CHAPTER 2. ANALYTICAL FRAMEWORK

TABLE O F CONTENTS

2.1 I NTRODUCTION............................................................................................................2­1

2.2 B ACKGROUND..............................................................................................................2­4

2.3 M ARKET AND TECHNOLOGY ASSESSMENT ........................................................2­4

2.3.1 M arket Assessment ..............................................................................................2­5

2.3.2 T echnology Assessment .......................................................................................2­5

2.3.3 T est Procedure......................................................................................................2­5

2.4 S CREENING ANALYSIS...............................................................................................2­6

2.4.1 T echnology Screening..........................................................................................2­6

2.5 ENG INEERING ANALYSIS ..........................................................................................2­6

2.5.1 E quipment Classes Analyzed ...............................................................................2­7

2.5.2 M anufacturing Cost Assessment..........................................................................2­7

2.5.3 E nergy Consumption Model ................................................................................2­7

2.6 ENER GY USE CHARACTERIZATION........................................................................2­8

2.7 M ARKUPS TO DETERMINE EQUIPMENT PRICE....................................................2­9

2.8 L IFE­CYCLE COST AND PAYBACK PERIOD ANALYSES...................................2­10

2.9 S HIPMENTS ANALYSIS.............................................................................................2­11

2.10 NA TIONAL IMPACT ANALYSIS ..............................................................................2­12

2.10.1 Na tional Energy Savings Analysis .....................................................................2­12

2.10.2 Ne t Present Value Analysis................................................................................2­12

2.10.3 E fficiency Scenarios and Trends........................................................................2­13

2.11 L IFE­CYCLE COST SUB­GROUP ANALYSIS .........................................................2­13

2.12 M ANUFACTURER IMPACT ANALYSIS ..................................................................2­14

2.13 U TILITY IMPACT ANALYSIS ...................................................................................2­15

2.14 ENV IRONMENTAL ASSESSMENT...........................................................................2­15

2.15 E MPLOYMENT IMPACT ANALYSIS .......................................................................2­16

2.16 R EGULATORY IMPACT ANALYSIS ........................................................................2­16

2.17 D EPARTMENT OF JUSTICE REVIEW......................................................................2­17

LIST O F FIGURES

Figure 2 .1.1 Flow Diagram of Analyses for the CRE Rulemaking Process ...............................2­2

2­i2­iiCHAPTER 2. ANALYTICAL FRAMEWORK

2.1 INTRODUCTION

Section 6 295(o)(3)(B) of Title 42 United States Code (42 U.S.C.), as directed by 42

U.S.C. 6316(a) ( 1)­(3)), requires the U.S. Department of Energy (DOE) to set forth energy

conservation standards that are technologically feasible and economically justified, and would

achieve the maximum improvement in energy efficiency. This chapter provides a description of

the general analytical framework that DOE uses in developing such standards, and in particular,

standards for commercial refrigeration equipment (CRE). The analytical framework is a

description of the methodology, the analytical tools, and relationships among the various

analyses that are part of this rulemaking. For example, the methodology that addresses the

statutory requirement for economic justification includes analyses of life­cycle cost (LCC);

economic impact on manufacturers and users; national benefits; impacts, if any, on utility

companies; and impacts, if any, from lessening competition among manufacturers. DOE will

also solicit the views of the Department of Justice (DOJ) on any lessening of competition that is

likely to result from the imposition of a proposed standard.

Figure 2 .1.1 summarizes the analytical components of the standards­setting process. The

focus of this figure is the center column, identified as “Analyses.” The columns labeled “Key

Inputs” and “Key Outputs” show how the analyses fit into the rulemaking process, and how the

analyses relate to each other. Key inputs are the types of data and information that the analyses

require. Some key inputs exist in public databases; DOE collects other inputs from stakeholders

or persons with special knowledge. Key outputs are analytical results that feed directly into the

standards­setting process. Arrows connecting analyses show types of information that feed from

one analysis to another.

2­1Figure 2.1.1 Flow Diagram of Analyses for the CRE Rulemaking Process

2­2The analyses performed in the Advance Notice of Proposed Rulemaking (ANOPR) stage

and reported in this technical support document (TSD) are listed below.

• A market a nd technology assessment characterizes the relevant equipment markets and

existing technologies, including prototype designs.

• A screening a nalysis is conducted to review each technology and determine if it: is

technologically feasible; is practical to manufacture, install, and service; would adversely

affect equipment utility or equipment availability, or would have adverse impacts on

health and safety.

• An e ngineering analysis develops the cost­efficiency relationship, which is the increased

manufacturer production cost (material, labor, and factory overhead) of higher efficiency

equipment. The increased cost to the customer is determined through an analysis of

engineering markups, which convert manufacturer production cost to manufacturer

selling price.

• An e quipment price markup analysis to determine equipment price analysis converts the

manufacturer­selling­price estimates from the engineering analysis to customer prices,

which are then used in the LCC and PBP analyses and the manufacturer impact analysis.

• An e nergy use analysis is conducted to determine the annual energy use and hourly

power consumption characteristics of commercial refrigeration equipment in commercial

buildings.

• LCC a nd payback period (PBP) analyses calculate, at the customer level, the discounted

savings in operating costs (less maintenance and repair costs) throughout the estimated

average life of the covered equipment, compared to any increase in the installed cost for

the equipment likely to result directly from the imposition of the standard.

• A shipments a nalysis forecasts equipment shipments, which are then used to calculate the

national impacts of standards on energy consumption and costs, net present value (NPV),

and future manufacturer cash flows.

• A national i mpact analysis (NIA) assesses the aggregate impacts at the national level of

the NPV of total consumer LCC and national energy savings (NES).

• A preliminary m anufacturer impact analysis assess the potential impacts of energy

conservation standards on manufacturers such as capital conversion expenditures,

marketing costs, shipments, and research and development costs.

The a nalyses to be performed in the subsequent Notice of Proposed Rulemaking (NOPR)

stage include those listed below. In addition, DOE re­analyzes the work done in the ANOPR

stage and takes into consideration comments submitted by the Justice Department and the impact

of the proposed standards on competition.

2­3• A life­cycle c ost sub­group analysis evaluates variations in commercial business type

characteristics (e.g., energy prices, equipment use patterns, installation and maintenance

costs) that might cause a standard to impact particular customer sub­populations, such as

specific building owners or other customers who purchase and use the commercial

refrigeration equipment differently than the overall population.

• A manufacturer i mpact analysis estimates the financial impact of standards on

manufacturers and to calculate impacts on competition, employment, and manufacturing

capacity.

• A utility i mpact analysis estimates the effects of proposed standards on electric utilities.

• An e mployment impact analysis assesses the aggregate impacts on national employment.

• An e nvironmental assessment provides estimates of changes in emissions of pollutants

from electricity generation (carbon dioxide (CO 2 ), oxides of nitrogen (NO

x ), and sulfur

dioxide (SO 2 )).

• A regulatory i mpact analysis presents major alternatives to proposed standards that could

achieve substantially the same regulatory goal at a lower cost.

2.2 BACKGROUND

As d escribed in chapter 1 of this TSD, the Process Rule outlined procedural

improvements to the standards rulemaking process which included a review of the following

elements used in the rulemaking process: (1) economic models, (2) analytical tools, (3)

methodologies, (4) non­regulatory approaches, and (5) prioritization of future rules. See

Appendix A to subpart C of Title 10 Code of Federal Regulations, Part 430 (10 CFR Part 430).

DOE d eveloped this analytical framework for the commercial refrigeration equipment

rulemaking under the Process Rule. DOE documented this analytical framework in the

Rulemaking Framework for Commercial Refrigeration Equipment Including Ice­Cream

Freezers; Self­Contained Commercial Refrigerators, Freezers, and Refrigerator­Freezers

without doors; and Remote Condensing Commercial Refrigerators, Freezers, and RefrigeratorFreezers

, and presented the analytical approach to stakeholders during a public meeting held on

May 16, 2006. This document is available at

http://www.eere.energy.gov/buildings/appliance_standards/commercial/pdfs/comml_refrig_fram

ework.pdf. The following sections provide a general description of the different analytical

components of the rulemaking framework.

2.3 MARKET A ND TECHNOLOGY ASSESSMENT

The m arket and technology assessment characterizes the relevant equipment markets and

existing technology options, including prototype designs.

2­42.3.1 Market A ssessment

When i nitiating a standards rulemaking, DOE develops information on the present and

past industry structure and market characteristics for the equipment concerned. This activity

assesses the industry and equipment both quantitatively and qualitatively, based on publicly

available information, and encompasses the following: (1) manufacturer market share and

characteristics, (2) existing regulatory and non­regulatory equipment efficiency improvement

initiatives, and (3) trends in equipment characteristics and retail markets. This information

serves as resource material throughout the rulemaking.

DOE r eviewed existing literature and interviewed manufacturers to get an overall picture

of the CRE market in the United States. Industry publications and trade journals, government

agencies, and trade organizations provided the bulk of the information, including: (1)

manufacturers and their market share, (2) shipments by capacity, and (3) market saturation. The

appropriate sections of the ANOPR describe the analysis and resulting information as DOE

reported it in the TSD.

DOE h as used and will use the most reliable and accurate data available at the time of

each analysis in this rulemaking. All data will be available for public review. DOE welcomes

and will consider any submissions of additional data.

2.3.2 Technology A ssessment

DOE t ypically uses information about existing and past technology options and prototype

designs to determine what technologies manufacturers use to attain higher energy performance

levels. In consultation with stakeholders, DOE develops a list of technologies for consideration.

Initially, these technologies encompass all those DOE believes are technologically feasible.

DOE d eveloped its list of technologically feasible design options after consultation with

manufacturers of components and systems, and from trade publications and technical papers.

Since many options for improving efficiency are available in existing equipment, product

literature and direct examination of commercial refrigeration equipment provided additional

information as described in Chapter 3 of the TSD.

2.3.3 Test P rocedure

A test p rocedure outlines the method by which manufacturers will determine the

efficiency of their commercial refrigeration equipment, and thereby assess compliance with an

energy conservation standard.

Section 1 36(f)(1)(B) of EPACT 2005 amended section 343 of EPCA (42 U.S.C. 6314) by

adding new subsections 343(a)(6)(A)­(D) (42 U.S.C. 6314(a)(6)(A)­(D)), which direct the

Secretary to develop test procedures for commercial refrigeration equipment. On December 8,

2006, DOE published a final rule (the December 2006 final rule) in which it adopted ARI

Standard 1200­2006, Performance Rating of Commercial Refrigerated Display Merchandisers

and Storage Cabinets, with one modification, as the DOE test procedure for this equipment. 71

2­51 FR 71340, 71369­70. Standard 1200­2006 contains equipment rating temperature specifications

of 38 ° F (±2 ° F) for commercial refrigerators and refrigerator compartments, 0 ° F (±2 ° F) for

commercial freezers and freezer compartments, and ­5 ° F (±2 ° F) for ice­cream freezers, and

requires performance tests to be conducted according to the American Society of Heating,

Refrigerating, and Air­Conditioning Engineers (ASHRAE) Standard 72­2005, Method of Testing

Commercial Refrigerators and Freezers, test method. The one modification DOE made in

adopting ARI Standard 1200­2006 was to adopt in the final rule ­15 ° F (±2 ° F) as the rating

temperature for ice­cream freezers, instead of ­5 ° F (±2 ° F). 71 FR 71370. ASHRAE Standard

72­2005 is a steady state test method. In addition, DOE adopted American National Standards

Institute (ANSI)/Association of Home Appliance Manufacturers (AHAM) Standard HRF­1­

2004, Energy, Performance and Capacity of Household Refrigerators, Refrigerator­Freezers and

Freezers, for determining compartment volumes for this equipment. 71 FR 71369­70.

2.4 SCREENING A NALYSIS

The s creening analysis examines various technologies as to whether they: (1) are

technologically feasible; (2) are practicable to manufacture, install, and service; (3) have an

adverse impact on equipment utility or availability; and (4) have adverse impacts on health and

safety. DOE, in consultation with interested parties, reviews the list of technologies to determine

which of these are practicable to manufacture, install, and service, would adversely affect

equipment utility or availability, or would have adverse impacts on health and safety. In the

engineering analysis, DOE further considers design options that remain after the screening

process.

2.4.1 Technology S creening

As d escribed in Chapter 4 of this TSD, DOE grouped technologies into the following

categories: (1) emerging technologies, which are currently not available on the commercial

market but are being examined in the laboratory as possible means to enhance efficiency; and (2)

commercially available technologies that are used to improve energy consumption under DOE’s

test procedure.

Because t he energy descriptor for commercial refrigeration equipment is daily energy

consumption and the test procedure uses a steady state approach, DOE did not include

technologies or designs that improve energy consumption under varying ambient conditions

(e.g., expansion valves or variable­speed compressors). Therefore, only those technologies that

improve the daily energy consumption rating were considered viable for review.

2.5 ENGINEERING A NALYSIS

As p resented in chapter 5 of the TSD, the engineering analysis establishes the

relationship between the cost and efficiency of commercial refrigeration equipment. This

relationship serves as the basis for cost/benefit calculations in terms of individual customers,

1 Test procedures are found at 10 CFR section 431.64.

2­6manufacturers, and the Nation. In sum, the engineering analysis discusses the industry­supplied

cost­efficiency curves, equipment classes analyzed, the representative baseline units, the

methodology used to develop manufacturing costs, the methodology used to develop the energy

consumption model, the analytically­derived cost­efficiency curves, the methodology used to

extend the analysis to low­shipment volume equipment classes, and the use of alternative

refrigerants.

2.5.1 Equipment C lasses Analyzed

Because o f the large number of equipment classes in this rulemaking, not all covered

equipment classes were directly analyzed in the engineering analysis. The shipment data

presented in the market and technology assessment (chapter 3) was used to prioritize equipment

classes to be analyzed. Equipment classes that have fewer than 100 annual units shipped were

not considered for the analysis, leaving 14 “high­shipment” equipment classes analyzed.

According to the equipment shipments, these 14 equipment classes represent 98 percent of the

total industry shipments. One additional equipment class, the vertical open remote condensing

2 unit equipment class (VOP.RC.L), was added after discussions with manufacturers. Thus, 15

covered equipment classes were analyzed and 15 cost­efficiency curves were generated in the

engineering analysis.

2.5.2 Manufacturing C ost Assessment

A manufacturing c ost assessment was conducted to estimate the manufacturing costs

associated with a decrease in energy consumption for commercial refrigeration equipment. This

approach involved the disassembly of a vertical closed transparent self­contained medium

temperature (VCT.SC.M) refrigerator, analysis of the materials and manufacturing processes,

and the development of a spreadsheet cost model. The manufacturing cost assessment develops

a clear and consistent manufacturing cost assessment methodology, builds a detailed

manufacturing cost assessment model that accurately predicts manufacturing cost, reports the

manufacturing costs in aggregated form to maintain confidentiality of the data, and obtains input

from stakeholders on the manufacturing cost estimates and assumptions to confirm accuracy.

2.5.3 Energy C onsumption Model

DOE d eveloped an energy consumption model to calculate energy consumption of the

equipment at various performance levels within each equipment class. The energy­consumption

model is based on Air­Conditioning and Refrigeration Institute (ARI) Standard 1200,

Performance Rating of Commercial Refrigerated Display Merchandisers and Storage Cabinets

, but calculates the total refrigeration load as a summation of electric and non­electric heat loads.

Electric heat loads include the internal loads from fan motors, lighting, defrost heaters, and anti2 Equipment class designations consist of a combination (in sequential order separated by periods) of an equipment

family code (VOP=vertical open, SVO=semivertical open, HZO=horizontal open, VCT=vertical transparent doors,

VCS=vertical solid doors, HCT=horizontal transparent doors, HCS=horizontal solid doors, or SOC=service over

counter), an operating mode code (RC=remote condensing or SC=self­contained), and a rating temperature code

(M=medium temperature (38°F), L=low temperature (0°F), or I=ice­cream temperature (­15°F)). For example,

"VOP.RC.M refers to the "vertical open, remote condensing, medium temperature" equipment class. See chapter 3,

market and technology assessment, for a more detailed explanation of the equipment class terminology.

2­7sweat heaters. DOE assumed that all electrical energy ends up as heat inside the case (except for

lighting outside of the air curtain on open cases and the defrost power that is consumed

condensing the ice on the coils to water). Non­electric loads include heat loads from radiation

through glass, seals and openings; conduction through walls and solid doors; and infiltration of

warm, moist air into the case. A thermal conductance, or U­factor, is used to calculate a

combined conduction/convection/radiation load for glass. A simple conduction/convection

model is used to calculate conduction through walls and solid doors, and empirical data on

defrost melt water is used to back­calculate infiltration loads.

2.6 ENERGY USE C HARACTERIZATION

The e nergy use characterization assesses the energy savings impacts from higher

efficiency standards and provides the basis for the energy savings used in the LCC and

subsequent analyses. For the ANOPR, the energy use characterization validated the use of the

engineering analysis energy estimates for assessing energy savings for higher equipment

efficiencies. The energy savings impact was assessed for seven different classes of remote

condensing commercial refrigeration equipment across a range of U.S. climates. Various design

options corresponding to differing energy efficiency levels. The energy impact was assessed at

the level of the refrigeration equipment case (display case) alone, the case and associated

refrigeration system, and at the whole building level. As part of the energy use characterization,

DOE made certain engineering assumptions regarding equipment application, including how the

equipment is operated and under what conditions and has documented these assumptions in the

TSD.

Studies c onducted by Arthur D. Little, Inc., Southern California Edison, Lawrence

Berkeley National Laboratory, and Caneta Research provided information on the energy

consumption of commercial refrigeration equipment. These studies primarily focused on

refrigerated display cases packaged with remote condensing units. These studies assisted in

characterizing the annual energy consumption of commercial refrigeration equipment for certain

equipment classes.

For b uildings using commercial refrigeration equipment, the primary energy consumption

and demand impact are from the energy and power use of the commercial refrigeration

equipment itself and from the associated refrigeration loads and remote condensing equipment

both of which can vary with climate. The impact on building heating and cooling energy is a

secondary impact that is also related to climate. Characterizing the energy savings from higher

efficiency commercial refrigeration equipment and the associated energy impacts from the

remote condensing system and from the building heating and cooling is a critical part of the

standards rulemaking analysis as it assesses the relative importance of these secondary impacts

and validates the engineering energy use estimates.

In t he energy use characterization, DOE defined a single building prototype–a medium

sized supermarket–for modeling energy impacts. Combinations of design options representing

four efficiency levels were characterized for each class of remote condensing equipment. DOE

used whole­building energy analysis software, with the capability to model refrigeration

equipment, to model the building prototypes in different climate regions to capture the energy

2­8impacts at the CRE case, for the refrigeration system and case combined, and for the entire

building.

2.7 MARKUPS T O DETERMINE EQUIPMENT PRICE

DOE u sed manufacturer­to­customer markups to convert the manufacturer selling price

(MSP) estimates from the engineering analysis to customer prices, which were then used in the

LCC and PBP analyses and the manufacturer impact analysis. Because retail prices are required

for the baseline performance level and all other performance levels under consideration, DOE

obtained these retail prices by applying manufacturer­to­customer markups to the MSP

estimates.

Before i t can develop markups, DOE must identify distribution channels (i.e., how the

equipment is distributed from the manufacturer to the customer). Once it established proper

distribution channels for each of the equipment classes, DOE relied on economic data from the

U.S. Census B ureau and input from the trade organization representing distributors of

refrigeration equipment to define how equipment are marked up as they pass from the

manufacturer to the customer (see chapter 6 of the TSD).

In t he past, DOE has estimated manufacturer­to­customer markups for residential airconditioning products and commercial air­conditioning equipment. In the recent CUAC

rulemaking, analysis of distribution­channel markups focused on three distribution­channel paths

and calculated markups for individual points along these paths. Two of these paths involved

sales of equipment through a mechanical contractor and then through a general contractor before

reaching the final customer. A third “national account” path involved sales directly from

manufacturer to the end customer. The CUAC analysis noted that in the case of replacement

equipment (approximately 70 percent of the CUAC market), a general contractor typically was

not involved and therefore no general contractor markups were incurred for replacement

equipment.

DOE’s r eview of information for CRE distribution suggested a similar set of three

distribution channels would be appropriate, as described as below:

Manufacturer → Distributor → Mechanical Contractor → Customer (7 percent of sales)

Manufacturer → Distributor → Customer (7 percent of sales)

Manufacturer → Customer (National Account) (86 percent of sales)

The a vailable data suggested that a general contractor was not involved in the purchase of

commercial refrigeration equipment at either the new construction or replacement levels and that

the fraction of sales through each distribution channel would be the same for both new and

replacement equipment.

2­92.8 LIFE­CYCLE C OST AND PAYBACK PERIOD ANALYSES

The e ffects of new energy conservation standards on equipment result in changes in

operating expenses—usually a decrease—and changes in customer price—usually an increase.

DOE analyzed the net effect of new standards on customers by evaluating the net LCC using the

cost­efficiency relationship derived in the engineering analysis, as well as the energy costs

derived from the energy use characterization analysis. Inputs to the LCC calculation include the

installed cost to the customer (customer price plus installation cost), operating expenses (energy

expenses and maintenance costs), the lifetime of the appliance, and a discount rate and are

described in detail in Chapter 8.

The i nstalled and operating costs of equipment typically change in response to new

standards (installed cost typically increases while operating cost typically decreases). Thus,

there is a specific time in the life of higher­than­baseline efficiency equipment when the net

operating­cost benefit (in dollars) from the time of purchase is equal to the incremental first cost

of purchasing the higher efficiency equipment. The length of time required for equipment to

reach this cost­equivalence point is known as the payback period.

For t he ANOPR, DOE conducted the LCC and PBP analyses using typical values to

reflect the conditions in the field for equipment life and energy consumption. Distributions of

values were used to develop equipment retail price, national or regional energy costs. Discount

rates were varied by business type. The life­cycle cost subgroup analysis will be conducted for

the NOPR and will include an assessment of impacts on subgroups of customers.

For c ommercial refrigeration equipment, it was necessary to determine several of the

input values for the LCC estimation, including: retail prices; electricity prices; discount rate;

maintenance, service, and installation costs; and equipment lifetimes.

DOE r eviewed EIA’s energy price data for commercial refrigeration equipment to

establish electricity and natural gas prices. DOE relied on state average energy price data for the

commercial sector scaled to reflect average prices paid by businesses using commercial

refrigeration equipment relative to the entire commercial sector. DOE used projections of these

energy prices for commercial customers to estimate future energy prices in its LCC and PBP

analysis. DOE used EIA’s Annual Energy Outlook (AEO) as the default source of projections for

future energy prices.

DOE d eveloped discount rates by estimating the cost of capital to businesses that

purchase commercial refrigeration equipment covered under this rulemaking. DOE commonly

uses the cost of capital to estimate the present value of cash flows to be derived from a typical

company project or investment. Most companies use both debt and equity capital to fund

investments, so the cost of capital is the weighted­average cost to the firm of equity and debt

financing. This corporate finance approach is referred to as the weighted­average cost of capital

(WACC).

DOE c onsidered expected changes to maintenance, repair, and installation costs for the

equipment covered in this rulemaking. Typically, small incremental changes in equipment

efficiency incur no, or only very small, changes in repair and maintenance costs over baseline

2­10efficiency equipment. Equipment with efficiencies significantly greater than the baseline can

incur increased repair and maintenance costs, since such equipment is more likely to incorporate

technologies that are new to the industry and not widely available. DOE relied on facilities

planning literature and industry data in developing appropriate repair and maintenance costs.

DOE broke maintenance costs into preventative maintenance and lighting maintenance activities.

Reliable performance is a market prerequisite for commercial refrigeration equipment, and as no

data were available to suggest increased preventative maintenance costs for the design options

considered, DOE assumed that maintenance costs did not increase with efficiency level. For

equipment where lighting changes were considered as design options, DOE separately assessed

regular lighting maintenance costs (primarily bulb, ballast or fixture replacement). Because no

data was available to suggest increase repair costs with higher efficiency equipment, DOE held

repair costs fixed in the ANOPR, but made provision for repair costs that vary in proportion to

equipment costs. Unless the efficiency increases considered for this rulemaking result in

significantly larger or heavier equipment, DOE determined that more­efficient commercial

refrigeration equipment would not incur increased installation costs.

DOE u sed information from various published literature sources as well as input from the

equipment distributors and the food retail industry to establish average equipment lifetimes for

use in the life­cycle cost and subsequent analyses.

2.9 SHIPMENTS A NALYSIS

Shipment f orecasts are required to calculate the national impacts of standards on energy,

NPV, and future manufacturer cash flows. DOE developed shipment forecasts based on an

analysis of key market drivers for commercial refrigeration equipment.

For e ach equipment class, DOE developed a set of shipment forecasts for the commercial

refrigeration equipment for each set of standards analyzed. These standards case forecasts were

used to evaluate the impacts of standards on equipment shipments. Standards case forecasts

were derived using the same data sets as base case forecasts. However, because the standards

case forecasts take into account the increase in customer price and the decrease in operating costs

caused by standards, forecasted shipments can deviate from the base case. The magnitude of the

difference between the standards case and base case shipment forecasts depends on the estimated

customer­price­increase as well as the operating­cost­savings caused by the standard. Because

the customer price tends to have a larger impact than operating cost on equipment purchase

decisions, standards case forecasts typically show a drop in equipment shipments relative to the

base case.

The d ata required to develop sensitivities of shipments to customer price and operatingcost­savings were limited. Therefore, DOE modeled total standards case shipments forecasts as

identical to base case shipments, but provided the option of defining scenarios (i.e., specified

impacts to equipment shipments) rather than developing sensitivities to customer price or

operating­cost­savings.

2­112.10 NATIONAL I MPACT ANALYSIS

The n ational impact analysis assesses the NPV of total customer LCC and NES. DOE

determined both the NPV and NES for the performance levels considered for the equipment

classes analyzed. To make the analysis more accessible and transparent to all stakeholders, DOE

prepared an NES Spreadsheet Model in Microsoft Excel to forecast energy savings and the

national economic costs and savings resulting from new standards. The NES Spreadsheet Model

uses typical values for inputs or outputs (as opposed to probability distributions). To assess the

impact of input uncertainty on the NES and NPV results, DOE can conduct sensitivity analyses

for future analyses by running scenarios on input variables that are of interest to stakeholders.

DOE conducted an assessment of the aggregate economic impacts at the National level for this

ANOPR as described in Chapter 10 of the TSD.

2.10.1 National E nergy Savings Analysis

The i nputs for the determination of NES for each class of commercial refrigeration

equipment analyzed are: (1) annual energy consumption per unit, (2) shipments, (3) equipment

stock, (4) national energy consumption, and (5) site­to­source conversion factors. DOE

calculated the national energy consumption by multiplying the number of units, or stock, of

commercial refrigeration equipment (by vintage) by the unit energy consumption (also by

3 vintage). Then, DOE calculated national annual energy savings from the difference between

national energy consumption in the base case (without new efficiency standards) and in each

higher efficiency standard case. DOE estimated energy consumption and savings based on site

energy, and converted the electricity consumption and savings to source energy. Cumulative

energy savings are the sum of the annual NES, which DOE determined over specified time

periods.

The s tock of commercial refrigeration equipment is dependent on annual shipments and

the lifetime of the equipment. DOE conducted shipments projections under the base efficiency

case and higher efficiency standards cases for a variety of possible equipment efficiency

scenarios and equipment efficiency trends. DOE’s shipments model presumed that shipments of

new CRE equipment were driven by growth in commercial floor space for building types using

CRE equipment as well as necessary stock replacements. DOE’s shipments model did not assess

changes in total CRE shipments as a function of standard level, either due to increases in first

costs or due to decreases in energy consumption.

2.10.2 Net P resent Value Analysis

The i nputs for the determination of NPV are: (1) total annual installed cost, (2) total

annual operating cost savings, (3) discount factor, (4) present value of costs, and (5) present

value of savings. DOE calculated net savings each year as the difference between total

operating­cost savings (including electricity, repair, and maintenance cost savings) and increases

in total installed costs (including equipment price and installation cost). DOE calculated savings

over the life of the equipment, accounting for differences in yearly energy rates. DOE calculated

NPV as the difference between the present value of operating cost savings and the present value

3 Vintage represents the age of the equipment.

2­12of increased total installed costs. DOE discounted future costs and savings to the present with a

discount factor.

DOE c alculated increases in total installed costs as the product of the difference in the

total installed cost between the base case and standards case (i.e., once the standards take effect)

and the annual shipments in the standards case. Because costs of the more­efficient equipment

bought in the standards case are higher than those of equipment bought in the base case, price

increases appear as negative values in the NPV.

DOE e xpressed operating cost savings as decreases in operating costs associated with the

lower energy consumption of equipment bought in the standards case compared to the base

efficiency case. Total operating­cost savings are the product of savings per unit and the number

of units of each vintage surviving in a particular year.

2.10.3 Efficiency S cenarios and Trends

Several o f the inputs for the determination of NES (e.g., the annual energy consumption

per unit) and NPV (e.g., the total annual installed cost and the total annual operating­cost

savings) depend upon the efficiency of the equipment. Thus, DOE developed base case and

standards case efficiency trends. The efficiency trends specify the annual historical and

forecasted shipment­weighted average equipment efficiencies.

DOE b ased historical shipment­weighted average efficiency trends for commercial

refrigeration equipment on limited CRE efficiency data. Once DOE established historical

efficiency trends, it got future trends of equipment efficiency, and in turn, annual energy

consumption by extrapolating from the historical trend.

DOE b ased its standards case forecasts (i.e., forecasts of efficiency trends after standards

take effect) on the use of a roll­up efficiency scenario and parallel growth trend. Under a roll­up

scenario, all equipment at performance levels below a prospective standard are moved or rolledup to the minimum performance level allowed under the new standard. The distribution of

equipment at higher efficiency standard levels is unaffected (i.e., this equipment remains at its

pre­standard performance levels). The roll­up efficiency scenario dictates how DOE determined

efficiency distributions in the first year a new standard takes effect, but does not define how

equipment efficiency will be distributed in the future. Under the parallel growth trend, DOE

assumes that the standards case efficiency trend parallels the base case efficiency trend. In other

words, the initial jump in shipment­weighted efficiency that occurs when the standard first

becomes effective is maintained throughout the forecast.

2.11 LIFE­CYCLE C OST SUB­GROUP ANALYSIS

The L CC sub­group analysis evaluates economic impacts on virtually any group of

customers, for example, customers of different business types who might be adversely affected

by any change in the national energy efficiency standard levels for commercial refrigeration

equipment. During the NOPR stage, DOE intends to evaluate the impacts of particular subgroups of customers in part by analyzing the LCC and PBP for these particular customers.

2­13DOE intends to evaluate variations both in regional energy prices and use that might

affect the NPV of an energy­efficiency standard to customer sub­groups. To the extent possible,

DOE will get estimates of the variability of each input parameter and consider this variability in

its calculation of customer impacts. Variations in energy use for a particular equipment type or

equipment class depend on factors such as climate, building type, and type of business. DOE

intends to perform sensitivity analyses to consider how differences in energy use will affect

various sub­groups of customers.

Thereafter, D OE will determine the impact on customer sub­groups using the LCC

spreadsheet model. The spreadsheet model used for the LCC analysis can be used with different

data inputs. The standard LCC analysis includes various commercial building types that use

commercial refrigeration equipment. Moreover, DOE can analyze the LCC for any sub­group by

using the LCC spreadsheet model and only sampling that sub­group. Details of this model are

explained in the section describing the LCC and PBP analyses.

DOE i s particularly sensitive to increases in the customer price of more efficient

commercial refrigeration equipment to avoid a negative economic impact on any identified

customer sub­group. Such sub­groups as small businesses (i.e., those with low annual revenues)

might not be able to afford a significant increase in the price of commercial refrigeration

equipment. For these types of customers, increases in first costs for equipment could preclude

the purchase of a new model of a commercial refrigeration unit. As a result, some customers

might keep refrigeration equipment beyond its useful life. These older pieces of equipment are

generally less efficient, and their efficiency may decline if kept beyond their useful life. Also,

increases in first cost could preclude the purchase and use of equipment altogether, resulting in a

potentially large loss of utility.

Although b usiness income and annual revenues are not known for the business types

analyzed in the LCC analysis, the floor space occupied by a business may be an indicator of its

annual income. If this is generally true, DOE will be able to perform sub­group analyses on

smaller businesses. If DOE determines that business income does not correlate with floor space,

then DOE may not be able to perform sub­group analyses on smaller businesses. In this event,

DOE will seek other sources of data to use to perform these analyses.

2.12 MANUFACTURER IMPACT A NALYSIS

The m anufacturer impact analysis focuses on manufacturers of commercial refrigeration

equipment. Potential impacts would include financial effects, both quantitative and qualitative,

that might result from new energy efficiency standards, and consequently lead to changes in the

manufacturing practices for commercial refrigeration equipment. DOE will identify these

potential impacts through interviews with manufacturers and other stakeholders.

Previously, D OE did not report any manufacturer impact analysis results during the

ANOPR phase. However, DOE recently announced changes to the manufacturer impact analysis

format through a report issued to Congress on January 31, 2006 (as required by section 141 of

2­144 the Energy Policy Act of 2005 (EPACT 2005)). Under this new format, DOE will collect,

evaluate, and report preliminary information and data in the ANOPR. Such preliminary

information includes the anticipated conversion capital expenditures by efficiency level and the

corresponding anticipated impacts on jobs. DOE will solicit this information during the ANOPR

engineering analysis manufacturer interviews.

During t he NOPR stage of the rulemaking, DOE intends to conduct the manufacturer

impact analysis in three phases. Phase One consists of two activities: prepare an industry

characterization, and identify issues. Phase Two addresses the broader industry where DOE

would use the Government Regulatory Impact Model to perform an industry cash flow analysis.

Phase Three involves interviewing manufacturers. The questionnaire for use in Phase Three is

developed in Phase Two. At the beginning of Phase Three, DOE will interview manufacturers

and adjust the industry cash flow analysis as appropriate. Thereafter, Phase Three will entail

additional cash flow analyses of the different sub­groups that could be affected by the

rulemaking. Furthermore, Phase Three will examine any additional impacts on competition,

manufacturing capacity, direct employment, and the cumulative burden of other regulations

impacting manufacturers.

2.13 UTILITY IMPACT A NALYSIS

The u tility impact analysis will include an analysis of the impact of higher efficiency

standards on the electric and the gas utility industries. DOE is considering adapting the National

Energy Modeling System (NEMS) produced by the EIA for this analysis. NEMS (EIA 2005) is

a large multi­sectoral partial­equilibrium model of the United States energy sector that has been

developed over the past decade by the EIA, primarily for the purpose of preparing DOE’s AEO

. In prior rulemakings, a variant of NEMS (currently termed NEMS­BT, BT referring to the

DOE’s Building Technologies Program) was developed to better address the specific impacts of

an equipment efficiency standard.

The NE MS produces a widely recognized baseline energy forecast for the United States

through the year 2030, and is available in the public domain. The typical NEMS outputs include

forecasts of electricity sales, price, and avoided electric generating capacity. DOE plans on

conducting the utility impact analysis as a scenario departing from the latest AEO reference case.

In other words, the energy savings impacts from amended energy conservation standards will be

modeled using NEMS­BT to generate forecasts that deviate from the AEO reference case.

2.14 ENVIRONMENTAL A SSESSMENT

The p rimary environmental effects of energy conservation standards for the commercial

refrigeration equipment covered under this rulemaking will be reduced emissions resulting from

reduced electrical energy consumption. The environmental assessment will track the impact of

possible standards on three energy­related emissions: CO 2 , NO

x , and SO 2

. DOE intends to base

4 This report, entitled “Energy Conservation Standards Activities,” is available on the DOE website at:

http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.

2­15these calculations on the NEMS­BT modeling work proposed for the utility impact analysis.

This approach has the advantage of examining the marginal impact of higher efficiency

standards for the covered equipment on the utility generation mix and the subsequent

environmental emissions.

CO 2 emissions are tracked in NEMS­BT by a detailed module that produces robust results

because of its broad coverage of all sectors and inclusion of interactive effects. NEMS­BT also

includes a module for SO 2 ­allowance trading and delivers a forecast of SO 2 ­allowance prices. It

is important to note, however, that simulation of SO 2 trading tends to imply that physical

emissions effects will be zero. However, there is an SO 2 benefit from conservation in the form

of a lower allowance price and, if big enough to be calculable by NEMS, this value can be

reported. NEMS­BT also has an algorithm for estimating NOx emissions from power

generation.

2.15 EMPLOYMENT I MPACT ANALYSIS

The i mposition of standards can affect employment both directly and indirectly. Direct

employment impacts are changes in the number of employees at the plants that produce the

covered equipment, and at the affiliated distribution and service companies, resulting from the

imposition of new standards. DOE will evaluate direct employment impacts in the manufacturer

impact analysis. Indirect employment impacts may result from expenditures shifting between

goods (the substitution effect) and changes in income and overall expenditure levels (the income

effect) that occur due to the imposition of standards. The combined direct and indirect

employment impacts will be investigated in the employment impact analysis using the Pacific

Northwest National Laboratory’s “Impact of Sector Energy Technologies” (ImSET) model. The

ImSET model was developed for DOE’s Office of Planning, Budget, and Analysis, and estimates

the employment and income effects of energy­saving technologies in buildings, industry, and

transportation. In comparison with simple economic multiplier approaches, ImSET allows for

more complete and automated analysis of the economic impacts of energy conservation

investments.

2.16 REGULATORY IMPACT A NALYSIS

In t he NOPR stage, DOE will prepare a regulatory impact analysis (RIA) pursuant to

Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735, October 4, 1993,

which is subject to review under the Executive Order by the Office of Information and

Regulatory Affairs at the Office of Management and Budget. The RIA will address the potential

for non­regulatory approaches to supplant or augment energy conservation standards to improve

the energy efficiency or reduce the energy consumption of the commercial refrigeration

equipment covered under this rulemaking.

DOE r ecognizes that voluntary or other non­regulatory efforts by manufacturers, utilities,

and other interested parties can result in substantial improvements to energy efficiency or

reductions in energy consumption. DOE intends to consider the likely effects of non­regulatory

initiatives on equipment energy use, consumer utility, and LCC. DOE will base its assessment

2­16on the actual impacts of any such initiatives to date, but also will consider information presented

regarding the impacts that any existing initiative might have in the future.

2.17 DEPARTMENT O F JUSTICE REVIEW

Section 3 25(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act (EPCA) states

that, before the Secretary of Energy may prescribe a new or amended energy conservation

standard, the Secretary shall ask the U.S. Attorney General to make a determination of “the

impact of any lessening of competition...that is likely to result from the imposition of the

standard.” (42 U.S.C. 6295) Pursuant to this requirement, DOE will solicit the views of the DOJ

on any lessening of competition that is likely to result from the imposition of a proposed standard

and will give the views provided full consideration in assessing economic justification of a

proposed standard. In addition, DOE may consult with DOJ at earlier stages in the standards

development process to seek to obtain preliminary views on competitive impacts.

2­17