8

- i CHAPTER 8. LIFE

- CYCLE COST AND PAYBACK PERIOD ANALYS E S

TABLE OF CONTENTS

8.1 INTRODUCTION

................................ ................................ ................................ ........... 8

- 1

8.1.1 General Approach for LCC and PBP Analyses

................................ ............................... 8

- 1

8.1.2 Overview of LCC and PBP Inputs

................................ ................................ ................... 8

- 3

8.2 LIFE

- CYCLE COST AND PAYBA CK PERIOD INPUTS

................................ ........... 8

- 7

8.2.1 Total Installed Cost Inputs

................................ ................................ ............................... 8

- 7

8.2.1.1 Forecasting Future Product Prices

................................ ................................ . 8

- 9

8.2.1.2 Baseline Manufacturer Cost

................................ ................................ ......... 8

- 11

8.2.1.3 Standard

- Level Manufacturer Cost Increases

................................ .............. 8

- 11

8.2.1.4 Overall Markup

................................ ................................ ............................ 8

- 12

8.2.1. 5 Installation Cost

................................ ................................ ........................... 8

- 12

8.2.1.6 Total Installed Cost

................................ ................................ ...................... 8

- 12

8.2.2 Operating Cost Inputs

................................ ................................ ................................ .... 8

- 13

8.2.2.1 Annual Energy Consumption

................................ ................................ ....... 8

- 14

8.2.2.2 Residential Electricity Prices

................................ ................................ ....... 8

- 15

8.2.2.3 Energy Price Trends

................................ ................................ ..................... 8

- 16

8.2.2.4 Repair and Maintenance Costs

................................ ................................ ..... 8

- 16

8.2.2.5 Product Lifetime

................................ ................................ .......................... 8

- 16

8.2.3 Discount Rates

................................ ................................ ................................ ............... 8

- 18

8.2.4 Compliance Date of Standard

................................ ................................ ........................ 8

- 22

8.2.5 Product Energy Efficiency in the Base Case

................................ ................................ . 8

- 22

8.3 LIFE

- CYCLE COST AND PAYBA CK PERIOD RESULTS

................................ ...... 8

- 23

8.3.1 Summary of Results

................................ ................................ ................................ ....... 8

- 24

8.3.1.1 Distributions of Impacts

................................ ................................ ............... 8

- 25

8.3.1.2 Range of Impacts

................................ ................................ ......................... 8

- 29

8.4 REBUTTABLE PAYBACK P ERIOD

................................ ................................ .......... 8

- 32

8.4.1 Inputs

................................ ................................ ................................ .............................. 8

- 33

8.4.2 Results

................................ ................................ ................................ ............................ 8

- 33

LIST OF TABLES

Table 8.1.1 Microwave Ovens and Countertop Combination Ovens: LCC and PBP Input Summary

................................ ................................ ................................ ..... 8

- 6

Table 8.1.2 Over the Range Combination Ovens: LCC and PBP Input Summary

................. 8

- 7

Table 8.2.1 Inputs for Total Installed Cost

................................ ................................ ............. 8

- 8

Table 8.2.2 Baseline Manufacturer Costs

................................ ................................ ............. 8

- 11

Table 8.2.3 Standard

- Level Manufacturer Cost Increases

................................ .................... 8

- 11

Table 8.2.4 Microwave Ovens: Overall Markups

................................ ................................ . 8

- 12

Table 8.2.5 Total Installed Costs

................................ ................................ .......................... 8

- 12

Table 8.2.6 Inputs for Operating Cost

................................ ................................ ................... 8

- 13

Table 8.2.7 Annual Energy Consumption

................................ ................................ ............. 8

- 14

Table 8.2.8 Average Regional Residential Electricity Prices

................................ ............... 8

- 158

- ii Table 8.2.9 Estimates an d Sources for Product Lifetime

................................ ...................... 8

- 17

Table 8.2.10 Lifetime Parameters

................................ ................................ ........................... 8

- 18

Table 8.2.11 Average Shares of Considered Household Debt and Equity Types (%)

........... 8

- 19

Table 8.2.12 Average Nominal Interest Rates fo r Household Debt Classes (%)

................... 8

- 20

Table 8.2.13 Average Real Effective Interest Rates for Household Debt Classes (%)

.......... 8

- 20

Table 8.2.14 Average Nominal and Real Interest Rates for Household Equity Classes

........ 8

- 21

Table 8.2.15 Shares and Interest or Return Rates Used for Household Debt and Equity

Classes

................................ ................................ ................................ ................ 8

- 22

Table 8.2.16 Microwave and Countertop Combination Ovens: Base

- Case Market

Shares

................................ ................................ ................................ ................. 8

- 23

Table 8.2.17 Over the Range Combination Ovens: Base

- Case Market Shares

...................... 8

- 23

Table 8.3.1 Microwave and Countertop Combination Ovens: LCC and PBP Results

......... 8

- 24

Table 8.3.2 Over the Range Combination Ovens: LCC and PBP Results

............................ 8

- 25

Table 8.4.1 Rebuttable Payback Periods

................................ ................................ ............... 8

- 33

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP

....................... 8

- 5 Figure 8.2.1 Residential Electricity Price Trends

................................ ................................ ... 8

- 16 Figure 8.3.1 Microwave and Countertop Combination Ovens: Base Case LCC

Distribution

................................ ................................ ................................ ........ 8

- 26 Figure 8.3.2 Over the Range Combination Ovens: Base Case LCC Distribution

.................. 8

- 26 Figure 8.3.3 Microwave and Countertop Combination Ovens: CSL 3 LCC Savings

Distribution

................................ ................................ ................................ ........ 8

- 27 Figure 8.3.4 Over the Range Combination Ovens: CSL 3 LCC Savings Distribution

.......... 8

- 28 Figure 8.3.5 Microwave and Countertop Combination Ovens: CSL 3 PBP Distribution

..... 8

- 28 Figure 8.3.6 Over the Range Combination Ovens: CSL 3 PBP Distributions

....................... 8

- 29 Figure 8.3.7 Microwave and Countertop Combination Ovens: Range of Average LCC Saving s

................................ ................................ ................................ ............... 8

- 30 Figure 8.3.8 Over the Range Combination Ovens: Range of Average LCC Savings

............ 8

- 30 Figure 8.3.9 Microwave and Countertop Combination Ovens: Range of Average Payback Period

................................ ................................ ................................ ... 8

- 31 Figure 8.3.10 Over the Range Combination Ovens: Range of Average Payback Period

........ 8

- 328-1 CHAPTER 8. LIFE

- CYCLE COST AND PAYBA CK PERIOD ANALYSES

8.1 INTRODUCTION

This chapter describes the U.S. Department of Energy (DOE)’s methodology for analyzing the economic impacts of possible energy efficiency standards for microwave oven standby power on individual consumers. The effect of standards on individual consumers includes a change in operating ex pense (usually decreased) and a change in purchase price (usually increased). This chapter describes three metrics DOE used to determine the effect of

standards on individual consumers:

• Life

- cycle cost (LCC) is the total consumer expense over the life of an appliance, including purchase expense and operating costs (including energy expenditures). DOE discounts future operating costs to the time of purchase, and sums them over the lifetime

of the product

.

• Payback period (PBP) measures the amount of time i t takes consumer s to recover the assumed higher purchase price of more energy

- efficient products through lower operating

costs.

• Rebuttable payback period is a special case of the PBP. Where LCC and PBP are estimated over a range of i nputs reflecting actual conditions, rebuttable payback period is based on laboratory conditions, specifically DOE test procedure inputs.

Inputs to the LCC and PBP calculations are discussed in section 8.2 of this chapter.

Results for the LCC and PBP are presented in sec tion 8.3

. The rebuttable PBP is discussed in

section 8.4

. Key variables and calculations are presented for each metric. DOE performed the

calculations discussed here us i ng a series of Microsoft Excel ® spreadshe ets which are accessible

on the Internet ( http://www.eere.energy.gov/ buildings/appliance_standards/ ). Details and instructions for using the spreadsheets are discussed in a ppendix 8

- A.

8.1.1 General Approach for LCC and PBP Analyses

Life

- cycle cost is the total consumer expense over the life of an appliance, including purchase expense and operating costs (including energy expenditures). DOE discounts future operating costs to the time o f purchase, and sums them over the lifetime of the product. DOE defines LCC by the following equation:



## ( **)** 

# ∑

**= +**  **+ =**  N

t t t

r OC IC LCC

1 1

Where:8-2 LCC = Life

- cycle cost in dollars,

IC = Total installed cost in dollars, ∑ = Sum over the lifetime, from year 1 to year N,

N = Lifetime of appliance in years,

OC = Operating cost in dollars,

r = Discount rate, and

t = Year for which operating cost is being determined.

The payback period is the amount of time it takes the consumer to recover the estimated higher purchase expense of more energy

- efficient products as a result of lower operating costs. Numerically, the PBP is the ratio of the increase in purchase expense (i.e., from a less energy

efficient design to a more energy

- efficient design) to the decrease in annual operating expenditures. This type of calculation is known as a “simple” payback period, because it does not take into account changes in operating expense over time or the time value of money; i.e., the

calculation is done at an eff ective discount rate of zero percent.

The equation for PBP is:

OC IC PBP **∆ ∆** 

=

Where:

Δ

IC = Difference in the total installed cost between the more energy efficient design and the baseline design, and

Δ OC = difference in annual operating expenses.

Payback periods are expressed in years. Payback periods greater than the life of the product indicate that the increased total installed cost is not recovered with the reduced operating

expenses.

Recognizing th at several inputs to the determination of consumer LCC and PBP are either variable or uncertain, DOE conducted the LCC and PBP analyses by modeling both the uncertainty and variability i n the inputs using Monte Carlo simulation and probability

distribution s. A detailed explanation of Monte Carlo simulation and the use of probability

distributions is contained in a ppendix 8

- B

. DOE developed LCC and PBP spreadsheet models incorporating both Monte Carlo simulation and probability distributions by using Microso ft

Excel ® spreadsheets combined with Crystal Ball ® (a commercially available add

- in program).

In addition to characterizing several of the inputs to the analyses with probability distributions, DOE developed a sample of individual households that use each of the appliances. By developing household samples, DOE was able to perform the LCC and PBP calculations for each household to account for the variability in ene rgy consumption and/or energy price

associated with each household.8-3 As described in chapter 7 , DOE used the DOE Energy Information Administration (EIA)’s 200 5 Residential Energy Consumption Survey (RECS) to develop household samples

for microwave and com bination ovens

. 1 The 200 5 RECS consists of 4, 382 housing units and was constructed by the EIA to be a national representation of the household population in the United

States

. DOE used RECS to establish the variabi lity of annual appliance use and of energy pric es

. DOE was able to assign unique annual hours of operation to each household in the sample. The variability across households in annual appliance use and/or energy pricing contributes to the range of LCCs and PBPs calculated for any particular candidate standard level (CSL)

.

DOE displays the LCC and PBP results as distributions of impacts compared to the

baseline conditions. Results are presented at the end of this chapter and are based on 10,000 samples per Monte Carlo simulation run. To illustrate the implications of the analyses , DOE generated a frequency chart depicting the variation in LCC and PBP for each CSL considered.

8.1.2 Overview of LCC and PBP Inputs

DOE categorizes inputs to the LCC and PBP analyses as follows: (1) inputs for establishing the purchase expense, otherwise known as the total installed cost, and (2) inputs for calculating the operating cost.

The primary inputs for establishing the tota l installed cost are:

• Baseline manufacturer cost : The costs incurred by the manufacturer to produce products meeting existing minimum efficiency standards.

• Standard

- level manufacturer cost increases : The change in manufacturer cost associated with produ cing products to meet a particular CSL

.

• Markups and sales tax : The markups and sales tax associated with converting the

manufacturer cost to a consumer product cost

.

• Installation cost : The cost to the consumer of installing the product

. The installation cost represents all costs required to install the product other than the marked

- up consumer product cost. The installation cost includes labor, overhead, and any miscellaneous materials and parts

. Thus, the total installed cost equals the consumer product cost plus

the installation cost.

• Learning rate: The cost reduction factor associated with economies of scale and technology learning.

The primary inputs for calculating the operating cost are :8-4 • Product energy consumption : The p roduct energy consumption is the site energy use associated with operating the product

.

• Product efficiency : The product efficiency dictates the product energy consumption

associated with standard

- level products (i.e., products with efficiencies greater than

baseline products ).

• Energy prices : Energy prices are the prices paid by consumers for energy (i.e., electricity

or gas).

• Energy price trends : DOE used the EIA Annual Energy Outlook 20 10 ( AEO20 10 ) 2 to forecast energy prices f or the results presented in this chapter

.

• Repair and maintenance costs : Repair costs are associated with repairing or replacing components that have failed. Maintenance costs are associated with maintaining the operation of the product

.

• Lifetime : The age at which the product is retired from service.

• Discount rate : The rate at which DOE discounted future expenditures to establish their present value.

The data inputs to PBP are the total installed cost of the product to the consumer for each energy efficiency level and the annual (first year) opera ting expenditures for each CSL . The inputs to the total installed cost are the product cost and the installation cost. The inputs to the operating costs are the annual energy cost, the annual repair cost, and the annual maintenance

cost. The PBP uses the s ame inputs as the LCC analysis, except that energy price trends and discount rates are not required. Since the PBP is a “simple” payback, the required energy price is only for the year in which a new energy conservation standard is to take effect. The ener gy price DOE used in the PBP calculation was the price projected for that year. Discount rates are also not required for the simple PBP calculation.

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating cost inputs f or the calculation of the LCC and PBP. In the figure below, the yellow boxes indicate the inputs, the green boxes indicate intermediate outputs, and the blue boxes indicate the final outputs (the LCC and PBP).8-5 Figure 8.1.1 Flow Diagram of Inputs for the Determinati on of LCC and PBP

Table s 8.1. 1 and 8.1.2 summarize the input values that DOE used to calculate the LCC

and PBP for each microwave oven product clas s

. DOE characterized all of the total cost inputs with single

- point values, but characterized several of the operating cost inputs with probability distributions that capture the input’s uncertainty and/or variability. For those inputs characterized with probability distributions, the values provided in the following tables are the av erage or typical values. Baseline

Manufacturer

Cost

Std-Level

Manufacturer

Cost

Manufacturer Markup

Retailer or

Distributor

Markup

Sales Tax Installation

Cost

Energy Consumption Equipment

Price

Lifetime Operating Expense Annual Energy Expense

Lifetime Repair and

Maintenance

Cost

Discount Rate

Energy Price

Trends Annual Operating Expense Payback

Period Life-Cycle

Cost

Energy Prices Total Installed

Cost8-6 Table 8.1.1 Microwave Ovens and Countertop Combination Ovens: LCC and PBP Input Summary

Input Efficiency Level Average or Typical Value Characterization

Baseline Manufacturer Cost ( 2010$ ) Baseline 4 W Standby = $114 .00 Single

- Point Value

Standard

- Level

Manufacturer Cost Increase ( 2010$ ) CSL 1 2 W Standby = $0.27 Single

- Point Value

CSL 2 1.5 W Standby = $0.6 Single

- Point Value

CSL 3 1 W Standby = $1.31 Single

- Point Value

CSL 4 0.02 W Standby = $4.58 Single

- Point Value

Retailer Markup All Baseline = 1.45 Single

- Point Value Incremental = 1.1 7

Manufacturer Markup All 1.26 Single

- Point Value

Sales Tax All 7.2% Variability based on region

Annual Energy Use (kWh) Baseline 34.75 Variability based on usage

CSL 1 17.38 Variability based on usage

CSL 2 13.03 Variability based on usage

CSL 3 8.69 Variability based on usage

CSL 4 0.17 Variability based on usage

2014 Average Energy

Prices ( 2010$ ) All 12 c/kWh Variability based on region

Repair and

Maintenance Costs All No cost increase with efficiency No cost increase with efficiency

Installation Costs All n/a No cost increase with efficiency

Lifetime All 9 years Weibull distribution

Discount Rate All 4.8% Custom distribution

Energy Price Trend All AEO 2010 Reference Case Single

- Point Value s8-7 Table 8.1.2 Over the Range Combination Ovens: LCC and PBP Input Summary

Input Efficiency Level Average or Typical Value Characterization

Baseline Manufacturer Cost ( 2010$ ) Baseline 4.5 W Standby = $246.19 Single

- Point Value

Standard

- Level

Manufacturer Cost Increase ( 2010$ ) CSL 1 3.7 W Standby = $0 Single

- Point Value

CSL 2 2.7 W Standby = $2.29 Single

- Point Value

CSL 3 2.2 W Standby = $9.44 Single

- Point Value

CSL 4 0.04 W Standby = $5.18 Single

- Point Value

Retailer Markup All Baseline = 1.45 Single

- Point Value Incremental = 1.1 7

Manufacturer Markup All 1.26 Single

- Point Value

Sales Tax All 7.2% Variability based on region

Annual Energy Use (kWh) Baseline 39.10 Variability based on usage

CSL 1 32.15 Variability based on usage

CSL 2 23.46 Variability based on usage

CSL 3 19.11 Variability based on usage

CSL 4 0.35 Variability based on usage

2014 Average Energy Prices ( 2010$ ) All 12 c/kWh Variability based on region

Repair and

Maintenance Costs All No cost increase with efficiency No cost increase with efficiency

Installation Costs All n/a No cost increase with efficiency

Lifetime All 9 years Weibull distribution

Discount Rate All 4.8% Custom distribution

Energy Price Trend All AEO 2010 Reference Case Single

- Point Value s

8.2 LIFE

- CYCLE COST AND PAYBACK PERIOD INPUTS

Because DOE gathered most o f its data for the LCC and PBP analysis in 20 10 , DOE expresses dollar values in 20 10 $.

8.2.1 Total Installed Cost Inputs

DOE defines the total installed cost using the following equation:



### INST CPC IC **+ =**  W here:

C

P C = consumer p roduct cost (i.e., consumer cost for the product only), and

INST = i nstallation cost or the consumer cost to install products

.8-8 The product cost is based on how the consumer purchases the product . As discussed in chapter 6 , DOE defined markups and sales taxes for converting manufacturing costs into

consumer product cost s

.

Table 8.2.1 summarizes the inputs for the determination of total installed cost.

Table 8.2.1 Inputs for Total Installed Cost

Baseline Manufacturer Cost

Standard

- Level Manufacturer Cost

Distribution Chain Markups

Sales Tax (replacement applications)

Installation Cost

The baseline manufacturer cost is the cost incurred by the manufacturer to produce products meeting existing minimum efficiency standards. Standard

- level manufacturer selling
price increases are the change i n manufacturer cost associated with producing products at a
standard level. Markups and sales tax convert the manufacturer cost to a consumer product cost

. The i nstallation cost is the cost to the consumer of installing the product and represents all costs required to install the product other than the marked

- up consumer product cost

. The installation cost includes labor, overhead, and any miscellaneous materials and parts

.

DOE calculated the total installed cost for baseline produc ts based on the following equation:

BASE BASE OVERALL MFG BASE BASE BASE


### INST MU COST INST CPC IC

**+ ×**  **= +**  **=**

_

W here:

IC BASE = b aseline total installed cost

, CPC BASE = c onsumer product cost for baseline models,

INST BASE = b aseline installation cost,

COST MFG = m anufacturer cost for baseline models, and

MU OVERALL_BASE = b aseline overall markup (product of manufacturer markup, baseline retailer or distributor markup, and sales tax).

DOE calculated the total installed cost for standard

- level products based on the following

equat ion:8-9 

## ( **) (**  **) (**  **) (**  **)** 

# ( **)**

STD INCR OVERALL MFG BASE STD STD BASE BASE STD BASE STD BASE STD STD STD

INST MU COST IC INST CPC INST CPC INST INST CPC CPC INST CPC IC

**∆ +**  **× ∆**  **+ =**  **∆ +**  **∆ +**  **+ =**  **∆ +**  **+ ∆**  **+ =**  **+ =** 

_

W here:

IC STD = s tandard

- level total installed cost

, CPC STD = c onsumer product cost for standard

- level models,

INST STD = s tandard

- level installation cost,

CPC BASE = c onsumer product cost for baseline models,

Δ CPC STD = c hange in product cost for standard

- level models,

INST BASE = b aseline installation cost,

Δ

INST STD = c hange in installation cost for standard

- level models,

IC BASE = b aseline total installed cost

, Δ COST MFG = c hange in manufacturer cost for standard

- level models, and

MU OVERALL_INCR = i ncremental overall markup (product of manufacturer markup, incremental retailer or distributor markup, and sales tax).

The remainder of this section provides information about each of the above input

variables that DOE used to calculate the total installed cost for microwave oven s

.

8.2.1.1 Forecasting Future Product Prices

Examination of historical price data for certain applian ces and equipment that have been subject to energy conservation standards indicates that the assumption of constant real prices and costs may, in many cases, overestimate long

- term trends in appliance and equipment price s

. Economic literature and historica l data suggest that the real costs of these products may in fact trend downward over time according to “learning” or “experience” curves. A draft paper, “Using the Experience Curve Approach for Appliance Price Forecasting,” posted on the DOE web site at

ht tp://www.eere.energy.gov/buildings/appliance_standards, summar izes the data and literature currently available to DOE that is relevant to price forecasts for selected appliances and equipment.

In light of these data and DOE’s aim to improve the accuracy a nd robustness of its analyses, DOE has decided to project future product prices by incorporating learning over time, consistent with the analysis in the available literature

. DOE us ed this approach to derive learning

rates to forecast future prices of microwave ovens at the considered efficiency levels.

An extensive literature discusses the “learning” or “experience” curve phenomenon, typically based on observations in the manufacturing sector. In the experience curve method, the real cost of productio n is related to the cumulative production or “experience” with a product. To explain the empirical relationship, the theory of technology learning is used to substantiate a8-10 decline in the cost of producing a given product as firms accumulate experience wi th the technology. A common functional relationship used to model the evolution of production costs

is :

Y = aX - b

W here :

a = an initial price (or cost),

b = a positive constant known as the learning rate parameter,

X = cumulative production, and

Y = the price as a function of cumulative production

.

Thus, as experience (production) accumulates, the cost of producing the next unit decreases. The percentage reduction in cost that occurs with each doubling of cumulative production is known as the l earning rate ( LR ), and is given by:

LR = 1

– 2 - b

In typical learning curve formulations, the learning rate parameter is derived using two

historical data series: product price (or cost)

, and cumulative production, which is a function of shipments during a long time span.

To derive a learning rate parameter for microwave ovens, DOE obtained historical

Producer Price Index (PPI) data for electric cooking equipment from the Bureau of Labor

Statistics’ (BLS). DOE understands that electric cooking equipment is a higher aggregation level to microwave ovens only; however, because PPI data specific to microwave ovens were not available, DOE used PPI data for electric cooking equipment as representative of microwave ovens. Additionally, microwave oven shipments have become a significant part of the total electric household cooking equipment shipments since 1975. For electric cooking equipment, DOE used PPI data spanning the time period 1969

- 2010. An i nflation

- adjusted price ind ex for electric cooking equipment wa s calculated by dividing the PPI series by the Consumer Price

Index ( CPI ) “all items” index for the same years

.

DOE assembled a time

- series of annual shipments for 19 69

- 2009 for electric household cooking equipment (including microwave ovens, cooktops, a nd ranges), referred as “electric cooktops

, ranges , and oven s ” in the following context, and for 1972

- 2009 for microwave ovens

from data submittals from AHAM, AHAM Fact Books, and Appliance Magazine. The shipments data were used to estimate cumulative ship ments (production ).

To estimate a learning rate parameter, a least

- squares power

- law fit was performed on the unified price ind ex versus cumulative shipments

. The form of the fitting equation is:

P(X) = P

o X

- b

,8-11 where the two parameters, b (the learning rate parameter) and P

o (the price or cost of the first unit of production), are obtained by fitting the model to the data.

The parameter values obtained are:

P

o = 21

. 93

− 2

. 87 + 3

. 31 (95% confidence) for electric cooking equipment;

b = 0.492± 0.027 (95% confidence) for electric cooking equipment

.

T he estimated learning rate (defined as the fractional reduction in price expected from each doubling of cumulative production) is 28.9±1.3% (95% confidence)

. For the LCC and PBP analysis, DOE used th e central value, along with the shipments forecast in 2011

- 2014, to estimate the price of microwave ovens in 2014.

DOE’s derivation of learning rates for microwave ovens is described in further detail in appendix 8

- E.

8.2.1.2 Baseline Manufacturer Cost

DOE developed the baseline manufacturer costs for microwave and combination ovens as described in chapter 5, Engineering Analysis. The baseline manufacturer costs are shown in

Table 8.2. 2

.

Table 8.2.2 Baseline Manufacturer Cost s

Product Class Standby Power (W) Manufa cturer Cost (2010 $)

Microwave and Countertop

Combination Ovens 4.00 114.00

Over the Range Combination

Ovens 2. 50 246.19

8.2.1.3 Standard

- Level Manufacturer Cost Increases

DOE used a combination of cost data submitted by AHAM and a reverse engineering analysis to develop manufacturer cost increases associated with increases in microwave

combination oven efficiency levels. Refer to chapter 5 for details. Table 8.2. 3 presents the

standard

- l evel manufacturer cost increase for each considered efficiency level

.

Table 8.2.3 Standard

- Level Manufacturer Cost Increases

Microwave and Countertop

Combination Ovens Over the Range

Combination Ovens Standby

Power (W) Manufacturer

Cost Increase Standby

Power (W) Manufacturer

Cost Increase

2.00 $0.27 3.70 $0.008-12 1.50 $0.60 2.70 $2.29

1.00 $1.31 2.20 $9.44

0.02 $4.58 0.04 $5.18

8.2.1.4 Overall Markup

The overall markup is the value determined by multiplying the manufacturer and retailer markups and the sales tax together to arrive at a single markup v alue. Table 8.2. 4 shows the overall baseline and incremental markups for microwave ovens

. Refer to chapter 6 for details.

Table 8.2.4 Microwave Ovens : Overall Markups

Markup Baseline Cost Markup Incremental Cost Markup

Manufacturer 1.26

Retailer 1.45 1.1 7

Sales Tax 0.072

Overall 1.96 1.5 8

8.2.1.5 Installation Cost

DOE determined that any installation costs would not be impacted by increased efficiency levels. A similar finding was made in the previous rulemaking conducted for

microwave ovens

. 3

8.2.1.6 Total Installed Cost

The total installed cost is the sum of the consumer product cost and the installation cost.

Table s 8.2. 5 and 8.2. 6 present the total installed costs for microwave and combination ovens

. Prices and costs are presented at the baseline level and each energy efficiency level.

Table 8.2.5 Total Installed Costs

Microwave and Countertop

Combination Ovens Over the Range Combination Ovens

Standby (W) Total Installed Cost ( 2010$ ) Standby (W) Total Installed Cost ( 2010$ )

4.00 $223.27 4.50 $482.17

2.00 $223.67 3.70 $482.17

1.50 $224.16 2.70 $485.60

1.00 $225.23 2.20 $496.29

0.02 $230.12 0.04 $489.938-13 8.2.2 Operating Cost Inputs

DOE defines the operating cost ( OC) by the following equation:



### MC RC EC OC **+ +**  **=** W here :

EC = e nergy expenditure associated with operating the product

, RC = r epair cost associated with component failure, and

MC = c ost for maintaining product operation.

Table 8.2.6 shows the inputs for determining the annual ope rating costs and their discounted value over the product lifetime

.

Table 8.2.6 Inputs for Operating Cost
Annual Energy Consumption

Energy Prices and Price Trends

Repair and Maintenance Costs

The annual energy consumption is the site energy use associated with operating the product

. The annual energy consumption var ies with the product efficiency. Energy prices are the prices paid by consumers for energy (i.e., electricity or gas). Multiplying the annual energy consumption by the energy prices yields the annual energy cost. Repair costs are associated with repairing or replacing components that have failed. Maintenance costs are associated with maintaining the operation of the product

. DOE used energy price trends to foreca st energy prices into the future and, along with the product lifetime and discount rate, to establish the present
value of lifetime energy costs.

DOE calculated the annual operating cost for baseline products based on the following equation:

BASE BASE ENERGY BASE BASE MC RC PRICE AEC OC **+ +**  **× =**  )

(

W here:

O C BASE = o perating cost for baseline product

, AE C BASE = a nnual energy consumption for baseline product

, PRICE ENERGY = e nergy price,

RC BASE = r epair cost associated with component failure for baseline product, and

MC BASE = c ost for maintaining baseline product operation,8-14 DOE calculated the annual operating cost for standard

- level products based on the following equation:

STD STD ENERGY STD STD 

### MC RC PRICE AEC OC **+ +**  **× =**  )

(

W here:

O C STD = o perating cost for standard

- level products,

AE C STD = a nnual energy consumption for standard

- level products

, PRICE ENERGY = e nergy price,

RC STD = r epair cost associated with component failure for standard

- level products, and

MC STD = c ost for maintaining standard

- level products operation.

The remainder of this se ction provides information about each of the above input variables that DOE used to calculate the operating costs for room air conditioner s and clothes dryers

.

8.2.2.1 Annual Energy Consumption

As described in chapter 7 and the beginning of this chapter in section 8.1.1, DOE developed a sample of individual households from RECS 2005 that use these appliances. By developing a household sample, DOE was able to perform the LCC and PBP calculations for

each household to acco unt for the variability in both energy use and energy price associated with

each household. T he annual energy consumption values in the tables below are averages. DOE captured the variability in energy consumption when it conducted its LCC and PBP analyses

. Table 8.2.7 provide s the average annual energy consumption by efficiency level for each product

class

.

Table 8.2.7 Annual Energy Consumption

Standard

Level Microwave and Countertop

Combination Ovens Over the Range Combination

Ovens

Standby

Power

(W) Average Energy Consumptio n

(kWh/year) Standby

Power

(W) Average Energy Consumptio n

(kWh/year)

Baseline 4.00 34.75 4.50 39.10

1 2.00 17.38 3.70 32.15

2 1.50 13.03 2.70 23.46

3 1.00 8.69 2.20 19.11

4 0.02 0.17 0.04 0.358-15 8.2.2.2 Residential Electricity Prices

DOE derived electricity prices for each of 13 geographic areas of the United States : the nine U.S. Census divisions plus four large states (New York, Florida, Texas, and California) that were treated individually. For Census divisions containing a large state, DOE excluded the data for the large state when calculating regional average values. Using th o se data , DOE analyzed the variability of electricity prices at the regional level

.

DOE used data from EIA Form 861 4 to estimate ele ctricity prices for residential consumers in each of the 13 geographic areas

. These data, published annually, include annual electricity sales in kilowatt hours (kWh), revenues from electricity sales, and number of consumers in the residential, commercial, and industrial sectors, for every utility that serves final

consumers . Average residential electricity prices were calculated in two steps.

1. For each utility, an average residential price was estimated by dividing residential revenues by residential sales

. 2. An average regional price was calculated, weighting each utility that has customers in a region by the number of residential consumers served in that region.

Table 8.2.8 shows the average residential electricity price calculated for each geographic

reg ion.

Table 8.2.8 Average Regional Residential Electricity Prices

Geographic Area Average Price
2010$ /kWh

New England $0.178

Middle Atlantic (excludes NY) $0.139

East North Central $0.113

West North Central $0.094

South Atlantic (excludes FL) $0.111

East South Central $0.098

West South Central (excludes TX) $0.087

Mountain $0.104

Pacific (excludes CA) $0.102

New York $0.188

Florida $0.151

Texas $0.126

California $0.126

Source: EIA Form 861 for 20 10

.8-16 8.2.2.3 Energy Price Trends

DOE used price fore casts by the EIA to estimate future trends in electricity prices

. To arrive at prices in future years, it multiplied the average prices described in the preceding section by the forecast of annual average price changes in EIA’s AEO 20 10 Reference case

. 2 To estimate

the trend after 203 5 , DOE followed past guidelines provided to the Federal Ener gy Management Program (FEMP) by EIA and used the average rate of chang e during 2020

– 2035.

DOE calculated LCC and PBP based on three separate projections from AEO 2010 reference case, low economic growth, and high economic growth. These three cases reflect the uncertainty of economic growth in the forecast period. Figure 8.2.1 shows the trends in residential electricity prices based on the three AEO 20 10 projections.

Figure 8.2.1 Residential Electricity Price Trends

8.2.2.4 R epair and Maintenance Costs

For microwave ovens, DOE included no changes in repair or maintenance costs for products that exceed baseline efficiency.

8.2.2.5 Product Lifetime

The product l ifetime is the age at which the product is retired from service. Appliance magazine provides estimates of the low, high, and average years of an appliance’s lifetime. The estimates, which are based on first

- owner use of the product, represent the expert judgment of Appliance staff based on input obtained from various sources. DOE also identified other sources 0.9 0.92 0.94 0.96 0.98 1 1.02 1.04 1.06 1.08

2005 2010 2015 2020 2025 2030 2035 2040

Year AEO 2010 Electricity Price Trends

Reference

High

Low8-17 that give lifetimes for microwave ovens (see Table 8.2.9). Because the basis for the estimates in the literature was uncertain, DOE developed a method using household su rvey data to estimate

the distribution of microwave oven lifetimes in the field

.

Table 8.2.9 Estimates and Sources for Product Lifetime

Lifetime ( year s) Source

Average = 9 Appliance Magazine (2009 ) 5

Average = 9 NAHB/Bank of America 6

Average = 9 NFO Study (1996) 7

Estimation of Survival Function

. The Residential Energy Consumption Survey (RECS) 8

records the presence of various appliances in each household, and when combined with data from the U.S. Census’s American Housing Survey (AHS ), 9 which surveys all housing including vacant and second homes, enabled DOE to estimate the stock of microwaves in all households

. By combining the results of both surveys with the known history of appliance s hipments (collected from Appliance magazine or directly from manufacturer trade associations), DOE estimated the percentage of appliances of a given age still in operation. This survival function,

which DOE assumed has the form of a cumulative Weibull dist ribution, provides an average and a median appliance lifetime.

The Weibull distribution is a probability distribution commonly used to measure failure

rates. a Its form is similar to an exponential distribution, which models a fixed failure rate, except

t hat a Weibull distribution allows for a failure rate that changes over time in a particular fashion.

The cumulative Weibull distribution takes the form:



# e x



### x P **β**

**α**

**θ ** 

** **  ** **  ****

**−**

**−**



### = ) ( for x > θ and

P(x) = 1 for x ≤ θ

Where:

P(x) = probability that the applianc e is still in use at age x ,

x = appliance age

,

α = scale parameter, which would be the decay length in an exponential

distribution

, β = shape parameter, which determines the way in which the failure rate changes through time

, and

θ = delay parameter, which allows for a delay before any failures occur.

a For reference on the Weibull distribution, see sections 1.3.6.6.8 and 8.4. 1.3 of the NIST/SEMATECH e

- Handbook

of Statistical Methods

, < www.itl.nist.gov/div898/handbook/ >

.8-18 When β = 1, the failure rate is constant over time, giving the distribution the form of a cumulative exponential distribution. In the case of appliances, β commonly is greater than 1, reflecting an incr easing failure rate as appliances age.

The results of DOE’s analysis are shown in Table 8.2.10.

Table 8.2.10 Lifetime Parameters

Product Calculated Values Weibull Parameters

Minimum

years Average

years Maximum

years Alpha (scale) Beta (shape)

Microwave

Ovens 7 9.0 1 0 2.2 4.806

8.2.3 Discount Rates

The d iscount rate is the rate at which DOE discounted future consumer expenditures to establish their present value. DOE derived the discount rates for the LCC and PBP analyses from estimates of the finance cost of purchasing the considered products. Following financial theory, the finance cost of raising funds to purchase appliances can be interpreted as: (1) the financial cost of any debt incurred to purchase products , or (2) the opportunity cost of any equity used to purchase products

. DOE considers both of these interpretations.

The purchase of products installed in new homes entails different finance costs for consumers than the purchase of appliances bought directly by co nsumers. For microwave and

combination ovens , however, DOE believes that few products are installed by builders in new

homes.

Households use a variety of methods to finance the purchase of major appliances. In principle, one could estimate the interest rates on the actual financing methods used to purchase appliances. However, t he shares of different financing methods in total appliance purchases are unknown. DOE’s approach involves identifying all possible debt or asset classes that might be used to pur chase the considered appliances, including household assets that might be indirectly

affected. b

b An indirect effect would arise if a household sold some assets in order to pay off a loan or credit card debt that

might have been used to finance the actual appliance purchase. DOE did not include debt from primary mortgages or assets considered non

- liquid (such as retirement accounts), since these would likely not be indirectly affect ed by appliance purchases. DOE estimated the average shares of the various debt and equity classes in the average U.S. household equity and debt portfolios using data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and 2007. 10 Table

8. 2

. 11 shows the average shares of each considered class. DOE used the mean share of each8-19 class across the seven surveys as a basis for estimating the weight of the classes in the direct or indirect financing of the considered appliances.

Table 8.2.11 Average Shares of Considered Household Debt and Equity Types ( % )

Type 1989

SCF 1992

SCF 1995

SCF 1998

SCF 2001

SCF 2004

SC F 2007

SCF Mean

Home equity loans 4.3 4.5 2.7 2.8 2.8 4.4 4.6 3.7

Credit cards 1.6 2.1 2.6 2.2 1.7 2.0 2.4 2.1

Other installment loans 2.8 1.7 1.4 1.7 1.1 1.3 1.1 1.6

Other residential loans 4.4 6.9 5.2 4.3 3.1 5.8 7.1 5.3

Other line of credit 1.1 0.6 0.4 0.2 0.3 0.5 0.3 0.5

Checking accounts 5.8 4.7 4.9 3.9 3.6 4.2 3.4 4.4

Savings & money market 19.2 18.8 14.0 12.8 14.2 15.1 13.0 15.3

Certificate of deposit (CD) 14.5 11.7 9.4 7.0 5.4 5.9 6.5 8.6

Savings bond 2.2 1.7 2.2 1.1 1.2 0.9 0.7 1.4

Bonds 13.8 12.3 10.5 7.0 7.9 8.4 6.7 9.5

Stocks 22.4 24.0 25.9 36.9 37.5 28.0 28.6 29.0

Mutual funds 8.0 11.1 20.9 20.1 21.3 23.4 25.5 18.6

Total 100 100 100 100 100 100 100 100

DOE estimated interest or return rates associated with each type of equity and debt. The data source for the interest rates for loans, credit cards, and lines of credit is the Federal Reserve

Board’s SCF in 1989, 1992, 1995, 1998, 2001, 2004, and 2007. Tab le 8. 2 .3 6 shows the average nominal rates in each year, and the inflation rates used to calculate real rates. For home equity loans, DOE calculated effective interest rates in a similar manner as for mortgage rates, since

interest on such loans is tax dedu ctible. Table 8. 2

. 12 shows the average effective real rates in each year and the mean rate across the years. Since the interest rates for each debt carried by households in these years were established over a range of time, DOE believes they are

representa tive of rates in the year in which amended standards would take effect.8-20 Table 8.2.12 Average Nominal Interest Rates for Household Debt Classes ( % )

1989

SCF 1992

SCF 1995

SCF 1998

SCF 2001

SCF 2004

SCF 2007

SCF Mean

Home equity loans 11.5 9.6 9.6 9.8 8.7 5.7 6.3 7.9

Credit cards*

- - 14.2 14.5 14.2 11.7 7.9 9.0

Other installment loans 9.0 7.8 9.3 7.8 8.7 7.4 12.6 13.4

Other residential loans 8.8 7.6 7.7 7.7 7.5 6.0 10.4 8.6

Other line of credit 14.8 12.7 12.4 11.9 14.7 8.8 6.3 7.4

Inflation rate 4.82 3.01 2.83 1.56 2.85 2.66 2.85

* No interest rate data available for credit cards in 1989 or 1992.

Table 8.2.13 Average Real Effective Interest Rates for Household Debt Classes ( % )

1989

SCF 1992

SCF 1995

SCF 1998

SCF 2001

SCF 2004

SCF 2007 SCF) Mean

Home equity loans 3.8 4.3 4.4 5.8 3.8 1.9 3.3 3. 9

Credit cards*

- - 11.0 12.7 11.1 9.1 9.7 10.7

Other installment loans 4.9 5.8 7.0 6.6 6.1 5.4 5.8 6.0

Other residential loans 4.0 4.7 4.8 6.0 4.6 3.3 3.4 4.4

Other line of credit 9.6 9.4 9.3 10.2 7.3 6.0 9.7 8.8

* No interest rate data available for credit cards in 1989 or 1992.

DOE developed a probability distribution of interest rates for each debt class based on the

SCF data. To account for variation among households, DOE sampled a rate for each household

from the distribution s for the appropriate debt class. Appendix 8

- C presents the probability

distribution of interest rates for each debt class that DOE used in the LCC and PBP analyses

.

Similar rate data are not available from the SCF for the asset classes, so the Department

derived data for these classes from national

- level historical data. The interest rates associated with certificates of deposit (CDs), 11 savings bonds, 12 and bonds (AAA corporate bonds) 13 are from Federal Reserve Board time

- series data covering 1977

– 200 9

. DOE assumed rates on checking accounts to be zero. Rates on savings and money market accounts are from Cost of Savings Index data covering 1984

– 200 9

. 14 The rates for stocks are the annual returns on the

S tandard and Poor’s (S&P) 500 in 1977

– 200 9

. 15 The mutual fund rates a re a weighted average of the stock rates (two

- thirds weight) and the bond rates (one

- third weight) in each year from 1977

– 200 9

. 16 DOE adjusted the nominal rates to real rates using an inflation index . Average nominal

and real interest rates for the classes of assets are shown in Table 8. 2

. 14

. Since the interest and return rates for each asset type cover a range of time, DOE believes they are representative of

rates in the year in which amended standards would take effect.8-21 Table 8.2.14 Average Nominal and Real Interest Rates for Household Equ ity Classes

Average Nominal Rate (%) Average Real Rate (%)

Checking accounts

- 0.0

Savings and money market 5. 4 2. 2

CDs 6. 6 2. 3

Savings bonds 7.7 3. 3

Bonds 8. 5 4. 1

Stocks 11.6 7.1

Mutual funds 10.3 5.8

DOE developed a normal probability distribution of interest rates for each asset type by using the mean value and standard deviation from the distribution. To account for variation among households, DOE sampled a rate for each household from the distributions for the appropriate asset clas s. Appendix 8

- C presents the probability distribution of interest rates for each asset type that DOE used in the LCC and PBP analyses

.

Table 8. 2

. 15 summarizes the average shares of the debt and asset shares over the six years of survey data and the mean real effective rates of each type of equity or debt. The average rate across all types of household debt and equity, weighted by the shares of each class, is 4.8

percent. In its analysis, DOE assigned specific discount rates to each sample household from the

distributions discussed above.8-22 Table 8.2.15 Shares and Interest or Return Rates Used for Household Debt and Equity

Classes

Average Share of Household Debt plus Equity (%)* Mean Effective Real Rate (%)**

Home equity loans 3.7 3.9

Credit cards 2.1 10.7

Other installment loans 1.6 6.0

Other residential loans 5.3 4.4

Other line of credit 0.5 8.8

Checking accounts 4.4 0.0

Savings and money market accounts 15.3 2.2

CDs 8.6 2.3

Savings bonds 1.4 3.3

Bonds 9.5 4.1

Stocks 29.0 7.1

Mutual funds 18.6 5.8

Total/Weighted

- average discount rate 100 4.8

* Not including primary mortgage or retirement accounts.

** Adjusted for inflation and, for home equity loans, loan interest tax deduction.

8.2.4 Compliance Date of Standard

The compliance date is the future date when manufacturers must comply with a new or amended standard. Based on DOE’s implementation report for energy conservation standards activities submitted pursuant to Section 141 of the Energy Policy Act of 2005, a final rule for the home appliances being considered for this standards rulemaking is scheduled for completion in

June 20 11

. 17 Therefore, the compliance date of any new energy efficiency standards for these products will be three years after the final rule is published, which is June 201 4

. DOE calculated the LCC for all consumers as if they each would purchase a new product in 2014

.

8.2.5 Product Energy Efficienc y in the Base Case

To estimate the percentage of consumers who would be affected by a standard at any of the potential efficiency level s , in its LCC analysis DOE considered the projected distribution of

efficiencies for product s that consumers purchase under the base case (the case without new or amended energy efficiency standards). DOE refers to this distribution of product energy efficiencies as the bas e

- case efficiency distribution. Using the projected distribution of efficiencies for each product class , DOE randomly assigned a product efficiency to each sam ple household. The energy efficiency distributions that DOE used in the LC C analysis are described

below. For this SNOPR, DOE used the efficiency distributions calculated in the previous microwave oven rulemaking.8-23 Tables 8.2. 16 and 8.2. 17 present recent market shares of the efficiency levels for

microwave and combination oven s. Because there is no evidence of change in average efficiency in recent years, DOE assumed that the shares in 2014 are the same

.

Table 8.2.16 Microwave and Countertop Combination Ovens: Base

- Case Market Shares

Standard

Level Standby

Power

W Annual Energy Use kWh/yr Market

Share %

Baseline 4.00 34.75 46.2%

1 2.00 17.38 34.6%

2 1.50 13.03 19.2%

3 1.00 8.69 0%

4 0.02 0.17 0%

Table 8.2.17 Over the Range Combination Ovens: Base

- Case Market Shares

Standard

Level Standby

Power

W Annual Energy Use kWh/yr Market

Share %

Baseline 4.50 39.10 100 %

1 3.70 32.15 0%

2 2.70 23.46 0%

3 2.20 19.11 0%

4 0.04 0.35 0%

8.3 LIFE

- CYCLE COST AND PAYBA CK PERIOD RESULTS

This section presents the LCC and PBP results for microwave and combination ovens

. A s discussed in section 8.1.1, DOE’s approach for conducting the LCC analysis relied on developing samples of consumers that use each of the products. DOE also characterized the uncertainty of many of the inputs to the analysis with probability dist ributions. DOE used a Monte Carlo simulation technique to perform the LCC calculations on the consumers in the sample. For each set of sample consumers using the product in each product class, DOE calculated the average LCC and LCC savings and the median a nd average PBP for each of the

candidate standard levels (CSL )

.

DOE calculated LCC savings and PBPs relative to the base case products that it assigned

to the sample households . As discussed in sec tion 8.2. 5 , for some consumers DOE assigned a base case product that is more efficient than some of the C SLs . For that reason, the average LCC impacts are not equal to the difference between the LCC of a specific standard level and the LCC

of the baseline product8-24 LCC and PBP calculations were performed 10,000 times on the sample of consumers established for each product. Each LCC and PBP calculation was performed on a single

consumer that was selected from the sample. The selection of a consumer was based on its weight (i.e., how representativ e a particular consumer is of other consumer s in the distribution ). Each LCC and PBP calculation also sampled from the probability distributions that DOE developed to characterize many of the inputs to the analysis.

Based on the Monte Carlo simulations that DOE perform ed, for each CSL , DOE

calculated the share of consumers with a net LCC benefit, with a net LCC cost, and with no impact. DOE considered a consumer to receive no impact at a given standard level if DOE assigned it a base case product that is the same as or has higher efficiency than the standard

level

. To illustrate the range of LCC and PBP impacts among the sample consumers , the sections below present figures that provide such information for each product class.

8.3.1 Summary of Results

Tables 8. 3 .1 and 8.3.2 sho w the LCC and PBP results by CSL for each representative

microwave and combination oven product class. The CSL s correspond to the energy efficiency levels included in the engineering analysis. With regard to the PBPs , DOE determined the median values by excluding th ose users not impacted by the standard.

Table 8.3.1 Microwave and Countertop Combination Ovens : LCC and PBP Results

CSL Standby (W) Life

- Cycle Cost Life

- Cycle Cost Savings Payback

Period (years)

Average

Installed

Cost Average

Lifetime Operating

Cost* Average

LCC Average Savings Users with

Median Net

Cost No Impact Net

Benefit

Baseline 4.00 $223 $31 $254

1 2.00 $224 $15 $239 $7 0% 54% 46% 0.2

2 1.50 $224 $12 $236 $10 0% 19% 81% 0.4

3 1.00 $225 $8 $233 $13 0% 0% 100% 1.1

4 0.02 $230 $0 $230 $15 0% 0% 100% 2.4

* Discounted8-25 Table 8.3.2 Over the Range Combination Ovens : LCC and PBP Results

CSL Standby (W) Life

- Cycle Cost Life

- Cycle Cost Savings Payback

Period (years)

Average

Installed

Cost Average

Lifetime Operating

Cost* Average

LCC Average Savings Users with

Median Net

Cost No Impact Net

Benefit

Baseline 4.50 $482 $35 $517

1 3.70 $482 $29 $511 $6 0% 0% 100% 0.0

2 2.70 $486 $21 $507 $11 0% 0% 100% 2.0

3 2.20 $496 $17 $513 $4 23% 0% 77% 6.4

4 0.04 $490 $0 $490 $27 0% 0% 100% 1.8

* Discounted

8.3.1.1 Distributions of Impacts

The figures below show the distribution of LCCs in the base case for each product class. Also presented below for a specific standard level are figures showing the distribution of LCC impacts and the distribution of PBPs. The figures are presented as frequency charts that show the distribution of LCCs, LCC impacts, and PBPs with their correspo nding probability of

occurrence. DOE generated t he figures for the distributions from a Monte Carlo simulation run based on 10,000 samples.

Base Case LCC Distributions

. Figures 8. 3 .1 and 8. 3

. 2 show the base case LCC

distributions f or microwave and combination ovens . DOE can generate similar figures for commercial purchasers.8-26 Figure 8.3.1 Microwave and Countertop Combination Ovens: Base Case

LCC Distribution

Figure 8.3.2 Over the Range Combination Ovens: Base Case LCC

Distribution8-27 Standard

- Level Distribution of Impacts

. Figure s 8. 3

. 3 and 8. 3

. 4 are example s of frequency chart s showing the distribution of LCC savings for microwave and combination ovens

at CSL 3 . DOE can generate frequency chart s similar to those shown for every CSL

.

Figure 8.3.3 Microwave and Countertop Combination Ovens: CSL 3 LCC Savings

Distribution8-28 Figure 8.3.4 Over the Range Combination Ovens: CSL 3 LCC Savings

Distribution

Fi gure s 8. 3.5 and 8. 3.6 are example s of frequency chart s showing the distribution of

PBPs for microwave and combination ovens at CSL 3

. DOE can generate frequency chart s similar to those shown for every standard level.

Figure 8.3.5 Microwave and Countertop Combination Ovens: CSL 3 PBP

Distribution8-29 Figure 8.3.6 Over the Range Combination Ovens: CSL 3 PBP Distributions

8.3.1.2 Range of Impacts

Figures 8. 3

. 7 and 8. 3

. 8 show the range of LCC savings for the CSL s considered for

microwave and combination ovens

. For each standard level, the top and the bottom of the box

indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box indicates the median; 50 percent of the households have lifecycle cost savings above this value. The ‘whiskers’ at the bottom and the top of the box indicate th e 5 th and 95 th percentiles. The small box shows the average LCC savings for each standard level.8-30 Figure 8.3.7 Microwave and Countertop Combination Ovens: Range of Average LCC Savings

Figure 8.3.8 Over the Range Combination Ovens: Range of Average LCC Savings 0 5 10 15 20 25 30 35 40

Level 1 Level 2 Level 3 Level 4Average LCC Savings (2010$)

Efficiency Level Microwave and Countertop Combination Ovens: Average LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95%

median

average

- 10

0 10 20 30 40 50

Level 1 Level 2 Level 3 Level 4Average LCC Savings (2010$)

Efficiency Level Over the Range Combination Ovens: Average LCC Savings Average; Median; Box 25%

- 75%; Whisker 5%

- 95%

median

average8-31 Figures 8. 3

. 9 and 8. 3

. 10 show the range of PBPs for all CSL s considered for microwave

and combination ovens . For each efficiency level, the top and bottom of the box in the figure

indicate the 75 th and 25 th percentiles, respectively. The bar at the middle of the box ind icates the median: 50 percent of the households have a payback period above this value. The horizontal

lines above and below each box indicate the 95 th and 5 th percentiles, respectively. The small box indicates the average PBP for each CSL

.

Figure 8.3.9 Microwave and Countertop Combination Ovens: Range of Average Payback Period 0 1 1 2 2 3 3 4 4 5 5

Level 1 Level 2 Level 3 Level 4Average PBP (years)

Efficiency Level Microwave and Countertop Combination Ovens: Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95%

median

average8-32 Figure 8.3.10 Over the Range Combination Ovens: Range of Average Payback Period

8.4 REBUTTABLE PAYBACK P ERIOD

DOE presents rebuttable PBPs to provide the legally established rebutta ble presumption that an energy efficiency standard is economically justified

, if the additional product costs

attributed to the standard are less than three times the value of the first

- year energy cost savings. (42 U.S.C. §6295 (o)(2)(B)(iii))

The basic equation for rebuttable PBP is the same as that shown in section 8. 2 , Payback Period Inputs. Unlike the analyses described in section 8 .3, however, the rebuttable PBP is not based on the use of household samples and probability dist ributions. Rather than distributions, the rebuttable PBP is based on discrete single

- point values. For example, while DOE uses a probability distribution of regional energy prices in the distributional payback period analysis, it uses only the national ave rage energy price from the probability distribution to determine the

rebuttable PBP.

Other than the use of single

- point values, the most notable difference between the distribution PBP and the rebuttable PBP is the latter’s reliance on the DOE test proce dure to

deter mine a product’s annual energy consumption. T he following sections identify the differences, if any, between the annu al energy consumptions determined for the distribution PBP

and the rebuttable PBP. 0 1 2 3 4 5 6 7 8 9

Level 1 Level 2 Level 3 Level 4Average PBP (years)

Efficiency Level Over the Range Combination Ovens: Average Payback Period Average; Median; Box 25%

- 75%; Whisker 5%

- 95%

median

average8-33 DOE based the annual energy consumption values that it used to determine the rebuttable

PBP for room air conditioners on the number of operating hours per year specified in previous microwave rulemaking.

8.4.1 Inputs

Inputs for the rebuttable PBP differ from the distribution PBP in that the calculation uses discrete values, rather than distributions, for inputs. Note that for the calculation of distribution PBP, because inputs for the determination of total installed cost were based on single

- point values, only the variability and/or uncertainty in the inputs for determining operating cost contributed to variability in the distribution PBPs. The following summarizes the single

- point

values that DOE used in the determination of the reb uttable PBP :

• Manufacturing costs, markups, sales taxes, and installation costs were all based on the single

- point values used in the distributional LCC and PBP analyses

.

• Energy prices are based on national average values for the year that new standards are assumed to take effect.

• An average discount rate or lifetime is not required in the rebuttable PBP calculation.

• The effective date of th e standard is assumed to be 201 4

.

8.4.2 Results

DOE calculated rebuttable PBPs for each standar d level relative to the distribution of product energy efficiencies estimated for the base case. In other words, DOE did not determine the rebuttable PBP relative to the baseline energy efficiency level, but relative to the distribution of product energy e fficiencies DOE determined for the base case (i.e., the case without new energy conservation standards).

Table 8. 4 .1 presents the rebuttable PBPs for microwave and combination ovens.

Table 8.4.1 Rebuttable Payback Periods

Microwave and Countertop Combination

Oven s Over the Range

Combination Ovens

Standby (W) PBP (years) Standby (W) PBP (years)

2.00 0.2 3.70 0.0

1.50 0.3 2.70 1.8

1.00 0.6 2.20 5.7

0.02 1.6 0.04 1.68-34 REFERENCES

1. U.S. Department of Energy: Energy Information Administration, Residential Energy Consumption Survey: 2005 Public Use Data Files . 2008: Washington, DC. http://www.eia.doe.gov/emeu/recs/recspubuse05/pubuse05.html

2. Energy Information Administration, Annual Energy Outlook 2010 with Projections to

2035 , 2010. Washington, DC. Report No. DOE/EIA

- 0383(2010).

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