### REGULATORY IMPACT ANALYSIS FOR ENERGY CONSERVATION STANDARDS FOR

DISTRIBUTION TRANSFORMERS

July 2007

U.S. Department of Energy Assistant Secretary Office of Energy Efficiency & Renewable Energy Building Technologies Program Appliances and Commercial Equipment Standards Washington, DC 20585REGULATORY IMPACT ANALYSIS FOR ENERGY CONSERVATION STANDARDS FOR ELECTRICAL DISTRIBUTION TRANSFORMERS
TABLE OF CONTENTS
1.0 INTRODUCTION

.................................................. RIA-1 2.0 NON-REGULATORY POLICIES

..................................... RIA-2 2.1 Methodology

................................................ RIA-2 2.1.1 Modeling Method

....................................... RIA-2 2.1.2 Policy Assumptions

..................................... RIA-3 2.1.3 Policy Interactions

...................................... RIA-4 2.2 Non-Regulatory Policy Assumptions

.............................. RIA-5 2.2.1 No New Regulatory Action

............................... RIA-5 2.2.2 Financial Incentives Policies

.............................. RIA-5 2.2.3 Voluntary Energy-Efficiency Targets

...................... RIA-13 2.2.4 Early Replacement

..................................... RIA-14 2.2.5 Bulk Government Purchases

............................. RIA-14 2.3 Results Summary for Non-Regulatory Alternatives

................. RIA-15
APPENDIX RIA.A: USING IMPLEMENTATION CURVES TO ESTIMATE MARKET PENETRATION OF NON-REGULATORY POLICIES

....... RIA-17
LIST OF TABLES

........................................................... RIA-2 Table RIA.1 Policy Alternatives to Adopted National Distribution Transformer Standards Table RIA.2 Adopted Standard Levels for Distribution Transformers

............... RIA-4 Table RIA.3 Benefit/Cost Ratios for Adopted Standard and Rebate Policy Cases

..... RIA-7 Table RIA.4 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Medium-Voltage, Dry-Type Product Class

.................. RIA-9 Table RIA.5 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Liquid-Immersed Product Class

...................... RIA-10 Table RIA.6 Effective Market Share Increases for Consumer Tax Credits Policy Case by Product Class

............................................... RIA-12 Table RIA.7 Effective Market Share Increases for Manufacturer Tax Credits Policy Case by Product Class

............................................... RIA-13

RIA -iLIST OF FIGURES Figure RIA.1 Market Penetration Curve for Design Line 13 of Medium-Voltage, Dry-Type Transformers

................................................ RIA-8 Figure RIA.2 Market Penetration Curve for Design Line 1 of Liquid-Immersed Transformers

............................................... RIA-10 Figure RIA.A.1 Comparison of Exponential and Logistic Curves Showing External and Internal Influences on Consumers

............................................ RIA-18

RIA -iiREGULATORY IMPACT ANALYSIS FOR ENERGY CONSERVATION STANDARDS FOR ELECTRICAL DISTRIBUTION TRANSFORMERS

1.0 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 2.0 of this report, the efficiency levels adopted by DOE are those in trial standard level (TSL) C for liquid-immersed distribution transformers and TSL 2 for medium-voltage, dry-type distribution transformers. a 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 RIA.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 energy savings at a reasonable cost, and compared the effectiveness of each one to the effectiveness of the adopted standards. As discussed in section 2.2 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.

a Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type distribu tion tran sform ers, D OE has rem ove d this type of transfo rmer from th e N OP R stag e of its ana lysis. RIA -1Table RIA.1 Policy Alternatives to Adopted National Distribution Transformer Standards No New Regulatory Action Consumer Rebates Consumer Tax Credits Manufacturer Tax Credits Voluntary Energy-Efficiency Targets Early Replacement Bulk Government Purchases

2.0 NON-REGULATORY POLICIES
2.1 Methodology This section describes the approach DOE used to analyze non-regulatory policies for the appropriate distribution transformer product classes. DOE assumed that each policy would apply to one or both of the two transformer types: liquid-immersed and medium-voltage, dry-type.
2.1.1 Modeling Method To calculate the national energy savings (NES) and the net present value (NPV) corresponding to each policy alternative, DOE used the national impact analysis (NIA) Spreadsheet Model. (See Chapter 10 of the technical support document (TSD) 1for a description of the NIA Spreadsheet Model.) To compare each alternative to the adopted standards, DOE quantified the effect of each alternative on the purchase of distribution transformers meeting efficiency levels equivalent to those in the adopted standards. This report refers to these levels as target levels. Once it had made the quantitative assumptions for each alternative, DOE made the appropriate revisions to the inputs in the NIA Spreadsheet Model. The main model inputs that DOE revised were the market shares of equipment at the target efficiencies. The shipments for any given year comprise a distribution of efficiency levels. DOE assumed that the adopted standards would affect 100 percent of the shipments, while the non-regulatory policies affect a smaller percentage of the shipments. In each policy case, DOE made particular assumptions about the percentage of shipments (market shares) impacted by the policy under analysis. In the base case and the policy case, the impacted shipments enter the stock each year. Using the estimates of transformer losses from the life-cycle cost analysis (Chapter 8 of the TSD), DOE calculated the annual total energy use by the stock of transformers. For each year analyzed, the difference in source energy use between the adopted standards case and the policy case is the annual energy savings.

RIA -2A shift in market share to higher-efficiency transformers may increase the average installed cost of distribution transformers. Operating costs will generally decrease due to a decline in energy consumption. Therefore, DOE was able to calculate an NPV for non-regulatory alternatives in the same way as for the adopted standard. In some scenarios, total installed cost increases are partially mitigated by government rebates or tax credits. DOE assumed that credits and rebates would be paid for by consumers in another form (such as additional taxes), and therefore did not include them as a benefit for the purposes of calculating the national 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 (2010) to the year 2038.

• Net present value: The value of net monetary savings from equipment bought in the period from the effective date of the policy case (2010) to the year 2038. 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 in each alternative policy case. DOE calculated capacity and operating cost savings through the year 2073 for transformers purchased in the period 2010 to 2038.a
2.1.2 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 implemented 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 2.2 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

a DOE used the same time period for NPV in the RIA as it did for the NIA in the advance notice of proposed rulemaking. The longer period for operating cost savings allows the policy impact analysis to account for the operating cost savings benefits for equipment purchased through the year 2035. RIA -3standards. 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 C for liquid-immersed transformers, and TSL 2 for medium-voltage dry-type transformers, as shown in Table RIA.2. Section II of the final rule shows the efficiency levels for the adopted standard levels by product class and kilovolt-ampere (kVA) size. The size of the eligible market for the policies varies among the product classes. Table RIA.2 shows the percentages of the distribution transformer market that DOE projects will be below the target levels in 2010 (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 product 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, 2010, through the end of the analysis period, 2038.
Table RIA.2 Adopted Standard Levels for Distribution Transformers

Distribution Transformer Type TSL Percent Non-Compliant Liquid-Immersed C 69.3 Medium Voltage, Dry-Type 2 47.9 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.
2.1.3 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 2.3 below presents the results of the analysis of the non-regulatory policies for distribution transformers.

RIA -42.2 Non-Regulatory Policy Assumptions
2.2.1 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 the 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.
2.2.2 Financial Incentives Policies DOE considered scenarios in which the Federal government would provide two types of financial incentives: rebates and tax credits. 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 rebate programs. 2Xenergy developed a re-parameterized, mixedsource, information-diffusion model to estimate market impacts induced by financial incentives for energy-efficient appliances. The basic premise of this mixed-source model is that information 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 the 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 influence 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 two 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 curves,” 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.

RIA -5To further understand the impacts of financial incentives policies, DOE used studies on forecasting the impact of consumer tax credits. 3, 4This 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 assumed 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.
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 policy would apply to medium-voltage, dry-type transformers. For medium-voltage, dry-type distribution transformers, DOE estimated the impact of increasing the B/C ratio via a rebate that paid 70 percent of the incremental equipment cost between a distribution transformer meeting the base case efficiency levelaand a unit meeting the target efficiency. DOE based the 70 percent rebate amount on existing utility rebate programs for low-voltage, dry-type distribution transformers that require TP1-2002 efficiency levels to qualify. 5, 6, 7, 8DOE studied each of these programs and found that the average rebate amounted to about 70 percent of the incremental equipment cost for low-voltage, dry-type transformers. It then assumedthat the consumer rebate policy would reduce the incremental equipment costs for mediumvoltage, dry-type transformers during the analysis period by the same percentage. 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 (2010–2038). Section 2.3 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 design line with an efficiency meeting the target level relative to the base case design line with no rebate (see Ch.8 of the TSD for details on transformer design lines). It then calculated another B/C ratio for each design line meeting the target level, 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 RIA.3 shows the inputs to these calculations and the resulting B/C ratios for each design line (DL). See Chapter 8 of the TSD for a detailed discussion of design lines.

a The b ase case is a ma rket weighted-avera ge of units at several efficiency levels. RIA -6Table RIA.3 Benefit/Cost Ratios for Adopted Standard and Rebate Policy Cases Design Linea Benefit (Lifetime Operating Cost Savings) ($) Incremental Installed Cost ($) B/C Ratio with No Rebate Rebate Amount ($) Incremental Equipment C ost

after Rebate ($) B/C Ratio for Rebate Policy Case

DL 1 385 364 1.1 226 139 2.8 DL 2 149 284 0.5 182 102 1.5 DL 3 5,131 1,394 3.7 1,057 338 15.2 DL 4 1,407 1,472 1.0 958 515 2.7
DL 5 7,986 5,869 1.4 3,952 1,917 4.2 DL 9 3,490 480 7.3 326 154 22.7 DL 10 17,333 8,641 2.0 5,820 2,821 6.1 DL 11 7,235 1,790 4.0 1,219 571 12.7 DL 12 15,326 4,942 3.1 3,382 1,560 9.8 DL 13 9,297 5,756 1.6 3,929 1,828 5.1 Note: Design lines 1 though 5 represent liquid-immersed transformers. Design lines 9 though 13 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 RIA.1 shows an implementation curve with the penetration rates (market shares) of target-level units for an example design line of medium-voltage, dry-type transformers as a function of B/C ratios. Using this method, DOE estimated that, for design line 13 (one of the medium-voltage, dry-type design lines), the penetration rate increase, as shown, would be about 32 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 product 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 product class, generating effective market share increases of distribution transformers meeting the target levels by product

a Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type distribution transformers, DOE has removed from this Final rule its analysis of design lines 6, 7, and 8. RIA -7class. In the RIA model, DOE adjusted the base case shipments projection to reflect these percentage increases in effective market share.

FigureRIA.1 Market Penetration Curve for Design Line 13 ofMediumVoltage, Dry-Type Transformers Table RIA.4 lists the market share increases of the affected shipments, the percentage of the product class (PC) affected by the standards, and the effective PC market share increases, for each medium-voltage, dry-type transformer product class.

RIA -8Table RIA.4 Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Medium-Voltage, Dry-Type Product Class Product

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

Standard (%) Increased Effective Market Share

(%) PC 5 31.2 67.5 21.1 PC 6 31.2 67.5 21.1 PC 7 32.9 44.3 14.6 PC 8 32.9 44.3 14.6 PC 9 30.2 44.8 13.5 PC 10 30.2 44.8 13.5

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 transformers. Using this assumption, DOE calculated the changes in B/C ratios for the liquid-immersed representative units, as shown above in Table RIA.3. DOE assumed liquid-immersed transformers would fit the “low barriers” curve, because the utilities that purchase them usually evaluate the economics of the purchase. 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 distribution transformer purchases. For liquid-immersed transformers, DOE estimated the market-weighted averages of the penetration rates from the design line at the product 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 70 percent of incremental costs. For example, as shown in Figure RIA.2, for design line 1 the penetration rate (market share) would increase by almost 17 percent. Table RIA.5 lists the market share increases of the affected shipments, the percentage of the product class impacted by the adopted standards, and the effective product class market share increases, for each liquid-immersed transformer productclass. DOE used these values to calculate the impacts of the tax credit policies on liquidimmersed transformers, as explained in the sections below.

RIA -9Figure RIA.2 MarketPenetration Curve for Design Line 1 of Liquid
Immersed Transformers

Table RIA.5	Market Share and Effective Market Share Increases for Consumer Rebates Policy Case by Liquid-Immersed Product Class Product Class Increased Market Percent Impacted Increased Effective Share (Percentage of by Adopted Market Share Affected Market Standard (Percentage of Product Segment) Class) PC 1 21.4 74.3 15.9 PC 2 24.2 65.1 15.8

Consumer Tax Credits.DOE assumed that a tax credit policy would apply to 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 both transformer types, the consumer participation rate would be lower than that for consumer rebates. Research on tax credits has shown that the time delay to the RIA-10consumer 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 of purchase. Based on previous analysis, 10DOE 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 shown in Table RIA.6. For both transformer types, these percentage market share increases are 60 percent of the market increases estimated for the rebate policy (which are shown in Tables RIA.4 and RIA.5). For liquid-immersed transformers product classes 1 and 2, DOE adjusted the effective market shares to reflect the percentage of those transformers owned by IOUs, as shown in Table RIA.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 the 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 2.3 below presents the results of the analysis for the consumer tax credit policy.

RIA-11Table RIA.6 Effective Market Share Increases for Consumer Tax Credits Policy Case by Product Class Product Classa Percent Owned by IOUs (%) Increased Effective Market Share (Percentage of Product Class) (%) PC 1 72.3 9.6 PC 2 50.7 9.5 PC 5 0 12.6 PC 6 0 12.6 PC 7 0 8.7 PC 8 0 8.7 PC 9 0 8.1 PC 10 0 8.1

Manufacturer Tax Credits. DOE assumed that tax credits could be given to manufacturers of liquid-immersed and medium-voltage, dry-type transformers. It assumed that this incentive policy would help reimburse manufacturers for retooling costs. Because 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,3DOE assumed that half of the consumers assumed to take advantage of consumer tax credits 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, as shown in Table RIA.7.

a Because the Energy Policy Act of 2005 established energy conservation standards for low-voltage, dry-type distribution transformers, DOE has removed from this Final rule its analysis of product class 3 (low-voltage, dry-type, single-phase) and product class 4 (low-voltage, dry-type, three-phase).
RIA-12Table RIA.7 Effective Market Share Increases for Manufacturer Tax Credits Policy Case by Product Class Product Class Increased Effective Market Share (Percentage of Product Class) (%) PC 1 4.8 PC 2 4.7 PC 5 6.3 PC 6 6.3 PC 7 4.4 PC 8 4.4 PC 9 4.1 PC 10 4.1
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. Section 2.3 below presents the results of the analysis for the manufacturer tax credit policy.
2.2.3 Voluntary Energy-Efficiency Targets DOE assumed that this policy would apply only to low-voltage, dry-type distribution transformers. For the RIA, DOE would model the voluntary efficiency target policy assuming some form of enhancement of the existing Energy Star program conducted by the Environmental Protection Agency (EPA) and DOE. 11The Energy Star program sets minimum energy-efficiency specifications for various products. Energy Star encourages consumer adoption of these products through marketing to promote consumer label recognition, adoption of the specifications by various efficiency incentive programs, and manufacturer production and promotion of Energy Star-compliant appliances. Energy Star has a modest program for low-voltage, dry-type transformers, with efficiency specifications at the NEMATP 1-2002 standard level. Energy Star does not have specifications for medium-voltage, dry-type transformers. aWhile the Energy Star website states that “utility transformers” (i.e., liquid-immersed) are included in its program, EPA staff indicate that there

a The only programs that DOE found that include medium-voltage, dry-type transformers are Oregon’s equipment standard and Minnesota’s building code. RIA-13has been very little program activity on liquid-immersed transformers in recent years. 12 Thus, DOE concluded that there is no historical basis to project the impact of a voluntary efficiency program on the market for medium-voltage, dry-type or liquid-immersed transformers, and assumed that voluntary programs would have no impact during the forecast period. The flat or declining market share of TP 1-compliant medium-voltage, dry-type transformers observed in the shipment data is consistent with this conclusion. Therefore, since this policy would apply only to low-voltage, dry-type transformers, which are no longer part of this rulemaking, DOE did not analyze the impacts of this policy.
2.2.4 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. 13This 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 transformers as an alternative to refurbishment. As discussed in Chapter 10 of the 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 transformers 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.
2.2.5 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. Therefore, because low-voltage, dry type transformers are no longer part of this rulemaking, DOE did not analyze the impacts of this policy.

RIA-142.3 Results Summary for Non-Regulatory Alternatives Table RIA.8 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 RIA.8 refer to the NPV based on two discount rates (seven percent 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. None 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.

RIA-15Table RIA.8 Non-Regulatory Alternatives and the Adopted Standard

Policy Alternatives Type Primary Energy Savings (quads) Net Present Value* (billion $2006)
7% discount rate 3% discount rate No New Regulatory Action 0.0 0.0 0.0

Consumer Rebates Liquid 0.196 0.154 0.655 MV ** Dry 0.021 0.045 0.135

Total 0.217 0.199 0.790

Consumer Tax Credits Liquid 0.218 0.101 0.597 MV Dry 0.013 0.027 0.081

Total 0.231 0.128 0.678

Manufacturer Tax Credits Liquid 0.108 0.046 0.293 MV Dry 0.006 0.013 0.040

Total 0.114 0.059 0.333 Voluntary Energy-Efficiency Targets NA NA NA Early Replacement NA NA NA Bulk Government Purchases NA NA NA
Adopted Standards Liquid 2.605 1.106 6.951 MV Dry 0.131 0.283 0.851

Total 2.736 1.389 7.802
* DOE determined the NPV discounted to 2004 in billion 2004$. ** MV = medium-voltage

RIA-16APPENDIX RIA.A: USING IMPLEMENTATION CURVES TO ESTIMATE MARKET PENETRATION OF NON-REGULATORY POLICIES There is extensive economic literature on the diffusion process of new products as technologies evolve. Some of the literature focuses primarily on the development of analytical models of diffusion patterns of new products for individual consumers or for technologies from competing firms. 14, 15, 16, 17One study records researchers’ attempts to investigate underlying factors that drive diffusion processes. 16Because of distinct characteristics of the diverse new products, few studies are conclusive in terms of developing a universally applicable model. Some key findings, however, seem to have gained wide recognition in academia and industry. First, new technologies may not be adopted by all potential users, regardless of their economic benefits and technological merits. Therefore, a ceiling of adoption rate exists for many products. Second, not all adopters purchase new products at the same time; some act earlier to purchase new products, while others respond slowly, waiting for products to become more mature. Third, diffusion processes can be approximately characterized by asymmetric S-curves, depicting three stages of the diffusion: starting, accelerating, and decreasing as the adoption ceiling is being reached. An important diffusion model, the epidemic model, is widely used in marketing and social studies on diffusion. It assumes a) that consumers value the benefits of a new product identically, and b) that the cost of a new product is constant or declines monotonically over time. What induces a consumer to purchase the new product is information about the availability and the benefits of the product. In other words, it is information diffusion that drives new product adoption by individual consumers. 16The model embraces information diffusion from both internal sources (news spread by word of mouth from early adopters) and external sources (the announcement effect by government or commercial advertising programs) by superimposing a logistic function with an exponential function. 14, 17 The degree of relative dominance of influence by internal or external sources will determine the general shape of the diffusion curve of a specific product. 14, 17 For instance, if the adoption of one particular product is more influenced by external sources of information diffusion (announcement effect) than by internal sources (word of mouth among earlier adopters to prospective adopters), the rate of diffusion at the beginning stage of the diffusion process is much higher. This reflects the immediate information exposure to a significant number of prospective adopters brought about by external sources, in contrast to the more gradual exposure to internal sources such as news propagation by earlier adopters, a small proportion of the population, to other prospective adopters. Graphically speaking, a relatively dominant external source of information diffusion will give an immediate jump-start to the adoption of a new product in the first years, forming a concave curve with respect to the Y axis (see the exponential curve in Figure RIA.A.1). Adoption of a new product with a stronger influence by internal sources of information diffusion (such as a socially tightened network formed by prospective adopters) may start with a few early

RIA-17adopters and gradually increase as the number of adopters grows Once a critical mass accumulates, the growth appears to accelerate very rapidly and thus forms a convex curve with respect to the Y-axis during the starting and acceleration stages (see the logistic curve in Figure RIA.A.1).

Figure RIA.A.1 Comparison of Exponential and Logistic Curves Showing External and Internal Influences on Consumers

RIA-18REFERENCES
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RIA-198. Narragansett Electric (National Grid). Design Plus2000. (Last accessed August 10, 2005.) This material is available in Docket #86. Contact Ms. Brenda Edwards-Jones, U.S. Department of Energy, Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW, Washington, DC, 20585-0121, telephone (202) 586-2945 for more information. <http://www.nationalgridus.com/narragansett/non_html/energy_eff_d2_dry_trans_pif.pdf > 9. Barnes, P. R., J. W. Van Dyke, B. W. McConnell, and S. Das. Determination Analysis of Energy Conservation Standards for Distribution Transformers.1996. Oak Ridge National Laboratory. Oak Ridge, TN. Report No. ORNL-6847.
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. E-mail to Rich Brown, Lawrence Berkeley National Laboratory

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