# Energy Conservation Program for Consumer Products: Clothes Washer Energy Conservation Standards > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A00-25335 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** October 5, 2000 - **Citation:** 65 FR 59550 ## Text DEPARTMENT OF ENERGY Office of Energy Efficiency and Renewable Energy 10 CFR Part 430 [Docket No. EE-RM-94-403] RIN 1904-AA67 Energy Conservation Program for Consumer Products: Clothes Washer Energy Conservation Standards AGENCY: Office of Energy Efficiency and Renewable Energy, Department of Energy. ACTION: Notice of proposed rulemaking and public hearing. SUMMARY: The Energy Policy and Conservation Act, as amended (hereinafter referred to as EPCA or the Act), prescribes energy conservation standards for certain major household appliances, and requires the Department of Energy (DOE, Department, or we) to administer an energy conservation program for these products. We conducted several analyses regarding the energy savings, benefits and burdens of amended energy conservation standards for clothes washers and have shared the results of these analyses with all stakeholders. Based on these analyses, several of the major stakeholders, including clothes washer manufacturers and energy efficiency advocates, submitted to the Department a joint proposal for the highest standard level which they believed to be technically feasible and economically justified. Based on our review of this proposal, we found the proposed standards technically feasible and economically justified. Therefore, today we propose to amend the energy conservation standard for clothes washers for residential applications as recommended in the joint proposal and announce a public hearing. As part of this rulemaking in response to the joint proposal by the clothes washer manufacturers and energy efficiency advocates, we have also included revisions to the test procedure based on issues found during this rulemaking dealing with the energy test cloth, remaining moisture content (RMC), extractor testing and the correction factor. In addition, we incorporated minor editorial changes to help clarify both Appendix J and J1 of the test procedure based on the joint proposal by stakeholders. These changes have been included in their entirety in this rulemaking pertaining to the test procedure. DATES: If you wish to submit comments on the proposed rule, they must be received on or before December 4, 2000 to Ms. Brenda Edwards-Jones at the address listed below. We request 10 copies of the written comments and, if possible, a computer disk. Oral views, data, and arguments may be presented at the public hearing. We will hold a Public Hearing on November 15, 2000, beginning at 9:00 a.m. If you wish to speak at the hearing, requests must be received by the Department no later than 4:00 p.m., November 6, 2000. Copies of statements to be given at the public hearing must be received by the Department no later than 4:00 p.m., November 6, 2000. We will read the statements in advance of the hearing and would appreciate the oral presentations to be limited to a summary of the statement. The length of each oral presentation is limited to 5 minutes. ADDRESSES: The hearing will be at the U.S. Department of Energy, Forrestal Building, Room 6E-069, 1000 Independence Avenue, SW., Washington, DC 20585. Written comments, oral statements, and requests to speak at the hearing are to be submitted to Ms. Brenda Edwards-Jones, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Clothes Washers Energy Conservation Standards, Docket No. EE-RM-94-403, 1000 Independence Avenue, SW., Washington, DC 20585-0121. Copies of the public comments received, the Technical Support Document (TSD) and the transcript of the public hearing may be read at the DOE Freedom of Information Reading Room, U.S. Department of Energy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-3142, between the hours of 9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. Copies of the TSD may be obtained from: U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-0121. (202) 586-9127. Copies of the analysis can also be found on the Codes and Standards Internet site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/clwasher.html For more information concerning public participation in this rulemaking proceeding see Section VII, “Public Comment Procedures,” of this Notice. FOR FURTHER INFORMATION CONTACT: Bryan Berringer, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 Independence Avenue, SW, Washington, DC 20585-0121, (202) 586-0371, E-mail: Bryan.Berringer@EE.DOE.GOV, or Eugene Margolis, U.S. Department of Energy, Office of General Counsel, Forrestal Building, Mail Station GC-72, 1000 Independence Avenue, SW, Washington, DC 20585, (202) 586-9526, E-mail: Eugene.Margolis@HQ.DOE.GOV. SUPPLEMENTARY INFORMATION: I. Summary of Proposed Rule II. Introduction A. Consumer Overview B. Authority C. Background 1. Current Standards 2. History of Previous Rulemakings 3. Process Improvement 4. Test Procedures III. General Discussion A. Test Procedures B. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels 3. Product Classes C. Energy Savings 1. Determination of Savings 2. Significance of Savings D. Rebuttable Presumption E. Economic Justification 1. Economic Impact on Manufacturers and Consumers 2. Life-Cycle Cost (LCC) 3. Energy Savings 4. Lessening of Utility or Performance of Products 5. Impact of Lessening of Competition 6. Need of the Nation to Conserve Energy 7. Other Factors IV. Methodology A. Product Classes B. Engineering Analysis C. Life-Cycle Cost (LCC) Analysis D. Payback Period Analysis E. National Impact Analyses 1. National Energy Savings (NES) Spreadsheet Model 2. Net National Employment F. Consumer Analysis G. Manufacturer Impact Analysis H. Utility Analysis I. Environmental Analysis V. Analytical Results A. Trial Standard Levels 1. Economic Impacts on Consumers a. Life-Cycle-Cost b. Payback Period c. Rebuttable Presumption Payback d. Consumer Sub-Group Analysis 2. Economic Impact on Manufacturers B. Significance of Energy Savings C. Lessening of Utility or Performance of Products D. Impact of Lessening of Competition E. Need of the Nation to Save Energy and Net National Employment 1. National Net Present Value 2. National Water Savings 3. Environmental Impacts 4. Net National Employment F. Conclusion VI. Procedural Reviews A. Review under the National Environmental Policy Act of 1969 B. Review under Executive Order 12866, “Regulatory Planning and Review” C. Review under the Regulatory Flexibility Act of 1980 D. Review under the Paperwork Reduction Act E. Review under Executive Order 12988, “Civil Justice Reform” F. “Takings” Assessment Review G. Review under Executive Order 13132, “Federalism” H. Review under the Unfunded Mandates Reform Act of 1995 I. Review under the Treasury and General Government Appropriation Act of 1999 J. Review Under the Plain Language Directives VII. Public Comment Procedures A. Written Comment Procedures B. Public Workshop (Hearing) 1. Procedure for Submitting Requests to Speak 2. Conduct of Workshop (Hearing) I. Summary of the Proposed Rule The EPCA, as amended, specifies that any new or amended energy conservation standard the Department prescribes shall be designed to “achieve the maximum improvement in energy efficiency * * * which the Secretary determines is technologically feasible and economically justified.” Section 325(o)(2)(A), 42 U.S.C. 6295(o)(2)(A). Furthermore, the amended standard must “result in significant conservation of energy.” Section 325(o)(2(B)(3)(B), 42 U.S.C. 6295(o)(2)(B)(3)(B). In accordance with the statutory criteria discussed in this notice, we are proposing to amend the clothes washer energy efficiency standards. The proposed standards are based on a Joint Stakeholders Comment recommendation submitted to the Department by clothes washer manufacturers and energy conservation advocates. (Joint Comment, No. 204). The Joint Stakeholders consist of the following: Alliance Laundry Systems LLC; Amana Appliances; Asko Incorporated; Frigidaire Home Products; General Electric Appliances (GEA), Maytag Corporation; Miele, Inc.; Fisher & Paykel Ltd; Whirlpool Corporation; Alliance to Save Energy; American Council for an Energy Efficient Economy (ACEEE); Appliance Standards Awareness Project; California Energy Commission (CEC); City of Austin, Texas; Natural Resources Defense Council (NRDC); Northwest Power Planning Council; and Pacific Gas and Electric (PG&E). The proposal as submitted in the Joint Stakeholders Comment consists of four parts as follows: “Clothes Washer Energy Standard. The clothes washer energy standards for standard class clothes washers shall be 1.04 modified energy factor (MEF) in 1/1/2004 and 1.26 MEF in 1/1/2007. The energy test procedure will be revised to ensure that variability between test cloths will not significantly affect remaining moisture content (RMC) results. Additional clarifications will also be made to test procedure. Energy Star Labeling Program. Energy Star levels shall be set as follows: Standard Class Clothes Washers—1.26 MEF in 2001; 1.42 MEF in 2004; Refrigerator/Freezers—10% better than the 2001 standard in 2001; change to 15% better than the 2001 in 2004. Tax Credit for the Production of Energy Efficient Clothes Washers and Refrigerator-Freezers. The credit shall provide for two energy efficiency tiers, each with separately designated funds. There is $30 million in each designated fund per company per efficiency tier. Cap of $60 million per company for the two funds or yearly cap with carry forward. Annual total tax credit cannot exceed in any taxable year 2% of corporate gross revenues as determined by average of 3 prior years. Standard Class Clothes Washers: Two tiers coterminous 2001-2006; $50 per unit for products manufactured with a 1.26 MEF and $100 per unit for products manufactured with a 1.42 MEF, increasing to 1.5 MEF in 2004. Includes residential-style “coin-operated” washers. Refrigerators: First tier effective in 2001. $50 per unit for products manufactured 10% above 2001 minimum efficiency standard. Credit runs through 2004. Second tier also effective in 2001 and runs through 2006. It is $100 for products manufactured 15% above the 2001 minimum efficiency standard. Credits apply to automatic defrost refrigerator-freezers only, at 16.5 cubic feet internal volume and above. Voluntary Industry Water Program. Water factor reporting shall be part of a voluntary industry sponsored program. AHAM members agree to publicly disclose through AHAM, water factors for each model that meets Energy Star/Tax Credit MEF levels, starting sometime in calendar year 2001. In calendar year 2002 and each year thereafter, industry-wide shipment weighted average water factors for units shipped in the previous year shall be reported by AHAM. Water factor calculations will use Appendix J water factor through 2003 and will use Appendix J1 thereafter. Starting in 2007, AHAM members agree to report water factor for all models. AHAM will sponsor water conference.” (Joint Comment, No. 204). This rulemaking only addresses the clothes washer energy standards of this agreement. The above proposed standard, based on this agreement would go into effect in stages, with the first level going into effect on January 1, 2004, and the second level going into effect on January 1, 2007. The initial standard is a 22 percent (%) reduction in energy consumption over the current standard or a MEF of 1.04, and can be attained with current vertical-axis (V-axis) clothes washer designs. The later, more stringent standard, is a 35 percent reduction in energy consumption over the current standard or a MEF of 1.26. While both vertical- and horizontal-axis (H-axis) design clothes washers are currently available in retail appliance stores at these levels, they represent less than nine percent of the washers sold per year. The Department's analyses indicates that the proposed standards, trial standard level of a 1.04 MEF in 2004 and a 1.26 MEF in 2007 saves an estimated 5.52 quads of energy over 27 years (2004-2030), a significant amount. This amount is more than the primary energy used for heating water in all U.S. buildings (residential, commercial and industrial) in 1997 (3.82 quads). The economic impacts on consumers ( i.e. , the average life-cycle cost (LCC) savings) are positive. The national NPV of trial standard level of a 1.04 MEF in 2004 and a 1.26 MEF in 2007 is $15.3 billion from 2004-2030 in 1997 dollars. This is the estimated total value of future savings discounted to 1997 minus the estimated increased equipment costs also discounted to 1997. The clothes washer industry net present value (INPV) today is estimated to be $1,452 million. If we adopt trial standard level proposed, we expect manufacturers may lose between 28.6-36.0% of the INPV, which is approximately $411.0-$518.3 million. With the present value of future energy savings for the U.S. of $15.3 billion, this would exceed industry losses due to energy efficiency standards by about 30 times. Additionally, based on our interviews with the five major manufacturers, we do not expect any plant closings or loss of employment because the manufacturers stated that they would stay in business. The proposed standard has significant environmental benefits, reducing greenhouse gas emissions and air pollution. This proposed standard level would result in cumulative greenhouse gas emission reductions of 95.1 million metric tons (Mt) of carbon dioxide (CO 2 equivalent. Additionally, air pollution would be reduced by the elimination of 253.5 thousand metric tons of nitrous oxides (NO X ) and 28.1 thousand metric tons of sulfur dioxide (SO 2 ) from 2004-2030. The NO X reduction are derived from the power sector and household emissions, whereas the SO 2 reductions are derived only from household emission. The proposed standard also saves a significant quantity of water, which amounts to 11.59 trillion gallons through the period 2004-2030. Therefore, DOE has determined that the benefits (energy and water savings, consumer life cycle cost savings, national net present value increase, job creation and emission reductions) to the nation outweigh the burdens (loss of manufacturer net present value and consumer life cycle cost increases for some users of clothes washers). We conclude that the proposed standard of a 1.04 MEF in 2004 and a 1.26 MEF in 2007 is economically justified. Furthermore, DOE has determined this standard level is technologically feasible. Clothes washers reaching this standard level already are commercially available in both V- and H-axis models. II. Introduction A. Consumer Overview The Energy Policy and Conservation Act, as amended, specifies that the Department must consider, for amended standards, those standards that “achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economically justified” and which will “result in significant conservation of energy.” Accordingly, today's proposed rule would be amending the energy conservation standard for residential clothes washers. We are currently establishing a new energy efficiency standard for clothes washers that will amend the standard set in 1994. When today's proposed standards go into effect, they will essentially require more efficient Standard class clothes washers. The efficiency levels can be met by either top or front loading machines. The major stakeholders, including manufacturers and energy efficiency advocates, have jointly submitted a proposed clothes washer efficiency standard to the Department that they both feel is technically feasible and economically justified. The proposed standard would go into effect in two stages. The first stage would begin January 1, 2004, and require that all new residential clothes washers be 22 percent more efficient than today's baseline clothes washer. The second stage would begin January 1, 2007, and require that all new residential clothes washers be 35 percent more efficient than today's baseline clothes washer. The Department has reviewed this proposal and its analyses, and agrees that the standard they proposed is technically feasible and economically justified. The Department therefore proposes to amend the energy conservation standard for Standard class clothes washers for residential applications as recommended in the joint stakeholders proposal and announce a public hearing. As a result of today's proposed rule, clothes water efficiency standard will provide significant energy savings and water savings to the nation. The Department's analyses indicates that the proposed standards would save an estimated 5.52 quads of energy over 27 years (2004 to 2030). That is equivalent to saving enough electricity to light 16 million U.S. homes for 25 years, while cutting greenhouse gas emissions by an amount equal to that produced by three million cars every year. This proposed standard level would result in cumulative greenhouse gas emission reductions of 95.1 million metric tons (Mt) of carbon dioxide (CO 2 ) equivalent. Additionally, air pollution would be reduced by the elimination of 253.5 thousand metric tons of nitrous oxides (NO X ) and 28.1 thousand metric tons of sulfur dioxide (SO 2 ) from 2004 to 2030. The NO X reductions are derived from the power sector and household emissions. The SO 2 reductions are derived only from household emissions and is a result of less home heating oil and LPG being used in oil-fired and LPG-fired water heaters for water heating. 1 DOE is seeking comment on what will be the likely impact of EPA rules, such as its proposed rule to reduce sulfur levels in highway diesel fuel, on home heating oil sulfur levels and household SO 2 emissions. In 2020, the standards will save the amount of electricity generated by 15 large, 400 megawatt, power plants. 2 The standards will save enough water to supply the needs of 6.6 million households for 25 years. The water savings will reach up to 11 trillion gallons, meaning less water needs to be pumped from America's aquifers and rivers, and less strain on many of the nation's overtaxed water and sewer systems. In total, we estimated the net present value (NPV) to the nation of this standard to be $15.3 billion from 2004 to 2030. 1 The Department recognizes that the Environmental Protection Agency is considering regulations which could affect the amount of sulfur in home heating oil. 2 DOE estimates that standards will result in 5 coal-fired and 11 gas-fired power plants avoided. The proposed clothes washer energy efficiency standard will not impact clothes washer features valued by consumers. For instance, consumers will still be able to purchase either a top loading clothes washer or a front loading machine, whichever they prefer. The energy and water savings will result primarily from a variety of design changes, such as higher spin speeds, more efficient use of hot water, more sensitive clothes load technologies, more efficient motors, and the increased use of spray rinse cycles. The Department does not expect the cleaning ability or reliability of washing machines to be compromised by the design changes anticipated under the proposed clothes washer standard. The Department expects the purchase price of the high efficiency clothes washers ( i.e. , 35 percent efficiency increase) to be approximately $200 higher than the average price of clothes washers today. Although the purchase cost is expected to increase, the energy and water efficiency gains will result in lower washer-related energy costs and water costs, saving consumers $30 a year on their utility bills and 18 gallons of water for every load of wash. As such, the life cycle cost analysis estimates that the payback period for the high efficiency machines will be approximately 7 years. In other words, the energy and water cost savings will enable the average consumer to recoup the additional $200 he/she had to spend on the purchase of the high efficiency machine in 7 years through the energy and water cost savings. When these savings are summed over the lifetime of the high efficiency machine, consumers will save $260, on average, compared to today's baseline clothes washing machines. B. Authority Part B of Title III of the Energy Policy and Conservation Act, Pub. L. 94-163, as amended by the National Energy Conservation Policy Act, Pub. L. 95-619, by the National Appliance Energy Conservation Act, Pub. L. 100-12, by the National Appliance Energy Conservation Amendments of 1988, Pub. L. 100-357, and the Energy Policy Act of 1992, Pub. L. 102-486 3 (the Act or EPCA) created the Energy Conservation Program for Consumer Products other than Automobiles. The consumer products subject to this program (often referred to hereafter as “covered products”) include clothes washers. 3 Part B of Title III of the Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act, the National Appliance Energy Conservation Act, the National Appliance Energy Conservation Amendments of 1988, and the Energy Policy Act of 1992, is referred to in this notice as the “Act.” Part B of Title III is codified at 42 U.S.C. 6291 et seq. Part B of Title III of the Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act only, is referred to in this notice as the National Energy Conservation Policy Act. Under the Act, the program consists essentially of three parts: testing, labeling, and Federal energy conservation standards. The Department, in consultation with the National Institute of Standards and Technology, amends or establishes new test procedures for each of the covered products. Section 323. The test procedures measure the energy efficiency, energy use, or estimated annual operating cost of a covered product during a representative average use cycle or period of use. They must not be unduly burdensome to conduct. Section 323(b)(3). A test procedure is not required if DOE determines by rule that one cannot be developed. Section 323(d)(1). Test procedures appear at 10 CFR Part 430, Subpart B. A test procedure promulgated under Section 323 of the Act must be reasonably designed to produce test results which measure energy efficiency, energy use, water use (in the case of shower heads, faucets, water closets and urinals), or estimated annual operating cost of a covered product during a representative average use cycle or period of use, and must not be unduly burdensome to conduct. EPCA, Section 323(b)(3). A test procedure is not required if DOE determines by rule that one cannot be developed. EPCA, Section 323(d)(1). One hundred and eighty days after a test procedure for a product is adopted, no manufacturer may make representations with respect to energy use, efficiency or water use of such product, or the cost of energy consumed by such product, except as reflected in tests conducted according to the DOE procedure. EPCA, Section 323(c)(2). This 180-day period may be extended for up to an additional 180 days if the Secretary determines that the requirements of Section 323(c)(2) would impose undue burden. EPCA, Section 323(c)(3). Section 323(e) of the Act requires DOE to determine to what extent, if any, a proposed test procedure would alter the measured energy efficiency, measured energy use or measured water use of any covered product as determined under the existing test procedure. If DOE determines that an amended test procedure would alter the measured efficiency or measured use of a covered product, DOE is required to amend the applicable energy conservation standard accordingly. EPCA, Section 323(e)(2). The Federal Trade Commission (FTC) prescribes rules governing the labeling of covered products after DOE publishes test procedures. Section 324(a). The FTC labels indicate the annual operating cost for the particular model and the range of estimated annual operating costs for other models of that product. Section 324(c)(1). Disclosure of estimated operating cost is not required if the FTC determines that such disclosure is not likely to assist consumers in making purchasing decisions, or is not economically feasible. In such a case, the FTC must require a different useful measure of energy consumption. Section 324(c). At the present time, there are Federal Trade Commission rules requiring labels for the following products: room air conditioners, furnaces, clothes washers, dishwashers, water heaters, refrigerators, refrigerator-freezers and freezers, central air conditioners and central air conditioning heat pumps, and fluorescent lamp ballasts. The National Appliance Energy Conservation Act of 1987 amended the Act to impose prescriptive standards (design feature requirements) for clothes washers as part of the energy conservation program for consumer products. EPCA, § 325(g), 42 U.S.C. 6295(g). The design feature requirement that clothes washers shall have an unheated rinse option was effective for appliances manufactured on or after January 1, 1988. The Act required the Department to conduct a rulemaking by January 1, 1990, to determine if the above mentioned standards should be amended. The Act provided that any amendment to the standards would apply to products manufactured three years after the rulemaking. The Final Rule was issued on May 14, 1991, and is effective for products manufactured on or after May 14, 1994, (hereinafter referred to as the May 1991 Final Rule) which required top loading compact clothes washers (less than 1.6 cubic feet capacity) to have an energy factor (EF) of 0.90 cubic feet/kilowatt-hours/cycle (cu.ft/Kwh/cycle) and top loading standard clothes washers (1.6 cu. ft. or greater capacity) to have an EF of 1.18 cu. ft./Kwh/cycle). 56 FR 22279. The Act also requires the Department to conduct a subsequent rulemaking no later than five years after the date of publication of the previous final rule. Any new or amended standard must be designed so as to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. Section 325(o)(2)(A). Section 325(o)(2)(B)(i) provides that before DOE determines whether a standard is economically justified, it must first solicit comments on a proposed standard. After reviewing comments on the proposal, DOE must then determine that the benefits of the standard exceed its burdens, based, to the greatest extent practicable, on a weighing of the following seven factors: (1) The economic impact of the standard on the manufacturers and on the consumers; (2) The savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses; (3) The total projected amount of energy, or as applicable, water, savings likely to result directly from the standard; (4) Any lessening of the utility or the performance of the covered products likely to result from 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 standard; (6) The need for national energy and water conservation; and (7) Other factors the Secretary considers relevant. In addition, Section 325(o)(2)(B)(iii), 42 U.S.C. 6295(o)(2)(b)(iii), establishes a rebuttable presumption of economic justification in instances where the Secretary determines that “the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy, and as applicable, water, savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. * * *” The rebuttable presumption test is an alternative path to establishing economic justification. Section 327 of the Act addresses the effect of Federal rules on State laws or regulations concerning testing, labeling, and standards. Generally, all such State laws or regulations are superseded by the Act unless specifically exempted in Section 327. The Department can grant a waiver of preemption in accordance with the procedures and other provisions of Section 327(d) of the Act. 42 U.S.C. 6297(d). C. Background 1. Current Standards The existing clothes washer efficiency standards have been in effect since 1994. Energy efficiency for a clothes washer is measured in terms of an energy factor (EF), which measures overall clothes washer efficiency, in terms of cubic feet per kilowatt-hour per cycle, and is determined by the DOE test procedure. 10 CFR Part 430, Subpart B, Appendix J. The current clothes washer efficiency standards are as follows: • Top loading, compact (less than 1.6 cubic feet capacity), EF = 0.90. • Top loading, standard (1.6 cubic feet or greater capacity), EF = 1.18. • Top loading, semi-automatic, must have an unheated rinse option. • Front loading, must have an unheated rinse option. • Suds saving, must have an unheated rinse option. 2. History of Previous Rulemakings On November 14, 1994 DOE published an Advance Notice of Proposed Rulemaking (ANOPR). 59 FR 56423. On November 19, 1998, DOE published a Supplemental ANOPR. (Hereafter referred to as the 1998 Supplemental ANOPR.) 63 FR 64344. In the 1998 Supplemental ANOPR, we provided interested persons an opportunity to comment on: (1) The product classes that we propose to analyze; (2) The analytical framework, models ( e.g. , the Government Regulatory Impact Model (GRIM)), and tools ( e.g. , a Monte Carlo sampling methodology, and life-cycle-cost (LCC) and national energy savings (NES) spreadsheets) that we plan to use in performing analyses of the impacts of standards; and (3) The results of preliminary analyses for LCC, payback and national energy savings contained in the Preliminary Technical Support Document: Energy Efficiency Standards for Consumer Products: Clothes Washers (TSD) dated October 1998 and summarized in the 1998 Supplemental ANOPR. 3. Process Improvement The fiscal year (FY) 1996 appropriations legislation imposed a moratorium on proposed or final rules for appliance efficiency standards for FY 1996. Public Law 104-134. During the moratorium, the Department examined the appliance standards program and how it was working. Congress advised DOE to correct the standards-setting process and to bring together stakeholders (such as manufacturers and environmentalists) for assistance. We consulted with energy efficiency groups, manufacturers, trade associations, state agencies, utilities and other interested parties to provide input to the process used to develop appliance efficiency standards. As a result, on July 15, 1996, the Department published a Final Rule: Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products (referred to as the Process Rule) (61 FR 36974), codified at 10 CFR Part 430, Subpart C, Appendix A. DOE completed this review and decided to use the Process Rule, to the extent possible, in the development of the revised clothes washer standards. We developed an analytical framework for the clothes washer standards rulemaking for our stakeholders. The analytical framework described the different analyses (e.g., LCC, payback and manufacturing impact analyses (MIA)) to be conducted, the method for conducting them, the use of new LCC and national energy savings (NES) spreadsheets, and the relationship between the various analyses. We have conducted several meetings, workshops and discussions regarding energy efficiency standards for clothes washers. These workshops included discussions on proposed design options and a preliminary engineering analysis on November 15, 1996; development of an analytical framework for appliance standards rulemaking on July 23, 1997; and development of two new spreadsheet tools for LCC and NES on March 11, 1998. We conducted public hearings on December 15, 1998, to receive additional comments on the 1998 Supplemental ANOPR and on July 22, 1999, to discuss the process, analytical tools and uncertainties with the test procedures. In this rulemaking we incorporated the recommendations made by the Advisory Committee on Appliance Energy Efficiency Standards on April 21, 1998. (Advisory Committee, No. 96). These recommendations relate to using the full range of consumer marginal energy prices (CMEP) in the LCC analysis (replacing the use of national average energy prices), defining a range of energy price futures for each fuel used in the economic analyses and defining a range of primary energy conversion factors and associated emission reductions, based on the generation displaced by energy efficiency standards for each rulemaking. We discuss how these recommendations have been incorporated in the discussions on methodology (Section IV). Marginal energy prices are used in the LCC, payback and NES analyses. Because the NES results are inputs to the analyses for utility, emissions and employment; these analyses are also impacted by using marginal rates. 4. Test Procedures Federal test procedures for clothes washers were first established in 1977. Simultaneous with the rulemaking for clothes washer standards, the Department was also in the process of revising the clothes washer test procedure. The Department needed to address a number of innovative technologies for which there were no test procedures. A number of proposals were published, one on December 22, 1993, (58 FR 67710) and another on March 23, 1995. 60 FR 15330. In its comments to the March, 1995 proposed rule, AHAM requested that DOE adopt an additional new test procedure, based on current consumer habits, which would be used in considering the revision of the clothes washer energy conservation standards, and would go into effect upon issuance of standards. On April 22, 1996, the Department issued a supplemental Notice of Proposed Rulemaking proposing such a new test procedure, Appendix J1, as well as certain additional revisions to the currently applicable test procedure in Appendix J to Subpart B of 10 CFR Part 430. 61 FR 17589. The supplemental notice was published to seek comments on whether DOE should adopt the AHAM recommended test procedure with certain changes. The Final Rule, published on August 27, 1997, adopted this recommendation. 62 FR 45484. Appendix J is the current applicable test procedure. Appendix J1 is informational and will not become mandatory until the energy conservation standards of this rule become effective. Appendix J1 includes a modified energy factor (MEF) which replaces the EF. Contrasting with the previous EF (energy factor) descriptor, the MEF descriptor incorporates clothes dryer energy by consideration of the remaining moisture content (RMC) of clothes leaving the clothes washer. Other substantive differences between the test procedures include using different water temperatures for testing and using cloth loads in J1 and not in J. The issuance of the Final Rule was a major step in accelerating the development of clothes washer standards because it provided the basis upon which the energy and water consumption, as well as the manufacturing costs would be submitted. III. General Discussion A. Test Procedure As part of the July 15, 1996, Process Rule (61 FR 36974), we stated that a final modified test procedure would be issued prior to the notice of proposed rulemaking on standards. The process described in this rule provides for greatly enhanced opportunities for public input, improved analytical approaches, and encouragement of consensus-based standards. Section 7, Test Procedures, of the Process Rule provides that modifications in test procedures will be proposed before revised standards are proposed. Today's proposed revisions to the clothes washer test procedures follows the process in the Process Rule in that the Final Rule for test procedures was published on August 27, 1997, with the exception of today's proposed revisions to the test procedure language as recommended by clothes washer manufacturers and energy conservation advocates. (Joint Comment, No. 204) During this standards rulemaking, it was discovered that the test cloth to be used for determining the RMC was giving inconsistent results. Over the approximately 20 year period that the original clothes washer and clothes dryer test procedures have been used, no variations or inconsistency of washer or dryer test results had been attributed to variations in the test cloths. A significant inconsistency in RMC test results under the new Appendix J1 procedure was noted by Alliance Laundry Systems LLC and was brought to the Department of Energy's attention in a letter dated June 7, 1999. (Alliance Laundry Systems, No. 179). In the tests referred to in this letter, which were run at Intertek Testing Services (ITS), the RMC values that were obtained in one machine with two different lots of energy test cloths differed by over 11 percentage points (67.9% versus 56.0%). When these two lots of energy test cloth were run through a second machine, a similar difference in RMC occurred. The effect of RMC on MEF can be substantial, particularly for washers which are more efficient with respect to electrical consumption and use of hot water. The following scenario illustrates: For a high efficiency horizontal axis washer, an 18% increase in RMC (54.5%-64.5%) will result in a 13% decrease in MEF (1.52-1.33). For a lower efficiency washer, a 17% increase in RMC (57.7%-67.7%) will result in only a 6% decrease in MEF (0.82-0.77). The Department investigated possible causes for the inconsistent test results, and results are summarized in the DOE report, “Development of a Standardized Energy Test Cloth for Measuring Remaining Moisture Content in a Residential Clothes Washer,” May 2000. (DOE, No. 200). As part of our investigation into the cause of these discrepancies, we found that various lots of test cloth will yield inconsistent RMC results. To understand the effects of operating variables and cloth specifications, it was necessary to conduct laboratory tests to determine RMC. To insure that test results would not be influenced or biased by any manufacturer's product (clothes washer), we used an extractor to remove moisture content. An extractor is a centrifuge—basically a rotating basket that has a controllable speed to produce a variety of centrifugal forces. The speed was varied to impose different centripetal accelerations on the test load. These accelerations are reported in terms of gravitational acceleration (g). We also soak the cloth in a tub at controlled temperature rather than use the agitated soak cycle provided by a typical washer. The RMC tests closely resembles those specified in the energy test procedure. An extractor based test has been established to examine RMC values at different gravitational forces (g-forces). A correction factor is derived by which the deviation between a new production batch of test cloth and a standard reference test cloth is measured. This deviation is measured as the root mean square between the set of measured RMC values and the set of standard RMC values. If this absolute deviation is below 2%, then no correction factors are needed in MEF tests using that batch of cloth. If the absolute root-mean-square (RMS) difference between the cloth RMC values and standard RMC values is above 2%, then correction factors may be applied when using the cloth to test the MEF of a clothes washer. As part of this rulemaking, we have included revisions to the test procedure based on our proposed language addressed in the May 2000 report dealing with the energy test cloth, RMC, extractor testing and the correction factor and Joint Stakeholders Comment. (Joint Comment No. 204). In addition, we incorporated AHAM's comments and Joint Stakeholders Comment requesting minor editorial changes to help clarify both Appendix J and J1. (AHAM , Nos. 197 and 199, and Joint Comment No. 204). These changes have been included in their entirety in this rulemaking pertaining to the test procedure. B. Technological Feasibility 1. General There are or have been clothes washers in the market at all of the efficiency levels analyzed in today's notice. Therefore, the Department believes all of the efficiency levels discussed in today's notice are technologically feasible. 2. Maximum Technologically Feasible Levels Under the guidelines in the Process Rule, DOE will eliminate from consideration, early in the process, any design option which is not practicable to manufacture, install, or service, will eliminate product utility features or for which there are safety concerns that can not be resolved. In order to conduct the screening analysis, the Department gathers information regarding all current technology options and prototype designs. In consultation with interested parties, the Department develops a list of design options for consideration in the rulemaking. All technologically feasible design options are candidates in this initial assessment. We did not reject any design options from consideration in this rulemaking. The Department considers design options technologically feasible if they are already in use by the respective industry or research has progressed to the development of a working prototype. The Process Rule sets forth a definition of technological feasibility as follows: “Technologies incorporated in commercially available products or in working prototypes will be considered technologically feasible.” 10 CFR 430, Subpart C, Appendix A(4)(a)(4)(I). When we amend or consider new standards, we must consider those that “shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economically justified.” (Section 325 (l)(2)(A)). For this clothes washer rulemaking, the Department determined that a 50% reduction in the energy use of the baseline model (corresponding to an MEF of 1.634) is the maximum technologically feasible level for the Standard class (1.6 ft. 3 or greater capacity). This determination was based on information relative to existing technology options and prototype designs. In consultation with interested parties, the Department developed a list of design options for consideration. All technologically feasible design options were candidates in this initial assessment. Furthermore, the clothes washer rulemaking analysis was originally performed using the design option approach. Using this approach, information was gathered on all possible energy saving design options. The Department gathered design option information from previous clothes washer analyses, trade publications, industry research organizations, product brochures from domestic and foreign manufacturers, and appliance conferences, including the International Appliance Technical Conference (IATC). The “Draft Report on Design Options for Clothes Washers” and “Draft Report on the Preliminary Engineering Analysis for Clothes Washers” provide details on the potential technologies. (Clothes Washer Public Workshop, No. 55B and 55C). 3. Product Classes DOE divides clothes washers into classes based on the size and features, e.g. , suds saving. For the existing standards, DOE defines residential clothes washers in the following classes: • Top loading, compact (less than 1.6 cubic feet capacity); • Top loading, standard (1.6 cubic feet or greater capacity); • Top loading, semi-automatic; • Front loading; and • Suds saving. The Department is proposing to maintain the current definitions for all these product classes. For this rulemaking, the Department is proposing to maintain the current requirements for the Semi-Automatic Top-Loading and Suds Saving classes. In the May 1991 Final Rule, these classes were not subject to minimum energy conservation standards because they represented a small portion of the market, and due to a lack of adequate information to analyze them. The standard for these classes will continue to be “not applicable,” except for the 1988 requirement of an unheated rinse water option. C. Energy Savings 1. Determination of Savings The Department forecasted energy savings through the use of a national energy savings (NES) spreadsheet, which forecasted energy savings over the period of analysis for candidate standards relative to the base case. The Department quantified the energy savings that would be attributable to a standard as the difference in energy consumption between the candidate standards case and the base case. The base case represents the forecast of energy consumption in the absence of amended mandatory efficiency standards. The NES spreadsheet model is described in Section IV.e of this notice, infra , and in Chapters 9 and 10 of the TSD. The NES spreadsheet model first calculates the energy savings in site energy. The energy savings to the nation is expressed in quads, that is, quadrillions of British thermal units (Btus). 2. Significance of Savings Under Section 325(o)(3)(B) of the Act, the Department is prohibited from adopting a standard for a product if that standard would not result in “significant” energy savings. While the term “significant” has never been defined in the Act, the U.S. Court of Appeals, in 768 F.2d 1355, 1373 (D.C. Cir. 1985), concluded that Congressional intent in using the word “significant” was to mean “non-trivial.” D. Rebuttable Presumption The National Appliance Energy Conservation Act established new criteria for determining whether a standard level is economically justified. Section 325(o)(2)(B)(iii) states: “If the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy * * * savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure, there shall be a rebuttable presumption that such standard level is economically justified. A determination by the Secretary that such criterion is not met shall not be taken into consideration in the Secretary's determination of whether a standard is economically justified.” If the increase in initial price of an appliance due to a conservation standard would repay itself to the consumer in energy savings in less than three years, then we presume that such standard is economically justified. 4 This presumption of economic justification can be rebutted upon a proper showing. 4 For this calculation, the Department calculated cost-of-operation based on the DOE test procedures with assumed usage shown in Chapter 7 of the TSD. Consumers that use the clothes washer less will experience a longer payback while those that use them more will have a shorter payback. E. Economic Justification As noted earlier, Section 325(o)(2)(B)(i) of the Act provides seven factors to be evaluated in determining whether a conservation standard is economically justified. 1. Economic Impact on Manufacturers and Consumers The July 1996 Process Improvement Rule established procedures, interpretations and policies to guide the Department in the consideration of new or revised appliance efficiency standards (Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer products). 61 FR 36974 (July 15, 1996). Key objectives of the rule have direct bearing on the implementation of manufacturer impact analyses. First, the Department will utilize an annual cash flow approach in determining the quantitative impacts on manufacturers. This includes a short-term assessment based on the cost and capital requirements during the period between the announcement of a regulation and the time when the regulation comes into effect, and a long-term assessment. Impacts analyzed include industry net present value, cash flows by year, changes in revenue and income, and other measures of impact, as appropriate. Second, the Department will analyze and report the impacts on different types of manufacturers, with particular attention to impacts on small manufacturers. Third, the Department will consider the impact of standards on domestic manufacturer employment, manufacturing capacity, plant closures and loss of capital investment. Finally, the Department will take into account cumulative impacts of different DOE regulations on manufacturers. For consumers, measures of economic impact are the changes in purchase price and annual energy expense. The purchase price and annual energy expense, i.e., life-cycle cost, of each standard level are presented in Chapter 7 of the TSD. Under Section 325 of the Act, the life-cycle cost analysis is a separate factor to be considered in determining economic justification. 2. Life-Cycle Cost (LCC) One measure of the effect of proposed standards on consumers is the change in operating expense as compared to the change in purchase price, both resulting from standards. This is quantified by the difference in the LCC between the baseline and the more efficient technologies for the clothes washers analyzed. The LCC is the sum of the purchase price and the operating expense, including installation and maintenance expenditures, discounted over the lifetime of the appliance. For each clothes washer, we calculated the life-cycle costs for six efficiency levels: 20, 25, 35, 40, and 50% reduction in the energy use of the baseline model. In addition, a two-step standard as proposed by the Joint Stakeholders Comment was analyzed. A distribution of discount rates averaging 6.1% was used in the calculations. The consumer is assumed to purchase a clothes washer in 2004 or 2007 (for step 2 of the Joint Stakeholders Comment). Price forecasts are taken from the 1999 Annual Energy Outlook of the Energy Information Administration (DOE/EIA-0383). Chapter 7 of the TSD contains the details of the life-cycle cost calculations including those considered under factor seven below, infra . 3. Energy Savings While significant conservation of energy is a separate statutory requirement for imposing an energy conservation standard, the Act requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from revised standards. The Department used the NES spreadsheet results, discussed earlier, in its consideration of total projected savings. The savings are provided in Section V of today's notice. 4. Lessening of Utility or Performance of Products This factor cannot be quantified. In establishing classes of products the Department tries to eliminate any degradation of utility or performance in the products under consideration in this rulemaking. An issue of utility that was considered in this rule concerns the consumer utility of V-axis and H-axis machines. We conducted consumer focus groups and a conjoint analysis study to address this issue. 5. Impact of Lessening of Competition It is important to note that this factor has two parts; on the one hand, it assumes that there could be some lessening of competition as a result of standards; and on the other hand, it directs the Attorney General to gauge the impact, if any, of that effect. In order to assist the Attorney General in making such a determination, the Department will provide the Attorney General with copies of this notice and the Technical Support Document for review. 6. Need of the Nation To Conserve Energy Most of the non-monetary benefits of the proposed standard are likely to be reflected in improvements to the environment, rather than in the security or reliability of the Nation's energy system. We report the environmental effects in Section V of today's notice. 7. Other Factors This provision allows the Secretary of Energy, in determining whether a standard is economically justified, to consider any other factors that the Secretary deems to be relevant. Section 325(o)(2)(B)(i)(VI), 42 U.S.C. 6295(o)(2)(B)(i)(VI). Under this factor, we considered the water savings from each standard level. The Department received numerous comments asking for the inclusion of a water factor standard in addition to the MEF standard. (City of Austin, No. 105 at 1; City of Bellingham, Washington, Department of Public Works, No. 106 at 1; Lower Colorado River Authority (LRCA), No. 109 at 1; Amy Vicker and Associates, Inc., No. 110 at 1; City of San Diego, No. 123 at 1; City of Santa Barbara, Public Works Department, No. 125 at 1; City of Seattle, No. 126 at 2; Santa Clara Valley Water District, No. 127 at 1; American Water Works Association, No. 149 at 1; City of Redmond, Office of the Mayor, No. 153 at 1; Massachusetts Water Resources Authority, No. 152 at 4; State of New Mexico, Office of the State Engineer, No. 158 at 1). As stated previously, the Department is considering water savings as a factor in determining the economic justification of the clothes washer standard level. However, the Department does not have the authority to prescribe a minimum water factor standard. Another factor that the Department considered is the life-cycle cost impacts on those subgroups of consumers who, if forced by standards to purchase more efficient washers, would choose to repair their existing machines. IV. Methodology The methodology to be used in this rulemaking was described in the 1998 Supplemental ANOPR and accompanying TSD. In this section we will discuss comments and changes in the methodology. These changes were performed because new data was obtained or in response to comments received after publication of the 1998 Supplemental ANOPR. In general, when information is based on periodic forecasts and surveys such as the Annual Energy Outlook (AEO) forecasts of energy prices and the Residential Energy Consumption Survey, both from the Energy Information Administration (EIA), we try to use the latest available information. The analysis in support of this proposed rule was performed using RECS93 and AEO 1999 data. Just prior to publication of this proposed rule both RECS97 and AEO2000 data became available. Although we do not expect a significant difference in results by updating to RECS97 and AEO2000, we intend to use this updated information for the final rule. We seek comment on the use of the most current RECS and AEO data. A. Product Classes The Supplemental ANOPR contained three proposals regarding clothes washer product classes. The first proposal suggested eliminating the Semi-Automatic Top-Loading, Front-Loading and Suds Saving classes identified in the May 1991 Final Rule. In its second proposal, the Department proposed to increase the compact class to include all clothes washers with a volume less than 2.0 cubic feet. The third proposal was to not establish separate classes for Horizontal and Vertical-axis clothes washers. The Department received no comments on its proposal to eliminate the Semi-Automatic Top-Loading and Suds Saving classes. In the May 1991 Final Rule, these classes were not subject to minimum energy conservation standards because they represented a small portion of the market, and due to a lack of adequate information to analyze them. However, the 1988 standard requiring an unheated rise option is still applicable to these classes. Given the continued absence of information available to analyze these classes and ensure that they could meet the proposed standard levels, the Department is proposing to maintain these product classes but not to subject them to minimum energy conservation standards. However, the unheated rise water option is still applicable to these classes. DOE received several comments regarding changing the definition of the compact clothes washers class maximum capacity, from 1.6 cubic feet to 2.0 cubic feet. Whirlpool believes that this re-definition for the compact class would better reflect the actual product offerings that exist in the marketplace which range from 1.6 to 1.96 cubic feet. (Whirlpool, No. 141 at 3). Amana Appliances is not opposed to the change. (Amana, No. 146 at 1). ACEEE and American Water Works Association (AWWA) also find this proposal acceptable. (ACEEE, No. 150 at 4 and AWWA, No. 149 at 4). Maytag is concerned that a clothes washer at 2.0 cubic feet, if not subjected to the same standard as full size washers will become a relatively larger volume seller. This would result in a reduction in the potential national energy and water savings of the standard and may place some manufacturers that have complied with more stringent standards at a competitive disadvantage. Accordingly, Maytag recommends that the Department develops safeguards as retail market share or product sales volume limits which, if exceeded, would require the product to meet the same energy standards as full-size washers. (Maytag, No. 137 at 4-5). PG&E supported changing the “compact” size to 2.0 cubic feet, up from 1.6 cubic feet under the condition that the “compact” washers are required to at least meet the 25 percent more efficient standard level. (PG&E, No. 189 at 1). We received several comments in support of maintaining the current limit of 1.6 cubic feet for the compact class. (Northwest Energy Efficiency Alliance, No. 131 at 3; the Northwest Power Planning Council, No. 135 at 2; Bosch, No. 142 at 1; and Miele, No. 156 at 1). GEA opposed the change in definition because it believed there is substantial room for these products to increase their efficiency. (GEA, No. 143 at 11). The Oregon Office of Energy commented that the new 2.0 cu. ft. definition puts a significantly greater number of more efficient machines in the compact class. For this reason it will insist that the Department conduct enough of an analysis on this class of products to justify raising the standard for this class. (Oregon, No. 162 at 2). Staber Industries proposed removing tub size as a factor in determining both capacity and energy efficiency and proposed instead classifying washers by loading capacity. (Staber, Nos. 185 and 187). The Department agrees that the increasing the compact class size to 2.0 cu. ft. will increase the number of washers in this class and possibly incorporate products currently already more efficient than compact models of 1.6 cu. ft. The Department has not been provided any information in order to conduct such an analysis. For this notice the Department is maintaining the existing 1.6 cu. ft. definition of the compact product class and given the small size of this market (less than one percent) is proposing not to change the minimum efficiency levels. However given the new test procedure (Appendix J1) and the change in descriptor it is necessary to translate the current standard of EF of 0.9 into an MEF value. Since no mathematical translation is possible, we have estimated this value using engineering calculations and assumptions which are detailed in the TSD. This value is estimated to be an MEF of 0.65. For the Final Rule, the Department will consider changes to the definition and efficiency standards for the top loading compact class. A new definition could have different capacity requirements (such as less than 2.0 cu. ft.) and additional requirements for the maximum external dimensions (such as a width not to exceed 22.5 inches). The Department will also consider any new information on the efficiency of current models under Appendix J1. The Department seeks comment on these issues. The Department's ANOPR proposal to eliminate the Front-Loading product class also received no negative comments. NRDC commented that the existence of a top-loading horizontal-axis washer clearly dispels the notion that the location of a washer's port of access (Top or Front) is synonymous with axis of rotation (Vertical and Horizontal). Amana notes that because of technological differences it would be more appropriate to refer to the current “Front-Loading” and “Top-Loading” product classes as Horizontal-Axis and Vertical-Axis (Amana, No. 146 at 1). Elimination of the Front-Loader class is invariably linked by many comments with the need to establish separate classes for V- and H-axis washers. The Department received numerous comments on the proposal not to establish separate classes for V- and H-axis clothes washers. Comments supportive of the Department's proposal were received from Maytag, Whirlpool, Bosch, Staber, Miele, NRDC, the Alliance to Save Energy, ACEEE, and approximately fifteen state or city agencies and utilities. (Maytag, No. 137 at 2; Whirlpool, No. 141 at 7; Bosch , No. 142 at 1; Staber, Nos. 185 and 187; Miele, No. 156 at 1; NRDC, No. 138 at 5; the Alliance to Save Energy, No. 148 at 2; and ACEEE, No. 150 at 5). GEA, Alliance Laundry and Amana opposed the Department's proposal. GEA commented that the unique characteristic and energy performance of H- and V-axis washers require two-product classes with separate minimum energy efficiency standards for each. H-axis are less convenient and potentially less reliable with different systems or features for loading clothes and adding clothes during the wash cycle, longer cycle times, smaller capacities, more expensive detergents, and availability of deep pre-soak which are important to consumers. (GEA, No. 143 at 2). Alliance Laundry commented that the V- and H-axis product classifications would ignore relevant consumer utility differences and would combine two distinct products which do not compete in the market for energy comparison purposes. (Alliance Laundry, No. 145 at 3). Amana commented that the machines differ in cost/price, utility, energy efficiency, performance, and ergonomics. The integration of these two categories into one will increase rather than decrease confusion in the marketplace with consumers. (Amana, No. 146 at 2). These concerns, DOE believes, are superceded by the Joint Comment in which the same standard was agreed to for V- and H-axis products. The Alliance to Save Energy commented that recent technology development shows that various axis types can meet relatively stringent performance criteria. (Alliance to Save Energy, No. 148 at 2). The Department agrees with this view. Recent product introductions by Whirlpool Corporation and Fisher & Paykel of high-efficiency V-axis washers have positively demonstrated that V-axis designs are available for the same range of efficiencies as H-axis washers. Since both H-axis and V-axis washers can achieve the same range of efficiency, there is no basis for separate efficiency standards based on axis of rotation or orientation of loading. Additionally the existence of a Top Loading horizontal-axis washers dispels the notion that orientation of loading is necessarily associated with efficiency. Therefore, in today's proposal the Department is maintaining the Front Loading product class but is proposing a single efficiency standard for both the Front Loading and the Top Loading, Standard class washers. B. Engineering Analysis The engineering analysis develops cost-efficiency relationships to show the manufacturer costs of achieving increased efficiency. Three methodologies can be used to generate the manufacturing costs needed for the engineering analysis. These methods include: (1) The design-option approach, reporting the incremental costs of adding design options to a baseline model; (2) the efficiency-level approach, reporting relative costs of achieving energy efficiency improvements; and/or (3) the cost-assessment approach which requires a “bottoms-up” manufacturing cost assessment based on a detailed bill of materials. As summarized in the Supplemental ANOPR, the engineering analysis was conducted using the efficiency-level approach. The cost-assessment approach was also used to supplement the efficiency-level approach because of the existence of a proprietary technology for which no data was available. The objective of the manufacturing cost assessment was to quantify the differential manufacturing costs of producing high efficiency clothes washers based on (1) a Whirlpool proprietary V-axis design, and (2) commercially available V- and H-axis designs. C. Life-Cycle Cost (LCC) Analysis The effect of standards on individual consumers includes a change in operating expense (usually decreased) and a change in purchase price (usually increased). The life-cycle cost (LCC) spread sheet is used to analyze the economic impacts of possible standards on individual consumers. This section describes modifications to the LCC spreadsheet model and revisions to data inputs as a result to new data or recommendations from comments received after the publication of the 1998 Supplemental ANOPR. 63 FR 64353 (November 19, 1998). Table 1 summarizes the assumptions used in the LCC analysis for the 1998 Supplemental ANOPR analysis and the changes made for this proposed rule analysis than followed by a written discussion of these changes. Table 1.—Assumptions in the LCC Analysis 1 Parameter Supplemental ANOPR Proposed rule Energy Price average prices marginal prices. Variation in Household Energy Prices, Energy Use, and Water Heater Shares 1993 RECS data Marginal prices derived from 1993 RECS data and adjusted to 1997 prices. Energy Price Projections AEO 1998 reference case to the year 2020, with extrapolations to the year 2030 AEO 1999 reference, high & low cases to the year 2020, with extrapolations to the year 2030; used FEMP methodology for extrapolations. Water and Sewer Prices Urban ($0.00 to $7.84 per 1000 gallons) Ave. price = $3.18 per 1000 gals Urban 0-$7.97. Rural 0-$7.97. Rural (no sewer) 0-$3.53. Individual well 2.61 kWh/1000 gals. Ave. price = $2.48 per 1000 gals. Annual Real Change in Water and Sewer Cost (Water Price Projections) 0 percent Urban = 3.01% (high 5.41%, low 0.53%). Rural = 3.01% (high 5.41%, low 0.53%). Rural with septic = 0.64% (high 2.93%, low −2.89%). Individual well (electricity price escalation). Manufacturer Cost AHAM No change. Manufacturer Mark-ups Min. 1.000 Mean 1.175 Max. 1.350 Distribution: triangular Range: varies with standard level. Distribution: uniform. Retail Mark-up 1.4 No change. Detergent Savings not an input parameter allowed as an input (detergent savings = zero). Discount Rate Distribution (0-15 percent) No change. Lifetime Distribution (12-17 years) No change. Cycles Per Year Distribution from RECS database (207-645) No change. Start Year (Effective Date of Standard) 2003 2004 (and 2007 if a second tier). 1 All prices and costs are shown in 1997 dollars. Energy Prices. For the Supplemental ANOPR the LCC spreadsheet model sampled the individual prices paid by households in the 1993 version of the Residential Energy Consumption Survey (RECS). These prices were updated (scaled up or down based on AEO 1998 national prices) and converted to 1997 dollars. The Advisory Committee recommended DOE use the full range of consumer marginal energy prices instead of national average energy prices. Marginal energy prices are those prices consumers pay (or save) for their last units of energy used (or saved). The Department agreed that marginal energy prices would improve the accuracy of the LCC analysis and estimated marginal rates for electricity and natural gas from the 1993 RECS database. In accordance with the Advisory Committee's recommendation, the Department elected to substitute marginal energy prices for average prices for calculating LCC and NPV. EIA gathered monthly energy bills and energy consumption data for the RECS public use data. It did not gather information on rate schedules, fixed charges, or marginal prices. DOE estimated consumer marginal electricity and natural gas prices directly from household data in the 1993 RECS public use data survey as the change in household monthly energy bills divided by the change in monthly energy consumption for each fuel, referred to as the change in monthly bill method. This provides a precise marginal energy rate based on actual household bills. Households for which marginal energy prices could not be calculated were eliminated, resulting in a reduction of approximately 10% of the households used from the RECS. Although electricity rates were calculated separately for four summer months (June-September) and, separately for winter (October-May) months, unlike other appliances, the usage of clothes washers for summer and winter months is on average, approximately constant. In order to understand and characterize regional variations in pricing and distribution of fuel oil and LPG, we collected information relating to pricing and distribution of fuel oil and LPG. We learned that bills paid by residential consumers for both fuel oil and LPG are essentially volume-driven, with a single block rate. We interpreted the average prices inherent in those bills, as reported in the RECS public use data, as being equivalent to marginal prices for the purposes of the LCC price analysis. A detailed description of the methodology used to determine marginal energy rates is contained in the report entitled “Marginal Energy Prices Final Report, July, 1999,” which can be obtained at the website address: http://www.eren.doe.gov/buildings/codes_standards/applbrf/clwasher.html. As an enhancement to the LCC analysis for the proposed rule, Liquid Petroleum Gas (LPG or propane) was added as a water heater fuel type. Variation in Household Energy Prices, Energy Use, and Water Heater Shares. In addition to determining energy prices RECS data is used to determine the market share, i.e., percentage of water heaters and dryers, that are electric, gas, liquefied petroleum gas (LPG) or oil. The current analysis was based on Residential Energy Consumption Survey 1993 (RECS93) and Annual Energy Outlook 1999 (AEO99). Although demographic information, price and equipment types change from survey to survey, we do not expect that the differences are significant enough to change the outcome of this rulemaking. Energy Price Projections. For the proposed rule, the Annual Energy Outlook 1999 (AEO99) forecasts replaced AEO98 energy price forecasts for electricity, gas and oil. Given the uncertainty of projections of future energy prices, DOE used scenario analysis to examine the robustness of proposed energy efficiency standards under different energy price conditions. The LCC calculations use these scenarios. Each scenario provides a self-consistent projection, integrating energy supply and demand. The scenarios differ from each other in the energy prices that result. The Advisory Committee suggested the use of three scenarios. While many scenarios can be envisioned, specification of three scenarios should be sufficient to bound the range of energy prices. The AEO 1999 reference case provides a well-defined middle scenario. DOE also used AEO fuel price forecasts under assumptions of high and low economic growth. The future trend in energy prices assumed in each of the three scenarios is clearly labeled and accessible in the LCC spreadsheet. The Gas Research Institute (GRI) reference case fuel price forecast is another choice available in the LCC spreadsheet. Stakeholders can easily substitute alternative assumptions in the LCC spreadsheet to examine additional scenarios as needed. Another modification for the proposed rule analysis concerns the extrapolation method used to project the AEO energy prices from 2020 to 2030. (The AEO contains energy prices projections to the year 2020.) For the ANOPR the price of electricity was extrapolated based on the trend of the last five years of the scenario used. For gas and oil, prices values were kept constant from the year at which the extrapolation was necessary. For the proposed rule we are now using the approach EIA uses to forecast fuel prices for the Federal Energy Management Program (FEMP). This was done to be consistent with the rest of the energy forecasting also done by EIA. Water and Sewer Prices. For the Supplemental ANOPR the main source of data on water and sewer prices was from a 1994 survey of water prices in major metropolitan areas by Ernst & Young. The Ernst and Young data was adjusted for service population, base utility charges and average household use by Al Dietemann of Seattle Water. The Department received several comments on this issue. Denver Water suggested replacing the 1994 Rates Study done by Ernst and Young and using the 1998 Raftelis Study. (Denver Water, No. 107 at 20). The American Water Works Association (AWWA) commented that an average water price of $3.18 per thousand gallons as used was too high. (AWWA, No. 108 at 64360). Energy Market and Policy Analysis, Inc. observed that the data was limited to certain metropolitan areas and probably would overstate water and sewer costs in non-metropolitan areas. Therefore, use of the data would probably overstate potential water and sewer cost savings that might be achieved by using a washer that uses less water. (Energy Market and Policy Analysis, Inc., No. 144 at 8). In response to comments received and for the proposed rule analysis, 1998 prices and projected escalation rates were added for rural water and wastewater to the previous estimates for urban customers. The revised analysis, based on the 1998 Raftelis Study, divided water use into categories of urban, rural with water and wastewater utilities, rural with water utility service and septic tank, and individual well with septic tank. The range of prices used for each category is: for urban areas 0-$7.97, rural areas 0-$7.97, rural areas (no sewer) 0-$3.53, individual well 2.61 kWh/1000 gals. The resulting average price is $2.48 per 1,000 gallons. Water Price Projections. As of the time of publication of the Supplemental ANOPR, the Department had found no national level water price forecasts and thus the Supplemental ANOPR assumed that future water prices would remain constant. In the Supplemental ANOPR the Department agreed that future water prices should not be assumed to be constant and described an approach to establish marginal water prices and escalation rates. See Chapter 7 of the TSD for details on how these marginal water prices and escalation rates where determined. At a workshop held on December 15, 1998, DOE detailed its proposal for water prices and escalation rates. Support for this proposal was given by ACEEE, the Oregon Office of Energy, NRDC, the Northwest Energy Efficiency Alliance, PG&E, and the City of Seattle, Seattle Public Utilities. (ACEEE, No. 150 at 1; Oregon Office of Energy, No. 162 at 7; NRDC, No. 138 at 14; Northwest Energy Efficiency Alliance, No. 131 at 2; PG&E, No. 130 at 2; and the City of Seattle, Seattle Public Utilities, No. 126 at 2). In contrast, the Edison Electric Institute (EEI) commented that the escalation rate of 3.1% real will probably overstate the change in water and wastewater prices. (EEI, No. 122 at 6). For the proposed rule, escalation rates were specified for urban and rural water and wastewater customers. The average escalation rates used are: for urban areas, 3.01% (high 5.41%, low 0.53%), rural areas, 3.01% (high 5.41%, low 0.53%), rural areas with septic 0.64% (high 2.93%, low −2.89%). Finally for areas with individual wells, the electricity price escalation rates were used. Manufacturing Cost. The cost data used was provided by manufacturers. It was then compiled and reported to the Department by AHAM as a range of costs at each efficiency level. NRDC observed that the Department's engineering analysis weights incremental costs submitted by AHAM manufacturers by their 1997 market shares. In its opinion the real impact on consumers will be weighted not by 1997 market shares but by the market shares following the introduction of the standards. The argument is based not on a lack of credibility of the AHAM data but on the assumption that the market share of the very expensive machines will go down. As a consequence, NRDC believes the Department should weight the outlier points at the high cost end of the cost distribution curve minimally, if at all, in doing its analysis. (NRDC, No. 138 at 6 and 14). The Department agrees that a wide variation in costs exists in the AHAM data. This variation in incremental costs are driven in part by the variability in cost structures of the various manufacturers (production volume, current technology) and in part by the variability in designs. Additionally, given the lack of experience manufacturing some of these technologies, uncertainty contributes to the range in costs. The Department believes the mean values of the distribution are the most appropriate for consideration in the LCC analysis and will weight analysis results for values surrounding the mean more heavily. However it will continue to incorporate the full range of costs as it represents a probability-weighted distribution of costs based on the full spectrum of possible costs. Manufacturer Mark-ups. In the Preliminary TSD for the ANOPR, the Department used a manufacturer mark-up over the full production costs with a maximum value of 1.35, which maintains industry (manufacturer) cost structure, and a minimum value of 1.00, which represents a pass-through of full production costs. This was modeled as a triangular distribution with a minimum value of 1.00, a most likely value of 1.175, and a maximum value of 1.35. For the proposed rule, a uniform distribution was used. The range of the mark-up is dependent on the standard level and obtained from the GRIM model. Alliance Laundry believes that the low end of 1.00 for the manufacturing mark-up should not be used at all. It commented that history suggests manufacturing mark-up is within the 1.27 to 1.35 range. (Alliance Laundry, No. 164 at 10). The Oregon Office of Energy commented that manufacturer mark-ups are not static over time. Nor are they typically the same for products at the lower end of the product line as they are for the upper end. It further recommended that DOE find a way to model a variable mark-up pattern for each manufacturer—a pattern that is appropriate for each and responsive to market conditions as they evolve. (Oregon Office of Energy, No. 162 at 8). As suggested, the Department worked with each manufacturer to forecast its future mark-ups at the various standards levels factoring anticipated market dynamics. These market dynamics include: the technology status of existing product offerings as it relates to the cost-efficiency relationship; the status of manufacturing technology, including an assessment of conversion and restructuring costs; likely product offerings at each efficiency level ( e.g., V-axis, H-axis), consumer demand for product features and its implications for trade-offs between manufacturing cost and consumer utility; patent restrictions on design options; brand equity; availability of technical and financial resources; manufacturing versus sourcing strategies; and company cost structure and ability to pass on fixed (and sometimes even variable) costs. Individual mark-up forecasts were aggregated to characterize the industry and the resulting range of mark-ups was used in both the industry GRIM and LCC analysis. Retail Mark-up. In the Preliminary TSD for the ANOPR, the Department used a fixed retail mark-up of 1.40, and a fixed mark-up of 1.052 to cover the sales tax. There was no change made for the proposed rule. ACEEE commented that the retail mark-up of 40% is too high. It proposed that the Department use an average retail mark-up based on the last five years of available data. (ACEEE, No. 150 at 4). In response to this comment, the Department did examine more recent data from the same data sources originally used (Dealerscope Merchandising's Annual Statistics Surveys, Bureau of Census—Current Industrial Report (CIR), Bureau of Labor Statistics—Consumer Expenditure Survey (CES), INTELECT—Elrick & Lavidge Computerized Audit Program (ELCAP) price database, AHAM Fact Book) and found no significant cause to alter its earlier estimate. Detergent Savings. In the Supplemental ANOPR we did not include any possible detergent savings into the LCC analysis. The Northwest Power Planning Council, Oregon Office of Energy, ACEEE, Northwest Energy Efficiency Alliance, and PG&E commented that the Department should consider detergent cost savings as a benefit of H-axis clothes washers. (Northwest Power Planning Council, No. 135 at 1; Oregon Office of Energy, No. 162 at 6; ACEEE, No. 150 at 4; Northwest Energy Efficiency Alliance, No. 131 at 2&3; and PG&E, No. 189 at 2). These comments did not have specific recommendations as to appropriate values to use for detergent cost savings in the LCC. Alliance Laundry System LLC commented that detergent cost savings associated with horizontal axis machines are unlikely. In fact, detergent costs may even be higher due to the fact that higher priced specially formulated detergent may have to be used for optimal cleaning performance. (Alliance Laundry, No. 145 at 11). Maytag believes that the detergent and dosage recommended by the detergent manufacturer will produce the best washing performance and that detergent use will not be a significant factor in consumer operating cost savings. (Maytag, No. 137 at 7). The Department believes there is no conclusive evidence that detergent costs will change due to new standards. We believe results of the Bern Study (Bern Clothes Washer Study Final Report; ORNL/M-6382; prepared by Oak Ridge National Laboratory for the U.S. DOE, dated March 1998) do not show any significant difference in cost savings related to detergent use. Patterns of detergent use will change as detergent specially formulated for H-axis machines become more available. In addition, comments by major detergent manufacturers state that savings based on less detergent use will not occur (Procter & Gamble, No. 9 at 1) and using a lessor amount of detergent produced inferior cleaning performance (Lever Brothers, No. 51 at 2). In consideration of the previous evidence detergent savings were not included in the analysis. However, the LCC spread sheet does include the capability to input detergent costs, at the users' option. Cycles per year. The EEI commented that the number of washer cycles appeared to be on the high side, especially for one and two person households. (EEI, No. 122 at 3). The Department used the most current information available to estimate the cycles per year. The Department adjusted the number of cycles per year based on the number of occupants for each RECS household. The cycles per week are based on a Procter and Gamble survey and adjusted using the RECS data, so the overall average cycles per year agree with the test procedure assumption of an overall average of 392 cycles per year. Discount Rate. The LCC spreadsheet uses a distribution for discount rates ranging from 0 to 15%. These represent the variability in financing methods consumers use in purchasing appliances. The average discount rate from this distribution is 6.1% real. Four comments suggested that the discount rate used in the consumer analysis was likely too high. Comments stated that DOE should take into account such factors as: declining bank card rates, the substantial fraction of card users who pay off monthly credit card balances, the substantial number of buyers who use lower-cost credit such as home equity credit lines, and bank card default rates. Future interest rates on credit cards are not expected to rise, so future inflation will yield lower real interest rates. (Alliance to Save Energy, No. 148 at 3; ACEEE, No. 150 at 4; Oregon Office of Energy, No. 162 at 7; and NRDC, No. 138 at 6). Three comments suggested that the discount rate may be too low. (Energy Market and Policy Analysis, Inc., No. 144 at 8; Consumer Alert, No. 155 at 4; and EEI, No. 122 at 6). Opportunity costs are higher and EIA uses higher rates for forecasting residential purchase decisions. DOE policy is to base discount rates on average financing costs (or opportunity cost of reduced savings). In the Process Rule, DOE committed to using real (adjusted for federal taxes) discount rates for residential consumers by considering a range of three different real discount rates: credit card financing rate, a rate based on consumers having substantial savings, and a mid-range rate. The mid-range discount rate will represent DOE's approximation of the average financing cost (or opportunity cost of reduced savings) experienced by typical consumers. Based on the guidelines from the Process Rule, we derived a distribution of discount rates to reflect the variability in financing methods consumers can use in purchasing clothes washers. The real interest rate associated with financing an appliance purchase is a good indicator of the additional costs incurred by consumers who pay a higher first cost, but enjoy future savings, although it is not the only indicator of such costs. While the method used to derive this distribution relies on a number of uncertain assumptions regarding the financing methods used by consumers, DOE believes the resulting distribution of discount rates encompasses the full range of discount rates that are appropriate to consider in evaluating the impacts of standards on consumers ( i.e., values represented by the mid-range financing cost, consumers with no savings, and consumers with substantial savings), as well as all the discount rates that fall between the high and low extreme values. DOE assumes the method of purchase used by consumers is indicative of the source of the funds and the type of financing used, although DOE is not aware of detailed research into this relationship. Whirlpool Corporation indicated that approximately 40% of white goods are purchased in cash, 35% with credit cards, and 25% with retailer loans. (1994 Eight Product Notice of Proposed Rulemaking, 59 FR 10464, March 4, 1994.) Whirlpool also indicated that 25% of appliance purchases are for new homes. However, we know consumers purchase 20% of clothes washers with new homes, i.e., in mortgages, and 80% as replacements for existing clothes washers in separate retail purchases. Consumers pay for retail purchases by cash, credit cards, or loans. In order to derive a full distribution of discount rates, DOE estimated a range of interest rates, based on historical data and judgments of future trends, for different types of consumer savings or financing. For new housing, the estimated nominal mortgage rate ranges from 5-8%, the derived after-tax rate is based on a tax of 28%, and a 2% inflation rate is subtracted from the total. The result is a range of real mortgage rates from 1.60%-3.76%. Example: 5%*(100%-28%)-2%=1.6%. For cash, the minimum interest rate is 0%. This rate applies to consumers making cash purchases without withdrawing from savings accounts or interest bearing checking accounts. For the maximum rate, the opportunity cost is the interest that could have been earned in a savings account or mutual fund. Historic savings rate ranged from 4.5-5.5% from 1970-1986 (real rates of −8.27 to +3.58%). We believe the current maximum is the opportunity cost represented by the interest earned in a typical mutual fund (assumed to be 6% real). DOE selected a real rate of 3% as the mean. DOE assumed the interest rates for retail loans and credit cards have the same range. The minimum credit card rate is 6% real. Introductory rates on some credit cards today are 5.9% nominal, but after the introductory period (often six months), the rate can increase sharply. Maximum rates are more than 20% nominal. However, if the consumer pays with a credit card and the balance is paid in less than the life of the clothes washer, then the effective interest rate is lower than the nominal credit card rate. The current assumption is a range of 6-15% real. Combining the assumed shares of each financing method, the above real interest rates result in a weighted-average (mean) value of 6% and a distribution that varies from 0-15%. Sensitivity studies show that while the LCC results are sensitive to the value chosen for the mean discount rate, the LCC results are not sensitive to the distribution of discount rates. DOE believes the methods described above are valid for establishing a distribution of discount rates relevant to most purchasers of the products covered by this rulemaking. However, the Department acknowledges that different assumptions could be made about likely interest, inflation and marginal tax rates, or about consumer financing methods, and that different approaches to identifying consumer discount rates might also be valid. For example, it is possible to base consumer discount rates on the average real rates of return on consumer investment or other measures of the opportunity costs incurred by consumers who purchase the covered products. DOE does not believe, however, such alternative assumptions or alternative approaches would significantly alter the range of discount rates used by the Department or the conclusions drawn from the LCC analyses conducted using these discount rates. The Department is seeking any information that would support significant alterations in the range or distribution of the discount rates derived from its analysis. Alternatively, DOE is soliciting comment on the possible use of a standardized distribution of discount rates ranging from approximately 4-12%, with a mean of 6%. The use of such a standardized distribution would explicitly recognize the many uncertainties associated with DOE's current analysis and, based on sensitivity analyses already performed by DOE, such a standardized distribution would not significantly alter the conclusions of DOE's life cycle cost analyses. Lifetime. The ANOPR analysis assumes that the period of time a clothes washer will provide service ranges from 12 to 16 years with an average of 14.2 years. One comment asked the Department to explain the assumptions used to determine the lifetime of a clothes washer. Since few consumers who purchase a clothes washer own it for the full lifetime of the appliance, using this value in the LCC may overstate the benefits to the original purchaser. (Energy Market and Policy Analysis, Inc., No. 119 at 4). For the national energy savings, calculating the benefits requires consideration of the full lifetime of the product. In response, DOE believes that the requirements of the statute are to analyze the savings in operating costs throughout the estimated average life of the covered product even if there is more than one owner during this lifetime for the LCC analysis. Start Year. This is the year the new standard is expected to become effective. The Joint Stakeholder Comment proposes a two-step standard in which the first standard level is effective in 2004 and the second high standard level becomes effective in 2007. (Joint Comment No. 204). Maintenance and Repair Costs. The ANOPR analysis assumed no change in maintenance and repair costs as a result of new clothes washer standards. The Department received a comment expressing the need to account for maintenance, repair and warranty costs in the LCC analysis. (Energy Market and Policy Analysis, Inc., No. 119 at 3). Staber Industries also requested that the Department consider maintenance in the LCC analysis since H-axis have no transmissions and it is more reliable than V-axis. (Staber, Nos. 185 and 187). In response, the Department's analysis does not consider changes in the maintenance and repair cost as we do not have any data to indicate the costs to be different for more efficient products for the proposed rule. Request for Comment. DOE requests comments on the LCC analysis, particularly the range of values used as input to the analysis. For example, RECS does not measure usage so we used the Proctor & Gamble survey data for national average usage values and then adjusted those values based on RECS-reported household size. DOE would like comment both on the Proctor & Gamble and RECS data as well as the method DOE used to develop the range of usage. D. Payback Period Analysis The payback period measures the amount of time needed to recover the additional consumer investment in increased efficiency through lower operating costs. The payback period is the ratio of the increase in purchase price to the decrease in annual operating expenditures from replacing the baseline clothes washer with a more efficient washer. We express payback periods in years. Rebuttable Payback. In accordance with EPCA, DOE calculated payback based on the values specified by the DOE test procedure, Appendix J1. This includes the Appendix J1 test procedure assumption of an electric water heater and an electric dryer. Today's amendments to Appendix J1 have no effect on these results. This payback, however, does take into account that a distribution of clothes washer efficiencies exists in the current and future stock. This distribution is approximated by assuming that the efficiency of the stock of washers is a combination of baseline and H-axis efficiency washers. Table 2 shows the changes in assumptions since the ANOPR for the base case. Table 2.—Changes in Rebuttable Payback Assumptions Parameter Supplemental ANOPR Proposed rule H-axis sales 3.0% in 1998 6.25% in 1998. Escalation of H-axis sales 0.5% annual (linear) 0.5% of sales not already H-axis. Changes in assumptions outlined in Table 1 that also apply to rebuttable payback include: • Water price; • Energy price; • Energy and water price escalation only to the year 2004; and • Manufacturer mark-up (average of range is used). Basecase Assumptions. The Department received comments on the assumptions made concerning the existing saturation of higher efficiency washers and their expected increase in sales over time. We received comments stating that we had either overestimated or underestimated the penetration of H-axis washers, and we either overestimated or underestimated the future escalation of H-axis sales. EEI, Whirlpool, NRDC, City of Seattle, Seattle Public Utilities, Alliance Laundry System, Northwest Power Planning Council, ACEEE, and Amana believes that the projections for sale of high efficiency units is too low. (EEI, No. 122 at 3; Whirlpool, No. 141 at 12; NRDC, No. 138 at 8; City of Seattle, Seattle Public Utilities, No. 126 at 2; Alliance Laundry, No. 145 at 20; Northwest Power Planning Council, No. 135 at 1; ACEEE, No. 150 at 7; and Amana, No. 146 at 2). Northwest Energy Efficiency Alliance, Oregon Office of Energy and the Alliance to Save Energy believe DOE overestimated sales in the absence of standards because many incentive programs are ending. (Northwest Energy Efficiency Alliance, No. 131 at 4; Oregon Office of Energy, No. 162 at 2; and Alliance to Save Energy, No.148 at 3-4). Based on additional updated data, we revised the estimated H-axis sales in 1998 from 3.0% to 6.25%. Previously the annual escalation rate of H-axis washer sales market were assumed to capture an additional 0.5% per year of all clothes washer sales but now the annual sales of H-axis clothes washers is determined by an amount equal to 0.5% of the previous year's V-axis sales. Additional sensitivity analyses were performed at escalation rates of 0.25% and 0.75% with minimal effect on rebuttable payback (less than half a year payback difference from the reference case). Base case assumptions are addressed in greater detail in the National Impact Analysis, infra. E. National Impact Analyses The national energy savings is determined in two steps using the integrated NES/Shipments spreadsheet model. First the shipments are determined before and after a new standard; and then the shipments are used to calculate energy savings and national economic benefits (net present value of the higher standards). Chapters 9 and 10 of the TSD contains a detail explanation of the NES/Shipments spreadsheet model. The basic outputs from the National Impact Analysis are shipments forecasts, energy and water consumption, and the Net Present Value (NPV) for baseline and standards scenarios. The shipments forecasts are an input into the National Energy Savings model as well as an input for the Manufacturing Impact Analysis. The cumulative savings for energy and water are determined for the nation to the year 2030. Finally, the net present values (NPVs) are determined for each standard level based average data for the nation. See results in Section V of this notice. 1. National Energy Savings (NES) Spreadsheet Model Historical Background. The development of the NES and shipments model consisted of three phases: (1) Supplemental ANOPR and preliminary TSD analysis, (2) analysis presented at the July 1999 Workshop, and (3) proposed rule and TSD analysis. At the time of the supplemental ANOPR the shipment model was a work in progress. We asked for comment on a general accounting methodology that included price, operating cost and income elasticities. Since the shipments model was not fully developed at the time of the supplemental ANOPR, a placeholder set of shipments were used as input to the NES spreadsheet in order to produce a preliminary analysis on the national impacts. At the July 1999 Workshop, we presented a fully developed shipment model that included a decision tree. The decision tree allows the consumer to choose between not buying a washer, buying a new washer, repairing a washer or buying a used washer. It also allows consumers to decide to replace a washer before it was necessary (see TSD Chapter 9 for details). This model also incorporated results from the consumer conjoint analysis along with fitting parameters to historical data. After presenting this shipment model at the July 1999 Workshop, we received comments regarding specific parameters of the model, sources of data used in the model and whether or not the results forecasted seemed reasonable. We received comments agreeing that the general approach of the Shipment and NES models were appropriate, however, comments included suggestions to modify parts of the models. (Oregon Office of Energy, No. 162 at 8 and ACEEE, No.188 at 3). Details of the Shipment and NES models are discussed in the sections on elasticity below. After the Workshop we carefully looked at the comments and began to make improvements to the model. These improvements included refinements that were not necessarily suggested by stakeholders but were based on using more data and detail. In addition, suggestions contributed by a renowned economist were carefully considered. (Assessment of DOE Shipments Model for Forecasting the Impacts of Clothes Washer Standards, Kenneth Train, Comment No. 194 at 13). After all of the revisions, the shipment model forecasted had significantly different results. The two changes made that had the greatest effect on results were using a longer historical time period to fit forecasting equations to and accounting for new appliance sales due to all changes in residence, not just purchases of new housing. The following section describes the modifications to the NES and Shipment spreadsheets as recommended in comments received after the publication of the 1998 Supplemental ANOPR. 63 FR 64347, 64359 (November 19, 1998). The modifications to the NES Model follows the three phase development from the Supplemental ANOPR analysis to the July 1999 Workshop analysis to the proposed rulemaking analysis. The changes to the Shipment Model as incorporated into the NES are summarized in Table 3. Discussions of these changes and of comments received which prompted these changes are also discussed after the table. Table 3.—Modifications to the NES Model, Including Shipments Model Parameter Supplemental ANOPR July 1999 workshop Proposed rule Shipment Model accounting model recommended—fixed shipment values were used as a placeholder accounting with decision tree accounting with decision tree. Shipment Elasticities price operating cost income (These were used in analysis prior to the Supplemental ANOPR.) price operating savings top/front access feature price. operating savings. top/front access feature. price/income. income. interest rate elasticities. Source of Elasticities In previous analyses the three input variables below were used Price Elasticity (PE) —from Oak Ridge equation Operating Cost (OC) elasticity —derived from implicit discount rate Income Elasticity —from Oak Ridge model (For the ANOPR, a shipment analysis had not been performed yet and shipments were kept constant as a placeholder pending future analysis.) Operating savings —derived from the WashWise Intercept Survey Features elasticity —based on conjoint analysis Price elasticity —with other parameters set, determined by calibrating to 1981-1996 historical data Operating savings —derived from the WashWise Intercept Survey. Features elasticity —based on conjoint analysis. Price elasticity —with other parameters set, determined by calibrating to 1970-1996 historical data. Market Segments new housing starts existing homes (replacement washers) New housing starts early replacement market regular replacement market extra repair market homes without a clothes washer New housing completions & moves. early replacement market. regular replacement market. extra repair market. homes without a clothes washer. Houses that Drop Out of Washer Market not applicable energy accounted for—assumes laundry done at Laundromat or elsewhere energy accounted for—assumes laundry done at Laundromat or elsewhere. Cost of Repairs and Used Washers None The model factored in the price of a new washer into the Replace or buy Used versus buy new decision without subtracting the cost of repairing or buying a used washer Allows input on the cost of repairs and used washers relative to buying a new washer. Changed the net washer price in the Used vs. New decision model and the Replace decision model. The net washer price is the price of a new washer minus the price of either the used washer or the repair, where the used washer and the repair are assumed to scale with new washer price. Residence-Change-Induced Purchase None, however in prior analysis new housing starts were accounted for and this approach was recommended in the Supplemental ANOPR TSD Assumes New Housing Market is determined by net housing increase. Ignores AHAM data on the number of washers purchased due to a change of residence A small market of purchases induced by changes of residence is included. Assumed that new sales from changes in residence are correlated with new housing completions. The volume of sales induced by change of residence is calibrated with AHAM NFO data on washers purchased due to a move. Implied Discount Rate Used in Historical Fit None—consumer discount rate had not been established at this point 75%—from WashWise intercept survey 75%—from WashWise intercept survey. Historical Fit None Historical fit made to 1981 to 1996 period Model projected back to 1951. Fit made to 1970 to 1996 data. Operating Cost Scaling None Assumed operating cost scaled with electricity price changes Disaggregates operating cost and estimates operating cost back to 1951 using Electricity, Gas, Water, Oil, and LPG price indices. Stock Accounting Uses historical sales and saturation data as input to clothes washers household stock accounting due to lack of model estimates prior to 1980 Uses historical sales and saturation data as input to clothes washers household stock accounting due to lack of model estimates prior to 1980 Model is more independent of historical data inputs. It uses model estimates of annual sales as the input into stock accounting after 1951. Housing Start Data Recommended using AEO 1996 Housing Starts Projection Uses AEO 1996 Housing Starts Projection Uses AEO 1999 projections adjusted to reflect housing completions. Initial Stock Assumption Pre-1957 clothes washer stock initialized as zero Pre-1957 clothes washer stock initialized as zero 1951 automatic washer stock initialized at 1.63 million (1950 sales) for one-year age washers decreasing linearly to 1.03 million at 13-year vintage and zero thereafter. Operation Cost Comparison None—no shipments model yet For NES incremental cost from the baseline washer Measured operating cost savings relative to the real operating cost in 1997 of a 1997 base case machine (MEF=0.817) Measures savings in current year relative to a baseline machine (MEF=0.817) with current fuel costs. Fuel Site-to-Source Conversion constant value conversion varies yearly and is generated by EIA's NEMS-BRS 1 program conversion varies yearly and is generated by EIA's NEMS-BRS 1 program. Fuel Prices average from RECS 93 average of marginal prices determined from RECS93 average of marginal prices determined from RECS93. Escalation of Fuel Prices AEO98 AEO98 AEO99. Fuel Price Extrapolation from 2020 to 2030 LBNL method method used by EIA, consistent with new LCC methodology method used by EIA, consistent with new LCC methodology. Water Heater Fuels electricity, gas, oil electricity, gas, oil added LPG. Water & Wastewater Prices urban rates: $3.18 per 1000 gallons average rates: $2.66 per 1000 gallons in 1998 updated average for urban & rural: avg.=$2.48 per 1000 gals. (1998) (see LCC). Water & Wastewater Price Escalation 0% 2.96% an average from LCC—a weighting of 3.01% and 0.64% (see LCC) 2.96% an average from LCC—a weighting of 3.01% and 0.64% (see LCC). Base Case: H-axis Escalation Rates 0.5% 0.5% 0.5%. Base Case: H-axis Sales 3% in 1998 6.25% in 1998 6.25% in 1998. Discount Rate 7% 7% 7%. Manufacturer Mark-ups Min. 1.000 Mean 1.175 Max. 1.350 Distribution: triangular Min. 1.000 Mean 1.175 Max. 1.350 Distribution: triangular Range: varies with standard level. Distribution: uniform. 1 EIA approves use of the names NEMS (National Energy Modeling System) only to describe an AEO version of the model with out any modification to code or data. Since, in this work, there will be some minor code modifications, DOE proposes use of the name NEMS-BRS for the model as used here. Shipments Model. In the Supplemental ANOPR, we examined several different approaches to forecasting washer sales. The investigated models included an Auto-Regressive Moving Average Model (ARIMA), a Multi-Variate Time Series Fit, a Saturation/Lifetime Model, and an Accounting Model with elasticity. Of the different approaches, we selected the Accounting Model because it was the most full-featured model which included price and operating cost elasticities. At the July 1999 Workshop we described the revised accounting model for projecting annual clothes washer shipments. After stakeholder comment the Shipment model was further revised and integrated into a single spreadsheet called the NES/Shipment spreadsheet. It includes the following features: • Combined effects of price, operating cost, and features on annual U.S. shipments • Market segments (e.g., new housing, replacement decisions, non-owner adding a washer) • Decisions to repair rather than replace • Purchases of used washers • Age categories of clothes washers The NES/Shipment spreadsheet now incorporates information from the DOE Consumer Analysis. Since the Supplemental ANOPR, DOE has gathered additional information about features of clothes washers that influence consumers' purchase decisions, and analyzed consumer's stated preferences. This new information also has been calibrated with updated information about historical purchases. Details of the consumer analysis and shipment spreadsheet are explained in Chapters 8 (Consumer Analysis) and 9 (Shipments) of the TSD. Shipment Elasticities. The Department received many comments concerning which elasticities need to be considered in the shipments model. Whirlpool notes that combining the impacts of the purchase behavior of discretionary buyers with the postponement and repair decisions or “forced purchase” consumers, and assuming energy reduction regulation of 35% (a $250 retail price increase), it is reasonable to expect shipment decreases in excess of 10%. (Whirlpool, No. 141 at 10). Amana states that the elasticity of price and sales needs to be considered. (Amana, No. 146 at 3). Both ACEEE and the Alliance to Save Energy stated that the only market for which there is likely to be an elasticity of demand is the early replacement market, since homeowners expect to have access to a clothes washer and will continue to purchase them even if the cost is higher. (ACEEE, No. 150 at 6 and Alliance to Save Energy, No. 148 at 3). The Oregon Office of Energy and ACEEE recommended reconstructing the shipments model without a price-based elasticity variable but including variables for disposable income, credit availability, usable washer capacity, and average washer cleaning ability (Oregon Office of Energy, No. 190 at 11 and ACEEE, No. 188 at 5). In consideration of the comments received, the Department elected to use elasticity values for the following factors: clothes washer price, operating savings, top/front access feature, clothes washer price/income. In addition, income elasticities, and interest rate elasticities were added as input options to the spreadsheet. Details of how elasticities were derived are explained in Chapter 9 (Shipments) of the TSD. Source of Elasticities. After we presented the shipments model at the July 1999 Workshop, we received several comments relating to how the value of elasticities are determined. The Oregon Office of Energy took issue with the methodologies used to derive price elasticities, especially the use of the consumer conjoint analysis. (Oregon Office of Energy, Nos.162 at 8 and No. 190 at 4-9). Several comments also question whether price elasticities derived from past declining prices would apply in a future market of increased prices due to a standard. (ACEEE, No.188 at 3; Oregon Office of Energy, No.190 at 8; and PG&E, No. 189 at 2-3). PG&E also questions the use of the consumer research survey to calibrate elasticity variables. It states that instead of asking questions about a 10-year-old washer, the questions should have been posed for a series of washer ages. It also believes that the likely repair cost of a washer is likely to exceed the $150 value used in the questionnaire. (PG&E, No. 189 at 2). Many enhancements were made to the shipment model to address the stakeholder comments listed above. The purpose of these model enhancements is to provide the best possible estimates of the impacts of standards, consistent with the recent history of washer shipments, clothes washer market structure and consumer preferences. These enhancements are: (1) Calibration of the model over a longer historical period. (2) more detailed and accurate calculation of operating costs and savings (3) inclusion of additional user specified explanatory macroeconomic variables (4) inclusion of consumer responsiveness to price and operating costs as calibrated to historical clothes washer shipments. (5) calibration of the relative size of the features response, and estimation of the rate at which clothes washer owners might drop out of the market using the results from the Clothes Washer Consumer Analysis. (6) use of NFO Research Incorporated data from a 1996 survey (prepared for AHAM) to estimate the proportion of early (discretionary) replacements, and the proportion of new versus used purchases. (7) consideration of AHAM historical shipments and statistics on the recent (post 1994 standard) changes in mean clothes washer efficiency. (8) inclusion of Consumer Reports data on repair rates during the first five years of the clothes washer lifetime. These enhancements are described in more detail below. Market Segments. Shipment models used prior to the supplemental ANOPR accounted for the new clothes washer and the replacement markets which assumed that a washer was replaced by a new machine when it broke down. The new shipment model presented at the July 1999 Workshop provides a more detailed accounting of different market segments, washer ownership categories and accounts for a variety of other market dynamics including new versus used shipments, changes in repair behavior and life extension of machines through extra repairs. Houses That Drop Out of Washer Market. Houses that drop out of the washer market are where the laundry is done at Laundromats or elsewhere and were not accounted for in analyses presented prior to the July 1999 Workshop. One stakeholder commented that the analysis will be incomplete and not useful without an assessment of the used appliance market, and participation in that market on the part of low income consumers. (Oregon Office of Energy, No. 162 at 11). Another comment emphasized that low income consumers will find it increasingly difficult to purchase clothes washers at more stringent standard levels, and may simply not be able to buy a new machine. Thus DOE should expect an increase in used/repaired clothes washer sales and a relative decrease in shipments of new high efficiency models. (Whirlpool, No. 141 at 15). In response to the previous comments, the revised shipments model takes in account the households that drop out of the washer market, and assumes that they wash their clothes at a Laundromat or elsewhere. Cost of Repair and Used Washers. The shipment model presented at the July 1999 Workshop incorporated changes in the prices of new washers, but not changes in the prices of used washers or the price of repairing an existing washer. The Department received a comment which asked that the model incorporate the higher price of used washers and repair services resulting from increased demand as consumers delay the purchase of new washers in response to higher prices. (Assessment of DOE Shipments Model for Forecasting the Impacts of Clothes Washer Standards, Kenneth Train, Comment No. 194 at 13). The proposed rule Shipment/NES model now gives an input option for the cost ratios of repairing a washer and of buying a used washer instead of buying a new washer. This option is now an input in terms of the ratio between these options and buying a new washer. See TSD Chapter 9 on Shipments. Residence-Change-Induced Purchase. The versions of the Shipment model presented at the July 22 Workshop only considered residence changes for those purchasing new housing. The model now includes purchases of washers for change of residences for new and existing housing. This improvement to the model has a significant effect on forecasted shipments. Implied Discount Rate Used in Historical Fit. The implied discount rate is a value that describes how important energy cost savings are to consumers relative to increases in price. This is different from the 7% discount rate used in the analysis that describes the time value of money in order to convert dollar costs and savings (first price and operating savings) to the same year in order to determine the LCC. Ken Train commented that both a 20% implied discount rate which was derived from the conjoint analysis and a 75% implied discount rate which was derived from the WashWise survey are consistent with historical shipments data. (Ken Train, Comment No. 194 at 4 and 13). A lower implied discount rate would place greater value on future operating cost savings and result in a lower drop in shipments as compared to the higher implied discount rate. We agree that several values for the implied discount rate can be used to fit a curve to historical data. We derived an implied discount rate by two methods: (1) The relationship of price and efficiency for current models (based on the engineering analysis) is consistent with an implied discount rate of 50-100%; (2) while stated preference surveys are often unreliable indicators of revealed preferences, we analyzed. We believe the WashWise intercept survey results are a more accurate measurement of the implied discount rate because its sole intent was specific to recent washer purchases, designed to measure price savings and interviewed consumers at the point of purchase. In contrast, the conjoint analysis provided a limited set of choices for implied discount rate and was conducted in a setting removed from purchase decision. See TSD Chapter 9. Both derivations (engineering analysis and WashWise) are consistent with an implied discount rate of 75%. This value is higher than found from studies of other appliances, perhaps in part because consumers are unaware of how much water costs contribute to operating expense. The Department is interested in comments. Historical Fit; Operating Cost Scaling; Stock Accounting; Housing Start Data; Initial Stock Assumption; and Operation Cost Comparison. These parameters were refined, after the July 1999 Workshop, to reflect updated data or longer historical time periods. These changes were not prompted by any specific stakeholder comments. Fuel Site-to-Source Conversion. The Appliance Energy Efficiency Standards Advisory Committee recommended (letter dated April 21, 1998) that we define a range of energy conversion factors and associated emission reductions based on generation displaced by standards. In the supplemental ANOPR, a constant conversion factor was used. EEI commented that the value shown for electric conversion (heat rates) on the NES spreadsheet is overstated by at least 11% because AEO 98 (authored by EIA) assigns the same factor for fossil fuel power plant heat rates to hydro-electric and other renewable forms of electric generation. This results in overstating primary energy savings from reductions in electricity usage. (EEI, No.122 at 7). We have addressed this issue by using a year-by-year conversion rate that is calculated based on displaced generation using NES. Fuel Prices. As discussed in the LCC methodology section, after the supplemental ANOPR, marginal gas and electric prices were used, whereas previously average prices were used. The marginal price is the price paid for the last increment of fuel used. Refer to Section C. Life-Cycle Cost (LCC) Analysis for a description of these changes. Escalation of Fuel Prices. The Alliance to Save Energy, ACEEE and the Oregon Office of Energy believe that assumptions of residential price declines are overstated. (Alliance to Save Energy, No. 148 at 1-2; ACEEE, No. 150 at 4; and Oregon Office of Energy, No. 162 at 6). The Alliance to Save Energy recommends that DOE analyze at least one case with flat residential energy prices. (Alliance to Save Energy, No. 148 at 1-2). ACEEE believes EIA estimates of residential energy price declines remain too high. It cites its April 1998 comments in which it referred to a survey by the Association of Energy Service Professionals of its members projected on average that residential bills will increase 4.9% with restructuring while commercial and industrial bills will decrease an average of 5.8 to 8.6%. Based on this information, ACEEE believes EIA's projections of future residential electricity prices are higher in the 1999 Annual Energy Outlook than in the 1998. ACEEE recommends that DOE conduct a sensitivity analysis with smaller price declines, such as the EIA high use forecast. (ACEEE, No. 150 at 4). Similarly, the Oregon Office of Energy believes residential rates will remain flat or rise somewhat. (Oregon Office of Energy, No.162 at 6). While we generally agree that future energy prices are uncertain, we are relying on the EIA and its forecasts for the analysis. To account for the uncertainty, we hav [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A00-25335. Public record. Not legal advice.