Via e

- mail

June 19 , 2013 Dr. David Danielson Assistant Secretary for Energy Efficiency and Renewable Energy U.S. Department of Energy 1000 Independence Ave., S.W. Washington, DC 20585 Subject: Serious flaws in the analytica l approaches and models for DOE’s set - top box

rulemaking (Docket No. E ERE

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– 0067 ) Dear Dr. Danielson : On behalf of the Consumer Electronics Association (CEA) and National Cable & Telecommunications Association (NCTA) , we write to call your attention to serious flaws and shortcomings in DOE’s analysis used in support of its energy efficiency standards rulemaking for set

- top boxes
. CEA and NCTA have commissioned a review o f DOE’s analytical materials (“Analyzing Potential Impacts of Energy Efficiency Standards for Set

- top Boxes

– June 2013”) and provide a copy of the report with this correspondence, which we are submitting to the rulemaking docket as well. DOE’s analysis was announced in a Notice of D ata Availability (NODA) published in the Federal Register March 7, 2013, inviting public review and feedback . Subsequently, CEA and NCTA commi ssioned a third

- party review of the analysis and models DOE uses to estimate the potential economic impacts and energy savings that could result from promulgating a regulatory energy conservation standard for set

- top boxes. The author of our report is Mr. Everett Shorey, President, Shorey Consulting, Inc. Of particular note, Mr. Shorey is the author of the Govern ment Regulatory Impact Model (GRIM) now used by DOE as part of the assessment of the potential impact of regulations on manufacturers. In the past, Mr. Shorey has provided comments to DOE on its use of incremental markups, experience curves and the causes and costs o f cumulative regulatory burden. Mr. Shorey’s work experience has covered a wide range of industries, with functional experience in strategy development, financial analysis where he has qualified as an expert in litigation, and organizational structure. Mr. Shorey’s background also includes a 17

- year career at management consultancy Arthur D. Little , and he has co - author ed Global Warming and Appliances: Increasing Consumer Participation in Reduc ing Greenhouse Gases , an article for the Pew Center on Global Climate Change.Dr. David Danielson

June 19, 2013 Page 2 The attached report compounds our existing concerns about DOE’s rulemaking undermining successful voluntary programs and harming innovation, which CEA and NCTA reviewed in a meeting with you on May 16, 2013. Since rely,
/s/ Neal M. Goldberg /s/ Douglas K. Johnson Neal M. Goldberg Douglas K. Johnson Vice President and General Counsel Vice President, Technology Policy National Cable & Telecommunications Consumer Electronics Association Association

cc: Kathleen Hogan , Depart ment of Energy John C ymbalsky, Depart ment of Energy Jeremy D ommu , Depart ment of Energy settop@ ee.doe.gov ( Docket No. EERE

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Enclosure

## Analyzing	Potential	Impacts	of	Energy	Efficiency Standards	for	Set - top	Boxes June	2013 A	Report	to : Consumer	Electronics	Association National	Cable & Telecommunications Association Prepared	by : Everett	Shorey Shorey	Consulting,	Inc.2 

## Analyzing	Potential	Impacts	of	Energy	Efficiency	Standards for	Set - top	Boxes June	2013 EXECUTIVE SUMMARY The	US	Department	of	Energy	(DOE)	is	considering	efficiency standards	for	set
- top boxes	used	in	cable,	satellite	and	other	television	systems. However,	the	analytical approaches	and	models	traditionally	used	by	DOE	do	not	apply	to m ultichannel video	services and	the	associated	Multichannel	Video	Programming	Distrib utors (MVPDs). It	will	not	be	possible	to	evaluate	standards	with	respect	to	the	factors required	by	statute	in	any	meaningful	way	using	DOE’s	current	models	and approaches. At	its	core,	DOE’s	traditional	concepts	are	based	around	static	physical objects, such	as	a	refrigerator,	and	not	around	dynamic	reconfigurable	networks. A	refrigerator	is	a	single, standalone,	static object that c onsumers	own , rarely replace ; one that operate s under	stable	operating	conditions (Figure	1).	I t	performs basically	one	fu nction , design changes	are	infrequent, and it remains	static	in	the consumer’s	house	over	its long lifetime
. It	can	be	analyzed with a	limited	number	of models,	projected	and	counted
. Figure	1:	Traditional	DOE	Regulated	Products

Home	entertainment	is an	evolving	service	delivered	by	rapidly	changing	networks, equipment,	software,	programming	and	other	services , all	of	which	operate	as integrated	components	for	delivering those services
. This	situation	is	totally	unlike appliances	for	which	the	regulat ory	system	was	developed. Set
- top	boxes	are elements	of	complex	systems	providing	programming	and	information	services	that change	dynamically	with	changes	in	software,	changes	in	the	network,	and	changes in	network	services (Figure	2).3 Figure	2:	Home	Ent ertainment

Set
- top	boxes	have	a	short	lifetime,	are	bundled	and	modified	with	changing	service subscriptions	and	are	returned	to	the	service	provider/owner when subscribers change	services	or	service	provider ,	or when the	service	provider	upgrades its delivery	infrastructure. Set
- top	boxes	operate	as	highly	specialized	and	variable components	adjusted	to	each	specialized	MVPD	network	and	service	offering. Components	of	the	network are	reconfigurable	in	the	field	so	their	function	and	use change	over	tim e . Changes	in	one	component	affect	all	other	components,	and	not just	the	cost	of	set
- top	box	production. Set
- top	boxes	change	rapidly	as	services	and market	competition	changes,	making	it	impossible	to develop meaningful projections	within	the	DOE analyti cal	process. Efficiency	standards	of	the	type	traditionally	developed	by	DOE	apply	to static
“ things ”	that	can	be	touched	and	measured. The	home entertainment	network can not . While	there	are things involved,	such	as	set
- top	boxes,	servers,	television set s,	those things are	changing	rapidly. It	is	not	possible	to	project	how	the	network will	evolve,	what things will	be	in	use,	how	those things will	be	configured	and	how consumers	will	use	them. The	DOE	regulatory	and	analytical	structure	is	fatally flawed with	respect	to	home	entertainment	and	can	neither	be	used	nor	adapted	to be	used	for	set
- top	boxes.4 I. SITUATION The	US	Department	of	Energy	(DOE)	is	considering	whether	and	how	to	set minimum	energy	efficiency	standards	for	set
- top	boxes	used	in	cable	an d	satellite television s y s t e m s 1
. By	statute 2 ,	DOE	is	required	to	consider	seven	factors	when deciding	whether	and	how	to	establish	energy	conservation	standards	and	it	has developed	a	series	of	models	and/or	analytic	tools	to	support	its	consideration	of t hose f a c t o r s 3 : 

### EPCA	Factors DOE	Analysis 1. Economic	impact	on	consumers	and manufacturers Life
- Cycle	Cost	Analysis Manufacturer	Impact	Analysis 2. Lifetime	operating	cost	savings compared	to	increased	cost	for	the product Life
- Cycle	Cost	Analysis 3. Total	projected	energy	savings National	Impact	Analysis 4. Impact	on	utility	or	performance Engineering	Analysis Screening	Analysis 5. Impact	of	any	lessening	of competition Manufacturer	Impact	Analysis 6. Need	for	national	energy conservation National	Impact	Analysis 7. Other	factors	the	Secretary considers	relevant Environmental	Assessment Utility	Impact	Analysis Employment	Impact	Analysis The	Life
- Cycle	Cost	Analysis,	Manufacturer	Impact	Analysis	and	the	National	Impact Analysis	depend	u pon	inputs	from	the	Engineering	Analysis,	Life
- Cycle	Cost Analysis,	Government	Regulatory	Impact	Model	(GRIM) , and	National	Impact Analysis	spreadsheet	models
. DOE	is	proposing	to	use	these	models	in	its consideration	of	the EPCA	Factors for	set
- top	boxes
. However,	these	models	and their	intellectual	underpinnings	were	built	around	household	appliances	such	as washing	machines	and	refrigerators
. Neither	the	models	themselves	nor	the fundamental	concepts	of	the DOE	Analysis approaches	are	appropriate	for	ass essing set - top	boxes
.

1 Docket	#	EERE

– 2010

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– NOA
- 0067 2 42	U.S.C.	6295(o)(2)(B)(i) 3 Slide	17,	2012
- 01
- 26	Framework	Meeting	Presentation	Slides,	January	26,	2012, EERE
- 2011
- BT
NOA
- 00675 II. CONCEPTS UNDERLYING STANDARD DOE APPROAC H A. The DOE Analysis was designed for standalone, static hardware appliances that operate under stable operating conditions The	basic	underpinning	of	the	standard	DOE	approach	was	developed	for home appliances	and	similar	products
. This	can	be	understood	by	thinking	about	a	typical home	appliance,	such	as	a	refrigerator
. First,	there	is	a	physical	object	(i
. e . the refrigerator)	with	definable	components	that	affect	energy	use	(e
. g . ,	insulation th ickness,	compressor	efficiency,	etc
. )
. The	refrigerator	is	ultimately	sold	to	a	user who	will	own	and	operate	the	refrigerator,	essentially	unchanged,	for	the refrigerator’s	lifetime .	T his	situation	remains	static	for	some	reasonably	long	period of	time
. B. The DOE Analysis was designed for long - lived appliances that consumers own and rarely replace . T he	standard	DOE	approach is	also	premised	on	relatively	infrequent	design changes	in home	appliances	and	similar	products
. The	cost	of	changing	the	design	of a	refrigerator	is	substantial	relative	to	the	cost	of	the	refrigerator,	so	manufacturers change	designs	infrequently
. The	cost	of	the	refrigerator	to	the	consumer	is	also high,	so	the	consumer	rarely	replaces	the	refrigerator	before	the	end	of	its	useful l ife .	Again, each	element	of	this	situation	remains	static	for	some	reasonably	long period	of	time
. C. The DOE Analysis was designed for products with relatively few variables that, if changed, would directly affect only hardware production costs . The	DOE	m odeling	process	flows	from	this	situation	of	defined	objects	and	static conditions
. Even	though	the	absolute	numbers	of	products	and	consumers	are	large, the	actual	variations	are	relatively	few
. The	number	of	design	options for chang ing energy	consumption is limited.	T he	number	of	different	product	variations	(i
. e . refrigerator	models)	is	constrained	by	manufacturing	requirements
. The	most recent	refrigerator	National	Impact	Analysis	covered	12	refrigerator	types	with	5
- 6 design	options	each	for	fewer	tha n	seventy - five s i t u a t i o n s . 4 The	anticipated	life	of	a refrigerator	is	over	15	years	and	standards	are	anticipated	only	every	7	years, allowing	a	lengthy	period	where	the	projected	designs	will	be	in	place .	The differences	in	distinctly	different	consumer	u se	patterns	are	also	limited
. As	a	result, the	situation	is	both	countable	and	projectable
.

4 2011
- 03
- 16	National	Impact	Analysis	Spreadsheet:	Refrigerator
- Freezers	from EERE
- 2008
- BT
STD
- 00126 D. The DOE Analysis was designed for products in which design changes are infrequent and predictions could be relatively reliable . From	these	basic	underpinnings, D OE	models	can	count	and	project	within	certain constrained	cases	developed	for	appliances	and	the	appliance	market
. The models analyze	example	cases	(a	refrigerator	of	a	defined	size	used	in	a	certain	fashion	in	a geographic	area	with	a	specified	cost	of	energy	and	expected	to	last	for	a	period	of years)
. The	models	then	calculate	the	economics	to	consumers	of	that	case	(the	Life Cycle	Cost	Analysis)	and	add	up	all	of	the	various	options	to	estimate	the	total effects	(the	National	Impact	Analysis)
. The	Government	Regulatory	Impact	Model (GRIM) performs	a	similar	function	for	manufacturers .	The	GRIM defines	a	specific set	of	cost	a ssumptions	and	adds	up	the	aggregate	change	in	industry	cash	flows
. There	have , of	course , been	refinements	to	the	models	over	time	to	account	for certain	types	of	variations	(such	as	the	expected	lifetime	of	a	product),	which	are then	covered	through	prob ability	analyses
. But	the	core	assumption	of	stable objects	and	situations	remains	intact,	and	that	assumption	serves	an	essential prerequisite	for	the	model	to	work
. Because	of	the	relative	stability	of	appliances,	it	is	possible	to	make	reasonable dete rminations	of	consumer	economics	and	to	estimate	national	impacts
. The economic	situation	for	consumers	can	be	calculated	around	a	limited	set	of refrigerator	design	options	and	standardized	conditions	of	use	(i
. e . hours	of operation)	leading	to	an	estima te	of	payback	periods	for	lower	energy	use
. The national	situation	is	an	aggregation	of	energy	and	consumer	savings	from	the various	design	options
. There	are	specific	things	to	count	in	a	manageable	number of	variations
. The	actual	mathematics	of	calculat ing	the	energy	and	economic	effects can	become	intricate,	but	the	essential	situation	is	quite	straightforward	and manageable
. I n	the	case	of	a	refrigerator, 12	refrigerator	types	with	5
- 6	design options and	changes	expected	only	after	7	years,	the	DOE	mod els count	seventy	or so	scenarios	for	multiple	years
. III. SYSTEM REQUIREMENTS ON SET - TOP BOXES A. Set - top boxes are elements of complex systems providing programming and information services that change dynamically with changes in software, changes in the netw ork, and changes in network services None	of	the	fundamental	assumptions	underlying	the	DOE	modeling	process	apply in	the	case	of	set
- top	boxes
. A	refrigerator	stands	alone

– it	sits	in	th e	kitchen	and keeps	things	cold

– for a	long	period	of	time
. While	t he	set
- top	box	is	a	physical object,	it	is	not	standalone,	static	piece	of	hardware	with	stable	operating conditions
. Instead,	the	set
- top	box	is a component	part	of	a	system	or	network	that provid es entertainment,	programming,	a nd	information	services	to the	home.	It operat es as	part	of	a	system	that	changes	dynamically	with	changes	in	software, changes	in	the	network,	and	changes	in	network	services
. Even	as	a	device, the	set
top	box is	the	product	of	multiple	vendors

– of hardware,	firmware,	middleware,7 guides,	on
- demand	services	and	other	applications

– many elements	of	which continue	to	change	over	the	life	of	the	device
. As the	system	changes,	so	does	the role	and	functionality	of	the	set
- top	box	and	where,	when	and	how	electricity	is	used in	providing the	home	with programming	and	information	services
. B. Set - top boxes have a short lifetime, are bundled and modified with changing service subscriptions and are returned to the service provider/owner as subscribers change services or service provider A cab le,	satellite,	or	telephone	multichannel	video	programming	service accomplishes	six	princip al functions: 1. It	acquires	and	aggregates	content	and	information	services	for	retail	service offerings
. Content	and	services	change	during	the	service	period
. 2. It	de ploys,	maintains	and	changes	its	distribution	network	as	services	evolve
. 3. It	encodes and protects	content	for	distribution	to	subscribers	who	subscribe to	a	variety	of	retail	offerings
. 4. It	delivers	and	decodes	authorized	content	for	presentation	at	the subscriber premises
. This	may	also	include	recording	of	programming	for	later subscriber	playback,	and transcribing,	re
- encoding,	or	otherwise	processing content	for	distribution	to	additional	devices
. 5. It	uses	one	or	more	home	networking	and	other	technol ogies	to	distribute content	to	additional	devices	(typically	in	the	home)
. 6. It	enables	the	display	of	content
. The	multichannel	video	program	distributor	(MVPD)	conventionally	performs	the first	four	functions	and	may	perform	the	fifth
. Subscribers conventionally	own	their own	televis ion	sets	for	the	sixth	function: display
. Although	the	set
- top	box	is	often	a component	in	delivering	these	services,	the	subscriber	purchases	this	package	of functionalities,	not	a	specific	piece	of	hardware
. In	fact,	t he	set
- top	box	is	frequently bundled	with	the	monthly	service	rate	for	the	MVPD	subscription	service
. Almost	all set - top	boxes	are	leased,	rather	than	owned,	as	part	of	this	service
. In	sharp	contrast to	appliances	that	are	rarely	replaced	over	a	long	life time,	set
- top	boxes	are frequently	returned	to	the	MVPD	as	customers	change	services,	order	additional features,	or	change	residence	or	service	provider
.8 C. Set - top boxes operate as highly specialized and variable components adjusted to each specialized MVP D network and service offering . Changes in one component of the network affect all other components, and not just the cost or performance of set - top box es. Set
- top	boxes	do	not	operate	as individual	products but	as	integrated	parts	of	very specialized	MVP D	networks	and	services
. They	are	components	of	a	complex network	of	electronics,	software,	and	distribution	infrastructure	that	varies	not	just from	provider	to	provider,	but	often	from local cable	system	to local cable	system owned	by	a	single	MVPD. Ther e	are	more	than 1100 cable	operators	operating	more than	7000	headends
. Though	six	cable	operators	now	provide	service	to approximately	85%	of	cable	subscribers,	they	operate	systems	with	often substantial	diversity	in	their	networks	and with	different set - top	box configurations. For	example,	cable	operators	have	chosen	different	video
- on - demand approaches and vendors
. Some	operators have deployed	switched	digital	video,	which	delivers certain	channels	only	when consumers	tune	them ,	while	others	have	not
. W hile these	cable	systems	share	some	common	features,	such	as	MPEG
- 2	compression	and QAM	modulation,	they	have	many	more	distinct	proprietary	elements:	different conditional	access,	out
- of
- band	communications	channels	used	for	command	and control	of	the	set
- top	box,	operating	system	(OS)	and	processor	instruction	sets, network	control	architecture	in	support	of	interactivity,	and	electronic	program guide	applications	and	guide	metadata	formats
. There	is	not	only	substantial	variation	among	these	six operators,	but	also	within their	companies	as	well
. Due	to	consolidation	in	the	cable	industry,	there is considerable	variation	among	systems	owned	by	the	same	company
. Cable operators	that	were	once among the	ten largest

– TCI,	MediaOne,	Adelphia,	Centur y and	Marcus

– have	been	acquired	(sometimes	in	parts)	by	other	operators,	leaving the	owners	today	with	a	wide	variety	of	system	architectures	and	technologies within	single	companies
. Today’s	cable	systems	thus	encompass	“a	set	of	legacy digital	video	de livery	systems	that	have	a	huge	installed	base	of	tens	of	millions	of digital	cable	set	top	boxes,”	and	system	technology	that	“spans	over	a	decade	of technology	advances	resulting	in	a	broad	range	of	set
- top	capability	and performance
. ” 5 Variation	is	ev en	greater	when	other	types	of	video	service providers	are	considered
. Four	of	the	eight	largest	MVPDs	are	telephone	companies and	DBS	providers,	with	varying	implementations .	Verizon’s	FiOS	is	very	different from	the	IPTV	network	of	AT&T	and	CenturyLink, and	DISH	and	DIRECTV	operate satellite	systems	that	are	very	different	from	one	another. And	each	of	these separate	ecosystems	is	far	from	static
. System	architectures	and	networks	are constantly	in	flux
.

5 Ralph	W. Brown , Tackling	the	US	Cable	Set
- top	Legacy :	Middleware	in	a	Sea	of	Proprietary	Systems at 1.9 Among	appliances	for	which	the	DOE	model	was	deve loped,	there	are	few	variables in	commodities

— for	example, 12	refrigerator	types	with	5
- 6	design	options	each ,	a 15
- year	anticipated	life , and i nfrequent	changes	in	production that affect only production costs. With	set
- top	boxes,	there	are	a	high	number	o f	variables,	a	large number	of	models,	frequent	changes	and a change	in	hardware	affects	not	only	set
top	box	production	but	also	the	network	and	services	supported .	The	number	of variations	cannot	be	analyzed,	assessed	or	counted	in	any	reasonable	process
. D. Set - top boxes change rapidly as services and market competition changes, making it impossible to make meaningful projections within the DOE appliance model As	component	parts	of	MVPD	services,	set
- top	boxes	change	rapidly	as	services change
. Set
- top	box es	initially	just	offered	an	expanded	channel	tuning	range,	a remote	control,	or	descrambling	of	secured	and	optional	channels
. Set
- top	boxes have	added	new	and	innovative	features	to	meet	new	consumer	demands:	HD resolution;	simultaneous	watching	and	reco rding	of	different	channels;	on
- demand movies;	digital	video	recording	capability,	and	then	more	and	more	storage	capacity for	all	those	recorded	shows;	more	advanced	applications	and	more	processing power	and	memory	to	run	them
. They	have	evolved also to support	other	devices, with	multi
- room	playback	of	recorded	shows	on	the	main	DVR,	and	home networking	to	other	set
- top	boxes	in	the	home , and	to	devices	that	travel	with subscribers
. They	are	now	incorporating	social	networking	into	the	viewing experience ,	and	efforts	are	now	underway	to	make	the	set
- top	box	a	hub	for	home energy	management,	home	security	or	home	automation
. Competing	service providers	deliver	their	services	in	different	ways
. One MVPD has	moved	the	DVR itself	back	into	the	network;	anothe r	uses	the	primary	set
- top	box	to	“sling” recorded	content	to	additional,	remote	devices
. Many MVPDs are	delivering	service using	Internet	Protocol	(IP) directly	to	iPads,	Android	tablets,	Roku device s,	and other	customer
- owned	devices
. Among	appliances for	which	the	DOE	model	was	developed,	design changes were infrequent
. With	set
- top	boxes,	the	only	certainty	is	that	designs	will	change	rapidly
. The	means	for	performing	each	of	the six functions performed	by	MVPDs ,	the technologies	in	use, and the	locat ion	and	type	of	hardware	involved	are virtually certain to	continue	to	evolve	at	a	rapid	rate .	For	example,	w here	storage	takes	place is	a	matter	of	system	design,	not	an	inherent	characteristic	of	the	service
. How content	is	encoded,	transmitted	decoded	a nd	distributed	changed	as	systems	have moved	from	analog	to	digital,	from	Standard	Definition	to	HD	programming,	from DVRs	to	network	DVRs	and	home	networking
. The	system,	service,	and	set
- top boxes will	continue	to	evolve	with	ultra
- HD,	IP	delivery	or	IP transcoding,	and	cloud delivery	to	tablets	or	other	non
- traditional	displays
. The	very	nature	of	service delivery	may	change	with	the	evolution	of	streaming	video	from	broadcaster websites,	YouTube,	and	“over
- the
- top” (OTT) video	service	providers	like	Net flix and Hulu. The	nature	of	the	home	e ntertainment	service	is	in	flux,	and	t he	role	and10 physical	structure	of	a	“set
- top	box”	has	continued	to	evolve	so	as	to	adapt	to	these changes	in	technology
. It	is	impossible for	DOE	models to	project	how	the	futur e	of	home	entertainment will continue	to evolve. History	shows	that	home	entertainment	can	and	does	take unpredictable	paths. For	example,	over	the	past	five	years	home	entertainment	has incorporated:

• The	emergence	of	consumers	watching	programs	on	tablet computers,	such as	the	iPad,	using	streaming	video	over	home	wireless	networks. The emergence	and	growth	of	tablets	was	completely	unpredicted	prior	to Apple’s	introduction	of	the	iPad	in	2010.

• The	advent	of	TV Everywhere services	to	computers	where	the	c omputer	has replaced	the	television	set	and	the	Internet	is	the	distribution	network. In	the early	2000s,	the	efforts	and	expectations were for	computer	functions	to migrate	to	the	television,	not	the	reverse.

• The	decline	of	“appointment	viewing”	of	telev ision	programming	where consumers	watched	programming	as	a	set	time. Increasingly,	consumers store	programming	to	watch	at	their	convenience. The	approaches consumers	take	to	manage	time	shifting	are	still	evolving.

• The introduction	of	products	like	Apple TV	and	GoogleTV	to	support	OTT	IP video	services	to	the	home by	players	that	are	traditionally	not	considered MVPDs.

• The	potential	for	viewing	of	audio/video	content	on	alternative	platforms such	as	gaming	devices. Each	of	these	changes	was	either	unforese en	or	lost	in	the	sea	of	other	alternative futures	that	did	not	occur. There	is	no	reason	to	believe	that	the	future	from	today onwards	will	be	more	predictable	than	the	past	several	years. Attempting	to	predict which	of	a	virtually	infinite	set	of	future situations	will	emerge	is	an	impossible	task. Trying	to	do	so	in	order	to	add	an	appearance	of	rigor	or	accuracy	to	a	set	of projections	obscures , but	does	not	eliminate , the	inherent	unpredictability	of	the situation,	providing	a	veneer	of	accuracy	where none	exists. The	only	likely	constant	in	this	process	is	the	requirement	to	change	and	adapt
. The likelihood	that	the	functionality	and	design	of	a	set
- top	box	being	deployed	a	year	or two	from	now	will	be	what	is	in	a	box	today	is	approaching	zero unless	artificially constrained	by	regulation
. Even	then,	non
- regulated	systems	may	encroach	in	the regulated	arena and	entirely	alter	the	market.11 IV. IMPLICATIONS FOR THE USE OF DOE’S TRADIT IONAL MODELS The	actual	in
- use	situation	for	home	entertainment	and the	corresponding	outlook for	on
- premises	hardware	(the	set
- top	box	or	alternatives)	could	hardly	be	more different	from	that	of	a	static	home	appliance
. There	is	no	physical	object	with	stable operating	characteristics
. There	is	no	stable	operating	envir onment	from	which	to project	electricity	usage
. There	is	a	continually	evolving	“product”	with	the	potential for	thousands	of	variations	depending	on	the	overall	system	choices	of	the	MVPDs and	on	the	need	to	adapt	to	the thousands of	legacy	system	combina tions	of technologies	in	place	across	the	country
. The	variations	and	options	are,	for	all practical	purposes,	uncountable	and	are	unstable
. A	modeling	process	based	on counting	stable	objects	is,	thus,	unsuitable	for	analyzing	the	dynamic	situation	of	the home	entertainment	industry
. The	temptation	may	be	to	try	and	force
- fit	the	home	entertainment	industry	and	its component	hardware	into	the	traditional	DOE	modeling	approach
. This	might	entail treating	the	set
- top	box	as	a	product,	the	set
- top	box	manuf acturer	as	a manufacturer,	the	MVPDs	as	a	distribution	channel	and	a	homeowner	as	the	end customer . However,	this	structure	is	unwieldy	and	not	capable	of	capturing	the dynamics	of	the	home	entertainment	situation
. 1. The	set
- top	box	is	not	a	physical	artic le	of	commerce	where	individual	energy savings	options	can	be	added	through	hardware,	measured,	counted	and costed
. The	set
- top	box	is	part	of	an	evolving	system	with	multiple opportunities	to	provide	the	same	function	either	locally	or	remotely, through	h ardware	or	through	software/firmware
. In	addition,	the	set
- top box	must	fit	within	a	broader	system	interacting with	the headend	and	other systems . For	example : a. A recent	feature	change	at DIRECTV was	the	introduction	of addressable	TV	advertising.	All DIRE CTV branded	DVRs	in	the	field have	been	upgraded	with	the	capability	to	seamlessly	insert advertisements	that	are	targeted	to	a	desired	audience	into	live	and recorded	programs.	The	many	changes	to	DVRs	included	capabilities to	receive	targeting	attributes ,	record	and	store	the	relevant	ads, choose	ads	for	playback	based	on	broadcast	announcements	and insert	the	chosen	ads	into	in
- progress	programs	with	frame
- accurate timing.	Each	of	these	changes	required	intensive	modifications throughout	the DIRECTV broa dcast	infrastructure	adding	new	work flow,	bitstream	conditioning	and	trigger	handling	functions,	as	well	as integrating	new	systems	designed	to	manage	profiles,	schedule	the ads,	and	perform	audience	measurement.	The	impact	to	headend	and business	systems to	implement	this	new	capability	was	an	order	of magnitude	greater	than	the	impact	on	the	receivers	themselves,	and	it took	months	of	comprehensive	testing	to	get	all	of	these	parts working	in	concert	to	deliver	the	desired	result.12 b. Likewise,	satellite	te levision	did	not	convert	from	MPEG
- 2	to	MPEG
- 4 set - top	boxes	for	HD	programming	services	with	only	a	box	change. The	satellite	industry’s	HD	transition	was	accomplished	with	changes throughout	the	network,	including	new	receiver	dishes, DIRECTV’s increase in	satellite	capacity	through	the	launch	of	new	satellites	into new	Ka
- Band	orbital	slots,	and	new	compression	and	other equipment	installed	in	uplink	centers.	All	told,	billions	of	dollars	were spent	in	effecting	this	transition.
c. As	set
- top	boxes	operate with	more	intelligence	and	functions	moved into	the	network	(such	as	program	guides)	and	move	to	entirely	IP operations,	they	can	reach	lower	wattage	states.	Some	of	these offerings	are	available	today	to	serve	tablets	and	personal	computers. But	to	suppo rt	IP	set
- top	boxes	at	scale	requires	far	more	than purchasing	and	deploying	IP	client	set
- top	boxes.	A	cable	operator would	need	to	invest	in	additional	network	servers	and	encoders, additional	distributed	CDN	(content	delivery	network)	resources, clear	a dditional	distribution	bandwidth	for	IP	transport,	and	add more	CMTS	( cable modem termination system )	resources	to	support such	set
- top	boxes.	Current	estimates	add	well	over	a	billion	dollars	in network	costs	to	execute	such	a	change	across	the	cable	indu stry, without	even	accounting	for	set
- top	box	costs. These network, operational and	other	costs	are	not	readily	captured	in	the	DOE modeling	process
. 2. The	rapidly	evolving	nature	of	the MVPD	and home	entertainment	industr ies make s projecting	a	“Base	Case”	virtually	impossible. The traditional DOE approach	is	to	project	shipments	of	products	and	adjust	those	shipments	for expected	changes	in	product	mix	and	efficiency	to	establish	a	Base	Case without	standards. The	proliferation	of potential	future	scenarios	for	home entertainment	services	renders	this	approach	useless. Participants	in	the industry adjust	flexibly to	changing	conditions,	not to static	forecasts. Developing	and	assessing	alternative	futures	is	a	futile	exercise	that	a dds uncertainty	rather	than	insight. There	is	no	basis	for	determining	the probability	of	any	potential	future	scenario. The	expected	value	and/or distribution	of	consumer	or	national	impact	results	are	not	calculable. 3. Set
- top	boxes	are	part	of	a	service and	are	changed	out	regularly	by consumers	or	by	the	MVPDs
. Therefore	the	expected	life	is	short
-- depreciable	lives	for	set
- top	boxes	range	from	2
- 6 y e a r s . 6 This	complicates	an analysis	of	consumer	payback	for	two	reasons.	First,	the	lifespan	at	the cons umer	for	any	set
- top	box	will	be	short	and	often	shorter	than	even	the presumptive	5
- year	payback	period	considered	in	DOE	consumer	analyses.

6 Annual	reports	for	Comcast,	Cablevision, DIRECTV and	Dish	Network13 Second,	the	Base	Case	for	any	consumer	analysis	would	need	to	evolve continually	to	reflect	the	fact	that	consumer s	get	different	set
- top	boxes	with different	characteristics	many	times	over	the	course	of	a	complete	analytic cycle. 4. Even	if	it	were	possible	to	determine	Base	Case	scenarios,	they	would	need	to incorporate	the	effects	of	any	voluntary	agreements	or	other situations	that will	affect	future	energy	consumption	for	home	entertainment	services. These	will	reduce	the	potential	gains	that	would	accrue	from	any	possible standards	or	other r e g u l a t i o n s . 7 5. In	addition,	the	lifetimes	can	be highly	variable due	to	chan ges	in	feature	sets and	technologies. This	is	not	well	captured	in	the	DOE	models	and	the	DOE approach	of	Monte	Carlo	simulations	for	equipment	life	does	not	reflect	the high	level	of	uncertainty	and	the	potential	for	disruptive	innovation
. Monte Carlo	sim ulations	used	by	DOE	are	based	on	continuous	probability	functions that,	in	themselves,	need	to	be	derived	from	data
. In	the	absence	of	a continuous	function,	the	Monte	Carlo	simulation	would	need	some	sort	of discrete	but	defined	set	of	outcomes	and	proba bilities,	for	which	there	is,	by definition,	no	foundation	for	projection	in	the	case	of	disruptive	innovation that	characterizes	the	set
- top	box	market
. 6. The	proliferation	of	technologies	and	technological	variations	will	strain	any accumulation	process	p ast	the	breaking	point
. The	range	and	variability	of the	imbedded	assumptions	on	installed	mix,	operating	conditions,	product lifecycle,	etc ., will	introduce	error	factors	into	the	calculations
. In	2013, MVPDs	have	myriad	choices	for	the	future:	network	an d	cloud
- based delivery;	conversion	to HEVC ;	Ultra
- HD;	wired	or	wireless	home	networking; gateways	or	standalone	devices;	limited	functionality	devices	like	DTAs	or switched	digital	video;	and	delivery	to	curr ent	and	to
- be
- invented	customer
owned	devices
. I t	is	not	possible	to	predict	which	technologies	will	be implemented	or	in	what	mix
. Trying	to	address	this	problem	with	Monte Carlo	simulations	will	only	demonstrate	that	the	confidence	level	in	the ultimate	results	is	very	low
. It	will	likely	not	be	possi ble	to	distinguish between	the	energy	and	economic	consequences	of	the	post	and	the	pre
regulatory	scenarios	with	any c o n f i d e n c e . 8

7 Voluntary	Agreement	for	Ongoing	Improvement	to	the	Energy	Efficiency	of	Set
- Top	Boxes (Dec., 2012),	available	at http://www.ce.org/CorporateSite/media/ce_news/FINAL
- PUBLIC
- VOLUNTARY
AGREEMENT
- (12
- 6
- 2012).pdf 8 DOE	has	already	seen	this	problem	in	the	error	bands introduced	by	its	use	of	experience	curves such	that	there	is	often	a	substantial	overlap	in	the	distribu tion	of	outcome s between	base	and standards	cases:	US	Department	of	Energy, Preliminary	Technical	Support	Document:	Energy Efficiency	Program	For	Consumer	Products: Refrigerators,	Refrigerator
- Freezers,	And	Freezers, November,	2009,	Table	5.9.1,	p.	5
- 54.14 7. The	MVPD	is not a	manufacturer who	creates	a	static	appliance,	places	it	into commerce,	and	leaves	continuing	responsibility to	the	end
- user	consumer. N or is	it	a channel	of	distribution for	such	appliances. It	owns,	maintains,	and changes	the	set
- top	boxes with	changes	in	its	network	and s e r v i c e s . 9 The current	DOE	notion	of	an	incremental	markup	through	a	distri bution	channel does	not	and	can not	be	adapted	to	the	case	of	an M V P D
. 10 8. While	not	explicitly	a	part	of	the	DOE	regulatory	analysis,	any	DOE	standard requires	a	testing	and	reporting	structure
. DOE	is	already	finding	limitations in	its	testing	and	reporting	process	for	pro ducts	with	a	wide	variation	in features	and	with	either	customization	or	rapid	evolution
. The	concept	of basic	models	and	related	testing	and	performance	is	proving	unwieldy	for commercial	air	conditioners	and	computer	simulation	programs	are	not proving	t o	be	a	full	answer
. This	same	or	greater	complexity	will	be	present in	set
- top b o x e s . 11 These	are	examples	of	the	issues	DOE	will	face	if	it	attempts	to	shoehorn	set
- top boxes	into	the	existing	regulatory	analytical	framework
. That	framework	is	simply desig ned	around	a	completely	different	factual	situation
. DOE	should	abandon	any attempt	to apply its	traditional	analytical	approaches	and	models	to	set
- top boxes.

9 DOE	and	others	have	noted	that	the	MVPD	ownership	of	the	set
- top	boxes	creates	an	“agency problem”	where	the	MVPDs	own	the	boxes	but	the	homeowners	pay	for	the	energy.	While	this	is	too complex	a	topic	for full	discussion	here,	MVPDs do	have	an	incentive to	use energy	efficient	set
- top boxes
. Set
- top	boxes	that	offer	more	features	and	services	require	increa sed	processing	power	and memory .	Pay	TV	providers	own	and	maintain	tens	of	millions	of	devices	in	consumer	homes.	If	these devices	fail,	it	means	custo mer	dissatisfaction,	expensive	customer	service	calls,	and	additional	truck rolls.	Lower	power	consumption	generally	means	less	heat	and	lower	operating	temperatures	for devices,	which	can	increase	reliability,	reduce	service	calls,	and	improve	performance and	device longevity.	Energy	efficiency	helps	meet	customer	expectations	in	a	highly	competitive	environment. This is	why	the	industry	has	devoted	substantial	resources	that	have	already	resulted	in	dramatic improvements	in	energy	efficiency	even	as	set
- t op	boxes	are	being	called	upon	to	deli ver	more	and more	functionality. 10 First,	the	notion of	incremental	variable	costs	would	be	hard	to	compute	in	this	situation	and would	need	to	accommodate	a	wide	range	of	software,	firmware,	hardware	and	other	costs	a t	the MVPD	as	well	as	installation	and	other	costs.	Second,	the	incremental	margin	concept	requires	the existence	of	“perfect	competition”	in	the	marketplace	between	the	MVPD	and	the	consumer.	Again,	a full	discussion	of	this	topic	is	too	complex	for	this paper , but regulatory	agencies	have	not	concluded that perfect	competition applies	to	the	multichannel	video	marketplace	and	there	are	a	variety	of reasons	why	these	assumptions	and	conclusions	will	not	apply. 11 As	of	late	2012,	DOE	has	proposed	extending the	compliance	date	for	new	commercial	air conditioner	certification	programs	and	has	organized	a	convening	to	negotiate	a	new	approach	in	the face	of	strong	criticism	from	commercial	air	conditioner	manufacturers: EERE
- 2012
- BT
- CE
- 0048.