Energy Conservation Standards for 

Appliances and Commercial Equipme

Appliance Standards Program Methodo

Provided as Background for the 

Commercial and Industrial Pumps Working Group

Building Technologies Office

Office of Energy Efficiency and Renewable Energy

March 21, 2014
Seven EPCA Criteria and Associated DOE Analyses provides 

EPCA Criteria Analysis DOE Performs to Address Factor 

1. Economic impact of standard on

consumers and manufacturers

Life‐Cycle Cost (LCC) and Payback Analysis(including Markups)

LCC Subgroup Analyses Manufacturer Impact Analysis 

2. Lifetime operating cost savings

resulting from standard

Life‐Cycle Cost and Payback Analysis(including Markups)

3. Total projected energy savings

resulting from standard

National Impact Analysis (including

Shipments)

4. Impact of standard on utility or

performance of products

Screening Analysis 

Engineering Analysis 

5. Impact of any lessening of competitionlikely to result from standard

Manufacturer Impact Analysis 

6. Need for national energy conservation National Impact Analysis (including

Shipments)

7. Other factors the Secretary considers

relevant

Environmental Assessment 

Utility Impact Analysis Employment Impact Analysis Regulatory Impact Analysis 
Rulemaking History & Timelines

• The test procedure and energy conservation standard rulemakings are c

separate processes but with integrated timelines.

• The rulemaking process typically takes about 3 years from beginning to 

Energy Conservation 

Standards (ECS)

Test Procedure (TP)

Framework

Document

Preliminary 

Analysis NOPR F

NOPR Final Rule

Generic Test Procedure and Standards Rulemakings Timelin
See Flow Diagram of Analyses for Standar

Rulemaking Process Attachment
Analyses for Preliminary Analysis

Approaches Key Inputs Analyses Key Outp

Market and Technology

Assessment

Screening Analysis

Engineering Analysis

Markups for

Product Price

Determination Life -Cycle Cost and 

Payback Period 

Analysis

National Impact

Analysis

Energy 

Use

Shipments

Analysis

• Product Classes• Technology Options• Cost -Efficiency Relatio• Life-Cycle Costs• Payback Periods• National Energy Saving• 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 Data

Analysis

• Retail Price Collection and

Analysis

Design Options

Product Classes

Retail Prices

Design Energy Use

Preliminary Analysis (Pre-A

• Efficiency/Performance• Manufacturing Cost

Candidate

Standard 

Levels

• Analysis of Energy

Use Data

Technology Options

• Design Options

• Energy Price Forecasts• Site -to -Source Factors

• Energy -Efficiency Levels

• Analysis of Market Data• Analysis of Product Data

• Installation

Costs

• Maint Costs• Repair Costs

• UEC• Energy

Prices

• Annual Energy Use (UEC)•

Preliminary 

Manufacturer Impact 

Analysis

• Manufacturer Prices• Average Costs

• Conversion Capital Exp• Direct Employment Imp

• Product Prototypes

Energy -Efficiency Levels

Framework Docume
Framework

Document

PreliminaryAnalysis

NOPR Final

Rule

Market & Technology

ScreeningAnalysis

EngineeringAnalysis

Energy Use & End Use LoadCharacterization

ShipmentsAnalysis

Markups forEquipmentPriceDetermination

Life-CycleCost andPayback Period Analysis

Preliminary Manufacturer Impact Analysis
Purpose

» To characterize the market and determine product classes and baseline 

» To identify potential design options or efficiency levels for each of the p

to be used as input to determine what technologies manufacturers could 

attain higher energy efficiency levels.

Process

1. Identify trends in product characteristics2. Identify existing and past technology options and prototype designs3. In consultation with interested parties, develop a list of technologies 

should be considered in the analysis.

4. Initially, the technologies will encompass all those considered to be t

feasible and will serve to establish the maximum technologically fea

The Market and Technology Assessment helps identify technfeasible options that manufacturers could potentially use to atenergy efficiency levels.

Market & Techn
Purpose

» To identify design options that improve efficiency and determine whic

to evaluate and which to screen out.

Screening Criteria

» Technological feasibility; Technologies incorporated in commercial pro

in working prototypes will be considered technologically feasible;

» Practicability to manufacture, install and service; If mass production of 

technology in commercial products and reliable installation and servici

technology could be achieved on the scale necessary to serve the relevaat the time of the effective date of the standard, then that technology w

considered practicable to manufacture, install and service

» Adverse impacts on product utility or product availability; If it is deter

that a technology will have significant adverse impacts on health or saf

not be considered further.

» Adverse impacts on health or safety; If it is determined that a technolo

have significant adverse impacts on health or safety, it will not be consi

further.

The initial list of design options becomes the Screening Crfor the equipment.

Screening Analys
Equipment Cost - Efficiency Relationship Downstream Analys

• Consumer Life-Cycle • Manufacturer Impact• Employment Impact

In the Engineering Analysis, cost-efficiency relationships are developed 

Production Cost

Product Efficiency

Engineering An

The Engineering Analysis generates the more efficient equipment by indesign options that passed the screening analysis.

ManufacturingCost‐EfficiencyRelationship

(Equipment Cost

Distributions to

the Life‐Cycle

Cost Analysis)

BaselineUnits

DesignOptions
The Engineering Analysis may use one or more of three app

» The survey approach ( the efficiency is known) relies on costs p

by manufacturers or from retail surveys to estimate the costs for 

efficiency levels. (IRL and GSFL).

» The design options approach ( the technology path is known) us

estimates of the costs and performance of particular designs that efficiency. Design option efficiency increases can either be based engineering calculations, test results or through the use of enginecomputer simulation models. (Small Electric Motors)

» The cost assessment approach ( the efficiency is known) estimat

manufacturing costs of efficiency levels by analyzing existing propossibly including teardown of some units on the market ( Centr

Conditioners)

Engineering Anal
FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule

Market & Technology

ScreeningAnalysis

EngineeringAnalysis

Energy Use & End Use LoadCharacterization

ShipmentsAnalysis

Markups forEquipmentPriceDetermination

Life-CycleCost andPayback Period Analysis

Preliminary Manufacturer Impact Analysis
Purpose

» Determine customer prices under a standards scenario based 

manufacturer costs.

» Characterize equipment distribution channels and market seg» Describe SEM equipment distributor/wholesaler direct costs, 

and profits.

Inputs

» Firm balance sheets.

– Wholesalers: U.S. Census Bureau Financial Data for Merchant W

for Machinery, Equipment, and Supplies.

Output

» Baseline and incremental markups.

Markups help Determine Equipment Price.

Markups for Equipment Price D
» Baseline markups relate price to cost prior to a change in eff

» Baseline markups indicate a customer price that covers all of a W

Contractor’s expenses plus profit.

» Direct labor costs (salaries, payroll, rental and occupancy) are included.

» Incremental markups relate the incremental change in custo

to the incremental change in CGS

» Some distribution costs remain constant with COGS increases.» Incremental markups cover only expenses that vary with CGS – i

expenses that increase due to an increase in equipment efficiency

» DOE assumes other operating costs and profit will scale proportionally 

There are two types of Markups, Baseline and Incrementalrelate customer price to cost of goods sold (CGS).

Markups for Equipment Price 
Purpose

» Determine the amount of energy used for appliances and equ» Estimate features of energy use that can effect energy costs or 

impacts (e.g. peak demand, seasonal patterns).

» Estimate the distribution of energy use characteristics for a

representative population of applications and/or households

Inputs

» Engineering design characteristics.» Energy survey data (e.g. RECS and CBECS).» Building simulations.» Specialized building and customer load studies.

Output

» Energy use distribution.» Peak energy demand.» Energy use load shapes (when necessary).

Energy Use and End Use Load Characterization of equip

Energy Use & End Use Load Ch
Energy UseCharacterization

Market and TechnologyAssessment

ScreeningAnalysis

EngineeringAnalysis

Markups toDetermineEquipmentPrice

Life-CycleCost andPayback Period Analysis

ShipmentsAnalysis

Preliminary Manufacturer Impact Analysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Basic LCC Process Diagram.

Change in First Cost

Change in Operating Costs

Combine C

in Cos

LCC Res

Life-Cycle Cost and Payback Pe

» Economic evaluation from the consumer perspective
LCC Calculation Flowchart.

Life-Cycle Cost and Payback P

From Engineering 

Analysis

From Markups to 

Determine 

Product Price

From Energy Use 

Characterization
» LCC equals first cost plus sum of annual operating costs disc

base year

» First cost includes installation» Maintenance and repair costs are included, as appropriate

» Implement in MS Excel® spreadsheet

» Monte Carlo simulations sample from input distributions

» Test sensitivities to key inputs

» Express results as LCC difference

» Baseline LCC minus candidate standard LCC = net LCC savings (+

LCC costs (‐)

Basic LCC Process.

Life-Cycle Cost and Payback P
» Incremental equipment prices

» Apply markups to manufacturer incremental prices from Engineerin

» Energy prices

» Range of current energy prices is based on either actual bill data or utility tari

accounting for variability among applications.

» Energy prices for residential households are obtained from monthly billing d

consumption and expenditure) from the Energy Information Administration’

Residential Energy Consumption Survey (RECS).

» Energy prices for commercial equipment are calculated from sample of utility » Future energy prices are based on energy price trends obtained from the DOE

Energy Outlook reference case, high and low scenarios.

» Marginal energy prices reflect expected change in bill, not average prices.

» Operating behavior

» Equipment lifetimes» Discount rates

» Other inputs

» Installation Costs, Energy Price Forecast, Repair Costs, Maintenance Costs

 LCC Key Inputs.

Life-Cycle Cost and Payback P
Inputs and results account for variation among consumers

» A consumer sample is developed where every consumer is u

» Consumer sample is based on those consumers who utilize the app

– Residential: RECS household records– Commercial: CBECS building records

» Variability among consumers is represented using input var

defined with probability distributions

» For example, energy prices, discount rates, equipment lifetimes

» Monte Carlo simulations are used to conduct the analysis

» Statistical technique samples from distributions for each input var

» Results produced from 10,000 iterations (or more, depending 

» Performed with Crystal Ball®, an add‐in to MS Excel®

Life-Cycle Cost and Payback Pe
Energy UseCharacterization

Market and TechnologyAssessment

ScreeningAnalysis

EngineeringAnalysis

Markups toDetermineEquipmentPrice

Life-CycleCost andPayback Period Analysis

ShipmentsAnalysis

Preliminary Manufacturer Impact Analysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
 Shipments and National Impact Analysis Objectives

» Shipments and National Impact Analyses are conducted to determine e

appliance standards on the Nation.

» Ensures that the Building Technologies Program fulfills EPCA’s require

fulfills goals of improving building and equipment efficiency.

» Satisfies the legislative mandate for DOE to analyze appliance efficienc» Addresses legislative criteria that a standard must provide the Nation w

significant energy savings and be economically justified.

Shipments Analysis & National I
 An accounting model is used to prepare shipment forecasts for the 

(i.e., the case without amended appliance efficiency standards) and standard cases considered. 

» Purpose

» Project new equipment shipments under possible standards» Track the stock of equipment, by vintage, over the analysis period

» The life cycle of equipment is modeled as a “birth–death” process in w

equipment changes from one state to another

» New equipment is purchased and shipped to the site where it is ins» Equipment operates for some number of years» The equipment is retired

» A new purchase is influenced by several factors

» Economics (e.g. equipment price and operating costs)» Equipment failures» New building construction rates

» Model is calibrated to historical shipments and market saturation dat

possible

Shipmen
 Elements of Shipments Modeling

» “Stocks” are the inventory of installed equipment, and the accounting m

divides stocks of appliances into ownership categories, and assigns unicategories.

» “Events” are things that happen to stocks independent of economic con

i.e., breakdowns requiring repair or replacement.)

» “Decisions” are consumer purchase decisions that are reactions to mark

conditions, e.g., whether to repair or replace equipment, or to purchase 

equipment for a location (business or building) that does not have one.

» The accounting model characterizes consumer purchase decisions by m

segments. The model uses decision trees to describe consumer choices f

purchases and repairs.

Shipmen

 Definitions of Terms» Shipments: Units of equipment produced and delivered to buyers ann

(# units/year).

» Stock: Units of equipment placed or located in the field–typically in

manufacturing facilities, office buildings, retail sites, schools, colleges 

other institutional buildings.

» Removals: Units of equipment retired from the stock due to age.
Sample Data Sources for Commercial Equipment.

Input Data Source/DescriptionCommercial Building DataForecasted New Construction U.S. DOE-EIA, Annual Energy OutlookHistorical New Construction U.S. Census Bureau, Statistical Abstract of the United Sta

Forecasted Stock U.S. DOE-EIA, Annual Energy OutlookHistorical Stock U.S. DOE, Commercial Building Energy Consumption SurMarket Saturation Data (percent of floor space with appliance) and ReplacementsHistorical Saturation Trade Association or U.S. Census Bureau, Current Industr

Replacements driven by Appliance Lifetime

From Life-Cycle Cost Analysis

Purchase Decision DataTotal Installed Cost, Annual Operating Cost

From Life-Cycle Cost Analysis

Business Income Building Owners and Managers Association (BOMA) Inter

Historical Experience Exchange Reports

Calibration DataHistorical Shipments Trade Association or U.S. Census Bureau, Current Industr

Shipmen
Shipments Calculations Considerations.

» Historical shipments and stocks of equipment by efficiency level

» Prefer full shipments and stock history: correlate with population, income, sale» Partial series can be inferred from anecdotal data» Minimum information is at least one year of shipments data (and an anecdotal 

estimate and its age distribution, and information on the efficiency distribution 

» Methods used to infer shipments

» Market studies» Trending between “real” data points» Calculate replacements from age of stock (if known)

» Methods used to infer stock

» Market studies» Perpetual inventory method: use sales and retirements to build up a stock estim» Use age of stock and replacement shipments (if known) to estimate total stock.

» Methods used to forecast shipments and stock

» Market studies, if available» Market model, if available» New shipments: correlate with trends in population, sales, building stock, etc.» Replacement shipments: use replacement rates and vintages of stock (first‐in, fi

accounting) to estimate. (Control estimate with total stock estimates from indu

Shipmen
Example of Shipments Calculations

AEO New 

Commercial 

Construction 

Forecast

Index of New 

Construction for 

Lodging, Health 

Care, and Small 

Office

Ducker Estimates of New, 

Replacement Shipments 

to

Lodging, Nursing Homes 

and Asst Living, Other

New Shipments, 

Standard Size to 

New Construction

Equipment 

and Building 

Stock 

Depreciation 

Rates

Shipments 

Standard Size

Replacement 

Equipment 

Standard and NonStandard Size 

Equipment Stock 

Shipments NonStandard Size

Replacement 

Equipment 

AHRI Initial 

Shipments, 

Standard and NonStandard Sizes, 

Capacities

Total Shipments, 

Standard Size

Total Shipments, 

Non-Standard Size

Stock 

Losses

Stock 

Calculations

Shipme
 National Impact Analysis Objective

» Calculate projected national energy savings (annual and cumulati» Calculate national consumer economic impacts (i.e., net present v

possible new energy efficiency standards.

 Elements of National Impact Analysis.» National Energy Savings (NES)

» The national energy savings is calculated by subtracting energy co

under a standards scenario from energy use in a base case scenari

» The national energy consumption is calculated by multiplying the 

stock of appliance units (by vintage) by the unit energy consumpt

vintage). Vintage is the age of the equipment .

» Net Present Value (NPV)

» The NPV is the sum over time of discounted net savings to applia

consumers as a result of new standards.

» NPV of any standards case is the difference between the sum of n

installed costs and operating costs in the base case and the sum of 

total installed costs and operating costs in the standards case.

National Impa
Calculations for National Impact Analysis.

» National Energy Savings (NES)

» Calculate annual site energy consumption in base case and standard

values for energy consumption by vintage, efficiency level in each ye

corresponding stock of equipment by vintage and efficiency level in 

» As necessary (electricity‐using equipment), translate site energy con

primary energy consumption using marginal site‐to source conversi

» Subtract annual primary energy consumption in standards case from 

energy consumption in base case, and sum over the forecast period (

» Net Present Value (NPV)

» Using weighted‐average unit values for installed cost, energy consu

prices, repair cost, and maintenance cost from the LCC analysis, calc

total installed cost, repair and maintenance cost, and energy cost for 

case and standards case. Installed cost by efficiency level of units sh

multiplied times shipments by efficiency level in each year. Repair c

cost, and energy cost by vintage and efficiency level are multiplied t

units by vintage and efficiency level in each year.

» Subtract annual costs in standards case from costs in base case, and 

forecast period (30 years, plus the longest lifetime of units shipped in 

obtain annual cost savings.

» Discount the cost savings by 7% and 3% discount rates (OMB Regul

Guideline A‐4).

» Annualize NPV over the 30‐year forecast period, as required. 

National Impa
National Impa
National Impa
National Impact Analysis Sample Outputs.

Cumulative Source Energy Savings and NPV

0.0000.0100.0200.0300.0400.0500.0600.070

Base TSL1 TSL2 TSL3 TSL4 TSL5 TSL 6TSL 7

Standard 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 Savings NPV

Trial Standard Level

TSL 3

Efficiency Level

Level 4

Net Savings

-0.0040-0.0020

0.00000.00200.00400.00600.00800.01000.0120

2012 2016 2020 2024 2028 2032 2036 2040 2044 2048 2052 20

Year

Billion 2008$

Undiscounted Total Annual Operating SavingsUndiscounted Annual Equipment Purchase SavingsDiscounted Total Net Annual Impact

National Impa
NIA Data Inputs.

» Total Installed Cost

» Average per unit values as a function of efficiency level taken from LCC analy» Future values are adjusted with efficiency trends

» Repair and Maintenance Cost

» Average per unit values as a function of efficiency level taken from LCC analy» Future values are adjusted with efficiency trends

» Annual Energy Use

» Weighted‐average per unit values as a function of efficiency level taken from L» Future values are adjusted with efficiency trends

» Efficiency Trends (When Used)

» Developed for the base case (without standards) and each standards case» Future trends based upon historical shipment‐weighted efficiency data

» Energy Prices

» Weighted‐average marginal prices taken from LCC analysis» Future marginal prices are adjusted according to trend forecasted by the Annu

» Electricity Site‐to Source Conversion Factors

» Conversion factors forecasted by National Energy Modeling System» Factors vary annually and account for generation, distribution, and transmissi

» Discount Rate

» 7% and 3% real from OMB’s Regulatory Analysis Guideline A‐4

» Present Year

» Future expenses are discounted to a specified year 

National Impa
Market & Technology

ScreeningAnalysis

EngineeringAnalysis

Energy Use & End Use LoadCharacterization

ShipmentsAnalysis

Markups forEquipmentPriceDetermination

Life-CycleCost andPayback Period Analysis

Preliminary Manufacturer Impact Analysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Analyses for NOPR and Final Rule

Utility Impact

Analysis 

Notice of Proposed Rulemakin

Approaches Key Inputs Analyses Key Outp

Revise ANOPR

Analyses

Life-Cycle Cost 

Sub-Group Analysis

Manufacturer Impact 

Analysis

Employment Impact

Analysis 

Revise Analyses

• Industry Cash Flow• Sub-Group Cash-Flow• Direct Employment Im• Competitive Impacts• Cumulative Regulato• National Employment • Revised Results

• Stakeholder Comments• Demographics

• Manufacturer Interviews• GRIM Analysis

• Emission Rates• National Energy Savings

• Stakeholder Comments

• Manufacturer Prices• Average Costs

• Manufacturer Financial Data

Environmental

Assessment

Regulatory Impact

Analysis

• Emission Estimates

• Utility Load Factors• National Energy Savings

• Non-Regulatory

Alternatives

• NEMS-BT

• IMBUILD• NEMS-BT

Direct Employment Impacts

• National Energy Savings• National Product Costs• National Operating Costs

• Utility Impacts

• Life-Cycle Costs• Payback Periods

• National Energy Savi• Net Present Values

• Trial Standard Levels 

TSLs

• Department of Justice Review

Advance Notice of Proposed Rulemaking 
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
LCC Sub-group analysis assesses whether significant sub-g

consumers will bear significant adverse impacts

Life-Cycle Cost Sub-gr

» METHOD

» Same as the LCC analysis but a smaller sample of consumers are a

» INPUTS

» Residential consumer sub‐groups that may bear adverse impacts

– Low‐income

– Seniors

» Commercial consumer sub‐groups that may bear adverse impacts

– Small businesses (i.e., low annual revenues)

– Special business subgroups (e.g. farms, municipal utilities)

– Business, industries or customers that use products in special applicatio

underground vaults for transformers, or other space constrained applic
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
The goal of the Manufacturer Impact Analysis is to qualitatively and quantitatively assess the impacts on manufacturers of potential energstandards. 

Purpose

» To assess the impacts of standards on manufacturers» To identify and estimate impacts on manufacturer sub‐groups that may be more s

impacted than the industry as a whole

» To examine the impact of cumulative regulatory burdens on the industry

Method

» Analyze industry cash flow and net present value through use of the Government 

Impact Model (GRIM)

» Interview manufacturers to refine inputs to the GRIM, develop sub‐group analyse

address qualitative issues

Output

» Industry Net Present Value impacts» Sub‐group Net Present Value impacts» Other impacts

Manufacturer Imp
The Manufacturers Impact Analysis (MIA) fulfils a legislative requiremdetermine if a proposed standard is economically justified.

» The Energy Policy Conservation Act (EPCA) provides seven factors to b

evaluated in determining whether an appliance efficiency standard [ene

conservation standard] is justified. (42 U.S.C. 6313(a)(6)(B)(i)) Two of th

require the DOE to consider the economic impact of standards on manu

and the impacts of any lessening of competition in the industry. Both of 

factors are assessed through the manufacturer impact analysis.

» In September, 1995, the Department announced a formal effort to consid

improvements to the process used to develop appliance efficiency stand

Department called on energy efficiency groups, manufacturers, trade as

state agencies, utilities, and other interested parties to provide input to t

» As a result of this combined effort, the Department published Procedure

Interpretations and Policies for Consideration of New or Revised Energy Conservation Standards for Consumer Products (the “process rule”), 10 

Subpart C, Appendix A. The process rule contains principles for the ana

regulatory impacts on manufacturers.

Manufacturer Imp
» The MIA consists of three main phases

Methodology

Manufacturer Imp

Industry profile

Develop straw-man GRIM*

Develop interview guide

Interviews

& industrywide / subgroup

analyses

Phase 2

* Government Regulatory Impact Model (GRIM)

Phase 3

Preliminay MIA Interviews

Phase 1

ANOPR 
 Phase 1 consists of the industry profile and prelimin

manufacturer impact analysis interviews.

Phase 1

Industry Profile

» Evaluation of current and past industry 

structure and market characteristics

» Produce an industry profile report with 

aggregated findings and characteristics

» Identify critical issues that require 

special consideration in the MIA, for example:

» Types or groups of manufacturers» Access to technology» Potential regulatory scenarios

Preliminary MIA Inter

» Occurs during the engineerin» Topics include:

» Shipment projections» Conversion costs» Product mix and profitab» Market shares and indust

consolidation

» Cumulative regulatory b

Manufacturer Impac
 Phase 2 consists of the straw‐man GRIM and intervie

preparation.

Phase 2

Straw-man GRIM

» Starting point for discussion of impacts» Inputs include:

» Manufacturer prices» Shipment forecasts» Manufacturing cost estimates» Financial information

Interview Guide Prepa

» Interview topics include:

» Engineering analysis» Shipments model» Cost structure and financial » Conversion costs» Cumulative burden» Direct employment impacts» Import / Export issues» Consolidation / competitive » Replacement parts or refurb» Impact of the standard’s effe

Manufacturer Impa
 Phase 3 consists of the manufacturer interviews, subg

analyses, and assessment of industry impacts.

Phase 3

Manufacturer Interviews

» Confidential discussion of potential 

impacts resulting from standards, including:

» Obsolescence of existing manufacturing assets» Tooling» Investment

Assessment of Imp

» Assess competitive impacts 

significant manufacturers

» Assess cumulative regulator

manufacturers from amendestandards and other regulato

» Assess impacts on industry e

levels

» Assess impacts on manufact

subgroups

Manufacturer Impac
Manufacturer Imp

The Government Regulatory Impact Model (GRIM) estimates tof standards and other regulations on manufacturers.

» The GRIM was developed by Arthur D. Little with funding from and the

participation of GAMA, ARI and AHAM.

» Based on discounted cash flow analysis

» Creates full computations of cash flow for both base case (absence of

standards) and standards case

» Computes Industry Values (NPV) for both scenarios

» Offers numeric and graphical comparisons

» Facilitates communicating anticipated impacts to all stakeholders

» Allows aggregation of impacts on individual companies
Manufacturer Imp

GRIM uses four key inputs: manufacturer prices, manufacturing cost

and financial information to calculate cash flows used for arriving at thvalue.

GRIM

Manufacturer Prices

Shipments

Manufactu

Financial I

Cash Flow, Net Present Value
DOE provides input to the Department of Justice (DOJ) on CompetitivAssessment.

» Competitive Analysis focuses on assessing the impacts to smaller, signifi

manufacturers

» DOJ participated in drafting questions used in past and present manufac

interviews

» Questions pertain to an assessment of the likeliness of increased concent

levels and other market conditions that could lead to uncompetitive pric

behavior

» Asymmetrical cost increases to some manufacturers» Increased proportion of fixed costs potentially increasing

business risk

» Barriers to market entry (proprietary technologies, etc.)

Manufacturer Imp
Manufacturer Imp

The results of the MIA are summarized in a few key financial metrics 

the impacts between different proposed energy efficiency levels and thcase. 

TSL Capital

Investments

($ million)

Product

Conversion Costs

($ million)

Industry Net

Present Value

($ million)

% Ch

IN

Base‐case $0 $0 $450TSL

1 $20 $18 $420 ‐6

TSL

2 $90 $80 $380 ‐15

TSL

3 $120 $230 $275 ‐38
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Utility and Environmental Impact Assessment.

» To investigate the effects on utilities from reduced energy sales and pe

demand due to potential standards.

» Estimate decrement in energy loads as a result of the standard

» Determine appropriate load duration curve for analysis in National En

Modeling System used for BT clients (NEMS‐BT)‐‐e.g., refrigeration, aiconditioning, space heating

» For “small” rules, scale up decrement as appropriate to obtain stable re

NEMS‐BT (10x, 20x, 50x, 100x)

» Use scaled decrement to estimate effects on supply side of NEMS‐BT a

plausibility of supply‐side results—e.g., electricity generation mix by t

» Downscale results to actual energy decrement from standard

» Report impacts on energy generation, primary energy consumption, em

CO2, NOx, Hg, SO2

Utility Imp
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
 Employment Impact Analysis consists of reporting net jobs create

eliminated nationally as a consequence of new energy efficiency s

METHOD

» Use the ImSET (Impact of Sector Energy Technology) tool, an energy‐impa

the U.S. national input‐output model.

» Take change in equipment and energy expenditures from the National Imp

(National Energy Savings (NES) spreadsheet).

» Take direct employment impacts from the Manufacturer Impact Analysis.

INPUT

» National appliance cost increases due to potential standards.» National energy cost savings due to standards.» National repair and maintenance cost increases (or savings) due to standar» National energy savings due to standards.

OUTPUT

» Change in employment by sector as a consequence of new standards.

Employment Im
ImSET.

» Developed by Pacific Northwest National Laboratory» Estimates the employment and income effects of building energy tec

such as more efficient appliances

» Uses a 187‐sector model of the national economy

» Provides overall estimates of the change in national output for eac

output sector

» Applies estimates of employment and wage income per dollar of e

output for each sector and calculates impacts on national employm

wage income

» Shows employment impacts specifically due to:

» Increased investment and spending on more efficient appliances» Redirected consumer spending made possible by appliance energ

Employment Im
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Consider environmental effects of proposed standards.

SCOPE

» EPCA directs DOE to consider the need for national energy conservat

includes environmental benefits.

» To report environmental impacts as a consequence of new energy effi

standards, including changes in power plant emissions.

» Report impacts on energy generation, primary energy consumption, e

CO2, NOx, Hg, SO2.

Environmental 
Analyses for Notice of Proposed Rulemaking (NOPR)

Environmental Assessment

Life-Cycle Cost Subgroup Analysis

Manufacturer Impact Analysis

Utility Impact Analysis

Employment Impact Analysis

RevisePreliminaryAnalysis

FrameworkDocument

PreliminaryAnalysis

NOPR

FinalRule
Regulatory Impact Analysis Overview.

Purpose

» To investigate the national impacts due to non‐regulatory alternatives compared 

mandatory energy conservation standards.

Non‐regulatory alternatives

» No new regulatory action; early replacement; prescriptive standards; consumer 

manufacturer tax credits; consumer rebates; voluntary efficiency targets; bulk go

procurement.

Method

» Modify NES spreadsheet model to consider non‐regulatory scenarios.» Non‐regulatory scenarios increase overall appliance efficiency and are modeled 

modifying the base case efficiency trend.

» NPV calculated for non‐regulatory alternatives in the same way as for the adopt

standard. Each non‐regulatory scenario will decrease national appliance operatiand increase appliance equipment prices.

Output

» National Energy Savings and Net Present Value of the non‐regulatory alternativ

Regulatory Impa
Regulatory Impact Analysis Method.

» Method

» Identify non‐regulatory alternatives» Conduct literature search to assess the impact that the non‐regula

alternatives have on consumer purchase decisions

» Establish methodologies for modeling policy alternatives» Modify NES spreadsheet model to consider scenarios

» Output

» National Energy Savings and Net Present Value of non‐regulatory

alternatives

Regulatory Impa
Regulatory Impact Calculations.

» Estimate impact of non‐regulatory alternative on consumer choice

» Calculate impact on installed price in base case of the nonregulatory 

e.g., a rebate or tax credit reduces first cost.

» Adjust for any impacts on total sales (demand elasticity) of nonregu

alternative.

» Adjust for any shift in efficiency levels (e.g., shift in average efficien

as a result of non‐regulatory alternative.

» Estimate impact of non‐regulatory alternative on NES

» Calculate the new stock and efficiency mix of energy‐using product 

by year for the non‐regulatory alternative using the NIA spreadshee

» Calculate difference between energy consumption by year in the ba

the non‐regulatory policy case using the NIA spreadsheet .

» Estimate impact of non‐regulatory alternative on NPV

» Calculate the total installed costs of the new stock and costs of energ

operating costs by year for the non‐regulatory alternative using the 

spreadsheet.

» Calculate difference between total costs by year in the base case and 

regulatory policy case using the NIA spreadsheet.

» Discount the annual cost differences at 7% and 3% to obtain the NPV 

regulatory alternative.

» Annualize the NPV over the time period of the policy (30 years).

Regulatory Impa