Department of Justice (DOJ) on any lessening of competition likely to result from the imposition of a proposed standard. Figure 2.1.1 summarizes the analyt ical components of the standards-setting process. The focus of this figure is the center column, identif ied as “Analyses.” The columns labeled “Key Inputs” and “Key Outputs” show how the analyses fit into the rulemaki ng process, and how the analyses relate to each other. Key inputs are the types of data and information that the analyses require. Some key inputs exist in public databa ses; DOE collects other inputs from stakeholders or persons with special knowledge. Key outputs are analytical results that feed directly into the standards-setting process. Dotted lines connecting analyses show types of information that feed from one analysis to another.

2-1Notice of Proposed Rulemaking (NOPR)

Final Rule Framework Document

Advance Notice of Proposed Rulemaking (ANOPR)

Utility Impact

Analysis 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 Analysis

National Impact Analysis Energy Use

Revise ANOPR 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 • rize Industry • Market Segmentation • Non-Regulatory Programs

• iciency-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 • irms/Products • Historical Shipments

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

• Manufacturer Prices • Average Costs

• anufacturer Financial Data Design Options Product Classes

Retail Prices D ign Energy/ Use • fficiency/Performance • Manufacturing Cost

Candidate Standard

Levels • lysis of Energy Use Data

Environmental Assessment Regulatory Impact Analysis Te y Options

• tility Load Factors • National Energy Savings

• on-Regulatory Alternatives • NEMS-BT

• I SET

• NEMS-BT Energy Price Forecasts • Site-to-Source Factors

nergy-Efficiency Levels

D ent Impacts • National Energy Savings • National Product Costs • National Operating Costs • tility Impacts nalysis 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)

Pr iminary Manufacturer Impact Analysis • rices • Average Costs • onversion Capital Expenditures • Direct Employment Impacts

• National Energy Savings • Net Present Values

ial Standard Levels (TSLs) TSLs • duct Prototypes

En -Efficiency Levels

• Department of Justice Review Utility Impact Analysis

Notice of Proposed Rulemaking (NOPR)

Final Rule A

Characte

Eff Identify F

D

M es E Ana chnolog

Emission Estimates • U

N m • Design Options

• • E

irect Employm
U • A

el Manufacturer P C

• Tr Pro

ergy pproaches Key Inputs Analyses Key Outputs

Market and Technology Assessment

Screening Analysis

Engineering Analysis

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

National Impact Analysis Energy Use

Revise ANOPR 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

Advance Notice of Proposed Rulemaking (ANOPR) • 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
Figure 2.1.1 Flow Diagram of Analyses for the Rulemaking Process

2-2The analyses performed in the adva nce notice of proposed rulemaking (ANOPR) astage and reported in the ANOPR technical support document (TSD) include:

• A market and technology assessment to char acterize the relevant product markets and existing technology options, in cluding prototype designs.

• A screening analysis to review each technology option and determine if it is technologically feasible ; is practical to manufacture, inst all, and service; would adversely affect product utility or produc t availability; or would have adverse impacts on health and safety.

• An engineering analysis to de velop cost-efficiency relations hips, which are the increased manufacturer production cost (material, labo r, and factory overhead ) of more efficient products.

• A product price markup analysis to determin e how manufacturing costs are converted to customer prices, which are then used in th e LCC and payback period (PBP) analyses and the manufacturer impact analysis (MIA).

• An energy and water use analysis to determ ine the annual energy and water use of the considered products.

• An LCC and PBP analysis to calculate, at th e customer level, the discounted savings in operating costs (less maintenance and repair costs) throughout the estimated average life of the covered products, compared to any increa se in the installed co st likely to result directly from the imposition of the standard.

• A shipments analysis forecasts product shipme nts, which are then used to calculate the national impacts of standards on energy consum ption and costs, net present value (NPV), and future manufacturer cash flows.

• A national impact analysis to assess the aggr egate impacts at the national level of the NPV of total consumer LCC and national energy savings (NES).

• A preliminary MIA to identify key issues fo r the manufacturers and to qualitatively assess potential impacts of en ergy conservation standards.

aIn energy conservation standards rulemakings in the past, and for this rulemaking, DOE issued an ANOPR following publication of the framework document. EISA 20 07 eliminated the requirement that DOE issue ANOPRs as part of the standards rulemaking process; see EISA 20 07, at sec. 307. DOE is now using an alternative process known as the preliminary activities and analyses. The pre liminary activities and analys es will provide the same information and ability for public comment as the ANOPR, but without publication of analyses in the Federal Register

. 2-3The analyses DOE performed in the subse quent notice of proposed rulemaking (NOPR) stage and reported in the NOPR TS D include those liste d below. In addition, DOE re-analyzed the work done in the ANOPR stage. Because the Energy Independence and Security Act of 2007 (EISA 2007) (Pub. L. No. 110-140) amended the En ergy Policy and Conservation Act (EPCA) of 1975 (42 U.S.C. 6291–6309) to establish revised energy conservation standards for residential dishwashers and dehumidifiers (42 U.S.C. 6295(g )(9) and (cc)), DOE is not adopting standards for these products in the final rule and instead is codifying these statutory standards in a separate final rule. Therefore, DOE did not re-analyze dishwashers and dehumidifiers for the NOPR, and is not reporting the results of the ANOPR anal yses for these products in this TSD.

• An LCC subgroup analysis to evaluate variati ons in customer characteristics that might cause a standard to impact particular cu stomer sub-populations differently than the overall population.

• An MIA to estimate the financial impact of standards on manufactur ers and to calculate impacts on competition, employment , and manufacturing capacity.

• A utility impact analysis to estimate effects of proposed standards on electric and gas utilities.

• An employment impact analysis to assess th e aggregate impacts of standards on national employment.

• An environmental assessment to provide estim ates of the effects of standards on three pollutants—sulfur dioxide (SO 2 ), nitrogen oxides (NO x ), and mercury—as well as carbon emissions.

• A regulatory impact analysis to present majo r alternatives to proposed standards that could achieve energy savings at a lower cost. After the publication of the NOPR, DOE reviewed comments fr om interested parties and revised its analyses as appropriate before issuing the final rule. In addition, information DOE received from interested parties regarding th e NOPR indicated that further analyses were warranted for commercial clothes washers and microwave ovens as to standby power. As a result, DOE is continuing the rulemaking for these products. The information DOE developed for commercial clothes washer s and microwave ovens as part of the market and technology assessment is presented in chapter 3, but the de tails of the analyses for commercial clothes washers and microwave oven standb y power are not included in this TSD. Discussion of the analyses which were conducted at the NOPR st age for these products and equipment can be found in the NOPR TSD for this ru lemaking, and updated analyses will be provided in a separate TSD when final rules are published for comm ercial clothes washers and microwave oven standby power. This final rule TSD contains details of the final analyses conducted for residential electric and gas ki tchen ranges and ovens and microwave ovens as to cooking efficiency.

2-42.2 BACKGROUND As described in chapter 1, the July 15, 1996, Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products (the “Process Rule”), 61 FR 36974 (July 15, 1996) outlined procedural improvem ents to the standards rulemaking process which included a review of the following elements used in the rulemaking process: (1) economic models; (2) analytical tools; (3) methodologies; (4) non -regulatory approaches; and (5) prioritization of future rules. See appendix A to subpart C of Title 10 Code of Federal Regulations Part 430 (10 CFR Part 430). DOE developed this analytical framework for the rulemaking on the considered products under the Process Rule. DOE documented this analytical framework in the Rulemaking Framework for Commercial Clothes Washers and Residential Dishwashers, Dehumidifiers, and Cooking Products (March 15, 2006), and presented the anal ytical approach to stakeholders during a public meeting held on April 30, 2006. The framework document is available at www.eere.energy.gov/buildings/appliance_standards/ . The following sections provide a general description of the different analytical components of the rulemaking framework.

2.3 MARKET AND TECHNOLOGY ASSESSMENT The market and technology assessment char acterizes the relevant product markets and existing technology options, incl uding prototype designs, fo r the considered products.
2.3.1 Market Assessment When initiating a standards rulemaking, DOE develops information on the present and past industry structure and mark et characteristics for the products concerned. This activity assesses the industry and products, both quantita tively and qualitatively, based on publicly available information. As such, for the consid ered products, DOE addressed the following: (1) manufacturer market share and characteristics; (2) existing regul atory and non-regulatory product efficiency improvement initiatives; and (3) trends in product ch aracteristics and retail markets. This information serves as re source material throughout the rulemaking. DOE reviewed existing literature and interviewed manufacturers to get an overall picture of the markets for the considered products in the United States. Industr y publications and trade journals, government agencies, and trade orga nizations provided the bulk of the information, including information on: (1) manufacturers and their market share; (2) shipments by capacity; and (3) market saturation. The appropriate sections of this TSD describe the resulting information as DOE used it in the analysis. DOE has used the most reliable and accurate data available at the time of each analysis in this rulemaking. All data is available for public review.

2-52.3.2 Technology Assessment DOE typically uses information relating to existing and past technology options and prototype designs as inputs to determine what technologies manufacturer s use to attain higher performance levels. In consultation with stakeholders, DOE devel ops a list of technologies for consideration. Initially, these technologies enco mpass all those it believes are technologically feasible. DOE developed its list of technologically f easible design options for the considered products through consultation with manufacturers of components and systems, and from trade publications and technical papers. Since ma ny options for improving product efficiency are available in existing units, pr oduct literature and direct ex amination provided additional information.

2.4 SCREENING ANALYSIS The screening analysis examines various technologies as to whether they: (1) are technologically feasible; (2) are practicable to manufacture, in stall, and service; (3) have an adverse impact on product utility or availability; and (4) have adverse impacts on health and safety. As described in section 2.3.2 above, DOE develops an initia l list of efficiencyenhancement options from the technologies id entified as technologically feasible in the technology assessment. Then DOE, in consultation with interested partie s, reviews the list to determine if these options are practicable to ma nufacture, install, and se rvice, would adversely affect product utility or availabi lity, or would have adverse imp acts on health and safety. In addition, DOE removed from the list technology options that lack energy consumption data as well as technology options whose energy consump tion could not be adequately measured by existing DOE test procedures. In the engineering analysis, DOE further considers efficiency enhancement options that it did not sc reen out in the screening analysis.

2.5 ENGINEERING ANALYSIS As presented in chapter 5, the engineering analysis establishes the relationship between the cost and efficiency of the considered products . This relationship serves as the basis for cost/benefit calculations in te rms of individual consumers, manufacturers, and the Nation. Chapter 5 discusses the product classes DOE anal yzed, the representative baseline units, the incremental efficiency levels, the methodology DOEused to develop manufacturing costs, and the cost-efficiency curves. In determining the relationship between manuf acturer cost and energy efficiency for the considered products, DOE estimated the increas e in manufacturer cost associated with technological changes that increas e the efficiency of the baseline models. DOE typically obtains cost estimates for the engineering analysis (w hich it also uses in the MIA) from detailed

2-6incremental cost data supplied by manufacturers, disaggregated into the cost of incremental material, labor, and overhead. For reasons di scussed in chapter 5, in this rulemaking, DOE created an industry-wide analysis for reside ntial cooking products based primarily on the analysis developed for DOE’s 1996 TSD for cooking products. For each of the product classes presented in ch apter 5, DOE selected efficiency levels and estimated incremental cost data at each of thes e levels based on updated values developed for the 1996 TSD. DOE conducted the engineeri ng analysis on all product classes.

2.6 ENERGY AND WATER USE DETERMINATION The energy use determination assessed th e energy-savings potential of different efficiencies for residential cooking products. In the NOPR, DOE also evaluated the watersavings potential of more efficien t commercial clothes washers. For reasons discussed in section 2.2, DOE is not presenting the analyses for commerci al clothes washers in this final rule TSD. As part of the energy use determination, DOE made certain engi neering assumptions regarding product application, incl uding how the product is operat ed and under what conditions. For cooking products, DOE considered the test pr ocedures codified in the Code of Federal Regulations (CFR) to estimate a nnual energy consumption. 62 FR 51976.

2.7 MARKUPS FOR PRODUCT PRICE DETERMINATION For the LCC and PBP analysis and the MIA, retail prices are required for the baseline efficiency level and all other efficiency levels under consideration. DOE derived retail prices by applying manufacturer-to-customer markups to the manufacturing cost estimates. To develop markups, DOE identified di stribution channels ( i.e. , how the products are distributed from the manufacturer to the customer.) Once DOE estab lished proper distribution channels for each of the product classes, it relied on economic census data from the U.S. Census Bureau and input from the industry to define how products are marked up from the manufac turer to the customer.

2.8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS The effects of new energy conservation st andards are changes inoperating expenses— usually a decrease—and changes in customer pri ce—usually an increase. DOE analyzed the net effect of new standards on customers by eval uating the net LCC using the cost-efficiency relationships derived in the e ngineering analysis, as well as the energy costs derived from the energy use determination. Inputs to the LCC calculation include the installed cost to the customer (customer price plus installation co st), operating expenses (energy expenses and maintenance costs), the lifetime of the appliance, and a discount rate.

2-7The installed and operating costs of a produc t typically change inresponse to new standards—installed cost typically increases wh ile operating cost typica lly decreases. Thus, there is a specific time in the life of a highe r-than-baseline efficiency product when the net operating cost benefit (in dollars) from the time of purchase is equal to the incremental first cost of purchasing the higher efficiency unit. The le ngth of time required for a product to reach this cost-equivalence point is known as the payback period. For the ANOPR, DOE conducted the LCC and PBP analysis using typical values to reflect the conditions in the field for equipment life, equipment retail price, national or regional energy costs, energy consumption, and discount rates. DOE subsequently conducted the LCC subgroup analysis for the NOPR and included an assessment of impacts on subgroups of consumers. For the final rule, DOE updated th e NOPR LCC and PBP analysis, as well as the LCC subgroup analysis, to refl ect current energy costs. To estimate the LCC for each of the considered products, DOE had to determine several input values, including retail prices; electricity and natura l gas prices; discount rates; maintenance, service, and inst allation costs; and pr oduct lifetimes. DOE reviewed the Energy Information Administration (EIA)’s energy price data to establis h electricity and natural gas prices for residential cust omers. DOE used EIA’s Annual Energy Outlook (

AEO ) as the default source of projections of future energy prices in its LCC and PBP analysis. DOE derived the discount rates from estimat es of the interest or “finance cost” to purchase residential products. Fo llowing financial theory, the fina nce cost of raising funds to purchase these products can be inte rpreted as: (1) the financial co st of any debt incurred to purchase products, principally intere st charges on debt, or (2) the opportunity cost of any equity used to purchase products, principally in terest earnings on household equity. DOE considered expected changes to mainte nance, repair, and inst allation costs for the products covered in this rulemaki ng. Typically, small incremental changes in product efficiency incur no, or only very small, changes in repair and maintenance costs ov er baseline efficiency products. There is a greater probab ility that units with efficiencies that are significantly greater than the baseline will incur increased repair and maintenance costs, since such products are more likely to incorporate technologies that are new to the industry and not widely available. DOE used input from manufacturers, installers, and se rvicers in developing ap propriate repair and maintenance costs. DOE used information from various literature sources ( e.g. , Appliance Magazine ) and input from manufacturers and othe r interested parties to estab lish average product lifetimes for use in the LCC and subsequent analyses.

2-82.9 SHIPMENTS ANALYSIS Shipment forecasts are required to calculat e the national impacts of standards on energy, NPV, and future manufacturer cash flows. DOE developed shipment forecasts using historical data as a basis for projecting future shipments of the appliance products th at are the subject of this rulemaking. In projecting shipments, DO E accounted for three market segments: (1) new construction; (2) existing buildings ( i.e. , replacing failed products); a nd (3) early replacements. DOE used the early replacement market segment to calibrate the Shipments Model to historical shipments data. For purposes of estimating the impacts of prospective standards on product shipments ( i.e. , forecasting standards-case shipments,) DOE accounted for the combined effects of changes in purchase price, annual operati ng cost, and household income on the consumer purchase decision.

2.10 NATIONAL IMPACT ANALYSIS The national impact analysis assesses the NPV of total customer LCC and NES. DOE determined both the NPV and the NES for the pe rformance levels cons idered for the product classes it analyzed. To make the analysis mo re accessible and transpar ent to all interested parties, DOE prepared an NES Spreadsheet Model in Microsoft Excel to forecast energy savings and the national economic costs and savings resulting from new standards. The model assessed the aggregate economic impacts of standards at the national level. The NES Spreadsheet Model does not use probability distributi ons for inputs or outputs. To assess the impact of input uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses by running scenarios on input variables that are of interest.
2.10.1 National Energy Savings Analysis The inputs for the determination of NES are: (1) annual energy consumption per unit; (2) shipments; (3) product stock; (4) national energy consumption; and (5) s ite-to-source conversion factors. DOE calculated the national energy consumption by multiplying the number of units, or stock, of products (by vint age) by the unit energy cons umption (also by vintage). b DOE calculated national annual energy savings as the difference betweennational energy consumption in the base case (without new energy conserva tion standards) and in each higher efficiency standards case. The analysis included estimated energy savings by fuel type used for generating electricity. DOE estimated energy consumption and savings based on site energy, and converted the electricity consumption and savings to s ource energy. Cumulative energy savings are the sum of the annual NES, which DOE de termined over specified time periods. Product stock is dependent on annual ship ments and the product lifetime. DOE conducted shipments projections unde r the base efficiency case a nd higher efficiency standards cases for a variety of possible product efficiency scenarios and trends. DOE determined that

b Vintage represents the age of the product.
2-9shipment projections under the higher standard e fficiency cases were lower than those from the base efficiency case projection, because of the higher installed cost of the more efficient products. The projections indicated that higher installed costs would cause some customers to forego product purchases. As a result, DOE used the higher efficiency standard case shipments projection and, in turn, the resu lting product stock under the higher efficiency standards case, to determine the NES. Calculating the NES in this way avoids the inclus ion of savings resulting from displaced shipments.
2.10.2 Net Present Value Analysis The inputs for the determination of NPV ar e (1) total annual inst alled cost; (2) total annual operating cost savings; (3) discount factor; (4) pr esent value of cost s; and (5) present value of savings. DOE calculated NPV as the difference between the present value of operating cost savings and the present value of increased total installed cost s. It calculated net savings each year as the difference between total operating cost savings (including electricity, repair, and maintenance cost savings) and increases in to tal installed costs (inc luding product price and installation cost). DOE calculated savings over the life of th e product, accounting for differences in yearly energy rates, and discounted future co sts and savings to the present with a discount factor. DOE calculated increases in total installed costs by multiplying the difference in the total installed cost between the base case and standards cas e by the annual shipment s in the standards case. Because costs of the more efficient pr oducts bought in the standards case are higher than those of the products bought in th e base case, price increases appear as negative values in the NPV analysis. DOE expressed operating cost savings as decr eases in operating costs associated with the lower energy consumption of products bought in th e standards case compared to the base case. Total operating cost savings are the product of savi ngs per unit and the numb er of units of each vintage surviving in a particular year.
2.10.3 Forecasted Efficiencies Several of the inputs for the determination of NES ( e.g. , the annual energy consumption per unit) and NPV ( e.g. , the total annual installed cost and the total annual operating cost savings) are dependent on the produc t efficiency. Thus, DOE forecas ted efficiencies for the base case and standards cases. The forecasted effi ciencies specify the a nnual shipment-weighted average product efficiencies for future years. For each of the products considered, DOEbased the development of the product efficiencies in the base case on the assignment of efficiencies in the year 2005. In other words, DOE determined the distribution of product effici encies currently in the marketplace to develop a shipment-weighted efficiency for the year 2005. As described in chapter 11, with the exception of gas cooktops and gas standard ovens , DOE assumed that for ecasted efficiencies

2-10remained frozen at the efficiency level in the year 2005 until the end of the forecast period. In the case of gas cooktops and gas standard ovens, DOE did forecast the market share of gas standard ranges equipped with standing pilots to estimate the impact of eliminating standing pilots for these products. DOE based its standards case forecasts ( i.e. , forecasts of efficiency trends after standards take effect) on the use of a roll- up efficiency scenario. Under a roll-up scenario, all products at performance levels below a prospective standard are moved, or rolled up, to the minimum performance level allowed under the new standard. The distribution of products at efficiency levels above the new minimum standard levels is assumed to be unaffected ( i.e. , these products remain at their pre-standard performance levels.) The roll-up efficiency scenario dictates how DOE determined efficiency distri butions in the first year a new standard takes effect, but does not define how product efficiency will be distribu ted in the future. As was done for the base case, DOE assumed that forecasted efficiencies u nder the standards case remained frozen at the level in the year that standards became eff ective until the end of the forecast period.

2.11 LIFE-CYCLE COST SUBGROUP ANALYSIS The LCC subgroup analysis evaluates economic impacts of standards on any identifiable groups of customers who might be disproportionate ly affected by a change in the national energy conservation standard levels for the consid ered products. During the NOPR stage of the rulemaking, DOE evaluated the impacts of particular subgroups of customers in part by using the LCC Spreadsheet Model to analyze the LCC and PBP for these particular customers. DOE updated these analyses for the final rule. For cooking products, DOE analyzed as s ubgroups: (1) low-income households; (2) households occupied by senior ci tizens; and (3) households w ith gas cooking products that do not have electricity.

2.12 MANUFACTURER IMPACT ANALYSIS The MIA assesses the impacts of new energy conservation standards on manufacturers of the considered products. Potential impacts incl ude financial effects, both quantitative and qualitative, that might lead to changes in th e manufacturing practices for these products. DOE identified these potential impact s through interviews with manuf acturers and other interested parties. DOE conducted the MIA in three phases, a nd further tailored the analytical framework based on interested parties’ comments. In Phase I, an industry profile wa s created to characterize the industry, and a preliminary MIA was conducted to identify important issues that required consideration. In Phase II, an industry cash flow model and aninterview questionnaire were prepared to guide subsequent discussions. In Ph ase III, manufacturers were interviewed, and the

2-11impacts of standards were assessed both quantitatively and qualitativel y. Industry and sub-group cash flow and NPV were assessed through use of the Government Regulatory Impact Model (GRIM). Then impacts on competition, manufacturing capacity, employment, and cumulative regulatory burden were assesse d based on manufacturer interv iew feedback and discussions.

2.13 UTILITY IMPACT ANALYSIS The utility impact analysis assessed the imp act of energy conservation standards on the electric and gas utility industries. To carry out this analysis, DOE used a variant of the EIA’sNational Energy Modeling System (NEMS). NEMS is a large, multi-sectoral, partialequilibrium model of the U.S. energy sector that EIA has developed over the past decade, primarily for the purpose of preparing the AEO . DOE used a variant known as NEMS-BT to provide key inputs to the analysis. c NEMS produces a widely recognized baseli ne energy forecast for the United States through the year 2030, and is ava ilable in the public domain. Th e typical NEMS outputs include forecasts of electricity sales, price, and avoide d electric generating capacity. DOE conducted the utility impact analysis as a scen ario departing from the latest AEO reference case. In other words, DOE modeled the energy savings impact s from amended energy conservation standards using NEMS-BT to generate forecasts that deviate from the AEO reference case.

2.14 EMPLOYMENT IMPACT ANALYSIS New or amended energy conservation standards can impact employ ment both directly and indirectly. Direct employment impacts are changes in th e number of employees at the plants that produce the covered products, and at the a ffiliated distribution and service companies, resulting from the adoption of new standards. DOE evaluated direct employment impacts in the MIA. Indirect employment impacts may result from expenditures shifting between goods (the substitution effect) and changes in income and overall expenditure levels (the income effect) that occur due to the adoption of sta ndards. DOE investigated the combined direct and indirect employment impacts using the Pacific Northw est National Laboratory (PNNL)’s “Impact of Sector Energy Technologies” (ImSET) model. PNNL developed the ImSET model for DOE’s Office of Planning, Budget, and Analysis. Th e model estimates the employment and income effects of energy-saving technolog ies in buildings, industry, and transportation. In comparison

a 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(2000), March 2000. 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 modifications 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 is DOE’s Building Technologies Program, under whose aegis this work has been performed). NEMS-BT was previously called NEMS-BRS.
2-12with simple economic multiplier approaches, ImSET allows for more complete and automated analysis of the economic impacts of energy conservation investments.

2.15 ENVIRONMENTAL ASSESSMENT The environmental assessment estimates the impact of possible energy conservation standards on three energy-related pollutants—oxides of nitrogen (NO x ), sulfur dioxide (SO 2 ), and mercury (Hg)—as well as carbon dioxide (CO 2 ) emissions. The primary environmental effects of energy conservation standards for the considered products will be reduced emissions resulting from reduced electri city and natural gas consumption. For power sector CO 2 emissions, DOE based these calculations on the NEMS-BT modeling work used for the utility impact analysis. NEMS-BT tracks CO 2 emissions using a detailed module that produces robust results because of its broad coverage of all sect ors and inclusion of interactive effects. This approach has the advantage of examining the marginal impact of energy conservation standards for the considered products on the utility generation mix and the subsequent environmental emissions. Two rules regulating SO 2 , NO x , and Hg emission, the Clean Air Intestate Rule (CAIR) and the Clean Air Mercury Rule (CAMR), had been recently vacated by federal courts at the time the NOPR was published. The CAIR w ould have permanently capped emissions of SO 2 and NO x in 28 eastern States and the District of Co lumbia. The CAMR is closely related to the CAIR and would have established standards of performance for Hg emissions from new and existing coal-fired electric utility steam generating units. As a result of the CAIR and the CAMR being vacated, for power sector NO x and Hg emissions evaluated in the NOPR, DOE estimated and utilized a range of NO x and Hg emission rates to esti mate the power sector emission reductions due to standards. However, on December 23, 2008, the U.S. Court of Appeals for the District of Columbia Circuit deci ded to allow CAIR to remain in effect until it is replaced by a rule consistent with the court’s earlier opinion. As a result, DOE used the NEMS-BT model for the final rule to estimate the NO x emissions reductions due to st andards. With regard to SO 2 emissions, the Clean Air Act Amendments of 1990 set an SO 2 emissions cap on all power generation, but permitted flexibility among generato rs through the use of emissions allowances and tradable permits. This SO 2 trading process (sometimes called “cap and trade”) implies that the standard will have no effect on total physical emissions because emissions will always be at, or near, the allowed emi ssions ceiling. Consequen tly, there is no direct SO 2 environmental benefit from a reduction in electricity use due to the proposed en ergy conservation standards, as long as there is enforcement of the emissions ceiling. CAIR goes beyond the 1990 Clean Air Act Amendments and sets more stringent SO 2 caps for 28 eastern States and th e District of Columbia. Because residential cooking produc ts have an impact on household CO 2 and NO x emissions at the site, DOE estimated the reductio n in these building emissions due to standards. DOE also estimated the economic value of CO 2 , NO x , and Hg emission reductions. DOE used several sources to estimate a range in th e possible economic value. Emissions of SO 2 are capped and, as a result, simulation of SO 2 trading tends to imply thatphysical emissions effects will be zero. However, there is an SO 2 benefit from conservation in the form of a lower

2-13allowance price. DOE used NEMS-BT to estimate the impact of standards on SO 2 -allowance trading and forecasts of SO 2 -allowance prices.

2.16 REGULATORY IMPACT ANALYSIS DOE prepared a regulatory impact analysis (RIA) under Executive Order 12866, “Regulatory Planning and Review ,” 58 FR 51735, October 4, 1993, which was subject to review under the Executive Order by the Office of Inform ation and Regulatory Affairs (OIRA) at the Office of Management and Budget. The RIA eval uated non-regulatory alternatives to standards, in terms of their ability to achieve significant energy savings in the considered products at a reasonable cost, and compared the effectiveness of each one to the effectiveness of the adopted standards. DOE recognizes that voluntar y or other non-regulatory effo rts by manufacturers, utilities, and other interested parties can result in subs tantial improvements to energy efficiency or reductions in energy consumption. DOE considered the likely effects of non-regulatory initiatives on product energy use, consumer utility, and LCC. DOE based its assessment on the actual impacts of any such initiatives to date , but also considered information presented regarding the impacts that any existing initiative might have in the future.

2.17 DEPARTMENT OF JUSTICE REVIEW EPCA states that before the Secretary of Energy may prescribe a new or amended energy conservation standard, the Secretary shall ask the U.S. Attorney General to make a determination of “the impact of any lessening of competition...th at is likely to result from the imposition of the standard.” (42 U.S.C. 6295(o)) Pursuant to this requirement, DOE solicited the views of the Department of Justice (DOJ) on any lessening of competition likely to result from the imposition of the standards. DOE gave full consider ation to DOJ’s views in assessing economic justification for the standards.

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