Rulemaking Framework for Commercial Refrigeration Equipment

Including Ice-Cream Freezers; Self-Contained Commercial

Refrigerators, Freezers, and Refrigerator-Freezers without doors; and

Remote Condensing Commercial Refrigerators, Freezers, and

Refrigerator-Freezers

United States Department of Energy

Office of Energy Efficiency and Renewable Energy

Building Technologies Program

April 12, 2006

 EE-2006-STD-0126 COMMENT 01.3
TABLE OF CONTENTS

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1 INTRODUCTION . 1

1.1 The Appliances and Commercial Equipment Standards Program 2

1.2 Overview of the Rulemaking Process 4

1.2.1 Test Procedures 4

1.2.2 Rulemaking Process and Stakeholder Participation 4

1.3 Advance Notice of Proposed Rulemaking 5

1.4 Notice of Proposed Rulemaking 6

1.5 Final Rule 7

1.6 Overview of Commercial Refrigeration Equipment 7

1.6.1 Ice-Cream Freezers 7

1.6.2 Self-Contained Commercial Refrigerators, Freezers, and

Refrigerator-Freezers without Doors 8

1.6.3 Remote Condensing Commercial Refrigerators, Freezers, and

Refrigerator-Freezers 9

2 ANALYSES FOR RULEMAKING 10

3 MARKET AND TECHNOLOGY ASSESSMENT 12

3.1 Market Assessment 12

3.2 Product Classes 13

3.3 Technology Assessment 15

3.4 Baseline Units 17

4 SCREENING ANALYSIS 17

5 ENGINEERING ANALYSIS 18

5.1 Engineering Analysis Overview 18

5.2 Proposed Approach for Determining the Cost-Efficiency Relationship 19

5.3 Manufacturer Prices 20

5.4 Proprietary Designs 20

5.5 Outside Regulatory Changes Affecting the Engineering Analysis 21

6 ENERGY USE AND END-USE LOAD CHARACTERIZATION 21

7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION 22

8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS 25

8.1 Overview 25

8.2 Energy Prices 25

8.3 LCC Discount Rates 26

8.4 Maintenance, Repair, and Installation Costs 26

8.5 Equipment Lifetimes 27

9 SHIPMENTS ANALYSIS 27

9.1 Base Case Forecast 27

9.2 Accounting Methodology 28

9.3 Standards Impacts on Product Shipments 28

10 NATIONAL IMPACT ANALYSIS 29

10.1 Inputs to Forecast 29

10.2 Calculation of Energy Savings 29

10.3 Net Present Value 30

11

 EE-2006-STD-0126 COMMENT 01.3
11 LIFE-CYCLE COST SUBGROUP ANALYSIS ................................................ 30

12 MANUFACTURER IMPACT ANALYSIS ........................................................ 31

12.1 Sources of Information ................................ ................................................ 31

12.2 Industry Cash Flow Analysis ....................... ................................................ 32

12.3 Manufacturer Subgroup Analysis ................ ................................................ 33

12.4 Competitive Impacts Assessment ................ ................................................ 33

12.5 Cumulative Regulatory Burden ................... ................................................ 33

13 UTILITY IMPACT ANALYSIS .......................................................................... 34

14 EMPLOYMENT IMPACT ANALYSIS ............................................................. 34

15 ENVIRONMENTAL ASSESSMENT.................................................................. 34

16 REGULATORY IMPACT ANALYSIS .............................................................. 35

111

 EE-2006-STD-0126 COMMENT 01.3
LIST OF FIGURES

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Figure 1. Flow Diagram of Analyses for the Commercial Refrigeration Equipment

Standards Rulemaking Process 11

lv

 EE-2006-STD-0126 COMMENT 01.3
LIST OF ACRONYMS

AEO Annual Energy Outlook

ANOPR advance notice of proposed rulemaking

ASHRAE American Society of Heating, Refrigerating, and Air-Conditioning

Engineers

BT Building Technologies Program

CBECS Commercial Building Energy Consumption Survey

CFC chiorofluorocarbon

CFR Code of Federal Regulations

CO2 carbon dioxide

CSL candidate standard level

CUAC Commercial Unitary Air-Conditioner

DOE United States Department of Energy

DOJ United States Department of Justice

EERE Office of Energy Efficiency and Renewable Energy

ETA Energy Information Administration

E.O. Executive Order

EPACT 1992 Energy Policy Act of 1992

EPACT 2005 Energy Policy Act of 2005

EPCA Energy Policy and Conservation Act

FR Federal Register

GRIM Government Regulatory Impact Model

HCFC hydrochiorofluorocarbon

HFC hydrofluorocarbon

ImSET Impact of Sector Energy Technologies

LCC life-cycle cost

MIA manufacturer impact analysis

NECPA National Energy Conservation Policy Act of 1978

NEMS National Energy Modeling System

NES national energy savings

NOPR notice of proposed rulemaking

NO oxides of nitrogen

NPV net present value

OIRA Office of Information and Regulatory Affairs

R&D research and development

RECS Residential Energy Consumption Survey

RIA regulatory impact analysis

SG&A selling, general, and administrative costs

SO2 sulfur dioxide

TSD technical support document

TSL trial standard level

U.S.C. United States Code

WACC weighted-average cost of capital

V

 EE-2006-STD-0126 COMMENT 01.3
Rulemaking Framework for Commercial Refrigeration Equipment

INTRODUCTION

The purpose of this document is to describe the procedural and analytical approaches the United

States Department of Energy (the Department or DOE) anticipates using to evaluate and

establish energy conservation standards for three equipment types: ice-cream freezers; selfcontained commercial refrigerators, freezers, and refrigerator-freezers without doors; and remote

condensing commercial refrigerators, freezers, and refrigerator-freezers (herein collectively

referred to as commercial refrigeration equipment). These energy conservation standards apply

to commercial refrigeration equipment manufactured on or after January 1, 2012, as mandated by

section 136(c) of the Energy Policy Act of 2005 (EPACT 2005).

The DOE Appliances and Commercial Equipment Standards Program, of the Office of Energy

Efficiency and Renewable Energy's (EERE's) Building Technologies Program (BT), develops

and promulgates test procedures and energy conservation standards for consumer appliances and

commercial equipment.

The process for developing standards involves analysis, public notice, and consultation with

interested parties. Such parties, collectively referred to as stakeholders, include manufacturers,

consumers, energy conservation and environmental advocates, State and Federal agencies, and

any other groups or individuals with an interest in the standards.

This document is intended to inform stakeholders of the process for the standards rulemaking for

the covered commercial refrigeration equipment, and to encourage and facilitate stakeholder

input during the rulemaking. This document is the starting point for developing standards and is

not a definitive statement with respect to any issue to be determined in the rulemaking.

Section 1 provides an overview of the rulemaking process. Sections 2 through 16 discuss

analyses DOE intends to conduct to fulfill the statutory requirements and guidance for this

standards rulemaking. Although DOE is bundling the above three equipment types into a single

rulemaking, it will conduct separate analyses for each equipment type to determine whether

energy conservation standards are technologically feasible and economically justified. In other

words, for each of the three equipment types examined in this rulemaking, the Department will

perform a set of separate analyses, including an engineering analysis, a life-cycle cost and

payback period analysis, a national impact analysis, and a manufacturer impact analysis.

Information regarding this rulemaking will be maintained on the DOE website at

http://www.eere.energy. gov/buildings/appliance standards!

This document contains comment boxes that highlight issues on which DOE seeks

comment and requests feedback from interested parties. These boxes are also used to ask

specf Ic questions on the approaches the Department is proposing to follow in conducting

the analyses required for the standards rulemaking. Such requests for stakeholder

feedback are numbered according to the section in which they appear.

 EE-2006-STD-0126 COMMENT 01.3
1.1 The Appliances and Commercial Equipment Standards Program

Part B of Title III of the Energy Policy and Conservation Act (EPCA) sets forth a variety of

provisions designed to improve energy efficiency of various products and equipment. Part B of

Title III provides for the "Energy Conservation Program for Consumer Products Other Than

Automobiles." (42 U.S.C. 6291-6309)

The National Energy Conservation Policy Act (NECPA) amended EPCA to add Part C of

Title III (42 U.S.C. 6311-6317), which established an energy conservation program for certain

industrial equipment. Part C provides for a program similar to Part B for certain industrial

equipment. The Energy Policy Act of 1992 (EPACT 1992), Public Law 102-486, included

amendments to EPCA that expanded Title III to include additional commercial equipment. The

recent Energy Policy and Conservation Act of 2005 (EPACT 2005), Public Law 109-58, updates

several existing standards and test procedures; prescribes definitions, standards, and test

procedures for certain new consumer products and commercial equipment; and mandates that the

Secretary of Energy (the Secretary) commence rulemakings to develop test procedures and

standards for certain new consumer products and commercial equipment.

In particular, section 136(c) of EPACT 2005 amends section 342 of EPCA by adding new

subsection 342(c)(4)(A) (42 U.S.C. 63 13(c)(4)(A)), which directs the Secretary to issue by rule,

no later than January 1, 2009, energy conservation standards for the following equipment,

manufactured on or after January 1, 2012: ice-cream freezers; self-contained commercial

refrigerators, freezers, and refrigerator-freezers without doors; and remote-condensing

commercial refrigerators, freezers, and refrigerator-freezers. This equipment is the subject of

this Framework Document.

Additionally, section 136(f)(l)(B) of EPACT 2005 amends section 343 of EPCA (42 U.S.C.

6314) by adding new subsection 343(a)(6)(A)-(D) (42 U.S.C. 63 14(a)(6)(A)-(D)), which directs

the Secretary to adopt test procedures and establish, by rule, appropriate rating temperatures for

the above commercial refrigeration equipment. Accordingly, the Department intends to propose

such test procedures and rating temperatures under a separate rulemaking.

Section 136(a)(3) of EPACT 2005 amends section 340 of EPCA by replacing subsection 340(9)

(42 U.S.C 6311(9)) with definitions for the following terms that describe commercial

refrigeration equipment:

(9)(A) The term 'commercial refrigerator, freezer, and refrigerator-freezer' means

refrigeration equipment that-

(i) is not a consumer product (as defined in section 321);

(ii) is not designed and marketed exclusively for medical, scientific, or research

purposes;

(iii) operates at a chilled, frozen, combination chilled and frozen, or variable

temperature;

(iv) displays or stores merchandise and other perishable materials horizontally,

semi-vertically, or vertically;

(v) has transparent or solid doors, sliding or hinged doors, a combination of

hinged, sliding, transparent, or solid doors, or no doors;

2

 EE-2006-STD-0126 COMMENT 01.3
(vi) is designed for pull-down temperature applications or holding temperature

applications; and

(vii) is connected to a self-contained condensing unit or to a remote condensing

unit.

(B) The term 'holding temperature application' means a use of commercial

refrigeration equipment other than a pull-down temperature application, except a

blast chiller or freezer.

* * *

(D) The term 'pull-down temperature application' means a commercial

refrigerator with doors that, when fully loaded with 12 ounce beverage cans at 90

degrees F, can cool those beverages to an average stable temperature of 38 degrees

F in 12 hours or less.

(F) The term 'remote condensing unit' means a factory-made assembly of

refrigerating components designed to compress and liquefy a specific refrigerant

that is remotely located from the refrigerated equipment and consists of 1 or more

refrigerant compressors, refrigerant condensers, condenser fans and motors, and

factory supplied accessories.

(F) The term 'self-contained condensing unit' means a factory-made assembly of

refrigerating components designed to compress and liquefy a specific refrigerant

that is an integral part of the refrigerated equipment and consists of 1 or more

refrigerant compressors, refrigerant condensers, condenser fans and motors, and

factory supplied accessories."

EPACT 2005 does not explicitly define the terms "self-contained commercial refrigerator,

freezer, or refrigerator-freezer" and "remote condensing commercial refrigerator, freezer, or

refrigerator-freezer." The Department construes these two terms to mean "commercial

refrigerator, freezer, or refrigerator-freezer that is connected to a self-contained condensing unit"

and "commercial refrigerator, freezer, or refrigerator-freezer that is connected to a remote

condensing unit," respectively.

The Department construes the language in item (vii) of the above EPACT 2005 definition for

"commercial refrigerator, freezer, and refrigerator-freezer" to mean that so-called "secondarycoolant applications" are not covered under this rulemaking. The Department believes this

interpretation of EPACT 2005 is consistent with the Air-Conditioning and Refrigeration Institute

(ARI) Standard 1200-2006, "Performance Rating of Commercial Refrigerated Display

Merchandisers and Storage Cabinets," which explicitly excludes secondary-coolant applications.

In supermarket applications, secondary-coolant systems differ from direct-expansion systems in

that the refrigeration of display cases is provided by a chilled, secondary-fluid, which is pumped

between the central refrigeration system and the refrigerated display cases. The secondary

coolant transfers heat from the display cases to the central refrigeration system, where the

refrigeration cycle associated with liquid chilling occurs. In direct expansion systems, liquid

refrigerant is piped directly to each refrigerated display case, evaporated to produce cooling, then

the resulting vapor is piped back to the central compressor system, completing the refrigeration

cycle.

3

 EE-2006-STD-0126 COMMENT 01.3
Item 1-1 The Department seeks comment on whether secondary-coolant applications

should be covered under this rulemaking.

1.2 Overview of the Rulemaking Process

1.2.1 Test Procedures

The Department is developing test procedures and rating temperatures for the commercial

refrigeration equipment covered under this rulemaking, as mandated in EPACT 2005, in a

separate rulemaking. The test procedure under consideration for the equipment covered under

this rulemaking is Air-Conditioning and Refrigeration Institute (ART) Standard 1200,

"Performance Rating of Commercial Refrigerated Display Merchandisers and Storage Cabinets."

The current version is ARI 1200-2006.

The Department will issue the final rule in the test procedures rulemaking before it publishes the

standards notice of proposed rulemaking (NOPR).

1.2.2 Rulemaking Process and Stakeholder Participation

Under EPCA, when DOE is studying new or amended standards, it must consider to the greatest

extent practicable: (1) the economic impact of the standard on the manufacturers and consumers

of the affected products; (2) the savings in operating costs throughout the estimated average life

of the product compared to any increases in the initial cost or maintenance expense; (3) the total

projected amount of energy savings likely to result directly from the imposition of the standard;

(4) any lessening of the utility or the performance of the products likely to result from the

imposition of the standard; (5) the impact of any lessening of competition, as determined in

writing by the Attorney General, that is likely to result from the imposition of the standard; (6)

the need for national energy conservation; and (7) other factors the Secretary considers relevant.

(42 U.S.C. 6295 (o)(2)(B)(i) and 42 U.S.C. 63 16(e), added by section 136(h)(3) of

EPACT 2005) Other statutory requirements are set forth in 42 U.S.C. 6295 (o)(1)-(2)(A),

(2)(B)(ii)-(iii), and (3)-(4) and 42 U.S.C. 6316(e).

The Department considers stakeholder participation to be a very important part of the process for

setting energy conservation standards. The Department actively encourages the participation and

interaction of all stakeholders during the comment period in each stage of the rulemaking.

Beginning with the framework document and during subsequent comment periods, interactions

among stakeholders provide a balanced discussion of the information that is required for the

standards rulemaking.

In conducting the test procedures rulemaking and the energy conservation standards

rulemakings, the Department involves stakeholders through formal public notifications (i.e.,

Federal Register Notices). For this commercial refrigeration equipment energy conservation

standards rulemaking, the Department will employ the procedures set forth in the Department's

Process Rule (Procedures for Consideration of New or Revised Energy Conservation Standards

for Consumer Products, 61 FR 36974, July 15, 1996, 10 CFR Part 430, Subpart C, Appendix A)

to the extent they are appropriate for the development of energy conservation standards for the

commercial refrigeration equipment covered under this rulemaking.

4

 EE-2006-STD-0126 COMMENT 01.3
The standards rulemaking process involves three formal, major public notices, which are

published in the Federal Register. The first of the rulemaking notices is an advance notice of

proposed rulemaking (ANOPR, see section 1.3). The ANOPR is designed to publicly vet the

models and tools used in the rulemaking, and to facilitate public participation before the

proposed rule stage. The second notice is a notice of proposed rulemaking (NOPR, see

section 1.4), which presents a discussion of comments received in response to the ANOPR;

analysis of the impacts of standards on consumers, manufacturers, and the nation; the

Department's weighting of the impacts; and the proposed standards. The third notice is the final

rule (see section 1.5), which presents a discussion of comments received in response to the

NOPR; the revised analysis of the impacts of standards; the Department's weighting of the

impacts; the standards adopted by DOE; and the effective dates of the standards.

1.3 Advance Notice of Proposed Rulemaking

As part of its initial rulemaking activities, the Department typically identifies the product design

options or efficiency levels that it will analyze in detail, and those it should eliminate from

further consideration. This process includes a market and technology assessment (see section 3)

and a screening analysis (see section 4). These activities include consultations with stakeholders

and independent technical experts who can assist with identifying the key issues and design

options or efficiency levels to be considered by the Department in the rulemaking.

At the start of the ANOPR analysis, the Department considers efficiency levels for each product

class. The Department uses these efficiency levels to collect manufacturer cost data, historical

shipment data, shipment-weighted average efficiency data, and preliminary manufacturer impact

data (e.g., capital conversion expenditures, marketing costs, research and development costs).

During the ANOPR stage, DOE presents consumer life-cycle cost (LCC) impact and payback

period results (see section 8); national energy savings (NES) and consumer net present value

(NPV) results (see section 10) for a range of efficiency or energy use levels; and a preliminary

manufacturer impact analysis (MIA) (see section 12).

The Department's selection of efficiency or energy use levels to analyze is based on the costs

and benefits of efficiency levels or design options. The Department generally selects levels or

design options for consideration that span the full range of technologically achievable

efficiencies, specifically including:

1. The highest energy efficiency level or lowest energy consumption level that is

technologically feasible (the "max-tech" level);

2. The level with the lowest LCC; and

3. Levels that incorporate noteworthy technologies or fill in large gaps between efficiency

levels of other levels considered.

The efficiency or energy use levels analyzed serve to demonstrate the functions and outputs of

the models and tools. During the ANOPR, models and tools are tested for the different product

classes at each efficiency or energy use level analyzed. In addition, preliminary ANOPR results

may facilitate negotiations among interested parties.

5

 EE-2006-STD-0126 COMMENT 01.3
The Department will make the results of the analyses available on its website for review and will

consider comments on them after the publication of the ANOPR. When the Department

publishes the ANOPR, the Department will also make available a technical support document

(TSD) containing the details of all the analyses performed to date.

1.4 Notice of Proposed Rulemaking

After the publication of the ANOPR, there is a 75-day public comment period and a public

meeting. At this point, the Department encourages stakeholders to develop joint

recommendations for standard levels.

After the ANOPR, DOE will conduct further economic impact analyses. These analyses may

include refinements of previous analyses, and will include a consumer LCC sub-group analysis

(see section 11), a manufacturer impact analysis (see section 12), a utility impact analysis (see

section 13), an employment impact analysis (see section 14), an environmental assessment (see

section 15), and a regulatory impact analysis (see section 16).

The Department will make the results of all the analyses available on its website for review and

will consider comments after the publication of the NOPR. This review and comment process

may result in revisions to the analyses. This analytical process ends with the selection of

proposed energy conservation levels that will be presented in the NOPR. The Department

selects the proposed standard levels from the trial standard levels analyzed. The NOPR,

published in the Federal Register, will document the evaluation and selection of any proposed

standards.

For each product class, the Department will identify the maximum improvement in energy

efficiency or maximum reduction in energy use that is technologically feasible. If the

Department proposes a level that is below this "max-tech" level, it will explain the reasons for

eliminating higher levels beginning with the highest level considered. The Department will

present the results of the analysis in the NOPR and the details of the analysis in an

accompanying TSD.

The Department considers many factors in selecting proposed standards. These factors or

criteria are established by statute and capture the many benefits, costs, and impacts of the

standards. Additionally, the Department encourages stakeholders to develop joint

recommendations for standard levels. The Department will carefully consider such

recommendations in its decision process.

When the Department publishes the NOPR, it will provide the Department of Justice (DOJ) with

a copy of the NOPR and TSD and will solicit feedback on the impact of the proposed standard

levels on competition. The DOJ will review these standard levels in light of any lessening of

competition that is likely to result from the imposition of standards. The Department will

consider DOJ's determination on the impacts of the proposed standard on competition in

preparing the final rule. The NOPR is followed by a 75-day public comment period that includes

one public meeting.

6

 EE-2006-STD-0126 COMMENT 01.3
1.5 Final Rule

Revisions to the analyses may result from the public comments on the NOPR. On the basis of

the public comments, DOE will review the engineering and economic impact analyses and

proposed standards and make modifications as necessary.

After the publication of the NOPR, the Department will conduct a thorough review of all

analyses performed, and of the trial standard levels. Final revisions to the analyses and trial

standard levels will be made as appropriate.

Before the final nile is issued, the Department will consider DOJ comments on the NOPR

relating to the impacts of the proposed standard levels on competition to determine whether

changes to these standard levels are needed.

The standards rulemaking will conclude with the publication of the final rule. The Department

will select the final standard levels based on the complete record of the standards rulemaking.

The final rule will promulgate the final standard levels and their effective date and explain the

basis for their selection. The final rule will be accompanied by a final TSD.

1.6 Overview of Commercial Refrigeration Equipment

The commercial refrigeration equipment covered under this rulemaking consists of three types of

equipment, as listed in section 136(a)(3) of EPACT 2005 and addressed above:

1. Ice-cream freezers;

2. Self-contained commercial refrigerators, freezers, and refrigerator-freezers without doors;

and

3. Remote condensing commercial refrigerators, freezers, and refrigerator-freezers.

These three types of equipment are discussed in sections 1.6.1, 1.6.2, andl.6.3.

1.6.1 Ice-Cream Freezers

Sections 136(c) and (f) of EPACT 2005 require that the Department establish energy

conservation standards and test procedures for ice-cream freezers; however, EPACT 2005 does

not define or specify any restrictions or qualifications on the term "ice-cream freezer." For

purposes of these rulemakings, DOE will review existing State, International, and voluntary

definitions, and will establish a definition for "ice-cream freezer." Based on its initial review of

existing definitions, the Department is currently considering the following definition:

"The term 'ice-cream freezer' means a commercial freezer that is designed to operate at or

below -5°F (-21°C) and that the manufacturer designs, markets, or intends for the storing,

displaying, or dispensing of ice-cream."

7

 EE-2006-STD-0126 COMMENT 01.3
Several types of freezer could be covered as ice-cream freezers under this definition, including:

chest- or coffin-style and upright-style ice-cream and frozen-novelty display cases with

transparent doors, which are commonly used in convenience, grocery, and similar stores

for product sales;

2. chest- or coffin-style and upright-style ice-cream and frozen novelty storage cases with

solid doors, which are commonly used in convenience, grocery, and similar stores for

product storage;

3. ice-cream dipping-cabinets, which are commonly seen in ice-cream parlors and from

which servers scoop ice-cream by hand for serving in cones, dishes, and similar

containers; and

4. soft-serve ice-cream extruders, which are used to serve or self-serve soft-serve ice-cream

into a dish or cone at restaurants, ice-cream parlors, cafeterias, and similar food-service

locations.

Item 1-2 The Department is not aware of any industry-standard test methods for icecream dipping-cabinets or soft-serve ice-cream extruders. The Department

requests information on what, if any, test methods exist for these types of

equipment. The Department seeks comment on how it should address these

types of equipment in this rulemaking. Should soft-serve ice-cream extruders

and ice-cream dipping-cabinets be considered "ice-cream freezers"?

Item 1-3 The Department seeks comment on the definition of "ice-cream freezer."

Item 1-4 In what way are ice-cream freezers different from commercial freezers? The

Department requests feedback on whether it should establish energy

conservation standards for ice-cream freezers that are different and apart

from other commercial freezers.

Item 1-5 The Department seeks comment on whether to extend energy conservation

standards for self-contained commercialfreezers with doors and without

doors to ice-cream freezers with doors and without doors,_respectively.

1.6.2 Self-Contained Commercial Refrigerators, Freezers, and Refrigerator-Freezers

without Doors

As defined in section 1.1, a self-contained commercial refrigerator, freezer, or refrigeratorfreezer is a type of commercial refrigeration equipment that is connected to a self-contained

condensing unit. Self-contained commercial refrigeration equipment without doors is generally

used in grocery and similar retail stores and in cafeteria-style food service venues for displaying

and merchandising food products that include delicatessen items, eggs, meat, produce, seafood,

prepared foods, beverages, frozen foods, and dairy items.

 EE-2006-STD-0126 COMMENT 01.3
Item 1-6 What, i/any, self-contained commercial refrigeration equipment without

doors does not meet the EPACT 2005 definition?

As stated in section 1.1, the Department must establish energy conservation standards for selfcontained commercial refrigerators, freezers, and refrigerator-freezers without doors. However,

EPACT 2005 does not specify a definition for "commercial refrigerator-freezer."

The term "electric refrigerator-freezer" is defined for residential products in the Code of Federal

Regulations (10 CFR section 430.2) as:

a cabinet which consists of two or more compartments with at least one of the

compartments designed for the refrigerated storage of food at temperatures above 32°F.

and with at least one of the compartments designed for the freezing and storage of food at

temperatures below 8°F which may be adjusted by the user to a temperature of 0°F. or

below. The source of refrigeration requires single phase, alternating current electric

energy input only."

Item 1-7 How could this definition be mod?/Ied to be applicable to self-contained

commercial refrigerator-freezers without doors?

1.6.3 Remote Condensing Commercial Refrigerators, Freezers, and RefrigeratorFreezers

As defined in section 1.1, a remote condensing refrigerator, freezer, or refrigerator-freezer is a

type of commercial refrigeration equipment that is connected to a remote condensing unit.

Remote condensing commercial refrigeration equipment is generally used to display and

merchandise supermarket goods on a large scale. In addition, remote condensing equipment

with doors is used for food storage in commercial locations where food is prepared and/or

served, such as hotels and restaurants.

EPACT 2005 defines a "self-contained condensing unit," in part, as "an integral part of the

refrigerated equipment" and a "remote condensing unit," in part, as being "remotely-located

from the refrigerated equipment." (EPACT 2005, Section l36(a)(3)) The Department believes

this difference in language may mean that a remote condensing unit is not a part of the

refrigerated equipment. The Department is therefore considering developing energy

conservation standards for remote condensing commercial refrigerators, freezers, and

refrigerator-freezers that apply to the refrigerated equipment, but not to the remote condensing

unit. The Department believes that this approach is consistent with ARI Standard 1200-2006.

Item 1-8 The Department seeks comment on regulating the energy consumption of the

refrigerated equipment, but not the associated remote condensing unit for

remote condensing commercial refrigerators, freezers, and refrigeratorfreezers.

Item 1-9 What, if any, remote condensing commercial refrigeration equipment does not

meet the EPA CT 2005 definition?

______ _____

 EE-2006-STD-0126 COMMENT 01.3
Item 1-10 How could the above defInition for electric refrigerator-freezer be modified to

be applicable to remote condensing commercial refrigerator-freezers?

2 ANALYSES FOR RULEMAKING

Ultimately, the Department intends to select energy conservation standards that achieve the

maximum improvement in energy efficiency that is technologically feasible and economically

justified. The selection of such standards is expected to achieve the maximum energy savings

that are economically justified without putting an unjust financial burden on any particular party.

Economic justification includes consideration of the economic impacts on domestic

manufacturers and consumers, national benefits including environmental impacts, issues of

consumer utility, and impacts from any lessening of competition. The purpose of the analyses

conducted in support of the standards rulemaking will be to insure that the final standards meet

these criteria of technological feasibility and economic justification.

This section offers an overview of DOE's analytical methodology and discusses the major

components of the analyses DOE will conduct. A consistent approach to analysis throughout the

rulemaking will be ensured through the consideration of each analysis as a part of the overall

standards-setting framework.

Figure 1 summarizes the analytical components of the standards-setting process. The analyses

are presented in the center column. Each analysis has a set of key inputs, which are data and

information required for the analysis. "Approaches" are the methods that will be used to obtain

key inputs. For example, some key inputs exist in public databases, some will be collected from

stakeholders or others with special knowledge, and some will be developed by the project team

in support of the rulemaking. The results of each analysis are key outputs, which feed directly

into the rulemaking. Dotted lines connecting one analysis to another indicate the flow of

information.

10

 EE-2006-STD-0126 COMMENT 01.3
Key Inputs Analyses Key 0

• Identity Firms/Products

• Characterize Industry • Historical Shipments I Product Classes

Market and Technology • Technology Options • Market Segmentation Assessment • Analysis of Market Data • Non-Regulatory Programs

Product Classes Technology Options

• Analysis of Product Data Product Prototypes S i A l i Design Options

creen ng na ys s

• Efficiency-Level Approach Design Options • Design Option Approach Manufacturing Cost

• Efficiency/Performance E i i A l i Cost-Efficiency Relationship

ng neer ng na ys s

• Analysis of Energy Use

Data E U

IDesi n Ever / Use nergy se Energy-Efficiency

Define Distribution Channels Annual Energy Use (UEC) Levels

• Economic Census Data

Analysis Markups for Retail Prices

• Retail Price Collection and Product Price

Analysis Determination Life-Cycle Cost and Life-Cycle Costs

Energy Prices Payback Period • Payback Periods

• Installation Costs Analysis • Maintenance & Repair Cost s

• Energy-Efficiency Levels I Candidate UEC • Installation

Standard

Levels

• Energy Prices Costs

Maint Costs

• Accounting Approach Shipments Re pair Costs

Backcast and Forecast Analysis National Impact

• National Energy Savings

Net Present Values Market Saturation

• Energy Price Forecasts Anal sis y

Site-to-Source Factors

• Manufacturer Prices Preliminary • Conversion Capital Expenditures

• Average Costs Manufacturer Impact Direct Employment Impacts

Analysis

• Stakeholder Comme

• Demographics

• Manufacturer Prices

• Averane Costs

Manufacturer Interviews

NEMS-BT

ImSET

N EMS-ST

Revise ANOPR

Analyses

........... Life-Cycle Cost

Sub-Group Analysis

Manufacturer Financial Data

Utility Load Factors

National Energy Savings

National Energy Savings

National Product Costs

National Operating Costs

Emission Rates

National Energy Savings

Non-Regulatory

5dternatives

Manufacturer Impact

Analysis

Utility Impact

Employment Impact

Analysis

Environmental

Assessment

Regulatory Impact

- Trial Standard Levels (TSL5

• Life-Cycle Costs

- Payback Periods

• Industry Cash Flow

• Sub-Group Cash-Flow

• Direct Employment Impacts

• Competitive Impacts

• Cumulative Regulatory Burr

Diect Employment

• National Employment Im

• Emission Estimates

• National Energy Savings

• Net Present Values

• Department of Justice Revier 'V

• Stakeholder Comments [Alyse]- Revised Results

FnaI Rule

Figure 1. Flow Diagram of Analyses for the Commercial Refrigeration Equipment Standards

Rulemaking Process

11

 EE-2006-STD-0126 COMMENT 01.3
3 MARKET AND TECHNOLOGY ASSESSMENT

The market and technology assessment will provide information about the commercial

refrigeration industry that the Department will use throughout the rulemaking. This assessment

is particularly important at the outset of the rulemaking to determine product classes and to

identify potential design options or efficiency levels for each product class.

3.1 Market Assessment

The Department will qualitatively and quantitatively characterize the structure of the commercial

refrigeration industry and market. In the market assessment, the Department will identify and

characterize the manufacturers of this equipment; estimate market shares and trends in the

market; address regulatory and non-regulatory initiatives intended to improve the energy

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

under this rulemaking; and explore the potential for technological improvements in the design

and manufacturing of such equipment.

The Air-Conditioning and Refrigeration Institute (ARI), and specifically the Commercial

Refrigeration Manufacturers Division (CRMD) of ARI, is the trade association for manufacturers

of equipment covered under this rulemaking. The Department expects that ARI will play a

critical role in providing market information, including input on characterizing current and

historical trends in equipment shipments and energy efficiency.

As stated above, the collected information will serve as a resource for use throughout the

rulemaking. For example, the Department will use historical equipment shipments and prices as

an aid in creating shipment scenarios and predicting future prices. Market structure data will be

particularly useful for assessing competitive impacts as part of the manufacturer impact analysis.

The commercial refrigeration equipment covered under this rulemaking has never before been

the object of energy conservation regulation at the Federal level. The Department understands

that little or no energy consumption or energy efficiency data are available for this equipment.

In addition, a preliminary investigation by the Department indicates that there are little or no data

available on product classes for this equipment, the cost of manufacturing this equipment,

manufacturers' market shares, shipments, or channels of distribution. Such data are essential to

the development of technologically feasible, economically justified energy conservation

standards. Stakeholders are therefore encouraged to submit any available, applicable data to the

Department for consideration.

Item 3-1 The Department seeks information that would contribute to the market

assessment (e.g., the manufacturers of this equlment in the United States and

the products they sell, by product class). It is particularly important that the

Department be aware of the major and small/niche manufacturers?

12

 EE-2006-STD-0126 COMMENT 01.3
Item 3-2 The Department seeks information on annual product shipments from 1990 to

2005 (both domestic and imports), and the corresponding shipment-weighted

average efficiency of these shipments. Additionally, what units of measure are

typically used for annual shipments of this equl'pment (e.g., cases per year,

linear-feet per year, square-feet per year (display-area-based), cubic-feet per

year (refrigerated-volume-based), etc)?

3.2 Product Classes

The Department intends to separate the commercial refrigeration equipment covered under this

rulemaking into product classes. The criteria for separation into different classes are: type of

energy used and capacity or other performance-related features, such as those that provide utility

to the consumer or others deemed appropriate by the Secretary, that justify the establishment of a

separate energy conservation standard. (42 U.S.C. 6295(q) and 63 16(e) added by section

136(h)(3) of EPACT 2005)

The Department proposes the product classes listed below, defined according to equipment

characteristics such as door-type and orientation. The proposed product classes differentiate

equipment without doors by orientation because the Department expects that orientation provides

utility that has a significant impact on the energy efficiency and energy consumption of

equipment without doors.

Self-contained commercial refrigerators without doors

(a) horizontal

(b) semi-vertical

(c) vertical

2. Self-contained commercial freezers without doors

(a) horizontal

(b) semi-vertical

(c) vertical

Self-contained commercial refrigerator-freezers without doors

(a) horizontal

(b) semi-vertical

(c) vertical

4. Remote condensing commercial refrigerators with doors

(a) solid doors

(b) transparent doors

5. Remote condensing commercial refrigerators without doors

(a) horizontal

(b) semi-vertical

(c) vertical

13

 EE-2006-STD-0126 COMMENT 01.3
6. Remote condensing commercial freezers with doors

(a) solid doors

(b) transparent doors

7. Remote condensing commercial freezers without doors

(a) horizontal

(b) semi-vertical

(c) vertical

8. Remote condensing commercial refrigerator-freezers with doors

(a) solid doors

(b) transparent doors

9. Remote condensing commercial refrigerator-freezers without doors

(a) horizontal

(b) semi-vertical

(c) vertical

10. Ice-cream freezers with doors

(a) solid doors

(b) transparent doors

11. Ice-cream freezers without doors

(a) horizontal

(b) semi-vertical

(c) vertical

14

 EE-2006-STD-0126 COMMENT 01.3
Item 3-3 The Department requests feedback on the proposed classes for the

commercial refrigeration equlment covered under this rulemaking, and the

criteria used in creating the classes.

Item 3-4 Can the terms "horizontal," "semi-vertical, "and "vertical" be used to

describe equipment orientation? If so, how should these be defined (e.g.,

based on the angle of the air-curtain or load-line with the vertical, with O_300

being vertical, 30_600 being semi-vertical, and 60_900 being horizontal)?

Item 3-5 What product classes, f any, can be combined for standards -setting purposes

because of their similarities?

Item 3-6 Can analyses for any one of these product classes be applied or extrapolated

to another product class?

Item 3-7 Should all of these product classes be considered (e.g., do any of these

product classes have few or no shipments)?

Item 3-8 Would it be appropriate to extend the standards prescribed for self-contained

commercial refrigeration equipment with doors in EPA CT 2005 to similar

remote condensing equipment with doors and ice-cream freezers with doors

covered in this rulemaking? If so, what methodology would be appropriate?

The energy conservation standards prescribed in EPACT 2005 for self-contained commercial

refrigerators, freezers, and refrigerator-freezers with doors take the form of upper limits on daily

energy consumption as a function of the volume of the refrigerated space.

Metrics were not specifically established in EPACT 2005 for any of the commercial refrigeration

equipment covered under this rulemaking.

Item 3-9 The Department seeks feedback on appropriate test metrics for the

commercial refrigeration equipment covered under this rulemaking (e.g., a

metric based on volume for equipment with doors and a metric based on case

length, total display area or volume for products without doors).

3.3 Technology Assessment

The Department typically uses information about existing and past technology options and

prototype designs as input in identifying technologies manufacturers could use to attain higher

energy efficiency levels. In consultation with interested parties, the Department intends to

develop a list of technologies that should be considered in the analysis. Initially, this list will

include all those technologies considered to be technologically feasible and will serve to

establish the maximum technologically feasible design. In the screening analysis, DOE will

eliminate from consideration technologies that have not been incorporated in commercial

equipment or in working prototypes, or that fail to meet certain criteria as to practicability to

manufacture, install, and service, as to impacts on product utility or availability, or as to health or

safety. (Process Rule, sections 4(a)(4) and 5(b))

15

 EE-2006-STD-0126 COMMENT 01.3
The Department is collecting information on technologies that could be used to improve the

energy efficiency of commercial refrigeration equipment. The Department is currently

considering the specific technologies and designs listed below.

The following technologies and designs are relevant to all product classes:

1. Higher efficiency lighting (e.g., T8 fluorescent lamps, light-emitting diodes (LEDs));

2. Higher efficiency lighting ballasts (e.g., electronic ballasts instead of magnetic ballasts);

3. Remote lighting ballast location (i.e., outside the refrigerated space);

4. Higher efficiency expansion valves (e.g., dual-port thermostatic expansion valves (TXVs)

and electronic expansion valves (EEVs));

5. Higher efficiency evaporator fan motors (e.g., electronically commutated motors (ECM));

6. Increased evaporator surface area or efficiency to achieve lower case-evaporator

temperature differential (with a possible increase in fan energy);

7. Evaporator-fan-motor controllers;

8. Higher efficiency evaporator fan blades;

9. Low-pressure-differential evaporators;

10. Anti-sweat heater controls;

11. Case-insulation increases or improvements;

12. Defrost mechanism (hot-gas defrost rather than electric defrost); and

13. Defrost-cycle control (partially or fully demand-based defrost rather than partially or

fully time-based defrost).

The following design is relevant to equipment without doors only:

Air curtain design (optimization of the discharge air grille (DAG) configuration and

velocity profile to minimize ambient air infiltration).

The following technologies and designs are relevant to self-contained equipment only:

1. Higher efficiency compressors (e.g., variable-speed compressors);

2. Liquid-to-suction heat exchanger (LSHX) (subcool liquid refrigerant with suction line);

3. Increased condenser surface area or efficiency to achieve lower ambient-condenser

temperature differential (with a possible increase in fan energy);

16

 EE-2006-STD-0126 COMMENT 01.3
4. Higher efficiency condenser fan motors (e.g., electronically commutated motors (ECM));

5. Condenser-fan-motor controllers; and

6. Higher efficiency condenser fan blades.

Item 3-10 What technologies or designs, ?f any, should be added to or removedfrom the

above list?

3.4 Baseline Units

Once the Department establishes product classes, it will select a baseline model as a reference

point for each product class, against which it can measure changes resulting from energy

conservation standards. The baseline model in each product class represents the characteristics

of equipment in that class. Typically, a baseline model would be a model that just meets current

required energy conservation standards. Because there are no existing standards for the

commercial refrigeration equipment covered under this rulemaking, the Department will select

baseline models using a different method (e.g., the unit with the highest energy consumption or

the typical unit). The Department proposes to use information provided by stakeholders in

selecting appropriate baseline models.

Item 3-11 The Department seeks feedback on how to select a baseline model for each

product class.

The Department will use the baseline models in the engineering analysis and the life-cycle cost

and payback-period analysis. To determine energy savings and changes in price, the Department

will compare each higher-energy-efficiency or lower-energy-consumption design option with the

baseline model.

Item 3-12 The Department seeks information on what particular components and

features characterize the baseline model in each product class (e.g.,

materials, dimensions, insulation, refrigerant type, compressors, evaporators,

condensers, expansion devices, fans, motors, air-curtains, anti-condensate

devices and controls, defrost mechanisms and controls, lighting, etc.).

4 SCREENING ANALYSIS

The purpose of the screening analysis is to screen out design options that will not be considered

in the rulemaking for commercial refrigeration equipment.

In consultation with interested parties, the Department will develop a list of design options for

consideration. Initially, the candidate design options will encompass all those technologies

considered to be technologically feasible. Following development of this initial list of design

options, the Department will review each design option based on the following four criteria, as

addressed in sections 4(a)(4) and 5(b) of the Process Rule:

17

 EE-2006-STD-0126 COMMENT 01.3
1. Technological feasibility. Technologies that are not incorporated in commercial products

or in working prototypes will not be considered further.

2. Practicability to manufacture, install, and service. If it is determined that mass

production of a technology in commercial products and reliable installation and servicing

of the technology could not be achieved on the scale necessary to serve the relevant

market at the time of the effective date of the standard, then that technology will not be

considered further.

Impacts on product utility to consumers. If a technology is determined to have

significant adverse impact on the utility of the product to significant subgroups of

consumers, or result in the unavailability of any covered product type with performance

characteristics (including reliability), features, size, capacities, and volumes that are

substantially the same as products generally available in the United States at the time, it

will not be considered further.

4. Safety of technologies. Ifit is determined that a technology will have significant adverse

impacts on health or safety, it will not be considered further.

The reasons for eliminating any design options during the screening analysis will be fully

documented and published as part of the ANOPR.

5 ENGINEERING ANALYSIS

After conducting the screening analysis, the Department performs an engineering analysis based

on the remaining design options. Potentially, as a result of screening out some design options

which may enable the achievement of the highest efficiencies, the Department may, in effect, be

limiting the efficiency levels considered in the engineering analysis. The engineering analysis

consists of estimating the costs of equipment at various levels of increased energy efficiency or

reduced energy consumption. This section provides an overview of the engineering analysis

(section 5.1), and discusses the approach for determining the cost-efficiency relationship

(section 5.2), manufacturer prices (section 5.3), proprietary designs (section 5.4), and regulatory

changes outside the realm of the Department's energy conservation standards process, or outside

regulatory changes, that affect the engineering analysis (section 5.5).

5.1 Engineering Analysis Overview

The purpose of the engineering analysis is to determine the relationship between manufacturer

selling price and energy efficiency for commercial refrigeration equipment. In determining this

relationship, the Department will estimate the increase in manufacturer selling price associated

with technological changes that increase the efficiency of the baseline models.

The Department will obtain cost estimates for the engineering analysis (which it will also use in

the manufacturer impact analysis) from detailed incremental cost data disaggregated into the cost

of incremental material, labor, and overhead. The Department will create an industry-wide

18

 EE-2006-STD-0126 COMMENT 01.3
analysis based primarily on the manufacturer-supplied data. The Department may supplement

this analysis with cost estimates of specific design options.

Therefore, the Department seeks design, efficiency, and cost information to determine the cost of

improving the efficiency of the baseline model. In addition, the Department must identify the

model with the highest efficiency that is technologically feasible within each product class (i.e.,

the "max tech" model).

Item 5-1 For each product class, the Department seeks information on incremental

manufacturing costs and components (see Item 3-1 2) for four energyefficiency levels above the baseline (e.g., daily energy consumption, what

components are different from the baseline, material costs1, labor costs2,

overhead costs3 (excluding depreciation), building conversion capital

expenditures, tooling/equipment conversion capital expenditures, R&D

expenses, marketing expenses, etc.).

Item 5-2 The Department is also interested in any equipment test data that stakeholders

can provide (e.g., test procedure used, rating conditions, refrigerated volume,

total display area, case length, voltage, integrated average product

temperature, daily energy consumption, etc.). Test data for the baseline

model in each product class is particularly important.

5.2 Proposed Approach for Determining the Cost-Efficiency Relationship

In support of this rulemaking effort, the Department seeks to collect incremental cost data. The

data are intended to represent the average incremental production cost to improve a baseline

model to a specified efficiency level. The Department will aggregate the data by weighting each

individual data point by company-level sales volumes for each product class. This methodology

constitutes an efficiency-level approach to the engineering analysis because the Department will

examine aggregated incremental increases in manufacturer selling price at specified levels of

energy efficiency.

To be useful in the manufacturer impact analysis, manufacturer cost information should reflect

the variability in baseline models, design strategies, and cost structures that can exist among

manufacturers. The Department will attempt to qualify the aggregated cost-efficiency data

supplied by stakeholders through engineering expertise and consultation with stakeholders or

Costs of raw materials including scrap that can be traced to final or end products. Direct material costs do not

include indirect material costs which are attributed to supplies that may be used in the production process but are not

assigned to final products (e.g., lubricating oil for production machinery).

2 The earnings of workers who assemble parts into a finished good or operate machines in the production process.

Direct labor includes the fringe benefits of direct laborers such as group health care, as well as overtime pay. Direct

labor does not include indirect labor which is defined as the earnings of employees who do not work directly in

assembling a product such as supervisors, janitors, stockroom personnel, inspectors, and forklift operators.

Factory overhead excluding depreciation. Factory overhead includes indirect labor, downtime, set-up costs,

indirect material, expendable tools, maintenance, property taxes, insurance on assets, and utility costs. Factory

overhead does not include selling, general, and administrative costs (SG&A); research and development (R&D);

interest; or profit (accounted for by the Department separately).

19

 EE-2006-STD-0126 COMMENT 01.3
technical experts. Specifically, the Department will supplement these aggregated cost data with

information obtained through follow-up manufacturer interviews. These confidential interviews

will provide a deeper understanding of the various combinations of technologies used to increase

equipment efficiency, and their associated manufacturing costs.

If the Department is unable to reconcile information collected during the manufacturer

interviews with the aggregated cost data, or with information contained in the market and

technology assessment, the Department will supplement the manufacturer-provided data through

a design options approach involving consultation with outside experts and/or further review of

publicly available cost and performance information.

The Department will estimate the contribution of the depreciation of conversion capital

expenditures to the incremental overhead. During the interviews, the Department will gather

information about the capital expenditures that would be necessitated by increasing the

efficiency of the baseline models to various efficiency levels (i.e., conversion capital

expenditures by efficiency or energy use level). The Department will also request information

about the depreciation method used to expense the conversion capital.

The approach proposed above will allow the Department to represent commercial refrigeration

equipment throughout the entire efficiency range without depending on time-consuming

simulation modeling. The Department will maintain the confidentiality of proprietary data while

allowing the public to examine the cost and design assumptions that underlie the cost-efficiency

estimates.

Item 5-3 The Department requests feedback on the use of an efficiency-level approach

to determining the relationship between manufacturer selling price and

energy efficiency for commercial refrigeration equipment, supported, as

needed, by a design-options approach.

5.3 Manufacturer Prices

The Department plans to apply markups to convert manufacturer production costs to

manufacturer selling prices. The Department will estimate manufacturer markups from publicly

available financial information (e.g., Securities and Exchange Commission 10-K reports).

Item 5-4 The Department seeks comment on the markup approach proposed for

developing estimates of manufacturer selling prices.

5.4 Proprietary Designs

The Department will consider in its engineering and economic analyses all design options that

have not been screened out, including proprietary designs. The Department will consider

proprietary designs in the subsequent analyses only if it is not a unique path to a given efficiency

level. If the proprietary design is the only approach available to achieve a given efficiency level,

then DOE will reject the efficiency level (that can only be achieved by a proprietary design) from

further analysis. Furthermore, the Department is sensitive to manufacturer concerns regarding

proprietary designs and will make provisions to maintain the confidentiality of any proprietary

20

 EE-2006-STD-0126 COMMENT 01.3
data submitted by manufacturers. This information will provide input to the competitive impacts

assessment and other economic analyses.

Item 5-5 Are there propri etaly designs that the Department should consider for any of

the products under consideration by this rulemaking? If so, how should the

Department acquire the cost data necessary for evaluating these designs?

5.5 Outside Regulatory Changes Affecting the Engineering Analysis

In conducting an engineering analysis, the Department must consider the effects of regulatory

changes outside the Department's statutory energy conservation standards rulemaking process

that can impact the manufacturers of the covered equipment. Some of these changes can also

affect the energy efficiency or energy consumption of the covered equipment. For example, due

to the phase-out of chiorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), the

commercial refrigeration industry must transition to non-ozone-depleting refrigerants. As a

result, the industry will likely use hydrofluorocarbon-based (HFC-based) refrigerants in their

products.

The Department will attempt to identify all such outside engineering issues that could impact the

engineering analysis. The consideration of these issues is closely related to the cumulative

regulatory burden assessment that the Department will carry out as part of the manufacturer

impact analysis.

Based on consideration of the comments received for the ANOPR, DOE will make the necessary

changes to the analysis. These changes will be reflected in the documentation of the NOPR.

Item 5-6 Are there additional outside issues that the Department should consider in its

analysis of commercial refrigeration equipment?

6 ENERGY USE AND END-USE LOAD CHARACTERIZATION

The purpose of the energy use and end-use load characterization analysis is to assess the energyand peak-demand-savings potential of different equipment efficiencies for various commercial

building types and across a range of climate zones in which commercial refrigeration equipment

is used. As part of the energy use analysis, the Department must make certain engineering

assumptions regarding equipment application, including how the equipment is operated and

under what conditions. Characterizing the energy use of commercial refrigeration equipment

and its effect on building heating and cooling loads is a critical part of the standards rulemaking

analysis, as it establishes the per-unit energy-savings potential achievable from energy

conservation standards.

Studies conducted by Arthur D. Little, Inc., Southern California Edison, Lawrence Berkeley

National Laboratory, and Caneta Research provide information on the energy consumption of

commercial refrigeration equipment. These studies have primarily focused on refrigerated

display cases packaged with remote condensing units. These studies could assist in

characterizing the annual energy consumption of commercial refrigeration equipment for certain

21

 EE-2006-STD-0126 COMMENT 01.3
product classes. The equipment classes, building types, and climate zones covered by the studies

are limited, and thus may not be applicable for the broad-based national impact analysis

necessary for this rulemaking.

The recent energy conservation standards rulemaking on commercial unitary air conditioners and

heat pumps utilized the Energy Information Administration's (EIA) Commercial Building

Energy Consumption Survey (CBECS) as a basis for characterizing the types of buildings that

used the covered equipment. This was necessitated by the diversity of types, occupancies, and

characteristics of buildings using this type of heating and cooling equipment, all of which

strongly influence heating and cooling loads and equipment energy consumption. For buildings

using commercial refrigeration equipment, the primary energy consumption and demand impact

will be from the energy and power use of the equipment itself, with building characteristics

having only a secondary impact.

The Department proposes to define two specific building prototypes (a grocery store and a

convenience store) for modeling energy impacts. The Department will use whole building

energy analysis software with the capability to model refrigeration equipment to model the

building prototypes in different climate regions to capture the commercial refrigeration energy

use, whole building energy use, and peak-demand impacts.

Item 6-1 The Department seeks stakeholder input on whether the impact of higher

efficiency refrigeration equipment on the building space conditioning loads is

significant enough to warrant taking them into account in the energy analysis,

and ?f so, what methods could be used to estimate the net energy consumption

and load impacts of higher efficiency commercial refrigeration equipment in

buildings using this equipment.

Item 6-2 The Department specflcally requests input on the viability of defining a

limited set of building prototypes for each equipment class in order to

characterize energy use. If a limited set of building prototypes is acceptable,

the Department seeks stakeholder input on how to properly characterize the

building prototypes.

Item 6-3 The Department seeks data or data sources that could be used to characterize

the energy use and loading of commercial refrigeration equipment.

Item 6-4 The Department seeks feedback on this approach to the energy use and enduse load characterization.

7 MARKUPS FOR EQUIPMENT PRICE DETERMINATION

The Department uses manufacturer-to-consumer markups to convert the manufacturer-sellingprice estimates from the engineering analysis to consumer prices, which are then used in the

LCC and payback period analysis and the manufacturer impact analysis. Retail prices are

needed for the baseline efficiency level and all other efficiency levels under consideration. The

Department will obtain these retail prices by applying manufacturer-to-consumer markups to the

22

 EE-2006-STD-0126 COMMENT 01.3
manufacturer-selling-price estimates. To validate these markups, the Department will attempt to

collect data on existing prices in the market either by purchasing large data sets or by

downloading data from distributor Internet sites.

Before it can develop markups, the Department must identify distribution channels (i.e., how the

equipment is distributed from the manufacturer to the consumer). Once it establishes proper

distribution channels for each of the product classes, DOE will rely on economic census data

from the United States Census Bureau and input from the industry to define how products are

marked up from the manufacturer to the consumer. To the extent possible, the Department also

will use collected retail price data to help qualify overall manufacturer-to-consumer markups.

This analysis will generate retail prices for each possible efficiency level. Because it expects to

generate a range of price estimates, the Department plans to describe new retail prices within a

range of uncertainty. If the range of retail prices for the equipment is large enough, the

Department will conduct a sensitivity analysis to determine how high or low estimates of retail

price impact the economic feasibility of amended energy conservation standards.

In the past, the Department has done a great deal of work to estimate manufacturer-to-consumer

markups for residential air-conditioning products and commercial air-conditioning equipment.

In the recent commercial unitary air-conditioner (CUAC) rulemaking, analysis of distributionchain markups focused on three distribution-chain paths and calculated markups for individual

points along these paths. Two of these paths involved sales of product through a mechanical

contractor and then through a general contractor before reaching the final customer (82.5% of

sales). A third "national account" path involved sales directly from manufacturer to the end

consumer/customer (17.5% of sales). 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.

The Department's review of information for commercial refrigeration equipment distribution

suggested a set of three distribution chains would be appropriate, described as follows:

Manufacturer - Distributor Mechanical Contractor Consumer

Manufacturer - Distributor - Consumer

Manufacturer - Customer (National Account)

The Department's understanding is that a general contractor would not normally enter into the

distribution path for this equipment. The Department understands that the relative fractions of

equipment distributed in each path could be different depending on whether the equipment is

self-contained or remote condensing.

23

 EE-2006-STD-0126 COMMENT 01.3
Item 7-1 The Department requests information from stakeholders on whether the

distribution paths for the commercial refrigeration equipment covered under

this rulemaking would be similar to those for CUAC, and, f not, how the two

might dfffer. The Department also requests information on the relative

fractions of shipments expected for each path in an appropriate distribution

chain for the commercial refrigeration equipment covered under this

rulemaking.

The CUAC analysis of wholesaler markups used data from a 1998 Air-Conditioning &

Refrigeration Wholesalers Association (ARW) profit survey. The ARW is now part of the

Heating, Air-Conditioning, and Refrigeration Distributors International (HARDI).4 HARDI

represents wholesalers for the commercial refrigeration equipment covered under this

rulemaking, as well as other HVAC products.

The Department based the CUAC analysis of mechanical contractor markups on analysis of

financial data from the Air Conditioning Contractors of America and direct revenue reported per

dollar of direct sales costs. The Department used these data to develop both average markups for

mechanical contractors and incremental markups. Incremental markups assume that certain

industry costs, such as labor and building occupancy expenses, do not increase with an increase

in cost of goods sold, but that other costs would scale with cost of goods sold.

The Department based the CUAC analysis of general contractor markups on United States

Census bureau data for the commercial and institutional building construction sector. These data

are not disaggregated by individual firms, but examines the sector as a whole. Sector-average

data for general contractors were developed in terms of contractor revenue per dollar of direct

sale costs. The Department used this data to develop both average markups for the general

contractors and incremental markups. Incremental markups assume that certain industry costs,

such as labor and building occupancy expenses, do not increase with an increase in cost of goods

sold.

The overall markups developed for the CUAC analysis resulted in a multiplier of 2.31 for the

manufacturer price for the average markups in the distribution chain, and a multiplier of 1.56 for

the incremental markup. These multipliers were applied to any increase in manufacturer prices

that resulted from standards for higher efficiency equipment. Both markups include an average

multiplier of 1.07 to account for sales tax applied at the last stage of the distribution chain.

The Department's intention is to develop both average and incremental markups in the LCC

analysis, and to base the LCC analysis on the incremental markups developed.

Item 7-2 The Department requests feedback on if the overall markups for the

commercial refrigeration equipment covered under this rulemaking for each

path in the distribution chain are likely to be similar to those developed for

commercial unitary air conditioners for the same distribution paths.

HARDI is a recent consolidation of two long-time wholesale trade organizations-the North American Heating,

Refrigeration & Air-Conditioning Wholesalers (NHRAW) and the Air-Conditioning & Refrigeration Wholesalers

International (ARWI).

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Item 7-3 The Department requests feedback on its proposal to use incremental

distribution chain markups for the LCC analysis.

Item 7-4 The Department seeks comment on other sources of relevant data that could

be used to characterize markups for the commercial refrigeration industry.

8 LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSIS

8.1 Overview

The effects of new energy conservation standards on equipment result in changes in operating

expenses-usually a decrease-and changes in purchase price-usually an increase. In the past,

the Department has analyzed the net effect of new standards on consumers by evaluating the net

LCC using the cost-efficiency relationship derived in the engineering analysis, as well as the

energy costs derived from the energy use and end-use load characterization analysis. Inputs to

the LCC calculation include the installed cost to the consumer (purchase price plus installation

cost), operating expenses (energy expenses and maintenance costs), the lifetime of the appliance,

and a discount rate.

The installed 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 higher-than-baseline efficiency equipment when the net operating cost

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 the ANOPR, the Department will conduct the LCC and payback period analysis using

typical values to reflect the conditions in the field for equipment life, equipment retail price,

national or regional energy costs, energy consumption, and discount rates. If the Department

determines that there is significant variability in any of the above inputs, it will conduct

sensitivity analyses to determine how high and low estimates for each of the inputs affect the

LCC and payback period. For any sensitivity analyses it conducts, the Department will account

for correlations that may exist between inputs (e.g., there may be a correlation between energy

usage and energy prices). The life-cycle cost subgroup analysis will be conducted for the NOPR

and will include an assessment of impacts on subgroups of consumers.

For commercial refrigeration equipment, it will be necessary to determine several values for the

LCC estimation, including retail prices; electricity prices; discount rate; maintenance, service

and installation costs; and equipment lifetimes. The following sections discuss the

methodologies the Department plans to use in determining these values.

8.2 Energy Prices

The Department will review EIA's energy price data for commercial refrigeration equipment as a

means of establishing electricity and natural gas prices. The Department's inclination is to rely

on regional average energy price data for the commercial sector. The Department will use

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projections of these energy prices for commercial consumers to estimate future energy prices in

its life-cycle cost and payback period analysis. The Department will use ETA's Annual Energy

Outlook (AEO) as the default source of projections for future energy prices.

Item 8-1 The Department seeks comment on the proposed approaches for estimating

current and forecasted energy prices.

8.3 LCC Discount Rates

The calculation of consumer LCCs requires the use of an appropriate discount rate. For

commercial refrigeration equipment, the Department plans to use the same approach it relied on

for developing discount rates for commercial unitary air conditioners and distribution

transformers. This approach involves deriving the discount rates for commercial consumers by

estimating the cost of capital to companies that purchase commercial refrigeration equipment

covered under this rulemaking. The Department 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

weighted-average cost to the firm of equity and debt financing. This corporate finance approach

is refened to as the weighted-average cost of capital (WACC). Companies that purchase

commercial refrigeration equipment may differ from those that purchase commercial unitary air

conditioners or distribution transformers, which may result in different discount rates.

The Department will make the discount rates and associated calculations public at the time of the

ANOPR publication. Stakeholders may comment on this issue during the ANOPR comment

period.

Item 8-2 The Department seeks comment on the proposed approaches for estimating

discount rates for consumers using the equipment covered under this

rulemaking.

Item 8-3 Given the relatively narrow commercial application of most of the equipment

covered under this rulemaking, which, f any, commercial sectors beyond

grocery stores should be considered in the evaluation of discount rates? In

addition, do stakeholders feel government purchases of this equipment are

large enough to require that they be included in the evaluation of discount

rates?

8.4 Maintenance, Repair, and Installation Costs

The Department will consider 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

products. There is a greater probability that equipment with efficiencies that are significantly

greater than the baseline will incur increased repair and maintenance costs since such equipment

is more likely to incorporate technologies that are not widely available. The Department will

26

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rely on input from manufacturers and other stakeholders in developing appropriate repair and

maintenance costs if stakeholders feel such estimates are necessary.

Unless the efficiency increases considered for this rulemaking result in significantly larger or

heavier products, the Department expects that more-efficient commercial refrigeration equipment

will not incur increased installation costs.

Item 8-4 The Department seeks feedback on whether it is correct to assume that

changes in maintenance, repair, and installation costs will be negligible for

equipment with lower energy consumption.

Item 8-5 If it is not appropriate to assume that changes in maintenance, repair, or

installation costs would be negligible for equipment with lower energy

consumption, the Department seeks comment on appropriate methodologies

for assessing changes to each of these costs.

8.5 Equipment Lifetimes

The Department will use information from various literature sources (e.g., Appliance Magazine,

handbooks published by the American Society of Heating, Refrigerating, and Air-Conditioning

Engineers (ASHRAE), etc.) and input from manufacturers and other stakeholders to establish

average equipment lifetimes for use in the life-cycle cost and subsequent analyses.

Based on consideration of the comments received for the ANOPR, the Department will make

necessary changes to the analyses. These changes will be reflected in the documentation of the

NOPR.

Item 8-6 The Department seeks comment on appropriate equipment lifetimes for the

equipment covered in this rulemaking.

SHIPMENTS ANALYSIS

Shipment forecasts are required to calculate the national impacts of standards on energy, NPV,

and future manufacturer cash flows. The Department plans to develop shipment forecasts based

on an analysis of key market drivers for commercial refrigeration equipment.

9.1 Base Case Forecast

To evaluate the various impacts of standards, the Department must develop a base case forecast

against which to compare forecasts for higher efficiency levels. The base case forecast is

designed to depict what will happen to energy consumption and energy costs over time if the

Department does not adopt new energy conservation standards for the equipment covered under

this rulemaking. In determining the base case forecast, the Department will consider historical

shipments, the mix of efficiencies sold in the absence of standards, and how that mix might

change over time. For these purposes, the Department needs data on historical product

shipments and the market shares of the different efficiency levels offered in each product class.

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 EE-2006-STD-0126 COMMENT 01.3
Appliance Magazine reports historical shipments for commercial refrigerated display cases as an

overall product group. The United States Bureau of the Census (the Bureau) has also published

limited statistics on the quantity and value of product shipments for those companies with

shipments over $100,000 in both 1997 and 2002. While the Bureau data identifies several

product classes separately, the data by product class are limited. Data for remote condensing and

self-contained refrigeration products are provided separately. Additionally, the data provides the

dollar-value of shipments rather than the actual shipment quantities in most cases.

The Department hopes to collect shipment data within each product class, as well as marketshare efficiency data (i.e., data on the distribution of product shipments by efficiency) for each

product class. The Department recognizes that this information may be difficult to collect, and

may therefore consider other methods to estimate the efficiency distribution in the market. For

example, when market-share efficiency data are not available, the Department may use

efficiency distributions based on available models as a proxy. The Department may also request

separate shipment information for products sold with specific design features (e.g., ECM

evaporator fan motors).

9.2 Accounting Methodology

The Department proposes to determine annual shipments in the base case by accounting for new

building construction and historical rates of product ownership (saturation rates) in buildings.

For product retirements, DOE will use the same product lifetimes and retirement functions that it

generates for the life-cycle cost and payback period analysis. This method has the distinct

advantage of separately accounting for units installed in new construction and existing buildings.

More importantly, the Department can express product saturation rates as a function of consumer

price and operating cost to capture their impact on future shipments. The Department plans to

rely on EIA's Annual Energy Outlook (AEO) to forecast new commercial construction.

The Department will also consider any other input provided by stakeholders.

Item 9-1 The Department seeks information on representative saturation rates for each

product class covered under this rulemaking, as well as industry-trend data

regarding relative growth in each product class.

9.3 Standards Impacts on Product Shipments

For each product, the Department will develop a set of shipment forecasts for the covered

equipment for each set of standards analyzed. These standards case forecasts will be used to

evaluate the impacts of standards on product shipments. Standards case forecasts are derived

using the same data-sets as base case forecasts; however, because the standards case forecasts

take into account the increase in purchase price and the decrease in operating costs caused by

standards, forecasted shipments typically deviate from the base case. The magnitude of the

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

purchase-price-increase as well as the operating-cost-savings caused by the standard. Because

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

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

base case.

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The Department's past standards analyses have attempted to quantify the sensitivity of shipments

to purchase price and operating-cost-savings. Because the data required to develop these

sensitivities are limited and often difficult to obtain, the Department will consider modeling

standards case shipments forecasts with scenarios (i.e., specified impacts to product shipments)

rather than developing sensitivities to purchase price or operating-cost-savings.

Market-pull programs, such as consumer rebate programs that encourage the purchase of moreefficient products and manufacturer tax credits that encourage the production of more-efficient

products, also affect standards case forecasts. When such programs exist, the Department

considers their impact on the forecast of both standards case and base case shipments.

Item 9-2 As part of its preliminary manufacturer impact analysis, the Department will

seek input from manufacturers on the potential impact of new energy

conservation standards on product shipments. Other stakeholders are also

welcome to provide input. The Department also requests input on any

market -pull pro grams that currently exist to promote the adoption of moreefficient products.

10 NATIONAL IMPACT ANALYSIS

Section 8 discusses methods for estimating the LCC savings and payback period for individual

consumers. This section discusses the Department's assessment of the aggregate impacts at the

national level. Measures of impact to be reported include the NPV of total consumer LCCs and

national energy savings.

10.1 Inputs to Forecast

Analyzing national impacts of Federal energy conservation standards requires a comparison of

projected United States energy consumption for the commercial refrigeration equipment covered

under this rulemaking with, and without, new or amended energy conservation standards. The

forecasts contain projections of unit energy consumption for new equipment, annual equipment

shipments, and the price of purchased equipment. The derivations of the base case shipments

forecasts are discussed in section 8.1. Approaches to determining retail prices are described in

section 7, while approaches to determining per unit net energy consumption impact are described

in section 6.

10.2 Calculation of Energy Savings

The Department intends to calculate national energy consumption for each year beginning with

the expected effective date of the standards. It will calculate national energy consumption by

fuel type for the base case and each standard level analyzed. The Department plans to perform

this calculation through the use of a spreadsheet model that effectively multiplies annual

shipment forecasts by unit energy savings.

In response to comments by stakeholders who asked for a simple, transparent model, the

Department has developed NES spreadsheet models for its standards rulemakings since 1996.

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 EE-2006-STD-0126 COMMENT 01.3
The Department expects the NES spreadsheet model to provide a credible, stand-alone forecast

of national energy savings and NPV for commercial refrigeration equipment.

The Department has prepared NES spreadsheet models for other equipment5 to forecast energy

savings and to demonstrate how the growth in efficiency can be accounted for over time.

Although these models are specific to each equipment type, their general structure can be applied

to commercial refrigeration equipment.

Based on consideration of the comments DOE may receive on the ANOPR, DOE will make any

necessary changes to the analysis. Those changes will be reflected in the documentation for the

NOPR.

Item 10-1 The Department seeks comment on its plan to develop NES spreadsheet

models for estimating national impacts of amended energy conservation

standards.

10.3 Net Present Value

The Department calculates the national NPV of the standards in conjunction with the NES. It

calculates annual energy expenditures from annual energy consumption by incorporating

forecasted energy prices, using the shipment and average energy conservation forecasts

described in section 9.1. The Department calculates annual equipment expenditures by

multiplying the price per unit by the forecasted shipments. The difference between a base case

and a standards case scenario gives the national energy bill savings and increased equipment

expenditures in dollars. The difference each year between energy bill savings and increased

equipment expenditures is the net savings (if positive) or net cost (if negative). The Department

discounts these annual values to the present time and sums them to give an NPV.

Based on consideration of the comments received for the ANOPR, the Department will make

any necessary changes to the analysis and candidate standard levels (CSLs). If major changes

are required at this stage, the Department will give stakeholders an opportunity to review the

revised analysis.

11 LIFE-CYCLE COST SUBGROUP ANALYSIS

This section describes how the Department analyzes consumer impacts by dividing consumers

into subgroups and accounting for variations in key inputs to the life-cycle cost analysis. A

consumer subgroup comprises a subset of the population that is likely, for one reason or another,

to be impacted disproportionately by new or revised energy conservation standards. The purpose

of a subgroup analysis is to determine the extent of this disproportional impact. The Department

will work with stakeholders early in the rulemaking process to identify any subgroups for this

consideration. However, it will not analyze the consumer subgroups until the NOPR stage of the

analysis.

For example, the NES model used in the Commercial Unitary Air Conditioners and Heat Pumps rulemaking is

available for examination at:

http ://wwweere.energy. gov/buildings/aDDliance standards/coniiriercial/docs/nes cuac.xls

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In comparing potential impacts on the different consumer subgroups, the Department will

evaluate variations in regional energy prices, variations in energy use, and variations in

installation costs that might affect the NPV of a standard to consumer subgroups. To the extent

possible, the Department may obtain estimates of the variability in each input variable and

consider this variability in its calculation of consumer impacts. It will discuss the variability in

each input variable and likely sources of information with stakeholders.

The Department intends to consider the impact of any new standards on consumer subgroups.

Item 11-1 The Department seeks input as to what consumer subgroups the Department

should consider in the present rulemaking. Examples ofpossible subgroups

the Department could consider appropriate for commercial refrigeration

equipment include independent grocery stores and small convenience stores.

12 MANUFACTURER IMPACT ANALYSIS

Recently, the Department announced changes to the manufacturer impact analysis format

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

2005). This report, entitled "Energy Conservation Standards Activities," (Standards Activities)

is available on the DOE website at:

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

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

ANOPR phase; however, under this new format, the Department will collect, evaluate, and

report preliminary information and data in the ANOPR. (Standards Activities, page 48) Such

preliminary information includes the anticipated conversion capital expenditures by efficiency

level and the corresponding, anticipated impacts on jobs. The Department will solicit this

information during the ANOPR engineering analysis manufacturer interviews.

The analysis of impacts on manufacturers is intended to provide the Department with an

assessment of the potential impacts of energy conservation standards on manufacturers. In

addition to financial impacts, a wide range of quantitative and qualitative effects may occur

following adoption of a standard that may require changes to the manufacturing practices for

these products. The Department will identify these effects through interviews with

manufacturers and other stakeholders.

12.1 Sources of Information

Many of the analyses described earlier provide important information that the Department uses

as inputs for the manufacturer impact analysis. Such information includes financial parameters

developed in the market assessment (section 3.1), manufacturing costs and prices from the

engineering analysis (sections 5.2 and 5.3), retail price forecasts (section 7), and shipments

forecasts (section 9.1). The Department supplements this information with information gathered

during manufacturer interviews. The interview process will play a key role in the manufacturer

impact analysis, as it provides an opportunity for interested parties to express their views on

important issues.

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The Department will conduct detailed interviews with manufacturers to gain insight into the

range of potential impacts of standards. During the interviews, the Department will solicit

information on the possible impacts of standards on manufacturing costs, equipment prices,

sales, direct employment, capital assets, and industry competitiveness. Both qualitative and

quantitative information are valuable. The Department will schedule interviews well in advance

to provide every opportunity for key individuals to be available. In addition, an interview guide

will be provided before the interviews to allow the manufacturers to gather the appropriate

information. Although a written response to the questionnaire is acceptable, the Department

prefers an interactive interview process because it helps clarify responses and provides the

opportunity for additional issues to be identified.

The Department will ask that interview participants identify all confidential information

provided, both in writing and orally. While it will consider information gathered, as appropriate,

in its decision-making process, the Department will not make confidential information available

in the public record. The Department will also ask participants to identify all information that

they wish included in the public record, but that they do not want to have associated with their

interview. The Department will incorporate this information into the public record, but will

report it without attribution.

The Department will collate the completed interview questionnaires and prepare a summary of

the major issues and outcomes. This summary will become part of the technical support

document produced for this rulemaking.

Item 12-1 What procedures should the Department follow when scheduling interviews

and requesting information?

12.2 Industry Cash Flow Analysis

The industry cash flow analysis relies primarily on the Government Regulatory Impact Model

(GRII\4). The Department uses the GRUVI to analyze the financial impacts of more stringent

energy conservation standards on the industry that produces the products covered by the

standard.

The GRIM analysis uses a number of factors-annual expected revenues; manufacturer costs

such as costs of goods sold; selling, general, and administrative costs; taxes; and capital

expenditures related to depreciation, new standards, and maintenance-to arrive at a series of

annual cash flows beginning from the announcement of the new standard and continuing for

several years after its implementation. The Department compares the results against base case

projections that involve no new standards. The financial impact of new standards is then the

difference between the two sets of discounted annual cash flows. Other performance metrics,

such as return on invested capital, also are available from the GRIM.

The Department will gather this information from two primary sources: the analyses conducted

to this point, and interviews with manufacturers and other stakeholders. Information gathered

from previous analyses will include financial parameters, manufacturing costs, price forecasts,

and shipments forecasts. Interviews with manufacturers and other stakeholders will be essential

in supplementing this information.

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12.3 Manufacturer Subgroup Analysis

It is possible that the use of average industry cost values will not adequately assess differential

impacts among subgroup manufacturers. The Department recognizes that smaller manufacturers,

niche players, and manufacturers exhibiting a cost structure that differs largely from the industry

average may be differentially impacted by the imposition of standards. Ideally, the Department

would consider the impact on every firm individually. In highly concentrated industries, this

may be possible. In industries having numerous participants, however, the Department will use

the results of the market and technology assessment to group manufacturers into subgroups, as

appropriate.

Item 12-2 The Department seeks comment on the establishment of manufacturer

subgroups for commercial refrigeration equipment.

12.4 Competitive Impacts Assessment

EPCA directs the Department to consider any lessening of competition that is likely to result

from the imposition of standards. (42 U.S.C. 6295(o)(2)(B)(i)(V) and 6316(e) added by section

136(h)(3) of EPACT 2005) It further directs the Attorney General to determine, in writing, the

impacts, if any, of any lessening of competition. (42 U.S.C. 6295(o)(2)(B)(ii) and 6316(e) added

by section 136(h)(3) of EPACT 2005) The Department will make a determined effort to gather

firm-specific financial information and impacts. The Department will then report the aggregated

impact of the standard on manufacturers. The competitive impacts assessment will focus on

assessing the impacts to smaller, yet significant manufacturers. The Department will provide the

Attorney General with a copy of the NOPR for consideration in his evaluation of the impact of

standards on the lessening of competition. The Department will base the assessment on

manufacturing cost data and on information collected from interviews with manufacturers. The

manufacturer interviews will focus on gathering information that would help in assessing

asymmetrical cost increases to some manufacturers, increased proportion of fixed costs

potentially increasing business risks, and potential barriers to market entry (e.g., proprietary

technologies).

12.5 Cumulative Regulatory Burden

Finally, the Department is aware that other regulations may be placed on equipment covered

under this rulemaking as well as on other equipment which may be manufactured by the

manufacturers of equipment covered under this rulemaking. Multiple regulations may result in a

cumulative regulatory burden on these manufacturers. The Department will address and seek to

mitigate the overlapping effects on manufacturers of amended DOE standards and other

regulatory actions affecting the same equipment or companies.

Item 12-3 What regulations or pending regulations should the Department consider in

the analysis of cumulative regulatory burden?

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 EE-2006-STD-0126 COMMENT 01.3
13 UTILITY IMPACT ANALYSIS

The utility impact analysis will include an analysis of both the electric and the gas utility

industries. The Department is considering adapting the National Energy Modeling System

(NEMS) produced by the EJA for this analysis. NEMS (EIA 2005) is a large multi-sectoral

partial-equilibrium model of the United States energy sector that has been developed over the

past decade by the EIA, primarily for the purpose of preparing the Department's Annual Energy

Outlook (AEO). In prior rulemakings, a variant of NEMS (currently termed NEMS-BT, BT

referring to the DOE Building Technology Program) was developed to better address the specific

impacts of an equipment efficiency standard.

The NEMS 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 capacity. The Department 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 NEMS-BT to generate forecasts that deviate from the AEO reference case.

Item 13-1 The Department seeks input from stakeholders on its proposed use of NEMSBT to conduct the utility impact analysis.

14 EMPLOYMENT IMPACT ANALYSIS

The imposition of standards can impact employment both directly and indirectly. Direct

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

covered equipment, along with the affiliated distribution and service companies, resulting from

the imposition of standards. The Department will evaluate direct employment impacts in the

manufacturer impact analysis, as described in section 12. 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 the Department'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.

Item 14-1 The Department requests feedback on this approach to assessing employment

impacts.

15 ENVIRONMENTAL ASSESSMENT

The primary environmental effects of energy conservation standards for the commercial

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

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reduced electrical energy consumption. The environmental impact analysis will track the impact

of possible standards on three types of energy-related emissions: carbon dioxide (C02), oxides

of nitrogen (NO), and sulfur dioxide (SO2). The Department intends to base these calculations

on the NEMS-BT modeling work proposed for the utility impact analysis. This approach has the

advantage of examining the marginal impact of standards for the covered equipment on the

utility generation mix and the subsequent environmental emissions.

Carbon emissions are tracked in NEMS-BT by a detailed module that produces robust results

because of its broad coverage of all sectors and inclusion of interactive effects. NEMS-BT also

includes a module for SO2-allowance trading and delivers a forecast of 5O2-allowance prices. It

is important to note, however, that simulation of SO2 trading tends to imply that physical

emissions effects will be zero. However, there is an SO2 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. NEMS-BT also has an algorithm for estimating NO emissions from power generation.

Item 15-1 The Department requests feedback on this approach to assessing

environmental factors.

16 REGULATORY IMPACT ANALYSIS

In the NOPR stage, the Department will prepare a regulatory impact analysis (RIA) pursuant to

Executive Order (E.O.) 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 (OIRA) at the Office of Management and Budget. The RIA will address the

potential for non-regulatory 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 in the market.

The Department recognizes that voluntary or other non-regulatory efforts by manufacturers,

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

or reductions in energy consumption. The Department intends to consider the likely effects of

non-regulatory initiatives on product energy use, consumer utility, and LCCs. The Department

will base its assessment on 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.

Item 16-1 The Department is unaware of any current non-regulatory programs that

specifically target the commercial refrigeration covered under this

rulemaking. Are stakeholders aware of any such programs that should be

examined as optional, non-regulatory approaches?

Item 16-2 Are there specIc subgroups of end-users whom the Department should

consider in its review ofpotential adverse impacts from standards developed

under this rulemaking?

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