17

- i CHAPTER 1 7. REGULATORY IMPACT ANALYSIS FOR ENERGY CONSERVATION

STANDARDS FOR ELECTRICAL DISTRIBUTION TRANSFORMERS

TABLE OF CO NTENTS

17.1 INTRODUCTION ......................................................................................................... 17-1

17.2 NON

- REGULATORY POLICIES ................................................................................ 17-2

17.2.1 Methodology .................................................................................................................. 17-2

17.2.2 Policy Assumptions ....................................................................................................... 17-3

17.2.3 Policy Interactions ......................................................................................................... 17-4

17.3 NON

- REGULATORY POLICY AS SUMPTIONS ...................................................... 17-4

17.3.1 No New Regulatory Action ........................................................................................... 17-4

17.3.2 Financial Incentives Policies .......................................................................................... 17-4

17.3.2.1 Consumer Rebates ....................................................................................... 17-5

17.3.2.2 Consumer Tax Credits ............................................................................... 17-10

17.3.2.3 Manufacturer Tax Credits .......................................................................... 17-11

17.3.3 Voluntary Energy- Efficiency Targets .......................................................................... 17-12

17.3.4 Early Replacement ....................................................................................................... 17-13

17.3.5 Bulk Government Purchases ........................................................................................ 17-13

17.4 RESULTS SUMMARY FOR NON

- REGULATORY ALTERNATIVES ................. 17-14

LIST OF TABLES

Table 17.1.1 Policy Alternatives to Adopted National Distribution Transformer

Standards ............................................................................................................ 17-1

Table 17.2.1 Adopted Standard Levels for Distribution Transformers .................................. 17-3

Table 17.3.1 Benefit/Cost Ratios for Adopted Standard and Rebate Policy Cases ................ 17-6

Table 17.3.2 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Low -Voltage, Dry-Type Equipment Class ............................... 17-8

Table 17.3.3 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Medium -Voltage, Dry-Type Equipment Class ......................... 17-9

Table 17.3.4 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Liquid

- Immersed Equipment Class ........................................ 17-10

Table 17.3.5 Effective Market Share Increases for Consumer Tax Credits Policy Case by Equipment class .......................................................................................... 17-11

Table 17.3.6 Effective Market Share Increases for Manufacturer Tax Credits Policy Case by Equipment class ................................................................................. 17-12

Table 17.3.7 Effective Market Share Increases for Voluntary Energy

- Efficiency Targets by Equipment class .......................................................................................... 17-13

Table 17.4.1 Non -Regulatory Alternatives and the Adopted Standard ................................ 17-1517

- ii LIST OF FIGURE S

Figure 17.3.1 Market Penetration Curve for Design Line 12, Medium- Voltage Dry

- Type

Distribution Transformers .................................................................................. 17-7 Figure 17.3.2 Market Penetration Curve for Design Line 7, Low- Voltage Dry

- Type

Distribution Transformers .................................................................................. 17-8 Figure 17.3.3 Market Penetration Curves for Design Line 5, Liquid- Immersed

Distribution Transformers ................................................................................ 17-1017

- 1 CHAPTER 17. REGULATORY IMPACT ANALYSIS FOR ENERGY

CONSERVATION STANDARDS FOR ELECTRICAL DISTRIBUTION

TRANSFORMERS

17.1 INTRODUCTION

DOE of Energy (Department, or DOE) has determined that distribution transformer

energy

- efficiency standards constitute an “economically significant regulatory action” under Executive Order (E.O.) 12866 “Regulatory Planning and Review.” 58 FR 51735, October 4, 1993. Therefore, the energy- efficiency standards require a regulatory impact analysis (RIA), which involves an evaluation of non-regulatory alternatives to the promulgated standards. This document evaluates several possible alternatives to the adopted standards, and compares the costs and benefits of each to the adopted standards. As described in section 17.2 of this report, the efficiency levels adopted by DOE are those in trial standard level (TSL) 1 for liquidimmersed distribution transformers and TSL 2 for medium-voltage, dry-type distribution

transformers.

Under the Process Rule ( Procedures, Interpretations and Policies for Consideration of New or Revised Energy Conservation Standards for Consumer Products, 10 CFR 430, Subpart C, Appendix A ), DOE is committed to continually explore non- regulatory alternatives to standards. 62 FR 54817. DOE has prepared this regulatory analysis pursuant to E.O. 12866, which is subject to review under the Executive Order by the Office of Information and Regulatory Affairs (OIRA). 58 FR 51735.

DOE identified six major, non- regulatory alternatives to standards as representing feasible policy options to achieve potentially similar improvements in distribution transformer energy efficiency. Table 17.1.1 lists the six alternatives. DOE evaluated each of those alternatives that apply to the distribution transformers covered by this final rule in terms of its ability to achieve significant ene rgy savings at a reasonable cost, and compared the effectiveness of each one to the effectiveness of the adopted standards. As discussed in section 17.2 below, DOE found that some of these policy alternatives would not have an impact on those transformers for which there are energy conservation standards and therefore did not analyze

them further.

Table 17.1.1 Policy Alternatives to Adopted National Distribut ion Transformer

Standards

No New Regulatory Action

Consumer Rebates

Consumer Tax Credits

Manufacturer Tax Credits Voluntary Energy

- Efficiency Targets17

- 2 Early Replacement

Bulk Government Purchases

17.2 NON

- REGULATORY POLICIES

17.2.1 Methodology

DOE used a modification of the national impact analysis (NIA) spreadsheet model to calculate the national energy savings (NES) and net present value (NPV) of consumer costs and

benefits associated with each non -regulatory policy alternative. Chapter 10 of the technic al support document (TSD) describes the NIA spreadsheet model.

DOE quantified the effect of each alternative on the purchase of products that meet target levels, which are defined as the efficiency levels in the proposed standards. After establishing the quantitative assumptions underlying each alternative, DOE appropriately revised inputs to the NIA spreadsheet model. The primary model input revised were market shares of products meeting target efficiency levels. These are also referred to as market effic iency distributions. DOE assumed that the proposed standards would affect 100% of the shipments of products that did not meet target levels in the base case, whereas the non

- regulatory policies would affect a smaller percentage of those shipments. DOE made certain assumptions about the percentage of shipments affected by each alternative policy and assumed that shipments of the least efficient models in the market would increase to the target efficiency level (e.g., first models at EL 0, then

models at EL 1 , etc.).

Increasing the efficiency of a product often increases its average installed cost. On the other hand, operating costs generally decrease because energy consumption declines. DOE

therefore calculated consumer NPV for each non

- regulatory alternativ e in the same away it did for the proposed standards. In some scenarios, increases in total installed costs are mitigated by government rebates or tax credits. Because DOE assumed that consumers would re- pay credits and rebates in some way (such as through additional taxes), DOE did not include the value of rebates or tax credits themselves as consumer benefits when calculating national NPV and instead treated them as transfers. DOE’s analysis also excluded any administrative costs for the non-regulatory policies; including such costs would decrease NPV.

The key measures of the impact of each alternative are:

**•** National energy savings in quadrillion British thermal units (quads): Cumulative national primary energy savings for equipment bought in the period from the effective date of the policy case (2016) to the year 2045.

**•** Net present value : The value of net monetary savings from equipment bought in the period from the effective date of the policy case (2016) to the year 2045. DOE calculated the NPV as the difference between the present value of equipment and operating expenditures (including energy) in the base case, and the present value of expenditures in17

- 3 each alternative policy case. DOE calculated capacity and operating cost savings through the year 2105 for transformers purchased in the period 2016 to 2045.

17.2.2 Policy Assumptions

The impacts of non-regulatory policies are by nature uncertain, since they depend on program implementation and marketing efforts and the subsequent consumer behavior response. The projected impacts depend on the assumptions about the consumer participation rate and are therefore subject to more uncertainties than the impacts of mandatory standards, which DOE assumed would have full compliance. To increase the robustness of the analysis, DOE

conducted a literature review on each non -regulatory policy and consulted with key experts to gather information on similar incentive programs that have been imp lemented in the U.S. By studying field experience with sample programs of each type, DOE sought to make credible assumptions of their potential market impacts. Section 17.3 below reports the conclusions from this research as they apply to the policy modeling assumptions and includes the corresponding

literature citations.

Each of the policy alternatives to the adopted standards that DOE considered improves the average efficiency of new distribution transformers relative to the base case (no new regulatory action). The analysis considered that each alternative policy would induce consumers to purchase units at the target levels, the same efficiency levels as required by the adopted standards. In contrast to the adopted standards, however, the penetration rate in the alternative policy cases may not be 100 percent.

The adopted standards are TSL 1 for liquid- immersed transformers, TSL 2 for lowvolt age dry -type transformers, and TSL 2 for medium- voltage dry -type transformers, as shown in

Table 17.2.1 . Section II of the final rule shows the efficiency levels for the adopted standard levels by equipment class and kilovolt- ampere (kVA) size.

The size of the eligible market for the policies varies among the equipment classes.

Table 17.2.1 shows the percentages of the distribution transformer market that DOE projects will be below the target levels in 2016 (in the column labeled “Percent Non-Compliant”). Therefore, policies that aim for the target level will impact the non -complying portion of the distribution transformer market for each equipment class. Non

- regulatory policies would thus impact some fraction of these portions of the market.

DOE assumed that the non- regulatory policy impacts last from the effective date for adopted distribution transformer standards, 2016, through the end of the analysis period, 2045.

Table 17.2.1 Adopted Standard Levels for Distribution Transformers Distribution Transformer Type TSL Percent Non

- Compliant Liquid Immersed 1 72.7

Low

- Voltage Dry

- Type 2 82.2

Medium

- Voltage Dry

- Type 2 86.117

- 4 DOE did not consider administrative costs for any of the non- regulatory policies in its analysis. Inclusion of such costs would decrease their NPV by a small amount.

17.2.3 Policy Interactions

DOE calculated the impacts of each regulatory policy separately from those of the other policies. In actual practice, certain policies are often most effective when implemented in combination to provide incentives. DOE attempted to make conservative assumptions to avoid double-counting policy impacts. Therefore, the policy impacts reported below are not additive; the combined impact of several or all of the policies may not be inferred from adding the results together.

Section 17.3 below presents the results of the analysis of the non- regulatory policies for

distribution transformers.

17.3 NON

- REGULATORY POLICY AS SUMPTIONS

17.3.1 No New Regulatory Action

The case in which no new regulatory action is taken with regard to distribution transformer efficiency constitutes the base case scenario described in chapter 10 of th is TSD. This case defines the basis of comparison for all other scenarios. By definition, no new regulatory action yields zero energy savings and a net present value of zero dollars.

17.3.2 Financial Incentives Policies

DOE considered scenarios in which the Federal government would provide two types of

financial incentives: rebates and tax credit s. The government could provide consumers with a cash rebate at the time of purchase. Tax credits could be granted to consumers who purchased

target -level distribution transformers, or the government could issue tax credits to manufacturers to offset costs associated with producing such equipment.

DOE’s evaluation of financial incentive policies used a comprehensive study of the potential for energy efficiency in California performed by XENERGY , Inc., which summarizes experience with various utility re bate programs. 1 XENERGY developed a re

- parameterized,

mixed -source, information- diffusion model to estimate market impacts induced by financial incentives for energy

- efficient appliances. The basic premise of this mixed -source mode l is that information diffusion drives technology adoption. The model is formulated to characterize the influences of both internal and external sources of information on consumer behavior by superimposing two components in the equation, each capturing th e effect of one of two different types of information source. The effects of these two types of information-diffusion mechanisms are different. Internal sources of information influence consumers to purchase new products, due mainly to word- of -mouth from early adopters, while external information sources influence17

- 5 consumers to change their adoption decisions as a result of marketing efforts and information coming from outside the consumer group. The mixed-source model describes a combined impact of the t wo information-source types, and specific parameterization determines consumer adoption behavior. (Appendix RIA.A contains further details.)

XENERGY ’s model combined these two information diffusion mechanisms and generated a set of “implementation curv es,” which XENERGY calibrated using evaluation data from utility rebate programs conducted in the 1990s. Consumer response to rebate incentives appears to result from a combination of the two information-source types. The implementation

curves illustrate the increased penetration of efficient equipment (i.e., increased market share) as a result of consumer response to benefit/cost (B/C) ratio changes induced by a specific rebate program. The implementation curves are used to depict various diffusion patterns based on perceived barriers to consumer purchase of high

- efficiency equipment. There are implementation curves for varying levels of market barriers, from “no barriers” to “extremely high barriers.” These curves provide a means to study the impact on the consumer participation rate of changing the B/C ratio by reducing the initial equipment cost through financial incentives.

To further understand the impacts of financial incentives policies, DOE used studies on forecasting the impact of consumer tax credits. 2,3 This research differentiated the impact of tax

credits into the “direct price effect,” which arises from the incremental equipment cost savings, and the “announcement effect,” which is independent of the rebate amount. The announcement effect derives from the credibility that a particular technology receives from its inclusion in an incentive program, as well as changes in product marketing strategy and the resulting modifications in markups and pricing. DOE assumed that the direct price effect and the announcement effect would also apply to rebate programs. It a ssumed that half of the increases in market penetration associated with rebates would be due to the direct price effect and half to

the announcement effect.

17.3.2.1 Consumer Rebates

DOE modeled the impact of the consumer rebate policy by determining the increase in market penetration of target -level equipment relative to the base case. It assumed that this polic y would apply to low-voltage dry-type and medium-voltage dry

- type transformers.

For low-voltage dry-type and medium-voltage dry- type transformers , DOE e stimated the impact of increasing the B/C ratio via a rebate that paid 6 0 percent of the incremental equipment cost between a distribution transformer meeting the base case efficiency level and a unit meeting the target efficiency. DOE based the 6 0 percen t rebate amount on existing utility rebate programs for low-voltage dry-type and medium- voltage dry

- type transformers

. 4–7 DOE studied each of these programs and found that the average rebate amounted to about 6 0 percent of the incremental equipment cost for low-voltage dry- type and medium- voltage dry

- type transformers

. It then assumed that the consumer rebate policy would reduce the incremental equipment costs

for low-voltage dry-type and medium-voltage dry- type transformers during the analysis period by the same percentage.17

- 6 DOE assumed the rebates would remain in effect until they had transformed the market, so that the shift in market share efficiencies seen in the first year of the program would be maintained throughout the forecast period (2016–2045). Section 17.3.2.1 below presents the results of the analysis for the consumer rebate policy.

To estimate the B/C ratios, DOE first calculated the B/C ratio for each de sign line with an efficiency meeting the target level relative to the base case design line with no rebate (see chapter 8 of this TSD for details on transformer design lines). It then calculated another B/C ratio for each design line meeting the target le vel, with a rebate reducing its incremental equipment cost, relative to the base case unit. Because of the incremental cost reduction due to the rebate, the B/C ratio for the rebate policy unit is larger. Table 17.3.1 shows the inputs to these calculations and the resulting B/C ratios for each design line (DL). See chapter 8 of th is TSD for a detailed discussion of design lines.

Table 17.3.1 Benefit/Cost Rat ios for Adopted Standard and Rebate Policy Cases

Design

Lin e Benefit (Lifetime Operation

Cost Savings) ($) Incremental

Installed Costs ($) B/C Ratio

with No

Rebate Rebate Amount ($) Incremental Equipment

Cost after Rebate ($) B/C Ratio

for Rebate Policy Case

1 6 39 0.5 62 66 0.9

2 5 27 0.8 27 38 1.4

3 158 134 2.0 708 437 5.2

4 53 61 1.8 265 175 4.6

5 439 117 0.9 2229 1072 2.7

6 0 0 0.0 0 0 0.0

7 113 58 4.0 252 166 10.1

8 244 242 1.4 1165 741 3.6

9 51 1 5.9 96 43 19.1

10 452 401 1.1 2490 1468 3.0

11 126 88 0.7 878 464 2.1

12 690 35 1.1 4205 1837 3.7

13A 46 107 0.0 533 335 0.0

13B 742 214 0.5 6386 2951 1.5

Note: Design lines 1 though 5 represent liquid

- immersed transformers. Design lines 6 though 8 represent low

voltage, dry

- type transformers. Design lines 9 though 13 B represent medium

- voltage, dry

- type transformers.

DOE then used the implementation curves discussed above to estimate the increased percentage of consumers who would purchase units that meet the policy target levels if given a rebate incentive. DOE assumed that medium-voltage dry- type transformers would fit the “moderate barriers” curve, since they are typically purchased by industrial entities that analyze the economics of the purchase and, therefore, have some incentive for energy efficiency.

Figure 17.3.1 shows an implementation curve with the penetration rates (market shares) of target

- level units for an example des ign line of medium- voltage dry

- type transformers as a17

- 7 function of B/C ratios. Using this method, DOE estimated that, for design line 12 (one of the medium-voltage, dry-type design lines), the penetration rate increase, as shown, would be about

24 percent.

To estimate the impacts of this rebate policy on medium-voltage dry

- type transformers, DOE calculated the weighted average of the resulting market share increases by equipment class, using the market shares of the design lines. DOE applied these market share increases to the portion of shipments affected by the standards (non-compliant) in each equipment class, generating effective market share increases of distribution transformers meeting the target levels by equipment class. In the RIA model, DOE adjusted the base case shipments projection to reflect these percentage increases in effective market share.

Figure 17.3.1 Market Penetration Curve for Design Line 12,

Medium -Voltage Dry- Type Distribution

Transformers

Tabl e 17.3.2 lists the market share increases of the affected shipments, the percentage of the equipment class ( E C) affected by the standards, and the effective E C market share increases,

for each medium-voltage dry- type transformer equipment class. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00Maximum Penetration Rate

Participant Benefit

- Cost Ratio Medium

- Voltage Dry

- Type: Moderate Barriers

With Rebate: Penetration Rate = 26.5% @ B/C Ratio of 3.7

Without Rebate:Penetration Rate = 2.2% @ B/C Ratio of 1.117

- 8 Table 17.3.2 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Low-Voltage, Dry- Type Equipment Class

Equipment

Class Increased Market Share (Percentage of

Affected Market

Segment) (%) Percent Affected by Adopted Standard (%) Increased Effective Market Share (%)

5 18.0 90.2 16.2

6 18.0 90.2 16.2

7 23.4 85.0 19.9

8 23.4 85.0 19.9

9 5.4 90.0 4.8

10 5.4 90.0 4.8

For low-voltage dry-type distribution transformers DOE assumed they would fit the “high barriers” curve. Low -voltage dry-type distribution transformers are typically purchased by

industrial and commercial entities based on first cost.

Figure 17.3.2 shows an implementation curve with the penetration rates (market shares) of target

- level units for an example design line of low-voltage dry- type transformers as afunction of B/C ratios. Using this method, DOE estimated that, for design line 7 (one of the lowvoltage, dry-type design lines), the penetration rate increase, as shown, would be about 33

percent.

Figure 17.3.2 Market Penetration Curve for Design Line 7, LowVoltage Dry- Type Distribution Transformers 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00Maximum Penetration Rate

Participant Benefit

- Cost Ratio Low

- Voltage Dry

- Type: High Barriers

With Rebate: Penetration Rate = 44.8% @ B/C

Ratio of 10.1

Without Rebate: Penetration Rate = 11.9% @ B/C

Ratio of 4.017

- 9 Table 17.3.3 lists the market share increases of the affected shipments, the percentage of the equipment class (EC) affected by the standards, and the effective EC market share increases,

for each low-vol tage, dry

- type transformer equipment class.

Table 17.3.3 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Medium -Voltage, Dry- Type Equipment Class

Equipment

Class Increased Market Share (Percentage of Affected Market Segment) ( %) Percent Affected by Adopted Standard ( %) Increased

Effective

Market Share ( % )

3 0.0 0.0 0.0

4 26.9 81.9 22.0

Although DOE assumed that the rebate policy would not apply to utilities, and therefore liquid

- immersed transformers, it did analyze the impacts of consumer and manufacturer tax credits on liquid- immersed transformers. Therefore, DOE needed to calculate the impacts of a hypothetical rebate -type incentive for liquid- immersed transformers, assuming that such rebates would reduce the incremental installed cost of these transformers by the same percentage as they

would for the medium- voltage, dry -type transfor mers. Using this assumption, DOE calculated the changes in B/C ratios for the liquid -immersed representative units, as shown above in Table

17.3.4

.

DOE assumed liquid- immersed transformers would fit the “ medium barriers” curve, because the utilities that purchase them usually evaluate the economics of the purchase. DOE acknowledges that utilities are increasing purchasing of first cost, in response to this DOE has increased the implementation rate to “medium barriers” from “low barriers” that was used in the previous 2007 rule. 8 In 1996, Oak Ridge National Laboratory (ORNL) stated in its determination analysis that 90 percent of the liquid- immersed transformer purchases were evaluated. 9 Data submitted by the National Electrical Manufacturers Association (NEMA) for years after 1996 showed that about 65 percent of utilities still evaluated their d istribution transformer purchases.

For liquid- immersed transformers, DOE estimated the market

- weighted averages of the penetration rates from the design line at the equipment class level. DOE then used implementation curves to estimate the increased percentage of consumers who would purchase units that meet the policy target levels, if given hypothetical rebates covering 60 percent of incremental costs. For example, as shown in Figure 17.3.3 , for design line 5 the penetration rate (market share) would increase by approximately 15 percent. Table 17.3.4 lists the market share increases of the affected shipments, the percentage of the equipment class impacted by the adopted standards, and the effective equipment class market sh are increases, for each liquid

immersed transformer equipment class. DOE used these values to calculate the impacts of the tax credit policies on liquid -immersed transformers, as explained in the sections below.17

- 10 Figure 17.3.3 Market Penetration Curves for Design Line 5, Liquid

- Immersed Distributi on Transformers

Table 17.3.4 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Liquid- Immersed Equipment Class

Equipment

Class Increased Market Share (Percentage of Affected Market Segment) ( %) Percent Affected by Adopted

Standard ( % ) Increased

Effective Market Share ( % )

1 12.2 27.3 7.0

2 23.9 70.1 7.6

17.3.2.2 Consumer Tax Credits

DOE assumed that a tax credit policy would apply to low-voltage dry- type, mediumvoltage dry type transformers, as well as those liquid

- immersed transformers that are purchased by investor- owned utilities (IOUs).

DOE assumed a consumer tax credit equivalent to the amount covered by rebates (i.e., 70 percent of the incremental cost between distribution transformer base case equipment and equipment meeting the policy target levels).

DOE estimated that, for all tra nsformer types, the consumer participation rate would be lower than that for consumer rebates. Research on tax credits has shown that the time delay tothe consumer in receiving a reimbursement via tax credit, plus the added transaction costs in taxreturn preparation, make the tax credit incentive less effective than a rebate received at the time 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00Maximum Penetration Rate

Participant Benefit

- Cost Ratio Liquid Immersed: Medium Barriers

With Rebate: Penetration Rate = 17.3% @ B/C Ratio of 2.7

Without Rebate: Penetration Rate = 1.7% @ B/C Ratio of 0.917

- 11 of purchase. Based on previous analysis, 8 DOE assumed that only 60 percent as many consumers would take advantage of the tax credit as would take advantage of a rebate.

Using a similar approach as for the rebate policy, DOE estimated that the market share of target efficiency distribution transformers would increase due to consumer tax credits over the base case by the percentages sho wn in Table 17.3.5 . For all transformer types, these percentage market share increases are 60 percent of the market increases estimated for the rebate policy (which are shown in Table 17.3.2 through Table 17.3.4 ). For liquid- immersed transformers equipment classes 1 and 2, DOE adjusted the effective market shares to reflect the percentage of those transformers owned by IOUs, as shown in Table 17.3.6 . DOE used data on transformer ownership by design line to estimate the percentage of liquid- immersed transformers owned by

IOUs. Refer to chapter 8 of th is TSD for more information.

DOE assumed the impact of this policy would be to permanently transform the market so that the shipment weighted efficiency gain seen in the first year of the program would be maintained throughout the forecast period. Section 17.3.2.3 below presents the results of the analysis for the consumer tax credit policy.

Table 17.3.5 Effective Market Share Increases for Consumer Tax Credits Policy Case by Equipment c lass Equipment

Class Percent Owned by IOUs ( %) Increased Effective Market Share (Percentage of Equipment Class) ( %)

1 72.0 4.2

2 80.0 4.5

3 72.0 0.0

4 35.0 13.2

5 0.0 9.7

6 0.0 9.7

7 0.0 12.0

8 0.0 12.0

9 0.0 2.9

10 0.0 2.9

17.3.2.3 Manufacturer Tax Credits

DOE assumed that tax credits could be given to manufacturers of liquid- immersed , lowvoltage dry

- type, and medium- voltage dry -type transformers. It assumed that this incentive policy would help reimburse manufacturers for retooling costs. Becaus e these tax credits would go to manufacturers instead of consumers, DOE assumed that manufacturers would pass on the reduced costs, causing a direct price effect. However, DOE assumed that the announcement effect would not occur because the program would not be visible to owners of distribution transformers. Since the direct price effect is approximately equivalent to the announcement effect, 10 DOE assumed that half of the consumers assumed to take advantage of consumer tax17

- 12 cred its would purchase more- efficient products with a manufacturer tax credit program. As a result, DOE estimated the percentage by which market shares of efficient distribution transformers would increase due to manufacturer tax credits over the base case, a s shown in

Table 17.3.6

.

Table 17.3.6 Effective Market Share Increases for Manufacturer Tax Credits Policy Case by Equipment class Equipment

Class Increased Effective Market Share (Percentage of Equipment Class) ( % )

1 2.1

2 2.3

3 0.0

4 6.6

5 4.9

6 4.9

7 6.0

8 6.0

9 1.4

10 1.4

DOE assumed that the impact of this policy would be to permanently transform the market so that the shipment weighted efficiency gain seen in the first year of the program would be maintained throughout the forecast period.

17.3.3 Voluntary Energy- Efficiency Targets

DOE assumed that this policy would apply only to low-voltage, dry-type distribution transformers. For the RIA, D OE model ed the voluntary efficiency target policy assuming the

CSL3 efficiency level, which is also promoted by NEMA under its trademark name, NEMA

Premium a . The CSL3 voluntary standard s ets minimum energy

- efficiency specifications for low-voltage dry- typ e. The CSL3 efficiency standard is supported by various agencies that promote green building or by agencies that require LEED b certification for building retrofits or

new construction.

The CSL 3 and NEMA Premium voluntary standards for low-voltage dry- type transformers are relatively new programs, because of this there is currently very little demand for the transformers. However, DOE assumed the impacts of these voluntary efficiency levels as a mature program and used the number of low- voltage transformers that met NEMA’s TP1 voluntary standard, as 9 percent an estimation of market share.

a http://www.nema.org/prod/pwr/trans/transformersProgram.cfm

b http://www.usgbc.org/DisplayPage.aspx?CMSPageID=6417

- 13 Table 17.3.7 Effective Market Share Increases for Voluntary Energy- Efficiency Targets by Equipment class Equipment

Clas s Increased Effective Market Share (Percentage of Equipment Class) ( %)

3 0.0

4 2.0

17.3.4 Early Replacement

Early replacement refers to the replacement of distribution transformers before the end oftheir useful lives. The purpose of this policy is to replace old, inefficient equipment with higherefficiency units.

In 1995, ORNL performed a study of savings potential for early replacement of

distribution transformers. 11 This study found that early replacement would be practical only at the time of routine transformer maintenance and would be cost-effective for just 13 percent of

tra nsformers as an alternative to refurbishment. As discussed in chapter 10 of th is TSD, in discussions with DOE, transformer owners stated that refurbishment was uncommon in current practice. Thus, the RIA analysis assumed that owners would replace their t ransformers rather than refurbishing them. Therefore, DOE concluded that an early replacement policy for this equipment would have minimal impact and did not further analyze it.

17.3.5 Bulk Government Purchases

DOE assumed that this policy would apply only to low-voltage, dry-type distribution transformers. For the RIA, DOE assumed that a bulk government purchase policy would encourage Federal, State, and local governments to purchase distribution transformers meeting the target levels. Aggregating public sector demand could provide a market signal to manufacturers and vendors that some of their largest customers seek suppliers with products that meet an efficiency target at competitive prices. This program could also induce “market pull”impacts through the effects of manufacturers and vendors achieving economies of scale for highefficiency products. DOE assumed that government agencies, such as the U.S. General Services Administration (GSA), would administer such a program. A bulk purchasing program could impact government purchases of low-voltage, dry-type transformers. However, while government entities own medium-voltage, dry-type and liquid- immersed transformers, they are typically purchased on a custom basis rather than for inventory. Thus, DOE concluded that a bulk purchasing program would not be appropriate for MV dry-type or liquid- immersed

distribution transformers.17

- 14 17.4 RESULTS SUMMARY FOR NON

- REGULATORY ALTERNATI VES

Table 17.4.1 shows the NES and NPV of each of the applicable non-regulatory alternatives. The results are reported for liquid-immersed and medium-voltage, dry- type transformers, as well as in total. The case in which no regulatory action is taken with regard to distribution transformers constitutes the base case (or “No Action”) scenario. Since this is the base case, energy savings and NPV are zero by definition. For comparison, the table includes the impacts of the adopted energy conservation standards. The NPV amounts shown in Table

17.4.1 refer to the NPV based on two discount rates (seven pe rcent and three percent real). Note that, for three of the policy alternatives, no results are reported; as discussed above, DOE found that those policies would not impact the distribution transformers covered by this energy

conservation standard.

Non e of the alternatives DOE examined would save as much energy or have an NPV as high as the adopted standards. Also, several of the alternatives would require new enabling legislation, such as consumer or manufacturer tax credits, since authority to carry out those alternatives does not presently exist.17

- 15 Table 17.4.1 Non -Regulatory Alternatives and the Adopted Standard

Policy Alternatives Type Primary Energy Savings(quads) Net Present Value*(billion $2006)

3 discount rate 7 discount rate

No New Regulatory Action 0 0 0

Consumer Rebates Liquid 0.00 0.00 0.00
LV** Dry 0.16 0.54 0.16
MV***Dry 0.05 0.12 0.02

Total 0.21 0.65 0.18

Consumer Tax Credits Liquid 0.04 0.11 0.02
LV Dry 0.10 0.32 0.09
MV Dry 0.03 0.07 0.01

Total 0.16 0.51 0.12

Manufacturer Tax Credits Liquid 0.02 0.06 0.01
LV Dry 0.05 0.16 0.05
MV Dry 0.01 0.04 0.01

Total 0.08 0.25 0.06

Voluntary EnergyEfficiency Targets Liquid 0.00 0.00 0.00
LV Dry 0.00 0.00 0.00
MV Dry 0.00 0.00 0.00

Total 0.00 0.00 0.00

Bulk Government

Purchases Liquid 0.00 0.00 0.00
LV Dry 0.00 0.00 0.00
MV Dry 0.00 0.01 0.00

Total 0.00 0.01 0.00

Adopted Standards Liquid 0.92 2.66 0.41
LV Dry 2.43 8.17 2.37
MV Dry 0.29 0.69 0.13

Total 3.63 11.51 2.92

* DOE deter mined the NPV discounted to 2012 in billion 2011 $.

** LV = low

- voltage

*** MV = medium

- voltage17

- 16 REFERENCES 1. Rufo, M. & Coito, F. California’s Secret Energy Surplus: The Potential for Energy Efficiency . (Xenergy Inc.: Oakland, CA, 2002).

2. Koomey, J. Avoiding “The Big Mistake” in Forecassting Technology Adoption . (Lawrence Berkeley National Laboratory: Environmental Energy Technologies Division: University of California Berkeley, California 94720, 2002). <http://enduse.lbl.gov/info/lbnl-45383.pdf>

3. Lawrence Berkeley National Laboritry

- End -Use Forecasting Group Analysis of Tax Credits for Efficient Equipment . <http://enduse.lbl.gov/projects/TaxCredits.html>

4. City of Anaheim City of Anaheim - Customized Energy Incentives

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