Energy Conservation Standards forAppliances and Commercial EquipmentAppliance Standards Program MethodologyProvided as Background for theCommercial and Industrial Pumps Working GroupBuilding Technologies OfficeOffice of Energy Efficiency and Renewable EnergyMarch 21, 20141Seven EPCA Criteria and Associated DOE Analyses provides guidance.EPCACriteria AnalysisDOEPerformstoAddressFactorRulemakingStage1.EconomicimpactofstandardonconsumersandmanufacturersLife‐CycleCost(LCC)andPaybackAnalysis(includingMarkups)PreAnalysisLCCSubgroupAnalyses NOPRManufacturerImpactAnalysis NOPR2.LifetimeoperatingcostsavingsresultingfromstandardLife‐CycleCostandPaybackAnalysis(includingMarkups)PreAnalysis3.TotalprojectedenergysavingsresultingfromstandardNationalImpactAnalysis(includingShipments)PreAnalysis4.ImpactofstandardonutilityorperformanceofproductsScreeningAnalysisPreAnalysisEngineeringAnalysisPreAnalysis5.ImpactofanylesseningofcompetitionlikelytoresultfromstandardManufacturerImpactAnalysisNOPR6.Needfornationalenergyconservation NationalImpactAnalysis(includingShipments)PreAnalysis7.OtherfactorstheSecretaryconsidersrelevantEnvironmentalAssessmentNOPRUtilityImpactAnalysisNOPREmploymentImpactAnalysisNOPRRegulatoryImpactAnalysisNOPR2RulemakingHistory&Timelines•Thetestprocedureandenergyconservationstandardrulemakingsareconductedinseparateprocessesbutwithintegratedtimelines.•Therulemakingprocesstypicallytakesabout3yearsfrombeginningtoend.Energy ConservationStandards (ECS)Test Procedure (TP)FrameworkDocumentPreliminaryAnalysisNOPRFinalRuleNOPRFinalRuleGeneric Test Procedure and Standards Rulemakings Timelines.SeeFlowDiagramofAnalysesforStandardsRulemaking ProcessAttachmentAnalysesforPreliminaryAnalysisApproaches KeyInputsAnalysesKeyOutputsMarket and TechnologyAssessmentScreening AnalysisEngineering AnalysisMarkups forProduct PriceDeterminationLife -Cycle Cost andPayback PeriodAnalysisNational ImpactAnalysisEnergyUseShipmentsAnalysis• Product Classes• Technology Options• Cost -Efficiency Relationship• Life-Cycle Costs• Payback Periods• National Energy Savings• Net Present Values• Characterize Industry• Market Segmentation• Non -Regulatory Programs• Efficiency -Level Approach• Design Option Approach• Energy Prices• Installation Costs• Maintenance & Repair Costs• Accounting Approach• Backcast and Forecast• Market Saturation• Identify Firms/Products• Historical Shipments• Define Distribution Channels• Economic Census DataAnalysis• Retail Price Collection andAnalysisDesign OptionsProduct ClassesRetail PricesDesign Energy UsePreliminary Analysis (Pre-Analysis)• Efficiency/Performance• Manufacturing CostCandidateStandardLevels• Analysis of EnergyUse DataTechnology Options• Design Options• Energy Price Forecasts• Site -to -Source Factors• Energy -Efficiency Levels• Analysis of Market Data• Analysis of Product Data• InstallationCosts• Maint Costs• Repair Costs• UEC• EnergyPrices• Annual Energy Use (UEC)•PreliminaryManufacturer ImpactAnalysis• Manufacturer Prices• Average Costs• Conversion Capital Expenditures• Direct Employment Impacts• Product PrototypesEnergy -EfficiencyLevels5Framework DocumentFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleMarket &TechnologyScreeningAnalysisEngineeringAnalysisEnergy Use & EndUse LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisPreliminaryManufacturerImpactAnalysis67Purpose» Tocharacterizethemarketanddetermineproductclassesandbaselineunits;» ToidentifypotentialdesignoptionsorefficiencylevelsforeachoftheproductClassestobeusedasinputtodeterminewhattechnologiesmanufacturerscouldutilizetoattainhigherenergyefficiencylevels.Process1.Identifytrendsinproductcharacteristics2.Identifyexistingandpasttechnologyoptionsandprototypedesigns3.Inconsultationwithinterestedparties,developalistoftechnologiesthancanandshouldbeconsideredintheanalysis.4.Initially,thetechnologieswillencompassallthoseconsideredtobetechnologicallyfeasibleandwillservetoestablishthemaximumtechnologicallyfeasibleThe Market and Technology Assessment helps identify technologicallyfeasible options that manufacturers could potentially use to attain higherenergy efficiency levels.Market & Technology8Purpose» Toidentifydesignoptionsthatimproveefficiencyanddeterminewhichofthesetoevaluateandwhichtoscreenout.ScreeningCriteria»Technologicalfeasibility;Technologiesincorporatedincommercialproductsorinworkingprototypeswillbeconsideredtechnologicallyfeasible;»Practicabilitytomanufacture,installandservice;Ifmassproductionofatechnologyincommercialproductsandreliableinstallationandservicingofthetechnologycouldbeachievedonthescalenecessarytoservetherelevantmarketatthetimeoftheeffectivedateofthestandard,thenthattechnologywillbeconsideredpracticabletomanufacture,installandservice»Adverseimpactsonproductutilityorproductavailability;Ifitisdeterminedthatatechnologywillhavesignificantadverseimpactsonhealthorsafety,itwillnotbeconsideredfurther.»Adverseimpactsonhealthorsafety;Ifitisdeterminedthatatechnologywillhavesignificantadverseimpactsonhealthorsafety,itwillnotbeconsideredfurther.The initial list of design options becomes the Screening Criteriafor the equipment.Screening Analysis9Equipment Cost - Efficiency RelationshipDownstream Analyses•Consumer Life-Cycle Cost•Manufacturer Impact•Employment ImpactIn the Engineering Analysis, cost-efficiency relationships are developed for equipment.

Production CostProduct EfficiencyEngineering AnalysisThe Engineering Analysis generates the more efficient equipment by incorporating thedesign options that passed the screening analysis.ManufacturingCost‐EfficiencyRelationship(EquipmentCostDistributionstotheLife‐CycleCostAnalysis)BaselineUnitsDesignOptions10The Engineering Analysis may use oneor more of three approaches.» Thesurveyapproach(theefficiencyisknown)reliesoncostsprovidedbymanufacturersorfromretailsurveystoestimatethecostsforvariousefficiencylevels.(IRLandGSFL).» Thedesignoptionsapproach(thetechnologypathisknown)usesestimatesofthecostsandperformanceofparticulardesignsthatincreaseefficiency.Designoptionefficiencyincreasescaneitherbebasedonengineeringcalculations,testresultsorthroughtheuseofengineeringcomputersimulationmodels.(SmallElectricMotors)» Thecostassessmentapproach(theefficiencyisknown)estimatesthemanufacturingcostsofefficiencylevelsbyanalyzingexistingproducts,possiblyincludingteardownofsomeunitsonthemarket(CentralAirConditioners)Engineering Analysis11FrameworkDocumentPreliminaryAnalysisNOPRFinalRuleMarket &TechnologyScreeningAnalysisEngineeringAnalysisEnergy Use & EndUse LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisPreliminaryManufacturerImpactAnalysisPurpose»Determinecustomerpricesunderastandardsscenariobasedonmanufacturercosts.»Characterizeequipmentdistributionchannelsandmarketsegments.»DescribeSEMequipmentdistributor/wholesaler directcosts,expenses,andprofits.Inputs»Firmbalancesheets.– Wholesalers:U.S.CensusBureauFinancialDataforMerchantWholesalersforMachinery,Equipment,andSupplies.Output»Baselineandincrementalmarkups.Markups help Determine Equipment Price.Markups for Equipment Price Determination»Baselinemarkupsrelatepricetocostpriortoachangeinefficiency»Baselinemarkupsindicateacustomerpricethatcoversall ofaWholesaler’sorContractor’sexpensesplusprofit.»Direct labor costs (salaries, payroll,rental and occupancy) are included.»IncrementalmarkupsrelatetheincrementalchangeincustomerpricetotheincrementalchangeinCGS»SomedistributioncostsremainconstantwithCOGSincreases.»IncrementalmarkupscoveronlyexpensesthatvarywithCGS– inthiscase,expensesthatincreaseduetoanincreaseinequipmentefficiency.»DOE assumes other operating costs and profit will scale proportionally with COGS.There are two types of Markups, Baseline and Incremental, whichrelate customer price to cost of goods sold (CGS).Markups for Equipment Price DeterminationPurpose»Determinetheamountofenergyusedforappliancesandequipment.»Estimatefeaturesofenergyusethatcaneffectenergycostsorsystemimpacts(e.g.peakdemand,seasonalpatterns).»Estimatethedistributionofenergyusecharacteristicsforarepresentativepopulationofapplicationsand/orhouseholds.Inputs»Engineeringdesigncharacteristics.»Energysurveydata(e.g.RECSandCBECS).»Buildingsimulations.»Specializedbuildingandcustomerloadstudies.Output»Energyusedistribution.»Peakenergydemand.»Energyuseloadshapes(whennecessary).Energy Use and End Use Load Characterization of equipment.Energy Use & End Use Load Characterization15NationalImpactAnalysisEnergy UseCharacterizationMarket andTechnologyAssessmentScreeningAnalysisEngineeringAnalysisMarkups toDetermineEquipmentPriceLife-CycleCost andPaybackPeriod AnalysisShipmentsAnalysisPreliminaryManufacturerImpactAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleBasic LCC Process Diagram.Change in First CostChange in Operating CostsCombine Changesin CostsLCC ResultsLife-Cycle Cost and Payback Period Analysis» EconomicevaluationfromtheconsumerperspectiveLCC Calculation Flowchart.Life-Cycle Cost and Payback Period AnalysisFrom EngineeringAnalysisFrom Markups toDetermineProduct PriceFrom Energy UseCharacterization»LCCequalsfirstcostplussumofannualoperatingcostsdiscountedtobaseyear»Firstcostincludesinstallation»Maintenanceandrepaircostsareincluded,asappropriate»ImplementinMSExcel®spreadsheet»MonteCarlosimulationssamplefrominputdistributions»Testsensitivitiestokeyinputs»ExpressresultsasLCCdifference»BaselineLCCminuscandidatestandardLCC=netLCCsavings(+)ornetLCCcosts(‐)Basic LCC Process.Life-Cycle Cost and Payback Period Analysis»Incrementalequipmentprices»ApplymarkupstomanufacturerincrementalpricesfromEngineeringAnalysis.»Energyprices»Rangeofcurrentenergypricesisbasedoneitheractualbilldataorutilitytariffs,accountingforvariabilityamongapplications.»Energypricesforresidentialhouseholdsareobtainedfrommonthlybillingdata(monthlyconsumptionandexpenditure)fromtheEnergyInformationAdministration’s(EIA)ResidentialEnergyConsumptionSurvey(RECS).»Energypricesforcommercialequipmentarecalculatedfromsampleofutilitytariffs.»FutureenergypricesarebasedonenergypricetrendsobtainedfromtheDOE/EIAAnnualEnergyOutlookreferencecase,highandlowscenarios.»Marginalenergypricesreflectexpectedchangeinbill,notaverageprices.»Operatingbehavior»Equipmentlifetimes»Discountrates»Otherinputs»InstallationCosts,EnergyPriceForecast,RepairCosts,MaintenanceCostsLCC Key Inputs.Life-Cycle Cost and Payback Period AnalysisInputs and results account for variation among consumers»Aconsumersampleisdevelopedwhereeveryconsumerisunique»Consumersampleisbasedonthoseconsumerswhoutilizetheappliance– Residential:RECShouseholdrecords– Commercial:CBECSbuildingrecords»Variabilityamongconsumersisrepresentedusinginputvariablesdefinedwithprobabilitydistributions»Forexample,energyprices,discountrates,equipmentlifetimes»MonteCarlosimulationsareusedtoconducttheanalysis»Statisticaltechniquesamplesfromdistributionsforeachinputvariable»Resultsproducedfrom10,000iterations(ormore,dependingondata)»PerformedwithCrystalBall®,anadd‐intoMSExcel®Life-Cycle Cost and Payback Period Analysis21NationalImpactAnalysisEnergy UseCharacterizationMarket andTechnologyAssessmentScreeningAnalysisEngineeringAnalysisMarkups toDetermineEquipmentPriceLife-CycleCost andPaybackPeriod AnalysisShipmentsAnalysisPreliminaryManufacturerImpactAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleShipments and National Impact Analysis Objectives»ShipmentsandNationalImpactAnalysesareconductedtodetermineeffectsofappliancestandardsontheNation.»EnsuresthattheBuildingTechnologiesProgramfulfillsEPCA’srequirementsandfulfillsgoalsofimprovingbuildingandequipmentefficiency.»SatisfiesthelegislativemandateforDOEtoanalyzeapplianceefficiencystandards.»AddresseslegislativecriteriathatastandardmustprovidetheNationwithsignificantenergysavingsandbeeconomicallyjustified.Shipments Analysis & National Impact Analysis22An accounting model is used to prepare shipment forecasts for the base case(i.e., the case without amended appliance efficiency standards) and the variousstandard cases considered.»Purpose»Projectnewequipmentshipmentsunderpossiblestandards»Trackthestockofequipment,byvintage,overtheanalysisperiod»Thelifecycleofequipmentismodeledasa“birth–death”processinwhichequipmentchangesfromonestatetoanother»Newequipmentispurchasedandshippedtothesitewhereitisinstalled»Equipmentoperatesforsomenumberofyears»Theequipmentisretired»Anewpurchaseisinfluencedbyseveralfactors»Economics(e.g.equipmentpriceandoperatingcosts)»Equipmentfailures»Newbuildingconstructionrates»Modeliscalibratedtohistoricalshipmentsandmarketsaturationdatawherepossible23Shipments AnalysisElements of Shipments Modeling» “Stocks”aretheinventoryofinstalledequipment,andtheaccountingmodeldividesstocksofappliancesintoownershipcategories,andassignsunitstoagecategories.» “Events”arethingsthathappentostocksindependentofeconomicconditions,i.e.,breakdownsrequiringrepairorreplacement.)» “Decisions”areconsumerpurchasedecisionsthatarereactionstomarketconditions,e.g.,whethertorepairorreplaceequipment,ortopurchaseaunitofequipmentforalocation(businessorbuilding)thatdoesnothaveone.» Theaccountingmodelcharacterizesconsumerpurchasedecisionsbymarketsegments.Themodelusesdecisiontreestodescribeconsumerchoicesforpurchasesandrepairs.24Shipments AnalysisDefinitions of Terms»Shipments:Unitsofequipmentproducedanddeliveredtobuyersannually(#units/year).»Stock:Unitsofequipmentplacedorlocatedinthefield–typicallyinmanufacturingfacilities,officebuildings,retailsites,schools,collegesandotherinstitutionalbuildings.»Removals:Unitsofequipmentretiredfromthestockduetoage.Sample Data Sources for Commercial Equipment.InputData Source/DescriptionCommercial Building DataForecasted New Construction U.S. DOE-EIA,Annual Energy OutlookHistorical New Construction U.S. Census Bureau,Statistical Abstractof the United StatesForecasted StockU.S. DOE-EIA,Annual Energy OutlookHistorical StockU.S. DOE,Commercial Building Energy Consumption Survey (CBECS)Market Saturation Data (percent of floor space with appliance) and ReplacementsHistorical SaturationTrade Association or U.S.Census Bureau, Current Industrial ReportsReplacements driven byAppliance LifetimeFrom Life-Cycle Cost AnalysisPurchase Decision DataTotal Installed Cost, AnnualOperating CostFrom Life-Cycle Cost AnalysisBusiness IncomeBuilding Owners and ManagersAssociation (BOMA) International,Historical Experience Exchange ReportsCalibration DataHistorical ShipmentsTrade Association or U.S. Census Bureau,Current Industrial Reports25Shipments AnalysisShipments Calculations Considerations.»Historicalshipmentsandstocksofequipmentbyefficiencylevel»Preferfullshipmentsandstockhistory:correlatewithpopulation,income,sales»Partialseriescanbeinferredfromanecdotaldata»Minimuminformationisatleastoneyearofshipmentsdata(andananecdotaltrend),astockestimateanditsagedistribution,andinformationontheefficiencydistributionofthestock»Methodsusedtoinfershipments»Marketstudies»Trendingbetween“real”datapoints»Calculatereplacementsfromageofstock(ifknown)»Methodsusedtoinferstock»Marketstudies»Perpetualinventorymethod:usesalesandretirementstobuildupastockestimate»Useageofstockandreplacementshipments(ifknown)toestimatetotalstock.»Methodsusedtoforecastshipmentsandstock»Marketstudies,ifavailable»Marketmodel,ifavailable»Newshipments:correlatewithtrendsinpopulation,sales,buildingstock,etc.»Replacementshipments:usereplacementratesandvintagesofstock(first‐in,first‐outaccounting)toestimate.(Controlestimatewithtotalstockestimatesfromindustry)26Shipments AnalysisExample of Shipments CalculationsAEO NewCommercialConstructionForecastIndex of NewConstruction forLodging, HealthCare, and SmallOfficeDucker Estimates of New,Replacement ShipmentstoLodging, Nursing Homesand Asst Living, OtherNew Shipments,Standard Size toNew ConstructionEquipmentand BuildingStockDepreciationRatesShipmentsStandard SizeReplacementEquipmentStandard and NonStandard SizeEquipment StockShipments NonStandard SizeReplacementEquipmentAHRI InitialShipments,Standard and NonStandard Sizes,CapacitiesTotal Shipments,Standard SizeTotal Shipments,Non-Standard SizeStockLossesStockCalculationsShipments AnalysisNational Impact Analysis Objective»Calculateprojectednationalenergysavings(annualandcumulative).»Calculatenationalconsumereconomicimpacts(i.e.,netpresentvalue)ofpossiblenewenergyefficiencystandards.Elements of National Impact Analysis.»NationalEnergySavings(NES)»Thenationalenergysavingsiscalculatedbysubtractingenergyconsumptionunderastandardsscenariofromenergyuseinabasecasescenario.»Thenationalenergyconsumptioniscalculatedbymultiplyingthenumberorstockofapplianceunits(byvintage)bytheunitenergyconsumption(alsobyvintage).Vintageistheageoftheequipment.»NetPresentValue(NPV)»TheNPVisthesumovertimeofdiscountednetsavingstoapplianceconsumersasaresultofnewstandards.»NPVofanystandardscaseisthedifferencebetweenthesumofnationaltotalinstalledcostsandoperatingcostsinthebasecaseandthesumofnationaltotalinstalledcostsandoperatingcostsinthestandardscase.28National Impact AnalysisCalculations for National Impact Analysis.»NationalEnergySavings(NES)»Calculateannualsiteenergyconsumptioninbasecaseandstandardscaseusingunitvaluesforenergyconsumptionbyvintage,efficiencylevelineachyear;andthecorrespondingstockofequipmentbyvintageandefficiencylevelineachyear.»Asnecessary(electricity‐usingequipment),translatesiteenergyconsumptionintoprimaryenergyconsumptionusingmarginalsite‐tosourceconversionfactors.»Subtractannualprimaryenergyconsumptioninstandardscasefromannualprimaryenergyconsumptioninbasecase,andsumovertheforecastperiod(30years).»NetPresentValue(NPV)»Usingweighted‐averageunitvaluesforinstalledcost,energyconsumption,energyprices,repaircost,andmaintenancecostfromtheLCCanalysis,calculateannualtotalinstalledcost,repairandmaintenancecost,andenergycostforboththebasecaseandstandardscase.Installedcostbyefficiencylevelofunitsshippedismultipliedtimesshipmentsbyefficiencylevelineachyear.Repaircost,maintenancecost,andenergycostbyvintageandefficiencylevelaremultipliedtimesthestockofunitsbyvintageandefficiencylevelineachyear.»Subtractannualcostsinstandardscasefromcostsinbasecase,andsumovertheforecastperiod(30years,plusthelongestlifetimeofunitsshippedinthe30thyear)toobtainannualcostsavings.»Discountthecostsavingsby7%and3%discountrates(OMBRegulatoryAnalysisGuidelineA‐4).»AnnualizeNPVoverthe30‐yearforecastperiod,asrequired.29National Impact Analysis30National Impact Analysis31National Impact AnalysisNationalImpactAnalysisSampleOutputs.Cumulative Source Energy Savings and NPV0.0000.0100.0200.0300.0400.0500.0600.070 

# B a s e T S L 1 T S L 2 T S L 3 T S L 4 T S L 5 T S L 6 T S L 7Standard Level

Cumulative Energy Savings (Quads)($1.000)($0.800)($0.600)($0.400)($0.200)$0.000$0.200$0.400 NPV (Billion 2008$)Energy SavingsNPVTrial Standard LevelTSL 3Efficiency LevelLevel 4Net Savings-0.0040-0.00200.00000.00200.00400.00600.00800.01000.01202012 2016 2020 2024 2028 2032 2036 2040 2044 2048 2052 2056 2060Year

Billion 2008$Undiscounted Total Annual Operating SavingsUndiscounted Annual Equipment Purchase SavingsDiscounted Total Net Annual ImpactNational Impact AnalysisNIA Data Inputs.»TotalInstalledCost»AverageperunitvaluesasafunctionofefficiencyleveltakenfromLCCanalysis»Futurevaluesareadjustedwithefficiencytrends»RepairandMaintenanceCost»AverageperunitvaluesasafunctionofefficiencyleveltakenfromLCCanalysis»Futurevaluesareadjustedwithefficiencytrends»AnnualEnergyUse»Weighted‐averageperunitvaluesasafunctionofefficiencyleveltakenfromLCCanalysis»Futurevaluesareadjustedwithefficiencytrends»EfficiencyTrends(WhenUsed)»Developedforthebasecase(withoutstandards)andeachstandardscase»Futuretrendsbaseduponhistoricalshipment‐weightedefficiencydata»EnergyPrices»Weighted‐averagemarginalpricestakenfromLCCanalysis»FuturemarginalpricesareadjustedaccordingtotrendforecastedbytheAnnualEnergyOutlook»ElectricitySite‐toSourceConversionFactors»ConversionfactorsforecastedbyNationalEnergyModelingSystem»Factorsvaryannuallyandaccountforgeneration,distribution,andtransmissionlosses»DiscountRate»7%and3%realfromOMB’sRegulatoryAnalysisGuidelineA‐4»PresentYear»Futureexpensesarediscountedtoaspecifiedyear33National Impact Analysis34Market &TechnologyScreeningAnalysisEngineeringAnalysisEnergy Use & EndUse LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisPreliminaryManufacturerImpactAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleAnalysesforNOPRandFinalRuleUtility ImpactAnalysisNotice of Proposed Rulemaking (NOPR)Final RuleApproaches Key InputsAnalysesKey OutputsRevise ANOPRAnalysesLife-Cycle CostSub-Group AnalysisManufacturer ImpactAnalysisEmployment ImpactAnalysisRevise Analyses• Industry Cash Flow• Sub-Group Cash-Flow• Direct Employment Impacts• Competitive Impacts• Cumulative Regulatory Burden• National Employment Impacts• Revised Results• Stakeholder Comments• Demographics• Manufacturer Interviews• GRIM Analysis• Emission Rates• National Energy Savings• Stakeholder Comments• Manufacturer Prices• Average Costs• Manufacturer Financial DataEnvironmentalAssessmentRegulatory ImpactAnalysis• Emission Estimates• Utility Load Factors• National Energy Savings• Non-RegulatoryAlternatives• NEMS-BT• IMBUILD• NEMS-BTDirect EmploymentImpacts• National Energy Savings• National Product Costs• National Operating Costs• Utility Impacts• Life-Cycle Costs• Payback Periods• National Energy Savings• Net Present Values• Trial Standard Levels (TSLs)TSLs• Department of Justice ReviewAdvance Notice of Proposed Rulemaking (ANOPR)3536Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRule37Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleLCC Sub-group analysis assesses whether significant sub-groups ofconsumers will bear significant adverse impactsLife-Cycle Cost Sub-group Analysis»METHOD»SameastheLCCanalysisbutasmallersampleofconsumersareanalyzed»INPUTS»Residentialconsumersub‐groupsthatmaybearadverseimpacts– Low‐income– Seniors»Commercialconsumersub‐groupsthatmaybearadverseimpacts– Smallbusinesses(i.e.,lowannualrevenues)– Specialbusinesssubgroups(e.g.farms,municipalutilities)– Business,industriesorcustomersthatuseproductsinspecialapplications(e.g.undergroundvaultsfortransformers,orotherspaceconstrainedapplications)39Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRule40The goal of the Manufacturer Impact Analysis is to qualitatively andquantitatively assess the impacts on manufacturers of potential energy efficiencystandards.Purpose»Toassesstheimpactsofstandardsonmanufacturers»Toidentifyandestimateimpactsonmanufacturersub‐groupsthatmaybemoreseverelyimpactedthantheindustryasawhole»ToexaminetheimpactofcumulativeregulatoryburdensontheindustryMethod»AnalyzeindustrycashflowandnetpresentvaluethroughuseoftheGovernmentRegulatoryImpactModel(GRIM)»InterviewmanufacturerstorefineinputstotheGRIM,developsub‐groupanalyses,andaddressqualitativeissuesOutput»IndustryNetPresentValueimpacts»Sub‐groupNetPresentValueimpacts»OtherimpactsManufacturer Impact Analysis41The Manufacturers Impact Analysis (MIA) fulfils a legislative requirement todetermine if a proposed standard is economically justified.» TheEnergyPolicyConservationAct(EPCA)providessevenfactorstobeevaluatedindeterminingwhetheranapplianceefficiencystandard[energyconservationstandard]isjustified.(42U.S.C.6313(a)(6)(B)(i))TwoofthesefactorsrequiretheDOEtoconsidertheeconomicimpactofstandardsonmanufacturersandtheimpactsofanylesseningofcompetitionintheindustry.Bothofthesefactorsareassessedthroughthemanufacturerimpactanalysis.» InSeptember,1995,theDepartmentannouncedaformalefforttoconsiderfurtherimprovementstotheprocessusedtodevelopapplianceefficiencystandards.TheDepartmentcalledonenergyefficiencygroups,manufacturers,tradeassociations,stateagencies,utilities,andotherinterestedpartiestoprovideinputtothiseffort.» Asaresultofthiscombinedeffort,theDepartmentpublishedProcedures,InterpretationsandPoliciesforConsiderationofNeworRevisedEnergyConservationStandardsforConsumerProducts(the“processrule”),10CFR430,SubpartC,AppendixA.Theprocessrulecontainsprinciplesfortheanalysisofregulatoryimpactsonmanufacturers.Manufacturer Impact Analysis42»TheMIAconsistsofthreemainphasesMethodologyManufacturer Impact AnalysisIndustryprofileDevelopstraw-manGRIM*DevelopinterviewguideInterviews& industrywide /subgroupanalysesAssess directemployment,competition,cumulativeburdenPhase 2*GovernmentRegulatoryImpactModel(GRIM)Phase 3PreliminayMIAInterviewsPhase 1ANOPRNOPR43Phase1consistsoftheindustryprofileandpreliminarymanufacturerimpactanalysisinterviews.Phase1Industry Profile»Evaluation of current and past industrystructure and market characteristics»Produce an industry profile report withaggregated findings and characteristics»Identify critical issues that requirespecial consideration in the MIA, forexample:»Types or groups of manufacturers»Access to technology»Potential regulatory scenariosPreliminary MIA Interviews»Occurs during the engineering analysis»Topics include:»Shipment projections»Conversion costs»Product mix and profitability»Market shares and industryconsolidation»Cumulative regulatory burdenManufacturer Impact Analysis44Phase2consistsofthestraw‐manGRIMandinterviewguidepreparation.Phase2Straw-man GRIM»Starting point for discussion of impacts»Inputs include:»Manufacturer prices»Shipment forecasts»Manufacturing cost estimates»Financial informationInterview Guide Preparation»Interview topics include:»Engineering analysis»Shipments model»Cost structure and financial parameters»Conversion costs»Cumulative burden»Direct employment impacts»Import / Export issues»Consolidation / competitive impacts»Replacement parts or refurbishments»Impact of the standard’s effective dateManufacturer Impact Analysis45Phase3consistsofthemanufacturerinterviews,subgroupanalyses,andassessmentofindustryimpacts.Phase3Manufacturer Interviews»Confidential discussion of potentialimpacts resulting from standards,including:»Obsolescence of existingmanufacturing assets»Tooling»InvestmentAssessment of Impacts»Assess competitive impacts on smaller,significant manufacturers»Assess cumulative regulatory burden onmanufacturers from amended DOEstandards and other regulatory actions»Assess impacts on industry employmentlevels»Assess impacts on manufacturersubgroupsManufacturer Impact Analysis46Manufacturer Impact AnalysisThe Government Regulatory Impact Model (GRIM) estimates the impactsof standards and other regulations on manufacturers.» TheGRIMwasdevelopedbyArthurD.LittlewithfundingfromandtheparticipationofGAMA,ARIandAHAM.» Basedondiscountedcashflowanalysis» Createsfullcomputationsofcashflowforbothbasecase(absenceofstandards)andstandardscase» ComputesIndustryValues(NPV)forbothscenarios» Offersnumericandgraphicalcomparisons»Facilitatescommunicatinganticipatedimpactstoallstakeholders» Allowsaggregationofimpactsonindividualcompanies47Manufacturer Impact AnalysisGRIM uses four key inputs: manufacturer prices, manufacturing costs, shipments,and financial information to calculate cash flows used for arriving at the industryvalue.GRIMManufacturerPricesShipmentsManufacturingCostsFinancialInformationCashFlow,NetPresentValue48DOE provides input to the Department of Justice (DOJ) on Competitive ImpactsAssessment.» CompetitiveAnalysisfocusesonassessingtheimpactstosmaller,significantmanufacturers» DOJparticipatedindraftingquestionsusedinpastandpresentmanufacturerinterviews» Questionspertaintoanassessmentofthelikelinessofincreasedconcentrationlevelsandothermarketconditionsthatcouldleadtouncompetitivepricingbehavior»Asymmetricalcostincreasestosomemanufacturers»Increasedproportionoffixedcostspotentiallyincreasingbusinessrisk»Barrierstomarketentry(proprietarytechnologies,etc.)Manufacturer Impact Analysis49Manufacturer Impact AnalysisThe results of the MIA are summarized ina few key financial metrics that comparedthe impacts between different proposed energy efficiency levels and the selected basecase.TSLCapitalInvestments($million)ProductConversionCosts($million)IndustryNetPresentValue($million)%ChangeinINPVBase‐case$0$0$450TSL1$20$18$420‐6.7%TSL2$90$80$380‐15.6%TSL3$120$230$275‐38.9%50Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleUtility and Environmental Impact Assessment.» Toinvestigatetheeffectsonutilitiesfromreducedenergysalesandpeakloaddemandduetopotentialstandards.» Estimatedecrementinenergyloadsasaresultofthestandard» DetermineappropriateloaddurationcurveforanalysisinNationalEnergyModelingSystemusedforBTclients(NEMS‐BT)‐‐e.g.,refrigeration,airconditioning,spaceheating» For“small”rules,scaleupdecrementasappropriatetoobtainstableresultsfromNEMS‐BT(10x,20x,50x,100x)» UsescaleddecrementtoestimateeffectsonsupplysideofNEMS‐BTandconfirmplausibilityofsupply‐sideresults—e.g.,electricitygenerationmixbytechnology» Downscaleresultstoactualenergydecrementfromstandard» Reportimpactsonenergygeneration,primaryenergyconsumption,emissionsofCO2,NOx,Hg,SO2Utility Impact Analysis52Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleEmployment Impact Analysis consistsof reporting net jobs created oreliminated nationally as a consequence of new energy efficiency standards.METHOD»UsetheImSET(ImpactofSectorEnergyTechnology)tool,anenergy‐impactsversionoftheU.S.nationalinput‐outputmodel.»TakechangeinequipmentandenergyexpendituresfromtheNationalImpactAnalysis(NationalEnergySavings(NES)spreadsheet).»TakedirectemploymentimpactsfromtheManufacturerImpactAnalysis.INPUT»Nationalappliancecostincreasesduetopotentialstandards.»Nationalenergycostsavingsduetostandards.»Nationalrepairandmaintenancecostincreases(orsavings)duetostandards.»Nationalenergysavingsduetostandards.OUTPUT»Changeinemploymentbysectorasaconsequenceofnewstandards.Employment Impact AnalysisImSET.»DevelopedbyPacificNorthwestNationalLaboratory»Estimatestheemploymentandincomeeffectsofbuildingenergytechnologies,suchasmoreefficientappliances»Usesa187‐sectormodelofthenationaleconomy»Providesoverallestimatesofthechangeinnationaloutputforeachinput‐outputsector»Appliesestimatesofemploymentandwageincomeperdollarofeconomicoutputforeachsectorandcalculatesimpactsonnationalemploymentandwageincome»Showsemploymentimpactsspecificallydueto:»Increasedinvestmentandspendingonmoreefficientappliances»RedirectedconsumerspendingmadepossiblebyapplianceenergysavingsEmployment Impact Analysis55Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleConsider environmental effects of proposed standards.SCOPE» EPCAdirectsDOEtoconsidertheneedfornationalenergyconservationwhichincludesenvironmentalbenefits.» Toreportenvironmentalimpactsasaconsequenceofnewenergyefficiencystandards,includingchangesinpowerplantemissions.» Reportimpactsonenergygeneration,primaryenergyconsumption,emissionsofCO2,NOx,Hg,SO2.56Environmental Assessment57Analyses for Notice of Proposed Rulemaking (NOPR)EnvironmentalAssessmentLife-CycleCostSubgroupAnalysisManufacturerImpactAnalysisUtilityImpactAnalysisEmploymentImpactAnalysisRegulatoryImpactAnalysisRevisePreliminaryAnalysisFrameworkDocumentPreliminaryAnalysisNOPRFinalRuleRegulatory Impact Analysis Overview.Purpose»Toinvestigatethenationalimpactsduetonon‐regulatoryalternativescomparedwithmandatoryenergyconservationstandards.Non‐regulatoryalternatives»Nonewregulatoryaction;earlyreplacement;prescriptivestandards;consumertaxcredits;manufacturertaxcredits;consumerrebates;voluntaryefficiencytargets;bulkgovernmentprocurement.Method»ModifyNESspreadsheetmodeltoconsidernon‐regulatoryscenarios.»Non‐regulatoryscenariosincreaseoverallapplianceefficiencyandaremodeledbymodifyingthebasecaseefficiencytrend.»NPVcalculatedfornon‐regulatoryalternativesinthesamewayasfortheadoptedstandard.Eachnon‐regulatoryscenariowilldecreasenationalapplianceoperatingcostsandincreaseapplianceequipmentprices.Output»NationalEnergySavingsandNetPresentValueofthenon‐regulatoryalternatives.58Regulatory Impact AnalysisRegulatory Impact Analysis Method.»Method»Identifynon‐regulatoryalternatives»Conductliteraturesearchtoassesstheimpactthatthenon‐regulatoryalternativeshaveonconsumerpurchasedecisions»Establishmethodologiesformodelingpolicyalternatives»ModifyNESspreadsheetmodeltoconsiderscenarios»Output»NationalEnergySavingsandNetPresentValueofnon‐regulatoryalternatives59Regulatory Impact AnalysisRegulatory Impact Calculations.»Estimateimpactofnon‐regulatoryalternativeonconsumerchoice»Calculateimpactoninstalledpriceinbasecaseofthenonregulatoryalternative,e.g.,arebateortaxcreditreducesfirstcost.»Adjustforanyimpactsontotalsales(demandelasticity)ofnonregulatoryalternative.»Adjustforanyshiftinefficiencylevels(e.g.,shiftinaverageefficiency)ofshipmentsasaresultofnon‐regulatoryalternative.»Estimateimpactofnon‐regulatoryalternativeonNES»Calculatethenewstockandefficiencymixofenergy‐usingproductorequipmentbyyearforthenon‐regulatoryalternativeusingtheNIAspreadsheet.»Calculatedifferencebetweenenergyconsumptionbyyearinthebasecaseandinthenon‐regulatorypolicycaseusingtheNIAspreadsheet.»Estimateimpactofnon‐regulatoryalternativeonNPV»Calculatethetotalinstalledcostsofthenewstockandcostsofenergyandotheroperatingcostsbyyearforthenon‐regulatoryalternativeusingtheNIAspreadsheet.»Calculatedifferencebetweentotalcostsbyyearinthebasecaseandinthenon‐regulatorypolicycaseusingtheNIAspreadsheet.»Discounttheannualcostdifferencesat7%and3%toobtaintheNPVofthenon‐regulatoryalternative.»AnnualizetheNPVoverthetimeperiodofthepolicy(30years).60Regulatory Impact Analysis